Impact
 Evaluation
CDIE
United States Agency for International Development
W
REDUCING URBAN AND INDUSTRIAL POLLUTION
IN THE CZECH REPUBLIC
A USAID project in the Czech Republic confronted air pollution
at two levels: nationally, through a state environmental fund,
and locally, through direct support to municipalities. The national
approach proved to be far more effective. Results in Poland,
though, suggest regional funds may be the ideal.
SUMMARY
hen it officially formed in 1993, the Czech Republic inherited an environmental legacy of
some of the worst polluted air in central Europe. Poor air quality resulted from the wide￾spread burning of low-grade, highly polluting brown coal, often in outdated and inefficient
furnaces.
The new Czech government took action to reduce pollution. It curbed highly polluting indus￾tries and large power stations. In 1994 it passed the nation’s first Clean Air Act. Shortly after,
USAID launched its Environmental Action Program Support (EAPS) project. It undertook to im￾prove air quality in the two most polluted regions, northern Bohemia and northern Moravia.
EAPS, a $1.4 million project that began in 1995, was part of a
larger ($17 million) USAID effort to decrease environmental
degradation in seven central and eastern European countries.
EAPS had two goals. The first was to strengthen the environ￾mental fund’s institutional capacity by providing a resident
adviser. The second was to reduce air pollution through
direct technical assistance to 22 high-polluting small munici￾palities. The assistance consisted mainly of helping the munici￾palities prepare loan applications to be submitted to the fund.
If granted, the loans would enable municipalities to upgrade
their heating from high-sulfur coal to cleaner heating fuels.
PN–ACG–628 August 2001
CONTENTS
Background.........................2
USAID Environmental
Action Program................3
Program Elements..............4
Impacts...................................6
Program Performance.....11
Poland..................................13
Lessons Learned..............15
2
In May 2000, USAID’s Center for Development
Information and Evaluation (CDIE) fielded a
four-person team to assess the impact of the
Czech project and a more limited assessment
of a similar effort in Poland. Over the course of
a month, through site visits and numerous in￾terviews, the team found strong evidence that
the Czech environmental fund was significantly
strengthened. The resident adviser managed
the preparation of nearly a dozen studies
designed to help the fund move toward major
policy and operational improvements. Many of
the resulting recommendations were adopted
and implemented—allowing the fund to
increase its annual environmental loan portfo￾lio by nearly $24 million. The fund was thus
able to make additional loans that would fur￾ther reduce pollution.
The team found a lesser degree of success with
the municipalities component of the project.
EAPS did help municipalities prepare their loan
packages—but many indicated that such assis￾tance was not essential. That is, most municipal￾ities would have been able to obtain environ￾mental fund loans without project assistance.
EAPS-assisted municipalities that received fund
loans—and upgraded their energy utilities—
did reduce pollution, but much less so than
what the environmental fund itself accom￾plished by adopting EAPS policy recommenda￾tions and making more loans nationwide.
EAPS assistance to municipalities had only lim￾ited success in getting loans approved. That is,
there was little difference between the overall
loan approval rate (41.3 percent) and the rate at
which targeted EAPS communities loan applica￾tions were approved (40.9 percent). Further,
there was little evidence of replication by other
municipalities beyond EAPS-targeted towns and
cities.
BACKGROUND
The Czech Republic was one of the first former
Warsaw Pact states to restructure its economy
and adopt political reforms. It moved quickly
to privatize state-held industries, liberalize the
election process, and delegate responsibility to
municipalities for environmental services. The
Czech Republic, officially formed after the
breakup of Czechoslovakia in 1993, inherited
nearly 70 percent of the industrial capacity of
the former federation, along with an environ￾mental legacy of some of the worst polluted air
in central Europe. Poor air quality resulted from
three factors. First, inefficient and essentially
unregulated industries customarily burned
low-grade, highly polluting brown coal. Sec￾ond, municipal and district heating plants were
using outdated technology and aging equip￾ment. And third, residences and businesses
relied heavily on low-grade coal for heating.
Air and water pollution remains one of the
Czech Republic’s most severe environmental
problems. Improving ambient air quality has
proved particularly difficult in some regions.
Parts of northern Bohemia in the Czech Repub￾lic, Silesia in Poland, and Saxony in southeast
Germany are still referred to today as the “Black
Triangle” because of the air pollution that black￾ens buildings and corrodes monuments.
Air pollution alerts in northern Bohemia and
northern Moravia were common from 1990
through 1996, especially during the winter sea￾son. During those months, central Europe
comes under the influence of high-pressure at￾mospheric systems, yielding only light winds.
These systems are often accompanied by ther￾mal inversions in which a layer of cool air forms
above warmer ground air, trapping suspended
particles and other pollutants. Such inversions
can produce choking smog that can last several
days. The inversions—and the smog and haze
they create—are especially damaging to mu￾nicipalities situated in low-lying valleys.
Team Leader: Steve Gale
Team Members: Matthew Addison,
Michael Gould, Keith Forbes
3
In 1991 the Czech government drafted air qual￾ity standards that were amended in 1994 to be￾come the nation’s first Clean Air Act. Shortly
thereafter, USAID launched its Environmental
Action Program Support
(EAPS) project. EAPS aimed to
improve air quality in the
two most polluted Czech re￾gions—northern Bohemia
and northern Moravia. The
Czech government had al￾ready undertaken to im￾prove air quality by curbing
highly polluting industries
and large power stations.
With these major emitters in
check, municipally owned
district heating facilities, es￾pecially from smaller cities,
were the largest remaining
source of air pollution.
