Disclaimers and Acknowledgement This volume is a product of the staff of the International Bank for Reconstruction and Development/The World Bank. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of the World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of the World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. This Summary Report is compiled by Rome Chavapricha (Sr. Energy Specialist) and Dzenan Malovic (Sr. Energy Specialist), with contributions from Esma Kreso (Sr. Environmental Specialist), Roxanne Hakim (Sr. Social Specialist), Zhimin Mao (Water Resources Management Specialist), Dejan Ostojic (Lead Energy Specialist), Katsuyuki Fukui (Sr. Power Engineer), Luciano Canale (Sr. Hydropower Specialist), Patrice Caporossi (Sr. Infrastructure Finance Specialist), Gazmend Daci (Sr. Energy Specialist), Tatyana Kramskaya (Sr. Energy Specialist), Berina Uwimbabazi (Sr. Water Resources Specialist), Igor Palandzic (Sr. Water Supply and Sanitation Specialist), Yae Jun Kim (Energy Specialist), Nina Valcic (Consultant, social), Thomas Nikolakakis (Consultant, power systems), and Stratos Tavoulareas (Consultant, power systems). Wazhma Khalili, Sanja Tanic, Dragana Varezic, Boba Vukoslavovic supported the delivery of this technical assistance. Specialists from Électricité de France: Bertrand Mayeur, Benoit Badin, Marc De La Torre, Laurent Leveque, Philippe Kolmayer, Arnaud Rousselin, François Vaysse and Egis: Helene Landmann, Charlotte Grouset, Joel Joguet, Gert Soer produced the main reports under this technical assistance (see Annex 4). Peer reviewers for this Summary Report were Anna Cestari (Sr. Water Resources Management Specialist), Satoshi Ishihara (Sr. Social Development Specialist, Safeguard Policies), and Nicolas Sans (Sr. Hydropower Specialist). Sudeshna Banerjee (Practice Manager, energy), Winston Yu (Practice Manager, water), Sameer Shukla (Adviser), David Michaud (Practice Manager, Water), Denis Mesihovic (Operations Officer), Pravin Karki (Sr. Hydropower Specialist), Bente Brunes (Sr. Energy Specialist), Mike McWilliams (Consultant, Hydropower), and Kimberly Lyon (Consultant, Water) provided overall guidance for the technical assistance. The World Bank team wishes to acknowledge the support of ministerial and power utility counterparts for this technical assistance. In particular, the team has received information and feedback from Elektroprivreda Republike Srpske and Elektroprivreda Serbia for the assessment of Buk Bijela-Foca hydropower complex. The team also received information and insight on the rehabilitation and safety improvement of Visegrad hydropower plant and Piva hydropower plant from Elektroprivreda Republike Srpske and Elektroprivreda Crne Gore, respectively. The financial and technical support by the Energy Sector Management Assistance Program (ESMAP) is gratefully acknowledged. ESMAP is a partnership between the World Bank and 22 partners to help low- and middle-income countries reduce poverty and boost growth through sustainable energy solutions. ESMAP’s analytical and advisory services are fully integrated within the World Bank’s country financing and policy dialogue in the energy sector. Through the World Bank Group (WBG), ESMAP works to accelerate the energy transition required to achieve Sustainable Development Goal 7 (SDG7) to ensure access to affordable, reliable, sustainable, and modern energy for all. It helps to shape WBG strategies and programs to achieve the WBG Climate Change Action Plan targets. Any inquiries on the Summary Report and this technical assistance should be submitted to Rome Chavapricha at rome@worldbank.org, Dzenan Malovic at dmalovic@worldbank.org, or Wazhma Khalili at wkhalili@worldbank.org. Contents Background, Rationale, and Objective of this Technical Assistance ............................................................. 1 About this Summary Report ......................................................................................................................... 2 Main Findings ................................................................................................................................................ 5 A. Drina River Basin Management and Hydropower ................................................................................ 5 B. Review of Feasibility Assessment of Buk Bijela and Foca Hydropower Projects .................................. 7 C. Review of Environmental Impact Assessment of Buk Bijela and Foca Hydropower Projects ............ 12 D. Introduction to Stakeholder Engagement Framework - Integrated Water and Hydropower Development in the Drina River Basin .................................................................................................... 15 E. Rehabilitation requirements of Piva HPP in Montenegro and Visegrad HPP in Bosnia and Herzegovina ............................................................................................................................................ 17 Overall Recommendations for the next steps ............................................................................................ 19 Annex 1 - Stakeholder Map: Integrated Water and Hydropower Development in the Drina River Basin ................................................................................................................................................................ 21 Annex 2 - Update of Scenarios 2017 Least-Cost Power Generation Expansion Plan for Bosnia and Herzegovina ............................................................................................................................................ 26 Annex 3 - List of HPP Candidates from the Western Balkans Regional Strategy for Sustainable Hydropower Development (2019) .......................................................................................................... 29 Annex 4 - List of Documents prepared under this Technical Assistance ................................................ 32 Annex 5 - Transmission Lines, Thermal and Hydropower Plants in the Western Balkans ..................... 33 Annex 6 - Salient Features of Buk Bijela and Foca HPPs ......................................................................... 35 Acronym and Abbreviation BiH Bosnia and Herzegovina BOT Build-Operate-Transfer CAPEX Capital Expenditure CIA Cumulative Impact Assessment DG NEAR Directorate-General for Neighbourhood and Enlargement Negotiations DRB Drina River Basin EBRD European Bank for Reconstruction and Development EC European Commission EDF Électricité de France EIA Environmental Impact Assessment EIB European Investment Bank EPCG Elektroprivreda Crne Gore EPS Elektroprivreda Serbia ERS Elektroprivreda Republike Srpske ESF Environmental and Social Framework ESIA Environmental and Social Impact Assessment ESS Environmental and Social Standards EU European Union E&S Environmental and Social HPP Hydropower Project ICOLD International Commission of Large Dams IFC International Finance Corporation KfW Kreditanstalt für Wiederaufbau kWh Kilowatt-hour MCA Multi-Criteria Analysis MW Megawatt (1 million watts) MWh Megawatt-hour m3/s Cubic meters per second NOx Nitrogen Oxides OIP Other Interested Party OPEX Operating Expenditure SEF Stakeholder Engagement Framework SO2 Sulfur Dioxide TA Technical Assistance WBDRBM West Balkans Drina River Basin Management Project WBG World Bank Group WWF World Wildlife Fund 1 Technical Assistance on Integrated Water and Hydropower Development in the Drina River Basin Overall Summary BACKGROUND, RATIONALE, AND OBJECTIVE OF THIS TECHNICAL ASSISTANCE This ESMAP1-funded technical assistance (TA) complements the Global Environment Facility and Special Climate Change Fund-financed West Balkans Drina River Basin Management Project (WBDRBM).2 WBDRBM was approved by the World Bank in 2016 to help improve mechanisms and capacity of countries to plan and manage the transboundary Drina River Basin (DRB), incorporating climate change adaptation. There is a need to enhance coordination between energy, water, and related responsible sectors within a country and among countries of the DRB. To address diverse future needs, it is necessary to establish the hierarchy of water uses, with drinking water supply as the highest priority, followed by flood prevention, irrigation, energy generation, transport, tourism, and so on. Therefore, a significantly improved balance between hydropower generation and other uses of water resources in the DRB is required more than in the past, particularly in light of the riparian countries needing to build dialogue and manage the river basin as three separate countries following their independence in 1990s. Hydropower generation is dominating DRB management. Eight hydropower plants are currently operating in the DRB with a combined capacity of about 1,400 MW. The hydropower facilities, including reservoir operation, were primarily designed to optimize hydropower production in line with historical demand and mitigate flooding impacts, but not for other uses. Due to limited development over the last few decades, the DRB still represents an abundant regional source of unutilized hydropower potential. In 2019, the Regional Strategy for Sustainable Hydropower in the Western Balkans (the ‘Strategy’) was developed with support from the European Commission (EC), Directorate-General for Neighbourhood and Enlargement Negotiations (DG NEAR). The Strategy includes lists of existing large hydropower projects (HPPs) for rehabilitation and potential greenfield HPPs across the region, including in the DRB. As pointed out in the Strategy, increasing hydropower generation could help reduce carbon emissions in the power sector by offsetting coal-fired power generation which currently dominates the energy mix in the region. Furthermore, hydropower plays a critical role in increasing penetration of variable renewable energy (that is, solar and wind) through provision of energy storage and therewith associated power system balancing services. This makes hydropower an indispensable element of energy transition in the region toward the 2050 European Union (EU) climate neutrality and objectives of European Green Deal. This TA aims to inform a number of big picture questions including the following: • Is the management of the DRB carried out in an integrated manner, considering the hierarchy of water uses? • Are the potential HPPs in the DRB prioritized through a basin-wide approach? If they were not, how to address the gaps for their further preparation? 