Document of The World Bank FOR OFFICIAL USE ONLY Report No: RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF WATER QUALITY PROTECTION (GEF) PROJECT (P085112) GRANT TRUST FUND NO. TF055265 EC IPA TRUST FUND GRANT NO. 011422 SIDA TRUST FUND GRANT NO. TF099534 BOARD APPROVAL DATE: JUNE 7, 2005 TO BOSNIA AND HERZEGOVINA JULY 18, 2013 Sustainable Development Department Southeast Europe Country Unit Europe and Central Asia Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. ABBREVIATIONS AND ACRONYMS BH Bosnia and Herzegovina EC European Commission EU European Union IPA Instrument for Pre-accession Assistance GEF Global Environment Facility PAD Project Appraisal Document PDO Project Development Objective SIDA Swedish International Development Cooperation Agency TF Trust Fund WWTP Waste Water Treatment Plant RS Republike Srpske Acting Regional Vice President: Laura Tuck Country Director: Ellen Goldstein Sector Manager: Sumila Gulyani Task Team Leader: Sana Agha Al Nimer BOSNIA AND HERZEGOVINA WATER QUALITY PROTECTION GEF PROJECT Restructuring Paper 1. This paper recommends that the closing date for the Bosnia and Herzegovina, Water Quality Protection GEF Project, Grant No. TF055265 be extended from August 31, 2013 to August 31, 2015. The closing dates for the associated trust funds would be extended and associated trust funds Grant No. TF11422 from August 31, 2013 to December 31, 2014 and Grant No. TF99534 from June 30, 2013 to February 28, 2015 (the closing date for Grant No. TF99534 is a retroactive extension of the closing date). The 24-month extension for the Global Environmental Facility (GEF) Project was requested by the Minister of Finance on May 28, 2013 to achieve the Project Development Objective. 2. This third Closing Date extension for the GEF Project will cumulatively extend the project’s duration by more than four years from the project’s original closing date. The original GEF Project of US$8.9 million was approved by the World Bank on June 7, 2005 and was signed on July 12, 2005. The Project Appraisal Document (PAD) for the GEF financing envisioned supplemental funding from other donors. 3. The GEF Project was first extended on December 30, 2010 for 18 months (to August 28, 2012) to allow for the completion of the activities that were to be funded by the donors. The Bank signed two Administration Agreements in March and July 2011. The first additional trust fund (TF099534) was signed with the Swedish International Development Cooperation Agency (SIDA) on July 19, 2011, to administer investments for US$3.45 million for Mostar. The second trust fund (TF011422) was signed with the European Commission (EC) on March 30, 2011 to administer the “Instrument for Pre-Accession Assistance (IPA) 2010� for US$1.8 million to be invested in Zivinice. On March 14, 2012, the Closing Date for the GEF Project was extended for the second time to August 28, 2013 to allow for the completion of activities. 4. The newly proposed third extension is needed because in December 2012, the Bank signed an Administration Agreement with the European Commission for another additional financing of US$6.5 million from the “EU IPA 2010� allocation to Bosnia Herzegovina. An amendment was also signed to the SIDA Administration Agreement for an additional (supplemental) contribution of US$2.5 million. The total increase in supplemental funding of US$8.0 million represents a significant financial contribution to the Project that will allow for the completion of the Mostar and the Zivinice wastewater treatment plants (WWTP). This financing is fully consistent with the PDO and the provisions of the original PAD. 5. No changes are proposed to the PDO. Overall implementation progress has been satisfactory. Rehabilitation of the WWTPs in Tsvorno and Odzak has been already completed and the plants are fully operational. Of the remaining works, the first phase of rehabilitation of the Zivinice WWTP is currently at the bidding stage; this plant is expected to be constructed over an 18 month period. The contract for the construction of the first phase of the Mostar WWTP was awarded and works are expected to start shortly. Three major feasibility studies have already been completed. 6. There have been no fiduciary or safeguards issues to date. All trust funds are fully committed. The pace of implementation of the works is accelerating. As of May 15, 2013, the amount disbursed of the GEF grant proceeds and associated trust funds are shown in table below. With all the current allocations, the disbursed amount to 40% of the total allocations. Trust Fund Disbursed Undisbursed Trust Fund Closing Amount Amount Amount Date TF 55265 8,900,000.00 6,861,543.32 2,038,456.68 August 31,2013 TF 11422 - EC IPA 2010 Part I 1,835,557.95 1,049,150.73 759,592.41 August 28, 2013 TF 99534 -SIDA 3,455,747.00 1,056,807.03 2,398,939.97 June 30, 2013 SIDA supplemental contribution* 2,327,891.24 0 2,327,891.24 EC IPA 2010 Part II* 6,500,000.00 0 6,500,000.00 December 31, 2014 23,019,196.19 14,024,880.30 *Administration Agreement signed in December 2012, Full amount of the SIDA supplemental contribution was transferred to TF 099534. The advance payment of Euro 2.5 million was transferred. 