Document of

The World Bank

FOR OFFICIAL USE ONLY

A•~/V' Z /Yc - /X

b- 2 (, 4/ f - /Az Report No.12822-IN

STAFF APPRAISAL REPCRT

INDIA

INDUSTRIAL POLLUTION PREVENTION PROJECT

JUNE 9, J994

MICROGRAPHICS

Report No: 12822 INType: SAR

Country Operations, Industry and Finance DivisionIndia Country DepartmentSouth Asia Region

This document has a restricted distribution and may be used by recipients only in the performane oftheir official duties. Its contents may not otherwise be disclosed without World Bsnk authorization.

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CURRENCY EOUIVALENTS(as of Febnrary 28, 1994)

USS 1.00 = Rs. 31.37US$ 0.032 = Rs. 1.00

PRINCIPAL ABBREVIATIONS AND ACRONYMS USED

ASCI - Administrative State College of IndiaCAC - Command and ControlCETP - Common Effluent Treatment PlantCPCB - Central Pollution Control BoardCSS - Central Sector SchemeDEA - Department of Economic AffairsDFI - Development Finance InstitutionEAP - Environmental Action PlanEPA - Environmental Protection Agency (USA)FY - Fiscal YearGA - Grant AgreementGIS - Geographical Information SystemGOI - Government of IndiaIC - Implementation Ce'lICB - International Competitive BiddingICICI - The Industrial Credit and Investment Corporation of India, LimitedIDBI - The Industrial Development Bank of IndiaIIT - Indian Institute of TechnologyIWRP - Industrial Wastewater Recycling PlantLCB - Local Competitive BiddingLIBOR - London Interbank Offered RateMINAS - Minimum National Discharge StandardsMOEF - Ministry of Environment and ForestsNIB - Nordic Investment BankNEERI - National Enviromnental Engineering Research InstituteNICNET - National Information Center NetworkNIPFP - National Institute of Public Finance and PolicyOECF - The Overseas Economic Cooperation Fund of JapanSA - Special AccountsSCL - Single Currency LoanSOE - Statement of ExpendituresSO, - Sulfur DioxidesSPCB - State Pollution Control BoardTA - Technical AssistanceVLR - Variable Lending RateUTI - Union Trust of India

FISCAL YEAR

Government of India = April 1 - March 31ICICI = April 1 - March 31IDBI - April 1 - March 31

i FOR OPPICIAL USE ONLY

INDUSTRIAL POLLUTION PREVENTION PROJECT

LOAN. CREDIT AND PROJECT SUMMARY

aor-owe,. : a) India, acting by its President for the IDA credit; b) the IndustrialDevelopment Bank of India (IDBI); and c) the Industrial Credit andInvestment Corporation of India (ICICI).

GumarSor: India, acting by its President for the loans to IDBI and ICICI.

Peneficlaries: For the India credit, the State Pollution Control Boards of Andhra Pradesh,Gujarat, Karnataka, Madhya Pradesh and Rajasthan.

Credit Amowt: SDR 17.7 million (US$25.0 million equivalent)

Loa Amounts: US$143.0 million equivalent comprising: a) a US$50 million equivalent loanto ICICI; and b) a US$93 million single currency loan to IDBI.

Termns: For the IDBI loan, the proceeds will be lent as a Single Currency Loan(SCL) in US Dollars, for twenty years including five-years grace, at theBank's standard variable SCL rate. For the ICICI loan, the proceeds willbe lent in the Bank's currency pool, for twenty years including five yearsof grace, at the Bank's standard variable rate. The IDA credit would be onstandard terns, with a 35 year maturity.

OnL=dJlg Terms: IDBI and ICICI will provide sub-loans to sub-borrowers at rates determinedby the borrower based on market conditions and its lending policies and setat levels not lower than prevailing minimum lending rates, with a maximumten year repayment period including up to two years grace.

The GOI would provide from the proceeds of the IDA credit: i) US$22.5million equivalent to the Ministry of Environment and Forests (MOEF) forthe institutional and technical assistance components; ii) US$0.5 millionequivalent to IDBI which will act as a Government agent for the financingof pre-investment studies under the technical assistance component; and iii)US$2.0 million equivalent as direct support on a grant basis to the CommonEffluent Treatment Plants (CETPs), through IDBI.

frmiDesaipfti: The objective of the proposed project is to assist in the implementation of

the Government's policy on pollution abatement and promote cost-effectivepollution abatement from industrial sources. The project will focus on themost polluting industrial sectors, as already defined in the context of theprevious project and will comprise three components: (i) an institutionalcomponent, (ii) an investment component, and (iii) a technical assistancecomponent.

Thi document has a rrcted dstribton and may be used by recipiet only in the puoa f nefficW dude&ueotIts may not othwi be disclosd without Wold ank auhatn.

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The Institutional Component is designed to support a program ofstrengthening of the State Pollution Control Boards (SPCBs) in the States ofRajasthan, Madhya Pr, tsh, Karnataka, and Andhra Pradesh, which as agroup constitute the next tier of industrialized states in India. In addition,support to SPCBs in the States of Gujarat, Maharashtra, Tamil Nadu, UttarPradesh will continue to be provided complementing the activities alreadysponsored through the first project.

The investent Component is designed to support subprojects by individualfirms for pollution abatement, with a focus on waste minimization, andadoption of cleaner methods of production. The line of credit for priorityinvestments provided under the first project would be continued. Resourceswould also be renewed for financing of CETPs which would now includefunding for industrial water recycling plants (IWRPs) that use sewage asinput.

The Technical Assistance Component is designed to support: (i) theestablishment of a "clean technology institutional network" designed topromote the development, diffusion and transfer of technologies withenvironmental benefits for industry; (ii) extension services for theidentification of waste mninimization and abatement methods for small scaleindustry, and the organization of waste minimization circles; (iii) pre-investment studies for CETPs, IWRPs and other waste minimizationfacilities proposed to be financed under the project; and (iv) finance forother training and consulting services under planning by the MOEF,including the training requirements for the preparation of environmentalstatements by industries.

Project B ,enand Rlisks The project will support the implementation of the policy framework for

industrial pollution prevention. Strengthening of four additional SPCBs willresult in a greater effective coverage by monitoring and enforcemenntagencies. The project will play a role in the development and diffusion ofpollution prevention techniques by industry. The proposed technmcalassistance will introduce modern information and monitoring tools. Aboveall, the benefits from the project will result from the reduction of industrialpollution. This will produce a substantial improvement in industrial safetyindicators, and provide associated benefits for populations near industrialareas. The availability of Single Currency Loan (SCL) will assist IDBI inreducing its overall currency risk.

This project represents a significant expansion of scope, and is predicatedon the successful implementation of the first project. A major risk is thatif the enforcement is not sufficiently strengthened, then firms may not havea strong incentive to undertake abatement measures and the demand for theline of credit may to that extent be weak. The institutional component isdesigned to support the strengthening of the enforcement mechanisms. Anadditional risk is associated with a possible decline in domestic interest ratesin the medium term which could render sub-loans unattractive. This risk

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would be mitigated through the use of floating-rate on-lending terms.Finally, there is the risk that sub-borrowers might go out of business in thefuture, as the InJian economy restructures and becomes more linked to theinternational economy. This risk would be mitigated by requiring stringenteconomic analysis to be applied by IDBI and ICICI both on a subsectorbasis, and to each sub-project proposal.

&SbRALCA Cost: Local Foreigl Toa............ US$ ilion .......

ComponentsInstitutional 10.0 15.5 25.5Investment 242.2 57.8 300.0TechnicalAssistance 1.3 3.2 4.5

Total a/ 253.5 76.5 330.0

GOI 16.0 - 16.0IDBI/ICICI 60.0 - 60.0Project Sponsors 86.0 - 86.0IBRD 85.2 57.8 143.0IDA 6.3 18.7 25.0

otal 253.5 76.5 330.0

a/ Physical and price contingencies are added to the total; the project cost is exclusive of Wesand duies.

Estimated Loan and Credit Disbumets:

BANK GROUP FISCAL YEAR29 96 97 98 99 00 01 .-02

................... US$ million.Annual 5.6 16.8 19.6 32.4 37.9 38.8 14.0 2.9Cumulative 5.6 22.4 42.0 74.4 112.3 151.1 165.1 168.0

Economic Rate of Retum: Not applicable

Poverty Category: Not applicable

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INDU MQINDZINDUSTRIAL POLLUUTION PREENTIMON PROJECT

STAET APPRAISAL REPORT

Table of ContentsPage No.

LOAN CREDIT AND PROJECT SUMMARY. ....... ................... ... i-iii

1. INTRODUCTION .I

H. SECfOR BACKGROUND .3A. Policy and Regulatory Framework. 3B. GOI's Policy for Pollution Prevention. 3C. Progress in Implementation of the Policy Statenmnt .5D. Strengthening of the Boards .7E. Need for Additional Progress and Actions. 9

II. BANK ROLE AND LENDING STRATEGY .................. ...... 11A. Strategy for Bank Assistance in Environment ...... 11B. Environmental Protection in Industria Sector Lending ...... 11C. Lessons Learned from Previous Operations ...... 11

IV. THE PROJECT ...... 13A. Project Objectives ...... 13B. Project Description ...... 13C. Project Costs ...... 15D. Prcect Finncg ...... 16E. The Proposed Loan and Credit ...... 17

V. PROJECT IMPLEMENTATION ARRANGEMENTS ...... 20A. Management ...... 20B. Implementation Schedule ...... 22C. Procurement ...... 22D. Disbursements .24E. Monitoring and Evaluation ...... 24

VI. IMPLEMENTING AGENCIES ...... 26A The Centra and State Pollution Control Boards ...... 26B. Implementation Cell ...... 28C. Participating Fimancial Institutions .. . . . . 28

VI. BENEFITS AND RISKS ...... 32A. Benefits ...... 32B. Risks ...... 32

VIII. AGREEMENTS REACH AND RECOMMENDATION ...... 34

This repot was prepared based on the rsuls of the pre-apprnlsal and appraisd misos of Septmibr M3 d February1994, respectively and other prepartory acvlitis funded by a Japause Grant. Te report was prepared by W. Veramwith the assistance of Messr.Mmes. N. Hatial, l Sah, T. bolst, R. Ramanktty, S. Gopawamy and using someinformation from reports prepared by local consultant. Pee reviewes are R. Anderson (SA2CI); R. Calds (E);J. Fritz (ASTEN). Mess. J. K_ , SA2CI) b the Dvn Chie and H. V bel (SAZDR) is the CountryDhectr.

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1.1 Subprojects Financed under the Industrial Pollution Control Project .... ........... 39

1.2 Policy Statement for Abatement of Pollution ............................. 48

2.1 Strengthening Compliance with Regulations: Outline Terms of Reference .... ....... 55

2.2 Findings and Recommendations of the Review on the Needs and Capabilitiesof the Pollution Control Boards . . 58

3.1 Survey of Pollution Control Projects Financed by the Bank . 66

4.1 Cost of Recommended Training, Equipment and Facilities for the Boards . 72

4.2 Cost of Recommended GIS System for the Gujarat Pollution Control Board . 88

4.3 Proposal for the Establishment of a Clean Technology Institutional Network . . 89

S. 1 CETPs approved under the Industrial Pollution Control Project . 95

5.2 Project Imlementation Schedule . 96

5.3 Estinated Disbursement Schedu :.. for Bank Loans/IDA Credit ................. 97

5.4 Proposed Performance Indicators .................................... 98

6.1 Participating Financing Istitutions .102

7.1 Preparatory Activities Sponsored under the Japanese Grant .113

7.2 Documents in the Project Files .116

7.3 Supervision Plan .117

7.4 Water Cess ...... 118

INDIA

INDUSTRIAL POLLUTION PREVENTION PROJECT

I. INTRODUCTION

1.01 In May 1991, the Bank approved the Industrial Pollution Control project for India(Loan/Credit 3334/2252-IN) hereafter referred as the "first project". The project was intended to assistthe Government of India's (GOI) efforts to prevent environmental degradation caused by industrialoperations and assist in the attainment of the proposed short and medium-term targets of its environmentalpolicy. Under the project, the following activities were financed: (i) an institutional component designedto strengthen the Central and State Pollution Control Boards (SPCBs) in the states of Gujarat,Maharashtra, Tamil Nadu and Uttar Pradesh; (ii) an investment component designed to support effortsby industry to comply with regulations, including suppoit for the set up of common treatmert facilities;and (iii) a technical assistance component designed to support the Ministry of Environmnent and Forests(MOEF) ai.d the Development Finance Institutions (DFIs) in providing specialized technical assistancefor the evaluation of environmental problems and the assessment of their solutions.

1.02 Since the first project became effective in November 1991, substantial progresshas been achieved in the attaiment of its objectives. For exarnple, as of January 1994, 91% of theresources made available under the line of credit had been committed and over 64 innovativ^environmental schemes were at different stages of completion (Annex 1.1). Likewise, eight CommonEffluent Treatment Plants (CETP-) had been financed providing cost effective treatment to over 2000small and medium scale industries. Progress had also been achieved in the overall implementation of theinstitutional and training components. On a wider scale, the Boards supportea under the first project havesignificantly increased their effectiveness and a renewed effort is being demonstrated in getting industriesto meet statutory requirements. The GOI established a deadline of December 31, 1993 for industries toact toward compliance with discharge standards (Minimum National Discharge Standard or MINAS) TheCentral Pollution Control Board (CPCB) reports a large increase in the number of industries closed dueto non-compliance during the last year. Current and anticipated improvemenats at the Boards are signalinga renewed effort to meet industrial discharge standards, and direcly contributing to the fast pace of useof the financial resources available to industry under the first project, and on a wider scale, to theinternalization of environmenal considerations by industry. To the extent that these actions have beenstrengthened by the activities sponsored through the first project, the project has contributed toimplementation of the GOI's Policy for Pollution Abatement issued in 1992 (Annex 1.2).

1.03 Despite the progress achieved so far, pollution from industrial sources continuesto be of widespread concern, and a threat to the sustainability of economic growth. The control effortsunderway cover only a limited number of industries, and the four SPCBs supported under the first projectonly have authority over a fraction of the Indian territory. As the economy liberalizes and industrialgrowth accelerates, the potential impacts of industrial activity on the environment may further stress thenatural resource base of the country and impact the welfare of its population. Also, as common pollitionproblems (such as water quality and emissions of sulphur and nitrous oxides) become better controlledit becomes imperative to improve the cost effectiveness of pollution control measures. Given the largecosts associated with pollution abatement, and the massive efforts required for monitoring andenforcement, the GOI policy for pollution abatement has adopted the philosophy of pollution prevention,and waste minimization by encouraging the adoption of clean technologies and providing the incentivesfor industry to prevent pollution. A pollution prevention focus has recently been adopted in severalindustrial nations to achieve these goals (see for example Enviromental Protecon Agency, 1992

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"Pollution Prevention Act") and the GOI intends to use the same appzoach for its industrial sector. Thisapproach is clearly outlined in the GOI's policy statement and MOEF's most recent initiatives.

1.04 The proposed project has been designed to support the key aspects of this strategy.First, the proposed project would continue the program of institutional strengthening initiated under thefirst project, through the inclusion of additional States to facilitate compliance with the law and to broadentheir field of action, therefore providing incentives for industry to comply with regulations and promotepollution prevention. Second, the proposed project would contribute to the introduction and operationof CETPs at industrial estates by providing technical and financial assistance. Third, the proposed projectwould aid the efforts of the most polluting industries for adoption of cost effective waste minimizationand resource recovery or pollution abatement measures. Fourth, the proposed project will assist ininformation dissemination on cleaner methods of production and successful waste minimization efforts.

1.05 Equally important, the new project is serving as a catalyst to atract additic.nafinancial resources from other sources. The proposed project is being replicated in substance and formatby: i) The Overseas Economic Cooperation Fund (OECF) which is considering a request for about US$.50million equivalent for funding of waste minimization efforts and support to the West Bengal StatePollution Control Board; and ii) the Nordic Investment Bank (NIB) which is considering a GOI requestfor assistance of US$50 million to fund waste minimization and pollution prevention efforts. Bothproposed projects have benefitted from the Bank's leadership in the assessment of the problems and thestructuring of the actions to be undertaken. Both projects are expected to be approved during calendaryear 1994 and will enhance the impact of the assistance provided by the Bank. Taken together, theseefforts by the World Bank, OECF and the NIB complement each other to enhance the proposed pollutionabatement program.

1.06 The appraisal report provides a review of the industrial and environmental policyin India in Chapter 2, emphasizing recent reforms and proposals to promote effective enforcement andadoption of control measures. In Chapter 3, the report describes the Bank role and lending strategy forenvironmental assistance to industry in India. Chapter 4 describes the proposed project, Chapter 5 theimplementation arrangements, Chapter 6 the participating institutions, Chapter 7 the benefits and risksassociated to the proposed project and Chapter 8 the agreements reached with the government and otherinstitutions.

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n. SECTOR BACKGROUND

A. Polcy and ReMatoM Fr

2.01 Macroeconomic Reform. Since mid-1991, the Government has embarked on acomprehensive adjustment program in an attempt to break with the development strategies of the past,and restore macroeconomic stability together with broad-based liberalization of the economy. TheGovernment's new development strategy aims at substantially reducing its intervention, both direct asndindirect in economic decision making. The shift from an inward oriented import substituting trade regimetowards policies that foster closer integration with the global economy, is bound to reduce theinefficiencies in the industrial sector, besides providing easier access to cleaner technology. Also,elimination of subsidies for inputs such as power, and vwater will tend to reduce wasteful use of theseresources. However, with economic growth, comes an increase in the scale of industrial activity, witha conconmtant increase in aggregate pollution despite improvements in process efficienc). Under theseconditions, pollution and environmental degradation caused by industrial sources will continue to be amajor threat to the health and welfare of the population, and potentially undermine sustainabledevelopment of the country.

2.02 In December 1993, the MOEF completed preparation of an Environmental ActionPlan (EAP) as a blueprint for irncorporating environmental considerations into development strategies.EAP identifies seven priority areas for focus: (i) conservation and sustainable utilization of biodiversityin selected eco-systems including forests, mangroves, wetlands, coral reefs, mountain eco-systems, (ii)afforestation, wastelands development and conservation of soil and moisture and ensuring that watersources are not polluted, (iii) control of industrial and related pollution with an accent on the reductionand/or management of wastes, particularly hazardous wastes, (iv) improving access to clean technologies,(v) tackling urban environmnental issues, (vi) strengthening scientific understag of environmentalissues, as well as structures for training at different levels, orientation and creating environmentalawareness, resources assessment, wvater management problems, etc, and (vii) an alternative energy plan.MOEF sees EAP as a dynamic document which will evolve with time.

2.03 Le islat. Pollution mitigation has been on the agenda of the GOI since theearly 1970s. The Water (Prevention and Control of Pollution) Act of 1974 (amended in 1988) was thefirst legislation related to pollution control. The CPCB and the SPCBs were established to monitor andregulate compliance with the law. This was followed by the Air Pollution Control Act, 1981 (amendedin 1987), with CPCB and SPCBs empowered to regulate compliance. An umbrella EnvironmentProtection Act was passed in 1986, and MOEF was created at the Central level. The rules give theCentral Government the ability tu prohibit or restrict the establishment or operation of an industrialfacility on environmental giounds. These rules also established comprehensive MINAS. These actionswere followed by the enactment of toxic and hazardous waste regulations that restricted the disposal ofuntreated materials. The impacts of the industrial policy on industrial pollution, and the scope of theWater, Air and Environment Acts are discussed in Chapter II of the Staff Appraisal Report (SAR) of thefirst project (Report No. 9347-IN).

B. GOI's Policy for Pollution Prevention

2.04 Background. The Government of India issued a policy statement for abatementof Pollution (No.H. 1 1013(2)/90-CPW) in February 1992. The policy statement emphasizes that it is notenough for the Goverrnent to notify laws which are to be complied with, and affirms the Government'sintention to integrate environmental and economic aspects in development planning, with stress on thepreventive aspects for pollution abatement and promotion of technological inputs to reduce industrial

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pollutants. The overall policy objective is to integrate environmental considerations into decision makingat all levels. Specific steps identified to rneet this ebjective are: (i) prevent pollution at source; (ii)encourage, develop and apply the bes. available practicable technical solutions; (iii) ensure that thepolluter pays for the pollution and control arrangements; (iv) focus protection on heavily polluted areasand river stretches; (v) involve public in decision making; and (vi) increase the safety of industrialoperations.

2.05 Polluter Pays Principle. The above approach is appropriate and merits thesupport of the Bank. The proposed project would focus on pollutiorn prevention through the use ofcleaner means of manufacture and pollution abatement where effective. The key policy issue lies in theimplementation of the "polluter pays" principle. One aspect lies in setting and enforcing appropriatedischarge standards for industry. Another lies in charging for pollution. In the inunediate term, GC)I'sfocus is on increasing the water cess and on shifting from concentration-based to load-oased standards.This would add to polluter costs, remove the incentive for polluters to dilute effluents by adding water,and strengthen incentives for adoption of cleaner technologies. This agenda in the incentives area is inkeeping with the strategy initiated under the first ,roject. As a next step, alternative measures to furtherpromote compliance (such as wider use of polludon taxes) are envisaged. In the longer-term, MOEFintends to explore wider usage of economic instruments.

2.06 Market-based systems to promote pollution abatemnent have been introduced insome industrialized nations and are being tried in some developing nations (some as in th-e case ofMAexico, in the context of Bank finarnced projects). Other experiments are being tried on small regions(e.g. the proposed Regional Clear Air Incentives Market - RECLAIM - by the South Coast AirManagement District in the U.S.) or for relatively small volumes of particular pollutants (less than 3%of SOx emissions in the U.S). Advantages associated to market based systems include: efficiency,least-cost and decentralized nature of these instruments. However, all these are pioneering activities stillunder experimentation.

2.07 On the other hand, command and control (CAC) approaches have a relativelysuccessful track record in industrial countries, but impose uniform standards on all firms irrespective ofcomparative cost advantages of different firms to treat wastes to different levels. When environmentalmanagement is in its initial stages, the relatively blunt quantitative controls of a CAC system might bemore effective than market based instruments. Also, CAC systems often have a behavioral impact. Inimposing standards, and specifying technology, CAC systems generate awareness by influencing howpeople think about activities they are involved in, and the technologies in use. Accordingly, at the currentstage, GOI has elected to strengthen its regulatory and enforcement mechanisms as a sine qucondition to abate pollution, while the potential for market based instruments is reviewed.

2.08 Focus on Pollution Prevention. The GOI policy for pollution abatementemphasizes the need to prevent pollution at source by adopting a strategy that encourages wasteminimization and use of cleaner technologies. In an effort to integrate economic and environmentalplanning, GOI is using a variety of incentives and penalties to coax industries to adopt efficiencyenhancing waste minimization practices. The different initiatives being irm lemented under the PolicyStatement are geared towards this objective.

2.09 Outreach to Small Scale Polluters. Small manufacturers frequently lack thetechnical knowledge and the financial means to control or reduce effluents from their operations. Yet,small scale industry in aggregate is a large source of water and airborne pollutants and has beenassociated with significant volumes of toxic and hazardous waste. The GOI policy for pollutionabatement recognizes the need to address these issues and endorses the use of a variety of incentives andextension efforts to encourage compliance by the small scale sector. It also endorses the use of strict

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controls, including closure, when all other measures to ensure compliance have failed. The key elemnentsof the outreach program include: (i) directed grants for partial financing of CETPs serving conglomeratesof small scale manufacturers; (ii) extension and technical assistance services supported by MOEF; (iii)financing of pre-investrnent studies to identify key envirornental problems and effective solutions; and(iv) industrial zoning to cluster similat industries in an effort to gain in economies of scae for providingutilities and envirownental services.

2.10 Concern for Industrial Safety. Parallel to the efforts directed to control pollution,C'OI intends to promote safety in industrial operations. To this effect the MOEF has recently issueddetailed regulations on the handling, transport and storage of hazardous materials and prepared a programfor emergency response preparedness. The process of monitoring and enforcement of safety regulationsparallels the system for effluent control. GOI intends to fnd several initiatives to promote industrialsafety in the future, includirg: (i) the development of emergency response centers; (ii) regional responseplans; (iii) efforts to improve compliance with in-plan safety measures.

C. PrEess in Imlementation of the PoliEc Statement

2.11 Considerable progress has been achieved in the implementation of the PolicyStatement for Abatement of Pollution. In the year since its enactment, actions have been taken in mostareas covered under the statement. Recent and proposed actions related tc dte statement's agenda as theserelate to industrial activities, are presented below.

2.12 Fiscal Incentives

(i) Water Cess. MOEF sees further increases in the water cess as a key element in itsefforts to reduce industrial pollution. The water cess was increased five to six foldeffective January 26, 1992. However, even with these substantial increases the watercess is well below the treatment cost of industrial wastewater. Accordingly, theMOEF has decided to propose a large increase in the cess. MOEF proposal entailsa nmlti-stage increase, each one encompassing a two to three fold increase in therates. The process for amendment of the Act is already under way and MOEF hascirculated a note proposing adoption of the first stage increase. Actualinplementation of these additional increases will constitute a significant incentive toindustry to reduce water L%age and prevent pollution;

(ii) Incentives to Small Scale Industries. Small scale industries are responsible for asignificant share of pollution loads in the industrial sector; yet, the record ofcompliance among small scale industries is very deficient. While MOEF intendsto continue application of the "polluter pays principle", assistance is being providedto the small scale industry to implement pollution control measures. The support isprovided in the fonn of technical assistance, including awareness programs andlumited grants to promote CETPs and extension services.

(iii) Incentive Study. MOEF has begun the review of the fiscal and regulatory incentivesfor pollution control in industry. As part of this effort, The National Institute forPublic Finance and Policy (NIPFP) recently completed the study: "Incentives andRegulations for Pollution Abatement with an Application to Waste Water Treatmn.The study was a first step towards exploring introduction of market based insumentsfor industrial pollution abatement. The study recommends four approaches: (a)abatement charges with government clean-up, (b) abatement charges with third partyclean-up, (c) tax/subsidy schemes, and (d) tradeable private permits system. MOEF

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foresees the need for additional review of these issues and will organize a task forceto explore wider use of economic instruments. Further analysis of these approachesis required before concrete Governmental action can be taken. During negotiations,agreement was reached that by December 31, 1994, a task force would beestablishled by MOEF to carry out further analysis of market based instruments forpollution abatement under terms of reference satisfactory to the Bank and discussthereafter steps for the implementation of program for the use of such instruments.

(iv) Compliance Studv. In preparing this project, MOEF also decided to conduct areview of measures to strengthen compliance with industrial pollution controlregulations (with emphasis on non-traditional approaches) by small scale industry.The review and implementation of its recommendations will assist in enhancingcompliance, with such regulations in particular by the small scale sector. Fundingfor the study has been provided under The Japanese Grant as part of projectpreparation. The terms of reference for the review are given in Annex 2.1;

(v) Other Measures. The recent budget submitted by GOI, has provided for accelerateddepreciation on all pollution abatement equipment. Under the new provisions,industries will be able to depreciate their investment on pollution abatement in oneyear.

2.13 Strenathening of Standards

(i) Further to the increases in water cess, and in order to promote the conservation ofwater use by industry, on February 28, 1992, GOI notified standards for maximumwater usage by industrial activity for seven industrial sectors (chemicals, pulp andpaper, fertilizers, tanneries, sugar and distilleris and other agro-industries, andmetallurgical industries).

(ii) Enactment of Load Based Standards. To promote the shift from pollution control topollution prevention, GOI has decided to gradually move the standards to a load-basetied to actual production. The shift from concentration-base to load-base will havea significant impact on the incentives for industries to reduce the negativeenvironmeltal impact of its operations. Its application in India is first amongdeveloping countries in the region. The standards have been notified for a limitednumber of polluting industries in 1992. Additional standards were notified (May 19,and December 31, 1993) for Refineries, Smelters, Manufacturers of Inorganic Acids,Coke Ovens, Aluminum Plants, Glass Manufacturers and some Synthetic Fibers,which brings a total of II industrial sectors under this regime. The GOI intends tocontinue the gradual enactment of load based standards, in consultation with CPCBand SPCBs, based on a careful evaluation of systems and methods and it plans tonotify a total of six additional industries within the next year.

2.14 Improved Enforcement of Laws. There has been a significant increase in the closureof firms which do not comply with various statutory requirements. Public interest litigation is gapiingmomentum, and the courts are increasingly performing a pro-environmental role as indicated in the recentpublic interest litigation resulting in the Supreme Court ordering closure of a number of industrial units.This illustrates the growing determination of the society at large to safeguard the environment, but at thesame time, the need to resort to the courts on the basis of public interest litigation indLates theweaknesses of the administrative machinery in place. However, the legal process remains an importantweapon, albeit its deployment is time consuming. To expedite legal actions, MOEF is proposing

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legislation for the creation of Enviromnental Tribunals. This legislation, is expected to be approved byParliament during 1994. The Tribunals, linked to management of hazardous substances established underthe Act, would be specifically entrusted to solve a limited set of environmental litigaticn cases, withlimited scope for appellate review by the Supreme Court of India. This initiative will strengthenenforcement and compliance with environmental laws. As noted above MOEF intends to review the legalaspects and examine non-traditional methods to promote compliance with regulations (Annex 2.1). Thisreview will be commissioned by June 30, 1994.

2.15 Environmental Statement. MOEF has introduced a requirement for preparing ofEnvironmental Statements by industrial sources of pollution under notification issued in April 1993.The Statement is now mandatory for all industries above a certain minimum size. The Statements areto be submitted once every year. The notification requires that industry provide information on water andraw material consumption, pollution generated, information on hazardous wastes and solid wastes alongwith disposal practices. The industries are also required to make an assessment of the impact of pollutioncontrol measures on the conservation of natural resources. The Statement will be implemented in phases,starting with those industries sought to promote in-house capacity in 17 heavily polluting sectorsdesignated by MOEF. A report on the implementation of the Statement is being prepared by CPCB.Also, it is being proposed by MOEF that environmental statements become mandatory in the annualreports of companies. This change will further internalize environmental issues as part of the annualreports of industrial companies. Under the proposed project, assistance will be provided for the trainingand design aspects of these Statements.

2.16 Critically Polluted Areas. MOEF, in consultation with the State Governments, hasidentified 22 critically polluted industrial areas in the country. Many of these areas have largeconcentrations of small and medium scale industries. An interim report identifying key issues and actionplans in nine of the most polluted areas is being prepared by CPCB. The implementation of the actionplans will contribute to the amelioration of environmental problems in these areas. Efforts to implementCETPs for clusters of industries are seen as an important element in achieving an improvement in theenvironmental situation in these areas. T'hese efforts will be supported through the Common TreatmentSchemes under the proposed Pollution Prevention Project. GOI intends to complete the review of theaction plans once completed and will fund its recommendations from its budget.

