Bosnia and Herzegovina Sarajevo Urban Roads
PUBLIC
DOCUMENT OF THE EUROPEAN BANK FOR RECONSTRUCTION AND DEVELOPMENT
Approved by the Board on 12 February 20201
BOSNIA AND HERZEGOVINA
SARAJEVO URBAN ROADS
[Redacted in line with the EBRD’s Access to Information Policy]
[Information considered confidential has been removed from this document in accordance with the EBRD’s Access to Information Policy (AIP). Such removed information is considered confidential because it falls under one of the provisions of Section III, paragraph 2 of the AIP]
1 As per section 1.4.8 of EBRD’s Directive on Access to Information (2019), the Bank shall disclose Board reports for State Sector Projects within 30 calendar days of approval of the relevant Project by the Board of Directors. Confidential information has been removed from the Board report.
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TABLE OF CONTENTS
Page
TABLE OF CONTENTS ...... 2 ABBREVIATIONS / CURRENCY CONVERSIONS ...... 3 PRESIDENT'S RECOMMENDATION ...... 4 BOARD DECISION SHEET ...... 5 ADDITIONAL SUMMARY TERMS FACTSHEET ...... 7 1. STRATEGIC FIT AND KEY ISSUES ...... 9 1.1 STRATEGIC CONTEXT...... 9 1.2 TRANSITION IMPACT ...... 10 1.3 ADDITIONALITY ...... 11 2. MEASURING / MONITORING SUCCESS ...... 14 3. KEY PARTIES ...... 15 3.1 SARAJEVO CANTON ...... 15 3.2 BOSNIA AND HERZEGOVINA ...... 16 4. MARKET CONTEXT ...... 16 5. FINANCIAL / ECONOMIC ANALYSIS ...... 17 5.1 FINANCIAL PROJECTIONS ...... 17 5.2 SENSITIVITY ANALYSIS ...... 17 5.3 ECONOMIC INTERNAL RATE OF RETURN ...... 17 5.4 PROJECTED PROFITABILITY FOR THE BANK ...... 17 6. OTHER KEY CONSIDERATIONS ...... 17 6.1 ENVIRONMENT ...... 17 6.2 INTEGRITY ...... 18 ANNEXES TO OPERATION REPORT ...... 19 ANNEX 1 – FINANCIAL ANALYSIS SUMMARY ...... 20 ANNEX 2 – PROJECT IMPLEMENTATION ...... 20 ANNEX 3 – ECONOMIC ANALYSIS ...... 20 ANNEX 4 – MAP WITH SITE LOCATION ...... 21 ANNEX 5 – TRANSITION IMPACT SCORING CHART ...... 22
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ABBREVIATIONS / CURRENCY CONVERSIONS BAM Bosnian marka BiH the State of Bosnia and Herzegovina CBA Cost-Benefit Analysis CIPS Chartered Institute of Procurement & Supply CO Carbon monoxide CP Condition Precedent DD Due Diligence DSCR Debt Service Coverage Ratio EBITDA Earnings Before Interest, Tax, Depreciation and Amortisation EHSS Environment, Health and Safety and Social EIA Environmental Impact Assessment EIRR Economic Internal Rate of Return ENPV Economic Net Present Value E&S Environmental and Social ESAP Environmental and Social Action Plan ESIA Environmental & Social Impact Assessment ESDD Environmental and Social Due Diligence FBiH Federation of Bosnia and Herzegovina GDP Gross Domestic Product HSE Health, Safety and Environmental IFI International Financial Institution IFRS International Financial Reporting Standards IMF International Monetary Fund KM Local abbreviation for BAM LA Loan Agreement LAF Land Acquisition/Expropriation Framework LAP Land Acquisition/Expropriation Plan LARF Land Acquisition and Resettlement Framework LSA Loan Support Agreement LTIP Long Term Investment Plan NEAP National Environmental Action Plan NOx Nitrogen oxides NPV Net Present Value NTS Non-Technical Summary O&M Operations & Maintenance PA Project Agreement PIP Priority Investment Programme PIU Project Implementation Unit PM Particulate matter PP&E Property, Plant and Equipment PP&R Procurement Policies and Rules PRs EBRD’s Performance Requirements PSA Project Support Agreement RAP Resettlement Action Plan SEP Stakeholder Engagement Plan SSF EBRD Shareholder Special Fund TC Technical Co-operation
CURRENCY CONVERSIONS EUR 1.0 = BAM 1.96 (nominal exchange rate)
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PRESIDENT'S RECOMMENDATION
This recommendation and the attached Report concerning an operation in favour of Bosnia and Herzegovina (“BiH” or the “Borrower”) are submitted for consideration by the Board of Directors.
