Denmark's Environmental Assistance to Eastern Europe

1. Principles for environmental assistance 1991-1996

1.1. The legislative framework for environmental assistance
1.2. Priorities and efforts 1991-93
1.3. The EDRF framework: new priorities and organisational structure from 1994 to 1996
1.4. Recommendations from the Audit Department
1.5. Administrative reorganization of DESF in 1995-1996
1.6. Methodology of the assessment

1.1. The legislative framework for environmental assistance.

A Bill for the establishment of an environmental support fund for Eastern Europe was proposed by members of the Danish Parliament in November 1989 and the principal decision to establish such a fund was taken by the Parliament on 8 February 1990. The Danish Environmental Support Fund (DESF) became operational in April 1991 upon adoption of the Government's Bill on Environmental Assistance to Eastern Europe (L124).

According to this law, the purposes of DESF should be:

(1) To reduce pollution in Eastern Europe as well as the transboundary pollution from Eastern Europe,

(2) To contribute to a development process on more sustainable terms,

(3) To support nature protection in Eastern Europe,

(4) To provide technology and know-how within the field of environment and energy.

The purpose should not only be to reduce transboundary pollution with an impact on Denmark, but also to reduce pollution in Eastern Europe more generally. The activities should comprise both traditional end-of-pipe pollution control and the introduction of cleaner technologies, as well as proper nature protection. In acknowledgement of the links between environmental protection and the economic and social development in the region, the purpose of DESF should also be to stimulate a more sustainable development in the region through the funded projects. The support should take place with the transfer of well-known technologies and types of know-how from Denmark.

The law stipulates that the activities should be concentrated in the parts of Eastern Europe closest to Denmark. The 1991-law identified this area quite broadly as Poland, Czechoslovakia, Hungary, the three Baltic republics, and the parts of the Soviet Union closest to Denmark. Also included, but according to the legislative framework given a second priority, should be Romania, Bulgaria, Yugoslavia and Albania.

An additional purpose of the support fund should be to support export of Danish know-how and equipment, and hence increase the share of the market of Danish environmental companies in Eastern Europe. Support should be provided on the basis of what the Danish resource base could offer - as bilateral assistance.

DESF was seen also as an integral component of the wider Danish efforts to provide economic and financial support to the transition economies in Eastern Europe. These efforts have also democratic and security-related aspects. Gradually, the activities of DESF have become a more and more significant part of these activities, and environmental support has become the cornerstone of Denmark's assistance to Eastern Europe.

The activities of DESF have been overseen by a Committee with representatives from economic and environmental interest organisations and other ministries.

1.2. Priorities and efforts 1991-93.

The priorities for the first years of environmental assistance were stated in rather general terms (Miljøstyrelsen, 1991). The possible action areas were identified in broad terms and the assistance was open to adjustments according to attained experiences and the political developments in the recipient countries.

In the 1991-guidelines for applications to DESF, the following five areas were prioritised: 1) Training and education; 2) Environmental aspects of energy supply; 3) Industry and waste; 4) Water (supply and sewage treatment); 4) Environmental aspects of agriculture; 5) Nature protection. There was a general requirement for co-financing, but projects for training and education could be funded up to 100 per cent. There were no fixed shares of support for different types of projects; this would rely on assessments of the individual project proposals.

According to the guidelines, the share of the DESF grant relied on an assessment of five factors: the potential for pollution reduction, the share of co-financing, the project viability, the potential for multiplication of project experiences and the potential for follow-up investments. Some caution was expressed regarding investment projects, and in general these projects would receive a grant of 35-50 per cent of the total costs. The impression from the guidelines and the first annual report is that technical assistance projects were deliberately prioritised in these first years. With regard to investment projects, the strategy was to promote projects that would attract co-investments from domestic or other international source, and which could also have a multiplication effect by serving as demonstration projects of environmental technology. This 'demonstration-strategy' was a replication of the strategy in domestic Danish programmes, e.g. the cleaner-technology programme.

In parallel with the implementation of the programme, the government and the parliament debated the principles for assistance to Eastern Europe. In september 1991 the government presented its action plan for assistance (Regeringen, 1991). In the conclusions of this plan a broad majority in the Danish parliament stressed the need for long-term economic and political reforms, and the principle of sustainable development. The Parliament's security committee specifically prioritised projects in the Baltic Sea region, stressed the need for cooperation with NGO's and emphasised in general the need for a dialogue with the recipient countries on the use of the assistance. In addition it pointed out that the environmental dimension should be integrated in all East-related programmes (Udvalget vedr. Dansk Sikkerhedspolitik, 1991).

