The Hague19 April 2013

© European Bank for Reconstruction and Development 2010 | www.ebrd.com

EU Environmental Norms and Third Countries: The EU as a Global Role Model

The European Principles for the Environment – EBRD Experience

Dr Dariusz PrasekDr Dariusz PrasekDirector, Project AppraisalDirector, Project Appraisal

Environment and Sustainability DepartmentEnvironment and Sustainability DepartmentEuropean Bank for Reconstruction and DevelopmentEuropean Bank for Reconstruction and Development

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Agenda

Introduction – Key facts about EBRD

EBRD and the European Principles for the Environment

Key challenges in implementing EU environmental standards in non-EU Member States

Practical approach in structuring projects to achieve EU standards

Q&A discussion

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What is the EBRD?

International financial institution, promotes transition to market economies in 34 countries from central Europe to central Asia

In 2011, the Bank expanded its operations to include Egypt, Morocco, Tunisia, and Jordan (Southern and Eastern Mediterranean – SEMED region)

Owned by 64 countries and twointer-governmental institutions

Capital base of €30 billion* Cumulative commitments of €78.9bn

Note: Unaudited as at 30 December 2012

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EBRD: Shareholding Structure and AAA Rating

Others11.3%

USA10.1%

Japan8.6%

EU 27

Countries(1)

62.7%EBRD region

excluding EU(2)

7.3%

As at 13th July 2012

Footnotes(1) Includes European Community and European Investment Bank (EIB) each at 3%. Among other EU countries: France, Germany, Italy, and the UK each holds 8.6%

(2) Russia at 4%

Shareholding Structure

EBRD has a AAA rating from all three main rating agencies (S&P, Moody’s and Fitch)

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The EBRD and its objectives

Your engaged partner

Operates in “business time”

Private sector focused

Wide product, currency, tenor range

Facilitates inward and cross border investments in the region

Promotes policy dialogue with regards to investment climate business environment and policy matter

AAA rating profitable, commercial focus

To promote transition to market economies by investing mainly in the private sector

To mobilise significant foreign direct investment

To support privatisation, restructuring and better municipal services to improve people’s lives

To encourage environmentally sound and sustainable development

The EBRD is Objectives:

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EBRD’s objectives achieved through financing the private sector

AAA/Aaa rated multilateral development bank

Invested over €78.9 billion in more than 3,644 projects since 1991

As at end December 2012:

– €8.9 billion invested in 393 projects

– Private sector accounted for 80% share

– Debt 83% & Equity 12%

Note: Provisional data as at 30 December 2012

€ billion

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EBRD finances diverse range of enterprises

Cumulative commitments €78.9bnUnaudited as at 30 December 2012

Agribusiness9%

Manufacturing & Services

10%Information &

Communication Technologies

2%

Property & Tourism

3%

Equity Funds 5%

Financial Institutions

26%

Municipal & Env Inf7%

Transport16%

Natural Resources7%

Power & Energy14%

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Where we operate

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Bank’s Founding Agreement commits EBRD to:

“... promote, in the full range of its activities, environmentally sound and sustainable development.”

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Environmental and Social Policy

The Environmental and Social Policy commits the Bank to promote European Union environmental standards as well as the European Principles for the Environment (EPE), to which the Bank is a signatory

The EPE commitment are reflected in PR1, 2, 3, 4 and 10

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Environmental and Social Policy and Performance Requirements

PR 1 - Environmental and Social Appraisal and Management

PR 2 - Labour and Working Conditions

PR 3 - Pollution Prevention and Abatement

PR 4 - Community Health, Safety and Security

PR 5 - Involuntary Resettlement and Displacement

PR 6 - Biodiversity Conservation and Sustainable Natural Resource Management

PR 7 - Indigenous Peoples

PR 8 - Cultural Heritage

PR 9 - Financial Intermediaries

PR 10 - Information Disclosure and Stakeholder Engagement

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PR 3: Pollution Prevention and Abatement

Compliance with EU and national environmental requirements

Pollution prevention & resource efficiency

EU environmental standards can be applied at the project level where the EU legislative document contains clear quantitative or qualitative requirements that are applicable at the facility level (e.g. based on use of BAT, taking into consideration the technical characteristics, geographical location and local environmental conditions)

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Key Drivers for Clients to Adopt EU Standards

• Compliance with EU regulations demonstrates Best Practice and therefore opens alternative routes to finance;

• Export markets for ETC country products are more accessible when companies can demonstrate that they operate to standards that the markets understand;

• Corporate global performance requirements and their requirements to localise suppliers.

