Berlin: capital on the move.

The steady and spectacular expansion of Berlin which is destined to regain its position as capital of Germany and the focus of the country's biggest industrial region by the turn of the century is already acting as a powerful magnet for financial investment to the heart of Central Europe.

Many billions of dollars are committed for investment by the world's top financial institutions in the Baltic ports serving the region. The biggest participants in the investment programme include the European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB), the Nordic Investment Bank (NIB), the Nordic Environment Finance Corporation (NEFCO) and the World Bank.

The immediate beneficiaries are such former East German ports as Rostock, which is engaged in a [pounds]2.52 billion investment programme for harbour and inland transport modernisation. But the economic effect of the transfer of Germany's capital from Bonn to Berlin, a consequence of the reunification of the divided two halves of the country after the implosion of Soviet power in 1989, is being felt throughout the Baltic basin housing nearly eighty million people.

The investment trend for the Baltic can be gauged through the success of the north German ports. Their proximity to the markets of Berlin and the surrounding prosperous Brandenburg countryside have led to a dramatic industrial expansion fuelled by investment throughout the coastal state of Mecklenburg-West Pomerania in which the ports are situated.

Like all major reforms, the $16 billion transfer of the German seat of government to Berlin, approved by the Bundesrat in a post-unification vote in 1991, still has its fierce opponents. But the process is relentlessly being kept to schedule.

The approaching deadline of 1999 has just prompted a ministerial conference attended by all the Baltic countries to speed up the implementation stage of a long-projected investment programme to relieve the inevitable, consequent environmental pressure on their highly polluted common sea. The plan originally assembled by a special high-level task force of the Helsinki Commission (Helcom) in 1990, calls for more than $20 billion investment over two decades.

Substantial additional investment is attracted to the area, as in the case of Rostock and the other former East German ports, by the lucrative business opportunities generated by the change in industries like shipping, trades, finances, insurance and energy.

Countries bordering the Baltic and underwriting the bulk of the investment are Lithuania, Estonia, Latvia, Poland, the Russian Federation, Germany, Sweden, Denmark and Finland. In addition, the programme affects areas in Belarus, the Czech Republic, Norway, the Slovak Republic and Ukraine which also drain into the Baltic.

Stephen Lintner, a specialist senior representative of the World Bank attached to the implementation task force for the Baltic investment programme, explains: 'The participating international financial institutions have worked with the countries of the region to build the programme's priorities into their lending policies, with long-term loans complemented by grants from the European Union, Germany and the Nordic countries. With these international funds supplementing local resources, a broad spectrum of projects have been designed. Estonia, Latvia and Lithuania, for example, have prepared national investment schemes incorporating the objectives of the collective regional plan in their priorities for local investment, loan applications and grants from donor countries.'

For many years, this sea served as a receptacle for the untreated sewage and industrial wastewater generated by the notoriously polluting industries and population centres under communist rule, such as Upper Silesia in Poland and Ostrava in the Czech Republic, adds an important recent study published by the authoritative Washington-based World Institute.

'Metal concentrations in the region have increased five-fold over the last 50 years,' it goes on. 'Fish from many coastal areas are now blacklisted because they contain too much mercury.'

Linter says 'the Baltic Sea is naturally vulnerable to pollution because of its semi-closed character and particular hydrography. And its vulnerability has been aggravated by the progressive destruction of its wetlands.'

The shallow, narrow Belt Sea and the Sound, which together link the Baltic to the North Sea, permit only a very slow water exchange. Industrial activity and the discharge of inadequately treated municipal waste-water, the agricultural use of chemical fertilizers as well as livestock husbandry now threaten the entire catchment area and the sea itself.

Germany's enormous economic effort exerted in response to the challenge of reunification is now stimulating a massive revival of its Baltic ports. The four - Wismar, Rostock, Stralsund and Sassnitz - are linked by the north German canal network to Berlin's own commercial waterway, the river Spree. In 1995, they handled 23 million tonnes of goods, up 30 per cent on 1992.

After the country's trade with the former Soviet Union collapsed, these eastern German ports were taken over by the Treuhand privatization agency and transformed into companies, transferred into private ownership in 1993. The result was the emergence of modem port enterprises modelled on their counterparts in western Germany.

Most impressive is the performance of Rostock which last year handled 15.8 million tonnes of cargo, a quarter of the volume handled by Hamburg, the largest German port. Rostock's port authority and harbour-related infrastructure were separated. The reorganization and modernisation programme including the construction of access roads cost $1.52 billion and initially led to heavy job losses; but since then several new commercial enterprises, including ferry-building, have created employment opportunities. Rostock has now launched another $1 billion programme to improve its canal system.

The trend is followed, although on a more modest scale, in neighbouring Poland. The London-based EBRD, which has so far raised over $500 million to promote the economic transition process in Poland, has just announced a new $67 million investment in three of the country's Baltic Ports.

Poland's two-part harbour modernisation project is to develop an efficient managerial structure and improve industrial and business facilities, enabling the ports to compete with each other and their foreign rivals.

