Improve Operational and Financial Performance of the PUC s

Improve Operational and Financial Performance of the PUC s European Agency for Reconstruction ( EAR )

Maršala Birjuzova 16/4 11000 Belgrade Serbia +381-11-2185 999 Telephone +381-11-2185 946 Fax www.miasp.com E-mail office@miasp.com www.royalhaskoning.com Internet Arnhem 09122561 CoC Document title Document short title Status Date Project name Project number Client Reference MIASP 9R5927 European Agency for Reconstruction (EAR) 9R5927/CvS/R2006_96/001 Drafted by Milorad Rosic Utility Operations Expert Checked by Peter Duindam Institutional Expert Date/initials check. Approved by Cok van Schooten Team Leader Date/initials approval. 1

ANNEXES 3 1 INTRODUCTION 4 2 INDIVIDUAL ASSESSMENT OF PUC S 5 3 PREPARATION OF ACTION PLANS 2007 6 4 TRAINING SESSIONS 7 5 RESULTS 8 2

ANNEXES HASKONING NEDERLAND B.V. WATER No Annexes 1 Assessment note on PUC Apatin 2 Assessment note on PUC Indjija 3 Assessment note on PUC Mionica 4 Assessment note on PUC Smederevo 5 Assessment note on PUC Varvarin 6 Assessment note on PUC Žitorađa 7 Final version of the Action Plan 2007 for Capacity Enhancement Program 8 Results of questionnaire for participants of CEP training 9 Summary report on Capacity Enhancement Services training 10 Example of presentation on 30 th October 2007 of results of Action Plan 2007 (example PUC Indjija). 3

1 INTRODUCTION HASKONING NEDERLAND B.V. WATER This report provides a summary of the conclusions of the individual assessments that have been carried out of the Public Utility Companies (PUC s) that have participated in the Capacity Enhancement Program (CEP) organized by the MIASP team in the period from December 2006 to December 2007, as stipulated in the individual EAR Grant Contracts (example: ref. No 03SER01/11- Upgrading of the water treatment plant and replacement of pipes, Apatin Municipality). Furthermore information is given on the results of the training that was provided to the participating PUC s. The results are presented including the assessment of the training sessions by the participants. Detailed information has been included in the annexes. They concern (parts of) reports and documents that have been produced during the realization of the CEP and they have been brought together in this report, which serves as a wrap-up report of the program. The CEP consisted of the following elements: Individual assessments of the participating PUC s; Preparation of action plans 2007; Training sessions. To each element a short section has been dedicated and reference has been made to its most important conclusions or results. 4

2 INDIVIDUAL ASSESSMENT OF PUC S HASKONING NEDERLAND B.V. WATER In line with the Terms of Reference for the CEP concerning the improvement of operational and financial performance of PUC s, an assessment has been made of the following topics: Financial performance of the PUC; Technical performance of the PUC; The organizational performance of the PUC; How customer relations are being executed by the PUC. Furthermore the assessments paid attention to: Data and indicators; Major problems encountered by PUC s in the execution of their daily tasks; The setting up of an Action Plan. During the period from December 2006 to March 2007, an analysis was made of seven Public Utility Companies (PUC s), receiving grant financing from the EAR via the Municipal Infrastructure Agency Support Program (MIASP). The objective of this analysis was to identify and prioritize short term measures to help the utilities to improve their financial and/or operational performance. This report now summarizes the identified measures and its relative ranking. In addition, it sets out an action plan to implement the selected measures. The action plan has been completed by November 2007. The following PUC s participated in the analysis: Apatin (water & sewerage and other communal activities); Indjija (water & sewerage); Mionica (water & sewerage and other communal activities); Smederevo (water & sewerage); Varvarin (water & sewerage and other communal activities); Zitoradja (water & sewerage and other communal activities). Vršac and Žitište received a grant as well as for road projects but the two involved PUC s were not taken into account for the assessment because they are not responsible for supply of services to the customers. The Municipality of Zemun (water supply project) was excluded since it is serviced by Belgrade waterworks. Indjija (water treatment plant project) joined in february 2007. Subotica (water supply project) have realized investments through an EBRD loan and they joined a EBRD financed CEP program (only the Service Contract part). MIASP has prepared an individual assessment report for each PUC that participated in the training and they are included in annexes 1 6 to this report. 5

3 PREPARATION OF ACTION PLANS 2007 HASKONING NEDERLAND B.V. WATER Two initial meetings were held in April 2006 to discuss the expected results and the contents of the training. Also a framework of the Action Plan 2007 was decided upon. A copy of this Action Plan, as agreed during the seminar of 26 April 2007 and is included in annex 2. At this seminar, representatives of the PUC s, the Municipalities, the Ministries of Finances and Trade and Services, the Standing Conference of Towns and Municipalities and Association of Consumers were present. After a realistic discussion with the representatives of the PUC s it was decided to prepare a training program on the topic of water meter replacement. The problem of outdated water meters exists in all PUC s and leads to uncertainties in the reading of the meters. Subsequently it is difficult for the PUC s billing department to invoice consumers on basis of their real water consumption (and wastewater production). Representatives declared the need for more specific information on this topic. 6

4 TRAINING SESSIONS HASKONING NEDERLAND B.V. WATER In order to elaborate with more detail on the most important issues a three-day training course has been given on 13, 20 and 27 June 2007 covering the following topics: Public Relations; Elements of Project Management; Practical introduction to water meter replacement; Cost calculations; Quality requirements for water meters. As part of sustainable consulting to public utility companies, a content of a leaflet has been developed, that serves as a direct communication between PUC s and end users. More details on the training are given in annex 7. In annex 8 the results of the questionnaire participants have filled in on their appreciation of the offered training sessions are included. According to the results it can be concluded as follows: The participants have participated with great interest during the entire training (three days of interactive teaching). They have acquired new knowledge on the addressed topics although not always they fully understood the relation between this acquired knowledge and their daily work. The degree of detailed information was sufficient to understand tasks of the Action Plan 2007: a guide to write a regular water meter replacement manual, cost recovery from revenues and PR information. Participants were very satisfied with the organization, presentation and the performance of the trainers. With a final average score of 4,293 out of 5, or 85,6 % the participants have shown their general contentment with the training. 7

5 RESULTS HASKONING NEDERLAND B.V. WATER During the period July October 2007, PUC s worked on their tasks as defined in the Action Plan 2007. The results of the Action Plan were presented at the final Seminar held on 30 October 2007 at the premises of PUC Indjija, who acted as host for this event. PUC s of the towns: Smederevo, Indjija, Mionica and Apatin successfully realized and presented their Action Plans. Unfortunately the PUC s of Varvarin and Zitoradja could not finalize their contribution due to limited available work force. In annex 9 a copy of the progress report prepared for PUC Smederevo has been included giving an overview of most of the activities and obtained results of the CEP. In annex 10 the PowerPoint presentation of PUC Indjija is given to illustrate the results as presented on this meeting. The conclusions that were reached at the closing session of this meeting are the following: 1. Water supply PUC's of the towns Smederevo, Indjija, Mionica and Apatin have achieved the expected results of the AP 2007 WMR (water meters replacement). They have defined a regular water meter replacement program for the O&M program of the existing house connections (including the individual water meters). The PUC's have implemented new standards of process, organization and management for WMR. In 2007 the PUC's have replaced water meters while the costs will be covered from the current revenues. They have prepared a proposal for the AP 2008 RWMRP (regular water meters replacement program) that will be sustainable and it has to be realized consistent to the previously defined standards. 2. With the aim to establish a continuous and sustainable source of financing for RWMRP, it is necessary to include in the monthly water bill a fixed part for the RWMRP (analogy power electricity meter) or to established WMRP as a new service to the consumer (PUC could also consider outsourcing the service). The municipalities have decided how the PUC will cover costs for AP 2008 RWMRP. At this moment, the municipalities are preparing the local ordinance of service. It will define rights and obligations in the fields of planning, operation and monitoring of service between the municipality, PUC and the customers. 3. In the Annual Plan 2008, the PUC's will define a proposal for the RWMRP in accordance with the local ordinance. 4. In 2008, it will be necessary to create a legal framework for the realization of the defined RWMRP s through adjustment of existing regulations and possibly by introducing new regulation. For example: adjustment of the regulated period of water meter calibration of five years. 8

This will create a certain autonomy for the PUC s in planning and financing their RWMR. PUC s have achieved changes by the implementation of WMR procedures on planning, operation and monitoring this activity. This type of change might have initiated a process of restructuring of the PUC s. Municipalities manage this process as foreseen in the Memorandum of Serbian Government (Official Gazette No 96/07). The Annual Plans will be forwarded to the following Republican Ministries: Economy and Regional Development, Finance Sector for Public Companies; Trade and Services (dept for Price Policy), and State Government and Local Self-government. 9

ANNEX 1: ASSESSMENT NOTE ON PUC APATIN CAPACITY ENHANCEMENT PROGRAM FOR THE PUC NAŠ DOM OF APATIN 08

TOPICS PROPOSAL FOR ACTION PLAN 2007 January 2007 Prepared by MIASP TEAM 1. INTRODUCTION The purpose of this note is to identify the Capacity Enhancement needs and the tentative program of the PUC NAS DOM Apatin in relation with the planned Water Supply Project in the Municipality of Apatin. The framework for the identification of topics is the ToR for the MIASP that defines under project results of Grant Contract for the Water Supply Project in Apatin; (i) improved financial and budget management practices and procedures in the participating municipalities, and (ii) improved operational and financial management practices in participating utility companies. This note is based on existing information available in the MIASP office and on PUC staff information that was given on meeting was held in PUC at December 27, 2006. The documentation that was explored for preparing this note is the MIASP Questionnaire, PIR, BPD, Grant Agreement and Project documentation for Water Supply System replacement water pipes and upgrading water treatment plant.. The approach applied in the analysis is as follows: a. Review existing data and information available within the MIA; b. Develop main indicators of PUC performance; c. Collect data and indicators of PUC performance and verify with the PUC that these data are correct; d. Analyses the indicators in light of national and international standards; e. Identify potential constraints and risks; f. Indicate possible fields of action for the Capacity Enhancement Program. The above approach is summarized in the Chapter 2 and in the Table 1 (Appendix 1). The Chapter 3 gives the overall conclusions.

