Gradacac Water Supply

Location:

Bosnia and Herzegovina

Project number:

45810

Business sector:

Municipal and environmental infrastructure

Notice type:

State

Environmental category:

B

Approval date:

10 Dec 2014

Status:

Repaying

PSD disclosed:

27 Aug 2014

As permitted by paragraph 2.6 of Section III of the Access to Information Policy, disclosure of this PSD was deferred in accordance with paragraph 1.4.4 of the Directive on Access to Information.

Project Description

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.

Project Objectives

Contribution to environmental protection and improvement of the quality of water supply and waste water services in the Gradacac Municipality.

Transition Impact

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.

Client Information

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

EUR 6,000,000.00

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 11,824,625.00

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

Additionality

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

Pre-signing:

  • Feasibility Study, financed by Sida;

Post signing:

  • 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

Damir Okanovic
gradacac.damir@gmail.com
00387 35 817 219
00387 35 816 106
https://komunalac.ba/naslovna/
JP KOMUNALAC d.d. H.K.Gradascevica 114 Gradacac 76250 Bosnia And Herzegovina

PSD last updated

11 Sep 2020

Understanding Transition

Further information regarding the EBRD’s approach to measuring transition impact is available here.

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Environmental and Social Policy (ESP)

The ESP and the associated Performance Requirements (PRs) set out the ways in which the EBRD implements its commitment to promoting “environmentally sound and sustainable development”.  The ESP and the PRs include specific provisions for clients to comply with the applicable requirements of national laws on public information and consultation as well as to establish a grievance mechanism to receive and facilitate resolution of stakeholders’ concerns and grievances, in particular, about environmental and social performance of the client and the project. Proportionate to the nature and scale of a project’s environmental and social risks and impacts, the EBRD additionally requires its clients to disclose information, as appropriate, about the risks and impacts arising from projects or to undertake meaningful consultation with stakeholders and consider and respond to their feedback.

More information on the EBRD’s practices in this regard is set out in the ESP.

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The EBRD's Office of the Chief Compliance Officer (OCCO) promotes good governance and ensures that the highest standards of integrity are applied to all activities of the Bank in accordance with international best practice. Integrity due diligence is conducted on all Bank clients to ensure that projects do not present unacceptable integrity or reputational risks to the Bank. The Bank believes that identifying and resolving issues at the project assessment approval stages is the most effective means of ensuring the integrity of Bank transactions. OCCO plays a key role in these protective efforts, and also helps to monitor integrity risks in projects post-investment.

OCCO is also responsible for investigating allegations of fraud, corruption and misconduct in EBRD-financed projects. Anyone, both within or outside the Bank, who suspects fraud or corruption should submit a written report to the Chief Compliance Officer by email to compliance@ebrd.com. All matters reported will be handled by OCCO for follow-up. All reports, including anonymous ones, will be reviewed. Reports can be made in any language of the Bank or of the Bank's countries of operation. The information provided must be made in good faith.

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Independent Project Accountability Mechanism (IPAM)

If efforts to address environmental, social or public disclosure concerns with the Client or the Bank are unsuccessful (e.g. through the Client’s Project-level grievance mechanism or through direct engagement with Bank management), individuals and organisations may seek to address their concerns through the EBRD’s Independent Project Accountability Mechanism (IPAM).

IPAM independently reviews Project issues that are believed to have caused (or to be likely to cause) harm. The purpose of the Mechanism is: to support dialogue between Project stakeholders to resolve environmental, social and public disclosure issues; to determine whether the Bank has complied with its Environmental and Social Policy or Project-specific provisions of its Access to Information Policy; and where applicable, to address any existing non-compliance with these policies, while preventing future non-compliance by the Bank.

Please visit the Independent Project Accountability Mechanism webpage to find out how to submit a Request for review through our confidential online form, by emailmail or telephone. IPAM is available to discuss your concerns and answer any questions you may have about the submission or handling of Requests, which follow the Project Accountability Policy and Guidance. Requesters’ identities may be kept confidential, upon request.

 

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