Public Disclosure Authorized

Public Disclosure Authorized

Public Disclosure Authorized
Public Disclosure Authorized

PROJECT INFORMATION DOCUMENT (PID)

APPRAISAL STAGE
Report No.: AB5147
Municipal Development Project

Project Name
Region
Sector
Project ID
Borrower(s)

EUROPE AND CENTRAL ASIA

Sanitation (100%)
P090675
BOSNIA AND HERZEGOVINA
Bosnia and Herzegovina
Bosnia and Herzegovina

Implementing Agency

Environment Category
Date PID Prepared
Date of Appraisal
Authorization
Date of Board Approval

Ministry of Foreign Trade and Economic Relations

Sarajevo
Bosnia and Herzegovina
uisdp@mvteo.gov.ba
[ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined)
October 27, 2009
October 23, 2009
December 22, 2009

Country and Sector Background

1.
Since signing of the Dayton Peace Agreement (DPA), Bosnia and Herzegovina (BH) has
experienced a period of political stability, extensive reconstruction, and gradual economic
recovery. While slower in the first decade of 2000, GDP growth has accelerated since 2005 and
reached an annual average of 6 percent through 2008. However, despite the progress achieved
thus far, BH still ranks low with a per capita income of US$4,510 compared to an average of
US$7,418 in the Europe and Central Asia Region (ECA). About 18 percent of the countrys
population of around 4.6 million still lives in poverty, while the quality and availability of most
basic local services remain at a significantly lower level than in the neighboring countries. The
global economic downturn will pout further stress on the BH economy, particularly as the recent
growth has been helped much by strong exports.
2.
Municipalities are key providers of basic local public services such as water supply,
sewerage, solid waste collection and disposal, heating, local roads as well as various social
services. As shown in a recent study conducted by the Bank the quality of local service delivery
in BH is extremely uneven across municipalities and sectors. 1 Access to services is poor, and
overall user satisfaction is low. Almost 1.4 million people have no adequate and permanent water
supply or waste removal. While the problems are more acute in smaller municipalities, they exist

World Bank (2009): From Stability to Performance - Local Governance and Service Delivery in Bosnia and
Herzegovina. January

at all levels even in the larger cities including Sarajevo the capital with an estimated urban
population of about 490,000 in the Sarajevo Kanton.
3.
Service delivery problems are compounded by the still lingering after-effects of the
conflict that left vast portions of basic infrastructure destroyed or severely damaged. A case that
vividly illustrates the problem is the waste water collection and treatment service in the city of
Sarajevo. A Waste Water Treatment Plant (WWTP) was built in the early 1980s on the occasion
of the 1984 Winter Olympics, supported by the World Bank financed Sarajevo Water Supply and
Sewerage Project (P009171). However, the plant was extensively damaged in Spring 1992 at the
outset of the conflict, during which the sewer network was also destroyed in various places.
Since the end of the conflict in 1995, the WWTP has been mothballed with only minimal
conservation works carried out to prevent further deterioration and a result, virtually all of the
citys waste water is discharged into the Miljacka and Bosna Rivers without any treatment
causing severe pollution of the downstream water bodies.
Objectives
4.
The Project Development Objective (PDO) of MDP is to improve the living conditions of
people in the areas covered by the Sarajevo Water and Waste Water Utility and in downstream
riverside communities by (a) reducing the peoples exposure to, and reliance on highly polluted
water from the Miljacka and Bosna river; and (b) improving the efficiency of the waste water
collection network in the Sarajevo Kanton. The project aims to achieve this objective through
financing investments in the rehabilitation of the Sarajevo waste water treatment plant (WWTP)
and sewerage network in the Sarajevo Kanton.
Rationale for Bank Involvement
5.
The Banks involvement in the municipal and local public services sectors in BH goes
back almost a decade. Over this period the Bank has played an important role in supporting the
development of the local government sector. As experience has shown the Bank has a number of
comparative advantages among which the most salient are: (i) its ability to operate
simultaneously at the central and local levels, linking capacity building and investments to help
implement policy reforms at central level and strengthening of local government; (ii) the
convening power and coordinating force at the policy front, a crucial role for a municipal sector
engagement that is multi-sectoral in nature and involves various Government agencies; and (iii)
the knowledge base and long-term relationship sustained in the municipal sector by analytical
work and investment lending operations.
6.
The proposed Municipal Development Project (MDP) builds up on the experience of
previous projects such as the Urban Infrastructure and Service Delivery Project (P083353; Credit
No. 3954-BA, FY04), and the First and Second Solid Waste Management Project (P057950;
Credit Nos. 3672-BA and 3672-1-BA, FY02; P107998; Loan No. 7629-BA, FY08); while the
analytical basis for the policy dialogue with governments is provided by the 2009 sector study
From Stability to Performance: Local Governance and Service Delivery in Bosnia and
Herzegovina. MDP will complement a project currently envisaged by EBRD which will
address problems in the water supply sector in Sarajevo and support critically needed financial
management reforms in the Sarajevo Water and Waste water Company, (KJKP Vodovod i

