World Bank Documentdocuments.worldbank.org/.../pdf/multi-page.pdf · 2016-08-30 · Document of The World Bank Report No: 20718-LV PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN IN

Document of

The World Bank

Report No: 20718-LV

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED LOAN

IN THE AMOUNT OF US$ 2.22 MILLION

TO THE

REPUBLIC OF LATVIA

FOR

LIEPAJA REGION SOLID WASTE MANAGEMENT PROJECT

August 18, 2000

Environmentally and Socially Sustainable Development UnitEurope and Central Asia Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective 07/13/00)

Currency Unit = Latvian Lats (LVL)LVL I = US$ 1.67US$ I = LVL 0.6

FISCAL YEARJanuary I December 31

ABBREVIATIONS AND ACRONYMS

AUJ Activities Implemented JointlyBDP Business Development PlanBP Bank ProceduresCAS Country Assistance StrategyCDM Clean Development MechanismCH MethaneCIDA Canadian International Development AgencyCO Carbon DioxideCQ Selection based on Consultant's QualificationsDanish EPA Danish Environmental Protection AgencyEA Environmental AssessmentEC European CommunityECSSD Environmentally and Socially Sustainable Development UnitEEC European Economic CommunityEIA Environmental Impact AssessmentEIAB Environmental Impact Assessment BoardEIRR Economic Intemal Rate of ReturnENGO Environmental Non-Govemrnmental OrganizationENV Environment DepartmentERR Economic Rate of ReturnEU European UnionFIRR Financial Intemal Rate of RetumFMS Financial Management SystemFRR Financial Rate of RetumFY Fiscal YearGEF Global Environment FacilityGJ/ton Giga Joule per tonGOEs Government-Owned EnterprisesGOL Govemment of LatviaGOM Gross Operating MarginGWh Gigawatt hoursH&U Housing and Utilitiesha hectaresHFO Heavy Fuel OilIAS International Accounting Standards

Vice President: Johannes LinnCountry Manager/Director: Basil G. Kavalsky

Sector Manager/Director Kevin M. CleaverTask Team Leader/Task Manager: Anders 0. Halldin

IBRD International Bank for Reconstruction and DevelopmentICB International Competitive BiddingIDA International Development AssociationIFI International Financial InstitutionIS Intemational ShoppingJI Joint Implementationkg/rn kilograms per cubic meter

krnm square kilometersLACI Loan Administration Change InitiativeLCC Liepaja City CouncilLCS Least-Cost SelectionLDEMC Liepaja District Eco Holding CompanyLEL Liepaja Eco Ltd.LFG Landfill GasLOI Letter of InvitationLREB Liepaja Regional Environmental BoardLRP Liepaja Region CouncilLtd. limitedLVL Latvian LatsLWWC Liepaja Waste Water Companym metersm/sec meters per secondMOE Ministry of EconomyMOEPRD Ministry of Environmental Protection and Regional DevelopmentMOF Ministry of FinanceMW MegawattsN.B.F. Not Bank-FinancedNCB National Competitive BiddingNEPP National Environmental Policy PlanNGO Non-Governmental OrganizationNIB Nordic Investment BankNRT Natural Resources TaxNS National ShoppingNSWMS National Solid Waste Management StrategyO&M Operation and MaintenanceOP Operational ProceduresPAD Project Appraisal DocumentPCF Prototype Carbon FundPFS Project Financial StatementPIU Project Implementation UnitPMR Project Management ReportPPA Power Purchase AgreementPPR Project Progress ReportPSC Project Steering CommitteePSR Project Status ReportQBS Quality-Based SelectionQCBS Quality and Cost-Based SelectionSA Special Account

LATVIALIEPAJA REGION SOLID WASTE MANAGEMENT PROJECT

CONTENTS

A. Project Development Objective Page

1. Project development objective 32. Global objective 33. Key performanec indicators 3

B. Strategic Context

1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 32. Main sector issues and Government strategy 43. Sector issues to be addressed by the project and strategic choices 4

C. Project Description Summary

1. Project components 52. Key policy and institutional reforms supported by the project 73. Benefits and target population 84. Institutional and implementation arrangements 8

D. Project Rationale

1. Project alternatives considered and reasons for rejection 92. Major related projects financed by the Bank and other development agencies 103. Lessons learned and reflected in proposed project design 114. Indications of borrower commitment and ownership 125. Value added of Bank support in this project 12

E. Summary Project Analysis

1. Economic 122. Financial 133. Technical 154. Institutional 165. Environmental 176. Social 187. Safeguard Policies 20

F. Sustainability and Risks

1. Sustainability 202. Critical risks 22

3. Possible controversial aspects 23

G. Main 23 Conditions

1. Effectiveness Condition 232. Other 23

H. Readiness for Implementation 24

I. Compliance with Bank Policies 24

Annexes

Annex 1: Project Design Summary 25Annex 2: Project Description 29Annex 3: Estimated Project Costs 32Annex 4: Cost Benefit Analysis Summary 33Annex 5: Financial Summary 38Annex 6: Procurement and Disbursement Arrangements 66Annex 7: Project Processing Schedule 78Annex 8: Documents in the Project File 79Annex 9: Statement of Loans and Credits 80Annex 10: Country at a Glance 82Annex I 1: PCF Issues and Emission Reduction Estimate 84Annex 12: Financial Analysis 96Annex 13: Project Implementation Arrangements 108Annex 14: Affordability Analysis 122Annex 15: Public Attitudes and Social Issues 132Annex 16: Summary of Environmental Assessment 141Annex 17: Environmental Management Plan 148

MAP(S)IBRD 30849

LATVIA

Liepaja Region Solid Waste Management Project

Project Appraisal Document

Europe and Central Asia RegionECSSD

Date: March 30, 1999 Team Leader: Anders 0. HalldinCountry Manager/Director: Basil G. Kavalsky Sector Manager/Director: Kevin M. CleaverProject ID: P058476 Sector(s): VP - Pollution Control / Waste MfanagementLending Instrument: Specific Investment Loan (SIL) Theme(s):

Poverty Targeted Intervention: N

Global Supplemental ID: P058477 Team Leader: Anders 0. HalldinSector Manager/Director: Kevin M. Cleaver

Supplement FuHly Blended? TBD Sector(s): VP - Pollution Control / Waste Management

Project Financing DataM Loan El Credit O Grant D Guarantee O Other (Specify)Carbon Reduction Agreement with PCFFor LoanslCredits/Others:Amount (US$m): 2.22 (WB)

Proposed Terms: Fixed-Spread Loan (FSL)Grace period (years): 5 Years to maturity: 17Commitment fee: 0.75 Service charge: 0.50%Front end fee on Bank loan: 1.00%Financing Plan: Source Local Foreign TotalGOVERNMENT 2.81 0.00 2.81IBRD 2.22 0.00 2.22EUROPEAN COMMISSION (UNIDENTIFIED) 4.86 0.00 4.86LOCAL GOVTS. (PROV., DISTRICT, CITY) OF BORROWING 3.94 0.00 3.94COUNTRYNORDIC INVESTMENT BANK 1.49 0.00 1.49OTHER SOURCES (UNIDENTIFIED) 0.47 0.00 0.47SWEDISH INTERNATIONAL DEVELOPMENT AGENCY 1.18 0.00 1.18(SIDAI)

Total: 16.97 0.00 16.97

Borrower/Recipient: GOVERNMENT OF LATVIA

Responsible agency:Ministry of Environrmental Protection and Regional Development (MOEPRD)Address: Peldu iela 25, LV-1494 RigaContact Person: leva Saleniece, Liason OfficerTel: 371 7 026 431 Fax: 371 7 821 062 Email: [email protected]

Other Agency(ies):Liepaja City Council, (LCC)

Address: Rozu iela 6, LV 3401 LiepajaContact Person: Normnunds Niedols, Chairman of Bord of Directors, Liepajas RAS Ltd.Tel: 371 34 22331 Fax: 371 34 22331 Email: Dome(Dome.Liepaja.lvPIU, c/o Liepajas-Udens

Address: Kr. Valdemara iela 12, LV-3401 Liepaja/LATVIAContact Person: Ritma Dubrovska, DirectorTel: 371 34 22762 Fax: 371 34 80322 Email: Ritmad(Liepajas-Udens.lvEstimated disbursements ( Bank FY/US$M):

FY( 20(>1* 20Q: 0 20000X002030X 1 : 24004 2005 2006Annual 0.1 0.7 0.9 0.5 _ 1

Cumulative 0.1 0.8 1.7 2.2

Project implementation period: 2000-2006Expected effectiveness date: 11/01/2000 Expected closing date: 06/30/2007

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A. Project Development Objective

1. Project development objective: (see Annex 1)

The purpose of this project is to demonstrate self-sustaining, modem management of municipal solid wastethrough maximum collection and utilization of landfill gas (LFG) in the city and district of Liepaja. Otherobjectives include:

a) demonstrating modem sanitary landfill techniques on a regional basis;b) strengthening institutional capacity at the local/regional levels on issues related to municipal solid wastemanagement;c) arresting the on-going contamination of groundwater;d) reducing environmental disamenities for neighbors of existing disposal sites that would be closed;e) facilitating the separation of recyclable material; andf) reducing greenhouse gas emissions through an emission reduction agreement with the Prototype CarbonFund (PCF).

With the envisaged contribution from PCF, it would be possible to install a state-of-the-art system, whichwould allow for the maximum collection of generated methane that would not be affordable otherwise.This system would help to lower greenhouse gas emissions through two channels. First, by mitigating themethane emitted by decaying waste; and, second, by substituting LFG for fossil fuels (which will be used togenerate electricity).

2. Global objective: (see Annex 1)

3. Key performance indicators: (see Annex 1)

a) The efficiency of waste management: technical performance, consumer satisfaction, amount ofrecyclable materialsb) Local enviromnental pollution: water quality, reduced complaints from neighborsc) Financial sustainability: financial performance of waste management company, tariffs, tariffs aspercentage of expendituresd) Local government capacity: establishment and sustainable operation of regional waste managementsystem and accomplishment of training workshopse) LFG captured and energy production: volume of gas, energy outputf) Greenhouse gas abatement: decrease in and eventual elimination of methane emissions, amount of fossilfuel based power replaced by LFG

B. Strategic Context1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1)Document number: 17706-LV Date of latest CAS discussion: 05/19/98

The development of institutional capacity at the local/regional levels to manage programs for localinfrastructure and environmental clean-up is one of five key areas of Bank assistance which are highlightedin the CAS. The CAS notes that despite progress in preparing a national environment strategy and somereduction in land and water pollution, Latvia's national and local environmental management capacity isbelow the levels required for EU accession and the country still faces unsatisfactory levels of land, water,and air pollution. The proposed project would contribute to an improvement of this situation. It would also

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respond to the need to spread Bank assistance from Riga to other municipalities that need better delivery ofurban services. In addition to directly benefiting the Liepaja region, the project is expected to spurinvestment for similar projects in other regions.

The CAS specifically calls for a project (Environment II.) to, inter alia, promote private sectorparticipation in, for example, wastewater and waste management. As no other project components could beidentified, it was agreed with the MOEPRD that the proposed Municipal Solid Waste Management Projectin the Liepaja region should replace the Environment II. Project.

la. Global Operational strategy/Program objective addressed by the project:

2. Main sector issues and Government strategy:

In 1995, MOEPRD completed a National Environmental Policy Plan (NEPP). Improved wastemanagement is cited in the NEPP as one of the top five priorities for Latvia. Pursuant to the NEPP, theGovernment started a program of upgrading or closing all existing waste disposal sites, many of whichpose a risk to local groundwater resources. To support this program institutionally, a National Solid WasteManagement Strategy (NSWMS) has been prepared, supported by the Danish EPA.

The NSWMS emphasizes regional solutions as a key strategic element to improved and cost effectivewaste management. Once the strategy is fully implemented it is estimated that only 10-12 major sites willremain to serve the waste disposal needs of Latvia.

In relation to waste management issues, the National Energy Strategy states that due to the country's fewnatural resources and the need to import all of its natural gas and oil products and half of its electricity, theuse of indigenous energy resources and the diversification of energy sources are of high priority.Consequently, the Energy Law has recently been amended to grant a preferential status to electricityproduced from LFG which can now be sold at 1.5 times the price of imported electricity. Provisions forLFG capture are also included in the 1996 Law on Solid Waste Management.

Greenhouse gas emissions resulting from improper landfill operations are recognized as a seriousenvironmental concern. MOEPRD has declared that the reduction and collection of methane from solidwaste disposal sites is one of the Government's priorities for the reduction of greenhouse gases. Under theproposed project, the resulting greenhouse gas abatement benefits would be shared between theGovernment of Latvia and the PCF under an emissions reduction (joint implementation) agreement. TheGovenmment has confirmed its willingness to consider such an agreement in an official letter ofendorsement.

3. Sector issues to be addressed by the project and strategic choices:

Improved Solid Waste ManagementThe project has been designed to directly respond to the main sector issues. It addresses seriousenvironmental and public health concems, through irnproved solid waste management and the developmentof modemized sanitary landfills. The remediation and the technical and operational improvement of theexisting landfill sites would result in numerous environmental benefits (see below). To guarantee thesustainability of the new solid waste management system, the project would include a twinning arrangementwith an experienced foreign operator, as well as general capacity building for the municipal authorities.The operation of the landfill would be the responsibility of an (initially) publicly owned, but commercially

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run company.

Regional SolutionsOnly a regional solution will result in a cost-effective solid waste management system. This projectproposes to consolidate the 27 landfills in the region into one operation. Political willingness of allmunicipalities in the Liepaja region has been demonstrated and public support to develop a regionalsolution for the waste management problem is a prerequisite for project implementation.

Use of Indigenous Energy ResourcesThe use of LFG collected during the decomposition of municipal waste would be utilized as a substitute forimported fossil fuels in electricity generation. It is estimated that the captured gas would be sufficient tofeed a generator of about 1 MW of capacity. The electricity would be sold in accordance with theprovisions of the amended Energy Law. If all LFG in the country were captured and utilized, the generatedenergy would be sufficient to cover about 1 % of heat demand or 2.4 % of electricity consumption on anational basis (based on a 1996 estimate).

Reduction of Greenhouse GasesLFG contains a high concentration of methane, a powerful greenhouse gas. The establishment of LFGcollection systems and the utilization of the collected gas for electricity (and/or heat) generation wouldresult in a significant reduction of current greenhouse gas emissions. While utilization of LFG wouldgenerate a revenue stream that would contribute to capital and operating costs, this would not be sufficientto fully cover the additional costs relative to the least-cost baseline. For this reason, it is proposed thatsome of the resulting emission reduction units be sold to the PCF. This arrangement would be inaccordance with Article 6 of the Kyoto Protocol to the UN Framework Convention on Climate Change. Itwould result in a technically and environmentally sound, financially self-sustaining solution acceptable tothe concerned municipalities.

C. Project Description Summary

1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed costbreakdown):

In 1998, the Liepaja region generated about 110,000 m3 of municipal waste which was disposed in some 27disposal sites in the region. Most of them are small and receive less than 5,000 - 10,000 m' of waste a year.By far the largest disposal site is the Skede site in Liepaja which receives about 80 % of total regionallydisposed waste. Most sites are inappropriately located due to their geology and high water table, and noneof the sites has an effective natural barrier or artificial lining to protect the groundwater from percolatingleachate. The Skede site has been used since the 1960s (first illegally and since 1972 as an official disposalsite) and the leakage of untreated leachate and run-off water has resulted in groundwater contamination anda serious pollution problem in nearby Tosmare Lake.

In the initial phase of Project preparation, the Skede site seemed to be the most logical and natural locationfor a future regional disposal site. However, the results of the Environmental Impact Assessment (EIA)and the Social Assessment (SA) identified strong reasons to abandon the plans for using Skede. Instead, analtemative site located in Grobina (on land owned by the Government) was selected by the client on therecommendation of the Project Steering Committee (PSC).

The project would consist of two components: one investment component, addressing a number ofactivities related to the regional solid waste management solution; and one technical assistance component,

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related to the training of landfill operators and managers and central and local government officialsinvolved in the implementation of the NSWMS. The following activities would be addressed under theproject:

Investment Component

a) Remediation. All existing disposal sites would be remediated and subsequently closed. At theSkede site, which has been in operation for nearly 40 years, the landfill gas will be collected and used forelectricity generation.

b) Technical and Operational Improvements. A state-of-the-art solid waste management system,which would meet international sanitary landfill standards will be established. It would include preparationof the new disposal site in accordance with EU requirements, establishment of a line for reception of wastealready separated at the household level and arranging separate areas for the storing of separated materialas well as hazardous waste, which would be transported to another site. The tip face will be protected by adaily coverage of soil and other measures will be undertaken in order to prevent birds from feeding from thenewly disposed and fresh garbage. Equipment enabling the utilization of sludge from the Liepaja WasteWater Treatment Plant (as an additional gas generation source), which currently has a disposal problem isalso included.

c) Installation of Energy Cells and a Landfill Gas Collection System. Energy cells would beinstalled for the enhanced degradation of easily biodegradable waste and the accelerated production oflandfill gas, containing about 50% methane. The resulting greenhouse gas emission reductions would bepartly sold to the PCF under an emission reduction agreement. Emission reductions would be carefullymonitored and subject to periodic verification by a third party.

d) Installation of a Power Generator. An energy conversion unit (gas engine) of about I MWcapacity and which runs on landfill gas would be installed at Grobina, and one of about 0.3 MW would beinstalled at Skede. Both units would be connected to the power grid, and power would be sold toLatvenergo under a power purchase agreement to be negotiated as part of the project.

e) Establishment of Waste Collection Points. A system of waste collection points (for areas withsmall waste volumes) would be established to ensure the efficient transport of waste to the regional disposalsite. There would be at least one waste collection point in each pagast. The collection points would beequipped with separate containers for different types of recyclable materials.

f) Managerial Support Through Twinning. The project would establish a new waste managementcompany that would be responsible for the management of the landfill, the waste collection points, and thetransport of waste between them. This activity would provide technical and managerial assistance to thenew company through a twinning arrangement.

g) Detailed Design. This activity would provide the detailed design, technical specifications, bill ofquantities and all necessary drawings for project implementation.

h) Implementation Support. This activity would finance the PIU in order to handle all procurementand disbursement issues related to the project, maintain project accounts and prepare Project ProgressReports. In addition, the PIU would also coordinate the continuation of public informnation andparticipation activities, which have been an integral part of the project since its inception.

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Technical Assistance Component

i) Technical Assistance on the National Solid Waste Management Strategy. This activity involvestraining and capacity building at the local/regional level for waste management utilities, municipalauthorities and private sector companies involved in the implementation of the NSWMS.

PROJECT COSTS

Indicative GEF Bank- % ofComponent Sctor colts % of finawcing flnancing Bank-

_.(US$M) Total _JS$M (US$M)__inanctnC(a) Remediation of existing US - Solid Waste 2.18 14.8 0.00 1.24 55.9disposal sites(b) Technical and operational US - Solid Waste 4.60 31.3 0.00 0.69 31.1improvements(c) Establishment of energy cells US - Solid Waste 0.88 6.0 0.00 0.00 0.0and LFG collection system(d) Installation of power US - Solid Waste 0.59 4.0 0.00 0.00 0.0generators and connection to thegrid(e) Waste collection points and US - Solid Waste 0.64 4.4 0.00 0.00 0.0vehicles(f) Managerial support through a US - Solid Waste 0.42 2.9 0.00 0.00 0.0twinning arrangement(g) Detailed design US - Solid Waste 0.88 6.0 0.00 0.00 0.0(h) Project implementation US - Solid Waste 0.47 3.2 0.00 0.00 0.0support(i) Training of waste managers 0.42 2.9 0.00 0.00 0.0operators to support the NSWMSPhysical contingencies 0.53 3.6 0.00 0.10 4.5Price contingencies 1.06 7.2 0.00 0.16 7.2VAT 1.11 7.5 0.00 0.0 0.0Global Components

0.00 7.5 0.00 0.0 0.0

Total Project Costs 13.78 93.7 0.00 2.19 98.6Interest during construction 0.90 6.1 0.00 0.00 0.0

Front-end fee 0.03 0.2 0.00 0.03 1.4Total Financing Required 14.71 100.0 0.00 2.22 100.0

Note: The table above does not allow one to include the working capital during implementation, which is estimated at US $2.04 million, resulting in atotal Financing Required of US $16.75 million. In addition GOL is contributing US $0.17 million during year 2000 which will be used for coverageof PlU's cost during year 2000, which has not been included in the project financing. These additional costs would raise the total project financing toUS $16.9 million (See Financing Plan on Page I and Annex 3). Futthermore, VAT was included in the table, as it is a real cost to be covered by thefinancing plan.

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2. Key policy and institutional reforms supported by the project:

The project would introduce institutional reforms in waste management at the regional level that aresupported by the NSWMS and which would constitute international good practice. Furthermore, theproject would also train operators, managers, and officials at both the national and local levels, who areinvolved in the supervision and planning of regional solid waste management solutions which are in linewith the NSWMS.

3. Benefits and target population:

Local environmental and economic benefits. Implementation of the project would result in a number oflocal benefits, including: (a) remediation of the existing sites; (b) closure of obsolete disposal sites, andpostponing the establishment of a new site located at a longer hauling distance; (c) recirculation andtreatment of leachate; and (d) introduction of modem technology on a regional basis, which makes itpossible to utilize other by-products from the decomposition of waste. The project would also result in thecost-effective utilization of an indigenous energy resource (recommended in the Latvian National EnergyStrategy), and savings in foreign exchange used to import electricity or fossil fuel for heating purposes.

Global environmental benefits. Based on conservative assumptions, the project would lead to avoidedannual emissions of about 5.3 million m' of LFG, or about 1,900 tons of CH4. The gas would be used forelectricity production and thus be released as CO,. Methane is a more powerful greenhouse gas than CO2and the net benefit in terms of greenhouse gas abatement would be equivalent to about 10,380 tC per year.The replacement of higher-carbon fuels for power generation would save another 2,380 tC per year. Over a20 year lifetime, the project would reduce greenhouse gas emissions by about 0.26 million tC (see PCFissues, Annex 1 ). Participation in one of the first Joint Implementation agreements under the KyotoProtocol would provide valuable experience and help Latvia to take full advantage of the opportunitiesemerging from the nascent carbon market.

Target population. The project would immediately reduce, the negative environmental impacts for theneighbors of the 27 improper disposal sites by closing the sites. The impact on the small number ofhouseholds in the neighborhood of the proposed regional disposal site have been assessed as part of projectpreparation.

Furthermore, the MOEPRD's intention to implement the NSWMS would force the small pagasts toupgrade their small disposal sites to meet sanitary landfill standards, which would result in a much morecostly operation and require considerable tariff increases. Through the proposed project, the tariff increasecan be held at an affordable level, estimated at 40%, which primarily benefits the poorer part of thepopulation. Affordability is further elaborated on in Annex 14.

4. Institutional and implementation arrangements:

Implementation (For additional information, see Annexes 6 and 13.)

The project would be implemented jointly by the LCC and LRP, in close cooperation with MOEPRD.Major decisions during project implementation would be taken by a Project Steering Committee (PSC),comprising representatives of the Ministry of Economy, Ministry of Finance, MOEPRD, LCC, LRP andthe Liepaja Regional Environmental Protection Board. The PSC has already been established duringproject preparation and has been involved in important decisions of project design.

The PSC would be supported by a Project Implementation Unit (PfU), which would be responsible for

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procurement, administrative support and the financial management of the project. The unit would workclosely with the new waste management company, Liepaja RAS, but would formally report to LCC andLRP. Given their impressive performance in the implementation of the Bank's Liepaja Environment Project,the PIU for that project has been selected to also serve as the Project Implementation Unit for the wastemanagement project. The PIU is administratively a part of the Liepaja Waste Water Company (LiepajaUdens) and its staff are on the payroll of that company. However, PIU staff have set up a privateconsulting company, ELSE, and it would be this ann of the PIU that would serve as the projectimplementation unit for the waste management project.

Audit Arrangements. Steps would be taken to appoint Auditors for the Project by Effectiveness. Thiswould include: (i) posting advertisements in the local newspapers to invite "expressions of interest" fromlocal auditing frms; and (ii) short-listing at least five auditing firns. An Auditor acceptable to the Bankwould be appointed within the first four months of the effectiveness of the project.

The audit of the project would be implemented in accordance with International Auditing Standards.Audited financial statements for the project would be sent to the Bank within six months after the end ofevery fiscal year.

Reporting Arrangements. In addition to submission of annual audited financial statements, unauditedfinancial statements would be submitted to the Bank within three months after the end of every fiscal year.The PIU has agreed to submit to the Bank quarterly Project Management Reports per the guidelines issuedby the Bank under the Loan Administration Change Initiative (LACI).

Financial Management (For additional information, see Annex 6.)

Given that the PIU for this project has already successfully implemented a Bank financed project, they arealready familiar with the disbursement and procurement procedures of the Bank. Additional FinancialManagement arrangements to facilitate PMR-based disbursements was finalized during Appraisal. Allnecessary steps has been taken to ensure that the project complies with the relevant Bank policies (OP/BP10.02).

Disbursements under the project will be based on traditional disbursement procedures and will be convertedto disbursements under the LACI framework based on quarterly project management reports (PMRs), thecommencement date for which would be decided during negotiations.

D. Project Rationale

1. Project alternatives considered and reasons for rejection:

A range of different options and alternatives was studied during project Preparation and in the feasibilitystudy, including:

(a) Waste disposal at the municipal level vs. a regional solution. Despite potential savings intransportation costs, the continued maintenance of several smaller landfills was not consideredcost-effective and would increase the risk of environmentally unsound practices. If up-graded tomeet sanitary landfill standards, the small municipalities could not afford the related investmentcosts. Furthermore, a regional solution is consistent with the NSWMS and the overall gist ofadministrative reform, and the regional municipalities agreed to this solution already at thecommencement of project Preparation.

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(b) Siting options. The first step in the feasibility study was to identify at least 5 altemative locationsfor a regional disposal site, based on environmental suitability, closeness to homes, landavailability and transportation distance. Based on the 5 pre-selected sites, the PSC selected twosites for further detailed investigation and cost estimates, which is a requirement in accordancewith Latvian law and EIA regulations. The two selected sites, Grobina and Skede, are locatedwithin the borders of Grobina Pagast and Liepaja City. The feasibility study included the fullevaluation, and environmental assessment, of these two potential sites.

The continued evaluation of the two sites resulted in the final selection of Grobina, despite the factthat Skede represents a more cost-effective solution. The reasons for this decision are two-fold;Skede borders a national park, which serves as the habitat for several endangered and rare species,and is adjacent to a summer colony, where inhabitants at the latter stage of project Preparationstarted to raise objections.

In Grobina, two alternative locations have been investigated. The site initially suggested by theGrobina Pagast and the PSC was later found to be private land, and the landowner demanded anunacceptable price for the land. As a result, Grobina Pagast identified another piece of land,located about 700 meters away from the first identified site, with equally good geotechnicalconditions and with the same minimal environmental impacts, which was recommended by the EIABoard in an amendment to the ELA report.

(c) Waste management standards. The feasibility study included a comparison between a basicsanitary landfill (the minimum solution to meet NSWMS standards) with waste managementtechniques involving LFG capture and the use of energy cells. While the use of energy cells is moreexpensive in principle, it provides an environmentally-superior solution that also becomes morecost-effective once the sale of greenhouse gas emission reductions is factored in. Furthermore, theuse of LFG for electricity production generates a revenue stream, which supports the financialsustainability of the investments, and results in a more cost-effective solution compared totraditional sanitary landfill standards.

(d) LFG utilization. Options for LFG utilization studied included electricity generation, heatgeneration and combined heat and power. Electricity generation was chosen because of the lowerconnection costs (proximity to the grid), lower system adjustment costs, and the low demand forheat relative to available capacity.

(e) Waste transportation and recycling. The proposed solution was designed to minimizetransportation costs, taking into account waste volumes and recycling habits as studied in a pilotproject on waste separation at the household level.

(f) Design options. Several options were included in the final evaluation, such as receipt of sludgefrom the Liepaja Waste Water Company (LWWC), in order to increase the generation of LFG andsolve a current problem for the LWWC (another Bank-financed project); and in the case of theGrobina solution, to also include collection of LFG at Skede with and without electricityproduction.

Based on the environmental concems related to the present disposal of sludge and the need tocollect the LFG at Skede, it was decided to include these activities in the project. In financialterms, the additional cost of power generation at Skede was justified by the additional revenues

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which would be generated by the sale of electricity.

2. Major related projects financed by the Bank and/or other development agencies (completed,

ongoing and planned).

l r Latest SuperisionSector Issue Proiect (PSR) Rtatings,Sector .ssue j P_ojct l(Bank-financed projects only)

Implementation Development

Bank-financed Progress (IP) Objective (DO)

Solid Waste Management (SWM) Latvia: Municipal SWM S S

Environment Latvia: Liepaja Environment HS HS

Local Government Latvia: Municipal Services S SDev.

Energy Latvia: Jelgava District Heating HS S

Other development agencies

IPIDO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory)

3. Lessons learned and reflected in the project design:

Lessons highlighted in the Bank's Europe and Central Asia Department Reports on Portfolio Performancein the region focus on: (a) the challenge of identifying a consistent counterpart team with sufficient

authority to move the project forward; (b) the difficulty of coordinating key government agencies on

critical issues; (c) the importance of setting-up project implementation capacity early in the project cycle

and training their staff in Bank procurement and disbursement procedures and requirements; and (d) the

importance of involving local institutions in project design and preparation.

A review of lessons learned from the World Bank municipal solid waste management projects worldwide

shows that due to inadequacies in project design (for example, inadequate attention to building institutionalcapacity, failure to provide for safe landfill disposal facilities), the execution of many of the investments

encountered extensive delays and failed to achieve long-term improvement in solid-waste management in

terms of both efficiency and environmental protection. Specific implementation problems included unclear

institutional structure and responsibilities, insufficient technical and managerial expertise, and inadequate

cost recovery. Experience from the Latvia - Municipal Solid Waste Management Project under

implementation in Riga also shows the need to get stakeholders involved in the earliest stages and to obtain

a good understanding of the social implications of the project (disposal fee, impacts on neighbors, etc.).

Experience with other municipal projects in Latvia has revealed a need to build capacity for budget and

investment planning, accounting, project appraisal and management, procurement, cost recovery and other

kinds of technical expertise at the local level. The success of projects has often depended on the creation of

Project Implementation Units. But to achieve the projects' capacity building objectives, such units need to

be closely integrated in the regular administrative structures. This in turn implies a need for more support

during supervision.

To the extent possible, this project incorporates the lessons learned from both the Bank's experience in the

region in general and in Latvia in particular, as well as the worldwide experience with solid waste

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management investments. (e.g., starting the project preparation was contingent on the following factors): (a) allinvolved municipalities were in favor of a regional solution; (b) the LCC and LRC as well as the MOEPRDidentified counterpart staff to participate during the whole period of project preparation; (c) contact persons forpublic information were identified within the LCC and assigned for the task; and (d) the existing PIU staff for theLiepaja Enviromnent Project would be assigned to this project to coordinate project preparation activities.

4. Indications of borrower and recipient commitment and ownership:

The Govemment's commitment to the amelioration and remediation of Latvia's landfills is evidenced by thepriority the issue was assigned in the NEPP and the subsequent preparation of the NSWMS, which wasapproved by the Seima in June 1998. Furthermore, the Government has declared this project its .highestpriority within the environmental sector. A further sign of Latvia's committnent to modem methods ofmunicipal solid waste management is the recent introduction of an amendment to the Energy Law in favorof electricity produced from LFG.

The involved municipalities have expressed their commitment to a regional solution in written statementsand are willing to invest substantially (relative to their budgets) into the proposed waste managementcompany, Liepaja RAS Ltd. Their commitment is further underlined by their willingness to finance theProject Implementation Unit, which has been supporting project Preparation since the end of 1998.

The Government's support for the associated emission reduction (joint implementation) agreement with thePCF is demonstrated in a letter of endorsement signed by the State Minister for the Environment onSeptember 21, 1998. In anticipation of this project, Latvian representatives have participated in severalPCF host country events. Their involvement in PCF host country events is expected to continue in thefuture.

5. Value added of Bank and Global support in this project:

This project responds to one of Liepaja's basic environmental priorities, namely the development ofsanitary landfills and the improvement of solid waste management. The successful demonstration ofself-sustaining modem waste management could be a potential model for other regions. At the same time,previous experience underlines the need for additional capacity building and technical assistance at thelocal/regional level. With its history of assistance to Latvia in this respect, the Bank is in a unique positionto provide this support. The project should substantially contribute to capacity building for futurecost-effective and sustainable waste management in Latvia, which could also have a positive impact onwaste management practices in other Baltic countries. Collaboration with the PCF allows for theimplementation of a more modem and efficient waste management option than would otherwise beaffordable.

The Bank's involvement in preparing the project was highly requested by the Borrower, and that has also helped inattracting additional funds from the PCF, SIDA, CIDA, NIB and EU.

E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8)

1. Economic (see Annex 4):* Cost benefit NPV=US$O.031 million; ERR = 10.1 % (see Annex 4)O Cost effectivenessO Incremental CostO Other (specify)

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Better solid waste management is likely to have a positive impact on the regional environment and hasassociated benefits that are not just restricted to the Liepaja region or even just to Latvia. including just

local environmental benefits results in the ERR of 10.1%. However, here are grant payments by bilateraland multilateral sources for better solid waste management, which represent proxy payments for theinternalization of additional external environmental benefits. Grant contribution by Sweden (to preventpollution of regional surface water bodies, etc.), the European Union in order to comply with EU directives,and others represent contributions to mitigate and pay for such externalities. The net present value of usingthese grants in terms of economic costs represents a positive net present value and a significantly higherrate of return, 21.2%, as is reflected in the calculation of the FIRR of the project, where grant financing isincluded as a revenue during implementation (see Annex 4).

2. Financial (see Annex 5):NPV=US$ million; FRR = 3 % (see Annex 4)The company. The "Liepajas RAS" Ltd. (LRL) was incorporated on February 24, 2000 as a non-profitoriented limited liability company. The shareholders of the new company are the Liepaja City Council(LCC) (66.7%) and "RAS 30", a holding company owned by Liepaja Region and itself incorporated inDecember 1999 (33.3%). LCC represents the 95,000 inhabitants of the City, while the RAS 30 regroupsthe 25 towns and villages of the Liepaja Region, with an estimated population of 45,000.

Share capital of LRL will amount to LVL 600,000 (US$ 1 million). The equity will represent only 6% of

the total investmnent now estimated at around LVL 10.1 million (US$ 16.8 million). Normally this very lowlevel of self-financing would not be considered acceptable. In this case, however, grant financing and sale

of carbon reduction units would finance about 52 % of total project costs, while the loans from WorldBank and NIB of LVL 2.2 million (US$ 3.72 million) would cover only 22% of the total resources needed.Consequently, the financial structure of the new company can be considered to be quite satisfactory. Thetwo shareholders have decided that LRL will be a joint-stock company which will be commerciallyoperated. Its prime objective will be to provide least-cost modem waste management at the lowest possiblehousehold waste charges for all the inhabitants of the region.

The company would in the first instance be responsible for implementation of the investment programleading to the establishment of the modem solid waste landfill at the Grobina site. Also, electricity would be

produced at the old landfill at Skede, estimated to last for 20 years. However, these activities would onlystart in the spring of 2001 at the earliest. It has been decided by LCC that upon loan effectiveness, LRL

would take over the management of the Skede landfill from the present operator; this would allow the

company to create a work-force and to generate income prior to the start of operations at the new landfill.Concurrently with the management of the new landfill facilities, LRL would supervise the gradual phasingout of all existing operations at the regional landfill sites. Several of these sites, among which notably

Skede, Aizpute and Nica would also require substantial remediation to protect the groundwater from

run-off pollution of the landfills.

LRL would also be responsible, in close consultation with the regional municipalities, for the organizationof storage of household and industrial waste from the regional towns and villages and of its transportationto the central regional landfill. The cost of this collection and transport has been included under the

project.

Collection and transport of solid waste at the local level to the respective temporary storage areas would

remain the responsibility of the regional municipalities concemed, while in Liepaja City the already

established waste collection companies would, in the first instance, continue to collect and to transportwaste to the regional site. However, the municipal authorities, both of the City and in the region could

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request LRL to perform this service on a commercial basis, and in competion with other waste collection &transportation companies. The cost of this collection and transport would be invoiced to the towns andvillages opting for the service provided by LRL and it would be their responsibility to recover these costsfrom their residents.

Project Cost and Financing Plan

The project as defined for World Bank and PCF financing has been estimated at LVL 10.05 million or US$16.75 million, as shown in the following table:


Applications LVL '000 USD'000 %Base costs 6,646 11,077 66.1Contingencies 953 1,588 9.5VAT 666 1,110 6.6

Sub-total investment 8,265 13,775 82.2

0 & M during construction 1,225 2,042 12.2Interest during Construction 542 903 5.4Front-end fee WB loan 20 33 0.2

Total Applications 10,052 16,753 100.0

Financing SourcesEquity 600 1,000 6.0Grants 5,488 9,147 54.6

GOL/PCF 1,200 2,000 11.9GOL 387 645 3.9EU(ISPA) 2,915 4,858 29.0SIDA 705 1,175 7.0TBD 281 468 2.8

Loans 2,227 3,712 22.2World Bank 1,333 2,222 13.3Nordic Investment Bank 894 1,491 8.9

Sub-total 8,315 13,859 82.5Liepaja Ras self-financing 1,736 2,894 17.3Total Sources 10,052 16,753 100.0

The basic project investment cost of LVL 8.3 million or US$ 13.8 million has been increased with and theoperational and maintenance costs during implementation, and interest during construction, which would beborne by the new waste management company from internally generated funds, and the front-end fee for theloans from the World Bank and the Nordic Investment, which will be covered under the WB loan. The totalso added is LVL 1.7m million or US$ 2.9 million, all of Overall project cost is thus estimated at LVL 10.1rnillion or US$ 16.8 million.

Financial ProjectionsDue to the very favorable funding available for the project, the financial structure of the LRL will be quitesolid. Loans would represent just 22% of project financing and over time, with the steady repayment of

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these loans, the financial structure will continue to improve. This development would allow the company to

easily borrow funds in the event of further need for investments at the site.

The company will provide community services operating under commercial conditions without having the

obligation to provide dividends to the shareholders. Its objective is to provide the requested services toleast cost to the inhabitants. In the event that the poorer part of the population cannot pay the waste

management charge, it is expected that the municipalities will cover these costs.

A full set of profit and loss accounts and financial cash flow projections over 20 years are presented inAnnex 5. These indicate clearly that the gross disposal fee at the landfill will have to be increased by 120%

in order to enable the company to generate a positive cash flow and be able to repay the loans withoutaffecting its resource base. The projections show that this would be possible, but the sensitivity analysisindicates that any decrease of revenues or increase of operating costs would seriously affect these results.

Therefor, the margins for error are not very large even though the accumulated cash flow after full loanrepayment in the base projection reaches an estimated LVL 1.66 million (US$ 2.8 million) in year 20.

FIRRThe project consisting of the Grobina landfill site plus electricity generation at Skede has been selected

from among various project alternatives. Investment costs have been calculated in the project's feasibilitystudy and adjustments have been made for physical and price contingencies, as well as Value Added Taxwhere appropriate. These costs also include design, services of a PIU and technical assistance both in the

form of a twinning agreement and consultants. Finally, operational and maintenance costs of the landfillsite and the Skede generation station; administrative costs of the LRL; as well as the cost of regional wastetransport to the Groan landfill site have been incorporated into the overall cost estimates. A rest value of20% of the investment costs or LVL 1.3 million has been assumed in year 20.

Project revenues consist of the net waste disposal fee, increased by 120% over present levels, and the salesproceeds of electricity. In future there may be possibilities to sell recyclable materials and/or heat to thecity heating plants at Grobina, respectively Skede, but the market for these by-products needs to beexplored during project implementation.

In addition, benefits have been added by linking carbon emission reduction to electricity production and thishas been valued at the total PCF financing made available for project implementation, LVL 1.2 million orUS$ 2.0 million. Finally, the Sida grant associated with this project has been excluded from project cost.

The FIRR so calculated shows a value of 3.0%.

However, if only the loans are considered in the FIRR calculation, the FIRR arrives to 18.8 %, indicatingthat this specific project per say is sustainable.

Fiscal Impact:

3. Technical:For additional information see Annex 2.The technology used for the enhanced degradation of organic easily degradable waste has been developedduring the last 15 years in Sweden. The technology has been implemented in Sweden, Norway, Poland and

is also under implementation in Latvia at the Getlini disposal site outside Riga. The energy cell technology

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will allow the organic waste to decompose within 5 years compared to 25-30 years for traditional landfills.The technology does not require any special pre-treatment of the waste. However, in order to maximizedecomposition within the estimated 5 years, the waste will be shredded before disposal in the energy cells.Furthermore, the leachate will be circulated in order to maintain an even moisture content of about 70%;and if necessary preheated to keep a temperature of about 37 °C inside the cell. The number of gas wellswill be more than usual, and the cell will be covered with about 0.5 m of clay with a permeability of 10rn/sec to maximize the collection of the gas and reduce the intrusion of oxygen via the air. The quickdecomposition of the waste enables recovery of the organic part, which if not including any hazardouscomponents could be used as a soil conditioner or compost fraction. However, it is not expected thatcurrent rates of waste disposal at the household level will allow for such a recovery within the next coming10 years, but could be possible if public awareness were to increase, and the authorities stimulatedrecycling programs.

Decomposition of waste would lead to a reduction in received waste of about 25%; and if the remainingwaste could be separated in partly a fuel fraction and a soil conditioner, only 20-25% of incoming wastewould need to be finally disposed of, requiring a less thoroughly-prepared area. The implementedtechnology could therefore lead to a substantially prolonged lifetime of the site, which would save a lot ofproblems in identifying the next regional site and save considerable investments.

4. Institutional:

4.1 Executing agencies:

(For additional information, see Annex 12.)

The main executing agency of the project will be LRL, assisted by a PIU. Supervision of implementationwill be the responsibility of the PSC, composed of representatives of the project's stakeholders: theseinclude the City of Liepaja, the regional municipalities, the regional environmental agency and Govemment.

4.2 Project management:


LRL will be a small company with not more than 30 employees, most of them working on the landfill siteand the Skede generating station. The "energy cell" technology introduced under the project is notcomplicated; however, all staff will be new to this type of waste operation. Considerable technicalassistance has therefor been planned under the project so as to implement and operate the projectsuccessfully. This technical assistance will be provided in the form of consultant services, complemented bya twinning arrangement with an experienced foreign company.

Assistance will also be provided for the organization of waste storage at regional municipalities andsubsequent transport of this waste to the new regional landfill at Grobina.

Carbon reduction monitoring. The PCF will through a separate Emission Purchase Agreement with theRepublic of Latvia purchase Carbon Emission Units at an agreed price of US$ 2.47 million, of which US 2mnillion will be reinvested by the Government in the project, and thereby provide a large share of the GOL'scontribution to the financing plan. The PCF contribution is based on reductions of carbon emissions(primarily methane gas) which will be made possible under the project. It will therefore be necessary toappoint an independent agency to monitor the reduction of these emissions; this will enable the

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development, on a national basis, of monitoring procedures for all carbon mitigation projects in thecountry. The MOEPRD is the obvious choice for such monitoring and detailed arrangements are described

in the Agreement.