D. StrenftheniM of the Boards

2.17 Enforcement. The enforcement and monitoring activities of the Boards are beginningto result in a positive impact in the enviromnental performance indicators of industry. GOI establishedDecember 31, 1993 as deadline for industries to adopt action programs leading to compliance withdischarge standards, which has resulted in a record niumber of companies initiating or continuing pollutionabatement schemes (Fiure 1). Simultaneously, improvements in monitoring, enforcement and pul icawareness Lave resulted in a large increase in the number of industries closed due to non-compliance withenvironmental regulations during the last year. For example, over 200 industries have in the recentmonths been closed in Agra and in the Ganga basin, by order of the Supreme Court. A recent reviewconducted by MOEF and CPCB concludes that there has been improvement in compliance andenvironmental performance indicators in the Indian industry (Figue 1). Although. the program ofimprovements sponsored under the first project is still at an early stage, recent statistics illustrate therenewed will of MOEF and the Boards to enforce regulations and apply the sanctions available under thelaw and increase public awareness in the country.

2.18 Monitoring. Various monitoring networks have been developed under differentschemes: (i) water quality monitoring of Indian aquatic resources under the Global EnvironmentalMonitoring System (GEMS) at 51 stations; (ii) Monitoring of Indian National Aquatic Resources

8

(MINARS) at 402 stations; and (ii) 27 stations under the Ganga Action Plan. The networks in totalrepresent a growth from 18 stations in 1977 to 480 stations by 1992, and covers 13 major rivers, 15medium rivers, 99 minor rivers, 42 lakes, 25 groundwater stations, and three each of canals, creeks, anddrains. Similarly for air, the National Ambient Air Quality Monitoring Program (NAAQM) initiated in1984 has been under continuous expansion. Beginning with 28 stations in seven cities, the program nowcovers 290 stations in 99 cities. The monitoring efforts are beginning to supply information and for thefitst time an overall estimate of the volume of emission of pollutants has been made possible. Initial dataindicates that some headway has been made in arresting the increase in emissions of industrial pollutants(Figure 2). These monitoring programs are supported by CPCB at the SPCBs. In addition, SPCBscontinue to monitor wastewater, air emissions, and ambient air/water quality under their own programs.All the SPCBs and the CPCB are cornected or are in the process of being connected through the NationalInformation Center Network (NICNET).

Rat oo Compliance In Highly Polluting lndustrl"*

Per ouso ea hgly puanun hWmme

;0 ....... -

*WREAT NAHRARAS I NADU U. PRADE*NI

Figure 1

2.19 Strentening of Boards. Under the 8th plan period, Rs. 130 million have beenearmarked for activities under the purview of CPCB and SPCBs. Strengthening of the Boards is beingachieved through training, improved finances (including increased collections under the water cess act),streamlining of functions and improved technical capabilities. Progress has also been achieved in thedevelopment of area based monitoring networks, including those under the inland waters monitoringprogram and the ambient air quality monitoring network. Although the SPCBs' recent activities havegenerated improved compliance (Figure 1) a number of issues remain on which progress is still beingachieved. These include: (i) completion of the restructuring study of the SPCBs, which is now beingconducted by the Administrative State College of India (ASCI) Hyderabad and Indian Insttute ofTechnology (IIT) in Bombay; and (ii) delays in the procurement of equipment and facilities sponsoredunder the first project.

9

2.20 The following actions have recently been undertaken to address the concerns outlinedabove. First, the restructuring study is being developed in a satisfactory manner. The task force whichis formed by ASCI and IIT have produced position papers on a number of issues regarding theorganization of Boards. In parallel, a review of needs and capabilities for the new Boards to be includedunder the project has been completed and its recommendations have been made available to ASCI.MOEF anticipates a concerted effort to reform the organizational structure of the Boards once the ASCIreport is completed. Key findings of the review are summarized in Chapter 6 additional details areprovided in Annex 2.2. These are expected to be examined by the individual SPCBs as part of theInstitutional component of the proposed project. Finally, agreement has been reached between the Bankand MOEF, on the procedures and the use of Bank Standard Bid documents by the procurement agentacting on behalf of MOEF for the first project. It is now anticipated that the procurement activities willproceed without further delay.

Emision of Key PollutbntsFrom A11 Sourc" (In million tone)

35

15 .................

SL

1991 1992

0M w s womDMW6aduww,R.iwa,_ AfOEF P_gfs R.pot an POIIaan CoMM, 1863(0* mEw.m and lurg. sagef IndauS

Figure 2

E. Need for Additional Prof and Actions

2.21 As discussed in Chapter 1, given the large costs associated with pollution abatement,and the massive efforts required for monitoring and enforcement, GOI policy for pollution abatement hasadopted the philosophy of pollution prevention. This will be done by encouraging the adoption of cleantechnologies and providing the incentives for industry to prevent pollution. The fmt project hasconfirmed the potential for waste minimization efforts as nearly half the resources committed so far havebeen used by firms using resource recovery, cleaner technologies, and waste minimization to abatepollution. To continue the development of an incentive structure for pollution prevention, additionalactions are being taken that complement the policy framework.

10

2.22 Adoption of Increase in Water Cess. Actual implementation of additional increasesin the Cess will constitute an incentive for industry to reduce water usage and prevent pollution. Theproposed revisions to the Act would be an important weapon in improving the incentives framework forpollution prevention. The first-stage increase is likely to be enacted by parliament during 1994. Initialdata collected through the State Boards indicates that the rate of collections in the industrial sector arehigher than for other users at least in some States (Annex 7.4). Circulation by MOEF of the noteproposing the amendment to concemed agencies was done in January 1994. Amendment of the cess isnot a condition for the proposed loan.

2.23 Completion of Load-based Standards. MOEF through CPCB is beginning to prepareadditional standards to deal with the remaining 50% of the most polluting industries, some of which areexpected to be ready in about a year. Also, MOEF has now issued water consumption standards, abovewhich the users will pay the water cess. This in essence is a charge on excessive water consumption thatwill further strengthen the incentives to prevent pollution. The standards for water use will be used asa complement to the notification on load based standards. MOEF with the technical assistance of CPCBis well equipped to continue this process on its own. The actions already taken constitute an ir -ortanttool for waste minimization that will support the proposed project objectives. No further conditionalityin this regard is proposed.

2.24 Studv of Fiscal Incentives. MOEF is in the process of reviewing therecommendations suggested by the NIPFP study. It has been agreed with the GOI that it will implementa program for the review of market based instruments.

11

m. BANK ROLE AND LENDING STRATEGY

A. Stratem, for Bank Assistance in Environment

3.01 The Bank's commitment to environmentally sound development is pursuedsimultr.neously through sector work (aimed at assisting India develop environmental management policiesand st.ategies), and lending operations (designed to support the development of environmental and naturalresource management institutions and financing of investments that will address priority environmentalproblems). On the policy front, the Bank is discussing ways to prioritize environmental problems andstrategies to tackle them. This is being pursued in the context of the EAP, and is consistent with theCountry Assistance Strategy discussed by the Board in May 1994. The strategy as it relates toenvironment places a premium on improved natural resource management with a focus on reforestation,prevention of land and water degradation and control of industrial pollution. The project addresses issuesrelated to land and water degradation and industrial pollution.

3.02 Simultaneously, the 1994 Country Economic Memorandum has covered a review ofthe status of India's efforts to control pollution and strengthen the management of its natural resources.A variety of lending operations, in addition to this one, are being planned to tackle environmentalproblems (for example, State-level forestry development programs, water resources consolidationprojects,and Renewable Energy Development and demand management programs in the power sector and theOzone Depleting Substances Program). The systematic application of the Enviromnental Assessmentprocess to new and ongoing lending operations in reinforcement of the Government's own environmentalclearance process is also an important Bank objective.

B. Enviromental Protection in Industrial Sector Lending

3.03 During the last five years, the Bank has approved US $382.5 million in projects withmajor environmental components in India. Most of the effort so far has been concentrated on the issuesof forestry, watershed management and industrial pollution control. Within the industrial sector itself,the Bank's environmental efforts have included the first project and a Technology Development Project(Ln 3119/Cr 2064-IN) that also promotes the development of cleaner technologies. Further actions beingconsidered regarding environmental protection include the development of a study of regionalenvironmental improvements involving coal mining, power generation, industry and urban developmentin the Singrauli Region, and a Coal Sector Study.

C. Lessons Leaed from Previous OneratioMs

3.04 Although the project has been under implementation for just over two years, thereare a number of lessons that were utilized in the design of the new project. These lessons are describedin various supervision reports and are herewith summarized: (i) Strong institutional coordination betweenCPCB ard SPCBs is required to prevent the duplication of efforts and ensure efficient use of theresources invested in training, monitoring and equipment. Coordination and mutual consultation is alsoessential to ensure that the State Boards are fully engaged in the development of the sponsored activities;(ii) dissemination of information by MOEF and SPCBs is required to ensure that potential beneficiariesare apprised of the availability of financial resources and technical assistance under the project; (iii)CETPs are particularly difficult to organize, because of the large number of industries and partiesinvolved. Therefore, monitoring and assistance from the part of SPCBs and financial intermediaries isessential to achieve the proposed objectives; and (iv) procurement of equipment for the SPCBs has beendisappointingly slow. A workable procurement system is now in place.

12

3.05 On a wider scale, the experience with preparation of projects on industrial pollutionhas been reviewed (Annex 3.1). The review has a number of findings and recommendations; these are:(i) institutions empowered by law to act as monitoring and enforcement agencies and with the resourcesrequired to effectively execute their mandate; and (ii) and adequate framework to provide for theincentives to comply with existing regulations. These conditions do exist in India and their refinementis being sought in the context of the proposed project.

3.06 The rate of commitments and disbursements under the Pollution Control Project hasbeen considerably faster than originally anticipated. Disbursements under all other projects mentionedabove have been consistent with Bank-wide averages.

13

IV. THE PROJECT

A. Project Objectives

4.01 The objective of the proposed project is to promote cost-effective pollution abatementfrom industrial sources. The specific goals are to: (i) strengthen four additional SPCBs in respect oftheir facilities, equipment, and skills, to enable them to more effectively perform their mandate, whilecontinuing the program of support to the Boards already assisted; (ii) facilitate priority investmentsdedicated to prevent pollution from industrial sources by encouraging use of clean techi'nologies, wasteminimization and resource recovery by industry or pollution control where cost effective, and where theseinvestments have a significant demonstration and replicability potential; and (iii) provide technicalassistance for: (a) adopt modern tools of information, management and control of residues; (b) organizea clean technology institutional network; and (c) set up of an extension service on enviromnentally soundpractices for small scale industry.

B. Project Descrition

4.02 The proposed project wiil focus on heavily polluting industrial sectors, as defined byMOEF (17 industrial sub-sectors) and will comprise three components: (i) institutional; (ii) investment;and (iii) technical assistance.

The Institutonal Component

4.03 This component is designed to support a program of strengthening of the SPCBs inthe States of Rajasthan, Madhya Pradesh, Karnaaka, and Andhra Pradesh, which as a group constitutethe next tier of industrialized states in India. In addition, support to the State of Gujarat will continueto be provided complementing the activities already sponsored through the first project, particularly asthese relate to equipment and training for promotion and monitoring of waste minimization efforts anduse of cleaner technologies. This component is distinct and separate from the activities sponsored underthe first project. This component is designed to support: (i) a training program including consultancyservices; (ii) acquisition of equipment required to upgrade the technical capabilities of the Boards; and(iii) other laboratory facilities. This component has been tailored to meet the perceived immediate needsof the SPCBs in the targeted States. this component will also support the development of a pilotprogram for the development of a Geographical Tnfonnation System (GIS) to track, monitor and controlthe release and disposal of hazardous residues at the Gujarat State Pollution Control Board (GPCB).Details on the proposed improvements are available in the project files.

4.04 Training. The proposed project will assist SPCBs with training in four major areas:i) quality assurance and quality control; ii) maintenance and operation training, including safety issues,for the proper handling of samples and equipment; iii) specialized technical training on topics such as riskassessment, hazardous waste management and environmental chemistry; and, iv) supervisory training formanagement of the laboratories work and for planning and implementation of pollution monitoringstrategies. Details are provided in Annex 4.1.

4.05 Equipment. The proposed project will assist SPCBs with a program of improvementsin analytical and monitoring equipment, designed to meet their nimum= workleads. This program willbenefit from experiences already gained through implementation of the first project. Support will beextended to central laboratokies in each State as well as to the smaller regional laboratories. Details aregiven in Annex 4.1.

14

4.06 Facilities. The proposed project will support the provision for refurbishing oflaboratory facilities. This will include: minor civil works and equipmert to ensure adequateenvironmental control inside the laboratories (humidity, temperature, ventilation); furbishing ofspecialized rooms (such as fuming chambers, dust free rooms for trace level sample preparation, gloveboxes for handling of hazardous waste samples) and the provision of laboratory space; and utilitiesequipment including back up power facilities, voltage regulators, and data processing equipment. Detailsare given in Annex 4.1.

4.07 Geographical Information System. The proposed project will also support thedevelopment of a pilot phase for a GIS, based in the Gujarat Pollution Control Board, to assist in themonitoring and tracking of toxic residues. The proposed project will assist in the financing of thehardware, software and training requirements for the set up of the system in the central and some regionaloffices of the Board (Annex 4.2).

The Investment Component

4.08 This component is designed to support efforts by individual firms for pollutionabatement, with a focus on waste minimnization, and adoption of cleaner methods of production. The lineof credit for priority investments provided under the first project, is now almost fully committed, wouldbe followed up by a new line of credit under eligibility criteria as defined in para 4.09. Resourceswowd also be renewed for the financing of CETPs, (IDA funds are earmarked for the funding of thesefacilities), which would now include provisions for funding of Industrial Water Recycling Plarts (IWRPs)that use sewage as input. Priority would be given to investments designed to adopt cleaner methods ofproduction or reduce waste at the source.

4.09 Individual Treatment Facilities. The sub-projects presented by individual firms, caneither consist of waste minimization, resource recovery, or pollution abatement and waste treatmentschemes. Specifically, the sub-projects would need to meet the following conditions: (i) shall be heavilypolluting industries as defined by the MOEF; (ii) shall have a substantial positive effect on theenviromnent and shall meet the environmental standards prescribed for the concerned industry; (iii) wouldrequire an environmental impact statement, identifying the nature of the problem to be addressed and thepositive impacts of the actions proposed; (iv) when examining projects that seek to control similarpollutants, priority will be given to the most cost-effective approach; and (v) to the extent practicable,and subject to commercial considerations, the Borrower shall consider for financing sub-projects whichincorporate replicable and innovative approaches with a demonstration effect. In addition, the followingfinancial conditions need to be met: (i) the sponsoring enterprises would have to meet acceptable financialbenchmarks with respect to such indicators as debt-equity ratio, debt-service coverage, and liquidity ratio;(ii) all projects will be appraised by IDBI and would be required to meet appropriate tests of financialand economic feasibility, including sub-sector level analysis when deemed necessary. These assessmentsare already an established practice at both institutions as part of their portfolio review; and (iii) for anysingle enterprise any subloan or combination of subloans should not exceed US$5 million. These aresimilar to the criteria already in place under the first project which have resulted in a balanced set ofsubprojects, that satisfactorily addresses the objectives of the project.

4.10 Commnon Treatment Facilities. The proposed project will finance the design andimplementation of CETPs for the treatment of wastewater and solid materials at industrial estates andother sites with a concentration of industries, in particular of small size. The proposed project willsupport treatment facilities and the studies required for their design. Support will also be provided forseveral municipal wastewater recycling facilities IWRPS designed to provide water to industrial estates.These facilities are expected to be owned, operated and maintained by specially constituted companieswhich will be fully responsible and liable for the operation of the units on a commercial basis.

15

4.11 This component is designed to support sub-loans for individual projects undertakenby enterprises, and sub-loans and sub-grants for the set up of CETPs at industrial estates, includingIWRPS involving industrial estates and municipalities on the basis of the following eligibility criteria: (i)a thorough survey of the effluent at the site has been undertaken and provisions have been made foradequate pretreatment or disposal of effluents not suitable for common treatment; (ii) a feasibility studyhas been conducted, the economic and financial viability has been established and operating andmaintenance costs have been estimated; (iii) an adequate sponsor has b-en constituted or identified withinstitutional and technical capability to manage, operate and maintain the facility; (iv) legal and financialresponsibilities have been properly defined and the facility owner is liable to the enforcement agenciesfor the quality of the common effluent after treatment; and (v) adequate cost formulae have been adoptedwith the associated mechanisms for cost sharing or fee structures from the individual enterprises. Forall projects under the investment component, public hearings would be carried out prior to sanctioningof sub-loans which may raise legitimate public concerns.

The Technical Assistance Component

4.12 This component will support: (i) establishment of a 'clean technology institutionalnetwork" designed to promote the development, diffusion and transfer of technologies with environmentalbenefits for the industrial sector (Annex 4.3); (ii) extension services for the identification of appropriatewaste minimization and abatement methods for small scale industry, and the organization of wasteminimization circles; (iii) feasibility and pre-investnent studies for CETPs, IWRPs and other facilitiesproposed to be financed under the proposed project; and (iv) other training and consulting services underplanning at MOEF, including training for the adoption of environmental statements.

C. 1roject Costs

4.13 The estimated project cost is US$330.0 million equivalent, including physical andprice contingencies. Direct and indirect foreign exchange costs account for about US$76.5 million orabout 23% of the total cost. The proposed project costs are based on estimates gathered during theappraisal mission of February 1994, and other preparatory activities. The project cost by component isgiven in Table 4. 1.

4.14 The total cost of the Institutional Component is estimated at US$25.5 million andincludes physical and price contingencies of US$1.8 million and US$3.3 million respectively. Physicalcontingencies have been estimated at 9% of the base cost. Price contingencies have been estimated basedon the phasing of expenditures consistent with the implementation schedule and local and internationalinflation rates as projected by the Bank. International inflation was assumed at 2.2% for 1994-2000 andthe domestic inflation rates at 9.5% in 1994, decreasing progressively to 6.0% by 1997 and thereafter.The total cost of the investment component is US$300.0 million comprising the cost of setting up ofcommon effluent and recycling facilities (US$50.0 million) and individual sub-projects (US$250.0million). The cost of the Technical Assistance component is estimated at US$4.5 million.

16

Table 4.1 Project Costs8

Project Component Local Foreign Totat Local Fareign Total X Fosrogn

Rqpee Million US Nitlion

tnstitutionalTraining 21.9 12.5 34.5 0.7 0.4 1.1

Equipment 37.6 354.5 392.1 1.2 11.3 12.5

Facilities 87.8 31.4 119.2 2.8 1.0 3.8

Operation 94.2 94.1 3.0 3.0

ease Cost 241.5 398.3 639.9 7.7 12.7 20.4

ContinSmncie lPhysicat 25.1 31.4 56.5 0.8 1.0 1.8

Price 47.1 56.5 103.6 1.5 1.8 3.3

Subtotal 313.7 486.3 800.0 10.0 15.5 _5.5 61

CETPs &IWRPs 1427.3 141.1 1568.5 45.5 4.5 50.0

Individual 6169.0 1671.6 7840.6 196.7 53.3 250.0Projects

Subtotal 7596.3 1812.7 9409.0 242.2 57.8 300.0 19

TechnicalAsis1saiee trsining 6.3 3.1 9.4 0.2 0.1 0.3

Consulting 3.1 34.5 37.6 0.1 . 1.1 1.2ServicesEquipment 31.4 62.7 94.1 1.0 2.0 3.0

Subtotat 40.1 120. 141.0 1. 3 A 67

Tout Project 2239.3 345 23 76s 330.0 23cost

l Excludes taxes and duties.

D. Proiect Financing

4.15 The overall fmancing plan for the proposed project is given in Table 4.2. Theproposed project would be financed through the Bank loan, the IDA credit, additional loans from IDBI,equity cotributon from the sub-project sponsors and GOI resources. The proposed Bank loans(US$143.0 million equivalent) and the proceeds of the IDA credit (US$25.0 million equivalent) wouldfinance about 43% of the total project cost.

4.16 Institutional Component. The Institutional Component, estimated at US$25.5 million,will be financed out of proceeds of the IDA credit (US$19.5 million) and a GOI contribution of US$6.0million equivalent. The IDA credit would be used for financing part of the cost of training, equipmentand facilities at the SPCBs; GOI is expected to allocate the resources required to meet the balanceincluding the costs of operating and maintaining the equipment and facilities.

17

Table 4.2 Project Flnaning: Plan(in US $ million)

Project

Coimonent taDIDA OFIs Sponsors 0-1 total

Institutional 19.5 6.0 25.5

Training 1.1 - - 0.1 1.2

Equipment - 13.5 - - 0.2 13.7

Facilities 4.9 - 1.0 5.9

0&i - - - - 4.7 4.7

investment 43.0 60.0 85.0 0.0 300.0

CETPS & IWRPs 18.0 2.0 10.0 10.0 10.0 50.0

Individualsubprojects 125.0 - 50.0 75.0 250.0

Technical Assistance - 3.5 - 1.0 - 4.5

Training 0.3 - - 0.3

Consulting Services - 1.2 - 1.2

Equipment - 2.0 - 1.0 - 3.0

Totat Project Cost 143.0 ;_ 60 86.0 16.0

4.17 Investment ComDonent. Individual sub-projects would be funded by the Bank loans(US$125 million or 50%), DFI's (US$50 million or 20%) and the project sponsors (US$75 million or30%). The minimum sponsor's contribution shall be 25%. CETPs would be funded by the Bank loanto IDBI (US$18 million or 36%), the IDA credit (US$2 million or 4%), the project sponsors (US$10million or 20%) and grants from GOI and the State Governments (US$20 million or 40%).

4.18 Technical Assistance Component. This component will be financed out of an IDAcredit allocation of US$3.5 million and project sponsors contribution of US$1.0 million. US$0.5 millionequivalent of the IDA credit would be administered by IDBI on behalf of GOI to be used for funding ofup to 1u0% of the costs of eligible feasibility and pre-investment studies. The balance of the IDA creditwould be allocated for financing of the clean technology clearinghouse (US$2.0 million), for financingof technical assistance to the small scale sector (US$0.5 million), and the remainder directly by theMOEF to support the training requirements for environmental audits.

E. The Proosed Loan and Credit

4.19 The loan would consist of a single currency loan (SCL) to IDBI, a loan to ICICI bothguaranteed by India, and an IDA credit to the GOI. The IDBI single currency loan will be lent in USdollars at the Bank's LIBOR-based interest rate, repayable over 20 years, including five years grace.IDBI eligibility for SCL is predicated upon its overall portfolio r ceds. For the ICICI loan, the proceedswill be lent at the Bank's standard variable interest rate, repayable over 20 years, including five yearsgrace. The IDA credit would be on standard terms, with a 35 year matunity.

18

Onlending Tenms and Conditions

4.20 The terms and conditions are summarized in Table 4.3.

(i) For the Institutional Component, the proceeds of the IDA credit would be madeavailable to MOEF. Through the appropriate budgetary allocations, funds will bemade available by GOI to meet the counterpart requirements, estimated at US$6.0million;

(ii) For the Investment Component, IDBI and ICICI will onlend the respective loanproceeds to sub-borrowers at rates determined by the borrower based on marketconditions and its lending policies and set at levels not lower than prevailingminimum lending rates, with a maximum ten year repayment period including up totwo years grace. The foreign currency risk would be managed by IDBI and ICICIon any funds disbursed'. The IDBI and ICICI will ensure that the sub-projects willsatisfy the corresponding eligibility criteria as described in paras. 4.084.11.

(iii) Part of the grant element for the CETPs will be financed out of IDA resources. TheIDA resources would be channeled through the GOI which in turn would make themavailable to the individual investors through IDBI as the executing agent. IDBIwould administer the funds as an agent for GOI under a Grant Agreement (GA). Asa condition of effectiveness of the proposed loan and credit, the subsidiary GA shallhave been concluded between GOI and IDBI. The grant element for CETPs isjustified as demonstrated in the earlier project, because: (i) this will a-.ist small scaleenterprises to invest in areas that result in large benefits to society, including thoseassociated with cleaner water, soil and ambient air and their impact on agriculture,health and labor productivity, all substantial but difficult to quantify; (ii) the indirectbenefits do not accrue to the relatively small scale entrepreneur, who in many caseswill need to make a large investment compared to fixed assets which cannot easilybe financed on commercial terms. The subsidy acts as an incentive for the varioussmall scale firms to organize together; (iii) the target enterprises are currentlyprofitable and facilities were installed before the new emission standards were inplace; (iv) the grants would partially off-set the anticipated higher water cess; thewater cess was increased by GOI effective January 26, 1992 and a new increase isbeing proposed by MOEF (para. 2.12-i); however it is still below the treatnent cost,f industrial waste-water; and (v) in an effort to strengthen the existing system, GOIhas notified standards for maximum water usage for seven industril sectors. Thereis a need for fiscal incentives to improve the situation; and

(iv) technical assistance funds would be allocated to IDBI (US$0.5 million equivalent)under the terms of the GA for disbursement of the funds on a grant basis for thefinancig of pre-investment studies and to MOEF (US$3.0 million equivalent) forfinancing of the clean technology institutional network, the waste minimizationextension service and other activities to be covered under this component, underprocedures similar to those used for funding of the institutional component.

IDBI's Charter requires that the foreign currency risk in respect of sub-loans made out of foreign curencybe passed on to sub-borrowers. By funding Rupee sub-loans out of its own resources in the first instanceand subsequently obtaining financing from the World Bank Loan on a reimbursement basis, IDBI has takenthe view that the proposed loan would comply with this provision of its Charter.

19

4.21 As regards exchange risk, in the first project, GOI on-lent the proceeds of the Bankloan to Development Finance Institutions (DFI's) at a fixed Rupee rate of 13%. Thus, the GOI bore theforeign exchange and interest rate risks. DFI's, in turn, on-lent the funds to sub-borrowers at a fixedinterest rate of 15.5% (inclusive of an interest tax at 0.5%). Consistent with recent on-goingliberalization of the financial sector, IDBI will nake arrangemeaits necessary for it to manage the foreignexchange risk in respect of subloans under the project. Further, to acconmnodate for fluctuations ininterest, on-lending sub-loan Rupee interest rates will be at adjustable commercial levels, which arecurrently in the band of 14%-16%. On-lending rates will also reflect sub-borrower risk on a case-by-casebasis.

Table 4.3 ProNosed ILAn and On-Lesdn Tern

CUIPONENT BANK TO GOI BANK TO DFfs OFIs TO SPONSOR GOI TO SPONSOR

Institutional IDA n.a. n.a. Grants

Investmnt

CETPs & IWRPs IDA SCL Grants andmlrket rate n.a.

Individual Projects n.a. SCL/VLR Market rate n.e.

Tqchnical Assistance IDA n.s. Grants Grants

na.: not apticabte; SCL: Singt Currenc Loan: Vii: multi-currenc ot loan.

4.22 Outreach to Small Scale Industry. In order to increase the outreach of the projectamoong small scale industry, the project includes support for a waste minimization extension service(para. 4.12). The extension service will serve to channel infornation and technical assistance to smallmanufactuers. The project will also continue support to common treatment facilities (para. 4.10),designed to treat the residues of clusters cf small scale industries. The use of the credit lines at IDBI andICICI have also been tailored toward the medium and small scale sector by reducing by half the amountof the maximum loan.

20

V. PROJECT IMPLEMENTATION ARRANGEMENTS

A. Management

5.01 Project implementation will be the responsibility of: (i) MOEF through the alreadyconstituted Implementation Cell (IC); and (ii) IDBI and ICICI. MOEF will have overall responsibilityfor project execution. Implementation of the Institutional and Technical Assistance comnponents will bemanaged by MOEF, and the Investment component by IDBI and ICICI.

Institutional Components

5.02 MOEF will coordinate the activities of the beneficiary SPCBs through a CentralSector Scheme (CSS). Under this arrangement, GOI will receive the proceeds of the fDA credit andadminister it on behalf of the State Boards. IC will, in consultation with SPCBs and State Governments,continue to oversee the implementation of this component with respect to: (i) understanding ofprocurement activities; (ii) organization and management of the training program; and (iii) developmentof facilities at the Gujarat Pollution Control Board for implementation of GIS. The turnover of staff inthe IC has been high; nevertheless, the present team has become familiar with the Bank's implementationprocedures and its monitoring and reporting requirements.

5.03 The SPCBs have responsibility for efficient execution of the enforcement componentin each State and will coordinate with IC for activities common to other Boards. Training activities willalso be coordinated through the IC. MOEF is taking measures to increase the capacity of the IC,including the appointment of additional support staff and provisions for modem office and commnunicationequipment. At negotiations assurances were obtained that GOI would strengthen IC by maintaining twofull-time professional staff for the duration of the project and provide requisite assistance to carry outtheir functions properly.

5.04 During preparation of the first project, an assessment of the needs of the Boards wascarried out to determine the design of the proposed project and the allocation of the funds. The Bankand GOI agreed that in order to enable the Boards to function more effectively, and take full advantageof their investments, a comprehensive review of their organizational "tructure should be carried out,including: (i) planning and research functions; (ii) need for environmental education and extensionservices; (iii) revenue collection effectiveness; (iv) interaction with other agencies involved inenvironmental management; and (v) staffing of the four Boards. The study was prepared in a relativelytimely manner, but was found deficient in several areas. A second study was commissioned by GOI, andis currently under preparation by the ASCI and the IIT in Bombay. The assessment of needs for the newBoards has been undertaken and made the basis of the design of the institutional component as describedin Chapter 4. Annex 2.2 provides an analysis of the current organizational structure of the SPCBs, andrecommendations for improvements.

Investment Component

5.05 Identification and appraisal of individual subprojects will be the responsibility of IDBIand ICICI. Under the first Project this component was executed well and the Bank funds were committedin a timely basis. A list of the subprojects approved under the first Project is provided in Annex 1.1.The implementation of the subprojects has so far been satisfactory. As the number of applications farexceeded the amount of funds available for this purpose, at the request of GOI, the Bank reallocated aportion of the loan initially earmarked for CETPs to this category to fund a few more attractive proposalsfor pollution abatement. Simultaneously with the preparation of the proposed project, GOI is seeking twosimilar loasis, with OECF (US$50 million equivalent) and the NIB (US$50 million equivalent in external

21

financing). These projects have a structure similar to the proposed project and, if approved, will be alsocoordinated through MOEF, IDBI and ICICI.