1Energy Sector Management Assistance Program - https://www.esmap.org/node/70853 2Among other activities, this TA provides a gap analysis of the series of study Support to the Water Resources Management in the Drina River Basin (COWI, Stucky and JCI, 2017 - COWI reports). In addition, this TA supports the consultation on and encourages the application of the hydraulic and hydrological models prepared under WBDRBM for hydropower purposes. 2 • Who are the main stakeholders in water and hydropower development in the DRB? And how to enhance stakeholder engagement? • In Bosnia and Herzegovina (BiH), the long-planned Buk Bijela-Foca HPPs are ranked high on the prioritized list. Is there still a need for new utility-scale hydropower generating capacity in BiH? What are the gaps in the feasibility and environmental impact assessments (EIAs) of the projects, and what are recommended to close the gaps? • Existing hydropower capacity in the Western Balkans, including those in the DRB, was developed before 1990 and requires periodic rehabilitation and safety improvement. Which projects in the DRB may need rehabilitation or safety works in the short term? Under this TA, the following documents have been reviewed and prepared: • The series of study Support to the Water Resources Management in the Drina River Basin (COWI, Stucky and JCI, 2017 - COWI reports) assessed multipurpose water resources utilization scenarios. Furthermore, the COWI reports compared their own assessment with the aforementioned Regional Strategy for Sustainable Hydropower in the Western Balkans (Mott MacDonald and IPF 2017) that assessed HPPs in multiple river basins, including the DRB.3 • The feasibility study of hydropower projects in the DRB, Buk Bijela and Foca Hydropower Projects (Stucky 2012) assessed technical and financial viability of the two projects. • The Environmental Impact Assessment of Buk Bijela and Foca Hydropower Projects (IG and Institute for Protection, Ecology and Informatics Banjaluka) and the environmental permits (2013, renewed in 2018). There are neither detailed social impact nor resettlement-related documents available since their development is not required by the local legislation. • Furthermore, the following have been prepared/carried out: (i) A DRB stakeholders map (ii) Report - Introduction to Stakeholder Engagement Framework, Integrated Water and Hydropower Development in the Drina River Basin (iii) Updated scenarios of the 2017 least-cost power generation expansion plan for BiH, to complement further dialogue on hydropower development in the DRB (see Annex 2) (iv) An assessment of the rehabilitation and dam safety improvement requirements of the Piva HPP in Montenegro and Visegrad HPP in BiH. ABOUT THIS SUMMARY REPORT This TA was extended by about one and a half years partly due to the coronavirus pandemic, which resulted in intermittent dialogue with multiple counterparts including government authorities, power utilities, and water agencies in BiH, Montenegro, and Serbia. The envisaged consultations on the TA findings with a wider group of stakeholders did not proceed as expected. However, this Summary Report 3The comparison was made on the basis of the Regional Strategy for Sustainable Hydropower in the Western Balkans report, prepared in December 2017. 3 is made publicly available so it could be an input for further consultations among stakeholders on Integrated Water And Hydropower Development in the Drina River Basin, including specific projects such as Buk Bijela and Foca. This Summary Report compiles the key findings from multiple technical studies carried out under this TA (see Annex 4) and is structured as follows: • Section A summarizes key gaps in the current practices of the DRB management with emphasis on hydropower development and the recommendations in addressing those gaps. • Section B summarizes gaps in the feasibility assessment of the Buk Bijela and Foca HPPs. The utility Elektroprivreda Republike Srpske (ERS) in BiH proposed to review these projects. • Section C summarizes gaps in the existing EIA documents of the Buk Bijela and Foca HPPs from the lenses of the World Bank Group (WBG) Environmental and Social Framework (ESF); guidelines on environmental and social (E&S) impacts of HPPs; and transboundary guidance per the Espoo Convention (1991), Bucharest multilateral agreement (2008), and WBG Operational Policy OP 7.50 concerning Projects on International Waterways. • Section D describes the social aspects of hydropower and provides an overview of a Stakeholder Engagement Framework (SEF) in the DRB to help inform social assessments. The framework has been designed to serve as a road map for development of specific stakeholder engagement programs or plans for prospective HPPs when the specific locations, stakeholder groups, types and technologies, and schedule of activities are known. • Section E shifts the focus to describe the findings of the rehabilitation and safety requirements of two existing HPPs reviewed under this TA: the Piva HPP in Montenegro and Visegrad HPP in BiH. The utilities Elektroprivreda Crne Gore (EPCG) in Montenegro and ERS in BiH proposed these projects for this TA. • The Summary Report is concluded with the overall recommendations for the next steps. 4 Figure 1 - The Drina River Basin 5 MAIN FINDINGS A. Drina River Basin Management and Hydropower This section describes gaps and recommendations for gap closing in the current practices of the DRB management, including the prioritization of HPPs in a basin-wide and integrated water resource management manner. 1. The water resource of the DRB is not managed in an integrated manner and could benefit from a formal consultation structure among the riparian countries. The DRB is part of the wider Sava River Basin, extending over the territory of six countries. At present, the DRB is not managed as an integrated entity and water resources are managed by each country in its own territory. There is limited exchange of information and consultation among the riparian countries on their plans for hydropower or any other water resources related development. Even though BiH, Montenegro, and Serbia are parties to international multilateral agreements on water resources management, participate in the Framework Agreement on Sava River Basin, and are parties to the Espoo Convention and Aarhus Convention, a formal consultation structure for the DRB, preferably a River Basin Commission, is recommended. 2. It would have been optimal to rank hydropower development scenarios for the entire DRB irrespective of countries or territories, so this analytical gap should be addressed further. The hydropower development scenarios in the DRB are proposed at the national level. These national development scenarios could mean that the basin-wide and transboundary management of water resources is not yet optimized. Further, the potential impacts on flooding, species, habitats, and biodiversity are insufficiently studied. As the DRB riparian countries are aiming for EU membership, it is recommended to follow EU Directives relevant for water resources management and hydropower development. 3. The COWI reports recommended multi-criteria analysis (MCA) framework in ranking scenarios for new HPPs for each country in the DRB and then consolidating them at the basin level only. The MCA covers (a) cost of electricity; (b) environmental impacts on ecosystems, hydrology, hydraulic, water quality, climate, and so on; and (c) social impacts on population, agriculture, forestry, health, cultural heritage, and so on. The MCA is also extended to include parameters on security of water supply (domestic, industrial, and irrigation), flood regulation, water quality (sediments), air quality (potential closure of thermal power plants), minimum environmental flow guarantee, support for tourism industry, and climate/drought mitigation. However, instead of ranking projects for each country first and then integrating them at the basin level, it would have been optimal to rank hydropower scenarios developed across the entire DRB. Nevertheless, the review has found, it is not likely that redoing the MCA exercise at the river basin level would eventually lead to choosing a different developmental scenario. This is because the MCA scores for the recommended projects are substantially better than the next batch of projects. 4. Two groups of experts have separately assessed HPP candidates in the DRB and reached similar results on their potential for further preparation. This TA has noted different methodologies employed in the COWI reports and the Regional Strategy for Sustainable Hydropower in the Western Balkans but both reports yielded similar results. Moreover, both reports did not study flooding and biodiversity impacts sufficiently. 6 5. The following two tables are taken from the COWI Roof Report, showing two groups of potential greenfield HPPs considered as ‘recommended’ and ‘reasonably good’ within the Regional Strategy for Sustainable Hydropower in the Western Balkans (referred to as the Master Plan Project in the tables). Existing hydropower plants are not included. 