Chapter 3: Latvia

(continued)

3.3 Overview of the Market

The Republic of Latvia is a democratic parliamentary state. It has a population of 2.5 million (with 69 percent living in urban areas). The total area is 64,600 km². Environmental policies exist to some extent in Latvia, but they are continually revised. The Government of Latvia accepted the National Environmental Policy Plan for Latvia in 1995. This sets out the environmental policy targets for the coming decades, determines the basic policy principles, and lists the environmental policy instruments to be further developed. The Government of Latvia implemented the National Environmental Action Program (NEAP) in 1996.

Air pollution is a priority problem even though emissions from industries, power plants, etc. have declined during recent years due to low industrial production. Emissions, however, are likely to increase with the redevelopment of industry.

Eutrophication has increased significantly over the past decade due to insufficiently treated wastewater, wastewater discharges and diffuse pollution from farming and the uncontrolled use of mineral fertilizers. There is also a lack of proper watercourse management. Eutrophication and low quality drinking water remain priority problems. Further problems arise from leaching factory deposits and Soviet military installations.

Policy coordination, refinement of legislation and improved enforcement, education and institutional strengthening, the development of clean technologies, and priority capital investments in water quality and waste management are the likely target areas of future environmental actions.

Total Country Spending on Environmental Protection

Environmental expenditures in Latvia totalled USD 27.6 million in 1996 or 0.5 percent of GDP. This figured has declined over recent years. Table 3.2 outlines expenditures during the past three years. The decline is perhaps distorted by the fact that accurate data on expenditures is difficult to obtain as it is collected from many different institutions and not always compiled. An approximate distribution of 1996 expenditures is as follows: 83 percent for water and wastewater, 8 percent for air, 5 percent for waste (specifically land protection from pollution by industrial and municipal waste) and 4 percent for other various sectors (see Table 3.3). The large share of water and wastewater treatment in environmental expenditures, significant in recent years, is mainly due to the fact that municipalities have been forced to invest in water and wastewater treatment. The sector has therefore become the main recipient of municipal funds invested in the environment. The trend is expected to continue in the near future.

TABLE 3.2: TOTAL COUNTRY EXPENDITURES FOR ENVIRONMENTAL PROTECTION, 1994-1996
Year	Environmental expenditures	Share of GDP (mln USD)

1994	59.1	1.6%
1995	35.7	0.8%
1996	27.6	0.5%
Note: Figures are based on 1995 average prices Source: Ministry for Environmental Protection and Regional Development

TABLE 3.3: TOTAL COUNTRY SPENDING ON THE ENVIRONMENT (MLN USD)
Sector	1996 (mln USD)	Share

Air	2.4	8%
Water	22.8	83%
Waste	1.4	5%
Other	1.0	4%
Total	27.6	100%
Source: /100/ Central Statistical Bureau of Latvia

Table 3.4 shows state budget investments made during 1996 in the field of environmental protection. As the table illustrates, 95 percent of the state budget was devoted to water-related projects particularly wastewater treatment plants. This table is a good example of the priorities assigned by national policies to water-related issues. Table 3.5 shows the current budget of the MoE for environmental protection. Over 40 percent of this budget is currently channeled into the Environmental Protection Fund Program. A significant portion is directed toward the development of the Environmental Policy Instruments Program, the information service of the Environmental Protection Program and the Skrunda Radiolocation Station Program. As the table indicates, a surprising amount of money is being spent on environmental protection programs, funds and information services, an area which is sometimes accorded less priority by other countries of the region.