5.06 The ownership, management, operation and liability of CETPs, which were unclearand of major concern during preparation of the first Project. have already been resolved. The conceptand approval procedures are now well understood by industrial enterprises. The public awarenesscampaigns conducted by MOEF and IDBI, to publicize the availability of this facility and to encourageparticipation of small scale industries has been effective. As a result, eight proposals have beenapproved, serving over 2000 industries and 12 proposals are currently under review (Amnex 5.1).Approved and pending proposals account for 75% of the funds allocated for CETPs (figure 3). It isamticipated that the pace of sub-project approvals will continue and result in much faster utilization of thefunds under the proposed project. IDBI would appraise CETPs and IWRPs.

Common Tnwtnont PlanbProjcted Cummulalv Commitments

Number of Plants $ 11m,so"

:0 350 40

20~~~~~~~2

1510~~~~~~~~1

10

19 1994 199

8oumw mmW a"d mbeloe, ewdstfa

Fgure 3

5.07 The Steering Committee mechanism established under the first project will bemaintained to screen the proposals and oversee the allocation of grants. Although the MOEF will furnishto IDBI a list of sponsors for CETPs and IWRPs, the ultimate responsibility for funding rests with IDBI.IDBI would be responsible for verification of the eligibility criteria, identification and appraisal. TheSteering Committee will contimue to oversee the allocation of grants. Under this arragement the SteeringCommittee, chaired by MOEF and comprising representatives from IDBI, and CPCB, reviews anddecides on the request for allocation of funds. After approval, IDBI's appraisal will follow. Duringnegotiations, assurances were obtained that the GOI would mintain the Steering Committee for theduration of the proposed project and provide it with the requisite support to carry out its functions.

22

Technical Assitance Component

5.08 The funds allocated for the clean technology institutional network and the wasteminimization extension service will be managed directly by the IC. The balance of funds will be passedon to IDBI as a grant under the terms of GA. IDBI will administer the resources available for thefinancing of pre-investment studies for pollution prevention schemes.

B. ImDlementation Schedule

5.09 The proposed project is expected to be implemented in seven years from mid 1994to 2001. The proposed project is scheduled for completion by March 30, 2001. The projectimplementation schedule is shown in Annex 5.2. In light of experience with the first Bank-financedIndustrial Pollution Control Project, the project schedule is reasonable.

C.Prcrn

5.10 The procurement arrangements are summarized in Table 5.1:

5.11 Institutional and Technical Assistance Components. The responsibility forprocurement of institutional and TA components will rest with GOI (IC) and IDBI. Most of the civilworks, and construction, under the institutional component are small and will be procured locally underlocal competitive bidding (LCB). Contracts for equipment under the institutional component, valued atUS$200,000 or more, will be procured under international competitive bidding (ICB) in accordance withthe Bank procurement guidelines and using standard bidding documents. Contracts valued betweenUS$50,000 to US$200,000, and up to an aggregate amount of US$4.4 million will be procured usingexisting LCB procedures, acceptable to the Bank. Contracts below US$50,000, up to an aggregate valueof US$1.9 million, will be procured under local shopping by obtaining quotations from at least threequalified suppliers. Prior review limits for goods and equipment and civil works will be US$500,000.

5.12 Investment Component. The responsibility for procurement under the investmentcomponent will rest with IDBI and ICICI. For goods and works contracts exceeding US$5.0 million,IDBI and ICICI will require that project sponsors follow ICB procedures in accordance with the Bankprocurement guidelines. Contracts valued US$5.0 million or less each, would follow IDBI's and ICICI'sprocedures which have been used in a number of Bank projects and found acceptable to the Bank. Theseprocedures reflect internal practices of the financing institutions and require that sub-project sponsorsobtain at least three competitive and responsive quotations. IDBI and ICICI will maintain records of themethods of procurement, summarizing offers and the awards. All ICB contracts would be subject to priorBank review. For the purpose of bid evaluation under all ICB contracts for equipment and works,domestic suppliers will be given a margin of 15% of the CIF price of imported goods, or the prevailingcustoms duties and taxes, whichever is lower. Local contractors competing under ICB for works wouldbe granted a margin of 7.5%. The Bank would periodically review for compliance a sample of theserecords during supervision. Standard bidding documents to be used for projects in India have recenlybeen agreed, and these will be supplied to potential users. Employment of consultants will follow the"Guidelines for use of Consultants by the World Bank Borrowers".

23

Table 5.1 Anticipated Procurement Methods

| Comocnent Procurement Method (US$ Mittion)

icS LCB OTHER TOTALInstitutional

Equipment 14.5 2.4 1.0 17.9(12.3) (2.4) (0.8) (15.5)

Civil Works 1.0 1.0(1.0) (1.0)

Services 0.9 ... 5.7 6.6(0.9) (- (2.1) (3.0)

Total 15.4 3.4 6.7 25.5(13.2) (3.4) (2.9) (19.5)

InvestmentEquipment 56.0 ... 68.0 124.0

(45.0) ... (65.0) (110.0)Civil Works --- 158.0 158.0

I.. . (35.0) (35.0)Services -- --- 18.0 18.0

Totat 56.0 --- 244.0 300.0(45.0) --- (100.0) (145.0)

Technical Assist.Equipment 2.0 --- 1.0 3.0

(2.0) ... - (2.0)Consuttanry & Training:(i) Capacity bidc. --- --- 0.5 0.5

( . ) ( .) (0.5) (0.5)(ii) Project Implementation

and Support --- --- 0.7 0.7(**-) (---) (0.7) (0.7)

(iii) Training --- 0.3 0.3! X . ) ( .> t~~~~~~~~o.1) (0.3)

Totat 2.0 -- 2.5 4.5(2.0) -- (1.5) (3.5)

TOTAL 73.4 3.4 253.2 330.0(60.2) (3.4) (104.4) (168.0)

figures in parenthesis are the respective amounts financed by the Bank.

24

D. Disbursemet

5.13 The allocation of the Bank proceeds is summarized in table 5.2:

Table 5.2 Allocation and Disbursement of the Loan/Credit Proceeds

Amount X Expendituregategory USS mill to be financed

1. Part A (Institutional Component)a) Equipment 15.5 100F/1OOLE/8OLb) Civil Works 1.0 90c) Consultant Services & Training 3.0 100

2. Part B (Investment Component)Equipment, civil works andconsultancy services under:

a) Subloans for individuat Projects 125.0 100F/75Lb) Subloans and subgrants for

Common Treatment Facilities 20.0 100F/80L

3. Part C (Technical Assistance)a) Equipment 2.0 10OF/10OLE/80Lb) Services 1.5 100

Total 168.0

F-foreign expenditures, LE-local ex-factory, L-other local

5.14 The proposed Bank loan and credit will cover: i) 100% of the foreign expendituresfor directly imported goods, 100% of local expenditures (ex-factory) for domestically manufacturedgoods, and 80% of local expenditures for items procured locally; ii) 90% of the civil works, andconstruction, and refurnishing activities; and iii) 100% of the consultants services both local and foreign,and training program including the cost for overseas travel by local staff. -To facilitate the disbursemnentof funds, US dollar denominated Special Accounts (SAs) for the loans and credit will be established ininterest bearing accounts, with an authorized allocation of US$5.0 million for IDBI, US$3.5 million forICICI and US$1.0 million for the GOI, calculated as the Bank share of the estimated peak four monthsaverage of expenditures. The Bank would replenish the SAs whenever the resources fall below 50% ofthe initial amount or monthly whichever occurs first. Disbursemnents for the Institutional and TAcomponents will be against full documentation except for training, and overseas travel and contractsvalued at less than US$500,000 equivalent each, which would be against Statements of Expenditure(SOE). Documentation of SOEs will be maintained by IDBI and ICICI, to be audited annually byindependent aulitors acceptable to the Bank, and will be made available for review during projectsupervisior MOEF has provided information on the packaging of the equipment to be procured underthe Institut, . Component. Disbursement of expenditures financed by IDBI in Rupee sub-loan will needto have been tirst fnanced by IDBI out of its own resources in order to meet IDBI's Charter requirement.

5.15 The proposed project completion date would be September 30, 2001; the closing dateis March 31, 2001 for the two loans (investment component) and March 31, 2002 for the IDA Credit (allother activities). An estimated disburseme.t, schedule for the proposed project, based on Bank experiencewith previous comparable projects in India, is included in Annex 5.3. It is in line with the Bank"Standard Disbursement Profiles" for industrial development and finance projects in Asia Region.

E. Monltorln and Evaluato

5.16 Implementation of the first project has been underway for about two years. Themonitoring and evaluation arrangements established under the first project have been effective, and after

25

overcoming the inital learning stages have worked smoothly and would be repeated for the proposedproject. These include: i) MOEF will prepare quarterly progress reports on the status of implementationof the project and forward them to the Bank; ii) Bank will continue its review of the project pipelinethrough selective prior approval of sub-projects under the line of credit; iii) IDBI and ICICI will remainresponsible for compliance with eligibility criteria, and the Bank will on routine basis, during the courseof supervision activities, review the application of criteria, iv) as part of supervision and as joint effortbetween the IC and the Bank, a performance evaluation will be conducted to measure the impact of theproposed project. The goals of the perfonnance evaluation are succinctly described in Figure 4. Duringnegotiations agreement was reached on the establishment, by December 31, 1994, of general indicatorsto track project performance including the overall rate of compliance of the industrial sector withregulations and the overall emission of key pollutants. A description of selected performance areas isattached in Annex 5.4; iv) IDBI and ICICI will submit to the Bank audited financial statements inconformity with the Bank's requirements within nine months of the close of each financial year, andaudits of SOEs and the Special Accounts would also be submitted within the same time frame, and v)after closing of the proposed project, MOEF would submit a project completion report.

KEY PERFORMANCE AREAS* TART KEY WOUSIWL

SOURIS OF POUJ nONTo wnd thAG UIw.o

• _TruCW RDSNM awasa - Ire"-i to Wm bded to

opbmm* OBONSMTRAIO EFO

TInOdW n_ to obI

mbe o4s* Life InM PEWOUMMM 3DICrAM,

RsduuOm n hII nsVeeuias rrawrmufWh"of e'I It bIdil ewlUm Improved!

sumnihe% of hiduob d-veapai

FIgure 4

26

VI. IMPLEMENTING AGENCIES

A. The Central and State Pollution Control Boards

Functions of the Boards

6.01 CPCB and SPCBs were established to implement the provisions of the Water Act of1974. Over the years, with the introduction of other Acts related to the environment, the mandate of theBoards has widened to include the entire spectrum of enviromnental protection - hazardous materialsmanagement, noise pollution control, control on vehicular emnissions, etc. The main functions of SPCBsas pres^ribed in the various Acts and Regulations can be summarized as follows: (i) to grant consent fordischarge of any liquid or gaseous effluent by industrial units or other point sources and to decide on thegeographical limits, standards and conditions for such discharge; (ii) after granting consent, to monitorthe liquid and gaseous discharges of these units and ensure that these are within prescribed limits andconditions; (iii) on the basis of monitoring, to ensure that the polluter complies with regulation, and incases of non-compliance to take appropriate legal action; and (iv) to control and monitor generalenvironment in the State by establishing the monitoring centers for air and water quality at appropriateplaces under schemes sponsored by the GOI.

Need for Inti onal Strengthening

6.02 The first project was designed to assist selected State Pollution Control Boards to facethe many problems that hamper efficient execution of their mandate. Many of these problems areintended to be addressed through the institutional strengthening component of the first project. Thecomponent focused on the requirements in the States of Gujarat, Maharashtra, Tamil Nadu and UttarPradesh which as a group accounted for the largest concentration of industrial sources in the country.Those efforts are now intended to be extended to four additional State Boards in the States of AndhraPradesh, Madhya Pradesh, Karnataka and Rajasthan which have been selected for assistance on the basisof their relative importance as industrial states and on the availability of alternative sources of funding.While the functions of the different SPCBs are almost identical, their organization structures are diverse,reflecting the management philosophy and historical circumstances particular to each Board. A detailedassessment of the institutional strengthening requirements of this group of SPCBs has been conducted aspart of the preparatory activities of the proposed project, and are summarized below:

(i) Enhancing the Clarity of Objectives. The various Acts related to the Environmentclearly define the "Mission" of SPCBs, since they are responsible for implementingprovisions of the Act, and the staff are aware of this. However, there is no clearenunciation of objectives and means of achieving them within established time-frames. This gives staff and management at SPCBs little guidance to develop annualprograms and budgets. Under the institutional component, training will be providedto strengthen the planning function of each SPCB, including its capacity to preparean overall planning document describing its immediate and long term goals.

(ii) Imnroviiut Inefficient Functonal Allocation. Functional allocation is ofteninefficient. There is lack of clarity regarding the role of zonal offices. Also, withtheir focus solely on monitoring and enforcement, the Boards do not have thecapacity for research and analysis. Given the enormous problems of pollution, itsimpacts on general health and productivity, and the limited resources with which theSPCBs should work, it is essential to develop a strong capacity to identify keyproblems, prioritize actions, and develop and implement cost-effecdve pollution

27

abatement strategies. Most SPCBs do not have a structure that would enable coherentassembly of ambient and point source monitoring data followed by analysis and useto prepare a pollution control strategy in conjunction with other relevantorganizations such as the land use and infrastructure planning agencies. Under theinstitutional component training will be provided to strengthen the overall analyticalcapability of the boards, including their capacity to prioritize the use of resources attheir disposal.

(iii) Overcoming Inadequate Staffing. SPCBs have inadequate staff in terms of numbersand skills. Under the proposed project a trairing program has been developed toincrease the overall efficiency of the staff in the discharge of their functions.

(iv) Reviewing the Existing Centralization of Activities. Administrative and financialauthority and responsibility is often not delegated to levels below the head ffice. Allthe analysis reports and samples (in some cases) have to be sent to the iNead officefor clearance or examination. Given the expanding workload, the proposedinstitutional component will finance a study to optimize the delegation of authorityand diminish the paper work associated with clearances and permits.

(v) Sound ImproveMent of SPCBs Finances. To improve their efficiency it is importantthat the Boards become more independent from the budget of the State Governments.To build this independence, more effort will be needed to collect revenues andcharges. MOEF has already prepared a request for a two to three fold increase ofthe water cess, although the data for collection of the water cess by the State Boardsis not available. However, indications are that while the collection rate from theindustrial sector is nearly 100 percent, it is considerably lower in the municipalsector. For example, data from the Gujarat State Pollution Control Board (Annex7.4) shows that the overall cess collection in the industrial sector is nearly complete,while collections from municipalities are deficient. Partial data from other SPCBsindicate sinilar trends. Upon approval from GOI, resources from the amended cesswill increase the budgets of SPCBs.

(vi) Dealin2 with Equipment Inadequacies. SPCBs are overwhelmed by the large numberof sources and the wide geographical coverage. Unlike the situation in developednations, cargo transportation in India is restricted. The collection and samplingturnovers in India frequently exceeds one week. This limits the validity of the resultsand increases the vulnerability of tLe sample to alterations. An alternative for theSPCBs is to provide for regional laboratories that can be placed closer to the ma.nconcentrations of waste generators. Mobile field stations can provide a cost effectivecapability to analyze samples at field locations within hours of collection. Under theproject funding will be provided to strengthen the capability and coverage of theregional laboratories and complement these with mobile units. Strengthening thecapability and coverage of SPCBs is one of the objectives of the Institutionalcomponent (para. 4.05).

(vii) ImRroving Analytical Capability. Most of the work of the Boards is now restrictedto the analysis of a few common pollution indicators, not on the harder to measureand some times more noxious organic and inorganic pollutants. In developedcountries it has become obvious that common pollutants provide little insight into thelong term, significant environmental problems associated to toxic materials. There

28

is evidence that complex organic compounds are already being discharged in Indiawith very little control even if regulated. The longer term persistent toxicity effectscaused by these compounds must be controlled. The Boards need to be equippedwith the capability to detect at least some of the most toxic chemicals in industrialemissions. Improving the analytical, sampling and monitoring capabilities of SPCBsis another objective of the Institutional Component (paras. 4.03 and 4.06).

(viii) Introducing Scientific Training. Sampling and monitoring planning andimplementation requires a level of knowledge of regulatory issues that is not apparentat SPCBs. Formal training is also required in laboratory and field methods,primarily to ensure safety and prevent sample contamination. Accurate anddefensible analytical results need to be based on a thorough training program for allstaff involved. Finally, it is very important that a level of environmental science beintroduced into the sampling and analysis process. Training of scientific, technicaland managerial staff at SPCB is also one of the objectives of the InstitutionalComponent (para. 4.04). At negotiations, agreement was reached that MOEF wouldprepare, by June 30, 1995, an action plan for institutional strengthening of the SPCBsin each participating state, based on the review of the recommendations of the studieson restructuring of SPCBs.

B. InDlemeuton Cell

6.03 Implementation activities for the Institutional and Technical Assistance Componentswill be coordinated through the implementation cell. The IC was constituted prior to approval of the firstproject. It is directed by the Joint Secretary for Pollution Control at MOEF and has the responsibilityfor coordinating all procurement activities and for reporting the progress in the imnplementation of allcomnponents of the proposed project. These arrangements have been satisfactory. Strengthening of theprocurement activities to avoid a repeat of delays experienced under the first project is being sought.

C. Patdgatinu ianda Instions

6.04 IDBI and ICICI will act as intermediaries for the term lending component of theproposed project. These banks have concentrated their lending on terms loans to industry and haveparticipated in all the industrial sectors being targeted by this project. The combined client base of thetwo banks numbers in excess of 10,000 firms and represents total outstanding loans, P, of March 1993of Res. 130 billion. In addition, both banks have constituted task forces to deal with environmentalconcerns in industry or to incorporate environmental considerations in project appraisal. ICICI and IDBIwill have responsibility to assess the eligibility of the sub-projects according to established criteria (paras.4.08-4.11).

6.05 The Bank has a long-standing relationship with IDBI and ICICI, having made 23 loansto the them. Most loans have been li-'es of credit. Such lines include among others, the PollutionControl Loan, approved May 1991, the Second Cement Industry Loan, approved by the Board in May1990, the Technology Development Loan approved in September 1989, the Electronics Industry Loanapproved in June 1989, and the Industrial Finance and Technical Assistance Loan approved in March,1988. The Bank continues to play a role in the borrowing strategies of these institutions. Borrowingsfrom the Bank are small in relation to the total borrowings, but are helpful in mobilizing foreign currencyresources, in maintaining credit standing in international markets, in imnproving performance and inlengthening the average maturities on foreign borrowings.

29

Industrial Credit and Investment Corporation of India (ICICI)

6.06 Oreanization. When established in 1955, ICICI was a private company. However,as India nationalized its major shareholders, a majority of ICICI's shares became held by governmentowned institutions and its private ownership was reduced to 19%. However, in 1991 ICICI issued sha:esto the public in pursuance of a strategy to increase its investor base and seek greater participation. Asof October, 1993, its private ownership stood at 43%, consisting of 38% for Indian private institutionsand individuals and 5 % for foreign institutions and individuals. Private plus Union Trust of India (UTI)shares amount to 58% of the total. It is expected that ICICI's private ownership will continue to grow.The institution is divided into five administrative groups: Operations, Corporate Planning, SpecialOperations, Finance, and Administration. Operations is further decentralized into six zonal offices, thelargest of which is the Bombay zone. The total staff is about 1117 of which 566 are at the professionallevel.

6.07 Operations. ICICI's financial performance has been impressive in tt mns of bothgrowth and profitability. Over the last five years, from 1988 to 1993, total assets increased from Res.36 billion to Res. 123 billion. Return on equity has averaged about 20% before tax over this same periodand 18% after tax. ICICI's debt/equity, which was 10% through 1992, fell to 6.6% in 1992-93 reflectingthe conversion of a 70 crore convertible bond issue into equity in 1992. With a view to lirniting itsexposure in very large companies ICICI continues to emphasize lending to medium sized projects. ICICIhas also come to rely increasingly on non-loan fee business to preserve its profits and diversify itsbusiness risk. It is expected that ICICI will continue to maintain profits in the range of 20% before taxesover the next five years and extract a lending spread of about 4.0% over its cost of funds. The rangeof services that ICICI is able to provide to its clients is expected to increase, p rticularly with the comingon-line of its recently approved commercial bank and use of short term instruments and leasing services.

6.08 Ca-ability to Lend for Pollution Control Projects: ICICI has established a core groupof four professionals to monitor and coordinate lending activity under the first Pollution line of credit.This core group is supplemented by the ability to draw on a wide array of industry specialists withinICICI's operations section as well as a substantial data base regarding each industry sector and sub-sector.Thus far, ICICI has appraised and committed for 29 sub-projects under the line of credit for the firstproject. The experience gained in making the above loans includes knowledge of pollution issues in eachsector, regulatory provisions and institutions including Pollution Control Boards, and manufacturers andsuppliers of pollution abatement equipment. This experience should enable ICICI to continue to play acentral role in financing pollution control activities in the future. ICICI's audited financial statement andother financial data are summarized in Annex 6.1.

6.09 Ineligibility for Single Currency Loan. ICICI expressed interest in a SCL in dollarsbut was found not eligible under the pilot program eligibility criteria since it will onlend the proceeds ofthe loan in Rupees and has no other unfunded dollar denominated loan commitments to eligible sub-borrowers.

Industial Development Bank of India (IDBI)

6.10 Organization. IDBI was established in Bombay as a wholly owned subsidiary of theReserve Bank of India in 1964. It is now fully owned by the GOI and is a leading financing institutionfor the Industrial sector. It operates as a direct lender and refinance institution for other national levelDFIs. Its promotional role covers a wide range of activities aiming at sound industrial development andfinancial practices and includes surveys of entrepreneurship development programs, consultancy andadvisory services and development banking training programs.

30

6.11 IDBI's 15 member Board (including the Chairman and Managing Director) representsa cross-section of Government officials, industrialists and commercial and .evelopment bank executives.The Board is responsible for the internal policies of the Bank and reviews overall operations and relationswith the industrial sector. Full powers are delegated to a 9 person executive committee, headed by theChairman and Managing Director. As of March 1993, IDBI had a total staff of 2,631, of which 1,124professionals. The mix of non-professional to professionals was brought down from 1.7 to 1.2 over1985-90, and has remained fairly stable since then. Professional staff is generally well qualified andexperienced. Staff turnover has remained modest, with IDBI intensified over the past years its internaltraining programs.

6.12 Onerations. IDBI's financial assistance to the industrial sector is provided throughthe following types of operations: a) direct finance assistance; b) refiranced loans to other financinginstitutions, c) rediscounted bills, covering the sales of machinery financed by Banks on a deferredpayment basis, and d) loans to and investments in shares and bonds of financial intermediaries. Inresponse to emerging changes in the financial sector, the Bank took several steps to re-orient its businessstrategy through the introduction of new products and the development of new types of clientele. It hasalso tapped capital markets to raise resources, given the increasing scarcity of government-guaranteed andother sources of low-cost funds. In order to expand the range of services to clients, the bank introducednew products such as asset credit and equipment finance. It also introduced equipment leasing, both tomeet increasing demand for such services, reduce asset maturity and reduce mismatch between maturityprofiles of assets and liabilities, and, given the withdrawal in 1991/92 of IDBI's tax-free status, to limitthe institution's tax liability.

6.13 IDBI has a strong balance sheet, with an equity base (reserves included) as of March1993 of Rs.28.7 billion (close to US$ 1 billion), and total assets of Rs.303.8 billion (approximately US$10 billion--up 10.8 percent over March 1992). The debt-to-net worth ratio remained at a conservative9.58 (9.92 inclusive of contingent liabilities). According to five-year projections, the leverage would bemaintained at acceptable levels through the coming five years, given the high retention of earnings andbuild up of reserves. Liquidity levels are adequate, as reflected by a liquidity ratio of 2.39. Portfolioquality is also adequate. On the basis of RBI guidelines, 92.5 percent of outstandings (including loansand other types of assistance) was, as of March 1993, classified as standard, 3.1 percent as substandard,4.3 percent as doubtful, and 0.1 percent as loss. Although specific provisions and other non-generalreserves represented only 1.9 percent of total outstandings, general reserves and capital provide IDBI withan ample cushion to offset future loan losses.

6.14 Capability to Lend for Pollution Control Projects: IDBI has formed a task forceunder the direction of a Maiager to oversee the activities of the institution in the enviromnental field.These groups include expertise in financing, engineering and pollution control an' represents experiencegained from the normal appraisal mechanisms in India, which currently require an Environmental ImpactStatement for all new investrnents. To complement the DFIs in-house capabilities, proceeds form the firstproject are being used to finance a program of training for ICICI and IDBI officers on all aspects ofenvironmental assessment of industrial projects. Details of audited financial statements are provided inAnnex 6.1.

6.15 Eligibility for Single Currency Loan. IDBI meets the eligibility criteria approved bythe Board for the SCL pilot program. IDBI has a need for a US dollar SCL to reduce match US dollarrevenues from loans to sub-borrowers that earn US dollars. IDBI provided information demonstratingthat it has $125 million of unfunded and legally binding US dollar loan commitments to existingautonomous clients that have US dollar revenues. The availability of US dollar SCL terms will assistIDBI in reducing its overall currency risk by providing liabilities in US dollars to match its US dollar

31

revenues from these existing loan commitments. In turn, IDBI will mobilize Rupee funds for fundinglocal currency expenditures under the project.

6.16 IDBI is managerially and financially autonomous of the Indian government. Althoughwholly owned by the Government, the IDBI Act of 1964 as amended, establishing IDBI as a 'bodycorporate", gives IDBI a legal personality separate from the Govenmnent and provides for its autonomousfunctioning under the direction of an independent Board. Where IDBI has been used as an instrumentof Government policy, Government has by and large footed the bill, while leaving IDBI with theoperational autonomy of exercising its best banker's judgment of raising resources, sanctioning loans,disbursing the proceeds, collecting recoveries, and servicing its borrowings. IDBI is not funded out ofgeneral budget revenues. Non-concessional loans are funded by commercial sources of borrowing onboth the domestic and foreign capital markets. In the Bank's experience, the business plans presentedto us by IDBI have reflected the sound judgment of an independently-managed banking institution, andhave been similarly implemented.

32

VHI. DZMMS1 AND RISKS

A. Benefits

7.01 The proposed project will support the ongoing process of reform of dhe policy andregulatory framework for industrial pollution prevention. Strengthening of four additional SPCBs willresult in a greater effective coverage by monitoring and enforcement agencies. The proposed project willplay a significant role in the development and diffusion of pollution prevention techniques. The proposedtechnical assistance will introduce modern information and monitoring tools. Above all, benefits willresult from reductions in industrial pollution. This will improve safety indicators, and benefit populationsnear industrial areas. The proposed project will also assist GOI's efforts to make industrial developmentenvironmentally sound. As with the first project, each sub-project sponsor will be the subject of a carefulfinancial and economic analysis and only those operations that on the whole are financially andeconomically viable will be supported. An overall economic analysis of this project is not feasible, asall the environmental and social benefits decurrent from the sponsored activities (health, safety,conservation of natural resources), are difficult to quantify. However, the proposed project will assistindustries to meet the environmental regulations for their industrial activities. These standards have beenestablished by GOI as a measure of what are considered unacceptable environmental costs. While IDBIwill onlend in Rupees, the availability of Single Currency Terms (in dollars) will assist IDBI in reducingits overall currency risk by providing liabilities in dollars to match dollar revenues from existing unfundedloan commitments to other clients with dollar revenues.

B. Risks

7.02 During project preparation, each of the potential constraints has been identified andaddressed. The lessons from the first project have been analyzed and corrective actions have been builtinto the structure of the new project. However, despite these efforts, several risks remain. These havebeen grouped into three categories: technical, financial and managerial.

(i) Techical: the institutional component focuses on the next tier of industrial states.SPCBs in these states offer a higher technical risk because of their limited experienceand in-house capabilities. Also, many more activities are now being planned that mayresult in a crowded agenda for the managerial and technical staff at SPCBs. It has beenagreed that the new SPCBs will participate in the review of the supervision results ofthe first project to assimilate the lessons from implementation and that the results of therestructuring study will be implemented as soon as possible (para. 6.02).

(ii) Finncial: a key risk is that if the enforcement is not sufficiently strengthened, thenindustries may not have a sufficient incentive to make use of the credit line andgenerally to undertake abatement measures. This risk is mitigated through theinstitutional strengthening of the enforcement agencies needed to ensure credibleenforcement efforts and by adoption of economic incentives for firms to comply withregulations, such as the increases in water cess. An additional risk is associated witha possible decline in domestic interest rates in the medium term, resulting in theproject's financial terms losing competitiveness. This risk would be mitigated throughthe adjustable rate on lending terms. There is also the risk that sub-borrowers mightgo out of business in the future, as the Indian economy restructures and becomes morelinked to the international economy. This risk would be mitigated by requirng stringenteconomic analysis to be applied by IDBI and ICICI both on a subsector basis, and toeach sub-project proposal (para 4.09).

33

(iii) Managerial: a major risk is that MOEF may fail to nanage the programn effectivelyor implement it in a timely fashion, given the large number of Boards now involved inthe many more activities being sponsored under the project. MOEF has alreadydemonstrated a high level of commitment in implementation of the frst project. Alsomeasures are being taken to strengthen the implementation cell to cope with theadditional work load and assurances were obtained regarding its staffing (para 5.03).

34

VIII. AGREEMENTS REACHED AND RECOMMENDATION

8.01 During negotiations, agreements were reached with the GOI that the MOEF will: (i)maintain the Steering Committee and provide the necessary assistance for it to carry out its functionsproperly (para. 5.07); (ii) strengthen IC by maintaining two full time professionals and maintain IC forthe duration of the project, providing necessary assist-nce to carry out its functions properly (para. 5.03);(iii) by December 31, 1994, a task force would be established by MOEF to carry out further analysis ofmarket based instruments for pollution abatement under terms of reference satisfactory to the Bank andto discuss thereafter steps for the implementation of a program for the use of such instruments (para.2.12-iii); (iv) establish by December 31, 1994, general indicators to measure project performance,including overall rate of compliance of the industrial sector with regulations and the overall emission ofkey pollutants (para 5.16); and (v) prepare, by June 30, 1995, an action plan for institutionalstrengthening of the SPCBs in each participating state, based on the review of the recommnendations ofthe studies on restructuring of SPCBs (para 6.02-vili).

8.02 During negotiations, agreements were reached with IDBI and ICICI that they will:(i) make sub-loans to sub-borrowers at rates determined by the borrower based on market conditions andits lending policies and set at 'evels not lower than prevailing minimum lending rates. The foreigncurrency risk would be managed by IDBI and ICICI on any funds disbursed; (ii) sub-loans would havemaximum maturity of ten years, including up to two years grace (pan. 4.20); and (iii) ensure that thesub-projects will satisfy the corresponding eligibility criteria described in paras. 4.08W4.11.