4.3 Procurement issues:


An ECSSD procurement consultant visited Liepaja, Latvia from September 27 to 30, 1999, and met with

the representatives of the proposed implementation agency for the Liepaja Region Solid WasteManagement Project. The resulting procurement capacity assessment report and the positive opinion of

both the Task Team Leader and the Procurement Specialist working on the Latvia Environment Project,agreed that the level of risk can be assessed as average.

4.4 Financial management issues:


The appointed FMS and the financial analyst in the team, under the supervision of the appointed FMS,

have reviewed the financial management capacity of the implementation agency, and found that the staff is

fully capable to handle the financial management issues in full compliance with LACI requirements. It hasbeen agreed that the PMR system will be used, and the first PMR report is due after the quarter ending

September 30, 2001.

5. Environmental: Environmental Category: A (Full Assessment)5.1 Summarize the steps undertaken for environmental assessment and EMP preparation (includingconsultation and disclosure) and the significant issues and their treatment emerging from this analysis.

The Executive Summary of the Environmental Assessment is attached as Annex 16

The environrmental assessment has focused on the evaluation of two potential locations for the regionaldisposal site; the potential expansion of the existing site at Skede to serve as the consolidated regional site,and establishinent of a new site in Grobina. This assessment has been carried out by the Swedish consultingcompany Sweco, who also was responsible for the feasibility study of the project. In accordance withLatvian regulation, the environmental impact assessment included a full assessment of two candidate sites.The results of the EA have been instrumental in making the final choice, as the EA identified a number ofendangered species at the Skede location. The project will result in significant environmental benefits,through establishing only one disposal site for the whole region, based on state-of-the-art technology andfulfilling all necessary precautions to avoid groundwater contamination, odor problems, noise and litteraround the site. The project will provide the means for the separation of recyclable material at the pagastlevel, and remediation and closure of all existing small local dump sites (27). The inhabitants of thesummer colony located at Skede, and lake Tosmare (which up to now has received polluted leachate fromthe Skede site) would benefit most from this project. Finally, the selected solution based on energy celltechnology in combination with power generation from LFG, will result in a considerable reduction ofgreenhouse gases.

5.2 What are the main features of the EMP and are they adequate?

(For additional information, see Annex 17)

The EMP, see Annex 17, outlines all important activities under the project and what kind of measures willbe undertaken in order to avoid negative impacts on the environment during the operation of site.Furthermore, the EMP describes all control actions and monitoring to be undertaken to better follow the

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project's impact and enable additional mitigation measures if necessary. Implementation of the EMP wasdiscussed and agreed during negotiations.

5.3 For Category A and B projects, timeline and status of EA:Date of receipt of final draft: December 7, 1999

The EA work started in December 1998, and the final report was received on February 7, 2000. The initialdraft report was presented on July 4, 1999, but based on the findings and identified problems the work wasextended, and the EA also had to include and evaluate an alternative site in Grobina, as the first selectedone was found to be privately owned.

5.4 How have stakehplders been consulted at the stage of (a) environmental screening and (b) draft EAreport on the environmental impacts and proposed environment management plan? Describe mechanismsof consultation that were used and which groups were consulted?

During the whole preparation of the project there has been a number of public meeting includinginformation about environmental and social issues. In accordance with the Latvian legislation it was alarge hearing on July 17, 1999 when all the findings were presented and comments from the audience werecarefully minuted and incorporated in the documents. Their view had a clear impact on the final choice oflocation for the regional disposal site.

5.5 What mechanisms have been established to monitor and evaluate the impact of the project on theenvironment? Do the indicators reflect the objectives and results of the EMP?

The LRL will be responsible for a comprehensive control program in order to follow the quality of surfacewater and groundwater on a regular basis. It will also on a daily basis record received amounts and typesof waste, as well as collected gas from the energy cells and the old landfill in Skede. In addition odor willbe monitored through an odor-panel, and special observations will be done a daily basis concerning theamount of birds attracted to the site. The chosen indicators such as waste amounts, analysis of surface andgroundwater, bird control, odor control are all essential to fulfill the objectives of the EMP. LRL willquarterly report to the PSC and the authorities about received results and what mitigation measures havebeen applied if found necessary.

6. Social:6.1 Summarize key social issues relevant to the project objectives, and specify the project's socialdevelopment outcomes.


Since waste management affects society as a whole, all social groups are affected by it. The impact will bemarked more on a day-to-day basis, however, on the communities located close to the regional landfill sitewhen project implementation starts. It calls for a targeted information campaign to be carried out duringthe whole implementation period and commenced in the beginning of the year 2000. In cases of industrialwaste disposal the possibility of energy generation through waste treatment, and prospects for recyclingthere will be a significant impact on the manufacturing and business community including small businesses.Municipal administrations will also be significantly affected, as effective and affordable waste managementis an important criterion in judging their performance.

The crucial factors in determining this impact will include: (i) tariff setting and affordability; (ii) collectionarrangements and proximity to a disposal site; and (iii) health, amenity and environmental considerations.Health and environmental factors are of increased importance to communities placed close to a disposal

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site. No major adverse effects on any social group are anticipated, but if further analysis in progressreveals such disparities they will be accommodated in the final project design.

An initial survey of a small community living close to the potential regional landfill site at Skede wasconducted in September 1998. This is a co-operative, mostly comprising summer residents, who work onallotments. The survey did not reveal any major concerns over the existing landfill, but did identify somedissatisfaction with local amenities. However, a second survey of the same community in April 1999clearly identified a growing opposition towards the plan to enlarge the existing disposal site and to alsoreceive waste from the whole Liepaja Region. This reaction was the strongest reason in the decision toselect Grobina, which is a less attractive solution from financial and economical perspectives. A furthersample survey in Grobina (the final selected location) involved local residents who are close to the accessroad to the proposed site for location for a central regional landfill. This survey was primarily concernedwith amenity factors (especially noise), as the site is located more than 1 km away from the residential area.

The affordability of the project has been analyzed for all major stakeholders, i.e. Liepaja city, themunicipalities of Liepaja region, and the residents of the city and the regional municipalities. The financialsituation of Liepaja city remains strong and it will be no problem for the city to contribute to the project'sfinance plan. The municipalities of Liepaja region have committed themselves to the required financialcontribution at a meeting in March 1999, a decision which resolves the affordability issue for the region.

In terms of tariffs, the business development plan advocates the imposition of a uniform regional wastecollection charge, payable by all residents both in Liepaja City and in the regional municipalities. Thesenew regional tariffs will be about 40% higher than at present, and affordable for all those households whichpresently pay waste collection charges. However, for all those households which at present do not pay forwaste collection, the imposition of a charge, even at a low level, will result in a drop of their disposableincome and may pose affordability problems, particularly in the rural areas. At the moment, themunicipalities are covering the bad debt, and are expected to continue with that also when the project isimplemented.

In conclusion, the proposed project would provide the inhabitants of Liepaja City and Liepaja Region witha modem waste management service, which otherwise would not be affordable, and would be beneficial tothe poorest social group. Enforcement of traditional sanitary landfill standards at the pagast level wouldresult in a solution which cannot be afforded, and therefore delayed for an unforeseeable time.

6.2 Participatory Approach: How are key stakeholders participating in the project?


The major stakeholders include the following municipal authorities: Liepaja City, Liepaja Region and thepagasts within the region. Local enterprises, particularly those directly concemed with waste collection,transportation and processing also have a considerable stake. These constituencies have been involved inproject formulation and design from the earliest stage and briefing meetings have been held regularly toreport on progress. The results of these exchanges have been reflected in project development. Thesegroups have also been consulted in the development of a business plan, which focuses on the managementand financing of the future solid waste treatment organizations, including potential revenues from energygeneration.

However, the local communities and their citizens must also be considered significant stakeholders whoseattitude towards the project will determine its acceptability and sustainability. Changing reactions to the

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siting options under consideration were monitored throughout project preparation, as were habits of wastedisposal. This was done through a pilot project on recycling arrangements and a public consultation andparticipation program, which included local discussions, surveys and meetings. These activities haveformed an integral part of project design, and efforts to increase public awareness through education andconsultation will extend during project implementation.

6.3 How does the project involve consultations or collaboration with NGOs or other civil societyorganizations?

N/A

6.4 What institutional arrangements have been provided to ensure the project achieves its socialdevelopment outcomes?

N/A

6.5 How will the project monitor performance in terms of social development outcomes?

N/A

7. Safeguard Policies:7.1 Do any of the following safeguard policies apply to the project?

Policy: Ap:li tyLi Environmental Assessment (OP 4.01. BP 4.01.GP 4.01) X Yes O NoEl Natural habitats (OP 4.04, BP 4.04, GP 4.04) LI Yes O NoL Forestry (OP 4.36. GP 4.36) O Yes NoO Pest Management (OP 4.09) O Yes Z NoEL Cultural Property OPN 11.03 El Yes Z NoEL Indigenous Peoples (OD 4.20) O Yes Z NoIO Involuntary Resettlement (OD 4.30) El Yes O NoEL Safety of Dams (OP 4.37, BP 4.37) O Yes Z NoIl Projects in International Waters (OP 7.50. BP 7.50, GP 7.50) 1 Yes O NoEL Projects in Disputed Areas (OP 7.60. BP 7.60, GP 7.60) Li Yes Z No

7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies.

The EIA process had a clear impact on the final choice of location of the regional disposal site asmentioned above.

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F. Sustainability and Risks

1. Sustainability:

Project sustainability depends highly on the utilization of LFG to generate a revenue stream, which willreduce operational and capital costs. Combined with the sale of greenhouse gas emission reduction units,this would guarantee a sustainable operation at a lower cost than traditional sanitary landfills. The capacitybuilding component would further strengthen the sustainability of the project. To ensure financialsustainability, an increase in the disposal fee would be necessary, and the likely rise in the total wastemanagement cost of about 17% has been characterized by local authorities as acceptable. This is ofparticular interest to the Liepaja region, where the part of the low income level of the population.alreadyhas problems paying for electricity, water and wastewater services.

Sale of the generated electricity is crucial for financial sustainability, and the latest amendment to theEnergy Law states that electricity generated from LFG will be bought at a price which 1.5 times theaverage import price for electricity. This law regulates the price until 2008, and thereafter the price will bean issue for negotiations between Liepaja RAS Ltd. and the power company. In view of increasing costsfor electricity generation, it is anticipated that the cost after 2008 will be considerably higher than atpresent, and therefore the situation after 2008 is not regarded as threatening the project's futuresustainability. A power purchase agreement will be signed with Latvenergo as soon as the plant is ready todeliver electricity to the grid.

The Bank's project team will work closely with concerned parties to ensure that the plant is installed withinthe proposed cost limits and schedule. The physical implementation of the project will be supervised by aconsultant financed by project funds. In addition, the project would be supported by an internationallyreputable solid waste management company through a twinning arrangement financed under the SIDAgrant. The company would also assist in the training of staff responsible for the operation of the landfillduring implementation, start-up and operation of the plant.

The project would also include a technical assistance component providing training for waste managementutilities and private sector companies in Latvia involved in the implementation of the NSWMS. In additionto the technical aspect, this technical assistance component would create a better understanding for regionalsolutions, and advance thinking of how best to use waste energy potential to achieve cost effective andsustainable waste management.

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2. Critical Risks (reflecting assumptions in the fourth column of Annex 1):

Risk Risk Rating Risk Minimization MeasureFrom Outputs to ObjectiveWaste tariffs are not affordable for parts M Mobilization of PCF and grant resources toof the population and/or cannot be minimize need for tariff increases; cost-effectivecollected waste management by new company

Provision of technical assistance and training,design and operation of an environmental andfinancial monitoring system

Closure of obsolete disposal sites cannot S Strong commitment from Environmental Board;be enforced and policed agree on higher penalties for non-compliance;

fencing off of old sites; sufficient number ofwaste collection points at convenient locations

Waste recovery and recycling activities M Pilot study on waste separation at householdare committed without a sound economic level; market analysis for recycling materialsbasis and appropriate markets forrecovered materials

Excessive accumulation of birds feeding M Measures to reduce site attractiveness to birdsfrom fresh waste will disturb airport through careful application of daily coveragetraffic and application of mechanical means to prevent

birds from feeding from the waste

From Components to OutputsMunicipalities are unable to contribute to M Mobilization of PCF and grant resources tothe project minimize municipal contributions; firm

commitments from municipalities up-front

Failure to reach power purchase N Extensive discussion with Latvenergo duringagreement with Latvenergo preparation. Clear legal basis for the sale of

energy from LFG

Work force is not capable and motivated N Twinning arrangement and provision ofto improve operations technical assistance; early appointment of

executive director; implementation of preparedBusiness Development Plan for Liepaja RASLtd

Public resistance to new landfill, transfer S Extensive program of public information,stations education and participation throughout the

project cycle

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Delay in the availability of PCF funding S Close coordination with the PCF team in ENV;use GEF or bilateral Joint Implementation asback-up

Unavailability of suitable staff for M Technical assistance and training throughhazardous waste and environmental twinningmonitoring

Lack of cooperation between M Extensive consultation with all parties, broadmunicipalities representation in the Steering Committee and the

Board of the new companyWaste is not delivered to the plant N Regulations enforced by all involved

municipalities that state that generated wastemust be delivered to the regional disposal site

Operation of energy cell is more expensive M Experienced designers; study tours to operatingor gas yield lower plants, TA for management

Overall Risk Rating M

Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N(Negligible or Low Risk)

3. Possible Controversial Aspects:

Aspect: Agreement on the PCF deal: price of emission reductions, and distribution of revenues amongstakeholders (this is likely to be one of the first -- probably the first -- PCF deal and there is no

precedence).Type of risk: 0Rating M

Type of Risk: S (Social), E (Ecological), P (Pollution), G (Governance), M (Management capacity), 0(Other)Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N (Negligible or Low Risk)

G. Main Conditions

1. Effectiveness Condition

(a) Execution of a Subsidiary Loan Agreement between Ministry of Finance and "Liepajas RAS" Ltd.satisfactory to the Bank.

(b) Execution of (a) Loan Agreement between Ministry of Finance and Nordic Investment Bank; (b)Grant Agreement between Sida and "Liepajas RAS" Ltd.; and (c) Carbon Purchase Agreement betweenMinistry of Environmental Protection and Regional Development and Prototype Carbon Fund allsatisfactory to the Bank.

2. Other [classify according to covenant types used in the Legal Agreements.]

(a) The Financial Memorandum between GOL and EU concerning the allocation of the ISPA fundsshould be signed before November 1, 2000..

(b) Commencement date for PMRs in accordance with LACI requirements [C.4 FinancialManagement and E.4.4]

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(c) Implementation of the Environmental Management Plan (EMP), [E.5.2]

(d) Debt Coverage Ratio should be above 1.0 except for years 2007-2010. [Annex 5.2, Debt ServicesRatios]

H. Readiness for Implementation

] 1. a) The engineering design documents for the first year's activities are complete and ready for the startof project implementation.

0 1. b) Not applicable.

C 2. The procurement documents for the first year's activities are complete and ready for the start ofproject implementation.

Z 3. The Project Implementation Plan has been appraised and found to be realistic and of satisfactoryquality.

O 4. The following items are lacking and are discussed under loan conditions (Section G):

1. Compliance with Bank Policies

Z 1. This project complies with all applicable Bank policies.O 2. The following exceptions to Bank policies are recommended for approval. The project complies with

all other applicable Bank policies.

Anders 0. Halldin Kevin M. Cleaver Basil G. KavalskyTeam Leader Sector Manager/Director Country Manager/Director

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Annex 1: Project Design Summary

LATVIA: Liepaja Region Solid Waste Management Project

Key PerformanceHierarchy of Obje.ives Indicatos Monitoring & Evaluation Critical Assumptions

Sector-related CAS Goal: Sector Indicators: Sector/ country reports: (from Goal to Bank Mission)Successful management, at the Establishment of projects in Periodic Country portfolio Motivation and willingness of

local/regional level, of energy conservation and solid reviews the present institutional andprograms for local waste disposal which have political structure in allinfrastructure and positive environmental impact municipalitiesenvironmental protection

GEF Operational Program

Project Development Outcome / Impact Project reports: (from Objective to Goal)Objective: Indicators:1. Demonstration of 1.1 Indicators of 1.1 Data from MOEPRD and (a) Municipalities remainself-sustaining modem waste environmental quality Environment Board committed to localmanagement of municipal environmental protectionsolid waste through maximumcollection and utilization of 1.2 Indicators of financial 1.2 Audited financial (b) Sound financial conditionsgenerated methane. performance of the waste statements in municipalities

management company

1.3 Indicators of neighbor (c) Increased understandingand consumer satisfaction 1.3 Surveys among inhabitants for

improved waste managementsupported by public awarenesscampaigns and information.

(d) Successful implementation1.4 Tariffs as a percentage of of complementary projectsexpenditures 1.4 National statistics (e.g. Municipal Service Dev.

Project)

(d) Continued support for1.5 Reduction of greenhouse power generation from LFGgas emissions 1.5 National communications within Latvia's overall energy

to the UNFCCC strategy.

2. Development of adequate 2.1 Indicators of progress 2.1 MOEPRD data and reportscapacity to implement the and performance inNSWMS implementation of the

NSWMS

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Global Objective

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Key PerfonnanceHierarchy ofOb Indicators Monitoring & Evaluatioii Critical Assumptions

Output from each Output Indicators: Project reports: (from Outputs to Objective)component:1. Improved and upgraded 1.1 Indicators of technical (a) Reports on regular (a) Waste tariffs are affordablelandfill operations performance, e.g. intervals (monthly, quarterly, and are collected

- covering of landfill semi-annually and annually)- leachate minimization on key indicators with outlineactivities or actions to be taken in case

- no final disposal of sorted of major discrepancywaste

- no open burning at the site- adoption of modemcompaction

- flexible design and operation

2. Accurate quantification of 2.1 Operation of weight scales (b) Comprehensive project b) All generated waste iswaste handled 2.2 Landfill delivery records review with agreement on dispatched to the regional site

reported and verified actions after 18 months ofimplementation

3. Reduced environmental 3.1 Number of disposal sites, (c) Surveys (c) Closure of obsoletedisamenities for neighbors which are closed disposal sites can be enforced

and policed.

4. Creation of environmental 4.1 Control of generation and (d) Monthly reports of treated (d) Access to laboratorymonitoring capacity collection of leachate volumes of leachate and equipment

4.2 Control of groundwater / results from analysis ofsurface water contamination leachate and ground water

5. Facilitate separation of 5.1 Quantities of recycled (e) Recording of collected (e) Waste recovery andrecyclable material materials recyclable material at the site recycling activities are

and at collection points committed with a soundeconomic basis andappropriate markets forrecovered materials

6. Collection of LFG 6.1 Volume of collected LFG (f) Independent verification (f) Effective maintenance of6.2 Number and volume of reports on greenhouse gas gas collection systemenergy cells emission reductions

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7. Revenue generated through 7.1 Revenue of utilized LFG (g) Metering of collected LFG (g) Continued willingness byutilization of LFG as an 7.2 Number of emission and generated kWh of Latvenergo to purchase theindigenous energy resource reduction units created electricity generated electricity to anand sale of greenhouse gas acceptable priceemission reduction units

8. Monitoring and separation 8.1 Availability of trained staff (h) Record keeping (h) Separate site for hazardousof hazardous waste for load inspections waste will be in operation

8.2 Reports on wastecomposition and load rejection

9. Enhanced capacity to deal 9.1 Accomplishment ofwith environmental issues training workshops

10. Reducing the number of 10. Number of birds attracted (i) Daily registration of locks (i) Management's willingnessbirds at an acceptable level to the site of birds and measures to apply protective measures

perforned in order to preventbirds access to the waste

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Key PorfornanceHiwrarchy of Objectives Indiators Monitoring & Evaluation Critical Assumptions

Project Components / Inputs: (budget for each Project reports: (from Components toSub-components: component) Outputs)

(a) Remediation of existing 2.42 (a) Periodic reports on key (a) Municipalities are able todisposal sites indicators with outline or contribute to project

actions to be taken in case ofmajor discrepancy.

(b) Technical and Operational 4.70 (b) Power purchase agreementimprovements with Latvenergo is signed

(c) Establishment of energy 1.11 (b) Comprehensive project (c) Work force is capable andcells and LFG collection review with agreement on motivated to improvesystem actions after 18 months of operations

implementation(d) Power generation and 0.71 (d) Public acceptance of new

connection to the grid landfill and collection points

(e) Vehicles and waste 0.89 (c) Carry-out project start-up (e) Kyoto rules allow sale ofcollection points workshop and seminars on carbon - agreement as

relevant Bank policies anticipated

(f) Managerial Support 0.49 (f) Availability of suitable staff

through twinning for hazardous waste andarrangements environmental monitoring

(g) Detailed Design 051 (g) Good cooperation betweenmunicipalities

(h) Implementation support 0.74

(h) Technical Assistance on 0.49the NSWMS

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Annex 2: Project DescriptionLATVIA: Liepaja Region Solid Waste Management Project

Background and Progress to date

Both the Liepaja City Council and the MOEPRD requested the Bank's support already at the end of 1995in designing and preparing a project for improved waste management in Liepaja City. Due to ongoingpreparation of the Riga waste management project, the Bank waited until mid-1 998 to respond positively tothe request, and raised at that time several conditions to engage in a new waste management operation inLatvia, such as: (a) the project should result in a regional solution in line with the National Solid WasteManagement Strategy (NSWMS); (b). both the LCC and LRC should declare that there was a clearconsensus among all involved municipalities within Liepaja region to establish a regional disposal site; (c)MOEPRD and LCC/LRC should identify one staff to participate in project preparation from eachorganization; (d) LCC/LRC should identify one or two persons to be responsible for continued informationto the public and mass media; and (e) SIDA should identify one staff member to participate actively inproject preparation and missions.

The project started completely from scratch without any pre-studies in June 1998. Since then, based on theenvironmental impact assessment and the technical feasibility study the PSC has managed to make theselection of the site; the new waste management company Liepaja RAS Ltd. is under establishment basedon the Business Development Plan; and the PIU to be contracted for the project implementation has alreadybeen involved in a number of implementation activities since end of 1998.

The project would consist of two components, one investment component for implementation a modemwaste management solution for Liepaja region, and a technical assistance component supporting theGovernment's efforts to implement its National Solid Waste Management Strategy.

By Component:

Project Component I - US$13.77 millionThis component is an investment component consisting of the following activities, and the presented costreflects base cost + contingencies + VAT:

Remediation - US$ 2.81 million: Under this component existing dumping sites would be remediated andsubsequently closed. Most of the dumping sites are very small, and their area and disposed waste volumedoes not exceed 2 hectares and, as a rule, 10,000 m. The only exceptions are the landfills in Liepaja city(Skede), Grobina, Aizpute and Prieluke. While the requirement for remediation will be specified by theRegional Environment Committee, the remediation of existing dumps is likely to be divided into fourgroups:

* The landfill at Skede requires substantial remediation actions, including: covering, collection andtreatment of leachate, groundwater and surface runoff, etc.

* Three landfills (Prieluke, Aizpute, Grobina) require cover of waste layer and a drainage system forsurface runoff. There is no need for leachate collection and treatment facilities since the groundwatercontamination is insignificant, does not threaten human health and has only a marginal impact on thesurrounding environment.

* Five dump sites (in Cirava pagast (2), Dunalkas pagast, Durbe, and Kaleti pagast) may require similarmeasures

* (waste layer cover, and a drainage system for surface runoff) but are much smaller. They need to be

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inspected separately in order to determine the required measures.* The remaining small dumps will either be covered or waste will be re-transported to the new landfill.

Technical and operational improvements - US$ 5.72 million. This activity would establish astate-of-the-art solid waste management system to meet international sanitary landfill standards. It wouldinclude the establishment of a sorting line for separation of recyclable materials and arranging separateareas for storing of separated material as well as hazardous waste, which would be transported to anothersite.

The site will be covered with about 0.5 m of thick clay, which is in compliance with EU regulations. Allleachate and polluted run-off water will be collected, and the volume which cannot be recirculated to theenergy cells will be treated in a biological treatment plant and filtrated before discharge to a surface watercoarse. The site will be equipped with a separate reception facility, enabling disposal of waste separated atthe household level, which will increase the possibility of recycling. Material which is not household wasteor which does not contain easily degradable material will be disposed at a special part of the site; andmaterial which can be used as filling material will be used inside the site, if necessary. Hazardous wastewill not be accepted; but in order to have the capacity to temporarily store that kind of waste, a separatestorage with its own drainage system will be included.

The normal household waste will, after reception at a special area, pass a bag opener and thereafter beloaded onto a conveyer belt, thereby enabling the manual separation of recyclable material, before beingshredded. From the shredder, the waste will be transported onto a conveyer belt to the energy cell. Thismeans that there will be no transport of waste by trucks to the cells, which in turn will reduce the trafficnoise to a large extent, as well as reduce the maintenance of internal roads, particularly during the wintertime. Over the tip face the energy cell will be covered with a net in order to prevent birds feeding on thewaste, and, furthermore, a daily coverage of soil will be applied to reduce the site's attractiveness to birds.

The sludge from the Liepaja wastewater plant will be received, and special equipment such as a centrifugefor dewatering and a mixing unit are included in this activity. Currently, the sludge is disposed in sludgedrying beds with no collection of leachate, resulting in minor nutrient load to the Baltic Sea. In addition tostopping this problem by disposing the sludge at the regional site, the sludge will contribute to thegeneration of LFG and hence, an increase in revenues for the Liepaja RAS Ltd.

Installation of energy cells and a landfill gas collection system - US $1.07 million. Energy cells wouldbe installed for the enhanced degradation of easily biodegradable waste and the accelerated production oflandfill gas, which contains about 50% methane. Landfill gas would be extracted both from energy cellsand the existing, remediated landfill in Skede. The resulting greenhouse gas emission reductions would bepartly sold to the PCF under an emission reduction agreement. Emission reductions would be carefullymonitored and subject to periodic verification by a third party.

The energy cell technology is based on the enhanced degradation of easily decomposable organic material.Normally, the degradation takes about 25-30 years, but through the creation of favorable conditions for theanaerobic bacteria, the degradation can be accelerated to be finished within 5 years. These favorableconditions involve: (a) a reduction in the size of pieces of waste which pass through the bag opening, byshredding them down in size to pieces not larger than 0.2 m; (b) maintaining a moisture content of 70%through the recirculation of leachate; (c) maintaining a temperature of about 37°C by pre-heating therecirculated leachate with heat energy from the gas engines; and (d) keeping the size of the energy cells at amaximum of 50% of the annually-received waste volume; and (e) applying a tight layer of clay orgeotextile on top of and along the slopes of the cell, thereby avoiding intrusion of air and precipitation.

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Installation of a power generator - US$ 0.72 million. An energy conversion unit (gas engine) of about IMW in capacity and which runs on landfill gas would be installed at Grobina, and one of about 0.3 MWwould be installed at Skede. Both units would be connected to the power grid, and the power would be soldto Latvenergo under a power purchase agreement to be negotiated as part of the project. Only 35-38% ofthe energy content in LFG will be utilized for electricity generation. A small part of the remaining heatenergy will be used for pre-heating the leachate and also heat the buildings, but the main part will beventilated into the air, as no other use at this time has been identified.

Vehicles and waste collection points - US$ 0.78 million. A system of waste collection points (for areaswith small waste volumes) would be established to ensure the efficient transport of waste to the regionaldisposal site. There would be at least one waste collection point in each pagast. The collection points wouldbe equipped with separate containers for different types of recyclable material. The feasibility studyconcludes that only one vehicle is necessary to serve the regional small pagasts, but still two vehicles willbe provided in order to have a reserve capacity in case one vehicle breaks down.

Managerial support through twinning - US$ 0.48 million. The project would establish a new solid wastemanagement company that would be responsible for the management of the landfill, the waste collectionpoints, and the transport of waste between them. This activity would provide technical and managerialassistance to the new company through a twinning arrangement. The Swedish government has expressed astrong interest in financing this activity through a grant.

Detailed design - US$ 1.18 million. This activity would provide the detailed design, technicalspecifications, bill of quantities, and all necessary drawings for project implementation, and also include thenecessary supervision during project implementation.

Implementation support - US$ 0.56 million. This activity would provide services from the PIU in order tohandle all procurement and disbursement issues related to the project, maintain project accounts andprepare project progress reports. In addition, this activity would support the continuation of the publicinformation and participation activities, which have been an integral part of the project since its inception.These activities will throughout project implementation focus on continuing a public information andeducation campaign, which will emphasize the importance of proper waste management, the implications ofthe National Solid Waste Strategy, the advantages of a regional solution and also the benefits of sourceseparation at the household level. It will include a full range of public meetings, consultations, surveys,education programs, the distribution of printed matter and information channeled through the mass media.

Project Component 2 - US$0.47 millionTechnical assistance on the NSWMS. This component involves training and capacity building at thelocal/regional level for solid waste management utilities, municipal authorities and private sector companiesinvolved in the implementation of the National Solid Waste Management Strategy.

The activity is expected to be implemented during 2001-2002, and will include a number of seminars andworkshops demonstrating the use of different managerial systems in order to better control the handling ofsolid waste and the operation of the sites. The training will also be open for interested officials from localand central governments. It is expected that the Canadian government will finance this activity through agrant.

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Annex 3: Estimated Project CostsLATVIA: Liepaja Region Solid Waste Management Project

Local Foreign TotalProject Cost By Component US $million US $million US $million

Remediation of existing disposal sites 2.18 0.00 2.18Technical and Operational Improvements 3.43 1.17 4.60Establishment of LFG collection 0.47 0.41 0.88Electricity generation 0.06 0.53 0.59Vehicles and collection centers 0.33 0.31 0.64Managerial support through twinning 0.00 0.42 0.42Detailed design 0.00 0.88 0.88Implementation support 0.47 0.00 0.47Training of waste management operators (Nation wide) 0.00 0.42 0.42Total Baseline Cost 6.94 4.14 11.08Physical Contingencies 0.33 0.20 0.53Price Contingencies 0.70 0.36 1.06

Total Project Costs 7.97 4.70 12.67Interest during construction . 0.90 0.90

Front-end fee 0.03 0.03Total Financing Required 7.97 5.63 13.60

The template does not allow for inserting also the additional cost for VAT and operational and maintenancecost during implementation, which need to be included in the figure for Total Financing Required.Including these cost elements the Total Project Cost and Total Financing Required will be as follow:

Local Cost Foreign Cost Total Cost-------------------US $ Million---------------

Total Project Cost from template 7.97 4.70 12.67VAT 0.76 0.35 1.11Adjusted Total Project Cost 8.73 5.05 13.78

Total Financing Required from template 7.97 5.63 13.60Operation and Maintenance during implementation 2.04 2.04VAT 0.76 0.35 1.11Adjusted Total Financing Required 10.77 5.98 16.75

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Annex 4: Cost Benefit Analysis Summary


Summary of Benefits and Costs:Cost streamsThe base cost and revenue stream for all the alternatives include the following:* Investment cost on the site& Investment cost for vehicles and containers* Staff, operation and maintenance costs on the site and for collection of solid waste* Cost of closing down regional dumps* Cost of closing down the Skede station (A5), in case of B I and B2* Cost of the upgraded access road, in case of B 1 and B2; anda Costs for providing water supply to the Skede summer colony, in case of Al - A4.

Value Added Tax has not been included in the analysis.

Revenue StreamThe generated incomes from the future operation of Skede or Grobina sites can be divided into thefollowing sources:

3 tipping fees or the waste disposal fee: a fee of LVL 2.2 per m3of solid waste is used in the analysis;- utilization of extracted gas for electricity production: based on the national legislation for electricity

generated from landfill gas, a price of LVL 22.5 per MWh is assumed; ande revenue stream from selling of ermission reduction credits at the rate of US$ 20 per ton of carbon.

The project envisages the closing of the Skede dumpsite and the estimated 26 other small dumpsites.Establishing a regional dumpsite at Grobina as an altemative will provide a number of sanitation benefitsto the inhabitants close to the dumpsite at Skede and elsewhere in the region. The nature of these benefitsmakes it difficult for the waste treatment company to extract a monetary payment for the improvement insanitation. The benefits stream however includes an annual benefit of 12 Lats per person.

There are other benefits to the regional environment which cannot be measured in monetary terms. Thepresent environmental impacts of solid waste management practices in the project area do not comply withthe existing environmental requirements. As a result, surface and groundwater pollution from the largestlandfill Skede already causes serious impact to the Tosmare Lake and poses potential threat to the drinkingwater quality. Better solid waste management practices are therefore likely to lead to a positive impact onthe regional environment, and will have associated benefits that are not just restricted to the Liepaja regionor even just to Latvia. There are grant payments by bilateral and multilateral sources for better solid wastemanagement which represent proxy payments for internalizing these external environmental benefits. Grantcontributions by Sweden (to prevent pollution of regional surface water bodies, etc.) and the EuropeanUnion represent contributions to mitigate such externalities. The net present value using these payments inthe economic costs returns a positive net present value and a significantly higher rate of return as isreflected in the financial analysis of the project where the grant financing is included in the cash flow forthe project.

Alternatives AnalyzedInitially, five alternative sites were evaluated and two sites were found acceptable for an in-depth

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evaluation for the regional solid waste treatment facility. These two sites are Skede and Grobina. Sanitarylandfill with and without the recovery of methane and the energy cell technology options were analyzed atboth of these sites. The analysis indicates that the most attractive options for solid waste treatment in theLiepaja region, in the order of attractiveness, are:

* Alternative A4 (Sanitary Landfill without gas extraction) by expanding the existing disposal site atSkede. It should be noted that the cost of the sanitary landfill as reflected in the cost of Alternative A4is different from cost of sanitary landfill the other alternatives with gas extraction. Alternative A4reflects the cost of a downgraded sanitary landfill as no gas capture or separation of waste is intendedin the alternative. As a result of not needing investments such as front-wheel loaders, devices for wasteseparation and smaller size of facility, the costs are lower than that of a comparable landfill with gasrecovery. The feasibility study for the project had included these costs and revised cost estimates haveemerged out of continued evaluation of the alternatives;

* Landfill gas extraction from the existing landfill, combined with energy cells for organic fraction and astandard landfill for inert waste at Skede (labeled at Altemative Al). Benefits from the sale of carboncredit is included in the analysis; and

* Altemative B1 (Gas extraction from existing landfill at Skede combined with energy cells for organicfraction at Grobina and landfill for inert waste at Grobina.

These altematives are summarized in the table below.

Alternatives Considered for Skede and Grobina

Alternative | Sub-alternatives Comments

Alternative A: Skede

Alternative Gas extraction from existing Attractive option with positive rate ofAl-A landfill, combined with energy retum. Examined further in the

cells, without addition of sewage detailed financial and economicsludge analysis

Al-B Gas extraction from existinglandfill, combined with energycells, with addition of sewagesludge

Alternative Gas extraction from existing Sale of gas appears infeasible (lack ofA2-A landfill, combined with energy customers) and not as financially

cells, without addition of sewage attractive as the use of gas for powersludge generation

A2-B Gas extraction from existinglandfill, combined with energycells, with addition of sewagesludge

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Alternative A3 Gas extraction from existing Not as attractive as either Altemativelandfill Al, A2 or A4

Alternative A4 Sanitary Landfill without gas Most attractive NPV of the wasteextraction treatmnent options without consideration

of the greenhouse gas emissions. TheBaseline for the PCF project

Alternative A5 Closing of the landfill No income stream from this alternative.This cost is incorporated in allalternatives for Grobina (Alt. B)

Alternative A6 Closing of the landfill with gas No income stream other than those fromextraction and flaring carbon credits to offset the costs

incurred to recover gas. Including thisalternative for the case of AlternativeB 1 for Grobina is explored further forthe detailed economic and financialanalysis

Alternative B: Grobina

Alternative Gas extraction from energy Attractive option with positive rate ofB I-A cells, without addition of sewage return. Examined further in the

sludge detailed financial and economicanalysis.

BI-B Gas extraction from energycells, with addition of sewagesludge

Alternative B2 Sanitary Landfill without gas Positive return but not as attractive asextraction Altemative Al, A4 (for Skede) or B 1

for Grobina.

Gas extraction from the existing landfill, combined with energy cells and the landfill for inert waste atSkede (Altemative Al) is more attractive than a similar facility at Grobina (Altemative Bl). The detailedeconomic and financial analysis is presented in the table below.

The table also summarizes the impact of capturing and flaring gas at the existing landfill site at Skede,should Grobina be chosen as the regional facility.

In addition, the table includes the IRR calculations for: (a) establishment of a regional site in Grobina butwithout gas collection; and (b) establishment of a solution exclusively for Liepaja City and without gascollection.

As can be seen, all the alternatives based on gas collection and sale of electricity yield a higher IRR, both

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with and without environmental benefits, than if gas is not collected and used for electricity generation. Atreduction of the sales price for electricity to the current import price, LVL 14.73/MWh still all alternativesbased on gas collection result in a higher IRR.

Skede site has better rates of return than Grobina. Due to environmental concerns, Grobina was chose asthe site for the regional facility. The comparison of the technical alternatives for Grobina indicates that gasextraction and electricity production at both Grobina (using energy cell) and Skede (with simpleremediation), closure and remediation of all existing dump sites in the region, including Skede, andreception of sludge from Liepaja Waste Water Treatment plant yields the highest IRR.

Internal Rate of Retun by Altematives

B1-A, A3 B1-B, A3 B2-A B2-BA4 (base (incl. gas (incl. gas (base (sanitary

Al-A Al-B case: B1-A B1-B at Skede, at Skede, case: landfill(excluding (including sanitary (excluding (including excl. incl. sanitary ind. gas

Item / Alternatives sludge) sludge) landfill) sludge) sludge) sludge) sludge) landfill) coll.)Total cost in US $ 11,508 12,152 6,695 13,496 14,140 14,003 14,618 7,925 10,989International payments or grantfinance in US $ (b) 7,830 7,830 8,020 8,020 8,693 9,222 7,830

IRR without carbon benefits (c) 6.9% 6.4% 15.0% 4.4% 4.1% 4.7% 4.9% 9.6% 1.8%NPV without carbon benefits (d) -1,344 -1,640 1,185 -2,734 -2,997 -2,669 -2,532 -137 -4,252

IRR with carbon benefits (e) 10.5% 9.8% 8.3% 7.9% 8.5% 8.7% 4.5%NPV with carbon benefits 213 -83 -873 -1,136 -808 -672 -2,829

IRR with intemational payments andcarbon benefits (f) 33.2% 25.8% 11.4% 18.1% 18.1% 17.5% 18.8% 6.4% 14.4%NPV with intemational payments andcarbon benefits 3,352 2,963 397 1,778 1,880 1,801 2,148 (791) 880

(a) For details please refer to the Feasibility Study(b) Revenues from the sale of carbon are not treated as a grant. but as payments for a output from project(c) The economic intemal rate of return (IRR) and the corresponding net present value (NPV) include, where applicable, revenue from the sale ofelectricity generated from the captured methane(d) Negative NPV in brackets(e) The IRR and the corresponding NPV include, where applicable, the revenue stream from the sale of emissions reductions (measured as carbonequivalent) in addition to the revenue from the sale of electricity(f) The internal rate of return includes revenues from the sale of carbon and treats other intemational payments or financing as a revenue stream tothe waste management company

Main Assumptions:1. Tipping fees or the waste disposal fee: a fee of LVL 2.2 per m' of solid waste is used in the analysis.2. Utilization of extracted gas for electricity production: based on the national legislation for electricity

generated from landfill gas, a price of LVL 22.5 per MWh is assumed.3. Selling of emission reduction credits generated compared to the baseline (Alternative A4 among the

options described above) to the Prototype Carbon Fund a the rate of US$ 20 per ton of carbon.

Sensitivity analysis I Switching values of critical items:Sensitivity analysis for the three variables listed in the main section above resulted in the switching value

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(value at which the economic rate of return becomes positive for the project when the other variables arekept at their base value).

Electricity Waste disposal fee Carbon price Gas yieldsale price LVUm3 US$/T of C m3/T of wasteLVUMWh

Base value 22.1 2.2 20 165

Switching value 28 2.5 28 200

IRR (') 10.1% 10.2% 10.1% 10.1%

NPV in 'OOOUS$ (-) $36 $93 $73 $35

IRR including intemational 21.4% 21.9% 18.8% 20.2%payments (**)

NPV including intemational $2,855 $2,913 $2,148 $2,549payments in '000 US(**)

Notes on the Table:*: In addition to waste disposal and electricity sale revenue, the financing from the Prototype Carbon Fund for the purchase of emissionreduction from the project and the benefits to local inhabitants due to improved sanitation is included.

**: The IRR and the NPV indcudes the international grant financing received for the project.

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Annex 5: Financial Summary


Financial Aspects and Summary

1- ORGANIZATION AND FINANCIAL STRUCTURE OF LIEPAJAS RAS LTD.

Organization

Company Structure. The Liepajas Ras Ltd. (LRL) has been incorporated on 24th February 2000 as anon-profit oriented, limited liability company. The shareholders of the new company are the Liepaja CityC'ouncil (LCC) for 66-7% and the Liepaja District holding company RAS-30, which was incorporated inDecember 1999 for 33.3% of share capital.

LCC represents the 95,000 inhabitants of the City, while RAS-30 regroups the 25 towns and villages of theLiepaja Region, with an estimated population of 45,000.

The two shareholders have decided that LRL will be a non-profit oriented company, but that it will beoperated on a commercial basis. Its principal objective will be to provide least-cost modem wastemanagement at the lowest possible household waste charges for all the inhabitants of the city and the regionwithout relying on subsidies.

Capital. Share capital of LRL will amount to LVL 600,000 (USD 1 million); LCC has approved itsparticipation of LVL 400,000, while RAS-30 would take a share holding of LVL 200,000. These shareparticipations will be paid up according to the following schedule (in thousands of LVL):

2001 2002 2003 2004 2005 2006 total

LCC 100 100 100 100 0 0 400

LCR 35 35 35 35 35 25 200

total 135 135 135 135 35 25 600

The equity will represent only 6.0% of the total resources required for project implementation, which havebeen estimated at around LVL 10.1m (USD 16.8m). Normally this very low level of self-financing wouldnot be considered acceptable for a commercially oriented enterprise. However, grant finance would financealmost 52 % of total project costs, while the loans from World Bank and NIB of LVL 2.2m (USD 3.7m)would cover only 22% of the total resources; the balance will be self-financed by LRL. Consequently, thefinancial structure of the new company can be considered to be quite satisfactory.

The grants from Sida (LVL 0.7m) ; from GOL/EU (LVL 3.3m) and from GOL/PCF (LVL 1.2m) for atotal of LVL 5.2m would be accounted for on the balance sheet as < deferred income )) and wouldsubsequently increase the shareholders' net worth in the company .

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Activities. The company would in the first instance be responsible for implementation - together with theProject Implementation Unit (PIU) - of the investment program leading to the establishment of the modemsolid waste disposal site located in Grobina pagast. And subsequently, Liepajas RAS would manage thesefacilities to the highest standards. Also, electricity would be produced at the old landfill at Skede, estimatedto last for 20 years.

Concurrently with the implementation of the new landfill facilities, the company would supervise thegradual phasing out of all existing landfill operations at the regional landfill sites. Several sites, amongwhich notably Skede, Aizpute and Ni,a would also require implementation of remedial measures to protectthe groundwater from run-off pollution of the landfills.

LRL would also be responsible, in close consultation with the regional municipalities, for the organizationof storage of household and industrial waste at the regional level (outside Liepaja City) and of itstransportation to the central regional landfill. The cost of this collection and transport service, bothinvestment in vehicles and recurrent O&M costs, has been included under the Project.

