Regional Solid Waste Project

The provision of a sovereign loan of up to EUR 55 million (the "Loan") to the Republic of North Macedonia for establishing and developing a regional waste management systems in five administrative regions in the country (the "Project"). The Ministry of Environment and Physical Planning ("MoEPP") will be the Implementing Entity and responsible for the Project implementation. The Loan will be provided in two tranches:

Tranche 1 in the amount of up to EUR 47.5 million, to be committed at loan signing, will finance investments in the Polog and Pelagonija & Southwest Regions ("PSW") region. It will involve (i) construction/reconstruction of the regional integrated waste management systems ("RWMS") and transfer stations, and (ii) waste storage systems and bulky waste collection and closure of the Novaci dumpsite.

Tranche 2 in the amount of up to EUR 7.5 million (uncommitted) will finance (i) the solid waste landfill and transfer stations in the Vardar and the Southeast ("VSE") region. Tranche 2 will be committed at the sole discretion of the EBRD upon completion of a Feasibility Study for the respective region under the proposed tranche.

The project is expected to benefit from a Swiss State Secretariat for Economic Affairs ("SECO") investment and technical cooperation grant.

The Project supports essential modernization of Solid Waste ("SW") infrastructure in each of the five Project regions covering (i) reconstruction/construction of selected regional, sanitary landfills and (ii) procurement of bins and containers for recyclables and residual waste, transport vehicles and equipment.

The Project is the very first nation-wide undertaking in the SWM sector in North Macedonia and an important step towards a sustainable solution for solid waste management services. The Project introduces for the first time solid waste services compliant with the respective EU standards in the sector, covering a population of more than one million residents across five administrative regions in the country. As such, the Project is of a unique national, regional and environmental importance for North Macedonia, and was identified as a national priority in the context of EU accession.

ETI score: 71

Primary Quality: Well-Governed

The project will expand the current competencies of the Energy and Water Services Regulatory Commission into the solid waste sector by providing technical assistance for setting up a new department within the commission responsible for SW tariffs. Moreover, the technical assistance will help the new department to adopt a new cost-based methodology for SW tariffs including preparation of associated rulebooks, training staff etc.

The project will, through technical assistance, introduce a new sector wide regulator for solid waste, within the Energy and Water Services Regulatory Commission. The department will be in charge for setting up new cost-based methodology for SW tariffs including preparation of associated rulebooks.

Secondary Quality: Inclusive

Under the Project, MoEPP will, for the first time in the country, integrate inclusive procurement requirements in the solid waste sector, opening up skills and employment opportunities for currently underserved groups. Inclusive requirements will be implemented in at least two of the three regional tenders, encouraging contractors to provide on-the-job training to the local population, including women and Roma individuals. The Roma population is traditionally involved in informal waste picking activities in North Macedonia and face significant barriers to economic inclusion. To date, MoEPP has not adopted a comprehensive approach to addressing the livelihood needs of Roma people participating in the solid waste value chain. With support from the WBIF, the Project will support MoEPP in opening up skills and employment opportunities for this group in the construction as well as operation and maintenance of new solid waste infrastructure. Additionally, the Project will introduce an initiative to develop the entrepreneurial ecosystem for minority-led businesses along the solid waste value chain. These improved policy practices are expected to create systemic change beyond North Macedonia, by creating a blueprint for future projects under the WBIF applying inclusive procurement principles.

NORTH MACEDONIA SOVEREIGN

The Borrower is the Republic of North Macedonia, represented by the MoF. MoEPP is the Implementing Entity for the Project and the main authority developing waste management policies and regulations.

EUR 55,000,000.00

EBRD Tranche 1 EUR 47.5 millionEBRD Tranche 2 EUR 7.5 million

EUR 68,000,000.00

Capital expenditure and equipment EUR 55.225 millionContingencies EUR 2.725 million Feasibility Study EUR 2.000 millionProject Implementation Unit EUR 1.000 million Supervision of Works EUR 3.500 million Institutional TC EUR 3.000 million Front End Fee EUR 0.550 million

Financing Structure

- EBRD offers financing that is not available in the market from commercial sources on reasonable terms and conditions, e.g. a longer grace period. Such financing is necessary to structure the project of this nature;

- EBRD investment is needed to close the funding gap (for the Polog region) with IFIs, government, commercial banks and/or complements them.

