Document of The World Bank

Report No: 25813

IMPLEMENTATION COMPLETION REPORT(SCL-43210)

ON A

LOAN

IN THE AMOUNT OF US$ 16 MILLION

TO THE

REPUBLIC OF BULGARIA

FOR THE

BULGARIA ENVIRONMENTAL REMEDIATION PILOT PROJECT

April 22, 2003

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CURRENCY EQUIVALENTS

(Exchange Rate Effective April 23, 2003)

Currency Unit = Bulgarian Lev 1 = US$ 0.563698

US$ 1 = 1.77400 BGNWEIGHT AND MEASURES

Metric SystemFISCAL YEAR

January 1, 2003 December 31, 2003

ABBREVIATIONS AND ACRONYMSAs ArsenicBGN Bulgarian LevCAS Country Assistance StrategyCEE Central and Eastern EuropeCd CadniumCr CromiumCuO Copper monoxideCuS Copper sulphateCu CopperEA Environmental AssessmentEBRD European Bank for Reconstruction and DevelopmentECA Europe and Central AsiaEIA Environmental Impact AssessmentEIB European Investment BankEPSAL Environmental Privatization Support Adjustment LoanERPP Environmental Remediation Pilot ProjectEU European UnionFe IronFESAL Financial and Enterprise Sector Adjustment LoanGOB Government of BulgariaH2SO4 Sulphric Acidha hectareIBRD International Bank for Reconstruction and DevelopmentICB International Competitive BiddingICR Implementation Completion ReportIDA International Development AssociationILM Intensive Learning ModelIPPC Integrated Pollution Prevention and Control IS International ShoppingISO International Standardization OrganizationMDK MDK Copper SmelterMOEW Ministry of Environment and WatersMOF Ministry of FinanceMOI Ministry of IndustryMTR Mid-Term ReviewMWH Montgomery Watson -Harza

N.B.F Not Bank-FinancedNCB National Competitive BiddingNGO Non-Government OrganizationNTEF National Trust Eco FundOC Oversight CommitteeOD Operational DirectivePA Privatization AgencyPAD Project Appraisal DocumentPAL Programmatic Adjustment LoanPCD Project Concept DocumentPb LeadQAG Quality Assurance GroupS02 SulfurdioxideSW Small WorksTOR Terms of ReferenceUMPC Unione Miniere Pirdop CopperUM Union MiniereVa VanadiumWWTP Waste-Water Treatment PlantZn Zink

Vice President: Johaness F. LinnCountry Manager/Director: Andrew N. Vorkink

Sector Manager/Director: Laura Tuck/Jane Holt Task Team Leader/Task Manager: Adriana Damianova

BULGARIABULGARIA ENVIRONMENTAL REMEDIATION PILOT PROJECT

CONTENTS

Page No.1. Project Data 12. Principal Performance Ratings 13. Assessment of Development Objective and Design, and of Quality at Entry 24. Achievement of Objective and Outputs 45. Major Factors Affecting Implementation and Outcome 76. Sustainability 97. Bank and Borrower Performance 108. Lessons Learned 129. Partner Comments 1410. Additional InformationAnnex 1. Key Performance Indicators/Log Frame Matrix 25Annex 2. Project Costs and Financing 26Annex 3. Economic Costs and Benefits 28Annex 4. Bank Inputs 29Annex 5. Ratings for Achievement of Objectives/Outputs of Components 31Annex 6. Ratings of Bank and Borrower Performance 32Annex 7. List of Supporting Documents 33Annex 8. Beneficiary Survey Results 34Annex 9. Stakeholder Workshop Results 38Annex 10. Environmental Objectives 42Annex 11. UM-MDK Compliance Program 44

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Project ID: P033965 Project Name: BULGARIA ENVIRONMENTAL REMEDIATION PILOT PROJECT

Team Leader: Adriana Jordanova Damianova TL Unit: ECSSDICR Type: Intensive Learning Model (ILM) of ICR Report Date: May 22, 2003

1. Project Data

Name: BULGARIA ENVIRONMENTAL REMEDIATION PILOT PROJECT

L/C/TF Number: SCL-43210

Country/Department: BULGARIA Region: Europe and Central Asia Region

Sector/subsector: General water, sanitation and flood protection sector (100%)Theme: Environmental policies and institutions (P); Pollution management

and environmental health (P); Natural disaster management (P); Other financial and private sector development (S)

KEY DATESOriginal Revised/Actual

PCD: 02/06/1995 Effective: 10/05/1998 10/05/1998Appraisal: 09/03/1997 MTR: 12/02/2000 12/02/2000Approval: 05/12/1998 Closing: 12/31/2002 12/31/2002

Borrower/Implementing Agency: REPUBLIC OF BULGARIA/UM-MDK PIRDOP; BULGARIAOther Partners: National Trust Eco Fund, Implementing Agent to the Government and

Cofinancier

STAFF Current At AppraisalVice President: Johannes F. Linn Johannes F. LinnCountry Manager: Andrew N. Vorkink Kenneth G. LaySector Manager: Jane Holt Michele E. de NeversTeam Leader at ICR: Adriana Damianova Spyros MargetisICR Primary Author: Bernard Baratz; Gayane

Minasyan

2. Principal Performance Ratings

(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible)

Outcome: S

Sustainability: HL

Institutional Development Impact: SU

Bank Performance: S

Borrower Performance: S

QAG (if available) ICRQuality at Entry: S

Project at Risk at Any Time: No

3. Assessment of Development Objective and Design, and of Quality at Entry

3.1 Original Objective:Context. The objectives and design of the Environmental Remediation Pilot Project (ERPP) need to be assessed in the context of: (i) transitional economy specifics, when changes in economic, political and institutional conditions take place swiftly; (ii) Bulgaria's ambitious macroeconomic stabilization program which included a large scale privatization program of state owned enterprises; (iii) inherited pollution problems posing significant risks to human health in industrial "hot spots"; (iv) increasing awareness of social and environmental risks and public pressure; (v) weak governance structures and regulatory framework to deal with environmental uncertainties in privatization; and (vi) resistance of reputable investors to commit to compliance with environmental standards unless stock pollution issues are addressed by the Government.

The Bank assisted in the preparation of the Environmental Strategy Update and Follow up Study and identified areas for priority actions, including conditions in environmental hot spots. As part of the ambitious privatization programs in 1997, the government sold its majority ownership of the MDK Copper Smelter to the Belgium firm Union Miniere (UM), a strategic investor. At the time of the sale the Copper smelter was violating environmental standards and had significant environmental liabilities. Preparation of the ERPP was initiated in parallel with start of the privatization of the Copper Smelter and eventually became part of the privatization deal. Both UM and the Government welcomed the involvement of the Bank as a neutral party in helping them address environmental issues. In fact, the project was envisaged to become a model for addressing past environmental damages and environmental liabilities in the process of privatization.

Specifically the objectives of the project were to support the Government of Bulgaria in:(i) reducing environmental hazards caused by past pollution and unsafe environmental management practices at MDK Copper Smelter (MDK);(ii) facilitating private investments in the company; and(iii) contributing to improvement in plant environmental performance.

Assessment of Project Objectives. The objectives reflect essential priorities for development in Bulgaria at that time, as identified both by the Government and the Bank. They were consistent with the Government’s Environmental Strategy Update and Follow up Study which identified reduction of heavy metals from the environment, mitigation of particulate emissions, abatement of sulfur dioxide and other irritant gases, water resources management and protection of drinking water, as priority areas. The objectives also reflect the priorities identified in the Bank’s Country Assistance Strategy, which called for protecting and enhancing the environment and facilitating structural reform and private sector development in Bulgaria. The objectives were appropriate for Bulgaria at the time of approval and maintained their relevance throughout the implementation period.

3.2 Revised Objective:Not Applicable

3.3 Original Components:The project has two major components.Component A. Emergency Remediation Program (US$ 4 million original). Satisfactory rating.This component was designed to respond to a critical environmental hazard at the MDK Copper Smelter plant posed by the unstable condition of a six hectare sludge lagoon which had been used as a sedimentation pond (slime pond known as the "Blue lagoon") to treat plant processed wastewater including

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semi-liquid wastes from the acid plant which were heavily contaminated with arsenic and other heavy metals including copper and lead. The lagoon had reached its capacity and was leaking. It posed a serious threat of overflowing or breaching its retaining dam which would result in the discharge of the lagoon's contents into adjacent streams that flowed directly into the Topolnitza river and reservoir, the main source of drinking water for Plovdiv and other large towns in the Maritsa valley. An overflow or collapse could have contaminated the drinking water for more than a million people. The component focused on the following: (i) stabilization of the dam to prevent failure before the lagoon was permanently closed;(ii) creating a temporary solid waste disposal facility; and (iii) improving the wastewater treatment process.

Component B. Remediation of Past Environmental Damages (US$21 million). Satisfactory rating.This component addressed a range of environmental problems caused by past plant operations aiming at mitigating health threats to plant workers and the neighboring population and eliminating groundwater contamination. The most serious problem was the slime pond holding back more than 2.0 million cub. m. (originally estimated at 600,000 cub.m) of tailings containing arsenic and other heavy metals stored without precautionary measures to prevent contamination of ground surface water. The other problems included contaminated solid waste residues discarded in several plant site locations; seven million tons of slag located near the plant covering 30 hectares with rainwater seepage causing water contamination; contaminated soils from various plant operations, buildings, concrete, bricks, oil acid spills and other substances containing heavy metals disposed indiscriminately. The component focused on the following:

(i) safely disposing contaminated solid waste, soil, and materials;(ii) providing a permanent solution to the existing sludge settling pond; (iii) ameliorating the old fayalite slag tailings storage facility; (iv) reinforcing the residue storage area; and (v) rehabilitating the old slag dump.

The project components were adequately designed to achieve the objectives described above. The project focused on the Government's highest priorities, i.e. privatization and improving climate for private investments, and addressing Government's liabilities during the pre-privatization period while reducing environmental hazards. The project design provided for accountability and transparent use of public resources allocated for clean up of historical pollution. It enhanced the institutional collaboration between environmental and privatization authorities, and facilitated transparent public dialogue on the environmental and social aspects of privatization. A preliminary site assessment based on an accepted risk assessment methodology was deemed adequate and implemented, including an Environmental Impact Assessment and Remediation Plan. Design of remediation and decontamination activities were based on cost effectiveness and minimal environmental risks. The design took into account the emergency situation in the plant and allowed for an appropriate sequencing of emergency remediation and past pollution clean up activities.3.4 Revised Components:Not Applicable.

3.5 Quality at Entry:Quality at entry is rated satisfactory, based on the following strengths: (i) consistency of the objectives with the CAS and Government priorities in the environment and private sector development in Bulgaria; (ii) assessing risks realistically (even though the overall risk rating for the project was low) and including mitigating measures in the design; (iii) demonstrated capacity of the implementing agency (UM) and coordinating agency (National Trust Eco Fund). Even though similar experience with remediation of

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industrial sites was not available elsewhere in the region, the project reflected well the design lessons learned from privatization in a range of other developing countries, and provided for adequate private – public partnerships mechanisms in project implementation and adequate assignment of roles and responsibilities. Implementation and oversight responsibilities were clearly outlined. Preparation was implemented in consultation with stakeholders, government, local municipalities of Pirdop and Zlatitsa, environmental NGOs, academic institutions, private investors, and the local population. No major restructuring of the objectives or design was needed during implementation, and only minor readjustments were made in design details. Project formulation can be considered as a model for preparation of industrial remediation projects.

The project objectives and design proved to be robust.

4. Achievement of Objective and Outputs

4.1 Outcome/achievement of objective:The project achieved the objective of reducing environmental hazards caused by past pollution and unsafe environmental management practices at MDK Copper Smelter, improving the plant’s environmental performance and facilitating private investments in the company. It enhanced the capacity of environmental agencies to work with private sector for improved environmental monitoring and compliance. It also enabled more effective collaboration between environmental and privatization authorities. Addressing environmental liabilities during the privatization of the MDK Copper Smelter set up a model for sustainable privatization where the interest of reputable investors met public interest.

