Report No. 22890-AL

AlgeriaNational Environmental Action Planfor Sustainable DevelopmentStaff Sector Assessment NoteJune 28, 2002

Rural Development, Water and Environment DepartmentMiddle East and North Africa Region

Document of the World Bank

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CURRENCY AND EQUIVALENTS

Currency Unit = Algerian DinarUS$1 = DA 80.00

FISCAL YEAR

January 1 - December 31

ACRONYMS

AAA Advisory and Analytical ActivitiesCAS Country Assistance StrategyCEA Country Environmental AnalysisCZM Coastal Zone ManagementEC European CommissionEIB European Investment BankFEDEP Fonds de l 'Environnement et de la D6pollution (environment fund)GDP Gross Domestic ProductGIS Geographical Information SystemGOA Government of AlgeriaGPG Global Public GoodsGTZ German Technical CooperationIPCP Industrial Pollution Control ProjectMATE Ministere de I Amenagement du Territoire et de I 'EnvironnementMETAP Mediterranean Environmental Technical Assistance ProgramMIS Management Information SystemsNGO Non-Governmental OrganizationsPNAE-DD Plan National D 'actions pour I 'Environnement et le Developpement DurablePAP Priority Action PlanSEA Strategic Environmental AssessmentSSAN Staff Sector Assessment NoteTA Technical AssistanceUNCED United Nations Commission on Environment and DevelopmentUNDP United Nations Development ProgramWHO World Health Organization

Vice-President Jean-Louis SarbibCountry Director Christian DelvoieSector Director Letitia A. ObengSector Manager Salah DarghouthTask Manager Sherif Arif

ACKNOWLEDGEMENT

This sector assessment note was prepared by Aziz Bouzaher (Senior Environment & NaturalResources Economist, SASES) in collaboration with Sherif Arif (Regional Environment Coordinator,MNA) on the basis of the National Environment Action Plan for Sustainable Development (PNAE-DD).The Bank PNAE-DD Task Team consisted of Sherif Arif (Task Manager); Aziz Bouzaher; Maria SarrafEnvironmental Economist, MNSRE; and Mohammed Bekhechi, Sr. Counsel, LEGENV David Hanrahan,Lead Environmental Specialist, ESSD; Robert Clement-Jones, Sr. Environmental Economist, AFTENV;and Kutlu Somel, Sr. Agricultural Economist, MNSRE served as Peer reviewers for the PNAE-DD.Administrative support was provided by Syvie Creger, Program Assistant, MNSRE.

ALGERIANATIONAL ENVIRONMENTAL ACIION PLAN

FOR SUSTAINABLE DEVELOPMENTStaff Sector Assessment Note

TABLE OF CONTENTS

ACRONYMS

ACKNOWLEDGEMENT

TABLE OF CONTENTS

PREAMBLE

I. INTRODUCTION 1

II. PERFORMANCE AND CHALLENGES 1

A. The impacts of decades of centrally planned economic development 1B. Environmental performance and current challenges 2

1. The key environmental issues 22. The development impact of environmental neglect 33. The key policy and institutional factors 4

M. NEW VISION AND A STRATEGY FOR SUSTAINABLE DEVELOPMENT 5

A. A new strategic framework (2001-2011) SB. Priority actions and the government's economic recovery plan (2001-2004) 6

1. Strong linkage with the Government Economic Recovery Plan (2001-2004) 62. Program cost 73. Resource mobilization 7

IV. BANK ASSESSEMENT OF RISKS AND CHALLENGES 7

V. RECOMMENDATIONS 10

A. Bank Strategy 10B. Implementation Approach 12C. Short-Term Work Program 13

VI. CONCLUSION 13

PREAMBLE Maghreb Region. The meeting took note of-and strongly endorsed-the high qualitystandard of the document, and recommended

The present report is a staff assessment that it be submitted to the Bank's Board of theof the recently completed national Executive Directors as a GOA Reportenvironmental action plan for sustainable accompanied by a staff sector assessment notedevelopment (Plan National d'Actions pour (SSAN) highlighting:I'Environnement et le Developpement Durable,PNAE-DD, January 2002). * The strength of the proposed

government policies and activities forThe PNAE-DD, an output of the mainstreaming the environment into the

Industrial Pollution Control Project IPCP, is country's economic reform andfocused on charting a new course for development agendas;environmental management in the country, * The credibility of the consultativebased on an objective assessment of past policy process underlying the PNAE-DD, andand institutional failures, a new consensus on the the need for this process to be deepenedneed for mainstreaming the environment into and institutionalized;economic management and sectoral policies, and * The need for continued strong Bankthe implementation of a priority action plan fully support, particularly during theintegrated with the government three-year implementation phase of the PNAE-economic revival program. DD; and finally

* The need for continuing the policyThe PNAE-DD was financed by a grant dialogue on issues where the Bank's

fromthe European Commission (EC), and from views may differ with those of thethe Swiss Agency for Development and GOA, particularly with respect to theCorporation (SDC), both executed by the Bank role and establishment of new publicthrough the Mediterranean Environment environmental institutions, and the levelTechnical Assistance Program (METAP). The of financing proposed by theBank provided substantial assistance, both in Government to implement the PNAE-terms of analytical framework and economic DD.analysis, and in terms of overall strategyformulation and content. In addition, the Bank The present SSAN-which accompanieswas instrumental in developing the overall the PNAE-DD report-will be organized asmethodological framework and structure of the follow: Parts I, II and m summarize thePNAE-DD, as well as the supervision of findings, vision, and priority action plan putconsultants, the countrywide consultative forth in the PNAE-DD. Part IV and V presentprocess, and the drafting of the final report. the Bank staff assessment, and overall

recommendation for Bank support to key policyThe PNAE-DD went through a formal and investments priorities.