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Environmental and Social Appraisal - Key Determinants

Project:

• Business activity for which EBRD financing is sought

Area of Influence:

• Project assets and facilities owned or managed by the client

• Contracted supporting activities, assets and facilities

• Associated facilities or businesses - not part of the project but exclusive and essential for the project

• Security package

• Cumulative impacts

• Induced developments caused by the project

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Key Challenges

• EU law addressed to Member States and not to project developers;

• Lack of Competent Authorities in non-EU countries to take appropriate actions to implement provisions of the Directives (e.g. Appropriate Assessment under the Habitats Directive);

• Unclear how to apply derogation periods in agreeing action plans to achieve compliance with EU standards (e.g. IED Directive);

• Unclear how to treat protected areas without designation of the Natura 2000 sites (official vs shadow lists);

• How to apply the provisions of the EU regulation which go beyond the project boundaries and beyond the control of the Client (e.g. EU Waste Directive).

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Practical Approach to Ensure Compliance with EU Standards in non-EU countries

• The Bank uses the Environmental and Social Action Plan (ESAP) to enable and enforce the implementation of the Bank’s Policy and PRs :• This is included in all legal agreements based

on a negotiated process.

• ESAP outlines time and resources needed to comply, with specific implementation targets

and milestones

• Policy states:… existing facilities do not meet the PRs at the time of Board approval, the client will be required to adopt and implement an ESAP, to the satisfaction of the EBRD, that is technically and financially feasible and cost-effective to achieve compliance…

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Practical Approach to Ensure Compliance with EU Standards in non-EU countries

• Most new Projects use state of the-art- technology:

• The Bank will not support outdated technology transfer

• Each Project is assessed against EU and Bank PRs as part of the ESDD.

• If an implementation period is needed to meet PRs then time and resources are agreed through the ESAP

• Derogation requested from the Board, if an ESAP can not be structured to allow an operation to meet the Bank’s requirements within the Bank’s financing period or reasonable time.

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Examples of Utilising EU Regulationss in non EU Member States

• Mine Waste Directive – removing cyanide in gold processing wastes within the milling facilities prior to discharge to the TSF is now seen in Russia and has been applied in Mongolia.  High profile and controversial issue which, when in combination with the ICMC, can provide an effective response to community concerns and improve overall risk management.

• Automotive part manufacturers in Russia – applying EU EHS standards to operations enabled local manufacturers to meet the criteria to supply major inward investors such as VW, Peugeot, Renault et al.

• Habitats Directive – in Mongolia, the use of the Habitats Directive has enabled the Bank, working alongside a number of different Projects and government at various levels, to promote a regional approach to biodiversity conservation which is vital when considering flora and fauna in the country.  This produces practical benefits in the regions around the Project developments, but also nationally as government capacity is raised.

• Passenger safety – utilising EU requirements for product quality and specifications has improved the safety characteristics of rail coaches manufactured in Russia.

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Areas where compliance is not possible

• Practical issues: • It is not uncommon that the infrastructure required to meet

EU regulations is not in place. There is no gas or other fuel distribution system in Mongolia; heat and power must be supplied by available fuels, often poor quality coal. Emission limits for SOx and NOx may not be reasonably achieved. Many of our CoO lack the facilities to handle hazardous wastes in an appropriate manner.

• Technical issues: • Technologies and techniques designed for EU Member

States may simply not work in other territories. For example, floating roof tanks for the storage of volatile fuels often rely on rubber seals. These can become brittle and ineffective at low temperatures and our CoO have areas where the temperature falls to 50 below zero.

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Conclusion and Summary

• Projects have to comply with national legislation and be structured to meet EU environmental standards

• Appraisal and due diligence of all projects to assess compliance with EU standards irrespective of sector or geographic region

• Mechanisms available to develop compliance action plan to meet Bank requirements (inability to achieve compliance can affect the Bank’s participation)

• agreed through negotiated approach

• enforced through legal covenants

• Derogation:• has to be justified and substantiated

• used with care21/04/23

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Questions?