PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: AB3679 ARP/ III-Implementation of SOCAR’s Environmental Strategy and Project Name Large Scale Oil Polluted Land Clean up Public Disclosure Authorized Region EUROPE AND CENTRAL ASIA Sector Oil and gas (100%) Project ID P110682 Borrower(s) GOVERNMENT OF AZERBAIJAN Republic of Azerbaijan Ministry of Finance 83, S.Vurgun str. Azerbaijan AZ 1022 Tel: +994 - 12 596 71 84 Fax: +994- 12 493 05 46 / 493 29 43 Implementing Agency State Oil Company of Azerbaijan (SOCAR) 73 Neftchilar Avenue Public Disclosure Authorized Azerbaijan AZ1000 Tel: +99412 4921789 Fax: +99412 4971167 info@socar.az Environment Category [ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined) Date PID Prepared February 21, 2008 Date of Appraisal March 3, 2008 Authorization Date of Board Approval July 15, 2008
Country and Sector Background Public Disclosure Authorized 1. The Government of Azerbaijan has invited the World Bank to help implement the Environmental State Program (ESP), an ambitious response to the development challenges facing the Absheron Peninsula that surrounds the capital city of Baku—tackling critical environmental risks while liberating land needed for the rapid economic and demographic growth of this essential urban area. Key development issues include the following:
• Continued environmental degradation: The Absheron peninsula is seriously polluted due to nearly 150 years of oil production that has contaminated some 30,000 hectares, 15,000 of which are heavily polluted and of primary environmental concern. Oil production on the peninsula has also affected the Caspian Sea through the discharge of contaminated water; and generated radioactive waste (from natural radio-nuclides). Rapid urban growth and weak management capacity have caused sanitation and solid
Public Disclosure Authorized waste management to deteriorate significantly. Generally, there is a continuing negative impact of inadequate environmental management practices.
• Rapid urban growth and resulting demand for land: Recently many people have migrated to the Absheron Peninsula and its two main cities, Baku and Sumgayit, in search of jobs and opportunities. This rapidly increasing population and the economic revival have created a strong demand for land. Baku is ringed by former oil fields and other polluted sites; urban growth has leapfrogged over these areas and extended literally across the Absheron Peninsula, often with little access to basic infrastructure. Informal settlements are growing in heavily polluted areas, creating a serious health risk. Meanwhile, contaminated land located close to rapidly growing residential and commercial areas has high potential value for redevelopment if it were to be cleaned up.
• Ineffective land management: A comprehensive approach to regional planning, development and capital investments for Greater Baku is lacking. The most recent General Plan, developed in the mid-1970s, covers only a small portion of the current urbanized area and excludes many areas with new settlements that have developed during the past 15 years. Little information exists describing ownership and/or land use for the Absheron Peninsula and available information is usually very outdated. Cleaning up and converting polluted land requires a systematic approach that prioritizes site for rehabilitation. The cost of rehabilitating a site is directly related to its future use. Additionally, the expected future use determines the value of the site and the economic feasibility of its clean up.
2. The Environment State Program (ESP) instituted by the September 28, 2006 Presidential Decree (no. 1697) forms the basis of the proactive response by the Government to this challenge. It details 65 activities and 30 governmental or public stakeholders. It is a comprehensive plan tackling clean up/remediation, hazardous and non-hazardous waste, and forward-looking environmental management through renovating facilities and improving laws and regulations. The Decree makes the Cabinet of Ministers responsible for overall coordination and supervision, and demonstrates high-level commitment that has motivated key ministries and agencies.
