Priority Environmental Investment Programme (PEIP) Regional Meeting for Senior Officials from SEE and Donors Community 19-20th June, Budva, Montenegro Draft Minutes Executive summary The PEIP regional meeting was held on 19-20 June in Budva and aimed at bring together senior officials from the South Eastern Europe (SEE) region and the donors community. Emphasis was given to a review in the progress in Montenegro and Serbia as national workshops were held in those countries during the first half of 2008. The following topics were covered during the meeting. The updated list of the priority environmental investments projects in the SEE The priority projects development since the last regional meeting in November 2007 Progress of developing and implementing environmental infrastructure projects in the countries. Developments in the drafting and implementation of legislation and strategies related to environmental investments. Plans for activities for the rest of 2008 and the content of the coming two manuals. Presentations were given on EC developments related to financing infrastructure and on the Infrastructure Projects Facility (IPF), New member state experiences on financing environmental infrastructure, Slovenia The process of drafting the National Environmental Investment Strategy for Macedonia Case studies of public utility reform projects (USAID, KfW and JACOBS - EPPF). Participants were representatives from the EC, Ministries of Environment in the SEE region, financing institutions such as the KfW and the USAID, international institutions such as the UNDP and the REC. Next regional meeting will be held in Brussels in the end of November 2008.
Session 1: Introductory session Welcoming words by Oreola Ivanova-Nacheva, Deputy Executive Director REC (chair of the first day) Ms. Ivanova-Nacheva welcomed all the participants to the regional meeting and thanked the European Commission (EC) for the financial support and REC Montenegro for hosting the meeting. Ms. Ivanova-Nacheva gave a brief introduction to the PEIP that, since its start in 2002, continues to support the countries in the SEE region in planning and implementation of environmental investments. The project activities include e.g. national workshops, development of priority project lists and analytical reports and investment strategies development. Ms. Ivanova-Nacheva said that she is happy to be able to present what has been done in this respect during this meeting. Opening remarks of Mr. Sinisa Stankovic, Dep. Minister for Tourism and Environment. Mr. Stankovic expressed his pleasure to address the PEIP meeting that represents a great opportunity to share views and experience in the field of environmental investments. He stressed the importance to discuss how environmental strategies and financial mechanisms can be used. The analytical overview provides advice on how to act and project deliverables provides an opportunity to find joint activities between national authorities, IFIs and donors. Mr. Stankovic articulated his satisfaction with the cooperation with the EC and the REC and wished for future and developed partnerships. Opening words of Ms. Srna Sudar Vilotic, Director, Country Office REC Montenegro Ms. Sudar Vilotic welcomed the meeting opening up new possibilities for cooperation between the countries in the region. Ms. Sudar Vilotic wished for fruitful and interesting discussions during the coming two days. Ms. Ivanova-Nacheva presented the draft agenda for the meeting that was approved by the meeting s participants. Objectives of the meeting: Reports from PEIP national workshops that took place during the first half of 2008. Highlights and impressions; Latest development from the EC and from the beneficiary countries; Presentations of on-going work of prioritising investments through drafting strategies; Discuss PEIP activities for the rest of 2008. Ms. Joanna FIEDLER, European Commission, DG ENV, EC update on developments related to financing infrastructure projects and providing assistance through IPA. Ms. Fiedler gave an overview of existing EU financial instruments and donors coordination mechanisms on environment and introduced new instruments such as, the Infrastructure Projects Facility (IPF) and the Municipal Window of IPF. Ms. Fiedler provided update on the IPA instrument support to environment, mechanism, the IFIs Advisory group activities on environment and DABLAS task force activities.
