Water Supply and Sewerage System with Wastewater Treatment Plant for Slavonski Brod

Ex post evaluation of major projects supported by the European Regional Development Fund (ERDF) and Cohesion Fund between 2000 and 2013

WATER SUPPLY AND SEWERAGE SYSTEM WITH WASTEWATER TREATMENT PLANT FOR SLAVONSKI BROD

Croatia

21 March 2019

This report is part of a study carried out by a Team selected by the Evaluation Unit, DG Regional and Urban Policy, European Commission, through a call for tenders by open procedure No 2016CE16BAT077.

The consortium selected comprises CSIL – Centre for Industrial Studies (lead partner, Italy) and Ramboll Management Consulting A/S (Denmark).

The Core Team comprises:

• Scientific Director: Massimo Florio (CSIL and University of Milan);

• Project Manager: Silvia Vignetti (CSIL);

• Scientific Committee: Henrik Andersson, Phoebe Koundouri, Per-Olov Johansson;

• Task managers: Jakob Louis Pedersen (Ramboll), Thomas Neumann (Ramboll), Chiara Pancotti (CSIL), Xavier Le Den (Ramboll), Silvia Vignetti (CSIL);

• Thematic Experts: Mario Genco (CSIL), Lara Alvarez Rodriguez (Ramboll), Alexander Greßmann (Ramboll), Trine Stausgaard Munk (Ramboll).

A network of National Correspondents provides the geographical coverage for the field analysis.

The authors of this report are Sanja Tišma, Ana-Maria Boromisa and Marina Funduk. The authors are grateful to all the project managers, stakeholders and beneficiaries who provided data, information and opinions during the field work.

The authors express their gratitude to all stakeholders who agreed to respond to the team’s questions and contributed to the realisation of the case study. The authors are responsible for any remaining errors or omissions.

Quotation is authorised as long as the source is acknowledged.

The cover picture was retrieved (on 15/11/2018) from the following website source: http://www.vodovod-sb.hr/index.php/profil-tvrtke/projekti/projektipa.

TABLE OF CONTENTS

EXECUTIVE SUMMARY ...... 5

OVERALL APPROACH AND METHODOLOGY ...... 5 MAIN PROJECT FEATURES ...... 6 PROJECT PERFORMANCE ...... 7 MECHANISMS AND DETERMINANTS ...... 10 CONCLUSIONS ...... 11 1. PROJECT DESCRIPTION ...... 13

1.1. PROJECT CONTEXT ...... 13 1.2. PROJECT OBJECTIVES ...... 17 1.3. STRUCTURAL FEATURES ...... 17 2. ORIGIN AND HISTORY ...... 20 2.1. BACKGROUND...... 20 2.2. FINANCING DECISION AND PROJECT IMPLEMENTATION ...... 22 2.3. CURRENT PERFORMANCE AND OTHER INVESTMENT NEEDS ...... 25 3. DESCRIPTION OF LONG-TERM EFFECTS...... 28

3.1. KEY FINDINGS ...... 28 3.2. EFFECTS RELATED TO ECONOMIC GROWTH ...... 30 3.3. EFFECTS ON QUALITY OF LIFE AND WELL-BEING ...... 31 3.4. EFFECTS ON ENVIRONMENTAL SUSTAINABILITY ...... 32 3.5. EFFECTS RELATED TO DISTRIBUTIONAL ISSUES ...... 33 3.6. TIME SCALE AND NATURE OF THE EFFECTS ...... 33 4. MECHANISMS AND DETERMINANTS OF THE OBSERVED PERFORMANCE ...... 35

4.1. RELATION WITH THE CONTEXT ...... 35 4.2. SELECTION PROCESS ...... 36 4.3. PROJECT DESIGN ...... 37 4.4. FORECASTING CAPACITY ...... 37 4.5. PROJECT GOVERNANCE ...... 38 4.6. MANAGERIAL CAPACITY ...... 40 4.7. PROJECT BEHAVIOURAL PATTERN ...... 41 5. FINAL ASSESSMENT ...... 43

5.1. PROJECT RELEVANCE AND COHERENCE ...... 43 5.2. PROJECT EFFECTIVENESS ...... 43 5.3. PROJECT EFFICIENCY ...... 44 5.4. EU ADDED VALUE ...... 45 5.5. FINAL ASSESSMENT...... 46 6. CONCLUSIONS AND LESSONS LEARNED ...... 49 ANNEX I. METHODOLOGY OF EVALUATION ...... 50 ANNEX II. EX-POST COST-BENEFIT ANALYSIS REPORT ...... 60 ANNEX III. LIST OF INTERVIEWEES ...... 84 REFERENCES ...... 86

LIST OF ABBREVIATIONS

CBA Cost-benefit analysis

CF Cohesion Fund

DG REGIO Directorate-General for Regional and Urban Policy

EC European Commission

ENPV Economic Net Present Value

ERDF European Regional Development Fund

ERR Economic Rate of Return

ESIF European Structural and Investment Funds

EU European Union

EUR Euro

FNPV Financial Net Present Value

FRR Financial Rate of Return

GHG Greenhouse gas

IPA Instrument for Pre-Accession Assistance

NPV Net present value

NUTS2 Nomenclature of Territorial Units for Statistics

O&M Operations and Maintenance

PIU Project Implementation Unit

ToRs Terms of References

WWTP Wastewater Treatment Plant

EXECUTIVE SUMMARY

The present case study illustrates the ex-post evaluation of a Croatian major project in the field of water management and wastewater treatment, namely the ‘Water Supply and Sewerage System with Wastewater Treatment Plant for Slavonski Brod’. The projecy was financed by the Instrument for Pre-Accession Assistance under priority Axis 2 – Protecting Croatia’s Water Resources Through Improved Water Supply and Integrated Waste Water Management Systems of the multi-annual operational programme Environmental Protection Operational Programme 2007-20131.

The ex-post evaluation was aimed at assessing the long-term effects generated by the project, identifying the key drivers and mechanisms that contributed to produce these effects and its current performance. The analysis draws from the ex-post Cost-Benefit Analysis (CBA) and from an extensive set of qualitative evidence, both primary through interviews with key stakeholders and experts involved in project preparation and implementation, and secondary through technical reports, official reports and press articles.

OVERALL APPROACH AND METHODOLOGY The Conceptual Framework delivered in the First Interim Report has been developed to answer the evaluation questions included in ToRs, and further specified and organized in accordance with the study team’s understanding. In particular, there are three relevant dimensions of the analysis:

• The ‘WHAT’: this relates to the typologies of long-term contributions that can be observed. The Team classified all the possible effects generated by environment projects (including management and distribution of water; water treatment; management of household and industrial waste; measure to preserve the environment and prevent risks) under the following four categories: ‘Economic growth’; ‘Quality of life and well-being’ (i.e. factors affecting the social development, the level of social satisfaction, the perceptions of users and the whole population); ‘Effects related to environmental sustainability’ and ‘Distributional impacts’. • The ‘WHEN’: this dimension relates to the point in the project’s lifetime at which the effects materialise for the first time (short-term dimension) and stabilize (long-term dimension). The proper timing of an evaluation and the role it can have in relation to the project’s implementation is also discussed here. • The ‘HOW’: this dimension entails reasoning on the elements, both external and internal to the project, which have determined the observed causal chain of effects to take place and influenced the observed project performance. To do this the Team identified six stylised determinants of projects’ outcomes (relation with the context; selection process; project design; forecasting capacity; project governance; managerial capacity). The interplay of such determinants and their influence on the project’s effects is crucial to understand the project’s final performance.

1 https://mzoip.hr/doc/operativni_program_okolis_2007-2013.pdf

The methodology developed to answer the evaluation questions consists of an ex-post Cost- Benefit Analysis complemented by qualitative techniques (interviews, surveys, searches of government archives, etc.), combined in such a way as to produce a project history. CBA is an appropriate approach for the ex-post evaluation because it can provide quantification and monetization of some of the long-term effects produced by the project (at least those also considered in the ex-ante CBA). However, the most important contribution of the CBA exercise is to provide a framework of analysis to identify the most crucial aspects of the projects’ ex- post performance and the outcome. It is worth noting that the purpose of this evaluation is not to compare ex-ante and ex-post CBAs and that the results of these assessments are not easily comparable, because even if they rely on the same principles and draw from the established CBA methodology, there are often important differences between how the ex- ante and ex-post assessments were scoped and what data were considered. Qualitative analysis on the other hand is more focused on understanding the determinants and causal chains of the delivery process as well as to assess effects that may be difficult to translate in monetary terms.

MAIN PROJECT FEATURES

As part of the preparation for the EU accession, Croatia had to harmonise its legal framework with the acquis communautaire. The fulfilment of these commitments assumed significant investments in environmental infrastructures.

The City of Slavonski Brod (population 56,769 in 2015) is situated in the eastern part of Croatia, in the Brod–Posavina County. Its water supply system was inefficient, with water losses of up to 43% and low connection rate. The wastewater network was missing leading to a discharge of untreated wastewater into the Sava River.

With this in mind, a local municipal company Vodovod d.o.o. developed the project idea to solving these problems in 2005. In 2006, they hired the BCEOM / Jacobs Engineering Joint Venture consultants who prepared the first design of the project ‘Water Supply and Sewerage System with Wastewater Treatment Plant for Slavonski Brod'. The main goals of the project were to:

• Improve the water supply system to ensure the functionality of the entire local water supply system. • Improve water supply reliability for the existing consumers and connect approximately 4,300 new residents in Slavonski Brod through the strengthening of the water supply system and increasing the storage volume. • Improve the existing sewerage system, which would allow more cost-effective wastewater treatment and increase the number of residents (of additional 9,950 units) connected to the drainage system.

• Improve living conditions and decrease pollution in Slavonski Brod and its urban surroundings and to reduce a compliance gap with the EU environmental acquis2, and in particular the Wastewater Treatment Directive.

The project was included as one of the first major infrastructure projects from the water sector in Croatia in the Instrument for Pre-Accession Assistance (IPA) Operational Programme Environment 2007-20133. The request for IPA funding was submitted in 2008. After a Commissions site visit to Slavonski Brod and a request for some modifications, the corrected application was submitted again in December and was approved by the EC on April 29, 2009. The project beneficiary was the national public company Croatian Waters who implemented the whole project in a close cooperation with the local municipal company Vodovod d.o.o. Slavonski Brod. In 2015, a fully completed project was transferred to ownership and management to the service provider Vodovod d.o.o. Slavonski Brod.

The planned total nominal value of the project was EUR 29.65 million, to be financed 58.65% from the IPA Fund, 41.35% from the State Budget of the Republic of Croatia and 6.74% from the budget of the City of Slavonski Brod. In 2015 the project was completed with a total nominal value of EUR 23.11 million, out of which EUR 15.88 million (68.7%) was co-financed through the IPA Fund. The Central Government covered the remaining investment cost.

It was the first major project co-financed by the European Union in Croatia. Thanks to a good preparation (technical documentation, feasibility study, cost-benefit analysis), a strong political support from national and local authorities, timely implementation of project activities during the implementation phase and continuous monitoring and support by the Delegation of the European Commission in Zagreb, the project was completed on time. The project is an example of a good practice and initiated new project applications in the water supply and sewerage system.

PROJECT PERFORMANCE

Project relevance and coherence

Although Croatia has considerable reserves of potable water and its surface waters are not in poor condition, water supply and sewerage availability are not at a satisfactory level. In 2007 the level of coverage (the share of the population with the possibility of connecting to the public water supply system) in the Republic of Croatia was not in line with the requirements of the Drinking Water Directive (i.e. 82% of those connected to public water supply against the requirements of the Directive of 100%). The system of public sewerage in Croatia was even more unfavourable with the average connection rate for public sewerage systems being 46%, with large differences between the regions in Croatia and among the larger and smaller

2 The requirements of the Water Framework Directive (2000/60/EC), Drinking Water Directive (80/778/EEC, 81/858/EEC, 91/692/EEC), Urban Wastewater Treatment Directive (91/271/EEC) and Bathing Waters Directive (76/160/EEC, 91/692/EEC, 1882/2003/EC and 807/2003/EC) 3 https://mzoip.hr/doc/operativni_program_okolis_2007-2013.pdf

settlements. Only 28% of the population connected to the drainage systems was connected to some of the water purification systems. With the accession agreement with the EU, Croatia committed itself to align its legislation with the EU Water Directives, i.e. building sewerage and wastewater purification systems in all settlements up to 15,000 people equivalent by 2018, and by 2023 to ensure that all settlements from 50 to 15,000 people equivalent have wastewater purification systems. In order to do so, considerable investments in the water infrastructure were envisaged.

The need to improve environmental infrastructure is specified in the Environmental Operational Programme 2007 - 20134. The improvement of water and wastewater infrastructure is specified in Priority Axis 2 - Protect Croatia’s water resources through improved water supplies and wastewater integrated management systems. Activities under this priority axis were designed to improve access to, and delivery of, environmental services and facilities in the water sub-sector, to protect water resources and to assist Croatia in meeting obligations to comply with the EU environmental acquis. Given its level of preparedness, the ‘Water Supply and Sewerage System with Wastewater Treatment Plant for Slavonski Brod’ was one of 17 major projects which have been proposed for financing under the IPA 2007–2013.

Prior to the construction of the wastewater treatment plant and extension and reconstruction of the sewerage system, wastewater network in the city was mostly mixed type, which means that storm water and municipal wastewater were mixed together. There was 172 km of wastewater network of mixed type in Slavonski Brod and only 6.5 kilometres of separating sewers for municipal wastewaters. All wastewaters were released without prior cleaning into the Sava River. Since there was no wastewater treatment plant in Brod-Posavina County the project matched a real and urgent need of the population.

The project was coherent with all national, regional and local priorities. A “Water Management Strategy”5 (2008) provided the national strategic framework for investment in water infrastructure. The Strategy was the basis for the improvement of the legal, institutional and financial framework of water management activities. It was the guiding document for conceiving integral water management and investment in water infrastructure. At the local and regional levels, all strategic documents have indicated the improvement of water supply as well as drainage and purification of watercourses as one of the key needs in Slavonski Brod and its surroundings. Some of the relevant local strategies are the Slavonski Brod Development Strategy 2011-2020, the Economic Development Strategy of the City of Slavonski Brod 2011-2020, the Urban Development Strategy of Slavonski Brod 2017-2020, etc. being among the key prerequisites for further growth and development. All these documents, through measures or planned activities, pointed to the need of solving the water supply and wastewater problems in Slavonski Brod.

During the interviews with the local municipal company Vodovod d.o.o. it was emphasized that investment in infrastructure was foreseen as part of the long-term investment plan of

4 https://mzoip.hr/doc/operativni_program_okolis_2007-2013.pdf 5 http://www.voda.hr/sites/default/files/dokumenti/strategija_upravljanja_vodama.pdf

Vodovod d.o.o., but without the support from the EU the project would have not been implemented in such a short time for lack of own financial resources.

Given that this project solved only part of the existing needs in the City of Slavonski Brod several other important projects in the water sector are being prepared. As of December 2018, “Brod 2” is the project with the highest level of preparedness that is being funded from the Operational Program for Cohesion and Competitiveness. This project will solve the water connection problems in the remaining settlements of the City. Furthermore, a similar new project is being prepared which would solve the problem of water supply and drainage in the municipalities surrounding the City of Slavonski Brod, all those that belong to the service area of the company Vodovod.

Project effectiveness

The project was completed and became fully operational in 2015. After more than three years of implementation, it can be concluded that it is on the right path to achieve long-term goals from the project application. Ex-post evaluation shows that:

• The project achieved the goal of improving the existing sewerage system enabling wastewater treatment. The project increased the number of inhabitants connected to the new drainage system to 9,271, i.e. very close to the target of 9,950 inhabitants. Despite the current trend of migration from Slavonski Brod, the introduction of wastewater treatment and drainage has enabled greater range of services for local population. • The project produced an increase in living standards as confirmed by the results of the interviews with citizens of Slavonski Brod. In this sense, this project provided drinking water in the outskirts of Slavonski Brod, the water supply system was improved (new watercourses were built and the existing were renewed), and new residents were connected to the network (4,300). • The project managed to support the environment protection in the area of Slavonski Brod, and especially protection of the Sava river. The new wastewater treatment plant contributed to the protection of surface and groundwater as well as of the overall ecosystem of the Sava river. However, it also showed some negative effects related to the increase of GHG emissions due to operation of wastewater treatment plant.

Project efficiency

The project implementation was carried out according to the time plan and the framework of budget stated in the project application. From 2010 to 2014 all project components were completed within the given timeframes.

With regard to financing, the total cost was less than planned. Originally the total value of the project was EUR 29.65 million, but it was completed with a total value of EUR 23.11 million, out of which EUR 15.88 million (68.7%) was co-financed through the IPA Fund. The Central Government covered the remaining investment cost.

Reduction in planned project costs was mainly due to the fall in market prices caused by the global economic crisis since 2008 and by the reduction in services as well as in equipment and material.

The tariff policy in Croatia provided financial sustainability. Level of water price included fixed and variable parts. Fixed part was charged monthly and variable part was charged per m3. There were two main categories of customers: households and non- housheholds, but socially vulnerable citizens had special discount.

Overall, the project delivered value for money from the socio-economic standpoint, in the sense of appreciable benefits relative to costs. The ex-post results of Cost-Benefit Analysis is a baseline Economic Net Present Value (ENPV) of EUR 23.08 million and an Economic Internal Rate of Return for society of 9.97%. The benefit-cost ratio is over 1 indicating that cost savings and positive externalities outweigh investment and operational costs.

EU added value

The most visible and immediate value of EU action is certainly in the availability of funding sources. Although most of the required investments were foreseen in the long-term plan of the company Vodovod d.o.o., their realisation (depending on the available financial resources) would probably have lasted a few decades. Thus, thanks to the secured funds, the project was prepared and completed in a record time as a meaningful whole.

In addition to securing the funding, it is important to emphasize the role of the EU in supporting the project preparation and later project implementation with technical assistance. During the project preparation JASPERS experts strengthened the institutional capacity of the beneficiary. The project preparation and implementation were under strict scrutiny, with the EU Delegation participating in regular monthly meetings approving all progress reports. Considering that this was the first major project in Croatia, it has enabled the adoption of new procedures (this has never happened before), the strengthening of the team of Croatian Waters, the Ministry of Environmental Protection and Physical Planning and Construction and the Ministry of Regional Development, Forestry and Water Management as well as the local self-government units. The project became the example of good practice and established a procedure for further projects leading to institutional capacity building.

Without EU support, it would have been only possible to undertake minor rehabilitation of water and wastewater networks, with no possibility to improve the water management system of Slavonski Brod and to decrease river waters pollution in compliance with the Directive 91/271/EEC. The implementation of the project without EU support would have taken much longer and parts of the project could not even be implemented.

According to the interviews, from the local institutions’ viewpoint, the EU added value has materialized expanding beyond the mere scope of the project and resulting, over the years, in a more efficient and effective way of monitoring the spending of financial resources co- financed by the EU.

MECHANISMS AND DETERMINANTS

The long-term performance of the project can be explained along a series of mechanisms and determinants.

