Bosnia and Herzegovina: Bosnia and Herzegovina Water and Sanitation Services Modernization Project (BiH WSS) Implementation Support Mission May 20 - 22, 2024 Aide Memoire I. INTRODUCTION 1. An implementation support mission was held for the Bosnia and Herzegovina Water and Sanitation Services Modernization Project from May 20 – 22, 2024. The objectives for the mission were to: i) discuss status of the activities – identify any bottlenecks and related solutions to fast-track implementation and disbursements therein; and ii) organize discussions on status of the implementation of the infrastructure investments. 2. The mission was led by Mr. Igor Palandzic, (Senior Water Supply and Sanitation Specialist and Task Team Leader -TTL) and further comprised: Ms. Esma Kreso (Senior Environmental Specialist), Ms. Lamija Marijanovic (Senior Financial Management Specialist), Ms. Selma Ljubijankic (Social Development Specialist), Ms. Tamara Travar (Procurement Specialist), and Mr. Admir Ceric (Consultant). 3. The Bank Team would like to express its gratitude for the support provided by the Governments of Republika Srpska and Federation BiH. Annex 1 lists the main counterparts met during the mission. 4. This Aide-Mémoire (AM) summarizes the main findings, recommendations, and agreements reached during the mission. Table 2 lists the key next steps and corresponding dates. II. PROJECT DATA AND RATINGS 5. Status. The Project was approved by the World Bank on November 24, 2021. The legal agreements were signed by the BiH Ministry of Finance and Treasury on June 28, 2022. The Project was declared effective on August 11, 2023 while disbursement conditions were lifted on February 15, 2024. Table 1: Key Project Data Project Data USD (millions) Original Project Amount US$60.9 Million IBRD US$7.0 Million SECO TF Progress towards PDO Moderately Satisfactory (MS) Implementation Progress (IP) Moderately Satisfactory (MS) Total Disbursement US$3.36 Million Disbursement in FY 24 US$3.36 Million Commitment by the end of US$6.0 Million FY 24 Closing Date November 30, 2027 III. IMPLEMENTATION PROGRESS AND KEY FINDINGS 6. Progress towards PDO: The progress towards achieving the PDO is downgraded to from Satisfactory to Moderately Satisfactory to reflect the limited progress on completion of key activities to date, partially caused by delays on ratifying the loan and reaching effectiveness. Such cumulative delays could jeopardize the achievement of PDO by project closure. Implementation Progress is also downgraded from Satisfactory to Moderately Satisfactory, to reflect the limited progress on preparing and procuring key activities including works’ contracts, and difficulties in having the final list of sub- projects to be supported by the Project. 1 7. Project financial situation: Since the project was declared fully effective, Republika Srpska (RS) withdrew the first tranche of US$3.36 Million. In RS, two consultancy contracts are in procurement process in the amount of EUR 300.000 and should be signed by the end of July 2024. Preparation of the procurement for infrastructure works is ongoing and details are elaborated in section B of this AM. FBiH still did not open account and did not request first withdrawal. Preparation of the first two procurement packages infrastructure works is ongoing (Citluk and Siroki Brijeg). A. Project implementation: 8. Republika Srpska In Republika Srpska, significant progress has been recorded since the last mission; the Agriculture Project Coordination Unit (APCU – Project Implementing Unit in Republika Srpska) is fully on-board; an initial procurement package (hiring of the TA to support project implementation) was launched, and a clear blueprint for project implementation for the next 6 months (including starting procurement of the works in all 6 municipalities) has been developed. • The mission confirmed that APCU has adequate fiduciary capacity to implement the Project. In addition, APCU will hire a technical assistance company (to be signed by July 2024 ) to ensure smooth project implementation (Component 3) and avoid further delays, while components 1 and 2 will be supported by an individual consultant (technical expert within APCU) to be hired by the end of June. The Draft Terms of References (ToRs) for both individual and consulting firm was developed and cleared by the Bank Team. The procurement process has been launched and contracts are expected to be signed by July 2024 and June 2024 respectively. • APCU provided the draft Project Operations Manual (POM) for review by the Bank Team which provided its final no objection. • The updated procurement plan was shared with the Bank prior to the mission and Bank provided its no objection. • The mission was informed about the status of the sub project agreements between RS Ministry of Finance and municipalities. In total, 6 Municipalities in Republika Srpska (Laktasi, Prnjavor, Zvornik, Trebinje, Istocno