The facility will consist of a sovereign loan to BiH in the amount of up to EUR 30 million to be on-lent through a legislated cascade of sub-loans via the Federation of Bosnia and Herzegovina (the “FBiH”) to the Sarajevo Canton (the “Canton”). The operation will enable the Canton to construct a dual tube tunnel including a connecting road to the tunnel and a dual carriageway road at the end of the Sarajevo bypass with a total length of 2.3 km (the “Project”). The Project will be implemented by the Sarajevo Canton Road Directorate (the “Directorate”).
The loan will be provided in three tranches: (i) Tranche 1 in the amount of EUR 3 million to be committed upon signing; (ii) Tranche 2 (uncommitted) in the amount of EUR 7 million; and (iii) Tranche 3 (uncommitted) in the amount of EUR 20 million.
The Project will help the Canton upgrade and modernise its main road network and improve transport connectivity within the city of Sarajevo and between Sarajevo and other parts of the Canton which are expanding. The Project is in full synergy with two other projects approved by the EBRD in 2019 to improve public transport in Sarajevo through the acquisition of new trolleybuses and reconstruction of tram tracks.
The expected transition impact of the Project includes Well-governed and Integrated qualities by assisting the Directorate to obtain procurement certification by internationally recognised institutions and corporate governance improvements to the Directorate through the establishment of a separate legal entity, and improvement of the existing transport infrastructure to promote better connectivity within the Canton.
TC support for this operation has been provided by the EBRD Shareholder Special Fund (“SSF”) and the Infrastructure Project Preparation Facility (“IPPF”) for project preparation, resettlement framework and procurement certification by internationally recognised institutions.
I am satisfied that the operation is consistent with the Bank’s Strategy for BiH, the Transport Sector Strategy 2020-2024, the Municipal and Environmental Infrastructure Sector Strategy 2019-2024 and with the Agreement Establishing the Bank.
I recommend that the Board approve the proposed loan substantially on the terms of the attached Report.
Suma Chakrabarti
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BOARD DECISION SHEET BOSNIA AND HERZEGOVINA – SARAJEVO URBAN ROADS - DTM 49840 Transaction / Board approval2 is sought for a sovereign loan of up to EUR 30 million in favour of Bosnia Board Decision and Herzegovina (“BiH”). The loan will be on-lent through a legislated cascade of sub-loans from BiH via the Federation of Bosnia and Herzegovina (the “FBiH”) to Sarajevo Canton (the “Canton”). The loan will be provided in three tranches: (i) Tranche 1 in the amount of EUR 3 million to be committed upon signing; (ii) Tranche 2 in the amount of EUR 7 million; and (iii) Tranche 3 in the amount of EUR 20 million. Tranche 2 and Tranche 3 are expected to be committed in 2020 and 2021 respectively with the approval delegated to Management. Disbursement of Tranche 2 and Tranche 3 will be subject to achievements of transition benchmarks. The Project benefitted from TC support provided from the Infrastructure Project Preparation Facility (“IPPF”) for technical, economic and environment due diligence and the resettlement framework and from EBRD Shareholder Special Fund (“SSF”) for advanced procurement support and procurement certification by Chartered Institute of Procurement & Supply (“CIPS”). [REDACTED] Client BiH’s credit ratings (Moody’s: B3; S&P: B) were both affirmed while S&P upgraded its outlook to positive3. Existing exposure: Total portfolio in BiH as at 31 December 2019 was EUR 1,239 million out of which EUR 204 million was in the private sector and EUR 1,035 million was in the public sector of which EUR 1,002 million was sovereign. Main Business Concept: The Project involves the construction of a twin pipe tunnel in Kobilja Elements of Glava and connection road to the tunnel (on the 1st Transversal); and a dual carriage way at the Proposal the end of the Sarajevo bypass road (on the 9th Transversal road). This investment is a high priority for the Canton given that it will reduce congestion and improve air quality while facilitating the connection between Sarajevo and its suburbs. Transition Impact: The Project will contribute to the i) “well-governed” quality through the introduction of procurement certification among the employees and improvement in terms of corporate governance (transformation) to the Roads Directorate; ii) “integrated” quality through the improvement of Sarajevo’s road infrastructure resulting in more effective connectivity within the Canton. Additionality: Financing structure - EBRD offers financing that is not available on the market from commercial sources on reasonable terms and conditions. Policy, sector, Institutional or regulatory change – through the Project, the Bank continues to support ongoing sector reform and introduction of best international practices into the Directorate’s operations. Standard setting – the client is seeking the Bank’s expertise on corporate governance improvements and higher environmental standards, including use of EBRD’s Procurement Policies and Rules (“PP&R”). Knowledge, innovation and capacity building – EBRD provides expertise, innovation, knowledge and/or capabilities that are material to the timely realisation of the project’s objectives, including support to strengthen the capacity of the client. Sound Banking: Due diligence confirmed that the Project satisfies the Bank’s sound banking criteria.