3. The proposed Project is part of the Absheron Rehabilitation Program (ARP), a programmatic series of SILs that respond to the Government of Azerbaijan’s request for World Bank support for the ESP. The ARP comprises multiple investments selected from ESP priority activities and agreed with the relevant government agencies. Each of these agencies has been designated by the Cabinet of Ministers as directly responsible for implementation of specific parts of the ESP. The ARP includes the following first phase projects:
• ARP I: Contaminated Sites Rehabilitation Project—includes cleanup activities at two former iodine production sites and a 1,000 ha oil production site. Proposed by the Ministry of Emergency Situations (MES). • ARP II: Integrated Solid Waste Management Project. Proposed by Ministry of Economic Development (MED) • ARP III: Implementation of SOCAR’s Environmental Strategy and Large Scale Oil Polluted Land Cleanup Project. Proposed by the State Oil Company of Azerbaijan Republic (SOCAR)
First phase projects would be followed by a second phase of projects to address more complex investments and are likely to include: (i) Upgradation of Wastewater Treatment for Greater Baku Project (under preparation); (ii) Environmental Policy and Enforcement for the Environment State Program; (iii) Solid Waste II; (iv) Completion of 1,000 ha Clean Up Project; (v) Naturally Occurring Radioactive Materials (NORM) Site Clean Up Project; and (vi) a follow- up project with SOCAR on environmental practices and/or remediation.
Objectives
4. The project overall development objective (PDO) is aimed at improving SOCAR’s (i) capacity in environmental management; (ii) capacity and efficiency in cleaning up of oil polluted land in the Absheron Peninsula and (iii) quality of soil conditions.
5. The proposed key project indicators are: (a) Improvement in SOCAR’s environmental management processes as evidenced by the implementation and execution of SOCAR’s Environmental Strategy; (b) improved SOCAR capacity and efficiency in cleaning up oil- polluted land in the Absheron Peninsular as evidenced by: i) increase in SOCAR annual rate of cleaning up large-scale oil-polluted land, and ii) increase in the percentage of oil-polluted land cleaned by SOCAR, and (c) improved quality of land as evidenced by the percentage of land cleaned for sustainable productive re-use.
Higher level objectives to which the project contributes
6. The ARP series of SILs is part of a broader World Bank approach for cleaning up the environment in Azerbaijan. The ARP supports two pillars of the 2006-10 Country Partnership Strategy: (a) improve environmental management and conditions and (b) support sustainable and balanced growth of the non-oil economy. It amplifies the assistance started under the US$20 million Urgent Environmental Investment Project closed in 2005, which included mercury cleanup and onshore oil field cleanup on the Absheron Peninsula.
7. Bank involvement will also help steer ESP implementation towards a regional development approach to Absheron rehabilitation. This regional development approach starts with a US$5.0 million component of the National Water Supply and Sanitation Project (approved in FY07) that finances preparation of a Regional Development Plan for the Absheron Peninsula. This will help the Government move from the former system of general planning to a flexible, market-based, strategic spatial development approach. Further, each of the projects under the Absheron Rehabilitation Program, as well as the on-going Real Estate Registration Project, and the urban transport project under preparation, points to a specific angle of the land use, ownership and transfer issue. While no single project could tackle constraints that run across many different parts of Government, altogether they are expected to converge and catalyze further policy dialogue on how to address these systemic constraints.
8. On a systemic level, the project will contribute to the development and mainstreaming of a functioning framework of standards and guidelines and practical regulatory implementation and oversight capacities and experience. It will assist SOCAR to develop a wider, strategic vision of the environmental and social performance of its operations beyond addressing environmental liabilities and restituting land to other uses than oil extraction. The project will therefore assist SOCAR audit its environmental regulatory policies and practices against international standards, targeting all relevant departments of SOCAR operations. Specific areas to be audited are SOCAR’s legislative and regulatory framework, production history and current production practices, workers health and safety, application of environmental management systems, and alignment with land management and land use master plans.
9. The project aims to clean up approximately 2,000 ha (lower estimate of 1,000 ha) of the heavily polluted 8,200 ha of land under SOCAR’s direct jurisdiction, which is estimated to take 5 years to accomplish. It is clear that additional equipment beyond the project will be needed to clean up the remaining portion of the polluted land, SOCAR has allocated US$ 600 million for this purpose and has estimated that it will take an additional 10-12 years to clean and remediate all the polluted land under SOCAR’s control. Currently, there is no estimate of the time it will take to clean up land not under SOCAR, this includes land leased by contractors as well as land under Government ownership
Rationale for Bank Involvement
1. Rationale for Bank support for the ESP. Operationalizing the ESP requires strong prioritization, monitoring, and technical assistance to manage the complexity and number of activities. Government plans to complete the ESP by 2010, but realistically the scope of work suggests that it may take much longer. Within these very large needs, the proposed Bank support initially aims to help rapidly implement strategic ESP projects. The focus on practical solutions to tackle the worst environmental issues on the Absheron Peninsula and deliver quick and visible results within a short timeframe should boost Government momentum.