Bank review chaired by the MNA region ChiefEconomist and the Country Director of the

I. INTRODUCTION estinated at 5%/6-7% of GDP' or US$230-330million per year. The scope and magnitude ofthis cost is likely to offset some of the economic

1. Three decades of direct management by growth gains over time, and could underminethe state of its vast land, oil and mineral the effectiveness of the government economicresources-to support a centrally planned and reformprogram.ambitious social and economic development 4. The GOA is well aware of these issues.program, twenty years after passage of the With Bank assistance, GOA has prepared acountry's first comprehensive environmental National Environental Action Plan forlegislation, and ten years after the United Sustainable Development (PNAE-DD) tightlyNations Conference on Environment and linked to its medium-term program of economicDevelopment (UNCED Rio Conference, 1992), reforms, and with a strong focus andAlgeria's is facing enormous environmental commitment to sustainability and incorporatedchallenges which have already imposed a heavy herein by rfen. 2 Th prepa rati fburden on the well being of its citizens, and way PNAE-DD, the culmination of a 5-year process,

has been a vehicle for intensive dialogue with2. Algeria's current severe environmental GOA on the need for closer coordination withproblems are the legacy of the country's key sectors of the economy and foreconomic and social policies of the past three govestreameng othe envirorment gto thedecades. Despite a significant natural resource govuernments overall development agenda.base, and substantial investments in physical and Furthermore, the PNAE-DD has served as anhuman capital over the years, the country's important vehicle for building bridges withenvironmental problems are enormous, ranging NGOs and donors and improving the prospectsfrom water depletion (reaching crisis proportion for better donor coordination in support ofin certain areas), land and ecological agreed priorities. Finally, the PNAE-DD alsodegradation, air pollution, toxic and hazardous helps inform the ongoing process of Countryagro-mdustrial waste, to environmental hazards Assistance Strategy (CAS).and natural disasters. These problems, mainlycaused by the overexploitation of the country'snatural resources without due regard to II. PERFORMANCE ANDexternalities such as pollution, over a long CHALLENGESperiod of centrally planned management of theeconomy, were further exacerbated by weak A. The impact of decades of centrallypolicies and institutions and the inadequacy of planned economic developmentgovernance structures. If left unattended now,these problems pose a major threat to (i) human 5. The PNAE-DD has involved majorhealth and the quality of life, (ii) the productivity analytical and preparatory work to assess theand sustainability of natural resources to support current state of the environment and chart alivelihoods and improve the rural economy, and sensible course of action over the next few(iii) the efficient use of resources and the years. One of its major strengths is the clear linkcompetitiveness of key sectors of the economy. it makes at the outset between social and

economic policy decisions and the quality of the3. The social cost of environmental country's environmental resources. Thedegradation is already quite significant and willcontinue to increase if policies, institutional and Using 1998 as a reference year throughoutinvestment measures are not provided. The 2 R6publique Algerlenne D6mocratique et Populaire:direct health, resource degradation, productivity, Plan National d Actions pour I 'Environnement et leand efficiency impacts have been conservatively Developpement Durable (PNAE-DD), Minist&re de

I Am6nagement du Territoire et de I 'Environnement(Jan. 2002)

comprehensive assessment of the nature and chemical and other industries) and intensiveextent of ecological degradation in Algeria (irrigated) agriculture, was coupled with policiesreveals that beyond natural vulnerability factors of massive subsidization to both producers anddue to climate, topography, and agro-ecological consumers, and rapid urbanization (particularlylocation, past development policy and in the coastal areas) to produce considerablemanagement of the economy are central to both degradation of environmental resources andunderstanding the current sate of environmental increased risk to human health and well being.neglect and how to go from here.

B. Environmental Performance and6. After independence (1962), faced with Current Challengessevere poverty, a largely rural, very young, andfast growing population, taking advantage of its 1. The key environmental issuesvastly untapped mineral and hydrocarbonresources and the sharp increase in oil prices in 8. An extensive state of the environmentthe early 70s, opting for a system of analysis, conducted as part of the PNAE-DDmanagement of the economy based on central process, identified a number of environmentalplanning and administrative allocation or issues confronting the country, the most criticalresources, Algeria embarked on an ambitious of which are:development program aimed on the one hand atemployment creation and provision of social * Water resources scarcity. Coupled withservices, and on the other hand, at increasing low and highly variable rainfall, thecapital investment and enlarging the productive availability of water resources has declinedcapacity of the economy. Heavy industry, state dramatically over the years reaching barelyand collective agriculture, intensive extraction of 400 m3 per capita per year (less than half thenatural resources, massive subsidies, and trade indicator of water scarcity: 1000 m3/pc/yr).and exchange rate control, were the key features Water policy, focused almost exclusively ondriving economic policy. supply management by national public

institutions, with little attention to7. The social progress these policies sustainability, cost recovery, and operationsachieved was considerable3 but short-lived, and and maintenance, has resulted in a situationtheir real costs are only now becoming apparent. where agriculture uses about 90% mobilizedAs fiscal resources rapidly shrunk, and the resources, overall water use efficiency iswhole approach began to unravel, on the less than 50%, and ground water resourcesecological front, the crisis began to unfold as are being rapidly depleted. Furthermore,well. With no attention to any form of credible water quality has been continuouslyenvironmental impact assessment of policies, deteriorating, and domestic consumers areprograms, and development projects, the faced with severe shortages and low qualityintensification of natural resource extraction (oil, of service. Despite considerable investmentnatural gas, and mineral ores, as well as water, in the sector over the past 20 years, theland, and forest resources) to support the country is facing a crisis of unprecedenteddevelopment of heavy industry (metallurgical, proportions.

