Document of The World Bank Public Disclosure Authorized ReportNo. 14495-AL STAFF APPRAISAL REPORT Public Disclosure Authorized DEMOCRATICAND POPULAR REPUBLIC OF ALGERIA INDUSTRIAL POLLUTION CONTROLPROJECT MAY 13, 1996 Public Disclosure Authorized Public Disclosure Authorized Private Sector Development, Finance and Infrastructure Operations Division Maghreb and Iran Department Middle East and North Africa Region CURRENCY Currency Unit: Algerian Dinar (DA) = 100 Centimes (As of January 1996) US $ 1.00 DA 53.70 DA 1.00 = US $ 0.0186 t/y : tons/year m3 : meter cubes I : liter mg : milligram p.g : microgram LIST OF ABBREVIATIONS AND ACRONYMS USED ASMIDAL: Entreprise Nationale des Engrais et Produits Phytosanitaires BAD : Banque Algerienne de Developpement BOD : Biochemical Oxygen Demand CNP : Conseil National de la Planification DGE : Direction Generale de l'Environnement (General Directorate of the Environment) EA : Environmental Assessment ENIP : Entreprise Nationale des Industries Petrochimiques ENSIDER : Entreprise Nationale de Siderurgie EPE : Entreprise Publique Economique ERL : Economic Rehabilitation Loan FDEPE : Fonds de Depollution et de Protection de l'Environnement HCEDD : Haut Conseil de l'Environnement et du Developpement Durable (High Council for the Environment and Sustainable Development) IEW : Inspectorats de l'Environnement de Wilaya (Wilaya Environment Inspectorates) METAP : Mediterranean Environmental Technical Assistance Program MICLE : Ministere de l'lnterieur, des Collectivites Locales, et de l'Environnement MIR : Ministry of Industry and Restructuring MAP : Mono-Ammonium Phosphate MOH Ministry of Health NEAP : National Environment Action Plan NEF : National Environmental Fund NGO Non Governmental Organizations NOx : Nitrogen Oxides NPK : Nitrogen-Phosphate-Potassium PAH : Polyaromatic Hydrocarbons PE : Public Enterprise PHRD : Policy and Human Resources Development Fund PIP : Project Implementation Plan PIU : Project Implementation Unit SGG : Secretariat General of the Government SO2 : Sulfur Dioxide TSP : Total Suspended Particles VOC : Volatile Organic Hydrocarbons WHO : World Health Organization FISCAL YEAR January I - December 31 DEMOCRATIC AND POPULAR REPUBLIC OF ALGERIA INDUSTRIAL POLLUTION CONTROL PROJECT STAFF APPRAISAL REPORT TABLE OF CONTENTS Page No. LOAN AND PROJECT SUMMARY ........................................... i-iv I. BACKGROUND ..... 1... A. Geographic and Economic Context ........ 2 B. Main Problems Affecting the Environment ........ I C. Rationale for Bank Involvement ........ 6 H. THE PROJECT.. 8 A. Project Design Altematives. 8 B. Project Objectives. 8 C. Detailed Project Description. 8 D. Project Costs .10 E. Financing Arrangements .11 I3. PROJECT ORGANIZATION AND IMPLEMENTATION . .12 A. Project Implementation .12 B. Procurement .13 C. Disbursement .15 D. Reports .17 E. Accounts and Audits .17 F. Supervision .17 G. Environmental Impact .18 H. Sustainability .18 IV. PROJECT JUSTIFICATION .. 19 A. General .19 B. Internalization of the Pollution Abatement Cost .19 C. Least-cost Solutions .20 D. Project Benefits ................................................. 20 E. Economic Evaluation ................................ 20 F. Social Impacts ................................ 21 V. THE GOVERNMENT'S PARALLEL PROGRAM IN SKIKDA .22 VI. EXPECTED BENEFITS AND RISKS .22 VII. AGREEMENTS REACHED AND RECOMMENDATION .23 | This report is based on the results of an appraisal mission in May 1995 and was prepared by Messrs. Sherif Arif (Task Manager), Charles Sterling, Hans-Roland Lindgren, and Aziz Bouzaher; and edited by Ms. Michele Detwiler. Mme. Eugenia Marinova, Engy Naguib and Josephine Salang provided invaluable assistance in the preparation of the report. Peer reviewers are Messrs. Anders Haildin (EC4NR) and John Dixon (ENVPE). Mr. A. Amir Al-Khafaji (EMIPI) is the Division Chief; Mr. Daniel Ritchie (MNIDR) is the Country Director and Mr. Kemal DerviS (MNAVP) is the MNA Vice President. IndustrialPollution ControlProject Page No. TABLES Table 2.1: Project Cost Summary.................................... I1........ Table 2.2: Project Financing Plan ................ 12 Table 3.1: Summaryof Proposed ProcurementArrangements .......... ............... 14 Table 3.2: DisbursementPlan ................ 16 Table 3.3: DisbursementSchedule ................ 