Document of The World Bank

FOR OFFICIAL USE ONLY

Public Disclosure Authorized Report No: PAD877

INTERNATIONAL DEVELOPMENT ASSOCIATION

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED CREDIT

IN THE AMOUNT OF SDR15.6 MILLION (US$24 MILLION EQUIVALENT)

Public Disclosure Authorized TO BOSNIA AND HERZEGOVINA

FOR A

DRINA FLOOD PROTECTION PROJECT

April 23, 2014

Public Disclosure Authorized

Sustainable Development Department South East Europe Country Unit Europe and Central Asia Region

Public Disclosure Authorized

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank Group authorization.

CURRENCY EQUIVALENTS

(Exchange Rate Effective January 27, 2014)

Currency Unit = BKM BKM 1.458 = US$1 US$1.54 = SDR 1

GOVERNMENT’S FISCAL YEAR

January 1 – December 31

ABBREVIATIONS AND ACRONYMS

APCU Agriculture Project Coordination Unit (of the MoAFW in RS) BiH Bosnia and Herzegovina CPS Country Partnership Strategy DA Designated Account DRB Drina River Basin EA Environmental Assessment EIA Environmental Impact Assessment EMF Environmental Management Framework EMP Environmental Management Plan ERR Economic Rate of Return ESMP Environmental and Social Management Plan EU European Union FBiH Federation of Bosnia and Herzegovina (also “the Federation”), a constituting Entity of Bosnia and Herzegovina FM Financial Management GEF Global Environment Facility ICPDR International Commission for the Protection of the Danube River IFR Interim Un-audited financial Report IPA Instrument for Pre-Accession (a Grant system of the European Commission) ISRBC International Sava River Basin Commission KM Convertible Mark (BiH currency) MoAWF FBiH Ministry of Agriculture, Water Management and Forestry MoAFW RS Ministry of Agriculture, Forestry and Water Management MoFTER State-level Ministry of Foreign Trade and External Relations M&E Monitoring and Evaluation NLTA Non-lending Technical Assistance ORAF Operational Risk Assessment Framework PDO Project Development Objective PIU Project Implementation Unit (of the MoAWF in FBiH) POM Project Operation Manual RAP Resettlement Action Plan RBMP River Basin Management Plan

RPF Resettlement Policy Framework RS Republika Srpska, a constituting entity of Bosnia and Herzegovina SOE Statements of Expenditures TA Technical Assistance WBIF West Balkan Investment Framework (a project preparation system of the European Commission)

Regional Vice President: Laura Tuck Country Director: Ellen Goldstein Sector Director: Laszlo Lovei Sector Manager: Dina Umali-Deininger Task Team Leader: Guy Alaerts

BOSNIA AND HERZEGOVINA Drina Flood Protection Project

TABLE OF CONTENTS

Page

I. STRATEGIC CONTEXT ...... 1 A. Country Context ...... 1 B. Sectoral and Institutional Context ...... 2 C. Higher Level Objectives to which the Project Contributes ...... 4

II. PROJECT DEVELOPMENT OBJECTIVE ...... 5 A. PDO...... 5 B. Project Beneficiaries ...... 5 C. PDO Level Results Indicators ...... 5

III. PROJECT DESCRIPTION ...... 6 A. Project Components ...... 6 B. Project Financing ...... 7

IV. IMPLEMENTATION ...... 8 A. Institutional and Implementation Arrangements ...... 8 B. Results Monitoring and Evaluation ...... 9 C. Sustainability...... 9

V. KEY RISKS AND MITIGATION MEASURES ...... 10 A. Risk Ratings Summary Table ...... 10 B. Overall Risk Rating Explanation ...... 10

VI. APPRAISAL SUMMARY ...... 11 A. Economic Analysis ...... 11 B. Technical ...... 13 C. Financial Management ...... 14 D. Procurement ...... 14 E. Social (including Safeguards) ...... 14 F. Environment (including Safeguards) ...... 16 G. Other Safeguards Policies Triggered ...... 17

Annex 1: Results Framework and Monitoring ...... 18

Annex 2: Detailed Project Description ...... 21

Annex 3: Implementation Arrangements ...... 27

Annex 4 - Operational Risk Assessment Framework (ORAF) ...... 39

Annex 5: Implementation Support Plan ...... 43

Annex 6: Economic and Financial Analysis ...... 46

. PAD DATA SHEET Bosnia and Herzegovina DRINA FLOOD PROTECTION PROJECT (P143844) PROJECT APPRAISAL DOCUMENT

. EUROPE AND CENTRAL ASIA ECSAR

Report No.: PAD877

. Basic Information Project ID EA Category Team Leader P143844 B - Partial Assessment Guy J. Alaerts Lending Instrument Fragile and/or Capacity Constraints [ ] Investment Project Financing Financial Intermediaries [ ] Series of Projects [ ] Project Implementation Start Date Project Implementation End Date 17-May-2014 31-Dec-2019 Expected Effectiveness Date Expected Closing Date 13-Nov-2014 31-Dec-2019 Joint IFC No Sector Manager Sector Director Country Director Regional Vice President Dina Umali-Deininger Laszlo Lovei Ellen A. Goldstein Laura Tuck

. Borrower: Ministry of Finance and Treasury of Bosnia and Herzegovina Responsible Agency: Republika Srpska Ministry of Agriculture, Forestry and Water Management Contact: Mr. Mihajlo Stevanovic Title: Assistant Minister Telephone 387-51-338368 Email: [email protected] No.: Responsible Agency: Federation of Bosnia-Herzegovina Ministry of Agriculture, Water Management and Forestry Contact: Ms. Hazima Hadzovic Title: Assistant Minister Telephone 387-33-726550 Email: [email protected] No.:

. Project Financing Data(in USD Million)

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[ ] Loan [ ] Grant [ ] Guarantee [ X ] Credit [ ] IDA Grant [ ] Other Total Project Cost: 28.27 Total Bank Financing: 24.00 Financing Gap: 0.00

. Financing Source Amount BORROWER/RECIPIENT 4.27 International Development Association (IDA) 24.00 Total 28.27

. Expected Disbursements (in USD Million) Fiscal 2015 2016 2017 2018 2019 2020 0000 0000 0000 Year Annual 1.00 2.00 6.00 7.00 4.50 3.50 0.00 0.00 0.00 Cumulati 1.00 3.00 9.00 16.00 20.50 24.00 0.00 0.00 0.00 ve

. Proposed Development Objective(s) The Project's objective is to provide increased protection from flood events to agricultural and commercial interests and communities in the project areas.

. Components Component Name Cost (USD Millions) 1. Flood Protection in Bijeljina Area (RS). 17.60 2. Flood Protection in Goražde Area (FBiH). 10.67

. Institutional Data Sector Board Agriculture and Rural Development

. Sectors / Climate Change Sector (Maximum 5 and total % must equal 100) Major Sector Sector % Adaptation Mitigation Co-benefits % Co-benefits % Agriculture, fishing, and forestry Irrigation and drainage 100 100 0 Total 100 I certify that there is no Adaptation and Mitigation Climate Change Co-benefits information applicable to this project.

. Themes Theme (Maximum 5 and total % must equal 100)

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Major theme Theme % Environment and natural resources Water resource management 67 management Rural development Rural services and infrastructure 33 Total 100

. Compliance Policy Does the project depart from the CAS in content or in other significant Yes [ ] No [ X ] respects?

. Does the project require any waivers of Bank policies? Yes [ ] No [ X ] Have these been approved by Bank management? Yes [ ] No [ ] Is approval for any policy waiver sought from the Board? Yes [ ] No [ X ] Does the project meet the Regional criteria for readiness for implementation? Yes [ X ] No [ ]

. Safeguard Policies Triggered by the Project Yes No Environmental Assessment OP/BP 4.01 X Natural Habitats OP/BP 4.04 X Forests OP/BP 4.36 X Pest Management OP 4.09 X Physical Cultural Resources OP/BP 4.11 X Indigenous Peoples OP/BP 4.10 X Involuntary Resettlement OP/BP 4.12 X Safety of Dams OP/BP 4.37 X Projects on International Waterways OP/BP 7.50 X Projects in Disputed Areas OP/BP 7.60 X

. Legal Covenants Name Recurrent Due Date Frequency Implementation X Yearly Description of Covenant The Recipient shall cause the RS, through the RS MoAFW, to carry out Part A of the Project. The RS MoAFW shall be responsible for the day-to-day implementation, including procurement and financial management of Part A of the Project. Name Recurrent Due Date Frequency Implementation X Yearly Description of Covenant

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The Recipient shall cause the RS to maintain the RS APCU within the RS MoAFW at all times during Project implementation, with terms of reference and resources satisfactory to the Association, and with competent staff in adequate numbers. Name Recurrent Due Date Frequency Implementation X Yearly Description of Covenant The Recipient shall cause the Federation, through the Federation MoAWF, to carry out Part B of the Project. The Federation MoAWF shall be responsible for the day-to-day implementation, including procurement and financial management of Part B of the Project. Name Recurrent Due Date Frequency Implementation X Yearly Description of Covenant The Recipient shall cause the Federation to maintain the Federation PIU within the Federation MoAWF at all times during Project implementation, with terms of reference and resources satisfactory to the Association, and with competent staff in adequate numbers. Name Recurrent Due Date Frequency Implementation X Yearly Description of Covenant The Recipient shall ensure that the Federation and the RS do not amend or waive, or permit to be amended or waived, their respective POMs, or any provision thereof, except with the prior written approval of the Association. Name Recurrent Due Date Frequency Implementation X Yearly Description of Covenant The Recipient shall ensure that the Federation and the RS duly perform all obligations under their respective POMs in a timely manner and in accordance with the respective terms, and apply and implement, as the case may be, the actions, policies, procedures and arrangements therein set forth. Name Recurrent Due Date Frequency Safeguards X Yearly Description of Covenant To carry out the Project in accordance with the Environmental Assessment (the “EA”) and the Resettlement Policy Framework (“RPF”). Name Recurrent Due Date Frequency Safeguards X Yearly Description of Covenant Prior to carrying out any activities, to prepare site-specific Environmental Management Plan(s) (“EMPs”) in accordance with the EA, in form and substance satisfactory to the Association, and to implement said activities in accordance with the respective EMPs. Name Recurrent Due Date Frequency

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Safeguards X Yearly Description of Covenant Prior to carrying out any works under the Project which require land acquisition, to prepare a Resettlement Action Plan (“RAP”) and to ensure that it is implemented by the relevant municipality, including by providing appropriate compensation, consistent with the provisions of the RPF and site- specific RAP, to all owners and users of the land where works are to be implemented. Name Recurrent Due Date Frequency Safeguards X Description of Covenant To not assign, amend, abrogate or waive the RPF and/or RAP or any provision thereof, without the prior approval of the Association.

. Conditions Source Of Fund Name Type IDA Disbursement Disbursement Description of Condition No withdrawal shall be made for payments made prior to the date of the FA or under categories 1 and 2 unless: the PAs and Subsidiary Agreements have been executed on terms/conditions satisfactory to the Association, and opinions have been furnished to the Association by the Recipient with RS & Federation's statement of the above Agreements duly authorized/ratified by the parties and legal binding.

Team Composition Bank Staff Name Title Specialization Unit Guy J. Alaerts Lead Water Resources Team Lead ECSAR Specialist Daniel P. Gerber Rural Development Co-Team Lead ECSAR Specialist Ama Esson Program Assistant Program Assistant ECSSD Karina Mostipan Senior Procurement Senior Procurement ECSO2 Specialist Specialist Mirjana Karahasanovic Operations Officer Operations Officer ECSEN Adam Shayne Lead Counsel Lead Counsel LEGLE Vera Dugandzic Senior Operations Social Safeguards ECSSO Officer Specialist Lamija Marijanovic Financial Management Financial Management ECSO3 Specialist Specialist Hiromi Yamaguchi E T Consultant Operations Officer ECSAR Esma Kreso Environmental Specialist Environmental ECSEN Safeguards Specialist

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Jose Janeiro Sr Financial Officer Loan Officer CTRLA Non Bank Staff Name Title Office Phone City Juan Morelli Economist Montevideo

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Locations Country First Location Planned Actual Comments Administrative Division Bosnia and Federation of Federation of X Goražde, Pale-Praca, Herzegovina Bosnia and Bosnia and Foca-Ustikolina Herzegovina Herzegovina Bosnia and Republika Srpska Republika Srpska X Bijelijna, Janja Herzegovina

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I. STRATEGIC CONTEXT

A. COUNTRY CONTEXT

1. The Drina River (the Drina), at 346 kilometers in length, is the largest tributary of the Sava River, which in turn is the largest tributary of the Danube. The river and its basin are critically important to all three of its riparian countries: Bosnia and Herzegovina (BiH), Montenegro and Serbia. Originating in the snowy Dinaric Alps in Montenegro at an altitude of 2,500 meters, it drains a vast karst plateau which receives the highest annual rainfall in Europe (up to 3,000 mm), resulting in the highest specific runoff in Europe (up to 50 l/s/km2); the river’s baseflow is very small. This rapid draining has made the river notorious for its extreme high and low flows. This natural characteristic has been altered by the construction, over the past 70 years, of eight reservoirs with hydropower plants. These reservoirs mostly attenuate the natural extremes, although their comparatively modest volumes are not capable of fundamentally altering the natural flow regime. In periods of prolonged high precipitation, the reservoirs cannot store much extra volume and their discharges can take into account the downstream riverbed flow capacity only to a limited extent.

2. The Upper Drina is formed by the confluence of the Tara and Piva Rivers, both of which rise in Montenegro and converge on the border of Montenegro and BiH. More downstream, the Middle Drina flows past the town of Goražde and Bajna Basta. On its way to its mouth it forms the Lower Drina defined by the towns of Zvornik and Bijeljina, before emptying into the Sava River in northeastern BiH, near Bijeljina. The Middle and Lower Drina form the border between BiH and Serbia over a length of 220 km. The Middle Drina and the Upper Drina are hemmed in by deep valleys and steep banks. In its downstream reaches, in the Pannonic plain of the Sava River, the Lower Drina meanders and flows along several channels in a floodplain.

3. The Drina River Basin (DRB) is about half the size of Switzerland and is home to almost one million people, with most settlements concentrated along the Drina River proper or its main tributaries. The Basin is shared equally among the three riparian countries. In BiH, it covers 14% of the country’s territory. However, it is of most importance to the Republika Srpska (RS) Entity as it covers over a quarter of the Entity’s territory; the Basin is crucial as well to the eastern part of the Federation of Bosnia-Herzegovina (FBiH) Entity.

4. GDP per capita in BiH (2011) is about US$4,372. However, the national average masks the significant income disparity within the country. The local economies of many communities in the Basin tend to be depressed due to difficult transportation links, comparatively long distances to markets, and the perilous state of the old local industries and the infrastructure. The downstream municipality of Bijeljina (in RS) has a stronger agricultural, industrial and service- based economy thanks to its proximity to Serbia and Croatia. Goražde in the Middle Drina is more isolated, however, its local economy is improving thanks to investments in agriculture and eco-tourism, and new industrial investments.

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B. SECTORAL AND INSTITUTIONAL CONTEXT

5. The need for flood control was identified decades ago, and during the former Yugoslav Republic numerous flood protection investments were made in the Basin. The 1964 Drina Master Plan provided for number of flood protection works along the Drina; most of these protective works have been implemented but the regional conflict in the 1990s prevented the completion of some components. The 1972 UN Study on regulation and control of the Sava River in Yugoslavia identified Sava dikes and polder development and proposed the Semberija polder around Bijeljina as a priority investment; however, after investments in the 1980s in the Sava dikes, the Drina dikes could not be implemented. Thus, two areas have remained particularly vulnerable in the DRB, namely the Bijeljina and Goražde areas, located in RS and FBiH, respectively. Three reasons exist for this vulnerability. First, the Bijeljina area has remained unprotected because the dikes on the left Drina bank (in BiH), although included in the 1964 Plan, were never built, while the dikes on the right bank (in Serbia), were erected for the greater part. Similarly, some locations in the Goražde area are suffering from severe erosion of the riverbed and banks due to incomplete construction of revetments and crests. Moreover, these structures were designed to protect only against high-frequency, low-inundation discharges of up to 2,730 m3/sec instead of about 4,080 m3/sec (1-in-100 year flood), the minimum standard protection for commercial and (semi-) urbanized areas. A third major factor that raises the imminent flooding risk is that the structures, where in place, are no longer adequate or will soon lose their functionality due to lack of maintenance and modernization during the past two decades in the wake of the armed conflict. The need for this infrastructure is confirmed by recent analytic studies (see further) and newly acquired orthogrammetric maps and survey data.