7. There are no outstanding audits under the project, and the previous audit reports have been found satisfactory. REVISED PROJECT RESULTS FRAMEWORK Project Development Objective (PDO): The project development objective is to further strengthen the capacity of local utilities and reduce pollution from municipal sources into the Neretva and Bosna Rivers. The global objective is to reduce municipal pollution and nutrients in the Adriatic Sea and the Danube Basin. The sub-objectives are: (i) develop the Wastewater Improvement Plan; (ii) further strengthen the Joint BH/Croatian Working group, with coordination from Serbia and Montenegro to implement the Wastewater Improvement Plan; (iii) develop and implement high- priority, low-cost water capital investments; and (iv) disseminate information in BH and the region for replication of project activities at other priority sites in the Balkans Baseline Cumulative Target Values4 Original Progress To Responsibility PDO Level Results 2013 2014 2015 2016 Data Source/ UOM2 Project Date Frequency for Data Comments Indicators1 Methodology (2012)3 Core Start Collection (2005) 1. Improved /Clarified Text/units No data A Water 100 100 100 100 At end of Reports. Project The WIS was developed institutional framework collection and Information project Management for all of BH. Benefits for wastewater collaborative System (WIS) Team (PMT) include unified, country- management, financing planning. has been wide approach, and monitoring developed and facilitating, water quality (Component A) installed. protection, reporting, COMPLETED harmonization of BH legislation with the EU. Manual for biological monitoring completed. 2.Nutrient pollution Tons/y 0 0 0 0 0 100 Semi- Biological PMT Measured values are reduction for Mostar: annually data available now for the Nitrogen analysis/repor completed Trnovo and ts. Odzak WWTPs. The Annual reduction same measurements will nutrients discharges (P be carried out when & N kg/yr); avg. oper. Zivinice and Mostar cost nutrient reduc. plants are sub- process ($/kg/ sequentially operational nutrients); anl. reduc. BOD discharges (tons/yr); avg op. cost BOD (Component B 3. Nutrient pollution Tons/y 0 0 0 0 0 36 reduction for Mostar: Phosphorous? 1 Please indicate whether the indicator is a Core Sector Indicator (for additional guidance – please see http://coreindicators). 2 UOM = Unit of Measurement. 3 For new indicators introduced as part of the additional financing, the progress to date column is used to re\flect the baseline value. 4 Target values should be entered for the years data will be available, not necessarily annually. Target values should normally be cumulative. If targets refer to annual values, please indicate this in the indicator name and in the “Comments� column. 4. Nutrient pollution Tons/y 0 0 0 0 0 226 reduction for Mostar: Nitrogen 5. Nutrient pollution Tons/y 0 0 0 6 reduction for Zevinice – Phosphorous 6. Nutrient pollution n/a 15mg/l Completed and operational Influent: reduction for Trnovoa targets achieved DWF: 200-250 m3/d Volume (mass) of BOD BOD - 35 mg/l pollution loads removed by the treatment plant supported under the project. 7. Nutrient pollution n/a 75mg/l Completed and operational BOD: Biochemical reduction for Odzak targets achieved Oxygen demand Volume (mass) of BOD Influent: pollution loads removed DWF: 80-100 m3/d by the treatment plant BOD - 75 mg/l supported under the COD - 230 mg/l project SS – 25 mg/l 8. Nutrient pollution 3-7 mg/l Completed and operational COD: Chemical Oxygen reduction for Odzak -- targets achieved Demand COD 9. Nutrient pollution 2-10mg/l SS: Suspended solids Completed and operational reduction for Odzak -- targets achieved SS 10. Percentage of the % 40%of total BiH 8% of 8% 15% 25% 40% Annual PMT Rehabilitation of Trnovo effluent discharged population is municipal and Odzak WWTP according to the connected to waste water is completed, plants fully national standard public sewage. now treated operational. Regular 5.5% of and discharged monitoring of effluent municipal waste discharged established. water is treated Rehabilitation of the and discharged Zivinice WWTP is according to underway, 70% of works existing completed. Mostar standards. WWTP construction planned to start early 2013 11. Feasibility of Text No data Feasibility 100 100% 100 100 Annual Study/Report PMT Natural WW treatment natural low cost/low available study has been % % % feasibility study on low energy wastewater completed. cost treatment of WW on treatment solution for conditions relevant to small towns and Bosnia & Herzegovina settlement demonstrated prepared. Preliminary (Component C) design for at least 3 Pilot Plants nominated by FS prepared. 