World Bank Document

Document of The World Bank

Report No: ICR00003127 Public Disclosure Authorized

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-74670 IDA-41050)

ON A

IDA CREDIT and IBRD LOAN

Public Disclosure Authorized IN THE AMOUNT OF SDR 16.6MILLION

(US$25.0MILLION EQUIVALENT)

and

EURO36.80 MILLION (US$49.37MILLION EQUIVALENT)

TO THE

REPUBLIC OF SERBIA Public Disclosure Authorized FOR AN

IRRIGATION AND DRAINAGE REHABILITATION PROJECT

October 22, 2014

Water Global Practice South East Europe Country Unit Public Disclosure Authorized Europe and Central Asia Region

CURRENCY EQUIVALENTS

(Exchange Rate Effective October 20, 2014)

Currency Unit = Serbian Dinar (RSD) 1.00 = US$ 0.011 US$ 1.00 = 93.880

GOVERNMENT’S FISCAL YEAR January 1 – December 31

ABBREVIATIONS AND ACRONYMS

AF Additional Financing CAS Country Assistance Strategy CIDA Canadian International Development Agency DoW Directorate of Water, under MAFWM DTD Danube-Tisa-Danube canal system EA Environmental Assessment EAR European Agency for Reconstruction EBRD European Bank for Reconstruction and Development EIRR Economic Internal Rate of Return EU European Union FAO Food and Agriculture Organization of the United Nations FRY Federal Republic of Yugoslavia GEF Global Environment Facility GDP Gross Domestic Product GoS Government of Serbia HMS Hydrometeorological Service of Serbia IBRD International Bank for Reconstruction and Development ICPDR International Commission for Protection of the Danube River ICR Implementation Completion and Results Report IDA International Development Association IDRP Irrigation and Drainage Rehabilitation Project IFR Interim Financial Report IPA Instrument for Pre-Accession Assistance IPARD Instrument for Pre-Accession Assistance in rural Development ISR Implementation Status and Results MAFWM Ministry of Agriculture, Forestry and Water Management MIDP Minor Irrigation Development Program MIDPU Minor Irrigation Development Program Unit MSEP/DEP Ministry of Science and Environmental Protection, Directorate of Environmental Protection NPV Net Present Value O&M Operations and Maintenance OP Operational Policy PAD Project Appraisal Document PIM Participatory irrigation management PIT Project Implementation Team PIU Project Implementation Unit

PHRD Japan Policy and Human Resource Development technical assistance grants ROS Republic of Serbia SaM Serbia and Montenegro Serbiavode Public Water Authority under DoW for all areas of Serbia except Vojvodina TTL Task Team Leader Vode Vojvodine Public Water Authority under DoW for Vojvodina region WFD Water Framework Directive WUAs Water Users Associations

Vice President: Laura Tuck Country Director: Ellen Goldstein Senior Global Practice Director: Junaid Kamal Ahmad Practice Manager: Dina Umali-Deininger Project Team Leader: Nikola Ille ICR Team Leader: Nikola Ille ICR Primary Author Daniel Gerber

REPUBLIC OF SERBIA Irrigation and Drainage Rehabilitation Project

CONTENTS

Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph

1. Project Context, Development Objectives and Design ...... 1 2. Key Factors Affecting Implementation and Outcomes ...... 7 3. Assessment of Outcomes ...... 14

4. Assessment of Risk to Development Outcome ...... 22 5. Assessment of Bank and Borrower Performance ...... 24 6. Lessons Learned ...... 25 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners ...... 26 Annex 1. Project Costs and Financing ...... 27 Annex 2. Outputs by Component ...... 28 Annex 3. Economic and Financial Analysis ...... 37 Annex 4. Bank Lending and Implementation Support/Supervision Processes ...... 42 Annex 5. Beneficiary Survey Results ...... 43 Annex 6. Stakeholder Workshop Report and Results ...... 67 Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR ...... 68 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders ...... 69 Annex 9. List of Supporting Documents ...... 70 MAP

A. Basic Information

Irrigation & Drainage Country: Serbia Project Name: Rehabilitation Project (Serbia) IBRD-74670,IDA- Project ID: P087964 L/C/TF Number(s): 41050 ICR Date: 08/05/2014 ICR Type: Core ICR REPUBLIC OF Lending Instrument: SIL Borrower: SERBIA Original Total USD 25.00M Disbursed Amount: USD 71.25M Commitment: Revised Amount: USD 74.37M Environmental Category: B Implementing Agencies: Ministry of Agriculture, Forestry and Water Resources Management – Directorate of Water Nemanjina 22-26 11000 Belgrade, Serbia Tel: ++381-11-201-33-66, Fax: ++381-11-311-53-70 E-Mail: [email protected] Cofinanciers and Other External Partners:

B. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 07/27/2004 Effectiveness: 03/06/2006 03/06/2006 Appraisal: 03/22/2005 Restructuring(s): 05/28/2013 Approval: 07/12/2005 Mid-term Review: 05/04/2009 05/05/2009 Closing: 05/31/2011 03/31/2014

C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Moderately Satisfactory Risk to Development Outcome: Substantial Bank Performance: Moderately Satisfactory Borrower Performance: Moderately Satisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Moderately Moderately Quality at Entry: Government: Unsatisfactory Unsatisfactory

i Implementing Quality of Supervision: Satisfactory Satisfactory Agency/Agencies: Overall Bank Overall Borrower Moderately Satisfactory Moderately Satisfactory Performance: Performance:

C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Rating Performance (if any) Potential Problem Project Quality at Entry No None at any time (Yes/No): (QEA): Problem Project at any Quality of Yes None time (Yes/No): Supervision (QSA): DO rating before Moderately

Closing/Inactive status: Satisfactory

D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Central government administration 27 20 Irrigation and drainage 73 80

Theme Code (as % of total Bank financing) Natural disaster management 28 40 Rural policies and institutions 14 10 Rural services and infrastructure 29 40 Water resource management 29 10

E. Bank Staff Positions At ICR At Approval Vice President: Laura Tuck Shigeo Katsu Country Director: Ellen A. Goldstein Orsalia Kalantzopoulos Practice Manager: Dina Umali-Deininger Marjory-Anne Bromhead Project Team Leader: Nikola Ille ICR Team Leader: Nikola Ille ICR Primary Author: Daniel P. Gerber

ii F. Results Framework Analysis

Project Development Objectives (from Project Appraisal Document) The project's main objectives are to: (a) improve the capacity for increased agricultural yields through support to high priority rehabilitation of drainage and irrigation infrastructure; (b) reduce the risk of damage from flooding to land, crops, property, infrastructure as well as reducing risk of life loss from flooding in project areas; and (c) improve water resources management and strengthen the associated water resource management institutions and policies.

Revised Project Development Objectives (as approved by original approving authority)

(a) PDO Indicator(s)

Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years Indicator 1 : Increased crop yield resulting from irrigation and drainage improvements 11% increase in Value yields and quantitative or 0 10 production cost Qualitative) reductions between 15 and 20% Date achieved 03/01/2006 03/01/2006 04/01/2014 Confusion on the target figure between the ISR and the PAD. The nomenclature Comments is also not consistent. PAD defined a production increase while ISR defines a (incl. % yield increase. Production cost reduction along with yield increase = increase in achievement) productivity. Figures reported in ISR are used for ICR. Indicator 2 : Increased area protected against flooding Value quantitative or 0 56000ha 500000 440000 Qualitative) Date achieved 03/01/2006 03/01/2006 05/31/2007 04/01/2014 Comments Objective nearly 90% achieved in spite of reduction of investment volume by (incl. % dropping counterpart funding and relocation of some works. achievement) Indicator 3 : Population protected from flooding risk Value quantitative or 0 1800000 1100000 1100000 Qualitative) Date achieved 03/01/2006 05/31/2007 06/01/2013 04/01/2014 Comments The original project estimated some 250,000 people would benefit. Under AF (incl. % that figure was optimistically increased to 1.8 million to be adjusted in the latest achievement) restructuring to 1.1 million. Indicator 4 : Area provided with irrigation and drainage services improved

iii 175,000ha of arable land benefitting Value from combined quantitative or 0 247,000ha drainage and flood Qualitative) protection infrastructure. Date achieved 03/01/2006 03/01/2006 04/01/2014 Core sector indicator. Confusing in Serbian context as drainage system Comments simultaneously serves as irrigation source and I&D system works in concert with (incl. % flood protection of all territory including forests, agricultural land and urban achievement) land.

(b) Intermediate Outcome Indicator(s)

Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Indicator 1 : Area benefitting from reduced water logging and improved drainage Value (quantitative 0 278000ha 105,525ha or Qualitative) Date achieved 03/01/2006 03/01/2006 04/01/2014 Area served in concert by flood protection and I&D amounts to 175,000ha. Comments However, pure rehabilitation within I&D systems only amounted to 105,525 ha. (incl. % Designation of various systems and relationship not clearly defined in project, achievement) difficult to segregate from each other. Indicator 2 : Length of flood embankments rehabilitated to 1:100 flood levels Value 86km + 9 km (quantitative 0 9km 135km = 95km or Qualitative) Date achieved 03/01/2006 03/01/2006 05/31/2007 04/01/2014 Comments Length of flood protection embankments rebuilt or rehabilitated. 135km total of (incl. % which 15.8km Danube, 24.9km Tisa, 95.1km other rivers. achievement) Indicator 3 : Number of minor irrigation schemes constructed Value 17 sites for 7 (quantitative 0 30 WUAS or Qualitative) Date achieved 03/01/2006 03/01/2006 04/01/2014 Comments Target was not achieved in part due to lower funding of the component and (incl. % delays with WUA legislation. However, innovative approach provides good achievement) sustainability prospects. Indicator 4 : Directorate of water participants attending training and study tours Value (quantitative 0 16 specialists 17 specialists or Qualitative) Date achieved 03/01/2006 05/31/2013 04/01/2014

iv Comments (incl. % Output towards component 3 achievement) Reduced farm production costs as a result of reduced water logging and Indicator 5 : improved drainage Production Cost reduction Costs to be between 13 and reduced Value 27% depending on between 15 (quantitative 0 10% region and crop as and 20% based or Qualitative) compiled in impact upon study on study of February crop 2014. indicators. Date achieved 03/01/2006 03/01/2006 05/31/2013 01/02/2014 Comments Confusion in PAD, ISR and Restructuring paper between concepts of production, (incl. % yields and productivity. Increased yields with lower production cost = increased achievement) productivity Indicator 6 : Radar for recording precipitation impacting river levels installed and operational Doppler radar Value Models for flood to improve Doppler radar (quantitative 0 management hydromet and operational or Qualitative) flood forecast Date achieved 03/01/2006 03/01/2006 05/13/2013 04/01/2014 Comments (incl. % Objective achieved. achievement) Indicator 7 : Water policy drafted and approved Value Water Framework No Water Framework Water framework (quantitative law adopted in Law legislation adopted or Qualitative) 2011 Date achieved 03/01/2006 06/01/2011 04/01/2014 Comments WUA legislation developed disclosed and discussed in parliament. Objective (incl. % partially met. achievement) Indicator 8 : Number of farmers that attend environmental awareness program Value (quantitative 0 90 90 or Qualitative) Date achieved 03/01/2006 05/31/2013 04/01/2014 Comments (incl. % Indicator added to show output from institutional component 3. achievement) Indicator 9 : Number of WUAs fully established under MIDP Value (quantitative 0 15 28 or Qualitative) Date achieved 03/01/2006 03/01/2006 04/01/2014 Comments Target value exceeded.

v (incl. % achievement)

G. Ratings of Project Performance in ISRs

Actual Date ISR No. DO IP Disbursements Archived (USD millions) 1 03/08/2006 Satisfactory Satisfactory 0.00 2 06/09/2006 Satisfactory Satisfactory 0.77 3 11/09/2006 Satisfactory Moderately Satisfactory 0.77 4 07/25/2007 Satisfactory Moderately Satisfactory 0.99 5 01/11/2008 Satisfactory Moderately Satisfactory 1.42 Moderately 6 12/29/2008 Satisfactory 2.35 Unsatisfactory Moderately 7 09/09/2009 Moderately Satisfactory 4.89 Unsatisfactory Moderately Moderately 8 03/17/2010 9.07 Unsatisfactory Unsatisfactory Moderately 9 06/15/2010 Moderately Satisfactory 9.43 Unsatisfactory 10 04/02/2011 Moderately Satisfactory Satisfactory 14.05 11 06/06/2011 Moderately Satisfactory Satisfactory 18.30 12 12/12/2011 Moderately Satisfactory Satisfactory 33.82 13 06/07/2012 Moderately Satisfactory Satisfactory 41.57 14 12/25/2012 Moderately Satisfactory Moderately Satisfactory 52.41 15 06/28/2013 Moderately Satisfactory Moderately Satisfactory 62.04 16 12/22/2013 Moderately Satisfactory Satisfactory 69.47 17 03/29/2014 Moderately Satisfactory Moderately Satisfactory 70.52

H. Restructuring (if any)

ISR Ratings at Amount Board Restructuring Disbursed at Restructuring Reason for Restructuring & Approved Restructuring Date(s) Key Changes Made PDO Change DO IP in USD millions 05/28/2013 MS S 62.04

vi I. Disbursement Profile

vii

1. Project Context, Development Objectives and Design

1.1 Context at Appraisal At project inception the Republic of Serbia (ROS) and Montenegro had a population of about 10 million1, of which some 50% lived in rural areas, and 17% derived their living from agriculture and associated industries. In 2005, agriculture, including agro- processing, accounted for about 15% of Serbia’s gross domestic product (GDP) and 20% of its exports.

Serbia is composed of three main agricultural regions where topography, soil type and climatic conditions influence the type of agricultural products and farming systems. About 65% of Serbia’s arable land lies in Vojvodina in the East of the Pannonian plain that is mostly flat, very fertile but extremely flood prone with large mostly grain and intensive livestock farms. The topography in Central Serbia includes both flood plains of the Danube, Sava, Drina and Morava rivers, and hilly terrain. Here farms remain mainly of small and medium size, and farming systems more diverse than in Vojvodina. Southern Serbia is mostly hilly and suffers from severe depopulation and is characterized by small farms, an arid summer climate, with mostly of extensive fruits and vegetables as the main crops, while sheep grazing on natural pastures dominate livestock production.

Over the centuries a vast and complex system of canals, pumping stations and associated structures were built in the country which culminated with the Danube-Tisa-Danube deviation system in the Yugoslav days, to serve the purposes of flood control, drainage and irrigation as well as transport and municipal water supply. Unfortunately during the 1980s and 1990s these systems suffered from deferred maintenance and budgets cuts which led to the deterioration of the irrigation-drainage and flood control infrastructure generally.

At project preparation the country had just emerged form a decade of isolation with a fairly reform minded government that was keen on pushing an aggressive reform agenda to modernize the economy and government institutions. However, significant resistance had mobilized against reforms particularly within governmental institutions or socially owned semi-private bodies. These bodies often had disproportionally benefitted from budgetary largess, enjoyed significant political patronage and were often over-staffed relative to their mandate. The change in the political climate after elections shortly following project approval made deep reform difficult as already reflected by the caveat in the description in the Project Appraisal Document (PAD) of the institutional component 3.

1 Serbia has since been divided into 3 countries with Montenegro splitting of in 2006 as a result of a referendum held on May 21, 2006 accepted by the international community at large, and Kosovo declaring independence in 2008 albeit it is not fully recognized by the international community.

Agricultural Sector and Policy - Serbia has large areas of agricultural land with high quality soils, a strategic trading location, and an educated workforce. Primary agricultural production and agro-processing was estimated to be 15 % of GDP and 20 % of exports in 2005. At project preparation, some 0.8 million hectare (ha), or 15 % of the arable land was operated by about 1,050 large corporate farms and agrokombinats2. Privately owned commercial farms averaged around 10 ha and accounted for 46 % of arable land. The remaining 39 % comprised an estimated 600,000 small private farms, most under five ha and often consisting of several fragmented parcels of land producing primarily for their own use consumption, and depending heavily on non-farm income. Serbia restructured its subsidy program away from commodity support to a single area payment system. The change did lead to competitiveness improvements mainly on larger farms but there remain important regional variations in production systems, farm efficiency and farm incomes.

Water Resource Management Institutions - All major hydraulic infrastructure was and remains under the Ministry of Agriculture, Forestry, and Water Management (MAFWM). The Directorate of Water (DoW) under MAFWM controlled most hydraulic operations through two Public Water Authorities, the Vode Vojvodine for Vojvodina specifically, and Serbiavode for the remainder of the country. MAFWM and its subordinate departments and directorates were supported by long established technical institutes and the universities with strong technical capacities. However, economic transition and the isolation from the war left these agencies with major financial challenges with resources often only covering salaries. The lack of resource led to fewer research programs, the hollowing out of the qualified workforce leaving for the private sector, and increasingly dilapidated equipment and facilities.

Policy and Institutional Issues in irrigation, drainage and flood control – In the recent past Serbia had not been able to maintain a sufficient level of operations and maintenance (O&M) and its water infrastructure was rapidly deteriorating and in some cases risked collapsing. The unclear division between regulatory and management functions lead to conflicts of interest between policy making and implementation on the ground. The lack of involvement of users in water management made for ineffective prioritization of works and poor coordination with local beneficiaries and communities. The lack of competition on contracted works for O&M of infrastructure led to high contract costs and resistance to innovation and patronage. The result of all these factors was poor O&M, poor governance with the various institutions not getting paid for services leading to a spiral of continuous decline.

This required urgent reorganization in the sector including measures towards a more participatory and integrated approach to water management. Changes in the legal and regulatory framework aimed at achieving an increased accountability from institutions

2 Agrokombinats - were large socially owned vertically integrated agricultural enterprises that dominated agricultural production in Yugoslavia.

involved in water resources management were necessary. The water sector strategy of the MAFWM broadly addressed these issues but left key aspects such as timing for improvements in governance, management, financing and regulation undefined. It emphasized the need for a legal framework including a law on water management and legislation on financing of water management. A Water Framework Law was drafted broadly in line with the European Union (EU) Water Framework Directive (WFD), including principles of the “user pays”, “polluter pays” and river basin management. The adoption of this legislation however remained pending for more than five years after project approval as it was mired in a succession of parliamentary reviews that attempted to eviscerate the reforms that would have affected the institutions and the personnel of some of the concerned institutions and refocused budget resources and force institutional alignment.

Drainage: Some 29% of the Serbia’s land area and 2.67 million ha (or 52%) of agricultural land has poor natural drainage. In Vojvodina specifically, due to its level terrain, some 1.61 million ha are affected, representing about 90% of agricultural lands in that region. To address the drainage and waterlogging some 2.08 million ha nationwide have been provided with drainage infrastructure in over 400 drainage areas incorporating 210 pumping stations and 22,600 km of drainage channels. Over 58,000 ha are equipped with tile sub-drainage. Due to poor O&M the drainage channels are overcome with siltation and weed growth while the associated structures and pumping stations have not had the scheduled repair and overhaul. Widespread rehabilitation was required.