6. While the regularly occurring floods do represent a substantial livelihood risk, the emergency services are capable to handle emergencies, as was demonstrated during the December 2010 floods. However, the destruction from floods is costly and seriously affects the local economy and detracts investments in the region, stressing the priority to invest in protective measures.

7. The project’s works are urgent, high-priority investments because these locations have a local topography that is keeping them especially vulnerable to high water as water easily overtops the river banks in these spots that are low compared to other areas along the Drina and its tributaries. This has been repeatedly the case in the 19th and early 20th centuries, as well as in the period after the construction of the hydropower plants on the river. Irrespective of the fact that, in the farther future, with better understanding of the modified hydrology of the river and of future regional development scenarios, further improvements can be identified for flood prevention and mitigation, the proposed protection investments are to be considered as very basic, essential and urgent given the very high recurrence of the inundation and their impacts; this is also reflected in the Economic Rate of Return of the protection works (see Section VI.A).

8. In both entities of BiH, the Drina River Basin is at the forefront of the water management agendas, because of its development opportunities (i.e., hydropower and tourism) but also because the Drina and its tributaries are historically known for recurrent floods. In the past decade, particularly wet conditions leading to severe inundation along the Drina in BiH were observed in 2001, 2004, 2005 and most recently December 2010 and in February 2013. The floods are caused by a combination of high rainfall, early snowmelt and, occasionally, ill-

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synchronized water releases from the hydropower reservoirs. The flood events are most frequent and damages most pronounced in the downstream lower Drina tract between Zvornik and the confluence with the Sava River affecting the left-bank Municipality of Bijeljina and its Amajlije and Janja settlements in RS; and in the Middle Drina and its local tributaries, in the Bosnia Podrinje Canton which includes the Municipalities of Goražde, Foca-Ustikolina and Pale-Praca, in the FBiH.

9. The December 2010 flood inundated about 8,360 ha of land between the Bijeljina town center and the floodplain for up to two weeks. In the Bosnia Podrinje Canton area in FBiH, almost 400 ha were flooded or affected along the Drina and its tributaries for several days. Records show that the recurrence period of these discharges was about 1 in 50 to 60 years for Bijeljina, and 1 in 80 years for Goražde. Still, smaller parts of the Bijeljina and Goražde areas are flooding annually. In Bijeljina, the land at risk concerns primarily (very productive) agricultural and horticultural land, farm houses, commercial and hotel facilities, residences and roads and other utility infrastructure. In the Goražde area, the areas at risk comprise parts of the Goražde town center, roads and utilities infrastructure, horticultural land and some industries. In response to the flood emergency in 2010, the World Bank reallocated about US$ 8.0 million of the Agricultural and Rural Development Project to help with immediate emergency interventions to repair dike breaches, and rural infrastructure, and support the replanting of orchards and crops that had been destroyed. Hydrological analysis shows that high-water discharges and flood events are becoming more frequent in these areas over the past three decades. This is likely caused by the progressing urbanization and land use changes in the basin, and by changes in the local climate. The hydropower reservoirs generally attenuate extreme discharges, however, their volumes are relatively small compared to the large water volumes discharged per month, and thus, although the river hydrology has been altered, it is still driven by natural events and circumstances.

10. Several studies and plans exist that analyze water management and flood protection, including the highly detailed 1964 Drina Master Plan, the 1972 Sava Study, and, more recently, the more generic International Commission for the Protection of the Danube River (ICPDR) Danube River Basin Management Plan (2004) and the Sava River Basin Management Plan (2013). While these plans comply with the European Union (EU) Water Directive, they focus on water and ecological quality. They also set generic policy for flood management, but do not propose specific investments. In 2007, the EU-financed Instrument for Pre-Accession (IPA) supported development of the BiH Water Policy, which defines institutional responsibilities for the water sector. In 2013-15, EU IPA is likely to support additional digital terrain and flood risk mapping of the Drina basin area in BiH and Serbia that will complement existing topographic and orthogrammetric data. Existing early-warning and flood-forecasting mechanisms proved effective in the 2010 flood event, however, their accuracy and effectiveness can be improved; this will be reviewed in the upcoming new technical assistance (TA) operations. In general, BiH and Serbia are cooperating increasingly frequently on Drina management.

11. The three riparian countries are cooperating closely with the International Sava River Basin Commission (ISRBC), which conducts studies and promotes inter-state cooperation. The DRB is also benefiting from the World Bank’s West Balkans Regional Flood and Drought Initiative, a non-lending TA program, which has led to a Rapid Trans-boundary Diagnostic Scan

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and Analysis (2012) based on basin-wide data collection and cross-sectoral dialogue, and a Framework for Flood Management on the Drina River (2012) that reviewed parameters for flood management for BiH.

12. The proposed project is in line with the Bank’s overall objectives for poverty alleviation and fostering shared prosperity as the benefits from reduced flood risk will accrue directly to all those affected by flooding, but also to those that have avoided investing in the project areas due to the risk posed by recurring floods. Beside the direct avoidance of damage to private property and business interest, the Project will have a positive impact both on economic growth and productivity thanks to avoided disruption of the regional transport and utility links. In addition, the project will mitigate poverty, as lower-income families tend to suffer disproportionately from flood events—they are most likely to live in cheaper more flood-prone areas. This is the case, for example, in the Janja settlement (Bijeljina) and in some of the Goražde suburbs. The investments in Pale-Praca (near Goražde) aim to safeguard vital roads and communication links in the more remote zones in the mountains near Goražde; the 2010 floods cut communications for several months severely affecting local livelihoods as well as schooling and health care.

13. The project is also fully consistent with the Country Partnership Strategy (CPS) for the period FY2012-15. It will contribute to the key objectives under the CPS, to promote: (i) competitiveness; (ii) social inclusion; and (iii) environmental sustainability, including for improved water resource management. One of the specific CPS outcomes is “better flood preparedness and management along the Drina River Basin” which the government recognizes as critical not only to protect the lives and livelihoods of people in the basin but also to protect the overall health of this unique ecosystem. The Project will also enhance the hydraulic capacity of the riverbed, thereby contributing to increasing the environmental sustainability of hydropower production, and thus assist BiH’s efforts towards energy security in the light of climate change impacts.

C. HIGHER LEVEL OBJECTIVES TO WHICH THE PROJECT CONTRIBUTES

14. The proposed project is linked to the larger on-going effort in the DRB to promote sustainable river basin management based on the principles of integrated water resource management, in line with relevant EU Directives. Early in the process of developing the Bank- funded West Balkans Regional Flood and Drought Initiative (see para. 11), the activities in this Drina Flood Protection Project have been identified as a priority need and precursor to the development of a Drina management and development strategy and an EU-compliant Drina River Basin Management Plan (RBMP).

15. The Bank is pursuing the broader objective of basin-wide water management which will benefit from a new Investment Prioritization Framework study for the DRB to be funded by the West Balkan Investment Framework (WBIF) (2014-2015) that will review existing and new investment and water management scenarios. Furthermore, a new Global Environment Facility (GEF)-funded Regional Drina Basin Management Project (2015-2018) is being prepared that would support TA, hydrological simulation and optimization studies, and basin cooperation, but not investments. These activities are being closely coordinated with the European Bank for Reconstruction and Development, the European Commission, the European Investment Bank,

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the ISRBC, and others. These studies and consultations will create, over time, the strategic and operational framework to help prioritize the future flood management measures across the region and strengthen the institutions for national and regional water management, to meet established regional development objectives within a concept of integrated water management. These activities complement each other and address the broader institutional issues related to water management of the DRB.

16. The GEF project design, scope and activities are guided by the objectives of the International Waters focal area; more specifically with Objective 1: catalyze multi-state cooperation to balance conflicting water uses in transboundary surface and groundwater basins while considering climatic variability and change, and Objective 3: support foundational capacity building, portfolio learning, and targeted research needs for ecosystem-based, joint management of transboundary water systems during GEF-5. These interventions are expected to help the governments develop more robust policies and strategies and create a favorable institutional environment for sustainable utilization of the full potential of the DRB with due consideration to climate change/variability. It would build the trust and confidence necessary for working together on shared visions for water-related concerns.

17. Overall, the works to build, modernize, and rehabilitate flood protection and drainage infrastructure along the Drina and its tributaries in selected areas will stimulate longer term investments in areas which heretofore were threatened by recurring floods.

II. PROJECT DEVELOPMENT OBJECTIVE A. PDO

18. The Project’s development objective (PDO) is to provide increased protection from flood events to agricultural and commercial interests and communities in the project area.

B. PROJECT BENEFICIARIES

19. The project beneficiaries are the populations along the BiH side of the Drina River, specifically in and around the towns of Bijelijna in the RS and Goražde in FBiH of BiH. Reconstructed and new embankments will benefit farmers who have their land in proximity of the river, but will also prevent the flood of regional road arteries and of villages within the current flood plains. The vicinity of villages often includes industry and substantial touristic sites that have been damaged in the past. An estimated 175,000 people live within the main municipalities along the river of which an estimated 20,000 suffered direct economic losses.

C. PDO LEVEL RESULTS INDICATORS

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20. The key results will be a reduced land area prone to floods and increased flood protection for project areas. The proposed PDO indicators are: (i) Land area prone to floods in each location (hectares urban/rural); and (ii) number beneficiaries who have reduced exposure to the vagaries of floods.

III. PROJECT DESCRIPTION

A. PROJECT COMPONENTS

21. Component 1: Flood protection works and support for Bijeljina area (Total component cost of US$17.6 million, IDA US$13.80) This component will fund the civil engineering works and related investments for the flood protection in the Bijeljina area, in the downstream flat plains near the confluence with the Sava River. This includes resources for the Agriculture Project Coordination Unit (APCU) at RS Ministry of Agriculture, Forestry and Water Management (MoAFW) including staff for procurement and Financial Management (FM), as well as TA as may be required for supervision of works and contract management and providing administrative and coordination support to the RS Waters Institution in Bijeljina, which will support the project at the technical level. The project will cover works, equipment purchase and land acquisition (financed by municipalities), as well as project management support, the detailed designs and preparation of tender documents, and institutional strengthening through staff training. The bulk of the works will consist mostly of earth moving, dike construction and/or re-construction, and limited river bank shaping work (culverts, rip-rap cover, parapets, gabion placement, etc.). The dike will protect the Bijeljina town and the Janja and Amajlije, as well as other smaller, settlements, on the Lower Drina left bank. The construction will also protect against the added risks from climate change and variability. The alignment of the new dike will be on the land parallel to the river, and is based on an optimization depending on the distance to the river. It will run along the large natural floodplain to the east containing the Drina meanders and mouth, and which, further east, is bounded by the Serbian territory. Thus, the dike would allow the continued function of this floodplain as a natural overflow and flood absorption area which supports a healthy natural habitat for flora, fish and fowl. The preferred trajectory runs partly over government-owned land, but mostly over private agricultural and some residential land. The dike will comprise three sections with a total length of 33.36 km, of which the middle part (from Glogovac pumping station [Dasnica] to the road towards the Pavlovica bridge) is considered the priority and to have the highest readiness. The dike will be 16 km long and about 2-3 m in height. The upstream section, from the Glogovac pumping station to Janja, will be the second phase. The portion, downstream, from the road to the Pavlovica bridge to Balatun, is the third phase. The funding will also provide for the effective implementation of the social safeguards and environmental measures identified in the Environmental and Social Assessment and accompanying documents.

22. Component 2: Flood protection works and support for Goražde area (Total component cost of US$10.67million, IDA US$10.20 Million). This component will fund the civil engineering works and related investments for the flood protection in four clusters of works in the Bosnia Podrinje Canton (around Goražde), in the Middle Drina. This includes resources for

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the Project Implementation Unit (PIU) at FBiH Ministry of Agriculture, Water Management and Forestry (MoAWF) including staff for procurement and FM, as well as TA as may be required for supervision of works and contract management and providing administrative and coordination support to the Sava River Watershed Agency in Sarajevo, by which the project is technically supported. The project will cover works, equipment, minor land acquisition (funds are planned to be allocated by Municipalities as a precautionary measure in case that the right-of- way may be required) as well as the project management support, the detailed designs and preparation of tender documents, and institutional strengthening through staff training. It is expected that works will consist mostly of measures for river bed and bank consolidation (revetments, parapets, culverts, rip-rap cover, gabion placement, etc.), the building of similar protective structures for roads, bridges and other infrastructure along the river, and earth moving, dike construction and/or re-construction. Works are envisaged along the Drina main stem (in, and near Goražde town center, and upstream and downstream of the center) as well as on the Podhranjanski potok and Praca torrents near the settlements of Praca and Hrenovica, in the Municipalities of Goražde, Pale-Praca and Foca-Ustikolina, respectively. The construction will also protect against the added risks from climate change and variability. The vulnerable land and inhabited areas are strung along both banks of the river and its tributaries inside narrow and steep valleys. Most of the dikes and bank reinforcements already exist, and where they need to be constructed anew, they will be located on government-owned land. Funding will also provide for the effective implementation of the social safeguards and environmental measures identified in the Environmental and Social Assessment and accompanying documents.

B. PROJECT FINANCING

23. The total project costs are US$ 28.27 million. Of this amount US$ 4.27 million are expected in counterpart funding for land acquisition and selected other preparatory activities. IDA financing will amount to US$24.00 million.

Project Cost and Financing

Project cost IDA Financing Project Components % Financing (US$ million) (US$ million) 1. Flood protection works and support for 17.60 13.80 78 Bijeljina area 2. Flood protection works and support for 10.67 10.20 96 Goražde area

Total Cost Total Project Cost 28.27 Total Financing Required 28.27 24.00 85

C. Lessons Learned and Reflected in the Project Design

24. Bank policy re-affirms that effective, sustainable water management needs to be carried out in an integrated fashion. Experience has also demonstrated that effective water sector

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development can be best achieved through sequenced steps combining investments and institutional development. However, the particular vulnerability and absence of basic protection in the priority areas of the DRB, that are the subject of the project, do call for urgent investment in physical flood protection measures. These measures will, in parallel, be complemented by WBIF and GEF grant funded operations that will support the strategic analysis and institutional development that will create the framework for more extensive investments on the Drina River in the longer term. The activities under the latter two projects take a holistic approach to the river, involving all the riparian countries with the aim to develop capacity and investment planning taking into account the environmental, economic and social demands on the river and reflecting modern river basin management institutional arrangements along the principles of the EU Water Directive and the EU Flood Directive.

25. While BiH is considered an institutionally complex counterpart, the project design has adopted lessons learned from the design of earlier operations. Project activities have been kept very focused with each component located in one entity and with clear unambiguous implementation structure, reducing technical and institutional complications that would require more time for preparation. The project's design draws from successful cooperation and projects in the water sector, such as the Neretva and Trebisnjica Management Project, the Irrigation Development Project, and related agriculture projects. The Project design has also been shaped by specific technical and implementation information acquired from the Irrigation Development Project, as well as from the consultation and strategic analysis under the TA Rapid Trans- boundary Diagnostic Scan and Analysis (2012).

IV. IMPLEMENTATION

A. INSTITUTIONAL AND IMPLEMENTATION ARRANGEMENTS

26. The project will be implemented by the RS APCU in the MoAFW, and the PIU of the FBiH MoAWF. In the RS, the Public Institution “RS Waters” in Bijeljina, a semi-independent unit operating under the RS MoAFW, will support the project at the technical level. Although the name and legal status of RS Waters are new, it has long-term experience in implementing similar works on river bank and flood control infrastructure. The Ministry’s APCU will carry out project management including the procurement, FM, and the work related to environmental and social safeguards implementation, as well as project monitoring and evaluation. In the FBiH, the project is technically supported by the Water Agency for the Sava River (based in Sarajevo); it is a semi-independent unit operating under the FBiH MoAWF that has significant experience in planning and managing the implementation of river and flood protection works. The Ministry’s PIU will carry out project management including procurement, FM, and the work related to environmental and social safeguards implementation, as well as project monitoring and evaluation. Both APCU and PIU are staffed with experienced staff for the execution of daily project activities. The Bank assesses the APCU and PIU as adequate and acceptable. The land acquisition will be carried out by the respective municipalities, as is legally mandated, and these have committed to provide adequate budget for this purpose in 2015 - 2017.

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27. The environmental permitting and land acquisition systems are in place in BiH, and are carried out by the entities with functional ministries dealing with environment. The Environmental Impact Assessment (EIA) laws and requirements are in line with those established in the EU. The entities handle water management through two semi-independent Water Agencies (in FBiH) and the Public Institution “RS Waters” in Bijeljina (in RS) that are operational and focus on integrated river basin management, guided by the EU Water Framework Directive; as such they are better positioned to manage water than some of the neighboring countries. Water permits are issued for all developments and activities that require water use or wastewater releases. Such water management permits are issued based on the water balance and assessment of the competing demands for water.

