Monthly Report

Joint Service and Coordination Company for water supply and wastewater disposal for the Montenegrin coast and the Municipality of Cetinje

NO 1862

MONTHLY REPORT

May 2019

Joint Service and Coordination Company for water supply and wastewater disposal for the Montenegrin coast and the Municipality of Cetinje

WATER SUPPLY AND SANITATION ADRIATIC COAST

PHASE III

Water Supply and Sanitation Adriatic Coast III commenced by signing loan agreement with KfW on 07 December 2007. In this stage the Project was predominantly focused on wastewater sector in order to upgrade and extent sewage systems in Herceg Novi, Tivat, Kotor and Bar. This stage envisaged construction of the WWTPs in Herceg Novi and Bar with outfalls, rehabilitation and replacement of the current sewerage systems, as well as construction of new parts of the system. A smaller part of the Project was related to the water supply upgrade through rehabilitation of current, and construction of new parts of the water supply systems.

Implementation of Phase III started in March 2008 and will end in 2017, and the estimated project value is Euro 89 million.

Implementation of Phase III commenced with project preparation, and drawing up design and tender documentation by consultancy JV DAHLEM/Pecher from FR Germany. T i v a t Construction of:  17,6 km of sewage network Contract No TV-RB-02 -2010  14,6 km of water supply network  6 large and 6 small pumping stations Systematic upgrade of the water supply and sanitation system and Expected result improvement of environmental conditions in the Bay of Tivat Contract value €9,491 million Contract start date and end date 14 December 2011 – 31 December 2014 Employer The Municipality of Tivat and PE ”Water and Sewerage“ Tivat

Joint Service and Coordination Company for water supply and wastewater disposal for the Montenegrin coast and the Municipality of Cetinje

Municipal budget - €3,954 million Funding sources KfW loan - € 5,381 million KfW grant - €155.750 Role of Vodacom Project Executing Agency (PEA) Contractor Ludwig Pfeiffer, FR Germany Engineer Dahlem FR Germany

PROGRESS In May, DAB rendered its decision stipulating that the Employer (Tivat Municipality) shall pay the amount of Eur 539.147.02 excluding VAT out of a total of Eur 832.655,68 retained by the Employer for delay damages. In accordance with this Decision the Employer shall make a payment within 21 day following the day of rendering the Decision, i.e. until 12/06/2019. Upon receiving this Decision a letter was sent to the Engineer to process the Final Payment Certificate, so that the Employer may carry out its obligations in accordance with the contract.

Herceg Novi Contract No HN -YB-2010 Construction of the WWTP for 65.300 PE Systematic upgrade of the sanitation system and improvement of Expected result environmental conditions in the Bay of Kotor Contract value €9,020 million Contract start date and end date 24 June 2012 – 12 June 2017 The Municipality of Herceg Novi and the company “Drustvo za izgradnju Employer vodovodne i kanalizacione infrastukture u opštini Herceg Novi” Municipal budget - €1,366 million Funding sources GoM contribution - € 1,351 million KfW loan - € 6,304 million Role of Vodacom Project Executing Agency (PEA) Contractor JV MASS/Gintas (contract terminated on 21/11/2018) Engineer Dahlem FR Germany

PROGRESS: There was no progress in this period. The contract with Mass-Gintas was officialy terminated on 21/11/2018. A total of Eur 1.767.569,97 was charged based on performance and retention guarantee. The Employer has intention to complete the remaining works from other contractors from the above- mentioned funds. There are two contracts concluded for the time being, one with CMC group, and the other one with Biogest International, by direct award, under the conditions of FIDIC Green Book. The tender for the remaining works under FIDIC Pink Book is under preparation. The details are given below. The Employer is still independently managing the plant. CLAIMS In its letter of 28/01/2019 the Engineer has rejected a claim filed by the Contractor. The reason for this , as stated by the Engineer are missing “Notices of Claim“ filed within 28 days as stipuated by Article 20.1 of the Contract. This letter was delivered to the Contractor via courier service on 08/02/2019. Mass- Gintas has confirmed the receipt of the letter from the Engineer and expressed its position that it is not “acceptable“ , and asked the Engineer to nominate DAB member in accordance with Article 20.2 of the Contract. The Engineer noted in its report that DAB is to be nominated by FIDIC President if there is no agreement reached between the contracting parties regarding this matter.

Joint Service and Coordination Company for water supply and wastewater disposal for the Montenegrin coast and the Municipality of Cetinje

GUARANTEES:  Advance payment Guarantee – repaid advance payment, no guarantee  Performance Guarantee - valid until 10/12/2018 – this guarantee has been encashed  Retention Money Security – valid until 10/12/2018 – this guarantee has been encashed

PAYMENTS There were no payments during this reporting period. The total amount paid (including advance payment with VAT): 9,955,055.22€ KfW’s loan (Phase III) 2,863,000.00 € KfW’s loan (Phase IV) 3,441,000.00 € Municipal contribution 711,664.36€ Municipal contribution (VAT) 1,589,462.59€ GoM's grant: 1,349,928.28 €

GB1-HN-2019 Herceg Novi Contract No 1 under FIDIC GB with CMC Group DOO Herceg Novi

BASIC DATA Initial accepted contract price without VAT: 128.620.00Euro Initial accepted contract price with VAT: 155.630.20 Euro Contract signing date: 09/04/2019 Commencement date: 16/04/2019 Time for Completion:  For positions C1.21A, C1.22, C1.23, C1.24, C1.25A, C1.25B, and C1.26 09/07/2019  For positions C1.21B 08/08/2019

ACTIVITIES The works contract with CMC Group DOO Herceg Novi was signed on 09/04/2019. The contract envisages works for replacement of pumps, repair of compressor and replacement of measurement equippment. The commencement date is 16/04/2019.

