The Priority Environmental Investment Programme for South ...documents.rec.org/publications/PEIP_Strategic_Moves_PDF_Final.pdf · The Priority Environmental Investment Programme for

The Priority Environmental Investment Programme for South Eastern Europe (PEIP)

Strategic MovesEight Years of Environmental Infrastructure

Investment Planning in South Eastern Europe

Contributors:Ellen BaltzarRaisa GerasinaDusan Sevic

Ruslan Zhechkov

Szentendre, HungarySEPTEMBER 2009

The Priority Environmental Investment Programme for South Eastern Europe (PEIP)

Strategic MovesEight Years of Environmental

Infrastructure Investment Planningin South Eastern Europe

About the REC

The Regional Environmental Center for Central and Eastern Europe (REC) is a non-partisan, non-advocacy,not-for-profit international organisation with a mission to assist in solving environmental problems in Central

and Eastern Europe (CEE). The REC fulfils this mission by promoting cooperation among non-governmental organisations,governments, businesses and other environmental stakeholders, and by supporting the free exchange of information

and public participation in environmental decision making.

The REC was established in 1990 by the United States, the European Commission and Hungary. Today, the REC is legallybased on a charter signed by the governments of 29 countries and the European Commission, and on an internationalagreement with the government of Hungary. The REC has its head office in Szentendre, Hungary, and country officesand field offices in 17 beneficiary countries: Albania, Bosnia and Herzegovina, Bulgaria, Croatia, the Czech Republic,

Estonia, Hungary, Latvia, Lithuania, the former Yugoslav Republic of Macedonia, Montenegro, Poland, Romania, Serbia,Slovakia, Slovenia and Turkey.

Recent donors are the European Commission and the governments of Albania, Austria, Bosnia and Herzegovina, Canada,Croatia, the Czech Republic, Estonia, Finland, Germany, Hungary, Italy, Japan, Latvia, Lithuania, Luxembourg, the former

Yugoslav Republic of Macedonia, Montenegro, the Netherlands, Norway, Poland, Romania, Serbia, Slovakia, Slovenia, Spain,Sweden, Switzerland, Turkey, United Kingdom and the United States, as well as other inter-governmental and private institutions.

The document has been produced with the financial assistance of the European Union.The views expressed herein can in no way be taken to reflect the official opinion of the European Union.

During the drafting of this publication it was referred to by the working title“Environmental Infrastructure Investments in South Eastern Europe”

The entire contents of this publication are copyright©2009 The Regional Environmental Center for Central and Eastern EuropeNo part of this publication may be sold in any form or reproduced for sale

without prior written permission of the copyright holder

ISBN: 978-963-9638-45-7

Published by:The Regional Environmental Center for Central and Eastern Europe

Ady Endre ut 9-11, 2000 Szentendre, HungaryTel: (36-26) 311-199, Fax: (36-26) 311-294, E-mail: [email protected], Website: http://www.rec.org/

Printed in Hungary by Typonova

This and all REC publications are printed on recycled paper or paper producedwithout the use of chlorine or chlorine-based chemicals

CONTENTS

S TRAT EG IC MOVES 3

Abbreviations 6

Foreword by the European Commission 11

Foreword by the Executive Director of the Regional Environmental Center 12

Authors and acknowledgements 13

Executive summary 19

Introduction 31Objectives 31

Target 32

Scope 32

Methodological approach 33

Other considerations 35

Chapter 1 The role of the Priority Environmental Investment Programme for SEE 37Introduction 39

The nature of PEIP support 39

Assistance provided by the PEIP team 40

The role of the PEIP 42

Chapter 2 The status of environmental infrastructure in the SEE region 45Introduction 47

Infrastructure status in the water sector 47

Infrastructure status in the waste sector 51

Chapter 3 Challenges to environmental financing in SEE 55Introduction 57

Obstacles to environmental infrastructure financing — national level 57

Obstacles to environmental infrastructure financing — municipal level 63

Chapter 4 Economic development and the EU accession process 71Economic development in SEE 71

EU accession 75

Infrastructure investment implications of the EU directives 79

Environmental investment needs and benefits 89

Chapter 5 National strategic and institutional framework 99Update on progress in national environmental legislation 101

Enforcement of environmental legislation in the water and waste sectors 107

Environmental institutions 109

Chapter 6Water and waste utilities in SEE — Status and reform 119Introduction 121

Status of utilities and status of reforms in the water sector 122

Status of utilities and status of reforms in the waste sector 130

Other considerations in water and waste utility reform 136

Chapter 7 Financing environmental infrastructure investments 145Introduction 147

Domestic sources of finance 147

International financial assistance 157

Project preparation facilities 174

Regional cooperation frameworks 180

Donor coordination frameworks 184

Chapter 8 Prioritisiation of infrastructure projects: The PEIP lists 187Dynamics of the PEIP lists of priority projects 189

CONTENTS

S TRAT EG IC MOVES4

CONTENTS


Chapter 9 The way forward 203Introduction 205

Overall challenges for national governments 205

Overall challenges at local and regional level 209

Annexes 213Annex 1 Environmental institutions and their responsibilities 215

Annex 2 Key government functions under the water acquis 220

Annex 3 Strategic documents providing guidance for infrastructure investmentin the water and waste sectors in SEE countries 221

Annex 4 Selected REC publications in the field of environmental infrastructureinvestments and financing 224

Annex 5 PEIP priority project lists 226

Notes 248

References 249

ABBREV IAT IONS

S TRAT EG IC MOVES6

BAT Best available techniquesBERCEN Balkan Environmental Regulatory Compliance and Enforcement

NetworkBiH Bosnia and HerzegovinaBMW Biodegradable municipal wasteCARDS Community Assistance for Reconstruction, Development

and StabilisationCEB Council of Europe Development BankCEE Central and Eastern EuropeCW Croatian WatersCSE Communal service enterprisesDABLAS Danube and Black Sea InitiativeDG REGIO Directorate General for Regional Policy, European CommissionDSIP Directive-specific implementation planEAR European Agency for ReconstructionEBRD European Bank for Reconstruction and DevelopmentEC European CommissionECENA Environmental Compliance and Enforcement Network for AccessionEEC European Economic CommunityEFFBiH Environmental Fund of the Federation of Bosnia and HerzegovinaEFRS Environmental Fund of Republika Srpska, Bosnia and HerzegovinaEIA Environmental impact assessmentEIB European Investment BankEIP Environmental Investment ProgrammeENPI European Neighbourhood and Partnership InstrumentEPA Environment Protection AgencyEPEEF Environmental Protection and Energy Efficiency Fund, CroatiaEPF Environmental Protection Fund, SerbiaEPOP Environment Protection Operational ProgrammeEPPF Environmental Project Preparation FacilityELV Emission limit valueESMP Environmental and social management planETF European Task ForceEU European UnionEU-10 10 new member states that entered the EU in 2004EU-15 15 member states that formed the EU prior to enlargement

ABBREV IAT IONS


EUR EuroEUWI EU Water InitiativeEWBJF European Western Balkans Joint FundFBiH Federation of Bosnia and HerzegovinaFOPIP Financial and Operational Performance Improvement ProgrammeFYROM The former Yugoslav Republic of MacedoniaGDP Gross domestic productGEF Global Environment FacilityH2020 Horizon 2020 InitiativeHCW Healthcare wasteHZWM Hazardous waste managementIBRD International Bank for Reconstruction and DevelopmentIFC International Finance CorporationIFI International financial institutionIFI AG International Financial Institutions Advisory GroupIMF International Monetary FundIPA Instrument for Pre-accession AssistanceIPF Infrastructure Preparation FacilityIPPC Integrated pollution prevention and controlISPA Instrument for Structural Policies for Pre-AccessionIWMS Integrated waste management systemJICA Japan International Cooperation AgencyKEAP Kosovo Environmental Action PlanKEPA Kosovo Environment Protection AgencyKfW Kreditanstalt fur Wiederaufbau (a German bank)KLMC Kosovo Landfill Management CompanyKM Convertible mark (Bosnia and Herzegovina)KTA Kosovo Trust AgencyLCP Large Combustion Plants DirectiveLSGU Local self-government unitsMBT Mechanical biological treatmentMIFF Multi-annual indicative financial frameworkMIPD Multi-annual indicative planning documentMISP Municipal Infrastructure Support Programme, SerbiaMSW Municipal solid wasteMSWM Municipal solid waste managementMW Municipal Window

NGO Non-governmental organisationNEAP National environmental action planNEIS National Environmental Investment Strategy (the former Yugoslav

Republic of Macedonia)NIB Nordic Investment BankNIMBY “Not in my backyard” syndromeNIP National investment planNSDS National Sustainable Development Strategy, SerbiaNSEA National strategy for environmental approximationNSSD National strategy for sustainable developmentNUTS Nomenclature of Territorial UnitsNWMP National waste management planNWMS National waste management strategyODA Official Development AssistanceOECD Organization for Economic Cooperation and DevelopmentOP Operational ProgrammePEIP Priority Environmental Investment Programme for South Eastern

EuropePhare Poland and Hungary: Assistance for Restructuring their EconomiesPIP Public investment programmePIU Project implementation unitPMU Project management unitPPF Project Preparation FacilityPPIAF Public-Private Infrastructure Advisory FacilityPPP Public-private partnershipPSP Private sector participationPUC Public utility companyPWSE Public water supply enterprisesRCC Regional Cooperation CouncilREC Regional Environmental Center for Central and Eastern EuropeREReP Regional Environmental Reconstruction Programme for South

Eastern EuropeRS Republika Srpska (Bosnia and Herzegovina)RWMC Regional waste management centreSAA Stabilisation and association agreementSAP Stabilisation and Association ProcessSAPARD Special Accession Programme for Agriculture and Development

ABBREV IAT IONS

S TRAT EG IC MOVES8

ABBREV IAT IONS


SAS Sector approximation strategySEA Strategic environmental assessmentSEE South Eastern EuropeSEPA Serbian Environment Protection AgencySIDA Swedish International Development Cooperation AgencySME Small and medium-sized enterprisesSPA Strategic Planning for ApproximationSWM Solid waste managementSWMMP Strategic waste management master planSWMP Solid waste management projectSWMS Solid waste management strategyToR Terms of referenceUfW Unaccounted-for waterUK United KingdomUNDP United Nations Development ProgrammeUNEP United Nations Environment ProgrammeUNEP-FI United Nations Environment Programme Finance InitiativeUNSCR United Nations Security Council ResolutionUSAID United States Agency for International DevelopmentUWWTD Urban Waste Water Treatment DirectiveViK Vodovod i Kanalizacija (water and sewerage company)WB World BankWBICP Western Balkans Investment Coordination PlatformWBIF Western Balkans Investment FrameworkWFD Waste Framework DirectiveWLD Waste Landfill DirectiveWM Waste managementWMC Waste management centreWURP WG Water Utility Reform Plan (WURP) working groupWWTP Wastewater treatment plant

S TRAT EG IC MOVES10

The candidate countries and potential candidates are working to align theirpolicies with EU environmental norms and standards in preparation for their fu-ture membership of the EU. Meeting EU environmental standards poses a majorchallenge for the countries including, inter alia, the need to conduct policy reforms,develop appropriate environment infrastructure and build up administrative ca-pacity. The preparation of environment infrastructure projects is especially chal-lenging as it requires specialist skills, knowledge and experience, financial andhuman resources and the effective coordination of many stakeholders. ThereforeI welcome this publication, as a very comprehensive analysis of the challenges andprogress achieved in financing environment infrastructure projects. The PriorityEnvironmental Investment Programme provided strategic advice to the countrieson how to plan and prepare environment investment projects. The lessons learntfrom the implementation of the programme will be taken into account in the ac-tivities of the future Regional Environmental Network for Accession (RENA)which is the initiative being established to continue, along with other elements,the collaboration initiated under this programme.

TimoMakelaDirector International Affairs and LIFE

Environment Directorate-GeneralEuropean Commission


Foreword fromthe European Commission


The development and approval of the Priority Environmental Investment Pro-gramme for SouthEasternEurope (PEIP)was one of themilestones in the process ofenvironmental reconstruction andEUapproximation inSouthEasternEurope (SEE).In theperiod2001 to2009, theRegionalEnvironmentalCenter forCentral andEast-ern Europe (REC) was deeply engaged in assisting the region to identify and priori-tise environmental infrastructure projects; building capacity at local, national andregional level; facilitating dialogue between project proponents and financing or-ganisations; and transferring best practices from the new EUmember states.

This book presents national policy development, national environmental in-stitutions, environmental infrastructure investments, water andwaste utility com-panies, lists of priority projects and their development dynamics, key constraintsand challenges to investments and possible actions to address them, and other in-vestment-related issues in SEE.

The publication targets both REC’s beneficiaries in SEE within the nationaland regional administration, as well as donors, international financial institutions(IFIs) and international organisations active in the region.

Building on the 2005 REC publication Targeting the Environmental Invest-ment Challenge in SEE, the present publication attempts to capture themany pos-itive changes that have taken place in the region since 2005. At the same time, itcontains analysis of the obstacles and blockages tomore active investments in qual-ity environmental infrastructure.

I would like to extendmy gratitude to the EuropeanCommission for the valu-able guidance provided in the implementation of the PEIP and for making possi-ble this publication. I would also like to express my thanks to the ministries ofenvironment in SEE, municipalities in the region, local consultants, internationalpeer reviewers, and staff from the REC’s head office and country offices— thankyou to everyone who contributed to the success of the PEIP.

Marta Szigeti BonifertExecutive Director

Regional Environmental Center for Central and Eastern Europe

Foreword fromthe Regional Environmental Center

This publication has been drafted by Ruslan Zhechkov, Ellen Baltzar, DusanSevic and Raisa Gerasina, members of the Environmental Financing Topic Area(EFTA) at the REC. Detailed comments have been provided by Oreola Ivanova-Nacheva, Venelina Varbova,MiriamMarkus-Johansson, Ana Petrovska (REC for-mer Yugoslav Republic of Macedonia), Joanna Fiedler (European Commission)and Jennifer McGuinn (consultant).

Ruslan Zhechkov has 10 years’ experience in SEE working in the field of environ-ment and environmental financing.He has worked full-time for the REC for eightyears and is currently a leader of the REC’s Environmental Financing Topic Area.Ruslan has extensive experience and knowledge of SEE countries and has workedin all of them on a variety of assignments linked to environmental financing. Rus-lan was a grants manager in the environmental project financing facility EcoLinksbetween 2001 and 2003, covering several areas including water supply and watermanagement in companies. For the past two years Ruslan has been managing theEU-funded Priority Environmental Investment Programme for South Eastern Eu-rope (PEIP), working closely with the European Commission (EC), IFIs and theInfrastructure Preparation Facility (IPF) etc. He was part of the team that draftedtheNational Environmental Investment Strategy of the former Yugoslav Republicof Macedonia, which was adopted by the government in 2009. He has been proj-ect director of several pre-feasibility studies in water supply andwastemanagementin Bosnia and Herzegovina, Croatia and the former Yugoslav Republic of Mace-donia. He was also part of the team reviewing the Macedonian EnvironmentalFund and participated in trainings for the establishment of an environmental fundinMontenegro.

Ellen Baltzar has worked for the REC since 2007 as a junior expert in the field ofenvironmental financing. Ellenwas part of the PEIP teambetween 2007 and 2009.In the course of several years’ work on regional projects, Ellen has gained broad ex-perience of working with environmental policy issues in Central and Eastern Eu-rope (CEE) and SEE. She holds a master’s degree in environmental social sciencewith a specialisation in human ecology from theUniversity ofGothenburg, Sweden.

Dusan Sevic is an environmental assessment expert with more than 13 years’ ex-perience in CEE and SEE in the fields of environmental impact assessment (EIA),


Authors and acknowledgements

strategic environmental assessment (SEA) and environmental financing. He hasbeen working for the REC for four years and is a leader of the REC’s Environ-mental Assessment Topic Area. Dusan has broad experience in quality reviews ofEIA and SEA projects and the provision of training on EIA and SEA; environ-mental project management; institutional strengthening; and capacity-buildingactivities at national and international level in all SEE countries.

Raisa Gerasina is a specialist in environmental engineering. She works as a juniorexpert in environmental financing and her areas of expertise include environmen-tal financing, environmental information and environmental education projectsimplemented in the SEE and CEE regions and Commonwealth of IndependentStates (CIS) countries. Raisa holds amaster’s degree in environmental sciences andpolicy from the Central European University, Budapest, Hungary.

Oreola Ivanova-Nacheva has been working for the REC for more than 13 years.In 2000, she became head of the Environmental Policy Programme, and in paral-lel, between 2003 and 2008, she was the REC’s deputy executive director for strat-egy and development. Oreola contributed to the development of the RegionalEnvironmental Reconstruction Programme for South Eastern Europe (REReP)and the Priority Environmental Investment Programme for South Eastern Europe(PEIP). As project director, she provided continuous strategic leadership and guid-ance throughout the implementation period. Before joining the REC, Oreolaworked for the BulgarianMinistry of Environment. One of hermajor assignmentswas the preparation and organisation of the 1995 Ministerial Conference “Envi-ronment for Europe” in Sofia.

REC Country OfficesExperts from the REC’s country offices have been instrumental in implementingthe PEIP. They have been in charge of project updates, the collection of informa-tion and liaising with relevant policy makers.

AlbaniaMihallaq Qirjo,Country Office Director; Eduart Cani, Senior Project Man-ager;AlkenMyftiu, Senior Project Manager

Bosnia and HerzegovinaJasna Draganic,Country Office Director; Sunita Selak, Project Manager

CroatiaIrena Brnada,Country Office Director; ZeljkaMedven, Project Manager;Vjakoslav Radisic, Project Manager

AUTHORS AND ACKNOWLEDGEMENTS


Kosovo (as defined under UNSCR 1244)Zeqir Veselaj, Field Office Director; Shqipe Neziri, Project Manager

The former Yugoslav Republic of MacedoniaKatarina Stojkovska,Country Office Director;Kornelija Radovanovic, Proj-ect Manager;Ana Petrovska, Project Manager

MontenegroSrna Sudar Vilotic,Country Office Director;Mira Puric, Project Manager

SerbiaJovan Pavlovic,Country Office Director; Ivana Tomasevic, Project Officer

Other contributorsDuring the implementation of the PEIP, staff from the REC’s head office and

country offices have relied on a variety of sources to receive updates on policymat-ters. These experts have contributed to numerous PEIP events, and their input andinsights have been used in the writing of this book and other publications.

AlbaniaDanielaGodo, Specialist and PEIP Focal Point, Project Department,Ministry ofEnvironment, Forestry andWater Administration;EnkelejdaGjinali,Advisor tothe PrimeMinister of Albania onwater issues; ShpresaMezini, Specialist, ProjectDepartment,Ministry of Environment, Forestry andWater Administration;AspriKapo, Specialist, Ministry of Environment, Forestry and Water Administration;Aida Seseri, Director of the Directorate for Community Service Policies, Min-istry of PublicWorks, Transport andTelecommunication;Vladimir Bezhani, Spe-cialist, Sector for Solid Waste, Ministry of Public Works, Transport andTelecommunication; Roza Dedja, Specialist, Department for Institutional Sup-port in the Integration Process, Ministry of European Integration; Anila Tola,General Directorate of Water Supply and Sewerage; Petrit Tare,Director, KorçaWater Supply and Sewerage Utility

Bosnia and HerzegovinaNermina Skejovic-Huric, PEIP Focal Point, Ministry of Foreign Trade and Eco-nomic Relations; Alma Imamovic, Federal Ministry of Agriculture, Water Man-agement and Forestry; Almira Kapetanovic, Federal Ministry of Environmentand Tourism; Branislav Blagojevic,Water Agency of Republika Srpska



CroatiaVlatka Lucijanic Justic, PEIP Focal Point, Head of Department for EU Infra-structureDevelopment Programmes,Ministry of Environmental Protection, Phy-sical Planning and Construction; Mladen Glavocevic, Senior Expert Advisor,EU Division, Department for EU Infrastructure Development Programmes, Mi-nistry of Environmental Protection, Physical Planning andConstruction;KarmenCerar,Head of Sector, Division ofWater Policy and International Projects, Sectorfor International Projects,Ministry of Regional Development, Forestry andWaterManagement; Davor Hadjim, Expert Advisor, Division of Water Policy and In-ternational Projects, Sector for International Projects, Ministry of Regional Deve-lopment, Forestry and Water Management; Predrag Culjak, Senior ExpertAdvisor, Department for Managing the EU Pre-Accession Funding Instru-ments, Environmental Protection and Energy Efficiency Fund;Davor Indjic,Prin-cipal Banker, Municipal and Environmental Infrastructure, European Bank forReconstruction and Development

Kosovo (as defined under UNSCR 1244)Zymer Mrasori, PEIP Focal Point, Head of Division for Overall EnvironmentalPolicies, Ministry of Environment and Spatial Planning;MuhametMalsiu, PEIPFocal Point 2007–2008, Director of the Department for Environment, Ministryof Environment and Spatial Planning; Albana Hajrizi, Department of Environ-ment, Ministry of Environment and Spatial Planning

The former Yugoslav Republic of MacedoniaVesna Indova,PEIP Focal Point,Ministry of Environment and Physical Planning;Kaja Sukova,Head of the SustainableDevelopment and InvestmentDepartment,Ministry of Environment and Physical Planning;KirilKalkashliev,Advisor on In-vestments, Sector for Sustainable Development and Investments, Ministry of En-vironment and Physical Planning

MontenegroSinisa Stankovic, ex-DeputyMinister of Tourism and Environment;AnaKrunic,PEIP Focal Point, Ministry of Spatial Planning and Environmental Protection;Snezana Didanovic, Advisor, Ministry of Spatial Planning and EnvironmentalProtection; Igor Jovanovic, Advisor, Ministry of Spatial Planning and Environ-mental Protection; Borko Raicevic, Advisor on energy efficiency, Ministry ofEconomy; Dragan Darmanovic,Head of Department for Debt and Cash FlowManagement, Ministry of Finance;Dragana Dukic, Independent Advisor to theMinistry of Agriculture, Forestry and Water Management; Vera Vujosevic, Co-ordinator of theUnit for Communal Activities, Ministry for Spatial Planning andEnvironmental Protection



SerbiaAleksandar Vesic, PEIP Focal Point, Assistant Minister, Sector for Planning andManagement,Ministry of Environment and Spatial Planning;Nebojsa Pokimica,Head of Project Management Department, Sector for Planning andManagement,Ministry of Environment and Spatial Planning; Sava Sladic, Advisor, Sector forPlanning andManagement, Ministry of Environment and Spatial Planning;TanjaPetrovic,Advisor, Sector for Planning andManagement,Ministry of Environmentand Spatial Planning; Biljana Blazevic Zec, Advisor, Project Planning and Deve-lopmentDepartment, Environment Protection Fund;DraganaMilovanovic,Headof Department for Strategic Planning andManagement and International Coope-ration in theWater Sector,WaterDirectorate,Ministry of Agriculture, Forestry andWaterManagement;Dmitar Zakula, Senior Advisor,Water Directorate,Ministryof Agriculture, Forestry and Water Management; Paul Dax, Public Administra-tion/Institutional Expert, Municipal Infrastructure Support Programme




The countries of South Eastern Europe (SEE) face a number of environmentalproblems,mainly in the area of water pollution due to the uncontrolled discharge ofuntreated communal and industrial wastewaters into rivers, lakes and seas, and un-controlled waste disposal that often poses a threat to drinking water sources. Invest-ing in environmental infrastructure is an important way to address the problem ofpollution from point sources in order to improve environmental conditions in SEE.During the process of accession to the European Union (EU), extensive work willneed to be done to adapt legal, institutional and financial systems to the requirementsof the environmental acquis. Environmental infrastructure is an important area thatneeds improvement and significant capital investments. The institutions associatedwith environmental investments also require reorganisation and strengthening.

The aim of the present publication is to provide an overview of developmentsin environmental infrastructure investments in the water and waste sectors in theSEE region in relation to the major investment-heavy directives. The book ad-dresses economic, financial and legal issues but also covers other important aspectsof environmental investments such as the enforcement of key EU directives, insti-tutional capacity and international assistance.

The publication draws on the experiences gathered through the Priority Envi-ronmental Investment Programme for South Eastern Europe (PEIP), implementedbetween 2001 and 2009, and on the accumulated knowledge and lessons learnedin the framework of this programme.Work carried out within the PEIP is thus themain source of information, in addition to three regional surveys (one in 2008 andtwo in 2009) onwater andwaste. Desk researchwas also carried out to complementthis accumulated information.

The 2005 RECpublicationTargeting the Environmental Investment Challengein South Eastern Europe covered the period 2001 to 2005. The present publica-tion, which focuses mainly on developments since 2005, is the third in a series ofpublications released by the REC in 2009. The two preceding publications areStrategies for Reform: AManual for Water Utilities in SEE and Speeding up Invest-ments in theWaste Sector: AManual for Waste Utilities in SEE.

Since 2005, significant and dynamic changes have taken place in SEE, includingprogress in the legislative and strategic framework, utility reforms, and efforts towardsEU accession. The authors have attempted to map and analyse such changes in areasthat have a bearing on environmental financing. The publication also highlights pos-itive results in the region, while not disregarding areas that need improvement.


Executive summary

It is hoped that this publication will be of use in the future development of envi-ronmental investments in the SEE region through its analysis of key national and re-gional constraints to environmental investments. It proposes a strategic and coherentprocess for planning and developing environmental infrastructure projects; maps ob-stacles andbottlenecks to environmental infrastructure development; and,where pos-sible, recommends ways to overcome them. The SEE region is to be understood hereas covering Albania, Bosnia and Herzegovina, Croatia, Kosovo (as defined underUNSCR1244), the formerYugoslavRepublic ofMacedonia,Montenegro andSerbia.

An overview of each country’s economic situation and approximation status isprovided, based on the premise that environmental investments do not happen inisolation but are part of a wider system. The status of environmental infrastructurein SEE is reviewed, as is the status of the utilities and of utility reforms.

The thematic focus of the book is water andwaste, as themajority of public in-vestments are concentrated in these sectors. Since air falls mainly under the Inte-grated Pollution Prevention and Control (IPPC) and Large Combustion Plants(LCP)Directives and is, to a large extent, the responsibility of the private sector orof individual state-owned companies, it is not examined extensively. However, theimportance of investments in air is acknowledged, and many of the conclusionsand recommendations are equally valid for the air sector.

Although this publication focuses on the construction of environmental infra-structure, this should not be considered as a remedy for all environmental problemsin the region. Environmental problems should be considered from the broader per-spective of sustainable development, taking into account the economic and social sit-uation of the countries of the region. In a context inwhich the polluter pays principlewould burden citizens with additional financial contributions, it is essential to con-sider poverty levels and the social aspects of infrastructure development.

The possibilities for minimising the need to develop environmental infra-structure by identifying alternative solutions also need to be discussed. For exam-ple, by cutting down on the use of resources (efficient water use, waste prevention,recycling and energy efficiency), improving inefficient systems (reducing leakagesfrom water supply systems and improving maintenance) and improving industrialtechnologies, infrastructure needs can be optimised.

The main findings in each chapter are presented below, including recommen-dations for the way forward. Some conclusions present a level of generalisationthat, in some cases, does not fully take into consideration national differences andspecificities. The authors have tried, as far as possible, to refrain from conclusionsthat are too general and to point out national differences where they exist.

The role of the Priority EnvironmentalInvestment Programme

The PEIP has facilitated a process of strategic environmental investment plan-ning by national environmental authorities through identifying and prioritisingnecessary and relevant projects. The programme has provided valuable informa-

E X ECUT I V E SUMMARY


tion to the donor community on environmental and institutional needs and pri-orities and on the status of environmental investment planning in the region.

During the 2007–2009 period, the PEIP has maintained lists of priority proj-ects; organised nine national workshops and four regional meetings; and draftedmanuals on water reform and waste sector investments. Managing a pipeline ofprojects was part of continuing efforts to make available the most up-to-date in-formation on projects selected as priorities by the governments. The regionalmeet-ings were intended to provide an overview of progress in the different countries interms of environmental investments, but also to attract donors and IFIs and to drawtheir attention to the issue. The national workshops were an opportunity to havein-depth discussions on a selected topic (water or waste), to attract a wide range ofstakeholders, and to initiate a productive debate and exchange of experience. Themanuals are targeted at all water and waste utilities in the region but are also of in-terest to policy makers. They are intended to serve as a source of reference beyondthe duration of the project.

At the start of the PEIP in 2001, the SEE countries lacked experience in strate-gic planning and the prioritisation of environmental investments projects, as wellas knowledge of available sources of funding. Through the activities outlined above,and by serving as an information exchange platform, the PEIP has contributed tofilling this gap and to raising awareness. While significant progress has beenachieved in priority project identification and project preparation, there is still aneed for improvement. These issues will continue to be addressed under the Re-gional Environmental Network for Accession (RENA).

Status of environmental infrastructure in SEEThe condition of the physical environmental infrastructure varies among SEE

countries, Croatia being ahead of the other countries in the region especially in re-lation towastewater treatment infrastructure.However, there is a bigmargin for im-provement in all countries and significant financial resources will be required formany years to come.

Water supply infrastructure in SEE is relatively developed in urban areas, whilesewerage, wastewater treatment and waste management infrastructure are far lessdeveloped and in a poorer physical condition. The situation is worst in rural areasand efforts should bemade to integrate the whole territory of each country in watersupply systems. Proper waste management is a health and environment issue thatshould be tackled as a priority.Wastewater treatment is a huge challenge that needsto be addressed with careful planning and prioritisation.

Common problems facing the water sector in SEE countries include the rela-tively low level of drinking water supply in rural areas; big water losses due to age-ing infrastructure; and significant unaccounted-for water (UfW). These problemsneed to be addressed as part of holistic national water reforms, including the reformof the water utilities comprising regionalisation, corporatisation and other suitablemeasures that will lead to them operating according to more market-based princi-



ples. Creating conditions for private sector participation is one of the ways to in-crease access to capital and to introduce much-needed know-how.

Wastemanagement infrastructure in SEE is inadequate and there are only a fewlandfills in the region that comply with EU regulations. There are also a huge num-ber of illegal dumpsites or landfills with low standards. Urban areas in the SEE re-gion are relatively well covered by waste collection and transportation services,unlike rural areas. At the same time, there is and will be pressure to change the sit-uation fundamentally as a number of EU directives stipulate the establishment ofintegratedwastemanagement systems, including separate collection, recycling, san-itary landfills etc. All the SEE countries are on the right track in this respect as theyhave all adopted the more economically justifiable regional approach. However,the big challenge will be to implement it in practice in the coming years.

Bosnia andHerzegovina, Croatia and Serbia havemade the biggest progress inproject preparation for regional sanitary landfills, while Croatia and Kosovo (asdefined underUNSCR 1244) have been successful in closing and remediating thebiggest number of non-sanitary landfills. Closing and remediating old illegal dump-sites is a precondition for establishing new waste management centres.

Challenges to environmental financingin SEE on the national level

Financing environmental infrastructure projects in compliance with the EUenvironmental acquis requires the establishment of a clear legal and strategic frame-work and the reform of institutional and financial systems. The process necessi-tates strong and persistent political will. At the same time, it is of the utmostimportance for governments to realise the political and financial opportunities pre-sented to the countries during the pre-accession period and to capitalise on them.Political will for accession is currently relatively strong and many financial oppor-tunities are available.

The global economic recession has led to further constraints on the financial sit-uation in the SEE region and has affected investments in environmental infra-structure, with some infrastructure projects having to be suspended. However, thecrisis is also an opportunity to carry out reforms that are less resource consuming.

In relation to affordability, inmany cases large-scale infrastructure investmentsare not attractive due to the long payback periods and other constraints. It is there-fore very important to make intelligent use of the resources available from the ECand other bilateral donors in order to address the affordability issue.

The full transposition of the investment-heavy directives is an important driverfor environmental infrastructure projects as it will place a legal burden on nationaland local governments to create the necessary conditions for investments to takeplace. The lack of key sectoral and environmental investment strategies delays en-vironmental investments, since strategies set the framework and direction for fol-low-up laws and regulations. This is also valid for local management plans. One ofthe benefits of drafting strategies and plans through wide stakeholder dialogue is



that different interests are taken into account at an early stage and support can beattracted for future actions. National strategic frameworks should therefore be fi-nalised as early as possible.

The insufficient level of enforcement of environmental legislation in SEE coun-tries represents an obstacle to the proper functioning of environmental infrastruc-ture investments. The capacity of the inspectorates is weak and there is no realculture of compliance; the link between the inspectorates and lineministries is notalways strong, nor is the connection between the inspectorates and the prosecution.

The current capacity of the environmental ministries may prove to be insuffi-cient for the administration of all future environmental requirements. However,there is pressure fromministries of finance to minimise increases in staff numbers.

Challenges to environmental financingin SEE at the local level

Local governments struggle with a multitude of competing funding priorities,some of which are more visible and tangible than environmental priorities and, assuch, more likely to be placed high on the political agenda.While legal pressure istherefore needed for the implementation of environmental obligations, at the sametime local governments need assistance in project preparation, improved aware-ness, and better access to funding.

There is an imbalance between the obligations devolved to the municipalitiesas a result of decentralisation, and their financial and human resource capacities tomanage these obligations. Intensive efforts are therefore needed to assist local gov-ernments to understand environmental infrastructure investments in the contextof a market economy, including issues of social affordability, cost recovery, depre-ciation, and the appropriate use of subsidies.

Local governments and their associated bodies generally lack adequate skills toprepare investment projects and to oversee and cooperate with expert consultantsin project preparation. They often have a limited knowledge of possible sources offinancing and lack understanding of their specific rules and requirements.

Water and waste utilities in SEE are highly fragmented and there is a low levelof cooperation between municipalities. At the same time there are (and will be)economic pressures to achieve economies of scale. Targetedwork is needed on a na-tional level to improve the culture of cooperation and to assist local governmentsin establishing regional bodies legally, administratively and financially.

Economic development in SEEThe transition to amarket-based economy began after 2000 and has been slow,

which has had a profound impact on the region’s competitiveness and foreign in-vestment flows. There has been strong economic growth in SEE countries, sus-tained at between 4 and 8 percent between 2004 and 2008. Levels of GDP (PPP)



range from USD 2,600 in Kosovo (as defined under UNSCR 1244) to USD16,500 in Croatia. However, due to the economic recession, economic activity inSEE contracted sharply in the second half of 2008 as a result of reduced foreign di-rect investment, lower demand for exports, and less cross-border lending.

In Albania, Croatia, Montenegro and Serbia, the unemployment rate in 2008ranged between 11 and 14 percent, while in the former Yugoslav Republic ofMace-donia it was around 33 percent and in Kosovo (as defined under UNSCR 1244)and Bosnia andHerzegovina it was approximately 40 percent. Unemployment lev-els have a direct impact on affordability and willingness to pay for environmentalinfrastructure services.

The region’s mid-term macroeconomic outlook remains favourable but is de-pendent on the maintenance of internal and regional stability, the continuation ofstructural reforms,market liberalisation, infrastructure restructuring andprivatisation.

EU accessionThe countries of SEE have moved closer to EUmembership in recent years as

the region has, to varying degrees, made progress in reforms and inmeeting the cri-teria and conditions established under the Stabilisation and Association Process.For SEE countries, future EU accession is the strongest driver for reforms and is ahigh priority on national agendas. The pre-accession period provides a unique win-dow of opportunity for reforms. It is a chance to develop human capacities and toconsolidate and strengthen institutions in order to increase their ability to imple-ment the EU environmental acquis.

Lessons learnt fromCEE show that early emphasis shouldbe given to institutionaland administrative reform, and that rushed and insufficiently coordinated transposi-tionmay lead to non-integrated, unclear, complicated and poor-quality legislation.

Relevant EU policies and related investmentsThe implementation of environmental legislation, and especially of certain in-

vestment-heavy directives, requires significant efforts for the upgrading and con-struction of new environmental facilities in the water andwaste sectors, which willentail significant public and private costs representing more than 2 to 3 percent ofthe countries’ GDP.On the other hand, compliance will eventually lead to a rangeof benefits linked to improved health and better living environments.

Experiences from the EU-10 have shown that certain environmental invest-ments will be particularly costly to implement. In the waste sector, the following di-rectives pose a significant financial challenge for the public sector:• Waste Framework Directive (2008/98/EC)• Landfill Directive (1999/31/EC)• Incineration Directive (2000/76/EC)



• HazardousWaste Directive (91/689/EEC)• Sewage Sludge Directive (86/278/EEC)

The EU waste policy is based on the waste hierarchy: the options range fromprevention, as the most favourable, to the least favourable, landfilling. The newWaste Framework Directive (2008) completes the EU waste policy framework.TheWaste FrameworkDirective is not associated with significant capital costs butrather with the provision of an adequate institutional structure, the establishmentof competent authorities and the preparation of waste management plans. Thehighest costs are incurred in relation to the waste stream–related directives and theLandfill Directive.

Among thewater-relateddirectives, the following require theheaviest investments:• DrinkingWater Directive (98/83/EC)• UrbanWasteWater Treatment Directive (91/271/EEC)• Dangerous Substances inWater Directive (2006/11/EC)• Nitrates Directive (91/676/EEC)• BathingWater Directive (2006/7/EC)

The biggest investment implications in water in SEE are associated with theDrinkingWater and UrbanWasteWater Treatment Directives.

In the air sector, thenewDirectiveonAmbientAirQuality andCleanerAir forEu-rope (2008/50/EC)mergesmost of the existing legislation into a single directivewithno change to existing air quality objectives. Themain public investment in air is asso-ciatedwith establishing a network ofmonitoring equipment, while significant privateinvestments will be needed for the implementation of the IPPC andLCPDirectives.

Development, transposition and enforcementof national environmental legislation

The SEE countries have made significant progress in drafting and adoptingnew laws and strategies in accordance with the EU environmental acquis, but de-spite the progress achieved, considerable efforts are still needed to meet the re-quirements of the EU environmental acquis. Transposition and implementationof EU environmental legislation is a precondition for unblocking environmen-tal investments in SEE countries.

The enforcement of EU water and waste legislation is as important for un-blocking environmental infrastructure investments as the adoption and transposi-tion of targeted, quality laws and regulations.

There is currently a low level of awareness among citizens and businesses of theimportanceof compliancewith environmental legislation and, evenmore importantly,of its benefits.There should therefore beongoing efforts to introduce awidespread cul-ture of compliance and an understanding of its benefits for companies and citizens.



The inspection culture in SEE focuses predominantly on punishment for in-fringements rather than on prevention, education and dialogue. The reform of theinspectorates should therefore introduce inspection practices that are based ongreater dialogue and cooperation.

The current capacity of the inspectorates in terms of numbers, knowledge andequipment is relatively weak. The environmental expertise of the police, prosecu-tion and courts is also weak. The reform of environmental inspection is an integralpart of a wider regulatory and judicial reform. There is a need to strengthen all as-pects of the functioning of the inspectorates and to separate the enforcement andregulatory functions of the administration.

Companies lack strongmonitoring and reporting systems, which decreases theefficiency of inspectors’ work. Increased efforts in this direction will improve self-monitoring practices and facilitate the work of the inspectorates.

Institutions for the environmentThe current capacities of environmental institutions (ministries, agencies etc.)

may prove to be insufficient for the administration of all the requirements of theacquis. The experience of the new member states (EU-10) has shown the impor-tance of proper human resources planning for institutions at central and local gov-ernment level in line with the newly acquired environmental obligations.

Environmental institutions in SEE countries often suffer from a high level offragmentation and lack good systems for horizontal and vertical communication.This leads to unclear competencies and responsibilities. There is a low level of trans-parency and accountability in institutions’ operations at national and local levels.As the environmental acquis requires increased levels of cooperation among insti-tutions, communication and coordination systems need to be set up in a timelymanner in order to optimise funds and improve institutional efficiency.

Environmental funds are only one of the options for addressing institutionaldeficiencies. However, their success is dependent on the principles of trans-parency, autonomy and accountability, and governments must abide by theseprinciples if they decide to go for this institutional option. The work of anybody/department dealing with environmental investments should be based onsimilar principles in order to increase public trust in a context of limited fundsand competing projects.

Water and waste utilities in SEE:Status and reform

As a result of the decentralisation process, responsibility for water, solid wasteand sewage treatment services now falls on the lowest self-governing municipallevel. Local governments and the utilities that belong to them have found them-selves unprepared for the new tasks and increased obligations.



Among the problems faced by water and waste utilities in SEE are low tariffsand bill payment rates; overstaffing; and the absence of sound organisational man-agement inherited from the past. This creates a situation in which full cost recov-ery becomes difficult to achieve. In addition, there is a high level of fragmentationin utilities throughout the region. There have been no significant efforts to reor-ganise public utilities into more efficient organisations operating according tosound economic principles. The political independence of the utilities, their humanresources capacity, organisational set-up and financial health are preconditions forsuccessful investments. Significant efforts should therefore be made to restructureutilities in line with modern organisational and management practices.

The benchmarking and self-assessment of public utility companies (PUCs) inorder to improve their operational efficiency has proved to be beneficial. However,these are only one source of pressure for change and reform and need to be ac-companied by a holistic national strategy.

Domestic sources of financingenvironmental investments

Public (state, county,municipal etc.) budgets, although insufficient inmost cases,have an essential role in financing rehabilitation and capital investments in environ-mental infrastructure. They have an important role in indicating priorities and pro-viding co-financing to EU, IFI and bilateral donors’ loans and grants. Governmentsshould therefore aim to optimise the use of national funds in terms of constructingnew high-priority environmental infrastructure and providing co-financing.

The coordination of environmental financing flows at national level is of pri-mary importance to ensure the complementarity of financing and to stimulate co-operation between the relevantministries. Eventually, governments canmake betteruse of funds by avoiding overlapping, by not funding low-priority projects and bynot using funds for political purposes.

The countries of SEE are slowly increasing the proportion of environment-re-lated expenditure and are approaching the respective levels of the newmember states.However, funds are insufficient to cover all the expenditures needed. Governmentsmay set as benchmarks the levels of national spending on environment in the newmember states and slowly increase their budgetary allocations to these levels.

International financial assistanceFinancial assistance through the Instrument for Pre-accession Assistance

(IPA) is given to support the countries to introduce the necessary political, eco-nomic and institutional reforms in line with EU standards. Under the EU IPA,which replaces previous pre-accession mechanisms, special emphasis is given toinstitution building, strengthening capacities and structures for the managementof pre-structural funds, and financing infrastructure investments. A key challenge



in the implementation of the IPA is the countries’ capacity to absorb funds —that is, to set up the necessary institutions; to prepare the required project doc-umentation, including feasibility studies; and to provide co-financing. Thestaffing and administrative capacities of project proponents are often inadequate,and in some cases the number of employees involved in project preparation, andtheir expertise, have been underestimated.

Assistance from international bilateral donors plays an important role in know-how transfer, institutional strengthening, capacity building and the co-financing ofinfrastructure projects. Funding from IFIs is also significant due to its favourableterms. Governments would benefit from having clear strategies on how to com-bine all the available sources of funding. One way to do this is by drafting nationalenvironmental investment strategies that are closely linked to, or that are an inte-gral part of, their approximation strategies.

Project preparation facilitiesProject preparation facilities are used by the EC and IFIs to fund technical as-

sistance for the preparation of a pipeline of sound infrastructure projects and topromote them to financers. The activities of the Environmental Project PreparationFacility (EPPF) have had a significant beneficial impact on project proponents byensuring high-quality pre-feasibility and feasibility studies, and subsequently astrong project pipeline for future funding. The Infrastructure Project Facility (IPF)supports infrastructure project preparation and builds project pipelines in the en-ergy, transport, environment and social sectors.

In 2008, the EC and partner IFIs initiated the Western Balkans InvestmentFramework (WBIF) to be launched by 2010. The WBIF will, in addition to in-frastructure, provide support to investments in other sectors, such as the privatesector (including SMEs) and energy efficiency.

Regional cooperation frameworksRegional cooperation is essential for peace and stability in the SEE region. It is

also a tool and a prerequisite for moving towards EU integration; tackling trans-boundary environmental pollution and infrastructure development; and creatinga fruitful climate for investments in SEE. Regional cooperation creates an oppor-tunity for the cross-border sharing of knowledge and good practice. Donors andIFIs often have a regional approach to programming, which expands the invest-ment market thus making it more interesting for investments.

Prioritisation of infrastructure projectsBuilding lists of projects that present a harmonised approach to investment

planning in SEE countries has been a cornerstone of the PEIP. The absence of such



an approachwas a significant barrier that prevented the donor community fromde-livering targeted environmental assistance. Developing and updating the PEIP listsof priority projects has been amajor learning exercise for SEE countries. However,for many of the projects it is still difficult to obtain adequate data. Those projectsthat havemademore rapid progress have had good-quality project documentationfrom the outset, prepared with the active participation of PUC staff.

At the national level, strong project preparation units are a driving force, asdemonstrated in Croatia, Montenegro and Serbia. This is an additional argumentfor strengthening project preparation capacities at national and local levels. TheIPA application process provided capacity building for project preparation at bothlocal and national level. The proper inclusion of stakeholders from the beginningof the process ensured that any potential problems in relation to location or simi-lar issues were resolved in time.

Looking at the status of environmental infrastructure in the region, the need forimprovement is evident. Bearing in mind the aim to improve environmental stan-dards in SEE through the effective implementation of environmental infrastruc-ture, the assistance provided under the PEIP has facilitated project preparation andthe financing of identified projects. The PEIP lists contain 121 projects — 48 inthe waste sector and 68 in the water sector. Five air projects remain on the list. Dur-ing the PEIP 2007–2009 period, 15 projects were fully financed and were thus re-moved from the list, totalling investments of approximately EUR 314 million. Ifprojects that have received sufficient funding to enter the implementation phase areincluded, the investments allocated amount to EUR 435.5 million. Implementa-tion of the projects on the lists will improve the environmental situation in the SEEregion and will also lead to the implementation of the key EU investments.

ConclusionsFor SEE countries, future EU accession is the strongest driver for reform and is a

highpriority onnational agendas.Thepre-accessionperiodprovides a uniquewindowof opportunity for establishing a framework fruitful for reform, including the devel-opment of environmental investment projects.During this period, politicalwill in thecountries is relatively strong, and the available financial support and technical assis-tancepresent opportunities todevelophumancapacity and consolidate and strengtheninstitutions to increase their ability to implement the EU environmental acquis.

In recent years, SEE countries have made progress in relation to the financingof environmental investment projects and in drafting and adopting new laws andstrategies in accordance with the EU environmental acquis. However, despite theprogress achieved, considerable efforts are still needed to meet the requirementsof the EU environmental acquis.

The current capacities of environmental institutions at both national and locallevels are generally low and often insufficient to fulfil the requirements of the EUacquis. Building the capacities of environmental institutions and of local consult-ants is critical for creating efficient processes and for successfully developing and fi-



nancing environmental investment projects. Capacities need to be built in the en-forcement of legislation, project identification and preparation, and pre-feasibil-ity and feasibility studies.

In order to bridge the huge gap between the available funds and the funds re-quired for the necessary investments, advantage must be taken of all the availablesources of funding. In a context of limited budgets, it is critical to streamline avail-able resources in order to achieve efficient financing. Prioritising projects and pre-senting a strategic and consolidated approach towards investment planning are keytasks for SEE countries. Developing environmental investment strategies will fa-cilitate the efficient and coordinated financing of environmental projects.



ObjectivesAmong the many pressures on the environment in South Eastern Europe (SEE)

are the lack, or the inefficient operation, of environmental infrastructure in thewaterand waste sectors. The main purpose of this publication is therefore to provide anoverview of environmental infrastructure investments in SEE that are linked to theimplementation of the major heavy-investment EUwater and waste directives.

The publication relies extensively on the Priority Environmental InvestmentProgramme for South Eastern Europe (PEIP), implemented over the period 2001to 2009, and draws on the accumulated knowledge and on lessons learned in theframework of the programme.

Since the 2005RECpublicationTargeting the Environmental Investment Chal-lenge in SEE, there have been significant changes in the region resulting fromprogress in the legislative and strategic frameworks; utility reforms; and efforts to-wards joining the European Union. Overall, there is sustained political commit-ment to the transposition and implementation of the environmental acquis.However, this is not always backed up by the necessary financial, administrativeand institutional support. The present publication attempts to map and analysechanges in the legal and institutional environment that have a bearing on environ-mental financing. It also highlights positive examples in the region of the financ-ing of environmental infrastructure.

The ultimate objective of the publication is to contribute to the future devel-opment of environmental investments in the SEE region. It proposes a strategicand coherent approach to planning and developing environmental infrastructureprojects, identifying obstacles and bottlenecks and, where possible, recommendingways to overcome them.

This publication:• analyses the key national and regional constraints and challenges to environ-

mental investments;• presents progress made in national environmental policy since the REC’s 2005

publication;• highlights macroeconomic indicators for SEE in order to illustrate the region’s

potential for creating favourable conditions for environmental infrastructuredevelopment and financing;


Introduction

• emphasises the implications of the key EU directives related to infrastructureinvestments;

• illustrates country funding needs in relation to compliance with EUdirectives;• briefly presents enforcement-related problems;• provides an overview of institutional challenges to the countries in connection

with environmental investments;• reviews the status of environmental infrastructure in SEE, as well as the status

of utility reforms;• reviews levels of expenditure fromnational budgets, IFIs andbilateral donors; and• presents the updated lists of priority environmental infrastructure investment

projects.

TargetThis publication will primarily be of interest to:• decision makers responsible for strategic environmental investment planning

in SEE, as a supportive tool presenting the regional context of investmentplanning;

• donors and IFIs, for whom it can be an important tool to support the design oftheir assistance programmes for the SEE region; and

• all other stakeholders interested in developing environmental infrastructureinvestment projects.

ScopeThe present publication covers South Eastern Europe — that is, Albania,

Bosnia and Herzegovina, Croatia, Kosovo (as defined under UNSCR 1244), theformer Yugoslav Republic ofMacedonia,Montenegro and Serbia. All references toKosovo in the text are understood as the territory defined under UNSCR 1244.Any abbreviations of the names of these countries in the text and tables are used forpresentation purposes only and should always be understood as indicating the fullnames of the countries. Lessons learned from the new EUmember states (EU-10),which joined in 2004, as well as fromBulgaria andRomania, which joined in 2007,are used in the text where relevant.

The publication focuses on the period between 2005 and August 2009. Theinformation presented has been distributed for consultation to a wide group ofstakeholders, including focal points of SEE ministries of environment, in order toensure that the information included is correct and up to date.

The authors have concentrated on major public environmental infrastructureinvestments in the water and waste sectors, since this was the focus of the PEIP be-tween 2007 and 2009. Themajority of air-related investments fall within the scope

I N TRODUCT ION


of the Integrated Pollution Prevention and Control (IPPC) Directive and theLarge Combustion Plants (LCP) Directive. They are primarily the responsibilityof the private sector or of individual state-owned companies and are not thereforea priority within the PEIP. References to other sectors are included only in orderto provide a broader context.

In this context, environmental infrastructure investment projects are under-stood as projects that require significant financial resources and time to complete.Examples include infrastructure for the provision of systems and services such asdrinking water supply, sewage treatment or waste management leading to compli-ance with EU environmental directives.

The publication gives priority to describing projects that have a regional (SEE)impact on the environment.Wherever generic comments aremade on infrastructuredevelopment, they are of relevance to both urban and rural infrastructure develop-ment.Nevertheless, the focus of the analyses is on urban infrastructure development.

Targeting the environmental investment challenge means addressing all stagesof project cyclemanagement.However, the present publication focuses on the earlystages of project cyclemanagement, such as programming and project preparation.The experience of the new EU member states illustrates how mistakes during theearly stages of project cycle management can significantly reduce the chances ofcompleting a project successfully. With this in mind, particular emphasis is givenhere to project cycle management up to the point at which funds are secured forproject implementation. Later aspects of project cycle management are also men-tioned but are not analysed in detail.

Methodological approachSources of information

In drafting the present publication, the following main sources of informa-tion were used:• Related reports and publications on the situation in SEE and CEE.• Two regional surveys linked to the drafting of the PEIP water and waste man-

uals. The surveys were prepared by the PEIP team in summer 2008 (water) andspring 2009 (waste) and circulated to relevantministry officials and national au-thorities in the water and waste sectors. The information was cross-checkedagainst the available national strategic documents by the REC country officesin the SEE countries.

• An additional survey carried out in all SEE countries in August 2009 for thepresent publication. Like the surveys carried out for the manuals, this surveywas circulated to national authorities and the information provided waschecked against national strategic documents in the relevant sectors.

• Desk research on the experiences of new EU member states and candidatecountries in relation to the preparation and implementation of infrastructureinvestment projects.

I N TRODUCT ION


• Lessons learned from the REC’s work under the PEIP, includingmaterials fromanalytical country reports, national workshops and regional meetings.

• Lessons learned from the REC’s work on other key projects related to envi-ronmental investments and environmental institutions.

Structure of the publication• InChapter 1, the role played by the PEIP in the field of environmental infra-

structure investments in SEE is described. During the past eight years, the PEIPhas provided a framework for numerous activities in the region, and as such de-fines the structure of this publication.

• The status of environmental infrastructure has a direct bearing on the size of theinvestment challenge. The analysis of this area inChapter 2 indicates how farcountries are from full implementation of respective directives.

• The authors have identified key constraints and challenges to investments andhave linked themwith potential responses inChapter 3. Challenges are dividedbetween national andmunicipal, as they are quite different in nature. Political,economic, financial, legal, institutional, planning and project preparation chal-lenges are also discussed.

• In Chapter 4, the economic situation is analysed in order to define the widerframework for environmental investments. The state of the economy and ofthe national budget have a direct implication for all investments, including en-vironmental infrastructure investments. Some of the main obstacles and bene-fits in the countries’ progress towards EU integration are outlined and the statusof each country with respect to EU accession is presented. Investment-heavydirectives are explicitlymentioned as they represent the legal basis and themainpressure for investments in environmental infrastructure. National environ-mental investment needs are presented in order to obtain an idea of the scopeof the problem and to be able to compare the needs against the available fund-ing from different sources.

• The legal and strategic framework of the SEE countries is explored inChapter 5in order to gauge the speed of transposition and the completeness of the legalframework. This is an indication of the political will in the country as well as ofthe legal pressure to undertake reforms. Enforcement is a critical aspect that hasvery often been a stumbling block in countries that havemade excellent progressin transposition. The legal pressure to carry out environmental infrastructure in-vestments will be effective only if there is a high level of compliance through arobust enforcement system.National institutions are of key importance in carry-ing out environmental investments. An analysis of such institutions illustrates theextent to which one of the main bottlenecks to investments has been removed.

• The status of utilities and of utility reforms is directly correlated to their readi-ness to attract investments in water and waste. This is even more important intimes of economic crisis, as explained inChapter 6.

I N TRODUCT ION


• As described in Chapter 7, domestic expenditure is one of the pillars of fi-nancing environmental infrastructure investment. The level of expenditureis an indication of national commitment and the relative priority that thegovernment attaches to the issue. International financial assistance is the othermajor source of funding for environmental infrastructure. Investigating trendsand major figures provides an indication of the relative importance of thissource and of donors’ priorities. The European Commission has designed andimplemented several project preparation facilities that are making a signifi-cant contribution to meeting project preparation needs in SEE. Regional co-operation frameworks also play an important role in stimulating investmentsand sharing good practice.

