the regional environmental center for central and...

Priority Environmental Investment Programme for South Eastern Europe (PEIP) Regional Meeting

THE REGIONAL ENVIRONMENTAL CENTER

for Central and Eastern Europe

Priority Environmental Investment Programme (PEIP) – CARDS Regional –

Regional Meeting for Senior Officials from SEE and

Donors’ Community

September 22, Brussels, Belgium

Minutes

PEIP project is financed by the European Commission - CARDS Regional

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Thursday, 22nd September, 2005

1. INTRODUCTORY SESSION Official opening by Ms. Marta Szigeti Bonifert – Executive Director of the REC – Co-Chair of the meeting Ms. Marta Szigeti Bonifert, Executive Director of the REC welcomed the delegates of the Western Balkans countries to the Regional Meeting and the present representatives of the donor community. She emphasized that SEE countries are facing a great challenge in raising investment capital for environmental investment projects required to comply with EU environmental acquis. The Priority Environmental Investment Programme (PEIP) provides assistance for meeting these requirements by identifying and prioritising infrastructure investment projects, building project pipelines, and facilitating dialogue between project proponents and the donor community. PEIP was developed in 2002-2003. The second phase (2003-2005) built on the EU accession as the main driver to environmental investments. Key features of the approach used in implementing the project were:

• Regional: covering all Stabilisation and Association process (SAP) countries and applying regionally agreed criteria for the development of project pipelines;

• Process: enabling a long term process of compliance with the EU acquis; • Stakeholders: involving key stakeholders in the activities; • Collaboration: cooperation developed with key investment initiatives in the

region such as DABLAS (Danube Black Sea Initiative), PPC (Project Preparation Committee), and ISG (Infrastructure Steering Group).

With the assistance of the PEIP, a regional framework for prioritisation of investment projects was developed. In parallel to this activity, environmental hot spots were identified in the region. In addition a regional analysis was conducted on national environmental priorities. The major outcome was the pipeline of priority environmental investment projects. Outputs of the process were approved by the SEE Ministers of Environment and appointed senior officials. For last two years PEIP activities concentrated in two areas: institution strengthening and technical assistance to project proponents.

1. Institutional Strengthening activities were the followings: • 3 regional workshops were organized on environmental investment project

development in water, air, and waste sectors in Serbia and Montenegro, former Yugoslav Republic of Macedonia, and Croatia respectively;

• 3 regional workshops were conducted on tariffs and economic instruments in air, waste and water sectors in Albania;

• Focal Points Coordination meeting was held on streamlining future activities and developing common understanding, in Bosnia and Herzegovina;

• Regional Meeting for decision-makers and donors’ community is being held at the moment, back to back with REReP (Regional Environmental Reconstruction Programme) Task Force meeting in September 2005, Brussels.

2. Technical Assistance is provided through the final PEIP publication, which will include:

• Guidebook on options for financing investment projects; • Study on the status of national environmental investment planning;


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• Inventory of sites not complying with selected EU directives; • Formulation of 33 investment projects (strategies); • Study on tariffs and municipal borrowing in SEE; • Updated list of priority projects.

Ms. Marta Szigeti Bonifert stressed the importance of the meeting that provides an excellent opportunity to discuss environmental investment projects development and challenges to their implementation. At the same time the meeting was a great opportunity to get into contact with donors’ community and senior officials from the SEE. Finally she expressed her gratitude that REC could assist in this exciting and important process. (Power point presentation is available) Welcome by Mr. Andrew Murphy, European Commission – Co-Chair of the Meeting Mr. Andrew Murphy from the European Commission welcomed the participants of the PEIP Regional Meeting. He drew attention to the projects developed via the PEIP that target environmental regional threats. He signalled that an important development regarding environmental investments was the inclusion of the environmental sector as a specific focus of the ISG activities. He stressed the importance of gathering the financial and beneficiary community together so that each would develop an appreciation of the needs of the other. Since Commission grant possibilities are limited, it is important to involve other bilateral donors as well. In the PEIP priority projects lists a wide variety of projects can be found, large and small, requiring a mix of grants and loans. He signalled that the meeting should aim to take the lists and narrow them down in the light of donor expertise to a limited number that would have the best chance of being financed. The Stabilisation and Association Process and the environmental investment challenge in SEE presented by Ms. Carmen Falkenberg Ambrosio, European Commission Ms. Carmen Falkenberg Ambrosio presented the key features of the Stabilisation and Association process including:

• Stabilisation and Association Agreement; • European Partnerships; • SAP Reports; • Financial support from CARDS instrument; • SAP obligations: regional cooperation.

The presentation emphasised that environment is cross-sectoral and therefore the responsibilities for integrating environmental considerations into sectoral policies lies with different ministries such as agriculture and water. Complete harmonisation of EU environmental acquis involves the transposition of the EU legislation followed by its implementation and enforcement. In order to implement the transposed legislation, the adequate legal, institutional and financial frameworks need to be developed. The adoption of EU legislation in the area of the environment constituted a major challenge from the legal, institutional and financial points of view. With regard to the community environmental acquis, it consists of more than 270 pieces of legislation including 80 major Directives. From an institutional point of view, key challenges ahead are the strengthening of administrative structures,


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not only ministries and agencies, but also implementation and enforcement institutions. Therefore it is of great importance to improve intra-ministerial co-ordination. In addition she stressed that environmental management in business also needs attention. The major financial challenge lies in meeting the estimated cost of compliance. The approximation process is the process of integrating EU law into national legal - administrative systems. The process consists of 3 major steps:

Step 1: Transposition Step 2: Implementation Step 3: Enforcement.

