World Bank Document

ReportNo. 991-YU Appraisalof Morava Region Development Project: Water Supply, Sewerage and Water Resources Yugoslavia Public Disclosure Authorized

May 3, 1976 EMENAProjects Department FILECOPY

FOR OFFICIALUSE ONLY Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of the World Bank

This document hasa restricteddistribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosedwithout World Bankauthorization. CURRENCY AND EQUIVALENTS

Currency Unit = Dinar (Din) Din 1 = US$ 0.056 US$ 1 = Din 18.0 Din 1 Million = US$ 55,556 US$ 1 Million = Din 18,000,000

WEIGHTS AND MEASURES mm = millimeter (1 millimeter= 0.039 inches) cm = centimeter (1 centimeter= 0.39 inches) m = meter (1 meter = 3.28 feet) km = kilometer (1 kilometer = 0.62 miles) 2 km = square kilometer (1 km2 = 247.1 acres) m3 = cubic meter (1 m3 = 264.2 US gallons) hi3/sec = cubic meter per second ( 1 m3/second = 22.8 million US gallons per day) 1/sec = liter per second (1 1/sec = 0.26 US gallons/sec) ha = hectare ( 1 hectare = 2.4T1 acres)

GLOSSARY OF ABBREVIATIONS

ICB = InternationalCompetitive Bidding

MRC = Morava River Corporation

MRWCI = Morava Region Water Community of Interest

SWF = Serbian Water Fund

SFUR = Serbian Fund for UnderdevelopedRegions (RepublicFund for the Promotion of Developmentof UnderdevelopedRegions)

SAS = Social AccountingService

UNDP = United Nations DevelopmentProgram

FISCAL YEAR

January 1 - December 31 for all project beneficiaries FOR OFFICIALUSE ONLY APPRAISAL OF

MORAVA REGION DEVELOPMENT PROJECT

YUGOSLAVIA

TABLE OF CONTENTS

Page No.

SUMMARY AND CONCLUSIONS ...... i-li

I. INTRODUCTION *.1...... 1

II. THE MORAVA REGION AND ITS WATER RESOURCES ...... 2

The Region . . o.oo .. o ....o...... - ... ,. 2 Water Resources and Regional Development ...... 2 Water Resources Planning and Management .....0...... 4 Water Supply and Wastewater Sector .... *...*...... 7 Water Supply and Wastewater Situation in Titovo Uzice and Cacak ...... 8

III. THE PROJECT ****** ...... *o o.o.***o*o*****..***00** 10

Objectives .....o.oq...... 0...00...... 0.. 10 Description ....- ...... 10 Status of Engineering ...... 11 Cost Estimates O..*0.....000.0...0.. E000, 11 Project Financing and Implementation Responsibility.. 13 Implementationof Irrigation Component ...... 16 Implementation of Research Component ...... 17 Implementation of Project Facilities for Titovo Uzice 18 Implementation of Project Facilities for Cacak ...... 20 Training .... .0...0 ...... 0. -. 6006 21 Procurement .....o.*... .o...o.e..*oo.*...... *******. 21 Disbursements ...... o.... 22 Monitoring Criteria ... *...... 22 Environmental Aspects ...... 0...... 23

IV. THE BORROWER AND OTHER BENEFICIARIES AND THEIR FINANCES .. 23

General - ...... o ...... 23 Serbian Water Fund ...... 0...... 23 Bioktos - Titovo Uzice ...... -...... 0.0. 25 Vodovod - Cacak ....o.. oo ...... *...... 28 Serbian Fund for Underdeveloped Regions ...... 32 Audit .... oo ...... o.... o...... 00...... - .0 32

This report was prepared by Messrs. Brian Grover (Sanitary Engineer) and David C. Jones (Financial Analyst), with assistance from Messrs, R.C. Hodges (Consultant) and H. Laeyendecker (Irrigation Engineer). This documenthas a restricteddistribution and may be usedby recipientsonly in the performance of theirofficial di'ties. It contentsmay not otherwisebe disclosedwithout World Bank authorization, TABLE OF CONTENTS (Continued) Page No.

V. JUSTIFICATION ...... 33

Research Component ...... 33 Project Facilities for Titovo Uzice and Cacak ..... 34

VI. RECOMMENDATIONS ...... 36 TABLE OF CONTENTS (Continued)

ANNEXES

1. Chronology of Project Development 2. Documents Consulted 3. The MioravaRegion and Its Water Resources 4. Serbian Water Fund - Organizationand Administration 5. Titovo Uzice - Existing Water Supply and Wastewater Facilities 6. Cacak - Existing Water Supply and Wastewater Facilities 7. Study 1 - Adjustments to Flood Hazards 8. Study 2 - Water Quality in the Zapadna Morava Region 9. Study 3 - Regional Economic Development 10. Titovo Uzice - Project Description 11. Cacak - Project Description 12. Project Cost Estimates 13. Titovo Uzice - ConstructionSchedule 14. Cacak - Construction Schedule 15. Cacak Vodovod - Water Supply Systems Development Study 16. Estimated IBRD Loan Disbursements 17. Key Indicatorsfor Project Monitoring 18. Bioktos - Titovo Uzice Communal Enterprise - Organization and Administration 19. Vodovod - Cacak Water and Wastewater Enterprise - Organization and Administration 20. Serbian Fund for UnderdevelopedRegions 21. Accounting Systems of Bioktos (Titovo Uzice) and Vodovod (Cacak) Communal Enterprises 22. Bioktos - Titovo Uzice - Financial Projections 23. Bioktos - Titovo Uzice - Assumptions for Financial Projections 24. Bioktos - Titovo Uzice - Tariffs 25. Vodovod - Cacak - Financial Projections 26. Vodovod - Cacak - Assumptions for Financial Projections 27. Vodovod - Cacak - Tariffs 28. Bioktos - Titovo Uzice - Projections of Population, Water Sales and Production 29. Vodovod - Cacak - Projections of Population, Water Sales and Production 30. Economic Evaluation 31. Serbian Water Fund - Financial Situation 32. Bioktos - Titovo Uzice Communal Enterprise - Financial Situation 33. Vodovod - Cacak Water and Wastewater Enterprise - Financial Situation 34. Milosevac - IrrigationPilot Project 35. Aleksinac - IrrigationPilot Project

MAPS

IBRD 11603 - Water Resource Projects in the Morava River Basin IBRD 11639 - Western Morava River Basin IBRD 11637 - Titovo Uzice Water Supply Facilities IBRD 11638 - Titovo Uzice WastewaterFacilities IBRD 11640 - Cacak Water Supply Facilities IBRD 11641 - Cacak Wastewater and Storm Drainage Facilities

APPRAISAL OF

MORAVA REGION DEVELOPMENT PROJECT

YUGOSLAVIA

SUMMARY AND CONCLUSIONS

i. The Morava River basin in Serbia covers 12% of Yugoslavia'sarea and contains an estimatedpopulation of 3.6 million. Water-relatedproblems have always thwarted the region's economic development. In the past the main problem was the repeated flooding of agriculturallands. This flooding continues,and as the population is increasinglyurbanized and industrialized(mostly in the river valleys) the flood hazard has increased. At the same time problems of urban water supply and water pollution have grown enormously.

ii. Serbian water planners began focussing on such problems basin-wide in 1958 and by 1965 had produced a master plan for the regulation of the Morava River flows. Mechanisms were created to generate funds and build structures to implement this plan, but the results of the programs of the first ten years have been disappointing. It is now appreciated that water resource planning must be improved by revising the economic methodology and by broadening the planning objectives so that physical systems to control flows are not the only programs considered. At the same time the institutionalarrangements for managing water resourcesare being substantiallyaltered in accordancewith Yugoslavia's 1974 constitutionand the principle of decentralizeddecision- making. Under creation now is the Morava Region Water Communityof Interest, a socio-politicalbody with the mandate to manage the water resources for the benefit of the region.

iii. The proposed project is fairly complex because it is intended to support Serbian initiativesto improve the planning and management of water resources in the Morava region, while also helping to provide badly needed water and wastewater facilities for two small, industrializedtowns. The research component includes three action-orientedstudies (adjustmentsto flood hazards, water quality improvementand regional development)plus two irrigationpilot projects to demonstrate the effectivenessof low cost supplementaryirrigation. The water supply and wastewater systems will be substantiallyimproved in the towns of Titovo Uzice and Cacak, where industrialwater demands exceed those for domestic use and where the number of people to be served will increase by 70% during the project period. iv. The project costs are estimated to total US$51.4 million equivalent, with an estimated foreign exchange component of US$16.2 million. Interest during constructionon the proposed Bank loan of US$20.0 million would add a further US$4.5 million in foreign exchange costs. Thus, the proposed loan would be equivalent to 97% of the project's foreign exchange requirementsincluding - ii -

the interest during construction. The various components of the project would be implemented by six different beneficiaries. The Serbian Water Fund would be the borrower and would onlend portions of the Bank loan on Bank terms to all other beneficiaries. All remaining project financing would be provided by the various beneficiaries. v. Some 91% of the project expenditures relate to expansions of the water supply, wastewater and stormwater systems in Titovo Uzice and Cacak, which are expected to be constructed during the period 1976-1979.

vi. All procurement would be in accordance with the Bank's Guidelines. Advance contracting on certain critical elements of the water supply systems may result in the Bank being asked to finance retroactively up to US$1.0 million equivalent of approved contract expenditures. Force account is appropriate for certain works, whose value should not exceed US$4.0 million equivalent.

vii. It is expected that the Morava Region Water Community of Interest, after it is created and staffed, will replace the Serbian Water Fund, in which case it will assume all the existing responsibilities and obligations of the Fund, including the role of Borrower of the Bank loan.

viii. The project is technically and economically sound. The research component should aid considerably in the economic development of the Morava region. The infrastructure components for the towns of Titovo Uzice and Cacak are the least cost solution to meet realistic objectives and will make significant improvements in the public health and environment of these towns. The consumers who will benefit from the water supply systems, industrial and domestic, are presently paying water tariffs which are too low. Water charges will be increased substantially, to approach the long run marginal cost for water in each town, permitting each town to finance a reasonable proportion of the facilities required for the project and for future expansion of their water supply and wastewater systems.

ix. On the basis of agreements reached during negotiations, the project is suitable for a Bank loan of US$20 million to the Serbian Water Fund for a period of 20 years, including 4-1/2 years of grace, with onlending of portions of the loan to the beneficiaries outlined in the report. APPRAISAL OF

MORAVA REGION DEVELOPMENTPROJECT

YUGOSLAVIA

I. INTRODUCTION

1.01 The Governmentof the Socialist Federal Republic of Yugoslaviahas requested a Bank loan to help finance a project to improve the management of water resources in the Morava River basin in the SocialistRepublic of Serbia and to expand and supply the wastewatersystems in the towns of Titovo Uzice and Cacak.

1.02 Economic developmentin the Morava River basin has always been im- peded by water resources problems,of which the most obvious has been recurring floods. A master plan prepared in 1965 proposed a technical solution to these problems which called for a massive constructionprogram to build 106 dams and many hundreds of kilometersof dykes, river training and anti- erosion works. The proposed first stage of this master plan, including 18 dams, was to be implementedin the 20-year period 1966-1985.

1.03 The Government first requested Bank assistance for the project in 1972 when it sought financing for eight independent sub-projects,comprising seven multipurposedams and water supply facilitiesfor a small town to be supplied by a dam already under construction. Extensive reviews of the planning proceduresand proposed project componentshave been carried out by a series of Bank missions, aided by staff from the FAO cooperativeprogram and consultants. The various missions have consistentlyreported that economic development in the Morava region is indeed retarded by a wide range of water- related problems; that water resources planning has focused exclusivelyon independent structuresto regulate flows; and that economic considerationshave been negleced. Annex 1 provides a chronologyof the developmentof the present project. Because most of the project componentsoriginally proposed were uneconomic or incomplete,the project definition has evolved considerablyas a consequence of the appraisal process.

1.04 This report, written mainly by Messrs. Grover and Jones (with assistance from Mr. Hodges on Annexes 7, 8 and 9 and Mr. Laeyendeckeron Annexes 34 and 35) is based on informationobtained by the various missions, from the Serbian authorities (particularlythe Morava River Corporationand the Serbian Water Fund), from the communal authorities in Titovo Uzice and Cacak, and from their engineeringconsultants (Energoprojektand Jaroslav Cerni Institute, both of Belgrade). A list of reports and documents providingbackground informationon the proposed project is provided in Annex 2. -2-

II. THE MORAVA REGION AND ITS WATER RESOURCES

The Region

2.01 The Morava River drainage basin shown on Map 11603 covers 38,000 sq km, an area which is 20% larger than Belgium and four times the area of Cyprus. 81% of the Morava watershed is in central Serbia. The 1975 population in the Morava watershed is estimated at 3.6 million, with 85% in Serbia proper (i.e. excluding the autonomous provinces of Kosovo and Vojvodina). An estimated 60% of the population is still rural, engaged mainly in small-scale agriculture in the private sector. Due to the generally mountainous terrain, the habitable valleys are relatively densely populated and the hills and mountains sparsely so. The less developed areas are in the upstream end of the catchment, where arable land is very limited and employment opportunities likewise. More detailed information on the region is provided in Annex 3..

2.02 The towns in the region, which are relatively small (Nis, the largest, has some 200,000 residents) continue to expand as the population becomes more urbanized. Certain rural communes are losing population in absolute terms. In accordance with the Yugoslav policy of decentralization of industry, almost all towns have industrial plants (machinery, metal goods, textiles, leather, pulp and paper, food and tobacco processing, etc.) including several which are quite large (e.g. automobile plant-at Kragujevac, copper and aluminum processing plant near Titovo Uzice). Many mining operations exist throughout the area (lignite, lead, magnesium and chrome).

2.03 Transportation links have been strengthened to facilitate economic development, partly with the assistance of previous Bank loans. The Belgrade- Bar railway is now operational between Belgrade and Titovo Uzice and main lines serve most towns in the region. Good highways exist in the main valleys, including the European highways from Yugoslavia to Greece and to Bulgaria and Turkey. However, the secondary road system is weak and many of the mountainous areas are poorly served. The Morava River system is not presently used for shipping but the Greek and Yugoslav Governments have recently been discussing the possibility of making the Morava and Vardar-Axios river systems navigable, to create a waterway between the Danube and the Aegean Sea at Salonika. Such a development, which presently seems remote, would have a major impact on the Morava region.

Water Resources and Regional Development

2.04 The Morava River, the dominant physical feature in the region, is a large perennial river. Mean annual precipitation over the basin is 735 mm and the river's average annual discharge into the Danube is 255 m3/second. There are many water-related problems in the basin, most of which are due to the variations in stream flow. The catchment is predominately hilly and mountainous and the few dams existing and under construction (Map 11603) provide relatively little reservoir storage. Accordingly, river flows are highly - 3 - dependenton seasonal precipitationand snowmelt. Flooding and erosion are perennialproblems caused by too much water, but at other times low flows are responsiblefor another category of problems: limited water for domestic and industrialwater supplies,irrigation, waste dilution and navigation.

2.05 Flood hazards and recurringflood damages, which have always had a major impact on developmentin the Morava region, have become even more significant in modern times. An estimated2,880 km2 of valley bottom lands, representing the best agriculturalland as well as most of the towns and economic infrastructure,are exposed to flooding. Between 1920 and 1965, a total of 36 floods of varying intensitywere recorded in the basin, 20 of which lasted for more than 30 days. More recent floods have had admittedlyimprecise estimates of flood damages as follows: 1965 - US$61 million; 1969 - US$27 million; 1970 - US$39 million. Approximately60% of the damages are suffered by agriculture. The average area flooded annually in the basin has been estimatedat 1,400 km2 with damages of the order of US$14 million annually. Local floods in the springtimeare frequentlyaggravated by ice jams, when the northern flowing peak dischargesare temporarilydammed by masses of river ice.

2.06 Two categoriesof problems result from the soil erosion which take place in the basin during periods of intense precipitation. An estimated60% of the river basin is liable to severe erosion (due to slopes, soil types, etc.) and some 4,800 km2 have been badly eroded. Such erosion removes high quality topsoil and decreases the agriculturalpotential of the land. Its deposition in the river system as sediment-also concerns the planners since such sedimentation reduces channel capacities,thus increasingthe potential flood hazard. Reservoirsiltation is a particularconcern in the Djerdap hydropowerand ship- lock complex on the Danube, (about 150 km downstreamof its junction with the Morava) whose backwater extends to Belgrade and increaseswater levels at the mouth of the Morava by up to 3 meters. Under the Djerdap agreementbetween Yugoslaviaand Romania, a special fund of Din 500 million (US$27.8million) was establishedfor the constructionof projects in Yugoslaviawhich would reduce sedimentationin the Djerdap reservoir.

2.07 Irrigationin the Morava region has been limited. Only 20,000 ha are irrigated,compared to an estimated 700,000ha which have potentialfor irrigation.l/ There are several reasons for this lack of irrigationdevelopment. Moderate precipitationpermits rainfed agriculture,giving the farmers only modest incentivesto turn to more intensiveirrigation. However the hot, dry summers restrict cultivationunder rainfed conditionsto grain crops, while more remunerativecrops such as sugar beets, forage crops, fruits and vegetables give either low returns or cannot be grown at all. Sector organization has been poor, with the private farmers receivinglittle assistance from the

1/ Irrigationof some 24,000 ha in the Ibar project (partiallyfinanced by Bank Loan 777-YU) will depend on the Gazivode reservoirnow under construction (Map 11603). - 4 - government. Large-scale irrigation schemes have not been possible because of the unreliable river flows, which are lowest in the summer month periods of peak water demands. In this region the type of irrigation system likely to be most economic is a low cost system providing water for supplementary irrigation, but previous planning for irrigation development was based on high cost schemes involving large dams and long canals.

2.08 Soil Drainage is a related problem in low lying agricultural lands, aggravated by the tight soils in these valley plains. An estimated 90,000 ha throughout the basin have drainage problems, with groundwater and surface water each accounting for about 50% of the problem.

2.09 Since most of the urban centers are in the river valleys, water supply for people and industry depends on the river flows or groundwater in alluvial aquifers. In the past, there was little problem with respect to quantity, but increasing urbanization has frequently exceeded the capacity of local water supply systems to meet growing demands. This same urbanization (and also changed agricultural practices) have contributed to recent and severe degradation in the water quality of the rivers throughout much of the region. Wastewater treatment is the exception rather than the rule and the dilution capability of the rivers in low flow periods (generally coinciding with periods of maximum water use) is so limited that many sections of the river can hardly sustain fish. Since this polluted water is the principal source for downstream communities, the public health implications are obvious. This sector is discussed in more detail in paras. 2.21 to 2.23.

2.10 There is no large scale hydropower development in the Morava region. At present some 20 small plants have a total installed capacity of 85 Mw. The hydroelectric power potential of the region is estimated to total approximately 7,000 Gwh/year, of which only about 5% is presently exploited.

Water Resources Planning and Management

2.11 Only recently have systematic attempts been made to analyze and propose solutions for the water-related problems affecting development in the Morava region. In 1958, the Serbian Assembly created the Directorate for the Regulation of the Morava Basin. This group focussed mainly on the flooding problem, proposing its solution through regulation of river flows. A large number of related engineering studies I/ throughout the basin cul- minated in 1965 in a master plan for the phased development of a river regulation program. Subsequently, the Serbian Assembly approved the 20-year construction program, the first stage of the plan implementation. The main elements in the master plan and recommended first stage can be summarized as follows:

1/ Carried out principally by the Jaroslav Cerni Institute for Development of Water Resources, a Belgrade enterprise specializing in hydraulic analysis and planning. -5-

Master Plan 20-Year Program Item (1965) (1966-1985)

Dams 106 18 Dikes 1,800 km 223 km River regulation 900 km 234 km Erosion control 4,800 km 150 km

2.12 Hundreds of kilometersof flow regulation works had already been constructed throughout the river valleys by 1965 (see Annex 3) but the master plan sparked an ambitious program to increase efforts to regulate flows. A devast- ating flood in May, 1965 provided a timely incentive to construct the recommended projects in the Morava region.

2.13 The Serbian Water Fund (SWF) was created in 1965 to generate resources for these works and to deal with similar problems in other river basins (details in Annexes 4 and 31). In 1967, the Serbian Assembly passed the Law on Waters which was intended,among other things, to rationalizethe use of water resources and improve water quality. Also in 1967, the Morava River Corpora- tion (MRC) was created to implement the master plan. Since 1972, MRC has been a consortium of some 10 independent"water economy enterprises,"one of which (Velika Morava Enterprise)was the planning group and the others were con- structionenterprises.

2.14 In the ten years followingthe completion of the master plan, the progress in water management throughoutthe basin has been much less than originally envisaged. Water-relatedproblems continue to frustrateeconomic development. Of the 18 dams proposed in the first stage program, only three are under construction.1/ Better progress has been achieved on other structures, as described in Annex 3. Lack of funds has been one obvious constraint.

2.15 The 1965 master plan was a commendable attempt,the first ever, to systematically analyze the water resources problems throughout the Morava region. Unfortunately, it concentrated entirely on structuralmeasures to regulate flow, ignoring other aspects of river basin management which would be expected in a more comprehensiveplan. It was virtually devoid of any meaningful economic analysis. There is little evidence that least cost solutionshave been determined for each proposed structure. Benefitmeasurement was exceed- ingly weak (partlybecause system analysis was lacking) and no account has been taken of the dynamics of the proposed constructionprogram. The plan gives no guidance to decision makers as to the optimum stagingof facility construction.

2.16 Concerningmulti-purpose reservoirs, the concept of the plan seems to have been to build the dams for flow regulation and later on perhaps find

1/ Gazivode (in Ibar project, assisted by Bank Loan 777-YU), Bovan and Celije. See Map 11603. -6-

some other productive uses for the stored water. 1/ When such reservoirs were proposed, the plans included the dam but excluded facilities required to benefit from the water to be stored: water supply systems, irrigation systems or hydroelectric power plants. By concentrating exclusively on flow regulation, several activities related to river flows were only partially dealt with (those above, also water quality control and soil conservation practices), while other water-related sectors were completedly ignored (e.g. water supply from groundwater, fisheries, recreation and wildlife).

2.17 The 1965 master plan for the Morava River basin was little more than a physical plan to reduce flooding and erosion and to improve river water quality by augmenting low flows. There was no consideration whatsoever of alternative non-structural solutions. Improved flood forecasting or flood plain zoning were not considered as a means to reduce flood hazards. Water quality improvement through process changes and/or appropriate treatment of domestic and industrial wastes (rather than dilution) was ignored. Improved land-use practices to reduce erosion and pollution from agricultural areas were sim- ilarly ignored.

2.18 These planning deficiencies have been accompanied by difficulties in implementation which are in part a consequence of the Yugoslav decentralization of decision-making. Water resources management is nominally the responsibility of the Serbian Secretary for Agriculture, Forestry and Water Economy, 2/ but individual enterprises (industrial, power or agricultural) and communes have a great deal of independence when spending funds on water-related activities to benefit themselves. At the same time it is extremely difficult for such relatively autonomous interest groups to collaborate together for regional or multipurpose projects. MRC was designated as the enterprise for detailed planning and implementation of the 1965 master plan and its regional construction enterprises have been active in constructing and maintaining local flow regulation facilities. However, the finances for the program are provided by SWF whose investment plans are approved annually by the Serbia Assembly. In these circumstances, the MRC planners have not had a major decision- making role in water resources projects in the Morava region.

2.19 In 1975 the Serbian Assembly passed new legislation calling for a fundamental reform of the management of the Republic's water resources. In accordance with the 1974 constitution of Yugoslavia, Serbia's new Law on Water Management calls for the establishment of three regional "communities of interest" to coordinate water resource development for the benefit of all users and producers in each region. The Morava Region Water Community of Interest (MRWCI) will be responsible for the largest region, including the

1/ This is the actual situation for the Bovan and Celije reservoirs now under construction.

2/ The Federal Government and other republics each have a separate Secretariat for Water Economy, rather than including these functions in a larger Secretariat, as in Serbia. Pcinja and Dragovishtitsadrainage basins in southern Serbia (Map 11603). MRWCI will be basicallya self-managedsocio-economic organization, free to undertake its responsibilitiesas it sees fit. Appropriateexpert groups or technicalorganizations may be engaged for specific functions. A Republican Water Community of Interest is also to be establishedas a co-ordinatingbody. Present legislationcalls for the establishmentof MRWCI and the Republic Water Community of Interestby June 30, 1976 and for the automaticdissolu- tion of SWF on that date. However, the Executive Council of Serbia has now decided that the legislationshould be amended to provide additionaltime for establishingMRWCI and to allow the concurrentexistence of both MRWCI and SWF, so as to permit an orderly transfer of responsibilities.The necessary amending legislationhas been presentedto the SerbianLegislative Assembly and is expected to be passed promptly. Further informationis provided in Annex 3.

2.20 In 1973 the UNDP agreed to finance a two-year project called "Computer Control of the Water Resources Systems in the Morava River Basin". This project is mainly concerned with models to store and manipulateflow and water quality data. The Velika Morava Enterprise,the planning branch of MRC, is designatedas the responsibleagency but most counterpartstaff are being provided by local consultants(principally the Mihailo Pupin Instituteof Belgrade).

Water Supply and Wastewater Sector

2.21 In the Morava region, as throughoutYugoslavia, the responsibility for water supply and wastewaterdisposal rests with the communes. Traditional- ly the towns and villages relied on groundwater (springsand wells) to provide abundant suppliesof high quality water. Surface waters were ample to carry away any wastes which did not infiltrateinto the ground. But increased urbanizationand industrialization,particularly in the past twenty years, have seriouslystrained the modest facilities in the urban areas and at the present time water shortagesand increasinglypolluted rivers and groundwaterare common throughoutmost of Serbia. In addition to the recent rapid growth in demand for such services,the present problems are due to several factors:

(a) most towns are small and lack the technicalexpertise to plan and implementthe infrastructurenecessary to cope with growth;

(b) the awarenessof the consequencesand costs of water pollution, particularlythat caused by industries,is relatively recent. Thus insufficientattention has been paid to investmentsfor pollution control, since they have been regarded as unproductive;

(c) local communes have made few attempts to consider regional solutions, particularlyfor wastewaterdisposal, where most of the pollution affects other communitiesdownstream;

(d) lack of capital has retarded efforts to construct adequate facilities. - 8-

2.22 In many communes the capital scarcity is being partially overcome by self-imposedtaxing schemes which generate some of the funds necessary to build water supply and wastewater systems. Unfortunately,the physical situation usually gets quite bad before the saving campaign starts. Since several years of savings are generallyrequired to finance any significantconstruction program, delays in providing improved infrastructureresult. High rates of inflation in recent years have also reduced the motivation for accumulatinglocal- ly saved funds and depleted their real value. Nevertheless,such financial self-relianceis imperative,since republican sources of capital (particularly SWF) are unavailable except for flow regulationfacilities. This capital constraint distorts decision-makingso that communitiesbecome anxious to have dams built in their locality,financed mainly by SWF, rather than seek more economic solutions such as groundwatersources which would have to be financed entirely locally. For similar reasons, the communes hope their water quality problems can be solved by low flow augmentationfrom SWF-financeddams rather than from local treatment facilitieswhich they must finance themselves.

2.23 Serbian planners have advised that the primary infrastructurecom- ponent regarding economic development in the Morava region at this time is dependable supplies of water for the people and industries in the urban areas. Accordingly,the Secretariatfor Town Planning, Housing and Communal Affairs has engaged consultants (JaroslavCerni Institute)to review water supply requirements and water quality problems throughoutSerbia to the year 2000 and to prepare a program for water supply and wastewater disposal facilities. This predominatelytechnical study is scheduledfor completion in 1976.

Water Supply and Wastewater Situation in Titovo Uzice and Cacak

2.24 The town of Titovo Uzice has an estimated 1975 population of 46,000 includingnearby Sevojno, site of a large copper and aluminum processing complex. Population is presentlygrowing at about 4.5% annually and rapid industrial growth is expected to continue,aided by the new Belgrade-Barrail- way which is already operationalbetween the town and Belgrade. Titovo Uzice is situated in the steep valley of the Djetinja River in the headwaters of the Zapadna Morava (see Map 11639). The water supply situationfor people and industry is very bad. Water from local springs and wells is supplied by the communal enterprise,Bioktos, which also manages wastewater disposal and several other communal services (see Annex 18). Only 55% of the population are connected to the system, 1/ shortagesare significantand growing, and the lack of safe water supplies has caused epidemics. 2/ Total system production in 1974 averaged only 125 liters/secondand 55% of the water sales were to commercial and industrial consumers. The public water supply system

1/ Those not connected, including all residentsin the upper levels of the town, must rely on 15 public taps or local springs and wells.

2/ In 1974 some 2,000 people were affected and several hundred hospitalized by a diarrheal epidemic. - 9 - has so little capacity that five industrieshave built their own supplies, pumping more than twice as much water as Bioktos produced in 1974. The source for the industrial supplies is the small and polluted Djetinja River, whose low flow is less than the total water supply abstractedby Bioktos and the town's industries. Thus a drought period would produce calamitous results. The present water supply system is shown on Map 11637 and described in Annex 5.

2.25 A network of separate and combined sewers removes wastewater from 65% of the Titovo Uzice premises connected to the Bioktos water system. All sewers discharge directly into the Djetinja River without treatment. At Sevojno an industrialwaste treatmentplant has been constructedbut is not yet operational. Other industries,including textile, metal and leather factories, discharge untreatedwastes directly into the river, which has no dissolved oxygen during low flow periods and therefore cannot support fish life. The present wastewater disposal system is shown on Map 11638 and described in Annex 5.

2.26 The town of Cacak has an estimated 1975 population of 44,000 which is increasing at about 4.8% annually. The town is a traditionalagricultural center, sited on the Zapadna Morava where the valley, about 3 km wide, has emerged from an upstream gorge. Local shallow wells have always been the town's water source but the alluvial aquifer has become increasinglypolluted as urbanizationand industrializationhave proceeded. 1/ The water and wastewater systems are the responsibilityof the communal enterprise Vodovod. The piped water supply, which first began operating in 1951 to serve a local industry, has grown gradually and now serves an estimated 60% of the population from a series of wells recharged by river water pumped into infiltration basins. There have been no shortages in the system since 1973, but limited source capacity had caused shortagesand delayed system expansion in earlier years. Industrial and commercial consumersaccounted for 62% of water sales in 1974 but the town's largest water user, a pulp and paper factory, pumps its supplies directly from the river. The town's bottling factory is expanding to become a brewery which is expected to begin operating (and require substantial supplies of treated water) in 1976. The present water supply system is shown on Map 11640 and described in Annex 6.

2.27 Cacak has separate sanitary and storm drainage sewers, for which Vodovod is responsiblealso. 55% of the consumerswith water connectionsare connected to the sewers, the remainder using septic tanks or pit privies. The pulp and paper factory and the bottling plant discharge their untreated wastes directly into the river. Vodovod's sanitary sewers flow to a site some 2 km downstream of the town, where they enter the river without treatment. The outfall is located at the site of a proposed treatment plant. The wastewater facilitiesare shown on Map 11641 and are described in Annex 6.

1/ Water quality tests of some 400 wells in the town indicatedthat 99% were bacteriologicallycontaminated. - 10 -

III. THE PROJECT

Objectives

3.01 The project objectivesare to:

(a) improve the planning and management of water resources within the Morava region, in order to assist Serbian authoritiesto accelerateeconomic development,particularly in the least developed areas in the region;

(b) demonstratethe feasibilityof low cost irrigationsystems;

(c) provide safe and reliable water supplies to meet the realistic demands of some 90% of the population in the towns of Titovo Uzice and Cacak by 1980, and also to provide adequate supplies of treated and untreated water for industriesand other commercial enterprisesin each town; and

(d) extend the sewer networks in the two towns where necessary to remove wastewater,and also to make plans for its subsequent treatment.

Description

3.02 The main componentsof the project are described in detail in annexes and can be summarizedas follows:

(a) Research activities:

(i) construction,operation and monitoring of pilot irrigation schemes covering approximately400 ha in Milosevac area and 200 ha in Aleksinac, to demonstrate the feasibilityand economics of low cost supplementalirrigation systems (Map 11603 and Annexes 34 and 35);

(ii) study of measures to adjust to the flood hazards throughout the basin (Annex 7);

(iii) study to develop an action program to improve water quality in part of the Zapadna Morava watershed, as a pilot project for the entire basin (Annex 8);

(iv) study of ways to accelerate economic developmentin three of the least developed regions in the Morava basin: Prokupulje, Leskovac and Vranje (Map 11603 and Annex 9); and

(v) staff training program for MRWCI. - 11 -

(b) Water supply and wastewater disposal systems for the town of Titovo Uzice (Annex 10) including:

(i) Concrete arch dam (70 m high) on the Djetinja River at Vrutci site, 12 km upstream of Titovo Uzice (Map 11639);

(ii) Raw water pipeline and water treatment plant; transmission and distribution pipelines within town; pumping station and reservoirs (Map 11637);

(iii) Sanitary sewers, including collector, leading to site of the proposed wastewater treatment plant (Map 11638), whose construction is not included in the project since it is unlikely to begin before 1979; and

(iv) Engineering services, including final design for the future wastewater treatment plant.

(i) Wellfield development 2 km upstream of Cacak; collector pipeline and balancing reservoir; pumping station; transmission and distribution pipelines within town; and distribution reservoirs (Map 11640);

(ii) Sanitary sewers and pumping stations to convey sewage to site of proposed treatment plant (Map 11641), whose construction is not included in the project since it is unlikely to begin before 1979;

(iii) Storm drains to alleviate local flooding (Map 11641); and

(iv) Engineering services, including final design for the future wastewater treatment plant.

Status of Engineering

3.03 Feasibility studies and preliminary designs have been carried out and final design is proceeding for all elements of the project by Yugoslav consultants (Energoprojekt for the irrigation pilot projects and Cacak facilities; Jaroslav Cerni Institute for the Vrutci dam and Titovo Uzice facilities).

Cost Estimates

3.04 Detailed cost estimates are provided in Annex 12. Project costs (excluding interest during construction) are estimated to total US$51.4 million, of which about US$16.2 million (31%) is the foreign exchange component. The summary cost estimate follows: 12

Local Forelgn Total Local Foreign Total Z of ------Dinars (000) ------US $ (000)------Total

RESEARCH ACTIVITIES

Pilot Irrigation Projects 17,200 7,300 24,500 956 405 1,361 2.6

Studies:

Flood Hazard Adjustment 22,800 8,700 31,500 1,267 483 1,750 3.4

Water Quality 8,400 8,400 16,800 466 467 933 1.8

Regional Development 7,750 1,350 9,100 431 75 506 1.0

Staff Training 850 850 1,700 47 47 94 0.2

Sub-Total 57,000 26,600 83,600 3,167 1,477 4,644 9.0

TITOVO UZICE SYSTEMS

Vrutci Dam 181,430 67,670 249,100 10,079 3,760 13,839 26.9

Water Supply System 148,650 87,150 235,800 8,258 4,842 13,100 25.5

Wastewater System 70,950 29,550 100,500 3,942 1,641 5,583 10.8

Sub-Total 401,030 184,370 585,400 22,279 10,243 32,522 63.2

CACAK SYSTEMS

Water Supply System 97,580 46,520 144,100 5,421 2,585 8,006 15.6

Wastewater System 51,910 22,390 74,300 2,884 1,244 4,128 8.0

Storm Drainage 27,330 11,270 38,600 1,518 626 2,144 4.2

Sub-Total 176,820 80,180 257,000 9,823 4,455 14,278 27.8

TOTAL PROJECT COSTS 634,850 291,150 926,000 35,269 16,175 51,444 100.0

Interest During Construc- tion on Bank Loan - 80,393 80,393 - 4,466 4,466

TOTAL PROJECT COSTS (includinijIDC) 634,850 371,543 1.006.393 3526 20.64 55,910 of which: Physical Contingenciesl/ 58,429 30,330 88,759 3,246 1,685 4,931 9.6 Price Increasesl/ 114,202 52,689 166,891 6,345 2,927 9,272 18.0 I/Details of physical contingencies and price increases for each project component are shown in detailed estimates of Annex 12. - 13 -

3.05 The cost estimates for the research component were prepared by the mission, followingdiscussion of concepts and cost factorswith the appropriate Yugoslav authorities. Cost estimates for the Titovo Uzice and Cacak systems are based on the estimatesof the consultants,taking account of recent contracts for similar works in Yugoslavia. Physical contingencies have been provided as follows: 25% for the Vrutci dam 1/, 10% for water pipelinesand 15% for all other items. The project costs are expressedin prices prevailingat the end of 1975, with provision for the price increases during the project constructionperiod as follows: 14% for 1976 and 12% annually in the years 1977-79.2/ With these provisions for physical contingencies and price increasesduring the constructionperiod the cost estimatesare reasonable.

Project Financing and ImplementationResponsibility

3.06 The proposed loan of US$20.0 million would represent38.9% of the project costs and would be equivalentto 97% of the estimatedforeign exchange requirementsof the project (comprisingUS$16.2 million in project costs and US$4.5 million in interestduring constructionon a Bank loan of US$20.0 million).

3.07 The SerbianGovernment has proposed that the proposed Bank loan be utilized by the various organizationsresponsible for implementingindividual componentsof the project. As noted in para 2.19, institutionalarrangements within the water resourcessector in Serbia are in a transitionalstate. The water law enacted in July 1975 provides for the establishmentof the new socio-economicentity, the Morava Region Water Community of Interest (M4RWCI) to manage water resourcesin the proposed project area. However, pending the establishmentof MRWCI, which is not expected to become fully staffed and operational before 1977, it has been agreed that SWF will be the borrower of the proposed loan, with portions on-lent on Bank terms to other beneficiaries.

3.08 The comprehensivenature of the new Law on Waters (Annex 3) demon- strates the commitmentof the Republic to implementworkable arrangementsfor water resourcesmanagement. In addition,it is clear that the Republic has been prepared to discontinuearrangements which have proved unsatisfactory (e.g. reliance upon MRC) and to implementimprovements. It is thereforeex- pected that the Serbian Governmentwill carefullymonitor the new institutional arrangementsto ensure that they will be effective in practice,or to determine whether furthermodifications are required. In these circumstancesthere seems no reason why these arrangementsshould not be effective,and MRWCI operate in

1/ Actual cost for this arch dam will depend to a large extent on the foundation conditions,which cannot be completelyknown at this stage.

2/ These projectionsof future price increasesare the same as the Bank's general estimate of increases in local and foreign costs for civil works, which predominatein this project. - 14 -

the manner envisaged by the law. MRWCI should thereforebe competent,in due course, to take over the Bank loan obligationsinitially proposed for SWF. During negotiationsagreement was reached that, at the time of the transfer of project responsibilities,SWF and MRWCI will enter into arrangements satisfactoryto the Bank under which the obligationsof SWF under the loan agreement will be assumed by MRWCI. In particular,it has been agreed that MRWCI will have been duly establishedwith full authority to assume the obligations of SWF under the loan agreement;that it will have access to adequate financial resources;and that a qualified and experiencedmanager and staff have been appointed. Agreement was also obtained from SWF and the Republic of Serbia that no legal or administrativeaction will be taken which would prevent the continuedexecution of the project to the satisfactionof the Bank.

3.09 An outline of the project elements for which the various beneficiaries would be responsiblefollows, along with the proposed sources of finance for each: Project Interest During -Total Requirements IBRD Loan Balance Local Sources of Funds Cost Construction on Required IBRD Loan ------P------Din (000) ------Beneficiary and Proiect Elements

Serbian Water Fund (SWF): Commsunal Funds (a) Vrutci Dam 249,100 19,249 268,349 96,840 171,509 SWF and Titovo Uzice

(b) Flood Hazard Adjustment Study 31,500 2,618 34,118 12,240 21,878 SWF

MRWCI of Serbia (d) Staff Training for MRWCI 1,700 102 1,802 666 1,136 SWF, or Republic

Ti tovo Uzice - 'Bioktos':

Titovo Uzice Comaunal funds and (a) Water Supply & Wastewater Systems 336,300 28,473 364,773 130,734 234,039 internal sources of Bioktos , U' Cacak - 'Vodovod': and internal (a) Water Supply & Wastewater Systems 218,400 21,674 240,074 84,906 155,168 Cacak Communal funds sources of Vodovod

(b) Storm Drainage System 38,600 3,135 41,735 15,012 26,723 Cacak Communal funds

Serbian Fund for Underdeveloped Regions (SPUR):

(a) Regional Development Study 9,100 944 10,044 3,546 6,498 SFUR

Milosevac Farmers' %-operative: of Serbia (a) Milosevac Pilot Irrigation Project 14,600 1,526 16,126 5,670 10,456 Republic

Aleksinac Commune: of Serbia (a) Aleksinac Pilot Irrigation Project 9,900 1.035 10,935 3.852 7.083 Republic

TOTAL (Din '000) 926,000 80,393 1,006,393 360,000 646,393

TOTAL (US$ '000) 51,444 4,466 55,910 20,000 35,910 - 16 -

3.10 The loan amounts proposed to be allocated 1/ to project beneficiaries would be as follows: US$ Thousand

Serbian Water Fund 6,460 Titovo Uzice - 'Bioktos' 7,263 Cacak - 'Vodovod' 5,551 Serbian Fund for Underdeveloped Regions (SFUR) 197 Milosevac Farmers Cooperative 315 Aleksinac Agrokombinat 214 TOTAL 20,000

3.11 SWF has agreed to relend major portions of the loan to Bioktos and Vodovod on Bank terms by way of subsidiary loan agreements acceptable to the Bank. Suitable arrangements will also be made by SWF to provide the agreed portions of the loan to SFUR and the enterprises implementing the irrigation pilot projects. During negotiations agreement was obtained that each beneficiary will provide or be provided with all funds necessary to carry out the project elements for which it is responsible. For the project components to be undertaken by "Bioktos" and "Vodovod" respectively, these funds are to be provided under local bank guarantees or by the Communes. For the remaining project components the funds will either be provided by the Republic, or the Republic will cause such funds to be provided from other sources.

Implementation of Irrigation Component

3.12 Construction, operation and maintenance of both pilot projects will be undertaken by local bodies. In Milosevac, where land consolidation has already been carried out at the initiative of the farmers, the construction and operation of the pilot irrigation project would be undertaken by the Milosevac Farmers Cooperative (which has existed since 1902). In Aleksinac land consolidation has not taken place yet (making the operation of an irrigation system difficult if not unfeasible), and the institutional arrangements are more complex. The private farmers are not well organized, except that they are part of the Commune and sell their produce to the local agribusiness, Aleksinac Agrokombinat, which provides technical support. Benefits will accrue locally from these small-scale irrigation projects, but their primary objective is to demonstrate the feasibility, organization, economics and channeling of credit for this low cost supplementary irrigation, which is novel in this part of Yugoslavia, so that the system might be considered for irrigation of the many hundreds of thousands of hectares of irrigable land in the valleys of the Morava region (para 2.07). The local communities have neither the motivation nor the resources to monitor the project results and make the information available to other agricultural interests in Yugoslavia. To achieve this demonstration will require the assistance of the Republic of Serbia, specifically the Secretariat for Agriculture, Forestry and Water Economy.

1/ At the suggestion of the Serbian Government, the proposed loan would be allocated as a constant percentage of the estimated cost of all project components. This percentage, 38.9%, represents the proportion of the total project costs (US$51.4 million) financed by the proposed Bank loan (US$20.0 million). - 17 -

3.13 During negotiationsassurances were obtained from the Milosevac Farm- ers Cooperativeand AleksinacAgrokombinat with respect to their respective pilot irrigationprojects that each will:

(a) engage qualifiedand experiencedconsultants to prepare the final design and constructionsupervision of their respective irrigationsystems;

(b) undertake a program of land consolidationor adjustmentof farm boundarieswithin the project area by December 31, 1977;

(d) collaboratewith the Republic of Serbia in the monitoring of results of the project.

In addition,assurances were obtained that Aleksinac Commune will:

(a) make adequate arrangementsfor the implementationof the project by Aleksinac Agrokombinat;and

(b) authorizeAleksinac Agrokombinatto undertake the program of land consolidationor adjustmentof farm boundaries within the project area.

Assuranceswere also obtained that the Republic of Serbia will:

(a) monitor, analyze and evaluate the results of the two irrigation projects for five years according to guidelines agreed with the Bank (Annexes 34 and 35);

(b) make availablecounterpart funds to the Milosevac Cooperativeand Aleksinac Agrokombinat,through BeogradskaBanka, to permit constructionof works, provide working capital to cover operation and maintenancepending receipt of crop sale revenues and provide agriculturalcredit sufficientto cover the capital outlay of farmers to convert to other crops.

Implementationof Research Component

3.14 The three proposed studiesare specificallydesigned to meet the project objective of improving the planning and managementof water resources to accelerateeconomic developmentin the region. In each case the draft out- lines for the studies were prepared by the Serbian authoritiesand discussed with the Bank mission. The revised draft outline for each study is provided in annexes. Their objectives can be summarized as follows: - 18 -

Study 1: Adjustmentsto Flood Hazards (Annex 7)

- to provide recommendationsfor action for the mitigation of property damage, improvementof land use and protectionof life in the Morava River Basin, by evaluatingboth structuraland non-structural adjustmentsto flood hazards.

Study 2: Water Quality (Annex 8)

- to develop an action program to improve the quality of water in the Zapadna River basin to the legal standards designatedfor the river and its tributaries.

Study 3: Regional Economic Development (Annex 9)

- to determine programs and projects to stimulateeconomic development so that the Serbian Fund for Underdeveloped Regions (SFUR) will be able to make better decisions in its allocationof resources in the underdeveloped regions of Prokuplje,Leskovac and Vranje in southern Serbia (Map 11603).

3.15 SWF will be responsiblefor Studies 1 and 2 and SFUR for Study 3. Special groups of consultantswill be required to carry out each study. Dur- ing negotiationsagreements were obtained that SWF and SFUR will engage qualified and experiencedconsultants by September 1, 1976 to undertake each study on terms and conditionsacceptable to the Bank. The studies are expected to require the followingperiods for completion:

Study 1 - 30 months Study 2 - 18 months Study 3 - 12 months

Implementationof Project Facilities for Titovo Uzice

3.16 All previous planning and the final designs now underway for the Vrutci dam have been prepared by the Jaroslav Cerni Institute,Yugoslav consultants who have limited experience in the implementation(as opposed to planning) of large projects. Agreement was obtained from SWF during negotiations that suitably qualified and experienced consultantswill be retained by June 30, 1976 to assist in procurementand constructionsupervision of the dam, paying particularattention to project management.

3.17 The town of Titovo Uzice is located in the narrow valley approximately 12 km downstreamof the 70 m high, thin concrete arch dam at Vrutci. Because of the complexityand importanceof this dam, the following agreements were obtained from SWF during negotiations: - 19 -

(a) a panel of highly qualified and internationally experienced engineers will be engaged by June 30, 1976 to provide independent expert advice during the construction period; 1/

(b) as a precautionary measure, suitably qualified and experienced consultants (perhaps the dam designers) will be engaged by January 1, 1977 to determine the hydraulic consequences downstream in the event of a catastrophic collapse of the dam. On the basis of this analysis the consultants should recommend an action program for monitoring possible causes of downstream flooding and for activating an appropriate warning system, such program to be prepared not later than December 31, 1977;

(c) after the dam is built, suitably qualified and experienced consultants will be engaged to inspect the dam at least once every three years to ensure that operation and maintenance procedures are satisfactory.

3.18 Before construction of the Vrutci dam can begin, approvals are required from Yugoslav authorities responsible for the hydraulic, sanitary and structural aspects of the design. Officials from SWF and the Commune of Titovo Uzice advised that the necessary services were underway and that all approvals would be received before the proposed commencement of construction in October, 1976.

3.19 The reservoir to be created by the Vrutci dam will flood an area of some 235 ha, within the Commune of Titovo Uzice, and require the relocation of 26 households. Agreement was obtained from SWF during negotiations that this land will be acquired and the residents relocated in a timely manner so that project construction and reservoir filling will not be delayed.

3.20 The Vrutci reservoir is intended to be operated to serve multiple purposes: supply of water for treatment and distribution in Titovo Uzice; release of flows for downstream abstraction by industries (particularly at Sevojno); augmentation of low flows for enhancement of river water quality; and storing of flood flows. As detailed operating rules have not yet been prepared, agreement was obtained from SWF during negotiations that such operating rules will be prepared before December 31, 1978 for review by Bioktos and the Bank.

1/ The panel could comprise two engineers: an expert in arch dam design and an expert in the construction of thin arch dams. This panel would visit the site and review the final design prior to construction. Thereafter, the panel would visit the site at approximately annual intervals, or more frequently if requested by SWF. - 20 -

3.21 Bioktos has been assisted by Jaroslav Cerni Institute in preliminary planning for the water supply and wastewater systems serving Titovo Uzice. Recently, Bioktos has strengthened its technical staff for project implementation but further assistance from consulants will be required. During negotiations agreement was obtained from Bioktos that qualified and experienced consultants will be hired by September 30, 1976 on terms and conditions acceptable to the Bank to assist in final design, procurement and construction supervision of the water supply and wastewater systems serving Titovo Uzice, and also to prepare the final designs for the wastewater treatment plant.

3.22 The pipeline from the Vrutci dam to the treatment plant in Titovo Uzice (Map 11639) would follow the alignment of the abandoned railway to Sarajevo and Bioktos has already secured the right to use this land. Dur- ing negotiations, agreement was obtained from Bioktos that other land needed for project elements (treatment plant, reservoirs, pumping stations, etc.) will be acquired without causing delays to the project.

3.23 The Vrutci dam is expected to take 2-1/2 years to construct and the associated water supply facilities are expected to begin operating at the end of 1979. Temporary facilities are expected to augment the water supply somewhat in the interim period. The project will be implemented in accordance with the construction schedule shown in Annex 13, augmented by a list of critical actions with responsibilities and deadlines agreed. Agreement was obtained from Bioktos and SWF that no project or development would be carried out for Titovo Uzice which would adversely affect the carrying out of the project.

Implementation of Project Facilities for Cacak

3.24 Previously Vodovod was responsible for water supply and wastewater facilities but not for storm drainage, which was the responsibility of another communal enterprise in Cacak. Early in 1976, however, the Commune of Cacak gave Vodovod complete responsibility for storm drainage, including appropriate financial support (para. 4.21).

3.25 Preliminary designs for most project facilities in Cacak have been carried out for Vodovod by Energoprojekt consultants, but separate consultants (Hidroprojekt, also of Belgrade) iave been engaged by the local water economy enterprise associated with MRC for final designs of certain water supply facilities. 1/ During negotiations, agreement was obtained that Vodovod will be given exclusive responsibility before September 1, 1976 for all Cacak facilities in the project to be financed by the proposed Bank loan. Agreement was

1/ Presumably because these facilities were related to the Semedraz dam (whose construction has been postponed), for which MRC would have been responsible. - 21 - also obtained that qualified and experienced consultants will be engaged by September 30, 1976 to assist Vodovod in final designs, procurement and construction supervision of the project facilities, and also for the final design of the wastewater treatment plant.

3.26 The groundwater source to be developed in the unpolluted Parmenac aquifer upstream of Cacak has an estimated capacity of 200 to 250 liters/ second. Together with the existing source, this should meet Cacak's requirements until about 1984. (Future water requirements are outlined in Annex 29). Thereafter, additional water will be required. Several possible sources have been identified, including the Semedraz dam (Map 11639). In order to determine the optimum development program of additional sources, Vodovod should undertake a system planning study of future demands and alternative sources, as already proposed by the Bank. Annex 15 contains a draft outline of the proposed study. During negotiations, agreement was obtained that qualified and experienced consultants will be engaged by Vodovod by December 31, 1976 to complete this study on terms and conditions acceptable to the Bank within 18 months of the date of the Loan Agreement. Agreement was also obtained from Vodovod and SWF that no additional source facilities for Cacak would be undertaken prior to the completion of this study.

3.27 The groundwater facilities to augment Cacak's water supplies are expected to begin operating in 1976. Water supply and sewerage networks will be extended gradually through the project period 1976-79. Vodovod will implement the project in accordance with the construction schedule shown in Annex 14, augmented by a list of critical actions with responsibilities and deadlines agreed. Agreement was obtained from Vodovod and SWF that no project or development would be carried out for Cacak which would adversely affect the carrying out of the project.

Training

3.28 Provision is made in the project for training future staff or expert groups engaged by MRWCI but no formal program can be agreed upon at this stage. During negotiations, agreement was obtained that MRWCI will formulate a program for staff training for review by the Bank by June 1, 1977 and that the agreed training program will be implemented thereafter. For the other beneficiaries project implementation with the assistance of consultants will provide useful practical training and no other training program is recommended.

Procurement

3.29 'Equipment and materials contracts estimated to cost more than US$100,000 would be awarded after international competitive bidding (ICB) in accordance with Bank Guidelines. For the purpose of bid comparison, qualified domestic manufacturers of these goods will be given a margin of preference of 15% or customs duties, whichever is lower. Civil works contracts estimated to cost more than US$500,000 will be awarded after ICB. The other equipment supply and civil works contracts would be awarded on the basis of competitive bidding advertised locally, in accordance with local procedures which are acceptable. - 22 -

Local contractorsare expected to win contracts for most of the construction work in the towns of Titovo Uzice and Cacak but Bioktos and Vodovod may carry out minor works by force account (such as renovationsand modificationsto existing facilitiesor installingnew pipes) using presentlyavailable staff and equipment. The total value of such works carried out by force account would be limited to US$4.0 million (8% of the project cost).

3.30 In order to avert increasing water shortages in Titovo Uzice and Cacak, the responsibleagencies have proceeded to advance contractingof critical contracts so that full advantage can be taken of the construction season in 1976. Contracts for equipment for treatment and pumping facilities and for the supply and installationof water (and associatedsewer) lines required in 1976 would be awarded according to proceduresoutlined in para. 3.29. Retroactive financingof up to US$1 million is recommended.

Disbursements

3.31 The loan would be disbursed as follows:

(a) 100% of foreign expendituresand 35% of contracts won locally 1/ for all civil works and equipment contracts for the Vrutci dam and the Titovo Uzice, Cacak, Milosevac and Aleksinac facilities from January 1, 1976;

(b) 100% of the costs of foreign consultantsand 35% of the cost of local consultantsfrom January 1, 1976;

(d) 100% of interest and other charges on the Bank loan.

The percentageswould be modified, if necessary, for each beneficiaryduring the course of the project to ensure that each beneficiarywould receive the portion of the Bank loan allocatedto it in accordancewith the table on page 15. Estimated quarterlydisbursements for each projectbeneficiary and con- solidated for the total loan are shown in Annex 16. Savings, if any, could be used to finance additionaleligible items needed for the project if this is found justified by the Bank. Otherwise they would be cancelled. MonitoringCriteria

3.32 Periodic progress reports would be required from the consultantsre- sponsiblefor each of the three studies (Annexes 7, 8 and 9). Quarterly reports on constructionprogress for the Vrutci dam will be received from SWF. Quarterly progress reports according to the draft format of Annex 17 will be received from the communal water and wastewateragencies, Bioktos in

1/ Including disbursementsof up to US$1.4 million on force account work for Titovo Uzice and Cacak. - 23 -

Titovo Uzice and Vodovod in Cacak. Quarterly progress reports on the constructionof the irrigation pilot projects will be received from the responsible local enterprises. Subsequentlythe Serbian Government will submit an annual report based on the agreed monitoring program.

EnvironmentalAspects

3.33 The most obvious environmentalaspects of the project will be the improved aesthetic and public health standards in the towns of Titovo Uzice and Cacak, due to the improved water supply facilities and sewers. The project also includes the final design of the wastewater treatment plants which will be built subsequently to improve water quality in the river system, but until they are built the wastewater will continue to enter the river without treatment,as at present. The major difference in the short term will be that such dischargeswill take place downstream of each town so that river water quality within each town should be noticeably improved. A negative environmental aspect of the project will be the inundationof some 235 ha by the reservoir of the Vrutci dam.

IV. THE BORROWERAND OTHERBENEFICIARIES AND THEIR FINANCES

General

4.01 Although the project is wholly concerned with various aspects of development of the Morava River Basin it embraces activity which is to be the concern of six different entities, as indicated in paragraph 3.09, which shows how much of the Bank loan is to be allocated to each project component and the sources and amounts of additional funds. For the towns of Titovo Uzice and Cacak, project components form part of a constructionprogram for the enterprises (Bioktos and Vodovod respectively)operating water and wastewater services with revenues derived from charges to consumers. Cacak will also be responsible.for constructionof a stormwater system. SWF will be responsible for constructionof the Vrutci dam, and for the flood hazard and water quality studies. The regional development study will be financed by the Bank loan and by a grant from SFUR. The separate administrativeand financialarrangements for SWF, Bioktos, Vodovod and SFUR are discussed briefly below and in more detail in various annexes.

Serbian Water Fund

4.02 The organizationand administrationof SWF are described in Annex 4 and its financial situation is explained in Annex 31. As indicated, SWF has been establishedto collect and administer funds on behalf of the Republic for various aspects of river basin development. Although SWF has assigned to it certain direct sources of revenue related to water usage, the majority of its - 24 -

present and proposed future funds will come either from the assignmentby the Republic of taxes not related to water usage (e.g. a proportionof sales taxes) or from direct contributionsvoted periodicallyby the Republicanassembly. SWF cannot, therefore,be regarded as an autonomousorganization in the sense usually meant. However, its status is appropriate to its present role in river basin management, where it is financingmany projects which could not reasonably be expected to be revenue earning (e.g. flood control, river training, sedimentation control, river basin studies, etc.).

4.03 If SWF (and its successor, MRWCI) is to fulfill its responsibilities to administer the project it will need to make adequate arrangements for the construction and operation of the Vrutci dam and reservoir (paras. 3.16 to 3.20) and to carry out the studies (para. 3.14). In addition, agreement was obtained during negotiationsthat SWF will establish and maintain, in consultationwith the Bank, adequate accountingarrangements to:

(a) record and control the borrowing of funds from the Bank and the re-lendingof funds to other enterprisesand agencies concerned with the project; and

(b) record and control all financial transactionsrelative to the construction,operation, maintenance and administrationof the Vrutci dam and reservoir, including the charging of appropriate proportionsof cost to other participatingenterprises and agencies.

4.04 The project componentswhich are to be the direct responsibilityof SWF will be financed by the Bank loan and by grants from the funds of SWF, with a contributionby Titovo Uzice Commune to cover 30% of the constructioncosts of the Vrutci dam (Annex 31). During negotiations,agreement was obtained that the Commune of Titovo Uzice will make the necessary arrangementswith SWF to provide its contributiontowards the constructioncosts of the Vrutci dam, in accordancewith an agreed time schedule.

4.05 The Vrutci reservoir is intended to serve multiple purposes. In conjunctionwith a study of reservoir operating rules (para. 3.20) it will be necessary to determine the share of benefits attributableto the Bioktos water supply system, so as to ensure that water consumers in Titovo Uzice pay charges which appropriatelycover such benefits. Agreement was therefore obtained that SWF and Bioktos will enter into arrangementssatisfactory to the Bank for the annual payment by Bioktos to SWF of an appropriate share of the annual costs of the Vrutci reservoir, including an appropriate share of the amortizationof capital costs (Annexes 23 and 32).

4.06 A related question concerns the raw water which the industrialenter- prises pump directly from the Djetinja River, since the Vrutci reservoir will be operated to augment low flows for this purpose. Under present arrangements each industrial enterprisepays a relativelysmall tax to SWF for the extraction - 25 - of this water (Din 0.1/m3). SWF intends to review its policy and practice concerning water charges to users benefitting from regulated streamflowsand has agreed to carry out a study of alternatives for assessingmore realistic charges. This study, which will be based on the study of reservoir operating rules referred to in para. 4.05, will be completed and sent to the Bank for comment by December 31, 1978.

Bioktos - Titovo Uzice

4.07 The organizationand administrationof Bioktos is described in detail in Annex 18, where an organizationchart is provided. Annexes 22 to 24 give details of Bioktos' past and forecast financial statmementsand its financial situation is described in Annex 32.

4.08 Bioktos is responsible for the water and wastewater systems of the Commune, as well as for certain other municipal services. These other services accounted for some 40% Bioktos net income in 1974 (Annex 22) and include street cleaning, refuse collection,septic tank emptying, storm drainage, a market, a flower shop and funeral service. Each of these services is supported either by its own revenues or by contributionsfrom the Commune. Bioktos at present has two service departments,one for technical services, and the other for finance and administration. The administrationof Bioktos is satisfactory,although some re-organizationmay take place.

4.09 Adequate billing and accounting arrangementsexist and financial statementscan be produced in sufficientdetail to enable the financial results of water and wastewater activities to be presented separately from those of the other municipal services. Agreement was obtained during negotiations that this separation of accounting arrangementswill continue.

4.10 Annex 32 indicates that the services carried out by Bioktos, other than water and wastewater services,have in the past operated on a self- sufficientbasis without aversely affecting water and wastewater activities. During negotiationsagreement was obtained that Bioktos and the Commune will undertake to ensure that charges will be made by, or other appropriatereve- nues provided to, the various services of Bioktos, other than water and wastewater services, so as to ensure that in future:

(a) total revenues for such services are sufficient to cover all expenses of operation, maintenance,depreciation and interest charges on such services;and

(b) internal generation of funds by such services at all times is adequate to meet all necessary requirementsfor funds, including, but not restricted to, debt service, contributions,investments and capital expenditure,except where external funds are specificallyprovided. - 26 -

4.11 Bioktos' basic financial problem has been a lack of access to capital finance to enable it to significantlyexpand and improve its water and wastewater systems. Water tariffs have been adequate to cover no more than operation and maintenanceexpenses and to contribute towardsa modest program of expansion. Until January 1975, there were no separate wastewatertariffs. The present level of debt is low and is being repaid over relativelyshort periods at low interestrates.

4.12 Bioktos is now faced with an urgent need for a much greater system of expansionthan hitherto. Because significantloan finance is not available, the Commune of Titovo Uzice has decided to raise a large proportionof the necessaryfunds by contributionsfrom various communal funds and by the establishment of various arrangementsfor contributionsfrom the personal incomes of workers and from the earningsof business enterprises. These funds, together with the Bank loan, are expected to be sufficientto meet the major part of the funds requirementsof Bioktos during the period from 1976 to 1980 and to make a contributionto SWF towards the constructioncosts of Vrutci dam.

4.13 Bioktos' financingplan for the period 1976 - 1980 (Annex 32) shows total funds requirementsfor the period estimatedat Din 456.6 million (US$25.4 million). Din 130.7 million (US$7.3million), about 29%, is estimated to come from the Bank loan, Din 198.7 million (US$11.0million), about 43%, from the special funds allocatedby the Commune and Din 41.3 million (US$2.3million), about 9%, from internal sourcesof Bioktos. Other funds will come from relatively minor loans and from contributionsfrom business enterprises. This still leaves a shortageof Din 65.2 million (US$3.6million) which, as explained in Annex 32, relatesmainly to the proposed constructionof wastewater treatmentfacilities outside the project. This shortage is assumed to be coveredby local loans. However, since about Din. 18.0 million represents presentlyunsecured finance for the project, agreement has been obtained that this sum be secured,along with other componentsof the financingplan, to the satisfactionof the Bank, as a condition of loan effectiveness. Bioktos and the Commune have indicatedtheir intentionthat financingof the wastewater treatmentworks will be provided in due course, to enable constructionto begin promptly after the completion of the final designs included in the project.

4.14 Agreement was reached during negotiations that Bioktos will obtain a satisfactory guarantee from a Yugoslav Bank to cover cost over-runs for the project, in accordancewith Yugoslav practice. Since the responsibilityfor the administrationof most local financingsources is that of the Commune of Titovo Uzice, agreementwas also obtained during negotiationsthat the Commune will be responsiblefor:

(a) making all necessaryarrangements to provide or secure the funds for Bioktos' project facilitiesconstruction not available from other sources;and - 27 -

(b) providing or securing any additionalfunds necessary to meet Bioktos' costs in excess of presentestimates.

4.15 Constructionof the project and of the other capital investments will necessitatevery large increases in water and wastewatertariffs in Titovo Uzice. Such increaseswill be necessary to meet increasedoperating costs of more sophisticatedsystems, to cover interest costs on new loans and to facilitatea contributionfrom internal funds towards constructionrequire- ments. In addition, by 1980, Bioktos will need to reach a situationwhere its revenues will cover an appropriateshare of the operating costs of the Vrutci reservoir. In 1981, sufficient funds will be needed to meet greatly increased debt service requirements. If the present shortage of capital finance continues into the future, Bioktos will also need to make provision for internal funds to finance a significantproportion of its investmentprogram beyond 1980.

4.16 For these objectivesto be achieved,tariff increasesof 50% will be necessary on July 1, 1976 and again on July 1, 1977 followed by annual increases of 40% in 1978, 1979 and 1980, as explained in Annex 32.

4.17 During negotiations,agreement was obtained from Bioktos (with the concurrenceof the Commune) that it will:

(a) no later than July 1, in each year from 1976 to 1980 implement water and wastewater tariffs not less than those proposed in Annex 24, or implement such other combinationof tariffs as will generate at least equal revenues;and

(b) in 1981 and in each subsequentyear, implement such tariffs as will provide for:

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

(ii) debt service;

(iii) adequate increasesin working capital;

(iv) contributionsto reserves and other authorizedfunds; and

(v) a contributionfrom internal funds towards a three- year average of capital investmentrequirements amounting to not less than 20% in 1981 and not less than 30% in each subsequentyear. 1/

1/ The three-yearaverage to include the capital investmentrequirements of the year in question and the preceding and subsequentyears. - 28 -

4.18 If such tariffs are implemented,the water service will earn a rate of return on revalued 1/ net fixed assets in excess of about 3.5% in 1980 and over 6% in subsequentyears until 1984. For the water and wastewater services together, the rate of return will be 3.4% in 1980 and 5.0% in 1981. From 1982 to 1984 the overall rates of return would be in excess of 4%. These various rates of return, on revalued net fixed assets in operation,are reasonablein view of the fact that internal funds generationwill be adequate and that a large proportionof the fixed assets will have been financed by contributions from consumers,enterprises, and the commune, (implying increased local taxation),at considerablefinancial sacrifice.

4.19 The debt:equityratio of Bioktos would peak at 41:59 in 1979, falling thereafterto 32:68 by 1984. Debt service coverage would range from 1.2 times in 1978 to about 1.5 times in the years 1981 to 1984, but these figures can only be indicativebecause of the uncertaintyof the terms and availabilityof future loan funds. Furthermorein the years 1976 to 1981 the calculation includes interest assumed capitalisedby lenders. If this interest were excluded from the calculation,the ratio would exceed 1.5 times in every year. Agreement was obtained during negotiationsthat Bioktos will not raise further loans beyond the project period without the concurrenceof the Bank, unless its net cash earnings before depreciationand interest exceed 1.5 times its debt service in any future year, including debt service on the amount to be borrowed.

Vodovod-Cacak

4.20 The organizationand administrationof Vodovod is described in detail in Annex 19, where an organizationchart is provided. Annexes 25 to 27 give details of Vodovod's past and forecast financial statementsand its financial situation is described in Annex 33.

4.21 Vodovod is responsible for the water and wastewatersystem of the Commune and has recently become responsible for the town's stormwater system. Water and wastewaternetwork constructionhas been carried out largely by Vodovod's own workforce.

4.22 Vodovod's billing arrangementsand its general accounting system are satisfactory. However, financial planning is weak (Annex 20), and the accounting system does not at present provide for adequate analysis of costs of the network constructionprogram for comparisonagainst charges made to the Commune and to potential customers. A prolonged illness of the present head of the finance and administrationdepartment has contributed towards a lack of leadership. Considerationhas been given by Vodovod to a re-organizationwith

1/ Fixed assets have been shown in financial forecasts as annually revalued from 1975 to 1984 as explained in Annex 23. - 29 - the intentionof closer associationwith the Water ManagementOrganization of Cacak 1/ but no final decisionshave been taken, pending further discussions.

4.23 During negotiations,agreement was obtained that Vodovod will, in consultationwith the Bank:

(a) appoint a suitably qualified finance director; and

(b) implement,by July 30, 1977, modificationsin its accounting proceduresso as to facilitateadequate separationof costs between constructionactivities and normal operation and maintenance.

Agreement was also obtained that Vodovod will seek Bank comments prior to any proposed reorganization,including possible associationwith any other enterprise or organisation.

4.24 Vodovod'sbasic financialproblem has been a lack of access to capital finance to enable it to significantlyexpand and improve its water and wastewatersystems. Water tariffs have been adequate to cover no more than operation and maintenance and to contributetowards a modest expansionprogram. Wastewater tariffs have not, until 1975, been adequate to cover operation and maintenanceof the wastewatersystem. A program of network expansion has been financed in part by contributionsfrom the Commune and from potential consumers. However, finance has not generallybeen available for the necessary development of new sources of supply and the related treatment,transmission and storage facilities.

4.25 In anticipationof the constructionof the Semedraz dam, which was expected to be the next source to augment the town's water supply, the residents of Cacak established,by referendumin 1972, a Semedraz Fund. This fund accumulatedcontributions from the earnings of workers and enterprises towards the town's expected share of the dam constructioncosts. However, as explained in Annex 30, the immediateconstruction of the Semedraz dam is not the least cost solution to supplying Cacak's water demands. The Commune of Cacak has accordinglydecided to allocate resources from the Semedraz Fund towards the cost of works included in the proposed Bank-financedproject.

4.26 Vodovod's financingplan for the period 1976-1980,relative to water and wastewateroperations, is given and explained in Annex 33. This shows total funds requirementsfor the period amounting to Din 340.6 million (US$18.9 million). The Bank loan of Din 84.9 million (US$4.7 million) will finance about 25% of requirements. The Semedraz Fund is expected to provide Din 124.6 million (US$6.9million), about 37% of the total, and internal funds of Vodovod Din 77.0 million (US$4.3million), about 23%. The remaining finance will come from relativelyminor contributionsfrom consumersand enterprisesand from local loans. The local loan of Din 25 million relates to the constructionof

1/ An enterprisewhich forms part of the Morava River Corporation(para. 2.13. - 30 -

the wastewater treatmentplant, following the project. Vodovod and the Commune have indicatedtheir intention that financingof these works will be provided, in due course, to enable constructionto begin promptly after the completion of the final designs included in the project.

4.27 Agreement was reached during negotiationsthat Vodovod will obtain a satisfactoryguarantee from a Yugoslav bank to cover cost over runs for the project, in accordance with normal Yugoslav practice. Since the responsibility for the administrationof most local financing sources is that of the Commune of Cacak, agreementwas also obtained during the negotiationsthat the Commune will be responsiblefor:

(a) making all necessary arrangementsto provide or secure the funds for the constructionof Vodovod's water and wastewater facilitieswhich are not available from other sources; and

(b) providing or securing any additional funds necessary to meet costs in excess of present estimates.

4.28 A financingplan for the storm drainage system, for the period 1976- 1980, is given and explained in Annex 33. This shows that of the total requirements for funds of Din 41.7 million (US$2.3 million) the Bank loan is estimated to provide Din 15.0 million (US$0.8million) with the remainder amounting to Din 26.7 million (US$1.5million) expected to come from the Com- munal Development Fund or general Commune revenues.

4.29 The bank guarantee referred to in para. 4.27 will also cover cost overruns for the stormwater project component. In addition,during negotiations agreementwas obtained that the Commune will be responsiblefor:

(a) making all necessary arrangementsto provide or secure the finances for the constructionof the storm drainage facilities which are not available from other sources;

(b) providing or securing any additional funds necessary to meet costs in excess of present estimates; and

(c) reimbursingVodovod promptly and in full for all expenses incurred in operating, maintaining and administeringthe storm drainage facilitiesand for meeting all related debt service obligations,all on the basis of separate accounts for the stormwater service to be maintained by Vodovod.

4.30 The project will be the first stage of an expected ongoing investment program for Vodovod. Investments subsequent to the project are likely to include wastewater treatment facilitiesand also constructionrelated to an additional source of supply, dependent upon the studies referred to in - 31 -

paragraph 3.26. 1/ For Vodovod to remain financiallyviable in these circumstances, progressive increases in water and wastewater tariffs will be necessary. These increaseswill enable Vodovod to meet increasedoperating costs of more sophisticatedsystems, to cover interest costs on new loans and to facilitatea contributionfrom internal funds towards constructionrequire- ments. Also, from 1981 onwards, considerablyincreased debt service requirements will have to be met. If the present shortage of capital finance continues into the future, Vodovod will also need to make provision for internal funds to finance a reasonable proportion of its investmentprogram beyond 1980.

4.31 For these objectives to be achieved, tariff increasesof 20% will be necessary no later than July 1, 1976 with similar 20% increasesannually until 1979. Thereafter annual increasesof about 15% are likely to be necessary, although this will depend upon circumstancesnot precisely definable at this time.

4.32 During negotiations,agreement was obtained from Vodovod (with the concurrenceof the Commune) that it will:

(a) no later than July 1, in each year from 1976 to 1979, implement water and wastewater tariffs not less than those proposed in Annex 27, or implement such other combinationof tariffs as will generate at least equal revenues;and

(b) in 1980 and in each subsequentyear, implement such tariffs as will provide for:

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

(ii) debt service;

(iii) adequate increases in working capital;

(iv) contributionsto reserves and other authorized funds; and

(v) a contributionfrom internal funds towards a three- year average of capital investment requirements amounting to not less than 30% 2/.

1/ For indicative purposes in the financial forecasts this additional source is assumed to be the Semedraz dam, constructedby SWF. Vodovod would be responsiblefor the constructionof related treatment and transmission facilities.

2/ The three-year average to include the capital investment requirementsof the year in question and the preceding and subsequent years. - 32 -

4.33 If such tariffs are implemented,the water service will earn a rate of return on revalued 1/ net fixed assets in excess of about 9.2% in 1980, falling to 5.6% in 1984 when the Semedraz reservoir is assumed to start operations. For water and wastewaterservices together,the rate of return will be 6.7% in 1980 falling to about 4% in 1984. These various rates of return, on revalued net fixed assets in operation,are reasonable in view of the fact that internal funds generationwill be adequate and that a large proportionof the fixed asset costs will have been financed by contributionsfrom consumers, enterprisesand the commune (implying increased local taxes) at considerable financial sacrifice.

4.34 The debt:equityratio of Vodovod will rise to 39:61 by 1983, falling to 35:65 in 1984. Debt service coverage will be 4.2 times in 1980, falling to 1.6 times by 1984, but this figure can only be indicative,because of the uncertainty of the terms and availabilityof future loan funds. Agreement was obtained during negotiationsthat Vodovod will not raise further loans beyond the project period without the concurrenceof the Bank, unless its net cash earnings before depreciationand interest exceed 1.5 times its debt service in any future year, including debt service on the amount to be borrowed.

Serbian Fund for UnderdevelopedRegions

4.35 The Serbian Fund for UnderdevelopedRegions (SFUR) was established by law in 1970 to provide finance, in the form of loans and grants, for development projects in regions of Serbia which are legally designatedby the Assembly of Serbia to be underdeveloped. The role and operationsof SFUR are further described in Annex 20.

4.36 Financial transactionsand accountingarrangements for SFUR are handled by a 3-man staff with considerableassistance from the Bank of Belgrade. The financing,administrative and accountingarrangements for the study of underdevelopedregions included in the project would seem to present no special difficulties. Agreement was obtained from SWF during negotiationsthat adequate accountingarrangements will be establishedby SFUR to ensure separate identi- cation of relevant project costs, and the related sources of finance. Audit

4.37 The audit arrangementsfor Bioktos-TitovoUzice and Vodovod-Cacak have been discussed in Annexes 18 and 19. The other participantsin the project, even though they may have somewhat different accountingprocedures, must still follow the regulationsand controls establishedby the Social Accounting Service (SAS) and prepare required annual financial statements. The procedures establishedby SAS for accounting for capital works projects are strict, and should provide adequate safeguards for the acquisition and disbursementof funds.

1/ Fixed assets have been shown in financial forecasts as annually revalued from 1975 to 1984 as explained in Annex 26. - 33 -

4.38 During negotiations,agreement was obtained that Bioktos and Vodovod will prepare annual financial statements,and have such statementsaudited by SAS in a manner acceptableto the Bank, and that beginning with the financial year 1976, or such other later year as shall be agreed between the enterprises and the Bank, such audits shall be carried out by the special audit group of SAS, which is currentlybeing establishedwith the assistanceof consultants. The audited financialstatements should be submittedto the Bank within four months of the close of each fiscal year.

4.39 Agreement was further obtained that all other participantsin the project would prepare separate annual financialstatements for project activities in a manner acceptable to the Bank, that such statementswill be audited by SAS, and that they will be submittedto the Bank within four months of the close of each fiscal year.

V. JUSTIFICATION

5.01 The project is complex with several quite differentcomponents, each of which merits evaluationseparately. A major objective of the project is to improve the planning and managementof water resourceswithin the Morava region, a region containingsome of the least developed areas in Serbia,where economic developmentis increasinglyjeopardized by water-relatedproblems.

Research Component

5.02 Preliminary informationindicates that the pilot irrigationprojects at Milosevac and Alesinac would be economicallyviable, providing rates of return of approximately20% (detailsin Annexes 34 and 35). There is considerable potential for such schemes elsewhere in the valley lands of the Morava region, where most of the land is owned by private farmers, whom the Govern- ment wish to support and encourage. Accordingly,the main benefit expected from these pilot projcts is the demonstrationto farmers and agricultural planners throughoutSerbia that low cost supplementaryirrrigation schemes are technicallyfeasible and economicallyviable. This could lead to substantial benefits to small scale farmers throughout Serbia in future.

5.03 The benefits of the three studies in the project, though unquanti- fiable, are expected to be substantial. In the next five years SWF plans to spend some Din 1,760 million (US$98 million) on flow regulationstructures in the Morava region (Annex 31). Decisionsconcerning these investmentswould undoubtedlybe improved if the recommendationsfor action were available from the studies concerningadjustments to flood hazards and water quality improvement, which together will cost less than 3% of the proposed five year investment program.

5.04 The regional developmentstudy is designed to assist Serbian planners in their efforts to formulateaction programs to acceleratedevelopment in the lesser developed parts of Serbia. To this end SFUR invested approximately Din 1,000 million (US$56 million) in the four years 1971-74,on - 34 -

projects whose total cost was approximatelyfour times this amount (Annex 20). Similar financialassistance is expected to continue in future. As a result of the proposed regional economic developmentstudy, such assistancewill be directedmore effectivelytowards economicallyattractive projects.

Project Facilities for Titovo Uzice and Cacak

5.05 Some 91% of the project costs are for water supply and wastewater facilities for people and industries in the towns of Titovo Uzice and Cacak. In both towns existing facilitiesare inadequate,with only 60% of the residents supplied by the water systems (intermittentlyin Titovo Uzice). Water-relateddiseases are common. The project objectives outlined in para. 3.01 include augmenting the water supply systems to serve industriesand 90% of the populationby 1980.

5.06 Demand estimateshave been prepared separatelyfor each town. In both towns the industrialand commercial requirementsfor treated water exceed the domestic demands. Economic activity and the welfare of the residentsof Titovo Uzice are already in jeopardy because the existing water systems are taking more water from the Djetinja River than the historic low flows. For Titovo Uzice the estimate future requirementsfor treated water are outlined in Annex 28. Additionalsupplies of untreatedwater for industrialprocesses, whose total demands exceed those for treated water and are supplied by pumping from the river, must also be assured, as explained in Annex 30. For Cacak, the estimatedfuture requirementsfor treated water are outlined in Annex 29. Only one industry in Cacak (pulp and paper factory) uses untreatedwater and river flows are ample for all its future requirements.

5.07 For each town, the project facilitiesare the least cost solution to meeting the project objectives,as discussed in detail in Annex 30. For Titovo Uzice, the Vrutci dam will provide water more economicallythan a groundwater source or an alternativeriver developmentinvolving a dam and hydropower plant. For Cacak, constructionof the groundwatersource in the project will augment the system capacity more economicallythan the previously proposed Semedraz dam, but additionalwater will have to be provided within the next ten years.

5.08 Conventionaleconomic analysis of the recommendedinvestments for each town does not produce meaningful informationbecause of the difficulty in quantifyingthe project benefits. Because of present water quality problems and shortagesof supply, the project water systems in each town will produce public health and environmentalbenefits which are real but not quantifiable. The proposed wastewater systems will enhance these benefits. Such benefits include reduction in illness and associated treatmentcosts, increased worker productivity,improvements in the aesthetics of the towns and their rivers and decreased costs for septic tank cleaning.

5.09 The water supply systems will supply more water to commercial enterprises than to people and for both categories of consumer the present water charges underestimatethe value of the water, since they are considerably - 35 - below the average incrementalcost. In Titovo Uzice an additionalmethodolo- gical complicationarises because the Vrutci dam, in addition to supplying the treated water system, will also produce various other benefits which cannot be readily quantified (reductionof flood damages and low flow augmentationfor abstractionby industries and for enhancementof water quality).

5.10 As explained in detail in Annex 30, internal rates of return for the water supply facilities for each town are predictablyvery low (negative for Titovo Uzice and 3.9% for Cacak) if existing tariffs are used as the sole measure of project benefits. A more meaningful part of the economic analysis is the estimation of the average incrementalcost 1/ of water in each town. Because of the problem of cash requirements,proposed tariffs have been determined largely on financialgrounds. However, economic analysis provides additional criteriaby which to judge the suitabilityof the proposed tariff policies to the different economic circumstancesrelating to water supply requirementsin each of the two communities.

5.11 In Titovo Uzice, the Vrutci dam will provide a source which is expected to meet the town's water requirementsfor approximately25 years ahead. The associated costs are relatively large in the immediatefuture and relatively small thereafter,giving an average incrementalcost of Din 14.5/m3 (US$0.81/ m3) which is more than six times the highest tariff presently charged. For financial as well as economic reasons the tariffs will have to be increased substantially in the near future, by some 3-1/2 times (in constant prices) by 1980 (Annex 24). By that time, however, the Vrutci system will be in operation and average incrementalcosts for additional supplies will probably be less than prevailing tariffs, as explained in Annex 30. On economic grounds, therefore, it might be reasonable to consider reducing tariffs after 1980.

5.12 In Cacak, the situation is quite different. A relatively inexpensive groundwatersource of limited capacity is included in the project but is only a medium term solution to meeting the projected increases in water demands. The next appropriatesource is unknown at this stage, hence the recommended system development study of Annex 15. The most expensive subsequent source appears to be the Semedraz dam, and on this basis the average incrementalcost for water in Cacak (Annex 30) could be as high as Din 9.9/m 3(US$0.55/m3),almost triple the highest present water charge. This indicatesa need for substantial tariff increases in Cacak, although the determinationof the average incrementalcost needs to be made accurately,following the systsem development study. For financial reasons the water tariffs in Cacak are expected to increase continuouslyeach year, approximatelydoubling (in constant terms) by 1984 (Annex 27). This tariff strategy, which increasescharges so they approach the average incrementalcost of water, is economicallysound.

1/ The average incrementalcost is the average unit cost of producing incremental volumes of water in future, determined by discountingto the present the estimated future increments of water production and their associated costs. The calculationsin this report, shown in detail in Annex 30, use an annual discount rate of 10%. - 36 -

VI. RECOMMENDATIONS

6.01 During negotiations,agreement was obtained inter alia:

(a) from the Republic of Serbia that:

(i) no legal or administrativeaction will be taken to prevent continued satisfactoryexecution of the project (para 3.08);

(ii) each beneficiaryother than "Bioktos" and "Vodovod" will provide or be provided with all funds necessary to carry out the project (para 3.11);

(iii) appropriatearrangements will be made to monitor, analyze and communicate the results of the pilot irrigationprojects at Milosevac and Aleksinac (para 3.13);

(iv) necessary counterpart funds, working capital and agriculturalcredit will be provided for the pilot irrigationprojects at Milosevac and Aleksinac (para 3.13).

(b) from the Serbian Water Fund that:

(i) at the time of transfer of project responsibilityto MRWCI, SWF and MRWCI will enter into arrangementssatisfactory to the Bank (para 3.08);

(ii) no legal or administrativeaction will be taken to prevent the continued satisfactoryexecution of the project (para 3.08);

(iii) it will make suitable arrangementsto re-lend appropriate Bank funds to other enterprises (para 3.10);

(iv) acceptable consultantswill be engaged to carry out the flood hazard adjustment,water quality improvement and regional development studies (para 3.15);

(v) acceptable consultantswill be engaged to assist in procurement and constructionsupervision of the Vrutci dam (para 3.16);

(vi) a panel of internationallyexperienced engineers will be engaged to provide independentexpert advice on the Vrutci dam construction;acceptable consultantswill determine the hydraulic consequencesof a catastrophic - 37 -

dam collapse and recommendappropriate preventive measures; and acceptable consultantswill be engaged to periodicallyinspect the completedVrutci dam (para 3.17);

(vii) the land required for the Vrutci dam and reservoir will be acquired (para 3.19);

(viii) operating rules for the Vrutci reservoir will be prepared (para 3.20);

(ix) no additional source facilities for Cacak would be undertaken prior to the completion of a system planning study (para 3.26);

(x) a program for training the staff of the Morava Region Water Community of Interest will be formulated and implemented (para 3.28);

(xi) procurementwill be in accordance with the Bank's guidelines;

(xii) suitable accounting arrangementswill be established and maintained for the Bank loan and the Vrutci dam (para 4.03);

(xiii) arrangementswill be made for the annual payment by Bioktos enterprise to SWF of appropriate shares of the annual costs of the Vrutci reservoir (para 4.05); and

(xiv) annual financial statements for project activities will be prepared, audited, and submitted to the Bank (para 4.39).

(i) adequate accounting arrangementswill be established to ensure separate identificationof relevant project costs (para 4.36);

(ii) annual financial statements for project activities will be prepared, audited and submitted to the Bank (para 4.39).

(d) from Bioktos that:

(i) acceptable consultantswill be engaged to assist in the final design, procurement and constructionsupervision of the water supply and wastewater project components in Titovo Uzice and for the final design of the wastewater plant for Titovo Uzice (para 3.21); - 38 -

(ii) land necessary for the project will be acquired without delay (para 3.22);

(iii) no developmentwould be carried out which would adversely effect the carrying out of the project (para 3.23):

(iv) procurementwill be in accordance with the Bank's guidelines (paras 3.29 and 3.30);

(v) quarterly progress reports will be sent promptly to the Bank (para 3.32);

(vi) arrangementswill be made with SWF for the annual payment by Bioktos to SWF of an appropriateshare of the annual costs of the Vrutci reservoir (para 4.05);

(vii) accounts for water supply and wastewater activities will be kept separately from those of other municipal services (para 4.09);

(viii) charges are made by the various services,other than water and wastewater services, to ensure adequate coverage of expenses and generation of funds (para 4.10);

(ix) a satisfactorybank guarantee will be obtained to cover cost over-runs (para 4.14);

(x) tariffs will be implementedat specified rates until 1980 and thereafter to generate appropriatecontribu- tions towards capital investment requirements(para 4.17);

(xi) further loans will not be raised beyond the project period, without the concurrenceof the Bank, unless cash earnings before depreciationand interest exceed 1.5 times annual debt service (para 4.19); and

(xii) annual financial statementswill be prepared, audited and submitted to the Bank (para 4.38).

(e) From Vodovod that:

(i) Vodovod will have exclusive responsibilityfor the Cacak project components and that acceptable consultants will be engaged to assist in final designs, procurement and constructionsupervision (para 3.25);

(ii) acceptable consultantswill be engaged for the final design of the wastewater treatment plant (para 3.25); - 39 -

(iii) acceptableconsultants will be engaged to complete a water supply system development study; that no additional sources will be developed until the study has been completed (para 3.26) and that no development would be carried out which would adversely affect the carrying out of the project (para 3.27);

(iv) procurementwill be in accordance with the Bank's guidelines (paras 3.29 and 3.30);

(v) quarterlyproject reports will be sent promptly to the Bank (para 3.32);

(vi) a suitably qualified finance director will be appointed; the accounting for constructionactivities will be sepa- rated from normal operation and maintenance;and Bank comments will be sought prior to any proposed reorganization (para 4.23);

(vii) a satisfactorybank guarantee will be obtained to cover cost over-runs (para 4.27);

(viii) tariffs will be implementedat specified rates until 1979 and thereafter to generate appropriatecontribu- tions towards capital investment requirements(para 4.32);

(ix) further loans will not be raised beyond the project period, without the concurrenceof the Bank, unless cash earnings before depreciationand interest exceed 1.5 times annual debt service (para 4.34); and

(x) annual financial statementswill be prepared, audited and submitted to the Bank (para 4.38);

(f) from the Commune of Titovo Uzice that:

(i) it will make the necessary arrangementsto provide its contributiontowards the constructioncosts of the Vrutci dam (para 4.04);

(ii) charges are made by, or other revenues provided to, the various services of Bioktos, other than water and wastewater services, to ensure adequate coverage of expenses and generation of funds (para 4.10);

(iii) it will be responsible for making arrangementsto provide or secure all necessary funds for water and wastewater project constructionnot available from other sources (para 4.14); and - 40 -

(iv) it will approve such tariff increasesas are necessary to enable Bioktos to fulfill its obligationsunder the loan agreement (para 4.16).

(g) from the Commune of Cacak that:

(i) it will be responsiblefor making arrangementsto provide or secure all necessary funds for water and wastewater project constructionnot available from other sources (para 4.27);

(ii) it will make arangementsto provide or secure the finance for storm drainage project constructionnot available from other sources, (para 4.29); and

(iii) it will reimburseVodovod for all expenses incurred in operating,maintaining and administeringthe stormwater services and for meeting all related debt service obligations (para 4.29);

(iv) it will approve such tariff increases as are necessary to enable Vodovod to fulfill its obligationsunder the loan agreement (para 4.32).

(h) from the Milosevac Farmers' Cooperative and Aleksinac Agrokom- binat that they will implement the pilot irrigationprojects with the assistanceof consultants (para 3.13) and submit annual audited financial statementsto the Bank (para 4.39);

(i) that the Commune of Aleksinac will make adequate arrangements for project implementationincluding authorization for Aleksinac Agrokombinatto undertake land consolidation(para 3.13).

6.02 Among the routine conditionsof loan effectivenessis a requirement that all financing for the project has been secured by appropriatelybinding resolutionsand agreements. This includes the additional financing required for the Titovo Uzice component (para 4.13).

6.03 On the basis of agreements reached during negotiationson the above issues, the project is suitable for a Bank loan of US$20 million to the Serbian Water Fund with the Guarantee of the Socialist Federal Republic of Yugoslavia. The loan would be repayable over 20 years, including a 4-1/2 year grace period.

May 3, 1976 ANNEX 1 Page 1

YUGOSLAVIA

APPRAISAL OF MORAVA REGION DEVELOPMENT PROJECT

CHRONOLOGYOF PROJECT DEVELOPMENT

May 1972 - Federal Governmentrequests Bank to consider lending for Morava project.

July 1972 - Initial documentationon Morava project ("blue books") sent to Bank by Yugoslav InvestmentBank. The proposed project comprised seven multipurposedams (Semedraz, Gradina-Stapari,Selova, Konculj, Gradina Moravica, Odorvci, and Vlasotince) and water supply facilities for the small town of Aleksinac,to be supplied by the Bovan dam already under construction(Map 11603).

December 1972 - Desk review of documentationcompleted by Bank staff (O'Sullivan).

March 1973 - Yugoslav delegation (Mr. Petrovic of Morava River Cor- poration and Messrs. Cirovic and Melentijevicof Ener- goprojekt Consultants)visits Bank to explain components of proposed project. Followingmeeting with Bank staff, an outline of the data required for further project analysis provided to MRC.

May 1973 - Reconnaisancemission visits Yugoslavia (Mr. ffrench- Mullen of Bank and Miss Eid of FAO/CP).

September 1973 - Identificationmission spends approximatelythree weeks in Yugoslaviareviewing proposed project componentsand additionalinformation prepared by MRC ("whitebooks"). Mission comprised of Bank staff members Yoon, O'Sullivan and Nwaneri; Miss Eid of FAO/CP; and consultantsMcKee and Ringenoldus. Issues paper finalizedby mission October 19, 1973, concludes that master planning and project formulationapparently based on the philosophy of "build dams and see how they can be used".

April 1974 - Bank advises MRC of mission conclusionand notes that two sub-projects(Gradina-Stapari or Vrutci, and Semedraz dams, plus associated water supply and wastewater systems) appear most suitable for bank financing. ANNEX I Page 2

June 1974 - Pre-appraisalmission spends one week in Yugoslavia (Bank staff Grover, O'Sullivan, Jones and Heidhues and Miss Eid of FAO/CP). Mission proposed that project to be appraised should include dams, water supply and wastewatersystems for towns of Titovo Uzice and Cacak; studies re flooding, pollution control and regional development;and pilot irrigationproject. Detailed outline of information required prior to appraisal provided to MRC.

September 1974 - MRC advises the Bank that Executive Council of Serbia concurs with project as proposed by pre-appraisalmission and that informationrequested is under preparation.

November 1974 - Preparationmission (Mr. Grover) visits Belgrade briefly to review progress of MRC. Informationfor appraisal not available.

December 1974 - FAO/CP mission visits Yugoslavia to assist in preparation of pilot irrigationproject component (Messrs. Snelson, Loizides and Heurtas).

January 1975 - Preparationmission (Messrs. Grover and Jones) visit Yugoslaviabriefly. MRC provides part of information requested in June 1974 and assures mission that remaining informationwill be available within a month.

February-March1975 - Large appraisalmission spends approximatelyone month in Yugoslavia. Mission members comprise Bank staff Grover (sanitary engineer and mission leader), Jones (financialanalyst), O'Sullivan and Laeyendecker (irrigation engineers),Nwaneri (Economist),and Kimura (Young Professional);consultants, Hodges (water management),Leroy (dam designer),and Sullivan (financial analyst). Mission concludes that Vrutci dam is appropriatesolution for Titovo Uzice problems but that Semedraz dam is not the least cost solution for Cacak.

May 1975 - Mission returns to Yugoslavia to seek agreement on project definition,using groundwatersource for Cacak instead of Semedraz dam. Mission comprisesMessrs. Grover, Jones, Allison (groundwaterspecialist), and Cuellar (sanitary engineer). ANNEX 1 Page 3

July 1975 - Assembly of Serbia passes new Water Management Law calling for creation of regional "water communitiesof interest". Future role of MRC accordinglyuncertain.

July 1975 - Bank writes to Vice-Presidentof Executive Council of Serbia suggestingproject definition excluding Semedraz dam.

September 1975 - Serbian Secretaryfor Finance (Mr. Milosavljevic) visits Bank and advises that Executive Council of Serbia concurs with project definition proposed by Bank.

September 1975 - Bank mission (Messrs. Grover and Jones) visits Yugoslavia to complete project appraisal.

April 1976 - Loan negotiation completed in Washington.

May 1976 ANNEX 2 Page 1

APPRAISAL OF

MORAVA REGION DEVELOPMENT PROJECT

YUGOSLAVIA

Documents Consulted

Documents by Morava River Corporation

1.. Draft on Water Resources Base of the Morava River Basin - 1971.

2. Technical Information on Programme of Works for the Morava River Basin Development - 1972.

3. Publications Prepared in February, 1972 (Blue Covers)

- Summary Report - Project Gradina-Stapari (Vrutci) - Project Semedraz - Project Roge

4. Publications Prepared in August, 1973 (White Covers)

- Water Supply - Water Pollution Control - Hydrology - Flood Protection - Dam and Reservoir Gradina Stapari (Vrutci) - Dam and Reservoir Semedraz

5. Morava River Corporation - Organizational Aspects - February, 1975

Documents by Energoprojekt Consultants on behalf of Morava River Corporation in January, 1975 (Clear Plastic Covers)

1. Gradina-Stapari (Vrutci) Dam and Reservoir

2. Titovo Uzice and Sevojno Water Supply System

3. Titovo Uzice Town Wastewater System

4. Cacak Water Supply System ANNEX 2 Page 2

5. Cacak Water Supply - Possibilityof Providing Water for the Town of Cacak from Zapadna Morava River

6. Additional Financial and OrganizationalInformations.

Yugoslav Laws (EnglishTranslations)

1. Basic Law on Waters (Federal) 1965

2. Serbian Law on Waters - 1967

3. Serbian Law on Water Management- 1975

4. Yugoslavia - 1974 Constitution

Other Documents

1. Gradina-Stapari(Vrutci) and Semedraz Dams - Memorandum by Maurice LeRoy (Consultant);March, 1975.

May 1976 ANNEX 3 Page 1

APPRAISAL OF

MORAVAREGION DEVELOPMENTPROJECT

YUGOSLAVIA

THE MORAVA REGION AND ITS WATER RESOURCES

A. PHYSICAL BACKGROUND

Location

1. The Morava River, a tributaryof the River Danube, joins the Danube from the right bank some 60 km downstreamof Belgrade. The confluenceof the Danube and Morava Rivers is situated within the controlledbackwater of the importantYugoslav/Rumanian hydropower-navigation complex at Djerdap, situated some 200 km downstream of Belgrade.

2. The drainage area of river covers about 38,000 km2, representing some 14% of the area of Yugoslavia,making the Morava basin the second largest in Yugoslavia after that of the-Sava. The mainstem of the Morava River, the Velika (Great) Morava, is fed by two main tributaries,the Zapadna (West) Morava and the Juzna (South)Morava, each with a drainage area of some 15,500 sq. km. Tributariesof secondary importanceare the Ibar (catchmentarea 7,985 km2) on the Zapadna Morava, and the Nisava (3,890 km2) and Toplica (2,174 km2) on the Juzna Morava. The catchment area lies within the following politicaljurisdictions:

Yugoslavia km2 % of Total

Serbia proper 30,657 80.7 Kosovo 5,830 15.4 Montenegro 390 1.0 Macedonia 45 0.1

Sub-Total 36,922 97.2

Bulgaria 1,044 2.8

Total 37,966 100.0 ANNEX 3 Page 2

In Serbia proper (excluding the autonomous provinces) the Morava watershed drains 5S% of the land area.

Topography and Soils

3. The topography of the river basin is generally very irregular. Much of the area is mountainous with narrow valleys formed by river channels. The height above sea level varies from 67 m at the confluence with the Danube to 2,400 m in the southwestern part of the basin. 11% of the catchment area lies beneath the 200 m contour while some 56% is at an elevation greater than 500 m. The valleys of the South and West Morava are some 3-5 km wide while parts of the valley of the Great Morava upstream of the Danube flood plain are up to 10 km wide. Some 35% of the soils in the river basin are considered suitable for agriculture.

Climate

4. The basin is subject to a number of complex climatological influen- ces from the Black and Adriatic Seas in the east and west and the Panonian lowlands in the north. Generally temperatures are higher in the southern parts of the basin than in the north. Mean annual temperature is about 1loC while extremes fall below -300C and rise above +350C. Tne hottest month is July and the coldest January.

Hydrology

5. Distribution of precipitation is irregular in time and place but is generally higher in the eastern and western parts of the basin than in the south and center. The mean annual precipitation, falling as rain and snow, is 775 mm in the West Morava basin and 705 mm in the South and Great Morava basin. Some 25% of the annual total falls in May and June and 40% during the vegetative period April-September, although rainfall in July and August is below the annual montilly mean. In the mountainous parts of the basin snow covers the ground for up to 200 days of the year with a depth of snow of up to 130 cm, while in lowlands and hills, snowcover may last up to 80 days. Periods of rain lasting more than 10 days occur every two to three years while droughts of up to 50 days are not uncommon.

6. The mean annual flow volume entering the Danube from the Morava 3 is about 8 billion m3 , of which some 3.7 billion m is contributed by River 3 the Zapadna Morava, 3.3 billion m 3, by the Juzna Morava and 1.0 billion m by the Great Morava catchment area itself. Among the secondary tributaries the Ibar is.the most important (1.8 billion m3), followed by the Nisava (0.9 billion m3) and the Toplica (0.5 billion m3). Peak flood discharges in the Morava River in an average year and estimated flood peaks with a 2% probability of occurrence are given in the following table: ANNEX 3 Page 3

Flood in Flood with 2% Average Year Probability (…-- m3/sec ------) Velika Morava 1,500 3,000 Zapadna Morava 800 1,900 Zuzna Morava 700 1,600

Correspondingfigures for droughts are not available.

7. Major floods in the main river are more frequent in the late winter and early spring, but, locally, flooding can occur during a large part of any year due to local storms. For example, peak annual dischargesmeasures at the Kormijani station 1/ in the Juzna Morava drainage area between 1924 and 1965 occurred on nine different months of the year during the 42-year period. There were no peak flood flows recorded from August through October in any year at this gauging station.

8. Minor channels are regularly frozen in winter. Drifting ice is frequently carried by the river in the late winter and early spring.

B. SOCIO-ECONOMICBACKGROUND

Population

9. In 1975 2/ there were about 3.6 million people living in the Yugoslav portion of the Morava River Basin, which was about 16% of the total populationof Yugoslavia. Approximately85% of the basin populationlive in the 81% of the basin within Serbia proper and comprise an estimated 55% of the population of Serbia proper (5.5 million). The main populationincreases are taking place in the urban centers. Some of the predominantlyrural communes showed a decline in populationbetween 1961 and 1971. It is estimated that about 60% of the populationin the Morava Basin is still rural, however. The most important communitiesare Nis, which has about 200,000 inhabitants, and Pristina, Kragujevac,Kraljevo, Krusevac, and Lescovac each with over 100,000. Due to the generally mountainous terrain, the habitablevalleys of the basin are relativelydensely populated and the hills and mountains sparsely so.

1/ Area controlledby the station is 1,017 km2. T/ Estimated from 1961 and 1971 census data. ANNEX 3 Page 4

Economic Activities

10. The two most important economic sectors in the Morava basin are agriculture (with forestry) and industry (with mining). Some 1.2 million ha are cultivated, or under pasture, and another 1.2 million ha are under forest. On arable land cereals dominate, particularly wheat and maize. Pro- duction of industrial crops and vegetables is limited but fodder crops are relatively important, as well as vineyards and orchards. Only about 10% of the forest area is in high forest. Nearly all the agriculture is rainfed. However, small scale irrigation does occur on about 20,000 ha providing supplemental water in the summer, mainly for vegetables. The largest irrigation scheme is upstream of Cacak where some 3,100 ha of orchards are supplied by unregulated flows diverted from the Zapadna Morava.

11. The most important industries are mining and metal industries, textiles, and food processing. The heavier industries are situated more in the Zapadna Morava basin. Kragujevac has a large automobile manufacturing industry and Sevojno (near Titovo Uzice) has a large metallurgical refinery, expected to produce annually by 1985 some 100,000 tons of copper and copper alloys and 70,000 tons of aluminium and aluminium alloys. Textiles and food processing are important in Nis and Lescovac and a number of other towns. All towns of any size have important manufacturing industries which make significant demands on the water supply and cause pollution.

C. WATER RESOURCES PLANNING

12. In order to take action aginst the perpetual problem of floods in the Morava basin, the Serbian Government created the Directorate for the Regulation of the Morava Basin in 1958. This public sector organization focussed exclusively on the regulation of the river, mainly through dykes. Lit- tle had been accomplished when the severe floods of 1963 struck the basin. By 1965, the Directorate, aided considerably by engineering consultants (particularly the Jaroslav Cerni Institute of Belgrade) completed a master plan for water control. In that same year, another major flood struck.

13. By the year the master plan was completed, a large amount of flood regulation works had already been implemented in local areas throughout the basin. By 1965, some 441 km of dykes and 242 km of river regulation works had been built, affording some protection to 55,000 ha of farmlands and urban areas. A further 120 sq km were protected from runoff from local torrents by 20 km of interceptor drainage canals. Erosion control measues (check weirs ANNEX 3 Page 5

on torrents, afforestation, etc.) had been carried out to reduce erosion over some 300 km2. Soil drainage systems had been installed to lower groundwater levels in some 11,000 ha in the Velika Morava valley.

14. In 1966, the Assembly of Serbia approved a 20-year construction program (1966-1985) based on the master plan. The 20-year program was subsequently given the force of law in 1971.

15. A summary of the structures foreseen by the long term master plan and the 20-year development program is as follows:

Master Plan 20-Year Program Item (1965) (1966-1985)

Dams 106 18 Dikes 1,800 km 223 km River Regulation 900 km 234 km Erosion Control 4,800 km2 1,566 km2

16. Very large reservoirs on main branches of the river would be necessary to have a major impact in storing flood waters, but these have not been proposed in the master plan for the good reason that such reservoirs would inundate a large proportion of the productive and urbanized land. The social and economic costs of such disruption would exceed the possible benefits. Instead, the plan proposes a large number of relatively small multipurpose reservoirs on smaller tributaries and in the headwaters. However, comprehen- sive planning for each reservoir has not been carried out. Where dams have been designed, insufficient attention has been paid to related systems necessary to utilize the reservoirs (power, irrigation, urban water supply, etc.) and there is evidence that reservoir sizes have not been optimized for their multipurpose role. The concept seems to have been to have the reservoirs built and then determine how best to utilize them. This is the de facto situation with two reservoirs now under construction (Bovan and Celije; see Map 11603).

17. The 1965 master plan was prepared primarily as a reaction to reduce problems caused by flooding. At the same time, however, construction of the Djerdap hydro-electric and navigation complex was commencing on the Danube, about 200 km downstream of Belgrade. Following negotiations between Yugoslavia and Rumania a fund of Din 500 million (US$29.4 m) was established for the construction of projects in Yugoslavia which would prevent sedimentation of the Djerdap reservoir (and thus reduce dredging expenses). This fund was apparently set up without detailed analysis of the economics of alternative solutions to maintaining navigation in the Djerdap reservoir backwater. Its existence spurred Yugoslav planners, particularly those in the Morava basin, to plan projects which could help to reduce downstream sedimentation, since funding ANNEX 3 Page 6 for a component of the costs of such projects was assured. 1/ Also the ability of reservoirs to augment low flows in the river system was regarded as an important water quality benefit. However, realistic plans to control pollution at source have not yet been made.

18. The master plan concentrated on structures to regulate flows for flood control, pollution control and sediment detention because government funds (Serbian Water Fund and the Djerdap Fund) were available, albeit on a limited scale, for implementation of such projects. However, water resources projects which would produce benefits in other sectors (e.g. irrigation, hydro-electric power, water supply) were not planned in detail, since under the Yugoslav system, they are the responsibilities of the investors who require them. Specific benefits in these other sectors, (i.e. in addition to the flood control and sediment retention) were not evaluated in detail.

19. Economic analysis has been lacking in previous planning efforts. There is little evidence that least cost solutions have been sought to meet explicitly defined problems. No economic rationale is presented for the proposed development and phasing of the master plan. Benefit estimates have assumed that at a certain future time, all proposed projects will be in existence: no account has been taken of the dynamics of a program based on implementation of projects in order of priority.

20. The planning of water resources development in the Morava basin has been fragmented because of the limited perspective and authority of the river planners. Water users for irrigation, power or water supply, have had very little to do with the planning process. They have made their own plans inde- pendently. They are also required to finance their projects without government assistance. Capital limitations are perhaps a primary reason, even more important than inadequate planning, for inadequate water supply and wastewater systems (including pollution control facilities) throughout the basin.

21. Although ten years have passed since the 20-year program was approved by the Serbian government, little progress has been made in implementing the recommended projects. Of 18 dams only three are under construction: Gazivode, with World Bank assistance; also Celije and Bovan, on which progress has been very poor. Somewhat better progress has been made on other structures as follows:

580 km of dykes constructed; 250 km of river channel improvements completed; 86,100 ha protected by erosion control works.

1/ For the multipurpose water project based on the Gazivode dam on the Ibar River, in Kosovo, which the Bank agreed to finance in 1971 (Loan 777-YU), the Djerdap fund contributed Din 70 million (US$4.1 million). The Djerdap fund began making commitments in 1966. All available funds are expected to be committed by 1976. ANNEX 3 Page 7

D. LEGISLATIVEAND INSTITUTIONALASPECTS

22. The Serbian Water Fund (SWF) was establishedby Serbian legislation in 1965 to provide funds for implementingthe master plan. Further information on SWF is provided in Annex 4.

23. The Federal Water Law of 1965 was essentiallyenabling legislation for the preparationand implementationof water control plans for the rivers of Yugoslavia. A complementarylaw was passed by the Assembly of Serbia in 1967.

24. In 1967, the Morava River Corporation (MRC) was created to implement the 1965 master plan and 20-year program. MRC was basically the extension of the previous Directoratefor the Regulationof the Morava basin (para 12). In 1972, the organizationalarrangements were modified. MRC became a consortium of several independent"water economy enterprises"1/ throughout the basin. Nine such regional enterprisesare responsible for construction and also maintenance of water control structures (dykes, channel improvements and erosion control measures). These are basically contracting organizations.

25. One of the MRC enterprises,the Velika Morava Enterprise,is the Belgrade-basedplanning group which acts as a service organizationto the other enterprises in MRC. Key staff in the Velika Morava Enterprisehave been involved with water resources plans from the time the 1965 master plan was under preparation. This group is also the designatedYugoslav counterpart for the ongoing UNDP project "Computer Control of the Water Resources Systems in the Morava River Basin" which got underway in October, 1974.

26. The Serbian authoritieshave become aware that the 1965 master plan is imperfect and that institutionalarrangements to manage water resources

1/ A water management organization (water economy enterprise) is established in an area covering one or more communes, for the purpose of acting as the executing agency for construction,operation and maintenance of facilities (dykes, dams, river training works, etc.), concerned with water utilization within river basins. The supply of water for domestic and commercialpur- poses is largely outside the jurisdictionof these bodies and is normally the responsibilityof communal enterprises (e.g. Cacak Vodovod and Titovo Uzice Bioktos). Water management organizationscan compete against other contractors for constructionwork financed by the Serbian Water Fund. They may also undertake engineeringand other studies. In addition to carrying out works from public funds, these organizationscarry out contractual work from time to time for other enterprisesand communities,for which they make charges on an economic basis. ANNEX 3 Page 8 need to be improved. World Bank assistance to finance eight projects 1/ comprising the 1973-1978phase of the 20-year program was requested in 1972. This request led to subsequentmissions which eventually defined the first project for Bank assistance. An outline of Bank involvementin the project is provided in Annex 1.

27. In July, 1975, the Serbian Assembly passed a new Water Law. In accordance with the Yugoslav Constitutionof 1974, self-managing"communities of interest" are to be created for three water regions in Serbia:

(a) Danube River basin (includingMlava, Peka and Timoka water- sheds) in east of Serbia;

(b) Sava River basin (including the Drina watershed) in west of Serbia;

As previously noted (para 2) the Morava basin itself accounts for the largest part of the terriory of Serbia proper.

28. According to Article 21 of the 1975 Water Law, the Regional water communities of interest are established"in order to settle the following community problems and solve questions of profits:

(1) establish policies for the promotion of the water condition in the given water region;

(2) establish grounds for the water management basis in the water region;

(3) establish a program and plans for water retention and development of the water condition in the given water region, in accordance with water management principles for the water region;

(4) ensuring the retention and development of the water conditions and the basic water supply in the water region;

1/ These projects included seven dams (Semedraz,Vrutci, Konculj, Vlasotince, Selova, Odorovce and Gradina) plus water supply systems for the towns of Cacak, Titovo Uzice and Aleksinac. ANNEX 3 Page 9

(5) the establishmentof a network of water flowing (rivers) and still (lakes) in the water region;

(6) ensuring the construction,reconstruction and erection of protectiveand other water management installationsimportant to the water region and to flood and ice control;

(7) ensuring the protection of water from pollution;

(8) ensuring the safe-keepingof water resources;

(9) ensuring studies (work) on water management problems, water management balance, expenditures,etc.;

(10) implementationof other transactionsestablished by this law and the self-governingagreement formulated in the principles of the water management cooperativeof the water region.

The relevant water management cooperative in a water region may enter into an agreement with the appropriateorganizations and agencies to achieve individual transactionswithin the framework of the activities of this cooperative."

29. Also to be created under the 1975 Water Law is a republican water community of interest,which will coordinate activities of regional communities of interest, establish republican policies, deal with other republics, promote research, etc.

30. The water communitiesof interest are to be establishedby local com- mittees, according to the new law, during 1976.

31. It is understood that the functionsof the Republican Water Fund and the Velika Morava Enterprise of MRC will be taken over by the to-be-created water communitiesof interest.

May 1976 ANNEX 4 Page 1

YUGOSLAVIA

MORAVA REGION DEVELOPMENTPROJECT

SERBIAN WATER FUND

Organizationand Administration

A. BACKGROUND

1. The Serbian Water Fund (SWF) was established in its present form in 1965 by Republican legislationfor the purpose of raising, controlling and disbursing funds for the construction,reconstruction and maintenance of various structures for flood protection,river regulation and protection from soil erosion. Its operations are concerned with six separate river basin areas in Serbia 1/, one of which (by far the largest) is Morava. During the period from 1967 to 1970 it financedmainly dykes and river training structures. During the last five years it has turned its activity, also, to dam construction. It is financing the constructionof two dams (Celije and Bovan) and also a program of studies for the constructionof other dams, among them Vrutci and Semedraz,for the towns of Titovo Uzice and Cacak respectively.

B. ORGANIZATIONAND MANAGEMENT

2. SWF has a management committee of 19, of which 6 are nominatedby the ExecutiveCouncil of Serbia and the remainder by various water enterprises concerned with its activity. The committee has a chairman and also a full-timedirector, appointed by the Executive Council, who is a member of the committee ex-officio. SWF has a full time staff of only 10-12 people who are technical,economic, accounting,legal and administrativespecialists concerned with the disbursemrentof its funds and does not itself carry out operation or constructionwork. It is intended that this staff will be somewhat enlarged to handle the proposed project.

3. SWF prepares annual and five-yearlywork plans which are submitted to the RepublicanAssembly for approval. General supervisionof the work of SWF is carried out by the Republican Executive Council.

1/ Danube, Sava, Morava, Drina, Mlava and Timok. ANNEX 4 Page 2

4. SWF's main operations are carried out by making contracts with various water management organizations,either for planning or construction work. A considerableamount of work in the past has been carried out under annual contracts between SWF and the Morava River Corporation (MRC), a legal entity comprising a water management organizationspecialising in planning (VelikeMorava) and eleven other water management organizationswhich carry out constructionand maintenance operations (See Also Annex 3).

5. The financial aspects of the operations of SWF are discussed in Annex 31.

May 1976 ANNEX 5 Page 1

APPRAISAL OF

MORAVA REGION DEVELOPMENT PROJECT

YUGOSLAVIA

TITOVO UZICE - EXISTING WATER SUPPLY AND WASTEWATER FACILITIES

A. Background

1. Titovo Uzice is a historic town situated in the valley of the Djetinja River, a main tributary of the Zapadna Morava (see Map 11640). Some 5 km downstream from Titovo Uzice is the small town of Sevojno, the location of the very large copper and aluminum processing industry. The combined population of the two towns was estimated to total some 46,000 in 1975, of which about 10% lived in Sevojno.

2. The urban population in this region has grown rapidly in the post- war era, as evidenced by the following previous population figures for the town of Titovo Uzice (excluding Sevojno).

Year 1921 1931 1937 1961 1971

Population 4,894 7,485 8,300 20,060 34,312

Average Annual Growth Rate During Period 4.3% 1.8% 3.7% 5.5%

The combined populations of Titovo Uzice and Sevojno increased between the census years 1961 and 1971 from 23,933 to 38,162, for an average annual growth rate of 4.8%.

3. Recent growth has been due to the rapid industrialization in the towns (nearly half of the working population is employed by the metallurgical industry at Sevojno). This growth has also been influenced considerably by the town's location on improved transportation links, specifically the Belgrade-Bar railroad (financed under Bank Loan 531-YU) and the Belgrade-Dubrovnik highway.

4. Until recent times the town was small, with little industry, and the population relied upon local wells and springs for their water supplies. The design of a modern water supply system began in 1931 by an engineering pro- fessor born locally. The Ministry of Civil Engineering of the Kingdom of Yugoslavia began construction of the recommended system in 1937 and the first public supply began to operate in 1938. Details of the system are provided subsequently.

5. The enterprise responsible for water supply and wastewater disposal in the commune is "BIOKTOS", an enterprise formed by the merger of several local agencies in 1966. Bioktos is also responsible for other local services, (storm drainage, markets, parks, landscaping, garbage removal, funeral service - see Annex 18). ANNEX 5 Page 2

6. Some sewers were built during the Turkish period but most are relatively new. The present practice of Bioktos is to construct sanitary sewers to serve properties as the water distribution network is extended.

7. At Titovo Uzice the valley of the Djetinja River is narrow with steep sides (see Map 11637). Because space is limited, the population density is high (400 persons/ha in the central area) with many high-rise buildings built and planned.

8. Bioktos has been unable to provide water supply and wastewater facilities to keep up with rapid urban growth. Only half the population are connected to the present water supply system (see Annex 28) and the sources are inadequate to supply the demands of those already connected. Water is constantly rationed, the pressure in the system is frequently very low, and there is a constant danger that polluted groundwater can enter the water distribution system. In summer periods, when demands are highest and water availability the lowest, priority is given to supplying water to key industries so the water shortages for the population are severe.

9. Those not connected to the water system rely on inadequate local springs and wells or carry water to their buildings from 15 public taps on the Bioktos system. None of the residences in the high level zone in the town are presently served by the water supply network.

10. Surface water and groundwater are heavily polluted by industrial and domestic wastewater. There are no treatment facilities and all sewers discharge directly to the river (see Map 11638), causing severe aesthetic as well as public health problems. An estimated 46% of the population are connected to public sewers. The remainder use septic tanks (24%) or discharge wastes directly into the ground (30%).

11. Industrial develcpment is constrained and gastro-intestinal problems are common because of the poor water supply. In September 1974, a diarrheal epidemic 1/ which affectd some 2,000 people, of whom several hundred are hospitalized, was blamed on the water supply system.

12. Five industries in the area have built their own water supply syste which pump water directly from the increasingly polluted Djetinja River. In 1974 their combined water consumption was estimated to average 230 liters/ second, almost twice the volume of treated water produced by Bioktos (see Annex 28). By far the largest private system is that of the metallurgical industry at Sevojno, which has its own river intake and treatment plant with a capacity of 250 liters/second. These facilities at Sevojno were built recently because Bioktos was unable to provide the water needed for industrial expansion.

1/ Diagnosed as shigella. ANNEX 5 Page 3

13. The unregulatedflow of the Djetinja River is estimatedto average 3.7 m3/second at Titovo Uzice but low flows can drop to 300 liters/secondwhich is less than the present combined abstractionby Bioktos and the industries with private supplies. If supplies are to increase to meet the present and growing demands of the town and its industries,the need for additional firm supplies is obvious.

14. Although all wastewaterentering the river presently is untreated, the largestpolluter (the metallurgicalindustry at Sevojno) has almost completed constructionof a wastewater treatmentplant. The reported objectives of the plant are to recover metals as well as to reduce water pollution. The chemical treatmentprocess is expected to be operationalin 1976. In the meantime,plant wastewateris apparently neutralizedby lime before release into the river.

B. Bioktos Water Supply Facilities

15. The present water supply system is depicted on Map 11637. The original source for the town's water supply system was spring at Zivkovicawhich has been in use since 1938. Water is pumped from the spring into a small treatmentplant (capacity40 liters/second)where rapid sand filtrationis followed by chlorination.

16. In 1948, a second source was developed,the small spring at Cebica, from which water can be pumped to the Zivkovica treatmentplant or supplied by gravity to the line serving Sevojno.

17. As water demands increased,and shortagesaccordingly, Bioktos constructed temporary facilitiesat Turica, upstream of Titovo Uzice. Two infiltrationbasins and three wells at this site began operatingin 1974. Water from wells is chlorinatedand pumped to the network from a temporarypumping station. The aquifer yield of approximately80 1/s is augmented by the surface water pumped into the infiltrationbasins from the Djetinja River and its tributaryVolujac. However, nearly 50% of the water pumped into the basins is lost by seepage, and the Turica source rarely reaches its full capacity of 120 1/s.

18. Water from Zivkovica flows by gravity to Sevojno, to the lower sections of Titovo Uzice and to consumers in between. Water from the Turica source is pumped to medium level zones in Titovo Uzice. There are four small distributionreservoirs as follows: ANNEX 5 Page 4

Top Water Elevation Location Capacity (meters)

Belo Groblje 1,250 m3 475 Dovarje 700 m3 456 Pora 400 m3 448 Kapetanovina 350 m 3 579

Total 2,700 m3

19. Reservoir storage in the system totals only 34% of the average 1974 daily consumption.

20. In addition to the treated water pumping station at the Turica source, a small pumping station at the Dovoje reservoir lifts water to the Kapetanovinareservoir for the higher level distributionsystem. Charac- teristicsof these pumping facilitiesare as follows:

Number of Location Pumps Capacity Head

Turica Source 3 120 l/s 95 m Dovarje (DistributionSystem) 2 8 I/s 72 m

Total 5 128 l/s

21. The distributionnetwork consisted of a total of 56.6 km of pipes in December 1974, as follows:

Pipe Material Cast Asbestos Galvanized Total Diameter Iron Cement Steel Length

50 mm 1,220 m - 1,220 m 60 mm - 13,880 m - 13,880 m 80 mm 8,390 m 6,006 m - 14,396 m 90 mm 1,565 m - - 1,565 m 100 mm 1,590 m 3,720 m - 5,310 m 125 mm 1,220 m - - 1,220 m 150 mm 2,020 m 4,100 m - 6,120 m 175 mm 3,170m - - 3,170 m 200 mm 978 mi 630 m 1,608 m 250 mm 340 m _ 2,040 m 2,380 m 300 mm - - 5,740 m 5,740 m

Total 19,273 m 28,926 m 8,410 m 56,609 m ANNEX 5 Page 5

22. This summary illustratesthe weaknesses in the present distribution system. Some 55% of the pipes are less than 100 mm in diameter and the largest pipe in the system is only 300 mm. In the five years 1970-74 only 7.1 km of distributionpipes (60 to 150 mm) were added to the system, since Bioktos has been more concerned with source problems than expansion of the distribution system.

23. In 1974 there were a total of 3,593 connectionsto the water supply system, including 15 public taps for residents in the high level zone which is not served by the distributionnetwork. All connectionsare metered.

C. Water Quality Control

24. The present productionof potable water at the Turica source is theoreticallyillegal because the groundwater recharge system has not been approved by the Republican Health Institute. Turbidity, color and organic substances in the river water at Turica are normally reduced to an acceptable level by the infiltration basins, but occasionally an excessive number of coliform is detected in the treated water. Raw water is tested once a week, and treated water twice a week, by the Institute for Health Protection, a bacteriologicalresearch center commonly owned by the commune of Titovo Uzice and nine other neighboringcommunes. Where the results of such tests prove unsatisfactory,first the amount of chlorine is increased,and if that does not solve the problem, the intake from the river is temporarilyclosed.

25. One of the Bioktos technicians is specificallyassigned to the duty of inspecting the river (upstreamof Turica) constantly. She not only checks polluters of the river (such as the people who dump garbage or wash their cars in the river) but also takes random samples of the water to test and make sure that it meets the standard set forth by the Republic Law.

D. Bioktos Wastewater Facilities

26. The wastewater system in Titovo Uzice is quite simple. The area served by the sewer network is limited (see Map 11638) and in 1974 the number of sewer connections (2,328) was some 65% of the number of water connections. There is no wastewater treatment plant, and the sewage collected by the network is directly discharged into the river. Many of the existing sewers are combined, carrying storm drainage as well as domestic and industrial wastewater. The sewer network was as follows at the end of 1974: ANNEX 5 Page 6

Diameter Material Vitrified Clay Concrete Brick Total -… Length (meters)…------

150 mm 450 - 450

200 mm 7,365 4,530 - 11,895 250 mm 1,120 3,600 - 4,720 300 mm 310 4,090 170 4,570 350 mm 350 - - 350 400 mm 760 - - 760 1,000 mm - 1,890 410 2,300 1,050 x 705 mm - - 460 460

Total 10,355 14,110 1,040 25,505

27. The total length of the sewer network is only 45% of that for water supply. In the five years 1970-74 a total of 6.2 km of new sewers were built.

May 1976 ANNEX 6 Page 1

APPRAISAL OF

MORAVA REGION DEVELOPMENT PROJECT

YUGOSLAVIA

CACAK - EXISTING WATER SUPPLY

WASTEWATER AND STORM DRAINAGE FACILITIES

A. Background

1. Cacak is situated on the banks of the Zapadna Morava River where the valley bottom is flat and about 3 km wide (see Map 11640). The 1975 population of the town is estimated at 44,000. Annual precipitation averages 720 mm.

2. For centuries the residents of Cacak have relied on shallow wells to provide their water. Hundreds of these wells, dug by hand (generally not deeper than 5 m) in the alluvial aquifer, are equipped with hand pumps.

3. The system of private- wells becomes increasingly inadequate, for two main reasons:

(a) Output of individual wells is limited. Industrialization and increasing density of urban settlement patterns limit the use of such private wells. Pump tests by hydrogeologists 1/ in test wells upstream of Cacak, where the aquifer characteristics are the best available locally, indicated that the maximum possible yield of 300 mm diameter wells would be about 20 lit/sec. each (1,728 m3/day for 24-hour pumping).

(b) Water quality is bad. The groundwater is increasingly polluted. Water quality tests of some 400 wells in town have indicated that 99% are bacteriologically contaminated. Pollution in the shallow aquifer is caused by town wastewater (most buildings are not sewered) and possibly by the pollution in the Zapadna Morava River which meanders through the permeable alluvium in the valley.

4. Work on the first piped water supply began in 1951, mainly to serve the Sloboda industrial enterprise at the south-west edge of the town. Two wells were built in the Beljina region near the river to supply the industry, and a third was built the next year for the town. A pumping station, pressure main, reservoir and distribution line were then built to begin supplying water

1/ Geozavod, or Serbian Institute of Geology and Geophysics. ANNEX 6 Page 2 to the town. Only water surplus to industrialrequirements was supplied to Cacak, and only to the small portion of the town near the industry. The initial capacity of the system was about 1,000 m3/day.

5. In 1964 eight new wells with a capacity of 9,500 m3/day were constructed at the Beljina source and the old wells were abandoned. Even these new wells proved insufficientto supply the growing demands of the town and its industry. Two more wells were dug in 1967/68.

6. In July 19.73a new water supply source began operating at the Beljina site, based on wells rechargedby river water, to augment existing facilitiesthere. This systen is described in detail subsequently.

7. The distributionsystem has grown slowly, starting from the Beljina source. Demand for water has always exceeded the capacity of the system. In allocating scarce water, Vodovod has given priority to industrial and commercialconsumers 1/, since domestic consumers (particularly in the outlying areas of town) can continue to exist on private wells.

8. From the outset Vodovod constructedseparate sewers to remove wastewaterfrom the areas served by the water supply system.

9. Cacak was inundated by the flood on the Western Morava in 1965. Since then, dikes have been built to protect the town and the river channel improved and stabilizedthrough the center of town. The constructionof storm drains in the center of town has proceeded slowly, under the responsibility of another communal enterprise.

B. Water Supply

10. Existing public water supply facilitiesand area served are shown in Map 11640. The proportionof the town's populationserved by the system has increasedwith the growth of the distributionnetwork. A summary of the networks built from 1954 to 1974 is provided in Tables 1 and 4 at the end of this annex.

11. All of Cacak's publicly supplied water is pumped from wells at Beljina but the yield of this alluvial aquifer is entirely dependent on flows in the adjacent Zapadna Morava River. The aquifer is very shallow, with extremely limited storage, so its yield drops with the river level. Hydro- geological investigationsin the area indicate that some 75% of water pumped from wells near the river is effectivelyriver water, filtered through the sands and gravels of the aquifer.

1/ In 1974 some 62% of Vodovod's water sales were to commercialand industrialconsumers. See Annex 29 for further details. ANNEX 6 Page 3

12. The capacity of the wells at Vodovod's Beljina site was limited so an entirely new system was constructedthere and began operatingin 1973, con- sisting of five new wells and four recharge basins and a treated water pumping station. Raw water is pumped from an intake in the Western Morava to the recharge basins through a pump station with the following characteristics:

Number of pumps - 3 Capacity per pump - 100 liters/second Pumping Head - 8 m to 10 m

Total Installed Power - 55 kw

13. The recharge basins are about 3 m deep and surroundedby embankments. Three basins are 1,500 m2 each while the fourth is 4,500 m2. About 1.5 m of fine grained river sand lies on the top of the natural alluvium and acts as a slow-sandfilter. Every few months, the basins are taken out of service and cleaned, removing accumulatedsediment and about 2 cm of sand.

14. By the end of 1975 there were a total of 20 wells at the Beljina site as follows:

- 8 wells, 200 mm diameter,drilled in 1964 along river bank. These wells have no pumps. The water flows by gravity through a collectionpipeline connectingthe series of wells to the sump at the pump station.

- I sump well at pumping station (1964).

- 2 wells (KI and K2), 3 m diameter,dug in 1967/68.

- 9 dug wells, 3 m diameter (5 in 1973 and 4 in 1975) for use with recharge basins.

Vertical pumps in the large diameter dug wells have the same characteristics: capacity 20 liters/second;head 10 m; and power 5.5 kw.

15. All water is chlorinatedbefore being delivered to the distribution system.

16. The pumping system which drives water collected from the wells to the Beljina reservoir consists of two adjacent pumping stations,the original one and the one completed in 1973. Features of these pumping stationsare as follows: ANNEX 6 Page 4

Original 1973 Station Station

Number of Pumps 2 3 Capacity per pump (1/s) 100-160 40-50 Pumping Head (m) 70-90 70-90 Installed power (kw) 2 x 160 3 x 55

17. Water is pumped through 0.8 km of 400 mm diameter pipeline to two buried concrete reservoirsabove Beljina (water level range 308 m to 312 m) with capacitiesof 470 m3 and 1,050 m3. This total reservoir capacity of 1,520 m3 representsonly 3.4 hour's storage for the 1974 average daily consumption of 10,674 m3.

18. The capacity of the Beljina system is nominally 200 liters/second, in accordancewith the operating capacity of the treated water pumps and the pipeline to the reservoir.

19. In 1974 Cacak had a total of 42 km of distributionpipes (Table 1), built continuouslyover a period 1954-1974 (Table 4). An estimated60% of the population was served by the system. There were a total of 5,275 connections to the Vodovod system in 1974, all of which were metered. Domestic sales reportedly accounted for only 38% of the average total sales of 124 liters/ second (see Annex 29). The accuracy of Vodovod's water production and sales figures are suspect, however, because sales were reported to be in excess of 98% of water productionfor the three years 1972-1974.

C. Wastewater

20. The existing sanitary sewer network is shown on Map 11641. An outline of the 43 km of sewers is provided in Table 2 and the history of system constructionin Table 4.

21. The river flows from west to east through the town and most wastewater flows by gravity to the discharge point on the right bank some 2.5 km downstream of the town center. There is no treatment.

22. Wastewaterflows from the sewers serving the left (north) bank are pumped through pipes suspendedon the railway bridge. The only pumping station in the system has two pumps, each capable of discharging40 liters/ second against a head of 12.5 m.

23. At the end of 1974 there were 2,866 sewer connections,or 54% of the number of water connections. Frequently a property would have several water connectionsand only one sewer connection,so it is probable that approximately 80% of the propertiesconnected to the water supply system are also connected to the wastewater system. The remaining water consumers use either ANNEX 6 Page 5 septic tanks or pit privies, which Vodovod empties with its tanker truck. Large industries (e.g. paper mill and bottling factory) discharge their wastes directly to the river.

D. Storm Drainage

24. Storm drains are shown on Map 11641 and described in Tables 3 and 4. The main areas drained are the built-up areas on the right bank.

25. Because the storm drainage network is hardly developed in most areas, and because the town is quite flat, the greater part of the storm runoff percolatesinto the alluvium. TABLE I TABLE 2

CACAK WATER SlTPLY NErWORK. BUILT 1954 - 1974 CACAK SANITARY SEWER NEIORK. BUILT 1954 - 1974

Cast AsbestosSteToa Diameter Iron Cement SteelDiameter Vtrified Asbestos Concrete Steel Total (aM) ------meter (MM) Clay Cement _ ------meters ------____.------

80 777 153 - 930 150 - - 452 - 452

100 12,673 8,031 - 20,704 200 25,225 420 - - 25,645

125 5,089 615 - 5,704 250 -1,894 304 - - 2,198

150 5,876 520 - 6,396 300 540 420 1,991 141 3,092 200 1,536 496 - 2,032 400 459 1,220 1,528 - 3,207 225 1,950 - - 1,950 500 - 1,360 963 - 2,323

250 1,127 - - 1,127 600 - 970 - - 970

300 410 - - 410 700 - 175 - - 175 500 2,670 - 442 3,112 1,000 - - 670 - 670 500/700* - - 608 - 608 Total 32,108 9,815 442 42,365 600/1,100* - - 2,951 - 2,951

Total 28,118 4,869 9,163 141 42,291

*Collectors.

TABLE 3 TABLE 4 CACAK STORM DRAINAGE NETMDRK BUILT 1966 - 1974 CACAK VODOVOD- NFWORKOONSTRWCTII:N. 1954 - 1974 Dimeter Length (me) ~~~~(meters) Year Water Supply SanitarySevers Storm Drains Total ------meters ------Tot-1 300 589 400 2,205 1954 6,919 5,550 - 12,469 1955 - 314 - 314 500 745 1956 - 236 - 236 600 375 1957 1,057 2,015 - 3,072 1958 490 - - 490 700 329 1959 1,180 1,391 - 2,571 900 140 1960 269 180 - 449 1,000 842 ~~~~ ~ ~~~~~~19611,473 1,703 - 3,176 1,000 842 1962 1,049 362 - 1,411 1,100 885 1963 1,457 668 - 2,125 1,200 260 1964 1,964 1,156 - 3,120 1965 872 1,310 - 2,182 1,300 280 1966 3,529 3,870 1,706 9,105 1,400 405 1967 3,021 3,355 - 6,376 1968 460 992 1,305 2,757 1,500 142 1969 1,387 1,992 1,419 4,798 1,600 589 1970 1,602 4,100 1,202 6,904 1971 1,416 1,808 280 3,504 Total 7,786 1972 726 760 420 1,906 ______1973 6,458 1,544 - 8,002 1974 7,036 8,985 1,454 17,475 e Note: All storm drains made of concrete pipes. Total 42.365 _2.297.786 92 442

MaY 1976 ANNEX 7 Page 1

APPRAISAL OF

MORAVA REGION DEVELOPMENTPROJECT

YUGOSLAVIA

STUDY 1: ADJUSTMENTS TO FLOOD HAZARDS

OUTLINE

A. BACKGROUND

The Morava River drains a watershed of some 38,000 km2, of which about 81% (includingall downstream sections of the main tributaries)is in Serbia proper. 1/

In 1965, a master plan was completed for the regulation of the Morava River. This plan recommendeda number of structuralmeasures to reduce flooding including:

106 large reservoirs; - about 1,800 km of dikes; about 900 km of river channel improvements.

By 1975, constructionof three of the proposed dams was underway (Gazivode,Bovan and Celije) and many kilometers of new dikes and river channel improvementshad been completed. The 1965 master plan is becoming less relevant because land use patterns in the basin have changed and additional hydrologic and meteorologicdata are now available. Furthermore, there is an increasedappreciation of the need to justify all proposed investments economically. Therefore, a revised program of measures to adjust to the flood hazard needs to be prepared.

1/ The exact catchment area is as follows: km2 % of Total

Yugoslavia - Serbia Proper 30,657 80.7 Kosovo 5,830 15.4 Montenegro 390 1.0 Macedonia 45 0.1

Sub-Total 36,922 97.2 Bulgaria 1,044 2.8

Total 37,966 100.0 ANNEX 7 Page 2

Under UNDP auspices a two-year project titled "Computer Control of the Water Resources Systems in the Morava River Basin" is currently underway. Project objectives include developmentof a data base and of models for the simulationof hydrologicand hydraulic processes. Accordingly,models, methodology and trained staff should be available to improve water resources planning in the Morava basin.

B. STUDY OBJECTIVES

The study would develop a comprehensivesystem of adjustments to the flood hazard for the mitigation of property damage, improvementof land use and the protectionof life in the Morava River Basin.

The proposed study is intended to review the flood problem with a much broader approach than before, i.e. by evaluatingboth structuraland non- structuraladjustments to flood hazards throughout the basin. An outline of alternativeadjustments is provided in Attachment 1. Control of river flows and levels will be only one aspect of the study, which will make maximum use of data and engineeringdesigns collected during the previous planning exercise, as well as additional informationwhich has become available subsequently.

This study is intended to provided recommendationsfor action which can be implementedby the appropriateauthorities in Serbia proper.

C. SCOPE OF WORK

The substantiveelements of the flood adjustmentstudy are outlined hereafter:

(a) Analysis of flood frequencies

Analyze flood frequenciesby stage, duration and extent during the past fifty years (or more if reliable records permit) for the Velika Morava, and major tributariessuch as the Juzna Morava, Zapadna Morava, Ibar, Nisava and Toplica.

This hydrologicanalysis should determine the flood flows expected along various reaches of the river channel at return frequenciesof 1%, 2%, 4% and 10%. Hydrometeorologicalconditions should be analyzed only to the extent necessary to complete this analysis of flood frequencies.

(b) Review and evaluationof programs for non-structuralalternatives

A number of non-structuralalternatives exist (see Attachment 1) and should be considered. The study should review and evaluate three such alternativesin detail. Each evaluationshould include recommendationsfor any improvements;which may be required. ANNEX 7 Page 3

(1) Flood forecastingand warning system

The HydrometeorologicalService of Serbia apparently operates such a system at present. The details of this system should be reviewed along with the measures used to utilize such information,particularly emergency measures organizations in the communes. Can more effective predictionsof flooding be made? Can the informationbe communicatedmore efficiently? Are organizationssufficiently prepared to execute emergency action to protect lives and minimize damage to moveable property?

(ii) Flood proofing

Although an effective flood warning system will enable action to be taken to protect or rescue moveable property, flood proofing is required to minimize damage to fixed assets. Literature is available on this subject but a well- organized program of public education and possibly some compulsory requirementsare needed to put such a program into effect.

Flood proofing is particularlynecessary in areas protected by dikes. No land lying behind protective embankments can be assumed to be immune from flood damage. In fact, when dikes are breeched or overtopped, the damage to property is usually greater than expected because of the false sense of security occasioned by the existence of dikes and the conse- quent level of development that takes place as a result.

(iii) Flood insurance

Because no amount of work by man to control or adjust to floods can guarantee absolute protection,a program of compulsory, comprehensiveflood insurance should be investigated to see if such a scheme would be economicallyfeasible and beneficial in the Morava Basin. All properties,urban and rural (includingcrops and livestock) that lie within reach of a flood level of I in 50 year frequency should be considered. As with flood proofing, insurance is particularly valuable in areas lying behind dikes. When dikes are breeched or overtopped,damage is always extensive but because such damages do not normally occur throughout a basin at any one time (i.e., the degre of flooding varies from one part of a basin to another from year to year) it is possible through an insurance program to share the risk over a large number of people and enterprises. ANNEX 7 Page 4

Carry out a detailed investigationof the existing embankmentsor dikes to determine their exact capabilityto protect land in terms of flood recurrence intervals. As more and more dikes are built over time the actual flood crests are accentuatedbecause of the containmentof the flow within the embankments,so that new estimates of the effective protectionof the existing dikes is needed from time to time. However this study should focus exclusivelyon the types existing or under constructionat the time of the study.

(d) Mapping of flood-pronelands

Map the lands susceptible to flooding at return frequenciesof 1%, 2%, 4% and 10% on the 1:25,000 topographicmaps. The mapping will include the location and descriptionof all existing dikes with a code to indicate the level of protectionafforded by each section of the dikes. The mapping of flood boundaries will take the existing dikes and other features such as road and railways embankmentsinto account. Subsequentlythe flood boundaries should be presented on maps of a more suitable scale (e.g. 1:100,000.)

(e) Evaluationof probable annual damage functions

Evaluate the potential damage that would occur during inundationat each of the recurrence intervalsmentioned in (d) above. Standard methods are to be used so that flood damages are estimated consistently. Estimateswill be required for farm and non-farm lands and will be based on the mapping of flood susceptibilitywhich will record land use, i.e. cultivated land, orchards and vineyards, pasture, forest, farm homesteads, urban residential,commercial and industrial lands, transportationroutes, parks and recreationallands and other. Annual damage functions should be developed for the various kinds of rural and urban lands and for types of propertiesand other assets.

(f) Identificationand analysis of feasible alternatives

Identify the range of alternative solutions to reducing the flood hazard which are applicable to local problems, both non-structuraland structural, with emphasis on combinationsof measures likely to provide least- cost solutions. Preliminarydesigns of all possible alternativesare required so that realistic cost estimates can be prepared.

Where reservoirsappear to be appropriate for storing flood flows, the study should explore the possibilityof multipurpose design and operation of such reservoirs. First identify the reservoir storage volumes and locations needed to reduce flood peaks by various amounts. Next the study should determine the technical and economic feasibilityof providing such storage capacities. Eventuallya series of feasible alternativereservoirs should be identified,which may include some or all of the reservoir sites which have been studied previously. ANNEX7 Page 5

For multipurpose reservoirs the complete water resources system (including facilities to utilize water for other objectives) needs to be considered, includingestimated benefits, costs and constructionphasing.

(g) Evaluation of alternativeprograms

Evaluate the various alternativesand combinations of alternatives to make adjustmentsto the flood hazard throughout the Morava basin. Be- cause they require litte expenditure,non-structural solutions should be utilized wherever possible.

The benefits of each program need to be analyzed thoroughly,with particular attention paid to the dynamics of the'estimated benefits. Avoid- ance of flood damages should be determined for existing land use patterns, but future benefits can also include the enhanced future use of lands protected from floods by the proposed solution. 1/

Rigorous economic analysis is required for each alternativeprogram of investments. This requires an estimate of total costs in each year (capital plus operating and maintenance)along with the associated estimated annual benefits. Future streams of costs and benefits should be discounted to the present, using discount rates of 8%, 12% and 16%, so that the present value of the costs and benefits of each alternativeprogram can be compared.

For comparison purposes, one of the alternativeswhich should be identified and evaluated is the provisional constructionprogram of the Serbian Water Fund for dykes and reservoirs in future years.

(h) InstitutionalAnalysis

Specific attention should be paid to the institutionalaspects of the situation. The responsibilitiesand effectivenessof all agencies and authoritiespresently involved in dealing with flooding should be evaluated. Specific recommendationsshould be made for improvementsin the institutional aspects of all adjustmentsto flood hazards.

1/ In dealing with agriculturalland, it is essential to guard against a tendency to exaggerate the annual costs, particularlybecause the estimated recurrence interval for damage to standing crops is less than that for other flood damage frequencies,as crops are only on the land for part of the year. The risk of a flood occurringduring the crop season is less than the computed recurrence interval on an annual basis. Flooding of agriculturallands during non-crop seasons also causes other consequenceswhich should be explored. Depositionof silt contributesto soil fertility,whereas deposition of sand can have the opposite effect. ANNEX 7 Page 6

(i) Recommendations

The study should conclude with a recommended program for action. Additional programs for implementingor strengtheningnon-structural solutions should be recommended if necessary to ensure that suitable operational plans exist for:

(i) forecastingexcessive precipitationand runoff;

(ii) warning the populace as far in advance as possible of a flood threat; and

(iii) executingemergency action to protect lives and minimize damage to moveable property.

Prioritiesshould be assigned to each recommended investment for structural solutions,based on the estimated benefit/costratio, in a phased investment program. Alternative investment programs should be presented, ranked and discussed.

Based on the preceding economic analysis of costs and benefits, priorities should be assigned to each recommended investment for structural solutions. Realistic recommendationsfor investment are expected, taking account of the availabilityof funds and the need to phase all investment programs.

The report should name an existing or proposed agency (or agencies) to be responsiblefor each action recommended.

D. MANAGEMENTOF STUDY

(a) Responsibility

The Serbian Water Fund will be responsiblefor carrying out the study. A firm of consultantswill be engaged to complete the study under the control of the Water Fund. From time to time during the study period the Water Fund will obtain independentexpert advice from specialist advisors engaged either by the consultants themselves or directly by the Water Fund.

(b) Timing

The study is expected to be completed within 30 months of its commencement.

The following reports are to be provided by the consultants:

(i) Inception Report ANNEX 7 Page 7

Within 30 days of commencementof study, the consultants should indicate in detail their proposed program and staffing to carry out all phases of the study.

(ii) Quarterly Progress Reports

Every three months, the consultantsshould prepare a brief report covering:

- activitiesduring past three months and comparison of performancewith planned program,

- planned activitiesduring remainingperiod, par- ticularlynext three months,

- outline of any problems or changed circumstances likely to affect results of study,

- any recommendedrevisions to overall work plan.

(iii) Interim Report

When elements (a) through (e) of the study have been completed (approximately18 months after the commencement), the consultantsshould summarize their findings on these matters in an interim report. At this stage, feasible alternativesolutions should be listed (element (f) of study.)

(iv) Draft Final Report

On completion of the study, the consultantsshould prepare their draft final report. Recommendationsshould be summarizedseparately. This draft report should be publishedwithin 27 months of the commencementof the study.

(v) Final Report

Yugoslav decision-makerswill be given a period of approximately60 days to provide their formal comments on the draft final report. Thereafter,the consultantswill consider these comments and prepare the final report, which is to be completed within 30 months of the commencementof the study.

For the inception,progress and interim reports, the consultantsshould provide fifteen copies in Serbian and five in English. Twenty copies of the draft final report ANNEX 7 Page 8

should be prepared in Serbian and five in English. The final report should be prepared in sufficientnumber for widespreaddistribution throughout the Morava basin so that the recommendedsolutions can be well understoodby relevant decision-makers. Approximately150 copies of the final report should be prepared in Serbian and approximately20 in English.

(d) Coordination

At the same time as this study on adjustmentsto flood hazards is proceeding,the Republic Water Fund will also be managing a study of possible measures to reduce water pollution in that part of the Zapadna Morava River basin which is upstream of Kraljevo. The Water Fund will be responsiblefor ensuring that these two studies are coordinatedin parallel, with copies of all reportsbeing made available to both study groups, and meetings between the groups arranged as appropriate.

It is important that both study groups use the same data and deal with compatiblesections of the river basin in their analyses.

The possible use of multipurpose reservoirsfor water quality improvementand flood control will have to be consideredin each study and evaluated in economic terms. ANNEX7 Page 9 Attachment 1

ALTERNATIVEADJUSTMENTS TO FLOODHAZARDS

A. StructuralAdjustments

Reservoirs Dikes Channel Modifications Flow control structures Diversions

B. Non-StructuralAdjustments

Land use controls - zoning - regulations Land use changes - land purchase - land exchange - easement purchase Flood plain classificationand flood susceptibilitymapping Flood proofing Flood insurance

C. OperationalAdjustments

Flood forecasting,warning and emergency action Flood routing Channel maintenance Watershed management Drainage management STUDY No. 1

ADJUSTMENTS TO FLOOD HAZARDS

PERSONNEL MONTHS 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 1718 92021222324 5 627 829 0 Man-months

Project Manager 30

Co-Manager (Foreign) 30 System Analyst (Foreign) 2 18 Economist (Foreign)

Economist 18

Hydroengineers (3) 27 21 18

Technicians (4) 30

18 HydraulicModeller

Flood Damage (Professional 40 Assessment Teams _ 80 LtTechnicians

Draftsmen (2) 24

Administrator 30

InterPreter 30

Stenographer 30 Typist ______l ______< _ _ _ _ 3360

Drivers (2) 60 Total 657

May 1976 ANNEX 8 Page 1

APPRAISAL OF

MORAVAREGION DEVELOPMENTPROJECT

YUGOSLAVIA

STUDY 2: WATER QUALITY IN THE ZAPADNAMORAVA REGION

OUTLINE

A. BACKGROUND

In spite of various laws and regulations1/ concerningwater quality control, pollution of the streams and rivers in the Morava River basin is increasing. An outline of the relevant legislationis included in Attachment 1. The Serbian Water Law of 1967 stated that wastewater treatment facilities would have to be installedby 1975 at the latest (Article 103) in order to preserve the quality of water in various parts of the river system (categor- ized in the 1968 Edict) to prescribed standards (defined in the 1967 Edict).

In 1975, the SerbianAssembly adopted a revised Law on Water Manage- ment. In accordancewith the Yugoslav Constitutionof 1974, self-managedcom- munities of interest are to be establishedfor the management of water re- soures. In addition to the RepublicanWater Communityof Interest,similar regional communitiesare to be establishedfor three river basins, of which the largest is the Morava basin (includingthe Pcinja and Dragovishtitsa Rivers). Under this law the categorizationof water courses is issued by the Executive Council of the Serbian Assembly (Article 163) and communitiesof interest are to take measures to protect water quality (Articles 164-183).

With increasingurbanization and industrializationthroughout the river basin, the quantities of water utilized and liquid wastes producedhave been increasing. The wastewater treatmentfacilities necessary to preserve receivingwater standardshave generallynot been installed. In consequence the water quality continues to deteriorate,to the detrimentof all water users.

The Serbian Government is determined to arrest the deteriorationin water quality and to improve the management of this vital resource. It is recognized,however, that water quality control is an extremelycomplicated process, involvingsophisticated technology, economic analysis and institutional arrangements. To assist in preparing an action program throughout Serbia, the Government proposes to study the practical difficultiesof water qualitymanagement in the Morava River basin.

1/ As used in this note, regulationmeans orders (edicts) issued under the Water Law. ANNEX 8 Page 2

Because of the manpower time and costs involved in a detailed study of water quality for a complete river basin the size of the Morava, a pilot project only is recommended.

For this study, the ZapadnaMorava River basin, upstream from the town of Kraljevo where the Ibar River joins the Western Morava 1/, has been chosen for a number of reasons:

(a) Significantsections of the river system are known to be increasinglypolluted from a variety of industrialsources (some 50 plants) as well as from domestic wastes and runoff from agriculturalland.

(b) More data are available concerningthe physical system of the Western Morava basin than in other parts of the Morava watershed. Modelling of this watershed is already proceedingunder a UNDP project 2/.

(c) The town of Cacak, in the downstream section of this reach of the river, relies on the Zapadna Morava as the basic source of water for urban water supply system, using wells very close to the river, in an aquifer directly recharged by river water. Accord- ingly, there is considerableconcern to improve the quality of water in the river as soon as possible.

(d) Comprehensivewastewater systems are to be built for the towns of Titovo Uzice and Cacak. Monitoringof the ambient water quality in the river will assist in determining the appropriate degree of treatment to be provided by wastewatertreatment facilitiesof each town.

B. STUDY OBJECTIVE

To develop an action program, with cost estimates, to improve the quality of the water in the Zapadna Morava basin to the legal standards designated for the river and its tributaries.

Detailed Objectives

(a) To determine by surveys and analyses the existing quality of river water at representativesampling stations, in order to provide a benchmark against which to measure progress toward the goal.

1/ The catchment area of this part of the river system covers some 4,700 km ANNEX 8 Page 3

(b) To consider alternativetechnical solutionsand associated costs to reduce existing pollution,in accordancewith the water quality laws and regulationsin existence,through the reduction of waste discharges,by means of in-plant process changes and/or waste treatmentsystems.

(c) To determine and implementeconomically sound proposalsfor achievinga substantialimprovement in water quality through an initial reduction in pollutantdischarge from major point source polluters.

(d) To recommendprograms, as well as regulationsto ensure that all new developmentsincorporate pollution control measures in their plans.

(e) As a final stage in the study, to make recommendationsaimed at improvingthe institutionalaspects of water qualitymanagement throughoutthe entire Morava basin, includingperhaps improvement in existing laws and regulations.

C. SCOPE OF WORK

I. Surveys

There will be two concurrent surveys, one to investigatethe sources of pollution, the other to determine the present status of the receiving waters.

(a) Survey of Ambient Water Quality in Streams

1. Establishbest locations of sampling stations to give a balanced picture of water quality conditions in the main river and its tributariesupstream of the town of Kraljevo. The sampling stations should be selected in the light of existing water quality classificationsof the river. (New sampling points will supple- ment the regular stations of the HydrometeorologicalService of Serbia). Before such surveysare planned, all existing studies and data must be thoroughlyreviewed and evaluated.

2. Institutea systematicsampling and analysis program to extend throughout one full year to derive informationduring all seasons and at low, high and intermediateflows of the river and streams. A draft outline 1/ of the water quality parametersto be analyzed is provided in Attachment 2. A provisionalassessment of the consequencesof pollutionon biota in the river system should also be undertaken.

1/ Consultantsmaking proposals to undertake this study should be requested to specify which parametersthey think should be measured. ANNEX 8 Page 4

(b) Survey of Pollution Sources

1. Locate and identify all significant point and non-point sources of pollution in the sub-basin: domestic, industrial, commercial, agricultural, etc.

2. Prepare and carry out a sampling program to provide appropriate information on the quality and quantity of important point source polluters. This effluent sampling and analysis program should be completed within the first six months of the study. Estimates should also be made of the nature and magnitude of non-point sources of pollution, based on appropriate analyses.

3. Survey all existing wastewater treatment plants to determine the type of treatment, effectiveness, level of management of the plants, and the volume and content of the effluents from the plants after treatment. Determine the fluctuations in effluent constitution and loading over time. Also the frequency of failure of the treatment plants or systems.

II. Action Program for Pollution Abatement

(a) For each main river section in the basin, the present water quality, as determined by surveys, should be compared to the legal water quality standards prescribed in existing regulations. Differences between the actual and specified water qualities should be assessed and a determination of the causes for these variations made in the light of the information provided by the pollution source survey.

(b) Where river water quality is unacceptable because of existing pollution, alternative technical solutions to reduce the waste discharges from each significant point-source polluter should be studied. Industrial process changes should be considered as well as alternative "end of the pipe" waste treatment facilities, for a range of pollutant reductions. The possibility of regional plants to treat waste from a number of major polluters should be investigated. Estimates of capital and operating costs should be prepared for each alternative technical solution, including any benefits from reclamation of materials in industrial wastes.

(c) The water quality analyses and study of major point sources of pollution are likely to indicate that significant improvements in water quality can be made if the largest polluters reduce their pollutant discharges significantly. It is also expected that the greatest part of the pollutants from each source can be removed fairly economically, but that incremental levels of removal become increasingly expensive. Accordingly, the initial step in improving river water quality should be to require the larger polluters to reduce their waste discharges considerably. The ANNEX 8 Page 5

initial reduction to be achieved in pollution loadings from each major source should be proposed on the basis of the incremental cost informationgained from the above analyses. The actual percentage of this initial reduction of pollutantdischarge may vary from source to source depending on the relative costs of pollution abatement at each source.

(d) Where non-point sources of pollution are significanta program to reduce such pollution should be recommended.

(e) Alternative pollution abatement programs for the Zapadna Morava basin should be recommendedon the basis of steps (a) to (d) above. Then a compliance schedule should be negotiated with each major point source polluter in accordancewith existing regulationsto achieve the initial reduction of loadings specifiedby this study. The compliance schedule should have a specific timetableand should be agreed by each major polluter in a legally binding document.

(f) The consequenceson water quality of implementingthis initial stage in the pollution abatement program should be estimated, including the rate at which the water quality is expected to improve.

(g) To ensure that all new developments (industries,commercial enterprises,agricultural operations, residential developments, etc.) in the basin do not cause a deteriorationin water quality, appropriatepollution abatement programs (includingany necessary regulations)should be defined and implemented. Standards for future waste treatment plants should be specified.

(h) Prepare cost estimates (capital costs and recurring costs) for the recommendedinitial stage in the pollution abatementprogram. Prepare the financingplan required for the implementationof the program.

(i) Recommend a monitoring and surveillancesystem to ensure compliance with the pollution abatement program. Ambient water quality should be surveyed in streams approximatelyevery six months, in accordance with the surveys undertaken in the first six months of this study. Effluents from major polluters should be analyzed each time the river quality is surveyed,as well as more frequently to check compliance with the pollution abatement program.

III. Institutionaland Management Aspects

(a) It is likely that the implementationof the action program will be inhibitedby institutionalproblems. Furthermore,the continuing efforts to achieve satisfactorylevels of water quality ANNEX 8 Page 6

in the river basin will require constant attention. Accordingly a comprehensiveanalysis should be provided of the existing legal and institutionalarrangements concerning water quality management in the Zapadna Morava basin. If water quality levels differ from those prescribed by Serbian laws and regulationsthe reasons for these discrepanciesshould be analyzed and described.

(b) Various methods to improve the management of the river water quality should be considered. The study should assess and provide recommendationson alternativesincluding:

(i) Rigid enforcementof existing laws including applicationof penalties for non-compliance. Alternatively,more strin- gent penaltiesmay be required;

(ii) At present the Serbian Water Fund receives a fee for each cubic meter of wastewater discharged into the river system. This fee system could be transformedinto an effluent charge system and this possibilityshould be assessed. In such a system each polluter is charged for the wastewater discharged into the river on the basis of the pollution loadings entering the river. Each polluter can then choose the least cost solution from his point of view: either increasinglyexpensive treatment facilities can be added by the polluter or he can choose to pay the effluent disposal charge. These charges may be increased over time to direct polluters to reduce effluent discharges to desirable levels from the point of view of river water quality.

(iii) The provision of financial assistance by the Serbian Water Fund or the Morava Region Water Community of Interest for the constructionof wastewater treatment facilities should be studied. Loans made at appropriate interest rates may be helpful in achieving the desirable water quality standards. The proceeds of the effluent charge system can be a useful source of funds for the constructionof treatment facilties.

(c) This pilot study deals only with the Zapadna Morava basin but the Government wishes to improve water quality management throughout the entire Morava basin and all of Serbia. The report should include a series of specific recommendationsfor a comprehensiveaction program, based on the experiencesgained in this pilot study, for improved water quality management throughout Serbia. Each recommendedaction should be directed to an existing or proposed agency (or agencies) in Serbia. ANNEX 8 Page 7

(d) Based on the experience gained during the study, the report should evaluate existing water quality laws and regulations from many points of view including the following:

(i) How suitable are the existing water quality laws and regulations in relation to the various sectoral water uses (agriculture fisheries, forestry, wildlife, industry, domestic commercial, recreation tourism, mining, energy, navigation, etc.?) Are the prescribed levels of water quality satisfactory?

(ii) What changes in the existing laws and regulations might be appropriate and how should such changes be determined? Is implementation of the initial stage program for pollution abatement recommended in the study likely to be successful in improving river quality to acceptable levels in the Western Morava? If not what additional steps, including effluent discharge fees, should be taken?

(iii) Are further studies needed prior to the implementation of a satisfactory pollution control program in the Zapadna Morava River?

D. MANAGEMENT OF STUDY

(a) Responsibility

The Serbian Water Fund will be responsible for carrying out the study. Consultants will be engaged to complete the study under the control of the Water Fund.

(b) Timing

The study is expected to be completed within 18 months of its commencement.

The following reports are to be provided by the consultants:

(i) Inception Report

Within 30 days of commencement of the study, the consultants should indicate in detail their proposed program and staffing to carry out all phases of the study. Details should be provided of planned surveys of pollution sources and ambient water quality in streams. ANNEX 8 Page 8

(ii) Quarterly Progress Reports

Every three months the consultantsshould prepare a brief report covering

- activitiesduring the past three months and comparison of performancewith planned program;

- planned activitiesduring remainingperiod of study in particularactivities during next three months;

- outline of any problems or changed circumstanceslikely to affect results of study;

- any recommendedrevisions to study work program.

(iii) Draft Final Report

The draft final report should be prepared within 16 months of the study commencement. One volume should summarize the results of the study and all recommendations.

All water quality and effluent analysis carried out during the study should be summarizedfor presentationin the report, probably in supplementaryvolumes.

(iv) Final Report

Yugoslav decision makers will be given a period of approximately 40 days to provide their formal comments on the draft report. Thereafter the consultantswill consider these comments and prepare their final report, which is to be completed within 18 months of the commencementof the study.

Fifteen copies of the inception and progress reports should be provided in Serbian and five in English. Approximately50 copies of the final report should be provided in Serbian and approximately 10 in English.

(d) Coordination

At the same time as this study on water quality is proceeding, the Republic Water Fund will also be managing a study of adjustments to the flood hazards throughout the entire Morava River basin.

The Water Fund will be responsiblefor ensuring that these two studies are coordinated in parallel, with copies of all reports being made available to both study groups, and meetings between the groups arranged as appropriate. ANNEX 8 Page 9

It is important that both study groups use the same data and deal with compatible sections of the river basin in their analyses.

The possible use of multipurposereservoirs for flood control and water quality improvementwill have to be consideredin each study and evaluatedin economic terms. ANNEX 8 Attachment 1 Page 10

WATER QUALITY IN THE WESTERN MORAVA REGION

Existing Legislation Concerning Water Quality

Federation of Yugoslavia

1. Basic Law on Waters - 1965

(Articles58-64, 87, 92, 93, 115, 122)

2. Regulationsof Federal Secretary of Health and Social Welfare (as indicated in Article 59 of Basic Law on Waters)

Article 3 deals with list and permissibleconcentration of pollutants.

SocialistRepublic of Serbia

1. Law on Water Management - 1975

2. Edict 1/ Relative to the Categorizationof Water Courses - 1968 (pursuant to Article 42 of the 1967 Law on Waters).

Includes list of rivers and designationof category for each section of each river.

3. Edict 1/ Relative to the Classificationof Waters - 1967 (pursuantto Article 2 of the 1967 Law on Waters)

Includes definition of categories of water (I, II, IIa, IIb, III, IV) includingmeasurable parameters of water quality.

1/ These edicts were issued in accordance with the 1967 Law on Waters. The relevance of these or subsequent edicts to the 1975 Law needs to be clarified before the study is implemented. ANNEX 8 Attachment 2 Page 1

WATER QUALITY IN THE WESTERN MORAVA REGION

SuggestedParameters for Analysis of Ambient Water Quality

The Serbian HydrometeorologicalService presently operates a network of river sampling stations. Specific parameterswould be measured at new stations for the study. The following tentative list should be reviewed by the Project Manager at the outset of the study. Deletionsor additons should be considered throughoutthe course of the study, to ensure that only useful data are collected.

Temperature Clarity (turbidity) pH Suspended Solids Dissolved oxygen 5-day B.O.D. C.O.D. Total dissolved solids Hardness Phenols P.C.B. Heavy metals Cyanides Fecal coliforms Total coliforms

The date and hour of each sampling,metereological conditions and rate of flow or stage of the river would, of course, be recorded by the sampler. Data on river biota would be determined by an additionalprogram, includingbioassays. STUDY No. 2

WATER QUALITY IN THE ZAPADNAMORAVA REGION

Timetable

Personnel ths 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Man-months

Project Manager _ = = - == 18

Advisor (Foreign) _ _ _ _18

Chemical Engineer _ _ _ _ _ = _ 18

Chemical Engineer(Foreign) _ _- ______12

Economist 9

Institutional Analyst . _ _ 6

Technicians (two) _ _ -_ _ - 30

Stenographer (bilingual) _ m _ _ _ = _ _ = 18

Interpreter ______m_ 18

Driver _ _ _ - = = = = 18

Total 165

May 1976 \ X ANNEX 9 Page 1

APPRAISAL OF

MORAVA REGION DEVELOPMENTPROJECT

YUGOSLAVIA

STUDY 3: REGIONAL ECONOMIC DEVELOPMENT

Outline

A. BACKGROUND

For planning purposes, Serbia proper (excludingKosovo and Vojvodina) has been divided into 16 regions outside of Belgrade, each of which comprises a collectionof contiguouscommunes. Economic standardsvary considerablybe- tween regions and the Governmentof Serbia intends to assist those regions which are less developed. In 1970, the Serbian Fund for UnderdevelopedRegions (SFUR) was created to provide loan capital at low interest rates to industriesthat locate or expand in regions designated as underdeveloped. Further information on SFUR is provided in Annex 20.

The 1975 population of Serbia proper is approximately5.4 million, of which 1.3 million are in Belgrade, with the remaining4.1 million in the 16 regions. The Morava River basin (Map 11603) drains 55% of the land area of Serbia proper, an area containinga 1975 populationof approximately3.1 million. The most underdevelopedregions in Serbia are in the Morava River Basin.

SFUR wishes to improve its efforts at acceleratingeconomic development in the underdevelopedregions and accordinglyintends to have pilot studies undertaken in three contiguousregions in southern Serbia which are among the least developed in the Republic. The Prokupulje,Leskovac and Vranje regions (see Map 11603) are in the mountainous headwatersof the Juzna Morava River as well as the Pcinja River (which flows south into Macedonia)and the Dragvoshtitsa River (which flows east into Bulgaria). The three regions cover 16% of the area of Serbia proper and contain 12% of the population. Statisticalinformation concerningthe three regions is as follows: ANNEX 9 Page 2

Estimated Total 1975 % of Population Income No. of Area Population Economically Per Capita Region Communes (Km2) ('000) Active (1973) (1973) Dinars US$

Vranje 8 3,520 235 45.7 6,303 371

Prokuplje 5 2,438 145 53.2 6,875 404

Leskovac 6 2,771 265 47.8 7,495 441

Serbia Proper 113 55,972 5,500 51.5 12,540 738

B. STUDY OBJECTIVES

The purpose of the study is to determine programs and projects to stimulate economic development so that SFUR will be able to make better decisions in its allocation of resources in underdevelopedregions. The study will be undertaken by three teams, one in each region, in order that an in-depth understandingof the situation in each will be obtained. Attention will be paid to the interrelationshipsamong the three regions and between them and the economies of Serbia and Yugoslavia as a whole.

The detailed objectives of the study in each region are as follows:

(1) To identify,define and analyze the constraintson social and economic development.

(2) To identify and describe the opportunitiesfor social and economic development.

(3) To identify and describe specific investmentopportunities for projects and programs.

(4) To correlate potential economic development in each region with neighboring regions and with the national economy.

(5) To make recommendationsfor new policies, programs and projects in all sectors of the economy in the regions.

(6) To determine the degree to which development is limited by water- related problems.

C. SCOPE OF WORK

I. Analysis of census and other available data about the people of the regions, e.g.: ANNEX 9 Page 3

(a) demographiccharacteristics (b) education and training (c) income and employment (d) underemploymentand unemployment (e) labor force characteristics (f) health, etc.

II. Analysis of the resource base:

(a) geology and geomorphology(maps?) (b) the soil resources (maps?) (c) water resources (d) mineral resources (e) forest resources (f) wildlife and fish resources (g) recreationand tourism resources (h) power and energy resources

III. Analysis of present use of the land resources

(a) present land use (map) (b) land capability (c) land use planning (if any)

IV. Analysis of the Regional Economies:

A. The primary sector:

(1) agriculture (2) forestry (3) mining (4) tourism (5) power (6) hunting, fishing, recreation and tourism

B. The secondary sector:

(1) heavy industry (2) light industry (3) commercialenterprises (4) constructionindustry, etc.

C. The tertiary sector:

(1) government services (2) education and health services (3) transportation (4) communications (5) other services ANNEX 9 Page 4

V. Analysis of the Social and Economic Infrastructure

(a) characteristicsof urban centers, functions, etc. (b) housing (c) schools, training schools, colleges, etc. (d) health services,hospitals, etc. (e) government and other institutions (f) infrastructure: roads, railways, air services, water supply, sewage disposal, electrification,telephones, etc.

VI. Analysis of the Rural Sector

(a) Agriculture:

- size of farms, types of farming - fragmentation of holdings - inheritance and continuity - family characteristics - education and training - degree of mechanization - capitalization - labor - underemployment - markets and marketing - inputs and outputs - gross sales, net incomes - etc.

(b) The rural non-farm sector:

- extent and significanceof rural non-farm population - relationshipto farm and urban economies - numbers of families, occupations - incomes, etc.

VII. Recent history of economic growth (or decline):

(a) Census data from 1951, 1961, 1971 and estimates for 1975 to derive trends of:

- population growth or decline, rural and urban (see explanations), - employment changes, - incomes (family or per capita or both), - other indicators.

(b) Comparisonsof each region with Republic and National averages, and with some selected "fast" growth regions.

(c) Discussion of possible constraints on development as a result of the analyses in Parts I to VI during the past 25 years or more. ANNEX 9 Page 5

VIII. Projectionsand Forecasts:

(a) Projectionof recent trends for next 10 years assuming no significantchanges in the basic socio-economicsystem. Implicationsfor infrastructureand other requirements based on this projection.

(b) Discussionof opportunitiesfor new economic development by sector.

(c) Forecastsof future structureof the economy and the social fabric based on ameliorationof identifiedconstraint and the developmentof identifiedopportunities for (a) the next 10 years and (b) the next 25 years. Implicationsfor changes in the economy, infrastructureand othe.rrequirements, based on low, medium and high forecastsof development.

IX. Conclusionsand Recommendations:

(a) Institutionalproblems and necessary changes.

(b) Social and political implicationsof change and development.

(d) Investmentrequirements.

(e) Financial implications;capital, operationsand maintenance, cash flow, interest rates, tax base, inflation,etc.

(f) Balance of investmentamong directly productive enterprises, social infrastructure,economic infrastructure,and administration.

(g) Opportunitiesfor early investmentto stimulate economic growth and employment.

D. MANAGEMENTOF STUDY,

The study will be managed by SFUR, with technical assistancefrom the Serbian Institute for Social Planning. A full time project manager with an assistant will be required,either from the Instituteor employed especially for the study. A single group of consultantswill undertake the study by placing a small professionalteam in each region who will work under the overall guidance of the project manager. ANNEX 9 Page 6

Although the majority of the study will depend on existing statistics and on data availablelocally from communal and industrial sources, some field work will be necessary, especially in the rural areas. Hence, the necessity to have the teams carry out their work in the regional centers to minimize the time and cost of travel. Working in the region also enhances the understanding of the internal social and economic forces that characterize the region.

The accompanyingchart (Appendix1) shows the work stages involved in carrying out the study.

For the first group of study topics in the project outline (Scope of Work, items I, II, III, IV, V and VI) it will be necessary to carry out the work in three stages:

Stage 1 Gather all the existing information relevant to these topics and assess the completenessand reliabilityof the data;

Stage 2 Decide on a minimum program of surveys and investigationsto fill such gaps as can be satisfiedwithin a short term. (No major studies should be attempted under this project. If lack of information is a serious restriction for any particular sector or situation it should be dealt with as one of the requirements for future attention and thus will become a recommendation in the final report.) Carry out the program of collecting the essential new information to complete the available data for the analysis of the economy of the region;

Stage 3 Carry out the appropriate economic, social and geographic analyses of each sector of the economy, of land usage, of social and economic infrastructure,of the characteristics and life of the people, and their attitudesand aspirations.

Note that the beginning of stage 3 does not have to await completion of all of the data gathering. Sector studies can get under way as soon as enough data is at hand. Of course, the act of assessing existing data and collecting new informationis an intimate part of the whole process. The sep- arations described herein and shown on the diagram are for purposes of clarify- ing the elements of the study; the whole study process is a continuum.

The study outline may give the impressionof considerableoverlap, for example between IV A.(1) and VI (a). However, the approach is quite different even though much of the data used will be common. In IV A(1), the approach is to the economicsof the agriculturesector, production and marketing, inputs and outputs, prices, transportation,imports and exports, agribusiness, etc. In VI (a), the approach is to the social and economic aspects of the farm as a production and business entity and the intimate relationshipbetween the farm itself and the family that operates it. This approach deals with many of the same parameters as in the agriculturesector study but from the point of view of the farm instead of the region or commune. Special attention will be ANNEX 9 Page 7

given to the urban/industrialsituation. The role of the main urban center (Vranje,Lescovac, Prokuplje) in each region, the hierarchy of urban centers, and the relationshipof these centers with the large regional center of Nis will be assessed.

Stage four encompassesthe work outlined in part VII of the outline and is a crucial part of the study. Here the study teams must come to grips with the underlying causes of the low incomes, slow growth and other symptoms of economic and social distress. The question that must be answered is, why have these regions, or certain communes in them, not progressed as rapidly or as far as other parts of Serbia and Yugoslavia? Some of the answers are to be found in such considerationas: weak institutionalarrangements, lack of investment capital, paucity of skilled labor or entrepreneurialability, lack of raw materials, inadequate supplies of water of the right quantity and quality, high transportationcosts, lack of suitable land, etc.

A significantnumber of valuable conclusionsand recommendations should stem from the work at this stage, many of which should be susceptible to early action particularlyby governmentbecause many constraintson development tend to be found in a lack of adequate infrastructure.

Stage five (part VIII of the outline) is closely linked with the work of stage four because projectionsand forecastsmust, of course, be based on the present situation and the past trends that have led to it. Firstly, it is essential to make simple ten-year projectionsof past trends to understand where the economy would go if no overt interventions took place, and to show the implicationsof that course of events in the future. Secondly, a number of forecasts,or a range of forecasts, for a longer period are required based on identified new opportunitiesfor development and the removal of some or all of the problems that have been hampering development in the recent past. Because not all constraints will disappear, nor all opportunitiesbe realized, overly optimistic forecasts are unwarranted although it is useful to give a rough estimate of the maximum rate of development that would be possible if that were the case. An interim report is required after stage five has been completed.

Finally (part ix), it is necessary to draw rational conclusionsfrom the study which in turn lead to a series of recommendations;the most important task in the study. A study of this type should generate not less than fifty recommendationsfor each region although there may well be more than one hundred. Some will be common to all three regions, others will be unique to one.

Progress reports wil be prepared after each of the first three stages. As well as recording the progress of the work in relation to the schedule these reports should also contain a summary of the findings to date. After stages four and five, which should be completed at about the same time, an interim ANNEX 9 Page 8 report on the main conclusionsand recommendationswill be prepared so that implementationof priority projects can begin. Reporting on any major difficulties in the performanceof the work should not await the issuance of the regular reports, but be dealt with at the time the difficulty is encountered in order to avoid delay to the study as a whole.

The final report should consist of two parts:

Part One - descriptionof the region, its geographic,social and economic aspects, and the findings of all phases of the study. The documentationmust be complete because (thereport will become a basic referencework for many years to come. The data and analyses can be contained in appendix volumes as required.

Part Two - arguments leading to the conclusions,the conclusions themselves,and the recommendationsfor action which are derived from them. The recommendationswill cover all of the matters mentioned in Section IX of the study outline and others that will become evident during the course of the study.

In many cases the conclusionsand recommendationswill include alternative solutionsor proposals and the consequencesof followingeach possible alternative, as well as the advantages and disadvantagesof them, should be care- fully explained.

Wherever clear courses of action are indicated, implementationpro- cedures, along with estimates of time and cost should be proposed. Distinctions should be drawn between specific action projects, long term programs, and the need for more studies and investigations. In the last case, only those further studies that will lead to action projects should be stressed.

A Word of Warning

At the conclusionof the regional economic development study, those concernedmay well be carried away by enthusiasm in making predictionsand recommendations. It is well to remember that all of the constraintswill not be removed, nor all of the opportunitiesrealized. Furthermore,Yugoslavia and the Republic of Serbia will undergo a certain rate of overall growth. It would be unrealisticand unwise to attribute a disproportionateshare of that growth to the regions under study. The best that can be hoped for, as a result of the study effort, is for a moderate increase in the proportion of investment and growth in these regions in the coming years, if it is the wish of the government to make special efforts to effect such an increase in the share of the overall growth.

In other words it will require overt action on the part of the government to cause additional investment to be made in the less developed regions, particularlyin those sectors of the economy in which direct financial rewards will not accrue to the investors. YUGOSLAVIA - MORAVA REGION DEVELOPMENT PROJECT REGIONAL ECONOMIC DEVELOPMENTSTUDY Timetable of Study Stages

MONTHS SCOPE OF WORK______1 2 3 4 5 6 7 8 9 10 11 12

I. Demographic Analysis - Labor Force - Employment

il. Natural Resource BaseAnalysis - Renewableand Non-renewable Stage One Stage Two III. Present Land Use Analysis - Assembleand asse Collect essential Land Capability and Planning existing data base missing data IV. Economic Analysis, Resource Stage Three Use, Manufacturing, Services - 0 Carry out economic, social 0L V. Social and Economic Infra- and geographic analyses structure Analysis T 4X o 0 0 VI. Rural Sector Analysis - Farm a o 2 and Non-farm a: r

VIl. Economic History; Regional ) j Stage Four Comparisons;Constraints on o o Interpret record of growth or Growth X decline by sector and institution VIII. Projections and Forecasts; Stage Five 10 and 25 years Growth Explain high to Opportunities low rates of growth

IX. Conclusions and Recommendations E with Statement of Investment a, o Preparation of Final Report tPubica-

Needs - - -: _ ri-n

World Bank-15487

,0 I

ANNEX 9 Page 10

STUDY NO: 3

REGIONAL ECONOMICDEVELOP1MENT

STAFFING TIMETABLE

Personn Months r 2 3 4 5 6 7 8 9 10 11 12 Man-Months

Project Manager (1) _ - _ _ -_ _ _- 12

Administrator (1) _ _m _ - _ - 12

Team Leaders (3) _ _ _ m = - - - -- 36

Economists (3) _ __ m _ - - 36

Geographers (3) _ m - -_ - _- - 36

Engineers (3) - l_ - 36

Agronomists (3) -_ _ m - - - 36

Stenographers (3) _ - -_ =m m 36

Drivers (3) 36

Total Man-Months 276

May 1976 ANNEX 10 Page 1

APPRAISAL OF

MORAVA REGION DEVELOPMENT PROJECT

YUGOSLAVIA

TITOVO UZICE - PROJECT DESCRIPTION

1. The project component to serve Titovo Uzice consistsof three dis- tinct facilities - the Vrutci dam and reservoir, and the water supply and wastewatersystems for the town. Each is described subsequently.

Vrutci Dam and Reservoir

2. The Vrutci damsite is on the Djetinja River, 12 km upstream and to the west of Titovo Uzice, as shown on Map 11639. A double curvature concrete arch dam has been designed by experienced Yugoslav consultants (Jaroslav Cerni Institute) after extensive investigations to determine the best site. An extensive grout curtain is proposed in the limestone foundation.

3. Technical features of the dam are as follows:

Height above river bed - 70 m

Volume of dam (including foundation trench) - 50,000 m3

Length of crest - 240 m

Width of crest (at center) - 3 m

Elevation of crest - 630 m (above sea level)

Spillway design flood - 450 m3/sec

Return period of spillway design flood - 10,000 years

Type of spillway - Ungated overflow (in middle of dam crest)

Spillway crest length - 50.4 m

Spillway crest elevation - 627 m (above sea level)

Spillway capacity - 450 m3/sec (for reservoir level of 629.75 m) ANNEX 10 Page 2

Bottom outlet arrangements - Two sets of two Howell Bunger valves (1,200 mm diameter each) at ele- vations 575 m and 590 m. Total capacity 102m3/sec.

Raw water intakes - 600 mm diameter valves at four locationson upstream side of dam (eleva- tions 590, 599, 608 and 616).

4. The reservoir to be created by the Vrutci dam will flood a land area of some 235 ha and require the relocation of 26 households.

5. The reservoir'suse will be governed by the following hydrologic parameters and dam features:

Catchment area - 160 km2

Average annual inflow - 1.87 m3/sec or 58.9 million m3/year

Normal top water level - 627 m (above sea level)

Minimum water level - 590 m (above sea level)

Total live storage - 47.5 million m3

Total storage (includingdead storage) - 53.0 million m3

The hydrologic analysis for the reservoir is based on eleven rain-gaugingsta- tions in the catchment, some of which provide data from 1926 (except for the period 1939-1946). Inflows at the damsite have been estimated on the basis of data from these precipitationstations within the catchment, correlatedto a stream gauging station at Gorobilje,some 20 km downstream of Titovo Uzicije. River flows have been recorded at this gauging station, whose catchment is 500 km2, since 1922. A stream gauging station was installed some 4 km downstream of the Vrutci damsite to improve the hydrologic analysis during the final stages of project planning.

6. Two sets of bottom outlet valves will release water for downstream users of raw water and for flow augmentationsas well as to evacuate the reservoir if appropriate to provide storage for anticipatedflood inflows. Water for the town of Titovo Uzice will be drawn from the reservoir through an intake with openings at four different levels (the draw-off level being chosen to provide the best quality water, depending on reservoirwater levels and water temperature). ANNEX 10 Page 3

7. The reservoir is intended to be operated to serve multiple objectives: water supply for the treated water system in town; flow regulationfor the industrial water system at Sevojno, which will pump water directly from the river; low flow augmentationto improve water quality; flood control; and pre- vention of sedimentationof downstreamreservoirs. Although realistic operating rules required for the optimum allocationof reservoir storage to meet these objectiveshave not yet been prepared, the consultantshave tentatively proposed that the reservoir storage will be allocated as follows:

(millionm3) (M)

1. Potable water supply for Titovo Uzice and Sevojno 18.2 34

2. Industrialraw water supply 8.25 16

3. Retention of 50 year flood 12.8 24

4. Retention of silt 5.5 10

5. Low flow augmentation 8.25 16

(Guaranteed minimum flow: 350 l/s)

Total 53.00 100

Such simplisticallocations cannot form the basis for determiningcost alloc- ations for the reservoir,which can only be made after a suitable set of- operating rules is prepared.

8. The reliable yield of the Vrutci reservoir is provisionallyesti- mated at 1,100 1/sec. (comparedto the average reservoir inflow of 1,870 1/sec.). These releases would supply water both to the town's treated water supply system and to the industry at Sevjno via the Djetinja River. Esti- mates of the town's future requirementsfor treated water are provided in Annex 28 and those of industry for untreated water are outlined in Annex 30. It is likely that the Vrutci reservoir will be able to supply these combined requirementsuntil at least the year 2000, but further study will be needed on this point.

9. When additionalsupplies of water are required for Titovo Uzice, they can be provided by augmenting the inflows to the Vrutci reservoir. This can be accomplishedby diverting flows from the Susica River, which presently joins the Djetinja River some 4 km. downstreamof the Vrutci site (Map 11639). A diversion structurewill be required on the Susica River some 4 km upstream of the junction with the Djetinja. The diversion system will involve a tunnel approximately3 km. long. The catchment area of the Susica River at the diversion site is approximatelyequal to that at the Vrutci site so the yield of the Vrutci reservoir should be increasedby approximately100% on completion of this relatively inexpensivediversion. ANNEX 10 Page 4

Water Supply System

10. Water would flow from the Vrutci reservoir by gravity to the proposed treatment plant at Cerovica, on the western edge of Titovo Uzice. Treated water would flow from there to the lower levels of town by gravity and to the higher levels through existing and proposed pumping facilities. The water supply system is shown on Map 11637.

11. A welded steel pipeline (660 mm diameter, 11.8 km long) with an estimated capacity of 800 liters/second would convey untreated water to the treatment plant. Cathodic protection measures would be installed to prevent corrosion. This pipeline would generally follow the abandoned alignment of the narrow-gauge railway to Sarajevo which previously ran from Titovo Uzice up the Djetinja River valley (the Vrutci dam axis is at the 25th tunnel from the town). This railway alignment would ultimately serve as the permanent access road between the town and the damsite. In 1974, the commune of Titovo Uzice arranged for a tunnel to be built (at a cost of Din 2.2 million) along this abandoned railway alignment at the point where it is crossed by the new Belgrade-Bar railway, in order to avoid the higher costs which would have been required if the tunnel had not been constructed then.

12. Some 2 km -tpstreamof the town (see map 11637) is a 22 m high masonry dam, Velika Brana, with a heavily silted reservoir whose capacity is estimated at 400,000 m3 (too small to regulate flows effectively). Built many years ago for the local production of hydro-electric energy, its power facilities were abandoned by the electricity authorities in 1974. It would be technically feasible to use the large Vrutci reservoir for flow regulation and to pump water from the downstream Velika Brana reservoir to the treatment plant but Bioktos decided instead to pipe the water from the upstream Vrutci reservoir to the plant, for two reasons:

(a) gravity flow from Vrutci would eliminate the expenses of building and operating a pumping station; and

(b) water quality in the Vrutci reservoir is expected to be considerably better than at Velika Brana.

13. The construction of the Vrutci dam is not expected to be completed before 1979. Bioktos expects to connect the Velika Brana reservoir to the main pipeline from Vrutci, since such an inexpensive connection could be useful in two possible ways:

(a) temporary source of additional water to the temporary infilra- tion basins at Turica (Annex 5), pending completion of the Vrutci scheme and treatment plant; and

(b) security, in the event that the pipeline between Vrutici and Velika Brana is damaged in future. Water from Velika Brana could supply Titovo Uzice in such a situation, either by emergency pumping to the new treatment plant or by connection to the Turica infiltration basins (which in future are likely to become only a standby source). ANNEX 10 Page 5

14. The proposed treatmentplant will be sited on the Cerovica hill, at the approximate elevation of 500 m. A conventionalsurface water treatment plant is proposed, comprisingpre-chlorination, floculation, sedimentation, rapid sand filtration and post-chlorination. In the first phase, the civil works will be built for a capacity of 600 liters/secondbut equipmentwill only be installed for a first stage plant capacity of 400 liters/second. Eight filters in two groups will be equipped in the first stage.

15. Treated water storage at the plant will consist of three compart- ments of 1,300 m3 each, giving storage for 2.7 hours at the plant's first stage capacity of 400 liters/second.

16. An integral part of the Cerovica plant will be a pumping station to lift water to the high level distributionzone. Two pumps will be installed, each with the following characteristics:

Power - 75 kw

Flow - 67 liters/second

Head - 72 m

17. The high level distributionzone is the part of the town above elevation 450 m. There is virtually no service in this area at present and in future the consumptionis expected to be relatively small.

18. The medium level of the distributionsystem, between elevation 400 m and 450 m, is the zone of highest consumption. Water would reach consumers in this zone by gravity from the treatment plant.

19. The low level distributionzone serves consumers below elevation 400 m, on the eastern side of Titovo uzice (Krcagovo)and at Sevojno.

20. Additional reservoirsto be built in the project are as follows: ANNEX 10 Page 6

Capacity (m3) Elevation (m)

High Zone: Cerovica 500 543 Pora 500 541 Gluvaci 500 540 Zabucje /2 300 525

Medium and Low Zones: Belo Groblje /1 2,000 475 Dovarje /1 2,000 456 Vuj ica 1,000 465 Kapetanovina /1 1,000 519 Sevojno 2,000 430

Total Capacity 9,800

21. In addition to the pumping facilities at the Cerovica plant, two pumping stations are required to supply high level reservoirs as follows:

Capacity (l/s) Head (m)

Zabucje /2 6 63 Dovarje 67 72

22. Transmission and distribution pipelines to be installed by Bioktos in the period 1976-1979 are included in the project. The main transmission line would run from the Cerovica treatment plant through Titovo Uzice and along the Djetinja valley to the Sevojno reservoir, a total length of 10.5 km, as follows:

Length (km) 8.9 1.1 0.5

Diameter (mm) 450 500 600

23. The remaining pipelines expected to be installed during the project period can be summarized as follows:

Diameter (mm) Length (km)

400 0.7 300 2.3 250 1.8 200 1.3 175 0.6 100 16.5

Total 23.2 km

/1 Additional capacity at site of existing reservoir. /2 Zabucje facilities will be built under technical control of Bioktos but financed by local consumers. ANNEX 10 Page 7

Wastewater System

24. The objective of the proposed wastewater system is the construction of a comprehensivenetwork of separate sewers to lead all wastewater to a treatment plant where the valley opens out east of Sevojno (downstreamof the town) (see map 11638). The site has been agreed but the design of the treatmentplant is not prepared so the constructionof the plant is not expected to commence until about 1979. The project includes the final design of the treatmentplant but does not include its construction.

25. The principal element in the wastewater system is a collector sewer which would follow the north shore of the Djetinja River. All sewers which presently discharge directly to the river would be interceptedand the new networks would be designed to feed into this collector. Pending the construction of the treatmentplant, the collectorwould discharge into the river downstream of the Sevojno plant industrialwater intake.

26. The project includes all sewers to be constructedby Bioktos in the period 1976-1979, estimated as follows:

Diameter (m) Length (km)

Main Collector: 800/1,050 1.8 900 5.2

Sub-total 7.0

Secondary Network: 200 13.1 250 12.8 300 3.5

Sub-Total 29.4

Total 36.4 km

May 1976 ANNEX 11 Page 1

APPRAISAL OF

MORAVA REGION DEVELOPMENT PROJECT

YUGOSLAVIA

CACAK - PROJECT DESCRIPTION

WATER SUPPLY SYSTEM

1. The present water supply system and the proposed project facilities are shown on Map 11640.

2. The source facilities to be developed consist of a series of 16 wells of 1 m diameter, 100 m apart, in the aquifer at Parmenac, on the left bank of the Zapadna Morava River, about 2 km upstream of the existing source at Beljina. The proposed wells would be located in a line parallel to and about 100 m from the river, on the river side of an existing levee built to protect adjacent farmlands from periodic flooding. The wells will be designed for protection from flooding.

3. Test drilling indicates that the alluvium depth varies from 3 m to 7 m and overlay impervious clays. The aquifer is very shallow, 2 to 3 m, and highly dependent on the water level in the nearby river.

4. Directly downstream of the wellfield is a weir across the river which can be used to regulate flows into a downstream irrigation system. Water levels in the river, and hence in the aquifer at the wellfield, are approximately 0.5 m higher when flows are regulated by the weir. The capacity of the 16 wells is estimated to total about 200 liters/second, rising to perhaps 250 liters/second with flow regulation at the weir. This compares to average river flows at the site of some 30 m3/second, and minimum recorded flow of 3.8 m3/second.

5. The project will include detailed testing and analysis of the performance and capacity of the wellfield, in terms of water quality as well as quantity, as a part of an economic evaluation of alternative future sources to meet Cacak's growing water requirements. Terms of reference for this study are attached as Annex 15.

6. A collector pipeline would convey water pumped from each well to the existing Beljina site, crossing the Zapadna Morava River upstream of the irrigation weir. The pipeline will supply a ground level balancing reservoir with a capacity of 500 m3.

7. A new pumping station will be constructed at Beljina with the following characteristics: ANNEX 11 Page 2

No. of pumps - 3

Capacity per pump - 200 liters/second

Head - 60 to 70 m

Power - 3 x 220 kw

8. Water from the expanded Beljin pumping facilitieswould flow both to storage facilitieson the nearby hillside and directly into the distribution system of the town. Detailed designs for the transmissionand distribution pipelines will be completedby the consultantsduring the project period. An outline of the 43 km of pipelineswhich are expected to be built during the project period 1976-1979follows:

Diameter (mm) 100 150 200 500

Length (km) 24 16 1.4 2.3

9. Two storage reservoirsare to be constructed,one near the existing Beljina reservoir on the south side of Cacak (capacity3,000 m3) and the other on the north side of the town (capacity2,000 m3).

10. Pump operations in the new welifieldwill be controlledfrom the new pumping station. The operationof the main pumps in turn depend on reservoir levels. Accordingly,control system cables will be installedto link wells and reservoirs to the pumping station.

WASTEWATER SYSTEM

11. The project will strengthenand extend the network of sanitary sewers already in existence. During the project period 1976-1979,the followingsewers are expected to be constructed:

Diameter (mm) Length (km)

200 34.2 250 2.2 300 1.0 350 1.2 400 0.4 600 1.0 800 1.4

Total 41.4

12. The sewer system, as illustratedon Map 11641, presentlyterminates in an outfall on the south shore of the Zapadna Morava River about 2 km east (and downstream)of Cacak. It is proposed to constructa wastewater treatment ANNEX 11 Page 3 plant near this point. However, the design of the treatment plant has not been completed, so constructionis unlikely to begin until about 1979. The project includes the final design of the treatment plant but does not include its construction.

13. Major industrial polluters (pulp and paper mill, bottling factory and future brewery) will have their wastes collected by an interceptorsewer to be constructedalong the south shore of the river. The final design of the treatmentplant will include studies to determinewhat pre-treatmentwill be required before these industrialwastes can be treated at Vodovod's future plant.

14. Cacak is a relatively flat town so not all of the wastewater can flow to the treatment plant site by gravity. The single wastewater pumping station which already exists will have to be expanded and four additional pumping stations will be built as part of the project. All will be relatively small and will operate automatically.

STORM DRAINAGE SYSTEM

15. Heavy rains cause local flooding problems in certain areas where storm drains have not yet been built. Two major drains, one on either side of the river, are to be built to alleviate this problem, as illustratedon Map 11641. Each will discharge into the river. The storm drains to be built in the project period 1976-1979 are estimated as follows:

Diameter (mm) Length (km)

250 0.2 300 0.7 350 0.6 400 1.7 450 0.4 500 1.9 600 2.1 700 2.4 800 1.1 1,100 0.3 1,200 0.3 1,600 1.2 2,200 1.1

14.0

May 1976 ANNEX 12 Page 1

APPRAISAL OF

NORAVAREGION DEVELOPMENTPROJECT

YUGOSLAVIA

ESTIMATED PROJECT EXPENDITURES - TITOVO UZICE

LOCAL FOREIGN TOTAL LOCAL FOREIGN TOTAL % of ITE------Dinars (000) ------US0$$-- (000) TOTAL

TITOVO UZICE VRUTCI DAM Concrete Arch Dam 67,730 36,470 104,200 3,763 2,026 5,789 18.0 Access Road 4,500 1,500 6,000 250 83 333 1.0 Erosion Works and Torrent Control 5,800 1,450 7,250 322 81 403 1.2 Site Investigations 700 300 1,000 39 17 56 0.2

- Sub-Total 78,730 39,720 118,450 4,374 2,207 6,581 20.4

Land 30,400 - 30,400 1,689 - 1,689 5.1 Engineering and Adsainifration 7,550 1,330 8,880 419 74 493 1.5 Physical Contingencies- 18,740 9,450 28,190 1,041 525 1,566 4.9

Sub-Total 135,420 50,500 185,920 7,523 2,806 10,329 31.9 Price Increases 46,010 17,170 63,180 2,556 954 3,510 10.7

VRUTCI DAM TOTAL 181,430 67.670 249.100 10,079 3,760 13,839 42.6

WATERSUPPLY SYSTEM Pmp Station - Turica 1,400 600 2,000 78 33 111 0.3 Raw Water Pipeline (Vrutci-Cerovica) 24,920 16,610 41,530 1,384 923 2,307 7.1 Treatment Plant (Cerovica) 24,370 19,930 44,300 1,354 1,107 2,461 7.6 Control System 1,200 1,800 3,000 67 100 167 0.5 Reservoirs: Cerovica, Pora, elo 5,250 2,250 7,500 292 125 417 1.2 Groblje and Sevojno Reservoirs: Gluvaci, Dovarie, Vujica and Kapetanovina 3,670 1,580 5,250 204 88 292 0.9 Transmission Line (Cerovica- Sevojno) 10,740 5,790 16,530 597 321 918 2.9 Distribution Network 14,750 7,950 22,700 819 442 1,261 3.9 Offices and Workshops 4,000 1,000 5,000 222 56 278 0.9

Sub-Total 90,300 57,510 147,810 5,017 3,195 8,212 25.3 Land 2,500 - 2,500 139 - 139 0.4 Engineering and Administration 9,100 1,610 10,710 506 89 595 1.9 Physical Contingencies 12,350 7,860 20,210 686 437 1,123 3.4

Sub-Total 114,250 66,980 181,230 6,348 3,721 10,069 31.0 Price Increases 34,400 20,170 54,570 1,910 1,121 3,031 9.3

WATER SUPPLY TOTAL 148,650 87,150 235,800 8,258 4,842 13,100 40.3

WASTEWATERSYSTEM Collector Sewers 20,300 8,700 29,000 1,128 483 1,611 5.0 Sewer Network 22,320 10,000 32,320 1,240 556 1,796 5.5 Sub-Total 42,620 18,700 61,320 2,368 1,039 3,407 10.5 Engineering and Administration 3,930 690 4,620 218 38 256 0.8 122 0.3 FinalFinal Design Pan for Wastewater Treat- 1,650 550 2,200 92 30120. ment Plant Physical Contingencies 6,390 2,800 9,190 355 156 511 1.6

Sub-Total 54,590 22,740 77,330 3,033 1,263 4,296 13.2 Price Increases 16,360 6,810 23,170 909 378 1,287 3.9

WASTEWATERTOTAL 70,950 29,550 100.500 3.942 1.641 5.583 17.1

SUMMARY VRUTCI DAM 181,430 67,670 249,100 10,079 3,760 13,839 42.6 WATER SUPPLY 148,650 87,150 235,800 8,258 4,842 13,100 40.3 WASTEWATER 70,950 29,550 100,500 3,942 1,641 5,583 17.1

TOTAL, TITOVO UZICE 401,030 184,370 585,400 22,279 10,243 32,522 100.0

1/Physical Contingencies- 25% for Vrutci Dam 10% for water pipes in town 15% for all other items. 21 All costs expressed in January 1976 prices. Annual allowances for future price increases as follows: 1976 - 14% 14ay 1976 1977 to 1979 - 12%. ANNEX12

APPUAISAL OP

!cRAVA REGION DMEOPHENT PROJECT

YUGOSUVIA

ESTMALITEDAIUAL PROJECT EXPENDITURE- TITOVO UZICE

TIrE 1976 1977 1978 1979 TOTAL % of ------Dinars (000) ------____-______

TITOVO UZICM

VRUTCI DAM Concrete Arch Dom 5,000 20,000 40,000 39,200 104,200 18.0 Access Road 4,000 2,000 - - 6,000 1.0 Erosion Works and Torrent Control - 2,000 3,000 2,250 8,250 1.2 - 0.2 Site Investigations 1,000 - - - Sub-Total 10,000 24,000 43,000 41,450 118,450 20.4

Land 4,000 6,000 15,000 5,400 30,400 5.1 Engineering and Administration 1,680 2,400 2,400 2,400 8,880 1.5 Physical ewntingencies 1' 1,500 15,000 8,000 3,690 28,190 4.9

Sub-Total 17.180 47.400 68.400 52.940 185,920 31.9

Price Increases - 1,720 9,950 23,940 27,570 63,180 10.7 42.6 VRUTCI DAMTOTAL 18,900 57,350 92,340 80,510 249,100

WATERSUPPLY SYSTEM Pump Station - Turica - - 2,000 - 2,000 0.3 Raw Water Pipeline (Vrutci-Cerovica) 4,000 13,000 15,000 9,530 41,530 7.1 Treatment Plant (Cerovica) 4,000 20,000 20,300 - 44,300 7.6 Control System - 1,000 1,000 1,000 3,000 0.5 Reservoirs: Cerovic-, Pora, belo Groblje 3,000 4,500 - - 7,500 1.2 and Sevoino Reservoirs: Gluvaci, Dovarje, Vujica and - - 2,650 2,600 5,250 0.9 Xapetanovina 2.9 Transmission Line (Cerovica-Sevojwo) 1,500 6,000 5,000 4,030 16,530 3.9 Distribution Network 3,000 7,000 7,000 5,700 22,700 Offices and Workshops - - 3,000 2,000 5,000 0.9 Sub-Total 15.500 51.500 55.950 24,860 1, 25.3 Land 700 700 600 500 2,500 0.4 1.9 Engineering and Administration 2,300 3,500 3,200 1,710 10,710 Physical Contingencies 2,100 7,075 7,793 3,242 20,210 3.4 Su4-Total 20.600 62.775 67.543 30.312 181,230 31.0

Price Increases 2.060 13.180 23.630 15.700 54.570 9.3

WATERSUPPLY TOTAL 22.660 75.955 91.173 46.012 235 800 40.3

WASTEWATERSYSTEM Collector Severs 11,200 8,000 5,000 4,800 29,000 5.0 Sewer Network - 11,000 11,000 10,320 32,320 5.5

Sub-Total 11.200 19.000 16.000 15.120 61,320 10.5 Engineering and Administration 1,100 1,400 1,400 720 4,620 0.8 Final Design for Wastewater Treatment Plant - 800 1,400 - 2,200 0.3 Physical Contingencies 1,680 2,850 2,400 2,260 9,190 1.6 Sub-Total 13,980 24,050 21,200 18.100 77,330 13.2 Price Increases 1,400 5,050 7,420 9,300 23.170 3.9 WASTEWATERTOTAL 15.380 29.100 28.620 27.400 100.500 17.1

VRUTCI DAM 18,900 57,350 92,340 80,510 249,100 42.6. 40.3 WATERSUPPLY 22,660 75,955 91.173 46,012 235,800 WASTEWATER 15,380 29,100 28,620 27,400 100,500 17.1 TOTAL. TITOVO UZICE 56.940 162,405 212.133 153.922 585.400 100.0

V/Physical Contingencies: 25% for Vrutci Dam 10% for water pipes in town 15% for all other items 2/All costs expressed in January 1976 prices. Annual allowances for future price increases as follows: 1976 - 14%; 1977 to 1979 - 12%.

May 1976 ANNEX 12 APPLAISAL OF Pge 3

ESAVA REGION DEVELOPMiT PROJECT

YUGOSLAVIA

ESTLuATED PROJECT EKPEMDITURES- CAC1K

ITEM LCAL FOREIGN TOTAL LAAL FOREIGN TOTAL t OF TOTAL ------Diner (000) - ___-__-- U8s (000) ------

WATERSUPPLY SYSTEM

Puy od ps Motor. for Wells sod Pup Station 1,890 1.890 3,780 105 105 210 1.5 Electrical Eqoip_net for Wells Dd Punp Station 1,600 1,600 3,200 89 89 178 1.2 and Chlorination Other Equipment 660 660 1,320 37 37 74 0.5 Parmenac Wells-Civil Works 1,980 490 2,470 110 27 137 1.0 Seljina Puep Station-Civil Works 3,200 1,720 4,920 177 96 273 1.9 Pipeline: Wllo to Pun St-tion (Supply nd Install) 2,470 1,330 3,800 137 74 211 1.5 Pipeline: Punp Station to Tow Network (Supply Dd Inotall) 4,350 1,860 6,210 242 103 345 2.4 Distribution Reservoir (South) 3,890 2,090 5.980 216 116 332 2.3 Main Disribution Lions to Peewary (Supply and Install) 4,240 2,280 6,520 236 126 362 2.5 Urgent Distribution Network (Supply and Install) 2,600 1,400 4.000 144 78 222 1.6 Main Supply Lines - Pipe Supply 6,440 3,460 9,900 358 192 550 3.9 Main Sdpply Liones - Pipe Installatioa 2,800 1,500 4,300 156 83 239 1.7 Distribution Network - Pipe Supply 16,770 9,030 25,800 932 502 1,434 10.0 Distribution Network - Pipe Iostallation 10.070 5.430 15.500 559 302 861 6.0

Sub-Total 62,960 34,740 97,700 3,498 1,930 5,428 38.0

Land 7,000 - 7,000 389 - 389 2.8 asd Engineering Adninistration 4,500 800 5,300 250 44 294 2.0 Syotem Development Study 1,700 300 2,000 94 17 111 0.7 Physical Contingencies 1' 6.300 3.470 9.770 350 193 543 3.8

Sub-mTtal 82,460 39,310 121,770 4,581 2,184 6,765 47.3

Pite Iner.ese 2/ 15.120 7.210 22.330 840 401 1.241 8.7

WATERSUPPLY TOTAL 97,580 46,520 144,100 5,421 2,585 8,006 56.0

WASTEWATERSYSTEM

Sewor Urgent Network (Supply and Install) 4,000 1,720 5,720 222 96 318 2.2 Soeer Pipe Supply 12,530 5,370 17,900 694 298 994 7.0 Sewer Pipe Installation 12,540 5.370 17,910 697 298 995 7.0 heap Stsriono-Squipncent flue Civil Works 2,200 1,470 3,670 122 82 204 1.4

Sub-Total 31,270 13,930 45,200 1,737 774 2,511 17.6

Land 100 - 100 6 - 6 0.1 Eiginesring nd Adnioiotration 2,880 510 3,390 160 28 188 1.3 Final Design for Wastewater Treat-mot Plant 2,250 750 3,000 125 42 167 1.2 Physical Co-tingeoncies 1/ 4,690 2.090 6.780 261 116 377 2.6

Sub-Total 41,190 17,280 58,470 2,289 960 3,249 22.8 Price Increases 2/ 10.720 5.110 15.830 595 284 879 6.2

WASTSWATERTOTAL 51,910 22,390 74,300 2,884 1,244 4,128 29.0

STORMDRAINAGE SYSTEM

Sewer Pipe Supply 10,190 4,370 14,560 566 243 809 5.7 Sewer Pipe Inotallation 6,780 2.900 9.680 377 161 538 _ 3.8

Sub-Total 16,970 7,270 24,240 943 404 1,347 9.5 Engianeering and Administration 1,360 240 1,600 76 13 89 0.6 Phynical Contingoncien 1/ 2,530 1.100 3,630 141 61 202 1.4

Sub-Total 20,860 8,610 29,470 1,160 478 1,638 11.5 Price Seereases 2/ 6.470 2.660 9,130 358 148 506 3.5 STORMDRAINAGE TOTAL 27,330 11,270 38,600 1,518 626 2,144 15.0

SUMMARY

WATERSUPPLY 97,580 46,520 144,100 5,421 2,585 8,006 56.0 WASTEWATER 51,910 22,390 74,300 2,884 1,244 4,128 29.0 STORMDRAINAGE 27.330 11.270 38.600 1.518 626 2.144 15.0 TOTAL 176,020 80,180 257,000 9,823 4,455 14,278 100.0

1/ Physical Contingoncien: 10% for water supply systems 15% for all other items

2/ Pries Increa.es: BaSic costs oppressed in prices of Juary 1976 Annual provisions for price increases an follow: 1976 - 14%, 1977 to 1979 - 12%.

may 1976 ANNEX 12 Page 4

YUGOSLAVIA- MRAVA R3ION DBVEL4PIDOITPROJECT

ESTIMATED AmIUAL IOJECT EXPDIIURES - CACAX

% of ITEM 1976 1977 1978 1979 IOT. Total ------Dar (000).------

WATERSUPPLY SYSTEM

Pumps and Motors for Wells and Pump Station 3,780 - - - 3,780 1.5 Electrical Equipment for Wells and Pump Station 3,200 - - 3,200 1.2 Chlorination and Other Equipment 1,320 - - - 1,320 0.5 Parmenac Wells-Civil Works 2,470 - - - 2,470 1.0 Beljina Pump Station-Civil Works 4,920 - - - 4,920 1.9 Pipeline: Wells to Pump Station (Supply and Install) 3,800 - - - 3,800 1.5 Pipeline: Pump Station to Town Network (Supply and Install) 6,210 - - - 6,210 2.4 Distribution Reservoir (South) 5,980 - - - 5,980 2.3 Main Distribution Lines to Brewery (Supply and Install) 6,520 - - - 6,520 2.5 Urgent Distribution Network (Supply and Install) 4,000 - - - 4,000 1.6

Main Supply Lines-Pipe Supply - 6,400 3,500 - 9,900 3.9 Main Supply Lines - Pipe Installation - 2,800 1,500 - 4,300 1.7 Distribution Network - Pipe Supply 800 12,000 10,000 3,000 25,800 10.0 Distribution Network - Pipe Installation 500 7.000 6.000 2.000 15.500 6.0

Sub-Total 43 500 28,200 - 21.000 5o000 97 700 38.0

Lend 7,000 - - - 7,000 2.8 Engineering and Administration 2,750 1,300 1,000 250 5,300 2.0 System Development Study 1,500 500 - - 2,000 0.7 9.770 3.8 Physical Contingencies V 4.350 2.820 2.100 500 Sub-Total 59,100 32,820 24,100 5,750 121,770 47.3

Price Increases 1 4.100 6.880 8.400 2.950 22.330 8.7

WATERSUPPLY TOTAL 63,200 39,700 32,500 8,700 144,100 56.0

WASTEWATERSYSTEM

Urgent Sewer Network (Supply and Install) 5,720 - - - 5,720 2.2 Sewer Pipe Supply 3,000 4,810 5,740 4,350 17,900 7.0 Sewer Pipe Installation 3,000 4,820 5,740 4,350 17,910 7.0 Pump Stations-Equipment Plus Civil Works - 3.100 570 - 3.670 1.4

Sub-Total 11,720 12,730 12,050 8,700 45,200 17.6

Land - 100 - - 100 0.1 Engineering and Administration 1,000 950 900 540 3,390 1.3 Final Design for Wastey!ter Treatment Plant - 1,000 2,000 - 3,000 1.2 Physical Contingencies- 1.760 1.910 1.810 1 300 6.780 2.6

Sub-Total 14,480 16,690 16,760 10,540 58,470 22.8

Price Increases/ 1.020 3.510 5.840 5.460 15 830 6.2

WASTEWATERTOTAL 15.500 20,200 22,600 16D000 74,300 29.0

STORM DRAINAGESYSTEM

Sewer Pipe Supply 3,000 3,970 2,650 4,940 14,560 5.7 Sewer Pipe Installation 1X990 2.640 1.760 3a290 9.680 3.8

Sub-Total 4,990 6,610 4,410 8,230 24,240 9.5

Engineering and Adminisj;ation 400 400 400 400 1,600 0.6 Physical Contingencies - 750 990 660 1.230 3.630 1.4

Sub-Total 6,140 8,000 5,470 9,860 29,470 11.5 3 Price Increases -! 460 1.700 1,930 5,040 9,130 3.5

STORM DRAINAGETOTAL 6,600 9,700 7,400 14,900 38,600 15.0

SUMMARY

WATER SUPPLY 63,200 39,700 32,500 8,700 144,100 56.0 WASTEWATER 15,500 20,200 22,600 16,000 74,300 29.0 STORM DRAINAGE 6,600 9,700 7,400 14,900 38,600 15.0

TOTAL 85.300 69.600 62.500 39.600 257. 1 1i.

1/ Physical Contingencies: 10% for water supply system 15% for all other items

2/ Price Increases: Basic costs expressed in prices of January 1976 Annual provisions for price increases as follows 1976 - 14%, 1977 to 1979 - 12%.

May 1976 ANNEX 12 Page 5

STUDY NO. 1

ADJUSTMENTS TO FLOOD HAZARDS

Cost Estimates

Personnel (including overhead costs) Dinars | us$ -- (00 ) oo ) Professional staff 172 man months at 35,000 Din/mm 6,020 334

Foreign specialist 75 man months at 90,000 Din/mm 6,750 375

Other staff 410 man months at 20,000 Din/mm 8,200 455

Sub-total 657 man months 20,970 1,164

Expert advisors 12 man months at 108,000 Din/mm 1,226 72

Personnel sub-total 669 man months 22,266 1,236

Other

Purchase of 1:25,000 scale maps - 1,000 56

Computer time 2,000 111

Contract for levee survey 500 28

Vehicles (2) 300 17

Miscellaneous (Printing, 0 and M, etc.) 200 11

Sub-total 4,ooo 223

Basic costs 26,266 1,459

Contingencies (20%) 5,234 291

Total 31,500 1,750

May 1976 ANNEX 12 Page 6

STUDY NO. 2

WATER QUALITY IN ZAPADNA MORAVA REGION

Cost Estimate

Dinars US$ …___- (000)

Personnel (Includingoverhead)

Project Manager 18 man months at Dinar 35,000 630 35 Advisor to Manager (foreign) 18 man months at Dinar 90,000 1,620 90 Economist 9 man months at Dinar 35,000 315 18 InstitutionalAnalyst 6 man months at Dinar 35,000 210 12 Chemical Engineer 18 man months at Dinar 35,000 630 35 Chemical Engineer (foreign) 12 man months at Dinar 90,000 1,080 60 Technicians (two) 30 man months at Dinar 20,000 600 33 Secretary (bilingual) 18 man months at Dinar 23,000 414 23 Interpreter 18 man months at Dinar 20,000 360 20 Driver 18 man months at Dinar 17,dOO 306 17

Sub-total 165 6,165 343

Advisors to SWF

Preliminary stage (three months) Study designer, water quality expert, data management expert, etc. Total seven man-months at Dinar 108,000 756 42 Interpreter - 3 man-months at Dinar 20,000 60 3

Sub-total 816 45

Implementationstage (18 months) Six man-months at Dinar 108,000 648 36

Personnel sub-total 7,629 424

Contracts

River water analyses (including collection) Assume 20 stations, 5 samples per station monthly for 12 months, i.e. 1,200 samples at Dinar 2,000 2,400 133

Effluent analyses (including collection) Assume 50 plants, average of 10 samples per plant, i.e. 500 samples at Dinar 4,000 2,000 111 Monitoring equipment 500 28 Fish biossays 60o 33 Computer time 500 28 Vehicle 150 8 Miscellaneous (publishing etc.) 100 6

Contracts sub-total 6,250 347

Basic Costs 13,879 771

Contingencies (21%) 2,921 162

TOTAL 16,800 933

May 1976 ANNEX 12 Page 7

STUDY NO. 3

REGIONAL ECONOMIC DEVELOPMENT

COST ESTIMATE

Dinars (000) US$ (000)

Personnel (including overhead costs):

Professional - 192 man-months at Din. 30,000 5)760 320

Other staff - 84 man-months at Din. 17,000 1,428 79

Contracts:

Vehicles (3) 450 25

Miscellaneous (printing, 0 and M, etc.) 200 11

Sub-Total 7,838 435

Contingencies (16%) 1,262 71

Total AQ6

May 1976 YUGOSLAVIA - MORAVAREGION DEVELOPMENTPROJECT

ESTIMATED PROJECT EXPENDITURES - PILOT IRRIGATION PROJECTS

AT MILOSEVAC AND ALEKSINAC

Local Foreign Total Local Foreign Total % of -- Dinars (000)------US ------Total

Earthwork 1,094 970 2,o64 61 54 115 8.4 Underground Pipes 4,629 2,040 6,669 257 113 370 27.2 Wells and Pumps 1,516 385 1,901 84 22 106 7.7 Mobile Equipment 2,147 1,207 3,354 119 67 186 13.7 Piezometers, Test Wells 321 81 402 18 4 22 1.7 Land Consolidation 300 0 300 17 0 17 1.2 Engineering and Administration 1,027 0 1,027 57 0 57 4.2 Sub-Total 11,034 4,683 15,717 613 260 873 64.1

Physical Contingencies 1/ 1,104 468 1,572 61 26 87 6.4

Sub-Total 12,138 5,151 17,289 674 286 960 70.5

Price Increases 5,062 2,149 7,211 282 119 401 29.5

IRRIGATION TOTAL 17,200 7,300 24,500 956 405 1,361 100.0

See details of costs for Milosevac and Aleksinac components in Annex 34, Table 2.

1/ 10% for all items.

May 1976

YUGOSLAVIA - MORAVA REGIONDEVELOPMENT PROJECT TITOVA UZICE - CONSTRUCTIONSCHEDULE

1976 1977 1978 1979

10 20 30 40 10 20 30 I4 10 20 3Q 4Q 10 2Q 3Q 40

VRUTCI DAM nAm suA __ JJ _ WATER SUPPLY SYSTEM

RAW WATER PIPELINE (VRUTCI CEROVICA) _A rrsJ II _ A WAN

TREATMENT PLANT (CEROVICA) _An ' "' '' Kid

PUMP STATION (DOVARJE) - rl,

RESERVOIRS (EIGHT) il I frr

TRANSMISSION LINE (CEROVICA SEVOJNO) iall.sm 'r

DISTRIBUTION NETWORK PIPES A _ Ill'mi

WASTEWATER SYSTEM

MAIN COLLECTOR (ALONG DJETINJA) HiAlA -t r

SECONDARY NETWORK SEWERS , j K _

FINAL DESIGN AND TENDER DOCUMENTS i iu.ismsrBIDDING AND BID EVALUATION wrA_ CONSTRUCTION World Bank-15410(R) La

May 1976

ANNEX14

YUGOSLAVIA- MORAVA REGIONDEVELOPMENT PROJECT CACAK - CONSTRUCTION SCHEDULE

1976 1977 1978 11979

l1 20 9 30 40 10 20 30 40 10a 20 30 40 10 20 30 40

WATER SUPPLY SYSTEM _ WELLS AND PUMPS t rii

WELLFIELD COLLECTOR PIPELINE

PUMP STATION EXTENSION (BELJINA) _ I F

DISTRIBUTION RESERVIOR ""V 1 F

TRANSMISSION MAINS AND DISTRIBUTION _ VA F_ A I F A_ NETWVORKPIPESm..

WASTEWATER SYSTEM

PUMP STATIONS_ ts __ __ _ '_ X

STORM DRAINAGE SSI_- F _ 1 _1"" - - -

SEWERS

_ommmlgFinal Design and Tender Documents

sesssseliBidding and Bid Evaluation

___Construction ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~WorldBank-1 541 1(R)

May 19t76

ANNEX 15 Page 1

APPRAISAL OF

MORAVA REGION DEVELOPMENT PROJECT

YUGOSLAVIA

CACAK VODOVOD

WATER SUPPLY SYSTEM DEVELOPMENT STUDY

Objective

The study is intended to provide authorities in Cacak and Serbia with information on which to make decisions concerning the development of future water sources for Cacak.

Scope of Work

(a) To prepare realistic projections of future water demands and associated production requirements in Cacak, including factors for peak day and peak month.

(b) To determine the reliable present and future capacity of groundwater sources at Beljina (existing) and Parmenac (under development) and to assess the quality of water from both sources.

(d) To prepare an economic analysis of alternative future systems, and to make preliminary recommendations concerning the next source to be developed for Cacak, based on this economic analysis.

Procedures

Vodovod should engage engineering consultants for this study, which is to be completed by June 30, 1977.

(a) Water Demands

Estimates of future water demand will be based on a detailed study of existing Vodovod consumers and on realistic projections of future industrial development in Cacak. Demands of domestic, commercial and industrial consumers, and associated peak factors, should be estimated separately. Particular attention should be given to individual industries which are potential large users of water. ANNEX 15 Page 2

(b) Groundwater Source Capacity

The determinationof the capacity of the groundwater sources, particularlyat Parmenac, will require considerabledata to be collected and analyzed. River flows and water levels at the Parmenac weir should be recorded continuously.

Water levels, in all production wells and observationpoints should be recorded daily. If original test holes were properly covered and constructedwith screened and slotted sections in the gravel layer, they would be suitable as observation points. Otherwise, about one dozen new observationwells, in two lines of six wells spaced at about 100 meter intervals, should be installed. The first line should be about halfway between the productionwells and the river; the second line approximately parallel and near to the edge of the river.

Water quantitiespumped from each well should be recorded daily. A master meter should be installed to record continuouslythe total discharge from all wells.

Rainfall and temperatureshould be recorded at a site within the wellfield to determinewhether or not rainfall affects well performanceand to provide data concerningthe possibilityof groundwater recharge (spreadingbasins).

Water quality should be analyzed weekly, both in the river and in representativewells (includingobservation wells), to determine the degree and effectivenessof treatment from the natural filtrationprocess in the aquifer. Chemical water quality parameters of significanceshould be identifiedearly in the program and given special attention.

Considerationneeds to be given to possible ways to increase the Parmenac wellfield capacity after the initial wells are constructed. Additionalwells is one possibility. Groundwaterre- charge is another (as at the Beljina source).

An alternativeworth consideringis to increase the production at each well by some system of infiltrationgalleries, such as gravel-filledditches or porous pipes in the saturated aquifer, which would drain into the productionwell.

In order to analyze such an alternativethoroughly it will be necessary to test the system. Therefore,Vodovod should consider the installationof one or more systems to increase well yields in the original constructionof the well field. Each experimentalwell should have an individualmeter to determine its output accurately. ANNEX 15 Page 3

The technical feasibilityof alternativefuture sources needs to be studied and estimates of capital and operating costs prepared. Different sources require different systems of pumping, treatment and transmissionfacilities, so the entire system expansionneeds to be studied for each feasible source alternative. The sources to be studied should include, but not be limited to, the following:

(i) additionaldevelopment of the Parmenac source through more wells and/or groundwaterrecharge;

(ii) treatment of water pumped directly from the Zapadna Morava River upstream from Cacak;

(iii) developmentof new groundwater sources to serve Cacak;

(iv) Semedraz dam.

(d) Economic Analysis of Alternatives

In consideringany possible future source which can provide benefits in addition to those for urban water suppply (such as a reservoirwith flood retention or low flow augmentationcapacity), all additional costs and benefits should be realisticallyesti- mated. Such multipurposeaspects of the water supply facility should be properly considered in the economic analysis of alternatives.

For each alternativefuture system, estimated incremental capital and operating costs should be totalled for each year. The present value of all future costs for each alternativeshould be determined for various discount rates (8%, 10% and 12%). The most economic alternative is the one providing the lowest present value of all future incrementalcosts at the appropriatediscount rate.

May 1976 ESTIMATEDIBRD LOANDISBURSEMENTS

IBRD Fiscal Year and Quarter Disbursements to Beneficiaries Total Cumulative Total Republic Bioktos Vodovod Irrigation SPUR Water Fund T. Uzice Caeak Enterprises ------US$S------(O00) ------

FY 1977 December 31, 1976 196 372 794 - - 1,362 1,362 March 31, 1977 265 402 534 - 21 1,222 2,584 June 30, 1977 306 460 606 116 22 1,510 4,094

FY 1978 September 30, 1977 360 467 309 108 40 1,284 5,378 December 31, 1977 428 560 417 120 44 1,569 6,947 March 31, 1978 438 500 294 109 21 1,362 8,309 June 30, 1978 540 634 428 17 26 1,645 9,954

FY 1979 September 30, 1978 492 532 278 - - 1,302 11,256 December 31, 1978 632 712 440 20 7 1,811 13,067 March 31, 1979 448 429 227 - - 1,104 14,171 June 30, 1979 632 653 415 21 8 1,729 15,900

FY 1980 September 30, 1979 394 326 177 - - 897 16,797 December 31, 1979 616 588 387 18 8 1,617 18,414 March 31, 1980 358 326 176 - - 860 19,274 June 30, 1980 243 291 60 - - 594 19,868

By 1981 September 30, 1980 - - - - 19,868 December 31, 1980 112 11 9 - - 132 20,000

TOTAL 6,460 7,263 5,551 529 197 20,000

May 19r6 ANNEX 17 Page 1

APPRAISAL OF

MORAVA REGION DEVELOPMENTPROJECT

YUGOSLAVIA

KEY INDICATORSFOR PROJECT MONITORING

The following key indicatorswill be monitored during the execution of the project to measure the achievementof the technicaland financial performance of Vodovod (Cacak) and Bioktos (Titovo Uzice). In each case the budget and actual figures will be shown for the latest quarter and for the same quarter one year earlier.

Physical Criteria

(a) Water production

(i) average daily production for each month of the quarter;

(ii) cumulative total,productionfor the year;

(b) Water sales (domestic,commercial and total)

(i) average daily consumption for each month of the quarter;

(ii) cumulative total consumption for the year;

Volume and percentage for each month of the quarter;

(d) Connections

(i) number of new connections for the quarter;

(ii) total connectionsat end of quarter;

(e) Population

Estimated population served at end of quarter;

(f) Meters

(i) number of meters repaired or replaced during quarter;

(ii) number of connections without meters and with meters not functioningat end of quarter; ANNEX 17 Page 2

(g) Leaks

(i) number of possible leaks investigated during quarter;

(ii) number of leaks repaired during quarter;

(h) Pressures

Minimum and maximum pressures at selected points on distribution system.

Drinking Water Quality

(a) Bacteriological

(i) number of samples for which chlorine residual and bacteria counts (MPN) were carried out during quarter;

(ii) number of positive analyses in bacteriological examinations;

(b) Chemical

Representative chemical analysis (raw water and treated water).

River Water (Djetinja River at Vrutci site for Bioktos; Zapadna Morava River at Parmenac weir for Vodovod Cacak)

Quantity

River flows (average, maximum and minimum day) by months during quarter.

Quality

Representative chemical and bacteriological analyses.

Staffing and Training

(a) Staffing

(i) number of permanent employees at end of quarter;

(ii) number of temporary employees at end of quarter;

(iii) number of contractor's staff (high, low and average) employed during quarter;

(iv) number of employees for each category undergoing training during the quarter. ANNEX 17 Page 3

Financial Indicators

(a) average volume of water sold and revenues per connection;

(b) average revenue/m3 produced; (c) operating expenses/m3 produced; (d) average time (days) between meter reading and presentation of bill;

(e) for final quarter only: (i) rate of return (ii) internal cash generation (iii) debt service coverage.

May 1976 ANNEX 18 Page 1

YUGOSLAVIA

MORAVA REGION DEVELOPMENT PROJECT

BIOKTOS - TITOVO UZICE COMMUNAL ENTERPRISE

Organization and Administration

A. BACKGROUND

!. Bioktos - Titovo Uzice Communal Enterprise will be a significant beneficiary from the project. Bioktos is an Organization of Associated Labour controlled by its workers who direct the enterprise through a Workers Council. At present, Bioktos is not divided into separate Basic Organizations of Asso- ciated Labour, although this may possibly occur as its activities expand. Bioktos is not entirely autonomous because the Commune (inter alia):

(a) approves Bioktos Self-Management Agreements and any changes therein;

(b) approves all changes in tariffs;

(d) acts as co-ordinator of various local enterprises, including Bioktos, for the general economic and social well-being of the area; and

(e) establishes and supervises various communal funds for the construction of public works, including water supply and/or wastewater systems.

B. ORGANIZATION AND MANAGEMENT

2. Bioktos is responsible for water supply and wastewater facilities throughout the commune. At present, such networks only exist within the towns of Titovo Uzice and Sevojno.

3. In addition to the water and wastewater service, Bioktos operates the town's street cleaning and refuse collection service (including septic tanks emptying), storm drainage, a municipal market for small farmers and a parks service incorporating a flower shop and funeral services. Each of these services is supported either by its own revenues or by constributions from the Commune. ANNEX 18 Page 2

4. There are also two service departments, one for technical and engineering services and the oher for finance and administrative services. These departments provide common services for the operating departments of Bioktos, and the technical and engineering departments may also do work, for a fee, for outside parties.

5. Bioktos organization chart is shown as part of this Annex. There are currently about 180 employees of Bioktos of which about 40 are directly employed in the water and wastewater department. A further 10 staff are employed in the technical and engineering department and 26 in the finance and administration department; both departments providing common services to Bioktos. The remaining staff are directly employed on the municipal services (street cleaning, refuse collection, markets, parks, etc.). The major proportion of the work of the technical and engineering department is devoted to the water and wastewater system. Network extensions are carried out by contract, with Bioktos staff providing only supervision.

6. Bioktos is capably managed by a managing director reporting to a workers' council. There seems to be good co-operation with the communal authorities. Technical and financial planning seem good. There is some degree of overlapping of functions between operating and service departments and Bioktos is considering certain reorganizations to improve the situation. A likely possibility is that a large part of the technical and engineering department will transfer to the water and wastewater department.

C. ACCOUNTS AND AUDIT

7. Financial records are kept according to the standard prescribed by the Social Accounting Service. The accounting system of Bioktos enables it to routinely allocate costs among its various operations and also to appropriately allocate the overheads attributable to the two service departments. According- ly, the enterprise can present separate income statements and fixed asset records for water, wastewater and other services and can produce complete financial statements along lines familiar to the Bank. Water meters are read and billings made monthly. Since January 1975, water consumption has been used as the basis for wastewater charges. Prior to that date there were no separate charges for wastewater.

8. As with all Yugoslav enterprises, annual inspection is carried out by the Social Accounting Service. In co-operation with the Bank, and with the assistance of foreign consultants, the Social Accounting Service is in the process of establishing and expanding a special group which will eventually audit all enterprises handling Bank projects to a standard acceptable to the Bank. It will be several years before the Social Accounting Service will have the staff to perform all such audits, but as soon as practicable it is expected that the accounts of Bioktos will be subject to these arrangements.

YUGOSLAVIA - MORAVA REGION DEVELOPMENTPROJECT BIOKTOS, TITOVO UZICE ORGANIZATION CHART

WORKERS COUNCIL

DIRECO

STREET CLEANING PARKS, FLOWER TECHNICAL AND FINANCE AND MARKET ANDD RE SHOPAND WATER AND ENGINEERING DMINISTRATIVE COLLECTION FUNERALS WASTEWATERSERVICES" SERVICESC-'

I C I I I I ~~~~~~~~~~~~~~NEWWATER PLANNING AND CONSTRUCTION TECHNICAL SUPPLY DEVELOPMENT SUPERVISION PREPARATION INVESTMENTS

FINANCIAL ACCOUNTING OPERATIONS

I/ "Technical and EngmneeringServices" and "Finance and Ad,innislrative Services" provide common servicesto all departmentsof the enterprise. Wo,ld8Brk-15337 _ c

May 1976

ANNEX 19 Page 1

YUGOSLAVIA

MORAVA REGION DEVELOPMENT PROJECT

VODOVOD CACAK - WATER AND WASTEWATER ENTERPRISE

Organization and Administration

A. BACKGROUND

1. Vodovod - Cacak Water and Wastewater Enterprise will be a significant beneficiary from the project. As with other enterprises in Yugoslavia, Vodovod is an Organization of Associated Labour controlled by its workers, who direct the enterprise through its Workers' Council. At present Vodovod is not divided into separate Basic Organizations of Associated Labour, although this may possibly occur as its activities expand. Vodovod is not entirely autonomous, because the Commune of Cacak (inter alia):

(a) approves Vodovod's Self-Management Agreement and any changes therein;

(b) approves all changes in Vodovod's tariffs;

(d) acts as co-ordinator of various local enterprises, including Vodovod, for the general economic and social well-being of the area; and

(e) establishes and supervises various communal funds for the construction of public works, including water supply and/or wastewater systems.

B. ORGANIZATION AND MANAGEMENT

2. Vodovod is responsible for the water supply and wastewater facilities throughout the Commune, which at present exist only within the town. Vodovod provides a service to empty clogged cesspits, and operates one tanker for this purpose. ANNEX 19 Page 2

3. The Commune has decided that Vodovod will take over the operation of the town's stormwater system, at present operated by another communal enterprise. When the system is taken over by Vodovod it will continue, as now, to be financed by communal taxes and not from water and wastewater charges. Separate accounts will be kept. The inclusion of the stormwater system in the proposed project is based on the assumption that, Vodovod will have taken over responsibility for this service, before June 30, 1976.

4. Vodovod's organization chart is shown as part of this Annex. Staff currently number just over 100, about half of which are directly concerned with the maintenance and construction of networks. Network construction is currently carried out largely by Vodovod's own workforce.

5. Vodovod is controlled by a managing director reporting to the workers' council. Overall management capability does not give an impression of being very dynamic and most decisions of any importance are taken by the Commune, rather than by Vodovod itself. Medium to long-term planning seems weak in both technical and financial matters. However, working with its consultants (Energoproject), Vodovod has demonstrated some inovative ability in meeting problems of immediate water demand and it has a significant ongoing network construction program, which it intends to continue.

6. Consideration has been given to a re-organization of Vodovod, with the intention of closer association with the Water Management Organization of Cacak, an affiliate of the Morava River Corporation. Outline proposals have been discussed with Bank staff, but will require further review and analysis before any firm arrangements are made.

7. Financial management has been confined to basic book-keeping, with little or no emphasis on forward planning, except for securing cash for the immediate program of network construction. This construction has, in the past, been financed in shares of approximately one-third each by the citizens being connected; the commune and Vodovod itself. The accounting for these connections is based entirely on estimates, with no apparent ex-post calculations for comparison. Thus, once charges are billed to consumers and to the Commune there is no further control to check how the charges relate to costs. Furthermore, the estimated costs and revenues (including Vodovod's share) have been included in the income statements, causing distortions in the calculations of net income. (These have been corrected in the financial statements shown in Annex 25).

8. The head of the finance and administration department is apparently very ill and has not been working for several months. This naturally leaves the department without proper leadership, a matter which will require attention if improvements are to be made. ANNEX 19 Page 3

C. ACCOUNTS AND AUDITS

9. Financial records are kept according to the standard prescribed by the Social Accounting Service. There are no detailed allocationsbetween the water and wastewater services. However, financial informationderived from the accounting system is adequate, with certain adjustments,to produce financial statementsalong lines familiar to the Bank. Less adequate is statistical informationrelated to water sales, numbers of connectionsetc., where considerableinconsistencies exist between the accounting records and the information provided by the technical staff. This makes technical and financial planning difficult. Furthermore,some improvementsshould be possible in the cost-accountingsystem, to deal more adequately with problems such as that related to network extensions referred to in paragraph 3 above.

10. Billings are monthly, based on bi-monthlymeter readings and the post office assists as a collection agency for the payment of bills. Waste- water charges are based on metered water consumption,including metering of private water supplies for which Vodovod makes no water charge, but where the premises are connected to the wastewater system.

11. As with all Yugoslav enterprises,annual inspection is carried out by the Social Accounting Service. In co-operationwith the Bank, and with the assistance of foreign consultants,the Social Accounting Service is in the process of establishingand expanding a special unit which will eventually audit all enterpriseshandling Bank projects to a standard acceptable to the Bank. It will be several years before the Social Accounting Service will have the staff to perform all such audits, but as soon as practicable,it is expected that the accounts of Vodovod will be subject to these arrangements.

ANNEX 19

YUGOSLAVIA - MORAVA REGION DEVELOPMENT PROJECT g 4 CACAK VODOVOD ORGANIZATION CHART

WORKERS' COUNCIL

GENERAL MANAGER

, - q~OUNI L

PERSONNEL TECHNICAL FINANCE & PESNE MANAGER ADMINISTRATION

MECHANICAL WATER MAINTENANCE& PLANT DISTRIBUTION CONSTRUCTION

World Bank - 15336

May 1976

ANNEX 20 Page 1

APPRAISAL OF

MORAVA REGION DEVELOPMENT PROJECT

YUGOSLAVIA

SERBIAN FUND FOR UNDERDEVELOPED REGIONS

1. The Serbian Fund for Underdeveloped Region (SFUR) was created in 1970 to provide financial incentives for industrial development in regions of Serbia which are designated as underdeveloped. Each Region, of which there are sixteen in Serbia proper outside of Belgrade, includes a number of communes. Regions are designated as underdeveloped if they fall below the Serbian average for a number of criteria, including per capita income, value of retail sales per capita, percentage of labour force that is-employed, budget of the commune, etc. The Republican Institute for Social Planning provides guidance to the Assembly, which formally designates which regions are underdeveloped and are therefore eligible for assistance from SFUR.

2. The initial capatilization of SFUR was Din. 500 million (US$29 million) but this has subsequently been tripled to Din. 1,500 million (US$88 million). The resources of SFUR comprise compulsory loans from business enterprises 1/ and the repayment of previous loans for development projects. Annual receipts from compulsory loans are presently of the order of Din. 400 million (US$24 million).

3. SFUR resources are made available as grants or loans for projects to benefit the underdeveloped regions. Grants, representing about 5% of SFUR past commitments, are provided for studies. The greater part of the funds are lent for industrial development on fairly easy terms: 4% interest and 15 year repayment period.

4. In the period 1971-74, SFUR made loans totalling approximately Din. 1,000 million (US$59 million) for the construction, extension or reconstruction of some 200 projects throughout Serbia's underdeveloped regions. Since SFUR loans typically fund 25% of project costs, the total cost of these projects would have been of the order of Din. 4,000 million (US$235 million).

5. Administration of SFUR's activities is undertaken by a 3-man staff which is physically located in and assisted considerably by Beogradska Banka (Bank of Belgrade). Approximately 30 staff members of Beogradska Banka are engaged in these activities.

1/ According to legislation creating SFUR, all economic organizations in Serbia proper (including banks) must contribute 0.5% of their gross income to SFUR. These funds are supposed to be repaid to the organizations eventually.