Sarajevo and Doboj) will be included in the Project under Component 3. The mission was informed that 5 of the municipalities signed their sub project agreements with RS Ministry of Finance and established their Municipal Project Implementation Team (PIT). The remaining municipality, Doboj, is expected to sign the agreement by mid July 2024. All municipalities are in close coordination with APCU with preparing procurement packages for their individual projects (list is presented in Annex 2). • Technical documentation for works in Laktasi, Zvornik and Istocno Sarajevo was shared with the Bank and comments were provided. The Municipalities are preparing procurement packages to be shared with the Bank by the end of July 2024. Details are elaborated in section B of this AM. First contracts for infrastructure in RS are expected to be signed by the December 2024. 9. Federation BiH In FBiH, establishment of the PIU is still being finalized and compliance with other conditions for project implementation are being met, including finalization of the POM. It is noted that other preparatory activities for project implementation are advancing well, including the preparation for implementation of component 2 and preliminary activities for infrastructure works in the first two municipalities. • The FBiH signed the subsidiary agreement with BiH Ministry of Finance and Treasury as well the Project Agreement in February 2024. FBiH PIU provided the POM which was reviewed by 2 the Bank Team and final comments were provided. It is expected that final version of the POM will be provided by the end of June 2024. • The FBiH PIU has been established in full capacity covering all core positions envisaged in the Project Appraisal Document (PAD). The PIU is staffed entirely by civil servants with full-time roles and permanently employed by the FBIH Ministry of Agriculture, Water Management and Forestry (FMAWMF). A Procurement Specialist will be supported by the experts from the PIU members from the Water Agencies for Sava and Adriatic River Basin with previous experience on EIB-funded projects. Technical support is secured also from these Water Agencies. • Given the workload (on their current jobs) of the PIU staff as well as their limited experience implementing IFI-funded projects, the mission strongly encouraged the Ministry to use the project’s funds for hiring external technical assistance as needed in different areas (including environment and social, fiduciary, technical, etc.). Delays accumulated to date and lack of a clear action plan to implement the program calls for a substantive additional effort to ensure project completion by the agreed date, end external support would help on this endeavor. The Ministry will assess the possibility of engaging the external support an revert back to the Bank by end of July with a plan. • Draft procurement plan as well the and Project Procurement Strategy for Development (PPSD) was shared with the Bank and comments were provided. The PP and PPSD should be finalized by the end of June 2024. • The FBiH PIU shall initiate first withdrawal to designated account by the end of July 2024. • In FBiH, four municipalities were identified to be involved from the very beginning of the Project, Citluk, Siroki Brijeg, Tesanj and Gracanica. The mission was informed that Municipalities Siroki Brijeg and Citluk sent request for signing subsidiary agreements with Federal Ministry of Finance and in parallel preparing procurement packages for respective infrastructure works. Subsidiary agreement for those two municipalities should be finalized by the end of July 2024. • First procurements for infrastructure in FBiH are expected to be initiated in September 2024 by sharing draft packages to World Bank for review and contracts to be signed by February 2025. Municipality Tesanj is preparing documentation for subsidiary agreement while Municipality Gracanica will not be considered. • Since FBiH did not propose the full list of the Municipalities to be involved in the Project during negotiation, FMAWMF initiated the call for additional Municipalities to be included. In total, 20 additional Municipalities showed interest to be involved (list of the Municipalities is presented in Annex 3) submitted request. Ministry is currently finalizing evaluation of the provided information by the Municipalities and final list of additional ones to be considered for including in the Project will be presented to the Bank by the end of July 2024. • The Federal Ministry of Agriculture, Water Management and Forestry, and its department for Water Management will be responsible for closely coordinating activities under Components 1 and 2 with the technical support from Water Agencies for Sava and Adriatic River Basin. B. Discussion of project components 10. Component 1: Improving the institutional capacity for sector modernization (US$5.2 million, to be co-financed by the IBRD loan and SECO grant). This component will finance activities at the entity level to strengthen policy and regulatory frameworks and institutional capacity to advance sector reform and promote sustainable service delivery. 