PROGRESS

On 20/04/2019 the Contractor opened and carried out inspection of compressor No 5, and performed defectation. This compressor was out of use for approximately one year. On 25/04/2019 the Contractor took out the Roots unit from the compressor cabinet and informed that they would send it to the manufacturer's representative to Belgrade for inspection. On 29/05/2019 the Contractor has submitted a bid for servicing the compressor. This was contrary to the agreement that the Contractor should first submit a defecation report for review. This report has not been obtained until the end of the reporting period.

CLAIMS

None

PAYMENTS

CMC has delivered the Performance Guarantee and Advance Payment Guarantee to the Employer in the

Joint Service and Coordination Company for water supply and wastewater disposal for the Montenegrin coast and the Municipality of Cetinje letter from 24/04/2019. The guarantee forms are not consistent with the form proposed in the tender document. Th proposed wording of the guarantee has been accepted by the Employer as confirmed via e-mail from 20/05/2019, and the guarantees were delivered to the Employer on 27/05/2019. With regard to that the Contractor’s request for advance payment may be processed for disbursement. The amount of advance payment is 28,586.00 €. Vodacom processed the request for payment on 03/06/2019, and it was forwarded to KfW on 04/06/2019.

VARIATIONS

None.

OTHER

CMC submitted its insurance on 18 April 2019. After its reviewing, Dahlem replied that only 2 of the 3 policies requested by the Contract were submitted. None of the policies complies with the requirements of the Contract. Dahlem sent a letter to CMC to instruct them to suspend all on-site activities until securing the required insurances. CMC has submitted a new draft of the insurance policy on 14/05/2019. The Employer confirmed in his email dated 04/06/2019 that the revised insurance is accepted. The Contractor must now submit evidence of premium payment to show that the insurance coverage is valid, as previously requested Dahlem addressed CMC on 22/04/2019 asking CMC to deliver the Time Schedule without delay. CMC has indicated that it will be delivered upon receipt of the delivery date certificate from the pump supplier. At a meeting held on 13/05/2019 the Contractor has indicated that they cannot complete their Plan until receiving the Compressor Inspection Report, which was expected to be received by 14 May 2019. To date, the Contractor has not confirmed receipt of the inspection report (see the Progress chapter) nor it has submitted its Plan, despite several reminders by the Employer’s representative. Until receiving this document, the Employer’s representative cannot plan or confirm the availability of its mechanical and electrical experts for attendance and the on-site inspection. Dahlem had previously asked CMC to clarify with the supplier whether changing the status of the test pump with "attendance of witnesses" would extend the delivery deadline and increase costs. At the progress meeting no. 1 of 13/05/2019 the Contractor has confirmed that this will extend the delivery for about 6 weeks and will have additional costs of € 2300 per pump. Given that the purpose of the contract to prepare the WWTP for the season, it was agreed that a delay of 6 weeks would be unacceptable and that testing at the plant without witness attendance would be sufficient.

GB3-HN-2019

Herceg Novi GB Contract No 2 with Biogest International Gmbh

BASIC DATA

Initial accepted contract price without VAT: 86.484,00€ Initial accepted contract price with VAT: 104.645,64€ Contract signing date: 14.05.2019. Commencement date: 1 day upon the receipt of the advance payment Time for Completion: to be confirmed (Time for Completion is 85 days)

Joint Service and Coordination Company for water supply and wastewater disposal for the Montenegrin coast and the Municipality of Cetinje

ACTIVITIES

There was a progress meeting No 1 on 20/05/2019 on which the Employer and the Contractor Contractor have exchanged signed copies of the Contract. The Contractor submitted the insurance with the proposal and it was accepted. During the meeting of 20/05/2019. The Contractor has stated that he will provide proof of payment of the premium that is still expected. At the meeting of 20/05/2019 the Contractor informed the attendees that the material would be ready for transport by the end of June 2019 and that the delivery to the construction site would be expected in the 27th week. The Contractor also stated that it will submit a methodology for installation over the next seven days. It was not received by the end of the reporting period and it is expected to be delivered before transporting of material. At the same meeting, the Employer sent the Contractor a Letter of Appointment of the Employer’s staff and representative. The Contractor stated that his representative would be Mr Miroslav Kapisoda and that this would be confirmed in writing. A certificate is expected.

PROGRES

In the e-mail dated 27/05/2019 the Employer has confirmed that he has received the original of the Contractor's advance payment guarantee. On 21/05/2019 the Contractor has submitted his application for PAYMENTS and the invoice for the advance payment in the amount of € 25,945.20. Vodacom asked for the invoice to be revised in such a way as to delete unnecessary data regarding the scope and value of the Contract. Vodacom also indicated that, in order to avoid undue delay, Vodacom would be prepared to process the payment against PDF modified invoices provided the original was submitted with Biogest's documentation for the following PAYMENTS. The Contractor submitted the revised invoice on 03/06/2019, and Vodacom confirmed the receipt of the e-mail on the same date. The Employer's Representative confirmed to the Employer in the letter of 03/06/2019 that the advance payment may be processed.

CLAIMS

Nema

PAYMENTS

Nema

VARIATIONS

During the meeting from 20/05/2019 it was defined that those pipeline openings of DN200, that will not be closed by installation of new hoses on decanters, need to be closed in the other manner. On 31/05/2019 the Employer informed that it is necessary to supply 8 pieces for closing (without installation). VO No 1 has been prepared for that purpose in the amount of €1711,12. The Employer has signed the VO on 06/06/2019 and documentation is submitted to Vodacom for further procedure.