The relation with the political context had a very positive impact on the project effectiveness. Croatia's water policy was highly influenced by Croatia’s accession to the European Union and compliance with the EU legislation related to water management. EU Directives such as Water Framework Directive, Drinking Water Directive and Urban Wastewater Treatment Directive implied considerable investments in the water sector since Croatian water and wastewater infrastructure was not compliant. The actual and urgent need of Slavonski Brod for renovated and built water and sewage infrastructure and wastewater purification was recognized so that the project was included in the Environmental Operational Programme 2007-2013, Priority Axis 2: Protecting Croatia’s water resources through improved water supply and integrated wastewater management systems. The project was selected in accordance with the EU Directives (size of agglomeration) and project preparedness.

Project design was a positive determinant to project’s effectiveness. All three components of the project (rehabilitation and extension of water supply network, wastewater sewer extensions and the construction of a new wastewater treatment plant) were constructed in a sound and timely manner.

There were some negative issues in forecasting capacities due to increasing depopulation in the City of Slavonski Brod and in the Brod-Posavina County. The forecasting capacity was the only negative determinant that affected the project performance, however with only minor implications on the net results.

Project governance proved to be a positive determinant. For construction works, monitoring services and procurement of equipment prominent international and local companies were selected.

As for the managerial capacity, Croatian Waters and Vodovod d.o.o. acquired knowledge and skills and significantly strengthened the administrative and professional capacities for working on such major projects.

CONCLUSIONS

The project is considered as an overall success as it achieved its intended primary objectives set out in the project proposal. The water supply and sewerage were improved, new residents were connected to the networks and river pollution was reduced with the construction of the wastewater treatment plant. It increased the living standards of people living in Slavonski Brod and it has contributed to the protection of the Sava river and to the overall ecosystem.It was the first major infrastructure project in Croatia, co-financed by the EU funds. From the very beginnings of the project preparation (2005), the process was well managed and the implementation of project activities both in the project preparation and implementation phases was clear, continuous and successful.

The key to this was the support of the European Union Delegation in Zagreb and the ongoing monitoring of the progress of all activities from the project preparation and application process to the project implementation.

The key decision-makers both at the national (Ministry of Environment) and local levels (city mayor and city council) provided a strong political support to the project.

Furthermore, professional and motivated staff was of crucial importance for success and further efforts to identify, train, develop, and in particular to retain highly qualified staff for project implementation.

Successful implementation of the project has ensured the sustainability of the achieved results and influenced the expansion of the effects to other projects related to the construction of the water infrastructure launched in Slavonski Brod.

The experience acquired during the course of the project will be very useful in the preparation of future projects. The key is to include all relevant stakeholders in the project preparation. It is especially important to include all local government units in the places where the infrastructure will be constructed. Thus, a more homogeneous procedure for land acquisition will be enabled and along with the infrastructure, immediate building of the connections for houses and companies will be ensured.

It is also of great importance for the public bodies to improve communication on the project activities to the public. Namely, during all larger infrastructural projects’ construction works disturb peace and usual activities of citizens (i.e. cause traffic collapse, noise, etc.). Better communication of essential benefits of the project can reduce the dissatisfaction of citizens.

1. PROJECT DESCRIPTION

The project ‘Water Supply and Sewerage System with Wastewater Treatment Plant for Slavonski Brod’ (CCI No 2008HR16IPR003) was financed under the intervention domain Water and Wastewater sector. It was a part of the Environmental Operational Programme 2007-20136 (Operativni program Okoliš 2007.-2013.), Priority Axis 2: Protecting Croatia’s water resources through improved water supply and integrated waste water management systems.

1.1. PROJECT CONTEXT

The City of Slavonski Brod is situated in the eastern part of Croatia in the Brod– Posavina County, lying between the foot of the Dilj Mountain to the north and the Sava river to the south. The Sava river forms the southern border of the County, forming at the same time the interstate border between the Republic of Croatia and Bosnia Herzegovina. Slavonski Brod is the 8th biggest Croatian city, and the administrative, cultural, economic and traffic centre of the Brod–Posavina County. According to the Croatian Bureau of Statistics, the population in Slavonski Brod is decreasing. In 2015, 56,769 inhabitants lived in Slavonski Brod, which is 4.12% less than in 2011 (59,141 inhabitants) and 12.1% less than in 2001 (64,612 inhabitants).

Before the war (1990-1995) this area was a developed economic and traffic hub with a number of important industrial entities, primarily active in agricultural processing, timber and wood industry, and in metal manufacturing. After the war, and especially with the economic crisis in 2007, most of the industries were destroyed or collapsed, and the people left the area of Slavonski Brod for better living conditions and either moved to Zagreb or abroad. This trend continues today. In 2015, GDP per capita in Slavonski Brod was EUR 5,961.98, which was 43.7% less than the Croatian average (EUR 10,585.98). Today, Đuro Đaković Grupa d.d. is the biggest industry in the project area. It currently manufactures a range of vehicles and machinery or its parts including: railway carriages, agricultural machinery, building machinery, special vehicles and metal products.

6 https://mzoip.hr/doc/operativni_program_okolis_2007-2013.pdf

Figure 1. Brod-Posavina County location

Source: Water Supply and Sewerage System with Wastewater Treatment Plant for Slavonski Brod CCI No 2008HR16IPR003 Application Form

Geographic position in the southern part of Eastern Croatia gives the City of Slavonski Brod the significance of an important transport centre. The City lies on the crossroads of two major trans-European road corridors leading West-East and North-South, Corridor Vc (Ploče- Sarajevo-Osijek-Budapest) and Corridor X (Salzburg-Villach-Ljubljana-Zagreb-Beograd- Skopje-Thessaloniki). Also, the river port Slavonski Brod on the Sava River is the second largest river port in Croatia, but due to the natural and technical limitations of the waterway, its significance is smaller than the one of the roads and railways. In addition to this main corridor, Slavonski Brod also has two longitudinal corridors of regional significance: road corridor Virovitica – Daruvar – Pakrac – Stara Gradiška and complex road-rail corridor Beli Manastir – Osijek – Đakovo – Slavonski Šamac.

Table 1 summarises the official population data, as taken from the 2001 and 2011 censuses, with regards to the population of the urban area of Slavonski Brod and other municipalities that are included in to the project.

Table 1. Population in Slavonski Brod – water served area (2001 and 2011)

Population 2001 2011 Index % Variations 2011/2001 Slavonski Brod 64,612 59,141 0.92 -8% Municipalities Gornja Vrba 2,559 2,512 0.98 -2% Klakar 2,417 2,319 0.96 -4%

0.95 -5% Podcrkavlje 2,683 2,553

TOTAL 72,271 66,525 0.92 -8% Source: DZS - Census of Population, Households and Dwellings 2001, 2011. Available at: https://www.dzs.hr/

Before accessing the European Union, Croatia had to adopt about 300 environmental directives. This environmental acquis, apart from being legally demanding for Croatia, were a big challenge in the implementation process, as it demanded large investments in water and wastewater infrastructure.

At the time of its preparation, the project was fully in line with all relevant strategies at national, regional, local and European level. The needs for improving the environmental infrastructure were part of the Environmental Operational Programme 2007-20137. The improvement of water and municipal infrastructure is specified in Priority Axis 2 - Protect Croatia’s water resources through improved water supplies and wastewater integrated management systems. Based on the level of preparedness, the ‘Water Supply and Sewerage System with Wastewater Treatment Plant for Slavonski Brod’ project was one of 14 major projects which have been under preparation for the implementation under the IPA 2007– 2009.

A “Water Management Strategy” (2008)8 provided the national framework for renovation in the water infrastructure through planned measures. The Strategy was the basis for the improvement of the legal, institutional and financial frameworks of water management activities. It was a guiding document for conceiving integral water management and investment in water and municipal infrastructure. At the local and regional level, all strategic development documents indicate solving of water supply and drainage problems as well as purification of wastewaters as the key needs in Slavonski Brod and its surroundings.

Slavonski Brod had a water supply network that for the most part functioned well, serving virtually all of the population of the city. However, parts of the urban system were old and prone to an undesirable level of leakage (up to 43%). Before the project implementation, the water supply system operated by Vodovod Slavonski Brod served 71,902 persons and other industrial consumers in the City of Slavonski Brod and municipalities Gornja Vrba, Klakar and Podcrkavlje. Of these, 79.1% were in the Slavonski Brod urban area itself, and the rest were in other municipalities (83% in the total project area). The average per capita water consumption in the years 2006 and 2007 was 112 and 113 litres per person per day, respectively. The main system serving the entire the urban area and about twenty outlying villages (92% of consumers) is supplied from a single wellfield at Jelas. Five other small wellfields serve independent groups of villages further away from the main urban centre.

There were no treatment facilities and no treatment of the wastewater discharged from the sewerage network in Slavonski Brod before the project. Wastewaters from the central areas of the city were discharged untreated to the Sava River at Poloj. The Sava River is not

7 https://mzoip.hr/doc/operativni_program_okolis_2007-2013.pdf 8 http://www.voda.hr/sites/default/files/dokumenti/strategija_upravljanja_vodama.pdf

used for drinking water or any other uses. One of the reasons that it was not used at least for recreational purposes was because it was polluted.

The existing wastewater network served the City of Slavonski Brod, including Brodski Varoš, part of Brodsko Brdo and Podvinje and the settlement of Tomica. 50,124 domestic customers were connected to the wastewater network in 2007. The connection rate in the City of Slavonski Brod was about 74%. In municipalities Gornja Vrba, Klakar and Podcrkavlje there was no wastewater network.

The total length of the sewerage network was approximately 151.1 km and it ranged in size from pipes under 300 mm diameter to D shaped culverts of up to 2200 mm x 2400mm. The network was predominately constructed of concrete (pipes and culverts) but since 1997, PVC has been used for sewers up to 500 mm diameter and, High Density Polyethylene (HDPE) has been used for sewers of 600 mm to 1,400 mm. The oldest sewers in Slavonski Brod dated back to 1885 but most of the system was less than 30 years old with half of the system being between 20 and 30 years old. Nearly all the existing system in Slavonski Brod was combined and only newly served outlying areas have or will have separate systems.

Figure 2. Project map

Source: Vodovod Slavonski Brod, http://www.vodovod-sb.hr/index.php/profil-tvrtke/projekti/projektipa

There were 12 operating pumping stations in the Slavonski Brod sewerage system. The major pumping stations in the combined system are the outfall pumping station at Poloj, which operates when the level of the Sava river is too high to permit gravity discharge of the outfall, the pumping station Mrsunja, which delivers flows from the western side of Slavonski Brod to

the main collector at Poloj, and the Cankareva lift pumping station at the junction of the collector sewers along the Lateral and Glogovica canals. There were 13 km of local network that needed to be replaced. Moreover, the system was reported to suffer from a few blockages. The condition of the main wastewater pumping stations was generally good and they were well maintained.

1.2. PROJECT OBJECTIVES

The project included the rehabilitation and extension of water supply network in Slavonski Brod, wastewater sewer extensions and the construction of a new wastewater treatment plant.

The main project objectives were to improve living conditions and reduce pollution in Slavonski Brod and its urban surroundings as well as to harmonize water management with the EU environmental acquis.

The expected results were significantly improved water and wastewater management for the City of Slavonski Brod by reconstruction of water supply system and construction of new water infrastructure, construction of a new sewerage system and a new Wastewater Treatment Plant. Leakage reduction was not set as a target and not measured.

The project was intended to provide water supply to approximately 4,300 new consumers (number of population) in Slavonski Brod (the target was to increase connection rate from 83% to 89% in the city following implementation of the project) and to assure sewerage to 9,950 new consumers in municipalities Slavonski Brod, Klakar, Gornja Vrba and Podcrkavlje. The project included improvements of the existing supply network and its extension as well as the extension of sewerage network to several settlements (Gornja Vrba, Klakar, Podcrkavlje). At the time of the preparation of the project the latest available official population data was from 2001 census (69,697 for the project area) and it was expected that the number of inhabitants would increase (to 73,487 in 2010, 74,181 in 2018 and 77,261 in 2039). Despite the fact that the actual development was opposite (the region was severely hit by depopulation and the number of inhabitants in 2011 was 65,9269 - and average size of household decreased10), the main goals of the project were achieved.

1.3. STRUCTURAL FEATURES

The project 'Water supply and Sewerage system with Wastewater Treatment Plant for Slavonski Brod' included the reconstruction of the existing infrastructure and construction of new infrastructure for water supply and drainage and the construction of sewage treatment plants. Project preparation began in 2005 and the implementation started in 2010 and ended in 2014. The total amount of investment was EUR 23,015,374. The project consisted of the following works and equipment procurement:

9 Census data. 10 From 3.3 to 2.7 persons.

A. Water Supply including: construction of 7.2 km of new main pipelines, construction of a new water tank in Brodsko Brdo in Slavonski Brod, replacement of the existing main pipelines in length of 1.8 km and reconstruction of 50 main nodes in the City of Slavonski Brod.

B. Wastewater drainage including: construction of 36.1 km of new collectors, 8 pumping stations and 7 rainfalls in the City of Slavonski Brod and in the municipalities of Klakar, Gornja Vrba, and Podcrkavlje, reconstruction of 0.7 km of the existing main collectors in the City of Slavonski Brod.

C. Wastewater treatment plant with a third degree of purification for 80,000 persons equivalent. The device consists of the following main components: mechanical purification, biological purification, sludge treatment, and processing and use of biogas.

D. Equipment: procurement of a wastewater drainage system with a TV camera, including vehicles and two tankers with a combined vacuum/jet pump.

E. Services: Supervision of execution of works contract. A consultant was engaged to ensure the supervision of the works and to ensure that the contracted works were carried out in accordance with the technical specifications and contract terms.

The project was implemented in phases. Contract description, type of contract, duration of work and the financial amount are shown in Table 2.

Table 2. Contracts

Signature of Contract Contract Estimated end of Contract description contract / start of type value contract implementation (000 EUR)

Construction of water Works, 09/2010 supply and drainage Red Book 10.490 12/2013 10/2010 system FIDIC 06/2015 including Papers, Construction of sewage 10/2011 design, construction Yellow Book 11.605 treatment plants 11/2011 as well as testing and FIDIC warranty periods Supervision over the construction of the Services 10/2010 1.458 08/2015 water supply and PRAG 11/2010 drainage system Procurement of Equipment 05/2012 (acquiring of sewerage network 11/2011 0.347 PRAG equipment) maintenance vehicles Procurement of vehicles with a camera Equipment 05/2012 (acquiring of 08/2011 0.126 for the inspection of PRAG equipment) the sewerage network Source: Final report of the project ’Water Supply and Sewerage System with Wastewater Treatment Plant for Slavonski Brod’ (2018) Vodovod d.o.o. Slavonski Brod

Eminent companies for construction works, monitoring services and procurement of equipment were selected at the tender: Eptisa Servicios de Ingenieria S.L., Osijek-Koteks d.d., Alpine Bau Gmbh, Vodotehnika d.d., Vodovod-Osijek d.o.o., Gradatin d.o.o., Agra d.o.o., Tehnika d.d., Ginzler Stahl-u Angenbau GmbH, SFC Umwelttechnik GmbH and Elmap d.o.o. All contracts were executed on time and within the agreed financial framework.

2. ORIGIN AND HISTORY

2.1. BACKGROUND

Although the Republic of Croatia according to accessibility and richness in water resources is at a very high 5th place in Europe, public water supply in early 2000s covered only about 65% of the population. The average losses in water supply systems amounted to about 44% of the exhausted quantities. The drainage system was even more unfavourable with the average connection rate for public drainage systems being 43.6%. Only 27% of the population were connected to the drainage system by means of some kind of wastewater treatment facility. At the national level, this problem was recognised in all strategic documents such as the Water Management Strategy (2008)11 and the Water Resources Management Plan (2013)12.

The local water sector company has been in charge of the efficient operation and development of public water supply and sewerage systems as well as wastewater treatment. The problem of availability of quality drinking water and drainage and sewage treatment systems is one of the key weaknesses in the situation analysis of the Economic Development Strategy of Slavonski Brod 2011-202013. The key problem in the document was the insufficient connection of the population to the public water system. As the biggest infrastructural problem in the city, insufficient sewerage on peripheral parts of the city was highlighted, where abrupt urbanization without development of the final design of the sewerage network resulted in drainage problems (uncontrolled flooding, waste disposal). The document explicitly recognises the need of investing in water infrastructure and drainage and sewerage systems.

The preparation of the documentation started in 2005, within the framework of the Danube and Black Sea (DABLAS) programme, funded by the European Investment Bank. As a priority project, it was subject to presentation through the Priority Environmental Investment Programme for South Eastern Europe (PEIP/SEE) in 2005/2006. The European Investment Bank (EIB) requested that the European Union, through the Danube Investment Support Facility (DISF), provide assistance to Vodovod d.o.o. for the purposes of preparing the project documents for investment. In 2006 EC Consultant BCEOM/Jacobs Engineering Joint Venture prepared the first design of the project ‘Water Supply and Sewerage System with Wastewater Treatment Plant for Slavonski Brod’. In 2006, the City of Slavonski Brod adopted the Feasibility Study thus providing green light for the project.

In 2007 the project ‘Water Supply and Sewerage System with Wastewater Treatment Plant for Slavonski Brod’ was put on the priority list of the Environmental Operational Programme 2007-2013 under priority axis 2 ‐ Protecting Croatia's Water Resources through Improved Water Supply and Integrated Wastewater Management Systems, which envisaged a contribution from the Instrument for Pre‐Accession Assistance. The Commission came to Slavonski Brod on a site visit and preevaluation mission of the project. The mission was

11 http://www.voda.hr/sites/default/files/dokumenti/strategija_upravljanja_vodama.pdf 12 http://www.voda.hr/sites/default/files/dokumenti/plan.pdf 13 https://www.slavonski-brod.hr/sjednice/sjednica7330062011/37%20- %20Strategija%20gospodarskog%20razvoja%20grada%20Slavonskog%20Broda.pdf

successful and in November 2007 the Commission adopted the Environmental Operational Programme 2007-2013 for Community assistance from the IPA fund for the Regional Development component in Croatia.

In 2008, a public company Croatian Waters, which had prepared and implemented the whole project was accredited as an implementing body and final beneficiary. They established the Preparation and Implementation Unit for the EU Funded Projects followed by the development of the project application. The application was sent to the EC in February. The Commission confirmed the receipt of the project application to the Croatian Authorities and came to a site visit in September 2008. Upon Commission’s site visit the Croatian Authorities were required to prepare revised project application. After the harmonization of documentation with the EC, the revised application was sent to the EC in December.

The project was approved for funding by the EU on April 29, 2009. The Bilateral Project Agreement between the Government of the Republic of Croatia and the Commission of the European communities concerning the co-financing of the major project was signed and preparation of tender documentation started. During 2010 and 2011, the tender processes was completed and the implementation took place in 2012, 2013 and 2014.

Figure 3. Project preparation and implementation timeline

Source: Authors

In 2015, the fully completed project was transferred to ownership and management to the end user Vodovod d.o.o. Slavonski Brod – a local municipal company.

2.2. FINANCING DECISION AND PROJECT IMPLEMENTATION

The preparation of the documentation started in 2005. The Feasibility Study was done in 2006 and other technical and supporting documentation was prepared by 2010. The estimated total value of the project in the project application was EUR 29,652,030, planned to be financed 58.65% from the IPA Fund, 41.35% from the State Budget of the Republic of Croatia and 6.74% from the budget of the City of Slavonski Brod.