USAID ENVIRONMENTAL
ACTION PROGRAM
USAID designed the Environmental Action Pro￾gram to decrease environmental degradation in
seven central and eastern European countries.
In the Czech Republic, the $1.4 million EAPS
project had two environmental goals. The first
($750,000) was to work with the Czech State
Environmental Fund to facilitate lending,
strengthen operations, and improve fund re￾source allocations. The second goal ($650,000)
was to provide technical assistance and train￾ing to small municipalities. The aim was to help
them obtain necessary investment financing
from the environmental fund to upgrade their
heating plants.
Czech State Environmental
Fund: Filling a Void
When EAPS began in March 1995, most small
Czech municipalities were unable to get fund￾ing from commercial banks for environmental
upgrades. Smaller municipalities whose access
to commercial financing was especially limited
were hardest hit. The reluctance of Czech
commercial banks to fund
smaller municipalities rest￾ed on a number of standard
financial risk factors (liquid￾ity, profitability, repayment
potential, degree of sol￾vency, etc.). In the Czech Re￾public, making commercial
loans to municipalities was
thought to be too high a risk.
Something else was needed.
The Czech State Environ￾mental Fund was estab￾lished in 1991 to provide
financial support for envi￾ronmental protection. Al￾though available to all
municipalities, it targeted smaller ones. As late
as 1996 there was still considerable uncertainty
on the part of municipalities about how to sub￾mit a loan package and secure funding. Most
municipalities saw fund application and review
procedures as complicated and confusing. They
also pointed to a lack of transparency in fund
operations. The fund itself was not running as
smoothly as originally planned. Initially it was
overwhelmed with far too many applications.
In 1997 alone, 462 loan applications were sub￾mitted, many of poor quality.
Municipal Support: Helping
With Studies, Packaging Applications
For most municipalities in 1995, there was little
real understanding of how to package an invest￾ment loan application that would survive a
first-round fund review. EAPS attempted to
demystify the process by assisting municipali￾ties with a range of technical assistance, train￾ing, and analytical support. EAPS offered two
types of municipal assistance—and in many
“Making
commercial loans
to municipalities
was thought to be
too high a risk.
Something else was
needed.”
4
localities both were coordinated. The first type
provided a direct grant to the municipality to
undertake an independent feasibility study of
the proposed environmental upgrade. The
study provided municipalities with an unbi￾ased assessment of the technical, economic, and
environmental impacts associated with the
upgrade. It covered options such as converting
coal-burning boilers to natural gas, construct￾ing gas pipelines for residential and commer￾cial hookups, and rehabilitating aging and
inefficient district heating plants. Fund officials
viewed the feasibility study as an essential first
step in loan application review, but its costs
could not be underwritten by the fund. EAPS
filled that need and funded the studies.
The second type of EAPS municipal support
helped cities package and submit their loan ap￾plications. This often meant not gathering any
new technical information but packaging the
voluminous materials, completing the applica￾tion form, and assembling annexes. This one￾on-one support also meant the EAPS coordinator
would often submit the package and then com￾municate directly with fund officials.
PROGRAM ELEMENTS
Programs to abate and manage environmental
pollution typically use one or more of the
following program elements: 1) economic
policy reform, 2) environmental regulations and
standards, 3) education and awareness cam￾paigns, 4) institution building, and 5) techno￾logical change. Although EAPS assistance in the
Czech Republic directly addressed only two of
the five areas (education and institution build￾ing), project planners considered all five areas
in developing an environmental strategy. The
strategy was to be accomplished within the
framework of economic policies that supported
introducing clean technology and appropriate
environmental legislation.
Economic Policies
Economic policy can be an important contribu￾tor to sound environmental management.
Through incentives and penalties, economic
policy can realign decision-making to more
properly take into full account all the environ￾mental and social costs. Such policy can also
help facilitate the financing needed to imple￾ment environmental improvement projects.
Although EAPS did not direct its efforts toward
changing policies, it is useful to examine the
Czech policy context. The project took full ad￾vantage of economic tools and conditions in
place—namely, natural gas–pricing policies,
use of market-based instruments, and the un￾availability of commercial municipal loans.
Pricing
In centrally planned economies, input prices
(including energy) are often set artificially low,
leading to excessive consumption per unit of
output. In addition to their economic effect, in￾put prices may result in high levels of waste
and pollution. To combat the problems caused
by inappropriate energy prices, the Czech gov￾ernment allowed energy prices to rise slowly
toward international market levels. Higher
prices led to increased energy efficiency.
Coupled with a transition to a market-based
private enterprise industrial base, it resulted in
improved air quality.
Recognizing the reduced environmental dam￾age associated with natural gas relative to coal
and the need to encourage greater natural gas
use, the government has continued to subsidize
natural gas prices. Gradually this has led to a
shift from coal to natural gas. EAPS supported
this conversion by municipalities in areas with
the highest levels of air pollution that need help
obtaining financing.
5
Market-Based Instruments
The Czech government enforces the Clean Air
Act through a series of fines and closure orders.
Enforcement is sure and harsh. Fines are col￾lected for exceeding emission standards, and a
portion of that fee is passed to the environmen￾tal fund. The government also levies a user fee
or pollution charge. The Czech Environmental
Inspectorate sets the charge level. Polluters
make fee payments to the tax authority, and a
portion of that money is channeled to the fund.
Pollution fines are charged for air, wastewater,
and solid disposal, and user fees are collected
on air, water, and agricultural land conversion.
The fund relies heavily on these instruments
for its revenue. In 1997, fees and fines accounted
for 89 percent of its revenue.
Lack of Financing Options
A major problem facing smaller communities
that have decided to carry out projects to im￾prove environmental quality is unavailability
of financing. Many municipalities do not gen￾erate sufficient funds from their annual budgets
to pay directly for such large capital projects.
