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Strategic Evaluation of Environment and Risk Prevention – Executive Summary

STRATEGIC EVALUATION ON ENVIRONMENT AND RISK PREVENTION UNDER STRUCTURAL AND COHESION FUNDS FOR THE PERIOD 2007-2013

Contract No. 2005.CE.16.0.AT.016.

National Evaluation Report for Latvia

Executive Summary

Directorate General Regional Policy

A report submitted by

in association with Mrs. Evija Brante Mr. Stijn Vermoote ELLE ECOLAS nv Skolas street 10-8 Lange Nieuwstraat 43, Riga, LV-1010 2000 Antwerp Estonia Belgium TEL +371 724.24.11 TEL +32/3/233.07.03 [email protected] [email protected]

Date: November 10th, 2006

GHK Brussels Rue de la Sablonnière, 25 B-1000 Brussels Tel: +32 (0)2 275 0100; Fax : +32 (2) 2750109

GHK London 526 Fulham London, United Kingdom SW6 5NR Tel: +44 20 7471 8000; Fax: +44 20 7736 0784 www.ghkint.com

GHK, ECOLAS, IEEP, CE 1 EXECUTIVE SUMMARY – ENVIRONMENTAL INVESTMENT PRIORITIES IN LATVIA

1.1 PART 1: CURRENT SITUATION 1.1.1 State of the environment supply Available resources from the deep are abundant, with up to 4% of the resource currently being consumed, the total daily consumption being 1,4 million m³ of water. Water use in Latvia during 1990 – 2002 has decreased more than two times. Appropriate is being provided for only around 40% of the population. Most inhabitants in urban areas are provided with access to the centralised network, however, much of this network is in bad technical condition and consumers may receive water of lower quality than that achieved by treatment. The availability of a centralised water supply and wastewater varies from town to town. In towns with a population above 10.000 it typically reaches 80-95% and 70-85% of the population for water supply and wastewater, respectively. In towns with a population below 10.000 it typically reaches 50-85% and 30-75% of the population for water supply and wastewater, respectively.

Waste Whole territory of Latvia is classified as sensitive area for the UWWTD. Out of 71 agglomerations that have a STP: 7 have a WWTP in place that complies with the UWWTD standards; 64 have a WWTP that is not fully compliant. Most of wastewater treatment plants do not have adequate sludge treatment. The most common final disposal routes for sludge are: agriculture and compost. 71 % of the population is connected to the sewer system (almost all connected to a WWTP). By the end of 2008, Latvia will finish improvements to the waste water collection and drinking water supply systems in the largest with a population equivalent above 100 000.

Municipal solid waste Waste is one of the main environmental problems in Latvia. The main problems related to waste are the large number of waste dumps not complying with requirements, uncontrolled and illegal dumping of waste outside the territories of waste dumps, and lack of a inventory. Also, the systems for the management of and for separated waste collection and of packaging have not been established. 600.000 to 700.000 tons of municipal waste is produced in Latvia annually. Approximately one half of this quantity can be regarded as biodegradable municipal waste. Management of municipal waste within administrative territories is the responsibility of . The majority of collected municipal waste and other types of waste are buried in dump sites without pre-treatment. Approximately 40% of collected waste is buried at the Getliņi landfill site situated in the Riga district.

Renewable energy The technical potential of small hydropower stations is between 28-35 MW (78 GWh).The technical potential for wind energy production has been estimated at 1.000

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GWh/year and it represents about 2000 MW of wind technical or economical potential. Wood is the most extensively and common local energy source used for heat generation. The potential quantity of biogas produced in Latvia is estimated at 170 mln. m³ per year. Since 2002, according to the Latvian Legislation a quota system for renewable is in force. The Latvian Renewable Energy Strategy 2006 – 2016 is still under development.

Natural risk management The territory affected by has to be determined in territorial plans (made by municipalities). Mainly territories at estuaries of and along the Daugava , Lielupe River, Venta River and Gauja River are endangered by flooding. Risk of forest fire mainly exists during May – September depending on the amount of . Forest fire is mainly initiated by visitors of forests. 361 forest fires are registered in 2005. Affected areas were 108.028 ha. Drought is not an issue in Latvia. Latvia has not made a prioritisation of national hazards. The priorities may differ from district to district. It is done on local or regional level usually as part of local planning.

