In December 2010, the Ministry of Finance of Montenegro and the Bank signed a loan agreement for an amount of up to EUR 5.35 million to finance the construction of a wastewater collection system and treatment plant and the modernisation of the water supply system in Danilovgrad. The water and wastewater system is operated by the municipally owned Water and Sewerage Company. The purpose of the Project is to address water and wastewater problems in Danilovgrad including inadequate coverage of the wastewater network, lack of treatment of wastewater before being discharged to the Zeta River and an extensive water distribution system lacking resilience and in relatively poor condition, resulting in a high level of non-revenue water.
As the costs of the Project's components were higher than initially estimated, an increase of up to EUR 1.5 million is being considered by the Bank. The Project comprised two components: (1) modernisation and construction of water supply infrastructure and (2) wastewater collection and treatment infrastructure. Each sub-component of the water supply infrastructure has been completed, while implementation of the sewerage network and wastewater treatment plant is on-going. The loan increase will cover the updated costs of the: wastewater treatment plant, wastewater treatment plant odour control equipment and sludge transportation lorries.
The objective of the Project is to improve the water supply and wastewater situation in the area of Danilovgrad Municipality by construction of new or rehabilitation of existing assets and improved management of the existing systems to comply with municipal and national environmental requirements. The over-riding driver for this is the requirement of the municipality to comply with relevant national legislation which is in the process of being aligned with EU legal requirements.
The objectiove of the loan increase is to enable finalisation of works on the sewerage network and wastewater treatment plant.
ETI score: 60
The Danilovgrad Municipal Infrastructure Project was the Bank's first project in Montenegro's municipal sector. The expected transition impact includes improved framework for markets and economic efficiency, transfer of skills, and successful demonstration of company restructuring and commercialisation, and setting standards for corporate governance in the public utilities sector in Montenegro. Given the above, the key source of transition impact in this transaction is the commercialisation of ViK.
Framework for markets and economic efficiency: The project has promoted operating, maintenance and depreciation cost recovery tariffs for water and wastewater services and hence strengthens the framework ensuring effective use of resources that are paid by its users according to commercial principles. The project has also improved the contractual framework as the covenanted Public Service Contract between the Municipality and the Company was signed.
Demonstration of Successful Restructuring and Commercialisation: The Project has also assisted the restructuring of the Company through:
- Creation of a water and wastewater company separate from other utility services;
- Revision of the organisational structure (including staffing);
- Improvements in the revenue collection procedures;
- Reduction in technical losses and associated costs through the implementation of investments in physical assets;
- Improvements in the environmental management; and
- Improvements in customer relations.
During the recent years, the Company improved its efficiency, increased collections and and tariffs as covenanted in the Loan Agreement, achieved operational independence and management accountability and achieved financial and operational criteria (current ratio, operational ratio).
Transfer of Skills: The international consultants under the financial and operational performance improvement programme ("FOPIP") TC provided the Company with on-the-job training access to international financial, corporate, managerial, procurement and engineering skills and knowledge transfer.
Setting standards for corporate governance: TheFOPIP was implemented with the focus on cost reductions and efficiency gains. Also, the Municipal Assembly approved tariffs as covenanted in the Loan Agreement. The FOPIP prepared a formula for the tariff setting process in order to secure operating, maintenance and depreciation cost recovery of the Company.
Demonstration of new replicable behaviour and activities: Commercialisation of the water operations in Danilovgrad will demonstrate to other municipalities and the Government how to prepare projects on operating, maintenance and depreciation cost recovery basis.
The Bank supported all the above through technical assistance provided for FOPIP.
Following the fulfilment of the Project's TI objectives, its TI monitoring was closed with final rating 'Good/Negligible' (PTI 90).
Ministry of Finance of Montenegro.
EBRD Finance Summary
Initial Project cost was EUR 5,350,000. The loan increase of EUR 1,500,000 is to be approved by the Bank.
Total Project Cost
The Bank is financing total project costs.
The Bank is highly additional in providing project preparation and implementation support and building sound commercial practices and implementation capacity with its clients. The Bank involves the local governments in the project preparation and implementation by signing a municipal support agreement and thus ensuring their political and implementation support for the project.
Environmental and Social Summary
The original project has been categorised B in accordance with EBRD's 2008 ESP. The project was signed in 2010 and is currently under implementation. The loan increase will finance the project in its originally approved scope with the additional purchase of the WWTP odour control equipment and several sludge transportation lorries with Euro 5 emission standard. Further E&S due diligence for the loan increase to the project has been carried out in April 2020 remotely by means of review of the latest annual E&S reporting and the ESAP implementation progress as well as additional traffic and road safety ESDD questionnaire. Past performance and reporting of the client under the original transaction have been satisfactory. The project and its updated ESAP have been structured to meet relevant EBRD PRs and to bring wastewater treatment and sludge management into compliance with the EU Directives. The annual amount of the wastewater treated to meet national and EU requirements will be 828,550 m3/year and 5,500 people will benefit from improved wastewater services. The Client will continue to provide the Bank with annual environmental and social reports, including updates on the implementation of the ESAP.
Technical Cooperation and Grant Financing
The Bank provided technical support for the following:
Project Implemetation and Procurement Support: EUR 510,000
Financial and Operational Performance Improvement Programme: EUR 285,000
Supervision Support: EUR 319,000.
Company Contact Information
+382 20 811 550
Jefta Scepanovica bb, Danilovgrad Montenegro
Due to the lengthy delay of the Project, the original cost estimates became outdated having a direct impact on the construction costs as follows:
i) The technical specifications of the SCADA system were amended to better serve the Project - initially estimated at less than EUR 100,000 the actual costs reached EUR 509,000 given that the delivered system was far more comprehensive than initially planned;
ii) Based on the preliminary design prepared in 2008, the cost of the wastewater collection network, was initially estimated at EUR 930,000. Following the update of the preliminary design and including the extension of the sewerage network, the original estimated costs increased to EUR 2.3 million.
iii) Although not part of the original design, wastewater treatment plant odour control equipment and sludge transportation lorries are incorporated as part of the standard project scope. These are necessary to support the project objectives.
The Client became aware of the higher out-turn costs at the time of tendering, but given its fiscal constraints, the Client was unable to request the Bank to consider additional financing until 2020.
PSD last updated
01 Jun 2020
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