Document of The World Bank

FOR OFFICIAL USE ONLY Public Disclosure Authorized

ReportNo. 3464a-YU

Public Disclosure Authorized YUGOSLAVIA

STAFF APPRAISAL REPORT

OF THE

KOSOVO WATER SUPPLY PROJECT

Public Disclosure Authorized September 11,1981 Public Disclosure Authorized

Water Supply and Sewerage Division Europe, Middle East and North Africa Regional Office

This documenthas a restricteddistribution and may be used by recipientsonly in the performanceof their official duties. Its contentsmay not otherwisebe disclosed without World Bank authorization. CURRENCY EQUIVALENTS

Currency Unit - Dinar (Din.) US$ 1.00 - Din. 28.5 /a Din. 1.00 - US$ 0.035 /a

WEIGHTS AND MEASURES

Kilometer(km) - 0.62 miles Square Kilometer (km2) - 0.386 square miles Hectare'(ha) - 2.47 acres Millimeter (mm) - 0.03937 inches Centineter (cm) - 0.3937 inches Meter (m) - 39.37 inches Cubic Meter (m3) - 264.0 US gallons Cubic Meters per second (m3/sec) - 22.8 million US gallons per day Liter (1) - 0.264 US gallons Liters per second (1/sec) - 22,800 US gallons per day Liters per capita per day (lpcd) - 0.264 US gallons per capita per day Milligram per liter (mg/l) - 1.0 parts per million MCM - Million cubic meters m.a.s.l. - Meters above Sea Level

GLOSSARY OF ACRONYMS

GWE - Gracanka Water Enterprise OECD - Organization for Economic Cooperation and Development OTAM - Omnium Technique d'Amenagement RWB - Regional Waterworks Batlava SAP Kosovo - Socialist Autonomous Province of Kosovo SAS - Social Accounting Service SFR Yugoslavia - Socialist Federal Republic of Yugoslavia UNDP - United Nations Development Program WCCIs - Water Communities of Cornon Interest WHO - World Health Organization

RWB's Fiscal Year

January 1 - December 31

/a As of January 1981 FOR OFFICIALUSE ONLY

YUGOSLAVIA

STAFF APPRAISAL REPORT OF THE

KOSOVO WATER SUPPLY PROJECT

TABLE OF CONTENTS

Page No.

I. THE WATER SUPPLY AND SEWERAGE SECTOR ...... 1

General ...... 1 Water Resources ...... 1 Service Levels ...... 2 Sector Development Strategy and Program ...... 3 The Sewerage Subsector ...... 5 Bank Role in the Sector ...... 6

II. THE PROJECT AREA ...... 8

General Features ...... 8 Existing Water Supply Facilities ...... 9 Unaccounted for Water ...... 10

III. DEMAND AND MARKET ASPECTS ...... 11

Present Water Production and Consumption ...... 11 Population Forecast ...... 11 Forecast of Cunsiumption ...... 12

IV. THE PROJECT ...... 14

Genesis ..... 14 Project Objectives .14 Project Description .15 Cost Estimates .17 Project Implementation .18 P Procurement .18 Disbursements .19 Monitoring Criteria .19

This report was prepared by Messrs. J.A.C.G. Prenoveau (Deputy Division Chief), S.G. Serdahely (Senior Sanitary Engineer) and A. Banerjee (Procurement Officer).

This document has a restricteddistribution and may be used by recipients only in the performance of their officialduties. Its contents may not otherwise be disclosed without World Bank authorization. Table of Contents (cont'd) Page No.

V. THE BENEFICIARY ...... 20

Introduction ...... 20 Organization and Management ...... 20 Personnel ...... 20 Operating Efficiency ...... 21 Accounting, Billing and Collection ...... 22 AudLt and Insurance ...... - 22

VI. FINANCE ...... 23

Past Performance and Present Position ...... , 23 Tariffs ... 23 Financing Plan ...... 24 Retroactive Financing ...... 25 Future Performance ...... 26

VII. ECONOMIC AND SOCIAL ANALYSIS ...... 27

Least Cost Solution ...... 27 Average Long-Term Incremental Cost . 27 Internal Rate of Return ...... 27 Risks ... 28 Environmental Impact ...... 28

VIII. AGREEMENTS REACHED AND RECOMMENDATIONS ...... 29

ANNEXES

Annex 1 - RWB'z Organization Chart Annex 2 - Population and Water Service - Water Demand Balance Annex 3 - Implementation Schedule Annex 4 - Assumptions for Financial Forecasts - Income Statements - Statement of Sources and Application of Funds - Balance Sheets Annex 5 - Estimated Schedule of Disbursements Annex 6 - Monitoring Criteria for RWB Operations Annex 7 - Cost Estimates Annex 8 - Annual Project Investments Annex 9 - Internal Rate of Return Annex 10 - Additional Information in Project File

MAPS - IBRD 15684R - IBRD 15840 CHAPTER I

THE WATER SUPPLY AND SEWERAGE SECTOR

Generai

1.01 the Socialist Autonomous Province of Kosovo (SAP Kosovo) is situated in the southwestern part of the Socialist Federal Republic of Yugoslavia (bFR Yugoslavia) and has, as its neighbors, Albania and the Socialist Republic of Montenegro to the west, the Socialist Republic of Serbia to the north and east, and the Socialist Republic of Macedonia to the south. The area of the Province is about 10,877 km2, representing about 4.25% of the area of the country. The climate in the Province is mostly continental except in those areas above 1,000 m.a.s.l. (about 20% of the total provincial area) where a mountain type climate prevails. The Province is divided into 22 communes, and the project area is situated within two of these communes - Pristina and Podujevo. Population density in the Province is estimated at about 120 inhabitants/km2 as compared to about 85 inhabitants/km2 for SFR Yugoslavia as a whole. Kosovo is the poorest of the less developed regions of Yugoslavia. There are about 2.6 dependent people for every actively employed person, as compared to the national average of about 1.2. The spread in per capita incomes between Slovenia, which is more developed, and Kosovo, in 1979, was 6 to 1. House- holds in the Province are relatively large, with an average of somewhat more than seven persons, compared with a national average of less than four. In Kosovo about 52% of the population is below the age of twenty, while the national average is about 36%. Seismicity in the Province is defined as somewhat unfavorable with the general possibility of tremors of the order of 70MCS (Mercalli-Cancani-Sieberg scale).

Water Resources

1.02 The water courses of SAP Kosovo flow into three seas; and of the total runoff, about 50% goes to the Black Sea, 43% to the Adriatic Sea, and 7% to the Aegean Sea. The Province is divided into the catchment areas of four main rivers: Belic Drim with an average flow of 65 m3 /sec to the Adriatic; Ibar and its tributary, the Sitnica, with a combined overage flow of 37.6 m3 /sec to the Black Sea (the project is principally within this catchment area); Binacka Morava with an average flow of 8.6 m 3 /sec flow- ing to the Black Sea; and Lepenac with an average flow of 8.4 m3 /sec flowing to the Aegean Sea.

1.03 The existing source of surface water for Pristina is the Gracanka Reservoir (about 7 km southeast of the community) which has been in service since 1906 supplying the community as well as the ore flotation plant at Kisnica (about 90 I/sec). The Gracanka River catchment area above the dam is about 114 km 2, and average annual rainfall in the area is approxi- mately 640-800 mm per year. The 45 m high dam has a maximum water depth of 42 m, maximum storage capacity of 32 MCM and live storage of about 21 MCM. The utilizable water quantity for any two successive average dry years is approximately 420 1/sec, according to hydrological studies performed by Jaroslav Cerni Institute, Beograd. Studies by Energoprojekt, Beograd indicated somewhat lower figures. However, under ideal hydrological condi- tions, the reservoir presently can supply up to a maximum of 410 1/sec of water to the system. The quality of the raw water in the reservoir is rapidly deteriorating due to the continuously growing concentration of manganese and organic pollutants in the lower layers, and flushing is impossible because the dam's bottom outlet is out of operation. As the storage capacity of the reservoir is being reduced, the utility of the reservoir is, therefore, also being reduced.

1.04 The only other substantial surface source presently suitable for use by the Pristina and Podujevo areas is the existing Batlava Reservoir which is located about 10 km southeast of the town of Podujevo. Prior to the initiation of the Bank project, the reservoir was used only to supply Kombinat Kosovo 'A' near Obilic. The Batlava River catchment area com- prises about 224 km2 . The dam has a 42 m height, a maximum water depth of about 35 m, maximum storage capacity of 40 MCM and live storage of about 29 MCM. The quality of the river water is generally alkaline with little mineralization, and is medium, hard. Ouality of the reservoir water, how- ever, indicates high turbidity at the bottom, with manganese and iron depo- sitions. (The project includes repair of the bottom outlet which will allow bottom flushing.)

1.05 A future source for the towns south of Pristina might be the Stimjle Reservoir, whose construction is planned as part of the Lepenac segment of the Ibar-Lepenac water system. This 120 MCM reservoir, which would be located about 25 km south of Pristina, presently is in the concep- tual stage only.

1.06 Groundwater and spring development in the Pristina service area has been limited due to relatively low yields of wells. Two well fields, one at Kuzmin and the other at Kojlovica, yield approximately 120 1/sec and 50 l/sec respectively. However, the number of wells (nine in the Kuzmin well field and five in the Kojlovica well field) indicate low individual well yields, and a similar situation exists with the two Podujevo wells. Hydrogeological investigations by the water authority indicate that no further exploitation of these fields is possible. A spring at Grmija yields somewhat more than 5 1/sec.

Service Levels

1.07 In SAP Kosovo the cities of Pec, Prizren, Kosovska Mitrovica and Pristina have reached at least some degree of solution as far as water quantity and quality are concerned. Other towns, such as Djakovica, Leposavic, Urosevac, Kacanik and Gnjilane, have only partial distribution systems installed. Water source development is also required in most other towns as well. 1.08 At present, about 45% of the communities in SAP Kosovo utilize surface water sources; about 35% obtain their water from springs, and the remaining 20% abstract water from locally situated wells.

1.09 Approximately 40% of the total Provincial population is provided with water from a piped municipal supply, and about half of these have house connections. The remainder are served through yard hydrants or public standpipes. Somewhat less than one fifth of the households (about 10,000 dwellings) are not supplied with water through organized systems; and about 15,000 village families obtain their water from open fountains, springs or streams. Individual dug wells are common in rural areas.

1.10 House connections were available to users in the project area in 1979 as follows:

Pristina (including Kosovo Polje & Obilic) - 12,565 or about 75% of households

Podujevo - 800 or about 10% of households

Total 13,365

1.11 The Pristina water supply system distributes treated water of fluctuating quality; and because of low storage capacity and excessive hydrostatic pressure (due to under-sized lines) in some areas, is subject to pressure control problems. The quality of water supplied in Podujevo is affected by the considerable hardness of the well water. Both areas expe- rience intermittent service, particularly during summer months. Although all of the Pristina house connections are metered, up to one-third of the meters need repair or replacement. Meters have not been installed in Podujevo.