All elements of the emergency remediation program were successfully concluded well in advance of project closure. Measures under the Clean-up of the Critical Past Environmental Damage concluded with closure and consolidation of the slime pond, clean up of old toxic waste, debris, and removal of contaminated material from the site. The project resulted in major reduction of the ongoing pollution resulting from past disposal practices. Site management of the plant has significantly improved and the environmental performance of the Copper Smelter continues to show positive trends and improvement. According to the Regional Environmental Inspectorates, the quality of the Topolnitza river is in compliance with the norms for receiving water bodies third category. Reform efforts supported by the GOB have facilitated implementation of environmental investments under UM-MDK’s on-going environmental management program. In addition, since privatization of MDK, Union Miniere made investments amounting to US$100 million to bring into compliance the environmental performance of the plant and increase its productive efficiency.

No accidental spills have occurred from the old slime pond. Discharges of heavy metals (particularly arsenic) and other pollutants into the surface water have been reduced and/or eliminated and targets as described in the PAD were achieved. A ground water monitoring system has been put in place. Systemic monitoring of groundwater quality did not reveal deviations or noncompliance with MOEW's Environment Impact Assessment Resolution No.59-19/1997 and temporary performance requirements.

Project outcomes are relevant to the CAS objectives as defined in the PAD and include: (a) reduction of heavy metals in surface waters (Topolnitza River) and compliance with Class 3 surface water quality, (b) reduction of the heavy metal content of soils, and (c) maximum ambient concentrations of particulates and sulfur dioxide in ambient air equal or better than 1996 values and in compliance with Bulgarian standards.

Surface water quality with respect to arsenic now meets Class 3 river standards in the Topolnitza River. As there were no Bulgarian soil standards at the time of project implementation, Belgian standards were

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adopted for the purposes of the project with respect to pH, arsenic, iron, copper and sulfates. Monitoring of air emission and ambient air quality is carried out within the compliance program of UM-MDK, using as a base, the temporary emission norms set forth in the EIA Resolution. The project did not finance measures for reducing air emissions, since those are largely subject to private investments for technological retrofitting. Nonetheless, the plant has reached compliance with ambient standards for sulfur emissions as well as for sulfuric acid aerosols from the 120 m stack. Temporary limits for sulfur emissions from the 325m stack have been reached and are decreasing, although full compliance with Bulgarian standards is yet to be achieved. Bulgaria has no ambient dust standards.

There was an initial delay in project implementation of about 10 months and a considerable disbursement lag attributable mostly to technical parameters, e.g. site investigations revealed deeper soil contamination, foundations of defunct structures and considerable amounts of scrap from the remediated sites. This required adjustments in the sequence of remediation measures and defining appropriate technologies in accordance with site specific pollution. However project objectives were met and the project was completed as scheduled.

4.2 Outputs by components:Component A. Emergency Remediation Program ( financed by GOB/NETF)

The objective of this component was to reduce immediate environmental hazards at the sludge tailings pond whose original design and construction and subsequent maintenance were poor. As a result, it was seeping toxic metal leachates and was an imminent risk of mechanical failure which would have led to substantial increases in the release of toxic heavy metals into adjacent surface waters.

The project outputs, Key Performance Indicators and outcomes are summarized in the table below.Project outputs Key Performance Indicators (as

identified in the PAD)Outcomes

• Reinforcement and increasing of the dam crest of the sludge tailings pond• Modification of wastewater treatment technology by construction of intermediate effluent treatment plant (IWWTP) and by-passing the slime pond• Establishment of a temporary storage facility for dry residue from the wastewater treatment plant

• Impermeability and structural stability of the dam around the sludge pond• Work carried out in accordance with good international design and construction practices• Timely installation and operationof WWTP equipment• Upgraded and functioning effluent treatment technology

• Elimination of toxic metal leachate discharges from sludge tailings pond• No accidental spills from sludge settling pond

Reduction in toxic metal levels l

of adjacent surface waters Safe storage of toxic residue l

from the WWTP

Project outcomes for this component were achieved.

Component B. Remediation of Past Environmental Damages ( financed by IBRD/GOB)

The objective of this component was to eliminate historical environmental damage caused by poor environmental management practices of MDK's Copper Smelter's past operation. Sub-components included: (i) excavation of contaminated soils, demolition of defunct structures and transportation of contaminated solid waste and materials to the slime pond; (ii) consolidations of liquid waste, encapsulation and revegetation of the slime pond; (iii) amelioration of the fayalite tailings storage area; (iv) reinforcement of residue storage area; and (v) closure of the old slag dump.

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Project outputs, KPIs and outcomes are presented in the table below: Project outputs Key Performance Indicators (as

identified in the PAD) Outcomes

• Safe treatment, storage and handling of arsenic containing waste• Reduction of risks associated with contaminated structures, materials, and soil at the plant site• Safer waste storage and handling at the plant• Closure of the old slime pond ("Blue lagoon")

• Work carried out in accordance with good international design and construction practices• Timely installation and operationof equipment• Transfer of demolition materials from contaminated buildings, contaminated soils and waste products into the old sludge settling pond• Upgraded and operating fayalite tailings facility• Renewed residue storage with operating surface drainage system• Closing of old slag dump with operating surface drainage system and vegetation cover• Consolidation and closing of the slime pond installation of ground water monitoring system

• Reduction and/or elimination of soil contamination at the plant site• Reduction and/or elimination of sources of groundwater contamination with heavy toxic metals and other inorganic pollutants• Reduction in fugitive emissions of dusts, particularly dusts contaminated with toxic heavy metals Improvements in local air quality l

with respect to particulates Improved monitoring l

Improved site managementl

All indicators were achieved. However, initial delays caused by lengthy permitting procedures in land access or acquisition delayed the construction of the new fayalite tailings pond included in the UM-MDK's investment program. The new fayalite pond is now fully operational. These delays resulted in continued used of the old tailings pond before the new one was constructed. Consequently, remediation of the old site is still in progress (encapsulation and revegetation) and is scheduled for completion by end of July 2003 with consequent revegetation during late summer. The Compliance Program of current operations ("pollution flows") of UMICORE is described in Annex 11.

4.3 Net Present Value/Economic rate of return:Not Applicable.

Privatization of MDK-UM was viewed as an opportunity by the Government to improve the efficiency of operations and improve management while reducing the burden of the ownership and budgetary strain of a loss making company. The economic benefits of the project are associated with the company's privatization and are also linked to environmental benefits. Effective corporate governance of the Copper Smelter after privatization led to a greater attention to waste reduction, more efficient use of resources, new technologies, and an overall increase in productivity assets. All this resulted in a significant amount of investments in cleaner capital stock and introduction of more sustainable environmental management practices. The main environmental benefits of the project are the prevention of accidents and contamination of surface and ground water with heavy metals and toxic substances, reduction of health hazards caused by exposure to harmful substances. The cumulative positive effects on environment from the privatization and associated remedial measures are evidenced in comparing environmental monitoring data before and after the privatization of the plant.

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Given the lack of well established causual relationships between exposure to certain pollutants and their impacts on human health and ecological conditions, the project was not subject to quantitatively meaningful cost-benefit analysis. Part of the measures financed under the project addressed emergency needs. In addition, several technical alternatives were explored to address past contamination problems in the most cost-effective way. Alternatives were examined separately with consideration of environmental risks and financial implications. The proposed and then applied solutions - dewatering and consolidation of sludge using contaminated waste and materials - not only achieved the performance standards, but also resulted in a significant reduction of surface and groundwater contamination, and elimination of risks of arsenic spillage through transportation of sludge. The project addressed in a cost-efficient way the problems of solid waste, contaminated soil and defunct structures by separating recyclable materials and thus reducing the remediation costs. During appraisal the EIA Mitigation Plan (package of technical solutions and estimated costs) developed by Hatch Associates was reviewed by an independent consultant Erik Solbu AB, in cooperation with Povvik EP Ltd and ET Ekosistem, which carried out cost analysis and verified cost calculations based on local market unit costs. The independent review and project experience confirms the selected solution as the most feasible and reasonable.

4.4 Financial rate of return:Not Applicable.

4.5 Institutional development impact:The project’s institutional development impact was substantial. The project enhanced the coordination among privatization and environmental institutions and established a mechanism for private-public partnership to address environmental issues during privatization and post-privatization periods. In addition, the project laid the groundwork for expanded Bank assistance through the Environmental Privatization Support Adjustment Loan (EPSAL). The ERPP implementation experience was useful for the design of the EPSAL which replicated on a larger scale, the model of addressing environmental liabilities in privatization through a different lending instrument and taking stock of the institutional capacity built during the pilot project. In its early stage, the ERPP revealed the need to establish a legal and regulatory framework to address environmental liabilities during large scale privatization. This framework was further developed under the EPSAL. The ERPP also contributed substantially to development of an institutional framework and institutional capacity to deal with these issues outside of a Bank assistance program. The approach and methodology developed under the ERPP for assessing liabilities/past pollution is being extended by the Government to its overall privatization program. Furthermore, the ERPP acted as a catalyst for integrating environmental issues in the structural reform agenda through accompanying Bank operations like FESALI and II, as well as the follow up PALI.

During ERPP implementation, the policy, planning and management capacity of the Oversight Committee developed substantially, and a core team of the ERPP Oversight Committee is now engaged in the oversight and overall management of the EPSAL. The role of environmental institutions was strengthened and institutional coordination improved during project implementation.

Both MDK-UM and NTEF involved in project implementation increased their capacity to execute remediation projects. The NTEF which was institutionalized to manage the resources of the first Debt-for-Environment Swap between Bulgaria and the Swiss Confederation gained international recognition for its role and substantial contribution to the pilot project. During project implementation NTEF positioned itself as a reliable and competent partner for implementing environmental investment projects.

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The Project also serves as a pilot for UMICORE’s world wide operations. The company intends to apply this experience elsewhere. At the same time other industrial facilities in Bulgaria are seeking guidance from UM-MDK regarding their experience with dealing with historical pollution issues. During project implementation cooperation between UMICORE and the local municipalities considerably improved. MDK-UM developed a community relations program amounting to US$595,000. The main program investments include energy efficient street lightening, hospital rehabilitation, child-care facilities and library heating renovation, water supply rehabilitation and river bed reinforcement.

5. Major Factors Affecting Implementation and Outcome

5.1 Factors outside the control of government or implementing agency:No major factors outside government or the implementation agency's control affected project implementation or outcome. Cost variations and implementation delays related to specific items of the remediation program were noted during the initial stage of the project. These are attributable to factors not subject either to government or implementing agency. Due to the nature of the project and limited experience with these kind of remediation activities elsewhere, it was impossible to establish a priori, details for appropriate remediation technologies during project preparation. Remediation technologies had to be defined according to the specific site pollution. In specific sites such as the slime pond, physical and chemical composition of sludge determined the dewatering and slime consolidation technology. In addition, only detailed in-depth soil investigation could establish the true extent of soil contamination, which in turn resulted in variations in both the work scope and costs.

A minor factor which affected the implementation schedule was the inability to carry out construction works during cold winter months. Even with good planning, some three to four months of the year are not suitable for site works. All this affected the schedule in terms of windows of opportunity for site preparation, particularly compaction, which could not be done during freezing conditions, construction of civil works and revegetation programs of various rehabilitated waste disposal sites. Revegetation was particularly sensitive to weather conditions.

Other economic activities, particularly other mining/metallurgy operations in the general area of the project whose pollutant discharges are also affecting air and water quality and soil contamination may adversely prevent the project from strictly meeting the CAS related goals. The pollution from a nearby Chelopech mine and municipal waster water discharges may adversely affect the quality of the water of Topolnitza river.

5.2 Factors generally subject to government control:Overall, the government's commitment, at the highest levels, to reforms contributed to the project success. In 2000 Bulgarian elections brought a new Government into power with changes in leadership and higher level government officials. This slowed implementation since the new officials had to undergo a learning and familiarization period on project implementation before they could be effective and efficient. Management changes in different agencies, e.g. Privatization Agency, also adversely affected the schedule, e.g. permit for land access, scrap removal, etc, and revealed institutional coordination imperfections. Even though these issues were resolved in the course of project implementation, they caused complaints and unnecessary delays. For example, land acquisition, site access and permitting procedures impeded progress in dealing with the fayalite disposal site rehabilitation program (failure to secure a new site as scheduled, necessitated continued use of the old site and delayed its encapsulation/revegetation). During the initial implementation stage, OC review/approval procedures also were too long. This led to delays in physical works and delays in contractor payments. Delays were partially due to the fact that a remediation project of such complexity had never been carried out before in Bulgaria, and was a true innovation for the

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Government. Also, during implementation new government regulations were developed, requiring third party independent supervision of all construction works at the expense of the implementing agency. This regulation was unforeseen and resulted in unanticipated delays (additional administrative requirements) and cost increases. On the other hand the role of the NTEF as an intermediary between MDK-UM and government substantially facilitated program implementation. Escrow account arrangements adequately protected the project from any problems with counterpart funds.