Collection and transport of waste at the local level to the respective temporary storage areas would remainthe responsibility of municipal councils, while in Liepaja City the already established waste collectioncompanies would in the first instance continue to collect and to transport waste to the regional site.However, the municipal authorities both of the City and the region could request Liepajas Ras to performthese services on a commercial basis, and in competition with other waste collection and transportationcompanies.

It is now foreseen that LRL would be directed by LCC to take over the operations of the Skede landfillfrom the present operator Hoetica Ltd. Such a course of action would enable the company to acquireexperience in landfill operations, and perhaps as important, build up a positive cash flow prior to theproject's implementation.

Company Management. The management structure of LRL would comprise a Board of Directors,representing the interests of the shareholders and responsible for the policy orientation of the company, andthe company's management, responsible for day to day operations. These aspects are covered in detail inthe Business Development Plan (BDP).

The Board of Directors would consist of up to five directors, selected for their business or technicalcompetence: they would be paid an attendance fee, plus administrative expenses related to their function.

Day-to-day operations would be the responsibility of the Managing Director, assisted by a Technical and aFinance Director; an accountant, a clerk, a bi-lingual secretary, a cleaner and a driver/fixer wouldcomplement the office staff. The Operations Manager, also directly responsible to the Managing Director,would be in charge of the landfill activities. The job descriptions of the Managing Director, the TechnicalDirector, the Finance Director and the Operations Manager are also included in the BDP. At the landfillsite there would be an estimated 20 operational staff, assuming that the site would only be open duringnormal working hours, from Monday to Saturday3.

Salaries and wa es. The proposed staffing, as well as salary and wage scales are in Attachment I ofAnnex 12; for the Board members a fee structure has also been included. In addition to gross salaries, eachstaff member will receive an annual vacation allowance equivalent to 6% of salary. A provision has alsobeen made for the 27.09% Social Security Taxes payable by the employer as off I st January 2000.

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The wage and salary bill, including vacation allowances and social security tax for all staff, has beenestimated at LVL 95 000 per year. To this figure are added the attendance fees & administrative costs forthe Board, estimated at LVL 5 000 per year, for an annual cost of LVL 1 00 000/year.


The project as defined for World Bank and PCF financing has been estimated at an investment cost of LVL8.26 m or USD 13.75 m, as shown in the following table. These basic costs have been increased with theoperational & maintenance costs during implementation; cost of regional waste transportation; interestduring construction on the World bank and NIB loans which would be borne by LRL from intemallygenerated finds; and the up-front fee for the two loans. These additional costs during implementation cometo a total of LVL 1.79m or USD 2.98m. Overall project cost is thus estimated at LVL 10.05m or USD16.75m.


Applications LVL'000 USD'000 %Base costs 6,646 11,077 66.1Contingencies 953 1,588 9.5VAT 666 1,110 6.6

Sub-total investment 8,265 13,775 82.2

O & M during construction 1,225 2,042 12.2Interest during Construction 542 903 5.4Front-end fee WB loan 20 33 0.2

Total Applications 10,052 16,753 100.0

Financing SourcesEquity 600 1,000 6.0Grants 5,488 9,147 54.6

GOL/PCF 1,200 2,000 11.9GOL 387 645 3.9EU(ISPA) 2,915 4,858 29.0SIDA 705 1,175 7.0TBD 281 468 2.8

Loans 2,227 3,712 22.2World Bank 1,333 2,222 13.3Nordic Investment Bank 894 1,491 8.9

Sub-total 8,315 13,859 82.5Liepaja Ras self-financing 1,736 2,894 17.3Total Sources 10,052 16,753 100.0

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Financial Structure

The opening balance sheet at 1st January 2001 will not contain more than a LVL 2,000 notionalcontribution of the shareholders, sufficient to have the company incorporated. Subsequently, over the sixyears of project implementation, the two shareholders will pay-in their full shares for a total of LVL600,000.

The balance sheet at project completion takes account of the depreciation allowances during these sixyears, as well as of accumulated profits 4 . The figures are based on the present estimates of the feasibilitystudy and would no doubt be modified after the detailed design has been carried out. It is however clear thatthe balance sheet underlines the strong financial structure of the new company, with shareholders' fundscovering 70% of the balance sheet totals, and loans only 25%.

The approximate balance sheet of LRL project completion at the end of 2006 has been summarized in thetable below.

ASSETS LVL ' 000 % LIABILITIES LVL' %000

Intangibles 1 612 18.1 Share capital 600 6.7

(studies and design) Grants (quasi-equity) 5 722 64.3

Fixed Assets 6 654 74.8 Retained earnings 447 5.0

Depreciation -178 -2.0 Shareholders' Funds 6 769 76.0

Net Fixed Assets 6 476 72.8

World Bank/NIB loans 1 794 20.2

Sub-total Fixed 8 088 90.9Assets

Sub-total long term funds 8 563 96.2

Current assets

(cash, spare parts, 812 9.1 Current liabilities 337 3.8

etc.

Grand Total 8 900 100.0 Grand Total 8 900 100.0

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2. FINANCIAL CASH FLOW PROJECTIONS FOR LIEPAJAS RAS

Assumptions

The analysis of the cash flow for the Liepajas Ras is based on the modem waste management projectlocated at the Grobina landfill site and on the investment alternative with sludge transported from theLiepaja Waste Water Company and applied to the energy cells. In addition, electricity would be generatedfor 20 years at the Skede landfill site.

Revenues consist of the waste disposal fee and the sales of electricity generated on the Grobina and theSkede sites. The annual sales of electricity have been derived from production figures shown in thefeasibility study and valued at the agreed Latvenergo tariff of LVL 22. 10/MWh. Gross disposal fee at thelandfill needs to be reduced by the Natural Resource Tax (NRT) of LVL 0.25/m3 and by the 18% ValueAdded Tax (VAT) payable on the remainder, to arrive at the net revenue to the company. Attachment 1 ofAnnex 12 shows the analysis of waste disposal tariffs and the proposed increases necessary to balance thecompany's cash flows.

No other revenues have been included, neither for heat produced on site, nor for sorted waste materials, asthe market for both products is, at this stage, difficult to identify. After project implementation LiepajasRas should explore these markets so as to improve the revenue base of the company.

Costs include all operational and maintenance costs, both for the Grobina landfill site, the Skede electricitygenerating station and for the company. Additional investments in energy cells of LVL 200 000 in years 8,12 and 16 have been included in the cost streams.

For depreciation the figures for maintenance in the O&M tables have been used as a proxy.

Transport of regional waste to the site has also been included in the analysis, both in terms of investment invehicles and their O&M costs.

Interest charges on the World Bank/NIB loans of LVL 2.2 million is assumed to be at 7.8% (consisting of6-months LIBOR for USD of 6.25%, plus 0.55% fixed margin for WB/NIB, plus 0.5% administrative feefor GoL, plus a 0.5% risk premium). The WB loan will have a 5 year grace period, followed by 12 years offixed repayment. The NIB loan will have a maturity of 25 years, of which 10 years grace and a repaymentby annuity. A provision has also been made for the front-end fee of 1% over the entire loan amount, whichwill be paid against the loans. The interest charges will be paid by the company.

Finally, in view of the non-profit oriented status of the company, no company profit tax has been applied.

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Projections

- Financial structure Due to the very favorable funding available for the project, the financial structureof LRL will be quite solid. Loans would represent just 20% of project financing and the projected balancesheet at 31/12/2006 shows a similar figure, just before the start of repayments. Over time, with the steadyrepayment of these loans, the financial structure will continue to improve; this development would allow thecompany to easily borrow funds in the event of further need for investments at the site.

- Cash flow projections In the base case (detail in Attachment 1, Grobina 1 case), the gross disposal feeat the landfill is taken at the level of the present tariff at Skede of LVL 1.00/rn, which gives a net receipt tothe company of LVL 0.64/m after deducting the NRT and the VAT of 18%. All other figures are asassumed above.

In this variant, the Gross Operating Margin (GOM) remains positive throughout the 20-year period, whichmeans that revenues cover operating costs (i.e. the working ratio is below 100%), which is of course aminimum, but not a sufficient condition for the survival of the enterprise. Thus, after allowing fordepreciation and payment of interest on the WB/NIB loans the resulting annual profits are only positiveduring the years 2004 and 2005.

Once depreciation is added back to profits, the resulting Cash flow from years 3 to 6 remains positivethroughout. But with the start of loan repayments in year 7, and particularly with the three periodicinvestments of LVL 200,000 in energy cells (years 8, 12 and 16), this cash flow turns negative for theentire loan repayment period, years 7 up to and including year 17 of the project. This implies thatcumulative cash flow becomes increasingly negative, obviously an untenable situation and the financialratios for this base case, which are shown in the same attachment, are all unacceptable. This base caseanalysis therefor shows the clear need for increased income'; at this stage the only variable is the disposalfee, as the electricity sales price is fixed by Government decree and the markets for the company'sby-products have not yet been identified.

The alternative case (shown in Attachment 2, Grobina 2 case) assumes a 120% increase in the grossdisposal fee to LVL 2.20/m3 of waste, which yields a 160% increase of the net disposal fee received by thecompany from LVL 0.64 to a level of LVL 1.65/1m. This increase will be phased in over the years 2001 to2005. In addition, the disposal fee will need to be increased by a further 23% when, in year 8 of the start ofelectricity production, the favorable electricity tariffs will be reduced to the import parity level. Details ofthe analysis of waste disposal charges and its impact on the tariff paid by individual household membersare in Attachment 1 of Annex 12.

The increased waste disposal revenue allows the Gross and Net Operating Margins to remain positive overthe entire 20 year period. Profits are also projected to be positive throughout (except for the first two years)and, after adding back in depreciation, the annual cash flow before loan repayment is largely positive overthe 20 year period, with the exception of those years when additional energy cells will need to beconstructed (years 8, 12 and 16).

Once loan repayment starts, the cash flow after debt servicing is reduced sharply, but remains positivethroughout. The annual cash flows turn negative only in years 8, 12 and 16, with the investments in energycells of LVL 200,000/year. Once the WB loan has been repaid the cumulative cash flow increases rapidlyto reach LVL 1.7m in 2020.

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Financial ratios The ratios will be discussed only for the Grobina Alternative case (Attachment 2), i.e.with the 120% increase in the gross waste disposal fee phased in over the years 2001 to 2005. Asmentioned before, the base case (Attachment 1) is not a viable proposition, and the results of the sensitivityanalysis show that any substantial decreases of revenue and/or increases of operating costs would alsoresult in a non-viable financial situation for the company.

The financial ratios for the Grobina Alternative case are modest, but perhaps acceptable for a non-profitoriented utility. The major ratios are:

Cash flow before debt service, as % of revenues: this indicator shows that the company is able to servicedebt or, once the debt repaid, is able to make additional investments. The ratio remains positive throughout,but needs to be judged in relation to debt service requirements.

Cash flow after debt service. as % of revenues: identical to the preceding ratio, except during the periodof debt repayment. During the years of loan repayment, this ratio drops to low levels, but remains positivethroughout. There will be little room for major replacement of machinery or for new investments. Due tothe special character of this non-profit oriented utility, this situation can perhaps be accepted.

Debt service ratios:

- interest over cash flow, before debt service: indicates that in the early years, interest payments take avery significant portion of the cash flow. The ratio obviously declines with loan repayment.

- loan repayment over cash flow, before debt service: the percentage above 100 indicates that the cashflow is not large enough to cover the loan repayment. It is a complement to the ratio of cash flow after debtservice, which as was mentioned above, turns negative for the entire period of loan repayment. Not a goodsituation, but perhaps acceptable in this particular case, when the prime objective of the shareholders is tominimize the household waste collection charges to the consumer and where affordability of high tariffs isquestionable.

- ratio of Gross Operating Margin over total finance and debt service: the ratio is less than 1.00 for 3years and then rises to 1.2 which is marginally acceptable.

Depreciation as a % of cash flow before debt service: the % during the period of loan repayment dropsfrom 61% in 2006 to 28% by the year the WB loan is fully repaid, indicating that depreciation graduallymakes a smaller contribution to the cash flow. This may indicate that the depreciation charges should berevised upwards.

Gross operating margin as % of revenues: the ratio should be as high as possible; it fluctuates in the50% to 55% range, rising to close to 60% at the end of the period, which is acceptable for this type ofutility and ensures a reasonable cash flow once the loan has been repaid.

Working ratio: another indicator of the GOM, showing the surplus over operating expenses available fordepreciation, and finance charges. See previous remarks.

Operating ratio: this indicator should be well below 100% to show a surplus available for debt service andadditional investments. It remains just below this benchmark in the early years of loan repayment andimproves with repayment to reach 60% in 2020.

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Conclusion The ratios indicate that at the assumed level of disposal tariffs and electricity sales, thecompany's financial performance remains satisfactory during the period of loan repayment. It is only in thethree years of investment in the energy cells that the annual cash flow turns negative. However, thecumulative cash flow remains comfortably positive.

World Bank benchmark

Debt coverage ratio: a debt service indicator showing the adequacy of the Gross Margin to cover debtservice payments. This ratio should be above 1.0, which is the case throughout. Once the WB loan hasbeen repaid, the ratio rises to 4.0, which is quite satisfactory and more than sufficient to cover NIB loanrepayment.

Sensitivity Analysis

A sensitivity analysis has been carried out, showing the impact on the cash flows of a 10% drop inrevenues and of a 10% increase in operating costs; Attachments 3 and 4 show the detailed calculations andresults.

The 10% drop in revenues has a predictably strong impact on the cash flows and the ratios. The companyshows a profit throughout, but the annual cash flow after loan repayment turns negative over the year 2006to 2009. Due to the periodic investment in energy cells, the cumulative cash flow turns negative for theentire period from 2008 to 2017 and then recovers to reach LVL 0.5m in 2020.

The 10% increase in operating costs would have a lesser impact on annual cash flows and the cumulativecash flow after loan repayment turns negative only in two years. It grows to reach LVL 1,2m in year 2020.

Conclusion: The sensitivity analysis shows that the company's performance would be strongly affectedby decreases of revenues, while a decrease of the same magnitude in operating costs would have about halfthe impact on profitability and cash flows. The figures also show, that the margin for errors in thecompany's management are likely to be narrow.

Perspectives

Short and medium term The cash flow analysis of the company shows that the financial situation ascalculated on the basis of the increased disposal fees to be introduced over the years 2001 to 2005 will givesatisfactory results. LRL will be able to repay the World Bank/NIB loans without depleting its resourcebase; the investment in additional energy cells can also be financed without depleting its resource base. Theprojections shows that this would be possible, but the margins for error are not very large even though theaccumulated cash flow in the final year of loan repayment reaches LVL 1.7m. Any decreases of revenuesor increases of operating costs would seriously affect these results.

It would therefor seem prudent to monitor very closely the performance of the company even during projectimplementation. The proposed 120% increase in the gross disposal fee during 2002 to 2005, may therefornot be sufficient to assure, for the medium term, a sound financial structure of the company. Consequently,the need for additional increases in the disposal fee will need to be monitored closely after the project hasbeen fully implemented.

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Long tern perspectives The cash flow analysis gives the likely development of the company's financialsituation up to year 20 of the project. The time span is extremely long and it is unlikely that the projectionholds good even over the medium term. However, the long term calculation shows broadly positive annulresults, even though these results deteriorate in years of energy cell investment. Therefor, extreme cautionmust be exercised and LRL management will have to be vigilant to control costs and improve efficiency asmuch as possible.

Also, replacement of machinery and equipment, as well as new investments would claim most of theseavailable resources. However, LRL's strong financial structure would give sufficient leverage to borrowfunds for expansion and/or modernization.

3. PROJECT JUSTIFICATION - BENEFITS AND RISKS

Financial Returns of the Project

From among various project altematives, the option of the Grobina landfill site plus electricity generationat Skede has been selected. Electricity production at the Grobina site would be enhanced by the applicationof sludge, which improves methane gas production and thus allow higher output of electricity for sale toLatvenergo. Current legislation allows producers of electricity based on landfill gas a premnium over theimport price, which enables the project to be financially sustainable at the enterprise level without excessivewaste collection tariff increases6 .

Investment costs have been calculated by Sweco in the project's feasibility study and adjustments havebeen made for physical and price contingencies. Project costs also include design; services of a ProjectImplementation Unit and technical assistance in the form of a twinning agreement; operational andmaintenance costs of the landfill site; the cost of regional waste transportation; the generation station atSkede; and the administrative costs of the company. Additional investments in energy cells have beenbudgeted for the years 8, 12 and 16. No re-investments have been included on the assumption thatmaintenance costs will be sufficient to keep the equipment in working order. Nevertheless, a rest value ofLVL 1.3m or 20% of the investment costs has been assumed in year 20.

Project revenues consist of the net landfill fee, increased by 160% over the present level of 64 santimes/mto 165 santimes/m3, and the sales proceeds of electricity. In the future there may be possibilities to sellrecyclable materials and/or heat to the city heating plant at Grobina, but the market for these by-productsneeds to be explored dunng project implementation.

The carbon emission reduction has been linked to electricity production and has been valued at the totalPCF grant made available for project implementation, LVL 1,434,000. In addition, the Sida grant of LVL705,000, which is uniquely tied to this project, has been considered a benefit to the project.

The FIRR calculation (Attachment 5 of Annex 5) shows that under these assumptions the FIRR would be3.01%. In order to improve the FIRR to around 7.5% it would be necessary to further increase the netdisposal fee with 75 santimes/m3 from LVL 1.65 assumed now to LVL 2.40/mr, but this would then lead tounaffordable increases of the household waste collection charges.

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Sensitivity analysis

The sensitivity analysis has been carried out on the bases of the FIRR calculation presented in Attachment5, assuming respectively a 15% increase in the value of carbon reduction; a 15% increase in the landfilldisposal fee; a 15% increase in project costs; a 15% increase in operating costs; a 15% decrease inoperating costs; and a 15% decrease in project costs.

Basically, the figures indicate very slight variations in the basic FIRR of 3.01%, with the revenue increaseshaving a proportionally lesser impact on the FIRR than the increases in costs; however decreases of projectand operational costs have a strong positive impact on the FIRR. The results are as follows:

Case 1: increase carbon reduction value by 15% FIRR + 3.36% (+ 11.6%)Case 2: increase net disposal fee by 15% FIRR + 3.63% (+ 20.6%)Case 3: increase investmnent costs by 15% FIRR + 1.36% (- 54.8%)Case 4: increase operational costs by 15% FIRR + 1.90% (- 36.9%)Case 5: reduction in operational cost by 15% FIRR + 4.23% (+ 40.5%)Case 6: reduction in investment costs by 15% FIRR + 5.42% (+ 80.1%)

Endnotesi The project's investment costs of LVL 8.3m (USD 13.8m) needs to be increased by O&M and regional waste transportationduring project implementation (2001 to 2006), as well as by the interest charges, both of which are to be covered from LiepajasRas' cash flow.

2 The method followed in the treatment of these grants is that of the << income approach >> advocated by the InternationalAccounting Standard IAS 20 of 1991, reformatted in 1994. Under this approach the grants, which are basically allocated toGovernment and then passed on to the company, are accounted for on the balance sheet under liabilities as deferred income,and "depreciated" in line with the assets acquired with these funds. The appropriate amount will then be transferred each yearfrom "deferred income" to the revenue side of the Profit & Loss account As the company will not be liable for company tax,the income so transferred will re-appear on the balance sheet under liabilities in the form of"Retained Profits" and so increase Shareholder Equity.

3 At the Getlini site in Riga the landfill is open on a 24 hour basis and this fact explains the need there for around 12 guards,compared to only four guards at Grobina.

4 Depreciation and accumulated profits have been taken from the Grobina 2, cash flow projections. Should Liepaja Ras beinstructed to take-over the landfill operations at the Skede site, in anticipation of the implementation of the project at the newsite at Grobina, then the balance sheet would of course be modified.

5 The other way for an enterprise to improve performance and cash flow is of course to reduce operating costs. However, at thisstage of project implementation this is not really a serious option for Liepajas Ras.

6 The financial sustainability of the project at the enterprise level is assured by the very high equity and grant components inthe financing plan. Otherwise the waste disposal tariff would have had to be increased significantly.

Attachments

I - Profit & Loss projections, Grobina 1 case2 - Profit & Loss projections, Grobina 2 case3 - Sensitivity analysis, 10% drop of revenues4 - Sensitivity analysis, 10% increase of operating costs5 - FIRR for-the Grobina 2 case, with sludge, electricity at Skede and 50% increase of waste disposal fee; Sidagrant and PCF credited back to the project6 - FIRR sensitivity 1: 15% increase PCF contribution

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7 - FIRR sensitivity 2: 15% increase of net disposal fee8 - FIRR sensitivity 3: 15% increase project costs9 - FIRR sensitivity 4: 15% increase operational costs10- FIRR sensitivity 5: 15% reduction of operational costs11- FIRR sensitivity 6: 15% reduction of investment costs

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Attachment 1(under PAD MARCH,

Annex 5, attachment 1)

Liepaja Region Solid Waste Management Project - Projections of Profit & Loss and Cash Flow for Liepajas Ras Co: Grobina Icase, with sludge and Skede, no increased net disposal fee (in '000 LVL) 5th April 2000

Calendar YearsProfit & Loss Statement desciption 2001 2002 2003 2004 2005 2006 2007 2008 2009

pr ted quantil es of waste at thetardft,iOnXWm3 126 137 149 162 175 179 184 189 194base case of net disposal fee

Revenues netdisposalfee and electricity of 0.636/m3 80 218 264 312 345 348 352 356 361receipt of NRT on site 0.25/m3 32 34 37 40 44 45 46 47 49increased disposal fee no increase 0 0 0 0 0 0 0 0 0

total revenues 112 252 301 352 389 393 398 403 410Dec 13 figures, updated for

Costs:Operational costs (sites and Liepajas Ras) salary costs -166 -153 -161 -172 -189 -234 -253 -253 -253regional transport AH estimate -25 -25 -25 -25 -25 -25 -25 -25 -25

payments of NRT from Grobina base case, FIRR -8 -9 -9 -10 -11 -16 -17 -17 -18total costs -199 -187 -195 -207 -225 -275 -295 -295 -296

Gross operating margin revenues minus costs -87 65 106 145 164 118 103 108 114

Depreciation proxy based on maintenance -2 -9 -17 -28 -46 -76 -95 -95 -95Net operating margin -89 56 89 117 118 42 8 13 19Interest on World Bank/NIB loans+front-end fee paid by the company -68 -98 -99 -99 -99 -99 -99 -92 -84Profits, not taxable -157 -42 .10 18 19 -57 -91 -79 -65

Cash flow adjustments

Depreciation see above 2 9 17 28 46 76 95 95 95Cash flow from project retained profit + depreciation -155 -33 7 46 65 19 4 16 30repayment WBlNIB loans afler6yearsgrace penod 0 0 0 0 0 0 -139 -146 -153Cash flow after loan repayment available for investments -155 -33 7 46 65 19 -135 -130 -124penodic investment for energy cells 200,000 in years 8,12 and 16 0 0 0 0 0 0 0 -200 0

Cash flow after penodic investments -155 -33 7 46 65 19 -135 -330 -124

Cumulative cash flow, after loan repayment -155 -189 -181 -135 -70 -50 -185 -515 -638

Ratioscash flow indicatorscash flow before loan repayment, as percent of revenues -138.8% -13.1% 2.4% 13.2% 16.8% 4.9% 1.1% 4.0% 7.2%

cashflow afterloan repayment, as percentof revenues -138.8% -131% 2.4% 13.2% 16.8% 4.9% -33.8% -32.2% -30.1%

break-even ratio (revenues/operating expensesedebt service-depreciation) 0.4 0.9 1.1 1.3 1.4 1,3 0.9 0.9 0.9debt service ratios* debt service coverage ratio (gross operating margin over total debt servicepayments) -1.3 0.7 1.1 1.5 1.7 1.2 0.4 0.5 0.5

-' interest payment as percent of cash flow, before debt service payments -78.7% 150.9% 93.1% 68.1% 60.2% 83.6% 95.8% 85.0% 74.1%

loan repayment as percent of cash flow, before debt service payments 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 134.9% 135.0% 134.3%

depreciation as percent of cash flow before loan repayment -1.3% -27.2% 232.9% 60.5% 70.4% 393.8% 2209.3% 584.8% 321.6%gross margin as percent of revenues -77.7% 25.8% 35.2% 41.2% 42.2% 30.0% 25.9% 26.8% 27.8%

working ratio (operating costs as percent of revenues) 177.7% 74.2% 64.8/ 58.8% 57.8% 70.0% 74.1% 73.2% 72.2%

operating rato (operating costs+depreciatfon+interest as percent of revenues) 240.6% 116.7% 103.2% 94.8% 95.0% 114.4% 122.8% 119.5% 116.0%

NOTES: all costs and waste deliveries as calculated by AH on 13th December 1999; operational costs increased for revised staffingdisposal fee as now applied at the Skede landfill, @ LVL 1,00 per m3 of waste, giving net disposal fee of LVL 0.636/m3no allowance for sale of sorted materialsdecrease of electricity tariff in 2010 is compensated by an equivalent increase of the net disposal ratedepreciation taken as proxy on 100% maintenance costsfront-end fee of 1% on total loans or LVL 20,120 included under interest in year 1

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Attachment 1 Continued

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 description totals

waste collected as per SWECO

199 205 211 217 224 230 231 232 234 235 237 projectionrevenues without increase in disposal

367 372 379 385 392 399 402 407 411 416 421 fees 6,987

50 51 53 54 56 57 58 58 58 590 0 0 0 0 0 0 0 0 0 0 increased disposal fee 0

417 423 432 439 441 456 460 465 469 475 421 revenues with increased disposal fees 7,915

-253 -253 -253 -253 -253 -253 -253 -253 -253 -253 -253 total operational costs -4,617

-25 -25 -25 -25 -25 -25 -25 -25 -25 -25 -25 cost of regional transport -500

-19 -20 -20 -21 -21 -22 -22 -22 -23 -23 -23 NRT payments -351

-297 -298 -298 -299 -299 -300 -300 -300 -301 -301 -301 total costs -5,468

120 125 134 140 149 156 160 165 168 174 120 gross margin 2,447

-95 -95 -95 -95 -95 -95 -95 -95 -95 -95 -95 depreciation -1,508

25 30 39 45 54 61 65 70 73 79 25 net margin 939

-77 -69 -60 -51 -42 -32 -22 -12 0 0 0 fLnance chares Worid Bank+NIB loans -1,202-52 -39 -21 -6 12 29 43 58 73 79 25 profit before taxes -263

95 95 95 95 95 95 95 95 95 95 95 depreciation 1,508

43 56 74 89 107 124 138 153 168 174 120 cash flow = net profit plus depreciation 1,245

-161 -169 -177 -186 -195 -205 -215 -226 0 0 0 Worid Bank+NIB loan repayment -1,973

-118 -113 -104 -98 -89 -82 -78 -73 168 174 120 netcashflowafterloanrepayment -728

0 0 -200 0 0 0 -200 0 0 0 0 energy cells -600net cash flow after investment in energy

-118 -113 -304 -98 -89 -82 -278 -73 168 174 120 cells -1,328

cumulative net cash flow after loan-756 -868 -1,172 -1,270 -1,358 -1,440 -1,717 -1,790 -1,622 -1,448 -1,328 repayment

10.4% 13.3% 17.1% 20.2% 23.8% 27.1% 30.0% 33.0% 35.8% 36.6% 28.5% cash flow as percent of revenuescash flow after loan repayment, as % of

-28.2% -26.6% -24.0% -22.2% -19.8% -179% -16.9% -15.6% 35.8% 36.6% 28.5% revenues

0.9 1.0 1.0 1.0 1.0 1.0 1.0 1.1 2.3 2.3 2.0 break-even ratiodebt service ratios*ratIo of gom over total debt service

0.5 0.5 0.6 0.6 0.6 0.7 0.7 0.7 0.0 0.0 0.0 payments* interest % of cash flow, before debt

64.0% 55.0% 45.0% 36.8% 28.3% 20.8% 13.8% 7.1% 0.0% 0.0% 0.0% servicel- loan repayment over cash flow,

134.0% 135.1% 132.3% 133.0% 131.2% 131.6% 134.7% 136.9% 0.0% 0.0% 0.0% before debt servicedepreciation as % cash flow, before loan

219.9% 168.9% 128.9% 107.3% 88.9% 76.8% 68.9% 62.0% 56.5% 54.6% 79.2% repayment28.8% 29.6% 31.0% 31.9% 33.3% 34.2% 34.8% 35.5% 35.8% 36.6% 28.5% gross margin as percent of revenues

working ratio (operating costs as

71.2% 70.4% 69.0% 68.1% 66.7% 65.8% 65.2% 64.5% 64.2% 63.4% 71.5% percent of evenues)op ratio (op costs+depr+interest as % of

112.4% 109.2% 104.9% 101.5% 97.4% 93.7% 90.7% 87.5% 84.4% 83.4% 94.1% revenues)

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Liepaja Region Solid Waste Management Project (Annex 5, attachment 2, under PAD MARCH)Projections of Profit & Loss and Cash Flow for Liepajas Ras Co: Grobina 2 case,with sludge and Skede, plus increased net disposal fee (in '000 LVL) 17th April 2000Projection based on: WB loan 1,332,000, maturity of 17 yrs, 5 yrs grace, FRP; NIB loan 0.9m, maturity 25 yrs, grace 10 yrs. Interest based on 6months $ LIBOR. Net disposal tariff increase of 101 santimeslm3, or 160% over 2000 level, phased in over the years 2001 to 2005.

Calendar YearsProfit & Loss Statement description 2001 2002 2003 2004 2005 2006 2007 2008 2009

descriptionprojected waste delivenies at thelandfdl, in '000m3 126 137 149 162 175 179 184 189 194

Revenues: net present disposal fee and future base case of net disposal fee ofelectricity sales 0.64/m3 80 218 264 312 345 348 352 356 361

receipt of NRT on site 0.25/m3 32 34 37 40 44 45 46 47 49increased net disposal fee, 160% over net disposal fee received by LRL,

2001 to2005 raiseby101/m3 69 89 112 143 177 181 186 191 196total revenues 181 341 413 495 566 574 584 694 606

Costs: operational costs (sites and Liepajas Dec 13 figures, updated forRas) salary costs -83 -153 -161 -172 -189 -234 -253 -253 -253

regional transport AH estimate -13 -25 -25 -25 -25 -25 -25 -25 -25payment of NRT from Grobina base case, FIRR -8 -9 -9 -10 -11 -16 -17 -17 -18

total costs -104 -187 -195 -207 -225 -275 -295 -295 -296Gross operating margin revenues minus costs 78 154 218 288 341 299 289 299 310Depreciation proxy based on maintenance -2 -9 -17 -28 -46 -76 -95 -95 -95Net operabing margin 76 145 201 260 295 223 194 204 215Interest on World Bank loan paid by the company, at 7.8% -52 -104 -104 -104 -104 -104 -95 -87 -78Interest on the NIB loan paid by the company, at 7.8% -35 -70 -70 -70 -70 -70 -70 -70 -70total interest payments -87 -174 -174 -174 -174 -174 -165 -157 -148Profits, not taxable -11 -29 27 85 121 49 28 47 67

Cash flow adjustmentsDepreciaton see above 2 9 17 28 46 76 95 95 95Cash flow from project retained profit + depreciation -9 -20 44 113 167 125 123 142 162repayment WB loan after 5 years grace period 0 0 0 0 0 -111 -111 -111 -111repayment NIB loan after 10 years grace period 0 0 0 0 0 0 0 0 0total loan repayment 0 0 0 0 0 -111 -111 -111 -111Cash flow after loan repayment available for investments -9 -20 44 113 167 14 12 31 51periodic investment for energy cells 200,000 in years 8,12 and 16 0 0 0 0 0 0 0 -200 0Cash flow after periodic investments -9 -20 44 113 167 14 12 -169 51

Cumulative cash flow, after loan repayment -9 -29 14 128 294 308 321 152 202

Ratioscash flow indicatorscash flow before loan repayment, as percent ofrevenues neg -5.9% 10.6% 22.9% 29.5% 21.7% 21.1% 23.9% 26.7%cash flow after loan repayment, as percent ofrevenues neg -5.9% 10.6% 22.9% 29.5% 2.4% 2.1% 5.2% 8.4%break-even ratio (revenuestoperatingexpenses+debt service-depreciation) 1.0 1.0 1.2 1.4 1.6 1.2 1.2 1.3 1.3debt service ratios* debt service coverage ratio (grossoperating margin over total debt servicepayments) neg 0.9 1.3 1.7 2.0 1.0 1.0 1.1 1.2'- interest payment as percent of cash flow,before debt service payments neg 113.0% 80.0% 60.5% 51.1% 58.3% 57.3% 52.5% 47.8%' loan repayment as percent of cash flow,before debt service payments 0.0% 0.0% 0.0% 0.0% 0.0% 37.1% 38.4% 37.1% 35.8%depreciation as percent of cash flow beforeloan repayment neg -44.9% 38.9% 24.7% 27.6% 60.9%/6 77.0% 66.8% 58.7%gross margin as percent of revenues neg 45.2% 52.8% 58.1% 60.2% 52.1% 49.5% 50.3% 51.2%working ratio (operating costs as percent ofrevenues) 57.1% 54.8% 47.2% 41.9% 39.8% 47.9% 50.5% 49.7% 48.8%operating ratio (operatingcosts+depreciation+interest as percent ofrevenues) 106.2% 108.5% 93.5% 82.7% 78.7% 91.5% 95.1% 92.1% 89.0%

NOTES: all costs and waste deliveries as calculated by AH on 13th December 1999; operabonal costs increased for revised staffing and audit costs.disposal fee as now applied at the Skede landfill, @ LVL 1,00 per m3 of waste, giving net disposal fee of LVL 0.641m3.no allowance for sale of sorted waste materials.decrease of electricity tariff in 2010 is compensated by an equivalent increase of the net disposal rate, estimated at 38 santimes, to a level of 203 santmeslm3; thisdecrease of electricity revenues and the increase of disposal revenues has NOT been shown seperately.depreciation taken as proxy on 100% maintenance costsfront-end fee of 1% on total loans has been capitalised and will be paid from the WB loan.

- 52 -

Continued

2010 2011 2012 2013 2014 2015 2Q16 2017 2018 2019 2020 description totals

199 205 211 217 224 230 231 232 234 235 237 waste collected as per SWECO projection

367 372 379 385 392 399 402 407 411 416 421 revenues without increase in disposal fees 6,98750 51 53 54 56 57 58 58 58 59 59 NRT receipts 987

201 207 213 219 226 232 233 234 236 237 239 increased disposal fee 3.822618 630 645 658 674 688 693 699 705 712 719 revenues with increased disposal fees 11,796

-253 -253 -253 -253 -253 -253 -253 -253 -253 -253 -253 total operational costs -4,534-25 -25 -25 -25 -25 -25 -25 -25 -25 -25 -25 cost of regional transport -488-19 -20 -20 -21 -21 -22 -22 -22 -23 -23 -23 NRT payments -351

-297 -298 -298 -299 -299 -300 -300 -300 -301 -301 -301 total costs -5,373321 332 347 359 375 388 393 399 404 411 418 gross margin 6,424-95 -95 -95 -95 -95 -95 -95 -95 -95 -95 -95 depreciation -1,508226 237 252 264 280 293 298 304 309 316 323 net margin 4,916-69 -61 -52 -43 -35 -26 -17 -9 0 0 0 finance charges World Bank loan -1,143-70 -70 -68 -65 -62 -58 -55 -51 -47 -42 -38 finance charges NIB loan -1,222

-139 -131 -120 -108 -96 -84 -72 -60 -47 -42 -38 total interest payments -2,36587 106 133 156 184 209 226 245 262 274 286 profit before taxes 2,551

95 95 95 95 95 95 95 95 95 95 95 depreciation 1,508182 201 228 251 279 304 321 340 357 369 381 cash flow = net profit plus depreciation 4,059

-111 -111 -111 -111 -111 -111 -111 -111 0 0 0 World Bank loan repayment -1,3320 -34 -36 -39 -42 -45 -49 -53 -57 -61 -66 NIB loan repayment -483

-111 -145 -147 -150 -153 -156 -160 -164 -57 -61 -66 total loan repayment -1,81571 57 80 101 126 147 161 176 300 307 315 netcashflowafter loan repayment 2,2430 0 -200 0 0 0 -200 0 0 0 0 energy cells -600

71 57 -120 101 126 147 -39 176 300 307 315 netcashflowafterinvestmentinenergycells 1,643

273 330 210 311 437 584 545 721 1,021 1,329 1,643 cumulativenetcashflowafterloan repayment

29.4% 31.9% 35.3% 38.2% 41.4% 44.2% 46.3% 48.6% 50.7% 51.8% 52.9% cash flow as percent of revenues

11.4% 9.0% 12.4% 15.3% 18.6% 21.4% 23.2% 25.1% 42.6% 43.2% 43.7% cashflowafterloanrepayment,as%ofrevenues

1.4 1.3 1.4 1.4 1.5 1.5 1.6 1.6 2.3 2.3 2.3 break-even ratiodebt service ratios

1.3 1.2 1.3 1.4 1.5 1.6 1.7 1.8 3.9 4.0 4.0 ' debt servicecoverage ratio

43.4% 39.4% 34.4% 30.1% 25.7% 21.7% 18.3% 14.9% 11.6% 10.3% 9.0% interest%ofcashflow,beforedebtservice

34.6% 43.6% 42.4% 41.8% 40.8% 40.3% 40.7% 41.0% 14.1% 14.9% 15.8% loan repayment over cash flow, before debt service

52.3% 47.2% 41.7% 37.8% 34.1% 31.3% 29.6% 28.0% 26.6% 25.8% 25.0% depreciation as% cash flow, before loan repayment51.9% 52.7% 53.8% 54.6% 55.7% 56.4% 56.7% 57.1% 57.3% 57.7% 58.2% gross margin as percent of revenues

48.1% 47.3% 46.2% 45.4% 44.3% 43.6% 43.3% 42.9% 42.7% 42.3% 41.8% working ratio (operating costs as percent of evenues)

86.0% 83.1% 79.4% 76.3% 72.7% 69.6% 67.4% 65.0% 62.8% 61.6% 60.3% op ratio (op costs+depr+interest as % of revenues)

- 53 -

(Annex 5, attachment 3, under PAD MARCH)

Continued

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 descripton totals

194 199 205 211 217 224 230 231 232 234 235 237 waste collected as per SWECOprjedction

361 367 372 379 385 392 399 402 407 411 416 421 revenues without increase in disposal fees 6,96749 50 51 53 54 56 57 58 58 58 59 59 NRT reeipts 987

196 201 207 213 219 226 232 233 234 236 237 239 increased disposal fee 3,822606 618 630 645 658 674 688 693 699 705 712 719 revenues with inrreased disposal fees 11,796

-253 -253 -253 -253 -253 -253 -253 -253 -253 -253 -253 -253 total operabonal costS -4,534-25 -25 -25 -25 -25 -25 -25 -25 -25 -25 -25 -25 cost of regional transport -4-18 -19 -20 -20 -21 -21 -22 -22 -22 -23 -23 -23 NRT payments .351

-296 -297 -298 -298 -299 -299 -300 -300 -300 -301 -301 -301 total costs -5,373310 321 332 347 359 375 388 393 399 404 411 418 grossmargin 6,424-95 -95 -95 -95 -95 -95 -95 -95 -95 -95 -95 -95 depreciation -1,508

215 226 237 252 264 280 293 298 304 309 316 323 net margin 4,916-73 -65 -57 -49 -43 -35 -26 -17 -9 0 0 0 finanrce charges World Bank loan -1,121-70 -70 -70 -68 -65 -62 -58 -55 -51 -47 -42 -38 finance charges NIB loan -1,222

-143 -135 -127 -116 -108 -96 -84 -72 -60 -47 -42 -38 totalinterestpavments -2,34372 91 110 136 156 184 209 226 245 262 274 286 profit beforetaxes 2,573

-61 -62 -63 -65 -66 -67 -69 -69 -70 -71 -71 -7295 95 95 95 95 95 95 95 95 95 95 95 depreciation 1,508

106 124 142 166 185 211 235 252 270 287 298 309 cashflow=netprofitplusdepreciation 2,901-111 -111 -111 -111 -111 -111 -111 -111 -111 0 0 0 World Bank loan repaymrent -1,332

0 O -34 -36 -39 -42 -45 -49 -53 -57 -61 -66 NIB loan repayment *4S3-111 -111 -145 -147 -150 -153 -156 -160 -164 -57 -61 -66 totalloanrepayment -1,815

-5 13 -3 19 35 58 79 92 106 230 236 243 netcashflowafterloanrepayment 1,0860 0 0 -200 0 0 0 -200 0 0 0 0 energy cells -600

-5 13 -3 -181 35 58 79 -108 106 230 236 243 netcashflowafterinvestmentinenergvrells 486-222 -209 -212 -393 -357 -299 -220 -329 -223 7 243 486 cumulative net cash flow afer loan repayment

17.5% 20.1% 22.6% 25.8% 28.2% 31.4% 34.2% 36.3% 38.6% 40.7% 41.8% 42.9% cash flow as percentofrevenues-0.8% 2.1% -0.4% 3.0% 5.3% 8.6% 11.4% 13.2% 15.1% 32.6% 33.2% 33.7% cashflowafterloanrepayment,as%ofrevenues1.3 1.4 1.3 1.4 1.4 1.5 1.5 1.6 1.6 2.3 2.3 2.3 break-even ratio

debt service rabos1.2 1.3 1.2 1.3 1.4 1.5 1.6 1.7 1.8 3.9 4.0 4.0 debtservic coverag ratio

57.4% 52.1% 4.2% 41.1% 36.8% 31.3% 26.4% 22.3% 18.1% 14.1% 12.5% 10.9% interest%ofcashflow,beforedebtservice44.5% 42.8% 53.8% 52.1% 51.2% 49.8% 49.0% 49.4% 49.7% 17.1% 18.1% 19.1% loanrepaymentovercashflow,beforedebtservice89.4% 76.5% 66.8% 57.1% 51.3% 44.9% 40.4% 37.7% 35.2% 33.1% 31.9% 30.8% depreciation as % cash flow, before loan repayment51.2% 51.9% 52.7% 53.8% 54.6% 55.7% 56.4% 56.7% 57.1% 57.3% 57.7% 58.2% grossmarginaspercentofrevenues48.8% 48.1% 47.3% 46.2% 45.4% 44.3% 43.6% 43.3% 42.9% 42.7% 42.3% 41.8% working ratio (operating costs as percentofevenues)88.1% 85.3% 82.5% 78.9% 76.3% 72.7% 69.6% 67.4% 65.0% 62.8% 61.6% 60.3% op ratio (op costs+depr+interest as% of revenues)

- 54 -

Attachement 4Liepaja Region Solid Waste Management Project

Projections of Profit & Loss and Cash Flow for Liepajas Ras Co: Grobina 2 case, with sludge and Skede, plus increased net disposalProjection based on: WB loan 1,332,000, maturity of 17 yrs, 5 yrs grace, FRP; NIB loan 0.9m, maturity 25 yrs, grace 10 yrs. Interestbased on 6 months $ LIBOR. Net disposal tariff increase of 101 santimesim3, or 160% over 2000 level, phased in over the years 2001 to

Sensitivity analysis, case 2:10% increase in operating costs Calendar YearsProfit & Loss Statement description 2001 2002 2003 2004 2005 2006 2007 2008

projected waste deliveries at thelandfill, in '000m3 126 137 149 162 175 179 184 189