3 In the seventies GNP grew 7.2% per year, * Land and Ecosystem Degradation.household income increased 4% per year, Exacerbated by ecosystem fragility due tounemployment was significantly reduced, and public natural and agro-cliniatic conditions,4 aboutspending on health and education averaged 15% per two thirds of the usable land area is subjectyear. In the span of 15 years from 1970 to1985-nfant mortality was cut in half, lifeexpectancy rose sharply, universal primary school 4 Characterized essentially by seasonal and rapidlyenrollment almost doubled, and adult illiteracy was decreasing rainfall from north to south, with only 4%cut by a third., of the country-cssentially the coastal plains-

getting over 400mm of rain annually.

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to various forms of land degradation (about 2. The development impact of12 million hectares in total), including water environmental neglecterosion predominantly in the North, winderosion in the South, and salinity in the 9. The PNAE-DD demonstrates veryirrigated perimeters of the Center and the convincingly and candidly that in a relativelyWest. Slow but steady deforestation (over short period (30-35 years), Algeria'sone million hectares in the 40 years) enviromnental problems have emerged as havingcontinues to be of great concern, a clear link, and in many cases their origin, indesertification continues to threaten more past policy and institutional choices, including,than 8 million hectares of rangelands, and fiscal and incentive systems faced by consumers,even more alarming is the associated loss of producers, and government agencies.biological diversity which is very difficult toestimate. Finally, policy and institutional 10. Furthermore, the strategic and priorityfailures (including the lack of clarity and activities proposed in the PNAE-DD werecomplexity of tenure issues, urban land use anchored in an (macro) economic analysis of thepolicies, non participatory and supply-driven cost of environmental degradation as well as themanagement processes), incentive structures cost of remediation. This analysis, which by(including agriculture input and output nature-given assumptions, data andsubsidies, cereal and livestock production methodology limitations-produces only usefulpolicies), production technologies (favoring orders of magnitude of the true value ofconventional tillage, and little soil moisture environmental damages and the benefits ofand nutrient conservation approaches), and a remediation, has been instrumental in getting thesystem of watershed management environmental debate in Algeria over the past(characterized by a top-down and technical two years to focus on fundamental causes andapproaches to soil conservation and forest agree on priorities, and to bring to the discussionmanagement), are among the main factors table stakeholders of different persuasions,contributing to the extent and severity of including members of civil society and agenciesland degradation. like the ministry of finance, and others.

Urban and industrial pollution. In addition 11. The analysis shows that the economicto a fast growing population and rapid, cost of environmental degradation is of the orderuncontrolled urbanization, the past focus on of 5% of GDP (about 2% due to health anddevelopment of publicly owned and quality of life impacts; about 2% due to theoperated heavy industries (e.g., chemical, degradation of the country's natural capital; andand metallurgical) close to fragile about 1% due to impacts on the globalecosystems and population centers, the environment. Moreover, the analysis shows thatintensive-and heavily subsidized-use of the social cost associated with inefficiencies inenergy sources favoring diesel and leaded resource use, production of goods and services,gasoline in the transportation sector, and the and overall competitiveness, are potentiallylack of enforceable requirements for pre- significant. Finally, the analysis shows thattreatment of industrial and domestic effluent potential investmnents of the order of 3% of GDPas well as the proper management of solid (about.10 billion DA, or US$140 million) perand hazardous waste, are the main factors year, would be needed for at least the next tenbehind the emergence of serious risks to years, in order to achieve environmental qualityhuman health and the quality of life (from consistent with the World Health Organizationrespiratory and water bome diseases, (HWO) and World Bank guidelines,5 as well asparticularly affecting the poor and other Algeria's own emerging environmentalvulnerable groups), as well as to the standards. Compared to OECD countries wherecountry's cultural and archeologicalheritage, and coastal resources. 5 As indicated in the World Bank's Pollution

Prevention and Abatement Handbook (1998).

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the economic impact of environmental capacity for planning, monitoring, anddegradation is equivalent to around 1% of GDP, evaluation, and (v) lack of accountability.it is clear the "cost of inaction" is too high andwill continue to increase, and the potential * Agriculture and rural development policy:benefits of sound environmental management Focused mainly on productivity increasesare substantial. through (administrative) supply

management, and lack of conservation3. The key policy and institutional incentives, agriculture and forest policy,factors coupled with complex land tenure issues, led

to a major deterioration of both the quality12. Underlying all these issues is the lack of of land, vegetative cover, and wateran effective policy environment, weak laws and resources, as well as the quality of life of theinstitutions, insufficient public awareness, rural population.inadequately developed information andanalytical systems, and overall poor * Land use policy and urbanization:environmental governance. In addition to Industrial location policy favoring factoryidentifying these fundamental weaknesses, one siting next to big cities and coastal areas, asof the most important contributions of the well as a lack of any urban and ruralPNAE-DD is the emphasis it has put on going development planning or strategy, combinedbeyond the environmental issues (i.e., the to produce massive rural-urban migration (insymptoms) and identifying the key underlying 1966 less than a third of the population livedcauses, which are primarily related to the in urban areas, compared to over 60%policies and institutional failures, and which today), and severe encroachment on naturalinclude: resources.