Flood Control: It was estimated that some 1.57 million ha, especially in areas adjacent to the large flood plain rivers, are subject to flooding. Of this area, 1.45 million ha are in Vojvodina and the plains northeast of Belgrade; the rest are in Central Serbia. About 30% of agricultural land is vulnerable to flooding, as are 512 larger settlements, 515 industrial installations, 4,000 km of roads, and 680 km of railways. To meet this hazard, over the years some 3,434 km of flood amelioration levees and 30 flood control reservoirs had been built. Deferred maintenance of the levees, dams, and their appurtenant structures, means that the system required widespread rehabilitation. Gaps needed filling, and older levees needed heightening to meet higher flood protection criteria common in the EU. Without attention to these flood protection facilities, additional investment in irrigation and drainage improvements in the areas prone to flooding was pointless. Work in this sub-sector was of the highest priority and would result in rapid and substantial benefits. These observations were confirmed when shortly after the project was approved the country suffered widespread flooding along the Tisa and Danube which lead to the approval of the Additional Financing (AF).

Irrigation: As of 2005 about 120,000 ha of irrigation were developed in Serbia representing about 3% of the available arable land. Irrigation development in Serbia was focused almost exclusively on public sector funded and managed large-scale (major) mechanized irrigation (laterals) previously operated by agrokombinats drawing water from dual function canals. The majority of schemes covering some 90,278 ha were in Vojvodina, with the balance located in Central Serbia, mainly in the region of Drina-Sava

(Macva) near Belgrade, and in the Morava valley. At project appraisal only about 35,000 ha were actually fully utilized, with a further 47,000 ha partially functional.

Little attention was given to minor irrigation and small farmers, especially in the hilly areas of Central Serbia. With their more sloping terrain and smaller farms, a combination of sprinkler, drip and surface methods was practised however mainly out of the farmers own initiative and financing. Consequently, irrigation in Central and Southern Serbia was relatively rare. A program to introduce small irrigation in selected areas of Central Serbia would significantly increase the yields of high value horticultural crops that many small farmers were producing. The project was a first attempt to help organise a program to support these smaller family farms.

Rationale for Bank involvement - At the request of the Government of Serbia (GOS), the Bank reviewed the issues facing water resources management including irrigation, drainage, and flood protection in Serbia. The conclusion was that during the past decade, the water sector has seriously deteriorated and investments were necessary to restore the functionality of essential drainage and flood control infrastructure and for longer-term institutional reform to make water resources management more productive, efficient and financially sustainable.

At preparation, the Bank project was to complement ongoing reform initiatives in the sector such as the EUs assistance to Serbia for the adoption of the EU Water and Flood Directive and to develop a new umbrella water law to rationalize and modernize the sector. EU assistance focused primarily on environmental protection, with limited focus on the economically productive uses of water for agriculture, water supply and industry. The Bank would complement EU activities by providing further support to build capacity of the DoW and its partners to develop a framework and process for long-term policy, legislative and institutional reform in the water sector, particularly in the irrigation and drainage subsectors. The 2005 and 2006 floods and prompt “emergency” response by the Bank reoriented the focus more towards institutions and works providing flood protection.

1.2 Original Project Development Objectives (PDOs) and Key Indicators (as approved) The project's main objectives were to: (a) improve the capacity for increased agricultural yields through support to high priority rehabilitation of drainage and irrigation infrastructure; (b) reduce the risk of damage from flooding to land, crops, property, infrastructure as well as reducing risk of life loss from flooding in project areas; and (c) improve water resources management and strengthen the associated water resource management institutions and policies. The AF kept the PDOs as defined at project design.

1.3 Revised PDOs (as approved by original approving authority) and Key Indicators, and reasons/justification The PDO remained the same throughout the project implementation period. However, with additional financing the emphasis became heavily biased towards flood protection.

1.4 Main Beneficiaries, Some 305,000 ha were to benefit from the project investments, affecting 250,000 inhabitants who would benefit from improved flood protection. With additional financing

these figures where revised upwards to 500,000 ha in area protected from floods, and some 1.8 million people benefitting from the flood protection.

1.5 Original Components The original project size was about US$32.7 million consisting of a US$25.0 million credit, US$6.97 million borrower contribution and a US$0.73 million contribution from project beneficiaries. The project was composed of the following components:

Component 1. Rehabilitation and Improvement of Drainage and Flood Control Infrastructure: Rehabilitation and improvement works would include: (a) rehabilitation of drainage facilities, including pumps and maintenance equipment; and (b) rehabilitation of flood control defenses to give a 1 in 100 year flood protection for agricultural and minor settlements, and a 1 in 1,000 year protection for large settlements and industry.

Component 2. Minor Irrigation Development Program: This program was to support the development and/or rehabilitation and improvement of minor irrigation schemes mainly in the hilly regions of Central and Southern Serbia. These schemes would mostly be of less than 300 ha each and total about 4,000 ha. Selection of areas for the schemes would be based on a set of criteria, chief among them is farmers’ willingness to establish a Water Users Association (WUA) that would bear full costs of the future O&M of the new or rehabilitated infrastructure. Other technical, environmental and economic considerations were also taken into account during the selection process. Project support to build capacity of DoW to provide technical assistance to the WUAs was included under the Institutional Strengthening Component (Component 3). The project was also to provide O&M equipment for the WUAs. Beneficiaries of the minor irrigation schemes component were expected to contribute 10 % of the costs of construction/ rehabilitation and 20% of the costs of O&M equipment that would be provided to them.

Component 3. Institutional Strengthening and Capacity Building: This component aimed at strengthening the institutional capacity of water sector institutions. DoW capacity in its regulatory and strategic functions, particularly in the irrigation and drainage sub-sector, and at field testing participatory irrigation and drainage management principles under the assumption that only limited changes in the legal, regulatory and institutional framework will be introduced in Serbia during the project implementation period. Following this approach the component was to: (a) establish and support a Working Group in staff to the DoW to oversee and coordinate development of information (including an information database), policy, legal/regulatory, and strategic innovation for integrated water resources management, especially in the irrigation and drainage sub-sector; (b) support the Government program to reform the public water authorities and their district water control agencies; (c) test WUAs to provide the institutional basis for ensuring that the construction or upgrading of the 20 minor irrigation systems (under the Minor Irrigation Development Program in Component 2) incorporates participatory mechanisms; and (d) pilot test the formation and development of a water board in Vojvodina under the assumptions that it will be governed by farmer representatives, regulated by the government, and financed by farmers.

The component was to also include provision of various equipment and studies for other public institutions that have been deemed to be crucial, independently from the institutional option to be sought by the Government in the medium-long term. Specifically, this was to include: (i) an upgrade the flood forecasting and warning system that has been developed by the Hydrometeorological Service of Serbia; (ii) support the Vegetable Crops Research Centre; (iii) strengthen the agromet system; (iv) install and calibrate a software modeling system for control of the Danube-Tisa-Danube canal system (DTD) hydrosystem; and (v) study the feasibility requirements for rehabilitating two priority major irrigation schemes.

Component 4. Project Management and Monitoring: The project was to provide support to the Government to implement the project. It included support for: (a) overall project management, and technical assistance in such areas as detailed design, contract administration and construction supervision, procurement and financial management, and participatory water management institutions; (b) monitoring and evaluation of project impacts; (c) development of environmental management plans for rehabilitation and construction activities carried out under the project; and (d) annual financial audits of project accounts

1.6 Revised Components The initial dialogue with government included discussions of a substantially larger credit than eventually allocated under the original project. Constraints related to the International Development Association (IDA) envelope as well as absorption capacity constraints limited the original credit to US$25.00 million which would leave out major needs in rehabilitation of flood control infrastructure. The floods in 2005, while the project went to the Board, and in the subsequent year, convinced management of the urgent need for additional resources to conduct targeted rehabilitation works on Serbia’s flood protection infrastructure.

There were no significant changes to components from the original project design. Even with AF, conceptually the components remained essentially the same. The AF was to finance mostly an expansion of flood protection works. Allocation of the resources from AF was not clearly assigned to the original individual component activities leading to some confusion as to the ratio of drainage relative to flood protection works to be financed. The AF did also not include a closing date extension, which given the volume of additional financial resources and the delays the original project had been confronted with, appears somewhat optimistic.

Under component 2, a significant change was the decision in consultation with WUAs and local stakeholders that in some cases, instead of building complete irrigation systems, fields would be provided with electricity access. This then allowed farmers who for the most part had already been operating their own gasoline pumps to switch to electrical pumping which dramatically lowered operating costs. Electricity would keep the irrigation process very simple as most farmers already employ either drip irrigation technology or sprinklers in orchards and field crops. Electrification allows for farmers to adapt gradually to irrigation including finding new markets for the higher value crops that

can be produced as a consequence of readily available irrigation. Pumping is a necessity as water is drawn from canals that also serve as drainage during the wet season. WUAs are primarily ensuring that payment of electricity bills to the utility are made by controlling the lock on the power meters and plugs, and played a major role in determining where power lines and connections were placed.

The component design of the project remained relevant throughout the project implementation period. However, given the frequent changes in the Ministry, and resistance to implementing the vision defined in the water strategy by main institutional stakeholders in the water sector, component 3 lost some of its integrity relative to the other activities of the project even though significant aspects were effectively delivered.

1.7 Other significant changes As reflected above, after the severe floods of 2006 the project obtained AF amounting to some US$50.0 million in International Bank for Reconstruction and Development (IBRD) financing to address strengthening on the flood defenses along the Tisa, Danube and Sava rivers. All these rivers overtopped their dykes in 2006 mainly due to large snow accumulations and heavy spring rains that overwhelmed the system that had suffered from years of poor maintenance. The aim of the AF was to improve flood protection from the existing 1- 25 year standard to a minimum 1-50 years in rural areas and a minimum1- 500 standard in protecting town perimeters and industrial areas covered by the project. Substantial sections of low level levies had significant damages from erosion, piping and other issues as a result of poor maintenance but were not of high priority due to the lower relative value of assets that they were protecting. These standards are below the requirements of the EU flood directives but represent a compromise to maximize flood protected areas and focus the 1-100 year protection on priority agricultural areas and 1- 1000 years protection for urban areas while some industrial areas would remain at 1-500 year protection level.

A major issue also affecting the outcomes but especially the outputs under this project is related to the financial crisis that hit the Balkan countries particularly hard. To mitigate the impact on implementation from potential counterpart funding shortfalls, the Bank in consultation with its clients in the region approved a modification of its disbursement terms to the full financing of all project expenditures. While this decision provided relief to implementing agencies that had ongoing contracts to pay, it also significantly reduced the overall financial envelope of the project and reduced project outputs.

2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry This was the first World Bank project in Serbia after the collapse of Yugoslavia and the ensuing Balkan wars that brought a number of sanctions against the country. There had not been any World Bank support to the Western Balkan region in the water/irrigation sector for some two decades with the exception of Albania and FYR Macedonia which each had ongoing irrigation projects.

Bank support was requested by the Serbian authorities which resulted in a reconnaissance mission in late January 2004 that was led by the Sector Manager. The government presented a very clear case for the key objectives and the priority needs that needed to be addressed under the project. This included institutional reforms in the regulatory and legal framework of the water sector to address the new economic environment as a result of broad based reforms. After a long period of isolation the reengagement with the international community and the Bank was led by a young reform oriented government team, with willingness for deep reforms to bring the country towards EU accession and integration. The project was prepared within approximately a year and overall the design substantially reflected the request of the government with the exception of the amount of financial resources it had expected to address flood protection works. Originally a US$75.0 million project had been discussed which then was reduced to US$25.0 million due to a lack of IDA funds but also some reservations to the absorption capacity of the country.

Project preparation benefited from a strong and clear demand from the reform oriented Ministry of Agriculture. A preparation Grant was supporting the process that was extended once in order to allow complete absorption of the grant resources and completion of the preparation studies and technical designs as well as the environmental and social assessments. The Bank team involved at preparation comprised civil engineers institutional specialists for WUA development and for the regulatory framework in the water sector as well as environmental and social development specialists.

Lessons were drawn from FYR Macedonia in particular that had a similar institutional and economic history than Serbia. Ongoing programs mainly in Central Asia pointed to the need of users’ involvement early in the project design and engagement in a partnership between users and providers for successful irrigation and drainage development.

Risks related to implementing institutional reforms at the regulatory level as well as it relates to organizing users and formation of user association were both rated as substantial while project management as it relates to fiduciary and contract management we reconsidered moderate. Ultimately, these assessments proved accurate, given that the project activities and works were substantially delivered, but institutional reforms, in spite of the new water framework law, remain lagging.

AF was prepared as a consequence of the major floods that affected the country in 2006. It was also partly in response to the larger amount requested by government for the original project for the rehabilitation of flood protection infrastructure. The government had a full rehabilitation program ready for support. The AF fit neatly into the original PDOs and the indicators to measure the impact of the AF appeared clear and concise, however lacked a good accurate baseline against which progress would be measured.

2.2 Implementation The project was approved in July 2005 but only became effective in March of 2006 mainly due to the delays with meeting requirements with fiduciary staffing of the project

implementation team (PIT). The major flood in early 2006 lead to significant delays and were then also the impetus for the project’s additional finance in order to expand the scope of works related to the flood protection and drainage infrastructure under component 1 primarily. The PIT had a significant learning curve, even after sites were finally contracted. Initially, the challenges mainly related to obtaining the proper cadaster and land use maps, the ground measurements to obtain necessary clearances and approvals at local and agency level for the issuance of necessary permits to conduct works. Once this process was clarified progress was good and further delays were largely beyond the project’s scope of control as they stemmed from seasonal high water levels that prevented contractor’s access to sites.

The Ministry of Agriculture formally in charge for project implementation suffered from the volatile political climate with frequent changes of top positions. These changes along with significant resistance from some of the bodies concerned by the proposed reforms under the project made decision making very slow and hampered agreement within the Ministry and local water authorities on priorities for works. As a result, the PIT took it upon itself to determine priorities with much less consultation with the Ministry than envisaged at design. It developed a pipeline of investments, synchronized the permit process with local authorities to improve communications and reduce the delays involved. This helped in ensuring that the project works were nearly fully delivered by project end, but with the negative impact that the Ministry and its DoW have acquired little capacity from the project implementation experience and public procurement, and contract management of larger works conducted under the project.

The AF document was prepared without clear definition of how the AF would break down drainage and flood protection. While the AF gives a good perspective of the type of damage that needed rehabilitating, the allocation by components was unclear. Given that recovery after the floods was financed through various international financial institutions and donors, in some cases sites were reprioritized in line with financing available which led to some discrepancy in achieving indicators which were only partially adjusted in the May 2013 restructuring.

There were delays as well under component 2 for minor irrigation works. These were primarily due to the difficulties in coming to agreement with the water framework legislation and ultimately the legislation of WUAs. The water law was adopted only late in the project in 2010, some five years after project approval when it had already been drafted. Another factor was also that reaching agreement with WUAs on the type of system whether electrification or pipeline installation also took a bit of time as WUAs had to contribute a minimum of 10% of systems cost. In some early identified WUAs, the farmer contribution could not be collected, and the proposed sites had to be dropped in favor of sites where farmers were more responsive. Depending on the system options chosen by farmers, the contributions to the total project cost could change considerably from one WUA to another. The demand driven nature of the prioritization mechanism for support under this component has led to some delays, but also built up the commitment by users to the systems that have been provided. At project closing most systems had just

been finished but the few systems where works had been completed in the prior year, payments from farmers against invoices were fully collected.

The institutional aspects were significantly affected by the political volatility and lack of continuity in vision. This resulted in severe delays in the adoption of the water framework law and accompanying regulation. The volatile decision making also affected the project in the sense that bodies initially slated for project support were suddenly privatized and not eligible for Bank support. The evolution of technology also necessitated a review of the originally planned support to hydro-meteorological services, which led to the conclusion that a modern meteorological forecasting system benefitting farmers beyond simply flood management was preferable and led to the procurement of the Doppler radar system instead of the flood forecasting modelling that had originally been envisaged. The decision was also in part to be attributed to conflict between various water management bodies as to access and data control of such a modelling exercise.

Implementation as reflected above was also heavily affected by the financial crisis which left the country challenged in meeting its fixed obligations related to social benefits and its overall budgetary envelope. In response to this situation the project dropped its cofinancing requirements in 2008 and thus reduced the overall investment envelope and consequently the scope of outputs. Given the reduced funding, the focus was heavily concentrated towards completing construction works while institutional aspects became of secondary importance. This decision while questionable reflects the reality of the lack of political vision in and continuity in spite of an existing strategy to undertake deep sector reforms while works benefitted from near unquestioned political support at all levels. On the flip side the quasi emergency nature of the works under AF to protect the population and assets warranted this decision especially given that with the heavy recent floods, the facilities built under the project along the Tisa and lower Danube have made a real difference for many people and towns that were substantially spared from the disaster

Because the AF did not include a closing date extension, in February 2010, the project closing date was extended from May 2011 by two years to May 2013 to allow for the execution of the additional works resulting from the AF. A final closing date extension was made in 2013, providing an additional nine months for conclusion of ongoing works and restructuring to align some of the indicators in line with project execution. Cumulatively the delays resulted in two project closing date extensions of a total of 2 years and 11 months with the project finally closing on April 30, 2014. There was high expectation by the PIT for a follow up project which did not materialize. Ultimately some US$3.65 million and some US$870,000 were cancelled from the IBRD Loan and IDA credit respectively as some works were contracted too late and could not be completed by project closing.

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization The project objectives achievement would be reflected in the achievement of three key variables: (i) increased crop production resulting from irrigation and drainage improvements, (ii) increased area protected from flooding, and (iii) increased standards

of protection for population under flood risk. These variables were to be measured by the following indicators as defined in section B2 of the PAD.  area benefiting from reduced water logging and improved drainage;  area protected against flooding;  reduced number of population under flooding risk;  area benefited from minor irrigation development;  increase in crop production in the areas benefiting from improved drainage, irrigation and flood control;  number of WUAs and drainage boards established; and  finalized legal and regulatory aspects of water resources management

The Indicators where not exactly formulated in the same fashion in the results framework of the PAD, and the in the Supplemental Letter No. 2 of the Credit Agreement.

Both lists reflect a combination of outcomes as well as output indicators. The results framework in the PAD used a combination of these indicators including quantitative milestones. The Implementation Status and Results (ISR) contained the following indicators:

 Increased crop production as a result of irrigation and drainage improvements.  Increased area protected against flooding  Increased standard of protection for population under flood risk.  Finalization and enforcement of regulatory aspects of water resources management  Area benefiting from reduced water logging and improved drainage  Length of flood levies rehabilitated to 1:100 flood levels on Danube and Sava Rivers  Number of minor irrigation schemes constructed to increase  Increased capacity of the Directorate of Waters in water resources management through participants attending training and study tours.

While the definition of the indicators reflected a lack of consistency between the various documents, in general in combination with each other, the indicators allow for an assessment of the achievement towards the PDO. The inconsistent wording was accompanied by target figures and final quantities to be achieved that were not carefully assessed in some cases.

In many ways the institutional indicator reflected a substantially less ambitious agenda than could be understood from the PDO. In fact, the component 3 description downplays far reaching legal, regulatory and institutional framework reforms. The indicators were output oriented and some became obsolete due to privatization of some of the beneficiaries originally intended, and adoption of Doppler radar rather than upgrading of individual hydromet stations. At restructuring in May 2013 these two indicators were dropped and replaced by two new indicators. As such while the PDO is far reaching in the definition of its third objective, actual activities and outputs to be delivered as measured by indicators were in fact quite limited.

