Provision of debt finance for the water supply network to rural areas of the Municipality Gradacac, in Bosnia and Herzegovina, together with the grant for replacement of dilapidated water supply network, reconstruction and expansion of the sewerage network, and reconstruction of the wastewater treatment plant (the "Project"). The Project is implemented by the public utility company "Komunalac d.o.o." Gradacac (the "Company"), a shareholding association majority owned by the Gradacac Municipality.
Contribution to environmental protection and improvement of the quality of water supply and waste water services in the Gradacac Municipality.
ETI score: 60
The main transition impact rationale comes from the demonstration effects, improved corporate governance and promotion of market functioning and efficiency.
A. Demonstration effect of new replicable behaviour: Account separation as a condition to the loan effectiveness and full legal separation of water and wastewater activities as dated covenant represent the main steps towards organisational unbundling between the three main activities (water and wastewater, solid waste, and public spaces). This should enable the Company to monitor the performance of each activity individually and act appropriately to make and maintain each activity profitable, thus eliminating cross subsidies across the departments.
B. Institutions, laws and policies that promote market functioning and efficiency: An arms-length service agreement between the Municipality and the Company with the aim of setting service standards, efficiency indicators, automatic tariff adjustments and measures for bill collection will be prepared and signed. In addition, a Financial and Operational Performance Improvement Programme ("FOPIP") will be prepared with an aim to further reducing the cost and improving profitability of the Company.
C. Setting standards for corporate governance and business conduct: Financial disclosure and transparency backed by audited, IFRS accounts, covenanted improvement of transparency around funding of the Company with the overall target to improve the corporate governance standards.
BOSNIA AND HERZEGOVINA SOVEREIGN
The client is the public utility company "Komunalac d.o.o." Gradacac which is majority owned by the Gradacac Municipality
EBRD Finance Summary
Sovereign loan in the amount of up to EUR 6.0 million.
The Project is co-financed with an investment grant in the amount of EUR 2 million provided by the Swedish International Development and Co-operation Agency ("Sida") and an investment grant in the amount of EUR 2 million provided by the Western Balkans Investment Framework ("WBIF").
Total Project Cost
EUR 10.82 million (including technical cooperation grants), and parallel grant assistance in the amount of EUR 1 million provided by the Government of the Czech Republic
Long-term financing to municipal companies at the maturities required from commercial banks in BiH is scarce. The Bank's industry knowledge and its ability to evaluate and mitigate the risks related to the sector also contribute to the additionality. Furthermore, the Bank will also ensure conditionality such as cost-recovery tariffs and improvements in billing and collection which might not otherwise be achieved. The Bank's ability to mobilise significant donor funding for TC and capex grants is essential to realise the Project and to address affordability constraints.
Environmental and Social Summary
Categorised B. An Environmental and Social Review of the Water Company's current environmental and social (E&S) management practices, operations and facilities, and an Environmental and Social Analysis of the proposed Priority Investment Programme (PIP) has been carried out as part of the Feasibility Study by independent consultants. Based on the findings of the Feasibility Study, the implementation of the proposed PIP is expected to significantly improve efficiency and reliability of water supply and wastewater collection in Gradacac, thus contributing to the provision of access to safe drinking water, prevention of ground and watercourses pollution and improvement of public health. PIP components will mostly involve the reconstruction of two wells, rehabilitation of water supply systems, expansion of the sewage network and improvement of the WWTP. The implementation of the PIP involves construction works that will result in limited, localised and short-term adverse environmental impacts, which will be mitigated or prevented by adhering to good construction practice.
Currently, 45 per cent of the population is connected to the water supply system. The water distribution network is old and there are a lot of leakages in manholes and along the pipelines, especially where the pipe material is asbestos. The existing water quality is generally good and satisfies the EU and national standards. More than 50 per cent of the produced water is unaccounted for. This amount of water is mainly attributable to leakages but certain amounts are also used for distribution via public taps, illegal connections etc. Through the implementation of the PIP, the reliability of the water supply services will be significantly improved and water losses will be considerably reduced (from current 60 per cent reduced to 30-35 per cent). Improved and extended water supply system will lead to increased connection rates (85 per cent) and generally improve the public health. Improvements to the laboratory will enable better control of the water quality.
Currently, only a limited part of the area (32 per cent) is served by a piped sewerage network. The reconstruction of the main WWTP, expansion of the existing wastewater network in the town of Gradacac and construction of wastewater collection and treatment systems in selected settlements in the south of the municipality will result in roughly 17,000 people being connected to wastewater treatment facilities (existing and new customers) but still large scale extensions will be necessary to reach the long term objective of 85 per cent connection. After completion of the investments all collected wastewater will be treated in compliance with EU standards, which will lead to considerable reductions in discharges.
Still, additional further long-term investments into wastewater collection system would be required to bring the systems in full compliance with the EU standards in terms of the coverage of the collection and treatment systems. Therefore, due to constraints arising from affordability and limited financial resources, derogation from the EBRD's Environmental and Social Policy will need to be sought.
The results of due diligence investigations by independent consultants has shown that the capacity of the Water Company to manage E&S issues is low and their E&S management systems, occupational health and safety and stakeholder engagement practices require further upgrading and improvement to meet EBRD's Performance Requirements ("PRs").
The feasibility study recommends additional assessments be carried out to confirm that there is sufficient availability of potable water in the underground aquifer. A report by independent consultant confirming the sufficient quantities of potable water to sustain the current and future water demands was a condition precedent to loan effectiveness.
The land ownership of the well field sites and water supplies is complex. The Bank is therefore appointing independent experts to prepare a report on land acquisition and expropriation in form and substance satisfactory to the Bank. This report was one of the conditions to the loan effectiveness and set out the land acquisition and compensation principles and procedures, the institutional arrangements and responsibilities, and compensations and entitlements for the project to meet the requirements of PR5.
The Environmental and Social Action Plan ("ESAP") commits the Company amongst others to developing an environmental, health and safety ("EHS") management system, E&S training, acquiring necessary permits, preparation of a Construction Site Management Plan (incorporating excavated materials management , hazardous materials and waste management), asbestos handling and disposal, archaeological chance find procedures, and improving human resources policies for worker grievances and equal opportunities.
Information disclosure and stakeholder engagement practices exist, but are performed on an ad hoc basis. As a result, given the level of local interest in the project the implementation of a Stakeholder Engagement Plan is required as an action within the ESAP.
Technical Cooperation and Grant Financing
- Feasibility Study, financed by Sida;
- Project Implementation Support, including procurement and engineering supervision of the works' contracts for the water supply network, co-financed by Sida and WBIF.
- Financial and operational performance improvement programme ("FOPIP") and Public service contract ("PSC"), financed by Sida;
- Design preparation for expansion of the wastewater network, financed by Sida.
For consultant opportunities for projects financed by technical cooperation funds, visit https://www.ebrd.com/procurement/corporate-procurement.html
Company Contact Information
00387 35 817 219
00387 35 816 106
JP KOMUNALAC d.d. H.K.Gradascevica 114 Gradacac 76250 Bosnia And Herzegovina
PSD last updated
11 Sep 2020
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Environmental and Social Policy (ESP)
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Independent Project Accountability Mechanism (IPAM)
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