6. Under this TA, a gap analysis of documents on Buk Bijela and Foca HPPs from the first group has been carried out. Technical and environmental studies for Buk Bijela and Foca HPPs are available in a relatively advanced stage and were provided by the developer ERS. In addition, this TA updated the scenarios assessment of the 2017 BiH least-cost power generation expansion plan.20 This latest update estimates that a few hundred megawatts of new hydropower capacity will be needed in BiH until 2040, including those with reservoir or pumped storage. The additional capacity of hydropower will be needed to replace the retiring old thermal power generators (totaling 1,105 to 1,888 MW) in the coming decades. The limited capacity means that only a limited number of locations could be selected for development, thus minimizing the E&S impacts associated with developing HPPs. Annex 2 contains a summary of the updated least-cost assessment. Finally, the feasibility study for the planned Komarnica HPP in Montenegro is being prepared by EPCG and not yet available at the time of this TA. 7. To ensure that an HPP is prepared in line with a river basin wide and transboundary approach, cumulative impact assessments (CIAs) supported by E&S due diligences should be carried out. As HPP projects are not stand-alone projects, their river basin wide environment and potential impacts should be assessed adequately. For the next steps, instruments such as CIAs supported by E&S due diligences that focus on basin-wide flooding and ecosystems should be carried out. To complement CIAs, the hydraulic 7 and hydrological modeling4 will further inform optimization of hydropower operations and detailed designs and any investment decisions of new HPPs in the DRB. B. Review of Feasibility Assessment of Buk Bijela and Foca Hydropower Projects This section presents gaps and recommendations for gap closing in the feasibility assessment for the Buk Bijela and Foca HPPs. These projects are ‘recommended’ for further preparation in the 2019 Regional Strategy for Sustainable Hydropower in the Western Balkans. Annex 2 of this Summary Report summarizes the assessment of power generation plan for BiH, including new hydropower capacity. 8. The Buk Bijela HPP has been considered for development for over 50 years. In June 1975, the World Bank approved a loan for the 450 MW HPP (3×150 MW, a net head of 94 m) and a compensating reservoir with a dam near Foca with an estimated project cost of US$242.5 million. However, the World Bank loan was terminated for failing to become effective in February 1976. The underlying problem was a dispute between the Republic of the Former Yugoslavia, BiH, and Montenegro on riparian rights and their conflicting interests in using the water resources of the Tara and Drina rivers.5 Over the last 10 years, ERS has decided to redesign the project and initiated a pre-feasibility study in 2009 and a feasibility study in 2012. Salient features of both HPPs are presented in Annex 6 of this report. Technical assessment 9. The redesigned Buk Bijela HPP is four times smaller in terms of rated capacity and intended to operate as a daily peaking plant, owing to the storage capacity of its reservoir (11 million m3 of live storage). Unlike the old design which had foreseen significant flooding of the Montenegro territory, the reduced dam height enables the reservoir to remain entirely on the BiH territory with the full supply level reaching the state border with Montenegro. Foca dam, located immediately downstream of Buk Bijela HPP, is intended to operate as a regulating dam to dampen the variations of water discharge in the Drina River. This operation mode of the Buk Bijela-Foca complex is well described and justified by the economic assumptions made at the time of the study. 10. Further assessment is required to inform whether Buk Bijela should be a peaking power plant or not. The need for peaking power generation capacity in the regional power system should be reassessed in light of the current electricity market (intraday electricity price variations) and should be balanced with the effort of minimization of E&S impacts. In case there is no strong demand for peak energy in the system, a pure run-of-river operation mode could be considered. This would have several consequences for the project concept, including the following: • The possibility to implement Buk Bijela project alone, or at least to phase the implementation of both Buk Bijela and Foca projects • The reduction of E&S impacts, thus improving the project’s bankability 4 This hydraulic and hydrological modeling was implemented under the World Bank-funded West Balkans Drina River Basin Management Project. 5 World Bank Project Completion Note, Buk Bijela Hydropower Project, May 1993. 8 • The elimination of the need for environmental flow releases. 11. The redesigned Buk Bijela and Foca HPPs are robust and their construction is technically feasible but they could benefit from optimizations to reduce the project cost. Some possible optimizations were identified, which could reduce the volume of concrete, shorten the construction schedule, and make the projects more competitive. In addition, the projects should be updated with more modern design concepts, completed E&S input data, and up-to-date economic assumptions. 12. The design may need to be enhanced to further mitigate potential E&S impacts, addressing environmental flows, fish passage, and excavation of riverbed. Regarding the assessment and management of E&S impacts, on the technical side, special attention should be paid to the following: • The environmental flow studies are not compliant with international standards and should be redone (except if the operation mode is changed to run-of-river), which could lead to changes in environmental flow values, possibly imposing constraints on operation modes of the complex. • The potential need for fish passage facilities at both sites should be assessed according to international standards. The current project layouts do not include such facilities. • The proposed excavation of the riverbed downstream of both dams, to lower the water level and to increase the net head and energy generation, is not a good practice from an E&S perspective and should be reassessed. 13. The seismic design criteria need to be revised. The geological contexts at both sites are properly described and handled in the design, with special attention to the risk of landslides in the reservoirs. Preliminary seismic hazard assessment, carried out under the feasibility study, found no significant geological issues at the proposed sites and is deemed sufficient for a feasibility level of technical design. Some of the seismic design criteria, including the Safety Evaluation Earthquake, are not fully compliant with the recommendations of the International Commission of Large Dams (ICOLD) and should be revised. The return period selected for the Operating Basis Earthquake is higher than 145 years and complies with the ICOLD recommendations. 14. Regarding hydrology, the values of extreme flood discharges are likely underestimated and need to be revised to reconciliate flood estimates at Foca, Buk Bijela, and Paunci sites and ensure consistency with data from the 1896 historical flood. 15. The selection of design discharges (350 m3/s at both sites) is based on simplistic and outdated economic criteria. Therefore, the approach could be reassessed and optimized with updated project data (revised design, updated environmental flow); updated market conditions (energy market value, need for peak energy vs. base energy); and more adequate optimization criteria. 16. The civil works cost estimate of both projects should be updated in line with current construction prices in the region, addressing the suggested optimization measures at the same time. The unit costs of the proposed civil works seem low, and the cost estimates of both projects are likely underestimated. On the other hand, many civil works concepts and structures could be reassessed and optimized in a value engineering perspective, including river diversion, spillways, and powerhouses, possibly leading to cost savings. Finally, the methodology proposed for the longitudinal cofferdam protecting the spillway construction during the first phase of the river diversion at Foca site should be revised. 9 17. The electromechanical equipment should be updated as part of the overall design optimization. The envisaged electromechanical equipment does not raise major concerns but should be redesigned and updated in case the suggested optimization measures and E&S-related enhancements are undertaken. 18. Project financial assessment • The Buk Bijela and Foca HPPs were together considered as an electricity generation complex. The complex was designed as a peaking power generator. The cost estimate in 2012 was EUR 195 million for Buk Bijela HPP and EUR 119 million for Foca HPP. • The project was studied as a build-operate-transfer (BOT) scheme and to be financed on a project financing basis, assuming 75 percent debt and 25 percent equity financing. The assumed term of borrowing was 21 years (6 years grace period on principle repayment plus 15 years). 19. Project economic assessment • The average economic cost of electricity (LCOE) of the Buk Bijela-Foca HPP complex was EUR 8.25 cents per kWh with an operation period of 25 years and EUR 7.45 cents per kWh with a 50-year operation period. • The WBG team notes that these LCOEs are not low compared to the prevailing wholesale electricity market prices in the region and final electricity prices in BiH,6 even though cost assumptions and additional cost categories could be revised upward (for example, fish passage facilities, river diversion, and sediment management). Therefore, further optimizations of project design and review of cost savings should be carried out. 20. State aid rules and project development • It should be noted that the project development and its financing must consider the state aid rules to support energy from renewable sources in the Energy Community, for which BiH is a contracting party. • According to the Energy Community Secretariat, measures constitute state aid if they (a) are granted by the state or through state resources (such as grants, preferential loans, interest subsidies, capital/equity measures, guarantees, taxes); (b) give selective advantage to certain undertakings or production of certain goods; (c) distort or threaten to distort competition; and (d) affected trade between member states. Furthermore, aid for promotion of electricity from renewables may be granted in competitive bidding process, aid shall be granted as a premium in addition to the market price, aid beneficiaries shall be subject to standard balancing responsibilities, and so on.7 • For further development of Buk Bijela and Foca HPPs as a BOT scheme, the following aspects, among others, related to state aid will need to be considered: o The competitive selection of the BOT entity o The maximum shareholding by ERS in the BOT entity o If applicable, the share of energy to be sold under power purchase agreement(s) and on the wholesale electricity market(s) 6 In the second quarter of 2020, electricity prices in BiH averaged EUR 7.46 cents per kWh for household consumers and EUR 7.02 cents per kWh for non-household. Source: Eurostat. 