* Population growth: In a span of 40 years, * Industrial development policy: Thethe Algerian population has increased three- emphasis on development of heavy industryfold (from 10 million at independence in as engine of economic growth, coupled with1962 to over 30 million today). the lack of land use planning, and the

absence of credible environmental impact* Subsidy policy: Until recently, driven by assessment, led to loss of large areas of

socio and economic objectives, subsidies- prime agricultural land, overexploitation andin the billions of dollars-to both consumers pollution of fresh surface and groundwaterand producers (for water, electricity and resources.other energy products, agro-chemical inputs,credit, etc.) have resulted in serious fiscal * Integrated Coastal Zone Managementand budgetary problems, inequities among development policy: Because of trade anddifferent income groups, and concomitantly, transportation access as well as availabilitysevere environmental degradation and water and other resources, industrialpressure on natural resources. development, urbanization, and lack of

rational land use planning have been the* Water resource management: Despite main reasons for severe environmental

significant investments over the years, water degradation of coastal resources, includingresource management policy is in serious water and air pollution, solid and hazardouscrisis, because of several fundamental waste, and degradation of wetland andproblems, including: (i) quasi-exclusive coastal ecosystems.reliance on supply management, (ii) lack ofeconomic pricing and use of efficiency * Legal and Institutional Framework:criteria for cross sectoral allocation, (iii) Despite the enactment of a friamework lawlack of an appropriate tariff and cost in 1983, and various reforms over the years,recovery policy, (iv) weak institutional environmental management in Algeria has

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been consistently weak because of: (i) the environmental policies with overall economiclack of political commitment to credible policy. In this regard, environmental benefitsregulations, institutional streamlining, will flow first from the deregulation of themonitoring and enforcement; (ii) the weak economy (started in the late 80s), and which wasfinancial, technical and human resource aimed at dismantling the system ofcapacity of environmental institutions; (iii) administrative management of the economy,severe governance problems (e.g., including price and fiscal reforms, trade andenvironment was housed in ten different foreign exchange liberalization, removal ofdepartments of line ministries in the last 20 subsidies, and creation of an enablingyears); and (iv) institutional fragmentation environment for attracting foreign private(environmental issues were dealt with in a investment.number of other agencies, includingagriculture and fisheries, energy and mineral 15. Based on a vision of sustainableresources, industiy, water resources, development anchored in a thriving market-transport, public health, municipalities, etc.). based economy with efficient institutions andIn 2000, the emergence of a Ministry of strong regulatory oversight, the PNAE-DD putsLand Use Planning and Environment forward a four-pronged strategy for getting there(MATE) has opened new perspectives and (more details are given in the document itself):has led to the completion of the PNAE-DDand the emergence of a new vision and a a) Improve human health and the quality ofstrategy for the enviromnent sector to be a life of the population through:key player in promoting sustainabledevelopment in Algeria (section m below). * Reduction in the prevalence of water

borne diseases, using better serviceprovision and increased access to water

III. NEW VISION AND A STRATEGY and sanitation, and improvements inFOR solid and hazardous waste management;

SUSTAINABLE DEVELOPMENT * Reduction in the prevalence ofrespiratory diseases, through betterprevention and control of air pollution

A. A New Strategic Framework (2001- from industrial sources, the introduction2011) natural gas and other of cleaner fuels,

and unleaded gasoline.13. While completing its transition towardsa market economy, Algeria has opted for b) Improve the productivity and sustainabilitysustainable development. The option of a of the country's natural capita, through:market economy is now seen as the key vehiclefor achieving both sustained economic growth * Sustainable land and watershedand significant environmental improvements. management, using participatory andThe economic reform process, started in the mid community driven approaches, with80s, and aimed at deregulating the economy and strong linkages to agriculture, ruralcreating an enabling framework for private employment, rangeland and watersector participation, focused on fiscal, trade, and resource management,price reforms, as well as the elimination of * Institutional reform and systemsubsidies, and the introduction of cost recovery improvements m the irrigation sector,measures, has been coupled with changes in .Forest conservation including additionalincentives structures and the strengthening of forest coverage; andenvironmental management institutions. * Improved protection of coastal and

14. Therefore, the PNAE-DD points to the "oasis" resources.need for clear articulation between

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c) Improve resource use efficiency and a) Improvements in human health and thecompetitiveness of the economy, through: quality of life of the population:

* Improved incentive structures for public * Citizens' access to drinking waters, andand private sector operators, particularly quality of service, throughthrough economic pricing, user-based improvements in distribution networks,management approaches, and re-use and tariff reform, private sector participationrecycling, and adoption of export- (one pilot concession), institutionalfriendly environmental management reform of water agencies;systems; * Delivery of sanitation services, through

* Rehabilitation and sustainable rehabilitation and managementmanagement of water distribution improvements of waste water treatments(including irrigation systems; and plants, pilot concession to the private