Longer term financing is needed. The munici￾pal bond market is nonexistent, and commer￾cial banks are only now making loans to
municipalities, but at interest rates that are
somewhat high (about 11 percent) and for terms
that are short (five years or less).
In response, the Czech government in 1991 es￾tablished the Czech State Fund for the Environ￾ment. It was initially capitalized by a transfer
from the Czech National Property Fund ($150
million, at current exchange rates) and a $10
million U.S. government grant. Since then, ad￾ditional funds have been obtained through fines
and levies and additional transfers from the
property fund. The environmental fund pro￾vides grants and subsidized loans to munici￾palities such that when the grace periods and
interest rates are taken into account, the overall
subsidy is approximately 40 percent of project
cost. During the early years of fund operation
the subsidy approached 80 percent.
Environmental Regulations
And Standards
Environmental laws, standards, and regula￾tions—and the government’s capacity and will￾ingness to enforce them—are key to protecting
and improving environmental quality. In the
Czech Republic, the government had already
passed the Clean Air Act. It has helped reduce
air pollution in industrial plants in larger mu￾nicipalities and electric utility power stations
nationwide. In 1994 the Czech Parliament
passed legislation establishing the National Air
Quality Program to improve air quality from
municipal sources such as district heating
plants and residential heating. These combus￾tion sources were mainly coal based, with little
effective control technology to reduce high lev￾els of particulate matter and sulfur dioxide
emissions. Legal and regulatory frameworks in
support of environmental management were al￾ready in place and being enforced. Therefore,
this kind of EAPS project support was not
needed. The government’s interest in accession
to the European Union and the associated re￾quirement of maintaining sound pollution
abatement and management further reinforced
an effective environmental regulatory frame￾work.
Education and Awareness
Training can be an effective means to broaden
the impact of technical assistance. Likewise,
public information and outreach programs can
involve more people in community-related
activities, thus strengthening local government
capability. EAPS carried out only limited train￾ing. A pilot training course was held in Prague.
A session was also held in northern Bohemia
and one in northern Moravia. Both were aimed
6
at informing municipal officials about apply￾ing for environmental fund assistance. The re￾gional sessions were also used to present two
computer models: a financing model munici￾palities can use to estimate their borrowing lim￾its, and an economic model for gas pipeline
valuation.
Institution Building
Effective environmental
management requires the
participation of several insti￾tutions: local governments
to plan and carry out
projects; national-level agen￾cies to set policy, establish
regulatory frameworks, and
ensure compliance; public
and private sources such as
banks and funds to provide
financing; and a vibrant pri￾vate sector to provide tech￾nical assistance and project
construction. EAPS directed
its efforts at improving fund capabilities and
developing municipal capacity to secure
needed financing.
From the outset, environmental fund assistance
was geared to improve transparency by recom￾mending operational changes that would en￾hance communications with grant applicants.
Still, some municipalities claimed that grant ap￾proval was too often affected by political and
personal factors and had less to do with the
merits of the environmental upgrade. In re￾sponse, EAPS put more emphasis on proper
fund procedures for project technical and finan￾cial analysis. Project personnel also carried out
several valuable studies on loan guarantee pro￾grams that would strengthen the fund’s ties
with commercial banks.
Regarding municipalities, EAPS emphasized
helping the jurisdictions prepare the entire loan
package and then following up with the
environmental fund to obtain financing. The
project also provided limited environmental
strategy assistance and some stand-alone fea￾sibility studies.
Technological Change
New technology and tech￾niques can reduce costs and
broaden environmental and
economic impacts. Recy￾cling, waste minimization,
by-product recovery, and
pollution prevention com￾plemented EAPS pollution
abatement and treatment ef￾forts. Likewise, improved
techniques to package loan
applications and analysis of
the technical, economic, and
financial merits of projects
and alternatives result in
better environmental prior￾ity setting and decision￾making. EAPS strengthened the loan package
concept and provided analytical support to the
environmental fund. It promoted projects that
recovered waste heat and converted combus￾tion sources from coal to natural gas. And it de￾veloped models for municipal financial
analysis and gas pipeline valuation. EAPS did
not directly provide engineering or similar as￾sistance.
IMPACTS
Environmental programs, although often
designed with very different objectives, have
outcomes that fall into four broad categories.
Institutional impact revolves around the estab￾lishment and strengthening of institutions to
design, evaluate, undertake, monitor, finance,
enforce, and regulate environmental activities.
Environmental impact helps improve air and
water quality and maintain or enhance
“Grant approval was
sometimes affected by
political and personal
factors and had less to
do with the merits of
the environmental
upgrade.”
7
biodiversity as well as terrestrial, freshwater,
and marine ecosystems, at the national and glo￾bal level. Human health impact is associated with
preventing disease and promoting healthful liv￾ing conditions. Economic impact includes all out￾comes directly valued in the marketplace and
incurred directly by project participants and
those borne by additional parties (not captured
in the financial analysis), such as social- and
health-related costs.
Institutional Impact: A Mixed Bag
Conceptually, there are a number of ways a
project can bring about institutional impacts. It
can introduce new techniques. It can train
people, provide them with skills, and assist
them in transferring ideas and technology. And
it can help change the way institutional leaders
and visionaries view their world.
EAPS attempted to do this at two levels—the
environmental fund and the municipality. The
result was mixed. The CDIE team found strong
evidence that the environmental fund was
strengthened as a result of EAPS participation.
It found little evidence, though, that municipali￾ties or local consulting companies that per￾formed feasibility studies were strengthened.
