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Approved : Nov 15, 2001 Signed : Dec 18, 2001 Invested : Feb 22, 2002
Sector
Rail Transportation
Industry
other
Department
Regional Industry INF LAC & EUR
Project Description
The project consists of the renovation and further development of the Estonian rail system, including upgrading and renovation of infrastructure, replacement of locomotives, modernization of communication and signalling systems. The proposed investment is expected to be carried out over a 5 year period beginning in 2001.
Environmental and Social
IFC requires that this document is made available through the World Bank InfoShop and to the locally affected community no less than 30 days prior to project consideration by the IFC Board of Directors.
The Summary of Project Information (SPI) provides details of where the ERS has been made available to the locally affected community. The SPI must be sent to InfoShop no less than 30 days prior to project consideration by the IFC Board of Directors.
This is a Category B project, according to IFC’s Procedure for Environmental and Social Review of Projects because a limited number of specific environmental and social impacts may result which can be avoided or mitigated by adhering to generally recognized performance standards, guidelines or design criteria. The review of this project consisted of appraising technical and environmental /social information submitted by the project sponsor. The following potential environmental, health and safety and social impacts of the project were analyzed:
· Environmental Improvement Investment Program · Environmental Management Capacity · Contamination of Land and Facilities · Operational Controls · Historic Contamination · Indemnification offered by Government of Estonia · Legislative Review · Due Diligence Review · Right of Way Encroachments · Cultural Property · Health and Safety · Socioeconomic Impact of Labor Force Downsizing
The sponsor has presented plans to address these impacts to ensure that the proposed project will, upon implementation of the specific measures agreed, comply with applicable host country laws and regulations and World Bank/IFC requirements. The information about how these potential impacts will be addressed by the sponsor/project is summarized in the paragraphs that follow.
Environmental Improvement Investment Program: EVR activities, products and services that interact with the environment include: carriage of freight, road transport; rolling stock and plant; construction/demolition; painting, burning and welding activities; waste management; ballast operations; consumption of natural resources. IFC''s investment will directly reduce the potential for creating new environmental liabilities. EVR is also fully committed to reduce their environmental impact and to improve environmental performance at both depots and along the track. Pre-privatization action plans for environment, health and safety improvement are to be implemented. BRS has also adopted an Environmental Management System (EMS) for EVR similar to that followed by one of the BRS shareholders, Jarvis plc who operates a documented EMS which complies with ISO 140001:1996.
Environmental Management Capacity: EVR appointed an environmental manager in 1998. In 1999, the Estonian Environment Minister sanctioned an agreement with the Danish Environmental Protection Agency, Division for Eastern and Central Europe, and Kruger International Consult A/S (Kruger) for environmental assistance to the Estonian Railways. The project covered two main aspects:
provide institutional strengthening and capacity building to Estonian Railways. Its main objective was to help establish an efficient Environmental Department within the Estonian Railways based on Danish experience;
provide on-the-job training and education of local staff in the prioritization, investigation, monitoring and remediation of polluted sites thereby providing long-term protection of surface and groundwater resources in the area influenced by the railways.
With the assistance of Kruger, an Environmental Department was created in 2000; it is currently staffed by an environmental manager and two environmental specialists. Management of environmental issues is included within the general responsibilities of the managers of individual EVR facilities. The role of the Environmental Department is to provide advice and support to the facility management and coordinate environmental management across the company. The Environment Department is currently part of the Property Administration Service Department, but will be re-organized to report to the Director of Infrastructure. EVR personnel with environmental site responsibility will attend a formal environmental management course; all EVR staff will receive environmental awareness training. An Environmental Action Plan (EAP) will be developed following privatization. The EAP will provide a detailed plan for EMS implementation including objectives, responsibilities, timetable and resource implications, a detailed plan for further solid and groundwater investigations together with a risk based improvement program to minimize short-term and long-term environmental and social impacts. The EAP will also address a number of non-compliance issues identified in the legal due diligence prior to privatization although permits are known to be in place for waste and air pollution and waste permits are held by contractors. Building environmental management capacity within EVR will be essential to manage EVR''s substantial environmental program. Resources need to reflect improvement works that have already been identified, but also enable specialist expertise to be used and targeted towards training, competency building as well as the development of new procedures, practices and technologies.