Kanalizacija - ViK), the operator of water supply and sanitation services in the Sarajevo Kanton.
ViK is currently in a weak financial position due to high losses in the water network (up to 70 %
according to latest estimates). EBRD will focus its investments in water network rehabilitation to
address the high water losses, while at the same time implementing institutional reforms to
improve the financial performance of ViK.
7.
MDP will step up Bank support within a longer term involvement that will help address
through possible follow up projects the investment needs of other municipalities in both FBH
and RS and support, in partnership with other donors, the continuing preparation and
implementation of municipal reform and reorganization and strengthening of local service
delivery.
Project Description
8.
The cost of MDP, as proposed, is estimated at US$37.0 million equivalent of which
US$35.0 million equivalent will be provided by the Bank loan, and US$2.0 million equivalent
will be provided by the Sarajevo Kanton.
9.
Component A High Priority Infrastructure Rehabilitation (US$ 36.0 million equivalent,
of which Bank financing US$34.0 million equivalent). This component will finance priority
investments in the rehabilitation of waste water infrastructure in the Sarajevo Kanton. The
component will include two sub-components:
a)

repair and replacement of primary and secondary sewers in Sarajevo (estimated cost US$
11.0 million equivalent); and

b)

rehabilitation of the Sarajevo waste water treatment plant (WWTP) in four successive
work phases (estimated cost US$25.0 million equivalent) including:
(i)
(ii)
(iii)
(iv)

rehabilitation of the pumping station for raw waste water, screening station,
aerated grit chamber, substation, and air blower room;
rehabilitation of primary sedimentation, primary sludge pumping station, sludge
thickener, and sludge pumping station;
rehabilitation of sludge digester, sludge holding tank, sludge pumping station and
sludge dehydration facility; and
rehabilitation of sand grit removal facilities.

10.
Component B Institutional Development Support (US$0.5 million equivalent, of which
Bank financing US$0.5 million equivalent). This component will finance TA to the Sarajevo ViK
for capacity building and institutional strengthening. Activities under this component will
include:
(i)
institutional strengthening for improving financial management capacity and
operational efficiency to enhance long-term financial viability; and
(ii)
support to help preparation of feasibility studies, technical designs, and other
technical studies for follow-up investments in water and waste rehabilitation.

11.
Component C Project management and operating costs (US$0.5 million equivalent, of
which Bank financing US$0.5 million equivalent). This component will support project
implementation by the Implementing Agency. Activities to be financed under this component
will include training of staff on financial management and procurement, project monitoring and
evaluation, operating costs, office equipment, financial audits, and other incremental costs.
Financing
Source:
Borrower
International Bank for Reconstruction and Development
Total

($m.)
2
35
37

Implementation
12.
The project will be implemented under the overall responsibility of the BH Ministry of
Foreign Trade and Economic Relations (MoFTER).
13.
A Project Management Team (PMT) that was created for the Urban Infrastructure and
Service Delivery Project already exists in MoFTER and is experienced with implementation of
Bank projects. It will assume full responsibility for all aspects of MDP implementation;
including procurement, financial management, safeguards compliance, supervision, reporting,
monitoring and evaluation. The PMT is staffed by qualified personnel and consists of a PMT
Head, Procurement Manager, Procurement Officer, Financial Manager and Assistant. During
MDP implementation the PMT will also hire the services of consultants for sanitation and other
local services as the need will arise.
14.
A Project Implementing Team (PIT) will be located in the Sarajevo Water and Sanitation
Utility (ViK) and consist of an Engineer assisting the PMT Procurement Officer in reviewing
technical specifications and certifying completion of works; and a Financial Officer reporting to
the Kanton Sarajevo and the PMT on ViKs financial performance; as well as a representative of
the Sarajevo Kanton Ministry of Finance. Even though the PMT in MoFTER will have overall
responsibility for implementation of the project, including all procurement and financial
management, the PIT will handle day-to-day project matters and technical supervision. The PIT
will conduct all procurement in coordination with the PMT and then submit the documents to the
PMT for clearance. Once cleared by the PMT, the documents will be submitted to the Bank for
final no-objection in accordance with the Procurement Plan. All work contracts will be signed by
the Sarajevo Kanton Ministry of Finance as the representative of the final borrower, the Sarajevo
Kanton.
15.
The PMT will also be responsible for ensuring compliance with Bank safeguards
requirements (environment and social); supervise to that effect the PIT in applying safeguard
policies; and certify that all relevant national and Bank requirements on safeguard policies have
been consistently observed and complied with.
Sustainability