Sector Development Strategy and Program

1.12 Development and utilization of water resources in SFR Yugoslavia occurs primarily at the Republic and Provincial level. The general pattern in Yugoslavia is to supply and distribute water to domestic (urban), com- mercial and industrial users through self-managed enterprises, usually designated as "Vodovods". These financially autonomous enterprises operate J under Yugoslavia's normal self-management principles, but are, however, subject to control by the Communes 1/ regarding their investment programs and tariffs. Usually, for each commune, a Vodovod exists, which develops

1/ The Commune, in Yugoslavia, is an administrative area, normally cover- ing a town, and its surrounding rural communities. It has an Assembly and an Executive Council. -4-

a single water source. However, as limited local sources become fully exploited, Vodovods and communes seek to develop more distant water sources; and self-management agreements with other communes and Vodovods become necessary, leading to the formation of "Water Communities of Common Interest" 1/ (WCCIs) in order to develop joint supplies.

1.13 In addition to Vodovods, another type of water authority, the water economy enterprise (e.g., Ibar Lepenac Enterprise) has responsibility for river management, flood control, and, occasionally, acts as an investor for the construction of water supply and irrigation projects.

1.14 "Water Funds" in each Republic and Province were in existence up until a few years ago, financed principally by Government allocations, local water taxes, and voluntary contributions pledged through referenda. The Water Funds have now been superseded by the WCCIs. Although the WCCIs derive some capital from Government taxation and grants, they depend to a great degree on locally raised finances; and although WCCIs have been established at the Province and Republic levels, these generally serve in a coordinating role. At the regional and communal level, WCCIs deal with specific problems, taking prime responsibility for the substantive work in water development.

1.15 The financing of specific community water supply projects in Yugoslavia has previously been mainly at the communal and Vodovod levels, with considerable dependence upon voluntary contributions, enterprise sub- scriptions, and water tariffs. In Kosovo some economic constraints have been induced by limited water supply; but in the absence of adequate long- term loans on reasonable terms, the development and expansion of water facilities has been inhibited. However, under the Kosovo Province Five-Year Plan (1982-1986) which is in the final stages of approval, special attention is being given to water resources utilization. Directed principally towards potable water supplies, irrigation, and industrial water, the Plan's water elements will emphasize construction and rehabili- tation of water systems, water course regulation, flood and erosion protec- tion and rational utilization of the surface and groundwater resources.

1.16 Because the communes have decided that the provision of potable water and sanitation services is of high priority, the next Communal Five Year Plan (1981-1985) will also emphasize the need for urgent measures to be taken to meet the water supply and sewerage requirements in the project area. Since the proposed project is regional in nature, covering four

1/ WCCIs and other "Self Managing Communities of Interest" are associa- tions which are authorized to decide together on equal terms with the Assemblies of the competent socio-political communities (Communes, Provinces, Republics) on all matters in the general sphere of educa- tion, science, culture, health and welfare and in specific spheres such as housing construction, power production, water resource management, etc. -5- municipalities and two communes, coordination between commune and Province planning is in progress. In this context the Regional Physical Plan for Kosovo Province which was prepared in December 1976, and approved by all the Communal councils of the Region, includes the proposed project. Similarly, the Assembly of SAP Kosovo includes this project in its Provincial Physical Plan (June 1975), as part of a regional solution to water supply problems in the Province.

1.17 The proposed project represents the first element of a regional strategy aimed at solving the water supply problems in SAP Kosovo. Future extension of service to the Province's rural communities contiguous to the project facilities is under consideration as a subseqent stage of develop- ment. Additionally, the proposed project has been studied in consonance with the execution of the Ibar Multipurpose Project (Loan 777-YU), and also with the proposed Kosovo Irrigation Project which would have sufficient excess capacity to serve additional areas south of Pristina, after the Kosovo Irrigation Project materializes.

The Sewerage Subsector

1.18 Collection and treatment of sewage and industrial wastes in muni- cipal systems in the Province has not developed to the degree required to satisfactorily solve waste disposal problems. Somewhat over 10% of the Kosovo population is served with piped collection systems, and fewer than 5% have indoor flush toilets. In Pristina about 55% of the inhabitants are served with a sanitary sewerage network. A surface drainage system has been constructed in the central area of the town. In other areas during periods of heavy rains, eroded clay soil and refuse which has accumulated in the open space between buildings and along the roads are washed into the streets. The mixed flow is carried to the lower elevation of the city, finding its way into the main watercourse which meanders through the town, the Pristevka River (which has been only partly converted into a covered channel), rendering it an open unsanitary sewer. In 1967, a sewage treat- ment plant was constructed for Pristina downstream from the city. The plant, which is comprised of Imhoff tanks, trickling filters, circular clarifiers and sludge drying beds has not been connected to the sanitary sewer system and has never been operated. All mechanical equipment has been removed, and the remaining structures have deteriorated considerably. Because the plant is situated near the city, it is questionable whether placing it into operation is desirable, even if renovation could be techni- cally and economically feasible.

1.19 Sewers have been partly, though unsystematically, constructed in some other towns of the Province, including Prizren, Djakovica, Leposavic, Urosevac, Kacanik and Gnjilane, where the sewage treatment plant is still not in operation although it has been completed for several years. Some of the sewers in Prizren date back to the 13th century. In Podujevo the main area of the town is served by sanitary sewerage. A sewage treatment plant has been designed, but has not been built. - 6 -

1.20 Of the industrial plants in the project area only the food proc- essing plant at Kosovo Polje has complete waste treatment, utilizing a mechanical treatment plant. At Kombinat Kosovo two biological treatment plants (one for the lignite drying operation and the other for the gas- works) have been built, but they are only in partial operation. The waste- water load of the gasworks will be in excess of the plant capacity by a factor of three by the year 2000. Wastewater from the lignite drying plant contains about 85.5 mg/l of volatile phenols and that from the power plant and gasworks about 11 mg/l. Presently, the wastewater serves as a vehicle for transporting ash to a lagoon where the phenol level is reduced to about 3.5 mg/l. However, the effluent discharged into the Sitnica River has a pH of up to 12.6 with dissolved solids as high as 2,735 mg/I.

1.21 The Regional Waterworks Batlava (RWB) is proceeding with a pro- posed program for sewage collection and treatment for the communities of Pristina, Obilic and Kosovo Polje including Kombinat Kosovo. Feasibility studies and preliminary engineering were completed in 1979 by Hydroprojekt, Praha. The studies recommend a central wastewater treatment plant near Obilic which could also handle sludge pumped from a large pig feeding complex at Gornje Dobrevo. The mission suggested the possibility of a biogas installation at the pig farm. With a population of 25,000 pigs, about 110 m 3 of sludge is produced daily and the resultant dry organic matter is about 7,000 kg/day. Final designs for sewerage will reflect energy effective and least cost solutions. Estimated lengths (m) of sewage collection systems are as follows:

Existing Planned Total

Pristina 31,240 110,558 141,798 Kosovo Polje 1,500 40,902 42,402 Obilic 1,000 25,196 26,196 33,740 176,656 210,396

1.22 The proposed Bank project includes a component covering the finan- cing of the foreign exchange element of the final designs for the above planned collection systems.

Bank Role in the Sector

1.23 The Bank, in addition to its institution building role, has empha- sized improvement in the economic selection and analysis of water resource associated projects. Further, the Bank has introduced new technology for sewage treatment and disposal and for pollution abatement. Through its association with a number of water supply projects in Yugoslavia, the Bank has gained considerable knowledge in sector organization. Regional econo- mic studies have been conducted by the Bank for the Province of Kosovo and also the Republics of Macedonia, Montenegro and Bosnia-Berzegovina. Under the Morava Region Development Project (Loan 1262-YU), a regional develop- ment study was prepared for the South Morava River Basin, emphasizing the need for orderly allocation and utilization of water resources. Addi- tionally, the Bank has already participated in the financing of significant - 7 -

water projects, viz., Dubrovnik water supply and waste water project (Loan 1066-YUT);Sarajevo water supply and sewerage project (Loan 1263-YU); and Ibar (Loan 777-YU), Metohija I (Loan 1360-YU) and Macedonia (Loan 1371-YU) multipurpose projects. The Ibar, Metohija and Macedonia projects include community water supply, irrigation and power generation elements. The Morava project involves flood control principally, while the Dubrovnik and Sarajevo projects concentrate on the provision of community water supply and wastewater disposal. Water supply and sewerage projects including elements of pollution control have been identified for Kosovska-Mitrovica and Tuzla.

!, -8-

CHAPTER 11

TIIE PROJECT AREA

General Features

2.01 Morphologically SAP Kosovo can be divided into two categories: the plain or lowland regions and the hilly or mountainous regions. Commu- nity water supply systems in the plain regions, where most population and economic activities are concentrated, lend themselves to regional approaches since large central water sources are available. The sparsely settled hilly areas are characterized by separate water systems which are technically and economically more appropriate. The regional water system for this project conforms with the pattern for development in a plains region.

2.02 The Commune of Pristina is situated in the central part of SAP Kosovo and consists of 94 communities including the city of Pristina, the administrative and cultural center of the Province (Map IBRD 15684). The town area is situated on the lower western slopes of the Grniija Hills, the promontories of which interrupt the terrain relief of the built-up area. The topography of the city opens towards Kosovo Polje, 7 km to the south- west; and the industrialized zone of Pristina extends in this direction as well. The developed area of the community of Kosovo Polje is generally concentrated along a principal road traversing level terrain, about 7 km northwest of Pristina, and the anticipated future growth of this town is projected symmetrically along this road. Obilic is located northwest of Pristina and has also developed along the main artery between the two com- munities. The town of Podujevo, the administrative center of the Commune of the same name, is situated approximately 30 km north of Pristina in an area called Malo Kosovo (small Kosovo) in the Lab River valley. While most of the town extends between the left bank of the river and the Nis- Pristina-Kosovo Polje railway, the new Nis-Pristina highway constitutes the southern border of the town. The built-up area of the town is predomi- nantly on flat terrain rising in a northeasterly direction.

2.03 The industrial enterprises within the city of Pristina occupy a relatively small area, and this is reflected in the present relatively low industrial water demand. The university campus buildings, high-rise apart- ment houses and commercial buildings dominate the building scene in the city's central area. Industrial plants are generally located in the sub- urban area towards Kosovo Polje. These include plants for production of synthetic fabrics, wall paper and shock absorbers, as well as food proce- ssing, bakery, and fodder producing industries. Expansion plans for all these industries are in various stages of implementation. A large auto- mobile assembly plant is also under construction with commissioning planned in 1985. (The plant will obtain its water from a separate line from a well in the village of Lukare, east of Pristina). South of the community of Obilic there is the Kombinat Kosovo 'A' which processes lignite from -9- open-cast mines, produces gas and synthetic fertilizers and also operates a power plant. At present Kombinat Kosovo 'B' is under construction north- west of Obilic with a greater capacity than the power plant at Kombinat Kosovo 'A'. The only major industry of the town of Podujevo is a wood product enterprise. However, a new factory for brick and tile production, an enterprise for production of radio components and a spinning mill are envisaged by 1985.