The request for modification of the budget was submitted to the European Commission in 2012 based on the results of the findings confirmed by JASPERS experts during the trainings on Cost-Benefit Analysis held in Croatia for the IPA staff of Croatian Waters. The findings determined some inconsistencies and mathematical errors in the methodology applied for the calculation of the funding gap rate resulting in a much lower funding gap than usually seen for this type of infrastructure projects in the EU, namely in only 68.96%. Based on the methodological note provided by JASPERS the new contribution to the project has increased (EUR 19,563,068 instead of previously planned EUR 15,344,927).

The project was completed with a total value of EUR 23,111,436, out of which EUR 15,878,135 (68.7%) was co-financed through the IPA. The Central Government covered the remaining investment cost. The reason for the lower cost of the project was the reduction of the cost of works and equipment due to the fall in market prices during the global economic crisis.

Annual plan of financial contribution from the EU for a major project is shown in Table 3.

Table 3. Annual plan of financial contribution from the IPA Fund for a major project

2007 2008 2009 2010 2011 2012 2013 TOTAL IPA EUR EUR EUR EUR EUR 0 0 0 Fund 5,652,701 4,476,696 3,101,661 6,332,010 19,563,068 Source: Annual plan IPA Fund

Regarding the project implementation, the construction works lasted from 2010 to 2014 and were finished on time. The reconstruction and construction period of water supply and drainage network lasted from 2010 to 2014. It was a phased approach, enabling new users to connect from 2012. Construction of the wastewater treatment plant lasted from 2011 to 2014. Physical construction ended in 2014, but financial closure took place in 2016.

Water supply components

The first project component – construction of the transport main Veliko Polje covered a total of 5.5 km of 300 mm diameter trunk mains. The project included three branches, together serving as the spine for a new distribution network, and links between the existing trunk mains in the city centre and the northeast corner of the city.

The second project component was a construction of a new 300 mm diameter trunk main at the west side of the city. Before the reconstruction, there had been only a single 400 mm diameter trunk main along Vinogorska Street linking the two most significant structures in the supply system, and at certain times of day, that pipe conveyed almost the entire flow of

the city supply. That was a serious risk from a reliability of a water supply point of view, and it was essential to provide a second pipeline as a backup.

The main pipeline from Primorska Street to Brodsko Brdo water tank was designed and laid over 40 years ago and it has been replaced with a new one of the same nominal diameter of 300‐500 mm, but in a modern material, over a length of 1,820 m.

Within the older part of the urban distribution network, 50 pipe network nodes at different locations have been replaced. It was estimated that 50 nodes were in such a poor condition that total or partial replacement was needed. The old chamber was dug out and demolished, the old node cut out, and the new valve assembly lifted into place and connected to the cut ends of old pipe. Finally, a new chamber was built to enclose the node assembly.

The final component of the project was intended for the construction of a new service reservoir, near the existing reservoir at Brodsko Brdo, volume 2 x 1,214 m3.

Figure 4. Water reservoir Brodsko Brdo

Source: Vodovod Slavonski Brod, http://www.vodovod-sb.hr/index.php/profil-tvrtke/projekti/projektipa

Wastewater components

Construction of the sewers in the City of Slavonski Brod included the construction of new collectors, 8 pumping stations and 7 rainfalls in the City of Slavonski Brod and in the municipalities of Klakar, Gornja Vrba, and Podcrkavlje, and reconstruction of the existing main collectors in the City of Slavonski Brod.

The construction in the City of Slavonski Brod included: a collector, a retention tank, the pumping station Veliko Polje‐Šestinac, Glogovica, collector Brodski Varoš, Tuleži, Budainka, collector for collection system 'North' for Brodsko Vinogorje, Brodski Varoš, Podvinje, Bjeliš collector and pumping station, reconstruction of the existing collector along Glogovica canal, local sewerage network, Veliko Polje, Brodsko Vinogorje, Podvinje, Bjeliš, Brodski Varoš, Jelas and storm-water overflows on collectors.

Figure 5. Pumping station in Bjeliš

Source: Vodovod Slavonski Brod, http://www.vodovod-sb.hr/index.php/profil-tvrtke/projekti/projektipa

New sewerage of the municipality Klakar included the construction of wastewater collectors in the total length of approximately 6 km. 'New' sewerage of the municipality Gornja Vrba includes the construction of the sewerage network in the area of the settlement Klis. 'New' sewerage of the municipality Podcrkavlje included the construction of the sewerage network in the area of the settlements Podcrkavlje, Graberje, Tomica and Rastušje.

The Wastewater Treatment Plant consisted of the following basic plant‐components:

• Pumping stations: inlet pumping station to the wastewater treatment plant; outfall pumping station to the Sava river, which operates in case of high water • Mechanical treatment: 2 fine screening; 2 aerated grit and grease chamber; 2 primary settling tanks • Biological treatment – new plant: 4 SBR‐Tanks • Sludge treatment: 2 gravity thickeners for primary sludge; 1 mechanical thickener for excess sludge; 2 digesters; 1 sludge storage tank; 2 centrifuges for sludge dewatering • Biogas treatment and utilization: 2 gravity thickeners for primary sludge, 1 mechanical thickener for excess sludge; 2 digesters

Figure 6. Wastewater Treatment Plant in Slavonski Brod

Source: Vodovod Slavonski Brod, http://www.vodovod-sb.hr/index.php/profil-tvrtke/projekti/projektipa

The construction works for the project ended in 2014 and the operational phase started in 2015.

2.3. CURRENT PERFORMANCE AND OTHER INVESTMENT NEEDS

Today, water supply in Slavonski Brod has improved significantly, in line with the assumed targets (increase the connection rate from 83% to 89% following the implementation of the project). The implementation of the main and backbone pipelines improved reliability of water supply to the existing consumers and connected approximately 4,300 new residents in Slavonski Brod through reinforcement of the system and increased storage. Leakage reduction was not set as a target and not measured.

The existing wastewater system was also significantly improved with more cost- effective wastewater treatment and the increased number of residents (9,271) connected to the sewerage system.

Wastewater treatment plant with a capacity of 80,000-persons equivalent was constructed. It contributed to the implementation of the acquis communautaire, and in particular to harmonization with the Urban Waste Water Treatment Directive. Based on the Vodovod Slavonski Brod data, as of December 2018 the level of capacity use is 50%.

The extension of the wastewater system to areas north of the city centre reduces uncontrolled pollution of groundwater and enables gradual extensions in pace with the city development.

Project success indicators and achievement checks are shown in Table 4 overleaf.

Table 4. Project success indicators and achievement checks

Planned Component Description Unit Accomplished Amount Length of the newly constructed water km 7.2 7.2 supply network Length of the Water Supply repaired/replaced km 1.8 2.8 water supply network Number of built service number 1 1 reservoirs

Length of the constructed/repaired km 36.8 37.04 Wastewater/Sewerage sewerage network

Number of built number 8 8 pumping stations Number of built Wastewater treatment wastewater treatment number 1 1 plant The population Water Supply connected to new number 78,000 80,870 water supply network The population Sewerage connected to number 72,400 71,721 new/repaired sewerage system The population Wastewater treatment connected to number 75,400 74,721 wastewater treatment plant Source: Final report of the project ’Water Supply and Sewerage System with Wastewater Treatment Plant for Slavonski Brod’ (2018) Vodovod d.o.o. Slavonski Brod

The length of the newly constructed water supply network was accomplished according to plan (7.2 km). Service reservoir for water supply was built. The length of the repaired/replaced water supply network exceeded the planned amount (planned 1.8, accomplished 2.8) as well as the length of the constructed/repaired sewerage network (planned 36.8, accomplished 37.04). Wastewater treatment plant and 8 pumping stations were constructed. The number of population connected to the new water supply network exceeded the plan (planned 78,000, accomplished 80,870) while the number of population connected to new/repaired sewerage system (72,400) and to the wastewater treatment plant (75,400) has not been entirely reached. According to interviews the financial support for the connection to the constructed networks were not planned in the project, and some of the residents did not have the funding to connect to the network. A Development Department of the City of Slavonski Brod is in charge of filing newly submitted and implemented connection requests with the aim of further monitoring the number of new connections on the pipeline.

There are no limiting factors preventing the benefits from fully accruing to the target beneficiaries and no additional investments are needed to fully realise the benefits from the project.

Since the project was planned to solve only parts of the water supply and sewage needs of the residents of Slavonski Brod the project “BROD 2”, has already been designed and prepared, emphasising further reconstruction and construction of the water supply and sewerage system. The project got a green light from the EU and as of December 2018 it is pending due to land issues (land purchase). The expected value of this project is approximately EUR 35 million.

The second project dealing with water and wastewater infrastructure in the area is planned for the neighbouring municipalities of Slavonski Brod, while the third project is being prepared for cross-border co-operation INTERREG with Serbia, building on the constructed wastewater treatment plant planning to produce electricity from biogas.

3. DESCRIPTION OF LONG-TERM EFFECTS

3.1. KEY FINDINGS

The long-term contribution of this project is considered under the four main categories: economic development, quality of life and well-being, environmental sustainability and distributional effects.

Economic growth improvements relate to improved reliability of water sources and water supply service for the existing customers in certain settlements. Implementation of the project limited accidental service interruptions due to low water pressure. Thus, monetized benefits relate to avoided costs of alternative water supply - buying bottled drinking water when shortages occur.

According to the interviews with the local residents the project produced positive effects related to the quality of life of the residents of Slavonski Brod and its surroundings, mainly in terms of increased availability of sewerage services and increased availability of drinking water supply. During project implementation new users were connected to the centralised water supply/sewerage service. This effect has been monetized via users’ willingness to pay for being connected to the service and it is included in the CBA.

Environmental sustainability effects of this project relate to the reduction of contamination of water bodies due to construction of watewater treatment plant and negative externalities related to the increase of GHG emissions due to operation of the WTTP.

The results of Cost-Benefit Analysis, as included in the Annex II of this report indicate that the project adds value to the European society under the social and economic points of view. In the baseline case, the Economic Net Present Value (ENPV) equals EUR 23.08 million, with the applied discount rates of 4.61% backward and 5.52% forward, whereas the Economic Internal Rate of Return is at the level of 9.97%, which is higher than the applied economic discount rates indicating that the project brings significant net economic benefits and that the EU funding is justified.

The distribution of benefits in the CBA is shown in Figure 7.

Figure 7. Breakdown of quantified socioeconomic benefits and negative externatlities

Source: Authors

In addition to these measurable impacts, there are also other effects which are difficult to estimate in monetary terms, but relevant for the comprehensive assessment of the project. They are discussed in the following sub-chapters.

Table 5 summarizes the nature and strength of the project’s effects classified under the previously referred four categories (economic growth, quality of life and well-being, environmental sustainability and distributional issues) as well as the territorial levels, and the time-horizon of their materialization.

Table 5. Summary of nature and strength of effects

CATEGORY EFFECT STRENGTH* LEVEL Variation in the quantity of water supplied and water N.R. treated Variations in the reliability of Local +1 water sources and water supply Economic Variations in water quality N.R. growth Variation in resource savings N.R. (water preserved for other uses) Variation in operating costs N.R. Wider economic impacts N.R. Institutional learning +4 Local - national Variations in the number of Local users Quality of life +3 served by water/sewerage and well-being supply Variations in the service quality N.R.

CATEGORY EFFECT STRENGTH* LEVEL Variations in human health and N.R. hygiene Variations in the living attractiveness N.R. of the area Variation in exposure to Local -1 disamenities Variations in GHG emissions -1 Global Variations in contamination of Local +4 water bodies Variations in the protection and Trans boundary Environmental resilience of natural resource +3 sustainability systems Variations in biodiversity +2 Variations in climate change Global N.R. resilience Distributional Social cohesion +3 effect Territorial cohesion +1 Trans boundary *Note: the strength score reflects the weight that each effect has with respect to the final judgment of the project. In particular: -5 = the effect is responsible of the negative performance of the project; -4 = the effect has provided a negative contribution to the overall performance of the project; -3 = the effect has contributed in a negative way to the performance but it was outweighed by other positive effects; -2 = the effect has a slightly negative contribution to the project performance; -1 = the effect is negative but almost negligible within the overall project performance; 0 = the effect has no impact on the project performance; +1= the effect is positive but almost negligible within the overall project performance; +2 = the effect has a slightly positive contribution to the project performance; +3 = the effect has contributed in a positive way to the performance but it was outweighed by other positive effects; +4 = the effect has provided a positive contribution to the overall performance of the project; +5 = the effect is responsible of the positive performance of the project; N.R. = the effect is not relevant for the specific project; No data = the effect is potentially relevant, but no evidence on impacts is available. This shall be used only for relatively low significant effects whose inclusion would in no case dramatically affect the overall assessment.

The following sub-chapters include a more detailed description of the effects incorporated in the ex-post CBA and/or supported by available qualitative evidence from either documents or interviews.

3.2. EFFECTS RELATED TO ECONOMIC GROWTH

Measurable effects

Measurable effects related to economic growth according to the results of Cost-Benefit Analysis arise from the improved reliability of water sources and water supply service for the existing customers.

Before project implementation, there were problems with reliability of water supply service for the existing customers in certain settlements. Implementation of the project solved the problem of occasional service delivery interruptions due to low water pressure. Thus, monetized benefits relate to avoided costs of alternative water supply - buying bottled drinking water estimated at 40 eur/year per household (100 l of bottled water) in the affected settlements (1200 households).

Non-measurable effects

One of the most important non-measurable economic effects was institutional development/learning. Since this was the first major infrastructural project in water sector co-financed from the EU, all participants including the ones from the Ministries (Ministry of Regional Development, Forestry and Water Management and Ministry of Environmental Protection and Physical Planning and Construction), Croatian Waters, Vodovod and the local government of Slavonski Brod acquired new knowledge and skills. New procedures were introduced. Professional and motivated staff was of crucial importance for project success and further efforts to identify, train, develop, and in particular to retain highly qualified staff for project implementation.

While one of the planned goals was reduction of the water losses. However, according to the interviews with Vodovod Slavonski Brod this was not fully achieved.

3.3. EFFECTS ON QUALITY OF LIFE AND WELL-BEING

Measurable effects

Results of Cost-Benefit Analysis show that the high share of monetised benefits from this project result from effect related to increased availability of sewerage service.

Increased availability of sewerage service for new customers is estimated based on users’ willingness to pay (WTP) for the service. The avoided maintenance costs of self‐collection and discharge of wastewater for newly connected households to sewerage network was estimated at 348 EUR per household. The cost estimated is based on annual operation cost of septic tanks cleaning in line with Guidelines for Preparation of CBA in Water Projects in Croatia. The latest available data (2016) on average size of households was used, i.e. 2.7 persons/household.

According to the CBA this benefit represents 36% from the total benefits, with a discounted value of EUR 22 million.

Another important benefit from this project results from effects related to increased availability of drinking water. These effects arise from connection of new users to the centralised water supply. The benefits of availability of drinking water are estimated based on users’ willingness to pay (WTP) for the service. The willingness to pay for being connected to the water supply/sewerage service is estimated based on averting behaviour, i.e. cost of the best alternative technique feasible for the water supply – operation cost of own wells. Savings in operation costs of own wells is estimated at EUR 148 per household per year for new customers.

Total discounted value of this effect is equal to EUR 4 million, representing 6% from total benefits.

Non-measurable effects

During the implementation of the project, the citizens were dissatisfied because of the construction works that disturbed their peace. There was a lot of dust and noise as well as traffic jams. Residents were not well informed about the project activities, so it caused dissatisfaction. That situation stopped when they got clear information and when the roads were restored and asphalted again. According to interviews with local residents, carrid out as part of this case study, soon after the implementation phase the project positively affected the mood of local residents. The ones who have connected to the public sewer supply are more satisfied than before.

3.4. EFFECTS ON ENVIRONMENTAL SUSTAINABILITY

Measurable effects

The Cost-Benefit Analysis monetised the following effects on environmental sustainability – reduction of contamination of water bodies due to construction of watewater treatment plant and negative externalities related to the increase of GHG emissions due to operation of the watewater treatment plant.

The Cost-Benefit Analysis shows that the greatest share of monetised benefits from this project result from effect related to reduction of contamination of water bodies due to the construction of wastewater treatment plant. This effect represents 56% of all benefits, with a discounted value of EUR 34 million. The benefit of the treatment component was monetised in the CBA as improvement in quality of water, soil and air (estimated at 32 EUR/person, in line with ex-ante approach, relating to use and non-use value). Reduction of contamination of water bodies shows that the project contributed to the protection of the Sava river as well as the overall ecosystem. This effect is also observed qualitatively - according to the interview with the representative of the Institute of Public Health of Brod-Posavina County, wastewater treatment has reduced both the type and the quantity of pollutants in the water. The Sava river is now biologically and chemically cleaner.

The Cost-Benefit Analysis takes into account the increase of GHG emissions as a result of sludge digesters, based on a quantification of gas production and related CO2 portion and sludge transport to disposal sites, on quantification of dehydrated sludge and other waste from the WWTPs and energy savings due to optimisation of the system.

Project documentation and results from the ex-post CBA show that WTTP, when operating with half of the capacity (which is the current stage) emits 600 t CO2/eq a year. It was assumed that CO2 emissions will remain fairly stable at current level until the end of reference period. According to the demand analysis, industrial water demand will remain stable, while domestic water demand is projected to decrease due to depopulation. Compared to 2018 level, quantities of waste water will decrease 6%. However, ageing of equipment will lead to increased emissions, thus this externality was monetized based on assumption that the GHG emissions will remain stable at current level.

The additional CO2 emissions generated are monetized using the shadow price of CO2. Unitary monetary values of CO2 emission (in 2018 €/ton CO2 equivalent) are in line with the First Interim Report, i.e. from the EIB (2013) as suggested in the EC Guide and by JASPERS. The present value (2018) of associated cost is EUR 544,787.

Non-measurable effects

According to the interview, carried out as part of this case study, with the local resident and Commander of the Water Rescue Team of the Croatian Mountain Rescue Service – Slavonski Brod Station, the eco-system of the Sava River has been improved thanks to the wastewater treatment plan. Plants and animals (river crabs) are returning. The unpleasent smell has been reduced. It is expected that these effects will only increase due to future investments that are under preparation.

3.5. EFFECTS RELATED TO DISTRIBUTIONAL ISSUES

Measurable effects

None.

Non-measurable effects

The project has had a positive impact on social cohesion. Residents of the municipalities on the outskirts of Slavonski Brod are now connected to water supply and sewerage as well as the residents in the city centre. With the support of the EU funds, improvement in water supply and wastewater drainage and purification was achieved. Given that this project scope was to solve only part of the needs in the City of Slavonski Brod, the new project BROD 2 is in preparation which will repair and construct the water infrastructure for the remaining settlements in the city.

The project has not produced significant effects in terms of territorial cohesion. However, the project is located on the border with Bosnia and Herzegovina and the Sava River also affects the residents of the neighbouring country.

3.6. TIME SCALE AND NATURE OF THE EFFECTS

Reconstruction and construction of water supply and sewerage network and construction of wastewater treatment plant were completed in 2014. The project operation started in 2015. After four years the information was gathered to assess the time-scale of the effects. The observed effects materialised in the short run and are expected to remain so in the long run.

The project produced slight positive effects to economic growth, strongly positive effects on quality of life of local residents, slight positive effects on the environmental sustainability – positive effects relate to the improvements in quality of water, soil and air - negative relate to the increase of GHG emissions all due to the operation of the wastewater treatment plant. The positive effects of the reduction of contamination are much greater than the negative ones related to GHG emissions. The project had a positive impact on social cohesion and its results enabled further projects.