2 Article 27 of the AEB provides the basis for this decision. 3 The credit rating was affirmed by S&P with upgraded outlook to positive on 6 September 2019. Moody’s affirmed the credit rating with stable outlook on 15 April 2019.
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Key Risks Main risks involve: 1) Resistance to the transformation of the Directorate; 2) Implementation risk; 3) Potential delays due to land expropriation which the Bank will seek to mitigate through appropriate covenants and technical assistance. Strategic Fit The operation is consistent with the Bank’s Strategy for BiH, the Transport Sector Strategy Summary 2020-2024, the Municipal and Environmental Infrastructure Sector Strategy 2019-2024 and with the Agreement Establishing the Bank.
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ADDITIONAL SUMMARY TERMS FACTSHEET
EBRD Transaction A sovereign loan of up to EUR 30 million to BiH (the “Borrower”). The loan will be on-lent through a legislated cascade of sub-loans from BiH via the Federation of Bosnia and Herzegovina (the “FBiH”) to Sarajevo Canton (the “Canton”). The loan will be used to finance the construction of a dual tube tunnel including a connecting road to the tunnel and a dual carriageway road at the end of the Sarajevo bypass with a total length of 2.3 km (the “Project”). The loan will be provided in three tranches: (i) Tranche 1 in the amount of EUR 3 million to be committed upon signing; (ii) Tranche 2 (uncommitted) in the amount of EUR 7 million; and (iii) Tranche 3 (uncommitted) in the amount of EUR 20 million.
The Project will be implemented by the Sarajevo Canton Road Directorate (the “Directorate”). Existing Exposure Total portfolio in BiH as at 31 December 2019 was EUR 1,239 million out of which EUR 204 million was in the private sector and EUR 1,035 million was in the public sector of which EUR 1,002 million was sovereign. Sarajevo Canton is an existing client with several projects under implementation, including under EBRD’s Green Cities Framework, under which two additional projects are planned to be signed in February 2020 (for purchase of trolleybuses and rehabilitation of tram tracks). The Green City Action Plan (“GCAP”) is currently being completed with the final report expected to be presented to the Canton in March 2020, followed by a formal adoption of the GCAP by the Canton in Q2 2020. Repayment 15 years tenor with 3 years grace period and semi-annual repayments, for each of the three tranches. Use of Proceeds The proceeds will be utilised for the construction of a twin pipe tunnel at Kobilja Glava and a connecting road to the tunnel (on the 1st Transversal road); and a dual carriageway road at the end of the Sarajevo bypass road (on the 9th Transversal road).
The use of proceeds will be controlled through conditions precedents prior to first disbursement, quarterly progress reports, monitoring visits and confirmation that the use of proceeds is in line with the Project description. Disbursements will be made directly to contractors in line with EBRD PP&R as per the agreed project procurement plan. Investment Plan [REDACTED]
Financing Plan [REDACTED]
Key Parties Involved Ministry of Finance and Treasury of BiH as a party to the Loan Agreement; Sarajevo Canton Government as a party to the Project Support Agreement; Sarajevo Canton Road Directorate as a party to the Project Agreement. Conditions to [REDACTED] effectiveness
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Conditions to first Tranche 1: disbursement Supervision consultant has been appointed. PIU has been established. Tranche 2: [REDACTED] Tranche 3: [REDACTED] Key Covenants [REDACTED]
Maturity Tenor of 15 years, including 3 years grace period, for each of the three tranches. Security / Sovereign loan. Guarantees Associated Donor 1. TC 1: Resettlement Framework for the Canton. Completed. Funded TC and co- 2. TC 2: Technical, Economic and Environmental Due Diligence Completed. investment grants/concessional 3. TC3: Advanced Procurement Support, ongoing; finance 4. TC 4: Procurement certification by Chartered Institute of Procurement & Supply (“CIPS”).