• One of the main deliverables of the PEIP are the lists of priority projects. Theanalysis of their dynamics inChapter 8 provides an insight into the speed of fi-nancing and the changing of priorities.

• This book has a practical character in that the challenges outlined are associatedwith potential responses. Chapter 9 presents the main findings of the PEIPand provides recommendations for developing the environmental investmentsneeded in the SEE region.

Other considerationsAlthough this publication focuses on constructing environmental infrastruc-

ture, this cannot be considered a remedy for all environmental problems in the re-gion. Viewed from the broader perspective of sustainable development, theeconomic and social situation of the countries of the regionmust be taken into ac-count when addressing environmental problems. As the application of the polluterpays principle would burden citizens with additional financial contributions, it isimportant to take into consideration poverty levels and the social aspects of de-veloping infrastructure.

Although the conclusions and recommendations for the future presented inthis publication focus on developing environmental infrastructure in the SEE re-gion, minimising the need to develop such infrastructure by identifying alterna-tive solutions should also be discussed. For example, by minimising the use ofresources (efficient water use, waste prevention, recycling, and energy efficiency);improving inefficient systems (reducing leakages from water supply systems andimproving maintenance); or developing industrial technologies, the need for in-frastructure can be optimised. Nevertheless, environmental infrastructure is sorelyneeded in the SEE region in order to improve environmental conditions.

Public versus private financingThe publication does not discriminate between different sources of financ-

ing and considers increased and targeted domestic spending to be as importantas funding from the EC, loans from IFIs and other commercial banks, or bilat-

I N TRODUCT ION


eral donor support. These sources of funding are complementary and each hasa niche. It is up to the national governments to adopt the right strategic ap-proach and create the optimal financial mix.

LimitationsWhile developing the publication, themain limitationwas the availability of re-

liable official data and reports. Relevant ministries in the SEE countries and otherstakeholders were given the opportunity to review and approve the data presented.The authors have done their best to avoid factual mistakes, although in such a rap-idly evolving situation minor errors may have been overlooked.

Some of the conclusions present a level of generalisation that, in some cases,does not fully take into consideration national differences and specificities. Theauthors have tried, as far as possible, to refrain from conclusions that are too gen-eral and to point out national differences where they exist.

I N TRODUCT ION



Chapter 1The role of the

Priority Environmental InvestmentProgramme for SEE


IntroductionThe PEIP was funded by the European Commission Community Assistance

for Reconstruction, Development and Stabilisation (CARDS) regional pro-gramme. The PEIP was implemented in three periods: 2001 to 2002; 2003 to2005; and 2007 to 2009. The overall objective of the programme was to reducepressure on the environment in the SEE region through assistance to national gov-ernments and municipal authorities in planning strategic environmental invest-ments, preparing environmental investment projects, and identifying donors forthe realisation of projects in the air, water and waste sectors.

Through the Stabilisation and Association Process (SAP), SEE countries aremoving towards the harmonisation of national legislation with the EU environ-mental acquis, and are implementing new legislation according to prescribed sched-ules. In the environmental sector, this requires serious capital investment intoinfrastructure. This presents a particular challenge for SEE countries as they lackreadily available investment capital and market-based financing mechanisms.

The nature of PEIP supportPEIP support to environmental investment planning

The programme facilitates a process of strategic environmental investment plan-ning by national environmental authorities through identifying and prioritisingnecessary and relevant projects and by providing institutional strengthening and ca-pacity building. The programme covers the air, water andwaste sectors, which rep-resent the priority environmental investment needs in the region. The programmealso provides valuable information1 to the donor community2, including:• background informationon environmental and institutional needs andpriorities;• the status of environmental investment planning in the region; and• a pipeline of priority environmental infrastructure projects in a strategic frame-

work (see Annex 5).

The PEIP approachThe PEIP methodology included projects prioritised according to regionally

agreed criteria for SEE. This has enabled a long-term process of compliance withthe EU acquis and of environmental improvement in the region by providing a re-gional framework for investment planning and good practices. The programme in-troduced a multi-stakeholder approach to investment planning, involving all keyplayers. This regional approach is particularly important when looking at the con-tributions of the SEE region to European environmental pressures and, more gen-erally, to pressures on a global scale.


Components of PEIP assistanceThe assistance provided within the PEIP from 2001 focused on the following

objectives:• Identification and prioritisation of investment infrastructure projects, in line

with EU requirements.• Development of environmental infrastructure project concepts.• Provision of assistance to formulate environmental problems into bankable in-

vestment project proposals.• Facilitation of dialogue between project proponents and financing organisations.• Facilitation of exchanges of information and experiences between environ-

mental financing experts from SEE and other European countries.• Drafting of manuals on investments in the water and waste sectors.

Assistance provided by the PEIP teamAssistance provided in the period 2001 to 2002

Assistance provided to the ministries focused on:• identifying regional priority environmental sectors — agreed as the reduction

of sulphur-dioxide emissions; municipal waste generation and treatment, andsewage treatment;

• compiling a set of hotspots, comprising 143 locations withmultiple, priority en-vironmental problems; and

• analysing national environmental priorities, providing an overview of SEEcountries’ policy responses and their relation to the regional environmental pri-ority sectors and hotspots.

Development of the PEIP methodologyDuring this period the team developed a methodology for compiling lists of

priority environmental investment projects. The methodology included a systemof criteria, a project identification form, and a prioritisation exercise. As a result, 79high-priority projects were identified.

Assistance provided in the period 2003 to 2005The PEIP team targeted investment challenges while assisting the countries’

capacity-building efforts to:• identify investment projects in line with EU requirements;• formulate project concepts to bepresented to interested financial institutions; and• identify appropriate institutions willing to finance investment projects.

CHAPT ER 1THE ROL E OF THE PR IOR I T Y ENV I RONMENTAL INVE S TMENT PROGRAMME FOR S E E


Technical assistance provided in relation to institutional strengthening included:• analysing options for financing environmental investment projects in SEEandde-

veloping donor profiles to assist project proponents to identify financing sources;• analysing the status of environmental investment planning, thus providing de-

cision makers in the SEE region and donors with an overview of progressachieved in transposing key investment-heavy EU directives;

• developing a database of sites (hotspots) screened against the requirements ofselected key investment-heavy EU directives;

• formulating 33 project concepts in the water, air and waste sectors in line withkey investment-heavy EUdirectives in order to assist project proponents in the33 pilot hotspots to obtain donor financing;

• analysing critical conditions for developing bankable projects in the region; and• updating the lists of priority environmental investment projects.

Focus on capacity-building workshopsWithin the capacity-building activities of the PEIP between 2003 and 2005, six

regional workshops were held with the participation of project proponents fromthe selected 33 pilot hotspots in the air, water and waste sectors; sector expertsfrom theministries of environment; and representatives of international financinginstitutions and the donor community.

The first series of workshops took place during 2004 and focused on the de-velopment of environmental investment projects. The rationale of the workshopswas the increase in demand from SEE countries for environmental infrastructureinvestments that are in line with EU requirements. The workshops targeted theenvironmental investment challenge at both the national level (the need to ensurethat environmental investment planning complies with EU directives), and thelocal level (the challenge of formulating and developing individual investment proj-ects). The second series of workshops was held in 2005 and took the form of sep-arate workshops for the air, waste andwater sectors. These attempted to address theneeds formulated by participants by placing special emphasis on the setting of tar-iffs and on developing financially viable environmental investment projects.

Assistance provided in the period 2007 to 2009Between 2007 and 2009, activities from the previous periods were continued.

Further emphasis was given to capacity building and to updating the lists of prior-ity projects.

Seven national capacity-building workshops were held in 2008 and 2009. Theworkshops focused on the water and waste sectors in each beneficiary country andwere designed to strengthen the capacities of national and local authorities to realiseproposed investments; to provide information to donors and other relevant financialinstitutions about proposed environmental investment projectswithin thePEIP lists;



and to provide opportunity for direct dialogue and the exchange of information be-tween project proponents, donors, financial institutions and relevant authorities.

The updating of the lists of priority environmental investment projects was in-tensified during this period, being carried out twice annually in order to create a liv-ing, up-to-date document for the benefit of the countries and of the regionalcooperation framework using the lists.

The PEIP team continued their mission to SEE countries to promote the PEIPlists and to identify synergies between IFIs, regional cooperation facilities anddonors.

Two manuals were produced, targeted at waste and water utility companies inthe SEE region.

Publications within the PEIPThe present book follows a number of other publications produced within the

framework of the PEIP:Developing a Priority Environmental Investment Programme for South Eastern

Europe (2003)—This report introduced the PEIPmethodology and presented theresults of PEIP development up to 2003, including SEE regional environmentalpriorities and a list of priority environmental projects for the SEE region. The re-port lists conclusions and future actions needed to implement the PEIP.

Targeting the Environmental Investment Challenge in South Eastern Europe(2005)— This publication comprises a comprehensive analysis of the situation interms of environmental infrastructure in the SEE region up to December 2005. Itexplores the developments in environmental infrastructure investment projects inthe air, water andwaste sectors and provides recommendations for theway forward.

In 2009, two manuals were developed targeted at water and waste service util-ities in SEE countries: Strategies for Reform: AManual forWater Utilities in SouthEastern Europe (April 2009); and Speeding up Investments in the Waste Sector: AManual forWaste Utilities in South Eastern Europe (August 2009). Themanuals arebased on the premise that the capacity of the utilities is the main bottleneck to in-vestments in water andwaste infrastructure, rather than the availability of funding.The manuals cover the institutional reform of the water and waste utilities as wellas organisational reform, starting with better strategic planning and focusing onthe topics of human resourcesmanagement and options for cost savings. The otherside of the equation is also tackled through a discussion of methods for enhancingrevenues through suitable tariff designs.

A list of other relevant REC publications in the area of environmental infra-structure investments and financing is provided in Annex 4.

The role of the PEIPDuring the implementation of the programme there have been significant de-

velopments in the area of environmental investments in SEE countries. At the startof the programme, countries lacked experience in strategic planning and in priori-



tising investment projects. There was no comprehensive, coherent way of tacklingthe issue, and knowledge of available sources of funding was insufficient. Eightyears later, at the time of writing, countries have developed a far greater under-standing of the issue at all levels and the capacity of national authorities has sub-stantially increased. In the light of this development, the role of the PEIP can bedescribed as that of a catalyst.

Within the PEIP, the set of regional environmental priorities and the lists ofpriority projects were compiled at regional (SEE) level for the first time, based ona unifiedmethodology andwith the active participation of stakeholders. This uni-fied methodology, which was approved by the SEE countries, introduced a sys-tematic approach to investment planning that stressed the regional aspect ofenvironmental protection over political and historical divisions. It provided a soundbasis for long-term investment planning, especially in relation to the challengesarising from the Stabilisation and Association Process and the implementation ofEU requirements. The features of this approach are replicable and can be appliedin other regions or countries.

The PEIP has served as a vehicle for networking activities aimed at developingeffective mechanisms for identifying and implementing environmental initiatives.This process has been important for stimulating information exchange and coop-eration between SEE countries. The active involvement of stakeholders (SEEmin-istries of environment, the donor community, IFIs and NGOs) enabled dialoguethat facilitated the development and later implementation of projects, and pro-vided an opportunity to gather up-to-date information. Cooperation and synergieswere established with regional cooperation facilities such as the Regional Cooper-ation Council (RCC) and the newly launched Western Balkans Investment Co-ordination Platform (WBICP). The PEIP also provided a basis for the strategicplanning and investments component of the Regional EnvironmentalNetwork forAccession (RENA), to be launched in 2009. The PEIP lists have been taken upand used by several regional cooperation facilities and regional project preparationfacilities. They have been used as a mechanism for project identification by the In-frastructure Preparation Facility (IPF), and in the water sector they have providedinput to the Danube and Black Sea (DABLAS) priority list.

The programme has helped to build the capacity of stakeholders, especiallyministries of the environment. Training was provided on project cycle manage-ment, investment planning, priority setting, prioritising investment projects andidentifying investment programmes.

Theworkshops provided an opportunity for local project proponents, nationaldecision makers at the ministerial level and the donor community to clarify dif-fering requirements and expectations, as well as to exchange experiences in prepar-ing and financing investment projects. The workshops covered the requirementsand implications of the relevant EU environmental directives and provided infor-mation about available technical assistance and cooperation facilities. They alsoidentified further needs for the capacity building of project proponents, and of na-tional decisionmakers in particular, in relation to the preparation of bankable andfinancially viable projects.



In summary, the knowledge and capacities of national authorities improved sig-nificantly during the implementation of the PEIP. The success of the PEIP hasbeen linked to the determination on the part of the countries to achieve practicalresults. However, many gaps still remain and capacity is still lacking comparedto the challenges they face. Further efforts are therefore needed in this field, forexample to build capacities for the development and enforcement of economicinstruments, and to prepare bankable environmental investment projects. Experi-ences gathered in the course of programme implementation will be of great bene-fit to further work in this area.

General observations• The PEIP has facilitated a process of strategic environmental investment plan-

ning by national environmental authorities by identifying and prioritising nec-essary and relevant projects. The programme has provided valuable informationto the donor community on environmental and institutional needs and prior-ities, and on the status of environmental investment planning in the region.

• Between 2007 and 2009, the PEIPmaintained the lists of priority projects; or-ganised nine national workshops and four regional meetings; and draftedman-uals on water reform and waste investments.

• When the PEIPwas launched in 2001, SEE countries lacked experience in strate-gic planning and the prioritisation of environmental investment projects, andhad insufficient knowledge of available sources of funding. The PEIP has con-tributed to filling this gap and to raising awareness by providing capacity build-ing; drafting publications; and serving as a platform for information exchange.




Chapter 2The status of environmental

infrastructure in the SEE region


IntroductionThe differences among individual countries are huge in terms of physical envi-

ronmental infrastructure. In general, the water supply infrastructure is at a rela-tively satisfactory level, while the sewerage, wastewater treatment and wastemanagement infrastructure show deficiencies. Croatia is far ahead of other coun-tries in the region regarding physical infrastructure, especially wastewater treat-ment infrastructure. In Kosovo (as defined under UNSCR 1244) and the formerYugoslav Republic ofMacedonia, there is a huge margin for improvement. Serbia,Bosnia and Herzegovina and Croatia have made the biggest progress in projectpreparation for regional sanitary landfills, while Croatia has been successful in clos-ing and remediating non-sanitary landfills.

The status of the water and waste infrastructure in the region is directly corre-lated to the investments that need to be made in order to reach full compliancewith EU legislation. The poorer the quality of the infrastructure, the higher theinvestment required to bring the infrastructure first to an acceptable level, and laterto full compliance. This chapter provides an overview of the situationwith respectto water andwaste infrastructure, summarising some of the key parameters. It drawsto a large extent on the PEIP manuals on water and waste produced earlier thisyear (REC, 2009a and b).

Infrastructure status in the water sectorInvestments are urgently needed in the water infrastructure in SEE in order to

provide all members of the population with drinking water, to improve the qual-ity of drinking water, and to reduce pressure on the environment through the treat-ment of wastewater.

Some of the common problems facing the water sector in SEE countries are:• the relatively low level of drinkingwater supply for the population in rural areas;• big water losses due to ageing water supply infrastructure;• significant unaccounted-for water (UfW), at between 60 and 70 percent; and• the poor operating efficiency of the utilities.

Figure 1 shows that Croatia and Montenegro have the most developed watersupply infrastructure in the region, while in Kosovo (as defined under UNSCR1244) the connection rate is almost half that of the best performers. Where sepa-rate data are available, it can be seen that rural areas have a far less developed watersupply infrastructure than urban areas.

As shown inFigure 2,Croatia, the formerYugoslavRepublic ofMacedonia (urbanareas) and Bosnia andHerzegovina (urban areas) have a connection rate to seweragenetworks of around 70 percent of the population, while in Kosovo (as defined underUNSCR 1244) the connection rate is only 28 percent of the population.

The greatest disparity in the region can be seen in the number of wastewatertreatment plants (WWTPs).With 89 plants, Croatia has the highest number, cov-


ering 28 percent of the population,mainly in urban areas. Kosovo (as defined underUNSCR1244) has noWWTPs in operation, while Albania andMontenegro eachhave twoWWTPs (REC survey, 2008). Specific features and problems related towater infrastructure in each country are presented below.

InAlbania, the estimated proportion of the population supplied with water is85 percent in urban settlements and 65 percent in rural areas. The estimated pro-portion of the population connected to sewerage networks is 40 percent. Waterlosses are high and the estimated UfW reaches 67 percent. Two wastewater treat-ment plants are in operation in Kavaja and Pogradec; work on another has beencompleted and threemore are under construction.However, surface waters are stillaffected by uncontrolled leakages from the illegal dumping of solid waste (ECSEC[2009] 1339). According to the Albanian Implementation Plan for the Re-form of theWater Supply and Sewerage Sector, 2007–2009 (Gjinali andOlldashi,2008), another 10 wastewater treatment plants should be built by the end of 2011.These projects are included in the national PEIP lists.

CHAPT ER 2S TATUS OF ENV I RONMENTAL IN FRAS TRUCTURE IN THE S E E R EG ION


FIGURE 1: Percentage of the population connected to water supply

0

10

%

20

30

40

50

60

70

80

90

100

Alb

ania

(rur

al)

Bosn

iaan

dH

erze

govi

na(u

rban

)

Serb

ia(u

rban

)

Alb

ania

(rur

al)

Bosn

iaan

dH

erze

govi

na(r

ural

)

Serb

ia(r

ural

)

Koso

vo(u

nder

UN

SCR

1244

)(o

vera

ll)

Bosn

iaan

dH

erze

govi

na(o

vera

ll)

FYR

Mac

edon

ia(o

vera

ll)

Mon

tene

gro

(Ove

rall)

Cro

atia

(Ove

rall)

Source: REC survey, 2008

The water supply and sewerage sector in the country has shown important im-provements in the last two years from both a technical and a financial point of view.Although improvements have been made, many deficiencies still exist, especiallyin rural areas.

In Bosnia and Herzegovina, some 56 percent of the population has access towater through a public water supply system (91 percent in urban areas, and 48 per-cent in rural areas). Overall water losses are estimated at 50 percent. In urban areas,73 percent of the population is connected to sewerage networks, while in ruralareas the proportion is extremely low. Overall, 4 percent of the population is con-nected to wastewater treatment plants. Untreated discharges of wastewater remaina key environmental challenge, and both access to drinking water and wastewatertreatment infrastructure require additional investments (EC SEC[2009] 1338).Croatia has themost developed water infrastructure in the region, and 80 per-

cent of its population is connected to a municipal water supply. Up to 75 percentof the urban population is connected to sewerage networks, while 28 percent of theoverall population is connected to 89 wastewater treatment plants. Many plantsconstructed in the 1980s are too big since they were designed according to the ex-isting development and spatial plans, for the intake of a considerable amount of in-dustrial wastewater, and for a higher percentage of the population connected to



FIGURE 2: Percentage of the population connected to sewerage networks

0

10

%

20

30

40

50

60

70

80

90

100

Croatia Serbia Albania Montenegro Kosovo(under

UNSCR 1244)

FYRMacedonia

(rural)

FYRMacedonia

(urban)

Bosnia andHerzegovina

(urban)Source: REC survey, 2008

the sewerage system than has been achieved. At present, about 25 percent of thetotal municipal wastewater in Croatia is treated; approximately 76 percent of thisis mechanically treated. Around 18 percent undergoes secondary treatment, whichrepresents only around 4.4 percent of the total amount of municipal wastewater(website of CroatianWaters). Estimated national average physical water losses are40 percent, and UfW 67 percent. The relatively high water losses indicate thathuge investments are needed for the reconstruction of water supply networks. Ac-cording to the EC progress report, significant efforts have to be made to increaseinvestments in this sector (EC SEC [2009] 1333).

InKosovo (as defined under UNSCR 1244) the water infrastructure is rela-tively underdeveloped. One of the most severe problems is water shortage: watercuts affect the general population as well as the industrial and agricultural sectors.Although accurate statistics are not readily available, it is estimated that 44 percentof the population is connected to water supply services. The rate ofUfW is 59 per-cent, and the technical condition of the water and wastewater systems is ratherpoor (REC survey, 2008).

Only 28 percent of the population is connected to a sewerage network. Thereare nowastewater treatment plants in operation.AWWTPwas recently built in themunicipality of Skenderaj/Srbica, but due to unsettled ownership issues in relationto the expropriated land, the necessary connections are not yet in place and the plant



FIGURE 3: Number of wastewater treatment plants in SEE countries

0

10

20

30

40

50

60

70

80

90

100

Albania Bosnia andHerzegovina

Croatia FYRMacedonia

Kosovo (underUNSCR 1244)

Montenegro Serbia


is not in operation. The construction of sevenWWTPs is foreseen in the draft de-velopment strategy and theKosovoEnvironmentalActionPlan (REC survey, 2008).

In the former Yugoslav Republic of Macedonia, the communal service en-terprises (CSEs) are public enterprises founded and owned by local governments.The water supply system reaches 72 percent of the population of the country, al-beit with persistent problems such as a high level of UfW. The wastewater sectoris far less developed, with seven small and outdated urban wastewater treatmentplants to which 12 percent of the population is connected. The existing infra-structure is outdated, resulting in high water and energy losses. Of the existing 68water supply networks, 58 need upgrading; of the existing 68 sewerage networks59 need upgrading; and of the seven existing wastewater treatment plants, twoneed reconstruction and 59 new (smaller and larger) plants are needed in order tocomply with the relevant EU directives.Montenegro has a relatively well developed water supply system, connecting

80 percent of the population.However, the sewerage system is less well developed,connecting only 38 percent of the population. Two obsoleteWWTPs exist in Pod-gorica and Niksic. Water shortages are common and the level of UfW is high, atbetween 50 and 75 percent. TheWasteWater Feasibility Study for theCoastal Re-gion ofMontenegro and theMunicipality of Cetinje, and the Sewerage andWaste-water Strategic Master Plan for Central and Northern Montenegro envisage, bythe end of 2015, the rehabilitation of existing pumping stations, the constructionof newWWTPs and pumping stations, and the reconstruction and expansion ofexisting infrastructure throughout the republic.Serbia has 150 water utilities with obsolete and deteriorating water infrastruc-

ture. Poor technical performance results in water losses at an average level of 35percent, while in somemunicipalities losses are as high as 50 percent. The propor-tion of the population connected towater supply in urban areas is 83 percent, whilein rural areas it is 49 percent. Some 60 percent of the overall population is con-nected to sewerage networks and there are 28WWTPs. Thewastewater treatmentinfrastructure throughout the country needs upgrading.

Infrastructure status in the waste sectorThe level of waste collection, transportation, treatment and disposal in SEE

countries is below that required for compliance with EU standards. The availablefacilities and capacities for the treatment and disposal of waste are inadequate; leg-islation and standards are not effectively enforced; and current wastemanagementpractices are contributing to the pollution of air, water resources and land.

Investments in themunicipal solid waste infrastructure in South Eastern Europe(SEE) are urgently needed in order to reduce the pressure on the environment re-sulting from indiscriminate dumping and from the depositing of waste in landfillswith low or no standards. This pressure is exacerbated by the increased generationof municipal solid waste associated with GDP growth during the years before theeconomic crisis, and with the accompanying growth in private consumption.



Across Albania there are 65 legal — albeit unmanaged and uncontrolled —landfills for urban settlements, as well as an unknownnumber of illegal waste dumpsin rural areas. There is no separation of household waste from industrial, construc-tion or hazardous waste. Some medical waste is incinerated in four obsolete incin-erators causing air pollution hazardous to human health. No waste stream is sortedformally into recyclable components, although there is a small-scale informal mar-ket among individual collectors and small companies. None of the existing landfillsmeet international construction and health standards (location, protective lining,drainage system, leachate treatment, gas collection etc.). Landfills and illegal wastedumps often catch fire, releasing dioxins and furans. TheMinistry of Environment,Forestry andWaterAdministration envisages the construction of four landfills in El-basan, Fier, Gjirokaster and Berat, and the closure of five existing dumpsites in El-basan, Durres, Berat, Lezhe and Pogradec. Over the last three years, rehabilitationand restructuring work has been undertaken at the Sharra landfill in Tirana.Bosnia andHerzegovina is at an early stage of investment in solid waste man-

agement. Approximately 36 percent of the country is covered by municipal solidwastemanagement services. There are 75 legal but non-sanitary landfills, as well asaround 1,200 illegal ones. It is estimated that Republika Srpska has 25 municipallandfills and a large number of illegal dumpsites; while in the Federation of Bosniaand Herzegovina there are 50 municipal dumpsites and a large number of illegaldisposal sites. Up to eight regional landfills are needed in order to achieve compli-ance with relevant EU directives.

The 2003National Environmental Action Plan (NEAP) proposes two optionsfor an intermediate solution: regional landfills at 16 (entity option) or 14 (inter-entity option) locations, which would ultimately result in a long-term solutioncomprising sixmajor regional landfills in Bosnia andHerzegovina, located in BanjaLuka, Tuzla, Mostar, Bijeljina, Bihac and Livno. Since 2003, two sanitary regionaldepots have been built in Banja Luka and Sarajevo. The 2008 Instrument for Pre-accession Assistance (IPA) project “Strengthening Bosnia and Herzegovina’s En-vironmental Institutions: Preparation for Pre-accession Funds and Support toEnvironmental Infrastructure Development” is providing technical assistance forthe preparation of environmental infrastructure investment projects (feasibilitystudies) for the regional landfills in Sarajevo and Banja Luka, as well as those en-visaged in Gorazde, Srednje Bosanski canton,Visoko, Ljubuski region, Prijedor,Derventa andTrebinje. This has been complemented byWorld Bank InternationalDevelopment Association (IDA) loans for Sarajevo, Zenica, Tuzla, Bihac, BanjaLuka and Bijeljina. During the implementation of this project, 145 illegal dump-sites have been closed and remediated, and another 40 are due to be closed.

According to theCroatianNationalWasteManagement Plan (NWMP), all ex-isting 299 registered local landfill sites should be remediated or closed, or trans-formed into transfer stations for future regional management centres by the endof 2011, with a transition period to 2015 (EUWaste Landfill Directive). The clos-ing of old dumpsites is a precondition for establishing newwastemanagement cen-tres. Closure and remediation work has been completed at 63 landfills.



The National Waste Management Strategy (NWMS) envisages the construc-tion of up to 21 regional landfills, depending on the results of the regionalisationprocess for waste utilities. As of February 2009, the Croatian Environmental Pro-tection and Energy Efficiency Fund (EPEEF) is assisting nine regional wasteman-agement centre (RWMC) projects in preparing project documentation. Three outof these nine projects have applied for IPA funds—Mariscina (Primorsko-goran-ska county), Kastijun (Istria county) and Lecevica (Split-Dalmatia county)—whilethe fourth (Bikarac in Sibenik-Knin county) has already received funding throughthe Instrument for Structural Policies for Pre-Accession (ISPA). The phase onecosts for these RWMCs vary from around EUR20 to 60million, depending on thesize of the region. Despite progress, continuous efforts are needed for the remedi-ation of existing landfills and hotspots and the further establishment of systems forthe collection and management of waste streams. According to the EC, prepara-tions in this area are progressing well (EC SEC [2009] 1333).

In Kosovo (as defined under UNSCR 1244) an estimated 70 percent of allwaste is illegally dumped (on the streets, around rivers, lakes and mountains, andin rural areas).Waste collection services cover approximately 39 percent of the pop-ulation (WWRO, 2009), and services are providedmainly in urban areas. There isno separation of waste streams.

Kosovo (as defined under UNSCR 1244) has inherited 30 legal but non-san-itary municipal landfills. Of these, 26 have been rehabilitated and closed with thesupport of the European Agency for Reconstruction (EAR). Five new landfillshave been built (also funded by EAR), which are now used regularly for waste dis-posal. Projects are currently being implemented on the rehabilitation of old land-fills in Prizren, Gjakova, Kacanik, Ferizaj, Gjilan and Lipjan. Another two projectsfor non-municipal waste (medical and hazardous waste) are under preparation.

In the formerYugoslavRepublic ofMacedonia, regular waste collection serv-ices are mainly limited to urban areas. In total, around 70 percent of the Mace-donian population benefit from regular waste collection services. (In ruralsettlements the proportion is around 10 percent.)Municipal landfills do not com-ply with sanitation standards, and waste disposal practices do not comply with anytechnical and/or environmental standards. The NWMS envisages up to eight re-gional landfills.

The 2008National Environmental Investment Strategy (NEIS) includes a pro-vision for a call for proposals for the construction of eight regional sanitary wastelandfills and for the closure and reclamation of the existing 54 non-compliantmu-nicipal landfills. According to the EC, investments in this area need to be increased(EC SEC [2009] 1335).

Since 2008 there has been only one sanitary landfill functioning inMontene-gro, a (de facto) regional landfill serving the city of Podgorica and the town ofDanilovgrad and the surrounding settlements. The other existing landfills are legaland illegal municipal non-sanitary landfills. According to the national plan forwaste management and one regional plan, the seven regional sanitary landfills stillrequired are due to be constructed, as well as an envisaged nine transfer stations,



eight recycling centres and 26 smaller recycling units, and up to five composting fa-cilities. The construction of a regional recycling centre at the location of the exist-ing landfill in Podgorica is under way, with a capacity of 90,000 tonnes of mixedmunicipal waste per year. Feasibility studies and environmental impact assessmentson six regional sanitary landfill locations were finalised and projects are being de-signed. According to the EC, alignment with European standards needs to bestrengthened and accelerated, in particular concerning the Landfill Directive andtheWaste Shipments Regulation (EC SEC [2009] 1336).

Currently there is only one sanitary landfill inSerbia.According to the2003WasteManagement Strategy, Serbia needs 29 regional sanitary landfills, 44 transfer stations,17 recycling centres, sevenormore composting facilities, and four incinerators.Thereare five ongoing regional projects in which several municipalities will use the samelandfill: Duboko landfill servingCacak, Uzice and sevenminor towns; andMuntinaPadina landfill serving four municipalities in the Pirot region. These two publiclyowned regional landfills are expected to be commissioned by the end of 2009.

General observations• The condition of the physical environmental infrastructure varies among the

SEE countries. Croatia is ahead of other countries in the region, especially interms of wastewater treatment infrastructure. However, there is a big marginfor improvement in all countries.

• Water supply infrastructure in SEE is at a relatively satisfactory level, especiallyin urban areas, while sewerage, wastewater treatment andwastemanagement in-frastructure are far less developed and in a worse physical condition.

• Common problems facing the water sector in SEE countries include a relativelylow level of drinking water supply in rural areas; big water losses due to ageinginfrastructure; and significant levels of unaccounted-for water (UfW).

• Waste management infrastructure in SEE is inadequate. There are only a fewlandfills in the region that comply with EU regulations and there are a hugenumber of low-standard illegal dumpsites or landfills.

• Urban areas in the SEE region are relatively well covered by waste collectionand transportation services, in contrast to rural areas.

• Bosnia andHerzegovina, Croatia and Serbia havemade the biggest progress interms of project preparation for regional sanitary landfills, while Croatia andKosovo (as defined under UNSCR 1244) have been successful in closing andremediating the biggest number of non-sanitary landfills. Closing and remedi-ating old illegal dumpsites is a precondition for establishing new waste man-agement centres.




Chapter 3Challenges to environmental

financing in SEE


IntroductionThis chapter gives an overview of themain challenges in relation to developing

environmental investment projects in SEE countries. The challenges outlined hereare then explored in greater depth in subsequent chapters.

Financing environmental infrastructure projects in compliance with the EUenvironmental acquis is a serious legal, financial and institutional challenge for anycountry. It requires the establishment of a clear legal and strategic framework —through the transposition of the EU water and waste acquis — that creates suffi-cient incentives and pressure on both the state administration andmunicipal proj-ect proponents to result in concrete actions for the reform of all relevant systems,both institutional and financial. The process necessitates significant financial al-locations as well as the political will to reform the main institutions — the waterandwaste utilities— so as tomake them capable of implementing the investments.

“Constraints” and “challenges” are used here interchangeably, since all the fac-tors discussed below hamper and slow down environmental infrastructure invest-ments and thus need to be overcome.

The authors use two criteria to classify the constraints/challenges to environ-mental infrastructure financing. The first criterion is administrative level: that is,national or municipal.

This classification allows us to look at environmental infrastructure investmentfrom the point of view of national governments and ministries, but also from thepoint of view of the municipalities that are responsible for the practical imple-mentation of the relevant water and waste acquis.

Themainpolicy andplanningwork is carriedout on thenational level through thetransposition of EU legislation and through the drafting of strategic documents thatset out priorities and timeframes.On the other hand, local governments have the dif-ficult task of implementing obligations that have beendevolved to them following theprocess of decentralisation. They are faced with the obligation to implement invest-ments that far exceed their budgetary means. In addition, they have to balance theseinvestments with other, competing priorities linked to social and regional develop-ment. It is also the local governments that have to embark on a programme to reformthe utilities that will be responsible for the investments in water and waste.

The second criterion is the nature of the challenge/constraint, that is, politi-cal, economic, financial, legal, institutional, planning, or project preparation.

Obstacles to environmentalinfrastructure financing — national levelPoliticalLow level of political will

One of the main constraints to environmental infrastructure investments inSEE is the insufficient political drive for reform in connection with environmen-tal financing. The level of political will is generally in direct correlationwith the sta-


CHAPT ER 3CHAL L ENGES TO ENV I RONMENTAL F INANC ING IN S E E


TABLE 1: Key challenges and constraints at national level

TYPE CONSTRAINTS DESCRIPTION ADDRESSED INGREATER DETAIL IN

Political Low level of political will This is in direct correlation with Chapter 2the status of the countryregarding EU accession

Economic Low levels of GDP Leads to relatively low nominal Chapter 2amounts for environmentalinfrastructure investment fromthe national budget

Budgetary deficit in Leads to suspension of Chapter 2times of economic crisis infrastructure projects

Financial High level of investments Due to poor-quality water and Chapter 2needed for full compliance waste infrastructure; long years

of under-funding; and obsoletewater and waste systems

Legal Planning for approximation Missing in most countries

Strategic documents Missing in certain countriesand sectors

Transposition Relatively low level of Chapter 2transposition of key directives

Enforcement Lack of capacity for the Chapter 2enforcement of newlytransposed directives

Institutional Capacity of ministry Relatively low number of staff Chapter 2and specialised agency for an increased body of

environmental legislation

Lack of specialised Few of the countries have Chapter 2institutions (environmental specialised institutions, e.g.fund, national regulators) environmental funds

Coordination Insufficient coordination among Chapter 2line ministries — competitionfor scarce funds and power,associated political influence onthe process of project selection

Investment Lack of national environmental Necessary to properly mapplanning and investment strategies funding needs, available fundingproject by sources, as well as other issuesidentification such as institutional approaches

Weak pipeline management Lack of proper coordination andcommunication betweeninstitutions in managing pipelinesof environmental investmentprojects

Lack of key sectoral Some sectoral plans andstrategies and plans programmes for the

implementation of directivesare missing

tus of the country regarding EU accession. A certain political stability is needed tofulfil the obligations taken on with the Stabilisation and Association Agreement(SAA). Political will is needed for the whole spectrum of reforms, from institu-tional restructuring (administration and utilities) to the alignment of the legalframework and the enforcement of commitments undertaken.

EconomicLow levels of GDP

With the exception of Croatia, the SEE countries have relatively low levelsof per capita GDP. Croatia has relatively higher GDP, at a level comparable tothat in the new EU member states in CEE. The SEE countries are all countriesin transition, requiring serious reforms in all sectors of society, including roadinfrastructure, education and health care. The proportion of the state budgetearmarked for the environment is still relatively low, although it is growing (Eu-rostat website). The amounts in the budget dedicated to environmental infra-structure investment are therefore extremely low compared to the overallinvestment needs. (For further details see Chapter 4.)

The global economic recessionIn the past year, the global economic recession has deepened, affecting almost all

areas of life, including investments in environmental infrastructure.National budg-ets are feeling the pressure of decreasing revenues, and as a result some infrastructureprojects have been suspended for the time being in order to balance national budg-ets. One of the reasons for this is the lack of clarity regarding the link between en-vironmental infrastructure investments and regional economic development. Inaddition, due to the financial and economic crisis some of the problems faced bythe water and waste utilities even in good economic times are escalating — for ex-ample the non-payment of bills, difficulties in accessing loans etc. Many banks andinvestors have less capital, andwhere capital is available, borrowing terms are far lessfavourable, making the requirements of project proponents themselves far stricter.Consequently, financiers are less inclined to take big risks and would rather investin solid andwell-managed operations. Funding that is relatively stable and that onlyslightly decreases becomes evenmore valuable. (For further details on the economicsituation see Chapter 4, and on utility reforms see Chapter 6.)

Affordability of environmental investments and availability of subsidiesDue to lowGDP and low levels of development, most SEE communities will

have difficulty affording the investments that are required in order to ensure theprotection of their environment and their quality of life, and compliance withnew legislative requirements. In particular, users of the new infrastructure will beunable to afford the user charges that are required in order to ensure the opera-tion and maintenance of that infrastructure, let alone to secure capital invest-ment. (For further details on affordability see Chapter 6.)



FinancialHigh level of investment needed

The investments in water and waste infrastructure that are needed in order toreach full compliance are extremely high relative to theGDPs of SEE countries. TheEUwater and waste acquis introduce high EU standards for inbuilt infrastructure.Compliance with the EU environmental acquis requires the construction of newinfrastructure such as sanitary landfills, wastewater treatment plants for townswithfewer than 10,000 inhabitants etc. Even the EU-10 countries experience difficultiesachieving compliance years after joining the EU. Some of them are even facing legalactions. The situation is even less favourable in SEE,where existing infrastructure hassuffered from years of underinvestment. (For further details see Chapter 2.)

Poor bankability of proposed investmentsRelated to affordability, in many cases large-scale infrastructure investments

that are needed for compliance with legislative requirements (e.g. the constructionofmechanicalWWTPs or sophisticated wastemanagement and disposal sites) arenot attractive investments due to long payback periods and other constraints. Thisgreatly inhibits the availability of investment capital and also requires more so-phisticated project planning and preparation, which is lacking in the region.

LegalLow level of transposition of key directives

The full transposition of the investment-heavy directives is an important driverfor environmental infrastructure projects, as it will place a legal burden on nationaland local governments to create the conditions and undertake the actions necessaryfor investments to take place. The CEE experience has shown that very often theprocess is carried out within a short period of time, and that compromises are oftenmade in terms of quality. (For further details see Chapter 4.)

Strategic frameworkThe drafting of national and local horizontal and sectoral (water and waste)

strategies also belongs among the “planning” challenges.However, it also has stronglegal implications as strategies set the framework and the direction for subsequentlaws and regulations. Drafting strategies through wide stakeholder dialogue hasthe benefit of combining different interests at an early stage and attracting supportfor future actions. Significant progress has been made in strategy drafting in SEEduring the last two to three years. The drafting of strategic horizontal and sectoraldocuments is very important as it “translates” the vision of the government in agiven sector, creates the institutional framework, and provides the legal technology.The availability of strategic documents is indispensable for the absorption of fund-ing from the Instrument for Pre-accessionAssistance (IPA). (For further details onstrategic documents see Chapter 5, and on IPA see Chapter 7.)



EnforcementThe proper functioning of environmental infrastructure investment is im-

possible without the strong enforcement of legislation. In general, the region ischaracterised by insufficient enforcement of environmental legislation and in-sufficient imposition of fines, due in part to the weak capacity of the inspec-torates in terms of numbers, knowledge and equipment. Another reason for thelow level of enforcement of legislation in general is the absence of a culture ofenforcement and compliance. The link between the inspectorates and the lineministries is not always strong enough. The connection between the inspec-torates and the prosecution is weak, and inspectors are rarely trained to carry outinvestigations. Additionally, there is a vast body of EU environmental legislation,and the resources available for inspection fall far short of the laws to be enforced.Experience in CEE has shown that in the rush to transpose EU legislation, the as-pect of enforcement has often been disregarded. The financial benefits of en-forcement are often vague and difficult to quantify, which means that animportant pressure factor is missing. (For further details on enforcement seeChapter 5, and on the benefits of enforcement see Chapter 9.)

InstitutionalCapacity of central-level institutions

The adoption of the EU environmental acquis will force environmental institu-tions in SEE to adapt all their systems for the implementation of the acquis. As theenvironment has a prominent role in the EU acquis, governments will have to adaptnational and regional environmental institutions in order to reflect EU priorities.

Based on the experience of CEE countries, it is likely that the current capacity ofthe environmentalministrieswill turn out to be insufficient for the administration ofall the requirements arising from the adoption of the acquis. One of the mistakesmade in CEE countries is the failure to ensure proper human resources planning inrelation to the requirements of the EUacquis. In general, environmental institutionsshould significantly increase their staff. However, it is very probable that the min-istries of finance will exert pressure in the opposite direction and push for staff cuts.The availability of environmental experts in general, and of environmental invest-ment experts in particular, is of the utmost importance and governments should adaptuniversity programmes in this direction.They should also take advantage of the avail-able twinning and other training programmes that draw on the experiences of otherEUmember states to improve the skills and capacities of their staff.

Communication and coordinationInter-institutional communication and coordination, as well as the relationship

between the central level and local levels of governance are also areas of critical im-portance. (For further details on institutions, see Chapter 5.)



Investment planningNational environmental investment planning and project identification

Only the former Yugoslav Republic of Macedonia has adopted a national en-vironmental investment strategy (NEIS). Such strategies provide a clear overviewof the national environmental investment needs on the one hand, and of the na-tional financial framework on the other, including budgetary allocations, IPA fund-ing, bilateral grants and IFI financing. They also analyse institutional capacity tocarry out investments. In an ideal case, environmental investment strategies shouldcome upwith ranked priority lists based on clear and transparent criteria and com-prising projects that are clearly supported by the government.

Project identification and preparationAlthough at one time the countries lacked capacity for project identification

and preparation, huge progress has been made since 2001, partly due to the im-plementation of the PEIP. However, there is still room for improvement. Projectpreparation gaps have been covered by project preparation facilities.

General observations• Financing environmental infrastructure projects in compliance with the EU

environmental acquis requires the establishment of a clear legal and strategicframework and the reform of institutional and financial systems. The processnecessitates significant financial allocations as well as the political will to re-form the main institutions.

• The global economic recession has added further constraints to the financial sit-uation in the SEE region and has affected investments in environmental infra-structure; some infrastructure projects have been suspended.

• In relation to affordability, inmany cases large-scale infrastructure investmentsare not attractive due to long payback periods and other constraints.

• The full transposition of the investment-heavy directives is an important driverfor environmental infrastructure projects as it will place a legal burden on na-tional and local governments to undertake the necessary actions for investmentsto take place.

• The lack of key sectoral and environmental investment strategies delays envi-ronmental investments as strategies set the framework and the direction for fol-low-up laws and regulations. The same is valid for local management plans.Drafting strategies and plans through wide stakeholder dialogue has the bene-fit of combining different interests at an early stage and of attracting support forfuture actions.

• The insufficient level of enforcement of environmental legislation in SEE coun-tries is a hindrance to the proper functioning of environmental infrastructure



investments. The capacity of the inspectorates is weak and a culture of compli-ance is lacking; the link between the inspectorates and the lineministries is notalways strong and the connection between the inspectorates and the prosecu-tion is weak.

• The current capacity of environmentalministriesmay turn out to be insufficientfor the administration of all future environmental requirements.However, thereis pressure fromministries of finance to avoid an increase in staff numbers.

Obstacles to environmental infrastructurefinancing — municipal levelPolitical

Local governments in SEE often suffer as a result of the deficiencies of the na-tional political system. In many cases the mayor represents a party that is not inpower, thus his or her leverage to attract funding and implement environmentalinvestment projects is limited. Conversely, those municipalities close to the gov-erning party may receive extra funding.

Local governments also struggle with a multitude of competing funding prior-ities such as road and transport infrastructure, health, education etc. Inmany cases,these investments are more visible and tangible than environmental investments(with the exception of water supply, waste collection and the prevention of illegaldumping), thus local politicians tend to give them priority. This is a particularproblem in the case of wastewater projects, where the population and elected lead-ers are able to refer to traditional methods of household wastewater disposal, thenegative environmental impacts of which are not immediately visible (REC, 2005).

Economic/financialDevolvement of responsibility without adequate resources

As a general rule, following the process of decentralisation there is a seriousmis-match between the obligations of the municipalities and their financial capacitiesto manage these obligations. This is particularly true for waste and water manage-ment.Municipal budgets are almost always insufficient to cover investments in en-vironmental infrastructure, and inmost casesmunicipalities are prevented by legal,political and capacity-related obstacles from raising sufficient resources to carryout the investments needed in order to fulfil their obligations in these sectors. Veryoften local governments’ hands are tied — they are legally prevented from takingon significant debts (by debt service ratio laws), and from adjusting the amountand type of charges imposed on users of infrastructure or penalties for non-pay-ment (by state controls on tariffs). They often face political constraints in the re-organisation of utilities to better manage and collect fees to cover the operationandmaintenance of their infrastructure.However, with the implementation of theEU acquis, much of this is changing for the better in the region.





TABLE 2: Key challenges and constraints at municipal level


Political Political affiliation Mayors from the ruling party arefavoured at the expense ofmayors from opposition parties

Lack of political will Results from the election cycle Chapter 4and the need to raise tariffs andlay people off

Competing priorities Budgets are limited andpoliticians sometimes prefer themore tangible projects

Economic/ Insufficient municipal Budgetary allocations for Chapter 3financial budget (revenue and municipalities are generally lower

expenditure mismatch) than the funds needed to achievecompliance with legal investment

Over-reliance on grants Fostering a grant-dependentculture prevents local governmentsfrom implementing other reforms

Economies of scale Organisational difficulties areexperienced in setting upregional associations(e.g. for waste management)

Institutional Decentralisation (also has Some important environmental Chapter 3legal aspects) functions have been devolved to

local governments, whosecapacities remain weak

Local government Local governments have increased Chapter 3staff capacity environmental responsibilities with

no or few members of staff

Unreformed water Results in lack of utility Chapter 2and waste utilities independence, fragmented water

utilities, and the cross-subsidisingof costs from strongerto weaker departments

Cooperation between Modern waste management is Chapter 2waste utilities carried out at regional level and

cooperation is needed betweenutilities

Cooperation with Lack of regular consultations Chapter 3national authorities between national and local

authorities

Planning Lack of regional wasteand water management plans

Environment as a Other issues such as roadrelatively low priority infrastructure and social services

may have a higher relativepriority than environment,especially waste management

Inadequate capacity for financial, environmentaland investment planning

Many local governments lack the capacity to understand environmental infra-structure investments in the context of a market economy, including issues of so-cial affordability, cost recovery, depreciation and the appropriate use of subsidies.They are reluctant to take on loans, either due to legal restrictions on debt servic-ing or insecurity about their repayment capacities stemming from inadequate fi-nancial management practices. They therefore prioritise investments that can beserviced by grants or inexpensive soft loans from the central government or for-eign donors, rather than real needs driven by rational environmental and financialplanning (REC, 2005). In the meantime, necessary but more expensive and com-plex investments are postponed; the environment and society are further degraded;and necessary institutional reforms and popular awareness-raising programmes arenot implemented. While not denying that local governments should optimisefunding by using the “free” grant options first, this should not be done at the ex-pense of revenue-increasing reforms or a clear analysis of the affordability of envi-ronmental investments.

Legal/institutionalDecentralisation and institutional capacities

All SEE countries have devolved significant environmental responsibilities tothe local governments. The decentralisation process has been accomplished in allcountries except for Serbia. In Albania, decentralisation is partly accomplished,having been completed in the water and waste sectors. In the process of decentral-isation, SEE countries have transferred competencies for environmental services tothe municipal level. In many cases, these are new responsibilities at the local gov-ernment level, and the institutions have not managed to adjust their staff and ca-pacities to properly manage the obligations. So far there has been no sufficienthuman and financial resource planning in connection with the newly acquired re-sponsibilities in environment. The human resources capacity of local governments



TABLE 2: Key challenges and constraints at municipal level (continued)


Project Low capacity forpreparation project preparation

Low level of project maturity Lack of feasibility studies prior toinitiating the design phase; lack ofEIAs; failure to take into accountinstitutional and financial issueswhen planning environmentalinfrastructure

in SEE is generally low relative to the increasing obligations under the decentrali-sation process. This also has a bearing on the financial challenge discussed above,linked to insufficient available municipal budgets compared to the legal obliga-tions of the municipalities. After new functions and responsibilities are devolvedto the local level, most of the responsibility for identifying, preparing and imple-menting bankable projects is also shifted to the local level (REC, 2005). Other in-stitutional constraints include the capacity of local consultants and the shortageof professional project managers able to take responsibility for the overall process—not only the preparation of the technical documentation but also the facilitationof smooth teamwork and consensus building across various groups of stakeholders.

Enforcement of lawsAs local governments do not have at their disposal sufficient budgets for the

implementation of their responsibilities, the state does not have the moral right toimpose real sanctions for non-compliance. Local governments are not therefore“punished” by higher levels of administration if they are unable to carry out certainmandatory activities due to financial and capacity problems. Additionally, themu-nicipalities do not have the power to impose local fines on polluters who representhigher levels of the state. The polluter pays principle is seldom fully and effectivelyapplied at the national level, thus municipalities have little leverage over large pol-luters that provide employment in a community, and that may be owned by a stateholding company or even a ministry (REC, 2005).

Cooperation with national authoritiesCooperation with national authorities is critical to the successful implementa-

tion of infrastructure investment projects. National authorities generally control en-vironmental investment priorities for the country and, through this, access tointernational grants and loans as well as funds from the countries’ own nationalcapital investment budgets (REC, 2005).

PlanningLocal and/or regional environmental sector plans (waste management plans and

water management plans) are a basic prerequisite for carrying out environmental in-vestmentprojects. Investmentprojects are very oftenbasedonperceived infrastructureneeds rather than on a holistic approach that investigates all aspects of an environ-mental problem and proposes an appropriate solution. Furthermore, these plans arelegal requirements of the water and waste framework directives and a preconditionfor accessing certain international grant funding such as the EU IPA.

Aspects of project preparationDetailed environmental investment preparation is generally the responsibility

of the project proponent — that is, the institution that will own and manage theinvestment. In most cases in SEE, for the water and waste sectors this will be a re-



gional or local institution—an authority or utility company owned by the local au-thority. In general, local governments and their associated bodies lack not only ad-equate skills to prepare investment projects, but also the skills to oversee andcooperate with expert consultants, whether domestic or international, in the prepa-ration of their environmental investment projects. Some of the issues that compli-cate project preparation are presented below.

Willingness to payIn general, the problem of unpaid bills in SEE is significant. In a context in

which water supply and waste management services were previously provided al-most free of charge, any hike in price is likely to result in resistance.

RegionalisationBoth water and waste utilities in SEE are currently highly fragmented. New

EU-compliant infrastructure requires high levels of investment but is also intendedto serve a bigger population. There is therefore a need for better cooperation be-tweenmunicipalities, as well as the establishment of new financial, legal and insti-tutional incentives, and this need will remain in the future.

Availability of dataIt is very important to adapt the size of the project to current and future needs.

Updated population data and reliable forecasts of population growth and demo-graphic changes are vital to proper project sizing.

Locating infrastructureWhen locating infrastructure, project proponents can opt for a “centralised”

approach, where all elements of the infrastructure are placed in one location; or a“decentralised” approach, where elements of the infrastructure are placed in dif-ferent locations. In general, there is no ready formula for success in a given projectlocation, as conditions differ for each project. Nevertheless, the chosen project lo-cation can have an impact on many other areas of municipality activities such aseconomic development, biodiversity protection and unemployment. Locating in-frastructure projects stimulates the NIMBY (“not in my back yard”) syndromewithin the local community.

Identification of sources of financeOnce the project has been formulated, an important activity is the identifica-

tion of possible financing sources. In terms of external sources of finance, otherthan the project proponent itself, the options for the SEE region include nationalgovernment sources; grants from the EC and/or bilateral donors; loans from com-mercial banks and/or IFIs; and private sector involvement. The challenge here isthat local governments very often have limited knowledge of potential sources offinancing and lack understanding of their specific rules and requirements. Local



governments are often dependent on guidance and permission from national au-thorities to access sources of financing, and this can be hampered by political andcommunication issues. Lack of understanding of the priorities and requirements ofexternal sources of finance results in local governments being unable to communi-cate their investment projects effectively in the terms required to attract financing,and being unable to prepare the documentation required to access it.

General observations• Local politicians struggle with a multitude of competing funding priorities:

those that are more visible and tangible than environmental priorities may endup higher on the political agenda.

• There is a mismatch between the obligations imposed on municipalities as aresult of the decentralisation process, and the financial and human resourcescapacities at their disposal to manage these obligations.

• Many local governments lack an understanding of environmental infrastruc-ture investments in the context of a market economy, including issues of socialaffordability, cost recovery, depreciation and the appropriate use of subsidies.

• Local governments and their associated bodies generally lack adequate skills toprepare investment projects and to oversee and cooperate with expert consult-ants in the preparation of their environmental investment projects. They oftenhave a limited knowledge of possible sources of financing, and lack under-standing of their specific rules and requirements.

• Water and waste utilities in SEE are highly fragmented and cooperation be-tweenmunicipalities is poor. At the same time, there are (andwill be) economicpressures for economies of scale.




Chapter 4Economic development andthe EU accession process


Economic development in SEEThe level of economic development of a country and a region has a direct bear-

ing on ability to invest in public projects in general, and in environmental infra-structure projects in particular. The size of the national budget is directly correlatedwith the budgetary amounts allocated to the institutions (inmost casesministries)in charge of investments in water andwaste infrastructure. It also defines the budg-etary amounts that trickle down to the local governments for carrying out theiroften newly acquired legal obligations in the waste and water sectors.

The current economic situation and the related per capita income, the num-ber of unemployed people and the number of people living below the poverty lineall have an influence on the political climate at the local level. They also influencethe level of political will to reform the water and waste utilities, since an impover-ished local population will not accept — politically or financially — a serious in-crease in water and waste tariffs.

The process of economic transition to a market-based economy, or at least itsacceleration in themajority of SEE countries, started after 2000 because of the wars


FIGURE 4: GDP per capita at purchasing power parity in SEE countries

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000




USD

2004 2005 2006 2007 2008

Montenegro Serbia

Source: IMF country reports, national banks, Eurostat, national and federal statistical offices, the World Bank, NCB, SEE ministries of finance

in the mid-1990s and the political situation in some of the countries. The processwas delayed by around 10 years compared to Central European countries and Bul-garia and Romania — a fact that has had a profound impact on the region’s com-petitiveness and foreign investment flows.

The process of economic transition was enhanced by big inflows of aid and ac-companied by strong economic growth sustained at an average of between 4 and7 percent between 2004 and 2008. Kosovo (as defined under UNSCR 1244)demonstrated the lowest economic growth of 4.2 percent, followed byCroatia andthe former Yugoslav Republic ofMacedonia with 4.5 percent average growth, andMontenegro, Bosnia and Herzegovina and Albania with growth varying between5.5 and 6 percent. Serbia achieved themost significant growth rates of 6.6 percenton average (EC, Economic and Financial Affairs website). The majority of coun-tries with GDP at purchasing power parity (PPP) per capita ranging from USD6,800 (Albania) to USD 16,500 (Croatia) were classified by the World Bank asmiddle-income countries in 2008 (World Bankwebsite). Kosovo (as defined underUNSCR 1244), with USD 2,600, falls behind all the SEE countries.

