75594 August 2012 PPIAF Assistance in Bosnia and Herzegovina Bosnia and Herzegovina (Bosnia) has accomplished a great deal since the 1995 Dayton Peace Accords helped bring an end to the worst bloodshed on European soil since World War II. Most importantly, Bosnian citizens and authorities have restored peace. Bosnia is a European Union potential candidate country and is moving—though fitfully—toward alignment with European Union requirements. The authorities have also established a solid record of economic management. Between 1998 and 2008, per capita GDP nearly quadrupled, and poverty dropped from nearly 20% to about 14%. Perhaps most impressive, a decade and a half after the end of fighting, Bosnia’s citizens have managed these achievements within a decentralized and highly complex political and institutional structure. Critical development challenges remain. The country is embarking on a new growth model dependent on exports in a period of slow growth and escalating financial volatility in Europe, while at the same time its neighbors are undertaking similar strategies. Bosnia has to become more competitive. This will require upgrading in physical infrastructure, business environment, and human capital. It will also require greater coherence in the country’s decentralized administrative system. In addition, Bosnia is rich in natural resources, but these need to be used sustainably. As throughout South East Europe, climate change threatens not only Bosnia’s natural beauty but key sources of growth, such as agriculture, forestry , and hydropower. Between 1996 and 2007, the World Bank’s International Development Association has invested about one billion dollars in Bosnia and Herzegovina to improve infrastructure, support economic development, and deepen structural reforms. The government plans to partner with private investors and operators to meet its growing infrastructure requirement. Within this context, PPIAF has provided support to strengthen the understanding of government officials regarding important issues in planning, developing, and implementing public-private partnership (PPP) projects, by funding four activities in the country (a fifth activity was approved but eventually cancelled). Technical Assistance for Bosnia’s Energy Sector In 2007 the Government of Bosnia was in the process of developing an Energy Sector Study. This comprehensive study, undertaken by the government and financed from International Development Association credit, would include the development of a least-cost power generation investment program; identification of possible competitive projects to serve the export market; preparation of optimal investment programs for power transmission and distribution; review of the reform and restructuring programs of the power, coal mining, petroleum, and gas sectors; investigation of options for energy conservation and renewable energy; and examination of the environmental aspects of the energy sector. The study would also include ways to protect vulnerable energy consumers from the adverse effects of increases in energy prices. This comprehensive study was to provide inputs to finalize the Government’s National Energy Strategy. The Energy Sector Study was supervised and coordinated by the Ministry of Foreign Trade and Economic Relations. To ensure that the study gave a balanced coverage of the overall energy sector and fully took into account the views of key stakeholders in the energy sector, it was essential that senior officials from entities and the states responsible for various sub-sectors covered by the study be fully involved in the review of these reports. To facilitate greater and more active participation by a broader range of experts and stakeholders in the Energy Sector Study review process, the Ministry of Foreign Trade and Economic Relations requested PPIAF’s assistance in 2007 to fund the services of an international and national consultant to assist in planning, organizing, and facilitating consultations, a review, and workshops to finalize the Energy Sector Study. This PPIAF activity was completed at the end of March 2008: three consultation workshops were held; all went ahead on schedule and were very successful. The first workshop was held in Sarajevo on February 18–19, 2008 and covered natural gas, petroleum, and district heating. It was attended by 78 participants. The second workshop was held in Banja Luka on February 25–26, 2008 and covered coal mining, electricity demand, power generation, transmission and dispatching, power distribution, sector restructuring and regulatory framework, and 1 assistance to socially vulnerable consumers. It was attended by 96 participants. The third workshop was held in Mostar February 28–29, 2008 and covered energy reserves, production, consumption, and trade; demand management energy conservation, and renewable energy; environment; and investment plan and financing options. It was attended by 87 participants. As a result of the workshops, the full set of modules on the Bosnia Energy Sector Study were finalized and delivered to the Bosnian Authorities. They include: 1) Energy Reserves, Production, Consumption, and Trade; 2) Electricity Demand; 3) Power Generation; 4) Power Transmission and Dispatching; 5) Power Distribution; 6) Power Sector Restructuring and Regulatory Framework; 7) Assistance to Socially Vulnerable Electricity Consumers; 8) Coal Mining; 9) District Heating; 10) Natural Gas; 11) Petroleum; 12) Demand Management, Energy Conservation and Renewable Energy; 13) Environment; and 14) Investment Plan and Financing Options. The modules are available online: http://www.eihp.hr/bh-study/. The Energy Sector Study outcomes were given a very high-profile launching by the Minister of Foreign Trade and Economic Relations on April 2, 2008. The Energy Sector Study is the first comprehensive national sector study, which integrates energy supply and demand for the country as a whole, rather than by the sub-national entities. The output fed into the Bosnia energy strategy development process (already ongoing at the time), which was supported by a European Commission-financed project—Technical Assistance to Support the Energy Department. Results of PPIAF’s Activities in Bosnia’s