[REDACTED]
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INVESTMENT PROPOSAL SUMMARY
STRATEGIC FIT AND KEY ISSUES
1.1 STRATEGIC CONTEXT
The Project is submitted in response to the request of the Canton of Sarajevo for broadening the Bank’s engagement in the municipal infrastructure sector, in particular the urban transport sector. The Bank has been actively engaged with the Canton of Sarajevo to support its priority investments since 2011 with a focus on improvements to Sarajevo’s urban transport system to alleviate the heavy congestion on the roads, improve public transport and reduce air pollution affecting the city.
As Sarajevo experiences economic expansion, improvement of inter-urban mobility has increasingly become a top priority for the Canton. Acute traffic congestion, especially during rush hours, causes strong adverse effects on both air quality and the economy, and also hinders more efficient public transport.
The Bank is already working with the Canton on two other projects to improve the provision of public transport services under the Green Cities Framework (loans planned to be signed in February 2020). The Project complements these existing Green Cities projects, financing priority investments in the road infrastructure which will ease congestion and improve air quality. At the same time, EBRD will continue to support ongoing reform efforts. In particular, the Bank has promoted piloting of performance- based contracting for urban roads. Through the transition conditionality, EBRD further contributes to the introduction of an improved road management system, higher project procurement standards and the transformation of the Roads Directorate into an independent entity with higher corporate governance standards.
The Project will also contribute to improving the resilience of the road network to the impacts of climate change in line with the Green Economy Transition (GET) approach. Due to the location of the existing road, it has high exposure to landslides, heavy rainfall and flooding, which cause damage and lead to road closure. These effects are expected to worsen as climate change brings about more frequent extreme events. Climate resilience measures will be integrated into the design of the Project in order to address the identified climate related risks. Improving the climate resilience of the project through these measures allows the project to remain operational during extreme weather events, thereby reducing the amount of weather-related disruption to the road network and the associated costs of that disruption.
The Project is consistent with the Bank’s Strategy for BiH, which includes as a strategic priority to “support development of key transport and energy cross-border links to promote Integration with the region while enhancing Resilience of the economy” while providing “improved quality/availability and equal access to of transport infrastructure”.
The operation is also in line with the Transport Sector Strategy 2020-2024 which provides for “Connected Networks to improve access in line with the needs of businesses and individuals to support economic growth, trade and prosperity” as a top priority. This objective is linked with the Municipal and Environmental Infrastructure
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Sector Strategy 2019-2024, which lists as a strategic priority to “promote the growth and development of enhanced, accessible, sustainable municipal and environmental infrastructure”, which includes urban transport as one of its traditional sectors.
The Bank’s investment will contribute to improvement of city mobility and provide safer and more climate resilient roads within the Sarajevo Canton. In addition, the transformation of the Canton Sarajevo Roads Directorate into an independent agency/company will support “the improvement of the governance efficiency, commercial-orientation and sustainability of public infrastructure and services” - one of the pillars of the Transport Sector Strategy - and support the regional economic growth to sustain well-functioning markets.
The Project will be the third operation with the Canton of Sarajevo, after the Sarajevo Urban Roads Development Project (OPID 42889) signed in 2011, and the GrCF: Sarajevo Water Project (OPID 48252) signed in 2017 with a total current exposure of EUR 28.1 million on these two existing projects4. Two additional sovereign loans of up to EUR 35 million (OPID 50246 and 51294) for the modernisation of the urban transport system namely tram infrastructure and the purchase of new trolley-buses in the Canton have been approved under the Green Cities Framework (‘GrCF’).
1.2 TRANSITION IMPACT
The table below sets out the TI objectives and details of the Project. The relevant Monitoring Indicators and timing of their delivery are shown in Section 2.
Obj. Objective Details No.
Primary TI Quality: Well governed 1.1 Procurement certification (CIPS) is CIPS is not required by local legislation introduced where such certifications and is uncommon as such. The Directorate are rare in the project country and will be provided with consultants to sector (i.e. among the first three in the support them to obtain the CIPS. sector). Moreover, selected employees of the Directorate are planned to attend a Masters course for Procurement supported by EBRD. 1.2 Substantial improvements of Canton Sarajevo Roads Directorate is to be corporate governance will be transformed into an agency/company. This implemented. will enable restructuring to promote and guarantee financial transparency, accountability structure and overall reporting within the organisation.
