The Priority Environmental Investment Programme for South Eastern Europe - PEIP

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1 The Priority Environmental Investment Programme for South Eastern Europe - PEIP National Workshop: Developing Environmental Infrastructure Projects in the WATER Sector in Montenegro 13 th May 2008, Hotel Queen of Montenegro Budva, (Becici), Montenegro Introductory Session Ms. Srna Sudar Vilotic, Director of REC Country Office Montenegro opened the workshop and welcomed the participants. Mr. Sinisa Stankovic, Assistant Minister of Environment and Tourism highlighted the fact that on its way to EU accession Montenegro is facing challenges related to adopting new legislation and its implementation, while at the same time the financial resources to address these challenges are limited. Tourism was pointed out as a key driver of economic development in Montenegro, while proper infrastructure is crucial for the sector. Energy and transport were singled out as priorities as well. He also stressed the importance of the workshop for addressing the issues related to the strategic planning, preparation and implementation of water infrastructure investment projects (water supply, sewage and waste water treatment facilities). Montenegro made progress with the preparation of the strategic documents and implementation of these plans will be important for reaching compliance with EU requirements. Cooperation with REC so far was acknowledged. Ms. Dagmar Kaljarikova from the European Commission emphasized that the implementation of the adopted EU legislation in Montenegro was a difficult process requiring significant financial resources and human capacity. The European Commission will continue to support the country in identifying its investment priorities and implementing them though projects. The EC delegation in Podgorica will be the contact point and serve as a bridge between the EC headquarters and the national authorities in Montenegro. Ms. Kaljarikova also informed about the Infrastructure Project Preparation Facility, a new facility launched by the EC aiming to support investment project preparation in SEE. 16 MEUR has been allocated to the facility and the amount of 16 MEUR is under discussion. Additionally, information was provided about the plans of the EC to initiate Municipal Infrastructure Facility which will target small municipal infrastructure projects and Local municipal support project with main goal to build capacity of project proponents and prepare investments. Mr. Ruslan Zhechkov briefly presented the goals of PEIP project, purpose of the workshop and agenda. The introductory session was completed with brief presentation of all participants. 1

2 Session 1: Strategic and Legal framework in the WATER Sector, PEIP List Presentation: EU strategic and legal framework in the water sector, European Commission Ms. Dagmar Kaljarikova from the European Commission The presentation outlined the key EU directives, policy and instruments in the water sector. It also discussed some challenges that the SEE countries are facing in relation to adopting and implementing the EU legislation. Presentation: Priority water projects on the PEIP list: status and the way forward, Mr. Ruslan Zhechkov, Project Manager for PEIP, Regional Environmental Center for Central and Eastern Europe (REC) The presentation was focused on presenting the current projects on the PEIP list as per the last update from Nov 2007 and criteria for prioritization. After presenting the key information about each project on the list Mr. Zhechkov asked the representatives of the respective municipalities/utilities as project proponents to comment on the data and the progress. Presented projects on the PEIP list: Rehabilitation of Podgorica WWTP First phase of this project (1.7 MEUR), which included the reconstruction of existing WWTP system, has been finished. Total costs 40 MEUR Funds not secured for 2nd phase 38.3 MEUR Environmental impact Skadar Lake Feasibility study exists Soft loan is foreseen; Comment made by Mr. Sinisa Stankovic: An application was submitted to the new IPPF for preparation of feasibility study, EIA. The existing feasibility study should be considered prefeasibility study. The project needs to be split in two phases - rehabilitation and construction of new facility. The current (pre) feasibility targets the first phase mainly. The full feasibility study will analyze the second stage as well. Construction of sewage system in the town of Tivat, and expansion and reconstruction of sewage system in the town of Kotor Split in 2; Tivat part started; Total cost 16 MEUR; Kotor 5.5 MEUR KfW credit and 0.75 MEUR own resources; Tivat - 2 MEUR KfW credit; Funds not secured: Kotor (3.9 MEUR); Tivat (3 MEUR) 70,000 will benefit; Pressure on the Adriatic Sea Comment: 1 st and 2 nd stage of water network is underway. Co-financing is possible from municipal budget. 2