In order to achieve full implementation, framework legislation need to be transposed on air, water, waste, EIA and SEA, Access to Information and nature protection. In addition, international conventions, trans-boundary pollution reduction as well as industrial and single market related legislation are to be transposed. With regards to the financial challenge, all new investments should comply with the acquis. Some of the legislation is considered as particularly investment heavy, such as legislation covering:

• waste water treatment and drinking water supply; • fuel quality and large combustion plants; • waste management including landfill, incineration; • IPPC.

Environment is considered problematic in the SEE countries due to several factors such as: • Insufficient priority to environmental protection; • Under resourced environmental administration; • Serious weaknesses in implementation and enforcement; • Low investment in environmental infrastructure; • Limited integration into other sectors.

In order to respond to these needs, the EU designed several financial support instruments such as CARDS for pre-candidate countries and PHARE and ISPA for candidate countries. Within the National CARDS programme, the EU supports legal approximation, strategies, institutional capacity building and some small scale infrastructure. Via the CARDS regional programme, the EU supports REReP, PEIP, ECENA, law drafting, collaboration with the EEA and project preparation facilities for future environmental infrastructure projects. With regards to project selection and preparation, an important initiative of the EC and international financing institutions is the Infrastructure Steering Group (ISG). The Group held a meeting in April 2005 specifically on environmental investment projects with PEIP being in the focus. During the meeting International Financing Institutions (IFIs) screened the project list and selected the projects with the best chance to receive finance. Selection criteria were: bankability, projects being part of national strategies and investment programmes, regional impact of the project, and compliance with the EU directives. The selected projects were not endorsed by IFIs, but identified as “interesting” provided they are also supported by the national governments. More information can be obtained on ISG from: http://www.seerecon.org/infrastructure/ Another initiative by the EC to tackle environmental investments in the region is the Danube-Black Sea (DABLAS) initiative. Within DABLAS half of the 30 priority projects moved forward PEIP project is financed by the European Commission - CARDS Regional

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with 9 now fully funded. In addition, 17 new projects have been identified through the Danube Investment Support Facility (DISF), the Priority Environmental Investment Programme (PEIP), the Black Sea Project Broker, and the PPC officer for the Balkans, the ISPA Strategy for Croatia and by the countries themselves. The total pipeline consists now of 38 priority projects. In 2005-2006 DABLAS will continue the development of the project pipeline and the technical assistance. More information can be obtained on DABLAS from: http://europa.eu.int/comm/environment/enlarg/dablas_en.htm (Power point presentation is available) Objectives of the meeting presented by Ms. Joanna Fiedler, PEIP Project manager, the REC Ms. Joanna Fiedler, PEIP project manager, outlined the objectives of the Regional Meeting. She stressed the importance of the face-to-face meeting of the senior SEE officials with the donor community. She emphasised that the way forward, which PEIP would attempt to follow, is a developed scheme for information exchange between the countries and the donors, a harmonised system to track changes and identify priorities for the future and last but not least matured and good quality investment projects to develop and implement. PEIP activities are directed to 3 levels of implementation: 1. the senior officials from the Ministries, 2. the focal point in the Ministries of Environment, and 3. the project proponents at the local level. In addition to this, PEIP developed cooperation with key regional initiatives such as ISG, PPC, DABLAS Task Force and Danube Investment Support Facility. Regarding the agenda of the meeting, the sessions were developed around 2 issues, the morning sessions concentrates on the update of the PEIP list of priority environmental investment projects, while the afternoon sessions deals with the challenges to implementation of the priority investment projects in SEE and the way forward. The objectives of the morning sessions are:

• To present the results of the update; • To present the high priority projects from the countries; • To discuss the possibilities of receiving finance; • And to discuss further cooperation with existing regional initiatives to leverage the effect

of assistance. The objectives of the afternoon sessions include:

• To present the status of national planning for implementation of the key EU investment heavy directives;

• To discuss challenges to developing bankable projects in SEE; • To discuss the available options for receiving finance; • To identify the way forward and future needs.

(Power point presentation is available) PEIP project is financed by the European Commission - CARDS Regional

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2. SESSION 2 – UPDATE OF THE PEIP PRIORITY PROJECTS LIST Results of the update of the list of priority environmental infrastructure investment projects in SEE developed under the PEIP presented by Ms. Joanna Fiedler, PEIP project manager, the REC Ms. Joanna Fiedler introduced the PEIP list indicating that it was developed in 2003 and included priority environmental infrastructure projects in the air, water and waste sectors from the SAP countries. Projects were submitted on a standard Project Identification Form (PIF). Subsequently prioritisation was conducted with pre-approved criteria. The projects were divided into High Priority (HP) and Other Projects (OP). HP projects received a score of more than 60% during the prioritisation exercise. The results were approved by the Ministries of Environment. In parallel to this work, technical assistance was also provided to selected locations with serious environmental problems. The original list developed in 2003 contained 79 high priority projects with special focus on regional impact and the link to environmental acquis. It became evident that during the PEIP implementation there is a continuous need to update the list. An update was conducted between May and September 2005, 35 projects were removed and new projects were added as well. 17% of projects from the 2003 PEIP list have funds secured. The updated list by numbers of projects is shown in the table below: air water waste total