5.3 Factors generally subject to implementing agency control:Implementation in general, and particularly procurement under the second component were slower than expected during the first year of implementation for a number of reasons ranging from technical complexity of remediating historical pollution, to lack of private sector's experience (particularly in procurement procedures) in implementing Bank projects. The latter factor delayed preparation of technical designs, specifications, and bills of quantities, preparation of incomplete TORs for soil investigation study (e.g. when sites under demolished building initially were not included in the TORs). However, the full commitment of UMICORE to the project, as well as commitment to comply with the Bulgarian environmental standards largely contributed to the achievement of the project outcomes. In addition, UMICORE International Headquarters support played a significant role in project success. NTEF increasing capacity to coordinate procurement and disbursement, as well as provide professional expertise on technical issues, also greatly facilitated the smooth implementation process. Adequate training was provided to NTEF staff in procurement and project management during project implementation.

5.4 Costs and financing:The total original project cost was US$25 million, of which US$16 million was the Bank's contribution. Cofinancing of US$3.3 million was provisioned by the National Trust Eco Fund, with the balance provided by the Government of Bulgaria. The project disbursed the entire US$16 million loan as envisaged. The original closing date was not revised and the project closed on December 31, 2002 as scheduled.

Actual cofinancing contributions from NTEF increased to US$3.5 million. The Government contribution to Part A of the project amounted to US$3.7 million excluding taxes, custom duties and bank charges which were covered by the Escrow funds. Unforeseen Government costs were as follows: US$115,000 for construction supervision, US$130,000 for insurance costs, and US$46,700 for bank charges.

6. Sustainability

6.1 Rationale for sustainability rating:Overall sustainability for the project is highly likely for several reasons. First, groundwork for reform is well-founded and key institutional mechanisms are in place. The government has established a comprehensive regulatory framework and institutional capability for dealing with environmental remediation in its industrial privatization program. Progress achieved under the ERPP has been expanded to the follow-up adjustment operation (EPSAL), which is further developing government experience and capability and industrial privatization in Bulgaria outside World Bank operations and is following procedures and mechanisms developed under the project. Second, the implementing agency UM-MDK (renamed UMICORE -Med in 2002) is a highly professional international organization with a long history of environmental and socially responsible behavior worldwide. It also has gained experience that it is using in its other privatization operations worldwide. In addition, it has further developed a communication and outreach program delivering all relevant information in the local languages of all the countries it has operations in through a Community Relations website and a special communication strategy. Project investments into improving process efficiencies will likely generate further levels of environmental compliance. UMICORE also announced that all industrial operations should implement a formal environmental management system and obtain ISO 14001 certification no later than 2006. These actions

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demonstrate UMICOR's commitment to deal with environmental issues with transparency, responsibility, accountability and pro-activity. Under the ongoing EPSAL, UM-MDK has negotiated an integrated pollution permit. Third, Bulgarian subcontractors who worked on the remediation program gained valuable experience and skills from their international counterparts. They are now in a better position to market these skills for other hazardous waste remediation opportunities in Bulgaria, and possibly, in the future, internationally. Sustainability of benefits achieved under each component is also highly likely under improved overall private management.

Component A. Emergency Remediation Program.Sustainability for this component is considered highly likely. Works installed were to the highest international standards. The dam crest was raised and reinforced. The temporary WWTP on the site is operational. The remediation contractor has prepared the "after care" operations manual, which includes maintenance, monitoring and emergency plans. The "after care" program is estimated to cost about 100,000 BGN/year. The implementation of the "after care” program for the remediated site of the "Blue lagoon" involves additional recurrent costs associated with continued maintenance and monitoring. Funding will be secured by the Government during the liability period and will be taken over by the enterprise thereafter.

Component B. Remediation of Past Pollution Damages.Sustainability for this component is also considered highly likely. As is the case with Component A, works installed were to the highest international standards. “After care” programs are currently in preparation by remediation contractors for all sites and are expected shortly. Costs for this program are not as well defined as Component A, but are estimated to be about 100,000 to 150, 000 BGN/year.

ERPP was a pilot project that would be followed by a second project to further support Government efforts to address environmental liabilities during privatization. The fact that EPSAL was initiated long before ERPP closure, demonstrates the benefits achieved and sustainability of initiatives under the ERPP.

6.2 Transition arrangement to regular operations:Responsibility for the “after care “program costs is currently the subject of discussion between the Government and implementing agency. The other issue is future management of solid wastes at Pirdop to assure no remediation issues develop in the future. In this regard, it should be noted that the new UM-MDK waste disposal facilities were constructed following the highest international standards. Furthermore, as mentioned above, UM-MDK has spent a considerable amount of its own resources to honor the compliance program established in Bulgarian EIA Resolution 59-19/1997 and amendments (see NTEF Final Report for Project Completion, February 2003). It is highly likely that UM-MDK will be a pioneer in achieving full compliance to the Integrated Pollution Prevention and Control permit, issued according to the standards of EU IPPC Directive.

As mentioned above, the EPSAL, has been under implementation for three years already. The government adopted this approach for dealing with environmental aspects in all their industrial privatization activities, not just those supported by the Bank operations.

7. Bank and Borrower Performance

Bank7.1 Lending:Bank performance in project identification was satisfactory. The project was consistent with the GOB’s priorities to addressed past historical pollution and attracted strategic investors for large industrial enterprises. The ERPP builds on previous Bank environmental assistance to the GOB and was well

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coordinated with other donor activities (notably NTEF activities supported by the Swiss Government under the Debt-for-Environment Swap Agreement). The project concept was derived from the National Environmental Strategy (1994) and follow up National Environmental Strategy Update (1997).

During preparation, the Bank conducted at least six comprehensive missions which included expertise in environmental economics, privatization, technical engineering, environmental assessment, procurement, operations, environmental law. The project was well prepared with a detailed implementation plan. Terms of reference for major reports were thoroughly reviewed and project targets were clearly defined. Bank performance at appraisal was also satisfactory. The appraisal mission included a seven-member team with a balanced skill-mix and an emphasis on environmental specialists. Government commitment was thoroughly evaluated and documented. Procurement and financial management capacities were comprehensively reviewed. Linkages with other donor activities were incorporated. The Environmental Assessment was the only safeguard policy relevant to the project. The project was rated "Category A". An environmental assessment, including public consultations was carried out prior to project appraisal in conformity with OD 4.01. The EA was prepared by the Government in cooperation with the company and in strict accordance with GOB and World Bank policies and procedures. It was thoroughly reviewed and validated by an independent expert. The EA was approved in 1997 by Decision No. 59-19/1997 of MOEW.

7.2 Supervision:Supervision was adequate and satisfactory. The project was included in the Quality of Supervision Review (QAS2) in 2001 which confirmed the satisfactory rating of supervision. The Bank team provided timely responses, actions and clearances, and met internal reporting deadlines. Continuity of the Task Team was noted as a particular supervision strength - the Task Team Leader remained the same for the entire implementation period. The technical skill mix of the team was adequate. The project team maintained a close and collaborative team spirit with the Oversight Committee, the Project Coordination Team at the NETF, and project team of UM-MDK/UMICORE. Supervision missions included regular site visits and technical discussions on site for clarification, update and agreements on follow-up steps for implementing timely action on all outstanding issues related to project components. Supervision missions were carried out on a regular basis with exception of the year 2001, when budget constraints limited a full- fledged supervision mission to one. However, field staff provided supervision continuity. In total, eight supervision missions took place. The Mid-term-Review (MTR) took place in December 2000. There were no significant procurement or disbursement issues that affected project performance. There was full and timely compliance to the legal covenants. There was one request for an amendment of the Loan Agreement to reclassify two packages from "goods" to "works" because of the nature of clean-up activities. The proposed changes were reviewed and processed by the Bank in a timely manner. The project was consistently rated satisfactory during implementation and no flags were raised for unsatisfactory performance.

7.3 Overall Bank performance:Based on the above analysis the Bank’s overall performance is rated as satisfactory.

Borrower7.4 Preparation:Government participation in project preparation was adequate and satisfactory. The Ministry of Environment and Water's team in partnership with NTEF and UM-MDK provided professional inputs to preparation. The government's ownership and commitment remained strong throughout the project's life. It initiated the Environmental Assessment of the Copper Smelter, which became the basis of the project design. The EA was intensively discussed at two public hearings in the Pirdop and Zlatitza. The

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Privatization Agency, Ministry of Finance and Ministry of Economy participated actively in all aspects of project preparation. The Privatization Agency appointed high level staff to oversee and coordinate the integration of environmental issues in the privatization process and a lawyer to finalize the legal provisions regarding environmental liabilities in the sales purchase agreement.

7.5 Government implementation performance:Overall, Government implementation performance was satisfactory. The Government established and maintained the Project Oversight Committee which ensured continued coordination and efficient communication among agencies involved in project implementation. Overall, the team of the Ministry of Environment and Water was responsive and efficient in resolving project issues as they emerged. Privatization and Post-Privatization Agencies provided continuous monitoring to ensure project success. During the initial stage of project implementation the review/approval process was somewhat slow and cumbersome because of the high level of scrutiny exercised by the Government to ensure transparent and proper use of public funds. Lack of timely coordination and bureaucracy in public agencies caused unnecessary delays in the initial implementation stage. However, the situation markedly improved toward mid term review and project completion.

Although the project was never rated highly satisfactory because the team was quite conservative and critical in assessing project performance, implementation was indeed above satisfactory most of the time. This was due to the high level of professionalism exercised by the Project Coordination Team within the NTEF. Regular reports and data on project management, procurement, disbursement and financial status were made available to the Oversight Committee and the Bank according to agreed reporting requirements. Project financial performance was adequate: project accounts were kept using an accounting system acceptable to the Bank; the NTEF established and applied an adequate internal control system and delegation of responsibilities and authorizations. Accounting/finance staffing was acceptable to the Bank; the project maintained good records. Project accounts and financial reports were audited on an annual basis by independent auditors acceptable to the Bank and the audit reports were clean with unqualified auditors' opinions. The Project fully complied with all financial covenants as stated in Article IV of the Loan Agreement. Project implementation did not experience any problems with timeliness, sufficiency or availability of counterpart financing.

7.6 Implementing Agency:Union Miniere's performance as the Implementing Agency is highly satisfactory. In fact, the company's commitment to remediation and compliance programs was among the most important factors in the project's success. At the outset of project implementation, UM-MDK established a project management unit with highly professional and motivated staff. In addition, the Corporate UMICORE Group and other UMICORE sites with experience in similar projects, provided strong support on issues of environmental health and safety, legal, engineering issues. With such in-house experience available, the external consultancy requirements were limited. The company's transparent communication policies with stakeholder and affected groups, reversed initial suspicions/apprehensions and channeled it into a positive supportive force. Iinitially, the World Bank procurement requirements were quite burdensome for UM-MDK team because the company lacked experience with previous Bank projects. This situation greatly improved over the course of implementation as their team knowledge of Bank procedures increased.

7.7 Overall Borrower performance:In view of the above, the Borrower's overall performance is rated satisfactory.

8. Lessons Learned

This section summarizes lessons learned from designing, implementing, managing and administering the

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project. Annex 8 and 9 provide more detailed information on the lessons learned, including findings from a beneficiary survey, and a stakeholder and beneficiary workshop held in Sofia with a wide range of participants (Ministries of Environment and Water and Finance, Privatization Agency, the implementing agency, NETF, NGOs, beneficiary communities and private contractors).

The project was a pilot and yielded many good lessons, among them the critical importance of (a) having the government's commitment, at the highest levels, to reforms and in particular environmental remediation; (b) an effective communication strategy to garner buy-in and support from the public; and (c) maintaining continuity of a highly skilled and committed project management team throughout implementation. The results of the beneficiary survey and the stakeholder and beneficiary workshop conducted to among other factors, analyze lessons learned and recommend possible improvements for future operations, indicate how crucial the above mentioned three elements were to the project's success. Lessons learned by the Borrower and implementing agency which also support these findings, are futher detailed in the following section. They provide precise issues and lessons learned from implementing the individual remediation activities\programs. That section stresses the importance of factoring in the time needed for preparation of detailed designs for remediation activities and the relevant administrative steps needed for their approval. Furthermore it highlights the need to take into account the technological relationship between the activities during preparation to avoid repeating implementation of activities and the associated expenses.