Existing Water Supply Facilities

2.04 The Pristina area, which includes the towns of Kosovo Polje and Obilic, is presently principally supplied from the Gracanka Reservoir and to a lesser degree from the Kuzmin well field (para. 3.01). From the Gracanka Reservoir a 784 m long 700 mm diameter pipeline transports the water by gravity to a raw water pumping station. The pipeline also supplies raw water (about 90 1/sec average) for flotation in an ore- dressing plant at Kisnica. The pumping station lifts a flow of 320 1/sec about 87 m to a water treatment plant. The treatment consists of spray aeration, pre-chlorination, coagulation, settling, rapid sand filtration and postchlorination.. From the treatment plant, water flows through a gravity transmission main (600 mm diameter steel) about 7 km to the Maticane Reservoir (maximum water level 680.74 m.a.s.l.) in Pristina which consist of two 340 m 3 and two 5,000 m 3 compartments. The gravity main serves part of the Badovac community, the housing and drinking water requirements of the Kisnica ore-dressing plant, the communities of Gracanica and Ajvalija, the pig feeding complex at Gornije Dobrevo, and part of the Caglavica and Maticane communities. From the Maticane Reservoir water is supplied through the Pristina distribution system to the 600 m 3 Dragodan Reservoir (maximum water level 655.20 m.a.s.l.) and to the 600 m 3 Kasagija Reservoir (maximum water level 660.00 m.a.s.l.).

2.05 Although the Pristina distribution system lies in an elevation range of 550-700 m.a.s.l., it is not divided into pressure zones. The total length of distribution lines is approximately 60 km, including asbestos-cement and cast iron pipes of 80 mm to 500 mm diameter and about 10 km of smaller diameter pipes. The system has been extended indiscrimi- nately with resultant pressure problems. In the older sections of Pristina and also the central area of the city the system is undersized. Newer sections of pipelines in the southern and southeastern areas are of adequate dimensions.

2.06 A 200 mm diameter transmission line from Dragodan Reservoir serves the Kosovo Polje area. Although the flat terrain of the built up area, ranging from 540 to 560 m.a.s.l., does not require division into pressure zones, the high hydrostatic pressure in the system creates problems. The total length of water main is over 20 km, and the diameters range from 50 mm to 200 mm. In addition to Kosovo Polje the transmission main supplies Orlovic, Crvenka Vodica, Krusevac, Veliki Balacevac, Donji Grabovac and Obilic, comprising about 33 km of water mains in all. The Kuzmin well field is connected into the Kosovo Polje system through a 200 mm diameter line. - 10 -

2.07 In Poduievo two pumping stations above the two wells discharge the water directly into the distribution network. Three pressure vessels in one pumping station (total volume of 19 m 3) balance pumpinR discharge versus instantaneous demand, reduce surge pressure, and control automatic pump operation. Sodium hvpochlorite dosing is utilized for disinfection. The distribution system, which has been built in a haphazard fashion, con- sists of about 5 km of steel pipes with onlv about 1-1/2 km of lines of 150 mm and 200 mm diameter; and the remainder is of smaller diameters.

Unaccounted for Water

2.08 Because the production meter at the Gracanka (Kisnica) water treatment plant is inoperative and none exists in the distribution system, data on water produced can only be estimated. RWB and its consultants have, in lieu of metering, based production estimates on filter runs and pump characteristics including electric power consumption. These estimates are, therefore, only very approximate. The consultants who prepared the feasibility studies and preliminary engineering for the proposed project (Hydroprojekt, Praha) and those engaged in the execution of the final designs (Energoprojekt, Beograd) have agreed on an estimated figure of 30% for unaccounted for water, which is reasonable. Of this amount, about half would be due to leakage due to pressure problems and lack of maintenance, and the remainder to under-registration of consumers' meters and to miscel- laneous causes. In the proposed project provision has been made for the acquisition of leak detection equipment and the institution by March 31, 1982 of a preventive maintenance program which will help reduce the level of unaccounted-for water to 20% by 1987 (Loan Agreement, Section 4.03 (b)). - 11 -

CHAPTER III

DEMAND AND MARKET ASPECTS

Present Water Production and Consumption

3.01 Current available water production supplied to the Pristina area of the system, averages about 450 l/sec, which is made up of 320 1/sec from the Gracanka Reservoir, and the remainder from the Kuzmin and Koljovica well field (para. 1.06). In the Podujevo area the two shallow dug wells on the Lab River supply approximately 16 1/sec. The limitation of the supply of water from the Gracanka Reservoir is caused by two factors: (a) the average inflow into the reservoir is less than 360 I/sec; and (b) the capacity of the Gracanka water treatment plant is limited to about 344 1/sec. During some years the flow in the Gracanka River has fallen to 233 1/sec; and extracting even a minimum of 320 1/sec under such conditions would, of course, result in over-depletion of the reservoir, with no mini- mum hygienic flow in the river below the dam.

3.02 The Kuzmin well field, near Kosovo Polje was discovered during investigations connected with locating lignite deposits in the Kosovo Polje area. The depth of the wells, 15 m to 22 m, is limited by the presence of large lignite deposits below the aquifer. Future lignite production will probably result in loss of the well field. Since the aquifer is only 6 m below ground surface in some areas, the possibility of contamination is apparent. The small Koljovica well field supplies water from dug wells (4-7 m), which must be filtered. No further extensive exploitation of the above well fields can be considered.

3.03 The production level reached about 410 1/sec in 1978, or somewhat less than 13 MCM. However, sales approximated 9.1 MCM, with the unaccounted for water level at about 30%. Of the total sales for 1978, 4.30 MCM were to domestic, 0.32 MCM to institutional, and 4.48 MCM to industrial and commercial users. Thus, 53% of the water sold was to the latter two categories. In 1979 a similar situation existed in which total sales were at a 9.4 MCM level, with domestic sales at 4.75 MCM, institu- tional at 0.40 MCM and industrial and commercial at 4.25 MCM. Again, the non-domestic categories used about 50% of the water sold. Compared with A other cities in Yugoslavia, in which the commercial and industrial develop- ment is similar to that of the proposed project area, it appears that an imbalance exists in the Pristina area. Proportionately more water is being sold to the institutional, commercial and industrial users than to domestic users, indicating a suppressed domestic demand. Unaccounted for water in 1979 was again about 30%. The consultants to RWB (Energoprojekt) estimated a 1979 deficiency, principally domestic, of at least 120 lps, during peak demand conditions.

Population Forecast

3.04 A new population census was initiated in SFR Yugoslavia beginning March 1, 1981. Preliminary planning for the census included questions - 12 - regarding the availability of water supplies to the households. Availa- bility date of census statistics, however, has not been determined as yet.

3.05 Estimated mid-year population figures for 1978 through 1995 are shown in Annex 2. The population trends for SAP Kosovo, its communes and the commune centers is given in the Regional Physical Plan of SAP Kosovo as prepared by the Institute for Urban Planning and Design. Percentage growth rates as defined and projected by Hydroprojekt, Praha and OTAM (Omnium Technique d'Amenagement), Paris, are as follows:

------Annual Growth Rate (%)------Systems Area 1961-70 1971-79 1980-84 1985-89 1990-94 1995-2000

Pristina 'A' Pristina 6.0 5.0 3.5 3.5 3.0 3.0

(Kosovo Polje 11.0 6.0 6.0 4.5 3.5 3.0 Pristina 'B' ( (Obilic 7.0 4.0 3.0 2.0 2.0 1.5

Podujevo Podujevo 6.0 4.0 4.0 4.0 4.0 3.5

3.06 RWB has combined the project area into the above system areas. Population projections from 1979 to 1995 for the areas are forecast as follows: Pristina 'A' will increase from 140,000 to 260,000; Pristina 'B' will increase from 21,000 to 38,000; and, in Podujevo the increase will be about 13,000 to 25,000. The Institute for Urban Planning and Design, is preparing the new Master Plan of the Pristina-Kosovo Polje area, but this has not as yet been published. A General Urban Plan has been developed for Podujevo and comprises projections to the year 2000. The built up area of Pristina is to be extended to the surrounding elevated periphery in the form of family housing (in Dragodan and Kasagija), and also by multi-family buildings in the elevated areas towards Maticane and along the road to Skopje. This would place most of the future housing at an altitude of 535-710 m.a.s.l. The industrialized zone is to be extended in the future in the Kosovo Polje area.

3.07 The present population density varies from 20 inhabitants per hectare in outlying areas to 400 inhabitants per hectare in the commercial and highrise apartment areas of Pristina. In Kosovo Polje the range is from 20 to 180 inhabitants per hectare, while in Obilic the density increases to 270 inhabitants per hectare. For Podujevo the upper level is 250. Industrial enterprises in Pristina city do not occupy a large area of the city, nor do they require a large quantity of water. The construction of industrial plants in Pristina city is not envisaged in the future. In the Kosovo Polje industrial area, several industries have been established, and these require water from the community systems.

Forecast of Consumption

3.08 The mission projected water production and consumption from 1978 through 1995, the year by which both the Gracanka and Batlava Reservoirs - 13 - will be exploited to a maximum level. Project construction will be com- pleted in 1984, thereby allowing an eleven year horizon for future planning and design. Projections of water consumption are in Annex 2.

3.09 RWB provided water consumption statistics for the several cate- gories of customers for the years 1978 and 1979. The average domestic usage has been estimated by RWB at about 130 lpcd for 1978, and this accounts for about 47% of the total consumption. The balance of about 147 lpcd represents the consumption of institutional, commercial and industrial users. For comparison purposes, it is noted that the domestic consumption for Cacak in 1978 was about 140 lpcd; and for Belgrade the 1976 figure was 263 lpcd for water sold to non-industrial users. The 1978 usage in Podujevo was about 100 lpcd which would be expected because of the rela- tively small size of the town. In 1979, in the RWB service area, commer- cial and industrial consumption fell somewhat, while the domestic and institutional usage increased. Average annual industrial demand for 1980 was estimated at about 2.0 MCM by RWB.

3.10 By 1995 it is estimated that about 91% of the population in the RWB regional service area would be connected to the distribution network through slightly more than 25,000 connections, as compared with about 75% of the population being served in 1980 with 13,820 connections. Water sales are expected to increase from 13.07 MCM in 1978 to 37.99 MCM in 1995 resulting from satisfaction of the existing suppressed demand, rapid exten- sion of services, renovation of existing defective distribution systems, upgrading of living conditions and subsequent accelerated per capita demands for water. Total per capita water production will increase from 277 lpcd in 1978 to 402 lpcd in 1995. All connections will be metered.

3.11 The present level of unaccounted for water is estimated by RWB and its consultants at about 30% of production (para. 2.08). The leakage detection and repair program which will be initiated in 1982 is expected to reduce the percentage to 25% by 1984, and 20% by 1987. Because of the absence of exact data reflecting patterns of water consumption, particu- larly in view of the suppressed demands, the maximum monthly demand has been estimated at 110% to 120% of average daily demand. The maximum daily demand is projected to be 40% more than the average daily demand. - 14 -

CHAPTER IV

THE PROJECT

Genesis

4.01 Following a request from the government of SFR Yugoslavia to the United Nations Development Program (UNDP) in 1971,the World Health Organization (WHO) was designated executing agent for the preparation of feasibility studies and preliminary engineering for a community water supply, waste disposal and pollution control project in SAP Kosovo. In late 1973 WHO retained as consultants the firm, Hydroprojekt, Praha (Czechoslovakia) to prepare the reports related to the technical and organizational aspects of the studies which covered the Pristina and Podujevo Communes. Initial studies (Phase I) were completed in December 1976 for the period to 1980; and the final report (Phase II) published in December 1979, projected the needs to 1990, 1995 and 2000. Concurrently, a Regional Physical Plan was being prepared for the Institute for Urban Planning and Design, Pristina, under a program supported by the Organization for Economic Cooperation and Development (OECD).