Joint Service and Coordination Company for water supply and wastewater disposal for the Montenegrin coast and the Municipality of Cetinje

Herceg Novi

Construction of: Contract No HN-RB-01-  35,3 km of water and sewage network 2010  11 pumping stations and a sea outfall

Systematic upgrade of the water supply and sanitation system and improvement Expected result of environmental conditions in the Bay of Kotor Contract value €18,522 million Contract start date and 25 August 2012 – 17 February 2015 end date The Municipality of Herceg Novi and the company “Društvo za izgradnju Employer vodovodne i kanalizacione infrastukture u opštini Herceg Novi” Municipal budget - €0,926 million GoM contribution - € 2,923 million Funding sources KfW loan - € 14,517 million KfW grant - €0,156 million Role of Vodacom Project Executing Agency (PEA)

Contractor Celtikcioglu, Turkey

Engineer Dahlem FR Germany

ACTIVITIES Over this reporting period the Contractor carried out activities on the following sites: •CCTV -Flushing and cleaning of pipelines Zelenika, Zmijice, Djenovici, and Kumbor. -Infiltration testing in the section Baosici-Djenovici. -Manhole repairs at Riviera. -Inspection of manholes PS Zelenika –PS Zmijice, MH HN3000 –MH HN3180, MH HN4510 – MH HN4380, MH HN 4850-MH HN 5120, MH HN5130 – MH HN5190. Preparation and submission of the as built design for the secondary sewage network, coastal water supply line Josice-Kumbor, sewer main Josice-Meljine.

PROGRES The Contractor delivered the revised time schedule on 08/05/2019, and the Engineer responded on 16/05/2019 with certain comments and asked for the time schedule to be resubmitted by 17/05/2019. Regardles of reminders the Contractor has not provided its response by the end of this reporting period. By the letter of 31/05/2019 the Contractor informed that the final testing will start on 05/06/2019 on the PS Zelenika.

PROBLEMS The Contractor has still not delivered the time schedule.

GUARANTEES:  Payment security- expires on 01/07/2019  Advance payment Guarantee – expired on 01/06/2017 – the advance has been repaid

Joint Service and Coordination Company for water supply and wastewater disposal for the Montenegrin coast and the Municipality of Cetinje

 Performance Guarantee - valid until 31/12/2019  Retention Guarantee - valid until 31/07/2019

VO There was no VO within this reporting period. However, the Contractor plans to issue a VO for the following works: - Reinstatement of the wall at Hotel Delfin in Bijela 19,604.40€; - Replacement of 500m street lighting cables 31.432,25 €; - Replacement of missing stones on several existing walls on the Riviera € 19,635.00; - New positions of electrical works for pumping stations 518,000.00 €. This is the amount indicated by the Contractor. The review of the Contractor's proposal is underway by the Construction Manager; - Trench dewatering. This is the amount determined by the Engineer and approved in the IPC No 24 376.142,43 € (new assessment 797.688.69€); -Servicing of pumps. This is the amount determined by the Engineer and approved in IPC No 24 15,850.29 €; -Interim unit prices from IPC No 20 should be increased to 216,450.90 €; - Total (provisional amount) 1.618.641,53 €. None of the above works will have any impact on the Time for Completion of the Works, but it will impact on the value of the works and additional funds that will have to be provided by the Engineer in the project budget, either from the loan from Phase V2 or from the own contribution. It is envisaged that the Contractor will deliver proposal for a final VO gor all the aforementioned items upon determining the final prices of electrical works. The Employer provided its no-objection solely for the first three positions.

PAYMENTS Upon signing Addendum No 7 the Contractor has delivered revsed Request for payment No 23 on 08/04/2019. The payment has been certified through the issue of the first reviewed IPC No 23 by the Engineer on 09.04.2019.g. without application of VAT in accordance with the decision of Tax Administration of Montenegro (No 03/7-8274/2-19 of 05/04/2019). The funds are provided from KfW loan (Phase V2). On 17/04/2019 the Contractor has confrmed the receipt of settlements funds in the amount of 2,300,000.00€ indicated in Addendum No 7.

Payments to date(including advance payment and VAT): €23,206,695.40 GoM: 2.923.000,00 € KfW’s grant 155,750.00 € KfW’ s loan (Phase III) 5.876.981,23 € KfW’ s loan (Phase IV) 6.083.105,39 € KfW’ s loan (Phase V2) 4.295.128,95 € Municipal contribution 399.590,34€ for asphalt works Municipal contribution (VAT) 3.473.139,51€

Bar

Construction of:  5,8 km of water supply network, and Contract NoBR-RB-01-2010  19.2 km of faecal sewage network  1km of stormwater sewage network  1 pumping stations with the construction of new sea

Joint Service and Coordination Company for water supply and wastewater disposal for the Montenegrin coast and the Municipality of Cetinje

outfall “Sutomore”  1 reservoir “Susanj 2“  Additional measures: “New Project Concept in Bar“  Construction of the water supply system for settlements Polje, Zaljevo, St. Ivan and Mala Volujica, and construction of the sewage PS Volujuca with pressure pipeline.

Expected result Systematic upgrade of the water supply and sanitation system and improvement of environmental conditions Contract value €11,191.128 million 26 February 2016 – 26 February 2018 Contract start date and end date “New Project Concept in Bar“ 02/09/2018 to 26/10/2019

Employer The Municipality of Bar and PE “Water and Sewerage“ Bar Municipal budget - €0,705 million Funding sources KfW loan - € 7,652 million KfW grant - €0,156 million Role of Vodacom Project Executing Agency (PEA) Contractor MPP Jedinstvo, Sevojno

Engineer Dahlem FR Germany ACTIVITIES The DNP period for the main contract is in progress. Site inspection of the works in the mid DNP has been completed and the Consultant has delivered his report. As a result of this site visit there were 55 defect notifications in accordance with Article 11.1 issued to the Contractor. The Contractor has started with their removal under supervised by the Engineer.

Section 2.1 PS Volujica, the decision issued by CEDIS does not comply with the Urban Plan and would require significant additional costs for the Employer as CEDIS indicates the electrical connection not to the power station within the Port but about 2 km outside of it. As a result, the detailed design cannot be completed and the works cannot begin on the construction site. In order to overcome this problem and reduce the delay, interested parties agreed that for the time being the the power supply design should be excluded from the detailed design, and to repack the design Volumes so as to obtain the positive reviewer's report. The was informed at the meeting and instructed in writing by the Engineer to act in such manner. At the same time, the Contractor has not submitted the construction design in accordance with the Contract. Although during the meeting the Employer confirmed his obligation to prepare a fire protection elaborate, that was withdrawn. The Contractor will take the fire protection elaborate from the ATEX study, and submit it. Due to delays of the Contractor's Project Preparation and the Employer's delay with obtaining required permits, the completion of works under Annex 6 will not be possible within the deadline. The current estimate of the delay is April 2020 as the deadline for completion. Funds can not be paid out by the end of 2019.

