E1381 OPERATIONAL MANUAL HALK BANK v1 ENVIRONMENTAL REVIEW PROCEDURES 1. Background All sub-loans to be financed under the SME Access Loan should be subjected by Halkbank to an environmental review process incorporating procedures described in this section. Halkbank should use these procedures in reviewing and appraising sub-projects, and to inform SMEs’ of environmental requirements for sub-loan appraisal, so that sub-projects can be implemented in an environmentally sound manner. These procedures and requirements incorporate the Republic of Turkey's regulatory requirements for Environmental Review (Regulation on Environmental Impact Assessment published in Official Gazette No: 25318, dated 16 December 2003, hereafter “Environmental Regulation”) from the Ministry of Environment and Forests (MoEF). Three types of sub-loans will be considered under the project: (a) supply of working capital requirements, (b) process improvements (equipment purchases), and (c) construction of physical facilities. The procedures essentially consist of Environmental Screening, Environmental Documentation, and Environmental Mitigation where necessary. Initial Environmental Screening will be carried out by Halkbank at an early stage in their sub-loan review procedures to determine the appropriate environmental risk category for the sub-projects. Certain types of sub-loans involved with construction of physical facilities, may require additional screening from the MoEF to determine if an EIA is necessary. This will be discussed in detail in the following Section (Environmental Screening Categories). Following screening, environmental classification of the sub-project will be recommended. The sub-borrowers will be responsible for securing any environmental documentation and for confirming that the proposed sub-projects comply with national environmental regulations and/or guidelines, and for obtaining the necessary clearances/approvals from appropriate regulatory authorities. Once environmental requirements are established and recommendations incorporated into the sub-project, Halkbank will appraise the proposed sub-loan package. Adherence to any environmental obligations established by the regulatory authorities will be monitored by Halkbank. The environmental screening process and responsibilities of key parties are described in detail below. 2. Environmental Screening Categories Environmental Screening is the first step in the environmental due diligence process of reviewing the sub-loan application to determine the environment risk category of the sub- project and identifying the type of environmental documentation that will be required. Each sub-loan application package submitted by the sub-borrower to Halkbank should include an environmental screening form (Annex V.A), of which there are two parts, the first half to be completed by the sub-borrower and the second to be completed by Halkbank. The environmental screening form will summarize the nature of the sub-borrower/sub-project and the screening category. Sub-project environment screening categories (I, II, III & IV) are defined as follows: Category IV: Comprises sub-projects that would include the production and/or use of materials (listed in Annex V.B) that will not be financed by the World Bank. Category III (high risk): These would include sub-projects that may have highly significant, negative and/or long-term environmental impacts, the magnitude of which are difficult to determine at the sub-project identification stage. These sub-projects are identified under Annex I of the Turkish Environmental Regulation as requiring a full EIA (in-depth EIA). Category II (intermediate risk and/or requiring further study): These would include sub- projects that either: (a) involve working capital loans which include purchase and/or use of hazardous materials (as defined by the official government list-consistent with EU regulations and definitions, see Annex V.B) or (b) process improvement loans that involve purchase of equipment/machinery presenting a significant potential health or safety risk (see Annex V.C) and/or, (c) are listed under Annex II of the Environmental Regulation. For those projects listed under Annex II of the Environmental Regulation, further study is required by the MoEF for a decision of “EIA required” or “No EIA required”. The MoEF makes their decision based upon additional information (as specified in Annex III of the Environmental Regulation) supplied by the sub-borrower to the MoEF. Category I (low risk): These would include sub-projects which: (a) do not involve the purchase or use of hazardous materials, or (b) do not involve purchase of equipment/machinery that presents a significant potential health or safety risk, or (c) are not specified in either Annex I or Annex II of the Environmental Regulation. For these sub-projects, there are no further requirements under this section of the Operation Manual. 