TABLE 3.4: STATE BUDGET INVESTMENTS IN 1996 (USD)
Area of Investment	Total

Protection and rational use of water resources including: wastewater treatment plants reflexive water supply systems ballast and confluence water catchment and treatment plants oil products and other hazardous or solid waste neutralization plants	4,868,200
Other: land protection from industrial and municipal waste land recultivation reserves, national parks	236,600
TOTAL	5,104,800
Source: /100/ Central Statistical Bureau of Latvia

TABLE 3.5: MINISTRY FOR ENVIRONMENTAL PROTECTION AND REGIONAL DEVELOPMENT: BUDGET FOR ENVIRONMENTAL PROTECTION, 1997 USD
Investment	Amount

Development and implementation of the Environmental Policy Instruments Program	3,554,300
Information Services of the Environmental Protection Program	2,436,300
Hydrometeorology Services Program	1,642,500
Tourism Development Program	170,200
The rational use of the earth's resources	823,000
Cultural historical territories - Libiesu krasts (the Coast of Lives)	46,600
Riga Zoo	716,600
Fees to international organizations (the Montreal Protocol, Helsinki Convention, Basel Convention, the World Meteorology Convention, etc.)	186,500
Radioactive and Hazardous Waste Management Program	968,800
Skrunda Radiolocation Station Program	2,283,300
Environmental Protection Fund Program	9,166,700
TOTAL	21,994,800
Source: Ministry for Environmental Protection and Regional Development Exchange rate (0.6 LVL= 1 USD)

Among those sources of funding identified for environmental projects in 1996, the state budget constituted 23 percent, private resources represented 38 percent, and foreign grants some 39 percent.

Table 3.6 outlines the sources of funding and the projects these funds were assigned to during 1997. Funding from credits, grants and private resources were generally directed towards water-related projects in the Riga area. Of the funding received from grants, 41 percent was directed to water projects in the Liepaja region. State budget funding was well evenly spread among water projects in various parts of the country, while funding from private resources was indicated among all projects.

TABLE 3.6: FINANCING FOR STATE INVESTMENT PROJECTS PLANNED IN 1997 (MLN USD)
Utilization of funding for the implementation of selected projects related to environmental protection under the Public Investment Program
Project	State budget	Credit	Grants	Private resources

Water supply and sewerage project for Liepaja	0.67	0.38	5.77	1.7
Water supply and sewerage project for Daugavpils	0.73	3.87	1.45	1.93
Development project for water resources management in Cesis	0.25	-	0.57	0.61
Improvement of water resources management in Madona	0.26	-	0.82	0.54
Project related to water-bodies and the environment of Riga	0.72	14.76	4.57	7.17
Establishment of a system for the storage of hazardous waste	-	2.8	0.33	-
The HPS Cascade on the Daugava River	-	10.6	-	1.03
Restructuring of heat supply systems in Jelgava	-	3.83	0.45	1.8
TOTAL	2.63	36.24	13.96	14.78
Note: Data on the actual realization of investments for 1997 are not yet available. Exchange rate (0.6 LVL=1 USD) Source: /101/ Central Statistical Bureau of Latvia

In addition, the National Program for the Protection of the Baltic Sea Environment has generated a number of investment programs:

Water Supply and Sewerage in Small and Medium Sized Latvian Towns (800+ Program);
National Solid Waste Management System for Latvia (500- Program);
Hazardous Waste Management System for Latvia;
Integrated Coastal Zone Management Planning.

The existing environmental investment programs and projects currently cost almost USD 200 million. The financing of these programs was realized by the extensive mobilization of resources and co-financing from different sources including /112/:

the state budget;
bilateral and other donors (EU PHARE);
international financing institutions (IFIs);
local financing institutions (such as the Environmental Protection Fund);
the private sector.

Where co-financing scheme has taken place, the typical breakdown is as follows:

State support 30%
Grants 30%
Loans 30%
Local government support 10%

The State Project Agency "Vides projekti" (Environmental Projects) was established to assume responsibility for the many projects managed by the MoE. Retaining the experiences and staff skills of MoE representatives, "Vides projekti" was established in July 1997.

"Vides projekti" is a nonprofit, 100 percent MoE-owned enterprise, established with an initial Statute Fund of approximately USD 3.33 million. The Statute Fund can be increased by grants from various state budgets, donations and EU assistance programs, with the funds being used only for the realization of the aims and goals described in the enterprise's statutes. In future it is envisaged that the enterprise will be privatized with the MoE retaining a significant portion of the shares. It will be managed by a director, responsible to the Board of Directors. The objectives are to provide services for all types of projects in the environmental sector across Latvia and abroad, serving both the public and private sector.