Themajor factors contributing to sustainable economic development were thedynamic development of the private sector, price liberalisation, the restructuringand privatisation of key industrial enterprises, the modernisation of the financialsector, increased revenues and a robust growth in exports. Additional factors seenas facilitating stable economic growth were the improvement in the transparencyand accountability of public services, the creation of institutions for the regulationand supervision of the market economy, the provision of necessary legislation, thestimulation of private consumption, the widening of retail trade and ongoing fi-nancial intermediations. In all countries inflation rates were kept low and curren-cies remained stable in recent years due to national governments’ cautiousmonetaryand fiscal consolidation policies (EC, Economic and Financial Affairs website).However, inflation trends have begun to reassert themselves as a consequence of ris-ing global food and oil prices and weakened pressure on the demand side in 2008.

Poverty, unemployment and the exclusion of vulnerable strata of society are stilla cause for concern formany SEE countries. The long period of instability, isolationand economic turmoil had an adverse effect on living standards for the majority ofthe region’s population andwas accompanied by a deterioration in social and healthservices. The labour market situation is steadily improving in Albania, Croatia,Montenegro and Serbia, where the official unemployment rate in 2008 ranged be-tween 11 and 14 percent. In the former Yugoslav Republic of Macedonia, unem-ployment stood at 33 percent of the labour force in 2008, while Kosovo (as definedunderUNSCR1244) and Bosnia andHerzegovina had the worst employment fig-ures at approximately 40 percent unemployment in 2008.Nevertheless, real levels ofunemployment are lower, since a significant number of people who are registered asunemployed areworking in the grey economy (EC, Economic and Financial Affairswebsite). The absolute poverty level is also constantly decreasing.

CHAPT ER 4ECONOMIC DEVE LOPMENT AND THE EU ACCES S ION PROCESS


The current account deficit of national governments has tended to increase inall SEE countries as a consequence of reduced aid flow, the rise in oil and com-modity prices, and greater imports of goods triggered by credit growth. In recentyears the account balance was positive only in Kosovo (as defined under UNSCR1244). The trade account deficit also remains relatively high due to the orienta-tion of national economies towards imports. Foreign direct investment saw a sig-nificant boost in the region, driven by large purchase deals, privatisation processesand growing interest on the part of investors in the financial, construction andmanufacturing sectors (EBRD website).

The region’s mid-term macroeconomic outlook remains favourable and is de-pendent on the maintenance of internal and regional stability, the continuation ofstructural reforms, reforms in the business and labour sectors, market liberalisation,infrastructural restructuring, and the privatisation of strategic enterprises (EBRDwebsite). Reduced state intervention, the stimulation of private sector development,and the reform of the public administration and judiciary system should also be ad-dressed in country-specific mid- and long-term development plans and strategies.



FIGURE 5: Foreign direct investments in SEE

0

2

4

6

8

10

12

14

16

18

2004 2005 2006 2007 2008



Montenegro Serbia

% of GDP

Source: IMF country reports, national banks, Eurostat, national and federal statistical offices, the World Bank, NCB, SEE ministries of finance

The impact of the global economic recession on economicdevelopment in SEE

Thedeep financial crisis and the contraction of global economic activity have hada serious impact on SEE countries. This impact has been transmittedmainly througha decline in investments, exports and consumption (World Bank website).

The growth trend recorded in SEE countries in recent years slowed down inthe second half of 2008 and is expected to continue to slow down throughout 2009.According to the latest estimates, SEE countries demonstrated an average GDPgrowth of 5.7 percent in 2008, lower than the 6.7 percent recorded a year earlier.Industrial production saw the largest decline among economic sectors, showing adrop of 21 percent. Croatia and Serbia, followed by the former Yugoslav RepublicofMacedonia and Bosnia andHerzegovina, were most affected by the crisis. Fore-casts for 2009 are also pessimistic, as the negative implications of the economic cri-sis were more pronounced than was initially expected at the beginning of the year.Growth projections suggest a significant decline in real GDP by 2.1 percent on av-erage (KosovoCentral Bank, Annual Report 2008), with the exception of Albania,which is expected to grow by 0.4 percent in 2009. The economic slowdown is an-ticipated to derive from a decline in credit in the real sector, and a further declinein exports and foreign direct investments. The recession taking place in developedcountries will also substantially affect the level of remittances to SEE, which rep-resent an important source of financing in these countries. The inflationary pres-sures experienced by EU countries in 2008 were also apparent in SEE, affected byincreases in oil and food prices since energy and food represent the largest share ofthe consumer basket in the region. Annual average inflation reached 7.6 percent inSEE in 2008, compared to 3.3 percent in the previous year. However, economicprojections for 2009 predict a significant decline in prices due to the global reces-sion. Price increases and the decline in exports triggered by the world economiccrisis resulted in a further deepening of the current account deficit in nationaleconomies. The average current account deficit toGDP ratio was around 16.6 per-cent in SEE in 2008, compared to 14.8 percent in the previous year. Foreign directinvestments declined inmost countries in the region, accompanied by a significantdecline in exports. Furthermore, the recession in EU countries will significantly af-fect tourism revenues.

General observations• The transition to amarket-based economywas delayed by around 10 years, be-

ginning only after 2000. This had a profound impact on the region’s competi-tiveness and foreign investment flows.

• There was strong economic growth sustained at between 4 and 8 percent be-tween 2004 and 2008. Levels of GDP (PPP) range fromUSD2,600 inKosovo



(as defined under UNSCR 1244) toUSD 16,500 in Croatia. However, due tothe economic recession, economic activity in SEE has contracted sharply sincethe second half of 2008 as a result of less foreign direct investment, a reduceddemand for exports, and less cross-border lending.

• In Albania, Croatia, Montenegro and Serbia, the unemployment rate in 2008ranged between 11 and 14 percent; in the former Yugoslav Republic of Mace-donia it was around 33 percent; and in Kosovo (as defined under UNSCR1244) and Bosnia and Herzegovina it was approximately 40 percent. This hasa direct impact on the affordability of, and willingness to pay for, environmen-tal infrastructure services.

• The region’s mid-term macroeconomic outlook remains favourable but is de-pendent on the maintenance of internal and regional stability, the continua-tion of structural reforms, market liberalisation, the improvement ofinfrastructure, and privatisation.

EU accessionEU accession as a driver for change

For SEE countries, EU accession is by far the biggest driving force and incen-tive for development and for political and economic reforms, just as it once wasfor CEE countries. The EU agenda is therefore a high priority in these countries.The pre-accession period provides a unique window of opportunity for reforms,and political will is generally strong. This opportunity is supported by the availablebenefits of accession in the form of, for example, technical support, guidance, ca-pacity building and financial assistance. The pre-accession period is therefore achance to develop human capacity and to consolidate and strengthen institutionsto increase their ability to implement the EU environmental acquis.

The SEE EU accession challengeThe transposition and implementation of the environmental acquis is a huge

challenge for SEE countries. The challenges are to be found at almost all levelsof society — legislative, institutional, economic and political. The process re-quires the harmonisation of national legislation and clear descriptions of theroles and responsibilities of ministries and local authorities. Reforms must beundertaken at all levels.

An underlying principle of the negotiations is that, by the time of accession,countriesmust have fully transposed and implemented EU legislation. Transitionalmeasures can be granted for specific pieces of legislation, provided that the meas-ures are limited in time and scope. However, transitional periods are not usuallygranted for horizontal legislation (EIA, access to information etc.) or for frame-work legislation (such as waste or water framework legislation).




On the institutional level, the tasks ahead include strengthening the adminis-tration capacity of national and local authorities, clearly defining responsibilities,identifying investment needs, developing financing strategies and implementationplans, and strengthening the capacity of water and waste utilities.

Upgrading environmental infrastructure requires major capital investments aswell as joint efforts by local and national authorities. It is estimated that infra-structure investments will represent more than 2 or 3 percent of SEE countries’GDP (REC, 2005). National budgets in SEE are currently limited, and the shareallocated to the environment is usually small.

Political will is of great importance in the implementation of the wide reformsneeded. Governments in all SEE countries have committed themselves to this ob-jective and are, to varying degrees, implementing reforms.While public opinion inSEE is largely in favour of EU integration, this support will rapidly be withdrawnif governments fail to deliver. According to EC Communication 2008/127, soci-eties remain divided on a few key issues such as the integration of different com-munities and also, in some cases, constitutional reform. Further efforts are thereforeneeded in order to achieve consensus on such issues and to proceed with the nec-essary political and economic reforms (EC COM [2008] 127). Delivering on en-vironmental infrastructure improvements is an aspect of the EU accession processthat is highly visible and that leads to tangible improvements in quality of life.

Experience from the EU accession process inCEE countries illustrates that theadoption of the acquis raises the importance of the environment on the nationalagenda. Lessons learnt show that early in the process focus should be placed on in-stitutional and administrative reform. Hasty and insufficiently coordinated trans-position of the acquis has been seen to lead to non-integrated, unclear, complicatedand low-quality legislation. Restructuring responsibilities amongministries can re-duce fragmentation and lead to good governance.

The road to accessionThe EU enlargement process currently covers the countries of SEE, Turkey, and

more recently Iceland. In recent years, SEE countries have moved closer to the EUand have embarked on political, administrative and legislative reforms (EC 2008,IP/08/378). Croatia and the former Yugoslav Republic of Macedonia haveachieved the status of candidate countries. Accession negotiations with Croatiastarted in October 2005. The former Yugoslav Republic of Macedonia became acandidate country in December 2005. In October 2009, the Commission recom-mended that negotiations for EU accession should be opened. Albania, Bosnia andHerzegovina, Kosovo (as defined under UNSCR 1244), Montenegro and Serbiaare all potential candidates that have the prospect of beginning EUmembership ne-gotiations when they are ready. Albania submitted its application for candidate sta-tus in April 2009 andMontenegro in December 2008 (EC COM [2009] 533).


In the SEE countries, the Stabilisation and Association Process (SAP), estab-lished in 1999, is the negotiation framework designed to bring the countries in-creasingly closer to the EU.3 Through the SAP, SEE countries benefit from freeaccess to the EU singlemarket as well as access to EU financial support for their re-form efforts. The SAP also includes assistance for reconstruction, developmentand stabilisation (CARDS/IPA). Central to the process is the stabilisation and as-sociation agreement (SAA), which defines the contractual relationship betweenthe EU and each individual SEE country and encompasses mutual rights and ob-ligations. The SAP has three aims:• to stabilise the countries and encourage their swift transition to a market

economy;• to promote regional cooperation; and• to lead to eventual membership of the EU.

An important factor in the SAP is regional cooperation, which is a vitalcomponent for regional stability and prosperity. Cooperation is essential insuccessfully tackling transboundary issues, including environmental issues, andkey common challenges (such as energy shortages, pollution, and transportinfrastructure).4

The SAAs constitute powerful engines for trade integration, domestic reformand rapprochement to the EU, not least through clauses that encourage legislativeapproximation and the building of administrative capacity. Benefits of the agree-ments include economic development through enhanced trade and economic co-operation leading to the creation of attractive conditions for investments, not leastin the environmental sector. At the same time, they encourage individual entre-preneurial initiatives and generate employment. Another benefit is progress in po-



TABLE 3: Stabilisation and Association Agreements

COUNTRY SIGNED ENTERED INTO FORCE

Albania June 2006 April 2009

Bosnia and Herzegovina June 2008 Interim agreement in force since July 2008

Croatia October 2001 February 2005

FYR Macedonia April 2001 April 2004

Montenegro October 2007 January 2008

Serbia April 2008 Interim agreement in force since April 2008

Kosovo (as defined under UNSCR 1244) Participation through the Stabilisation Process TrackingMechanism. In March 2007, enhanced SAP tracking

mechanism structures were set up.

Source: EC national progress reports 2009, DG Enlargement website http://ec.europa.eu/enlargement/index_en.htm

litical and economic reforms, including institution building and public adminis-tration reform. Further reforms are needed in order fully to enjoy the benefits of theagreements (ECCOM[2006] 27 final). Kosovo (as defined underUNSCR1244)participates in the SAP through the Stabilisation Process Tracking Mechanism(STM) that has been specially devised to promote policy dialogue between the EUand the Kosovan authorities on EU approximation matters.

Financial Assistance from the European CommunityThe EU Instrument for Pre-accession Assistance (IPA)5 provides focused fi-

nancial aid to the candidate countries and potential candidate countries. Introducedin 2007, the IPA replaced the mechanisms available between 2000 and 2006, no-tably CARDS, SAPARD, ISPA and Phare. Financial assistance through the IPA isgiven to support countries to introduce the political, economic and institutional re-forms required in order to achieve conformity with EU standards. EuropeanUnionfunding aims at medium- and long-term changes in society and the economy as awhole, and the pace of reform is closely related to the pace of the accession process.The total IPA allocation for the period 2007 to 2013 is EUR 11.5 billion.



BOX 1: Planning for approximation

National Strategy for Environmental Approximation, 2007the former Yugoslav Republic of MacedoniaThe National Strategy for Environmental Approximation (NSEA) was adopted in 2008 and provides a roadmap forthe full and effective approximation process, addressing the required legal transposition and practical implementationactions, the timeframe, the responsible institutions and the related investments to achieve full compliancewith EU en-vironmental legislation. The main goal of the strategy is to set out the government’s approach to the complex obli-gations of the EU environmental acquis: it defines a sustainable, comprehensive framework of actions, with associatedcosts, for legal transposition and technical implementation in all 10 environmental sectors.

Human and financial resources are optimised through the prioritisation of EU obligations and requirements. TheNSEA provides financial arrangements to secure full compliance with environmental legislation and standards,taking into account the national economic circumstances and priorities, and the available and potential foreignaid for infrastructure projects. To this end, compliance with the heavy-investment directives is foreseen after theformer Yugoslav Republic of Macedonia has become a member of the EU.

The NSEA prepared 19 directive-specific implementation plans (DSIPs) and nine sector approximation strategies(SASs) based on 73 pieces of EU legislation. The process of developing the DSIPs, SASs and NSEA involved de-termining the present status of the approximation process and of specific national conditions and requirements;selecting the EU legislation on which the SASs and the NSEA should be based and for which DSIPs should beprepared; preparing gap analyses; defining all the actions necessary for full approximation; preparing the DSIPsand SASs; prioritising the implementation of EU legislation across sectors; and preparing the NSEA. An approxi-mation plan was developed as an integral part of the NSEA, based on the prioritised EU legislation and taking intoaccount the governmental priorities already identified and the financial implications and constraints.

The IPA comprises five components. The first two components — transitionassistance and institution building; and cross-border cooperation—are open to allbeneficiary countries. The other three components— regional development (trans-port, environment and economic development); human resources development(strengthening human capital and combating exclusion); and rural development— require a high degree of financial administration capacity adapted to the EUsystem and are therefore reserved for candidate countries. Community assistanceto cross-border cooperation under the IPA has been extended to cover the bordersbetween SEE countries and countries with adjacent EUmember states. This assis-tance was substantially increased for the period 2007 to 2011 as compared to pre-vious years (EC COM [2008] 127).

General observations• The SEE countries havemoved closer to EUmembership in recent years as the

region has made progress, to varying degrees, in carrying out reforms and inmeeting the criteria and conditions established in the Stabilisation and Acces-sion Process.

• For SEE countries, the prospect of EU accession is the strongest driver of reformand is a high priority on the national agenda. The pre-accession period pro-vides a unique window of opportunity for reforms throughout this process, asthe political will is relatively strong. It is a chance to develop human capacitiesand to consolidate and strengthen institutions enabling them to implement theEU environmental acquis.

• Lessons learnt from CEE show that early in the process emphasis should begiven to institutional and administrative reform and that precipitous and in-sufficiently coordinated transpositionmay lead to non-integrated, unclear, com-plicated and low-quality legislation.

• IPA financial assistance supports countries to introduce the necessary politi-cal, economic and institutional reforms in line with EU requirements.

Infrastructure investment implicationsof the EU directives

This section provides a brief overview of the EU environmental directives inthe water, waste and air sectors that are most relevant to environmental invest-ments, focusing on the changes that have taken place since 2005. Themain imple-mentation and investment implications per sector are presented in tables. Moredetailed information about the objectives, implementation and investment impli-cations are provided in the 2005 REC publication.



WasteThe goal of EU waste-related policies is to create a recycling society in the

medium to long term by cutting the amount of waste generated, introducing ini-tiatives to prevent new waste, making better use of resources, and encouraging ashift to sustainable consumption patterns. The EU waste policy is based on thewaste hierarchy: the treatment options range from the most favourable and envi-ronmentally sound — that is, prevention — to the option with the highest envi-ronmental impact — landfilling. In the new Waste Framework Directive,incineration is categorised as a recovery option, providing that it meets certain en-ergy efficiency standards.

The policy instruments behind this approach are the new Waste FrameworkDirective (WFD) (2008/98/EC) and the Hazardous Waste Directive(94/31/EC)6. These are complemented by more detailed legislation setting stan-dards in connection with some of the treatment options: the Waste Landfill Di-rective (99/31/EC), the Waste Incineration Directive (2000/76/EC) and theSewage SludgeDirective (86/278/EEC). Recycling and recovery targets have beenset for some of the major waste flows such as packaging (the Packaging Directive,94/62/EC). Other waste streams (such as waste electronic and electrical equip-ment, tyres, batteries and end-of-life vehicles) are also subject to “extended pro-ducer responsibility”, including recycling and recovery targets, with the mainfinancial and physical responsibility falling on the producers. Some of the relevantdirectives are presented below.

New developments in the EU waste acquisTheWaste Framework Directive

The new Waste Framework Directive (WFD,2008/98/EC), adopted inNovember 2008, is themain piece ofEU waste legislation setting definitions and introducing newconcepts. The directive emphasises the importance of preven-tion, recycling and reuse. In the context of the SEE countriesapplying for EUmembership, this means that the constructionofmodern installations should not compromise national effortsto treat waste using alternative methods, as long as the objec-tives and benchmarking (including applicable limit values forair and water discharges) of the EU directives are being met.

TheWFDpoints out that “Member states shall take appro-priatemeasures to establish an integrated and adequate networkof disposal installations, taking account of the best availabletechnology not involving excessive costs.” This text is the legalbasis for designing national strategies calling for new, modernwaste disposal facilities with a proper geographical coverage.



FIGURE 6: The waste hierarchy

BEST OPTION Prevent wastein the first place

Reuse the product

Recycle or compostthe material

Recover the energy(by incinerating)

Dispose of the product(in a landfill)WORST OPTION

Source: REC, 2009b

The WFD includes provisions for the separate collection of hazardous waste,waste oils and bio-waste. In practice, SEE countries should secure investments forthe separate collection and treatment of all relevant waste streams. TheWFD em-beds the polluter pays principle in wastemanagement that implies that the costs ofdisposal must be borne by the holder or the producer of the product. This will leadto one of the main paradigm changes in SEE and will entail a change in the per-ception ofMSWmanagement as a service with low costs and of relatively low qual-ity. Another important principle in the WFD is the full cost recovery principle,including compensation of the real costs to the environment.

Implementing the directiveThe WFD embeds the requirement for waste management plans to be devel-

oped at national/regional and local levels. The main purpose of these plans is toprovide an outline of waste streams and treatment options. This is directly relevant



BOX 2: Planning sequence

According to the Waste Framework Directive, the planning sequence is as follows:

BOX 3: Investment implications of the Waste Framework Directive

TheWFD does not itself introduce a requirement for significant capital costs. These are incurred as a result of thewaste stream–related directives. The most significant cost element associated with the directive itself is the pro-vision of an adequate institutional structure, establishing the competent authority/ies with the necessary techni-cal and human resources; and the preparation of waste management plans. The main expenditures are:

• Initial set-up costs: establishing the competent authority/ies; devising systems and procedures.

• Providing training; preparing technical guidance notes; and preparing a waste management strategy and de-tailed plans.

Ongoing costs include the issuing of permits and registrations; inspections of waste management facilities andrequisite enforcement actions; reporting obligations; consultation and coordination procedures; and a commu-nications programme.

Capital and operational costs such as those related to the establishment, upgrading and operation of waste man-agement facilities mainly fall under the waste stream–related directives. Ultimately, the full costs of facility provi-sion and operation should be recovered from waste producers. Financial resources should preferably derive fromthe private sector, normally in the context of producer liability legislation.

NATIONAL WASTEMANAGEMENT STRATEGY

NATIONAL WASTEMANAGEMENT PLAN

REGIONAL WASTEMANAGEMENT PLANS

MUNICIPAL WASTEMANAGEMENT PLANS



TABLE 4: The main implementation and investment implications of the waste directives

DIRECTIVE IMPLEMENTATION INVESTMENT IMPLICATIONS LIKELY INVESTORIMPLICATIONS

The Waste Development of waste The directive does not itself introduce Municipalities, wasteFramework management plans at national/ a requirement for significant capital utilities/companies,Directive regional and local levels costs. The main expenditures can waste transporters(2008/98/EC) be summarised as initial set-up costs:

Assessment of existing disposal establishing the competentinstallations to determine the authority/ies, devising systems andadditional infrastructure needed procedures; providing training andin order to establish an preparing technical guidance notes;integrated and adequate and preparing a waste managementnetwork of disposal installations strategy and detailed plans

Waste Landfill Different waste categories Establishment of sorting stations, Municipalities, wasteDirective subject to special treatment and recycling facilities, biodegradable utilities/companies,(1999/31/EC) disposal and landfill ban waste treatment facilities and industry

proper sanitary landfillsDevelopment of wastemanagement strategies for Closure and remediation ofdifferent types of waste non-compliant landfills

Development of hazardous wastelandfills and inert waste landfillsas well as facilities for materials thatmay no longer be landfilled (tyres,healthcare waste, flammables, liquids)

Incineration Permitting procedures for incine- Installation of monitoring equipment Municipalities, wasteDirective ration and co-incineration plants to monitor parameters, conditions utilities/companies(2000/76/EC) and mass concentrations relevant to the

incineration or co-incineration processTechnological requirementsfor incineration facilities and Upgrading of existingmonitoring incineration and co-incineration plants

Procedures on the public rightof access to information, inparticular with regard to thelocation of facilities

Hazardous Waste Plans for the management of Upgrading or construction of Industry, wasteDirective hazardous waste to be drawn infrastructure for: collection systems utilities/companies(91/689/EEC) up and made public and facilities; transportation; and the(to be repealed final safe disposal of hazardous wasteby WFD on Integration with overall wasteDecember 12, management strategies to2010) ensure proper treatment

Design and implementation ofsystems for monitoring thelandfilling of hazardous wastes

with respect to investments, since for many EU-funded projects the existence ofamanagement plan is a precondition for receiving financing. Further requirementsinclude carrying out an assessment of existing disposal installations in order to iden-tify the additional infrastructure needed to establish an integrated and adequatenetwork of disposal installations.

WaterThe protection of water resources, of fresh-water and salt-water ecosystems,

and of drinking and bathing waters is one of the cornerstones of environmentalprotection in Europe. The goals of the EuropeanWater Policy are to clean up pol-lutedwater and to ensure that cleanwater remains clean. TheWater FrameworkDi-rective sets the objective of achieving good status in all surface water andgroundwater bodies by 2015. It also introduces the principle of preventing any fur-ther deterioration in status.

The directives making up the EU water framework are the Water FrameworkDirective (2000/60/EC), the Drinking Water Directive (98/83/EC), the UrbanWaste Water Treatment Directive (91/271/EEC), the Dangerous Substances inWater Directive (2006/11/EC), the Nitrates Directive (91/676/EEC) and theBathing Water Directive (2006/7/EC). The new Bathing Water Directive from2006 repeals the previous directive (76/160/EEC) and ensures that citizens aregiven better and earlier information about the quality of their bathing waters. Thenew directive has a stronger emphasis on bathing quality management and movesaway from the simple sampling andmonitoring of bathing waters. The directive isintegrated into all other EUmeasures protecting the quality of waters through theWater Framework Directive (ECDG Enlargement website).



TABLE 4: The main implementation and investment implications of the waste directives (continued)


Sewage Sludge Implemented in close Construction of facilities for the Municipalities, waterDirective cooperation with authorities treatment of sewage sludge, including utilities/companies(86/278/EEC) responsible for implementing incinerators or other facilities to treat

the Urban Waste Water those types of sludge that cannot beTreatment Directive used for agricultural purposes

Requires adquate capacities of Development of monitoring infrastructurelaboratories for testing sewage to test the quality of sewage sludgesludge

Source: REC, 2005; REC and Umweltbundesamt GmbH, 2008; and EC COM(2001) 304



TABLE 5: The main implementation and investment implications of the water directives


The Water Identification of river basins and The directive does not itself Regional governmentsFramework their assignment to individual introduce the requirement of (river basinDirective river basin districts significant capital costs. The main authorities), industry(2000/60/EC) costs relate to: the institutional and agro-industry

Establishment of competent autho- set-up; and establishing anrities, using existing structures or appropriate monitoring systemcreating new ones, and the covering groundwater and surfaceestablishment of administrative watersarrangements

Member states are obliged to drawup river basin management plansby the end of 2009, setting theobjectives to be reached in rivers,lakes coastal waters andgroundwaters across the EU

Drinking Water Identification and assessment of Upgrading of water supply systems Municipalities, waterDirective the current status of infrastructure in order to minimise pollution utilities/companies(98/83/EC) risks and to provide adequate

The main responsibility for the serviceupgrading of infrastructure will beborne by municipalities or by public Upgrading of the equipmentutility companies delivering water of water treatment stations to

ensure the removal from water ofSpecial attention should be given all substances listed by the directiveto cooperation with authoritiesresponsible for sewage collection and Establishment of efficienttreatment, as the construction monitoring infrastructure toof water supply systems should be measure the quality of wateraccompanied by sewerage delivered to customersconnection infrastructure

Urban Waste Ensuring appropriate technical Upgrading of sewage collection Municipalities, waterWater Treatment infrastructure networks utilities/companies,Directive industry(91/271/EEC) Establishment of emission limits for Construction of wastewater

concentrations of specific substances treatment plantsin urban wastewater dischargesand from certain industrial sectors Installation of monitoring

equipment to control the qualityEstablishment of “sensitive areas” of effluent waterand “less sensitive areas”, influencedby the quality of discharged waters

Attention should be given tocoherence with the Sewage SludgeDirective when constructingwastewater treatment plants

AirSince the 1970s, EU air quality policy has aimed to control emissions frommo-

bile sources, improve fuel quality and promote and integrate environmental pro-tection requirements into the transport and energy sectors. The EU uses differentways to reduce exposure to air pollution, for example through legislation, the re-duction of cross-border pollution or the development of a thematic strategy suchas Clean Air for Europe (CAFE).

Bearing inmind EU air quality legislation and the experiences of EUnewmem-ber states, it is clear that the directives presented in this section represent a signif-icant investment challenge and require infrastructure development and upgrading.



TABLE 5: The main implementation and investment implications of the water directives (continued)


Dangerous Setting up of programmes to Municipalities and industrial Municipalities, industrySubstances in reduce the discharge of dangerous companies will have to invest inWater Directive substances cleaner technologies as well as(2006/11/EC) in the treatment and pre-treatment

Identification of point sources of wastewater for certainof pollution substances

Establishment of monitoring systems Installation of water qualitymonitoring equipment

The directive should be implementedin close cooperation with the IPPCDirective and in the broader contextof the Water Framework Directive

Nitrates Directive Detection of water pollution, or Reconstruction of manure storage Agro-industry(91/676/EEC) threat of pollution, by nitrogen facilities on farms with sizeable

and the designation of vulnerable concentrations of livestockzones with a significantcontribution of nitrogen to the Installation of water qualityenvironment monitoring equipment

Development of action plansand the monitoring of theirimplementation

Bathing Water Assessment of the current status of Upgrading of wastewater treatment Municipalities, waterDirective bathing waters, followed by an effort plants for both municipal utilities/companies(2006/7/EC) to identify sources of pollution and industrial sewage

Development of a plan for the Installation of monitoringupgrading of facilities equipment

Source: REC, 2005; REC and Umweltbundesamt GmbH, 2008; and EC COM(2001) 304

Achieving and maintaining compliance with EC policies and legislation onair quality management presents a major challenge to candidate countries: inorder to minimise the associated administrative burden and costs, this challengeneeds to be managed in a systematic and cost-effective manner. TheHandbookon the Implementation of the EC Environmental Acquis (2008) provides guid-ance on efficient implementation procedures. A checklist of key questions to beconsidered when implementing the directives and preparing correspondingstrategies is provided.

New developments in the EU air acquisThe Directive on ambient air quality and cleaner air for Europe (2008/

50/EC), adopted in 2008, merges most existing legislation into a single directivewith no change to existing air quality objectives7, with the exception of the fourthdaughter directive relating to arsenic, cadmium,mercury, nickel and polycyclic aro-matic hydrocarbons in ambient air. The directive extends existing standards to in-clude objectives for fine particulate matter (PM2.5), including the limit value andexposure-related objectives (exposure concentration obligation and exposure re-duction targets). It introduces the possibility to discount natural sources of pollu-tion when assessing compliance against limit values.

Implementing the directiveThe implementation of the directive involves a similar procedure to that for

the Air Quality Framework Directive. The first step should be the designationof the competent authorities and bodies responsible for implementing the di-rective, assessing ambient air quality, approving the measuring devices, ensur-ing the accuracy of measuring devices and their compatibility with Europeanquality requirements, assuring overall standards, analysing assessment methodsand coordinating Community-wide quality assurance programmes on their ter-ritory. The second step is to develop a system for assessing the quality of ambi-ent air based on common methods and criteria. A system should also bedeveloped for gathering, reporting and publishing information, including thedissemination of that information to the public.



BOX 4: Investment implications of the Directive on Ambient Air Quality and Cleaner Air for Europe

The conducting of preliminary assessments and the continuous monitoring of ambient air quality require publicsector investments to establish air quality monitoring equipment and modelling capacity. In areas with bad am-bient air quality, it may be difficult to identify investment projects before conducting the assessments. In areas inwhich levels of pollutants are above the permitted norms, public and private sector investments are needed inorder to reduce pollutant emissions and to achieve compliance.

Integrated Pollution Prevention and Control (IPPC) Directive8The directive replaces Council Directive 96/61/EC of September 24, 1996 on

the same subject. The purpose of the directive is to achieve the integrated preven-tion and control of pollution arising from a range of listed activities. It lays downmeasures to prevent or reduce emissions to air, water and land from these activities,including measures on waste, in order to achieve a high level of protection for theenvironment as a whole. The IPPCDirective represents amajor change in the per-mitting system for certain installations. It introduces an integrated permitting sys-tem for industrial and agricultural activities with a high pollution potential. Thepermit must contain specific conditions including emission limit values and theapplication of best available techniques (BAT), and can only be issued if certainenvironmental conditions are met. The companies themselves bear responsibilityfor preventing and reducing any pollution they may cause. This includes using allappropriate pollution-preventionmeasures—preventing all large-scale pollution;avoiding waste production; using energy efficiently; and ensuring accident pre-vention and damage limitation.

Implementing the directiveImplementing the IPPCDirective entails setting up, or restructuring, a reg-

ulatory body (e.g. a competent authority) and any agencies that it might require.It also requires drawing up an IPPC inventory and assessing the current situa-tion. Guidance documents on IPPC principles and the use of BATmust be pro-vided. The IPPC Directive specifies that permit conditions should includeemission limit values for various pollutants, in particular the main air-pollut-ing substances listed in Annex III.

General observations• The EU waste policy is based on the waste hierarchy: the options range from

prevention as the most favourable, to the least favourable — landfilling.• TheWaste FrameworkDirective is not associated with significant capital costs.

Costs are related to the provision of an adequate institutional structure, the es-tablishment of competent authority/ies, and the preparation of waste manage-



BOX 5: Investment implications of the IPPC Directive

The IPPC Directive imposes extensive obligations and substantial costs on industry and the government at all lev-els. However, the investment implications of compliance for industry will be far greater than the direct costs ofimplementing the legislation. Investments related to enforcement include mainly the setting up and operationof the necessary institutional framework and authorities; the development of guidance documents; the trainingof staff and inspectors etc.



TABLE 6: The main implementation and investment implications of the air directives


The Air Quality Designation of the competent Establishment of air quality monitoring Local and regionalFramework authorities and bodies responsible equipment and modelling capacity governments,Directive for implementing the directives industry(96/62/EC) In areas of bad ambient air quality, it

Assessment of ambient air quality might be difficult to identify investmentprojects before conducting the

Ensuring the accuracy of measuring assessments.devices and their compatibilitywith European quality requirements, Public and private sector investmentassuring overall standards is needed in areas where pollutant levels

are above permitted norms in order toDevelopment of a system for assessing bring down emissions of pollutingthe quality of ambient air based substances and achieve complianceon common methods and criteria

Development of a system for gathering,reporting and publishing information,including dissemination to the public

Directive on See the Air Quality Framework See the Air Quality Framework Directive As aboveAmbient Air Directive above aboveQuality andCleaner Air forEurope(2008/50/EC)

Large Ensuring that existing plants are Investments should focus on introducing Industry, energyCombustion modified to comply with required new processes for cleaner technologies utilitiesPlants emission levels and that new plants (retrofitting) and introducing airDirective comply with specified emission limits pollution control systems in installations(2001/80/EC)

Designating institutions responsible Installations put into operation afterfor identifying all installations falling 1987 must comply with the directiveunder the directive, separately for as of the day of EU accessionold installations (in operationbefore 1987) and newer ones

Establishing a system for inspectionand monitoring

Integrated Setting up or restructuring a Investment costs related to enforcement Industry, agro-Pollution body (e.g. a competent include mainly the setting up and running industry andPrevention and authority) and agencies of the necessary institutional framework waste utilitiesControl (IPPC) and authorities, the development ofDirective Requires the identification of guidance documents, the training(2008/1/EC) installations requiring control of staff and inspectors etc.

by the IPPC and the assessmentof their current situation

Guidance documents on IPPCprinciples and the use of BATmust be provided

Source: REC, 2005; REC and Umweltbundesamt GmbH, 2008; and EC COM (2001) 304

ment plans. The highest costs are incurred as a result of the waste stream–re-lated directives and the Landfill Directive.

• The strategic framework for water has been in place since 2000, when theWaterFramework Directive was adopted. The biggest investment implications inwater in SEE are associated with the Drinking Water and the Urban WasteWater Treatment Directives.

• The Directive on Ambient Air Quality and Cleaner Air for Europe(2008/50/EC) merges most of the existing legislation into a single directivewith no change to existing air quality objectives. The main public investmentin air is associated with the establishment of a network of monitoring equip-ment while significant private investments will be needed for the implementa-tion of the IPPC and LCPDirectives.

Environmental investment needs and benefitsThe implementation and enforcement of environmental legislation is one of

the most important areas of work for SEE countries in relation to environmentalinfrastructure development. As previously indicated, this process requires signifi-cant efforts towards the upgrading and construction of new environmental facili-ties such as wastewater treatment plants and sanitary landfills. In order to identifywhere the financial challenge will be the most significant, this section looks at in-vestment needs as required by EU environmental legislation and highlights the im-plementation and investment implications for SEE countries.

Benefits for South Eastern European countries of compliancewith the environmental acquis

Implementing the EU environmental acquis entails large costs. However, it is im-portant to bear inmind that the processwill also eventually lead to a range of benefitsfor all sectors of society. In a study commissioned by the EC DG Environment in2007, the totalmonetary benefits for SEE countries is estimated at betweenEUR1.4and2billionper year (Arcadis EcolasNVand IEEP, 2007).The total benefits of cleandrinking-water supply for SEE countries are estimated to amount to up to EUR 851millionper year upon full compliance. Furthermore, the implementationof the air-re-lated environmental acquis is expected to lead to approximately 4,475 fewer cases ofpremature death from respiratory diseases and lung cancer per year.

The calculation is based on direct benefits with respect to public health and in-cludes the reduction of illness and mortality, resource benefits (for example thosegained fromreducedwater pre-treatment costs aswater quality improves; forest prod-ucts and sustainable agriculture), and eco-services gains such as the protection ofspecies, habitats and ecosystems. Wider socioeconomic benefits relate to increasedemployment through environmental investments, eco-efficiency gains, the develop-



ment of newand existing industries or economic sectors, and economic benefits fromnatural resources (e.g. tourism). Somebenefits arising from the implementationof di-rectives— such as biodiversity protection— aremore difficult to estimate inmone-tary form. The environmental benefits will increase if principles of sustainability areimplemented horizontally in other sectors, such as transport, energy and agriculture.

Environmental capital investment needsAn analysis of the state of the environment and the status of utilities for envi-

ronmental services in SEE countries exposes the deficiencies in the environmentalinfrastructure. Experiences from the new EU member states show that the devel-opment of realistic, long-term national strategies for implementing the environ-mental acquis was a crucial step in the overall process, and assisted in themobilisation of domestic and foreign sources of finance. In the case of the new EUmember states, overall assistance from the EC and foreign sources constituted onlya small proportion of the total amount needed. Certain environmental directiveswill be especially difficult to implement, not only because of the investment re-quired, but also because of the amount of infrastructure to be built. Some of themost financially demanding directives are presented in Box 6.

It has been estimated that the candidate countries will have to spend on aver-age between 2 and 3 percent of their GDP over several years in order to achieve fullimplementation (REC, 2005). Table 9 shows the estimated investments needed inorder to comply with the total EU environmental acquis.



TABLE 7: Benefits of implementing the EU environmental acquis over different sectors

Source: Arcadis Ecolas NV and IEEP, 2007

BENEFIT TYPE AIR WATER WASTE

Health Reduction in respiratory Households benefiting from Reduced share of population at riskdiseases and early mortality connection to (improved) of exposure to contaminated water/

quality water hazardous substances/odour/explosion (methane)

Resource Reduced damage to building Reduction of contaminants in Reduced primary inputs throughstock, crops etc. surface water recycling, energy recovery etc.

Eco-systems Reduced pollution stress to Likely changes in river and Avoidance of leachates, methane emisterrestrial and aquatic lake water quality sionseco-systems (acidification andground-level ozone)

Social Quality of life Confidence in drinking water Reduced discrimination by fewer lowincome households living close tounprotected landfills etc.

Wider Employment in air pollution Employment via tourism Employment for recycling etc.control equipment, increased related to water recreationlocational quality

Main costs for upgrading infrastructureWaste sector

It will be necessary to upgrade the quality and environmen-tal performance of existing facilities to ensure that they reachcompliance with the environmental standards set as part of na-tional policies and strategies. The costs incurred in establishingnew facilities will depend on the number, type and capacities ofthe additional facilities required. Funds need to be raised for cap-ital investment expenditures and to cover recurrent operationalcosts. Ultimately, the full costs of facility provision and opera-tion should be recovered from waste producers.

Meeting the requirements laid down in the Waste Frame-work Directive, the HazardousWaste Directive and the Land-fill Directive is likely to be very costly. The provision offacilities of a higher standard, together with the creation of anadequate institutional structure, will constitute the largest el-ements of the overall cost of achieving compliance. It shouldbe appreciated that the provision of facilities will incur notonly initial capital costs but also significant recurring annualcosts for operation and maintenance, together— in the case oflandfills —with long-term costs for remediation and aftercare.

A study on the costs of implementing EC waste managementlegislation in Slovakia estimates the total capital costs (net present



TABLE 8: Total benefits (in EUR million) for SEE countries of full compliance with the water-related directives

ANNUAL BENEFITS TOTAL DISCOUNTED BENEFITS

LOW ESTIMATE HIGH ESTIMATE LOW ESTIMATE HIGH ESTIMATE

Albania 60.5 103.6 495 847

Bosnia and Herzegovina 75.3 95.8 616 783

Croatia 60.6 378.6 610.0 3810.9

FYR Macedonia 66.7 80.5 546 658

Montenegro 66.2 71.8 541 587

Kosovo (as defined 14.3 21.1 117 172under UNSCR 1244)

Serbia 467 521 3,818 4,260

TOTAL 811 1,272 6,743 11,118

Note: Value in EUR of the annual benefits upon full compliance with the water directives and the total discounted benefits over 20 years ofcompliance with the water directives in the respective countries.Source: Arcadis Ecolas NV and IEEP, 2007

BOX 6: Investment-heavy directives

Air sector

• Air Quality Directive (96/62/EC)

• Large Combustion Plants Directive(2001/80/EC)

Waste sector

• Landfill Directive (1999/31/EC)

• Incineration Directive (2000/76/EC)

• Hazardous Waste Directive (91/689/EEC)

• Sewage Sludge Directive (86/278/EEC)

Water sector

• Drinking Water Directive (98/83/EC)

• Urban Waste Water Treatment Directive(91/271/EEC)

• Dangerous Substances in Water Directive(76/464/EEC)

• Nitrates Directive (91/676/EEC)

• Bathing Water Directive (76/160/EEC)

value in 1999 at 5 percent) to be EUR 1.17 billion. A similar study for Latvia showscapital costs of EUR 237.9million. The latter study estimates only the impact of theHazardousWaste andWaste LandfillDirectives, which have the greatest cost impact.In addition, the implementation of the waste directives will require investments inhuman competencies, for example through the training of staff. Without sufficient,suitably trained staff, systems for waste management planning, regulation and en-forcement cannot be effectively implemented.Adequate budgets therefore need to beensured to enable the responsible institutions to perform their functions effectively.Salaries need to be set at appropriate levels to attract and retain qualified staff (RECandUmweltbundesamtGmbH, 2008).

Water sectorIt will be necessary to upgrade facilities as a result of implementing the water di-

rectives. Finance needs to be raised for capital investment expenditures and recurrentoperational costs. Ultimately, costs should be recovered from water users/polluters,that is, from consumers (domestic, industrial and agricultural sectors).



TABLE 9: Estimated funding needed to achieve compliance with the EU environmental acquis

COUNTRIES ESTIMATED FUNDING TIMELINE REFERENCENEEDED TO ACHIEVE OF ESTIMATECOMPLIANCE WITH THE EUENVIRONMENTAL ACQUIS

Albania EUR 252 million for Until 2013 National Strategy for Developmentenvironmental investments and Integration (March 2008)and water and sanitation

Bosnia and EUR 3.8 billion CARDS projects: Federal EnvironmentalHerzegovina Strategy and Environmental Strategy in RS

Croatia Between EUR 6 and 12 billion Until 2013 CARDS 2004 projects, IPA projects,EPEEF programmes

FYR EUR 3.13 billion (EUR 2,947 Until 2030 CARDS 2005 project “EnvironmentalMacedonia million capital costs and Management Strengthening” (Developing

EUR 182.4 million a National Strategy for Environmentaloperational costs) Approximation)

Montenegro EUR 32.5 billion 2008–2012 National Programme for Integration

Serbia EUR 652 million (according Full EC SEC(2009)to estimates during implementationthe preparation of the National of harmonisedProgramme for Environmental laws should beProtection) achieved by the

end of 2012

Kosovo (as EUR 21.5 million 2007–2013 Estimate based on national strategiesdefined under and medium-term expenditureUNSCR 1244) framework


The costs incurred in establishing new facilities are dependent on the standardsthat have to be adopted and the number, type and size of the facilities required forcomplying with these new standards. The current levels of treatment available forwastewater, drinking water, industrial discharges and agricultural practices are de-cisive in terms of final costs. Such a wide variety of changes are needed that it is im-possible to give a precise figure of the costs of implementing water legislation.

Although themajorityof SEEcountrieshave institutionsdevoted to thepreventionofwaterpollutionand to thepermittingof installations, there is aneed toupgrade themin order to implement the entire body of legislation, in particular the new frameworkdirective.Newworkingmethods should be introduced in linewith the new standardsapplied, such as emission limits, quality objectives, best available techniques and the



BOX 7: Financing regional waste management centres in Croatia

The total investment needed in the waste sector in Croatia is estimated at EUR 3.25 billion. Depending on thefinal number of regional waste management centres (RWMCs), the assessed investments will range from EUR 350to 400 million in order to bring the landfills to operational level. The financing of RWMC construction is envis-aged through public sources (state budget, budgets of local and regional self-government units, EU funds, the En-vironmental Protection and Energy Efficiency Fund [EPEEF], bank loans) as well as private sources (privateinvestments in WMCs, public-private partnerships [PPP], concessions, the primary separation and collection ofwaste, recycling and collecting plants/facilities). In phase one of the RWMC financing structure, public costs(landfill site, infrastructure and transfer station) will be financed up to 80 percent from EU funds and the EPEEF;and 20 percent by local authorities. Bank loans will be used for the establishment of a collection system and forthe construction of the municipal waste disposal system at the level of the local (regional) self-government. Inphase two, the costs of mechanical biological treatment (MBT) plants will be financed by the private sector (PPP)and, if possible, the public sector. Investments are required for MBT facilities, landfills and infrastructure, the con-struction of transfer stations along with system set-up costs.Source: REC, 2009b

BOX 8: Challenges to financing waste management in Kosovo (as defined under UNSCR 1244)

Based on the medium-term expenditure budget for the years 2010 to 2012, foreseen expenditure in the field ofenvironment for capital investments is EUR 14.8 million. For approved projects (2008 to 2012) the total is EUR3.425 million, and for new projects EUR 9.8 million.

The main challenges identified in financing waste management projects in Kosovo (as defined under UNSCR1244) are, to a large extent, representative of the situation in several SEE countries. They include defining clearresponsibilities at central and local level; settling ownership issues in relation to landfills and wastewater treat-ment plants; increasing the limited budget for environmental management; establishing eco-funds; providingmechanisms for obtaining international funds and loans; strengthening the existing financing system; and im-proving payment and fee collections.Source: REC survey, 2009; and REC, 2009b

need for wide-ranging monitoring together with facilities and data processing. As inthe waste sector, budgets need to be allocated for human and institutional reorganisa-tion and training (REC andUmweltbundesamtGmbH, 2008).

Air quality sectorThemajor costs of implementing the air quality directives will be borne by the

source operators, who will need to cover the costs of emission abatement equip-ment, the upgrading of existing plants or the installation of new plants. Funds there-fore need to be raised for capital investment and any recurrent operational costs.The application of the air quality directives will also require the provision of train-ing to ensure that staff have sufficient competencies to perform the required tasksin relation to air quality monitoring, modelling, management, planning, and reg-ulation and enforcement.



TABLE 10: Indicative estimates of investment outlays for the waste sector

BENEFIT TYPE AIR

Albania Estimated investment needs up to 2022 are EUR 150 million for the waste sector; investmentof EUR 9.8 million is foreseen for the Landfill Directive until 2012

Bosnia and No information availableHerzegovina

Croatia Estimated investment needs are EUR 7.6 billion for the waste sector. Of this, EUR 11 millionare needed for the WFD (2007–2010), EUR 191 million for the Landfill Directive (2010–2018);and EUR 9 million for the Hazardous Waste Directive (2009–2013)

FYR Estimated investment needs up to 2012 are EUR 211 million for the waste sector. Of this,Macedonia EUR 400 million are needed for the WFD; EUR 6 billion for the Landfill Directive;

EUR 500 million for the Hazardous Waste Directive; EUR 400 million for the Sewage SludgeDirective; and EUR 300 million for the Incineration Directive

Kosovo (as Estimated investment needs up to 2012 are EUR 4.6 million for the waste sector. Of this,defined under EUR 1.2 million are needed for the WFD (2007–2013); EUR 0.7 million for the Landfill DirectiveUNSCR 1244) (2008–2012); EUR 1.041 million for the Hazardous Waste Directive (2007–2012);

and EUR 1.75 million for the Incineration Directive (2008–2012)

Montenegro Estimated investment needs are EUR 129.7 million, of which EUR 128.5 million are investments,remediation and management costs; and EUR 1.18 million administrative costs


TABLE 11: Infrastructure facility needs identified in the waste sector in Serbia

29 regional sanitary 44 transfer 17 recycling 7 composting 4 incineratorslandfills for 160 stations for 63 centres for 160 facilities for for 160municipalities municipalities municipalities 146 municipalities municipalities

Source: National Sustainable Development Strategy 2008

The costs of ensuring that large combustion plants reduce emissions to an ac-ceptable level may include the construction of new plants to replace outdated ones,and the addition of new units to less-polluting plants to compensate for energylosses. The closure of certain industries will represent the biggest cost. In Estonia,the application of BAT to large combustion plants is estimated to require capitaloutlay of EUR 427.9 million by 2005 and EUR 801.8 million by 2010 (REC andUmweltbundesamt GmbH, 2008).



BOX 9: Cost implications for implementing the Water Framework Directive in Albania

In Albania, the cost of full transposition of the legal framework for the Water Framework Directive (WFD) is es-timated at EUR 800,000. The total implementation costs for the institutional set-up amount to one-off costs ofEUR 5.4 million and recurrent costs of EUR 524,000 per year. These costs will be sustained primarily by the na-tional competent authority responsible for implementing theWFD and by the new river basin authorities. The totalcosts relate mainly to the establishment of the necessary administrative infrastructure and to building its capac-ity, as well as to establishing and operating the monitoring system, rather than to technical measures, which areassumed to arise under other directives.

The total estimated cost of technical assistance projects — over EUR 4.8 million — reflects the ambitious scopeof the directive. It has been estimated that the operating costs (excluding capital costs) of the monitoring re-quired to comply with the WFD will be EUR 182,000 per year. However, the present allocation in the MoEFWAbudget for monitoring (which also covers operating costs only) is just EUR 110,000 per year, an estimated thirdof which (EUR 37,000 per year) is available for water. On this basis, the additional operating costs required forwater monitoring would be EUR 145,000 per year.Source: REC Survey 2009

BOX 10: Capital investment needs in the water sector in Bosnia and Herzegovina

Federation of Bosnia and Herzegovina (12-year period)• Water supply: EUR 594.4 million

• Water protection: EUR 467.2 million

Republika SrpskaInvestments are to be realised in two phases until 2033.

• Infrastructure revitalisation• Water distribution network: EUR 143.3 million (KM 280 million)• Wastewater treatment plants: EUR 1.2 million (KM 2.3 million)

• New system developments• Water distribution network: EUR 77.4 million (KM 151.4 million• Wastewater treatment plants: EUR 150.8 million (KM 295 million)


General observations• The implementation of environmental legislation, and especially of certain in-

vestment-heavy directives, requires significant efforts towards the upgradingand construction of new environmental facilities in water andwaste that will en-tail significant public and private costs representing more than 2 to 3 percentof the countries’ GDP.

• Compliance will eventually lead to a range of benefits linked to improved healthand a better living environment.



TABLE 12: Indicative estimates of investment outlays for the water sector

Albania EUR 6.2 million for updating the legislation according to the Water Framework Directive

Bosnia and EUR 2.83 billion for upgrading infrastructure according to the EU water acquisHerzegovina

Croatia EUR 3.5 billion for upgrading infrastructure until 2023 according to the EU water acquis

FYR EUR 724 million for upgrading infrastructure according to the EU water acquisMacedonia

Kosovo (as EUR 3.5 million for updating the legislation according to the Water Framework Directivedefined underUNSCR 1244)

Montenegro EUR 769.9 million, of which EUR 765.7 million are investment costs and EUR 4.2 millionadministrative costs

Serbia No data available

Source: REC Survey, 2009

TABLE 13: Identified investment needs in the water sector in the former Yugoslav Republic of Macedonia

WATER SUPPLY WASTEWATER WASTEWATERNETWORK NETWORK TREATMENT PLANTS

EXISTING UPGRADE EXISTING UPGRADE EXISTING UPGRADE NEWNEEDED NEEDED NEEDED

Agglomerations 27 20 27 21 4 1 22over 15,000 p.e.

Agglomerations 41 38 41 38 3 1 37between 2,000and 15,000 p.e.




BOX 11: Main costs arising in relation to legislation in the air quality sector

1. Establishing andmaintaining a network of air quality monitoring stations and associated quality assuranceequipment, and reporting the monitoring results. These costs will be borne by the central government.

2. Preparing emissions inventories of greenhouse gases and pollutants that significantly affect air quality.These costs will be borne by the central government.

3. Preparing plans and programmes to achieve compliance with ambient air quality limits. These costs willbe borne by the central government.

4. Compliance with emission limits and technical requirements under the directives, or the implementationof plans and programmes designed to improve ambient air quality. These costs will be borne by the pol-luters themselves (industry, householders, motorists etc.).

5. Staff training.Without suitably trained staff, systems for air quality monitoring, modelling, management, plan-ning, and regulation and enforcement cannot be effectively implemented. It is important to ensure that ade-quate budgets are provided to enable the responsible institutions to perform their functions effectively.

Source: REC and Umweltbundesamt GmbH, 2008

BOX 12: Cost of implementing the IPPC Directive in the former Yugoslav Republic of Macedonia

In order to achieve compliance with the IPPC Directive, EUR 572 million investments and EUR 39 million annualoperating costs have to be covered by industry (investment and operating costs in abatement systems), the Min-istry of Environment and Physical Planning, and the municipalities (mainly training, administration and staff costs).(National Environmental Investment Strategy, 2009)

TABLE 14: Indicative estimates of investment outlays for the air sector

BENEFIT TYPE AIR

Croatia Estimated investment needs up to 2011 are EUR 3.2 million. Of this, EUR 2 million are allocated toair quality directives; EUR 0.7 million to the IPPC Directive; and EUR 0.5 million to the LCP Directive.

FYR Estimated investment needs between 2007 and 2011 are EUR 1.127 billion. Of this, EUR 5 millionMacedonia are allocated to air quality directives; EUR 572 million to the IPPC Directive; and EUR 550 million

to the LCP Directive.

Kosovo (as defined Estimated investment needs between 2009 and 2012 are EUR 1.075 million.under UNSCR 1244)

Montenegro Estimated investment needs up to 2012 are EUR 12.96 million.




Chapter 5National strategic andinstitutional framework


Update on progressin national environmental legislation

One of the preconditions for developing environmental infrastructure is to havein place legislation of the appropriate quality. Over the past few years, SEE coun-tries have made progress in drafting and adopting new laws that follow the re-quirements of the EU directives. The basic elements of the legislative structure arein place, and work on drafting secondary legislation is ongoing in all countries. Ingeneral, despite the progress achieved, considerable efforts are needed in the forth-coming period in order tomeet the requirements of the EU environmental acquis.The first challenge is related to the further drafting and adoption of national leg-islation and strategies transposing the EU acquis. Once the legislative frameworkis in place, enforcement and compliance remain the biggest challenges.

Below is an overview of the most significant developments with respect to thelegislative and strategic framework in SEE countries since 2006. The informationbuilds on data collected during the course of PEIP implementation and has beencross-checked with the EC progress reports from 2009 for the candidate and po-tential candidate countries.9 A list of strategic documents providing guidance forinfrastructure investment in the water and waste sectors in SEE countries can befound in Annex 3.

Overview of environmental legislativeand strategic developments in SEE

InAlbania, preparations in the field of environment are advancing slowly andremain at an early stage for a number of sectors. The new draft law on environ-mental protection, incorporating a number of important directives such as theIPPC, LCP andWater FrameworkDirectives, has not yet been adopted (EC SEC[2009] 1337). TheCrosscutting Strategy for the Environmentwas adopted in 2007and sets out the government’s policies in the field of environmental protection.The strategy is the first environmental strategy document adopted at national level.It foresees the steps necessary to achieve the approximation of the legal frameworkin the light of European integration, as well as measures for transferring the ad-ministration of natural resources to the community. The project “Implementationof the national plan for the approximation of environmental legislation” (August2008 to November 2010), funded by EU CARDS 2006, is expected to improvelegislation in the water andwaste sectors. In general, it can be concluded that therehave been some positive legislative developments but that implementation and en-forcement remain weak (EC SEC[2009] 1337).