16.
The Sarajevo WWTP and sewerage network are both operated by ViK, which as a public
utility is owned by the Sarajevo Kanton. ViKs current financial position is relatively weak. TA
provided under Component B of the Project will address this issue and aims at improving the
long-term financial viability of the utility. In addition, ViK is now also engaged in connection
with the water supply rehabilitation operation supported by EBRD in the preparation of a series
of financial and organizational reforms that should ensure its long-term viability and provide it
the capacity to operate and maintain the MDP investments in an adequate fashion.
Lessons Learned from Past Operations in the Country/Sector
17.
The Bank has considerable experience in the municipal sector in BH since it has financed
a number of investment projects supporting key municipal services, such as water, waste water
and solid waste management. The project design draws lessons from four Bank supported
operations. The Local Development Pilot Project (P056192; Credit No. 3191-BA, US$18.5
million) was approved in 1999 and has been completed in 2005. It aimed at strengthening the
institutional and financial capacity of local governments and initiating, on a pilot basis, the
development of a municipal credit market to provide a long-term source of financing for
creditworthy municipalities for infrastructure investments. The Community Development Project
(P070995; Credit No. 3538-BA, US$15 million; approved in 2001) functions as a social fund,
investing in social and community level infrastructure through participatory means of
identification and budgeting. CDP focuses on small-scale investments in the poorest
communities. The first Solid Waste Management Project (P057950; Credit No. 36720-BA,
US$18 million, approved in 2002) supports the cost effective improvement of solid waste
services through rehabilitation of regional sanitary landfills in seven priority regions (Banja
Luka, Bihac, Bijeljina, Sarajevo, Tuzla, Mostar and Zenica). Additional financing (P095382;
Credit No. 3672-1-BA, US$8 million) was approved in 2005. A second Solid Waste
Management Project (P107998; Loan No. 7629 and Credit No. 4540-BA; US$40 million) was
approved by the Board in November 2008 and will scale-up the operation to additional six to
eight regions. The Urban Infrastructure and Service Delivery Project (P083353; Credit No. 3954BA; US$20 million; approved in 2004) aims to strengthen the ability to compile and implement
Urban Management Development Plans in selected larger municipalities (Mostar, Sarajevo,
Banja Luka, Tuzla, Livno) and smaller municipalities (Srebrenica, Vares, Posuje, Lukavac,
Cazin and Stola ). Additional financing to the Urban Infrastructure and Service Delivery Project
(P102170; Credit No. 3954-1-BA) in the amount of US$5 million was approved in 2007.
18.
All these operations have achieved substantial resultseither in a specific sector (Solid
Waste Management Project); or in pre-selected municipalities (Urban Infrastructure and Service
Delivery Project); or with a focus on small-scale investments in poorer municipalities
(Community Development Project); or in creditworthy municipalities through on-lending via
commercial banks (Local Development Project). The main lessons learned from the projects
include: (a) in an environment with a complex governance structure such as Bosnia and
Herzegovina, project design should be simplified as much as possible; (b) while policy reforms
maybe critical to project sustainability, a balanced approach that takes into account local capacity
to absorb often challenging reforms, including leveraging other donors activities should be
followed; and (c) project readiness at appraisal is necessary to avoid disbursement delays. MDP
takes these lessons into account in its design and aims at leveraging the experience made in these
operations by: (i) providing significant investment funding for rehabilitation of infrastructure and

basic local services in the biggest urban agglomeration in the country; (ii) strengthening
management of infrastructure and services to increase long-term financial viability of utilities
and municipalities; (iii) leveraging EBRDs support for institutional capacity building at ViK
Sarajevo; and (iv) ensuring that designs for the first years investment program are ready at
appraisal to minimize implementation delays.
Safeguard Policies (including public consultation)
Safeguard Policies Triggered by the Project
Environmental Assessment (OP/BP 4.01)
Natural Habitats (OP/BP 4.04)
Pest Management (OP 4.09)
Physical Cultural Resources (OP/BP 4.11)
Involuntary Resettlement (OP/BP 4.12)
Indigenous Peoples (OP/BP 4.10)
Forests (OP/BP 4.36)
Safety of Dams (OP/BP 4.37)
Projects in Disputed Areas (OP/BP 7.60)*
Projects on International Waterways (OP/BP 7.50)

Yes
[Y]
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[Y ]

No
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[N]
[N]
[N]
[N]
[N]
[N]
[N]
[N]
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List of Factual Technical Documents

19.
Please contact the Project Management Team at uisdp@mvteo.gov.ba for all latest
technical documents.
Contact point
Contact: Jonathan S. Kamkwalala
Title: Country Sector Coordinator
Tel: (202) 458-2556
Fax: (202) 614-2556
Email: Jkamkwalala@worldbank.org
For more information contact:
The InfoShop
The World Bank
1818 H Street, NW
Washington, D.C. 20433
Telephone: (202) 458-4500
Fax: (202) 522-1500
Email: pic@worldbank.org
Web: http://www.worldbank.org/infoshop

By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties claims on the
disputed areas