Outlined below are five major categories of lessons learned. Though the information is presented somewhat as a reflection of the different experiences of each stakeholder, it nevertheless is very much interconnected and relevant to all the participants. The information is particularly helpful in the context of the ongoing EPSAL which is building on the results of the ERPP, and could help improve future operations to be implemented by the Government.

GovernmentIdentification of environmental problems provides comfort to strategic investors and should start at the loutset of the privatization processClear institutional arrangements for implementation oversight and coordination is key to scheduled lcompletion of project activities and timely conflict resolution Negotiations on environmental conditions should be included in privatization negotiations for individual lsales.Involvement of all stakeholders during project preparation and implementation is critical.lDetailed information on enterprise's environmental performance is key (environmental audits/EIA) to lcommitment to improved environmental compliance, and should be included in the privatization documents and raising public support Implementation of clean-up programs requires strong post-privatization oversightl

Government and World BankInter-institutional coordination and cooperation and strong good will are key for smooth limplementation and ultimately project successProject design of remediation programs should provide for a higher level of flexibility in determining lphysical and cost parameters of project activities. Higher than normal (30%) contingency provisions should be made.Review procedures, Bank procurement requirements, and the level of experience of the implementing lagency in dealing with these factors must be realistically incorporated into the Project Implementation Schedule.

Government and Implementing Agent

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Effective collaboration between public and private parties should be established at the outset of project limplementation Regulatory and enforcement capacity of environmental agencies is essential to improved environmental lmanagementCorporate businesses act in a more responsible manner on social and environmental issueslConstructive partnering of all parties is very important and valuable: strategic investor, contractor and lGovernment should work together and resolve all implementation issues An "After-care" program is an essential element of remediation projects; maintenance, monitoring and lcost sharing responsibilities beyond the project life, and should be specified clearly and as much as possible upfront.Government can expect to receive higher proceeds if environmental liabilities are well-documented and lGovernment has agreed to finance past commitments.

Implementing AgentTransparency and information sharing on corporate environmental performance is criticallEarly and continued involvement of stakeholders and transparency in communications by the limplementing agency allayed their initial mistrust and apprehension, and converted stakeholders into enthusiastic supporters.More efforts should be made to communicate the project to communities, NGOs, etc. Activities should linclude a clearly defined and targeted communication strategy. A remediation program must be coordinated with both a compliance program as well as the normal lproduction schedule of an enterprise, in order to minimize any loss to enterprise production efficiencies.

World BankThe implementation schedule should have been more conservative for an implementing agency with llittle or no experience in World Bank procurement procedures.Continuity of project teams and government support were essential elements in assuring smooth and ltimely implementationProject uncertainties require a flexible contracting approach. If possible, investigation and remediation lshould be combined with one sub-project with one contractor/engineer.

9. Partner Comments

(a) Borrower/implementing agency:This section contains a summary of the main text of the Borrower's contribution to the ICR. The full

Project Completion Report from the Borrower is available on file. The summary represents a shorter and unedited version of the Borrower's report. Further commentary can be found in the workshop presentations of various participating agencies available on file.

Introduction

The MDK copper smelter and refinery in Pirdop, now Union Miniere Pirdop Copper has been in operation since 1957. The plant produces anode copper, cathode copper, sulphuric acid. During its forty years of operation, the plant severely polluted its production site and immediate vicinities as described by the Environmental Impact Assessment report, prepared in 1997. When the Belgian metallurgical group Umicore (Union Miniere) acquired MDK, an environmental Remediation Program was drawn up as a part of the privatization deal.

1. Main objectives of the Environmental Remediation Pilot Program (ERPP) at MDK – Pirdop

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The main objectives of the ERPP were to: (i) reduce environmental hazards caused by past pollution at MDK copper smelter (MDK); (ii) contribute to improvements in the environmental performance of the plant; and (iii) facilitate the privatization of MDK by reducing uncertainties and concerns of strategic investor(s) about environmental liability issues.

2. Main components of the Environmental Remediation Pilot Program (ERPP) at MDK – Pirdop

The Program consisted of the following components: Part A - Emergency clean-up of immediate environmental hazards and Part B - Clean-up of critical past environmental damage.

The main activities and objectives for these components were:

2.1. Part A - Emergency clean-up of immediate environmental hazards.

Part A responded to a critical environmental hazard at MDK posed by the unstable condition of the slime pond (the “Blue Lagoon”) used as storage for the sludge from the wastewater treatment plant through the following.

• Dam reinforcement and crest increasing of the slime pond;• Change of the wastewater treatment process throughout construction of a temporary effluent treatment plant for industrial water;• Construction of storage for dewatered sludge from the effluent treatment plant – “Small Lagoon”.

2.2. Part B - Clean-up of Critical Past Environmental Damage.

Part B addressed a range of environmental problems caused by past operations of the plant, to mitigate threats for the health of workers and population surrounding the plant, and to reduce contamination of the environment (especially underground water) through the following projects:

Old Site Clean up:

1. Old site clean up, including demolition of old Sulfuric acid plant and excavation of contaminated materials;2. Other site clean up, including dispose of solid wastes, demolition of buildings, excavation of solid

waste, calcium arsenite (“white dust”), scraps, bricks and concrete;3. Excavation and dispose of contaminated ground;4. Construction of temporally site storage for solid wastes with drainage system;

Old Slime Pond Encapsulation (the “Blue Lagoon”):

5. Closing of old slime pond, including dewatering of accumulated sludge, dispose of contaminated materials and contaminated soil and backfilling and revegetation;6. Construction of drainage system and installation of monitoring and collecting wells;

Fayalite Tailings Disposal:

7. Closing and modifying of existing tailings ponds, including revegetation;

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Residue Storage Area:

8. Closing of the old residue storage area, including excavation of contaminated soil and construction of new one;

Slug Dump Rehabilitation:

9. Close the Slag Dump, including grading and landscaping and construction of surface water drainage and revegetation;

10. Backfilling with clean soil, capping and revegetation of the sites with excavated contaminated soil.

3. Program Organization and Implementation Arrangements

3.1. Based on the Implementation Agreements respectively for Part A (signed on March 27, 1998) and Part B (June 02 1998), Union Miniere Pirdop Copper (UMPC) was the Implementing Agency for the Program. The National Trust Eco Fund (NTEF) a legal entity established under the “Debt-for-Environment” Swap Agreement between the Governments of Switzerland and Bulgaria, acted as the coordination Agency between MOEW and the NTEF. An Oversight Committee (OC) was established to oversee implementation and coordination.

3.2 Financing in the amount of US$25,000,000 was ensured by the Bulgarian state. Based on the Share Purchase Agreement, part of the sale price of MDK was placed in an Escrow Account. Part A was financed by a grant to the GOB through the NTEF for US$3,300 000. For Part B, the GOB received a Loan of US$16,000,000 from the World Bank.

4. Achievement of Objectives and Outputs by components of ERPP

4.1. Part A - Emergency clean-up of immediate environmental hazards

Twenty five contracts for consulting services, works and end supply of equipment were signed and completed between 1997 – 2001.

Dam reinforcement and crest increasing of the slime pond.

The objective of the project was to stop leakages through the pond crest and guarantee its long term stability, taking into account the loads from dumping of contaminated materials and the capsulation activities. Leakages were detected through the pond crest in 1997 so a contract was signed to immediately stop them. Reinforcement of the pond crest was completed in 1998. Upgrading of the pond crest was necessary to allow continuing of the discharge of the waste waters from the plant into the “Blue Lagoon” till completion of the temporary effluent plant, as well as to not disturb the production process of the copper smelter.

Achieved Outputs:

The dam crest was reinforced and upgraded. Long term stability of the slime pond was achieved ltogether with prevention of pond destruction and discharge of the accumulated arsenic slimes into Topolnitza River.

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Reinforcement of the pond crest enabled dumping into the slime pond of all contaminated materials lfrom Part B activities of the Program, as well as lifetime encapsulation of the “Blue Lagoon”;Upgrading of the pond crest enabled discharge of the industrial waters from MDK without disturbing lthe production process till completion of the temporary effluent treatment plant.

Lessons learned:

The time needed for preparation of detailed designs for implementation of the relevant administrative lsteps for their approval etc., has to be taken into account during the preparation phase;The technological link between different projects, as well as production continuity of the plant also has lto be taken into account during preparation.

Change of the wastewater treatment process throughout construction of a temporary waste water treatment plant (TWWTP) for industrial water

The construction of the plant enabled discharge of treated waters directly into the recipient (water body), as well as termination of the usage of the slime pond (the “Blue Lagoon”) for industrial waters collection. Construction of the temporary wastewater treatment plant was necessary to launch wastes dumping activities, and begin final encapsulation of the slime pond. The TWWTP has been in operation since February 2001 and the daily average volume of wastewaters is 100 m3. The main compounds in the waters are As, Fe and Cu. The lack of detailed designs and precise cost estimates at the time of their preparation, extra costs, etc., caused a delay in implementation of the project.

Achieved Outputs:

The TWWTP is in operation and waters do not enter the slime pond;lThe TWWTP enables discharge of treated waters into the recipient, corresponding to the requirements lof the Bulgarian norms and the MOEW Resolution on the Environmental Impact Assessment for MDK – 1997.

Lessons learned:

The time needed for preparation of detailed designs for performing the relevant administrative steps for ltheir approval, etc., has to be taken into account during preparation;Bidding procedures for supply of equipment based on preliminary designs (Basic engineering) leads to ldifficulties in preparation of the tender specification, additional detailed designing, schedules delay and extra costs;The equipment for big, complex technical projects, such as the WWTPs, is usually supplied by a lnumber of manufacturers. Respectively, a large number of bidding procedures are usually organized and the schedules change;It is advisable for projects with short-term schedules that the equipment supply be performed as a lcomplex contract based on precise technical specification.Responsibilities, related to the technological schemes, design’s completeness and target parameters lshould be defined clearly in the contracts for consulting services.Enough time for conducting tests, putting in operation and fulfillment of the required administrative lprocedures should be taken into consideration and included at the scheduling of the preparation phase;Cost estimates should include amounts for administrative taxes, customs duties, etc. l

Construction of storage for dewatered sludge from the effluent treatment plant – “Small Lagoon”.

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The “Small Lagoon" was constructed in place of the existing old “Small Lagoon” to provide storage for dumping of slime during the TWWTP operation period (three years). The existing volume of 15,000 m3 was expanded up to 60,000 m3. The storage was completed under the strict requirement for preventing infiltration of contaminated water into the underground waters.

Achieved Outputs:

The project provided extra volume for storage of the dewatered sludge during its operation period;lBulgarian and European standards and Regulations for similar projects were met in the process of lworks implementation.The storage is one of the first similar facilities in Bulgaria, corresponding to the hazardous wastes lstorage requirements; The “know-how” for installation of a lining, its testing and guarantees were transferred to Bulgarian lcontractors.

Lessons learned:

Designs for the method of dumping of hazardous wastes, as well as measures for preventing dust lemissions during the period of operation should be taken into consideration for projects of this type.Encapsulation activities should be foreseen before exhausting the volume of the facility. Without these lactivities, the environmental effect is incomplete.

4.2. Part B - Clean-up of Critical Past Environmental Damage.

Old site clean up, including demolition of old Sulfuric acid plant and excavation of contaminated materials

The project is part of the MDK’s old site clean-up efforts which include demolition of the old Sulfuric acid plant, removal of disposed solid wastes, contaminated materials and ground.

Achieved Outputs:

The site of the old Sulfuric acid plant has been cleaned-up; all the frame structures, contaminated lacid-resistant isolation materials, fundaments, old underground communication facilities, contaminated soils, etc., have been removed;The site has been back-filled with clean soils to the initial site leveling;lThe possibility for pollution of underground waters from infiltration of polluted surface waters has lbeen eliminated.

Other site clean ups included demolition and liquidation of abandoned buildings and equipment of the old plant, including excavation of fundaments, liquidation of hazardous production wastes and materials, accumulated during the past operation of the plant. This involved sorting wastes by the extent of contamination and toxicity (bricks, concrete, contaminated soils, hazardous waste materials, scraps, copper, lead, electrolyte cells, mazut containers, vanadium containing wastes, “white dust”, asbestos, etc.) Five contracts for implementation of the above activities were signed and the project was completed in eight months. The contaminated materials were disposed at special temporary sites, aimed at further disposal and encapsulation in the slime pond (the “Blue Lagoon”).