2. Bank involvement will also ensure that international best practice is designed into the investments from the onset. These initial investments will yield Lessons Learned. The investments offer opportunities to test and streamline cleanup technologies, and they include funds to develop these Lessons Learned into the design of scaled-up or more complex cleanup or environmental management investments. Bank-funded preparation of strategic plans for these next investment phases will include a focus on institutional issues, in particular inter-agency ones such as land ownership and transfer issues, that are critical for program sustainability.
3. The proposed Bank-supported technical assistance will help implementing agencies internalize good international environmental and safety practices. Added emphasis on data collection, independent monitoring, public outreach campaigns, adoption of clarified environmental standards and coordinated certification processes will both benefit existing operations and the design of new investments.
4. Specific Rationale for Bank involvement in the Project. Under the ESP, the Cabinet of Ministers designated SOCAR as the implementing agency with the primary responsibility of cleaning up 8,200 hectares of heavily oil-polluted land directly under SOCAR’s control, and another 7,000 hectares which are leased to contractors. The estimated total area for long-term cleanup operations on Absheron is around 30,000 ha. Although SOCAR plans to allocate more than US$600 million for ESP activities from 2006-10, and has created a dedicated joint-venture (EKOL, 51%-owned by SOCAR), current SOCAR technical capacity and experience is insufficient to carry out the ambitious clean up plans. Remediation activities of significant scale on selected sites are underway but are characterized by shortcomings and lack of clarity in design, cleanup goals, standards, works organization, and construction management; low-tech solutions prevail. Consequently, cleanup efficiency and effectiveness have ample room for improvement. Pervasive problems include incomplete decontamination, spread of contaminated material by improper handling, poor practices in workplace health and safety, and lack of clarity about post-cleanup land use.
5. SOCAR’s technical capacity needs to be strengthened through better cleanup technology and equipment; improved operations planning and management; and clarified regulatory framework, cleanup goals, and post-cleanup land development plans. The Bank is ideally positioned to provide this support: it has specific country experience in the oil sector, and recent experience with the completed Urgent Environmental Investment Program (P055155), with a pilot soil cleanup component.
Description
10. This project is the initial step in the planned long-term support by the World Bank to SOCAR in developing and implementing its environmental agenda. It will be achieved through four components: (i) Environmental policy implementation support; (ii) development of a comprehensive clean-up plan for SOCAR’s environmental legacies; (iii) development of technological and managerial capacities by means of a large scale clean up operations; and (iv) provision of reliable benchmarks by establishing independent monitoring and oversight.
11. Under the ESP, SOCAR’s Environment Vice Presidency (VP) will be responsible for project implementation. SOCAR is proactively taking on this mandate and has since undertaken a number of steps to build and improve its own environmental capabilities, to address past environmental liabilities and improve the environmental situation on its concessions and to improve corporate environmental performance. SOCAR has already committed substantial amounts of funds (2007: USD 60 million) to cleanup operations. Structurally SOCAR has reacted to the ESP challenge by creating a new Vice Presidency for Environment. In addition, a new environmental strategy is currently being developed which will have two major pillars – i) remediation and repair of the horrific environmental legacies under SOCAR’s direct responsibility, and ii) the gradual alignment of environmental policy, practice and performance in all of SOCAR’s divisions with international good practice.