4.02 In May 1979, water shortages in Pristina reached a crisis level to the extent that the Pristina Communal Executive Council decreed that water could be used legally for drinking purposes and personal hygiene only. The crisis also led both the Communal and Provincial Authorities to call for an urgent solution of the water supply problem in their draft Provincial Five Year Plan.

4.03 Bank assistance was requested by the Provincial Government of Kosovo in February 1980.

4.04 In August 1980 the GWE retained consultants (Energoprojekt, Beograd) to carry out the final designs for the water supply system suffi- cient to meet the projected needs to 1995. The procedures followed in hiring the consultants were in accord with Bank recommendations and were consistent with Bank policies and procedures; and GWE kept the Bank informed of all developments in this regard. Although the contract was signed only on August 22, 1980 the consultant started final design activity including pilot plant design for the treatment plant in late July 1980 after being notified of selection. Draft tender documents for equipment were completed in February 1981. Completion of the balance of final designs and tender documentation is envisaged during the third quarter of 1981.

Project Objectives

4.05 The basic objective of the project is the alleviation of the increasingly serious water shortage problems in the project area and the substitution of costly consequential emergency measures with reliable permanent facilities. The reconstruction and augmentation of the water supply systems is considered by the authorities to be absolutely exigent - 15 - for the universal social and economic development of this region of the Province. The proposed new and improved facilities would have sufficient capacity to meet the maximum day demand up to 1995. Through the rehabilitation and leakage control elements of the project, the unaccounted-for water level would be reduced to about 20% from 1987 onwards. In addition to providing sufficient water for the rapidly growing population as well as improving the cultural and hygienic standard of living in the project area, the project would have an important hearing on the development of industries and other economic activities including the continuing evolution of Pristina as the administrative and cultural center of the Kosovo Province. Another objective would be the strengthening of the regional water supply and wastewater disposal authority which will assume responsibility for these services, replacing the existing structure wherein the responsibility is divided among several communal agencies. Additionally, the regional authority will serve to develop local capability in the institutional and financial administration, engineering, and operation and maintenance, with particular emphasis on RWB's own staff assuming additional responsibility for project supervision.

Project Description

4.06 The project includes:

A. Main Supply System Elements

(a) intake at the Batlava Reservoir;

(b) pumping station (I m3/sec capacity) and delivery line (900

mm-3,530 mm length);

(c) water treatment plant (1 m /sec capacity);

(d) gravity transmission line (900 mm) - 24,970 m length;

(e) Vranjevac Reservoir A (5,000 m 3 capacity);

(f) Vranjevac Reservoir B (7,500 m capacity);

(g) Dragodan Reservoir (15,000 m capacity);

(h) Orlovic Reservoir (10,000 m capacity);

(i) Vranjevac pumping station (155 lps capacity); and

(j) connecting pipelines to main distribution. - 16 -

B. Secondary Supply System Elements

(a) Maticane IT pumping station (103 lps capacity);

(b) Park pumping station (200 lps capacitv); 3 (c) Maticane III Reservoir (5,000 m capacity);

(d) Kasagija Reservoir (1,000 m capacity); and

(e) connecting pipelines to distribution.

C. Distribution Networks

(a) Pristina system (42,500 m - 80 mm to 700 mm dia.);

(b) Kosovo Polje system (10,800 m - 80 mm to 600 mm dia.);

(c) Obilic svstem (12,900 m - 80 mm to 500 mm dia.);

(d) Podujevo svstem (28,000 m - 100 mm to 500 mm dia.); and

(e) Podujevo Reservoir (3,000 m capacity).

D. Construction of, and equipment for, a technical operations building at Pristina.

E. Provision of 15,000 water meters and a meter repair facility.

F. Implementation of a leakage detection program.

C. Consulting services for the final designs of sewage collection systems for Pristina, Kosovo Polie and Obilic.

H. Consulting services for water supply construction supervision.

4.07 A general layout of the proposed facilities is shown on Map IBRD 15684. Water from the Batlava Reservoir will be extracted through a vertical tower intake and will flow by gravity through a 1.0 m diameter pipe about 4 km to the water treatment plant near Sajkovac. The treatment plant will incorporate micro-straining, pre-treatment ozonation, floccu- lation, mixed media (sand/anthracite) filtration, and final ozone disinfec- tion. Treated water will flow bv Rravity to the Podu;evo distribution system through a 400 mm main (about 10 km). A 25 km long (900 mm dia.) transmission main will conduct treated water by gravity flow to the Pristina area where the flow will split, one branch feeding the Vranjevac Reservoirs and the other the Dragodan Reservoir. Further division of flow - 17 - and pumping will transport the water to the Maticane and Kasagiya Reservoirs serving Pristina. The Dragodan Reservoir will supply water to the Orlovic Reservoir which will serve Obilic and Kosovo Polje.

Cost Estimates

4.08 The total estimated cost of the project is Din. 2,076.1 million (US$72.85 million) excluding interest during construction with a foreign exchange cost of Din. 969.0 million (US$34.0 million) equal to 47% of the total cost. Detailed cost estimates of the project elements are shown in Annex 7. A summary of the cost estimates is as follows:

Local Foreign Total Local Foreign Total ----(Din. Millions)------(uS$ Millions)-----

Water production and transmission 416.8 522.7 939.5 14.63 18.34 32.97

Pumping and reservoirs 30.5 32.3 62.8 1.07 1.13 2.20

Distribution systems 99.3 53.5 152.8 3.48 1.88 5.36

Land and buildings 83.4 42.0 125.4 2.93 1.47 4.40

Operational equipment 13.9 98.1 112.0 0.48 3.44 3.92

Sub-Total 643.9 748.6 1,392.5 22.59 26.26 48.85

Engineering 28.3 3.2 31.5 1.00 0.11 1.11

Construction supervision 21.9 24.3 46.2 0.77 0.86 1.63

Physical contingencies 83.4 84.8 168.2 2.93 2.98 5.91

Price escalation 329.6 108.1 437.7 11.56 3.79 15.35

TOTAL 1,107.1 969.0 2,076.1 38.85 34.00 72.85

The cost estimates are based on actual construction prices prevailing in similar large scale water supply and sewerage projects in Yugoslavia as of January, 1981. The water supply projects used as comparators had capa- cities ranging from 500 lps to 2,000 lps. The prevailing (1981) exchange rate of US$1.00 = Din. 28.5 has been utilized. Physical contingencies of 15% were added to the base costs. Construction supervision has been esti- mated at 4% of the base construction costs. Sewerage system design and tender document preparation has been estimated at 140 man-months of consul- tative services. The estimated cost of these services, including salaries, - 18 - fees, travel and subsistence is US$1.11 million or an average of US$7,900.00 per man-month. To provide for price escalation during the project execution, expenditures for foreign goods were escalated at an annual rate of 10% for 1981, 9% for 1982, and 8% for 1983 and 1984. Local expenditures were escalated at annual rates of 25% for 1981, 20% for 1982, 18% for 1983 and 15% for 1984.

Project Implementation

4.09 Construction of the project is scheduled to begin in the second half of 1981 and to be completed in 1984. Details of the project implemen- tation schedule are given in Annex 3. Final designs and tender documents are being prepared by Yugoslav consultants, and will be completed during the last half of 1981. The tender for pipe supply has been advertised both locally and internationally and except for the tender document for the water treatment plant, all other tender documents are in an advanced stage of preparation.

4.10 RWB will engage consulting engineers for supervision of construc- tion of the project. Its own Investment Department (para. 5.03) will also play an increasingly important role in construction supervision. Agreement has been reached that RWB will retain engineering consultants under terms and conditions acceptable to the Bank to assist in project construction supervision, and to further develop its expertise in the Authority.

Procurement

4.11 Equipment and materials contracts estimated to cost more than US$200,000 and civil works contracts estimated to cost more than US$500,000 will be procured through international competitive bidding in accordance with Bank Group Guidelines. For the purpose of bid evaluation, it is proposed that domestic manufacturers of equipment and materials be given a margin of preference of 15% or customs duties, whichever is lower. Other equipment supply and civil works contracts of an aggregate cost of US$ 1,000,000 and US$ 2,500,000 respectively, would be awarded on the basis of competitive bidding advertised locally. Minor works, such as replace- ment of service connections and additions and renovations to existing water supply networks are scattered over the project area and as such are neither amenable to proper packaging for tendering, nor attractive to contractors. Since RWB has the inhouse capability to carry out this work in an efficient and cost-effective manner, it would be executed by force account, under arrangements acceptable to the Bank, up to a value in aggregate not exceeding US$4.5 million.

4.12 Contracts for the supply of equipment for the water treatment plant and other specialized equipment are expected to be awarded to foreign suppliers. Contracts for the supply of pipes and for construction of the main transmission line have been awarded to Yugoslav suppliers following international competitive bidding in accordance with Bank Group Guide- lines. All other equipment supply and civil works contracts are expected to be won by Yugoslav firms. Several projects of similar scope and complexity are in progress or have recently been completed in the country. - 19 -

Disbursements

4.13 The proposed Bank Loan of US$41.0 million would be disbursed against the cost of the project elements as follows:

(a) Equipment and materials - 100% of foreign (US$20.30 million) expenditures and 70% of local expenditures

(b) Civil works for the main and secondary - 35% of expenditures supply system elements and the distribution networks. (i) by force account (US$ 1.50 million) (ii) other (US$ 10.30 million)

(c) Consulting services - 35% of expenditures (US$0.95 million)

(d) Interest and other charges - Amounts due on the Loan (US$7.00 million)

(e) Unallocated (US$0.95 million)

Estimated disbursements of the Bank Loan are shown in Annex 5.

4.14 Disbursement for works on force account will be made against certificates of expenditure, the documentation of which is not to be submitted for Bank review, but will be retained by RWB and kept available for inspection by Bank supervision missions.

Monitoring Criteria

4.15 Annex 6 shows the key indicators which would be monitored during project execution to measure the technical, financial and administrative goals set for RWB operations. Agreement has been reached that RWB will report the evolution of these indicators to the Bank during project exe- cution and for five years following project completion, and that it consult the Bank on any remedial action it deems reasonable and appropriate for the efficient conduct of its business.

4.16 Assurances have been received from RWB that, within six months following the closing date of the Loan, the organization will prepare and submit to the Bank a project completion report reviewing the planned objectives and the achievements of the project, including: costs and bene- fits derived; performance of all entities associated with project execu- tion and system operation. - 20 -

CHAPTER V

THE BENEFICIARY

Introduction

5.01 The beneficiary of the proposed loan would be the Regional Water- works Batlava (RWB) which is legally responsible for water supply and sewerage service in the Communes of Pristina and Podujevo. As of January 1981, the new enterprise is the successor to the former Gracanka Water Enterprise (GWE), from which it has acquired all existing staff, assets and liabilities. It has also acquired the existing Batlava Dam and Reservoir from SAP Kosovo and will physically take over the personnel, assets and liabilities relative to water supply in the Podujevo Commune when the new Batlava waterworks comes on stream. In January 1981, the proposed project was declared of general social interest by the Assembly of the Executive Council of SAP Kosovo, a decision which carries with it the right for RWB to proceed as necessary with land and real estate expropriation in the Communes of Pristina.and Podujevo. Actions to establish right of way ownership were initiated in February 1981.

