Subotica Water Upgrade project

Translated version of this PSD: Serbian

Project Description

The EBRD is considering providing a loan of up to €11 million to the City of Subotica, located in north Serbia, to support the modernisation of wastewater and water supply infrastructure in the city.

The loan proceeds will be used to finance the construction of collector II, a second water treatment plant and a main water distribution aqueduct in the City, which will complete the wastewater and water supply networks in Subotica.

Transition Impact

There are three key transition impacts in reforming public policies and practices in this project:

(i) at the Government level: the Bank will work closely with the Ministry of Economy and Regional Development and the Ministry of Environment and Spatial Planning in drafting the Public Utility Companies Reform Strategy to ensure that the EBRD standards and practices are reflected in the Strategy.

(ii) at the City level: the City expressed its interest to explore the possibility of:

A) introducing incentive-based management contracts with the management of the 17 city-owned public utility companies and agencies (including the water company, district heating company, open markets company, city tourist organisation, city construction agency, etc.) which will lead to the adoption of market standards and professionalization of the public sector and underpinning the independence of company directors following the relevant legal changes;

B) introduction of targeted subsidised communal services by identifying vulnerable social groups and providing subsidies directly to them, instead of subsidising public utility companies in general.

(iii) Public Utility Company “Waterworks and Sewerage Subotica” (“the Company”) will join the performance benchmarking exercise for water utility companies. Such performance benchmarking exercise is presently being organized by the Romanian Water Association. By joining this initiative, the Company will be able to compare its performance and results with a number of companies which operate in the Pannonian (or Carpathian) Basin and get insight into the operating standards and corporate governance of Public Utility Companies from neighbouring countries.

The Client

City of Subotica.

EBRD Finance

€11 million sovereign guaranteed loan to the City of Subotica to be on-lent under a Subsidiary Loan Agreement to the Public Utility Company “Waterworks and Sewerage Subotica”.

Project Cost

Total project costs are estimated at €20.9 million.

Environmental Impact

The Project has been categorised B in accordance with EBRD's 2008 Environmental and Social Policy. Environmental and social due diligence (the “ESDD”) for the project was carried out by independent consultants and consisted of an Environmental and Social (the “E&S”) audit/review of the Company's existing corporate management systems, facilities and operations; analysis of the E&S impacts and benefits of the PIP, as well as preparation of an Environmental and Social Action Plan (the “ESAP”) and Stakeholder Engagement Plan (the “SEP”) to structure the Project to meet EBRD PRs. The due diligence concluded that the Project will provide substantial environmental and health benefits and create more favourable conditions for tourism by improving hygienic conditions and the quality of the environment in the city. No significant adverse impacts were identified.

At present, only 40 per cent of the Subotica residents are connected to the sewage collection network. The wastewaters of most households are collected in septic tanks, which can also be found in the City centre area. The area is prone to a high level of rainfall resulting in high groundwater levels, which causes the septic tanks to overflow. In addition, the overloading of the existing collectors causes frequent instances of wastewater outflows on the streets. These incidents result in overall poor hygienic conditions and increase the risk of outbursts of diseases in the city. The construction of new collectors and sewers will increase the capacity of the sewage collection network. At present, there are 28,000 connections to the sewage system, while the Project will enable additional 4,000 connections, which is a 14 per cent increase. When translated in the households and the population, it is expected that approximately 12,000 additional citizens of Subotica will be connected, extending the overall sewage coverage to close to 50 per cent of the population.

The ESDD ascertained that the quality of the drinking water from the existing and the new WTP and the discharges from the existing WWTP will comply with the relevant EU standards. However, treatment and disposal of the sludge from the WTPs and WWTP remains unresolved, especially given that the sludge from the existing WTP-I is characterised as hazardous waste due to its arsenic and iron content. The ESAP requires the Company to undertake a feasibility study for sludge treatment so as to explore possibilities for re-using the WWTP sludge and identify an environmentally sound and sustainable solution for the WTP sludge treatment and management. The funds for the feasibility study have been secured from the EWBJF.

Some of the construction works will take place in the vicinity of Palic Lake, which on account of its geological and ecological value is a protected nature reserve. The ESDD confirmed that no construction activities will be conducted within the nature reserve. The construction of a new sewage collection system and its connection to the WWTP in the area close to Palic Lake will improve the water quality in Palic Lake and consequently also in special nature reserve Ludas Lake located further away. The construction works could have limited, localised and short-term adverse environmental and social impacts, which can be mitigated or prevented by adhering to good construction practices. Relevant E&S requirements and mitigation measures will be included in the tender documentation for construction contractors. The tariff increases associated with the Project are not expected to raise affordability issues or constraints.

Technical Cooperation

Pre-signing

• Consultancy services to review the existing feasibility studies and designs commissioned by the City and the Company, and to confirm the proposed Investment Plan by conducting a technical and financial due diligence, including scoping of the proposed investments, preparation of tender packaging, and verification of the EIRR on all project components (€196,200, financed by the Austrian Fund for Municipal Infrastructure).
• Environmental and social due diligence (€25,000, financed from the Bank’s own resources).

Post-signing

• Assistance to the PIU for tendering and supervision of the works for the construction of the second water treatment plant, main water distribution aqueduct, collectors II and VII (FIDIC engineers) and study on the regulation of traffic in the downtown during the construction works, estimated at €330,000, to be financed by the Western Balkans Investment Framework.
• Preparation of the technical and tender documentation for sludge management including Development of Management Plan for sludge from wastewater treatment; a detailed regulation plan, a Feasibility study on the applicable technologies for the treatment of sludge and additional technical documentation according to the Serbian Law on Planning and Construction (e.g. Preliminary project design, EIA), estimated at €410,000, to be financed by the Western Balkans Investment Framework.

Implementation Summary

The Project supported the improvement in the water infrastructure of the City of Subotica. Project funds were used to finance the construction of a second water treatment plant, two wastewater collectors, four water wells, a main water distribution aqueduct and sewage extensions. All items have been implemented successfully.

As result of the Project’s investments, Subotica, its population and surrounding environment have benefitted from improved water infrastructure. Helping to solve problems of insufficient water supply, sewage coverage, associated health risks and environmental hazards. Prime examples of these environmental and social benefits include the increase in households and businesses connected to the water supply network, and the reduction in phosphorus and nitrogen in the nearby Lake Palic.

In addition to water infrastructure works, the Project supported Public Utility Company Waterworks and Sewerage Subotica (the “Company”) in setting standards for corporate governance and business conduct by participating in benchmarking programmes. The Company participated in several local and regional benchmarking programmes, including the International Association of Water Supply Companies in the Danube River (IAWD), based in Vienna. These benchmarking exercises include indicators which allow them to show a positive demonstration effect. In addition, the Project supported the adaptation of a public service contract between the Company and City, and a new tariff system. This has and will support the financial sustainability of the Company.

 

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