Section 2.2 progress reports are in line with the plan and completion of works for summer 2019 will be completed. The Employer has reached an agreement with the Regional water supply system to

Joint Service and Coordination Company for water supply and wastewater disposal for the Montenegrin coast and the Municipality of Cetinje

temporarily install water meters in accordance with the Contract.

PROGRESS Main Contract - A Calculation of Termination of Works has been certified. The mid-term mission DNP period started in February 2019. The exploitation permits were not issued for B18, B20, B21, B22, B23, B24, B25, B26, B27, B29, B30 and B34. Water supply connections downtown Bar are completed. Repair of defects in accordance with Article 11.1 is underway.

Section 1 - Pipeline to St. John; Install 30 m of piping in the direction of the Zaljevo reservoir.

Section 2.1 - PS Volujica; Construction site project was approved and main equipment arrived at Construction site. The project is under construction but with a critical delay. Electrical conditions have not yet been solved.

Section 2.2 – Water supply Zaljevo: Reservoir, Excavation 100%, Lean concrete 100%, Concrete slabs 100%, Concrete piles and walls 100%, Concrete roof slab 100%, Concrete walls and attics 100% Drainage pipe set, backfilling has been completed, waterproofing is in progress, mechanical works are in progress, electrical works are in progress, MRB, 100% Excavation, 100% lower panel, 100% concrete walling, 100% middle and top concrete, Approved fittings, Works in progress, Electric work in progress, pipeline from RV connection manhole until reservoir, excavation 100%, wall concreting 100%, top slab concreting 100%, Pipeline from the connection manhole to the regional water supply system to the reservoir, 110m of 110m laid and pressure testing successfuly carried out , pipeline from reservoir towards Polje: 1160m from 1160m laid and successfully completed pressure test.

PROBLEMS Electrical conditions have still not been solved. VO VO No 13 - Replacement of pressure regulator at Zaljevo reservoir - instruction issued. VO No 14 - Additional fittings on the pipeline to St. Ivan - instruction given. VO No 15 - Waste Disposal Device PS Volujica - instruction issued. VO No 16 -Additional works on the reservoir of Sušanj 2 according to the findings of the technical commission - signed. CLAIMS The Employer’s claim: The Employer authorized the Engineer to issue a Notice in accordance with Sub-clause 2.5 [The Employer’s claims] pursuant to Sub-clause 8.7 [Delay Damages]. The Notice was submitted on 20/07/2018 and the Employer has not provided additional instructions to the Engineer. The Contractor’s claim: Notice of claim No 7 for amendments to legal regulations regarding import, VO No 1 was submitted on 24/08/2018. Upon that there was no claim submitted for this event. The Contractor submitted its claim No 4 for the delay in granting access for section 2.1 on 05/02/2019. On 22/02/2019 the Contractor has withdrawn its claim and announced delivery of a new document. The new submittal was delivered on 02/03/2019. The Engineer responded on the principle of claim and asked for additional information from the Contractor.

Joint Service and Coordination Company for water supply and wastewater disposal for the Montenegrin coast and the Municipality of Cetinje

GUARANTEES:  Payment Guarantee - valid until 16/12/2019.  Advance payment Guarantee – valid until 22/01/2020.  Performance Guarantee - valid until 24/01/2022.

PAYMENTS: The IPC No 15 was delivered by the Contractor on 23/03/2019 which was certified for payment on 28/03/2019 by the Engineer. The Municipality is obliged to pay Eur 2,828.92 plus VAT in the amount of Eur 660.08, and KfW Eur 19,031.65 by 18/05/2019. Payments made to date: Total Paid Amount (including advance payment): 8,565,559.72 € KfW loan (Phase III) 7,676,418.10 € KfW grant 155,750.00 € Municipal share (excluding VAT) 599,936.28 € Municipal share (VAT) 133,455.35€

Bar

Construction of the WWTP for PE 30,000 in Sutomore, construction of the sewage network in Sutomore, and water supply network in Susanj, rehabilitation of the existing sea Contract NoBR-RB- 1-2010 outfall Volujica, and construction of the water supply network in the settlements on the south of Bar:

Systematic upgrade of the water supply and sanitation system Expected result and improvement of environmental conditions Contract value €12,4 million Employer The Municipality of Bar and PE “Water and Sewerage“ Bar Municipal budget - €0,453 million (preliminary data) KfW loan - € 10,0 million (of which € 1,0 million is a grant Funding sources channeled by MF ) MF grant within Phase V2 - €2,0 million Role of Vodacom Project Executing Agency (PEA) (Project Management) Implementation Consultant, Phase III Dahlem FR Germany

Since the Municipality of Bar had previously decided to postpone all activities related to the construction of WWTP on Volujica (68,600 PE, about Euro 12.4 million) due to land ownership problems and some conceptual dilemmas, a new project stage commenced in April that involves the creation of "the location study for the construction of the WWTP in the Municipality of Bar". KfW has secured a grant provided by the German Government for the development of this document, and we expect this Study to assist the Municipality in making the final decision on the continuation of investment activities regarding the WWTP.