Revenues: net present disposal fee base case of net disposal fee ofand future electrcity sales 0.641m3 80 218 264 312 345 348 352 356

receipt of NRT on site 0.251m3 32 34 37 40 44 45 46 47

increased net disposal fee, net disposal fee received by LRL, raise160%over2001to2005 by101/m3 69 89 112 143 177 181 186 .191

total revenues 181 341 413 495 566 574 584 594

C: operational costs (sites andLiepajas Ras) Dec 13 figures, updated for salary costs -83 -153 -161 -172 -189 -234 -253 -253

regional transport AH estimate -13 -25 -25 -25 -25 -25 -25 -25paymentof NRT from Grobina base case, FIRR -8 -9 -9 -10 -11 -16 -17 -17

total costs -104 -187 -195 -207 -225 -275 -295 -295

Gross operating margin revenues minus costs 78 154 218 288 341 299 289 299

Depreciabon proxy based on maintenance -2 -9 -17 -28 -46 -76 -95 -95

Net operating margin 76 145 201 260 295 223 194 204

Interest on World Bank loan paid by the company, at 7.8% -52 -104 -104 -104 -104 -104 -95 -81

Interest on the NIB loan paid by the company, at 7.8% -35 -70 -70 -70 -70 -70 -70 -70

total interest pavments -87 -174 -174 -174 -174 -174 -165 -151Profits, not taxable -11 -29 27 85 121 49 28 53

Cash flow adjustments 10% increase in operating costs -8 -15 -16 -17 -19 -23 -25 -25

Depreciation see above 2 9 17 28 46 76 95 95Cash flow from project retained profit + depreciation -18 -35 28 96 148 101 98 122

repaymentWBloan after6yearsgraceperiod 0 0 0 0 0 -111 -111 -111repayment NIB loan after 6 years grace period 0 0 0 0 0 0 0 0

total loan repayment 0 0 0 0 0 -111 -111 -111Cash flow after loan repayment available for investments -18 -35 28 96 148 -10 -13 11periodic investment for energy cells 200,000 in years 8,12 and 16 0 0 0 0 0 0 0 -200

Cash flow after periodic investments -18 -35 28 96 148 -10 -13 -189Cumulative cash flow, after loanrepayment -18 -53 -25 71 219 209 196 7

Ratioscash flow indicatorscash flow before loan repayment, as percent of revenues neg -10.4% 6.7% 19.5% 26.1% 17.7% 16.8% 20.6%

cash flow after loan repayment, as percent of revenues neg -10.4% 6.7% 19.5% 26.1% -1.7% -2.2% 1.9%

break-even ratio (revenuesioperating expenses+debt service-depreciation) 1.0 1.0 1.2 1.4 1.6 1.2 1.2 1.3

debt service ratiosdebt service coverage ratio (gross operating margin over total debt

service payments) neg 0.9 1.3 1.7 2.0 1.0 1.0 1.1interest payment as percent of cash flow, before debt service payments neg 125.5% 86.3% 64.4% 54.1% 63.2% 62.8% 55.3%loan repayment as percent of cash flow, before debt service payments 0.0% 0.0% 0.0% 0.0% 0.0% 40.3% 42.1% 40.6%

depreciation as percent of cash flow before loan repayment neg -25.5% 61.7% 29.1% 31.1% 75.0% 96.8% 77.6%

gross margin as percentof revenues neg 45.2% 52.8% 58.1% 60.2% 52.1% 49.5% 50.3%working ratio (operating costs as percent of revenues) 57.1% 54.8% 47.2% 41.9% 39.8% 47.9% 50.5% 49.7%

operating ratio (operating costs+depreciation+interest as percent of revenues) 106.2% 108.5% 93.5% 82.7% 78.7% 91.5% 95.1% 91.1%

NOTES: all costs and waste deliveries as calculated by AH on 13th December 1999; operafional costs increased for revised staffing and audit costs.disposal fee as now applied at the Skede landfill, @ LVL 1,00 per m3 of waste, giving net disposal fee of LVL 0.641m3.no allowance for sale of sorted waste materials.decrease of electricity tariff in 2010 is compensated by an equivalent increase of the net disposal rate, estimated at 38 santimes, to a level of 203santimestm3; this decrease of electricity revenues and the increase of disposal revenues has NOT been shown seperately.depreciation taken as proxy on 100% maintenance costsfront-end fee of 1% on total loans has been capitalfsed and will be paid from the WB loan.interest rate: assumed at WB/NIB interest of 6.8%, consisting of 6-month $ LIBOR of 6.25% + fixed WBNIB mark-up of 0.55%. + 0.5% administrativefee GoL, + 0.5% risk premium GoL for total cost of 7.8%.repayment: WB, grace 5 yrs: 12 yrs FRP , 7.8% annual repayment of principal of LVL 111,000 based on loan of LVL1,332,000 with 12 years fixedrepaymentrepayment: NIB, 10 yrs grace,15 yrs annuity, at interest of 7.8% annuity of LVL103,866 based on loan of LVL 900,000 @ 7.8%, with 15 yearsrepayment

- 55 -

(Annex 5, attachment 4, under PAD MARCH)Continued

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 description totals

194 199 205 211 217 224 230 231 232 234 235 237 waste collectedasperSWECOprojection

361 367 372 379 385 392 399 402 407 411 416 421 revenues without increase in disposal fees 6,98749 50 51 53 54 56 57 58 58 58 59 59 NRT receipts 987

196 201 207 213 219 226 232 233 234 236 237 239 increaseddisposalfee 3,822606 618 630 645 658 674 688 693 699 705 712 719 revenues with increased disposal fees 11,796

-253 -253 -253 -253 -253 -253 -253 -253 -253 -253 -253 -253 total operational costs -4,534-25 -25 -25 -25 -25 -25 -25 -25 -25 -25 -25 -25 cost of regional transport -488-18 -19 -20 -20 -21 -21 -22 -22 -22 -23 -23 -23 NRT payments -351

-296 -297 -298 -298 -299 -299 -300 -300 -300 -301 -301 -301 total costs -5,373310 321 332 347 359 375 388 393 399 404 411 418 gross margin 6,424-95 -95 -95 -95 -95 -95 -95 -95 -95 -95 -95 -95 depreciation -1,508215 226 237 252 264 280 293 298 304 309 316 323 net margin 4,916-73 -65 -57 -49 -43 -35 -26 -17 -9 0 0 0 financechargesWorld Bank loan -1,121-70 -70 -70 -68 -65 -62 -58 -55 -51 -47 -42 -38 finance charges NIB loan -1,222

-143 -135 -127 -116 -108 -96 -84 -72 -60 -47 -42 -38 total interest payments -2,34372 91 110 136 156 184 209 226 245 262 274 286 profitbeforetaxes 2,573

-25 -25 -25 -25 -25 -25 -25 -25 -25 -25 -25 -25 10% increase operating costs95 95 95 95 95 95 95 95 95 95 95 95 depreciation 1,508

142 161 180 206 226 254 279 296 314 332 344 355 cash flow = net profit plus depreciation 3,627-111 -111 -111 -111 -111 -111 -111 -111 -111 0 0 0 World Bankloan repayment -1,332

0 0 -34 -36 -39 -42 -45 -49 -53 -57 -61 -66 NIB loan repayment -483-111 -111 -145 -147 -150 -153 -156 -160 -164 -57 -61 -66 total loan repayment -1,815

31 50 35 58 76 100 122 136 150 275 282 289 netcashflowafterloanrepayment 1,8120 0 0 -200 0 0 0 -200 0 0 0 0 energy cells -600

31 50 35 -142 76 100 122 -64 150 275 282 289 netcashflowafterinvestmentinenergycells 1,212

38 88 123 -19 57 157 279 215 366 641 923 1,212 cumulativenetcashflowafterloanrepayment

23.4% 26.0% 28.5% 31.9% 34.3% 37.6% 40.5% 42.7% 44.9% 47.1% 48.2% 49.4% cashflowaspercentofrevenues5.0% 8.0% 5.6% 9.0% 11.5% 14.9% 17.7% 19.6% 21.5% 39.0% 39.6% 40.2% cashflowafterloan repayment, as%of revenues

1.3 1.4 1.3 1.4 1.4 1.5 1.5 1.6 1.6 2.3 2.3 2.3 break-even ratiodebt service ratios

1.2 1.3 1.2 1.3 1.4 1.5 1.6 1.7 1.8 3.9 4.0 4.0 debt service covorage ratio50.3% 45.7% 41.4% 36.1% 32.4% 27.5% 23.2% 19.6% 16.0% 12.4% 11.0% 9.6% interest%otcash1fow, before debtservice39.0% 37.5% 47.2% 45.8% 45.0% 43.8% 43.1% 43.5% 43.8% 15.0% 15.9% 16.8% -loanrepaymentovercashflow, beforedebtservice67.1% 59.1% 52.8% 46.2% 42.1% 37.5% 34.1% 32.1% 30.2% 28.6% 27.7% 26.7% depreciationas%cashflow,beforeloanrepayment51.2% 51.9% 52.7% 53.8% 54.6% 55.7% 56.4% 56.7% 57.1% 57.3% 57.7% 58.2% grossmarginaspercentofrevenues48.8% 48.1% 47.3% 46.2% 45.4% 44.3% 43.6% 43.3% 42.9% 42.7% 42.3% 41.8% working ratio (operating costs as percent of evenues)88.1% 85.3% 82.5% 78.9% 76.3% 72.7% 69.6% 67.4% 65.0% 62.8% 61.6% 60.3% op ratio (op costs+deprBinterest as % of revenues)

- 56 -

Liepaja Region Solid Waste Management Project17th Aprl 2000 (Frank M Stubenitsky)

FIRR, Grobina revised analysis:with sludge + electricity at Skede - 160% net disposal increase (phased over 2001 to 2005) + NRT payment + correction reduced Latvenergo tariff in 2010 (in '000

LVL)

A periodic investment in energy cells of LVL 200,000 has been added in years 8,12 and 16

In addition, non-fungible finance from Sida and from PCF for reduced carbon emissions have been credited back to the revenue stream.

Cida funding for Environmental Training Costs has been excluded from project costs (LVL 281,000). as has remediabon of regional dump sites (LVL 926,000).

Project costs also exclude price contingencies, front-end fee and interest during construction; GoL financang of the PIU of LVL 100,000 dunng 2000 has been

included.Cost of remediabon regional landfills of LVL 747,000 has also been excluded. 1 2 3 4 5 6 Z

Calendar Years

categorv description 2001 2002 2003 2004 2005 2006 2007total pojiect

OUTFLOWS or COSTS 6,512

AH cost table of 24th January 2000, revised on15th March 4,303 1,108 273 452 278 98 0

see AH table on O&M costs of 13th Dec, plus

operatonal costs of the sites and of LRL revised staffing costs 166 153 161 172 189 234 253

cost of regional transport of waste to the landfill see AH estimate of 18/1/2000 25 25 25 25 25 25 25LVL 0.25 ((0.25 of waste year t) plus (0.15 of

paymentofNRTatmomentofdisposal wasteyeart-5)) 8 9 9 10 11 16 17

total costs total outflows or costs 4,502 1,295 468 659 503 373 295

projected quantities of waste defivered at the

INFLOWS or BENEFITS landfill, in t000 mn3 126 137 149 162 175 179 184net disposal fee net of NRT and VAT, at LVL

gross disposal or tipping fees (gross 1,00/m3) 0.64/m3 81 88 95 103 112 115 118

at LVL 22.10/MWh until 2009;LVL 14.73electncaty sales, from Grobina and Skede thereafter 0 131 169 209 234 234 235

receipt of NRT at 0.25 Per m3 waste 32 34 37 40 44 45 46sub-total revenues 113 253 302 353 389 393 399

increase of net disposal fee by 160% to LVL1,65/m3 to be phased in over the years 2001 to 2005 70 89 112 142 176 181 186

reduction electriity sales pnce from 2010 onwards from 22.10/MWh to 14.73/MWhcompensating increase of disposal fee, from 2010 increase of net disposal rates by 38 sanUmes

onwards (23%) to 203 santimes

sub - total Inflows sub - total inflows or revenues 182 343 414 495 566 574 584

carbon emission reducton, at PCF contribution projected PCF disbursement, total LVL 1.2m 784 300 81 35 0 0 0

Sida feasibility study and tmnning agreement funding projected Sida disbursement, total 705,000 473 151 81 0 0 0 0

total inflows total innows 1.439 794 576 530 566 574 584

NET COSTS f BENEFITS, base case - c32-c19 -4,320 -952 -55 -164 63 201 290

valued at PCF/Sida disbursements, c32-NET COSTS/BENEFITS,case2 c19+c34+c35 -3.063 -501 107 -129 63 201 290

additonal net disposal fee of 75 santimes forNET COSTSIBENEFITS,case3 FIRRofabout7.5% -2,968 -398 219 -8 194 336 428

((net disposal fee increased from 203 santimesto 278/m3))

FIRR, base case - 1 -0.08%

FIRR, idem with PCF and Sida disbursements - 2 3.01%FIRR, idem with additional Income - 3 7.48%

CUMULATIVE NET COSTS I BENEFITS, case 1 base case -4.320 -5.272 -5.326 -5.490 -5.428 -5.226 -4.937

CUMULATIVE NET COSTS I BENEFITS, case 2 PCF/Sida disbursements -3,063 -3.564 -3.456 -3.585 -3.523 -3,321 -3,032increased disposal tanff to reach FIRR of about

CUMULATIVE NET COSTS / BENEFITS, case 3 7.5% -2,968 -3,366 -3,147 -3,154 -2,961 -2,625 -2,197

Notes: 1 - project costs have bean reduced by LVL 281,000 representing the Envinonmental Training costs financed by CIDA, and by LVL 747,000 for remediation regional landfills(excl Skede).

2 - the additional net disposal fee of LVL 1,00/m3 would lead to a further increase of the household waste tariff of 13 santimesvperson/month. Such an increase is equivalent to

33% of the present average tariff of 32 santimes, and would come on top of the already calculated increase of 8 santimes to ensure viability of Liepajas Ras Ltd.

- 57 -

Attachment S of Annex 5 (PAD MARCH, under Annex 5)Continued

8 9 10 11 12 13 14 15 16 17 1S 19 20

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

6512

200 0 0 0 200 0 0 0 200 0 0 0-1,302

453 253 253 253 453 253 253 253 453 253 253 253 25325 25 25 25 25 25 25 25 25 25 25 25 25

17 18 19 20 20 21 21 22 22 22 23 23 23

695 296 297 298 698 299 299 300 700 300 301 301 -1,001

189 194 199 205 211 217 224 230 231 232 234 235 237

121 124 128 131 135 139 143 147 148 149 149 150 152

236 238 240 242 245 247 250 253 255 259 262 266 27047 49 50 51 53 54 56 57 58 58 58 59 59

404 411 417 424 433 440 449 457 460 466 470 475 481

191 196 201 207 213 219 226 232 233 235 236 237 239-80 -81 -82 -82 -83 -84 -85 -86 -87 -89 -90

Z5 Z5 50 82 55 E2 BB 85 9 as 90

595 607 615 629 644 659 676 692 696 702 707 713 720

0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0

595 607 615 629 644 659 676 692 696 702 707 713 720

-101 310 318 331 -54 360 377 392 -4 402 406 412 1.721

-101 310 318 331 -54 360 377 392 -4 402 406 412 1,721

41 456 467 485 104 523 545 564 169 576 582 589 1,898

-5.037 -4727 -4.409 -4,078 -4,132 -3.772 -3.395 -3.003 -3.006 -2.605 -2.198 -1.786 -65-3,132 -2.822 -2.504 -2.173 -2.227 -1.867 -1.490 -1,098 -1.101 -700 -293 119 1,840

-2,156 -1,700 -1,233 -748 -645 -122 423 987 1,157 1,733 2,314 2,903 4,801

- 58 -

FIRR Sensitivity 1 - Increase in Carbon Reduction value bv 15%Liepaja Region Solid Waste Management Project

17th ApnI 2000 (Frank M Stubenitsky)

FlRF, Grobina revised analysis:with sludge . elecricity at Skede 18160 net disposal increase fphased over 2001 to 2005) . NRT payment n correcuon reducedLatvenergo tariff In 20110 (In 00 LVL)

A penodic investment in energy cets of LVL 200.000 has been added in years 8, 12 and 16In additon, non-fungible finance from Sida and from PCF for reduced carbon ernissions have been credited back to the revenue stream.Cida funding for Environmental Training Costs has been excluded frorn project costs (LVL 281,000), as has remediabon of regional dump sites(LVL 926,000).Project costs also exctude price confngendes, front-end fee and interest during construcbon; GoL financing of the PIU of LVL 100,000 during 2000has been included.Cost of remediabon regional landfills of LVL 747,000 has also been excluded. 1 2 3 4 5 6 7

Calendor Yearscategory descripion 2001 2002 2003 2004 2005 2006 2007

totalrorieclOUTFLOWS or COSTS 6,512

AH cost table of 24th January 2000,revised on 15th March 4,303 1,108 273 452 278 98 0see AH table on OSfiM costs of 1 3th Dec,

opera8onal costs of the sits and of LRL plus revised statlng costs 166 153 161 172 189 234 253cost of regional transpor of waste to thelandfdl seeAAH esbimateof 1811/2000 25 25 25 25 25 25 25

LVL 0.25 ((0.25 of waste year t) pluspaymentof NRT at moment ofdisposal (0.15afwasteyearl-5)) 8 9 9 10 11 16 17

total costs 1otal ouVows or costs 4,502 1,295 468 659 503 373 295

priyeced quanbties of waste delvered atINFLOW8or BENEFITS the fanti=,in MO m3 126 137 149 162 175 179 184gress disposal or tipping fees (gross net disposal fee net of NRT and VAT, at1,00/m3) LVL0.641rm3 81 88 95 103 112 115 118

at LVL 22.10/iMWh until 2009;LVL 14.73electricity sales, frhm Grobia and Skede theeafter 0 131 169 209 234 234 235receipt of NRT at 0.25 per m3 waste 32 34 37 40 44 45 46

sub=tal revenues 113 253 302 353 389 393 399

incease ol net disposal fee by 160% to b be phased in over the years 2001 toLVL1,651m3 2005 70 89 112 142 176 181 186reduction elctricity sales prce from 2010onwards from 22.10O1MWhto 14.73/MWhcompensabng increase of disposal fee. increase of net disposal rates by 38from 2010 onwards santimes (23%) to 203 sanbmes

sub - total Inflows sub - total inflows or reveues 182 343 414 495 566 074 584

carbon emission reduction, at PCF pnroected PCF disbursement total LVLcontribution 1.2m 784 300 81 35 0 0 0Sida feasibility study and twinning projected Sida disbursement, totalagreement funding 705.000 473 151 81 0 0 0 0

ioncr 1tas S% 118 45 12 stowa inflows total *5009 1.557 839 588 535 566 574 584

NET COSTS IBENEFITS, base case.-I c34-c21 -4,202 -907 -43 -159 63 201 290valued at PCFlSida disbursements, c34-

NET COSTS I BENEFITS,_cse2 c21-c36oc37 -2,945 -456 107 -129 83 201 290additional net disposal lee of 75 santimes

NET COSTS IBENEFITS, ease 3 for FIRR of about 7.5% -2,850 -353 219 -8 194 336 428((net disposal fee increased from 203

santimes to 2781m3))

FIRR, base case * 1 0.15%FIRR, idem with PCF and Sidadisbursements .2 3 36%

FIRR, idem with additional income - 3 7 95%

CUMULATIVE NET COSTS I BENEFITS.ca.s e base case -4,202 -5,109 -5,152 -5,310 -5,248 -5,046 -4,757CUMULATIVE NET COSTS I BENEFITS,case 2 PCFlSida disbursements -2,945 -3,401 -3,294 -3.423 -3,360 3,159 -2,869CUMULATIVE NET COSTS I BENEFITS, increased disposal tariff to reach FIRR ofcase 3 about 7.5% -2,850 -3.203 -2,984 -2.992 -2,798 -2,462 -2.035

Netes: 1 - proieCt osts have been renuced by LVL 281 000 rpresentng the Envininmental rmning costs financed by CIDA, and bu LVL 747,000 tr remedlatineg,enal landfills lexcl Skede)

avuialent to 33% otRhI present -nerag. tlon of 32 nantimes. avd would core en top of the already calculated ncrease of 8 seosmes 10 ensue vab,lty ofIlepajas Ras Ltd.The wembined increase of the wasle tanf in 2001 woule than be amund 63%, for a total tenit of 52 sannmestpersonjmonth or LVL 6,25 per year. Such alvel Icleasy NOT affondablt except fr the very few; and neither woud such an Imeasa be polltcally acrptable

- 59 -

Attachment6 of Anne-.5 (PAD MARCH. under Ann.. 5)Continued

8 9 10 11 12 13 14 15 16 17 18 19 20

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

6512

200 0 0 0 200 0 0 0 200 0 0 0-1,302

453 253 253 253 453 253 253 253 453 253 253 253 253

25 25 25 25 25 25 25 25 25 25 25 25 25

17 18 19 20 20 21 21 22 22 22 23 23 23

695 296 297 298 698 299 299 300 700 300 301 301 -1,001

189 194 199 205 211 217 224 230 231 232 234 235 237

121 124 128 131 135 139 143 147 146 149 149 150 152

236 238 240 242 245 247 250 253 255 259 262 266 27047 49 50 51 53 54 56 57 58 58 58 59 59

404 411 417 424 433 440 449 457 460 466 470 475 481

191 196 201 207 213 219 226 232 233 235 236 237 239

-80 -81 -82 -82 -83 -84 -85 -86 -87 -89 -90

76 78 0 a _8 _L _ 88 89 9 Q

595 607 615 629 644 659 676 692 696 702 707 713 720

0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0

595 607 615 629 644 659 676 692 696 702 707 713 720

-101 310 318 331 -54 360 377 392 -4 402 406 412 1,721

-101 310 318 331 -54 360 377 392 -4 402 406 412 1.721

41 456 467 485 104 523 545 564 169 576 582 589 1,898

-4,857 -4,547 -4,229 -3,898 -3,952 -3,592 -3,215 -2,823 -2,826 -2,425 -2,018 -1,606 115

-2,970 -2,659 -2,342 -2,010 -2,065 -1,705 -1,327 -935 -939 -537 -131 282 2,002

-1,994 -1,538 -1,071 -586 482 41 586 1,150 1,319 1,895 2,477 3.066 4,964

- 60 -

FIRR Sensitivity 2FIRR Sensitivity 2. Increase of Dsposal fee tv 15%Lepaja Region Solid Waste Management Project

17th April 2000 (Frank M Stubenitsky)

FIRR, Grobina revised nalysis:with sludge + electricty at Skede + 160% nat disposal increase (phased over 2001 to 2005) r NRT payment + corctidon reducedLatvearwgo taiff In 2010 (In '000 LVL)A peiodic investment in energy oells of LVL 200,000 has been added in years 8.12 and 16In addition, non-fungible finance from Sida and from PCF for reduced carbon emissions have been credited back to the revenue stream.Cida fundcng for Environmental Trahiing Costs has been excluded from project costs (LVL 281.000), as has remediadon of regonal dumip sites(LVL 926,000).Project costs also exclude price contngencies, front-end fee and interest during construction; GoL financing of the PIU of LVL 100,000 during2000 has been induded.Cost of remediabon regional landfills of LVL 747,000 has also been excluded. 1 2 3 4 5 6 7

Calendar Yearscaterjorv descpridon 2001 2002 2003 2004 2005 2006 2007

OUTFLOlWS or COSTS 6,512AH cost table of 24th January 2000,revised on 15th Mrch 4,303 1,108 273 452 278 98 0see AH table on O&M costs of 13th

operabonal costs of the sites and of LRL Dec. plus revised staffing costs 166 153 161 172 189 234 253cost of regional transport of waste to thelandfill seeAH estmateof 181/2000 25 25 25 25 25 25 25

LVL 0.25((0.25 of waste year t) pluspaymnentoffNRTat monientofdisposal (0.15ofwasteyeart-5)) 8 9 9 10 11 16 17


projected quantfifes of wasteINFLOWSoriiBENEFITS deWiveredatthelandfilf,in000m3 126 137 149 162 175 179 184gross disposal or tipping fees (gross net disposal fee net of NRT and VAT,1,00fm3) atLVLO.64/m3 81 88 95 103 112 115 118

at LVL 22.1O0MWh unil 2009;LVLelectriciy sales, from Grobina and Skeds 14.73 thereafter 0 131 169 209 234 234 235receiptofNRT at0.25perm3 waste 32 34 37 40 44 45 48

sub-total revenues 113 253 302 353 389 393 399

increase of net dsposal fee by 160% to to be phased in over the years 2001LVL1,651m3 rt-2005 70 89 112 142 176 181 186reductbon electridty sales price from 2010onwards from 22.1ItMIWn to 14.73tMWHtcompensating increase of disposal fee, from increase of net disposal rates by 38201(0 onwards sanbrmes (23%) to 203 santimes

sub - total Inflows sub6- tota inflows or revenues 182 343 414 495 566 574 584

carbon emission reduction, at PCF projected PCF disbursemenrt totaleontidbuion LVL 1.2m 784 300 81 35 0 0 0Sida feasibility study and tAnning projected Sida disbursement, totalagreement funding 705,000 473 151 81 0 0 0 0

increas of net disposal feo by15% 12 13 14 16 17 17 18

totl Inflows total inflows 1,451 807 590 545 566 574 584

NET COSTSIBENEFITS,basecase -1 c34-c21 -4.308 -939 -40 -149 63 201 290valued at PCF/Sida disbursements,

NET COSTSIBENEFITS,tcase2 c34-c21lc36-c37 -3.051 -488 107 -129 63 201 290additional net disposal fee of 75

NET COSTSIBENEFITS,case3 santimes for FIRR ofabout7.5% -2,956 -385 219 -8 194 336 428((net disposal fee increased from 203

santimes to 278/rn3))

FIRR, base case -I -0.01S%FIRR, tdem vwIth PCF and Sidedisbursemnts - 2 3.07%FIRRi, dem with additional Income - 3 7.55%

CUMULATIVE NET COSTS I BENEFITS.case 1 base case -4,308 -5.246 -5,287 -5,435 -5.373 -5.171 -4881CUMULATIVE NET COSTS/ BENEFITS,cas 2 PCFlSida disbursements -3,051 -3,538 -3,431 -3,560 -3,497 -3,296 -3,006CUMULATIVE NET COSTS I BENEFITS, increased disposal tariff to reachcase 3 FIRR of about 7.5% -2,956 -3,340 -3,121 -3,129 -2,936 -2,600 -2.172

Notes: I - project coots have beern reduced by LVL 281,000 represenung the Environmenral Traning corss financed by CIDA, and tby LVL 747,000 forremediation regioal landfills (eucl Skede).increase is equlvalent to 33% ofthe prnesent average tarmor 032 an6lmes, and wuold crme on top of the aiready calculated increase or 8 santmss to ensureviability of LUepjas Ras LtdThe combrbed increase of the waste tanfi in 2001 vould then be armund t3%. for isteal tariff of 52 santlmealperson,month or LVL 625 per year. Such a lnelis clearly NOT affordable encept for the vry few; and neither would such an nmrease be pdlibcally acceptabie.

- 61 -

Attachment 7o dAnnex 5 (PAD MARCH, und erAnnex S)Continued

8 9 10 11 12 13 14 15 16 17 18 19 20

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

6 512

200 0 0 0 200 0 0 0 200 0 0 0-1,302

453 253 253 253 453 253 253 253 453 253 253 253 253

25 25 25 25 25 25 25 25 25 25 25 25 25

17 18 19 20 20 21 21 22 22 22 23 23 23

695 296 297 298 698 299 299 300 700 300 301 301 -1,001

189 194 199 205 211 217 224 230 231 232 234 235 237

121 124 128 131 135 139 143 147 148 149 149 150 152

236 238 240 242 245 247 250 253 255 259 262 266 27047 49 50 51 53 54 56 57 58 58 58 59 59

404 411 417 424 433 440 449 457 460 466 470 475 481

191 196 201 207 213 219 226 232 233 235 236 237 239

-80 -81 -82 -82 -83 -84 -85 -86 -87 -89 -90

76 78 9 62 _ 87 88 88 8 89 Q

595 607 615 629 644 659 676 692 696 702 707 713 720

0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0

18 19 19 20 20 21 21 22 22 22 22 23 23595 607 615 629 644 659 676 692 696 702 707 713 720

-101 310 318 331 -54 360 377 392 -4 402 406 412 1,721

-101 310 318 331 -54 360 377 392 -4 402 406 412 1,721

41 456 467 485 104 523 545 564 169 576 582 589 1,898

4,982 -4.672 -4,354 4,023 4,077 -3,717 -3,340 -2,948 -2,951 -2,550 -2,143 -1,731 -10

-3,107 -2,796 -2,479 -2,148 -2,202 -1,842 -1,465 -1,072 -1,076 -674 -268 144 1,865

-2,131 -1,675 -1,208 -723 -619 -97 448 1,013 1,182 1,758 2,340 2,928 4,827

- 62 -

FIRR Sensitivity 3FIRR Sensitivity 3 - Increase of inveshnent cost by 15%Liepaja Region Solid Waste Management Project

17th ApnI 2000 (Frank M Stubenitsky)

FIRR, Gmrblna revised analysis:with sludge + electricity at Skede + 160% net dIsposal incrmase (phased over 2001 to 2005) + NRT payment + correction reducedLat~oenrgo tariff In 2010 (in '000 LVL)A periodic investment in energy cells of LVL 200,000 has been added in years 8, 12 and 16In addihon, non-fungible finance from Sida and from PCF for reduced carbon emissions have been credited back to the revenue stream.Cida funding for Environmental Training Costs has been excluded from project costs (LVL 281,000), as has rermediabion of regional dump sites(LVL 926,000).Project costs also exclude price contingencies, front-end fee and interest during construction: GoL financing of the PIU of LVL 100,000 durng 2000has been induded.Cost of remrediation regional landfills of LVL 747,000 has also been excluded. 1 2 3 4 5 6 7

Calendar Yearscategory descripton 2001 2002 2003 2004 2005 2006 2007

tofaf pnrvjsr,OUTFLOWS or COSTS 6,512

AH cost table of 24th January 2000,revised on 15th March 4,303 1,108 273 452 278 98 0see AH table on O0M costs of 13th Dec,

operational costs of the sites and of LRL plus revised staffing costs 168 153 161 172 189 234 253cost of regional transport of waste to thelandfill see AH eshmate of 181112000 25 25 25 25 25 25 25

LVL 0I25((0.25 of waste year t) pluspaymnot of NRT at morint nof disptosal (0. 5 of waste year t-5)) 8 9 9 10 11 16 17


pnyected quarntites of waste delivered atINFLOWS or BENEFITS the landtfi, in '000 m3 126 137 149 162 175 179 184gross disposal or bpping fees (gross net disposal fee net of NRT and VAT, at1,00/m3) LVL0.64/m3 81 88 60 103 112 115 118

at LVL 22.10tNNv untl 20091VL 14.73electricity saes, from Grotna and Skede fthereafter 0 131 169 209 234 234 235receipt of NRT at 0.25 per m3 waste 32 34 37 40 44 45 46


increase of net disposal fee by 1600 to to be phased in over th years 2001 toLVL1,65tm3 2005 70 89 112 142 176 181 186reduction electricity sales pnoe from 2010onwards from 22.1 O0MWh to 14.73MtWvhcompensating increase of disposal fee, frhm increase of net disposal rates by 382010 onwards santimos (23%) 1 203 santmes

sub-tatalinflows sub-ttoalinflorwsorrevenues 182 343 414 495 986 574 584

carbon ermssion reduction, at PCF projected PCF disbursement, total LWtcontibution 122m 784 300 81 35 0 0 0Sida feasibility study and twinning projected Sida disbursement, totalagreement funding 705,000 473 151 81 0 0 0 0

Increaseoftneestmentcostsbv 15% -645 -166 -41 -68 -42 -15 0totalInflows.tta nlws 794 628 535 462 566 574 584

NET COSTSI BENEFITS, basecase- I c34-c21 -4,965 -1,118 -986 -232 21 187 290valued at PCF/Sida disbursements, c34-

NET COSTS I BENEFITS, case 2 c21tc36+c37 -3,708 -667 66 -197 21 187 290additional net disposal fee oa 75 sanbmes

NET COSTS IBENEFrTS case 3 for FIRR of about 7.5% -3,613 -564 178 -76 152 321 428((net disposal fee increased from 203

FItR, base case -I -1.08%FIRR, idem with PCF and Sidadisbursements -2 1.36%

FIRR, idem with addittonal income - 3 5 25%

CUMULATIVE NET COSTS I BENEFITS,easel base case 4,965 -6,083 -6,179 -6,411 -6,390 -6.203 -59913CUMULATIVE NET COSTS I BENEFITS,case 2 PCF/Sida disbursements -3.708 -4,375 -4,309 -4,506 4,485 4,298 -4,008CUMULATIVE NET COSTS I BENEFITS, increased dsposal tariff to reach FIRR ofcase 3 about 7.5% -3,613 4.177 -3,999 4.075 -3,923 -3,602 -3.174

Notes: 1 - pralect ns-ts have bean reduced by LVL 281,000 representing the Enuinnmental Tratinng nsts financed by CIDA, ard by LVL 747,000 fre remdiationreglnal landfillI (led Skeda.l2- the addihe.al net disposal feea LVL i,00m3 asuldledtoafthrincraseoatthous.hoidwaste .adfat13 san.tiemspernmenth Such an mcrease isequivalent o383% af tir present average tariff at 32 santimes. end .. uld come en rtope the already calculated is-ease ef 8 santimes in ensure viability Uleratas Ras LtdThe ce-bined encres d the wrsate tarNd In 2001 -reld then be arcund 63%, tar a t.l tarave ef 52 san-ms-/pa-en/ni-th oe LVL 6,25 per year. Sccrr a snal scloudy NOT affordable exceptfor thevery few: and neither weud such an increase be poitically acceptable

- 63 -

AttahmtS of A,n. 5 P5 MARC. ude An.ex 5)Contnued

8 9 10 11 12 13 14 15 16 17 18 19 20

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

6.512

200 0 0 0 200 0 0 0 200 0 0 0-1,302

453 253 253 253 453 253 253 253 453 253 253 253 253

25 25 25 25 25 25 25 25 25 25 25 25 25

17 18 19 20 20 21 21 22 22 22 23 23 23

695 296 297 298 698 299 299 300 700 300 301 301 -1.001

189 194 199 205 211 217 224 230 231 232 234 235 237

121 124 128 131 135 139 143 147 148 149 149 150 152

236 238 240 242 245 247 250 253 255 259 262 266 27047 49 50 51 53 54 56 57 58 58 58 59 59

404 411 417 424 433 440 449 457 460 466 470 475 481

191 196 201 207 213 219 226 232 233 235 236 237 239

-80 -81 -82 -82 -83 -84 -85 -8 -87 -89 -90

76 738 8 82 85 87 88 83 9 89 90

595 607 615 629 644 659 676 692 696 702 707 713 720

0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0-30 0 0 0 -30 0 0 0 -30 0 0 0 195595 607 615 629 644 669 676 692 696 702 707 713 720

-131 310 318 331 -84 360 377 392 -34 402 406 412 1,916

-131 310 318 331 -84 360 377 392 -34 402 406 412 1,916

11 456 467 485 74 523 545 564 139 576 582 589 2,094

-6,044 -5,734 -5,416 -5,085 -5, 169 -4,80 -4,432 -4,040 -4,073 -3,672 -3,265 -2.853 -937

4,139 -3,829 -3,511 -3,180 -3,264 -2,904 -2,527 -2,135 -2,168 -1,767 -1,360 -948 968

-3,163 -2.707 -2,240 -1,755 -1,682 -1,159 -614 -49 90 666 1.247 1,836 3,930

- 64 -

FIRR Sensitivity 4FIRR Sensitivity 4 - Increase of ooerabnq and maintenance Cost bv 15%Liepaja Region Solid Waste Management Project

17th ApnI 2000 (Frank M Stubeeitsky)

FIRR, Grobina revised analysis:with sludge # esectricity at Skede. 160% net disposal Inrease (phased over 2001 to 2005) - NRT payment. coroecton reducedLatvenergo taifif in 2010 (In 000 LVL)A periodic investment in energy cells of LVL 200,000 has been added in years 8,12 and 16In addition, non-fungible finance from Sida and from PCF for reduced Carbon emissions have been credited back to the revenue stream.Cida funding for Environmental Training Costs has been excluded from prcject costs (LVL 201,000), as has remediation of regional dump sites (LVL925,000).Project costs also excude pnce contngencies, frost-end fee and interest durng constructon; GoL financing of the PIU of LVL 100,000 dunrng 2000has been inctuded.Cost of remediaton regional landfills of LVL 747,000 has also been excluded. 1 2 3 4 5 6 7

Calendar Yearscategory description 2001 2002 2003 2004 2005 2006 2007

OUTFLOWS or COSTS 6,512AH cost table of 24th January 2000,revised on 15th March 4,303 1,108 273 452 278 98 0

operatonal costs of the sites and of see AH fable on O&M costs of 13th Dec,I-FL piusrevisedstaffingcosts 166 153 161 172 189 234 253cost of regional transpr of waste to see AH estimate of 1811/2000 25 25 25 25 25 25 25payment of NRT at moment of LVL 0.25'((0.25 of waste year t) plusdisposal (015 of waste year t-5)) 8 9 9 10 11 16 17

total costs total outows or costs 4,502 1,295 468 659 503 373 295

projected quan6ites of waste delivered atINFLOWS or BENEFiTS the landfil, in '000 m3 126 137 149 162 175 179 184gross disposal or tpping fees (gross net disposal fee net of NRT and VAT, at1,0@lm3) LVL0.64/m3 81 88 95 103 112 115 118electricity sales, from Grobna and at LVL 22.10MWIh unfil 2009;LVL 14.73Skede thereafter 0 131 169 209 234 234 235receipt ofNRT at 0.25 per m3 waste 32 34 37 40 44 45 46


increase of net disposal fee by 160% lo be phased in over the years 2001 toioLVLI,65/m3 2005 70 89 112 142 176 181 186reduction electncity sales price from2010 onwards from 22.10WMWh to 14.73IMWhcompensating increase of disposal increase of net disposal rates by 38fee, from 2010 onwarns santmes (23%) to 203 san6mes

sub-total leflows sub-total inflowvsor revenues t82 343 414 495 566 574 584

carbon emission reduction, at PCF prn ected PCF disbursement, total LVL 784 300 81 35 0 0 0Sida feasibility study and twinning projected Sida disbursement totalagreementfunding 705,000 473 151 81 0 0 0 0

O&M costs by 15% -25 -23 -24 -26 -28 -35 -38total Inflows total inflOws 1,414 771 551 504 566 574 584

NET COSTS I BENEFITS, basscase -1 c34-c2l -4,345 -975 -79 -190 34 166 252

valued at PCF/Sida disbursements c-34NET COSTS/ BENEFITS, case 2 c21cc360c37 -3,088 -524 83 -155 34 166 252

additional net disposal fee of 75NET COSTS I BENEFITS, case 3 santiMes for FIRR of about 7 5% -2,993 -421 195 -34 165 301 390

((net disposal fee mireased from 203santimes to 278/m3))

FIRR, base case - 1 -0.99%FIRR, Idem with PCF and Sidadisbursements - 2 1.90%FIRR, idem with additional Income - 645%

CUMULATIVE NET COSTS IBENEFITS, easeT base case -4,345 -5,319 -5.398 -5,588 -5,554 -5.388 .5,136CUMULATIVE NET COSTS/BENEFITS, case 2 PCF/Sida disbursemeeto -3.088 -3,611 -3,528 -3,683 -3,049 -3,483 -3,231CUMULATIVE NET COSTS / inceased disposal tanff to reach FIRR ofBENEFITS, case 3 about 7.5% -2,993 -3,414 -3,219 -3.252 -3,087 -2,786 -2,397

Noles 1 -p.rojecicnsts ae been reduced by VL 21.000 represe..eng the Enir-nmental Tranmng rests nnaed by CIDA, and by LVL 747,000 Iton remesin-reag-al lardfills (..cl SOeda)equivalen to 33% of the prernl ,earage tarin ot 32 sastimes, and woold name an fop d tih aliandy calculated increase of 8 s-times tI ensur viabilty raLiepajas Ras Ltd.The corbned incease oif tv aste tavt O W n 2001 would tlnn be anound 63%. tor a toal rarift of 52 san--mesler-orlmonth or LVL 6.25 per year. Such a lievel iscl.ery NOT eSordabi e ept tsr th very tew; d n-ither- uld .. h -an in-re.as be prrit -11i an-apieble.

- 65 -

AnaChnwt 9 of Anno3: 5 (PAD MARCH, fnde. AMnex 5)ConOnued

8 9 10 11 12 13 14 15 16 17 18 19 20

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

6.512

200 0 0 0 200 0 0 0 200 0 0 0-1,302

453 253 253 253 453 253 253 253 453 253 253 253 25325 25 25 25 25 25 25 25 25 25 25 25 25

17 18 19 20 20 21 21 22 22 22 23 23 23

695 296 297 298 698 299 299 300 700 300 301 301 -1,001

189 194 199 205 211 217 224 230 231 232 234 235 237

121 124 128 131 135 139 143 147 148 149 149 150 152

236 238 240 242 245 247 250 253 255 259 262 266 27047 49 50 51 53 54 56 57 58 58 58 59 59

404 411 417 424 433 44 449 457 460 486 470 475 481

191 196 201 207 213 219 226 232 233 235 236 237 239

-80 -81 -82 -82 -83 -84 -85 -86 -87 -89 -90

76 78 80 82 85 87 88 85 89 89 90595 607 615 629 644 659 676 692 69 702 707 713 720

0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0-38 -38 -38 -38 -38 -38 -38 -38 -38 -38 -38 -38 -38595 607 615 629 644 659 676 692 696 702 707 713 720

- 66 -

Annex 6: Procurement and Disbursement Arrangements


Procurement

Summary of Procurement ProceduresThe proposed procurement arrangements are summarized in Tables A and Al. Consulting services, goodsand works financed by the Bank shall be procured in accordance with Bank procurement guidelines. Aprocurement plan detailing the packaging and estimated schedule of procurement actions is presented inTable B2. All other procurement information, including capability of the implementing agency, estimateddates for publication of GPN and the Bank's review process is presented in Tables B and B 1.

Project Implementation Unit. The private consulting firm ELSE has been selected by the Borrower as theexecuting agency for the project. The contract with ELSE will not be financed with proceeds coming fromthe loan. ELSE, with a professional staff of 3, is a relatively small organization with a reputation forefficiency in its operations.

Before its establishment as a private firm in 1999, the staff of ELSE has managed the implementation ofinvestments from intemational donors for the Liepaja Environment Project, and its performance has beenrated highly satisfactory. In order to execute the implementation of the proposed project, ELSE will need tohire the services of a firm for contract management and supervision, and possibly some individualconsultants to work as technical experts (none of them funded by the Loan).

The PIU will be responsible, inter alia, for:

* the procurement of works, goods and consulting services financed under the project;* the management of project accounts, including loan withdrawals, disbursements from the Special

Account as well as financial accounting, auditing and reporting procedures acceptable to the Bank;3 the monitoring of project implementation and the preparation of quarterly reports to the Bank; ande the close liaison with the line ministries, state committees and local authorities on the implementation of

the various project sub-components.