3. Environmental Impact Assessment (EIA) EIA is a process conducted by the sub-borrower to identify, predict, evaluate, and mitigate environmental impacts and risks which may arise from a proposed sub-project. The purpose of EIA is to recognize environmental impacts/consequences early in the sub-project preparation process, so that they can be incorporated into the sub-project design. EIAs identify ways of improving sub-projects environmentally by minimizing, mitigating or compensating for adverse impacts. An EIA would also describe the steps that were taken for public consultation. For Category II projects that are identified under Annex II of the Environmental Regulation, the sub-borrower must provide MoEF with the information specified in Annex III of the Environmental Regulation (“Project Information Files”). Based upon this information, MoEF makes a determination of “EIA Required” or “No EIA Required”. Generally, with Category II sub-projects the potential for negative impacts are localized, easily identified and the required mitigating actions are well-known and easily prescribed. A full EIA would be required for Category III type sub-projects (specified in Annex I of the Environmental Regulation) in which there is potentially long term or irreversible impacts of unknown extent. They would include regular emissions as well as the potential risk of accidental releases. 2 The scope of the EIA will vary widely depending on the nature and location of a sub- project; thus, it is difficult to give clear guidance on the length of time required for an EIA or the associated costs. The preparation and financing of the EIA, including the role of public participation, is the responsibility of the sub-borrower and normally closely linked to the feasibility study of the proposed activities. 4. Environmental Review Process (Halkbank and World Bank-WB) All sub-projects will follow the environmental review process presented schematically below. STEP 1: The sub-borrower prepares an initial sub-project concept. Following informal discussion with Halkbank, in which Halkbank alerts the sub-borrower of its environmental assessment requirements, the sub-borrower prepares Part A of the environmental screening form (Annex V.A) and includes this with the initial sub-project concept. At this time, it is the responsibility of the sub-borrower to initiate discussions with the Provincial Directorate of MoEF in order to fulfill any local and national environmental review requirements (such as official approval/permits). It will be the responsibility of the sub-borrower to obtain the appropriate permits and licenses as required by national law in order to facilitate the clearance process with the Provincial Directorate of MoEF. These requirements are considered separate, but parallel, to those presented here and satisfying them is the responsibility of the sub-borrower. STEP 2: Halkbank screens the sub-project and informs the sub-borrower of the environmental category prior to appraisal and subsequent follow-up requirements for sub-loan processing. STEP 3: The sub-borrower, or its consultants, submits the necessary environmental documentation (if applicable). Such documentation may include: (a) hazardous materials approvals, (b) risky equipment approvals, and (c) “No EIA” decision letter from the MoEF. Each of these documents may be unconditional, but more than likely, they may also contain specific conditions that must be adhered to in order to maintain the validity of the license, approval or “No EIA” decision. STEP 4: Halkbank reviews the environmental documentation that has been submitted and reports its findings to the sub-borrower. Halkbank provides its clearance once the documentation is judged to be satisfactory. STEP 5: The sub-borrower incorporates any conditions that have been included in the approvals into the sub-project design and implementation plan, including associated estimated costs. STEP 6: The sub-borrower finalizes the sub-loan application package, including the relevant environmental documentation and any associated conditions upon which approvals may be contingent, and submits it to Halkbank for its appraisal. STEP 7: The sub-loan becomes effective upon verification by the Provincial Directorate of MoEF or any other government institutions involved with approval and clearance, which can be obtained at any step in the sub-project preparation cycle. 3 STEP 8: The sub-borrower submits the clearance and/or approval letters of the Provincial Directorate of MoEF or any other government institutions to Halkbank STEP 9: Halkbank monitors the sub-project implementation to assure that all conditions specified in the granting of the approvals are being followed.. 5. Prior and Post-Review–WB/Halkbank Environmental evaluations and review procedures will be subject to ad-hoc review by Halkbank and WB supervision missions. World Bank will have the authority to review and post review all sub-projects. The review of evaluations will ensure that: screening was performed consistently and accurately, the work was of satisfactory quality, recommendations specified by the granting of the approvals were followed, all documentation was properly filed and recorded, and that the conditions of approval by the Provincial Directorate of MoEF or any other government institutions and post review were met. During SME Access implementation, WB missions will supervise the overall screening process and implementation of environmental recommendations for selected sub- borrowers/sub-projects. The WB supervision team will also review, ad-hoc, environmental documentation. Therefore, all this documentation should be kept on file with Halkbank and forwarded to the World Bank upon request. 