The water sector has seen the most notable developments in recent years.Progress has been underpinned by the adoption of the Reform of theWater Util-ities in July 2008. Developments related to the water reform are aligned with EUwater policy and are aimed at decentralisation, privatisation and full cost recov-ery operations. The reform has led to the improvement of existing strategies andwill lead to the development of new policies. On the legislative side, the law on


the regulatory framework in the water supply and wastewater administration sec-tor was adopted in 2008 and it is expected that the amended version of the Na-tionalWater Strategy of 2003 will be adopted in 2010. Implementing legislationand action plans for legislative approximation to the Water Framework Direc-tive and the Nitrates and UrbanWaste Water Treatment Directives are pendingadoption (EC SEC [2009] 1337).

There is still a need to improve the legislative and strategic framework in thesolidwaste sector. Limited progress has beenmade on developing the SolidWasteManagement Strategy, which is one of the bottlenecks to the improvement of wastemanagement systems (waste collection, treatment services and final sanitary land-filling). TheNationalWasteManagement Plan is expected to be adopted in 2010.Although the government has earmarked a satisfactory budget for the waste sector,the need for good planning and for efficient policies and strategies is an immedi-ate priority in order to make use of available EU funds and to invest efficiently.

In Bosnia and Herzegovina, a state-level environment law ensuring har-monised countrywide environmental protection has not yet been adopted. Thedraft law will be presented in June 2010. The Environmental Law will define theestablishment of the Environment Agency of Bosnia andHerzegovina. The prepa-ration of accompanying strategies and secondary legislation is in process in both en-tities. Republika Srpska is currently preparing the Nature Protection Strategy andthe Air Protection Strategy. The Federation of Bosnia and Herzegovina has com-pleted the preparation of the Federal Strategy for Environmental Protection com-prising four separate strategies — on nature protection, air protection, wastemanagement and water management. The strategy is expected to be adopted bythe end of 2009. According to the EC progress report, the transposition and im-plementation of the acquis in the field of horizontal legislation requires consider-able improvement. The implementation of environmental legislation remains aconcern and the integration of environmental aspects in other sectors remains weak(EC SEC [2009] 1338).

In Bosnia andHerzegovina, themain developments have been registered in thewater sector. The implementation of theWater FrameworkDirective has begun viathe entity water laws (in the Federation in 2006, and in Republika Srpska in 2006).The adoptedwater laws envisage the greater involvement of local government unitsin project identification and preparation activities. Implementing legislation hasbeen adopted for water laws and water charges, and for harmful and dangeroussubstances and their maximum levels in surface waters. Water agencies have beenoperational in the Federation of Bosnia andHerzegovina since January 2008. Agen-cies are still to be established in Republika Srpska: two agencies are planned in Bi-jeljina and Trebinje. The adoption of the Water Management Strategy in theFederation is expected at the beginning of 2010 (EC SEC [2009] 1338).

The Solid Waste Management Strategy in Bosnia and Herzegovina, developedthrough anEU/Phare project, was adopted in 2000.The legislative framework in thewaste sector is incomplete, which creates an obstacle to the development of physicalinfrastructure. Little progress has therefore been achieved in the construction of re-gional sanitary landfills and in the rehabilitation and closure of unregulated landfills.

CHAPT ER 5NAT IONAL S TRAT EG IC AND INS T I TUT IONAL FRAMEWORK


There has been some progress in the adoption of implementing regulations with re-spect towaste products that canno longer bedisposedof in landfillswithoutpre-treat-ment (such asmedicalwaste).However, noprogress has beenmade in relation to rulesor regulations governing the system for the recycling and recovery of priority wastestreams, such as packaging, motor oil and tyres (EC SEC [2009] 1338).

Croatia has made significant efforts to harmonise its national legislation withthe EU environmental acquis. Several acts have been passed in the air, water andwaste sectors, and strategic documents have been drawn up. TheNational Strategyfor Sustainable Development was adopted in 2009.

The Act onWaters and the Act onWater Management Financing, which willconstitute the primary legislation for water management, have not yet been en-acted. This is hampering the foreseen restructuring of the sector and is slowingdown the transposition process. The existing versions of both acts are from 2005and are currently being amended. In addition to these two acts, watermanagementin Croatia is regulated by approximately 40 subordinate acts. Implementing legis-lation in relation to hazardous substances in waters and wastewater has been en-acted. The Water Management Strategy was adopted in 2008. Despite thisprogress, considerable efforts will be needed to further align with and implementthe acquis in the water, industrial pollution control and risk management, climatechange and horizontal sectors. Monitoring and reporting activities need to be im-proved (EC SEC [2009] 1333).

Implementing legislation has been adopted onwaste from extractive industriesand themanagement of polychlorinated biphenyls (PCB) and polychlorinated ter-phenyls (PCT). Amending legislation on the classification of waste and on the su-pervision of transboundary movements of waste has also been adopted (EC SEC[2009] 1333). The Waste Management Law was adopted in 2005 (amended in2006) and the complementary National Waste Management Strategy (NWMS)in 2005. TheNationalWasteManagement Plan (NWMP) for the period 2007 to2015 was adopted in 2007. Sustained efforts are needed towards the remediationof existing landfills and hotspots and the further establishment of systems for thecollection andmanagement of different categories of waste (EC SEC [2009] 1333).

Kosovo (as defined underUNSCR1244) is at an early stage in terms of align-ment with European environmental standards. However, progress has beenachieved in both the horizontal and vertical legislative framework in the water,waste and air sectors. The new draft Law on Environmental Protection was



BOX 13: Planning hierarchy in Croatia

• Waste Management Strategy of the Republic of Croatia (Official Gazette, No. 130/05) — 2005.

• Waste Management Plan of the Republic of Croatia for the period 2007 to 2015 (Official Gazette, No. 85/07)— June 2007.

• According to the Waste Management Plan and obligations arising from the Waste Law (Official Gazette,No. 178/04, 111/06, 60/08), 21 counties prepared draft regional waste management plans in 2008.

adopted in 2009, and horizontal laws on EIA, SEA and IPPCwere adopted in thefirst half of 2009. The Kosovo Environmental Action Plan (KEAP) 2006–2010(2006) is aimed at the gradual improvement of the environmental situation andthe improvement of public health in general. The Environmental ProtectionAgency has been operational since 2007.

The Law onWaterwas adopted in 2004. TheWastewater Treatment Strategywas adopted the same year. There has been no progress in the establishment of riverbasin authorities, envisaged by theWater Law. TheWater Law provides for the es-tablishment of a river basin authority that will be responsible for water resourcemanagement in the territory of the river basins. There is currently no national watermanagement strategy.

Watermanagement is a key element in the EnvironmentalActionPlan, given thegrowing scarcity ofwater inKosovo (as defined underUNSCR1244) and the region.In the KEAP, the construction of wastewater treatment plants is listed as a priority.

The most important developments in the environmental sector in Kosovo (asdefined under UNSCR 1244) have been achieved in the waste sector, althoughthere is still a mixture of competencies between theMinistry of Environment andSpatial Planning (MESP) and theWater andWaste RegulatoryOffice (WWRO).The Law on Waste Management and Disposal (2006) was enacted along witha number of pieces of secondary legislation covering construction and demolitionwaste; used batteries and accumulators; end-of-life vehicles; packaging waste; thecompetencies of the owners and operators of waste treatment facilities; the ad-ministration of waste landfills; hazardous waste; waste electrical and electronicequipment; as well as medical products andwaste. TheAdministrative InstructiononConditions for the Designation of the Location and Construction of Landfillswas approved in January 2009. The Draft Administrative Instruction on Licencesfor Waste Administration is expected to be adopted by the end of 2009 and willregulate the duties and responsibilities of the licensing authorities. The NationalWaste Management Strategy is being prepared and should be finalised in 2009.

In the formerYugoslav Republic ofMacedonia, the basic elements of the leg-islative framework are in place. A number of legal documents have been adoptedand/or amended in compliance with the EU acquis. After passing the horizontaland vertical laws, themost intensive drafting of bylaws is taking place for the wastesector, and partially in the air, noise and water sectors. The strategic framework iswell developed, with only a few gaps remaining

TheNational Strategy for Sustainable Development (NSSD) is expected to beapproved in 2009. The National Environmental Investment Strategy (NEIS),which was adopted in April 2009, sets clear national priorities, streamlining theavailable national funds and leveraging international financing sources towardssolving priority environmental problems.

Following the adoption of the newLawonWater, themajor challenge is to es-tablish an integrated water management approach and to overcome barriers re-sulting from the inherited institutional disparities. Activities will mostly comprisethe adoption of the approximated laws and the transfer of competencies from the



Ministry of Agriculture, Forestry and Water Economy (MAFWE) and the Min-istry of Transport and Communications (MTC) to the Ministry of Environmentand Physical Planning (MEPP).

The water strategy and respective river basinmanagement plansmust be put inplace as an important prerequisite for the planning and further reform of existinginstitutions, as well as for the creation of new institutions (e.g. river basin man-agement bodies). A national strategy on water management is currently being de-veloped and is due to be completed by the middle of 2010. Transposition effortsneed to be stepped up.No progress has as yet been achieved in applying the polluterpays principle (EC SEC [2009]1335).

Amendments to theWasteManagement Law have been enacted, includingprovisions on sanctions and on the level of fines (EC SEC [2009] 1335). Themostimportant regulation to have been put into effect recently is theOrdinance on theLandfilling of Waste, which regulates disposal standards. With the enforcementof this regulation, the gradual closure of non-compliant landfills is foreseen, ac-companied by the provision of additional landfill capacity through the construc-tion of regional sanitary landfills.

Sub-laws on hazardous waste management (OGRMNo. 15/2008) have beenadopted. One obstacle to the implementation of these regulations is the absence ofa suitable institutional structure, even though it is required by the Law on WasteManagement. Another area that has recently been covered by secondary legisla-tion is the handling of healthcare waste (OGRMNo. 146/2007).

The National Waste Management Strategy (2008–2020), adopted in April2008, represents the basis for the preparation and implementation of an integratedand cost-effective waste management system.

InMontenegro, activities have been carried out since May 2006 in relation tothe ratification of international conventions in the environmental sector. The processof harmonising national laws with the relevant EU directives was given additionalemphasis after November 2007 and a set of new laws was adopted, for example onEIA, SEA, air quality, wastemanagement, watermanagement and industrial pollu-tion control. Harmonisation in these areas is continuing through the adoption ofsecondary legislation, and particular attentionwill be dedicated to areas where har-monisation remains at a low level. The Law on Environment was adopted in July2008 and was followed by the establishment of the Environmental ProtectionAgency. The National Programme for Integration into the EU for 2008 to 2012has been adopted. It includes a chapter on the environment (covering issues such ashorizontal legislation, air quality and climate change, waste management, watermanagement etc.). The government adopted a national environmental policy settingout national priorities and addressing cross-cutting issues, such as the need to bringgradually all environmental protection issues together under a single ministry. Ac-cording to the EC progress report, Montenegro has made some progress on legisla-tive alignment with European standards (EC SEC [2009] 1336).

TheLawonWaters regulates the legal status and integratedmanagement of wa-ters, shore land and water-related facilities. Funds for financing water managementoperations will be provided in accordance with the Law on the Financing ofWaters,



which is in the drafting phase. The key strategic documents that provide guidance forthedevelopmentofwater supply and sewage facilities andwastewater treatmentplantsincludemaster plans for wastewater drainage and treatment for the southern, and forthe central andnorthern regions respectively (2004, 2005); andmaster plans forwatersupply (2006). Legislation in the area of watermanagement will be harmonised withthe EU acquis through the adoption of new secondary legislation. Alignment withEuropean standardsneeds tobe improved substantially and further efforts are requiredin order to improve implementation and enforcement (EC SEC [2009] 1336).

Themost significant progress has been observed in thewaste sector. The LawonWaste Management (2008) represents the legislative framework in the field ofwaste management. Local self-government units will develop local waste manage-ment plans based on the RepublicWasteManagement Plan. The law introduces in-novations in waste management practices, as local governments are obliged tocomply with requirements on selective waste collection, waste disposal in sanitarylandfills and waste treatment in accordance with EU standards. Financial and ad-ministrative limitations have delayed the implementation of the Waste Manage-ment Law from November 1, 2008 to January 1, 2010 (EC SEC [2009] 1336).The key documents that set the strategic directions for activities in waste manage-ment and provide for integrated regulation are the National Waste ManagementPolicy (2004) and the Strategic Master Plan for Waste Management at RepublicLevel (2005). Developments can be seen in the implementation of the StrategicMaster Plan forWasteManagement, as the preparation of project documentationfor identified priority projects has been initiated. According to the EC progress re-port, alignment with European standards needs to be considerably improved andaccelerated, in particular concerning the Landfill Directive and the Waste Ship-ments Regulation (EC SEC [2009] 1336).

There was little progress in the adoption of environmental laws in Serbia untilMay 2009, when a set of 16 environmental laws was adopted (amendments, newlaws and regulations). The adopted laws are aimed at achieving harmony with EUregulations, and at introducing stricter penal policies. Among the laws adoptedwere the Law on Environmental Protection, the Law onWaste Management andthe Law on Packaging and PackagingWaste. ANational SustainableDevelopmentStrategy (NSDS) was adopted in May 2008. It is structured around three pillars:knowledge-based sustainability; socio-economic conditions; and the environmentand natural resources. Legislation enforcement at all levels has still to be ensured.

Progress in the area of water quality is lagging behind and there is no legal orinstitutional framework in place (EC SEC [2009] 1339). There is a lack of long-term planning for the water sector, and there are currently no appropriate strategiesfor preparing and implementing water infrastructure investment projects at anylevel (national, regional, local).

The new Water Act (last amended in 1996), which introduces new instru-ments for the financing of the water sector, including appropriate tariffs, is cur-rently being drafted and had not been adopted as of the date of this publication.The draft of the newWater Act will be harmonised with EU directives as well aswith relevant national legislation.



The current Water Management Strategy was prepared in 1991 and adoptedin 1996, and is not in compliance with the EUwater acquis. The future strategy forthe development of the water sector should define the reorganisation of the watersector in order to achieve long-term sustainable water management. Due to thethen existing economic conditions, measures from the 2001–2005mid-term planfor the water sector have not been implemented, nor has the mid-term plan for2006–2010 been adopted.

Progress can be noted with the adoption of the Law onWaste Management(2009) that provides for the complete harmonisation of national legislation withthe EU acquis. The law regulates waste planning andmanagement, as well as meas-ures and procedures for the collection, transportation, reuse, recycling, treatmentand disposal of all types of waste, including communal, medical and hazardouswaste, from the national level down to the local level. Laws on packaging and pack-aging waste have also been adopted (EC SEC [2009] 1339). Twenty pieces of sec-ondary legislation are in the drafting or adoption stage. The National WasteManagement Strategy from 2003 is currently being revisited and the draft will besubmitted for adoption procedure in 2009. The new strategy will define possiblelocations for regional waste management centres.

General observations• The countries of SEE have made significant progress in drafting and adopting

new laws and strategies in accordance with the EU environmental acquis, butdespite the progress achieved, considerable efforts are needed to meet the re-quirements of the acquis.

• The transposition and implementation of EU environmental legislation isa precondition for unblocking environmental investments in SEE countries.

• The development of an environmental investment strategy and of key policyobjectives and priorities is essential to ensure effective financing for environ-mental infrastructure.

Enforcement of environmental legislationin the water and waste sectors

The enforcement of EUwater and waste legislation is just as important for un-blocking environmental infrastructure investments as the adoption of targeted,quality laws and regulations.Only strong pressure on national institutions and localgovernments to comply with commitments in the water andwaste sectors can gen-erate sufficient political will for reform. This pressure would come from strong andindependent national and local enforcement institutions— that is, environmentalinspectorates. Economic operators and citizens should also feel the consequencesof illegal actions. There is a close link between the enforcement of legislation andits effect on the credibility and financial security of environmental infrastructure



investments. For example, it would be very difficult to proceed with the establish-ment of a regional solid waste management system and the construction of a newsanitary landfill with fair gate fees if no corresponding sanctions are imposed on theillegal dumping of waste.

The current capacities of environmental inspectorates are relatively weak interms of the number of inspectors and their expertise in the EU environmental ac-quis. Particularly in periods of economic crisis, governments tend to cut staff num-bers. Outstanding agreements with the International Monetary Fund (IMF)represent an additional pressure to make staff cuts.

The reform of environmental inspection is an integral part of a wider regulatoryand judicial reform (World Bank, 2007). Even if the inspectorates are strongenough to spot environmental irregularities and, in more extreme cases, crimes, itis of little use if the link with the prosecution and the court is weak. This raises theentirely different issue of the need to enhance the environmental expertise of thepolice, the prosecution and the courts.

Inmost SEE countries there is a separate water inspectorate, which raises prob-lems especially in relation to the enforcement of the IPPC Directive, since it re-quires a multi-environmental media approach, joint inspections, and thus goodcoordination.

Strengthened enforcement goes hand in hand with increased awareness — es-pecially among citizens and businesses—of the importance of compliancewith en-vironmental legislation and, even more importantly, of the benefits of compliance.Themodern andmore successful approach to enforcement and compliance relies toa great extent on prevention, action, education and dialogue rather than punish-ment. Enforcement methods can also be combined with incentives, defined as theconscious use of rewards and penalties to encourage good performance. Non-bind-ingmechanisms such as economic incentives to stimulate certain behaviour can alsobe used in the form of state subsidies, tax relief or lowered insurance premiums.

Enhanced enforcement is inseparable from strong monitoring and reportingsystems, which, unfortunately, are lacking in SEE countries, where there is muchwork to be done in this respect. This lack ofmonitoring and reporting systems tiesthe hands of inspectors and decreases the efficiency of their work.

Since 2001, the REC has been the secretariat of a network of environmental in-spectors in SEE. Between 2001 and 2005, the networkwas known as theBalkanEn-vironmentalRegulatory andEnforcementNetwork (BERCEN). In 2005, BERCENwas replaced by the Environmental Compliance and EnforcementNetwork for Ac-cession (ECENA). BERCENandECENAhave been addressing the above issues forthe past eight years through trainings, exchange programmes and publications.

Formany years there has been a debate in Europe regarding the criminalisationof certain environmental offences. In 2008, the European Commission passed animportant piece of legislation in this direction, which is presented in Box 15.



General observations• The enforcement of EUwater and waste legislation is just as important for un-

blocking environmental infrastructure investments as the adoption and trans-position of targeted, quality laws and regulations.

• There is a low level of awareness among citizens and businesses of the impor-tance of compliance with environmental legislation and, even more impor-tantly, of the benefits of such compliance.

• The inspection culture in SEE is predominantly focused on punishment ratherthan prevention, action, education and dialogue.

• The current capacities of inspectorates are relatively weak in terms of numbers,knowledge and equipment. The police, prosecution and courts have little en-vironmental expertise. The reform of environmental inspection is an integralpart of a wider regulatory and judicial reform.

• Inmany cases, the enforcement and regulatory functions of the administrationare not divided.

• Inmost SEE countries there is a separate water inspectorate, which raises prob-lems especially with respect to the enforcement of the IPPCDirective.

• Companies lack strongmonitoring and reporting systems, which reduces the ef-ficiency of the inspectors’ work.

Environmental institutionsHuman resources capacity

Thecurrent capacityof environmental institutions (ministries, agencies etc.)will beinsufficient for the administration of all the requirements arising from the adoption ofthe acquis. The increasing volumeof environmental legislationwill force governmentsto alter human resource capacities accordingly, or face understaffing.At the same time,it is highly probable thatministries of financewill exert pressure in the opposite direc-tion and call for staff cuts due to budgetary constraints, agreements with IFIs etc.

One of the mistakes made in CEE countries during the EU integration processwas the lack of proper human resources planning linked to the requirements of theEU acquis. The availability of environmental experts in general, and of environmen-tal investment experts in particular, is of the utmost importance and governmentsshould adapt the educational system(includinguniversity programmes) to thenew sit-uation. Current staff should also receive training on the new environmental acquis.

Figure 7 illustrates the response of Slovenia to the human resources issue in thepre-accession and post-accession periods.

In SEE countries there is already an awareness of the institutional challenges,and the establishment of IPA implementation bodies is an example. This is nota straightforward process and institutional capacity is a serious problem that has tobe tackled in a targeted way.



Local-level institutions will be increasingly faced with the obligation to imple-ment a growing volume of legislation following the process of decentralisation.If human resources are not properly planned, local-level institutions will also suf-fer from a chronic lack of human capacities.

Institutional fragmentationOne of the weaknesses of environmental institutions in SEE is their high level of

fragmentation—that is, competencies are scattered between several institutions thatsometimes do not have good systems of communication with one another. This is asignificant problem and leads to the overlapping of responsibilities and funding.

From Figure 8 it is clear that SEE countries have a high level of fragmentationcompared to CEE countries, which were forced to streamline their institutions inthe pre-accession period. For example, one of the most common reforms in CEEwas to move water-related competencies to the core environmental ministry, ashappened in Hungary, Bulgaria, Slovakia and Romania.

Fragmented competencies sometimes lead to unclear responsibilities: in somecases, important tasks fall between two institutions and as a result do not receivethe necessary attention. For example, in the former Yugoslav Republic of Mace-donia, hazardous wastemanagement is not recognised within the competencies ofthe Ministry of Environment and Physical Planning because the industrial sectoris under the responsibility of the Ministry of the Economy. Likewise, chemicalscome under the responsibility of theMinistry ofHealth, while pesticides are the re-sponsibility of the Ministry for Agriculture, Forestry andWater Economy.

Environmental protection agenciesOne of the common approaches to separating regulatory functions from pol-

icy functions is to establish environmental protection agencies (EPAs). This canreduce the fragmentation of institutions, create stronger links to the reporting



BOX 14: Environmental Compliance and Enforcement Network for Accession (ECENA)

ECENA was established by high-level officials from SEE environmental ministries in March 2005. It is an informalnetwork of environmental authorities from the member states, candidate countries and potential candidates. Themembers of ECENA are Albania, Bosnia andHerzegovina, Bulgaria, Croatia, Kosovo (as defined underUNSCR1244),the former Yugoslav Republic of Macedonia, Montenegro, Serbia and Turkey. The European Commission is alsoa member of ECENA.

The mission of ECENA is to protect the environment in its member countries through the effective transposition,implementation and enforcement of EU environmental legislation by increasing the effectiveness of inspectoratebodies and promoting compliance with environmental requirements. ECENA builds on previous experiences gainedthrough the activities of the Accession Countries Network for the Implementation and Enforcement of EnvironmentalLaw (AC IMPEL) and BERCEN.

Further information: www.ecena.org

structure; and promote communication between different levels of government,given thatmany regulatory functions have been decentralised (World Bank, 2007).The following SEE countries have recently established EPAs — Croatia, Serbia,Kosovo (as defined under UNSCR 1244) and Montenegro. In Albania, theAgency for Environment and Forestry was established in 2006.

Communication and coordinationMany of the environmental directives, including the water andwaste directives,

concernmore than one institution, thus adequate systems of inter-institutional co-operation and coordination must be established. Coordination and communica-tion between central and local levels of governance is also vital.

Reform of water and waste utilitiesWater andwaste utility reform should also be included among the institutional

challenges since these are the main institutions to implement environmental in-frastructure investments. The status and competency of a utility are directly linkedto the success of any potential investment. Although a large proportion of the workmust be carried out at the local level (since in most cases utilities are owned by themunicipalities), the impulse for reform and the principles of reform should comefrom the central level. (For further discussion of utilities see Chapter 6.)

Environmental fundsThe establishment of a specialised institution for environmental financing

(i.e. an environmental fund) is one of the options to help solve institutional de-ficiency. This option has already been put into effect in Croatia, Serbia and Re-publika Srpska (Bosnia and Herzegovina), and there are plans for the



BOX 15: Environmental Crime Directive

Directive 2008/99/EC on the protection of the environment through criminal law(minimum requirements to be implemented):

• The directive lays down a list of environmental offences that must be considered criminal offences.

• Offences should be subject to effective, proportionate and dissuasive criminal sanctions.

• The directive sets only a minimum standard of environmental protection through criminal law. Member statesare free to maintain or introduce more stringent protective measures.

• Offences relevant to the current publication are:– the collection, transportation, recovery or disposal of waste, including the supervision of such operations

and the aftercare of disposal sites, if they cause serious adverse consequences to people or nature; and– the shipment of waste in a non-negligible quantity.

Further information: www.ecena.org

establishment of environmental funds in Montenegro. However, experiencesfrom CEE are mixed, thus authorities should take particular care to create insti-tutions with clear, targeted responsibilities that are well funded and politically in-dependent. 10 (For further details see Chapter 7.)

Institutional responsibility in the water and waste sectorsAccording to the EC progress report, efforts are still needed in Albania to

strengthen the administrative capacity of all institutions involved in environmen-tal policy making. Cooperation and coordination between institutions remainpoor. Additional monitoring and inspection capacity is required at regional level(EC SEC [2009] 1337).

The main responsibility for environmental policy at the national level belongsto theMinistry of Environment, Forestry andWater Administration (MoEFWA)and the Ministry of Public Works, Transport and Telecommunications(MoPWTT). TheMoEFWA is also responsible for river basinmanagement. TheMoPWTT manages a capital investment programme that contributes to the de-velopment of communal environmental infrastructure, including waste sector in-frastructure. TheMoEFWA is in charge of developing strategies, drafting laws and



FIGURE 7: Staffing comparison to Slovenian Environment Ministry

0

30

60

90

120

150

180

Slovenia2004

Slovenia2006

Serbia FYRMacedonia

Albania Croatia Kosovo(underUNSCR1244)

Bosniaand

Herzegovina

Montenegro

Source:World Bank, 2006

setting basic tariffs in the waste sector, while the MoPWTT is responsible for in-vestments. The Ministry of the Economy, Trade and Energy (MoETE) drafts in-dustrial wastemanagement policy and collects statistics on the generation, recyclingand disposal of industrial waste. The Ministry of Health bears responsibility formedical waste. In cooperation with the Institute of Public Health (IPH) and theState Sanitary Inspectorate (SSI), the Ministry of Health is responsible for moni-toring the quality of drinking water and bathing water.

According to the existing legislation, the municipalities and regions are re-sponsible for municipal waste management (collection, transportation, treatmentand final disposal). They also bear the responsibility for preparing local and re-gional waste management plans, suggesting the appropriate location for landfillsin their territory and defining the fees. Municipalities can subcontract companiesto perform certain tasks within the waste management systems.

Administrative capacity in the environment sector remains generally weak inBosnia andHerzegovina. According to the EC, the human and technical capaci-ties of the inspectorates are inadequate to ensure compliance with environmentallegislation at entity, canton and local level (EC SEC [2009] 1338).



FIGURE 8: Institutions with environmental competencies

0

1

2

3

4

5

7

6

Pola

nd

Esto

nia

Latv

ia

Cze

chRe

publ

ic

Hun

gary

Lith

uani

a

Slov

akia

Koso

vo(u

nder

UN

SCR

1244

)

Slov

enia

Mon

tene

gro

Bulg

aria

Alb

ania

FYR

Mac

edon

ia

Bosn

iaan

dH

erze

govi

na

Serb

ia

Cro

atia

Rom

ania

Frag

men

tatio

nin

dex


TheMinistry of ForeignTrade and Economic Relations (MoFTER) and entityministries are responsible for the environmental directives. More specifically, theministries of health, the institutes for public health, themunicipalities and the can-tons are responsible for the implementation of the DrinkingWater Directive.

Waste management is handled at both state and entity levels. Solid waste man-agement laws applicable to each entity within Bosnia and Herzegovina are devel-oped and approved at entity level. Efforts are made to harmonise legislation in theentities. At federal level, waste issues fall under the responsibility ofMoFTER.Mu-nicipalities are responsible for organising waste management services, usuallythrough the department of communal affairs. The municipalities have attemptedto compensate for the weakness of the national legislation in the waste sector by en-forcing local regulations on waste management.

The FederalMinistry of Agriculture,WaterManagement and Forestry and theFederal Ministry of Physical Planning, Environment and Tourism are responsiblefor river basin management in the Federation of Bosnia and Herzegovina. In Re-publika Srpska, this responsibility belongs to theMinistry of Agriculture, ForestryandWater Management.

There has been overall progress inCroatia in terms of administrative capacity.However, the number of staff recruited is generally lower than is required to set upadequate administrative capacities at national, regional and local level. Improvedcoordination mechanisms and decision-making procedures are needed, given thehigh level of fragmentation of environmental responsibilities across ministries andpublic bodies (EC SEC [2009] 1333).

In Croatia, the Ministry for Environmental Protection, Physical Planning andConstruction (MoEPPPC) is responsible for the waste sector at the national level.Two important bodies in relation to financing environmental infrastructure aretheCroatian Environment Agency and the Environmental Protection and EnergyEfficiency Fund (EPEEF), which assists the waste sector in the preparation of tech-nical documentation and IPA applications.

Responsibility for watermanagement and for public water utilities is centralisedunder CroatianWaters, a governmental institution. TheMinistry of Regional De-



BOX 16: Institutions for IPA implementation in the former Yugoslav Republic of Macedonia

For the first IPA period, starting in 2007, the division of roles for IPA implementation has been agreed and is set outin a series of documents, including operational agreements between the Ministry of Finance, the Ministry of Envi-ronment and Physical Planning (MEPP) and the Ministry of Transport and Communication for Component III (re-gional development). Some institutions are already in place and have started their work.

In theMoEPP, a unit is foreseen with the primary role of implementing IPA projects in the environment sector, and in2008 only six persons were engaged for this unit. According to the National Plan for the Adoption of the Acquis(NPAA), this unit should engage 20 persons for the successful implementation of the projects. It is therefore clear that,in the current situation, the structure is insufficient for dealing with IPA projects; and accreditation is still missing. Fol-lowing their recruitment, new staff members will require training and capacity building in order to prepare them fortheir future duties. Sufficient time must therefore be planned for the starting phase.

velopment, Forestry and Water Management (MoRDFWM) issues concessionsfor water extraction. The Ministry of Agriculture, Fisheries and Rural Develop-ment is responsible for monitoring the quality of drinking water.

The administrative structures for the environment in Kosovo (as definedunder UNSCR 1244) suffer from a lack of resources. By way of illustration, thebudget of the Ministry of Environment and Spatial Planning is the lowest of anyministry in Kosovo (as defined under UNSCR 1244), and there is a shortage ofstaff. Some responsibilities have been transferred to the municipal level, althoughmunicipalities often lack environmental officers and inspectors. Efforts have beenmade to improve coordination between bodies, in particular relating to the posi-tion of the Environmental Protection Agency (EC SEC [2009] 1333).

The Water and Waste Regulatory Office (WWRO) was established in 2007and is the independent economic regulator for water and solid waste services. Itsresponsibilities include licensing public enterprises; setting and approving servicetariffs for regulated services; monitoring and enforcing compliance with servicestandards for licensed service providers; supervising and enforcing the disconnec-tion regime and unlawful connections; and establishing and supporting customersin each service area (a total of seven regions). The activities of theWWRO are fi-nanced through licence fees payable by licensed service providers.

The Association of Water andWaste Companies of Kosovo (SHUKOS) pro-motes the joint interests of regional companies responsible for water supply andsewerage services and provides operational assistance.

The Ministry of Health, through the National Institute of Public Health, is re-sponsible for reporting on drinkingwater quality. TheMinistry of the Economy andFinance, through the Policy andMonitoring Unit, monitors publicly owned enter-prises in order to ensure the accountability and transparency of their operations. It isresponsible for monitoring and enforcing drinking water quality standards.

Administrative capacity in the formerYugoslavRepublic ofMacedonia for theimplementation and enforcement of environmental legislation remains far from suf-ficient at both central and local levels. The situation is particularly critical for the in-spectorates.Coordination among administrative bodies responsible for environmentalissues is inefficient.The government adopted aplan to strengthen environmentalman-agement capacity at central and local levels for the period2009 to2014.However, thelack of financial assessment and the absence of systems formonitoring and evaluatingimplementation are a continuing challenge (EC SEC [2009] 1335).

The overall process of environmental approximation is embedded in theMin-istry of Environment and Physical Planning (MoEPP). Various departments withinthe ministry have competency in policy making; information systems; regulationand standardisation; and inspection and supervision of the enforcement of lawsand regulations in the area of environment.

To implement environmental investments, continuous consultations and inte-grated actionsmust be carried out within theMinistry of Agriculture, Forestry andWater Economy, theMinistry of Transport andCommunications, theMinistry ofHealth, theMinistry of the Economy, and theMinistry of Finance. There is a lackof coordination among these institutions. As a result, there are overlapping invest-



ment activities (e.g. at least three ministries finance water projects), while signifi-cant gaps exist in certain areas (hazardous waste management is not recognised asthe responsibility of the MoEPP because the industrial sector is the responsibilityof theMinistry of the Economy, chemicals are the responsibility of theMinistry ofHealth, and pesticides are the responsibility of theMinistry of Agriculture, ForestryandWater Economy).

The competent authorities in water management issues are the Ministry ofAgriculture, Forestry and Water Economy, the Ministry of Transport and Com-munications and theMinistry of Environment and Physical Planning. As of 2010,the MoEPP will be responsible for water protection issues and water inspectionservices in line with the newWater Act.

As the MoEPP is currently preparing to take over the majority of water man-agement functions in the near future (from 2010), it will be a major challenge tostrengthen the human resources capacities of the ministry to take over water man-agement tasks. The most critical issue will be the transfer of responsibilities (andpower) from theMinistry of Agriculture, Forestry andWater Economy.

Further efforts are needed inMontenegro to strengthen the administrative ca-pacity of all institutions involved in environmental policy making and enforce-ment. According to the EC progress report, the sharing of responsibility for thewater sector between theMinistry of Spatial Planning and Environmental Protec-tion (MoSPEP) and other ministries needs to be streamlined. Coordination be-tween the bodies involved in environmental protection issues, particularly ininspection activities, needs to be improved (EC SEC [2009] 1336).

The newly established Ministry of Spatial Planning and Environmental Pro-tection (formerly the Ministry of Tourism and Environment) is the main institu-tion responsible for waste management activities in Montenegro.

Waste management activities are also regulated at the local level and are the re-sponsibility of local self-governments. The collection, transportation and disposalof waste are organised within municipal public utility companies (PUCs). TheMoSPEP Project ImplementationUnit was established in 2008. Its main goals areto provide support to local self-governments for the preparation of project docu-mentation, and to assist in securing financing from international organisations andfinancial institutions. Also in 2008, permit issuing, inspection, monitoring and re-porting functions were taken over by the newly established Environmental Pro-tection Agency.

The Directorate for Water within the Ministry of Agriculture, Forestry andWater Management, and the State Hydro-meteorological Service are responsiblefor river basin management.

According to the EC, institutional capacity and technical and human resourcesin Serbia remain insufficient, especially at the local level. Better coordination isneeded with the central level, and greater attention will have to be given to en-forcement (EC SEC [2009] 1339).

The institutions responsible for wastemanagement include theMinistry of En-vironment and Spatial Planning (MoESP), the Serbian Environment Protection



Agency (SEPA), the Environment Protection Fund, and the Recycling Agency.The Ministry of Agriculture, Forestry and Water Management, through its

Water Directorate, has overall responsibility for the water sector. The Water Di-rectorate assists the water sector in project preparation and IPA applications, fi-nances technical assistance for project preparation and co-finances the actualconstruction of infrastructure. The Jaroslav Cerni Institute for the DevelopmentofWater Resources assists theWaterDirectorate by preparing baseline studies. Thepublic company Srbija Vode is responsible for maintaining regional water infra-structure (floodmanagement etc.) but notmunicipal infrastructure. TheMinistryofHealth is responsible formonitoring the quality of drinking water. The provinceof Vojvodina has its own analogous institutions. The municipalities are responsi-ble for environmental management and inspection. The municipal public utilitycompanies provide water supply and wastewater treatment services.

A table showing institutions with environmental responsibilities can befound in Annex 1.

General observations• The current capacities of environmental institutions (ministries, agencies etc.)

may prove to be insufficient for the administration of all the requirements of theenvironmental acquis.

• The experience of the new member states (EU-10) has shown the importanceof proper human resources planning for institutions at central and local gov-ernment levels to respond to the newly acquired environmental obligations.

• Environmental institutions in SEE often suffer from a high level of fragmenta-tion and are lacking adequate systems of communicationwith one another. Thisleads to an unclear division of competencies and responsibilities.

• The level of institutional operational transparency and accountability at na-tional and local levels is low.

• One of the possible approaches to separating regulatory from policy functionsis the establishment of environmental protection agencies.

• Environmental funds are one option to address institutional deficiencies.However, their success depends on principles of transparency, autonomy andaccountability.





Chapter 6Water and waste utilities in SEE —

Status and reform


IntroductionThis chapter presents an overview of water andwaste utilities, their operational

efficiency, and their readiness for technical and organisational changes.Differences between countries with respect to utility reform are relatively small.

All countries are at the very beginning of the utility reform process. The transfer ofownership from the state level to the local level has been completed (with the ex-ception of Montenegro and Serbia).

As a result of the decentralisation process, in most countries of the region re-sponsibility for water services, solid waste services and sewage treatment fallssquarely on the lowest self-governing municipal level.

However, no significant efforts have been made to reorganise the public utili-ties intomore efficient organisations that work according to sound economic prin-ciples. The public utility companies (PUCs) are burdened with obsoleteinfrastructure, leading to water and energy losses that increase their operationalcosts and decrease net income. Further inefficiencies stem from low tariffs and billcollection rates, overstaffing, and the absence of sound organisation and manage-ment inherited from the past. Without appropriate legislation, plans, strategiesand support from the national level, the municipal PUCs are unable to improvetheir own status, organisation and efficiency, even where there is local-level politi-cal will to do so.

In Croatia and Serbia, the national ministries (and in some cases funds) re-sponsible for environment, water and/or infrastructure provide financial and tech-nical assistance to the preparation of regional infrastructure projects and toconstruction. However, this financial and technical assistance is not accompaniedby sufficient institutional assistance for the creation and development of the re-gional utility companies that should run these regional installations.

Albania, Kosovo (as defined underUNSCR1244) andMontenegro havemadeefforts to create regional companies11 in a systematic way, while in Croatia and Ser-bia, regional companies are being established based on regional (wastemanagement)infrastructure projects in the pipeline. Even though a systematic approach has thepotential to achieve better results than a case-based approach, both groups of coun-tries face great difficulties in establishing regional utility companies. The emergingregional utility companies are weak or virtually non-existent: they comprise one ortwomembers of staff who, inmost cases, do not have the required skills or leverage,and the municipal utility companies have not yet been integrated into them.

Inmost SEE countries there are project preparation units/departments that be-long to relevant ministries and/or environmental protection funds.

The following two sections describe in greater detail the current state of infra-structure and the utility companies in each individual country.

The current status of the water and waste utilities has a direct impact on thepotential for investments in water andwaste. The utilities’ political independence,adequate human resources capacity, sound organisational set-up and financialhealth are preconditions for successful investments: the water andwaste utilities arethe project proponents in any investments andmust secure proper physical and fi-


nancial implementation of the projects. This section also presents an overview ofthe utility reforms currently under way. Reforms in most SEE countries are at avery early stage and there are a variety of approaches that will be described sepa-rately for the water and waste sectors.

During 2008, the PEIP team conducted a survey regarding the status of reformsand the status of infrastructure in the water andwaste sectors in PEIP countries. Inaddition, information from national PEIP workshops in Albania, Croatia, Mon-tenegro and Serbia; individual interviews with key stakeholders; and already pub-lished national and regional reports by DABLAS (2006) and the World Bank(2006) have been used in order to provide an updated overview of the status of re-forms in the water and waste sectors.

Status of utilities and status of reformsin the water sector

Water supply and wastewater services in SEE are traditionally the responsibil-ity of municipalities. During recent reforms, the ownership of facilities in mostSEE countries has been transferred from the state level to the municipalities. InMontenegro, assets are still owned by the state.Most utility operations in the region

CHAPT ER 6WATER AND WAS T E UT I L I T I E S IN S E E — S TATUS AND RE FORM


FIGURE 9: The “vicious” cycle of water supply and sewerage utilities

SERVICE PERFORMANCEPROBLEMS

POOR MANAGEMENTPRACTICES

LACK OF FINANCING

POOR OPERATIONALEFFICIENCY

POOR TARIFF COLLECTIONAND COST RECOVERY

WATER SERVICESDEMAND:CUSTOMERPERCEPTION,AFFORDABILITYAND POLITICALACCEPTABILITY

DETERIORATEDCLIMATE FORPRIVATE SECTORPARTICIPATION

WASTE MANAGEMENT CENTRE

LOW “BANKABILITY” OF MUNICIPAL UTILITYAND ITS INVESTMENT PROJECTS

Source: REC, 2007

are integrated in the municipal administration, thus the financial and operationalstatus of the utilities tends not to be fully transparent, and decisions are politicallyinfluenced. The municipalities lack data on income, expenses, investment needsand quality of services. This greatly inhibits their chances of acquiring external cap-ital funding for investment projects.

The water utilities in all SEE countries face similar problems, with varying de-grees of severity. These problems lead to low levels of operating-cost recovery —that is, the ratio of tariff revenues to operating costs. Furthermore, water andwaste-water tariffs are not set at a level sufficient for cost recovery and there is a large pro-portion of unpaid bills, which does not allow the utilities to invest in the repair, letalone the expansion, of their infrastructure.

There is a high level of fragmentation of utilities throughout the region. Kosovo(as defined under UNSCR 1244) recently carried out the regionalisation of itswater utilities. Officially, seven regional utilities, responsible for both water andwaste, were established in 2007. However, the Kosovo Trust Agency (KTA) thatmanaged the process ceased to exist in 2008, and the regional utilities have still notbecome operational. It is still not clear who owns the regional utilities, thus in prac-tice themunicipal utilities are still operating on their own. In Albania, there are 54municipal water utilities and one regional water utility.



FIGURE 10: Number of water utilities in SEE countries

0

20

40

60

80

100

120

140

160



Kosovo(under

UNSCR 1244)

Montenegro Serbia


Individual utilities have a very limited impact on the development of the pol-icy and regulatory framework, although they function within it and all aspects oftheir management and operations are directly dependent on it. A good policy andregulatory framework in the water and wastewater sectors is therefore essential inorder to reform and to improve the performance of the water utilities. In addition,a robust institutional system for the regulation of the sector is of the utmost im-portance for enforcement and compliance with the policy framework.

Figure 11 shows very high unaccounted-for water (UfW), while Figure 12 in-dicates very low water invoice collection rates, especially in Kosovo (as definedunder UNSCR 1244) and the former Yugoslav Republic of Macedonia.

The water infrastructure investment programmes of IFIs such as the EuropeanBank for Reconstruction andDevelopment (EBRD), theWorld Bank and theGer-man bankKreditanstalt furWiederaufbau (KfW) are often accompanied by a de-mand for institutional reform aimed at reducing operational and financial risk byimproving transparency and accountability, but also by improving technical oper-ations, service quality and organisational efficiency (see the example from the for-mer Yugoslav Republic of Macedonia described below). In most cases, suchdemands are accompanied by an offer of technical assistance.



FIGURE 11: Unaccounted-for water (UfW) in SEE countries

0

10

20

30

%

40

50

60

70

80



Kosovo(under

UNSCR 1244)

Montenegro Serbia

no data no data


According to the two-year water sector reform implementation plan,Albaniahad 56 municipal utility companies in 2008. Since then, two municipal compa-nies (Berat and Kucova) have merged into a regional company (Berat region),whichmeans that there are currently 55municipal utilities and one regional waterutility. By the end of the water reform process, there will be 12 regional water util-ity companies (Gjinali andOlldashi, 2008). According to theWorld Bank survey,tariff revenues in Albania cover on average less than half of the operating costs, theremaining costs being covered by subsidies. This prompted the launch of a com-prehensive reform in 2007. In addition to decentralisation followed by regionali-sation, the aim of the reform was to further commercialise the water supply andsewerage system and to make companies self-sustaining based on long-term plansto improve performance indicators and fulfil obligations towards customers.

Albanian water utilities have 13 staff per 1,000 water supply connections onaverage.Only a handful of utilities have high enough tariffs to cover operating costs.The level of payment collection is 73 percent, which is the highest level reportedamong the SEE countries surveyed. Water disconnection is not allowed by law inAlbania. Utilities receive an operating subsidy from the government, but the sub-sidy scheme is to be phased out by 2012 according to the water reform strategy.



FIGURE 12: Water invoice collection rates (percentage)

0

10

20

30

%

40

50

60

70

80


Montenegro Serbia Kosovo(under

UNSCR 1244)

FYRMacedonia

Croatia

no data


The full transfer of the predetermined subsidy is conditional on improvements inperformance, asmeasured by some of the indicators computed as part of the bench-marking programme: utilities need to reduce water losses, increase bill collectionrates and reduce costs in order to be eligible for the whole of the subsidy.

As a first step, during 2007 and 2008 the ownership of the utilities was com-pletely transferred from the government to local authorities. The regionalisation ofthe currently fragmented water supply companies is a priority, as the governmenthopes that it will lead to lower service costs. The first case of regionalisation in Al-bania was the merger of the Berat and Kucova water companies, which was com-pleted in 2008with a EUR6million grant from theGermanGovernment directedto the (re)construction of the water supply infrastructure.

The Albanian Government, with the support of the World Bank, providesbenchmarking and technical assistance to the water and wastewater utilities of thecountry to prepare five-year operational plans. According to the two-year watersector reform plan, this practice has already been successfully adopted by five util-ities, while the rest of the companies will follow (Gjinali andOlldashi, 2008). Basedon the results of the benchmarking exercises, performance objectives are set for thecompanies, and the allocation of operating subsidies and investment grants fromthe government is partly based on progress made towards achieving these objec-tives. Furthermore, a training programme targeting the staff of 55 utilities is to belaunched in Albania in 2009 (REC survey 2008; andGjinali andOlldashi, 2008).

InBosnia andHerzegovina there is no national body regulating tariff setting.No reforms of the water utilities have taken place in either of the two entities, theFederation of Bosnia andHerzegovina (FBiH) and Republika Srpska (RS).Waterlaws at entity level were passed in 2006 and have been in force since January 2008.There are two water agencies in FBiH and two in RS.

Water supply and wastewater services are highly fragmented and are the re-sponsibility of 136water utilities owned and controlled bymunicipalities. The cur-rent operational and financial condition of these utilities is generally weak. Bosnianwater utilities have 13 staff per 1,000 water supply connections on average.

The national average for UfW is estimated at 50 percent. The estimated na-tional average level of payment collection is 70 percent, and disconnection from thewater supply is not allowed by law. The level of cost recovery varies among the util-ities, but inmost cases it is insufficient— that is, operating costs are not covered byrevenues from tariffs. The government provides a total of aboutKM30million/yearin operating subsidy to the water sector (REC survey, 2008; and UNDP, 2004).

The process of transposition is ongoing and the water management strategiesfor FBiH and RS should be completed by the end of 2009. Some individual re-form initiatives are outlined in the new legislation, such as the merging of publicenterprises for catchments of the Sava River basin and the Adriatic Sea into agen-cies for the water area of the Sava River and Adriatic Sea. Private participation inthe water sector is not yet developed, although the increasing of private sector cap-ital is being considered (REC survey 2008; and UNDP, 2004).

InCroatia, the overall responsibility for managing water is centralised under thegovernmental institutionCroatianWaters.Thewaterutilities arepublicly owned in the



form of communal company, communal institution, or individual facility owned bythe local government.Croatiahas a long traditionof communal companies in thewatersector, and any future reform should strive towards lowering their number and in-creasing their efficiency.No systematic reformof thewater utilities has yet takenplace.However, the consolidation of water utilities is envisaged in theWater ManagementStrategy in theperioduntil 2015. Inmany cases theprice of services doesnot reflect thereal operational costs. However, full recovery of operating costs is achieved in mostmedium-sized and large towns. However, in most cases depreciation cannot be cov-ered fromtariff revenues.Water andwastewater services inmanymunicipal companies,especially smaller ones, are cross-financed by other activities (REC survey 2008).

To date, there have been reforms only at individual utility level. Inadequate tar-iff setting leads to a situation inwhich systems are not well maintained; facilities areold and depreciated, with some not functioning; interventions take place only atcritical points; and big water losses exist. However, in the authors’ opinion the tech-nical performance of the utilities in Croatia is better than average in the region(REC survey, 2008).

According to the Law on Local Self-Government, municipalities in Kosovo(as defined under UNSCR 1244) are responsible for providing water (and/orwaste) services. This responsibility is to be implemented through a service agree-ment signed by the municipality and the relevant regional water (or waste) com-pany that provides services in the municipality.

The water andwaste sectors recently underwent a process of consolidation (re-structuring) under the supervision of the Kosovo Trust Agency (KTA), wherebymunicipal water and waste enterprises have beenmerged into seven regional waterand wastewater companies and seven regional waste collection companies. Mu-nicipal enterprises located in areas with Serbian majorities did not participate inthis process and remain unconsolidated.

Another aspect of the reformwas the establishment of a legal framework for theeconomic regulation of the water and solid waste service providers in November2004 (underUNMIKRegulation 2004/49). As a result, theWater andWaste Reg-ulatory Office of Kosovo (WWRO) was established in 2004.

A third step of the reform was the incorporation of the public water and wastecompanies. This phase was finalised in 2007 by transforming water and waste re-gionalised companies into joint stock companies with a clearly defined legal and fi-nancial identity, governed according to the principles of corporate governance. Theownership of these enterprises is regulated by the Law on Publicly Owned Enter-prises (adopted on June 13, 2008). The privatisation was undertaken via spin-offand liquidation, and investors were invited to buy through open competitive ten-ders (WWRO, 2009).

The KTA, which previously administrated the regional water companies,ceased operations in June 2008, since which time the ownership of the public util-ity companies has not been defined. The Privatisation Agency of Kosovo (PAK)has been established as the successor to the KTA.

According to theWater Supply Tariff Policy, theWWRO is responsible for tar-iff setting and “collects performance data from the water companies, computes in-



dicators using these data”, and sets “targets, the fulfilment of which is annuallymon-itored” (WWRO, 2009). Thus far, theWWRO has carried out two tariff-settingprocesses for one-year tariffs (2006/2007 and 2007/2008), although there are plansto set tariffs for a period of three years.

During 2008, a positive trend could be observed in the performance of theseven regional water companies (WWRO, 2009). However, two critical problemsstand out: the low rate of payment collection, at 57 percent12 (World Bank, 2006);and the lack of cost recovery for operations. Operating costs are barely covered byrevenues, which makes the budget situation in the water utilities very tight. Thenew tariffs designed by the WWRO and the above-mentioned WWRO projectfor the performance monitoring of water companies are improving the situation.However, for capital investments, grants and affordable loans are needed. EstimatedUfW is 59 percent; the bill collection rate is estimated at 43 percent; and there areon average seven staff per 1,000 connections.

Service providers are only just meeting their direct operation costs and there isno capacity for the financing of capital investments, including capital maintenance.In order to achieve compliance with EU standards and to satisfy the current sup-ply and demand imbalance, cash revenue has to increase considerably, either by in-creasing collection efficiency or by raising tariffs, or by a combination of the two(REC survey, 2008).

Currently most water PUCs in the former Yugoslav Republic of Macedoniaare poorly organised and suffer from poor operational capacities. Tariffs are gener-ally too low, resulting in insufficient resources for capital maintenance let alone in-frastructure investment. Low tariffs, combinedwith the lack ofwill to reformPUCs,result in insufficient capacity to implement EU-compliant wastewater treatment.

According to the 2008 REC survey, the national average UfW is up to 60 per-cent. A survey by theWorld Bank (2006) estimates the national average paymentcollection rate at between 50 and 60 percent, while in urban areas it averages 75percent. Households seem better at bill payment than industrial customers. Thecollection of payments has improved recently, due tomore stringent efforts such aswarnings to non-paying customers, court procedures, and, in some cases, discon-nection from the network.

According to the current rules, the municipality nominates two-thirds of themembers of the PUCmanagement board, as well as the director. Such a structurecan lead to heavy political interference in the day-to-day management of the mu-nicipal enterprise. Tariff setting is guidedmore by political ambition than financialrationale and the desire for financial sustainability. Operating costs are thereforerarely covered by tariff revenues.

Several projects supported by IFIs and bilateral donors are preparing the coun-try for reforms in the water sector. The government strategies outline specific tasksfor the water service. Aminimum service standard will be established for calculat-ing the costs of services, raising the level of grants and developing an effective fis-cal equalisation. Asmentioned above, KfW introduced a benchmarking approachbefore funding water supply projects in utilities. Within this programme, KfWalso introduced a quality management approach with help from an institutional



strengthening consultant whowill assist thesemunicipalities inmeeting the bench-marks in the first phase. The programme covers the municipalities of Gostivar,Tetovo, Kavadarci, Negotino, Bitola, Kocani, Gevgelija and Radovis.

InMontenegro, local governments form water supply and wastewater publicutility companies, while the assets remain in the hands of the central government.Themunicipalities are responsible for the provision of services, and the governmentis responsible for capital investments. Public enterprises are legally independent en-tities: in practice they have limited autonomy and no control over crucial aspects oftheir business, such as tariffs, staff hiring and firing, and investments. The PUCs arecontrolled by (in order of importance): 1) a board of directors; 2) the correspondingdepartment of themunicipality; 3) the deputymayor; and 4) the tax department oftheMinistry of Finance (normal annual financial control).

The proportion of illegal connections is estimated at about 6.5 percent inMon-tenegro, and the estimated national average level of payment collection is between60 and 75 percent. The water utilities in Montenegro have between eight and 12employees per 1,000water supply connections. Operating costs are not usually cov-ered by revenues from tariffs, thus government andmunicipal subsidiesmake up thebalance. The tariffs are set by municipalities, which means that tariff setting is in-fluenced by local political issues. In general, tariffs cover only operation and basicmaintenance. There is only one example of public-private partnership, in the waterPUC of the municipality of Budva (REC survey, 2008).

The Government of Montenegro regards water supply and sewerage servicesas essential to economic growth, especially in relation to the country’s tourism in-dustry. It is recognised that the water sector should improve its efficiency, cost-ef-fectiveness and performance. The government therefore intends to decentraliseinfrastructure ownership and then to support municipal utilities to merge into re-gional utilities (WURPWG, 2007).

According to the water utility reform plan adopted in July 2007, assets andownership should be transferred to the local government, which will be fully re-sponsible for compliance with all laws and regulations related to service standards,tariff rates and pricing, and the collection, treatment and disposal of municipalsewage. TheMinistry of Spatial Planning and Environmental Protection is identi-fying interested donor organisations to support the further implementation of thewater utility reform plan.

Current institutional and financing efforts are focused on the coastal region,where municipal water supply and sewerage infrastructure is being upgraded. Thejoint service and coordination companyVODACOMhas been established for theTivat region. The government’s water utility reform plan proposes the introductionof grants that would be available to fund part of the costs associatedwith themergerof utilities, including legal costs and costs related to labour restructuring. A con-dition for obtaining these funds is that utilities prepare substantial strategic reformplans (REC survey, 2008).