28. The project will closely interface with the complementary GEF and WBIF projects that are being prepared by the same agencies that are currently responsible for the technical and engineering aspects of the flood project. The Bank’s Task Team for all these operations is the same and will facilitate coordination and cooperation to ensure that the institutional and long term management issues that affect the sustainability of the investments in works under this project will be adequately addressed.

B. RESULTS MONITORING AND EVALUATION

29. The project will finance a monitoring and evaluation (M&E) activity under Components 1 and 2. The M&E activity will monitor: (1) project physical progress (e.g. works completion % versus planned %), and (2) evaluate project socioeconomic and environmental impacts (the Core and intermediary indicators described in the main text and Annex 1). The impact evaluation studies would be presented in semi-annual progress reports (to be sent to the Bank and the State Ministry of Foreign Trade and External Relations [MoFTER]). These progress reports should include a chapter reporting on implementation progress of environmental and social safeguards (progress of the environmental and social management plan [ESMP]), including a short “environmental audit” of the civil-works contractors; and status of land acquisition issues and payments on land compensation) to ensure their compliance with the ESMP and Resettlement Policy Framework (RPF)/Resettlement Action Plans (RAPs) respectively. At project mid-term a survey will be conducted to get direct feedback on the community’s perception of the impacts of the project. This survey will be repeated at the end of the project. The results of the survey at mid-term will also be used to review the designs in line with community requests in so far as feasible within the available financing envelope. If by the Mid-Term Review the M&E outcomes indicate that the project is encountering delay in meeting the outputs (works/equipment) or a lack of meeting the core/intermediate outcomes, the mitigations proposed in Operational Risk Assessment Framework (ORAF) will be introduced, including: (1) revisiting the procurement plan (e.g. slicing instead of packaging to expedite tendering and execution); and (2) restructuring of the project(by re-allocating funds between the Components).

C. SUSTAINABILITY

30. The sustainability of the project benefits will depend on the capacity in the long term of the relevant water management units to provide adequate and regular budget for maintenance of

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the flood protection infrastructure. The institutions of BiH and the Entities have significant planning capacities and do monitor and maintain the existing flood protection infrastructure along the Drina River. Thus far, inspection of other flood protection infrastructure along the Drina and the Sava Rivers suggests that adequate budget and technical capacity are in place for maintenance. To enhance the effectiveness of the new investments in the framework of Drina River basin-wide water management, the project will also rely on the strategic, water-policy and sector strengthening that are to be developed under the WBIF and GEF and implemented in parallel to this project, and will focus on investments for capacity building, including the DRB management, investment planning, early warning and disaster preparedness. With institutional support to help improve coordination and investment planning, the capacity and resources to sustain the proposed infrastructure is adequate when compared to other countries in the region.

V. KEY RISKS AND MITIGATION MEASURES

A. RISK RATINGS SUMMARY TABLE

\Risk Category Rating Stakeholder Risk Moderate Implementing Agency Risk - Capacity Moderate - Governance High Project Risk - Design Moderate - Social and Environmental Moderate - Program and Donor Low - Delivery Monitoring and Sustainability Moderate Overall Implementation Risk Moderate

B. OVERALL RISK RATING EXPLANATION

31. The overall risk rating is moderate. The Project's design and scope includes investments that are modest in scope and low in complexity. Analytic work has already been conducted for the specific investments included in the Project, and builds on extensive sectoral knowledge accumulated through several projects and analytic and advisory activities within the water sector. The risks are well known, and risks of delays are expected primarily during implementation, such as timely effectiveness and construction delays related to inclement weather and procurement. A potential risk is associated with the possibility of lack of funds for land acquisition on the part of the Bijeljina Municipality; however, this risk is mitigated by (i) the agreement that the RS Ministry of Finance, as overseer of Municipal budgets, has expressed

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commitment to work closely with the Municipality to make sure that necessary funding is secured in the budget, and (ii) the staggered implementation of works in three sections will offer the Municipality flexibility to allocate the budget in annual portions as works are proceeding.

32. While the country suffered from significant damage to its infrastructure during the war, the overall quality of its infrastructure is adequate when compared to countries of similar GDP per capita. Significant institutional streamlining in the water sector has already taken place in the context of continued EU support in infrastructure management and the Bank- and GEF-financed Neretva and Trebisnjica Management project. Overall, the institutions responsible for the management of water infrastructure have quite highly qualified staff and a regular resource base that ensures the maintenance of structures.

VI. APPRAISAL SUMMARY

A. ECONOMIC ANALYSIS

33. A preliminary financial and economic assessment prepared by the Hydro Ingenieure Consulting (Krems, Austria), Kommunalkredit Austria and the Hydro-Engineering Institute of Sarajevo (2012), found that the reduction of expected losses due to floods would generate substantial economic benefits justifying the investments required. The assessment prioritized the works proposed for this project. The project would also contribute significantly to improve the livelihood of the poor communities in the project areas, as losses - including public infrastructure, agricultural and livestock production, as well as their family household assets - would be significantly reduced. More recent studies (on crop budgets, land use, damage estimates for different flooding frequencies, and project costs) updated and confirmed the economic feasibility of the proposed investments based on a more detailed analysis of the works to be done, and also incorporating new available information about value of damages produced by the devastating 2010 floods mentioned above.

34. Avoided damages were calculated as the difference between damages caused in the existing situation vulnerable to frequent floods (without the proposed project) and the project scenario in which no damages would occur up to a certain magnitude of the river flows and flood events. As flood events occur to different degrees and frequency, the calculation took into account the probability of occurrence of different flood intensities and the related damages caused by floods weighted by the respective probability in both scenarios.

35. Due to the competitive market for factors of production in BiH, no significant price distortions were considered for the economic analysis. Taxes were deducted from prices, and unskilled labor costs were corrected using 0.7 as conversion factor (CF). The average price for damages in houses was estimated based on the average property value of 1,000 KM/m2. The price was based on the cost of renovating the walls, floors and electricity/phone cables (estimated at 20% of the value of the building of the same surface as the one affected by the flood), taking also into account irreversible damages to furniture and household appliances. Damages to schools and other public buildings were calculated in a similar way. Considering the

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lack of data on the health related benefits, these were not taken into account in the avoided damages by the project. In the case of industrial/business assets the damage was estimated at 30% of the costs of the building taking into account irreversible damages to the industrial equipment. Indirect damages for companies due to the loss of added value and lower efficiency of work after the event have been evaluated by the consultants with a specific value of KM per productive facility annually, applying unit estimates that are standard under EU guidelines.

36. About 8,500 ha of agricultural land will be protected against the risk of floods in the main project locations to be protected (Bijeljina and Goražde, Pale–Praca, Foca-Ustikolina). The income security and living conditions of the land holders along the proposed structures (mostly poor family small holdings) will improve as crops will be more regular and reliable with fewer losses due to less re-seeding, and fewer complete crop failures. Crop budgets for the main agricultural activities and farm models were developed for quantifying the financial impact of the project on beneficiaries, based on average yields being obtained, costs of production and cropping patterns. Recurrent floods affect average yields of crops in about 10 to 15 percent. Technical estimations show that benefitted farmers’ net income could be increased from an average of 12 to 40 percent in the case of field crops (wheat, barley, maize and fodder crops) and from 15 to 80 percent in the case of fruits and vegetables (open field and/or under greenhouses).

37. Farm models combining typical cropping patterns were also prepared, representing the farms in the project areas. Farms averaging half of an ha producing fruits and vegetables, and 2 ha farms producing field crops show that revenues would improve significantly as the risk of floods is minimized and conditions to allow for more intensive cropping as risks are reduced. The reduction of their private assets lost by floods also will contribute to improve their livelihoods after the flood protection works. Models show that farmers could increase their net incomes by 60 to 80 percent in the project areas once flood risks are reduced.

38. The following are some of the expected benefits from the proposed protective structures:

(i) avoided damages of agriculture production on land likely to suffer frequent floods; (ii) avoided damages of assets (private houses; apartment houses; industrial facilities; roads, electricity, schools, kindergartens, health facilities and other public buildings); (iii) avoided losses of business due to uninterrupted production, provision of services, interrupted communications, traffic disruption, etc.; (iv) avoided human health costs due to reduction of the pollution in the water supply systems, reduced water borne diseases, and reduced risks of human life losses; (v) increased recreation benefits including tourism development; (vi) indirect economic development effects.

39. The overall economic assessment shows that the aggregate project investments would have an Economic Rate of Return (ERR) of 23.6 percent as shown in Annex 6, Table 6-3. The proposed project investments will reduce the frequency and cost of related flooding events. Agriculture, industries, tourism, and other livelihood and economic activities will become more attractive for private investments as climate-related risks will be substantially reduced. Based on estimated project investment, operating costs, and the value of avoided damages, together with expected private investments as risks of flooding are mitigated, the ERR for the proposed

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investments for Component 1 in Bijeljina area is 29.9%. For the sites in the Component 2 Goražde areas (in Pale-Praca, Foca-Ustikolina and Goražde Municipalities) the ERR averages about 12.7%. The individual ERR varies for each sub-project. In both components, a substantial, non-quantified benefit will also arise from social benefits due to protection of poorer and more vulnerable communities themselves but also of the infrastructure serving these communities.

B. TECHNICAL

40. The recently completed flood maps, historical records, and the assessment of damage levels for different flood frequencies, confirm the recommendations of the earlier master plans for the Drina and the Sava Rivers and identify the proposed works as high-urgency priority investments. These locations have a local topography that has made them especially vulnerable to high water as water overtops the river banks in these low spots, compared to other areas along the Drina and its tributaries. The construction of the hydropower reservoirs on the river has altered the flow discharge pattern, however, their volumes are small compared to the monthly water discharge, and, thus, they are unable to mitigate the larger floods, but neither are they a main cause of floods. Most of these protective works proposed in the 1964 Drina Master Plan and Sava Study have been implemented, but they have never been completed in the project’s two locations. Further, the Bank’s 2012 Rapid Regional Diagnostic Study and Investment Scan on the Drina basin, which built on studies and broad consultations, identified the proposed flood protection as among the highest priority initiatives for the BiH part of the basin. 41. The proposed construction of the dike near Bijeljina (Component 1) is based on an optimization of the alignment taking into consideration geodetic and geophysical surveys, hydraulic simulation (to estimate the height of the water level) as well as the value of the land for the dike footprint and the borrow pits. Appropriately, the proposed works will be placed around a wide natural floodplain at a distance between 100 meters to one kilometer from the river. The construction will be staggered, with the highest priority section (the middle section) prepared first, followed by the upstream and then downstream sections, that are less critical. This phasing will also allow spreading the construction over four years which will facilitate the budgeting for land acquisition by the municipality. The design parameters are standard, and the dike construction costs can be kept low. The APCU will ensure that the middle section will be fully prepared by the end of 2014, i.e., final field surveys, detail design, RAP, and tender documents will be prepared, and the tender procedure started, in order to allow signing of the contract by the start of the construction season in early 2015 as soon as the Project has become effective.

42. The works in Component 2 take place in four clusters at five or six locations, along the Drina proper as well as on tributaries with torrential nature and a history of devastation. Along the Drina, the works comprise rehabilitation of existing flood and bank protective works. This infrastructure can be brought back to full functionality with relatively simple means; at the same time, it will also be modernized in order to provide the standard 1-in-100 year flood protection. The construction techniques are well-known and experienced contractors available in the region. The other works on the tributaries are all of modest size and simple nature, and will provide 1-in- 40 year protection, in line with the Sava RBMP. Several works packages will be completed by late 2014, including detail designs, RAPs, and tender documents to allow advance procurement and signing of contracts by project effectiveness. Land acquisition costs are minor.

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43. The additional volumes of water that would go downstream as a consequence of the flood protective works, represent, in the Bijeljina area, much less than 1% of the total flood water volume flowing down the flood plain in flood condition. The area downstream of Bijeljina is already protected by tall dikes, and so are the banks along the receiving Sava River, and the opposite river bank in Serbia. In Goražde, the additional water volume would represent less than 0.1% of total flood flow and this ends up in the (large) Višegrad and Bajina Basta reservoirs. Therefore, in both locations the downstream impact is negligible.

C. FINANCIAL MANAGEMENT

44. An assessment of the FM capacity was carried out by the Bank in November 2013. The assessment will be updated for negotiations. The assessment concluded that the FM arrangements in APCU and PIU are acceptable and that the overall FM risk is moderate with the application of the mitigation measures.

45. Both APCU and PIU will maintain a FM system acceptable to the Bank. Project financial statements, including Statements of Expenditures (SOEs) and Designated Account (DA) Statements, will be audited by independent auditors acceptable to the Bank and on terms of reference acceptable to the Bank. The annual audited financial statements and the audit report will be provided to the Bank within six months of the end of each fiscal year. Both APCU and PIU shall also prepare and furnish to the Bank not later than forty five (45) days after the end of each calendar quarter, interim unaudited financial reports for the project covering the quarter, in form and substance satisfactory to the Bank.

D. PROCUREMENT

46. Procurement will be carried out in accordance with the World Bank’s Procurement Guidelines and Consultant Guidelines and the provisions stipulated in the Financing Agreement (FA). There are two levels of procurement risks: (a) Country Level and (b) Project level. Country Level is based on Country public procurement legislation and overall procurement environment. Project level is based on current risks in the country portfolio. The Implementing Agencies involved in the project have been involved in several similar World-Bank funded projects and are familiar with Bank procurement procedures. The country procurement risk for Bosnia- Herzegovina is “substantial” but current project procurement risk is “moderate”.

47. Detailed procurement arrangements and prior review thresholds for goods, works and consultants’ services are presented in Annex 3. In addition, contracts not subject to Bank’s prior review will be post reviewed by Bank’s implementation support missions and/or during regular post-reviews on sampling basis with a post review ratio of 20 percent.

E. SOCIAL (INCLUDING SAFEGUARDS)

48. Social Impact: The project’s social impact is expected to be positive as the construction and rehabilitation works of dike systems in Bijeljina and Goražde will benefit both rural and urban populations living along the Drina River. Reconstructed and new embankments will enhance the livelihood of farmers who have their agriculture and horticulture land in close

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proximity to the river as the land area prone to floods will be reduced and flood protection increased. The dike system works will significantly increase the profitability of agricultural activities in the area. In the short term, the project will likely generate temporary employment for the local population in rehabilitation and construction works. Although men are likely to benefit more than women from these opportunities, their family members will also benefit from the increase in household income. An estimated 175,000 people live within the main municipalities along the river of which an estimated 20,000 suffered direct economic losses caused by flooding. The project will specifically also provide benefits to poorer communities as these tend to live in cheaper quarters more prone to flooding, such as in the area near the river in the town of Janja. Also, Component 2 will bring higher security to more remote areas and poorer communities in the mountains that depend heavily on vulnerable communication links (roads, bridges, power, etc.) for their livelihoods, schooling, health services, etc.

49. Safeguards: The Project triggers OP/BP 4.12 on Involuntary Resettlement. As the detailed designs are not available at appraisal stage and the entire alignments are not known yet, hence the exact extent of footprints of the works and the land lots to be acquired has not been definitively identified. However, based on feasibility studies, preliminary designs, field visits and discussions held the potential social impact that civil works may entail in terms of land acquisition and resettlement is considered to be acceptably low to moderate. No physical displacement of occupants (legal or illegal) or restriction of access to resources or income streams is expected from the Project. As such the project will not affect any residential houses, built objects or businesses.

50. As a guiding resettlement instrument, two separate Resettlement Policy Frameworks (RPFs) have been developed, one for the Bijeljina area and one for the Goražde area. Positive and negative social effects and mitigating measures related to potential resettlement impacts have been identified in line with the provisions of OP/BP 4.12. Concrete mitigation measures will be spelled out in site-specific Resettlement Action Plans (RAPs) needed for the locations of Bijeljina and Goražde. Preparation of RAPs with full population census and an inventory of assets to be acquired have been initiated. For the Bijeljina area, priority is on the 16 km long middle section from Glogovac pumping station [Dasnica] to the road towards the Pavlovica bridge, which will be first constructed and for which works are expected to commence in mid- 2015.

51. As per the current available data, the construction of a 33.36 km-long dike in Bijeljina will affect some 238 ha of land. The information on the exact amount and type of land — municipal, government or private — to be acquired and the exact number of people to be affected by the project is not known yet. This data will be provided in the respective RAPs. It is expected that the Project will not affect any residential houses, objects or businesses. The rehabilitation works in Goražde area will mainly be on municipal land though some works in Podhranjenski creek may entail some acquisition of private land for securing the right-of-way. The affected people will receive compensation in accordance with standards specified in the RPFs and RAPs. The total land acquisition costs have been estimated at approximately US$ 4.00 million. This will be financed from counterpart funds.