1.1.2 State of implementation of the acquis Latvia has implemented the acquis in all areas of environment policy. Horizontal legislation is in place and is in line with the acquis on strategic environmental impact assessment. In the air quality sector, legislation is in place. In the waste management sector, legislation is in place. In the area of legislation is in place and is in line with the acquis. Regarding urban wastewater and drinking water, transitional arrangements until 31 December 2015, with intermediate targets, have been agreed. More information can be found in Chapter 2.

1.1.3 State and history of environmental expenditure Following tables provide an overview of the environmental expenditures made during the last 3 years (2004-2006):

Table 0-1: Funding for development of the environmental protection infrastructure, million euro. 2004 2005 2006 Water system – investments in infrastructure funding 23,82 30,13 147,77 State budget 1,07 16,20 10,55 Own funds 13,18 17,56 15,21 Total 38,07 63,89 173,53 Waste management - investments in infrastructure European Union funding 8,90 8,69 9,80 State budget 3,69 1,94 1,93 Own funds 4,07 2,85 3,27 Total 16,66 13,48 15,00

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Table 0-2: Funds available to Latvia from the European Union Funds for funding of environmental protection measures, million euro. 2004. 2005. 2006. Fund Cohesion fund 92,86 77,14 77,14 European Regional Development Fund * 14,41 20,57 21,86

1.1.4 State, history and lessons of funding The informative report of the Ministry of Finance „On readiness of Latvia for absorption of the European Union’s financial resources” on the process of implementation of activities under the Single Programming Document indicates that the absorption of the European Union’s financial resources proceeds successfully in Latvia. Some good and bad example lessons from the previous programming period are following: Practice lessons on water supply and waste water treatment The first water infrastructure projects were launched in Riga, Daugavpils and Liepaja at the beginning of 1990s, through the development of separate management and investment plants. For the period 1996-2002 €151million was invested in these cities. The Helsinki Commission (HELCOM) Baltic Sea Joint Comprehensive Environmental Action Programme identified these cities as priority “hot spots” because insufficiently treated municipal wastewater was being discharged to the Gulf of Riga and the Baltic Sea, resulting in considerable . The next comprehensive group of projects were the investment projects undertaken to improve drinking water quality and wastewater effluent standards in agglomerations with population from PE 2000 to 100 000 (excluding Liepāja). The most successful projects were Ventspils, Kuldīga and Talsi Water management projects.

Practice lessons on municipal waste treatment One of the first Municipal waste management projects in Latvia was the creation of a municipal waste management system in North Vidzeme covering four administrative districts: Valmiera, Limbaži, Valka and Cēsis. The project was realised during the period 1998 – 2006. The territory was chosen for the following reasons: • income level in the territory is about the average income level in the state; • there are no big cities in the region requiring their own independent MWM system (density of population is not so high and the produced amount of waste not so large as, for example, in Riga); • there already existed some cooperation among local governments in waste management in the territory, and the attitude towards improvement in environmental protection was positive; • The Gauja National , a biosphere reservation of North Vidzeme, is located in the territory, so it was possible to make a major investment in the protection of the above mentioned nature objects.

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The goal of the project was to eliminate the existing legal and illegal 72 dump sites in the North Vidzeme region, to create a new type of modern solid municipal waste landfill, as as to introduce a system of waste collection and management, comprising Cēsis, Limbaži, Valka and Valmiera Districts. Up to now, the landfill “Daibe” has been build and the supply of equipment has been completed and 12 dump sites have been recultivated (as planned). It is planned that the rest dumpsites will be recultivated with the financial support from ERDF fund or municipal resources. Waste management projects, which are/were financed under Cohesion Fund are integrated plans for waste management and contains different elements including the construction of regional landfills, the establishment of separate waste collection points and the recultivation of all old dumpsites located in each solid waste management region. Unfortunately ISPA projects for 2001 did not completely include these elements. Due to the insufficiency of financial resources received by the municipalities from the Natural Resources , rehabilitation of many historically polluted territories has not been carried out. Rehabilitation of historically polluted territories is included as a priority for co-financing from the Cohesion Fund in 2004-2006.