The project provided the fund with policy and
operational advice and hands-on guidance in
pivotal operating areas. It prepared nearly a
dozen targeted studies designed to help fund
managers move toward policy and operating
improvements. The studies ranged from the
basics of loan guarantees to detailed analyses
of loan procedures. Overall, the institutional
effects on the fund were very positive. The stud￾ies and the day-to-day assistance of an onsite
adviser led the fund to make many productive
changes. For example, the fund
■ Reduced grant subsidies. The amount of
grants given to applicants was reduced
from 80 percent of project value to 60 per￾cent, expanding fund financing capacity
and reducing risk. With the reduction to
60 percent, the same amount of fund
money now generated an additional
$24 million in environmental projects.
■ Increased efficiency. The fund’s internal effi￾ciency was increased by making analysis
proceed simultaneously in several depart￾ments rather than sequentially. In the past,
sequential analysis had created bottlenecks
and last-minute, ill-conceived decisions.
■ Set more realistic loan terms. The fund length￾ened the loan term from 5 years to a more
reasonable 10.
■ Increased revenues. The fund started charg￾ing an interest rate on all noncommercial
loans. As a result of charging 3 percent on
noncommercial loans beginning in 1998,
revenues increased an estimated $739,000,
or 0.8 percent of the total.
■ Established sound practices. The fund was
now able to strengthen its loan guarantee
programs with commercial banks by estab￾lishing clearer lending procedures.
■ Developed improved screening criteria. The
fund was now able to develop and use
better criteria for screening applications.
■ Increased transparency. EAPS helped increase
the general openness of the fund. Recom￾mendations of project officers led the fund
to publish its procedures, provide appli￾cants more routine access to fund staff, and
provide more feedback to pending fund
applicants when screening and other crite￾ria changed.
At the municipal level, the impact of EAPS on
institutions was less evident. EAPS support was
reported to result in loans valued at $8.9 mil￾lion, but the actual amount that can be attrib-
8
uted directly to project assistance is unclear.
Many municipalities indicated they would
have been able to obtain grants from the fund
without EAPS assistance. Some were under
Clean Air Act regulation and were forced to re￾duce pollution regardless. Others felt that EAPS
assistance was helpful in that it reduced their
costs because the project paid for services the
city otherwise would have had to incur. Fewer
municipalities cited EAPS assistance as the prin￾cipal reason they eventually received environ￾mental fund loans.
Environmental Impacts:
Reducing Air Pollutants
EAPS environmental impacts were mostly posi￾tive. To be sure, the project had a direct impact
on the physical environment, but that impact
was relatively modest at the municipal level
compared with what was accomplished at the
fund level. At the municipal level the project
worked primarily to promote fuel switching,
from dirtier lignite to natural gas in district and
residential heating systems. In some instances
those interventions brought the municipality
into compliance with the Clean Air Act. In oth￾ers, the conversions resulted from citizen pres￾sure for a cleaner environment.
Table 1 presents the estimated emission im￾provement as a result of the interventions at the
local level. Individual reductions are important
only insofar as they contribute to improved
ambient air quality. EAPS activities had two
important environmental impacts. First, they
reduced the pollutant load outdoors and
thereby improved air quality. Second, when the
environmental upgrades addressed residential
use, indoor air quality also improved.
The CDIE team encountered problems of quan￾tifying EAPS environmental impacts: shared
airsheds, lack of baseline data, no ambient air
quality measures. Still, the team’s opinion,
based on interviews, site visits, and changes in
emissions attributable to switching fuels, is that
air quality improved in EAPS-assisted munici￾palities.
EAPS municipal interventions may have had an
impact locally, but SO2 and N2O are widely
transported over areas spanning several mu￾nicipalities and are thus of regional concern as
well. It is therefore important to consider the
regional effect of EAPS municipal interventions.
To address this, the team compared EAPS￾assisted reductions with the total that occurred
regionally. Data were available only for the
Black Triangle part of the Czech Republic,
roughly corresponding to northern Bohemia.
Table 2 presents reductions in three major air
pollutants over the project period for the Black
Triangle and for the EAPS-assisted projects in
northern Bohemia. As a percent of emissions
avoided, the EAPS contribution was small. This
probably reflects the fact that EAPS assistance
was targeted to small cities and typically in￾volved extending natural gas pipelines (but not
building new ones) or converting only a lim￾Table 1. EAPS Pollution Reductions
Municipality
Pollutant Reductions
(tons per year)
Particulate
Matter
Sulfur
Dioxide
(SO2
)
Nitrous
Oxide
(N2O)
Bilina
Chomutov
Krasna Lipa
Liberec
Ludgerovice
Petrovice U
Karvine
Polanka
Svinov
Vratimov
Totals
12.1
15.0
51.0
74.0
49.0
23.0
74.3
7.6
106.0
412.0
30.2
11.1
72.8
116.1
33.1
15.5
32.8
3.7
178.0
493.3
4.1
1.4
16.6
20.5
11.9
5.6
7.2
0.8
48.0
116.1
9
ited number of residential coal users to natural
gas.
There was already a trend during this period
of improved air quality throughout the Czech
Republic. This resulted from a number of fac￾tors: closure of older industrial facilities, cleaner
power plant operations, stringent environmen￾tal standards and their enforcement, and the
availability of capital from the State Fund for
the Environment. Since 1989, particulate mat￾ter, SO2
, and N2O have fallen by more than 83
percent, 72 percent, and 74 percent, respectively,
in the Black Triangle.