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52. Gender Dimension: Special attention will be paid in the RAP, surveys and consultations on the gender aspect of the project to enable broad participation of both women and men. This will allow them to express more freely their needs, constraints and preferences in regard to the planned flood protection works to be done in their respective locations. Through the support of local women's associations and local officials, participation of women will be especially encouraged to account for their needs as to avoid any negative gender impacts. Based on the meetings and consultations held with the affected people, the findings and resulting mitigation measures will be incorporated in the resettlement plans. However, it is likely that no gender- related constraints are expected under the project activities, as these will rather generate positive impact and benefits for both women and men with their livelihood improved without fearing any longer of seeing their houses and land flooded, property ruined and crops destroyed. Gender will be a subject in the regular impact monitoring.

53. Public Consultations and Disclosure: Public consultations were held during the preparation and development of the RPFs and will continue for the preparation and development of site-specific RAPs for the locations of Bijeljina and Goražde respectively in order to: (i) limit the adverse impact on affected households; (ii) confirm appropriate compensation entitlements; and (iii) identify vulnerable persons. Joint public consultations meetings for the draft Environmental Assessments (EAs), Environmental Management Plans (EMPs) and RPF were held in January 13, 2014 in Bijeljina and January 16, 2014 in Goražde and were disclosed on January 8, 2014 on the websites of the respective line ministries. The final RPF in both English and local language was disclosed on January 28, 2014 in accordance with the relevant BiH laws and regulations, and the World Bank Operational Policy 4.12 on Involuntary Resettlement.

F. ENVIRONMENT (INCLUDING SAFEGUARDS)

54. The Project has been categorized as a Category B project, triggering OP 4.01 for the EA. The works envisaged under the project include construction, rehabilitation and modernization of the drainage and flood protection infrastructure at selected sites along the Drina and tributaries – specifically in Bijeljina (in RS), Goražde, Foca-Ustikolina and Pale-Praca (the latter three in FBiH). At the upstream area of Goražde where the river runs through narrow, steep terrain, the identified priority works include river bank stabilization and erosion control. Downstream and closer to the confluence with the Sava River, in the Bijeljina and Janja area a new dike will be constructed to prevent flooding in an expansive, flat floodplain. The Project will ensure that the new dike is conceived in such a manner so that it skirts the natural floodplain adjacent to the river, so that this habitat can be maintained for fish, birds, native vegetation, etc. and as a natural overflow area during high flow periods.

55. An EA for each of the entities has been prepared prior to appraisal, with one EMP for RS and five EMPs for FBiH, public consultations for which were held in Bijeljina on January 13, 2014 and in Goražde on January 16, 2014.

56. The EA also provides a review of the optimal placement of the dike in Bijeljina and Janja, while site-specific provisions ensure that there are no long-term downstream hydrological impacts on the other users. The EMPs have also confirmed that there are no sensitive natural habitats, forests or ecosystems in the project area. The EMPs also includes provisions on chance

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findings during works on the river, even though no specific cultural heritage sites have been identified during the preparation missions, and as such OP 4.11 is not triggered.

57. The works envisaged on the river bank stabilization will include construction or reconstruction works where standard environmentally sound practices will be implemented, on ensuring minimal disturbances to the surrounding areas, flora, fauna and the population (dust, noise, leaks, spills, machinery use, working hours, and safety on site). Protection of the river and re-routing the flow is addressed in site-specific EMPs, as well as hydrologic implications of the construction works, but also once the river banks works are completed on the downstream users. The EMPs/EA for the dike sections in Bijeljina also focus on feasibility studies that include hydrologic assessments of the downstream user impacts. The EMPs also include sound environmental provisions, on the sources for the material that will be used in construction of the dike. All materials supplied will need to be from licensed quarries or suppliers, or from shallow borrow pits alongside the dike footprint, for which the land will be acquired as necessary.

G. OTHER SAFEGUARDS POLICIES TRIGGERED

58. OP 7.50 Projects on International Waterways is triggered as the Drina is an international waterway and a tributary of the Sava and by extension the Danube Rivers. A notification has been sent by the Client to the International Sava River Commission which was discussed at the 33rd Session of the Commission on October 8, 2013. Based on the minutes of the session, there were no comments during the presentation, and no objections or suggestions received within 60 days of the presentation. The Sava Commission shall remain an open-communication channel during the implementation of this Project. On December 25, 2013 a letter was sent by the Minister of Agriculture, Forestry and Water Management of the Republic of Serbia in which support to the project is noted, along with a request to be involved in the review of the technical aspects of the Project, once defined. The Client has agreed to do so.

59. Many areas in the country are still ridden with land mines, a relic from the conflict in the 1990s. In line with standard BiH practice, the project will require municipalities to secure certification from the country’s Mine Action Center that the area is free of mines, including those that may have been dislodged by water flow over the past year and ended up in the works zone. The Certificate for the Foca-Ustikolina area has been obtained already.

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Annex 1: Results Framework and Monitoring

. BOSNIA AND HERZEGOVINA: Drina Flood Protection Project

. Results Framework

. Project Development Objectives

. PDO Statement The Project's objective is to provide increased protection from flood events to agricultural and commercial interests and communities in the project areas. These results are at Project Level

. Project Development Objective Indicators Data Responsibility Cumulative Target Values Source/ for Unit of End Method Data Collection Indicator Name Core Baseline YR1 YR2 YR3 YR4 Frequency Measure Target Semi-urban and RS Waters urban area Institution, protected from Local water Hectare(Ha) 0.00 0.00 0.00 54.00 54.00 54.00 Yearly FBiH Sava floods in project authorities River Water locations (2010) Agency baseline Rural/Agricultur RS Waters Flood maps al land protected Institution, from local from floods in Hectare(Ha) 0.00 0.00 118.00 5118.00 7318.00 8500.00 Yearly FBiH Sava water project locations River Water authorities (2010) baseline Agency

. Intermediate Results Indicators

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Data Responsibility Cumulative Target Values Source/ for Unit of End Methodolog Data Collection Indicator Name Core Baseline YR1 YR2 YR3 YR4 Frequency Measure Target y Project Direct project Number 0.00 5000.00 12000.00 20000.00 20000.00 By-annually progress PIU, APCU beneficiaries reports Percentage Project Female Sub-Type 0.00 45.00 45.00 45.00 45.00 By-annually progress APCU, PIU beneficiaries Supplemental reports Length of river dikes Project Kilometers 0.00 0.00 9.00 16.00 30.00 33.40 quarterly APCU constructed in reports RS Length of river embankments/di Project kes rehabilitated Kilometers 0.00 0.00 20.50 24.00 28.50 32.00 quarterly progress PIU and improved in reports FBiH

.

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Annex 1: Results Framework and Monitoring

. BOSNIA AND HERZEGOVINA: Drina Flood Protection Project (P143844)

. Results Framework

. Project Development Objective Indicators Indicator Name Description (indicator definition etc.) Semi-urban and urban area protected from floods in Comparing 2012 flood areas before construction of 1-in-100 year flood protection project locations (2010) baseline level infrastructure near residential and industrial areas, and areas along Drina river (Sava Tributary Class I). Rural/Agricultural land protected from floods in project Comparing 2012 flood areas before construction of 1-in-40 year flood protection level locations (2010) baseline infrastructure near agricultural areas along Drina tributaries (Sava Tributary Class II).

. Intermediate Results Indicators Indicator Name Description (indicator definition etc.) Direct project beneficiaries Direct beneficiaries are people or groups who directly derive benefits from an intervention Female beneficiaries Based on the assessment and definition of direct project beneficiaries, specify what percentage of the beneficiaries are female. Length of river dikes constructed in RS Geodetic measurement or other field survey. Length of river embankments/dikes rehabilitated and Geodetic measurement or other field survey. improved in FBiH

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Annex 2: Detailed Project Description

BOSNIA AND HERZEGOVINA: Drina Flood Protection Project

1. Policy and Strategic context: The Sava and Danube River basins are subject to regular and often disruptive flood events. As most of the riparian countries are member States of the European Union (EU), or are in the process of accession, the water and flood management are subject to the EU Water Framework Directive and the EU Flood Directive. In 2004 the International Commission for the Protection of the Danube River (ICPDR) adopted its long-term Action Programme for Sustainable Flood Prevention in the Danube River Basin. The Programme calls for, among others, an intensification of investments, and the reduction of flood risks via natural retention, structural flood protection and hazard reduction, and the preparation of more specific Action Plans on sub-basin scale.

2. The International Sava River Basin Commission (ISRBC) approved its Flood Action Plan in 2009, which incorporated the national Action Plans of BiH, Croatia, Serbia and Slovenia, all contracting Parties to the Framework Agreement on the Sava River Basin (FASRB). The Action Plan also drew from recent analyses, survey work and studies. Its Target 1 is to adopt flood protection designs and measures against 100-year floods along the Sava River itself. The Target 2 extends the same level of protection of Category I tributaries to the Sava, such as the Drina. This implies the rehabilitation, modernization and expansion of flood defense systems as well as protection of land against erosion. The Target 3 advocates measures for sediment management and torrent control. The Action Plan also calls for more use of non-structural measures, such as land zoning, (re-)creation and utilization of floodplains, etc. This Action Plan subsequently has become part of the Sava River Basin Management Plan which was completed in 2013 and is in the process to be adopted formally in 2014.

3. Flood events: The Drina shows a typical nival-pluvial run-off regime (“snow-rain-regime”), comprising a primary maximum in April and a secondary maximum in December. As the main part of the river basin is of mountainous character (the upper part even of high-mountainous character), the headwaters of Drina are abundant with water due to snowmelt as well as high precipitation. Before the construction of the dam reservoirs, the river was known for floodwaters that were both extreme as well as frequent. The most famous in living memory occurred on March 27, 1896, when the combination of heavy rainfall and snowmelt resulted in a flow of approximately 9,500 m³/s in the Middle Drina and led to the destruction of several towns. The famous Mehmed Paša Sokolovic Bridge in Višegrad downstream of Gorazde was fully submerged. The high-water mark of 16 m constitutes a quite extraordinary value for rivers in these geographic latitudes. The maximal discharge for the Višegrad profile (A=13,934 km2) in the year 1896 was more than two times higher than the average discharge on the Danube river profile in Belgrade of 5,600 m³/s(Catchment area A=525,000 km2) and more than six times higher than the discharge on the Sava River profile with a catchment area of A=88,000 km2. Analyses for a profile on the Lim River (a right-bank tributary of the Drina River, with a catchment area of 5,755 km2) showed precipitations higher than for the 10,000 years return period.

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4. Other high-waters have been recorded, most lately in the beginning of December 2010, when the Drina, Lim and other tributaries experienced the highest flood in 50 to 80 years. Numerous settlements, including Foca, Goražde, Višegrad, Bratunac, Zvornik and parts of Bijeljina, were severely flooded. However, most damage was caused to the Bijeljina and Goražde areas. At the end of November till the beginning of December 2010, heavy rains (100 - 200 mm in three days) on the territory of Montenegro and BiH simultaneously caused a high rise in the water level across the whole Drina River Basin, on the tributaries of the Drina (the Piva, the Cehotina, the Lim and the Jadar) as well as on the Drina itself. The flood wave lasted from the end of November until the end of the first decade of December 2010. It was of vast scale, partly because the reservoirs on the Drina Basin could not buffer the quantity of water; hence, the water was released from reservoirs during the time of wave peak, not before it. Conditional warning levels were exceeded on all the rivers of the basin and at the hydrological station Radalj on the Drina, and the water level of 659 cm, recorded on December 3, 2010, represented the absolute historical maximum. In general, the eight hydropower reservoirs built in the past 70 years have helped attenuate the flood and drought extremes, however, their volumes are quite modest compared to the peak discharges, and, thus, their capability to absorb floodwaters is limited. Minor floods have occurred repeatedly in the past years, notably affecting the Janja town near Bijeljina (April 2012), while a flood event could be averted in March 2012 in Goražde with the assistance from the upstream Piva hydropower facility.

5. Protection levels. Different analyses in the 1960s and in the past decade have confirmed that Bijeljina and Goražde areas are the most vulnerable to flooding both in terms of frequency and extent of the flooding. The occurrence frequency of flooding varies in the locations, and the nature of required measures also differs because of topography. In the Bijeljina area, a zone of a few kms along the left side of the Lower Drina River is flooded almost every year at higher water levels (at discharges above 1,600 – 1,700 m3/s, which is the maximal discharge capacity within the floodplain). During the December 2010 flood, the discharge is estimated to have been 3 about 4,860 m /s, or a 1-in-50 to 1-in-60 year recurrence (Q1/50 to Q1/60). The affected zone included large tracts to the east of the Bijeljina town center, parts of the settlements of Jana (upstream of Bijeljina), Amajlije (situated between Bijeljina and the river) and Dvorovi (downstream of Bijeljina), as well as several minor clusters of residences, numerous farms and industrial and commercial establishments, and infrastructure. The dike will be designed to withstand a high-water frequency of 1-in-100 year (i.e., defined in January 2014 to be 5,600m3/s, based on hydrological simulations). Flood map analysis and geodetic surveys conducted in 2013 have allowed determining a relationship between flood occurrence frequency and area inundated.

Table 2-1. Water discharge, and area submerged as function of flood frequency (Drina R., Bijeljina) Flood frequency Discharge Q1/100 Q1/50 Q1/20 Q1/10 Q1/2 frequency Flow rate (m3/s) 5,600 4,860 3,820 2,348 Area inundated 9,200 8,360 7,000 6,250 4,300 (ha)

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6. In Goražde Municipality, the main concern is to strengthen and increase the physical defenses against bank erosion and overtopping of banks, by rehabilitating and raising parapets, bank revetments, etc. aiming at protection against 1-in-100 year high-water events, i.e. for a flow rate of 4,080 m3/s. During the 2010 flood, the river discharge was estimated to have been 3,850 3 m /s (approximately Q1/80). The protection structures in Ustikolina and Pale-Praca Municipalities will equally offer protection against 1-in-100 year events for urbanized areas in line with the Sava Flood Plan, and 1-in-40 years for protection of tracts of agricultural land on the Class II tributary in Ustikolina.

Table 2-2. Water discharge and area submerged as function of flood frequency (Drina R., Goražde) Flood frequency Discharge frequency Q1/100 Q1/80 Q1/50 Q1/2 Flow rate (m3/s) 4,080 3,850 (Dec 2010) 2,920 1,159

Area inundated (ha) 457 400 300 100

7. The 1-in-100 year protection level is deemed a suitable cost-effective guideline for basic protection of urban or other valuable land, and is compliant with the current national policies, the Sava River Basin Management Plan for Class I tributaries of the Sava, the Danube River Basin Flood Action Plan, the EU Directives, and general good-practices. The following table presents the target effects of each main sub-component:

Sub-component Area protected

from flooding (Q100) [ha] Comp 1: Bijeljina (3 Sections) 9,200 (Section 1-2-3)

Comp 2: Goražde 285 Comp 2: Pale-Praca 118 Comp 2: Ustikolina 54

8. Description of Component 1: Flood protection works and support for Bijeljina area (Total component cost of US$17.60 million, IDA US$13.80 million). This component will fund the civil engineering works and related investments for the flood protection in the Bijeljina area, including the detailed designs and preparation of tender documents, works supervision, institutional strengthening and project management. It is expected that this component will consist mostly of earth moving, dike construction, and river bank shaping work (revetments, parapets, culverts, rip-rap cover, etc.). The works, on the Lower Drina, will all be in the Municipality of Bijeljina, near the towns of Bijeljina itself and the Janja and Amajlije settlements. The works will primarily protect the flat open spaces from regular expansive flooding. The alignment of the new dike has been confirmed after an optimization analysis selecting from three variants. The optimization took into account the trade-off between a trajectory closer to the floodplain (cheaper land, and more productive land protected, but with taller dikes) or farther away from it. The selected trajectory will skirt the large natural floodplain to the east containing the Drina meanders and mouth, which, further to the east, is bounded by the Serbian territory. In addition, the following considerations determined the selection. Firstly,

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the dike alignment will allow the continued function of this floodplain as a natural overflow area which supports a healthy natural habitat for flora, fish and fowl. Secondly, the alignment keeps clear of the border with Serbia and runs on land that is on BiH cadaster books since such registers have been held. Thirdly, an alignment closer to the floodplain would also risk traversing old dry river arms that could pose complicated geo-technological issues. The selected alignment runs partly over government-owned land, but mostly over private agricultural land that will need to be acquired.