Joint Service and Coordination Company for water supply and wastewater disposal for the Montenegrin coast and the Municipality of Cetinje

ACTIVITIES Upon finalization of the tender document, because of the lack of time it was envisaged to implement a direct award procurement procedure, by inviting currently engaged consultants (Dahlem, Fichtner, GKW) to provide their bids. There were two bids submitted on this tender (from Dahlem and Fichtner ) . Upon Completion of bid evaluation procedure, the contract was signed with Fichtner as successful bidder. Presentation of the Draft Final Report of the Location Study for WWTP Bar was held in the Municipality of Bar on 09/05/2019. Decentralized system, that has proved to be the most profitable option, envisages the construction of five WWTPs: 1. Bar WWTP (52.000 PE), 2. Sutomore WWTP (21,000 PE), 3. Veliki Pijesak WWTP (7,000 PE), 4. Canj WWTP (3,500 PE), 5. Busat WWTP (3.000 PE). After thtis presentation there was a brief meeting with Mayor of Bar and KfW representatives, and the possible investment priorities wre marked, which implementation is envisaged under Phase V: 1. WWTP in Sutomore (for which location is given in the Study). 2. Water and sewerage network in the settlement Dobra Voda.

Kotor

Construction of : Description  34,2 km of water and sewage network and  5 pumping stations in Kotor

Upgrade of water supply and sanitation system and environmental Expected result conditions in the Bay of Kotor

Contract value Euro 6,771 million excluding VAT

Contract start date and end date 20 July 2011 – 15 June 2013

Employer The Municipality of Kotor and PE ”Water and Sewerage“ Kotor

Municipal budget - €0, 545 million Funding sources GoM contribution - € 1,341 million KfW loan - € 4,821 million KfW grant - €155.750 Role of Vodacom Project Executing Agency (PEA)

Contractor MPP Jedinstvo, Užice

Engineer Dahlem, FR Germany

ALL WORKS ENVISAGED BY THIS CONTRACT ARE COMPLETED AND

Joint Service and Coordination Company for water supply and wastewater disposal for the Montenegrin coast and the Municipality of Cetinje

DEFETCTS LIABILITY PERIOD HAS EXPIRED. PHASE IV

Water Supply and Sanitation Adriatic Coast IV encompasses construction of a joint WWTP for Kotor and Tivat for 72 000 PE.

Kotor & Tivat

Construction of a Joint WWTP for Kotor & Tivat for 72.000 PE Description

Expected result Systematic upgrade of the water supply and sanitation system and improvement of environmental conditions Contract value €10,266 million Contract start date and end date 23 January 2015 – 20 June 2016

Employer PE ”Water and Sewerage“ Tivat and Kotor Funding sources KfW loan Euro 10,193.00 million Municipality's contribution Euro 73,751.00 Funding sources KfW loan Role of Vodacom Project Executing Agency (PEA) (Project Management)

Engineer GKW, FR Germany

Employer WTE, FR Germany

PROGRESS: In May, correspondence regarding testing on completion continued as well as the preparation of the testing itself. Testing of the sludge line, which makes an integral part of Testing on Completion did not start on 13/05/2019, as planned. A meeting was held in the premises of Tivat Municipality, between the representatives of the Employer (Municipalities Kotor and Tivat), Vodacom, the Engineer (GKW) and the Contractor (WTE) on 15/05/2019. The topic of the meeting was the commencement of testing and the obligations that the parties have during testing. At that meeting, the Contractor gave their consent for the sludge transport and removal from the plant in accordance with the previous agreement, while regarding the inquiry about payment of an external laboratory the Contractor responded that they were unable to take over the payment. The testing is peformed without interruptions, and the completion of the first "completion test" cycle is scheduled for 24/06/2019. After a short overview of the results, it is expected that the term of the second cycle of Testing on Completion will be defined. Systematization of the workplaces of the Company PPOV Kotor/Tivat DOO has not been adopted, which prevents the recruitment of staff. The staff to be employed has to go through the necessary training, which also requires time. On the other hand, the third year OSP by the Contractor ends on 31.08.2019.g. after which the operation of the plant shall be transferred to the Employer. The

Joint Service and Coordination Company for water supply and wastewater disposal for the Montenegrin coast and the Municipality of Cetinje problems must be solved as quickly as possible, and Vodacom is constantly warning about this matter. The situation gets further complicated aggravated by the irrevocable resignation of the Executive Director of the Company PPOV Kotor-Tivat DOO.

WWTP for KO &TV PHASE V (Component 1)

Water Supply and Sanitation Adriatic Coast V (Component 1) is aimed at improving water supply and sanitation system in Ulcinj, implementation of immediate investment measures in Kotor, Tivat, and Herceg Novi, and construction of the sludge solar drying plants for Kotor, Tivat, and Herceg Novi.

Ulcinj- Investment project

Stage I of the upgrade of water supply and sanitation infrastructure in Ulcinj: Description  Selection of the Implementation Consultant  Supply of installation material

Systematic upgrade of the water supply and sanitation system Expected result and improvement of environmental conditions

Contract Value cca. € 20 million

Duration 2012

Funding Sources KfW loan from Phase V, municipal budget of Ulcinj

Role of Vodacom Project Management and Partner to the Consultant

PROGRESS 1. Inception stage - Implementation Consultant in Ulcinj Upon the completion of the tender procedure, a contract with the Consultant Hydrophil from Vienna was signed on 3rd of August 2016 in Ulcinj. The contract start date is 1st of September 2016.