11. Subcomponent 1.1: Supporting water supply and sewerage sector reforms on entity level (US$0.7 million, to be financed by the SECO grant). Draft versions for the new Law on Water Services is finalized both in Republika Srpska, and in FBiH. Next step in the process of adoption of the Laws is public consultation that is expected to be organized during summer and autumn 2024. Laws are expected to be adopted by the end of December 2024. Study on sludge management from waste water treatment plant has been developed and presented to relevant Ministries. Ministry of Environment and 3 Tourism is using study for preparing new legislation for the sludge management. Activities on establishing a new benchmarking system in the sector is finalized and now Government with support from the United Nations Development Programme (UNDP) is purchasing software to set up the system. It is expected that system will be fully operational in May 2025. Analytical work on sustainable WSS sector financing is finalized and delivered to Ministries for further processing. 12. Subcomponent 1.2: Project management and coordination of the sector reforms (US$4.5 million, to be financed by the IBRD loan). Both Project Implementation Unit in Republika Srpska (APCU) and in FBiH (FBiH PIU) are established. In RS, Technical assistance, individual consultant and consulting company, that would respectively support implementation of the Components 1 and 2 and Component 3 should be in place by the end of July 2024. World Bank received ToRs and provided no objection for both processes. Evaluation for individual consultant is ongoing and the contract is expected to be signed by the end of June 2024. For the consulting company, the deadline for submission was June 5, 2024. Three companies submitted offers and APCU is in the process of evaluation; and contract to be signed by the end of July 2024. In FBiH technical support for Project implementation is currently being provided by experts from Water Agencies for Sava and Adriatic Basin. 13. Component 2: Supporting improved governance and capacity of the water services sector at the local level (US$2.7 million, to be financed by the SECO grant). This component targets the strengthening of the local WSS service delivery framework and its alignments with the institutional and regulatory framework that will be set at entity level to maximize the impact of the reform process. In RS, an individual consultant together with RS Ministry of Agriculture, Forestry and Water Management, and its department for Water Management will develop ToRs to support the implementation of Component 2 and share for Bank review by September 2024. In FBiH, PIU should prepare roadmap for implementation of the Component 2 in FBiH, and share it with the Bank by September 2024. In this process, close coordination should be established among two Ministries. Implementation of Component 2 will also be coordinated with the World Bank/SECO Utility of the Future Center of Excellence (CoE) which is providing technical assistance in the Western Balkans, to support water utilities in their performance improvement efforts. As a part of the CoE, selected Municipalities from BiH will be supported. So far, the Bank supported the implementation of the UoF program in six Municipalities in BiH (Laktasi, Lukavac, Prnjavor, Siroki Brijeg, Tesanj, Zvornik). 14. Component 3: Improving access to safely managed WSS services and the efficiency of WSS service providers (US$60 million, to be co-financed by the IBRD loan and SECO grant). This component will finance investments according to the water utilities’ performance level classification and the needs identified in their business plans prepared under Component 2. Financing under this component would include two categories: (a) performance and efficiency improvements including, but not limited to, the implementation of nonrevenue water reduction, energy efficiency programs, and improvements in metering and commercial systems (which should accrue to reductions in greenhouse gas [GHG] emissions); and (b) construct, upgrade, modernize and improve WSS services and infrastructure, including water treatment and distribution facilities and wastewater collection and treatment facilities as well as technical assistance needed to improve performance of selected WUs. Republika Srpska 15. Six Municipalities are included in this component (Laktasi, Prnjavor, Trebinje, Istocno Sarajevo, Trebinje and Doboj). Since September 2023, five out of six Municipalities (Prnjavor, Laktasi, Istocno Sarajevo, Zvornik and Trebinje) signed subsidiary agreement with Ministry of Finance and established their Project Implementation Teams on local level. Doboj is