Risk mitigation

- EBRD helps the client to mitigate carbon transition risks and take climate action, such as to move along a low carbon transition pathway.

Policy, sector, institutional, or regulatory change

- EBRD's involvement in a project is considered additional when it is designed to trigger at the sector or country level (through the introduction of cost-reflective tariffs for solid waste management).

Standard-setting: helping projects and clients achieve higher standards

- Client seeks/makes use of EBRD expertise on corporate governance improvements, including for climate risk management.

- Client seeks/makes use of EBRD expertise on best international procurement standards.

- Gender Action Plans (GAPs) to be developed to address the strong horizontal and vertical gender segregation currently observed in the solid waste sector.

Knowledge, innovation, and capacity building

- EBRD provides expertise, innovation, knowledge and/or capabilities that are material to the timely realisation of the project's objectives, including support to strengthen the capacity of the client.

Categorised B (ESP 2019).

The independent Environmental and Social Due Diligence ("ESDD") was finalised in early March 2022 and consisted of a review of national Environmental Impact Assessments ("EIAs") and other reports, site visits, meetings with the Project Implementing Agency, community members and a significant number of national NGOs. As regional waste management enterprises/landfill operators are yet to be established, the ESDD focused on analysis of skills, competencies and operational procedures that will be required for the proper implementation of the Project. The ESDD identified that the new landfills will be located in the areas with existing environmental degradation and adjacent to existing non-compliant landfills. The estimates of the waste to be disposed of at the new landfills are not high, each below 100 tonnes/day. The ESDD identified that the Project will foster the implementation of North Macedonia's national waste management strategy and conversion of existing unused and heavily degraded areas into modern regional centres for waste disposal and recycling; reduce pollution caused by unsanitary disposal of waste; reduce emissions of greenhouse gases ("GHG") improve the visual characteristics of existing heavily modified areas by planned re-cultivation of landfill sites.

Initially two separate national EIAs were prepared for Pelagonia and Southwest regions, that were subsequently merged into a consolidated Environmental and Social Impact Assessment ("ESIA") in 2021. The landfill site for both the existing and the planned landfills is located inside the depleted Suvodol lignite mine area. The buffer zone of the planned landfill site marginally overlaps with the boundary of the Important Bird Area ("IBA") site (MK024) Pelagonia. Pre-construction rapid biodiversity surveys will need to be conducted during spring/early summer; relevant actions have been included in the Environmental and Social Action Plan ("ESAP"). The air quality in the area is poor due to uncontrolled waste disposal and burning from the existing landfill, which have resulted in emissions of pollutants (mainly ii2, methane and organic compounds), odours and dust. There are no sensitive receptors in the vicinity of the landfill site and the closest settlement is located at a distance of 1.2 km. There are approximately 10 Roma families who collect waste on the existing landfill. Domestic cattle from the nearby village forage on organic waste and thus poses the risk of contamination through the food chain.

The regional sanitary landfill for the Polog region is planned at the location of the existing non-compliant landfill Rusino. A national Draft EIA study was completed in December 2021 and disclosed by the MoEPP, and the public consultation process is ongoing. No flora or fauna species of conservation concern or protected areas have been identified. Seasonal watercourses near the landfill site are filled with illegally fly-tipped industrial waste and pose the risk of soil, groundwater and surface water contamination. A single-parent Roma family collects waste metal and small electric appliances and sells them to the local scrap metal companies. The family has been living on the landfill for six years and will require support to obtain adequate housing. There is also a small weekend house attached to the landfill, whose owner is engaged in buying and reselling plastic waste.