The IPF is a new technical assistance facility that aims at supporting preparation of investments projects financed by grants and/or loans by IFIs, IPA or other sponsors/donors. Ms. Fiedler explained that the IPF is expected to improve the number, speed and quality of infrastructure proposals for infrastructure investment, enhance the financial cooperation between the EC, IFIs and beneficiaries and improve the technical skills of human resources within beneficiary institutions. The IPF is initially planned for three years and after that it is expected that the continuation will be self sustainable. Ms. Fiedler noted that it is important to have a strong PEIP list of prioritized project as it will be used for identifying projects in the environmental sector by the IPF. The Municipal Window is a part of the IPF and has the overall objective to support the financing of infrastructure investments in the IPA countries in the prospect of EU accession. Ms. Fiedler noted that the municipal window is directed towards smaller investment projects in municipalities, primarily in the water, sanitation and waste sector through a grant co-financing mechanism, EU grants plus IFI loan. The IPF municipal window is to become functional during the autumn 2008. The Union for the Mediterranean is a community for of EU member states and countries bordering the Mediterranean Sea, including Croatia, Bosnia and Herzegovina and Montenegro that is established in 2008, under the French presidency. The aim of the union is to enhance multilateral relations and to increase multilateral partnership, both regional and trans-national projects. Session 2. Progress with priority environmental infrastructure investment projects in potential candidate countries Ms. Ana KRUNIC, Advisor, Ministry of Tourism and Environment, Montenegro. Progress on financing priority investment projects, progress on environmental infrastructure development. Report from the national workshop May 13-14, 2008. Ms. Krunic gave a summary of the PEIP National Workshop for Montenegro that took place on 13-14 May, 2008 in Budva and addressed the challenges in waste and waste investment projects development. For Montenegro, the PEIP priority list consist of nine identified priority projects (two in air, three in water and four in waste sectors). Since November 2007, progress has been registered on five projects. Two projects has been proposed to be added to the list. Participants at the workshop were representatives of municipalities, project proponents and donors. Presentations were given on e.g. reformation of utilities and on financing options. Ms. Snezana Didanovic, Advisor, Ministry of Tourism and Environment Montenegro, said that the workshop was successful and useful. The updated version of the PEIP list was adopted and new projects were included. Ms. Didanovic expressed her hope for a continuation of the useful cooperation with the REC in the future. Mr. Igor Jovanovic, Advisor, Ministry of Tourism and Environment Montenegro, said that the workshop was very useful for the MoE in the context of waste. Important information was provided regarding new financing mechanisms such as IPA. Mr. Jovanovic noted that the first sanitary landfill, fully compliant with EU standards, was built in Podgorica in 2007. Ms. Venelina Varbova, REC Project Manager, pointed out that all project proponents from the PEIP list were present, which was considered a success. Thorough discussions were held and that there was a capacity building component of the agenda. Ms. Varbova remarked that significant progress has been made in terms of development of strategic documents, since 2007. Progress has
been made on the wastewater treatment plant in Kotor and Niksic and on the mining disposal in Mojkovac. Ms. Krunic also gave an overview over the progress on the legislative and strategic framework. The National Plan of Waste Management in Montenegro was adopted in 2008. Key conclusions from Ms. Krunic s presentation were that the implementation of adopted legislation and strategies remains a challenge. Ms. Krunic pointed out that progress is made towards the preparation of feasible investment projects mostly in coastal areas, less activity and lower capacities prevail in the Northern municipalities. Ms. Tanja PETROVIC, Advisor, Project Management Department, Ministry of Environmental Protection, Serbia, Progress on financing priority investment projects, progress on environmental infrastructure development. Report from the national workshop May 8-9, 2008 Ms. Petrovic made an overview of the status of water and waste infrastructure, relevant governmental instruments, institutions and domestic financing mechanisms for the water, waste and air sectors. An obstacle in the institutional framework is the shared responsibility over environmental issues between the Ministry of Environmental Protection and the Ministry of Agriculture, Forestry and Water. On the legislative side, Ms. Petrovic highlighted the process of drafting three new important laws: law on waste management, law on water management law and law on air protection (already in adoption process in the parliament). The national financing mechanisms for environmental infrastructure are: National Investment Plan (NIP) o During 2008, NIP will distribute EUR 600 million, out of which 70 % will be addressed at infrastructure projects. 