4 OPID 42889 is being completed with final disbursements expected by the end of the year. OPID 48252 implementation ongoing.
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Secondary TI Quality: Integrated 2.1 Material quality improvements of the The main purpose of the Project is to current infrastructure between or improve the existing transport within regions that are currently infrastructure and enable greater, more inadequately integrated. effective and efficient connectivity within the Canton and the city of Sarajevo. 2.2 Tangible soft measures to improve or With the transformation of the Directorate, expand infrastructure will be the transparency and accountability should introduced improve resulting in higher capacity to improve or expand future infrastructure in the Canton.
In line with the requirements of the Bank’s GET Handbook, the Project will contribute towards building the climate resilience of the road transport system in the Project area, and of the communities and businesses that rely upon these transport links. The Project location and the existing road infrastructure are vulnerable to physical climate risks such as landslides, heavy rainfall events and flooding which can result in disruptive road closures and damage to infrastructure. These effects are expected to worsen as climate change brings about more frequent extreme events. The risk of landslides is expected to increase as a result of climate change, although this increase in risk is notoriously difficult to quantify 5 . The technical due diligence for the Project has assessed the relevant climate risks and provided recommendations for technical measures to be integrated into the design of the Project to address those risks. These recommendations have been included as a condition to the EBRD loan agreement and will therefore be undertaken by the client, ensuring that the design and operation of the Project addresses relevant physical climate risks and is robust in the face of projected climate change impacts.
Improving the climate resilience of the Project through these measures allows the Project to remain operational during extreme weather events, thereby reducing the amount of weather-related disruption to the road network and the associated costs of that disruption. In line with the EBRD Green Economy Transition (GET) approach this climate resilience benefit delivers a GET adaptation proportion of 20 per cent for the Project.
1.3 ADDITIONALITY
Identified triggers Description
A subsequent/consecutive transaction with This is a consecutive project with the the same client/group with the same use of Sarajevo Canton in the urban roads sector proceeds or in the same country (repeat after the implementation of the Sarajevo transaction). Canton Urban Road Development project (42889) was completed. This project includes two new priority road sections in order to reduce current congestion and improve mobility in the Canton.
5 Taking a conservative approach the increased risk of landslides can be equated to the increase in extreme heavy rainfall events which is forecasted to increase by 10% by 2040.
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Additionality sources Evidence of additionality sources
Financing Structure The provided tenor will match the average life EBRD offers financing that is not available of the assets financed though the loan in the market from commercial sources on proceeds. The tenor is above the market reasonable terms and conditions, e.g. a average and cannot be matched by commercial longer grace period than the market sources. average, restricted foreign currency financing etc. Such financing is necessary to structure the project.
EBRD offers a tenor above the market average, which is necessary to structure the project.
Policy, sector, Institutional or regulatory Canton Sarajevo Roads Directorate is to be change transformed into an agency/company. This will enable restructuring to promote and EBRD’s involvement in a project is guarantee financial transparency, considered additional when it is designed to accountability structure and overall reporting trigger a change in the policy, sector, within the organisation. institutional or regulatory framework, or enhance practices at the sector or country level (e.g., an introduction of cost- reflective pricing of energy, water etc.).
Standard-setting: helping projects and The implementation of the Project will result clients achieve higher standards in improvements to the existing transport infrastructure and enable greater, more Client seeks EBRD expertise on corporate effective and efficient connectivity within the governance improvements, including for Canton and the city of Sarajevo. climate risk management. Client seeks EBRD expertise on higher environmental With the transformation of the Directorate, the standards, above ‘business as usual’ (e.g. transparency and accountability should adoption of emissions standards, climate- improve resulting in higher capacity to related ISO standards etc.). improve or expand future infrastructure in the Canton. Client seeks EBRD expertise on best international procurement standards.
Knowledge, innovation and capacity The Procurement certification (CIPS) is not building required by local legislation and is uncommon as such. The Directorate will be provided with EBRD provides expertise, innovation, consultants to support them to obtain the CIPS. knowledge and/or capabilities that are material to the timely realisation of the Moreover, selected employees of the project’s objectives, including support to Directorate are planned to attend a Masters strengthen the capacity of the client. course for procurement supported by EBRD.