With AF, the figure of the second outcome indicator “increased area protected against flooding” was increased from 56,340ha to half a million ha while the population protected from floods would increase from a quarter million to 1.8 million people. Both output indicators are key contributors to the PDOs and in combination with the data being collected in the ISR offer a reasonably good basis for the assessment of impact of the project. However, the actual targets were determined without having the detailed baseline data at hand. For population especially the figure was overstated and relied on old statistics not taking into account the population flows away from several towns where industry collapsed after the introduction of market reforms.3

A baseline study was prepared in 2007 and updated in late 2011 when most works had been substantially delivered or were at least ongoing along with a beneficiary survey. Survey results are reflected in annex 5. The data collection for progress in works relied on typical engineering scheduling of works. Completion of works was then compared with topographical and flood maps to determine the actual areas and population protected. This information was then used to update results framework and in the determination of achievement of objectives. This is an effective and transparent mechanism to monitor outcomes in flooding. WUA support was handled by a dedicated team that undertook regular field visits and coordinated efforts with local authorities and utilities to ensure farmers whishes were adequately addressed in the design.

In 2013, when the project was restructured and a further extension of the closing date was requested, the indicators were cleaned up (in some cases dropped or reworded), and streamlined for the last year of implementation. On that occasion, some of the quantitative values of some of the indicators under the AF were adjusted to reflect some of the changes in terms of geographical areas where project interventions were conducted and correct some of the over estimation of the indicators of the AF.

2.4 Safeguard and Fiduciary Compliance At preparation a number of aspects were reviewed at project preparation related to the Operational Policies (OPs) that would need triggering in part due to the uncertainties related to the potential need for temporary relocation of some residents OP4.12 during works. Ultimately only OP4.0 and OP7.50 were triggered when the project went to the Board in June 2005. OP7.50 was addressed by notification of riparians by the Bank on behalf of Serbia. Serbia obtained no objections to the plans from both Bulgaria and Romania where the Danube flows into the Black Sea. OP4.12 was not triggered as land along canals and dykes were clearly delineated as government owned and if any settlements were found, the project would simply not undertake any works.

3 Serbia conducts a census every 10 years. Over the census period of 2002 to 2011, Serbia has lost over 4% of its overall population. In addition towns that were home of the former agrokombinats, or other heavy industry that collapsed after market reforms led to an accelerated rural exodus towards the larger cities. While rural Serbia depopulated, cities such a Novi Sad and Belgrade both grew in spite of the overall drop of the national population.

Other environmental concerns under the project were addressed as part of an Environmental Assessment (EA) for the schemes that would benefit from improved drainage and flood protection, while an Environmental Framework was prepared for the irrigation schemes as precise location and types of works were not known at the time of project preparation. An EA or Environmental Management Plan (EMP) was then prepared for each site where construction took place and mitigating measures integrated as part of bidding document and contracting arrangements. Measures of the EMP were included in bidding documentation and supervising engineers were required to ensure contractors implemented the plans. Bank supervision and reviews would confirm proper implementation.

A social assessment was prepared for the project after consultation with the various municipalities and settlements including representatives of civil society. Further surveys were then conducted collecting opinions of the affected population. These surveys provided a generally positive opinion on the intended works and positive feedback from the local population. Field visits and discussion with some of the beneficiaries confirm that the project did adequately consult with locals and amended designs where possible to take into accounts the comments and suggestion provided by the communities where the infrastructure has been built.

No serious safeguards issues arose during implementation, this may also be in part due to the fact that the Task Team Leader (TTL) for the better part of the duration of the project was a civil engineer with experience in managing works contracts, and also a safeguards specialist well familiar with safeguards techniques and providing “real time” support to counterparts whenever safeguards questions arose.

Fiduciary - Financial management arrangements were satisfactory or moderately satisfactory throughout project implementation period. Acceptable software was used for project accounting and financial reporting. Interim financial reports (IFRs) were submitted on time to the World Bank and were assessed to be reliable. Annual financial statements were audited by eligible auditors and the audit reports were submitted on time in most cases. Similarly, procurement performance of the project was satisfactory for most of the time. During the last two years, the performance was rated highly satisfactory, making it one of the best projects in Serbia portfolio (in reference to quality of procurement and contract management process).

2.5 Post-completion Operation/Next Phase The project supported the new water framework law that was finally adopted in 2010 more than five years after it had been drafted already at project inception. There was considerable debate around this piece of legislation to which the project provided advisory input that would define the institutional arrangements and structures responsible for water management in the country including the mechanisms to mobilize the resources for the overall O&M of the systems. Unfortunately, as part of the political process a number of provisions were modified, diluting the original intent of the legislation to align Serbian legislation with the EU WFD which defines mandates for securing water quality and quantity as well as requirement for water control infrastructure such as flood

protection. The effect of some of the modifications to the draft law weakened the institutional mandates defined in the law including the required budgeting and long term financial commitment to the sector. This was cruelly brought to light in the most recent floods in May 2014 where the institutions responsible for water management found themselves unable to adequately coordinate management and controls over the systems to minimize the flooding. While the infrastructure built under the project has withstood the onslaught of floods, resulting in limited flooding in the project areas, better coordination and clearer mandates could have provided for better O&M and lightened the failure of infrastructure that has not benefitted from rehabilitation works and massive damages occurred.

Flood protection is an expensive undertaking not only at the time of construction, but throughout its lifetime. The Netherlands, an example often cited for both high flood risks and good flood protection management, expenditures amount to roughly US$160.00 per capita per year for flood defenses alone. In Serbia, a similar level of funding for flood protection would mean mobilizing over US$1.50 billion each year. Serbia is at lesser risk than Holland, with less complex engineering challenges, but regular budget resources are needed to keep this infrastructure in a functional state. The current budgetary challenges the country faces make it impossible to cover all critical public investment needs which leaves the flood protection sector chronically underfunded in O&M.

In essence, while the framework water law provides a blue print towards a functional system, the political interests affecting the institutions on the ground to secure adequate O&M resources for flood infrastructure has changed relatively little from project inception. Budget allocations remain mostly based on political variables and short term priorities rather than on a strategic approach thus undermining the assigned institutional mandates in flood protection and the funding of these mandates.

For irrigation given that the investment supports largely existing private enterprise in agriculture and the fact that the project took a highly pragmatic approach by supporting improvements in line with farmer demands including own contributions based on ongoing farming practices, the chances for success are quite good. The systems allow for minimal issues due to the simplicity and the ease of controlling access from farmers who do not pay for their consumption of power or water. Metering of both power and water makes for very transparent billing to farmers and avoid conflicts over use or perceptions of unfairness. Such perceptions are often leading to disputes and distrust which typically handicap user groups such as WUAs. As such the irrigation investments under this component have good prospects for sustainability.

3. Assessment of Outcomes

3.1 Relevance of Objectives, Design and Implementation (to current country and global priorities, and Bank assistance strategy) The drainage and flood protection infrastructure constructed under the project offers broad based benefits across all segments of the population and income levels. As such the project clearly supports the Bank objectives of alleviating poverty and shared prosperity.

Serbia is an upper middle income country with relatively shallow but fairly widespread poverty especially in remote rural areas and towns where the local industry has collapsed. The irrigation component in particular was to support areas where farms are smaller and the subsidy policy pursued by government based on single area payments has had only moderate effect on boosting farmer incomes. Serbia’s present Country Assistance Strategy (CAS) or the FY12-FY15 Serbia Country Partnership Strategy (CPS) emphasizes strengthening competitiveness while simultaneously supporting the efficiency and outcomes of social spending. The project through its support of the water framework law to help define clear institutional and financing responsibilities supports the overall CAS objective for sustainable budgeting of public resources. The regulations for more direct involvement of water users in water management at farm level has the potential to contribute to overall efficiency and optimizing budget resources.

3.2 Achievement of Project Development Objectives The project PDO had four major objectives as defined in the PAD results framework to be addressed with activities under 3 components.

Objective (i) the increased crop production as a result of improved drainage and flood protection is estimated at some 25%. This figure is a compound of two factors, representing increases in yields due to better conditions at planting time reducing soil damage (plow pan) from machine operation in extremely wet conditions but also a reduction in production costs due to fewer losses from stagnant water in fields and less need for reseeding while other agronomic factors for the various crops have remained relatively constant. The improved water management allows for longer cropping seasons and higher cropping intensity without periods of fallow lands due extreme wetness in spring. This indicator is the most important outcome of the project as it defines the achievement of its economic outcome. The outcome against the first objective, which is improve the capacity for increased agricultural yields through support to high priority rehabilitation of drainage and irrigation infrastructure, has been exceeded even after adjusting the indicator upwards at restructuring in May 2013 justifying a Highly Satisfactory rating for this outcome.

(ii) to increase area protected against flooding has been substantially achieved. The overall area to be protected from floods under the original project was 56,340 ha, the AF was to increase this to a total of 500,000ha. The final figure achieved, amounted to some 440,086 ha composed of residential and agrarian land are now effectively protected from floods after completion of works. Yet the volume of works delivered under the intermediary target length of levies construction to 1:100 level reached 136 km against 125 km originally envisaged. The land areas in the northeast of the country where much of the works were performed were largely spared form the disaster thanks to the works performed under the project. The quality of the works has also been tested by the recent floods that were in some estimations as high as 1:250 years in some areas, the fact that no failures were noted speaks for the build quality of the works performed. Given the fact that the area protected, is nearly 90% achieved and that the length of dykes built is some 8% higher than envisaged at design the outcomes relative to this objective is rated Satisfactory.

(iii) reduced number of population under flood risk. The population to be protected from floods at appraisal amounted to some 250,000 people, with AF that figure was increased to 1.8 million people. When the project was finally restructured in 2013 that target figure was lowered to 1.1 million people protected. There are legitimate reasons for the shortfall in the area protected and number of people protected. One relates to the fact that the project starting in 2009 contracts were fully financed from IBRD without counterpart contribution to works contracts. That decision reduced the overall financing envelope of the project, albeit it did not really affect the length of dykes rehabilitated. The second reason relates to the changes in some of the sites selected for rehabilitation. In part as a result of the 2006 floods, Serbia has been working on rebuilding/ strengthening its flood defenses around urban areas with its own resources but also from credits from European Bank for Reconstruction and Development (EBRD) and other donors. As a consequence some sites under this project (AF) were reprioritized to other locations which led to the discrepancy in the original indicators, which is why in 2013 the population related indicator was adjusted. Finally, the combination of an overall drop in population in the country along with a rural exodus as a result of the restructuring of some industrial complexes in some areas led to significant movements of population away from rural towns to the capital. Given that the population protected adjusted for some of these changes in locations to more rural areas and lower population density has been met, the achievement towards this objective is rated Moderately Satisfactory.

The corporate core sector indicator (iv) “area provided with irrigation and drainage service improved” was added as an outcome indicator in May 2013. A similarly worded intermediate indicator had been monitoring drainage works from the beginning of the project. The outcome for this indicator has been somewhat difficult to determine for two reasons; (i) flood protection and drainage systems are not always mutually exclusive, there can be a number of agricultural drainage systems within a flood protection system covering both residential/urban as well as agricultural areas. A second variable is that with the adoption of 100% payment against works contracts with IBRD funding, the overall envelope of the project has been reduced. The original target defined at appraisal amounted to some 247,000 ha that would benefit from improved drainage. The final report on works including systems designed for flood protection and drainage of agricultural land resulting in arable land that is now safeguarded amount to approximately 175,000ha. Systems specifically designated as agricultural drainage infrastructure rehabilitated under the project amounted to some 105,000ha or about 42% of the originally intended area. In part due to the poor segregation of figures between drainage and flood protection leading to difficulties in determining actual agricultural area benefitting from the project the achievement of this objective is rated Moderately Unsatisfactory.

The indicator related to “area benefitting from minor irrigation development “ was revised and moved to intermediate results indicator at restructuring in May 2013. The component was to focus on the areas in Central Serbia and achievement of the objective was defined by the number of WUAs established under Minor Irrigation Development Program (MIDP), and the number of irrigation schemes rehabilitated or constructed. Irrigation area to be rehabilitated or constructed was to amount to 4,000 ha. While the

project established 28 WUAs, it managed to supply infrastructure on some 1,600 ha for a total of 7 WUAs and a total of 17 sites. All systems are small covering a few hundred hectares of which 10 involve electrification to connect the pumps that farmers already own supplying both sprinklers and drip irrigation systems. A total of seven schemes involved installation of pipelines, valves and meters and pumps in some cases financed and installed by farmers and WUAs themselves. Albeit the indicators, system areas covered and number of systems rehabilitated/ constructed were not achieved mainly due to the late start of these activities which is also related to late adoption of enabling legislation, the positive feedback from farmers and their involvement in system design and out of pocket contribution to investments provide good prospects for sustainability. Due to the interesting and innovative approach and good prospects for sustainability, in spite of the substantially lower area covered, achievement towards this objective is rated Moderately Satisfactory.

A final set of indicators related to the final objective of the PDOs defined as improved water resources management and strengthen the associated water resources management institutions and policies, of which the achievement was to be measured by a plethora of activities to be delivered by the project even though in the case of legislation, these were not within the full realm of its control. It needs to be noted that the component description already emphasized that there would not be far reaching institutional reforms under this project. Furthermore by reducing the component financing, as well as privatization of some services and structures, a number of activities did not make sense anymore, and only limited institutional changes could be expected over the life of the project. The project supported the finalization of the Water Framework Law largely in line with EU Directives regulating water quality, flood protection and water resources exploitation. The law was adopted with delays in 2010. However, this legislation remains to be effectively implemented on the ground with reasonable budget allocations at all levels to ensure the adequate O&M of the flood protection infrastructure. In spite of the above caveat, this is a significant achievement as it defines the institutional mandates and responsibilities towards the water sector including how resources are to be mobilized. Under this legislation regulation for the formation of WUAs has been developed, it has undergone a number of readings in parliament and remains to be finally adopted by the time the project closed. The project did support investments in the hydrometerological services with modern Doppler radar technology that helps services with monitoring precipitations and determine water rises in river in real time. As a result, forecast precision but also determining of flood risks create the potential for better response times to high flows and improved management of control infrastructure. In addition, the acquisition of the Doppler radar made some activities related to water measurement and system modelling identified at appraisal less critical. Given the improved legal framework, the improved capacity to forecast weather events with significant benefits beyond water management and the acknowledgement in the PAD that the project had only limited institutional objectives, the outcomes against the above objective are rated Moderately Satisfactory.

3.3 Efficiency

Estimated Damage avoided from flood protection and drainage works.

The economic value of component 1 replicated the methodology and assumptions as applied in the pad adjusted for the additional financing. It was calculated using the flood control damage loss avoidance estimates and the value added from increased agricultural productivity in the arable land areas that would benefit from the new infrastructure4. Using the flood damage avoidance model for 10, 25, 50 and 100 year flood return periods were calculated. Damage estimates were obtained for each flood return period for (i) agriculture crops, (ii) agricultural animals, (iii) forestry land damage, (iv) damage to roads, (v) damage to railways, (vi) damage to bridges, (vii) damage to residential housing, (viii) damage to public buildings, (ix) damage to industrial and business centers, (x) damage to hydro infrastructure, (xi) with-out project flood management and other costs, and (xii) cost of without project dyke repair.5

The annual expected flood damage that would be avoided with the undertaking of the flood control and river bank reconstruction/rehabilitation under the project with AF was estimated to be US$ 48.00 million.

Costs - The total costs for the flood control construction and rehabilitation sub- component are US$62.00 million including design and supervision. Annual O&M costs are estimated to average 2.5% of the investment of dyke and control infrastructure reconstructed or rehabilitated.

Results - An economic internal rate of return (EIRR) of 36% was estimated for the flood protection and drainage activities under the project at a net present value (NPV) of some US$130.00 million at a discount rate of 12% over 20 years.

Sensitivity Analysis and Switching Values - For the EIRR to reach 12% project costs would have to decrease by 75%.

Summary of Economic Analysis for flood protection

-50% -75% Base Case Decrease in Decrease in Benefits Benefits 36% 23% 12.5%

Estimated Agronomic Benefits from improved drainage & flood protection.

4 The same methodology in the AF as in the original project’s component 1 was applied. 5 The steps to estimate damage were (1) maps were made by the Jaroslav Cerni Institute of the flood area under each of the four flood return periods, and (2) for each flood return period, the number of hectares of agriculture land, forest land, km of roads and railways, number of bridges etc. were counted and given an estimate of their replacement value if lost or the cost of rehabilitation.

To get a sense of the benefits, however, the project did commission a survey in its last year of operation which points to an increase of some 25% in productivity of the land within the rehabilitated territory composed of 11% yield increases and reduced production costs of some 15 to 20%.

Costs - The investments benefitting mainly agriculture and forestry were assumed to cost a third of what they are expected to cost for flood protection of residential/urban/ industrial areas. So while rural areas consist of 80% of the project area, the cost of investments benefitting rural areas exclusively was estimated to be of some 35.00 million. No estimates were made for benefits accruing on non-arable land such as forests or meadows representing 40% of the project area. While investments benefitting arable land would amount to some US$25.00 million plus 2.0% of O&M costs.

Results - Assuming a conservative average net income per ha of some US$250.00 across the various crops grown in the region with 25% productivity improvement equating US$62.5/ha, the benefits amount to roughly US$9.5million in additional agricultural output from the 175,000 ha of arable agricultural land in the project area per year. This is equivalent to a NPV of some US$28.1 million and an IRR of some 36% at a discount rate of 12% over 20 years.

Sensitivity Analysis and Switching Values - For the EIRR to drop to 12%, project benefits would have to decrease by over 50%, at 75% decrease in benefits, agronomic EIRR shrinks to an unsustainable 2.0%

Summary of Economic Analysis for Agronomic benefits

-50% -75% Base Case Decrease in Decrease in Benefits Benefits 36.00% 15.5% 2.0%

Component 2: Minor Irrigation Development Program

The project invested some US$ 2.20 million to support the Minor Irrigation Development Program, while the original estimated cost of this component was US$ 6 million with no change by the AF. A condition for participation by WUAs was that at least 10% of investment costs had to be contributed by the farmers pushing investments to US$2.40 million. Several minor irrigation schemes were developed covering a total of some 1,600 ha of fairly productive land cultivated mostly with higher value horticulture, orchard and commercial field crops. The cost of the investment per ha amounts to some US$1,350.00/ha which covers both, full systems with piping and hydrants for which the farmers need to buy their own sprinklers or drip irrigation systems, and systems where electrification was provided. In more than half of the WUAs formed, farmers were already irrigating using their own motor pumps and piping and sprinklers or dripping hose. The motivation to participate by farmers nonetheless was the cost of fuel and the prospects to switch from gasoline or diesel powered pumps to electrical power. This

would reduce pumping costs by 75%. Part of the program’s intent as envisaged in the PAD already was to establish a few well-functioning pilots to drive demand for further investments or develop a support measure as part of the Ministry’s rural development program with Instrument for Pre-Accession Assistance in rural Development (IPARD) funding.