2. PUC LEVEL HASKONING NEDERLAND B.V. WATER 2.1 Service level Findings In 2006 total coverage, in supplied settlements, with water supply services is 87,3%. Total coverage, in the town of Apatin, of sewerage services is 74,6%. The PUC has a reported number of 7,749 household water connections and 5,000 wastewater connections. 90 new connections were provided in 2006. Water tariffs are 14,17 dinar/m 3 for supplied drinking water and 7,08 dinar/m 3 of discharged wastewater into the sewerage. Calculated domestic consumption was 136 l pcpd. The total number of customer complaints is not known. In 2006 the total number of breaks in distribution network was 160. The metering level is reported by the PUC that there may be mistakes due to incorrect metering with 28,4% of customer s meters which are out of order. Analysis In some villages there is no existing wastewater system; In some cases in-house installations need to be installed; 28,4% of customer s meters are out of order. Possible Actions Advice PUC to assess the existing service levels and advise on measures for improvement; Advise on monitoring and management of customer complaints; Preparation and implementation of metering plan. 2.2. Financial performance Findings Accounting system of PUC activities could not express separately activity of sectors. This is the case for the non-existence of water financial performance indicators. Analysis Missing adequate accounting system to recognize separately sector activities Possible actions: Establish adequate accounting system; Establish adequate tariff level and design a tariff structure and scenarios for increase; Accounting system (cost accounting system). 2.3. Operational efficiency Findings Non-revenue water of 25% in 2004, 25% in 2005 and 23% in 2006 are good outcomes for domestic conditions.

Total number of repairs at WS network was 130 in 2004, 192 in 2005 and 135 in 2006. Causes to these breakages as well as the response time are not known. Analysis Not clear whether sufficient funds for (preventive) maintenance of the systems are made available; Preparation and implementation cost accounting system. Possible actions: Determine appropriate level of O&M costs 2.4. Human Resource and Project Management Issues Findings The PUC has 67 employees of which 12 are involved in water supply and 10 in sewerage. 3 employees hold a university or college degree. The number of staff per 1000 house connections is for drinking water is 1,9 and the number of staff per 1000 house connections is sewerage is 2,4. Analysis PUC staff is not familiar with international implementation procedures; Project management capability of PUC and PUC staff is not known. Possible actions On-the-job training of existing PUC staff in project management; Advice the PUC on HRM policies and procedures and measures to increase staffing efficiency. 3. CONCLUSIONS This note is based on the existing information available in the MIASP office and PUC staff information that was given on meeting was held in PUC. The documentation that was explored for preparing this note is the MIASP Questionnaire, PIR, BPD, Grant Agreement and Project documentation for Water Supply System replacement water pipes and upgrading water treatment plant. The information available was sufficient to identify potential focus areas: Tariffs Models, Structure and Scenario Increases; Operation & Maintenance Tasks (Manual); Accounting System (Cost Accounting System); Metering (Costs and Procedures replacement of meters). After PUC coordinated and agreed with the proposal, the next step is to consult the PUC and the Municipal authorities and apply PUC CEP, if deemed feasible and realisti

Table 1-1 PUC LEVEL-PUC NAŠ DOM Apatin PUC Service Level Unit 2004 2005 2006 Actual vs total (potential) population served w / ww (sewerage Apatin only) % 87,3 / 74,6 Part of HH Income spent on water services (excluding in house installations) % Domestic Consumption l/cd 113 130 136 Percentage of metered water sold % 100 100 100 Nr of Customer complaints per annum Nr no evidence Nr of breaks in distribution network per total length of network Nr/Km 0,6 0,7 1,3 PUC Financial Performance Total revenues (TR) Euro* 10 6 Operational revenues Euro* 10 6 Gross operating profit Euro* 10 6 Net operating profit Euro* 10 6 Net profit after tax Euro* 10 6 Subsidy received from the Municipality Euro* 10 6 Subsidy provided by the Municipality as percentage of revenues received % Operating Costs, excl. Depreciation (OC) Euro* 10 6 of which maintenance costs Euro* 10 6 Depreciation (D) Euro* 10 6 Capital Costs (CC) Euro* 10 6 Cost Recovery Ratio multiple Ratio of Debt to Total Revenues multiple AR'05 2004 AR'05 2005 Plan 2006 HASKONING NEDERLAND B.V. WATER Analysis of possible risks and constraints In some villages do not exist w&ww systems In some cases inhouse installations need to be installed 28,4% of customer s meters are out of order. Analysis of possible risks and constraints Missing adequate accounting system. Proposed type of Actions Advice PUC to assess the existing service levels and advise on measures for improvement Advise on monitoring and management of customer complaints Preparation and implementation of metering plan. Proposed type of Actions Establish adequate accounting system Establish adequate tariff level and design a tariff structure and scenarios for increase Preparation and implementation cost accounting system.

Ratio of Debt Service to Total Revenues multiple Free cash flow (FCF) Euro* 10 6 Debt Service Coverage Ratio multiple Operating Costs per Unit produced per year /m 3 Collection Rate invoiced bills % Average Debtor Days (ADD) Days Debt to Equity Ratio multiple Current Ratio multiple PUC Operational Efficiency 2004 2005 2006 Non-revenue drinking water % 25 25 23 Of which technical % Of which administrative % Drinking water produced m3/year 1.200.045 1.406.293 1.427.014 Drinking water billed m3/year 902.828 1.048.449 1.104.237 Manpower costs as % of operating costs % Depreciation costs as % of operating costs % Other costs as % of operating costs % - - - Number of repairs No/yr 130 192 135 PUC Project Management / HRD aspects 2004 2005 2006 Nr. of employees Nr 66 66 67 of which management/staff/overhead Nr 12 12 12 of which drinking water Nr 11 11 12 of which waste water Nr 9 9 10 of which other departments Nr 34 34 33 Nr of (HH) Connections Water Nr 7.599 7.659 7.749 No of connections WW Nr 5.000 5.000 5.000 Analysis of possible risks and constraints Not clear whether sufficient funds for (preventive) maintenance of the systems are made available. Analysis of possible risks and constraints PUC staff not familiar with international implementation procedures Project management capability of PUC Proposed type of Actions Determine appropriate level of O&M costs. Proposed type of Actions On-the-job training of existing PUC staff in project management Advice the PUC on HRM policies and

Nr of staff per 000 per connections Water N0/ 000 1,8 1,8 1,9 Nr of staff per 000 connections waste water N0/ 000 2,20 2,20 2,44 Employees with higher education % 4,5 4,5 4,5 HASKONING NEDERLAND B.V. WATER and PUC staff is not known. procedures and measures to increase staffing efficiency.

ANNEX 2: ASSESSMENT NOTE ON PUC INĐIJA CAPACITY ENHANCEMENT PROGRAM FOR THE PUC FOR WATER SUPPLY AND SEWERAGE OF INDJIJA

TOPICS PROPOSAL FOR ACTION PLAN 2007 January 2007 Note prepared by MIASP TEAM 1. INTRODUCTION The purpose of this note is to identify the Capacity Enhancement needs and the tentative program of the PUC Vodovod i kanalizacija Indjija in relation with the planned Water Supply Project in Indjija. The framework for the identification of topics is the ToR for the MIASP that defines under project results of Grant Contract for the Water Supply Project in Indjija; (i) improved financial and budget management practices and procedures in the participating municipalities, and (ii) improved operational and financial management practices in participating utility companies. This note is based on existing information available in the MIASP office and on PUC staff information that was given on meeting was held in PUC at December 19, 2006. The documentation that was explored for preparing this note is the MIASP Questionnaire, Project documentation for Water Treatment Plan and balance sheet and income statements for 2005. The approach applied in the analysis is as follows: a. Review existing data and information available within the MIA; b. Develop main indicators of PUC performance; c. Collect data and indicators of PUC performance and verify with the PUC that these data are correct; d. Analyses the indicators in light of national and international standards; e. Identify potential constraints and risks; f. Indicate possible fields of action for the Capacity Enhancement Program (CEP). The above approach is summarized in Chapter 2 and in Table 1 (Appendix 1). Chapter 3 gives the overall conclusions.

2. PUC LEVEL HASKONING NEDERLAND B.V. WATER 2.1. Service Level Findings Total coverage, in supplied settlements, with water supply services is 93%. Total coverage, in the town Indjija, of sewerage services is 21%. Future coverage of sewerage is approximately 90% but commissioning of sewer network is not done yet. The PUC has a reported number of 14,055 household water connections and 1,111 wastewater connections. 264 new connections were provided in 2006. With the project all customers will be provided by good quality water. Water tariffs are expected to increase to approximately 30 dinar/m 3 to cover cost. But Government approved increase of 7,5%. Expenditures appear to be affordable to households that will spend less than 2% of household income on water fees. Calculated domestic consumption was 120 l/cd with a reported stabilized trend in long period. The total number of customer complaints was 6,070. The procedures for addressing complaints are not known. There are no data on water supply interruptions related to breakages. The metering level is reported by the PUC that there may be mistakes due to incorrect metering with 32% of customer s meters which are out of order. Analysis In some villages no w&ww systems exist; In some household in-house installations need to be installed; 32% of customer s meters are out of order. Possible Actions Advice PUC to assess the existing service levels and advise on measures for improvement; Preparation and implementation of metering plan; Advise on monitoring and management of customer complaints. 2.2. Financial performance Findings When compared to 2004 (resulted in loss) the PUC did not improve its performance which again resulted in losses in 2005. The collection rate in 2005 increased to 97%. The total volume of outstanding payments from customers at year end is not high. Current tariffs do not cover the existing operating costs. The method of calculating the current tariff is connected to the government s decision and only a maximum increase of 7,5% is allowed. The waste water tariff is 50% of the WS tariff. The breakdown of revenues between water and waste water is unclear. Cost coverage ratios are as follows: operating cost (excl. depreciation) is 88,4% of the total revenues (78,5% in 2004).