7 https://www.energy-community.org/dam/jcr:d835005d-e092-4d86-8d52- 453538ab603f/RECG032016_ECS.%20Application.pdf 10 o If applicable, the selection of market price benchmark8 o If applicable, the auction/determination of tariff premium and a reference tariff for hydropower o If applicable, the revenue source for the tariff premium and the duration to be provided o Balancing responsibilities. 21. Given the gaps identified, it is recommended to proceed with a general revision and update of the feasibility studies of both HPPs in two phases, as follows: Phase 1: Project update and optimization (estimated timeline is 6 months): • Development of the electricity market study (definition of realistic electricity prices scenarios, assessment of the need for peak energy) • Revision of flood hydrology and flow time series, including simulation of future scenarios of climate change uncertainties, change in land use or water abstractions for other purposes, to inform HPP design parameters across a range of future scenarios • Development of a detailed sediment management study with numerical modeling coupling hydraulic and sediment transport, and assessment of the impact of sediment management on the capital expenditure (CAPEX) and operating expenditure (OPEX) • Revision of E&S design criteria: environmental flow and operation mode, potential need for fish passage facilities • Revision of project optimization: operation mode (run-of-river vs. daily peaking), design discharge • Revision of energy generation assessment, and potential monetized benefits of integrating variable renewables and flood control • Update of construction cost assumptions and parameters • Revision of construction cost estimate with up-to-date construction prices, based on the current design but including an assessment of the impact of the above studies on the construction quantities • Revision of preliminary economic and financial assessment, considering the above studies (revised hydrology, revised operation mode and associated energy generation assessment, revised CAPEX, revised OPEX due to sediment management) • Hold-point—assessment of project viability and, if the project is deemed viable, outline of the project to be developed further: Buk Bijela alone or Buk Bijela and Foca; run-of-river or daily peaking operation mode; design discharge. Phase 2: Basic design (estimated timeline is 12 months): • Rehabilitation or replacement and continuous monitoring of meteorological and hydrological stations at the proposed Foca and Buk Bijela HPP locations • Revision of seismic hazard assessment 8In Albania, the market benchmark for private hydropower generators with power purchase agreements is the Hungarian Power Exchange. 11 • Completion of design update at basic design level of Buk Bijela alone or Buk Bijela and Foca (depending on the outcomes of Phase 1) once all previous bases have been established, with state-of-the-art design principles and criteria • Development of the CIA at the Drina River (sub-)basin level • Update of bill of quantities and construction cost estimates • Update of the economic and financial assessment • Preparation of a stakeholder engagement plan. The above two phases are aimed at addressing the gaps in projects’ feasibility design identified under this TA and enabling a transition to the next stage of project design. These activities could be carried out in parallel with additional E&S activities such as the CIA and the preparation of a stakeholder engagement plan (see sections C and D). Figure 2 - Proposed location of Buk Bijela dam, June 2019 12 Figure 3 - Proposed location of Foca dam, June 2019 C. Review of Environmental Impact Assessment of Buk Bijela and Foca Hydropower Projects This is a gap analysis of existing EIA documents to inform project sponsors, relevant government authorities, and other stakeholders of any documentation gaps from the lenses of the World Bank Group Environmental and Social Framework as well as International Finance Corporation (IFC) and WBG guidelines concerning the assessment and management of E&S impacts of HPPs. In addition, the gap analysis considers provisions concerning EIA content and processes related to possible transboundary effects of the projects. This purpose is framed notably by the Espoo Convention (1991), Bucharest multilateral agreement (2008), and WBG Operational Policy OP 7.50 concerning Projects on International Waterways. 22. The review of existing EIA document (2013) has indicated key gaps in the assessment of flooding impacts, environmental flows, fish migration and habitat connectivity, and CIA. These gaps were identified through comparison of the existing EIA and environmental permits documentation with the best international practices and also the requirements of the World Bank Environmental and Social Standards (ESS). In terms of potential transboundary impacts, the focus is especially upstream in Montenegro on fish stocks, flooding areas, and environmental flows disruption. It is noted that the transboundary consultation and EIA is governed by the Espoo Convention and will need to be continued during project preparation for Buk Bijela and Foca HPPs. 23. It is also noted that a social impact assessment is not required under the BiH national legislation or the Republika Srpska Laws on Environmental Protection and EIA, therefore the existing EIA document lacks a social assessment. A social assessment would need to be carried out with persons who are immediately affected by project activities and also to cover relevant broader issues that go beyond direct impacts. This TA recommends that social impact assessment be carried out for both Buk Bijela and Foca HPPs and to supplement the existing EIA documentation to the levels of the World Bank required Environmental and Social Impact Assessment (ESIA), guided by the World Bank ESS. Addressing the E&S 13 assessment gaps will help ready the projects for the next stages of preparation and eventually expand the financing options for these HPPs. The European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB), IFC, Kreditanstalt für Wiederaufbau (KfW), the World Bank, and many other international financial institutions are committed to the same core idea regarding stakeholders’ open and transparent engagement. 24. Key findings from the review of existing EIA document are as follows: • Socioeconomic data. The socioeconomic data presented in the EIAs are too old (2012) and their content insufficient to correctly describe the current E&S situation of the HPPs. They need to be updated and completed. This data update and completion should include a current survey of activities, housings, and inhabitants affected by the flooding areas of the reservoirs and their surroundings. • Social impact assessment. The social impact assessment, which is not required under national legislation, is barely mentioned in the reviewed EIAs. The social impact assessment must be included in the EIA process and meet the specific requirements of the ESS regarding stakeholders and affected communities. This social impact assessment should detail the possible individuals or groups identified as disadvantaged or vulnerable. In addition, it should identify the risks or impacts associated with land and natural resource tenure and use, land access and availability, food security and land values, and conflict or contestation over land and natural resources. The issue of labor including labor influx and workers’ safety also has to be assessed, along with community safety and a comprehensive and robust stakeholder engagement plan through the life of the projects. It is estimated that the scope of the social issues that remain to be addressed is manageable and can be addressed within a reasonable budget and time frame. • Impacts on fish migration, habitat connectivity, and mitigating measures. Because of limited description of the current state concerning life cycle, fish migration, and locations of spawning areas within the upper DRB, the consequences of fragmentation on fish populations due to designed dams are insufficiently assessed. Vulnerable fish species include Brown trout and Hucho hucho (Danube salmon). The cumulative impacts on fish migration of both potential projects and the existing dams/obstacles in the DRB (such as Visegrad HPP in BiH and Piva HPP in Montenegro) are not assessed. The EIA indicates the need to implement fishways to mitigate adverse effects of each project on fish migration, but insufficient information is provided concerning their feasibility and possible efficiency. • Land use, ecosystem services, and the use of living natural resources. Current vegetation cover, natural habitats (terrestrial and aquatic), and land use in the reservoir areas must be correctly described and mapped. Existing maps in the current EIAs do not even show the limits of the projected reservoirs at an accurate scale, although these perimeters’ delineation are available at a 1/10,000 scale on topographic background map. Land uses and users on slopes along the concerned sections of the Drina river valley must be identified. The possible benefits of the future areas of the reservoirs should be described in the EIAs, notably the socioeconomic ones, which should consider the hydraulic operation of the HPPs, generating high fluctuations of the reservoir water levels. Over 1-meter daily fluctuations and several meters of seasonal cumulative variations are expected and should be described. The opportunities for local development of