The investments under this component were significantly delayed and only two of the sites identified at appraisal participated in the program. The other sites only had the infrastructure finally installed as of end of 2013. That means that the cropping patterns and main elements of the economic benefits cannot be verified and since significant areas are already irrigated, the major economic benefits will be reduced pumping costs.

The project expected yield increases between 28% and 130% which appears highly optimistic given that most areas were irrigated in a rudimentary fashion already before investment. The pilot sites were to amount to a total of 570ha at a cost of some US$2.5 million or roughly US$4,372 per ha. In spite of these high costs an average EIRR of some 25% was expected. The project developed an area three times larger with 10% less costs. The Sensitivity analysis indicated that the EIRR is relatively sensitive to the project yields of irrigated crops and input costs. The lower per Hectare investments made under the project have better prospects for sustainability than the original design under the project.

Fiscal Analysis The implementation completion and results report (ICR) did not undertake a fiscal analysis as the reforms re-established publicly financed Water Boards and increased expenditures in the water sector to ensure adequate maintenance and operation of the extensive water management infrastructure in the country.

3.4 Justification of Overall Outcome Rating (combining relevance, achievement of PDOs, and efficiency) Rating: Moderately Satisfactory The overall satisfactory rating for the project lies in the fact that it substantially achieved to deliver the main objectives defined in the PDO. While the quantitative objectives were not always fully reached, they were missed by negligible amounts or were due to implementation decisions related to changed priorities for locations that were made keeping in mind other activities in the sector funded from other sources and demographic changes. Better care should have been given in determining the key output indicator at the time of developing the AF. The lack of reasonably precise numbers for people served and area covered makes this project fall short on delivering its outputs even if outcomes were substantially met. The combination of largely meeting the three key objectives of the PDO and economic rates of return make the outcomes from the project Moderately Satisfactory

3.5 Overarching Themes, Other Outcomes and Impacts The Minor irrigation development activities were started very late and faced significant challenges in getting farmers to contribute their share to the works that were to take place. Eventually, the PIT adopted a more flexible interpretation by organizing farmers by

communities in some cases splitting the systems off where boundaries such as road or other obstacles existed and creating ownership within communities more directly. This was necessary to reflect the fact that a number of farmers already operated their own private irrigation systems drawing water form drainage canals or from boreholes. The project rightly filled existing gaps rather than forcing the adoption of a new system that would need to rely on more cooperation between farmers. The areas equipped also show considerable differences in irrigation methods applied, commercial field crops are irrigated by mobile sprinkler units, high value horticulture on much smaller fields is irrigated by drip or weeping hose, while orchards and wineyards seem mostly equipped with dripping systems. The electric as well as water meters ensure farmers pay in relation to water volumes used. Working closely with the communities and farmers in defining the type of support was time consuming but also ensured the appropriate technology was applied that is in demand by farmers. These systems reflect mainly current local practices where many farmers are already practicing rudimentary irrigation. The flexibility of layout and type of field application offer better sustainability prospects than systems that may well follow an engineering ideal but force the user to adapt to them. This model of minor irrigation and drainage development offers a great platform from which a minor and irrigation and drainage development program for supplemental irrigation could be funded from IPARD grants for WUAs, or other donor funded programs in central Serbia.

A major aspect that the project already hedged against at design is the fact that in spite of a water strategy and a water framework law, Serbia remains unable to clearly enforce mandates and raise and allocate resources towards securing O&M in the flood protection subsector. Serbia has large areas of low lying lands and major water streams crossing its territory leaving it prone to floods for a variety of reasons. Massive investments have been made over the centuries to build an impressive network of drainage and flood protection infrastructure. This infrastructure carries huge benefits for the country year after year but requires a minimum of O&M resources to remain functional and serve its intended purpose. The risks of flooding are likely to grow with the higher variability in climate and more intense periods of rainfalls contrasted with periods of drought. The economic transition has brought many changes, broken many institutional links between many players in the economy forcing funding streams to be redesigned to ensure that this infrastructure continues to serve the development of the Serbian economy and its citizenry.

(a) Poverty Impacts, Gender Aspects, and Social Development No specific gender or poverty segregated data was collected due to the inherently equitable nature of activities improving flood protection. Component 2 did focus its activities in areas where farmers were smaller and poorer. No gender specific disaggregation was conducted under the project since the benefits of the project accrues equally across gender.

(b) Institutional Change/Strengthening The project supported the drafting of the Water Framework Law largely in line with EU Directives regulating water quality, flood protection and exploitation. This legislation defines the institutional mandates and responsibilities towards the water sector including how and from where resources are to be mobilized. The new legislation reflects a

decentralization of some of the drainage responsibilities to the areas that have the greatest benefit of this infrastructure. Drainage Boards that had been disbanded as part of the privatization drive were reconstituted to include user representatives from the agricultural, municipal and local government, as well as national level to help with determining service prioritization. As previously reflected, while the legal environment is now substantially functional, its application, and the financial resources for the sector to be contributed from various governmental levels remain to be effectively implemented and enforced.

The Project also focused on involving users more in managing water for agricultural purposes. The development of the WUA related legislation, establishing a new model for the farmer’s involvement and management of the small-scale irrigation developments provides the basis for local municipalities and water companies and farmers to organize themselves more effectively to tackle local water management needs. The Ministry of Agriculture could seize on the pilot developed under the project to design a measure under which smaller farmers could apply for funding of small scale privately run irrigation systems.

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops

The beneficiary survey was held at the end of 2011before the project was extended and with a number of works still incomplete, and it primarily focused on the benefits stemming from improved drainage and flood control works. Nonetheless the survey provides a useful insight into the perspective of the public relative to the benefits stemming from the overwhelming part of project investments. There was only moderate awareness of the rehabilitation works of water control structures under Irrigation and Drainage Rehabilitation Project (IDRP). It would appear that insufficient public information has been conducted prior, during and after the works have been carried out inside local communities. Partial explanation of this fact is that the flood protection and drainage infrastructure is rarely noticed by the public - except for when it fails.

There were the typical challenges related to determining the income of beneficiary households which made income comparison before and after the works impossible. While an increase in production per ha could be observed in areas protected, clear information on incomes increase could not be obtained.

The survey included questions to get the beneficiaries perception of risks BEFORE and AFTER the water regulation works were completed. The greatest risk has been found in relation to agricultural production notably the cultivation of vegetables, grains, fruit and vineyard production, as well as for industrial and cattle feed crops, but also the risk of water contamination. The second group of risks were linked to dwelling including equipment, food and provisions, as well as production objects and mechanisation. The third risk category related to the risks for people and cattle that were already lowest.

A beneficiary opinion survey was also conducted from beneficiaries related to O&M and to avoid damaging rehabilitated structures, willingness to help maintain structures and finally using structures for small scale irrigation. There are significant differences between answers coming from agricultural and non-agricultural households to these questions. Interviewees from non-agricultural households are more critical in the assessment of occurrence of damage to water regulation objects while this opinion is rarely expressed by agricultural households.

Overall respondents are satisfied with project’s outcomes, recognizing many benefits associated with it. Many pointed out successful works’ implementation and extended benefits in regard to the cleaning of the channels and flood protection interventions. However, some questions were raised concerning further O&M, which, in a due course, could reduce the effects and investments. There was a significant decrease of dissatisfaction and high increase in satisfaction from beneficiaries. Half of the citizens claim to be satisfied, compared to a quarter before the project was implemented. Details of the survey are in annex 5.

4. Assessment of Risk to Development Outcome Rating: Significant When the project was prepared, Serbia had just emerged from economic sanctions and isolation. As such it was a late starter to adopt economic reforms towards market liberalization. Since then the country has progressed significantly, its institutions have been reformed, its economy substantially privatized with GDP per capita in nominal terms nearly doubling to US$6,200 over the period of project implementation. The financial crisis has brought some budgetary worries with debt to GDP ratio rising to 63%. Serbia’s acceptance as an EU candidate country gives it access to substantial Instrument for Pre-Accession Assistance (IPA) funding to help the reform process along for accession which alleviates some of these concerns in the agricultural sector. The water framework law adopted with support of the project provides the basis for a functional institutional basis in the water sector. Financial resources do remain tight due to limited budgets and a more decentralized way of financing water infrastructure in Serbia, the risks to O&M of the rehabilitated infrastructure remain significant. The reason for this is that the political and institutional commitment made in the law including the long term financing of the O&M expenditure of this infrastructure and application of the water law needs to be effectively implemented on the ground. This situation leaves a number of uncertainties as to the longer terms O&M and sustainability of the investments. The recent heavy floods have illustrated the need for functioning flood control infrastructure and the request to the Bank for support as part of the emergency flood recovery project for flood protection in the western part of the country along the Drina and Morava illustrate the need for continued investments.

On irrigation development activities, the project took a very pragmatic approach avoiding overly heavy investments by rather providing support to leverage the investments farmers have already undertaken on their own. The model developed under this project could be modified to become an IPARD measure for which demand would be driven by farmers

thus ensuring good prospects for sustainability. The sustainability risks to this model are considered quite modest.

5. Assessment of Bank and Borrower Performance

5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Moderately Unsatisfactory Project preparation was launched upon request from the Serbian authorities for support in the sector. The preparation team was composed of a seasoned Irrigation Engineer and an Operations Officer with extensive irrigation experience. The technical specialists were supported by a broad based team including safeguards and fiduciary specialists. There was a lack of clarity as to whether the project’s primary focus was to be on irrigation and drainage or flood protection without clear separation of the two types of infrastructure. This is understandable as in the case of Serbia these systems are not always perfectly segregated. However, that lack of clarity lead to some confusion in the design of the results framework and data collection to clearly illustrate the benefits of the project and to whom they would accrue. The results framework reflects mostly engineering works related outcomes, while the PAD has a heavy agrarian bias. With AF the project effectively became a flood protection project that would improve agronomic characteristics and reduce flooding to residential/industrial and commercial areas.

The AF was prepared in response to a crisis and as such reflected a positive responsiveness by the Bank to the needs of the country. The processing of the AF document however reflects inadequate attention to detail with a lack clear allocation of funding by components and lack of precision in determining baselines and expected outputs from investments which ultimately weigh on the assessment of outcomes.

(b) Quality of Supervision Rating: Satisfactory Project supervision was regular and the team had significant continuity, with at least one team member following the project from its inception to its end. The project supervision was decentralized to the country office which provided for regular input and continuous support and trouble-shooting by the TTL. The supervision team included experienced technical specialists with relevant expertise and issues identified were addressed with adequate follow on. Aide memoires provided reporting on technical issues, as well as fiduciary and safeguards issues. The TTL’s experience in civil engineering and in environmental safeguards provided the necessary knowledge also to ensure that design included environmental impact assessments of each site in line with national legislation and Bank requirements. The recovery of the project from initially very poor progress and low disbursements towards near fully delivered activities with objectives substantially met in part due to realignment of project indicators with project activities provide for a Satisfactory rating of the Bank’s performance to Implementation Support and Supervision.

While overall project implementation support from the Bank was adequate, project preparation was lacking clarity in terms of priorities to support the agricultural sector or flood protection which would provide benefits well beyond agriculture. AF made it very clear as to what the project priorities were. The figures for areas served including population numbers in the results framework were not defined carefully enough with the estimate for people to be served particularly overestimated. The restructuring of the project to realign some of the quantitative indicators with activities and prioritization of works sites to correct some of these discrepancies very late in the project provide for an overall Moderately Satisfactory rating for the Bank’s performance.

5.2 Borrower Performance (a) Government Performance Rating: Moderately Unsatisfactory The Ministry of Agriculture in Serbia has been suffering from a lack of continuity in policy and top level personnel. Over half a dozen Ministers of Agriculture were appointed during the course of project implementation. This constituted a particular challenge related to adopting the water framework law and subsequent WUA legislation. In part due to the lack of continuity readings of draft legislation lacked a uniform vision and changes needed to be made with the entry of every new administration. The different political allegiances and conflicting interests within the public agencies towards reforms made reaching agreement difficult and were disrupted whenever top level officials were changed. This lack of agreed vision contributed significantly to the delays with adopting the Water Framework Law as well as in finalizing the WUA regulations. In defense of the Ministry, it clearly understood its weaknesses and devolved project management to a PIT that was staffed with well-regarded higher level sector specialists that benefited from the trust from the various local administrations and managed to implement the project in spite of the lack of continuity at the Ministerial level.

(b) Implementing Agency or Agencies Performance Rating: Satisfactory The Government established PIT with separate offices in the outskirts of Belgrade to facilitate field visits and reduce time spent in traffic. The PIT was headed by an experienced engineer drawn from the DoW well known within the Ministry and administration and with adequate authority to make decisions. While getting the PIT staffed and located took time once it was in place, it provided for a solid base for managing fiduciary and contract management as well as technical issues. The PIT provided for transparent contract administration, effective technical know-how and ensured fiduciary compliance. It was staffed with engineers who had international experience implementing international projects with a good knowledge of international building standards and management of projects and involvement of the beneficiary community in design definition and accommodating residents. Albeit starting slowly, once the PIT was fully staffed and developed its process of pipeline development, it very successfully handled numerous works sites and contracts with proper attention to build quality and local concerns. The flip side is that the independence of the PIT also undermined the capacity for the Ministry and DoW to benefit from any significant knowledge transfer such as developing schedules for works, procurement and contract management including ensuring quality assurance and holding contractors accountable.

The lack of capacity transfer, especially after the full dissolution of the PIT weighs on the overall project performance. Consequently only a Satisfactory rating of the PIT can be given in spite of its effectiveness at managing the project.

(c) Justification of Rating for Overall Borrower Performance Rating: Moderately Satisfactory Overall the Borrower was committed to the project and engaged in fairly complex reforms in spite of a lack of continuity at the Ministry of Agriculture. While there was resistance to some of the proposed reforms leading to a long drawn out process in approving the water framework law, passage of such legislation that reassigns mandates and responsibilities always takes some time. The WUA regulations remain to be finally adopted which is necessary to improve the coordination of drainage efforts in Voivodina and the country overall. A WUA law would also help with better organizing irrigation, which at present is mainly driven by the farm’s own initiative largely with his own resources and equipment. With possibly longer dry spells in summer as a result of climate change, the coordination and organization of abstraction of water from drainage ditches and ground water will be necessary to avoid possible conflicts. The strong leadership of the PIT was able to partially fill for the vision gap at the Ministry, but with its disappearance that vision is gone as well. Consequently, overall borrower performance can only be rated as Moderately Satisfactory.

6. Lessons Learned

 Making project support or components dependent on the adoption of certain legislation presents distinct timing risks. The formulation or amendment of laws is a political process where the Bank can only have a limited influence and will essentially be governed by local politics. This is true even when the government recognizes the need for legal amendments, but reforms might be opposed by a number of interest groups that rely on the status quo to maintain their position.

 A project implementation unit (PIU) with substantial decision making power helps project implementation when the responsible Ministry is challenged due to frequent changes at the top. Unfortunately at its dissolution much of the institutional capacity of the PIU is lost to the Ministry at large, and while a relatively successful project may have been implemented, overall impact on the institutional system remains limited. The lack of an agreed vision in the sector reforms especially as it relates to the institutional mandates and organizational structure led to organized resistance to reforms.

 Countries that have reasonably functional land use and cadaster maps as well as building regulations and permit requirement need significant amounts of time and coordination efforts to get permits and documentation approved and verified by the competent authorities before works can commence. Realistic time estimates are needed to fully develop design documents and obtain related permits which are prerequisite to smooth project implementation.

 Project implementation needs to be flexible to maximize project impacts. The flexibility in approach to accommodate parallel financing on site selection and responding to farmers needs based on current activities with electrification rather than strictly pushing the project design helps in achieving concrete on the ground results.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies

The government of Serbia had no comments to offer on the ICR.

(b) Cofinanciers

Annex 1. Project Costs and Financing

(a) Project Cost by Component with AF (in USD Million equivalent) Actual/Latest Appraisal Estimate Percentage of Components Estimate (USD (USD millions) Appraisal millions)

Drainage & Flood Protection 56.65 60.25 106.35 Minor Irrigation 4.75 2.15 50.60 Institutional Strengthening 5.60 2.00 35.70 Project Management 2.20 2.40 19.00 Total Baseline Cost 69.20 66.80

Physical Contingencies 1.90 0.00 0.00

Price Contingencies 3.90 0.00 0.00 Total Project Costs Front-end fee PPF 0.00 0.00 0.00 Front-end fee IBRD 0.00 0.00 0.00 Total Financing Required 75.00 71.25 95.00

(b) Financing Appraisal Actual/Latest Type of Estimate Estimate %age of Source of Funds Cofinancing (USD (USD Appraisal millions) millions) Borrower 19.47 3.50 18.00 International Bank for Reconstruction 50.00 46.55 93.10 and Development International Development 25.00 24.70 98.80 Association (IDA) Local Farmer Organizations 0.73 0.23 31.50 Note: At project closing some US$0.87 in IDA and 3.65 in IBRD resources were cancelled. The project was financed from IDA in SDRs and IBRD in Euro denomination leading to some variations in US$ due to the changing exchange rates relative to the US dollar over the life of the project.

Annex 2. Outputs by Component

Component 1 - The Ministry's activities related to this component were coordinated with the two public water authorities "Srbija Waters" and "Vojvodina Waters". Although rather uncoordinated at the beginning, and based more on the "first come-first served" approach, following the mid- term review of the project activities, the subsequent implementation of the flood defense related civil works were organized through coordinated pipeline of high priority investments, that were implemented using the World Bank finance, and supervised by both the Ministry and the public water authorities. The civil works activities were at times heavily impacted by unfavorable hydrological regimes on the major rivers, which rendered respective works suspended for prolonged periods of time. Due to this situation the project was extended twice, for a total period of 34 months. The project successfully completed activities on 43 flood control and drainage rehabilitation schemes with a value in contracts amounting to little over US$62.00 million depending on exchange rates used, covering over 440 thousands ha in the areas with the infrastructure (over 20% of the country's most productive agricultural land), and affecting around 1.1 million people that live in the flood prone areas (which represents over 15% of the country's population).