Organization and Management

5.02 RWB's highest decision making body is the Workers' Council, which is selected by the Assembly of Workers. This Council maintains two advi- sory commissions: Employment and Discipline, and also elects the Executive Board of the Enterprise. The Board in turn appoints the General Manager who actually runs the Enterprise.

5.03 Three departments report to the General Manager: Technical, Administrative and Investment. The Technical Department is responsible for operation and maintenance of the water supply and sewerage facilities, minor network extensions and repairs, water meter calibration and repair, mapping of the water and sewerage systems and for workshops and transport vehicles. The Administrative Department is responsible for the personnel, legal, commercial, financial and accounting functions. The Investment Department prepares medium and long-range plans and oversees the execution of major projects. RWB's organization chart appears in Annex 1.

Personnel

5.04 RWB's current staff consists of about 240 regular and 25 temporary employees, compared with authorized levels of 260 and 25 respectively. As noted in para. 5.01, the water supply service staff employed by the Podujevo Commune, currently seven, will join RWB only when water becomes available through the proposed Batlava system. Most of the vacant positions are in the newly created Investment Department. No difficulty is expected in finding suitable candidates (para. 5.05). Staff morale is high and turnover is negligible. Under existing work loads, RWB is temporarily - 21 - overstaffed, especially in the lower staff echelons with approximately 12.5 employees per 1,000 connections, exclusive of staff engaged in construction activities. Progress in the level of staffing will be monitored throughout the implementation of the proposed project (Annex 6).

5.05 As a result of its good personnel management practices, its reasonably competitive salaries, the number of Yugoslavian trade schools available and the expanding labor market, RWB has had no difficulty in attracting the number and quality of staff required. The need for institu- ting a formal system of in-service education and training had not arisen until recently. Orientation and basic job-related training for new or re- deployed staff had been provided as required informally on the job by supervisors and other experienced staff.

5.06 It is estimated that the increased activities which will result from the proposed project will require about 100 additional staff, or an increase of about 40% over the current level. RWB's management concurs with the view that in consonance with this expected growth, training acti- vities should henceforth be promoted. In this respect, agreement has been reached with RWB that it will continue to assign one of its staff as a Training Coordinator and submit to the Bank for its comments a training program no later than March 31, 1982, embracing the project implementation period, which it will then carry out. This program should include skills reinforcement arfdupdating of existing staff, particularly the supervisory staff engaged in operation and maintenance.

Operating Efficiency

5.07 Since the water production meter at the Gracanka treatment plant is inoperative, and none exists in the system other than consumer meters, daily production has to be estimated. This coupled with the fact that some 5,000 consumer meters are defective, makes it difficult to account satis- factorily for water. It is thus estimated indirectly from filter runs, pump characteristics and electric power consumption that unaccounted for water has been running at about 30% of water produced (para. 2.08).

5.08 Among the causes for excessive water losses are: (i) chronic breakdowns due to excessive operational pressure in the Pristina system; tne proposed project would remedy this by creating separate pressure zones for different topographical areas; and (ii) the lack of preventive mainte- nance; the proposed project would assist RWB in surveying the four cities included in this project, to establish appropriate water supply system documentation, and in carrying out a leak detection program, and would provide consumer meters, production meters, a new water meter repair faci- lity as well as maintenance vehicles and equipment. Water losses and the progress of the leak detection program would be monitored throughout the implementation period of the project (Annex 6). Agreement has also been reached with RWB that no later than March 31, 1982, it will start implemen- ting a program of preventive maintenance in accordance with generally accepted practices in the industry. - 22 -

Accounting, Billing and Collection

5.09 RWB uses the standard Yugoslav chart of accounts and financial statements. Although certain expenditures are treated as appropriations of profit, the statements may be readily transformed into the format normally used by Bank for public utilities. Adequate accounting arrangements exist and statements are produced in sufficient detail to enable the financial results of water supply and sewerage services to be presented separately from the construction activities undertaken for third parties. Agreement has been reached that RWB will maintain its accounts in sufficient detail to enable this separation.

5.10 Billing and collection arrangements are generally satisfactory. Consumers with defective meters are billed on the basis of prior consump- tion. The estimated number of illegal connections is negligible. Outstan- ding receivables which at present are the equivalent of about four months of sales, are expected to come down to about two months' equivalent by 1986 as a result of special collection efforts. Progress in reducing the pro- portion of outstanding receivables would be monitored throughout project implementation (Annex 6).

Audit and Insurance

5.11 In line with Yugoslav practice for Bank loans, RWB's accounts will be audited by the Social Accounting Service (SAS) according to inter- nationally accepted standards. Agreement has been reached that beginning with the financial year 1981, RWB will prepare annual statements and have these statements audited by SAS. The audited statements would be submitted to the Bank within six months of close of each fiscal year. Agreement has also been reached that SAS would give a separate opinion as to whether satisfactory procedures are in operation to ensure that withdrawals supported by certificates of expenditures have been used for the correct purpose.

5.12 RWB will continue the practice of the former GWE of insuring buildings, equipment and vehicles against the normal risks of fire, damages and theft. The water supply and sewerage network is not insured except for landslide risks. This practice is satisfactory. - 23 -

CHAPTER VI

FINANCE

Past Performance and Present Position

6.01 RWB's revenues are mainly derived from monthly water and sewerage charges based on metering. In cases of defective meters, charges are based on estimated consumption. Meters are owned by the consumers, and there are no meter rents or deposits. Sewerage charges are levied on water consump- tion for consumers connected to the sewerage system.

6.02 A further substantial source of RWB's revenues has been the small but lucrative construction activities it has undertaken for business enter- prises in Pristina. In the years 1978-1980, this accounted for about 20% of its total revenues. Out of a total work force of 265 in RWB, about 25 people are directly associated with this activity.

6.03 In the past, proposals for tariff increases have been geared to meeting the financial needs of RWB. Since income from the construction activity has figured largely in RWB's sources of income, it has to a degree subsidized the water supply operation.

6.04 RWB has until now been unable to borrow major funds for system improvements and expansion. Its current debt:equity ratio is 9:91. Its equity is small and its debt consists of several small long-term loans at low interest rates which RWB has no difficulty to service from current revenues.

6.05 Although RWB has shown some small profits in the past few years, the inadequacy of its internally generated funds has made it difficuilt to operate and maintain its existing system properly, let alone to invest in additional facilities to meet the rapidly growing demand within its service area.

Tariffs

6.06 RWB's requests for tariff increases for water and sewerage coin- cide with the preparation of its annual budget which, when approved by its Workers Council, are forwarded to the Commune for approval of the tariff increases envisaged in them.

6.07 RWB's existing tariff schedule (effective July 1, 1981) is as follows. - 24 -

Consumer Category Tariff (Din./m3) Domestic 3.50 Public Institutions 5.50 Commercial and Industrial 9.00 Sewerage Surcharge 1.80 Raw Water (Bulk Supply) 1.50 Weighted Average (for water supply) 5.00

6.08 The average revenue collected by RWB is currently only about half of the long-term marginal cost (para. 7.02) of providing water in its service area. Existing average charges in certain other cities of Yugoslavia are twice as high.

6.09 By the time the proposed project is completed large increases in water tariffs will be necessary, both to provide an adequate level of maintenance, and maintain RWB's financial viability. RWB's tariffs have received a 40% increase for 1981. In order to meet its financial obliga- tions, RWB will need further increases of 30% in 1982, 1983, and 1984, 40% in 1985 and 20% in 1986. This amounts to a four-fold increase in nominal terms and a doubling in real terms in water tariffs by 1986.

6.10 In view of the magnitude of these tariff increases the management of RWB will need to undertake a public relations campaiRn, explaining to the citizens the need for these increases similar to the one used to gene- rate public support for voluntary contributions. Agreement has been reached that RWB will submit to the Bank, three months from the beginning of each fiscal vear, its plan of action in this regard.

Financing Plan

6.11 Annex 4 Rives a forecast of the sources and applications of RWB's funds. The following table summarizes RWB's estimated funds requirements and sources for the period of project construction (1981-1984).

Din. US$ % --Millions---

Sources

Internal cash generation 207.5 7.28 8 Consumers' voluntarv contributions 838.0 29.41 33 Local bank loans 360.0 12.63 14 Proposed IBRD Loan 1,168.5 41.00 45

Total 2,574.0 90.32 100

Requirements

Proposed project cost 2,076.1 72.85 81 Interest during construction 371.0 13.02 14 Debt service 78.7 2.76 3 Working capital 48.2 1.69 2

Total 2,574.0 90.32 100 - 25 -

6.12 The proposed Bank loan of US$41.0 million would provide about 45% of the total financing requirements or about 97% of the foreign exchange cost (comprising US$34.0 million in project costs and US$7.0 million in interest during construction on the proposed Bank Loan). The period of the Loan would be 15 years including 3 years grace.

6.13 Voluntary contributions would provide 33% of RWB's financing requirements. The citizens of the Pristina Commune overwhelmingly agreed at a referendum held in January 1981 to contribute 2% of their salaries for five years (1981-1985) towards the construction of the new water supply system. Similarly, the Workers' Councils of the organizations of asso- ciated labor within the Commune also voted in July 1981 to contribute a portion of their income for a five-year period (1981-1985) towards finan- cing this project. These contributions are non-refundable and tantamount to equity. An estimate of the total amounts to be raised is as follows.

Din. us$ ----Millions-----

Voluntary contributions: - citizens (1981-1985) 750.0 26.3 - organizations of associated labor (1981-1985) 660.0 23.1

Total 1,410.0 49.4

6.14 The above estimates are conservative in that they are likely to provide higher than forecast cash flow since they are based on current levels of wages and incomes of enterprises in the Commune without taking into account natural growth and the effect of inflation.

6.15 However, since the above contributions will be made over a period of five years (1981-1985) while the project execution period is only through 1984, RWB will have to borrow from local banks to cover the finan- cing gap during the period of project construction. Moreover, as a condi- tion of effectiveness for the proposed loan, RWB will have entered into an agreement with Udruzena Kosovska Banka Pristina in form and substance satisfactory to the Bank for the provision of additional funds as and when needed for the carrying out of the projects.

Retroactive Financing

6.16 Reflecting the high priority assigned the project by the Yugoslav agencies and in view of the commitments made by communal authorities to provide improved service, RWB has prepared tenders, received bids and in August 1981 awarded contracts for the construction of the main transmission line. The contract for the supply of transmission line pipes, which amounted to the equivalent of over US$8.0 million, was awarded in June 1981, in compliance with the Bank's procurement guidelines. Tender - 26 - documents for the reservoir have already been completed. Construction startup prior to the advent of winter in Kosovo is beneficial in limiting lost time due to inclement weather. Foreign exchange expenditures for these contracts are expected to be approximately US$6.0 million prior to the loan approval, and it was agreed that these expenditures could be eligible for retroactive financing.

Future Performance

6.17 The financial forecasts 1981-1987 for RWB and the assumptions on which they are based are in Annex 4.

6.18 The volume of water sold is expected to double in the period 1980- 1987. This coupled with the forecast tariff increases would produce revenues which would grow more than eight-fold. In the same period, opera- ting expenses, including depreciation, would increase only about six times, leaving a margin which combined with voluntary contributions would be sufficient to meet RWB's obligations. Agreement has been reached that beginning in 1982 and in each year thereafter, RWB will implement tariff increases which combined with the voluntary contributions will provide for:

(i) expenses of operation and maintenance (excluding depreciation);

(ii) depreciation or debt service, whichever is higher; and

(iii) adequate working capital.