activities and 14 uses in the area and surroundings of the reservoirs, such as fisheries and tourism, should be assessed. • Environmental flows. The EIAs of Buk Bijela and Foca HPPs refer only to the Republika Srpska current regulation that states a statistical value (Q95%, that is, minimum mean monthly flow of a 95 percent exceedance probability). This does not comply with the requirement of the WBG concerning environmental flow assessment. Further assessment of environmental flows, including sediment load and flows, is recommended. • Community safety. During the construction period, the possible impacts on housing near Foca HPP are not sufficiently assessed. The flood risk assessment and safety measures for both Buk Bijela and Foca HPPs need to be improved. The flood risk assessment and accident prevention plan (for example, in case of a dam failure) for the operation period will need to be developed. • Involuntary resettlement. The remaining involuntary resettlement impacts are relatively minor and modest as compared to other large dams. There is a need to assess the construction impact on inhabitants situated in the vicinity of the dam sites, more specifically Foca dam site (Buk Bijela dam site is less of a concern as no inhabitants are living in its vicinity). Based on the site visits undertaken, there are small number of homes and other infrastructure in the vicinity of the project sites. Since the planning for these projects, especially Buk Bijela, was undertaken a long time ago, the land has been cleared and acquired. The social assessment will need to verify any impacts related to illegal or legal land use in the buffer zone of the project. However, overall, these projects will not have to deal with complex resettlement issues which is often a challenging feature of many large dams. • CIAs. Cumulative impacts (that is the cumulative effects of hydropower or other infrastructure developments in the same river, watershed, or region in the present and in the foreseeable future) are not properly assessed, for both Buk Bijela and Foca HPPs, and also for the existing HPPs of Visegrad (downstream) and Piva (upstream in Montenegro) and any other planned or ongoing infrastructure developments located in the upper DRB. • Transboundary impacts and permitting process. The transboundary impacts downstream and especially upstream in Montenegro on fish stocks, flooding areas, and sediment environmental flows disruption will need to be assessed further. This could be done in conjunction with the aforementioned CIAs. The application of the Espoo Convention9 provisions in the environmental permitting process and the involvement of the Montenegro authorities are simultaneously in progress for both HPPs. Montenegro authorities, as a potential affected party, have been involved since the initial permitting process in 2013. In 2018, during the renewal of the environmental permits, the Montenegro authorities requested for a new transboundary public consultation. It is recommended that the Espoo Convention application process be continued on the basis of the completed and relevant ESIAs. The transboundary impacts particularly on water quantity and quality both upstream and downstream, once assessed, would serve as a basis for the notification 9The transboundary consultation process is governed by the Convention on Environmental Impact Assessment in a Transboundary Context, called Espoo Convention (1991). The Espoo Convention sets out the obligations of parties to assess the environmental impact of certain activities at an early stage of planning. It also lays down the general obligation of states to notify and consult each other on all major projects under consideration that are likely to have a significant adverse environmental impact across boundaries. It also provides framework for dispute resolutions. 15 of riparian countries, in line with OP 7.50 in a process that is established as an open dialogue early in the project preparation but also for the duration of the project itself and beyond. D. Introduction to Stakeholder Engagement Framework - Integrated Water and Hydropower Development in the Drina River Basin To help inform social assessments for any development of HPPs in the DRB, this TA provides an introduction to a Stakeholder Engagement Framework. The framework has been designed to serve as a road map for development of specific stakeholder engagement programs or plans for prospective HPPs when the specific locations, stakeholder groups, types and technologies, and schedule of activities are known. 25. Development activities in water and hydropower often require the natural and human environment to be altered. These alterations and the overall success or failure of such projects have for quite some time now linked directly to the investment and efforts made at early stages into stakeholder engagement activities. The best scenarios tell us to develop, nurture, and maintain solid partnerships with stakeholders. The complexity of the HPPs, equally in design, construction, and operation, itself justifies any stakeholder engagement to be integrated into project management as a golden rule. This would enable a good analysis of the diverse impacts on different stakeholder groups and overall associated risks to be well understood and adequately considered during overall planning and adopting strategies for taking decisions. This includes bringing aboard expertise in the field. Geopolitical and economic context in the stakeholder engagement activities plays a key role and may be detrimental if neglected on the one hand but on the other is often dependent on factors residing outside the project and susceptible to changes particularly in the transboundary context. 26. Stakeholders need to be brought into projects by involving them in early stages and throughout the project cycle, which begins as early as planning and is followed by implementation and operation stages. As a starting point of this iterative process, under this TA an SEF has been prepared accompanied by a stakeholder mapping exercise laying down a strong foundation for future expansion of both. The work followed the World Bank’s ESF10 which came into effect on October 1, 2018, and the ESS10 targets ‘Stakeholder Engagement and Information Disclosure’, in particular the Strategic Framework for Mainstreaming Citizen Engagement in WBG Operations,11 and the World Bank Operational Policy OP 7.50 Projects on International Waterways that ensures that the international aspects of a project on an international waterway are dealt with at the onset. The document has also considered alternative approaches in recalibrating stakeholder engagement due to COVID-19 imposed restrictions. However, the documents also satisfy the core principles of stakeholder engagement—EBRD, EIB, IFC, and many other international financial institutions—which revolve around the fundamental stakeholder engagement idea: stakeholders need to be meaningfully consulted and support open and transparent engagement. 27. The regulatory and legal framework in a country greatly marks the approach to stakeholder engagement. The commitment to engage with citizens is not housed under a single self-standing law or regulation in either of the countries of the DRB.12 However, recognizing the importance of citizen engagement is embedded in their legal systems and clearly recognized by the mandatory procedures provided by individual laws. BiH, Montenegro, and Serbia have accessed the Aarhus Convention on Access 10 www.worldbank.org/en/projects-operations/environmental-and-social-framework/brief/environmental-and-social-standards 11 https://consultations.worldbank.org/sites/default/files/materials/consultation-template/engaging-citizens-improved- resultsopenconsultationtemplate/materials/finalstrategicframeworkforce_4.pdf 12 Albania’s share in the total DRB area is negligible and has therefore not been considered in the Stakeholder Engagement Framework and Stakeholder Map. 16 to Information, Public Participation in Decision Making, and Access to Justice in Environmental Matter. This is also the case with 1991 Espoo Convention (in force since 1997), one of the most authoritative codifications of the EIAs in the transboundary context to which BiH, Montenegro, and Serbia are all party to. 28. The stakeholder engagement process needs to consider the national requirements of each of the three countries and the mandatory requirements of any financing institutions with the intent to support implementation. Under this TA, an SEF for the DRB has been prepared. This SEF may help guide the preparation of a project- and context-specific stakeholder engagement program, including a strong and appropriate grievance mechanism that serves as a key testing tool to the effectiveness, efficiency, and implementation of the SEF and the specific stakeholder engagement program itself. 29. The SEF methodology adopts a basin-wide approach with a line of sight on the Upper Drina potential HPPs (for example, Buk Bijela and Foca HPPs). However, the SEF’s underlining principles are applicable to all three countries and guide preparation of any site-specific stakeholder engagement program focusing on water and energy. This project-specific stakeholder engagement program would detail a differentiated and tailored list of outreach and communication strategies to meet the needs of each project phase. The SEF has considered the transboundary context and needs to communicate with riparian states. Recommendations on how to advance with the notification process under the Espoo Convention have also been included. The SEF differentiates the needs of each of the two broad categories of stakeholders recognized, with the third cutting across both categories: (1) Project-affected parties. These include persons likely to be affected by the project because of actual impacts (positive and negative) or potential risks to their physical environment, health, security, cultural practices, well-being, or livelihoods. These stakeholders may include individuals or groups, including direct project beneficiaries and local communities, that is, individuals or households most likely to observe/feel changes from E&S impacts of the project. (2) Other interested parties (OIPs). These include individuals, groups, or organizations with an interest in the project, which may be due to the project location, its characteristics, its impacts, or matters related to public interest. For example, these parties may include regulators, government officials, the private sector, the scientific community, academics, unions, women’s organizations, other civil society organizations, and cultural groups. (3) Disadvantaged/Vulnerable groups. Persons who may be disproportionately affected or further disadvantaged by a project compared with any other groups due to their vulnerable status13 may require special engagement efforts to ensure their equal representation in the consultation and decision-making process associated with the project. 30. The SEF has been designed to serve as a road map for development of specific stakeholder engagement programs or plans to be prepared for prospective HPPs when the specific locations, stakeholder groups, types and technologies, and schedule of activities are known. The screening of relevant information to understand the characteristics of people/communities that will be affected by a project is a part of the stakeholder engagement programs or plans. 13Vulnerable status may stem from an individual’s or group’s race, national, ethnic or social origin, color, gender, language, religion, political or other opinion, property, age, culture, literacy, sickness, physical or mental disability, poverty or economic disadvantage, and dependence on unique natural resources. 17 Annex 1 provides a Stakeholder Map for an Integrated Water And Hydropower Development in the Drina River Basin. E. Rehabilitation requirements of Piva HPP in Montenegro and Visegrad HPP in Bosnia and Herzegovina The utilities EPCG in Montenegro and ERS in BiH proposed the Piva HPP and Visegrad HPP for this TA. Piva HPP is upstream of the location where Piva River and Tara River merge to form the Drina River. Visegrad HPP is on the Drina River. Technical reports related to the rehabilitation of both projects were made available for review. Over the course of this TA, the World Bank team also consulted with utilities EPBiH and EPHZHB in BiH and ERS in Serbia regarding rehabilitation requirements of existing HPPs, although they were not proposed for review under this TA. The World Bank has a long track record in supporting the rehabilitation of hydropower facilities and dam safety improvement in Southeast Europe and stands ready to support additional undertakings following this TA. 31. Piva HPP in Montenegro. This 342 MW HPP with a high, arch dam was commissioned in 1976 and is the second largest hydropower plant in Montenegro, with a planned generation of 860 million kWh annually (about 25 percent of electricity generated in Montenegro). It is in the northwest part of Montenegro, on the Piva River, about 10 km upstream of the location where Piva River and Tara River merge to form the Drina River. Piva HPP has been going through a comprehensive rehabilitation program in this past decade, covering electrical, mechanical, civil structures, and reservoir aspects. Due to Piva HPP’s design as a high, arch dam, continuing rehabilitation works of grout curtain that helps manage water seepages or leakages damaging dam and reservoir, and improves abutments stability—and modernization of dam monitoring system, including seismic monitoring, are of key importance for uninterrupted operation and are still required. The project is planned to continue operating for at least another 20 years. In March 2021, EPCG confirmed its plan to move forward with the above-mentioned works on Piva HPP as a priority. Following the coronavirus travel restrictions, the World Bank and Électricité de France (EDF) eventually visited the project during July 20–21, 2021. The key findings from the visit are as follows: (a) there is a near-term need for a complete rehabilitation of the dam monitoring system due to the advanced age and condition of the existing system; (b) a quantitative risk assessment is recommended to be carried out, including hydrogeological, geotechnical, seismic, system response, and potential failure mode analysis. This quantitative risk assessment will help to target the performance criteria intended for grouting works to ensure or improve the safety of Piva dam; (c) the Emergency Preparedness Plan is recommended to be updated; and (d) given the geological context and according to available data, the Piva dam’s grouting curtain is not fully efficient. Further grouting tests and limited rehabilitation are already envisaged and should be performed. The locations of the envisaged grouting tests seem well defined. The combination of the aforementioned risk assessment and grouting tests will then inform the necessary grouting rehabilitation works and complementary measures such as a water drainage structure. 18 Figure 4 - Piva Hydropower Plant, July 2021 32. Visegrad HPP in BiH. This 315 MW HPP was commissioned in 1990 and is currently the largest hydropower generator in BiH, generating about 1,070 million kWh annually (about 8 percent of electricity generated in BiH). It is located at a chainage 245 km on the Drina River, with the normal operating level set at an elevation of 331.5–336 m above sea level. Water leakages downstream of the dam were 19 increasing (from 7 m3/s in 1996 to 15 m3/s in 2012), which required remedial works that were completed in 2018. The project operator ERS has been considering additional works to reduce water leakage through the dam foundation further, which has been recorded at 4 m3/s compared to an average river flow of 342 m3/s. According to ERS, the rehabilitation of electromechanical equipment could be needed in the next 10 years. The project is planned to continue operating for at least another 20 years. In April 2021, ERS confirmed to the World Bank team that the next rehabilitation works for Visegrad HPP are expected to be carried out in the next 5 to 10 years. Figure 5 - Visegrad Hydropower Plant Source: https://www.quantum-corporation.com/energy/visegrad-power-station,23#dxig0. OVERALL RECOMMENDATIONS FOR THE NEXT STEPS 33. The water resource of the DRB is not managed in an integrated manner and could benefit from a formal consultation structure among the riparian countries, preferably a river basin commission. This is to systematically increase the exchange of information and consultation among the riparian countries on their plans for hydropower or any other water resources related developments. However, international experiences have shown that establishing a new river basin organization would require complex geopolitical agreements to be reached; equally complex institutional arrangement to be put in place; and long-term financial, human, and technical resources for its operations. In addition, a river basin organization covering a large geographic area is not always effective for consultation and coordination of matters specific to a smaller area. For the DRB, a less complex formal consultation structure could be considered. This could be a consultation structure agreed among DRB riparian countries and established 20 under ongoing and future water or energy projects in the DRB or a technical sub-basin consultative group similar to the structure of the working groups within the International Sava River Basin Commission. 34. In early 2021, the power utilities in BiH, Montenegro, and Serbia had participated in the consultation of the hydraulic and hydrological modeling exercise of the DRB under the West Balkans Drina River Basin Management Project2. Going forward, these power utilities should be encouraged and supported by government authorities, water, and other relevant agencies in incorporating a basin-wide hydraulic and hydrological assessment in the planning, designing, and implementation of an HPP in the DRB. 35. All power utilities in BiH, Montenegro, and Serbia are already implementing their programs for the rehabilitation and safety improvement of existing HPPs in the Drina River and other rivers. These programs should be continued and additional projects be identified. The World Bank Good Practice Note on Dam Safety was published in 2020 and provides guidance on the application of relevant requirements under the ESF as well as guidance on using a risk management approach to the application of the dam safety requirements.14 These activities will help extend the supply of hydropower for several decades, create enabling structures for supporting more electricity from variable renewable sources, and reduce reliance on electricity from fossil fuels. Furthermore, the expected substantial economic and financial benefits of these programs will provide flexibility for the countries to address electricity tariff sustainability and affordability. In turn, this will indirectly support the countries in addressing shared prosperity and extreme poverty among vulnerable electricity consumers and the general population. The improvement in E&S performance of HPPs and their climate change mitigation will also benefit the general population in the long term. 36. Under this TA, the gap analyses of the feasibility study and EIA for the Buk Bijela and Foca HPPs have identified gaps that are broadly agreed among officials from ERS, Elektroprivreda Serbia (EPS), EDF, and World Bank team. However, decisions are required from government authorities and project sponsors on implementing additional assessment and actions to close those gaps, for instance, the assessment of whether Buk Bijela and Foca HPPs should be a peaking or a baseload facility, the assessment to reduce construction costs, the CIA upstream and downstream, and the transboundary consultation per the Espoo Convention. 