In Serbia, PUCs are owned by the municipalities and each town and munici-pality has its ownwater utility.Most PUCs are not separated by sector(waste/water/green spaces) and the accounting lacks transparency. It is therefore hard to separate



revenues from different sectors and different services, let alone relate costs to tar-iffs. The level of bill collection is 60 percent. Disconnection due to non-payment ofbills is allowed by law but it is almost never applied in the case of households.

Service revenues are not sufficient to cover operational costs. Cross-financingbetween these sectors and subsidising from themunicipality are commonplace (Dax,2008). Tariffs are set at municipality level, usually by a political decision that is sen-sitive to popular voting. It is recognised that tariffs in municipal PUCs are too lowand that this is a major problem. At present there are no utilities in private owner-ship and, according to the applicable laws, the assets of PUCs cannot be privatised.

Public-private partnerships are possible according to the legislation, but as yetthere is no practice in place, nor is it expected in the near future. The SerbianGov-ernment is considering future privatisation in the water sector, although it is not yetdefined in any strategy, policy or plan. Government preparations for a reform of thePUCs are at an early stage. A reform strategy that may include privatisation op-tions is currently being drafted within theMinistry of Finance (REC survey, 2008).

Status of utilities and statusof reforms in the waste sector

In someSEEcountries,where awaste utility, either public or private, serves severalsettlements (e.g. a town and the surrounding settlements, or sometimes a whole re-gion), a uniform tariff is set for the whole service area even though the cost of servingthe individual settlements differs. Such practices inevitably translate into cross-fi-nancingbetween service users. Several countries have started the reformprocess,whichincludes sector separation andgeographical regionalisation, but onlyCroatia hasmadeactual progress. In terms of current waste tariffs, charges are not based on the weightor volume of waste produced but on household surface area. This, combined with alack of enforcement of rules against illegal dumping, does not encourage waste pre-vention, reuse or recycling asmandated by EU legislation. Also, there is amarked dif-ference between the charges levied on commercial enterprises and industry comparedto household charges: the higher charges for enterprises represent another form ofcross-subsidisation.The justification often given bymunicipal authorities in responsetoboth these issues, but especiallywith respect to cross-financing, is that this approachto setting tariffs has been inherited from the earlier system.Nevertheless, the true rea-sons are partly social and partly political: policymakers aremorewilling to charge en-terprises, as they are perceived as being able to affordhigher prices thanhouseholds andas being less able to effect change in terms of voting numbers.

From an institutional point of view, municipal solid waste (MSW)managementis evenmore demanding thanwater andwastewatermanagement: based on good in-ternational practice it has been shown that it is more economically viable to organisewastemanagement systems over larger territories covering a bigger number of inhab-itants. This is because modern landfills are expensive facilities and a minimum vol-ume of waste is needed to justify their construction. At the same time, in the SEEregion there is no tradition of municipalities jointly solving theirMSWproblems by



establishing inter-municipal bodies. This is and will remain a big challenge toMSWmanagement in the near future, since sound and responsible financial managementthat meets recognised international standards will be a prerequisite for any technicalimprovements in infrastructure. Instruments and mechanisms will have to be put inplace that allow for lasting cooperation between municipalities, since EU-compliantlandfills are only viable for regional systems that apply economies of scale.

In the SEE region as a whole, current tariffs and fee collection efficiency oftenfall short of full cost recovery for the service provided, especially in regions withvery low income levels. It is common practice for themissing amount to be coveredby general municipal budgetary allocations.

The availability of wastemonitoring data inAlbania is low and there is a lack ofappropriate waste statistics.Wastemanagement services, although incomplete, existin urban areas (covering 80 to 90 percent), while only 10 to 20 percent of rural areasare covered by waste management schemes. There is no systematic approach in thewaste sector, and each municipal waste management scheme is organised in a dif-ferent way, ranging from purely public enterprises to different PPP arrangements.



TABLE 15: Tariffs for municipal solid waste in SEE

COUNTRY HOUSEHOLDS OTHER USERS REMARKS

Albania Flat annual rate: Flat annual rate: Rates set byEUR 13 to 33/year EUR 45 to 1,350/year local authorities

Bosnia and Mostly monthly rates based on Varies significantly based on Rates set by local authorities;Herzegovina surface area of residential region/municipality and type collected by service providers

premises: EUR 0.05 to 0.4/m2 of industry

Croatia Monthly rate based on surface Monthly rate based on surface Rates set by local authorities;area of residential premises: area of commercial premises: collected by service providersEUR 0.05 to 0.11/m2 EUR 0.14 to 0.2/m2

Kosovo (under Flat monthly rate: EUR 3.5 Flat monthly rate based onUNSCR 1244) /household source of waste

FYR Macedonia Monthly rate based on (1) Monthly rate based on (1) Rates set by local authorities;surface area of premises: surface area of premises: collected by service providersEUR 0.01 to 0.05/m2; or (2) EUR 0.02 to 0.08/m2; orflat rate: EUR 1.5 to 5.0/house (2) flat rate: EUR 1.7 to 7.5/user

Montenegro* Mostly monthly rates based on Mostly monthly rates based on Rates set by local authorities;surface area of premises: surface area of premises, but collected by service providersEUR 0.03/m2 adjusted according to amount

of waste generated

Serbia† Mostly monthly rates based Mostly monthly rates based Rates set by local authorities;on surface area of premises: on surface area of premises: collected by service providersEUR 0.04/m2 EUR 0.12/m2

Source: REC survey, 2009* Household tariffs in Podgorica are given for indicative purposes† MSW management tariffs for Belgrade are given for indicative purposes

In urban areas themunicipalities determine the wastemanagement fees, whichcurrently vary between EUR 8 and 18 per household per year. Such fees can onlycover collection and transportation, but not the proper treatment and final dis-posal of waste. In most cities and towns, waste collection and transportation serv-ices are subcontracted by the municipality to private companies.

The responsibility for environmental policy at the national level belongs to theMinistry of Environment, Forestry and Water Administration (MoEFWA) andthe Ministry of Public Works, Transport and Telecommunications (MoPWTT).Both ministries are in charge of developing strategies, drafting laws and settingbasic tariffs in the waste sector. Some progress has been achieved in updating wastemanagement legislation, which defines the basic responsibilities at national andlocal level, but the relevant strategies, policies and plans are not yet in place. How-ever, there are several regional plans related to internationally funded regional land-fill projects, as described below.

According to the existing legislation, the municipalities and regions are re-sponsible for municipal waste management (collection, transportation, treatment



FIGURE 13: Waste tariff collection rates in SEE countries (percentages)

0

10

%

20

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40

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Alb

ania

(bus

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ses)

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Bosn

iaan

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ania

(hou

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no data no data


and final disposal). They are also responsible for preparing local and regionalplans on waste management; suggesting the appropriate location for landfills intheir territory; and defining fees.

The EUCARDS2006 project “Implementation of the national plan for the ap-proximation of environmental legislation” is expected to improve legislation andenable the effective control of solid waste management. Amain component of theproject is to develop the institutional capacity of the MoEFWA. The NationalWasteManagement Plan and Strategy will be drafted approximately by the end of2010 after the Law onWaste Management has been adopted (planned by the endof 2009). There is a development project for Korca region, supported by KfW incooperation with Sida and the Albanian Government, to construct a regional san-itary landfill in the city ofMaliq to serve theKorca region. The institutional frame-work for the project is also under development. Another example is the landfillbeing constructed in Bushat, where the landfill management body and collectionsystem have already been established.

Approximately 36 percent ofBosnia andHerzegovina is covered bymunicipalsolid wastemanagement services. Themunicipalities are responsible for organisingwaste management services in the form of municipal public utility companies.Bosnia andHerzegovina still lacks adequate legislation for solving the issue of wastemanagement at state and entity level.Municipalities have attempted to compensatefor this deficiency by enforcing local regulations on waste management.

The 2003National Environmental Action Plan (NEAP) proposes two optionsfor an intermediate solution: regional landfills at 16 (entity option) or 14 (inter-entity option) locations, which would ultimately result in the long-term solutioncomprising sixmajor regional landfills in Bosnia andHerzegovina, located in BanjaLuka, Tuzla, Mostar, Bijeljina, Bihac and Livno. Since 2003, two sanitary regionallandfills have been built in Banja Luka and Sarajevo. The 2008 IPA project“Strengthening of Bosnia andHerzegovina’s Environmental Institutions, Prepara-tion for Pre-accession Funds and Support to Environmental Infrastructure Devel-opment” is providing technical assistance to environmental infrastructureinvestment project preparation (feasibility studies) for the regional landfills envis-aged inGorazde, Srednje Bosanski canton, Visoko, Ljubuski region, Prijedor, Der-venta and Trebinje. This has been complemented byWorld Bank (IDA) loans forSarajevo, Zenica, Tuzla, Bihac, Banja Luka and Bijeljina. Also, during the imple-mentation of this project, 145 illegal dumpsites have been closed and remediated,and another 40 are due for closure.

There are at present in Croatia mostly municipal public utility companiesdealing with waste management, and three regional companies in the process ofestablishment. According to the National Waste Management Plan (NWMP)for the period 2007 to 2015, the 21 Croatian counties are obliged to preparedraft regional waste management plans. Counties are allowed to draft joint wastemanagement plans and form joint regional waste management companies to op-erate the regional waste management centres (RWMCs). The final number ofRWMCs will therefore be 21 or fewer.



At the local level, the current charges for the collection, transportation and dis-posal of municipal waste from households are based on living or commercial sur-face calculation (KN/sqm). The tariffs differ for households and commercialspaces. The higher tariffs for commercial spaces are intended to subsidise the lowtariffs for households. However, revenues are insufficient and local authorities areoften co-financing waste management operational costs from their budgets. TheWaste Law prescribes the introduction of a charge calculation system based onquantities of produced waste (number of households, tonnes) in order to computerealistic charges for households and producers of municipal waste. The futureRWMCs will be obliged to introduce such tariff calculation systems.

Around 39 percent of municipal waste is collected in Kosovo (as definedunderUNSCR1244) (90 percent in urban areas, and less than 10 percent in ruralareas) (WWRO, 2009).Hazardous waste, chemicals, industrial waste andmedicalwaste streams are not properly managed.

Similar to the situation in the water sector, themunicipal waste companies haveundergone a process of consolidation. Waste collection and transportation serv-ices are operated by seven regional public companies. The number and size of theregional waste companiesmirrors the regions established for water andwastewatercompanies, without being based on the size of the population or similar criteria.During 2008, the trend showed that service performance by the regional wastecompanies declined compared to 2007. The negative changes were brought aboutby lower bill collection rates and lower revenues.

The National Waste Management Strategy for 2010 to 2020 will be elabo-rated during 2009. One of the following two options is likely: (i) waste collec-tion and transportation provided by regional companies owned bymunicipalities, and waste disposal services provided by a central company; or(ii) waste collection as well as waste disposal services provided by regional com-panies. To date, waste collection and transportation services are operated byseven regional public companies. The publicly owned Kosovo Landfill Man-agement Company (KLMC) manages solid waste disposal. The Water andWaste Regulatory Office (WWRO) is the independent economic regulator forsolid waste services, as well as for water. Its responsibilities include licensingpublic enterprises; setting and approving tariffs for regulated services; moni-toring and enforcing compliance with service standards on the part of licensedservice providers; and supporting customers in each of the seven service area re-gions. The municipal waste fee is EUR 3.5 per household, and the invoice col-lection rate is only around 30 percent.

In the former Yugoslav Republic of Macedonia, there are only municipalwaste management PUCs. A small proportion of waste collectors are private com-panies, typically those dealing with waste in rural areas. Regular waste collectionservices are mainly limited to urban areas. In total, around 70 percent of the totalMacedonian population benefit from regular waste collection services (in ruralsettlements the proportion is around 10 percent). Waste disposal practices do notcomply with any technical and/or environmental standards.



The National Solid Waste Management Strategy (2008), as well as the Na-tionalWasteManagement Plan (2005) and the revised version of this documentcontain specifications for the establishment of a regional solid waste manage-ment system (a maximum of eight regions, corresponding to the country’s sta-tistical regions). Inter-municipal public enterprises will be established for thepurposes of regionalising waste management in order to apply economies of scaleand implement EU standards. Regional companies owning facilities that includelandfills will be established, while individual communal enterprises will be re-sponsible for fee collection and will pay the respective regional waste manage-ment centre a fee per tonne of landfilled waste.

InMontenegro, municipal publicly owned waste management public utilitiescarry out the collection, transportation and disposal of waste. TheNationalWasteManagement Policy, the StrategicWasteManagementMaster Plan (SWMMP) forthe regional level (2005 to 2014), and theNationalWasteManagement Plan (2008to 2012) provide a basis for the necessary reform of the waste sector.

According to the 2005 SWMMP,Montenegro is divided into eight waste col-lection areas. The future landfill network and transfer stations are based on sug-gested groupings and estimated amounts of waste. Each area in which waste iscollected will be using one inter-municipal landfill constructed according to therequirements of the EUWaste Landfill Directive.

Within the newly establishedMinistry of Spatial Planning and EnvironmentalProtection (MSPEP, formerly the Ministry of Tourism and Environment) a proj-ect implementation unit was established in 2008. Its main goal is to provide sup-port to local self-governments in the preparation of project documentation, andto assist in securing financing from international organisations and IFIs. It will alsoassist in the formation of eight regional waste management public utility compa-nies. According to the Strategic Waste Management Master Plan, the territory ofMontenegro is divided into eight waste management regions: Bar, Berane, Kotor,Herceg Novi, Mojkovac, Niksic, Pljevlja and Podgorica.

Currently in Serbia there aremunicipal publicly ownedwastemanagement util-ity companies that have been trying to attract private sector participation. In smallermunicipalities, a single PUC covers the water and waste sectors and other commu-nal services, often cross-subsidising between sectors. As mentioned in Chapter 2,the 2003NationalWasteManagement Strategy envisages 29 regional sanitary land-fills, 44 transfer stations, 17 recycling centres, seven composting facilities, and fourincinerators. The updated Waste Management Strategy, currently being drafted,will probably increase the number of composting facilities required, in line with thewaste management hierarchy set out in the EUWaste Framework Directive.

Waste management regions will include three to nine municipalities with be-tween 90,000 and 550,000 inhabitants. There are two ongoing regional projects inwhich several municipalities will use the same landfill — in Duboko (Uzice re-gion) andMuntina Padina (Pirot region). For these two locations there are ongo-ing negotiations and procedures for establishing a regional PUC/wastemanagement centre, but neither of the two RWMCs has yet been established.



Other considerationsin water and waste utility reformAffordability

The affordability of water and waste tariffs (that is, the upper limit that canbe charged for services) refers mainly to affordability on the part of households,enterprises and public institutions. Affordability thus implies that the amountspent by households for services should not be a major part of the household in-come — that is, it should by no means lead to households having to cut downon basic necessities such as food or heating. The World Bank envisages the es-tablishment of an upper limit for household charges for water and waste man-agement services at 4 percent and between 0.7 and 1.5 percent of householddisposable income respectively. When designing a tariff policy, it is thereforeessential to carry out an analysis in order to obtain an overview of the averagehousehold income, as well as the composition and distribution of that income,based on which a decision can be made as to whether there is a problem of af-fordability that needs to be addressed.

It is also important for project developers to recognise when affordability lim-its will constrain the scale of a proposed capital investment. If adequate tariffs can-not be imposed on the users of infrastructure, to cover at least the cost of operationand maintenance, then project proponents (and the experts who prepare the in-vestments) may need to consider alternative solutions. This is a complex issue forlocal governments and often leads to delays.

Willingness to payWillingness to pay refers to the “expected” charge that service users are ready to

pay for a given service, or for a given change in service level. The term describesbeneficiaries’ perceptions and preferences correlated to the level, quality and priceof the service, or changes to them. In assessing the potential effect of a tariff in-crease subsequent to investments and service improvements, willingness to pay byand large reflects the likely level of increase in payments that will not cause concernto users or affect their readiness to pay for the improved service.

Willingness to pay for waste management services is influenced by a consider-able number of factors:• current service level (scope) and quality;• history of changes, in particular to service quality, and past tariff increases;• fairness of charges;• affordability of tariffs;• transparency in tariff setting (i.e. public involvement in the decision-making

process);• confidence in the service provider (public or private);



• importance of public health and other environmental issues; and• past experience with private sector involvement in the provision of public serv-

ices, if the planned tariff increase is related to service improvement that involvesa public-private partnership.

Willingness to pay is commonly assessed and quantified by carrying out spe-cial surveys focusing on identifying service consumers’ behaviour. The recom-mended approach to determining willingness to pay for changes in water andwastemanagement service levels is to usemethods based on hypothetical behaviour, suchas contingent valuation or stated preference technique (conjoint analysis). It is par-ticularly important to disclose to service users the tariff-setting methods and thebenefits of extending the service area, improving service efficiency (e.g. reducinglosses in water supply networks by their rehabilitation), and counteracting healthrisks (e.g. by constructing wastewater treatment plants and/or sanitary landfills).Campaigns can therefore be a catalyst towards increasing willingness to pay for im-proved services. Assessments of willingness to pay can be an important tool forthose preparing investments in order to demonstrate the credibility of investmentswhere current bill collection rates are low (as in most SEE countries) but whereservice providers wish to upgrade the entire system.

RegionalisationMaximising the efficiency of environmental investments generally requires coop-

eration between small and medium-sized municipalities in the sharing of infrastruc-ture and service systems.This is particularly necessary in thewastemanagement sectorand can enablemunicipalities greatly to improve the affordability of their planned in-vestmentprojects. Regionalwatermanagement facilities, and centralwastewater treat-ment plants in particular, require less investment capital andhave lower operation andmaintenance costs. Such cooperation is also a requirement for accessing certain grantfunds, particularly those from theEU.This is an obstacle formany local governments,which tend tobehighly politicised andwary of cooperationwith outside institutions.It also requires sophisticated planning and cooperation experience and skills, whichlocal governments lack. Failure to cooperate and/or surrender competencies to re-gional institutions is a major bottleneck to proper investment planning.

In order to overcome insufficient funding and inadequate logistics in theprocess of planning and implementing waste management projects in smaller mu-nicipalities, regionalisation allows for the pooling of resources and the applicationof economies of scale.

Regionalisation requires an appropriate institutional form in order to bringthose who intend to use the regional facilities under one umbrella. Within a re-gion, it is vital to establish an organisational structure that will facilitate coop-eration and the development of regional infrastructure. In particular,mechanisms must be identified that will enable the necessary shared capital ex-penditure and the shared recovery of capital and operating costs. The main chal-lenge is to bring tariffs, operational costs, available waste collection equipment



and the daily routine of enterprises within a sound integrated system function-ing under universal conditions over the entire area. Institutional models of re-gionalisation may take the following forms:• Municipalities retain their own service company.• One company is responsible for the entire collection system.• Municipalities remain responsible for internal collection systems within settle-

ments, while haulage between settlements and the landfill is carried out by adifferent service company (linked to the central landfill).

• A combination of the above.

Associations of municipalitiesOne way to ensure economy of scale is to create associations of municipalities

developing regional solutions. Such efforts are severely hindered by issues of jointproperty ownership, expense sharing, and other costs that are unrecoverable fromco-owners. Regional experience suggests that joint service associations require spe-cialised, complex legislation, sincemunicipalities give up fundamental rights, suchas tariff setting and property ownership.

Lack of proper incentives for necessary inter-municipal cooperationAchieving economies of scale is a burning issue, especially in the area of solid

waste management. The setting up of a municipal solid waste management sys-tem in compliance with EU directives and standards — including the construc-tion of new, modern facilities as well as the organisation of the service itself —is prohibitively expensive for most SEEmunicipalities. The environmental stan-dards that modern landfills are obliged to meet, including the provision of plas-tic linings, drainage networks, monitoring wells, leachate treatment facilities andlandfill gas management systems, as well as other indivisible elements such ascompactor vehicles, fencing, weighing stations, permanent guards etc., makesmall, local landfills unfeasible. The costs can only be commercially justified andborne by a large number of users. It is therefore the environmental standards andtechnology costs that trigger economies of scale and the regionalisation of SWMsystems, unless one municipality is large enough to economically justify a solidwaste management system with individual state-of-the-art disposal, which is usu-ally the case in capital cities. Apart from technical improvements to the MSWmanagement system, there are certain policy, legislative, economic, financial andinstitutional prerequisites (REC, 2009b).

Private sector participationThe present publication does not have an ideological basis and does not advo-

cate stronger or weaker private sector participation (PSP). Private sector partici-pation is only one of the options for providing greater financing and bettermanagement for the utilities and it is inevitably accompanied by certain risks that



must be taken into consideration. Below we provide a brief overview of the situa-tion with respect to PSP in the region, and of the main forms of PSP.

WaterIn SEE the private sector has not traditionally been involved in providing water

supply and wastewater treatment services. In a context in which water utility effi-ciency is low and the quality of service unsatisfactory, there will be stronger pres-sure on governments and municipalities to undertake serious reforms. Attractingprivate sector participation in running the utilities is only one of the possible so-lutions for increasing efficiency and improving cost recovery. Other benefits comein the form of improvedmanagement, better value for consumers and easier accessto capital. Private sector participation in the region is almost absent, with a fewrare exceptions.

In Albania there have been several cases of private sector participation in waterutilities:• Management contract financed throughWorld Bank credit for four cities: Dur-

res, Lezhe, Fier and Saranda. This contract expired in July 2008.• Management contract financed through KfW for Kavaja. This contract ex-

pired in May 2008.• Concession contract financed through KfW for Elbasan. This contract was

suspended in December 2006.

In Bosnia andHerzegovina,Montenegro and Serbia there has not yet been anyinvolvement of the private sector in the water utilities.

Main forms of private sector participationAs shown in Table 16, there are six main forms of private sector participation

in water utilities, with varying degrees of private participation in the ownership ofthe physical assets (e.g. pipes); participation in operation and maintenance; capi-tal investments such as pipe replacement; the distribution of commercial risk; andthe duration of the contract.

Pros and cons of involving the private sector in the water utilitiesInvolving private-sector participation in water utilities may not be a solution

in itself. Benefits and drawbacks have to be carefully considered. Table 17 presentssome generic arguments for and against the private sector, which must be takeninto consideration when planning reforms.

The advantages of PSP are potentially greater in SEE, since there is a bigger dis-crepancy between the experience of international water utility operators and thatof local operators. Better access to capital is another strong argument for PSP in de-veloping countries. However, municipal and state decision makers are more reluc-tant to embrace PSP, mainly due to concerns about affordability and the desire toharvest some of the efficiency gains locally.



Implementation of PSP optionsPrivate sector involvement in water utilities is dependent on several conditions.

The higher the level of PSP, the greater its dependency on each of these conditions.

WasteAlthough, as in thewater sector, there are a number of alternatives for PSP in the

waste sector, based on international experience only contracting and concession aresuitable in the field of solid wastemanagement services. Contracting is usually suit-able for collection activities andwill usually have a duration of between three and fiveyears.Under certain circumstances— for example if big investments are required—this may be extended to seven years. A concession is appropriate if investments inbuildings (i.e. transfer stations) or facilities (i.e. a landfill) are envisaged. The rela-tively long depreciation period for these investments requires a longer-term agree-ment (15 years or longer). In addition, attentionmust be paid to conditions for thehanding over of assets after the concession ends. There are several examples in SEEof private companies providing collection and transportation services.

Potential risks of PSPThere are a number of potential benefits when introducing PSP, including bet-

ter access to capital, greater efficiency etc. Nevertheless, potential risks are also pres-ent. When considering PSP, a municipality should assess both benefits and risksbefore making a final decision.



BOX 18: Build-operate-transfer agreement for Zagreb wastewater treatment plant

In Croatia, the city of Zagreb has a build-operate-transfer (BOT) contract for its wastewater treatment plant. The BOTcontract is for 28 years. The project also includes the construction of supporting infrastructure.

A special-purpose company—ZagrebackeOtpadne Vode d.o.o. —was set up for the project. The company is ownedby a sponsor consortium comprising RWE AQUA GmbH (owned indirectly by RWE AG) and SHWHolter-Wassertechnik GmbH (a fully owned subsidiary of Berlinwasser Holding Aktiengesellschaft).

The EBRD provided around EUR 55 million out of the total cost of EUR 270 million.

Co-financing of EUR 115million was provided by the German bank Kreditanstalt furWiederaufbau (KfW). By lendingdirectly to the concessionaire, the EBRD is allowing the city to use its own credit capacity for other important projects.The city will control the private company through a long-term concession contract, which sets out the discharge stan-dards with which wastewater must comply. The project is an example of how public-private partnerships work.

The private consortium agreed to build the plant in line with EU environmental standards, to operate it, and to trans-fer it at the end of the concession period to the city of Zagreb. The city assumes risk in terms of the volume of waterused and risk regarding the collection of the wastewater tariff.

This allocation of risk ensures that the private operator constructs the plant and operates it efficiently in order to com-ply with EU environmental standards, while the city has the incentive to collect tariffs to pay a fee to the operator.

(EBRD website).



TABLE 16: Main options for private sector participation and the allocation of responsibilities

OPTIONS SERVICE MANAGEMENT LEASE BOT CONCESSION DIVESTITURECONTRACT CONTRACT

Asset Public Public Public Public and Public Public orownership private private and

public

Operations and Public and Private Private Private Private Privatemaintenance private

Capital Private Public Public Public Private Privateinvestment

Commercial Public Public Shared Private Private Privaterisk

Tariff collectionrisk Public/private Public/private Private Public Private Private

Construction None None None/low High Low Very lowrisk

Duration 1-2 years 3-5 years 8-15 years 20-30 years 25-30 years Indefinite(may be limitedby licence)

Source: A combination of tables from World Bank Toolkit for Private Participation in Water and Sanitation (adjusted).

TABLE 17: Pros and cons of PSP in water utilities

PROS CONS

Increased technical, operational and managerial Profit orientation outweighs efficiency gainsperformance

• Possibility for (full) cost recovery Negative impact on tariffs and affordability• Improved access to capital

Increased operating efficiency Staff reduction negatively affects employees, their families andthe community

Reduced political influence Government/municipal concerns about loss of control andpower

The presence of independent, profit-motivated private Water management should be a public service per se, as waterproviders influences government policy towards water is a basic human needservices and the way it is enforced

Source: REC, 2009a

Risks:• The lack of an adequate waste fee collection structuremay result in insufficient

financial means to conclude a contract.• Local politicians should accept a certain level of independence on the part of

solid wastemanagement services: ongoing influence over collection activities isno longer possible.

• If an insufficient number of private companies are interested, the competitionmay not be optimal, resulting in a less than optimum price/quality ratio.

• If the municipal organisation is not developed— due, for example, to variouschanges in the number of municipalities in the past— the control function ofthe municipality may be insufficient.

• Poor-quality tender documentation may result in the need for additionalarrangements. The private company that already has a contract may misuse itsposition and impose unfavourable conditions for the additional services.



TABLE 18: Conditions for the successful implementation of private sector options

CONDITION SERVICE MANAGEMENT LEASE BOT CONCESSION DIVESTITURECONTRACT CONTRACT (BULK) (RETAIL)

Stakeholder Unimportant Low to moderate Moderate to high Moderate to high High levels High levelssupport and levels needed levels needed levels needed needed neededpoliticalcommitment

Cost-recovering Not necessary Preferred but Necessary Preferred Necessary Necessarytariffs in the short not necessary

term in the short term

Autonomy of Unimportant Important Very important Unimportant Very important Very importantthe utility

Good system Possible to Sufficient Good Good Good Goodinformation proceed with information information information information information

only limited required to required required required requiredinformation set incentives

Developed Minimal Minimal Strong capacity Strong capacity Strong Strongregulatory monitoring monitoring for regulation for regulation regulatory regulatoryframework capacity needed capacity needed and coordination and coordination capacity capacity

needed needed needed

Good country Not necessary Not necessary Not necessary Higher rating Higher rating Higher ratingcredit rating (limited will reduce will reduce will reduce

relevance) costs costs costs

Source: Toolkit for Private Participation in Water and Sanitation, World Bank, 2000 (adjusted)

General observations• As a result of the decentralisation process, responsibility for water services, solid

waste services and sewage treatment falls on the lowest self-governing munici-pal level.

• Water and waste utilities in SEE suffer from various inherited problems, in-cluding low tariffs and bill payment rates; overstaffing; and the absence ofsound organisation and management. These problems make full cost recoverydifficult to achieve. In addition, there is a high level of fragmentation amongutilities throughout the region.

• No significant efforts have been made to reorganise public utilities into moreefficient organisations working according to sound economic principles. Thepolitical independence of the utilities, their adequate human resources capac-ity, efficient organisational set-up and financial health are preconditions forsuccessful investments.

• European practice has shown that in order to optimise the efficiency of mu-nicipal solid waste management, cooperation among municipalities and thesharing of infrastructure and service systems are essential.





Chapter 7Financing environmentalinfrastructure investments


IntroductionThe financing of environmental infrastructure investments in SEE comes from

several clearly identifiable sources:• the state budget;• municipal budgets;• extra-budgetary funds;• grants from the European Union;• grants from bilateral donors;• loans from IFIs;• loans from other commercial banks; and• own funds of a municipal, county or publicly owned company or utility.

The authors are of the opinion that there is a place for all these sources of fi-nancing and that national governments should have a clear strategy regardingwhichsources to use for which types of projects and investments.

It should be emphasised that there are difficulties and obstacles in relationto the different sources of financing, which can be overcome by employinga differentiated approach.

Domestic sources of financePublic (state, county,municipal etc.) budgets play an essential role in financing the

rehabilitation of and capital investments in environmental infrastructure. Althoughin most cases they are insufficient to meet environmental investment needs they re-flect two important things: the nominal size of the national andmunicipal budgets;and, more importantly, the priority (in terms of the percentage of the total budget)that the country attaches to environmental investment.WhileGDPand consequentbudget growth are a slow process dependent onmany factors, budgetary allocationsfor the environment are entirely an issue of priority and can be influenced.

National budgetary funds are also of huge importance for providing nationalco-financing for projects in which a large share is financed from EU or bilateralgrants and/or IFIs. Other sources of co-financing are loans to government; localbudgetary funds; loans tomunicipalities; loans to utility companies; the private sec-tor (as part of a public-private partnership arrangement); and carbon financing.

In principle, local government activity is financed through the income collectedfrom local taxes, fees, other sources of local income (e.g. rent or sale of local proper-ties, interest, fines, subsidies, and grants/donations), and funds transferred from thecentral budget, aswell as their own share of national taxes.Municipalities can also bor-row funds for local public purposes, according to the criteria set by special laws.

The coordination of environmental financing flows at national level is of pri-mary importance to ensure complementarity in the financing of environmental in-


frastructure and to stimulate cooperation among the relevant ministries. Such co-ordination is required in relation to the generation of revenue for environmentalimprovements and the creation of effective disbursement mechanisms for the fi-nancial resources accumulated. These mechanisms are required to have clearly de-fined long-term objectives, transparent project selection procedures, and developedproject implementation and monitoring schemes (EC COM [2001] 304).

Most countries are not able to coordinate their respective donors, as coordina-tion depends to a large extent on the donors themselves and, in most cases, is notcarried out on a regular basis.

In 2001, it was estimated that, on average, candidate countries needed to in-crease their environmental expenditure by 2 to 3 percent of their GDP in order toachieve compliance with the requirements of the EU environmental acquis. It canbe assumed that the figure would be the same for the current candidate countriesand potential candidates (EC COM [2001] 304).

As can be seen from Figure 14, the majority of SEE countries are slowly in-creasing the proportion of their environment-related expenditures and approach-

CHAPT ER 7F INANC ING ENV I RONMENTAL IN FRAS TRUCTURE INVE S TMENTS


FIGURE 14: Proportion of environmental expenditure as percentage of GDP (2004–2005)

0

0.2

0.4

0.6

1.0

0.8

1.2

FYR

Mac

edon

ia

Alb

ania

Bosn

iaan

dH

erze

govi

na

Serb

ia

Koso

vo(u

nder

UN

SCR

1244

)

Cro

atia

Latv

ia

Esto

nia

Slov

akia

Bulg

aria

Pola

nd

Aus

tria

Hun

gary

Ital

y

Slov

enia

Den

mar

k

Rom

ania

2004 2005

%

Source: Eurostat, government budgets

ing the levels of expenditure in the newmember states.However, oldmember statesstill allocate a far bigger share for the environment. Even Serbia, Kosovo (as de-fined under UNSCR 1244) and Croatia — the biggest investors in environmen-tal protection in the region — directed less than 0.04 percent of their nationalGDP for this purpose in 2004–2005.

Domestic financing of environmentalinfrastructure projects in SEE

There is a funding gap in Albania with respect to environmental projectsdue to the low level of domestic funds. Legislation passed in 2002 introducedthe possibility of generating income through environmental taxes, tariffs andcharges. Environmental investment projects are almost fully financed with as-sistance from bilateral donors and IFIs. However, the Ministry of PublicWorks,Transport and Telecommunications (MoPWTT) has elaborated a mid-term fi-nancial plan for investments in the area of water and waste infrastructure, andmanages a capital investment programme that contributes to the developmentof communal environmental infrastructure (ADA, 2008a). The programme en-visages, for the year 2011, the construction of four regional landfills and the clo-sure of five existing dumpsites in five regions. State budget allocations for thewaste sector for 2009 are EUR 2.3 million; for 2010 EUR 5.2 million; and for2011 a predicted EUR 13 million.

Only projects included in the Public Investment Programme (PIP) of BosniaandHerzegovina are considered a national priority and eligible for financing. ThePIP comprises projects for which financing has been secured, or will be secured inthe future period, including environmental infrastructure. Investments in the wasteandwater sectors are financedmainly by the EU or IFIs. However, the federal gov-ernment also provides financing for water and waste projects from the federalbudget, even though current financing conditions are not favourable (REC, PEIPAnalytical Reports 2007–2009).

In Croatia, the Environmental Protection Operational Programme, co-fi-nanced by the IPA, provides the basis for the financing of environmental infra-structure projects. A large proportion of projects receive funding through therecently established Environmental Protection and Energy Efficiency Fund(EPEEF), theCroatian Bank for Reconstruction andDevelopment (HBOR), andprevious EU programmes (Phare and ISPA). One of the priority objectives of theHBOR includes environmental protection, the sustainable use of natural resources,and the financing of infrastructure, including environmental infrastructure (ADA,2008b). The bank has elaborated specific loan programmes: an infrastructure loanprogramme and an environmental protection loan programme dealing with theupgrading and reconstruction of municipal infrastructure. Loans are given for upto 15 years with an annual interest rate of 4 percent for projects investing in spe-cially protected areas and 6 percent for all others. In 2007, loans to the amount ofEUR 66 million were approved by HBOR to further promote investments in en-vironmental protection and energy projects.



Future environmental improvements in Kosovo (as defined under UNSCR1244) depend on the budget allocated to theMinistry of Environment and SpatialPlanning (MoESP) and on donor support. The priority project is the Air QualityMonitoringNetwork, for which 30 percent of the costs (EUR 965,000 for the pe-riod 2008–2010) will be covered from the consolidated budget of Kosovo (as de-fined under UNSCR 1244).

Foreseen expenditures in the field of environment for the years 2010 to2012 in theform of capital investments for approved projects total EUR 3.4million, whereas in-vestments in new projects will total EUR9.8million. Currently projects worth EUR24million are being implementedwith IPAco-financing for the closure of dumpsitesand for investment in water utilities (REC, PEIPAnalytical Reports 2007–2009).

The Kosovo Environmental Action Plan (KEAP), listing all environment-re-lated priority goals for 2006 to 2010, is the main framework for all activities un-dertaken for the purposes of environmental improvement and protection. TheKEAP stipulates a clear division of responsibilities between all stakeholders in-volved in environmental decisionmaking and provides guidelines for internationalfunding mechanisms and donor coordination. The KEAP is based on fundingfrom a variety of donors and participation from the government budget of between5 and 20 percent.However, the share of funds currently dedicated to projects in thefield of environment from the government budget under theKEAP is not sufficientto bring about significant environmental improvements (KEAP, 2006).

TheGovernment of the formerYugoslavRepublic ofMacedonia commits thebiggest share of public resources for the environment — at least 88 percent of theavailable funds— to the water and waste sectors through the competent line min-istries. Each year, environmental expenditures are allocated through its Environ-mental Investment Programme (EIP) in the formof grants. Between 2004 and 2007,the EIP approved financial support to 254 environmental projects, the majority ofwhich were in the areas of water and waste. The Ministry of Transport and Com-munications (MTC) is responsible for communal infrastructure improvement andcontinuously invests in water supply and sanitation projects co-financed by grants,loans or the national budget with support from IFIs and bilateral donors (ADA,2008c). Additionally, each line ministry has elaborated an annual investment pro-gramme allocating funds for the preparation of environmental project documenta-tion and the construction of water supply and sanitation facilities. Watermanagement-related projects are also supported. The total environmental expendi-tures of the EIP and theMinistry of Environment and Physical Planning amountedto EUR 2.12 million in 2006; and to EUR 1.97 million in 2007. Total environ-mental expenditures from the Ministry of Transport and Communications’ ownbudgetary sources in relation to water supply and sanitation purposes amounted toEUR 3.028 million in 2006, and EUR 3.725 million in 2007 (ADA, 2008d).

TheNationalEnvironmental InvestmentStrategy (NEIS)was adopted recently forthe period2009–2013 and is designed to set up a comprehensive system streamliningthe available national funds and leveraging the international financing sources towardssolving environmental problems in the fields ofwater,waste, air quality, energy andna-



ture protection (NEIS, 2009). A key objective of the strategy is to establish a pipelineof bankable projects and provide the basis for the selection and prioritisation of proj-ects financed by budgetary funds, IFIs and bilateral donors. For the period 2009–2013, the plan is to spend some 56 percent of the funds available onwater supply andsanitation; and around 32 percent on wastemanagement issues.

Between 2002 and 2006, a large proportion of expenditure at national level inMontenegro was in the area of solid waste management. Currently, the Ministryof Finance is responsible for infrastructure construction and maintenance invest-ments (ADA, 2008d). One of the strategic objectives of the national fiscal policyis to introduce capital budget and increase allocations for capital investments toundertake significant infrastructure investments.

In the period 2003–2008, a positive trend has been recorded in environmentalinvestment, especially in terms of infrastructure projects in the field of wastewatertreatment, water supply and waste management. From 2003 to 2005, the percent-age of projects funded from donations was significantly higher compared to do-mestic funding and loans; while from 2005 to 2008 the trend changed —donations decreased while financing from own funds and loans significantly in-creased. In 2008, funding from internal resources represents the largest propor-tion, followed by credits and grants (REC survey, 2009).

In 2008, funds from the state capital budget provided for environmental proj-ects within the communal sector totalled EUR 2,345million: EUR 1,545millionfor sanitary landfills and EUR 0.8 million for wastewater treatment facilities. In2007, the budget for the environment was about EUR 1.8 million; in 2008 it wasabout EUR 5 million; and the budget for 2009 is about EUR 5.2 million (REC,PEIP Analytical Reports, 2007–2009).

National financial resources for environmental investments in Serbia are stillvery limited. They are currently being disbursed only for technical assistance forproject preparation, and in rare cases for the construction of infrastructure. Do-mestic financial resources are supplemented by foreign assistance, which is chan-nelled mainly through the Ministry for the National Investment Plan (NIP), aswell as two units of the Ministry of Finance (MoF): the Development Aid Coor-dination Unit (DACU) and the National IPA Office (NIPAC). The principalsources for water quality improvement investment programmes are budgetaryfunds allocated by theWater Directorate of the Ministry of Agriculture, ForestryandWaterManagement (MoAFWM), received from charges for water consump-tion, abstraction and pollution; the state budget; donations; and loans from IFIs(ADA, 2008g). The Water Directorate and the Srbijavode public water manage-ment company are responsible for directing accumulated funds towards the con-struction and maintenance of the water supply and sanitation infrastructure.

The Ministry for the National Investment Plan promotes investments intostrategic infrastructure and recently launched a programme to finance infrastruc-ture improvement, including environmental infrastructure, in the poorest 40 mu-nicipalities in Serbia, with grants covering 100 percent of eligible costs (ADA,2008f ). The project “Clean up Serbia” was launched in 2009 by theMinistry of En-



vironment and Spatial Planning and is aimed at the remediation of illegal dumpsitesin more than 10 locations, the cleaning of riverbeds, as well as the capacity buildingof eco-industry. A total of EUR 6.5 million has been allocated for this purpose.

In 2006–2007, EUR20million (1.2 percent of the total state budget allocations)were directed to environmental protectionmeasures. Themain emphasis was on theunderdeveloped waste management sector (EUR 11.4 million), followed by watersupply andwastewater treatment (EUR4.9million) and air pollution (EUR3.7mil-lion). In 2008, theMinistry for theNational Investment Plan approved aroundEUR4.2million for water sector infrastructure and disbursed around EUR1.1million in11 Serbianmunicipalities (REC, PEIP Analytical Reports, 2007–2009).

BetweenNovember 2008 and June 2009, the effects of the global financial cri-sis could be observed on environmental investment projects financed from the na-tional budget. TheMinistry for theNational Investment Plan had to cut down theamount of funding previously agreed, and most municipalities (especially thesmaller and poorer ones) are finding it increasingly difficult to secure funds forprojects. Many projects that had seen progress in the previous period came to ahalt, while only some of the richer andmore proactivemunicipalitiesmade progressin this period. For the next period, important and increasing challenges will prob-ably be felt in the smaller, less-developed municipalities (REC survey, 2009).

The establishment of environmental protection funds in SEEThe establishment of an environmental fund is one of the available institutional

solutions with respect to environmental investments. In CEE countries, experi-ences with environmental funds have been mixed and there are examples of bothwell-functioning funds and funds that have failed to perform and have been dis-solved. This suggests that environmental funds are an institutional form that has noguarantee of success per se. Some of the prerequisites for success are clear respon-sibilities, a fixed time horizon, and clear sources of capitalisation. Setting up a fundalso requires significant investments in terms of human resources.

In Albania, preparatory work began in the mid-1990s to establish an envi-ronmental fund, but the Ministry of Finance stopped the initiative. Both thegovernmental programme and the Intersectoral Strategy for the Environmentcall for the establishment of a national environmental fund (REC, PEIP Ana-lytical Reports, 2007–2009).

Environmental funds have been established in both entities of Bosnia andHerzegovina. The Environmental Fund of the Federation of Bosnia and Herze-govina (EFFBiH) and the Environmental Fund of Republika Srpska (EFRS) werefounded by the governments of the two entities under their respective Law on theEnvironmental Fund (in 2006 in FBiH; and in 2002 in RS) defining all the nec-essary conditions and scope of activities of the funds. The funds were establishedfor the purpose of collecting and allocating funding for the development of watermanagement infrastructure; waste minimisation and the adoption of integratedwaste management; and the construction of other municipal infrastructure facili-ties necessary to meet EU accession standards.



The EFRS is largely funded via the state budget, but it can also obtain fundsfrom foreign and international sources, such as IFI loan and soft loan schemes.Starting from 2008, fund revenues are secured through fees for the use of naturalresources and for environmental impacts; the RS budget; fees levied on polluters;and grants (ADA, 2008j). Funds are allocated through loans, subsidies, financialhelp and donations. Sincemoney is allocated to the EFRS fromwater fees (15 per-cent of total revenues), theMinistry ofWaterManagement, Forestry and Agricul-ture requires the EFRS to dedicate those funds to water protection activities.

At the time ofwriting there are no employees under the EFFBiH; the documentsregulating the work of the EFFBiH still remain at draft level, and their adoption isnot expected in the near future. Initial fundingwas received for the establishment ofthe EFFBiHand additional revenues (water charges)were allocated from2006.Un-spent finances are expected to be accumulated under the EFFBiH and directed toenvironmental projects after the fund becomes operational (ADA, 2008i). Therehave been no environmental expenditures to date. Various IFIs have a keen interestin the actual establishment and stable functioning of the EFFBiH according to thebest available practice, helping both entity funds to apply jointly for IPA andbilateraldonor funding. At present, the status of the fund appears complex and the decisionto start operation could dependon strong external technical assistance to build up thefoundation for a solid environmental institution in FBiH.

Croatia’s Environmental Protection and Energy Efficiency Fund (EPEEF),which is an extra-budgetary fund, became operational in 2004. A tool for imple-menting environmental policy and financing environmental programmes, at pres-ent it focuses primarily on co-financing municipal projects in waste. The fund’sresources come from earmarked charges levied on environmental polluters andusers; charges for industrial waste andmotor vehicle charges; budget transfers; andrevenues from international bilateral and multilateral cooperation in the field ofenvironment (ADA, 2008k). Fund resources are allocated through grants, softloans, subsidised interest rates and loans from commercial banks, and are used pri-marily to finance programmes and projects in accordance with the National Envi-ronmental Protection Strategy andNational Environmental Action Plan, strategicenergy documents, and other related strategies and regulations. Financing is di-rected to general environmental protection, the sustainable use of natural resources,waste management (65 percent of overall expenditures in 2005–2008), and sup-port for energy efficiency and renewable energy sources.

The EPEEF is responsible for the promotion and establishment of cooperationwith international and domestic financial institutions. Jointly with the CroatianBank for Reconstruction andDevelopment (HBOR), the fund supports the LoanProgramme for the Financing of Environmental Protection, Energy Efficiency andRenewable Energy Sources. The fund is also involved in managing EU assistanceto Croatia and is currently implementing a project for developing waste manage-ment infrastructure under the IPA 2007–2009 Environmental ProtectionOpera-tional Programme (EPOP). In 2006, the EPEEF disbursed a total of EUR 102million, of which EUR 100 million was allocated for environmental projects, and



EUR 2.35 million for energy efficiency projects (REC, PEIP Analytical Reports,2007–2009). Croatian Waters is responsible for providing assistance in projectpreparation and IPA applications in the water sector.

Between 2007 and 2009, EUR 21.5 million were disbursed for the remedia-tion of official landfills; EUR 14.3 million were allocated for the remediation andclosure of illegal dumpsites; and EUR53.4million for the remediation of hotspots.Between 2009 and 2011, the EPEEF will give EUR 51.5 million to support in-vestments for the establishment and construction of RWMCs (REC, PEIP Ana-lytical Reports, 2007–2009).

The authorities inKosovo (as defined underUNSCR1244) are investigatingthe possibility of establishing an environmental fund and the government is in theprocess of developing the first draft of the law on establishing the fund, whichwould probably be managed initially by the Ministry of Environment and SpatialPlanning and later transformed into an independent body. The ECCARDS proj-ect assisted in developing an appropriate frame for the structure of the fund (REC,PEIP Analytical Reports, 2007–2009). No investments are planned utilising thisfund. Anther reason for the slow progress in terms of establishing the fund is thepending permission of the IMF. The budget allocated for environment in 2010 bythe Ministry of Environment and Spatial Planning has not yet been approved be-cause the government is experiencing difficulties in assessing capital investmentsin the environmental sector (REC survey, 2009).

The Fund for Environmental andNature Protection and Promotion of the for-mer Yugoslav Republic of Macedonia was established in 1998. Between 1998and 2001,USAID technical assistance was provided to the fundwith the aim of de-veloping an effective, transparent financing institution capable of providing grantand loan finance to local administrations and industry in order to facilitate pollu-tion prevention and environmental protection. From its creation, the fundwas ex-posed to highly variable political and economic conditions, resulting in frequentchanges of leadership and the lack of a long-term strategy for its operations. Thegeneral perception of the fund by other stakeholders was that it lacked clearly de-fined priorities and transparent financing strategies and procedures, and that it wasexposed to political influences affecting project selection procedures. As a conse-quence, based on the recommendations of the IMF, the fund ceased operationsunder the new Law on Environment. Environmental investments are now admin-istered through an environmental investment programme integrated within thestructure of the Ministry of Environment and Physical Planning as the Depart-ment for SustainableDevelopment and Investments (ADA, 2008d). Theministrycontinues to collect charges and to provide limited financial assistance in the formof grants to NGOs, public enterprises and local authorities. The Macedonian en-vironmental fund thus became a political hostage and can serve as an example ofhow not to manage an environmental fund.

For more than five years the Ministry of Tourism and Environment ofMon-tenegro has been considering the possibility of introducing an eco-revolving fundfor financing environmental investment projects by public utilities at themunicipal



level (ADA, 2008l). The purpose of the revolving fund would be to provide fundsfor water supply andwastewater treatment, wastemanagement, the construction ofroads and other infrastructure projects. The environmental fund is expected to be-come operational in 2009, pending the adoption of a corresponding law by the Par-liament. The fundwill be set up as an independent legal entity, but its overall humanand financial resource endowments remain to be decided. The fund’s activities areexpected to cover all themain environmental sectors, including capital investmentsin infrastructure, the promotion of environmental education and research, and theuse of renewable energy sources. Financial resources will be provided by the fund inthe form of grants, subsidies and soft loans. The fund is intended tomediate the useof resources provided by the government, and possibly by international organisa-tions and IFIs (REC, PEIP Analytical Reports, 2007–2009).

One of themain domestic sources of financing for environmental protection inSerbia is the Environmental Protection Fund (EPF). The fund covers the devel-opment and implementation of programmes and projects in the field of environ-mental protection, the sustainable use of natural resources, environmentalinfrastructure, energy efficiency and renewable energy (ADA, 2008h). In practice,the EPF mostly finances projects in the waste sector (and some in the air sector),while water sector projects are funded by the Water Directorate belonging to theMinistry of Agriculture, Forestry and Water Management (MoAFWM). Since2006, the EPF has been allocating grants for the preparation of project documen-tation in relation to the clean-up, remediation and closure of existing landfills. Since2007, financing has been allocated for the actual construction of regional landfills.None of these projects has yet been completed, although significant progress hasbeenmade in the regional landfills in Uzice and Prokuplje: most of the funds havebeen secured and the construction is under way.

In 2007, the EPF disbursed a total of EUR 2million entirely for the waste sec-tor, directed to the preparation of project documentation for, and the actual con-struction of, the first phase of the regional waste landfill in Prokuplje, and to theupgrading of seven municipal landfills.

In 2008, the EPF disbursed EUR 17.4 million in total, of which EUR 9.4 mil-lion (54 percent) was dedicated to the waste sector; and EUR 0.77 million (13.5percent) to the air protection sector. In 2009, the EPF secured a total of EUR 15million, entirely for the waste sector (REC, PEIPAnalytical Reports, 2007–2009).The water sector is financed from the Directorate forWaters.

Fund revenues include charges for nature and resource use; pollution charges;a proportion of funds from privatisation; funds frommultilateral and bilateral pro-grammes, projects and other activities in the field of environmental protection andenergy efficiency; reinvested income; and contributions, donations and grants.Fund assets are granted through loans, guarantees, direct grants and interest ratesubsidies on commercial loans (ADA, 2008h). Currently, between 70 and 80 per-cent of resources are allocated through grants, although in the future it is plannedto increase the share of loans. In 2006, the amount directed to the EPF from chargeswas about 0.02 percent of GDP, thus it is clear that, with the current low revenues



from charges, the EPF is not able to provide a significant amount ofmoney or sup-port to projects eligible for financing, such as those on environmental protection,energy efficiency and renewable energy.

General observations• Public (state, county, municipal etc.) budgets, although insufficient in most

cases, have an essential role in financing the rehabilitation of, and capital in-vestments in, environmental infrastructure. They indicate priorities and pro-vide co-financing for loans and grants from the EU, IFIs and bilateral donors.

• The coordination of environmental financing flows at national level is of pri-mary importance in ensuring complementarities in the financing of environmen-tal infrastructure and in stimulating cooperation between the relevantministries.

• SEE countries are slowly increasing the proportion of their environment-re-lated expenditures and are approaching the levels of newmember states. How-ever, funds are not sufficient to cover all the required expenditures.



BOX 19: Case study — Environmental Fund of the Republic of Slovenia

The Environmental Fund of the Republic of Slovenia was established in 1993 in order to manage assets earmarkedfor environmental protection. It is the only specialised institution in Slovenia that provides financial assistance to en-vironmental projects. The fund supports environmental investments in compliance with the priorities defined by thelegislation in force and directs funding to industry, municipalities, local infrastructure companies and households.

The fund is the biggest specialised financial institution granting soft loans; issuing guarantees; providing financial, eco-nomic and technical consulting services; and acting as a financial intermediary. The total capital and liabilities of thefund were EUR 120 million on December 31, 2007. The largest proportion of funding (70 percent) comes from theEarmarked Asset Fund, loans from IFIs, and grants from international funds. Earmarked funds come mainly from en-vironmental taxes, non-refundable funds from the budget of theMinistry of the Environment and Spatial Planning forenvironmental investments, and EU funds. The fund has a legal obligation to maintain the real value of its assets andto cover operating costs from loan interest rates.

For legal entities, funding is directed to support investments in environmental infrastructure, environmentally soundtechnologies and products, energy efficiency, energy saving and the use of renewable energy. For households, fund-ing covers investments assisting conversion from fossil fuels to renewable energy sources and energy-saving tech-nologies, water consumption reduction, and connections to sewerage systems and small wastewater treatment plants.Loans to households have significantly increased — from 9 percent in 2002 to 36 percent in 2006.

Opportunities for loans are made public through tenders and public calls for applications. The fund also co-financesprojects with the aim of informing and raising the awareness of potential borrowers about the purposes of the fund’sfavourable loans (Slovenian Environmental FundAnnual Report, 2007). The project evaluation procedure includes as-sessing success in meeting the key priorities set in national strategic documents and EU legislation; assessing the ad-equacy of technological solutions; and general environmental criteria. Between 1995 and 2006, some 10,031 loanswere granted, worth a total of EUR 239.3 million.

International financial assistanceThis section contains an overview of donor activities in SEE and donor in-

volvement in financing environmental infrastructure projects. The EuropeanUnion is the main international donor in SEE. The overall objective of its assis-tance in SEE is to bring the countries closer to EU principles and standards. In thearea of infrastructure, projects are selected on the basis of their contribution to lay-ing the foundations for sustainable economic development and growth, and in par-ticular to meeting basic infrastructure needs in the least-developed countries.However, in the candidate countries additional emphasis is placed on core invest-ment, especially in the fields of environment, transport and energy.

Sources of grant support — Instrumentfor Pre-accession Assistance (IPA)

Financial assistance from the European Union to SEE countries is providedthrough the Instrument for Pre-accession Assistance (IPA). Initiated in 2007, theIPA represents the main instrument of financial support channelled from the EUand replaces previous pre-accessionmechanisms such as Phare, ISPA andCARDS.Themain objective of the IPA is to help beneficiary countries to implement the re-forms needed to fulfil EU membership requirements and to make progress in theStabilisation and Association Process (EC, DG Regio, IPA website). The instru-ment is designed to simplify all pre-accession assistance into a single frameworkboth for candidate countries (Croatia and the former Yugoslav Republic of Mace-donia) and for the potential candidates, and to facilitate the transformation fromone status to another. Under IPA assistance, special emphasis is given to institu-tion building; strengthening the capacities and structures needed for the manage-ment of pre-structural funds; and financing infrastructure investments. The averageannual allocation for SEE under the IPA for the period 2007 to 2011 is about EUR800 million (EC, 2008). This represents the highest per capita amount providedby the EC to any other region in the world (approximately EUR 30 annually). Al-locations to the environment underComponent I for 2007 and 2008 totalled EUR63million and EUR59million respectively.Multi-beneficiary environmental pro-grammes allocated a total of EUR 3.7 million (EC SEC [2009] 1309).

