The World Bank
Industrial Waste Management and Cleanup Project (P122139)

REPORT NO.: RES41972

DOCUMENT OF THE WORLD BANK

RESTRUCTURING PAPER
ON A
PROPOSED PROJECT RESTRUCTURING

INDUSTRIAL WASTE MANAGEMENT AND CLEANUP PROJECT
APPROVED ON SEPTEMBER 19, 2014
TO

MONTENEGRO

ENVIRONMENT, NATURAL RESOURCES & THE BLUE ECONOMY

EUROPE AND CENTRAL ASIA

Regional Vice President: Anna M. Bjerde
Country Director: Linda Van Gelder
Regional Director: Steven N. Schonberger
Practice Manager/Manager: Kseniya Lvovsky
Task Team Leader(s): Frank Van Woerden
The World Bank
Industrial Waste Management and Cleanup Project (P122139)

I. BASIC DATA

Product Information

Project ID Financing Instrument
P122139 Investment Project Financing

Original EA Category Current EA Category
Full Assessment (A) Full Assessment (A)

Approval Date Current Closing Date
19-Sep-2014 30-Jun-2020

Organizations

Borrower Responsible Agency
Montenegro Environmental Protection Agency

Project Development Objective (PDO)
Original PDO
The Development Objective of the Project is to reduce contamination of Montenegro’s natural resources and public
health risks of exposure to this contamination from selected industrial waste disposal sites.
Summary Status of Financing

Net
Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed

IBRD-84280 19-Sep-2014 10-Oct-2014 17-Nov-2014 30-Jun-2020 61.60 15.64 42.55

Policy Waiver(s)

Does this restructuring trigger the need for any policy waiver(s)?
No

I. SUMMARY OF PROJECT STATUS AND PROPOSED CHANGES
The World Bank
Industrial Waste Management and Cleanup Project (P122139)

This restructuring entails extension of the project closing date by one year, from June 30, 2020 to June 30, 2021. It is
the second project restructuring and, with the earlier one-year project extension granted in 2019, it will bring the total
extension of project closing date to two years from the original closing date of June 30, 2019. There are no other
elements under this restructuring.

1. Scope of the Project. Component 1 ‘Remediation of Selected Legacy Industrial Waste Disposal Sites’ of the
Montenegro Industrial Solid Waste Project aims to remediate three contaminated sites and halt pollution of the
environment and related risks to public health where these sites occur. The sites are: (i) a shipyard in Bijela with
contaminated soil and groundwater and stockpiles of solid waste; (ii) a mine-tailings disposal site in Gradac; (iii) and a
coal ash disposal site in Pljevlja/Majevac. Under this component also remediation works are prepared for two sites at
the KAP alumina smelter location with disposal of hazardous and other waste, as well as large disposal pond for red-
mud generation from alumina production, resulting in design and bidding documents. Implementation of these works
at the KAP location is outside the scope of the project. Activities under Component 2 ‘Future Industrial and Hazardous
Waste Management’ support Montenegro with the management of ongoing generation of industrial and hazardous
waste in the country. Project Management support is managed under Component 3.

2. Progress since project effectiveness. Following Effectiveness in November 2014 and the Project launch workshop
in February 2015, the first two years of implementation, calendar years 2015-2016, were characterized by slow
progress due to multiple causes. Delaying factors were the bankruptcy of the state-owned Bijela shipyard in 2015;
unresolved bankruptcy procedures for KAP and changing circumstances in Maljevac that required a re-design of the
remediation approach for the project site in this location. In addition, implementation arrangements were not optimal
with an under-staffed Project Management Unit (PMU) and lacking project coordination among key institutions.

3. Implementation progress picked up from January 2017 when the newly installed government confirmed to the
Bank the high importance of the Project and concerns about the accumulated delays. In the period February-April
2017, the Government made critical decisions to advance project implementation, particularly administrative
decisions to advance preparation of remediation works for the project sites, strengthening of the PMU and improved
coordination between key institutions, particularly the National Environmental Protection Agency (NEPA,
implementing agency) and the Ministry of Sustainable Development and Tourism (MSDT, line ministry responsible for
project implementation).

4. Although implementation performance improved since late 2017 resulting in first works contracted and started
for the Bijela shipyard since late 2018, challenges remained with the bankruptcy procedures with the KAP assets and
thus the project sites at the KAP location. Also, the re-design of remediation works in Maljevac required an
amendment of the Loan Agreement and it became clear that works could not be completed by the original project
closing date of June 30, 2019. Therefore, a comprehensive project restructuring was completed in June 2019 to (i)
continue with remediation preparations for the KAP project sites, but exclude financing of remediation works from the
project scope; (ii) cancel part of the Loan related to the reduced scope of activities for the KAP project sites; (iii)
amend the Loan agreement to align with re-design of remediation works at the Maljevac site; and (iv) extend the
closing date with one year to June 30, 2020 to allow for completion of the remediation works under Component 1 and
the Component 2 activities.