8.03 During negotiations, agreement was reached on the following condition ofeffectiveness for the proposed loan to IDBI: the subsidiary GA shall have been concluded between GOIand IDBI for the channeling of the grant funds (para. 4.20-ill).

Recommendation

8.04 On the basis of the above agreements, the project is suitable for the loans totallingUS$143.0 million equivalent, and a development credit of SDR 17.7 million (US$25.0 million equivalent)to IDBI and ICICI and India respectively, to help finance an Industrial Pollution Preveption Project. Thesingle currency loan to IDBI would be made in US dollars, at the Bank's variable SCL interest rate, witha 20 year maturity inciuding five years grace. The ICICI loan will be lent at the Bank's standard variableinterest rate with a 20 year maturity including five years grace. The proposed credit would be onstandard IDA terns with 35 years maturity.

ANNEXES

39

Annex 1.1Page I of 9

INDIA

INDUSTNJAL POLLUTION PREVENTION PROJECT

SubproLecs Financed under the Pollution Control Project

Background

1. Under the first project a line of credit for US$100 million equivalent from the loanproceeds was established, for the financing of enviromnental schemes sponsored by industries in thechemical and allied industries. Since the first project became effective in November 1991, substantialprogress has been achieved in the implementation of this component. As of January 1994, 64 subprojectswith a total cost of US$491.7 million equivalent (far in excess of the original estimate), have beenpresented for financing under the line of credit. The loan has financed US$90.4 million equivalent,representimg 18%, of the total project costs. These subprojects are at different stages of completion withsome already in operation while most remain to be commissioned.

2. All industrial projects in the targeted sectors that seek to reduce the environmental impactof their operations were eligible for financing. These projects could either consist of waste minimizationor resource recovery schemes or of pollution abatement and waste treatment schemes. In addition, theseprojects were required to meet the following conditions: a) all projects are to be appraised by theintermediary financing institutions and found to have a substantial positive effect on the environment; b)for any single sponsoring enterprise any subproject or combination of projects should not exceed US$10 million; and c) the sponsoring enterprises as a whole would have an acceptable capital structure witha resulting debt to equity ratio not exceeding 3.0. Sub-loans would have a free limit of US$3.5 million,about 25% of the individual projects are expected to be subject to prior review and approval.

StaQe of Implementation

3. The implementation of the sub-projects financed under the loan offers valuableinformation on the dynamics of investment decisions on environmental protection and has assisted in thedesign of the activities to be sponsored under the proposed project. All in all, the experience gainedthrough the first project is one of the first of the kind in Asia. Out of the 64 subprojects, nearly twothirds consist of pollution abatement aided through the recovery or recycle of materials or energy, whilethe remaining balance can be characterized of pure treatment. Most of the resources borrowed from theloan (over 69%) have been used by private industries. Cooperatives, Joint Sector undertakings and PublicSector comipanies have utilized the balance. In terms of size, although the agreed limit for subloans wasestablished at US$5 million equivalent, 51 of the subloans have been for amounts below US$3 millionequivalent. Forty five of the subloans have been made to medium or small scale companies. From a sub-sector perspective the proceeds have been allocated throughout the chemical and allied industries.

4. Technical collaboration agreements with foreign companies have been reached for thedesign, construction and/or operation of the proposed schemes, in 33 of the subprojects. Most of theforeign companies providing design expertise and know-how are based in Europe (22) with the balancein Asia (7, mostly in Japan) and the USA (6).

40

Annex 1. 1Page 2 of 9

Sample Survey of Imnlementation

5. On an individual basis, the sub-projects financed under the first project include manyinnovative schemnes, some of which of a pioneering character in the country. For example, the firstproject has financed: (i) the first plastic recycling plant in India; (ii) treatment plants for black liquor frompulp and paper plants; (iii) anaerobic digester plants for the treatment of wastewater and generation ofmethane gas at distilleries and pharmaceutical units; (iv) recovery of valuable chemicals from wastewaterproduced at a fertilizer plant; (v) de-inking and recycling of waste paper; (vi) recovery of fly-ash for usein construction materials; (vii) treatment of effluents from dye manufacture and others. As part of thesupervision activities under the first project, a sample survey of the current stage of implementation wasconducted during the month of February. During this survey visits were conducted to a few s .jprojectsin the State of Maharashtra. The results of these visits are summarized below:

Toxic and Hazardous Waste Incinerator at Polyolefin Industries (PIL).

6. This subproject consisted of the design, erection and commissioning of a toxic/hazardouswaste incinerator for complex aromatics, including benzoic acids (figure 1). The sponsor was PolyolefinIndustries, a private sector company engaged in the manufacture of intermediate petrochemicals for thesynthetic rubber industry. The design of the plant was done by Thermax, a local engineering andconsulting firm. The total project cost was US$1.25 million, out of which the Bank financed US$0.58million. The subloan was approved on February 22, 1992 as subloan IDBI-005. It was fully disbursedon August 30, 1993 and the plant was commissioned on September 15, 1993, ahead of schedule.

Figure 1

I:

1' ~ ~ .4j Wi

41

Annex 1. 1Page 3 of 9

8. The incinerator is currently operating at design capacity, disposing of about 90 kg/hourof hazardous chemicals. At the current rate of operation, PIL estimates that it will take five years todispose of the back-log of hazardous residues currently stored at the plant. under a provisional agreementwith the Maharashtra Pollution Control Board. Under a contract with an independent laboratory, bi-weekly monitoring of the incoming waste and the characteristics of the flue gases and residual ashes isbeing conducted on behalf of the MPCB. The average treatment cost during the initial period ofoperation has been estimated at about US$250 equivalent per ton of incinerated residues. All the costsof operation and monitoring are paid by PIL industries. The plant is located in Thane Bellapur.

Anaerobic Digester at Emellen Industries (ELI)

9. This subproject consisted of the design, erection and commissioning of an anaerobicdigestion systemn for the treatment of fermentor liquor and other wastewater from a phanraceutical plant(figue 2). The sponsor was Emellen Industries, a private sector sponsor engaged in the manufacture ofpharmaceuticals through biological routes. The design of the plant was done by Bacardi Corp., a U.S.based company with extensive experience in the design of anaerobic digestion systems. The total projectcost was US$0.52 million equivalent, out of which the Bank financed US$0.32 million equivalent. Thesubloan was approved on April 7, 1992 as subproject IDBI-009. The subloan has been fully disbursedand the system has been in operation since July 1993.

Figure 2

' A

42

Annex 1. IPage 4 of 9

10. The digester system consists of the anaerobic reactor and aerated lagoons. The plant iscurrently operating at capacity (150 cubic meters per day). The methane gas generated at the plant iscurrently being burned while the necessary adjustments are made to the boiler, at which time it willsupply about 40% of the fuel requirements of the factory. The anaerobic digestion system has enabledEmellen to comply with the MPCB regulations. The plant is located in Mahad district in Maharastra.

Plastic Recvcling Plant by Mouldwell Polymers

11. This subproject consist of the design, erection and conmmissioning of a polyolefmrecycling plant. The sponsor is Mouldwell Polymers, a newly established private sector company. Thedesign of the plant was carried out with the assistance of Fabricca Bonden Machines (Italy, figure 3) aw'Il known manufacturer of plastic processing equipment. The total project cost was US$2.3 millionequivalent, out of which the Bank financed US$0.78 million equivalent. The subloan was approved onJanuary 16, 1992 as subproject IDBI-003. The subloan has been fully disbursed and the plant is now inoperation at 50% of capacity.