3 Construction of new wastewater facility and reconstruction of the existing sewage system in Niksic Project scope expanded from upgrading existing WWT facility to to reconstructing the network and constructing new WWT facility as well; Total cost from 4.5 MEUR (network) to 16 MEUR (incl. new WWT); 0.5 MEUR loan from EIB and 4 MEUR own funds for network; Own resources total 9 MEUR; Funds not secured 7 MEUR; Positive effects on Skadar Lake; Soft loan planned 40% of total cost; Comment by the proponent: 5,5 MEUR loan not 0,5 MEUR; 50 % is secured from EIB, other sources will be investigated for the outstanding amount (e.g. IPA). Comment by Mr. Sinisa Stankovic: Application for IPA funds is under preparation; 3-3,5MEUR is expected to be secured from IPA. Proposed new projects: Construction of waste water treatment plant in Pljevlja: Total Cost: 7.35 MEUR. Not secured: 7.35 MEUR Comment by the project proponent: 7,35 MEUR is not sufficient for this project. Feasibility study was prepared. The project includes water supply and waste water treatment plant. There is a possibility that EIB provides a loan for the project. Presentation: National strategic, institutional and legal framework in the water supply sector, Ms. Dragana Djukic, advisor, Ministry of agriculture, forestry and water management of Republic of Montenegro The presentation outlined the existing legal framework in the water supply sector as well as the relevant secondary legislation. Planned bylaws to be adopted were also emphasized. These include Decision for defining the sources (and their borders) for regional and public water supply (in preparation stage) Regulation on the requirements towards Public Enterprises which deals with water supply services Planning documents within the responsibility of Ministry of Agriculture, Forestry and Water Management Water Sector Fundaments, of Montenegro, Within the Law on Water a Plan for River Basin Water Management will be adopted Planning documents within the responsibility of Ministry of tourism and environment Water supply and sewage in the coastal region of Montenegro, April 2000; Cost benefit analysis on possible solutions for long-term water supply in the coastal region of Montenegro, July 2005; 3

4 Master plan for water supply of coastal municipalities and municipality of Cetinje from May The institutional set-up in the water supply sector was also presented. Identified problems in the water supply sector: Only in four municipalities (three coastal: Bar, Tivat i Herceg Novi i Nikšić) there are available solutions for sustainable management of water resources used for water supply; In most of the utilities only basic hygenic tests of the water are carried out. Utilities have limited financial resources for water supply and sewage network development; unsustainable use of water (500 l per day in the cities). significant water losses; contamination of the water in the summer (Bokokotorski zaliv, Ulcinjsko polje); contamination of the water in the rainy period (Bistrica, Breznica, Oraška jama); obsolete facilities; illegal connections; It was also mentioned that significant progress was made in the past six years in the preparation of strategic documentation. The follow-up activities will be concetrated on the creating of the financial framework for addressing the priorities defined. Comment from the Ministry of Agriculture, Forestry and Water Management: It was an interesting presentation discussing what was achieved and highlighting the work to be done. The Law on Water was harmonized with EU legislation but implementation remains a challenge. With regards to the general framework there was information provided about sectoral projects and master plans. It was also stressed that there is a need to start working on river basin management plans which is a challenging and long process. Montenegro is lagging behind other countries in this respect. It was also mentioned that seeting up of water information system is planned. A comment from Bjelo pole was made with regards to the need for updating the existing plans and implementing the water management plans. It was also mentioned that activities should be extended to other municipalities in Monetengro which face serious problems and not only focus on the coastal area. Ms. Kaljarikova mentioned that the EC is looking for a list of projects and identified problems so that the needs of the proponents are addressed in the best way through EU funded facilities targeting, for instance, deficiencies in investment preparation. Presentation: Overview of investment priorities in Montenegro in waste water sector, Ms. Snezana Didanovic, advisor, Ministry of Environment and Tourism 4