12. A key challenge for investment is the cleanup of high priority, “legacy” oil fields from the former Soviet era of oil and gas production, handling, storage, and transport activities. Latest estimates quote 15,000 hectares of highly contaminated areas, of which 8,200 hectares are under direct control by SOCAR and about 7,000 leased to contractors. Large variations in the level of pollution patterns across oil fields in the Absheron Peninsular pose a serious challenge to cleanup efforts. Multiple technologies and appropriate cleaning methods will be explored and applied as part of SOCAR’s remediation strategy. Under this project the core cleanup technology selected for the highly polluted areas will be high-capacity (semi) mobile soil treatment equipment, capable of processing contaminated soils on site, allowing clean soil to be immediately backfilled. Soil washing will also be integrated with a blend of technologies to increase overall clean up capacity. Byproducts such as residual contaminated sludge and spent process water / agents will mostly be re-used, recycled or disposed off-site.
13. COMPONENT A: IMPLEMENTATION STRATEGY FOR SOCAR’S ENVIRONMENTAL POLICY (US$ 2.5 MILLION). This component will finance consultancy services to support SOCAR’s implementation of environmental policy. SOCAR is committed to a long-term environmental strategy under the Environmental State Program. To realize its environmental visions SOCAR is currently formulating and will soon have adopted an environmental policy intended to comply with international good practice. The objective of this component is to support SOCAR with the adaptation and implementation of its environmental policy to establish a set of workable, pragmatic, yet internationally acceptable set of rules and guidelines.
14. Audit of SOCAR’s environmental policies and practice: To achieve this the project will review and assess SOCAR’s environmental policy as well as general corporate environmental due diligence in ongoing operations and production. A comprehensive audit against international standards will be conducted, targeting all relevant departments of SOCAR operations, upstream (production, pipelines) and downstream (refineries, storage, shipping, petroleum chemistry, energy production). Activities under this component will be instrumental in assisting SOCAR to move towards concrete implementation of its environmental policy and to promote development towards internationally acceptable environmental performance.
15. Implementation of SOCAR’s environmental strategy: Based on the Audit results the project will assist SOCAR with implementation and wide application of their environmental policies and strategy. The project will provide clear guidance on how to translate SOCAR’s environmental strategy and related policies into a cleanup master-plan, encompassing the prioritization of cleanup areas, selection of methodologies, design of projects, specification and procurement of technology, equipment and operational plans aimed at economic, environmental, social and technological optimization. The project will address internal organizational issues such as staffing, capacity building and training, and support design, procurement and technical supervision. The component will assist SOCAR’s Ecology Department to promote its vision of environmental issues beyond the remediation of environmental liabilities and towards a comprehensive environmental corporate policy.
16. It will enhance prevention effectiveness measures for the complete cycle of all operations to avoid re-contaminating cleaned up areas where production might be ongoing or not yet phased out. A first concrete large scale implementation case would be the 8,200 ha of contaminated land under SOCAR's control as well as another ca. 7,000 ha leased to Contractors (see Component C). In addition, however not in the context of this project, SOCAR has requested assistance from The World Bank in developing a Carbon Strategy in cooperation with the World Bank’s Carbon Finance Unit that will be addressed during further project preparation and/or implementation.
17. COMPONENT B: DEVELOPMENT OF A COMPREHENSIVE PLAN FOR CLEAN-UP OF OIL POLLUTED LAND IN ABSHERON (US$ 2.0 MILLION). This component will finance consultancy services to support SOCAR in developing a comprehensive plan for cleaning up oil-polluted land. 18. Development of strategy for cleanup of 8,200 ha oil contaminated land: The objective of this component is to enable SOCAR to strategically plan optimized cleanup operations on it’s properties, including choice of technologies, site prioritization, financial and economic planning, cleanup standards and post clean-up land use. On the historical oil fields of Apsheron peninsula multiple contamination patterns and contaminated media present extreme challenges and complexity. Large areas with high hydrocarbon concentrations in soils are also contaminated with rubble, sludge, mazut, oil fractions that range from quasi-solid to paste-like and liquid, contaminated water, household and industrial waste, scrap metal, abandoned and derelict production facilities, buildings, and infrastructure. A cost-effective and efficient remediation strategy must therefore employ multiple methods, often applied to heterogeneous, interlaced contamination patterns with individual spots comprising complex harmonization and sequencing of methods and operations.