The accounting system as prescribed by the law is in line with the international accounting standard as of 2004. In 2005 subsidy from the Municipality to the PUC was 13% of the total revenues. Analysis It is unclear if sufficient resources are available for adequate maintenance of the system; Tariff increase is needed to cover all expenditures. Possible actions: Establish adequate tariff level and design a tariff structure and scenarios for increase; Preparation and implementation cost accounting system. 2.3. Operational efficiency Findings Metering process implemented in 2006. Non-revenue water is unknown. Total number of repairs at WS network was 198. Causes to these breakages as well as the response time are not known. Analysis Not clear whether sufficient funds for (preventive) maintenance of the systems are made available. Possible actions: Determine appropriate level of O&M costs. 2.4. Human Resource and Project Management Issues Findings The PUC employs 82 employees. 7 employees hold a university or college degree. In 2006, 10 new employees were admitted. The number of staff per 1000 house connections for drinking water is 6,3. The percentage of personnel costs in total operational costs is rather high, namely 41% in 2005 and it increased by 2% when compared to 2004. Analysis PUC staff is not familiar with international project implementation procedures; Project management capability of PUC and PUC staff no exist; Assuming constant number of staff, a considerable increase in staff efficiency is envisaged. Possible actions On-the-job training of existing PUC staff in project management; Advice the PUC on HRM policies and procedures and measures to increase staffing efficiency.

3. CONCLUSIONS HASKONING NEDERLAND B.V. WATER This note is based on existing information available in the MIASP office and PUC staff information that was given on meeting was held in PUC. The documentation that was explored for preparing this note is the MIASP Questionnaire, Project documentation for Water Treatment Plan and balance sheet and income statements for 2005. The information available was sufficient to identify potential focus areas: Tariffs Models, Structure and Scenario Increases; Operation & Maintenance Tasks (Manual); Accounting System (Cost Accounting System); Metering (Costs and Procedures replacement of meters). After PUC coordinated and agreed with the proposal, the next step is to consult the PUC and the Municipal authorities and apply PUC CEP, if deemed feasible and realistic.

Table 2-1 PUC Vovovod I kanalizacija Inđija PUC Service Level Unit 2004 2005 2006 Actual vs total (potential) population served w / ww (ww Indjija only) % 90,0 / 15 91,0 / 17 92,9 / 21 Part of HH Income spent on water services (excluding in house installations) % Domestic Consumption l/cd 121 112 122 Percentage of metered water sold % 100 100 100 Nr of Customer complaints per annum Nr 6.070 Nr of breaks in distribution network per total length of network Nr/Km 0,34 0,38 0,42 PUC Financial Performance Unit AR'05 2004 AR'05 2005 Plan 2006 Total revenues (TR) Euro* 10 6 0,93 1,12 - Operational revenues Euro* 10 6 0,91 1,10 - Gross operating profit Euro* 10 6 (0,13) (0,19) - Net operating profit Euro* 10 6 (0,13) (0,17) - Net profit after tax Euro* 10 6 (0,13) (0,17) - Subsidy received from the Municipality Euro* 10 6-0,15 Subsidy provided by the Municipality as percentage of revenues received % 0% 13% Operating Costs, excl. Depreciation (OC) Euro* 10 6 0,73 0,99 - of which maintenance costs Euro* 10 6 Depreciation (D) Euro* 10 6 0,31 0,30 - Capital Costs (CC) Euro* 10 6 - - - Cost Recovery Ratio multiple 1,12 1,15 Ratio of Debt to Total Revenues multiple 0,01 0,00 HASKONING NEDERLAND B.V. WATER Analysis of possible risks and constraints In some villages do not exist w&ww systems In some household inhouse installations need to be installed 32% of customer s meters are out of order. Analysis of possible risks and constraints It is unclear if sufficient resources are available for adequate maintenance of the system Tariff increase is needed to cover all expenditures. Proposed type of Actions Advice PUC to assess the existing service levels and advise on measures for improvement Preparation and implementation of metering plan Advise on monitoring and management of customer complaints. Proposed type of Actions Establish adequate tariff level and design a tariff structure and scenarios for increase Preparation and implementation cost accounting system.

Ratio of Debt Service to Total Revenues multiple - - Free cash flow (FCF) Euro* 10 6 (0,02) (0,14) - Debt Service Coverage Ratio multiple Operating Costs per Unit produced per year /m 3 unknown unknown unknown Collection Rate invoiced bills % 84 97 Average Debtor Days (ADD) Days 145 69 Debt to Equity Ratio multiple 0,00 0,00 Current Ratio multiple 3,49 2,93 PUC Operational Efficiency Unit 2004 2005 2006 Non-revenue drinking water % unknown unknown unknown of which technical % of which administrative % Drinking water produced m3/year unknown unknown unknown Drinking water billed m3/year 2.500.281 2.383.673 2.538.379 Manpower costs as % of operating costs % 39 41 Depreciation costs as % of operating costs % 30 23 Other costs as % of operating costs % 31 35 - Number of repairs No/yr 168 180 198 HASKONING NEDERLAND B.V. WATER Analysis of possible risks and constraints Not clear whether sufficient funds for (preventive) maintenance of the systems are made available. Proposed type of Actions Determine appropriate level of O&M costs.

PUC Project Management / HRD aspects Unit 2004 2005 2006 Nr. of employees Nr 77 72 82 of which management/staff/overhead Nr 26 26 28 of which drinking water Nr 51 46 54 of which waste water Nr - - - of which other departments Nr - - - Nr of (HH) Connections Water Nr 12.644 12.790 13.054 No of connections WW Nr 1.111 Nr of staff per 000 per connections Water N0/ 000 6,1 5,6 6,3 Nr of staff per 000 connections waste water N0/ 000 0,0 0,0 0,0 Employees with higher education % 6,5 9,7 8,5 Analysis of possible risks and constraints PUC staff not familiar with international implementation procedures Project management capability of PUC and PUC staff no exist Assuming constant number of staff, a considerable increase in staff efficiency is envisaged. Proposed type of Actions On-the-job training of existing PUC staff in project management Advice the PUC on HRM policies and procedures and measures to increase staffing efficiency.

ANNEX 3: ASSESSMENT NOTE ON PUC MIONICA CAPACITY ENHANCEMENT PROGRAM FOR THE PUC MIONICA OF MIONICA

TOPICS PROPOSAL FOR ACTION PLAN 2007 January 2007 Note prepared by MIASP TEAM 1. INTRODUCTION The purpose of this note is to identify the Capacity Enhancement needs and the tentative program of the PUC MIONICA in relation with the planned Water Supply Project in Mionica. The framework for the identification of topics is the ToR for the MIASP that defines under project results of Grant Contract for the Water Supply Project in Mionica; (i) improved financial and budget management practices and procedures in the participating municipalities, and (ii) improved operational and financial management practices in participating utility companies. This note is based on existing information available in the MIASP office and PUC staff information that was given on meeting was held in PUC at December 22, 2006. The documentation that was explored for preparing this note is the MIASP Questionnaire, Project Identification Report, BPD, the Grant Contract and EAR Appraisal form that were prepared for this project. The approach applied in the analysis is as follows: a. Review existing data and information available within the MIA; b. Develop main indicators of PUC performance; c. Collect data and indicators of PUC performance and verify with the PUC that these data are correct; d. Analyze the indicators in light of national and international standards; e. Identify potential constraints and risks; f. Indicate possible fields of action for the Capacity Enhancement Program. The above approach is summarized in the Chapter 2 and in the Table 1 (Appendix 1). The Chapter 3 gives the overall conclusions.

2. PUC LEVEL HASKONING NEDERLAND B.V. WATER 2.1 Service level Findings Total coverage, in supplied settlements, with water supply services is 82%. Total coverage, in the town Mionica, with sewerage services is 87%. The PUC has a reported number of 5,532 household water connections and 782 wastewater connections. 42 new connections were provided in 2006. Water tariffs are 21,80 dinar/m 3 for drinking water supply and 4,68 dinar/m 3 of water for wastewater discharge. Calculated domestic consumption was 90 l/cd as reported in previous years too. PUC do not record customer complaints. The total number of breaks in distribution network was 1,187. The metering level is reported by the PUC that there may be mistakes due to incorrect metering with 66,1% of customer s meters which are out of order. Analysis In some villages do not exist w&ww systems; In some cases in-house installations need to be installed; Consumption level (90 l/cd) is under average; 66,1% of customer s meters are out of order. Possible Actions Advice PUC to assess the existing service levels and advise on measures for improvement; Advise on monitoring and management of customer complaints; Preparation and implementation of metering plan. 2.2. Financial performance Findings Accounting system of PUC activities could not express separately activity of sectors. This is reason do not exist water financial performance. Analysis Missing adequate accounting system to recognize separately sector activities; Considerable amount of outstanding consumer debt. Possible actions: Establish adequate accounting system; Establish adequate tariff level and design a tariff structure and scenarios for increase.

2.3. Operational efficiency Findings Non-revenue water of 50% in 2004, 50% in 2005 and 47% in 2006 is high. Total number of repairs at WS network was 1,093 in 2004, 1,430 in 2005 and 1,330 in 2006. Causes to these breakages as well as the response time are not known. Analysis High level of non-revenue water; Not clear whether sufficient funds for (preventive) maintenance of the systems are made available. Possible actions: Design a program to reduce this level from 50% to 20%, including: - reduce leakage; - reduce illegal connections; - reduce administrative losses; Determine appropriate level of O&M costs. 2.4. Human Resource and Project Management Issues Findings The PUC employs 49 employees of which 15 involved in water supply and 2 in sewerage. 2 employees hold a university or college degree. The number of staff per 1000 house connections for drinking water is 3,7 and the number of staff per 1000 house connections is sewerage is 3,5. Analysis PUC staff not familiar with international implementation procedures; Project management capability of PUC and PUC staff is not known. Possible actions On-the-job training of existing PUC staff in project management; Advice the PUC on HRM policies and procedures and measures to increase staffing efficiency. 3. CONCLUSION This note is based on existing information available in the MIASP office and PUC staff information that was given on meeting was held in PUC. The documentation that was explored for preparing this note are the MIASP Questionnaire, Project Identification Report, BPD, the Grant Contract and EAR Appraisal form that were prepared for this project. The information available was sufficient to identify potential focus areas: Water Tariffs Models, Structure and Scenario Increases; Water Operation & Maintenance Tasks (Manual);