* Improvements in trade facilitation sector, and institutional reform of the(including improved ports efficiency national sanitation agency;through dredging). * Solid and hazardous waste management,

through implementation of the keyd) Improve the global environment, through: provisions of the Solid Waste

Management Law, particularly in the* On-site biodiversity conservation (e.g., areas of cost recovery, and maintenance

natural parks and protected areas); and rehabilitation, and initiation of acontribution to the reduction in green number of studies.house gases through increased * Industrial pollution control, passage ofreforestation, and better management of the Environment Law, preparation ofoil and gas fields; and environmental impact assessment

* Elimination of Ozone Depleting guidelines and regulation, andSubstances (both production and implementation of the environment andconsumption). pollution abatement fund (FEDEP);

Air quality management capacityB. Priority Actions Plan through the introduction of fiscal

measures for promotion of clean fuels,1. Strong linkage with the Government's vehicle inspection, and air qualityEconomic Recovery Plan (2001-2004) monitoring; and

* Environmental govemance, including (i)16. Because of relevance and timeliness, the setting up 3 new public institutions forpriority actions plan (PAP) which emerged from training, information systems, andthe PNAE-DD, contributes to the strategic monitoring; and (ii) preparation of aobjectives of section A above, and supports the "local environmental charter."implementation of the govenmment's medium-term economic recovery plan ("Plan de la b) Improvements in the productivity andRelance Economique'). The key priority areas sustainabiity of the country's naturalof PAP include institutional measures and pilot capital:investments to bring about improvements inpublic health and vulnerability, with a strong * Improved land management, through:linkage to poverty reduction. (i) initiation of a number of studies and

development of a knowledge base onland tenure issues and options, therelationship between natural resourcemanagement and poverty, and a masterplan for desertification mitigation and

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adaptation strategies; (ii) increased legislation already on the books, and theparticipation of the private sector in the introduction of economic and fiscal measures."fruit trees concession program;" and In this regard, a number of fiscal provisions with(iii) continue the program of rural strong environmental content proposed in theemployment; PNAE-DD, have already been implemented by

* Improved management of irrigation the GOA in the 2002 Budget Law (Loi dethrough completion of a tariff study, and Finances). These fiscal measures include: (i)awareness raising among irrigation substantial increase in solid waste collectionagencies and farmers; fees, and provision for full cost recovery by

* Improved forest management by municipalities within three years; (ii)piloting a joint management and private introduction of a special tax on collection ofsector concessions program, and special and hazardous waste, with thestrengthening monitoring capacity requirement on the part of industry to acquirethrough the introduction of remote incineration or proper disposal methods withinsensing and GIS techniques; three years; (iii) revision of the existing

* Improved biodiversity conservation with industrial pollution charge in order to link it toa special attention to desert ecosystems, the estimated amount of emissions; (iv)through the creation of a new center for introduction of a tax on air pollution fromthe development of biological resources, industrial sources; and (v) introduction of a taxand strengthening institutional capacity; on dirty fuels and also aimed at promoting theand use of unleaded gasoline.

* Protection of coastal resources, throughdevelopment of new legislation, and 19. Donor collaboration. Because of theinitiation of a number of studies on estimated resource needs and the time lag untilcoastal zone management (CZM). full cost recovery for users is achieved and

implementation of the "polluter- pays principle"2. Program cost are in place, the PNAE-DD proposes a strategic

approach to donor collaboration. Donor funding17. The total estimated cost for would be sought in the short and medium term,implementing PAP-as described above-is would be linked to performance, would beUS$320 million per year for three years (which bundled with technical assistance, knowledgeis equivalent to 0.69% of 1998 GDP). Of this and experience sharing, and would be phasedcost, about one fifth or US$64 million is out over time.earmarked for institutional reform measures, andthe rest is either for pilot investments, or forinvestments where the policy and institutional IV. BANK ASSESSEMENT OF RISKSframework is either well advanced or is already AND CHALLENGES AHEADin place. Finally, as a strong sign of ownershipand commitment to the objectives of the PNAE-DD, GOA has already committed an indicative' ThePNAE-DD is a remarkable achievement...three-year budget allocation of US$400 million(2002-2004). 20. The PNAE-DD results from years of

steady-and at times difficult-policy dialogue3. Resource mobilization between the Bank and GOA. The dialogue

focused on the one hand on helping complete,18. Internal recourses. The implementation modernize, and give credibility to Algeria'sof the PNAE-DD, while calling for relatively legal and institutional framework forsubstantial new financial resources, is premised environmental management, and on the otheron more efficient use of public environmental hand, on mitigating some of the most severeexpenditures, improvement in enforcement of public health and ecological problems through a

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high impact Industrial Pollution Control Project6 PNAE-DD moves into the implementationin the Annaba region. phase.

