Environmental Assistance to Eastern Europe

5. Danish Environmental Support Fund for Eastern Europe - basis and principles for prioritisation

5 Danish environmental support fund for Eastern Europe - basis and principles for prioritisation
5.1 Basis and principles for prioritising projects receiving support from the DESF
5.1.1 Strategic basis and financial framework for the support
5.1.2 Assessing the need for adjustment to the assistance

5.1 Basis and principles for prioritising projects receiving support from the DESF

Introduction
This memorandum from December 1997, revised in April 1998, has been discussed by the Advisory Committee to the Danish Environmental Support Fund and sets out clearly and concisely the basis and principles for prioritising projects receiving support from DESF.

5.1.1 Strategic basis and financial framework for the support

Act No. 223 on Subsidies for Environmental Activities in Eastern European Countries and Executive Order on the same Act constituted the basis for DESF from April 1991 to the end of 1995.

In October 1993, "Strategy for Environmental Activities in Eastern Europe" was adopted by the Government and the Folketing as a means of implementing the environmental objectives of the Environment and Disaster Relief Facility (EDRF) for Central and Eastern Europe. The environmental funds for Central and Eastern Europe then gained a supplementary basis in the decision on EDRF, and the strategy was to make it operational. The environment-related sectoral programmes became a reality in 1994 and have functioned in the period 1994-97. In addition, the IØ Fund's Green Investment Facility became part of DESF.

With the repeal of Act No. 223 at the end of 1995, authority was established by means of a note to the Appropriation Act continuing the basis for the assistance as under the earlier Act.

The Baltic Sea Initiative strengthens the focus on the Baltic Region. As an innovation, action in the sectors is being targeted as sector integrated environmental assistance to promote an environmentally viable development in important sectors of society. Lastly, a soft loan scheme, the Environmental Soft Loan Programme for Eastern Europe (MKØ), was established under the Danish Agency for Development of Industry and Trade to provide soft "untied" loans for environ-mental investments, typically with a 25 per cent grant component.

On the Appropriation Act for 1998, a sum of DKK 411 million has been earmarked for DESF, while a sum of DKK 141 million has been allocated to sector-integrated environmental activities, DKK 70 million to the Green Investment Facility under the Investment Fund for Central and Eastern Europe (the IØ Fund), and a grant component of DKK 45 million for environmental loans from EKF.

All the activities are being co-ordinated by DEPA. There is a close relationship between DESF’s activities within the sectors under the sector-integrated environmental assistance facility, such as nuclear safety and the energy, industrial and agricultural sectors. A good supplementary form of financing has been established with the Green Investment Facility and will also be sought in the implementation of MKØ. The Danish environmental support can thus be said to be a set of mutually supplementary forms of financing.

Geographical prioritisation

The activities under DESF are concentrated on the Baltic States and the parts of Russia near the Baltic Sea, primarily because of the environmental situation in the Baltic Sea and other nearby areas. They are a continuation of the prioritisation so far and are the means by which the Government’s Baltic Sea Initiative is being implemented.

Environmental activities are also in progress in Central Europe, Romania, Bulgaria, Ukraine and Belarus. In the case of Belarus, the action is subject to the Council of Europe’s conclusions and declaration of 15 September 1997 on reservation concerning assistance for this country. That means that new projects will not be carried out unless their purpose is either to reduce transboundary pollution from Belarus or to support democratisation, or the projects concern humanitarian aid.

There are 12 co-operating countries, in each of which the scope of the activities is closely related to the country’s location, either in the Baltic region or outside it. A few regional projects or schemes are being carried out, e.g. introducing unleaded petrol, and a few projects are going on in countries outside the circle of co-operating countries in preparation for large environmental loans from one or more of the international financial institutions.

Within the individual countries, efforts are made to concentrate the activities geographically in order to achieve greater impact and visibility.