Over the next three years, "Vides projekti" will be guided by the MoE and will provide services such as project prioritization, project preparation in accordance with the criteria set by the MoE, preparation of feasibility studies, terms of reference, bidding documents, overseeing the management of bidding processes for state and municipal-owned enterprises, management of project implementation, sub-contracting for all required goods and services, and dissemination of information concerning the entire project cycle. After three years of operation, services will continue while the marketing strategy and orientation of the enterprise will be upgraded to an expanding range of clients, which it is hoped will include clients both in Latvia and abroad in both the public and private sectors.

The key sectors of operation include:

development and improvement of public infrastructure, such as water and wastewater services, solid waste, hazardous waste;
development of public sector expertise (institutional strengthening, capacity building);
spatial planning;
planning and management of stand-alone projects, group projects or rolling programs;
drafting of strategies (long and short-term plans).

The goal of "Environmental projects" is to provide services for all kinds of projects in the environmental sector and at all phases, such as:

identification of project priorities;
preparation of feasibility studies, terms of reference, and bidding documents;
project preparation in accordance with the criteria set by the MoE;
management of the tender/bidding process for the state and municipally owned enterprises;
management of project implementation;
subcontracting for all required goods and services;
dissemination of project experiences to other interested state or municipal bodies;
ongoing assessment, quality control and analysis of projects according to the terms of reference;
collaboration with project management units and various local and international financial and state institutions and organizations involved in programs of environmental protection and regional development;
preparation of project budgets and fund disbursement;
maintenance of a project database and the retention of project-related literature and documents;
coordination of the entire project cycle.

Financial turnover of "Vides projekti"

Project turnover in the second half of 1997 was LVL 160,000 (USD 267,000). During 1998 it is estimated that LVL 8.0 million (USD 13.3 million) worth of studies and projects will be undertaken in the water services and waste management sector in Latvia. It is hoped that work will be performed in other sectors such as energy, nature protection, and education. It is estimated that "Vides projekti" turnover for 1998 could be as much as LVL 4 million (USD 6.7 million).

The main national financial resources for the realization of projects under "Vides projekti" are the Latvian Environmental Protection Fund, the Latvian Environmental Investment Fund and the Municipal Development Fund.

Priority Areas for Environmental Protection

The National Environmental Protection Plan (NEPP) /112/ for Latvia was approved by the government in 1995. The plan identifies a set of priorities for investments in the environmental sector, namely: water supply and wastewater treatment, waste management (including hazardous waste treatment), nature protection, air protection (energy and transport), and sustainable development projects. Another indication of the priority areas for environmental protection can be obtained through the revenues and expenses structure of the Environmental Protection Fund, which while not significant, will grow in the future as an important source of state financing for environmental protection.

Environmental Protection Fund

The Environmental Protection Fund was created in September 1996 to support environmental projects. It functions under the supervision of the MoE and its primary goals are:

to accumulate financial resources for supporting environmental protection activities and projects;
to provide the rational and objective use of financial resources and the supervision of projects;
to accumulate financial resources that can be used in place of credits used for the realization of environmental protection projects;
to accumulate the payments from nature taxes charged for the consumption of goods and products making an impact on the environment.

Thus the Environmental Protection Fund is the manager of the state's "special budget" for environmental protection. The Fund receives 40 percent of the revenues raised from the nature resources tax, while the rest is given to municipalities. The organizational structure of the Environmental Protection Fund consists of the board and an executive body. The Fund financially supports those projects meeting the guidelines set and passed by the Fund's board. The project application procedure begins with the submission of the proposal to the Environmental Protection Fund. The main target sectors are water and air protection, waste management, nature protection and biodiversity and environmental education. Projects are awarded on a competitive basis.

