Donald M. Goldberg and David B. Hunter, Center for International Environmental Law

This approach suffers from several serious defects. First, some Bank documents, such as screening memoranda and environmental audits, contain relevant information that the public cannot obtain any other way. Second, reliance on Project Sponsors to provide "adequate" information is misplaced; Project Sponsors have demonstrated their reluctance to release information to the public. Third, what little information is provided to the public comes far too late in the project cycle for the public to participate effectively. Fourth, there is no requirement to release information about Category B projects, since EAs are only prepared for Category A projects. Finally, Project Sponsors in the region have little experience with public participation techniques and get practically no guidance from EBRD general directives.

The EBRD needs an information disclosure policy that, like the World Bank policy, presumes in favor of releasing all environmental information. All parties seeking Bank financing should understand this to be a requirement of the loan application. While some information may properly be considered confidential for reasons of national security or the protection of commercial trade secrets, there is no legitimate reason for the EBRD to withhold most environmental information from the public or to fail to provide such information in a timely manner ideally, as soon as it becomes available to the Bank.

The procedures should also put in place a public notification process, demand that Project Sponsors conduct public scoping on all projects that require an environmental analysis, and guarantee the public an opportunity to comment on a project at any point during the project cycle.

Three such points are very important: during scoping, upon release of the draft EA document, and between release of the final EA and the decision by the Board. The public's comments should be published in the EA report, and the project proponent should respond to all comments, either by modifying the EA or explaining why the comments do not justify changes in the EA.

Project Review: An Environmental "Veto"

The Bank conducts two reviews during which environmental information is discussed and projects can, in theory, be vetoed on environmental grounds. But the Bank's environmental staff can only make recommendations regarding projects with unacceptable environmental impacts. The ultimate decision lies with the Operations Committee, the President, or the Board of Directors.

The review process places considerable pressure on environmental staff. Even if they prevail throughout the first two levels of review, the decision to reject environmentally unsound projects is taken from them and given to the President, who is typically a banker not trained in sustainable development concerns. The environmental staff should be given veto power over projects that will result in a significant loss of environmental quality or will not promote sustainable development.

Procedures for Board Decisionmaking

The final decision of whether to proceed with a project rests with the Board of Directors. A cardinal rule of environmental assessment is that it must ensure all relevant environmental information is available to the decisionmaker, public officials, and citizens for a sufficient period of time before decisions are made and actions are taken. For that reason, U.S. law (the "Pelosi Amendment") prohibits the U.S. Board member from voting to approve any project that may have substantial environmental impacts unless an EA is available 120 days in advance of the vote. The EBRD clearly does not provide adequate time between the release of its EAs and submission of projects to the Board for approval. Bank staff have stated candidly that the EBRD disregards the Pelosi Amendment's 120-day requirement.

The Bank does not provide adequate time for review between the release of environmental assessments and submission of projects to the Board for approval.

Particularly troublesome is the possibility that the Directors may not always be given sufficient or accurate information from the staff. For example, the environmental staff submitted a document to the Directors just prior to the Board's decision to approve the controversial ZSNP loan. CIEL discovered that the document had been altered to downplay the environmental impacts of the project. Later communication with Bank staff revealed that while some alterations were unintentional, others were deliberate. It is impossible to know whether the misrepresentations in the document influenced the Board's decision to approve the project. Nevertheless, such alterations breach the trust placed in Bank staff by the Directors. Board Directors should guard against the presentation of misinformation, perhaps by instituting periodic, independent evaluations of summaries they receive.

The EBRD Operations Policies

The EBRD has developed policies to guide its operations in a number of sectors, including energy, transportation, agriculture, telecommunications, municipal development, and finances. With one notable exception, energy, these policies do not adequately address environmental issues.

Energy Operations Policy. Recently, the EBRD adopted a new energy operations policy that is much more detailed than previous versions on environmental issues and the actions the Bank will take to address those issues. The new policy, largely the result of prodding by U.S. Board Director James Scheuer, suggests that the Bank is beginning to take its environmental mandate more seriously. Conservation, energy efficiency, least-cost planning, integrated resource planning, and, to a lesser extent, development of renewable energy sources play prominent roles. Unfortunately, the policy fails to address global warming and other global environmental problems. While these may not be the highest priority concerns for the region's planners, they cannot be ignored; central and eastern European countries are major sources of greenhouse gases and other global pollutants.

Specifics about the Bank's energy lending are hard to come by, but a few observations are possible. EBRD-financed projects focus more on energy supply and supply-side efficiency than on demand-side efficiency. For every dollar the Bank has allocated to demand-side efficiency, it has allocated two and one-half dollars to supply-side efficiency and more than five and one-half dollars to non-efficiency investments. The renewable projects are mainly hydropower, although a small amount has been invested in geothermal. Of the more than $1.1 billion budgeted for total energy spending, less than $60,000 is for solar energy. No money has been budgeted for wind power.

Bank-financed projects focus on energy supply and supply-side efficiency rather than on demand-side efficiency; except for hydropower, the Bank has practically ignored renewable energy.

Nuclear Policy. The EBRD is a major player in determining the future of nuclear energy production in Central and Eastern Europe. In addition to its own lending activities, the Bank administers the Nuclear Safety Account established by the G-7 nations to help address serious safety risks at the region's most dangerous reactors. Given the Bank's pivotal role in nuclear issues, the energy operations policy pays surprisingly little attention to nuclear energy.