a) Priority setting and institutional21. In the . mist of overall political coordination. Despite strong consultativeinstability, sluggish economic performance, and and analytical bases, and overall consistencyfrequent institutional changes, the PNAE-DD is with the Bank Corporate Environmenta remarkable achievement; it reflects best Strategy and its MNA Regionalpractice in terms of economic analysis and Environment Strategy, the PNAE-DD set ofstrategic thinking about environmental issues, is priorities remain quite ambitious and do notbased on one of the most comprehensive take sufficiently into account the absorptiveassessments of the state of the environment ever capacity and the fragmentation of localconducted in Algeria, and consolidates many institutions. Although GOA is keenly awarestrategic exercises, papers and sector reports of these issues and has taken steps toprepared by a team of local experts and mitigate these risks, the Bank believes thatgovernment agencies, as well as extensive in setting up the policy and investrnentconsultations with all key stakeholders. measures, it will be desirable to focus in ourFurthermore, the PNAE-DD has strong policy dialogue with GOA, on few activitiesgovernment ownership and support at the that would have the highest demonstrablehighest levels. It is an evolving document, environment impact and for which awhich constitutes a "marker" and sets out a propitious enabling environment is in place.process underlying a comprehensive andambitious program anchored in ongoing b) Institutional capacity development.economic and institutional reforms, and aimed at Although the PNAE-DD clearly identifiedestablishing the foundations of sustainable the critical areas where institutional capacityeconomic development in Algeria. It is quite needs strengthening, the Bank has hadremarkable that Algeria, confronting a major extensive dialogue with GOA regarding itseconomic crisis, nevertheless devoted extensive proposal to set up five new publicly fundedefforts to the issue of environmental environment institutions,8 of which two, thesustainability while preparing its new economic solid waste agency and the environmentreform program. training center, have already been approved.

The Bank's view is that the government's... But yet, in the Bank's view, while the PNAE overall approach to environmental capacity

DD is a solid starting point, it will require building is sound, but that a number of riskscontinued coordination to ensure effective and issues need to be fully considered,

implementation ofpolicy choices... including: (i) the real demand andwillingness to pay for the services of such

22. As indicated in the preamble of this institutions; (ii) fiscal and sustainabilitynote, notwithstanding a very positive evaluation implications; and (iii) the alternative ofand overall strong support for the PNAE-DD,7 considering first strengthening existingthe Bank identified a few areas where further public institutions, universities/researchevaluation and continued dialogue with GOA centers, or, even the capacity of the privateshould lead to additional improvements as the sector. Furthermore, the role of these

institutions-especially the solid wasteagency-still needs to be clarified,particularly in terns of whether their main

6 Industrial Pollution Control Project (IBRD-4034)7 The Bank has co-sponsored a lhgh-level donorconference, which was held in June 17-18, 2002 in 8 The proposed new institutions are: solid wasteAlgeria, to present the results of the PNAE-DD agency, coastal zone management agency,process, to showcase the first elements of its environmental training center, center forimplementation, and to seek donor collaboration and environmental information and clean production, andsupport an agency for biological diversity protection.

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function should be strategic planning and from being treated separately fromregulatory oversight, versus centralized cultural heritage, and its developmentimplementation. International experience should be based on strategicclearly shows that the most efficient way of environment assessment (SEA).delivering local services like water supply,sanitation, and solid waste is through local * Complexity of natural resourcesutilities, under government regulatory management problems. Havingoversight with community participation. identified the central role played by

water management and land tenurec) Priority program cost and absorptive issues for the sustainability of natural

capacity. Although in overal in agreement resources and people's well being, it iswith the strategic objectives and priority nonetheless important, in terms ofaction areas, the Bank considers the priority actions in the PNAE-DD, tomedium-term program proposed by GOA in take into account both the complexity ofthe PNAE-DD to be overly ambitious both the issues, the political economyin terms of scope and achievability, and in constraints, and lessons learned fromterms of the proposed level of financing on-going projects in Algeria andrequired. Given the slow absorptive globally.capacity and track record of publicinstitutions in Algeria, the proposed * Governance. The PNAE-DD has puts ainvestment program of US$970 million over great emphasis on the need forthree years may not be fully realized. deepening the consultation process,Therefore, the Bank has urged GOA to transparency of environmentalclosely monitor progress and *make institutions, strengthening localnecessary adjustments in the size of the institutions, and public awareness andpriority program as the implementation of information dissemination, but wasthe PNAE-DD unfolds. silent on the question of the local

administrative reform andd) Specific thematic and environmental decentralization process-and its

issues not adequately addressed. The implications-being considered by theBank proposes strengthening the PNAE-DD Government as a mean to empowerprocess, as it moves into implementation, in local government and local communitiesthe following areas: on environmental management.

* Poverty-environment linkages. In order e) Dissemination and consultation process.to strengthen the conclusions reached on The Bank recommends that the momentumthe overall macro-economic impact of gained during the preparation phases of theenvironmental degradation (which is an PNAE-DD in terms of consultations andexpression of welfare loss for current information dissemination should not be lostand future generations), the Bank and should extend to the local level (regionsrecommends that distributional impact and municipalities) during the upcomingbe highlighted more clearly by giving preparation of "municipal/local environmentmore attention to poverty-environment charters."linkages during specific program design,implementation, and monitoring &

evaluation. ... But GOA is already taking appropriateactions to mitigate these risks

* Integrated Coastal Zone Management.Although the two are clearly linked, 23. Well aware of these implementationbecause of the major cross-sectoral

issus inolve, CZ woud beefit nsks and past performance issues, GOA viewsissues involved, CZM would benefit

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the development of the capacity of key public environment into target policies, programs andinstitutions, not only as a major factor for projects at the national and local levels toenhancing the (technical and financial) promote sustainable development. Thisabsorptive and delivery capacity of the country, approach requires strong commitment andbut also as a catalyst for developing capacity involvement from all departments and levels ofwithin the private sector and non government govermment, including civil society and theentities. In this regard: private sector, and is reflected in the proposed