4 Box 1 below provides a description of the subproject process flow. Box 1: Sub Project Process Flow Sub-Borrower Prepares Initial Concept Satisfies Environmental Certification Requirements Presents Sub-project to Halkbank for Environmental screening Halkbank Screens Sub-Project Category I Category II Category III Category IV Project Proceeds Project Proceeds Project Proceeds Project cannot proceed No Environmental No EIA Required EIA Required Requirements Pre EIA Report EIA Report Halkbank Reviews environmental documentation Assures any conditions specified in approval are included in project design Approves sub-project SME Implements subproject With all conditions specified In the approval/license etc. Halkbank World Bank Supervise for compliance 5 6. Required documentations and responsibilities The sub-borrowers need to include in the sub-loan application packages the environmental documentation described in Table 1 below. Table 2 summarizes key responsibilities, activities that need to be carried out by various actors and the documents needed to support various steps of the approval process. Table 1: Required Environmental Documentation Environmental Category Environmental Documentation to be included in Sub-loan Application Package Category I Environmental Screening Form (Appendix. V.A) Category II Environmental Screening Form (Appendix V.A) Positive Pre-EIA (no need for EIA report) statement from related LEA Project Introduction File (Pre EIA Report) Note: If the MoEF determines that an EIA is required, the project is reassigned to Category III. Category III Environmental Screening Form (Appendix. V.A) Positive “EIA Required” statement from related LEA EIA Report Table 2: Required Environmental Documentation Participant Activity Supporting Documentation Sub-borrower  Submission of sub-project concept to  Part A of environmental screening (Beneficiary Halkbank form Enterprise)  Obtain required permits/licenses  Copies of permits, licenses  Obtain “No EIA” Declaration from LEA for  “No EIA” Declaration (for Category Category II II)  Periodic reports and sub-project completion report Halkbank  Review of sub-loan application package for  Environmental screening form required environmental documentation included in the sub-loan application  Complete Part B of Environmental Screening  If it is required periodic monitoring Form reports including environmental status  Maintain complete files of environmental documentation for review by IBRD  Monitoring compliance with mitigation plans MoEF  Review and clear sub-borrowers/sub-projects  Provide sub-borrower with clearance according to national/local regulatory letter requirements  Issuance of appropriate documentation  Issue permits and license requirement information WB  Carry out prior and post reviews  Back-to Office Reports  Identification of problems/ issues and  Aide Memoires proposal of solutions 6 Annex V.A: Environmental Screening Form PART A:To be completed by Sub-borrower Sub-Borrower: Sub-project title: Manufacturing Sector/Product: Brief description of sub-project (nature of project, sub-project cost, physical size [site area, production per year, etc], existence of any property transfer, or on-going operations, plans for expansion of operations or new construction, potential estimated impact on production) Working Capital Loans Will raw materials be purchased with loan proceeds? If yes, indicate the common name, chemical name or type of material? Are any of these materials officially identified as hazardous or dangerous under Turkish regulations? Please specify. Investment Loans a. Construction of Physical Facilities b. Process Improvement Loans Will any equipment/machinery be purchased with loan proceeds? If yes, are any of these items generating a significant potential health or safety risk? Is the project identified under List I of the Turkish Environmental Regulation? Is the project identified under List II of the Turkish Environmental Regulation? PART B: (To be completed by Halkbank)  Screening Category:  Environmental issues apparent at screening (what environmental issues are raised by the sub- borrower/sub-project)  Reason for screening category  Compliance with pollution control standards (discuss status of compliance of current and planned operations)  Proposed mitigation (indicate measures to be taken to address the environmental issues raised by the sub-borrower/sub-project, how they may be incorporated into the sub-project design, and any potential covenants)  Terms of Reference for environmental studies to be undertaken (indicate scope, time frame, and appropriate cost of any environmental analysis required)  Community participation requirements (list any requirements under national or local laws for the sub-borrower/sub-project sponsor to inform, consult or involve the public, NGOs etc.)  