As discussed previously, EAPS assistance to the
environmental fund increased the overall
investment in environmental projects by reduc￾ing the grant allocation. This led to an addi￾tional $24 million in environmental invest￾ments. The precise environmental impact
depends clearly on the types of projects fi￾nanced with the additional funds. Since this in￾formation was not available, the team estimated
additional pollution reductions per thousand
dollars for all environmental fund–supported
projects (ratios were determined from data in
table 2). These coefficients for particulate mat￾ter, SO2
, and N2O were then multiplied by the
additional $24 million credited to EAPS to yield
a total additional annual reduction in air pol￾lution of 6,400, 7,900, and 980 tons of particu￾late matter, SO2
, and N2O, respectively. Of
course, this amount is not fixed but is a func￾tion of the total amount the fund provides in
grants.
Health Impact: Modest
But Immeasurable Gains
There has been a health impact from direct
municipal interventions, but owing to a lack of
data it is not measurable. Moreover, the effects
are small relative to other categories. Human
morbidity and mortality are affected by changes
in ambient air quality. As a result of EAPS’s
municipal activities, pollution at the source was
reduced. Whether this had any effect on health
depends on many factors, including the level
of pollution, other sources of pollution, local
topography and climate, and the type of pollu￾tion. Particulate matter under project conditions
can be considered mostly a local pollutant. In
many of the EAPS-assisted sites, the team con￾cluded that most sources of particulate matter
were reduced. The key to health impacts re￾volves around how this translates into improve￾ments in ambient environment. These data were
simply not available.
Economic Impact: Fund
Outpaces EAPS-Assisted Cities
The economic impact of the EAPS project can be
measured in two ways: in the marketplace it￾self and, more broadly, in the general benefits
that accrue. The former includes the USAID as￾sistance costs as well as the cost of equipment
(for example, the new boiler for using natural
gas versus coal, or the cost of the pipeline to
bring gas). It also includes the cost of equip￾ment operation and maintenance. The latter
occur as individual sources of air pollution are
reduced and the ambient environment im￾proves. This improvement then benefits human
health, monument preservation, animal and
plant productivity and reproductive health, the
EAPS northern
Bohemia
Czech Black
Triangle
EAPS % of
Czech Black
Triangle
152
19,000
0.80
230
283,000
0.08
42
7,000
0.61
Table 2. Tons of Emissions
Reduced Annually
Particulate
Matter SO2 N2O
10
ecosystem, and global climate change. These
impacts, although often not directly valued in
the marketplace, are part of the fuller economic
analysis.
Regrettably, the data were not available to con￾duct such a complete economic cost–benefit
analysis. Instead, cost effectiveness was mea￾sured. This is justified since emissions reduc￾tions were and remain a national objective and
would have proceeded regardless of the out￾come of a complete cost–benefit analysis. Given
that the efforts to reduce emissions were inevi￾table, the question is, How effective were they
relative to the cost incurred?
Table 3 presents the cost of reducing pollution
for EAPS-assisted municipal interventions com￾pared with all those approved by the fund. As
the data indicate, all environmental fund
projects reduced 0.27, 0.33, and 0.04 tons of par￾ticulate matter, SO2
, and N2O, respectively, for
every $1,000 of project cost. That compares with
only 0.05, 0.06, and 0.01 tons of particulate mat￾ter, SO2
, and N2O, respectively, for EAPS-assisted
municipal interventions.
One possible explanation for part of this big
difference is that the average environmental
fund intervention was larger than the average
municipal intervention and that economies of
scale come into play. Another possible expla￾nation is that pollution reductions are based on
estimates, both at the fund and in municipali￾ties, and that cities overestimated pollution re￾ductions to sweeten the odds for loan approval.
As noted earlier, the applications go through a
fund technical review. For the most part, the ap￾plications cover similar simple technologies
that are mostly conversions from coal to gas.
A simple comparison of the amount of fuel used
(coal displaced) can provide a quick estimate
of pollution reduction for major pollutants. The
fund review committee is skilled in this basic
technique. While the team does not believe this
to be a major source of the variation between
EAPS and all environmental fund interventions,
it can account for some portion of the difference.
If the question is, When faced with limited
development assistance, where should USAID
provide its help to obtain the greatest impact
on air quality? the fund was clearly the better
choice. As table 3 shows, EAPS-assisted munici￾Table 3. Cost of Reducing Pollution
EAPS municipal interventions
All environmental fund air projects
EAPS municipal interventions
All environmental fund air projects
Project
Upgrade
Cost
Particulate
Matter SO2 N2O
$845,300
$566,170
412.1
15,056
0.05
0.27
493.4
18,651
0.06
0.33
116.2
2,321
0.01
0.04
Tons of Pollution Reduced per $1,000 (estimate)
11
pal projects reduced pollution by much less
(about one fifth that of all environmental fund
projects) for each $1,000 spent.
We now summarize the results of the two proj￾ect approaches. At the municipal level, EAPS
spent $650,000. From that investment it
■ Mobilized a one-time $3.2 million invest￾ment in new capital for environmental
projects
■ Reduced annual pollution of particulate
matter, SO2
, and N2O by 412, 493, and 116
tons, respectively
■ Trained 22 municipalities in how to com￾plete loan applications for the environmen￾tal fund
■ Strengthened the professional ties between
municipalities, consultants, and the fund
■ Strengthened one local nongovernmental
organization, the Foundation Project North
■ Created the conditions for another consult￾ing company to work with municipalities
in project preparation and packaging.
At the environmental fund level, EAPS spent
$750,000. From that investment it
■ Increased operating efficiency
■ Increased the public stature of the fund
■ Increased the viability of the fund and re￾duced its operational vulnerability
■ Mobilized an annual increment of $24 mil￾lion in environmental projects support by
the fund
■ Reduced annual pollution of particulate
matter, SO2
, and N2
O by 6,400, 7,900, and
980 tons, respectively (figures based on one
year’s leveraging).