19. Establishment of sector-specific environmental standards: This activity aims to replace Soviet-style technology-based contaminant and emissions standards that are identified on a case-by-case basis during project implementation, with risk-based standards that can be applied consistently across the sector. Support would be offered via advisory and analytical services to SOCAR to introduce and apply the risk-based approach to developing and applying remediation standards from a bottom-up project specific perspective in the context of its own remediation operations. Due to the large scale of the cleanup project the standards developed in its context are expected to set the tone and become representative for the sector within Azerbaijan and be adopted into national law / regulations. To facilitate the process of adoption of these pilot standards the Panel of Experts (PoE)1 will closely monitor the development process and approve the resulting outcome.
20. Land use planning and conversion: The objective of this sub-component is that cleanup activities and targets will, wherever possible, be adjusted to post-remediation utilization plans, and be compatible with current land use plans and development strategies, as far as possible. The land use subsequent to cleanup has not been resolved so far and there is a high probability that either cleaned up land will be interlaced with still productive oil fields or that production will continue on some of the cleaned up areas. There are risks of (i) re-contamination of cleaned up parcels by continued poor environmental practices, (ii) over-achieving cleanup activities (cleaner than need be, uneconomical) and (iii) under-achieving cleanup activities (residual contaminations environmentally unsustainable). These risks will be mitigated by introducing risk based land management practices to adjust clean-up goals and target values to subsequent use scenarios, i.e. matching the degree of soil remediation with the environmental sensitivity of post cleanup utilization. To achieve a pragmatic relation of cleanup goals to subsequent land use scenarios, all activities in the Greater Baku and Apsheron area in terms of spatial planning and development of land utilization and zoning will be closely monitored under the project and cooperation and dialogue sought proactively with the State Land Agency as well as affected communities.
1 See Component D 21. COMPONENT C: LARGE SCALE OIL CONTAMINATED LAND CLEAN-UP. SOIL WASHING AND LAND CLEANUP EQUIPMENT (US$ 53 MILLION): This component will finance the purchase of soil washing equipment and technical assistance to SOCAR in cleaning up approximately 1,000 - 2,000 ha of oil-polluted land. The operating cost of the equipment of approximately US$ 80 million will be co-financed by SOCAR directly. The core objective and activity planned under this component is to remove hydrocarbons and associated chemical components (e.g., PAH,2 Phenols) by washing and / or scrubbing with hot water, steam and / or additive detergents and chemical agents. The rationale behind this choice is built on: (i) the fast processing of contaminated soils for immediate reuse of cleaned up lands; (ii) the recycling of cleaned soil by immediately refilling in the same site/location; (iii) reliable results and controllable processes and quality; (iv) short transport distances due to deployment of multiple units directly onto contaminated sites; and (v) reclamation of hydrocarbons from soils for economic re-use and revenue generation.
22. Soil washing first detaches mineral solid soil components from hydrocarbons, and partially washes fine fractions. Second, the washing liquid and fines are separated from the coarser soil fractions, which leave the plant as cleaned soil, typically with minor hydrocarbon concentrations. Common residual concentration values are around 5,000 – 20,000 mg/kg (0.5-2.0 percent, which are typically acceptable limit concentrations to reuse cleaned soils, or soils can undergo a second stage of cleaning by land-farming or off-site bio-remediation in heaps.
23. Auxiliary equipment needed for the soil washing plant may include water treatment systems to return process waters to acceptable levels of hydrocarbon concentrations, process chemicals before their final release into the environment, or to treat accumulated rainwater / groundwater from former oil storage ponds, which frequently is in contact with hydrocarbons and might exceed limit concentrations for release into surface waters or the sea. Recovery equipment is also required for free hydrocarbon phase in ponds, or seeping from saturated soils during excavations. This includes systems to separate free liquid hydrocarbons from water and soil and collect it in secure tanks / storage facilities for further use. Sometimes recovered product can be used as raw material for refineries, other parts may have economic value as alternative fuel (e.g., in cement kilns or waste incinerators), or as bitumen for asphalt production.