Table 6. Temporal dynamics of the effects

SHORT LONG RUN CATEGORIES RUN FUTURE (6-10 COMMENT OF EFFECTS (1-5 YEARS* YEARS)* YEARS)* Economic Improved reliability of water sources + + + growth and water supply service Quality of life Increased availability of drinking water +++ +++ +++ and well-being supply and sewerage. Reduction of contamination of water bodies due to construction of watewater treatment plant. Negative externalities relating to increase of GHG emissions Environmental + ++ +++ due to operation of WTTP plant. It is sustainability expected that positive effects will increase due to future investments (more connection to WTTP) that are under preparation. The project had a positive impact on Distributional + ++ +++ social cohesion and its results enabled issues further projects. Note (*): + = slight positive, ++ = positive, +++ = strongly positive, +/- = mixed effect, - = slightly negative, -- = negative, --- = strongly negative.

4. MECHANISMS AND DETERMINANTS OF THE OBSERVED PERFORMANCE

The key mechanisms and determinants of the long-term effects are discussed in this section along with different phases of the project cycle. The importance of each determinant for the project’s final performance along with their inter-connections are shown in Table 7.

Table 7. Determinants of project outcomes

DETERMINANT STRENGTH* Relation with the context +3 Selection process +4 Project design +4 Forecasting capacity -3 Project governance +4 Managerial capacity +4 Note: * the strength score reflects the weight of the role that each determinant played with respect to the final judgment of the project. In particular: -5 = the determinant is responsible of the negative performance of the project; -4 = the determinant provides a negative contribution to the overall performance of the project; -3 = the determinant contributes in a moderate negative way to the overall performance of the project; -2 = the determinant has a slightly negative contribution to the project performance; -1 = the determinant plays a negative but almost negligible role to explain the overall project performance; 0 = the determinant does not play a role in the project performance; +1= the determinant plays a positive but almost negligible role to explain the overall project performance; +2 = the determinant has a slightly positive contribution to the project performance; +3 = the determinant contributes in a moderate positive way to the performance; +4 = the determinant provides a positive contribution to the overall performance of the project; +5 = the determinant is responsible of the positive performance of the project.

4.1. RELATION WITH THE CONTEXT

The project was embedded in a context that was very favourable for its planning and implementation. The accession process of Croatia to the European Union was under way – Croatia applied for the EU membership in 2003 and entered the European Union in 2013. The project preparatory phase lasted from 2005 to 2010, while the project implementation phase lasted from 2010 to 2014.

Changes in Croatia's water policy as well as all other public policies in the period 2003-2013, were highly influenced by Croatia’s accession to the European Union. Croatia had to comply with and incorporate a large amount of EU legislation related to water management, i.e. Water Framework Directive, Drinking Water Directive and Urban Wastewater Treatment Directive, into national legislation. These directives implied considerable investments in the water sector. According to the Urban Wastewater Treatment Directive, Croatia committed itself to construct sewerage and purification systems in all settlements up to 15,000 peoples equivalent by 2018. It should also ensure that all settlements from 50 to 15,000 peoples equivalent get purification systems by 2023.

The actual and urgent need of Slavonski Brod for a renovated and built water and sewerage infrastructure were based on the old water supply system, water losses of up to 43%, and the low connection rate in Slavonski Brod. Some settlements were without wastewater network and there was not any wastewater treatment plant. The project led to

improvement of water supply system and increased connection rate, but has had limited impact on reduction of losses.

The project was the first Croatian major infrastructural project co-financed by the European Union. Strong support was provided by the European Commission. JASPERS experts provided trainings for the IPA staff of Croatian Waters. The European Union Delegation was continuously present during the project from its initial preparatory phase. Technical assistance to the project was provided by the Eptisa Servicios de Ingenieria S.L. consultants for supervision of construction services.

There was a strong political support for this project at the national (the Ministry of Regional Development, Forestry and Water Management and the Ministry of Environmental Protection and Physical Planning and Construction) and local levels (the City of Slavonski Brod). The Ministry of Regional Development, Forestry and Water Management co-financed the project and the City of Slavonski Brod was involved in the project preparation as they adopted the Feasibility Study prior to the application.

4.2. SELECTION PROCESS

The origin of the selection process leading to the public investment decision dates back to 2005. Prior to the application process to the IPA pre-accession fund the project ‘Water Supply and Sewerage System with Wastewater Treatment Plant for Slavonski Brod Project’ was identified as a priority project by the Danube and Black Sea (DABLAS) Task Force. As such it was subject to presentation through the Priority Environmental Investment Programme for South Eastern Europe (PEIP/SEE) in 2005/2006. In response, the European Investment Bank (EIB) requested that the European Union, through the Danube Investment Support Facility (DISF), provide assistance to Vodovod d.o.o. for the purposes of preparing the project documents for investment in the city’s short-term priority water and sewerage treatment, distribution and collection investment needs. This significantly affected the project preparation process. In 2006, technical documentation and Feasibility Study with CBA were developed by the BCEOM / Jacobs Engineering Joint Venture consultants who were selected through a public tender. Jacobs and BCEOM made a first design of the project which was later used as a basis for the project application for co-financing from the IPA fund. The project had strong local support and the City of Slavonski Brod adopted the BCEOM / Jacobs Feasibility Study.

In 2007 the project was included in the Environmental Operational Programme 2007–2013 for Community assistance from the Instrument for Pre-Accession for the Regional Development Component in Croatia, which had great impact on the realization of the whole project. Projects were selected based on economic / social / environmental criteria, project’s advancement and alignment with EU Directives (size of agglomeration). There was no better alternative proposed in Slavonski Brod and surroundings area.

The project benefitted from a technical assistance offered by the European Commission before the submission and after a smooth selection process, the project was approved for funding in 2009.

4.3. PROJECT DESIGN

The project components were designed in accordance with the relevant Croatian and the EU standards and norms. The project preparatory phase (design, documentation, feasibility study) lasted for 5 years, from 2005 to 2010. Local municipal company Vodovod d.o.o. initiated the preparations for the project. In 2006, BCEOM / Jacobs consultants prepared the Feasibility Study. On the basis of the design data of the Feasibility Study the project design was developed.

The project had 3 components. First project component, water supply, was comprised of the reconstruction and construction of 9 km of water supply network and the construction of a water tower in Brodsko Brdo.

Second component, wastewater drainage system, included the construction of 36.1 km of new collectors, 8 pumping stations and 7 rain spillways in the City of Slavonski Brod and in the municipalities of Klakar, Gornja Vrba and Podcrkavlje as well as the reconstruction of 0.7 km of the existing main collectors in the City of Slavonski Brod.

Third project component comprised of the construction of wastewater treatment plant as a part of Bjeliš industrial area with a capacity of 80,000 ES. The plant involves mechanical purification, biological purification, sludge treatment, processing and the use of biogas which is a result of anaerobic digestion of sludge. The biogas is used in a warm water boiler, to provide heating water mainly for the digesters as well as heating the buildings during the winter period. The surface of the location for the construction of the mechanical-biological wastewater treatment plant is around 6 hectares, while the plant and supporting buildings occupy around 3 hectares of the area. All three components of the project were constructed in planned time.

The environmental protection measures applied during the construction and operation phase were based on Croatian and EU regulations and were incorporated in the project design. Special attention was paid on prevention of excessive odor and noise, on adequate disposal of waste and wastewaters from construction site, on protection of existing vegetation and on prevention of infiltration of gas, oils and other hazardous liquids into soil. The supervision of all construction works was done by a team of engineers from the Eptisa Servicios de Ingenieria S.L. selected through a public tender launched by Croatian Waters.

4.4. FORECASTING CAPACITY

Ex-ante assumptions regarding population trends did not fully materialise and some minor delays in the construction process (one-month delay of construction works because of rain) were observed.

The entire project of reconstruction and construction of water and wastewater networks as well as construction of wastewater treatment plant was developed based upon assumptions concerning the population increase and the industry development in the City of Slavonski Brod, as reflected in the national statistical data. However, strong depopulation trends and global economic crises led to a different outcome than the project’s forecasts.

The wastewater treatment plant was constructed for an equivalent of 80,000 inhabitants. According to the present situation, the WWTP capacity seems to be overestimated. According to the interview with Croatian Waters it was envisaged that water consumption will be 120 l/inhabitant, but it is smaller. Due to depopulation trends the whole system is used at half capacity only.

Regarding the water and wastewater networks, the designed route considered the demand based on the existing residential and non-residential consumers. However, depopulation trends had a large effect on this area. Ex-ante estimates were based on assumption that number of inhabitants will increase from 64,612 in 2010 to 74,792 in 2014, but the number of inhabitants decreased to 61,864 in 2014 and this trend continued. In 2017 the number of inhabitants was 58,284. The average size of household also decreased (from 3.2 to 2.7 persons per household). According to the interviews conducted with the representatives of Vodovod d.o.o., some inhabitants did not have the sufficient funding to pay for a connection to the constructed networks, so they did not connect to it. Financial support for the connections was not part of the project’s plan. On the other hand, the “BROD 2” project which is in preparation has included connections in its financial projections.

There were some differences in the planned and realised investments in the project. The project was planned in the amount of EUR 29,652,030 but ultimately the cost was EUR 23,111,436 nominal value due to the fall in prices of goods and services during the global economic crisis from 2008 until the end of the project implementation. The price decreased by 20% compared to the forecast. The cost estimates included 10% contingency. The decrease in price did not lead to a reduction in quality of materials chosen as materials were prescribed by the tender.

4.5. PROJECT GOVERNANCE

A set of institutional actors was involved in project governance and the model worked very well. On August 17, 2010 the project implementation contract was signed between the public company Croatian Waters and Vodovod d.o.o. Slavonski Brod, with the approval of the Ministry of Environmental Protection, Physical Planning and Construction and the Ministry of Regional Development, Forestry and Water Management.

Ministry of Environmental Protection, Physical Planning and Construction was the Authority responsible for the Environmental Protection Operational Programme 2007-2013. Ministry of Regional Development, Forestry and Water Management was the Authority responsible for the Priority Axis 2 “Protecting Croatia’s water resources through improved water supply and integrated waste water management systems. Both Ministries supported the project.

In 2010, the Ministry of Regional Development, Forestry and Water Management signed the project’s co-financing agreement with Croatian Waters, the City of Slavonski Brod and Vodovod d.o.o. Slavonski Brod. The project was planned to be financed 5.65% from the IPA Fund, 4.35% from the State Budget of the Republic of Croatia and 6.74% from the budget of the City of Slavonski Brod. Due to the economic crises and fall of the marked prices, the total cost of the project was reduced. For that reason, the project was co-financed through

the IPA Fund (on the level of 68.7%) while the Central Government covered the remaining investment cost.

The beneficiary of the project was Croatian Waters. Croatian Waters are an expert agency and a legal entity for water management in Croatia. They operate in the entire territory of the Republic of Croatia and cover two basins, the Danube river basin and the Adriatic basin. According to interviews with other stakeholders, their expert knowledge significally helped the project performance.

After the successful implementation of the project, Croatian Waters transferred the ownership and management of the constructed objects and infrastructure to the local municipal company Vodovod d.o.o. as the end recipient of the project which provides public water supply/sewerage services to the local residents of Slavonski Brod. Vodovod d.o.o. is majority owned by the City of Slavonski Brod (81.5%), while the remaining minority ownership shares are allocated to the surrounding municipalities. This transfer was conducted in line with Croatian regulations and contributed to the decentralization of the implementation of the water policy in Croatia.

Croatian Waters and Vodovod Slavonski Brod organised a Project Implementation Unit (PIU) in charge of technical supervision of different phases of the project implementation (design, construction, monitoring). The Project Implementation Unit, comprised of experts, was responsible for a day to day activities of the project. The Project Manager was from Croatian Waters and was assisted by the representatives of the end user Vodovod d.o.o. The Project Implementation Unit had professional knowledge, but also gained new knowlege and skills on managing major infrastructural project.

City of Slavonski Brod was another institutional actor which contributed to the project implementation. Prior to the application of the project the City of Slavonski Brod adopted the Feasibility Study, for the application process it signed the Letter of intent to collaborate in the execution of the project with municipalities of Gornja Vrba, Klakar and Podcrkavlje and in 2010 signed the co-financing agreement for the project. It also provided support for all connection permits and other property and legal affairs.

Besides the local and national support, the project received a strong support from the European Union through the European Commission. Thus, the Delegation of the European Union participated in regular monthly meetings, and approved all progress reports. Supervision of constructed services was provided by the Eptisa Servicios de Ingenieria S.L. consultants, selected through the public tender. The role of the consultants was to supervise the construction works and to ensure that the contracted works were carried out in accordance with the specifications. They were successfull and this influenced the overall project performance.

However, it should be noted that potential of the project has not been expoited in full and the benefits were not maximised. This relates primarily to lower connection rate and water consumption than planned: poor households did not connect as they were not able to afford it; people moved from Slavonski Brod and they did not connect (or required to be removed from the network) and the average size of household (and thus water consumption) has decreased. These elements illustrate weaknesses of the governance at the national level, but cannot be directly linked to the project governance or the managerial capacity of the operator.

Figure 8. Project governance

Source: Authors

4.6. MANAGERIAL CAPACITY

Analysing the implementation process of the major IPA project, it can be observed how the managerial capacity of the beneficiary was consolidated step by step. After Croatian Waters and Vodovod d.o.o. Slavonski Brod organised a Project Implementation Unit, its overall tasks and responsibilities included continuous financial, contractual, and technical management of the project.

As already mentioned, Croatian Waters and Vodovod Slavonski Brod benefited from Eptisa’s consultants’ technical assistance. They provided procurement support for works contracts, service contracts, and review of the WWTP capacity as well as supervision of the IPA Contracts in Slavonski Brod including frameworks of the contracts, implementation, main supervision activities, and know-how transfer to Project Implementation Unit.

Consultants from Eptisa Servicios de Ingenieria S.L helped Vodovod to become better organised, efficient and technically and financially viable for the provision of water services in the region.

Experience gained through this project also increased corporate social responsibility. Until the implementation of the project, social aspects such as affordability were not considered. As a result of strengthening the professional capacities Vodovod Slavonski Brod developed two

more projects under the next programming period (“BROD 2” and a new project covering surrounding municipalities) where household connections are included in co-financing. Thus, managerial capacity with respect to the problem of poor household connections increased and Vodovod is on its way to extend the operating area in Slavonski Brod agglomeration as well as at the Brod-Posavina County level. JASPERS experts strengthened the institutional capacity of the beneficiary and provided trainings on Cost-Benefit Analysis held in Croatia for the IPA staff of Croatian Waters.

Overall, the managerial capacity increased during the operational phase of the project. The know-how was transferred from the consultants to the PIU. Moreover, the lessons learnt during the implementation of the IPA project such as tracking financial operations, subcontracting and strengthening team knowledge were used in the development of new investment projects like “BROD 2”.

4.7. PROJECT BEHAVIOURAL PATTERN

Following the identification of the typical determinants of project performance and the main project outcomes, the final step entails describing the chain of interlinked causes and effects determining the project performance over time.

The project is considered as an overall success since it has achieved its intended objectives, i.e. improvement of the water supply system of Slavonski Brod and its surrounding areas, improvement of water supply security for the existing consumers and connection of approximately 4,300 new residents in Slavonski Brod through the strengthening of the water supply system and increasing the storage volume, improvement of the existing wastewater system, which allowed more cost-effective wastewater treatment and increased the number of residents (9,271) connected to the drainage system as well as construction of wastewater treatment plant with a capacity of 80,000 person equivalents.

When considering the project impact on the served population, the project produced positive effects in terms of increased availability of drinking water supply, increased availability of sewerage network and improved reliability of water sources and water supply service for the existing customers.

In terms of project governance and in terms of managerial capacity, the assessment is overall positive. There were only moderate negative issues regarding forecasting capacities.

Figure 9 shows the behavioural pattern of the project under assessment. The round boxes in light blue indicate the project’s determinants, the rectangular boxes in light grey refer to the observed events, the ‘+’ signs next to the green arrows indicate that the factor has positively influenced the project performance. Red arrows and the ‘-’ sign indicate a negative influence of the determinant factor on the project.

Figure 9. Behavioural pattern of the project

Source: Authors

In general, the project can be classified as 'Rising Sun' because of its final success. Despite some minor issues in the forecasting capacity and some minor delays in the construction process (one-month delay of works because of rain), in the end the project was fully implemented, meaning that all the project success indicators were achieved (Table 3). According to the interviews conducted with the representatives of Croatian Waters and municipal company Vodovod, everyone involved has learned a lot, due to the strengthening process of the beneficiary and PIU. Type of knowledge and acquired skills include project preparation, planning, project management and implementation, defining activities, tracking financial operations, subcontracting, strengthening team knowledge, developing new project applications.

5. FINAL ASSESSMENT

Based on different findings produced by the project analysis both in terms of effects generated and measured through the CBA or qualitatively discussed as well as of factors affecting the generation of those effects, the final assessment of the project performance is presented hereafter along a set of evaluation criteria.

5.1. PROJECT RELEVANCE AND COHERENCE

The project was implemented in the area of Slavonski Brod where it matched a real need of the population and provided a long-term solution for the residents of the city.

The project was highly relevant since it improved the compliance with the EU acquis regarding environment and water management. The general objectives of the project (quality improvements and access to the water/wastewater infrastructure) were coherent with the national and European policies in particular Water Framework Directive, Drinking Water Directive, Urban Wastewater Treatment Directive.

The project was consistent with all integrated/sectoral plans and programmes: National Water Management Strategy (2008), National Environment Strategy and National Environment Action Programme (2002), the Environmental Operational Programme 2007- 2013. It is also in line with all recent local and regional development plans, such as the Slavonski Brod Development Strategy, the Economic Development Strategy of the City of Slavonski Brod 2011-2020, and the Urban Development Strategy of Slavonski Brod 2017- 2020 etc. as one of the key preconditions for further growth and development.

Given that the projects scope solved only part of the needs in the City of Slavonski Brod, the project “BROD 2” is under preparation, which intends to repair and construct the water infrastructure for the remaining settlements in the City.

5.2. PROJECT EFFECTIVENESS

The project achieved its objectives as stated in the project application. In this sense, the project provided drinking water in the outskirts of Slavonski Brod, the water supply system was improved (new watercourses were built and the existing were renewed) and water reliability has improved for the existing consumers. The project also envisaged approximately 4,300 new residents in Slavonski Brod and in the municipalities of Klakar, Gornja Vrba and Podcrkavlje.

The project achieved the goal of improving the existing sewerage system enabling wastewater treatment and increase the number of inhabitants (9,271) little less then planed (9,950) connected to the new drainage system. The wastewater treatment plant was constructed for equivalent of 80,000 inhabitants. At present, the facility is operated at half capacity due to strong depopulation trend. However, the full capacity is expected through the implementation of the new project “BROD 2”, which is in the process of waiting to be financed from the Operational Programme Cohesion and Competitiveness.

Overall, most stakeholders perceived the project as beneficial and positive. According to the interviews conducted as part of this case study, all of the interviweees underline the availability of the new services and improved quality of life in those areas that are newly connected to water supply and public sewage system. The main limiting factor that prevents the full impact to occur are certain technical issues with installing the central lines, which are incompatible – some of them are on the one side of the street, some of them on both sides, and somewhere in the middle, so the price of the connections is different. All connectors should be on the edge of the road, this would increase the investment cost of 5-6%, but there would be no more cost of raising the road or other public areas, which is expensive and time- consuming.

