FIN 650: Project Appraisal

Lecture 10

Environmental Appraisal of Projects
Environmental Appraisal
Environmental appraisal is the term used to
describe the assessment of the environmental
consequences of proposed policies, plans,
programs, or projects.
The objective of environmental appraisal is to
determine and evaluate the environmental
implications of development and thus, ensuring
sustainable development through the integration
of environmental, social and economic objectives
into the policy and planning process.
Both Environmental Impact Assessment (EIA)
and Strategic Environmental Assessment (SEA)
are tools which can assist in the achievement of
sustainable development and sustainable use of
resources.
Environmental Parameters
Environmental parameters consist of
components of environment and can be
grouped into major components.
Ecology
Aquatic Terrestrial
Fisheries
Eutrophication
Aquatic Weeds
Species Diversity
Endangered Species
Forest
Wildlife
Species Diversity
Endangered Species

Physico-Chemical
Land
Groundwater
Erosion and Siltation
Backwater Effect
Bank Stability
Drainage
Soil characteristics
Regional Hydrology
Recharge
Water Table
Water Pollution
Surface Water Atmosphere
Regional Hydrology
Silt Load
Water Pollution
Air Pollution
Dust Pollution
Noise Pollution
Human Interest
Aesthetic
Socio-Economic
Diseases
Sanitation
Nutrition
Land Loss
Crop Production
Aquaculture
Irrigation
Navigation
Flood Control
Transport
Re-settlement
Employment
Agro-Industrial
Health
Landscape
Recreation

Types of Impacts & Their Attributes
Ecological Impact: Road Project
Fisheries:
(-) Roads prevent longitudinal and lateral
migration of fishes in the flood plain
(-) Obstruct movement of fishes onto natural
feeding and breeding grounds in the flood
plain.
Forest:
(-) Roads running through forest area and
plantations may be the cause of destruction of
trees in the forest and alteration of ecology of
the forest
Ecological Impact: Road Project
Plantation:
(+) The roadsides may be used for plantation
of trees which is favorable impact of road
construction.
Wetland and Wetland Habitant:
(-) The road may encroach wetlands which
may alter the ecology of wetlands and may
cause destruction of wetland habitat.
Nuisance Plant/Eutrophication:
(-) The Roads running through forest area and
plantations may be the cause of destruction of
trees in the forest and alteration of ecology of
the forest.

Physico-Chemical Impact: Road Project
Erosion and Siltation
(-) causes erosion during flood and siltation in
the downstream.
Drainage Congestion /Water logging
(-) roads interfere with cross drainage and can
cause flooding or drainage congestion in
adjacent areas during periods of high
precipitation.
(-) May cause crop damage, water pollution
and breeding of mosquitoes.

Physico-Chemical Impact: Road Project
Regional Hydrology/Flooding
(-) Roads constructed across flood plains
perpendicular to the direction of water flow
cause back water effect and increase duration,
frequency and extent of flooding in the up
stream.
Obstruction to Waste water flow
(-) Roads may obstruct the drainage of sewage
and industrial waste water loading to serious
pollution problem.
Dust /Noise Pollution
(-) Dust raised from unpaved rural roads and
blown by the vehicles can pose a health hazard
and damage vegetation along the sides of the
road.
Impact on Human Interest: Road Project
Loss of Agricultural Lands
(-) Construction of any road is associated with
the loss of agricultural lands.
Generation of Employment Opportunities
(+) Construction of road generates temporary
employment during project implementation
and permanent employment during
maintenance phase.
Navigation and Boat Communication
(-) Roads interference with navigation and
boat communication at least for certain period
of the year.

Impact on Human Interest: Road Project
Commercial and Service Facilities
(+) The thana roads provide benefit of fast
communication, transport facilities etc.
Industrial Activities
(+) Road communication promotes industrial
activities.
Irrigation Facilities
(+) Borrow-pits by the side of the roads
provide facility for small scale irrigation.
Landscape
(-) Scattered borrow pits, unauthorized growth
around road , erosion result in marred
landscape.