Energy Sector Category Outputs Enabling environment reform Analyses/assessments prepared ï‚· Energy Sector Study, March 2008 Capacity and awareness building ï‚· Sarajevo workshop covered natural gas, petroleum, and district heating; it was attended by 78 participants, February 18–19, 2008 ï‚· Banja Luka workshop covered coal mining, electricity demand, power generation, transmission and dispatching, power distribution, sector restructuring and regulatory framework, and Workshops/seminars assistance to socially vulnerable consumers; it was attended by 96 participants, February 25–26, 2008 ï‚· Mostar workshop covered energy reserves, production, consumption, and trade; demand management energy conservation, and renewable energy; environment; and investment plan and financing options; it was attended by 87 participants, February 28–29, 2008 Category Outcomes Enabling environment reform Institutions created or ï‚· The Energy Sector Study fed into the development of Bosnia’s strengthened energy strategy, 2008 2 Technical Assistance for Bosnia’s Transport Sector Framework and Capacity to Manage Private Participation in Corridor Vc The Ministry of Communications and Transport requested PPIAF assistance in September 2006 to introduce private sector participation in the development of the infrastructure on Corridor Vc (part of the Trans-European highway network), including the potential for concessions for sections of a new motorway. To this end, the primary objectives of this PPIAF activity were to provide the Ministry of Communications and Transport with the necessary technical assistance to: i) strengthen the institutional framework and public sector capacity to facilitate private sector participation in the road sector; and ii) prepare a pilot concession for a priority section of Corridor Vc. In terms of i), the Bosnian government required assistance to review the institutional framework for private participation and provide appropriate recommendations and draft legislation for improvements to facilitate the implementation of private participation in the preferred manner; and to review the economic and financial viability of the proposed program for the development of the construction of motorways in Corridor Vc, the suitability of potential concessions, and the identification of priority sections suitable for consideration for a concession. In terms of ii), the Bosnian government required assistance to identify other potential sources of financing (such as European Union grants and multilateral and bilateral loans) to complement expected private investment and recommend options to the Government to leverage these additional resources for the required priority investments; and to prepare model documents, recommend procurement procedures, and identify all necessary steps up to contract issue for a key pilot project on a priority section of Corridor Vc. A two-day training workshop on options for private financing of infrastructure and implementation of PPP contracts was organized in Sarajevo on July 11–12, 2007 and was attended by senior officials from the Ministry of Communications and Transport and Ministry of Finance and Treasury. The key objective of the event was building the capacity of the public sector involved in road concessions of Bosnia, in introducing private financing and contracting concepts of concession. Seventeen government officials and three bilateral/multilateral donor representatives participated on the first day, and eighteen government officials participated on the second day. The PPIAF-funded activity produced the following reports: ï‚· Technical Assistance and Capacity Building: presents the capacity building support provided to government officials for managing the design, award, and implementation of a road PPP project. Consultants assisted government officials by identifying some database, publications, and other sources of information on PPPs to help enhance their knowledge on PPP-related issues. Specifically knowledge and training support were provided in the areas of economic and financial planning, risk allocation, awarding criteria, and drafting bidding documents. ï‚· Institutional Arrangements and Facilitation of Private Participation: provides a review of the prevailing legal framework and recommendations for strengthening it for private sector participation. It also provides recommendations on: institutional arrangements to implement PPP road projects, launching a competitive tendering process, and a method for evaluating proposals to ensure best value-for-money and transparency. ï‚· Viability, Market, and Financial Analysis: presents economic and financial analysis to identify potential PPP project. The financial model developed by the consultants allows the selection of priority segments of roads that could be developed with private participation. The report identifies complementary sources of financing, recommending the optimum financing structure. Finally, based on a market analysis, the report presents an action plan to attract potential investors. ï‚· Preparation of Model Documents 3 PPIAF’s support contributed to a better understanding of PPP issues by government officials and helped the Government prioritize next steps to strengthen the enabling environment for PPPs. The Government decided on following up to develop Corridor Vc with private sector participation and started discussions with the International Finance Corporation (IFC) for transaction advisory support. The IFC submitted a proposal for Transaction Advice to the Federation Ministry. The State Ministry and the Federation Ministry are consistent on the need to prepare a concession. However it was noted that the global financial and economic crisis may affect the timing of the transaction and potential investor interest. As of December 2011, the development of the Corridor Vc is still underway with support from the European Bank for Reconstruction and Development and European Investment Bank loans. The European Union is 1 committed to helping the Bosnian authorities in their efforts to attract funding for Corridor Vc. Results of PPIAF’s Activity for Private Participation in Corridor Vc Category Outputs Enabling environment reform Policies prepared or