More detailed infornation is presented in the draft TOR for the PIU (see Annex 6.1).

Procurement Capacity. An ECSSD procurement consultant visited Liepaja, Latvia from September 27 to30, 1999, and met with the representatives of the proposed implementation agency for the Liepaja RegionSolid Waste Management Project. The resulting procurement capacity assessment report and the positiveopinion of both the Task Team Leader and the Procurement Specialist working on the Latvia EnvironmentProject, agreed that the level of risk can be assessed as average (also, this new project does not involveneither a great amount of procurement, only 3 packages).

Procurement of Goods and Works

Procurement of Goods and Works. Procurement of goods and works contracts will be carried out inaccordance with Guidelines: Procurement under IBRD Loans and IDA Credits (Washington, D.C.:World Bank, January 1995, revised January and August 1996, September 1997 and January 1999). Theappropriate sample procurement documents issued by the Bank will be used with the minimum changes

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acceptable to the Bank.

Participation of Government Owned Enterprises (GOEs) in procurement of goods and works. GOEswilling to participate in the procurement of works and goods financed by the Bank in this project shouldmeet the Bank's eligibility criteria: they should be financially and legally autonomous and operate undercommercial law in Latvia. Their status has to be properly clarified by interested GOEs before participatingin any bid under this project.

Procurement of Civil Works (US$ 1.982 million, or US$ 1.680 net of taxes).

* International Competitive Bidding (ICB). One ICB civil works contract is intended to beprocured for remediation and closure of existing dumping sites. Its estimated total cost is US$ 1.663 (orUS$ 1.410 net of taxes).

* National Competitive Bidding (NCB). Contracts, each estimated to cost US $400,000 or less willbe procured by NCB. NCB procedures will be applied to procure one works contract currently estimatedto cost about US $0.32 million (or 0.270 million net of taxes), for excavation and preparation works for theleachate pond. The contract will be lump sum, fixed-price. Bidding documents will be based on the samplebidding documents developed by the Bank.

Procurement of Goods (US$ 0.602 million, or US$ 0.510 million net of taxes).

* International Competitive Bidding (ICB). Each contract estimated to cost US $100,000 or morewill be procured by ICB. There will be one ICB goods contract estimated to cost approximately USS 0.6mnillion or US$ 0.510 million net of taxes, for the procurement of sludge handling equipment.

GOODS/ISSUE: Preference for domestically manufactured goods: TO BE DETERMINED. (Forcontracts for goods, to be awarded on the basis of ICB, the Borrower may grant a margin ofpreferenceof 15% or the amount of applicable customs duties, whichever is lower, to qualified domesticmanufacturers of goods, if any, in accordance with The World Bank Procurement Guidelines referred toabove).

* Selection of firms. Audit services will not be procured using Loan proceeds.

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Review by the Bank of Procurement Decisions

Goods and Works: The 3 IBRD Loan fmanced contracts are subject to the Bank's prior review.

Procurement methods (Table A)

Table A: Project Costs by Procurement Arrangements(US$ million equivalent)

Procurement MethodExpeod1e, category ICB -#.B.F. TotW Cost

1. Works 1.66 0.32 0.00 5.84 7.82(1.41) (0.27) (0.00) (0.00) (1.68)

2. Goods 0.60 0.00 0.00 2.66 3.26(0.51) (0.00) (0.00) (0.00) (0.51)

3. Services 0.00 0.00 0.00 2.69 2.69(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) (000)

5. Interest during 0.00 0.00 0.00 0.00 0.00construction

(0.00) (0.00) (0.00) (0.00) 0.006. Front-end fee 0.00 0.00 0.03 0.00 0.03

_ (0.00) (0.00) (0.03) (0.00) (0.03)Total 2.26 0.32 0.03 11.19 13.80

t ______________= ________ | (1.92) (0.27) (0.03) (0.00) (2.22)

Figures in parenthesis are the amounts to be financed by the Bank Loan. All costs include contingencies

I Includes civil works and goods to be procured through national shopping, consulting services, services ofcontracted staff of the project management office, training, technical assistance services, and incrementaloperating costs related to (i) managing the project, and (ii) re-lending project funds to local governmentunits.

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Latvia: Liepaja Region Solid Waste Management ProjectTable Al: Consultant Selection Arrangements

(in US$ million equivalent)

Consultant Services Selection Method Total Cost (includingExpenditure Category contingencies)

QCBS N.B.F.

A. Twinning Arrangements 0.00 0.482(0.000)

B. Detailed Design & 0.00 1.182Supervision (0.000)

C. Training 0.00 0.468(0.000)

D. PIU Support 0.00 0.555(0.000)

Total 0.00 2.687(0.00) (0.00)

Note: QCBS = Quality- and Cost-Based SelectionQBS = Quality-based SelectionSFB Selection under a Fixed BudgetLCS = Least-Cost SelectionCQ = Selection Based on Consultants' QualificationsOther = Selection of individual consultants (per Section V of Consultants Guidelines),Commercial Practices, etc.N.B.F. = Not Bank-financed.Figures in parenthesis are the amnounts to be financed by the proposed IBRD loan.

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Prior review thresholds (Table B)

Table B: Thresholds for Procurement Methods and Prior Review

Contract Value Contracts Subject toThreshold Procurement Prior Review

Experditure Catgo (US$ thousands) Method (US$ millions)1. Works >400 ICB 1.663

<400 NCB 0.3182. Goods >100 ICB 0.601

3. Services4. Miscellaneous

5. Miscellaneous16. Miscellaneous6. Miscellaneous ___________ ._____________________

Total value of contracts subject to prior review: 2.582

Overall Procurement Risk Assessment

Average

Frequency of procurement supervision missions proposed: One every 12 months (includes specialprocurement supervision for post-review/audits)Note: There are no post-review contracts

iThresholds generally differ by country and project. Consult OD 11.04 "Review of ProcurementDocumentation" and contact the Regional Procurement Adviser for guidance.

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Disbursement

Allocation of loan proceeds (Table C)Allocation of loan proceeds (Table C)

The proceeds of the proposed loan would be disbursed over three years (FYOI - FY05). The lastdisbursement is expected to take place by July 1, 2005. The estimated disbursement schedule for the loan isgiven in Table C and summarized in the Table C I below.

Latvia: Liepaja Region Solid Waste Management ProjectAllocation of Loan Proceeds

Expenditure Category Amount in US$ Financing Percentagernillion

(1) Works 1.680 100% of foreign cost80% local cost

(2) Goods 0.510 100% of foreign cost84% local cost

(3) Services 0.000

TOTAL 2.190

Table Cl: Latvia: Liepaja Region Solid Waste Management ProjectEstimated Disbursement Schedule Summary

FYOI FY02 FY03 FY04 FY05

Bank FY/ US$ 0.086 0.725 0.846 0.564million

Cumulative 0.086 0.811 1.657 2.221

The last disbursement is expected to be made in FY 2005. The project completion date has been set forJune 30, 2005, and the closing date six months later for December 31, 2005. During this post-closureperiod between the last disbursement and project closing date, the loan agreement would remain effective,including Remedies of the Bank under Article V of the Loan Agreement. In the event that a default shalloccur in the performance of any obligation on the part of the Borrower under this Agreement, the Bank canenforce these remedies, which include an obligation by the Borrower to reimburse the full loan amountreceived from the Bank.

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Use of statements of expenditures (SOEs):

The Bank may require withdrawals from the Loan Account to be made on the basis of statements ofexpenditures for expenditures for consulting services under contracts with firms costing less than US$100,000, goods and works under contracts costing less than USS 100,000, all under such terms andconditions as the Bank shall specify by notice to the Borrower.

Special account:To facilitate timely project implementation, the Borrower may open and maintain a Special DepositAccount in an eligible commercial bank on terms and conditions satisfactory to the Bank. The selectionprocess and criteria for selection of the commercial bank would follow WB procedures. The SpecialAccount (SA) would be limited to an amount equivalent to US$ 200,000, to be withdrawn from the LoanAccount.

The applications for the replenishment of the SA would be submitted by ELSE at such intervals as theBank shall specify, on terms and conditions satisfactory to the Bank. The Bank will replenish the SA on thebasis of the supporting documents for eligible actual expenses and statements of expenditures. When usingthe SOE procedure, ELSE shall retain all supporting documents and make them available for review by theBank and by external auditors. All withdrawal applications will be fully documented.

The minimum application size for payments directly from the Loan Account or for the issuance of SpecialCommitments is 20% of the current Special Account authorized allocation.

Audit:

The Borrower will appoint an independent auditor in accordance with the procedures acceptable to theBank for annual audit of the project financial statements and the financial statements of ELSE. The projectaudit will include in particular, audit of the Special Account, records and financial statements. The auditreport would be fumnished to the Bank within six months of the end of each fiscal year audited. The audit ofthe project would be included in the same audit undertaken for other ELSE implemented activities, underterms of reference acceptable to the Bank.

Organizational Structure and Internal Capacity

The Project would be implemented over a six-year period, from 2001 to 2006 by "Liepajas RAS" Ltd. (LRL),having primary responsibility, assisted by the Project Implementation Unit (PIU) and under the supervision ofthe Project Steering Committee (PCS). The LRL would have a share capital of LVL 600,000 and be jointlyowned by Liepaja City Council (LCC) (66.7%) and the holding company "RAS-30" Ltd., representing theregional municipalities (33.3%). The "RAS-30" was incorporated by December, 1999, and LRL wasincorporated in February 2000.

LRL will be a small company with a management staff of three professionals, several office workers and anoperating staff at the Grobina landfill and the Skede generation station of around 20. The BusinessDevelopment Plan (BDP) now being finalized contains the broad business orientation of the company, draftstatutes of incorporation, details on the organizational structure and functioning of its management bodies, as

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well as job descriptions of its staff. The contents of the BDP will be agreed to during negotiations and itforms part of the loan documents.

It is intended that technical assistance, financed by donors, would be made available to assist management inproject Implementation. Funding has also been provided to enable LRL to pursue the possibilities of enteringinto a twinning agreement with an overseas company in the sector. The preparation of technical specificationsfor all contracts would be the responsibility of outside consultants, who would be appointed after internationaltendering. Further assistance in implementation would be provided by the PIU, which would be in charge ofall project procurement and disbursement. It would operate in close cooperation with LRL and would beanswerable to the PSC. The functions of this PIU would in fact be carried out by consultants of ELSE Ltd.,who have extensive experience in project Implementation acquired under the now completed Bank financedLiepaja Environmental Project. ELSE was certified by the Procurement Management Specialist to haveadequate capacity to ensure that procurement standards are in accordance with Bank guidelines. The ELSEstaff is currently part of the Liepaja Waste Water Company (Liepaja Udens), and is on the payroll of thatcompany. However, as mentioned above, the PIU staff have set up a private consulting company, ELSE, toserve as the project implementation unit for the waste management project, and ELSE has been contracted byLiepaja City Council to serve as the PIU of the project.

The PSC consists of members of the LCC, the Liepaja Regional Council (LRC), Liepaja RegionalEnvironmental Board (LREB), and the Ministries of Economy (MOE), Environmental Protection & RegionalDevelopment (MOEPRD) and Finance (MOF). It is foreseen that the Managing Director of LEL would be anex-officio member of the PSC, while the Head of the PIU would be its Secretary. The PSC would be closelyassociated with project implementation and rapidly help resolve any outstanding issues. It would also provide afocal point of contact for the World Bank and other donor agencies.

The technical assistance component dealing with the NSWMS would be implemented by MOEPRD incooperation with the donor community.

Financial Management

The project's financial management and accounting system would follow the World Bank's procedures inaccordance with OP 10.02, which has been understood by ELSE staff. The fnancial managementorganization would consist of the Director, responsible for financial matters and accounting, a First Deputyresponsible for all tendering and procurement, and a Second Deputy responsible for project reporting.Additional staff would be engaged on a temporary basis, should the need arise.

Accounting procedures and internal control: ELSE staff will be using software and systems that have beenacceptable for the Liepaja Environmental Project. The system is capable of producing all financial statementsand projections required by the FMS. Arrangements have been made such that they will continue to use thesame system. The formal arrangement to use the systems and authorization from the water company needs tofiled.

Financial reporting: The BDP stipulates that LEL's accounts, prepared by its Finance Director, would bekept in accordance with Intemational Accounting Standards. ELSE would provide Project ManagementReports (PMRs), which includes a set of financial reports, project progress reports, and a set of procurementmanagement reports, as described under LACI guidelines. These reports would be submitted within 45 daysof the end of each quarter. It is intended that disbursement would be based on this PMR format, which wouldallow regular advances to be made to a Special Account, a system which is in fact already operational underthe Liepaja Environmental Project.

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It is expected that the first disbursement would be made in mid 2001. Therefore the first PMRs are due to theBank on October 15, 2001 for the quarter ended September 30, 2001.

The current software being used by the PIU is not capable of generating PMRs. However, it is regarded capable inproviding required information satisfactory to the Bank, and it is suggested that the currently used software shouldbe used also in the future. The PIU is currently in the process of reviewing options to this software, which is theproperty of the Liepaja Water Company. available for such a software. The software would be selected andinstalled by December 31, 2000.

The action plan for establishment of an appropriate financial management system is as follows:

* Contractual arrangement with Liepaja Water Company to authorize use of systems by August 31, 2000* Review of the financial management system and decision on subsequent action (continuation with thesatne system or migrating to other) by November 30, 2000* Establishment of financial system for project duration by March 31, 2001* First PMRs for September 30, 2001.

Given that the project is not expected to disburse before mid 2001 it would not be advisable to make theestablishment of the software as a condition of effectiveness since the PIU has sufficient time to implement this.

Audit arrangements: International audits will be conducted on an annual basis by international auditorsacceptable to the Bank in accordance with International Accounting Standards as issued by the IntemationalFederation of Accountants. The annual audit will be carried out in accordance with the Guidelines forFinancial Reporting and Auditing of Projects Financed by the World Bank (March 1982). The audit reportshall be in a format in accordance with the Intemational Standards on Auditing promulgated by theInternational Federation of Accountants (IFAC). The audit report will include a separate opinion for SOEsagainst which disbursements have been made or are due to be made from the Credit and SOEs which will beincluded in the audit report accompanying the financial statements.

The audit of the financial statement will include: (a) an assessment of the adequacy of accounting andintemal control systems to monitor expenditures and other financial transactions and ensure safe custody ofproject-financed assets; (b) a determination as to whether the project implementing entities have maintainedadequate documentation on all relevant transactions; and (c) verification that expenditures submitted to theBank are eligible for financing, and identification of any ineligible expenditures.

The books of LRL, ELSE (PIU), as well as the project accounts would be audited. The auditors would beselected on the basis of "expressions of interest" and a shortlisting of at least five audit firms acceptable tothe Bank. A selection would be done on the lowest cost basis. The terms of reference has been preparedas well as the shortlist have been prepared to the Bank's fill satisfaction and the auditors would beappointed by effectiveness.

The Action plan for appointment of auditors are as follows:

* Term of reference and letter of invitation approved by the Bank by July 10, 2000;* Advertisement in Local Newspaper by July 31, 2000;* Bids received by PIU by September 30, 2000* Auditors appointed by November 30, 2000.

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The audit of the project would be undertaken in accordance with International Auditing Standards. Auditedfinancial statements for the project would be sent to the Bank within six months after the end of every fiscalyear.

Project Supervision: The project would be closely monitored during the first year after approval to ensure theinstitution of the PMR software, the financial manual and the selection of auditors. The FMS for the project will visitthe project prior to effectiveness to follow up on the progress of the project.

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Annex 6.1

Latvia: Liepaja Region Solid Waste Management ProjectTerms of Reference for the Project Implementation Unit

The duties of the Project Implementation Unit (PIU) will include, inter alia:

(a) On behalf of Liepajas RAS Ltd., which is jointly owned by the municipalities and pagasts of the LiepajaRegion, to coordinate relations among the World Bank, the involved International Financial Institutions (IFI),bilateral donors, the Ministry of Environmental Protection and Regional Development, consultants andcontractors during project Preparation and Implementation;

(b) Advise Liepajas RAS Ltd. regarding the use of World Bank and other IFI loans and grants as well asbilateral grants, especially in regard to procurement practices and rules;

(c) On behalf of Liepajas RAS Ltd., prepare short-lists of consultants to be invited to submit proposals,draft terms of reference, issue invitations, respond to questions raised, prepare addenda as needed, evaluateconsultant qualifications, and proposals, propose awards, prepare evaluation reports and help support them-anagement of Liepaja Eko with the negotiation and signing of contracts;

(d) On behalf of Liepajas RAS Ltd. and in accordance with the relevant IFI or donor procurement rules,compile bidding documents, carry-out bidding procedures, prepare evaluation reports and assist Liepaja Eko inconcluding goods and works contracts for the implementation of the project;

(e) On behalf of Liepajas RAS Ltd., monitor and assess the work of the consultants, suppliers andcontractors working on the project assignments and components, with the understanding that the technicalsupervision will be carried out by Liepajas RAS Ltd. or its agent. Also, liaise with the Bank on procurementissues as needed;

(f) Prepare for and assist the supervision niissions of the World Bank and other financiers as requested.Follow-up on the implementation of recommendations formulated in the World Bank's supervision reports;

(g) Not later than 45 days after each calendar quarter ending on March 31, June 30, September 30 andDecember 31, prepare for the Bank a consolidated Project Management Report on project implementationactivities for the preceding quarter. The contents and lay-out of this PMR will be consistent with the LACIconcepts defined by the Bank, designed to bring together project financial management, disbursement,procurement & contract management, as well as physical progress;

(h) Prepare and submit disbursement requests to the World Bank, other IFI and bilateral donors inaccordance with the respective loan and grant agreements;

(i) Prepare terms of reference and tender documents for consultancy contracts, (e.g., contract coordination Itechnical support and institutional strengthening consultancies) and monitor the training to be provided underthese contracts;

(j) Follow all aspects of the implementation of the Project and when needed, prepare written warnings to all

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stakeholders about possible problems and delays as well as proposing technical, financial and institutionalmeasures needed to improve project implementation;

(k) Coordinate the services among suppliers and contractors for timely deliveries;

(1) Prepare the special reports and periodically update the action plans, required as a consequence of theWorld Bank Loan and Project Agreements, the bilateral grant agreements and the subsidiary loan agreements.All relevant reports should also be sent to the Project Steering Committee;

(m) Engage the services of an external auditor for the annual audit of the project's accounts;

(n) Liaise with all the stakeholders of the project, monitor media coverage of the project and supply mediaand public with timely and relevant infonnation supporting the achievement of the project objective;

(o) Establish and maintain project archives and upon termination of the contract with Liepaja EKO,hand-over these archives to the company for their safe-keeping; and

(p) Provide premises, computer services and office equipment needed for the performance of the above-mentioned services.

Under LACI (Loan Administration Change Initiative), the PIU of a Bank-financed project is expected toprepare on a quarterly basis a Project Management Report (PMR) consisting of three sub-reports:

- a Project Progress Report (PPR), which gives details on project implementation and explains anydifferences between actual physical and financial progress and the forecasts;

- a Project Financial Statement (PFS), which includes a summary of sources and uses of funds, anup-dated six-months cash forecast, a reconciliation of the Special Account (SA) and a cash withdrawalstatement; and

- a Procurement Management Report (PMR), which shows procurement status and contractcommitments.

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Annex 7: Project Processing Schedule


Ppolect Schedule Planned ActualTime taken to prepare the project (months) 18

First Bank mission (identification) 06/28/98 06/28/98

Appraisal mission departure 09/13/99 01/14/2000

Negotiations 09/27/99 04/10/2000

Planned Date of Effectiveness 02/02/2000 11/01/2000

Prepared by:

ECSSD

Preparation assistance:

ENV, SIDA, Swedish TF, Dutch TF

Bank staff who worked on the project included:

Name Speciality

Anders Halldin Task Team LeaderKari Johansson Regional Environmental SpecialistFrank Stubenitsky Financial Analyst (Consultant)Alan Hancock Public Participation Specialist (Consultant)Samuel Fankhauser EconomnistChandra Shekhar Sinha EconornistJose Martinez Procurement SpecialistAllan Rotman Peer ReviewerKishore Nadkami Peer ReviewerMaria Nikolov Editor (Program Assistant)

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Annex 8: Documents in the Project File*LATVIA: Liepaja Region Solid Waste Management Project

A. Project Implementation Plan

* Feasibility study and environmental impact assessment, prepared by Sweco* Business plan for Liepaja Eko, prepared by Lennart Lindeberg, Bo Persson and Jan Hult* Saw dust and wood waste strategy, prepared by Indufor Oy* Evaluation of the pilot project on waste separation at the household level

B. Bank Staff Assessments

* Social assessment and public participation plan* Financial analysis* Economic (cost effectiveness) analysis* Affordability analysis

- Back-to-Office Report and Mission Aide Memoire, Identification Mission, June 28-July 10, 1998- Back-to-Office Report and Mission Aide Memoire, Preparation Mission, November 16-20, 1998- Back-to-Office Report and Mission Aide Memoire, Pre-Appraisal Mission, April 12-23, 1999- Back-to-Office Report and Mission Aide Memoire, Pre-Appraisal Mission, October 25-29, 1999e Back-to-Office Report and Mission Aide Memoire, Appraisal Mission, January 17-23, 2000

C. Other

* Independent certification of PCF component*lncluding electronic files

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Annex 9: Statement of Loans and CreditsLATVIA: Liepaja Region Solid Waste Management Project

Difference between expectedand actual

Original Amount in US$ Millions disbursements

Project ID FY Borrower Purpose IBRD IDA Cancel. Undisb. Orig Frm Rev'd

LV-PE-44804 1999 REPUBLIC OF LATVIA RURAL DEVELOPMENT 10.50 0.00 0.00 8.89 0.44 0.00LV-PE-49172 1999 GOVERNMENT OF LATVIA EDUCATION IMPROV. 31.10 0.00 0.00 29.40 0.00 0.00LV-PE-55585 1999 MINISTRY OF FINANCE STATE REVENUE SERVIC 5.00 0.00 000 4.36 -0.21 0.00

LV-PE-56520 1999 GOVERNMENT OF LATVIA HEALTH 12.00 0.00 0.00 11.26 0.32 0.00LV-PE-40553 1998 REPUBLIC OF LATVIA SOLID WASTE MGMT. 7.95 0.00 0.00 7.93 1.74 0.00

LV-PE-35807 1997 REPUBUC OF LATVIA WELFARE REFORM 18.10 0.00 0.D0 11.31 6.61 0.00

LV-PE-8532 1997 REPUBLIC OF LAlVIA HIGHWAY 20.00 0.00 0.0W 7.51 2.91 0.00LV-PE-34584 1996 REPUBLIC OF LATVIA MUN. SERVICES DEV. 27.30 0.00 0.00 10.60 9.69 0.00LV-PE-8526 1996 REPUBLIC OF LATVIA JELGAVA DIST. HEAT 14.00 0.00 0.00 1.49 -0.16 0.00

Total: 145.95 0.00 0.00 92.75 21.34 0.00

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LATVIASTATEMENT OF IFC's

Held and Disbursed Portfolio31-Jul-1999

In Millions US Dollars

Committed DisbursedIFC IFC

FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic1995/0 Lattelekom SIA 5.39 0.00 13.67 0.00 2.86 0.00 13.55 0.001996 Vika Wood 2.80 0.00 0.00 0.00 2.80 0.00 0.00 0.001996/98 Vereinsbank Riga 0.00 0.00 6.05 0.00 0.00 0.00 6.05 0.00

Total Portfolio: 8.19 0.00 19.72 0.00 5.66 0.00 19.60 0.00

Approvals Pending Commitment

FY Approval Company Loan Equity Quasi Partic

Total Pending Commitment: 0.00 0.00 0.00 0.00

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Annex 10: Country at a Glance

LATVIA: Liepaja Region Solid Waste Management ProjectEurope & Lower-

POVERTY and SOCIAL Central middle. . .. ._ _

Latvia Asia Income Development diamond'

1898Population, mid-year (MiionS) 2.4 473 908 Life expectancy

GNP per capita (Atlas method, 1U) 2,420 2,190 1,710GNP (Atles method. U$ billiOns) 5.9 1039 1,557

Averaoge nnual growth. 1992-98

Population (%) -1.3 0t1 1.1 Labor forc (%) -t.3 0 6 GNP primary

Most recent etimoate (latest yar avalable, 199298) capita er enrollment

Poverty (% Of population beow national poVrtY ilneJ)

Ufban population (% of total population) 74 68 58Lite expectancy at bkth (years) 69 69 68

Inhnt mortality (per 1.000 live births) 1 5 23 3SChid malfauttion (9% of children under 5) . Access to safe water

Ace$ss to sate water (9 of populbfon) ,, 75Illiteracy (% ofpopuLatin age0 15.) 0 4 14

Gross primary enrollment (% of schootW-ag population) 9 100 103 - afoviaMale 98 101 105 Lower-middle-income group

Fema4^ 93 99 100

KEY ECONOMIC RATIOS *ad LOfiG-TERM TRENDS

1977 1987 1997 1998Economic ratios'

GOP (US$ bilfions) - ^o6 S.6 6.4

Gross domestic investment/GDP 347 22.8 23.0 Trade

Exports of goods and service51GDP 51.0 47,7Gross domestic savings/GDP 34.9 14.3 9.8Gross national savings/GOP . . 16.6 11.9

Current account balance/GOP .. . 5.61 -_11 Domestic IvestmentInterest pmertstGDP 0,4 0.3 Savings n

Total debt/GDP 20.0 24,7 V

Totat debt servicelexports 7.0 3.8

Present value of debt/GDP '5 6.4Present value of debt/exports t159 12.5

Indebtedness197747 1918411 1997 l99S 199943

(average ann7ual growth) .- LatviaGOP 3.6 -6.4 86 3.6 5.0

GNP per capita 3.0 .5.3 t`0.2 4.5 6.1 Lower-middle-income group

Exports of goods wn services 0.6 13,1 6.6 7,2

STRUCTURE of the ECONOMY1977 1987 1997 1998 Growth rates of output and investment (%)

(% of GDP) 40

Agriculture 18.0 5.8 4.7

Industry 46.0 32.2 29.4 20 -

Manufacturing 40.1 22.2 20.2 0

Services 35.9 62.0 65.9 20!

Private consumption 55.3 69.4 72.7 .40 9

General government consumption 9.8 16.3 17.6 GDl e-GDPImports of goods and services 59.5 61.0

1977-87 1988-98 1997 1998 Growth rates of exports and Imports (%)

(average annual growth)Agriculture 317 -8.9 3.7 -4.7 40

Industry 3.5 -13.1 11.7 3.9 20

Manufacturing 3.6 -11.9 17.1 3.4 o

Services 3.2 -0.5 7.5 4.7 -20 9 96 97 96

Private consumption 2.0 -6.1 -4.8 5.8 40

General government consumption 5.4 2.2 0.3 5.3

Gross domestic investment -5.7 20.7 11.1 bO

Imports of goods and services 1.2 6.8 16.9 Exports -Imports

Gross national product 3.6 -6.3 9.0 3.5

Note: 1998 data are preliminary estimates.

The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will

be incomplete.

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Latvia

PRICES and GOVERNMENT FINANCE

Domestic prices 1977 1987 1997 1998 Inflation (%)

(% change) 1.200Consumer prices .. .. 8.4 4.9 900s-Implicit GDP deflator -0.3 -0.8 6.6 11.2 600 \

Government finance 300 V

(% of GDP, includes current grants) oCurrent revenue .. .. 40.6 41.5 93 94 95 96 97

Current budget balance .. .. 1.8 3.0 - GDP deflator 6CPI

Overail surplus/deficit .. .. 1.7 0.1

TRADE1977 1987 1997 1998 Export and Import levels (USS millions)

(US$ millions)Total exports (fob) .. 1,838 2,011 4,000 .

n.a.n.a. 3,000Manufactures .. .. 1,548 1,627

Total imports (cif .. .. 2,686 3,141 2,000 .

Food .. .. 273 301 1000Fuel and energy .. .. 145 116Capital goods 476 609 o

Export price index (1995=100) .. .. 102 100 92 93 94 95 96 97 9WImport price index (1995=100) .. .. 109 111 * Exports N ImportsTerms of trade (1995=100) .. .. 93 90

BALANCE of PAYMENTS1977 1987 1997 1998 Current account balance to GDP ratio (%)

(US$ millions)Exports of goods and services .. . 2,871 3,051 4Imports of goods and services .. 3,348 3,902Resource balance .477 -851 o

Net income - 55 54 * 93Net current transfers .. 77 84 -4

Current account balance .. -345 -713

Financing items (net) .. 447 775Changes in net reserves .. -102 -63 -12

Memo:Reserves including gold (US$ millions) .. .. 953 1,012Conversion rate (DEC, locallUS$) 0.01 0.6 0.6

EXTERNAL DEBT and RESOURCE FLOWS1977 1987 1997 1998

(USS millions) Composition of total debt, 1998 (USS millions)Total debt outstanding and disbursed .. .. 1,130 1,577

IBRD .. .. 120 186IDA .. .. 0 0 A 16

Total debt service .. .. 133 62 c:64IBRD .. .. 5 12 G:604IDA .. .. 0 0

Composition of net resource flowsOfficial grants .. .. 4 1Official creditors .. .. 63Private creditors .. .. 12Foreign direct investment .. .. 335 216 F:0 :637Portfolio equity .. . 9 41 E: 80

World Bank programCommitments .. .. 98 30 A - IBRD E -BilateralDisbursements .. .. 53 82 B - IDA D -Other mulblateral F - PrvatePrincipal repayments .. .. 0 4 C- IMF G - Short-termNet flows .. .. 53 78Interest payments .. .. 5 8Net transfers .. .. 48 70

Development Economics 9/22199

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AdditionalAnnex No.: 11

PCF Issues and Emission Reductions Estimate

A. OVERVIEW

Type of project: Capture and utilization of landfill has (methane) from wastedisposal,

Location. Liepaja Region, Latvia

Estimated PCF emissions purchase value US$ 2.477 millionIBRD Loan US$ 2.220 million

Other co-financingEuropean Union (ISPA Grant) US$ 4.860 millionSIDA US$ 1.180 millionNordic Investment Bank US$ 1.500 million

Total financing US$ 16.970 milion

Total estimated emission reduction Minimnum Emissions Reduction of 105,800 tC over CY 2001-2012(t-equivalent): Esfimated total emissions reduction of 186,000 tC over CY

2001-2012-- 158,700tC from CHi capture between CY 2001-12

- 27,300 tC from fuel switching for power between CY 2001-12

US$ 23.4/ tC assuming Minimum EmDissions Reduction betweenEstimated offset price (US$ / tC-equivalent): 2001-12

US$ 13.3/tC assumiing total emissions reduction between 2001-12Host country agency responsible -- US$ 15.6/tC excluding emissions reduction from fuel switchingfor approval of AJ/JI/CDM projects: for power

Date of project endorsement

Ministry of Enviromental Protection and Regional DevelopmentDate of approval of the PCF Emissions (MOEPRD) Mrs. Ingrida Apene, Sr. Desk Officer

Reduction Purchase Agreement September 21, 1998 fom Minister for Environmental Protectionand Regional DevelopmentJuly 10, 2000

B. REDUCTION ANALYSIS

1. BaselineImproved solid waste management has been identified as one of the top five priorities for Latvia in arecently completed National Environmental Policy Plan (NEPP). Following the recomrnendation of theNEPP, the Government has started a program of upgrading or closing all existing disposal sites, many ofwhich pose a risk to local groundwater resources. To support this program institutionally, a National SolidWaste Management Strategy (NSWMS) has been prepared.

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The NSWMS emphasizes regional solutions as a key strategic element to improved and cost-effective solidwaste management. Once the strategy is fully implemented, it is estimated that only 10-12 major sites willremain to serve the waste disposal needs of Latvia. The NSWMS also sets environmental standards withrespect to groundwater and surface water pollution and the treatment of leachate.

The donor community continues to provide assistance to the Govemment in its efforts to reform wastemanagement practices. The NSWMS, for example, was supported by the Danish EPA. The SwedishIntemational Development Agency (SIDA) and the Bank jointly finance the Municipal Solid WasteManagement Project in Riga. Owing to the availability of GEF funding, it was possible in this project togo beyond the standards of good practice set in the NSWMS and establish a state-of-the-art municipalwaste management system, including the capture and utilization of landfill gas (LFG).

The GEF Riga project is very similar to the current proposal and the analytical work carried out for Rigacan serve as a starting point for this analysis. The incremental cost analysis for the GEF project concludedthat the minimum requirements for existing sites would be remediation measures to fulfill the requirementsof the NSWMS, and that further technical and operational improvements to reach the sanitary landfillstandard are expected to be required and implemented, if and when these improvements are regarded asaffordable to the population.

An economic analysis carried out as part of the feasibility study confirms that the basic upgrading andremediation appears to be the most cost-effective way of meeting the environmental and performancestandards of the NSWMS (see below).

The key elements of such a baseline strategy would be: (a) consolidation of solid waste management in onesite and closure of inadequate sites; (b) covering of the remaining landfill; and (c) collection and treatmentof leachate in the remaining landfill. Neither remediation nor a sanitary landfill - the next higher standardof solid waste management would entail the capture of LFG.

Central and Eastem Europe eventually will have to harmonize their national environmental laws with thoseof the EU, as a condition for eventual membership in the European Union. In the area of solid wastemanagement, the relevant regulations include Council Directive 75/442/EEC which requires, inter alia,thatMember states should ensure that waste disposal costs should be covered by the waste holder (owner) or bythe previous holder of waste ("polluter pays" principle). Furthermore, Council directive 1999/31/EC of 26April 1999 on the landfill of waste envisages among other regulations, that methane gas should be collectedand utilized or burned from existing and new landfills. This has a direct bearing on the time horizon inwhich the proposed baseline for this project could be defended. This is discussed in more detail later in thisAnnex.

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2. PCF Project

The proposed project would introduce a state-of-the-art system similar to that implemented in Riga. Theproposed techniques would meet modem intemational sanitary landfill standards in regard toenvironmental, operational and hygienic conditions, and would include the separation of waste, recyclingand improved management. Energy cells would be used to accelerate the decomposition of waste and tocollect LFG for subsequent utilization in power generation. Like the Riga concept, the proposed systemwould go beyond the minimum requirements and standards of the NSWMS. However, the preliminaryeconomic analysis shows that such a solution would not be cost effective unless the carbon abatement valueof the captured methane is factored in (see below).

The project would undertake the following:

a) remediation and enlargement of one existing site, and closure of other sites;b) technical and operational improvements to meet sanitary landfill standards;c) establishment of a sorting line for separation of recyclable materials and arranging separate areas for

the storing of separated material as well as hazardous waste;d) establishment of a modem waste management system based on energy cells for enhanced degradation

of easily biodegradable waste, and collection of LFG;e) establishment of a transport system (including vehicles) and waste collection points throughout the

region to assure the lowest possible transport costs for waste generated at a long distance from the newsite;

f) use of captured LFG to generate electricity or perhaps heat or heat and electricity;g) technical and managerial assistance in the operation of the waste processing system through twinning

arrangements;h) technical assistance and training for waste management utilities and private sector companies involved

in the implementation of the NSWMS.

Site Alternatives

Initially, five altemative sites were evaluated and two sites were found suitable for an in-depth evaluation.These two alternative sites are Skede and Grobina. For the two sites sanitary landfill technology has beencompared with energy cell technology for organic waste, while demolition waste and inorganic industrialwaste will be landfilled. For the two sites the following alternatives have been considered.

Alternatives consideredfor Skede and Grobina

Alternative | Sub-alternatives Comments


Alternative Al Gas extraction from existing landfill, combined with Income from electricalenergy cells, without addition of sewage sludge energy

Gas extraction from existing landfill, combined withenergy cells, with addition of sewage sludge

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Altemative A2 Gas extraction from existing landfill, combined with Income from gasenergy cells, without addition of sewage sludge

Gas extraction from existing landfill, combined withenergy cells, with addition of sewage sludge

Altemative A3 Gas extraction from existing landfill Income from electricalenergy

Altemative A4 Landfilling without gas extraction. This is a The Baseline for the PCF"downgraded" version of a sanitary landfill designed to projectmeet all environmental considerations other than captureof methane.

Altemative A5 Closing of the landfill

Altemative A6 Closing of the landfill with gas extraction and flaring


Alternative B 1 Gas extraction from energy cells, without addition of Income from electricalsewage sludge energy

Gas extraction from energy cells, with addition ofsewage sludge

Alternative B2 Landfilling without gas extraction


The land area available at Skede is sufficient for the current and projected amounts of solid waste. The areacurrently being used at the landfill site is about 7.7 ha and the operation time for a conventional landfillwould be about 14 years. Closing of the landfill at Skede (Alternative A5) or closing the landfill with gasextraction and flaring (altemative A6) means that environmental remediation still has to be implemented.This involves the covering of the landfill area, landscaping and the treatment of leachate water.


The available area at the Grobina site is large, 45 ha, compared to the small (lass than 1 ha) existinglandfill. The disposed volume at Grobina is about 20,000 m. The utilization of the proposed land area isbased on alternative B1 energy cells for organic waste and landfilling of inorganic industrial waste anddemolition waste. The layout is adopted to the 20 year planning period and the proposed landfill area isabout 5.8 ha, the energy cell area about 5.5 ha, the area for receiving, sorting and temporary storage ofsorted material 1.8 ha and the area for leachate treatment 2.7 ha. The total fenced area is about 20 ha. Inaltemative B2, the whole allocated area would be required for landfilling for the 20 year period.

The required construction works, equipment and operation of the Grobina site will be similar to Skede but

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with the following main differences:

* water supply for the plant;* separate leachate treatment;* iamprovement of the access road.

3. Scope of the Analysis and Leakage

Greenhouse gas emission reductions would occur through two channels. The first is the direct capture ofmethane, and the second is the use of the captured gas to replace higher carbon fuels.

Quantifying the first effect involves an analysis of the amount and quality of municipal solid wasteproduced in the region and the comparison of the amount of methane released in a sanitary landfill with thegas captured in an energy cell. This data is relatively easy to come by. Nor should there be any carbonleakage.

In order to assess the actual possibility to extract gas from the existing landfill in Skede, a gas pumping testhas been carried out. The tests were initiated on May 21, 1999 and continued until the end of August 1999and are presented in Table 6.6 and discussed in more detail in Chapter 6 of the Feasibility Study. Theresults indicate that the extractable amount of landfill gas is considerably lower than earlier estimated. Onthe basis of the measurements, the extractable gas amounts have been reduced by about 50% to an initialenergy equivalent of 6,000 MWh per year, which gradually falls to 600 MWh per year at the end of the 20year period. It should, however, be mentioned that the gas wells were wrongly located and only reflects thegas yield in the periphery of the existing waste pile. The gas yield figures and the associated calculationsshould therefore be regarded as conservative.

Calculations are based on the population and the estimate of waste generation in the region. The productionof gas for different altematives is summarized below .

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Estimates of Waste Flow

Amount of Waste Total Reduction Waste toYear Serviced waste increase amount of for energy

Inhab. tons/yr 2 %/year waste recyclingt cellstons/yr recovery, tons/yr

1999 99775 21950 1,02 22389

2000 99106 21800 1,0404 22680

2001 102667 22587 1,0612 23969 5 22770

2002 109613 24115 1,0824 26102 10 23490

2003 116632 25659 1,1041 28330 15 24080

2004 123851 27247 1,1262 30685 20 24550

2005 131142 28851 1,1487 33141 25 24850

2006 131750 28985 1,1717 33961 25 25470

2007 132360 29119 1,1951 34800 25 26100

2008 133010 29262 1,219 35670 25 26750

2009 133778 29431 1,2434 36595 25 27450

2010 134574 29606 1,2682 37546 25 28160

2011 135384 29784 1,2936 38529 25 28900

2012 136213 29967 1,3195 39541 25 29660

2013 137172 30178 1,3459 40617 25 30460

2014 138151 30393 1,3728 41724 25 31290

2015 139151 30613 1,4002 42556 25 31920

2016 140164 30836 1,4282 44040 25 33030

2017 140597 30931 1,4568 45060 25 33800

2018 142250 31295 1,4859 46501 25 34880

2019 143434 31555 1,5157 47828 25 35870

2020 144643 31821 1,5460 49195 25 36900

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For the first year, the production of gas from the energy cells is calculated to be zero; the gas yield reaches 35% ofthe total in the second year; for the third year, 60%; and by the fourth year, 85% of the total methane is produced.No gas output is assumed after the fifth year. The difference in the speed of anaerobic decomposition of organicwaste in a sanitary landfill and in an energy cell need to be accounted for when estimating the actual level ofemissions reduction in reference to the baseline. Based on the decay profile reported in Table 5 estimates of annualmethane emissions reduction were produced and are presented in Table 9. The gas yields from sludge is alsoincluded in the analysis. Without sludge in the energy cells, the quantity of MWh per year for utilization inalternative Al, A2 and B 1 will be 3,000 MWh per year lower.

4. Emission Reduction

In the baseline, no measures were taken to capture LFG that is emitted during the decomposition of thiswaste. The emission reductions from the project occur from: (i) the capture of LFG and (ii) the'substitution of LFG for higher-carbon fuels.

Measuring the carbon benefits from fuel substitution requires an analysis of the Latvian power sector todeternine the mnix of fuels being replaced.

Power is generated from the methane produced by the energy cell at Grobina and the LFG collected from theremediated landfill at Skede. The actual reductions of emissions due to the electricity generated by the methanefrom energy cells and the landfill at Skede is estimated using procedures outlined and developed in the LiepajaMonitoring and Verification Protocol. Contrary to this, the projection of emission reduction in this Section is basedon the assumption that heavy fuel oil (HFO) based power is displaced from the grid. Although these reductions arelikely to be real, please note that the PCF will not claim emission reductions if these reductions occur outside ofLatvia, which will likely be the case and the provision for this has been included in the Monitoring andVerification Protocol for the project. The following factors and variables are used to project the emissions reductionfor power generation:

Variable/assumptions Unit Assumed value

Efficiency of power station % 33

Efficiency of gas engines % 38

Emission of carbon per ton of HFO ton 0.86

Reduction of CO2

per 1,000 mr of ton 7.142

landfill gas

Reduction of carbon per 1,000 m 3 of ton 1.948landfill gas

Energy content of HFO GJ/ton 40

Electricity production per ton of HFO MWh 3.667

Landfill gas generation profile is used to estimate the gas generated from the disposed waste up to the twelfth yearor up to 2012. The emission reduction resulting from the landfill gas capture component of the project additionally

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consists of the additional gas collected by the energy cell (in comparison to the gas collection system in a sanitarylandfill) of the gas that will be generated in the process of total decay of the disposed waste. The calculations of theemissions reduction from the project assumes that the energy cell is 15% more efficient in gas collection incomparison to the standard gas collection system in a sanitary landfill.

While emissions reduction from power generation is included, the reductions that result will be based on theMonitoring and Verification Protocol and on the considerations described in more detail in the Baseline Study forthe project.

Minimum Emissions Reduction and Additional Emissions Reduction.The PCF's Emissions ReductionPurchase Agreement defines a Minimum Emissions Reduction (MER) that is to be generated by the project. TheMERs for the period running up to 2012 are shown the Table below. The estimates of the total emissions reductionshown in the Table does not include the emissions reduction from fuel displace due to power generation. It includesthe annual emissions reduction from LFG capture shown in the Table on Emission reduction projections aboveand the emissions reduction proportional to the total amount that can be attributed to the calendar years between2001 and 2012 (see the Monitoring and Verification Protocol for more details). The difference between the MERsand the total emissions reduction that are verified and certified are the Additional Emissions Reduction (AERs).The PCF's Emissions Reduction Purchase Agreement stipulates the sharing arrangement for the AdditionalEmissions Reduction between the PCF and the Government of Latvia.