Adverse Environmental
Impacts and Mitigation
Measures
Environment
al Event
Action Impact Mitigation Measures
Loss Fish
Breeding
Loss of breading,
nursery and feeding
ground in flood plain.
Reduction in fish
protein
consumption.
Unemployment of
fisherman.
Allow controlled flooding.
Compensate the loss by fish
culture.
Obstruction
to Fish
Obstruction to
mitigation of fish.
Same Provide adequate opening in
roads and embankments along
routes of fish migration.
Pesticide Reproduction failure
and destruction of
fish by uncontrolled
use of pesticide.
Same Adopt Integrated Pest
Management (IPM) for pest
control.
Prevent Drainage from
agriculture land from
reaching water bodies.
Drying
Wetland
Drying up of the
wetlands for
agriculture purpose
and destruction of
habitat for fish, birds,
amphibians etc.
Reduction in fishery.
Elimination of
species of fish,
birds, amphibians
etc.
Disruption of
wetland ecology.
Avoid complete drying up of
wetlands and swamp land.
Restore alternative habitat
for endangered species.
Environment
al Event
Action Impact Mitigation Measures
Cutting
Trees
Clearing of forest
lands and cutting of
trees within the
right-of-way of the
road.
Reduction if forest
cover.
Reduction in forest
products.
Disruption of forest
ecology.
Find alternative route to avoid
forest through planning
exercise.
Replace the trees by plantation
along road sides.
Nuisance
Plants
Spreading of
nuisance plants from
borrow pit.
Damage crops during
flood.
Incorporate destruction of
such plants in maintenance
program.
Convert the plants into a
compost for application as a
soil conditioner/manure.
Pollution
from
Drainage
Discharge nutrient
enriched agricultural
land drainage in
surface water.
Causes
eutrophication and
surface water
pollution.
Makes the water
unsuitable for
beneficial uses.
Destroys aquatic
environment.
Prevent agricultural land drainage
from reaching surface water.
Water
Pollution
Reaching residues of
pesticides in surface
and groundwater
from agricultural
lands.
Cause water
pollution.
Contaminates
sources of water
supply.
Pesticides residues
accumulate in bio-
mass.
Reduce use of pesticides
through IPM.
Prevent agricultural land
drainage from reaching
surface water.
Environment
al Event
Action Impact Mitigation Measures
Erosion and
Siltation
Erosion of road and
embankment
surfaces and sides,
road openings, bed
and banks of
rivers/canals
subsequent siltation
in downstream.
Cause damage to
road and
embankment.
Affect stability of
road/embankment
and their
structures.
Increases turbidity
of water.
Siltation of canal
bed and agricultural
lands.
Select appropriate soil for road
and embankment construction.
Compact the road materials
properly.
Provide proper slope for surface
drainage and vegetation cover.
Provide adequate opening for
discharge of flood and
accumulated rain water.
Drainage
Congestions
or Water
Logging
Drainage congestion
and water logging.
Crop Damage and
loss of agricultural
lands.
Cause water
pollution.
Provide ground for
mosquito breeding.
Provide adequate opening for
drainage.
Provide facilities for pumping of
congested water.
Regional
Hydrology
Disruption of
regional
hydrology
through
obstruction of
flood flow.
Back water
effects due to
constructions
across flood
