OppOrtunities fOr Dutch Water expertise in serbia

Opportunities for
Dutch Water
Expertise in Serbia
Serbian Economy
Serbia has approximately 7.2 million
inhabitants. Hence, in terms of population, the
nation is nearly half as large as the
Netherlands. The Serbian GDP per capita
(nominal) is approximately €5,000. In terms of
purchasing power, Serbia scores at around 35
percent of the average of the EU, its main
trading partner. From 2000, the economic
liberalization process of the country lead to a
growth in GDP from around €1,000 to its actual
value. In 2012 the economy contracted with
1.5% and consequently grew by 2.5% over 2013.
The impact of the floods on economic growth
is estimated at -0.9 percentage points; this is
to say that the Serbian economy will contract
by 0.4 percent in 2014, rather than growing by
0.5 percent as previously projected. The
Economist Intelligence Unit forecasts average
growth of 3.6% per year in 2014-2018. EU
accession negotiations began in January 2014,
but membership is not expected before 2020
(EIU). Main exports are motor vehicles,
electrical machines and fruits and vegetables.
In 2013, Serbia exported worth €122 million to
the Netherlands and imported worth €262
million from the Netherlands.
I
n May 2014, the Western Balkans were hit by the
heaviest rainfall in 120 years of weather measurement. Serbia’s flood protection turned out to be insufficient to protect the region against this extraordinary rainfall. Areas adjacent to dikes and levees were
flooded by 1 to 5 meters of water. Besides that, the
oversaturation of soils in the region generated landslides. A rising ground-water level led to floods in areas with inadequate drainage. Thousands of people
had to be evacuated, and, tragically, there were some
human casualties too. At the moment work is on-going
in reconstructing and repairing buildings and industrial facilities and reinforcing the flood protection infrastructure. However, much work remains to be done,
increasing the level of flood protection (in September
new floods happened), improving the water quality
and waste water treatment in order to meet European standards. According to the Chamber of Commerce
and Industry of Serbia, the country is about to grapple
with water management. The Embassy of the Netherlands believes that Dutch expertise can contribute to
achieving Serbia’s aims in the field of flood protection,
in improving the water supply and in the treatment of
waste water.
Flood Protection: Present and Future
Whereas the Rhine delta provides vital yet
sometimes threatening waterways through the
Netherlands, the Danube has a similar significance
for Serbia. Dutch know-how matches up with
Serbian experience and needs in this sector to a
remarkable extent. It is therefore natural that our
countries work together to solve problems and
learn from each other. In order to cope with its
rivers and canals, Serbia has developed a long
tradition of water management. A flood protection
system was built consisting of approximately
4,000 kilometers of dykes and over 400 land
drainage systems covering over two million
hectares. In addition, the system comprises 47
multipurpose water collectors and numerous
riverbed regulations. Unfortunately, investment in
water management drastically decreased
between 2008 and 2013. Maintenance of water
facilities fell to approximately 30 percent of the
envisaged standard, according to the report that
was published on 10 June 2014 by the Jaroslav
Černi Institute. Before that, in 2012, a €2 million
report that investigated flood prone areas was
published. The report concluded that areas in the
valley of large rivers, covering 18 percent of
Serbia’s territory, are deemed at risk of floods.
Almost all of Serbia’s major cities are located in
According to the World Bank, the damage
resulting from the floods in May is estimated
at €1.5 billion, which includes the destruction of physical assets and loss of production
this area: e.g. Belgrade, Novi Sad, and Šabac. At
the presentation of the report, the Minister of
Agriculture,
Trade,
Forestry
and
Water
Management of Serbia highlighted that there are
plans to develop an integral plan on flood
protection. In view of the recent floods and the
difficulty current river beds have in coping with
heavy rainfall, the urgency of this endeavor does
not need stressing. Serbia is also committed to
achieving European standards in flood risk
mapping. Dutch expertise could contribute to the
management of this process in particular, relying
on the technical knowledge that is already
available in Serbia. In addition, forecasting
instruments could be improved in order to better
predict potential floods.