Table 1 – Completed Works Contracts (Status as of March 31, 2014)

Contract Contract Works Works N Scheme and Water Authority Value date started completed Comment o. (mil. RSD) (mm/yy) (mm/yy) (mm/yy)

Rehabilitation of drainage system - 1 6.43 08/06 10/06 02/07 Bavanistanski canal – VV

Rehabilitation of drainage system - 2 26.22 08/06 10/06 07/07 Novoknezevacki canal- VV Rehabilitation of flood protection levees in "Zapadna Backa" sector (left bank of Danube 3 10.42 04/08 05/08 08/08 river) at km 37+300 - km 37+380, km 39+550 - km 39+650 and km 56+780 - km 56+840 - VV Rehabilitation of Danube left bank stone 4 revetment in "Zapadna Backa" sector between 19.43 04/08 05/08 09/08 km 1431+060 and km 1430+740 – VV

5 Rehabilitation of drainage system - COK – SV 34.62 03/07 06/07 05/09

Reconstruction of pump station “Novi Knezevac“ 6 7.92 07/08 07/08 10/08 – VV

7 Rehabilitation of drainage system "Plavna" – VV 82.82 06/08 07/08 01/10

Reconstruction of already regulated Jasenica 8 river and dyke from km 0+000 to km 10 +235 69.95 08/08 09/08 05/09 (Velika plana district) – SV

Rehabilitation of Danube’s bank Mladenovo 9 2.53 07/08 09/08 11/08 from km 39+450 to km 39+750 – VV

Rehabilitation of Danube’s left bank from 10 km1401 +400 to 25.40 07/08 10/08 10/09 km1401 + 479 – VV Rehabilitation of the Tovarnik canal- main canal 11 33.20 02/09 04/09 04/10 – VV Rehabilitation of the Tovarnik canal- secondary 12 6.16 02/09 04/09 08/09 canal – VV Rehabilitation of drainage system Plavna – 13 19.68 02/09 04/09 01/10 secondary canal – VV Rehabilitation of the gates Berava, Brzava and 14 3.69 02/09 04/09 07/09 Karasica, Plavna canal - VV Rehabilitation of the groyn on the left bank on 15 19.01 02/09 04/09 10/09 the Danube river by Glozan - VV Reconstruction of concrid bridge over the main 16 9.37 02/09 04/09 05/09 canal Plavna system - VV

17 Rehabilitation of canal Kupusina - VV 12.35 11/08 08/09 08/10 Construction of flood protection and control system in the river basin of the Kolubara river 18 244.591 09/10 10/10 09/12 tributary-the Tamnava river from km 13+700 to km 19+364 -SV Protection of the Sava River littoral area “Macva” – Reconstruction of the Sava River 19 239.492 09/10 10/10 09/12 right-bank levies from km 8+560 to km 18+029- SV

Regulatory works on the Mlava River (from km 5+470 to km 8+649) and its tributary - the 20 182.670 09/10 10/10 06/12 Grabovacki creek from km 0+000 to km 0+741 -SV Drina river and tributaries Flood Protection Areas: Rehabilitation of the Flood Protection System for municipalities and agriculture complex near Jadar river:(Protected Area "Drina 21 112.00 01/10 02/10 12/10 – Gornji Dobric"): reconstruction of already regulated Jadar river and dike – Phase 1.: km 2+610 (Jelava bridge) to km 8+393 (railway bridge) -SV Reconstruction of the concrete bridge over the river Plazovic/Construction of the bridges over 22 31.75 05/10 07/10 09/10 Jegricka reka, drainage system Lanka-Birda, drainage system Kaveraca and Plazovic-VV Rehabilitation of riverbank protective work on the left side of riverbed Danube in Apatin, on the 23 42.208 05/10 06/10 09/11 sections from rkm 1401+479 to rkm 1401+624 and from rkm 1401+624 to rkm 1401+770 -VV Supply of mobile equipment for flood protection 24 185.00 06/10 06/10 10/10 for the city of Novi Sad-VV

Construction of the flood protection system of the River Zapadna Morava and its tributaries - Protection Area Guca Regulation of the Bjelica River through Guca from km 1+043 to km 25 167.999 09/10 10/10 11/11 2+357, including works on securing of the channel flow capacity at the downstreem (km 0+000 to km 1+043) and upstream (km 2+357 to km3+489) sections -SV Construction of the Juzna Morava river and tributaries defense systems: (Flood protection 26 101.2 01/10 02/10 02/11 area “Nis”)-regulation of the Gabrova river from km 0+000 to km 1+660-SV

Works on reinforcement of the levies of the right 27 bank of the Begej canal on the section from km 139.745 09/10 10/10 11/11 0+000 to km 8+850

Construction of the protective levies of the Mlava river within the section from km 0+000 to km 3+154 and construction of the system for 28 116.614 09/10 10/10 10/11 protection of the lower settlements parts from ground and surface waters - Protection area Stari Kostolac-SV Protection of Ub Settlement from the Ubaca River High Waters – works on reconstruction of regulated river channel via the settlement (km 29 9+600 - km 11+300) including securing of the 391.370 06/11 06/11 05/13 flow capacity at the downstream (km 8+600 - km 9+600) and upstream section (km 11+300 - 12+300) -SV Works on reinforcement and super-elevation of 30 the levies at the Tisa River left bank on the 676.920 05/11 10/11 03/14 section from km 10+400 to km 28+546-VV Rehabilitation of the traffic route along the crown on the left bank of the Tisa levee from the 31 57.435 11/10 04/11 12/11 bridge in Zabalj to Babatovo (km 37+288 to km 43+403)-VV

Construction of storage facility for mobile 32 87.958 12/10 02/11 10/11 equipment for flood protection-VV

Rehabilitation of main dranage system Kikinda- 33 109.338 02/11 04/11 10/11 VV

Rehabilitation of drainage systems, the main 34 drainage canals and the secondary network, 76.152 02/11 04/11 04/12 Godominska area, Smederevo-SV Rehabilitation of the main drainage canal K and 35 secondary network Negotin depression, 62.552 06/11 07/11 06/12 Negotin-SV

Regulation of the Vrnjacka reka river, reconstruction of the structures within the already regulated river bed through Vrnjacka Banja from km 2+ 744,80 do km 3+615,20 and 36 152.122 05/11 06/11 08/12 ensuring of channel flow capacity on the upstream (km 0+544,00 – km 2+744,80) and downstream (km 3+615 do km 5+916,80) sections-SV

Rehabilitation of drainage system Cerski obodni 37 32.643 04/11 06/11 01/12 kanal- COK secondary network – SV Construction of pump of sewage pump station 38 132.359 11/11 12/11 10/13 "Glavna" in Sabac Protection of the right side levies of the Sava 39 River on location of sewage pump station 132.673 08/11 09/11 09/12 "Glavna" in Sabac

Works on rehabilitation of the bank revetment on critical spots at the Tisa River right bank on 40 321.082 12/11 01/12 05/13 section I (from km 36+360 to km 35+530) and section II (from km 34+029 to km 33+349)- VV

"Works on reconstruction of the system for 41 protection against high water level of the 458.318 03/12 04/12 06/13 Danube River in the area "Golubac"" Works on rehabilitation of the Bank revetment on critical spots of the Tisa River right bank on 42 section III (from km 25+915 to km 25+375) and 226.976 03/12 05/12 09/13 section IV (from km 21+682 to km 21+238)

Flood protection Macva (Sava-Drina): East 43 area: Works on reconstruction of the right side n/a n/a n/a n/a Split lots of Sava River upstream from Sabac 05/13 Extended Lot 1 43 to Section I: from km 2+336 to km 6+100 (3,76 198.644 01/13 02/13 .1 11/13 km) Extended to 03/14 Lot 2 43 Section II: from km 6+800 to km 8+560 (1,76 102.639 01/13 02/13 11/13 .2 km) Regulation of Pusta River from Kocanska petlja 44 83.557 06/13 06/13 11/13 to village Pukovac (km 0+000 - km 5+508)

Component 2 - The activities under this component faced severe delays from the start of the Project, due to reliance on adoption of the framework water law, which was originally expected in 2008, but delayed year by year up to mid-2010. The lack of enabling legislation and unclear targets of the implementing institutions and national authorities affected the delivery of activities

under this National authorities changed their approach to the formation of WUAs several times, causing further delays and despite concentrated support the activities started on the ground only in 2012. Despite significant progress achieved in 2012 and 2013, the time already lost in 2008 to 2011 could not be recuperated, which lead to inadequate results on the ground. Altogether some 5 village benefitted (Striza, Obrez, Leskovac, Pepeljevac and Plaskovac) from project support in establishing irrigation infrastructure over a total of 7 sites, implementing works contracts amounting to some US$2.40 million. The Villages and respective sites were supported in the creation of WUAs, provision of farmer's training, and completion of irrigation schemes related civil works - while another 21 WUAS have been established. At project closing some 1,600 ha are covered with infrastructure from investments in these schemes.

1. WUA: “Izvor” Location of WUA village: Striza municipality: Paracin geographical position of central Serbia WUA: economic status of area: developing

Type of pilot project: Electrification of field for irrigation. Pilot project data: Tender launched: 18. August 2012. (tender: NCB) Bedding opening: 24. September 2012. Contract number: SRB-IDR-NCB-061-W-12-4105/YF (404-02-41/2012-07) Contract value: 59.058.706,14 RSD Final payment of Contract: 62.672.095,63 RSD Construction started: 13. November 2012. Construction completed: 01.04.2013. Pilot project status: Completed

2. WUA: “Agro Oberez” Location of WUA village: Obrez municipality: Varvarin geographical position of central Serbia WUA: economic status of area: Developing

Type of pilot project: Electrification of field for irrigation. Pilot project data: Tender launched: 19. June 2013. (tender: NCB) Bedding opening: 18. July 2013. Contract number: SRB-IDR-NCB-0675-W-13-7467/YF (401-00-1152/2013-07) Contract value: 58.297.673,90 RSD Final payment of Contract: 60.610.149,88 RSD Construction started: 27. August 2013. Construction completed: 24. December 2013. Pilot project status: Completed

3. WUA: “Juzna Morava” Location of WUA village: Donje Krajince municipality: Leskovac geographical position of southern Serbia WUA: economic status of area: Undeveloped

Type of pilot project: Electrification of field for irrigation. Pilot project data: Tender launched: 15. August 2013. (tender: NCB) Bedding opening: 13. September 2013. Contract number: SRB-IDR-NCB-068-W-13-7467/YF (404-02-280/2013-07) Contract value: 20.677.568,42 RSD Final payment of Contract: 22.369.513,76 RSD Construction started: 04. November.2013. Construction completed: 22. March 2014. Pilot project status: Completed

4. WUA: “Eko hrana” Location of WUA village: Gornje Krajince, Zlocudovo, Numanica municipality: Leskovac geographical position of southern Serbia WUA: economic status of area: Undeveloped

Type of pilot project: Electrification of field for irrigation. Pilot project data: Tender launched: 15. August 2013. (tender: NCB) Bedding opening: 13. September 2013. Contract number: SRB-IDR-NCB-068-W-13-7467/YF (404-02-280/2013-07) Contract value: 24.988.246,88 RSD Final payment of Contract: 30.023.408,89 RSD Construction started: 04. November.2013. Construction completed: 22. March 2014. Pilot project status: Completed

5. WUA: “Jablanica” Location of WUA village: Donje Krajince municipality: Leskovac geographical position of southern Serbia WUA: economic status of area: Undeveloped

Type of pilot project: Electrification of field for irrigation. Pilot project data: Tender launched: 15. August 2013. (tender: NCB) Bedding opening: 13. September 2013. Contract number: SRB-IDR-NCB-068-W-13-7467/YF (404-02-280/2013-07) Contract value: 11.563.576,62 RSD Final payment of Contract: 13.216.446,31 RSD Construction started: 04. November.2013.

Construction completed: 22. March 2014. Pilot project status: Completed

6. WUA: “Rodno polje” Location of WUA village: Pepeljevac municipality: Kursumlija geographical position of southern Serbia WUA: economic status of area: Undeveloped

Type of pilot project: Construction reservoir and pipeline for field irrigation, supplying valves and pump. Pilot project data: Tender launched: 14. November 2013. (tender: shopping) Bedding opening: 25. November 2013. Contract number: SRB-IDR-SH-069-W-13-7467/YF (404-02-324/2013-07) Contract value: 5.811.435,84 RSD Final payment of Contract: 5.811.435,84 RSD Contract singed: 09. December 2013. Construction started: 12. December 2013. Construction completed: 28. February 2014. Pilot project status: Completed

7. WUA: “Zlatne kapi - Oplenac” Location of WUA village: Plaskovac municipality: Topola geographical position of central Serbia WUA: economic status of area: Developing

Type of pilot project: Supplying equipment for already constructed pipeline for irrigation of orchard (frequency converter, filter for water cleaning, pump for fertilization and probe for moisture measuring in soil). Pilot project realization Tender launched: 28. February 2014. Bedding opening: 05. March 2014. Contract number: SRB-IDR-SH-070-G-14-7467-YF (404-02-92/2014-07) Contract value: 2.533.850 RSD Final payment of Contract: 2.533.850 RSD Installation equipment 13. March 2014. started: Installation equipment 24. March 2014. completed: Pilot project status: Completed

Component 3 - Progress under this component varied significantly throughout project implementation, reflecting the overall level of client ownership, which changed during and after the each of Ministry's top management changes. Initial slow start of the implementation activities, related to lack of legal conditions under the framework water law, was later replaced by internal

resistance to change in water-sector-related institutions, and at times, even lack of subordination. Changes in internal governmental division of responsibilities between Serbia and its Vojvodina Province (mandated by the Constitution) further exacerbated this situation, while privatization of some institutions that were expected to benefit from the Project's activities made these legally impossible or irrelevant. The above reasons lead to moderately satisfactory and/or unsatisfactory performance during the large portion of overall project duration. Due to above situation, there are only a few activities that were successfully completed - amongst them installation and commissioning of the high capacity weather radar to increase capacity of national forecasting service at a cost of US$1.40 million and the support to the Working Group for development of institutional aspects in the water sector - including water law and WUA law; and testing WUA type of organizations to provide institutional basis for upgrade of the irrigation sector amounting to some US$250,000.

The activities related to provision of various equipment and studies for other institutions, like for Hydromet service (planned automatic recording stations become largely obsolete with installation of high-capacity radar), Vegetable Research Institute (which was privatized and changed scope of activities) and DTD system (unclear lines of responsibilities in respect to the Ministry) were not completed, and were finally dropped during the project restructuring in 2013.

Estimated Contract Works Works Contract No. Scheme and Water Authority date started completed Value Comment (mm/yy) (mm/yy) (mm/yy) (mil. RSD)

Supply of a Meteorological Doppler Delivered & 1 94.000 06/10 07/11 04/11 Weather Radar System installed

TA assignments in support of regulatory and institutional support 0.200 - - - for DBs and Ministry

TA assignments to support WUAs 6.0 - - - and minor irrigation

Component 4 - Frequent changes of the Ministerial top management team resulted in several temporary slow-downs of the project implementation activities. However, day-to-day management of Project Implementation Team remained at the hands of the same Project Coordinator, which provided a degree of certainty and contributed to adequate project management over the largest part of the Project duration. PIT was fully staffed only in July 2009 once works contracts were under implementation. Monitoring and evaluation activities faced significant delays during the early years of project implementation but improved over time. The resources towards PIU support in part due to project extensions and monitoring of additional works substantially overran the combined Project Management budget of the original and AF.

Annex 3. Economic and Financial Analysis (including assumptions in the analysis)

The Economic Analysis of the PAD broke the investments down into four distinct categories to estimate the economic benefits of the project as follows:  Benefits from Drainage Rehabilitation  Benefits from Flood Protection  Benefits from Irrigation, and  Fiscal impact of reduced increased agricultural tax revenues and lower flood recovery costs on infrastructure and public buildings and lower cost of emergency interventions.

The AF principally went to finance component 1 Drainage and Flood Protection. The AF did not make a difference between flood protection and drainage rehabilitation and investment expenditures between the two activities were not segregated during project implementation. In many ways this makes sense since these systems typically do not function in absence of, but complement each other especially in Northern Serbia and Voijvodina where the drainage/flood protection infrastructure serves for both, to evacuate excess water in winter and spring while also providing the water source for irrigation during longer dry periods in summer. Furthermore, the project did not strictly limit itself to either flood protection or drainage works but also peripheral infrastructure such as bridges, pump stations, sewage pumping, etc... which may not have contributed to reduced flooding but as such provide major unquantified economic benefits.

Total AF costs including counterpart financing amounted to US$62.5 million of which US$50.0 million where in the form of IBRD Loan the total project costs therefore where expected to rise to US$91.2 million. The agreement to drop counterpart funding for works that were to amount to some US$ 16.5 million and cancellations at the closure of the project of some 3.75 million reduced the project investments effectively to US$75.00 million.

The economic analysis in the AF estimated that the damage to agricultural lands from floods of the dimension of 2006 lead to agricultural damages estimated at some US$780 per ha for a total of US$188.00 million given the 240,000 ha that were affected. The recent floods of May 2014 were of a higher magnitude and estimated to have caused some US$1.3 to 1.50 billion in damage as they were combined with very heavy rainfalls reportedly amounting to 250 mm within a period of less than one week in what is naturally a flood prone region. However, area reportedly flooded and needing replanting is considerably smaller than in 2006 amounting only to some 16,000ha. As maps of the disaster area show on May 16, 2014 (see in MAP annex comparing work sites and flood areas) the Voivodina along the Tisa, Tamis and Danube and areas of Central Serbia along the Moravia where the majority of the works were performed have been largely spared in part as a results of the flood protection works that were undertaken under the project. The most affected areas were along the Drina River intersecting with the Sava and downstream towards Belgrade where code red was declared. At the beginning of the following week yellow alerts were also declared long the Moravia and Mlava river.

However it must be noted, that the floods were estimated to be an over 1-100 year event and thus near or above the design specifications of the works. However, none of the reconstructed or rehabilitated dykes and control structures have failed.

Estimated Damage avoided from flood protection and drainage works.

The project funded construction and rehabilitation of flood control works in Vojvodina and Central Serbia at a total cost of US$ 60.00 million. In Vojvodina, various works were carried out over a distance of 16 km on the banks of the Danube starting from the Hungarian border to a point between Backa Palanka and Novi Sad and the lef. Similar works were undertaken along the Sava flowing from the East, Tamis and Tisa flowing from the North to the Danube, and the Moravia flowing from the South to the Danube. In Central Serbia on the Sava, the works were performed over two sections on either side of a section of levies that were upgraded from 1:25 to 1:100 probability flood protection from the Government’s own resources.

The main benefits from the investments were to be the averted cost of damages to agricultural crops, livestock, residential housing, public buildings, transportation infrastructure, and hydrological infrastructure as well as averted cost of dyke repair and other flood management that will not be needed thanks to rehabilitation. There will be also a risk reduction for loss of life, but this was not accounted for in the financial and economic analysis.

Methodology - A cost benefit analysis determines the EIRR for a period of analysis of 20 years. Estimating flood risk reduction benefits is based the damage avoided approach. the theory assumes that low flood river flows with minimal damage occur frequently while higher river flows occur progressively infrequently with progressively higher damage. Thus the probability of river flow level return periods can be matched with the damage they cause. For example, a certain magnitude (value) of damage is caused by a flood that occurs every 10 years (0.1 probability of occurrence). The river flow level from a flood return period of 25 years (0.04 probability of occurrence) is likely to be much higher and cause much more damage than the river flow level from a 10 year return flood.

A loss probability curve6 was established for with /without project scenarios based on a number of flood return periods (i.e., 10, 25, 50 and 100) and the associated damage caused by each return period flood. Given the loss probability curve, the annual expected value of flood damage can be calculated for each scenario. The annual expected value of flood damage from the with-project scenario is then subtracted from the annual expected value of flood damage of the with-out project scenario. This is the annual expected

6 The methodology is found in: R.N. Forbes, Drainage, Flood Control and Soil Conservation Projects. In: Cost Benefit Procedures in New Zealand Agriculture. Economics Division, Ministry of Agriculture and Fisheries, New Zealand, 1977.

benefit (loss avoided) from undertaking the project and is used as the figure for the benefit stream to calculate the rate of return. Damage frequency curve.