Contamination of land and facilities: Prior to the privatization of EVR, a survey of the current state of the environment and planned remedial measures was carried out. Upgrades amounted to EEK 14.6 million and included replacement of fuel tanks; removal of underground diesel tanks; replacement of oil and fuel meters, nozzles and hoses for diesel and oil; construction of storage sheds for lubricants; installation of oil catchers and plastic underneath sections of track as well as removal of contaminated ballast. Further studies conducted prior to privatization identified:
soil and groundwater contamination is present or is likely to be present at a number of railway sites and is considered material;
the soil and groundwater pollution is both historic and continuing;
the principal pollutants are liquid fuels and sewage disposal systems;
the contamination may, in some circumstances, extend to neighboring territory and at some site may be injurious to human health.
BRS has already committed that EVR will take the following actions:
remove underground storage tanks currently found on the system. All tanks and fuelling equipment will be located above ground and will have effective hydro-insulation and new drainage berms and dikes (designed to retain 110% spillage). Waste-water skimming systems will be updated and all drains, sumps and separators will be completely replaced or refurbished;
eliminate lube oil dropping on track sections;
prevent oil shale spillage from wagons while in transit by making mechanical adjustments to the gates on the oil shale wagons to prevent spillage en route;
demolish four buildings which currently contain asbestos;
check electrical distribution transformers and transformer equipment on the Electrical Multiple Unit (EMU) fleet to ensure that PCB''s do not present an issue;
new locomotives and a fuelling station will reduce the potential for creating new environmental liabilities.
Kruger International Consult A/S has also undertaken site investigations at Tallinn, Narva and Tapa ( locomotive depots). At the Tapa depot, areas around the tracks have been renovated and a system to catch oil has been installed between the rails. Some bio-remediation equipment has also been installed as a preliminary step prior to the establishment of an on-site Biological Soil Treatment Plant.
Operational Controls: In addition to the actions to be taken by EVR, the main operational elements of BRS environmental policy following privatization will be the control of waste directed towards redundant railway materials. For material which cannot be directly re-used, as much as possible will be recycled; spent ballast will be cleaned and sold for use in road surfacing materials and rail will be returned to steel manufacturers as scrap steel. Sleepers will be transported to Sweden, shredded and burned at high temperatures in power generating systems with emission control technology. This will replace the current practice of sleepers being burned in local depot boiler houses. Any materials without a potential use will be disposed of in a licensed waste disposal facility. It is a Jarvis Rail policy to introduce timber sources from Forestry Stewardship Council approved forests on its railways. BRS will introduce the same policy for EVR. BRS will also introduce herbicide controls and design its program to be consistent with WBG Environmental Guidelines on pesticide handling. EVR machinery will be converted to use the bio-degradable product Panolin, as an alternative to mineral oil. BRS will also evaluate technology used in refrigerated wagons and determine whether a program for the phase-out of CFC''s is required.
Historic Contamination: Given EVR''s history as an integral unit of the Soviet railway network over a long timescale, the level of environmental exposure could be substantial. Ownership or use by means of deed or contract of contaminated land and structures also poses considerable risks, especially where pollution may be degrading public water supplies. Substantial claims could therefore arise against the user of railway property. Original estimates, based on preliminary studies and limited information, identified some 80 sites where remediation would be needed. Subsequent studies identified 33 high risk sites with the total costs for remediation between US$34 million and US$160 million. The biggest area of uncertainty identified was whether remediation of groundwater would be required. Although groundwater is a major water resource in Estonia accounting for approximately 20% of the country''s water supply (1999), it is understood to be sourced from deep horizons in underlying aquifers and is therefore less likely to be impacted by contamination originating at or near the surface.
Indemnification offered by Government of Estonia: The GOE has offered an indemnity for liabilities arising in respect of the remedial costs of pollution. It covers costs that may arise from the penalties, valuation cost and remedial cost of pollution that can be proven to have existed prior to privatization and ceases on the 30th anniversary of the completion of the sale of the shares. Under the terms of the indemnity, the purchaser would be expected to carry out any remedial works required by an authority that is competent to impose such requirements. Each such instance would be defined as a "notifiable event". The indemnification is to be capped at EEK 1 billion ( reduced by any allowed non-environmental claims). According to the Shareholders Agreement, BRS will conduct a Baseline Survey, within 18 months of taking control of EVR. The Baseline Survey will cover 130 sites. Following completion of the site investigations, BRS will draw up a comprehensive plan for remediation and then seek to have agreement from the Estonian authorities that this survey accurately draws the line between historical pollution and future operational issues.
Legislative Review: It is the long term policy of the GOE, as part of their EU accession policy, to adopt the environmental standards and controls set out in EU legislation. BRS need to maintain a watching brief to ensure that legislative and regulatory changes do not materially impact their exposure to environmental liabilities.