5.3. PROJECT EFFICIENCY

The project implementation was carried out according to the plan written in the project application. The project components were completed within the given timeframes. The reconstruction and construction of water supply and sewerage networks and the construction of Wastewater Treatment Plant were achieved. There were no significant changes in the project scope or design. The duration was minimally extended (one month) due to the bad weather conditions in the preparation of the wastewater treatment plant.

The project implementation went according to plan and did not suffer from delays and cost overruns. On the contrary, planned investment of EUR 29,652,030 was ultimately EUR 23,111,436, out of which 19,563,068 million EUR (68.7%) was co-financed through the EU IPA Fund. Reduction of planned project costs was mainly due to the fall in market prices due to the global economic crisis since 2008 and the reduction in both services and equipment and material.

Although project implementation required administrative costs, they were not separately specified. According to interviews, due to the high level of co-financing, administrative costs were not perceived as a burden. Before the EU co-financed projects, continuous adaptation was a common practice that created high administrative costs. Due to improved planning the need for continuous adaptation and hight administrative costs was reduced.

The tariff policy provided financial sustainability. As shown in the Table 8 the current level of water price covers operational and maintenance costs. The price includes a fixed and variable part. Fixed part is charged monthly and variable part is charged per m3. There are two main categories of customers: households and non-households, and the basic price for them is different. There is also a category of socially vulnerable citizens who receive a special discount.

Table 8. Water, waste water and water treatment prices

Charging unit Households Non- Socially households vulnerable EUR EUR EUR Basic water m3 0.62 0.99 0.37 price

Sewerage m3 0.11 0.23 0.09 (variable part) Water m3 0.16 0.31 0.1 treatment Total – m3 0.93 1.52 0.63 variable cost Fixed charge – month 1.25 2.43 1.25 water supply Fixed charge – month 0.25 0.36 0.19 sewerage Fixed charge – 0.44 0.85 0.44 water month treatment Total – fixed km/month/connection 1.94 3.64 1.88 part Source: Authors

The increasing depopulation and share of socially vulnerable customers (entitled to lower prices, which is below cost-coverage) might lead to financial problems. Considering the level of affordability (3% of available income), for one-person household the tariff is affordable for household with income at the level of 270 EUR.

While the project indicators have been reached (in terms of new connections), water consumption is decreasing, mainly due to strong depopulation trends, which is the most significant challenge for financial sustainability.

Overall, the project delivered value for money from the socio-economic perspective, in the sense of appreciable benefits relative to costs. Socio-Economic Net Present Value (ENPV) is positive, at level of EUR 23.8 million, Economic Internal Rate of Return (9.97%) is greater than applied economic discount rates indicating that the project brings significant economic benefits and that the EU funding was justified.

5.4. EU ADDED VALUE

The value of cooperation with the EU was in the availability of funding sources. The European Union contributed to the project EUR 19,563,068 million through the IPA Fund. Although most of the required investments were foreseen in the long-term plan of the company Vodovod d.o.o., their realisation (depending on the available financial resources) would probably last a few decades. Economic crisis drained national budgets and financing the environmental objectives was not a priority area for any government. Without the EU support in that period nothing would be done, especially in remote and sparsely populated areas. Thus, due to the secured funds, the project was prepared and completed in a record time.

The added value provided by the EU was acquisition of new knowledge and skills, technical and operational support in the preparation of the project, and counselling during the design. The European Investment Bank (EIB) funded the project preparation, BCEOM and JACOBS made a Feasibility Study and defined the project design while EU Delegation was continuously

present throughout the project. The added value of the project was improvement of living conditions of the inhabitants of Slavonski Brod. More than three years after the project completion the design of the project is still considered appropriate by Vodovod d.o.o., as it meets the needs of the local population and allows future investments in the area. Since it was the first large infrastructure project to be carried out in the water sector it contributed significantly to strengthening of the administrative and professional capacities of the managing authority, Croatian Waters as well as of Vodovod d.o.o. Slavonski Brod.

The project helped in reaching compliance with the EU water directives, especially the Water Framework Directive and its main goal of achieving a good status of waters in the European Union.

5.5. FINAL ASSESSMENT

The following evaluation matrix (Table 9) summarises the final assessment of the project along the five previously discussed evaluating criteria. Overall, the project ‘Water Supply and Sewerage System with Wastewater Treatment Plant for Slavonski Brod’ is an example of good practice due to its high relevance and socio-economic desirability and coherence with the needs and priorities established at the local, regional, national, and EU levels.

The project achieved all the expected objectives within the given timeframes. The main positive effect of this project was the reduction of contamination of water bodies followed by increased availability of sewerage services, increased availability of drinking water supply for new consumers and improvement in the reliability of water sources and water supply service for the existing customers.

The project’s only downside is project forecasting capacity related to population numbers due to increasing depopulation and share of socially vulnerable customers. Final costs were lower than predicted in the application due to the changed circumstances in services, equipment and material market prices caused by the global economic crisis of 2007/2008.

Table 9. Evaluation matrix

CRITERION EQ METHODOLOGY ASSESSMENT SCORE

• To what extent the original objectives of the examined major project matched: o the existing development needs, o the priorities established at the The project was fully in line with the 5 programme, national, and/or EU existing development needs and all the Relevance Historical reconstruction level. priorities established at the local, regional, • Were systems guiding the prioritization of national, and EU levels. individual investment projects within wider sectoral plans in place? Did the selection of the project follow such systems?

• Are the project components in line with the stated project objectives? • To what extent the examined project was consistent with other national and/or EU Coherence Historical reconstruction Fully consistent 5 interventions carried out in the same field and in the same area? • How the synergies with the existing investments were ensured?

• Has the examined major project achieved the objectives stated in the applications for Cohesion policy support? • What factors, including the availability and the CBA results form of finance, and to what extent influenced the implementation time and the achievement The project achieved all the expected observed? objectives Ordinal scores on non- • What has changed in the long run as a result Effectiveness monetary effects within the given timeframes with some 3 of the project (for example, is there evidence negative issues concerning forecasts showing contribution of the project to the related to increasing depopulation and private sector investments)? share of socially vulnerable customers. • Were these changes expected (already Investigation of the planned at the project design stage, e.g., in project causal chain terms of pre-defined objectives) or unexpected (emerged, for instance, as a result of changes in the socio-economic environment)?

• How have these changes matched the objectives set and addressed the existing development needs, the priorities established at the programme, national and/or EU levels? • Did the selected project turn out to be the best option among all feasible alternatives?

• Are there any significant differences between CBA results Final costs were lower than in the original the costs and benefits in the original cost- CBA due to changed circumstances in benefit analysis (CBA) and what can be services, equipment and material market observed once the project has been finalised? Efficiency Sustainability analysis prices due to the global economic crisis. 4 • To what extent have the interventions been Implementation was in line with the cost effective? foreseen time schedule. There was only one • Was the actual implementation in line with the month delay due to weather conditions. foreseen time schedule? Project causal chains

• What is the EU added value resulting from the examined major project (in particular, could any of the major projects examined, due to its risk profile, complexity or scope, have not been carried out if not for the EU support)? In particular, which aspect of the EU added value Very high EU added value, i.e. the project is more evident? achieved EU-wide effects which could not o Provision of strategic support and have been achieved without the EU advisory during project design; financial and strategic support. The EU EU added value o Provision of technical and operational Project causal chains services strongly influenced the process 5 support during project preparation; and the features of the project. o Provision of financial support leading

to the financing decision. • Did the examined major projects achieve EU- wide effects (e.g. for preserving the environment, etc.)? • To what extent do the issues addressed by the examined interventions continue to require action at EU level?

Source: Authors

6. CONCLUSIONS AND LESSONS LEARNED

The ex-post evaluation of the major infrastructural project ’Water Supply and Sewerage System with Wastewater Treatment Plant for Slavonski Brod’ related to the construction and reconstruction of the water supply and sewerage system and the construction of wastewater treatment plant shows that the project was an overall success.

The results of the ex-post CBA confirm that the project was worth the implementation from a socio-economic standpoint. The project created frameworks in order to ensure the long- term goals of increasing the living standards of the population, by improving health conditions and contributing to the protection of the Sava river and the overall ecosystem.

Since this was the first Croatian major project in the water sector co-financed by the European Union, it opened the way of understanding the non-reimbursable financial mechanism as part of the integration to the European Union and it was the milestone for strengthening the institutional capacity on national and regional levels At the national level, it contributed significantly to strengthening the capacity of the Croatian Waters that have implemented the project. At the local level, the project contributed to the strengthening of knowledge and skills of the local water company Vodovod d.o.o. Slavonski Brod. Knowledge and skills acquired during the project were later used in applications for other projects financed by the European Union.

Strong depopulation trends and the global economic crisis affected the project. This has to be taken into account for the future projects. Currently there are problems with the work force both in the area of project preparation but also in the area of construction. There is a lack of contractors while the skilled workers are gone.

The project’s planning process was slow (2005–2010) but the EU support was crucial for the project design and implementation. The EU financial, technical and operational support in the preparation of the project and later in its implementation helped the project immensely. Political support for this project was also essential for the project implementation.

Institutions improved communication with the public, which at the time of project launch was not usual. Even during the project, residents of the City of Slavonski Brod were not fully informed about the project. Public awareness campaigns as the project progressed became a standard procedure.

The lessons learned during the course of the project should be used in the preparation of future projects. The key is to include all relevant stakeholders in the project preparation. It is especially important to include all local government units in which the infrastructure is constructed. During the implementation of the project, the City of Slavonski Brod was involved in the project preparation, but the surrounding municipalities were not informed about it. This caused problems in the process of land acquisition through which the water and wastewater infrastructure was being laid. More homogeneous procedures ensure that, along with the infrastructure, the connections for houses and companies are built simultaneously.

Also, the public bodies acquired the knowledge on how to communicate project details to the wider public more clearly. In future projects it would be desirable to include the communication component from the initial phase of the project application.

7. ANNEX I. METHODOLOGY OF EVALUATION

This Annex summarizes the methodological approach undertaken for carrying out the project case studies. The main objective is to provide the reader a concise account of the evaluation framework in order to better understand the value and reach of the results of the analysis as well as enable them, if interested, to replicate this methodology.

The Annex is divided into four parts, following the four building blocks of the methodological approach (mapping of effects; measuring the effects; understanding effects; synthesis and conclusions). Three evaluation questions, included in the ToRs, guided the methodological design. They are:

• What kind of long-term contribution can be identified for different types of investment in the environment sector? • How is this long-term contribution generated for different types of investments, i.e., what is the causal chain between certain short-term and log-term socio-economic returns from investments? • What is the minimum and average time needed for a given long-term contribution to materialize and stabilize? What are these time spans for different types of investments in the environment field?

MAPPING THE EFFECTS

The Team developed a classification of long-term effects, with the aim of identifying all the possible impacts of environmental investments on social welfare. Under four broad categories, a taxonomy of more specific long-term development effects of investment projects has been developed. The definition of each type of effect is provided in the Table below.

Far from being exhaustive, this list is intended to guide the evaluators in identifying, in a consistent and comparable way, the most relevant effects that are expected to be identified and included in the analysis. Additional effects could possibly be relevant in specific cases and, if this is the case, they can be added in the analysis.

In researching all the possible long-term effects of project investments, it is acknowledged that there could be a risk of duplication. In addition, the allocation of some effects under different categories is to some extent arbitrary and thus it may happen that categories overlap. That said, caution will be paid in order to avoid double counting when performing the ex-post CBA.

Table 10. Taxonomy of effects

Water and wastewater

MOST SIGNIFICANT DESCRIPTION EFFECTS

Variations in consumers Enhanced quantity levels of annual water supply and wastewater treatment is linked to growth through connected increasing the sufficient availability of water and wastewater treatment for civil consumption as well as + industrial and agricultural production, and through increasing a region’s housing attractiveness for urban development, employment and attractiveness for industrial consumers. The impact on growth of the Variation in water supply levels increased availability will usually first occur over time. (Dinar & Schwabe 2015)

and waste water treated

Variations in the reliability of Enhanced reliability is linked to growth by eliminating water supply shifts (water supply becomes more water sources and water uniform). This comes from improvements in water supply and distribution that decrease the times of supply production disruption caused by an interruption in the production site’s water intake or wastewater outtake (Dinar & Schwabe 2015) or increase the water pressure. Disruption may be seasonal, especially in regions where demand in the dry season may be too high compared to the utilities’ capacity or in wet season, where the wastewater infrastructure capacity is over flood by water from excessive rainfall and flash floods.

Variations in water quality Enhanced water supply quality can reduce the costs for water-intensive industries, which through regulation clean their own wastewater outtake. Water quality improvements may not be linked directly to savings in health care or related public cost savings, as people drink bottled water in areas where water is not safe. However, they may be linked to growth through a region’s living attractiveness for households and thereby a region’s ability to attract employment. A region with poor water quality which hampers clean water for

domestic purposes and degrades the landscape, limit recreation opportunities and produce bad odours, etc. EFFECTS ON ECONOMIC GROWTH ON EFFECTS ECONOMIC

will usually also experience challenges in attracting tourism, which also affect growth (UNEP 2015). In the

• context of agriculture, waste water projects may include a change in the use of polluted water in irrigation, as waste water includes both harming and useful plant food nutrients which can influence both positively and negatively on crop yields for farmers (Dinar and Schwabe, 2015; UNEP, 2016, Drechsel et al., 2015).

Variation in resource savings Improving water management efficiency may, for example by reducing the water leaks of a water distribution (water preserved for other network, decrease the volume of water needed to supply the network. Water is then preserved for other uses) uses, which may generate growth in industries and agriculture that are reliant on scarce water sources. The same effect arises from reduced over-exploitation of a water source (e.g. when groundwater is replaced with

water produced from other sources, such as desalination) or wastewater is purified and reused (more stringent treatment) for irrigation or industrial water supply. (European Commission 2015)

Variation in resource costs Improving the efficiency of water management through water saving initiatives, and wastewater management by e.g. separating rainwater from wastewater pipeline reduces the utility’s total cost, which lowers the price on water and wastewater services. This assumes a market simulating pricing system, where the price for water services is linked to the utility’s cash flow.

Variations in the income for the Depending on the project’s cost-recovery rate and the utility’s tariff-policies, changes in the utility entity’s utility service direct earnings will have a small effect on economic growth (see e.g. Djukic et al (2016).

MOST SIGNIFICANT DESCRIPTION EFFECTS

Wider economic impacts It refers to the national impact on income and productivity of the economy caused by the project leads to a higher economic activity through the production of more or better goods and services together than before. There are conflicting academia results on the effects, but studies suggest that especially industries will gain positively (see e.g. Katz (2008) and OECD (2018)). Institutional learning It refers to wider spillover effects that any investment project may bring to the Public Administration and other institutions at national, regional or local levels in terms of expertise gained by working on large scale projects. Learning may lead to productivity gains by stimulating the improvement of the existing technical know-how, improved policy-making, competitive tendering and divert resources towards the most growth enhancing projects. MOST SIGNIFICANT DESCRIPTION EFFECTS

Variation in the availability of water supply and/or sewer It arises when new households are connected to the centralized water supply or sewer networks. services

Variations in the quality of BEING It relates to the increase of welfare for the households, experiencing improved quality to drinking water and - water supply and/or sewer improved wastewater infrastructure.

services

EFFECTS RELATED QUALITY TO OF LIFE WELL AND

It refers to the population’s exposure to pollution in drinking water and to the wastewater treatment. This Variations in human health and effect is relevant only if causation can be proved, which may be difficult, as it requires statements or analyses, hygiene which link the drinking water quality and/or the discharged water to i.e. medical treatment.

ADDITIONAL EFFECTS DESCRIPTION

Variations in the living It relates to the current and future increase of population, caused by the improved water and waste water attractiveness of the area facilities. This include the effects on buildings’ resilience to climate change through an improved outtake of sewage water.

MOST SIGNIFICANT DESCRIPTION EFFECTS

Variations in GHG emissions This effect is related to the impact wastewater projects may have on GHG emissions; wastewater treatment generates significant amount of greenhouse gases mainly methane and nitrous oxide. For example, a wastewater project may improve the processing of wastewater in such way that it reduces GHG emissions.

Variations in contamination of This is relevant on desalination and wastewater treatment plants. It is related to the environmental impact air, water, and soil of the desalinizing projects and the avoidance of pollution from wastewater. This include contamination of seawater and air pollution emissions, contamination of soils and freshwater (i.e. Removal of nitrogen and phosphorus), spillover effects of system flooding due to heavy rainfall and flooding (Logar, Brouwer, Maurer,

et al. 2014; Djukic, Jovanoski, Ivanovic, et al. 2016).

Variations in the protection This is a long-term effect on the above-mentioned effects. It is related to the project’s overall effect on and resilience of natural sustainability of the natural resource systems caused by the reduced contamination and resilience. This resource systems (including includes enhancing the housing’s resilience to climate change through an improved outtake of sewage water. surface water bodies and ecosystem services)

ADDITIONAL EFFECTS DESCRIPTION

Variations in biodiversity It relates to the project’s overall effect on the ecosystem, mainly caused by decreasing the pollution from the wastewater infrastructure. This effect will only be relevant in areas where wastewater is threatening the biodiversity and environmental sustainability. (Dinar and Schwabe (2015) and Punttila (2014) – on reduction

on Baltic Sea level) EFFECTS ON ENVIRONMENT THE

Variations in climate change This effect is broader than the contamination issue, as it includes the environmental impact of taking a holistic resilience approach to waste water projects, by including climate change adapting components such as to more heavy rainfall and increased water levels (i.e. see Punttila (2014) – on including natural storm-water management in waste water investments, which provide recreational benefits in urban areas)

ADDITIONAL EFFECTS DESCRIPTION

Social cohesion

It encompasses the allocation of the main benefits over income and social groups

Territorial cohesion

It encompasses the allocation of the main benefits over central (core) and peripheral areas

DISTRIBUTIONAL ISSUES Source: Authors

MEASURING OF EFFECTS

Because of the variety of effects to be accounted for, a methodological approach firmly rooted on CBA (complemented by qualitative analysis when necessary) is adopted in order to grasp the overall long-term contribution of each project.

In terms of their measurement level, the effects can be distinguished into:

A. Effects that by their nature are already in monetary units (e.g. cost savings from environmental damages). These can therefore be easily included in a cost- benefit analysis (CBA). B. Effects that are quantitative, but not in money units, and that can be converted into money units in a reasonably reliable way (e.g. water pollution, human health protection – hygiene, GDG emission)14. These effects can also be included in the CBA. C. Effects that are quantitative, but not in money units, for which there are no reasonably reliable conversion factors to money. We propose not to try to include such effects in the CBA, but to discuss them in a qualitative way together with the overall outcome of the CBA. D. Effects that are difficult to measure in quantitative (cardinal) terms, but do lend themselves for ordinal measurement (a ranking of the impact of different projects on such a criterion can be provided, such as very good, good, neutral, bad, very bad). We propose to discuss these effects in qualitative terms. E. Effects that might occur but that are subject to a high degree of uncertainty: these will be treated as part of the risks/scenario analysis that will be included in the CBA. F. Effects that might occur but that we cannot even express in an ordinal (ranking) manner: they are residual effects that can be mentioned in qualitative description in case study report.