24. Suitable alternative cleanup technologies will be employed in accordance with the large scale cleanup strategy (Component B) as complementary remediation methods for areas, soil types, or contamination types unsuitable or uneconomic for soil washing. For the Absheron Peninsula these include land farming, off site bio-remediation in heaps, and separate removal and direct use of heavy bitumen fractions and mazut, e.g., as additive for asphalt production or alternative fuel in the cement industry. Frequently required auxiliary site activities include removing garbage and scrap metal, and demolishing derelict installations, buildings, and foundations, and then fencing and securing these sites against unauthorized access.
25. COMPONENT D: INDEPENDENT MONITORING, COMMUNICATION AND PUBLIC OUTREACH (US$ 2.0 MILLION): This component will finance consultancy services for monitoring and evaluation and public outreach. The objective of this component is to provide
2 Polycyclic Aromatic Hydrocarbons independent monitoring and supervision to the overall operation, promote public awareness and stimulate an informed public debate on the environmental challenges facing SOCAR. A Panel of Experts (PoE) will be established as independent advisory body to provide high-level, independent technical oversight and advice. It will be staffed with 5-8 highly qualified and experienced experts with long-term oil and gas sector experience, recruited from sector-specific enterprises and institutions with a credible ecological track record and capabilities in environmental due diligence, management and compliance monitoring and enforcement. These could include institutions and entities such as international environmental initiatives and associations for the oil and gas sector, national/international industry regulators, oil and gas producers with exemplary environmental performance and environmental NGOs working in the sector.
26. A good public outreach and communication strategy involves civil society in environmental monitoring and policy oversight. Introducing transparency and governance in the crucial areas of environmental management and land rehabilitation will be one of the challenges faced by the project. Within this context, strategic communication and public information become crucial tools to promote environmental governance and to counter institutional resistance to change. Under this component, the project aims to: i) establish a two-way communication process to share knowledge and information about environmental issues (through open and inclusive dialogue, feedback, etc.); ii) establish a systematic process of communication interventions (with specific timeline, responsibility, and resources) to build ownership, create momentum and manage expectations; iii) engage various stakeholder groups within the government, communities in different levels, civil society, parliamentarians, and development partners; and iv) create a knowledge base on environmental information and experiences at national, regional and international levels.
Financing Source: ($m.) Borrower 22 International Bank for Reconstruction and Development 58 Total 80
Implementation
Partnership arrangements
27. The Bank team has initiated a dialogue promoting the “Petroleum and Governance Initiative” (PGI), implemented jointly by the Bank and the Norwegian Agency for Development Cooperation (NORAD). A multi-country survey is planned, which will include Azerbaijan as an example. The Bank project team and SOCAR will cooperate to disseminate information and share results from their respective activities.
Institutional and implementation arrangements
28. Over the past couple of years, SOCAR and EKOL have carried out cleanup activities on a significant scale. In step with project preparation SOCAR has begun shaping a project management team (PMT) by establishing a specialized working group with a staff profile of mainly engineers with strong technical capacity (including EKOL staff) demonstrated during other pilot cleanup operations. During project preparation the working group addressed the following tasks: (a) data procurement, preparation of environmental assessment, (b) development of technical specifications for cleaning equipment, (c) site investigations and field testing, (d) administration / coordination.
29. SOCAR will convert this working group, established for project preparation, into a project management team (PMT) upon project appraisal. The PMT will be embedded in the SOCAR ecology department and most technical personnel will be drawn from SOCAR and EKOL staff. Specialists in FM and procurement familiar with IFC / World Bank requirements and procedures may have to be recruited externally or from other SOCAR departments.
30. A Panel of Experts (PoE) will be established as independent advisory body, comprising Azeri and international members with long-term experience in oil production, management, governance of oil firms; and environmental, social, and regulatory experience. The PoE will provide high-level, independent technical oversight and advice, especially on corporate environmental governance, and Azeri environmental regulations relating to oil extraction and land remediation. The PoE will meet in Baku one to two times per year (potentially six meetings during project lifetime) and will be financed through the Bank loan. The PoE will also certify that the land cleaned meets agreed project standards.