5. Current project status. Since the project restructuring, for the two sites (Maljevac and Gradac) where
remediation still needed to commence in June 2019, works have been procured with contracts signed and works
started in July 2019 and September 2019 respectively, originally scheduled for completion by June 2020. Works at the
Bijela shipyard had started in late 2018 and were scheduled for completion by March 2020. Con sultancy activities
The World Bank
Industrial Waste Management and Cleanup Project (P122139)

under Component 2 (development of national hazardous waste system) and design work for the KAP remediation sites
have been progressing, these activities are not time critical. The following paragraphs present current implementation
status in more detail for the remediation sites under Component 1 and for Component 2 activities.

6. Shipyard Bijela Remediation Site
The remediation works have two phases. Under Phase 1 the project aims to pre-treat and export around 110,000 tons
of hazardous blasting grit waste and contaminated soil. Works under Phase 2 includes remediation of additional areas
of soil (ca 25,000 tons) heavily polluted with industrial oil, and demolition of the buildings in these areas. Contract for
remediation works has been signed in June 2018 and amended with Phase 2 on August 16, 2019.

Implementation progress: Under Phase 1 around 39,000 tons of grit (32% of total hazardous waste that needs to be
exported) has been remediated and exported to Spain, while the remaining grit has been pre-treated and adequately
stored. Under Phase 2, the works cover treatment of soil polluted with industrial oil, demolition of buildings (excluding
the buildings used for waste material storage), soil excavation, groundwater treatment and backfilling. The site works
have progressed adequately, but export of materials to Spain, which had started in early 2019, had to be halted from
August 2019 because the first export permit maximum quantity was reached, and new permits had not been granted.
In December 2019, a formal decision by Spanish authorities was communicated that permits would not be granted,
making it necessary for the contractor to find one or more alternative outlets for waste export. Site works at the Bijela
shipyard could have been completed by June 2020, but without possibilities to export waste, large quantities of waste
materials must be stored on site and maximum capacity has been nearly reached at the end of May 2020. This makes
further cleanup works on site challenging. A breakthrough came with the permitting of contaminated soil export to
Norway in April 2020. Due to higher transport costs, the government is now reviewing the contract variation order to
resume export of soil to Norway. An option is to export the grit to Norway as well, but this appears very costly and
since April 2020 the Spanish authorities have communicated that waste exports to Spain can be considered again.
Concluding steps to effectuate this option, resuming exports to Spain, are impacted by COVID-19 measures and may
only resume after travel of persons between Spain and Montenegro is possible. Also export arrangements for other
materials (oil, asbestos, big bags) have been arranged during April and May 2020, these quantities are much smaller
and do not significantly impact storage capacity on site. Based on the assessment of recent developments as
mentioned, exports are expected to resume in the next 2-3 months and to be completed by the end of 2020. The PMU
has weekly meetings since January 2020 with the contractor, the supervising engineer and the Bank to monitor
progress with the export permitting process and works on site.

Main remaining activities: export of grit (up to 40,000 tons); pre-treatment and export of contaminated soil (up to
40,000 tons); collection and export of contaminated oil (up to 400m3); demolition of two remaining buildings on site
and groundwater treatment; backfilling of excavated remediation areas.

7. Maljevac Coal Ash Disposal Remediation Site
For the works in Maljevac, weather conditions obstructed the works and in the period March-May 2020 and COVID-19
measures made it impossible to bring in necessary materials for the works. With COVID-19 measures now being lifted,
it is expected that these works will be completed this construction season (by November-December 2020), but beyond
the current project closing date. In parallel to the remediation works at the Maljevac ash disposal site financed from
the project, the local power company EPCG is undertaking works at the same location to build new ash storage
capacity. Although the latter is not financed by the project, these are considered associated investments and since
they require land acquisition and resettlement, these must comply with World Bank safeguards requirements and
need to be monitored for this purpose. Compensation procedures for the project affected people (PAPs) have been
managed adequately, but many PAPs have filled procedures for additional compensation. Procedures to settle these
The World Bank
Industrial Waste Management and Cleanup Project (P122139)

cases are progressing but at a slow pace and have been halted since March 2020 due to COVID-19 measures. It is
expected that procedures will resume in June-July 2020 and that all cases will be concluded around the end of 2020.

Main remaining activities: landslide rehabilitation; relocation of Paleski creek; remediation (mainly covering and
revegetation); electrical works and mechanical works on a pumping station.