Albania 0 10 8 18

Bosnia and Herzegovina

2 5 1 8

Croatia 2 9 14 25

former Yugoslav Republic of Macedonia

3 13 2 18

Serbia 3 6 10 19

Montenegro 2 3 4 9

Kosovo (territory under interim UN administration)

2 8 4 14

Total 14 54 43 111

The main conclusions of the updating exercise are the followings:

• The countries made great efforts to update lists and provide as much information as possible;

• Linkages with the national strategy documents are more and more visible; • Financial information is still the weakest part of the PIFs; • The lists present the most pressing environmental problems in SEE.


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(Power point presentation is available) Questions, comments Question by European Agency for Reconstruction (EAR): 17% of the projects have funds secured, is it a lot or too little and what where the obstacles to projects implementation? Answer by PEIP project manager: First of all there is no benchmark for the projects received funding, therefore it cannot be stated explicitly whether the 17% is high or low result. It must be noted that PEIP does not have a tool of project preparation facility, therefore has no mandate for project preparation. Presentation of selected high priority environmental infrastructure investment projects in the air, water and waste sectors by the delegations of SEE countries Presentation of the Albanian representative: The representative of Albania provided updates on the institutional changes that happened in Albania recently. The new government has executed some changes in the administrative system, for example the Ministry of Environment has been enlarged with Fishery, Forestry and Water Management functions. The new government that has been formed expressed the willingness to focus on solutions on urban waste and sewage treatment. Based on a Council of Ministers decision, the water norms and effluent discharges are in line with EU Directives. In general the levels of tariffs are low but the need to increase them is generally understood. Furthermore, Albania stressed that there is a necessity to generate more funds domestically. All waste projects are end-of-pipe solutions. It is acknowledged and taken into account that integrated waste management systems are the desired future solutions. This is made clear in the current law on waste management, while development of indicators on the % of the waste reused, recycled, recovered and landfilled has been foreseen in the draft list of indicators for Sustainable Development under the MDG 7.

Setting up sanitary landfills is an urgent task, as there are none in the country at present. The PEIP list will be extended with new clean-up projects in the future and there is also a need to include hazardous waste projects. The Albanian representative then proceeded to present the projects selected by Albania from those in the project list:

1. AL-21 and AL-22 Construction of waste sanitary landfills for Vlora (85,000 inh.) and Saranda (14,500 inh.). Both towns are important for the coastal, tourism and economic growth of the country and also located on trans-boundary areas. Waste management plan for Vlora has already been drafted with the UNEP MAP support;

2. AL-17 “Construction of a common sewerage water treatment for Tirana and surrounding”. Tirana has a population of over 500,000 inh. The project has high investment costs foreseen, about 70 MEUR;

3. AL-23 “Construction of a sanitary landfill for Tirana and Durres”. The current Sharra dumpsite of Tirana is a major hot spot. Funds are available from Italian cooperation for its closure, and a new, modern and legal sanitary landfill is needed. Tirana and Durres are


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located within a short distance from each other, with a high concentration of the population, due to internal mass migration.

(Power point presentation is available) Questions, comments: Comment by EC: It is important that the projects are financially viable, fit into the national, regional priorities. Furthermore the smaller projects can be picked by bilateral donors for assistance. Question by European Investment Bank ( EIB):

1. Are the data included in the Project Identification Forms (PIFs) outdated? 2. What is the logic in separating sewerage system projects from waste water treatment

projects? 3. EIB has provided a loan of 22 MEUR recently, why this is not included in the PEIP

project list? Answer by Albanian representative:

1. Data included in the PIFs are up-to-date, provided by the relevant Ministries. 2. Sewerage and waste water treatment projects are treated separately as some towns have

already received funding for some components, or are searching for financing sources separately.

3. Projects which already received funding are excluded from the updated PEIP list, including the EIB supported one.

Question by EIB to EC: How EC decides on priorities? How the countries concerned are involved in this process? Answer by EC: In the priority setting the Delegations of EU to the countries and the EAR is involved. The EC makes sure that the projects on the list have a real connection to strategies. The final decision on priorities is made by the countries. The EC decides on the financial budget and takes the decision on the split between sectors such as environment. The task of the Ministries of Environment in the countries is to make sure environment is important and high on the priority list. On behalf of the EC, DG Environment ensures that environment is included in the country and regional strategies. The EU Delegations to the countries and the EAR are the key players in communicating the strategies to the countries. Comment by CEB: In Albania local investment projects are included in the bank’s priority areas through the support for social housing and urban development. This also involves municipal infrastructure investments such as water supply and sewerage system development. Comment by WB:


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The World Bank is financing a coastal pollution and coastal management in Albania with an IDA credit. The project envisions a programmatic approach to include later phases, so these later phases may be able to consider projects proposed through PEIP. Comment of EIB: The question of fiscal space will be in the focus of future discussions with the country. Presentation of selected high priority environmental investment projects by the representative of Bosnia and Herzegovina: The representative of the delegation from Bosnia and Herzegovina stressed that Bosnia and Herzegovina is in the process of overcoming constitutional obstacles, and transferring competences to Central State level. The projects are based on NEAP and approved by the Parliament. Projects on the PEIP list were prepared by local authorities with the help of the Ministries. It must be noted that in the central budget little money is available to support environmental projects. One of the key questions concerning the projects is the cost-recovery, and the affordability of the increased tariffs by the population. With regards to the national planning efforts, the solid waste management plan is under preparation with CARDS support. The plan includes the set up of 15 regional sanitary landfills. 5 sanitary landfills received IDA soft loans from the WB. 1 out of the remaining 10 is included in the PEIP list. The representative of Bosnia and Herzegovina then presented the selected projects of the country:

1. Sewage system of Bijeljina city, it also has a cross-border influence on Dubrovnik; 2. Construction of the wastewater treatment system for the city of Bileca; 3. Construction of new sanitary landfill “Crni Vrh – sjever” for several municipality

(Zvornik, Kalesija, Sapna, Osmaci, Sekovici) in the vicinity of Zvornik, B&H; 4. National air quality monitoring - establishing an air quality monitoring network; 5. Construction of the wastewater treatment system for the city of Mostar - has cross-border

significance. There is also a possibility to receive finance from GEF as Croatia-Bosnia and Herzegovina intergovernmental project;

6. Flue gas de-sulphurisation project in Thermo Power Plant Kakanj; 7. Protection of Modrac water reservoir as the main source of water for the population and

industry of Tuzla Canton; 8. Construction of the wastewater treatment system for the city of Sarajevo - Sarajevo waste

water treatment plant project is also included in the DABLAS list. The plant was almost finished before the war; however during the war it was completely destroyed. Now there is an urgent need to reconstruct it.

Furthermore he emphasised that the presented 8 projects do not have the support of politicians; they do not consider them as priorities as there is no funding in the central budget to support them. The projects are promoted with bottom-up approach. Therefore it is very important to prepare the projects completely to be able to receive political support. (Power point presentation is available)


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Questions, comments: Comment by EC: According to the minutes of the ISG (Infrastructure Steering Group) meeting held in April 2005, the project BH-2 is among the selected projects as being “interesting” for the members of the Group. Question by the Netherlands: Is the funding from own sources for the project already reserved, or do they still have to be mobilised? Answer by Bosnia and Herzegovina representative: Funding sources are a combination, either from the state budget or from public enterprises. However, it can be modified, combined or increased. Comment by World Bank: First of all the World Bank is very supportive of the establishment of regional waste disposal sites. However, it is concerned about the number of regional sites. It is planned in the waste management strategy that there will be 15 regional sites. Taking into account the small population sizes the landfills will serve and their cost-effectiveness, there should be a maximisation of the use of transfer stations. Answer by Bosnia and Herzegovina representative: The Strategy for Solid waste Management was supported by CARDS, and the terms of reference was prepared by EC with the aim of supporting local governments. Each of the planned regional sites has passed the feasibility study, in which all aspects were covered. The problem lies with the public acceptance of the locations. In Tuzla for example the project stopped due to the local community’s opposition despite of the fact that funding had been secured. Comment by the EBRD: The needed funding in Bosnia and Herzegovina is enormous. EBRD will provide a 30 MEUR umbrella support to the country. Bosnia and Herzegovina is included in DABLAS which has identified priority projects for funding such as Tuzla. The major problem, however, is the preparation of bankable projects. The sizes of investments are big, but the affordability of public is very limited, and there are limited own sources of funding. Question by EC: Due to the limited availability of own sources for co-financing; it is difficult to involve IFIs. Are there any projects from the list that are currently being examined or discussed by the IFIs? Answer by EBRD: IFIs are currently looking at 5-6 projects; Sarajevo, Tuzla, Banja Luka etc., mainly water, waste water and waste projects. It must be emphasised that there is a great need of capital funding by donors. Even 1 MEUR grant has a great ease on the tariff structure. It is very important to include grants funding, and this is a key message to bilateral donors. Presentation of selected high priority environmental infrastructure investment projects by the Croatian representative:


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The following selected projects from Croatia were presented: 1. HR- 10 Development of Regional Waste Management Centre “Marišćina”; 2. Hr-11 Remediation and closing down of the Sovjak pit; 3. HR-18 Establishment of the Dubrovnik-Neretva County Centre for Waste Management

and remediation and closure of landfills; 4. HR 19 Regional Centre for Waste Management of East Slavonia ; 5. HR-21 Construction of a regional waste management centre (RWMC), remediation and

closure of landfills in NW Croatia ; 6. HR – 25 Establishment of the Regional Centre for Waste Management and remediation

and closure of landfills; 7. HR-24 Establishment of a Regional Waste Management Centre of the County of Split-

Dalmatia, remediation and closure of landfills; 8. HR-26 Integration and modernisation of the waste management system in the territory of

the County of Istria ; 9. HR - 35 Waste Water Treatment Plant in Slavonski Brod.