in the process of signing subsidiary agreements and it is expected to be finalized by the end of June 2024. All Municipalities are preparing procurement packages for infrastructure works as follows: - Laktasi; Technical documentation for infrastructure works has been delivered to the Bank and comments were provided. Subject of the works is extension of the water 4 supply network to the local settlements in the City of Laktasi. Municipality together with APCU is preparing procurement package and finalizing E&S screening. Bidding documents are expected to be delivered to the Bank for review by mid August 2024. Contract is expected to be signed by the end of the 2024. Works to be implemented in 12 months. - Zvornik; Technical documentation for infrastructure works has been delivered to the Bank and comments were provided. Subject of the works is extension of the water supply network to the local settlements in the City of Zvornik. Municipality together with APCU is preparing procurement package and finalizing E&S screening. Bidding documents are expected to be delivered to the Bank for review by September 2024. Contract is expected to be signed by the end of the 2024. Works to be implemented in 24 months. - Prnjavor; Technical documentation is prepared and Municipality together with APCU is preparing procurement package and E&S screening report. Bidding documents are expected to be delivered to the Bank for review by July 2024 and contract to be signed by December 2024. Works will include rehabilitation and construction of the water supply and wastewater network and to be finalized within 12 months after contract signature. - Trebinje; Technical documentation is prepared and Municipality together with APCU is preparing procurement package and E&S screening report. Bidding documents are expected to be delivered to the Bank for review by August 2024 and contract to be signed by December 2024. Works will include rehabilitation and construction of the water supply and wastewater network and to be finalized within 18 months after contract signature. - Istocno Sarajevo; This is the most complex contract to be implemented in Republika Srpska. It is proposed to be Design and Build contract to rehabilitation of the existing water supply facility aimed to increase capacity for water supply. Municipality together with APCU is preparing technical documentation and procurement package is expected to be delivered to the Bank by October 2024 for review. This contract will last for 24 months. - Doboj; Doboj is planning to rehabilitate pump station and technical documentation is prepared. However, process of the preparation of the procurement package is not started yet. In this case, it is expected to receive procurement package for Bank review by December 2024. Works will be implemented in 12 months. Federation BiH 16. In FBiH, the first four Municipalities were included (Siroki Brijeg, Citluk, Tesanj and Gracanica) and initial screening was done. Municipalities Siroki Brijeg and Citluk sent request for signing subsidiary agreements with Federal Ministry of Finance and in parallel preparing procurement packages for respective infrastructure works. Procurement packages to be sent for Bank review by September 2024 and launching of the procurement in October 2024. Municipality Tesanj is preparing technical documentation and finalizing request for signing subsidiary agreements with Federal Ministry of Finance. It is expected that this process will be finalized by September 2024. 17. Gracanica Municipality, although interested in being involved in the Project in the beginning, decided to withdraw from the Project. In meantime, the municipality secured financing of the infrastructure works from other sources. During negotiations, the aforementioned 4 municipalities counted for around 40% of the total amount allocated for FBiH. It was agreed that the Ministry of Agriculture will invite others to be involved in the Project. Call for application was finalized by mid 5 May 2024. In total, 20 additional municipalities sent applications and the Ministry is currently evaluating them. By the end of July, the final list will be presented to the Bank. 18. Both, in RS and FBiH, each of the proposed activities will need to undergo environmental and social screening, as set forth in the ESMF document, prior to assigning an appropriate risk category and preparation of due diligence commensurate to the risk rating. C. Review of project arrangements Procurement 19. RS APCU: The APCU finalized the PPSD and POM and both documents were approved by the Bank. Uploading of the PPSD and initial activities under the Procurement Plan in STEP is expected to be completed by the end of June 2024. Staff authorized to use STEP have been registered in the system and are ready to use STEP. The selection processes for hiring individual consultant (TA for Components 1 and 2) and consulting firm (TA for Component 3) are ongoing and both contracts are expected to be signed by the end of June 2024 and July 2024 respectively. The PIU is actively collaborating with the municipalities on preparation of technical documentation required for launching initial procurement packages. 