15 projects will be supported. Fund for Environmental Protection o For 2008, EUR 17.4 million will be assigned. 81 % is dedicated to the waste sector (including remediation of contaminated soil). 13.5 % is dedicated to the air sector. Ms. Petrovic continued her presentation with reporting on the progress on financing priority projects from the PEIP list. Currently there are 30 project on the list, 18 in the water sector, 10 in the waste sector and two in the air sector. Progress was reported on nine projects. Eleven new projects are proposed to be added to the list by the Water Directorate. The projects concern preparation of feasibility studies for collection, transport and treatment of wastewaters on municipal level. The total value of the projects is EUR 1.21 million. Ms. Fiedler commented that in the frame of IPA 2007 assistance, support will be provided to development of environmental approximation strategy.. Mr. Dusan Sevic, REC Project Manager, gave a report on the Serbian PEIP national workshop that was held in Belgrade on the 8-9 May 2008. Mr. Sevic reflected the positive comments given by Mr. Alexandar Vesic, assistant Minister of Environment of Serbia who was present during the workshop. The most important conclusion of the workshop are: Update of laws water and waste sector is needed
Update of strategies is needed in the water and waste sector. There is a need to have clear objectives and priorities in order achieve progress in the development of environmental infrastructure. Restructuring of utilities is crucial in order to improve operations and increase cost efficiency. Importance of tariff setting. Today, Public Utility Companies (PUC) are dependent on the approval from municipalities on tariff setting, and the possibility to achieve full cost coverage is limited. To be able to increase tariffs, restructuring of the utilities is necessary. Mr. Sohail Hassan, Jacobs UK highlighted that very little is said about user charges in order to promote environmental investments. EPPF undertook a study in Belgrade that showed that the PUC has capacity to be self financed but the process is blocked by the fact that it needs approval from the local authorities and from the Ministry of Economy. Thus, the ability of the utility to provide service is limited. Large amounts of waste water utilities are highly capable of working, provided they are given freedom to raise the tariffs. Ms. Petrovic stressed that this problem will be addressed in a new law on local governance that is currently in a process of drafting. Ms. Fiedler said that the EC is fully aware of this difficulty and discussions are held with Serbian government. Ms. Varbova commented that the complicated nature of this issue is the reason why it has been included as a separate topic in the national workshop. Session 3. Progress with priority environmental infrastructure investment projects in candidate countries. Kaja SUKOVA, Head of sustainable development and investments department, Ministry of Environment and Physical Planning, The Former Yugoslav Republic of Macedonia, Drafting of National Environmental Investment Strategy in the former Yugoslav Republic of Macedonia. New approach to prioritization. Ms. Sukova stated that the National Environmental Investment Strategy (NEIS) is required by the IPA and is regarded as a tool to integrate the environment into other sectors. NEIS covers the water, waste, nature protection, energy and air sectors. Several line ministries are responsible for the implementation and the Agency on Environmental Investments will be the coordinating body. According to Ms. Sukova the main findings of the NEIS process are: Priority environmental investments are to be addressed through heavy investments; Largest projects identified in the water and waste sectors absorb the majority of the funds required to implement NEIS. Polluter pays principle is the most difficult to enforce and problems with problem owners appear. Nature conservation is for the first time treated as an investment through specific budget allocations. Private investments are foreseen in the energy and air sector which will be a support to the government. Ms. Sukova presented the project selection methods that includes both top-down and bottom-up approach. Ranking methods include environmental and administrative criteria. Sectoral lists have been developed for each sector. The funds available for NEIS for the next five years are
approximately EUR 133 million and is given from central budget, IPA, donors as well as a share of co-finding is needed. Mr. Zhechkov, PEIP project manager REC, pointed out that it is important to note that NEIS will come up with clear priorities of projects. The government is expected to stand behind the priorities and will use the list in negotiations with donors. Ms. Fiedler commented that preparing NEIS is a very positive development. Ms. Sanja BOJANIĆ, UNDP Montenegro, Western Balkans Environmental Programme. Ms. Bojanic gave a presentation on the Western Balkans Environmental Programme that aims at strengthening capacities in the Western Balkans to mitigate environmental problems through remediation of high priority hot spots. The three year program is the biggest UNDP regional Programme in the SEE with a budget of USD 15 million. Funds are provided by the government and up to 50 % co-financing are requested by the participating countries. Ms. Bojanic presented