Accounting System (Cost Accounting System); Metering (Costs and Procedures replacement of water meters). After PUC coordinate and agreed of the proposal, the next step is to consult the PUC and the Municipal authorities and apply PUC CEP, if deemed feasible and realistic

Table 3 1 PUC MIONICA Mionica PUC Service Level Unit 2004 2005 2006 Actual vs total (potential) population served w / ww (sewerage Mionica only) % 82 / 87 Part of HH Income spent on water services (excluding in house installations) % Domestic Consumption l/cd 90 89 93 Percentage of metered water sold % Nr of Customer complaints per annum Nr no evidence Nr of breaks in distribution network per total length of network Nr/Km 79,8 104,4 103,7 PUC Financial Performance AR'05 2004 AR'05 2005 Plan 2006 Total revenues (TR) Euro* 10 6 Operational revenues Euro* 10 6 Gross operating profit Euro* 10 6 Net operating profit Euro* 10 6 Net profit after tax Euro* 10 6 Subsidy received from the Municipality Euro* 10 6 Subsidy provided by the Municipality as percentage of revenues received % Operating Costs, excl. Depreciation (OC) Euro* 10 6 of which maintenance costs Euro* 10 6 Depreciation (D) Euro* 10 6 Capital Costs (CC) Euro* 10 6 Cost Recovery Ratio multiple HASKONING NEDERLAND B.V. WATER Analysis of possible risks and constraints In some villages do not exist w&ww systems In some cases inhouse installations need to be installed. Consumption level (90 l/cd) is under average 66,1% of customer s meters are out of order Analysis of possible risks and constraints Missing adequate accounting system to recognize separately sector activities Considerable amount of outstanding consumer debt. Proposed type of Actions Advice PUC to assess the existing service levels and advise on measures for improvement Advise on monitoring and management of customer complaints Preparation and implementation of metering plan Proposed type of Actions Establish adequate accounting system Establish adequate tariff level and design a tariff structure and scenarios for increase

Ratio of Debt to Total Revenues multiple Ratio of Debt Service to Total Revenues multiple Free cash flow (FCF) Euro* 10 6 Debt Service Coverage Ratio multiple Operating Costs per Unit produced per year /m 3 Collection Rate invoiced bills % Average Debtor Days (ADD) Days Debt to Equity Ratio multiple Current Ratio multiple PUC Operational Efficiency 2004 2005 2006 Non-revenue drinking water % 50 50 47 of which technical % of which administrative % Drinking water produced m3/year 1.200.000 1.200.000 1.200.000 Drinking water billed m3/year 600.174 602.962 634.872 Manpower costs as % of operating costs % Depreciation costs as % of operating costs % Other costs as % of operating costs % Number of repairs No/yr 1.093 1.430 1.330 Analysis of possible risks and constraints High level of nonrevenue water Not clear whether sufficient funds for (preventive) maintenance of the systems are made available Proposed type of Actions Design a program to reduce this level from 50% to 20%, including: - reduce leakage - reduce illegal connections - reduce administrative losses Determine appropriate level of O&M costs

PUC Project Management / HRD aspects 2004 2005 2006 Nr. of employees Nr 49 of which management/staff/overhead Nr 13 of which drinking water Nr 15 of which waste water Nr 2 of which other departments Nr 19 Nr of (HH) Connections Water Nr 5.453 5.490 5.532 No of connections WW Nr 782 782 782 Nr of staff per 000 per connections Water N0/ 000 3,69 Nr of staff per 000 connections waste water N0/ 000 3,48 Employees with higher education % 4,1 Analysis of possible risks and constraints PUC staff not familiar with international implementation procedures Project management capability of PUC and PUC staff is not known Proposed type of Actions On-the-job training of existing PUC staff in project management Advice the PUC on HRM policies and procedures and measures to increase staffing efficiency

ANNEX 4: ASSESSMENT NOTE ON PUC SMEDEREVO CAPACITY ENHANCEMENT PROGRAM FOR THE PUC OF SMEDEREVO

TOPICS PROPOSAL FOR ACTION PLAN 2007 January 2007 Note prepared by MIASP TEAM 1. INTRODUCTION The purpose of this note is to identify the Capacity Enhancement needs and the tentative program of the PUC Vodovod of Smederevo in relation with the planned Reconstruction of the Roads, Waste Water and Water Supply Project in Smederevo. The framework for the identification of topics is the ToR for the MIASP that defines under project results of Grant Contract for the Rehabilitation and Extension of Water and Waste Water; (i) improved financial and budget management practices and procedures in the participating municipalities, and (ii) improved operational and financial management practices in participating utility companies. This note is based on existing information available in the MIASP office and PUC staff information that was given on meeting was held in PUC at December 25, 2006. The documentation that was explored for preparing this note are the MIASP Questionnaire, Project Identification Report, BPD, the Grant Contract, EAR Appraisal form that were prepared for this project and balance sheet and income statements for 2005. The approach applied in the analysis is as follows: a. Review existing data and information available within the MIA; b. Develop main indicators of Municipal and PUC performance; c. Collect data and indicators of PUC performance and verify with the PUC that these data are correct; d. Analyze the indicators in light of national and international standards; e. Identify potential constraints and risks; f. Indicate possible fields of action for the Capacity Enhancement Program. The above approach is summarized in Chapter 2 and Table 1 (Annex 1). The findings at the PUC level are presented with a focus on operational performance and project management capacity. Chapter 3 gives the overall conclusions.

2. PUC LEVEL-PUC VODOVOD SMEDEREVO 2.1. Service level HASKONING NEDERLAND B.V. WATER Findings In town Smederevo and villages Vodanj, Lipe, Ralja, Radinac, Vranovo and Vucak total coverage of water supply services is 92.7%. The PUC has a reported number of 16.616 household connections. 342 new connections were provided in 2006. In the town of Smederevo coverage with sewerage services is 81.1%. Water tariffs did not change in 2006. Expenditures appear to be affordable to households that will spend less than 2% of household income on water fees. Calculated domestic consumption was 166 l/c/d. The total number of written customer complaints was 309. There are 152 on water supply interruptions related to breakages. Old iron pipelines are main reason of breakages and of leakage. The metering level is known but it is reported by the PUC that there may be mistakes due to incorrect metering with 59,1% of customer s meters which are out of order. Analysis In some villages do not exist w&ww systems; In some household in-house installations need to be installed; 59,1% of customer s meters are out of order; Consumption level (166 lcd) reasonable, reported decreasing trend (150 lcd). Possible Actions Advice PUC to assess the existing service levels and advise on measures for improvement; Preparation and implementation of metering plan; Advise on monitoring and management of customer complaints. 2.2. Financial performance Findings When compared to the 2003 (resulted in loss) the PUC improved its performance which resulted in a slight profit in 2004 and 2005. The reason may be in intensive collection action that consisted of letters of reminder, disconnections and lawsuits. The collection rate in 2005 significant increased. However the total volume of outstanding payments from customers at year end is still very high. Average debtor days 90 in 2004 and 86 in 2005 are very high. Although current tariffs approximately cover the existing operating costs, a tariff increase of 50-100% is foreseen in order to cover the investments expenditures. The method of calculating the current tariff is coordinated by request of Government. The waste water tariff is approximately 1/5 of the WS tariff. The breakdown of revenues between water and waste water is unknown. Cost coverage ratios are as follows: operating cost (excl. depreciation) is 65% in 2005 of the total revenues (60% in 2004 and 63,5% in 2003) and total costs are 75.7% of the total revenues (75,7% in 2004 and 120% in 2003).

The accounting system as prescribed by the law is in line with the international accounting standard as of this year. Analysis It is unclear if sufficient resources are available for adequate maintenance of the system; Tariff increase of 100% is needed to cover all expenditures; The company improved collection rate compared to year 2004; Considerable amount of outstanding consumer debt. Possible actions: Establish adequate tariff level and design a tariff structure and scenarios for increase; Advice the PUC to either incur debts or write off bad debts; Accounting system (cost accounting system). 2.3. Operational efficiency Findings Non-revenue water of 34% in 2004, 26% in 2005 and 30% in 2006 is at the country average level yet still very high, with indicated possible reasons of 16% loss due to leakage at water meters and valves, and 14% due to administrative losses and illegal users. In 2005 out of the total operational expenses, only 34,7% is spent on O&M which may indicate insufficient funding for (preventive) maintenance. Total number of repairs at WS network was 656 in 2004, 404 in 2005 and 328 in 2006. Causes to these breakages as well as the response time are not known. Analysis High level of non-revenue water; Not clear whether sufficient funds for (preventive) maintenance of the systems are made available. Possible actions: Define the causes of high level of non revenue water and design a program to reduce this level from 30% to 20%, including: reduce leakage; reduce illegal connections; reduce administrative losses; Review and update O&M system in relation with project requirements; determine appropriate level of preventive maintenance and costs for the systems.

2.4. Human resource and project management issues HASKONING NEDERLAND B.V. WATER Findings The PUC employs 171 employees. 16 employees hold a university or college degree. The number of managerial staff is not known. The number of staff per 1000 house connections for drinking water is 9,5 and 1,3 per 1000 of Waste Water connections. At the project end, the number of staff per 1000 WW connections is assumed to stay the same while per 1000 Water connections it would decrease to 6,4. The percentage of personnel costs in total operational costs is rather high, namely 52,8% in 2004 and 51,9% in 2005. Analysis PUC staff not familiar with international implementation procedures; Project management capability of PUC and PUC staff no exist. Possible actions On-the-job training of existing PUC staff in project management; Advice the PUC on HRM policies and procedures and measures to increase staffing efficiency. 3. CONCLUSIONS This note is based on existing information available in the MIASP office and PUC staff information that was given on meeting was held in PUC. The documentation that was explored for preparing this note are the MIASP Questionnaire, Project Identification Report, BPD, the Grant Contract, EAR Appraisal form that were prepared for this project and balance sheet and income statements for 2005. The information available was sufficient to identify potential focus areas: Tariffs Models, Structure and Scenario Increases; Operation & Maintenance Tasks (Manual); Accounting System (Cost Accounting System); Metering (Costs and Procedures replacement of meters). After PUC coordinate and agreed of the proposal, the next step is to consult the PUC and the Municipal authorities and apply PUC CEP, if deemed feasible and realistic.