In short, all the project’s effects in A and B are evaluated by doing an ex-post cost-benefit analysis (CBA)15. Reasonably, these represent the most significant share of long-term effects. Then the outcome of the CBA (e.g. the net present value or benefit-costs ratio) is complemented by evidence from C and D, while E and F is used for descriptive purposes. Moreover, qualitative techniques are used to determine why certain effects are generated, along what dimensions, and underlying causes and courses of action of the delivery process (see below).

Section 3 of each case study includes a standardised table in which scores are assigned to each type of long-term effect. Scores ranging from -5 to +516 are given in order to intuitively highlight which are the most important effects generated for each case study.

14 Methods to establish such conversion factors include stated preference surveys (asking respondents about hypothetical choice alternatives), hedonic pricing or equating the external cost with the cost of repair, avoidance or prevention or with the costs to achieve pre-determined targets. 15 More details on the approach adopted to carry out the ex-post CBA exercise and, in particular, indications on project identification, time horizon, conversion factors and other features are extensively described in the First Intermediate Report of this evaluation study. 16 The strength score reflects the weight that each effect has with respect to the final judgment of the project. In particular: -5 = the effect is responsible of the negative performance of the project; -4 = the effect has provided

UNDERSTANDING THE EFFECTS

Once the project effects have been identified and measured, and the causal chain linking different categories of short-term and long-term effects has been investigated, the third building block of the methodological approach entails reasoning on the elements, both external and internal to the project, which have determined the observed causal chain of effects to take place and influenced the observed project performance.

Taking inspiration from the literature on the success and failure of projects, and particularly on costs overruns and demand shortfalls, and on the basis of the empirical evidence which develops from the European Commission (2012) six stylized determinants of project’s outcomes and their development over time have been identified (see table below).

The interplay of such determinants may reinforce or dilute one effect over the other. Moreover, each determinant may contribute, either positively or negatively to the generation/speed up/slow-down of certain short-term or long-term effects. For this reason, it is important not only to understand the role that each determinant has in the observed project outcome, but also their interplay in a dynamic perspective.

In doing this, it is useful to refer to stylized, typical “paths” of project behaviours outlined in the following table. Such patterns capture common stories and reveal recurring patterns of performance as well as typical problems that may arise and influence the chronicle of events. Case studies test the validity of such archetypes and are used to specify in better nuances or suggest possible variations or additions.

Section 4 of each case study includes standardized tables in which scores are assigned to each determinant. Scores ranging from -5 to +5 are given in order to intuitively highlight which are the most relevant determinants explaining the project outcomes17. Moreover, section 4 of each case study includes a graph describing the project’s behavioural pattern, i.e. describing the chain of interlinked causes and effect determining the project performance over time.

a negative contribution to the overall performance of the project; -3 = the effect has contributed in a negative way to the performance but it was outweighed by other positive effects; -2 = the effect has a slightly negative contribution to the project performance; -1 = the effect is negative but almost negligible within the overall project performance; 0 = the effect has no impact on the project performance; +1= the effect is positive but almost negligible within the overall project performance; +2 = the effect has a slightly positive contribution to the project performance; +3 = the effect has contributed in a positive way to the performance but it was outweighed by other positive effects; +4 = the effect has provided a positive contribution to the overall performance of the project; +5 = the effect is responsible of the positive performance of the project; N.R. = The effect is not relevant for the specific project; No data = The effect is potentially relevant, but no evidence on impacts is available. This shall be used only for relatively low significant effects whose inclusion would in no case dramatically affect the overall assessment. 17 The strength score reflects the weight of the role that each determinant played with respect to the final judgment of the project. In particular: -5 = the determinant is responsible of the negative performance of the project; -4 = the determinant provides a negative contribution to the overall performance of the project; -3 = the determinant contributes in a moderate negative way to the overall performance of the project; -2 = the determinant has a slightly negative contribution to the project performance; -1 = the determinant plays a negative but almost negligible role to explain the overall project performance; 0 = the determinant does not play a role on the project performance; +1= the determinant plays a positive but almost negligible role to explain the overall project performance; +2 = the determinant has a slightly positive contribution to the project performance; +3 = the determinant contributes in a moderate positive way to the performance; +4 = the determinant provides a positive contribution to the overall performance of the project; +5 = the determinant is responsible of the positive performance of the project.

Table 11. Stylized determinants of project outcomes

DETERMINANT DESCRIPTION

Relation with the context It includes the considerations of institutional, cultural, social and economic environment into which the project is inserted; was the project appropriate to this context?; is there a problem that the project can solve?; does the project remain relevant over the years?

Selection It refers to the institutional and legislative framework that determines how public investment decisions (and especially those co-financed by ESIF) process are taken, i.e. which is the process in place and the tools used to select among alternative projects. The selection process is influenced by incentive systems that can lead politicians and public institutions to either take transparent decisions or strategically misrepresent costs and/or benefits at the ex-ante stage.

It refers to the technical capacity (including engineering and financial expertise) to properly design the infrastructure project. Under a general standpoint, we can distinguish: • The technical capacity to identify the most appropriate conceptual design, which best suits the need of a specific context. Even when a region Project design really is in need of the project, it usually requires a well-designed project to solve the observed problems. This, in turn, involves that different alternatives are considered and the best option in terms of technical features and strategical considerations is identified; • The technical capacity to develop a more detailed level of design (preliminary and detailed), thus identifying most effective and efficient detailed infrastructure solutions and construction techniques, also avoiding common pitfalls in the construction stage (such as introducing variants that are not consistent with the original conceptual design) and the risk of cost overruns during the construction phase by choosing inappropriate technical solutions.

Forecasting It regards the possibility and capacity to predict future trends and forecast the demand level and estimate the technical challenges, thus estimating correctly the required resources (e.g. looking at the dangers of over-predicting demand and under-predicting construction costs). In particular, capacity technical forecasting capacity is related to the quality of data used and forecasting/planning techniques adopted. At the same time, forecasting capacity includes the ability of the project promoter and technical experts not to incur in the planning fallacy (the tendency to underestimate the time or cost needed to complete certain tasks) and optimism bias (the systematic tendency to be overly optimistic about the outcomes of actions).

Project It concerns the number and type of stakeholders involved during the project cycle and how responsibilities are attributed and shared. This is influenced governance by the incentive mechanisms. If bad incentives exist, this can lead different actors involved in the project management to provide benefits for their members, thus diverting the funds away from their optimal use, or forcing them to delegate responsibilities according to a non-transparent procedure.

It refers to the: Managerial • professional ability to react to changes in the context/needs as well as to unforeseen events; capacity • professional capability to manage the project ensuring the expected level of service in the operational phase. To ensure a project success, it is not enough that it is well planned and designed, but also that the organizations in charge of the management and operations provide a good service to the end users (e.g. ensuring a good maintenance of the infrastructure). Source: Authors

Behavioural patterns are illustrated by use of diagrams linking determinants and project outcomes in a dynamic way.

Table 12. Behavioural patterns archetypes

TYPE DESCRIPTION

This pattern is typical of projects where the good predictions made ex-ante (both on the cost side and demand side) turn out to be accurate. Proper incentive systems are in place so that the project actually delivers value for money Bright star and success. Even in the event of exogenous negative events, the managerial capacity ensures that proper corrective actions are taken and a positive situation is restored.

This pattern is typical of projects which, soon after their implementation, are affected by under capacity issues because of a combination of low demand forecasting capacity, weak appropriateness to the context, and weak technical capacity Rising sun to design the infrastructure. However, due to changed circumstances or thanks to responsible management and good governance the project turns around to reap new benefits.

This pattern is typical of projects for which the good predictions made ex-ante (both on the cost and demand side) Supernova turn out to be accurate. However, due to changed circumstances or because of weak management capacity and/or governance the project eventually turns out to be unsuccessful.

This pattern is typical of projects starting from an intermediate situation and resulting in a failure. This outcome can be explained by a low forecasting capacity affected by optimism bias which yields a cost overrun. Then during project Shooting star implementation, because of low managerial capacity and/or poor governance (also due to distorted incentives) corrective actions are not implemented, this leading to project failure. The situation is exacerbated if unexpected negative events materialize during the project implementation.

This pattern is typical of projects that since the beginning of their life fail to deliver net benefits. This is a result of a combination of ex-ante bad factors (i.e. low technical capacity for demand forecasting, optimism bias, Black-hole inappropriateness to the local context and bad incentives affecting both the selection process and the project governance) and careless management during the project implementation or bad project governance (e.g. unclear division of responsibilities, bad incentive schemes).

Source: Authors

SYNTESIS AND CONCLUSIONS

Qualitative and quantitative findings are integrated in a narrative way, in order to develop ten project ‘histories’ and to isolate and depict the main aspects behind the project’s long- term performance. A final judgment on each project is then conveyed in the case studies with an assessment structured along a set of evaluation criteria, as suggested in the ToRs. Evaluation criteria are the following:

• Relevance (were the project objectives in line with the existing development needs and the priorities at the programme, national and/or EU level?); • Coherence (with other national and/or EU interventions in the same sector or region); • Effectiveness (were the stated objectives achieved, and on time? Did other effects materialize? Were other possible options considered?); • Efficiency (costs and benefits relative to each other and to their ex-ante values); • EU added value (was EU support necessary, EU-wide effects, further EU action required?).

8. ANNEX II. EX-POST COST-BENEFIT ANALYSIS REPORT

This Annex presents the ex-post CBA of the project Water Supply and Sewerage System with Wastewater Treatment Plant for Slavonski Brod undertaken to quantitatively assess the performance of the project. The methodology applied is in line with the First Interim Report and, more generally, with the EC Guide (European Commission, 2014). This annex aims to present in more detail the assumptions, results of the CBA and the scenario analysis for the project under consideration.

METHODOLOGY, ASSUMPTION AND DATA GATHERING

In what follows, the main assumptions and the procedure of data gathering are described in detail.

• Project identification The unit of analysis of this CBA is water supply and sewerage system with wastewater treatment plant for Slavonski Brod, which was implemented during 2007-2013 programming period. The project includes:

1) Rehabilitation and extension of water supply network 2) Sewer extensions 3) Construction of a new wastewater treatment plant

The objectives of the project were:

1) To increase the percentage of population supplied with water from public water supply systems in line with European standards. The target was to increase connection rate from 83% to 89% following implementation of the project (i.e. from 59,830 to 66,840 by 2012) and to 91% by the end of the reference period, 2) To establish sanitary water source protection zones and implement adequate protective measures and activities related to the improvement of drinking water conditioning in accordance with the EU Drinking Water Directive, 3) To reduce losses from water supply distribution networks, 4) To construct and reconstruct urban wastewater sewerage and treatment systems, and 5) To increase the percentage of population connected to public sewerage systems (from 74% to 83% following the implementation of the project (i.e. from 67,736 to 74,792 by 2012) and to 91% by the end of reference period18.

The project was implemented from 2010 to 2015 as detailed below.

Table 13. Synthesis of the interventions

ACTIVITY IMPLEMENTATION NOTE PERIOD

Preparatory phase (design, 2005-2010 documentation, feasibility study)

18 Ex ante projections were based on assumption that population will grow and that new dwellings will be built in the area covered by the project. Despite depopulation, the same assumption was used, i.e. that population (despite its decrease) will live in more developed areas, i.e. those connected to water and sewerage system.

Reconstruction and construction of 2010-2014 Phased approach, enabling water supply and drainage network new users to connect from 2012.

Construction of wastewater plant 2011-2014 Physical work ended in 2014. Financial closure in 2016.

Procurement of maintenance equipment 2011-2012

Supervision 2010- 2016 Final payments in 2016. Source: Authors

• Time horizon In line with the First Interim Report, the time horizon for the CBA of the project is set at 30 years (incl. 4 years of construction, 2010-2014). Accordingly, the timeframe for the project’s evaluation runs from 2010, when the first capital expenditure occurred, to 2039. As the physical construction work ended in 2014, this was considered as the end of the implementation period. However, the final payments and financial closure of the project was in 2016. Infrastructure became fully operational in 2015. Therefore, the 2010-2014 period is considered as implementation period, despite the fact that some of the activities were paid later. Dynamics of payments was considered in financial and economic analysis. The time horizon includes period up to 2039. A mix of historical data from 2010 to 2017 (covering eight years) and forecasts from 2018 to 2039 (covering 22 years) is used.

• Constant prices and discount rates In line with the guidelines of the First Interim Report, the CBA was performed using constant prices. Historical data have been adjusted and converted into Euro at 2018 prices by using the yearly average percentage variation of consumer prices provided by the International Monetary Fund19. As for the data from 2018 onwards, they have been estimated in real terms (no inflation is considered).

Consistent with the choice of using constant prices, financial and social discount rates have been adopted in real terms. Specifically, inflows and outflows of financial analysis - for both backward and forward periods of analysis – have been discounted and capitalised using a 4% real rate, as suggested in the EC CBA Guide (2014). With regard to the economic analysis, a real backward social discount rate of 4.61% and a real forward social discount rate of 5.52%, specifically calculated for Croatia (see the First Interim Report for the calculation), have been adopted. Over the entire period of analysis, inflows and outflows were considered net of VAT.

• Without-the-project scenario The without-the-project scenario adopted in ex-post evaluation is a “do nothing” scenario. This scenario does not change the original situation, but includes necessary maintenance, repairs and renovation to keep service provided at the original (default) level. Under without–the-project scenario, there are no extensions of the water supply networks, no extensions of sewerage network. The wastewater treatment plant is not

19 Avaiable at: https://www.imf.org/external/datamapper/PCPIPCH@WEO/OEMDC/

built. Operating and maintenance costs for water supply and sewerage are comparable with costs in the project. There are no O&M costs for WWTP.

• Data sources The analysis relied on National Bureau of Statistics data, data provided by the Vodovod Slavonski Brod (Water System Slavonski Brod) on water quantities and operational costs and revenues. Croatian Waters provided data on dynamics of capital expenditures. Vodovod Slavonski Brod provided Final Report on the project implementation, approved by Ministry of Regional Development and EU Funds, with data on new connections as well as financial data on the EU and national contribution. Population and macroeconomic projections are based on long-term projections prepared for energy strategy until 2050 (Energy Institute Hrvoje Požar). Reference value for cost savings are in line with Guidelines for Preparation of CBA in water utility projects in Croatia.

• Technical features

1) The reconstruction and construction of 9 km of water supply network and the construction of a water tower in Brodsko Brdo; 2) The construction of the wastewater drainage system including the construction of 36.1 km of new collectors, 8 pumping stations and 7 rain spillways in the City of Slavonski Brod and in the municipalities of Klakar, Gornja Vrba and Podcrkavlje as well as the reconstruction of 0.7 km of the existing main collectors in the City of Slavonski Brod;

These two components were executed by one contractor (one tender, one works contract)

1) The construction of wastewater treatment plant with a capacity of 80,000 ES. This involves mechanical purification, biological purification, sludge treatment, processing and the use of biogas. Biogas is a result of anaerobic digestion of sludge. The biogas is used in a warm water boiler, to provide heating water mainly for the digesters as well as heating the buildings during the winter period.

The supervision of all construction works (components 1, 2 and 3) was done by one team of engineers (one tender, one service contract).

2) The system maintenance equipment was also included within the project (two contracts).

Table 14. Parts of the project Supply and Sewerage System with Wastewater Treatment Plant for Slavonski Brod

WATER SUPPLY PROJECTS • Transport main (300 mm) Veliko Polje; • Transport main (300 mm) from Posavska Street to the main pipeline towards water tank Brodsko Brdo; • Construction of the main pipeline (300-500 mm) from Primorska street to Brodsko Brdo water tank (replacement of the existing pipe); • Reconstruction of the main nodes to decrease losses in the network; and

• Construction of new service reservoir at Brodsko Brdo.

WASTEWATER PROJECTS Sewers in City of Slavonski Brod: • Collector, retention tank, pumping station Veliko Polje-Šestinac, Glogovica Settlement • Collector Brodski Varoš, Tuleži, Budainka • Collector for collection system 'North' for Brodsko Vinogorje, Brodski Varoš, Podvinje • Bjeliš collector and pumping station • Reconstruction of the existing collector along Glogovica canal • Local sewerage network, Veliko Polje, Brodsko Vinogorje, Podvinje, Bjeliš, Brodski Varoš, Jelas • Storm overflows on collectors (3 pieces) Sewers in Municipality of Klakar: • Sewerage for settlement Ruščica Sewers in Municipality of Gornja Vrba: • Sewerage for settlement Klis Sewers in Municipality of Podcrkavlje: • Sewerage for settlement Tomica • Sewerage for settlement Rastušje • Sewerage for settlement Tomica • Sewerage for settlement Rastušje WASTEWATER TREATMENT PLANT FOR 80,000 PE EQUIPMENT • Sewer CCTV inspection system including vehicle • 2 combined vacuum tanker/jetting machine

FUTURE SCENARIO

Demand To develop the demand analysis, the original demand and assumptions in the ex-ante analysis have been revised based on the available information.

Main factors that influenced water demand are population and economic trends. Ex ante CBA was based on 2001 census data, population estimates for 2007 and projections based on these trends. Results of the 2011 census showed significant difference from this projection. Number of inhabitants in Slavonski Brod in 2011 was 58,662, which is 16% less than projected (ex ante projection: 69,902). On the other hand, population in municipalities Gornja Vrba, Podcrkavlje and Klakar increased. Thus, for the whole area the population in 2011 was 10% smaller than projected in the ex-ante analysis.

Croatian Bureau of Statistics publishes population projections on national and county levels. Some estimates are also available on the level of cities, but there are no population estimates and forecasts on the level on municipalities.

The population projection necessary for demand for potable water, sewage and water treatment is based on mean variant projections for Brod-Posavina County prepared for the energy sector development strategy in 2018 (EIHP, 2018). The estimates at the

county level are available for 5-year intervals (i.e. for 2011, 2016, 2021, 2026, 2031, 2036, 2041). For years between the population was lineary interpolated.

It is estimated that population trend in Slavonski Brod will follow the trend in the Brod- Posavina County – i.e. that share of population of Slavonski Brod will stay at the level of 37% of the Brod-Posavina County. For municipalities Podcrkavlje, Gornja Vrba and Klakar stable population is projected.

For water demand, historical data on potable water consumption (2010-2017) was used. Per capita demand projections prepared for a new water project in the region were used20 for the 2018-2039 period. These projections are coherent with ex-ante projections. Based on the projected connection rate and per capita consumption, total consumption of the households was estimated.

With-the-project scenario estimates that non-household consumption stabilizes at 2016 level (due to industrial consumption). Project was largely motivated by the need to comply with the EU rules. Business as usual would lead to infringement procedure and environmental risks. Thus, counterfactual scenario, the delayed implementation was considered. If no central WWTP was built, non-household users would need to install individual wastewater purification facilities. Available estimates show that this cost is prohibitive, thus it would lead to stopping economic activities which is reflected in 30% reduction of non-household water consumption compared to the with-the-project scenario from 2018 onwards, when more stringent rules entered into force.

The historical data (2010-2017) were also used to estimate water demand without-the project scenario (excluding water consumption and sewage connections in settlements where network was expanded). For non-household water consumption, the project considers historical data (2010-2017) and projections based on macroeconomic forecasts. In the period 2010-2017 non-household water consumption varied between 26-28% of household consumption.

The historical and future trend for the with-the-project and without-the-project scenarios resulting from the above assumptions are shown in Figure 10 and Figure 11.