The team’s view is that USAID’s investment gen￾erated larger and longer lasting developmen￾tal benefits at the fund level than at the
municipal level.
PROGRAM PERFORMANCE
Program performance is assessed as to 1) effec￾tiveness, 2) sustainability, and 3) replicability.
Effectiveness
Effectiveness is a measure of how well the in￾tended development assistance met the stated
project objectives. Overall institutional capac￾ity was significantly strengthened at the State
Fund for the Environment. The fund reported
carrying out most EAPS operational recommen￾dations for financial improvement. This was
confirmed by a 1998 external evaluation of the
fund by the Organization for Economic Coop￾eration and Development. Additionally, the
fund reported that working closely with the
EAPS resident adviser greatly enhanced its over￾all institutional credibility with a wide range
of financial and governmental institutions.
For example, EAPS assistance significantly
strengthened application financial reviews and
reduced loan processing times. As a result, the
fund was able to support more environmental
investments. As recommended by EAPS, the
fund also decreased the grant portion of total
project costs, used the latest cash-flow-manage￾ment software, lowered interest rate subsidies,
and charged interest on municipal loans. To￾gether, these changes further improved the
fund’s loan-processing and loan-guarantee pro￾grams. There is good evidence that EAPS sup￾port enhanced the fund’s effectiveness, and this
allowed the fund to support more projects, thus
increasing the potential for environmental ben￾efits.
12
Municipalities did not always see these insti￾tutional improvements translated into signifi￾cant service upgrades. Most EAPS-assisted
municipalities indicated that they had better ac￾cess to fund officials after EAPS. But difficulties
remained when checking on the status of their
loan applications. Moreover, municipalities
indicated that the period of time between sub￾mitting an application and receiving a response
had not yet decreased noticeably.
The project’s municipal in￾stitution capacity building
efforts were much less effec￾tive. That is, many munici￾palities reported that EAPS
assistance was not critical to
their securing environmen￾tal fund financing. Financing
of feasibility studies and or￾ganizing training sessions
did not significantly im￾prove their ability to carry
out technical, financial, and
environmental project eval￾uations. This observation is
supported by the lack of a
real difference between loan approval rates. The
rate for EAPS-assisted municipalities was 40.9
percent; for non-EAPS-assisted municipalities,
41.3 percent. Municipalities did, however,
greatly value EAPS’s facilitation role with their
application, which provided them with greater
access to the fund. EAPS assistance was viewed
as useful in only a few cases.
Sustainability
Sustainability refers to the degree to which a
program continues to provide benefits beyond
the end of development assistance. By reduc￾ing the grant portion of total project costs from
80 to 60 percent, the fund was able to better pre￾serve its financial resources, thus contributing
toward its longer term financial sustainability.
By helping improve the loan guarantee pro￾gram, EAPS assistance helped make the fund a
more stable financial institution. Charging in￾terest on noncommercial loans also increased
the fund’s revenue stream, further strengthen￾ing its longer term financial capability.
With respect to institutional sustainability, EAPS
assistance changed a pivotal fund operational
procedure such that the technical evaluation di￾vision and credit policy division now work to￾gether in a much more
efficient manner and are
likely to continue to do so.
By working closely with the
fund, EAPS managers in￾creased fund credibility,
critical to ensuring the
longer term viability of what
was still a relatively new in￾stitution.
In contrast to the likelihood
of fund operational sustain￾ability, EAPS assistance to
municipalities preparing
loan applications is likely to
have little long-term effect.
When EAPS and municipal staff met, the techni￾cal assistance could have had a more lasting im￾pact. In only a few cases did EAPS and municipal
staff actually work together on the applications.
In most cases where EAPS staff helped with the
application, they did it independently; thus,
municipal staff had less of an opportunity to
develop skills for future applications.
Feasibility studies financed by EAPS also did
not build substantial municipal capacity in
technical, financial, and environmental project
evaluation. But such assistance did help some
local consultants who carried out the studies.
Financing municipal feasibility studies neither
enhanced the ability of the municipality to con￾duct its own studies nor increased the chances
that the municipality would be able to obtain
financing for future studies.
“EAPS support
enhanced the fund’s
effectiveness and
this allowed the
fund to support
more projects.”
13
An alternative strategy might have been to work
with the environmental fund and encourage it
to provide loans for feasibility studies, with the
understanding that the loan could be included
in the overall project cost should the project be
fund financed. Otherwise, the loan could be
paid back at below-market rates of interest. By
providing consultants with an opportunity to
work with a number of municipalities, EAPS
helped them showcase their services. In addi￾tion, the consultants themselves recognized the
growing need for this sort of consulting.
Replication
Replicability refers to whether the assistance
provided to targeted municipalities has spread
to others. The issue of replicability does not
neatly apply at the fund level, because while
there are thousands of municipalities in the
Czech Republic, there is only one state environ￾mental fund. The team could find no evidence
for EAPS replication at other municipalities. This
did not appear to be an explicit project strat￾egy. When the team observed replication, it was
from municipalities sharing general informa￾tion and could not be directly linked to any EAPS
activity. Notably, cooperation between munici￾palities was limited in the northern Bohemian
sites but common in northern Moravia. Espe￾cially notable in this regard is one EAPS-assisted
municipality (Ludgerovice) that belongs to an
association of towns and villages from former
Prussian areas. Through regular meetings, these
municipalities exchanged limited information.