GHK, ECOLAS, IEEP, CE 4 Strategic Evaluation of Environment and Risk Prevention – Executive Summary

1.2 PART 2: NEEDS FOR 2007-2013 1.2.1 Investment Needs In general, a lack of current availability of solid based financial investment plans in the environmental sector on a national level is encountered. Water supply The following policy objective for the drinking water sector has been identified: Supplying high quality drinking water, complying with the requirements of the EU directive 98/83/EC on the Quality of Water Intended for Human Consumption, to 95% inhabitants in settlements according to the following schedule: • With a population > 100 000 until 31.12.2008 • With a population 10 – 100 000 until 31.12.2011 • With a population under 10 000 until 31.12.2015 We can assume that the present level of water use of about 100 lts/inh/day is expected to remain at the same level. The connection rate has to be augmented from 71 up to 95%. There is a serious need for improvement of the existing drinking water network, because it affects drinking water quality at the tap. Waste water treatment In most of the settlements in Latvia, wastewater collection and treatment are not provided in appropriate quality and in accordance to the environmental requirements. The poor condition of the sewage networks creates leakages and the collected may pollute groundwater (especially of shallow ), and thus creating a danger for microbiological contamination. All together, in the wastewater sector 39 projects are planned to be implemented during the time period from 2006 –2015. Municipal solid waste Investments are needed both for waste collection, composting and final disposal. The largest part of the investment need covers the establishment of new landfills and the remediation of the old existing landfills. The efficacy of the investments would benefit from the regionalisation of the waste management system. Renewable energy The Ministry of Economics of Latvia formulated national statement for development of the energy sector during 2006 – 2016. These are now being discussed internally. 49.3% of total consumed energy has to be produced from renewable energy sources by 2010. Targets are as follows: • total capacity of cogeneration power plans operated with biomass and biogas should be 70-80 MWel • wind energy capacity should reach 135 MW • reasonable development of small hydropower stations Natural risk management At the moment discussion among 3 ministries (Environment, Agriculture and Interior Affairs) takes place to agree which Ministry is responsible for environmental risks. Detailed up to date information could therefore not been provided centrally. Forest fires and floods should be considered as important natural risks in Latvia. These risks are not recognised as of national importance at the national level as institutions of

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various levels are involved. The State Forest Service are planning and implementing measures to reduce or avoid forest fire risk. Municipalities, that are located in floodplains or that might be affected by floods, plan and organise measures to reduce risk of flooding and plan and estimate the related costs and ways of financing. Municipalities may receive co-funding from the state budget. However each case is considered individually.

1.2.2 Summary of investment needs A summary of the indicative investment needs including an indication of the allocation of the investment needs per field and an overview of the key indicators per field requiring further of new investments are presented in the following tables:

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Table 0-3: Financial estimate needs requiring further planning and/or investment in 2007 – 2013

Needs requiring investment in 2007 - 2013 WATER WASTE WATER WASTE RES NATURAL HAZARDS Indicative Expert 879 Meuro 1.325 Meuro 540 Meuro - 5 Meuro (*) level of judgment investment for the Field Official 123 Meuro - 340 Meuro 73 Meuro - (Meuro): estimates

Indicative examples of the For the period 2007-2013 : For the period 2007-2013 : For the period 2007-2013 Solid biomass and biogas Forest fire prevention types of investment a) Local and long distance a) New STPs: 420 Meuro; :1 co-generation plants 73 measures needed (expert judgment): drinking water network b) Renovation and a) waste collection : 63 Meuro in period 2007- (new and renovation : 803 upgrading of STPs: 123 Meuro; 2013 Meuro Meuro; b) waste sorting 0 Meuro; b) Renovation of existing c) New sewerage: 220 c) recovery : 14 Meuro; DW production plants : 76 Meuro d) New landfills : 99 Meuro; Meuro d) Renovation and e) Remediations of old upgrading of sewerage : landfills : 364 Meuro; 549 Meuro Key data gaps: Physical investment needs No information on unit No information on unit No information on No central information not clearly stated in official investment costs; no investment costs; more physical needs, no what so ever: risk estimates; “official” estimates of total explanation needed on information on unit assessment, physical or Not enough relevant investment need investment need for investment costs, financial needs information on unit remediation and closure investment needs are investment cost. of old landfills; only very rough estimates (*) this is merely a very rough estimate (best guess) of maximal European funding to be envisaged, based on past period. There is no information to motivate a more specific investment need.