6.19 RWB's present debt:equity ratio is 9:91. It will peak at 54:46 in 1983, mainly because of the local loans needed to meet the cash deficit during the project implementation period (four years) while the voluntary contribution will only be paid in over a five year period. These contribu- tions along with the substantially higher operating incomes in the years following project completion will allow RWB to pre-pay all of its local loans by 1985, the debt:equity ratio falling to 30:70 by 1987. The debt service coverage is expected to be around 1.7 times during 1983-1986, and then improve to 2.2 times by 1987. Agreement has been reached that without the concurrence of the Bank, RWB will not incur any debt, other than the ones specified for the purposes of this project, unless a reasonable fore- cast of its net cash generation before depreciation and interest, exceed 1.5 times its debt service in any future years, including debt service on the amount to be borrowed. - 27 -

CHAPTER VII

ECONOMIC AND SOCIAL ANALYSIS

Least Cost Solution

7.01 The proposed project aims at improving the water supply facilities in Pristina, Obilic, Kosovo Polje and Podujevo particularly with regard to overcoming the suppressed domestic demand. The proposed works would increase water production sufficiently to overcome the existing deficit and also meet the domestic, institutional, commercial and industrial needs to 1995. Design of the proposed system is in accordance with sound engineer- ing principles utilizing acceptable design criteria and valid approaches. The overall design of the proposed system was reviewed by the mission including the pipe sizes and configuration of the mains and distribution system and also the locations of reservoirs and pumping stations. Five proposed alternatives for the main water supply system incorporating dif- ferent routes for the transmission main and also different arrangements of pumping stations and reservoirs, were analyzed. The alternative selected proved to be technically superior, and also was the least cost solution at discount rates of 8%, 10% and 12%.

Average Long-Term Incremental Cost

7.02 The average long-term incremental cost of water in 1981 prices and at a discount rate of 10%, which is appropriate for Yugoslavia, is esti- mated at about Din. 11.3/m3 (US$0.40/m3). On the basis of the proposed tariff increases RWB's average tariffs (in real terms) will be about Din. 6.8/m3 (US$0.24/m3) by the year 1986. The average tariff for domestic consumption will be about 40% of the average incremental cost while that of commercial enterprises will be about 110%. This however does not take into account the substantial voluntary contributions which both the citizens and the enterprises in Pristina will make during the next five years towards financing the project. The proposed tariff increases combined with the voluntary contributions compare favorably with the average long-term incre- mental cost of water and is consistent with the principle of economic efficiency in resource allocation.

Internal Rate of Return

7.03 There are a variety of benefits associated with the provision of a safe and convenient water supply. The more important among these is the health, social and economic well being of the population being served. It also facilitates economic development and helps create and expand employ- ment opportunities for the general public. These benefits, however, cannot be meaningfully quantified. The internal rate of return was, therefore, calculated using the incremental water sales at 1981 prices and the volun- tary contributions which the consumers and enterprises have expressed a willingness to pay, as a minimum measure of the benefits accruing from this project. The rate of return would be 14.2% (Annex 9). Sensitivity - 28 - analysis of the rate of return indicates that it is moderately sensitive to increases in capital investment or reductions in tariffs. For an increase in capital investment of 10% the rate of return would be about 11.0%. Conversely, a reduction of 10% in benefits accruing from water sales would result in about 12.7% rate of return.

Risks

7.04 In early 1981 RWB succeeded GWE, which had been established in 1966. The management and staff of RWB have already demonstrated their capability to meet its growing responsibilities. The formation of the Investment Department in 1980 further reinforces the strength of RWB, particularly in project planning and execution. RWB's experience in project implementation and supervision will be supported and augmented through close, active participation with consultants in the proposed project. System structural elements and the welded steel transmission main have been designed to reasonably withstand lateral forces due to seismic ioading. Other risks in construction will be normal for a water supply project. The willingness of the users to pay for water supply is evident. The increase projected in per capita consumption will not be difficult for the users to absorb, even at the higher tariff levels. Thus, the risk of not achieving the organizational, technical or financial objectives of the project is minimal.

Environmental Impact

7.05 The overwhelming result of the referendum and the decision of the communes and the Province to accord high priority to the provision of adequate water supply and sanitation services (para. 1.16) reflect the con- viction and strong objective of improvement of existing environmental conditions in the project area. Through implementation of this project, RWB will supply safe water to a larger number of persons in an expanded service area. Rehabilitation of defective elements in the existing service area will also improve levels of service for domestic users, particularly, and will contribute towards overcoming the deficit in domestic consumer demand. At a later date, following the preparation of final designs, which represents an element of the proposed project, the construction of an adequate wastewater disposal system would further improve the ambiance of the areas included in the proposed project. - 29 -

CHAPTER VIII

AGREEMENTS REACHED AND RECOMMENDATIONS

8.01 During negotiations, agreements have been reached with RWB on the following:

(i) that RWB will retain engineering consultants under terms and conditions acceptable to the Bank to assist in project construction supervision, and to further develop its expertise in this field (paragraph 4.10);

(ii) that RWB will monitor and report the evolution of key indicators to the Bank during project execution and for five years following project completion, and that it will exchange views with the Bank on any remedial action that needs to be taken (paragraph 4.15);

(iii) that within six months following the closing date of the Loan, RWB will prepare and submit to the Bank a project completion report (paragraph 4.16);

(iv) that it will continue to assign one of its staff as a Training Coordinator and propose and submit to the Bank for comments, no later than March 31, 1982, a training program embracing the project implementation period (paragraph 5.06);

(v) that no later than March 31, 1982 RWB will start implementing a program of preventive maintenance in accordance with generally accepted practices in the industry (paragraph 5.08);

(vi) that it will maintain its accounts so as to enable the financial results of water supply and sewerage services to be presented separately from the construction activities undertaken for third parties (paragraph 5.09);

(vii) that beginning with the financial year 1981, RWB will prepare annual statements and have these statements audited by the Special Audit Group of SAS and that the audited statements will be sub- mitted to the Bank within six months of close of each fiscal year (paragraph 5.11);

(viii) that RWB will submit to the Bank, three months from the beginning of each fiscal year, its plan of action in regard to tariff increases (paragraph 6.10); - 30 -

(ix) that beginning in 1982 and in each year thereafter, RWB will implement tariffs which combined with the voluntary contributions will provide for: (a) expenses of operation and maintenance (excluding depreciation); (b) depreciation or debt service, whichever is higher; and (c) adequate working capital (paragraph 6.18); and

(x) that without the concurrence of the Bank, RWB will not incur any debt, other than the ones specified for the purposes of this project, unless a reasonable forecast of its net cash generation before depreciation and interest, exceed 1.5 times its debt service in any future years, including debt service on the amount to be borrowed (paragraph 6.19).

8.02 A condition of effectiveness will be that RWB will have entered into an agreement with Udruzena Kosovska Banka Pristina in form and substance satisfactory to the Bank for the provision of additional funds as and when needed for the carrying out of the project (paragraph 6.15).

8.03 The project would be suitable for a Bank Loan to the Regional Waterworks Batlava (with the guarantee of the Socialist Federal Republic of Yugoslavia) of US$41.0 million equivalent for a term of 15 years including a 3-years grace period. YUGOSLAVIA KOSOVOWATER SUPPLYPROJECT ORGANIZATION CHART

WORKER'S COUNCIL

GENERAL MANAGER

TECHNICAL INVESTMENT ADMINISTRATIVE DIVISION DIVISION DIVISION

_EQUIPMENT _ CIVIL LEGAL AND MAINTENANCE . WORKS PERSONNEL

__ I INETWORK TREATMENT______MAINTENANCE TREOVATME ELECTRO- COMMERCIAL BKOJLOVACA_ _ MECHANICAL AND PAYABLES KOILOVICA OBILIC j TREATMENT KUZMIN TECHNICAL DATA AECONOMIC NG PREPARATION STUDIES ACUTN _ SUPERVISION-__ DESIGN | CIVILWORKS AND | UNDERGROUND CADASTRE BUDGET TRANSPORT |AND VEHICLES B

World Bank -- 22662 - 32 -

ANNEX 2 Paze 1

YUGOSLAVIA KOSOVOWATER SUPPLYPROJECT POPULATIONAND WATER SERVICE

$ ~~~~~~~~0w00Population 0.

0 100 _ __

1978 '80 '82 '84 '86 '88 '90 '92 '94 '96 YEAR

80 - 1 _ °_

40-

2-0

-1 I

0 n

1978 '80 '82 '84 '86 '88 '90 '92 '94 '96

YEAR

World Bank-22838 - 33 - ANNEX 2 Page 2

YUGOSLAVIA KOSOVOWATER SUPPLYPROJECT WATER DEMAND BALANCE

1400

1200 MAXIMUM DAY DEMAND

WATER 1000 iOOOSOURCES w co / ' /AVERAGE w - / ]/ DAY DEMAND cz 800_/ LU X / z ~~~~~~~~BATLAVA

< 600/

400 _ | / / KUZMIN AND KOLJOVICA J / Z , ~~~~~~~~WELLFIELDS 0

200/ , ~~~~~~GRACANICA ERESERVOIR

1975 1980 1985 1990 KLV5 YEARS

World Bank - 22664 YUGOSLAVIA KOSOVO WATER SUPPLY PROJECT IMPLEMENTATION SCHEDULE

1981 1982 1983 1984 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

MAIN SYSTEM CONSTRUCTION TRANSMISSION LINE INTAKE AND PUMPING STATIONS_ ...- RESERVOIR TREATMENT PLANT -...... - SECONDARY SYSTEM CONSTRUCTION PUMPING STATIONS RESERVOIRS AND PIPELINES ...... ASSOCIATED ACTIVITIES DISTRIBUTION NETWORKS CONSTRUCTION _ _ . ADMINISTRATION BUILDING _ _ . - SUPPLY OF WATER METERS .. _ LEAK DETECTION PROGRAM SUPPLY OF OPERATIONAL EQUIPMENT ...... SEWERAGE SYSTEM DESIGNS

CONSTRUCTION SUPERVISION ls. " _ _ - - - -

LEGEND DESIGNN . . BIDDING SUPPLY OF EQUIPMENT OF MATERIALS --- - EXECUTION OF ACTIVITY iBIhhIlliii SELECTION OF CONSULTANT World Bank - 22665 ANNEX 4 Page 1

- 35 -

YUGOSLAVIA

KOSOVO WATER SUPPLY PROJECT

REGIONAL WATERWORKS BATLAVA

ASSUMPTIONSFOR FINANCIAL FORECASTS

General

Rates of Inflation:

1. Year Foreign Local

1981 10 25

1982 9 20

1983 8 18

1984 8 15

1985 - 12

1986 - 10

1987 - 10

Income Statements

2. The forecastsassume that the tariffs for all categoriesof retail consumerswill increase as follows: 40% in 1981, 30% in 1982, 1983 and 1984, 40% in 1985, 20% in 1986, and 10% thereafter. The sewerage surcharge,which is the same for all categoriesof consumers,will also grow by the same percentages.