According to the World Bank, the damage
resulting from the floods in May is estimated at
€1.5 billion, which includes the destruction of
physical assets and loss of production. Postdisaster needs were valued by the same report at
€1.3 billion of recovery and reconstruction
activities. The latest report of the national water
management company Srbijavode (‘Serbia Water’)
states that there are 283 locations with an
insufficient degree of protection and the funds
necessary for adequate protection of these
locations amount to €92 million (RSD 11 billion).
Furthermore, its first estimates for repairing dyke
breaches and damages to water management
facilities due to the floods amount to €17 million
(RSD 2 billion). The Instrument for Pre-accession
Assistance has allocated a budget for 2014 of €15
million for the reparation of 58 flood defenses.
For now the proceedings will mainly focus on the
repair of flood protection, but there is an urge to
develop a flood protection plan after the May
2014 floods.
Dutch Involvement in Flood Relief and
Protection
As a result of the heavy rainfall in May 2014, the
Kolubara coal mine flooded entirely. As a
subcontractor to the Serbian company, Južna
Bačka, the Dutch company Van Heck has signed a
multimillion contract to pump out 114 million
cubic meters of water from the mine. This is one
of the largest pumping operations in recent
European history. Van Heck has been actively
assisted by the Netherlands Embassy and will be
provided with additional assistance as the work
continues. Another example of Dutch-Serbian
cooperation in the field of water management is
that of VNG International. The Dutch association
is currently supporting Serbian local governments
with know-how in water management with
assistance of Dutch municipalities. For future
Dutch involvement there are several opportunities
in flood relief and protection. Initially, experts
could help with the repair of dykes and analysis of
risk in flood prone areas. Furthermore, research is
necessary on how an integral flood protection
work should be implemented. In order to
implement such a plan successfully, knowledge is
necessary for feasibility studies and project
management when new flood defenses are
constructed. It is clear that dredging and hydraulic
engineering companies are needed when new
flood protection and river management works are
decided to be constructed. The Netherlands has
expertise in each of these fields and experience
with projects of this kind at several levels. Dutch
cooperation in flood protection is well-known and
multiple organizations, especially the World Bank,
have called for cooperation both at a national and
a regional level. In the region, bodies for
cooperation have been set up such as the Danube
Transnational Programme and the EU Strategy for
the Danube Region.
Water Supply and Waste water Treatment
Although some of the water systems in Serbia
were state of the art, underinvestment led to a
situation in which some of these systems cannot
anymore cope with the increase in population and
water consumption since then. The lack of
investment in waste water treatment has led to
the fact that treated discharged water accounts
for only 6.2% of total waste water in Serbia
(compared to 99 % in the Netherlands) at the
moment, creating adverse effects for the
environment and drinking water resources. One
It is estimated by the National Environmental
Strategy (NES) that the total costs of meeting the European standard of water management are €5.6 billion until 2030.
of the most pressing problems with water
treatment is the lack of proper sanitation facilities
and networks in many areas. Although 87.3% of the
population is connected to the mains network,
only 44.2% of the population is connected to the
sewage networks. The incident in Užice that
happened in 2013 is an example of the adverse
effects insufficient water management has on the
environment in Serbia. The water from its
municipal water system was declared not fit for
cooking or drinking, as it contained algae that
could cause severe health problems. According to
the 2013 IPA National programme report on the
Serbian environment and energy sector, untreated
industrial waste water is a major source of water
pollution and thermal power facilities are the
largest polluters of air and waters of the energy
sector. Resulting from industrial pollution, surface
water quality is problematic, especially in the
tributaries to the Danube and the Sava.
In January 2014, Serbia started accession talks
with the EU. In order to meet European standards
on water supply and waste water treatment,
significant efforts have to be made. According to
the 2014 Business Monitor International report,
water management will be a major priority of the
Serbian Ministry of Energy, Development and
Environmental Protection. According to the report
this results in a number of investment
opportunities, both in the expansion of the
existing water infrastructure and in the water
treatment sector. The National Sustainable
Development Strategy (NSDS), which is linked to
the UN, has identified key areas of development
for the Serbian water sector:
• Increased access to potable water
by increasing the percentage of
population connected to the water
supply and sewage systems
• Reduced water losses via the water
supply network (rate of water
losses is at around 20% now)
• Higher water quality in reservoirs,
water courses and ground water
resources
• Increase in number and efficiency
of WWT-plants
In terms of meeting the requirements of the
environmental European acquis communautaire,
water is the most demanding issue by far. It has
been estimated by the National Environmental
Strategy (NES) that the total costs of meeting the
European standard of water management are €5.6
billion until 2030. The report of the Environmental
Infrastructure Support Scheme (EISP-Program)
estimates the costs of meeting the European
standards lower, but still at €3.5 billion in terms of
water investments.