31. The Deputy Prime Minister is responsible for overseeing implementation of the overall Environment State Program. He will head a Steering Committee that will be established before negotiations to enhance coordination among all agencies responsible for implementing ESP activities financed by the World Bank. SOCAR PMT will report to the SOCAR Vice President for Environment and to the Steering Committee on the status of project scheduling and achievement of milestones set out by the ESP
Sustainability
32. The Environmental State program (ESP) provides overall framework and has strong government support. SOCAR is committed to the implementation of the ESP through its own internal environmental program approved by resolution of the President of SOCAR on December 7, 2006, termed "Working Program for implementation of SOCAR related projects under the State Program on Improving the Environmental Situation in Azerbaijan for 2006-2010".
33. Before SOCAR’s current involvement in the ESP, activities in polluted land cleanup began in the early 2000s when the World Bank Environmental Investment program was being implemented. SOCAR has been instrumental in carrying out and scaling up cleanup activities after project closure as evidenced by the continuing operation of the Benagadi soil washing plant and recent remediation activities at Bibi Heybat.
34. SOCAR cleanup activities now have momentum plus close attention and support from top management (SOCAR has a Vice President for Environment). SOCAR has assumed ownership of cleanup operations and is committed to tackling its environmental legacies. 35. Demand for land is high as is the value of clean plots for new construction or other economic uses. Moreover, preliminary economic analysis based on technical parameters described in the Feasibility Study predicted a high rate of return on cleanup operations from the recovery of marketable hydrocarbons (similar in type to ‘heavy crude’), and the value of reclaimed land for development, which should produce a fairly rapid return to investment and create long-term economic sustainability. Furthermore these outcomes provide a strong financial incentive for SOCAR to apply acquired capacity to maximize output, and use it wherever it is technically and financially relevant (see the financial analysis in Section IV below).
36. Sustainability requires a regulatory framework and institutional capacity to oversee and manage environmental due diligence. In the context of land cleanup, Azeri regulations are deficient and authorities lack technical capacity and experience. Intervening to correct this could create standards that are too stringent and unaffordable, or too loose leaving residual contaminations—neither scenario is environmentally sustainable over the long term. Project design will respond to these issues through the following: (a) embed the PMT in SOCAR ecology department and subsidiary EKOL, (b) provide strong TA components for SOCAR to improve corporate environmental performance and practice, (establish TA to strengthen regulatory functions, establish workable land-cleanup standards in Azerbaijan, and build technical capacity for enforcement (e.g. by understanding risk-based standards and project design).
Lessons Learned from Past Operations in the Country/Sector
37. The foremost key lesson is the necessity for SOCAR’s strong ownership and willingness to lead this operation, without which a project of significant scale and sustainability is not possible. SOCAR commitment is evident not only from the ongoing significant cleanup activities, but also by the appointment of a Environment Vice President during project preparation. The team has engaged in an active and constructive dialogue with SOCAR’s environmental VP, the results of which were duly considered in project design and preparation.
38. The Bank has experience in the sector and with oil spill cleanup on Absheron peninsula from the Urgent Environmental Investment Program (UEIP, P055155, completed 2005), which included a component (Component C) on pilot cleanup activities on oil-polluted soil.
39. The UEIP Component C outcomes provided a comprehensive demonstration of site cleanup technologies, tested technical approaches, and provided a basis for cost estimates. The large contaminated site provided a basis for assessing remediation requirements on other sites. Cleanup equipment and infrastructure (pilot scale, capacity ca. 150 m3/day) became the property of SOCAR at the end of the project and are still operating today (at Benagadi oil field).
40. SOCAR and the government used UEIP Component C as a model for preparing their project cleanup strategy; MENR and other key stakeholders provided comments on earlier versions, which were incorporated in the strategy eventually ratified by the Cabinet of Ministers. UEIP was also a catalyst in establishing EKOL and strengthening the SOCAR environmental department. 41. Among the critical lesson learned from UEIP are the following: (a) Extensive cleanup projects require sustainable institutional structures; participation of Azeri regulatory institutions, and clear regulation and enforcement of land ownership and land use planning. (These issues were also identified under ARP.) (b) Capacity building is needed for managerial, not just technical aspects; and (c) Government and implementing agencies must recognize that TA is a useful tool to achieve highly desired outcomes, otherwise TA will be wasted. In the proposed project SOCAR recognizes the limitations of its own technical capacity, therefore substantial TA is included in the project design.