The recipient countries' needs and wishes

The priorities of the environmental authorities in the recipient countries determine which projects are supported. Denmark and the recipient countries hold regular discussions on priorities. The result of these discussions are recorded in the country programmes and sometimes in minutes of resolution in implementation of the country programmes.

It should be noted that there are sometimes differences in the projects prioritised by the recipient country and by Denmark. For example, global and transboundary pollution is rarely given the same high priority by the recipient countries as by Denmark.

Target areas

The action was initially intended to be country specific, but action across the boarder has been developed in some sectors or certain problems areas - for example, water problems in the Baltic Sea region, oil pollution contingency, protection of the ozone layer, transboundary air pollution, climate action, the green sector, etc.

One of the main activities is a substantial EU pre-accession initiative involving 6 countries: the three Baltic States, Poland, the Czech Republic and Bulgaria. This initiative is targeted on implementing investment-intensive environmental directives, but will also include support for short-term consulting services. For the nine co-operating countries that have applied for EU membership, a constantly growing portfolio of projects will concern approximation to European Union law and institutional strengthening. High priority is given to training in EU directives and transposition of EU directives into national legislation. That also applies to fulfilling EU directives’ environmental standards in the specific investment projects.

In future, EU approximation will be the basis for both legislation and investment activities in the nine co-operating countries. The link between the EU Commission’s activities and support programmes will also become steadily stronger, partly to achieve a greater synergetic effect now that the aim is clear: full implementation of the EU level of regulation, and partly so that the countries can receive as much of the EU’s investment support as possible.

Degree of reduction of pollution/degree of protection of nature

When evaluating specific initiatives, importance will be attached to how much the environmental impact in question can be reduced - in both magnitude and hazard - and to the degree of protection of nature. Measurable data in the form of reduced pollution or more qualitative data in the form of improvement of the natural environment are important factors for evaluating actual activities.

Prioritisation according to the nature of the projects

In terms of pollution, prevention and cleaner technology, combined with recycling, are still in principle given high priority. However, it has been recognised that though such projects are easy to start, they are more difficult to bring to a successful conclusion because the industrial companies in the countries in question are in the midst of a financial transition. Major environmental infrastructure projects such as air and water treatment are far easier to promote. This focus must be maintained because of the great needs of the recipient countries in these sectors.

Reducing present and future pollution is given higher priority than remedying "the sins of the past" e.g. soil remediation.

In the green sector, action is being taken to protect nature. Protecting biodiversity, sustainable forestry, developing ecotourism and environmental training are all target areas.

Activities that promote public participation will receive higher priority. With a future adoption of the Convention on public access to information, participation and judicial review in the environment sector, the basis will be established for a more active approach, and public participation must be encouraged. This will also help to strengthen democracy in the recipient countries.

The activities will also be integrated with the ongoing process of economic restructuring in order to achieve maximum effect. Projects that lead to a final conclusion and can thus demonstrate visible results will be given higher priority than projects of an introductory or preparatory nature.

Financial prioritisation

Maximum effect from the Danish funds is desired. Co-financing therefore has high priority. It places high priority on the environment and protection of nature in the recipient country, in terms of the direct recipients of environmental assistance or the national environmental funds in the recipient countries. Co-financing with other Danish and international sources of finance, including international financial institutions, is similarly highly valued, especially in recipient countries that have difficulty in procuring co-financing. The EU PHARE and TACIS programmes are therefore particularly important because the funds they supply - particularly the PHARE programme - are expected to be increased considerably as a consequence of the recipient countries’ pre-accession process and the EU’s wish to strengthen its preparation.

The possibilities of obtaining co-financing vary greatly, depending on the macroeconomic strength of the various countries. The Baltic States, Poland and the Czech Republic have proved relatively good at co-financing major projects, whereas Russia and Ukraine have difficulty in finding money for co-financing.