the individual projects and their activities. Ms. Bojanic noted that the PEIP list was used to emphasise needed investments that was not done. More information on the project can be found on www.westernbalkansenvironment.net. Ms. Fiedler asked whether the Environmental Liability Directive (EC) has been taken into account in the programme, especially for cross border components. Ms. Bojanovic replied that because of the short period of the project it is not sure whether there will be time to react to the new legislation. Mr. Zeljko ULJAREVIC, KfW Group Montenegro Mr. Uljarevic made an overview of KfW s activities in Montenegro since their start in June 2000. Mr. Uljarevic highlighted benchmarking as a tool to develop sound tariff setting and development of water and wastewater infrastructure. Currently, KfW s activities focus on development of water supply but also sewage and treatment of waste water. Activities are located in coastal municipalities as they are not only most environmentally sensitive but also the center of economic activities. Following a Steering Committee process with all stakeholders in Montenegro's coastal region, municipalities and the government have established a Joint Service and Coordination Company, VODACOM, as service provider to the independent water utilities. Currently, tariffs are set in the municipal assembly. In order to create more freedom for the PUC s, a technical assistance component was introduced to VODACOM in which benchmarking is a crucial point. The benchmarking has become an important tool and an eye opener for municipalities as they receive reliable result on their status compared to other municipalities. In several years the municipalities improved indicators significantly. This process also increased the transparency. The operational capacity of the PUC has been increased by including mayors in the PUC that created a more balanced system of two-way control and influence. Mr. Uljarevic highlighted this case as a good example of successful donor coordination and stressed that all measures introduced are continued. All information is available at VODACOM and KfW are present all over the SEE region.
Ms. Varbova asked whether KfW plan to extend their activities into less developed municipalities in the northern region. Mr. Uljarevic said that projects are based on the priorities of the German government, which now support the coastal region. The coast is seen as the main driving force for economic interests in Montenegro because of the increasing tourism in the region. When the problems at the coast are solved and when there are additional funds KfW might decide to start projects in other parts of the country. Mr. Zhechkov commented that benchmarking is a very important and useful tool which has been showed in this presentation. The use of in-house consultancy is also very important and the same approach has been used in the development of the NEIS in Macedonia. Mr. Vladan RAZNATOVIC, USAID, Water Utility Reform Plan of Montenegro Mr. Raznatovic gave a presentation on the USAID activities to reform the water utilities in Montenegro in order to improve the quality and efficiency of services. The Water Utility Reform Plan for Montenegro was adopted in July 2007 and all policies are in place to start the reform. The law on local governance was adopted in 2003 and is crucial in this respect, although the implementation is still a challenge. The elements of the reform, supported by USAID are according to Mr. Raznatovic: - Decentralisation and voluntary reorganisation, - Corporative management (independent board and independent audit), - Commercialisation (utilities legal entities, commercial behaviour), - Regulation of natural monopoly (establishing of the regulator) - Capital financing (Government to facilitate the access to capital; local governance and utilities to increase ability for taking and returning the loans). Full cost recovery will be based on the tariff structured and water services. The assets are owned by the utility while the utility is owned by the municipality. The financing needs, in cases when the population is not able to pay full price, will be facilitated by government support, through grants and loans or through a revolving fund. In the presentation, Mr. Raznatovic also spoke of the role of the national regulator and contracts. Mr. Hassan stressed that this excellent approach can be replicated in other countries in Western Balkan. Mr. Zhechkov asked how the chances of the government implementing the law on local governance are estimated. Mr. Raznatovic said that a public debate will be held soon and that the law will be in the parliamentary session during September-October but that antagonism is expected. There is a fear to give away power from the government and a resistance to novelties. Mr. Raznatovic said that they have tried to find a compromise between municipalities, government and citizens and that it remains to see whether they succeeded. Except the political will, financial resources remain a challenge for a successful implementation. Ms. Enkelejda Patozi, Advisor to the Albanian Prime Minister on water issues, said that a similar process is underway in Albania. Ms. Patozi recommended the use of a multi-sectoral function in which water, waste, energy and transport could be operated by the same body, to create synergies and not to waste resources.