12. Improved coop. of Text Joint Agreement on 100 100% 100 100 Annual Reports PMT Joint BiH/Croatian BiH with institutions in BiH/Croatian cooperation % % % Group working in Croatia, Serbia & Working Group with Serbia and coordination with Serbia Montenegro leading to is holding Montenegro and Montenegro which agreement on most meetings. has been facilitates agreement on aspects of Waste Water prepared. majority of aspect Improvement Plan requiring cross-border requiring cross-border cooperation cooperation. (Components A&E) 13. Increased quality of Unit No staff trained The Utility 100 100% 100 100 Annual FM and PMT Utilities received the financial staff % % % Procurement financial management management at the participated in assessments. training; each Utility utility level trainings. All drafts annual Business (Component E) Utilities Plan. prepared and provided Participating utilities Business plans have improved service for 2012, delivery performance and including tariff increased efficiency, increase for while managerial and waste water institutional capacity has treatment fee. been strengthened. 14. Feasibility study to Unit Not available Feasibility 100 100% 100 100 Annual Report PMT Study completion rehabilitate, construct study has been % % % and maintain wetland completed and area three pilot projects identified and Preliminary design prepared. COMPLETED Beneficiaries5 Number Population Project beneficiaries, benefitting Census/ HH 0 0 0 100,000 Annual PMT from improved connections WWT Number Population Of which female benefitting Census, HH 0 0 0 55,000 Annual PMT (beneficiaries) from improved connections WWT Intermediate Results and Indicators 5 All projects are encouraged to identify and measure the number of project beneficiaries. The adoption and reporting on this indicator is required for investment projects which have an approval date of July 1, 2009 or later (for additional guidance – please see http://coreindicators). Baseline Target Values Unit of Progress To Responsibility Intermediate Results Original Project 2013 201 201 20 Data Source/ Measure Date Frequency for Data Comments Core Indicators Start 4 5 16 Methodology ment (2012) Collection (2005) Intermediate Result 1: Click here to enter the Revised Intermediate Results Statement 1 1. Full compliance with Text Inter-ministry Inter- Improved Annual Ministry of PMT Water Laws in BH the provisions of the Steering Group is ministerial inter- Environment Federation and RS were Water Law regulating working to coordination ministerial approved and water sector and issues coordinate water improved coordinatio harmonized with EU of environmental sector significantly. n leading to Water Framework pollution reduction development and compliance Directive in 2006. Inter- environmental with the ministerial coordination issues. main improved significantly. provisions of the Water Law 2. Country adoption of Text Standards not Sub laws on Annual Legislation PMT Country adoption of the the affordable water/ harmonized with regulation of passed affordable water/ environment standards EU Directives. effluent quality environment standards for municipally based adopted and in for municipally-based pollution use pollution. Intermediate Result 2: Click here to enter the Revised Intermediate Results Statement 2 3. Increased stakeholder Text Insufficient Increased Annual Reports PMT Increased stakeholder awareness and documented cooperation cooperation; awareness with completion stakeholder involvement between various Water Information of d publications disseminated. Access to stakeholders System (WIS) completed modules of Water developed for the Information System. entire territory of BiH Annex 2: Operational Risk Assessment Framework (ORAF) BOSNIA AND HERZEGOVINA GEF - WATER QUALITY PROTECTION 1. Project Stakeholder Risks Rating Moderate Description : Utilities are experiencing financial difficulties due to tariffs Risk Management: The WWTPs works contract will provision for an adequate operational period by that are insufficient to cover their operating costs. This raises questions the contractor and include preparation of an operations manual and training of technical staff in the about how the WWTPs, once online, will be operated and maintained over operation of the facility. This provision will ensure that staff are operationally qualified to accept time. handover of the facility following the contractors’ testing and operations period. In addit ion, assistance is being provided to utilities in overhauling their financial management and billing system under the project to improve revenue collection. Resp: Client Stage: Implementation Due Date : Status: 2. Operating Environment Risks 2.1. Country (description and rating are not disclosed) Rating: Moderate Description : Different constitutional arrangements in the two entities Risk Management: The project does not involve any major structural reforms in the country level (more centralized in the RS, and highly decentralized in the FBH), as well that could create controversy. The portfolio management team in the CO will continue with the as lack of consensus about the role of the State level institutions, may