plains.
Increase duration,
severity and
frequency of flood.
Changes flooding
pattern and ground
water recharge.
Avoid road construction across
the flood plain in the direction
perpendicular to flood flow.
Provide adequate opening for
flood flow. Environment
al Event
Action Impact Mitigation Measures
Backflow Backflow of water
through drainage
canals.
Causes early flooding. Install regulator to control inflow and
outflow through drainage canal.
Obstruction
to Waste
Water
Obstruction to
waste water flow by
roads and
embankments.
Creates water
pollution.
Deteriorates quality
of environment.
Provide drainage structure.
Install pumping facilities.
Install treatment plant for waste
water treatment.
Dust Blowing Dust blowing from
unpaved roads
during construction
and movement of
vehicles.
Health hazards due
to dust pollution.
Damage to
vegetation and
trees along the
road.
Control moisture content during
construction by watering.
Stabilize road surface with a
suitable stabilizer.
Increase vegetation cover on
road surface and slopes.
Polluted
Irrigation
Water
Use of irrigation
water with high and
imbalanced salt
content.
Increases soil
salinity and
alkanity/acidity.
Alteration of soil
texture and
permeability.
Affects soil fertility.
Use surface water where
available.
Conduct chemical analysis of
ground water before use and
select the aquifer producing good
quality water.
Determine salinity of surface
water in coastal areas before use
as irrigation water.
Contaminate
d Irrigation
Water
Use of irrigation
water with high
iron content.
Impart reddish color
to top soil.
Changes soil
texture and
permeability.
Look for an alternative water
source, the right strata producing
water with low iron content.
Detain the aerated water in a
reservoir canal before application
in the field.
Environment
al Event
Action Impact Mitigation Measures
Loss of Land Loss of
agricultural
land.
Deprives a group of
farmers of their means
of living.
Increases landlessness
in the area.
Reduces employment in
agriculture.
Affects agricultural
production.
Plan the project to avoid fertile
agricultural land.
Rehabilitate the affected people.
Generate employment
opportunities in other activities.
Obstruction
to
Navigation
Obstruction to
navigation
and plying of
boat.
Disruption of cheap
mode of transportation.
Adverse effects on
communication.
Provides openings at major routes
and construct road structures leaving
adequate clearance above high flood
level for plying of boats.
Land
Ownership
Pattern
Change in
land
ownership
pattern within
project area.
Inequitable distribution of
project benefits.
Regulation of land ownership transfer
in the project area.
Inadequate
Landscape
Inadequate
considerations
to land use
and
landscape.
Landscape disfiguration by
irregular borrow pits, deep
cuts, fills, unplanned
growth of shops, and other
services.
Replant disfigured surfaces.
Use a design to blend with
landscape.
Prevent unplanned construction
and unauthorized uses of roads
and embankments.
Importance of Environmental Assessment
Environmental Impact Assessment
Environmental Impact Assessment (EIA) is
defined as the process of evaluating the direct
and indirect environmental and social implications
of a proposed development project.