Table 4-1 PUC level PUC Vodovod Smederevo PUC Service Level Unit 2004 2005 Actual vs total (potential) population served (sewerage Smederevo only) Part of HH Income spent on water services (excluding in house installations) (PUC data) (PUC data) 2006 (PUC data) % 91,0 / 81,1 91,4 / 81,1 92,7 / 81,1 % Domestic Consumption l/cd 176 177 166 Percentage of metered 100 100 water sold % (almost) (almost) Nr of Customer complaints per annum Nr of breaks in distribution network per total length of network 100 (almost) Nr 425 349 309 Nr/Km 0,52 0,48 0,49 Analysis of possible risks and constraints In some villages do not exist w&ww systems In some household in-house installations need to be installed 59,1% of customer s meters are out of order Consumption level (166 lcd) reasonable, reported decreasing trend (150 lcd). HASKONING NEDERLAND B.V. WATER Proposed type of Actions Advice PUC to assess the existing service levels and advise on measures for improvement Preparation and implementation of metering plan Advise on monitoring and management of customer complaints.

Operational Efficiency PUC Unit 2004 2005 2006 (PUC data and AR 05) (PUC data and AR 05 ) (PUC data) Non-revenue water % 34 26 30 of which technical % 14 Of which administrative 16 Drinking water produced 8.666.895 8.518.420 8.552.030 Drinking water billed 5.738.865 6.291.100 6.000.000 Manpower costs as % of O&M costs % 52,8 51,9 Depreciation costs as % of O&M costs 15,6 13,4 Other costs as % of O&M costs 31,7 34,7 - Number of repairs Nr/yr 656 404 328 Analysis of possible risks and constraints High level of non-revenue water Not clear whether sufficient funds for (preventive) maintenance of the systems are made available Possible type of Actions Design a program to reduce this level from 30% to 20%, including: - reduce leakage - reduce illegal connections - reduce administrative losses Determine appropriate level of O&M costs for the new system.

Financial Performance PUC Unit PUC AR 05 PUC AR 05 Analysis of possible risks and constraints HASKONING NEDERLAND B.V. WATER Possible type of Actions 2004 2005 Total revenues (TR) Euro* 10 6 1,89 2,26 Operational revenues Euro* 10 6 1,59 2,11 Gross operating profit Euro* 10 6 0,16 0,40 Net operating profit Euro* 10 6 0,00 0,03 Net profit after tax Euro* 10 6 0,00 0,03 Subsidy received from the Municipality Euro* 10 6 0,32 0,24 Subsidy provided by the Municipality as % percentage of revenues received 17% 11% Operating Costs, excl. Depreciation Euro* 10 6 (OC) 1,21 1,48 of which maintenance costs Euro* 10 6 Depreciation (D) Euro* 10 6 0,22 0,23 Capital Costs (CC) Euro* 10 6 - - Cost Recovery Ratio multiple 0,76 0,75 Ratio of Debt to Total Revenues multiple - - Ratio of Debt Service to Total Revenues multiple 0,48 0,01 Free cash flow (FCF) Euro* 10 6 0,38 (0,09) Debt Service Coverage Ratio multiple 1,00 5,22 Operating Costs per Unit produced per /m3 0,17 0,20 year Collection Rate invoiced bills % 76 115 Average Debtor Days (ADD) Days 90 86 Debt to Equity Ratio multiple - - Current Ratio multiple 2,44 2,19 It is unclear if sufficient resources are available for adequate maintenance of the system Tariff increase of 100% is needed to cover all expenditures The company improved collection rate compared to year 2004. Considerable amount of outstanding consumer debt Establish adequate tariff level and design a tariff structure and scenarios for increase Advice the PUC to either incur debts or write off bad debts Accounting system (cost accounting system)

HRM and Project Management PUC Unit 2004 2005 2006 (PUC data) (PUC data) (PUC data) Nr. of employees Nr 163 171 171 of which management/staff/overhead 56 59 59 of which drinking water 97 102 103 of which waste water 10 10 9 of which other departments - - - Nr of (HH) Connections Water Nr 16.010 16.274 16.616 No of connections WW Nr 10.500 10.500 10.500 Nr of staff per 000 per Nr connections W / 000 9,23 9,57 9,46 Nr of staff per 000 per Nr connections WW / 000 1,45 1,45 1,31 Employees with higher education % 9,2 9,4 9,4 Analysis of possible risks and constraints PUC staff not familiar with international implementation procedures Project management capability of PUC and PUC staff no exist Proposed type of Actions On-the-job training of existing PUC staff in project management Advice the PUC on HRM policies and procedures and measures to increase staffing efficiency

ANNEX 5: ASSESSMENT NOTE ON PUC VARVARIN CAPACITY ENHANCEMENT PROGRAM FOR THE PUC VARVARIN OF VARVARIN

TOPICS PROPOSAL FOR ACTION PLAN 2007 January 2007 Note prepared by MIASP TEAM 1. INTRODUCTION The purpose of this note is to identify the Capacity Enhancement needs and the tentative program of the PUC Varvarin in relation with the planned Water Supply Project in Varvarin. The framework for the identification of topics is the ToR for the MIASP that defines under project results of Grant Contract for the Water Supply Project in Varvarin; (i) improved financial and budget management practices and procedures in the participating municipalities, and (ii) improved operational and financial management practices in participating utility companies. This note is based on existing information available in the MIASP office and PUC staff information that was given on meeting was held in PUC at December 26, 2006. The documentation that was explored for preparing this note are the MIASP Questionnaire, Project Identification Report, BPD, the Grant Contract and EAR Appraisal form that were prepared for this project.. The approach applied in the analysis is as follows: a. Review existing data and information available within the MIA; b. Develop main indicators of PUC performance; c. Collect data and indicators of PUC performance and verify with the PUC that these data are correct; d. Analyze the indicators in light of national and international standards; e. Identify potential constraints and risks; f. Indicate possible fields of action for the Capacity Enhancement Program. The above approach is summarized the Chapter 2 and in the Table 1(Appendix 1). The Chapter 3 gives the overall conclusion.

2. PUC LEVEL HASKONING NEDERLAND B.V. WATER 2.1. Service level Findings Total coverage, in supplied settlements, with water services is 75%. The PUC has a reported number of 955 household water connections and 780 wastewater connections. 25 new connections were provided in 2006. Water tariffs are 20,62 dinar/m3 for water supply and 8,25 dinar/m3 for discharge of wastewater. Calculated domestic consumption was 130 l/cd. The total number of customer complaints was 15. The total number of breaks in distribution network was 38. The metering level is reported by the PUC that there may be mistakes due to incorrect metering with 47,1% of customer s meters which are out of order. Analysis In some villages do not exist w&ww systems; In some cases in-house installations need to be installed; 47,1% of customer s meters are out of order. Possible Actions Advice PUC to assess the existing service levels and advise on measures for improvement; Advise on monitoring and management of customer complaints; Preparation and implementation of metering plan. 2.2. Financial performance Findings Accounting system of PUC activities could not express separately activity of sectors. This is reason do not exist water financial performance. Analysis Missing adequate accounting system to recognize separately sector activities. Possible actions: Establish adequate accounting system; Establish adequate tariff level and design a tariff structure and scenarios for increase. 2.3. Operational efficiency Findings Non-revenue water of 54% in 2004, 52% in 2005 and 49% in 2006 is high. Total number of repairs at WS network was 69 in 2004, 63 in 2005 and 63 in 2006. Causes to these breakages as well as the response time are not known.

Analysis High level of non-revenue water; Not clear whether sufficient funds for (preventive) maintenance of the systems are made available; Possible actions: Design a program to reduce this level from 50% to 20%, including: reduce leakage; reduce illegal connections; reduce administrative losses; Determine appropriate level of O&M costs. 2.4. Human resource and project management issues Findings The PUC has 31 employees of which 11 involved in water supply and 2 in sewerage. 3 employees hold a university or college degree. The number of staff per 1000 house connections for water is 15,5 and the number of staff per 1000 house connections for sewerage is 3,5. Analysis PUC staff not familiar with international implementation procedures; Project management capability of PUC and PUC staff is not known. Possible actions On-the-job training of existing PUC staff in project management; Advice the PUC on HRM policies and procedures and measures to increase staffing efficiency. 3. CONCLUSIONS This note is based on existing information available in the MIASP office and PUC staff information that was given on meeting was held in PUC. The documentation that was explored for preparing this note are the MIASP Questionnaire, Project Identification Report, BPD, the Grant Contract and EAR Appraisal form that were prepared for this project. The information available was sufficient to identify potential focus areas: Water Tariffs Models, Structure and Scenario Increases; Water Operation & Maintenance Tasks (Manual); Accounting System (Cost Accounting System); Metering (Costs and Procedures replacement of water meters). After PUC coordinate and agreed of the proposal, the next step is to consult the PUC and the Municipal authorities and apply PUC CEP, if deemed feasible and realistic.

Table 5-1 PUC level PUC VARVARIN Varvarin PUC Service Level Unit 2004 2005 2006 Actual vs total (potential) population served w / ww % 63 65 75 Part of HH Income spent on water services (excluding in house installations) % 0,5-1 1 1 Domestic Consumption l/cd 111 119 128 Percentage of metered water sold % Nr of Customer complaints per annum Nr 36 28 15 Nr of breaks in distribution network per total length of network Nr/Km 2,0 1,6 1,5 PUC Financial Performance AR'05 2004 AR'05 2005 Plan 2006 Total revenues (TR) Euro* 10 6 Operational revenues Euro* 10 6 Gross operating profit Euro* 10 6 Net operating profit Euro* 10 6 Net profit after tax Euro* 10 6 Subsidy received from the Municipality Euro* 10 6 Subsidy provided by the Municipality as percentage of revenues received % Operating Costs, excl. Depreciation (OC) Euro* 10 6 of which maintenance costs Euro* 10 6 Depreciation (D) Euro* 10 6 Capital Costs (CC) Euro* 10 6 Cost Recovery Ratio multiple HASKONING NEDERLAND B.V. WATER Analysis of possible risks and constraints In some villages do not exist w&ww systems In some cases inhouse installations need to be installed 47,1% of customer s meters are out of order. Analysis of possible risks and constraints Missing adequate accounting system. Proposed type of Actions Advice PUC to assess the existing service levels and advise on measures for improvement Advise on monitoring and management of customer complaints Preparation and implementation of metering plan. Proposed type of Actions Establish adequate accounting system Establish adequate tariff level and design a tariff structure and scenarios for increase.