20 Dippold & Gerold , Hidroprojekt 91 d.o.o. SAFEGE d.o.o. Hidro consult d.o.o., Inženjerski projektni zavod d.d.

Figure 10. Water demand – with and without project scenario

Water demand 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000

2027 2031 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2028 2029 2030 2032 2033 2034 2035 2036 2037 2038 2039

Without the project, total (m3/year) With the project, (m3/year)

Source: Authors

Figure 11. Waste water – with and without-the-project scenario

Waste Water 3,500,000

3,000,000

2,500,000

2,000,000

1,500,000

1,000,000

500,000

2017 2034 2010 2011 2012 2013 2014 2015 2016 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2035 2036 2037 2038 2039

With project (m3/year) Without project (m3/year)

Source: Authors

FINANCIAL ANALYSIS

Investment cost Table 15 summarizes the breakdown of the investment according to the main cost categories.

Table 15. Investment cost breakdown by project component (EUR)

PRESENT VALUE PROJECT ITEM NOMINAL VALUE (2018 EUR) Reconstruction and construction of water 10,473,701 14,222,186 supply and wastewater drainage network Construction of wastewater plant 10,704,942 13,580,676 Procurement of maintenance equipment 476,395 644,584 Supervision 1,465,397 1,907,751

Total 23,111,436 30,355,197 Source: Authors

In line with the approach described in the First Interim Report, the present value is presented at 2018 price level and discounted to base year (2018), considering investment dynamics. Due to these adjustments, the present value is higher than the nominal value of the investment.

Residual value The assessment of the residual technical life of the main project components after the end of the analysis time horizon was calculated based on European Commission (2014: 184), i.e. based on a weighted average of the physical lifetime of the different asset categories. Physical lifetime for buildings is estimated at 50 years, and for equipment (depending on type) 8-20 years. On this basis, the weighted average of overall economic life of the project is estimated at 36 years after implementation.

Residual value of the project is calculated as net present value of financial flows at the end of project reference period. As construction took 5 years, 11 years after reference period was considered (i.e. 2040-2050).

The residual value is estimated at EUR 3,718,250 (2018 prices, nominal value).

Operating & Maintenance costs The financial analysis is undertaken from the point of view of the Vodovod Slavonski Brod, who owns and operates the infrastructure. The main categories of operating costs are included in the analysis and are estimated on the basis of the existing costs (data for 2017) and historical data.

These costs include fixed O&M costs (ordinary maintenance of the equipment and construction part of the system) and variable costs (e.g. electricity for pumping). Fixed costs increase with the extension of the network. Historical data show that this increase is smaller than proportionate, as project included also improvements of the existing network. Overall extraordinary maintenance costs decreased. There are no data on the proportion of fixed costs relating to “old” network as compared to the new one. Therefore, a rough estimate was made based on the assumptions on impact of rehabilitation of the network to fixed cost reduction (based on cost of unplanned repairs and extraordinary maintenance costs before and after implementation of the project), combined with the increase of costs due to extension of the network. Based on this approach, it was assumed that fixed costs gradually increased (in two steps, in 2011 and 2012), while variable costs (per m3 of delivered water) decreased (in 2012, 2013 and 2014, mainly due to reduced losses and need for pumping water).

To identify incremental cost, scenarios with-the-project and without-the-project were considered. In with-the-project scenario current level of O&M costs was used. These costs include fixed O&M costs (ordinary maintenance of the equipment and construction part of the system) and variable costs (e.g. electricity for pumping). Waste treatment costs are estimated at current level of capacity use (i.e. 50%), based on the Vodovod Slavonski Brod current data.

Reinvestment in equipment is estimated based on expected lifetime of the equipment (e.g. for vehicles after 8 years of operation, mechanical equipment after 10 years of operation). As regards the equipment with a lifetime of 20 years, it was assumed that the replacement costs will be financed by loan, i.e. the cost of replacement is annualised.

For water supply and wastewater network the difference appears as soon as part of the extended/improved network becomes operational, i.e. from 2012 onwards. The operating and maintenance costs for the equipment accrue following its procurement (i.e. in 2013). For the WTTP the costs incur following the end of construction phase, i.e. in 2015.

Operating revenues The operating revenues are calculated based on variable prices for water (households 0.61 eur/m3 and for industry 0.97 eur/m3), discharge water (0.14 eur/m3 households and 0,22 eur/m3 industry) and water treatment (from 2015 onwards, 0,15 eur/m3 and 0,31 eur/m3 for households and industry respectively). For water supply and wastewater network the extension and improvements were gradual, allowing for new customers to connect from 2012 onwards, which is also reflected in operating revenues. The WTTP started creating revenues in 2015, when it became operational.

Project’s Financial Performance On a financial basis, the profitability of the project is negative. The Financial Net Present Value (FNPV) on investment is equal to -29.4 million euro (at a discount rate of 4%, real), with an internal rate of return of -19.3%. Also, the Financial Net Present Value on national capital is negative with the level of EUR 13.81 million and with the internal rate of return for capital of -11.1% These negative values confirm that the project was in need of EU funding since no private investor would have been motivated to implement it without an appropriate financial incentive. The results of the project financial performance are shown in Table 16.

Table 16. Financial performance indicators of the project

INDICATOR EUR FNPV/C -21,683,512 EUR FRR/C -6.57% FNPV/K -3,440,396 EUR FRR/K -3.01% Source: Authors

Table 17. Financial return on investment (EUR)

PRESENT OperationalTable 18. income 1 VALUE 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Water supply households 649,269 0 0 97,845 2,011 76,078 92,583 84,044 88,387 27,519 18,459

industry 5,755,546 0 0 36,804 968 29,765 62,220 69,205 69,205 250,998 250,998 Sewage households 1,573,205 0 0 0 5,793 18,038 25,756 28,253 31,745 36,834 36,661 industry 1,522,219 0 0 0 2,435 6,448 15,129 16,629 34,390 72,017 66,028 Wastewater treatment households 8,424,871 0 0 0 0 0 334,961 327,065 340,129 349,265 317,234 industry 4,837,853 0 0 0 0 0 177,259 173,761 197,700 203,010 194,939 TOTAL 22,762,962 0 0 134,649 11,207 130,329 707,907 698,957 761,556 939,645 884,320 2 Capex A WATER SUPPLY AND SEWERAGE INVESTMENTS 14,222,186 1,048,957 3,666,192 4,481,266 749,838 523,487 0 3,960 B Maintenance equipment 1 Equipment 1 470,889 0 207,956 133,439 2 Equipment 2 173,695 0 75,600 50,400 C WASTEWATER TREATMENT PLANT 13,580,676 1,582,500 1,982,245 5,756,236 1,377,319 6,642 D OTHER COSTS 2 Supervision (5%) 1,907,751 291,700 131,415 378,610 364,929 145,996 36,954 115,794 TOTAL 30,355,197 1,340,657 5,663,663 7,025,960 6,871,004 2,046,802 43,596 119,754 0 3 OPEX Water (ordinary annual maintenance + variable costs) 468,974 0 0 13,540 4,122 3,110 8,811 9,272 9,192 18,459 19,638 Waste water (ordinary annual maintenance+ variable costs) 1,321,492 0 0 0 4,866 15,152 21,635 23,733 26,666 30,941 30,796 WTTP (ordinary annual maintenance + variable costs) 15,700,126 0 0 0 0 0 613,021 599,075 635,616 652,690 600,656 Reinvestment 4,358,952 0 0 0 4,674 4,674 4,674 4,674 4,674 4,674 4,674 TOTAL 21,849,544 0 0 13,540 13,662 22,935 648,141 636,754 676,148 706,763 655,763 4 Residual value 7,758,267 5 Total (1-2-3+4) -21,683,512 -1,340,657 -5,663,663 -6,904,851 -6,873,458 -1,939,408 16,170 -57,551 85,408 232,882 228,556

1 Operational income 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 Water supply households 22,578 10,959 5,727 1,767 -1,173 4,768 -11,317 -14,198 -17,088 -19,640 -17,591 -7,049 -8,525 -11,553 -14,588 -13,430 -15,782 -16,773 -8,092 103,876 250,99 250,99 250,99 250,99 250,99 250,99 250,99 250,99 250,99 250,99 250,99 250,99 250,99 250,99 industry 8 8 8 250,998 8 250,998 8 250,998 8 250,998 8 250,998 8 8 8 8 8 8 8 250,998 Sewage households 39,663 43,018 46,356 52,656 61,558 70,194 70,076 69,976 70,272 73,242 72,931 78,900 78,746 78,884 78,728 78,307 78,107 79,727 82,516 74,456 industry 66,028 66,028 66,028 66,028 66,028 66,028 66,028 66,028 66,028 66,028 66,028 66,028 66,028 66,028 66,028 66,028 66,028 66,028 66,028 66,028 Wastewater treatment 316,27 318,93 321,56 336,57 343,14 342,62 344,17 349,82 349,46 348,77 346,91 346,01 347,19 349,71 households 0 1 8 327,585 1 343,650 6 342,660 4 345,642 3 350,508 4 9 5 2 9 1 7 315,578 194,93 194,93 194,93 194,93 194,93 194,93 194,93 194,93 194,93 194,93 194,93 194,93 194,93 194,93 industry 9 9 9 194,939 9 194,939 9 194,939 9 194,939 9 194,939 9 9 9 9 9 9 9 194,939 890,47 884,87 885,61 908,92 913,87 907,77 911,47 932,01 928,76 924,88 923,75 920,31 922,11 936,10 1,005,87 TOTAL 6 3 8 893,974 1 930,577 0 910,403 4 911,210 9 934,325 2 7 0 5 0 1 7 6 2 Capex A WATER SUPPLY AND SEVERAGE INVESTMENTS B Maintenance equipment Equipment 1 1 Equipment 2 2 C WASTEWATER TREATMENT PLANT D OTHER COSTS 2 Supervision (5%) TOTAL 3 OPEX Water (ordinary annual maintenance + variable costs) 20,580 18,986 18,319 17,836 17,503 18,584 16,278 15,889 15,499 15,158 15,542 17,111 16,936 16,537 16,136 16,413 16,124 16,033 17,345 35,552 Waste water (ordinary annual maintenance+ variable costs) 33,317 36,135 38,939 44,231 51,709 58,963 58,863 58,780 59,029 61,523 61,262 66,276 66,147 66,263 66,131 65,778 65,610 66,971 69,313 62,543 599,27 603,09 606,88 628,45 637,90 637,15 639,38 647,50 646,99 645,99 643,31 642,03 643,71 647,35 WTTP (ordinary annual maintenance + variable costs) 0 5 6 615,536 3 638,629 4 637,205 4 641,492 0 648,488 5 4 7 8 5 9 0 598,276 186,81 186,81 186,81 186,81 186,81 186,81 Reinvestment 4,674 4,674 4,674 472,069 4,674 691,140 4,674 691,140 4,674 691,140 4,674 691,140 4,674 8 8 8 8 8 8 186,818 657,84 662,88 668,81 1,149,67 702,33 1,407,31 717,71 1,403,01 716,35 1,409,31 720,85 1,423,01 735,26 916,61 915,08 912,32 910,58 913,54 920,82 TOTAL 1 9 8 2 8 5 9 4 5 3 8 4 2 2 2 7 6 1 6 883,188 3,718,25 4 Residual value 0 232,63 221,98 216,79 206,58 196,15 191,41 190,62 196,75 3,840,93 5 Total (1-2-3+4) 5 4 9 -255,698 3 -476,738 1 -492,611 9 -498,103 0 -488,689 0 12,155 9,798 11,429 9,724 8,570 15,281 8 Source: Authors

Table 19. Financial return on national capital (EUR)

PRESENT 1 Operational income VALUE 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Water supply households 649,269 0 0 97,845 2,011 76,078 92,583 84,044 88,387 27,519 18,459 industry 5,755,546 0 0 36,804 968 29,765 62,220 69,205 69,205 250,998 250,998 Sewage households 1,573,205 0 0 0 5,793 18,038 25,756 28,253 31,745 36,834 36,661 industry 1,522,219 0 0 0 2,435 6,448 15,129 16,629 34,390 72,017 66,028 Wastewater treatment households 8,424,871 0 0 0 0 0 334,961 327,065 340,129 349,265 317,234 industry 4,837,853 0 0 0 0 0 177,259 173,761 197,700 203,010 194,939 TOTAL 22,762,962 0 0 134,649 11,207 130,329 707,907 698,957 761,556 939,645 884,320 2 Capex A WATER SUPPLY AND SEVERAGE INVESTMENTS 5,880,882 433,744 1,515,973 1,853,006 310,059 216,462 0 1,638 B Maintenance equipment 1 Equipment 1 194,713 0 85,990 55,177 2 Equipment 2 71,823 0 31,261 20,840 C WASTEWATER TREATMENT PLANT 5,615,618 654,365 819,660 2,380,207 569,522 2,746 D OTHER COSTS 2 Supervision (5%) 788,856 120,618 54,340 156,555 150,898 60,369 15,281 47,881 TOTAL 12,551,893 554,362 2,341,928 2,905,239 2,841,164 846,354 18,027 49,518 3 OPEX Water 468,974 0 0 13,540 4,122 3,110 8,811 9,272 9,192 18,459 19,638 Waste water 892,880 0 0 0 2,622 7,908 12,487 13,705 18,814 28,811 27,447 WTTP 15,700,126 0 0 0 0 0 613,021 599,075 635,616 652,690 600,656 Maintenance 4,347,752 4,674 4,674 4,674 4,674 4,674 TOTAL 21,409,732 0 0 13,540 6,744 11,017 638,993 626,727 668,296 704,633 652,415 4 Residual value 7,758,267 5 Total (1+2+3+4) -3,440,396 -554,362 -2,341,928 -2,784,129 -2,836,701 -727,042 50,887 22,712 93,260 235,011 231,905

1 Operational income 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039

1 Operational income Water supply households 22,578 10,959 5,727 1,767 -1,173 4,768 -11,317 -14,198 -17,088 -19,640 -17,591 -7,049 -8,525 -11,553 -14,588 -13,430 -15,782 -16,773 -8,092 103,876 industry 250,998 250,998 250,998 250,998 250,998 250,998 250,998 250,998 250,998 250,998 250,998 250,998 250,998 250,998 250,998 250,998 250,998 250,998 250,998 250,998 Sewage households 39,663 43,018 46,356 52,656 61,558 70,194 70,076 69,976 70,272 73,242 72,931 78,900 78,746 78,884 78,728 78,307 78,107 79,727 82,516 74,456 industry 66,028 66,028 66,028 66,028 66,028 66,028 66,028 66,028 66,028 66,028 66,028 66,028 66,028 66,028 66,028 66,028 66,028 66,028 66,028 66,028 Wastewater treatment households 316,270 318,931 321,568 327,585 336,571 343,650 343,146 342,660 342,624 345,642 344,173 350,508 349,824 349,469 348,775 346,912 346,019 347,191 349,717 315,578 industry 194,939 194,939 194,939 194,939 194,939 194,939 194,939 194,939 194,939 194,939 194,939 194,939 194,939 194,939 194,939 194,939 194,939 194,939 194,939 194,939 TOTAL 890,476 884,873 885,618 893,974 908,921 930,577 913,870 910,403 907,774 911,210 911,479 934,325 932,012 928,767 924,880 923,755 920,310 922,111 936,107 1,005,876 2 Capex 0,414 A WATER SUPPLY AND SEVERAGE INVESTMENTS B Maintenance equipment 1 Equipment 1 2 Equipment 2 C WASTEWATER TREATMENT PLANT D OTHER COSTS 2 Supervision (5%) TOTAL 3 OPEX Water 20,580 18,986 18,319 17,836 17,503 18,584 16,278 15,889 15,499 15,158 15,542 17,111 16,936 16,537 16,136 16,413 16,124 16,033 17,345 35,552 Waste water 28,519 29,717 30,910 33,160 36,339 39,423 39,381 39,346 39,451 40,512 40,401 42,533 42,478 42,527 42,471 42,321 42,249 42,828 43,824 40,946 WTTP 599,270 603,095 606,886 615,536 628,453 638,629 637,904 637,205 637,154 641,492 639,380 648,488 647,505 646,994 645,997 643,318 642,035 643,719 647,350 598,276 Maintenace 4,674 4,674 4,674 472,069 4,674 691,140 4,674 691,140 4,674 691,140 4,674 691,140 4,674 186,818 186,818 186,818 186,818 186,818 186,818 186,818 TOTAL 653,044 656,472 660,789 1,138,601 686,968 1,387,775 698,237 1,383,580 696,777 1,388,302 699,997 1,399,271 711,592 892,876 891,422 888,870 887,225 889,398 895,336 861,590 4 Residual value 3,718,250 5 Total (1+2+3+4) 237,433 228,401 224,829 -244,626 221,953 -457,198 215,633 -473,176 210,996 -477,092 211,481 -464,946 220,419 35,891 33,459 34,886 33,084 32,713 40,770 3,862,536

Financial Sustainability The tariff policy provides sustainability. The current level of water prices covers operational and maintenance costs. However, the increasing depopulation and share of socially vulnerable customers (who are entitled to lower prices, which is slightly below cost- coverage) might lead to financial problems.

Considering the level of affordability (3% of available income), for a one-person household the tariff is affordable for household with monthly income at the level of EUR 270.

In line with EC Guide on CBA methodology, for projects that fall within an already existing infrastructure, such as capacity extension projects, the overall financial sustainability of the infrastructure operator, including the project (more than that of the single extended segment), should be checked after the project (i.e. in the ‘with- the-project’ scenario), even if the analysis of incremental cash-flows shows that the project will not run out of cash-flow. Thus, overall financial sustainability was checked (Table 19). The results support conclusion that the intervention is financially sustainable.