The IPA is an important source of funding for projects focusing on the insti-tutional strengthening and capacity building of national authorities in the field ofenvironment, sustainable resources management, environmental policy, environ-mental infrastructure upgrading and reconstruction, water supply and sanitation fa-cilities, municipal wastemanagement, air quality improvement, and environmentalimpact assessment. The IPA is also regarded as a potential source of funding forurban wastewater management projects, under the condition that a reform of thepublic utilities is carried out addressing cost-recovery issues.

Three of the IPA components are directly related to the financing of environ-mental projects—Component I: Transition Assistance and Institution Building;Component II: Cross-Border Cooperation (with EU member states and other



countries eligible for IPA funding; and Component III: Regional Development(environment, transport and economic development). Financial support throughthe IPA is delivered via annual national and multi-beneficiary programmes basedon country-specificmulti-annual indicative programming documents (MIPDs) andmulti-annual indicative financial frameworks (MIFFs), which are strategic docu-ments that indicatively allocate funds per beneficiary country and per component.

In the potential candidate countries, infrastructure investments are supportedthrough Component I, while candidate countries implement pre-structural policiesand receive financial support through access toComponent III. Under IPACompo-nent II, environment projects in eligible cross-border areas receive financing throughcross-border cooperationprogrammes.Annual national programmes define preciselythe projects to be provided with grants during the forthcoming financial year underComponent I for both sets of countries, while three-year rolling operational pro-grammes in energy, transport and environment allowmore flexibility in the financingofmulti-annual projects under Components I and II (EC,DGRegio, IPAwebsite).

In 2007 and 2008, under Component I national programmes, approximatelyEUR 63 million and EUR 59million respectively were allocated to environment-



FIGURE 15: IPA allocations to SEE countries (2007–2012)

0

50

100

150

200

250




SerbiaMontenegro

EURmillion

2007 2008 2009 2010 2011 2012Source: EC, DG Enlargement

related projects, while multi-beneficiary programmes directed funding totallingEUR 3.7 million to a number of environment-related projects. Under IPA Com-ponent III, approximately EUR 280million were allocated to the environment in2007 to 2009 (EC, 2009).

Component III of the IPA, open to candidate countries, also focuses on the en-vironment via operational programmes (OPs), which define the area of involve-ment (technical assistance, water management or solid waste management) andindicate the investment projects to be supported. An operational programme con-stitutes the overarching document defining a number of short-term andmid-termnational environmental priorities and objectives that need to be addressed in thecurrent programming period. It draws on existing EU and national environmentalpolicies and strategies and is designed to prepare national institutions to meet theenvironmental requirements of the EU accession process. One of the specific ob-jectives of the Environment Protection OP (EPOP) is to support investments inthe environmental infrastructure sector.

Technical assistance for reinforcing administrative capacity for the implemen-tation of assistance delivered under the EPOP constitutes an additional priority.



FIGURE 16: IPA allocations to SEE countries per capita (2007–2012)

0

10

20

30

40

50

60

70




SerbiaMontenegro

EUR

2007 2008 2009 2010 2011 2012

Source: EC, DG Enlargement

To achieve these priorities, the EPOP anticipates investments in a series of “flag-ship” projects that have significant environmental benefits. These can be eitherlarge-scale projects (above EUR 10 million) or smaller projects.

In the IPA national programme for all SEE countries under Component I, it isplanned to channel EUR 1 million to Albania, EUR 1.5 million to Bosnia andHerzegovina, EUR 5million to Serbia, and EUR 1.225million toMontenegro toestablish project preparation facilities (PPFs); and EUR 3 million to the formerYugoslav Republic ofMacedonia to establish a project preparation and support fa-cility (PPSF) with the overall objective of improving the planning, programmingand implementation of the IPA and to ensure that the national authorities submitgood-quality project proposals to the European Commission (IPA 2008c).

A total of EUR 25million will be invested in the creation of the InfrastructurePreparation Facility in Kosovo (as defined under UNSCR 1244) to support the



FIGURE 17: IPA allocations to SEE countries per component (2007–2012)

0

100

200

300

400

500

600

700

800

Croatia FYR Macedonia Bosnia andHerzegovina

Albania Kosovo (underUNSCR 1244)

SerbiaMontenegro

EURmillion

I – Transition Assistanceand Institution Building

II – Cross-border cooperation III – Regional development

IV – Human ResourcesDevelopment

V – Rural Development

Source:Multi-annual Indicative Planning Documents 2007–2009 and Multi-annual Indicative Planning Documents 2009–2011: Albania, Bosnia andHerzegovina, Croatia, Kosovo (as defined under UNCSR 1244), the former Yugoslav Republic of Macedonia, Montenegro and Serbia

preparation and implementation of infrastructure investments in the social sector,as well as in the fields of transport and environment. Investments are intended tohelp municipalities and public and private companies running utilities to iden-tify and prepare priority infrastructure projects for financing through IFI loans,EC grants, and/or the government budget, and to provide financial support tothe upgrading of infrastructure by providing grant co-financing using loans ex-tended by IFIs (IPA 2008d).

A total of EUR 3.393 million will be spent on the establishment of the Facil-ity for Project Preparation andReinforcement of AdministrativeCapacity inCroa-tia. It will provide flexible technical support (twinning, twinning light andtechnical assistance) to Croatian authorities; address specific needs identified forthe country; and help to prepare a pipeline of projects for further funding witha view to reinforcing the institutional and administrative capacity for the manage-ment of IPA funds (IPA 2007a).

Lessons learned after the first phase of IPA implementationA key challenge for the countries in relation to the implementation of the IPA

is their capacity to absorb funds. This is dependent on national capacities to set upthe necessary institutions; to prepare the required project documentation, includ-ing feasibility studies; and to provide co-financing. IPA funds for investment inenvironmental infrastructure require substantial co-financing of approximately 30percent of total project costs. To address the co-financing requirements, countries



TABLE 19: EC projects (allocations in million EUR) according to sector and country (2007–2009)

ENERGY TRANSPORT WATER AND MUNICIPAL SOCIAL ALLENVIRONMENT INFRA- SECTORS SECTORS

STRUCTURE

Albania 0 (0) 4 (15) 3 (27) 0 (0) 3 (23) 10 (64)

Bosnia and 2 (4) 2 (2) 3 (7) 1 (1) 4 (8) 12 (21)Herzegovina

Croatia 2 (2) 7 (206) 28 (48) 0 (0) 0 (0) 37 (257)

Kosovo (as 2 (13) 2 (9) 1 (18) 1 (14) 4 (43) 10 (96)defined underUNSCR 1244)

FYR 1 (2) 3 (30) 4 (17) 1 (7) 6 (9) 15 (65)Macedonia

Montenegro 1 (2) 1 (6) 2 (5) 0 (0) 2 (3) 6 (15)

Serbia 1 (6) 7 (27) 7 (33) 2 (67) 12 (76) 29 (209)

Western 9 (28) 26 (295) 48 (154) 5 (89) 31 (160) 119 (726)Balkans

Source:WCIBP database

need to allocate funds from the national budget and/or loans, private sector par-ticipation or other financial mechanisms such as carbon financing. The IPA canbe seen as a learning exercise that will prepare future member states for the chal-lenges and opportunities of the EU Structural and Cohesion Funds.

As the first result of IPA operation, a set of national and regional programmes, aswell as horizontal (multi-beneficiary) programmes, covering the environmental sectorwere elaborated under IPAComponent I. Projects receiving support from IPA 2007and2008 are approved andunder implementation, and approval of thenext set of IPAprojects is currently taking place. However, due to the financial crisis, IPA funds for2009are slightly smaller (Presentation: Fiedler, 2008a).Current funding continuouslyhelps countries to strengthen national capacities for environmentalmanagement; andtoupgrademunicipal environmental infrastructure, including the establishmentof in-tegratedwastemanagement systems and themodernisationofwater supply andwaste-water treatment facilities. Several regional programmes for environment wereestablishedunder IPA2007, 2008 and2009 to improve integratedwatermanagementin the region, to facilitate approximation to the EU acquis in the field of water, and tocreate a sustainable pipeline of projects dealing with water protection.

Current practice shows that the majority of countries were able to prepare listsof environmental investment projects eligible for financing.However, many of the



BOX 19: Example from Croatia — IPA EPOP 2007–2009 as a tool to streamline IPA III regional development funds

In Croatia, IPA funds are implemented through three multi-annual operational programmes (OPs). In the envi-ronmental sector, the Environmental Protection Operational Programme (EPOP 2007–2009) was devised inorder to define priorities and implementation means and mechanisms. The expected impacts of the EPOP arethe achievement of compliance with the EU acquis and improved institutional capacity in the management offuture structural funds (IPA EPOP Croatia 2007).

One of the specific objectives of the EPOP was to support investment in the environmental infrastructure sector.The current EPOP under IPA 2007–2009 relates to the waste management and water quality protection sectors. TheEPOP defines three priority axes and two lists of priority projects for the water and waste sectors.

The priority axes are: 1) the development ofwastemanagement infrastructure for establishing an integratedwasteman-agement system in Croatia (EC contribution: EUR 26.3million); 2) the protection of Croatia’s water resources throughimproved water supply and wastewater integrated management systems (EC contribution: EUR 26.5 million); and 3)technical assistance (EC contribution: EUR 699,750).

The 14 water sector projects on the EPOP list are related to water supply and/or water treatment facilities (includingsewerage networks where relevant). Of the 12 waste sector projects, 11 are related to the construction of regionalwaste management centres, and one to the remediation and closure of an abandoned hazardous waste landfill.

During consultations between the REC and the CroatianMinistry of Environmental Protection, Physical Planning andConstruction it was decided to harmonise the PEIP lists with the EPOP list. As a result, the PEIP lists contain all the proj-ects in the EPOP list, plus an additional three projects related to the remediation of hazardous waste sites.

The project applications approved for IPA funding in the current programming period are the water supply, sewer-age and wastewater treatment plant in Slavonski Brod; the regional waste management centre for Zadar county; theKastijun county waste management centre for Istria; and the Mariscina regional waste management centre.

projects were at different stages of development: some of themwere launchedmorethan 10 years ago and quality requirements have changed significantly, along withthe operating legal framework and the bodies responsible for issuing permits at na-tional and local level (Presentation: Glavocevic, 2008). The staffing and adminis-trative capacities of project proponents were not sufficient; and the level ofexpertise and number of employees involved in project preparation was in somecases underestimated. Many project beneficiaries demonstrated weak implemen-tation and operation capacity. In some cases, ownership of the utility or land wasan issue, while in other cases the determination of the location and the approvalprocess were delaying factors (Presentation: Unterwurzacher, 2008).

Other challenges outlined in the IPA III process in candidate countries includedelays and difficulties in the accreditation/compliance assessment process, whichis seen as long and complex and as creating a significant bottleneck in project im-plementation (Presentation: Ozdemir, 2009).

Bilateral donor assistanceBilateral donors are important sources of finance for SEE countries. Assistance

from donors plays an important role in know-how transfer, capacity building andthe co-financing of infrastructure projects. Donors channel significant amounts tosupport the reconstruction and stabilisation processes of the region. Bilateral donorinstitutions are primarily political institutions. This implies that they have diversestrategies, priority areas and budget envelopes that are subject to the changing goalsof foreign policy support and that can alter abruptly. External aid is providedmainly in the form of grants via development agencies or selected ministries; insome cases loans are provided. Grant support is primarily directed towards insti-tutional strengthening and capacity building, project preparation, and in rare casesto direct investments. Bilateral donors are mainly involved in financing capital in-vestment for small-scale infrastructure. However, they play a vital role in providinggrants for large infrastructure investments as well. In SEE countries, where localgovernments are often unable to secure co-financing for investment loans, bilat-eral grants can make it possible to receive the loan in the first place.

Trends in bilateral donors commitmentsThis section presents an overview of bilateral environmental support in order

to show how environmental commitments are shared by environmental sectors,beneficiaries and donor countries. The calculations are based on the databasemain-tained by OECD on official development assistance (ODA).

Even the total ODA bilateral assistance to SEE countries in recent years showsa decreasing tendency due to a coordinated shift of assistance to other regions. Thisis a result of the significant progress in economic development and political sta-bilisation in the SEE region, and the recent introduction of the EU IPA, whichwas designed to finance the urgent development needs of the SEE countries. How-ever, assistance from bilateral donors to environmental infrastructure projectsshows an increasing trend. The total allocation for the improvement of water sup-



ply and sanitation andwastemanagement investments grew fromUSD49millionin 2004 to almost USD 63million in 2007, an increase of 22 percent in two years.

The following countries provide bilateral ODA grant support to SEE countriesfor environmental infrastructure projects (listed in order of importance): Germany,Austria, Japan, Norway, Sweden, Switzerland, theNetherlands, Italy, Luxembourg,Spain, the United Kingdom, the United States and Greece. Around half of the as-sistance to environmental infrastructure was provided by Germany.

The majority of donor institutions are assisting in water-related issues and con-tributing to waste sector projects. Technical assistance for project preparation is pro-videdbymost countries. Financing is channelled in the formof grants, except forKfW,which also offers loans. Amaximum size of eligible project is set by only a few donororganisations: in general project size is flexible. A co-financing requirement in theform of own contribution was highlighted by Austria and Germany; however, mostdonor institutions require some formof financial commitment byproject proponents.

IFI financingIn the context of this publication, international financing institutions are in-

ternational banks providing financial assistance to countries with economies intransition. The financial support is provided in the form of soft loans with pay-



FIGURE 18: Bilateral ODA environmental infrastructure allocations to SEE countries (2005–2007)

0

10

20

30

40

50

60

70

2005 2006 2007

USDmillion

Source: Authors’ calculation based on OECD data

back conditions more favourable than those of other commercial loans. IFIs alsoprovide technical assistance for project preparation. These financial institutionsare therefore one of the major sources of financial and technical support for thedevelopment of environmental investment infrastructure in SEE. The most im-portant IFIs and the distribution of financing assistance for the SEE region are pre-sented in Figure 22. Each IFI channelled around EUR 700 million to the region,with the exception of the CEBwith a contribution of EUR 200million. The totalamount of EUR 3 billion represents a major contribution to the financing of in-frastructure in the countries concerned. The average funding provided per projectranges fromEUR 20million for the CEB to EUR 90million for the EIB. The dif-ference reflects the nature of the projects financed, which include small technicalcooperation schemes and massive transport projects (EC, 2009).

Table 20 illustrates the extent of IFI financial support between 2007 and 2009and its distribution by sector and country. According to theUNDevelopment Ac-tivity Database DACCodification, the municipal infrastructure sector comprisesthe following activities: multi-sectoral aid; urban development and management;



FIGURE 19: Environmental infrastructure commitments by recipient (2005–2007)

0

5

10

15

20

25

30

USDmillion


FYRMacedonia

Croatia SerbiaMontenegro

2005 2006 2007

Source:OECD ODA database

rural development; non-agricultural alternative development; multi-sectoral edu-cation/training and research/scientific institutions.

The largest share of funding was concentrated in the transport and municipalinfrastructure sectors, and to a lesser extent in the water and environment sectors.Three countries — Serbia, Croatia and Bosnia and Herzegovina — together re-ceived approximately 70 percent of the total IFI financial assistance over the period,with the former Yugoslav Republic ofMacedonia andAlbania lagging significantlybehind.Montenegro andKosovo (as defined underUNSCR1244) benefited fromsmaller amounts.

In terms of the distributionof investments forwater and environment,Croatia re-ceived the largest share of investments, followed by Serbia, Albania and Bosnia andHerzegovina.Montenegro,Kosovo (as definedunderUNSCR1244) and the formerYugoslavRepublic ofMacedonia benefited from far smaller amounts of investmentdi-rected to the environment andwater protection.However, in per capita terms Figure24 shows thatCroatia receivedmost allocations fromIFIs forwater and environment,followed byMontenegro and Albania. Bosnia andHerzegovina, Kosovo (as definedunder UNSCR 1244), the former Yugoslav Republic of Macedonia and Serbia re-



FIGURE 20: Environmental infrastructure commitments by recipient per capita (2005–2007)

0

1

2

3

4

5

6

7

8USD


FYRMacedonia

Croatia SerbiaMontenegro

2005 2006 2007


ceived the least financing per capita. This is probably due to the fact thatCroatia hadthemost advanced projects, in terms of bankability andmaturity for financing.

The European Bank for Reconstruction and Development (EBRD) pro-vides funds to build market economies, as well as project co-financing for banks,industries and businesses. Loans and equity finance, financial guarantees and tech-nical assistance for project preparation are major instruments for the direction offunding. The EBRDprovides long-term loans (up to 15 years) with a grace periodand interest rates based on the credit risk of the borrower. Loans of between EUR5 and 250million (up to 35 percent of total project costs) are provided to projectsdemonstrating clear creditworthiness and profitability, positive environmental ef-fects (an EIA is necessary) and a positive influence on the local economy. Co-fi-nancing from foreign and domestic partners is necessary. The bank promotesco-financing and foreign direct investments; helps to mobilise domestic capital;and provides grants and technical assistance for project preparation. The bank hasa set of country-specific and sector-specific strategies related to municipal and en-vironmental infrastructure and natural resources management.

In 2006, the EBRD, with partner IFIs and donors, launched the multi-donorWestern Balkans Fund to mobilise additional grant funding for the countries ofthe region and to strengthen the coordination of EBRD donor assistance.



FIGURE 21: Share of environmental infrastructure investments by bilateral donors (2005–2007)

Austria10%

Others1%

Switzerland6%

Sweden1%

Spain1%

Norway10%

Netherlands1%

Luxembourg2%

Japan10%

Italy6%

Germany52%




TABLE 20: Distribution by sector and country of IFI allocations (2007–2009) (number of projects, allocations in million EUR)

ENERGY TRANSPORT WATER AND MUNICIPAL SOCIAL ALLENVIRONMENT INFRA- SECTORS SECTORS

STRUCTURE

Albania 1 (28) 9 (165) 6 (78) 1 (10) 4 (29) 21 (309)

Bosnia and 3 (74) 6 (352) 9 (74) 5 (165) 5 (12) 28 (676)Herzegovina

Croatia 2 (2) 9 (325) 32 (278) 2 (109) 1 (22) 46 (736)

Kosovo (as 4 (19) 2 (9) 1 (18) 1 (14) 6 (52) 14 (111)defined underUNSCR 1244)

FYR 2 (37) 6 (166) 4 (17) 2 (27) 7 (22) 21 (267)Macedonia

Montenegro 3 (16) 2 (21) 3 (22) 0 (0) 2 (3) 10 (62)

Serbia 3 (53) 9 (146) 10 (110) 8 (470) 13 (86) 43 (865)

Western 18 (229) 43 (1,184) 65 (597) 19 (794) 38 (224) 183 (3,027)Balkans

Source:WCIBP database

FIGURE 22: IFI assistance to the municipal infrastructure sector in SEE countries (2007–2009)

0

300

400

200

100

500

700

600

800

900

EURmillion

CEB EBRD WBEIB

Source:WBICP database



FIGURE 23: IFI allocations for water and environment in SEE countries (2007–September 2009)

0

100

50

200

150

250

300

EURmillion


SerbiaCroatia FYRMacedonia


Montenegro

FIGURE 24: IFI allocations for water and environment in SEE countries per capita (2007–September 2009)

0

20

10

30

50

40

60

70

EUR




Montenegro

The Western Balkans Fund has already established itself as the main instru-ment for funding technical assistance assignments across SEE, covering a wide rangeof sectors with allocations of more than EUR 25 million, about EUR 17 millionof which have been approved as grant support for more than 40 projects over thewhole region. The fund focuses on municipal infrastructure improvement, trans-port, communications, tourism, and financial and private sector development. Inthe area of environment and municipal infrastructure, the fund focuses on pro-viding support to projects for water supply, wastewater collection and treatment,solid waste management, district heating, natural gas distribution and urban pub-lic transport. During the period 1991 to 2008, the EBRD signed agreements on 18environmental infrastructure projects for loan support in SEE (EBRD, 2008). Themajority of projects were for water supply and sewage collection and treatment.

The global financial crisis has placed severe demands on financial institutions,businesses, utilities and government agencies, thus the EBRDhas indicated as a pri-ority the reinforcement of financial institutions investing in improvements in envi-ronmental infrastructure and business development (EBRD, 2009).

The EBRD has been active in SEE countries for several years and is progres-sively increasing its long-term lending to the region. It plays a crucial role in sup-porting environmental infrastructure projects, with particular emphasis on roadrehabilitation, solid waste management and water supply and wastewater treat-ment. The focus of the EBRD’s activities is the continuous implementation ofmu-nicipal infrastructure projects under a sovereign guarantee by the institutionalstrengthening of entities and improving the efficiency of operating companies. Incandidate countries, the EBRD concentrates on working with a number of largeandmedium-sizedmunicipalities to develop environmental infrastructure projects



BOX 20: Case study — Environmental infrastructure project in SEE supported by the EBRD

Doboko Solid Waste Project, SerbiaThe proposed project involves the construction of the first regional solid waste landfill that will serve nine mu-nicipalities in Serbia. The project will include two lines for the separation of recyclable materials, all the requiredsubsidiary facilities, infrastructure and a protected zone. The intended project includes three transfer stations,transportation, and the closure and remediation of existing dumpsites financed through EAR funding and theSerbian Government’s Eko fund.

The project will result in the first regional landfill fully compliant with the EU and the National Solid Waste Man-agement Strategy. It will provide a model to be replicated for the financing of other regional waste managementcompanies in Serbia and will promote the implementation of a nationwide solid waste management programmecreating new legal and institutional structures to support economies of scale, employ new technology and es-tablish best practice management techniques.

This is the first regional waste management project in Serbia focusing on tariffs for waste management servicesthat are based on cost-recovery principles. The project will introduce market-based structures and establisha clear contractual basis among stakeholders for the provision of waste management services. A loan of up toEUR 5million from the total of EUR 11.9 million planned for the Doboko project has been secured through a mu-nicipal support agreement between the cities of Cacak and Uzice and the EBRD.

for prospective IPA co-financing. Additional priorities for the EBRD in the regionare the promotion of policy dialogue; support to the development of viableschemes for the privatisation and commercialisation of state-owned utilities; andthe adaptation of the fiscal decentralisation process (EBRD, 2009).

The Council of Europe Development Bank (CEB) is a multilateral develop-ment bank with a mission to contribute to strengthening social cohesion in Eu-rope and to achieving sustainable and equitable growth. It grants medium- tolong-term loans and provides guarantees and technical assistance to social infra-structure projects in close collaboration with other IFIs. TheCEB channels finan-cial assistance to the region through long-term loans with low interest rates andspecific repayment schedules adapted tomeet national borrower requirements. Itscurrent activities cover environmental protection, public services infrastructureand the financing of projects in response to emergency situations in the event ofnatural or ecological disasters (CEB, 2007a). At present, between 17 and 20 per-cent of the total approved amount relates to environmental projects and the pre-vention of natural disasters.

Faced with the impact of the crisis in CEE and SEE, the CEB recently signifi-cantly intensified its role in the financing of public social infrastructure, with par-ticular focus on municipal infrastructure and enhanced coordination with theNeighbourhood Investment Fund (NIF) and the Infrastructure Project Facility(IPF), andwith othermultilateral development banks within theWestern BalkansInvestment Framework (CEB, 2009).

The CEB finances projects related to the clean-up and protection of surfacewaters and groundwater; the decontamination of soils and aquifers; the reductionand treatment of solid and liquid waste; renewable energy production and energy-savingmeasures; air and noise pollution reduction; and cleanermeans of transportand transportation networks.



BOX 21: Case Study — Environmental infrastructure project in SEE supported by the CEB

Development of Water Supply in SerbiaDuring the period 2005 to 2009, the CEB financed the development of water supply systems for small munici-palities in Serbia as part of a larger project aimed at improving basic infrastructure.

The CEB financing amounted to EUR 40 million, representing 50 percent of the total project cost. The fundswere loaned to Intesa Sanpaolo, which loaned them on to small municipalities throughout the country via BancaIntesa Beograd.

The majority of the project-related investments concerned the basic infrastructure regarded as necessary for thesustainable development of Serbia’s secondary towns and rural municipalities.

The part of the project relating to water aimed at developing wastewater treatment plants; building new seweragenetworks; improving water supply; rebuilding hot-water piping networks; and building reservoirs for drinking water.

This part of the project led to improvements in public health, with a reduction in the number of people sufferingfrom diseases related to poor drinking-water quality. More generally, these investments improved the economicsustainability of the public water utility companies by enlarging their customer base.

In Albania and Bosnia and Herzegovina, financial resources have been allo-cated for projects related to the basic municipal infrastructure and environmentalprotection, and to improving the performance of private and public companiesand utilities. InCroatia, the CEB allocated resources for the improvement of qual-ity of life on the islands through investments in the construction of municipal andsocial infrastructure facilities and environmental protection. In Serbia, projectswere supported for the rehabilitation of local infrastructure damaged by a series oflandslides in 2005 and 2006 (CEB, 2006).The European Investment Bank (EIB) is the financing institution of the Eu-

ropean Union, supporting viable capital investment projects fostering the policyobjectives of the EU. The EIB has been active in SEE countries for several yearsand is progressively increasing its long-term lending in the region. Financing fromthe EIB assists these countries in the EU integration process and helps them tomeet EU accession criteria. It also provides incentives for political and economicreform. In 2008, the EIB concluded loan contracts in SEE countries reaching an an-nual record level of EUR 577 million, bringing total EIB lending in the region toEUR3.1 billion since 1995. The EIB operates in SEE under a specific pre-accessionmandate covering the period 2007 to 2013, established for themodernisation of in-frastructure facilities in the energy, transport and environmental sectors (EIB 2008).After an initial focus on the urgent reconstruction and rehabilitation of basic

infrastructure, EIB activity in SEE has been concentrated on the upgrading andmodernisation of themunicipal infrastructure facilities, either with direct loans orthrough dedicated lines of credit to local banks (global loans). The bank worksclosely with the EC in order to support project preparation and co-finance projectswithin the IPA. The EIB also co-finances operations with other IFIs, particularlythe EBRD,WB and CEB.The bank’s lending priorities include environmental protection and improve-

ment, sustainable energy production and the improvement of trans-Europeantransport and telecommunications networks. Major projects financed in thisframework were the rehabilitation of hydropower plants and electric power distri-bution systems in Bosnia andHerzegovina; the construction of the Belgrade bypassand the rehabilitation of Gazela Bridge in Serbia; a road rehabilitation programmein Bosnia andHerzegovina; and the construction of a motorway in Albania. In allSEE countries the bank is providing financing to small andmedium-scale projectsinmunicipal infrastructure, including the rehabilitation and construction of watersupply and sewerage treatment facilities.TheWorldBank (WB), as an international financing institution, provides low-in-

terest loans, interest-free credit, and grants to developing countries for a wide array ofpurposes, including investments in municipal infrastructure, environmental protec-tion andnatural resourcesmanagement.TheWB is one of the implementing agenciesfor the Global Environment Facility (GEF). The GEF has been used in Bosnia andHerzegovina, Croatia and Serbia in the context of the Black Sea and Danube BasinGEF Partnership, and in other SEE countries for environment projectsalong withWB loans (EC, 2009). The International Finance Corporation, as a partof the World Bank Group, together with USAID and a number of European and



Nordic donors, has established theBalkans InfrastructureDevelopmentFacility (BID-Facility) to provide technical assistance and tohelp public sector entities in SEE to at-tract private sector participation and investments in infrastructure development.The World Bank has been extensively engaged in providing financial support,

technical assistance, policy advice and analytical services in support of environmentalprojects in SEE. One of the priorities in the region is to guarantee the improvedmanagement ofmunicipal infrastructure and the delivery of services. TheWB’s spe-cific objectives in the environmental field are water reform and rehabilitation, solidwastemanagement and district heating; access to clean water supply and sanitationin rural areas; private sector and business growthwith an emphasis on environmentalprotection incentives; and support for a transparent legal and regulatory environ-mental framework. In the SEE region, the largest shares have been channelled topollution abatement, water and land resources management projects.In each of the Stabilisation and Association Process countries, loans are provided

in the form of specific investment loans with a long-term focus (five to 15 years) sup-porting infrastructuredevelopmentprojects; short-termanddevelopmentpolicy loansenhancing policy and institutional reforms. The WB Group also offers specialgrants to facilitate development projects. In order to be financed, all project applica-tions are required tohavedefined financial and environmental goals in linewith coun-try strategic documents and recognised as a priority by the national government.At the end of 2008, theWB launched a number of initiatives to help weaker de-

veloping countries to deal with the consequences of the financial crisis. The Infra-structure Crisis Facility (ICF), established by several IFIs, will help to ensure that



BOX 22: Case study — Environmental project in SEE supported by the EIB in 2008

The rehabilitation and construction of water and sanitation facilitiesThe EIB is lending EUR 60 million for the implementation of water and sanitation projects in the municipalitiesand cantons of the Federation of Bosnia and Herzegovina. The main objective of the project is to improve thequality of life of the country’s citizens and to meet Bosnia and Herzegovina’s needs regarding future compliancewith EU environmental legislation.

The EIB loan will finance an investment programme for water management in 15 towns, which will result in theimprovement and expansion of water supply and sanitation systems and the construction of wastewater treatmentfacilities.

The EIB loan will cover up to 50 percent of the total costs of the planned projects, which will be co-financed bythe budget of the Federation of Bosnia and Herzegovina, the country’s municipalities and cantons, and the IPA.The remaining funds will be provided by the EBRD and the World Bank, representing another example of thegood coordination and cooperation among all three IFIs in SEE.

Project preparation in a number of towns is already in progress, assisted by grants provided by the EU under theEnvironmental Project Preparation Facility. Some of the required feasibility studies have already been completedin cooperation with the municipal authorities and internationally experienced consultants — for example in Ve-lika Kladusa, Orasje and Bosanski Petrovac.

viable, privately funded infrastructure projects facing temporary liquidity prob-lems due to limited private participationwill get access to funding regardless of thefinancial crisis. This facility will comprise a loan funding trust, an equity facility andan advisory facility (EC, 2009). The ICF will provide USD 300 million to thefund and additional funding is expected from other IFIs and national governments.In SEE,WB lending focuses on urban infrastructure improvements with a spe-

cific emphasis onwater supply andwastewater treatment, solid wastemanagement,district heating, transportation, and increased public sector energy efficiency. Fund-ing is also directed towards general environmental protection and natural resourcesmanagement in environmentally sensitive areas and coastal zones.

General observations• Under EU IPA assistance, which replaces previous pre-accession mechanisms,special emphasis is given to institution building, strengthening the capacitiesand structures needed for the management of pre-structural funds, and the fi-nancing of infrastructure investments.

• A key challenge in the implementation of the IPA is capacity to absorb funds— that is, to set up the necessary institutions; to prepare the required projectdocumentation, including feasibility studies; and to provide co-financing. Thestaffing and administrative capacities of project proponents are often inade-quate, and in some cases the number of employees involved in project prepara-tion, and their expertise, has been underestimated.

• Assistance from international bilateral donors plays an important role in thetransfer of know-how, institution strengthening, capacity building and the co-financing of infrastructure projects.



BOX 23: Case study — Project in SEE financed by the WB

InlandWaters, CroatiaThe project will help to increase the service coverage of water supply and wastewater collection and treatmentin inland Croatia. It is in line with the country’s goal to achieve compliance with EU directives and to provide good-quality water and wastewater treatment.

Technical assistance (EUR 5 million) — (i) EU accession support will include: the institutional strengthening ofCroatian Waters and the Ministry of Agriculture, Forestry and Water Management, and the preparation of engi-neering studies and designs to be financed by the EU and other sources; (ii) project implementation support willinclude consultancy services and training necessary for project implementation; and (iii) the institutional strength-ening of utilities will be used by the project beneficiary utilities and provide consultancy services and training forutilities to increase efficiency and improve services.

Investments (EUR 100 million) — Three sets of proposed utility investments will increase water supply coverage andimprovewater supply services; increase sewerage coverage and improvewastewater collection services; improve thetreatment of collected wastewater in accordance with international standards; and enhance flood protection meas-ures in the central Posavina area, which includes the Lonjsko Polje flood protection area (a Ramsar wetland site).

• The largest share of IFI funding has been concentrated in transport and mu-nicipal infrastructure, and to a lesser extent in water and the environment.

Project preparation facilitiesProject preparation facilities (PPFs) are instruments used by the EC and IFIs to

provide support to infrastructure improvements. Usually, these facilities fund tech-nical assistance for the preparation of sound infrastructure projects over a definedperiod of time (two to three years in general). The PPFs are designed to support thedevelopment of an appropriate pipeline of bankable projects and to promote co-financing opportunities between local governments, the EC, and bilateral andmul-tilateral donors. The specific objectives of PPFs include supporting the achievementof national priority development goals; elaborating effective strategic plans in dif-ferent sectors, often followed by more detailed investment strategies; and increas-ing the effectiveness of development assistance channelled to beneficiary countries.Technical assistance is given for making an assessment of urgent country needs inthe field of infrastructure; identifying projects available and eligible for future fund-ing; and carrying out preparatory studies for specific projects, including institu-tional framework studies, demand and tariff studies, project feasibility studies andbeneficiary assessments. The facilitation and structuring of project financing, thegroundwork for project implementation and the identification of additional tech-nical assistance are also provided. These facilities are established in countries whereproject preparation capacities are the weakest. The links between the facilities de-scribed below is continuous. Project preparation undertaken by the Environmen-tal Project Preparation Facility (EPPF) is continued by the Infrastructure ProjectFacility (IPF) in 2008. The IPF is to become part of a broaderWestern Balkan In-vestment Framework with closer cooperation with IFIs in 2010.The Environmental Project Preparation Facility (EPPF) was launched by

the EC in 2006 to run for 24 months, with an overall budget of EUR 1.8 million.All SEE countries were beneficiaries, with special emphasis on the former YugoslavRepublic of Macedonia and Albania. The specific objective of the EPPF was toprovide support in project preparation, to speed up IFI financing of priority pol-lution abatement projects, and to help overcome the constraints facing the envi-ronmental sector. All environmental sectors were eligible to receive financing fromthe EPPF.Other objectives included enhanced collaborationwith IFIs in the iden-tification of priority environmental investment projects and the transfer of know-how in project development to SEE (IPF, 2008).During the implementation period, a total of 11 project preparation studies

were completed, representing potential investments of around EUR 160 million.These project preparation studies included an assessment of the technical, envi-ronmental, social, financial, economic and institutional viability and sustainabilityof the projects, including consumer affordability and tariff strategies that wouldcontribute to cost recovery from service beneficiaries without imposing undue fi-nancial burdens on them. The recommended proposed projects are therefore con-



sidered to be both sustainable and bankable. The final EPPF project pipeline ispresented in Table 21.A large number of projects prepared by the EPPF are currently co-financed and

undergoing implementation. The high success rate for funded projects is due toclose collaborationwith IFIs from the beginning of the process. CoordinationwithIFIs during the preparatory stages facilitates financing once project preparation has



TABLE 21: EPPF project pipeline

PROPOSED PROJECT TYPE/ PROJECT COMMENTS BUDGET EXPECTEDBY INVESTMENT PREPARATION FOR FOLLOW-UPCOUNTRY STATUS FEASIBILITY

STUDY

EBRD

Serbia Belgrade Wastewater Completed A new mayor was elected in May EUR EURDevelopment Project – December 2008 and key personnel were 343,000 48 millionBatajnica Wastewater 2007 appointed to the city administration.Development Discussions regarding loan

commitment for the proposedproject are under way.

Croatia Pula Wastewater Completed The study made clear EUR EUR 35Treatment Plant October recommendations for a sewerage 90,000 to 40 millionLocation Feasibility 2008 and sewage treatment strategy forStudy the town, which were accepted by

the beneficiary. Loan negotiationswith EBRD are under way.

EIB

Republika Banja Luka Hot Water Completed Loan approved by EIB Board. EUR EURSrpska, Bos- Leakage Prevention August Loan negotiations under way 198,000 22.8 millionnia and and Environmental 2007 with beneficiaries.Herzegovina Enhancement Project

Three Small and Medium-Sized Completed Loan agreement for EUR 60 million EUR EURprojects Towns Water andWaste- April signed by the EIB and the govern- 265,000 28 millionfor the Fede- water Development 2008 ment, and final on-lending agree-ration of Project (Cluster 1 Bo- ments with municipalities under way.Bosnia and sanski Petrovac, VelikaHerzegovina Kladusa and Orasje)

Montenegro Review of Solid Waste Completed Study submitted and ToR out to EUR N/AStrategic Master Plan June tender for follow-on studies. 11,000and Preparation of ToR 2008

Four projects Small and Medium Completed All project preparation reports EUR EURfor the Fede- Towns Water andWaste- December completed, and accepted 245,000 20–25ation of water Development 2008 by beneficiaries. millionBosnia and Project (Cluster 2 SorokiHerzegovina Birjeg, Posusje, Bosanski

Krupa and Tomislavgrad)

Source: EPPF, 2009

been completed. A positive example is the project “Small and Medium-SizedTowns Water and Wastewater Development” in Bosnia and Herzegovina, whichhas been taken up by the IPF Municipal Window. The following municipalitieswill receive grant funding for project implementation, thus project preparationwilltranslate into project implementation co-financed by a grant from the EC and aloan from the EIB generating some EUR 121 million in total project investmentin Bosnia andHerzegovina between 2010 and 2014: Bosanski PetrovacWater andWastewater Development Project; Velika Kladusa Water and Wastewater Devel-opment Project; Orasje Water andWastewater Development Project; Soroki Bri-jeg Water and Wastewater Development Project; Posusje Water and WastewaterDevelopment Project; Bosanska Krupa Wastewater Development Project; andTomislavgradWater andWastewater Development Project.A large number of the projects that could not be implemented in the frame-

work of the EPPF have been transferred to other frameworks, such as the IPF.The activities carried out by the EPPF during its two-year existence were eval-

uated highly by all stakeholders (beneficiary countries, EC and IFIs), as it man-aged to provide significant benefits for project proponents, good-qualitypre-feasibility and feasibility studies, and, as a result, a strong project pipeline forfuture funding. Factors assessed in project preparation studies included strategiclong-term development needs and priority investments; cost effectiveness and theefficiency of investments; pollution reduction objectives; environmental impacts;consumer affordability; the financial capacity of recipients; and the long-term sus-tainability of operations (Presentation: Davies, 2008).In 2008, the European Commission launched the Infrastructure Project Fa-

cility (IPF) with themain aim of providing direct support to the development andupgrading of infrastructure in the energy, transportation, environment and socialsectors, thus contributing to sustainable development in the region. The facilityensures continuity with the EPPF and carries on the preparatory work initiated.The IPF comprises two windows: a) the Technical Assistance Window, in

which grants are used to help prepare infrastructure investment projects to be fi-nanced by IFI loans; and b) theMunicipalWindow, implementation support oncethe project is formulated, in which grants are used to co-finance infrastructure in-vestments at municipal level, together with IFI loans (DABLAS, 2008).The core result of the facility will include the achievement of high-quality in-

vestment proposals for projects related to infrastructure remediation and upgradingthrough the preparation of pre-feasibility studies, feasibility studies and financialaffordability analyses, completed designs, budget and financial plans, preparationwork for the tender process and supervision of implementation work. The transferof know-how and capacity building at national and local levels alongwith enhancedcollaboration with IFIs are also emphasised as intended results (IPF, 2008).All IPA beneficiaries are, in principle, eligible for IPF financing. However, pri-

ority will be given to potential candidate countries, as they are in greatest need ofsupport and are not eligible for Component III of the IPA. For potential candidatecountries, the IPF will help to enhance the complementarity between IPA grants



and IFI loans (IPF, 2007). The facility is designed on a multi-annual basis in linewith IPAprogramming and provides grants and loans for infrastructure investmentsin the region, particularly in the environmental sector, for water supply, wastewatertreatment facilities, sewerage systems, solid waste management, hazardous wastetreatment facilities and emission control. All projects submitted to the facilityshould be in accordance with national sector strategies and the EU environmentalacquis and included in the regional pipelines (Presentation: Gofas, 2008). The av-erage budget per project will be approximately EUR 500,000. Projects and projectbudgets are reviewed on a case-by-case basis, and higher or lower levels of supportwill be approved under specific circumstances.Initially, EUR 16.2 million available from the CARDS programme were allo-

cated through the facility in 2008 and EUR 24 million through the MunicipalWindow. In 2009, an additional EUR 16.2 million were channelled to the IPF.The Specific Kosovo IPFWindow received financing of EUR 25 million for mu-nicipal infrastructure. In summary, up to 2009 the IPF instrument received fund-ing of EUR 83million. In June 2008, the steering committee of the IPF approvedover EUR 10million of technical assistance support for 18 infrastructure projects,leading to more than EUR 800 million of investments to be co-financed by three



TABLE 22: Environmental projects supported by the IPF in 2008

TITLE COUNTRY SUBSECTOR ESTIMATED ESTIMATED LEAD IFI CO-FINANCING TYPEIPF TOTAL INVESTORS OF TABUDGET INVESTMENT(MEUR) (MEUR)

Feasibility study Serbia Water 0.5 19.561 IPA, FSfor collection, protection state budgettransport andtreatment of waste-waters in themunicipality ofVranje and Uzice

Plava Voda Bosnia and Water 0.6 28 EBRD CEB FSRegional Water Herzegovina supplySupply Project

Regional Kosovo Water 0.3 10 KfW, EAR, TMA, FSWater (as defined supply Governments ofCompany under UNSCR Norway andPristina 1244) Switzerland

Podgorica Water Montenegro Water 0.3 10 EBRD EIB, WB FSInfrastructureProject

Podgorica waste- Montenegro Wastewater 35 EIB, EBRD WB, IPA, FSwater project Dexia CCB

Source: EC, DG ENLARG

European banks (EBRD, EIB and CEB) in six SEE countries (EU IPF TA 2009).Five of these projects were in the environment sector, and were mainly related towater, as presented in Table 22. There are currently 19 environmental projects onthe reserve list, covering the areas of water supply and wastewater treatment, wastemanagement, and solid and hazardous waste treatment (Presentation: Gianfranchi,2008). In 2009, four environmental projects were selected for support under theIPF TA (EC SEC [2009] 1309).In 2008, the EC and partner IFIs initiated theWestern Balkans Investment

Framework (WBIF), to be launched by 2010. TheWBIF will widen the scope ofthe existing IPF. In addition to infrastructure it will provide support to investmentsin other sectors, such as the private sector (including SMEs) and energy efficiency,in order to promote the general socio-economic development of SEE countries.The aim is to enhance coordination between European financiers and donors inorder better to meet the needs of beneficiaries by pooling existing grant resourcesfrom the EC, partner IFIs, member states and other donors, and by linking thesegrant resources with loans from IFIs.It is intended to be coherent with the IPA planning documents and with na-

tional andmulti-beneficiary programmes. TheWestern Balkans Infrastructure Ini-tiative, the intermediate step towards the creation of theWBIF, will be based on thefollowing components: a) the IPF; b) a joint grant facility receiving grant resourcesallocated from the EC IPA through the IPF, grant contributions from the EIB, theEBRD and the CEB, and bilateral grant contributions from member states andother donors through the European Western Balkans Joint Fund (EWBJF); andc) a joint lending facility coordinated by the partner IFIs.The framework will be consistent with the IPA and will enhance the owner-



TABLE 23: Environmental projects supported by the IPF in 2009

TITLE COUNTRY/IES SUBSECTOR PROJECT SCOPE

Detailed Designs for Lezha Albania Water A wastewater treatment plant is under construction.City and Shengjin protection Scoping mission planned to define design specificationsSewerage Network and implement the detailed design project.

KamzaWater Supply and Albania Water Scoping mission planned to complete ToR and implementSewerage Project Feasibility supply the feasibility study to determine long-term investment needsStudy and priority investment programme.

Detailed Designs for the Albania Water There is an urgent need to expand the capacity of the existingExtension of Kavaja protection WWTP in Kavaja to treat sewerage from Golemi beach.Wastewater Treatment Plant Scoping mission planned to determine design parametersand for Golemi Sewerage and implement the detailed design project.Network

BeraneWastewater Montenegro Water Currently water losses are high and the wastewater collectionTreatment Plant Feasibility protection and treatment infrastructure is inadequate.Study Feasibility study planned to prepare long-term strategic

investment plans and a bankable priority investment projectin relation to water and wastewater.

ship of the beneficiaries (EC SEC [2009] 1309).TheWestern Balkans Investment Coordination Platform (WBICP) was

launched by the EC and partner IFIs (CEB, EBRD, EIB) with the aim of prepar-ing the ground for theWBIF (EC, 2009). TheWBICPwebsite currently providesinformation and tools to support infrastructure investment coordination among allregional donors. The coordination platform is based on a comprehensive review ofongoing and planned programmes and activities implemented by the EC, IFIs andbilateral donors in the region in the field of infrastructure (WBICPwebsite). Thegeneral objective is to provide country beneficiaries with a global overview of ex-isting facilities and instruments applied for financial assistance both at nationaland regional levels. The sectors covered will include transport, energy, environ-ment and social. Other programmes, funds and initiatives funded from nationalsources will also be included. A mapping exercise will address all forms of deliverymethods such as non-reimbursable grants, different types of lending programmesand loans, grant co-financing, soft technical assistance and capacity-buildingmeas-ures associated with the provision of investments.

General observations• PPFs are used by the EC and IFIs to fund technical assistance for the preparationof a pipeline of sound infrastructure projects and to promote them to financiers.

• The activities of the Environmental Project Preparation Facility resulted in sig-nificant beneficial impacts for project proponents, good-quality pre-feasibility andfeasibility studies, and subsequently a strong project pipeline for future funding.

• The InfrastructureProject Facility supports infrastructure project preparation andbuilds project pipelines in the energy, transport, environment and social sectors.

• In 2008, the EC and partner IFIs initiated the Western Balkans InvestmentFramework, to be launched by 2010. In addition to infrastructure, the WBIFwill provide support to investments in other sectors such as the private sector(including SMEs) and energy efficiency.

Regional cooperation frameworksRegional cooperation is vital in SEE for a number of reasons. Firstly, it is essen-

tial to ensure peace and stability and to create good relations between neighboursfollowing the recent history of conflict. Established regional relations are both a tooland a prerequisite for moving towards EU integration. Secondly, tackling trans-boundary issues such as themitigation of environmental pollution and the develop-ment of infrastructure, as well as the strengthening of disaster preparedness andprevention, should inevitably be addressed on a regional level. Thirdly, regional co-operation is essential in order to create a fruitful climate for investments in SEE.Donors and IFIs often follow a regional approach in programming, which expandsthe investmentmarket andmakes itmore interesting for investors. In conclusion, co-operation across the SEE region is an essential element of a successful reformprocess,



allowing SEE regional actors, such as the Regional CooperationCouncil (RCC), toplay an important role in creating local ownership of the process. Although regionalcooperation in SEEhas improved, the efficiency of regional structures and initiativesalso needs improvement (EC COM [2009] 533). Moreover, by facilitating the ex-change of experience and best practices and by introducing newmethodologies, re-gional initiatives can promote effective financing for the environment.Some of themajor IFIs have developed cooperation frameworks in order to coor-

dinate activities in project financing aswell as to provide technical assistance for proj-ect preparation. Key initiatives relevant to the SEE region are presented below. Thissection also contains an overview of donor coordination initiatives in the region.The IFI Advisory Group (IFI-AG) has emerged from the experiences of the In-

frastructure SteeringGroup (ISG) that was set up in 2007 under the auspices of theStability Pact. The AG supports the overall cooperation between IFIs and the ECin the candidate and potential candidate countries, including cooperation underthe IPA. In particular, the objectives are to enhance strategic views aligned withthe EU integration objectives of the IPA countries; to address the development ofnational infrastructure; and to extend participation to include actors present in thecountries. In addition, it aims to identify possibilities for improving regional fi-nancial cooperation between the EC and IFIs based on the comparative advan-tages of each institution in the region13. The IFI-AG has four priority areas —energy; transport; environment and human development; and employment andsocial protection— and working groups have been set up for each of them.The IFI-AG also addresses horizontal issues in relation to fiscal sustainability

and the right financingmix; the coherence of IFI support with national public ex-penditure programmes; preventivemeasures against the crowding out of social ex-penditures; public private partnerships; transparency in bidding procedures; andoverall public investment prioritisation.The organisations making up the IFI-AG are the EC, the EIB, the EBRD,

the IBRD, the International Finance Corporation (IFC), the Nordic InvestmentBank (NIB), the Nordic Environment Finance Corporation, the Council of Eu-rope Development Bank, the Black Sea Trade and Development Bank, Kredi-tanstalt furWiederaufbau (KfW) and the Regional Cooperation Council (EC,DG Enlargement website).Commercial banks willing to support environmental investment and incorpo-

rate environmental considerations into financing practices are gathered under theUnited Nations Environment Programme Finance Initiative (UNEP-FI). TheUNEP-FI is a partnership between UNEP and the private financial sector. It wasestablished with the objective of promoting the integration of environmental con-siderations into all aspects of the financial sector’s operations and services. The ini-tiative has over 170 signatory institutions.Regional activities in SEE are structured under theCentral andEasternEuropean

Regional Task Force set up in 2004. The activities of the UNEP-FI strive to raiseawareness of sustainable finance in the region. Themajority of activities are currentlydirected towards the development of internal risk management procedures to ac-



commodate risks deriving from environmental projects. After recent changes in Sep-tember 2009, CEE is now a sub-group under the European Task Force (ETF). Thiswill not have a significant effect on the way that the CEETask Force operates, in thesense that the group will continue to have its own strategy, activities and overallindependence. However, it provides the CEE group with an opportunity to be pres-ent and influential in thewiderEuropean andglobal context, both via theETFand theEC. The REC plays an advisory role.Major financial members include BankAustriaCreditanstalt; Emporiki Bank; theEBRD;HVBGroup;KomercniBanka; andRaif-feisen ZentralbankAustria AG (UNEP FI website).TheDanube–Black Sea Task Force (DABLAS)was established with the aim

of stimulating water-related investments in the Danube and Black Sea regions. Itprovides a platform for cooperation between IFIs, donors and beneficiaries with theobjective of protecting the water and water-related ecosystems of the Danube andthe Black Sea. The task force comprises representatives of the Black Sea Commis-sion, the International Commission for the Protection of the River Danube(ICPDR), IFIs, interested EUmember states, other bilateral donors, and regionaland international organisations with relevant functions.The priority aims of the task force are to coordinate investment activities by

identifying priority objectives common to the region; and to develop concrete ap-proaches for financing shortlisted priority projects. The task force is also responsi-ble for project screening and prioritisation processes. There are currently 24 projectsin the pipeline, at various stages of preparation identified through the Danube In-vestment Support Facility (DISF), the Black Sea Project Broker, the PEIP and theEnvironmental Project Preparation Facility (EPPF) (DABLAS, 2008).From 2009, the EuropeanCommission supports a number of DABLAS prior-

ity water investment projects through the DABLAS Phare Facility active in Croa-tia; and through theDABLASBalkan Facility, which is planned to operate for twoyears in Bosnia and Herzegovina, the former Yugoslav Republic of Macedonia,Montenegro and Serbia. The primary objectives of the facilities are to identify andprepare new water projects and to further develop projects already identified; andto increase local capacity in the project preparation process. The scope of the workis to prepare a minimum of two pilot water sector projects in each of the benefici-ary countries, with one of the projects focusing on basinmanagement. At least twobankable investment projects should be fully prepared in one or two of the bene-ficiary countries as well (DABLAS, 2008).TheRegional Cooperation Council (RCC) was launched in February 2008,

as the successor to the Stability Pact for South Eastern Europe14. The RCC is a re-gionally led cooperation facility intended to sustain focused regional cooperationin South East Europe. A main difference from the Stability Pact is the level of re-gional ownership entrusted to the RCC. It is an attempt to encourage the SEEcountries gradually to take greater ownership of the process — politically and fi-nancially— in order to ensure the sustainability of the process. The RCC also sup-ports European and Euro-Atlantic integration. TheRCCpartnership comprises 45countries, organisations and IFIs.



Thework of the RCC focuses on six priority areas: economic and social develop-ment; energy and infrastructure; justice andhome affairs; security cooperation; build-ing human capital; and parliamentary cooperation as an overarching theme. Closerelations aremaintainedwith all relevant actors in these areas, such as governments, in-ternational organisations, IFIs, civil society and the private sector.TheRCCalso pro-vides political guidance to initiatives in specific thematic areas of regional cooperation.Environmental issues are mainly addressed in the energy and infrastructure priorityarea, where one of the activities is the transfer of knowledge about sustainable energyand sustainable transport. Links were established with the Regional EnvironmentalReconstruction Programme for SEE (REReP) (RCCwebsite).The Regional Environmental Network for Accession (RENA) will replace

the REReP and will be launched by the EC at the end of 2009. The RENA willstrategically enhance the pre-accession element in regional cooperation among thepotential candidate countries, including Turkey. The objectives are to improve theenvironmental situation in the region and to reestablish and facilitate environ-mental dialogue among SEE countries. Activities will focus on strategic planning,public participation, climate change, cross-border cooperation and environmentalinvestment project preparation. The RENAwill build on the achievements of theREReP (EC SEC [2009] 1309).The EU Water Initiative (EUWI) is an international political initiative creat-

ing partnerships with national governments, donors, thewater industry,NGOs andother stakeholders. It was launched to contribute to theMillenniumDevelopmentGoals in relation to drinking water and sanitation. The Mediterranean regional



BOX 24: DABLAS — Criteria for project prioritisation

• Level of reduction of pollution per investment cost

• Environmental impact on water-related ecosystems/sensitivity of area

• Compliance obligations of the country: timing issues

• Ability to pay back loans/affordability/financial sustainability

• Ability of recipient to co-finance

• Readiness to guarantee loans (may differ between government and municipality)

• Commitment of local authority/investor

• National priorities have to fit with regional priorities (health and drinking water issues are covered by nationalpriorities as well as regional priorities)

Projects that have partial financing ensured have a high priority. The list is based on hotspot databases. Projectson hazardous substances and diffuse sources are exempt from the first screening of projects. The pipeline dividesprojects into four different categories, from pre-feasibility stage to nearly approved or approved financing for in-vestments contributing to improvements in wastewater. In line with the new Water Framework Directive, em-phasis is given to river basin management projects.

Source: DABLAS website

component comprises partners in SEE andMediterranean countries that are willingto commit to the objectives, targets and guiding principles, and that have a genuinewillingness to work with others in finding practical solutions (EUWI website).TheHorizon 2020 Initiative (H2020)was launched by Euro-Mediterranean

partners with the objective of reducing levels of pollution in the MediterraneanSea. Among the issues tackled aremunicipal waste, urbanwastewater and industrialemissions, which are responsible for up to 80 percent of the pollution in theMediterranean Sea. The initiative focuses on facilitating the implementation of in-frastructure projects, capacity building, monitoring, research and the exchange ofexperiences (H2020 website).TheUnionfor theMediterranean, launchedbyFrance in2008, replaces theEuro-

Mediterranean partnership (Barcelona Process) and focuses on regional cooperationand on increasing the potential for regional integration and cohesion. The union hasthe depollutionof theMediterraneanSea as core objective.TheMediterraneanWaterStrategy will be adopted in 2010. The union comprises all EU states and the 21Mediterranean basin countries, including all SEE countries (EC SEC [2009] 1309).