(Power point presentation is available with further projects included) Questions, comments: Comment by EC: It is very important to conduct investment planning even if EU funding instruments such as ISPA are not open to a country. When ISPA became available for Croatia the preparatory work that had begun 3 years earlier paid off as well developed environmental projects where ready to be picked up at short notice. Questions by the Stability Pact:

1. Who is the Austrian company investing in Slavonia? 2. Why is the incineration plant in Zagreb not on the list? 3. On the project fiches three quarters of the total cost needed is marked as financed from

grants. Is this realistic? Answer by the Croatian representative:

1. The name of the Austrian company involved in the project “Regional waste management centre for Eastern Slavonia” is: Saubermacher , Graz and Strabag, Vienna.

2. Will be answered by EBRD. 3. All regional waste centres are included in the national ISPA strategy, where the

maximum eligible cost is 75% of total. The logic is to ask for the maximum amount of grant support.

Answer by EBRD: EBRD received the mandate to develop the incineration project. ISPA and IPA will not co-finance incinerators due to high costs and by definition these projects are not considered. In Croatia a good example for co-financed projects with EBRD is the Waste water treatment plant of Karlovac.


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Croatia requests a 250-300 MEUR grant from ISPA/IPA, ISPA is fully utilised and the total value of IPA is not yet available. Since Croatia has done all its work in this respect, now it is for the EC and IFIs to act. Question by the Netherlands: What are the financial allocations for the next programming period? Answer by EC: The financial amounts are not fixed yet. This will depend on the Member States agreeing on the overall budget. Comment by EBRD: In Croatia the projects are ready to be financed. The key problem is that no concrete investments will happen until 2007, when the allocations of the EU grants are done and the project preparation facility is ready. Comment by CEB: Within the framework of a new program in selected countries in transition, including Croatia, the CEB is starting to finance investments in the environment sector through loans to local authorities via the local subsidiaries of Italian banks. Projects aimed at the reduction and treatment of solid and liquid waste, purification and protection of surface and ground water, soil and ground water decontamination, protection from noise, production of renewable energy, reduction of air pollution, prevention of natural or ecological disasters, protection and development of biodiversity and cleaner means of transport and transport systems. Presentation of selected high priority investment projects by the former Yugoslav Republic of Macedonia representative: The representative of the delegation stressed that the country relied heavily on donor grants due to the restricted central budget. The Environmental Fund was integrated into the Ministry, but still has a special account for environment within the central budget. Unfortunately the central budget is not able to cover all environmental investment needs of the country and it is difficult to put these projects high on the Government agenda. In the presentation the investment needs and the financial and technical assistance required are illustrated. The representative presented the selected projects of the former Yugoslav Republic of Macedonia:

1. Wastewater Treatment System for the City of Skopje (three WWTP-s) – for this project SIDA grant and EBRD loan is planned;

2. Wastewater Treatment Plant for the City of Veles; 3. Rehabilitation of the Wastewater Treatment Plant at the Organic-Chemical Industry

OHIS, Skopje. (Power point presentation is available) Questions, comments:


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Question by Sweden: How did the discussions within the Government on priorities proceed? Answer by the fYR Macedonia delegation: The Government has prepared a document on the Investment Programme including prioritised projects in all sectors with the budget. Comment by CEB: The CEB together with, amongst others the WHO, organises a ministerial conference in Skopje in November regarding public health and economic development in South Eastern Europe. CEB prepared a report on the health condition of the population that is strongly connected to the state of environment. Presentation of selected high priority environmental infrastructure investment projects by the Republic of Serbia representative: The representative of the Republic of Serbia highlighted that for water issues 2 ministries, the Ministry of Environment and the Ministry of Agriculture, Forestry and Water Resources, are jointly responsible. Therefore it is difficult to identify who is in charge and responsible for what. An important new development is that the Environmental Fund has been established, and initial funding provided by the Ministry of Finance. The representative then presented the selected projects of the Republic of Serbia:

1. Waste management system for Kragujevac (component A - Rehabilitation with enlargement and recultivation of existing waste disposal site (Jovanovac) with its safety detainment;

2. Waste management system for Kragujevac (component B - Construction of waste recycling center);

3. Waste management system for Kragujevac (component C - construction of new landfill site Vitliste);

4. Upgrade and extension of wastewater treatment plant in Subotica; 5. Construction of new wastewater collector for the Krivelj river (including reconstruction

of the collector in the length of 80 m and the monitoring systems for tailings dams) Bor mine;

6. Rejuvenation of Lake Ludas; 7. Equipment supply for re-cultivation and preservation of ash and slag depot at Kolubara; 8. Upgrade and extension of existing solid waste dump to sanitary landfill in Nis.

(Power point presentation is available) Question, comments: Question by the Stability Pact: Kolubara is a very high priority project, included in the generation study of the World Bank. There is a discrepancy in the figures on the slide and on the list of projects concerning the cost of the project: 25.000 or 250.000 EUR. Which one is correct? Answer by Republic of Serbia representative: The figure indicated on the list is the correct one.