The EBRD needs to develop a much more detailed long-range nuclear policy. Currently, the Bank places too much emphasis on nuclear energy, in part, because it fails to consider all costs associated with nuclear power generation. Partially or substantially completed nuclear power reactors may seem like least-cost options if the potential costs of long-term storage of nuclear wastes and decommissioning of plants are disregarded. Add the potential costs of nuclear accidents and the uncertainty about who would, or could, pay for the damage, and the nuclear option becomes much more expensive.

Alternative energy sources should be evaluated as part of an integrated energy resource plan. As cost effective non-nuclear options are identified, and they undoubtedly will be, the Bank should promote them and move expeditiously to phase out existing nuclear plants as quickly as their energy can be replaced by efficiency, conservation, or safer supplies.

Transport Operations Policy. The Transport Operations Policy gives priority to projects that contribute to environmental protection while emphasizing balanced development of the transport system. The four modes of transport, road, rail, aviation, and shipping are expected to handle the traffic for which they are best suited; but the policy fails to consider the environmental advantages and disadvantages of those modes.

Theoretically, the Bank's preoccupation with internalizing external costs through fuel taxes or other user fees should help shift the demand away from automobiles to less environmentally damaging transport. But relying on cost internalization as the only method to address major environmental issues will have serious practical ramifications and lead to underutilization and underdevelopment of railroads and buses. In addition, the Bank's policy too readily dismisses intermodal approaches to developing transportation modes and ignores non-motorized transport (such as bicycles). Bank lending should favor public modes of transportation that are less destructive of the environment, including, where appropriate, government subsidies for public transportation.

Agricultural Operations Policy. The EBRD's Agricultural Operations Policy emphasizes the economic restructuring of agriculture and the development of physical and human resources to improve agricultural management. Although incidental environmental benefits will accrue from the restructuring, the policy makes few specific recommendations for furthering sustainable agricultural practices. Health concerns arising from contaminated agricultural products are given even less attention.

The Bank should show a preference for organic agricultural practices and other methods that reduce dependence on fertilizers and pesticides. Technical assistance should be targeted to eliminate those agricultural practices that are causing long-term environmental degradation for example, tilling practices that lead to soil erosion and pesticide usage that is responsible for widespread contamination in the region. Similarly, specific technical and financial assistance should be provided to develop a market for organic and other healthful agricultural products. This would include loans to organic farmers and assistance in building a demand for such products through education and research on the health impacts of agricultural chemicals.

The Bank should show a preference for organic agricultural practices and other methods that reduce dependence on fertilizers and pesticides.

Gaining Accountability: An Inspection Panel

While conducting research for this report particularly concerning loans for ZSNP and Mochovce, CIEL found that Bank policies and procedures were sometimes dismissed by Bank staff and Project Sponsors, especially when an argument could be made that immediate lending was important. There must be a mechanism to enforce Bank policies and procedures, to hold Bank management responsible and accountable for compliance with the procedures, and to empower citizens with a method to protect their own interests.

Concerns about accountability and responsibility prompted the World Bank to create an Inspection Panel last year (see CIEL BRIEF, April 1994). All regional banks, with the exception of the EBRD, are moving to create their own equivalents to the panel. The InterAmerican Development Bank recently announced the formation of an inspection mechanism, and both the African and Asian Development Banks are reviewing similar proposals.

Because of its commitments to democracy and sustainable development, the EBRD should go even farther than the World Bank. The EBRD should give its panel the power to review compliance, not only with its own policies and procedures, but with the goals of its charter and international legal norms. The EBRD panel should allow public disclosure and discussion of the panel's pending claims and recommendationsbefore the Board of Executive Directors makes its final decisions.

Its commitments to democracy and sustainable development demand that the EBRD establish an inspection panel making management accountable and allowing citizens to protect their interests.

The panel should be given clear authority to slow the project cycle when claims are pending and to make specific recommendations for remediation. And, the EBRD panel should be made independent of Bank staff accountable only to the Board of Directors and the public.

Conclusion

CIEL's study firmly establishes that criticisms by environmentalists of EBRD actions are on target. Regrettably, the Bank has failed to live up to its twin mandates promoting sustainable development and fostering democracy in Central and Eastern Europe.

To fulfill its commitment to sustainable development, the EBRD needs to revise its environmental and sector operations policies and integrate them into an overarching strategy for sustainable development. The EBRD also must develop criteria to ensure that each project it funds is consistent with the sustainable development policy and expand and stringently implement its procedures for environmental assessments.

To meet its commitment to democracy, the EBRD must substantially improve and strengthen its procedures for public participation and access to information. The Bank needs to develop an information disclosure policy that presumes all project-related information will be disclosed. The Bank should ensure that Project Sponsors adhere to requirements for public participation, including early notification about all projects, participation in scoping, and opportunities to comment on EAs at key points.

Finally, the EBRD needs to develop mechanisms to ensure that its policies and procedures are fully complied with and for holding the Bank accountable when compliance is not achieved. To this end, the EBRD should establish an Independent Inspection Panel modelled after the World Bank's Inspection Panel.

The EBRD plans to release new versions of its environmental policy and procedures in 1995. CIEL believes the analysis and recommendations stemming from its research will contribute to that effort and, ultimately, to sustainable development in Central and Eastern Europe.

CIEL urges the EBRD to consider the analysis and recommendations in our report as the Bank revises its environmental policy and procedures in 1995.