1 National evaluator’s estimate

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Table 0-4: Key indicators: Needs requiring further planning and/or investment in 2007 – 2013

WATER WASTE WATER WASTE RES NATURAL HAZARDS

Future needs 60 % of long distance and local By 2015 : 59 new STPs 12 regional landfills to be RES 49,3 % by 2010 316 forest fires in 2005; requiring planning drinking water network to be for a capacity of 1,9 mio built affecting 108.028 ha and/or investment renovated PE in 2007 – 2013 – Current connection rate of 71 % to By 2015 : non- 573 landfills to be Total capacity of co- indicating the type be raised to 95 % by the end of compliant STPs to be remediated generation plants and physical 2015; mainly in smaller upgraded for a capacity (biomass-biogas) requirement (eg no agglomerations of 1,17 mio PE around 70-80 MWe by of population to be 2010 connected, or Improvement of 18 existing DW By 2015 : 637 km of 4-8 sorting facilities per Wind energy capacity number of plant to production plants new sewers region to be organised 135 Mw by 2010 be built / upgraded or capacity to be Currently only 40 % of the 1.592 km of sewers to Reasonable installed) population receives good quality be rehabilitated development of small drinking water hydropower stations

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1.2.3 Issues reducing the amount of needed investments Alternative Funding Sources Existing or planned ways of supporting investment to meet needs through for example market support measures (such as guaranteed prices for renewables): In Field 4 (renewable energy), according to the Law on Energy, the Public Utilities Commission has to stipulate use of renewable resources in electricity supply. There are no direct legal obligations to purchase supply from renewable resources. The extent to which the type of investment needed has previously been funded by the MS; and/or is already part of nationally funded plans; and/or is considered to be a MS responsibility:

Field 1 (water supply): The main financing sources in the pre-accession period have been Phare and ISPA. For the period 2004-2006 the continuation of the development of appropriate water services in these urban agglomerations has been implemented through the projects financed from Cohesion Fund. Hence Latvia has been relying heavily on EU funding and this dependency will continue in the next programming period.

Field 2 (water treatment): The investments in the sector are completely driven by the requirements of the UWWTD and relying heavily on European funding. By the end of 2008 Latvia will finish improvements to the waste water collection and drinking water supply systems in the largest cities with a population equivalent above 100 000. By the end of 2015, the requirements of Directive 91/271/EEC will be introduced in all Latvian cities and towns with a population equivalent above 2.000 as well as full implementation of the Directive 98/83/EC ensured. These transition periods were absolutely necessary due to the high investment need for compliance with the UWWTD. Local funds (state budget, municipalities) are only enough to provide some co-funding and also user charges do not provide additional room for investment.

Field 3 (municipal solid waste): The main investment need regards the building of regional landfills and the closure of existing landfills for municipal waste. The municipalities, responsible for waste management, do not possess by far the means to organise this. State budget can partly be envisaged as co-funding possibility. Hence, also in the previous planning period, investments have been primarily funded by EU sources (ISPA, structural funds).

Field 4 (renewable energy): No information available on state budgets for RES.

Field 5 (natural risk management): Flooding issues are covered by municipalities, in some cases co-financed by state budget.

Use of Flanking Measures The current application of user charges and the associated revenue at current rates in the given fields over the period 2007-2013: Fields 1 and 2: The municipalities are responsible for providing water supply and wastewater treatment as well as municipal waste collection services. Herewith they are responsible for setting tariffs. There is no unified approach across municipalities to tariffs to different user groups, i.e. households, institutions and industries. Tariffs differ considerably from town to town, and a benchmarking study for water supply and

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wastewater treatment is apparently under way. The costs covered are the operation and maintenance cost. Capital costs are at present generally not covered by prices of the services but by donor grants and government subsidies.

Field 3: The payment for waste management services must not exceed 1% of an average household income (these requirements do not apply to the industry). These charges are probably not even enough to cover operational costs requiring compensation by general municipal budgets. The scope to raise additional revenue through higher rates of existing charges or from new charges where none yet exist to contribute to the financing requirement: Fields 1-2-3: The rise in tariffs is always economically and politically very sensitive issue. The tariffs have to be approved by national or regional regulatory body. Prior approval proposed tariffs are subject for a public hearing during which the proponent may present arguments and calculations behind.

Fields 1 and 2: The short-term investment program is limited by an assessment of the tariffs that can be afforded in each particular town. The payment for water and wastewater services must not exceed 4% of an average household income. These tariffs should under the present economical circumstances not exceed about LVL 0,70/0,80 per cubic meter for water supply and waste water management (together); while current levels are already up to 0,55 LVL per cubic meter. Hence the scope to raise additional revenue is quite limited and will probably only cover rising operation and maintenance cost, not providing room for investment costs.