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1.4 Sound Banking - Key Risks
Risks Probability Comments / Effect Counterparty Low The Canton is the largest canton in the Federation of BiH and risk /Medium home to the capital of BiH. The Canton is financially strong, with stable revenues and acceptable leverage indicators. [REDACTED] The financial projections have confirmed that the Canton should be able to meet all his financial abilities, including this loan, in the future. Political risk Medium / The Project is a high priority for both the FBiH and the Canton. Medium The Project has already passed the initial approval by the FBH Government and the FBH has allocated funds to finance other sections on the 1st Transversal road. In addition, the Bank has a strong profile in the country and a long experience of policy dialogue with the BiH and Canton level authorities. Implementation High/High The Directorate will have procurement and supervision support by risk independent consultants. The involvement of an experienced consultant to assist and guide the Directorate through the procurement process will help to raise capacity and to ensure issues are addressed in a timely and efficient manner.
Macro- High / BiH’s estimated GDP growth in 2018 was 3.1 per cent which is economic risk Low similar to the growth rates of the previous two years. The growth was mainly driven by services, particularly domestic trade, supported by private consumption, and infrastructure investment in construction (notably Corridor Vc). BiH’s economy is projected to grow by 3.0 per cent in 2019 and onwards. [REDACTED]
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2. MEASURING / MONITORING SUCCESS
Transition Impact Monitoring Indicators and Benchmarks Obj Monitoring Due Quality . Details Baseline Target Indicator date* No. Well- 1.1 Improved CIPS certificate to be [REDA [REDA [REDA governed procurement obtained by the CTED] CTED] CTED] standards Directorate.
1.2 Corporate Through the [REDA [REDA [REDA governance transformation of the CTED] CTED] CTED] improved Directorate – this will allow the Directorate to hire suitable and qualified staff that will increase the capacity of the Directorate. Further it will promote and guarantee financial transparency, accountability structure and overall reporting within the organisation. 1.3 Action Plan Environmental and [REDA [REDA [REDA implemented Social Action Plan CTED] CTED] CTED] by the client (based on the
recommendations provided in the resettlement framework). 1.4 Organisational Through the [REDA [REDA [REDA restructuring transformation of the CTED] CTED] CTED] completed as Directorate – this will targeted allow the Directorate to hire suitable and qualified staff that will increase the capacity of the Directorate. Integrated 2.1 Material Reduction of travelling [REDA [REDA [REDA quality distance on the project CTED] CTED] CTED] improvements financed sections by 15 of the current %. infrastructure 2.2 Material Reduction of travelling [REDA [REDA [REDA quality time on the project CTED] CTED] CTED] improvements financed sections by 15 of the current %. infrastructure
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3. KEY PARTIES 3.1 SARAJEVO CANTON
The city of Sarajevo, with a population estimated at 360,000, is the capital of BiH and the largest city in the country. The Sarajevo Canton is the regional administrative district that includes the city of Sarajevo and the surroundings, and has a total population of around 450,000. The Canton wants to improve the quality of its infrastructure and position itself for future economic growth and investment by the private sector.
The Canton is an existing client under two sovereign loans. The Canton will assume the debt service under this loan and will assist Sarajevo Canton Roads Directorate (the “Directorate”) with the implementation of the Project. The Directorate is currently a department within the Cantonal Ministry of Transport. The responsibilities of the Directorate are set out in the FBiH Law on Roads and include managing the construction, reconstruction, maintenance and protection of cantonal roads. They also include the preparation and implementation of traffic safety measures, environmental protection and public awareness plans. The Directorate also regulates all types of roadside usage such as licences and permits for temporary occupation or road closure, roadside parking spaces, permanent infrastructure installations, and billboards. Based on the current categorisation the Directorate is responsible for some 431 kilometres of roads. Out of this, some 77.4 kilometres are categorised as regional roads and 341 kilometres are local roads of cantonal importance. Municipalities are responsible for other local roads.
The Directorate has only 12 employees [REDACTED]. It is proposed to transform the Directorate into an independent Agency/Company to help build capacity. This will be incorporated as a condition precedent (“CP”) in the loan agreement. [REDACTED]
The transformation of the Directorate will promote and guarantee financial transparency, accountability structure and overall reporting within the organisation. The Directorate has already earmarked revenues which are collected on the State level and passed via the FBiH to the Canton (i.e. to the Ministry of Transport) for road development and maintenance in the Canton. With the transformation, these revenues will be paid to the Directorate which will enable them to have better planning and budgeting possibilities and the required resources to enable them to hire qualified staff in the number required.