Calendar Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 TotalMinimum EmissionsReduction (in MetricTonesof Carbon) 4,800 6,700 8,400 9,700 10,100 10,500 11,000 11,000 11,100 11,200 11,300 105,800Estimated totalemission reduction (inMetric Tones ofCarbon) 9,526 10,825 12,124 13,207 14,073 14,939 15,589 16,238 16,888 17,321 17,970 158,700

C. PCF SELECTION CRITERIA

1. Environmental Additionality

The Kyoto Protocol requires reduction in emissions that is "additional to any that would otherwise occur" for bothJoint Implementation and the Clean Development Mechanism. Although the PCF cannot currently commit to aspecific baseline approach, in the first instance, the PCF will focus on project-specific baselining methods.Furthermore, the Baseline Study for this project indicates the rationale for relying on an investment analysis fordetermining the baseline for the project.

The results of the financial and technical analyses of the different options are summarized in the tablebelow. As will be noted from the summary, the analyses indicate that the most attractive options for wastetreatment in the Liepaja region are Altematives Al (gas extraction from existing landfill combined withenergy cells and landfill for inert waste at Skede), Altemative A4 (landfilling without gas extraction) andAlternative BI (gas extraction from existing landfill combined with energy cells and landfill for inert wasteat Grobina). The alternatives for gas extraction include revenues from the sale of electricity and emissionreduction except for Alternative B 1. In this case, the new regional site with energy cells for organic waste islocated at Grobina, but the gas is collected and flared from the existing landfill at Skede. The gas at Skedeis not used for power generation.

It should be noted that the cost of the sanitary landfill as reflected in the cost of Alternative A4 is differentfrom cost of sanitary landfill the other alternatives with gas extraction. Alternative A4 reflects the cost of adowngraded sanitary landfill as no gas capture or separation of waste is intended in the alternative. As a

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result of not needing investments such as front-wheel loaders, devices for waste separation and smaller sizeof facility, the costs are lower than that of a comparable landfill with gas recovery. The feasibility study forthe project had included these costs and revised cost estimates have emerged out of continued evaluation ofthe alternatives.

Alternatives Considered for Skede and Grobina

Alternative Sub-Alternatives CommentsAlternative A: SkedeAltemative Al-A Gas extraction from existing landfill, Attractive option with positive rate of

combined with energy cells, without return. Examined further in theaddition of sewage sludge detailed financial and economic

analysisAl-B Gas extraction from existing landfill,

combined with energy cells, withaddition of sewage sludge

Altemative A2-A Gas extraction from existing landfill, Sale of gas appears infeasible (lackcombined with energy cells, without of customers) and not as financiallyaddition of sewage sludge attractive as the use of gas for power

generationA2-B Gas extraction from existing landfill,

combined with energy cells, withaddition of sewage sludge

Altemative A3 Gas extraction from existing landfill Not as attractive as either AltemativeAl, A2orA4

Altemative A4 Landfilling without gas extraction Most attractive NPV of the wastetreatment options withoutconsideration of the greenhouse gasemissions. The baseline for thePCF project

Altemative A5 Closing of the landfill No income stream from thisaltemative. This cost is incorporatedin all altematives for Grobina (Alt.B)

Alternative A6 Closing of the landfill with gas No income stream other than thoseextraction and flaring from carbon credits to offset the costs

incurred to recover gas. Includingthis altemative for the case ofAlternative BI for Grobina isexplored further for the detailedeconomic and financial analysis

Alternative B: GrobinaAltemative Gas extraction from energy cells, Attractive option with positive rate ofB1-A without addition of sewage sludge return. Examined further in the

detailed financial and economicanalysis.

B I-B Gas extraction from energy cells,with addition of sewage sludge

Altemative B2 Landfilling without gas extraction Positive return but not as attractiveas Altemative Al, A4 (for Skede) orB 1 for Grobina.

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The BaselineThe baseline altemative is closure of the regional landfills and establishment of an environmentallyimproved regional landfill with leachate collection and treatment, but without gas extraction. In this sensethe cost of Alternative A4 is different from cost of sanitary landfill the other altematives with gasextraction. Alternative A4 reflects the cost of a downgraded sanitary landfill as no gas capture orseparation of waste is intended in the altemative. As a result of not needing investments such as front-wheelloaders, devices for waste separation and smaller size of facility, the costs are lower than that of acomparable landfill with gas recovery. The feasibility study for the project had included these costs andrevised cost estimates have emerged out of continued evaluation of the altematives. This lower cost resultsin a higher rate of return and net present values on the project. This altemative is labeled A4 and has beencompared with all other altematives.

The PCF Alternative

Gas extraction from the existing landfill, combined with energy cells and landfill for inert waste at Skede(Altemative Al) is more attractive than a similar facility at Grobina (Alternative Bi). The detailedfinancial analysis is presented in the table below.

The table also summarizes the impact of capturing and flaring gas at the existing landfill site at Skede,should Grobina be chosen as the regional facility.

Base Case Internal Rate of Return by Alternatives

Intemal Rate of Retun by Altematives

81-A, A3 B1-B, A3 B2-A B2-BA4 (base (incl. gas (incl. gas (base (sanitary

Al-A Al-B case: Bl-A Bl-B at Skede, at Skede, case: landfill(excluding (including sanitary (excluding (including excl. incl. sanitary incl. gas

Item / Altematives sludge) sludge) landfill) sludge) sludge) sludge) sludge) landfill) coll.)TotalcostinUS$ 11,508 12,152 6,695 13,496 14,140 14,003 14,618 7,925 10,989Intemational payments or grantfinance in US $ (b) 7,830 7,830 8,020 8,020 8,693 9,222 7,830

IRRwithout carbon benefits (c) 6.9% 6.4% 15.0% 4.4% 4.1% 4.7% 4.9% 9.6% 1.8%NPV without carbon benefits (d) -1,344 -1,640 1,185 -2,734 -2,997 -2,669 -2,532 -137 -4,252

IRR with carbon benefits (e) 10.5% 9.8% 8.3% 7.9% 8.5% 8.7% 4.5%NPV with carbon benefits 213 -83 -873 -1,136 -808 -672 -2,829

IRR with intemational payments andcarbon benefits (f) 33.2% 25.8% 11.4% 18.1% 18.1% 17.5% 18.8% 6.4% 14.4%NPV with intemational payments andcarbon benefits 3,352 2,963 397 1,778 1,880 1,801 2,148 -791 880

(a) For details please refer to the Feasibility Study(b) Revenues from the sale of carbon are not treated as a grant. but as payments for a output from project(c) The economic intemal rate of return (IRR) and the corresponding net present value (NPV) include, where applicable, revenue from the sale ofelectricity generated from the captured methane(d) Negative NPV in brackets

(e) The IRR and the corresponding NPV indude, where applicable, the revenue stream from the sale of emissions reductions (measured as carbonequivalent) in addition to the revenue from the sale of electricity(f) The internal rate of return incdudes revenues from the sale of carbon and treats other international payments or financing as a revenue stream tothe waste management company

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2. Consistency with National AIJ/JI/CDM Criteria and Host Country Commitment

While the modalities of the proposed emission reduction deal have yet to be worked out, the Governmenthas indicated its initial support for the project in a letter of endorsement, signed by the State Minister of theEnvironment on September 21,1998 (attached). The necessary steps to comply with Latvia's nationalAIJ/JI criteria in detail will be undertaken during project Preparation. In turn, Latvian representatives haveparticipated in a PCF Host Country Meeting in Bratislava in spring 1998, during the Subsidiary BodyMeetings in Bonn in 1999 and 2000, during the Conference of the Parties in Buenos Aires (1998) and Bonn(1999) and the PCF Host Country Committee Meetings in April and June 2000. The Government of Latviahosted PCF pre-negotiations workshop in Riga in December 1999 and a number of ministries and agencies(including those from Liepaja region) have been involved in the negotiation of the PCF EmissionsReduction Purchase Agreement between April and July 2000. A PCF post-negotiation workshop is plannedin September 2000. It is expected that Latvia will continue to participate in the PCF Host CountryCommittee and in other host country events in the future.

3. Consistency with Country Assistance Strategy, and Country Development Goals

As outlined in sections B. 1 and B.2 of the PAD, the proposed operation is fully compatible with the Bank'sCountry Assistance Strategy (CAS) for Latvia and the country's development goals. The projectimplements key elements of the NSWMS and would contribute to the development of institutional capacityat the local/regional level in the area of environmental protection, as called for in the CAS.

4. Funding Alternatives /Complementarity with GEF Portfolio

The project enjoys a relatively large interest from the donor community, in particular in Scandanavia.However, concessional financing beyond that already secured (see financing plan), is scarce and notavailable to a sufficient degree to realize the project without support from the PCF or similar financingmodality placing value on greenhouse gas emission reduction.

Assuming emissions reductions from the project for the full project life beyond 2012, the project ispotentially eligible for GEF financing as a short-termn response measure as incremental costs will fall belowthe US$ 10 per tC threshold. However, GEF has indicated that this project is not considered a prioritysince GEF is already financing the Riga project and the GEF Secretariat has provided a "no-objection" tothe PCF financing for the project on March 13, 2000.

5. Additional National, Regional and Local Environmental Benefits

As outlined above, the proposed solution would go beyond the good practice standards set out in theNSWMS. The project would thus yield substantial additional benefits compared to the baseline. Both interms of environmental and service quality. The preliminary additionality analysis and the experience withthe GEF Riga project suggest these higher standards would not be affordable without a return from thegenerated greenhouse gas emission reduction units. Further preparation work will seek to include some ofthe additional benefits in the analysis so as to provide a clearer picture of project additionality and thereturn of the project to the country.

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6. Contribution to Capacity Building/Transfer of Environmentaly Sound Technologies

The introduction and demonstration of modem, environmentally friendly solid waste managementtechniques are an explicit objective of the project (see section IA of the PAD). The project includescapacity building and other measures (twinning arrangement, technical assistance) that together with theongoing GEF operation in Riga should assure that the demonstrated techniques will be successfullyintroduced and replicated in the country.

7. Mutually-Agreed Assessment Procedures (Certification NVerification Plan)

A detailed monitoring and verification protocol for determining the emissions reduction from the project hasbeen prepared and has been attached as Schedule 3 to the PCF Emissions Reduction Purchase Agreement.

The independent validation of the baseline and the monitoring and verification protocol has been providedby Det Norske Veritas AS on June 28, 2000 and has been attached as Schedule 4 to the PCF EmissionsReduction Purchase Agreement.

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Financial AspectsLiepaja Region Solid Waste Management Project

Financial Aspects

Background

1. The final beneficiary of the project will be the new solid waste management companyLiepajas Ras Co Ltd. (LRL), which has been incorporated on February 24, 2000. Shareholders ofthe non-profit oriented company will be the City of Liepaja with a two-thirds shareholding and themunicipalities and villages of he Liepaja region jointly associated in a limited liability companyRAS-30 which will own the remaining one-third of the shares. Total share capital will be LVL600,000 (USD l.Om)

2. The City of Liepaja will therefor contribute LVL 400,000 as share capital, with theregional company RAS-30 contributing LVL 200,000. LCC has decided to pay in over a four-yearperiod, from 2001 to 2004, while RAS-30 would spread their contributions over the entire projectimplementation period. Paragraphs 21 to 27 give information on the respective financial situationsof Liepaja and of the regional municipalities and their ability to contribute the proposed equity.

3. Grants and the loans from Bank and NIB, which together with equity contributions andself-generated funds constitute the project's finance plan, will be channeled through theGovernment of Latvia (GoL) to the new company. LRL will therefor be the sub-borrower of theBank/NIB loans and will be responsible, as final beneficiary, for their repayment. (Annex 5 givesdetails of the proposed organizational and financial structure of the company). In order to minimizethe guarantee fees of GoL for the onlending of WB/NIB loans it is foreseen that the City of Liepajawould guarantee up to two-thirds of the loans.

4. In order to prepare the company for carrying out the landfill operations and forimplementing the project, technical assistance will be required. Such assistance is defined in theBusiness Development Plan (BDP); it is likely to take the form of either a twinning agreement withan experienced foreign company, the hiring of experienced consultants or a combination of both.In addition, the project description and costing includes the services of a Project ImplementationUnit (PIU) which will deal with all bidding and procurement of goods and services under theproject. The PIU will also prepare disbursement requests and payments to suppliers, and establishan accounting and monitoring system for the project in accordance with the Bank's requirements(LACI). Annex 13 outlines the proposed project implementation arrangements.

5. The BDP contains draft Articles of Association (or Statutes), the Shareholders'Agreement, job descriptions for management and the proposed commercial strategy for thecompany, as well as a draft Power Purchase Agreement (PPA) to be signed between Latvenergoand LRL.

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Solid waste tariffs and affordability

6. At the moment the range of waste collection, transportation and disposal charges perperson, per month in Liepaja City is between 25 santimes and 40 santimes, for an average of 32santimes/person/month. The annual average payment is therefor equivalent to LVL 3.84/perperson, equivalent to LVL 2.90/mn. At the Liepaja regional level the situation varies from fullpayment by household members for waste collection and transport to full subsidy of these servicesby the municipalities concemed.

7. The present waste disposal fee at the Skede landfill is LVL 1.00/mn of waste deposited.This level of landfill disposal charges implies that, with an annual average household waste tariffof LVL 2.90/mn paid by Liepaja City residents some LVL 1.90/mn on average is retained bytransportation companies for collection of urban household & industrial waste and itstransportation to the landfill site; it also covers the purchase and maintenance of waste containers.

8. The present LVL 1.00/nm of gross disposal fee received by the landfill company includesthe LVL 0.25/mn for Natural Resource Tax (NRT). The remaining LVL 0.75 includes the ValueAdded Tax (VAT) of 18% ; when this tax is netted out, the net disposal fee received by thecompany is only LVL 0.64/mn of waste. Once the modem solid waste treatment plant is establishedthe disposal fee charged would consist of the connection fee (to cover the cost of regional transportof waste) and the treatment fee (to cover the cost of treatment of waste in the energy cells andsubsequent disposal).

Details of the tariff breakdown are presented in Attachment 1 of Annex 12.

9. The Financial Analysis of the Liepajas Ras company shows that at these current netdisposal rates of LVL 0.64/mn the cashflow would be substantially negative during the years ofloan repayment to the World Bank and NIB. And the cumulative cashflow over 20 years wouldremain negative, which is an unacceptable situation for any enterprise. Consequently, the netdisposal fee will have to be increased and calculations show that an increase of 160% from thepresent LVL 0.64/mni to LVL 1.65/mn, to be phased in over the period 2001 to 2005 would bringabout a financial cash flow equilibrium (see for details Annex 5). This increase of the net disposalfee would raise the gross disposal fee at the landfill from the present level of LVL 1.00/mn to LVL2.20/rnm (an increase of 120%).

10. It has been agreed that under the project all household and industrial waste generatedwithin the Liepaja region will be collected and deposited at the new regional landfill site atGrobina. This waste will therefor be accepted at a new standard fee of LVL 2.20/mn by 20052,which includes the LVL 0.25 Natural Resource Tax and 18% of VAT on the balance.

The City of Liepaja

11. In future there would be two options for waste collection within the city and transportationto the landfill: either it would continue to be carried out as at present, that is under contract withseveral waste collection and transportation companies, or it would be organized by LRL, uponrequest of the City. In the former case, different tariffs would probably continue to apply and it issuggested NOT to establish a uniform waste collection charge in the City3 . The reasoning behind

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this suggestion is as follows: waste transportation companies, faced with the above mentionedincreases in the gross disposal fee at the new landfill site, would obviously want to raise the wastecollection fee payable by their clients. However, it is likely that as a result of competition amongthem they would be forced to absorb part of the fee increase.

12. In the event LRL accepts to be responsible for the waste collection service, it wouldundoubtedly contract the work out to the existing companies. And in this scenario a uniform wastecollection tariff would be introduced, as is the case in Riga and other cities in Latvia.

13. While it is therefor by no means sure that a uniform tariff would be imposed, it isnecessary to work with such an average tariff for the analysis on affordability. The increases of thegross disposal fee of 120% by 2005 would, under the assumption that waste collection &transportation charges remain unchanged, imply an increase of 13 santimes/person/month to 45santimes, equivalent to a 41% increase over the present average waste collection tariff of 32santimes. The annual tariff per person would then rise from LVL 3.84/person to LVL 5.40 perperson.

The Annex 14 on affordability shows that such an increase, which would come into effect over theperiod 2001 (when the new landfill would be operational) to 2005, could be considered acceptableand affordable for the majority of the residents of Liepaja City, who at present pay the wastecollection charge on a regular basis. The increase in tariffs represents only an additional 0.10% ofaverage disposable incomes in 2001 (for a total claim of 0.63%), while the effect of subsequent.small tariff increases would be compensated by higher incomes. In respect of average householdexpenditures the proposed 41% increase would cause the average expenditure on housing andutilities to rise by around 0.24%, from 0.61% at present to 0.85%.

At the regional level

14. At the regional level the situation is less clear. While Liepaja Ras will be responsible fortransportation of waste from regional collection points to the Grobina landfill, local collection andtemporary storage will continue to be the responsibility of regional municipalities. As for LiepajaCity, there are two possibilities: either the municipalities themselves organize this collection andstorage, or they request LRL to do it for them, but against full payment on a cost-recovery basis.In either case, the cost would be bome in the first instance by the municipality concerned, whichwould subsequently charge its residents for all or part of these costs. As it is not clear, at thisstage, if and how the municipalities will recover these costs from their residents, it is impossible toanalyze the extent of affordability of the waste collection charges for the residents of the villagesand townships of the region.

Organization of the Liepaia Ras Co Ltd. and financial projections

15. The new company Liepaja Ras Co Ltd. (LRL) has been incorporated during January 2000as a non-profit oriented, limited liability company with two shareholders, Liepaja City Council(LCC) for 66.7% and the Ras-30 Ltd. representing the 30 municipalities of the region, for 33.3%.LCC has decided to pay-in its LVL 400,000 share capital contribution over a period of 4 years,from 2001 to 2004 at LVL 100,000 per year. The LVL 200,000 share capital contribution payableby Ras-30 will be spread over the 6 year project implementation period, the years 2001 to 2006(See Annex 5 for details).

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16. LRL would have a management staff of 5 at an office in either Grobina or Liepaja, and anoperational staff of 20 at the landfill site. The Managing Director would be responsible for both theregional landfill operations and for the implementation of the project components dealing withclosure and remedial measures at all other landfill sites in the region, including the former LiepajaCity landfill at Skede. He would be assisted by the Project Implementation Unit (PIU) and bytechnical assistance from abroad, either in the form of a Twinning Agreement or ConsultancyServices; this technical assistance is described in more detail in the BDP.

17. At this stage the company's revenues comprise of the waste disposal fee and sales ofelectricity to Latvenergo . In addition, improvements in waste separation could lead to additionalrevenues from the sale of recycled materials (glass, metals and compost). There may also bepossibilities to sell heat to the Grobina district heating company (or to Liepaja City from the Skedegenerating station), or to use the heat in horticulture or pisciculture. However, no provision forsuch revenues has been made in the projections, as the marketing prospects for these by-productsare not clear at this stage.

18. Detailed Profit & Loss statements and cash flow projections in constant terms have beenmade for the company (see Annex 5). The financial equilibrium for the non-profit orientedcompany depends on approval for the 120% increase of the gross disposal fee at the landfill site(equivalent to a 160% increase of the net disposal fee). This fee level, together with the electricitysales to Latvenergo, results in a positive annual cash flow after payment of interest and principalon the World Bank/NIB loans throughout the 20-year period. It is only in the years of investment inadditional energy cells that the turns negative cash (years 8, 12 and 16 of the projection). Even so,the cumulative cash flow surplus in year 20 of the projection is estimated at LVL 1.7m.

19. The financial returns projected here are satisfactory, but their realization depends on goodmanagement and the need to be cost-conscious and efficient. Any deviations may well requirefurther increases in the disposal fees once the project has been implemented. The operationalperformance of the company will therefor need close scrutiny so that corrective action can be takenas soon as the financial ratios deteriorate.

20. The financial situation of the company may be improved in the early years, now showingsmall cash flow deficits, if as expected it will be authorized by LCC to take over the operations atthe Skede landfill during 2000. This would not only allow the company to gain experience withsolid waste management, but also build up financial resources.

Financial standing of the City of Liepaja and regional municipalities

Liepaja City21. This port city, with an estimated population of 95,000, is the country's third largest urbanagglomeration and the economic and cultural centre of the Liepaja region. Its main economicsectors are manufacturing - metals, textiles, food processing and wood industry -- and portrelated activities. A Special Economic Zone has been established several years ago and is nowbeginning to attract increasing numbers of export-oriented enterprises.

22. The City's annual budgets have been at around the LVL .12 million level (USD 20.0m),with the budget for 2000 fixed at LVL 13.2m or USD 22.0m, an increase of 4.5% over 1999.Income consists primarily of Personal Income taxes (50%) and State Grants or EarmarkedSubsidies (26%), while Expenditures consist of Education (51%), Public Utilities (including

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contributions to the Liepaja Environment Project) of 12% and Social Affairs (11%). While LiepajaCity had to contribute to the Income Equalization Fund in 1997, they were exempted from suchcontributions in 1998 and 1999. There are practically no surpluses and the Total Reserve Fundamounts to no more than LVL 120,000.

23. Municipal budgets are a mixture of current and capital expenditures and they must inprinciple be balanced. In addition, there is a Special Budget; this shows as income e.g. the NaturalResource Tax and its expenditures are strictly earnarked according to the source of the income.For example, income from the NRT can only be used for environmental projects. Finally, the City(and municipalities in general) may receive funding from a Special Fund, managed by the Ministryof Finance, for specific investments which have a one-off character and which fall outside thebudget. For example, Liepaja received funds for the rehabilitation of its schools and the installationof heat meters for improved efficiency and energy savings in the municipal heating systems.

24. The City Council has decided to make a substantial contribution to the finance plan of theProject of LVL 0.4 million (USD 670,000) in the form of a share capital subscription of the newLiepaja Ras C° Ltd. Repayment of the loans from World Bank/Nordic Investment Bank would betaken care of by the Regional Waste Company, but it is likely that the City would be requested byGoL to guarantee up to two-thirds of these loans. In addition, LCC has agreed to cover the costs ofthe PIU up to year-end 1999.

The Regional Municipalities

25. The five towns in Liepaja district range in population from 1,340 (Pavilosta) to 6,800(Grobina), while the 20 village communities or pagasts have populations ranging from between628 (Vecpils) to 3,085 (Vainode). The total population is a little over 50,000 (1997 statistics). Inthe pagasts fewer than one-third of the population lives in the municipality; the remainder isscattered in the country side, mostly on farms and in individual houses. Infornation on theemployment and income situation in these rural municipalities is not readily available, but mostpeople are active in agriculture, dairy and forestry or in industrial activities related to these threesectors. Unemployment In the rural areas generally is higher than in the cities and the Liepajaregion is no exception. There is also extensive underemployment, which also contributes to lowercash incomes in the rural areas.

26. The budgets of these municipalities are prepared in the same way as that for Liepaja Cityand they are normally balanced. Total income and expenditures range between LVL 42,000 (US$70,000) per year for Vecpils to LVL 390,000 (US$ 650,000) for Vainode. Total budgets for all 30municipalities amount to LVL 4.0 million (US$ 6.7m), for a per capita figure of LVL 80 orUS$133.

27. It would seem obvious from these figures that the municipalities in the Liepaja region haveno realistic possibility of contributing from their nornal budgets, other than symbolically, to thefunding of the project. However, special funds are available from Ministry of Economy forinvestments of a regional character and for investments included in the Govemment's priorityprogramme, as is the case with the Liepaja Regional Solid Waste Management Project. In this waythe regional municipalities, organized in a limited liability company Ras-30, will be able to becomeshareholders of the LRL. This share capital participation has been fixed at LVL 200,000 or USD330,000, to be paid in over the 6-year project period.

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Attachments: 1 - Analysis of waste collection tariffs and disposal fees2 - Salary structure for the Liepaja Ras Co Ltd.3 - Analysis of future waste collection tariff increases

Endnotesi At the Getlini landfill in Riga the landfill company Getlini Eko Ltd. practices waste disposal charges whichdifferentiate between household and industrial waste, as well as between regular and occasional clients. Suchdifferential charges are at present not foreseen for Liepaja, but could be considered at a later stage as a means ofincreasing revenues.

2 The increases would be phased over 5 years as follows: in 2001=LVLI.65/m'; in 2002=LVL 1.75/r; in2003=LVL1.85/mr; in 2004=LVL2.02/m'; and in 2005=LVL2.20/m'.

3 Imposition of a uniform tariff could always be considered in the event the negotiations of individual wastecollection companies with the housing enterprises would produce undesirable results

4 The 50% preferential electricity tariff for sales to Latvenergo will only be applied for a period of 8 years, whenthey will be reduced to the equivalent import tariff. The household waste charges will have therefor have to beincreased by 5 sentimes or 11% to 50 santimes/person/month in 2010 to compensate for this loss of revenues.Such an increase translates into a 23% rise of the net disposal fee received by the company.

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Annex 12Attachment 1

ANALYSIS OF WASTE COLLECTION TARIFFS AND DISPOSAL FEES

Introduction

1. The current waste disposal fee - to be defined as the gross disposal fee -- at the landfill site is LVL

1.00 per m, which is inclusive of the Natural Resource Tax of LVL 0.25/mr. When this is netted out, the

net disposal fee inclusive of the 18% Value Added Tax (VAT) is LVL 0.75/rnm and this translates into a

disposal fee to the company net of VAT of LVL 0.64/rn. For detailed calculations see Attachment 3 of

this Annex.

The Liepajas Ras Ltd.

2. The Financial Analysis of the Liepajas Ras Ltd. (LRL) shows that at the current gross disposal

rate of LVL 1.00/m3m3, equivalent to a net disposal rate of LVLO.64/mrm3, the cash flow would showconsiderable negative values for the entire period of loan repayment to the World Bank/NIB. In addition,the cumulative cashflow would also be negative, which is an unacceptable situation for any enterprise.Consequently, the net disposal fee will have to be increased; this fee consists of two components: (i) theconnection fee, to cover the cost of regional waste transportation; and (ii) the treatment fee, to cover thecost of sorting the solid waste and treating it in energy cells, followed by ultimate disposal after five years.

3. Calculations indicate that a financial cash flow equilibrium would be established when the presentaverage waste collection tariff in Liepaja City of 32 santimes /person/month would be increased to 45santimes/person/month, an increase of 41% to be phased over 5 years from 2001 to 2005. At this level, thegross disposal fee inclusive of NRT and VAT would be 220 santimes (an increase of 120%). When NRTand VAT are netted out, the available net disposal fee to the company would be of 165 santimes, anincrease of 160% over the present level.

4. At a level of this net disposal fee of LVL 1.65/mr the company's cash flow would be positive, evenduring the years of loan repayment. The cumulative surplus would compensate for the negative annual cash

outflows in the three years of investment in additional energy cells (years 8, 12 and 16). Overall, thecumulative cash flow remains positive throughout this period and is projected at a level of LVL 1.7m byyear 20. This would allow LRL to replace fixed assets or finance new investments.

5. A further increase of the net disposal fee will be necessary when, as now foreseen, the sales priceof electricity to Latvenergo would be reduced to the import level of LVL 14.33/MWh. This would occurafter the 8th year of the start of electricity production, that is in the year 2010, when the 50% priceconcession would run out. The required increase of the monthly tariff for waste collection per person wouldbe 5 santimes to 50 santimes (+11%), equivalent to an annual tariff of LVL 6.00/person, compared to

L VL 5.40 reached in the year 2005.

6. At that level the gross disposal fee would be 265 santimes/m (an increase of 20% over the 2005level) and the additional net disposal fee the company to compensate for this loss of revenue would be 38

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santimes to a level of LVL 2.03/mr, an increase of 23% over the LVL 1.65/rnm level reached in 2005.

Liepaja City

6. At the moment waste collection, transportation and disposal tariffs for the City's residents arecalculated per person/per month and range between 25 santimes and 40 santimes, for an average of 32santimes. The average annual payment applicable during 1999 is therefor equivalent to LVL 3.84 perperson.

7. The very low tariff for Karosta district of LVL 0.18 per person/ month has been excluded from thisaverage calculation, because that section of town, which is very close to the Skede landfill site, has workedout a special co-operative arrangement among its residents which cannot be reproduced elsewhere.

8. On the basis of an average 1.32/rn m3 of household waste produced per person per year, the total

average waste tariff of LVL 3.84 person/year is equivalent to LVL 2.90/mr (rounded). Of this amount LVL1.00 is paid at the landfill, which implies that LVL 1.90 is allowed to the transportation companies forcollection of waste and its transportation, plus the purchase and maintenance of the containers. Thisamount is about 6% lower than that allowed in Riga, where the household waste collection companiesreceive LVL 2.02/mr according to a schedule approved by the City Council at the end of 1998. Thisdifference can be explained by the higher cost of wages and salaries in Riga, off-set by the economies ofscale in the operations there.

9. The new average waste collection tariff for Liepaja's inhabitants, to be introduced during years2001 to 2005, would therefor in the year 2005 be as follows (LVL/rn3 ):

payable to waste collection & transportation companies I.90/m3

Gross disposalfee at the landfill 2.20/rmOf which: Natural Resource Tax 0.25/rm

Value-Added Tax (VAT) 18% 0.37/m

total waste collection & disposal tarif 4.10/nm

10. On the basis of the assumed 1.32/mrm3 of household waste per inhabitant per year, this grossdisposal fee translates into an annual waste collection charge of LVL 5.40/year or 45santimes/person/month. This would represent an average 41% increase over the present average charge of32 santimes/person/month at present. Of course, in some districts where people already pay between 38 and40 santimes, the tariff increases would be minimal. In other districts the increase would exceed the 41%and for the residents of Karosta the tariff, if applied, would be more than double that now charged.

11. The affordability analysis presented in the Staff Appraisal Report (Annex 14) shows that suchaverage increase in waste collection charges, which would only be introduced over the period 2001 to2005, would be affordable for all those residents of Liepaja City now paying these charges on a regular

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basis.

12. It should be emphasized that the above calculated increase would only apply in the event LRLwould be requested to take over waste collection and transportation to the landfill. If the presentarrangement with waste transportation companies is to continue, the calculated increase of average tariffsis only theoretical. The reason is that the waste collection and transportation companies may very wellabsorb part of the increase in the gross waste disposal rate. It is the latter which will be fixed for all wasteto be delivered to the site, whereas the individual, household waste collection charges would, in thatscenario, remain a matter of negotiation between the housing companies/individual home-owners and thewaste collection companies.

At the regional level

13. The situation at the regional level varies from full payment by household members for wastecollection and transport to the partial or even full payment for these services by the municipality concemed.

14. It has been agreed in the context of the regional waste management project that all regional wastewill be collected by LRL and deposited at the regional landfill site at Grobina. The waste will be acceptedthere at the increased gross disposal fee of LVL 2.20/mr, which includes both the connection fee to coverthe cost of this transport, and the treatment fee of the solid waste.

15. There would be two solutions for waste collection from households and industries at the regionallevel for delivery to the storage points, from which it would be collected by LRL. Either the regionalmunicipalities organize themselves this local collection and temporary storage, or they enter into acontractual arrangement with LRL to do it for them, against full payment of charges on a cost-recoverybasis. Subsequently, each municipality would decide how and to what extent its residents would contributeto the cost of these services. The BDP contains fuller details of these proposed arrangements.

Natural Resource Tax

16. The NRT of LVL 25 santimes/rn is payable at the entrance of the landfill site and has to be pasedon to the MEPRD when the waste is disposed off. With the old system of landfiling there was no timedifferential between these two activities and the NRT had to be paid in full on the waste amounts deliveredto the landfill. However, the modem waste treatment system to be introduced at Grobina will change thetiming of delivery, because the decomposable part of the waste will first be treated in the energy cell beforeit will be disposed off.

17. The sequence will be as follows:

- waste arrives at the landfill and the NRT is received by the company as part of the gross disposal fee;- 25% of the waste consists of non-decomposable items and is disposed off immediately: the LRL will be

liable to pay the NRT on this portion of the waste in the same year that it was delivered to the site;- the remaining 75% will be stored in energy cells for treatment, over a period of 5 years. During this

treatment the volume will be reduced by a little over 25%, while the balance is compacted, so that only15% of the original waste quantity remains for final disposal;

- in year 6 the company pays the NRT over this quantity of decomposed waste, being finally disposed offat the landfill.

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18. The staggered payment of the NRT and the fact that decomposable waste is reduced in volumneleads to an overall savings of NRT payments over 60% of the waste delivered to the site.

Endnote

I The actual figure is 63.8 santimes, rounded to LVL 0.64/mr. This compares to a household waste disposalfee exclusive of NRT of only LVL 0.45/rn3 at the Getlini site in Riga ; however, that company practices differentialwaste disposal rates, which results in an average overall tariff of around LVL 0.55/mi in 1999. Also, due to themuch higher population in Riga (800,000 compared to 95,000 in Liepaja) there may well be economies of scale inhandling large amounts of waste.

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Annex 12Attachment 2

Staffing and Salary Structure for Liepajas Ras Co Ltd.

The table below shows the proposed staffing for the LEL company and salary levels. Staffing includesthe Board of Directors, company management, the Grobina landfill operation and Skede generatingstation. For the Board a global amount of LVL 5,000 per year has been assumed.

Salaries are indicated in LVL per month, to which is added the Vacation Allowance of 6% per annum;Social Security Taxes of 27.09% are calculated over the total.

In US$salary total total

Position /month number /month tyearManagement Managing Director 500 1 500 6,000

Finance Manager 400 1 400 4,800Technical Manager 400 1 400 4,800Accountant 300 1 300 3,600Secretary 200 1 200 2,400Driver 160 1 160 1,920Basic salary cost 1,960 23,520Vacation allowance, 6% 118 1,411

sub-total 2,078 24,931Social Security, 27.09% 563 6,754

sub - totai management 6 2640 31,685GrobinaLandfill Site

registration 225 2 450 5,400security 110 4 440 5,280site activities:chief 350 1 350 4,200supervisor 250 2 500 6,000drivers vehicles&equipment 175 4 700 8,400waste handling 150 6 900 10,800sludge processing 140 1 140 1,680basic salary cost 3,480 41,760vacation allowance, 6% 209 2,506

sub-total 3,689 44,266social security, 27.09% 999 11,992

sub - total Grobina site 20 4688 56,257Skedegeneratingstation

security 110 4 440 5,280vacation allowance, 6% 26 317

sub-total 466 5,597social security, 27.09% 126 1,516

sub - total Skede site 4 593 7,113

Total annual salary costs for thecompany 30 95,055

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LIEPAJA REGION SOUD WASTE MANAGEMENT PROJECT 17th Apr1i 2000 Attachment 3 of Annex 12

Analysis of future waste tariff increases

2000 2001-2005 2010 theoretical exercise

level neededto extra tariff total tariff

level needed % compensate % increase in increaseneeded to over lower over 2001needed to reach % ove

present balance LRL 2000 electricity 2005 to bring FIRR FIRR of 2000situation cash flow level tariffs level to 7.5% 7.5% level

analysis of waste disposal fees - in santimes Der m3lfioures have been rounded)

net disposal fee, exclusive of VAT 64 165 160% 203 23% 75 240 278%((to cover waste transport & treatment))

VAT t 18% 11 30 162% 37 23% 15 45 293%

net disposal fee, inclusive of VAT 75 195 160% 240 23% 90 285 280%

Naturall Resource Tax 25 25 0% 25 0% 0 25 0%

gross disposal fee 100 220 120% 265 20% 90 310 210%

local collection and transport 190 190 0% 190 0% 0 190 0%

overall solid waste charge 290 410 41% 455 11% 90 500 72%

calculation of waste collection tariff. r person. per month - in santimes (roundedl

annualrateperperson 384 540 41% 600 11% 120 660 72%(at rate of 1,32 m3 per person/year)

monthlyrateperperson 32 45 41% 50 11% 10 55 72%

percentage increase over previous level I 41% 11% 72%

NoeA: this calculation is based on the average of monthly waste colltion tariffs/person in Liepaja City during 1999, with the exception of the Karaosta district.Note 7: the new uniform waste collection tariffr would be effective only in the event that Liepaa Ras Ltd. would be requested to take over the City's wastecolection and transport to the landfill. In the event that the present waste collection arrangements wih private sector companies would be continued, it islikely that collecion charges per district will vary as at present and that these companies may absorb part of the waste disposal increases.

Note3: the new tariffs will be introduced as follows: 2 AM 22 2L 2Q 2 = X 2010gross disposal fee 100 165 175 185 202 220 265

netdisposalfee 64 119 129 139 152 165 # 203tariff per persorVmonth 32 40 41 42 43 45 a 50

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Project Implementation Arrangements

Background

1. The Project would be implemented over a six-year period from 2001 to 2006 and the tendering fordetailed engineering studies would start immediately after Negotiations, in early 2000. Consultants areexpected to start detailed engineering by mid-2000 and to complete their work by the end of that year.After review and all necessary approvals procurement could then start early 2001 and the physical start ofproject irnplementation would commence from mid-2001 onwards with the preparation of the first energycells. Only when these have been completed would it be possible to start accepting waste at the new landfillsite.

2. Until such time household and other waste from the City would continue to be deposited at theSkede site in the region present waste collection and deposit arrangements would continue to function asbefore. Once operational it is envisaged that two energy cells would be established each year over 5 yearsto reach a steady state production level of methane gas, and electricity. Installation of the gas engineswould be planned for late 2001/early 2002 so that electricity production could start during 2002.

3. The present landfill at Skede would cease operations once the Grobina site has become operational.It is planned to cover the existing waste pile with a protective cover of clay and earth to prevent landfill gas(LFG) escaping into the atmosphere. Thereafter, wells would be drilled to extract the LFG and use this togenerate electricity; it is expected that LFG exploitation would cease in about 20 years, when all activity atthe site would come to an end.

4. In order to start generation of revenues, the inactive part of the Skede site will be covered as soonas possible and equipment for gas collection and electricity generation will be installed so that sale ofelectricity can commence in September 2001.

5. Overall supervision responsibility for project implementation would lie with the Liepaja CityCouncil (LCC), the Liepaja Regional Council (LRC) and the Liepaja Regional Environmental Board(LREB). For this purpose, a Project Steering Committee (PSC) has already been established, chaired bythe Liepaja Regional Enviromnental Board (the PSC has been actively involved in project design).Separately, a Project Implementation Unit (PIU) would be responsible for all procurement under theproject, as well as disbursement, project cost accounting and for all reporting to the Government, to theconcemed municipal authorities and to the project's financiers. The PIU functions would be carried out byan independent consulting company, ELSE Ltd.

6. A detailed description of all different responsibilities during the project implementation is presentedin the Project Implementation Plan (PIP) prepared by the client enclosed as Attachment I to Annex 13.

Project Steering Committee (PSC)

7. The PSC consists of members of the LCC, LCR, LREB and the Ministry of Economy (MOE) andthe Ministry of Environmental Protection & Regional Development (MOEPRD). It is foreseen that theManaging Director of LEL would be an ex-officio member of the PSC, while the Head of the PIU would beits Secretary.

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8. The PSC would meet at least twice a year at the offices of the Regional Enviromnental Board, in

order to be closely associated with project implementation and to rapidly help resolve any outstanding

issues. It would also provide a focal point of contact for the World Bank and other donor agencies. The

PSC would, in particular:

* supervise project implementation and ensure that it is on schedule;* act as the liaison between Liepaja RAS Ltd. and PIU on the one hand, and the Government agencies on

the other; and* resolve any issues, in particular those involving the various stakeholders of the project.

Proiect Implementation Unit

9. A PIU would be created to be in charge of all project procurement and disbursement; it would be

answerable to the PSC. The functions of the PIU would in fact be carried out by consultants of the ELSE

Ltd. these staff have extensive experience in project Implementation acquired under the now completed

Bank-financed Liepaja Water & Waste Water Project. In that project, the PIU staff were hired by the

project beneficiary, the Liepaja Water & Waste Water Company and the consultants will continue to be

staff members of that company. It will therefore be necessary to clarify their contractual obligations

vis-A-vis the Liepaja Water Company and the Liepaja Solid Waste project.

10. The responsibilities of the PIU would include:

* preparation of standard sets of bidding documents for all donors;

* issue of bidding documents together with technical specifications;* publication and dispatch of invitations to tender;. valuation of bids and recommnendation for award;* all procurement and disbursement issues related to the project;* maintenance of project accounts; and* preparation of project progress reports for all donors.

For its procurement, disbursement, accounting and project reporting, the PIU would follow the World

Bank's financial management system (referred to as the LACI fornat). These requirements have been

explained to and accepted by the staff of ELSE Ltd.

1l. The preparation of technical specifications for all contracts would be the responsibility of outside

consultants, who would be appointed after tendering and bidding on this contract and who could possibly

start their work after the summer of 2000.

12. ELSE's staff consists of the Director, responsible for financial matters and accounting, a First

Deputy responsible for all tendering and procurement, and a Second Deputy responsible for project

reporting. Additional staff would be engaged on a temporary basis should the need arise. As these staff

have been responsible for PIU-related activities on a earlier World Bank project, there is no need for

on-the-job training or special technical assistance.

13. Up to year-end 2000, the services of ELSE Ltd. would be financed by GOL. Thereafter, these

costs would be financed by the LCC until loan effectiveness. ELSE Ltd. would invoice for their services on

the basis of a consultant contract to be signed before Negotiations, and the Bank would be consulted before

signature.

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Liepaja RAS Ltd. (LRL)

14. The new company would be incorporated before Negotiations; LRL would be jointly owned byLCC (66.7%) and a holding company, representing the regional municipalities (33.3%). LRL would bedirectly responsible for project implementation, together with the PIU and under the supervision of thePSC. LRL's staff would therefore need to be qualified to take on these tasks. The proposed staffng plan,as indicated in the Business Development Plan, is as follows:

* Managing Director: full-time appointment of a person with sufficient experience and stature to guide

the new company and organize/supervise implementation;* Technical Manager: a person with university degree and if possible experience in the sector; he would

also be responsible for organizing regional waste transportation and deal with all environmentalmatters;

* Financial Manager: also a person who would be responsible for financial and commercial matters, andfor the accounting and budgeting of the company. He or she would be assisted by an accountant;

* Operational Manager: a person with substantial operational experience, if possible in the sector.

The Managing Director has been appointed and will participate in negotiations, in which he wouldparticipate; the World Bank was consulted before the appointment.

15. It is foreseen that technical assistance, financed by donors, would be made available in the earlyphases of project implementation. The project also provides funding to enable LRL to pursue thepossibilities of entering into a twinning agreement with an overseas company in the sector.

implementation Schedule

16. Preparation of project Implementation would start after Negotiations, but the physicalimplementation is not expected to begin until the Spring of 2001. Project completion would take around 6years, up to 2007. The PIU would submit its final Procurement and Disbursement Reports by the middle of2007, while LRL would prepare an Implementation Completion Report for the same date.

Proiect Reporting

17. While the PSC would supervise irnplementation, it would depend on the PIU and the LRL tocomplete detailed schedules required by the Bank and other donors. It is proposed to carry out a mid-termreview no later than July 2003.