delay practice of closely monitoring counterpart funding and promptly communicating with both the authorities decision making during project preparation, and may make Entities. project coordination across the various administrative and territorial levels hard to achieve. Lack of attention to critical reform agendas beyond the prevailing debate about constitutional issues, could further undermine Government resolve to address structural issues and delay investments in sectors where structural reforms are pursued. Resp: Client Stage: Implementation Due Date : Status: Although there is no political violence, the issues and ethnic tensions that led to the conflict have yet to be fully overcome and the potential for prolonged political stalemate cannot be ignored. Domestic co-financing may be compromised in the tight fiscal environment. 2.2. Sector/multi-sector (description and rating are not disclosed) Rating: Moderate Description : (this description and rating are not disclosed) Risk Management : Resp: Stage: Due Date : Status: 3. Implementing Agency Risks (including fiduciary) 3.1. Capacity Rating: Moderate Description: The Project Management Team (PMT) may lack technical Risk Management: Financial management controls and procedures will clearly described in the capacity for supervision of large scale infrastructure rehabilitation. financial manual; and application in practice verified by Bank’s supervision. PMT staff has experience with implementing Bank financed projects and will be responsible for ensuring compliance with Bank procurement Staff will receive continued procurement training provisions. PMT at the state level may lack experience to handle procurement under Bank projects, in particular with regard to bigger scale infrastructure Resp: PMT Stage: Implementation Due Date : end-2013 Status: activities 3.2. Governance Rating: Description : Risk Management : Resp: Stage: Due Date : Status: Fraud & Corruption (sub-category of Governance risk) Rating: Low Description: Procurement issues, rigged site selection, and other Potential corruption risk will be mitigated by instituting additional procedures and strengthening system fraudulent behavior would delay project implementation, pose a of internal controls. Quarterly Interim Financial Reports (IFR) will be submitted to the Bank, and a Bank reputational risk, and could potentially halt specific project activities. Financial Management Specialist will perform on-site supervision. Risk imposed by low capacity of SAI will be mitigated by using private auditors acceptable to the Bank for the project audit. Resp: Bank Stage: implementation Due Date : Status: 4. Project Risks 4.1. Design Rating: Substantial Description: High priority infrastructure works may not be suitable to Risk Management: Low quality of services in BH is closely coupled with damaged or ill- embark on broader reform agenda for improving service delivery maintained infrastructure in dire need for investments. Implementation of institutional reforms performance. needs to be accompanied by investments that are suited to measurably improve service quality. Actual damages to specific components of the WWTPs may turn out to be Project implementation in successive phases will allow for adjustments, including postponement more extensive than initially thought and result in higher than anticipated of non-critical project elements. Additional donor co-financing of has been committed (SIDA, costs. EU). Resp: Bank Stage: Implementation Due Date : Status: 4.2. Social & Environmental Rating: Low Description: Potential negative environmental impacts associated with Risk Management: An Environmental Management Plan (EMP) has been prepared that outlines rehabilitation of existing sewerage infrastructure is linked to the generation the approaches to be followed to manage and dispose of the sludge. In addition, the EMP includes of waste water sludge, its management and final disposal. a set of specific environmental mitigation measures. The project qualifies for an exemption from the notification to riparians since the project will OP/BPO 7.50 international Waterways is triggered since the WWTPs neither attempt to modify the course of the waterway nor increase the volume of discharge discharge effluents into the international waterways. Resp: Client Stage: Implementation Due Date : Status: 4.3. Program & Donor Rating: Low Description: Additional WWTPs works cannot proceed due to lack of Risk Management: EU-IPA financing has been approved and confirmed for phase rehabilitation initially envisaged EU co-financing. Risk that SIDA and EU co-financing works. are not approved by the EU. Resp: Bank Stage: Implementation Due Date : Status: 4.4. Delivery Monitoring & Sustainability Rating: Description : Risk Management : Resp: Stage: Due Date : Status: 4.5. Other Rating: Description : Risk Management : Resp: Stage: Due Date : Status: Comments: 5. Overall Risk Following Review 5.1. Preparation Risk Rating Moderate 7.2 Implementation Risk Rating: Moderate Comments: Comments