Table 20. Financial sustainability of the project (total, EUR)

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Sources of financing 1,340,657 5,663,663 7,025,960 6,871,021 2,046,802 43,596 119,754 Total revenues 2,641,858 2,600,577 2,619,984 2,651,045 2,632,730 3,204,010 3,107,236 3,221,853 3,203,499 2,965,662 Total inflows 3,982,515 8,264,240 9,645,944 9,522,065 4,679,532 3,247,606 3,226,990 3,221,853 3,203,499 2,965,662 Initial investments 1,340,657 5,663,663 7,025,960 6,871,004 2,046,802 43,596 119,754 0 0 0 Operating, maintenance and replacement 1,226,249 1,212,849 1,213,293 1,237,046 1,217,598 1,832,617 1,805,446 1,856,960 1,871,251 1,784,140 costs (with taxes) Total outflows 2,566,906 6,876,512 8,239,253 8,108,049 3,264,400 1,876,213 1,925,200 1,856,960 1,871,251 1,784,140 Net cash flow 1,415,609 1,387,728 1,406,692 1,414,016 1,415,132 1,371,392 1,301,790 1,364,893 1,332,248 1,181,522 Cumulated net cash flow 1,415,609 2,803,337 4,210,029 5,624,045 7,039,177 8,410,569 9,712,359 11,077,253 12,409,501 13,591,023

2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 Sources of financing 2,946,626 2,934,296 2,928,284 2,929,859 2,937,998 2,943,656 2,924,832 2,919,229 2,914,453 2,915,734 Total revenues 2,946,626 2,934,296 2,928,284 2,929,859 2,937,998 2,943,656 2,924,832 2,919,229 2,914,453 2,915,734 Total inflows 0 0 0 0 0 0 0 0 0 0 Initial investments 1,779,952 1,782,094 1,785,119 2,261,635 1,808,701 2,506,449 1,816,506 2,501,440 1,814,228 2,505,340 Operating, maintenance and replacement 1,779,952 1,782,094 1,785,119 2,261,635 1,808,701 2,506,449 1,816,506 2,501,440 1,814,228 2,505,340 costs (with taxes) Total outflows 1,166,674 1,152,202 1,143,165 668,224 1,129,297 437,206 1,108,326 417,789 1,100,225 410,394 Net cash flow 14,757,697 15,909,899 17,053,064 17,721,288 18,850,585 19,287,792 20,396,118 20,813,907 21,914,132 22,324,526 Cumulated net cash flow 2,946,626 2,934,296 2,928,284 2,929,859 2,937,998 2,943,656 2,924,832 2,919,229 2,914,453 2,915,734

2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 Sources of financing 2,909,620 2,929,677 2,924,452 2,918,268 2,911,428 2,902,376 2,895,123 2,893,026 2,903,230 2,830,082 Total revenues 2,909,620 2,929,677 2,924,452 2,918,268 2,911,428 2,902,376 2,895,123 2,893,026 2,903,230 2,830,082 Total inflows 0 0 0 0 0 0 0 0 0 0 Initial investments 1,815,815 2,514,556 1,826,321 2,007,042 2,005,023 2,000,956 1,998,584 2,000,011 2,005,225 1,944,155 Operating, maintenance and replacement 1,815,815 2,514,556 1,826,321 2,007,042 2,005,023 2,000,956 1,998,584 2,000,011 2,005,225 1,944,155 costs (with taxes) Total outflows 1,093,804 415,121 1,098,131 911,226 906,405 901,420 896,539 893,015 898,006 885,927 Net cash flow 23,418,330 23,833,452 24,931,583 25,842,809 26,749,213 27,650,633 28,547,173 29,440,188 30,338,194 31,224,121 Cumulated net cash flow 2,909,620 2,929,677 2,924,452 2,918,268 2,911,428 2,902,376 2,895,123 2,893,026 2,903,230 2,830,082

Source: Authors

ECONOMIC ANALYSIS

From market to accounting prices In line with the CBA Guide (2014), the social opportunity cost of the project’s inputs and outputs has been considered in the economic analysis. For this purpose, market prices have been converted into accounting prices by using appropriate conversion factors.

As specific conversion factors at national level have not been adopted, the conversion factor 1 was applied. The only exception is labour, for which backward shadow wage 0.49 and forward shadow wage 0.52 were provided in the First Interim Report for Continental Croatia (HR04A). In the construction phase, labour costs include supervision costs and 25% of construction costs, and during operational phase 20% of operational costs. These shares are standard estimates for work–material used in construction work in similar projects.

Project’s effects Benefits to be considered are identified based on the EU guidelines for this type of projects, initial cost-benefit analysis, national guidelines on water projects, interviews with stakeholders and the approach from Interim Report.

Following effects have been monetized:

• Increased reliability of water sources and water supply – for the existing customers • Increase in the number of customers served by water supply and wastewater treatment services • Reduction in contamination of water bodies • Negative externalities relating to increase of GHG emissions due to operation of the WTTP

Benefits

Reduction of contamination of water bodies is the greatest benefit from this project. This benefit is estimated based on the improvements in quality of water, soil and air (estimated at 32€/person, in line with ex-ante approach, relating to use and non-use value) due to construction of watewater treatment plant.

Increased availability of drinking water supply is a direct benefit of the project and arises from connection of new users to the centralised water supply. This benefit is estimated based on users’ willingness to pay (WTP) for the service. The WTP for being connected to the water supply/sewerage service is estimated based on averting behaviour, i.e. cost of the best alternative technique feasible for the water supply – operation cost of own wells. Savings in operation costs of own wells is estimated at EUR 148 per household per year for new customers.

Increased availability of sewerage service for new customer is estimated based on WTP. The avoided maintenance costs of self‐collection and discharge of wastewater for newly connected households to the sewerage network was estimated at 348 EUR per household. The cost estimate is based on annual cost of septic tank cleaning in line with Guidelines for Preparation of CBA in Water Projects in Croatia. The latest available data on average size of households was used, i.e. 2.7 persons/household (DZS, 2016).

Before project implementation there were also problems with reliability of drinking water for the existing customers in certain settlements. Implementation of the project

limited occasional service interruptions due to low water pressure. Thus, monetized benefits relate to avoided costs of alternative water supply - buying bottled drinking water estimated at 40 eur/year per household (100 l of bottled water) in the affected settlements (1200 households).

Figure 12. Main socioeconomic benefits (Present Value, %)

Source: Authors

In line with First Interim Report, variations in the number of consumers served by water and treatment services is considered as effect related to quality of life and well-being and based on the WTP. WTP is estimated by applying the market price of the best alternative technique feasible for the water supply/discharge of wastewater.

Monetisation is the same as variation in quantity of water supplied and waste water treated, which is considered as effect related to economic growth. Thus, to avoid double counting, effects related to economic growth are not separately stated.

However, it should be noted that growth effects also relate to quality of life and well-being.

Variation in GHG emissions (negative externalities)

The economic analysis takes into account the increase of GHG emissions as a result of sludge digesters, based on a quantification of gas production and related CO2 portion and sludge transport to disposal sites, based on quantification of dehydrated sludge and other waste from the WWTPs and energy savings due to optimisation of the system. Project documentation and available data show that WTTP, when working with half of the capacity

(which is the current stage) emits 600 t CO2/eq a year. It was assumed that CO2 emissions will remain fairly stable at current level until the end of reference period. According to the demand analysis, industrial water demand will remain stable, while domestic is projected to decrease due to depopulation (Figure 11). Compared to 2018 level, quantities of waste water will decrease 6%. However, ageing of equipment will lead to increased emissions, thus this externality was monetized based on assumption that the GHG emissions will remain stable at current level.

The additional CO2 emissions generated are monetized using the shadow price of CO2.

Unitary monetary values of CO2 emission (in 2018 €/ton CO2 equivalent) are in line with First Interim Report, i.e. from EIB (2013) as suggested in the EC Guide and by JASPERS

The present value (2018) of associated cost is EUR 544,787.

Project’s Economic Performance

Table 21. Economic performance indicators of the project

INDICATOR EUR ENPV 23,084,242 € B/C 1.6 ERR 9.97%

Economic net present value is positive, at level of EUR 23.08 million, B/C greater than 1 and ERR (9.97%) greater than applied economic discount rate indicating that the project brings economic benefits and that EU funding is justified.

Benefits are related to reduction of contamination of water bodies due to construction of watewater treatment plant (56%), EUR 34 million, followed by increased availability of sewerage service 36%, EUR 22 million, followed by increased availability of water supplied to new customers, 6% or EUR 4 million and 2% or EUR 950,797 for the reliability of water supply for existing customers.

The results of the economic analysis are shown in Table 21.

Table 22. Economic return of the project (EUR)

Present Value 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 (2018)

CAPEX 26,478,444 1,005,118 4,922,409 5,960,094 5,809,538 1,708,884 16,686 37,514 0 0 0 Construction works 20,149,102 734,270 3,674,084 4,524,458 4,554,252 1,330,564 4,649 2,772 0 0 0 Supply 9,305,368 314,687 1,858,165 2,122,892 1,951,822 570,242 1,993 1,188 0 0 0

Supervision and project management 1,973,776 291,700 131,415 378,610 364,929 145,996 36,954 115,794 0 0 0

Labor costs 2,061,249 139,729 308,681 443,859 442,027 140,719 11,206 34,247 0

Other costs 24,417,195 865,389 4,613,728 5,516,235 5,367,511 1,568,165 5,480 3,267 0

OPEX 13,282,360 0 0 11,628 9,641 13,311 548,602 538,068 573,767 610,510 565,227

Water 333,961 0 0 13,540 4,122 3,110 8,811 9,272 9,192 18,459 19,638 Waste water 628,941 0 0 0 2,622 7,908 12,487 13,705 18,814 28,811 27,447

Treatment 11,722,977 0 0 0 0 0 613,021 599,075 635,616 652,690 600,656

Maintenace 3,062,947 0 0 0 4,674 4,674 4,674 4,674 4,674 4,674 4,674

0 Labor costs 836,447 0 0 796 740 991 37,642 36,920 39,364 47,037 43,528

Other costs 12,445,913 0 0 10,832 8,901 12,319 510,961 501,148 534,403 563,473 521,698

Residual value 1,737,886

Socio-economic benefits 61,651,947 0 19,163 244,694 340,272 558,775 2,714,569 2,756,134 2,754,290 2,832,165 2,887,766 Savings - septic tanks (new customers) 22,452,721 0 19,163 59,869 141,564 338,194 497,077 561,744 602,256 688,569 760,396

WTP to reduce contamination (use+nonuse) 34,267,318 0 0 0 0 0 1,998,939 1,976,032 1,937,140 1,920,651 1,904,161

Savings- individual water (new customers) 3,981,111 0 0 176,825 174,709 172,581 170,553 170,358 166,894 174,945 175,620

Water reliability -existing 950,797 0 0 8,000 24,000 48,000 48,000 48,000 48,000 48,000 47,588 0

Socio-economic costs : CO2 emissions 544,787 0 0 0 0 0 21,060 21,780 22,500 23,220 23,940

Total 23,084,242 -1,005,118 -4,903,246 -5,727,029 -5,478,907 -1,163,420 2,128,221 2,158,772 2,158,023 2,198,435 2,298,599

Present Value 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 (2018)

CAPEX 26,478,444 0 0

Construction works 20,149,102 0 0

Supply 9,305,368 0 0

Supervision and project management 1,973,776 0 0

Labor costs 2,061,249 Other costs 24,417,195

OPEX 13,282,360 565,772 568,745 572,488 595,191 932,068 1,122,477 604,963 1,118,839 603,698 1,122,934

Water 333,961 20,580 18,986 18,319 17,503 17,836 18,584 16,278 15,889 15,499 15,158

Waste water 628,941 28,519 29,717 30,910 36,339 33,160 39,423 39,381 39,346 39,451 40,512

Treatment 11,722,977 599,270 603,095 606,886 628,453 615,536 638,629 637,904 637,205 637,154 641,492 Maintenace 3,062,947 4,674 4,674 4,674 4,674 472,069 691,140 4,674 691,140 4,674 691,140 0 Labor costs 836,447 43,570 43,801 44,091 45,850 44,791 46,814 46,607 46,532 46,509 46,849 Other costs 12,445,913 522,201 524,944 528,397 549,341 887,277 1,075,663 558,356 1,072,307 557,188 1,076,084

Residual value 1,737,886

Socio-economic benefits 61,651,947 2,914,045 2,972,342 3,030,167 3,325,834 3,150,620 3,484,451 3,474,259 3,464,600 3,463,280 3,518,112

Savings - septic tanks (new customers) 22,452,721 823,620 893,931 963,718 1,283,279 1,096,122 1,464,661 1,460,174 1,456,105 1,460,377 1,520,890

WTP to reduce contamination (use+nonuse) 34,267,318 1,871,182 1,860,511 1,849,839 1,828,496 1,839,168 1,807,154 1,802,131 1,797,109 1,792,086 1,787,064

Savings- individual water (new customers) 3,981,111 172,479 171,403 170,379 168,362 169,366 167,473 166,916 166,473 166,030 165,497

Water reliability -existing 950,797 46,764 46,497 46,230 45,697 45,964 45,164 45,038 44,912 44,787 44,661

Socio-economic costs : CO2 emissions 544,787 24,660 25,380 26,100 27,540 26,820 28,260 28,980 29,700 30,420 31,140

Total 23,084,242 2,323,614 2,378,217 2,431,578 2,703,103 2,191,732 2,333,714 2,840,316 2,316,061 2,829,162 2,364,039

Present Value 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 (2018)

CAPEX 26,478,444

Construction works 20,149,102 Supply 9,305,368

Supervision and project management 1,973,776

Labor costs 2,061,249 Other costs 24,417,195

OPEX 13,282,360 606,490 1,132,446 616,545 752,407 751,146 748,933 747,507 749,391 754,541 725,276

Water 333,961 15,542 17,111 16,936 16,537 16,136 16,413 16,124 16,033 17,345 35,552 Waste water 628,941 40,401 42,533 42,478 42,527 42,471 42,321 42,249 42,828 43,824 40,946 Treatment 11,722,977 639,380 648,488 647,505 646,994 645,997 643,318 642,035 643,719 647,350 598,276

Maintenance 3,062,947 4,674 691,140 4,674 186,818 186,818 186,818 186,818 186,818 186,818 186,818

0 Labor costs 836,447 46,726 47,586 47,505 47,447 47,349 47,178 47,067 47,213 47,612 45,345 Other costs 12,445,913 559,764 1,084,860 569,040 704,960 703,797 701,755 700,439 702,177 706,928 679,931

Residual value 1,737,886 3,718,250

Socio-economic benefits 61,651,947 3,500,510 3,644,295 3,635,563 3,629,599 3,617,480 3,593,284 3,579,211 3,608,331 3,682,733 3,337,566

Savings - septic tanks (new customers) 22,452,721 1,512,342 1,635,464 1,630,061 1,630,793 1,625,369 1,614,519 1,608,238 1,639,948 1,695,724 1,534,338

WTP to reduce contamination (use+nonuse) 34,267,318 1,777,019 1,771,165 1,765,311 1,759,457 1,753,603 1,741,896 1,735,077 1,728,259 1,721,440 1,557,733 Savings- individual water (new customers) 3,981,111 166,738 193,401 196,073 195,378 194,682 193,337 192,534 196,932 222,548 206,565

Water reliability -existing 950,797 44,410 44,264 44,118 43,972 43,825 43,533 43,362 43,192 43,021 38,930

Socio-economic costs : CO2 emissions 544,787 31,860 33,240 34,620 36,000 37,380 38,760 40,140 41,520 42,900 44,280

Total 23,084,242 2,862,160 2,478,608 2,984,398 2,841,193 2,828,954 2,805,591 2,791,565 2,817,420 2,885,292 6,286,260

Source: Authors

SENSITIVITY ANALYSIS

A sensitivity analysis has been carried out on the key variables in order to determine whether they are critical or not. The procedure requires to make them vary one at a time by a +/-1%, and then to assess the corresponding change in the Economic NVP and IRR. A variable is referred to as “critical” if the corresponding variation in the economic output is greater than 1% in absolute value.

The result of the sensitivity test is presented in the table below.

Table 23. Results of the sensitivity analysis

VARIATION (in %) of the CRITICALITY INDEPENDENT VARIABLE economic NPV due to a ± 1% variation JUDGEMENT *

Number of inhabitants 1.9% Critical

Consumption of water per -0.2% Not critical inhabitant

Operating costs for WWTP -0.4% Not critical

Cost savings for septic tanks 1.0% Critical

Water connections - savings in 0.2% Not critical the operation of own wells

Improved reliability of water 0.0% Not critical sources and water supply service

Savings in contamination of air, 1.5% Critical soil, water

Quantities of CO2 eq emission, 0.0% Not critical t/year

*Very critical: ΔNPV > +5%; Critical: ΔNPV > +1%; Not critical: ΔNPV < +1%.

RISK ASSESSMENT

The risk assessment has been conducted on the critical variables as a result of the sensitivity analysis: number of inhabitants, cost savings for septic tanks, savings in contamination of air, soil, water. For the sake of simplicity, it was assumed that the probability distribution of each of these variables is triangular, with the value with the highest probability being the reference one – that is, the “base value” adopted for carrying out the CBA – and the lower and upper bounds being the “pessimistic” and “optimistic” values defined in the scenario analysis.

The analyses have been elaborated using the Monte Carlo simulation technique with 10,000 random repetitions. In brief, at each iteration it is randomly extracted a value from the distribution of each of the independent variables. The extracted values are then adopted for computing the ENVP and IRR. Finally, the 10,000 estimated values of ENPV and IRR are used to approximate the probability distribution of the two indicators.

The risk assessment shows that the expected value of the ENPV is equal to EUR 23,090,365 (slightly higher than the reference case), and that the expected value of the ERR is 9.96% (against a reference case of 9.97%). The probability that the ENPV will become negative and that the ERR will be lower that the SDR adopted in the analysis is almost nil. However, there is a 40% probability that the two indicators assume a lower value than in the reference case. Hence, the CBA outputs appear to be robust to future possible variations in the key variables. Overall, the risk analysis shows that under the project has a negligible risk level.

Figure 13. Results of the risk analysis for ENPV (left-hand side) and ERR (right-hand side)

Source: Authors

Figure 14. Probabilistic distribution of the Economic Net Present Value (EUR)

ENPV Probability Density Function ENPV Cumulative Distribution Function

0.09 1 0.08 0.07 0.8 0.06 0.6 0.05 0.04 0.4 0.03 0.02 0.2 0.01 0 0.00 11,672,46616,525,86221,379,25826,232,65331,086,04935,939,445 ENPV

Cumulated probability CBA reference value ENPV Source: Authors

Figure 15. Probabilistic distribution of the Economic Internal Rate of Return

ERR Probability Density Function ERR Cumulative Distribution Function 0.09 1 0.08 0.07 0.06 0.05 0.04 0.03 0.02 0.01 0 0.00 7.46% 8.16% 8.86% 9.56% 10.26% 10.97% 11.67% 12.37% ERR Cumulated probability CBA reference value ERR Source: Authors

9. ANNEX III. LIST OF INTERVIEWEES

NAME POSITION AFFILIATION DATE

Lidija Šljivarić Croatian Waters 08/11/2018 Head of the Project Tea Tomas The City of Slavonski Brod 12/11/2018 Deputy Mayor Jakša Puljiz Ministry of Regional 7/11/2018 Former Deputy Minister Development and EU Funds

Stjepan Aščić Vodovod, Slavonski Brod 31/10/2018 Director Davorin Vodovod, Slavonski Brod 31/10/2018 Head of department for EU Tomljanović projects Melita Kuzik Vodovod, Slavonski Brod 31/10/2018 Head of EU project implementation department Goran Vuksanović Vodovod, Slavonski Brod 31/10/2018 Head of waste water department Ivana Baboselac Vodovod, Slavonski Brod 31/10/2018 Head of financial department Karmen Cerar Ministry of Regional 7/11/2018 Project supervisor Development and EU Funds

Ernest Salihagić Tehnika d.d. 09/11/2018 Contractor

Martina Nadih Institute of Public Health of 12/11/2018 Employee of the Department of Health Brod-Posavina County Ecology

Danijel Odobašić Gornja Vrba Municipality 13/11/2018 Deputy Mayor

Ivan Vuleta Public Fire Department of 13/11/2018 Firefighter Commander the City of Slavonski Brod Delibor Jakičić Croatian Mountain Rescue 13/11/2018 Commander of the Water Rescue Team Service – Slavonski Brod Station

Vikica Lukić Technical School of 14/11/2018 Principal Slavonski Brod Tina Ribarić Pronova d.o.o. 14/11/2018 Director

Martina Đogaš Brkićeva street, a street in 13/10/2018 Local Resident the municipality that got the sewerage

Dejan Vuksanović Development Agency 15/11/2018 Director Slavonski Brod Gordana Prebeg Connect IT Association 14/11/2018 Member of the Association

Mr. Peter Tot - Eko – Integral, Association 14/11/2018 Head of the Association Đerđ for environmental and nature protection

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