37. The gap closing exercise is recommended to be addressed by project sponsors and relevant government authorities to enhance the design feature and bankability of the projects from the perspective of investors and international financial institutions. It should be comprehensive as the different tasks identified to close the gaps are all interdependent. There is, for example, little benefit in carrying out an assessment of the type of operation to be recommended for Buk Bijela-Foca complex without ensuring that the final technical design parameters consider technical, E&S, transboundary, and economic considerations. The World Bank team stands ready to support decision-makers and project sponsors with gap closing assessment and actions and is open to a possible request from government authorities to help facilitate the dialogue with all parties involved in the projects. 14 https://openknowledge.worldbank.org/handle/10986/35484 21 Annex 1 - Stakeholder Map: Integrated Water and Hydropower Development in the Drina River Basin BASIN LEVEL International Sava River Basin Commission STATE BOSNIA AND HERZEGOVINA MONTENEGRO SERBIA GOVERNMENT Ministry of Foreign Trade and Economic Ministry of Sustainable Development and Ministry of Agriculture, Forestry and Relations of BiH Tourism Water Management State Commission on concessions (for projects developed on the border between Ministry of Agriculture and Rural Ministry of Mining and Energy BiH and the Republic of Serbia) Development Ministry of Construction, Transport and Focal Points for Administrative Matters Ministry of Economy Inspectorate Infrastructure Inspectorate regarding the Espoo Convention: Focal Points for Administrative Matters Ms. Srebrenka GOLIC regarding the Espoo Convention and Focal Points for Administrative Matters Ministry of Spatial Planning, Civil Point of Contact (as per Article 3 of the regarding the Espoo Convention and Engineering and Ecology of the Republic of Espoo Convention) Point of Contact (as per Article 3 of the Srpska Ms. Brankica CMILJANOVIC Espoo Convention) EIA: Trg Republike Srpske 1 Head of the Directorate of the Horizontal Ms. Sabina Ivanovic 78000 BANJA LUKA legislation Head of Department for EIA Telephone: +387 5133 9592 Ministry of Sustainable Development and Ministry of Environmental Protection Fax: +387 5133 9653 Tourism 1 Omladinskih Brigada Str. E-mail: kabinetministramgr@vladars.net IV proleterske 19 11070 NEW BELGRADE 81000 PODGORICA Telephone: +381 11 3131 356 Point of Contact (as per Article 3 of the Telephone: +382 20 446283 Fax: +381 11 2601 034 Espoo Convention) Fax: +382 20 446215 E-mail: sabina.ivanovic@ekologija.gov.rs Ministry for Foreign Affairs E-mail:brankica.cmiljanovic@mrt.gov.me SEA: Mr. Miroslav TOSOVIC Sarajevo Head of the Group for Strategic c/o Permanent Mission of Bosnia and Environmental Impact Assessments Herzegovina Department 22 bis, rue Lamartine Ministry of Environmental Protection CH-1203 GENEVA 1 Omladinskih Brigada Str. Switzerland 11070 NEW BELGRADE Telephone: +41 22 345 8844 or 58 Telephone: +381 11 2690 977 22 Fax: +41 22 345 8889 Fax: +381 11 3132 547 miroslav.tosovic@kologija.gov.rs ENTITY LEVEL (BiH Federation of Bosnia and Herzegovina: ONLY) Ministry of Energy, Mining and Industry; Ministry of Agriculture, Water Management and Forestry; Ministry of Spatial Planning; Ministry of Transport and Communications Inspectorate. Republika Srpska: Ministry of Energy and Mining; Ministry of Agriculture, Forestry and Water Management; Ministry of Spatial Planning, Civil Engineering and Ecology; Ministry of Transport and Communications Inspectorate; Ministry of Labor, War veterans and Disabled Persons’ Protection; Inspectorate of Republika Srpska (includes Labor inspectorate), Government. State Electricity Regulatory Commission Energy Regulatory Agency Environmental Regulatory Agency Regulatory Regulatory Environmental and Nature Protection Energy Agency COMMITTEES Commission for Commission for Agency Energy in the Energy of Republika Republica Hydrometeorological Service AND AGENCIES Federation of Bosnia Srpska Water Directorate AND INSTITUTES and Herzegovina Commission for concessions of Private-Public Partnership Commission of Commission for Montenegro Serbia Commission for concessions of concessions of the Republika Srpska Institute for Hydrometeorology and Institute for Nature Conservation, Federation of Bosnia Seismology of Montenegro and Herzegovina Republic Joint Energy Committee between Serbia Hydrometeorological and Republika Srpska Federal Institute of Hydrometeorological Republika Srpska Institute 23 Environmental Environmental Protection Fund of Protection Fund, Republika Srpska Federation of Bosnia and Herzegovina Joint Energy Committee between Serbia and Republika Srpska, Institute for Cultural- Historical and Natural Heritage Protection Provincial Republika Srpska Public Water management Company REGIONAL LEVEL Public Utility Vode Srbijavode Srpske Public Water management Company Regional Office for Vojvodina Vode DRB in Zvornik ENERGY Elektroprivreda Elektroprivreda Elektroprivreda Crne Gore Elektroprivreda Srbije PRODUCERS Bosne i Hercegovine Republike Srpske LOCAL LEVEL Bosanko-Podrinjski Municipality of Foca Local government water supply and Local government water supply and Canton Local government sewage enterprises sewage enterprises Local government water supply and water supply and sewage enterprises sewage system Municipalities Foca and Ustikolina ESS5 The Government, The Government, The Government, Local Administrations The Government, Local Administrations Municipalities, Municipalities, (property Departments), Ministry of (property departments), Ministry of Department for Department for Finance, Appraisers Finance, Cadaster office, Tax Administration and Property Affairs, Administration, Administrative Courts, Property Affairs, Accredited experts Appraisers. 24 Accredited experts (individual (individual appraisers) appraisers), Assembly of Brčko District, Department for Environmental Protection and Property Affairs of the Government of Brčko and Financial Directorate of Brčko District. ESS2 Federal Ministry of Ministry of Labor, Ministry of Labor and social care Ministry of Labor, Employment, Veteran Labor and Social Veterans and and social issues Policy, Federal disabled persons Labor Inspectorate Inspection Labor inspectorate Administration, each Labor inspectorate canton has its Local Labor inspectorates Ministry of Labor (in some of them labor issues are merged with justice depatments), some cantons have their own labor and occupational health and safety inspection 25 Nongovernmental Save the blue heart Save the blue heart Save the blue heart of Europe; Save the blue heart of Europe Organizations of Europe15 of Europe Green Home19 World Wildlife Fund (WWF) Centar za životnu Centar za životnu World Wildlife Fund (WWF) UNESCO World Heritage Centre sredinu16 sredinu UNESCO World Heritage Centre Ekotim17 Ekotim Zeleni Neretva18 Zeleni Neretva Green Home World Wildlife Fund Ozon (WWF) Aarhus Centar Banja UNESCO World Luka Heritage Centre Center for Environment Banja Luka World Wildlife Fund (WWF) UNESCO World Heritage Centre 15 https://www.balkanrivers.net/ 16 https://czzs.org/ 17 http://ekotim.net/bs/ 18 http://zeleni-neretva.ba/index.php?option=com_frontpage&Itemid=1 19 https://www.facebook.com/green.home.18 26 Annex 2 - Update of Scenarios 2017 Least-Cost Power Generation Expansion Plan for Bosnia and Herzegovina Under this TA, the original 2017 scenarios of the least-cost power generation expansion plan for BiH20 have been updated to incorporate the most recent power sector development, strategy, and plan in BiH. The results of this update are summarized below: • BiH has an installed power generation capacity of around 4,460 MW with 2,073 MW thermal (mostly lignite), 2,076 MW hydropower (larger than 10 MW each), 159 MW of small hydro, 135 MW wind, and 20 MW solar. Approximately, two-thirds of the power generated comes from lignite, while one-third from hydropower, depending on the hydrological conditions. Overall electricity generation expansion requirements • Based on the ‘Framework Energy Strategy of BiH until 2035’, the country intends to progressively retire thermal power generators shortly: Tuzla 3/4 and Kakanj 5 in 2023, and Tuzla 5 in 2025. Tuzla 6 and Kakanj 6/7 will be retrofitted with emission controls (SO2, NOx, and particulates) by the end of 2027 to ensure compliance with the EU Industrial Emissions Directive.21 Tuzla 6 is expected to operate regularly up to 2035 and as a backup afterwards up to 2050. While Kakanj 6 will also operate regularly up to 2035 and as a backup but only to 2045. Kakanj 7 will be similar to Kakanj 6, with the exception that it will operate during the heating season for district heating of Kakanj city. All these assumptions are subject to optimization in the least-cost expansion plan. • Until 2040 it is estimated that 2,300 to 4,400 MW of new electricity generation capacity will be needed in BiH. The new capacity is needed mainly to replace the retiring old thermal power generators (totaling 1,105 to 1,888 MW of derated capacity) and the estimated growth in electricity demand of 0.4 to 2.2 percent annually. The existing stock of hydropower plants is estimated to continue operating through 2040, while several hundred megawatts of new HPP capacity are commissioned depending on the scenario. • The selection of new generating capacity in terms of locations and E&S impacts is a main issue for further deliberation and decision-making. • The pollutants associated with electricity generation from coal in BiH can be reduced substantially through replacing the retiring thermal power generators with solar, hydro, and wind generators. A 2019 World Bank assessment of air quality in BiH estimates that 19 percent of air pollutants (especially small particulate matters PM 2.5) are from thermal power and heating plants.22 The potential to expedite the reduction of such pollutants would also depend on the speed of retiring thermal power generators and decisions on new thermal generators. • The timing for retiring existing thermal power generators and decarbonization of the country’s power sector could be expedited. Moreover, the proposed Tuzla 7 could be dropped and the envisaged capacity (450 MW starting 2025) be provided by already existing thermal power plants (TPPs), existing and new HPPs, new renewable generators, and limited imported electricity. The various system needs (for example, ancillary services, reserve margin) could be covered by 20 https://openknowledge.worldbank.org/handle/10986/27464 21 https://ec.europa.eu/environment/industry/stationary/ied/legislation.htm 22 Based on emission factor data for existing thermal power plants in BiH, it is estimated that in 2018 BiH emitted 2,700 tons of PM 2.5, 21,000 tons of NOX, and 164,000 tons of SO2. These pollutants could be reduced to 300, 3,000, and 4,500 tons, respectively, in moderate scenarios. 