5 Strategic documents relevant to the waste water sector: Master plan for collection and treatment of waste water in the coastal region of Montenegro and municipality of Cetinje, 2005 Strategic master plan for sewage and waste water in central and northern region of Montenegro, 2005 Study on management of waste water in the coastal region (Kocks) The implementation of Master plan for collection and treatment of waste water in the coastal region of Montenegro and municipality of Cetinje, 2005 is envisaged in three phases and the total funds needed equal to 280,8 MEUR. The implementation of Strategic master plan for sewage and waste water in Central and Northern region of Montenegro is envisaged in three phases and the total funds needed amount to 278,7 MEUR. The presentation also provided examples of project activities in the coastal, central and northern municipalities of Montenegro as well as information about the foreseen activities in relation to development of waste water infrastructure. Question by Ms. Kaljarikova: Please clarify the situation with the urban WWTP and how requirements for sensitivev areas are met. Answer (Ms.Snezana Didanovic): The Master plan for the coastal region noticed eurithrification processes in Kotor and Tivat. Therefore, they were proposed for inclusion in the PEIP list. The requirements for waste water treatment facilities in the urban settlements were also considered in the master plans. Session 2: Reforming the water utilities Presentation: Key challenges for water utilities, strategies for restructuring of water utilities and tariff setting Mr. Andras Kis, Expert, Hungary The presentation contained three key topics: Key challenges for water utilities in the process of transformation Strategies for reforming the utilities Tariff setting policy and related issues The key challenges faced by the water utilities in the SEE relate to the decentralization, economic transformation, lower consumption / production, inefficient operations, degrading infrastructure, accession to the EU, problems with water resources Main activities with regards to the implementation of reforms in the utilities focus on the following issues: Metering of Consumption Invoicing and Collection of Tariffs Improved Management of the Utility Cost Saving Investments Independent Performance Audits Benchmarking Private Participation Reforms at the Regulatory Level 5

6 The attention was drawn also to the sequence of tariff reforms, tariff designs, cost recovery and affordability issues. Some practical examples from Romania and Croatia were outlined as well. Presentation: Regionalization in the water sector: the experience of the regional water enterprise VODACOM, Montenegro, Ms. Radmila Petrovic, VODACOM, Montenegro The presentation focused on the Montenegrin experiences in regional approach in the water sector with VODACOM being a successful example. VODACOM is a Joint Service and Coordination Company for Water and Waste Water Services for the Montenegrin Coast and the Municipality of Cetinje, established in March 2005, by the Government of the Republic of Montenegro and Municipalities of Bar, Tivat, Herceg Novi, Budva and Kotor. The main goal of VODACOM is to help to modernize ViKs performance, i.e. it should serve as the coordinator for raising organizational technical and financial efficiency of the local water utilities. Accomplished results: Revitalization of the water supply system Improving financial performance of local water utilities Achieving quality of the water supply services through the maintaining and upgrading the facilities Selected recommendations based on the experience of Vodacom: Better coordination of local and national authorities in relation to solving infrastructure problems Improved communication between the local governments and the utilities in the phase of planning of infrastructure priorities Increase in number of people better informed and with raised awareness Positive competenece between the water utilities based on benchmarking Positive impact on the planning of the network and municipalities Improved quality of project documentation, works, equipment, construction according to FIDIC conditions of contract Interest among public in need of gradual transformation of local water enterprises in the direction of delivering commercial services Start of standardization process Presentation: Selected issues from the Water utility reform project for the Republic of Montenegro, Mr. Vladan Djuranovic,USAID Montenegro Mr. Djuranovic presented the activities of USAID in relation to reforms in the water sector in Montenegro. The following elements of the reform were highlighted: Decentralization and voluntary regionalization; Corporative management (independent Board, independent audit); Commercialization (utilities-legal entities, commercial behavior); Regulation of natural monopoly (establishing of the regulator); Capital financing (Government to facilitate the access to capital; local governance and utilities to increase ability for taking and returning the loans); 6

7 The presentation also outlined the progress with the drafting of the Law on water supply and waste water treatment in Montenegro which is expected to be finalized in August The law has the following key elements: Quality, Quantity, Continuity, Sustainability and environmental protection, Corporative independence and commercial behavior, Transparency Protection of the public interest. The important role of an independent regulator was emphasized as well with regards to protecting the public interest and ensuring transparency and efficiency in the sector. Question: What is the type of Public Enterprise in other countries? Answer by Andras Kis: Most companies in Hungary are under the company law but are owned by municipalities. Five companies in Hungary are still owned by the state. In practice the mayors have influence on the work of the utilities. Private sector participation is through bying shares in the operating company. Question: What are the main challenges in the preparation of Feasibility Studies? Answer by Didanovic: Lack of human resources on local level; lack of relevant data and lack of financial capacity to prepare project documentation. Question: How do you foresee the cooperation with IFIs? Answer by Didanovic: We have had cooperation with EIB but we need more FSs. Cooperation will be better when there will be an Unit for Cooperation with International Institutions. Session 3: Preparation of bankable environmental investments Presentation: Feasibility Study Preparation - the process and selected challenges, Ms. Venelina Varbova, Project Manager, REC The presentation emphasized the key challenges in the region faced by SEE counties in the preparation of feasibility studies which in many cases do not follow the international practices and standards. Important aspects that are often overlooked such as analyzing and comparing alternatives, institutional assessment, social analysis have been outlined as well. Presentation: Investment Project Preparation national perspective, Ms. Snezana Didanovic, advisor, Ministry of environment and tourism, Montenegro The presentation outlined the key requirements and steps in preparation of technical documentation needed for waste water infrastructure projects as per the national legislation. It also emphasized the main conditions for allocating financing to the proposed projects: compatibility with strategic documents, feasibility study and complete project documentation. Ms. Didanovic also informed about the preparation status of project documentation for priority projects as defined in the master plan: Feasibility study for construction of water treatment facilities prepared for the municipalities of Pljevlja i Kolašin, In the coastal municipalities, where KfW is active, the necessary project documentation will be prepared. Outlined follow-up activities in the sector of waste water: 7