Dutch Involvement Water Supply and
Waste Water Treatment
The Netherlands-based engineering and project
management consultancy Royal Haskoning
signed a contract with the city of Leskovac for
developing project documentation for the
construction of a sewer network for 23 villages
around the southern Serbian city. The project
includes the construction of a waste water
treatment plant and the implementation of a
sewerage collection system, covering 85,000
inhabitants and industries in the city. Half of the
funds will come from the city of Leskovac and the
other half is funded by the Netherlands. The
Dutch Facility for Infrastructure Development
(ORIO) provided €8 million of the total of €24
million necessary for the project.
Other examples of Dutch assistance in Serbia are
two projects in and near the city of Subotica. In
2010, the village Backi Vinogradi had the highest
concentration of arsenic in its drinking water in
Serbia, at 220 mg/L. UNESCO-IHE and Vitens
together with PUC Subotica implemented the
from 2010 researched Adsortive Dutch Arsenic
Removal Technology. This technology was
developed by Vitens, UNESCO-IHE, Delft University
of Technology, Royal HaskoningDHV and PUC
Subotica. The management of the plant was
assigned entirely to PUC Subotica on 23 April
2013, and by then the plant was supplying 400 m3
of safe and clean water per day. Arsenic
concentrations dropped to less than 1 mg/L,
which is well below the European norm. In
addition, an upgraded WWT-plant in Subotica was
opened at the 22nd of March, 2012. The upgrading
of the plant cost €18 million and this project was
entrusted to Royal HaskoningDHV. The project
was funded by €9 million of the EBRD, the
Delegation of the EU to Serbia donated €5 million,
€3 million was paid by the city of Subotica and the
rest was supported by the governments of the
Netherlands and Italy and the Public Water
Company Vode Vojvodine.
There have already been large projects in water
for Dutch companies in water treatment. Should
the problem of water losses and the ageing water
supply system be tackled, there are promising
opportunities in the water market. This would
entail both chances in the field of water treatment
In order to help Serbia achieving its aim of
adopting the Acquis in this area, the EU has
been providing significant financing since
2007 and continues to do so by way of its Instrument for Pre-accession Assistance (IPA)
and construction of water supply networks and in
the implementation of these projects. The period
of underinvestment shows that prices have been
too low to maintain the water network. Therefore
a sound financial analysis of water supply is
necessary and expertise is demanded on how to
gather revenue via tariffs. International financial
institutions and EU financing require good
feasibility studies and cost-benefit analyses.
Furthermore, Dutch municipalities, water boards
and public water companies could contribute to
the capacity building within their Serbian
counterparts. According to the Serbian Chamber
of Commerce, there is a need for laboratory
expertise to check the quality of water.
Benchmarking in the water sector may be a next
step. Finally, potential privatization of some of the
150 municipal Public Water Companies may
provide space to set water tariffs at cost covering
levels. The government has legislated PublicPrivate Partnerships, but none exist yet.
Financing Projects in Water Management
In order to help Serbia achieving its aim of
adopting the Acquis in this area, the EU has been
providing significant financing since 2007 and
continues to do so by way of its Instrument for
Pre-accession Assistance (IPA). Besides that:
• The Directorate General for the
Environment
makes
funding
available through two different
programs, the LIFE fund and the
Eco-Innovation
and
Competitiveness and Innovation
Framework Program, and operating
grants to NGOs
• The United Nations Development
Program (UNDP) funds numerous
projects
and
has
recently
completed an EU-funded municipal
improvement and revival program
across 11 municipalities in south
Serbia.
Furthermore,
it
is
overseeing the construction of a
waste water collector in the Vrbas
municipality and the construction
of the Grand Backa Canal.
• Several international financial
institutions (EIB, EBRD, World Bank
and KfW) support municipal
infrastructure.
