Murmansk Water and Wastewater Improvement Project

cancelled

The EBRD is considering financing construction, rehabilitation, upgrade of water supply and wastewater infrastructure in the City of Murmansk within the Murmansk Oblast. The priority investments to be financed by EBRD will be defined by consultants in a feasibility study. Transition impact is expected to be achieved through: Development and implementation of an Environmental and Social Action Plan (ESAP) which will significantly improve the Company’s environmental management and overall performance. “Murmanskvodokanal” MUE (the “Company”), a company providing water and wastewater services to both residential and industrial customers in the City of Murmansk and 7 neighbouring settlements and wholly owned by the Murmansk Oblast. Senior corporate loan to the Company of up to RUB 650 million (equivalent of around EUR 14.5 million), guaranteed by the Murmansk Oblast. Up to RUB 1 090 million. Categorised B in accordance with EBRD's 2008 Environmental and Social Policy. An Environmental and Social Audit of the Company's current EHSS management practices, operations and facilities, and an Environmental Analysis of the proposed investment project were carried out by independent consultants. The due diligence confirmed that the Project will significantly improve drinking water quality, efficiency of the water treatment and wastewater collection services, and reduce untreated wastewater discharges into the Kola Bay and the Barents Sea, thus reducing environmental and public health risks. Any adverse future environmental and social impacts associated with the Project would be site-specific and readily addressed through adequate mitigation measures. The investigations showed that the Company's facilities are currently in poor operating condition resulting in unreliable water supply, inefficient use of water and energy resources and discharge of untreated waste water to the Kola Bay. The implementation of the PIP is therefore anticipated to significantly improve availability and quality of drinking water, reduce water loss by 1,500,000 m3 per annum and improve water supply reliability, improve wastewater collection and reduce untreated wastewater discharges from 82% to 25%, reduce risks of soil and groundwater contamination and result in substantial overall energy savings of 2255 MWh per annum. The total BOD5 load to the Bay is anticipated to decrease by approximately 30 %, while estimated nutrient (phosphorus and nitrogen) load reduction is 15–20 %. The quality of drinking water supplied by the Company  does currently not meet the standards set in the EU Directive on the quality of water intended for human consumption (Council Directive 98/83/EC). Implementation of PIP will address improvements in the Tuloma and Kola water treatment plants and in poor water distribution network, thus bringing the drinking water quality into compliance with Russian requirements and EU standards. However, the wastewater quality will not meet the Russian and EU requirements for urban wastewater treatment (Council Directive 91/271/EEC), since the implementation of PIP will not improve the performance of the Northern WWTP. Also, current sludge management and disposal practice at Northern WWTP does not comply with national and EU requirements. It is estimated that full compliance of Murmansk Vodokanal's water and wastewater related operations with the EU requirements would require investments of about EUR 200 million in total, including about EUR 75 million in biological wastewater treatment (secondary treatment). Therefore, on account of constraints arising from affordability and limited financial resources, neither the investment components nor the ESAP will allow for the Company's wastewater treatment and sludge management operations to achieve full compliance with applicable EU standards. Derogation from the EBRD’s Environmental and Social Policy is therefore required. According to the ESDD report, the project will, however, have a significant positive impact on the environment despite the project not being able to achieve full EU compliance in the short term. In addition untreated wastewater will continue to be discharged to the marine environment. The human health implications of the shortfalls from EU standards are assessed to be negligible as the Company's wastewater discharge points are located downstream the water intakes and therefore do not pose health risks to the community. The implementation of PIP involves construction works that will result in limited, localised and short-term adverse environmental impacts, which can be mitigated or prevented by adhering to good construction practice. The planned tariff increases are expected to affect the lower income households, however, the associated grant components and subsidies will mitigate and address affordability constraints. An Environmental and Social Action Plan (ESAP) has been developed to provide measures for mitigating the expected impacts at both the project preparation and implementation stages and to bring the Project in compliance with the Bank's requirements. The ESAP includes measures for the Company to further develop, improve and implement such areas as EHSS management system, obtaining the necessary permits in line with national requirements, contractors' EHSS management and performance monitoring practices; a plan for sludge disposal according to Russian requirements and acquiring necessary permits for it; emergency preparedness and response; developing appropriate land acquisition and compensation procedures in case of physical or economic displacement; a grievance mechanism for workers and stakeholders; meaningful consultation with and assistance to people adversely affected by the project, including implementation of a Stakeholder Engagement Plan (SEP) prior to the start of construction works. ESAP and SEP have been agreed with the Client and will be implemented during the Project. The Client will provide the Bank with annual environmental and social reports, including updates on the implementation of the ESAP. The Bank will commission a completion audit and may also conduct monitoring visits, as required. Grant funds will be sought for: