The World Bank Sava and Drina Rivers Corridors Integrated Development Program (P168862) Public Disclosure Authorized Public Disclosure Authorized Project Information Document (PID) Appraisal Stage | Date Prepared/Updated: 16-Feb-2020 | Report No: PIDA27158 Public Disclosure Authorized Public Disclosure Authorized Nov 21, 2019 Page 1 of 19 The World Bank Sava and Drina Rivers Corridors Integrated Development Program (P168862) BASIC INFORMATION OPS_TABLE_BASIC_DATA A. Basic Project Data Country Project ID Project Name Parent Project ID (if any) Western Balkans P168862 Sava and Drina Rivers Corridors Integrated Development Program Region Estimated Appraisal Date Estimated Board Date Practice Area (Lead) EUROPE AND CENTRAL ASIA 24-Feb-2020 30-Apr-2020 Water Financing Instrument Borrower(s) Implementing Agency Investment Project Financing Republic of Serbia, Bosnia Republic of Serbia and Herzegovina, Ministry of Agriculture, Montenegro Forestry and Water Management, Montenegro Ministry of Agriculture and Rural Development, Republika Srpska Ministry of Agriculture, Forestry and Water, International Sava River Basin Commission Proposed Development Objective(s) The Objective of Project (Phase I of the Program) is to improve flood protection and enable transboundary water cooperation in the Sava and Drina Rivers Corridors. Components Integrated Management and Development of the Sava River Corridor Integrated Management and Development of the Drina River Corridor Project Preparation and Management Regional Activities PROJECT FINANCING DATA (US$, Millions) SUMMARY-NewFin1 Total Project Cost 155.60 Total Financing 137.67 Nov 21, 2019 Page 2 of 19 The World Bank Sava and Drina Rivers Corridors Integrated Development Program (P168862) of which IBRD/IDA 137.67 Financing Gap 17.93 DETAILS-NewFinEnh1 World Bank Group Financing International Bank for Reconstruction and Development (IBRD) 137.67 Environmental and Social Risk Classification High Decision The review did authorize the team to appraise and negotiate B. Introduction and Context Country Context 1. The riparian countries of the Sava and Drina rivers—Slovenia, Croatia, Bosnia and Herzegovina (BiH), Serbia, and Montenegro—aspire to consolidate economic growth and enhance their prosperity. After a protracted, six-year period of sluggish or negative economic growth linked to the 2009 global economic crisis, since 2015 regional economic growth has markedly improved and is now on a stronger footing. Between 2008 and 2014, the economies of the riparian countries collectively contracted at an annual weighted average rate of -0.9% in real terms, whereas in the 2014-2018 period the countries grew at an annual weighted average rate of 3.1%1. Regional economic recovery was accompanied by gains in employment. Whereas unemployment rates deteriorated in all riparian countries between 2009 and 2014, by the end of 2018 unemployment rates stood below their 2009 levels in all countries2. The economic outlook over the medium term is favorable for the subregion, with the riparian countries expected to grow at a weighted average annual rate of 2.9% between 2018 and 20243. Slovenia joined the European Union (EU) nearly 15 years ago and Croatia in July 2013. The other riparians—BiH, Serbia, and Montenegro—are currently in various stages of EU accession. They seek convergence with EU living standards and its market- and rules-based systems and on a path to high-income status in the long term. The Berlin Process, an initiative led by several EU member states to foster collaboration and development in the Western Balkans towards integration with the EU, and the resulting Connectivity Agenda for the Western Balkans, illustrate that there is a wide international consensus on the importance of this 1 IMF World Economic Outlook (October 2019). Country-specific compounded annual growth rates (CAGR) of GDP in real terms during the periods cited were weighted by the countries’ 2018 GDP in U.S. dollars at market rates. 2 Ibid. Data exclude Montenegro due to unavailability. 3 Ibid. Nov 21, 2019 Page 3 of 19 The World Bank Sava and Drina Rivers Corridors Integrated Development Program (P168862) convergence. Economic and policy integration across the region are an important component of this effort. 2. The Sava and Drina rivers form a natural connecting backbone for the region. A pivotal feature of the Western Balkans region is the Sava River Basin, one of Europe’s largest transboundary basins. It covers over one third of the Western Balkans in area and population, and physically connects the five riparian countries through inland waterways. The Sava river is the basin’s mainstay. It is navigable between Serbia, BiH, and Croatia (from which it continues upstream into Slovenia) and is connected at its mouth to the Danube river (of which it is one of the largest tributaries), thus linking these countries to Danube riparian markets and to international markets via the Black Sea. The Drina river is the Sava’s largest tributary, draining over a 20,000 km2 mountainous area, half the size of Switzerland. Although non- navigable, the Drina has important hydropower potential and connects, through its own tributaries—most notably the Lim river—Serbia, BiH, and Montenegro. The Sava River Basin generates 20.5% of employment in Serbia, 35.3% in Croatia, 39.2% in BiH, and 54.4% in Slovenia. The economy and jobs in the region depend heavily on these shared water resources, whether to transport goods, generate energy, grow food and fibers, sustain biodiversity, or provide for leisure and eco-tourism activities. 3. At the same time, the Sava and Drina have a proclivity for both dry spells and devastating floods—most recently occurring in 2010 and 20144. The 2014 Sava flood—the largest flood in a century— caused 79 casualties and damages totaling €1.5 billion in Serbia (4.7% of GDP), €2.0 billion in BiH (15% of 4 Average annual temperatures in the region are projected to rise by about 1.8°C by 2050 (with the highest increases in the southern parts of BiH, Serbia, and Montenegro). Overall annual mean precipitation is expected to decrease by 10–20%. Precipitation is expected to become more variable, resulting in a higher number of days with intense weather events, and dry spells becoming more severe and prolonged (by around five days). Available hydrological analyses estimate a decrease of 20–25% in runoff. Under these conditions, the frequency and severity of floods, droughts, and extreme weather are expected to increase. [Source: UNDP. 2013. Natural Disaster Risks and Risk Assessment in South East Europe]. Nov 21, 2019 Page 4 of 19 The World Bank Sava and Drina Rivers Corridors Integrated Development Program (P168862) GDP), and €300 million in Croatia (0.5% of GDP). Box 1: Lessons from the 2010 and 2014 floods In 2010 the Drina Basin was flooded on the Sava and Drina Rivers extensively—partly due to spilling hydropower reservoirs—and saw its highest water levels in In late November 2010, extreme rainfalls in Montenegro and East Herzegovina, with 100-200 mm of rainfall in 3 days, led to devastating 100 years. The trends and changes in mean flood waves which reservoirs along the Drina river could not retain. values of precipitation, evapotranspiration, and As a result, some 3,000 buildings were flooded across several towns discharges in this basin are well documented and in Serbia, from which more than 1,400 people were evacuated. indicate that climate change is expected to cause more intense flood and drought episodes, both Between May 14 and 19, 2014, the rainfall amount on the Sava basin 5 in terms of scope and duration. Specifically, was more than three months’ worth. More than 160,000 people were current climate change projections for the Sava displaced, and 70 people were killed. Overall economic damages in River Basin foresee a rise in flood peaks of up to excess of US$5 billion were registered. 8 percent, and droughts occurring with increased frequency and intensity. While droughts are In both cases, the Bank and other development partners responded 6 particularly unfavorable to navigation, they also rapidly to address emergency needs. In 2010, the Bank restructured negatively affect agricultural production, one of its ongoing operations to provide emergency financing for biodiversity, fisheries, and energy generation,7 flood protection restoration in BiH. In 2014, two IBRD emergency and raise water demand. Floods and droughts loans were processed within months of the disaster to cover the most thus create risks for livelihoods and impose urgent priorities in BiH and Serbia, and largely achieved their objective constraints on trade, food security, and of emergency reconstruction. productive investment. These climate change related risks have led to increased receptivity for However, a consensus is now emerging within authorities of the transboundary cooperation on flood protection various countries that the country-level ad-hoc reconstruction efforts and water resources management in the region, will not provide effective long-term flood protection to the basin’s people and economy. A more integrated flood management approach and thus have served as the main impetus for across sectors and countries is essential. For example, the Drina this project. cascade of hydropower reservoirs located in Montenegro and BiH 4. The hydraulic infrastructure in the Sava could be used to temporarily store the peak of the floods affecting BiH and Drina rivers, while nominally extensive, has and Serbia. Similarly, the flood defense structures and