3. Connection charges which consist of a one time charge, are assumed to grow by the local inflation rate. Revenues from connectionhave been calculated as the product of the connectioncharge and the number of connectionsprojected to be installed each year.

4. Income from constructionhas been held at the projected 1981 levels, adjusted for local inflation in subsequentyears. ANNEX 4 Page 2

- 36 -

Operating Costs

5. Salaries are based on current staffing levels, adjusted for growth in staff and inflation in future years. Administrationcosts have been assumed at 10% of salaries, and taxes and contributionsat 15% of salaries. Power and chemcial costs have been projected to increase in line with system expansion and adjusted for inflation.

6. Depreciationexpense has been calculated on the basis of four broad categoriesas follows:

Existing works - 3%

Hydraulic works - 3.5%

Distribution network - 5%

Other - 10%

Balance Sheet

7. In Yugoslavia, fixed assets are revalued from time to time as directed by the Federal Government. The bulk of the fixed assets on the books of RWB at the end of constructionperiod will be new, and therefore, currently valued. Interest has been capitalizedduring the constructionperiod (1981-1984).

8. Accounts receivablehave been projected at four months of sales through 1982, and gradually reduced to two months by 1986. Inventorieshave been assumed at 1% of net fixed assets from 1982 onwards.

9. Accounts payable have been assumed at 12.5% of operating expenses not includingdepreciation. Other current liabilitieshave been held at current levels and adjusted for inflation. YUGOSUAVIA

KOSV0O WATER SUPPLY PROJECT

REGIONAL WATERWORKSBATLAVA

INCOMESTATEMENTS (1978 - 1987)

1978 1979 1980 1981 1982 1983 1984 3985 1986 1987

3 Consumption (106 u /year)

Domestic 4.67 4.75 4.81 5.50 6.48 7.50 10.48 12.01 13.60 15.12 Public Institutions 0.39 0.40 0.41 0.42 0.43 0.44 0.59 0.71 0.83 0.96 Commercial 4.61 4.25 4.32 4.40 4.50 4.58 6.05 6.23 6.54 6.92 Raw Water 3.40 3.40 3.40 3.40 3.40 3.40 3.40 3.40 3.40 3.40

Connections

New connections during year - 450 880 500 600 500 950 800 300 800 Total at end of year 12,490 12,940 13,820 14,320 14,920 15,520 16,470 17.270 18.070 18,870

Averac,e Charges (Din./m3

Domestic 1.66 2.01 2.01 2.81 3.65 4.75 6.18 8.65 10.38 11.42 Public Institutions 2.52 3.07 3.07 4.29 5.58 7.25 9.43 13.20 15.84 17.42 Commercial 4.20 5.12 5.87 6.21 10.67 13.88 18.04 25.25 30,30 33.33 Sewage surcharge (average) 0.90 1.13 1.13 1.58 2.05 2.67 3.47 4.86 5.83 6.41 1.10 1.10 Raw water 0.60 0.60 0.80 0.80 0.90 0.90 1.00 1.00

…------(Din. Millions) ------

Operating Revenues

Domestic 7.7 9.6 10.1 15.5 23.7 35.6 64.8 103.9 141.2 172.6 Public Institutions 1.0 1.2 1.3 1.8 2.4 3.2 5.6 9.4 13.1 16,7 Commercial 19.4 21.8 25.4 36.1 48.0 63.6 109.1 157.3 198.2 230.6 Sewage surcharge 6.1 7.4 7.5 11.4 16.4 23.4 41.5 64.4 85.6 103.2 Raw water 2.0 1.5 2.7 2.7 3.1 3.1 3.4 3.4 3.7 3.7 Connection charges 0.4 0.2 0.4 0.5 0.9 1.1 1.9 1.8 2.0 2.2 Construction 5.3 8.3 18.7 10.7 12.8 15.2 17.4 19.5 21.5 23.6

Total Revenues 41.9 50.0 66.1 78.7 107.3 145.2 243.7 359.7 465.3 552,6

Operating Expenses

Salaries 18.3 21.6 28.8 38.0 47.2 57.1 71.4 80.7 88.8 97.7 9.8 Administration 2.8 4.1 3.5 3.8 4.7 5.7 7.1 8.1 8.9 Power 3.8 4.7 6.2 8.4 11.1 14.4 22.7 28.1 34.2 41,3 Chemicals 2.6 2.3 4.7 6.5 8.6 11.1 17.5 21.6 26.3 31.7 14.7 Taxes and contributions 4.0 4.7 4.9 5.7 7.1 8.6 10.7 12.1 13.3 112.3 Depreciation 5.2 5.9 5.9 7.8 18.9 29.6 104.7 110.5 111.3

Total Opmeating Expenses 36.7 43.3 54.0 70.2 97.6 126.5 234.1 261.1 282.8 307.5

Net Income Before Interest 5.2 6.7 12.1 8.5 9.7 18.7 9.6 98.6 182.5 245.1

Interest - - 1.2 1.2 1.1 1.0 0.8 146,5 113.8 95.8

Net Income 5.2 6.7 10.9 7.3 8.6 17.7 8.8 (47.9) 68.7 149.3

Distribution of Net Income

Reserve Fund 0.5 0.5 0.5 0.5 0.5 0.5 0.5 - 1.0 1.0 148.3 Business Fund 4.7 6.2 10.4 6.8 8.1 17.2 8.3 (47,9) 67.7

1.65 1.80 Operating Ratio 1.14 1.15 1.22 1.12 1.10 1.15 1.04 1.38

H iw - 38 -

ANNEX 4 Pace 4 Table 2 YUGOSLAVIA

KOSOVOWATER SUPPLY PROJECT

REGIONALWATERWORKS BATLAVA

STATEMENTOF SOURCES AND APPLICATION OF PFNDS (1980 - 1987)

Year Ending December 31 1980 1981 1982 1983 1984 1985 1986 1987 …------…------(Din. Millions) ------SOURCES OF FUNDS

Internal Cash Generation

Net Income before Interest 12.1 8.5 9.7 18.7 9.6 98.6 182.5 Z45.1 Depreciation 5.9 7.8 18.9 29.6 104.7 110.5 111.3 112.3

Net Internal Cash Generation (A) 18.0 16.3 28.6 48.3 114.3 209.1 293.8 357.4

Borrowings

Existing Loans 25.9 ------IBRD Loan - - 476.0 361.0 331.5 Local Bank Loans - 300.0 50.0 250.0 (240.0) (190.0) (67.5)

Total Borrowings 25.9 300.0 526.0 611.0 91.5 (190.0) (67.5)

Vol-ntary Cash Contributions

Citioens' Contribations - 96.0 121.0 145.0 176.0 212.0 - Contribtirons from Enterprises - 75.0 75.0 75.0 75.0 75.0 75.0 75.0

Total Voluntary Contributions (B) - 171.0 196.0 220.0 251.0 287.0 75.0 75.0

Batlava Dam - 7.8 315.4 - - - - -

TOTAL SOURCESOF FUNDS 43.9 495.1 1,066.0 879.3 456.8 306.1 301.3 432.4

APPLICATION OF FUNDS

Fixed Assets

Project - 448.3 733.2 669.3 225.3 3 - - Other 7.8 315.4 - - 14.0 16.8 20.2 Interest dolring Construction (C) - 7.5 70.5 125.1 167.9 - _

Total Fixed Assets - 463.6 1,119.1 794.4 393.2 14.0 16.8 20.2

Debt Service

Amortization: Existing Loans 2.4 2.4 2.4 2.4 2.4 2.4 2.4 2.4 IBRD loan - - - - - 98.0 98.0 98.0 Local Bank Loans - - - 30.0 35.0 30.0 7.5 -

Total Anorti-ation 2.4 2.4 2.4 32.4 37.4 130.4 107.9 100.4

Interest: Eisting Loans 1.2 1.2 1.1 1.0 0.8 0.7 0.6 0.4 IBRD Loan - - - - 116.2 105.7 95.4 Local Bank Loans - - - - - 29.6 7.5 -

Total Interest 1.2 1.2 1.1 1.0 0.8 146.5 113.8 95.8

Total Debt Service (D) 3.6 3.6 3.5 33.4 38.2 276.9 221. 7 196.2

Working Capital Increase/(Decrease) 1.8 6.9 0.4 2.2 38.1 10.4 (0.7) 9.8

Cosh 38.5 21.0 (57.0) 49.3 (12.7) 4.8 63.5 206.2

TOTAL APPLICATION OF FUNDS 43.9 495.1 1,066.0 879.3 456.8 306.1 301.3 432.4

Debt Service Coverage: (A + B) 5.0 16.8 3.0 1.7 1.8 1.8 1.7 2.2 (C + D) YUGOSLAVIA

KOSOVO WATER SUPPLY PROJECT

REGIONAL WATERWORKSBATLAVA

BALANCE SHEETS AS Al DECEMBER 31, 1978 - 1987

As at December '31 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987

ASSETS ------______-_------(Din. Millions) ------~~-~~~~------ASSETS (i.Mlin)-

Fixed Assets

Fixed Assets in Operation 264.2 264.2 264.2 282.5 801.3 1,012.9 3,034.5 3,048.5 3,065.3 3,085.5 Less: Depreciation 38.7 44.6 50.5 58.3 77.2 106.8 211.5 322.0 433.3 545.6

Net Fixed Assets in Operation 225.5 219.6 213.7 224.2 724.1 906.1 2,823.0 2,726.5 2,632.0 2,539.9

Work in Progress - - 445.3 1,045.6 1,628.4 - - - -

Total Fixed Assets 225.5 219.6 213.7 669.5 1,769.7 2,534.5 2,823.0 2,726.5 2,632.0 2,539.9

Current Assets

Cash 7.4 2.5 41.0 62.0 5.0 54.3 41.6 46.4 109.9 316.1 Accounts Receivable 10.9 14.2 16.0 22.7 29.1 32.4 56.1 70.5 73.6 87.8 Inventories 3.0 3.3 4.3 5.4 7.1 8.8 27.8 26.8 25.9 25.0

Total Current Assets 21.3 20.0 61.3 90.1 41.2 95.5 125.5 143.7 209.4 428.9

TOTAL ASSETS 246.8 239.6 275.0 759.6 1,810.9 2,630.0 2,948.5 2,870.2 2,841.4 2,968.8

LIABILITIES

-Egurt

Business Fund 244.2 235.9 246.3 260.9 584.4 601.6 609.9 562.0 629.7 778.0 s Reserve Fund 0.5 1.0 1.5 2.0 2.5 3.0 3.5 3.5 4.5 5.5 Contributions - - - 171.0 367.0 587.0 838.0 1,125.0 1,200.0 1,275.0

Total Equity 244.7 236.9 247.8 433.9 953.9 1,191,6 1,451.4 1,690.5 1,834.2 2,058.5

Long Term Liabilities

Existing Loans - - 23.5 21.1 18.7 16.3 13.9 11.5 9.1 6.7 Local Bank Loans - - - 300.0 350.0 570.0 295.0 75.0 - IBRD Loan - - - - 476.0 837.0 1,168.5 1,070.5 972.5 874.5