POLAND
There was considerable interest in obtaining
added field information about EAPS in neigh￾boring Poland, where the project has also closed
out. EAPS began somewhat later and lasted
somewhat longer in Poland. The budget for
EAPS Poland was $2.75 million, twice that spent
in the Czech Republic. The overall EAPS ap￾proach was similar—namely, to strengthen do￾mestic environmental funds and help munici￾palities get loans for environmental upgrades.
Another reason to obtain additional informa￾tion from Poland was the report that the Polish
State Fund for the Environment and several re￾gional environmental funds (absent in the
Czech Republic) were playing a much more
catalytic role. With this in mind, the team con￾ducted a limited number of site visits in Po￾land that looked mainly at the regional funds.
In contrast to the Czech Republic, there are three
basic categories of domestic environmental
funds, not just a single state fund. At the na￾tional level there is the National Fund for
Environmental Protection and Water Manage￾ment. At the provincial and regional level there
are 49 voidvodal, or regional, funds. At the
municipal level, there are more than 2,000 lo￾cal environmental funds. Like the Czech fund,
the Polish funds typically use grants as a way
of financing environmental upgrades. The team
visited two of the largest and most active funds:
the Krakow and Katowice Voidvodal Funds.
The Krakow Voidvodal Fund, now almost five
years old, benefited significantly from EAPS as￾sistance. Before EAPS, the fund had in place ap￾plication screening procedures that weighed
both ecological and financial project merits but
relied less on actual (and therefore quantifiable)
pollution measures. With project assistance the
fund was able to better quantify environmen￾tal impacts associated with each proposed up￾grade using a computerized model provided
by an EAPS implementer. As a result, the fund
reported it was much better able to prioritize
applications and award grants. This cash-flow
model was later adopted by other voidvodal
funds and the national fund, with the Krakow
fund taking the lead to help introduce and ap￾ply the model.
The Krakow fund also reported a significantly
better application approval rate from munici-
14
palities receiving EAPS investment packaging
assistance (almost 90 percent), compared with
non-EAPS-assisted applications (67 percent).
Quantifying environmental impacts had an￾other positive effect on the fund. Before EAPS,
there was a tendency for the fund’s board to
become more involved in grant decision-mak￾ing. After EAPS support, the board relied much
more heavily on the recommendations of fund
financial and technical specialists, thus making
the final grant decision-making less subject to
non-merit-based influences and thereby rein￾forcing fund transparency.
The Krakow fund clearly benefited from EAPS
assistance and was able to transfer what it
learned to help other funds. It already had a
well-defined set of technical procedures for as￾sessing creditworthiness in place before EAPS
assistance and made no mention of using the
EAPS cash-flow model. The fund lacked preci￾sion in estimating environmental impacts,
though. EAPS appeared to fill that need, and it
enabled the fund to transfer the acquired skills
to other institutions.
The Katowice fund serves an unusual voidvod
in that the region is highly urbanized and in￾dustrialized. One fifth of national industry is
located in the Katowice voidvod. A variety of
projects are considered for funding. They in￾clude environmental education (notably Earth
Day activities), forest protection, flood preven￾tion, environmental monitoring and control
systems, residential and industrial waste man￾agement, and projects that reduce air, water, and
noise pollution. EAPS worked with the fund in
a number of ways.
The Katowice fund cooperated with EAPS to
develop a computerized cash-flow planning
model and another impact model to collect and
confirm data on project environmental impacts.
The team found no evidence to confirm the use￾fulness of the cash-flow planning model but did
find that the impact model was used consis￾tently. EAPS also helped the Katowice fund
showcase its competencies and increase its out￾reach through central and eastern Europe fund
training and workshops for other municipal
governments. The fund continues to hold these
workshops. In this way, it continues to provide
valuable loan application guidance to munici￾pal governments. However, the fund stressed
that EAPS assistance really benefited the munici￾palities more by helping improve the quality
of their applications submitted and only indi￾rectly affected fund operations. Several key
fund personnel emphasized that the quality of
loan applications from EAPS-assisted munici￾palities was far superior to those before EAPS
assistance. That, they said, made their job of
evaluating applications much easier.
The investment climate for environmental up￾grades in Poland appears to have been much
more robust than in the Czech Republic. Thus,
quite naturally, the overall success of environ￾mental financing was much higher. The demand
for Polish environmental financing has been
growing since the 1990s, and the role of domes￾tic environmental funds has increased propor￾tionately. In such a dynamic market, it is hard
to say with any precision what role EAPS Po￾land played in strengthening funds and facili￾tating investment packaging without a more
detailed full-scale study. At the same time, the
team came away with the strong impression that
EAPS Poland had scored major accomplish￾ments. The voidvodal and other fund manag￾ers acknowledged receiving helpful support
from EAPS and could cite specific contributions
such as training and selected model use. More
important, they were able to put that technical
assistance to use by helping train other funds.
Compared with the Czech Republic, fund ap￾plication procedures in Poland appear to be
better documented and more widely commu￾nicated. Participant outreach is considered rou￾tine rather than rare. In short, the funds appear
to go out of their way to help applicants pack-
15
age their investments without actually doing it
for them.
The team left with the strong impression that
regional funds in Poland have definite advan￾tages over a national fund. The regional funds
appear more flexible, are closer to the environ￾mental stresses, and can more easily provide
technical support. In short, regional funds are
closer to their customer base and may provide
better service. The international donor commu￾nity and many partner organizations have long
advocated a more decentralized approach to
government services. Polish regional environ￾mental funds would seem to fit that model well.