Next Steps (list actions for the PFI, the sub-borrower, the environmental consultant if any) SIGNATURES DATE SUB-BORROWER: HALK BANK LOAN OFFICER: ENVIRONMENTAL SCREENER: 7 Annex V.B: Category IV Sub-borrowers/sub-projects ineligible for IBRD financing/IBRD Negative List 1. Trade in wildlife and wildlife products prohibited under the CITES convention, 2. Release of genetically altered organisms into the natural environment, 3. Manufacturing, distribution and sale of banned pesticides and herbicides, 4. Drift seine netting in the marine environment, 5. Radioactive products, 6. Hazardous waste storage, treatment and disposal, 7. Manufacturing of equipment and appliances containing CFCs, halons and other substances regulated under the Montreal Protocol, 8. Manufacturing of electrical equipment containing polychlorinated biphenyls (PCBs) in excess of 0,005 % by weight, 9. Manufacturing of asbestos-containing products, 10. Nuclear reactors and parts thereof, 11. Tobacco, unmanufactured or manufactured, 12. Tobacco processing machinery. 8 Annex V.C: Examples of Sub-project Categories1 The following examples of sub-borrowers/sub-projects and their suggested categorization are indicative only and will need to be reviewed throughout the project implementation to assess their appropriateness concerning the types of sub-projects which are actually submitted to the Halk Bank. As it would be impossible for this list to be exhaustive, sub-borrowers/sub-projects which can not be identified as belonging to one of the categories below should be brought to the attention of the Halk Bank-PIU to transmit to the WB for further guidance. Category I Sub-projects (Low Risk) This category includes the sub-borrowers/sub-projects which has no environmental impacts. Some examples of this category are: 1. Manufacture of wood products/small scale furniture manufacturing, carving, crafting, etc., 2. Small scale stone crafting, 3. Small scale meal fabrication and upgrading, 4. Small scale instruments and hardware manufacturing, 5. Software development and manufacturing, 6. Establishment and equipping of art, design and telecommunications studios, 7. Purchase of computer equipment, and 8. Purchase of transportation equipment. Category II Sub-borrowers/sub-projects (Intermediate Risk - Requiring Project Introduction File-Pre EIA Report according to the Turkish Environmental Regulation) 1. Facilities designed for production of chemicals, production of lubricants from oil or processing of intermediary products, and recovery of waste oil; 2. Facilities where pesticides and pharmaceutical products, paints and waxes, elastomer based products and peroxides are produced or where elastomer based products are processed; 3. Soap or detergent production facilities; 4. Production or repairing of metal materials for railways or aircrafts; 5. Iron & steel or nonferrous metal facilities; 6. Textile; 7. Engines and motor vehicles production or assembly facilities; 8. Glass or fiberglass production facilities 9. Hide processing facilities (excluding facilities obtaining final products from processed hide) 10. All kinds of paper, cardboard or pasteboard production facilities; 1 The list of sub-projects in this section is indicative. 9 11. Tire coating facilities with a capacity of 100,000 units/per year and over; 12. Tire production facilities (inner tubes and tire covers for motor vehicles and airplanes, columns, tire cord, etc.); 13. Projects related to animal and plant products; 14. Mining Projects. a) facilities with a capacity of 5,000 m3/year and above for the extraction and processing of marble blocks or pieces, decorative stones, and facilities with an annual capacity of 100,000 m2 and above for cutting, processing and polishing marble; b) extraction of a raw material, or any kind of processing thereof, in accordance with the Regulation for Quarries (25.000 m3/year and above) c) extraction of 50,000 tons/year and above of salt, and/or all sorts of salt processing facilities 15. Clinker grinding facilities or facilities producing ready-mixed concrete or pre- stressed concrete components 16. Facilities producing brick or roof tiles (workshop-type of facilities excluded) 17. Facilities producing ceramic or porcelain (workshop-type of facilities excluded) 18. Lime factories Category III Sub-borrowers/sub-projects (High Risk - Requiring EIA According to the Turkish Environmental Regulation) 1. Facilities for melting iron and steel; 2. Facilities for melting non-ferrous metals; 3. Chemical plants at industrial scale; 4. Shipyards for the purpose of building, maintaining and repairing of cargo and passenger ships; 5. Meat Processing facilities; 6. Forest products and cellulose plants; 7. Cement plants or clinker production facilities 8. Accumulator and battery production facilities 9. Sugar factories 10