During the Fund's first four months, some USD 481,680 was provided for a total of 52 projects, mainly in the sphere of nature protection and biodiversity conservation (36.5 percent), strengthening of the material and technical basis of environmental protection institutions (25 percent) and the elimination of the effects caused by extreme situations, accidents, etc. (10.6 percent).

Table 3.7 shows the breakdown of expenditures of the Fund during 1997. The total annual income of the Fund in 1997 was approximately USD 12 million. According to the Latvian State Environmental Protection Fund, these revenues were derived from:

Natural resources tax USD 11,796,500
Penalties USD 85,700
Licenses USD 4,300
Other sources of income USD 113,000

TABLE 3.7: EXPENDITURES OF THE STATE ENVIRONMENTAL PROTECTION FUND IN 1997 (USD)
Media	1997 Expenditures	Share

Water	2,344,500	64%
Air and Energy	387,900	10%
Waste Management	935,900	26%
TOTAL	3,668,300	100%
Source: Latvian State Environmental Protection Fund, 1998

Latvian Environmental Investment Fund

The Latvian Environmental Investment Fund (LEIF) was established to pool domestic earmarked resources, and foreign bilateral and multilateral funding. The target of these investments are public and private environmental projects, that are in accordance with the guidelines of the National Environmental Protection Policy (NEPP) and the National Environmental Action Program (NEAP). LEIF is a nonprofit, limited liability entity with a two-tier management structure. The organizational and administrative framework is intended to guarantee the most efficient framework for autonomy, accountability, and transparency. LEIF was formed by the MoE based on a decree by the Cabinet of Ministers of the Republic of Latvia on February 11, 1997.

LEIF has assumed and expanded upon the responsibilities of the MoE, the changes clearly separating the policy setting and implementing roles of the ministry. The major objectives of LEIF are to:

initiate a proactive approach in fulfilling the recommendations of the various international environmental agreements signed by Latvia;
institute soft lending on an evolving basis;
develop domestic capacity for project cycle management;
establish full cost recovery policies and build institutional capacity in implementing entities.

Currently LEIF is:

establishing credit appraisal, approval, and monitoring procedures;
developing procurement and disbursement training and support for clients;
determining and specifying unified financial and technical specification among various domestic and foreign investment project participants.

LEIF has initiated the "Environmental Roundtable" and a newsletter which provides a regular forum for the exchange and dissemination of information that facilitates cooperation among various environmental project implementors and donors.

The initial activity will concentrate on projects identified for the EU PHARE-financed 800+ study of safe drinking and wastewater treatment requirements across Latvia. Feasibility studies are being prepared by Finnish, Danish, and Swedish consultants for medium-sized municipalities. In addition, work is under way to select private sector projects in the cleaner technology and energy sectors. It is anticipated that the Latvian Environmental Investment Fund could begin committing funds during the first quarter of 1998.

Municipal Development Fund

The Municipal Development Fund was established as one of the three subprojects of the joint "Development of Communal Service" project between the Republic of Latvia and the World Bank. The major goal of the Fund is to mobilize and offer financial resources to local governments/municipalities for investments in local government infrastructure projects. Thus the Municipal Development Fund is an additional source of revenue for municipalities to finance their projects according to the Law on Municipalities. The tasks of the Fund also include identifying project opportunities and building municipal capacity through assistance in project design, assessment, and implementation. Investment programs are realized through program rationalization and the use of rational criteria for the geographical and sectoral distribution of resources. The Fund is especially suited to provide assistance to small local governments/municipalities that do not have sufficient administrative skills or access to financial resources.

Financial support from the Municipal Development Fund can only be received for projects in the sphere of municipal services that meet municipal and national priorities. The Fund supports projects in the following spheres: energetics, transport, environment, education, health care, public service and social care.

In the sphere of environmental protection, projects related to water supply and wastewater treatment, solid waste recycling and disposal, reconstruction and building of dams and general amelioration issues also are financed.