IPA 2014-2020: The total budget provided via
Instrument for Pre-accession Assistance for all
countries that are in the pre-accession state in
the period 2014-2020 is set at €11.7 billion, which
comes down to €1.57 billion for 2014 and gradually
rises to €1.77 billion in 2020. Serbia is the largest
recipient of pre-accession assistance funds after
Turkey. The IPA 2014-2020 budget for Serbia is set
at approximately €1.5 billion, which comes down
to an average of €250 million per year.
Under IPA II for 2014-2020, the European
Commission together with Serbian authorities is
focusing on the fact that only strategically
important and mature projects will be considered
for funding under the sectoral approach. The
Serbian authorities need to create the legal and
institutional structures that allow to more
efficiently and effectively absorb EU and other
donor funds (including loans by international
financial institutions), especially in infrastructure
projects.
Assistance of the IPA II goes beyond financing and
also includes project management, preparation
and implementation. A maximum of 85% of eligible
investment costs is financed, the remaining 15%
should be provided by national, regional, local
government or private financing. Not eligible: VAT,
in kind, operating and maintenance costs, etc.
MISP: The Municipal Infrastructure Support
Program (MISP) is financed by the EU and
managed by the Delegation of the European
Union to the Republic of Serbia. It assists
municipalities in the preparation of project
documentation and implementation of municipal
infrastructure projects. The implementation of
the MISP project is the responsibility of the
Spanish engineering consultant EPTISA, together
with the Dutch consultants Royal HaskoningDHV
and VNG International. Since 2005, more than 20
projects with a total value of over €68 million were
implemented, among which were projects in
water supply and waste water treatment.
The main goal of MISP is the improvement of the
infrastructure
services
management
in
municipalities and to increase investment in the
infrastructure, in order to meet EU standards
The main goal of MISP is the improvement of
the infrastructure services management in
municipalities and to increase investment in
the infrastructure, in order to meet EU standards regarding environmental protection and
sustainable economic development.
regarding
environmental
protection
and
sustainable economic development. MISP is also
assisting municipalities and PUCs throughout the
complete process of infrastructure projects
realization – from funding application, feasibility
studies (SLAP Information System), budget
management to project implementation.
WBIF: The Western Balkans Investment Framework is a joint initiative of the EU, financial
institutions, bilateral donors and governments of
the Western Balkans that focuses on environment,
energy, transport, social infrastructure and
private sector development. The WBIF has in total
provided 178 grants with a total value of €287.12
million, of which €63.5 million was allocated to
water and waste water. Furthermore, €2.45 million
was spent on water resource management and
€2.9 million on flood protection. To date, more
than €2.2 billion of loans are signed.
The Embassy of the Kingdom of the
Netherlands is available for any additional
question regarding this document via:
[email protected]
International Financial Institutions
European Investment Bank: The EIB acts as a
complementary source of finance (up to 50% of
investment costs) and provides long-term loans
(from 5 to 25 years). The bank has individual loans
for large capital investment projects starting at
€25 million; however it prefers investments from
€50 million. The EIB has intermediated loans to
banks and financial institutions for SMEs from
€25 million. The interest rate is on market terms,
there are grace periods for the construction
phase of the project and there are no processing,
commitment or any other fees involved. The EIB
requires well-developed business plan, a costbenefit analysis, technical project data and
environmental data to consider the project.
European Bank for Reconstruction and Development: The EBRD acts mainly as a private
sector financier, but finances municipal
infrastructure as well. Through loans up to 35% of
the investment costs is co-financed. The bank
provides funding from €5 million with 1-15 years
maturity. A fixed or floating interest rate regime is
used, based on Euribor. Per project specifically,
grace periods are considered. The EBRD requires
a sound project plan, appraisal fees and insurance,
then financing is considered.
World Bank: The WB has several interesting
funds for water. Whereas the International Bank
for Reconstruction and Development (IBRD)
focuses at larger investment projects, the Global
Environmental Facility Program (GEF) targets at
small environmental projects. Finally, the
International Finance Corporation (IFC) facilitates
private sector financing through intermediaries.
All funds may be relevant when financing projects
in water management.
KfW Development Bank: The KfW supports developing countries with investments in municipal
infrastructure and energy. The bank can provide
loans with a maturity of up to 25 years for
municipal water supply and sewerage in Serbia.

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