Day 2. Session 3. Progress with environmental infrastructure projects Ms. Joanna Fiedler (chair of the day) opened the second day of the meeting and gave a brief summary of yesterdays events. Mr. Sohail HASSAN, JE Jacobs, Environmental Project Preparation Facility (EPPF), Case study from Danube Investment Support Facility (DISF) Programme Pljevlja Water and Wastewater Project Mr. Hassan started by discussing the preparation of the feasibility study for the Pljevlja project and gave an overview of the current facility. The project is funded by the EC and the study is implemented by the EIB. Mr. Hassan stressed that in this example the need for enforcement of national legislations and standards is obvious. The city of Pljevlja has enormous environmental problems for a small town of 22 000 inhabitants. The needed cost to address problems in wastewater collection and urban waste water treatment is estimated at EUR 11 million which is substantial for a small municipality. Two of the main problems in this example are the lack of enforcement of legislation and lack of access to funding. Ms. Snezana Didanovic gave additional insight to the project by explaining that the project was in compliance with the Plevlja master plan. Funds were obtained for the protection of the Danube that was used to finance the feasibility study. She expressed her content over that the study covered not only waste water treatment but also water supply. The Ministry of Environment is now trying to direct part of the government budget to complete the technical documentation and to start the construction works. Ms. Didanovic highlighted the problem of water losses, which is prevailing all over Montenegro. She estimates the losses to between 50-70% but without support of reliable data. Mr. Hassan s presentation continued with examples from the Environmental Project Preparation Facility in the Western Balkans which is an EU funded facility to support environmental investments. Mr. Hassan covered several project during the presentation: Belgrade wastewater development project - Belgrade is an example of a huge city with large amounts of untreated water. Belgrade is also an example of the operation of inefficient PUC. The investments needs are huge (> EUR 1 billon). To increase the capacity of the existing PUC and allow them to raise tariffs, they would be able to cover a lot of the needed capacity. Further, Mr. Hassan covered e.g.: - Belgrade existing and planned sewage coverage; - Banja Luka hot water leakage prevention and environmental enhancement project; - Bosanski Petrovac wastewater improvements - Velika Kladusa wastewater improvement - Mr. Arthur Schankler, EBRD asked what the countries do to provide finance for these projects. Mr. Hassan said that for instance in BiH, the government has an agreement with EIB that it would own 50% of the land and the rest would be provided by municipalities. But there is also a need for grants and other financing. Currently there is no formal mechanism to coordinate grant
financing from ministry bodies or from donors. Mr. Hassan referred to the IPF Municipality Window that might be relevant here. All affordability studies are made but the financing remains a challenge. Ms. Fiedler said that in this phase of EPPF they have moved into small municipalities and asked whether Mr. Hassan could compare it with previous big projects. Mr. Hassan said that IPPF is now nearing its end and that a comparison is difficult because they have had a small number of big projects. The only big projects were Belgrade, and a newly started project in the city of Pula. The final report will result in a synthesis and comparison between small and big projects. Ms. Breda MULEC, European Affairs and Investments Directorate, Ministry of Environment and Spatial Planning, Slovenia, Financing Strategies and Challenges in the Financing of Environmental Infrastructure Slovenian Experience Ms. Mulec gave a presentation on financing in the field of environment in Slovenia before and after the EU accession. She provided an overview of the available financial resources, such as the Cohesion Fund, LIFE and LIFE+, and the Slovenian implementation structure. Based on the experiences Ms. Mulec gave following recommendations: Better legislation is needed; amendment of the European and national cohesion legislation; Efficient transparent and simple system should be established before the implementation starts. Timely establishment of the system of implementing processes in pre-accession phase is important; technical assistance should be available The candidate states should continue to perform reforms at the different fields (local self - government, public administration, budget implementation of environment standards) in pre-accession phase respectively stabilization process. Ms. Mulec also discussed public-private partnership and its advantages. Ms. Sukova said that FYR Macedonia, as a candidate country in the process of accreditation for pre-accession funds, is facing problems with the capacity of the municipalities. She asked how this was addressed in Slovenia. Ms. Mulec said that Slovenia received 85 % of needed funds from CF. The rest of the money are provided from local and state budgets. Regarding capacity FYR Macedonia is still facing problems so the ministries are assisting the municipalities by being partners throughout the projects. Private consultancies are also used applications preparation. Mr. Ruslan ZHECHKOV, Project Manager for PEIP, REC CEE, Progress in environmental investments in the SEE since November 2007. Work Programme 2008, Outlines of PEIP Manual Mr. Zhechkov provided an overview of the PEIP project dynamic since November 2007. In his presentation all beneficiary countries were highlighted except Serbia and Montenegro as they were already covered in earlier presentations. Mr. Zhechkov discussed the project success rate and the country developments.
