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Document of The World Bank FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No: 34253-YU PROJECT APPRAISAL DOCUMENT ON A Public Disclosure Authorized PROPOSED CREDIT IN THE AMOUNT OF SDR 6.6 MILLION (US$lO.O MILLION EQUIVALENT) TO THE REPUBLIC OF MONTENEGRO FOR A Public Disclosure Authorized MONTENEGRO SUSTAINABLE TOURISM DEVELOPMENT PROJECT May 14,2007 Sustainable Development Department South East Europe Country Unit Europe and Central Asia Region Public Disclosure Authorized This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective April 30,2007 Currency Unit = Euro€ €1 = US$1.36 US$1 = € 0.73 SDR EXCHANGE RATE = 1.52493 FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS AIC Average Incremental Cost ofWater BPC Break Pressure Chamber CAS Country Assistance Strategy CFAA Country Financial Accountability Assessment CQS Consultants Qualifications DEG Deutsche Investitions- und Entwicklungsgesellschaft mbH (German Investment and Development Agency), Cologne EAR European Agency for Reconstruction EBRD European Bank for Reconstruction and Development EIA Environmental Impact Assessment EIB European Investment Bank ERR Economic Rate ofReturn FA Financing Agreement FBS Fixed Budget Selection FRR Financial Rate of Return GEF Global Environmental Facility GIS Geographic Information System GoM Government ofMontenegro GTZ German Association for Technical Assistance IBRD International Bank for Reconstruction and Development ICB International Competitive Bidding ICZM Integrated Coastal Zone Management IDA International Development Association IFAC International Federation ofAccountants IFC International Finance Corporation IF1 International Financing Institution IFRs Interim Financial Statements IMC Inter-Ministerial Committee ISA International Standards ofAuditing KfW Kreditanstalt fur Wiederaufbau LCS ' Least Cost Selection LDP Letter of Development Policy LTMC Long Term Marginal Cost M&E Monitoring and Evaluation FOR OFFICIAL USE ONLY MEIP Montenegro Environmental Infrastructure Project MESTAP Montenegro Environmentally Sensitive Tourist Areas Project Morsko Dobro Coastal Zone Management Agency MOF Ministry ofFinance MoTEP Ministry ofTourism and Environmental Protection MOU Memorandum ofUnderstanding MSTDP Montenegro Sustainable Tourism Development Project NGOs Non-Governmental Organizations O&M Operation and Maintenance PCE Public Communal Enterprises PCU Project Coordination Unit PDO Project Development Objective PEW Regional Water Supply Company PFS Project Financial Statements PSIA Poverty and Social Impact Analysis QCBS Quality and Cost Based Selection RAP Resettlement Action Plan RWSS Regional Water Supply Scheme SA Social Assessment SA1 State Audit institution SBDs Standard Bidding Documents SEA Strategic Environmental Assessment SIL Sector Investment Loan SOE Statements of Expenditures SSD Strategy ofSustainable Development UNDP United Nations Development Programme USAID United States Agency for International Development WURP Water Utility Reform Plan WSPF Water Sector Policy Framework Vice President: Shigeo Katsu, ECAVP Country Director: Orsalia Kalantzopoulos, ECCU4 Sector Manager: Sumter Lee Travers, ECSSD Task Team Leader: Andreas Rohde, ECSSD This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization. REPUBLIC OF MONTENEGRO MONTENEGRO SUSTAINABLE TOURISM DEVELOPMENT PROJECT CONTENTS Page A . STRATEGIC CONTEXT AND RATIONALE ................................................................. 5 A .1 Country and sector issues................................................................................................ 5 A.2 Rationale for Bank involvement ..................................................................................... 8 A.3 Higher level objectives to which the project contributes ................................................ 9 B. PROJECT DESCRIPTION ................................................................................................. 9 B.l Lending instrument ......................................................................................................... 9 .. B.2 Program objective and phases....................................................................................... 10 B.3 Project development objective and key indicators........................................................ 10 B.4 Project components ....................................................................................................... 11 B.5 Lessons learned and reflected in the project design ...................................................... 12 B.6 Alternatives considered and reasons for rejection ........................................................ 12 C. IMPLEMENTATION ........................................................................................................ 14 C.l Partnership arrangements .............................................................................................. 14 C.2 Institutional and implementation arrangements ............................................................ 14 C.3 Monitoring and evaluation ofoutcomeshesults ............................................................ 16 ... C.4 Sustainability................................................................................................................. 16 C.5 Critical risks and possible controversial aspects ........................................................... 17 C.6 Loadcredit conditions and covenants ........................................................................... 19 D. APPRAISAL SUMMARY ................................................................................................. 21 D. 1 Economic and financial analyses .................................................................................. 21 D.2 Technical ....................................................................................................................... 23 D.3 Fiduciary ....................................................................................................................... 24 D.4 Social............................................................................................................................. 25 D.5 Environment.................................................................................................................. 26 D.6 Safeguard policies ......................................................................................................... 28 D.7 Policy Exceptions and Readiness .................................................................................. 29 Annex 1: Country and Sector or Program Background......................................................... 30 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ................. 37 Annex 3: Results Framework and Monitoring ........................................................................ 38 Annex 4: Detailed Project Description...................................................................................... 42 Annex 5: Project Costs ............................................................................................................... 44 Annex 6: Implementation Arrangements ................................................................................. 46 Annex 7: Financial Management and Disbursement Arrangements..................................... 49 Annex 8: Procurement Arrangements ...................................................................................... 56 Annex 9: Economic and Financial Analysis ............................................................................. 61 Annex 10: Safeguard Policy Issues ............................................................................................ 72 Annex 11: Project Preparation and Supervision ..................................................................... 78 Annex 12: Documents in the Project File ..... :........................................................................... 80 Annex 13 Resettlement Policy Framework............................................................................... 81 Annex 14: Statement of Loans and Credits .............................................................................. 90 Annex 15: Country at a Glance ................................................................................................. 91 Annex 16: Maps: IBRD No. 34373R ......................................................................................... 93 MONTENEGRO SUSTAINABLE TOURISM DEVELOPMENT PROJECT (MONTENEGRO) PROJECT APPRAISAL DOCUMENT EUROPE AND CENTRAL ASIA ECSSD Date: May 14,2007 Team Leader: Andreas Rohde Country Director: Orsalia Kalantzopoulos Sectors: Water supply (80%); General water, Sector Managermirector: Sumter Lee Travers sanitation and flood protection sector (20%) Themes: Access to urban services and housing (P);Biodiversity (S);Pollution management and environmental health (S) Project ID: PO93461 Environmental screening category: Full Assessment Lending Instrument: Specific Investment Loan [ 3 Loan [XI Credit [ ] Grant [ ] Guarantee [ ] Other: For LoandCredits/Others : Total Bank financing (US$m.): 10.00 Proposed terms: 20 years maturity with 10 years grace period