Joint Service and Coordination Company for water supply and wastewater disposal for the Montenegrin coast and the Municipality of Cetinje

The project is envisaged to be implemented in 3 stages. The first and second stage of about 18 months imply preparation of the detail design for reconstruction and extension of water supply and sewerage infrastructure and implementation of the tender procedure for the engagement of the Contractor. The 2 year long third stage refers to the supervision of the construction works. As for the water supply system the detail design will include rehabilitation of karst springs and pumping stations, reservoirs and break pressure chambers, construction of reservoirs Djerane, Brajsa, installation of measuring points and SCADA system, construction of new pipelines with a focus on the main and distribution network of Donji Stoj. Smaller amount of funds will be committed to the wastewater system, for the rehabilitation of sea outfall Djerane, and faecal and storm water sewers downtown Ulcinj. At the request of Vodacom on 02 April 2019, there was a meeting with the representatives of the Municipality where it was agreed that the company in charge of production of the Land Parcellation Study should state its opinion regarding allegations given in the table provided by the responsible reviewer, which was delivered in March 2019 (the table states that 20 project measures are not included in the Land Parcellation Study). The company in charge of production of the Land Parcellation Study handed over six new parts of the Study from the 5th to the 9 th of April 2019 that did not cover all the missing plots, so that by the end of April this company submitted amendments to the Land Parcellation Study (for Klezna and power cables for project measures of Djerane-rez, Brajsa-rez and Salc 2). On 24 April 2019, as requested by Vodacom, the Consultant submitted a detailed review of the level of completion of the Land Parcellation Study for all project measures. Within this review, all mismatches between the Land Parcellation Study and Designs with urban technical conditions, Decisions on the Construction of Facilities of Public Interest, and Decisions for adaptations i.e. ToR, which are related to the cadastral parcels where the works will be performed. It was acknowledged by the review that about 140 cadastral parcels were not processed by the Land Parcellation Study, and that 6 Decisions on the Construction of Facilities of Public Interest require certain amendments. Regarding the above-mentioned there was a meeting in Ulcinj Municipality on 30 April 2019, whereby the following were agreed among other things: 1. That the company in charge of production of the Land Parcellation Study shall complete and provide the Real Estate Administration for certification the remaining-final part of the Land Parcellation Study identified in the Consultant's letter. 2. The Employer (Secretariat for Utilities and Environmental Protection) shall address the Secretariat for Spatial Planning and Sustainable Development with the Request for Amendments to a certain number of Decisions on the Construction of Facilities of Public Interest. 3. The Secretariat for Spatial Planning and Sustainable Development upon receipt of the above Request shall act and prepare the amendments to the Decision within 3 working days. On 24 April 2019, the Employer and ViK received translated versions of the draft tender document and it was agreed that possible comments should be submitted to Vodacom by 10 May 2019. On 08 May 2019 there was a meeting in Ulcinj held within KfW mission. The participants discussed the status of the Land Parcellation Study, and draft tender document. For this meeting, Vodacom prepared a draft Plan for further activities of all project stakeholders which was provided to them for comments. After agreed adjustments the Plan was forwarded to all stakeholders in order to comply with the agreed obligations and dynamics stated in the Plan.

Joint Service and Coordination Company for water supply and wastewater disposal for the Montenegrin coast and the Municipality of Cetinje

According to the Plan, the tender for the Contractor should be be announced on 20 May, while it was estimated that the expropriation process could be completed on 4 December 2019. Although the Municipality's account has been blocked, its representatives considered it not necessary to postpone the proposed deadline for providing funds for expropriation. The Employer and ViK submitted comments to the draft Tender Document that was processed by the Consultant, however by the end of the reporting period the ViK hasnot submitted the final agreement to modifications to the Tender Document proposed by the Consultant. On 14 May 019, as initiated by Vodacom, there was a meeting in Ulcinj Municipality, where it was agreed with the company in charge of the Land Parcellation Study and the representatives of the Secretariat for Protection of Property and the Employer that all submitted Studies should be bound into one Study, which would be divided into two units ( a part for full, and a part for incomplete expropriation). This would significantly facilitate the process of preparation of the Application for property assessment and further monitoring of the expropriation process, given that by the date of this meeting the Contractor submitted 14 Studies. On 10 May 2019, the Municipality and ViK submitted comments to the draft tender document. Until the end of the reporting period, Consultant and ViK did not agree with the views on certain comments. PROBLEMS The number of employees in ViK is still above 120 (126 employees). Although the Management Board of ViK Ulcinj has adopted the systematization of the workplaces to 100 (which means that the conditions for reduction of the number of employees have been acquired), it is certain that without the significant assistance of the Municipality, a milestone for reduction of the number of employees to 120 will not be fulfilled, which is a prerequisite for tendering, i.e. for continuing implementation of investment project. In view of the Project, the number of employees in ViK Ulcinj i.e. 120 employees up to August 2017 (requirement for the selection of the Contractor), and 100 employees (before the contract signing). remained the only milestone that has not been achieved for continuing the investment project in Ulcinj. As noted by the Director of ViK Ulcinj in the past couple of months, on 19 March 2018, Vodacom received a letter requiring Vodacom to revise the conditions set at the meeting on 5 August 2013 (MoM Part II - Investments in Ulcinj) in item 5 "Milestones for implementation of Investment Measures" - "Milestone No.3 (to be achieved before the award of works contracts)" so as to agree

Joint Service and Coordination Company for water supply and wastewater disposal for the Montenegrin coast and the Municipality of Cetinje with the reduction in the number of employees to 110 instead to 100. The letter also mentioned improvements in the performance of the ViK over the past period from 2013 to 2017, as well as an increase in the number of new consumers by 1000 as compared to the number registered in 2013. This letter was forwarded to KfW for the final decision. In addition, ViK Ulcinj has been faced with an additional problem: the lack of qualified employees, especially in the technical sector, which brings into question the ability of ViK to monitor and implement future investments in a high quality manner. The company in charge of the production of the Land Parcellation Study has not yet completed the Study, and therefore, it is not possible to complete design documentation for a part of design measures or to receive the reviewer's report. PLANS FOR UPCOMING PERIOD: The company in charge for the preparation of the Incomplete Land Allotment Study is expected to provide supplements to this Study. Upon the completion of this study, the Secretariate for property protection is supposed to file a supplemented request for the assessment of the real estate (which should list both the property owned by natural persons and the property owned by the State). The consultant should, according to the agreement, inform the Municipality of all the inconsistencies found during the review of Decisions on the Construction of Facilities of Public Interest, UT conditions, ToRs, detailed designs and the Land Parcellation Study (provided that it is complete). These inconsistencies should be adjusted by the Secretariat for Spatial Planning and Sustainable Development into the amendments of documentation in order to achieve complete consistency of the documentation contained in all project measures. The Municipality and ViK should provide Vodacom with a draft strategy for reducing the number of employees in order to fulfill project milestones.