Figure 3

~~~~~~~~~~~~~~~~~~~.,

12. The plant has been designed to reprocess at capacity 12,000 tons of polyethylene. Thesevolumes would equal 2% of the demand for polyethylene in the country (as a reference, only 0.5% ofpolyethylene is currently being recycled in the USA). The sponsor has organized a collection andsegregation system in towns and villages in the Maharastra State. The raw material used by the plantconsists of discarded plastic found in urban dumps, collected material from households (figure 4) and

43

Annex 1.1Page 5 of 9

material off-specs from plastic processors. The quality of the reprocessed plastic has met qualityspecifications of the industry. This project will have a significant environmental impact for the plasticindustry in India and is likely to be replicated in the short term outside of the funding provided by theBank.

Figure 4

. v-vl~~~~~~~~~~~~~~~.

_ J X, oqe 4"~~*~

43iFZ.O _ -.

___e A

INDIA

INDUSTRIAL POLLUTION PREVENTION PROJECT

LIST OF SUB-PROJECTS APPROVED_UNDER INDUSTRIAL POLLUTION CONTROL PROJECT _____

-~~ --...-.--- ~-- E-o u -h-i bUr---lP1ufO- - u- mrf-- -I6m---TtR -- .. i... fy- D amw

Subloa-, N,,) Pro;ect ~Cost LIUSSmillion oDmmittmen Source the Project Location collaboration ApprovedUS$!million __ __ US$ million

ICICI - E. or Convorsron offly ash into 16 000 1 530 15S0 Air born Pollution abatement & Bafapur Faridabad, YbDng Germany I11120)91constructionr bricks pollutants Resource recovery Industnes Haryn Internatronal

ICICI. 8.02 Treatmeni ofeTiffieni wastewnter 6M b 296 ' -iW Wistiat&r?rii P6ffuii6 6iiii~enf & M~1iraTF AinioF- .KaTpaTlki- fndiA 1 i20*9ICC -s& b9gsgnrto phatnaeutc! plant Resource recovery Drugs Tamil NaduICC -5Replacement of Mercury c.'Is by 7 420 I 030 2 85 Toxic Pollution ibatrini~ & Huku inihna -Arfijii.- Osaka. go& japan 11120191

Membrane Electiotizers . waste . Energy saving Jutte & Industries Madhya PradieshicIcI- B-o4 RePlaciiint Yi5abgninand siurage.Ado w 9 Ki~b5fivi P6fUti66 batimiIrii Bayer . Thaie.-~ Bayer, AO - Grmany II1019

system with plasticizer unit pollutanits India MaharastraICC-BsModeir&io~of i3sFific 3&&aPF&nt i6 I 7d 2-3cr 9 ~46 At'borneiP6fftA&iV F6lEufiBiin'a n & enui K)i . &Z0 ~ - i/3

& Toxic waste Energy saving Rayon Maharashtra Nora!CICI -0- 6-e SIldicktiourTre~limnf & 6 406 I 06 7 5?o Purp &Pip&iinduitry Pollutiori6atement, NatfiPuip A6rari*bad.' BIaaICiv~s6n USA 12'30901

Energy Recovery Toxicvwaste Energy saving & & Paper MahiarastraRescurce reoovery

ICC -67 Aiplaciriienf&o Meiaury cells by 6 §26 Ij5 33 906 'T6xc emis~iin 15611uion abatimerii Atul Vro&i6s -. Atul,. Liurgi Gmbh Oerrmany 02i25)92Membrane Etectmolizers from mercury cel1s Energy savn Ltd Gujarat

iclio- :oeb Efifluent t4iarnentiii a--3 fl6 - 6 i i.ive T&xiic &BKitr&rri %iut'ibtini~i- At;~iI&ituiiws' ViliadT Pie[Veioa Netbitrinas 1z5DyZ ~ Oe Manulactunng urnit .. waste Ltd Gujarat - Evrcr d

lcii Bmo§Sldgepfiviss for the tieaiment bfwvaise 6 t 0i9 05~ wiktewiri Pollutionib~ig~inii IPCA -Ra tlain. Enioae Ida05/14192w -vater at pha rmaceutical plant & Toxic waste Laborabories Madhya Pradesh.

IiI -0WeIt scrubbin6g & Lirid Disposat a 45920 33~70 iT05o Toiic&%i-iFor&ui %luti,nbaterri~int Ind~iaAlurniFiuiii Hrtakud, P1lk Swveden 06!1 5)92Flouuide Gas Emissions waste Company Onasa

II-,: 6Ti -Fij5Fgt jmen6oM-ecij ii -i6'6 . 4ili i§ A3' 76xic ~ aiOiP,T '4 irfirmritI CACL.- Bi1oc&, - LJlidi Gr~61b Germany 06/23192Membrane Etectralizers - -from mereur cells Energy , . Gularaf

]CICI.- B iy NiauibbThnij.ijiI16 nfNl6 00& 41ii Aiborne Piollui6ronibateme. , Hindiico lnduitriwi Aenuk6~ot, ABB-ENV&Plak Norway& 09;15/92Aluminum plant tutants Resource reoove!y Ltd Utter Pradesh Indta Ltd (fL) tndiaCICI- 6-43 Mi,il1i~ture.ofA[L~iiiiumFk*~ride5780 0820 9 i-3i'P60.- fi iiIreRi & Afallo-nide- Vislakijinii~. Na;in Fli6rlne tnd6bir5from phrosphoric acid plant Toxic & HI Waste Resource recvery Nv Ltd Andre Pradesh Industries

cic~l~,-B-4 Elfluettreament. i(4 5 50 Tosi~ & RxidiF 1116ionabitmernvt. G6'kik PaieI 0oka Falls WGF Gaiinverf emn 1 0106/92for aya ikcfl_q_n etw60ste Vonii P ffSiiika B&s Gujarat GmkipriH

Dye manulacturin%plant - Air & wate"poution Resource reoover Ind (SCIL) Mahamastra (DIC)rec- - gAiF6id&6no`t1&e8 54i i-I 0 W M 7-4 Wiiiaew P611jiio ie~nft KAPCTim Mysore. DregeriiontIndia ndta 11-105)92

generation at an ethanol distillery Energy saving & Ltd (KCL) Karnataka (subsider to

j~~j~~j B~~i7 Wastewater treatment ~~~~~~~~~~ a 2500 ,~~~~ Resource reco_er O regemrorrt.Frar ce)Pulp & Paper r plant re~~ Y §U SdUes 1P1a6ab=r tP-0&P-- 6a6, RPL India 11'¶/92

Putp & Paper plant residues ~~~~~~~~~~~~~~~Mills Ltd GujaratI CICN - B-ie AT&8~i6irlaa650 40o N Duist &Wiste %Ilulion bieFrih~i FINOLEX Aan~&, Uhde GiribH Germany 01/19)93

Plastic processing plant (PVC) water Resource recovey Lt,dX~CL) MaharashtraIClC1-B-i~~ Replicemerijol mefourir cilIa - . 40600 2000 31 397 ~Mercur Pfl1ufion abitrifft 1 Naroa Aiyo'n' Mol,e . rajiiz- De Italy 04fl4193

at ak caustic sorh plsnt __ _.. energy saving. CorporationfNRC) J aharashtra -Nora

9h

INDIA

INDUSTRIAL POLLUTION PREVENTION PROJECT

LIST OF SUB-PROJECTS APPROVED UNDER INDUSTRIAL POLLUTION CONTROL PROJECT._ow riqe IN F a lotumu ) i%t1o- Pu-riose d Spint _ -. icn recf Cditit9 -I=Subban No Project Cost USSmilion commirten Source the Project Location collaboration Approved

Rg2 7 in aioiattrnent 2100 33497 Wastewater Pollution abatement & fad M nali, UFF Nuchem Wetr Ca 07/01193and enwronmental montoring at a Resource recovery Lmited( MFL) Tamril Nadu LritnedCICI-b-21 AFaiti2r 33 34 3 twter uion abatement, Thii Arooan Thinmangu Praj consultech i - 04108/93biogs genration in a sugr plnt Etegy savtng & Su9Ps Limited(TSI Tanpre Dtstrict, (pral)tClC -22 Incirator & Waste solvent recovery 0.420 O 34 steaterobe Organs Tripuramn Mandd AiedCensul'inS India 04/13/93system at a pthrmaceutical pbnt Uimtted (GOL) Nafgonda Of s Engneers Ud &

Andra Pradesh Innovative chemi -|f -B-23 Anaerobic digeson ol stillage & 4.000 0. 35.040 WastewaW Pbllution abatement. Kot7 ncnsultech ndia 041393biogas generuion in a sugar plant Enerwg saving & Chemicals Ltd Trichy District, (prap

Resource recovery O(SCL Taint NaduICICt-B-24 Waste t,etnent& de-inking facililes 7 6-0 3000 38 040 Waste water Pollutionabatement, Rams Newsprnt Bi Gdaren State ._ 050-Sat a recycrrg paper plant Energy saving & & Papers Limted Gu,wat Paper Co.ICICD-B-25 Armmbic digeston of sOWlg & 04 0-1- 0 38 210 Waste Water FFlutiOn abement, .g1Po Noorpr Aqua Technos Thaiand 05/11/93biogas generation ia distlley Energr saving & Indusres Ltd West Bengal Co Ltd (Aqua)lCIC[-B-25 Air pllution orntrol & sulphul recovery 21600 3000 4i1l Air n & n A M oldini-d Ausbi W51973i at a oopper smekar plant Waste water resource recovey Limited SIL mahtrashtra-27 e-peic preCi,itators to contriT 1 300 0 50 4 Air -u tiiT ' P6Fouti6niZtament rasdiiaism In du Smrithi Erection TamndNadu, 052193= i iolution nanuent treatPent 030 0270 4it water pPolutn -. iemeri- Sfis Servecs Indiag

facita op &pw mill _ _ Limnerd(SIU PuniabICtCI-B-29 Coposting a of so d waste 0870 0S 0 42310 sidw Uas& eiTi5tement P tiiree Sugars&- uran, MAdataa IiJstiNlageat a sugpr & disbay p;mnt water poluibon Resoure recovery Cherncals Ltd Tamd NaduIC(CI-13-30 U hof col h 1.300 0 9 43278 wastewai Fbllonabatement Centity Te T[sh& d,aThiine, ahagwdat ron & chemt unit Industris Ltd(ClL Mahtvashra PvtLtd fPU &

tata riskmeragainert

._____ .___________ _________ eerwicu s (TRMS)

TOTAL .44304 48.70 4-.--6

0II

INDIA

INDUSTRIAL POLLUTION PREVENTION PROJECT

LIST OF SUB-PROJECTS APPROVED UNDER INDUSTRIAL POLLUTION CONTROL PROJECTAgec rrolecI omtirPqui bu5U1Sm Ujom r,mu vel SM ir tl. L-M SfSS ~~W1C - USublban No Cost US$millon ommi Source the projet colaboraton ape_______ ~~~~~~~~~~~US$miflon USSmlllon __o___b_ra__ion__App___ved

8-lOSI-oi ReeAir gSystemfordust 0.88 0.430 0.430 Air-bome Pollutonabatemet & SandurMc S rndu. Flaktindak& smoke Emissions Poluants Resource recoi!y IonOesLd Karnatak Ltd.M lndilswedern t2JJ9i,61w-r:-' a iWtre7rMiTJmE (gasoline additve 7 6g J~t edd ~ lloaatemie4 ija eum-ii1Ij Ma1Wi Sna5iqpogetlia 1 2 I231substaute fo Le"_Na . o 1.210 E Gaiol;MahmarsEP S0P A0--IDIP-03 -23 0 T86- i.210 PIc'scraps PiguinibaiWmwitx m IoI i 0/1J9

B-1D BI-04 8 LckUq ru T ati & ~ ~ -- 54 1 255 2.46 5 PulpS,Paperh q En cy bE & U d. M aharasta M acchines Di.EnerW Recovey Toxic waste Energw saving & & Pape Mahmahatrazl-1- Incinerfatr 1 . 0o 560 3 045 Solida ita Reot= =rmc wr PI t - Than 8d9pur 1mlia OM_____________________ ~~~~~~~~~~& residus____ ndustrie Maharahtra-iDB-0 Repceriment of Mercury cetls by 772 1.560 4.65 wast| Polh6iioba-tement 1- iu a-:ijie hdustnr& Oseka, Soda Ja- l -92.Membrane Elactrolizes ____ __ _Energ san & lndustne Ltd PradesaB-1lDFNM Purg GMa Recovery System in a 17.10 6.91t0 tt PtSi.=N *a Udeent, A I - 1ii15;- Ui3ic Qfeilze pku POluat Resource reoovery & Chemicas Maharashtra LAIr Liquid France

Energ saying CF) Nippon Sansyo JapanE-lON=C g_ = Mt r oGna_ieni x gmmell;en Bsotech 1_11_Nadu__ Costine U KBZ-ID81-os- M of Wphur0 de FnWis -- 692 iT 3 0 - 12665 -ir Kpolutant 'Mutionabatert en a IrPy iiiAifr? (C & T iinii7iW 92Emgss,ns atl a chemical Wlant & Toxic waswte Resource recovy4f 80m Tain Nadu _1t-1D8B-0t Aerobic Digestonota 0 52 O j S33 122-w ___ 5Gteme n t B USA. - 04 W/0792Ptwm1csuo PI" Er E_erW O0 2 sP1 PlUiMt Ngessua Mashtra Corortion Gm-toUF1 Rlplacerrientav ericury celsby - 6320- 4710o- F1769 To- iIm-woliusiBeeren =LW Wr . . UW. W G&iiiift-q 6WWOWMembraneE olle-tS3wers EJapasnavj- GU."-B T Modemnisadon cat Casibc - ~692 T3-00 1-I9 025 Toxic wa-ste 1utro-n ibate-mil & AtruiP" 5j - W - - -- LUriid-mi - diFiiay- W2T9Soda Ptlant o 0 7 0. 35 9 b EnerWi sa Ltd Ou.ar496-I rr-- KA"Miibhi~dges6on`ofsMWage&Ios 131T-S o-"bf PIM WiiW-eite-NUiii iiiFiKi toni - eiagn. meaf Diiiiijmi ln&ai o61119genreation at an etwxs distillery Resource recovery & Distilleries Pradesh (subsidary ia~~~=-~~~~~~=--- ~~~~~~~~~~ ~Eerwg saving 6C D -e

m~~~~~~~~ __

__ __ ~~0WMi-e--Fe - -P6I~oKiiiiii eniiF _iILtd_ ~TFFWj_Majii hst Rjf4*7 b77j-4 -6l~~~St ~ ~ ~ ~ 73 4.600 25359 ~~~~~~~~~WFiidatei- P646666g*4 -- VP Bh5Wiiw - - TtJNP India 71i___Moxic chaim Resource recww ___ MahaashtraB1IDBFIt M IPM ayina 022 m- 2579A1TF:Wi -Poi-SiFbaement TAW- UWis~p%s MM-c -m--- 2

B-05-116ouibon ofstlali b6gis 097 0O633 P6asewatr naWeimerit, -- KSS~L- -Fwihi ar,il nw li(ii j- ii2/generaton at en ethanol distillr Resource recovery A MaharahtraBD iFModerniaton of a Causic &33 5 000 ll-- ~T6xIii -sl P161lui5iti iihaement 1 GM3 - - WiRk WdIia- Of-iI&In 4jime-i - fiigSoda__P_- EnerlLsonn PradesthB oaI =Fe-W e-mbra ne0E jI a 7ib -4 300 buo-na56i-neme I IACL--- W - - -AWD.:sOD- 3i~5aln -oTl935-1051-19 ~ ~ ~ ~~ -- 0420 35932 ~~~~~~iiW ~ EneW savint. PA !~

9--OP 9 Intagio ofElcirsttE 5 --- T-2- -- jr bi~PAikiiiiWbaerent JJwhiniii~v n 164IT&7 - -~~~ ~~ ~~l32 ~~pollutants Cemenit Ltd Pradesh Research CottrelI

__ _________-__ __~~~~~~~0 -.1SW 1 BSK pw __ Flqucercowr_ i 7nia-_ fl IW14/92

INDIA

INDUSTRIAL POLLUTION PREVENTION PROJECT

LIST OF SUB-PROJECTS APPROVED UNDER INDUSTRIAL POLLUTION CONTROL PROJECT~llnW P rolecr T~56(~0ffiU,.~-low Cbec AN U fotclmuUftI -5potsocat DimSubban No Cost US3mWlon commbm Source the project collaboration Approved____________ _______ USSnmibion S$mlllon

ff-:1D812t FWM-se AIr Caing SySteamW for Dust 230 150 I 1._0 Ah-bomne oiEniiit en ur anganes ut?n-nl i ln;g - li&Swee iW/ii92 --____l - 2 6& smoke Emismns _ polluta oe irn os Ltd RiaK thaa Ltd. (FIL)

s2lotw co rexsr 0 Resource re _ Wpner OhtslisBdw NICCO_lIMI8-23 Arbic400M diesbW sttdlg 6 0.2 'Oi lSleiwaer Fooiaeiet rT W N Kparigon. xjH Rup liia -0149b*Wp geeation ad an erhln dW Resource reaover & d_ie*s & Ahmdngr. Pksc MwadactB- IOIM-24 Wreteiater thedament plt dt 0470 036O 06tO W 5 - Mahtrastera Hindi1139pulp and paper mil Rayons Ud (APR Warangal dstrict Doow

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Amnex 1.2Page 1 of 7

lNDUSIlU^ POLUllON PEEVENllON PgE&QM

NO. H. 11013(2)/90-CPWGOVERNMET OF INDU

MMSTRY OF ENVIRONMNNT AND FORESTS

Polc State"t for Abatemaet of Pollution

1. PREAMBLE

The commitment of Goverment on abatement of pollution for preventing deterioration ofthe environmnt is stated here. The policy elements seek to shift emphasis from defining objectives foreach problem area towards actual implementation, but the focus is on the long term, because pollutionparticularly affects the poor. The complexities are considerable given the number of industries,organisations and govermment bodies involved. To achieve the objectives maximum, use will be made ofa mix of insmen in the form of legislation and regulation, fiscal incentives, voluntay agreements,educational programmes and information campaigns. The emphasis will be on increased use of regulationsand an increase in the development and application of financial incentives.

2. TM PROBLEEM

2.1 There is an increasing trend in environmental pollution. Water is polluted by four kinds ofsubstances: traditional organic waste, waste generated from ndustial processes, chemicalagents for fertilisers and pesticides for crop protection and silt from degraded catebments.While it is estimated that threefourths by volume of the waste water generated is frommunicipal solrces, industrial waste, though small in volume, contributes over one-half ofthe total poUutat load, and the major portion of this is coming from large and mediumindustries. For class-I cities of the Country, less than five per cent of the total waste watergenerated is collected and less than one-fourth of this is treated.

2.2 Ambient air quality trends in the major cities indicate that levels of suspended particulatematter are higher than the prescribed standards or limits, especially in summer months.Levels of nitrogen dioxide are increasing in urban centres with growing vehicle emissions.

2.3 Environmentl problems are becoming larger in scale. The chemical industry generates anincreasing quanity of substances every year; adversely affecting essential aspects of thecomposition of the atmosphere, soil and water. In the industrial high density areas, inaddition to the effects on local health and impact on nature, we are confroted with damageto the social and economic fuctions of the envionmen.

2.4 With restrictions on releases to air and waste water, hazardous chemical wastes are gettingdiverted to land for their disposal. Earlier concems with pollution that was visible anddegradable are giving way to new types of pollution with very small quantites of syntheticchemicals that are not so visible and are injurious to health and damage the environment

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Page 2 of 7

because of widespread use, persistence and toxicity. Reducing the hazards from toxicchemicals is now a prinary public concern.

2.5 Human activities are also influencing the composition of the atmosphere. Despiteuncerainties and insufficient knowledge, political and scientific decisions concerningenvironmental change will increasingly be necessary.

2.6 The state of the environment continues to deteriorate. The growth in scientific and technicalknowledge has made it possible to use an ever increasing quantum of natural resources. Theincrease in population is further enhancing the pressure on the environment. The depletionof forests has been accompanied by increasing amount of pollution affecting atmosphere,soil and water. Some of the damage is irreversible. In seeking a higher quality of life whiledeveloped countries need to focus on changing the composition of their processes andproducts, developing countries will need to obtain the benefits of economic growth. Thepolicy statement on Abatement of Pollution thus complements the Forest Policy Statement.The Govermnent seeks to ensure that its policies in every sector are based on a set ofprinciples that hanmonise economic development and environmental imperatives.

3. FUTURE DIRECTIONS AND OBJECTIVES

3.1 It is not enough for the Govermnent to notify laws which are to be complied with. Apositive attitude on the part of everyone in society is essential for the prevention of pollutionand wide consultation has been held with those who will ultimately implement the policy.

3.2 A comprehensive approach is taken to integrate enviromnental and economic aspects indevelopment planning; stress is laid on preventive aspects for pollution abatement andpromotion of technological inputs to reduce industrial pollutants; and through reliance uponpublic cooperation in secuing a clean environment to respond to the coming challenges.

3.3 The objective is to integrate environmental considerations into decision making at all levels.To achieve this, steps have to be taken to:

* prevent pollution at source;* encourage, develop and apply the best available practicable technical solutions;* ensure that the polluter pays for the pollution and control arrangements;* focus protection on heavily polluted areas and river stretches; and* involve the public in decision making.

4. CRMCALLY POLLUTED AREAS

4.1 Mechanisms will be evolved to reduce local concentration of pollutants in complex industrialsites. Strategies Will be developed for areas with high pollution loads where theaccumulative effect of the various types of pollutants would be taken into account includingpollution of ground water. Existing units in these areas will be targeted for effective action.New units in these areas will be required to comply with location speciric standards for

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stringent environmental quality objectives. These will include matching waste generatorswith waste buyers, with the objective of solving waste disposal.

4.2 Setting up of industrial estates, and clusters of small industrial units in rural areas, wilinclude pollution abatement measues as an essential component of infrastructure. In thepast, the absence of adequate provision of space for installing treatment facilities andarrangements for disposa of wastes was led to severe pollution of agricultural land andrivets.

4.3 There has been a steady increase in the amount of waste water produced from urbancommunities and industries. In the coming years, due to rapid growth in population,urbanisation, industrial delvelopment and better water supply, the amount of waste watermay increase manifold. Generally, these waters are discbarged into lagoons or dumped onlow lying areas without any preatment, thereby creating sewage pools, conaminatingground waters, salinizing good quality lands around cities, acting as a source of foul smelland breeding grounds for mosquitoes and other pathogens. At many places this waste wateris discharged into drains and rivers causing serious water pollution. However, awarenesshas now grown and more attention is being paid to develop systeems to treat sewage waters.For a country like India, conventional treatment plants are costly. In fact, these are beyondthe financial means of many small towns. Biological waste water treatment, on land disposalusing suitable vegetative cover and resource recovery technologies cannot only be attractivealternative, but also economical, safe and socially acceptable.

4.4 Mining operations will not ordinarily be taken up in ecologically fragile areas. Every miningproject shall be accompanied by a mining plan, including an environmental managementplan and time bound reclamation programme for controlling the environmental damage andfor restoration of mined areas.

5. ASSISTANCE FOR ADOPTION OF CLEANTECHNOLOGIES BY SMALL SCALE INDUSTRIES.

5.1 Small scale industries are a special feature of our economy. Governmne't are implementinga scheme for providing assistance for promoting combined faciliLws for treatment ofeffluents and solid wastes generated in clusters of small scale units. This scheme will beextended to provide necessary technical support as well.

5.2 While the large and medium industrWial units will remain totally responsible for control oftheir pollution, assistance will be provided to small-scale indusWial units, particularly thoselocated in rural areas, to aid the implementation of pollution control measures. This will beachieved by promoting development and adoption of cleaner technologies, includingenvironmentally friendly biotechnology.

6. STANDARDS

6.1 The present standards are based on the concentration of pollutants in effluents and inemissions. The norms will be revised to lay down mass-based standards, which will set

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specific limits to encourage the minimisation of waste, promote recycling and reuse ofmaterials, as well as conservation of natural resources, particularly water. Since thestandards will be source related, they will require for the most polluting industrialprocesses, particularly those using toxic substances, application of the best availabletechnological solutions, and also be an instrument for technological upgradation.

6.2 To act against potential problems in the future, new units will have to conform to stricterstandards. They will need to select technologies that produce no or low quantities of wastesand recycle or reuse waste products. Progressively, more strict vehicle emission standardswill also be evolved to deal with enviromnental hazards caused by vehicular traffic.

6.3 Standards will not merely be a regulatory tool but will be mechanism to promotetechnological upgradation to prevent pollution, conserve resources and regulate waste. Forthis purpose codes of practice and guidelines will be evolved for specific processes.

6.4 The environmental effects, from production to disposal of products that are hazardous andtoxic will be taken into account in the regulations. Chemicals will be reviewed accordingto the level of risk, and where safer alternatives have become available, restric,ions will beinposed. Regulations for liability and compensation for damages Will supplement standards,to pronwate greater care and caution, particularly in the management of hazardous waste andremedial action in case of contamination of soil and ground water.

7. FISCAL MEASURES

7.1 While regulatory measures remain essential for the effectiveness of the policy, newapproaches fox considering market choices will be introduced. The aim is to give industriesand consumers clear signals about the cost of using environmental and natural resources.The expectation is that market-oriented price mechanisms will influence behaviour to avoidexcessive use of natural resources.

7.2 There are at present several fiscal incentives for installation of pollution control equipmentand for shifting polluting industries from congested areas. The items for which excise andcustoms rebate are allowed will be reviewed. This will stimulate the advancement ofabatement technologies and create increased demands for the products.

7.3 Economic instruments will be investigated to encourage the shift from curative to preventivemeasures, internalise the costs of pollution and conserve resources, particularly water. Adirect economic signal is offered by an effluent charge based on the nature and volume ofreleases to the enviromnent. The level will be based on the cost of treatment arid the flowdischarged, in order to provide an incentive to set-up treatnent plants. The scope of thecharges will also be extended to emissions and solid waste. Charges provide a continuingincentive towards optimal releases.

7.4 These instruments will also have a distributive effect as the revenues v;il1 be used forenforcement, colHective treatment facilities, research and promoting new investment.

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7.5 The precise choice of economic instruments adopted will be determined by the, ease withwnich releases can be measured, as well as prospective changes in technology and marketstructures. To deal with the range of Pollution problers a mix of regulatory and economicmeasures will be adopted.

8. INTEGRATION

8.1 Critical policy areas for control of pollution come under different departments and levelsof Govermnent. Sectoral Ministries, State Governments, local bodies and agenciesresponsible for planning and implementation of development projects will be required tointegrate enviromental concerns more effectively in all policy areas. Local authorities playa key role in abatement of pollution and environmental concerns need to be built into theway they operate. Steps will have to be taken to strengthen governmental and institutionalstructures dealing with environmental management, especially within the ministries dealingwith the sectors of energy, industry, water resources, transport and agriculture and whowould develop specific programmes in regard to pollution prevention.

8.2 Policy making, legislation and law enforcement influence each other. The increase in themnber of regulations increases difficulties in enforcement. Legislation regulating particular

activities wil be amended to incorporate and eliminate clashes with environmental criteria.Traditional instrunents for monitoring of compliance and investigation of offences arebecoming over-burdened. An integrated overview and organisational structure fordecentralised environment impact assessments and environmental law enforcement based oncooperation with local authorities will be sought.

8.3 While pollution from specific sources including towns and industries have been addressed,non-point pollution from run-off of agricultural inputs such as pesticides,insecticides,fertilisers, etc. has not been dealt with. This is gaining increasing proportions,which is polluting not only our water bodies but even sub-soil water resources and wouldaffect the health of human beings. A long-term policy for pesticides use, including theintroduction of environmentally acceptable pesticides, particularly biopesticides andKion-persistent biodegradable ones, and integrated pest management together with thephasing out of the proven harmful toxic and persistent ones, would be formulated incollaboration with the concerned Ministries and infrastructure involved for its effectiveimnplementation. A sirnilar policy for fertiliser use will also need to be formulated.

8.4 Plant and vegetation in general play a vital role in controlling pollution by regulating theclimate an: atmospheric equilibrium, protecting the soil and mainutning the hydrologicalregime. Hence, existing forests and natural vegetation should be fully protected. The forestand vegetal cover should be restored and increased wherever possib!e, specially on hillslopes, in catchment areas (f rivers, lakes and reservoirs, ocean shores, semi-arid and aridtracts, in around urban centres and industrial establishments. It is necessary to encouragethe planting of trees alongside roads, rail lines, canals and on other umutilised lands underStatel corporate, institutional or private ownership. Green belts should be raised in urbanand industrial argas as well as in and tracts. Such a programme will also check erosion,desertification as well as improve the micro-climate.

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8.5 The Annual Administration Reports of the Ministries will include a chapter on the actiontaken to follow up the policy statement, and other environmental initiatives they have takenor are proposing.

9. ENVIRONMENTAL AUDIT

9.1 Industrial concerns and local bodies should feel that they have a responsibility for abatementof pollution. The procedure of an environmental statement will be introduced in localbodies, statutory authorities and public limited companies to evaluate the effect of theirpolicies, operations and activities on the environment, particularly compliance withstandards and the generation and recycling of waste. An annaml statement will help inidentifying and focussing attention on areas of concern, practices that need to be changedand plans to deal with adverse effects. This will be extended to an enviromnental audit' Thomeasures will provide better information to the public.

10. ENVIRONMENTAL STATISTICS

10.1 Authoritative statistical data on the environment is vital for Developmental decision making.Resource accounting will be used to give an idea how economic policies are affecting theenvironment. Current economic accounts are concerned mainly with the volume ofeconomic activity; they ignore expenditures to protect the environment and encourageinefficient use of resources. The collection and integration of environmental, economic andhealth data will be done to determine the status and to develop a concise set ofenvironmental indicators for monitoring the effects of pollution Infonration and access tothe public are essential so that everyone knows what-is happening to the environment.

11. PUBLIC PARTNERSHP

11.1 The public must be made aware in order to be able to make informed choices. A highgovernmental priority will be to educate citizens about environmental risks, the economicand health dangers of resource degradation and the real cost of natural resources.Information about the environment will be published periodically. Affected citizens andnon-governmental organisations play a role in environmentally monitoring and thereforeallowing them to supplement the regulatory system and recognising their expertise wheresuch exists and their commitments and vigilance, will also be cost effective. Access toinformation to enable public monitoring of environmental concerns, will be provided for.

11.2 Public interest litigation has successfully demonstrated that responsible non-governmentalorganisations and public spirited individuals can bang about significant pressure on pollutingunits for adopting abatement measures. This commitment and expertise will be encouragedand their practical work supported.

11.3 Householders, as consumers, make large number of relatively small individualcontributions, whose cumulative effect is considerable. A system of certification of goodsthat are 'environmentally friendly" will be set up to e available information to encourageenvironmental consciousness amongst consumers. This advice will also encourage

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manufacturers to produce goods that are environmentally more friendly as well as encouragerecycling and adequate waste management. Consumer awareness would also be encouragedby involvement of consumer organisations in cooperative testing, and dissemination ofinformation relating to envirownental friendliness of these products.

11.4 As the present system of jurisprudence does not provide for compensation to individuals forenviromnental damage, including effects on health and environmental damage caused bypollution, it is proposed to set up special legal institutions to redress this deficiency and alsomake adequate arrangements for interim relief.

11.5 Greater emphasis will be placed on promoting awareness, undertaking and competence inschools, colleges, and training institutions. Professional and non-governmental bodies willbe encouraged to be more active in environmental training and building awareness.

11.6 Society has accepted many practices which cause pollution. Reckless use of loudspeakers,dumping in water bodies and scattering of wastes are common. Noise nuisance requiresspecific devices as well as greater consideration for neighbors and there is growing concernthat litter has increased in recent years. Social action in these matters by voluntaryorgansatiens and individuals will be promoted through knowledge, education, trainingcamps and public information campaigns.

12. This statement is based on consideratons of effectiveness, efficiency and availabilityof financial resources. The responsibility for abatement of pollution is not a duty of theGovenment alone, it is an obligation on all. The approach mentioned above should indicatehow every one can help in achieving a safe and environmentally appropriate environmentin our country.

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INDIA

INDUSIRIAL POLLUTION PREVENTION PROJECT

S thenf Comuliance with Reuations

Outline Tenms of Refernce

India has a large body of laws and regulations governing the environment. These include lawsenacted by parliament, regulations issued by central and state governments as well as an inreasing bodyof judicial decisions affecting industrial activity that generates pollution. However, as noted by theGovernment of India's Policy Statement on the Abatement of Pollution, 1992, 'there is an increasingtrend in environmental pollution'. Non-point pollution from run-off of agricultural inputs as well aspollution attributable to small and medium scale industries continues to be of particular concern to theGovernment.

The 1992 Statement on the Abatement of Pollution notes that "it is not enough for theGovernment to notify laws which are to be complied with." The focus of Government attention is nowshiftmg to ensuring improved compliance with environmental laws. To this end, the Government hasadopted a three-pronged strategy:

* First, GOI has initiated measures for strengthening the institutional capacity of the Centraland State Pollution Control Boards to monitor compliance and enforce laws using tradidonal court-basedapproaches. The Government is also working on a proposal to establish Environmental Tribunals to dealwith selected categories of legal matters arising from environmental laws and regulations.

* Second, GOI has decided to gradually add a range of fiscal instruments to complementtraditional regulatory enforcement to strengthen compliance;

* Third, GOI has decided to use popular participation and community involvement as animportant tool for improving compliance, both by (i) requireng enhanced information flows on matterspertining to environmental polludon; (ii) empowering stakeholders, such as communities affected bypollution as well as consumers.

Qbectives:

The Government's objectives to strengthen compliance with environmental laws and regulationsare perhaps best articulated in relation to industrial pollution control, as set out in the 1992 PolicyStatement on Abatement of Pollution. In addition, industrial pollution control in relation to the smallscale sector raises some of the most interesting challenges to obtaining compliance with environmenregulation. The objective of the study would be to develop a set of specific and practicable m ues,from a legal point of view, to improve compliance with environmental reguladons by small and mediumscale industry in India. The study would identify measumes needed to improve each of the three limbs of

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the GOI approach to improved compliance described above ('traditional'; non-traditional incentive-based;and popular participation). These suggestions would be developed within the framework of the currentregulatory and fiscal regime. Lessons learnt from the study in the context of industrial pollution control,with emphasis on small and medium scale industries, should be replicable in other areas of environmentalrulation.

The study would consist of three parts: first, a systematic assessment of the state of compliancewith industrial pollution control regulations; second, an identification of the main legal issues andconstraints in strengthening compliance; and third, a set of specific, practicable options for improvingcompliance. The study should specify follow up action needed for the implementation of each

The study would address the following main issues:

(a) develop, in respect of selected sites, a quantitative assessment of compliance by small andmedium scale industry with industrial pollution control laws and regulations: wbat is the degree ofcomliance (by sector/industry/area/type or regulation/type of implementation arrangement/administrativeactios such as consents, notices, prosecutions; by prosecutions/ by fines and other punishments)

(b) develop a quantitative assessment of degree of non-compliance using a similar approachas in (b) above;

(c) make an inventory of non-traditional approaches to strengthen compliance currently used,including community participation;

(d) based on the survey, collate and compile views of various stake holders on legal impedimentsto improved compliance;

(e) identify the incentives and disincentives of parties to legal proceedings under industrialpollution control regulations that may cause them to avoid or delay prescribed legal procedures;

(f) on the basis of the above, identify the main legal impediments to rnproved compliance; and

(g) identify with adequate justification, specific legal measures to imnprove compliance, withemphasis on non-traditional methods.

M-etodoLo,g:

The study would adopt an empirical approach and be based mainly on facts and opinions gatheredfrom concened persons and entities. The study would commence with a survey based on a detailedquesionnaire on compliance, to be developed and agreed with GOI and the Bank. The questionnairewould seek to identify facts and opinions on the degree of compliance; the main legal constraints toimproved compliance; and suggestions for remedial measures. It would be used in about 8-10 selectedsites across the country (giving priorty to areas most affected by pollution by small and medium scale

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industries and covering areas known to have good compliance as well as those known to have poorcompliance). Responses would be sought from affected stake holders including riparians, non-governmental organizations, employees and trade unions as well as concerned govermnent officials. Datawould also be obtained on the nature and quantum of environmental litigation at each level, with emphasison industrial pollution control.

The data obtained through the survey would be carefully analyzed to develop a factual assessment,an identification of issues and a menu of suggested solutions. On the basis of this analysis, an interimreport would be prepared and discussed with GOI and the Bank. After reflecting comments provided byGOI and the Bank the interim report would be discussed at a workshop of lawyers and others concernedwith strengthening compliance. The interim report would be revised, taking into account conmnentsprovided at the workshop and presented to GOI and the Bank as a draft final report, for comments. Thisdaft would then be finalized based on comments received from GOI and the Bank.

liming:

The study is expected to be completed in a total period of about 5 months. This includes twoweeks for developing, reviewing and finalizing the questionnaire, selecting survey sites and personnel;three weeks for carrying out the field survey; four weeks for analyzing the results of the survey andpreparing the interim report; two weeks for review of the interim report by GOI and the Bank; threeweeks for revising the interim report and organizing the workshop; two weeks for preparing the draftfinal report; two weeks for discussing the draft final report with GOI and the Bank; and two weeksthereafter for preparing the final report.