Achieved Outputs:

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The site of the plant has been cleaned-up from past pollution in accordance with the ERPP. ü 565,000 m3 of contaminated wastes (containing Cu, Cd, As, Pb, Zn, mazut);ü 35,000 m3 of hazardous wastes (containing asbestos, As, Va, Cr, CuO, CuS, Poly Chlorinate Biphenol, etc.);ü 5,695 tones of scraps (Fe, Pb, Cu, SS).

The removal of the above wastes enabled backfilling with clean soils and prevention of underground lwater pollution from the sites;Bulgarian companies – highly qualified subcontractors for detonations and other activities were linvolved in the implementation of the project, thus gaining more experience and reputation;About 200 unemployed residents of the neighboring towns (Zlatitza and Pirdop) were temporary lemployed for the period of project implementation.

Lessons learned:

Taking into account the technological relationship between the projects at the stage of the limplementation schedules, preparation may contribute to avoiding repeating of implemented activities and the relevant expenses.

Excavation and disposal of contaminated ground

Excavation of soils that were contaminated during the past operation of the plant and were a potential source of underground water pollution. Studies and laboratory analyses for determination of the certain location and quantities of the contaminated soils were carried out. In 2001, this bidding package was assigned to the contractor of the slime pond encapsulation project as agreed with the World Bank. Excavation of contaminated soils and their disposal in the slime pond should logically be implemented by the contractor responsible for disposal of all other contaminated materials. This change saved expenses for intermediate disposal at a temporary site, repeated excavation and transportation of a big quantity of soil to the slime pond.

Achieved Outputs:

- The old site of the plant has been cleaned-up from contaminated soils – 195,000m3 containing H2SO4, Cu, Cd, As.;

Lessons learned:

- The specificity of the activities should be taken into consideration and the schedules for implementation of the separate projects should be synchronized in order to avoid repeated implementation of works and increase in the project cost;- In the preliminary planning of the activities, consultancy services determine the quantities of the contaminated soils and materials by additional studies (laboratory analyses, etc.) before and after implementation of works should be included.

Construction of a temporally site storage for solid wastes with drainage system.

A site storage was constructed for temporary disposal of contaminated materials and soils from the old site clean-up. The site storage was provided with a drainage system and supplied with anticorrosive isolation for discharge of polluted surface waters passing through the disposed wastes. The total surface of

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the storage is 2300 m2.

Slime pond (the “Blue Lagoon”) encapsulation, including dewatering of accumulated sludge, disposal of contaminated materials and contaminated soil, backfilling and revegetation involved the following.

- Maximum reduction of the slime pond volume by dewatering and consolidation processes;- Disposal of all the available waste materials and contaminated soils, accumulated in the process of ERPP implementation;- Avoiding leachates of hazardous components in the underground waters and the soil;- Avoiding of any additional negative impact on the environment;- Assuring lifetime resistance of the slime pond after its encapsulation;- Encapsulation of the disposed wastes with a multi-layer cover for avoiding infiltration of surface waters;- Biological recultivation.

The total surface of the slime pond is 100,000 m2. A hydro-geological study and a study on the slime consolidation properties were made to determine the methods for slime dewatering and consolidation. These studies and data from previous studies were provided to the companies participating in the bidding process. 395,000 m3 additional quantities of contaminated materials and soils that had not been included in the preliminary estimates, were determined in the process of implementation of the Program. The project also included construction of a buffer pond for collection of water pumped up during the slime consolidation. Water from the buffer pond was discharged and treated in the Temporary effluent treatment plant.

Achievements:

- 500,000 m3 of calcium-arsenate slimes and gypsum have been dewatered and encapsulated;- All contaminated materials, hazardous wastes and contaminated soils from the old site clean up – 795,000 m3, were disposed and encapsulated;- 120,000 m3 of wastewater from the sludge dewatering process, were discharged and treated;- slime pond reinforced and encapsulated forever without having a negative impact on the environment; - Impermeable cover constructed and a biological recultivation made;- methodology for encapsulation was proposed and implemented by the main contractor; it was different from the initially proposed methodology and contributed to cost reduction and shortening of the implementation period.

Lessons learned:

- It is very important that the types of works and the quantities be determined as precisely as possible at the detailed design preparation phase;- Taking into account the technological relationship between the projects at the stage of the implementation schedules, preparation may contribute to avoiding repeating of implemented activities and the associated expenses;- In bidding procedures with unique technical solutions, the bidders should be given the possibility to propose their own methodologies that may reduce the cost; the proposed solutions in the preliminary studies should not always be followed implicitly;- Specific activities, such as biological recultivation, should be implemented by the contractor with regard to the necessity for conformity with the seasons.

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Construction of drainage system and installation of monitoring and collecting wells for underground waters

The project objective is to prevent any impact of the underground water to the slime and the disposed materials in the slime pond during and after its encapsulation, control of the underground water quality for impact of the slime on the system, and assurance of long term operation of the drainage system. Four monitoring and collecting wells, equipped with pumps were constructed. The water is being pumped into the temporary effluent treatment plant.

Achieved Outputs:

- Infiltration of underground water through the slime pond, as well as impact of the slime on these waters were not allowed during the whole encapsulation period.

Lessons learned:

- Imprecise determined activities in the preliminary studies lead to an excessive increase of the cost estimates.

Closing and modifying of the existing fayalite tailings ponds, including revegetation

- Storage of the necessary volume of filling materials;- Avoiding of any dust emissions from the tailings pond during and after implementation of the works; - Avoiding of any other negative impact on the underground water quality during and after implementation of the works;- Assuring of fayalite tailings pond resistance in the process of implementation of the works;- Assuring of life time resistance of the finally recultivated / revegetated tailings pond A;- Covering of the stored materials with a mineral isolation layer for avoiding of any future infiltration of water into the tailings pond;- Rehabilitation of the site to an environmentally harmless state with biological recultivation layer and vegetation, covering the whole upper surface.

The total quantity of the materials (fayalite tailings), encapsulated in the tailings pond, is 290,000 m3, including the remaining contaminated soils and materials around the tailings pond B, were liquidated. A new tailings pond, situated westwards close to the MDK area (“F” zone), was developed for implementation of the backfilling with clean soils, part of the technical recultivation for this project and others needing clean soil for backfilling purposes. Important for successful project implementation has been the relation between the construction of a new tailings pond (part of the investment program of Umicore company) and closing of tailings pond “A”.

Achievements:

- Assurance of a lifetime resistance of the fayalite tailings pond after its encapsulation;- Encapsulation of the disposed fayalite tailings pond by an impermeable layer for avoiding infiltration of surface waters; - Closing of a dust source for the region of Umicore and the town of Pirdop;- Biological recultivation.

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Lessons learned:

- Imprecise determined activities in the preliminary studies lead to an excessive increase of the cost estimates;- For sites bound up with the technological cycle of the plant, the activities and the implementation schedules should be conformed to the production and technological cycles, and construction and installation of new facilities.

Closing of the old residue storage area, including excavation of contaminated soil and construction of new one

The activity focused on the closing of the old residue storage area, including scrap separation, excavation of contaminated soils and their disposal into the slime pond, and demolition of contaminated constructions. Activities such as rehabilitation of the storage, installation of lining on the bottom of the facility, etc. were implemented.

Achieved Outputs:

- The site was cleaned-up from old wastes in accordance with the Program activities; - Backfilling with clean soil was completed. Contamination of the underground waters from the site has been terminated.

Close the Slag Dump, including grading and landscaping and construction of surface water drainage and revegetation

This required encapsulation of the slag dump, preventing dust emissions and underground water contamination, drainage of surface waters, and technical and biological recultivation. A new water supply pipeline for the town of Pirdop was constructed. The availability of water pipeline under the site imposed construction of the new one.

Achieved Outputs:

- 7,000,000 tones of metallurgical slag (containing iron silicates, Cu, Zn etc.) on a territory of 11 ha were encapsulated;- Source of dust emissions in the region of the plant and the town of Pirdop was liquidated; - Biological recultivation was implemented. The site interferes with the surrounding environment.

Backfilling with clean soil, capping and revegetation of the sites with excavated contaminated soil

This required backfilling of all the sites where excavation of contaminated soils or clean-up activities were executed. Capping and biological recultivation were performed on the sites.

Achieved Outputs:

- All the sites were rehabilitated;- Leaks of hazardous components into the ground and underground waters were avoided.

Lessons learned:

- The sources of clean ground should be determined at the beginning of the project when huge amounts of clean soils are required.

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- The biological recultivation should be part of each separate project. The activity is dependent on the seasons, the completion time is different for the separate projects and it is part of each Contractor’s activities.

Other

After start-up of the Program, the Oversight Committee placed a requirement for utilization of the useful waste substances – scraps (Fe, Pb, Cu, SS). 5,695 tonnes of scraps were generated from the different clean-up of past pollution projects of the Program. With regard to this requirement an AGREEMENT was signed between the Privatization Agency, the “Union Miniere Pirdop Copper” company and the National Trust EcoFund, determining the ways for selling useful wastes (scrap without copper) obtained in the process of implementation of the Program. According to the data of MDK, the amount of the income from scraps selling is US$926,597.

5. Costs and Financing

Changes in the Procurement plan and in the cost of the separate components were made. The main reasons for these changes were the lack of some designs (consultancy services), the necessity of connection and sequence of the separate components of the Program, changes in the costs after bidding procedures based on recent detailed designs and studies, additional works, resulting from the actual implementation of some activities, differences between estimated and actual quantities, unforeseen works, etc.

5.1. Sources and uses of funds.

Cost estimate for Part A is US$3,845,816. The NTEF financed component A of the ERPP (Civil works and Goods) from its own funds. The signed contract between the Privatization agency of the Republic of Bulgaria and the fund was for US$3,300,000. The total approved funds for Part A amounted to US$3,740,776. This amount however does not include unforeseen expenditures for customs duties and bank interests. These additional expenses were covered by the Republic of Bulgaria through the Escrow account. The total amount of disbursements from NTEF to the Privatization agency for this part of the Program was US$3,290,176.

The cost estimate for implementation of Part B was US$21,529,000, including:- US$529,700 for consulting services;- US$21,000,000 for civil works and goods.

Total signed contracts for this part of the Program amounted to US$20,923,040. The withdrawals from the loan account were 100% effective and made in compliance with the Loan agreement closing date (December 31, 2002). To complete this component, costs for remaining activities, consultant services and unforeseen expenditures were covered by the Republic of Bulgaria through the Escrow account. During implementation some additional costs were occurred, including:

- US$114,761 for Independent construction supervision (Part B);- US$130,433 for insurances of the Program (Part A and Part B);- US$46,783 for bank interests and charges (Part A and Part B).

6. Factors that had an impact on implementation

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6.1. Consultancy services. A number of difficulties occurred as a result of imprecise estimates in the project preparation phase, as follows:

- Lack of detailed designs to enable start of bidding procedures for works and supplies. The need for preparation of such designs led to delays in the implementation schedules and extra costs.- Imprecise estimated quantities of basic civil works;- Incorrectly prepared schedules did not take into account the relation between the activities from different bidding packages; - Incomplete detailed designs.The above discrepancies were the main reasons for extra costs and for delay of implementation of some activities. 6.2. Faulty implemented works – lead to extra costs for correction of defects and to delay of implementation.

6.3. Permits and administrative costs. Issuing permits was unjustifiably prolonged and led to delays in the implementation schedules and to overall project delay. Costs for issuing such documents were not included in the initial cost estimates, nor were the unforeseen necessary insurances for the whole Program.

6.4. Changes in the regulations concerning project implementation, led to extra costs. For example the introduction of the regulation for Independent construction supervision, caused an extra cost of US$114,761.(b) Cofinanciers:See Annex 8 and 9

(c) Other partners (NGOs/private sector):See Annex 8 and 9

10. Additional Information

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Annex 1. Key Performance Indicators/Log Frame Matrix

Outcome / Impact Indicators:

Indicator/Matrix

Projected in last PSR1

Actual/Latest Estimate

(i) No accidental spills will occur from the old slime pond.

Slime pond closed. Slime pond is closed and a monitoring system of surface and ground water is in place.

(ii) reduction in the discharges of heavy metals & other pollutants into surface water-arsenic concentration will not exceed 1.5 mg/l daily average during the first three years of the project, & 0.5mg/l daily (0.1mg/l annual) average thereafter.

Compliance with standards established by EIA Resolution No. 59-19/97 for the project and national environmental standards thereafter.