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The key problem is that at the municipal level, where projects are prepared, the capacity to estimate costs are very limited. Comment by EAR: Within the CARDS Multi-annual Indicative Programme for 2005-2006, 20 MEUR is allocated for environment. A Municipal Infrastructure Agency has been set up for the Republic of Serbia. It is a municipal support programme, separate from the environment one, providing support for project preparation. Several municipalities present projects and the Infrastructure Agency selects the bankable ones and assists in project preparation. EU money is involved for co-financing. The first project has already been signed with EU grant and the remaining funding is secured, however not in the environment sector. Some of the PEIP priority projects fit well into the work scope of the Municipal Infrastructure Agency. Comment by the Republic of Serbia representative: The Ministry is aware of this Facility and already had a meeting together with the EAR to discus key issues. Comment by Sweden: It is better to send to donors projects which show the overall solution and indicate for which components finance is needed and to prepare the proposals within an integrated concept/strategy including social, environmental and economical aspects instead of separating project proposals for each of these aspects. Comment by EIB: Based on the experiences in Republic of Serbia in Nis and Novi Sad water and waste water projects, the municipalities lack expertise in project preparation. In addition often there is no cooperation between political parties at local level. With regards to joint projects, there is a confusion about which municipality is responsible. There should be better communication between the different levels of administration. Answer by Republic of Serbia representative: The municipalities are primarily responsible for waste water treatment projects not the ministries. Presentation of selected high priority investment projects by Republic of Montenegro representative: Montenegro proposed 9 priority projects on the List, 3 in the water sector, 4 in the waste sector and 2 in the air sector. The selected projects are the following: 1. Rehabilitation of wastewater treatment facility in Podgorica and construction of a new one; 2. Reconstruction and rehabilitation of wastewater and sewage systems in the towns of Tivat and Kotor ; 3. Rehabilitation of the existing waste water treatment plant in Niksic; 4. Revitalization, organization and construction of “Livade” landfill in Podgorica; 5. Construction a landfill for hazardous waste; 6. Lead and zinc mining waste disposal site of “Mojkovac’’; 7. Desulphurisation of flue gases in Thermal Power Plant-Pljevlja; 8. Rehabilitation and remediation measures for the coal pit Borovica;


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9. Reconstruction and increase on the capacity of electrostatic precipitators in Pljevlja Thermal Power Plant. There is a growing importance of combining grants with loan support. Also efforts are being made to establish an Eco-Fund that would assist in financing projects. (Power point presentation is available) Question, comments: Comments by Stability Pact: There are some key issues to emphasize with regard to the list of projects:

- the regional aspects of the project - the importance of regional cooperation, such as within the water supply projects

in Herzeg Novi (where the water comes from Bosnia and Herzegovina through Croatia to the Republic of Montenegro)

- the issue of fiscal space - and the potential of public-private partnerships.

Comment by Republic of Montenegro representative: The responsible institution for water projects is the Ministry of Water and not the Ministry of Environment. Presentation of selected high priority investment projects by the participants Kosovo (territory under interim UN administration): The following projects were selected to be presented at the Regional Meeting:

1. Improvement of air quality, in Kosova ``A `` and ``B``thermal power plants; 2. Rehabilitation of ash landfills of the power plants Kosova ``A &B``-transport of ashes

from the existing landfills to the mining sites Mirash &Bardh; 3. Rehabilitation and closure of tailing Area in MIP; 4. Waste water treatment of Pb-Zn Artana mine-Trepca; 5. WWTP in Prishtina; 6. WWTP in Mitrovica; 7. WWTP in Peja; 8. WWTP in Ferizaj.

The projects are presented in components. There is a regional approach towards establishing wastewater treatment plants. (Power point presentation is available) GENERAL DISCUSSION Comment by DG Enlargement:


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The EC is supporting investments in the region with 2 future project preparation facilities: 1. The first facility would be only for environmental projects and its task will be to facilitate

project preparation for municipalities and public – private partnerships in the environmental sector with a total budget of about 1.8 MEUR.

2. The second facility will have about 7 MEUR total budget for 3 sectors. Environment will have a share of it.

It is planned that in the next 3 months the legal entity for the environmental project preparation facility will in place and within 6 months also the legal entity for the 3-sectoral Project Preparation Facility (PPF). The PPF will deal with mature projects that can be delivered to IFIs immediately. With regards to the national CARDS programmes for 2006, the EC is working on it, for example the mission to Bosnia and Herzegovina will be organised soon to assist in the programming. The regulations on programming IPA (Instrument for Pre-Accession) will be adopted as soon as the member States adopt the new programming scheme. Comment by Project Preparation Committee (PPC): PPC is assisting in project preparation also with trainings and workshops. PPC developed generic Terms of References for investment projects which were commented by donors, there is no guarantee however that they will be accepted. Content is agreed in general by IFIs and presented on the website. In addition PPC developed materials for project financing workshops. One of the greatest challenges is the development of environmental infrastructure in rural areas. Due to affordability constraints, it is important to follow the step-by-step approach and to do “more with less” implying to improve the system e.g. prevent leakages in the sewage pipes. These are low cost investments with high benefits. More information on PPC can be found on the following website: www.ppcenvironment.org Comment/questions by EAR: For all countries the step-by-step approach is very important concerning the limited level of affordability. However, there are huge differences between the total project costs of for example waste water treatment plants in different countries.