Donor coordination frameworksDonor coordination can broadly be defined as joint support by donors to im-

prove aid effectiveness and to foster capacity building in the candidate and poten-tial candidate countries with a view to helping them to align to EU standards andto prepare for future accession (EC,DGEnlargement). Donor coordination is keyto improving the effectiveness of aid. Maintaining well-organised coordinationhelps to ensure adequate and targeted financial assistance and prevents the over-lapping of activities. This section provides an overview of existing donor coordi-nation efforts, both regional and in country systems.Donor coordination conferences are organised by the European Commission,

DG Enlargement Regional Programmes Unit in order to increase the visibility ofdonor coordination in SEE countries and Turkey. Two conferences on SEE andTurkey have been organised to date, in 2008 and 2009.A separate donor conference onKosovo (as defined underUNSCR 1244) was

held in July 2008. It brought together representatives from 37 countries and 16 in-ternational organisations. The meeting was called by the EC and the aim was tosupport socio-economic development in Kosovo (as defined under UNSCR1244). During the conference, participants pledged EUR 1.2 billion, of which theEU contributed EUR508million. Several projects on the PEIP lists were presented(DG Enlargement website; EC, 2008).



General observations• Regional cooperation is important for a number of reasons, including peaceand stability. It is also a tool, and a prerequisite, for moving towards EU inte-gration; tackling transboundary environmental pollution and infrastructuredevelopment; and creating a fruitful climate for investments in SEE.

• Regional cooperation provides an opportunity for the cross-border sharing ofknowledge and good practice.

• IFIs and donors often take a regional approach in programming, which expandsthe investment market making it more interesting for investments.



TABLE 24: Tools and instruments available for donor coordination in SEE countries

COUNTRY TOOLS AND INSTRUMENTS FOR COORDINATION COMMENTS

Albania Integrated Planning System (IPS) All donors concerned. OngoingNational Strategy for Development and Integration (NSDI) system accessible onlinehttp://www.aidharmonisation.org.al (DFID-funded initiative).

Bosnia and Donor mapping report and database All donors concerned. UpdatedHerzegovina http://www.donormapping.ba annually.

Croatia Competencies are spread between several ministries. The EC, An appropriate source ofjointly with theWorld Bank, still plays an active and important information is the EC Delegation.role in the field of donor coordination.

Kosovo (as defined A new agency for donor coordination and European integration The EC liaison office is a majorunder UNSCR 1244) is to be created following the donor conferences source of information.

in 2008 and 2009.

The former Yugoslav Central donor database — software application for the All donors concerned, minorRepublic of registration of projects aimed at reducing the overlapping problems in updating and format.Macedonia of assistance; analytical reports from the Central Donor

Assistance Database.http://www.sea.gov.mk/Default.aspxhttp://cdad.sep.gov.mk/EN/search.aspx

Montenegro Secretariat for European Integration Database containing Operation expected after 2009.information about donors (under development).

Serbia Ministry of Finance ISDACON (database of donor projects) Difficulties when sortinghttp://www.evropa.sr.gov.yu/Evropa/PublicSite/index.Aspx information in the database due to

the size of the database.

Source: Adapted from the Western Balkans Investment Cooperation Platform,http://balkan-prototyp.test.yellow-lab.pl/Chapter+VI+-+Donor+coordination/VI_2_+In+Country+Systems+of+Coordination



Chapter 8Prioritisation of infrastructure projects—

The PEIP lists


Dynamics of the PEIP lists of priority projectsFrom its launch in late 2001, the core of the PEIP was the set of lists of prior-

ity environmental investment projects for each country. The first national PEIPlists were created in 2002, based on consultations with PEIP focal points from na-tional ministries responsible for environmental protection. In each PEIP period(2001–2003, 2003–2005, and 2007–2009) the lists have been updated biannu-ally, based on information provided by project proponents and national PEIP focalpoints. New priority projects have been added and some of the existing projectswere removed from the lists — because of successful financing and/or implemen-tation, because no progress was made, and/or because high-priority status was lostin the context of overall national environmentally related policies.

Creating lists of projects that present a harmonised approach to investmentplanning is an important task for SEE countries. The absence of such an ap-proach was one of the key barriers keeping the donor community from deliver-ing assistance targeted to real environmental priorities, rather than randomlyproposed project ideas. This harmonised approach provides SEE countries withguidelines on developing national lists of projects for compliance with the keyinvestment-heavy directives.

Drawing up and efficiently managing the project lists in order to obtain fi-nancing for priority projects is a complex process requiring high levels of skill andexpertise among the national authorities. The exercise of developing a regionallist of environmental priority projects was seen as an important step towards start-ing this process. The PEIP lists of priority environmental infrastructure invest-ment projects are the response of SEE countries to the need to comply with theEU key investment-heavy directives. The role of the PEIP project lists is also tostimulate the process of implementing more infrastructure projects in the region.One practical result of the project lists is that priority project concepts can beshown to the donor community; on the other hand, the process launched and im-plemented by the PEIP, through the active participation of the SEE stakeholders,allowed for the transfer of expertise on developing and managing lists of projectsfor compliance.

Officials from SEEministries of environment were actively involved in all stagesof developing themethodology and are responsible for the updating of the lists, incooperation with the project team. The active involvement of SEE officials, andtheir approval of the lists, are indicative of their commitment to the process.

The lists contain project concepts that:• have a regional impact on the environment in SEE;• are directly linked to the implementation of the EU environmental acquis; and• are sufficiently mature (there is adequate information available about the proj-

ect) to be assessed for bankability and/or grant assistance.

The total costs of projects should be regarded with a certain degree of caution,as there is no unified method for calculating investment costs in the region.


This chapter presents the dynamics and trends of the national PEIP lists in theperiod 2007 to 2009 and explains the status of the lists and the reasons for projectsbeing added or removed. The priority lists can be found in Annex 5.

Project list dynamicsProjects have been classified according to three sectors: waste, water and air.

During the first two programme periods, there was a general decline in the num-ber of air sector projects. This can be explained by the general assumption that suchinvestment projects are primarily the responsibility of the industrial sector, whereownership issues have not been resolved due to the as yet incomplete privatisationprocess in the region; and also by the fact that national legislation in relation toIPPC and air quality has not yet been fully implemented. In most SEE countries,the relevant ministries and/or funds have project implementation units that usu-ally specialise in either the waste or water sector, rather than air projects. More-over, EU support is significantly stronger in the waste and water sectors, whichbelong to the public domain. In rare cases of fully privatised companies, in the formof multinational company takeovers, new owners implement air quality measures

CHAPT ER 8PR IOR I T I SAT ION OF IN FRAS TRUCTURE PROJ EC T S — THE P E I P L I S T S


FIGURE 25: Number of priority projects per country in 2007 and in 2009

0

10

5

20

15

25

30




Montenegro

2007 2009

Source: REC national PEIP lists

at their own expense and do not therefore require assistance from national or in-ternational environmental institutions and funds. In the waste sector, the numberof projects on the priority lists related to the remediation of hotspots also declined.These projects had a high level of national importance and, in many cases, have al-ready been successfully implemented.

Croatiamoved forward in terms of both the number of projects with significantprogress and the total funds secured for these projects. As an EU candidate coun-try, most of the funds for project preparation came from the IPA. Funds for actualimplementation came from the earlier Phare andCARDSprogrammes. These weresupplementedmostly by earmarked state funds. The IPA accreditation process waschallenging but provided experience that enhanced capacities for project prepara-tion at national, regional and local level.

Other countries relied mainly on bilateral donors and IFI funding, as nationalfunds available for environmental investments are generally scarce. Among the IFIs,KfW applied the practical and stimulative approach of the benchmarking and self-assessment of PUCs as a precondition for loans, which proved beneficial for proj-ect preparation and for increasing reform capacities, especially at the local level.

Figure 25 shows that the biggest decrease in the net number of projects tookplace in Albania in the 2007 to 2009 period. During this period, six projects were

CHAPT ER 8PR IOR I T I SAT ION OF IN FRAS TRUCTURE PROJ ECT S — THE P E I P L I S T S


FIGURE 26: Number of projects on the PEIP lists in 2007 and 2009 by sector

0

40

30

20

10

60

50

70

80

Waste Water Air

2007 2009Source: REC national PEIP lists

merged due to new regional concepts; and a relatively high number of projects wereremoved as not feasible. Two projects secured funding for implementation andwere therefore removed from the list. Bosnia and Herzegovina and Serbia showthe highest net increase in the number of projects on the lists due to the fact that,in this period, the respective governmental units increased their activities in thearea of technical assistance for the preparation of project documentation and pre-feasibility studies for water sector projects. In the case of Croatia, the number ofprojects remained constant. A large number of projects were added, while anequally large number of projects were removed due to the streamlining of projectsaccording to the Croatian Environmental Protection Operational Programme(EPOP 2007–2009). In Serbia, many projects were added but very few were re-moved in the 2007–2009 period.

Figure 26 illustrates how the air sector, which was already less significant in andprior to 2007, had almost completely disappeared from the priority lists by 2009.The role of air sector projects is discussed above.

The highest net increase in the number of projects between 2007 and 2009 isin the water sector. However, this does not imply that water has a higher prioritythan waste. All countries in the region are striving to achieve compliance in both



FIGURE 27: Projects added to and removed from the national PEIP lists between 2007 and 2009

0

20

15

10

5

30

25

35

Removed Added




Montenegro


sectors equally. The reason lies in the fact that a high number of hotspot remedia-tion projects (belonging to the waste sector) were removed in this period, andmanymunicipal landfill projects were replaced by a smaller number of regional landfillprojects, while the water sector is lagging behind in terms of regionalisation.

Figure 27 illustrates that the highest “turnover” of projects was inCroatia. Thisis due to the fact that the EPOP for the 2007–2009 period was adopted in 2007and included two lists, one with 14 water sector projects and the second with 12waste sector projects. In consultation with the CroatianMinistry of Environmen-tal Protection, Physical Planning and Construction it was decided to consolidatethe PEIP lists with the EPOP list. As a result, the PEIP lists now contain all theprojects on the EPOP list, as well as three additional projects on hazardous wasteremediation.

The highest number of additions was made in Serbia, followed by Bosnia andHerzegovina andCroatia. Bosnia andHerzegovina added almost exclusively watersector projects to the lists, while the additions were relatively balanced in Croatiaand Serbia. There were slightly more additions in the water sector, due to theprogress made in the waste sector in terms of regionalisation resulting in mergersof a number of waste projects.



FIGURE 28: Number of projects showing major and minor progress between 2007 and 2009

0

8

6

4

2

12

10

14

Some progress Significant funding secured therefore removed from lists




Montenegro



Project progressFigure 28 shows the number of successful projects that secured complete fund-

ing or funding sufficient to start project implementation and that were conse-quently removed from the lists. Projects that saw some progress in terms of thedevelopment of project documentation and/or that secured some additional fund-ing, are also shown. In Croatia, the priority environmental infrastructure projectsmade the biggest progress in terms of securing full or significant financing, fol-lowed byMontenegro, Serbia and Albania.

All projects that successfully secured complete funding were removed from thePEIP lists. Of the projects that received sufficient (in some cases conditional) fund-ing, some were removed from the lists while others remained. Sufficient fundingrefers to adequate funds to start the construction/implementation of the project,or at least to start/complete one of themain phases of a project. Some countries ap-plied the principle that a project should stay on the PEIP lists until 100 percentfunds were secured. Other countries decided to remove projects that had securedsuffient funding for a particular phase.

Figures 28 and 29 show that Croatia made the biggest progress in completingproject documentation and securing funds for priority environmental infrastruc-ture projects. In terms of total funds secured per country, Montenegro and Bosnia


FIGURE 29: Complete or significant funds secured by PEIP projects between 2007 and 2009

0

150

100

50

200

250




Montenegro

EURmillion


andHerzegovina follow after Croatia. However, in Bosnia andHerzegovina noneof the projects secured total or sufficient funds. Instead, a large number of projects(seven) saw small increases in funding. In Montenegro, there were three projectsthat secured sufficient funding, and a relatively high number of projects (nine) thatsecured minor additional funding.

In Bosnia and Herzegovina and the former Yugoslav Republic of Macedonia,none of the priority projects received complete funds for implementation and nonemade sufficient progress to be removed from the list. However, these two coun-tries secured significant funds— Bosnia andHerzegovina EUR 78.1 million, andthe former Yugoslav Republic of Macedonia EUR 53million. In terms of total se-cured funds, the figures for Albania andKosovo (as defined underUNSCR1244)are EUR 25.8 million and EUR 18.6 million respectively. Figure 29 indicates ac-tual progress in project maturity, which is directly reflected by the funds approvedby donors and IFIs (and, to a lesser extent, by national governments).

Figure 30 illustrates the number of projects excluded from the lists due to long-term lack of progress or as a result of losing their relative strategic importance fromthe government’s point of view. The largest number of projects removed from thepriority lists as non-feasible or as no longer a priority can be observed for the for-mer Yugoslav Republic of Macedonia and Croatia. In the case of Croatia, this wasdue to the consolidation of the PEIP lists with the EPOP list, where the idea was



FIGURE 30: Number of projects removed from priority lists due to lack of development

0

6

4

2

8

10

12

14




Montenegro


to focus on a smaller number of top-priority projects rather than a large number ofrelatively important projects.

While Figures 28, 29 and 30 show absolute numbers, Figure 31 shows the rel-ative number of projects that saw some (minor or major) advancement, projectsthat saw no change (except occasional merges between projects) and projects thatexperienced setbacks, expressed in percentages.15 Judging from the absolute num-bers and relative dynamics, Croatia and Montenegro recorded the biggest netprogress, while Kosovo (as defined underUNSCR1244) and the former YugoslavRepublic ofMacedoniamade the least progress in the preparation and financing ofpriority environmental infrastructure projects. The former Yugoslav Republic ofMacedonia also had the biggest absolute and relative number of projects with set-backs during the 2007–2009 period. Project setbacks in different countries in-cluded the removal of previously allocated national funds due to financialdifficulties; the pending completion of negotiations betweenmunicipalities in thecase of regional wastemanagement centres; and unresolved location disputes, hencethe need to find new locations and rework parts of project documentation.

Figure 32 shows total funds only for projects that secured complete funding inthe 2007–2009 period.



FIGURE 31: Relative PEIP project dynamics (percentage of total PEIP projects in each country, 2007–2009)

0

%

40

20

60

80

100




Montenegro

Setback Neutral Progress


Geographical breakdownThe successful PEIP projects are described in greater detail in this section.InAlbania, the project “Management Plan for Urban SolidWaste of Shkodra

City and theConstruction of a Sanitary Landfill” received funds of EUR4millionfrom the state budget in 2008. For the construction of the sanitary landfills in fivemunicipalities, funds have been allocated from the national budget. Budget fundshave also been directed to the construction of twowastewater treatments plants, inTirana and Shkodra. For the Shkodra project, the development of a drinking watersupply is included in the project fiche. The JICA financed the initial phase of theproject, up to the detailed design phase. The ItalianCooperation Investment Fundis supporting the rehabilitation work for the Tirana network between 2001 and2010 with a soft loan of EUR 44.3 million. The Austrian Development Agency(ADA), KfW and the Swiss State Secretariat for Economic Affairs (SECO) are fi-nancing for the first component, the development of a wastewater treatment plantin Shkodra, to the amount of EUR 15 million. Funding has not yet been receivedfor the second phase that includes the wastewater treatment plant in Shkodra andthe Shkodra-Zogaj area (EUR 25 million).



FIGURE 32: Total value of projects removed from the PEIP lists in 2007–2009 due to securing complete financing

0

30

60

90

120

150

180

FYRMacedonia

Bosniaand

Herzegovina

SerbiaAlbania Croatia Kosovo (underUNSCR 1244)

Montenegro

EURmillion


In Bosnia and Herzegovina, four projects received significant amounts offunding, although not sufficient to begin the construction phase, thus they are stillincluded on the PEIP lists. However, the overall amounts committed to projects onthe PEIP lists in the 2007–2009 period are significant (at around EUR 78 mil-lion). For the water supply and wastewater treatment project of the city ofMostarand surrounding settlements, the conceptual design and feasibility studywere com-pleted. The preparation of the design for themain collector of the sewerage systemwas contracted thanks to aWorld Bank (GEF) grant of USD 2.8 million. Subjectto the finalisation of the detailed design, the EIBwill provide a loan to the amount



TABLE 25: Summary of PEIP projects that secured complete financing in the 2007–2009 period

COUNTRY PROJECT VALUE PROJECT SUMMARY(MILLION EUR)

Albania

4.0 Waste management plan and landfill construction for the city of Shkodra

Croatia

51.1 Mariscina county waste management centre (near Rijeka)

57.8 Kastijun regional waste management centre (near Pula)

13.5 Remediation of the red sludge lagoon of the former alumina factory (near Obrovac)

5.2 Remediation and expansion of the Sagulje-Ivik municipal waste landfill(near Nova Gradiska)

4.0 Establishment of the national network for permanent air quality monitoringin the Republic of Croatia

31.1 Wastewater treatment plant in Slavonski Brod

Kosovo (as defined under UNSCR 1244)

1.5 Wastewater treatment of Trepca Arana lead zinc mine

3.5 Rehabilitation of the ash landfills of the Kosova A and B power plants: Transportationof ashes from existing landfills to the Mirash and Bardh mining sites

1.5 Rehabilitation of the ash landfills of the Kosova A and B power plants:Complete recultivation of existing ash landfills

1.5 Rehabilitation of the ash landfills of the Kosova A and B power plants:Hydroseeding method

Montenegro

7.5 Remediation measures for Mojkovac mining waste disposal site

11.8 Closure and remediation of the existing waste disposal site and constructionof a new Podgorica landfill, along with a recycling centre

Serbia

18.6 Upgrade and extension of wastewater treatment plant in Subotica

2.0 Equipment supply for the recultivation and preservation of the ashand slag deposit in Kolubara

of EUR 7.6 million. Three other projects advanced significantly. Technical assis-tance for water sector projects in 13 FBiHmunicipalities and technical assistancefor water sector projects in 16 RS municipalities both secured conditional EIBloans (i.e. for those municipalities that can secure 50 percent from own funds).The project “Protection of the Drinking Water Reservoir for Tuzla Canton” se-cured an IPA grant and an EIB loan subject to 50 percent secured from own funds.

InCroatia, total funds of EUR 164million were secured for 12 projects, six ofwhich secured sufficient funds to complete detailed project designs and/or com-mence with the construction phase (EUR 162.7 million). These six projects weretherefore removed from the list. Four of the projects were from the waste sectorand two from thewater sector. At the same time, another six projects were removedfrom the PEIP lists as they were no longer considered as high-priority projects (fol-lowing consolidation with the EPOP list discussed at the beginning of this chap-ter). The project for the waste management centre for Eastern Slavonia wasdropped from the list as negotiations about forming a regional utility companyfailed and the project came to a standstill. The projects secured funding from dif-ferent sources. Projects previously on the list secured the remainder of funding inthe form of grants from Phare and CARDS, as well as various national and ownfunds (e.g. through Croatian Waters, the EPEEF, municipal budgets, and public-private partnerships) supplemented by loans (mainly from the EBRD). Six projectsentered the IPA pipeline in the 2007–2009 period, three of which were approved(by September 2009) for regional/county waste management centres for Zadarcounty, for the Istria region, and for Sisacko-Moslovacka county.



BOX 24: Upgrade and extension of the wastewater treatment plant in Subotica, Serbia

The upgrading and extension of the wastewater treatment plant will have significant regional benefits. Project im-plementation will significantly improve the ecological status of Lake Palic and that of Lake Ludos and the Tisa River,which receive waters from Lake Palic. The project will contribute to the prevention of groundwater pollution andto the improvement of cleaning technology with de-nitrification and de-phosphorisation.

Financial setup:The total cost of the project is EUR 18.6 million. The project secured total funding through the following finan-cial setup:

• Own sources: EUR 3.9 million provided by the municipality of Subotica

• Grants: EUR 5,670,159 provided by the European Agency for Reconstruction and the EBRD

• Loans: EUR 9 million provided by the EBRD with subsidised interest

Success factors:Good project documentation was provided, including financial and management plans. The PUC was managedproperly and its project preparation capability was developed. A tariff policy and plan was developed, envisag-ing a gradual increase in tariffs.

In Kosovo (as defined under UNSCR 1244), four projects were removed asa result of securing sufficient funds to complete their respective feasibility studies(EUR 8million in total) and additional funds to start implementation (EUR 10.6million in total). Three of the projects were from thewaste sector and one from thewater sector, although a common denominator in all four projects was hazardouswaste (ash landfills andmine waters). The three projects from the waste sector arecomponents of one larger project for the rehabilitation of the ash landfills of theKosovo A and B power plants. The project was added to the PEIP lists in 2005 asa set of three projects that included the transportation of ashes from the existinglandfills to theMirash and Bardhmining sites; the complete recultivation of the ex-isting ash landfills; and the installation of an ash wetting system (hydroseeding).Since the pre-feasibility studies for the whole set of projects were completed andadopted (at a total cost of EUR 5.5 million), the World Bank allocated an addi-tional EUR 9 million and the projects are now in the implementation phase andhave therefore been removed from the PEIP lists. A total of 700,000 inhabitantswill benefit from the project. The water sector project on wastewater treatment atthe Trepca Artana lead and zinc mine was introduced to the PEIP lists in 2005.Pollutedwastewater from themine is being discharged directly into the riverMarec(and consequently into the rivers Sitnica, Ibar and Danube and the Black Sea).After the completion of the feasibility study (EUR 1.5 million), UNEP allocatedan additional EUR 1.6 million for this project, which is now in the implementa-tion phase and has thus been removed from the PEIP lists. A total of around100,000 inhabitants will benefit directly from project implementation.

In the former Yugoslav Republic ofMacedonia, as in Bosnia and Herzegov-ina, even though none of the projects are deemed to have made sufficient progressto be removed from the PEIP lists, significant funds have been committed for PEIPprojects in the 2007–2009 period overall (around EUR53million), although noneof the projects have been fully financed. For the project for the construction of awastewater treatment plant for the town of Prilep, EUR 6million were committedby the IPA and EUR 4.5 million from the state budget. The remaining EUR 11million should be secured from loans. The feasibility study for the project was com-pleted in the 2007–2009 period. A full tendering procedure (second step) is cur-rently in place for developing the detailed project design. The project for a seweragenetwork andwastewater treatment plant in Skopje has also progressed significantlyin terms of project documentation and the securing of funds, as has the project forthe modernisation of the municipal landfill through degasification and the utili-sation of landfill gas in the Skopje (Drisla) landfill.

InMontenegro, twowaste projects successfully secured complete funding. Thefirst phase of the project for remediationmeasures forMojkovacmining waste dis-posal site has been completed, and the EUR 7.5 million second phase has securedsufficient funds from the state budget and assistance from the Government of theNetherlands. The remaining EUR 5.55 million are expected to be financed fromthe 2009 state budget. The first two phases of the EUR 11.78 million project forthe closure and remediation of the existing waste disposal site and the construc-





tion of a new Podgorica landfill and recycling centre have been completed and thethird phase (recycling centre) has secured significant financing from local and statefunds and from the Spanish Government. The remaining EUR 4.3 million are ex-pected to be financed from the state budget. For the project for the construction ofa hazardouswaste landfill inMontenegro (EUR9.17million), an application for IPAfinancing has been completed and submitted, thus it is highly likely to receive suffi-cient financing.Many projects that are still on the list also recorded progress between2007 and 2009. Four of these projects are from the waste sector and 10 from thewater sector. These projects have secured a total of EUR 64.55million to date.

In Serbia, a total of EUR 22.7 million was secured for PEIP projects in the pe-riod 2007–2009. In total, four projects saw progress, two of which were removedfrom the lists having successfully secured funding (EUR 20.6 million in total). Theproject for equipment supply for the recultivation andpreservation of the ash and slagdeposit at Kolubara (EUR 2 million from own funds) is a relatively small but envi-ronmentally important waste project. The other project removed from the lists wasa major project in the water sector: the project for the upgrade and extension of thewastewater treatment plant in Subotica. A total of EUR 17.7 million was securedfrom EAR, the EBRD andmunicipal funds, and construction started in June 2009.The remaining EUR0.9millionwill be secured through PUC tariff collection. Theproject included the design of a new tariff system.The other twoprojects that saw im-provements but remained on the lists are both from thewaste sector: a project for theremediation of the Nis landfill, where additional funds were secured from the citybudget; and a relatively new project on the PEIP lists, for a hazardous waste man-agement facility (phase 1), forwhichEUR3million of the EUR14million requiredin total have been secured through the IPA to prepare a feasibility study.

General observations• Developing and updating the PEIP priority lists of projects has been a major

learning exercise for the SEE countries. However, for many of the projects it isstill difficult to obtain adequate data.

• Those projects that made more rapid progress had good-quality project docu-mentation from the outset, and PUC staff had actively participated in thepreparation of the documents.

• At national level, strong project preparation units are a driving force, as demon-strated in Croatia, Montenegro and Serbia.

• The benchmarking and self-assessment of PUCs in order to improve their op-erational efficiency has proved to have a beneficial effect on project prepara-tion and reform capacities.

• The IPA application process provided project preparation capacity building atboth local and national level. The proper inclusion of stakeholders from thebeginning of the process ensured that any potential problems in relation to lo-cation or similar issues were resolved in time.



Chapter 9The way forward


IntroductionThe aim of this chapter is to summarise some of themain issues addressed in the

report and to outline possible ways forward. The recommendations provide sug-gestions for possible directions. The precise modalities of actions and interven-tions are to be developed by the countries.

Overall challenges for national governmentsPolitical

The insufficient level of political support potentially jeopardises or delays thetimely and efficient implementation of environmental infrastructure investments.In a context of competing priorities, the importance of environmental investmentsand their impact on quality of life may be overlooked.

Way forward• There is a need for strong and persistent political will to reform the govern-

ment systems and institutions responsible for environmental financing. Per-sistent efforts are needed for the whole spectrum of reforms, from institutionalto legal and financial.

• It is vital that governments realise, and capitalise on, the political and financialopportunities presented during the pre-accession period. During this periodpolitical will for accession is strong and there are many resources available forfinancial and technical assistance.

Economic and financialThe countries of SEE have relatively low levels of GDP per capita, and the pro-

portion of GDP directed to environmental infastructure investments is far lowerthan the respective amounts spent in new member states. As a result, the overallavailable funds for environmental investments are insufficient and fall significantlybelow the amounts needed. In addition, the global economic crisis has affected in-vestments in environmental infrastructure, and some infrastructure projects havebeen suspended. Low income levels also explain the high rates of bill non-paymentand the low level of affordability of major infrastructure investments. The seriousstructural reforms needed to increase national income are not feasible.

Way forward• The capacity of society to afford environmental investments and the priority

given to quality-of-life needs must be clearly analysed, and environmental in-vestments must be structured accordingly.

• A higher proportion of the budget could appropriately be earmarked for envi-ronmental infrastructure investments in order to reach the levels of newmem-ber states, which have secured tangible flows of domestic financial resources.


• Domestic budgetary funds are also of huge importance for providing nationalco-financing for projects, for which a big share is financed fromEUor bilateralgrants and/or IFIs.

• Planning for approximation, including accompanying investments, should be-come even more important.

• In a situation in which budgets are tight and needs are big, there is a need tostreamline available resources in order to avoid overlapping and wasting re-sources between institutions and on low-priority projects.

• Advantage should also be taken of the subsidies available, particularly fromEUprogrammes and bilateral donors, which can ease affordability problems.

LegalAlthough progress has been made during the last four years there is still a rela-

tively low level of transposition of many of the key investment-heavy directives,and the level of transposition varies significantly between the candidate countriesand the others. Some of the countries still lack approximation strategies.

Way forward• Rushing transposition may lead to low-quality national legislation without

proper planning of the necessary human and financial resources. The avail-ability of approximation strategies is of great importance. These should definefeasible transposition and implementation dates that are linked to the real legaland political situation.

• It is important to adopt high-quality, functional legislation that will not requiretoo much modification in the future.

• The EU environmental acquis has significant financial, institutional and en-forcement implications that must be planned for in advance in order to guar-antee enforcement.

• It is beneficial for countries to use existing guidance documents, such as the ECguidance document and the ECHandbook on the Implementation of EU Envi-ronmental Legislation.

EnforcementThe level of enforcementof environmental legislation in the region is lowdue to the

weak capacity of the inspectorates and long years of a legal vacuum in the field of envi-ronment.Enforcement isno less important than transposition, as someof thenewwaterorwastemanagement systemswouldnot functionproperlywithout a sufficient level ofenforcement of the legislation.The links betweendifferent inspectorates andbetweenthe inspectorates, police andprosecution areweak.There is little awareness on thepartof companies and citizens of the importance of compliance with environmental legis-lation, whichmakes the inspectors’ obligations evenmore difficult to implement.

CHAPT ER 9THE WAY FORWARD


Way forward• Inspectorates should be strengthened in terms of numbers, knowledge and

equipment. Increased human resources capacity should be accompanied by in-creased financial resources and the provision of targeted training.

• To increase efficiency, the reform of the inspectorates should be linked withoverall judiciary reform, including improved cooperation with police, prose-cution and the courts and improved knowledge of environmental issues on thepart of these institutions.

• Establishing a policy for strengthening the monitoring and reporting of enter-prises (e.g. wastewater treatment plants and landfills) will facilitate the en-forcement of and compliance with regulations.

• Increased awareness on the part of citizens and businesses of the importanceand benefits of enforcement would reduce resistance to change and increaseoverall compliance.

Institutional development and capacityEnvironmental institutions in the region suffer from a number of weaknesses,

including shortage of human capacity; lack of operational transparency and ac-countability; poor inter-institutional cooperation etc. One of themain weaknessesof SEE institutions is their relative fragmentation, which leads to scattered, andvery often overlapping, responsibilities. Communication and coordination be-tween institutions are also issues of concern, as are the relationships between cen-tral and local levels of governance.

Way forward• The EU environmental acquis will require the overall strengthening of institu-

tions. Human resources and expertise planning need to be improved andaligned to the newly acquired environmental obligations.

• There is a need to streamline institutions and reduce their fragmentation inorder to improve synergies and avoid overlapping. Simultaneously, it would bebeneficial to improve mechanisms for coordination and communication be-tween institutions at central level, and also between different administrativelevels of government.

• It would be beneficial to the countries to introduce a clear separation betweenpolicy and regulatory functions where it is missing, and to improve the trans-parency and accountability of institutions at national and local levels.

• Countries may choose the option to establish environmental funds, if needed,but it should be clear that this should be done following the principles of trans-parency, autonomy and accountability.



Strategic planning and investment planningAlthough significant progress has beenmade in SEE countries in terms of draft-

ing strategies and plans, in some countries approximation strategies, including in-vestment planning, national environmental investment strategies and sectoralinvestment strategies are still missing, even though they are key to the absorptionof IPA funding. A strategic and priority-based approach is essential in a context oflimited available funding and competing priorities.

Way forward• Creating a full strategic framework is of the utmost importance as it reflects

the vision of the government, its approach and its priorities.• During the drafting of the framework it is essential to engage in wide stake-

holder dialogue to ensure that the views of the different stakeholders are takeninto consideration and balanced.

• Project identification capacities have improved significantly, partly due to pro-grammes and initiatives such as PEIP and DABLAS. Approaches to projectidentification need to be defined for any given sector.

• Adopting lists of priority projects based on wide stakeholder consultation andtransparent prioritisation, and thus creating a pipeline of projects, should be anintegral part of planning, mainly because it limits opportunities for politicalinterference and gives financers a clear signal as to the country’s priorities, al-lowing for optimal use of their funds.

• Planning should also include an overview of the status of existing infrastruc-ture and environmental investment needs; an overview of available and fore-cast national spending, IPA spending, and bilateral donor and IFI spending;an analysis of the institutional capacity for carrying out environmental invest-ments; and a list of improvementmeasures. All relevant stakeholders should beinvolved in the process. The prioritisation of projects constitutes one part ofthe process.

Coordination and communicationThe Infrastructure Project Facility provides technical assistance to the prepa-

ration of projects and directly supports municipal infrastructure investmentsthrough the grants channelled by the Municipal Window of the IPF. TheDABLASTask Force also provides support to project preparation and financing bymanaging a pipeline of water projects.

Way forward• Regional cooperation is essential for a successful reform process and develop-

ing environmental infrastructure in the region. Transboundary issues need re-gional responses.



• Countries should take full advantage of the available regional cooperationframeworks and make full use of the opportunities presented through them.They offer a unique chance to improve project preparation capacities and totackle transboundary environmental pollution.

• Regional cooperation should not to be underestimated, since IFIs and donorsoften have a regional approach to programming. In addition, by adopting a re-gional approach the investmentmarket expands and becomesmore interestingfor investments.

Overall challenges at local and regional levelInstitutional setup and functioning

Utilities in SEE are usually fragmented, overstaffed and underfinanced, aswell asbeing highly dependent on the political context. The utilities in the region are caughtup in a vicious circle of poor operational efficiency and service performance prob-lems, which lead to inadequate cost recovery and a lack of own funds for infrastruc-ture and service modernisation. Public utility companies are subsidised by themunicipalities, and cross-subsidisation between different sectors is also common.

Way forward• Institutional reforms of utilities are necessary in order to improve their effi-

ciency by clarifying ownership and management responsibilities. In addition,increasing the autonomy of utilities would allow for more efficient operation,improved performance and access to market capital.

• Corporatisation andmore advanced types of reform such as public-private part-nerships and partial or full privatisation could bring in the necessary expertiseand capital to achieve the desired service quality and economic sustainability.

• Utilities’ chances of success increase the more flexible they are and the moreopen they are to cooperating with other utilities through regionalisation and co-operation with the private sector. This is valid for both the public and privatesectors. Regionalisation requires an appropriate institutional form to bringthose who intend to use the regional facilities under one umbrella. It representsa serious challenge to municipalities that are traditionally used to solving theirproblems on their own. They should be assisted in this process and active me-diation should be offered by national authorities.

Investment planning and preparationAs a result of decentralisation, local governments have legal obligations with

respect to water and waste management that far exceed their financial capacities.The weak financial capacity of local governments is also due to the poor financialperformance of water and waste utilities, which are far from achieving cost recov-



ery.Municipalities are also debt averse, as there are strict limitations on the amountof debt they can incur. Issues of affordability and willingness to pay also arise, as aresult of relatively low income levels in some cases. Weak capacities for projectpreparation and a lack of local consultants also delay and hinder environmental in-frastructure investments.

Way forward• Local governments should focus on providing a clear, effective analysis of their

needs; and on obtaining support, through available grants and soft loans, forwhat they (and the state) cannot afford.

• There is a need to improve understanding of the principles behind market-based economically efficient environmental investment projects.

• Local authorities should embark on the fundamental reform of water andwasteutilities to make them and their investment projects more attractive to sourcesof financing, particularly IFIs and other lenders.

• There should be an ongoing effort to increase capacities for project prepara-tion. This should be done by informing and training project proponents(mainly local governments, utilities and regional institutions) on key aspects ofpresenting environmental projects as affordable, credible investment projects.

• It would be beneficial to local governments to take advantage of external proj-ect preparation assistance. All key stakeholders (local governments and utili-ties as well as non-governmental organisations and citizens) need to be involvedto the appropriate extent in project planning.




Annexes



Albania

Annex 1Environmental institutions in SEEand their responsibilities

INSTITUTION RESPONSIBILITY

National authorities

Ministry of Environment, Forestry Develops strategies, drafts laws, sets basic tariffs in the waste,and Water Administration water and air sectors.(MoEFWA)

Ministry of Public Works, Transport Manages a waste infrastructure investment programme. Defines the sites forand Telecommunications collection and treatment of waste. Collects statistics on the generation of urban and(MoPWTT) inert waste. Serves as competent authority for the implementation and enforcement

of the Urban Waste Water Treatment Directive in collaboration with MoEFWA.

Ministry of Economy, Trade and Drafts industrial waste management policy and collects statistics on generation,Energy (MoETE) recycling and disposal of industrial waste.

Ministry of Health Enforces water-related directives and ensures drinking water quality inaccordance with standards applied. Also provides information to the public.

Institutes and agencies

Institute of Public Health (IPH) and Monitors and controls quality of drinking water and air quality.State Sanitary Inspectorate (SSI)

Institute of Environment and Fo- Provides technical support, services and consultation to the MoEFWA.restry National Council Secretariat Collects monitoring data.

Regional and local institutions

Municipalities Municipal waste management (collection, transport, treatment and final disposal)and water services. Prepare local and regional plans on waste management, suggestthe appropriate location for landfills and define waste collection and landfill fees.

Water supply enterprises Delivery and treatment of drinking water.

Bosnia and Herzegovina



Ministry of Foreign Trade and Coordination of waste and water management activities and enforcementEconomic Relations (MoFTER) of investment-heavy waste directives of both entities and of Brcko District.

Federal Ministry of Physical River basin management.Planning and Environment

Federal Ministry of Agriculture, River basin management.Water Management and Forestry

Ministry of Environment and Waste management at entity level, including hazardous waste.Tourism, FBIH and cantonalenvironment ministries

ANNEX E SANNEX 1


Bosnia and Herzegovina (continued)


Ministry of Physical Planning, Civil Waste management at entity level, including hazardous waste.Engineering and Ecology ofRepublika Srpska and UtilityDepartment within theGovernment of Brcko District

Ministry of Agriculture, Forestry River basin management.and Water Management of Repub-lika Srpska, Directorate for Water


Institute for Public Health Enforcement and implementation of Drinking Water Directive, including monitoring(Ministry of Health) and control of drinking water quality.

Hydro-meteorological Institute in Air quality monitoring in BiHFBiH and Republika Srpska

Statistical agencies Collect and manage waste-related statistics, including waste indicators.

Water agencies River basin management, in cooperation with the ministries.

Environmental inspectorates Waste management, collection, recycling and landfill inspection.


Municipalities Organise waste management services, particularly through the departmentsof communal affairs/utilities.

Municipalities’ PUCs or cantons’ Meeting requirements of Drinking Water Directive as well as provision of drinkingPUCs and local health institutions water supply and control of drinking water quality.

Croatia



Ministry for Environmental River basin management and waste management at national level, includingProtection, Physical Planning and hazardous waste. Collects waste management and collection data, prepares wasteConstruction (MoEPPC) management reports, develops waste-related indicators. Responsible authority for

assessing air quality at the state level and LCP. Assistance to project preparationand IPA applications.

Ministry of Regional Development, River basin management. Issues concessions for water intake and use.Forestry and Water Management,State Water Directorate(MoRDFWM)

Ministry of Agriculture, Fisheries Plans for Nitrates Directive.and Rural Development

ANNEX E SANNEX 1


Croatia (continued)



Environmental Protection Agency Assists the waste sector in the preparation of technical documentation and IPAapplications. Responsible for inventory of landfills and dumpsites with names,location, type of landfill, priority for closing and planned date. Responsible authorityfor assessing air quality at the state level and LCP.

Environmental Inspectorate Inspection and control of waste management practices.

Croatian Waters (CW) State agency responsible for water management and assisting water sectorin project preparation and IPA applications.

Ministry of Health and Social Monitoring drinking water quality.Welfare (MHSW) through CNIPH(licensed laboratories)

Environmental Protection and Encouragement of waste prevention and reduction, waste treatment and use ofEnergy Efficiency Fund valuable properties of waste. Assistance to project preparation and IPA applications.


Municipalities Organise waste and water management services at local level. Assess air quality.

Public water utilities Drinking water supply, sewerage and water treatment and control of drinkingwater quality.




Ministry of Environment and Development of sectoral policies and strategies. Monitoring of landfills. Deals withSpatial Planning (MESP), issues related to IPPC permits.Department of Environment,Division of Waste

Ministry of Health Drinking water quality.

Ministry of Economy and Finance Monitors publicly owned enterprises in order to ensure accountability and transparency in their operations.


Kosovo Environmental Protection Creation and maintenance of database and information system on environment.Agency

Water and Waste Regulatory Serves as independent economic regulator for water and solid waste services,Office including setting and approving service tariffs.

Environmental Inspectorate (MESP) Enforcement of environmental and waste-related legislation.

National Institute of Public Health Drinking water quality and implementation of the Drinking Water Directive.of Kosovo


Municipalities Provide waste and water services. Responsibility is to be implemented throughservice agreements.

SHUKOS, association of regional SHUKOS unites its member companies, promotes their joint interests and providescompanies responsible for water member companies with advice relating to their work.supply and sewage in Kosovo

ANNEX E SANNEX 1


The former Yugoslav Republic of Macedonia



Ministry of Environment and Overall process of environmental approximation. In particular, it develops strategies,Physical Planning drafts laws, sets basic tariffs and controls enforcement of investment-heavy directives.

From 2010, it will be responsible for water protection issues and water inspectionservices in line with the new Water Act. Holds overall competence regarding air qual-ity policy and measures.

Ministry for Agriculture, Forestry River basin management.and Water Management

Ministry of Economy Hazardous waste management and utilisation.

Ministry of Health Health aspects associated with air quality.

Ministry of Transport and Overall responsibility for the maintenance and rehabilitation of water deliveryCommunication infrastructure.


Municipalities Environmental services management and inspection activities. Municipalities areentitled to establish public enterprises to provide these services.

Local self-government units Deal with implementation of certain parts of the law, such as developing annual pro-grammes for air quality management at local level in most polluted agglomerations.

Regional public water supply Responsibility for managing regional systems for extraction, delivery and treatmententerprises (RPWSE) of drinking water.

Montenegro



Ministry of Environmental Protec- Main institution responsible for waste management activities in Montenegro.tion and Spatial Planning (MoSPESP) Communal infrastructure and provision of public funding for water infrastructure

improvement. Has overall responsibility for air policy.

Ministry of Agriculture, Forestry River basin management.and Water Management and StateHydro-meteorological Service

Ministry of Health and Social Drinking water quality and compliance with the requirements of investment-heavyWelfare water directives.

Project Implementation Unit Established in 2008 with the goal of providing support to local self-governments forthe preparation of project documentation, and to assist in securing financing frominternational organisations and financial institutions.


Environmental Protection Agency In 2008, took over from the MoSPESP the functions related to permit issuing,inspection supervision, monitoring and reporting.

Regional or local institutions

Municipalities and public utility Local self-governments are in charge of developing and applying the wastecompanies management policy at local level. Waste collection, transportation and disposal

activities are organised within municipal public utility companies.

Vodacom Regional joint service company established by the municipalities of Herceg Novi,Kotor, Tivat, Budva, Cetinje and Bar in cooperation with the former Ministryof Tourism and Environmental Protection.

ANNEX E SANNEX 1


Serbia



Ministry of Environmental and Policy making in the field of waste management.Spatial Planning (MoESP)

Ministry of Agriculture, Forestry Overall responsibility for the water sector.and Water Management(MoAFWM)

Water Directorate (WD, Assists the water sector in project preparation and IPA applications. Finances technicalwithin MoAFWM) assistance for project preparation and (partly) actual construction of infrastructure.

Project Implementation Unit Designed to assist the waste sector in project preparation and IPA applications.(PIU, within MoESP)

Directorate for Protection of Overall responsibility for air quality and for the enforcement and implementation ofResources, Unit for Air certain parts of the law.Protection (MoESP)

Ministry of Health Ensures quality of drinking water consistent with water standards applied and takesoverall responsibility for drinking water quality control and monitoring.


Environmental Protection Agency Development of the Environmental Information System.(SEPA)

Recycling Agency Currently in transformation process (will become part of different units of the MoESP).

Jaroslav Cerni Institute for the Assists the WD by preparing baseline studies.Development of Water Resources

Environment Protection Fund Assists the waste sector in project preparation and IPA applications. Finances technicalassistance for project preparation and (partly) actual construction of infrastructure.

Regional or local institutions

Municipalities Environmental management and inspection responsibilities.

Secretariat for Environmental Bears the same responsibilities as MoESP but for the province of Vojvodina.Protection and SustainableDevelopment of Vojvodina Province

Public utility companies Waste and water management at municipal level.

Srbija Vode public company Maintenance of regional water infrastructure (flood management etc., not municipalinfrastructure).

Vojvodina Vode public company Maintenance of regional water infrastructure (flood management etc., not municipalinfrastructure) for the Vojvodina region.

Annex 2Key government functionsunder the water acquis

ANNEX E SANNEX 2

POLICY WATER ACQUIS

Develop laws, regulations Harmonise national laws, regulations

and policy instruments and policies with the Water Framework Directive

Develop environment-related Prepare National Water Strategy andplans and strategies municipal finance strategies

Consolidate environmental Report on water utility coverage, treatment quality; costs; performance; competinginformation and data for uses in water basin; and aggregated water basin monitoring data.government decisions

Lead environmental coordination Establish water basin committee membership; convene stakeholders to consider newacross other government functions laws and policies

Lead coordination of government Represent the government on international river basin commissions; ensure fulfilmentactions under international of cooperative agreements.environment treaties

Develop programmes to promote Publish water quality data and water permit violations; initiate beach blue flagenvironmental awareness programmes.

Regulatory (as decentralised as possible)

Assess environmental impacts Assess impacts on waters within EIA process(administrative level determinedthrough scoping and legalprovisions)

Issue environment-related permits E.g. water aspects of IPPC permit; water use/abstraction permits;water discharge permits.

Monitor (ambient environment Monitor (regular and spot checks) surface water and groundwater quality, biologicaland facilities) stress indicators, and water levels.

Carry out inspections (administ- Conduct site visits to verify construction permit compliance in waterways and facilityrative level typically corresponds discharges; water extraction. Respond to complaints/spot check permits.to the same level of issued permit)

Environmental enforcement Prosecute or pursue corrective action(administrative level determined for toxic waste discharge to waters; excessive sediments from work in waterways;according to classification of the un-permitted extraction or discharge.facility involved and severity ofthe issue)

Consolidate environmental Aggregate and report water data to meet EU reporting and information policiesinformation/reporting



ANNEX E SANNEX 3

Annex 3Strategic documents providing guidancefor infrastructure investment in the waterand waste sectors in SEE countries

Albania

General

Environment Sector and Cross-Cutting Strategy (2007)National Strategy for Development and Integration

Waste Sector

National Waste Management Plan (1996)

In process:Amendment of National Waste Management Plan (EU CARDS support)

Water Sector

National Water Strategy (1997)Water Supply and Wastewater Sector Strategy (2003)Rural Water Supply and Sewage Strategy (2004)Code for Drinking Water Supply and Sewage (regulates legal relations between consumers and service providers)


General

Federal Strategy for Environment ProtectionNational Environmental Action Plan (2003)Priority Action Plan with project abstracts (2004)Public Investment Programme (PIP)Poverty Reduction Strategy Paper (PRSP) 2004–2007 (2004)

Waste Sector

Solid Waste Management Strategy (2000)

In process:Strategy for Water Management (FBiH and RS) expected in 2010

Water Sector

Water Protection Plan, strategic plan for the implementation of the EU UWWT Directive

In process:Water Management Plan


ANNEX E SANNEX 3


Croatia

General

National Environmental Strategy and National Environmental Action Plan (2002)National Strategy for Sustainable Development (2009)National Programme for the Adoption of the Acquis (2006)Plan for Setting up Necessary Administrative Capacities at Regional and Local Level for Implementing the EnvironmentalAcquis (2008)Environmental Protection Operational Programme (IPA) 2007–2009

Waste Sector

National Waste Management Strategy (2005)National Waste Management Plan for the period 2007–2015 (2007)County waste management plans

In process:Waste Management Implementation Plan

Water Sector

National Water Management Strategy (2008)

Air Sector

Air Quality Protection and Improvement Plan for the period 2008–2011


General

National Environmental Action Plan (2006)National Strategy on Environmental Investments (2009)National Environmental Approximation Strategy (2008)National Programme for the Adoption of the Acquis (2005)National Strategy for Regional Development (2009)Public Investment Programme (annually updated)Plan for Institutional Development for Strengthening Capacities of Environmental Institutions (2009)

In process:National Strategy for Sustainable Development (expected to be adopted by the end of June 2009)Strategic Coherence Framework (2007–2009) approved by the ECOperational Plan for the Environment as part of the IPA (2009–2013) under negotiation with the EC

Waste Sector

National Waste Management Strategy (2008)National Waste Management Plan (2008–2014)

Water Sector

In process:Water Master Strategy

ANNEX E SANNEX 3


Montenegro

General

National Environmental Policy (defines framework policy for overall aims in the field of environment) (2008)National Programme for the Integration of Montenegro into the EU for 2008–2012

Waste Sector

Waste Management National Policy (2004)Strategic Master Plan for Waste Management (2005)Waste Management Plan for 2008–2012 period (2007)

Water Sector

Strategic Master Plan for Sewerage and Wastewater in Central and Northern Region (2005)Strategic Master Plan for Wastewater Collection and Treatment in Coastal Regions and the Municipality of Cetinje (2005)Coastal Region Wastewater Management Study

National Sustainable Development Strategy and Action Plan (2006)

Serbia

General

National Environmental Strategy (2004)National Sustainable Development Strategy (2008) and sectoral policiesNational Investment Programme (2006)

In process:National Environment Protection ProgrammeNational Strategy on the Sustainable Use of Natural Resources and Goods (starting phase)

Waste Sector

Waste Management National Policy (2004)Strategic Master Plan for Waste Management (2005)Waste Management Plan for 2008–2012 period (2007)


General

Environmental and Sustainable Development Strategy (2004)Environmental Action Plan 2006–2010 (2006)Environmental Action Plan for Approximation with EU Standards (2007)

In process:New National Waste Management Strategy (revision phase) is being drafted and will be submitted for adoption procedurein 2009Strategy and Action Plan for Nature Protection (2006–2010)

Waste Sector

In process:National Waste Management Strategy (to be finalised in 2009)Action Plan for Waste Management

Water Sector

Wastewater Treatment Strategy (2004)

Annex 4Selected REC publications in the fieldof environmental infrastructure investmentsand financing• Municipal investments in water and waste infrastructure in South Eastern Eu-

rope (2007)The report analyses the progress achieved by SEE countries in the process ofmunicipal infrastructure development for the period 2001 to 2005. It outlinesthe key issues faced by the local and national actors and proposes recommen-dations for overcoming these obstacles.

• Investing in the Environment as a Way to Stimulate Economic Growth and Em-ployment. How Environmental Projects Contribute to Achieving Lisbon AgendaGoals (2007)The report collects, analyses and discusses existing evidence of the contribu-tionmade by environmental projects to the two objectives of the Lisbon Strat-egy: economic growth and employment. It is also intended to help memberstates in designing Cohesion Policy–funded projects that achieve the LisbonStrategy objectives and, at the same time, ensure environmental sustainability.

• Environmental Financing Trends in South Eastern Europe: 2001–2005 (2007)The report presents trends in environmental financing in SEE between 2001and 2005 and proposes recommendations for decisionmakers in the region forimproving the effectiveness of environmental financing from domestic and ex-ternal financing sources.

• Financial mechanisms providing co- and pre-financing for EU funded environ-mental projects (2007)The publication provides an overview of co- and pre-financing sources for EU-funded environmental projects in EU-27 countries. It gives an overview of pub-lic pre- and co-financing schemes; the role of international financinginstitutions (IFIs) in providing co-financing and bridging funds; and includesa review of the involvement of the commercial banking sector in financing en-vironmental projects.

• Environmental Infrastructure Investment Project Preparation in the Water Sector.Available Sources of Finance for Water Infrastructure Projects in the former Yu-goslav Republic of Macedonia (2006)The publication is based on the specific needs and experience of the former Yu-goslav Republic of Macedonia in preparing wastewater-related environmentalinvestment projects. It covers issues such as the strategic planning of invest-ments, feasibility studies, project development and funding.

• Establishing an Environmental Fund, Practical Aspects for Decision Makers andFund Managers (2006)

ANNEX E SANNEX 4


ANNEX E SANNEX 4


The publication is based on key themes discussed at a training on the estab-lishment of an environmental fund in Montenegro. The report reviews all thekey aspects of environmental fund operations that should be taken into accountwhen establishing an environmental fund or any other environmental expen-diture programme.

• Environmental Projects Financed by EU Funds. Selected Experiences and Chal-lenges (2006)The aim of this report is to provide environmental authorities with an overviewof best practices from old member states on preparing environmental projectsfinanced by EU funds and to provide an overview of the first experiences andchallenges of the new EU member states in programming and implementingEU-funded projects.

• Investing in the Local Environment: Assisting Municipalities in South EasternEurope to Access Environmental Financing (2003)This report is the final outcome of a two-year pilot project undertaken to sup-port capacity in South Eastern Europe (SEE) to prepare environmental invest-ment projects. The project was a unique effort, as it targeted simultaneouslylocal governments and local consulting firms, who must cooperate if environ-mental investments are to succeed.

ANNEX E SANNEX 5


Albania

PROJECT TITLE PROJECT DESCRIPTION TOTAL COST OFPROJECT (EUR)

Waste projects

Management plan and construction of landfill Reduction of pollution of river Shkumbini and Adriatic 2.5 millionfor urban solid waste in Elbasan Sea. Decrease of transboundary air pollution.

Population benefiting directly from projectimplementation: 102,265.

Urban waste management and construction of Reduction of pollution of groundwater and surface 2.5 millionsanitary landfill in the city of Fier waters and of the Adriatic Sea.


Works for the construction of the sanitary Reduction of water pollution of the Adriatic Sea. 6 millionlandfill for Vlora Population benefiting directly from project

implementation: 85,000.

Feasibility study and environmental rehabilitation 1.1 millionof the historic hotspot of the former RubikMetallurgical Plant

Urban waste management and construction Reduction of water pollution of Ohrid Lake 5 millionof sanitary landfill in Korca Region and Devolli River.

Urban waste management and construction Reduction of pollution of River Osumi. 2.5 millionof sanitary landfill in city of Berat

Urban waste management and construction Reduction of pollution of River Drino. 2.5 millionof sanitary landfill in city of Gjirokastra

Management plan and the closure of the Protection of the soil, surface waters and groundwater, 2.5 millionexisting landfill for urban solid waste in Durres landscape restoration in the area of Durres.

Population benefiting from projectimplementation: 220,000.

Annex 5PEIP priority project lists

ANNEX E SANNEX 5


FUNDING PROJECT PROGRESSNEEDS (EUR)

0.3 million Detailed engineering design completed.Feasibility study financed by the state budget to a cost of EUR 0.52 million. To be started in 2009.The project is included in the Mid-term Budget Plan 2009–2011 and planned to start in 2011.EUR 2.2 million is secured from the state budget.

0.3 million Detailed engineering design completed.Feasibility study financed in 2009 by the state budget (EUR 0.5 million)The project is included in the Mid-term Budget Plan 2009–2011 and planned to start in 2011.EUR 2.2 million secured from the state budget.

5.83 million Project is listed in the priorities of the Mid-Term Budget Plan 2009–2011and is part of the 2008 IPA/EU investment funds.EUR 0.164 million secured from state budget for feasibility study.Another EUR 1.5 million budget support is under discussion.The MPTWW is in discussions with the Regional Council of Vlora about the location of the landfill.

N/A Listed as a high-priority project of the Ministry of Environment.Project is funded by CARDS 2005.Feasibility study is completed.Implementation works were started.Project deadline is November 2009.

3.6 million Negotiations under way with KfW for the design of the project.Project is included in the Mid-Term Budget Plan 2009–2011.EUR 1.4 million secured from state budget for the first phaseWaste management project implemented in Korca region with SIDA support.