Ratio of Debt to Total Revenues multiple Ratio of Debt Service to Total Revenues multiple Free cash flow (FCF) Euro* 10 6 Debt Service Coverage Ratio multiple Operating Costs per Unit produced per year /m 3 Collection Rate invoiced bills % Average Debtor Days (ADD) Days Debt to Equity Ratio multiple Current Ratio multiple PUC Operational Efficiency 2004 2005 2006 Non-revenue drinking water % 54 52 49 of which technical % of which administrative % Drinking water produced m3/year 207.000 220.000 230.000 Drinking water billed m3/year 95.500 105.000 116.350 Manpower costs as % of operating costs % Depreciation costs as % of operating costs % Other costs as % of operating costs % - - - Number of repairs No/yr 69 63 63 Analysis of possible risks and constraints High level of nonrevenue water Not clear whether sufficient funds for (preventive) maintenance of the systems are made available. Proposed type of Actions Design a program to reduce this level from 50% to 20%, including: - reduce leakage - reduce illegal connections - reduce administrative losses Determine appropriate level of O&M costs.

PUC Project Management / HRD aspects 2004 2005 2006 Nr. of employees Nr 27 30 31 of which management/staff/overhead Nr 8 8 8 of which drinking water Nr 9 10 11 of which waste water Nr 2 2 2 of which other departments Nr 8 10 10 Nr of (HH) Connections Water Nr 908 930 955 No of connections WW Nr 780 780 780 Nr of staff per 000 per connections Water N0/ 000 14,09 14,66 15,52 Nr of staff per 000 connections waste water N0/ 000 3,64 3,50 3,46 Employees with higher education % 7,4 10,0 9,7 HASKONING NEDERLAND B.V. WATER Analysis of possible risks and constraints PUC staff not familiar with international implementation procedures Project management capability of PUC and PUC staff is not known Proposed type of Actions On-the-job training of existing PUC staff in project management Advice the PUC on HRM policies and procedures and measures to increase staffing efficiency.

ANNEX 6: ASSESSMENT NOTE ON PUC ŽITORAĐA CAPACITY ENHANCEMENT PROGRAM FOR THE PUC ŽITORAĐA OF ŽITORAĐA

TOPICS PROPOSAL FOR ACTION PLAN 2007 January 2007 Prepared by MIASP TEAM 1. INTRODUCTION The purpose of this note is to identify the Capacity Enhancement needs and the tentative program of the PUC ZITORADJA in relation with the planned Water Supply Project in Zitoradja. The framework for the identification of topics is the ToR for the MIASP that defines under project results of Grant Contract for the Water Supply Project in Zitoradja; (i) improved financial and budget management practices and procedures in the participating municipalities, and (ii) improved operational and financial management practices in participating utility companies. This note is based on existing information available in the MIASP office and PUC staff information that was given on meeting was held in PUC at December 20, 2006. The documentation that was explored for preparing this note is the MIASP Questionnaire, BPD, Grant Contract and Project documentation for Water Supply System construction of water supply pipelines in 5 communities.. The approach applied in the analysis is as follows: a. Review existing data and information available within the MIA; b. Develop main indicators of PUC performance; c. Collect data and indicators of PUC performance and verify with the PUC that these data are correct; d. Analyze the indicators in light of national and international standards; e. Identify potential constraints and risks; f. Indicate possible fields of action for the Capacity Enhancement Program. The above approach is summarized in the Chapter 2 and in the Table 1 (Appendix 1). The Chapter 3 gives the overall conclusions.

2. PUC LEVEL HASKONING NEDERLAND B.V. WATER 2.1. Service level Findings Total coverage, in supplied settlements, with water supply services is 93,7%. Total coverage, in the town Zitoradja, with sewerage services is 85,7%. The PUC has a reported number of 1,260 household water connections and 1,100 wastewater connections. 10 new connections were provided in 2006. Water tariffs are 12,00 dinar/m3 water supply and 15,00 dinar/m3 water and sewerage. Calculated domestic consumption was 86 l/cd. The total number of customer complaints was 5. The total number of breaks in distribution network was 40. The metering level is reported by the PUC that there may be mistakes due to incorrect metering with 79,4% of customer s meters which are out of order. Analysis In some villages do not exist w&ww systems In some cases in-house installations need to be installed 79,4% of customer s meters are out of order. Possible Actions Advice PUC to assess the existing service levels and advise on measures for improvement; Advise on monitoring and management of customer complaints; Preparation and implementation of metering plan. 2.2. Financial performance Findings Accounting system of PUC activities could not express separately activity of sectors. This is reason do not exist water financial performance. PUC dose not have computer. Analysis Missing adequate accounting system to recognize separately sector activities Possible actions: Establish adequate accounting system; Establish adequate tariff level and design a tariff structure and scenarios for increase.

2.3. Operational efficiency HASKONING NEDERLAND B.V. WATER Findings Non-revenue water of 17% in 2006 is good result if it is realistic. Total number of repairs at WS network is not known. Analysis Not clear whether sufficient funds for (preventive) maintenance of the systems are made available. Possible actions: Determine appropriate level of O&M costs. 2.4. Human resource and project management issues Findings The PUC has 14 employees of which 4 involved in water supply and 1 in sewerage. 1 employee holds a university degree. The number of staff per 1000 house connections is Water is 7,4 and the number of staff per 1000 house connections is sewerage is 2,1. Analysis PUC staff not familiar with international implementation procedures; Project management capability of PUC and PUC staff is not known. Possible actions On-the-job training of existing PUC staff in project management; Advice the PUC on HRM policies and procedures and measures to increase staffing efficiency. 3. CONCLUSIONS This note is based on existing information available in the MIASP office and PUC staff information that was given on meeting was held in PUC. The documentation that was explored for preparing this note is the MIASP Questionnaire, BPD, Grant Contract and Project documentation for Water Supply System construction of water supply pipelines in 5 communities. The information available was sufficient to identify potential focus areas: Tariffs Models, Structure and Scenario Increases; Operation & Maintenance Tasks (Manual); Accounting System (Cost Accounting System); Metering (Costs and Procedures replacement of meters). After PUC coordinate and agreed of the proposal, the next step is to consult the PUC and the Municipal authorities and apply PUC CEP, if deemed feasible and realistic.

Table 6-1 PUC level PUC ŽITORAĐA Žitorađa PUC Service Level Unit 2005 2006 Actual vs total (potential) population served w / ww (sewerage Zitoradja only) % 93,7 / 85,7 Part of HH Income spent on water services (excluding in house installations) % Domestic Consumption l/cd 86 86 Percentage of metered water sold % Nr of Customer complaints per annum Nr 4 5 Nr of breaks in distribution network per total length of network Nr/Km 1,0 1,3 PUC Financial Performance Unit AR 05 2005 Plan 2006 Total revenues (TR) Euro* 10 6 Operational revenues Euro* 10 6 Gross operating profit Euro* 10 6 Net operating profit Euro* 10 6 Net profit after tax Euro* 10 6 Subsidy received from the Municipality Euro* 10 6 Subsidy provided by the Municipality as percentage of revenues received % Operating Costs, excl. Depreciation (OC) Euro* 10 6 of which maintenance costs Euro* 10 6 Depreciation (D) Euro* 10 6 Capital Costs (CC) Euro* 10 6 HASKONING NEDERLAND B.V. WATER Analysis of possible risks and constraints In some villages do not exist w&ww systems In some cases inhouse installations need to be installed Consumption level (90 l/cd) is under average 79,4% of customer s meters are out of order. Analysis of possible risks and constraints Missing adequate accounting system. Proposed type of Actions Advice PUC to assess the existing service levels and advise on measures for improvement Advise on monitoring and management of customer complaints Preparation and implementation of metering plan. Proposed type of Actions Establish adequate accounting system Establish adequate tariff level and design a tariff structure and scenarios for increase.

Cost Recovery Ratio multiple Ratio of Debt to Total Revenues multiple Ratio of Debt Service to Total Revenues multiple Free cash flow (FCF) Euro* 10 6 Debt Service Coverage Ratio multiple Operating Costs per Unit produced per year /m 3 Collection Rate invoiced bills % Average Debtor Days (ADD) Days Debt to Equity Ratio multiple Current Ratio multiple PUC Operational Efficiency Unit 2005 2006 Non-revenue drinking water % 17 17 Of which technical % of which administrative % Drinking water produced m3/year 120.000 120.000 Drinking water billed m3/year 100.000 100.000 Manpower costs as % of operating costs % Depreciation costs as % of operating costs % Other costs as % of operating costs % - - Number of repairs No/yr Analysis of possible risks and constraints Not clear whether sufficient funds for (preventive) maintenance of the systems are made available. Proposed type of Actions Determine appropriate level of O&M costs.

PUC Project Management / HRD aspects Unit 2005 2006 Nr. of employees Nr 14 14 of which management/staff/overhead Nr 8 8 of which drinking water Nr 4 4 of which waste water Nr 1 1 of which other departments Nr 1 1 Nr of (HH) Connections Water Nr 1.250 1.260 No of connections WW Nr 1.100 1.100 Nr of staff per 000 per connections Water N0/ 000 7,47 7,41 Nr of staff per 000 connections waste water N0/ 000 2,12 2,12 Employees with higher education % 7,1 7,1 Analysis of possible risks and constraints PUC staff not familiar with international implementation procedures Project management capability of PUC and PUC staff is not known. Proposed type of Actions Advice the PUC on HRM policies and procedures and measures to increase staffing efficiency.