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3.2 BOSNIA AND HERZEGOVINA
BiH is the borrower of record, although the ultimate repayment of the loan relies primarily on the cash flow of the Canton.
Public debt in BiH continues to be relatively moderate by regional standards. According to the official report by the BiH Ministry of Finance and Treasury, public and publicly guaranteed debt in BiH at the end of 2018 was EUR 5.67 billion or 32.9 per cent of GDP. 74 per cent of total public debt is held by IFIs or bilateral creditors. 26 per cent of public debt is locally held. Hence, external debt amounted to EUR 4.19 billion or 24.3 per cent of GDP. Out of this EUR 3.11 billion was to IFIs. Much of the external debt is extended on a long-term, concessional basis.
In comparison to this, the size of the BiH’s economy is EUR 17.2 billion (GDP) with a 3.1 per cent GDP growth in 2018 (and expected 3.0 per cent growth in 20196). [REDACTED]
On the upside, S&Ps report on BiH (published on 6 September 2019) forecasts a positive profile for both the gross public debt and gross financing needs as a percentage of GDP. Moreover, the IMF is a strong advocate in the country for more infrastructure spending and a more transparent management of sovereign exposure.
4. MARKET CONTEXT The Directorate, on behalf of the Canton, manages the construction, reconstruction, maintenance and protection of roads of cantonal importance. This is regulated by the FBiH Law on Roads. The Roads Directorate has an established practice of outsourcing road maintenance services (regular and winter maintenance) through open tendering procedure.
The main means of transport in the Canton are private cars. EBRD is working in parallel with the Canton to improve significantly the public transport which will also benefit from the implementation of the Project through the use of the improved conditions on the key transversal roads.
6 EBRD Macroeconomic forecast dated June 2019
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5. FINANCIAL / ECONOMIC ANALYSIS
5.1 FINANCIAL PROJECTIONS
[REDACTED]
5.2 SENSITIVITY ANALYSIS
[REDACTED]
5.3 ECONOMIC INTERNAL RATE OF RETURN
[REDACTED]
5.4 PROJECTED PROFITABILITY FOR THE BANK
[REDACTED]
6. OTHER KEY CONSIDERATIONS 6.1 ENVIRONMENT
Categorised B (2014 ESP). The Project involves the modernisation of priority sections on the 1st and 9th [T]ransversal roads in Sarajevo Canton through the construction of an 800 m long twin pipe tunnel at Kobilja Glava, with access roads on both sides of the tunnel (on the 1st Transversal road); and a 600 m long dual carriageway at the end of the Sarajevo bypass road (on the 9th Transversal road).
Overall, the Project is expected to result in benefits for residents in Sarajevo; principally through faster journey times and better connectivity within the city. Environmental and social due diligence (“ESDD”) was carried out by an independent consultant and focused on the Directorate, which operates as part of the Ministry for Traffic of Sarajevo Canton, their operations and capacity to implement the Project in line with EBRD Performance Requirements.
An Environmental and Social Action Plan (“ESAP”) has been developed to address any environmental and social (“E&S”) shortcomings and bring the Project in line with EBRD Performance Requirements (“PRs”) was agreed with the Client. A disclosure package that includes an overarching Non-Technical Summary (“NTS”), Land Acquisition Framework (“LAF”) and Stakeholder Engagement Plan (“SEP”) was prepared as part of the ESDD.
[REDACTED]The Directorate has been struggling with implementation of PRs and reporting to the Bank on the previous project with EBRD. Even though a PIU has been set up for the Project, no person with EHHS capacity has been appointed yet. Human resources are managed at the ministry level, which operates in line with national Labour Law and is aligned with EBRD PR 2. [REDACTED].
The national requirements for environmental assessment have been partially met through the conducting of an Environmental Impact Assessment (“EIA”) for the 1st Transversal road and an Environmental Permit (“EP”) was issued by the Federal
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Ministry of Environment and Tourism in October 2018, which is valid for five years. The EIA for the 9th Transversal road is currently being prepared.
The Project will implement pollution prevention and control measures in line with national and EU standards. Environmental Management Plans for construction and operation will include defined requirements for monitoring, in-water and near-water works, waste management, spoil disposal, borrow sites, spill response, groundwater protection and revegetation of disturbed areas. The Project is in a highly urbanised area, with no significant, protected or potentially endangered plant and animal species, or critical habitats. At a minimum, the Project will however be required to develop a revegetation plan for any disturbed areas.