881.2 Total Long Term Liabilities - - 23.5 321.1 644.7 1,423.3 1,477.4 1,157.0 981.6 Current Liabilities

Accounts Payable 1.2 1.5 2.0 2.5 9.8 12.1 16.2 18.8 21.4 24.4 Other 0.9 1.2 1.7 2.1 2.5 3,0 3.5 3.9 4.2 4.7

Total Curreit Liabilities 2.1 2.7 3.7 4.6 12.3 15.1 19.7 22.7 25.6 29.1

TOTAL LlABILITIES 246.8 239.6 275.0 759.6 1,810.9 2,630.0 2,948.5 2,870.2 2,841.4 2,968.8 0 ' ======~~~=_======_======

Current Ratio 10:1 7:t 17:1 19:1 3:1 6:1 6:1 6:1 8:1 15:1

Debt/Equity Ratio - - 9:91 42:53 47:53 54:46 50:50 41:59 35:65 30:70 ANNEX 5

- 40 -

YUGOSLAVIA

KOSOVO WATER SUPPLY PROJECT

ESTIMATED SCHEDULE OF DISBURSEMENTS

(US$ Thousands)

Fiscal Year In Quarter Cumulative and Quarter

1982

Third Quarter 10,310 /1 10,310 Fourth Quarter 3,140 13,450

1983

First Quarter 2,880 16,330 Second Quarter 3,870 20,200 Third Quarter 3,460 23,660 Fourth Quarter 4,100 27,760

1984

First Quarter 2,530 30,290 Second Quarter 3,420 33,710 Third Quarter 1,620 35,330 Fourth Quarter 3,490 38,820

1985

First Quarter 630 39,450 Second Quarter 1,320 40,770 Third Quarter 230 41,000

/1 Advance contractingof pipelines is anticipated. ANNEX 6 41 -

YUGOSLAVIA

KOSOVO WATER SUPPLY PROJECT

REGIONAL WATERWORKS BATLAVA

MIONITORING CRITERIA FOR RWB OPERATIONS

1981 . 1989

I. Technical

Water produced (1,000 m3 /year) Water Sold (1,000 m 3 /year): Domestic Public Institutions Commercial Raw water Unaccounted-for water (%) Number of water connections Number of new connections made during year Water Quality: Total dissolved solids (average) Hardness (average) Nitrates (average) pH (average)

II. Financial

Tariffs (Din./m3); Domestic Public Institutions Commercial Raw water Sewerage surcharge Internal Cash Generation Debt Service Coverage 3 Operating Expenses per m of water sold (Din.) Number of employees - 42 -

ANNEX7

YUGOSLAVIA

KOSOVO WATER SUPPLY PROJECT

COST ESTIMATES

Item Local Foreign Total Local Foreign Total --- (Din. '000)------(US$ '000)------A. MAIN SYSTEM

Intake 2,600 1,400 4,000 91.23 49.12 140.35

Main Pipeline 108,235 238,566 346,801 3,797.72 8,370.74 12,168.46

Pumping Stations (2) 30,900 34,500 65,400 1,084.21 1,210.53 2,294.74

Treatment Plant 144,289 162,711 307,000 5,062.77 5,709.16 10,771.93

Reservoirs (5) 105,300 56,700 162,000 3,694.74 1,989.47 5,684.21

ConnecticnPipeline 25,492 28,867 54,359 894.46 1,012.87 1,907.33

B. SECONDARY SYSTEM

Pumping Stations (2) 5,415 8,385 13,800 190.00 294.21 484.21

Reservoirs (2) 15,600 8,400 24,000 547.37 294.74 842.11

Connection Pipeline 9,490 15,477 24,967 332.98 543.05 876.03

C. DISTRIBUTIONNETWORK

Pristina 43,637 23,497 67,134 1,531.12 824.46 2,355.58

Kosovo Polje 21,422 11,534 32,956 751.65 404.70 1,156.35

Obilic 12,479 6,720 19,199 437.86 235.79 673.65

Podujevo 21,792 11.734 33,526 764.63 411.72 1.176.35

SUB-TOTAL 546,651 608,491 1,155,142 19,180.74 21,350.56 40,531.30

LAND 5,400 - 5,400 189.47 - 189.47

ADMINIS7RATIONBUILDING 78,000 42,000 120,000 2,736.84 1,473.68 4,210.52

WATER METERS & WORKSHOP 9,000 18,000 27,000 315.79 631.58 947.37

LEAK DETECTION EQUIPMENT 4,900 20,100 25,000 171.93 705.26 877.19

OFFICE MACHINES, EQUIPMENT, MAINTENANCEVEHICLES - 60,000 60,000 - 2,105.26 2,105.26

SEWERAGESTUDIES 28,350 3,150 31,500 994.74 110.53 1,105.27

CONSTRUCTIONSUPERVISION 21,866 24,341 46,207 767.23 854.08 1,621.31

PHYSICAL CONTINGENCY 83,380 84,816 168,196 2,925.61 2,976.00 5,901.61

PRICE ESCALATION 329,608 108,102 437,710 11,565.20 3,793,05 15,358.25

TOTAL 1,107,155 969,000 2,076,155 38,847.55 34,000.00 72,847.55

NOTE: US$ 1.00 = Din. 28.5 YUGOSLAVIA

KOSOVOWATER SUPPLY PROJECT

REGIONAL WATERWORKSBATLAVA

ANNUALPROJECT INVESTMENTS

1981 - - 1982 1983 _ -9 1984 TOTAL Item, Local ForeiRn Local Foreign Local Foretgn Local Foreign Local Foreign Total

------(Din. Thousands) ------…-…-_-______MAIN SYSTEM

Intake - - 4,518 2,012 - - - - 4,518 2,012 6,530

Main Pipeline 86,244 251,575 62,834 27,991 - - - - 149,078 279,566 428,644

Pumping Stations (2) - - 49,035 44,440 - - - - 49,035 44,440 93,475

Treatment Plant - - 66,313 76,471 139,657 107,296 81,951 57,942 287,921 241,709 529,630

Reservoirs (5) - - 117,825 52,491 60,668 24,452 - - 178,493 76,943 255,436

Connection Pipeline - - 20,189 28,148 24,335 9,808 _ _ 44,524 37,956 82,480

8ECONDARYSYSTEM

Pumping Stations (2) - - 8,546 10,726 - - - - 8,546 10,726 19,272

Reaervoirs - - 17,456 7,776 8,988 3,622 _ 26,444 11,398 37,842

Connection Pipeline - - 8,733 17,005 7,485 3,016 - - 16,218 20,021 36,239

DISTRIBUTION NETWORK

Pristina - - - - 59,640 24,038 25,966 9,630 85,606 33,668 119,274

Kosovo Polje - - - - 29,276 11,800 12,748 4,728 42,024 16,528 58,552

Obilic - - - - 17,056 6,874 7,426 2,754 24,482 9,628 34,110

Podujevo -- - - 29,783 12,004 12,967 4,810 42,750 16,814 59,564

LAND 2,970 - 1,350 - 1,080 - - - 5,400 - 5,400

ADMINISTRATION BULDING 62,400 33,600 15,600 8,400 - - - - 78,000 42,000 120,000

WATERMETERS & WORKSH3P - - 4,500 9,000 4,500 9,000 - - 9,000 18,000 27,000

OFFICE MACNINES, EQU}PMENT, MAINTENANCEVEHICLES - - - 30,000 - 30,000 - - - 60,000 60,000

LEAK DETECTION EQUIPMENT - - 4,900 20,100 - - - 4,900 20,100 25,000

SEWERAGESTUDIES - - - - 28,350 3,150 - - 28,350 3,150 31,500

CONSTRUCTIONSUPERVISION 2,757 696 8,841 8.074 , 2,443 1,995 21.866205

TOTAL 154,371 293,871 390,640 342,634 418,643 250,634 143,501 81,859 1,107,155 968,998 2,076,153 YUGOSLAVIA

KOSOVO WATER SUPPLY PROJECT

INTERNAL RATE OF RETURN

YEAR _ INVESTMENTS INCREMENTAL OPERATION TOTAL COSTS INCREMENTAL VOLUME BENEFITS Local Foreign AND MAINTENANCE COSTS OF WATER3 SOLD Water Sales Contributicns Total ______(103_im )______------_---_------(Din. '000) ------(Din. '000) ------

1981 82,389 173,804 256,193 171,000 171,000

1982 275,309 209,580 484,889 . 178,200 178,200

1983 239,087 144,831 - 383,918 - 181,800 181,800

1984 74,412 42,807 15,000 132,219 4,602 23,746 188,700 212,446

1985 - - 22,000 22,000 6,430 40,444 196,600 237,044

1986 - - 28,000 28,000 8,453 57,058 46,600 103,658

1987 - - 34,000 34,000 10,478 70,726 42,400 113,126

1988 - - 38,000 38,000 11,989 80,925 38,500 119,425

1989 - - 40,000 40,000 13,533 91,348 35,500 129,848

1990 - - 42,000 42,000 15,111 101,999 - 101,999

1991 - - 44,000 44,000 16,424 110,862 - 110,862

1992 - - 46,000 46,000 17,767 119,927 - 119,927

1993 - _ 48,000 48,000 19,152 129,276 - 129,276

1994 - - 50,000 50,000 20,556 138,753 - 138,753

1995- 2010 - - 52,000 52,000 22,076 149,013 - 149,013

AVERAGE INCREMENTAL COST OF WATER AT A DISCOUNT RATE OF 10% * Din. 11.3/m3

INTERNAL RATE OF RETURN . 14.2% AiNENX 10 Page 1

- 45 -

YUGOSLAVIA

KOSOVO WATER SUPPLY PROJECT

ADDITIONAL INFORMATION IN PROJECT FILE

A-1 IBRD Morava Region Development Study, 1978.

B-1 Community Water Supply, Waste Disposal and Pollution Control, SAP Kosovo, Phase I - Hydroprojekt, Praha, 1976. Preliminary Engineering and Feasibility Studies. Vol. 010 : Design Criteria Vol. 101 thru Vol. 110 : Community Water Supply Master Plan, Phase I Vol. 301 and Vol. 361 : Engineering and Feasibility Studies Vol. 352 and Vol. 362 : Draft Final Designs Vol. 501 and Vol. 502 : Water Pollution Study Vol. 602 thru Vol. 608 : Liquid Waste Disposal Master Plan

B-2 Community Water Supply, Waste Disposal and Pollution Control, SAP Kosovo, Phase II - Hydroprojekt, Praha, 1979. Vol. 363 and Vol. 364 : Water Supply Pristina/Podujevo Vol. 710 : Pristina Liquid Waste Disposal

B-3 Water Supply of Pristina-Batlava System, Energoprojekt, Beograd, 1980.

B-4 Surface and Groundwater Quality, Serbia. Hydrometeorological Institute, 1973.

B-5 Regional Physical Plan for SAP Kosovo, 1973.

B-6 SFR Statute for Construction of Investment Structures.

B-7 Water Balance Scheme - Year 2000 - Pristina/Podujevo.

B-8 Comparators for Water Treatment Plant Construction.

B-9 Expropriation Law Decision, Executive Council Assembly.

B-10 Pilot Water Treatment Plant Test Results.

B-ll Tender Time Schedules. ANNEX 10 -46- Page 2

C-1 Engineering Working Papers, Cost Estimates and Projections.

C-2 Financial Information and Working Papers

C-3 Disbursement Profiles (Country and Regional)

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