9. The dike will have a total length of 33.36km and is composed of three sections, running south to north. The middle section (section 2, Pavlovica road-Glogovac pumping station [Dasnica]) is the priority and would contribute most to the protection; it would among others protect directly the urban area of Bijeljina, the Amajlije settlement, and surrounding industrial, commercial and agricultural areas. Part of this agricultural land is being equipped with irrigation infrastructure under the Bank’s Irrigation Development Project. The dike, of 2-3m height (including a freeboard of 1m), would be 16km long and have a volume of about 306,720m3. The southern, upstream section (Dasnica-Janja) will be 7.9km long, 1-2.5 m high and have a volume of about 171,364 m3. This section would protect notably the Janja settlement and its surroundings with greenhouses and agro-businesses, and key transportation infrastructure. Some plots to be acquired have objects like sheds and small summerhouses; the flood retention structures will be locally adjusted to minimize the footprint, and parapets or concrete walls may be used instead of earthen dikes. The section downstream (Balatun-Pavlovica road) has the lowest priority, would protect notably the Dvorovi settlement, businesses and agricultural land, and will be 9.45km long with a height of 2-4m (including a freeboard of 1 m) and a total volume of about 205,858 m3. All dike sections will be equipped to allow rapid drainage of waters collected on the dry side in case of partial inundation in extreme flooding situations. The downstream section will connect with the existing dike system along the Sava River that extends to the first kilometer along the Drina mouth. Field inspection showed that this dike is 4-5 m tall and in good condition.

10. The dikes will be designed in conventional way with trapezoidal cross-section and composed of locally excavated clayey sub-soil (with shallow borrow pits alongside the wet side of the dike body), and service paths on both sides with special protection on the wet toe side. The local sub- soil has a very low transmissivity of 10-6 to 10-7; together with the fact that high waves last typically less than 2 days, no special bentonate or geotextile mats will be necessary to ensure impermeability. It is estimated that in the Bijeljina area up to 238.5 ha of land will need to be acquired; most of this land is needed for the dike’s footprint and the service paths, and a significant portion for the borrow pits that are identified on government property between the dike and the floodplain. Preliminary consultations and feedback from municipalities and residents in the area appear overwhelmingly positive even with the understanding that the works will involve some loss of land. The Municipality has committed to include resources for such land acquisition in its 2015 - 2017 budgets. The staggered implementation of the three sections over 4 years will lower the fiscal pressure on the municipal budget for the land acquisition. The Municipality has confirmed that it has proper and accurate records of land ownership in the area.

11. Description of Component 2: Flood protection works and support for Goražde area (Total component cost of US$10.67 million, IDA US$10.20). This component will fund the civil

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engineering works and related investments for the flood protection in the Goražde area, including the detailed designs, technical supervision and preparation of tender documents, institutional strengthening and project management. It is expected that this component will consist mostly of river bank shaping work (revetments, parapets, culverts, rip-rap cover, gabion placement, etc.) and building of similar protective structures for roads, bridges and other infrastructure along the river; and earth moving, dike construction and/or re-construction. The vulnerable land and inhabited areas are strung along both banks of the river, and its tributaries inside narrow and steep valleys. The works will include mainly rehabilitation of existing flood protection infrastructure including river bed and bank consolidation and, in some places, adaptation of the bank protection to the changing river management regimes. The protection works will, among others, protect agricultural land, of which some is being equipped with irrigation facilities under the Bank’s Irrigation Development Project. All the works are located in three Municipalities in the Bosnia Podrinje Canton (around Goražde), in the Middle Drina. Five to six clusters of works are envisaged. In Goražde Municipality, river embankment works are envisaged along the Drina River itself, upstream and downstream of the town and city center, and along the Podhranjenski creek near its confluence with the Drina, for a total length of about 14 km. In the Municipality Pale-Praca, works on the stabilization of the river bed and raised river banks will be implemented along the Praca torrents in the Praca and Hrenovice settlements, also in the Drina basin. This will comprise a 1-1.5 m high dike of about 13 km length. These works will protect local residences, commercial buildings, agricultural land and infrastructure (roads, power lines, etc.). In Foca- Ustikolina, low dikes and river stabilization works will be carried out along the Kosovska torrent for a distance of about 1.5 km; here too, residential, commercial and agricultural properties will be protected, as well as infrastructure. In this Component, most of the bank reinforcements already exist, and where they need to be constructed anew, they will be located on government- owned land.

12. Each Component also comprises funding for the support for project management, contract supervision, monitoring and evaluation, and the preparation of designs and bidding documents.

13. Early warning and Disaster management. The State and the two Entities have established procedures and systems to be forewarned of pending flooding, and to take measures to manage flood disasters. In both RS and FBiH the hydrometeorological services prepare precipitation and snowmelt forecast, and they share responsibility with the two Water Agencies (in FBiH) and the “RS Waters” Institution (in RS) for measuring routinely and frequently the water discharge at key locations with automated limnigraphs and non-automatic gauges. All date are fed into the Entities’ Water Information System, managed by the respective Water Agency or “RS Waters”. The hydrometeorological services issue monthly bulletins on water discharge, but during periods with flooding risk, three or more times daily. The Agencies follow the Main Operational Plan for Flood Protection which is adopted by the respective MoAFW at the beginning of every year. The information and forecasts are supplied to the Public Information Centers in Banja Luka and Sarajevo, the Operational-Communication Center of BiH (under the Ministry of Security), the Operational Centers of the Civil Protection in the Municipalities, the Ministry of Transport and Communication, the hydropower operators, and other relevant agencies. Protocols and communication systems exist and are being used between the three riparian countries as well as Croatia. The ISRBC plays a pivotal role in expanding and harmonizing these systems. These procedures and the disaster management procedures proved effective during the December 2010

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flood event. Therefore, the project will not endeavor in these aspects at this stage, further development of this system however disaster preparedness will be subject of the parallel WBIF- and GEF-funded operations.

14. The WBIF and GEF grant funded operations will support the strategic analysis and institutional development that will create the framework for more extensive investments on the Drina River in the longer term. The activities under these two project take a holistic approach to the river, involving all the riparian countries with the aim to develop capacity and investment planning taking into account the environmental, economic and social demands on the river and reflecting modern river basin management institutional arrangements along the principles of the EU Water Directives and EU Flood Directives.

Table 2-3 Project Cost by Component1

%% Total (KM '000) (US$ '000) Foreign Base Local Foreign Total Local Foreign Total Exchange Costs

A. Flood Protection in Republika Srpska 1. Flood Protection Works 18,289 3,809 22,097 12,544 2,612 15,156 17 57 2. Project Management and Institutional Strengthening 661 568 1,229 453 389 843 46 3 Subtotal 18,950 4,376 23,326 12,997 3,002 15,999 19 60 B. Flood Protection in Federation of BiH 1. Flood Protection Works 11,743 3,236 14,979 8,219 2,265 10,485 22 39 2. Project Management and Institutional Strengthening 200 200 400 140 140 280 50 1 Subtotal 11,943 3,436 15,379 8,359 2,405 10,765 22 40 Total BASELINE COSTS 30,893 7,812 38,706 21,357 5,407 26,763 20 100 Physical Contingencies 1,425 328 1,753 977 225 1,202 19 4 Price Contingencies 76 370 446 52 254 306 83 1 Total PROJECT COSTS 32,394 8,511 40,905 22,386 5,886 28,272 21 106

Table 2-4 Project Cost by Financiers

(US$ '000) Local IDA The Government Total For. (Excl. Duties & Amount % Amount % Amount % Exch. Taxes) Taxes

A. Republika Srpska 1. Land Aquisition - - 3,691 100.0 3,691 13.1 - 3,064 628 2. Civil Works 11,876 100.0 0 - 11,876 42.0 2,522 7,335 2,019 3. Goods 61 100.0 0 - 61 0.2 37 14 10 4. Consulting Services 1,796 100.0 0 - 1,796 6.4 921 569 305 5. Recurrent Costs 67 83.0 14 17.0 81 0.3 - 67 14 Subtotal 13,800 78.8 3,705 21.2 17,505 61.9 3,481 11,048 2,976 B. Federation BiH 1. Land Aquisition - - 209 100.0 209 0.7 - 173 35 2. Civil Works 9,435 99.1 84 0.9 9,519 33.7 1,904 5,997 1,618 3. Goods 32 83.6 6 16.4 38 0.1 1 31 7 4. Consulting Services 733 73.3 268 26.7 1,001 3.5 500 330 170 5. Recurrent Costs------Subtotal 10,200 94.7 567 5.3 10,767 38.1 2,405 6,532 1,830 24,000 84.9 4,272 15.1 28,272 100.0 5,886 17,580 4,806

1 Physical and price contingencies total US$1,508,000

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Annex 3: Implementation Arrangements

BOSNIA AND HERZEGOVINA: Drina Flood Protection Project

Project Institutional and Implementation Arrangements

Project administration mechanisms

1. The project will be implemented by the FBiH Ministry of Agriculture, Water Management and Forestry (MoAWF) Project Implementation Unit (PIU) and the Agriculture Project Coordination Unit (APCU) in the RS Ministry of Agriculture, Forestry and Water Management (MoAFW). In the FBiH, the project is supported on technical issues by the Water Agency for the Sava River (based in Sarajevo); it is a semi-independent unit operating under the FBiH MoAWF and has significant experience in planning and managing the implementation and contracting of flood protection works. The Ministry’s PIU will carry out procurement and financial management (FM) and assume the responsibility towards ensuring that environmental and social safeguards as well as project monitoring and evaluation activities are being performed. In the RS, the Public Institution “RS Waters” in Bijeljina, a semi-independent unit operating under the RS MoAFW will support the project at the technical level. Although the name and legal status of this latter institution are new, it has long-term experience in implementing similar works on river bank and flood control infrastructure (it essentially has absorbed the two RS Water Agencies for the Sava and for the Adriatic Sea). The Ministry’s APCU will carry out the procurement and FM and assume the responsibility towards ensuring that environmental and social safeguards as well as project monitoring and evaluation activities are being performed. The FBiH MoAWF and the RS MoAFW have each prepared a draft Project Operational Manual (POM), which was provided to the Bank for review and comments.

2. Both PIU and APCU are staffed with relevant officials for the execution of daily project activities. The significant strengths that provide a basis of reliance on the project financial management arrangements for the PIU and APCU include: (i) availability of staff with prior experience in the implementation of Bank - financed projects such as the Forest Development and Conservation Project (FDCP), Agriculture and Rural Development Projects (ARDP) and Irrigation Development Project (IDP) in FBiH PIU and ARDP, IDP and Neretva and Trebisnjica River Basin Management Project (NTMP) in RS APCU, (ii) experience in preparing withdrawal applications, Interim Un-audited financial Reports (IFRs) and annual project financial statements. The Bank assesses the PIU and APCU as adequate and acceptable.

3. The environmental permitting and land acquisition systems are in place in Bosnia and Herzegovina (BiH), and are carried out at the level of the Entities (for minor land acquisition, of the Municipalities) with functional ministries dealing with environment. The EIA laws and requirements are in line with those established in the EU. The Entities handle water management through,in FBiH, two semi-independent Water Agencies, and, in RS, the Public Institution “RS Waters” in Bijeljina that are operational and that focus on integrated river basin management, guided by the EU Water Framework Directive; as such they are better positioned to manage

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water than some of the neighboring countries. Water permits are issued for all developments and activities that require water use or wastewater releases. Such Water Management Permits are issued based on the water balance and assessment of the competing demands for water.

Financial Management, Disbursements and Procurement

Financial Management

4. The overall financial management risk for the project is substantial before mitigation measures, and with adequate mitigation measures agreed, the financial management residual risk is rated “moderate”.

5. Budgeting and Counterpart Funding Arrangements. In the PIU, at every year-end, the Director and the Procurement Specialist prepare an activity plan for the coming year. This activity plan is then submitted to the Finance Manager, who finalizes the budget and enters into the accounting system.

6. The APCU prepares annual plans based on detailed procurement planning. Existing FM staff in the APCU has adequate capacity for planning and budgeting in terms of human resources, availability of quality information and IT system. The PIU and APCU prepare budgets for all Project components for each Entity separately. The budgets are entered in the accounting software and actual versus planned information analyzed and explained. Budgeting and accounting in both PIU and APCU are appropriate.

7. Accounting and Maintenance of Accounting Records / Information systems. Both PIU and APCU have an acceptable project accounting software for the project implementation arrangements. The software has the necessary features to produce the required reports and maintain a trail of transactions in verifiable manner. Additional accounting policies applied to the Project adhere to the following principles: (i) Cash accounting as the basis for recording transactions, (ii) Reporting in the currency of the credit; (iii) Quarterly IFRs prepared; and (iv) All GCF reflected in the financial reports.

8. The PIU and APCU will prepare quarterly IFRs which include Sources and Uses of Funds, Uses of Funds by project Activity, Statement of Financial Position, Designated Account Reconciliation Statement and Statement of Expenditure (SOE) Withdrawal Schedule.

9. The PIU and APCU will maintain Project accounts and will ensure appropriate accounting of the funds provided. The formats of the IFRs have been agreed and confirmed.

10. Financial Management Manual. The PIU and APCU have an acceptable financial management manual (FMM) for the ongoing projects such as ARDP, NTMP and IDP. The manuals contain details about the accounting procedures applicable, internal key controls performed (i.e. reconciliations, authorizing procedures), budgeting, fixed assets records, details pertaining to the accounting software (i.e. back up procedures, restricted access, transaction recording). The FMMs are being regularly updated. Internal audit departments are existent in

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both Ministries, however both are in an early stage of development and thus no reliance on their work would be placed.

11. Back up. In the PIU back-up of project accounting data is done on a regular basis (weekly and daily) and it is stored on servers, FM manager’s PCs, and/or removable drives. The removable memory drives are stored in PIU premises. In the APCU the back-up is done on the APCU server on a daily basis. In addition to the back-up saved on server, the RS APCU should make regular back-ups on CDs or USB drives.

12. Internal Controls and Internal Audit. The PIU and APCU have adequate internal controls for the project, including regular reconciliation of bank accounts, adequate segregation of duties, proper accounting policies and procedures and monthly reconciliation of disbursement summaries with accounting records will be performed. Designated Accounts (DAs) reconciliation statements: Client Connection figures will be reconciled monthly with the accounting records. IFRs would be reconciled on a regular basis with the accounting data. The IFRs will be reconciled on a regular basis with the trial balance out of which they are prepared, including the relevant bank statements. Evidence of the reconciliation made will be kept in project records. The PIU and APCU will maintain, print and store all back up documentation (trial balance, bank statements, journal entries etc.) for the quarterly IFRs in a file. Further details on the internal controls will be contained in the FM manuals.

13. Periodic Financial Reporting. The PIU and APCU shall prepare and furnish to the Bank not later than 45 days after the end of each calendar quarter, IFRs for the project covering the quarter, in form and substance satisfactory to the Bank. There are no overdue IFRs currently for the ARDP, NTMP and IDP implemented by either PIU and/or APCU. The latest submitted IFRs covered Q3 2013 were found acceptable and as such submitted timely to the Bank.

14. External Audit. The PIU and APCU will be responsible for the timely compilation of the annual project financial statements for the independent external audit. Project financial statements (including SOE and DA activities) will be audited by an independent auditor acceptable to the Bank. Each audit of the Financial Statements shall cover the period of 1 fiscal year of the Recipient, commencing with the fiscal year in which the first withdrawal was made under the Credit. The terms of reference for the audit have been agreed with the Bank, and will be attached to the Minutes of Negotiation. In addition, the auditors are expected to deliver management recommendation letters in relation to the project. Each management recommendation letter will identify internal control deficiencies and accounting issues, if any. The audit reports, audited financial statements and management recommendation letter will be delivered to the Bank within six months of the end of each fiscal year. The audited Project Financial Statements will be made publicly available in a timely fashion, and in a manner acceptable to the Bank.

15. All project audits in Bosnia and Herzegovina are covered by an umbrella agreement with one audit firm. The audit for CY 2010 to 2012 was conducted by the audit firm Deloitte doo Sarajevo. Currently the selection process is running for the years 2013 to 1016. There are no overdue audit reports currently for the entire BiH portfolio of projects. In addition the project currently implemented by the PIU (ARDP, IDP) and APCU (ARDP, NTMP and IDP) have

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received unmodified audit opinions and no material issues were noted in the Auditor’s reports or management recommendations letters.

Disbursements

16. There will be two DA opened for the for the Credit proceeds, namely one for each Entity. The DAs will be opened in a commercial bank acceptable to the World Bank. Credit funds will flow from the World Bank to the DAs and then from DAs to contractors on the basis of the approved invoices. There will also be a possibility to use special commitments (in case of goods imported) or direct payments methods from World Bank to contractors for larger payments as indicated in the Disbursement Letter. The project FM personnel will prepare the payment orders for suppliers, and the application for withdrawals to be submitted by MoFT to the Bank. Such procedure is described in detail in the FM chapter of the project Operational Manual.

17. Disbursement from the DA will follow the traditional method, either through reimbursement, direct payment to suppliers, issuance of the Bank’s Special Commitment, payments from and replenishment of the DAs with the use of SOEs or with full documentation. Withdrawal applications for the replenishments of the DAs will be sent to the Bank on a quarterly basis.