The env.ronment training center is conceived (below) Bank strategy, instruments, and short-as a "very light" institution, serving needs that termn work program for suNn thare not covered by other more formaleducational institutions, and targeted at staff oflocal governments and economic finns. A. Bank Strategy

* The solid waste agency will be a planning and 25. The Bank's overall approach forregulatory agency, whose main role will be to supporting the implementation of the PNAE-DDprovide technical support and information to will focus on addressing critical constraints andmunicipalities and local governments, providing the enabling conditions for truly

* The centerfor cleanerproduction will operate mainstreammg the environment in both theas an information and technical assistance lending portfolio and the government's policiesentity, serving the needs of production and and programs, and will be guided by the keyindustrial units, on-demand. operating principles of the MNA Strategy,

namely:* The coastal zone management conservatory

will constitute a forum for dialogue between a) Sharing knowledge. By focusing on fourvarious actors involved in the use and/or areas where the Bank has comparativemanagement of the coastal space, and will advantage and global experience inprovide value added in the form of studies and mainstreaming the environment, with theassistance to regional and local governments aim of encouraging policy and institutionalregarding their land use and conservation reforms: (i) the use of economic criteria andpolicies. valuation of externalities, (ii) the linkages

between environment and poverty reduction,* The center for biodiversity protection will be a (iii) energy and environment, and (iv) trade

national reference and information entity, and environment. This will build on workaimed at the development and conservation of already undertaken as part of the PNAE-DDthe country's biological resources. and aimed at improving the prioritization of

public sector spending to focus oninvestments with high environmental

V. RECOMMENDATIONS benefits (e.g., water supply and sanitation,solid waste, and land management). Inaddition, Bank support is expected to further

24. Withi the overall framework of the emhaiz th*niomna eeiso* , . ~~~~~~~~~~emphlasize the environmental benefits ofWorld Bank's Corporate Environment Strategy continued deregulation of the economy, thein the MNA Region, the PNAE-DD will form use of economic and market basedthe basis of the sector dialogue between the instnunents, trade policy, sound naturalBank and the Government of Algeria. This resource management, and efficient publicdialogue will be anchored in the new keyoperating principles of the overall MiAstrategy9 and will focus on mainstreaming

flexibility and quick response-are discussed indetails in: World Bank: Middle East and North Africa

9 These principles-knowledge sharing, use of high Region Strategy Paper. Draft for discussion, Marchimpact strategic lending, selectivity, partnership, and 10, 2002.

10

expenditures and service delivery with the * Public Sector efficiency and governancehighest impact on poverty reduction.'° will be addressed through improvements

b) Using high impact strategic lending. By in the management of environmentalcapitahzing on analytical and advisory institutions and agencies, building onactivities planned for FY03-05, three - the ongoing activities of IPCP, whichpriority sectors in the PNAE-DD with are aimed in part at enhancing thepotential for significant contributions to effectiveness of the ministry ofpoverty outcomes will be supported: environment and land use planning

(MATE), and its regional environmental* Water and wastewater, by incorporating inspectorates. Furthermore, through the

environmental objectives and Solid Waste Management Projectcomponents into the design of both (planned for FY04), the capacity ofinstitutional reforms and investment municipalities will be strengthened bothoperations. Emphasis will also put on technically and in the area of financialwater demand management especially management and cost recovery. Finally,on reducing water consumption and through Rural Employment II (FY03), aimproving water conservation and highly participatory EA process willefficiency; ensure that sub-project designs

incorporate environmental priorities of* Urban development, by helping improve importance to local communities and

the design of urban services (water and stakeholders.sanitation; and solid waste) and

traspot pertios. In arale, * Private Sector Development will bethrought ioermations. dIs n pand. , enhanced through planned Technical

awareness campaigns, local Assistance under METAP and IPCP onawareness campaigns, local environment and trade, environment andcommunities will be assisted to acquire finance (particularly private sectorinformation knowledge concerming the finance), and environment andnegative impacts of poor waste privatization. In particular, asmanagement practices international trade is increasingly

* Rural development and management of subject to environmental legalnatural resources are and will continue requirements, trade openness must beto be an integral part of our lending accompanied by internal liberalizationoperations. The ongoing Rural to enable domestic firms to competeEmployment Project as well as the with international ones, taking intoSecond Rural Employment Project account the cost of environmentalunder preparation have the objective of compliance. Private capital can flowcreating rural employment through the only if private investments meet theinstruments of natural resource basic criteria of sector creditworthinessmanagement and the protection of the and there is a secure legal framework, aenvironment sound regulatory regime and an efficient

c) Focusing on fundamental challenges. By banking sector to provide finance andc) . .. . , ....... minimize liability exposure.addressing critical constraints in threepriority areas: * Water management. As part of the

region's water advisory program (FY03-05) and the planned agricultural strategy(FY04), the Bank will assist Algeria in

'° The latter will be developed in the context of the developing a water management policydiagnostic study for poverty strategy and social focused on sustainability of resource useprotection to be completed during FY 03. and quality, and economic efficiency

and equity; such a policy 'would

underpin the further development of introduce strategic environmentalstrategies for water allocation, municipal assessment (SEA) in the water and energywastewater and industrial discharges, sectors.and overall water quality management.

