GrCF: Sarajevo Water

Location:

Bosnia and Herzegovina

Project number:

48252

Business sector:

Municipal and environmental infrastructure

Notice type:

Public

Environmental category:

B

Target board date:

11 Apr 2017

Status:

Signed

PSD disclosed:

09 Apr 2018

Translated verion of this PSD: Bosnian

Project Description

The Project will finance the priority investments into the water supply system in the Sarajevo Canton ("the Canton") to reduce leakages and to improve the quality of services provided by the Cantonal Public Utility Company "Vodovod i kanalizacija" d.o.o. Sarajevo ("the Company"). The priority investments include (i) purchase of new metering and control equipment (individual and bulk meters, telemetry); (ii) reconstruction of the water supply network in several parts of the Canton; and (iii) rehabilitation of pumping stations (including chlorination units).

The City of Sarajevo is the capital of Bosnia and Herzegovina ("BiH") and the largest city in the country. The Canton is the regional administrative district surrounding the City of Sarajevo.

Project Objectives

The main purpose of the Project is to reduce water losses and eliminate cuts in water supply. This should assist the Company to reduce its operating costs through reduced consumption of electricity, to improve the quality of the service and the efficiency of the system (new more efficient pumps and control equipment).

Transition Impact

Strong Good

The key sources of transition impact of this sub-project are consistent with the Green Cities Framework ("GrCF"). Sarajevo Water Project promotes the transition objectives of the GrCF in the following ways:

Green: By preparation of new investments to be identified under the Green Cities Action Plan ("GCAP"), the Canton's governance of environmental issues will improve and provide a clear mechanism to 'green' Sarajevo.

Well-governed: By preparation of a comprehensive GCAP, preparing and implementing a Financial and Operational Performance Programme ("FOPIP"), including entering into a Public Service Contract ("PSC") between the Canton and the Company, aimed at further reducing costs and moving towards profitability through the introduction of a new tariff system. The Project will also promote setting standards for corporate governance and business conduct by improving accounting standards and culture within the Company, applying International Financial Reporting Standard ("IFRS").

Client Information

BOSNIA AND HERZEGOVINA SOVEREIGN

Bosnia and Herzegovina is the borrower and the loan proceeds are on-lent through the Federation of Bosnia and Herzegovina ("FBiH") and the Canton to the Cantonal Public Utility Company "Vodovod i kanalizacija" d.o.o. Sarajevo, which is in charge of the water and wastewater services in the Canton.

EBRD Finance Summary

EUR 25,000,000.00

A Sovereign loan of up to EUR 25.0 million, to be on-lent to the Company. The loan will be provided in three tranches of EUR 10.0 million for Tranche 1 and Tranche 2 and EUR 5.0 million for Tranche 3.

Total Project Cost

EUR 30,800,000.00

Total Project costs of EUR 30.8 million for capital investments and technical cooperation (consultancy services).

Environmental and Social Summary

Categorised B in accordance with 2014 Environmental and Social Policy ('ESP'). The reconstruction of the deteriorated water supply networks and pumping stations will provide significant community benefits for the population of Sarajevo Canton with mainly positive long-term environmental and social ('E&S') impacts such as enhanced efficiency of water supply, health benefits from improved quality and reliability of the drinking water and reduction in water losses.

Any adverse future environmental and social impacts associated with the Project are site-specific and can be readily addressed through mitigation measures.

The Environmental and Social Due Diligence ('ESDD') for the committed Tranche 1 was carried out by external consultants as part of the Feasibility Study ('FS') and included a review of previous study carried out in 2009, an independent E&S audit/review and an analysis of potential E&S impacts associated with the Priority Investment Programme ('PIP'). The ESDD confirmed that the implementation of the PIP will substantially reduce water losses from the current 70% through more efficient water supply services, reduce vulnerability of the water supply and management to climate change related risks and ensure safe and reliable water supply.

The Company's organisational capacity on E&S matters will require further improvement, and a Project Implementation Unit ('PIU') has already been established with the responsibility to manage the Project. The Company does not yet have a full Environmental and Social Management System ('ESMS') or a written environmental policy in place, those will need to be developed, and the Company is planning to obtain ISO 14001 and HACCP certifications for its management systems within 1-2 years. Environmental Permits for groundwater abstraction and the use of mountain springs will need to be obtained in line with the national legislation prior to start of any construction. ESDD also identified that the Company's Human Resources ('HR') policies are in line with Performance Requirement 2 (PR2), and restructuring of the Company is not expected to involve any collective retrenchment. The Company needs to develop, adopt and communicate to all employees an internal grievance procedure. While the Company has an internal Rulebook on Safety at Work, it needs to develop and implement a formalised occupational health and safety ('OHS') management system aligned with OHSAS 18001. The above non-compliances have been addressed by the respective actions included in the Environmental and Social Action Plan ('ESAP').