The International Association for Impact
Assessment (IAIA) defines an environmental
impact assessment as "the process of identifying,
predicting, evaluating and mitigating
the biophysical, social, and other relevant effects
of development proposals prior to major
decisions being taken and commitments made."
What is an Impact?
In Environmental Impact Assessment,
the term Impact is used instead of
Effect.
The Impact of an activity is a deviation (a
change) from the baseline situation that is
caused by the activity.
The Baseline Situation is the existing
environmental situation or condition in the
absence of the activity.
The Baseline Situation
Reasons for using EIA
EIA has been developed as a result of the
failure of traditional project appraisal
techniques to account for environmental
impacts.
Projects designed and constructed in
isolation from any consideration of their
impacts on the environment have resulted
in:
Higher costs,
Failure of projects,
Significant environmental change, and
Negative social effects
Essential Elements
Identification of possible positive or
negative impacts of the project.
Quantifying impacts with respect to
common base.
Preparation of mitigation plan to offset
the negative impacts.

Steps in the EIA Process
1. Screening-
Determination of the nature and
magnitude of the proposed projects
potential environmental and social
impacts.
Classification of EIAs.
Deciding upon the nature and extent of
the EIA to be carried out.
Classification of EIAs by Category
Full EIA required
Significant adverse impact: severe, irreversible and
diverse
Category
A
Full EIA not required, some environmental analysis is
necessary
Less significant impact: not as sensitive, numerous,
major or diverse
For irreversible impacts, remedial measures can be
more easily designed.
Category
B
No EIA or other environmental analysis is required
Negligible or minimal direct impact
Category
C
Steps in the EIA Process
2. Scoping-
Identification of key issues and development
of the Terms of Reference (TOR) for the EIA
once a project is categorized.
Defining the projects area of influence.
3. Impact Identification-
Projection of the future state of the valued
environmental and community resources
within the vicinity of the proposed project.
Formulation of a series of environmental
design objectives to aid both the EIA and
project design process.
Steps in the EIA Process
4. Impact Prediction-
Forecast of the potential effects in terms of-
Magnitude,
The affected feature/resource/population,
Action causing the effect,
Timescale and duration of the effect,
Level of uncertainty in the forecast,
Proposed mitigation/enhancement measures,
Significance
The effects must be recorded in terms of-
Short term /Long term
Direct/Indirect/Synergistic
Cumulative/Increase/Reduce with time
Steps in the EIA Process
5. Mitigation and Enhancement-
Identification of mitigation and enhancement
measures that reduces project costs and
community costs.
Measures should be capable of being
delivered in a cost effective manner.
6. Reporting-
The EIS should report the following-
Environmental objectives and policy context
Existing environmental situation
A description of the project
An assessment of the effects of the project
An environmental action plan or management plan
A summary of the effects and recommendations
Steps in the EIA Process
Environmental Management Plan (EMP)
An Environmental Management Plan (EMP) sets out the
actions for monitoring and evaluation of the project during
implementation or construction and operation. Its content
will include:
Mitigation measures to minimize adverse impacts
Measures to enhance environmental benefits
Identified risks and uncertainties
Institutional support required for effective monitoring
Monitoring and auditing program details
Environmental legislations and standards which apply
Resources, funds, contractual and management
arrangements
Steps in the EIA Process
Environmental Audit/ Evaluation
An environmental evaluation is increasingly
undertaken to-
confirm that the performance of the project
conforms to the specification and
environmental performance standards
specified in funding arrangements
examine the EMP and review the monitoring
data in order to reveal scope for improvements

Methods of Assessment
Environmental Impact Value





Vi = Relative change of the environmental quality
of parameters
Wi= Relative importance or weight or parameter
N = total number of environmental parameters

n
i
i i
W V EIV
1
) (
Quantification of Environmental Impact
Changes of environmental parameters
Severe (+5 or -5)
Higher (+4 or -4)
Moderate (+3 or -3)
Low (+2 or -2)
Very Low (+1 or -1)
No change (0)
0 1 2 3 4 5
No change
Very low
Low
Moderate
Higher
Severe
Relative importance of Environmental
Parameters
All parameters are not of equal
importance or weight.
It varies from country to country
In Bangladesh flood, employment,
agriculture, fisheries carry more
importance.
In next slide, a summary of relative
importance of parameters for a particular
Road project is presented.

ENVIRONMENTAL PARAMETERS Relative
Importanc
e Value
Degree of
Impact
EIV
I. ECOLOGICAL
Fisheries
Forest
Tree Plantation
Wetland/Wetland Habitant
Nuisance Plant/Eutrophication

II. PHYSICO-CHEMICAL
Erosion and Siltation
Regional Hydrology/Flooding
Drainage Congestion/Water logging
Obstruction to Waste Water Flow
Dust Pollution/Noise Pollution

10
5
2
4
1


2
6
5
3
2

-2
0
+1
0
-1


-1
-1
-1
0
0
-19






-13
ENVIRONMENTAL PARAMETERS Relative
Importan
ce Value
Degree
of Impact
EIV
III. HUMAN INTEREST
Loss of Agricultural Lands
Employment Opportunities
Navigation/Boat Communication
Commercial and Service Facilities
Industrial Activities
Irrigation Facilities
Landscape

Total Environmental Impact Value




8
8
3
6
3
2
2

+3
+4
-3
+3
+2
+3
-1
+27








-5
Potential Impacts on Environment
A change in system exerts certain
influence on many different environmental
parameters resulting a net positive or
negative impact on the environment.