Project Supervision

18. In addition to the above-mentioned reporting, the Bank would organize regular supervisionmissions. A proposed schedule is in Attachment 2.

Attachments: I - Project Implementation Plan2 - Proposed World Bank Supervision Schedule

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Annex 13. Attachment I

Project Implementation and Supervision Plan forInvestment Component

The project implementation arrangements will enable the project stakeholders to take an active part and tohave due responsibility during the various stages of the project.

Project Implementation Schedule

The Project is planned to be implemented during 2000-2006, with start of the first activity, detailed designduring year 2000. The physical implementation is expected to start early 2001. The different activities underthe Project are planned as follow:

Activity 2000 2001 2002 2003 2004 2005 2006

Detailed Design of Skede ...........Detailed Design of Grobina ............Remediation of existing disposal sites ..............................Technical and Operational Improvements .....................................Inst. of energy cells and gas coil. equip.(Grobina) ....................................................................Inst. Of gas coll. Equipment (Skede) .............Installation of power stations ......................Waste collection centers and vehicles ...............Managerial support through Twinning ................................................................Implementation Support ......................................................................................Training of waste management operators ..................................

For more details, see Project Appraisal Document

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Implementation Responsibilities for the Project

Project SteeringCommittee

I Liepajas RAS Ltd C

I Council

_ 1iepaja

| LELtd I I Consultants|

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The legal and contractual arrangements for this project are shown below.

Liepaja Region Solid Waste Management ProjectOrganisation

_ + World Bank

Government ofv ~Latvia

| rject Xremjt

S sidiary Loan I ,n ,

, Liepaja City CouncilLocal finnin

Liepajas RAS Liepaja District Council

i _~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Consulting Contract Fabi; I \ I / i ~~~~~~~~~~~~Feasibilitystudy

I i \ /consultingcontract ;

* i _..... _._. -------- _ _ _ELSE .. _._........_....... . i

(Consulting Firm)

+ *........... Reporting

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The new regional solid waste management company "Liepajas RAS" Ltd., owned by the municipality ofLiepaja and "AS30" Ltd. established by pagasts and towns of Liepaja Region, will be fully responsible forimplementation of the Project.

The consulting company "ELSE"Ltd. employed by "Liepajas RAS"Ltd. on contractual basis, will assist"Liepajas RAS" Ltd. with co-ordination of procurement, financial management of Project accounts, andreporting to financiers about all activities under the project.

Suggested Responsibilities for Implementation

Entities Responsibilities

MOEPRD (Ministry of Environmental *supervision through the PSCProtection & Regional Development)

MOE (Ministry of Economy) *supervision through the PSC

LREB (Liepaja Regional Environment Board) *aupervision on regional level;*control of environmental impact;'enforce environmental monitoring;

PSC (Project Steering Committee) *overall supervision of project implementationThe PSC comprises representatives from Ministry of *ensure that it is on schedule;Environmental protection and Regional Development *act as a liaison between "Liepajas RAS" Ltd. and(MOEPRD); PIU on the one hand, and the Government agencies on

Ministry of Economy (MOE); the other;Ministry of Finance (MOF); *resolve any issues, in particular those involving theLiepaja City Council (LCC); various stakeholders of the project.Liepaja Region Council (LRC)Liepaja Region Environmental Board (LREB)

LCC (Liepaja City Council) *supervision as a shareholder of"Liepajas RAS" Ltd.

LRC (Liepaja Region Council) *supervision

"RAS30"Ltd *supervision as a shareholder of "Liepajas RAS" Ltd.

*represent interests of pagasts and towns in LiepajaRegion

"Liepajas RAS"Ltd *directly responsible for project implementation*approval and signing of all contract awards*build, own, and operate the new regional solid wastemanagement system

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PIU (Project Implementation Unit) by "ELSE", Ltd. Reports to "Liepajas RAS', Ltd. about day-to-dayon contractual basis project management including:

*preparation of standard sets of bidding documents forall donors;*issue of bidding documents together with technicalspecifications;*publication and dispatch of invitations to tender;*organize evaluation of bids and recommendation foraward;*all procurement and disbursement issues related to theproject;*maintenance of project accounts;spreparation of project progress reports for all donors.

Consultants/Contractors *conduct project specific studies or technicalassistance;*perform supply, installation and civil works contracts;*assist in public awareness program;

Tasks for Implementing Agencies

Phase Agencies Tasks

Pre-implementa MOEPRD *assist in preparation of all the legal documents for the loantion negotiations;

*participate in the negotiations;*act as liaison between the end-Beneficiary, "Liepajas RAS", Ltd., andother Ministries;*secure any clearances, approvals of state level;

LCC / LRC *prepare all the legal documents for the negotiations;*participate in the negotiations;*take all the decisions needed for project development based onrecommendations from the PSC;*secure any clearances, approvals of municipal level;*establish and register the new waste management company "LiepajasRAS", Ltd. before the negotiations;'select a managing director of "Liepajas RAS", Ltd.;

"Liepajas *contract "ELSE", Ltd. for the PIU's functions;RAS", Ltd *get acquainted and involved in the project development;

*set up an office to be equipped under the Project;*decide upon waste management tariffs*organize a system for collection of tariffs

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PIU *coordinate relations among all stakeholders in general and on dailybasis*prepare for the supervision missionsefollow up the implementation of the recommendations of supervisionreports of the World Bank*day-to-day project management and monitoring of projectdevelopment*prepare project time tables including critical path, and schedule ofevents*to monitor media coverage of the project*to supply media and public with timely and relevant information*to prepare short-lists of consultants for Detailed Design*to prepare TORs for consultants Detailed Design*to issue invitations to tender*to correspond on the issues raised*to prepare and issue addenda*to evaluate consultants' pre-qualifications*to evaluate consultants' proposals and recommend award of contract*to participate jointly with the "Liepajas RAS", Ltd in negotiations*to prepare and finalize contracts on Detailed Design for signing

Implementa- MOEPRD *to represent the Project within the framework of the Nationaltion programme "500", to ensure adequate information to Latvian and

foreign institutions;oto coordinate introduction and implementation of the environmentauditing in "Liepajas RAS", Ltd., including development andimplementation of an environment management plan;oto participate in the environment quality improvement plan;*to supervise implementation of liabilities under UN Convention"Climate Changes" and Kyoto Protocol;*to organize environment monitoring system;*to supervise reporting on environment monitoring according to therequirements by the Cabinet of Ministers.*participate in the PSC

PSC *call regular meetings - twice a year on overall supervision issues;*call an extraordinary meeting if a case arises;*give recommendations to the shareholders of "Liepajas RAS", Ltd. onproject issues

LCC / LRC *take account of the recommendations by PSC;*promote project development;*assist "Liepajas RAS", Ltd in cooperation with all the municipalitiesof Liepaja Region;

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"Liepajas efulfill the contractual obligations with "ELSE", Ltd. or any otherRAS", Ltd contracted entity;

*provide to PIU technical expertise for the project issues underdevelopment;*comment and approve any documents prepared by PIU under theProject;*enter into contractual obligations with consultants, suppliers andcontractors;swork on institutional strengthening of the company;*up-date the Business Development Plan elaborated under the Project;*control of gas volumes, gas composition and electricity generation;*collection of tariffs

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PIU Management*to establish the initial and the detailed Project Implementation Plan*to coordinate relations among all stakeholders in general and on dailybasis*to read correctly, explain and apply the loan and grant agreements*to prepare written notices or warnings to all stakeholders aboutpossible problems or delays*to propose technical, financial, institutional measures to improveproject implementation*to report on the action plans required in the loan, grant or any otheragreements*to update the action plans*to report to all stakeholders and the PSC on implementation status ofthe action plans*to design and implement a monitoring system for measuring ProjectProgress and fulfilment*to prepare for the supervision missions*to follow up the implementation of the recommendations ofsupervision reports of the World Bank*to monitor project implementation and address implementationproblems*to prepare a consolidated Project Management Report (within 45 daysafter each calendar quarter ending March 3 1, June 30, September 30and December 31) for the preceding quarter*to establish and maintain project archives*to hand over project archives to EKO upon termination of the contractwith EKO*to monitor media coverage of the project*to supply media and public with timely and relevant informationProcurement*General*to advise "Liepajas RAS" Ltd. on the relevant procurement practicesand rules*to follow to largest extent the procurement plan as described in theProject Appraisal Document*to prepare for the supervision missions*to prepare and submit progress reports on implementation*to follow the LACI concepts for PMR to cover: project progressprocurement management

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PIU Cont. Procurement, cont.*Consultants*to prepare short-lists of consultants*to prepare TORs for consultants*to issue invitations to tender*to correspond on the issues raised*to prepare and issue addenda*to evaluate consultants' pre-qualifications*to evaluate consultants' proposals*to participate jointly with the EKO in negotiations*to prepare and finalize contracts for signing by "Liepajas RAS"'to monitor and assess the work of the consultants*to prepare TORs and tender documents for consultancies oncontract co-ordination/technical supportinstitutional strengthening*to monitor the training provided under contracts for contractco-ordination/technical support and institutional strengthening'to engage an auditor (on tender basis)Procurement of Goods and Works*to compile bidding documents*to carry out bidding procedures.to prepare evaluation reports*to conclude contracts*to monitor and assess the work of the contractors*to co-ordinate the services among suppliers and contractorsFinancial Monitoring*to prepare outline of the financial monitoring system for the project*to prepare outline of the project accounting system*to develop the cost accounting system for project components*to establish disbursement and reimbursement system of the Projectfunds*to monitor the project accounting system*to prepare and submit disbursement requests*to prepare TORs for auditing*to prepare for the supervision missions'to prepare and submit progress reports on implementation*to follow the LACI concepts for PMR to cover: project financialmgmt.Reporting*to design and implement the reporting system*to follow the LACI concepts for PMR to cover: project financialmanagement; project progress; procurement management'to prepare and submit reports on implementation to all stakeholders*to prepare the Project Management Report.to prepare information and reports for the supervision missions*to prepare reports on the action plans required

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Post-implen- "Liepajas *operate and maintain the site as per supply and works contractualtation RAS", Ltd obligations;

*carry out waste management in Liepaja Region according to theBusiness Development Plan elaborated and agreed under the Project;*continue contracting PIU till completion of the whole Project inmid-2007

_ PIU *submit the Final Report in mid-2007

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Annex 13 - Attachment 2Supervision Plan during Implementation of the Liepaja Region Solid Waste Management Project

Approx Activy Organzation Inve Specialist- Staff Wes | Totl0 Date TM Fin. Anal Enondrff EnvSpac FMS e- spec DistSpac

-00 Supensvon I Head Quarter 2 1 I 1 6v Proed Launch ReS. Missien 1 10 S!ia I

Jan-01 Superision 2 Head Quartr 3 1 4Res. Missioo 1 1

DApr-01 Superos.on 3 Hear Quarbr 2 1 3Res. Mission 1 1

Seda II

F Aug-01 Supvision 4 ilead Quarer 4 3 1 4Y Res. Mssien 1 1

|Dec-01 Supernion 8 Head Quarter 3 1 4Re. Mision 1 1

Ft SS43 Supisiong Fas Missio I 1 = _-4iX Sdr =~0 1 =_ 2_

Apr-02 Superon 1 Head Msaioe 3 1 4

P Oct-02 S.,upermis,eon Head Quarr 4 2 2 1 2 _ 12.r Ad-Ter_ Res.Nlssirut, 2 20 Seda N1 3

mar-03 SupeRion 8 Head QuOartr 2 1 3

F s_ 14 - ~~~~~a-2 2 - -1-1 1 0

F Sep-03 Supe-vrsron Ha Quarter 2 1 3

0 a_ac g^uSSda I1 1 2

_ - Supenrision 1e 2 1 3 -

Res..Neo1

Ju-4 Supersu-onl11 HeadQuarter 2 1 3V Res. Msion.. 1 I

7Sj. SidaNAr-04 ReSup-soron 12 Head Quater 2 1 1 1 5

Res. Mission 0

Apr-OS Supeson4 13 Headi Quat 2 1 1 4Re.. Mission 0

P u-S Supennsion 14. Head Quarter 2 2 2 1 1 1 1 0V Rae. Mission, 1

0 ~~~~~~~ ~~~~Sida 1 1

Jan-O0S Superdso 10 Head Quarter 2 2

Sida 1

Jun-06 Superrseo 16 Hlead Quarter 2 2Res. MAison 1 1

Sida 1

De-6 Supervision 17 Head Quarter 2 2V ReaMearton I 10 Sid I

lno. CarnplationApr-07 Report Prp. H-eadt~re 4 2 3 1 2 1 13

Re.. Owion, 2Sids 0

Total 4 17 20 10 4 6 4 112

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Affordability AnalysisLiepaja Region Solid Waste Management Project

Revised on 18th April 2000

Conclusion

(i) The affordability analysis developed in this annex is based on a waste tariff increase per householdmember of 25% in 2001, followed by smaller annual increases in the years 2002 to 2005 for a totalincrease of 41% over the level of 2000. The analysis indicates that such tariff increases would not poseparticular affordability problems for the majority of Liepaja City's residents who now pay these charges ona regular basis. Nor would it pose a problem for those residents of regional municipalities who at presentpay for the full cost of waste collection. However, the majority of rural residents pay very little or nothingfor this service and the imposition of the proposed uniform regional waste tariff there could create anaffordability problem. Finally, for those City residents at present unable to pay for waste collection, theincreased tariffs will just be added to what is already unaffordable to-day.

(ii) A further increase of waste collection charges of an average 11% over present levels would have tobe applied in 2010 in order to compensate for lower electricity prices. It is considered that such an increasein that year would not create an affordability problem except for the poorest residents. The reason beingthat by 2010 both urban and rural incomes are expected to have increased substantially, thus mitigatingany negative impact of tariff increases.

(iii) A theoretical tariff level sufficient to bring the project's Financial Internal Rate of Return (FIRR)to a level of about 7.5% (from around 3.0% with the 41% tariff increase) has also been calculated. Suchlevel of the FIRR would require an overall increase of individual waste collection tariffs of around 72% by2005 and this is clearly neither politically acceptable nor financially affordable for the majority of theregion's residents.

Introduction

1. An affordability analysis in the context of infrastructure projects aims at establishing whether ornot contributions to the project's finance plan and/or increases in prices or charges related to the(improved) services of an infrastructure project can in fact be paid, or afforded, by the major stakeholdersof the project, without causing undue hardship'.

2. The project consists of the reorganization of waste collection and disposal, as well as the creationof a modem sanitary landfill for the entire Liepaja region, including Liepaja City and 30 ruralmunicipalities and villages. It is proposed to extract methane or landfill gas from the present landfill atSkede, which site will be closed and remediated. Future household waste would be treated at the newlandfill at Grobina and deposited in so-called energy cells, to allow for decomposition of this waste undercontrolled conditions and inducing an accelerated production of landfill gas under anaerobic conditions.The extracted landfill gas will be collected and used for energy/heat generation: these revenues will be usedto cover the incremental operational costs of the modem landfill operation.

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Stakeholders

3. The major stakeholders in the project are the City of Liepaja, the regional municipalities and theroughly 145,000 residents of the region. The project's finance plan foresees a contribution from the City ofLVL 400,000 (its share capital in the capital of the new waste management company Liepajas Ras Ltd.),as well as the funding of the Project Implementation Unit prior to the start of the project. For the 30municipalities of the region the total contribution to the finance plan would be LVL 200,000 as theircollective share in the capital of the new company through the RAS-30 Ltd. Company which wasincorporated in December 1999. Residents, both urban and rural, would face higher tariffs for wastecollection and disposal to cover part of the additional costs of regional waste transportation and treatmentof all waste at the modem landfill to be created at Grobina.

Liepaia City

4. The effects of the Russian crisis seem to have been weathered much better than anticipated inNovember 1998. While unemployment has risen somewhat, many workers laid off during the latter part of1998 and early 1999 have been re-hired; new businesses have been established and the construction sectorhas expanded its activities. Exports have been increasingly re-oriented to the European markets, while theSpecial Economic Zone is attracting more interest from both local and foreign companies.

5. Realized municipal revenues in 1999 increased over 1998 levels and the budget for 2000 aims foran overall 4.5% increase, particularly from income taxes. As a result, the City's current financial situationis sound and future prospects are favorable, and there should be no problem to contribute to the proposedfinancing of the project. As for being a guarantor for up to two-thirds of the LVL 2.2m loans, the City'sbasic financial situation is sound and long-term prospects favorable, which would enable it to assume thisresponsibility. But an actual default by Liepajas Ras Ltd. would certainly impose a heavy burden on itsbudget.

6. The city's direct financing contributions consist of the LVL 400,000 subscription to the sharecapital of Liepajas Ras Ltd. (LRL) as suggested in the draft Business Development Plan (BDP) which wasaccepted by both the City Council and the Regional Council. This amount, which is much below the LVL600,000 figure mentioned during earlier preparation missions, would be paid-in over a 4 year period,starting 2001.

7. In addition to the share capital contribution, City Council has agreed to cover part of the cost of theestablishment of the Project Implementation Unit (PIU). These costs, which consist of the contract withELSE Ltd. Consultants, cannot be financed retroactively from the project and will therefor need to be metby the two shareholders of the LRL, Liepaja City Council (LCC) and RAS-30. As the regional companywas not able to help cover these charges, the LCC agreed to fund these costs up to the end of 1999.Thereafter GOL would cover these costs for the year 2000, prior to their being funded from the project.

Municipalities of the Liepaja region

8. The financial contribution of the municipalities, assembled in the Liepaja Regional Council (LRC),would consist of the share capital subscription of LVL 200,000 in the new LRL company. Payments wouldbe spread over 6 years, from 2001 to 2006.

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9. It was originally proposed that this subscription would be LVL 175,000, consisting of a LVL10,000 contribution for each of the 5 municipalities and LVL 5,000 for each of the 25 villages. The

answers' to the Questionnaire, distributed in the second half of October 1998, indicated that many pagastswould have a problem contributing these amounts.

10. However, the regional municipalities assembled in a meeting in March 1999 have committedthemselves to raising the LVL 200,000 contribution for LRL, as proposed in the Business DevelopmentPlan. Even though this sum exceeds the amount agreed during earlier preparation of LVL 175,000 andnegative reactions collected via the Questionnaire to the contrary, it would seem that the affordability issuefor the regional municipalities regarding their capital contribution has been resolved.

Affordability analysis for residents

11. The financial cash flow analysis of the new company indicates that the revenues from the sale oflandfill gas (as electricity and/or heat), which are in addition to landfill waste deposit fees, will not besufficient to cover the cost of regional collection & transportation and treatment of all waste. Theserevenues should also cover servicing of project loans, as LRL would be the ultimate borrower and thus beresponsible for payment of interest on, and repayment of, the World Bank and NIB loans.

12. It will therefore be necessary to increase these waste disposal fees. At this stage an increase of thenet disposal fee retained by the company from LVL 0.60/mr to LVL 1.65/rnm (+160%), spaced over theyears 2001 to 2005, would be sufficient to assure a financial equilibrium. This would raise the grossdisposal fee from LVL 1.00/mr at present to LVL 2.20/mi3 in 2005, for an overall increase of 120%.

13. The analysis in Attachment 1 of Annex 12 indicates that the 120% increase in the gross disposalfee would have a much reduced impact on the average waste collection and transportation tariff of theCity's residents, because other cost components (local collection costs and the NRT) do not increase. Thesize of the impact also depends on the future organization of waste collection and transportation to thelandfill, as explained below:

a -- in the case that the present collection ystem is retained, it is conceivable that the private sector waste.transportation companies, in their negotiations with housing corporations and individual clients, wouldagree - due to competition -- to absorb part of the increase of the gross disposal fee. And the ultimatewaste collection tariff the residents will be required to pay would therefor differ from one district toanother, as is the case now, while any increase of these tariffs may well be less than the average theoreticalincrease calculated in Attachment 1 of Annex 12.

b - in case Liepaja City Council requests that Liepaias Ras Ltd. takes over local collection andtransportation, it is almost certain that LRL would retain present operators to physically carry out this taskunder contract. And in order to facilitate billing LRL would, as is the case in Riga for instance, introduce auniform waste collection tariff for all residents of the City.

14. It is this uniform collection tariff which has been used in the affordability analysis. The 120%increase of the gross disposal fee, assuming no change in the cost of collection and transport, would berounded into a 41% increase over the present average waste collection tariff of 32 santimes/person/month.The new tariff of 45 santimes/person/month would be reached in 2005, starting with an increase to 40santimes during the year 2001, when waste would begin to be deposited at the new landfill site.

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15. In addition to the increase of the collection tariff needed for the financial viability of LRL, a furthertariff rise will be required during 2010. The Power Purchase Agreement with Latvenergo specifies thatelectricity produced by the Project will be purchased at a 50% premium over the present import price.However, this arrangement is valid for only 8 years, after which the import price will apply. As thedisposal fee is the only other source of revenues for the company, it will have to be increased to compensatefor this loss of electricity revenues. The necessary increase of the disposal fee has been calculated as beingequivalent to an additional 11% increase of the average waste collection tariff, raising it to 50 santimes perperson/month; but this increase would be effective only from 2010 onwards.

16. A further calculation has been made to detenrine the waste collection tariff level needed to bringthe FIRR for the project up to a level of around 7.5%, from about 3.0% with the proposed 41% waste tariffincrease. In this event, the tariff would have to be increased by an additional 5 santimes, for a monthlytariff of 50 santimes per person/mnonth or LVL 6.00 per year. The overall increase compared to the presenttariff level would then be 72% and would come into effect in 2001.

17. The affordability analysis therefor uses a 41% respectively 72% increase of waste collection tariffsand compares these increases to the present average tariff of 32 santimes per household member, permonth. Subsequently, these increased tariffs are related to disposable income (paragraphs 18 - 24) and tohousehold expenditures (paragraphs 25 - 29), both for the individual and the household units in order toassess their affordability.

A - as related to disposable income

18. The analysis is based on individual disposable income data from the 1997 Household BudgetSurvey. These figures are multiplied by an estimate for the average number of persons per household tocalculate an average household disposable income. These estimates are respectively: national (2.42persons), urban (2.37 persons) and rural (2.54 persons).

19. The analysis in Attachment I shows that the present tariff level represents, in 1999 a share of0.55% of average national disposable income. The income growth rates assumed by the World Bank havebeen applied to these income levels and the percentage share would then go down to 0.53% in 2000. Due tothe proposed 25% increase of the average tariff in 2001 the burden would go up to 0.64% in 2001.Subsequent tariff increases in years 2002 to 2005 would not have any effect on this percentage burden, dueto the growth of incomes.

20. The breakdown of disposable income by urban and rural household shows that the proposed wastetariff increases represent less of a burden in the urban areas, where incomes are higher than in the ruralareas. Data for Kurzeme, in which Liepaja region is located, are at the same level as the rural households.

21. An theoretical 72% tariff increase would lead to a burden of 0.80% in 2001, up from 0.53% in2000. Again, growth in incomes would stabilize this figure, in spite of the subsequent tariff increases. Thenegative impact in the rural areas and Kurzeme province would be even greater, reaching 0.86% in 2001,compared to 0.57% in 2000.

22. The data seem therefor to indicate that the agreed 41% increase in waste tariffs would have arelatively minor negative impact on household incomes, except in the year 2001, over and above the presentburden as measured in 1999. This is true even of the rural income earners. However, the impact of thehypothetical 72% tariff increase would have a major impact on disposable incomes.

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23. Lastly, the additional 11% increase of tariffs needed to compensate for the drop in electricityrevenues is not scheduled to be applied until 2010, by which time its impact will be largely mitigated by theprojected growth of incomes.

24. The second income measure used is the estimate made by the Liepaja Water Company and it hasbeen retained for comparative purposes. As it assumes higher incomes the impact of the proposed higherwaste tariff on household incomes is proportionally lower, reaffirmning that the 41% tariff increase isaffordable according to that calculation.

B - as related to individual household expenditure

25. Household budget surveys suffer from a well-known tendency for incomes to be under-declared.On the contrary, reporting on household expenditures curiously enough does not show a similar tendency.Therefor, such household expenditure data are often used as a more meaningful measure and they havebeen used here to provide a further measure of the affordability of the proposed waste tariff increases. Theattachment 2 summarizes the information of the 1997 Household Expenditure Survey, by quintile. Nationalaverage consumption expenditure per person, per month during 1996 was 95.14% of total individualhousehold expenditure, decreasing from 96.96% for the lowest quintile to 93.5% for the highestexpenditure quintile.

26. Expenditure on Housing & Utilities, which forms part of consumption expenditure, but isexpressed as a percent of total expenditure, showed a national average of 14.63% for 1996 per person andper month. Contrary to consumption expenditure, where the percentage related to total expendituresdeclines from lowest to highest quintile, the percentage share of H&U expenditure increases for the firstthree quintiles from 9.87% to 17.37%, before declining to 16.74% for the fourth quintile and to 13.44% forthe fifth and highest expenditure quintile.

27. Attachment 2 also shows the relation between total individual household expenditure and thecurrent Liepaja City average waste collection tariff of 32 santimes, also expressed per person, per month.This tariff represented in 1996 some 0.61% of the national average expenditure per household member.The percent share stood at 1.50% for the lowest quintile, quite a high figure, but decreasing rapidly to0.27% for the highest quintile.

28. As before, two scenarios for increases of waste collection tariffs have been assumed, at 41%increasing the monthly charge from 32 now to 45 santimes, and at 72% which would raise the charge to 55santimes per person, per month, both by the year 2005. The 41% increase, calculated against the 1996household expenditures, would represent a national average 0.85% share of such expenditure in 2001. Theaverages hide quite large variations by quintile; however, since 1996 incomes have grown and will continueto do so and the relative share of H&U expenditure of total household expenditures will probably havegone down over time.

29. The theoretical 72% tariff increase would have quite an impact, especially on the lower incomequartiles. The national average share of total household expenditure would reach just over 1%; but for thelowest quintile this share would be 2.57%, compared to only 0.55% for the highest quintile. These dataseem to indicate that this theoretical tariff level would cause a serious affordability problem for people inthe lower income quintiles.

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C - information from Liepaja City's housinig corporations

30. The City's eleven housing corporations - one for each district - are responsible for theadministration of apartment buildings in their respective districts. Information collected from thesecorporations in April 1999 indicates that currently 64,373 persons live in apartments, or 67.8% of theapproximate total 95,000 population, with an average number of 2.17 persons per household (details inAttachment 3). All other inhabitants of the City live in individual houses.

31. The data indicate that 60.5% of these households pay their rent and utility charges on time, whilesome 17.9% of households are too poor to pay the full charges. The latter are assisted by the City's socialaffairs department; they are mostly unemployed or elderly people. The third category consists of peoplewho are unwilling to pay or who are more than 6 months in arrears (without forming part of the secondcategory) or persons who have moved away, but are still registered.

32. The percentage distribution varies greatly from one district to the other, with the relatively richdistricts of Spare and Jaunliepaja showing a payment rate of over 90%, and the poorest districtsKurzemnieks, Karosta and Vernieks a payment rate of in the twenties. In the category "Too poor to pay"the largest groups are in two of the three poorest districts, Vemieks and Karosta, with over 40% ofhouseholds assisted by the social security system. Paradoxically, the third district, Kurzemnieks, which hasthe lowest proportion of regular payers, shows a low percent of assisted households, only 5.2%. The bulkof households in this district - some 79.8%-- here are in the third category, those in arrears or unwilling topay; this is by far the highest percentage and indicates a rather special situation.

34. Regarding Affordability, interviews with three of the 11 managers of the housing corporationsindicate that the proposed tariff increase of up to 25% would not pose any particular problem to thosehouseholds paying their bills on time. For those households on social security, the increase would simply beadded to what they cannot afford anyway; while for the third category affordability does not appear to bean issue in any case.

End NotesTo afford is defined as being equal to a pecuniary need, being able to bear it. Affordability is therefore the

notion of having the financial means to pay for something. In the context of this project the affordability analysisaims at finding out if one category of the project's stakeholders, the residents of City and region, have thecapability to pay for increases of solid waste collection tariffs. Such capability is usually measured against theirincome, taking into account family size and a certain minimum level of consumption expenditures needed forsurvival.

This analysis has benefited from comments made on earlier drafts by Mrs. Franziska Gassmann(University of Maastricht) and Kishore Nadkami of the World Bank.

The loan finance from the World Bank and the Nordic Investment Bank now foreseen would be in theform of loans to Government, to be on-lent to the new company, which would be responsible for repayment. LCCwould most likely be requested to become guarantor for up to two-thirds of the loans.

Of 5 towns, 4 replies were received, while of 25 village communities only 14 answers were received, for atotal response rate of 60%.

This commitment has been confirmed in writing.For details on the tariff analysis, see Attachment I of Annex 12 and on the cash flow analysis of the

company, see Annex 5.Billing for solid waste collection through the Liepaja Water and Waste Water Co is now being explored.

8 Subsequent increases would be: I santime in each of the years 2002, 2003 and 2004, and a 2 santimesincrease in 2005 to 45 santimes.

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The growth rates of the WB for the period 2001 to 2005 are a uniform 5% per year. In this analysis amore conservative 3% rate has been used.10 The decrease of consumption expenses as a percent of total expenses is what would be expected (Engel's

law).The percentage of H&U expenditures appears low compared to Western countries, where a yard stick of

between 25% and 30% is commonly used by mortgage banks to decide on housing loans..

AttachmentsI - Affordability analysis based on disposal income per household2 - Affordability analysis based on household expenditure data, by quintile3 - Survey of payment of utility charges in housing corporations in Liepaja City

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Liepaja Region Solid Waste Mana ement Project Attachment I of Annex 14

Affordability analysis for increased waste collecton tariffs Updated on 18th Aprl 2000

Basic data _ units data source ____number of persons per household, national average persons 2.42 Household Budgetin 1997(CSBofLatvia) -table 1.1 I _ _ _

-in urban areas prons 2.37 idem tigare used tcaulehaetodissable income and total household waste tariff*-' in mural areas rsons 2.54 iedem frgue used to calculate household disposable income in rural areh*-- average number of salary eamers peons 1.35 figure used in the SIA Liepaja Udens calculabons on affordability

dispos ble income, nabonal average, per hrusehold member LVUnmonth 55.45 Household Budget in 1997 (CSB of Latvia) - table 2.1 _*-' in urban areas LVUmonth 57.80 idem

... in tural areas LVUmonth 48.86 idemin Kurzeme province LVUtmonth 51.51 idem - table 2.10 .

disposable income, national average, per household LV onth 9average dime X aver age numbe r ot household members, nanonal average- in urban areas LVUmonth 136.99 averagedi bi incomeaverage numberof household members, national average in urban areas- in rral areas LVUmonth 124.10 average disposable inrome X average number of household members, national average

in Kurzeme proiroe LVUjmonth 124.65 average dispoable incoe Xaverage number of household members, naltoalIave~ 5

Disposableincome projections 1997(acdual 1998 1999 2000 2001 2002 2003 2004 | 2005 ireal income growth, WB projechons ot Ocober1999 percent 6.50% 3.00% 0.50% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00Yo|disposable income, national average, per household LVUmonth 134.19 138.21 138.91 143.07 147.37 151.79 156.34 161.03 165.86*-- in urban areas LVUmonth 136.99 141.10 141.80 146.06 150.44 1 54.95 159.60 164.39 169.32- in rural areas LVW.Jmonth 124.10 127.83 128.47 132.32 136.29 140.38 144.59 148.93 153.40*-- in Kurzeme province LVUmonth 124.65 128.39 129.04 132.91 136.89 141.00 145.23 149.59 154.08

Household income projections SIA Uspaa Udenisavers householdincome, per month LVUmonth n.a. 184.00 189.00 195.00 203.00 211.00 211.00 211.00 211.00low household income, per month LVUnmonth n.a. 110.00 113.00 117.00 122.00 126.00 126.00 126.00 126.00

Waste collection charge in Liepaja ciy1997a acual 1998 actual 19 00 201 2002 200~3 204 05

'-- average for all distrcts, per person, per monith LVmonth 0.32u 0.32 0.32 0.32 0.40 0.41 0.42 0.43 0.45pn posed4l%increaseinpresent average waste collection charge percent 0% 0% 0% 0% 25% 2.5% 2.4% 2.4% 4.7% sum= = 41%annual tanff increases, per person, per montph LVUe tnt 0.005 0.005 0.5% 0 0 .78% 0.78 01 0.707 0.01 0.02

iruavelageforalldistds perper percentmonth LVUmonth 0.32 0.32 0.32 0.325 0.50 0.518 0.52 0.53 0.55%theoretical72% increase irpresentaveragewstecolectioncharg percent 0O1% | 0% 0% 05% 55% 2.8% 2.0% 1.9% 3.8% Isum = 72%annual tarif iceses_, per pesn prmnh LVU/month |0.00 |0.00 0.00 0.00 |0.18 0.01 |0.01 0.01 i0.02

ce peos SA Uala Uensoverall increasAffordability analysis _ per month

new tariff, 41% Increaw, per household LCVU1month | 0.-76 |0.76 0.76 0.76 |0.95 |0.97 |1.00 1.0 1.0 0me31

disposb Fnoe, n~atlional avearage, per houseghold pecnt|057% |0.55% 0.55% 0.53% |0.64% |0.64% | 0.64% 0.6 63% 0.6-4%|*-- in urban areas percent F 0.55% 0.54% 0.53% -0.52% 0.63% I0.63% I 0.62% 0.62% 10.63% I

--in nural areas pret,0.61% |0.59% 0.59% 0.57% |0.70% |0.69% |0.69% 0.68% |0.70%|*-in Kurzeme province pret 0.61% 0.59% 0.C59% 05% 0 -6.6% 09Y 0.% 0 -68% a 0.69%

avepragehousehUoldincomePWens percent 1 n.a. 0.41% 0.40% 0.39% 40.5% 0546% 0.47 % 0.48% 0.51%low household income percent n.a. 0.69% 0.67% 0.65% 0.78% % 09 1% 1085%

nowtheoreticaltariff.% L month| . 0.76 0.76 06 t8 I t.21 t1.23 1.26 |1.30 130.Xdisposableincome, n donal av rag*, pm household pret|0.57% 0.55% |0.55%/ 0.53% |0.80% |0.80% 0.79% 0.78% | 0.79%!... in urban ara percent | 0-.55% |0.54% |0.53% 0-,-52% |0.78% 0.78% T 0.77% 0.76 .7

*-innunal areas pecet .6t% 10.59% 10.59% 0.57% 0.86% 0.86% 0.85% I084. .5*-in Kurzeme province pret 0.61% |10.59% 0.59%/ 057% |0.86% L .6 .5 8%|085%/ 1

average household income en pesn n.a. 0.41% 0.0 0.39% |0.58% i 0.57% j0.58% 0.60% | O: 0.62%l- owv household income percntt| n.a. 069% 0.67% _0.65% |0.96% 0.96% |0.98% |1.00% 1. 03%

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I I I I | F |Attachment 2 of Annex 14- revised on 18th April 2000

Liepaja Region Solid Waste Management ProjectAnalysis of affordability of increased household waste collection tariffs using h usehold expenditure data

Household Expenditure Data, by Quintile - 1997 |

cash and in kind, average in LVL per month and per household member

average _ 1 st 2nd 3rd 4th 5th

total expenditure 52.64 21.37 36.37 48.24 63.55 116.90

of which:consumption expenditures 50.08 = 20.72 35.06 46.21 60.79 109.30

as % of total expenditure 95.1% = 97.0% 96.4% 95.8% 95.7% 93.5%

housing and utilities expenditures 7.70 _ 2.11 5.36 8.38 10.64 15.71

as % of total household expenditure 14.6/ _ 9.9% 14.7% 17.4% 16.7% 13.4%

present average waste tariff @ 0.32/person 0.32 = 0.32 0.32 0.32 0.32 0.32 average Liepaja City

as % of total household expenditure 0.6% = 1.5% 0.9% 0.7% 0.5% 0.3% excluding Karaosta

waste tariff - 41 % increase @ 0.45/person 0.45 0.45 0.45 0.45 0.45 0.45 increase of 41 %

as % of total household expenditure 0.9% 2.1% 1.2% 0.9% 0.7% 0.4%

waste tariff - 72% increase @ 0.55/person 0.55 0.55 0.55 0.55 0.55 0.55 increase of 72%

as % of total household expenditure 1.0% 2.6% 1.5% 1.1% 0.9% 0.5%

Source: Household Expenditure Survey 1997 _

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Liepaja Region Solid Waste Management Project Attachment 3 of Annex 14

Liepaja City: Informaabon on residents of apartment buildings - 1999(numbers, payment of rent and utilities, waste collection charges)

dis1ict inhabitants per district households in apartments paying rent & utilities solid wastecollection charge

total those living in apartments payingontime too poor to pay others LVUperson/monthpersons ouseholdsaverage number % number % number %

Bura n.a. 3,580 1,615 2.22 1,200 74.3% 110 6.8% 305 18.9% 0.31Ezerkrasts n.a. 11,067 4,718 2.35 2,996 63.5% 1,503 31.9% 219 4.6% 0.25Jaunliepaja n.a. 4,692 2,269 2.07 2,052 90.4% 124 5.5% 93 4.1% 0.35Karosta n.a. 6,855 3,179 2.16 756 23.8% 1,399 44.0% 1,024 32.2% 0.29Kurzemnieks n.a. 6,817 3,316 2.06 654 19.7% 172 5.2% 2,645 79.8% 0.31Ozols n.a. 3,763 1,791 2.10 1,250 69.8% 41 2.3% 500 27.9% 0.33Perkonc n.a. 6,444 2,953 2.18 2,427 82.2% 20 0.7% 526 17.8% 0.25Spare n.a. 2,686 1,223 2.20 1,152 94.2% 10 0.8% 61 5.0% 0.34Vecliepaja n.a. 5,276 2,588 2.04 1,938 74.9% 274 10.6% 376 14.5% 0.40Velnciens n.a. 8,617 3,849 2.24 2,887 75.0% 770 20.0% 192 5.0% 0.35Vemieks n.a. 4,576 2,092 2.19 600 28.7% 870 41.6% 622 29.7% 0.26

totals 95,000 64,373 29,593 2.18 17,912 60.5% 5,293 17.9% 6,563 22.2% 0.31

of total 61% 18% 22%

Note: the Karaosta district is excluded from this compilation; its waste charge is only 18 santimes,due to the fact that inhabitants have organised themselves the waste collection and transport to the nearby Skde landfill.

Source: answers from housing corporations to questionnaire prepared in April 1999

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Public Attitudes and Social Issues

PUBLIC ATTITUDES TOWARDS

THE LIEPAJA REGION SOLID WASTE MANAGEMENT PROJECT

Executtive SummaryJanuary 2000

1. INTRODUCTION

1. At the time of the Preparatory Mission for the Liepaja Region Solid Waste Management Project,public participation was already identified as a major concern. Its objectives were formulated in theseterms:

* To identify areas where project implementation will have signifi cant social implications and toprepare strategies to alleviate any negative social implications

a To ensure an optimal circulation of information to andfrom all relevant stakeholders in the Liepajaregion and their active involvement in the preparation and start-up phase of the project

* To strengthen management capacity within the Liepaja City Council in order to plan and executemeaningful, effective and efficient information, communication and public consultation activitieswhen further refining and implementing their policies.

2. Although these objectives were framed very early at a time when the phasing of the feasibilitystudy, its duration and resourcing were not yet fully known they have remained generally valid throughout.

3. An appropriate public information and education strategy now needs to be devised to underpin thework of implementation. Guidelines are proposed in Section 6 of this sunmmary.

4. Even at the earliest stage of consultation much of the Public Participation progranmme concentratedon defining, consulting and involving audiences to establish a secure basis for project design andimplementation. Audience data have been secured by a variety of means:

* Consultations* Surveys* Media Analyses

5. Through these means the views of a number of different publics have been solicited. Theconsultations were organized on a regional basis, so that metropolitan bias could be reduced; they alsoincluded conununities likely to be directly affected by the plan for solid waste management, in particular bythe location of a central landfill. The social surveys were of two kinds: those directed towards the generalpublic in communities directly affected by the proposals, and specialist surveys involving committedmembers of the civil society, active in the NGO field. Regular media analysesmmarized media reactions tothe project, which may be seen either as mirrors or as moulders of public opinion.

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6. The results of each of these inquiries are available in full in the main report.

2. CONSULTATIONS

1. Several public consultations have been held, beginring with an opening meeting for Liepaja Cityon 10 February 1999 and continuing with consultations in Kaleti (for pagasts in the Barta region) on 30March 1999 and in Aizpute on 15 April 1999. Two consultations were subsequently held in Grobina on 13May 1999: in Grobina Pagast, followed by Grobina Municipality. A final consultation, which discussedthe draft Environmental Impact Assessment report, took place in Liepaja City Hall on 15 July 1999.

2. Each of these consultations was chaired by a senior local official, usually the Mayor, andintroduced by Gunars Ansins, Project Co-ordinator for Liepaja City Council. Whenever possible, WorldBank representatives participated, and on several occasions, members of the Environmental ImpactAssessment State Bureau. In the majority of cases, Valdis Seglins, representing Geo Consultants (the localtechnical consultant), explained the rationale for the project and progress made to date. Invariably hispresentation was structured so as to place an emphasis on issues likely to be awarded priority in the districtcovered. This was followed by a question and answer session and general discussion.

3. The introductory consultation in Liepaja City, which was also attended by representatives of theEnvironmental Impact Assessment State Bureau, prompted a number of general questions on environmentalregulations and constraints, the potential for energy production from gas, the need for remediating existinglocal sites and costs of closure, implications for tariffs, setting up transfer stations, and a possible structurefor the proposed new waste management company.

4. The following three consultations were organized regionally (bringing together pagasts in aparticular catchment area), and for this reason, lines of questioning tended to focus on local concems, suchas the need for transfer stations or the probable scale of tariffs for those pagasts remote from the twopotential landfill sites. A seminar on the business plan organized for representatives of Liepaja CityCouncil and Liepaja Regional Council was also followed by a public briefing, but unfortunately this waspoorly attended.

5. Particularly important was the final public meeting, which was held in Liepaja City Hall on 15 July99, in line with Latvian legislation, to consider the draft report on Environmental Impact Assessment. Likethe initial consultation in the series, it was attended by representatives of the Environmental ImpactAssessment State Bureau. In part this meeting was devoted to an explanation, given by the technicalconsultants and World Bank representatives, of the different options considered and the methodologyemployed. In the course of the meeting, however, the viewpoints of two separate constituencies were aired:members of the summer co-operative at Skede, and the owners of the site at Grobina.

6. It was important that both of these viewpoints should be heard, and fortunate that they could bevoiced at the public consultation. It was already obvious from a second survey conducted in Skede that thefeelings of the co-operative had changed radically during the study, and the Chairman of the co-operativemade his point strongly. He had lived in Skede for 41 years, and had considered it mistaken from the outsetto establish the landfill, leading to smells, smoke and pollution. His main argument was summed up in asingle sentence: 'You are talking about economy: however, you should think more about people'. For theowners of the Grobina site, the question was more technical: how best to reach an agreement with theauthorities that would be advantageous to all parties.

7. Shortly after the meeting, the EIAB included the following paragraph in its statement on the draft

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report on environmental impact:

' Several published articles in newspapers during the preparation of the programme, the initialpublic hearing and the public hearing on the draft EIA report on a new landfill site did not arousegreat public activity, and the EIAB has received only one letter from the summer garden co-operative'Skede'. The letter is signed by five board members of the co-operative .... The letter shows that theco-operative is dissatisfied because - in the case of southern and south- western winds - unpleasantsmells and smoke are experienced in the summer house settlements. Simultaneously the lettersupports the Grobina site for a new landfill location. The wish of local inhabitants to startdiscussions on the draft report contents was minimal, although the Liepaja City Council haspublished several articles in the newspaper 'Kurzemes vards', informing inhabitants of thepossibility of becoming acquainted with the contents of the draft report and of expressing theirattitude to the project'.