May 1976 ANNEX 21 Page 1

YUGOSLAVIA

MORAVA REGION DEVELOPMENT PROJECT

The Accounting Systems of

Bioktos (Titovo Uzice) and Vodovod (Cacak) Communal Enterprises

1. Each organization uses the chart of accounts and financial statement reporting forms used by all Yugoslav organizations. They have adopted the double entry system of accounts and accrue income and expenditure at the end of the accounting period. The concept of profit (Dohodak) differs from that understood in other countries in that it is derived before deduction of expenditure for salaries and wages, interest on debt, insurance premiums, legal and contractual liabilities. These expenditures are treated as appro- priations of profit. Nevertheless, the form of accounts used is readily adapted to the form of presentation which is normally followed by the Bank when appraising public utility projects.

2. The appropriation of profit is aimed first to meet the organization's social obligations, both legal and contractual, before meeting obligations to the employee for salary, housing, training and recreation. There are social obligations within the Yugoslav socialist system which require each basic organization to contribute to the cost of education at schools and universities; the Federal Fund for Underdeveloped Regions; and, loans to community funds; other enterprises, and Government institutions. After meeting the above obligation, which are analogue to operating expenses and taxes, some of the remaining income is distributed to a legal reserve fund and a collective consumption fund, with the balance retained in a business fund. The reserve fund is separately invested by the enterprise, and the collective consumption fund is separately administered by the workers, as a kind of trust fund, for common social and recreational purposes.

3. Salaries are based on social agreements reviewed annually by the Republican Government, the Chamber of Commerce and the unions. Rates of pay are set for each category of worker within each industry. The agreements take into account the need for sufficient funds to maintain the living standards of the workers and to provide sufficient funds for expanding output.

4. Assets are not considered to belong to an organization but rather to be assigned to an organization for their management and control. They are, however, accounted for on a basis similar to ownership. Depreciation is charged against fixed assets in a similar manner to that used in other countries. Depreciation funds may be used first to meet debt service requirements, then to finance modernization or replacement of fixed assets, to meet social obligations, and the remainder may be used to finance new construction. ANNEX 21 Page 2

5. Currently, recorded depreciationcharges may comprise a number of different factors:

(a) minimum rates prescribed by Yugoslav law;

(b) increasesover minimum rates to allow for extra-shiftworkings and for other adjustmentswhere minimum rates are considered low;

(d) arbitrary increaseswhere determined by the management and/or workers' assemblies,to increase retained earnings.

Only items (a) and (b) conform to present generally accepted accounting principles. Item (c) reflects both prudence and the increasing trend towards inflation-accountingrequirements. The present method does, however, cause distortions because, hitherto, gross assets have not been concurrentlyrevalued with increased depreciationcharges.

6. Until now, revaluationof fixed assets has been carried out on an ad hoc basis under rules prescribed by the Social Accounting Service (SAS), and usually to reflect, in the past, exchange rate adjustmentsrather than inflation. The latest general revaluationtook place in 1971. Under a recently published set of regulationsin July 1975, provision is made for the annual revaluationof fixed assets. Revaluation is apparently to be compulsory where inflation has exceeded 10% in any year and otherwisevoluntary (thus, the voluntary nature of the lower revaluationscould still cause inconsistencies) based on statistical indices promulgatedby the Federal Government.

7. All cash and payments of accounts are regulated and supervised by SAS who are also responsiblefor auditing in Yugoslavia. Each organization has its own account (referredto as the Giro Account) at the local bank. All business funds, reserve funds etc. are maintained at this bank and all payments are verified by the SAS before checks are sent.

8. The detailed accountingmethods and procedures are not prescribed (with the exception of the chart of accounts and reporting forms para 1) and thus each organizationis free to develop its own internal systems and apply accounting procedures as it sees fit. Financial statementsare prepared quarterlyand closed off about the 20th of the followingmonth. Annual accounts are closed off about January 31 and are required to be submitted to the SAS by the end of February.

May 1976 YUGOSLAVIA

TITOVO UZICE - WATER AND WASTEWATER ENTERPRISE (BIOKTGS)

WATER INCOME STATEMENT (1972 - 1984)

(Din Thousnnds)

Year Ending December 31 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 ------ACTuaL ------3 ESTIMATED ------Consumption (000 m )

Domestic 1241 1293 1346 1423 1580 1780 2050 2480 2980 3190 3400 3580 3720 Commercial 1388 1477 1635 1660 1810 1950 2210 2710 2840 3000 3150 3310 3470 Connections

New Connection during year 128 162 125 127 140 200 250 320 400 350 300 300 200 Total Connections year end 3306 3468 3593 3720 3860 4060 4310 4630 5030 5380 5680 5980 6180 Charges (Din. per m3)

Donestic 0.90 0.91 1.20 1.25 1.87 2.82 4.07 5.67 7.92 9.40 9.72 10.07 10.42 Commercial 1.74 1.73 1.87 2.05 2.87 4.32 6.22 8.70 12.17 14.45 14.95 15.48 16.02 Overall Average 1.36 1.38 1.67 1.68 2.40 3.60 5.19 7.25 9.99 11.85 12.24 12.67 13.12

Operating Revenues

Commercial 2416 2562 3050 3403 5195 8424 13746 23577 34563 43350 47093 51239 55589 Domestic-Metered 1120 1183 1622 1779 2955 5020 8344 14062 23602 29986 33048 36051 38762 Meter Rentals 26 54 26 38 40 42 44 47 51 55 58 61 63 Connection Charges 6 6 6 7 14 15 500 640 800 875 1050 1200 900 Other 9 29 281 391 450 560 680 790 1100 1300 1500 1800 2100

Total Operating Revenues 3577 3834 4985 5618 8654 14061 23314 39116 60116 75566 82749 90351 97414 operating Expenses

Salaries 829 899 1058 1440 2169 2727 4394 6970 8030 9635 10978 12448 14110 Materials 56 104 74 95 121 151 211 250 292 336 387 441 498 Chemicals 29 35 36 44 57 78 2537 2930 3535 4035 4595 5156 5819 Power 323 397 631 981 1330 1653 4540 5410 5789 4231 4879 5543 6255 Other 387 567 1012 1505 2064 2588 4264 6431 7488 8569 9382 10250 11293 Bad Debt Provision 21 42 44 57 80 96 167 196 207 302 380 422 465 Depreciation 340 434 488 509 838 1439 2119 4723 7780 8849 9567 10371 11249 Taxes and Contributions 25 77 365 446 529 609 683 753 822 897 980 1068 1166 Vrutci Dam Operations 0 0 0 0 0 0 0 0 15900 17100 18300 19500 20900

Total Operating Expenses 2010 2555 3708 5077 7188 9341 18915 27663 49843 53954 59448 65199 71755

Operating Income 1567 1279 1277 541 1466 4720 4399 11453 10273 21612 23301 25152 25659 Plant Disposals 0 315 66 0 0 0 0 0 0 0 0 0 0

Net Income Before Interest 1567 1594 1343 1466 4720 4399 11453 10273 21612 23301 25152a2

Rate of Return 13.9 11.6 11.7 3.5 5.4 9.6 6.0 6.6 3.6 6.7 6.9 7.0 6.8 Operating Ratio % 56 67 74 90 83 66 81 71 83 71 72 72 74

Depreciation/Gross Plant 2.29 2.94 3.26 2.50 2.50 2.50 2.50 2.50 2.50 2.50 2.50 2.50 2.50

May 1976 YUGOSLAVIA

TITOVO UZICE - WATER AND WASTEWATERENTERPRISE (BIOKTOS)

WASTEWATERINCOME STATEMENT (1972 - 1984)

(Din Thousands)

Year Ending December 31 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 ------ACTUAL ------ESTIMTED ------______Consumption of Water at Premises 3 Connected to Wastewater System (000 m )

Domestic 745 799 880 960 1070 1290 1830 2350 2680 2850 3180 3400 3620 conercial 1249 1314 1410 1510 1600 1750 2380 2540 2750 2860 3030 3180 3300 Connections

New Connections during year 135 126 128 132 140 250 350 500 320 280 260 240 220 Total Connections at year end 2074 2200 2328 2460 2600 2850 3200 3700 4020 4300 4560 4800 5020 Charges

Domestic 0 0 0 0.20 0.25 0.37 0.55 0.77 1.07 1.30 1.40 1.50 1.60 Commsercial 0 0 0 0.30 0.37 0.57 0.82 1.15 1.60 1.92 2.05 2.17 2.32 Overall Average 0 0 0 0.26 0.32 0.49 0.70 0.97 1.34 1.61 1.72 1.82 1.94

Operating Revenues

Coomercial 0 0 0 453 592 998 1952 2921 4400 5491 6212 6901 7656 Domestic-Metered 0 0 0 192 268 477 1007 1810 2868 3705 4452 5100 5792 Other 20 84 105 120 150 180 700 1035 1248 1425 1665 1780 1950

Total Operating Revenues 20 84 105 765 1010 1655 3659 5766 8516 10621 12329 13781 15398

Operating Expenses

Salaries 76 77 114 215 372 458 823 936 1192 1650 2070 2560 3024 Materials 6 7 10 23 48 69 84 102 134 181 220 245 288 Power 0 0 7 9 12 14 17 21 26 32 39 44 50 Other 33 28 35 121 205 319 483 750 1191 1448 1779 2118 2480 bad Debt Provision 0 0 1 8 9 14 23 28 31 38 49 59 68 Depreciation 20 102 105 49 61 280 746 1827 2847 4367 6200 7122 7915 Taxes and Contributions 3 7 25 37 43 58 69 78 92 114 130 159 178

Total Operating Expenses 138 221 297 462 750 12 224 3742 5513 7830 10487 12307 14003 Operating Income (118) (137) (192) 303 260 443 1414 2024 3003 2791 1842 1474 1395

Net Income Before Interest (118) (137) (192) 303 260 443 1414 2024 3003 2791 1842 1474 1395 Rate of Return (11.5) (10.9) (16.4) 23.7 16.2 4.4 5.0 2.9 2.8 1.7 0.8 0.6 0.5 X Operating Ratio % 690 263 283 60 74 73 61 65 65 74 85 89 91 Depreciation/Gross Plant 1.49 6.10 6.19 2.50 2.50 2.50 2.50 2.50 2.50 2.50 2.50 2.50 2.50

May 1976 YUGOSLAVIA

TITOVO UZICE - WATER AND WASTEWATERENTERPRISE (BIOKTOS)

WATER AND WASTEWATERINCOME STATEMENT (1972 - 1984)

(Din Thousands)

1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 ------ACTUAL ------ESTIMTED ------erating Revenues 53305 58140 63245 ComnLercial 2416 2562 3050 3856 5787 9422 15698 26498 38963 48841 37500 41151 44554 Domestic-Metered 1120 1183 1622 1971 3223 5497 9351 15872 26470 33691 55 58 61 63 Meter Rentals 26 54 26 38 40 42 44 47 51 875 1050 1200 900 Connection Charges 6 6 6 7 14 15 500 640 800 2725 3165 3580 4050 Other 29 113 386 511 600 740 1380 1825 2348

104132 112812 Total Operating Revenues 3597 3918 5090 6383 9664 15716 26973 44882 68632 86187 95078

,erating Expenses 11285 13048 15008 17134 Salaries 905 976 1172 1655 2541 3185 5217 7906 9222 517 607 686 786 Materials 62 111 84 118 169 220 295 352 426 4035 4595 5156 5819 Chemicals 29 35 36 44 57 78 2537 2930 3535 4263 4918 5587 6305 Power 323 397 638 990 1342 1667 4557 5431 5815 10017 11161 12368 13773 Other 420 595 1047 1626 2269 2907 4747 7181 8679 429 481 533 Bad Debt Provision 21 42 45 65 89 110 190 224 238 340 13216 15767 17493 19164 Depreciation 360 536 593 558 899 1719 2865 6550 10627 1110 1227 1344 Taxes and Contributions 28 84 390 483 572 667 752 831 914 1011 0 17100 18300 19500 20900 Vrutci Dam Operations 0 0 0 0 0 0 0 15900 61784 69935 77506 85758 Total_Epcrtin Expenses 2148 2776 4005 5539 7938 10553 21160 31405 55356

24403 25143 26626 27054 ,erating Income 1449 1142 1085 844 1726 5163 5813 13477 13276 0 0 0 0 0 0 .ant Disposals 0 315 66 0 0 0 0 24403 25143 26626 27054 Net Income Before Interest 1449 1457 1151 844 1726 5163 5813 13477 13276

3.4 5.0 4.4 4.3 4.1 a Lte of Return 11.8 9.3 9.0 5.1 6.0 8.8 5.7 5.5 72 74 74 76 ,erating Ratio % 60 71 79 87 82 67 78 70 81 2.50 2.50 2.50 2.50 !preciation/Gross Plant 2.23 3.26 3.55 2.50 2.50 2.50 2.50 2.50 2.50 ay 1976 YUGOSLAVIA

TITOVO UZICE - WATER AND WASTEWATER ENTERPRISE (BIOKTOS)

OTNER SER'IICES INCOME STATEMENT (1972 - 1984)

(Din Thousands)

1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 ------ACTUAL ------ESTIMATED ------Operating Revenues

Charges and Taxes 6803 7483 9687 12086 14575 17125 19595 21910 24514 27293 30399 33845 37655

Total Operating Revenues 6803 7483 9687 12086 14575 17125 19595 21910 24514 27293 30399 33845 37655 Operating Expenses

Other 5531 6218 8354 10400 12612 14681 16759 18617 20810 23177 25734 28581 31729 Depreciation 305 445 561 631 844 1112 1395 1694 1981 2260 2586 2984 3477

Total Operating Expenses 5836 6663 8915 11031 13456 15793 18154 20311 22791 25437 28320 31565 35206

Operating Income 967 820 772 1055 1119 1332 1441 1599 1723 1856 2079 2280 2449

Net Income Before Interest 967 820 772 1055 1119 1332 1441 1599 1723 1856 2079 2280 2449

Rate of Return 18.3 15.2 15.1 18.4 15.0 13.8 12.3 11.6 11.3 11.5 12.0 12.1 11.7 Operating Ratio % 86 89 92 91 92 92 93 93 93 93 93 93 93

Depreciationfoross Plant 4.52 6.06 7.31 7.00 7.00 7.00 7.00 7.00 7.00 7.00 7.00 7.00 7.00

SUNMARY - ALL OPERATIONS

1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 ------ACTUAL------ESTIMATED------Net Income Before Interest

Water 1567 1594 1343 541 1466 4720 4399 11453 10273 21612 23301 25152 25659 Wastewater (118) (137) (192) 303 260 443 1414 2024 3003 2791 1842 1474 1395 Other 967 820 772 1055 1119 1332 1441 1599 1723 1856 2079 2280 2449

Total Net Income Before Interest 2416 2277 1923 1899 2845 6495 7254 15076 14999 26259 27222 28906 29503 Interest

Gross Interest 70 119 116 100 751 2973 8298 14760 17487 19620 21881 22374 22652 Less: Interest Charged Construction 0 5 0 0 0 668 2882 8228 14704 4456 6682 0 0 0 r-

Net Interest Charged Operations 70 119 116 100 83 91 70 56 13031 12938 21881 22374 22652

Net Income 2346 2158 1807 1799 2762 6404 7184 15020 1968 13321 5341 6532 6851

Application of Net Income

Collective Consumption Fund 1094 867 1001 781 1325 1841 2233 2670 2817 3220 3350 3663 4005 Reserve Fund 134 140 172 230 238 329 420 500 550 585 550 820 1000 Retained Earnings ilia 1251 634 788 1199 4234 4531 11850 (1399) 9516 1441 2049 1846

May 1976 YUGOSLAVIA

TITOVO UZICE - WATER AND WASTEwATER ENTERFRISE IOgTOs)

STATEMENT OF SOURCES AND AFPLICATION OF FUNDS (1972 - 1984)

(Dil Thousands)

1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 --- ACTUAL -______-- _--____----___--_----_-ESTIMATED ------Internal Sources

Net Income Before Interest 2416 2277 1923 1899 2845 6495 7254 15076 14999 26259 27222 28906 29503 Depreciatins 665 981 1154 1189 1743 2831 4260 8244 12608 15476 18353 20477 22641

Total Internal Sources 3081 3258 3077 3088 4588 9326 11514 23320 27607 41735 45575 49383 52144

Operational lleqsuiremsents

Working Capital 7 5157 2046 (2179) (326) 2016 4079 4616 5094 6077 1454 2767 2716 Debt Servies 356 520 509 506 1266 3751 9819 17332 20523 27898 31743 33551 35198 Collective Consumption Fund 1094 867 1001 781 1325 1841 2233 2670 2817 3220 3350 3663 4005

Total Operational Requireements 1457 6544 3556 (892) 2267 7608 16131 24618 28434 37195 36547 39981 41919 Net Available fror Operations 1624 (3286) (479) 3980 2321 1718 (4617) (1298) (827) 4540 9028 9402 10225 Construction Requirenents

Ongoing Works 2029 1152 6784 0 ,0 0 0 0 0 0 0 0 0 Water Project 0 0 0 0 22660 75955 91173 46012 0 0 0 0 0 Wastewater Project 0 0 0 0 15380 29100 28620 27400 0 0 0 0 0 Other - Water 0 0 0 3100 5400 5300 330 540 2670 3100 4800 5900 6300 Other - Wastewater 0 0 0 110 200 300 0 14900 33200 46800 13300 14600 8900 Other Services 0 0 0 900 2000 2200 2300 2700 1900 2100 2700 3500 4600 Long-Ters Investments 249 712 202 170 275 353 460 567 704 940 1128 1302 1525 Total Construction Resqirements 2278 1864 6986 4280 45915 113208 122883 92119 38474 52940 21928 25302 21325 Balance to Finance 654 5150 7465 300 43594 111490 127500 93417 39301 48400 12900 15900 110OO Financed Br'

Existing Loans 337 0 0 0 0 0 0 0 0 0 0 0 0 IBRD Loan 0 0 0 0 6694 34007 42800 35935 11298 0 0 0 0 Belgrade Rank Loan 0 0 0 0 4000 4000 0 0 0 0 0 0 0 Mstual Reserve Loan 0 0 0 0 500 0 0 0 0 0 0 0 0 Loan #5 0 0 0 0 0 0 47200 0 0 0 0 0 0 loan #6 0 0 0 0 0 0 0 18000 0 0 0 0 0 Loan #7 0 0 0 0 0 0 0 0 0 48000 0 0 0 Loan #8 0 0 0 0 0 0 0 0 0 0 12500 0 0 Loan #9 0 0 0 0 0 0 0 0 0 0 0 15400 0 Loan #10 0 0 0 0 0 0 0 0 0 0 0 0 10600 Cosoune 317 150 1786 0 200 200 200 200 0 0 0 0 0 Consumers 0 5000 0 0 5200 5000 0 0 0 0 0 0 0 Enterprises 0 0 5679 300 200 200 200 300 300 400 400 500 500 Special Funds 0 0 0 0 26800 68083 37100 33982 32703 0 0 0 0

Total 654 5150 7465 300 43594 111490 127500 88417 44301 48400 12900 15900 11100

Surplus (Deficit) of Funds

Annual 0 0 0 0 0 0 0 (5000) 5000 0 0 0 0 Accumulated 0 0 0 0 0 0 0 (5000) 0 0 0 0 0

Net Available from Operationsf Construction Requirments % 71 (176) (7) 93 5 2 (4) (1) (2) 9 41 37 48 <

Debt Service Cover 8.7 6.3 6.0 6.1 3.6 2.5 1.2 1.3 1.3 1.5 1.4 1.5 1.5

May 1976 YUGOSLAVIA

TIT070 UZICE - WATERAND WASTEWATER ENTERPRISE (BIOKTOS)

BALANCESHEET AS AT DECEMBER31, 1972 - 1984

(Din Thousands)

1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 ---- ACTUAL------FIXED ASSETS ESTIMATED------

Assets - Water

Plant in Operation 14808 14750 15234 25476 41538 73585 95940 281894 340495 367430 397950 431706 468225 Less: Depreciation 3654 3875 4317 5689 7437 9843 12946 18705 27794 38589 50857 64788 80572 Net Plant in Operation 11154 10875 10917 19787 34101 63742 82994 263189 312701 328841 347093 366918 387653 Assets - Wastewater

Plant in Operation 1673 1674 1717 2170 2717 19657 40000 106178 121555 227822 268208 301583 331594 Less: Depre.-iation 373 466 583 749 930 1331 2210 4214 7356 12238 19295 27768 37627

Net Plant in Operation 1300 1208 1134 1421 1787 18326 37790 101964 114199 215584 248913 273515 293967 Assets - Other

Plant in Operation 7113 7575 7784 10241 13880 17884 21972 26430 30180 34393 39501 45766 53570 Less: Depreciation 1477 2440 2686 3854 5315 7118 9225 11657 14454 17726 21553 26046 31346

Net Plant in Operation 5636 5135 5098 6387 8565 10766 12747 14773 15726 16667 17948 19720 22224

Work in Progress 180 909 6295 2200 34322 104625 199602 61901 55414 11138 0 0 0 Long Term Investments 596 1308 1510 1680 1955 2308 2768 3335 4039 4979 6107 7409 8934 CURRENTASSETS

Cash and Bank 1604 1749 1860 5103 3979 4853 5099 6219 6103 8564 7594 8117 8578 Accounts Receivable 2511 1857 2495 3879 5090 6897 9779 14026 19560 23831 26350 28975 31599 Inventories 899 1085 1333 1100 1425 1455 3355 3400 3490 3390 3805 3900 4200 Construction Advances 73 508 137 150 174 197 216 234 250 267 286 306 328 Short Term Investment 71 4915 7777 0 0 0 0 0 0 0 0 0 0

Total Current Assets 5158 10114 13602 10232 10668 13402 18449 23879 29403 36052 38035 41298 44705 Total Assets 24024 29549 38556 41707 91398 213169 354350 469041 531482 613261 658096 709160 757483

EQUITY

Comssune 371 521 2307 2307 2507 2707 2907 3107 3107 3107 3107 3107 3107 Business Fund 18050 18911 19252 20040 21239 25473 30004 41854 40455 49971 51412 53461 55307 Grants 84 5084 10763 11063 43263 116546 153846 188128 221131 221531 221931 222431 222931 Reserve Fund 300 416 568 798 1036 1365 1785 2285 2835 3420 3970 4790 5790 Revaluation Reserve 0 0 0 3430 7845 13623 22906 33588 60183 91167 130444 173420 219652

Total Equity 18805 24932 32890 37638 75890 159714 211448 268962 327711 369196 410864 457209 506787 LONGTERM LIABILITIES

Loans outstanding 3446 3045 2652 2246 12923 50152 138631 189994 198256 237978 240616 244839 242893 CURRENTLIABILITIES

Accounts Payable 413 332 424 542 680 807 1317 1622 1842 1951 2135 2400 2675 Liability to Contractors 266 373 1589 500 580 655 721 793 856 916 981 1049 1123 Proposed Distribution 1094 867 1001 781 1325 1841 2233 2670 2817 3220 Overdrafts 3500 3663 4005 Oterdrafts~~~~~~~~~~~~~~~ m _ 0 0 _ 0 0 500000 0 0000 00 ;i Total Current Liabilities 1773 1572 3014 1823 2585 3303 4271 10085 5515 6087 6616 7112 7803 m Total Liabilities and Equity 24024 29349 38556 41707 91398 213169 354350 469041 331482 613261 658096 709160 757483 N

Current Ratio 2.9 6.4 4.5 5.6 4.1 4.1 4.3 2.4 5.3 5.9 5.8 5.8 5.7 Debt/Equity Ratio 15:85 11:89 7:93 6:94 15:85 24:76 40:60 41:59 38:62 39:61 37:63 35:65 32:68 May 1976 ANNEX 23 Page 1

YUGOSLAVIA

MORAVA REGION DEVELOPMENT PROJECT

Bioktos-Titovo Uzice Communal Enterprise

ASSUMPTIONS FOR FINANCIAL FORECASTS

A. GENERAL

1. Provision has been made in capital and operating costs for inflation from January 1975. Inflation in operating costs has been assumed at the following rates.

1975 1976 1977 1978 1979 1980-1984

Capital Costs 16% 14% 12% 12% 12% 10% Operating Costs 20% 16% 13% 10% 8% 7%

2. Operating expenses and fixed asset costs for the separate services of Bioktos are either specifically identified from the accounts or, where this is not possible, allocated on a reasonable basis. Apart from an allocation of annual expenses, all transactions relative to the Vrutci dam have been excluded, since it is assumed to be constructed, managed and operated by the Serbian Water Fund.

B. INCOME STATEMENTS

Revenues

3. The tariffs assumed for water supply and wastewater services are shown in Annex 24. Connection fees are at present nominal. Bioktos staff have indicated that these, however, are assumed to be considerably increased from 1978 onwards and have assumed Din. 2,000 per connection in that year, rising in later years. Revenues for other services are based on estimates of Bioktos staff.

Operating Expenses

4. Salaries and wages reflect detailed forecasts of staff requirements prepared by Bioktos, with allowances for inflation. Other operating expenses reflect similar forecasts of various operating requirements including salaries allocated from common services departments. Expenses for chemicals reflect ANNEX 23 Page 2 the starting up of part of the water treatment works in 1978. Power expenses also reflect the introduction of various pumping facilities. Taxes and contributions are based on Bioktos estimates. Provision has been made in water income statements from 1980 onwards for an appropriate share of the annual expenses of the Vrutci Dam. These are based on an assumption that 70% of the annual expenses and capital recovery costs I/ will be charged to Bioktos by the Serbian Water Fund. Operating costs of services other than water and wastewater are based on estimates of Bioktos staff.

Depreciation

5. As indicated in Annex 21 depreciation charges during the last few years have been somewhat inconsistent. The financial forecasts assume rates of 2.5% per annum on revalued gross fixed assets for water and wastewater services and 7% per annum for other services, rates which seem reasonable, particularly in the light of the new requirements on revaluation of fixed assets.

Interest

6. Interest relating to project loans has been charged to construction until the end of 1979. Interest has also been charged to construction until the end of 1981 on loans relating to the construction of the proposed wastewater treatment plant.

Distribution of New Income

7. Contributions to the Collective Consumption Fund are voted annually by the Workers. Minimum Reserve Fund contributions are based on formulae prescribed by the Social Accounting Service. Forecasts are based on estimates of Bioktos staff.

Collective Consumption Fund

8. Transactions of the Fund have been excluded from Bioktos financial statements as they are separately administered and have no bearing on operations.

C. FUNDS FLOW STATEMENTS

Borrowing

9. (a) IBRD - Din. 130.7 million (US$7.3 million equivalent) for 20 years including a grace period of 4-1/2 years, interest at 8.5% per annum and a commitment charge of 0.75% per annum on the undisbursed balance;

1/ Capital recovery costs calculated as a 50-year annuity at 10% interest with price escalation to cover inflation from 1980 onwards. ANNEX 23 Page 3

(b) Belgrade Bank - Din. 8 million (US$0.44 million equivalent) for 15 years, with interest at 3% per annum;

(d) Local loans from unspecified sources for 15 years with interest at 10% per annum, of annual amounts as follows:

1978 - Din. 47.2 million 1979 - Din. 18 million 1981 - Din. 48 million 1982 - Din. 12.5 million 1983 - Din. 15.4 million 1984 - Din. 10.6 million

Capital Contributions

10. (a) Special Funds - Din. 218.8 million towards the project from various sources arranged by the Commune (described in Annex 32) as follows:

1976 - Din. 26.8 million 1977 - Din. 68.1 million 1978 - Din. 37.1 million 1979 - Din. 34.0 million 1980 - Din. 32.7 million

(b) System extensions costing about Din. 10 million constructed by individual communities and handed over to Bioktos for operation and maintenance.

(c) Communal and Enterprise contributions of relatively minor amounts towards the capital expenditure requirements of "other" services.

Bank Overdrafts

11. Short-term bank finance of Din. 5.0 million is estimated at the end of 1979, to be repaid from funds available in 1980. Interest at 10% p.a. has been included in the income statement. ANNEX 23 Page 4

D. BALANCE SHEET

Fixed Assets

12. Fixed assets allow for project expendituresand for constructionof wastewater treatmentfacilities in 1979-81 (Din. 84.6 million). Provision is also made for assumed ongoing water and wastewaternetwork construction and for minor extensionsand improvementsfor other services. Fixed assets have been annually revalued from January 1, 1975 using inflationfactors shown in Section A (above). This is based on recently published legal requirements(Annex 21) and assumes, for the sake of consistency,that Bioktos will exercise its discretion to revalue its fixed assets every year, whether or not inflation exceeds 10%.

Long Term Investments

13. Long term investmentsrelate to founders capital investmentsin local banks and loans for underdevelopedregions which are obligatoryunder Yugoslav law. Forecastsare based on Bioktos staff estimates.

Current Assets and Current Liabilities

14. Accounts receivablehave been projected on the basis on about 2-1/2 months' revenue. Inventorieshave been gradually reduced from about 12 months consumptionof materials and chemicals in 1975 to about 6 months consumption by 1981. Short term investmentsrepresent accumulatedconstruction funds, assumed liquidatedin 1975. Payables have been increasedin proportion to cash operatingexpenses.

May 1976 YUGOSLAVIA

MORAVAREGION DEVELOPMENTPROJECT

TITOVO-UZICE - WATER ANDWASTEWATER TARIFFS

(Din. perm 3)

INDEX OF INCREASES FROM 1975 ACTUAL WATER WASTEWATER WATER WASTEWATER Domestic Commercial . Domestic Commercial Current Constant Current Constant Prices Prices Prices Prices

1971 0.90 1.75 - _ _ _ _ _

1972 0.90 1.75 - - - - -

1973 (to Nov. 30) 0.90 1.75 ------

1973 (from Dec. 1) 1.20 2.00 ------

1974 1.20 2.00 ------

1975 (to Oct. 31) 1.20 2.00 0.20 0.30 - - - -

1975 (from Nov. 1) 1.50 2.30 0.20 0.30 100 100 100 100 ESTDMATED

1976 (from July 1) 2.25 3.45 0.30 .45 150 130 150 129

1977 , 3.4o 5.20 .45 .70 227 173 225 172

1978 4.75 7.25 .65 .95 317 220 325 226

1979 6.60 10.15 .90 1.35 440 282 450 288

1980 9.25 14.20 1.25 1.85 617 369 625 374

1981 9.55 14.70 1.35 2.00 637 356 675 377

1982 U 9.90 15.20 1.45 2.10 660 343 725 378 1983 , 0.25 15.7r 1.55 2.25 683 333 775 378 1984 LO.6o 16.30 1.65 2.j0 707 322 825 377 day 1976 1/ A seperate tariff rate for publio buildings was in effect up to November 1973. YUGOSLAVIA

CACAK WATER AND WASTEWATER ENTERPRISE

WATER INCOME STATEMENTS 1972-1984

(Din Thousands)

1978 1979 1980 1981 1982 1983 1984 Year Ending December 31 - 1972 1973 1974 1975 1976 1977 ------ACTUAL ------ESTIMATED ------3 Consumption (000 m )

Domestic 985 1273 1496 1470 1760 1970 2200 2420 2640 2820 2980 3140 3300 4760 4980 5330 5650 Commercial 1575 1908 2400 2630 3200 3500 3830 4160 4550

Connections 300 250 250 250 New Connections during year 200 300 1165 475 425 400 400 350 300 7925 8175 8425 8675 Total at year end 3810 4110 5275 5750 6175 6575 6975 7325 7625

3 Charges (Average) (Din. per m ) 3.60 4.15 4.78 5.50 Domestic 0.85 0.88 1.29 1.31 1.56 1.88 2.25 2.70 3.15 8.60 9.88 11.35 13.05 Commercial 1.23 1.15 2.20 3.11 3.68 4.43 5.33 6.38 7.48 7.73 8.91 10.27 Overall Average 1.12 1.05 1.87 2.46 2.93 3.51 4.21 5.03 5.89 6.74

Operating Revenues 49202 60496 73733 Commercial 1935 2185 5288 8180 11776 15505 20414 26541 34034 40936 10152 12367 15009 18150 Domestic - Metered 841 1116 1934 1925 2746 3704 4950 6534 8316 30 35 40 Connection Charges 18 17 56 25 30 30 35 30 30 30 45 50 55 Other 63 15 1 10 15 20 25 30 35 40 61644 75590 91978 Total Revenue 2857 3333 7279 1^140 14567 19259 25424 33135 42415 51158

Operating Expenses 11500 12800 14400 Salaries 1409 2523 3376 4250 5180 6150 7100 8050 9050 10150 9400 10500 11800 Materials 1106 4965 3005 3500 4300 5000 5800 6600 7400 8300 1650 1800 Administration 139 275 329 400 650 800 950 1100 1250 1400 1500 1850 1950 2050 Power, Fuel & Chemicals 470 585 727 850 1150 1250 1350 1500 1600 1700 1700 1900 21000 Other 317 376 491 600 750 900 1000 1200 1300 1500 100 110 120 Bad Debt Provision 10 14 25 30 40 50 60 70 80 90 14505 19251 Depreciation 305 593 889 1391 2609 4483 5887 7011 8112 9149 10104 2200 2300 Taxes and Contributions 70 477 1226 1400 1500 1600 1700 1800 1900 2000 2100 (10500) Less: Network Construction (2236) (8180) (7338) (4000) (000) (6500) (7500) (8000 )(8500) (9000 (9500) (1000) 62221 Total Operating Expenses 1590 1628 2730 8421 11179 13733 16347 19331 22192 25289 28754 35615

Operating Income 1267 1705 4549 1719 3388 5526 9077 13804 20223 25869 32890 39975 29757 Other Income Net 20 54 81 0 0 0 0 0 0 0 0 0 0 39975 29757 Net Income Before Interest 1287 1759 4630 1719 3388 5526 9077 13804 20223 25869 32890

9.2 10.7 12.6 10.2 5.6 X Rate of Return 10.9 11.8 23.0 6.5 5.3 4.5 5.6 7.2 68 Operating Ratio % 56 49 38 83 77 71 64 58 52 49 47 47 3.07 Depreciation/GrossPlant 2.17 3.42 3.82 4.41 3.62 3.33 3.25 3.20 3.17 3.15 3.14 3.09

May 1976 YUGOSLAVIA

CACAK WATER AND WASTEWATER ENTERPRISE

WASTEWATER INCOME STATEMENTS 1972-1984

(Din Thousands)

Year Ending December 31 1972 1973 1974 1975 1976 1977 1978 ----- ACTUAL-- 1979 1980 1981 1982 1983 1984 - - - ESTIMATED ------Consumtion of Water at Premises 3 Connected to Wastewater Svstem (000 i )

Domestic 815 889 1213 1100 1340 1520 1720 Commercial 1910 2110 2280 2440 2610 2800 1218 1333 1430 1970 2460 2760 3140 3540 3960 4280 4630 5120 5650 Coonections

New Connections during year 80 86 531 250 284 500 500 Total Connections at year end 450 400 300 300 300 300 2249 2335 2866 3116 3400 3900 4400 4850 5250 5550 5850 6150 6450 Chatges (Average) (Din, Per m3

Domestic 0.21 0.27 0.10 0.33 0.38 0.45 0.55 Comsercial 0.68 0.80 0.90 1.03 1.18 1.35 0.42 0.44 0.54 0.65 0.78 0.93 Overall Average 1.10 1.33 1.55 1.78 2.05 2.38 2.73 0.35 0.38 0.35 0.54 0.64 0.76 0.91 1.10 1.29 1.47 1.70 1.97 2.27 OPerating Revenues

Commercial 515 580 776 1281 1919 2567 Domestic - Metered 3454 4708 6138 7618 9492 12186 15425 171 237 120 363 509 Connection 684 946 1299 1688 2052 2513 Charges 7 10 32 3080 3780 20 25 50 60 55 55 40 Other 25 40 45 45 9 1 10 15 20 25 30 35 40 45 50 55 Total Revenues 718 836 929 1674 2468 3321 4485 6092 7916 9750 12090 15361 19305

Operating Expenses

Salaries 633 421 1461 1850 2250 2650 Materials 3050 3500 3900 4400 4900 5500 6200 180 1f?12sf, P.1- 16, 1900 Administration 2100 2500 2800 3100 3400 3900 4300 63 45 143 175 200 235 Power, Fuel, Chemicals 260 295 550 610 650 720 800 16 13 (8) 50 100 150 Other 200 250 300 350 400 450 500 110 64 196 250 300 350 Bad Debt Provision 400 450 500 550 650 700 800 4 2 11 15 20 25 Depreciation 30 35 40 45 50 55 60 172 225 637 564 905 1404 2044 Taxes and Contributions 2729 3323 5472 7789 8699 9637 31 45 530 650 800 950 1100 Less: Network Construction 1250 1400 1600. 1800 2000 2200 (580) (836) (3018) (350050 0) 00) (5400) (6000) (6500) (7600) (7500) 0) (8500) (9000) Total Operating Expenses 629 442 1208 1354 1675 2264 3184 4509 5813 8627 11639 13524 15497

Operating Income 89 394 (279) 320 793 1057 1301 1583 2103 1123 451 1837 380B Net Income Before Interest 89 394 (279) 320 793 1057 1301 1583 2103 1123 451 1837 3808 Rate of Return 1.4 4.8 (2.5) 2.0 2.8 2.3 1.9 1.7 1.8 0.6 0.2 0.6 1.2 Operating Ratio % Se 53 130 81 68 68 71 74 73 88 96 88 80 m Depreciation/Gross Plant 2.18 2.31 4.81 3.00 2.79 2.68 2.62 2.59 2.57 2.54 2.53 2.53 2.52

May 1976 YUGOSLAVIA

CACAK WATER AND WASTEWATERENTERPRISE (VODOVOD)

INCOM STATEMENT FOR THE YEARS 1972 - 1984

(Din Thousands)

1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 ----- ACTUAL------,-- ESTIMATED ------.-.-______Operating Revenues

Commercial 2450 2765 6064 9461 13695 18072 23868 31249 40172 48554 58694 72682 89158 Domestic - Metered 1012 1353 2054 2288 3255 4388 5896 7833 10004 12204 14880 18089 21930 Connection Charges 25 27 88 45 55 80 95 85 85 70 70 80 85 Other 88 24 2 20 30 40 50 60 70 80 90 100 110

Total Revenues 3575 4169 8208 11814 17035 22580 29909 39227 50331 60908 73734 90951 111283

Operating Expenses

Salaries 2042 2944 4837 6100 7430 8800 10150 11550 12950 14550 16400 18300 20600 Materials 1286 5428 4261 4800 5900 6900 7900 9100 10200 11400 12800 14400 16100 Administration 202 320 472 575 850 1035 1210 1395 1800 2010 2150 2370 2600 Power, Fuel, Chemicals 486 598 719 900 1250 1400 1550 1750 1900 2050 2250 2400 2550 Other 427 440 687 850 1050 1250 1400 1650 1800 2050 2350 2600 21800 Bad Debt Provision 14 16 36 45 60 75 90 105 120 135 150 165 180 Depreciation 477 818 1526 1955 3514 5887 7931 9740 11435 14621 17893 23204 28888 Taxes and Contributions 101 522 1756 2050 2300 2550 2800 3050 3300 3600 3900 4200 4500 Less: Network Construction (2816) (9016) (10356) (7500) 00) (11900) (13500) (14500) (15500) (16500) (17500) (18500) (19500)

Total Operating Expenses 2219 2070 3938 9775 12845 15997 19531 23840 28005 33916 40393 49139 77718

Operating Income 1356 2099 4270 2039 4181 6583 10378 15387 22326 26992 33341 41812 33565 Other Income Net 20 54 81 0 0 0 0 0 0 0 0 0 0

Net Income Before Interest 1376 2153 4351 2039 4181 6583 10378 15387 22326 26992 33341 41812 33565

Interest Charged to Operations 2 184 374 332 405 274 240 207 7431 7503 17459 26548 30894

Net Income 1374 1969 3977 1707 3776 6309 10138 15180 14895 19489 15882 15264 2671

Application of Net Income

Collective Consumption Fund 420 823 878 900 700 700 750 750 900 900 900 900 900 Reserve Fund 72 115 238 270 310 350 390 420 450 480 510 550 590 Retained Earnings 882 1031 2861 537 2766 5259 8998 14010 13545 18109 14472 13814 1181

Total Interest 2 184 374 332 967 3171 4999 6505 8581 11650 17459 26548 30894 Less: Interest Charged to Construction o 0 0 0 562 2897 4759 6298 1150 4147 0 0 0

Interest Charged to Operations 2 184 374 332 405 274 240 207 7431 7503 17459 26548 30894

Rate of Return 7.5 9.3 13.8 4.8 4.5 3.9 4.5 5.4 6.7 6.2 6.2 6.0 3.9 friF

Operating Ratio X 62 50 48 83 75 71 65 61 56 56 55 54 70

Depreciation/Gross Plant 2.17 3.02 4.18 3.89 3.36 3.15 3.06 3.00 2.97 2.89 2.84 2.85 2.86

May 1976 YUGOSLAVIA

CACAKWATER AND WASTEWATERENTERPRISE (VO0O)D)

STATEMENTOF SOURCES AND APPLICATIONS OF FUNDS (1972-1984)

(Din Thousands)

1972 1973 1974 1975 1976 1977 1978 1979 1980 ------ACTUAL ---- 1981 1982 1983 1984 ____ ------ESTIMATED ------Internal Sources

Net Income Before Interest 1376 2153 4351 2039 4181 6583 10378 Depreciation 15387 22326 26992 33341 41812 33565 477 818 1526 1955 3514 5887 Consumer 7931 9740 11435 14621 17893 23204 28888 Contribution 210 780 4195 2250 0 0 0 0 5275 5825 5300 5875 6450 Total Internal Sources 2063 3751 10072 6244 7695 12470 18309 25127 39036 47438 56534 70891 68903 Operational Requirements

Working Capital 447 (731) 1761 1196 1491 1827 2056 Debt Service 2086 1782 1791 3102 4308 7931 136 290 1385 998 1662 3898 5757 Collective 7296 9350 16247 24382 37133 44122 Consumption Fund 420 823 878 900 700 700 750 750 900 900 900 900 900 Total Operational Requirements 1003 382 4024 3094 3853 6425 8563 10132 12032 18938 28384 42341 52953 Net Available From Operations 1060 3369 6048 3150 3842 6045 9746 14995 27004 28500 28150 28550 15950 Construction Requirements

Ongoing Works 3572 7563 11614 0 0 0 0 Water Project 0 0 0 0 0 0 0 0 0 0 63200 39700 32500 8700 Wastewater Project 0 0 0 0 0 0 C 0 0 15500 20200 22600 Other - Water 16000 0 0 0 0 0 0 0 0 4500 550 600 700 750 Other - Wastewater 10850 12050 113000 135300 13500 0 0 0 3700 220 250 270 Long-Term 21800 59250 65100 11650 12800 14050 Investments 318 308 634 700 750 800 850 900 950 1000 1100 1200 1300 Total Construction Requirements 3890 7871 12248 8900 80220 61550 56920 48150 71050 78150 125750 149300 28850 Balance to Finance 2830 4502 6200 5750 76378 55505 47174 33155 44046 49650 97600 120750 12900 Financed Bv

Edisting Loans 2630 3720 1784 0 0 0 0 0 IBRD Loan 0 0 0 0 0 0 0 0 0 13154 29865 22775 16634 Loan # 3 2478 0 0 0 0 0 0 0 0 0 0 0 0 Loan # 4 25000 0 0 0 0 0 0 0 0 0 Loan4b5 0 0 0 0 38000 0 0 0 0 0 0 0 0 0 0 Loan 0 0 0 87000 0 0 # 6 0 0 0 0 0 0 0 0 0 0 0 109000 Commune 200 782 0 4416 3750 0 0 0 0 10550 11650 Semedraz Fund 0 10600 11750 12900 0 0 0 65224 25640 24399 9327 0 Communal Development Fund 0 0 0 0 0 0 0 0 0 0 0 7194 6018 0 0 0 0 Total 2830 4502 6200 3750 78378 55505 47174 33155 44046 49650 97600 120750 12900 Surplus (Deficit) of Funds

Annual 0 0 0 (2000) 2000 0 0 Accumulated 0 0 0 0 0 0 0 0 0 (2000) 0 0 0 0 0 0 0 0 0 :e Net Available from operations/ Construction Requirements % 27 43 49 35 5 10 17 31 38 36 22 19 55 Debt Service Cover 15.2 12.9 7.3 6.3 4.6 3.2 3.2 3.4 4.2 2.9 2.3 1.9 1.6

May 1976 YUGOSLAVIA

CACAKWATER AND WASTEWATERENTERPRISE (VODOVOD)

hALANCE SHEET AS AT DECEMBER31. 1972 - 1984

(Din Thousands)

1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 ------ACTUAL ------ESTIMATED ------FIXED ASSETS

Assets - Water

Plant in Operation 14365 20336 26221 36819 107460 161730 201103 236641 274508 305774 338178 599150 654590 Less: Depreciation 2612 3096 3830 5987 9554 15279 22694 31521 41839 53917 67795 87046 112390

Net Plant in Operation 11753 17240 22391 30832 97906 146451 178409 205120 232669 251857 270383 512104 542200

Assets - Wastewater

Plant in Operation 8081 11439 15057 22500 42320 62437 93476 117254 140976 289154 326342 361986 401375 Less: Depreciation 1470 1742 2379 3419 4871 6908 9643 13143 17386 24075 33549 44596 57355

Net Plant in Operation 6611 9697 12678 19081 37449 55529 83833 104111 123590 265079 292793 317390 344020

Work in Progress 2958 1130 3086 1500 562 9294 22128 39926 74360 5297 102000 0 0 Long-Term Investments 603 911 1545 2245 2995 3795 4645 5545 6495 7495 8595 9795 11095

CURRENTASSETS

Cash and Bank 407 196 107 473 308 648 775 680 793 1110 1240 1511 4819 Accounts Receivable 890 930 2575 3544 4940 6097 7776 9807 11576 13400 16222 20009 24482 Inventories 700 878 2199 2500 3000 3600 4200 4800 5300 5500 6100 6900 7700 Construction Advances 157 0 47 100 150 200 250 300 350 400 450 500 550 Short Term Investment 793 928 564 400 520 650 750 800 850 900 950 1000 1050

Total Current Assets 2947 2932 5492 7017 8918 11195 13751 16387 18869 21310 24962 29920 38601

Total Assets 24872 31910 45192 60675 147830 226264 302766 371089 455983 551038 698733 869209 935916

LIABILITIES AND EQUITY

Commsune 0 0 0 3750 3750 3750 3750 3750 14300 25950 36550 48300 61200 Business Fund 20559 23152 34624 35161 37927 43186 52184 66194 79739 97848 112320 126134 127315 Grants 0 0 0 0 65224 90864 115263 131784 137802 137802 137802 137802 137802 Reserve Fund 75 190 428 698 1008 1358 1748 2168 2618 3098 3608 4158 4748 Revaluation Reserve 0 0 0 7013 14999 32596 52794 73773 95420 120358 156544 195966 254030

Total Equity 20634 23342 35052 46622 122908 171754 225739 277669 329879 385056 446824 512360 585095

Long Term Debt 2842 6456 7229 6563 19022 48160 70177 86020 112729 146132 226209 324624 311396

CURRENTLIABILITIES

Accounts Payable 465 985 1987 2240 2800 3200 3600 4100 4600 5200 5700 6300 7000 Liability to Contractors 511 304 46 100 150 200 250 300 350 400 450 500 550 Proposed Distribution 420 823 878 900 700 700 750 750 900 900 900 900 900 Overdrafts 0 0 0 2000 0 0 0 0 0 0 0 0 0

Total Current Liabilities 1396 2112 2911 5240 3650 4100 4600 5150 5850 6500 7050 7700 8450

Consumer Contribution 0 0 0 2250 2250 2250 2250 2250 7525 13350 18650 24525 30975

Total Liabilities 24872 31910 45192 60675 147830 226264 302766 371089 455983 551038 698733 869209 935916

Current Ratio 2.1 1.4 1.9 1.3 2.4 2.7 3.0 3.2 3.2 3.3 3.5 3.9 4.6

Debt/Equity Ratio 12:88 22:78 17:83 12:88 13:87 22:78 24:76 24:76 25:75 28:72 34:66 39:61 35:65

May 1976 ANNEX 26 Page 1

YUGSOLAVIA

MORAVA REGION DEVELOPMENT PROJECT

Vodovod-Cacak Water and Wastewater Enterprise

Assumptions for Financial Forecasts

A. GENERAL

1. Provision has been made in capital and operating costs for inflation from January 1975, at the following rates:

1975 1976 1977 1978 1979 1980-1984

Capital Costs 16% 14% 12% 12% 12% 10% Operating Costs 20% 16% 13% 10% 8% 7%

2. Operating expenses and fixed asset costs for the separate services of water supply and wastewater disposal are either specifically identified from the accounts or, where this is not possible, allocated on an arbitrary but reasonable basis. Stormwater activity has been excluded, since it will not be operated on a revenue-earning basis and has not yet been taken over by Vodovod.