The study would be carried out by a senior lead consultant, who would be an environmental lawspecialist. A team of two lawyers will assist the lead consultant as researchers. In addition, necessarysupport would be obtained for carrying out the survey and holding the workshop. To the extent possible,law students should be used as field surveyors. The services of the lead consultant would be required forabout six staff weeks; services of the two researchers for about twelve staff weeks in all.

Neact Step:

GOI will need to select a lead consultant in consultation with the Bank. The lead consultant shouldbe requested to prepare a detailed implementation plan budget for the study. Implementation of the studymay commence after the implementation plan and budget are approved by GOI and the Bank.

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INDIA

INDUSTR1AL PO LUTION PREVENTION PROJECT

Findings and Recommendations of the Review on the Needs and Capabilities of the PollutionControl Boards

Background

1. The State Pollution Control Boards (SPCBs) were established in almost all the States inIndia in 1974 to implement the provisions of the Water (Prevention and Control of Pollution) Act.Over the years, the SPCBs have been entrusted with the responsibilities of implemnenting the variousother Acts related to the Environment. At present the SPCBs are responsible for enforcement of thefollowing Acts/Rules:

* The Water (Prevention and Control of Pollution) Act, 1974

* The Water (Prevention and Control of Pollution) Cess Act, 1977

3 The Water (Prevention and Control of Pollution) Appeal Rule, 1981

* The Water (Prevention and Control of Pollution) Rules, 1986

* The Air (Prevention and Control of Pollution) Act, 1981

* The Air (Prevention and Control of Pollution) Rules, 1982

* The Enviromnent (Protection) Act, 1986

* The Environment (Protection)Rules, 1986

* Hazardous Waste (Management and Handling) Rules, 1989

* Manufacture, Storage and Import of Hazardous Chemical Rules, 1989

* Public Liability Insurance Act, 1991

The SPCBs are also responsible for various nodfications regarding amendments to these Acts andRules.

2. The main functions of the SPCBs as prescribed in the various Acts and Rules can besummarized as follows:

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An_ex 2.2Page 2 of 8

(a) To grant consent for discharge of any liquid or gaseous effluent by industrial units orother establishmnent and deciding the geographical limits, standards and conditions forsuch discharge;

(b) After granting consent, to monitor the liquid and gaseous discharges of these units andensure that these are within prescribed limits and conditions;

(c) On the basis of monitoring, to ensure that the polluter complies with regulation, and incases of non-compliance to take appropriate legal action;

(d) To control and monitor general environment in the State by establishing the monitoringcenters for air and water quality at appropriate places under schemes sponsored by theCentral Government.

3. In 1981, the Central Pollution Control Board (CPCB) defmed functions and a modelorganizational structure for each SPCB. It was suggested that each Board be composed of functionalcells for technical services, scientific services, planning services, administrative services, legalservices, and regional services. While the CPCB and the SPCBs have both planning and researchfunctions, during the last decade, the SPCBs have primarily focussed on stipulating environmentalregulations and taking measures to enforce compliance. The SPCBs have achieved significant progressin bringin pollutin industries into legal compliance through registration, water cess collection,environmental impact assessment, consent requirements, etc. Substantial proportion of the staffing inthe SPCBs were geared for this purpose.

Oreanization of the State Boards

4. While the functions of the State Boards are almost identical, their organization structuresare diverse, and reflect the management philosophy and historical circumstances particular to eachBoard (refer to Figs 1 to 4, for the existing organization structure of the Boards). However, in mostBoards, there are severe organizational deficiences. The project preparation activities included a studyby Kirloskar Consultants which identified measures to strengthen the monitoring and enforcementcapacity of the State Pollution Control Boards in Karnataka, Andhra Pradesh, Rajasthan, and MadhyaPradesh. The study identified existing weaknesses in the Boards, and made some recommendations tostrengthen their capacity. These are outlined below:

(a) Lack of clear Organizational goals and obiectives. The various Acts related to theEnvironment clearly define the "Mission" of the SPCBs, since they are responsible forimplementing provisions of the Act, and the staff are aware of this. However, there isno clear enunciation of objectives, goals, targets and means of achieving them withinestablished timeframes. This gives staff and management at SPCBs little guidance todevelop annual programs and budgets. It is recommended that each SPCB prepare adocument indicating the ultimate goals or objectives to be achieved in a time basedmanner.

(b) InadeAuate Composition of the Board. Most of the Boards do not have provision forrepresentation from the private sector. All members are nominated from the State

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Government, and the only provision for representatives from industry is for the publicsector industrial units. It is recommended that the SPCBs include the private sectorand other parties interested in environmental quality in their Board.

(c) Lack of a Chairperson. The Water Act provides for the appointment of a full time orpan-time Chairperson. However, many Boards do not have a Chairperson, and in mnanycases where one is available part time, management of the Board does not receive muchattention as it often turns out to be the person's secondary responsibility. It is thereforeadOnded that the State Govermdents pay attention to ensure that Chairpeowith the capacity to dedicate suantial amount of time and attenton be asnedto the Boards.

(d) Inefficient Qrganization Structure. Functional allocation is often inefficient. Forexample, in two of the Boards studied under this project, functions such as computer,public relations, noise and vehicle pollution are assigned to the person managing theHazardous Substance management unit. There is lack of clarity regarding the role ofzonal offices. Also, with their focus solely on monitoring and enforcernent till today, theBoards do not have the capacity for research and analysis. Given the enormous problemsof pollution, its impacts on general health and productivity, and the limited resourceswith which the SPCBs should work, it is essential to develop a strong capacity toidentify key problems, prioritize actions, and develop and implement cost-effectivepollution abatement strategies. Most SPCBs do not have a structure that would enablecoherent assembly of ambient and point source monitoring data followed by analysis anduse to prepare a pollution control strategy in conjunction with other relevantorganizations such as the land use and infrastructure planning agencies. A variety oforganization changes are proposed to improve the organizational structure of the Boards.Basically, the proposed structure would be built around a three tier organization -head office, zonal office (or Regional Office), and District Offices, and wouldencourage measures for de n.

(e) Inappropriate and iate staffMnU. In many Boards, the Member-Secrety and someof the senior staff are often on secondment from outside agencies like the Public HealthEngineering Department (PHED). The background of an expert from PHED is only inwater treatment and supply systems and is not commensurate with the wider expertiserequired for pollution control and environmental management. There is need formonitoring visits to be performed by trained inspectors with experience in the operationof the industries that are inspecting so that they can examine the factory floormanagement, process practices and waste treatment practices, provide useful advice tofactory managers, and collect samples at relevant locations. In general, the legalfunction of the Boards need to be stegthened, as there is often no full time legaladvisor. To compound the problems, job descriptions are hardly prepared, and joballocation is usually ad-hoc. While staffing gaps have been largely overcome in manyBoards, some of them bave not been able to fill their sanctioned positions, hampered bythe cumbersome recruitment procedures that they have to follow. The suggestedsaffing patten provides for adequate number of scientific staff at the Regionallaboratories for analysis work and samptling staff at the District Offices.

61

Annex 2.2Page 4 of 8

(f) Financial Dependence. To improve their efficiency it is important that the Boardsbecome more independent from the budget of the State Governments. To build thisindependence, more effort will be needed to collect revenues and charges. Also, a largershare of the water cess collected should be returned to the Boards. It is thereforerecmmended that the revenue collection function of the Boards be improved andgiven more prominence as in the case of the Karnataka State Pollution Control Board.

(g) Inadequate equipment and facilities. The equipment and facilities available at the Boardaare often inadequate. For example, while Boards in Madhya Pradesh and Rajasthan havetheir own buildings for head office and laboratory, the Board in Andhra Pradesh andKarnataka are in rented premises. Laboratory equipment, communication facilities,transportation facilities, and computing equipment are universally insufficient for theBoards to meet their mandated task. The study by Kirloskar Consultants hasrecommnended a programn of investments to augment this capacity. Under the proposedPollution Prevenion Project, investments totalling $23 million are proposed forequipment, training, and facilities of the Boards (for details refer to Annex 4.1).

(h) Operations. The operations of the Boards broadly cover the following aspects:

(i) Monitor air and water emissions of the industrial units which have obtainedconsent to operate. To meet this objective, samples are collected according to aplanned frequency;

(ii) Implement provisions of the Environment Protection Act with respect to hazardouswastes management;

(iii) Underake special projects such as the control and monitoring of noise pollution,vehicular emissions, pollution at the time of melas or religious gatherings, etc;

(iv) Control and monitoring of ambient air quality and water quality under centrallysponsored programs like the Global Environmental Monitoring System (GEMS),Monitoring of National Aquatic Resources System (MINARS), etc. Samples arecollectd and analyzed, and reports prepared and sent to the CPCB;

(v) Research in area-specific or industry specific problems related to pollution control.

The operations of the Boards are hampered by too much centralization. Administrativeand financial authority and responsibility is often not delegated to levels below the headoffice. All the analysis reports and samples (in some cases) have to be sent to the headoffice for clearance or examination. The proposed reorganization also reco_mendsdelegation of operational responsibility and authority to the Regional and Districtoffices and Regional laboratories.

Organization of Andhra Pradesh State Pollution Control BoardHead Office

IBoard

|Chairrnan l

Member Secretary

I~~~~~~.~oe IeeSupefintenchng Engr~~~EstMmhen

Sr. Env Enghneer St. Env Engineer St. Env Engineer St. Env Engineer Achninisitatlve ManagerPlanning Board 8card Lob Cass

Reglonal (Xlks Pwegle t limos Jr. SchrZfc Oltr 4 Superknendert Acouns Otlcar

EstmoliFdInnt

Auss MnagwtPuU,c telaons

00

Organization of Karnataka State Pollution Control BoardHead Office

Board

Chairman

MemberSecretary

Env. |Env | Board Cess Admin Publicity Legal Accounts

Off Ccer s Officer 2 La S Regional RegionalOffices Offices

o!

Goe

Organization of Madhya Pradesh State Pollution Control BoardHead Office

Zonal OoteilotI flawadous Wat.m Tohnloaa Pfoloola zaIItno A00ounts01ff.. &A&D WI_ submano., Coss Wing .Ing .. ng

R*gionatOlg...

Organization of Rajasthan State Pollution Control BoardHead Office

Board

Committees I

|Chairman ;

MemberSecretary

Scientific Planning | Technical Finance Administration LegalCell c cell p Cell & Accounts p

Committees: Technical, Lab Recognition. Cess Appellate, and review of Court Cases 0

66

Annex 3,1Page 1 of 6

ID STRI POLLUTION PREVENTION PROJECT

SurveK of Pollution Control Projects Fioanced bv the Bank

1. A quick survey was conducted of the Pollution Control Projects financed by the Bank.The objective of the survey was to document the Bank experience with these types of projects and tosummarize the main lessons learned.

2. While the popular perception is that the Bank's interest in the environment began only in1987, it is interesting to note that the Bank has been lending for pollution abatenent for the last twodecades, though the overall levels of lending through such operations have been modest.

3. The first operation financed by the Bank was presented to the Board during FY75 for aloan amount of US$20 million to finance a Water Pollution Control Project in Finland as part ofFinland's ten year national program (1974-83) to control water pollution caused by industries. Theproject had two components: (i) an investment componen, to finance the foreign exchange costs forpollution control investments made by industry, and (ii) a research component, to explore ways tomake the national program more effective, and to prepare alternative approaches to pollution controlin the medium to long term. Beginning with this operadon, a total of 22 pollution control projectshave been financed by the Bank tiUl FY93. The total Bank assistance through these operationsamounted to $1.71 billion IBRD and $393.6 IDA. A list of these operations is listed in Table. 1

4. This survey focusses primarily on projects that aim to abate pollution from industrialsources (eight projects), and secondarily on area based projects that aim to alleviate environmentalsess in critically polluted areas (four projects). Industrial Pollution abatement projects, generallyhave included the following components:

(a) an investment component, to finance measures undertaken by industry to abate polluton;

(b) an institutional component, to develop analytical, monitoring and enforcement capacityin the institutions responsible for envionmental management.

Stat of Projcts

5. Of the eight industrial pollution abaent projects approved by the Board, three havebeen completed. Two were closed ahead of completion and project perfonnance audit reports areavailable, while a project completion report is available for the third project. Five operations are invariotus stages of implementation. The most recent operation approved by the Board was in FY93 andinvolved an Oil Industty Environment Mitigation Project in Argentina.

6. Out of the list of eight projects, five are thought to be quite similar to the project underpreparation, and hence potentilly instructive. These are: (i) the three industrial pollution controlprojects in Brazil, (iii) the Mexico Industrial Pollution Control Project, and (iii) the India Pollution

67

Annex 3. 1Page 2 of 6

Control Project. Project Completion Reports are available for the first Sao Paulo Pollution Controlproject and the Mexico Pollution Control Project. The other three projects are under implementation.

7. A summary of the most relevant issues faced during the preparation of these projects andlessons described in the PCRs for the projects in Brazil and Mexico are outlined below:

(a) Legislation. It is necessary to have a well formulated framnework of legislation,guidelines and standards, without which very little can be done to improveenvironmental compliance by industry.

(b) Institutional strengthening: The strengthening of capacitv of enforcement agencies is avital component that should complement any investment component. These institutionsshould be empowered by law and provided with adequate resources to effectivelyexecute their mandate.

(c) Institutional complexity. A variety of agencies - national, provincial, and local - areresponsible for environmental management. While careful attention needs to be paid toarrangements to ensure institutional cooperation, it is also important not to tie upinsitutional flexibility with agreements that require legislative action;

(d) Political committment. In the absence of a political coniittment to pursue pollutioncontrol aggressively, institutions lack the teeth to imnplement policies.

(e) Incentive framework. There is need for an incentive framework consisting of acombination of positive and negative incentives to motivate firms to undertake pollutionabatement measures. Most of the projects involved a small subsidy element for thenvestment component. However in recent years, sub-borrowers have begun to bear theforeign exchange risk and the loans are at lower end of the market rates.

8. The projects which have been completed depict differences in achievement of objectives.The Sao Paulo Industrial Pollution Control Project achieved the stated objectives, while the MexicoPollution Control Project "did not have any measurable impact on govermnent policy, strategy orinstitutional development nor in the final analysis did it impact the environment of the Greater MexicoCity Area (GCMA), whose air and water pollution continued to worsen significantly over the life ofthe project'.

Area Based Projects

9. Area-based projects are based on an integrated approach to environmental managementwhich recognizes that environmental problems are caused by pollution and wastes exceeding thecarrying capacity of the ecological system. These projects attempt to mitigate pollution andenvironmental impact from all sources in the targeted area - trasport, domestic, industry, etc. -based on a medium to long term strategy that also looks at impact from land-use, etc.

10. The first operation of this nature, approved by the Board during FY92, was for an IBRDloan of $45 million and IDA credit of $80 million to the People's Republic of China to support the

68

Annex 3.1Page 3 of 6

Beijing Enviromental Project. The project is currently under implementation, and its objective is toassist the Beijing municipality to plan cost-effective strategies for a comprehensive enviromnentalprotection progrwn, strengthen the policy and institutional framework required, and support priorityinvesuments to start the process. The project would address pollution problems associated with air andwater quality, and the disposal of domestic and industrial solid waste. Since then, two otheroperations (one in Brazil, and two in China) of a similar nature have been approved.

11. While the area-based approach is sound in te af its approach to environmentalmanagement, it is quite complex in terms of strategy formuiarton and institutional arrangements. It istoo early to say whether this approach will achieve significant gains in environmental quality.

Table 1. Bank Lenin for Pollutbn Abatement

ClUNTRY LOAN/ PROJECT LOCA/ FISCAL STATUSCREDIT CREDIT YEAR110. AMOIJT

I ~~~~~~ ~~~~~~~~~~~~~~~~~~~~~~~(USX) IINDUSTRIL POLLUTION CONTROL

FILAND 1109FI Water Polluton Control Project 20 1975 LoanInvestments in water poltution control works by industry, particularly pulp and paper caftelledfirm after

partial- -_disbursement

Brati l 1822BR Sao Paulo Industrial Pollution Control ProJect 58 1980 CompletedFinancing of industries to carry out measures to reduce their particulate matter

l__________ emissions, to pretreat or fully treat their effluent

Mexico 2154ME Poluon Control Project 60 1982 CompletedFinance firms' acquisition and installation of pollution control equipment, processchanges or plant relocation. Finance private auto garages, acquisition of vehicularemission testing and diagnostic equipment. Finance local and federal authorities'

l_________ acquisition and installation of pollution monitoring equiPment. taboratory facilities. -

Brazil 2831BR Second Industial Poldion Control Project 50 1987 ItmplementatiFinancing of project by firms to reduce all types of industrial pollution in Sao on

l__________ Paulo. Institutional strengthening of CETESB and SEPA

India 33341W Industrial Pollution Con Ptoject 124 1991 tmplementati252I1 An institutional component to strengthen the Pollution Control Boards in four states. 31.61DA en

An Investment component to assist industries take measures to comply with regulation.A TA component to assist the Ministry of Environment and Forests with specializedassistance for evaluation fo environmental problems.

Urazil I 3480BR National Industri Polution Cotrol Project 50 1992 lmplementatiAssistance to participating states to develop a cost-effective integrated approach to onpollution abatement. Financing of investment by industry to abate pollution,Strengthen the ability of BUDES to process free standing pollution abatement loans.

Egypt Hetwan Industra Pollution Control Prjcst 50 1993 ImplementatiThe objective of the project is to initiate the first phase of environmental clean up 50 IDA onof Hetwan through: (i) the development of local environmental monitoring, inspectionand enforcement capability (ii) the preparation of a long-term action plan andpriority based investment program as a basis for future projects and the reduction ofhighly toxic effluent and solid waste discharge, and (iii) the reduction of poltutionfrom Netwan cement companies to internationally acceptable levels.

Argentina oi hIdustry Environtent Mitigation Project 150 1993 ImplementatiThe project would consist of: (i) environmental improvements at La Plata refinery, on(ii) upgrading product terminals to reduce harmful emissions in filling of tanks, 0(iil) pilot clean up at the Comodoro, Rivadavia, Mendoza and Neuquen oil fields, and

l_________ (iv) TA for training environmental staff at the refinery. o

o L,

COUNTRY LOAN/ PROJECT LOAN/ FISCAL STATUSCREDIT CREDtT YEAR

_lNO. A[ NT I . C~~~~ ~ ~~~ ~~~~~~~~~~~~~~~~~~~~USSm),I

INTEGRATED APPROACH TO POLLUTION ABATEMENT IDOMESTIC, INDUSTRIAL AND OTHER SOURCES)

| China 3415CHA Beijing Environnental Project 45 1991 Implementati2312CHA The project objective is to assist Bei jing Municfpality to prepare cost-effective 80 IDA an

strategies for a comorehensive environmental protection program, strengthen the poticyand institutional framework, and support priority investments. The progrma wouldaddress pollution problems associated with air, water, and solid waste from both

l__________ industrial and domestic sources.

Brazil 35548R Minas Gerais Water Quality and Pofution Control Project 145 1992 ImplementatiThe principal objective of the project is to recuperate the environmentatly degraded onl

l ~~~~~~urban basins of Arrudas and Onica rivers in the metre,eolitan area of Belo Horizonte byll ~~~~~tackting problems of domestic and industrial pottution.l

China 2475BR Zhepeng Multiices Development Project 1993 ImplementatiThe first phase would support improvement in water supply in cities of Hangzhou, 110IDA onNingbo, and Wenzhou. The environmental program consists of a comprehensive liquid andlsolid waste gmangement study, a basic urban services upgrading programn for Ningbo, andcreation of an environmental fund to support pollution control investments in smalland medium industries. The second phase will be a coaprehensive environment projectaimed at developing industrial and domestic sewage collection and treatment systems,and improving on-site industrial wastewater treatement and non-sewered systems. __

China 3582CHA Southern Jiangsu Environmental Protection Project 250 1993 ImplementatiThe project will help local authorities strengthen their capabilities in envirormental' onplanning and management, and support priority initiatives. This will include a lineof credit to support industrial potlution abatement, construction of mnhicipalfacilities for urban wastewater treatment, establishment of solid and hazardous wastemanagement registration centers, storage facilities and transhipment facilities.

ABATEMENT OF POLLUTION FROM TRANSPORT AND DOMESTIC SOURCES

Brazil 0758BR Sao Paulo Water Supply and Polltnion Control Project 37 1971 CempletedFinancing of extension of water distribution system, construction of sewageinterceptors, pumping plants, and reconstruction of a major sewer treatment work.

Syria 0401SYR Dwamscus Water Supply Project 15 IDA 1973 CepletedThe project includes many activities to improve water supply in Damascus. it alsoincludes study of measures to reduce potlution in Barada and Orontes river basins, and_urchase of equiDmt for water quality monitoring. _

Yugoslavia 1066YU Dubrovnik Water Supply and Wastewater Project 6 1974 CampletedFinancing for water supply and waste water treatment systems _ ___

Yugoslavia 1264YU Sarajevo Air PoDution Control Projeet 38 1976 CompletedFinanfing of natural gas house heating distribution system to reduce air pollution

0n

COUNTRY LOUI/ PROJECT LoA/ FISCAL STATUSCREDIT CREDIT YEARNO. AVMOUiT-l_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ C(USSm)

Turkey Ank8ra Air Pollution Control Project 6 1979 CompletedThe major purpose of the project is to development promising methods of marufacturingsmokeless fuet from lignite, and investigate other possible technologies which mayProvide a more appropriate clean fuel to reduce air pollution In Ankara.

Yugoslavia 2233YU Tuzla Region Water Supply and Envkonmental Project 30 1982 ComptetedFinancing for improvements to water suppty provision, mitigation of enviromwientalstress in the Spreca river basin, abatement of air poltution, and improvinginstitutional capacity. _

China 2391CNA Ship Waste Disposal rojt 15 IDA 1992 tmplementatiThe project consists of two components. The national component witl establish a data onbase regarding internationat shipping traffic and impact on envirormwnt. The portcomponent wil support design and provision of collection at disposal facilitites at

l__________ maJor orts in China. -

Brazil 35038R Water Quality and Pollion Control Proct 245 1992 I¢ptementati3504BR The project consists of investments and institutional support for water pollution on35048R control components covering the Guarapirange basin in Sao Paulo and the Upper Iguacabasin in Curitabas

-

Plexico 3543NE Transport Air Quality Management Project for Mexico City 220 1992 Ilplatentati -The project supports a comprehensive program to reduce air pollution from vehicular onemissions

tndia 24831 I Kamataka Rural Wate Supply and Environmental Sanitation Project 92 IDA ImplementatiCovering 1200 villages, this project aims to enhance provision of water supply and onsanitation facilities.

II

72

Annex 4.1Page 1 of 16

INDIA

INDUSTRLAL POLLUTION PREVENTION PROJECT

Cost of Recommended Training. Equjment and Fadlities for the Boards

1. The program of improvement at the four State Pollution Control Boards in AndhraPradesh, Karnataka, Madhya Pradesh, and Rajasthan has been designed to strengthen the capacity ofthe Boards in four areas: (a) the analytical capacity of the Boards to undertake the monitoring andenforcement of rules under the different environmental laws and regulations; (b) the effectivegeographical coverage required in each State depending on the location of industries; (c) the skillsavailable at the Boards to effectively execute the mandate, and (d) the financial situation at theBoards.

2. To build the analytical capacity of the Boards, the project will support the developmentOf modem and efficient instrumentation capacity at each of the State Boards in the aforementionedStates. A combination of Central (head office) laboratories, Regional laboratories, and mobilelaboratories is proposed towards this end. The Central laboratory in each State will be used anadvanced laboratory and will be responsible for R&D work, and for support services for someparameters which cannot be analyzed at the Regional laboratories. The typical instrumentation for acentral laboratory is described in Table 1.

3. Adequate geographical coverage will be provided through the Regional and mobilelaboratories. The Regional laboratories will be responsible for the analysis of all parameters relatedto industrial air and wate; consent conditioning monitoring, industrial hazardous waste monitoring anddesignation of disposal sites, monitoring of ambient environmental conditions for air and waterquality. Mobile laboratories will be provided at each regional office to expand the area covered bythe regional labs. The typical instrumentation for a Regional laboratory is shown in Table 2.

4. The project will also support a Global Information system for tracking toxic andhazardous waste in the Gujarat State Pollution Control Board, which was a beneficiary under theinstitutional strengthening component of the first Pollution Control Project. Details on this system areprovided in Annex 4.2.

5. The project will also support a training program to meet the following objectives: (a)quality assurance and quality control, to enable all laboratory activities to be accomplished byqualified analysts with appropriate experience and training. The training will deal with the principlesof quality assurance, procedures for handling, measuring and reporting, and audits; (b) instrument useand maintenance, including safety issues. This training will deal with the general principles ofoperation of equipment, maintenance and routine operation and troubleshooting (c) environmentalscience, which is expected to deal with the understanding of the impact of the pollutants on theenvironment, modelling and impact assessment, health and economic impacts, and techniques forstatistical analysis, (iv) management traininig, to deal with project management, laboratorymanagement, reporting and planning. Specific training programs have been suggested for differentlevels of management and staff, and these are summarized in Table 3.

73

Annex 4.1Page 2 of 16

6. The study by Kirloskar Consultants recommended equipment, facilities, and trainingtotalling $ 25.73 million for the first phase of strengthening at the Boards. The proposed projectwould support investment worth $ 23 million.

Uquipaent Required for a Central Advanced Laboratory at Ilyderabad (Andhra Pradesh)

S. Equipment Guam Unit Cost for AvaiLable Additional Total CostNo. -tity for one set In quantity required in Thousandone set Thousand Rs. quantity (Cot a Rs. for

- Cot c) Cot (d)

I fWMTED EWIPRN1 Cot (a) Cot (b) Cot (c) Cot (d) Cot (e)IA. LABORTORV EWIuNEN1 - .

I Fourier Transform Infra Red (FTIR) analyzer 1 2800.0 1 0 0.02 "PLC 1 745.0 0 1 t45.0

3 3DI_ 1 465.0 0 1 465.0/ Radiation monitok 1 20.0 0 1 20.05 Nicrosc with erticle size micrometer 1 53.0 0 1 53.0

6 Atomic Absorption Spectrophotometer (AAS) with 1 1620.0 2 0 0.0graphite furnace, lamps for all elements _

7 Gas Chromatograph (GC) with TCD, FID, ECD, regulators 1 434.0 1 0 0.0and cylinders _____.

8 TOC analyzer 1 504.0 0 1 504.09 Specific Ion Electrode meter (electrodes for F, "03. 1 730.0 1 0 0.0NH,. CU. S .

10 WU-Visible Spectrophotometer 1 800.0 1 0 0.011 Flame photometer 1 _ 82.0 0 1 82.012 Kercury analyzer I 210.0 0 1 210.0

13 Auto Titrator 1 48.0 0 1 48.014 Dissolved OxygEn C0O) meter 1 60.0 0 1 60.0

15 Difital Spectrophotometer (visible range) 1 50.0 1 0 0.016 tqp loading Single Pan Balance 1 200.0 2 0 0.017 igital Conductivity meter 13.5 t 0 0.018 Oigital pH meter 1 10.0 1 0 0.0

(Upgrading central laboratory at Hyderabad... Contd....)

S. EquIpment cusn Unit Cost for AvailobLe Additional Total CostNo. -tity for one set in quantity required in Thousandone set Thousand Rs. quantfty (Cot a Rs. for

- Cot c) Cot (d)19 Pen-type pH meter 3 43.5 0 3 43.5ZO Oispensei 2 40.0 0 2 40.021 water purification system 1 400.0 0 1 400.022 Microwave digestion system 1 400.0 0 1 400.0IP SAMPLING AND oUITORING EWUIPNENT

23 Continuous ambient air analtzer for So, 1 1102.0 0 1 1,102.024 Continuous ambient air analyzer for No- NO 1 1240.0 0 1 1.240.025 Continuous ambient air anatyzer for CO 1 650.0 0 1 650.0 _26 Continuous ambient air analyzer for NC 1 1090.0 1 0 0.027 Continuous arbient air analyzer for SPN 1 860.0 0 1 860.028 Cascade f1pactor 1 250.0 0 1 250.029 Nandy saupters for Sol, NO,, ° SPM* F etc. 3 162.0 1 2 108.030 Smoke meter 1 441.0 0 1 441.031 CO-NC analyzer 1 133.0 1 0 0.032 Specific vapor analyzer t 220.0 0 1 220.033 Integrating Noise level meter with frequency analyzer 1 350.0 2 0 0.034 Water current meter I t3.0 0 M 13.O35 Teddlar bag 12 5.4 0 12 5.436 Mit(ipore Filtration Assembly 1 60.0 0 1 60.037 Field 8acteriological Kit 1 100.0 0 1 100.0

Subtotal (I) Cfor imported equipment viz.IA+16) __ 8_19.9

-I

(Upgrading central laboratory at Hyderabad.. .Contd....)

-i , -__ .._ _I

S. Equipuent own Unit Cost fdr Available Additfiona TotaL costNo. *tity for one set in quantity required in Thousandone set Thousand Rs. quantity (Cot a RB. for

-Cot C) Cot Cd)It L0CAL EWUIPEUET

IA LAMORATORY EQUtUT _

38 Color Comparstor 1 18.0 0 1 18.0

39 turbidity meter 1 14.0 1 0 0.0

40 BOD Incubator 2 100.0 I I 50.0

4t Bacterioogical Incubator 2 100.0 I 1 50.0

42 Microscope 1 26.6 1 0 0.0

43 Autoclave 1 10.0 I 0 0.0

44 inoculation hood 1 0.9 0 1 0.9

45 Colonv counter 8 8.4 i 0 0.046 CO assembty 3 75.0 1 2 50.047 Muffle furnace I 11.8 1 0 0.0

48 oven 2 24.0 1 1 12.0

49 Centrifuge machine 1 16.8 1 0 0.050 Griffin flask shaker 1 6.3 0 1 6.3

51 fume chamber 1 71.0 0 1 71.0

52 Refrigerator 2 40.0 1 1 20.053 Soxhlet extraction assembty 1 6.3 0 1 6.354 Kjeldahi appratus 1 36.0 0 1 36.055 Pipette washer 2 5.6 0 2 5.656 Jar test appratus 1 8.4 0 1 8.451 Hot plate 2 15.2 1 1 7.6

4'_

(Upgrading central laboratory at Hyderabad...Contd....)

S. Eqpipment Quan Unit Cost for Avaltable AddtionaIt Total CostMo. -tity for one set in quantity reqwired in thouwdone set Thosand Rs. quantity (Cot a 2s. forI__________________________________ ._______ .___ _ - Col c) Cot (d)

58 Nagnetic stirrer 1 4.2 1 0 0.0

59 Water bath with rings of different diameters 1 8.4 2 0 0.060 Heating mantle 2 3.4 0 2 3.4

61 Clowe box 2 8.4 0 2 8.4

62 Tank for bio-assay test 4 16.8 0 4 16.8

63 Demineratizer plant 1 12.0 0 1 12.0

64 Water analysis kit 2 30.0 0 2 30.0

65 Leachate extractor 1 106.0 0 1 106.0

66 Teflon digestion system 2_ 44.0 2 44.0

67 Vacuum 1 8.4 1 0 0.0

68 Air caipressor 1 17.0 1 0 0.0

69 Breathing appratus 1 40.0 0 1 40.0

70 Eye/face wash and safety shower 1 6.7 0 1 6.7

71 Glassware and miscellaneous items Lot 100.0 misc. Lot 100.0

72 Voltage regulator 4 108.0 0 4 108.0

73 Furniture and fixtures Lot 3000.0 Misc. Lot 3,000.0

74 Air conditionr 6 480.0 0 6 480.0

75 Plumbing Lot 293.0 Misc. Lot 293.0

76 Chemicals Lot 250.0 Misc. Lot 250.0

113 SUWLING AM NhITCRIIG EWINEUTN_

77 High voltne air sampler 0 J.0 1 0 0.0

78 High volume air sampler with respirable dust 3 138.0 0 3 138.Ucolection attachment

Ii

(Upgrading central laboratory at Hyderabad...Contd....)

S. Equipment am Unit Cost for Available Additionat Total Costgo. -tity for one set in quantity reqyired tin Thousandone set Thousand Is. quantCty (Cot a _ s. for

Cot c) Cot (d)79 Stack monitoring kit 1 90.0 1 0 0.0

80 Weather o ction with data logger for wind speed and 1 200.0 0 1 200.0direction, teoperature, relative humudity, intensityof solar radition, rainfall and pressure. __

81 Wind vane and anesoeter 3 36.0 1 2 24.0

82 Thermohygrograph 3 45.0 0 3 4S.083 Samping boat (rthber t)pet air ffiled) 1 75.0 0 1 75.084 Ekman dredge 1 34.0 0 1 34.0

8S Hansen bottle water saWdler 2 16.0 0 2 16.0

86 Depth sampler 1 27.0 a t 27.0 co

87 Auto water/effluent sapler 2 7.4 J 2 7.488 Platnkton net 1 2.5 0 1 2.5

89 Air sarpling cylinders (stainless steel, 1 liter 4 132.0 0 4 132.0_ apacity) - .. ___.__ ...___ I

90 Sachy disc 1 1.9 0 1 1.9

91 Auger 1 2.0 0 1 2.0

92 Sludge/solid waste ampler 1 53.0 0 1 53.04ib-total II (for local equipment viz. INA*IIB) I 5,59S.2

Total Cast (Thoum1d as.) 13.718.1

Note: Following equipment is proposed for procurement In the next phase:

1. X-Ray fluorescence equipment with standards for all elements, necessary software, PC and printer

2. Indfctive Coopted Plasm CICP)

squipuent Required for a Upgrading Ezisting Regional Laboratoriesat Rajahaundry and Kurnool (Andhra Pradesh)

S. Equipment GuM Unit Cost Existfng Regional Laboratories in Andhra PradeshNo. -tity infor one Thousandset Rs. Rajahmundry K _urnool

Available Addtl. Reqd. Thousand Rs. Avatlable Addtt. Reqd. Thousand Rs.Oty. Oty.(col a (cost for Oty. Cty (Cot a - (cost for

cot c) col d) Cot f) Cot 9)

1. IPoTU EQllEiEt Col (a) Cot (b) Col (c) Cot (d) Col (e) Col (f) Cot (g) Cot (h)

IA LUBRATOrT EQUIPPENT _

I Atomic Absorption 1 1620.00 0 1 1,620.00 0 1 1,620.00Spectrqphotometer tAAS) withgraphite furnace, laps for atl

I elements -- ___---_ _

2 Gas Chromatograph (CC) with TCD. 1 434.00 0 1 434.00 0 1 434.00FID. ECD, regulators andcylinders __

3 TOC analy2er 1 504.00 0 1 504.00 0 1 504.00

4 Specific Ion Electrode meter 1 730.00 1 0 0.00 0 730.00(electrodes for F, NO3 NH4, CM,S _ _

S UV-Visible Spectrophotometer I 800.00 0 I 800.00 0 800.00

6 Flame photometer 1 82.00 0 1 82.00 0 1 82.00

7 Mercury analyzer 1 210.00 0 1 210.00 0 1 210.00

a Auto Titrator 1 24.00 0 1 24.00 0 1 24.00

9 Dissolved Oxen (00) meter 1 60.00 0 1 60.00 0 60.00

10 Digital Spectrophotometer 1 50.00 1 0 0.00 I 0 0.00_____ (visible range) I _

11 Top loading Single Pan Balance 1 200.00 0 1 200.00 0 1 200.00

12 Digitat Conductivity meter 1 13.50 1 0 0.00 I 0 0.00

o _.

(Upgrading regional laboratories at Rajahmundry and Kurnool ... Contd....)

S. Equipment Guen Unit Cost Existing Regional Laboratories In Andhra PradeshNo. *tity infor one Thousandset Rs. _ RaJahmundry Kurnoot

Avallable Addtt. Reqd. Thousand Rs. Available Addtl. Reqd. Thousand ts.oty. oty.(col a - (cost for oty. Qty (Cot a - (cost for

cot C) cot d) Cot f) Cot g)

13 Digital pR reter 1 10.00 1 0 0.00 1 0 0.00

14 Pen-type p meter 3 43.50 0 3 43.50 0 3 43.5015 Microwave digestion system 1 400.00 0 1 400.00 0 1 400.00

in SAltING JJD NUITORIUSEWIIFIENT

t6 Handy saplers for S02, 1102, 3 162.00 1 2 108.00 1 108.00SPN. F etc.

17 Smoke meter 1 441.00 0 1 441.00 0 1 441.00 o18 CO-NC analyzer 1 133.00 0 1 133.00 0 1 133.0019 Specific vapor analyzer 1 220.00 0 1 220.00 0 1 220.0020 tntegrating Noise level meter 1 350.00 0 1 350.00 0 1 350.00with frequency analy2er

21 Vater current meter 1 13.00 0 1 13.00 0 1 13.00

22 Teddlar bag 12 5.40 0 12 5.40 0 12 5.40C alOASTAL NIDITORING EJUtIENT Not equired at Kurnool

23 Sallnnoeter 1 360.00 0 1 360.00 _ _ 7

24 Current meter 1 13.00 0 1 13.00 _

25 Echo sounder 1 120.00 0 1 120.00

Subtotat I (for iapotted 6,140.90 6,377.90uipnent vfz. 1111IC) 11_ _ __ _

E_

(Upgrading regional laboratories at Rajahmundry and Kurnool...Contd....)I = - . .__ __ __, , __-_ --.