The project will take advantage of analytical work from the “Petroleum and Governance Initiative” (PGI), a joint undertaking of the Bank and the Norwegian Agency for Development Cooperation (NORAD). The PGI has three pillars: Governance, Environment, and Community Development. Its aims to evaluate the degree to which developing countries with upstream oil and gas industries are adopting international environmental good practices; and which elements of environmental management systems (EMS) are priorities for technical assistance programs. Among other outcomes, PGI recommendations will guide Bank assistance with legal, regulatory, contractual, and institutional issues and calibrate future action plans. Although the Azerbaijan project is already underway, PGI results will provide valuable comparators and ideas, especially to establish environmental sustainability in SOCAR operations
Safeguard Policies (including public consultation)
The only Safeguard Policies triggered by the project is OP 4.01, Environmental Assessment because the project entails large capacity equipment, and the cleanup activities will require large scale civil works (excavations, backfilling), transport, construction of temporary roads and infrastructure and the generation of waste, waste water and emissions. However, all negative impacts are expected to be temporary, reversible and locally restricted to the already polluted areas.
The project is not aimed at a specific plot of land, but deals with the procurement of equipment / plant and the development of a business and operational plan to proceed with the cleanup in the technically, environmentally and economically most effective fashion. Moreover, strong TA components will aim at improving environmental management, practice and performance in SOCAR’s extractive operations and link operational activities in the project with another project under ARP, ‘Project IV: Strengthening Environmental Policy and Enforcement for Environment State Program’. As the net impact of the project will be significantly positive a Category ‘B’ classification for Environmental Assessment has been proposed for this project and agreed to by the RSC.
The operational policy on Involuntary Resettlement, OP 4.12 is not triggered. It is recognized that the project will clean up oil-polluted lands on Absheron peninsula, some of which has been encroached upon by recently built settlements; therefore potentially encroachers could need to be relocated. However, that Government of Azerbaijan and SOCAR have agreed that no cleanup activities will be carried out if relocation of encroachers might be necessary. SOCAR has effectively avoided resettlement during past cleanup activities to avoid potential political fallout. Therefore the Policy is not triggered.
The first round of public consultations took place on December 19, 2007; the second round of public consultations took place on February 8, 2008.
Environmental Management Plan (EMP) carried out as a part of Operational Plan will be disclosed by March 04, 2008.
Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP 4.01) [X] [ ] Natural Habitats (OP/BP 4.04) [ ] [X] Pest Management (OP 4.09) [ ] [X] Physical Cultural Resources (OP/BP 4.11) [ ] [X] Involuntary Resettlement (OP/BP 4.12) [ ] [X] Indigenous Peoples (OP/BP 4.10) [ ] [X] Forests (OP/BP 4.36) [ ] [X] Safety of Dams (OP/BP 4.37) [ ] [X] Projects in Disputed Areas (OP/BP 7.60)* [ ] [X] Projects on International Waterways (OP/BP 7.50) [ ] [X]
List of Factual Technical Documents
1. SOCAR Feasibility Study (Development of Clean-up Strategies and Procurement of Plant and Equipment for the Remediation of Oil-polluted Land, Absheron Peninsula, Azerbaijan, 21. Jan. 2008) 2. Environmental Management Framework (EMF) 3. Environmental Management Plan (EMP) 4. Draft Operational Plan
Contact point
Contact: Aniruddha Dasgupta Title: Sr Urban Planner Tel: Fax: Email: [email protected] Location: Jakarta, Indonesia (IBRD)
For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433
* By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties’ claims on the disputed areas Telephone: (202) 458-4500 Fax: (202) 522-1500 Email: [email protected] Web: http://www.worldbank.org/infoshop