Legislation and Enforcement

The framework Law on Environmental Protection (1991) is the basic law that calls for environmental protection and which includes basic provisions and program guidelines on the rights of the population to a certain quality of human environment, information on the state of the environment, measures for the resolution of a number of environmental problems, environmental protection control, liability for environmental violations, international cooperation in environmental protection, the distribution of responsibilities in environmental protection and other issues.

The Republic of Latvia's Laws on Environmental Impact Assessment and on State Environmental Inspection are currently being drafted. Further framework environmental legislation includes the Laws on Hazardous Waste, Protected Areas and various regulations concerning environmental management. Many new regulations regarding hazardous waste management, wastewater management and chemicals were passed in 1996.

However, it must be mentioned that the majority of environmental standards and norms are still based on former Soviet regulations, and their adjustment will require some time and considerable financial input.

The Government of Latvia accepted the National Environmental Policy Plan in 1995. The document sets the goals of environmental policy for the coming decades, determines the basic policy principles and lists those environmental policy instruments to be further developed. During the drafting of the Policy Plan environmental problems were analyzed and appropriate measures for their resolution were suggested.

The body of environmental laws and regulations and government instructions has also increased as a result of the EU accession process.

The introduction of the polluter-pays principle into legislation means environmental considerations must be factored into all economic activities. The Law on the Natural Resource Tax of 1995 calls for the implementation of the following economic instruments:

introduction of the term "environment unfriendly product'' for products such as coal, fuel, CFCs, etc.;
increased taxation rates for environmental pollution;
issuing of emission licenses, crediting of taxes, and taxes on carbon dioxide collected as VAT on fuel.

Regulations on the State Inspectorate regulate the rights, duties and levels of competency required by the state environmental protection inspectors, as does the Law on State Ecological Expertise, which governs the procedures for the performance of expert ecological assessment for projects under development. These laws were approved in 1990 and within the first version of the Law on Natural Resources Taxes, amended in 1995.

Air

The most important legislative acts in the field of air quality protection include the Air Protection Law of 1981 and the Regulations on the Protection of the Ozone Layer of 1997. The law is complemented by many standards on air quality as well as instructions and other subordinated legislation. It applies to both stationary and mobile sources of air pollution. However, it has to be noted that the law seems to be accorded rather poor attention since it was not intended for today's market economy. While limits for air pollution in the form of permits can be applied, these are not accompanied by a deeper analysis on how to minimize pollution in the most cost-efficient manner. Thus, several new statutes are expected to be adopted in the future, including Regulations on Air Quality Standards, Regulations on the Procedure of the Control of Air Quality, Instructions on Emission Programs in Latvia, and Regulations on Normative Emissions from Stationary Pollution Sources.

Water

The following legislative acts are of importance in the water management sphere:

The Water Code, the oldest legislative act on water management (1972) and still in force today. The code regulates the principles of state management, water consumption and liability for the violation of water protection regulations.
Law on Environmental Protection (1991), which declares the main principles of natural resource protection and management and water protection.
Law on the Natural Resources Tax (1996) states taxes for the use of natural resources (including water), pollution and discharge, as well as penalties for the violation of resources use will be charged.
Law on Specially Protected Nature Areas (1993), which regulates economic activities in different protected areas, and includes water protection.
Law on the Earth's Sub-Surface Resources, which declares the rules of groundwater use and consumption and regulates economic activities.

The latest legislative act on water management in Latvia established in full accordance with EU legislation is the Law on Water Consumption Permits. The Law lists those activities requiring water consumption permits, the rights and liabilities of water users, as well as the procedure for issuing permits.

The mechanism for ensuring the compatibility of policies and legislation with that of the EU is similar to that of other sectors: the European Integration Bureau coordinates several working groups, one of which is responsible for environmental issues. All draft documents submitted to the Cabinet of Ministers for consideration are examined by the European Integration Bureau. While this mechanism works extremely well for new legislation, it is up to the various ministries to take the initiative and amend their older legislation.