From the beginning of the operation of DESF, a cornerstone has been cooperation with the environmental authorities in the recipient countries. In order to pursue this approach, framework agreements have been concluded with the recipient countries' environmental ministries. The framework agreements have been followed by the development of procedures for project identification and selection, although these differ considerably among the different recipient countries. Still, DESF remained an instrument for bilateral support. Applications were invited mainly from Danish firms and institutions, and the support facility itself was published in Danish only.

The geographical coverage of DESF was gradually extended to include also some of the former NIS-countries. In response to the dissolution of the Soviet Union, it was decided in October 1992 to extend the geographical coverage of DESF to include also Russia, Belarus and Ukraine. For this purpose an extra 60 million DKK was allocated to the fund.

Table 1.1. Annual appropriation of DESF 1991-96.

1.3. The EDRF framework: new priorities and organisational structure from 1994 to 1996.

In late 1992, it was decided to reorganise Denmark's international assistance and to establish a general financial framework for the bilateral aid for environmental issues and catastrophe areas, the so-called Environmental and Disaster Relief Facility. DESF was integrated into this framework, which increased the funding available for environmental assistance to Eastern Europe considerably. Whereas 100 million DKK had been allocated annually (with some extraordinary allocations) from 1991-1993, the funding for environmental assistance was scheduled to increase to 300 million kroners in 1994, and to increase with a further 100 million DKK each consecutive year until 1998 (Finansministeriet, 1993).

DESF has been supplemented by five sectoral programmes for environmentally related assistance, operated by the Ministries of Energy, Agriculture, Interior, Housing, and Transport respectively. While the sectoral ministries have provided support within their own fields, the Ministry of the Interior has provided support for nuclear protection. A total of 100 millions have been disbursed by the sectoral programmes annually from 1994-1996, while DESF has been responsible for the remaining funds.

Under the framework of EDRF a new strategy for environmental assistance to Eastern Europe has been drawn up (Miljøstyrelsen, 1993). This strategy applies both to DESF and the sectoral programmes, and has been discussed and approved by the Parliament's Committee for Environment and Planning.

The general purposes of the new strategy for environmental assistance in Europe have been to promote the following aims:

- best possible environmental and nature protection in Eastern Europe and reduction of regional and global pollution, including the transboundary pollution to Denmark,

- contribute to a political and economical development on environmentally justifiable principles, including support for a democratic and market economic development with considerations for the environment,

- promote transfer of eco-know how and technology from Denmark to the countries in Eastern Europe in the interest of the recipient countries and Denmark.

The aim of the new strategy has also been to assure geographical concentration and professional consistency in those fields where a visible and quick support could be provided, and to focus support in those areas where Danish know-how and technology have special qualifications as to offering of assistance. As such, from 1994, there have been more clear indications of which countries and issues that should be supported, than was the case from 1991-93.

Geographically, the focus has remained on the areas closest to Denmark (Poland, the Baltic republics and parts of Russia), especially with regard to water, where the Baltic Sea basin was given priority. In central Europe (Czech Republic, Hungary and Slovakia) priority was given to projects relating to air pollution. Still, included under the programme, but with less priority, were Belarus, Ukraine, Romania and Bulgaria. In the remaining parts of the former Soviet Union, in the territory of former Yugoslavia and in Albania only individual projects would be supported.

According to the new strategy, the following issues would be given priority:

- Air pollution: conversion of energy supply systems towards renewables and natural gas, energy savings and emission reductions.

- Water pollution: protection and improvement of water supply systems, cleaner technology in industry, improvement of sewage treatment and prevention of agricultural pollution with effluents.

- Waste: hazardous waste, hospital waste and improvement of local waste management as well as recycling of waste from energy production and waste water treatment.

- Nature conservation: National parks, charting and monitoring of areas of natural beauty, planning and management of natural resoruces, general education and biodiversity.

- Institutional strengthening: capacity-building in environment and nature administrations.

These priorities applied both to DESF and the sectoral programmes. A more specific division of tasks took place subsequently.

1.4. Recommendations from the Audit Department.

In June 1993 the The Public Accounts Committee required the Danish Audit Department to undertake a general review of the coordination, administration and effectiveness of the bilateral support for Eastern Europe. This review also included the environmental assistance under DESF. The review of DESF was based on interviews with the central, coordinating ministerial bodies in the recipient countries and on visits to four environmental projects in Poland, Lithuania, Estonia and the Czech Republic.

The report from the Audit Department was presented in January 1995 and referred to DESF activities carried out from 1991-93. At the general level, the Audit Department critisised the lack of a framework legislation for the assistance to Eastern Europe, which was dispersed among seven different ministries. The Audit Department also noted that the recipient countries had not been sufficiently involved in the selection of projects and that they preferred to receive support for investments rather than technical assistance based on know-how.