18. Supporting documents for SOEs, including completion reports and certificates, will be retained by the PIU and APCU and made available to the Bank during project supervision. Disbursements for expenditures above the SOE threshold levels will be made against presentation of full documentation relating to the expenditures. The reimbursement of expenditures from the DAs may be made on the basis of certified SOEs, based on the SOE thresholds defined in detail in the Disbursement letter. The ceiling and authorized allocation for the DA will be defined in the project Disbursement Letters. The DAs will be denominated in Euro.

Withdrawal of the Proceeds of the Credit:

Category Amount of the Percentage of Credit Allocated Expenditures to (expressed in USD) be financed (1) Goods, works, non-consulting services, 13,800,000 100% consultants’ services, Training and Incremental Operating Costs under Part A of the Project (2) Goods, works, non-consulting services, 10,200,000 100% consultants’ services, Training and Incremental Operating Costs under Part B of the Project TOTAL AMOUNT 24,000,000 100%

19. Financial Management Action plan, Conditions and Covenants. The PIU and APCU will continue to maintain a project financial management system acceptable to the Bank. The project financial statements will be audited by independent auditors acceptable to the Bank and on terms

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of reference acceptable to the Bank. The annual audited statements and audit report will be provided to the Bank within six months of the end of each fiscal year. Quarterly IFRs will be forwarded to the Bank no later than 45 days after the end of each quarter. There are no action plans or conditions to be fulfilled prior to negotiations or project effectiveness.

20. Use of country systems. The project will use elements of country systems, such as staffing for the components implemented by the RS APCU. Other elements of country systems are not available in the PIU and APCU due to limitations on Recipient’s side and as result such elements of country systems will not be used for this project.

21. Contract management. In the PIU and APCU there is a technical and financial database of all project contracts. The technical database is updated by procurement staff on a regular basis. Such database has all information on contracts, any annexes which were concluded as well as any payments made. The FM managers have an overview over the payments and can easily control and prevent any overpayments.

Procurement

22. General --Procurement for the Project will be carried out in accordance with the World Bank’s "Guidelines: Procurement of Goods, Works and Non-consulting Services Under IBRD Loans and IDA Credits & Grants" dated January 2011 (Procurement Guidelines); and "Guidelines: Selection and Employment of Consultants Under IBRD Loans and IDA Credits & Grants by World Bank Borrowers" dated January 2011 (Consultant Guidelines) and the provisions stipulated in the Financing Agreement (FA). The procurement actions under different expenditure categories are described in general below. For each contract to be financed under the FA, the various procurement or consultant selection methods, the need for pre-qualification, estimated costs, prior review requirements, and time frame have been agreed between the Borrower and the Bank in the respective Procurement Plan (PP). The PP will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. A General Procurement Notice (GPN) is expected to be published in March 2014 in UNDB on-line and in its printed version. Specific Procurement Notices (SPN) will be published for all International Competitive Bidding procurement and Consulting contracts per Guidelines, as the corresponding bidding documents and requests for proposals (RFPs) become ready and available.

Procurement Implementation and Arrangements 23. Goods – Goods and equipment estimated to cost US$200,000 or more per contract will be procured through International Competitive Bidding (ICB). Goods and equipment estimated to cost less than US$200,000 per contract will be procured through National Competitive Bidding (NCB). Readily available off-the-shelf goods estimated to cost less than US$100,000 per contract each may be procured through Shopping on the basis of three written quotations obtained from qualified suppliers. The World Bank sample for Invitation to Quote shall be used. Direct Contracting method for goods consistent with justifications per Procurement Guidelines will be also specified in the Financing Agreement and it will be subject to the World Bank prior review.

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24. Works – Works estimated to cost US$2,000,000 and more per contract will be procured through ICB. Works estimated to cost less than US$2,000,000 per contract will be procured through NCB. Smaller works estimated to cost less than US$200,000 per contract will be procured through Shopping procedures on the basis of three written quotations obtained from qualified contractors. The World Bank sample for Invitation to Quote shall be used. Direct Contracting method for works consistent with justifications per Procurement Guidelines will be also specified in the Financing Agreement and it will be subject to the World Bank prior review.

25. Consultant Services and Training – Consultancy services to be provided by consultancy firms estimated to cost US$300,000 or more per contract will be procured through Quality and Cost Based Selection (QCBS) method. Consultancy services to be provided by consultancy firms estimated to cost less than US$300,000 per contract may be procured through Consultants’ Qualifications (CQ) method. The consultancy firm for project audit will be selected through Least Cost Selection (LCS) method. Other methods such as Fixed Budget Selection (FBS), Quality Based Selection (QBS), and LCS shall be made available through financing agreement irrespective of the amount. Individual Consultants (IC) will be selected in accordance with Section V of the Consultancy Guidelines. Single Source Selection method for firms and individuals consistent with justifications per Consultant Guidelines will be also specified in the Financing Agreement and it will be subject to the World Bank prior review. The Procurement Plan shall specify the circumstances under which such methods may be used.

26. Operating Expenses –The operating costs for PIU and APCU may cover inter alia expenses incurred on account of Project implementation, management and monitoring, including office supplies, publication of procurement notices, vehicle operation, office and equipment maintenance and repair, communication, translation and interpretation, travel and supervision costs, and other miscellaneous costs directly associated with Project, but excluding salaries of officials and employees of the Recipient, the Federation, and the Republika Srpska. All such costs would be disbursed on the basis of annual budgets to be prepared by PIU and APCU and agreed with the Bank.

Prior Review Thresholds 27. The prior review thresholds proposed for the project are properly reflected in the procurement plan for each Entity below.

Post Review Ratio 28. Contracts not subject to Bank’s prior review will be post reviewed by Bank’s supervision missions and/or during regular post-reviews by PAS on sampling basis, i.e. 1 out of every 5 contracts. Post review ratio is 20%.

Procurement Plan 29. Each of the implementing agencies at appraisal developed an initial Procurement Plan, separate for each of PIU and APCU, for at least the first 18 months of the project (see below). Both Procurement Plans were agreed upon between the Recipient and the Bank at negotiations, and will be available at the implementing agencies’ project database and will be published on the Bank’s external website in accordance with paragraph 1.16 of Procurement Guidelines and paragraph 1.24 of the Consultants Guidelines. The Procurement Plans will be updated in

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agreement with the Bank annually or as required to reflect the actual project implementation needs and improvements in the implementing agencies institutional capacity.

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Procurement Plan Component 1 (Republika Srpska) (preliminary)

Activity tem: Activity # # Activity Type estimated Cost in BAM Proc. method Pcks. Post/Prior Issue Bids received Signed Ctr. Complete Ctr NOTE I I. Investment 1 I. 1 Zone 2 (middle / priority 1) Pavlovica‐Dasnica to be financed 2 I. 1.1 Land Acquisition by municipality 3 I. 1.2 Construction of embankment W ICB 1 Prior Jan‐16 Mar‐16 Apr‐16 Jun‐17 4 I. 1.3 Supervision CS CQ 1 Post Feb‐16 Feb‐16 Apr‐16 Jun‐17 5 I. 2 Zone 3 (upstream / priority 2) Dasnica‐Janja to be financed 6 I. 2.1 Land Acquisition by municipality 7 I. 2.2 Construction of embankment W ICB 1 Prior Jan‐17 Mar‐17 Apr‐17 Mar‐18 8 I. 2.3 Supervision CS CQ 1 Post Feb‐17 Feb‐17 Apr‐17 Mar‐18 9 I. 3 Zone 1 (downstream / priority 3)) Mouth‐Pavlovica to be financed 10 I. 3.1 Land Acquisition by municipality 11 I. 3.2 Construction of embankment W ICB 1 Prior Jan‐18 Mar‐18 Apr‐18 Mar‐19 12 I. 3.3 Supervision CS CQ 1 Post Feb‐18 Feb‐18 Apr‐18 Mar‐19 13 I. 4 Feasibility study CS Externally Study of the environmental impact and studies on CQ 1 Post Nov‐13 Nov‐13 Dec‐13 Feb‐14 14 I. 5 CS financed the social impact analysis Externally 15 I. 6 CS CQ 1 Post Jun‐14 Jun‐14 Jul‐14 Oct‐14 Urban permit (Zone 1,2 and 3) financed Externally 16 I. 7 CS CQ 1 Post Jun‐14 Jun‐14 Jul‐14 Oct‐14 Enviromental permit (Zone 1,2 and 3) financed Externally 17 I. 8 CS CQ 1 Prior Feb‐14 Feb‐14 Mar‐14 Jul‐14 Preliminary design (Zone 1,2 and 3) financed 18 I. 9 Engineering design (Zone 1,2 and 3) CS QCBS 1 Prior Sep‐14 Nov‐14 Nov‐14 Mar‐15 19 I. 10 Audit project (Zone 1,2 and 3) CS LCS 1 Post Nov‐14 Dec‐14 Dec‐14 Apr‐15

II Project Implementation Support 20 II. 1 Office equipment G Sh 1 Prior Jan‐15 Jan‐15 Feb‐15 Feb‐15 21 II. 2 Vehicle G Sh 1 Post Jan‐15 Jan‐15 Feb‐15 Feb‐15

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22 II.3 Technical Assistance 23 II. 3.1 Project Manager CS IC 1 Post Jan‐15 2019 24 II. 3.2 Civil Engineer CS IC 1 Post Jan‐15 2019 25 II. 3.3 Accountant CS IC 1 Post Jan‐15 2019 26 II. 3.4 Procurement Officer CS IC 1 Post Jan‐15 2019 27 II. 3.5 Secretary CS IC 1 Post Jan‐15 2019 28 II. 3.6 Translator CS IC 1 Post Jan‐15 2019 29 II. 4 Staff Training TR SOE Various Prior As per Annual Training Plans 30 II. 5 Recurrent Costs (firm selected 31 II. 5.1 CS LCS Annual accounts audit by MoF) 32 II. 5.2 Field Allowances OC Finance Manual 33 II. 5.3 Vehicle Operation and Maintenance OC Finance Manual 34 II. 5.4 Office Operation and Maintenance OC Finance Manual

Procurement Plan Component 2 (Federation FBiH) (preliminary)

vity tem: Pcks. Post/Prior Issue Bids received Signed Ctr. Complete Ctr NOTE I # Activity Type Cost estimated in BAM Cost estimated in USD Proc. method I. Flood Protection Works A. Goražde financed by 1 I.A.1 Land Acquisition Municipality(ies) I.A.2 Construction Works W 2 I.A.2.1 Urgent rehabilitation works in Goražde W ICB 1 Prior Nov‐14 Jan‐15 Jan‐15 3 I.A.2.2 Rehabilitation of Podhranjenski creek W ICB 1 Prior Jun‐15 Aug‐15 Sep‐15 4 I.A.2.3 Goražde town center (parapet walls) W ICB 1 Prior Mar‐16 May‐16 Jun‐16 5 I.A.2.4 Goražde‐Vitkovići W ICB 1 Prior Sep‐16 Nov‐16 Dec‐16 6 I.A.2.5 Goražde upstream from bridge in Bačci W ICB 1 Prior Jun‐17 Aug‐17 Sep‐17 Cost estimate 2,260,000 I.A.2.5 Gorazde town center / downstream W ICB 1 Prior Jun‐17 Aug‐17 Sep‐17 (difference financed by Sava

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river watershed Agency) 7 I.A.3 Works Supervision CS CQ 5 Prior Nov‐14 Dec‐14 Jan‐15 (for I.A.2.1, I.A.2.2, I.A.2.3, Development of the Main Design and Detailed 8 I.A.4 CS CQ 1 Prior Oct‐13 Nov‐13 Mar‐14 I.D.3.1 and I.D.3.2) infrastructure design for Goražde and Foča‐Ustikolina in progress, to be financed Externally Development of the Main Design and Detailed (for I.A.2.4 and 9 I.A.5 CS CQ 1 Prior Jun‐16 Jul‐16 Jul‐16 infrastructure design for Goražde I.A.2.5) 10 I.A.6 Main Designs Audit CS CQ 5 Prior Sep‐14 Sep‐14 Oct‐14 B. Pale‐Prača ‐ Prača river (Prača settlement) 11 I.B.1 Land Acquisition Construction Works‐Regulation of river Prača in 12 I.B.2 W ICB 1 Prior Dec‐14 Feb‐15 Mar‐15 settlement Prača 13 I.B.3 Works Supervision CS CQ 1 Prior Jan‐15 Feb‐15 Mar‐15 C. Pale‐Prača ‐ Prača river (Hrenovica settlement) 14 I.C.1 Land Acquisition Construction Works‐Regulation of river Prača in 15 I.C.2 W ICB 1 Prior Feb‐16 Apr‐16 May‐16 settlement Hrenovica 16 I.C.3 Works Supervision CS CQ 1 Prior Mar‐16 Apr‐16 May‐16 D. Foča‐Ustikolina financed by 17 I.D.1 Land Acquisition Municipality(ies) I.D.3 Construction Works W 18 I.D.3.1 Regulation of Drina river left bank in Ustikolina W NCB 1 Prior Mar‐15 May‐15 Jun‐15 19 I.D.3.2 Regulation of Kosovska river W NCB 1 Prior Mar‐16 May‐16 Jun‐16 Drina river left bank protection, from confluence of 20 I.D.3.3 W NCB 1 Prior Mar‐17 May‐17 Jun‐17 Kolina to confluence of Kosovska 21 I.D.4 Works Supervision CS CQ 3 Prior Apr‐15 May‐15 Jun‐15 Development of the Main Design and Detailed 22 I.D.5 CS CQ 1 Prior Dec‐16 Dec‐16 Jan‐17 (for I.D.3.3) infrastructure design for Foča‐Ustikolina 23 I.D.6 Main Designs Audit CS CQ 3 Prior Jan‐15 Jan‐15 Feb‐15 E. Other in progress, to be 24 I.E.1 Feasibility Study CS CQ 1 Prior Oct‐13 Oct‐13 Dec‐13 Jan‐14 financed Externally in progress, to be 25 I.E.2 Development of the EA and EMP CS CQ 1 Prior Oct‐13 Nov‐13 Dec‐13 Feb‐14 financed Externally 26 I.E.3 Development of the Social impact analysis Study CS CQ 1 Prior Oct‐13 Nov‐13 Dec‐13 Feb‐14 in progress, to be

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financed Externally facilitated and Development of the Main Design, Detailed financed by Sava 27 I.E.5 infrastructure design, and Main Design Audit for Pale‐ CS CQ 1 Prior Oct‐13 Nov‐13 Dec‐13 river watershed Prača ‐ Prača river (Prača and Hrenovica settlements) Agency

III Project Implementation Support 28 II.A Small Office equipment G Sh 1 Prior Feb‐15 Mar‐15 Apr‐15 Project Management Operating Costs (Technical 29 II.B CS IC 1 Prior Jan‐15 2019 Assistance) 30 II.C Recurrent Costs (Equipment O&M) IOC Finance Manual 31 II.D Mid‐Term and Final Survey CS CQ 2 Prior Mar‐17 Mar‐17 Apr‐17 (firm selected by 32 II.E Annual Account Audit LCS Ministry of Finance)

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Monitoring & Evaluation

30. The project will finance an M&E activity under Components 1 and 2. The M&E activity will monitor: (1) project physical progress (e.g. works completion % versus planned %), and (2) evaluate project socioeconomic and environmental impacts (the Core and intermediary indicators described in the main text and Annex 1). The impact evaluation studies would be presented in semi-annual progress reports (to be sent to the Bank and MoFTER). These progress reports should include a chapter reporting on safeguards (progress of the ESMP), including a short “environmental audit” of the civil-works contractors to ensure their compliance with the ESMP. If by the Mid-Term Review the M&E outcomes indicate that the project is encountering delay in meeting the outputs (works/equipment) or a lack of meeting the core/intermediary outcomes, the mitigations proposed in ORAF will be introduced, including: (1) revisiting the procurement plan (e.g. slicing instead of packaging to expedite tendering and execution); and (2) project restructuring (by re-allocating funds between the Components).

31. Collating of the M&E report will be the responsibility of the PIU and APCU while the Water Agencies in both the Federation and RS will provide the necessary data and preliminary write ups for the M&E report. Schedules for works will be maintained in tables with regular updates of which format will be part of the Project Implementation Plan.

Role of Partners

32. The project does not have any co-financing or trust funds from other donors. However, as already reflected it is closely coordinated with the efforts financed by the WBIF as well as the new GEF project that will address the institutional planning and water management aspects that will complement this project.