8.. While attendance at these meetings has been limited, at least some of the discussions have beenfrank and lively. Consultations of this kind can be seen as mirroring a particular stage of development incivil society. A tradition of open public debate takes time to establish itself, and it is to be expected that thenumbers participating will be limited. They are made up largely of those with a special interest (residentsliving close to a possible landfill, or owning land that may be acquired), those who are active in relevantnon-governmental organizations and those fulfilling a representative role (mayors and local officers).

9. In general, the consultations underlined the importance of developing, and presenting, anintegrated strategy for waste management, which can transcend formal administrative boundaries. Howeverwell structured the agenda, and however disciplined the chairperson, it is impossible to confine questionsand discussion to a limited set of questions, and environmental groups in particular are sensitive tointerlocking issues and the need to adopt a holistic perspective.

10. Overall, the consultations did not indicate any deep or widespread anxieties about the project,although this does not necessarily imply that more radical concerns will not surface later, when activitiesbecome more concrete. To a limited extent, this has already happened, with a protest (bearing 61signatures from Grobina residents) delivered to the World Bank office in Riga in November 1999. Thiswas immediately followed up by the PIU and the Bank office in Riga, but it illustrates the importance ofronitoring developments and keeping the consultative process open.

11. The reason for the protest was based on the fact that originally, the site in Grobina suggested to beinvestigated as a possible location for the regional waste management facility was located on privatelyowned. However, at the stage of the investigation the land was believed to be owned by the Government.When the Feasibility Study and Environmental assessment was finished, it became clear that the land wasprivately owned, and the owners claimed to be paid LVL 100,000. The price was found unreasonable as itwas 30 times higher than its landbook value, and the PSC decided to investigate an adjacent lot clearlyowned by the Government, during which time the private owners continued to argue for having the wastemanagement facility located on their land.

12. The above-mentioned protest was orchestrated by the above-mentioned private land owners, andthey sought support from other inhabitants living at a distance of several kilometers away from theproposed location. The two sites have been evaluated from geo-hydrological, environmental, and technicalaspects and been found equally good by the Environmental Impact Assessment Board within MOEPRD,and therefore the PSC decided to not make any change in the decision to establish the facility on the land

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owned by the Government.

3. SOCIAL SURVEYS

1. Social surveys were always envisaged as part of the public participation exercise, but in view of thelimited resources available they have been confined to audiences likely to be directly affected by the project.Specifically, these are people living close to the landfill site options in Skede and Grobina), and thoseinvolved in the waste separation pilot projects. The purpose of the surveys was to find out the attitudes of asample of the general public towards the project, rather than (as in the consultations) to provideinformation or a platform for discussion and inquiry.

2. In the case of Skede, an initial survey carried out in 1998 was followed up by a second survey, in April1999, to determine what changes, if any, had been brought about by the passage of time and the impact ofthe feasibility study.

3. The most important inference to be drawn from these surveys relates to the shift in attitude within theSkede summer community, over the space of only seven months. Opinion shifted (or at least the opinion ofcommunity leaders) from a fairly neutral, even disinterested view to a markedly negative position. In partthis was probably due to the impact of the feasibility study itself, which provoked debate, placed thelandfill on the community agenda and sharpened opinion. It also demonstrated the importance ofcommunity leaders and activists (who appeared to be more vocal in their opposition than the residents as awhole).

4. Once the choice of Grobina as a site is more widely publicized, it may well be that local opposition willbegin to crystallize further, though it should be less forceful than in the case of Skede. For this reason it isimportant to pre-empt criticism by continuing public participation activities in Grobina and initiating aninformation programme.

4. SPECIALIST SURVEYS

1. Two more specialized surveys were also carried out to assess the views of non-governmentalorganizations in the Liepaja district. The first covered the totality of NGOs linked to the Liepaja NGOCentre; the second went into greater depth on environmental issues and was confined to the ten activeEnvironmental NGOs in Liepaja City and Liepaja Region.

2. Overall, the first survey revealed a positive attitude towards the project among non-governmentalorganizations with a demonstrated commitment to civil society development (but with no specific biastowards environmental issues). It showed some reluctance to choose between options that were felt to bemore properly the domain of experts, but at the same time an understanding that the project was necessaryand would work for the benefit of the community.

3. A great deal of realism was displayed in evaluating community attitudes and resistance to change,specially in the practice of waste separation. The respondents agreed across the board that a long-termeducational programmne would be necessary, and schools and young people should be strongly profiled, asfuture citizens and potential waste separators. Environmental arguments in favor of waste separation andrecycling were judged to be the most important, but a good proportion of those replying believed that, overthe longer term, recycling could be economically viable.

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4. The NGO community is clearly sensitive to audience targeting and profiling, as well as to a mix ofchannels and media in information dissemination. The importance of local press and media was alsoemphasized (although one respondent stressed that interpersonal channels are very important, as the pressis not universally read).

5. The survey revealed that the NGO community is potentially an important reservoir of support duringproject implementation, particularly in efforts to engage, inform and educate local communities. It appearsto be realistic about the magnitude of the task of attitude change, and an important determinant of successwill be to retain NGO interest by keeping them as active participants.

6. The second survey of environmental non-governmental organizations was initiated by the Director ofLiepaja Green Centre, Ms. Inese Eistere, and was conducted in March and April 1999.

7. Practical conclusions which may be drawn from the survey are:

* Some blurring and confusion was apparent between the Waste Management Project and the PilotProjects in Waste Separation. This is in part due to a lack of clarity in the formulation and introductionof the pilot projects, in particular the absence of a clear demarcation between the two strands of wastemanagement and waste separation (they were known to be associated, but the nature of this associationwas not at all clear). The confusion was re-inforced by media treatment, which failed to distinguishproperly between the two.

* Not unexpectedly the ENGOs have a strong attachment to waste separation and re-cycling, which goeswell beyond considerations of economic viability. It is linked to much broader principles of energyconservation and environmental protection.

* The ENGOs have a detailed knowledge of environmental and pollution problems in the Liepajaregion, which can be drawn upon in information campaigns.

* The ENGOs are positive, but realistic, in their attitude towards international and Europeanlegislation and towards theintemational community.

* The ENGOs are sensitive towards education and information needs, and appreciate thefoundations of informnationstrategy (targeting and audience segmentation). They also understand theimportance of local and interpersonal media and channels, and the benefits of audience involvement.However, they are apparently rather less realistic about the costs of information provision anddistribution, especially when a full range of media is envisaged.

- Finally the ENGOs appear willing to participate in information and education activities, but feel thattheir potential within civil society is still undervalued.

5. MEDIA ANALYSES

1. Regular briefings have been provided to the media, as well as press releases on the most significantlandmarks of the study, and journalists have been invited to participate in all consultations, as well as inregular Council meetings. The national and local media have been monitored throughout the project, so asto maintain a record of media coverage, and the monthly digests prepared have shown that reporting hasbeen generally positive. As expected, the most substantial coverage has been provided by local and regionalmedia, and greater interest was shown at the beginning of the feasibility study, when the topic was freshand practical activities were beginning. The experiments on waste separation also attracted media interest,especially in their earlier stages.

2. Summaries of media coverage up to and including June 1999 (largely local) are given in the

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annexes, and this period is now being extended to the end of 2000. A fuller press book can also beconsulted in Liepaja City Council on request. Media coverage has mostly been factual and uncritical, andhas inevitably been fuller during visits by the World Bank mission, or at specific points within the project(the beginning of the feasibility study, for example).

3. One item that caused concern was an article in 'Diena' on 25 January 1999. In a report on thewaste separation pilots, the Director of the one of the waste companies contracted, 'Sikari', revealed thatthe collected waste was subsequently dumped together and not recycled. What this article revealed was notso much an error in reporting, as a failure in planning; not only were the waste companies inadequatelybriefed on the experiment, but there was insufficient co-ordination between the waste separation pilots,delivery of containers from Sweden, and the feasibility study.

4. Apart from this particular lapse, the media record has been positive and does not suggest, at leastat this stage, that the project has failed to take account of any major social issues or transgressed anysignificant cultural norms. It does, however, illustrate the need to engage media interest and to keepjournalists regularly (and objectively) informed, and this will form an important part of the informationstrategy.

6. GUIDELINES FOR A PUBLIC INFORMATION AND EDUCATIONPROGRAMMEImmediate Needs

It is important not to lose momentum at this critical stage, by leaving public informnation and participationactivities in limbo while formal decision-making processes and technical planning continue. For this reason,an interim programme will be maintained, drawing on limited resources available under the existing publicconsultation component. It will include the following activities:

Consultations

* Following the conclusion of negotiations, a public consultation will be held in Grobina. This willprovide an opportunity to inform the local community about plans and phasing, and to solicittheir views (in particular on access roads, environmental concerns etc. Further consultations will beplanned in the light of experience.

* Three seminars will be organized for decision-makers and opinion leaders in the local commnunity. Theywill involve thebusiness community, teachers and educators, and municipal authorities, and willprovide a briefing on the advantages and benefits of the project, and the arguments likely to beencountered in further debate.

* Two meetings will be held with the NGO commnunity (with the NGO Centre and specifically with theENGOs), so as to discuss the landfill decision in more detail, in the broader context of regional andnational environmental policy.

Information Materials

* If required, simple information handouts will be prepared for distribution to Grobina residents.* Pilot teaching and study materials will be prepared and tested for use in schools and non-formal

education, linking waste management and recycling issues with broader enviromnental concems.

Monitoring and Forward Planning

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* Media monitoring will be continued, as an indicator of public reactions.* Press briefings will be continued (integrated into the normal pattern of media relations in Liepaja

City and Liepaja Region), and waste management issues will feature in the regular public relationsand public information programme.

* Discussions will be held with local education authorities, to determine how the waste managementproject and waste disposal and recycling issues can be integrated with environmental education as awhole. These discussions will also involve the NGO community.

* Prior to the commencement of the project, further surveys of the local communities in Grobina andSkede should be conducted, to assess the latest attitudes of the residents towards the project and theirfamiliarity with project development. These surveys will provide base-line information for regularmonitoring during the project.

* External funds will be sought for a continuing public information/education programme, to bemaintained during project implementation.

Longer Term Needs

Once project implementation begins, a well-structured public information and participation programme willbe necessary. An outline for the programme follows:

Objectives

* To provide regular and reliable informnation to the public on the waste management project, and onwaste management and recycling issues in general

* To provide a forum for debate and appropriate channels for interaction in relation to the wastemanagement project

* To enlist the support of opinion leaders, decision-makers and other interested groups in the civilsociety

* To assist environmental education programmes in the area of waste management and recycling* To strengthen the management capacity of the project, and of those responsible for waste

management, in public information and education skills.

TargetAudiences

* those members of the public most directly affected by the project ( in particular Grobina residents)* non-governmental organizations, with special reference to those with an environmental focus* decision-makers and politicians ( with special reference to local and regional decision-making)* local administrative officers, conmmunity workers, voluntary workers* schools and educational audiences* the media (with special reference to local media)* the general public in Liepaja City and Liepaja Region

Activities

The project will utilize a range of information strategies, including the following:

Consultations

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* Public consultations will be organized at intervals throughout project implementation, focused on keyissues (e.g. tariffs, recycling procedures ) and targeted communities (e.g. local closures).

Information Materials

* Priority will be given to local media (both print and electronic), low-cost media (handouts, flyers,posters)

* Support will be given for the production of educational materials dealing with waste management andenvironmental issues (both in-school and out-of school audiences, as well as community initiatives)

* As soon as possible, 'Liepajas RAS' should produce a house brochure, newsletter and annual report,which should attempt to set the company's activities in a broader environmental perspective. It shouldalso provide feature material, on demand, to other publications.

Education and Training

* Seminars and speaker support will be continued to NGOs and professional groups, which areconsidered a key resource in moulding, re-inforcing and changing public opinion.

* In-house training will be provided to responsible officers in communication and public relations skillsand in social animation.

* Contributions ( informnation, displays, etc. will be made to exhibitions, fairs, academic andentrepreneurial training programmes etc. which can serve as a vehicle to communicate with influentialaudiences.

* Visitors (especially educational groups) should be encouraged at the site, once established, andappropriate arrangements made.

Media Relations, Monitoring and Research

3 Press, media and public relations are of key importance to the project, and 'Liepajas RAS' will beencouraged to build up this competence, with technical assistance support and with the co-operation ofthe PIU and the LCC press department.

- Apart from press briefings and the establishment of an informal network of media contacts, a modestreference and database should also be set up forjournalists' use.

3 Media monitoring will be continued, both to assess public reactions on a continuing basis and toprovide a record of media response.

* The pattem of surveys initiated by the feasibility study will be continued, organized so that attitudechanges over time can be assessed. On major issues, the support of professional polls and omnibussurveys may be enlisted.

Institutional Framework

In the course of Year 2000, public information and participation activities will be co-ordinated by the PIU,with assistance from the international consultant already working on the project. However, it is anticipatedthat responsibility for this area of activity will gradually be transferred to Liepajas RAS. The functions ofthe intemational consultant will include training and orientation in public information and public relationstechniques.

Phasing

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Certain activities (e.g. education and training, media relations and media monitoring) will operatesystematically throughout the project, since they either follow a regular routine ( e.g. media monitoring), ordepend upon gradual re-inforcement through an incremental approach (e.g. educational activities).

Other activities will however be concentrated on key stages of the project, such as the transfer of operationsfrom Skede to Grobina, the beginning of electricity production, or changes in waste disposal tariffs, sincethese will require special support. The pattern of consultations and the distribution of public informationmaterials will reflect this focus of concentration.

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Summary of the Environmental Assessment

Background

The report is the Amended Final Environmental Impact Assessment Report of the study "FeasibilityStudy, Preliminary Design and Environmental Assessment of Sustainable Solid Waste Management

for Liepaja City and Liepaja Region ". The Final report was submitted on September 5, 1999 and the

client and the World Bank have provided comments to the report. The comments, especially with regardto the financial aspects have been incorporated in this amended EIA report.

An addendum to the EIA report has been prepared after receipt of comments from the client and theMOEPRD EIA Bureau and submnitted on October 25, 1999. The MOEPRD EIA Bureau has approvedthis addendum as well as the final report. The reason for the amendrnent was the client wanted analternative piece of land adjacent to the land already assessed in Grobina to be further investigated andassessed.

The EIA was initiated during the first phase of the feasibility study by establishing the selection criteriafor the location of a regional solid waste treatment plant and a screening process to be applied to the 5sites selected by the Project Steering Committee (PSC). The PSC later decided to choose the two sitesin Skede and Grobina to be further investigated and assessed in depth, in accordance with Latvian andWB regulations for environmental assessment. The report is compiled in accordance with therequirements stated in the TOR approved by the World Bank and later amended in the TOR given by theMinistry of Environmental Protection and Regional Development (MOEPRD).

The Project

Currently municipal solid waste is disposed at about 27 disposal sites in the region. Most of them are

small and receive less than 10,000 m of solid waste per year. The largest disposal site is the Skede sitein Liepaja, which receives about 80% of the total regional waste. Most sites are poorly located due totheir geology and high water tables, and none of the sites has an effective natural barrier or artificiallining to protect the groundwater against leachate pollution. The Skede site has been used since the1960s and the leakage of untreated leachate and run-off water has caused evident groundwatercontamination and serious pollution of the nearby Tosmare Lake.

The project includes the following components:

Remediation

The existing dumnping sites shall be remediated and subsequently closed. Only the site in Grobina orSkede would remain open to be enlarged as part of the remediation so that it can serve as the regionalwaste treatment and disposal site.

Technical and Operational Improvements

The goal is to establish a modem solid waste management system which meets international solid wastetreatrnent and sanitary landfill standards. It will include the establishment of a sorting area for theseparation of recyclable materials and separate areas for the storing of separated material as well ashousehold hazardous waste, which would be transported to another site.

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InstaUation of Energy Cells and a Landfill Gas Collection System

Energy cells are planned for the enhanced degradation of easily biodegradable waste and the acceleratedproduction of landfill gas, containing about 50% methane. Landfill gas is expected to be utilized forenergy production. The resulting greenhouse gas emission reductions are planned to be sold to PCF, thePrototype Carbon Fund, under an emission reduction agreement.

Installation of a Power Generator

An energy conversion unit of about 1 MW capacity, which runs on landfill gas would be installed andconnected to the power grid. The power would be sold to Latvenergo under a power purchase agreementto be negotiated as part of the project. The excess heat would partly be utilized for the heating ofleachate and the premnises of the solid waste treatment plant.

Improvements in the Solid Waste Colection and Transport System

New containers and vehicles for the collection and transport of solid waste to the regional solid wastetreatment and disposal plant are planned to be procured during the project. There would be at least onewaste collection point in each pagast.

A short review on the main findings and conclusions presented in all the chapters is given below.

General Data About the RegionThe Liepaja Region covers an area of 3,653 kmi, with a total of 147,890 inhabitants. 112,898inhabitants (76.3%) of the Liepaja District population live in towns and 34,992 (23.7%) in rural areas.There are 6 towns in Liepaja District: Liepaja, Aizpute, Durbe, Grobina, Pavilosta, and Priekule. Thenumber of rural municipalities (so called pagasts) is 25.

The Existing Solid Waste Management System

At the present time, solid waste management services are provided for 101,747 people (68.8 % of total),and 6 municipal enterprises, 4 private companies and 3 housing estates carry out the services. Municipalcouncils provide solid waste management services in 15 municipalities.

114,759 m of solid waste was generated in the Region in 1998 and have been disposed at 27 landfills.The largest of them, Skede, received 90,500 m of waste or 78.9% of waste generated within the Region.

Waste sorting is only practiced on a pilot scale and unorganized sorting of metal scrap takes place dueto unlimited recycling possibilities in the metallurgical plant, Liepajas metalurgs, located in LiepajaCity.

The region has no sanitary landfills, and surface water and groundwater contamination occurs. Thehighest contamination is found in the area surrounding the existing Skede landfill.

Operational costs were about LVL 282,000 in 1998, and the average tariff for waste disposal was LVL0.25 per month per capita and LVL 0.31 per month per capita in Liepaja City.

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Legal Framework

Latvia has started to develop legislation on solid waste management rather recently. The Law "OnMunicipal Waste" was passed in the Saeima (Parliament of Latvia) on October 15, 1998. Regulationssupplementing and specifying the law started to be passed in the Saeima in 1999. Therefore, it isnecessary to develop legislation governing solid waste management.

According to the Law "On Self-Government", municipalities are responsible for solid waste managementwithin their administrative area. The "polluter pays" principle has been to a large extent introduced inthe solid waste management field, and Nature Resources Tax (LVL 0.25 per mi) is paid for solid wastedisposal (the Law "On Nature Resources Tax").

Forecast on Future Waste Production

A forecast on waste generation is provided for years 2000-2020, and it envisages that about 4.3 millionm3 of solid waste will be produced. Taking into consideration that modem compacting vehicles will beused for waste collection and transportation, and further compaction at the solid waste treatment site,about 1.64 million m of solid waste will be disposed.

Characterization of the Proposed Solid Waste Disposal Sites

After area screening for a new solid waste treatment plant location, the Liepaja City Council decided toinitiate an EIA on two sites: Skede (north of Liepaja city, where the existing landfill is situated), and"Poligons" (the former military area, in Grobina pagasts).

The geological, hydrogeological and hydrological conditions, biological diversity, landscapes and landvalue, historical environment and cultural heritage values have been investigated, and the possibleimpact on water and air quality, landscape, human health, etc. have been assessed.

The statement was as follows:

- for the "Skede site" - exclusive criteria exist (biological diversity, and closeness of densely populatedarea);

* for the "Grobina site" - no exclusive criteria, although several problems: concerning land ownerattitude, location of access road and problems related to cultural heritage.

Due to problems with land ownership at the first site investigated (Grobina), the Client allocated a new,municipally-owned area about 300 m east of the original site. Supplementary investigations were carriedout mainly to verify the geological and hydrogeological conditions. The available land is about 27 ha inarea, and comprises mainly former agricultural lands and forest in the northwest. Five boreholes havebeen drilled and the groundwater level and quality checked. The details of the investigations have beenpresented in the Addendum to the Final EIA Report.

The additional survey shows that the natural conditions at the new Grobina site are equally good as theoriginal site.

The preliminary design at the new site has been adjusted from the earlier site to comply with therequirement of a minimum distance of 500 m to the nearest farmhouse, Vilteri. Moreover, the design

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includes a forested protection zone to protect from eventual disturbances generated by the future solidwaste treatrnent facility.

Therefore, the Grobina sites are recommnended for a new solid waste treatment plant location based onbiodiversity conditions and social and human health aspects.

Technological Alternatives

Two altematives have been analyzed for solid waste collection and transportation: directcollection/transportation with a side loader and 2 step-collection, introducing a number of simplere-loading stations. It was found that waste from the entire region, excluding Liepaja City and Grobina,can be collected and transported by one vehicle. Liepaja City and Grobina town would require thereplacement of containers and vehicles during the first three years of project implementation.

Results obtained during waste sorting, show that about 10-20 % of all solid waste is recycable with agood or comparatively satisfactory market. Therefore, it might be considered that the disposed wasteamount could be reduced by 10-20% rather quickly, if a proper separate solid waste collection systemwere to be introduced.

Six altematives were considered for Skede and two for and Grobina, including a baseline altemative.The proposed altematives were classified in two groups:

3 a new solid waste treatment plant with energy cells and a landfill gas extraction system* solid waste disposal without landfill gas extraction

Altemative

A = Skede B = Grobina

Al - Gas extraction from existing landfill, combined with energy cells. Income from electrical energy. Closing of regionaldumps.

A2 - Gas extraction from existing landfill, combined with energy cells. Income from gas. Closing of regional dumps.

A3 - Gas extraction from existing landfill. Income from electrical energy. Closing of regional dumps.

A4 Landfilling without gas extraction. Closing of regional dumps.

A5 Closing of the landfill.

A6 Closing of the landfill with gas extraction and flaring. Closing of regional dumps.

BI Gas extraction from energy cells. Income from electrical energy. Closing of regional dumps.

B2 Landfilling without gas extraction. Closing of regional dumps.

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The financial analysis in the Feasibility study shows two main alternatives to be viable, namely Al andB 1, which are compared with the baseline alternative A4 below.

Financial Analysis of the Alternatives

The investment costs for the first six years are outlined in the table below.

Altemative Base costs Including design,contingencies and VAT

A: Skede B: Grobina

Collection, transport, treatment: Al - Gas extraction fromexisting landfill, combined with energy cells. Income fromelectrical energy. Closing of regional dumps. 3,671,200 5,465,700

Collection, transport, treatment:

A4 Landfilling without gas extraction. Closing of regional 1,708,000 2,511,600dumps.

Collection, transport, treatment: B I Gas extraction fromenergy cells. Income from electrical energy. Closing ofregional dumps. 4,052,000 6,019,900

The investment costs are lowest for traditional landfilling at Skede (A4) and highest for energy cellestablishment at Grobina (B 1), due to the fact that the Grobina location requires upgrading of the accessroad and separate leachate treatment. Moreover, the cost of closing Skede will burden the project costs ifGrobina is selected. The operation costs show the same picture, A4 is the least expensive and B1 themost expensive. Revenues are generated from the landfill gas and from the tariff. When the capital costsof the investments, the operation costs and the revenues are analyzed, altemative Al will be the mostfeasible. Additional annual revenues of about LVL 130,000 would be required to get the sameprofitability for the Grobina alternative B 1. This would require a tariff of about LVL 5 per. capita peryear, representing a 25% increase in the average current tariff in Liepaja City. This tariff increase isconsidered to be affordable for the major part of the population in the region.

Socio-Economic Aspects

The attitude of both local governments towards a new solid waste treatment plant in their area ispositive. The attitude of the people living in the surroundings of the prospective sites is basicallynegative. Therefore, public awareness campaigns should be provided in order to change people'sopinions.The local government where a new solid waste treatment plant will be located would undoubtedlybenefit. It can be expected that the value of natural resources received by the municipality will increasefrom about LVL 6.9 thousand to LVL 13.4 thousand from 2000 to 2020. All municipalities, especiallythe rural ones, should carefully consider the possibility for their people to pay for the waste services, i.e.the affordability has to be considered in all pagasts.

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Comparison of Alternatives

Three groups of criteria were used to compare the two sites:1. Biodiversity conditions2. Social and human health aspects3. Economic aspects

In order to make the assessment all criteria were quantified, and values from 3 (the best option) to 1 (thepoorest option) were devoted to the each criteria. Exclusionary criteria were given the value "0".

It was found that the Grobina site is significantly better in regard to environmental considerations andsocial/human health aspects. However, including all aspects, the total scores were 52 marks for theGrobina site and 49 marks for the Skede site.

Sequence of Project Implementation and Material

The logical sequence of construction works, implementation schedules and legal acts governing thequality of material and the potential environmental impacts during construction works have beenanalyzed.

Activities During the Operation of the Solid Waste Treatment Plant

Local guidelines regulating landfill management are required. Factors that have to be incorporated indeveloping operating schedules are analyzed.The number of employees for the operation of the solid waste treatment plant varies from 13 to 17,depending on the selected alternative.

Security and safety measures are considered as well as the general content of the required monitoring ofenvironmental impacts.

Closure and Post-Closure Activities

Final shaping and cover of the landfill, preparation of new surface runoff ditches, control of landfill gas,relocation of leachate drains and ditches, leachate control and monitoring and environmental monitoringare considered.

Conclusions Concerning Site Selection

The evaluation indicates the following exclusionary criteria at the Skede site:

1. The site is not suitable from the biodiversity point of view, 15 rare species were found within thesite and a wide range of valuable biotopes (7 endangered biotopes and 7 biotopes of Europeansignificance).

2. The distance to the summer cottage village is less than 500 m away.

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The results of the evaluation of the two sites are presented in the following table.

Criteria Skede Poligons

Environmental conditions 6 12(5 criteria)

Social and public health aspects 18 22(10 criteria)

Aspects of economics 25 18(9 criteria)

TOTAL 49 52

The current study and data analysis indicate that:

1. The Skede site has at least two exclusionary criteria, which indicates that the Skede site is notsuitable for a new regional solid waste treatment plant.

2. The Poligons site and the new site in Grobina pagasts are acceptable for the new waste treatmentplant, since exclusionary criteria do not apply to the site or to the surroundings. Several issues at the siteshould be addressed for the successful implementation of the project (land ownership, location of accessroad, inhabitants' attitude, character of the cultural heritage studies, etc.).

3. Only the local governments can decide on the location of the new solid waste treatment plant, i.e.,the Liepaja City Council and the Grobina Parish Council.

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ENVIRONMENTAL MANAGEMENT PLAN

PURPOSE

1. The purpose with this Environmental Monitoring Plan (EMP) is to provide an instrument for thefuture supervision of the project, and make sure that issues which might have an adverse impact of theenvironment are all the time taken into consideration. The EMP will include issues related to both thenew regional site and old sites to be closed and remediated under the project, and it will be theresponsibility of "Liepajas RAS' Ltd. to follow the EMP.

2. The purpose of the project is to provide a regional solution for Liepaja Region, thereby fulfillingthe ambition in the National Solid Waste Management Strategy to close down all small and obsoletedump sites and replace them with one regional site built and operated in compliance with the new andmodem Latvian legislation

RECOMMENDED MAJOR ENVIRONMENTAL MITIGATION MEASURES

3. The EMP has been submitted for approval by the Liepaja Region Environmental Board,responsible for the control of all polluting activities in the Liepaja Region. Their requirements regardingmonitoring and frequency of sampling will be included as soon as this information is available.

Major environmental protection measures for the new site at Grobina.

4. The new regional site located in Grobina Pagast will be located on land previously used foragricultural purposes, which land has a fortunate thickness of clay of about 9 meters. The land willcomprise about 30 hectares to satisfy the need for disposal of inert industrial waste and the decayedhousehold waste after 5 years of enhanced decomposition in energy cells during a twenty year period.The volume of waste to be treated in the energy cells is about 120,000 m3 per year at the start year 2001,and estimated to increase by time to about 224,000 m3 per year at the end of year 2020. The increase isprojected on the basis of increased service in the region, slight increase of population and increase ofwaste generation per capita.

5. The Latvian regulations prescribes a number of restrictions to be recognized when planning andestablishing a new landfill site. Of special importance in this case are the requirements for lining the areaand also collection of landfill gas. The project is preliminary designed to meet all the requirementsprescribed in the latest Regulation No. 56, issued on February 12, 2000, replacing the previousRegulation No. 38. The Regulation No. 56 actually goes further in meeting the more stringent liningrequirement as prescribed in the EU-Directive (Council Directive 1999/31/EC of April 26, 1999, on thelandfill of waste, Annex 1, Article 3.2) "The geological barrier is determined by geological andhydrogeological conditions below and in the vicinity of a landfill site providing sufficient attenuationcapacity to prevent a potential risk to soil and groundwater. The landfill base and sides shall consist of amineral layer which satisfies permeability and thickness requirements with a combined effect in terrns ofprotection of soil, groundwater and surface water at least equivalent to the one resulting from thefollowing requirements:

- landfill for non-hazardous waste: K [le ] 1,0 x 10[minus ] 9 rn/s; thickness [ge ] I m,

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- landfill for inert waste: K [le ] 1,0 x 1O[minus ] 7 m/s; thickness [ge ] I m, m/s: meter/second.Where the geological barrier does not naturally meet the above conditions it can be completed artificiallyand reinforced by other means giving equivalent protection. An artificially established geological barriershould be no less than 0,5 metres thick", and the requirement to collect and use the landfill gas for energygeneration.

6. The detailed design will start in mid-2000, and before finishing the Detailed Design the DesignReport (including the conceptual design) has to be approved by the authorities and also exposed forconmments from the public, which comments will be incorporated in the Final detailed Design.

7. Objectives. The objectives with establishing the regional waste treatment facility in Grobina are:(a) enabling the Liepaja Region to obtain one regional site fulfilling modem sanitary landfill standards ina cost effective way, instead of upgrading all or some of the obsolete dump sites in the Region; (b)through installation of energy cells allowing for a maximum collection of landfill gas and therebyobtaining a revenue from sale of electricity which covers part of capital and operational costs resulting inan acceptable and affordable increase of the waste management tariff; (c) facilitating the separation ofrecyclable material; (d) reducing disamenities on the environment by the existing disposal sites that wouldbe closed and for neighbors of these sites.

8. Timing. The Grobina will be established over the period 2001-2006. The preparation of the sitewill start during 2001 by ground preparation, erection of buildings, establishment of leachate collectionsystem, upgrading of access road, fencing of the site, installation of weigh bridge and dewateringequipment for slugde. The first energy cells will be established from mid 2002, when the reception ofwaste from Liepaja city and the Liepaja Region is expected to start.

9. Groundwater protection. The areas where the energy cells and disposal will be located, will beestablished following the recommendations issued by EU, which means application of 0.5 m of clay, anartificial liner suggested as a polyethylene liner, a sand cover of 0.5 m in which also the leachatecollection system will be placed. The total area for the energy cells is 38,000 m2 and the area fordisposal is about 50,000 m2.

10. Leachate treatment. The leachate collected from the energy cells, the disposal area, and pollutedrunoff water from the waste separation area will be stored in a collection basin. Part of the collectedleachate will be circulated to the energy cells in order to enhance the waste decomposition. The remainingpart will be treated in a biological plant consisting of an aeration basin followed by filtration in sandfilters, and final treatment in constructed wetland before its final discharge to Alanda River.

11. Surface water and drainage control. Polluted surface water (runoff water) will treated togetherwith the leachate, while precipitation on areas producing normal unpolluted runoff water will be directedthrough ditches to Alanda river without any further treatment.

12. Gas collection. The energy cells will be covered with gas wells in order to obtain maximumcollection of the generated landfill gas. The gas will be collected by creating a controlled under pressurein the cells regulated from a gas pumping station, dewatered, and finally burned in a power station basedon gas engines having a total capacity of 1 MW.

13. Other mitigation measures. The area will be fenced to keep both people and animals outside thearea. In order to prevent colonies of birds feeding on the waste, the tip face will be rninimized during theconstruction of energy cells by building the cells length wise up to full height. Furthermore, coverage of

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the waste will be done on a daily basis, and a separate movable protection consisting of a net and nylonstrings will be established over the tip face.

14. Trees will be planted around the site in order to reduce the visibility of the site.

15. Responsibility. The responsibility will be with the "Liepaja RAS" Ltd.

Remediation and closure plan for Skede dump site

16. The detailed design will start in mid-2000, and before finishing the Detailed Design the DesignReport (including the conceptual design) has to be approved by the authorities and also exposed forcomments from the public, which comments will be incorporated in the Final detailed Design.

17. Objectives. The objectives with the remediation are to stop the ongoing pollution of LakeTosmare, which has a large recreational value, and is currently receiving large amount of nutrients fromthe disposal site causing a large eutrophication, as efficient as possible collect the landfill gas fromdecaying waste, and reduce/eliminate the nuisance for neighboring dwellings and summer cottages.

18. Timing. The remediation of Skede will start as soon as possible in order to enable collection oflandfill gas for electricity production. This ambition will result in that the old and not used part of theSkede site will be covered and gas wells will be installed for support the electricity generation. The activepart of the site will be used until the Grobina site will be ready for reception of waste and start serving asa regional waste treatment facility. The coverage of Skede will therefor be carried out in two phases; thefirst one finished in August 2001, and the second one finished during 2002, as the reception of waste atGrobina is estimated to begin mid 2002. Planting of trees is expected to be possible to start during 2003.

19. Final Cover. The ambition is to reduce the percolation to 50 mm/year which equals a permeabilityof 1.6 x 10-9 rn/sec. The material will consist of clay and be applied with a thickness of 0.5 m.

20. Surface water and drainage control. New ditches will be applied in order to collect both pollutedrunoff water and leachate. The collected water will be pumped via a 2 km long pipeline to the LiepajaWastewater Treatment Plant, which will further treat the leachate before it is discharged to the Baltic Sea.It has been anticipated that the amount of water is so small in comparison with the flow of municipalwastewater that there should not be any negative impact at all. In addition separate ditches will beestablished to drain unpolluted runoff water directly to Tosmare lake.

21. The Liepaja Wastewater Treatment Plant has been upgraded during the last five years underanother Bank operation, and is one of the most efficient treatmnent plants in Latvia providing active sludgetreatment of BOD reduction and biological removal of phosphor and nitrogen compounds. The plantfulfills all national and international standards for effluent quality. During the detailed design phase theLiepaja Water and Waste Water Company will stipulate the need for any additional measures ifnecessary.

22. Controi of landfill gas. Landfill gas will be collected from the whole old site, but established intwo phases to coincide with the closure activities as described above. The gas will be used for electricitygeneration by burning it in a gas engine. The site will also be equipped with a torch to enable gas burningin case of operational problem with the gas engine. The gas collection will continue as long as there isenough gas production to justify continued electricity generation.

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23. Other mitigation measures. After closure, trees and bushes will be planted in accordance withRegulation No. 56, Clause 45.4, in order to provide an insight protection for the summer colony locatedadjacent to the site. In addition the site will also be fenced to protect the made installation for gascollection and electricity generation.


Remediation/closure plan for remaining 3 large dump sites

25. Objectives. The objectives are to stop ongoing dumping and surface water pollution and enablethat the generated household waste can be treated in an environmentally sound way.

26. Timing. The remediation and closure of the sites in Aizpute and Prieluke cities and the old dumpin Grobina Pagast will start in mid 2002, dependent on when the new site in Grobina will be ready forwaste reception.

27. Final Cover. The ambition is to reduce the percolation to 50 mm/year which equals a permeabilityof 1.6 x 10-9 m/sec. The material will consist of clay and be applied with a thickness of 0.5 m. Noplantation of trees has been included in the current project design, but might be suggested and includedduring the final design, which will be a decision for the borrower.

28. However, when it concems the old Grobina site the final solution could be that the existing pile ofwaste would be moved to the new Regional site in Grobina, adjacent to the old one, and thereby reducingthe measures related to final cover and runoff water control.

29. Surface water and drainage control. The groundwater has not been specifically polluted at thesethree sites, due to the favorable geological situation, and only measures in order to drain the site havebeen foreseen. New ditches will be established in order to properly and controlled collect the surfacerunoff water, which will be discharged to nearest water course.

30. Control of landfill gas. No control of landfill gas will be applied.

31. Other mitigation measures. No other measures have been foreseen.


Remediation/closure plan for remaining small dump sites

33. Objectives. The objectives are to stop ongoing dumping and surface water pollution and enablethat the generated household waste can be treated in an environmentally sound way.

34. Timing. The remediation and closure of the small dump sites will start in mid 2002, dependent onwhen the new site in Grobina will be ready for waste reception.

35. Final Cover. The investigation of the small dump sites has shown that the type of wastepredominantly disposed has a very low content of normal household waste. It is mainly glass, plastic,metals, rubber, building debris, saw dust and some garden waste. In view of that quite inert composition,and no known either groundwater or surface water problem, the requirements for final cover are muchless than for the above described sites. It is calculated that all sites will be covered by using available soil

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in the surroundings. No plantation of trees has been included in project design, but might be suggestedand included during the final design.

36. Surface water and drainage control. No separate measures for control of surface water andgroundwater are planned.

37. Control of landfill gas. No control of landfill gas will be applied.

38. Other mitigation measures. No other measures have been foreseen.


CAPACITY AND TRAINING PROGRAM FOR ENVIRONMENTAL PROTECTION

Final project preparation, including detailed design

40. The detailed design will start mid-2000, and be carried out by an international consultant withsupport from a local company. The design work will be closely supervised by the Liepaja RegionEnvironmental Protection Board and the Ministry of Environmental Protection and Regional Developmentin order to secure that different environmental concerns are addressed.

Strengthening of proiect implementation capacity

41. During project implementation the international consultant responsible for the detailed design willsupervise the activities in close cooperation with the operational staff of "Liepajas RAS" Ltd. and thePIU.

42. PIU and Liepajas RAS Ltd. will also together with a public participation expert continue theongoing information to the public including encouragement to increase source separation of recyclablematerials.

Strengythening of management capacity at Liepajas RAS Ltd.

43. The staff of "Liepajas RAS" Ltd. will be provided technical assistance through a TwinningArrangement with an international waste management company. The Twinning Arrangement will focuson business oriented routines such as financial management, client registers, collection of fees, andtechnical issues to maximize the gas yield from the energy cells, see PAD, Section C. If, and Annex 2.

Technical assistance and strengthening of government enforcement and monitoring functions

44. A separate component under the project will provide training a national basis to operators ofdisposal sites, managers of waste management companies, and officials within the Government andmunicipalities involved in waste management issues, see PAD, Section C. 1 i, and Annex 2.

45. This assistance will include issues related to measures for implementation of best practice,monitoring of emissions to groundwater, surface water and air, as well actions to be taken at the planningstage of a regional disposal site.

MONITORING: OPERATIONS OF GROBINA SITE AND CLOSURE OF 27 OLD DUMPS

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Monitoring activities at Grobina

46. Surface water control. Two sampling points will be established up-stream and down-stream thesite in order to evaluate the impact of the discharged treated leachate and unpolluted runoff water. Thefrequency for sampling will be decided by the Liepaja Region Environmental Protection Board as well assampling points and parameters to be analyzed.

47. Leachate control. The control of the leachate will be done once a week until a steady state hasbeen achieved, when the frequency can be reduced after approval by the Liepaja Region EnvironmentalProtection Board, which also will decide about the pararneters to be analyzed.

48. Groundwater control. Around the area 5 ground water wells be established. The frequency ofsampling will be twice a year, and if required by the Liepaja Region Environmental Protection Board thisfrequency will be changed.

49. Control ofprivate wells. Will be decided by the Liepaja Environment Health Center.

50. Control of landfill gas. The landfill gas production will be automatically registered and monitoreda continuously basis, and the composition of the gas will be monitored on a weekly basis. In addition thegeneration of electricity will be registered all the time, as it will be the basis for payment of deliveredelectricity to the grid.

51. Control of odor. A panel of 10 people is suggested to, at certain spots decide the level of odorfrom the site. The participants in the panel will besides their experience of the smell also record winddirection and climate conditions. The frequency of this odor control is anticipated to take place 4-5 timesper year. The final program for the odor control will be decided by the Liepaja Region EnvironmentalProtection Board.

52. It s the obligation of the company to also record special events, which might create unusuallystrong smell.

53. Control of birds. The company will a daily basis record the intensity of birds, and what actionsare taken in order to diminish the number. Comments should also on a daily basis be made concemingthe efficiency of bird control measures.

54. Control of waste. All incoming waste will be recorded as well as the type of waste, how it hasbeen handled and disposed of within the area. Special recording will be made of waste suspected to behazardous conceming type, amount, storage, and actions to get it transported to some other approved siteor location. The composition of the waste will be carried out twice a year.

55. The amount of recyclable waste will be separately recorded.

56. Reporting. "Liepajas RAS" Ltd. is responsible for on a quarterly basis report to the LiepajaRegion Environmental Protection Board the findings from control activities, and also suggest additionalmeasures to correct any deviations from decided limits set by the authorities. A copy of the report shouldalso be provided to the members of the Project Steering Committee and the World Bank.

57. The company will twice a year summarize a report accessible to the public outlining the result of

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the operations and the environmental impacts from the site. This report should also includerecommendations to the public in order to better understand the dimension of the operation as well aswhat the public can do to further improve the separation of recyclable waste and reduce the content ofmaterial which can have a negative impact of the decomposed waste.

Monitoring activities at Skede

58. Surface water control. After closure of the Skede site the surface water will be controlled twice ayear. Sampling points and parameters will be decided by Liepaja Region Environmental ProtectionBoard.

59. Leachate control. The leachate will be controlled with a frequency decided by the Liepaja Waterand Waste Water Company.

60. Groundwater control. To be decided by Liepaja Region Environmental Protection Board.

61. Control ofprivate wells. To be decided by Liepaja Region Environmental Protection Board.

62. Control of landfill gas. The landfill gas production will be automatically registered and monitoreda continuously basis, and the composition of the gas will be monitored on a weekly basis. In addition thegeneration of electricity will be registered all the time, as it will be the basis for payment of deliveredelectricity to the grid.

63. Control of odor. To be decided by Liepaja Region Environmental Protection Board

64. Control of birds. N/A

65. Reporting. "Liepajas RAS" Ltd. is responsible for on a quarterly basis report to the Liepaja RegionEnvironmental Protection Board the findings from control activities, and also suggest additional measuresto correct any deviations from decided limits set by the authorities. A copy of the report should also beprovided to the members of the Project Steering Committee and the World Bank.

Monitoring activities at large dump sites

66. Surface water control. To be decided by Liepaja Region Environmental Protection Board.

67. Leachate control. N/A

68. Groundwater control. To be decided by Liepaja Region Environmental Protection Board.

69. Control ofprivate wells. To be decided by Liepaja Region Environmental Protection Board.

70. Control of landfill gas. N/A

71. Control of odor. N/A


Monitoring activities at small dump sites

- 155-

73. Surface water control. N/A

74. Leachate control. N/A

75. Groundwater control. To be decided by Liepaja Region Environmental Protection Board

76. Control ofprivate wells. To be decided by Liepaja Region Environmental Protection Board

77. Control of landfill gas. N/A

78. Control of odor. N/A


-156-

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