With regard to DESF the Audit Department found that, due to the restricted number of staff, "a somewhat informal procedure for consideration of project proposals", that did not meet the general requirements of public management standards, had been applied.

The Audit Department claimed that the supported DESF projects so far could be expected to have only a limited environmental effect as they tended to be local and small-scale. The possible multiplication of the projects would be decisive for the environmental effects, but the lack of domestic sources for financing, e.g. due to the absence of user payment systems, seemed to inhibit or at least limit multiplication.

The effects of the assistance were also seen as restricted by the fact that most projects were initiated by Danish partners and not by the recipient countries, whose option was limited to approving or disapproving of the project. "One has therefore in practice approved all project proposals without serious considerations about their coherence with other activities in the environmental field" claimed the Audit Department.

More specifically, the Audit Department recommended to improve the management of DESF by;

- the establishment of regular procedures for information to and consultation with the Danish embassies on project proposals,

- strengthening of the accounting procedures,

- more systematic follow-up procedures for the individual projects, including fixed deadlines for reports and on-site inspection of larger investment projects,

1.5. Administrative reorganization of DESF in 1995-1996.

On the basis of the recommendations of the Audit Department and of experiences attained from the operation of DESF, an administrative reorganization took place during 1995. New guidelines for applications were published, and they introduced a new and more standardized approach.

The most innovative step was to complement the application approach by a tendering procedure. According to this procedure projects agreed with the recipient countries would be developed on a common basis and were put out to tender. The purpose with the tendering approach was to avoid the dependency on the proposals that were submitted to DESF from private parties, and to allow the priorities of the recipient countries to play a greater role in the initiation and selection process. This new approach coincided with the development of National Environmental Action Plans (NEAPs) which had been agreed at the pan-European conferences in Luzern and Sofia. The NEAP approach led to the development of comprehensive action plans, that prioritised, or at least listed, environmental projects in need of financial support.

The application system continued to be in operation. Applications have since the end of 1995 been reviewed according to a more standardised evaluation system, which was intended to make the evaluations more transparent. The new scoring system gives equal emphasis to general purpose criteria of DESF (0.35) and internal project logic (0.35), while methodology (0.10) and project leaders' qualifications (0.20) play a lesser role. The scoring system leaves, however, considerable discretion to the officer in charge in the assignment of scores.

The staff of the DESF office at the Environmental Protection Agency in Copenhagen was gradually expanded during 1994 and 1995. The administrative capacity of DESF was further increased by hiring and placing programme coordinators directly in the environmental ministries of the recipient countries. The purpose with programme coordinators was to improve the process by which projects were identified and to improve cooperation with the national authorities. The programme coordinators have been recruited from the domestic ministries and have been introduced in Lithuania, Latvia, Estonia, Slovakia, Romania and Belarus. More regular procedures for submission of quarterly accounts from the project coordinators to DESF were also introduced.

An effort to document the activities and results of DESF more systematically was made by the establishment of a comprehensive project database, containing information about all the funded projects. The database was gradually established during 1995 and 1996, as data on project leaders, financial contributions, environmental effects etc. were recorded.

However, with regard to the consultation with the Danish embassies it seems that more regular procedures have not been introduced and the on-site inspection of larger investment projects have also not yet been systematized.

While new administrative procedures were established and the resources of DESF expanded, the fund gradually extended its activities into the NIS area and to the Balkan peninsula. Activities in Russia were accelerated, especially in the areas of Saint Petersburg and Kaliningrad, and have made Russia one of the largest recipients of Danish support in later years (cf. below section 3.3.4.). Since 1994, projects were also supported more systematically in Ukraine, Romania and Bulgaria, while an effort was made to initiate projects in Belarus. At the same time, activities were maintained at a high level in the Baltic republics. There was some decline especially in Hungary and the Czech Republic and stagnation in Poland. The expansion of activities eastwards reflected both greater needs and a deliberate policy to improve cooperation with, in particular, the NIS-countries, as well as the possibility of duplicating succesful projects in new countries. A special contribution to Romania was agreed at the Luzern conference where Denmark as part of a general twinning of donors and recipients agreed to take responsibility for assisting Romania in drawing up its NEAP.

From its inception in 1991, DESF has extended its activities considerably, both geographically and in terms of annual disbursements. The changes which have taken place in the management seem to reflect both an internal learning process as well as external recommendations. In 1996, DESF was the most considerable disbursement mechanism of the Danish Environmental Protection Agency, a role that reflects the priority which support for environmental assistance has been given in Denmark.