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Annex 4 - Operational Risk Assessment Framework (ORAF)

Bosnia and Herz: DRINA FLOOD PROTECTION PROJECT (P143844)

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Risks

. Project Stakeholder Risks Stakeholder Risk Rating Moderate Risk Description: Risk Management: The team will maintain great care in the dialogue with the entities to identify early on any changes The proposed interventions are ranked as to commitment or dissonance in order to take early action against delays or other problems. There is highest priority by the Entities and the strong, broad demand for these project investments with low potential for political controversy. No State-level agencies responsible for water changes in commitment for investments in this sector are expected with changes of government, and management, and strong commitment has the municipalities and local communities are highly committed to the Project. been observed at the level of communities and municipalities. However, there is a Resp: Both Status: Stage: Both Recurrent: Due 28-Feb- Frequency: risk that this commitment would fade or be In Date: 2014 trumped by new developments of a Progress political nature. Risk Management: The project’s design and scope are being kept modest. The project will focus only on works and measures that combine a clear direct benefit for the local communities and governments while minimizing complexity. Resp: Both Status: In Stage: Both Recurrent: Due 28-Feb- Frequency:

Progress Date: 2014 Implementing Agency (IA) Risks (including Fiduciary Risks) Capacity Rating Moderate

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Risk Description: Risk Management: The Bank team will review capacities covering, i.a. (i) Procurement Plan as a management tool, (ii) Although PIUs are experienced, Fiduciary Operational Portal / Client Connection, and (iii) need for public disclosure of update procurement capacity may be insufficient in peak times, plans, contract awarded, etc. The team will conduct detail discussions to agree operational especially in procurement and contract modalities to ensure effective preparation and implementation and monitor performance closely. If management. bottle necks appear, additional support will be engaged as needed. Provisions are made in cost tables. If the new fiduciary staff lack experience in WB procedures, there will be capacity building in the form of a training specifically tailored for such staff. For procurement staff, guidance and on- the-job training in all aspects of procurement function: planning, management, record keeping and handling, etc. Resp: Both Status: Not Yet Stage: Both Recurrent: Due Frequency:

Due Date: Quarterly Risk Management: To avoid that weak capacity in either Entity could create delays, the project is designed with two separate PIUs. During the project preparation and early stage of project implementation, particular attention will be paid to the implementation arrangements. Special attention will be given to the arrangements that will support early detection of potential problems. Resp: Both Status: In Stage: Both Recurrent: Due Frequency:

Progress Date: Quarterly Governance Rating High Risk Description: Risk Management: Given the country's complex state/entity The risk of these delays cannot be fully mitigated, however, implementation plans will take these governance structure, there are risks of delays into account and preparation activities will continue as the implementing agencies can delays in effectiveness and implementation. continue detailed design activities until effectiveness as they are financed by an on-going Bank- financed project. Resp: Both Status: Not Yet Stage: Both Recurrent: Due Frequency:

Due Date: Quarterly

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Project Risks Design Rating Moderate Risk Description: Risk Management: The implementing agencies do have The flood measures and works in the Project are of modest scale and low complexity, well within modest experience with flood projects, thus the experiences and capabilities of the implementing agencies. there is a risk that detailed designs might Cost benefit analysis will include lifecycle costs for comparing investment cost options. reflect existing approaches to rehabilitating the systems rather than considering newer Detail designs and feasibility studies will be scrutinized to detect cost inflation, or alternatives that designs. Designs and BoQs may over- imply postponement of high costs into deferred O&M. estimate real needs. Resp: Both Status: In Stage: Both Recurrent: Due Frequency:

Progress Date: Continuous Social and Environmental Rating Moderate Risk Description: Risk Management: There is a risk that potential environmental Environmental Management Plans clauses will be included in the contractual and bidding impacts may be left unmitigated if the documents. The PIUs are familiar with Bank safeguards; the project will use the tested templates Environmental Management Plans for each and information of the Irrigation Development Project, now active, that is active in the same project site are not implemented correctly. locations. There is also significant land acquisition, The Resettlement Policy Framework (RPF) sets out policies and procedures to be used in albeit of marginal agricultural land, that determining the social impacts and mitigating them. Individual resettlement plans (RPs) will be may delay construction activities. Each developed for specific locations in line with the Bank’s OP/BP 4.12 and closely monitored by the municipality involved has committed to Bank team. Institutional capacity for management of environmental and social safeguards will be provide the funds for land acquisition. assessed and recommendations made for capacity building, if needed. There is a risk that municipalities will not Compensation for land acquisition will be scheduled on rolling basis as works progress, over the be able to provide funds for land project life. Municipalities are committed to finance land acquisition and the governments will acquisition. A risk exists related to ensure that the funds are timely provided. A clause to this effect will be included in the legal unexploded ordinance. agreement. Municipalities will provide documents on absence of mines for the areas designated as work sites. Resp: Both Status: Not Yet Stage: Both Recurrent: Due Frequency:

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Due Date: Program and Donor Rating Low Risk Description: Risk Management: The project is envisaged as an important In parallel, the same Bank team will continue working with the three Drina riparian governments on priority operation within the scope of the the parallel activities. regional Drina basin management program. Resp: Bank Status: In Stage: Both Recurrent: Due Frequency: A risk exists that the coordination will not Progress Date: Continuous materialize. Delivery Monitoring and Rating Moderate Sustainability Risk Description: Risk Management: Unpredictable weather could delay The weather-related risks cannot be mitigated, however, procurement plans will be designed for construction. timely implementation in accordance with traditional seasonal weather patterns. Resp: Client Status: Not Yet Stage: Imple Recurrent: Due Frequency: Due menta Date:

tion Overall Risk Overall Implementation Risk: Moderate

Risk Description: The risks are mainly related to effectiveness delays due to complex administrative structure, while delays related to construction due to inclement weather and procurement packaging of contract could also affect implementation.

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Annex 5: Implementation Support Plan

BOSNIA AND HERZEGOVINA: Drina Flood Protection Project

Strategy and Approach for Implementation Support

1. The strategy for implementation support was developed based on the nature of the project and its risk profile. The Project will be implemented by the FBiH Ministry of Agriculture, Water Management and Forestry (MoAWF) Project Implementation Unit (PIU) and the Agriculture Project Coordination Unit (APCU) in the RS Ministry of Agriculture, Forest and Water Management (MoAFW), which have substantial experience on implementation of WB supported projects.

2. Project administration in Sarajevo (FBiH-PIU) and Banja Luka (RS-APCU). The two PIUs in FBiH and RS are within a few hours drive from the foreseen work sites, and will be managing the contracts, and undertake payments against agreed schedules. Both the APCU and PIU have dedicated staff including fiduciary personnel for both procurement and FM. If necessary due to work load that an additional FM specialist and Procurement Specialist would be hired in each instance for the periods of high activity to support the existing specialists. In addition, both PIUs will have a dedicated civil engineer for general works supervision purposes. The engineer is expected to closely coordinate his activities with the respective agency in Bijelijna and in Sarajevo who will provide the primary technical expertise and decision making as to the shape and organization of the works as reflected in the bidding documentation for contractors.

3. Disbursement and procurement clearances: For each Entity ministry, MOFT will open two Designated Accounts (DA) to receive IDA advances (or SOE reimbursements). Signatories of the Withdrawal Applications would include the respective Entities’ Ministers and/or Deputy Ministers, whereas the procurement tender and contract clearances will be obtained from the Ministry officials. The progress of works or supplied goods/equipment will be co-supervised by the PIU/ APCU and Ministry staff; and the same will co-sign the works/equipment receipt certificate and one-year performance certificate.

Implementation Support Plan

4. The Bank team will hold a project-launch workshop shortly after project effectiveness. Afterwards, the Bank will field semi-annual supervision missions. A Mid-term Review (MTR) mission will be fielded in 2017.

5. The Project supervision missions would occasionally be integrated with missions of the other ongoing agriculture and rural development (ARD) projects with the same ministries in RS and FiBH (such as ARDP and IDP, which shares many of the team members of the Drina Flood Protection Project). The Project procurement, FM and safeguards missions could be undertaken as part of the periodic fiduciary support done concurrently across operations of all Bank sectors in BiH (the PS, FMS and Environmental Specialist are based in the country unit). An exception to the latter would be the project-launch workshop, MTR and Implementation Completion

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Report (ICR) missions, where it is likely that the entire task team participates concurrently. Procurement prior reviews will be ongoing whereas post reviews will be annual.

6. FM Supervision - As part of its project supervision, the Bank will conduct risk-based financial management supervisions, at appropriate intervals, in the following ways: (a) review the project’s quarterly financial reports, the project’s annual audited financial statements, the auditor’s management letter and remedial actions, if any; and (b) during the Bank’s on-site supervision missions, review the following key areas (i) project accounting and internal control systems; (ii) budgeting and financial planning arrangements; (iii) disbursement management and financial flows, including counterpart funds, as applicable; and (iv) any incidences of corrupt practices involving project resources.

7. Bank team guidance (to the PIU/ APCU M&E consultants) is not essentially needed, due to the relative ease of applying the Results Framework shown in Annex 1. However, the Bank team will assist the PIU/ APCU in drafting the terms of reference (TOR) of the M&E consultant and in drafting the Specifications for procuring any monitoring equipment. As for safeguards, the Client will closely follow implementation of the EMFs, EMPs, RPFs and RAPs through the following: i. Ensure that the EMPs and RAPs have been prepared on time and disclosed with public consultations for all new locations, in line with the EMF and RPF. ii. All EMPs will be included in respective bidding documents both for construction and supervision. Contracts for construction and supervision will include provisions binding the hired party to implement the EMP measures and/or to supervise them, with adequate reporting submitted to the Client and therefore to the World Bank. iii. The World Bank environmental and social specialists will conduct regular implementation support and supervision of EMF and RPF implementation providing comments and inputs directly to the Client, including site visits and on-the-spot checks with both the contractor and supervisor during ongoing works.

Main focus in terms of support to implementation during supervision missions: Time Focus Skills Needed Resource Partner Role Estimate First twelve Start of implementation Project mgt $100,000 months of first contracts in Operational skills Components 1 and 2. Hydroengineering skills Preparation of tender Rural development skills documents for the FM second set of contracts. Procurement M&E establishment Environmental/ social safeguard M&E 12-48 Continuation and Project mgt $ 80,000 months completion of Operational skills implementation of first Hydroengineering skills set of contracts. FM Start of implementation Procurement of second set of Environm/social safeguard contracts. M&E

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Other Hydroengineering/flood Expert in flood $ 20,000 protection skills protection/hydroengineering

Skills Mix Required Skills Needed Number of Staff Weeks Number of Trips Comments TTL 4 /year 2 HQ staff Rural development 3/year 1 HQstaff specialist Local trips Local staff Operational Specialist 8/year 1 HQ staff Procurement Specialist 4/year Local staff Financial management 4/year Local trips specialist Local staff Environmental 3/year Local trips specialist Local staff Social development 3/year Local trips specialist

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Annex 6: Economic and Financial Analysis

BOSNIA AND HERZEGOVINA: Drina Flood Protection Project

1. Even though no detailed technical analysis of the project results is feasible at this stage, the available documentation has been evaluated, and semi-qualitative analysis of the technical performance of the projects were made for the respective sites, assessing various technical aspects partly in descriptive way and partly in quantitative way. A preliminary financial and economic assessment prepared by the Hydro Ingenieure Consulting (Krems, Austria), Kommunalkredit Austria and the Hydro-Engineering Institute of Sarajevo (2012) confirmed that the reduction of expected losses due to floods would generate substantial economic benefits justifying the investments required. It also showed that it would also contribute significantly to improve the livelihood of the poor communities in the project areas, as losses - including public infrastructure, agricultural and livestock production, as well as their family household asset - would be significantly reduced.

2. More recent studies being undertaken by Hydro-Engineering Institute, Sarajevo for the Goražde areas in the FBiH; and the Institute of Water Engineering Bijeljina / Institute of Engineering IG d.o.o., Banja Luka, for the Bijeljina area; updated and confirmed the economic feasibility of the proposed investments. These studies developed a more detailed analysis of the works to be done, and also incorporated new available information about value of damages produced by the devastating 2010 floods mentioned above.

3. In all the mentioned studies the estimated economic performance was based on available data. As it could not be obtained to a complete extent, assumptions had to be made based on the experience of the Consultants from similar projects. With a critical revision of assumptions used by the consultants’ approach, a new assessment was prepared for the proposed project. All investment and operating costs were updated as new additional detailed studies are available. Also, some of the criteria used by the consultants and the methodology used to estimate agricultural losses were revised to better reflect the existing reality and expected scenarios.

4. An infrastructure construction period of two years was assumed for each of the proposed subproject for the analysis, and phasing of subprojects’ construction was also assumed. The operating costs included continuous maintenance of works (trimming the grass twice a year and maintaining the crown dikes, embankments, and access roads), as well as periodic repairs and partial repairs of the structures. The latter operating costs per year were estimated as 3% of the investment costs. No residual value was assigned at the end of the evaluation period as it would not influence the results given that the discounting rate would reduce this value significantly: a30-year time horizon was used for the purpose of the analysis. Constant prices were used for the analysis. Financial and economic analysis used 10% as discount rate.

5. Due to the competitive market for factors of production in Bosnia, no significant price distortions were considered for the economic analysis. Only taxes were deducted from prices, and unskilled labor costs were corrected using 0.7 as conversion factor (CF). In order to determine economic cost of investments, the following breakdown of main cost categories has

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been applied: (i) labor 43%; (ii) materials 50%; (iii) transport 3%; and (iv) rent 4%.The CF over market prices were used for the economic analysis to correct mainly the distortions from taxes, subsidies or other financial transfers. The financial analysis focuses on the beneficiaries’ family income, and how by reducing the expected losses (avoided damages)or improving the agricultural production environment, the project could improve their expected income.

6. Avoided damages are the major benefits of flood protection projects. Avoided damages were calculated as the difference between damages caused in the existing situation vulnerable to frequent floods (without the proposed project) and the “with project” scenario (in which no damages would occur up to certain magnitude of the river flows and flood events). As flood events happens with different frequency, the calculation took into account the probability of occurrence of different flood intensities and related damages caused by floods by weighted the estimated damages by the respective probability in the “base” scenario, and in the proposed protection level (“with project” scenario).Damages from floods above the proposed protection level are similar to those in the existing scenario and are therefore not considered.

7. Estimating avoided losses requires a hydraulic model and estimation of inundation areas for each flood event probability (return period). As hydraulic models are not available, the flood areas were estimated by the consultants for several points of the damage frequency curve (see below), and the curve was subsequently matched to the calculated points. The avoided damages was estimated by counting affected objects (assets) within the inundation area as shown in the flood simulation maps built for 1/2, 1/20, 1/50 and 1/100 recurrence. Then, the counted inundated objects were multiplied by the average value of damages2. Yearly average damage reduction by the protection structures against floods was then calculated with the formula ∗ , where a is exceedance probability for the new protection structures; b is the probability for the existing situation; fd is expected flood damage; andfp is exceedance probability of floods.

Fig. 6-1 Damage frequency curve.

2Available data for each of the project regions included topographic maps, ortophoto maps, cadastral maps and reference projects and recent historical flood lines from GooglEarth. On the part of the flooded area where adequate data (maps) were available, the average area of private houses has been determined as 100 m2. This value was used during further calculations regarding the total area of private houses which was flooded in Bijeljina area. On the basis of orthofoto maps and GooglEarth, urban and forest areas were also identified.

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8. For the estimation of the value of avoided damages the average price for houses was estimated by the consultants to be 1,000 KM/m2. In case of the direct flood damages on houses it was considered that the value of damage per unit of house wall surface depends on the water depth and flow velocity. The corresponding damage would be the cost of renovating the walls, floors and electricity/phone cables (estimated at 20% of the costs of the building of the same surface as the one affected by the flood), taking also into account irreversible damages to the furniture and household appliances. The damages of schools, and other public buildings were calculated in a similar way. Considering the lack of data on the health related benefits, these effects were not taken into account into the benefits of expected avoided damages by the project.

9. In the case of industrial/business assets the damage was estimated at 30% of the costs of the building taking into account irreversible damages to the industrial equipment. Indirect damages for companies due to the loss of added value and lower efficiency of work after the event (until the normalization of the situation) have been evaluated by the consultants with a specific value of KM per productive facility annually. It was also considered that after certain level of flood, up to 90 out of 265 working days in a year could be lost. For each facility the economic damage has been evaluated as: 60/265 multiplied by the added value for each productive facility, estimated at 150,000 (KM/ productive facility annually)3.