Waste

The Law on Hazardous Waste, in addition to listing the general rules and the types of hazardous waste, also states the competencies of different institutional bodies, the documents required for activities involving hazardous waste, the obligations of private and legal persons, control over those activities dealing with hazardous waste, and responsibilities for the infringement of laws and international agreements.

Some supplementary regulations have been prepared; including the Regulation on Preparing Documents for Activities with Hazardous Waste, passed by the Cabinet of Ministers in 1996. The Regulations request precise documentation regarding waste generation sources, main transport routes and general disposal facilities. Further Regulations on the Classification of Hazardous Waste and the Degree of "Hazardousness" were approved in 1997.

The Nature Resource Tax Law states the fee to be charged for the disposal of a fixed amount (1m3) of waste. Appendix 3 of the Law states the amount to be paid for three different kinds of waste. The Law on Municipalities compels organization of communal services for the population, including collection and transportation of municipal waste.

The following legal acts are currently under development: the Law on Solid Waste Management expected to be passed in 1998, new landfill regulations also expected in 1998 and Technical Guidelines for the Construction of New Landfills, expected in 1999.

The Law on Radiation Protection and Nuclear Safety was adopted by the Parliament in 1994 and became effective Jan. 1, 1995. A section devoted to radioactive waste and unusable sources of radiation is also incorporated (under Article 25, Radioactive Waste). The Law makes any entrepreneur responsible for ensuring the radioactive waste and unusable non-isotopic radiation sources they produce are collected, stored, treated, placed in terminal storage and, if necessary, disposed of properly, thereby eliminating the risks to human health and the environment. The import of radioactive waste into Latvia is strictly prohibited.

The MoE is working on the development of Radioactive Waste Management Regulations in accordance with EU requirements, and these will be submitted to the Cabinet of Ministers for approval in July 1998. The new waste classification will not be incorporated into the current radioactive waste regulations for low level, short-lived waste and high-level waste. Recycling and reuse criteria for very low radioactive waste from activities related to decommissioning have yet to be worked out. This is essential for reducing expenses related to dismantling and regulating the scrap metal business.

Environmental Administration

Latvia has a well-developed infrastructure of environmental administration. The MoE was established in 1993 based on its predecessor, the Environmental Protection Committee. This helped raise the profile of environmental issues in line with development issues and within the national economy, and secured the coordination of the necessary instruments for the implementation of environmental policy with other sectors (e.g. territorial planning).

The primary tasks outlined for the MoE are as follows:

coordination of environmental protection, establishment and realization of public environmental protection policy;
elaboration and realization of state policy for the sustainable use of environmental resources;
encouragement of sustainable development according to particular territorial resources and inhabitants' needs, elaboration of state concepts for spatial planning, the urban environment, habitats and tourism;
initiation of local and international projects;
planning of scientific research and the establishment of state policy for environmental education, as well as to inform the mass media and the public on the state of the environmental and related ministerial activities.

The Ministry has elaborated a system of environmental administration which includes a central body, its subordinate organizations, and a network of regional administrative departments. These include:

State Department of Environmental Expertise (for the expert assessment of development projects);
Environmental Protection State Inspectorate (ensuring state control of environmental protection and natural resource usage);
Eight Regional Environmental Protection Departments (regional authorities of the MoE);
Local Self-Government Departments;
Environmental Data Center and Environmental Monitoring and Consultation Center;
Marine Environment Department and Geological Department;
Tourism Council;
State Authorities of protected territories - including the Slitere Nature Reserve, Regional Nature Protection Complex Ziemelvidzeme, Teici Nature Reserve and also the Cultural Heritage Area "Livod Rand" (the only remaining site of an ancient cultural minority).

Forthcoming developments include the decentralization of environmental protection, the establishment of a unified environmental data system, and increasing cooperation among all stakeholders, including the involvement of NGOs.

REC * PUBLICATIONS * ENVIRONMENTAL TECHNOLOGY MARKET - BALTICS * LATVIA