B. INCOME STATEMENTS

Revenues

3. The tariffs assumed for water and wastewater services are shown in Annex 27. Connection fees are charged on the basis of individual estimates of costs. Forecasts of income from connection fees is therefore based on an average and related to numbers of connections with appropriate allowances for inflation.

Operation Expenses

4. Salaries and wages and most other operating expenses reflect a growth rate of 5% plus allowances for inflation. Power costs are based on engineering estimates provided by Vodovod. Taxes and contributions are based on Vodovod estimates. Provision has been included in "Other" in the 1984 ANNEX 26 Page 2 water income statement for an appropriateshare of the annual expenses of the Semedraz Dam - Din. 19 million. This is based on an assumptionthat about 70% of annual expenses and capital recovery costs will be charged to Vodovod by the Serbian Water Fund.

Depreciation

5. As indicatedin Annex 21 depreciationcharges during the last few years have been somewhat inconsistent. The financial forecastsassume rates of 4.7% on existing revalued gross fixed assets and 3.0% per annum on new revalued gross fixed assets for water. For wastewater,2.9% on existing gross fixed assets and 2.5% per annum for new fixed assets is assumed. These rates seem reasonable,particularly in the light of the new requirementson revaluation of fixed assets.

Network Construction

6. In the absence of detailed cost records, (See Annex 26) deductions have been made from operating costs of the estimated costs of water and wastewater network construction,carried out by force account. These costs, which were estimatedby the mission, are reflected in the fixed asset accounts.

Interest

7. Interest on the Bank loan has been charged to constructionuntil the end of 1979. Interest has also been charged to constructionuntil the end of 1981 on loans relating to the constructionof the proposed wastewatertreatment plant.

Distributionof Net Income

8. Contributionsto the CollectiveConsumption Fund are voted annually by the workers. Minimum Reserve Fund Contributionsare based on formulae prescribedby the Social Accounting Service. Forecasts are based on estimates of Vodovod's staff.

CollectiveConsumption Fund

9. Transactionsof the Fund have been excluded from Vodovod's financial statementsas they are separatelyadministered and have no bearing on operations. ANNEX 26 Page 3

C. FUNDS FLOW STATEMENTS

Borrowing

10. (a) IBRD - Din. 84.9 million (US$4.7million equivalent)for 20 years including a grace period of 4-1/2 years, interest at 8.5% per annum and a commitmentcharge of 0.75% per annum on the undisbursedba- lance; and

(b) Local loans from an unspecified source for 15 years, with interest at 10% per annum, of annual amounts as follows:

1980 - Din. 25 million 1981 - Din. 38 million 1982 - Din. 87 million 1983 - Din. 109 million

Capital Contributions

11. (a) Commune - towards non-project network constructionin annual amounts as follows:

1975 - Din. 3.75 million 1980 - Din. 10.55 million 1981 - Din. 11.65 million 1982 - Din. 10.60 million 1983 - Din. 11.75 million 1984 - Din. 12.90 million

(b) Semedraz Fund - towards project constructionin annual amounts as.folows:

1976 - Din. 65.22 million 1977 - Din. 25.64 million 1978 - Din. 24.40 million 1979 - Din. 9.33 million

1979 - Din. 7.19 million 1980 - Din. 6.02 million ANNEX 26 Page 4

Consumer Contributions

12. Consumer contributions towards non-project network construction in annual amounts are indicated in the forecast, On the basis of information from Vodovod, no such contributionsare forecast for projct years.

Bank Overdrafts

13. Short-termbank finance of Din. 2.0 million was estimated at the end of 1975, to be recovered from funds available in 1976, Interest at 9% per annum has been included in the income statement.

D. BALANCE SHEET

Fixed Assets

14. Fixed assets allow for project expenditurep,contruction of wastewater treatment facilities in 1979-81 (Din. 121.8 million) and construction of water transmissionand treatment facilitiesin 1982r,83(Din. 225 million). The water transmissionand treatment facilitiesassume constructionof Semedraz Dam by the Serbian Water Fund (or MRWCI), to beg8n supplies in 1984. Provision is also made for assumed ongoing water and wastewater network constructionand the acquisitionof small equipment for both services. Fixed assets have been annually revalued from January 1, 1975 using inflation factors shown in Section A (above). This is based on recently published legal requirements(Annex 21) and assumes, for the sake of consistency,that Vodovod will exercise its discretion to revalue its fixed assets every year, whether or not inflation exceeds 10%.

Long-Term Investments

15. Long-term investmentsrelate to founders investmentsin the capital of local banks and loans for underdevelopedregions which are obligatory under Yugoslav law. Forecasts are based on Vodovod staff estimates,

Current Assets and Current Liabilities

15. Accounts receivable have been projected on the basis of about 3-1/2 months' revenue in 1975 reducing to about 2-1/2 months' revenue by 1981. In- ventories have been increased in proportion to the use of materials. Short- term investmentsrepresents cash contributionsdeposited with SAS in advance of (and as a legal condition of commencing)network copstruction. They have been increased relative to the size of each year's network constructionprogram. Accounts payable represent about 3 months cash operating expenses plus network construction expenses.

May 1976 YUGOSLAVIA

MORAVAREGION DEVELOPMENTPROJECT

CACAK-VODOVOD- WATER AND WASTE WATER TARIFFS

(Din. per m3

ACTUAL _IfE! oF INCREASESFROK 1975 WATER WASTEWATER 1WATER Domestic Commercial WASTEWATER Dosmestic Commercial Current Constant Current Constant Prices Priceg Prices Prices

1973 (to Sept. 30) 0.940 2.230 0.235 0.470 __ _ _ _ 1973 (from Oct. 1) 1.056 2.504 0.264 0.528 _ _ _ _ 1974 (to June 30) 1.056 2.504 0.264 0.528 _ _ _ _ 1974 (from July 1) 1.210 2.870 0.303 o.605 _ - - - 1975 (from July 1) 1.41 3.350 0.350 0.700 100 100 100 100 ESTDIATED

1976 (from July 1) 1.70 4.00 .40 .B5 121 104 114 98 1977 it 2.05 4.85 .50 1.00 145 111 143 109 1978 to 2.45 5.80 .60 1.20 174 121 171 119 1979 ,i 2.95 6.95 .75 1.45 209 134 214 137 1980 is 3.35 8.00 .85 1.65 238 143 243 146 1981 3.85 9.20 .95 1.90 273 153 271 151 1982 4.45 10.55 1.10 2.20 316 165 314 164 1983 5.10 .12.15 1.25 2.55 362 177 357 174 1984 5.90 13.95 1.45 2.90 418 191 414 189 ______- ~May 1976 ANNEX 28 YUGOSLAVIA - MORAVA REGION DEVELOPMENT PROJECT Page 1 TITOVO UZICE - BIOKTOS Projections of Population, Water Sales and Production

REPORTED PROJECTIONS

~OO~~~~~~~~~~~~~~~~~010_;o100c#o

9 .- Fe5 0 00bw 90

8 P O?Q -P - 80

E: 7 / 'G OV Semi-Logarithmc L Scal 6 wt~ - \n 60~-~p) z - . PI

0~~~~~~~~~~~~

w~~ ~ ~ ~ t

0 Ja -1 3 -- T- G0% 3 o~~~~~~~~~~~~~~~

/ ~ANNUAL*~~~~~ ( * ~~~~~~GROWTH

2 RATES 8% 2

0~~~~~~~2 Ma1976

* ~~~~~~~~~~~~~~4%

- ~~~~~~~~~~~~~~2%

jl~~~~~~~~~~~~~~~~~~~~~ i

1970 1975 1980 1985 1990 1995

YEAR Semi-Logarithmic Scale

World Bank-15413

May 1976

YUGOSLAVIA- MORAVAREGION DEVELOPMENTPROJECT

TITOVO UZICE - BIOKTOS

PROJECTIONS OF POPULATION. WATERSALES AND WATERPRODUCTION

TOWN NO. OF CONNECTIONS CONSUMERS POPULATION PER CAPPTA TREATED WATER SALES LOSSES AS TOTAL AVERAGE 1 YEAR POPULATION NEW TOTAL PER CONNECTION ' SERVEDY CONSUMlvION DOMESTIC O ALI TOTAL 7 OF p2DQJI UlDN 3 ______7%INUMBER l/c/d- - 000 m /year ------PRODUCTION 0OO

a1971 38,162k' 202 3,178 6.0 50 19,000 156 1,090 1,070 2,160 25 2,880 91 g 1972 40,000 128 3,306 6.0 50 20,000 170 1,241 1,388 2,629 27 3,601 114 f 1973 41,800 162 3,468 6.4 53 22,150 160 1,293 1,477 2,770 27 3,805 121 1974 43,700 125 3,593 6.7 55 24,030 153 1,346 1,635 2,981 25 3,951 125

1975 45,860 127 3,720 7.1 58 26,600 147 1,423 1,660 3,083 27 4,220 134 1976 47,400 140 3,860 7.7 63 29,860 145 1,580 1,810 3,390 26 4,580 145 1977 49,200 200 4,060 8.3 68 33,650 145 1,780 1,950 3,730 25 4,970 158 1978 51,000 250 4,310 9.0 76 38,760 145 2,050 2,210 4,260 25 5,680 180 : 1979 52,900 320 4,630 9.5 83 43,910 155 2,480 2,710 5,190 24 6,830 217 1980 55,000 400 5,030 9.8 90 49,500 165 2,980 2,840 5,820 23 7,560 240 E 1981 56,600 350 5,380 9.7 92 52,070 168 3,190 3,000 6,190 22 7,940 252 2 1982 58,300 300 5,680 9.6 94 54,800 170 3,400 3,150 6,550 21 8,290 263 N 1983 60,000 300 5,980 9.5 95 57,000 172 3,580 3,310 6,890 20 8,610 273 1984 61,700 200 6,180 9.5 95 58,600 174 3,720 3,470 7,190 20 8,990 285 1985 63,600 200 6,380 9.5 95 60,420 176 3,880 3,630 7,510 20 9,390 298

1990 73,600 1,000 7,380 9.5 95 69,900 182 - 4,590 4,520 9,110 20 11,390 361 1995 83,500 1,000 8,380 9.5 95 79,300 185 5,350 5,630 10,980 20 13,720 435

Mission Estimates 2/Census (Towns of Titovo Uzice and Sevojno)

May 1976

ANNEX29

YUGOSLAVIA - MORAVA REGION DEVELOPMENTPROJECT Page 1 CACAK- VODOVOD Projectionsof Population,Water Salesand Production

15 1e REPORTED PROJECTIONS , 0 0;S

10 _ 100

8 80 7 70

6 V ______/60

30 - 5 •. cc

-J 4

°3 23 4-30 _J~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~-

U- 4 < 0_

40r~~~~~~~~4

1970 1975 1980 1985 1998 1099

YEAR Semi-LogarithmicScale

World Bank-15412 May 1976

YUGOSLAVIA- MORAVAREGION DEVELOPMENTPROJECT

CACAK - VODOVOD

PROJECTIONS OF POPULATION, WATERSALES AND WATER PROJIJCTION

YEAR TOWM NO. OF CONNECTIONS CONSUMERS 1 POPULATION PER CAPITA TREATED WATER SALES LOSSES AS TOTAL AVERAGE POPULATION NEW TOTAL PER CONNECTIONW D 1 CONSUMPTION I GOR I)OME11cCIAL TOTAL % OF PROIDJCTION _ NUMBER 1/c/d 1/ _-. 000 m3/ year -PRODUCTION 000 m'year 1_s

4.0 37 13,840 155 782 1,162 1,944 10 2,160 69 P1970 36,860 150 3,460 4 71971 38,170 150 3,610 4.2 40 15,160 150 828 1,216 2,0 4 10 2,271 72 R1972 39,500 200 3,810 4.4 42 16,750 161 985 1,575 2,560 0 2,560 81 M1973 40,900 300 4,110 4.6 46 18,910 184 1,273 1,908 3,181 1 3,205 102 1974 42,400 1,165 5,275 4.8 60 25,320 162 1,496 2,400 3,896 2 3,974 126 1975 44,000 475 5,750 5.0 65 28,750 140 1,470 2,630 4,100 10 4,560 145 1976 45,500 425 6,175 5.2 71 32,110 150 1,760 3,200 4,960 10 5,510 175 1977 47,100 400 6,575 5.4 75 35,500 152 1,970 3,500 5,470 10 6,080 193 ,1978 48,800 400 6,975 5.6 80 39,060 154 2,200 3,830 6,030 10 6,700 212 31979 50,600 350 7,325 5.8 84 42,480 156 2,420 4,160 6,580 10 7,310 232 rul1980 52,500 300 7,625 6.o 87 45,750 158 2,640 4,550 7,190 10 7,990 253 >1981 54,500 300 7,925 6.1 89 48,340 160 2,820 4,760 7,580 10 8,420 267 01982 56,200 250 8,175 6.2 90 50,680 161 2,980 4,980 7,960 10 8,840 280 1983 58,200 250 8,425 6.3 91 53,070 162 3,140 5, 330 8,470 10 9,410 298 1984 60,300 250 8,675 6.4 92 55,520 163 3,300 5,650 8,950 10 9,940 315 1985 62,400 250 8,925 6.5 93 58,010 164 3,470 5,930 9,400 10 10,440 331

1990 74,000 10,040 7.0 95 70,300 170 4,360 7,570 11,930 10 13,250 420 1995 87,500 11,080 7.5 95 83,120 175 5,310 9,660 14,970 10 16,630 527

1/ Mission Estimates

2/ Census

May 1976

ANNEX 30 Page 1

APPRAISAL OF

MORAVA REGION DEVELOPMENTPROJECT

YUGOSLAVIA

ECONOMIC EVALUATION

A. General

1. The project is complex, with many different components and several different beneficiaries. The total project is evaluated by consideringindi- vidual components separately.

2. The research components of the project (studies, irrigationpilot project and training)are not amenable to conventionaleconomic evaluationbe- cause of the difficulty of quantifyingtheir potential benefits.

3. The benefits of the wastewater facilities to be constructedin the project present similar evaluationproblems. However these facilities are the least cost solution to removing liquid wastes from the towns of Titovo Uzice and Cacak and their removal will clearly benefit the towns. The environment will be improved and the risk of disease reduced. But these benefits cannot be quantified.

4. The project components which are the most expensive and which merit the most attention are those for water supply in the two towns. Each is discussed separately.

B. Water Supply Facilities for Titovo Uzice

I. Objectives

5. The main objectives of these project facilities is to augment the supply of water and extend the distributionsystem for people and industries in Titovo Uzice.

6. Estimates of the town's future requirementsfor treated water are provided in Annex 28. In 1974, there were severe water shortages in the town. Nevertheless,in that year, 55% of the water sales were to commercialand industrial consumers. In future, it is estimated that domestic water sales will be approximatelyequal to the sales of treated water to industriesand commercial enterprises.

7. At the present time, however, the largest water users in Titovo Uzice are the five industrieswhich pump water directly from the Djetinja River (located on Map 11637). Whereas, Bioktos produced an average of 125 ANNEX 30 Page 2 liters/secondin 1974, these industries pumped an estimated 223 liters/second,l/ almost twice as much. The largest existing water supply plant in Titovo Uzice is that of the copper and aluminum refinery at Sevojno, whose water supply facilities 2/ were built because Bioktos was unable to provide an adequate supply to the industry.

8. Four of the five industrieswith small private systems would apparently prefer to buy treated water from Bioktos because of the deterioration in the quality of river water but the Sevojno complex, the largest industrial water user, will continue to use its newly constructed facilities. Estimates of the future requirementsfor untreated water of the Sevojno industrial complex have been provided by the Morava River Corporation. These estimates can be compared to the estimates for treated water production (Annex 28) as follows:

Year 1980 1985 1990 1995 --Annual Average in liters/second-

Treated Water 240 298 361 435

Untreated Water for Sevojno Industry 430 540 610 670

Total 670 838 971 1,105

9. For comparison,the average flow of the Djetinja River at Titovo Uzice is about 5,000 liters/secondbut flows have been as low as 340 liters/ second. The treated water system of Titovo Uzize (describedin Annex 5) depends on inflows to the Djetinja River to recharge the aquifer which is its source. The total of the water produced by Bioktos for the treated water

1/ Water pumped from Djetinja River by industries in Titovo Uzice in 1974 estimatedas follows:

Industry Average Intake (liters/second)

Sevojno Copper and Aluminum Enterprise 202 Cveta Dovic Textile Industry 5 MetalopreradaMetalworks 2 Privi Partizan Metal Works 5 Zlatibor Stone Factory 9

Total 223

2/ Including an intake on the Djetinja River (Map 11637) and a water treatment plant with an initial capacity of 250 liters/secondwhich began operating in 1973. ANNEX 30 Page 3

system and pumped by industries in Titovo Uzice totalled some 355 liters/ second in 1974, indicating that the reliable yield of the source has already been exceeded and that a period of prolonged low flows would have a significant and adverse impact on the town. It is not possible to evaluate these adverse effects.

II. Least Cost Solution

10. Possible sources which could augment the water supply to Titovo Uzice include:

(a) Regulation of Djetinja River flows (b) Groundwater (c) Diversion of surface water from another watershed

Each of these alternativesis discussedhereafter.

11. BeginniTigin 1971, four different Yugoslav consultants 1/ prepared preliminaryproposals for a dam to regulate flows on the Djetinja River for the benefit of Titovo Uzice. Several different types of dams were proposed and several possible damsites considered. The Jaroslav Cerni Institutewas assigned the task of preparing final designs for the dam. Following extensive field investigationsthe Vrutci Dam describe4 in Annex 10 was recommended, along with transmissionand treatment facilities,as the least cost solution to supplying the towns' needs. (No pumping is required except to distribute treated water to the high level zopes in Titovo Uzice.) The estimated cost of the Vrutci dam and associated water supply system (excluding the distributionnetwork) totals some Din 300 million (US$16.7 million) in 1975 prices. (Details in Annex 12).

12. Groundwater studies in the Titovo Uzice area have indicatedthat there is no potential water source which remains to be exploited. This is reasonable, since the region is in the hilly headwaters of the Zapadna Morava system and most precipitationdrains quickly away from the steeply sloping catchments. Accordingly,local water planners did not pursue the matter of groundwateravailability from more distant sources.

13. The appraisal mission observed the existenceof a potentialground- water source approximately25 km downstream (east) from Titovo Uzice, where the Djetinja River meets two others, the Moravica and the Skrapez, at the formal origin of the Zapadna Morava (Map 11639). An accumulationof alluvial sediment in this valley plain provides a very shallow aquifer (depth 3 to 5 m) covering an area of 80 to 100 ha which depends entirely on flows in the three perennial rivers meeting at this location. The town of Pozega uses this aquifer as its water supply source and it is almost certain that the aquifer could yield enough water to meet the requirementsof Titovo Uzice for treated and untreated (industrialwater).

I/ Jaroslav Cerni Institute, Hidroprojekt,Energoprojekt and Morava River Corporation. ANNEX 30 Page 4

14. Preliminarycalculations by the mission indicatedthat initial development of this well field with a capacity of 300 liters/secondwould require a large number of wells, collecting reservoir,two pumping stations, 1/ power supply and control system, and 28 km of pipeline. The cost of this system would be of the order of Din 175 million (US$9.7million) in 1975 prices with annual pumping charges of about Din 5 million. Design and constructionof the system would take 2 to 3 years. The existing Turica facilities in Titovo Uzice have a theoreticalcapacity of 120 liters/second(Annex 5), which, with an additional 300 liters/secondfrom Pozega, would only be able to meet peak day demands for treated water until about 1987 (assuminga daily peak/average ratio of 1:3). At that time, the Pozega system would have to be duplicated at similar expense (or very much earlier if it were to be used to provide industrial supplies to Sevojno). The costs of building and operating this groundwater alternativehave a higher present value than that for the Vrutci scheme (at discount rates of 10% and 15%) and would be much less attractive to Titovo Uzice on other non-economicconsiderations, such as reliability, security,etc. Accordingly,this alternativewas rejected.

15. The third alternativewas to divert water to Titovo Uzice from another watershed. For many years, Serbian water planners had been considering using the waters of the Rzav River for a multipurposeproject based on the Roge Dam, which would be located some 15 km southeast of Titovo Uzice on a relatively large tributary to the Moravica River (Map 11639). Flows at the Roge damsite average some 6.0 m3/second and a rockfill dam (volume 2.0 million m3) has been proposed to create a reservoir with storage totalling 162 million m3. The Roge scheme would be used to generate hydro power (about 60 Gwh annually from a 30 Mw plant) by diverting flows through a power tunnel 1.2 km long which would discharge into the Djetinja River some 11 km downstream of Titovo Uzice. Water diverted in such a power tunnel could obviously be used to supply water to Titovo Uzice.

16. Early in 1975, the costs of the Roge scheme, excluding price increases, were estimated as follows:

Din (million) US$ (million)

Dam 400 22.2 Power Tunnel 90 5.0 Power Station 210 11.7

Total 700 38.9

1/ The Pozega aquifer level is approximately300 m, whereas medium level reservoirs in Titovo Uzice are as high as 475 m (Annex 5). In addition, the friction losses in the 28 km pipeline (600 m diameter) would account for about 60 km, giving a total pumping head of approximately 235 meters. ANNEX 30 Page 5

A further Din 150 million (US$8.3 million) would be required to treat the water and convey it from the power tunnel to Titovo Uzice.

17. Although the Roge dam is included in the proposed Serbian development plan for 1976-80, the implementation of this large multipurpose scheme depends on the collaboration of the power sector (to whom the scheme is of marginal interest) and communities who might benefit from it. Attempts at developing Roge as a regional water system began as early as 1970 (under the auspices of the Serbian Secretariat for Town Planning, Housing and Communal Affairs) but so far no consensus has been possible. Accordingly, it seems unlikely that this large and expensive scheme will proceed in the near future. For these reasons. it is concluded that the Roge scheme is not only more expensive but also a more uncertain source to meet the pressing water supply needs of Titovo Uzice than the Vrutci scheme.

18. In conclusion, development of the Vrutci scheme is regarded as the least cost solution to supply Titovo Uzice's water requirements.

III. Project Benefits and Water Tariffs

19. The costs of the Vrutci dam and associated water supply facilities have been estimated (Annex 12). The Vrutci reservoir itself is intended to serve multiple functions and it has not been possible to quantify all their benefits. These include:

(a) supply of water for treatment and distribution to people and industries in Titovo Uzice. A minimum estimate of this benefit is the value the consumers are willing to pay. The present water supply system with its constant water shortages, cannot meet all of the present demands. The greater part of the treated water from the system is supplied to industries (55% of total water sales in 1974). Present water tariffs are relatively low: Din 1.50/m3 (US$0.08/m3) for domestic consumers and Din 2.30/m3 (US$0.13/m3) for industrial and commercial consumers, giving a weighted average tariff of about Din 1.94/m3 (US$0.11/m3).

(b) supply of river water through reservoir operations to augment periodic low flows and permit industries to pump increasing amounts of water for private systems (paras 7-9). This benefit is difficult to measure for two reasons:

(i) the incremental volumes of water to be provided by releases from the reservoir (over and above the natural flows of the Djetinja River in Titovo Uzice) would depend on variable hydrologic conditions. These incremental volumes have not been determined and no analysis has been made of the probability of future droughts and associated shortages likely to be incurred as industrial demands increase; ANNEX 30 Page 6

(ii) there is no presently acceptable metehod of estimating the value of these incremental flows from the Vrutci reservoirs. Presumably the metallurgical complex at Sevojno would have to be shut down for extended periods if such water were unavailable, at economic costs which are unknown.

(c) Augmentation of low flows by reservoir releases to improve water quality in the Djetinja River. Such water quality improvement would benefit industrial water users, improve the aesthetics of the town areas near the river (including a swimming area in the river) and permit more fish to survive in the river. Such benefits, although quite tangible, are not easily quantifiable.

(d) Storing of flood flows. The relatively small reservoir will cer- tainly be capable of retaining or at least retarding minor floods. However, any major flood would quickly pass through the reservoir. The flood control benefits of the reservoir have not been analyzed in detail but are believed to be relatively small compared to the water supply benefits.

20. Because of the inability to provide a complete estimate of project benefits from the dam it is not possible to present a meaningful rate of return analysis on the Vrutci dam. If, however, the only benefits considered are those for incremental sales of treated water, and if these sales are valued at the weighted average of present tariffs (Din 1.94/m3) the investment costs associated with the water supply component of the project. 1/ including the Vrutci dam, would produce a negative internal rate of return. This provides little useful information since only one benefit (treated water supply) has been considered and since this benefit is valued in terms of present tariffs which are admittedly too low.

21. Water tariffs in Titovo Uzice will have to be increased substantially on financial grounds, in order to generate cash to pay for the water supply system (and the future wastewater treatment facilities). As indicated in Annex 24, water rates are expected to increase by a total of 269% by 1980 (in constant terms). Even if the weighted average of the projected 1980 water tariffs (Din 6.98/m3) is used to evaluate the benefits from treated water supply, the rate of return would still be negative. If incremental treated water sales were valued at the long run marginal cost for water (para 23), the water supply investments (including the Vrutci dam) would produce an internal rate of return of 10.0%.

22. The Vrutci dam and associated facilities can provide Titovo Uzice with a reliable supply of water, for its treated water system and for

1/ In this calculation relatively minor capital costs associated with the continuing growth of the distribution system have been included, since they are requiiredto realize the benefits of the extra water supplied by the Vrutci scheme. ANNEX 30 Page 7 industries,of approximately1,100 liters/second.1/ This should meet total water demands for at least the next 25 years. 2/ Subsequently,the yield of the Vrutci reservoir can be increased further by diverting flows into it from the Susica River by means of a minor diversion system, including a tunnel some 3 km long, which could cost of the order of Din 150 million (US$8.3million). This means that the relatively large investmentrequired for the Vrutci scheme will provide water supply capacity for Titovo Uzice which is unlikey to be fully utilized until the 21st century. Thereafter,the capacity of the Vrutci scheme can be further augmentedby diversion from the Susica River.

23. The average incrementalcost for water supply for Titovo Uzice has been calculated on the followingassumptions:

(a) all costs of the Vrutci dam are charged to water supply;

(b) only treated water volumes are considered (due to the difficulties discussed in para. 11).

On this basis, which obviously overstates the costs of water supply, the average incremental cost of water is estimated at Din 14.5/m3 (US$0.81/m3),using a discount rate of 10%. Details are provided in Table 1.

24. The weighted average of the present water tariffs is only about 13% of the estimated average incrementalcost of water, but should reach 49% of this value by 1980. By that time, however, the expensiveproject facilities would already have been built and the average incrementalcost of water will have fallen to Din 4.7/m3 (US$0.26/m3),using the previous methodology but discountingfuture incrementalsales of treated water and associated costs to 1980. This calculation slightly understates the average incremental costs in 1980 because the costs of additional facilities required beyond the year 2000 to augment the capacity of the Vrutci system (Susica diversion and probably additional transmissionand treatment facilities for Titovo Uzice) have not been included. Their capacity, cost and timing are uncertain but if they were all to be built in the year 2001 at a total cost (in 1975 prices) of Din 200 million (US$11.1million), the 1980 average incrementalcost of water would rise to Din 5.9 m/3 (US$0.33/m3).

1/ Compared to the average inflow to the Vrutci reservoir of 1,870 liters/ second. The dependable supply of water can be estimatedmore accurately only after detailed operating rules are prepared, which will be done before project constructionis completed.

2/ Although the total water demand for 1995 is estimated at 1,105 liters/ second, it must be remembered that some of this water to be pumped by the Sevojno industry will consist of unregulatedflows from tributaries which enter the Djetinja River below the Vrutci dam - see Map 11639. ANNEX 30 Page 8

25. The foregoing indicates that the 1980 water tarifs, which are to be more than triple the current tariffs in constant prices (Annex 24), may at that time exceed the average incremental cost for water. If the current tariff structure is maintained, for example, commercial and industrial water consumers in 1980 would be charged Din 14.20/m3 (US$0.79/m3) in current prices, equivalent to Din 8.49/m3 (US$0.47) in 1975 prices. This means that it might be possible to lower tariffs at that time on economic grounds.

C. Water Supply Facilities for Cacak

I. Objective

26. The project facilities are intended to augment the supply of water supplies and extend the distribution system for people and industries in Cacak.

27. Estimates of water supply requirements are provided in Annex 29. Traditionally, the residents of Cacak have relied on local wells for their supply, but increasing urbanization and industrialization have caused the groundwater sources to be increasingly polluted and inadequatre to meet industrial demands. The estimated 60% of the population who were connected to the system in 1974 suffered no shortages. As the distribution system is extended to reach an increasing proportion of the growing population, the per capita domestic demands are not expected to increase significantly.

28. Industrial and commercial water sales were 160% of domestic sales in 1974 and are expected to continue to predominate in Cacak. Estimating such future demands is very difficult because they depend on the future pattern of industrial and commercial activities. In Cacak, the largest industrial consumer of treated water is expected to be the brewery, which is due to commence operations in 1976 and which will require a peak supply of 70 liters/ second. The estimates of future industrial water demands presented in Annex 29 are believed to be reasonable and reflect on known plans for industrial development in Cacak.

II. Least Cost Alternative

29. Cacak is fortunate to be sited on a perennial river (Zapadna Morava) which provides the primary source of groundwater in the shallow alluvial aquifer in the vicinity of the town. The average annual flow in the river exceeds 30 m3/second and the lowest recorded monthly flow averaged 3.8 m3/second (Sept- ember 1956). A probability analysis of hydrologic data indicates that the lowest flow expected in 100 years would be 2.5 m3/second. For comparison, Vodovod produced an average of 0.13 m3/second in 1974 and is unlikely to require as much as 2.0 m3/second in the next 25 years.

30. Unfortunately, the water in the Zapadna Morava is increasingly polluted. There are virtually no wastewater treatment facilities in the towns upstream of Cacak (Map 11639) and there are many polluting industries, AN4NEX30 Page 9

particularlyin Titovo Uzice. Cacak presentlyrelies on groundwatersources at Beljina (Annex 6) but the site is limited and productioncapacity cannot be expanded there.

31. There are basically three alternativesources of additionalwater for Cacak:

(a) New surface water source, to provide less polluted water;

(b) Pumping and treating water from Zapadna Morava River (without storage);and

32. Serbianwater plannerswere convincedthat Cacak's future water needs should be suppliedfrom a new surfacewater source, the Dicina River, which is a tributaryto the Zapadna Morava downstreamof Cacak (Map 11639). Runoff from this relativelysmall watershed is limited and irregular1/ so a storagereser- voir would be required. The Semedraz dam was proposed primarilyto supply water for Cacak. It could also be operated to augment low flows and to reduce flood discharges.

33. Preliminaryengineering, was completedfor the Semedraz dam in 1972 by Yugoslav consultants(Energoprojekt) who have also prepared preliminary designs for the associatedwater supply facilities: treatment plant, pumping station and 12 km pipeline to Cacak.

33. The cost estimate for these facilities,which would take approximately three years to construct,is estimatedas follows in end-1975 prices:

Din (million) US$ (million)

SemedrazDam 210 11.7

Pump Station 8 0.4

Pipeline to Cacak 75 4.2

Treatment Plant (450 l/s) 43 2.4

Total 336 18.7

1/ Average annual inflow at Semedraz reservoirsite estimated at 1,540 liters/ second. The proposed 46 m high rockfill dam would provide a reservoirwith a total storage capacity of some 33 million m3, which could produce a reliable yield of about 750 liters/second. ANNEX 30 Page 10

34. The possibilityof direct abstractionsfrom the Zapadna Morava River was never seriously considered by Serbian authoritiesbecause of their concern for water quality. It is certain that treatment of the river water to produce safe water for Cacak would be feasible but this would have to be confirmed by extensive analyses of the water and considerationof appropriate treatment facilities. The technology,however, would not likely be more complex than aLready required for treatmentof badly polluted rivers in other parts of the world (e.g. Mississippi River at New Orleans or Rhine River at Rotterdam).

35. It is probable that a period of about four years would be required to design and build the necessary plant, which could be located upstream of Cacak. The cost for a plant with an initial capacity of 450 liters/second (as proposed for the Semedraz plant) would likely be of the order of Din 60- 80 million (US$3.3-$4.4million) and an associated pumping station would cost about as much as the one proposed for the Semedraz scheme (Din 8 million or US$0.4 million).

36. The third alternative,and the one selected for the project because it is the least cost solution, is the developmentof additional groundwater sources. A good site at Parmenac, some 2 km upstream of the existing Beljina source, was investigatedin 1970/71. More extensive investigationswere completed late in 1975.

37. Preliminaryresults indicated that 15 to 20 wells at the Parmenac site could yield 200 to 250 liters/secondat a cost (end-1975prices) of ap- proximatelyDin 20 million (US$1.1 million). Local authoritiesdid not favor this solution initiallybecause of the limited capacity of the well field (only about one-third of the capacity of the Semedraz scheme) and because of concern for the quality of the water in the wells, which would be directly influenced by water in the adjacent Zapadna Morava River.

38. It was decided to proceed with the developmentof this groundwater scheme as a interim source for Cacak which could be built quickly (less than two years) and cheaply. At the same time, however, local authoritieswish to finalize plans for subsequent source developments. If the Parmenac source can yield only 200 liters/second,system capacity will be increased to at least 400 liters/second(based on the nominal capacity of the Beljina source of 200 liters/second). Allowing for a daily peak/averageratio 1/ of 1.3, groundwater sources with a total capacity of 400 liters/secondwould be sufficient to meet peak day requirementsuntil about 1984, based on the projectionsof Annex 29.

39. The proposed system developmentstudy of Annex 15, which should be coompleted by the end of 1977, would permit Serbian decision-makersto

1/ In 1975, peak daily production (September 16) was 26% higher than the estimatedaverage daily production of 145 liters/second. ANNEX 30 Page 11 determine the next appropriate source to be developed to augment the water supply for Cacak.

III. Project Benefits and Water Tariffs

40. Water supply benefits are traditionallydifficult to quantify,both in physical and in monetary terms. The existing source can supply most demands so the additional sourceswill be required only in peak periods at first. All of the new capacity should be utilized in peak periods by about 1984 but it will not be utilized 100% of the time until the minimum seasonal demands exceed the total capacity of the two sources, which is not expected to happen until after 1990. Distributionfacilities are similarlyincremental to the existing system.

41. A minimum value of the additionalwater supplies is the amount which the consumersare willing to pay. Present water tariffs for industrialand commercialconsumers are more than double those for domestic consumers (Din 3.35/m3 vs. Din 1.41/m3,or US$0.19/m3 vs. US$0.08/m3). Water sales to industrial and commercialconsumers represented 62% of Vodovod's total sales in 1974 and are expected to account for between 60% and 65% of total sales in the fore- seeable future (Annex 29). If incrementalwater sales due to the project are -- valued at the weighted average of the present tariff (Din 2.60/m3 or US$0.14/m3, the projectedinvestments for water supply yields an internal rate of return of 3.9%.

42. This rate of return simply demonstratesthat water tariffs in Cacak are too low. For financial reasons,Vodovod is expected to double its tariffs in real terms over the next ten years (Annex 27). Using a weighted average tariff of Din 5.03/m3, the anticipated1984 tariff expressed in constant 1975 prices, the internal rate of return rises to 11.7%.

43. The average incrementalcost of water can be calculated if assumptions are made concerningfuture source developmentfor Cacak. The most expensive next alternativewould be to build the Semedraz system. If this system were built to begin operatingin 1984, the average incrementalcost of water for Cacak wold be approximatelyDin 9.9/m3 (US$0.55/m3),using a discount rate of 10% (Table 2). The rate of return on the water supply facilities in the present projectwould rise to 21.6% if incrementalwater sales were valued at the average incrementalcost for water.

44. By 1984, the commercialand industrialtariffs for water are estimated to be Din 6.4/m3 (US$0.36/m3)in constant prices if the present tariff structure is maintained. This indicatesthat the proposed tariff policies for Cacak are economicallysound, since future tariffswill approach the average incrementalcost for water. TITOVOUZIGE - AVERAGEINCRDIENTAL O0S1S Fa MTED WAT MJPPL! Treated Water Sales Treated Water System Costs-' Year Incremental Incremental Project Other Capital Operation and Maintenance Total Cost to 1975 to 1980 Incremental Incremental Incremental Incremental to 1975 to 1980 to 1975 to 1980 --- 000 m3/year------Din (million)------1976 310 .38 I 39 1977 650 - 110 - 1 _ 111 - 1978 1,180 - 132 - 7 _ 139 1979 2,110 - 81 - 10 _ 1 1980 2,740 _ 5 19 _4- _ 1981 3,110 370 5 20 1 25 6 1982 3,470 730 5 21 2 26 7 1983 3,810 1,070 5 22 3 27 8 1984 4,110 1,370 5 23 4 28 9 1985 4,430 1,690 152/ 23 4 38 19 1986 4,720 1,980 5 24 5 29 10 1987 5,020 2,280 5 24 5 29 10 1988 5,320 2,580 5 25 6 30 11 1989 5,720 2,980 5 25 6 30 11 1990 6,030 3,290 5 26 7 31 12 1991 6,320 3,580 5 26 7 31 12 1992 6,720 3,980 5 27 8 32 13 1993 7,020 4,280 352/ 27 8 62 43 1994 7,320 4,580 5 28 9 33 14 1995 7,820 5,080 5 28 9 33 14 1996 8,420 5,680 5 29 10 34 15 1997 8,820 6,080 5 29 10 34 15 1998 9,320 6,580 5 30 11 35 16 1999 9,820 7,080 5 30 11 35 16 2000 10,320 7,580 5 31 12 36 17

At a discount rate of 10t, the average incrmental cost of treated water is as folowm: Sales and costsincremental to 1975, Dln14.5%/h3 Sales and costs incremental to 1980: Din 4.77/ 3

These values are obtained by dividing the present value of the total incremental cost by the prasemt value of the total incremental water sales volue. / In constant 1975 prices. _ / Additional treatnent plant capacity: Equipment for 200 liters/second in 1985 (Din 10 million). Civil works and equipaent for 200 liters/second in 1993 (Din 30 m1ilion). CAM AVUGE 1NMN=TL COSTSFOR MKAD WA =PFL

Treated Water Sales Water System Costs lt Year Incrementalto 1975 Project Other Capital_-/ Incremental0 & M Totil 3 ----- OOO m /year ---- …------(Din (million) ------

1976 200 59 - 59 1977 600 33 - 33 1978 1,100 24 1 25 1979 1,500 6 - 1 7 1980 1,900 - 25 2 27 1981 2,400 - 91 2 93 1982 3,000 _ 135 3 138 1983 3,600 - 105 3 108 1984 4,200 - 5 13 18 1985 5,000 _ 5 13 18 1986 5,500 _ 5 13 18 1987 6,000 _ 5 14 19 1988 6,500 - 5 14 19 1989 7,000 - 5 14 19 1990 7,500 - 5 15 20 1991 8,140 _ 5 15 20 1992 8,950 5 15 20 1993 9,660 - 5 16 21 1994 10,260 - 5 16 21 1995 10,870 - 5 16 21 1996 11,700 - 5 17 22 1997 12,500 - 5 17 22 1998 13,300 - 5 18 23 1999 14,100 - 5 18 23 2000 14,900 - 5 19 24

3 The average incremental cost of water 3 at a discount rate of 107., is Din 9-.9i/ . This value is obtained by dividing the present value of the total inormental Costs by the present value of the total incremental sales volumes.

!/In constant 1975 prices. £ Other capital costs as followst a) Din 5 million annully for distribution system extensions. b) Construction of Semedras dan ad related water supply facilities as follows: 1980 1981 1982 1983 Total …emdra---2 Din (Million)…------21…- Semedraz 20 Pipelineto Damg Cacak - 1060 3180 3150 21075 Pump Station - 8 TreatmentPlant 6 16 11 43 Total -20~ 86 130 10033- May 1976 ANNEX 31 Page 1

YUGOSLAVIA

MORAVA REGION DEVELOPMENT PROJECT

SERBIAN WATER FUND

Financial Situation

A. Past and Present Financial Situation

1. Details of the organization and administration of SWF are given in Annex 4. This indicates that SWF acts as an agency of the Republican Govern- ment for the administration of public funds for the purposes of various river regulation activities. Certain sources of revenue have been assigned for the exclusive use of SWF, in the form of taxes or contributions from various types of users of river water. These taxes and contributions are as follows:

(a) from power companies for utilization of water;

(b) from other users of raw water;

(d) from organizations discharging pollutants into rivers; and

(e) from persons or enterprises licensed to extract sand and gravel from river beds.

During the period 1971-1975 receipts from these sources for the Morava basin amounted to about Din 55 million 1/ (US$3.1 million).

2. During the years 1974 and 1975 additional funds were made available by the allocation to the Fund of part of the proceeds of a Republican retail tax, estimated at about Din 95 million (US$5.3 million) for the two-year period. For 1975, a one-time distribution of part of the development funds hitherto held by commercial banks will produce about Din 28 million (US$1.6 million). In addition to its regular funds, the Water Fund has received, during the past five years, about Din 235 million (US$13.1 million) from the Republican budget. A further Din 273 million (US$15.2 million) has so far come from a fund established during the construction of the Djerdap Dam (see Annex 3), a joint hydro-power project of Yugoslavia and Romania on the Danube (Map 11603), for the construction of upstream works, particularly dams, which are supposed to prevent downstream sedimentation which would be detrimental to the hydro-power operations. Sources of SWF funds for the period 1971-1975 can be summarized as follows:

1/ Including Din 15 million for agricultural activities in 1971 only. ANNEX 31 Page 2

Din. US$ Million Million _

(a) Taxes on water use and agricultural contributions 55 3.1 8

(b) Allocation of sales tax 94 5.2 13

(d) Contributions from the Djerdap Fund 273 15.2 39

(e) Republican Budget 250 13.8 36

700 38.9 100

3. During the period 1965-1970, about Din 210 million (US$11.6 million) was disbursed by SWF for flow regulation projects in the Morava region. This is expected to rise to an estimated Din 720 million (US$40.0 million) for the period 1971-1975 including approximately Din 75 million on maintenance and approximately Din 624 on new construction of dykes and river regulation structures.

4. Detailed plans are still being formulated by SWF for the period 1976-1980, but preliminary estimates show Morava regional requirements for the period amounting to about Din 1,760 million (US$97.8 million) to be funded as follows: Din US$ Million Million %

(a) Contributions from earnings of enterprises and workers 711 39.5 40

(b) Taxes on water use 135 7.5 8

(d) Republican Budget 420 23.3 24

1,760 97.8 100

5. No details, other than a forecast allocation between maintenance (17%) and new construction investment (83%), are available about proposed expenditures. Total investment expenditure of about Din. 1450 million (US$80.6 million) is expected to include the contribution towards the Vrutci dam, estimated at Din 120 million (US$6.7 million) and towards the water quality and flood control studies, estimated at Din 33.7 million (US$1.9 million). ANNEX 31 Page 3

B. Project Financing Plan 1976-1980

6. The following table gives a forecast of the estimated funds requirement for the construction and implementation phase of the Bank-assisted project components to be undertaken by the SWF, showing the sources from which they are expected to be met.

1976 1977 1978 1979 1980 TOTAL -- Din. (Millions)------Din. US$ _____ (Millions) (Millions)

Requirements

Project Expenditures: Vrutci Dam 18.9 57.4 92.3 80.5 - 249.1 13.8 Flood Hazard Studies - 12.6 12.6 6.3 - 31.5 1.8 Water Quality Studies - 11.2 5.6 - - 16.8 0.9

Interest 0.5 1.9 4.4 7.3 9.4 23.5 1.3

Total Requirements 19.4 83.1 114.9 94.1 9.4 320.9 17.8

Sources

Proposed IBRD Loan 3.5 24.5 37.8 37.0 12.8 115.6 6.4 Serbian Water Fund 12.2 47.3 58.7 40.5 (4.9) 153.8 8.5 Titovo Uzice Commune 3.7 11.3 18.4 16.6 1.5 51.5 2.9

19.4 83.1 114.9 94.1 9.4 320.9 17.8 Total Sources _ = ==

7. It is proposed that Din 115.6 million (US$6.4 million) of the Bank loan be allocated to these project components, to cover 38.9% of project costs. 30% of the balance of requirements for Vrutci Dam will come from Titovo Uzice (Din51.5 million) and 70% from SWF (Din 120.1 million). SWF will also provide a contribution of Din 33.7 million (US$1.9 million) towards the studies.

8. Excluded from the table in paragraph 6 are several project components which will be undertaken by entities other than SWF and for which SWF will onlend an appropriate portion of the Bank loan. Also excluded from this table is the training program for MRWCI, which is not expected to be implemented until SWF hands over its responsibilities to the MRWCI. The following table gives a forecast of the estimated funds requirements for the construction and implementation phase of these remaining project components, showing the sources from which they are expected to be met. These components cover the regional development studies, pilot irrigation projects and the tMRWCI training program. ANNEX 31 Page 4

1977 1978 1979 1980 TOTAL --- Din. (Millions)------Din. US$ (Millions)(Millions)

Requirements

Project Expenditures: Regional Development Studies 9.1 - - - 9.1 0.5 Training - - 1.7 - 1.7 0.1 Milosenac Irrigation 14.6 - - - 14.6 0.8 Aleksinac Irrigation 9.9 - - - 9.9 0.6 Interest 0.4 0.9 1.1 1.2 3.6 0.2 Total Requirements 34.0 0.9 2.8 1.2 38.9 2.2 Sources Proposed IBRD Loan 8.5 3.6 1.6 - 13.7 0.8 Serbian Government 25.5 (2.7) 1.2 1.2 25.2 1.4 Total Sources 34.0 0.9 2.8 1.2 38.9 2.2

C. Future Operations

9. The 1975 Serbian Water Law (Annex 3) provides for the establishment of three water basin Water Communitiesof Interest one of which is for the Morava Basin (MRWCI). It is expected that shortly after these new bodies are established,SWF will cease to operate as a separate organization. Its functionsand financialresources are expected to be appropriatelydistributed among the new bodies.