S. Equ ipent Guan Unit Cost Existing Regional Laboratories In Andhra PradeshNo. -tity infor one Thousandset Rs. RaJ ahm*vdry Kurnool

Available Addtl. Reqd. Thousand Rs. Available Addtl. Reqd. Thousand Rs.Qty. Qty.(cot a (cost for oty. Oty (Cot a - (cost for

col c) cot d) Cot f) Cot 9)

it LOCAl EIPIT _

VIA LA TORY EWIPI_

26 Co(or Canrarator 1 18.00 0 1 18.00 0 1 18.0027 TurbidIty meter 1 14.00 1 0 0.00 1 0 0.0028 BD Incubator 2 100.00 0 2 100.00 0 2 100.0029 eacteriological 1ncubator 2 100.00 1 1 50.00 1 A 50.0030 Microscope 1 26.60 0 1 26.60 0 1 26.60 031 Autoclave I 10.00 1 0 0.00 1 0 _ O.oO _

32 Inoculation hood 1 0.90 0 1 0.90 0 1 0.90

33 Colony counter 1 8.40 1 0 0.00 1 0 0.0034 CD asseubly 3 75r.0 0 3 75.00 0 3 75.00

35 Muffle furnace I 11.80 0 1 11.80 0 1 11.8036 Oven 2 24.00 1 _ 1 12.00 1 1 12.0037 Centrifuge machine 1 16.80 0 1 16.80 0 1 16.80| 38 Griffin flask shaker 1 6.30 0 1 6.30 0 1 6.3039 Fume chanber 1 71.00 0 1 71.00 0 1 71.0040 Refrigerator 2 40.00 I 1 . 20.00 1 1 20.00

41 Soxhlet extraction assembly 1 6.30 0 1 6.30 0 1 6.3042 IKeldahl appratus 1 36.00 0 1 36.00 0 1 36.00 i

43 IPipette washer 12 1 5.60 0 12 5.60 0 2 5.60

0I

(Upgrading regional laboratories at Rajahmundry and Kurnool... Contd....)

S. Equipment Quan Unit Cost Existing Regionat Laboratories in Andhra PradeshNo. -tity Infor one Thousandset Rs. ReJahmundry IKurnool

Available Addtl. Reqd. Thousand Rs. Avallable Addtl. Reqt. Thousand Rs.oty. Oty.(col a - (cost for Qty. Qty (Cot a * (cost for

cot c) cot d) Cot f) Cot 9)

44 Jar test appratus 1 8.40 0 1 8.40 0 1 8.404S Not plate 2 15.20 0 2 15.20 0 2 15.2046 Nagnetic stirrer 1 4.20 0 1 4.20 0 1 4.2047 Water beth with rings of 1 8.40 2 0 0.00 . 0 0.00different dilmeters _-

48 Heating mantle 2 3.40 1 1 1.70 1 1 1.7049 Glove box 2 8.40 0 2 8.40 0 2 8.40 |o50 Tank for blo-assay test 4 16.80 0 4 16.80 0 4 16.8051 Distillation unit 1 11.00 0 1 11.00 0 1 11.0052 Demineralizer ptant 1 12.00 0 1 12.00 0 1 12.0053 Water enalyis kit 2 30.00 0 2 30.00 0 2 30.00

54 Leachate extractor 1 106.00 0 1 106.00 0 1 106.00

S5 Teflon digestion system 2 44.00 0 2 44.00 0 2 44.00

56 Vacu uxp 1 8.40 0 1 8.40 0 1 8.40

57 Air cowressor 1 17.00 0 1 17.00 0 1 17.00

56 Breathing awratus 1 40.00 0 1 40.00 0 1 40.00

59 Eyeiface wash and safety shower 1 6.70 0 1 6.70 0 1 6.70

60 Glassware and miscellaneous Lot 100.00 Hisc Lot 100.00 misc Lot 100.00fitem I- .

61 Voltage regulator 4 108.00 0 4 108.00 0 4 108.0062 Furniture and electricals _ Lot 1000.00 MIsc Lot 1o000.00 Misc Lot 1c000.00

(Upgrading regional laboratories at Rajahmundry and KUrnool... Contd....)

S. Equipment rOwn Unit Cost Existing Regional Laboratories In Alldhra PradeshNo. -tity infor one Thousandset As. Ralahmundry _Kurnool

Available Addtl. Reqd. Thousand Rs. Available Addtl. Reqd. Thousand Rs.Oty. Qty.(col a - (cost for oty. Qty (Col a (cost forcot c) cot d) Cot f) Cot 9)

63 Air conditioner 2 160.00 0 2 160.00 0 2 160.0064 Plttbing Lot 293.00 Misc Lot 293.00 Misc Lot 293.0065 Chemicals Lot 250.00 Iisc Lot 250.00 Poisc Lot 250.00

__. . _ _ 1111B SaWLIIG AND MIOiTCIIIG

66 High volune air sarpler 0 0.00 1 0 0.00 1 0 0.0067 High volune air sanp(er with 3 138.00 0 3 138.00 0 3 138.00 oorespirable dust cotection

attachment _ _ _

68 Stack monitoring kit 1 90.00 1 0 0.00 1 0 0.0069 heather station ufth data logger 1 200.00 0 1 200.00 0 1 200.00for wind speed and direction.

terersture relative humidity.intensity of solar rsdltion,rainfall and pressure.

70 iWnd vane and anemmeter 3 36.00 0 3 36.00 0 3 36.0071 Thermohyrograph 3 45.00 0 3 45.00 0 3 45.0072 Sasping boat (rabber type, air 1 75.00 0 1 75.00 0 1 75.00ftlled) . ._

73 Ekmn dredge 1 34.00 0 1 34.00 0 1 34.00L4 Nansen bottle water sampLer 2 16.00 0 2 16.00 0 2 16.0075 Depth sapler 1 27.00 0 1 27.00 0 1 27.00

0076 Auto water/effluent saipler 2 7.40 0 2 7.40 0 1 2 7.40 0

o )064

(Upgrading regional laboratories at Rajahmundry and Kurnool...Contd....)

S. Equipment Quan Unit Cost Existing Regional Laboratories in Andhra PradeshNo. -tity in _for one Thousandset Rs. RaJahdry Kurnool

Available Addtl. Reqd. Thousand Rs. Available AWdtl. Reqd. Thousand Rs.Oty. Oty.(col a - (cost for Qty. aty (Cot a - (cost forcot c) col d) Cot f) Cot g)

77 Plankton net 1 2.50 0 1 2.50 0 1 2.5078 Afr sampling cylinders 4 132.00 0 4 132.00 0 4 132.00(stainless steel, I liter|____ capacity)

79 Sachy disc 1 1.90 0 1 1.90 0 1 1.9080 Auger 1 2.00 0 1 2.00 0 1 2.0081 Sludue/solid waste sampler 1 53.00 0 1 53.00 0 1 53.00iL IC ASTAI NIIIUGIN EUIPU __ ot requied at Kurnaol82 sampting boat 1 267.00 0 1 267.00 ____ _ _ _

83 Blnoculr 2 20.00 0 2 20.0084 istn sanpler 1 25.00 0 1 25.00

|S GoFto sampler 1 35.00 0 1 35.00 _ _86 Van Veen grab sampler 1 35.00 0 1 35.00

87 Gravity corer 1 35.00 0 1 35.00

88 _ actf water sampler 1 35.00 0 1 35.00

89 lei (for fish catch) 1 5.00 0 1 5.00

SUtotat Jl (fer locat equdpment 3.923.90 3.466.90viz. IIA*+It3.IC)

GrUld Total (lheuuil fs.) 0 1064.80 9,844.0

5,l

on

85

Annex 4.1Page 14 of 16

Table 3. Trainiun Progam: Sugested Outline

Senior Level Staff (Chairman. Member Secretarv. Board Analyst. Chief En2ineer)

* Issues related to Environmental Management in India

* Policies and Strategies for Envirownental Management

* Concepts of clean technology and policies to be adopted

* Current and future approaches and strategies for better industrial waste management

* Setting of "standards' for pollution control

* Techniques of project management

* Organization management

* Principles of Financial management

* Techniques for financial appraisal of development project

* EIA: Principles and process applications in environmental management

* Hazardous waste management

* Hazard identification and risk assessment

* Nuclear waste management

* Remote sensing techniques

* Management information system

* Advanced application of computers

* Geographic information system

* Environmental law, national/international issues

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Annex 4.1Page 15 of 16

Middle Level Stlf (Executive Env. Enzineers. Sr. Scientific Officers)

* Industrial waste treatment: introduction to process, sources of effluent, treatment anddisposal methods

* Solid waste management

* Hazardous waste management

* Characterization and monitoring programs for solid and hazardous waste

o Monitoring and sampling procedures for various environmental attributes

* JGuidelines for industrial siting

* Operation and maintenance of effluent treatment plants, air pollution control equipment

* Environmental Impact assessment

* Introduction to computers

3 Legal aspects, with special emphasis on enforcement

Laboratory Personnel (Scientists and Chemists)

* Environmental Chemistry

* Analysis of water, air samples, soil, effluent, metals, pesticides

* Good laboratory practices

* Maintenance and operation of laboratory, monitoring and sampling equipment

* Introduction to computers, data base management and analysis

Computer Personnel

* Personal computer application

o Presentation graphics

o Utility pacage

• Geographical infonmation system

87

Annex 4.1Page 16 of 16

Law Personnel

o Legal aspects, including existing Acts, Rules related to enviromnent, provision inconstitution, etc.

* Preparation of documents for legal proceedings.

* An estimated 50 training courses will be conducted for a total trainee population of3000. Based on the experience with the first project, the total cost of the trainingprogram has been estimated at US$1.1 million.

88

Annex 4.2Page I of 1

INDIA

INDUSTRIAL POLLUTION PREVENTION PROJECT

Cost of Reconunended G.I.S. Systnm for theGujarat Pollution Control Board

Bacluround

1. Quality decisions by the Boards depend on quality information. With the increase inresponsibilities and loads the Boards will receive more information that needs to be properly evaluatedbefore proper decisions are taken. Geographic Information System (GIS) facilities will enable the useof computers to optinize the use of spatial, land-based information and services. For the work of theBoards, GIS technology would enable the development of spatial based pollution maps. This is ofparticular relevance to the development of action plans for the most polluting areas in the country. Aspatial based information systemn will also enable the tracking of toxic and hazardous chemicals,identifying the locations of origin, its dispersal and area of influence.

ObLective

2. Under the preparatory activities for the proposed project, a pilot GIS system is beingprepared to serve the needs of the Gujarat Pollutior. Control Board, in order to monitor the release,treatment and disposla of toxic/hazardous materials and develop spatial pollution related information onareas exposed to heavy industrial pollution.

3. The system would tnable the GPCB, on a pilot basis to introduce the GIS as aninformation tool. The information through the GIS would be used to better plan and execute monitoringand enforcement actions and therefore would be instrumental in increasing the efficiency of use of thelimited staff resources available at the Board.

GIS System and ImRlementation

4. The proposed project would assist the GPCB to acquire the GIS system including theoutfitting the Central office of the Board and five regional office with DOS based hardware, associatedsoftware and training. Implementation would be done in phases, starting the first year with the Centraloffice and the regional offcie in Vapi and adding two regional offices each during the second and thirdyears. During implementation, intensive training courses and consulting would be provided to ensure thatthe system can be effectively utilized. During the fourth year of the project, the system would beconverted and expanded to a UNIX-based multi-user system.

Costs

5. The total cost of the system including physical and price contingencies is US$ 2 millionequivalent, which will be covered under the proposed Institutional Component. The breakdown of thecosts by general category is as follows: (i) Hardware: US$0.64 million; (ii) Software: US$0.50 million;(iii) Facilities: US$0.07 million; (iv) Training and Teclnical Assistance: US$0.58 million. Contingencieshave been estimated at 11% of the total. A full descriptiorn of the proposed system is given in theconsulting report which has been filed in the project files.

89

Annex 4.3Page 1 of 6

INDUSTRIAL POLLUTION PREVENTION PROJECT

Proposal for the Estblishment of a Clean Technologv Institutional Network

1. All industrial production processes depend upon natural resources for inputs (source), and fordisposal of waste (sink). Environmental problems are created either when inputs are demandedbeyond the regenerative capacity at the source, and/or wheit wastes overwhelm the recycling and/orabsorptive capacity at the sink. The pressure on the source and sink is determined by the efficiencyof the process, which depends among other things, on the kind of technology applied. Efficiencyimp3rovements in technology can lead to reduced pressure on the resource base, both on the sourceand sink sides, and result in increased production of goods and services.

2. In India, selection of technologies based on the criterion of "lowest initial capital investmentrhas resulted in a basket of technologies which are obsolete, and which create increasing pressure onthe natural resource base. The incremental raw material to GNP ratio has been increasing over thelast two decades, and this points to the necessity to focus on efficient technologies if economicdevelopment is not to create fiuther environmental stress, and gets slowed down by the environmentalcrisis it helped create in the first place.

3. The need to encourage adoption of cleaner technologies is self evident. While the economicliberalization process eases the access to technologies from abrc"d, it is essential to help Indian firmsacquire the best technologies that are also enviromnentally sound.

Clean Technolov

4. A clean technology, or environmentally sound technology (EST) is a more efficienttechnology to achieve the following:

* waste prevention and minimization by reduced consumption of raw materials.

* modification and upgradation of the process so that the optimal utilization of naturalresources is achieved.

o adoption of a preventive, rather than a corrective approach to pollution abatement.

A number of measures ranging from process modification, raw material recycling, equipmentredesign, project reformulation, and waste recycling are possible in a variety of industries. This hasbeen demonstrated by many of the subprojects financed under the first Pollution Control Project.

5. EST, however, is much more than hardware-it is a complex arrangement with social andcultural attitude shifts. The promotion of cleaner technologies would be facilitated by the followingmeasures:

90

Annex 4.3Page 2 of 6

* inventory of available ESTs, and an inventory of needs of developing countries suchas India for ESTs.

* performance evaluation rating (PER) of technologies on a uniform scale, to be used asyardstick for firms choosing technologies, either domestically, or through technologytransfer.

* identification of ESTs based on PER.

6. Technology transfer entails both hardware and software, and often software is equally, if notmore important, as hardware. Any technology transfer scheme should emphasize on the soft side-technical assistance, institutional development, education and training, operations and maintenancemanagement.

Information System for Promoting Access to ESTs

7. The process of evaluation and selection of ESTs can be facilitated by a clearing house with amaster data base. It is important to ensure that (i) there is appropriate quality control of theinformation; (ii) there are guidelines for application of technologies; (iii) information is not closed offby bureaucratic structures, and that it is user friendly; and (iv) facilitate networking of variousnational and regional systems. Rather than develop a centralized system, it is more useful to create anetwork with linkages between different centres of excellence.

8. Prioritv Areas. The priority areas identified for this network are: cement and steel, fertilizersand pesticides, chemical and allied industries, themnal power stations with emphasis on boiler designand clean coal technologies, and transportation sector. To begin with, the network would focus onthe industry and energy sectors.

9. While identification, design, development and promotion of clean technologies in the differentsectors has to be undertaken by specialized agencies participating in the network, there is need for oneagency to be identified to play the coordinating role as the Central Clearing House for CleanTechnologies, to be able to perform the following functions:

* identify areas where introduction of clean technologies is possible.

* identify sources from which clean technologies and associated data can be obtained.

* assess the technologies, both domestic and imported.

* suggest modifications to the technologies to suit conditions in India.

* demonstrate the applicability of the technology to the industry concemed.

O undertake some R&D work to develop clean technologies.

o collect, collate and disseminate information on clean technology.

91

Annex 4.3Page 3 of 6

* maintain effective communication with industry, financial institutions, and R&Dlaboratories.

10. The Clean Technology Centers participating in network should have the following capabilities:

* should have specialty in a specific industry subsector.

* have a capable research, design, and development team, which can dentify, evaluate,and facilitate adoption of clean technologies in different industrial subsectors.

* be able to provide training to trainers as well as managers.

* should be willing and able to implement demonstration projects.

* able to provide consultancy and become financially self-supporting within a period offive years.

* should be able to facilitate interaction amongst industry, R&D organizations, andfinancial institutions in order to translate the efforts of the network into implementableactions.

11. The Clean Technology Cell in the MOEF would be the Host Center and would facilitate theinteraction between the Network and international agencies, besides providing inputs on the policyframework. The Central Clearing House for Clean Technologies would be housed at the NationalEnvironmental Engineering and Research Institute (NEERI). The Central Clearing House would inturn network with a consortium of 12 CSIR laboratories, and other relevant research and academicinstitutions. A simple scheme for networking with energy sector as the focus is shown in Figure 1.

Financial Requiremnents

12. The initial funding for the hardware and software of the Network works out to about $2million, which would be funded out of the Technical Assistance component of the PollutionPrevention Project. For details refer to Table 1.

92

Annex 4.3Page 4 of 6

Table 1

Component National Sectoral Sub-Centers Host Center TotalCenter Center

CAPITAL

Hardware: Microvax 10 0.5 5 5 16PC 486 peripherals

Communication 1 0.5 1 0.1 2.6facility

Infrastructure 2 1.3 7 10.3

Repographic System 1 0.8 7 0.7 9.5

C3eneral purpose 1 1 2 0.2 4.2software

-CONSULTANCY

Development of 3 1.5 4.5wpecialized software

TraininB 2.5 1.5 4.0

Travel 3.5 1 5 9.5

Contingencies 2.5 1 2 5.5

Administration 1 0.5 1 2.5

TOTAL 68.7

Waste Minimization

13. To facilitate implementation of the GOI Policy on Pollution Abatement, the GOI has decidedto encourage outreach programs which encourages waste mnization as the choice option and end-of-the-pipe tr enm as a last resort in adopting a pollution abatement strategy. Waste minimization,often improves the financial performance of firms by encouraging efficiency gaining measures inprocess technology, and is trus more attractive to industrial units which do not want to invest in addon endof-the-pipe treatment. This outreach would have two components: (i) Waste MinimizationCircles to cover the entire industrial sector in India, and (ii) an extension program of wasteminimizton directed sq-ciflcally to the small scale industry.

93

Aex 4.3Page 5 of 6

Waste Minimization Circles

14. The MOEF has decided to launch a campaign to encourage formation of "waste minimizationcircles (WMCs)" in Indian industry, especially in the small scale sector. Waste mininization circlesare built on the same concept as "quality circles". Managers and worknen in industrial units caneffect a variety of waste saving measures in their firms by taking waste minimization seriously, andby participating in brainstorming sessions to pool their knowledge.

15. Waste ninimization circles are intended to make full use of the available skills, and in-housemodifications before resorting to costly technological adaptations. WMCs are intended to provide aforum and motivation to inculcate the habit of examining processes with the objective of identifyingmeasures to reduce pollution.

16. WMCs will meet on a periodic basis. While large firms could have in-house circles, in thecase of small scale industries, the circles will function for an industrial area for a particular subsectorof industry. Each circle would have a resource person who would provide the rallying point for thecircle. In larger units, the resource person would be from the in-house staff, while in the small scalesector, the government would provide resource persons either from a local university, or from one ofits industrial promotion bodies. It is also proposed to start a newsletter to document and disseminatethe cases of successfully functioning WMCs.

Fxtension for Small Scale Industry

17. The extension service or project would provide on the field consultancy support for smal'scale industries to reduce waste, improve productivity, ad achieve satisfactory environmentalperformance. The objective would be to identify, assess and prioritize waste mimization approachesfor specific, industrial subsectors through an in-depth study of selected units. The priority actionsbases on maximum waste minimization potential with minimum cost will then be implemented inthese units. The demonstrated advantages of such waste minimization studie" will be disseminatedwithin the industrial subsectors through regional workshops.

18. The extension project would be led by the National Productivity Council (NPC) which hasalready initiated similar activities in some subsectors with assistance from UNEP. The assistanceprovided through the Pollution Prevention Project would expand the number of subsectors and thegeographical coverage of extension activities.

Financial Requirements

19. The MOEF has esdmated a requirement of $500,000 for the WMCs and the ExtensionProject. The Pollution Prevention Project would support these activities under the TechnicalAssistance Component.

Fig 1. Typical Arrangement for the Network

MOEF

IICT CMEA Host Center/ ~~~~~BHEI

NATIONAL C-CLEARINGHOUSE TERIFOR CLEANTECHNOLOGIES NPC

CFRI NTPCSPCBs IIT Bombay

Bombay~~~~~~~~~~~~~~~~~~~~~~~0 XII

95Annex S 1

t 1t 1W: 1§ 1 1 § t 0 I ~~~~~Page I of l

1 I BI

11(1W! I 11 d1 I I1* 11 } #f t f f tf #f lf § I

_Ii _ _ _

g ]|t "I| r. c __sEiX

I. 0 _ " vll } t #X W} Et 0} 041 0i1 0I~~

j~~ 80,

INDIA

INDUSTRIAL POLLUTION PREVENTION PROJECT

PROJECT IMPLEMENTATION SCHEDULE.. _ .. . . . . . . _~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~... . .. . . . . : . . .. . .. .. .. ..

r e I ~~~~~~~~~~~~~~................... 5-.6,,

INSTITUTIONALa 1::::::::::::: 1.'..'.' 't'?5~ ~~~..-.' ............... i .,,''''''.'

._A \ A 1' ' ' ' ' - ~~~~~~~~~~~~~~~~~~.1-:.!. .o. *w.:... ..........

:......... .: ........ ..............,.j,.5.i.SUBPROJECTS

TN o , >_ ~~~~~~. . . . . . . . . . . . . . .. ,,,,-..::;'

: :-:: :-::-: -:-: -:::: :::: ::::: : :- -- ;:: :::: . -: :::................................ ...................................... .......

TECH. ASSISTANCE ;-- i_ :_ _ _ ; _ ___a ~~~~~~~~~., ,'. ;I...........................................

1,994 1,996 1,998 2,000 2,002FISCAL YEAR

*DESGN/PPRISA IBPROCUREMENT FIJ MPLEMENTATION | q~~~~~~~~~~~~~~~ . . .

......... ......... ........

1,994 1 ogge 1 v998 2,000 2,002~~~~~~~~~~~~_

97

Annex 5.3Page 1 of I

INDIA

INDUSTRIAL POLLUTION PREVENTION PROJECT

Estinated Disbmusemet Schedule for Bank Loans/IDA Creit

Disbursement

BankBank Fiscal Year Standard Annual Cumulative Annual Cumulative

and Semester Profile

US$ million % of total

1995Sept-Dec 0 0.0 0.0 0 0Jan-June 3 5.6 5.6 3 3

1996July-Dec 14 8.4 14.0 5 8Jan-June 22 8.4 22.4 5 13

1997July-Dec 34 9.8 32.2 6 19Jan-June 50 9.8 42.0 6 25

1998July-Dec 66 16.2 58.2 10 35Jan-June 82 16.2 74.4 10 45

1999July-Dec 86 18.9 93.3 11 56Jan-June 90 19.0 112.3 11 67

2000July-Dec 98 19.4 131.7 12 79Jan-June 98 19.4 151.1 12 91

2001July-Dec 98 7.0 158.1 4 95Jan-June 98 7.0 165.1 4 99

2002July-Dec 100 2.9 168.0 100

98

Annex 5.4Page 1 of 4

IND1A

INDUSTRIAL POLLUIMON PREVENTION PROJECT

ProDosed Perfonnance Indicators

Under the first project, 64 sub-projects have been presented for financing. Annex 1.1 conainsa list of sub-projects that have been approved as of March 14, 1994. The project c.teria aredesigned to onl accept projects that seek to reduce the enviroDnental impact. However, the extentof the impact reduction, either on a plant or regional level, and the usefulness of the technicalassistance to the boards needs to be documented.

Under the supervision plan of the first project and for the proposed project, environmentalperfrmance indicators (EPI) will be developed, evaluated, and documented as proposed below. Thisevaluation will be carried out for the: (i) relevant SPCB; Xii) selected investment sub-projects; and(iii) the activities sponsored under the technical assistance (figure 1).

A. EPI for the Institutional Component

Design and measure performance indicators for the eight SPCBs (Rajasthan, Madhya Pradesh,Karnataka, Andra Pradesh, Gujarat, Maharashtra, Tamil Nadu, and Utter Pradesh).

The objectives of this effort are to:

* Establish performance indicators for the pollution control boards using the data for thevarious governmental agencies;

* Estimate performance improvements attributed to the institutional component of theproject; and,

* Assess environmental quality improvements in selected industrial regions andqualitatively attribute it to the boards and comment on its relevance to other areas inIndia.

MetodoLgy

The methodology to achieve the stated objectives for EPI of SPCBs include:

99

Annex 5.4Page 2 of 4

Determine appropriateness of the envirownental data being gathered by the SPCBs, for theirapplicability as project enviromnental performance indicators, before and after the initiation of theprojects.

Review sub-loan preparation guidelines regarding environmental issues. Review SPCBsrequirement of environmental measurements and monitoring before and after the installation of thepolution control devices. Recommend changes in the required reporting requirements which wouldfacilitate efficient evaluation of EPI.

Review the sub-loans prepared under the first project to document if: meaningful and necessaryenviromnental quality data and awareness raising and training programs are being conducted. Reviewrequiements for borrowers to prepare plant-based environmental awareness and training programs forall levels of management and operations staff.

In consultation with the DFIs and the local govermnents, design a method to evaluate EPI ofthe sub-loans.

B. Environmental Performance Indicators for the Sub-projects

Design and measure EPI for sub-projects included in the first pollution control project and theproposed project for three selected regions.

QW~

The objectives of this effort are to:

* Establish both before and after environmental quality indicators (for plant and receivingmedia), using the measurements and data currently being obtained at sub-loan sites andby the various govermnental and non-governmental agencies;

* Estimate quantity of total pollutant reduction attributed to the sub-loans based on actualmeasurements;

* Estimate resulting environmental quality improvements in the selected industrial regionof interest from a broad based perspective and comment on its relevance to other areasin India;

* Evaluate improvements in enviromnental awareness in the emiployees of industries usingthe sub-loans.

The evaluation of environmental performance indicators (EPI) for all the sub-projectsand region will eventually be carried out. However, for the preliminary demonstration, three sub-region are selected as discussed below.

100

Amnex 5.4Page 3 of 4

Region of Case Studv: The geographic area of the test case project would be: 1) Thane Belapur; 2)Mahad industrial Estate; and, 3) Vapi industrial estate for the following reasons.

* data on environmental pollution for the plants a id for the regions are available;

* there are several sub-projects in these regions;

* there are many related World Bank projects in this area; and,

* local scientific capability is available in the region.

Methodology

The methodology to achieve the stated objectives include:

Evaluation and deternination of appropriateness of the environmental data being gathered byall parties, for their applicability as project environmental performance indicators.

Review sub-loan prepar2tion guidelines regarding environmental issues. Review measurementsand monitoring procedure before and after the installation of the pollution control devices or policies.Recommend changes in the reporting requirements which would facilitate efficient projectperformauce evaluation from the environmental perspective.

For the region of interest, review the sub-loans prepared under Pollution Control I Project todocument if meaningful and. necessary environmental quality data and awareness raising and trainingprograms are being conducted and submitted to the authorized government agencies. Design into sub-loans, requirements for borrowers to prepare a plant-based environmental awareness and trainingprogram for all levels of management and operations staff.

In consultation with the Financial Intermediary (FI) and the local governments, design amethod to evaluate enviromnental performance of the sub-loan.

Conduct surveys of the sub-loan environmental staff performance and motivation before andafter the installation of environmental control devices or policies for Pollution Control I.

C. Techical Assistance Component

Goal

Design and measure EPI for various technical assistance components of the project.

Objective

The objectives of this effort are to:

101

Page 4 of 4

* Establish performance indicators for various technical assistance activities financed in theproject and estimate (qualitatively and quantitatively) the EPI improvements atributableto the project; and

* Assess various technical assistance support provided in the project and comment on itsrelevance to other areas in India.

MethodoloQy

The methodology to achieve the stated objectives for EPI of technical assistance include:

* Determine appropriateness of the environmental data being gathered by the agenciesresponsible for the technical assistance components for their applicability as -roject EPI;

* Review implementation documentation of the technical assistance executing agenciesregarding enviromnental issues. Recommend changes in the reporting requirementswhich would facilitate efficient evaluation of EPI; an,d

* Review the project ao document if meaningfu' and necessary environmental quality dataand awareness raising and training programs are being conducted.

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ENDIA

INDUSTRIAL POLLUTION PREVENTION PROJECT

Patcinaft Finacing insttutions

A. The Industrial Develonment Bank of India

1. The Industrial Development Bank of India (IDBI) was established in 1964 as a wholly ownedsubsidiary of the Reserve Bank of India (the country's central bank), with full ownership transferred in1976 to the Indian Government. The bank was originally set up to be the principal conduit for financialsupport to domestic industry. As such, it was to serve as an instr-ament to implement nationalxdustofization goals, as well as wider economic goals such as the straightening of regional imbalances

in leve!s of industrialization. In that respect, the institution was to coordinate the financing activities ofother All-India DFIs such as ICiCI and IFCI, the Life Insurance Corporation, the General InsuranceCorporation, the Unit Trust of India, and state-level DFIs. Reflecting that mandate, IDBI became theprncitCi channel for temi credit to industry. Although its share of total financing by al-India institutionsfell over time, the bank still accounted in 1992-93 for 31.2 percent of total financing and 30.8 percentof approvals granted by Indian financial institutions (down from respectively 35.1 and 32.2 percent in1991-92-figures exclude conmercial banks). Financial assistance provided by IDBI to industrial clientsis complemented by a wide range of promotional services, ranging from advisory services to consultancyservices, entrepreneurship development programs, training courses in development banking, industrysurveys, and other. As a response to new developments in financial markets, the bank has also launchednew types of products and services such as asset credit and equipment finance, leasing, bridge lending,merchant banking, foreign exchange dealing and other services (see para.6).

Orjanization and Staffing

2. IDBI's Board comprises 15 members, of which 14 are non-executive menmbers. Theyrepresent a cross-section of government ministries and agencies, DFIs, and the commercial banking andinsurance industy. The current Chairman and Chief Executive Officer, who was formerly the ManagingDirector of the IDBI replaced the former Chairmen, who govemed for eight years, in December 1993.While the Board is nominally responsible for overseeing operations and irternal procedures, theseactivities are actually carred out by a nine-person Executive Committee meeting on a regular basis.

3. As of today, four Executive Directors report directly to the Chairman, responsiblerespectively for: (i) project finance, market research, legal and personnel issues, and supervision of theJ. Nehru Institute for Development Banling; (ii) research and planning, relations with state-level DFIs,administration, internal audit, corporate accounts, and Board relations; (iii) technology, venture capitaland resource management; and (iv) rehabilitation financing, merchant banlking and EDP. Field officesame organized around five regional offices, based respectively in Calcutta (with 4 branch offices),Guwahati in the North-East (6 such offices), Madras (7), Bombay (5), and New Delhi (8), with eachreporting to one of the Executive Directors.

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4. As of March 1993,IDBI had a total staff of 2,631, of which 1,124 were professionals. Themix of non-professional to professionals was brought down from 1.7 to 1.2 over 1985-90, and hasremained fairly stable since then. Professional staff is generally well qualified and experienced, reflectingthe generally competitive salaries paid by the institution against other public and private sector institutionsand the modest level of staff turnover. Internal training programs were intensified over the past years,irn response to the need to adapt to new technologies and lending instruments and to increased competitionin financial markets.

Maket Strategv

5. IDBI's financial assistance to the industrial sector has been traditionally effected throughthree types of instuwnents: (a) direct loans and advances (58.3 percent of outstandings as of March 1993);(b) refinancing of industrial loans made by other All-Inhdia and state-level lending institutons and bycommercial banks (28.5 percent of outstandings); and (c) discounting and rediscounting of bills,essentially pertaining to machinery and equipment financing (13.2 percent of outstandings). While IDBIdoes on occasion lend directly to smaller finms, it should be noted that medium-scale projects costing upto Rs. 50 million (US$ 1.6 million) are generally financed indirectly through refinancing. Also, 54.7percent of refinancing outstanding as of March 1993 was accounted for by the Small IndustrisDevelopment Bank of India (SIDBI), which was established in 1990 as a wholly-owned IDBI subsidiaryresponsible for lending and relending to small industry (over half of SIDBI's outstanding portfolio is inthe form of the refinancing on a non-recourse basis of subloans originated by State Financial Corporationsand other state level financial institutions).

6. In order to expand the range of services to clients and adapt to emerging changes in thefinancial sector, the bank is offering new products and services outside df its traditional project lendingactivities, such as asset credit and equirnent finance. It has also launched into Quip= leasig, bothto meet increasing demand for such services, and r, f'ce asset maturity and the attendant mismatchbetween maturity profiles on opposite sides of the bala.. -heet. Also, given the withdrawal in 1991/92of IDBI's tax-free status, lease financing is expected to limit the institution's future tax liability. IDBIhas also stted granting large bget loans, given aganst public/rights issues and designed to increaseaccess by clients to local capital markets. The bank entered last fiscal year the area of mertha bankint,providing professional advice and financing to industry for the raisiig of resources from capital markets,the acquisition of assets on lease. loan syndication, project counselling, merchant banking appraisal,capital restructuring, and the merger or take-over of existing units. In its first year of operations, thebank's Merchant Banking Division managed 12 public and 23 rights issues aggregating respectively toRs. 14.5 billion and Rs. 33.4 billion. In September 1992, IDBI also set up a foreign exchange dealingroom, and began, in January 1993, to offer borrowers avrward cover with respect to both their debtservice obligations to the bank and payments against letters of credit backed by rupee loans, the placementof deposits abroad, swaps, forward exchange rate agreements, and other derivative products.

7. Important changes also affected the bank's traditional direct lendina policies. In order toreduce risk and improve projects' viability, standard equity contributions asked from promoters have beenrevised upwards. The system of consortium lending, wlich had over time reduced the degree ofcompetition in the system, is being gradually replaced by an informal system of loan syndication.Meanwhile, the interest rate strueture was partally Liberalized, reducing the scope of subsidized lendingand allowing DFIs increasing freedom to charge individual customers per perceived lending risk-subject

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to a floor lending rate applicable throughout the system. IDBI also introduced, for the first time, theconcept of variable Prime Rate applicable to long-term lending.

Resource Mobilizaion

8. IDBI has traditionally had access to low-cost resources to finance its operations. However,conduits for such funds are rapidly becoming unavailable, and are expected to mostly disappear in comingyears. The barJc is now asked to rely on its own credit standing instead of previously-used governmentbacking and guarantees in accessing both capital and market borrowings. It has also lost access to theInvestment Deposit 'lccount and Capital Bonds Schemes, as well as partial access to the RBI's NationalIndustrial Credit, now made available to SIDBI. In addition, allocation to IDBI of Statutory LiquidityRatio (SLR) bonds is likely to declinm in the future: the bank's SLR bond quota has been reduced to Rs.2 billion in 1993-94 and, in the absence of any commitment from the Government and the RBI, isprojected to be phased out by 1995-96.

9. Against those shortfalls, IDBI will continue to rely on internal cash flow (62.1 percent ofresources generated in 1992/93) for a substantial share of its requiments. It will also rely increasinglyon heretofore little used instuments such as public bonds, institutional borrowings, certificates of deposit(Cds) and fixed deposits to finance new lending, with the fresh funds generated by the latter fourinstruments anticipated to increase from Rs. 32.2 billion in 1993-94 to Rs. 55.5 billion in 1997-98. Inthe past year, substantial resources were raised by deep d scount and double option bonds, certificatesof deposit and fixed deposits schemes. Foreign currency borrowings are projected to increase steadilyover the coming five years, from Rs. 2 billion of new borrowings in 1993-94 to Rs. 10 billion in 1997-98. In the future, the bank is also considering leveraging its resources through asset securitization, anapproach which would require refonns to the tax and regulatory regimes to make it worthwhile in theIndian context.

