1. Agi Kiss Zagreb, May 7, 2009

2. Operational Policy/Bank Procedure 4.00 Piloting the Use of Borrower Systems to Address Environmental and Social Safeguard Issues in Bank- Supported Projects Covers all fiduciary aspects: Financial Management, Procurement, Safeguards

3. OP 4.00 key points  Definition: use of the country’s national, sub-national, or sectoral implementing institutions and applicable laws, regulations, procedures for an activity being supported by the Bank  Can refer to central government, sub-national governments or specific agencies/entities or utilities (e.g., in infrastructure)  To be used where, in the Bank ’ s judgment, the country ’ s system would materially satisfy the objectives and operational principles of the applicable Bank policies 3

4. Objectives of UCS Greater efficiency: move beyond project-by-project approach; accelerate project preparation and appraisal; facilitate harmonization, reducing transaction costs imposed by requirements of multiple donor systems  Greater development impact: improve policies, procedures, practices for all investment, not just WB- financed; encourage and buiod country capacity  Enhance country ownership: Improve nature of relationship and strengthen community of interest between Bank and Borrower (particularly part of the MIC agenda)

5. UCS History UCS already in place for years for financial management and for procurement through national competitive bidding Sept 2004, Management proposal to Board for pilot program extending UCS to environmental and social safeguards and to international competitive bidding (ICB) procurement and international selection o f consultants… where, in the Bank’s judgment: “ they are equivalent to the Bank’s policy framework applicable to the operation, and where relevant country implementation practices, capacity, and track record are satisfactory.”

6. UCS History (cont.) October 2004: Issues Paper* --focusing on UCS for E&S SG-- posted on WB website Followed by face-to-face consultations with governments, bi/multilateral development partners, NGOs, private sector in all 6 Region Endorsed by borrowers and dev’t partners NGOs more cautious: emphasized need to ensure no dilution of SG policies or WB’s responsibility for due diligence *Expanding the Use of Country Systems in Bank- supported Operations: Issues and Proposals

7. Following consultations, Issues Paper and OP 4.00 revised to clarify:  No certification of country systems, just use  No commitment to using country systems for every operation in a given country. Only for specific aspects of operations where country systems (including implementation capacity) are judged acceptable  No dilution of Bank policy or performance standards  No ignoring risks. Instead, risks will be identified and the documentation will set out how they would be addressed/mitigated 7

8. UCS History (cont.) February 2005 : First UCS pilot program for SG mandated by WB Board* (12 pilot projects) 12 pilot projects identified, including Romania: Water, Sanitation and Flood Protection Project; and Roads and Highways, Railways Project Others in: Bhutan, Ghana, Jamaica, Tunisia, India, South Africa, Uganda, Morroco OP 4.01 piloted in all projects; OP 4.11 in four, OP 4.04 and OP 4.12 in one country each

9. UCS History (cont.) November 2007 : Evaluation Report on first 2 years* based on 7 active pilots… main findings: Limited uptake: -- project-by-project approach very limited in impact (12 projects in portfolio of 1600) High transaction costs: upfront preparation costs are prohibitive (averaged $104,000 extra expenses) Promising approach for OP 4.01 and OP 4.11; less so for OP 4.12 due to fundamental gaps between national laws and WB OP Gap-filling measures have policy and practical benefits beyond the project Too early to judge costs, effectiveness of implementation, supervision To expand program, will need clear and consistent management signals *“Evaluation of the initial phase of the pilot program for use of country systems for environmental and social safeguards : lessons learned and management proposal for an incremental scale up of the program”

10. Nov 2007 Evaluation Report - selected recommendations: Scale up to sub-national or country level, as free-standing exercise not linked to a project. Focus SDR on overall systems, not specific implementing agencies. Apply results to selected projects with gap-filling, capacity building as needed In large country with diverse systems and capacity, take sub-national approach (provincial, state, municipal, sectoral, level institutions) Select further pilots based on county interest, lending opportunities in pipeline, high level of mutual trust between WB and Borrower Use Country Environmental Assessments, Strategic Environmental Assessments, etc. to identify candidate countries, programs Clarify benefits of UCS to Borrowers and staff and provide clear roadmap to accessing these benefits For MICs with well-developed systems (e.g. new EU members) move from SDR to full application of UCS without intermediate pilot project step. For new EU members, collaborate with EC, EBRD, EIB on SDR Distinguish between risk of harm and reputational risk to WB (latter is not Borrower’s responsibility)

11. UCS History (cont.) January 2008: Board approved extension of UCS pilot program for SG, with scaling up from project level to country level

12. UCS Approach – 2 Part Analysis “Safeguard Diagnostic Review” (SDR) Equivalence: Borrower’s env & soc. SG system is considered equivalent to WB’s if borrower’s system is designed to achieve objectives and adhere to principles outlined in Annex A… not necessarily 1:1 match in methodology Acceptability: Assessment of Borrower's implementation practices, track record, and capacity (assessment carried out only in areas where equivalence analysis was positive) UCS may cover one or more of the OPs Acceptability analysis limited to OPs selected based on Equivalency analysis

13. Steps in UCS Analysis 1. Identify relevant national/sub-national or other implementing entities 2. Review national/sub-national/corporate policies, laws, and regulations applicable to the project and Bank policies triggered or applicable 3. Compare the objectives and operational principles that underpin Bank policies, with country systems (rules, regulations, practices, and capacity of relevant institutions) to determine acceptability. Identify any actions needed to fill gaps. 4. Assess country system and implementation agency experience and track record. Identify strengths and weaknesses, and agree with borrower on any actions needed to fill gaps.

14. UCS Approach: Gap-filling If SDR identifies significant gaps between borrower policies or capacities and SG policies/principles: Borrower indicates commitment to fill gaps Borrower commitments are incorporated in Equ/Acc analysis Legal documents indicate gap filling to be completed prior to initiating relevant activities

15. Illustrative Draft Framework for Assessing EA Systems 15 Bank OP/BPObjectivesOperational PrinciplesBasis for Assessment/Development of Performance Criteria OP/BP 4.01, Environmental Assessment To assess, minimize, and mitigate potentially adverse impacts of Bank supported investment projects (and SECALs). 1.. Screen early in project cycle for potential environmental and social risks and impacts. 2. Identify and analyze project alternatives. 3. Involve stakeholders in the decision-making process through consultation and participation. 4. Ensure transparency through timely disclosure. 5. Prevent, minimize or compensate for adverse project impacts. · Identify sector, location and scale of project; nature and magnitude of potential risks. · All feasible alternatives assessed for potential impacts. · Consultations held soon after screening and also after preparation of draft EA report. · Draft and final reports (Ex Sum in local language) disclosed in public places. · EMP covers mitigation of potential impacts and specifies implementation arrangements, i.e., budget, monitoring, capacity building and reporting requirements.

16. CROATIA UCS Pilot

17. preliminary thoughts Take a comprehensive view of Country Systems (not just EIA law) e.g., OP 4.01 requirement for “analysis of alternatives analysis” might be addressed through national spatial planning process and Strategic Environmental Assessment law e.g., OP 4.01 requirement for EMP might be addressed through legal permitting process (location, construction and operating permits) For consultation process, emphasis on meaningful, informed consultation not specific steps Attempts to harmonize large body of legislation with EU in short time frame may raise “Acceptability” issues

18. ‘Bye Now