For both Pelagonija, Southwest and Polog regions, there will be Supplementary Environmental and Social ("E&S") Analysis conducted prior to the construction to fill gaps in existing impact assessments and to identify potential impacts related to the final siting for Transfer Stations and Composting Plans. The findings of the Analysis will be used to update E&S Management and Monitoring Plans.

The proposed site for the regional landfill for the Vardar Southeast Region (uncommitted tranche) is located in the area of the existing non-compliant landfill Shapkar, which has been in use since 1992. No national EIA has been commissioned for the proposed landfill as yet. The new landfill is planned to be built adjacent to the existing landfill. This proposed site is a public land; and while registered as a pastureland, it is however unused. The process of land conversion from agricultural to

construction land has been initiated. About 10 Roma families regularly collect waste on the existing landfill. They have been collecting waste as their only source of income at this landfill for 10-20 years. Impacts on waste pickers has been assessed as a major negative impact. Therefore, a Livelihood Restoration Framework ("LRF") has been developed as part of this Project. The ESAP contains a requirement to develop a Livelihood Restoration Plan ("LRP"), based on the LRF, to address specific impacts.

The new waste management facilities will be designed and built in line with the EU Waste Framework Directive, Landfill Directive and Best-Available-Technology ("BAT") Conclusions for Waste Treatment; and relevant technical specifications will be included in tender documents. The design of the landfills will mitigate any potential impacts related to leachate and landfill gas collection, air emissions, odours and impacts on soil and groundwater. Temporary issues during the construction will be mitigated through the development and implementation by the contractors of the Contractors' E&S Management Plan, Erosion Control plan and air and ground and surface water monitoring.

In order to enable the successful implementation of the Project the MoEPP will also need to establish a Project Implementation Unit (PIU) staffed with qualified and experienced personnel. The MoEPP along with the PIU and regional operators/companies will need to implement the ESAP, LRF and the Stakeholder Engagement Plan ("SEP"). The MoEPP disclosed the Non-Technical Summary ("NTS"), the LRF and SEP on their website. The ESAP was finalised and agreed. Some of the ESAP actions include developing a Project-specific Environmental and Social Management Plan, inclusive of contractors' management provisions, development and implementation of Construction and Operational Environmental and Social Management Plans, activities aimed at minimising and monitoring impacts on soil, surface and groundwater.

Pre-signing

- TC 1: Technical Due Diligence Study. The cost of this assignment was EUR 200,000 funded by SIDA;

- TC 2: Environmental DD. The cost of this assignment was EUR 75,000, funded by SIDA;

Post-signing

- TC 3: PIU support for Tranche 1. The assignment will include review of designs and technical specifications, tender preparation and procurement, implementation of works and supply contracts. The overall cost of this assignment is estimated at EUR 700,000 to be expected to be funded by an international donor or the SSF;

- TC 4: Corporate Development and Institutional Support (CDIS). The assignment will support (i) the formation/development of the institutional arrangements for the three future waste management systems and (ii) support to the Regulatory Commission for Energy and Water Services in establishment of a new SW dedicated department, preparation of the methodology, regulations and procedures based on which the waste management tariffs will be set. The cost of this assignment is estimated at EUR 3 million and is expected to be funded by SECO;

- TC 5: Inclusive Procurement Inputs and Implementation to integrate inclusive procurement requirements into tender processes and implement on-site training for inclusion target groups. Estimated cost: EUR 0.5 million, to be funded by the WBIF private sector TA window;

- TC 6: PIU support for Tranche 2. Support for review of designs and technical specifications, tender preparation, procurement, and other implementation support of the second phase. The cost of this assignment is estimated at EUR 300,000 and is expected to be funded by WBIF, an international donor or the SSF;

Co-investment grants

- SECO Investment Grant totalling EUR 6 million will be allocated to Polog Region only, subject to approval by the donor;

Ana Karanfilova [email protected]+389 75 359484www.moepp.gov.mk"Presveta Bogorodica" No. 3, 1000 Skopje North Macedonia

20 Jun 2022

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