8. Gradac mine tailings Remediation Site
Initial works focusing on the relocation of powerlines that run across the site, to enable remediation works on the
tailing pond, were scheduled to start in March 2020, but had to be delayed due to weather conditions. Overall
implementation assessment is that the works are progressing slowly. Works on the relocation of powerline are nearing
completion but remediation works on the tailing pond is still to be initiated. Works at the Gradac site are contractually
required to be completed by August 2020 and earlier schedules agreed with the contractor envisaged completion in
June 2020. More recently, the contractor informed the PMU of possible effects of COVID-19 situation to
implementation particularly shipments of materials and mobilization of staff and suggested that a revised working
schedule could be mutually discussed after imposed measures are lifted. Latest information is that these measures are
being lifted and that works should be able to be completed within the construction season of 2020.

Main remaining activities: completion of works on the relocation of powerline; remediation of the tailing pond.

9. Overall assessment of remediation works implementation timeline: Considering the current status of
implementation and various challenges to the works schedules as described above, all three sites face at least several
months of delay beyond the current project closing date of June 30, 2020. Expectations are that all three works can be
completed by the end of calendar year 2020.

10. Component 2 activities. Component 2 covers technical assistance for managing hazardous and industrial waste
that is currently generated in Montenegro. Activities include improvements in waste registration and monitoring
systems and preparations for the development of a national waste management facility. These activities have not
been time-critical and developed satisfactorily. With the view of project extension, they will continue and be
concluded in early 2021.

11. Project ratings. Main project ratings were kept at moderately unsatisfactory. With improvement in project
management performance, the comprehensive restructuring of 2019 concluded, and all remediation works under
implementation, upgrading was expected by the end of 2019, but due to the uncertainties with halting waste exports
from the Bijela site, and with COVID-19 measures from March 2020 impacting all remediation works including
developing solutions for waste export, upgrading had to be postponed. With COVID-19 measures now being released,
works at the Gradac and Maljevac are expected to advance again at unrestricted pace and with the solution for export
options for Bijela now in sight (as discussed above), the team expects that implementation will be brought on track in
the course of early FY21, and project ratings updated accordingly. It is noted that the project is high on the
government agenda and that project management and coordination among government institutions runs well, with
weekly internal updates among all project parties and actions taken readily, also at government level, where needed.

12. Rationale for Restructuring. In their letter to the Bank of May 14, 2020 (received May 19, 2020), the
Government of Montenegro requested a project extension of one year beyond the current closing date of June 30,
2020. The letter points at delays in project implementation and additional delays from COVID-19 measures, such as
workers deployment for project activities. The Team’s assessment is that a one-year extension of the Project Closing
Date to June 30, 2021 will allow for completion of the agreed works and other required activities under Component 1
The World Bank
Industrial Waste Management and Cleanup Project (P122139)

(KAP sites remediation design) and Component 2 (technical assistance for national hazardous waste management) and
achieving the PDO. It is expected that works will be substantially completed by the end of 2020. The period until June
30, 2021 will be important to monitor the quality of the works, effectiveness of after-care arrangements for the
remediation sites and the completion of appeal cases about compensation for loss of land or resettlement for PAPs in
Pljevlja/Maljevac. Other than the one-year extension, there are no additional elements under the proposed
restructuring.

13. There are no outstanding project audits and previous audits were acceptable by the IBRD.

14. From the Loan amount of Euro 44.7 million, Euro 39.5 million has been committed in contracts, Euro 2.3 million
is required for contracts or works amendments to be signed in the period June-July 2021 and the remainder of Euro
2.9 million are works contingencies. Disbursements from the Loan stand at US$ 15.1 million (June 1, 2020).

15. Risk of red-mud basins failure. One risk to note is that structural failure of the red-mud basins at the KAP
location can have dire consequences with hundreds of thousands of tons of materials that could flush out and risk
people living nearby. The physical condition of this privately-owned facility has been inspected this year and is
considered adequate. However, maintenance is limited, and the impoundment needs regular inspections and
maintenance. This risk has been amply flagged in discussions with the Government and Aide Memoires and will
remain a key focus of attention under the project and the design work that is carried out, seeking a sustainable
solution. Part of the design work are comprehensive (geo-technical) investigations at the facility, a detailed
assessment of long-term risks, an action plan for monitori ng, stabilization and remediation, and bidding ready
documents for remediation works. During the project extension, the stability of the red-mud basins will continue to be
monitored and included in the project’s reporting on safeguards performance.

II. DETAILED CHANGES

LOAN CLOSING DATE(S)

Original Revised Proposed Proposed Deadline
Ln/Cr/Tf Status Closing Closing(s) Closing for Withdrawal
Applications
IBRD-84280 30-Jun-2019 30-Jun-2020 30-Jun-2021 30-Oct-2021