20. FBiH PIU: The FBiH PIU is currently finalizing project documentation including PP, PPSD and POM as a pre-condition to start with implementation of project activities. Designated staff for use of STEP has been registered in the system and are ready for its use. Financing Management 21. The financial management arrangements of the Project, including accounting, budgeting, organization and staffing, internal controls, counterpart funding, audit and financial reporting, continue to be acceptable and comply with the Bank’s requirements. The front end fee was realized at the time the Project became effective. There was no disbursement or spending of the funds in the last quarter of 2023 and first quarter of 2024. It was agreed to submit the first IFRs for the second quarter of 2024 since first disbursement occurred on April 2, 2024. The first audit report will be due on June 30, 2025 and will relate to audit of financial statements for 2024. The audit will be performed by an auditor which will be selected from the list of eligible audit firms. The total disbursements amount to 6.1 percent of the total loan amount, or EUR 3.13 million. The RS PIU has disbursed EUR 3.13 million, while the FBiH part had no disbursement. The desk review concluded that the project FM arrangements are adequate and continue to be acceptable to the Bank. Environment and Social 22. The environmental and social specialist has been appointed both within the APCU in RS and the PIU in FBiH. The E&S specialist within the RS APCU is well experienced with a solid track record. To facilitate capacity building within the FBiH PIU an experienced short term consultant should be hired. The due diligence documentation has been prepared prior to the project Appraisal with adequate disclosure and consultations in line with the guidelines that were in force during the pandemic. The documents prepared in two sets, one for FBIH and one for RS include: Environmental and Social Management Framework (ESMF), Labor Management Procedures (LMP), Resettlement Policy Framework (RPF), Stakeholder Engagement Plan (SEP) and the Environmental and Social Commitment Plan (ESCP). The ESCP has been prepared as one document for both RS and FBIH as it is part of the Loan Agreement. 23. The APCU and FBIH PIU will implement all project activities in line with the provisions of the ESCP and the ESMF, LMP, SEP and RPF. Since these are framework documents, they are meant to guide the processes of environmental and social risk management, in particular the site specific due diligence documentation that the APCU and PIU will be responsible for along with the end users. It is 6 recommended for the APCU and PIU to coordinate with the environmental and social specialists in the participating municipalities to enable more efficient implementation of the environmental and social risk management procedures. 24. It is important to note that each of the proposed activities will need to undergo environmental and social screening, as set forth in the ESMF document, prior to assigning an appropriate risk category and preparation of due diligence commensurate to the risk rating. The screening form is an integrated part of the subproject files and will also be part of the Terms of Reference for the site specific due diligence. The PIUs have also been informed that the Project will be taken over by Mr. Khaled Mohamed as the designated environmental specialist and that he will join the next mission in fall 2024. 25. Although activities for components 1 and 2 have not commenced yet, both the RS APCU and FBiH PIU have been advised to closely monitor citizen and stakeholder engagement activities in relation to adopting the new Law on Water Services in each entity, which will have impact on designing stakeholder engagement activities in relation to the aforementioned components. It has been agreed that this monitoring will be part of the forthcoming Project progress reports. IV. NEXT STEPS AND AGREED ACTIONS 26. Next mission. The next implementation support mission is expected to take place in Autumn 2024. In the meantime, the Task Team will organize regular technical missions to support speeding up the implementation pace, especially in FBiH. In order to increase knowledge and exchange lessons learned, the next mission will include common wrap up meeting with the two PIUs. Table 2: Summary of Agreed Actions Ref. Actions Responsible Due Date 1. FBiH to finalise POM, PP and PPSD FBiH PIU End of June 2024 2. FBiH to provide updated list of the FBiH Ministry of End of July 2024 Municipalities Agriculture, Water Management and Forestry FBiH Ministry of Finance 3. FBiH to assess the