Impact on major Infrastructure
development projects such as:
Road projects
Irrigation schemes
Drainage and embankment projects

Absence of Proper EIA
Equator Principles
The Equator Principle
The Equator Principles (EPs) are a credit risk
management framework for determining,
assessing and managing environmental and
social risk in project finance transactions.
The EPs are primarily intended to provide a
minimum standard for due diligence to
support responsible risk decision-making.
The EPs are based on the International
Finance Corporation (IFC) Performance
Standards on social and environmental
sustainability and on the World Bank Group
Environmental, Health, and Safety
Guidelines (EHS Guidelines)

Objective
THE EQUATOR PRINCIPLES PROVIDE A
FRAMEWORK FOR BANKS TO MANAGE
ENVIRONMENTAL AND SOCIAL ISSUES IN
PROJECT FINANCE.

Background
IFC asked to convene a meeting of banks to discuss the problem
(October 2002)
From denial to acceptance in a few hours
Working group formed to explore options
(ABN Amro, Barclays, Citigroup, WestLB, IFC)
Proposal presented (February 2003)
Consultations with clients and NGOs
Agreement to move to adoption and development of timetable
(April 2003)
June 4, 2003: 10 banks announce adoption of Equator Principles
at IFC headquarters, Washington, DC
First Released in 2003, subsequently revised in 2006
Adopted by over 40 Financing Institutions during a Three Year
Implementation Period.
The New Industry Standard
10 banks from 7 countries:
ABN AMRO, Barclays, Citigroup, Credit
Lyonnais, CSFB, HVB Group, Rabobank, Royal
Bank of Scotland, West LB, Westpac
10 more banks from 5 more countries
have joined:
ING, Royal Bank of Canada, MCC of Italy,
Dresdner,HSBC, Dexia, Standard Chartered,
Mizuho, KBC
20 Equator banks arranged over 78% of
project finance market through October
2003 (Dealogic ProjectWare).
More are coming!
Application
Projects with total capital cost of $50
million or more
All industries
Environmental risk categorization &
industry standards apply globally.
Safeguard Policies apply to low and middle
income countries (as defined by the World
Bank).

Project Categorization
PROJECT FINANCE: ASSESSMENT AND MANAGEMENT OF
SOCIAL AND ENVIRONMENTAL RISKS
Capacity: Training Available from IFC for
Equator Banks
Executive Briefing: Half day-analysis of
E&S risks, understanding of the Equator
framework.
Target Audience: Senior management and
those requiring a general awareness.
Equator Implementation for Project
Finance: Two days- program focused on
practical implementation-categorization,
client analysis, EA design.
Target Audience: Frontline PF staff responsible
for implementation.

Benefits of the Equator Principles
A global standard. Easier to navigate than the
multiple requirements currently in place.
Save borrowers time and money on sensitive
projects
Implementation is, over time, expected to raise
global environmental and social performance
Reduce loan-shopping based on
environmental and social criteria
Better information for banks to make decisions
Provide basis for stakeholder engagement
Expedite consensus-reaching among banks in
large loan syndications

Criticisms of the Equator Principles
Lack of proper enforcement, accountability and transparency
Prevalence of free-riders and hypocrisy
Policy vacuum amongst banks on vital EP issues
Limited awareness and training
Lack of expertise on social assessment
Lender knowingly permitting pollution
Lack of awareness as to who are the reputable experts in
these areas
Lack of objectivity on the part of sponsors and their
consultants and advisers in carrying out due diligence on
behalf of sponsors and lenders



Criticisms of the Equator Principles
Stabilisation clauses in host country and intergovernmental
agreements
Omission of differences in environmental, social and
governance standards
Circumvention of EP by using other forms of finance or self-
finance followed by general borrowing to meet general debt
or expenditure
Legal challenges in multiple legal forum: Human Rights
Commission, IFC CAO, national courts, US courts
Scope of EP is limited to project finance only