There have been no diviations from the standard of 3rd category water body in the quality of Topolnitza river; Effluent standards were largely met: quantity 50l/sec, pH is within the limits 6-9; arsenite content was largely met (execept some daily diviations due to weather conditions).

(iii) Groundwater quality will be least maintained.

1) all surface waste removed; 2) no evidence of immediate reduction of contamination; 3) monitoring continues.

No diviations in the ground water quality have been observed. Monitoring will continue under the "After care "program.

(iv) Compliance with the MOEW's Resolution on EIA & environmental performance requirements.

Air remission in full compliance for 120m stacks.

Completed.

Output Indicators:

Indicator/Matrix

Projected in last PSR1

Actual/Latest Estimate

(i) reinforcement of the dam around the old sludge settling pond

completed

(ii) change of the effluent treatment mechanism

completed

(iii) establishment of a temporary storage facility

completed

(iv) excavate, demolish and transport contaminated material to fill sludge storage pond

completed

(v) compress and encapsulate the old sludge settling pond

completed

(vi) ameliorate the fayalite tailings storage facility

in progress

(vii) reinforce residue storage area completed

(viii) close old slag dump completed1 End of project

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Annex 2. Project Costs and Financing

Project Cost by Component (in US$ million equivalent)AppraisalEstimate

Actual/Latest Estimate

Percentage of Appraisal

Component US$ million US$ millionComponent A. Emergency Remediation Program 4.00 3.98 100Component B. Remediation of Past Pollution DamagesOld Site Clean-up 9.25 8.47 97Slime Pond 8.75 8.22 95Fayalite Tailings Disposal 0.63 1.11 164Residue Storage 0.87 0.92 92Slag Dump Rehabilitation 1.50 0.79 53Backfilling and Revegetation 0.00 0.99

Total Baseline Cost 25.00 24.48 Physical Contingencies 0.00 Price Contingencies 0.00 0.00

Total Project Costs 25.00 24.48Total Financing Required 25.00 24.48

Appraisal figures include estimates for design and services related to the implementation of the component.Actual figures include works and related consultant services, insurances.Fayelite tailings pond is the estimate based on the final detailed design for the component. Contract will be signed in April 2003.

Project Costs by Procurement Arrangements (Appraisal Estimate) (US$ million equivalent)

Expenditure Category ICBProcurement

NCB Method

1

Other2 N.B.F. Total Cost

1. Works 12.60 3.50 0.00 3.25 19.35(8.70) (2.50) (0.00) (0.00) (11.20)

2. Goods 4.90 0.00 0.00 0.00 4.90(4.80) (0.00) (0.00) (0.00) (4.80)

3. Services 0.00 0.00 0.75 0.00 0.75(0.00) (0.00) (0.00) (0.00) (0.00)

4. Miscellaneous 0.00 0.00 0.00 0.00 0.00(0.00) (0.00) (0.00) (0.00) (0.00)

5. Miscellaneous 0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

6. Miscellaneous 0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

Total 17.50 3.50 0.75 3.25 25.00(13.50) (2.50) (0.00) (0.00) (16.00)

Project Costs by Procurement Arrangements (Actual/Latest Estimate) (US$ million equivalent)

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Expenditure Category ICBProcurement

NCB Method

1

Other2 N.B.F. Total Cost

1. Works 15.50 2.29 0.00 5.41 23.20(14.10) (1.90) (0.00) (0.00) (16.00)

2. Goods 0.00 0.00 0.00 0.00 0.00(0.00) (0.00) (0.00) (0.00) (0.00)

3. Services 0.00 0.00 0.00 1.27 1.27(0.00) (0.00) (0.00) (0.00) (0.00)

4. Miscellaneous 0.00 0.00 0.00 0.00 0.00(0.00) (0.00) (0.00) (0.00) (0.00)

5. Miscellaneous 0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

6. Miscellaneous 0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

Total 15.50 2.29 0.00 6.68 24.47(14.10) (1.90) (0.00) (0.00) (16.00)

NBF figures for works include estimates for the Fayelite tailings pond to be contracted in April 2003.1/ Figures in parenthesis are the amounts to be financed by the Bank Loan. All costs include contingencies.2/ Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff

of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units.

Project Financing by Component (in US$ million equivalent)

Component Appraisal Estimate Actual/Latest EstimatePercentage of Appraisal

Bank Govt. CoF. Bank Govt. CoF. Bank Govt. CoF.Emergeny Clean-up of Immediate Environmental Hazards

0.75 3.25 0.02 3.53 2.7 108.6

Clean-up of Critical Past Environmental Damage

16.00 5.00 4.00 16.00 4.93 0.00 100.0 98.6 0.0

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Annex 3. Economic Costs and Benefits

The Staff Appraisal Report laid out a simple cost benefit methodology for estimating various alternatives to the proposed project activities from environmental and financial point of view. It was not possible to readily identify any significant potential for increased revenues or improved economics that could be directly linked to the project investments. Cost alternatives were selected based on the best known cleanup practices and market unit cost of materials and local labor and achieving predetermined environmental performance criteria. The most cost effective alternative which adequately addresses environmental risks were selected. Technical solutions and cost estimates were verified through an independent expert review during appraisal. During implementation these parameters were achieved with minor deviations.

There were certain variations from the original cost estimates of individual items of the remediation program. Largely the total remediation cost remained within the agreed parameters, while considerable and tangible environmental benefits were gained. Many of the economic improvements as a result of the project are associated with improved efficiency of the private enterprise and can be linked to environmental benefits, specifically improved quality of surface and ground water, elimination of toxic hazards and reduced exposure to the local population, more efficient use of resources reduced waste generation and overall increase in the productivity of assets. During its life the project triggered capital investments in cleaner technologies and environmental improvements of about US$100 million. It is likely that in the future under improved private management, the Copper Smelter has the potential to generate revenues at a scale sufficient to continue to address environmental and production requirements.

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Annex 4. Bank Inputs

(a) Missions:Stage of Project Cycle Performance Rating No. of Persons and Specialty

(e.g. 2 Economists, 1 FMS, etc.)Month/Year Count Specialty

ImplementationProgress

DevelopmentObjective

Identification/Preparation02/06/1995 1 TEAM LEDER (1) ENV.

ECONOMIST (1), CONSULTANT(1)

Appraisal/Negotiation04/1998 1 TEAM LEADER(1)

LAWYER (1), OPERATIONS OFFICER (2) , TECHNICAL SPECIALIST (1) DISBURSEMENT (1), PROCUREMENT (1)

Supervision10/12/1998 5 TEAM LEADER (1);

ENVIRONMENTAL ECONOMIST (1); CONSULTANT (1); OPERATIONS ASSISTANT (1); PROCUREMENT SPECIALIST (1)

S S

S S06/01/1999 1 PROCUREMENT SPECIALIST

(1)S S

11/18/1999 4 TEAM LEADER (1); ENVIRONMENTAL ECONOMIST (1); PROCUREMENT (1); POCUREMNET ANALYST (1)

S S

05/04/2000 4 PROGRAM TEAM LEADER (1); ENV. ENGINNER (1); ENV. SPECIALIST (1); PROCUREMENT SPECIALIST (1)

S S

05/04/2000 4 TEAM LEADER (1); ENVIRONMENTAL SPECIALIST (1); PROCUREMENT ANALYST (1); ENVIRONMENTAL ENGINEER (1)

S S

12/02/2000 4 TEAM LEADER/ENV.FINANC (1); PROCUREMENT SPEC. (1); PRINC.ENV.SPEC (1); PROCUR/DISB. ANALYST (1)

S S

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04/01/2002 3 TEAM LEADER (1); ENVIRONMENTAL SPEC. (1); OPERATIONS ANALYST (1)

S S

04/01/2002 3 TEAM LEADER (1); ENVIRONMENTAL SPECIALIST (1); PROCUREMENT ANALYST (1)

S S

ICR02/15/2003 1 TEAM LEADER(1);

TECHNICAL SPECIALIST (1); OPERATIONS ANALYST (I); PROCUREMENT SPECIALIST (1); FINANCIAL MANAGEMENT SPECIALIST (I); OPERATIONS OFFICER (1); COMMUNICATIONS OFFICER (I)

S S

(b) Staff:

Stage of Project Cycle Actual/Latest EstimateNo. Staff weeks US$ ('000)

Identification/Preparation 357,092.00Appraisal/NegotiationSupervision 301,585.00ICR 50,947.00Total 709,624.00

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Annex 5. Ratings for Achievement of Objectives/Outputs of Components(H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable)

RatingMacro policies H SU M N NASector Policies H SU M N NAPhysical H SU M N NAFinancial H SU M N NAInstitutional Development H SU M N NAEnvironmental H SU M N NA

SocialPoverty Reduction H SU M N NAGender H SU M N NAOther (Please specify) H SU M N NA

(i) Response to public concerns about environmental conditions in the two neighbouring communitues ; (ii) Increased public awareness and access to enviroenmental information

Private sector development H SU M N NAPublic sector management H SU M N NAOther (Please specify) H SU M N NA

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Annex 6. Ratings of Bank and Borrower Performance

(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory)

6.1 Bank performance Rating

Lending HS S U HUSupervision HS S U HUOverall HS S U HU

6.2 Borrower performance Rating

Preparation HS S U HUGovernment implementation performance HS S U HUImplementation agency performance HS S U HUOverall HS S U HU

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Annex 7. List of Supporting Documents

1. Bulgaria Environmental Remediation Pilot Project Staff Appraisal Report No: 17698-BUL, April 15, 1998 2. Loan Agreement between the Republic of Bulgaria and the International Bank for Reconstruction and Development, (4321- BUL) 3. Supervision Mission Aide memoires and Project Status Reports from October 1998 to April 2002. 4. ICR aide memoire February 2003 5. Agency for Social Analyses (ASA) Bulgaria Environmental Remediation Pilot ProjectBeneficiary Survey Report, March 2003 6. The Environmental Implications of Privatization: Lessons for Developing Countries, World Bank Discussion Paper No. 426, 2002 7. Environmental Impact Assessment of MDK Smelter, August 5, 1997, prepared by Hatch Associates Ltd. 8. Environmental Impact Assessment of MDK Technical Support Documentation 1 Air Emissions, August 1997 9. Environmental Impact Assessment of MDK Technical Support Documentation 2 Effluent Treatment and Solid Disposal, August 199710. Environmental Impact Assessment of MDK Technical Support Documentation 3 Environmental Assessment of Solid Wastes and Ground Conditions, August 199711. Environmental Impact Assessment of MDK Technical Support Documentation 4 Existing Slime Pond, August 199712. Environmental Impact Assessment of MDK Technical Support Documentation 5 Fayalite Tailings Disposal, August 1997,13. Environmental Impact Assessment of MDK Technical Support Documentation 6 Old Slag Dump Rehabilitation, August 1997,14. Environmental Impact Assessment of MDK Technical Support Documentation 7 Results of Drilling and Chemical Testing, August 1997,15. Umicore Med, Company Profile 200216. The Site Clean-project at Union Miniere Pirdop Copper Partnership for success, 199917. Umicore Environment & Safety Report: On the Road to Sustainable Development, 200018. Review of the Past Environmental Damage Mitigation Plan for the MDK Pirdop Copper Smelter, Draft Report prepared by the World Bank in cooperation with the Government of Bulgaria, August 199719. ECA's Experience in Addressing Environmental Liabilities to Facilitate Privatization: Lessons Learned from the Bulgaria Environmental Remediation Pilot Project-Presentation to World Bank staff20. World Bank Support to Bulgaria’s National Trust-Eco Fund Bulgaria’s Debt-for-Environment Swap-Project Team Presentation to World Bank staff21. Closure of the Blue Lagoon Pirdop, Bulgaria: Approach and Lessons Learned – Stakeholder Workshop Presentation by Montgomery Watson, February 2003 22. Umicore in Bulgaria - A Strategic Partner for Success-Presentation by Umicore Med, Stakeholder Workshop February 200323. Environment and Privatization: Bulgaria’s Experience in Dealing with Environmental LiabilitiesWorld Bank Presentation at Implementation Completion Stakeholder Workshop, February 2003

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Annex 8. Beneficiary Survey Results

In February 2003, the Agency for Social Analyses (ASA) Bulgaria conducted a beneficiary survey for the project Implementation Completion Report upon the request of the Government and the Bank. The purpose of the survey was to assess beneficiaries’ and stakeholders’ perceptions towards the ERPP, its achievements both in terms of protecting and enhancing the environment, as well as facilitating structural reforms and private sector development. The full text of the survey is available on file.