10. Other social effects, like avoided traffic disruption, recreation benefits, tourism development, protecting environment (avoided replacement costs), risk of human life loss and avoided costs of private protection and economic development effects were not valuated. The potential size of these effects could be as high as the value of avoided damages. Although not accounted for, there will be the following additional social benefits from jobs creation as works are implemented in the affected areas: (i) increase in the number of jobs during construction; (ii) increase in jobs due to the need to conduct maintenance of the proposed works; and (iii) new jobs resulting from the economic development made possible due to investment implementation. Project implementation results in additional employment has mainly a temporary effect as the infrastructure investments are labor intensive, especially in excavation works. Typical cost estimates of similar projects show that the share of wages for low qualified labor is around 30%.

3 Framework for Flood Management on the Drina River, Bosnia Herzegovina Final Report HYDRO INGENIEURE – KPC, HEIS, June 2012.

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11. Similarly, the project’s impacts on reducing developmental disparities among regions which results from the reduced flood risks and the expanded access to technical infrastructure. The project will have a positive impact on increasing investment in entire regions. Expansion of infrastructure is central for development and is viewed by residents as a pre-requisite for facilitating productive investments with bearable levels of risks. The lack of the protective flood infrastructure determines that the high risk affected areas are not developing its resources, and that people from those areas are pushed to emigrate toward regions or cities that can offer better possibilities for the advance in their livelihoods. The project opens the possibility for business development in agriculture, industry, commercial and related service areas in these risk areas.

12. Financial results: The flood of December 2010 affected numerous settlements, including Foca, Goražde, Višegrad, Bratunac, Zvornik and parts of Bijeljina. These areas are flooded frequently to a big extent. In 2010 in downtown Goražde about 200 residential facilities, 32 commercial facilities and 50 livestock facilities were affected and about 500 residents had to be evacuated. Communication infrastructure was damaged, power lines were broken and river bank protection structures dangerously damaged. The town bridges were flooded and the water quality in the supply system was affected endangering public health. Around the Praca river the settlements of Praca and Hrenovica suffer floods almost every second year. The river flows through the municipality as torrents, and bed load material is deposited beside the river bed, on both river banks affecting water flows. A zone of a few hundred meters to 1 km along the left side of lower Drina river is flooded almost every year at higher water levels (at discharges higher then 1600 – 1700 m3/s, which is the maximal discharge of approximately annual or two years occurrence).

13. It is estimated that about 8,500 ha of agricultural land will become protected against the risk of 1-in-100 year floods in the main project locations to be protected (Goražde, Pale – Praca, Foca-Ustikolina and Bijeljina). The income security and living conditions of the land holders along the proposed structures (mostly poor family small holdings) will improve as crops will be more regular and reliable with fewer losses due to less re-seeding, and fewer complete crop failures. Crop budgets for the main agricultural activities and farm models were developed for quantifying the financial impact of the project on beneficiaries, based on average yields being obtained, costs of production and cropping patterns. Recurrent floods affect average yields of crops in about 10 to 15 percent. Tables 1 to 9 in the Appendix (Separate complete report on the analysis, not reproduced here, on file) show that net income could be increased from an average of 12 to 40 percent in the case of field crops (wheat, barley, maize and fodder crops) and from 15 to 80 percent in the case of fruits and vegetables (open field and/or under greenhouses).

14. Farm models combining typical cropping patterns (Separate complete report on the analysis, not reproduced here, on file) were also prepared, representing the farming systems in the project areas. Tables 6-1 below shows models averaging half of a ha producing fruits and vegetables (Table /1), and 2 ha producing field crops (Table /2). As the risk of floods is minimized and conditions to intensify production allow for more intensive cropping in farms with reduced risks, their family revenues would improve significantly. Also, the reduction of assets lost by floods also will contribute to improve their livelihoods after the flood protection

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works. Farm models show that farmers in the project areas where risks of floods will be reduced could increase their net incomes by 60 to 80 percent.

15. Economic analysis: The economic analysis considered costs and benefits from the country’s perspective. Costs and benefits were taken at market prices in most of the cases as there are very few market distortions in value of assets, agricultural prices and production costs. In the DFPP, the following benefits are expected due to implementation of the proposed protective structures: (i) avoided damages of agriculture production on land likely to suffer frequent floods; (ii) avoided damages of assets (private houses; apartment houses; industrial facilities; roads, electricity, schools, kindergartens, health facilities and other public buildings); (iii)avoided losses of business due to uninterrupted production, provision of services, interrupted communications, traffic disruption, etc.; (iv) avoided human health costs due to reduction of the pollution in the water supply systems, reduced water borne diseases, and reduced risks of human life losses; (v) increased recreation benefits including tourism development; and (vi) indirect economic development effects.

Table 6-1/ 1 and 2. Farm financial models combining typical cropping patterns.

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Small Farm in Area to be Protected with Field Crops GZD Table 1

FINANCIAL BUDGET (AGGREGATED) Without Pr oje ct With Pr oje ct (In BKM) 1 to 15123456 to 15 Main Production Fruits 4,080 4,080 4,080 4,080 4,410 4,740 4,740 Vegetables 1,862 1,862 1,862 1,862 3,670 6,207 6,919 Sub-total Main Production 5,942 5,942 5,942 5,942 8,080 10,947 11,659 Off Farm Employment Labor 900 900 900 900 900 900 900 INFLOWS 6,842 6,842 6,842 6,842 8,980 11,847 12,559 Production Cost On Farm Investment - - - 1,500 1,500 - - Ope rating Seeds/Seedlings 125 125 125 125 248 405 440 Fertilizers 1,200 1,200 1,200 1,200 1,450 1,730 1,760 Agrochemicals 210 210 210 210 320 455 480 Irrigation Costs 240 240 240 240 294 366 384 Process Inputs 720 720 720 720 984 1,332 1,417 On Farm Investments - - - - 60 150 180 Sub-total Operating Costs 2,495 2,495 2,495 2,495 3,355 4,438 4,661 Sub-Total Production Cost 2,495 2,495 2,495 3,995 4,855 4,438 4,661 OUTFLOWS 2,495 2,495 2,495 3,995 4,855 4,438 4,661 Cash Flow Before Financing 4,347 4,347 4,347 2,847 4,125 7,409 7,898 Net Financing - 2,246 -150 -86 42 -22 - Cas h Flow Afte r Financing 4,347 6,593 4,197 2,761 4,167 7,387 7,898 Sub-Total Change in Net Worth --2,246----- Farm Family Benefits After Financing 4,347 4,347 4,197 2,761 4,167 7,387 7,898

Small Farm in Area to be Protected with Field Crops GZD Table 2

FINANCIAL BUDGET (AGGREGATED) (In BKM) Without Project With Project 1 to 151234567 to 15 Main Production Vegetables -----1,8622,1852,499 Crops 1,769 1,769 1,804 1,839 1,981 2,123 2,123 2,123 Sub-total Main Production 1,769 1,769 1,804 1,839 1,981 3,985 4,308 4,622 Off Farm Employment Labor 900 900 900 900 900 900 900 900 INFLOWS 2,669 2,669 2,704 2,739 2,881 4,885 5,208 5,522 Production Cost Seeds/Seedlings 122 122 126 130 130 255 277 300 Fertilizers 265 265 273 281 297 914 994 1,074 Agrochemicals 46 46 46 46 53 119 134 149 Irrigation Costs -----240240240 Process Inputs 275 275 287 299 310 442 463 485 Sub-Total Production Cost 707 707 731 755 789 1,969 2,108 2,247 OUTFLOWS 707 707 731 755 789 1,969 2,108 2,247 Cash Flow Before Financing 1,962 1,962 1,973 1,984 2,091 2,916 3,100 3,275 Net Financing - 634 -2 -3 -118 -14 -14 - Cash Flow After Financing 1,962 2,596 1,971 1,981 1,973 2,902 3,086 3,275 Sub-Total Change in Net Worth --636------Farm Family Benefits After Financing 1,962 1,960 1,971 1,981 1,973 2,902 3,086 3,275

16. Most of these benefits are difficult to measure as necessary data for doing it properly is not available. However, based on the estimation of the flood area maps carried out by the consultants and the corresponding probability of occurrence in each of the project sites, and the subsequent estimation of the average expected annual avoided losses estimated with the damage frequency curve described above, the benefits related to the avoided damages on private houses, industries and public facilities were estimated following the consultants’ methodology.

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17. In the case of avoided losses on agricultural production a different approach was used from the one previously used by the consultants. The new approach was based on the observed cropping patterns in the inundated areas, the average yields and corresponding costs of production, the representative farm models, and on the expected changes on all these parameters as the project areas become protected from the recurrent floods and related risks reduced. Table 6-2 below shows the cropping pattern assumed for the analysis and the expected changes foreseen as a consequence of the reduced risks of failure for the existing frequent floods. As can be seen a very conservative assumption of future changes in land use patterns were taken. Tables 1 to 9 in the Appendix (Separate complete report on the analysis, not reproduced here, on file) show the crop budgets for the main production crops in the area both in the current situation and in the proposed scenario. Tables 10 and 11 as mentioned above, show the farm budget for the typical farms in the proposed protected areas.

Table 6-2 Land use in project areas and expected changes as risk of floods is reduced (in ha)

Area to be Protected Existing Field Field Crops Land Use Expected Changes in Land Use Site ha Fruit Area Vegetables & Fodder in ha Fruit Area Greenhouse Total Pale Praca 118 12 10 40 62 52% 4 5 9 60% Ustikolina 54 5 5 20 30 56% 2.5 2 4.5 65% Goražde 285 29 25 80 134 47% 12 10 22 55% Bijeljina I 4,900 72 75 570 717 15% 30 20 50 16% Bijeljina II 623 12 13 100 125 20% 5 3.4 8.4 21% Bijeljina III 2,485 36 38 450 524 21% 15 4.2 19.2 22% Total 5,357 118 115 710 943 18% 48.5 37 85.5 20%

18. Tables 12 to 14 in the Appendix (Separate complete report on the analysis, not reproduced here, on file) summarizes the economic results expected from the tree locations proposed for the Goražde areas in the FBiH. Tables 15 to 17 show the corresponding economic results expected from the proposed protection structures to be constructed in each of the three locations in the Drina river in the Bijeljina area in the RS. Tables 18 and 19 present the expected results for each of the two project components, while Table 20 provides the overall project Result, including all proposed management and institutional strengthening costs. The following Table 6-3 below presents a summary of the Economic Net Present Value (ENPV) and the Economic Rate of Return (ERR) for each of the project components and subcomponents to be financed by the project. Table 6-4 shows the overall project costs, benefits and likely results.

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Table 6-3 Expected results from the project. Component/ ENPV ERR Sub-Component [million KM] [%] Comp. 1: Bijeljina Area 46,551 29.9 % - Bijeljina Phase 1 37,017 34.5 % - Bijeljina Phase 2 5,000 21.3 % - Bijeljina Phase 3 8,954 26.7 % Project Coordination/Institutional Strengthen - 4,420 - Comp. 2: Goražde Area 3,264 12.7 % - Pale –Praca - 1,962 3.4 % - Foca-Ustikolina 961 17.6 % - Goražde 5,986 17.9 % Project Coordination/Institutional Strengthen - 1,721 - Overall Project 49,815 23.6 %

19. The overall economic assessment shows that the aggregate project investments would have an ERR of 23.6 percent. The proposed project investments will reduce the frequency and related cost of flooding events to the communities as well as well as to the local and central governments. Agriculture, industries, tourism, and other livelihood and economic activities will become more attractive for private investments as climate related risks will be substantially reduced. Based on estimated project investment, operating costs, and the value of avoided damages, together with expected private investments as risks of flooding are mitigated, the ERR for the proposed investments for component 1 in the Bijeljina area would be 29.9%. For the sites in the Goražde areas (in Pale-Praca, Foca-Ustikolina and Goražde municipalities) the ERR ranges from 3.4 to 17.9%, averaging about 12.7%.

20. The site in Pale Praca has a fairly low estimated ERR based on the quantifiable data available. However, the site was included in the project by the government because it is one of the poorest areas in Bosnia and as such needed to be supported for reducing development disparities among regions. The works on that site while protecting land from flooding will also have several other non-quantified benefits as the protection of a bridge on one of two roads linking Sarajevo with Goražde providing direct access to Goražde, the administrative center for the canton of Bosna Podrijne. Pale-Praca is a rural town from where a number of employees drive to work on a daily basis. The local furniture company, a major employer in the area is also dependent on the road and bridge for its transports to the East of the country and to Serbia. As in the other areas, the reduced risk of flooding is expected to contribute to economic growth from increased productivity and additional investments that previously were not done due to the risk of complete production losses from floods, as well as saved resources from avoided flood repair and/or recovery costs of public and private structures and/or assets.

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Table 6-4 Overall project costs, benefits and likely results Project Summary Table 5 ECONOMIC BUDGET (AGGREGATED) Without (In BKM '000) Project With Project 1 to 20 1 2 3 4 5 6 7 8 10 to 20 Main Production Fruits 2,254 2,254 2,254 2,254 2,334 2,519 2,753 3,026 3,494 3,714 Vegetables 1,617 1,617 1,617 1,617 2,433 4,876 8,736 11,426 12,460 13,123 Crops 4,200 4,200 4,200 4,210 4,311 4,593 4,772 4,902 4,956 4,956 Praca Houses Avoided Damages - - - - 42 146 188 188 188 188 Ustikolina Houses Avoided Damages - - - - 27 93 120 120 120 120 Gorazde Houses Avoided Damage - - - - - 163 572 735 735 735 Bijeljina Private Houses Avoided Damage\ - - - - - 1,764 6,526 9,574 10,935 11,338 Gorazde Apartments Avoided Damage - - - - - 59 208 268 268 268 Praca Schools & Public Structures Avoided Da - - - - 11 37 48 48 48 48 Ustikolina Schools & Public Structures Avoided - - - - 51924242424 Gorazde Schools & Public Structures Avoided - - - - - 5 18 23 23 23 Gorazde Industrial Avoided Damages - - - - - 250 875 1,125 1,125 1,125 Sub-total Main Production 8,071 8,071 8,071 8,080 9,163 14,525 24,838 31,460 34,376 35,662 Production Cost Investment Purchased Inputs Seeds/Seedlings - - - - 75 24 20 5 - - Fertilizers - - - - 10 13 4 4 - - Agrochemicals - - - - 4 13 2 4 - - Irrigation Costs - - - - 2 10 1 3 - - Process Inputs - - - - 13 1 3 - - - Land Aquisition - 2,018 1,093 1,093 ------Embarkment Construction - 9,793 10,317 2,582 1,291 - - - - - On Farm Investments - - - - 100 179 170 138 40 - Sub-Total Purchased Inputs - 11,811 11,410 3,675 2,058 1,534 1,937 1,525 498 - Labor Labor - - - - 6 25 4 7 - - Sub-total Investment Costs - 11,811 11,410 3,675 2,064 1,559 1,941 1,532 498 - Operating Purchased Inputs Seeds/Seedlings 376 376 376 377 433 587 822 988 1,052 1,093 Fertilizers 1,480 1,480 1,480 1,482 1,588 1,854 2,168 2,416 2,526 2,589 Agrochemicals 216 216 216 217 263 389 581 713 775 809 Irrigation Costs 198 198 198 198 225 301 446 543 583 608 Process Inputs 1,141 1,141 1,141 1,143 1,266 1,618 2,154 2,522 2,714 2,816 On Farm Investments - - - - 25 102 231 320 356 378 Operation & Maintenance of Structures - - 199 727 1,036 1,146 1,177 1,177 1,177 1,177 Sub-Total Purchased Inputs 3,411 3,411 3,563 3,972 4,591 5,726 7,303 8,403 8,907 9,192 Labor Labor 1,153 1,153 1,153 1,154 1,432 2,219 3,462 4,339 4,690 4,910 Sub-total Operating Costs 4,565 4,565 4,717 5,126 6,023 7,945 10,765 12,742 13,597 14,103 Sub-Total Production Cost 4,565 16,375 16,126 8,801 8,088 9,504 12,706 14,274 14,095 14,103 Othe r Costs Project Management & Institutional Strengthenin - 446 448 448 448 456 253 253 253 253 OUTFLOWS 4,565 16,822 16,575 9,249 8,536 9,961 12,960 14,527 14,348 14,356 Cash Flow 3,506 -8,751 -8,504 -1,169 626 4,564 11,879 16,933 20,028 21,306 ______IRR = 23.6%, NPV = 49,815.10

54 IBRD 40593 16°E 17°E 18°E 19°E 20°E 21°E 19°00'E CROATIA Danube Sava Sava 45°N 45°N BELGRADE REPUBLIKA SRPSKA Brcko ˇ a n i Area of map r

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v i 0 10 20 Kilometers P MONTENEGRO This map was produced by the Map Design Unit of The World Bank. T ar The boundaries, colors, denominations and any other information a shown on this map do not imply, on the part of The World Bank GSDPM Group, any judgment on the legal status of any territory, or any Map Design Unit endorsement or acceptance of such boundaries. 18°30'E 19°00'E 19°30'E FEBRUARY 2014