Field 3: Waste management in Latvia is currently shifting from municipal, local scale to regional scale. The consequences are that the local dumpsites will be recultivated and regional landfills, complying with the Landfill Directive, will be constructed. For the inhabitants the waste collection tariffs will increase in accordance with the Polluters Pays Principle taking into account increased costs for waste disposal and larger waste transportation distances and unlike current practise in some municipalities, inhabitants will pay directly for the waste management services provided. Taking this into account, the rising charges will not create investment room. The potential use of flanking measures and the likely effect on the need for investment, qualitatively (eg small, medium, large) and quantitatively (as a share of the indicative investment needed): In Latvia, it is assumed that PPP has to increase the capacity to absorb funding by making tendering procedure more efficient and transparent. A study to identify a specific economy sectors in which PPP is likely to emerge is foreseen to be carried out.

Fields 1 and 2: In the water sector, private investments are currently used for individual connections to the centralised water and sewerage systems, including the installation of meters. Other forms of public–private partnership could be considered at a later date, including privatisation of the municipal water utilities and waste enterprises. Hence, actually the use of PPP’s seems to raise limited effect on investment need.

Field 1: the current unit water demand is already quite low (100 l/inh.day), hence extra sensibilisation to reduce water demand will have limited effect on investment need, and furthermore the investment need is related to drinking water quality and not the extension of the drinking water production capacity.

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Field 3: The use of private companies for collection, transportation and recycling of household solid waste by municipalities is becoming more common. There seems to be however no proof of private investment and/or PPP-structures that would reduce the infrastructure investment need as stated higher.

Fields 1-2-3: The efficiency gains from the introduction of private sector participation could be significant – reducing water losses, increasing bill collection, improving the environment etc. – and the Government should consider introducing private operators now who can eventually invest in the sector once enabling conditions are in place.

Field 4: Investments in wind power and small hydropower seem to be made by private investments; hence no need in EU funding should be envisaged in these types of RES.

Institutional and absorptive capacity Fields 1-2-3: Considering the experiences of the past planning period, the absorbability is considered as very good and hence not limiting the investment flow in Latvia. The calculated investment needs for the next programming period are however significant larger and will therefore represent a much larger pressure on the overall absorption capacity. Fields 1 and 2: there is a shift of investment from larger to smaller agglomerations, both for water supply and water treatment. This will affect the absorbability and project pipeline preparation, establishing a greater need for technical and project assistance.

Field 3: there is a huge investment need for remediation of small landfills. For this type of projects, considering the limited technical capacity of municipalities and the randomness of the problem, the absorbability of the funding and the project pipeline preparation could be considered as a potential field of danger. On the other hand, this problem could be solved by the “regional shift” currently ongoing. Solid waste management in Latvia is currently the full responsibility of municipalities. It is their task to provide waste management services for inhabitants in their administrative area. After the implementation of the regional municipal solid waste management projects and the construction of the regional landfill, in which all the municipalities of the region will take part, the situation will change. Then there will be one solid waste management company responsible for the disposal of waste. The regional municipalities, in proportion to the number of inhabitants, will own shares of the company.

Fields 4 and 5: In these fields there are no past period experiences to “predict” absorbability issues. In both cases, only limited funding would be suggested, limiting the effect of any absorbability problem.

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1.2.4 Net Remaining potentially absorbable investment needs The estimation of the net remaining potentially absorbable investment needs taking into account the information provided in 1.2.2. and 1.2.3., is presented in following table:

Table 1-5: Estimate of the financial requirement for all fields, 2007-2013

Stage in the Field Assessment Field 1 Field 2 Field 3 Field 4 Field 5 Water Waste Waste RES Risk supply Water

A: Indicative Total Investment Needs (Meuro) 879 1.325 540 73 5

B: Investments likely to be covered by market schemes (eg purchasing of 0 0 0 0 0 renewables)

C: Amount recovered from existing user Will Not Will only Will only 0 charges not included in investment need maximally specified cover cover D: Further amount that could be cover O&M O&M Not recovered from higher rates for existing or O&M 0 costs costs specified new charges to fund investment costs

E: Financing Requirement Before 879 1.325 540 73 5 Absorption Review (A-B-C-D) (Meuro)

F: Absorptive Capacity (% of Financing 70% 70% 70% 100% 100% Requirement (E))

G: Financing Requirement After 615 928 378 73 5 Absorption Review (Meuro)

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1.3 PART 3: PRIORITIES 1.3.1 Financial requirement This table gives a) the financial requirement (absolute and relative) for all 5 fields, as determined in the table above and b) the absolute and relative funding (European Commission (ISPA + PHARE) + State budget) in the previous programming period.