Tangible Damage Loss Avoidance Estimates - Flood control damage loss avoidance estimates for 10, 25, 50 and 100 year flood return periods were calculated. Damage estimates were obtained for each flood return period for (i) agriculture crops (ii) agricultural animals, (iii) forestry land damage, (iv) damage to roads, (v) damage to railways, (vi) damage to bridges, (vii) damage to residential housing, (viii) damage to public buildings, (ix) damage to industrial and business centers, (x) damage to hydro infrastructure, (xi) with-out project flood management and other costs, and (xii) cost of without project dyke repair.7

Calculation of Annual Expected Flood Damage avoidance in US$ million Flood Rehabilitation Probability of W/out Project With Project Occurrence Damage DC X DC X Cost (DC) probability DC prob. 0.00 -1.00 0.00 0.00 0.00 0.50 1.09 0.55 0.00 0.00

0.30 6.56 1.97 0.00 0.00 0.10 114.98 11.50 0.00 0.00 0.06 396.40 15.86 28.68 0.29 0.02 751.91 15.04 75.18 0.75 0.01 1098.48 10.98 679.96 6.80 0.01 1266.92 12.67 1266.92 12.67 Sum 1.00 68.56 20.51 Annual Damage Avoided 48.0

7 Maps were made by the Jaroslav Cerni Institute of the flood area under each of the four flood return periods. Then, for each flood return period, the number of hectares of agriculture land, forest land, km of roads and railways, number of bridges etc. were counted and given an estimate of their replacement value if lost or the cost of rehabilitation.

The annual expected flood damage that would be avoided with the undertaking of the flood control and bank reconstruction/rehabilitation under the project with AF was estimated to be US$ 48.00 million.

Costs - The total costs for the flood control construction and rehabilitation sub- component are US$62.00 million including design and supervision. Annual operation and maintenance (O&M) costs are estimated to average 2.5% of the investment of dyke and control infrastructure reconstructed or rehabilitated.

Results - An EIRR of 36% was estimated for the flood protection and drainage activities under the project at a NPV of some US$130.00 million at a discount rate of 12% over 20 years.

Sensitivity Analysis and Switching Values - For the EIRR to reach 12% project costs would have to decrease by 75%. Summary of Economic Analysis for flood protection

-50% -75% Base Case Decrease In Decrease in Benefits Benefits 36% 23% 12.5%

Estimated Agronomic Benefits from improved drainage & flood protection. The project impacted some 440,000 ha of land altogether including residential and improved (buildings and infrastructure in and to villages and to farms) and agricultural land. Actual drainage works specifically designated as such were performed on some 105,000ha. However, due to the complexity and multi-purpose nature of the flood protection/drainage infrastructure that is also used as an irrigation source, segregating the benefit of each function from the system is difficult. To get a sense of the benefits, however, the project did commission a survey in its last year of operation which points to an increase of some 25% in productivity of the land within the rehabilitated territory composed of 11% yield increases and reduced production costs of some 15 to 20%.

The reductions in production costs stem mainly from two factors, less replanting due to less yearly spring/winter flooding, and lower irrigation pumping costs due to closer proximity to water sources (drainage canals), while yield increases stem from reduced water stress of crops due to improved water management. Assuming aggressively that approximately 20% of the affected project area is built for residential, urban or transport and industrial use, and another 40% is forested or uncultivated meadow area, this leaves approximately 175,000ha of arable agricultural land benefitting from the combination of drainage & flood protection and is within the estimates of the final project status report of works.

Costs – The investments benefitting mainly agriculture and forestry were assumed to cost a third of what they are expected to cost for flood protection of residential/urban/ industrial areas. So while rural areas consist of 80% of the project area, the cost of

investments benefitting rural areas exclusively was estimated to be of some 35.00 million. No estimates were made for benefits accruing on non-arable land such as forests or meadows representing 40% of the project area. While investments benefitting arable land would amount to some US$25.00 million plus 2.0% of O&M costs.

Results - Assuming a conservative average net income per ha of some US$250.00 across the various crops grown in the region with 25% productivity improvement equating US$62.5/ha, the benefits amount to roughly US$9.5million in additional agricultural output from the 175,000 ha of arable agricultural land in the project area per year. This is equivalent to a Net Present Value of some US$28.1 million and an IRR of some 36% at a discount rate of 12% over 20 years.

Summary of Economic Analysis for Agronomic benefits

-50% -75% Base Case Decrease In Decrease in Benefits Benefits 36.00% 15.5% 2.0%

Component 2: Minor Irrigation Development Program

The project invested some US$ 2.20 million to support the Minor Irrigation Program. A condition for participation by WUAs was that at least 10% of investment costs had to be contributed by the farmers pushing investments to US$2.40 million. Several minor irrigation schemes were developed covering a total of some 1,600 ha of fairly productive land cultivated mostly with higher value horticulture, orchard and commercial field crops. The cost of the investment per ha amounts to some US$1,350.00/ha which covers both, full systems with piping and hydrants for which the farmers need to buy their own sprinklers or drip irrigation systems, and systems where electrification was provided. In more than half of the WUAs formed, farmers were already irrigating using their own motor pumps and piping and sprinklers or dripping hose. The motivation to participate by farmers nonetheless was the cost of fuel and the prospects to switch from gasoline or diesel powered pumps to electrical power. This would reduce pumping costs by 75%. Part of the program’s intent as envisaged in the PAD already was to establish a few well- functioning pilots to drive demand for further investments or develop a support measure as part of the Ministry’s rural development program with IPARD funding.

Fiscal Analysis The ICR did not undertake a fiscal analysis as the reforms introduced re-established publicly financed Water Boards and increased public expenditures in the water sector to ensure adequate maintenance and operation of the extensive water management infrastructure in the country.

Annex 4. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members Responsibility/ Names Title Unit Specialty Lending Tijen Arin Senior Environmental Economist EASER Elmas Arisoy Manager EASR2 Rita E. Cestti Sr Water Resources Spec. OPSOR Usaid I. El-Hanbali Consultant ECSAR TTL Giuseppe Fantozzi Senior Rural Development Speci AES Michael Gascoyne Senior Resource Management Off WBICA Anna C. O'Donnell Social Development Specialist SASDS Helen Z. Shahriari Sr Social Scientist AFTCS Kathy E. Sharrow Program Assistant ECSSD Jyldyz Wood Junior Professional Associate ECSSD

Supervision/ICR Elmas Arisoy Manager EASR2 Aleksandar Crnomarkovic Sr. Financial Management Specia ECSO3 Usaid I. El-Hanbali Consultant ECSAR Senior Rural Development Giuseppe Fantozzi AES Specialist Ruxandra Maria Floroiu Senior Environmental Engineer EASER Stjepan Gabric Senior Operations Officer ECSUW Daniel P. Gerber Rural Development Specialist ECSAR Nikola Ille Senior Environmental Specialist ECSEN TTL Bekim Imeri Social Scientist ECSSO Gabriel Ionita Sr. Agricultural Spec. ECSAR Plamen Stoyanov Kirov Senior Procurement Specialist LCSPT Mirjana Popovic Online Communications Associat ECAEX Ama Esson Program Assistant ECSSD Nikola Kerleta Procurement Specialist Olivera Jordanovic Operations Officer ECSAR

(b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands (including No. of staff weeks travel and consultant costs) Lending FY04 54.50 FY05 406.40 FY06 0.50 FY07 0.00

FY08 0.00

Total: 461.40 Supervision/ICR FY04 0.00 FY05 0.00 FY06 146.60 FY07 97.00 FY08 124.00 FY09 60.00 FY10 58.25 FY11 58.25 FY12 58.25 FY13 54.00 FY14 79.00

Total: 1,196.00

Annex 5. Beneficiary Survey Results 1. Research Methodology and Sample Starting from the Project goals, we turned to the standardised face-to-face interviews in our research; the interviewees were owners of household positioned near the channels and dikes the revitalisation work was carried at. Concretely, these are the interviews with appropriate sample of farming household owners, whose property was exposed to the effects of non-regulated waters prior to the works, as well as with the proprietors of non-farming households who own houses/apartments at the defended area.

Another procedure for collection of data were in-depth interviews that encompassed the following: i) decision makers - the advantage was appointed to the head of designated local community; ii) experts from water management companies that carried out the works and the companies responsible for maintenance of objects; iii) influent professional individuals from the defended area (absolute advantage was given to selection of agronomic or some other agricultural experts in the farming areas), and iv) owners of larger farms and/or owners of business objects in the defended area or along the channel. In farming areas, at each of the objects, interviews were carried out with four to five individuals of the described profile.

Selection of households was done in different areas of defended region: i. At the beginning of a channel; ii. In the middle of a channel; iii. At the lower end of a channel, and iv. In the background of properties situated by the channel.

At larger objects, 10 interviewees (4x10) were selected from each of the group of households; at smaller objects, four households were selected (4x10).

The lists of households in each of the group were made based upon pairing of data from documentation of companies that carried out the works and the cadastre. The selection of particular household was random in each of the groups, with taking into account that at least three quarters of selected households be the registered households (see the following Table).

Location of Interviews and Types of Households (in absolute numbers) Farming - Interview location Non-farming Farming - registered Total unregistered Bavaniste channel - 3 32 35 Kupusina - Sombor 11 8 21 40 Plavna channel 5 3 34 42 Tovarnik channel - 10 29 39 Gabrovacka River - Nis 39 1 - 40 Cer side channel 17 11 12 40 Total 72 36 128 236

Out of the total number of households whose owners were interviewed, 164 (or 69%) were farming households (128 registered, 36 non-registered); whereas 72 (or 31%) were non-farming8. The largest number of households (38%) were at the middle of the channel/dike, then in the lower part (27%), upper part (21%) and 14% in the background of channel/dike. Due to the fact that we aspired to interview household owners, our appropriate sample has predominantly male group - 77%, against 23% of women. In relation to the age, 18% of interviewees were under 40, from 40 to 50 there were 23% of them, from 50 to 60 29% and above the age of 60 there were 30% of interviewees.

Almost half of the interviewees - 48% - had only elementary education (complete or not); two or three vocational training schools were completed by 22%, four-year secondary schools by 32%, while 11% had higher or university education. It is interesting to note that, when educational structure is concerned, the farmers were more advanced than non-farmers: 39% with elementary education or less, 18% with two or three years vocational training, 33% with four-year secondary schools and 10% with higher or university education. Our appropriate sample consisted of 48% of farmers, 26% of workers, 19% of technicians and clerks with secondary schools and 7% of experts.

At the average, the surveyed households had four members; 39% of households had less than 4, while the same %, 39, were those who had more than 4 members. In 59% of households there were no members younger than 15 and 20% of households were with one child. Seventeen % had two children and 4% had three or more. In 51% of households there were no members above the age of 65, in 28% there was one, in 19% there were two, and in 2% of households there were three or more members older than 65.

Exactly half of the household had no employed member; in 27% there was one employed, in 19% there were two, while in 4% there were three or more employed members. In 60% of households no one was looking for a job, in 26% of them one member was looking for a job, in 11% there were two and in 3% there were three or more members looking for jobs.

We could not obtain data on average monthly income per household member in one in five households (regardless of the source). Average income per household member was 10,000 RSD p/m for 23% of households, from 10 to 20,000 in 35%, from 20 to 40,000 in 16% and only 6% of households had more than 40,000RSD.

On average, homes of non-farming households surveyed were 65 metres away from channel/dike. Homes of non-registered farmers were, at an average, 310 metres away from channel/dike. Homes of registered farmers were 1,299 metres (1.3 kilometres) away from channel/dike, at an average. A total of 88% of registered households have a field that is, at most, 100 metres away from channel/dike. The average distance of all properties for 87% of households is less than 1,000 metres from a channel/dike.

The average size of property of registered farmers is 18 hectares. Almost two fifths (38%) of registered farmers take land under lease. The average lease costs 200 euros for each of them. From this category of farmers, 20% hire helping hands, i.e. seasonal workers.

8 There were no data about the nature of household for seven of them in the questionnaire; we could not establish afterwards if they were farming or non-farming ones.

2. Awareness on Water Regulation Works under IDRP About three fifths of citizens who live near the channels and dikes that were revitalised were not informed about the works to be done, and are not familiar, even today with the issues of water regulation objects management.

The number of informed and informed to a point was a bit bigger at the time prior to the beginning of works than today, when maintenance of channels and dikes is in focus (21% against 15%). It is also worth noting that awareness about the works was at a bit higher level while the works were carried out than in the period prior and after them. This is best seen when average awareness is taken into account. Although it is, in all three cases, within the limits of low awareness ("I knew something") and stands at 1.73 (minimum = 1, maximum = 4); however, there are significant differences. On one side, there are low assessments of awareness before the works began (1.67) and on the maintenance of water regulation objects (1.61); on the other hand, there is a bit higher assessment mark of awareness at the time the works were carried out (1.90).

One has to bear in mind the fact that the ratings of awareness are de facto self-assessments, as the interviewees put them themselves. It is realistic to suppose that they were biased and that, at least, some of them rated their awareness at the higher level than it objectively is. Awareness is a socially desired answer, in contrast non awareness. If the hypothesis is correct, we can assume that the un-awareness is yet higher, while awareness is lower than what was established based upon self-assessment of the awareness level. A sort of control of self-assessment was done through the following question: "Do you know who is responsible today for irrigation/drainage in your region?" Due to the fact that this test-question was very general and that the answers to it were offered, we did not expect the % of non-informed people to be high. In fact, with this question, we wanted to establish the relative % of those who are completely uninformed.

However, despite this, it turned out that the number of uninformed was very high - almost half of the interviewees (48%). When the number of those who said they don't know precisely who is responsible for water regulation objects maintenance is added the number of those who gave incorrect answers (municipality 5%, local community 3%), we come to the 56% of uninformed citizens against 44% informed. We came to the almost same relation when self-assessment was applied - 57% of uninformed against 43% of those who are little, up to a point and completely informed. We can conclude that we can trust the established assessments of (self)awareness: generally, a bit more than half of interviewees are uniformed about the issue of revitalisation of dikes and channels, a fifth is informed, and two fifths are partially (a bit and to a point) informed.

The answers to questions about (non)awareness should be viewed in context of the answer to the following question: Who should take care about the maintenance of drainage channels and dikes?. Answers to this question indicate a bit the level of citizens' interest for the issues of revitalisation and maintenance of water regulation objects.

Firstly, we found out that all interviewees said they know who should take care about the maintenance of drainage channels and dikes. Three fifths of interviewees (62%) named relevant public water management enterprises that really take (and should take) care about the water regulation objects. On the other hand, two fifths (38%) named some other actors, mostly the municipality (18%). Other (potential) actors for channel and dike maintenance were named in significantly fewer numbers: 7% - "citizens upon self-initiative", and 3% each "local water supply and sewage companies" and "people whose property is close to the channel"; 7% said "someone else".

So, when this question is concerned, and within the context of our test questions, we conclude above all that half of the interviewees don't know who is responsible for channels and dikes maintenance, i.e. drainage and irrigation objects, but they all know who should be responsible!

Table 1: Awareness of the Water Regulation Works (in %)

Activities before Status of Maintenance of Average the beginning of works water regulation works objects Uninformed 61 39 57 53 Informed a bit (I knew 28 18 40 28 something) Informed up to a point 13 14 12 13 Informed 8 7 3 6 TOTAL 100 100 100 100  (min 1, max 4) 1,67 1,90 1,61 1,73

Due to the fact that we have claims, obtained in in-depth interviews (particularly by "representatives" of water management companies) that all those who live or have property by revitalised channel and dike were regularly informed about the work to be done, a certain question arises: is this really the case of non awareness or something else?

There is a question also if citizens are uninformed because they didn't want to be (but had such a possibility) or they maybe forgot that they were informed about the work to be done, about its status and modes and about those responsible for maintenance of water regulation objects?

We expected that registered farming households were more informed than the others when the issue of irrigation and drainage is concerned. However, this is not the case. Correlation between the type of a household and knowledge about responsibility for water regulation maintenance is 0.28; correct answers are provided by 62% of interviewees from non-farming households, 47% from unregistered farming households, followed only then by registered farming households with 34% of correct answers. Correlation (or the contingency coefficient) between the opinion on water management maintenance and education level of interviewees stands at 0.30. Average awareness (min=1, max=4) when household owners with elementary school (or less) stands at 1.54; they are followed by those with two-year vocational training - 1.59, while it stands at 1.69 among those with four-year secondary schooling and higher levels of education. In fact, when data on type of household and education levels of owners are linked, we come to conclusion that the more educated farmers are more informed than the others, but only when the same level of education is taken into account (for example, among interviewees with four-year secondary education, farmers are more informed than non-farmers).

In total, the level of awareness among citizens was very low when beginning and during works. The dominant target group in our research - the registered farming households - based upon statements of their owners, were neither sufficiently nor properly informed; 59% of them were not informed about working activities before they began; only 13% were completely informed; when course of the work actions is concerned, the ration between the uninformed and informed is 42% against 12%, and when maintenance of water management objects is concerned, it is the whole 64 against 5%.

In this context, we can come to the following conclusion: even if regular and compulsory information was provided to citizens who live and/or work close to channels/dikes that were

revitalised, as some of the interviewees from reconstruction companies claim, the information was not at sufficient level, neither in quantity nor in quality.

Satisfaction of Citizens BEFORE and AFTER the Works

The following four elements of work activities, i.e. four effects of work on channels and dikes, were taken as key indicators for successful revitalisation of water regulation objects: 1) Flooding defence, 2) Regulation of underground waters, 3) Drainage/outflow of surplus water, and 4) Irrigation possibilities.

In fact, these elements make hydro-technical melioration. Simply said, the substance of these indicators is that people are not afraid from floods, that there are no obstacles from underground or ground waters when farming the land, and that they can irrigate their fields.

We asked people what was the level of their satisfaction and dissatisfaction with these four elements today, when works are finished. The rise in degree of satisfaction was for us the sign of successfully completed works, or revitalisation of water regulation objects.

Table 2: Satisfaction of citizens with water regulation objects works (in %)

How satisfied and how Before the works After the works dissatisfied are you with… 1 2 3 4 5  1 2 3 4 5  Flooding defence 24 15 31 20 10 2.78 10 9 32 26 23 3.43 Possibility of irrigation 29 14 25 25 7 2.66 26 8 15 25 26 3.18 Regulation of underground waters 31 14 31 16 8 2.54 18 7 25 29 21 3.29 Drainage/outflow of surplus water 29 20 32 14 5 2.46 14 8 27 33 18 3.35 Average 28 16 30 19 7 2.61 17 8 24 29 22 3.31 Legend: 1 = very dissatisfied; 2 = dissatisfied; 3 = neither satisfied nor dissatisfied; 4 = satisfied; 5 = very satisfied; 0 = average value of satisfaction (min = 1, max = 5)

Forty four % of interviewees were dissatisfied with situation BEFORE the works began, 30% were neutral - neither satisfied nor dissatisfied, while 26% were satisfied. The average rating of "previous dissatisfaction" was 2.61 - so, only a bit above the borders marking the "dissatisfied" and "neutral" rating. The owners' dissatisfaction was mostly centred on drainage (49%), regulation of underground waters (45%), possibilities for irrigation (43%) and flooding defence (39%). Satisfaction ranged between 19% (drainage) and 32% (possibilities for irrigation).