Due Diligence Review: AIG Consultants (AIGC) have performed an environmental due diligence review on behalf of EEIF and IFC with the following conclusions:
(i) all sites visited have a degree of soil contamination. Remediation will be dependent upon the presence of a significant pollutant pathway and a sensitive environmental receptor. Estimates used by previous consultants to determine areas of soil contamination are reasonable; (ii) estimates for the relationship between the areas of soil impacted and the corresponding area of groundwater impacts do not appear to be justified. Substantial variations in groundwater remedial costs can result as a function of the nature of the underlying aquifer and the extent of the groundwater impacts.
AIGC also recommend the following conditions of investment:
engineering improvements are to be undertaken to improve the storage and handling of hazardous materials and to prevent and manage on-going losses to ground;
surface water run-off systems are to be reviewed;
the Baseline Survey should be phased and be developed using a "risk-based" approach. Remedial action should only progress where it is justified as the result of a risk assessment. No remedial action should be taken if minimal risk to receptors is identified;
insurance coverage is to be sourced to address any additional potential exposure over the negotiated EEK 1 billion indemnity.
IFC will review regular progress reports from Estonia Rail on the implementation of the BAseline Survey investigations together with the status of negotiations with GOE on this issue.
Right of Way Encroachments: There are no right-of-way encroachments on this railway:
Cultural Property: EVR plans to actively promote the sensitive restoration of oil railway building and other memorabilia, wherever appropriate;
Health and Safety: BRS considers safety for its employees and in its operations and maintenance practices to be of the highest priority. It will ensure that safety will be integrated into all of its business practices. This strong focus on safety requires a change in the culture of the Company, and in the beliefs and values of the management team. Specific details of the safety process and procedures which will be implemented are set out in the Health and Safety Plan which includes the creation of a Safety Management System as the overarching focus for safety management. New legislation also requires the development of a risk register that details the risk to the public and those interfacing with the railway. A process for employee input and participation on matters concerning safety will be set up. The Company''s values will require that its facilities, tools and equipment be well-maintained, along with having standards that require "good housekeeping" practices, in order for employees to be provided a safe place to work. EVR''s accident frequency rates are lower than in the UK. This could point to either good management systems or poor reporting and measurement systems. The figure also excludes contractor accidents as EVR are apparently not liable for accidents involving contractors. This position will change as EU legislation is applied; BRS also intend to reverse this trend and place considerable emphasis on contractor safety. EVR''s Transportation Services Department rescue team provides a rescue service to incidents within the Estonina railway system. The rescue team also provides rescue services to other railway operators.
Socioeconomic Impact of Labor Force Downsizing: The net result of the Company''s plans for improving productivity and efficiency by introducing new technology and improved work processes is a reduction in staff from the end of year 2000 level of 4,481 to 2,464 in 2005. Achieving a reduction of that magnitude is contingent upon successful implementation of the major program for investment. The Company will work closely with the Trade Unions and employees to ensure that the transition is as smooth as possible. The Department of Social Affairs (GOE) has agreed to provide a retraining program for retrenched employees of EVR. Where possible, new positions and vacancies within the Company will be offered to current or former employees first. EVR will honor all existing obligations to employees with respect to severance payments and agreed contracts as stipulated in legislation. It is also possible that the reduction in the labor force may not be as significant if business growth exceeds forecast. Discussions have already been held between the Company and Trade Unions on the program of retrenchment as well as the severance package which will be paid to staff. EVR have asked the Union to propose a program for consideration which will be fair and equitable. The approach may include laying off staff who have no dependents and consideration to circumstances where more than one family member currently works for the railway. EVR has agreed to prepare a Retrenchment Plan to guide the Company''s effort to reduce the work force to a sustainable number, while limiting the social implication as much as practically possible. Working groups will be set up with members from EVR and the Unions to discuss supply chain issues and employment opportunities such a central customer service facility, infrastructure maintenance and a locomotive maintenance shop.
Conclusion & Monitoring
Accordingly, IFC concludes that the proposed project will meet the applicable World Bank/IFC environmental and social policies and the environmental, health and safety guidelines upon successful implementation of the agreed mitigation measures.
IFC will evaluate the project''s compliance with the applicable environmental and social requirements during the lifetime of the project by reviewing the annual monitoring reports (AMRs) prepared for the project covering: [(i) the status of implementation of any measures contained in the Environmental and Social Action Plans and ongoing performance of project-specific environmental, health and safety and social activities as reflected in the results of periodic and quantitative sampling and measuring programs and (ii) conducting periodic supervision.
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