0.3 million Project is part of the Mid-Term Budget Plan 2009–2011.Feasibility study planned in 2009.EUR 2.2 million for the first phase secured from the state budget.

0.3 million Project is part of the Mid-Term Budget Plan 2009–2011.Feasibility study planned in 2009.EUR 2.2. million for the first phase secured from the state budget.

0.3 million The project is included in the Cross-Cutting Strategy on Environment (2007).The project is planned to enter into the implementation phase by 2011 and to be completed by 2013.EUR 2.2 million secured from the state budget.

ANNEX E SANNEX 5


Albania (continued)


Water projects

Construction of a common sewerage water Reduction of pollution of Tirana River and the 246 milliontreatment plant for Tirana and surroundings Adriatic Sea. Currently sewage is directly discharged

into the Tirana River.

Drinking water and wastewater for Shkodra The project will solve/mitigate the pollution of Lake 40 millionShkodra, the Buna River and the Adriatic Sea; protectbiodiversity in the area; and develop tourism.

Improvement of the wastewater system and Reduction of pollution in the Adriatic Sea. 7 millionconstruction of a WWTP in Vlora (phase II)



Waste projects

Construction of landfill site for a group of Reduction of pollution of water systems through 5 millionmunicipalities in Zvornik elimination of illegal dumpsites.

Water projects

Water supply and sewerage system in FBiH Reduction of pollution of the Adriatic Sea and USD 10.5 million(city of Mostar) transboundary pollution of the River Neretva.


Construction of wastewater treatment system Reduction of transboundary pollution of the river 3.6 millionfor the city of Bileca Trebisnica, the source of drinking water for parts (2.5 million secured)

of BiH, Croatia and Montenegro.

Protection of Modrac water reservoir as the main Decreased pollution of the lake and improvement of 43.1 millionsource of water for the population and industry its recreation and tourism characteristics. (10.5 millionof Tuzla Canton Population directly benefiting from the project: 150,000. secured)

Construction of sewerage system and wastewater Reduction of downstream pollution and improvement 1 milliontreatment plant for Kljuc municipality of water quality. (0.38 million

Estimated population covered: 6,000. secured)

ANNEX E SANNEX 5



85.8 million The detailed design for the project is completed.In October 2009, the MoPWWT signed a contract for a EUR 115.9 million investmentfrom the Japanese investment fund of JICA. The project designand feasibility study (app. EUR 9.9 million) will be implemented in 12 months.The remaining EUR 106 million will allocated for the construction of the wastewater collection systemfor the whole city of Tirana.EUR 44.3 million is given for the rehabilitation works and support to the Tirana network 2001–2010through the Italian Cooperation Investment Fund in the form of a soft loan by the Italian Government.

25 million The project is progressing and financial support for the WWTP is a high priority.The feasibility study has been completed.Based on the FS, the project is being supported by KfW, ADA and SECO Swiss with EUR 15 million.

7 million The project was submitted to IPA 2009.

FUNDING PROJECT PROGRESSNEEDS EUR)

0.937 million Project design and feasibility study completed.Currently seeking international assistance (loans) for planned EIA study. A combination of grantand loan is foreseen.Main project for the location of Crni Vrh has been prepared, financed by the Municipality of Zvornik.

7.6 million Feasibility study, detailed design and tender procedure for construction activities were finalised in 2008.+ USD 2.8 million Contracted preparation of the main design for the main collector of the sewerage system

from the GEF grant.The EIB will provide EUR 7.6 million. The WB provides USD 2.8 million through the GEF funds.

0.3 million Feasibility study is prepared. It envisages upgrading and extension of water supply networkand strengthening of utility company.GEF financing secured for the WWTP. The expected GEF grant is EUR 0.84 million.

32.6 million A combination of grant and loan is foreseen. Negotiation on EIB loanand financing is ongoing. 50 percent will be secured through local contribution.Financing of the main collector for the city of Zivinice is ensured through IPA 2008. Remaining fundingneeds will be provided by EIB.Funds are secured from EIB for consulting services for the preparation of a programme of measuresfor integrated water resources management around Modrac reservoir.

0.62 million The feasibility study has been completed.

ANNEX E SANNEX 5


Bosnia and Herzegovina (continued)


Water projects (continued)

Water and sanitation FBiH (includes 16 Reduction of water pollution, improvement in water 2.75 millionmunicipalities). IPF technical assistance. quality in 16 municipalities.

Water and sanitation FiBH Reduction of water pollution, improvement of water 121 million(includes 16 municipalities) quality in 16 municipalities

Collection, treatment and disposal of Protection of the water resources in municipalities of 60 millionwastewaters in Banja Luka Laktasi, Gradiska and Srbac, and reduction of pollution

of the river Sava. Treatment facility will serve200,000 inhabitants.

Collection, treatment and disposal of waste Protection of the water resources of the municipality 5 millionwaters in Bjeljina. Phase II – Collector and of Bjeljina and reduction of pollution of the river Sava.treatment facility

Collection, treatment and disposal of waste Protection of water resources of the municipality of 9 millionwaters in Prijedor Prijedor and of Novi Grad and pollution reduction

of the rivers Sana, Una and Sava. Treatment facility willserve 70,000 inhabitants.

Protection of the Bocac reservoir and the source Protection of the water supply source of Banja Luka 12 millionof Banja Luka water supply system and municipalities of Laktasi and Celinac.


Collection, treatment and disposal of wastewaters Protection of the water supply source in the coastal 3 millionin Trebinje area of Dubrovnik and settlements in lower Neretva.

Extension and enlargement of capacityof the existing WWTP.

Collection, treatment and disposal of waste Intermediate pollution reduction in the Visegrad 4 millionwaters in Sokolac reservoir. WWTP will serve app. 10,000 inhabitants.

Collection, treatment and disposal of waste Treatment facility and collector will serve 5 millionwaters in Rogatica app. 10,000 inhabitants.

Plava voda water supply project Water supply for cities of Travnik, Novi Travnik, 35 millionVitez, Busovaca and Zenica (5 million from IPF

Municipal Window)

Sarajevo sewerage network andWWTP Reduction of water pollution, improvement of the 64.26 millionreconstruction and upgrading water quality in Bosna River.

Konjic municipality WWTP construction Reduction of water pollution and improvement of the 1.2 million(within the GEF project “Neretva and Trebisnjica water quality in Neretva River.Water Management Project”)

Ljubuski municipality WWTP reconstruction Reduction of water pollution and improvement 0.56 million(within GEF project “Neretva and Trebisnjica of the water quality in Neretva River.Water Management Project”)

Air projects

National air quality monitoring Recognition of air quality problems and improved 1.244 millionmonitoring of air pollution sources.

ANNEX E SANNEX 5



EIB finance contract signed in August 2008, implementation is ready to start.The EIB loan also represents TA support for implementation for the 16 municipalities.

60 million Some municipalities from the list have secured funds, others will try to find support from other IFIs.When funds are provided for an individual municipality the project implementation will start.50 percent of financing will be EIB loan and 50 percent local contribution.

60 million Financing is not secured.






5 million Financing not secured.

5 million Special-purpose company established as a public company by the municipalities of Travnik and Zenica.EUR 5 million has been allocated from the IPF Municipal Window

50 million This project is listed on the water quality management (WQM) project list (EC CARDS).20 percent of financing will be provided through the long-term local contribution.

0.6 million 50 percent will be provided through the GEF funds (WB) and 50 percent will be local contribution.

0.25million 50 percent will be provided through GEF funds (WB) and 50 percent will be local contribution.

1.174 million Combination of grant and loan is foreseen.Involvement of private sector is foreseen.

ANNEX E SANNEX 5


Croatia


Waste projects

Regional waste management centre for county Population benefiting directly from project 31.4 millionof Zadar implementation: 160,000. (19.4 million secured)

Waste management centre Population benefiting directly from project 30 millionfor Sisak-Moslavina county implementation: 185,000. (18 million secured)

Remediation and closure of the Sovjak pit, Population benefiting directly from project 25 millionPrimorje-Gorski Kotar county implementation: 200.000. (5 million secured)

Remediation of the asbestos-polluted Population benefiting directly from project 2,526 millionMravinacka kava site implementation: 80,000. (2.5 million secured)

Waste management centre for the county of Population directly benefiting from project 28 millionDubrovnik-Neretva implementation: 123.000. (16 million secured)

Waste management centre for North West The project integrates municipalities in four counties. 73.3 millionCroatia Population benefiting from project (49.8 million secured)


Regional waste management centre for the Population benefiting from project 58.7 millioncounty of Split, Dalmatia implementation: 465,000. (31.5 million secured)

Remediation of Botovo hazardous waste 8.5 milliondisposal site (7.4 million secured)

Remediation of Kastelanski zaljev hazardous 10 millionwaste disposal site

Development of regional waste management Population benefiting directly from project 26 millioncentre for Karlovacka county implementation: 141,000. (14 million)

Development of regional waste management Population benefiting directly from project 28 millioncentre for Brodsko-Posavska county implementation: 276,000. (16 million secured)

Development of regional waste management Population benefiting directly from project 23.9 millioncentre for Viroviticko-Podravska county implementation: 93,000. (11.9 million secured)

ANNEX E SANNEX 5



12 million Project is co-financed by local budget, Environmental Protection and Energy Efficiency Fund and Phare 2006.Construction is envisaged through IPA 2010–2011.

12 million Project was added to this list in November 2007.Location of the WMC has not yet been defined.

20 million Included in EPOP 2007–2009.Priority of the National Action Plan (NAP) for the Protection of the Mediterranean Seaagainst Pollution from Land-Based Sources.Remediation and closure plan is completed.EPEEF co-financed project with EUR 2.4 million.Funds for project preparation planned to be secured through IPA OP 2007–2009and IPA OP 2010–2011. Funds for co-financing of remediation will be secured through SF OP 2011–2013.

0,026 million Preparation of project documentation and permits is tendered out and all permits were due tobe issued by September 2009.Additional co-financing is foreseen from EPEEF. Funds secured for preparation of project documentation.

12 million Included in EPOP 2007–2009.Project is awaiting necessary permits.Location of WMC has not yet been defined.Investment value was re-estimated.

24 million (loan) Included in EPOP 2007–2009 and IPA project pipeline. Construction is envisagedthrough IPA 2010–2011.Feasibility study completed. Building permit issued. Other project documentation is in preparation.Project is co-financed by Phare 2006, local budget and EPEEF.Investment value approximated.

27.2 million Included in EPOP 2007–2009.Project is co-financed by EPEEF and CARDS 2002 TA (FS).IPA application is submitted.Land acquisition process is ongoing.

1.1 million The project is on the EPOP 2007–2009 list and in the IPA project pipeline.The project is co-financed by EPEEF (EUR 1.1 million).Preparation works are in progress.The project is on the EPOP 2007–2009 list and in the IPA project pipeline.

12 million The project is on the EPOP 2007–2009 list and in the IPA project pipeline. Project preparationis envisaged through IPA 2010–2011, and construction through SF OP 2011–2013.Start-up of project technical documentation design.

12 million The project is on the EPOP 2007–2009 list and in the IPA project pipeline. Project preparationis envisaged through IPA 2010–2011, and construction through SF OP 2011–2013.Start-up of project technical documentation design.

12 million The project is on the EPOP 2007–2009 list and in the IPA project pipeline. Project preparationis envisaged through IPA 2010–2011, and construction through SF OP 2011–2013.The project is co-financed by EPEEF for investigation works on WMC locations.Start-up of project technical documentation design.

ANNEX E SANNEX 5


Croatia (continued)


Waste projects (continued)

County waste management centre for the Population benefiting directly from project 53.5 millioncounty of Osijek-Baranja implementation: 330,000. (31.5 million secured)

County waste management centre for the Population benefiting directly from project 25.7 millioncounty of Bjelovar-Bilogora implementation: 133,000. (13.7 million secured)

County waste management centre for the Population benefiting directly from project 27.4 millioncounty of Vukovar-Srijem implementation: 204,000. (15.4 million secured)

Water projects

Wastewater treatment plant for Bjelovar city Upgrade of existing WWTP. Population benefiting 6.1 milliondirectly from project implementation: 98,000. (all funds secured)

Wastewater treatment plant for the city of Osijek Population benefiting directly from project 23 millionimplementation: 150,000. (all funds secured)

Wastewater disposal system and treatment plant Population benefiting directly from project 31 millionof the town of Sisak implementation: 52,000. (all funds secured)

Wastewater disposal system and treatment plant Population benefiting from project directly: 16,000. 5.8 millionof the town of Krapina (all funds secured)

Wastewater disposal system and treatment plant Population benefiting from project 6 millionof the town of Vrbovec implementation: 15,000. (5.6 million secured)

Main collectors and WWTP 18.5 millionin the town of Vukovar

Construction of the county of Bjelovar-Bilogora’s 55 millionregional water supply system

Construction of the county of 52 millionKoprivnica-Krizevci’s regional water supply system

Wastewater disposal system and treatment plant Wastewater treatment for 31,000 people. 10 millionof the town of Nova Gradiska

Wastewater disposal system and treatment plant 16.5 millionof the town of Djakovo

Wastewater treatment plant of the town 16 millionof Velika Gorica

Wastewater infrastructure improvement in the 10 milliontown of Samobor

Wastewater treatment plant of the town 14.8 millionof Dugo Selo

ANNEX E SANNEX 5



22 million The project is on the EPOP 2007–2009 list and in the IPA project pipeline. Project preparationis envisaged through IPA 2010–2011, and construction through SF OP 2011–2013.Land acquisition process is ongoing.

12 million The project is on the EPOP 2007–2009 list and in the IPA project pipeline. Project preparationis envisaged through IPA 2010–2011, and construction through SF OP 2011–2013.Land acquisition process is ongoing.

12 million The project is on the EPOP 2007–2009 list.Project preparation and construction are envisaged through PPP.

- Project co-financed by Futureprofit and Croatian Waters.

- The project is on the EPOP 2007–2009 list and in the IPA project pipeline. TAfor completing IPA application is assured.DABLAS/DIF is supporting the feasibility study, including cost benefit analysis.Project pre-appraisal from EC done in June 2005.

- The project is on the EPOP 2007–2009 list and in the IPA project pipeline. TA for preparing IPAapplication assured (EBRD).Pre-feasibility study is completed.Co-financing is coming from project’s own sources.

- The project is on the EPOP 2007–2009 list and in the IPA project pipeline.

0.4 million The project is on the EPOP 2007-2009 list and in the IPA project pipeline.

The project is on the EPOP 2007–2009 list and in the IPA project pipeline.

The project is on the EPOP 2007–2009 list and in the IPA project pipeline. IPA applicationand feasibility study will be developed through IPA technical assistance pipeline.

The project is on the EPOP 2007–2009 list and in the IPA project pipeline. IPA applicationand feasibility study will be developed through IPA TA pipeline.

The project is on the EPOP 2007–2009 list and in the IPA project pipeline. IPA applicationand feasibility study will be developed through IPA TA pipeline,There is no funding for the project available yet, but IPA TA is expected.

The project is on the EPOP 2007–2009 list and in the IPA project pipeline. IPA applicationand feasibility study will be developed through IPA TA pipeline.

The project is included on the EPOP 2007–2009 list and in the IPA project pipeline.

The project is included on the EPOP 2007–2009 list and in the IPA project pipeline.Location permit issued, the technical documentation for the first phasewill be co-financed 50 percent from Croatian Waters and 50 percent from the town of Samobor.

The project is included on the EPOP 2007–2009 list and in the IPA project pipeline.Conceptual design and EIA developed. Part of collector obtained locationand part of collector obtained building permit.

ANNEX E SANNEX 5




Waste projects

Rehabilitation and closure of tailing area Reduction of cross-border water pollution 4.5 millionin MIP-Trepca (rivers Sitnica, Ibar, Danube and the Black Sea).

Expansion of the infrastructure for rural Reduction of waste pollution, developed system 10 millionhousehold waste collection for collection and waste transportation in rural areas.

Rehabilitation of the bottom of the River Reduction and minimisation of cross-border pollution 2 millionLepenc/Lepenac for reduction of pollution from caused from asbestos waste deposited in the past.asbestos-contaminated waste

Water projects

Construction of a regional WWTP Reduction of cross-border pollution (Black Sea, 41.96 millionin Ferizaj/Urosevac Aegean Sea). Population covered: 175,000. (10% co-financing)

Construction of a regional WWTP Reduction of cross-border pollution of water (rivers 104.104 millionin Mitrovica/Mitrvice Iber, Setnica, Danube and the Black Sea). (10%

Population covered: 452,000. co-financing)

Construction of a regional WWTP Population covered: 760,000. 142.1 millionin Pristina/Prishtina (10% co-financing)

Construction of a regional WWTP in Prizren Reduction of cross-border pollution of water bodies 82.697 million(river Drini i Bardh and the Adriatic Sea) Population covered: 381,000. (10% co-financing)

Construction of a regional WWTP Reduction of cross-border pollution of water bodies 50.314 millionin Gnjilan/Gjilan (rivers Kriva Reka Morava e Binces, Danube and (10% co-financing)

Black Sea). Population covered: 204,000.

Construction of a regional WWTP Reduction of cross-border pollution of water bodies 63.103 millionin Djakovo/Gjakova (river Drini i Bardh/Drim and the Adriatic Sea). (10% co-financing)

Population covered: 258,000.

Construction of a regional WWTP Reduction of cross-border pollution of water (river 68.963in Peja/Pec Drini i Bardh/Drim and Adriatic Sea). Population (10% co-financing)

covered: 323,000.

Further support to water and environment sector Construction of treatment plant in Vucitrn/Vushtrri, 24 millionMitrovica. Network improvements in Pristina andclosing of dumpsites and improvements in landfills.Population covered: 550,000.

ANNEX E SANNEX 5



4.5 million Included in NEAP.Project developed in collaboration with UNDP.The project is in the initial preparation of the project fiche/scope.Pre-feasibility study and EIA exist.

10 million Included in NEAP.The Kosovo Environmental Action Plan 2006–2010 lists this project.

2 million Included in NEAP.In collaboration with the municipality of Hani i Elezit andMESP the project proposal is in its initial preparation stage.The project is in the process of tendering and expression of interest.

37.77 million Project is listed in the development strategy for Kosovo 2007–2013, the NEAPand the National Strategy for Wastewater.Project was presented to the donor conference for Kosovo (as defined under UNSCR) in July 2008.

93.694 million Included in NEAP.Project was presented to the donor conference for Kosovo (as defined under UNSCR 1244) in July 2008.Ownership issues are not settled.

127.89 million Project included in the draft development strategy for Kosovo (as definedunder UNSCR 1244) 2007–2013 and the NEAP.Project was presented to the donor conference for Kosovo (as defined under UNSCR 1244) in July 2008.

73.872 million Included in NEAP.Project was presented to the donor conference for Kosovo (as defined under UNSCR 1244) in July 2008.The feasibility study, financed by KfW, has been completed.

45.283 million Included in draft development strategy for Kosovo (as defined under UNSCR 1244) 2007–2013 and NEAP.Pre-feasibility study is completed.The project was presented to the donor conference for Kosovo (as defined under UNSCR 1244) in July 2008.

56.793 million Included in draft development strategy for Kosovo 2007-2013 and NEAP.Pre-feasibility study completed.The project was presented to the donor conference for Kosovo in July 2008.

62.067 million Included in draft development strategy for Kosovo (as defined under UNSCR 1244) 2007–2013 and NEAP.The project was presented to the donor conference for Kosovo (as defined under UNSCR 1244) in July 2008.

Implemented by the Pristina water company.Feasibility study completed in 2007.

ANNEX E SANNEX 5


Kosovo (as defined under UNSCR 1244) (continued)


Air projects

Improvement of air quality in Kosovo/Kosova A Reduction of cross-border air pollution. 47 millionand B thermal power plants Population covered: 700,000. (6 million secured)

Establishment of the national network for Improved air quality management influencing the 2.5 millionpermanent air quality monitoring whole region. Population covered: 2.5 million.



Waste projects

Treatment of HCH waste from former lindane Population benefiting from project 1.5 millionproduction plant in organo-chemical industry, implementation: 50,000.AD OHIS, Skopje

Modernisation of municipal landfill through Regional GHG emissions reduction. 1.8 milliondegasification and utilisation of landfill gasin Skopje (Drisla)

Remediation of MHK Zletovo plant Veles Remediation of industrial hotspot in an environmentally 22.6 million(lead and zinc smelter) and financially sustainable manner.

Healthcare waste management 4.2 million

Polog regional landfill Not estimated

Remediation of illegal hazardous waste 4.3 millionlandfill Lojane in Kumarovo

Water projects

Wastewater management in Skopje and Decrease of pollution and improvement of water 100 millionconstruction of WWTP quality of Vardar River and Thessaloniki Bay.

ANNEX E SANNEX 5



41 million Included in the NEAP.In 2006 the budget of Kosovo (as defined under UNSCR 1244) allocated EUR 2 million for electro-filtersfor Kosovo B plant. Reparation of electro-filters in TC Kosovo B.Reparation undertaken in TC A3 and A4.A tender process has just been completed for repair works on unit A3 to the valueof EUR 6 million. Works are expected to commence in 2009.

2 million Included in NEAPProject is in tendering procedure.In total for three years (2008–2010) investments of EUR 965,000 are foreseen for the project in the draft budgetof the Government of Kosovo (as defined under UNSCR 1244) (EUR 190,000 is foreseen in 2008 as the first partof investment in this project, for 2009. EUR 500,000 are planned and for 2010 EUR 275,000).


1.5 million Ministry of Environment and Physical Planning provided financial support for “Researchon hazardous waste — Lindane landfill at the organo-chemical industrial site, AD OHIS, Skopje” in 2007.Feasibility study of Ohis plant was finalised in 2007 with financial support from the European Agency for Reconstruction.

1.8 million Pre-feasibility study available and a CDM project.Feasibility study is under preparation with financial support from the Ministry of Environment,Land and Sea of Italy and MoEPP.

22.6 million Feasibility study was developed under EU CARDS 2006.MHK is taken as a priority at national level.Donor coordination meeting was held in 2008 and bilateral donors expressed great interest dueto demonstrated revenue return.Plant has recently been sold to foreign investor.

4.2 million Feasibility study on healthcare waste management was prepared under EU CARDS 2006.Some financial allocations for establishing a healthcare waste management system are envisagedin the NEI Strategy. Funding will be used for the preparation of detailed project technical documentation.

Feasibility study is prepared.75 percent of the initial investment to be covered by IPA donation and the residual investmentby revenues generated on the basis of the initial waste tariff.

Feasibility study and technical documentation for remediation prepared.UNDP Project Implementation Unit established in January 2008.EUR 200,000 is secured from UNDP budget and EUR 100,000 is co-financed by MoEPP.The process of remediation started in 2009.

100 million A number of stakeholder meetings were held to disseminate the approach and the preliminary EIA for theWWTP.Feasibility study and EIA of the WWTP were finalised in May 2009 using USD 2 million grant from JICA.Bank loan is required to secure the funds.

ANNEX E SANNEX 5


The former Yugoslav Republic of Macedonia (continued)



Wastewater management in Skopje and Decrease of pollution and improvement of water 100 millionconstruction of WWTP quality of river Vardar and Thessaloniki Bay.

Rehabilitation of the WWTP at organo-chemical Reduction of pollution of river Vardar. 11.4 millionindustry, AD OHIS, Skopje

WWTP for the city of Veles Population benefiting from project 13.8 millionimplementation: 50,000.

WWTP for the town of Prilep Population benefiting from project 21.5 millionimplementation: 77,000. (17 million secured)

WWTP for the city of Bitola Population benefiting from project 7.32 millionimplementation: 10,000.

Tetovo drinking water supply, urban wastewater 75 millioncollection and treatment project

Air projects

Monitoring of air quality 16 monitoring stations will be created 7.9 million

Montenegro


Waste projects

Construction of regional landfill in Bar Population directly benefiting from project 11.367 millionimplementation: 60,000.

Construction of regional landfill in Berane Population benefiting from project 6.943 millionimplementation: 77,000.

Construction of regional landifll in Niksic Reduction of transboundary pollution. Population 12.604 millionbenefiting from project implementation: 83,000.

Construction of regional landfill in Pljevlja Population benefiting from project 9.8 millionimplementation: 40,000. (4.9 million secured

from EIB loan)

ANNEX E SANNEX 5



100 million A number of stakeholder meetings were held to disseminate the approach and the preliminary EIA for theWWTP.Feasibility study and EIA of the WWTP were finalised in May 2009 using USD 2 million grant from JICA.Bank loan is required to secure the funds.

11.4 million

13.8 million Pre-feasibility study and feasibility study exist but need to be updated.

4.5 million Master plan, FS including EIA, financial and technical documentation completed.National co-financing has been secured through central budget.IPA application is accepted. On-going preparation of necessary technical documentation is in process.Tendering procedure for subcontractor is finished. Construction work is planned to start in the near future.

7.32 million Feasibility study is from 1999 and needs to be updated.

75 million Project is stated as a priority according to the NEIS.Feasibility study is from 2004 and needs to be updated.

7.9 million The main prerequisite for the implementation of the project (determination of the exact locationsof monitoring stations) is the development of the National Plan for Air Quality Management. Fundingis foreseen under the IPA Components I and IV.


2.277 million Negotiations are ongoing for establishment of joint company responsible for waste collection and landfillfor the municipalities of Bar and Ulcinj.FS and EIA are under preparation.Some funds have been secured from WB and EIB.

4.76 million Negotiations are ongoing for establishment of joint company responsible for waste collectionand landfill for the municipalities of Berane, Plav, Andrijevica and Rozaje.EIA and FS were completed in 2008. Technical documentation planned to be finalised in 2009.Financing comes from own sources of the municipality and expected IEB loan.

5.622 million Negotiations are ongoing for establishment of joint company responsible for waste collection and landfillfor the municipalities of Niksic, Pluzine and Savnik.Technical documentation is expected to be finalised in 2009. FS and EIA were finalised in 2008.Financing will come from own municipality sources (EUR 2 million [Phase II] and credit(EIB – EUR 3,75 million [Phase I], EBRD – EUR 334.040 [Phase I] and EUR 934.040 [Phase II].

4.9 million Negotiations are ongoing for establishment of a joint company dealing with waste collectionand landfill for Pljevlja and Zabljak municipalities.FS is under finalisation. Preparation of EIA started in 2008.

ANNEX E SANNEX 5


Montenegro (continued)


Water projects

Emergency rehabilitation of the Podgorica Reduction of water pollution to the Moraca River and 40 millionWWTP and construction of a new plant Skadar Lake. Population benefiting from project


Construction of sewerage system in the town Reduction of Adriatic Sea pollution. Population 16 millionof Tivat, and expansion and reconstruction benefiting from project implementation: 70,000.of sewerage system in the town of Kotor

Construction of new wastewater facility and Project activities focus on the construction of the 12.8 millionreconstruction of the existing sewerage system WWTP and network reconstruction. Improved qualityin Niksic of Zeta River and positive effects on Lake Skadar.

Construction of WWTP in the municipality of The project has a regional character as it reduces the 17.6 millionBerane and part of town communal system pollution of the river Lim, part of the Danube

catchment area. Population benefiting from projectimplementation: 40,800.

Construction of WWTP and part of the sewarage Reduction of Adriatic Sea pollution. Population 24.6 millionsystem in the municipality of Herceg Novi benefiting from project implementation: 71,000.

Construction of WWTP and part of the sewarage Reduction of pollution of the river Tara, part of the 4.01 millionsystem in the municipality of Kolasin Danube River Basin. Population benefiting from

project implementation: 10,000.

Construction of WWTP and part of the sewerage Reduction of Adriatic Sea pollution. Population 9 millionsystem in the municipalities of Kotor and Tivat benefiting from project implementation: 25 000

permanent residents plus tourists in the summer.

Construction of WWTP and part of the sewarage Reduction of pollution of the river Cehotina, part of 7.35 millionsystem in the municipality of Pljevlja the Danube River Basin. Population benefiting from

project implementation: 36,000.

Construction of sewerage system of the Reduction of Adriatic Sea pollution. Population 29 millionmunicipality of Ulcinj benefiting from project implementation: 23,000 plus

tourists in the summer.

Serbia


Waste projects

Hazardous waste management facility: Phase 1 Will deal with hazardous waste on national level 14 million

Waste management system for Kragujevac Population benefiting directly from project 5 million(component B: Construction of waste recycling implementation: 180,000.centre)

Sustainable integrated solid waste management Population benefiting directly from project 5.34 millionin Krusevac implementation: 80,000.

ANNEX E SANNEX 5



39.3 million First phase of the project, including reconstruction of existing WWTP, is completed.Phase II, development of new feasibility study and construction of new WWTP, is in the preparation stage.The project was approved for financing the project documentation by IPF.

3.1 million Both municipalities signed a contract with KfW in Dec 2007. EUR 2.5 million is secured for Kotor(Kotor: 1.3 and and 1.2 million is secured for Tivat.Tivat: 1.8 Phase I is in the final stage.(5,9 million The preparatory stage of Phase II is completed and will be followed by developing projectfor Phase III) and tender documentation.

For Phase III, an additional 10 million will be needed

3.1 million Municipality of Niksic signed a contract with the Niksic brewery, which will be obligedto build a pre-treatment WW facility.The preparation of tender documentation is currently in progress.EUR 7 million secured from EIB and EUR 2.7 million municipal co-financing)Application for IPA financing was made.

4.8 million EUR 11.3 million is expected as EIB loan.

11.37 million Project implementation is envisaged in three phases, with an overall duration of five years (Phase I:preparation of FS (ongoing); Phase II: technical documentation and tender; Phase III: construction).EUR 9.1 million secured from KfW bank; EUR 4.2 million from Government of MontenegroFS was prepared.

2 million EUR 1.5 million secured from EIB and EUR 0.5 million local contribution.

5 million Project implementation is envisaged in three phases with an overall duration of five years (Phase I:preparation of FS (ongoing); Phase II: technical documentation and tender; Phase III: construction).

2 million FS and EIA are prepared.EUR 1.84 million secured from Municipal Window and EUR 3.67 million from EIB

24 million Project implementation is envisaged in three phases with an overall duration of five years (Phase I:preparation of FS (ongoing); Phase II: technical documentation and tender; Phase III: construction).FS was finalised in 2009.


11 million EUR 3 million secured from IPA 2009, for all necessary documentation (land-use plans, locationand hydrogeological studies, conceptual and detailed design, FS, EIA study and all necessary permits).After Phase 1, the remaining EUR 11 million for construction will be submitted for IPA 2011.

4.4 million Pre-feasibility study, urban plan and strategic assessment of financial resources were completed in 2008.EUR 0.585 million were secured from the NIP and an application made for additional IPA fundsof EUR 0.585 million for the feasibility study.Negotiations started between the municipality and private sector about the recycling technology used.

3.57 million Feasibility study is available.

ANNEX E SANNEX 5


Serbia (continued)


Waste projects (continued)

Investment into technical systems for environmen- Improvement of environmental conditions in the 6 milliontal protection from the existing trash dump in Nis region. Population benefiting from project (0.236 million secured

implementation: 257,341. from city budget)

Recultivation and upgrading of the existing Badra Improvement of environmental conditions in the 0.994 millionlandfill in Svilajnac region. Population benefiting directly from project


Plant for briquette production in Kolubara Population benefiting from project 6 millionimplementation: 100,000.

Regional landfill — Valjevo Up to 30 percent of regional waste will be recycled 19.5 million

Regional landfill — Zajecar Development of regional waste management for 15 millionseven municipalities. Population benefiting fromproject implementation: 250,000.

Smederevo sanitary landfill 9.7 million

Regional landfill — Nova Varos 5 million

Protection of the Raska River — Sanitation of 6.12 millionexis ting landfills and feasibility studyfor the regional landfill

Water projects

Upgrade and extension of the “Kolubara-Prerada” Improvement of water quality of the Kolubara and 4.76 millionindustrial facility WWTP Sava Rivers. Population benefiting directly from project


Rejuvenation of Lake Ludas Improved water resources management for the region. 3.861 millionPopulation benefiting directly from project: 150,000.

Improving the sewerage system of the oil Reducing pollution of river Danube. Population directly 3.7 millionrefinery in Novi Sad benefiting from project implementation: 350,000.

Collection and treatment of wastewater in Reduced transboundary water pollution. Population 5.54 millionVladicin Han municipality directly benefiting from project implementation: 24,000. (0.55 million secured)

Water utilities in technological park zone in Vrsac 2.3 million

Reconstruction of the water source of “Setonje” 3.2 millionand transport pipeline — Petrovac(Branicevo district)

Feasibility study for collection, transportation and Reduction of transboundary water pollution 1.6 milliontreatment of wastewater in 10 municipalities

ANNEX E SANNEX 5



5.674 million Feasibility study developed.

0.828 million Feasibility study developed.GTZ provided technical assistance and secured additional funding in cooperation with Svilajnacmunicipality for waste selection and the recultivation of the existing landfill (total costs EUR 0.1656 million).Inclusion of future investment costs into the tariff policy is expected to cover Svilajnac municipality contribution.

5.7 million Feasibility study, conceptual project and justification study have been developed.Public research on project relevance was conducted in 2008.Development of tender documentation and securing of financing was started in 2008.

18.9 million Project applied for NIP but, due to rebalance of the budget, funding is not going to be realised.The Ministry of Environment and Spatial Planning plans to propose the project for donationfrom the Japanese Government.Construction is planned to start in 2009.

14.71 million Smaller grant for feasibility study was provided from NIP than initially negotiated (EUR 0.29 million insteadof EUR 0.60 million).The project is stopped at the moment due to delay in funding from NIP.

6 million EUR 1.2 million will be provided from Serbian EKO fund and EUR 2.5 million will be receivedfrom municipality of Smederevo for co-financing for preparatory documents and Phase I.

3.27 million IPPC permit requirements made necessary modification of the project documentation: 1 metre protective layerinstead of 30 centimetres. As the result, a new tender for construction needs to be made. At the moment,work is temporarily stopped.

5.88 million Project supported by UNDP PRO programme

4.76 million General plan, feasibility study and EIA completed in 2008.Technical documentation and economic and financial analysis are in the stage of finalisation.Phase I requires investment of EUR 1.8 million; Phase 2 of EUR 2.96 million.

3.861 million

3.7 million Feasibility study completedDue to changes in ownership status, it is unclear what is going to happenwith current Serbian Oil Industry (NIS) projects. Internal prioritisation of the projects is in progress.

4.99 million Municipality has applied for NIP with this project, now final decision regarding financing is expected.

2.3 million Funding is expected frommunicipality of Vrsac (EUR 0.2 million), NIP (EUR 0.3 million) and EAR (EUR 1.8 million).

3.2 million

1.6 million

ANNEX E SANNEX 5


Serbia (continued)



Feasibility studies for collection, transportation Reduction of transboundary water pollution. 365,000and treatment of wastewaters in themunicipalities of Vranje and Uzice

Protection of the Lim River: Wastewater 22.5 millioncollection and treatment in Prijepolje, Priboj,Nova Varos and Sjenica municipalities

Construction of WWTP(s) for the Ibar River 9.5 million

Protection of the Raska River – Wastewater 12 millioncollection and treatment in Novi Pazarand Raska municipalities

Protection of the Raska River (flood protection) 1.124 million

Air Projects

Decreasing of air pollution from “Energetika” Reduction of transboundary air pollution. Population 0.235 million(installation of electro-filter), Kragujevac benefiting directly from project


ANNEX E SANNEX 5



365,000 Pre-feasibility study completed.IPA funding is expected for Uzice part.

22.14 million

9.325 million

11.66 million Project supported by UNDP PRO programme

1.059 million The project is linked with the project for the regional landfill for Nova Varos.Financing of EUR 65,000 for Batnjik sanitary landfill design is secured from UNDP PRO programme.

0.235 million

Notes1 http://www.rec.org/REC/Programs/REREP/PEIP/documents.html

2. http://www.rec.org/REC/Programs/REREP/PEIP/donor_contacts.html

3 http://ec.europa.eu/enlargement/enlargement_process/accession_process/how_does_a_country_join_the_eu/sap/index_en.htm

4 http://ec.europa.eu/enlargement/enlargement_process/accession_process/how_does_a_country_join_the_eu/sap/index_en.htm

5 Council Regulation 1085/2006, adopted on July 17, 2006. More detailed implementing rulesare laid down in Commission Regulation 718/2007

6 The Hazardous Waste Directive (94/31/EC) will be repealed by the WFD on December12, 2010

7 Framework Directive 96/62/EC, daughter directives 1999/30/EC, 2000/69/EC, 2002/3/EC,and Decision on Exchange of Information 97/101/EC

8 Directive 2008/1/EC of the European Parliament and of the Council of January 15, 2008,concerning integrated pollution prevention and control. Replaces Council Directive96/61/EC of September 24, 1996 on the same subject

9 The EC 2008 progress reports for candidate and potential candidate countires, accompany-ing the EC Communication “Enlargement Strategy and Main Challenges 2009-2010” areavailable on the EC, DG Enlargement website http://ec.europa.eu/enlargement

10 For further insights on environmental funds, see the REC publication Establishing an Environ-mental Fund: Practical Aspects for Decision Makers and Fund Managers. REC working paper,June 2006

11 Albania and Montenegro in the water sector, and Kosovo (as defined under UNSCR 1244)in both sectors

12 The average payment collection figure was 57 percent in 2006, but lower for households(at around 48 percent) and higher for industry. The collection rate of individual utilitiesranges between 45 percent and 67 percent.

13 http://www.stabilitypact.org/wt2/energy/IFIADVISORYGROUP.asp andhttp://ec.europa.eu/enlargement/projects-in-focus/cooperation_with_the_international_financial_institutions/index_en.htm

14 The Stability Pact for South Eastern Europe was an institution aimed at strengthening peace,democracy, human rights and economy in the countries of SEE in the period 1999 to 2008.Over the years, the focus of the Stability Pact shifted from confidence building among thecountries and infrastructure reconstruction to a framework for regional cooperation in SEE.The Stability Pact also took on the role of supporting the integration of SEE countries intoEuropean and Euro-Atlantic structures by helping the countries of the region to meet EU andNATO membership criteria.

15 Please note that, in the case of projects for which progress was made in funding between2007 and 2009, the total amount of committed/secured funds was taken into account — thatis, where funds were already committed/secured prior to 2007, these are included. In somecases, the newly secured funds are conditional.

16 This graph takes into account both large and small improvements and setbacks, and takes intoaccount all projects that were present on the lists at any point in time from 2007 to 2009.

ANNEX E S


ReferencesPublicationsAlbanian Business and Investment Agency (Albinvest). “Basic Economic Indicators”, factsheet no.2, March 2008.

Arcadis Ecolas NV and IEEP, 2007. Benefits for the former Yugoslav Republic of Macedonia andother countries of SEE of compliance with the environmental acquis, 06/11347/AL, Belgium.

Austrian Development Agency (ADA), 2008. Institutional profiles prepared on behalf of AEquilib-rium Consulting GmbH and the Austrian Development Agency:

• 2008a. The Ministry of Public Works, Transport and Telecommunications, Albania:http://www.eco-finance.org/images/ALB_MPWTT_profile.pdf

• 2008b. Hrvatska banka za obnovu i razvitak (HBOR), Republic of Croatia: http://www.eco-finance.org/images/CRO_HBOR_profile.pdf

• 2008c. The Ministry of Transport and Communincations, the former Yugoslav Republicof Macedonia: http://www.eco-finance.org/images/MAC_MTC_profile.pdf

• 2008d. The MOEPP Environmental Investment Programme, the former Yugoslav Republicof Macedonia: http://www.eco-finance.org/images/MAC_MOEPP_profile.pdf

• 2008e. The Ministry of Finance, Montenegro: http://www.eco-finance.org/images/MON_MF_profile.pdf

• 2008f. The National Investment Plan, Serbia: http://www.eco-finance.org/images/SER_NIP_profile.pdf

• 2008g. The Ministry of Agriculture, Forestry and Water Management, Water Directorate,Serbia: http://www.eco-finance.org/images/SER_MAFWM_profile.pdf

• 2008h. The Environment Protection Fund, Serbia: http://www.eco-finance.org/images/SER_EPF_profile.pdf

• 2008i. The Environment Protection Fund of the Federation of Bosnia and Herzegovina:http://www.eco-finance.org/images/BiH_EFFBiH_profile.pdf

• 2008j. The Environment Protection Fund of Republika Srpska, Bosnia and Herzegovina:http://www.eco-finance.org/images/BiH_EFRS_profile.pdf

• 2008k. The Environmental Protection and Energy Efficiency Fund, Croatia: http://www.eco-finance.org/images/CRO_EPEEF_profile.pdf

• 2008l. The proposed Eco-Revolving Fund, Montenegro: http://www.eco-finance.org/images/MON_EcoFUND_profile.pdf

Central Bank of the Republic of Kosovo, 2009. Annual report 2008, Pristina.

CEB, 2009. Press release, “Increased CEB support for public social infrastructure in Centraland South Eastern European countries”, March 3, Paris.

CEB, 2007a. The CEB and the Management of the Environment, http://www.coebank.org/Upload/infocentre/brochure/en/managementenvironment.pdf.

CEB, 2005, 2006, 2007b and 2008. Report of the Governor.

DABLAS 2008. Terms of Reference of the Dablas Phare Facility.

Dax, Paul, 2008. “Draft Position Paper on Public Utility Company Tariffs in Serbia.”

EBRD, 2006, 2007, 2008 and 2009. Donor Report.

EBRD, “Doboko Solid Waste, Project Summary Document”,http://www.ebrd.com/projects/psd/psd2006/37033.htm.

EC, 2007. DG Enlargement. “Infrastructure Preparation Facility for the Western Balkans”,Concept Paper, Brussels.

ANNEXE S


EC, 2008a. Press release IP/08/1134. “The international community pledges EUR 1.2 billionto Kosovo”, July 11, 2008, Brussels.

EC, 2008b. Progress reports and staff working documents of candidate countries and potentialcandidate countries, 2008, accompanying COM(2008) 674 “Enlargement Strategy and MainChallenges 2008–2009”, November 5.• SEC (2008) 2692, Albania.

• SEC (2008) 2693, Bosnia and Herzegovina.

• SEC (2008) 2694, Croatia.

• SEC (2008) 2695, the former Yugoslav Republic of Macedonia.

• SEC (2008) 2696, Montenegro.

• SEC (2008) 2697, Kosovo (under UNSCR 1244).

• SEC (2008) 2698, Serbia.

EC, 2009. Progress reports accompanying the communication from the Commission to the Euro-pean Parliament and the Council COM (2009) 533 final “Enlargement Strategy and Main Chal-lenges 2009–2010”, Brussels, October 14:• SEC (2009) 1333, Croatia.

• SEC (2009) 1335, the former Yugoslav Republic of Macedonia.

• SEC (2009) 1336, Montenegro.

• SEC (2009) 1337, Albania.

• SEC (2009) 1338, Bosnia and Herzegovina.

• SEC (2009) 1339, Serbia.

EC, 2008c. Rapid press release, MEMO/08/144, “Financial Assistance to the Western Balkans –Donor Cooperation”, March 5, 2008 http://europa.eu/rapid/pressReleasesAction.do?refer-ence=MEMO/08/144&format=HTML&aged=1&language=EN&guiLanguage=en - fn1

EC, 2008d. Rapid press release, IP/09/204, “Western Balkans: Enhancing the European Perspec-tive”, Brussels, March 5.

EC, 2009. “Stocktaking of Commission and IFI Activities and Programmes in Support to Invest-ments in the Western Balkans.” Draft report, June (preparation of September workshop). RequestN 2008/162297.

EC, COM (2001) 304, “The Challenge of Environmental Financing in the Candidate Countries”,June 8, 2001, Brussels.

EC, COM (2006) 27 final, “The Western Balkans on the Road to the EU: Consolidating Stabilityand Raising Prosperity”, January 27, 2008, Brussels, http://eur-lex.europa.eu/LexUriServ/LexUriS-erv.do?uri=COM:2006:0027:FIN:EN:PDF.

EC, COM (2008) 127 final, “Western Balkans: Enhancing the European Perspective”, Brussels,March 5, 2008,http://ec.europa.eu/enlargement/pdf/balkans_communication/western_balkans_communica-tion_050308_en.pdf

EC, COM (2008) 705 final, “Instrument for Pre-accession Assistance (IPA), Multi-annual Indica-tive Financial Framework for 2010–2012”, November 5, 2008, Brussels.

EC, COM (2009) 533, “Enlargement Strategy and Main Challenges 2009–2010.” Brussels, Octo-ber 14, 2009.

EC, SEC (2009) 1309 final, Promoting effective financing for the environment in regions coveredby the enlargement process and the European Neighbourhood Policy. Brussels, September 30,2009.

EIB, 2008. “EIB Financing in the Western Balkans 1995–2007”, http://www.eib.org/projects/pub-lications/eib-financing-in-western-balkans.htm

ANNEX E S


EIB, “The Western Balkans”, http://www.eib.org/projects/regions/enlargement/the-western-balkans/index.htm

EIB, 2008. “EIB supports water supply and wastewater treatment in Bosnia and Herzegovina”,August 2, http://www.eib.org/projects/press/2008/2008-072-eib-supports-water-supply-and-wastewater-treatment-in-bosnia-and-herzegovina.htm

EPPC 2009. Final Report, February.

European Parliament, Recommendation 2001/331/EC of the European Parliament and of theCouncil of April 4, 2001 providing for minimum criteria for environmental inspections in themember states

Gjinali, Enkelejda and Sokol Olldashi, 2008. “Reform of the Water Supply and Sewage Sectorafter the Transfer Process of Water Supply and Sewerage Companies to Local Government Au-thorities.” Two-Year Plan, Albania.

IPA Centralised Programme 2008, Project Fiche Kosovo, Infrastructure Projects Facility – KosovoWindow.

IPA, Centralised Programme for Serbia, Standard Summary Project Fiche – Project number 14:Project Preparation Facility.

IPA, Centralised, National and CBC Programmes for Montenegro, Standard Summary ProjectFiche – Technical Assistance and Project Preparation Facility and Programme Reserve

IPA, 2007a. Environmental Operational Programme 2007–2009 in Croatia, September:http://ec.europa.eu/regional_policy/funds/ipa/croatia_environment_en.htm

IPA,Multi-annual Indicative Planning Documents 2007–2009 for Albania, Bosnia and Herzegov-ina, Croatia, Kosovo (as defined under UNSCR 1244), the former Yugoslav Republic of Macedo-nia, Montenegro and Serbia.

IPA,Multi-annual Indicative Planning Documents 2009–2011 for Albania, Bosnia and Herzegov-ina, Croatia, Kosovo (as defined under UNSCR 1244), the former Yugoslav Republic of Macedo-nia, Montenegro and Serbia.

IPA, 2008a. National Programme 2008, Albania, Project Preparation Facility.

IPA 2008b. National Programme 2008, Part I – Bosnia and Herzegovina, Project Fiche 4: ProjectPreparation Facility

IPA, 2008c. National Programme 2008 for the former Yugoslav Republic of Macedonia, ProjectFiche 4.1: Project Preparation and Support Facility

IPA, “Standard Summary Project Fiche – IPA centralised programmes”, Project number 13:Municipal Infrastructure Support Programme — MISP.

IPF, 2007. “IPF for the Western Balkans.” Concept paper.

IPF, 2008. Infrastructure Preparation Facility, Terms of Reference.

Kosovo Environmental Action Plan 2006-2010, Pristina 2009.

National Environmental Investment Strategy, 2009, the former Yugoslav Republic of Macedonia.

National Strategy for Environmental Approximation, 2007, the former Yugoslav Republic ofMacedonia.

National and federal statistical offices, WB, NCB, EIU, ministries of finance.

OECD, ODA database on environmental infrastructure allocations between 2005 and 2007.

Official Gazette of the former Yugoslav Republic of Macedonia (OGRM) No. 146/2007. “Regula-tion on the Manner of Handling HCW, Labelling and Forms for Handling HCW and on Types ofHCW for which Processing is Prohibited”.

REC, 2003. Developing a Priority Environmental Investment Programme for SEE.

REC, 2005. Targeting the Investment Challenge in South Eastern Europe.

REC, 2006. “Establishing an Environmental Fund: Practical Aspects for Decision Makers and FundManagers”, Working paper, June.

ANNEXE S


REC, 2007. Final report for the project “Cross-Border Cooperation through Environmental Plan-ning and Investments”.

REC. PEIP Analytical Reports 2007–2009. Available at:http://www.rec.org/REC/Programs/REREP/PEIP/peip2007.html

REC. PEIP surveys, 2008 and 2009.

REC. PEIP Updated Priority Project Lists 2007–2009. Available at: http://www.rec.org/REC/Pro-grams/REREP/PEIP/peip2007.html

REC, 2009a. Strategies for Reform: A Manual for Water Utilities in South Eastern Europe.

REC, 2009b. Speeding up Investments in the Waste Sector: A Manual for Waste Utilities in SouthEastern Europe.

REC and Umweltbundesamt GmbH, 2008. Handbook on the implementation of EC Environmen-tal Legislation, December.

UNDP/GEF, 2004. Hungarian Environmental Economics Centre, Hydro-engineering Institute,Sarajevo, Danube Regional Project. Assessment and development of municipal water and waste-water tariffs and effluent charges in the Danube River basin, Volume 2: “Country-Specific Issuesand Proposed Tariff and Charge Reforms: Bosnia i Herzegovina – National Profile”.

Water Utility Reform Programme Working Group (WURP WG), 2007. Water Utility Reform Planfor the Government of the Republic of Montenegro.

World Bank, 2007. Journey to a Cleaner Future.

Water and Waste Regulatory Office (WWRO) of Kosovo, 2009. Annual Report 2008, “Perfor-mance of the water and waste companies in Kosovo.” July.

Presentations:Davies, 2008. “Review of EC investment support facilities.” Craig Davies, PPC Executive Secre-tary. PEIP Regional Meeting, Brussels, November 28.

Fiedler, 2008. “IPA 2008 — Support to environment.” Joanna Fiedler, Desk Officer, Unit forEnlargement and Neighbouring Countries, European Commission – DG Environment. PEIPRegional Meeting, Brussels, November 28.

Fiedler, 2009a. “Update on financing environment and cooperation with IFIs.” Joanna Fiedler,Desk Officer, Unit for Enlargement and Neighbouring Countries, European Commission — DGEnvironment. PEIP Regional Meeting, Sarajevo, June 18–19.

Fiedler, 2009b. “Update on environmental financing.” Joanna Fiedler, Desk Officer, Unit for En-largement and Neighbouring Countries, European Commission, DG Environment. PEIP RegionalMeeting, Sarajevo, June 18–19.

Gianfranchi, 2008. “Infrastructure Projects Facility, Project Preparation in the EnvironmentalSector.” Rachele Gianfranchi, DG Enlargement. PEIP Regional Meeting, Brussels, November 28.

Glavocevic, 2009. “Experience in the Implementation of IPA projects in Croatia.” Mladen Glavo-cevic, Head of Section for Control of Project Implementation, Ministry of Environmental Protec-tion, Physical Planning and Construction. PEIP Regional Meeting, Sarajevo, June 18–19.

Gofas, 2008. “Western Balkans Infrastructure Preparation Facility.” Christos Gofas, Team Leader,Infrastructure and International Financing Institutions, European Commission, DG Enlargement.National Workshop: “Developing Environmental Infrastructure Projects in the Water Sector inAlbania”, Tirana, September 25.

Ozdemir, 2009. “Experiences of financing priority environmental investment projects in Turkey.”Sermin Bozan Ozdemir, IPA Coordination and Implementation Center, Ministry of Environmentand Forestry. PEIP Regional Meeting, Sarajevo, June 18–19.

Sohail, 2008. “Infrastructure Projects Facility in the Western Balkans.” Hasan Sohail. PEIPRegional Meeting, Brussels, November 28.

Unterwurzacher, 2008. “Update on IPA Component III — Environment.” Erich Unterwurzacher,REGIO.I4 – IPA/ISPA, EC, Regional Policy. PEIP Regional Meeting, Brussels, November 28.

ANNEX E S


Websites:Croatian Waters: http://www.voda.hr/

DABLAS Task Force: http://ec.europa.eu/environment/enlarg/dablas/index_en.htm

EBRD: Albania overview: http://www.ebrd.com/country/country/albania/index.htm; Bosnia andHerzegovina economic overview: http://www.ebrd.com/country/country/bosnherz/econo.htm

EC, Economic and Financial Affairs, http://ec.europa.eu/economy_finance/int_economic_is-sues/country_page9172_en.htm

EC, DG Enlargement: http://ec.europa.eu/enlargement/index_en.htm

EC, DG Environment: http://ec.europa.eu/environment/index_en.htm

EC, DG Regional Policy: http://ec.europa.eu/regional_policy/index_en.htm

EC, DG Enlargement, Instrument for Pre-Accession Assistance: http://ec.europa.eu/enlarge-ment/how-does-it-work/financial-assistance/instrument-pre-accession_en.htm

EC, Regional Policy, Instrument for Pre-Accession Assistance: http://ec.europa.eu/regional_pol-icy/funds/ipa/index_en.htm

ECENA: www.ecena.org

Eurostat: http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/

EU Water Initiative: www.euwi.net

Horizon 2020 initiative: http://ec.europa.eu/environment/enlarg/med/horizon_2020_en.htm

International Economic Issues, Non-EU economies, Western Balkan countries:http://ec.europa.eu/economy_finance/int_economic_issues/country_page9161_en.htm

PEIP website: http://www.rec.org/REC/Programs/REREP/PEIP/default.html

Regional Cooperation Council: www.rcc.int/index.php

Stability Pact for South Eastern Europe: www.stabilitypact.org/wt2/energy/IFIADVISORY-GROUP.asp

UNEP-FI, http://www.unepfi.org/

World Bank: www.worldbank.org

ANNEXE S


THE REGIONAL ENVIRONMENTAL CENTER FOR CENTRAL AND EASTERN EUROPE (REC) is an

international organisation with a mission to assist in solving environmental problems. The REC fulfils this

mission by promoting cooperation among governments, non-governmental organisations, businesses and

other environmental stakeholders, and by supporting the free exchange of information and public

participation in environmental decision making.

The REC was established in 1990 by the United States, the European Commission and Hungary. Today, the

REC is legally based on a charter signed by the governments of 29 countries and the European

Commission. The REC has its head office in Szentendre, Hungary, and country offices and field offices in

17 beneficiary countries: Albania, Bosnia and Herzegovina, Bulgaria, Croatia, the Czech Republic, Estonia,

Hungary, Latvia, Lithuania, the former Yugoslav Republic of Macedonia, Montenegro, Poland, Romania,

Serbia, Slovakia, Slovenia and Turkey.

The REC actively participates in key global, regional and local processes and contributes to environmental

and sustainability solutions within and beyond its country office network, transferring transitional

knowledge and experience to countries and regions.

Recent donors are the European Commission and the governments of Albania, Austria, Belgium, Bosnia

and Herzegovina, Bulgaria, Canada, Croatia, the Czech Republic, Estonia, Finland, Germany, Hungary,

Italy, Japan, Latvia, Lithuania, Luxembourg, the former Yugoslav Republic of Macedonia, Montenegro,

the Netherlands, Norway, Poland, Romania, Serbia, Slovakia, Slovenia, Spain, Sweden, Switzerland,

the United Kingdom and the United States, as well as other intergovernmental and private institutions.

This document has been produced with the financial assistance of the European Union.

The views expressed herein can in no way be taken to reflect the official opinion of the European Union.