PEIP projects dynamics and progress rate country Air Water Waste New Removed New expected Total new success rate AL 0 4 9 5 8 13 43% 1 4 1 0 2 A few 6 0% BIH based on PIP. CR 0 14 15 4 2 29 30% 0 6 6 4 10 A few 12 22% based FYROM on NEIS 2 5 4 2 0 6 reg waste 11 55% MN projects SR 2 18 10 17 0 30 77% KO 2 7 1 0 4 yes 10 7% TOTAL 7 58 46 32 26 111 33% Other developments of the PEIP: - Further strengthening of analytical reports to create added value for governments, EC, IFIs and donors. Constant monitoring of all environmental investments factors, - Streamlining of project lists, - National workshops will be held during the autumn in Albania, FYROM and Croatia, - Project team missions to all PEIP countries. Mr. Zhechkov stated that 2 manuals are due within the project and presented different options for outline of the manual. A discussion was held on the content of the PEIP manuals. Conclusions from the discussion: The first step it to make an overview of what is available in each country. Based on that an evaluation will be made of the potential added value of the manual and also to avoid overlapping. After that more detailed terms of reference can be developed and sent to beneficiaries for comments. Participants are asked to inform REC about existing manuals in their countries or region. One possibility to go ahead is to have two manuals - both the water and waste sector. Project preparation manual is important but the most acute problems are currently within restructuring of the utilities. REC will expand the current ToR that will be sent out for comments. A draft of the first manual will be available before the next regional meeting in November 2008. Session 4. Concluding session The floor was opened to the meeting for questions and comments. Ms. Patozi asked if there are any training activities for the two new facilities, IPF and IPF Municipality Window. Ms. Fiedler said that there has been an EC mission in Albania about the IPF. Once the contractor is operational IPF will contact each of them to give details on the process.
During the next regional meeting we will again revise the PEIP lists and have the opportunity to find synergies between IPF and PEIP as well as identify lessons learnt. Ms. Fiedler made following conclusions of the meeting - The first regional meeting, held in Brussels in November 2007, focused on candidate countries. During this meeting, the focus was on Serbia and Montenegro. - There has been a reported progress in drafting sectoral strategies in several countries which is a positive development - Two new EC facilities for environmental investments have been introduced, the Infrastructure Project Facility (IPF) and the IPF Municipality Window. The new facilities will provide mainly technical assistance but also co-financing. Important aspects in the light of capacity building in the countries are the possibility to absorb funds. - Potential synergies between the IPF and the PEIP will be discussed at the next regional meeting. - The focus on restructuring utilities is a positive development and should be followed up during the next regional meeting. - The PEIP project is finishing in May 2009. RENA is the new framework replacing ReREP (under which PEIP is currently being implemented). The new RENA facility and its relation to financing of environmental infrastructure will be further discussed during next regional meeting. - The next PEIP regional meeting will be held in Brussels in the end of November 2008. Ms. Ivanova-Nacheva thanked all participants for excellent contribution, Ms. Fiedler for chairing, the EC for financial support and everyone who helped realize this meeting the REC Environmental Financing Team and REC Montenegro. Evaluation forms for the meeting were filled in. Ms. Fiedler closed the meeting. * * * All presentations are available at: http://www.rec.org/rec/programs/rerep/peip/peip2007.html * * * Minutes prepared by the REC team.