The objectives of the survey were to:

identify the major environmental issues in the region of Pirdop and Zlatiza and how these are ranked by lthe local population among other social and economic problems.assess local people’s perceptions of project achievements and obtain feedback on thier views on the lproject impacts for improving local environmental conditions evaluate the environmental commitment of UM-MDK management and the existing labor conditions lfollowing the privatization of the plant obtain ideas and recommendations for project improvementl

The survey methodology includes both qualitative and quantitative surveys targeting project beneficiaries. The qualitative survey includes interviews with focus groups of local people from different socio-demographic groups (for testing the quantitative research instrument), as well as in-depth face to face interviews with representatives of central and local governments, policy and opinion makers, MDK-UM’s management, NGOs and Trade Unions. The quantitative survey comprises a representative survey of the adult population in the region based on a two-stage random sampling method for selecting the respondents. At the first stage, locations were selected and at the second stage, the number of respondents was determined (N=300) and selected on the basis of the Leslie Kish’s scheme. Face to face individual interviews were carried out. Data was processed by the SPSS for Windows.

The main findings of the qualitative research are as follows:

Figure 1. Awareness of the project among local people in Pirdop and Zlatitza

Personal involvement1%

Yes81%

No18%

Stakeholders’ evaluation of the ERPP at central level.

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The representatives from central government and Trade Unions share a common view of the ERPP as being “a unique project for Bulgaria”. They noted that the project is a pioneer in establishing new Government policies for remediation of past environmental damages. They confirmed that the project was successful in achieving its objectives. Furthermore, a large share of the respondents noted that the project established a sound basis for inter-institutional coordination, which is an important accomplishment, emphasizing that “without the active cooperation of all the partners, it would be impossible to achieve these results”. The ERPP is considered a good example of an effective approach for achieving sustainable results in environmental protection. In their opinion the ERPP contributed to the successful privatization of MDK and fully addressed the issues of environmental safety risks. According to them, the project succeeded in putting in place a monitoring system to prevent further contamination of groundwater resources and contributed to improving regional development prospects. They believe that the construction of the wastewater treatment plant once completed will completely address water pollution issues. The general conclusion from this segment of the stakeholders is that the ERPP established a working model for addressing historical pollution and facilitated the process of privatization and should be implemented in other industrial enterprises.

Stakeholders’ evaluations at local level.

The other segment of stakeholders included local authorities, opinion-makers and UM-MDK's management. They expressed strong appreciation of the positive effect of the project. They are convinced that it greatly contributed to putting in place a framework for compliance with environmental, health and safety requirements in future operation of the plant. Similarly the encapsulation of the slime pond - the “Blue Lagoon”- is considered the most remarkable and worthwhile project outcome. Other activities of the project were also praised highly. The environmental monitoring and information system was pointed out as beneficial and necessary for the region, and as noted: "it filled a significant gap in providing environmental information to the public". Some local people however, were sceptical about the accuracy of emissions displayed on the information boards, which is not surprising given the decades of non-transparency and lack of adequate information on the local environmental conditions. All interviewees highlighted the good cooperation established between local authorities and UM-MDK after the privatization and its contribution to environmental protection in the region. A certain criticism, shared by some local policy and opinion makers refers to the “import of the work force” as a source of social tension in a region where unemployment rate is still high, although still among the lowest in the country.

Table 1. Evaluation of the main project activities

1

Extremely good

2 3 4 5

Not good at all

Average evaluati

on*

Closure of the “Blue Lagoon”

57.5 33.7 7.7 1.1 0 1.52

Establishment of Environmental Monitoring System

49.4 37.8 11.6 1.1 0 1.64

Construction of a Wastewater Treatment Plant

15.4 39.4 18.3 11.4 15.4 2.72

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*Values closer to 1 stand for “Extremely good,” those closer to 5 – “Not good at all.”

A summary of the main findings of the quantitative survey follows:

• Local people are very sensitive and concerned about environmental issues in the region. The project's contribution to establishing a sound monitoring system is highly appreciated which will allow local people to be better informed than before.• The project is well-known and people from all socio-demographic groups highly appreciate the remediation of past environmental damages, particularly, the improvement of environmental conditions in terms of air quality. Interestingly, the process of natural regeneration of vegetation and fauna in the region observed during the last couple of years, is attributed to the project which raises a lot of hope and positive perception by the local people.• Local communities consider the transformation of the “Blue Lagoon” into a “Green Hill” as one of the most significant project achievements. The other very important project outcome is the monitoring system and public display of emissions. For a large part of the population (40%) this is the main source of information about the environmental situation in the area. • After it privatization, UM-MDK is perceived as better managed and effectively protecting the environment. People’s views are that the new owners of MDK are even more concerned about the environment then local authorities.• The prevailing opinion is that governmental institutions at central and local levels are the ones mainly responsible for ensuring environmental protection. However, there are views that protection of the environment is a shared responsibility of all institutions, businesses and civil society.• Local people still feel isolated from policy-making processes related to environmental issues in the region. This applies to both environmental protection activities and prevention of environmental disasters. From this stems the recommendation that local community’s participation in environmental policy issues needs to be enhanced.

In sum, the public perception of the ERPP’s benefits could be thus summarized on the basis of beneficiaries’ feedback:

1. The project has significantly contributed to improve the quality of environment in the region of Pirdop and Zlatiza, by reducing the most critical environmental hazards in the air, waters and soils caused by past pollutions and unsafe environmental management practices at MDK Cooper Smelter.2. The project has considerably improved access to environmental information of local communities and decreased the social tension provoked by the past informational eclipse and also by the dangerously polluted environment.3. The project has also been successful in improving the operation and environmental performance of MDK, reducing health risks of workers and population caused by historical pollution and in general, establishing a model for sustainable development in the region.

“The “Blue lagoon” is a wealth for the generations to come. No one believed that the lagoon would be filled in. Little by little, however, with their activity they (referring to authorities and new owners) convince people that the necessary things are done, as all over the world. These conflicts have already been resolved and the waste depot and other things do not cause fears among people anymore.”

Representative of the “Zlatiza-Pirdop Valley” NGO

“Personally for me everything has changed for good in the last years. I give one example only.

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Since the time of my grandfathers, my family has been honey-producers. Hence, we have beehives in the near mountains, but because they were ravaged several times, we took them back and put them in the gardens. If bees continue living and producing honey – then it is clean. Bees are one of the best indicators in this respect. The green vegetation has come into leaves.”

Head physician of the Medical Center of Pirdop

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Annex 9. Stakeholder Workshop Results

The workshop was held in Sofia on February 21, 2003. It was well attended and well represented by different government agencies, NGOs, local municipalities and the private sector. The list of participants included:

1. Adriana Damianova, World Bank2. Alexander Gargov, State Expert, Ministry of Finance3. Anelia Stefanova, EA “Za Zemaiata” (For the Earth)/Bankwatch4. Angel Andreevski, Journalist5. Anna Georgieva, World Bank6. Bernard Baratz, World Bank7. Blaga Djourdjin, World Bank8. Christo Simeonov, Chief Expert, Ministry of Economy, Sofia9. Daniela Simeonova, Program Director, Bulgaria Economic Forum10. Diana Dimitrova, PR Sector Head, MOEW11. Dimitar Avramov, Senior Expert, Agency for Post Privatization Control 12. Dimitar Nenkov, Director, National Trust Eco-Fund (NTEF), Sofia13. Dimitar Peichev, National Assembly14. Dimitar Petrov, VADIMA15. Dimiter Popov, Managing Director, SRK (GB) Energoproject16. Djevdet Chakarov, Chairman, Committee on Enviornment and Waters, National Assembly17. Ekaterina Manolova, Oversight Committee Chairman Chief Expert18. Eli Zgurovska - Environmental Assessment Officer19. Gaspard Devos, Environmental Projects Manager UMICORE20. Gayane Minasyan, World Bank21. Georgi Nikolov, Director Legal Affairs, UMICORE22. Gergana Blagieva, Director, Regional Inpectorate of Environment and Waters, MOEW23. Gergana Slavkova, Agency for Post Privatization Control24. Grazia Atanasio, World Bank25. Guy Ethier, Vice President, UMICORE26. Hristo Mihailov, Chief Accountant, NTEF, Sofia27. Isabela Velkova, Banker28 Ivailo Chotov, Head of Tailings Ponds Division, Energoproject29 Ivailo Tzekov, Expert Financial Analysis and Accounting, NTEF30. Ivelina Shopova31. Jacques Tack, Senior Mining Advisor, UMICORE32. Johan de Fraye, Principal Environmental Geologist, Montgomery Watson Harza (MWH)33. Kemelia Ivanova, Senior Expert, European Integration and Relations with IFIs, Council of Ministers34. Kirko Kirkov, Executive Director, Umicore Med35. Manoela Georgieva, Deputy Minister and Chairman of the Oversight Committee, MOEW36. Maria Dimitrova, Bulgarian National Radio37 Maria Minkova, Procurement Expert, NTEF38 Maria Raleva, Expert Environmental Projects, NTEF39 Marieta Stoimenova, PIU, Wetlands Restoration Project, MOEW40. Martin Dimov, Agency for Social Analyses41. Maya Kalpachka, Bulgarian Telegraph Agency 42. Milena Chervenova, Editor, The City Newspaper

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43. Jeremy Cooper, Ernst&Young44. Natalia Semkova, Chief Editor, Media Internet 45. Nedeltcho Bonev, Executive Director, MWH, Sofia46. Oscar de Bruyn Kops, World Bank48. Petar Jordanov, Manager Environmental Department, UMICORE49. Petko Kovatchev, Centre for Environmental Information and Education/Bankwatch50. Polina Radeva, Agency for Social Analyses51. Prof. Emil Marinov, Institute for Agriculture52. Radislav Ivanov, Chief Technical Expert, NTEF53. Radostina Bilyarska, Bulgaria National Radio Horizont54. Reneta Petrova, Vice President, Trade Union Metalicy55. Rossen Stefanov Papazov, World Bank56. Sergei Andreev, Senior Project Engineer, MWH57. Sergei Andreev, Waste Water Treatment and Environment Specialist, MWH58. Sophia Kassidova, Deputy Minister, Minister of Economy, Sofia 59. Stefan Popov, Mayor Zlatitza Municipality60. Svetlana Yankova, Program Coordinator, Ecology with no Boundaries Foundation61. Toma Belev, Green Balkans Federation, Sofia62. Vania Grigorova, Director Preventive Activities, Air Protection and Waste Management, MOEW63. Velislava Ivanova, Senior Environment Scientist, MWH64. Vessela Yaneva, Pari65. Vassil Yanachkov, Metalicy Trade Union The workshop provided an opportunity to a) assess the achievements of the projects objectives; b)analyze lessons learned, and c) discuss possible improvements for future operations.

The participants in the workshop shared the experience of the Environmental Remediation Pilot Project and pointed out that it has been satisfactory and stands as a model for addressing past environmental damages and environmental liabilities in the process of privatization. The representative of the Ministry of Environment, Deputy Minister M. Georgieva, made an opening statement noting that the learning experience of the ERPP proved there was a need for establishing the legal and regulatory framework for addressing environmental liabilities issues during privatization on a larger scale. The Deputy Minister of Environment pointed out that the approach developed under the ERPP is being extended and applied broadly in the privatization of state enterprises. While the Government recognized that it was costly, it acknowledged it was ready to face the challenge of remediation of historical pollution for the purposes of complying with EU environmental acquis.

The Bank team presented the pilot project in the broader context of the Bank portfolio under implementation and support to the GOB’s efforts for eliminating policy and regulatory roadblocks and reach agreements on corporate environmental compliance and improved investment climate. The project established a mechanism for private-public partnership in tackling environmental problems in privatization and post-privatization period and set up the stage for preparation of the follow-up EPSAL which replicated on a larger scale, the approach piloted under ERPP. Furthermore, the Bank presentation focused on the project contribution for developing an institutional framework and government capacity to deal with environmental liabilities without the Bank's assistance.

The participants representing the public sector shared the following lessons learned in applying the project approach:• the identification of environmental problems should start at the outset of the privatization process;

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• detailed information on enterprise environmental performance is key and should be included in privatization documents;• involvement of all stakeholders in the process is critical;• corporate businesses act in a more responsible manner to social and environmental issues;• the approach facilitates effective collaboration and public-private partnership for environmental management as well as transparency and information sharing on corporate environmental performance.