Table 1-6: Overview of funding in past period and total financial need estimated in next planning period

Field 1 Field 2 Field 3 Field 4 Field 5 TOTAL DWS WW MSW RES RISK Past period funding (2000-2006) in Meuro 76 219 44 0 2 342 Past period funding (2000-2006) in % 22% 64% 13% 0% 1%

Total financial need (2007-2013) in Meuro 615 928 378 73 5 1.999 Total financial need (2007-2013) in % 31% 46% 19% 4% 0,3%

Remark: it was difficult to divide the past period funding between field 1 and field 2 as it were mostly mixed project (assumption of 25 % field 1 and 75 % field 2 funding was taken).

This table already indicates the following: • The total need is substantially larger than the past period funding; • The relative need in the “traditional acquis compliance” fields 1-2-3 remains the same as in the past funding period; • The issues in field 4 and field 5 do not seem to have national importance; as for both fields national plans and investment needs are not available; hence the estimates of the total financial need have a high uncertainty range; • Presented financial needs are based on estimates made on limited information and should therefore be interpreted in terms of orders of magnitude

1.3.2 Indicative suggestion of the allocation of resources It is likely that the total financial need (as given higher up) will be substantially higher than the available structural funds, necessitating a priority assessment in allocation across the fields. We could consider three scenarios: • Scenario 1: The available amount is divided relative to the needs; • Scenario 2. More weight is given to compliance with the Acquis; • Scenario 3: More weight is given to Regional Development. Although much more (intermediate) scenarios are possible, these three scenarios, further concretised, would give already an idea about the consequences of priority setting on allocation of funds across the fields. Combining the three scenarios above, the following range of allocations can be expected:

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Table 1-7: Expected range of allocations, 2007-2013

Field 1 Field 2 Field 3 Field 4 Field 5 TOTAL DWS WW MSW RES RISK minimum allocation (%) 32% 44% 16% 2% 0,1% maximum allocation (%) 36% 48% 17% 3% 0,2% allocation range (%) 32-36 44-48 16-17 2-3 0,1-0,2

The following conclusions are proposed: • There is a huge investment need in the water sector (field 1 and 2); o for the waste water projects this is more or less an anticipated continuation of the previous programming period; although a downscaling of the projects is predicted (smaller agglomerations) hence establishing (i) a greater need for capacity building and (ii) the need to combine projects into groups (e.g. water projects in the same river basin, regional waste management areas). o For the water supply projects; the problem of renovation and new extension of the network should not be underestimated; especially because it is affecting the drinking water quality at the tap; • The % allocation in the municipal waste sector (field 3) should be continued; landfilling (new and remediation) is in this sector the large investment issue; • In contradiction with other countries, field 5 (natural risks) seems not to be considered in Latvia as a nationally important issue; at the moment there is no evidence that the small contribution (forest fire prevention measures) from the past programming period should be significantly raised; • A minor % contribution can go to RES-projects (field 4), where is there is especially a great potential for solid biomass and biogass co-generation. There are however still a lot of question marks regarding the total financial need and the possible funding mechanisms; which should be cleared out first.

1.3.3 What are the priorities? Field 1: water supply Focus should lie upon improvement of drinking water quality. Main funding is aimed at the extension demand and the reconstruction demand of the . The current network status is responsible for the bad quality at the tap, not the unsatisfactory quality of . Funding should not go to extension of capacity, as existing capacity is enough to meet demand. or production facilities. Field 2: waste water treatment The type of projects to be funded will be mostly a continuation of the previous funding period: new STP’s and improvement of existing STP’s including sludge treatment, new sewer network especially in rural areas. It is to be expected that in the coming period, the scale of the projects will decrease (smaller agglomerations needing adequate water water treatment), hence establishing a greater need for capacity building. This is also valid for field 1 and field 3.

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But also replacement of the existing sewer network should be covered as existing or additional user charges will not provide investment funding possibilities. Field 3: municipal solid waste There is a clear parallel with field 2. The type of projects to be funded will also be mostly a continuation of the previous funding period. Emphasis will lie on waste management systems, including composting, recycling, sorting, disposal. The biggest financial need goes to disposal (new landfills and remediation of existing landfills). As the scale of the projects will decrease (smaller agglomerations) there will be a greater need for technical capacity building. Field 4: renewable energy RES priorities are first of all a function of physical possibilities for renewable energy. This would emphasize the need for relatively more funding of biomass and biogass cogeneration projects. Small hydropower plants are to be covered by private initiative, and are often opposed to (environmental impact). Field 5: natural risk management Forest fire prevention measures are currently seen as the only issue requiring EU funding.