Kotor, Tivat, Herceg Novi

Implementation of urgent investment measures for Tivat, Kotor and Description Herceg Novi Implementation of urgent investment measures in water supply and Expected result sanitation system and improvement of environmental conditions Tivat - Contract with Jedinstvo for mandatory works - €1,912,970.21; Optional works - €845,079.3 Value Kotor - Contract with Jedinstvo for mandatory works € 734,704.07; Optional works €152,817.43 Tivat – 15/01/2018, 456 calendar days, including interruption during the Commencement date and tourist season from 01/06 to 01/09 end date Kotor - 5/02/2018, 243 calendar days, including interruption during the tourist season from 01/06 to 01/09 Employer ViK Tivat and ViK Kotor Tivat – KfW loan Phase IV in the amount of € 174,171 and Phase V2 in the amount of €2,583,879.00 Funding Sources Kotor - KfW loan Phase IV in the amount of € 615,900 and the own contribution of the Municipality of Kotor in the amount of €271,621.00 Role of Vodacom Project Executing Agency (Project Management)

Joint Service and Coordination Company for water supply and wastewater disposal for the Montenegrin coast and the Municipality of Cetinje

Consultant Fichtner

Contractor MPP Jedinstvo PROGRESS In February there were regular progress meetings to monitor the work of the Contractor on the sites in Kotor and Tivat.

GUARANTEES LOT 2-Kotor:  Payment Guarantee - valid until 28/07/2018, extended by 31/03/2019  Advance payment Guarantee – repaid.  Performance Guarantee - valid until 31/10/2019

PAYMENTS LOT 2-Kotor: Payments made to date: Total paid amount (including advance payment): €657.207,42; KfW’s loan (Phase IV) €598.021.62; Municipal contribution (excluding VAT) €55.543,12; Municipal contribution (including VAT) €12.642,67. The works in Kotor came to a close and the request for taking over of the works has been received. Upon removing certain number of defects and issuing of the Final Payment Certificate it is expected to complete the contract.

GUARANTEES LOT 1 - Tivat :  Payment Guarantee - valid until 26/02/2019, extended by Addendum 1 until 02/04/2019  Advance payment Guarantee – valid until 27/06/2019  Performance Guarantee - valid until 27/06/2020

PAYMENTS LOT 1- Tivat: Payments made to date: Total paid amount (including advance payment): €1,251,504.36: KfW’s loan (Phase IV) €174,171.33 KfW’s loan (Phase V2) €1,077,333.03 Municipal contribution (VAT) 0 €

Work in high zones defined by the original contract are coming to a close with a lack of testing for the newly constructed network. Testing of the network started on 30/05/2019 and the very end of the test itself has not been defined because the Contractor has missed all deadlines defined by the previous time schedule. At progress meetings it has been repeatedly required to deliver a new time schedule of testing which the Contractor ignored. The works in the Municipality of Tivat are in delay. However, since there is no agreement or information on solving open issues, the project implementation itself as a whole and the extension of the contract becomes questionable. The Employer has been warned several times that the tourist season is approaching, and that it is necessary to react as quickly as possible to this issue. Vodacom has not received any information as to whether there was a meeting between Tivat Municipality Management as the Employer and management of Jedinstvo as the Contractor regarding the status of Krasici settlement, and whether the works in that settlement would be conducted in accordance with this contract. Proposal of Addendum No 7 with the Engineer (Fichtner) has been forwarded to the Empoyer for approval and

Joint Service and Coordination Company for water supply and wastewater disposal for the Montenegrin coast and the Municipality of Cetinje the Addendum covers the period in which the Project was in delay.

Kotor, Tivat, Herceg Novi

Construction of Sludge Solar Drying Plants for Kotor, Tivat and Herceg Novi Description

KfW grant for project preparation Funding sources KfW loan for investments Consultant Consultant for project preparation - Dahlem PROGRESS The implementation of the SSDF has been postponed for the time being due to lack of cost- effectiveness caused by smaller quantities of sludge produced at the WWTP as compared to the anticipated ones. Over the following period the Municipality of Kotor and the Municipality of Tivat should harmonize and adopt a common attitude regarding solving the sludge disposal problem. PHASE V (Component 2)

Water Supply and Sanitation Adriatic Coast V (Component 2) is aimed at systematic upgrade of the water supply and sanitation system and improvement of environmental protection conditions in Kotor, Tivat, and Herceg Novi.

Kotor, Tivat, Herceg Novi

Description Water Supply and Sanitation Adriatic Coast

Systematic upgrade of the water supply and sanitation system and Expected result improvement of environmental conditions Implementation of long-term investment measures for TV, KO, HN Project Description Development of Feasibility Study Role of Vodacom PEA-Project Management Consultant Consultant for design preparation, Fichtner Start date July 2014

PROGRESS Implementation of long-term investment measures for TV, KO, HN All 3 Municipalities have adopted Municipal Assembly's decisions to take the loan. The Municipality of Tivat decided to take Euro 11 million loan, the Municipality of Kotor Euro 5.8 million, while the Municipality of Herceg Novi made decision to take Euro 10 million from Phase V2 loan. The on- lending agreement with the MF for the funds of Phase V2 have been signed by the municipalities. The international PQ procedure for the selection of the Implementation Consultant for Phase V-2 – Tivat, Kotor and Herceg Novi is finalized. The Implementation Consultant will be in charge for