Twenty five % of interviewees are dissatisfied with situation AFTER the completion of works; 24% are neutral, while 51% are satisfied. The average rating of current dissatisfaction is 3.31 - a strong B, which is close to bordering the rating of "satisfied".

Today, one in two households is satisfied with any of the researched indicators related to the success of revitalisation of water regulation objects (the % of satisfied ranges between 49 and 51%). On the other hand, the % of those who are dissatisfied is the lowest when flooding defence

is concerned (19%), drainage (22%), regulation of underground waters (25%) and possibilities of irrigation (34%)9.

Comparison of previous and current levels of satisfaction and dissatisfaction among citizens shows, as it was easy to establish from provided data, that the satisfaction among citizens rose at an average level from 26% to 51% (or, from the prospective of average rating from 2.61 to 3.31). If we index the dissatisfaction with previous situation with 100, then we see that the current dissatisfaction has the index 57, and satisfaction the index 198. This is obviously the case of very visible improvement of situation when waters and water regulation are concerned!

Comparison of satisfaction and dissatisfaction index, when individual indicators are observed, the biggest decrease in dissatisfaction is linked with irrigation (100 to 45) and regulation of underground waters (100 to 48), and a bit lower in cases of drainage (100 to 44) and flood defence (100 to 78). Increase of satisfaction is almost threefold in case of irrigation (100 to 279), double in case of drainage (100 to 219), and very high in case of flooding defence (100 to 170) and regulation of underground waters (100 to 165).

Average ratings of dissatisfaction that comprise all the aspects of changes of levels of satisfaction and dissatisfaction are highest for drainage - for 0.89, regulation of underground waters, for 0.75, in case of flooding defence 0.65 and finally irrigation - new average rating for satisfaction is higher by 0.52.

Table 2: Dissatisfaction of citizens with water regulation objects works

9 This is a percent to be remembered. As the key for understanding of status marked with non-regulated waters and water regulators was lack of drainage and presence of underground waters, current status is marked with little opportunities for irrigation. This is why we have a bit higher dissatisfaction than in other cases. One should suppose that the expectations in this area were very high (and were imposed to citizens before the works began), so that disappointment with small possibilities for irrigation are higher. However, the small or decreased possibilities for irrigation do not necessarily have to be related to revitalisation of water regulation objects; they could be related to high costs of irrigation equipment etc.

Among the registered farmers, the decrease of dissatisfaction is expressed the most when drainage is concerned (100 against 53), in cases related to flooding defence (100 against 63) and regulation of underground waters (100 against 64) and, in the end, in case of irrigation (100 against 75). The increase of satisfaction is highest when drainage is concerned (100 to 280), regulation of underground waters (100 to 193) and in flooding defence (100 to 159) and irrigation (100 to 158).

The interviewees surveyed in in-depth interviews (the so-called relevant informants) are satisfied to greater extent than the basic population. The average rating of their satisfaction is 4.14 (compared to 3.32) in case of basic population. It was assessed, in the in-depth interviews, that the citizens, at an average, are satisfied with completed works; the average rating is 3.83, which is higher than the rating the citizens express themselves in regard to the level of their satisfaction.

Summarized, it is an undisputable fact that there was a significant decrease of dissatisfaction and high increase of satisfaction among citizens; today, we have half of satisfied citizens, compared to a quarter in the previous period; this means that satisfaction of citizens has doubled. However, this doesn't mean that dissatisfaction has disappeared, although it is half from what it used to be.

Evaluation of non-regulated water effects

(4.1) Evaluation of risks of possible damages before and after the water regulation works

We examined the assessment of risk from bad waters for 12 items, including the risk to life of the interviewee, lives of his family and citizens in general. We asked the interviewees, property owners close to the revitalised dikes and channels, to evaluate the risk for given items before the revitalisation works and risks for same items after the work was completed. The comparison of two risks should have provided us with results on assessed risk intensity, location and structure of risks, as well as the idea about changes in relation to situation before the works.

Table 3: Evaluation of risks from damage Before and After the water regulation works (in )

Risks from possible damage 1 very 2 high 3 medium 4 low 5 very low   high Before 23 10 17 17 33 100 3.26 Drinking water After 10 6 11 21 52 100 3.98 Difference -13 -4 -6 +4 +19 0.72 Industrial or Before 14 15 18 17 36 100 3.47 animal feed After 6 7 11 23 53 100 4.09 crops, soy… Difference -8 -8 -7 +6 +23 0.62 Before 16 21 16 12 35 100 3.30 Grain After 7 12 16 16 49 100 3.88 Difference -9 -9 0 +4 +14 0.58 Before 15 19 12 14 40 100 3.46 Vegetables After 8 6 15 23 48 100 4.07 Difference -7 -13 +3 +9 +8 0.61 Before 14 8 10 19 49 100 3.80 Auxiliary objects After 3 5 9 24 59 100 4.31 Difference -9 -3 -1 +5 +10 0.51

Before 13 9 12 16 50 100 3.82 House/flat After 2 6 9 28 55 100 4.28 Difference -11 -3 -3 +12 +5 0.46 Before 12 8 9 21 50 100 3.88 Food and After 4 2 8 31 55 100 4.31 provisions Difference -8 -6 -1 +10 +5 Before 12 8 7 21 52 100 3.93 Appliances at After 3 5 9 22 61 100 4.35 house/flat Difference -9 -3 +2 +1 +9 0.42 Before 13 15 10 16 46 100 3.68 Fruit and After 7 7 10 23 53 100 4.07 vineyards Difference -6 -8 0 +7 +7 0.39 Before 10 6 9 18 57 100 4.08 Agricultural After 2 2 7 28 61 100 4.44 mechanisation Difference -8 -4 -2 +10 +4 0.36 Interviewees and Before 11 5 7 16 61 100 4.10 citizens in After 3 3 10 16 68 100 4.43 general Difference -8 -2 +3 0 +7 0.33 Before 11 5 5 11 68 100 4.21 Cattle After 3 4 3 19 71 100 4.51 Difference -8 -1 -2 +8 +3 0.30 Before 14 11 11 17 48 100 3.74 Average After 5 5 10 23 57 100 4.15 Difference -9 -6 -1 +6 +9 0.41

Before the works have started, at an average, in 65% of cases the risk was evaluated as very low or low, in 11% as medium, and in 25% of cases as high and very high.

Average of all risks

After the works were completed, an average of 80% of interviewees are of the opinion that risks are low or very low, 10% that they are medium, and another 10% that they are high or very high.

All high or very high risks have decreased two and half times, from a 25% to 10%. The greatest risk has been found in the areas of vegetables, grains, fruit and vineyard production, industrial and cattle feed crops, but also the risk of water contamination. In the second group, risks linked to house/apartment, equipment, food and provisions, auxiliary objects and

mechanisation have decreased, too. In the end, the third group comprises risks that were already lowest, the risks for people and cattle.

(4.2) Evaluation of damage from bad and non-regulated water

A bit more than half of our interviewees (almost three fifths or precisely 56%) assessed that prior to water regulation works they did suffer lower or higher damages from it. High level damages are described by 28% interviewees, medium by 12%, and low by 16%. If we mark the lack of damage with 1, low damage with 2, medium with 3, high with 4 and very high with 5, then the average evaluated damage before the beginning of works or damage index stands at 2.33 (between medium and high, with the estimate being closer to the latter).

Table 4: Evaluation of damage from water before and after the works (in %)

Did you suffer damage from bad and non-regulated water? Before works After works No 44 77 Yes, a bit 16 10 Yes, medium 12 5 Yes, a lot 20 6 Yes, very big damages 8 2 Total 100 100  (min 1, max 5) 2.33 1.44

Today, after conclusion of works, damages are mentioned by fewer than quarter of interviewees (23%), and lack of damage a bit more than three quarter of interviewees (77%). There was a change in the structure of intensity of damage as well; the dominant is low damage with 10%, followed by a lot of it and very big damage - 8%, while there are 5% of those who evaluate is as medium. The damage index (min 1, max 5) is 1.44, which shows that the index has declined for almost one point (precisely for 0.89). Proportion of damage before and after the works in water regulation is 100 against 40. The estimated damage has fallen for exactly two and half times.

Evaluation of damage from bad and non-regulated water

(4.3) Evaluation of objects' damage due to water surplus before and after the works

We tried to make holistic evaluation of damage (damage as a whole) precisely through damage on construction objects, and via five dimensions of damage: water in cellar/at ground floor, moisture in walls of objects, loosening of objects' foundations, caving in of objects, as well as exposure of objects to landslides. Firstly, it became obvious that landslide is not a relevant

indicator of damage as it does not exist in flat lands such as Vojvodina, or better to say the landslides are extremely rare, while the frequency of occurrence of other for dimensions does speak about their relevance.

The most frequent damage occurred in the form of water in cellars and or at ground floors (residential or other buildings) - almost two fifths of interviewees named this (38%); almost the same % (37%) said the damage was from moisture in the objects' walls. A fifth of interviewees said that water did loose the foundation of objects, while in one in ten households there was caving in of objects (which is not a small number). At an average, a quarter of households suffered damage on objects due to water surplus at spots where it is unnecessary and harmful.

Table 5: Damages on objects water before and after works (in %)

Due to the surplus of water did Before works After works the following occur or does it No Yes  No Yes  happen now: Water in cellar/at ground floor 62 38 100 74 26 100 Loosening of foundation 80 20 100 87 13 100 Moisture in objects' walls 63 37 100 76 24 100 Caving in of objects 90 10 100 94 6 100 Average for these 4 variables 74 26 100 83 17 100 Landslide activated 99.5 0.5 100 99 1 100

Following the revitalisation of channels/dikes, the most frequent damage occurred in the form of water in cellar/at ground floor (26%) and moisture in objects' walls (24%); loosening of foundations and caving in of objects occurred less frequently (13% and 6% respectively). At an average, a sixth of households (17%) suffered damages of objects after the water regulation works.

The biggest improvement was recorded in cases where damages were most frequent - water in cellar/at ground floor, which fell for 12% (from 38% to 26%), and in case of moisture in walls which now decreased for 13% (from 37% to 24%). Loosening of foundations fell from 20% to 13%, and caving in of objects from 10% to 6%. The number of households who suffered damages fell from 26% before the works to 17% after the water regulation works at channels and dikes - the proportion of damage before the works and after them stands at 3:2.

3. Evaluation of Regulated Water Effects on Agriculture

(5.1) Evaluation of regulated water effects on increase of agricultural production

Forty seven % of owners of farming property gave positive answer to the general question "Did the water regulation works enable you to increase farming production", whereas 53% said no. Among owners who gave positive answers, low (21%) and medium (20%) increase of production dominate; high increase was quoted by 6% of owners, in relation to the total number of farming households.

The results dealing with increase in livestock and poultry are a bit smaller; the increase came for 29% of households, while no increase was noted by 39%; 32% of interviewees could not evaluate the effect.

Out of the total of 38 households engaged in cattle, poultry and fish breed for market sale, five could not say if there was or was not the increase of production; 13 said there was no increase and 10 said there was increase in production due to water regulation.

Out of the total of 103 households who kept cattle, poultry and other small animals, 39% could not say if they had more or less animals before the water regulation; 41% said that water regulation did not bear influence on number of animals, while 20% said there was an increase in their number due to water regulation.

(5.2) Evaluation of water regulation effects on changes in scope and quality of production

Owners of 164 farming households say that positive changes were noted in quantity and quality of production at half of their property due to revitalisation of channels/dikes, while the other half was not influenced by it in any manner. The most frequently quoted changes are in the size of crops - it occurred at 62% of properties; 23% of them saw small changes, 26% partial and 13% saw pretty high and high. This is followed by improved quality of crops at 60% of farms (23% small, 21% medium and 13% high) and respect of crop sequence in one in two properties. At the end, there are changes in size of land for cultivation and possibility of seeding new cultures (both by 37%), which was enabled by the water regulation works.

Table 6: Evaluation of water regulation effects on changes in amount and quality of agricultural production (in %)

Did water regulation enable the 1 not the 2 a little 3 up to a 4 pretty 5 a lot   following: least point much higher crops 38 23 26 11 2 100 2.17 higher quality of crops 40 23 21 12 4 100 2.18 larger areas for cultivation 52 24 14 8 2 100 1.84 seeding of new cultures 63 17 15 4 1 100 1.61 seeding of early cultures 63 15 14 7 1 100 1.66 respect of crop sequence 50 21 20 8 1 100 1.88 Average 51 21 18 8 2 100 1.89

Evaluation of regulated water effects on increase of agricultural production (%)

(5.3) Evaluation of water regulation effects on changes in production technology

The water management works have led to adequate changes in the technology of agricultural production, above all in land cultivation, use of chemical protection means, fertilisation, nourishment and harvesting of agricultural produce.

Table 7: Evaluation of water regulation effects on changes in production technology (in %)

Did water regulation enable or ease the 1 not the 2 3 up to a 4 pretty 5 following: least A little point much A lot   Cultivation of land 37 18 22 18 5 100 2.37 Use of chemical protection 42 15 22 12 9 100 2.30 Fertilisation, nourishment 41 14 27 14 4 100 2.26 Harvesting 35 23 28 11 3 100 2.23 Average 39 17 25 14 5 100 2.29

Due to the water regulation works, almost two thirds of farming households saw improvement in land cultivation (63%) and harvesting (65%). Three fifths of households saw the improvement in use of chemical protection means (58%) and in fertilisation and nourishment of agricultural produce (59%). The most intense changes occurred in land cultivation - 23% of household owners say the changes were big, 22% medium and 8% small. There are significant changes in use of chemical means, where water regulation enabled a lot of changes for 21% of properties, 22% partial and 15% of small changes. At an average, the water regulation works brought changes in production technology to three fifths of agricultural households (61%), while no changes were seen in two fifths of households. With a quarter of households, the changes were partial, with a fifth high, and with a sixth - small.

(5.4) Final evaluation of water regulation works

Final evaluations of water regulation works were linked to three aspects of the task: 1. Total completion of works, 2. Works on maintenance of channels/dikes and 3. Performance of water management companies.

The total evaluation of revitalisation works at channels/dikes stands almost exactly at the border between medium and very good - 3.48. Namely, a fifth of evaluations are poor (21%), a quarter is in the middle (26%), and a bit more than half of ratings are good (53%). The more competent part of our sample (in-depth interviews) grades the quality of completed works with 4.28 at an average. Table 8: Final evaluation of water regulation works (in %)

How do you evaluate: 1 2 3 4 5   Carried out works in water regulation 10 11 26 28 25 100 3.48 Maintenance of channels/dikes 28 21 24 19 8 100 2.59 Work of water management companies 23 10 24 30 13 100 3.01 Average 20 14 25 26 15 100 3.02 Maintenance of channels was graded with barely a three, or a bit more with three than two. Half of interviewees (49%) gave poor marks, a quarter (24%) gave a three, and only a bit over a quarter (27%) of owners gave good marks. In in-depth interviews, maintenance was graded with strong three - 3.33 at an average.

The work of water management companies was graded with almost an exact three (3.01). A third of owners (33%) gave poor marks to water management companies, while a bit more than two fifths of owners (43%) gave good marks.

Conditionally, we could look for an average grade bearing in mind the three aspects of completed works. If we did that - and we did - we find out that the general average remains in fact at the level of evaluation of work of water management companies - 3.02. At an average, a third of owners gave ones and twos, a quarter gave three and two fifths gave fours and fives.

(5.5) Final evaluation of general contribution of water management works

We took the following for the criteria of general contribution of water regulation works for citizens: (1) feeling of personal and family safety; (2) feeling of higher safety of citizens10; (3) evaluation of improvement of life quality, and (4) evaluation of benefits for citizens after the works were completed11.

Table 9: General contribution of water management (in %)

1 not the 2 a 3 up to a 4 pretty 5 a lot   least little point much Feeling of personal and family safety 23 13 20 29 15 100 3, 00 Feeling of higher security 17 15 23 29 16 100 3,13 Improvement of life quality 24 13 27 24 12 100 2,87 Total benefit for citizens 11 14 25 33 17 100 3,32 Average 20 14 25 26 15 100 3,02

10 Feeling of improved safety and security are pretty similar criteria. However, in the preparation of research and series of discussions we had with citizens living close to channels and dikes, representatives of local communities exposed to effects of bad water and individuals from companies that were engaged in water regulation works, we found out that there's a difference between safety and security. Our interviewees described the feeling of safety as lack of danger from water ("We're now safe from bad waters"), while the feeling of security was linked to the lack of worry about what "waters can do to us"; "we don't think about water now"; "we have no worries now"; "we're secure now".

11 The questions were as follows: ab1) "Did the water regulation, and if yes (firstly protection from flooding and ground water, but drainage and outflow regime and possibility of irrigation as well) add to the personal safety and safety of your family?" ab2) "Did the water regulation, and if yes (firstly protection from flooding and ground water, but drainage and outflow regime and possibility of irrigation as well) add to stronger feeling of safety for everything you have and work with?" ab3) "Did the water regulation, and if yes (firstly protection from flooding and ground water, but drainage and outflow regime and possibility of irrigation as well) add to improvement of quality of your and everyday life of your family?" ab4) "How do you evaluate the total benefit for citizens who have property close to object?"

A third of the interviewees (36%) believe that water regulation did not additionally improve their feeling of safety and safety of their family; a fifth say the improvement was medium, and a bit more than two fifths (44%) say that water regulation has pretty much or highly increased their feeling of safety. At an average, the upgrading was graded as medium (3.00). However, in in-depth interviews, 69% of interviewees said that the citizens feel safe after the works were completed.

A third of the interviewees (32%) as well believe that water regulation did not add to their feeling of safety for "everything they have and work for", almost a quarter grades the contribution as medium, while 45% of interviewees say it was "pretty high" or "high". In this case as well the average grade is three (more precisely 3.13).

Almost two fifths of the interviewees (37%) believe that water regulation did not substantially improve the quality of life, a quarter (27%) say the contribution was medium, and a strong third (36%) are of the opinion that it was pretty good and high to the quality of life.

At the end, the general benefit for citizens, of water regulation works, was graded with a strong three (3.32). A quarter of interviewees gave poor grades, a quarter medium grade and half good grades. However, the general benefit for citizens, evaluated in in-depth interviews, was graded with 4.30 - and this is relevant, because the in-depth interviews comprised people where it was logical to assume that they are better informed.

Summing up of four final evaluations of effects of revitalisation of channels/dikes provides us with an average grade; "three' is the average of averages, holistic finale of more or less different effects, mostly graded between strong two and strong three. At an average, a third of interviewees claim that there is no effect (20%) or that it is small (14%); a quarter of interviewees say that the contribution of works at channels/dikes was medium, while two fifths of interviewees grade them with four (26%) or five (15%). 4. Opinion on Citizens Attitude towards Water Regulation Objects

We complete the research report with answers to three public opinion questions. In fact, we wanted to examine three relations of citizens towards the revitalised channels/dikes: 1. Do the citizens who live/work close to channels/dikes damage the water regulation objects? 2. Can citizens participate in maintenance of water regulation objects; and 3. Are citizens interested in use of channels for irrigation?