The ESDD confirmed that the drinking water supplied in Sarajevo Canton is in compliance with national and EU requirements. Any potential adverse impacts from replacement of the existing water networks will be associated with the construction works and will be limited, localised and short-term, and will be mitigated or prevented by adhering to good construction practice.

Only about 70-80% of the Canton is covered by wastewater collection networks, and the Company's wastewater treatment services have recently been upgraded. It is expected that EU standards for treated effluent quality will be met following the completion of the Butile Wastewater Treatment Plant ('WWTP') reconstruction, financed by the World Bank ('WB') and European Union ('EU') to provide both primary and biological treatment with digestion of the excess sludge.

ESDD has confirmed that no sensitive protected areas or endangered species are found in the Project area, since all networks and facilities are located in a highly urbanized area of Sarajevo and will utilise the existing water source, Baievo. No areas of archaeological or cultural significance would be affected. The Project does not require any land acquisition, physical resettlement of households or businesses or economic displacement. No significant affordability concerns for the low income households are expected from the project.

The ESAP has been developed for the Company to structure the Project to meet the EBRD's Performance Requirements ('PRs'). ESAP requires: obtaining the required environmental permits for groundwater abstraction and the use of mountain springs in relation to the water supply system rehabilitation; carry out the required measures for preventing pollution of water protection zones II and III; the development of a formalised Environmental Management System in accordance with ISO 14001 and OHS management system in accordance with OHSAS 18001 and associated procedures and policies; formalisation of the workers grievance mechanism; requiring contractors to develop and implement the respective Construction E&S Management Plans. A series of operational control procedures are also required for excavation works and trench safety, dust control, noise, management of soil and hazardous materials, unexploded ordnance ('UXO'), fire safety, emergency response and Chance Finds prior to starting any construction activities. The investments proposed in this Project are considered to be medium-high resilient to climate change, however some additional adaptation measures to climate change relevant for water management sector have been included in the ESAP.

In addition, GCAP will be developed for Canton under the GrCF by mid-2019 to measure, benchmark and prioritise environmental issues and identify appropriate mitigation actions and investments. The identified environmental improvements are expected to be implemented by end of 2021.

The Company also needs to finalise and implement a Stakeholder Engagement Plan ('SEP'), including a grievance mechanism, to ensure adequate information disclosure prior to commencement of works. The Bank will monitor the project's E&S performance and compliance with EBRD PRs through annual reports from the Company and implementation of the ESAP. The Bank may also undertake monitoring site visits.

Commitment to Tranches 2 and 3 will be subject to completion of their respective ESDD, satisfactory E&S performance and compliance with the ESAP under Tranche 1. The Canton will also need to launch the GCAP preparation process as a CP for Tranche 2 and approve it for implementation as a
CP for Tranche 3.

Non-technical SummaryStakeholders Engagement Plan

Technical Cooperation

Pre-signing

  • Preparation of the selective update of the Feasibility Study as prepared in 2009 focussing on detailed environmental and social due diligence as well as the resilience of the Project to climate change; an update of the affordability of tariffs and the borrowing capacity of the Company; and a review of the organisational structure of the Company and updated scope for the FOPIP. The cost of the assignment was EUR 125,000, financed by the Infrastructure Project Preparation Facility ("IPPF"). The assignment has been completed.

Post-signing

  • Advance Procurement Support as assistance to the Company with tendering and contract signing for Tranche 1. EUR 74,500, financed by the EBRD Shareholder Special Fund ("SSF").

    The assignment is currently being implemented.
     
  • Preparation of the FOPIPto assist the Company to prepare and sign a PSC with the Canton including the phased achievement of full cost recovery tariffs. The FOPIP should include a special chapter devoted to the organisation of the Company and optimisation of the labour force.

    The estimated cost of the assignment is EUR 500,000, to be financed by the SSF. The selection of the consultant is currently ongoing.
     
  • Preparation of GCAP to comprehensively assess the Canton's environmental performance and prioritise actions and investments that support green city development. The estimated cost of this assignment is EUR 300,000, to be financed the Government of Japan.

Company Contact Information

Azra Muzur
azram@viksa.ba
00387 33 237 655
00387 33 447 741
http://www.viksa.ba
KJKP 'Vodovod i kanalizacija' d.o.o. Sarajevo Ul. Jaroslava Cernija 8, 71000 Sarajevo, Bosnia and
Herzegovina

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Text of the PIP

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