Joint Service and Coordination Company for water supply and wastewater disposal for the Montenegrin coast and the Municipality of Cetinje development of detailed designs, the tender documents and implementation of the international tender procedure for the selection of contractors (under FIDIC Pink Book) and supervision over the construction.The measure for the construction of the sewerage network for Risan and Perast settlements (including transmission sewage pipeline leading towards the settlement Muo) was, nominated by the Municipality of Kotor in cooperation with MoSDT for a grant support under the 3rd Call for Proposals by the Western Balkans Investment Framework (WBIF). This project received a positive opinion in the screening process carried out by the European Commission. The final decision regarding approval of this grant will be made by WBIF in December 2018 at the meeting of the Steering Committee. Addendum No 4 between Vodacom and consulting company Fichtner has been signed. This Addendum is related to the preparation of Detailed designs for rehabilitation, improvement and extension of the water supply and sewerage network for Risan/Perast (settlements Stoliv, Prcanj and Muo are included as optional item). The Consultant has submitted final version of the Inception Report with adopted comments by KfW, ViK and Vodacom. It is expected to receive consent from the Employer(representatives of the Municipality and ViK) to the content of the submitted document so tat the Consultant could continue the intensive work on the production of design documentation. Representatives of KfW Bank have provided their no-objection to the content of Addendum No 6, relating to the preparation of the detailed design for improvement of the water supply system in the section Muo-Prčanj-Stoliv, as well as the preparation of the EIA Study, which includes the selected measures for the development of the detailed design within the framework of Addendum No 4 and Addendum No 6. Addendum No 6 was signed by Vodacom and the Consultant (Fichtner). The Consultant provided Draft Inception Report, within the framework of the prearation of detailed design for improvement of the water supply system at the Muo-Prčanj-Stoliv (Addendum No 6). It is expected to receive consent from the Employer (representatives of the Municipality and ViK) on the content of the submitted report, so that the Consultant could continue its work on production of the design documentation. The process for selection of the responsible reviewer for the detailed design which are the subject matter of Addenda 4 and 6 is in progress in accordance with the new Law on Spatial Planning and Construction of Structures. Bids for the review of design documentation have been provided. The Tender Committee for the selection of the responsible reviewer has been established and an evaluation of the submitted bids has been made. The Committee concluded that after a detailed examination of all submitted bids and required clarifications, the review of the design documentation should be given to Sun Invest d.o.o. Budva, as the most economically advantageous and technically acceptable bid. The consulting services for review will be funded from KfW loan funds under the V2 Project. The final version of the Terms of Reference-ToR and the Conditions of Tender-CoT for the Phase V2 is submitted to the representatives of the KfW. Representatives of KfWsubmitted their consent to the content of the documents in question. After obtaining consent to the tender documentation by all Municipalities and KfW, the call for technical and financial tender submission will be delivered to companies (5 pre-qualified consultants) shortlisted in the selection procedure for the Implementation Consultant for Phase V2.

Kotor, Tivat, Herceg Novi

Description of the project Accompanying Measures: “Sustainable Operation of WWTPs”

Joint Service and Coordination Company for water supply and wastewater disposal for the Montenegrin coast and the Municipality of Cetinje

Project aim The long-run proper management of the WWTPs Value 2 mil. € Start date August 2015 Funding sources KW’s grant Role of Vodacom PEA Upon the initiative of Vodacom, KfW has engaged an expert to make an appraisal of the specific needs and basic information for Accompanying measures for the sustainable operation of WWTPs in the coastal region of Montenegro, being financed under the German Financial Cooperation with Montenegro, through KfW. Accompanying measures financed from KfW grant consist of three components:

1. Implementation of the training program for the staff for the O&M of the WWTP and sewerage systems. 2. Support by international experts provided to Municipalities, ViKs, Ministry and Vodacom in connection with urgent aspects related to the sustainable operation of the WWTP, of which the most recognized problem is disposal of the sludge, and defining the operation model for WWTP Tivat/Kotor. 3. Supporting the establishment of the Service for regulated communal activities as a new sector within the Regulatory Agency for electrical energy, and establishment of the proper tariff methodology. With regard to solving sludge disposal issue from WWTP Tivat/Kotor, the best and the most cost- effective option for WWTP Tivat / Kotor proposed by the Consultant is the construction of SSDF with recultivation of old landfills, dumpsite Lovanja (at the territory of Kotor and Tivat) and closed sanitary landfill Lovanja (territory of Kotor) with the use of sludge and soil. As a possible manner of implementing the recultivation/rehabilitation Project, it has been established that the Local Waste Management Plan should provide the basis for the implementation of the given project, and it is necessary to envisage the use of the treated sludge for the rehabilitation of landfills and dumpsites, after which the Consultant for Phase V2 Implementation will prepare recultivation/rehabilitation Project, and an appropriate environmental impact assessment study. In accordance with information received from the Secretariat for protection of natural and cultural heritage of the Municipality of Kotor, it is expected that the Local Waste Management Plan will be adopted upon solving disputable issue of identifying site for temporary storage of non-hazardous construction waste. Namely, the Plan cannot be adopted until the Municipal Assembly adopts the Decision on determining the location for the temporary storage of construction waste. The report on the testing of land samples from the Lovanja-Sinjarevo landfill has been completed. Upon series of meetings between KfW representatives, Vodacom and Employers (Municipalities of Herceg Novi, Kotor and Tivat) conducted with the aim of defining the future activities regarding the strategy for sludge disposal, the project measure related to recultivation/rehabilitation of dumpsites by using sludge from WWTP Tivat/Kotor is included as optional item within the ToR for Phase V2 – Long term measures. The Consultant provides support in the establishment of the Service for regulated communal activities, as new services within the Energy Regulatory Agency.

Vodacom's activities on capacity development of water utilities

Joint Service and Coordination Company for water supply and wastewater disposal for the Montenegrin coast and the Municipality of Cetinje

Bar, Herceg Novi, Kotor, Tivat, Ulcinj

Description Capacity development of water and sewage utilities

PROGRESS 1. Benchmarking In May Vodacom was collecting financial statements and gross balance sheets of ViK's for 2018 to start reviewing data used to calculate the key performance indicators of the ViK's business to produce the Annual Benchmarking Report for 2018. Monthly report for April 2018 has been produced and submitted to the MoSDT, Municipalities, ViKs, and benchmarking coordinators for the further use.