ANNEX 7: FINAL VERSION OF THE ACTION PLAN 2007 FOR CAPACITY ENHANCEMENT PROGRAM CAPACITY ENHANCEMENT PROGRAM FOR THE PUC S FOR WATER SUPPLY AND SEWERAGE COLLECTION AND TREATMENT OF THE TOWNS OF SMEDEREVO, INĐIJA, MIONICA, APATIN, VARVARIN AND ŽITORAĐA

ACTION PLAN 2007 Date: 20 April 2007 1. ANALYSIS OF PUC S During the period from December 2006 to March 2007, an analysis was made of the operational & financial performance of seven public utility companies (PUC), receiving grant financing from the EAR via the Municipal Infrastructure Agency Support Program (MIASP). The objective of the analysis was to identify and prioritize short term measures to help the utilities to improve their financial and/or operational performance. This paper now summarizes the identified measures and its relative ranking. In addition, it sets out an action plan to implement the selected measures. The action plan is aimed at completion by the December 2007. The following PUC s participated in the analysis: Smederevo (water & sewerage); Indjija (water & sewerage); Mionica (water & sewerage); Apatin (water & sewerage); Varvarin (water & sewerage); Zitoradja (water & sewerage). Based on the analysis, the Consultant identified four short term measures which were consequently discussed and ranked in order of priority by the participating PUC s The identified measures are: Tariff calculation model. This measure aims at providing the PUC s with a tool with which they can set (full) cost price based tariffs. It would help them to identify current gaps with existing tariffs, provide support to discuss tariff adjustments with the Municipality and could serve as a basis for a tariff structure adjustment and/or tariff increase scenario; Operation & Maintenance Tasks (Manual). Through the development of a job & task description, as well as a procedures manual, the PUC s would be able to strengthen their operational management Cost accounting system. With the help of a cost accounting system, the PUC would be able to: Identify cost drivers for their operations. This would form the basis for a cost price based tariff structure; Have a financial management tool to track expenditure per department and/or location. This would enable budgeting and meaningful tracking and would strengthen financial control & management of the PUC; Budgeting would enable decentralization of the operational management to mid level management of the PUC (department heads).

Water meter replacement. This measure would define and structure the annual meter replacement by defining the replacement procedure, data collection and planning. It would help the PUC s to: Drive revenue through identification and reduction of administrative losses and lowering customer complaints due to faulty meters; Lower water usage per capita and thus lower operating costs; Provide accurate management information of actual, measured consumption patterns. The table below summarizes the priorities set by the PUC s. Krusevac will be dealt with separately, since it operations are of a rather different nature compared to the other six water utilities. Table 7-1 TOPICS Priority ranking identified 4 short term measures Water Tariffs Models, Structure and Scenario Increases Water Operation & Maintenance Tasks (Manual) Accounting System (Cost Accounting System) Metering (Costs and Procedures replacement of water meters) Smederevo 2 1 Indjija 4 2 3 1 Apatin 1 2 3 Varvarin 2 4 3 1 Zitoradja 4 2 3 1 Mionica 2 1 As can be concluded form the above table, all PUC s, with the exception of Apatin, attached the highest priority to a Metering Replacement Program. After the meeting held at PUC Apatin, on April 4th 2007 it is agreed that above selected topic: Metering Replacement Program is priority for PUC Apatin, too. This paper will therefore further detail the Meter Replacement Action Plan, as selected by six above identified PUC s. First, it will discuss and define some terms and background on operations & maintenance, followed by the Action Plan itself and the envisaged deliverables, benefits and results by December 2007. 2. OPERATION AND MAINTENANCE: DEFINITIONS & BACKGROUND The term Operation and Maintenance is used as a general concept covering a wide range of activities carried out by utilities, governments and communities in order to sustain their services and to maintain existing capital assets. 2.1.Definitions For some of the most commonly used expressions and concepts this section gives their general definition. Service is the result of Operation and Maintenance activities;

Operation is the procedures and activities necessary for actuating, switching, controlling open and closed-control loops, etc. involved in the actual delivery of services; Maintenance consists of activities necessary to repair or restore assets or systems of assets to a satisfactory condition or level of performance; Operations and maintenance concerning the assets of the drinking water supply system include: abstraction; treatment of raw water; distribution of drinking water to the points-of-delivery (including water mains, reservoirs and tanks); handling of process water and the treatment and reuse of such process water, and the safe transportation and disposal/reuse of residues. Operations and maintenance concerning the assets of the wastewater system include: service connection (control of quality of installation of the connection; control of the impact of industrial connections); collection and transport (inspection and assessment of conditions of sewers and drains, rehabilitation of sewers and drains, inspection of the on-site system at each emptying or residue removal operation, inspection and maintenance of haulage tankers, etc.); treatment, reuse (if possible) or discharge/ disposal of the treated wastewater and the separated wastewater residues. The Operator or a PUC (today) is (a person or) an organization, who performs the dayto-day activities necessary for the provision of the service. The operator should develop a plan for an operations and maintenance strategy covering both proactive and corrective/reactive maintenance activities in relation to the Tariff policy. Proactive maintenance includes maintenance performed at planned or scheduled intervals to prevent, minimize, or delay failures or shutdowns that result in unplanned maintenance activities or to ensure continued, efficient asset operation and to prolong asset life. Corrective or reactive maintenance includes maintenance performed following a failure or shutdown and involves the activities necessary to repair or restore assets or systems of assets to a satisfactory condition or level of performance. 2.2. Operation & Maintenance systems and procedures The O&M activities and responsibilities of the water operator should include the following aspects: planning; operations (actuating, switching, controlling open and closed-control loops); operational efficiency controls;

maintenance (servicing, inspection, rehabilitation, repair including particularly leak management); monitoring of source water, finished water and residue quality and quantity; commissioning (stopping, testing, re-commissioning and decommissioning); troubleshooting (during and outside normal hours of work); documentation and record keeping, and emergency response. Operational documents and records All tasks and activities should be properly documented and maintained as evidence of its compliance. Managers and supervisors should check these records at regular intervals. All supervision and checking activities should be documented. If not stated otherwise in national legal provisions, license permits and official directions or the nationally generally accepted requirements or practices, every document should be kept on record for a defined period. Examples of documents and records include: plans and documentation of the system; operating instructions, diaries and records, and work rules; occupational health and safety related records; financial records; test records, proof of maintenance; wastewater analysis, effluents and residuals quality; contractual and legal affairs, and measures respecting employees. 2.3. Operation & Maintenance stakeholders It is well known that in Serbia, O&M has been neglected in the past, or has been discussed and introduced only after a project was completed. This neglect or delay in applying proper operation and maintenance procedures has adversely affected the credibility of the investments made, the functioning of the services, the well-being of rural populations, and the development of further projects. However, the importance of O&M has gained considerable visibility over the past few years, and it appears that policy-makers and project designers are now more conscious of the direct links between improved O&M practices and the sustainability of water supply and sanitation services. There is also greater recognition of the need to approach these projects in a comprehensive way, emphasizing not only the design and construction but also post-construction activities. Operation and Maintenance activities, which encompass not only technical issues, but also managerial, social, financial and institutional issues, must be directed towards the elimination or reduction of the major constraints which prevent the achievement of sustainability.

Different actors have a different degree of involvement in the Operation & Maintenance activities of Public Utilities. In general, the Water Utility Company and possible external agencies have a major involvement in O&M, while consumers and National authorities are less involved in these activities. Table 7-2 Degree of involvement in O&M Major Actors Slight Medium Major National institutions x Provincial institutions x Local Authorities x PUC X Users X Private sector and NGOs X External support agencies X

3. ACTION PLAN 2007 HASKONING NEDERLAND B.V. WATER Table 7-3 Nr Target Date Item(s) 1 18 April Agreement on proposed Action Plan 2007 ACTION PLAN 2007 REPLACEMENT OF WATER METERS IN THE WATER SUPPLY AREA Exchange of information Finance Ministry, Trade, Tourism and Services Ministry National consumers organization Water working group of SCTM Stakeholders Proposed Beneficiary Initiative/ form of Assistance Responsible program LA s, PUC s MIASP LA s, PUC s Meeting 2 26 April Presentation proposal ACTION PLAN 2007 Presentation of yearly PUC work program questionnaire: importance and practical problems 3 15 May Detailed cost estimate of replacement program, availability of budget Draft for Water meter replacement Manual MIA Finance Ministry, Trade, Tourism and Services Ministry National consumers organization Water working group of SCTM MIA LA s, PUC s MIASP MIASP Seminar LA s, PUC s LA s, PUC s MIASP Meeting MIASP

4 30 May Final version of Water meter replacement Manual Training of PUC s staff 5 15 June Start implementation: Procurement water meters PR campaign Improvement of data processing and billing system Prepare Performance indicators related to water meter replacement program 6 30 September 7 15 October Evaluate progress of program Presentation and discussion of conclusions of evaluation Follow-up on presentation of first seminar on yearly PUC work program 8 15 October Preparation of draft Action Plan 2008 9 15 Presentation of Action Plan November 2008 Finance Ministry, Trade, Tourism and Services Ministry National consumers organization Water working group of SCTM MIA HASKONING NEDERLAND B.V. WATER PUC s MIASP LA s, PUC s PUC s MIASP MIASP PUC s LA s, PUC s MIASP seminar LA s, PUC s LA s, PUC s MIASP LA s, PUC s LA s, PUC s MIASP

10 30 November Presentation of first results Performance indicators Finance Ministry, Trade, Tourism and Services Ministry LA s, PUC s LA s, PUC s MIASP Meeting National consumers organization Water working group of SCTM 11 15 November - 15 December Guarantee budget reservation for 2008 MIA LA s, PUC s LA s, PUC s

3.1. Expected results HASKONING NEDERLAND B.V. WATER The general objective of the AP 2007 is to make a contribution to improvement of the operational and financial performance of the PUC s. This is done by producing the following deliverables towards the end of 2007: More specifically, the following deliverables are expected: Written procedure/manual on water meter replacement; A developed training module and delivered training to operational staff on water meter replacement; Analysis and recommendation on financing mechanism to achieve a sustainable water meter replacement program; Water meter replacement action plan 2008 submitted; Created awareness about this activity at National level. These deliverables would lead to the following specific results: Strengthened operational management by adoption of new working procedures; (indicator: new working procedure adopted and implemented by PUC management by the end of 2007); Increased revenues, through fewer customer complaints about inaccurate meter reading (indicator: fewer customer complaints about faulty meters by the end of 2007); Rationalized water usage through increased awareness of customers on their actual water usage (indicator: increase of metered and invoices water by the end of 2007); Increased quality of data on actual water consumption; (indicator: report on water balance issued by the end of 2007, based on actual water meter reading); Sustainable water meter replacement program in place (indicator: budget earmarked in 2008 plan for water meter replacement); Increased awareness at National level about water meter replacement program (indicator: # of people from national stakeholders present at final seminar at the end of 2007). 3.2. Conclusions This document and the training and process activities described in it are intended for managers and planners of Local Authorities and Public Utility Companies, who are concerned with the challenging problem of how to implement effective operation and maintenance of rural and urban water supply and sanitation services in Serbian municipalities. In addition to the traditional management aspects of operation and maintenance, this action plan highlights the importance of community (LA, PUC, customer s associations, NGO ) participation, in order to make more efficient use of local resources for sustainability.

