Feature story

Life’s returning to Serbia’s Lake Palic

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Related links Serbia homepage Environment homepage City of Subotica Municipal Infrastructure Recon. Programme [Project Summary Document] EBRD lends to fifth municipality in Serbia [Press Release]

Hotelier Miloš Ivanović

Sparkling clean water will benefit flora and fauna.

A cleaner lake will attract more visitors.

EBRD loan, donor funds clean up pollution

When hotelier Miloš Ivanović casts his eyes around the shores of Lake Palic near Serbia’s border with Hungary, it’s obvious he’s not seeing what is there but rather what could be there.

“The Lake Palic area used to be one of the top four tourism destinations in the Austro-Hungarian empire,” says Mr Ivanović, who manages the century-old Elitte Palic, one of the art nouveau hotels for which the area is renowned. “We’re in contact with a long list of people wanting to invest in water-related facilities such as a water park. But they won’t do so until the lake is fixed.”

Fixing the lake, or rather the wastewater and sludge running into the lake from the neighbouring city of Subotica, is the aim of a complex EBRD and donor-funded project to bring Lake Palic water quality up to European Union standards. A €9 million EBRD loan and €2 million grant from the European Agency for Reconstruction (EAR) are helping the Subotica municipality to improve its wastewater treatment plant.

This includes adding capacity to remove, from wastewater, phosphorus and nitrogen that currently flow into Lake Palic. In excess these two chemicals cause lake ‘eutrophication’: they fertilise the growth of algae which use up oxygen in the water, killing off the fish.

An almost-dead lake

“In the middle of July you’ll see thousands of people strolling around the lake, but only 10 people in the water,” says Mr Ivanović. “I have never had a guest wanting to swim.”

The water may be safe for swimming but it is unappealing because it is inky green; in hot weather, it smells and sometimes there are dead fish floating on top. “Our guests are disappointed, big time, with the quality of the lake,” says Mr Ivanović, wrinkling his nose. “The economic impact of cleaning up the lake would double our business here.”

“The quality of water in the lake was getting worse every year so we had to act,” says Subotica mayor Géza Kucsera. Cleaning up the lake will boost recreation options for residents of his city as well as bringing in tourists from farther afield.

Paying for what you get

Improving water and wastewater services is not just about putting in new equipment, says EBRD banker Ulf Hindstrom, EBRD operations leader on the project.

Equally important is raising the financial performance of water companies as service improvements – and the EBRD’s loans – ultimately have to be funded through consumers’ water bills. But water companies in much of the EBRD region have been bedevilled by the fact that water tariffs have been kept low for social and political reasons. On top of this, governments have put little effort into the unpopular business of collecting payment for water services.

This adds up to a lack of funding to maintain, let alone improve facilities, leading to problems such as pollution. Many municipalities feel caught between a rock and a hard place: they need to raise tariffs to fund services but fear political backlash if they do so. However, the EBRD cannot invest in such vital municipal projects unless tariffs are at a level to sustain services long after the Bank has left the scene. Subotica is an example of the many municipalities working with the EBRD to improve their finances as the starting point for improving services.

Emerging from the bad times

Public services declined throughout the EBRD region with the end of socialism. The break-up of Yugoslavia in 1992 and subsequent conflict plus mismanagement by Serbia’s internationally isolated Milosevic regime worsened that decline.

“Back in 1991 the municipality spent the equivalent of €12 million euros for maintenance of all utilities and city cleaning,” says Mayor Kucsera. “But after that, under the Milosevic regime, all taxes and tariffs flowed to the central government which then redistributed them. If a municipality paid in more than planned, it didn’t get the extra back.

“So by 1999 we had just €2.5 million for maintenance and cleaning. From 2000 onward, decentralisation started and today the municipality has gained some ground. We now put about €6 million euros to those services,” says Mayor Kucsera.

While they are not yet at a level to ensure sustainable funding for the water system, Subotica water tariffs have doubled since the Milosevic era. Collection has also risen drastically, with 90 per cent of clients now paying their water bills. Mr Kucsera says people have grudgingly accepted the higher rates in part because services have improved: water pressure, for example, has doubled thanks to new investments.

The hard work is not over yet, the Mayor says ruefully: “Under our loan agreement with the EBRD we will have to increase tariffs another 23 per cent. This is not easy but without realistic prices you cannot take out loans to improve services because you cannot repay the debts.”

High standards pay off

Mr Ivanović, who left Serbia for South Africa when Milosevic came to power and came home when the regime fell, is delighted to learn the EBRD and the EU are financing the lake’s clean-up. “Eighty per cent of our turnover at the hotel is business related, much of it conferences. The lake is secondary. We want that to change. It could be the top conference centre for southern Europe. But it’s all stopped right now by that ecological problem.”

The Mayor sees such investments in infrastructure as having an impact beyond building a tourism industry. “Subotica is one of the more expensive cities in Serbia but it has the best infrastructure. I think these standards will attract industry and new residents to Subotica, as will the attractiveness of Lake Palic for their recreation.”

26 January 2005