17 ANNEXES Annex 1: Assessmentof the EnvironmentalSituation in Annaba Annex 2: Policy Letter Annex 3: Descriptionof the First Project Component Annex 4: Detailed Project Costs Estimates Annex 5: Key PeformanceIndicators Annex 6: ImplementationPlan Annex 7: Financial Viability and Internalizationof Costs Annex 8: Health Cost-BenefitAnalysis MAPS IBRD 27060 IBRD 27061 DEMOCRATIC AND POPULAR REPUBLIC OF ALGERIA INDUSTRIAL POLLUTION CONTROL PROJECT STAFF APPRAISAL REPORT Loan and Project Summary Borrower Democratic and Popular Republic of Algeria Implementing Agencies Direction Generale de l'Environnement (DGE) Entreprise Nationale de Siderurgie (ENSIDER) Entreprise Nationale des Engrais et Produits Phytosanitaires (ASMIDAL) Beneficiaries Sector ministries, wilaya environment inspectorates, local government, NGOs, and private and public consulting and industrial firms Loan Amount US$78 million equivalent Terms 17 years, including 5 years of grace at the standard variable interest rate Commitment Fee 0.75 percent on undisbursed loan balances, beginning 60 days after signing, less any waiver On-lending Terms: The Govemment of Algeria (GOA) would on-lend to ENSIDER and ASMIDAL a total amount of US$67.5 million equivalent for up to 10 years including 3 years of grace, at the Bank's standard variable interest rate. ENSIDER and ASMIDAL would bear the foreign exchange risk. Objective The bro4d objective of the project is to assist the Borrower in reducing pollution which causes health problems or serious ecological 'degradation. Its specific objectives are to: (a) strengthen the institutional and legal framework; and (b) initiate a pilot investment program to mitigate pollution in the industrial sector of Annaba, situated in the northeastern region of Annaba. Project Description Strengthening the Institutional and Legal Framework Component (11 percent of project baseline cost) would consist of the following sub-components: (a) Institution Building; Industrial Pollution Control Project (b) Enhancing the Legal and Regulatory Framework; (c) Designing and Implementing a Monitoring and Enforcement System; and (d) Activating the National Environmental Fund. The Pilot Investments Component (89 percent of project baseline costs would be limited to the: (a) Iron and Steel Complex of ENSIDER and would include the reduction of air emissions and treatment and reuse of industrial wastewaters; and (b) Fertilizer Complex of ASMIDAL and would include the reduction of air emissions and industrial discharges, and the closure of the sulfuric and phosphoric acid plants. Benefits The main benefits of this project are reduced environmental degradation and decreased negative public health impact as a result of reduced hazardous emissions to air and water, and leakages from wastes. The institutional and legal component would strengthen the national and local capabilities in the design, monitoring, and enforcement of appropriate policies and regulations. The pilot investments component would contribute substantially to the reduction of hazardous emissions and waste in the northeastern region of Annaba, and improve industrial efficiency through the use of cleaner technology and waste minimization. Risks Restoration of peace in the country would expedite project implementation and enhance Bank supervision. Additional risks are: (a) the institutional complexity of the project; the establishment of a project implementation unit and steering committee and agreement on functions and responsibilities among the different agencies would overcome this risk; and (b) the identified enterprises may not undertake all the pollution abatement measures; the signing of the environmental conventions and the strengthening of the enforcement entities would reduce this risk. Industrial Pollution Control Project iii Estimated Cost Locall Foreignl Total -. --- (US$ Million) - A. Strengthening the Institutional and Legal Framework 1. Institutional Building 1.79 7.70 9.49 112.Legal Framework 0.11 0.20 0.31 3. Monitoring and Enforcement 0.11 0.61 0.72 4. National Environmental Fund 0.23 0.31 0.54 Sub-total A 2.24 8.82 11.06 B. Pilot Investments 1. ASMIDAL 6.92 46.59 53.51 2. ENSIDER 10.06 28.62 38.68 Sub-total B 16.98 75.21 92.19 Total Baseline Costs 19.22 84.03 103.25 Physical Contingencies 1.69 7.48 9.17 Price Contingencies 1.91 3.77 5.68 TOTAL PROJECT COSTS 22.82 95.28 118.10 Financing Plan Local I Foreignl Totalr' U------------(US$million)----------- Bank 3.98 74.02 78.00 GOA 1.76 1.76 Enterprises 17.08 21.26 38.34 Total 22.82 95.28 118.10 a/ The project cost is exclusive of taxesmand duties. Estimated Disbursements Bank Group Fiscal Year ------------------------------ (US$ million)-------------------------- 1997 1998 1999 2000 2001 2002 2003 2004 Annual 1.5 6.0 12.8 18.7 12.5 15.6 7.8 3.1 Cumulative 1.5 7.5 20.3 39.0 51.5 67.1 74.9 78.0 iv Industrial Pollution Control Project Economic Rate of Return Pilot Investments (49 percent for ENSIDER and 29 percent for ASMIDAL) Poverty Category Not Applicable Environmental Rating "BP' Project Identification No. 4960 Maps IBRD 27060 and 27061 DEMOCRATIC AND POPULAR REPUBLIC OF ALGERIA INDUSTRIAL POLLUTION CONTROL PROJECT L BACKGROUND A. Geographic and Economic Context