1.3.4 Why are they priorities? Compliance with the acquis The financial need regarding field 1 (water supply) is in essence acquis driven as investments are primarily for improving drinking water quality.

In the fields of waste water (field 2) and municipal solid waste (field 3), projects are very much “acquis driven” and the acquis even dominates the timing (larger projects first).

Consistency between environmental and other policies and priorities Field 4 (renewable energy): It is obvious that these investments contribute to the Policy. Also regional development is seen to be promoted by investment e.g. in biomass. Field 5 (natural risk management): Only anti-forest fire measures are proposed. They have limited consistency with and benefits for other policies.

Regional development benefits Investments in environmental and energy infrastructure, including heat supply infrastructure, must be made to ensure substantial improvements in the coverage, quality, cost efficiency and sustainability of the services provided. In addition to the need to implement the EU legislative requirements and objectives pertaining to environmental protection, it is important to secure that investments increase the economic attractiveness of specific geographical areas to investors and visitors, as well as provide adequate quality of life for communities in these areas.

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1.3.5 Priorities that were not seen as such by the National authorities but should be All fields: in all fields there is clear lack of capacity building. In some cases, there will be more need for technical capacity building (e.g. local municipalities – waste water management), but in other case the need will have a more institutional character (e.g. RES-issues, risks). More information is given above. Field 1: There is a large investment need for improvement of the existing supply network, as it is affecting the water quality at the tap. Field 3: The recultivation of smaller, old landfills is a very important issue and seems to be underestimated by national plans.

1.3.6 Important flanking measures to encourage efficiency and effectiveness. Existing and possible augmentation of user charges are not possible flanking measures due to affordability issues. The Latvian government should explore more the possibilities of PPP and consider this issue as a possible reduction mechanism for the financial need on environmental investment. Sensibilisation towards households has to be promoted especially towards reduction of household waste production. Current water use is already quite low (in comparison with the European average) not providing a flanking measure possibility.

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1.4 PART 4: KEY ISSUES AND QUESTIONS FOR THE NEGOTIATIONS Field 1: Only a total investment cost of about 123 MEUR is defined in the official national estimate. There is no explanation provided about what is included in this cost. Based on the indicated physical needs and the default unit cost, the investment cost for each sub-domain of this field has been calculated. The default unit costs are reliable because they are in the range of the available indicated Latvian unit costs. The total calculated investment cost amounts to 879 MEUR and is significantly higher than the total cost indicated in the official national programme. The calculated need for the renovation construction and new extensions of the network alone is already 803 MEUR. It seems that the required investments for the renovation and new network have been underestimated in official plans (although this is a crucial element as the bad network conditions are influencing the drinking water quality at the tap).

Fields 1-2-3: Due to the downscaling of the projects in the next planning period, problems concerning technical capacity and absorbability at municipalities and other local beneficiaries should be anticipated by the central government by asking funding for capacity building, project pipeline support and know-how exchange; especially for field 3. What additional measures will the MS take to tackle this problem?

Fields 1 and 2: Is there no need for “consolidation of the water market”, by which is meant that the large number of “municipal water companies” should be regrouped on regional level, to promote stability and effectiveness?

Fields 1-2-3: The Latvian government should explore more the possibilities of PPP and consider this issue as a possible reduction mechanism for the financial need on environmental investment.

Field 3: Project team’s calculations and the national estimates differ mostly in investments on closure and remediation of old landfills (87,5MEUR versus 364 MEUR). This could be partly the result of an overestimation of unit costs, and answers should be provided by the Latvian Government.

Fields 4 and 5: There are still a lot of question marks regarding the physical need, total financial need and the possible funding mechanisms (e.g. feed-in tariffs, etc.); which should be cleared out first, before allocating funds to a certain type of RES or natural risk. At the moment, only very limited funding into field 4-5 can be motivated due to lack of solid information; unless the MS can fill this data gap. This limited funding seems to be best spent into solid biomass-biogas (field 4) and forest fires (field 5).

GHK, ECOLAS, IEEP, CE 17