5.1.2 Assessing the need for adjustment to the assistance

National action plans

For the assistance planned for 1998, no changes in the priority of countries is deemed necessary. The focus of the Government’s Baltic Sea Initiative is the Baltic region, and action must also be taken in the other countries.

It is still too early to discuss discontinuing assistance to some countries. The EU pre-accession process in the countries applying for membership will change the nature of the assistance, and future membership of the EU may well lead to discontinuation of bilateral assistance.

The countries with the biggest economic growth should naturally themselves bear as much of the cost of the environmental activities as possible through co-financing. Too little is achieved environmentally when the activities rely on funds from DESF only.

Co-operation with the individual countries to select promising projects that are worth supporting must be intensified. There are several reasons for this, including the need to formulate project proposals that can also be used by the recipient countries as qualified projects for financing from other sources, e.g. the EU.

Having local project co-ordinators working to improve the co-operating countries’ institutional framework strengthens the action in those countries. At the end of 1997, there were local project co-ordinators in six recipient countries. This is a cost-efficient and promising way of strengthening the co-operation.

Work in the countries applying for EU membership must be expanded through consultation on prioritised activities in connection with the pre-accession process. The national co-ordinating units and other ministries must be involved. The Danish embassies are useful in this area. In the newly independent states (NIS), the process is not as developed, and efforts to increase investments in the environment sector must continue as before.

Weighting in the assistance

In the last few years, action in the green sector has gained greater weight on the basis of the strategy for biodiversity and sustainable forestry.

The same applies to the EU pre-accession activities, which are now being implemented on the basis of the strategy presented in 1996. This means greater weighting of the work on institutional strengthening.

Generally speaking, the focus on investment is maintained on the basis of a good balance between preliminary studies and investments.

Public involvement or NGO activities should be given greater weight.

Financial aspects

The promising co-operation that has developed with other sources of finance, including co-operation with other donors, is continuing and should be strengthened. The view remains that good use is being made of the possibilities of co-financing, and efforts in that direction should be intensified. In particular, the work with national environmental funds, which now seem to be developing faster and more strongly in other countries than before (Poland and the Czech Republic), can be expanded.

Application model and tender model

The ratio between the application model and the tender model in the allocation of funds is approaching 1:1. The application model is producing a number of promising projects identified by Danish companies themselves, while tender projects can be targeted far better than applications. An application can be processed far more quickly than a tender, but experience shows that far more control is required during the project.

The ratio 1:1 between application and tender will be used as a measure in future.

Readers are referred to "Suggested Projects for environmental activities in Central and Eastern European Countries" and the country programmes etc. in "Co-operation Development 1992-1996 and Programme Target Areas".

Co-operation between the players in Denmark

An ad hoc committee has been set up to discuss plans for the sector-integrated environmental assistance. The executive players in the central administration are participating in this work. This makes assistance from sector to sector more uniform and generally more coherent, thereby giving it greater strength.

DEPA has entered into a co-operation agreement with the IØ Fund on an evaluation of the environmental aspects of the projects under the IØ Fund’s Green Investment Facility.

DEPA has entered into a similar agreement with the Agency for Development of Industry and Trade on the soft-loan programme created in connection with the Appropriation Act for 1998.

International co-operation

The Nordic countries’ bilateral environmental activities are co-ordinated by an informal Nordic task force set up for this purpose. DEPA, together with the other Nordic countries, also has a seat on NEFCO’s board. This work will continue as before, although efforts will be made to strengthen the actual project work with NEFCO.

The OECD’s Task Force for implementing discussions and initiatives in the institutional sector will continue after the Århus Conference and will in future be intensified in the Russian-speaking regions.

The Project Preparation Committee (PPC) is continuing its work after the Århus Conference, with increased focus on the newly independent states.

Co-operation with the PHARE and TACIS programmes should be strengthened with the assistance of the Ministry of Foreign Affairs. The PHARE programme is being restructured as a consequence of the coming expansion, but TACIS should have a stronger environmental profile.

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