Gradacac Water Supply Project

Location:

Bosnia and Herzegovina

Project number:

45810

Business sector:

Municipal and environmental infrastructure

Notice type:

Public

Environmental category:

B

Target board date:

10 Dec 2014

Status:

Signed

PSD disclosed:

26 Aug 2014

Translated version of this PSD: Bosnian

Project Description

The EBRD is considering a loan in the amount of up to €6 million alongside potential investment grant in the amount of up to €3 million for expansion of the water supply network to rural areas of the Gradacac Municipality in the north eastern part of Bosnia and Herzegovina and replacement of dilapidated water mains to reduce the amount of water losses. The project will also include reconstruction and expansion of the sewerage network and reconstruction of the wastewater treatment plant (“WWTP”). The Project will be implemented by the public utility company “Komunalac d.o.o.” Gradacac (“The Company”), a shareholding association majority owned by the Gradacac Municipality.

The Project should contribute to environmental protection and improve the quality of services in the Gradacac Municipality.

Transition Impact

The main transition impact rationale comes from the demonstration effects, improved corporate governance and promotion of market functionality 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.

The Client

The client is the public utility company “Komunalac d.o.o.” Gradacac which is majority owned by the Gradacac Municipality.

EBRD Finance

Sovereign loan in the amount of up to €6 million. An investment grant in the amount of €2 million is currently being sought from the Swedish International Development and Co-operation Agency (“Sida”) to co-finance the Project.

Project Cost

€9.8 million, including TC grants.

Environmental Impact

Categorised B. An Environmental and Social Review of the Water Company’s current environmental and social (E and 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 and S issues is low and their E and 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 will be 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 will be one of the conditions to the loan effectiveness and will 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 and 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 will be required as an action within the ESAP. Recommendations of how to engage with the project affected people; particularly those potentially opposing the project will be suggested by the experts completing the land acquisition assignment mentioned above.

Technical Cooperation

Pre-signing:

• Feasibility Study, €285,000, financed by the Swedish International Development Cooperation Agency (Sida);

• Legal due diligence services, €15,000, financed from the Bank’s own resources.

Post signing:

• Project Implementation Support, including procurement and engineering supervision of the works’ contracts for the water supply network, €400,000, proposed to be financed by an international donor or the EBRD Shareholder Special Fund (“SSF”).

• Financial and operational performance improvement programme (“FOPIP”) and public service contract (“PSC”), €100,000, proposed to be financed by an international donor or the SSF;

• Land acquisition plan (“LAP”), €20,000, to be financed from the Bank’s own resources.

• Design and supervision of the reconstruction of the wastewater treatment plant (“WWTP”), €400,000, proposed to be financed by an international donor or the SSF.

Company Contact

Visit EBRD Procurement

Enquiries: Tel: +44 20 7338 6794; Fax: +44 20 7338 7472

 

Business opportunities

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General enquiries

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Public Information Policy (PIP)

The PIP sets out how the EBRD discloses information and consults with its stakeholders so as to promote better awareness and understanding of its strategies, policies and operations. Please visit the Public Information Policy page below to find out how to request a Public Sector Board Report.
Text of the PIP

Project Complaint Mechanism (PCM)

The Project Complaint Mechanism (PCM) is the EBRD's accountability mechanism. It provides an opportunity for an independent review of complaints from individuals and organisations concerning EBRD-financed projects which are alleged to have caused, or are likely to cause, environmental and/or social harm.

Please visit the Project Complaint Mechanism page to find information about how to submit a complaint. The PCM Officer (pcm@ebrd.com) is available to answer any questions you may have regarding the submission of a complaint and criteria for registration and eligibility, in accordance with the PCM Rules of Procedure.