B. Implementation Approachd) Partnership. By continuing and ..

strengthening Bank collaboration with 26. The Bank will use five main tools N Itsdonors and other partners, particularly in the DDpfollowing areas:

a) Priority Setting: Through assisting the* With the five METAP Partners (EC, Ministry of Land Use Planning and

EIB, UNDP, Finland and Switzerland) Environment (MATE) as well as key sectorand focusing on harmonizing ministries (such as the ministries of waterapproaches and providing technical resources and energy) in setting their ownassistance in environment and trade, environmental priorities and in improvingenvironmental assessment, coastal zone their environment management capacity.management, solid waste, and water Particular attention will be given to buildingquality management; a local capacity for understanding linkages

between poverty and environment, energy* With bilateral and other institutions and and environment,, trade and environment and

partners of Algeria, through the the economic evaluation of environmentalInternational Conference for the externalities.Env1ronment, planned by GOA for June17-18, 2002 with the support and b) Strengthening Due Diligence Capacity.collaboration of the Bank, and aimed at Through assisting GOA in strengthening itsdisseminating the PNAE-DD, overall capacity in the area of environmentshowcasing the initial results of its and social assessment. In particular,implementation, and engaging other strategic environment assessment will bedonors to assist Algeria in implementing introduced through a structured learningits short-term PAP. program aimed at building in-country

capacity for upstream integration ofe) Responding flexibly and quickly. By environmental considerations in the

building on the momentum and the "space" planning and sectoral decision makingcreated by the PNAE-DD process, the Bank processes.would stay the course of its dialogue withGOA on issues related to overall c) Integrating Environment into Bank'senvironmental sustainability and Instruments. Through primarily supportingimplementation. In this regard, the MNA the environmental priorities of the PNAE-region Business Plan for FY03-05 has DD through the CAS, AAA work, andalready provided a total amount of program and project design in water andUS$150,000 for supporting the policy wastewater, and urban and ruraldialogue on institutional development, development.mainstreaming tools and help establish aNEAP monitoring and evaluation capacity d) Capacity Building. Through strengtheningin the country. Additional resources from the capacity of key sector ministries, localthe Environment Mainstreaming Fund (GPG govermments, and municipalities in technicalfunds) will be allocated, as appropriate, to and managerial matters, as well as policydevelop an in-country capacity to assess planning and evaluation, and managementpoverty-environment linkages, prepare a information systems (MIS).country performance analysis (CEA) and

12

e) Private Sector Development: Through VI. CONCLUSIONIPCP (ongoing) and future watermanagement and urban developmentprojects, the enabling environment for 27. The success of implementing the PNAE-private sector participation will be enhanced DD will require more than the proposed Bankthrough development of a realistic and assistance, which, although highly targeted andenforceable environment protection law, a catalytic, is quite modest compared to the scopeworkable system of environmental and severity of environmental problems inassessment (EA), realistic and predictable Algeria. In the end, GOA needs to be in theenvironmental standards and guidelines to driver's seat and maintain political commitmentprovide support for sustainable private and a sustainable reform program on whichsector development. much of the environmental improvements will

depend. This will require time, patience andC. Short-Term Work Program perseverance. After all, Algeria is publicly

committed to sustainable development.25. The Bank's work program in However, because environmental sustainabilityenvironment for FY 03 consists of: requires a long-term view and an integrated

systematic approach, its greatest benefits willa) Mainstreaming the environment into the happen in the longer term. It would be

CAS; shortsighted to try to justify the continuation ofBank's assistance based only on its expected

b) Providing input in the diagnostic study on immediate tangible benefits, important as thesepoverty and social protection and the may be. Since the GOA and the Bank areagricultural strategy; committed to environmental sustainability, Bank

assistance should therefore continue to be ac) Initiating 1-2 follow-up activities of the long-term, forward-looking program that would

PNAE-DD such as establishing the an office help build the country's capacity by providingin MATE for the implementation, knowledge and the best intellectual andmonitoring and follow-up of the NEAP and professional resources available to assist ininitiating policy dialogue with MATE and addressing priority emerging and longstandingthe donors on institutional development; environment issues.

28. Since the early 90s, the Bank has beend) Contmiumig the imrplementaton the major environent policy interlocutor in

focusing primarily on the imnprovement Ofthe legl .ramework, the establishment of Algeria. Its presence is needed now even morethe legal fi.amework, the stabhshment Of than in the past to play its catalytic role of

integrated pollution control and the addressing the root causes of inadequateoperation of the National Environnent and environmental management and in integratingPollution Control Fund; environmental concerns into decision making

e) Completing the preparation of the Second and the management of the economy, providingRural Employment Project which would be tools for environmental policy analysis andimplemented in 2003 linking project preparation to investment.

Through the Bank's association in the PNAE-f) Preparing the Solid Waste Management DD process, significant outcomes can be

Project; and achieved, including: more effectiveenvironmental policy at national and local level;

g) Continuing the METAP activities in the improved efficacy and coherence in the use offield of environment assessment, environmental expertise; increased capacity offild ofenviro nment assessment, integratedcoenvironmental institutions, effective dueenvronmen mand trande i d casta diligence in the implementation of environmentzone management. and solid ~and social safeguards; multiplier effects due tomanagement.

13

synergies between different environmental challenge that the Bank has accepted to assumeprograms financed nationally or with other in order to help Algeria improve the quality ofdonors; and dissemination of lessons learned and life of the Algerian people now and in the future.best practices from similar experienceelsewhere. Accompanying Algeria in theprocess of environmental sustainability is a

14

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