From the point of view of UM-MDK and contractors from MWH, both representing the private sector, the lessons learned and key factors for the success of the project included:• the continuity in project team as well as the role of a professional Bank team which was extremely helpful throughout the project; • the NTEF was very effective as an implementation agent and main coordinator with the Government and the Bank;• permanent support and synergy from Umicore Corporate, Belgium, was an important element of the whole process;• the development of a transparent communication policy was essential in gaining public support to an operation that was not well understood and even suspiciously regarded in the beginning. (Note: UM-MDK elaborated a comprehensive communication strategy which involved several outreach activities such as monthly progress reports; on-line environmental monitoring displays installed in Pirdop and Zlatitsa; open plant events and demonstrations organized on completion of major stages of rehabilitation program; field visits for NGOs; press releases to local and national media; information campaigns and public hearings on environmental impact of major projects and regular meetings with municipal authorities.) • external consultancy was limited and involvement of local employment and subcontracting was key to increasing local capacity.

In the context of its presentation regarding the company's corporate and social responsibility approach, UMICOR declared safety at the work place to be an unconditional priority for the company, including providing health services to workers and contributing to a series of municipal projects targeted towards sustainable community development (such as, energy efficient street lighting, hospital rehabilitation, nurseries and library heating renovation, water supply renewal river bed reinforcement, sports stadium renewal, summer camps for children.)

It was concluded that the project acted as a pilot for UMICOR’s world wide operations, and the company intends to apply this experience elsewhere. At the same time other industrial facilities in Bulgaria are seeking guidance from UM-MDK regarding their experience in dealing with historical pollution issues. On the other end, UM-MDK complained about the project being split in too many sub-projects, contracted separately and involving a great deal of time and effort; the lengthy procedures on technical and financial review; the lack of a provision for quick release of funds in case of urgent action; the underestimation in the initial stage of services, design and supervision activities; the changes in national legislation and the heavy bureaucratic apparatus of the country.

Throughout the discussions, participants emphasized the problems associated with the cumbersome procedures required by procurement, as well as their concerns on the organization and funding of the “After Care” Program. In particular, MWH pointed out that given the high degree of uncertainty governing remediation of pollution there is need for a flexible approach, since changes will present themselves only while performing remediation. They criticized as inadequate to the circumstances the procurement rule on conflict of interest according to which the consultant making the assessment must be different from the

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contractor performing the work. They suggested some proposals, including a design/build formula so that investigation work can be combined with remediation work, target costing, partnering and simpler procedures. However, they praised the project for being within budget, on schedule and contributing to the knowledge transfer to local contractors.

All participants appreciated the Government’s efforts to incorporate environmental concerns into the structural reform agenda and demonstrate responsiveness to investor’s and public concerns of environmental hazards were appreciated. The deficiencies that were pointed out and the comments made by project counterparts in the project will be helpful for improving and reorienting activities under the EPSAL and future projects. Concluding they agreed that Bulgaria has to build on the achievements scored so far in order to move forward towards sustainable development.

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Additional Annex 10. Environmental Objectives

Objectives and Degree to Which They Were Achieved:

The Bulgaria Environmental Strategy Study-Update and Follow up (1994) found that most serious environmental problems are concentrated in "hot spots" with historical pollution from heavy industries. The ERPP project was designed to address these issues in the MDK Pirdop Copper Smelter. The project was a pilot for establishing a model for a more effective system of environmental management for privatized heavy polluting industries. The main focus of the remediation program was to ensure that possible adverse environmental effects from historical environmental damages would be prevented. Thus, the main project objectives were by their very nature environmental. Specifically, these objectives were: (a) reducing environmental hazards caused by past pollution and unsafe environmental management practices at the Copper Smelter in Pirdop, and (b) contributing to improvements in plant environmental performance. Both these objectives were substantially achieved, as reflected in the evaluation of performance indicators (See Section 4 Achievement of Objectives and Output).

Rationale for the Rating:

The project objectives were consistent with the CAS objectives of improving environmental quality and reducing human exposure to specific pollutants linked to major industrial sources. The project specifically addressed these issues in the region of Pirdop and Zlatiza.

An Environmental Impact Assessment report (EIA) was prepared which identified measures necessary to minimize or eliminate environmental hazards associated with past practices of environmental mismanagement and mitigation and areas of existing operations which required upgrading to conform with best western practice and/or EU standards. On the basis of this EIA report, the Government of Bulgaria issued EIA Resolution No. 59-19 (1997) and subsequent amendments (VII-16/98 and IV-21/2000) which: (a) outlined necessary actions to be taken for remediation activities, (b) established a set of both interim and final standards for atmospheric emissions (sulfur dioxide and dust), and effluent discharges (pH, and arsenic) and (c) established a compliance schedule for all these activities.

Project implementation involved full participation of local governments, communities, and NGO through an intensive program of communications and disclosure conducted by UM-MDK.

Essentially all remediation actions have been successfully completed. The only remaining item is closure of the fayalite tailings ponds for which a contract was signed during preparation of this report. Closure of this fayalite site was delayed because of land acquisition and construction permitting difficulties for the new tailings pond site. A separate EA was conducted for the new fayalite tailings pond which was publicly discussed and approved by MOEW. As a result, the old tailings pond had to remain in use until land for the new site could be secured and construction completed. This has been done and the new tailings pond is in use. Operations at the old tailings pond ceased in September, 2002, and the only remaining activities are to encapsulate the old site and revegetate the area. Resources for the additional work are to be financed by Government from the Escrow Account established for the purpose of remediation programs at the outset of the project. The work is expected to be completed in late spring/early summer of this year, simply because revegetation activities can only be started in the spring.

A long term "After-care" program of maintenance, monitoring and emergency preparedness is currently being formulated by UM-MDK to ensure the site remediation program has and will continue to remain effective. Relative responsibilities for implementing this program are currently under discussion between

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the government and UM-MDK.

The compliance program is not part of the current project (See Annex 11). It is linked to compliance requirements as set forth in EIA Resolution No. 59-19 (1997) and subsequent amendments and is the responsibility of the new owners of the Copper Smelter. However, the new owners have acted with extreme due diligence: interim targets for water effluents (pH, arsenic) have been met, and interim emission targets have been substantially met for sulfur dioxide and dust. Furthermore, firm plans for compliance with final standards are in place.

Sustainability of the project outcomes is secured in several ways: (a) establishment of a regulatory framework and institutional mechanisms for accommodating environmental aspects for privatization (b) formulation of an "after care" program as an essential element of continued due diligence of remediated sites, (c) successful formulation of full scale adjustment operation (EPSAL) as a follow-up project, (d) additional industrial privatization operations not supported by World Bank operations have followed the paradigm developed, (e) the implementing agency (UM-MDK/ UMICOR/) is utilizing this experience with their other operations in developing countries world wide as well as sharing their experience with other industries in Bulgaria, and (f) technical expertise gained by local subcontractors in hazardous site remediation provided them with marketable skills which they can further exploit.

Environmental Assessment

In accordance with World Bank environmental policy (OD 4.01 Environmental Assessment) the project was assigned an environmental category rating of "A". Consequently an EIA report was prepared as described previously. Through the process of public disclosure and consultation, the EIA formed the basis of a government decree (EIA Resolution No. 59-19) which defined the environmental management plan for the copper smelter industrial facility at Pirdop. Unlike conventional projects, most significant impacts are not a result of the project but rather the basis of the projects' objectives. The project is in essence an environmental mitigation project for past damages. Implementation of the project provided valuable experience to the Ministries of Environment and Water, Finance, and Economy and local municipal governments in dealing with environmental aspects of industrial privatization. Finally, an "aftercare" program of maintenance, monitoring and emergency preparedness was made a requirement to ensure the remediation works performed remain effective indefinitely.

Unintended Environmental Effects/Impacts

There were no unintended effects either positive or negative. All positive effects were in accordance with overall objectives although technical approaches for several remediation sites (notably the slime pond or blue lagoon) had to be revised during implementation. No negative effects developed. All impacts were positive and in accordance with overall project objectives.

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Additional Annex 11. UM-MDK Compliance Program

Background

The privatization agreement between the Government of Bulgaria and the investor, Union Minier (hereafter referred to as UM-MDK and UMICOR after 2002) involved environmental due diligence for past damages (so called "pollution stocks") and current operations (so called "pollution flows"). Past damages were addressed under the remediation program as part of the government's responsibility. The program was supported in large measure (84 per cent) by the World Bank project. The compliance program is the responsibility of UM-MDK. Both the remediation program and the compliance program were implemented by UM-MDK. The compliance program cost is currently estimated at about US$150 million.

Consistency with Objectives

Although no physical components of the compliance program were financed by the Government or the World Bank, implementation of this program is consistent with the CAS objectives of:

protecting and enhancing the environmentlfacilitate structural reforms and private sector developmentlas well as the project development objective of:contributing to improvements in the environmental performance of the plant.l

Standards

EIA Resolution No. 59-19/ 1997 and subsequent amendments established the following performance criteria and compliance schedule for the production facility:

AIR: 120 meter stack (sulfuric acid plant)

Interim Norm: 10.4 kg SO2/ton H2SO4 producedFinal Norm: 2.6 kg SO2/ton H2SO4 produced (2003)

325 meter stack (smelting/refining)

YEAR DUST (mg/Nm3) SULFUR DIOXIDE (mg/Nm3)1999 (Interim) 200 30002000 (Interim) 150 15002001 (Interim) 150 15002002 (Interim) 150 15002003 (Bulgarian standard) 20 800

WATER:Interim Final

pH 6-9 6-9Arsenic (mg/liter)Daily Average - 0.5Daily Maximum 1.5 1.0Annual Average - 0.1

Compliance Program

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UM-MDK engaged the services of Lurgi GmBH (Frankfurt, Germany) with a performance contract to develop and implement the compliance program. Lurgi is a well known engineering firm with a long history of expertise in environmental management for both metallurgical and power industries. By February 2003, a substantial part of the contract with Lurgy GmBH was completed which resulted in improvement of environmental performance of the plant.

AIR:

Emissions from the sulfuric acid plant (120 meter stack) were reduced with the construction of one new sulfuric acid plant and upgrading of the existing plant. Currently, net emissions are 2.16 kg SO2/ton H2SO4 produced. Emissions from the smelting/refining operation are somewhat more complex since there are multiple sources. The compliance program to date consisted of: (a) upgrading the concentrate storage and handling facilities, (b) installing new steam dryers, (c) upgrading the converters with new more efficient hoods, new flux feed system, and (d) upgrading and adding fields to the electrostatic precipitators. To date, sulfur dioxide emissions have been reduced from 5031 mg/Nm3 (1999) to 1659 mg/Nm3 (2003) and dust emissions have been reduced from 345.7 mg/Nm3 (1999) to 130 mg/Nm3 (2003).

Primary emission sources have been controlled and remaining secondary emission sources should bring the enterprise into full compliance. However, identifying these sources has proved to be less than straightforward. The enterprise is initiating a program of monitoring to properly identify these sources, after which it will develop and implement an action plan to bring the plant into full compliance.

WATER

The major effluent discharge was from the "Blue Lagoon" which was acting as a holding/settling pond for various waste waters throughout the plant. This effluent was severely contaminated with heavy metals, notably arsenic. Since the "Blue Lagoon" was to be closed and the site rehabilitated under the remediation program, a temporary treatment plant (WWTP) was constructed to properly treat waste waters redirected from the lagoon and meet the interim standards. Initially, the plant experienced considerable difficulty in meeting the interim standards, because of the sporadic nature of the flow and wastewater composition (wastewater sources were not fully characterized). Over time, controlability and operability of the temporary plant improved, and the interim standards are now being satisfied in large measure. Since the beginning of 2000 there have been no deviations from the interim requirements for quantity of discharged water. Interim standards have been observed for the pH factor, regularly maintained within the limit 6.0-9.0. Annual and daily average, and maximum daily norms for arsenic content were largely observed. Some minor deviations were occasionally registered and monitored closely. Measures for improvement of the surface water management are under way, which is belived to be the cause of the occasional deviations. However, the final effluent standards are exceedingly stringent and require the construction of a state-of-the-art system. The annual average discharge standard of 0.1 mg/liter for arsenic proved to be a difficult design parameter. Nonetheless, the design of the new WWTP has been completed, detailed engineering is underway and UM-MDK anticipates its full operation by the end of 2003 which will help them to achieve full compliance of current standards.

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