So, this is about the practical relation towards what has been done, what has to be maintained and has its full sense only if all the possibilities that regulation provides are used.

Table 10: Opinion on damage the citizens cause on channels/dikes (in %)

Do the households and if yes to what Agricultural Non-agricultural Total extent, in the area damage the households household channel/dike and its normal functioning? it doesn't happen with us 12 20 17 it happens rarely 6 16 13 it happens, but not often 17 29 26 it happens often 65 35 44 Total 100 100 100

The whole 44% of interviewed owners believe that those who live or have property close to channels/dikes often damage the objects; if we add those who say that such things happen but "not very often", we come to the unbelievable 70% of owners who testify about our negligence.

To avoid confusion, we were precise in our question what comprises the possible damage; the following was listed: evacuation of septic pits into the channel, disposing of garbage, dead cattle, etc. During our visits to some of the objects we were able to see numerous accounts of negligence and listen to complains of citizens on behaviour of their neighbours. The answers and direct insight into the situation in the field testify that some (or many) drainage or other channels are turned into public toilets.

We bring your attention to the unusually significant difference between answers coming from agricultural and non-agricultural households in this research. Interviewees from non-agricultural households are more critical in the assessment of occurrence of damage of water regulation objects (they believe it is done by those from farming households); so, two thirds believe that damage to channels/dikes is frequent, while this opinion is expressed by a third of agricultural households.

Table 11: Opinion on citizens' contribution to maintenance of channels/dikes (in %)

Can citizens who live and work next to channels, and if yes - to what extent, Non-agricultural Agricultural contribute to the maintenance and proper households households Total functioning of channel/dike? Can not 15 15 15 They can, a bit 9 17 14 Up to a point 7 23 18 Pretty much 40 26 30 They can, a lot 29 19 23 Total 100 100 100

Found out is that there's an opinion that citizens damage the water regulation objects, exactly those who’s general and concrete benefits them testified about. However, our interviewees believe that citizens can largely contribute to maintenance of channels. At least, this is how it used to be a while ago, and our interviewees in in-depth conversations confirmed this.

Half of the interviewees believe that citizens can pretty much (30%) or significantly (23%) contribute to the maintenance of channels/dikes. The possibility of such contribution is rejected by 15% interviewees; 14% think it is small, while 18% describe it as partial. The answers to this question (Can citizens who live and work next to channels, and if yes - to what extent, contribute to the maintenance and proper functioning of channel/dike) show significant difference between interviewees from non-agricultural and agricultural households. Non-agricultural household owners put more accent on the possibility of contribution (40% say pretty much, 29% say a lot) than farmers. Farmers put it at 26% as pretty much, 29% a lot; in the latter case, it's more than half of interviewees that consider contribution.

Summarized, there is an opinion that citizens do damage indisputably useful water regulation objects, but that they can also contribute to their maintenance.

We held in-depth interviews with, grade the actual contribution of citizens to maintenance of channels at an average 2.34; contribution of municipality with 2.53, while the contribution of water management companies to maintenance of channels is graded a lot better - 3.72 (a weak four). Citizens were graded by our "experts" with 25% of fours and fives, municipality 34% and water management companies the whole 65%.

Drainage channels are only finished when their use for irrigation begins. This is the opinion expressed nicely by one of our interviewees: "Yes, it was done fine and now there are no marshes, but we need water now!" In this context, our final question dealing with interest of agricultural households for irrigation becomes even more important.

Table 12: Interest of farmers for irrigation (in %)

Are you interested, and if yes, to what extent, in irrigating your Agricultural households property or in doing it more than now? Not interested 33 Interested a bit 16 Medium interest 16 Interested 35 Total 100

A third expresses interest, and if we add those who have medium interest, we come to half of the owners of farming households close or near the revitalised waterways. If there is an interest, there is a question why they don't irrigate their land more. Whatever occurs as a reason (or reasons), it should be rectified so that the task of water regulation could be finished (if such a word can be used at all, in relation to such a live object as the waterway).

This stand is confirmed in particular manner by the more informed part of our interviewees (those from in-depth interviews). At an average, they evaluate the use of revitalised water management objects with a 3. The use of channel/dikes some 36% of interviewees rate it as one and two, 34% with three, and 30% with four and five.

Annex 6. Stakeholder Workshop Report and Results (if any)

Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR

The counterparts did provide a comprehensive overview of the works that were performed with many illustrations and is on file for consultation. In addition the client prepared an economic review of the impact of the project which is reflected herewith.

Introduction Based on the defined project task, research has been carried out with evaluation of the effects of the project „Irrigation and Drainage Rehabilitation Project“. Research is carried out on the locations in Serbia with implementation of the project of International agency for the development, coordinated by Directorate for water management of the Republic of Serbia.  Project is realized on the total of nine locations, of which five in Vojvodina, and remaining four in central Serbia.  Research is carried out in two phases, first one during 2012 and second in the beginning of 2014. Aim of the research in the first phase in 2012 was evaluation of the impact of the activity of the project to the agricultural production in the domains where project is implemented, while in 2014, research is focused on the evaluation of the effects in 2013 and verification and amendment of previous findings. Method of work and data resources In the first phase of research in 2012, we used primary and secondary data sources. Primary data were collected based on representative sample in the regions where project is realized. Sample was consisted of 251 examinees, whereat its size is defined through characteristics of the location. Based on the sample, we brought to the conclusions which are valid for entire project area. Secondary data were selected through desk research and interviews with persons responsible for data management. These data were already present in the units of observation or used to be available in state authorities, e.g. in the Statistical office of the Republic of Serbia, Ministry of agriculture and water management company. Primary data sources served for the evaluation of the effects, while secondary were mostly used for the comparison and determination of performances of the subjects and reference system. In the second phase of the research at the beginning of 2014, the task was to check the findings of previous examinations and eventually add with the data from 2013, by collecting the data from four representative locations. In order to make representative sample, we selected regions as follows: Novi Kneževac basin, Bavanište channel, Tovarnik channel and Negotin basin. In order to obtain more precise evaluations and additional controls of data in the second research phase, we also collected the data from remaining locations, by selection of one sample from each. 20 agricultural producers in total were selected from the project area (annex 01). Selection of the sample for the second research phase was intentional, buy selecting farmers who are progressive in their environments, have overview upon the entire

situation in the area and give precise answers to the questions with consequent explanations. Data collection was carried out in the same manner as in the first phase, using trained interviewers. Upon selection of samples, each research project area was observed as independent group, since they are individual and mutually different geographical entities. Following table describes the size of the sample according to the project area.

Table Error! No text of specified style in document.-1: Sample size per project areas

Ord. Project area Research 1 Research 2 no. 1. Bavanište channel (Municipality of Kovin) 30 2 2. Novi kneževac basin (Municipality of Novi Kneževac) 40 4 3. Plavna basin (Municipality of Odžaci) 31 1 4. Tovarnik channel (Municipality of Pećinci) 24 4 Sanitation of inflow channel CS Kupusina (Municipality 5. 10 1 of Apatin) 6. Cer orbital channel (Municipality of Šabac) 48 1 7. Tamnava, defense against floods (Municipality of Ub) 43 2 8. Negotin basin (Municipality of Negotin) 24 4 9. Godomin region (Municipality of Smederevo) 1 1 Total 251 20 We collected data from research area, among others, on sowing structure of the households, yields per hectare, production costs, land sales and lease price. In the second research phase, beside primary, we also used secondary data resources for temperature and precipitation in the project area. We considered the data from nine measuring spots of the Republic hydro-meteorological institute of Serbia - Kikinda, Sombor, Novi Sad, Vršac, Sremska Mitrovica, Šabac, Valjevo, Smederevska Palanka and Negotin. We displayed data for 2011, 2012 and 2013, as well as for perennial average for 2000-2013. Here we provide illustration using figure display of data for Negotin basin. Data for other areas are given in the annexes of this report. Data on precipitations and temperature are collected in order to display the fact that natural conditions for agricultural production in the last three years used to be variable, which certainly affected the results. Weather conditions during the year were not the same in all areas, as well as they did not influence with the same intensity to the agricultural production. Affect of weather conditions is evaluated based on official data, answers by the interviewed persons, and expert evaluations, and is observed as residual, i.e. difference between total increase of the yield and increase originated due to rehabilitation of the channel network. Results and discussion Research results from the first phase are represented in the report from 2012 that, with the complete documents, are handed over to the client of the research. This report is mostly focused to the research results from 2014. Results of previous research are represented only in the extent, which helps the understanding of the status and changes in the observed period.

This report primarily displays changes of the yield, costs of production, and finally of sowing structure. Based on these findings, we evaluated total influence of rehabilitation of channels to the agricultural production. Influence of rehabilitation to the yield increase In order to obtain the answer to these questions, interview persons provided the data on yields of agricultural crops cultivated by them. In the project area, they mostly cultivate corn, wheat and sunflower. Changes of the yields are displayed in the following figure.

Figure Error! No text of specified style in document.-1: Yield changes of plant which are mostly cultivated (in %)

80 60 40 20 0 Maize Wheat Sunflower

Yield (t/ha) changes in % (2013/2012)

On the figure, there are changes displayed based on the calculated average yield for all areas in which works has been performed. We carried out comparison of the yields in 2013 with the yields of the previous year. Figure visibly shows that the increase of the yield at the corn is the biggest and it was 72.5 %, followed by wheat 25.8%, and sunflower 15.9%. Surveyed persons have been asked to qualitatively evaluate influence of rehabilitation to the increase of yield. Evaluations were on the scale from one to five, whereat one means that works significantly influence the increase of the yield and five means very low influence. Results were displayed on the following figure. One fourth of the person in the sample think that rehabilitation completely influenced increase of yield, one fifth of them told that it mostly influenced, and 30% of them that it influenced on the medium level. Based on the results, we can conclude that contribution of the rehabilitation of channels towards increase of yields amounts at least 50%, and the other half is to explain due to influence of other factors. Figure Error! No text of specified style in document.-2: Influence of rehabilitation to the yield increase very comple poorly poorly tely 5% 20% 25%

on avarage mostly 30% 20%

Similar results are obtained on the question „How much rehabilitation influenced to the solving of the problems of floods and high level of subterranean waters. In terms of evaluations of influence of rehabilitation to the average increase of yield of all plants, estimation varied in the interval from 25 % to 30%. In relation to the previous research, this confirms basic hypothesis that increase of the yield of all cultivated cultures occurred, whereat amount of increase of the yield in this second research is higher, and it is at least 25% average for all cultivated plants. This can be concluded both based on the data on yields for the most important plants, as well as based on qualitative evaluation of the influence of rehabilitation to the yields, but also based on the estimation of interviewed persons on general increase of yields after rehabilitation. Influence of rehabilitation to the costs Expected influence of rehabilitation is costs decrease of agricultural production in all phases from sowing to the harvest. In order to obtain answer to this question, examinees estimate how much costs were higher prior to rehabilitation, towards the period after rehabilitation. Answers are displayed in the following figure.

Figure Error! No text of specified style in document.-3: Estimation of average increase of the costs of agricultural productioon (%) due to presence of vulnerability of parcels in the vicinity of channels/banks

Transportation from field to silos Harvesting Plantprotection Fertilization Crop rotation Cultivated plant Sowing time Land cultivation

0 10 20 30 Due to the presence of vulnerability, increase of costs of agricultural production occurred, mostly during land cultivation for 27%, while due to untimely sowing or planting costs were higher for 22 %. Costs of fertilization were higher for 21 % and protection against weed and pests were higher for approx. 19%. Regarding previous field research, examinees indicated that after rehabilitation, they have lower costs. Explanation for such results is two-sided. Firstly, examinees could not precisely evaluate influence of rehabilitation towards working operations during the first field research, and the second, based on the approach of research team, they acquired the confidence and indicated the data which are closer to the reality, without any fear that their indication could be used for other purposes. Influence of rehabilitation towards costs of other working operations is estimated on the similar level as at the previous research, transport 14%, harvest 13% and crop rotation 15%.

Since the highest savings are in the interval from 19 % to 21%, and since interviewed persons indicated that for the production costs coverage one third of the crop yield is necessary, estimation would read that indicated savings in costs have the same effect as well as increase of the yields for some 6,5%. When we sum the effects of yield increase and reduction of costs, we come up to the conclusion that realized yield increase after channels rehabilitation amounts 31.5%. An important question is of expectations in terms of trends of yields. In order to obtain answers to these questions, examinees replied the questions regarding sales price of the land and amount of the lease. Basic hypothesis says that increase price of the resources and increase of the price of lease of resources means expectation of the higher yield of given resource in the future. Based on the data, we can see that sales price of the land after rehabilitation increased, both out of channels in the region for some 150 EUR/ha and in the vicinity of channels for some 121 EUR/ha. Growth of land prices means that further increase of yields is to be expected. Lease price is also slightly increased. The fact that the price of the land increased it is on the behalf of the matter that producers expect on those parcels their produce to be safer, hence economically feasible. This directly implies the maintenance of the channel network, as well as the latter one partial rehabilitation is well done. The confidence in the functioning of channel network is displayed in the data that before rehabilitation the majority, some 84 % of examinees, would buy the land by the channel or in the line out of channels, which is displayed on the following figure, while some 16% would bay a land out of channels. After rehabilitation, almost 100 % of farmers would like to buy the land close to channels or in the line out, while no one would like to buy a land out of channels. Influence of rehabilitation to the change of sowing structure By improvement of the production conditions, farmers have been stimulated to cultivate plants which require higher investments, but they also have yields which provide higher revenues per hectare in relation to classical cultures - wheat and corn. This is confirmed by the cases of the beginning of cultivation of soya and clover. Change of the sowing structure indirectly says that further increase of yields occurred. Amount of increase of the yields is at least equal to the increase of the yields at the traditional cultures, plus risk and entrepreneur profit. Here we can assume that, by conversion to the yields from basic cultures, we can calculate that yields of basic cultures increased for further 5%.

Evaluation of total project effects Based on the collected data according to the results in terms of yields and total production, we can create three groups of producers, which are represented in the following table: Increase of the Group yields and Project area production Sanitation of the inflow channel CS Kupusina (Municipality of Apatin) A > 25% Cer margin channel (Municipality of Šabac)

Tovarnik channel (Municipality of Pećinci) Plavna basin (Municipality of Odžaci), Novi Kneževac basin (Municipality of Novi Kneževac), B 25% Negotin basin (Municipality of Negotin) C < 25 % Bavanište channel (Municipality of Kovin)

Special case is the regions in which production without functional channel network would not be possible. Increase of the Group yields and Project area production Godomin region (Municipality of Smederevo) X Initial state zero Tamnava, defense against floods (Municipality of Ub)

Group A. This group is consisted of the producers who settle Cer margin channel COK, CS Kupusina (municipality of Apatin), Tovarnik channel, Plavna basin (municipality of Odžaci) and Novi Kneževac channel (municipality of Novi Kneževac), Interviewed producers emphasized that their situation is significantly better and estimated production increase is between 25 and 50 %. For example, producer from Kupusina stated that situation is „drastically better“. In Plavna, main channel is built and it stabilized the water level. In these areas, significant increase of production is noted, despite the fact that circumstances were not favorable for agricultural production. In Novi Kneževac occurred increase of the yields although the land quality by the channel is lower in relation to the land which is out of channel. Besides, in Novi Kneževac there are no ancillary channels, thus due to corrugated land there are remaining waters and additional positive effects are absent. Group B. In this group we only have area of Negotin basin. Agricultural producers evaluated carried out works on rehabilitations of channels as very good. Increase of the yield, is not as in the region marked with „A“, due to the negative influence of external factors. Namely, the fact is that municipal sewage from Negotin goes to the channel and after that to Danube River. If we could remove this influence, increase of the yield and agricultural production would, according to the expectations of the farmers, be up to 50%, thus this region would belong to group „A“. Group C. This group is one region, Bavanište channel, where the rehabilitation is done only in central part with the lack of effects towards the area in this region. In the same time, it is the land with low altitude, thus subterranean waters make appreciable problem for long-term and stable increase of the yield. Group X. It is consisted of regions in which agricultural production would not be possible if channel network was not rehabilitated. Comparison of the yields and production after rehabilitation in relation to the period prior to rehabilitation provides the result about infinite increase. Due to such situation, this case is considered extreme, thus observed individually.

Conclusion Based on the analysis of agricultural production where rehabilitation of channel network is carried out, we can conclude that increase of the yield occurred, as well as reduction of production costs and change of the production structure. Research has been carried out based on the sample of 20 producers from these regions. Increase of the yields amounts in the average of 25%. His conclusion is derived firstly, based on the data on the yields for the most important crops, secondly, based on qualitative evaluation of the influence of rehabilitation towards yields, and finally, based on the estimation of the interviewed persons on general increase of the yields after rehabilitation. Owing to the rehabilitation of the channels, costs of the individual working operations in agriculture are reduced. Due to the presence of vulnerability, we faced increase of costs of agricultural production mostly for the land cultivation for 27% and due to untimely sowing or planting the costs were higher for 22 %. Costs of fertilization were higher for 21 % and protection against weed and pests for 19%. Influence of rehabilitation towards the costs of other working operations is evaluated on the similar level as at the previous research, transport 14%, harvest 13% and crop rotation 15%. Since the biggest savings are in the interval from 19 % to 21%, and since producers indicated that for the coverage of production costs one third of yields is necessary, estimation would read that indicated savings in the costs have the same effect as increase of the yields for some 6,5%. Total effects of the increase of the yields and reduction of costs, converted to the level of yield increase, we come up to the conclusion that realized increase of the yields after rehabilitation of channels amounts 31,5%. In the project area, we come up to the changing of sowing structure. If some agricultural producer changes sowing structure, he certainly calculates with risks and profit. Here we can assume that, converted to the yields of basic plants, we can calculate that yields of basic plunts increased for further 5%. When we sum total effects, increase of the yields, reduction of costs and changing of sowing structure, we come up to the total result, measured in the increase of the yields of 36,5%. If we want to conclude increase of the yields upon project regions, than we derive the following conclusion:  Increase higher for 25% in seven regions – including two from “x” group where increase is statistically infinite  increase approximately 25% in one region  increase approximately 20 % in one region.

Briefly, the largest number of regions noted total increase of the yields which is higher than 25%. Data from the field show that there were cases where this increase used to be even double. To conclude, estimated increase may be considered rather pessimistic than optimistic variant.

Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders

Annex 9. List of Supporting Documents  Project Preparation Institutional Report.  Identification Mission Aide Memoire  Project concept note, QER Minutes.  Project Appraisal Document, 32379-YF of June 08, 2015  Project Paper for Additional Finance, 39848-YF of May 25, 2007  Credit Agreement, 4105-YF , Loan Agreement, 7467-YF  Country Economic Memorandum, 65845-YF dated January 12, 2012  Mission Aide memoires, ISRs  Quarterly Progress Reports issues by the Project Implementation Team  Project Catalogue of works with illustration of outputs  International Commission for the Protection of the Danube River, The analysis of the Danube Floods, 2006  Monitoring and Evaluation Field Survey, August, 2011, updated February, 2014.  Flood Maps of May 17, 2014, and May 23, 2014.

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