The World Bank is holding up a $110 million carrot to move Russian officials and enterprises towards recycling, reducing waste production and cleaning up the environment, a bank official said Wednesday.


"We want to demonstrate that environmentally oriented projects can be very profitable," said Vadim Voronin, World Bank counsellor for energy and environment loans in Moscow.


Voronin said that the bulk of $110 million in bank loans to the Russian government, approved last week, will finance a series of projects aimed at encouraging clean production, improving water quality and recycling heavy waste.


While the credit is the bank's first loan designed specifically for cleaning up the Russian environment, the World Bank has also started paying more attention to the environmental impact of other projects it sponsors, Voronin said in an interview.


Most of the $110 million loan will only be disbursed if it is matched by another $75 million in investments by Russian banks and companies into environmental projects, Voronin said.


Russian banks, he explained, are wary of such investments because returns are far from guaranteed. By offering matching loans, Voronin said, "we reduce the risk."


Waste recovery and recycling projects can be particularly profitable, Voronin said, because valuable metals and oils are now lost due to poor filtering, leakages and wasteful production.


The loan will also pay for Western consultancies to advise the government on how to improve environmental policy and legislation, and for a coordinating body that should also manage an expected $90 million in loans and grants from Western countries such as Switzerland and the Netherlands.


Improvement of environmental law and policy making, Voronin said, "is one of the most important elements."


There are still huge gaps in legislation, for instance on the liability of a privatized factory for previous pollution, which have discouraged investors, he said.


There is also no clear liability for future pollution, leaving the government to impose fines that are lower than the cost of clean-up or purchase of cleaner technologies.


The Western advisers will encourage the Russian government to take the cost of energy resources, until recently so cheap they were easily wasted, into account when setting economic policy, he said.


When a corroded pipeline in Russia's Far North leaked at least 14,000 tons of oil earlier this fall, Greenpeace criticized the European Bank for Research and Development for lending $80 million to a joint venture that pumps oil through this pipeline.


None of the funds were specifically earmarked for improvement of environmental safety, according to Michael Stevens, general director of British Gas, one of the partners in the venture.


Voronin said that the World Bank has become much tougher on the environmental impact of projects it sponsors.


In a $500 million loan for rehabilitation of oil wells, approved this summer, the bank has included a proviso that the three eligible oil companies sharply reduce the amount of oil spilled at drilling pads, he said. One had to replace its collector pipeline, which was heavily corroded, to become eligible.


The bank is also considering ways to fund replacement of the pipeline that burst in the Far North and help pay for the clean-up, Voronin said.