10. Upon completion,it is expected that the Vrutci dam will be managed, operated and maintained by SWF (or its successor,MRWCI). Separate accounts will be kept for such dam operations. Because the Vrutci reservoiris intended to serve multiple purposes an appropriateshare of the annual costs, includinga capital recovery factor, will be charged to Bioktos based upon a calculationof the share of benefits attributed to Bioktos water supply system. The annual payment should relate to costs of operation,maintenance and administration together with the recovery of capital costs on an annuity basis at an appropriaterate of interest. In calculatingthe recovery of capital costs, credit should be given for the 30% contributionby the Commune towards constructioncosts. A study to determine the appropriateshare of costs chargeable to Bioktos will be carried out in conjunctionwith the formulation of reservoir operating rules. Pending the establishmentof such arrangements, this report assumes that 70% of the annual costs of the dam will be charged to Bioktos, after an adjustment for the capital contributionto be provided by the Commune.

May 1976 ANNEX 32 Page 1

YUGOSLAVIA

MORAVA REGION DEVELOPMENT PROJECT

BIOKTOS - TITOVO UZICE COMMUNAL ENTERPRISE

Financial Situation

A. Past Performance and Present Position

1. Consideration of the finances of Bioktos cannot be made without regard for those activities of the organization other than for water and wastewater services (Annex 18). However, each of these other activities have their own sources of revenue, either from charges or from the Commune. These services, which together accounted for some 40% of Bioktos' net income in 1974 (Annex 22) are expected to continue to operate on a self-sufficient basis without adversely affecting water and wastewater facilities 1/.

2. On its combined water and wastewater operations Bioktos earned a rate of return of almost 12% in 1972, falling to 9% by 1974. No charges were levied for the wastewater service until January, 1975 and therefore losses were made on this service for each of, the three years in question. Overall, for all services, Bioktos made a rate of return in excess of 10% for each of the three years.

3. In January 1975 a wastewater tariff was introduced. On November 1, 1975 the water tariffs were increased by 25% (domestic) and 15% (commercial). In 1975, the combined water and wastewater services were expected to earn a rate of return of about 4.8%.

4. From 1972 to 1975 domestic water sales increased by about 15% and commercial sales by about 20%. Revenues from water and wastewater services increased by about 77%. Receivables have been at about 2-3 months revenues.

5. Long-term debt fell from Din 3.4 million in 1972 to Din 2.7 million in 1974. The outstanding debt at the end of 1975 is estimated at Din 2.25 million comprising 15 loans with an average outstanding repayment period of just over 6 years and an average interest rate of about 3.8%.

1/ On the basis of figures provided by Bioktos, services other than water and wastewater collectively earned, or are estimated to earn, a rate of return in excess of 10% for every year from 1972 to 1984 with all funds requirements covered either from internal sources, or from business enterprises and the Commune, except in 1976, when a specific loan is to be arranged to finance certain capital expenditures. ANNEX 32 Page 2

6. After allowing for increases in short-term investmentspending their use for project purposes, Bioktos financed, from internal sources, 71% of its capital expenditurerequirements in 1972, 84% in 1973 and 34% in 1974. Debt service coverage was 8.7 times in 1972 falling to 6.0 times in 1974.

Financing Plan 1976-1980

7. The following table shows Bioktos' estimated total funds requirements for the period of project construction(1976-1980) 1/ and the sources from which they will be met. Neither Annex 22 nor this financing plan takes account of the constructionof the Vrutci dam, because this is to be the responsibilityof the SWF.

1/ Project constructionis estimated to be completed by the end of 1979 but Bank loan disbursementsare anticipatedto continue into 1980. ANNEX32 Page 3

1976 - 1980

Amount Amount Din (millions) Us$ (millions)

Requirements

Project Expenditure:

Water 235.8 13.1 51.6 Wastewater 100.5 5.6 22.0

Other Capital Expenditure:

Water 14.2 o.8 3.1 Wastewater 48.6 2.7 10.6 Other 11.1 O.6 2.5

Interest Charged Construction 30.9 1.7 6.8 Increase in New Working Capital 15.5 0.9 3.4

Total Requirements 456.6 25.4 100.0

Sources

Internal Cash Generation 76.4 4.2 16.7 Less: Deductions

Debt Service 21.8 1.2 4.8 Compulsory Investments 2.4 0.1 0.5 Contributions to Collective Consumption Fund 10.9 O.6 2.4

Total Deductions 35.1 1.9 7.7

Net Internal Cash Generation 41.3 2.3 9.0

Proposed Borrowings: IBRD Loan 130.7 7.3 28.6 Belgrade Bank Loan 8.0 0.5 1.8 Local Loans 65.2 3.6 14.3 Mutual Reserve Loan 0.5 - 0.1

Contributions: Commune 0.8 0.1 0.2 Enterprises and Consumers 11.4 o.6 2.5 Special Funds 198.7 11.0 43.5

Total Sources 456.6 25.4 100.0 ANNEX 32 Page 4

8. It is proposed that Din 130.7 million (US$7.3 million) of the Bank loan be allocated to this project component, which would cover about 38.9% of project costs. The remainder of Bioktos investment requirements would be financed from sources within Yugoslavia.

9. In the absence of significant loan finance from within Yugoslavia, the Commune of Titovo Uzice has set out to marshall various sources of funds for the project within its own jurisdiction. The General Assembly of the Commune of Titovo Uzice has passed a series of resolutions on the project, including the identification of various local sources of funds to be allocated towards project construction costs. Some of these funds are available immediately but others will be built up from future contributions. They have been allocated towards project costs by years on the basis of Bioktos' estimates. The proposed funds are as follows:

Din (millions)

1. Personal taxes 27.3 2. Housing fund taxes 123.0 3. Levies on business enterprises 75.0 4. Former Communal Investment Fund 10.5 5. Former Communal Housing Fund 10.0 6. Other 4.3

250.1

10. After allowing for a Din 51.5 million contribution towards the construction costs of the Vrutci dam (Annex 31) the remaining Din 198.6 million is available for the investment program of Bioktos. In addition, arrangements have been made for a loan of Din 8.0 million from the Belgrade Bank. System extensions costing about Din 10 million are being constructed by individual communities and will be handed over to Bioktos, on completion, for operation and maintenance. Minor contributions are also expected from the Commune and from business enterprises, mainly towards investment for services other than water and wastewater.

11. After allowing for debt service, compulsory investments and contributions to the Collective Consumption Fund, internal funds are estimated to finance Din 41.3 million (US$2.3 million) or about 9% of Bioktos total funds requirements.

12. The local loans of Din 65.2 million represent two separate loans, one for Din 47.2 million (US$2.6 million) in 1978 and another for Din 18.0 million (US$1.0 million) in 1979. Both are from, as yet, unidentified sources and could be followed by several others, as described below (para 21). The major part of the first of the above loans conceptually represents short term financing pending the availability of the local contributions described above. If related only to project expenditures all but Din 18 million could be repaid out of such contributions in 1979 or 1980. However, Bioktos is expected in 1979 to begin the construction of a wastewater treatment works, outside the ANNEX 32 Page 5

project, estimated to cost Din 84.6 million (US$4.7 million). COnsequently, the whole of the Din 47.2 million (US$2.6 million) loan must be rolled over (i.e. treated as a longer term loan) with a further Din 18.0 million (US$1.0 million) raised in 1979. As explained below (para 21) other financing may ultimately replace these projected local loans. In any event, Din 18.0 million of the first loan represents project financing still to be secured.

Tariffs

13. On November 1, 1975 Bioktos increased its water tariffs to Din 1.50 per m3 (domestic) and Din 2.30 per m3 (commercial). Its wastewater tariffs, introduced in January 1975, were expected to remain at Din 0.20 per m3 (domestic) and Din 0.30 per m3 (commercial).

14. Further large tariff increases will be necessary if Bioktos is to meet operational requirements and ultimately to contribute towards its investment program. A proposed schedule of tariffs is indicated in Annex 24. Selected estimates of tariffs, 1/ expressed both in current prices and in 1975 constant prices are as follows:

Water (Din per m3) Wastewater (Din per m3) Domestic Commercial Domestic Commercial Current Prices

1975 1.50 2.30 0.20 0.30 1980 9.25 14.20 1.25 1.85 1984 10.60 16.30 1.65 2.40

1975 Constant Prices 1/

1975 1.50 2.30 0.20 0.30 1980 5.55 8.52 0.75 1.11 1984 4.85 7.45 0.75 1.09

15. For water, a tariff increase of 50% is proposed from July 1, 1976 with a further increase of 50% from July 1, 1977. Annual increases of 40% are proposed in each of the following three years until 1980, bringing tariffs to about 6.2 times their present levels (about 3.7 times in 1975 constant prices). Thereafter until 1984, tariffs, have been assumed to increase by 3.5% per annum, half the estimated inflation rate.

1/ Combined water and wastewater tariffs in 1980 would be equivalent (in January 1976 constant prices) to US$0.33 per m3 (domestic) and UTSS0.50 per m3 (commercial). Comparable figures for minimum proposed 1980 tariffs in Sarajevo (at 1976 prices) would be US$0.22 per m3 (domestic) and US$0.43 per m3 (commercial). A Washington area utility (WSSC) currently charges a combined domestic tariff of US$0.29 per m3, and in Tunisia, the present tariff for water supply only is US$0.15 per m3. ANNEX 32 Page 6

16. Similar tariff increases are proposed for wastewater services until 1980. Thereafter annual increases of 7% are assumed until 1984, to keep pace with inflation. By 1984 wastewater tariffs will be about 8.3 times their present low levels (about 3.7 times in 1975 constant prices). Although the increases for wastewater tariffs have been assumed as broadly the same as for water in the period 1976-1980, Bioktos may wish to adjust the differentials to meet changing circumstances.

17. On the water service, a rate of return of about 6.6% will be earned by 1979, falling to about 3.6% in 1980, and thereafter remaining at or about 7% until 1984. On the wastewater service, rates of return will fall from 4.4% in 1977 to below 1% after 1981, reflecting tariffs covering only operating costs and depreciation (in 1975 and 1976, low rate bases give exceptionally large rates of return). For the water and wastewater services together, a rate of return of about 3.4% will be earned by 1980 and 4.1% by 1984.

18. Bioktos' present commercial tariff is about 1.5 times its domestic tariff, on equity, rather than economic grounds. This differential between commercial and domestic tariff is a common practice in Yugoslavia as elsewhere. The proposed future tariffs assume that these differentials are retained. How- ever, the financial forecasts (Annex 22) indicate what would be an average tariff for each year, with the differentials eliminated.

19. The rates of return proposed are reasonable, in view of the fact that they are calculated on the basis of revalued net fixed assets (Annex 23). Fur- thermore, well over half the capital finance for the project will have been provided in advance by the town's population at some sacrifice, by way of increased communal taxation and contributions from personal earnings and earnings of enterprises. It is expected that such contributions will need to continue, but at a reducing level, to finance Bioktos' further development program, including wastewater treatment facilities.

Future Performance

20. Bioktos' main concern is to raise adequate capital finance for its ongoing investment program, of which the project forms the most significant part. After 1980 it is conceivable that Bioktos could become increasingly self-sufficient, since further massive investment is unlikely in the years immediately following the project. Whether such a situation will materialize depends upon the outcome of a number of uncertainties which cannot be resolved at this time. These include the nature and timing of future investments but, more significantly, the source and terms of external finance needed, in addition to that already committed for the project. The most likely source of external finance, if any, would be additional contributions from compulsory local savings, as at present. However, for illustrative purposes, on a more conservative basis, Bioktos is assumed to raise additional capital finance from 1980 onwards by a program of annual borrowing, for all its funds requirements not met internally, with interest at 10% and repayment over 15 years. ANNEX 32 Page 7

21. Because of the projected gradual increase in tariffs from the present date until 1980, and because of the very large constructionexpendi- tures predicted during the same period, the contributionfor internal funds towardsconstruction costs is expected to be no more than about 10%. How- ever, on the basis of the above assumptions,Bioktos, can be expected to meet from internal sources 10% of its investmentrequirements in 1981, and between 40% and 50% in followingyears. Since internallygenerated funds are significantlyinfluenced by debt charges and because of the uncertainty of the terms and availabilityof future capital sources, it is conceivable that Bioktos may become, and indeed may need to remain, largely financially self-sufficient, financing a significant capital expenditures beyond 1980 from internal sources. It is also possible that tariffs may not need to be increased significantly from 1980. With inflation, this would mean a reduction in 1975 constant prices which would be consistent with the reduced long-run marginal cost as explained in Annex 30.

22. In 1980 the financial statements show negative transfers to the business fund, reflecting the large increment in operating costs as the project comes into operation. The sum involved is a mere 1.5% of revenues and is not, therefore, material, particularly in view of the uncertainty about the allocation of reservoir costs and about the terms of financing for the wastewater treatment works.

a 197T ANNEX 33 Page 1

YUGOSLAVIA

MORAVA REGION DEVELOPMENTPROJECT

VODOVOD - CACAK WATER AND WASTEWATER ENTERPRISE

Financial Situation

WATER AND WASTEWATER SYSTEMS

A. Past and Present Financial Situation

1. A meaningful review of Vodovod's past performance and present posi- ton is constrained by the lack of adequate accounting information to determine the costs of network construction work carried out by force account, as explained in Annex 19. Such constructionhas been assertedlyfinanced in shares of approximately one-third each by the Commune of Cacak, by consumer contributions and by internal funds of Vodovod. It is apparent from discussions with Vodovod staff that the engineeringestimates include a provision for administrative overheadsbut it is not possible to discern whether this includes a profit element. In the absence of adequate cost information,Vodovod's past and esimated future operating expenses have been adjusted by the deduction of total engineeringestimates as costs of network construction.

2. Despite the fluctuatinglevel of network constructionactivity from year to year, overall staff costs and other expenses do not change so abruptly. This is because, during slack constructionperiods, more staff and resourcesare diverted to routine (or catch-up) operation and maintenance. Consequently,the relativelyhigh overall rates of return for 1973 and 1974 are not as meaningful as where all resources are employed solely for operation and maintenance.

3. A consequenceof this situation,has been an apparent disproportionate increase in operating expenses during 1975, when network constructionwas estimated to be about 25% less than in the previous two years. Vodovod appears, therefore, to have relied over-much on receipts from network constructionin- stead of raising additional revenues from increasing tariffs, a practice no doubt encouragedby communal and governmentalrestrictions on price increases. Tariffs were increasedby about 16% from July 1, 1975, which was expected to result in a small increase in retained earnings. However it was estimated that Vodovod needed to raise short-termbank finance to cover a cash shortage of the order of Din 2 million. During 1975, internal funds were expected to finance only about 20% of network constructioncosts. ANNEX 33 Page 2

4. From 1972 to 1975 there was an estimated50% increase in domestic water sales and a 67% increase for commercialand industrialwater. Revenues from water sales and wastewater charges during the same period are estimated to have increasedby about 3.3 times.

5. Vodovod has raised several loans during the past 3 years, but its debt/equityratio is predictedat only 13:87 by the end of 1975, with debt service coverage exceeding4.0 times during that year. There were 4 separate loans outstandingat the end of 1974 amountingto Din. 7.2 million with an average interestrate of about 4.75% and an average repaymentperiod of just under 12 years.

6. Receivableshave, since 1972, fluctuatedaround 3 months' sales and at the end of 1975 was about 3-1/2 months' sales. Vodovod is understoodto practice fairly rigorous cut-off procedureson overdue accounts.

B. FinancingPlan

7. The following table shows Vodovod's estimated total funds requirements for the period of project construction(1976-1980) 1/ and the sources from which they will be met. Neither Annex 25 nor this financingplan takes account of stormwater activities,which will be dealt with separately.

1/ Project constructionis estimated to be completed by the end of 1979 but Bank loan disbursementsare anticipatedto continue into 1980. ANNEX 33 Page 3

1976 - 1980

Amount Amount % Din(millions) US$(millions)

Requirements

Project Expenditure: Water 144.1 8.0 42.3 Wastewater 74.3 4.1 21.8

Other Capital Expenditure: Water 13.5 0.8 4.0 Wastewater 81.8 4.5 24.0

Interest Charged to Construction 15.7 0.9 4.6

Increase in Net Working Capital 11.2 o0.6 3.3

Total Requirements 340.6 18.9 100.0

Sources

Internal Cash Generation 97.4 5.4 28.6 Less:- Deductions

Debt Service 12.3 0.7 3.6 Compulsory Investments 4.3 0.2 1.3 Contributions to Collective ConsumptionFund 3.8 0.2 1.1

Total Deductions 20.4 1.1 6.o

Net Internal Cash Generation 77.0 4.3 22.6

Proposed Borrowings: IBRD Loan 84.9 4.7 24.9 Local Loan 25.0 1.4 7.3

Contributions Consumers 5.3 0.3 1.6 Commune 10.6 o.6 3.1 Semedraz Fund 124.6 6.9 36.6 Communal DevelopmentFund 13.2 0.7 3.9

Total Sources 340.6 18.9 100.0

1/ Including Din 2.0 million net repayment of short-term bank loans. ANNEX 33 Page 4

8. It is proposed that Din 83.7 million (US$4.7 million) of the Bank loan be allocated to this project component, which would cover about 38.9% of project costs. The remainder of Vodovod's investment requirements would be financed from sources within Yugoslavia.

9. In the absence of significant loan finance from within Yugoslavia and in anticipation of the intention (now postponed) to participate in the financing of the Semedraz Dam and to construct the related transmission and treatment facilities, the citizens of Cacak, in a referendumn in 1973, voted to establish a "Semedraz Fund" to be financed by voluntary deductions from personal incomes and by contributions from business enterprises. Latest estimates by the Commune of Cacak indicate that Din. 124.6 million (US$6.9 million) would be available from this fund to finance the project.

10. In adition to the Semedraz Fund, the Commune operates a more general development fund, not exclusively for water services. Based on estimates of the Commune, and after allowing for contributions towards the stormwater system, it is anticipated that Din. 13.2 million (US$0.7 million) would be available for the water and wastewater components of the project.

11. According to Vodovod, it is not intended to require consumer contributions towards network construction under the project. None have, therefore, been allowed for during the years 1976-1979. However, it seems inconsistent with previous practice, and with the assumed resumption of contributions in 1980, not to require them during the project construction period. Consumer contributions (Din. 5.3 million) and direct contributions from the Commune (Din. 10.6 million) are based on the assumption that network construction in 1980 (after the project) will be financed broadly as at present, with about 25% participation by consumer contributions and about 50% from the Commune.

12. After allowing for debt service, compulsory investments and contributions to the Collective Consumption Fund, internal funds are estimated to finance Din. 77.0 million or about 23% of Vodovods total funds requirements.

13. After completion of the project, Vodovod will still have a heavy investment program to finance, including a wastewater treatment works to be constructed during the years 1979-1981. The local loan of Din. 25 million is the first of several loans, from as yet unidentified sources, which may be needed to finance the major proportion of Vodovod's post-project investments if other finance is not available.

C. Tariffs

14. In July 1975, Vodovod raised its water tariffs by about 16% to Din 1.4 per m3 (domestic) and Din 3.35 per m3 (commercial). Wastewater tariffs were raised to Din 0.35 per m3 (dorestic) aLndDli. 0.7o per m3 (commercial). Further increases will be necessary in the future, if Vodovod is to meet opera- rlonal requirements, earn a reasonable rate of return and contribute towards its investment program. ANNEX 33 Page 5

15. A proposed schedule of tariffs is indicated in Annex 27. Selected estimates of tariffs, expressed both in current prices, and in 1975 constant prices are as follows:

Water (Din per m3) Wastewater (Din per m3) Domestic Commercial Domestic Commercial

Current Prices

1975 1.41 3.35 0.35 0.70 1980 3.35 8.00 0.85 1.65 1984 5.90 13.95 1.45 2.90

1975 Constant Prices I/

1975 1.41 3.35 0.35 0.70 1980 2.00 4.73 0.51 0.98 1984 2.72 6.46 0.67 1.33

16. Tariff increases of 20% annually are proposed from July 1, 1976 until July 1, 1979. Increasesof about 15% per annum will be necessary thereafter until the Semedraz Dam is assumed to come into operation in 1984. By 1980, tariffs are estimated to be about 2.5 times their present levels (an increase of about 45% in 1975 constant prices) and by 1984, about 4 times present levels (about double in 1975 constant prices).

17. Wastewater tariff increases are proposed of the same magnitude as those for water. It should be recognized,however, that Vodovod might wish to adjust the differentialsbetween the two services to meet changing circumstances.

18. On the basis of present estimates, the proposed tariffs would allow for water operations to earn rates of return on revalued net fixed assets in operation rising from 5.3% in 1976 to 9.2% in 1980. Rates of return would rise further to 12.6% by 1982, falling to 5.6% in 1984 during the assumed first year of operation of the Semedraz Dam. Wastewater tariffs will enable Vodovod to cover all expenses of operation,maintenance and depreciationfor the wastewater service.

1/ Combined water and wastewater tariffs in 1980 would be equivalent (in January 1976 constant prices to (US$0.13 per m3 (domestic)and US$0.30 per m3 (commercial). Comparable figures for minimum proposed 1980 tariffs in Sarajevo (at 1976 prices) would be US$0.22 per m3 (domestic) and US$0.43 per m3 (commercial). A Washington area utility (WSSC) currently charges a combined domestic tariff of US$0.29 per m3, and in Tunisia, the present tariff for water supply only is US$0.15 per m3. ANNEX 33 Page 6

19. When Vodovod's total operations are considered,the combined effect of the various tariffs will be to permit a rate of return on revalued net fixed assets rising to exceed 5% by 1979 and to exceed 6% from 1980 to 1983. In 1984 the return would fall to about 4%.

20. Vodovod's present commercial tariff is about 2-1/2 times its domestic tariff. For wastewater,the commercial tariff is twice the domestic tariff. Whilst this may be appropriateon grounds of equity apparent to either the Commune or to Vodovod, there is not necessarilyany substantialeconomic justification for the differential. However, this is a common practice in Yugoslavia, as elsewhere. Consequently,proposed future tariffs assume that the differentials will remain as they are. However, the financial forecasts (Annex 25) indicate what would be an average common tariff for each year with the differentials between domestic and commercial tariffs eliminated.

21. The rates of return proposed are reasonable,in view of the fact that they are calculated on the basis of revalued net fixed assets (Annex 26). Furthermore,apart from the Bank loan, all other capital finance for the project will have been provided in advance by the town's population at some sacrifice, by way of increased communal taxation,contributions to the Semedraz Fund and contributionsto other communal developmentfunds. It is expected that such contributionsand taxes will need to continue beyond the period of project constructionso as to assist in financingVodovod's further developmentprogram, includingwastewater treatment facilitiesand aditionalwater supply sources including, possibly, the Semedraz Dam.

D. Further Performance

22. Vodovod's main concern is now, and will continue to be in the future, that of raising adequate capital finance for its ongoing investmentprogram. Significantlocal loan finance seems unlikely and resort will probably continue to be had to the forms of compulsory saving already referred to. For the period of project construction,adequate funds are expected to be available to cover Vodovod's requirements,as indicated in paragraph 7. However, there are no in- dications of possible sources, terms and amounts of funds likely to become available for Vodovod's investment program after the project. 1/ Although compulsory local savings continue to be the most likely possibility,regard must be paid to the fact that, in the books of Vodovod, such funds would probably be interest- free and non-returnable. Consequently,for illustrativepurposes, Vodovod is

1/ SWF, not Vodovod, is assumed to be responsiblefor the constructionof the Semedraz dam (i.e. similar arrangementsto Vrutci dam at Titovo-Uzice). Vodovod's funds requirementstherefore relate to associated construction works (e.g. treatment and transmission). ANNEX 33 Page 7 assumed to raise capital finance from 1980 onwards by a program of annual borrowing, for all its funds requirementsnot met internally,with interest at 10% p.a. and repaymentover 15 years, thus presentinga more conservativeview of its future finances.

23. Given these assumptions,Vodovod can be expected to meet from internal sources 17% of its investment requirementsin 1978, and 30% or more in 1979, 1980 and 1981. During the assumed constructionperiod for the treatmentand transmissionfacilities for the Semedraz dam (1982 and 1983) the contributions would fall to 22% in 1982 and 19% in 1983, rising again to 55% in 1984. Since internallygenerated funds are significantlyinfluenced by debt charges and since debt finance on such a scale is improbable,actual performance is likely to be different from that indicated. Much will depend upon the formulationof Vodovod's investment program beyond the project period. This cannot be accurately determined at this time because it will depend significantlyupon the results of the studies of Cacak's potential water demands and sources of supply, as outlined in Annex 15. Decisions as to the timing of developments following this study will be influencedby the availabilityof finance. The above tariff proposals should, however, give Vodovod some flexibilityof choice, because they will, to some extent, reduce dependence upon outside financing of uncertain availabilityand terms.

STORMWATERSYSTEM

E. General

24. The above financing plan and related discussion of Vodovod's activities pays no regard to the Cacak stormwater system. This system has, until now, been constructed,operated and maintained by another communal enterprise and financed from general communal taxation. No details of present finances are available. However, in the near future, responsibilityfor the service is to be taken over by Vodovod. The service will continue to be financed from communal sources and not by way of user charges. Vodovod would be required to keep the accounts of the stormwater service separate from those of water and wastewater activities.

25. The following table gives a forecast of the estimated funds requirements for the constructionphase of this project component, showing the sources from which they are expected to be met: ANNEX 33 Page 8

1976 1977 1978 1979 1980 TOTAL --- Din. (Millions)------Din. US$

_____ (Millions) (Millions)

Requirements

Project Expenditures 6.6 9.7 7.4 14.9 - 38.6 2.1 Interest 0.1 0.3 0.6 0.9 1.2 3.1 0.2 Total Requirements 6.7 10.0 8.0 15.8 1.2 41.7 2.3

Sources

Proposed IBRD Loan 1.2 3.7 3.2 5.0 1.9 15.0 0.8 Communal Fund 5.5 6.3 4.8 10.8 (1.2) 26.2 1.3 General Commune Revenues - - - - 0.5 0.5 0.2 Total Sources 6.7 10.0 8.0 15.8 1.2 41.7 2.3

26. It is proposed that Din 15.0 million (US$0.83 million) of the Bank loan be allocated to this project component. The remaining costs are expected to be financed by the Communal Development Fund. General communal revenues are expected to finance interest charges, both during and following construction, to the extent not covered by the proposed IBRD loan. The Commune is also expected to finance amortization payments, together with operation, maintenance and administration costs, all of which would be reimbursed to Vodovod on the basis of ascertained costs.

May 1976 ANNEX 34 Page 1

YUGOSLAVIA

MORAVA REGION DEVELOPMENT PROJECT

Milosevac Irrigation Pilot Project

A. Background

1. Irrigation is frequently considered as a cure-all for increasing agricultural production in the lower valleys of the Morava River and its main tributaries. The fluctuation in yields of the main field crops with wet and dry summers, as well as the successful cultivation of high priced vegetables in those scattered locations where irrigation is practised, have impressed upon the farmers the beneficial effects of supplemental water for improved crop growth. As a result, four large-scale irrigation projects were constructed in Serbia with the purpose of providing supplemental irrigation for the typical existing cropping pattern in which maize and wheat predominate. Under the prevailing climatic conditions, incremental yields of these crops with irrigation are such (for maize US$200/ha and for wheat US$208/ha) that a minimum irrigation investment of US$1,500/ha plus US$175/ ha year of operating cost cannot be justified.

2. Thinking about irrigation was until now focused on relatively large-scale schemes with high investments in infrastructure, long conveyance systems running parallel to the river and thus irrigating only narrow strips of land. The Cacak scheme is a case in point: it consists of a diversion weir with a main canal to serve 10,000 ha and a distribution system for 5,000 ha, of which only 3,100 ha can be irrigated since the remaining 1,900 ha require levelling or sprinkling and farmers have not equipped their farms for either. Full irrigation investment costs were originally to be recovered from farmers over a ten year period, which has led in the early years, to a large amount of default. Payment was thereafter required from the farmer re- questing water. Depending on rainfall, the irrigation demand varies widely and in order to recover costs, the actual payment has increased to over US$25/ha per single irrigation, which is more than the grain crops can carry. The dimension of the system - designed for cereals - is inadequate to convey enough water for intensive vegetable production.

3. There are several aspects of the irrigation problem for which new approaches have to be developed:

(i) Irrigation development has to be low cost so that enough incentive is left for farmers to irrigate.

(ii) A small-scale and flexible approach is required to allow area development in line with the farmers' demand for ANNEX 34 Page 2

water. Although cereals would remain included in the ro- tation, the water would be mainly for intensivevegetable productiondevelopment, thus maximizing incrementalbene- fits.

(iii) Credit should be accessible to farmers (mainlygroups of farmers) so that they can finance irrigationequipment and on-farm developmentand repaymentshould be in line with farmers' increasednet earnings from irrigation.

(iv) Special organizationalarrangements would have to be devised to operate these systems.

(v) Technical assistancewould have to be provided to farmers to support intensificationof vegetable production.

4. It appears that pump-lift from wells, or from the river if nearby, would ideally fit this approach to irrigationdevelopment. A pioneer effort is recommendedin developingpump-lift by groups of farmers for irrigation of vegetable crops along the river valleys wherever aquifers or river flow will allow such development. There is no experience in Yugoslavia of pump- lift irrigationby groups of farmers, although many farmers individuallyown small pumps and have experience of pumping directly from the river, or from shallow wells where the water table is directly connected to the river. The approach would organize and extend the irrigationdevelopment which is actu- ally taking place in a patchy manner and on a limited scale.

5. Under the economic system prevailing in Yugoslavia,all benefi- ciariesof investment for productive purposes have to repay full costs. The funds for productive investmentsare normally supplied by the banking system. This has also been applied to irrigatin and has been to a large extent the cause of failure of modern irrigationsystems in Yugoslavia. In the Cacak case, the farmers were asked to repay all costs, including interest,in ten years. There is increasing realizationin Yugoslavia that there can be no developmentof irrigation under these conditions. Even if the beneficiaries are not to be subsidized,a repayment period in line with repaymentcapacity of the farmers (and with the working life of the systems) is required, if water is to be effectivelyutilized by them. In the densely populated less developedparts of the Morava, the incrementalincome deriving from irrigation, once operating costs are deducted,will be limited by the size of holdings and the final income improvementfor the farmer family would be small. This should confirm that only high value crops would be meaningful for developmentand they should be labor-intensivecrops, in which private farmers are at an advantage. Intensivevegetables and horticulturecrops are proposed for the pilot irrigationprojects. ANNEX 34 Page 3

6. The Serbian Republic is subsidizingbanks wherever irrigationcred- it to farm enterprises(social sector) is concerned. The subsidyamounts to subtracting3% from the actual interest rate and an additional3% if the bank agrees to give long-termrepayment period for such credits (banks have so far refused to have repaymentperiods of more than 10 years). On the other hand, the Governmentalso gives the farm enterprisesthemselves a subsidyof 3%. Thus, in the case of an enterpriseborrowing money for irrigation,when the market rate is 10%, and repaymentregarded as "long-term" the bank would receive a direct subsidy of 6% from the Republic. The enterprisewould pay 4% but would be reimbursed3% giving an effectiverate of only 1%. The availability of these facilitiesapplies only to organized farming, i.e. the social sector. A draft law under considerationwould lead to consideringspontaneous groups of farmers formed for irrigation purposes as part of the social sector, in which case these groups would also benefit from the subsidy. Although the general atmospherefor agriculturaldevelopment is tending to become more favorable for small farmer development,it should be recognized that the commercial banks are still the decision-makersin giving credit for irrigation development. Unless pressure is put on banks to extend credit to small farmer groups, it is not likely to occur spontaneously,as the banks' tendency will be to prefer large loans and well-knownand more reliable customers. Reduc- tions in interest rates would further reduce incentives to make credit available to small farmers, as the cost of administering such credits would be quite high compared to present dealings with such large entities as kombinats and productioncooperatives. The Government shouldmake sure that the pilot schemes proposal is given a fair chance to succeed, by making credit available to small farmers' groups who would carry out such a development.

B. Project Description

7. The village of Milosevac was selected as one of the two locations for pilot irrigationschemes. The villagers have expressedan interest in starting with irrigation,but their general expectationstill goes in the directionof improvingyields of present field crops. The village offers good prospects for the introductionof new techniques: it has an active cooperative which dates back to 1902 and which has a permanent staff of one university level agronomist,two agronomicaltechnicians and two veterina- rians. The village carried out a land consolidationprogram, reducing the average number of parcels per farm from 13 to 5. Two pilot projectsof 200 ha (net) each are proposed.

8. Milosevac is located in the Commune of Velika Plana, in the lower Velika Morava valley (see Map 11603). It has a population of 4,387, the average number per family is 4, the number of persons active in agricultureis 2,491 male, and 1,366 female. Salaried persons number 98. There is virtually no unemploymentin the area. ANNEX 34 Page 4

9. Land ownershipdistribution in Milosevac is as follows:

Size of Farm (ha) % of Owners (households)

0 - 0.1 6 0.1 - 1.0 17 1.0 - 3.0 41 3.1 - 5.0 25 5.1 - 10.0 11

The average farm size is about 3 ha.

10. Net irrigationrequirements for proposed crops are indicatedin Annex 34, Table 1. They are based on plant water demands computed by the Blaney and Criddlemethod, from which effectiverainfall and available stored soil moisture have been subtracted. Average annual net irrigationrequire- ment amounts to 619,000 m3 per pilot unit of 200 ha. Peak net water requirement for the month of July, with the once in five years drought, would be 243,450m3 in 31 days for 200 ha. With an overall efficiencyof 73% and 20 hours of operationper day, this would correspond to a peak demand of 149 1/sec.

11. The soils of the area consist of Class I fertile yellow brown clay loams 6 to 11 m deep, overlyinga gravel and sand aquifer 8 to 11 m thick. Underneath the aquifer yellow loams are found. Permeabilityof the aquifer is 3 to 4 x 10-1 cm/sec and for the upper and lower layers 1 x 10-5 to 1 x 10-6 cm/sec. Groundwaterlevel is from 4 to 10 m below the surface, its elevationdepending on the Morava river water level. Pump tests indicate a maximum yield from 35 to 40 1/sec.

12. Per pilot area of 200 ha, the project would provide water supply from six 20 m deep wells, each with a capacity of 25 1/sec. They would pump into an undergroundloop of asbestos cement pipe (150 to 300 m diameter)with a number of hydrants. Water would be supplied throughmeters into moveable aluminum lines. Sprinklerpattern would be 12 x 18 m, the intensity7.3 mm/ hr. Constructionof the systems could be achieved in one year. Estimated costs are indicated in Table 2.

C. Prospects and Organization

13. Present and two new proposed cropping patterns with present and expected yields under irrigationare indicatedin Table 3. One proposed cropping pattern would provide for intensive fodder production for livestock,with some vegetablegrowing. Its rate of return would be 4.0%. The other cropping pattern would emphasizevegetable growing next to field crops. Its rate of return would be 22.8% and is thereforepreferred. Cost streams for the two ANNEX 34 Page 5

proposed patterns are indicated in Table 4. The proposed second cropping pattern is still conservative; it is expected that the shift from cereals to vegetables and fruits will be larger, making more profitable use of proposed investments. The Cooperative in Milosevac would assist in marketing the produce. A farm cash flow is indicated in Annex 34, Table 5 assuming 38% Bank financing.

14. Organization and maintenance of the pilot schemes and securing of commercial loans should be entrusted to the cooperative as the only organization capable of handling such an operation. Although cheaper operating cost could be achieved if farmers themselves would operate the system, they will be too busy converting to new, more demanding crops and techniques. Therefore, the cooperative will have to engage new personnel listed on Table 6. This personnel requirement appears overstaffed and it would be possible to achieve advantages of scale enlargement when the pilot schemes prove successful.

D. Monitoring Requirement

15. It will be necessary to monitor the pilot schemes to obtain actual information on economic performance over a number of years to serve similar development where natural physical circumstances would allow the installation of cheap irrigation systems. The Department of Agriculture would organize the monitoring program for a five-year period after first irrigation, at which time full development is expected. Annual reports would show the change in cropping pattern and farm revenues. Accompanying supporting services would assist the cooperative in the start-up of the system, in providing farmers with extension services and in checking groundwater movement in the project area throughout the year twice a month. Detailed monitoring arrangements will be developed during the course of project implementation. YUGOSLAVIA

MORAVA REGION DEVELOPMENT PROJECT

PILOT IRRIGATION PROJECTS

Net Irrigation Requirements for 200 ha Pilot Unit

Crop Area Unit Month-l (ha) May June July!u August September Total 5O'/ L 8 0°/-

Wheat 86 ) 93.74 - - - - 93.74 Maize Grain 43 ) - 20.64 55.47 57.97 12.90 - 89.01 Green Peppers 43 ) 25.80 13.33 36.98 46.01 57.62 13.76 147.49 Cabbage 43 ) 1,000 m - - 47.30 66.22 40.85 29.67 117.82 Potatoes 31 ) 13.33 41.71 15.19 22.94 - - 70.23 Small Vegetables/3 43 ) - - 41.71 50.31 37.84 21.50 101.05

Total Net Irrigation Requirement 1,000 m3 132.87 75.68 196.65 (243.45) 149.21 64.93 619.34

Total Grosssrrigation Requirement/5 1,000 m3 182.01 103.67 269.38 (333.49) 204.40 88.95 848.41

Water Duty/5 1/sec/ha 0.41 0.24 0.60 0.75 0.46 0.21

/1 Average Net Irrigation Requirement (P=50%). /2 Once in five years Net Irrigation Requirement (P=80%, or probability of non-exceedance = 80%). /3 Spinach, lettuce, etc. /4 Gross Irrigation Requirement at overall efficiency of 73%.. /5 At 20 hours of operation per day. t X

(D 11976 May 1976 ANNEX 34 Table 2

YUGOSLAVIA Page 7

MORAVAREGION DEVELOPMENTPROJECT

PILOT IRRIGATION PROJECTS

Cost Estimate - Milosevac I and II and Aleksinac

Item Milosevac I Milosevac II I Aleksinac TOTAL 1977 1977 1977 1978 ------Din '000…------______

Earthwork 587 576 - 901 2,064 Underground Pipes 2,470 1,579 - 2,620 6,669 Wells and Pumps 675 761 - 465 1,901 Mobile Equipment 949 1,610 - 795 3,354 Piezometers,Test Well 108 108 186 - 402 Land Consolidation - - 300 - 300 7% Engineering and Administration 335 324 34 334 1,027

Subtotal 5,124 4,958 520 5,115 15,717

Price Contingencies 1,621 1,582 157 3,202 6,562

10% Physical Contingencies 512 496 52 512 1,572 Price Contingencies on Physical Contingencies 156 151 16 326 649

GRAND TOTAL 7,413 7,187 745 9,155 24,500

May 1976 YUGOSLAVIA ANNEX T-able334

MORAVAREGION DEVELOPMENT PROJECT Page 8

PILOT IRRIGATION PROJECTS

Present and Proposed Cropping Patterns and YieldsL-

Present Future Cropping Cropping Future Pattern Pattern Yield Per Unit Present Per Unit With Item of 200 ha Yield Item of 200 ha Irrigation Price (ha) (tons/ha) (ha) (tons/ha) (Din/kg)

Milosevac Forage Model/3 Wheat 32 3.0 Wheat 48 4.5 2.50 Maize Grain 128 4.0 Maize Grain 38 6.0 1.80 Sugar beet 20 36.0 Sugar beet 10 60.0 0.50 Alfalfa Green 20 28.0 Maize Silage 28 60.0 0.15 Total 200 Alfalfa Green 96 60.0 0.16 Aleksenac/2 Green Peppers 5 25.0 2.00 l eksenlac/-Cabbage 1 30.0 0.50 Wheat 50 3.3 Potatoes 1 15.0 2.00 Maize Grain 50 3.4 Small Vegetables 6 6.0 2.00 Alfalfa Green 50 28.0 Total 233 Green Peppers 20 16.0 Cabbage 15 25.0 VegetableModel/4 Potatoes 15 10.0 Wheat 86 4.5 Tocal 200 Maize Grain 43 6.0 Green Peppers 43 25.0 Total Net Income Cabbage 43 30.0 (Din/ha/year) Potatoes 21 15.0 Small Vegetables 43 6.0 Milosevac Present 2,821 Total 279 Aleksenac Present 3,657 Milosevac Future with Forage 8,217 Milosevac and AleksenacFuture with Vegetables 13,667

/1 These figures do not always correspond to the Consultant'sestimates which were consideredby the mission to be optimistic and in some cases erroneous. /2 No sugar beet growing allowed because of adjacent sugar beet seed farm. /3 Forage model not used for Aleksenac because of iainimalincremental benefits. /4 Vegetable model used both for Milosevac and Aleksenac.

'av i YUGOSLAVIA

MORAVA REGION DEVELOPMENT PROJECT

PILOT IRRIGATION PROJECTS

Economic Cost and Benefit Streams

Milosevac 400 ha Net Aleksenac 200 ha Year Investment/ Incremental Benefits Investment/ Benefits Replacement Operation Maintenance PowerL2 Forage Vegetables Replacement Operation Maintenance Power Vegetables ------Din 1000------

1 8,872L 166 18 0 0 0 4581 0 0 0 0 2 0 584 347 166 1,079L.1 2,169/3 4,502L 166 7 0 0 3 0 200 1,295 2,603 0 410 137 68 1,00 l 4 0 232 1,511 3,037 0 82 1,201 5 0 265 1,726 3,470 0 95 1,401 6 0 300 1,942 3,904 0 109 1,602 7 0 331 2,158 4,338 0 122 1,802 8 0 0 136 2,002 9 0 0 10 3,196 1,008 11 0 0 12 0 0 13 0 0 14 o 0 15 0 0 16 0 0 17 0 0 18 0 0 19 0 0 20 3,196 1,008 21 0 0 22 0 0 23 0 0 24 0 0 25 0 0 26 0 0 28 0 0 29 0 IV0 30 0 0

ERR =47, -22.8% ERR ERR =17.47,

/I Excludes 207.duties and taxes; includes 10% physical contingencies. /2 Cost of Energy: 0.6 Din/kwh. /3 Starting at 50% of full development production and increasingat 107,per year. /4 Land consolidation during first year, constructionduring second year. ax May 1976 ' YUGOSLAVIA

MORAVAREGION DEVELOPMENTPROJECT

PILOT IRRIGATION PROJECTS

Milosevac Cash Flow

Item Y e a r 1 2 3 4 5 6 7 8 9 10 11 12 13 ------(US$/ha)------

Net Incremental Income 0 301 361 422 482 542 603 603 603 603 603 603 603 Operation and Maintenance 26 152 157 162 166 171 175 175 175 175 175 175 175 Replacement /I 38 38 38 38 38 38 38 38 38 38 38 38 38 Balance Before Debt Service -66 111 166 222 278 333 390 390 390 390 390 390 390 Debt Service World Bank Loan4 2 49 49 49 49 49 69 69 69 69 69 69 69 69 Debt Service Local Loan/3 71 71 71 71 71 71 71 71 71 71 71 71 71 Balance After Debt Service -186 -9 46 102 112 193 250 250 250 250 250 250 250 Cumulative Balance -186 -195 -149 -47 65 258 508 758 1,008 1,258 1,508 1,758 2,008

/1 Annual payment into sinking fund for replacement, interest assumed at 8%. Assumes no further credit available for replacement. a 3 Z /2 38.0% of Investment is World Bank loan at i 8-1/27b,n = = 20 years, 5 years grace. ED /3 62.0% of Investment is local bank loan at i = 4%, n = 15 years, no grace.

Maiy1976 ANNEX 34 Table 6

YUGOSLAVIA Page 11

MORAVAREGION DEVELOPMENTPROJECT

PILOT IRRIGATIONPROJECTS

Operation and MaintenancePersonnel Requirements/l

Item Gross Salary (Din/month)

Milosevac I and II Manager 7,997 Technician 5,816 Ditchrider (8 men) 3,635 Bookkeeper 5,816

Total Milosevac Salaries 584,000 Din/year

Aleksenac

Manager 7,997 Technician 5,816 Ditchrider (4 men) 3,635 Bookkeeper 5,815

Total Aleksenac Salaries 410,000 Din/year

/1 These do not correspond to the Consultant'sestimate, which in the opinion of the mission were overstaffed.

May 1976 ANNEX 35 Page 1

YUGOSLAVIA

MORAVA REGION DEVELOPMENT PROJECT

Aleksinac Irrigation Pilot Project

1. Aleksinac was selected as the location of a second pilot irrigation project of 200 ha net because farmers practice primitive irrigation growing vegetables in small basins supplied by very small pumps via garden hoses and because the nearby Aleksinac Agrokombinat is the main support for supplying inputs and for purchasing the produce from individual small farmers. The pilot area is located in the communities of Aleksinac commune (see Map 11603).

2. Many of the holdings are too small to provide a full-time income and the owners are part-time employed in the local industry. Ownership distribution in the selected area is as follows:

% of Owners (households) Size of Farm (ha) Aleksinac Boboviste

0 - 0.10 45% 3% 0.11 - 1.0 21% 16% 1.1 - 3.0 29% 46% 3.1 - 10.0 5% 35%

3. Soils are Class I fertile loams, somewhat lighter in texture than those in Milosevac. An aquifer does exist but no pumping tests are available. The cost estimate therefore is based on water pumping from the river, but at the same time groundwater investigations are included during the first year. If they are successful, the investment may be reduced somewhat by changing from river to groundwater supply. For the rest, the same basic irrigation system is proposed as for Milosevac. The cost estimate is indicated in Annex 34, Table 2. In view of the existing vegetable production only intensified vegetable production could provide the incremental yields necessary to justify the investment. A land consolidation will be carried out on the selected 200 ha pilot area to facilitate operation and layout of the irrigation system. Cost streams are indicated in Annex 34, Table 4 and the expected rate of return is 17.4%. Annex 35, Table 1 shows an estimate of the farm cash flow assuming 38% financing by the World Bank.

4. Operation and maintenance of the irrigation system would be entrusted to the Aleksinac Agrokombinat, which would have to engage the additional staff indicated in Annex 34, Table 5. Monitoring requirements would be similar to those for the Milosevac schemes. YUGOSLAVIA

MORAVAREGION DEVELOPMENTPROJECT

PILOT IRRIGATION PROJECTS

Aleksenac Cash Flow

Item Ye a r 1 2 3 4 5 6 7 8 9 10 11 12 13 (US$/ha)

Net Incremental Income 0 0 278 334 389 445 501 556 556 556 556 556 556

operation and Maintenance 0 48 170 175 178 182 185 190 190 190 190 190 190

Replacement /I 24 24 24 24 24 24 24 24 24 24 24 24 24

Balance Before Debt Service -24 -72 84 135 187 239 292 342 342 342 342 342 342

Debt Service World Bank Loan/2 52 52 52 52 52 77 77 77 77 77 77 77 77

Debt Service Local Loan 79 79 79 79 79 79 79 79 79 79 79 79 79

Balance After Debt Service -155 -203 -47 4 56 83 136 186 186 186 186 186 186

Cumulative Balance -155 -358 -405 -401 -345 -262 -126 60 246 432 618 804 990

/1 Annual payment into sinking fund for replacement, interest assumed at 8%. Assumes no further credit available for replacement. 8 /2 3 .0%of Investment is World Bank Loan at i = 8-1/2%, n = 20 years, 5 years grace. /3 62.0% of Investment is local bank loan at i = 4%, n = 15 years, no grace.

May 1976

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