LESSONS LEARNED
The EAPS project in the Czech Republic and in
Poland yielded a number of lessons for the CDIE
evaluation team. They are
1. Environmental regulations and meaningful en￾forcement are necessary first steps for improving air
quality. Often, one of the first questions faced
by program designers is whether a regulatory
framework already exists. When EAPS began in
the Czech Republic in March 1995, the Clean
Air Act had been in existence for several years.
The act required industries and municipalities
generating more than 5 megawatts of electric￾ity to reduce emissions according to a well￾defined compliance schedule. Failure to com￾ply meant swift and harsh penalties, fees, and
ultimately cease-and-desist orders. Many pol￾luting industries were shut down, and larger
polluting municipalities began to take action.
Smaller municipalities were less well equipped
financially and technically to respond.
When asked why they undertook environmen￾tal upgrades, the overwhelming number of city
managers pointed to the Clean Air Act. (Also
cited were citizen complaints about poor air
quality and high costs associated with ineffi￾cient, outdated heating operations.) For munici￾palities regulated by the Clean Air Act, com￾pliance was key. Progress switching from coal
to gas and the pace of district heating improve￾ments would have been much slower, if they
occurred at all, without the act. EAPS implemen￾tation was well timed. Its effectiveness would
have been seriously compromised had it pre￾ceded enactment and enforcement of the Clean
Air Act.
2. Domestic environmental funds can be vital finance
sources for municipal projects in transition countries.
The greatest impact of the EAPS project was at
the State Environmental Fund, through the
work of a resident adviser and related techni￾cal assistance studies. These led to improved
procedures and the adoption of policies to re￾duce subsidies and improve loan guarantees.
Notwithstanding the increased participation of
other sources of project financing through loan
guarantees and interest rate subsidies to com￾mercial banks, environmental funds are still
needed. They play the additional role of being
a policy instrument to implement projects that
take into account environmental and social pri￾orities. Even with improved technical and fi￾nancial analytical procedures, the fund will be
handicapped if its approval of financing is af￾fected by political factors, if it is perceived as
not transparent and open, or if its communica￾tion with municipalities is inadequate. These
problems tend to be more manageable for re￾gional funds than for national-level funds.
3. The right kind of environmental investment evalu￾ation and packaging can be effective. One of the
major impediments to increased environmen￾tal management—especially for municipali￾ties—has been the unavailability or high cost
of funds for environmental upgrades. On the
other side of the issue, the capability of mu￾nicipal project sponsors to provide investment
information in a form that banks or environmen￾tal funds can use to make lending decisions is
also important. According to EAPS project per￾sonnel, and to city leaders interviewed, munici-
U.S. Agency for International Development Washington
To order paper copies of this report, PN–ACG–628, please contact USAID’s Development Experience
Clearinghouse, 1611 North Kent Street, Arlington, VA 22209. Or you can phone (703) 351–4006, or fax
(703) 351–4039, or e-mail docorder@dec.gov. A Working Paper (“Urban and Industrial Pollution Programs:
Czech Republic Case Study”) provides additional information and can be called up on the Internet.
To access from the Internet, go to www.dec.org/usaid_eval.
Editorial and production services provided by Conwal Incorporated.
16
pal technical assistance was of little interest or
use, for three reasons: 1) Larger municipalities
claimed they already had the expertise. 2) Most
municipalities believed the fund’s approval
process was arbitrary and political, so educa￾tion or better packaging did not necessarily
improve rates of success. And 3) smaller mu￾nicipalities were not given sufficient hands-on
experience to learn the process.
Thus, EAPS’s training in project packaging was
undermined by both its targeting strategy and
its hands-off nature. City officials in the Czech
Republic and Poland made a strong case that
environmental investment packaging was in￾deed needed. They pointed out that such as￾sistance was best utilized when the fund offered
the training as part of an overall outreach ef￾fort—not just a stand-alone component.
4. To be effective, replication requires an explicit, up￾front strategy. Replication of technical assistance
at the municipal level can be accomplished in
one of two ways. The first is to develop high￾quality assistance products (such as manuals)
on how to prepare loan applications, examples
of successful applications, and specific tem￾plates for different kinds of projects, such as
coal-to-gas conversion of boilers, district heat￾ing, and wastewater. The distribution of these
products beyond the target municipalities can
lead to more replication. The other way to in￾crease replication is to target groups of munici￾palities (such as municipal associations) so
members can spread the word. Combining
these two approaches is also possible—for
example, developing high-quality assistance
products and disseminating them through
municipal associations. Unless an explicit rep￾lication strategy is planned and implemented,
the likelihood of spreading know-how to other
entities will be low.
5. The dual purpose of environmental funds must be
emphasized. Technical assistance often dwells on
the financing aspects of a fund by addressing
credit policies, risk diversification, financial
analysis, and operating procedures. These are
indeed worthy areas to target. But environmen￾tal funds are also a means of subsidizing so￾cially desirable environmental investments.
Many of the benefits of mitigating environmen￾tal damage or managing resources properly do
not accrue to those that incur the costs. There￾fore, rate of return on these activities is often
below that which is needed in a market
economy, and less investment is undertaken
than is socially desirable. In-depth interviews
with a broad range of participants confirmed
that government intervention is necessary to
increase societal welfare. This aspect of a fund’s
role is often overlooked and should be consid￾ered and strengthened in fund policy and op￾erations. Both project screening and the
allocation of subsidies offer a perfect venue for
strengthening societal welfare as an aspect of a
fund’s purpose.
For example, at the Czech Fund the cost per unit
of pollution abated is one screening technique.
A problem arises because the fund uses the sub￾sidized price of natural gas rather than the cost
to the economy. This could result in the exclu￾sion of some projects, such as waste heat to en￾ergy, where the cost per unit of pollution
reduced may be higher than the subsidized cost
of natural gas.