1.6. Methodology of the assessment.

The methodology of the assessment follows a structure deduced from the programmatic intentions with DESF; which have been both to support specific environmental projects and through this instrument to enhance the more general capacity of environmental protection in the recipient countries.

The assessment of DESF has hence followed a dual path; on one hand a detailed assessment of the implemented projects with a review of the attained results and the internal administrative procedures for project management; on the other hand a broader survey of environmental policies and institutions in the recipient countries and the interaction with foreign assistance. The two paths or components have been labelled the 'project-evaluation' and the 'country-evaluation' respectively.

They offer two different types of conceptual lenses through which DESF activities have been assessed, and observations made in one part of the evaluation needed to be qualified with observations made in the other; insights that seemed logical or apparent from a project perspective often needed to be qualified with insights attained under the country perspective. And vice versa. This Janus-headed assessment approach is best explained as the combination of a top-down and a bottom-up perspective; in the project-evaluation the focus has been a programme management top-down perspective from the programmatic intentions of DESF towards the achieved results, while in the country-evaluation the focus has been a bottom-up perspective, focusing on the recipient's situation and the role that DESF-projects can play in this context. In this final report the two approaches have been synthesized and integrated into an overall assessment of DESF activities.

The project assessment consists of three elements. First, a description of the DESF project portfolio based on the information on project management in DESF's own database, supplemented with a questionnaire to the project coordinators of 496 projects. Second, a detailed review of 47 selected projects, based on on-site reviews and inspections with technical experts. Third, a review of internal administrative procedures of DESF.

The country assessment focuses on 8 of the 13 countries where DESF operates; i.e. Poland, Estonia, Lithuania, Russia, the Czech Republic, Slovakia, Romania and Ukraine. It has two components. Firstly, a general analysis of environmental policy and financing from 1990-96, supplied by university researchers in the countries. [2] Secondly, an assessment of the interplay between DESF project financing and domestic environmental policies, based on interviews with officials in the national environmental authorities, other donors active in the country, persons involved in DESF supported projects on the recipient side as well as independent experts and NGO's.

The assessment has been comprehensive and has been carried out by an exceptional combination of skills; PLS Consult which has experience in programme assessments has been responsible for the project evaluation with technical assistance from Rambøll and Risø. KPMG which has experience in environmental accounting and indicators has been responsible for the country evaluation in close association with Mikael Skou Andersen, who is an associate professor in political science at the University of Aarhus specialised in comparative environmental policy and economics. Mikael Skou Andersen has also been responsible for the synthesis report and for leading and coordinating the assessment process. Several meetings were held during the assessment process within the review team, as with members of DESF staff, to assure coordination and avoid overlap and duplication of efforts.

The report output from the assessment consists of;

1) A synthesis final report (the present), prepared by Mikael Skou Andersen. In English.

2) The project evaluation report with an annex containing detailed reviews of 47 selected projects, prepared by Morten Kvistgård, Head of Department, and Janne Sylvest, consultant, PLS Consult. In Danish.

3) 8 country evaluation reports prepared by Villy Dyhr, senior consultant, KPMG. In Danish. The country-reports contain annexes with reports prepared by Jerzy Sleszynski, Warsaw University; Elena Nikitina and Vladimir Kotov, Russian Academy of Sciences, Vadim Diukanov, Kiev-Mohyla Academy; Petr Jehlicka and Martin Branis, Charles University Prague; Jan Szollos et. al., Slovak Academy of Sciences and Daniela Constantin, Academy of Economic Studies of Bucharest. In English. [3]

The structure of the final report follows the structure of the assessment. In chapter 1 an overview of the intentions and policies of DESF in the period 1991-96 was provided. In chapter 2 the project portfolio is presented and the main results of the project assessment are summarised and discussed. They are supplemented by a financial analysis of DESF projects. In chapter 3 the main results of the country assessment are summarised and discussed. In chapter 4 a number of key issues and problems related to foreign support for environmental protection are raised and some observations regarding DESF performance are provided. In chapter 5 the concluding assesment of DESF activities for 1991-1996 is presented.

For more detailed information on specific aspects, the reader may have to refer to the sub-reports. On the other hand, the process of synthesizing the assessment has in some cases necessitated additional analysis of the primary data, and not all the findings presented in the final report have been included in the subreports.

The conclusions and recommendations provided in the final report have been reached in consensus among the members of the review team.

2. It was not possible to identify academic experts on environmental policy in Lithuania and Estonia. Reports on environmental policy in Estonia and Lithuania prepared for the Economic Commission of Europe (ECE) were used as basis instead.
3. The environmental policy reviews have also been published separately at the occasion of the Fourth Pan-European Conference on the Environment in Aarhus 1998.