10. The above resources will mostly carry market rates of interest. Reflecting overall downwardtrends, the cost of medium-term borrowings from institutional lenders or issuance of bonds is assumedto come down from the current level of 15.5-16 percent to around 12.5-13 percent by 1997-98. Overthe same period, the cost or shorter maturity instrm=ents such as Cds would fall from 14 percent toaround 12 percent.

Lending Policies

11. The brnk's aggregate financing recorded satisfactory growth in 1992-93, in tune with thepick-up in economic activity. Total disbursements of Rs. 66.7 billion represented an increase of 15.7percent over the previous year, with outstandings as of March 1993 standing at Rs. 275.1 billion, 13.8percent above previous year levels. Foreign currency loans approvals over the year increased at a fasterpace of 73.2 percent to Rs. 5.9 billion, reflecting in part the materialization of pent-up demand followingimport liberalization. The share of refinancing in total operations continued to decline, amounting to only5.8 percent of approvals against 9.0 percent the previous year. Assistance by way of underwriting anddirect subscription recorded significant increases to Rs. 6.8 billion, as a response to the buoyancy ofcapital market activity and the bank's deliberate efforts to build up its capitai market-related portfolio.

12. IDBI's financing operations are increasingly directed to private industry: on an approvalbasis, the private sector represented over the last fiscal year 84.7 percent of the total, as against 11.3

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percent for the public sector, 3.4 percent for the joint sector and 0.6 percent for the cooperative sector.Assistance to new projects constituted 30.9 percent of the total, as against 32.0 percent for expansion anddiversification and 36.6 percent for modernization, the balance being accounted for by rehabilitationprojects. Lending activity was well diversified, with the leading sectors in decreasing order of importancebeing chemicals, electricity generation, textiles, basic metals, cement, food prcducts, fertilizers, electricaland electronic equipment and metal products.

13. Reflecting both the lowering of inflation and the reduction of RBI-mandated deposit andlending rates applicable to commercial banks, interest rates on IDBI project loans were reduced by 1.5percentage points during 1992-93. With fubther reductions occurring during the remainder of 1993, thesenow stand in the 15.5-18.5 percent range. Borrowers can also opt for variable interest rates under theabovementioned system of long-term Prime Rate.

Financial and Accountine Policies

14. IDBI follows standard prudential rules with respect to maximmn exposure to both a specificbusiness group or a given industry. The top ten business groups accounted for only 12 percent of thebank's total exposure as of March 1993. Chemicals constituted the top sector with 11 percent of totalexposure. The bank adopted in April 1992 RBI guidelines to comnmercial banks regarding assetclassification, income recognition, and loan provision and write-off. Although full compliance ismnandated by 1994-95, it already abides fully to those guidelines, as well as satisfying capital adequacynorms well above the required minimum.

Financial Condition

15. IDBI boasts a strong balance sheet, with an equity base (reserves included) as of March1993 of Rs. 28.7 billion (close to US$ 1 billion), and total assets of Rs. 303.8 billion (approximately US$10 billion-up 10.8 percent over March 1992). The debt-to-net worth ratio remained at a conservative9.58 (9.92 inclusive of contingent liabilities). According to five-year projections, the leverage would bemaintained at acceptable levels through the coming five years, given the high retention of earnings andbuild up of reserves. Liquidity levels are adequate, as reflected by a liquidity ratio of 2.39.

16. Portfolio quality is generally adequate. On the basis of RBI guidelines, 92.5 percent ofoutstandings (including loans and other types of assistance) was, as of March 1993, classified as standard,3.1 percent as substandard, 4.3 percent as doubtful, and 0.1 percent as loss. Although specific provisionsand other non-general reserves represented only 1.9 percent of total outstandings, general reserves andcapital provide IDBI with an ample cushion to offset future loan losses.

Profitawlaiit

17. Adequate profitability has been maintained over the years, with net income up 2.7 percentin 1992/93 to Rs. 4.9 billion in 1992/93 (pre-tax income was up 7.8 percent, but was partially offset bythe gradual loss of IDBI's tax-free status). Net return on equity was a satisfactory 18.1 percent, and netreturn on average assets 1.7 percent. The average interest margin on loans was a satisfactory 4.1 percent.Administrative expenses remain modest at 0.2 percent of average assets.

106 Annex 6.1Page 5 of 11

Table 1: IDBI - Balance Sheets, Actual and Projected (1990191-1997/98)(Rs. millions, Fiscal Years Ending March 31st)

Actual Projected

1991 1992 1993 1994 1995 1996 1997 1998

ASSETSCash and Banks 20,555 15,161 11,180 8,180 7,180 6,180 5,180 4,180Loans Due W/in Year 22,571 35,104 42,252 46,792 55,877 64,809 71,410 79,760Other Current Assets 10,836 30,323 33.333 29,955 23,975 23,785 23,578 23,887

Total Current Assets 53,962 80,588 86,765 84,927 87,032 94,774 100,168 107,827

Loans and Investments 150,217 172,865 191,611 214,C1 239,403 259,559 285,710 319,299Bills Rediscounted 17,452 19,392 21,118 23,532 25,503 27,278 28,957 30,604Bills Discounted 2,042 2,698 2,694 2,718 2,876 3,162 3,577 4,129Leased Assets 0 15 646 1,360 3,444 5,370 7,552 9,717OtherAssets 676 719 995 1,045 1,097 1,152 1,209 1,270

Total Assets 224,349 276,277 303,829 327,603 359,355 91,295 427,174 472,846

LIABILiTiESDebt Due Win Year 8,468 17,144 21,692 27,124 28,831 33,538 32,703 30,099Advance lncorne 5,063 5,717 6,530 6,377 6,896 7,394 7,896 8.418Other Current Liab. 7,771 10,104 8,035 8,557 9,680 9,950 10,367 10,966

Total Current Uab. 21,302 32,965 36,257 42,058 45,407 50,882 50,966 49,483Long-term Liabilities 182,216 218,242 238,853 252,036 275,102 295,552 324,400 363,336Paid-up Capital 7,030 7,530 7,530 7,550 7,550 7,550 7,550 7,550General Reserves 12,670 14,810 16,442 17,958 19,347 21,009 23,047 25,597SpecIficfother Res. 1,131 2,729 4,748 8,001 11,949 16,302 21,212 26,880

Total Equity 20,831 25,069 28,720 33,509 38,846 44,861 51,809 60,027

Total Liabilities 224,349 276,277 303,829 327,603 359,355 391,295 427,174 472,846

Contingent Liabilities 4,431 6,938 9,821 10,312 10,828 11,369 11,938 12,534

Fin. Structure Ratios:Debt to Equity 9.77 10.02 9.58 8.78 8.25 7.72 7.25 6.88Current Ratio 2.53 2.44 2.39 2.02 1.92 1.86 1.97 2.18

107 Annex 6.1

Page 6 of 11

Table 2: IDBl - Income Statements, Actual and Projected (1990191-1997/98)(Rs. millions, Fiscal Years Ending March 31st)

Actual Projected

1990/91 1991192 1992193 1993194 1994/95 1995196 1996197 1997/98

Gross Interest Income 21,807 27,632 33,097 37,050 42,918 48,191 53,434 58,217Interest Expense 15,872 18,803 23,203 26,277 30,892 35,202 39,359 42,994

Net Interest Income 5,935 8,829 9.894 10,773 12,026 12,989 14,075 15,223Fee Income 0 262 469 548 713 895 1,202 1,835Lease Income 0 1 34 272 701 1,380 2,203 3,190Operational Income 5,935 9,092 10,397 11,593 13,440 15,264 17,480 20,248

EXPENSESOther Financial Exp. 213 128 202 222 244 256 269 283Administrative Exp. 380 454 511 612 673 740 814 896Bad Debt Provisions 1,825 2,563 2,866 2,078 1,552 1,583 1,624 1,681Interest Tax 0 209 590 715 894 1,050 1,202 1,357Depreciation 0 0 45 287 686 1,259 1,846 2,467

Total Expenses 2,418 3,354 4,214 3,914 4,049 4,888 5,755 6,684

GROSS PROFIT 3,517 5,738 6,183 7,679 9,391 10,376 11,725 13,564Income Tax 0 997 1,313 1,781 2,923 3,228 3,644 4,214

Net Income 3,517 4,741 4,870 5,898 6,468 7,148 8,081 9,350

Profitability Ratios:NetincometoEquity 0.17 0.19 0.17 0.18 0.17 u.16 0.16 0.16Int. Margin on Loans 0.033 0.042 0.041 0.040 0.039 0.038 0.038 0.037

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B. The Industrial Credit and Investment Co=-oration of India

1. The Industrial Credit and Investment Corporation of India (ICICI) was established in 1955as a private financial institution with government support. The World Bank played a catalytic role in itsestablishment. Its primary mission has been to provide term finance to industrial firns. Sinceestablishment it has grown into one of India's leading financial institutions, now providing a wide rangeof financial services including project finance, leasing, merchant banking services, and capital marketsunderwriting. In keeping with its role as an important source of foreign funds, it also provides a largeamount of foreign currency loans. Over the years the World Bank has established and maintained a closerelationship with ICICI and has extended 23 loans amounting to about $1.5 billion to ICICI to date andaccounting for about 10% of its overall funding.

2. Ownership: At establishment in 1955, ICICI was a private company. However, as Indianationalized its major shareholders, a majority of ICICI's shares became held by government ownedinstitutions and its private ownership was reduced to 19%. However, in 1991 ICICI issued shares to thepublic in pursuant of a strategy to increase its investor base and seek greater participation. As ofOctober, 1993, its private ownership stood at 43%, consisting of 38% for Indian private institutions andindividuals and 5% for foreign institutions and individuals. Private ownership plus those shares held byUTI would amount to 58%. It is expected that ICICI's private ownership might grow further.

3. Mana2ement and Staff: ICICI is govemed by a 16 member Board of Directors whichincludes representatives from the GOI, public financial institutions, and private businessmen. The currentChairman, Mr. Vaghul, came to ICICI in 1985 and has led it through a period of impressive growth andprofitability. Day-to-day operations are managed by Mr. B. V. Bhargava, Vice-Chairman and ManagingDirector, who is assisted in this regard by Mr. D. J. Balaji Rao, Executive Director. Below this, theinstitution is aivided into five administrative groups: Operations, Corporate Planning, Special Operations,Finance, and Administration. Operations is further decentralized into six zonal offices, the largest ofwhich is the Bombay zone. The total staff strength of ICICI is about 1117 of which 566 are at aprofessional level.

4. In addition to its own operations, ICICI also has promoted a number of companies suc& asthe Shipping Credit and Investment Corporation of India (SCICI), which supplements ICICI in its termlending operations, ICICI Securities and Finance Company Ltd. (I-SEC), which is a joint venture witha subsidiary of JP Morgan, ICICI Asset Management Company Ltd., which makes equity investmentsan area of emphasis, Technology Development & Investment Corporation of India (TDICI), whichpromotes venture capital and XCICI Investors Services Ltd. (I-SERV) which provide,s registrar andtransfer services. ICICI also proposes to formn a commercial bank to provide a range of short termfinancial products to the corporate sector and to create a strong retail base.

5. Credit Policies: ICICI's on-lending rates fall within a band above a floor rate setperiodically by RBI for term lending. This normally provides a spread of 1.5% - 4.0% over ICICI's costof funds. The average maturity of loans has recently decreased from 7-9 years to 3-5 years reflectinga parallel shortening of funding maturities and interest rate uncertainties. The average grace period isnow about 6 months to one year. ICICI charges a one time front end fee of 1 % on foreign exchange loanand a 0.25 %-1 % one time front end fee on rupee loans. ICICI does not charge a commitment fee.

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6. Proiect Appraisal and Supervision: ICICI has developed considerable expertise over theyears in project appraisal and supervision. All appraisals include calculating financial and economic ratesof return as well as an environmental assessment. All clients are required to submit quarterly reports toICICI and ICICI has a policy of visiting them at least one time per year. ICICI also retains the right toappoint a director to clients Boards. Several World Bank projects have included technical assistancecomponents designed to strengthen ICICI's project appraisal and supervision capabilities.

7. Resource Mobilization: Until the mid-1980s ICICI had relied heavily on raising Rupeefunds through borrowings from governmental sources at below market rates and foreign currency fundsthrougb foreign bilateral and multilateral institutions such as the World Bank, the Asian DevelopmentBank and KfW. More recently, ICICI's access to below market SLR Rupee borrowings has declined andsince 1991-92 has been eliminated. In response ICICI has successfully entered the domestic marketdirectly, using a variety of innovative techniques to keep its costs low including convertible bonds. ICICIalso began to tap the international markets in the 1980s. While this was curtailed in the early 1990s dueto the lowering of India's credit rating, ICICI is now in the process of reentering the internationalmarkets.

8. Asset Structure: ICICI's loans are currently concentrated in the following sectors: chemicals(16%), basic metals (18%), and textiles (13%). About 30% of ICICI's loans are extended in foreigncurrency. These loans are made on a back-to-back basis with foreign currency borrowings reflectingICICI's policy not to take foreign exchange risk. However, the share of loans in ICICI's asset portfoliohas decreased as the share of leasing and other fee based services has increased. While this is a functionof ICICI's own strategy it also reflects the increasing ability of ICICI's largest clients to raise their ownfinds directly from the market.

9. Financial Performance: ICICI's financial performance has been impressive in terms of bothgrowth and profitability. Over the last five years, from 1988 to 1993, total assets increased from Rs. 36billion to Rs. 123 billion. Return on equity has averagged about 20% before tax over this same periodand 18% after tax. ICICI's debt:equity ratio, which had hovered just below 10% through 1992, fell to6.6% in 1992-93 reflecting the conversion of its 1992 70 crore convertible bond issue into equity.ICICI's spread between its average cost of funds and its lending rate has increased from about 3.0% inFY88-91 to about 4.0% in FY92-93.

10. However, ICICI's impressive financial figures may be under pressure from two directionsin the future. First, it has been facing rising borrowing costs, in part due to the fact that ICICI is nolonger eligible to receive subsidized long term government loans while Rupee market costs have beenhigh. If Indian rates were to drop this would have a tightening effect on spreads. At the same time,ICICI has reduced maturities on its loans which will allow it to reprice them faster.

11. A second issue is that ICICI's collection ratio has stubbornly remained at less thansatisfactory level (in 1993 this was 82% on amounts due during the year) despite an increased attentionto loan collection. Arrears now represents 5.0% of ICICI's portfolio, up from 3.0% in 1990 and about9% of all loans have arrears. Most of the companies experiencing long term arrears have been referredto the Board for Industrial and Financial Reconstruction (BIFR) for restructuring, a process that hastended to be lengthy.

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12. With a view to limiting its exposure in very large companies ICI(" continues to emphasizelending to medium sized projects. The average project cost for projects approved in 1992-93 wasRs.413.6 million, while the average ICICI approval was for Rs.45.4. For tax reasons, ICICI hasswitched from making provisions against potential loan losses to write-offs. ICICI has also come to relyincreasingly on non-loan fee business to preserve its bottom line and diversify its business risk.

13. Future Prospects: It is expected that ICICI will continue to maintain profits in the rangeof 20% before taxes over the next five years and extract a lending spread of about 4.0% over its cost offunds. While after tax profits, as a share of networth, may drop somewhat reflecting the decrease inwrite-offs expected after 1995, total after tax profits will continue to rise. ICICI's debt equity ratio,having recently fallen to 6%, should remnain low although this will depend upon ICICI's plans to raiseadditional debt. The range of services that ICICI is able to provide to its clients is alco expected toincrease, particularly with the coming on-line of its recently approved commercial bank and increasinguse of short term instruments and leasing services.

14. CaDability to Lend for Pollution Control Proiects: ICICI has established a core group offour professionals to monitor and coordinate lending activity under the first Pollution line of credit. Thiscore group if deemed necessary can be supplemented by a wide array of industry specialists withinICICI's operations department as well as a substantial data base regarding each industry sector and sub-sector. Thus far, ICICI has appraised and committed for 29 projects under the first line of credit. Theexperience gained in making the above loans includes knowledge of pollution issues in each sector,regulatory provisions and institutions including Pollution Control Boards, and manufacturers and suppliersof pollution abatement equipment. This experience should enable TCICI to continue to play a central rolein financing pollution control activities in the future.

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Tabh 3: ICICI - ACTUAL AND PROJECTED INCOME STATEMENTS, 1988-1998IRs. millons)

Actual Projected............... ..... ..... ...................... ...................................... ----------------- ------

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

INCOMEA) Interest Income - Rupee 2,752 3,918 5,358 7,303 10.201 13.322 16,916 20,183 23,222 26,480

Interest Income - Fe 1,102 1,243 1,725 2,307 2,724 2,640 2,434 2,147 1,692 1,1849) Dividends 66 86 110 153 238 282 251 250 252 319C) Lease Income 353 494 701 986 1,211 1.630 2,100 2,640 3,400 3,900D) Other Income 421 724 560 426 557 445 528 614 696 780

Total Income 4.694 6,467 8,464 11.175 14,931 18,319 22.229 25,834 29.262 32.663

EXPENSES

A) Interest Income 3,307 4,467 5,800 7,939 10,828 12,484 14,314 16,872 19,141 20,8988) Depreciation 187 274 368 496 610 877 1,120 1,503 1,995 2,477C) Employee & Estb. Expenses 125 158 204 253 374 490 554 622 695 7sD) Bad Oebts Urite Offs 220 480 625 773 694 1,000 1,100 800 600 600E) Other Expenses 50 49 104 79 89 490 597 683 766 848

............................................................................ _......…...…...…....

Total Expenses 3,889 5,428 7,101 9,540 12,595 15,341 17.685 20,480 23,197 25,598

PROFIT BEFORE TAX 804 1,038 1,353 1,635 2,336 2,971 4,544 5,355 6,066 7,065TAX 150 210 300 340 483 784 1,541 1,529 2,113 2,656PROFIT AFTER TAXe 654 828 1,053 1,295 1,854 2,187 3,003 3,827 3,953 4,409

1 Excludes capital gains which on a net basis is as follows:

135 133 296 717 288 189 149 149 521 744

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Annex 6.1Page 11 of 11

Table 4: ICICI - ACTUAL AND PROJECTED BALANCE SHEETS. 1988- 998

(Rs. milion)

..... ........ ................. .... ..... .......................... I......................................................... . .............. ... ... ..

Actual Projected........................................... ..........................................1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98

.......................................................................................................... .............

ASSETSInvestments 2,270 3,335 4,738 5,783 7,509 11,547 16,247 21,624 28,730 37,033Loans

- Rupee 25,711 33,721 45,165 54,311 69,513 83,133 98,509 115,064 133,261 152,353- Fe 12,173 12,893 16,139 23,320 26,356 25,754 22,669 18,991 14,455 9,667

Current Assets & Advances 5,920 7,243 8,559 22,038 23,701 24,021 24,571 24,891 24,991 25,091Net Other Assets 1,261 1,813 2,606 2,877 4,041 4,589 5,594 6,986 8,266 9,234Misc Expenditure 15 12 11 8 7 7 7 7 7 7

.-.-.--.- .-.------.-.----.--- ..-...---.---.......... ..--..- .-.-.-..-.....TOTAL 47,350 69,017 77,218 108,337 131.127 149,051 167,597 187,563 209,710 233,385

LIABILITIESNet Worth

- Share CapitaL 800 916 1,146 1,707 2,411 2,471 2,981 3,681 4,041 4,041- Reserves 3,046 3,855 5,059 7,253 9,654 11,627 18,265 23,346 29,669 37,732

........................ ….….….….….. .Sub Total 3,846 4,771 6,206 8,960 12,065 14,098 21.,246 27,027 33,710 37,773

Loan Funds- Rupee 24,205 30,779 41,400 51,370 65,786 82,589 102,159 123,368 144,709 167,175- Fe 17,213 20,827 25,668 43,187 45,697 44,785 36,613 29,589 23,712 20,858

Current Liab. & Provisions 2,086 2,640 3,945 4,820 7,579 7,579 7,579 7,579 7,579 7,579.... ....... . .............. .... .. ... .. ............. ... ... ........ .. ........... .. ........... .......

TOTAL 47,350 59,017 77,218 108,337 131,127 149.051 167,597 187,563 209,710 233,385

ACTUAL AND PROJECTED KEY FINANCIAL RATIOS(in %)

PST to Net Worth 20.9 21.8 21.8 18.3 19.4 22.7 25.7 22.2 20.0 19.8PAT to Net Worth 18.5 19.5 19.2 17.1 17.6 16.7 17.0 15.9 13.0 12.3

P8T to Assets 2.0 2.1 2.1 1.9 2.1 2.2 3.0 3.2 3.2 3.3PAT to Assets 1.6 1.6 1.6 1.5 1.6 1.7 2.0 2.3 2.1 2.1

Debt/Equity 9.7 8.7 9.2 9.2 6.6 6.3 5.2 5.3 4.7 5.1

DSCR 1.4 1.6 1.5 1.5 1.4 1.3 1.4 1.8 2.0 2.2

Totat Yield on Loans 11.9 12 t 12.9 13.5 14.5 14.6 15.5 15.9 15.8 15.6Total Cost on Loans 8.9 9. 9.8 9.7 10.5 10.5 10.8 11.6 11.9 11.7TotaL Spread on Loans 3.0 2.8 3.1 3.8 4.0 4.2 4.8 4.3 3.9 3.9

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INDIA

INDUSTRIAL POLLUTION PREVENTION PROJECT

Preparatorv Activities Sponsored Under the Japanese Grant

} . In March 22, 1993 a Japanese Grant to fund preparatory activities for the proposed PollutionPrevention Project was approved by the trust administration office. The grant was provided for financingof preparatory studies required to design the activities to be financed under the proposed project.

2. The proceeds from the grant have been utilized to finance the following studies:

i) Survey of treatment requirements for small and medium scale industries;

ii) Design of an environmental audit methodology;

iii) Design of waste minimization data base;

iv) Feasibility of treating sewage from selected municipalities for subsequent reuse as industrialwater;

v) Review of measures to strengthen compliance with regulations.

3. These funds complemented the resources allocated directly by the Bank in support of designactivities, which were used to finance:

vi) Assessment of the needs of the state pollution control boards;

vii) Designing a Geographical Information System for tracking toxic and hazardous wastes inthe state of Gujarat;

4. A brief description about the nature, objective, and status of the di:ferent studies are givenbelow:

i) SurveM of treatment requiremnents for small and medium scale industries: The objectiveof this study was to identify the main problems being faced by small and medium scaleindustries in the states of Karnataka, Andra Pradesh, Rajasthan and Madhya Pradesh, tocomply with existing environmental regulations. More specifically, the survey was intendedto recognize the issues related to deficiencies in information sharing, level of costs foradequate treatment and compliance, financial capabilities of the plants, location andindustrial zoning. Also, the study reviewed the potential scope for the relocation of smallscale units into clusters to minimize the environmental impacts, development of appropriatetreatrnent systems and process modifications, housekeeping and waste minimizationtechniques, informationsharing and enviromnental awareness program. Mantec Consultants

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Private Limited, an Indian-based consultant carried out the study during October 1993, andsubmitted the final report by March 1994, to the Bank.

ii) Design of an environmental audit methodolop (EAM): The main objective of this studywas to identify the scope for no or low waste technologies for medium and small scaleindustries in the chemical and allied sectors. Specifically, the consultant was required todevelop and demonstrate a methodology for environmental audits in the small and mediumscale chemical and allied industrial units in the states of Karnataka, Rajasthan, MadhyaPradesh, Andra Pradesh, Gujarat, Maharashtra, Tamil Nadu and Uttar Pradesh. Theconsultant was also requested to provide specialized technical information on modemtechniques for waste minimization. EAM study was carried out during November 1993 byRadian Corporation, USA and its Indian counter partners Sudharshan Chemicals Limitedand Engineers India Limited, India. The final report was submitted in March, 1994.

iii) Design of a waste minimization data base (WMDB): The objective of this activity wasto design a database to identify, and disseminate information on waste minimnizationopportunities in the small and medium scale chemical and allied industries, which could beused as a monitoring and information tool by industry and regulators. In order to establishthe WMDB, the study designed a sample survey to provide up to date information onindustrial subsector, products produced, associated processes, characteristics of wastegenerated by volume, nature and media involved, successful waste minimization techniques,including house keeping, recycling, resource recovery, treatment and disposal, costs andbenefits of the techniques, hardware and software requirements for the operation of thedatabase, and training needs of the eight SPCBs. Also the consultant prepared anoperational manual for the data base. This activity was carried out by Science ApplicationsInternational Corporation (SAIC) during November 1993. The final report along with theoperational manual was submitted by SAIC in April 1994.

iv) As part of the preparation activities, a feasibility studv is suggested for the treatientofsewage from selected municinalities for subsequent reuse as industrial water. TheConsultant will design a sample survey to collect information on population projection forthe study area, characteristics of wastewater generated by nature, volume and from differentsources, quantity and quality of wastewater to be treated, industrial analysis and their waterrequirements. Also, the study needs to identify alternate treatment technologies along withpossible energy saving and resource recovery, estimate cost-benefit analysis, staffing patternand requirements, and prospective proponents to finance the treatment facilities. Thefollowing on-going studies for treating domestic/municipal sewage from differentmunicipalities were commenced during April 1994:

(a) Baroda Municipal Corporation by Paramount Pollution Control Limited, Baroda.The treated water will be used by the industries in that area. The study is expectedto be completed by October 1994.

(b) Airoli municipality, Bombay by Associated Industrial Consultants Private Limited,Bombay. The recycled water will be utilized by the industrial estates in the Thane-Belapur area. The study will submit its final report by December 1994.

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(c) Pune Municipal Corporation, Pune by Kirloskar Consultants limited, Pune. Therecycled water will meet the water requirements of the Bhosari industrial estate,Pune. The study will be completed by 1994.

v) Strengthening compliance with regulations: The objective of this study is todevelop a set of specific and practicable legal measures for the small and mediumscale industries in all the eight states to strengthen its compliance withenvironmental laws and regulations. The study will conduct a survey in three tofour selected sites in each state. It will collect infornation regarding the degree ofcompliance and non-compliance by different sectors and industries, inventory oftraditional and non-traditional approaches, including community panicipation, NGOand trade union involvement, type of re;gulation and implementation programs inpractice, the main legal constraints to improve compliance, and incentives anddisincentives which may avoid or delay the compliance with regulations. The studywill be carried out by a consultant firm namely 'Center for Enviromnental Law',New Delhi. The study will commence in May 1994 and conclude by October 1994.

vi) Assessment of the needs of the state pollution control boards: The objective of the studywas to assess the needs and resources of the SPCBs of Karnataka, Andra Pradesh, MadhyaPradesh, Rajasthan and prepare a program of institutional strengthening which enable themto meet the regulatory and monitoring requirements now and in the immediate future. Thestudy reviewed the organizational, operational, financial and training needs of the SPCBsand developed an action plan for their institutional strengthening. The study was conductedby Kirloskar Consultants Limited, Bombay, during June 1993. The final report withfindings and recommendations was submitted in November 1993.

vii) Geographic Information System (GIS): The main objective of this study was to establisha conceptual design of GIS for tracking of the point sources of toxic and hazardous wastesin the Gujarat state. Also, the system assessed the requirements for the implementation ofthe system as a monitoring tool, evaluated the availability and adequacy of existing data,inventories and the requirements for converting the available data into a usable form,estimated the training requirements, prepared the operation manual, and cost estimate forthe installation of the system in the Gujarat state and its networking with the CPCB. Thestudy was carried out by SAIC and final report was submitted in February 1993.

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ne_x 7.2Page 1 of 1

INDIA

INDUSTRIAL POLLUllON PREVENTION PROJECT

Docments in the Project Files

1. Guidelines and Standards on Pollution Control in Industry by K. V. Iyer and L. R. Kumar.

2. Report on Assessment of the Needs of the State Pollution Control Boards in Andra Pradesh,Karnataka, Madhya Pradesh and Rajasthan by Kirloskar Consultants Limited.

3. Development of Geographical Information System (GIS) for Tracking Toxic and hazardousWastes in the State of Gujarat by Science Applications International Corporation.

4. Survey of Treatment Requirements for Small and Medium Scale Industries by Mantecconsultants Limited.

5. Establishment of a Waste Minimization Data Base for the State Pollution Control Boards byScience Applications International Corporaton.

6. Preparation of Environmental Audit Methodology by Radian, Engineers India Limited andSudarshan Chemicals.

7. Japanese Grant Agreement, 1993.

8. Summary of Special Assistance for Project Formation (SAPROF) Study by OECF, Japan.

9. Appraisal of the Indo-Nordic Industrial Pollution Control Program, 1993.

10. Environmental Action Programme, India, 1993 by Ministry of Enviroment and Forests, GOI.

11. Feasibility study on treatment of sewage from selected municipality for subsequent reuse asindustrial water.

12. Cost data on sub projects financed under the Industrial Pollution Control Project.

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INDIA

INDUSTRIAL POLLUTION PREVENTION PROJECT

Supervision Plan

Dates Activity Skills SW

FY95 August Supervision Mission Managemert/Engineering 2Procurement 2

Financial 2

FY95 February Supervision Mission Management 2Procurement 2

Financial 2

FY95 Headquarters Management 2Monitoring 3Engineering 3

FY96 September Supervision Mission Management/Engineering 2Financial 2

Procurement 2

FY96 Supervision Mission Engineering 2& Headquarters Economist 2

Procurement 2Financial 2

FY97 Supervision Mission Engineering 2& Headquarters Economist 2

Procurement 2Financial 2

FY98 Supervision Mission Engineering 2& Headquarters Economist 2

Procurement 2Financial 2

FY99 Supervision Mission Engineering 2& Headquarters Economist 2

Procurement 2Financial 2

FY2000 September Supervision Mission Management 3Economist 2Financial 2

FY2001 PCR Mission 10

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AM .Page 1 of 4

INDUSIL POLLUTlON PREVENIION PROJECT

Wster Cess

1. The Water (Preventon and Control of Pollution) Cess Act was enacted in 1977. Thisempowers the State Pollution Control Boards to levy a cess on local authorities supplying water fordomestic purposes and on consumption of water by specified industries. The list of industries subjectto this cess is given in Table 1.

Table 1: Industries Subject to Water Cess

Ferrous metallurgical industry

Non-ferrous metallurgical industry

Mining industry

Ore processing industry

Petroleum industry

Petrochemical industry

Chemical industry

Ceramic industry

Cement industry

Textile industry (including cotton, synftetic and semi-synthetic fibers)

Paper industry

Fertlizer industry

Coal (including coke) industry

Power (thermal and diesel) genmating industry

Processing of animal or vegetable products (including processing of milk, meat, hides and skins,all agricultural products and their wastes)

Sour: The Water (Prevention and Control of Pollution) Ccss Act, 1977

2. The Water Cess was intduced largely to augment the financial resources of the SPCB-.However, the Act also provides for a 25 percent rebate on the cess payable if the person or local

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authority concerned installs a plant for treatmnent of sewage or effluent. Hence the cess indirectly actslike a charge on water pollution.

3. When the Cess Act was enacted in 1977, the rates were set between I paise and 3 paiseper kiloliter. An amendment to the Act was passed in 1991, when the rates were nearly doubled.Despite this increase, the rates of water cess continue to be low, varying between 1.5 paise and 7paise per kiloliter (refer to Table 2 for current water cess rates), while the average cost of primarywaste water treatment is around 20-30 paise per kiloliter. Under these conditions, the rebate forinstalling pollution abatement measures is unlikely to have served as much of an incentive to abatepollution. In fact, many industries may still prefer to pay cess rather than undertake measures forwater pollution abatement.

4. To overcome this deficiency, the MOEF has decided to propose a large increase in cessrates. The MOEF proposal entails a multi-stage increase, each one encompassirig a two to three foldincrease in the rates. The process for amendment of the Act is already underway and the MOEF hasprepared a cabinet note proposing adoption of the first stage increase.

Table 2: Rates of Water Cess(paise per kiloliter)

Purpose for which Water is Consumed Rate Rate under Sub-section (2A) ofSection 3

Industrial Cooling, spraying in mine pits or boiler 1.50 2.25feeds

Domestic Purpose 2.00 3.00

Processing whereby water gets polluted and the 4.00 7.50pollutants are easily biodegradable

Processing whereby water gets polluted and the 5.00 7.00pollutants are not easily biodegradable and are toxic

Source: The Water (Prevention and Control of Pollution) Cess (Amendment) Act, 1991.

Note: Under Secton 25 of the Waer rventon and Control of Polluion) Act 1974, a person cannot establish an inustrywhich is likely to discharge sewage or effluent into a stream or well without dhe prior consen of the state Boards. If a personcan establish industry under cerain provisions then the rate of cess shown in column four will apply.

5. The water cess, assessed and collected by the State Boards, is first credited to theConsolidated Fund of India, and the Central Govt may (if appropriations are made by law) pay to theCentral and State Boards. The State Boards are usually paid a share of the cess revenue that was

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levied under their jurisdiction'. Collections from the cess has nearly doubled from Rs 13 million in1980-81 to about Rs 25 million in 1992-932. However, this increase does not reflect the potential forcess collection.

6. A complete data set for collection rates by the State Boards is not available. However,indications are that while the average collection rate for industrial point sources appears to be higherthan the average for all collections (at least in some States) it is much lower in the municipal sector.As an example, refer to Table 3, containing data from the Gujarat State Pollution Control Board,wvhich shows that the overall cess collection performance of the Board is weighed down by poorcollection in the municipal sector. Fragmentary data available from other State Boards indicatesimilar treaids.

7. Improving collection rates is as important as increasing the water cess rates. ASCI isconducting a study to identify ways and means to improve the performance of the SPCBs. The scopeof the study would be widened to include the water cess collection performance of the SPCBs andrecommend measures to improve it, especially collection from local bodies such as municipalities

1/ Under the latest notification, the Boards get back 75 percent of ihe cess collected under thir respective jurisdictions. Athird of this could be used by the Board for their budgetary purposes, while the remaining have to used to support firmswith pollution control measures. As the reimbursement from the GOI is spread over a period of time, assessment in anyparticular year do not correspond to the water cess reimbursement from GO0 for that particular year. On the average, theshare of water cess reimbursements in the State Board budgets range from 20 to 50 percent.

_/ This figure is quoted in the recent study completed by the National Institute for Public Finance and Policy, Incentivesand Regulation for Pollution Abatement with an application to Waste Water Treatment'. The figure is net of rebates.

Table 3: Water Cess Collection in Gujarat State Pollution Control Board(millions of rupees)

Year Industrial Sector (Cess Collection) Municipalities (Cess Collection)

Assessment Actual Share of Assessment Actual Share Of Overall Collection(%Assessment(% Assessment(%

90-91 3.49 3.36 96.28 1.79 2.64 147.49 113.64

91-92 3.15 3.30 104.76 5.28 0.99 18.75 50.89

92-93 5.97 4.44 74.37 16.26 2.58 15.87 31.58

93-94 12.26 11.71 95.51 6.44 3.88 60.25 83.37

Source Communication from the Gujarat State Pollution Control Board.

Note: ie dat in the abov table should be intepretd with cauton. Collection for any particular yea doe not necessarily correpond to the assessmen made tha year. Thecollected amount can be from arrers due from asusesmen made during the preious years. As of March 31. 1994, the cumulative arrear of the Board was Rs 47.4 maillion,out of whic municpaities (local bodies) owe Rs 43.3 million, while industry owed only Rs 4.1 million, or about 9 peren of the total arrears.