One component of the project will provide technical assistance and training to ease the introduction of changes in the port's relationship with the central and local governments and the private sector. The other component involves finance for the construction and improvement in transport infrastructure in and around the ports.

The EBRD as well as the EIB and the Phare programme of the European Union (EU) are also part-financing a $385 million investment to modernise the Warsaw-Berlin railway line, part of the expanding trans-European network, cutting 80 minutes from travelling time and introducing important safety features such as barriers and level crossings. The EIB has so far committed over $1 billion to essential infrastructure in Poland. Its latest venture is a $142 million investment for the conversion of a depleted gas field at Wierchowice in western Poland into an underground gas storage facility.

Via Baltica, the most important road link between Warsaw and Helsinki through Lithuania, Latvia and Estonia, is being upgraded at a cost of some $50 million, with financial assistance raised by the World Bank, the IBRC and the NIB as well as the EU Phare programme. The biggest upgrading needs are in Lithuania. EIB Vice-President Wolfgang Roth, whose institution provides over a third of the development costs, explains that the road is of enormous economic importance to all countries of the region and may well speed their economic integration.

A new container terminal and the upgrading of the existing ferry terminal are under way at the Lithuanian port of Klaipeda, financed from a $12 million investment raised by the EIB. The bank earlier assisted the modernisation of the international airport of Vilnius.

Lithuania is also receiving assistance from the EBRD and NEFCO towards a $100 million project to improve the quality of water and waste-water services and to reduce marine pollution at Kaunas, the country's second largest city. The World Bank as well as Norway, Sweden and Finland are contributing to a $23 million programme to reduce water pollution in the city of Siauliai. And the World Bank is raising $80 million for the restructuring of the country's banking, energy and farming industries, as well as some social services. A $43.1 million loan in support of a $72.6 million scheme to upgrade two hydropower plants on the Daugava river in Latvia has been arranged by the EBRD.

The upgrading of the two plants at Plavinas and Kegums, with a total capacity of 1,100 megawatts, will improve their overall operational capacity, extend their lifetime and reduce their maintenance and repair costs. The bank has also assembled a $212 million investment package to reduce levels of raw sewage being discharged into the Daugava river from Riga, the Latvian capital. The investment programme is to improve the quality, reliability and energy efficiency of local water supplies.

At present, almost a third of Riga's waste-water is discharged untreated, causing incalculable damage to the regional environment. Uldis Bambe, general director of the Riga Water Authority, says virtually all the city's waste-water will now be treated before discharge.

Hence the investment of many financing institutions and authorities involved in the Latvian investment programme including the EBRC and the EIB, as well as the Swedish International Development Co-operation Agency and the governments of Finland and Switzerland.

Another marine construction project at Tallinn, the capital city of Estonia, will reduce pollution of the Gulf of Finland in the Baltic Sea. The waste-water and water supply project is to restructure and rehabilitate the existing system. It includes investment for new ground water well fields and the expansion of a waste-water treatment plant.

One objective of the scheme is to transform the Tallinn Water and Sewerage Municipal Enterprise into a self-managed, self-financing water utility independent of any state or municipal subsidies. Grants and loans to finance these initial projects have been raised by the Finnish and Estonian governments, the EU Phare programme, the EBRD and the Export-Import Bank of Japan.

Tallinn was one of the 132 pollution hot-spots in the Baltic - 35 of them in the West and 97 in formerly communist-dominated Europe - identified in the Helcom investment plan as in need of the most urgent attention. The plan earmarks a total $4 billion investment for municipal sewage treatment.

One of the biggest recipients of such investment funds will be St. Petersburg, a phenomenally prolific polluter with its five million inhabitants, many factories and inadequate sewage treatment. Helcom observes that hundreds of metal finishing enterprising regularly discharge their pollutants into the city's sewers.

Apart from directly polluting the Baltic, these discharges disturb treatment processes and municipal sewage works and contaminate the sludge produced there. Dealing with this problem alone will cost an estimated $710.5 million.

Russia is to expand the cargo handling capacity of three of its major Baltic ports: Ustluga mainly for coal exports, Batareynaya bay for oil products and Primorsk for oil and gas. Financial investment in these ventures is expected from Russian and foreign oil companies as well as the EU and the World Bank.

Nikolay Cakh, the Russian Transport Minister, has just signed a memorandum of understanding with EU Commissioner Neil Kinnock as well and the transport ministers of the other Baltic countries on the co-ordinated infrastructure development in the region.

Although the former communist-dominated countries of the region are blamed for the worst pollution, Sweden, Finland, Denmark and western Germany still continue to discharge more harmful emissions into the sea than it can safely absorb, comments the Swedish Environment Protection Agency in a recent discussion paper. The present investment programme is intended to reduce pollution despite the accelerated industrial activities stimulated by the rise of Berlin - a move of truly capital importance.

Thomas Orszag Land is an author and foreign correspondent who writes on global affairs.