1. What are the reasons for this? 2. Is it rationally affordable by the public? 3. Regional coordination is vital with regards to investments. Why the delegations did not

mention coordination with the neighbouring countries? Answer by the Albanian representative: The huge differences between project costs in different countries are derived from the lack of capacity to prepare good cost estimates. Also in some cases basic data are missing. Different cost can be the result of using different technology and designing infrastructure for different population sizes. Answer by the representative from Kosovo (territory under interim UN administration): The cost estimates regarding the waste water treatment plants were done on the basis of a study prepared by the Ministry of Finance.


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http://www.ppcenvironment.org/


Comment by the Netherlands: Profitability is very important for the viability of the system. However, during the presentations no information was given on profitability. Furthermore, a thermal power plant or a solid waste project could be more easily profitable than water projects. Why are mostly water projects promoted in the presentations? Comment by Republic of Serbia representative: The provision of basic environmental services such as water supply and waste waster treatment is the task of the municipality and it is perceived as basic rights financed by public money. In several cases the indication of any profitability is a new concept for the municipalities. Comment by USAID: Fundamental institutional changes are needed to change the mindset with regards to profit making and developing the psychology of costumer service. Comment by PEIP project manager:

1. With regards to the importance of tariffs setting and affordability, within the PEIP 3 workshops were organised specifically on tariff setting and the development of bankable projects in May 2005, Albania.

2. Profitability aspects are included in some of the projects. For example in the project list of Republic of Serbia there is a project on briquette production.

3. The indication of the profitability of projects depends very much on the source of funding. For example for Cohesion Fund project the grant value might decrease with the profitability of the project.

3 SESSION ON CHALLENGES TO IMPLEMENTATION OF THE PRIORITY PROJECTS IN SEE Presentation on the status on National Investment Planning for the implementation of key investment-heavy EU Directives by Ms. Eniko Artim, PEIP project officer, the REC In order to assist SEE countries in targeting the investment challenge in relation to key investment-heavy EU directives, the PEIP Team compiled a study on national investment planning. This study will be included in the final PEIP publication. The study shows the efforts made by SEE countries to develop their legal frameworks (transposition of selected key investment-heavy EU directives), national documents (implementation plans, programmes, and strategies) and administrative structures (share of responsibility among national institutions and other stakeholders). The primary objective is to provide a background paper for SEE countries on the status of national planning and a support document for the donor community to assist in preparing technical assistance programmes. Since approximation and national planning are ongoing processes, the study seeks to provide a snapshot of the situation valid for April 2005. Common conclusions drawn from the study are the following:

• The adaptation of framework laws is finalised / expected to be finalised in the near future,


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• However the full transposition of selected investment-heavy directives in by-laws is still a task to be completed.

• General implementation documents exist in the form of national development and environmental plans, programmes and strategies,

• Sector specific documents are under development in the majority of cases. • The responsibilities for implementing the directives are laid down by law, • The tasks are shared among several ministries and institutions thus it constitutes a

great challenge to coordinate activities. (Power point presentation is available) Presentation of challenges to developing bankable infrastructure projects by Ms. Joanna Fiedler, PEIP project manager, the REC The followings will be included in the final PEIP publication as one of the chapters targeting local level obstacles to project preparation, borrowing and tariff setting. Focus is on the following issues:

• Decentralisation of environmental functions; • Borrowing by municipalities; • Capacity to borrow and repay; • Regulators and tariffs setting; • Associations and incentives; • The investment gap.

In the region decentralisation is currently an ongoing process. It is important to note that in most countries of the region, municipalities are the responsible bodies to provide water service, sewage testament, and solid waste service. In most situations municipalities own the assets; however, in the Republic of Serbia, the State has legal ownership over the environmental assets. In theory municipalities have the capacity to impose fines, to set user fees and to create legal entities or municipal departments to perform environmental functions. In addition they can also establish commercial code firms to issue concessions and form municipal associations. However, the question is whether in practice municipalities have the technical, financial and organisational skills and capacities to actually implement and manage projects. With regards to municipal borrowing, 3 types of regulation of municipal borrowing can be distinguished in the region:

Detailed and comprehensive regulation of municipal borrowing

Croatia, Serbia and Montenegro

Less comprehensive regulation former Yugoslav Republic of Macedonia, Albania

In the process of setting regulation UNMIK, Bosnia and Herzegovina


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To conclude the analysis of the legal framework, municipalities may borrow but the loan application is subject to interference by various ministries. On average the debt service limit ranges between 5-20% of the revenues. In some cases communal enterprises might borrow directly from lenders. The provision of sovereign guarantees is found to be rare and usually for


IFIs. Despite of the fact of the existence of borrowing laws, borrowing from commercial banks is still very rare. The following obstacles were identified to municipal borrowing:

• Municipalities and their political associations have close to zero lobbying power on the national level;

• Grant seeking “maximisation of free money” – donor seeking mentality at municipal level – borrowing as last resort – it distorts the development of fee-based, full cost recovery-type of projects;

• Low priority of environmental projects – transportation, infrastructure, economic development;

• Revenue and expenditure assignment mismatch – mandatory tasks are under-funded; • Regulation – municipalities do not have power to impose fines on polluters

representing higher level of State; • Scale of economies – municipalities which have responsibilities – are too small to

provide services. Difficult to overcome, political, legal and organisational problems to create an association.