8 Establishments of project implementation units (human resources policy) Preparation of feasibility study for the establishment of a revolving fund Preparation of the law on water supply and managementof waste waters Session 4: Financing investments in the water sector Presentation: Options for financing water infrastructure projects in Montenegro under the EU Instrument for Pre-Accession (IPA), Mr. Ivan Lazarevic, advisor, Secretariat for EU integration in Montenegro The presentation outlined the goals of IPA programme, process of allocating funds, administrative set up and procedures. Montenegro as a Potential Candidate Country is eligible for IPA funds under two components: Transition Assistance and Institution Building and Regional and Cross-Border Co-operation. IPA funds to be allocated to Montenegro in Component Total Transition Assistance and Institution Building Regional and cross-border cooperation Total Montenegro is eligible for funds under 2 components of IPA Regional and Cross-border cooperation: Multilateral programmes: Adriatic cross-border programme, Transnational cooperation SEE, MED and bilateral programes with Albania, BiH, Croatia, Serbia: Information was provided on the recently launched Infrastructure project facility funded by the EU and the possibility for PEIP priority projects to receive financing for preparation of project documentation. Presentation: Other options for financing of water infrastructure projects, Ms. Ana Krunic, Focal point for PEIP, Ministry of environment and tourism The presentation provided information about the activities of WB, KfW, EBRD and EIB in the water sector in Montenegro. The projects that received financing are in line with the national priorities. Presentation: Environmental Revolving Fund in Montenegro, Ms Natasa Obradovic, USAID, Montenegro The presentation focused on the preparatory activities and the development of feasibility study in relation to establishing eco revolving fund in Montenegro. It pointed out the key phases in preparation, the objectives, as well as the proposed functions and structure of the funds. Followup activities include preparation of law on eco fund, formulation of a strategy for financing the fund, selection and training of the personnel. Plenary Discussion on various aspects in financing the investments in the water sector 8

9 Question: What is the deadline for establishing environmental fund? Answer: However, its financing remains an issue. Question: How can the municipalities have an access to IPA funds? Answer: Municipalities will be eligible for IPA funds under the component Regional and Crossborder cooperation. Possibilities also exist under Municipal Infrastructure Facility. Question: And what about if municipalities have project proposals prepared? Answer: Regarding IPA Regional and CBC Component relevant structures (Joint Technical Secretariats) will be established in the neighbouring countries which will collect project proposals. Question: Will be conclusions from this meeting prepared and will they be sent? Answer: Yes, there will be conclusions. Besides, there will be more projects to be included on the PEIP list which will be presented at the PEIP regional meeting. As part of the capacity building activities under the project a manual will be prepared which will aim to address the concrete needs and problems of the beneficiaries. Conclusions Mr. Ruslan Zhechkov made a summary of the topics and issues discussed. Ms. Dagmar Kaljarikova pointed out that implementation of the adopted legislation remains a key issue that needs time and human resources. Therefore, EC expects planning with regards to the achievement of the legislation and at the same time will continue to support Montenegro. Investment strategy needs to be prepared for the country. Money is available but the main problem is the capacity to prepare projects. This challenge will be highlighted also during the PEIP regional meeting. Other issues to follow-up include the establishment of environmental protection agency and environmental fund. Ms. Kaljarikova also highlighted that the meeting was useful and informed about forthcoming meeting of IPPF in June which was expected to decide on the first list of projects to be funded under the facility. Minutes prepared by the REC project team June