needs for engaging FBiH PIU End of July 2024 external technical support, prepare a plan FBiH Ministry of and deliver to the Bank Agriculture, Water Management and Forestry 4. RS to finalise signing of sub project RS MoF Mid July 2024 agreement with City of Doboj City of Doboj 5. FBiH to sign sub project agreement with FBiH MoF End of July 2024 first two municipalities Citluk and Siroki Participating Municipalities Brijeg 6. Finalise hiring of individual consultant APCU End of June 2024 for supporting implementation of the RS Ministry of Agriculture, components 1 and 2 in the RS Forestry and Water Management 7. Finalise hiring of consultant company for APCU End of July 2024 supporting implementation of the RS Ministry of Agriculture, components 3 in the RS Forestry and Water Management 8. Draft ToR for implementation of the APCU September 20 Component 2 in RS RS Ministry of Agriculture, 2024 Forestry and Water Management 7 9. Launching procurement package for APCU October 2024 implementation of the component 2 in RS RS Ministry of Agriculture, Forestry and Water Management 10. Draft roadmap for implementation of the FBiH PIU End of September Component 2 in FBiH 2024 11. Launching procurement package for PIU December 2024 implementation of the component 2 in FBiH Ministry of FBiH Agriculture, Water Management and Forestry 12. First two procurement packages to be APCU July 2024 shared with the World Bank from RS Participating Municipalities 13. Launching first two procurement APCU August 2024 packages in RS Participating Municipalities 14. Signing first two contracts for works in APCU End of December RS Participating Municipalities 2024 15. First two procurement packages to be FBiH PIU September 2024 shared with the World Bank for FBiH Participating Municipalities 16. Launching first two procurement FBiH PIU October 2024 packages in FBiH Participating Municipalities 17. Signing first two contracts for works in FBiH PIU February 2025 FBiH Participating Municipalities 18. Prepare progress report and share it with APCU End of September the World Bank FBiH PIU 2024 Annexes: Annex 1: List of officials met Annex 2: List of infrastructure activities Annex 3: FBiH list of potential Municipalities to be included in the Project 8 Annex 1: List of officials met Republika Srpska • Mr. Milan Gavrić, Assistant Minister, RS Ministry of Agriculture, Forestry and Water Management • Mr. Marinko Vranic, RS Ministry of Agriculture, Forestry and Water Management • Mr. Stefan Mitrović, Director, RS PIU • Ms. Bosiljka Predragovic, RS PIU • Ms. Darija Kozar, RS PIU • Mr. Damir Pupovac, RS PIU • Ms. Dragana Stojicic, RS PIU • Ms. Nevena Stojakovic, RS PIU • Ms. Nedeljka Rokvic, RS PIU • Ms. Andjelka Kovacevic, RS PIU Federation BiH • Ms. Elma Kuldija, Assistant Minister, FBIH Ministry of Agriculture, Water Management and Forestry and PIU Director • Ms. Vildana Toroman, FBIH Ministry of Agriculture, Water Management and Forestry and PIU • Ms. Adela Bebakovic, FBIH Ministry of Agriculture, Water Management and Forestry and PIU • Mr. Eldar Avdagic, FBIH Ministry of Agriculture, Water Management and Forestry and PIU • Ms. Adisa Tojaga Kajan, Water Agency for Adriatic River Basin and PIU • Ms. Tihana Gasevic, Water Agency for Adriatic River Basin and PIU • Ms. Amila Ibrulj, Water Agency for Sava River Basin and PIU • Mr. Nusmir Pasic, Water Agency for Sava River Basin and PIU 9 Annex 2: List of infrastructure activities City Proposed activities Estimated value (USD) Republika Srpska Laktasi - Connection of water supply systems 2,500,000 for Laktaši to Slatina - Connection of water supply systems for Maglajani and Bakinci Zvornik - Construction of water supply system 6,600,000 Zvornik-West - Reconstruction of water supply system Kozluk Prnjavor - Rehabilitation of water and 1,350,000 wastewater networks Trebinje - Construction of sewer system for 1,900,000 settlement Police - Rehabilitation and reconstruction of water supply network Istocno Sarajevo - Rehabilitation and extension of an 2,700,000 existing Drinking Water Treatment Plant (DWTP) Tilava Doboj - Rehabilitation and reconstruction of 850,000 the pumping station Federation BiH Siroki Brijeg - Construction of the main reservoir – II 1,500,000 phase, V=2000m3 and reconstruction of the existing reservoir I phase, V=2000m3 - Construction of the water supply and sewerage system in the economic zone of “Knešpolje” Citluk - Construction of pressure pipeline 2,200,000 P.S.Biletić Polje - Reservoir Jelina Glavica and construction and extension of the volume of the Reservoir Jelina Glavica 10 Annex 3: List of municipalities that submitted questionars for inclusion in BiH WSS Modernization Project 1. Bihać 11. Drvar 2. Bužim 12. Hadžići 3. Čapljina 13. Lukavac 4. Goražde 14. Bosanska Krupa 5. Olovo 15. Srebrenik 6. Sanski Most 16. Kalesija 7. Teočak 17. Ilijaš 8. Žepče 18. Kakanj 9. Livno 19. Kiseljak 10. Bosansko Grahovo 20. Maglaj 11 12