Land acquisition, predominantly of privately-owned parcels, will be needed on the 1st Transversal road (17 land parcels, including five residential structures), and 13 temporary commercial structures on municipal land on the 9th Transversal road will be affected, which will therefore give rise to some physical and economic displacement. A Land Acquisition and Resettlement Framework (“LARF”) has been developed and will be disclosed in line with EBRD PR 5 requirements prior to Board. The Project’s land acquisition process is not progressed enough to develop a Land Acquisition and Resettlement Plan, which needs to be prepared ahead of actual implementation of the resettlement and construction activities for the Project.
There has been public consultation carried out during the development of the Project and a SEP has been prepared for the Project. This includes requirements for public engagement during the pre-construction and construction period, including awareness raising activities with the local communities on community health and safety and the grievance mechanism for the Project. A formal Road Safety Audit has not been conducted to-date although is proposed in the ESAP. Other ESAP measures include the introduction of EHHS management systems and policies by the Directorate and appointment of suitably skilled E&S personnel, introduction of employee grievance mechanism, development of construction and operational ESMPs, preparation of Traffic Management Plan and a Chance Finds Procedure and development of Land Acquisition Plans as well as implementation of the SEP.
The Bank will evaluate the Project's environmental and social performance in accordance with the Bank's PRs through review of reports and monitoring visits.
6.2 INTEGRITY
In conjunction with OCCO, integrity due diligence was undertaken on Sarajevo Canton, its ministers as well as the Sarajevo Canton Roads Directorate and its CEO. The review did not identify any material integrity issues and therefore it was concluded that the Project does not pose an unacceptable reputational or integrity risk to the Bank. The Canton and the Directorate are existing clients of the Bank since 2011 and the experience to date has been positive. [REDACTED]
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ANNEXES TO OPERATION REPORT
ANNEX 1 Financial Analysis Summary
ANNEX 2 Project Implementation
ANNEX 3 Economic Analysis
ANNEX 4 Map with site location
ANNEX 5 Transition Impact scoring chart
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ANNEX 1 – FINANCIAL ANALYSIS SUMMARY [REDACTED]
ANNEX 2 – PROJECT IMPLEMENTATION
Procurement classification – Public sovereign [REDACTED]
Project implementation arrangements:
The PIU has been established by the Directorate and will have overall responsibility for the implementation of the Project. The PIU will be supported by a donor-funded experienced advance procurement consultant. The consultant will also assist the Directorate in all aspects of procurement and the implementation of the Project in accordance with the Bank’s policies and support the PIU in meeting requirements of various financing documents. When necessary, the consultant will guide the Canton and PIU staff in addressing the project procurement and implementation matters. Moreover, the PIU will be supported by an international experienced supervision consultant that will help the Directorate with the supervision of the works and contract management.
Procurement arrangements:
The three works contracts will be financed by the proceeds of the Bank’s loan; there will be procured following open tendering procedures in accordance with the Bank’s Procurement Policies and Rules (“PP&R”) for public sector operations and will be subject to prior review. It is envisaged that the tender documents for the procurement of works will be based on the latest version of the Bank’s standard procurement documents.
The Project also envisages five technical cooperation contracts. The works supervision contract will be finance by the Bank’s Loan and will be contracted following open tendering procedures however; consultancy services for resettlement framework for the canton, advance procurement support and assistance to the Directorate to obtain the CIPS certification are envisaged to be contracted through direct selection. All consultancy contracts will be procured following the provisions of the Bank’s PP&R Section 5 (Procurement of Consultant Services). [REDACTED]
ANNEX 3 – ECONOMIC ANALYSIS [REDACTED]
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ANNEX 4 – MAP WITH SITE LOCATION
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ANNEX 5 – TRANSITION IMPACT SCORING CHART
Score for primary transition quality (TQ) Score for secondary quality (TQ)
Quality: Well-governed Quality: Integrated Quality average score: 58 Quality average score: 58
ATQ adjustment for primary TQ ATQ adjustment for secondary TQ
Country: BiH Country: BiH ATQ adjustment: 3.0% ATQ adjustment: 0.7% Adjusted Quality score: 59 Adjusted Quality score: 58
Weighted TI score*
Base TI score (ATQ-adjusted): 59
Adjustment for fit with Country Strategies
Adjustment: 2% - Strategic alignment CS-Adjusted score: 60
Improved quality/availability of transport infrastructure
Final TI score
Final TI score: 60
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