It can be concluded that even where legally allowed, the borrowing capacity is not fully used in the SEE region by municipalities. One of the reasons for it is that borrowing and debt are considered to be “failures” in management. In addition, local authorities often have difficulties in communicating with banks and other lenders. (Power point presentation is available) 4. GENERAL DISCUSSION ON FUTURE NEEDS AND ISSUES Comment by European Environmental Agency (EEA): It is very important to have indicators on the state of the environment in order to decide which projects to support. In the region the monitoring systems are under development. Environmental information systems play a vital role in providing baseline data on the state of environment, therefore it is very important to provide financial support to these projects. The project costs are usually very low. The EEA works on the development of monitoring and information systems in the region. Comment by PEIP project manager: During the REReP meeting in Tirana 2001, it was decided to consider the regional impacts and the link to EU community acquis as the key criteria for project selection in the PEIP programme. There was an original plan to include the improvement of the environment as one of the criteria as well, however it turned out that no baseline data on environment existed in most of the countries, which is a great deficiency. Comment by EEA: With regards to the work on environmental information systems by the EEA, priority data flows were agreed recently with countries for waste, water and air. Each year an evaluation report is prepared to EEA that uses the report to evaluate the national systems. Indicators that were agreed on at European level now are applied in the Western Balkans region as well. The situation with data gathering has improved.


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Comment by USAID: It is important to mention some alternatives to municipal financing such as involving private funding and commercial banks. The idea would be to develop a revolving fund for project finance, based on issuing bonds to be picked up by potential investors. Comment by EAR: With regards the idea of setting up a revolving fund, it is well tested outside of the SEE region but the scheme is very unique to the region. There are 2 major pre-conditions: firstly, significant capacity building is needed, secondly, it can only operate if there is a secondary bond market. At present in SEE there is not even a primary bond market. Pension Funds and Insurance Companies are the key players who invest in revolving funds, however in SEE countries there is very few of them. In addition another precondition is to open the bond market to foreign players, what is not the case on the region. Foreigners cannot invest in most cases in local bond market of the region. With regards to the need of grant funding, all new investments in the region should comply with EU acquis. There is still a great need for some grant funding for the investment projects presented on the PEIP list. For example in the case of Republic of Serbia, if a municipality cannot secure loan at the first place, then grant should be given as the next step. Concluding words by EC: This occasion is one of the initiatives to bring together the finance community and the countries promoting environmental investment projects. An important objective, is to bring in the financial reality to discussions that have until this point concentrated on environmental issues and highlight around 2-3 projects per countries that would be likely to be bankable. Of course the step-by-step approach suggested by the PPC, as it has been successful in the DABLAS region, could be applied in this case, and the operational costs need be included in the calculations. One point that comes out clearly from the discussions is that without a degree of grant assistance in several cases loans cannot be realised. Thus there is a need for grant support by bilateral donors. Projects should always be placed within a strategic framework, not be stand alone ad-hoc proposals if donors are to be attracted. As the bulk of finance will always come from loans, not grants, it is important that the Ministry of Finance is informed and involved in the developments. It must be noted that the lengthy preparatory work pays off later, as in the case of Croatia, where projects were demanded to short timescales after ISPA was opened to the country. Financial viable projects need to be developed, and for this expertise and institutional reforms are required. At the national level the key message is to distribute the results of PEIP out of the Ministry of Environment and into other implementing Ministries. The EC tries to do the same through DABLAS and other means of political dialogue. Report of the PEIP Regional Meeting to the REReP Task Force meeting: Extracts from the presentation on the results of the PEIP Regional Meeting by Ms. Joanna Fiedler, PEIP project manager, the REC at the REReP Task Force meeting held 23rd September 2005, Brussels, Belgium 1. Conclusions of the PEIP Regional Meeting - at National Level


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• Intergovernmental cooperation and putting environment among government priorities; • Ministries of Environment to pass results of PEIP to all relevant ministries; • To work closer with the Ministries of Finance; • To involve key relevant ministries in the process of planning; • To present projects showing the complete solution to the problem (even if divided

into phases, sub-projects); • To prepare solutions of high cost-effectiveness – promotion of regional solutions.

2. Conclusions of the PEIP Regional Meeting – for the donors` community and IFIs

• Donors/IFIs reviewing updated lists of investment projects and giving their perspective on which of them are financially viable;

• Clear picture of donors` assistance activities (current discussions on projects); • Need to involve bilateral donors to the investment projects – grant leverage effect; • Without country assistance grant systems, progress is much smaller.

3. Conclusions of the PEIP Regional Meeting – for the European Commission

• Disseminate PEIP results to all relevant EC units; • Encourage SEE countries to keep the pipelines of environmental investment projects

ready – to be used when the assistance arrives. 4. Issues for the future

• Unification of cost-estimates for investment projects; • Bankability of projects; • Future of the funding instruments; • Environmental data collection – progress achieved; small investments needed to

complete monitoring systems in the region; • Better cooperation on cross-border issues linked to investment projects.

(Power point presentation is available) Prepared by the PEIP Team


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