27 remaining capacities on the grid, complemented by new hydro pumped storage plants and batteries, depending on the scenario. • Without carbon taxes, the capacity of wind electricity generators will not increase significantly (less than 150 MW). Solar reaches its maximum of 2,000 MW in the least-cost plan but very late, toward the end of the time horizon. If assuming an introduction of carbon taxes in 2025, this would expedite new solar capacity in the least-cost plan, reaching 500–1000 MW by 2030, depending on the scenario. Carbon taxes do not support larger wind penetration since they are not adequately cost competitive compared to other generation technologies in BiH. • With carbon taxes, BiH electricity sector could become carbon-neutral by 2040. Even if Tuzla 7 is eventually put in service, the carbon taxes would make its electricity uncompetitive in the least- cost plan. • BiH will partially become a net electricity importer once the policy constraints (renewable energy and CO2 targets) are introduced. Net electricity imports will increase significantly if carbon taxes become effective, and especially if commissioning of Tuzla 7 is not imposed in the least-cost plan (that is, optimized). To make the country energy secure, additional 2,000 MW is needed on top of other scenarios. Most of this new capacity is estimated to come from wind plants. Thermal power generation • The utilization rates of the majority of thermal power generators in 2013–2018 have been moderate, averaging around 60 percent. • Only the privately owned Stanari TPP recorded utilization rates of approximately 85 percent in recent years. • The top five largest operating thermal generators are as follows: (a) Stanari, (b) Ugljevik, (c) Gacko, (d) Tuzla 6, (e) Kakanj 7. Together they account for 85 percent of thermal power generation in 2019. • The proposed Tuzla 7 is estimated to have utilization rates exceeding 80 percent in less than 8 years in the main scenarios. Tuzla 7 capacity factors in the last several years of the analyzed time horizon are quite low, ranging from 0 to 74 percent, depending on the scenario. The justification and feasibility for Tuzla 7 is therefore limited. This result is consistent with the original 2017 least- cost plan supported by the World Bank. Moreover, Tuzla 7 will not be financially feasible if carbon taxes are introduced in BiH and/or a border carbon prices mechanism is introduced for electricity exports and can end up being a stranded asset. • Electricity and heat generated from natural gas is not competitive in the least-cost plan in all scenarios. This is mainly due to the relatively high CAPEX and OPEX of CCGTs, higher cost of imported natural gas (assumed EUR 7.1 per GJ23) than domestic coal prices, and carbon taxes under the applicable scenarios. However, the analysis of adding a new gas-fired thermal power plant in BiH should be further informed by a regional analysis considering different gas supply options. 23 1 Gigajoule is about 0.95 million British thermal units. 28 Hydropower generation • The utilization of hydropower generators is subject to hydrology and water reservoir management as applicable. The utilization rates of HPPs in BiH in recent years averaged about 33 percent, with a wide range of 7–77 percent. • The top five largest operating HPPs are as follows: (a) Visegrad, (b) Dubrovnik, (c) Jablanica, (d) Rama, and (e) Trebinje. Together they account for 69 percent of hydropower generation in 2020. • It is estimated that a few hundred megawatts of new hydropower capacity will be needed until 2040, including those with reservoir or pumped storage. The relatively low capacity of new HPPs is due to existing excess power generation capacity in BiH, low expected electricity demand growth, and decreasing cost of solar power. The limited megawatt means that only a limited number of locations could be selected for development, thus limiting the E&S impacts associated with developing HPPs. The selection should be taken on a basin-wide, integrated water resource development approach, considering transboundary impacts on neighboring countries, and any electricity export costs and benefits tradeoff. Nevertheless, hydro projects with storage take a long time to plan and implement, so some of these projects may need to commence planning soon. Variable renewable electricity generation • By 2020, there will only be 87 MW of grid-scale wind power generators and no grid-scale solar generator in BiH. • Without carbon taxes or other financial incentives, the capacity of solar and wind electricity generators will not increase significantly (less than 150 MW) in the least-cost plan until almost 2040. This is mainly due to existing excess power generation capacity in BiH and low expected demand growth. They are not adequately cost competitive compared to coal and hydropower in BiH. If assuming an introduction of carbon taxes in 2025, this would expedite new solar and wind generation capacity in the least-cost plan, exceeding 700 MW by 2030. The capacity of variable electricity generators, solar and wind, is capped at about 2,000 MW in the least-cost plan to ensure power system stability. • Due to low electricity demand in BiH at night time in general, the least-cost plan selects much more new solar PV capacity than wind because of the lower levelized cost of solar PV generation. There is limited need for wind electricity at night time at the system-wide level. Nevertheless, the actual selection between solar and wind capacity must be nuanced by solar and wind resources, regional power generation capacity, energy security, geographic locations, and power grid absorption ability. Hydro pumped storage and battery storage • To cover the system needs, significant storage capacity will be needed. In all scenarios, pumped storage hydropower plants come online, notably in case carbon pricing is introduced (up to 500 MW), depending on the scenario. This is complemented by 90 MW of storage hydro in carbon pricing scenarios. To support provision of ancillary services, batteries come online as early as 2025, with somewhat limited capacity (for example, 37 MW in case of introduction of carbon pricing and optimized Tuzla 7). 29 Annex 3 - List of HPP Candidates from the Western Balkans Regional Strategy for Sustainable Hydropower Development (2019) 30 31 32 Annex 4 - List of Documents prepared under this Technical Assistance Integrated Water and Hydropower Development in the Drina River Basin 1. Slides - TA Launch Presentation, December 2018, World Bank Staff: The presentation includes an overview of hydropower project financing, risk allocations, and examples of hydropower projects supported by the WBG. 2. Gap Analysis Report, March 2020, EDF-EGIS: Review of the series of study Support to the Water Resources Management in the Drina River Basin (COWI, Stucky and JCI, 2017 - COWI reports). 3. Gap Analysis Report, June 2020, EDF-EGIS: Review of the feasibility study of hydropower projects in the DRB, Buk Bijela, and Foca Hydropower Projects (Stucky 2012). 4. Gap Analysis Report, March/June 2020, EDF-EGIS: Review the Environmental Impact Assessment of Buk Bijela and Foca Hydropower Projects (IG and Institute for Protection Ecology and Informatics Banjaluka) and the environmental permits (2013, renewed in 2018). 5. Report - Introduction to Stakeholder Engagement Framework, Drina River Basin, November 2020, World Bank Staff. 6. Slides and Spreadsheet Models - Scenarios Update to the 2017 Least-Cost Power Generation Expansion Plan for Bosnia and Herzegovina, May 2021, World Bank Staff. 7. Report - Assessment of the Rehabilitation and Dam Safety Improvement Requirements of the Piva HPP in Montenegro and Visegrad HPP in BiH, October 2021, EDF. 33 Annex 5 - Transmission Lines, Thermal and Hydropower Plants in the Western Balkans Source: The Warsaw Institute Review. 2019. Western Balkans Infrastructure and Energy from a Geopolitical Perspective. Conference Report. 34 Source: ENTSO - https://eepublicdownloads.entsoe.eu/clean-documents/Publications/maps/2019/Map_ENTSO-E- 4.000.000.pdf 35 Annex 6 - Salient Features of Buk Bijela and Foca HPPs Buk Bijela HPP Foca HPP HYDROLOGY Catchment area km2 4,158 4,692 E-flow m3/s 25 27 3 Mean annual flow m /s 162 178 3 10,000 years flood m /s 5,484 5,601 RESERVOIR Full Supply Level (FSL) masl 434.0 404.2 3 Reservoir volume hm 15.7 6.7 Live volume hm3 11.0 4.6 Dead volume hm3 4.7 2.1 2 Reservoir area at FSL km 1.23 0.91 Reservoir length km 11.5 10.0 DAM Dam type Concrete gravity Concrete gravity Dam height m 36 21 Dam length m 197 208 Dam crest elevation masl 436.1 406.8 Diversion type Tunnel Longitudinal Cofferdam SPILLWAY Bottom outlet + Spillway type Surface gates surface gates 1,000 years flood m3/s 3,790 3,790 3 Check flood (10,000 years) m /s 5,484 5,600 Number of surface gates 2 4 Number of bottom gates 1 - LARGE TURBINES Number units 2 2 Unit design flow m3/s 150 150 Type Kaplan Bulb Nominal net head m 29.0 13.7 Rated power MW 40.11 18.95 36 Buk Bijela HPP Foca HPP SMALL TURBINES Number of units 1 1 Unit design flow m3/s 50 50 Type Kaplan S-type Nominal net head m 29.0 13.7 Rated power MW 13.30 6.25 LARGE GENERATORS Capacity MVA 45.0 21.5 Voltage kV 10.5 10.5 SMALL GENERATORS Capacity MVA 15.0 7.0 Voltage kV 10.5 10.5 TRANSMISSION Substation type GIS GIS Evacuation voltage kV 440/220/110 110 ENERGY GENERATION Design flow m3/s 350 350 Max power MW 93.5 44.2 Total annual generation GWh/year 332 176 Base generation GWh/year 210 129 Peak generation GWh/year 122 47 Operating mode Daily peaking Daily peaking