ANNEX 8: RESULTS OF QUESTIONNAIRE FOR PARTICIPANTS OF CEP TRAINING, JUNE 2007.

Summary of answers given by participants of training on water meter replacement, June 2007 Question number / average mark Question Did you get new 1 knowledge/ideas from course to improve your work 2 Is information provided useful for daily work 3 Is information provided relevant for daily work 4 The degree of detailed information 5 Judgment of organization and presentation 6 Judgement of cost recovery from revenues 7 Judgment of PR information 8 Judgment of Water meter Manual 9 Judgment of trainers Answers 1 2 3 4 5 Average score 0 0 1 9 9 4,421 0 1 6 6 6 3,895 0 1 8 7 3 3,632 0 0 0 10 9 4,474 0 0 0 5 14 4,737 0 1 3 9 6 4,053 0 0 3 10 6 4,158 0 0 1 8 10 4,474 0 0 0 4 15 4,789 Total average score 0 3 22 68 78 4,293

A copy of the questionnaire provided to the participants of the training is given below: Assessment of training by participating PUC s in capacity enhancement training Please answer the questions below by marking the appreciation (5 = highest appreciation, 1 lowest appreciation) that best reflects your 1 2 3 4 5 Appropriateness of training 1 Did the information provided give you new ideas and knowledge for improving your work? 2 Is the information offered to you directly useful in the daily operation of your PUC? Was the information offered relevant to your daily 3 operations? 4 How do you judge the degree of detailed information? B 5 Quality of training and materials How do you judge in general the organization and presentation of the training? 6 How do you judge the provided information on cost recovery from revenues? How do you judge the provided information on Public 7 Relations? 8 How do you judge the provided information on the Manual for Water Meter Replacement? 9 How do you judge the contribution of the trainers?

ANNEX 9: SUMMARY REPORT ON CAPACITY ENHANCEMENT SERVICES TRAINING

MIASP TRAINING INTRODUCTION IN WATER METER REPLACEMENT PROGRAMME The Municipal Infrastructure Support Program (MIASP) includes Capacity Enhancement Services for the Municipalities and Public Utility Companies in order to strengthen their capacity to plan and implement infrastructure projects. The objectives and results of the project are presented in the following table: Objectives Expected Results To enhance the capability of municipal and PUC staff in the preparation and financing of municipal infrastructure projects To ensure the proper implementation and the sustainable operation of project investments Municipal and PUC staff trained on the identification and preparation of municipal infrastructure projects Municipal and PUC staff trained on the financial and budgetary aspects of project preparation and project management Municipal and PUC staff trained and acquainted with project implementation and monitoring procedures Capacity Enhancement Programs prepared and implemented in 10 PUC s to achieve sustainable financial and technical operations at the PUC level Capacity Enhancement Strategy Document for MIA aimed at improved preparation, financing and implementation of municipal infrastructure management, including a set of models to be used in the transformation of PUC s. The activities leading to the results of the above are the following: 1. Training of Municipal and PUC Staff in: a. Management of Project Implementation; b. Municipal Finance and Budgeting; c. Project Identification and Preparation. 2. Improve the operational and financial performance of PUC s; 3. Preparation of guidelines for transformation of PUC s; 4. Assistance to the PUC Subotica in finalizing the Service Level Agreement (SLA) with the Municipality of Subotica. This report is a deliverable output and a means of verification related to the activity 2 above. With reference to municipal infrastructure projects the following results are included in each Annex 1 of the Grant Contracts: 1. Selected staff of the municipality trained in project cycle management techniques and the preparation of bankable project documentation 2. Selected staff of the PUC trained in project implementation, maintenance and operating practices

This report is a means of verification related to the activity 4 above. A 3 days training program was prepared for participants from the six PUC s which have been selected for this capacity enhancement training. During the first day and during the last day of the course also representatives from the Local Authority and from management of the PUC s were invited, while the rest of the course is mainly meant for middle management of the PUC s. By inviting LA and directors of the PUC s MIASP made the link between general recommendations for improved efficiency of management, and the particular contributions of a well prepared and well executed water meter replacement program. Participating municipalities are: Smederevo; Indjija; Mionica; Apatin; Varvarin; Zitoradjă. TIMETABLE Day 1: June 13, 2007 SCTM, Makedonska 22, XI floor, Training Center, Belgrade Trainer Topic Morning 9.00 9.30 Registration of participants 9.30 9.45 Cok van Schooten Background MIASP/training, O&M manuals, objective and program training, WMR is first step of O&M manual 9.45 10.15 Milorad Rosić Mission, vision, strategy of PUC for water supply (and wastewater) 10.15 10.40 Jaša Gabrijan Public relations 10.40 11.00 Milorad Rosić Elements of Project Management 11.00 11.30 Coffee break 11.30 12.15 Bojana Importance of cost recovery from revenues Katusevski 12.15 13.00 Milorad Rosić Introduction in water meter replacement (copy of article of Westerling and Hart) and AP 2007/08 13.00 14.00 Lunch Afternoon 14.00 14.20 Milorad Rosić Practical introduction to Water Meter Replacement program (WMR): Three phases of WMR program Guide for preparing Manual 14.20 15.30 Milorad Rosić Indjija Sample on calculation of costs for WMR program (present list of necessary data from each PUC to be used with exercise day 2) 15.30 15.45 Coffee break 15.45 16.30 Jaša Gabrijan Public relations: explications on how, what and why

Day 2: June 20, 2007 SIV III Hall No 437, IV floor, Omladinskih brigada 1, Novi Beograd Trainer Topic Morning 9.00 9.45 Milorad Rosić Examples of annexes to WMR manual 9.45 10.45 Milorad Rosić Exercise on costs calculation of WMR for individual PUC s 10.45 11.00 Coffee break 11.00 12.15 Continuation of exercise and conclusion 12.15 13.00 Jaša Gabrijan Results of PR exercises 13.00 14.00 Lunch Afternoon 14.00 16.00 Milorad Rosić, INSA Visit to INSA factory Day 3: June 26, 2007 SCTM, Makedonska 22, VIII floor, Conference Hall, Belgrade Trainer Topic Morning 9.00 9.45 Peter Duindam Quality requirements for water meters (Topic 1) 9.45 10.30 Peter Duindam Reliable Lifetime of water meters (ABC/XYZ method) (Topic 2) 10.30 11.00 Coffee break 11.00 12.00 Jaša Gabrijan Public relations 12.00 13.00 Lunch Afternoon 13.00 13.45 Milorad Rosić Presentation of results from day 1, 2 and 3 13.45 14.30 Jaša Gabrijan Public relations 14.30 15.00 Coffee break 15.00 15.30 Milorad Rosić Possible actions for LA and management PUC

PARTICIPANTS LIST 1. Nikola Marčeta Apatin 2. Boris Tankosić Apatin 3. Mirko Pavlović Apatin 4. Tibor Sabo Apatin 5. Dejan Dmitrović Inđija 6. Dragan Došen Inđija 7. Jovica Turčinović Inđija 8. Ljiljana Radovanović Inđija 9. Ljiljana Nikolić Mionica 10. Radiša Stanković Mionica 11. Miroslav Grbović Mionica 12. Persida Kurtić Mionica 13. Zdravka Kovačević-Vasić Smederevo 14. Slobodan Miladinović Smederevo 15. Saša Botić Smederevo 16. Tomislav Miljković Smederevo 17. Zoran Milisavljević Smederevo 18. Živomir Avramović Smederevo 19. Zoran Milenković Varvarin 20. Radica Atanasković Varvarin 21. Srboljub Petrović Varvarin 22. Tomica Atanasković Žitorađa 23. Miodrag Stanojević Žitorađa 24. Radisav Petrović Žitorađa 25. Cok van Schooten MIASP 26. Milorad Rosić MIASP 27. Bojana Katuševski- Ivanović MIASP 28. Jaša Gabrijan MIASP 29. Peter Duindam Royal Haskoning

TRAINING OBJECTIVES Short introduction on MIASP EAR Serbia Short introduction on grant agreements EAR Municipalities in Serbia Investments Investments O&M (CEP) Short explanation on this element of MIASP: Capacity Enhancement of Municipalities and PUC s Capacity Enhancement of PUC s Action Plan 2007 Objectives of the training: detailed water meter replacement program: Water Meters Replacement Manual (water meter replacement is first element of a new setup of O&M Manual) in 2007 PR material; Program of Training: First day in morning (LA and PUC): Introduction PUC s Vision, Mission and Strategy PR (as a PUC s tool) Project Management (as a PUC s tool) Costs Recovery (as a PUC s tool) Water Meter Replacement as economy category (as a PUC s tool) First day in afternoon, second day and third day morning (PUC): Training Manual PR and water meter replacement Cost calculation of PMR Visit to Insa factory Topics related to improved WMR Third day in afternoon: Conclusions Presentation of results of Training First conclusions for Action Plan 2007/2008 Possible actions for LA and management PUC Public relations

RESULTS Municipal and PUC staff trained on the technical, financial and public relation aspects of project preparation and project management Water Meter Replacement Program. DELIVERABLES Guideline for the Replacement of Water Meters (Manual) PR Manual FOLLOW UP Post training actions are in accordance with PUC Action Plan 2007 Replacement of water meters in the respective water supply areas.

ANNEX 10: EXAMPLE OF PRESENTATION ON 30 TH OCTOBER OF RESULTS OF ACTION PLAN 2007 (EXAMPLE OF PUC INDJIJA)