legal or ï‚· Institutional Arrangements and Facilitation of Private regulatory changes Participation, October 2007 recommended ï‚· Technical Assistance and Capacity Building, September 2007 Plans/strategies prepared ï‚· Viability, Market, and Financial Analysis, October 2007 Project cycle-related assistance Transaction support ï‚· Preparation of Model Documents, December 2007 Capacity and awareness building ï‚· Training workshop on public-private participation in a motorway Workshops/seminars on Corridor Vc held in Sarajevo, July 11–12, 2007 Category Outcomes Enabling environment reform ï‚· The PPIAF-funded studies have contributed to a better Institutions created or understanding of PPP issues by Bosnian government officials strengthened and helped them prioritize key steps required to strengthen the enabling environment for PPPs Institutional Reforms and PPP Options for the Port of BrÄ?ko BrÄ?ko Port (J.P. Luka BrÄ?ko) is a commercial public company, founded by the Assembly of BrÄ?ko under the Law on BrÄ?ko Port. The activities of the port were adversely affected during the war, and it only started operating again in 2001. In 2007 the traffic volume through BrÄ?ko Port was 90,000 tons, significantly less cargo than its capacity of about 700,000 tons, due in part to unreliable navigation on the Sava River. However, there remains considerable potential when navigability is fully restored and ports are fully operational. A study estimates that once the river is dredged and maintained, the port could reach a useable capacity of 1.2 million tons in 2010. 1 http://www.bh-news.com/en/vijest/4666/why_is_corridor_vc_important_for_bih_citizens.html 4 The authorities wish to improve the competitiveness of BrÄ?ko Port, by shifting away from fully-public port management. In this regard, in 2008 the Assembly of BrÄ?ko Administrative District approved a decision to privatize BrÄ?ko port, in a manner and form that was to be determined. The authorities were considering a number of privatization options, including the sale of a part of the whole port, with land and infrastructure, but the precise approach and the model had yet to be agreed. Given the risks associated with an outright sale of even a majority share, it had been suggested that the landlord model, where the land remains in public ownership and operations are concessioned to the private sector, could be the best option. It is expected that the adoption of an alternative port management structure will result in greater port autonomy and better and more efficient port operations. PPIAF assistance was requested in 2008 to assess the viability of private sector participation in BrÄ?ko port. The resulting study provided an outline policy reform package that would assist the responsible authorities to determine the necessary changes in the institutional framework and decide between alternative port management structures for the port of BrÄ?ko. The study included a strategic review of the institutional and regulatory framework in Bosnia and Herzegovina and BrÄ?ko Administrative District with regard to the existing port authority and port operations; a review and assessment of the various alternative port management structures and ownership models; and a preliminary assessment of the financial and economic viability of the proposed concession/sale of the port. The report identified the landlord port model as the most favorable for Br Ä?ko Port, but to be implemented in several phases. The first phase would involve the creation of an independent port authority and the creation of a temporary concession between the new port authority and the current port operator, J.P. Luka BrÄ?ko, in order to improve the operational and financial performance of the port for a four-year period. In the second phase, with the new institutional framework in place, and with higher throughput handled and improved operational performance, terminal operations would be concessioned through a competitive tendering process. This second phase would be like the standard concessioning of a port, over a long time frame with a contract stipulating required investments on the part of the terminal operator. The study foresees the second phase occurring in 2014 at the earliest. A workshop was held on June 10, 2009 in the offices of BrÄ?ko Port to present the preliminary results of the study to representatives from the State Ministry of Communications and Transport, the Federation of Bosnia’s Ministry of Transport and Communication, the Republika Srpska’s Ministry of Transport and Communication, the Head of the Economic Section of the Office of the High Representative, and the Director and other staff of J.P. Luka BrÄ?ko, among others. The adoption of the landlord port model was presented in two phases as the proposed reform package for the port. The proposal was well received by participants. The event resulted in an endorsement of the phased approach to concessioning the port— with a temporary concession followed by a long-term concession—and the creation of a port authority in order to convert a public port into a landlord port model. The final report was delivered in January 2010 and is available online: http://www.lukabrcko.ba/Download/Final_report_Brcko_Port_English.pdf These reforms are expected to strengthen port management and increase the attractiveness of the port to potential customers, as will efforts to improve the river’s navigability. In this regard, the study will also be an important complement to the World Bank’s Sava Waterways Rehabilitation Project, currently under preparation, which aims to improve the navigability on the River Sava for vessel operators, to improve safety and operations of vessels on the waterway, and to enhance the management and operations of the ports. The broad objective of this regional initiative is to return the River Sava to Class IV or Class Va status, depending on technical, economic and environmental suitability. In the long term, this activity is expected to lead to a change in the port management structure away from a service port with a predominantly public character to a landlord or fully privatized port, with improved access to transport services at efficient costs. 5 Results of PPIAF’s Activity for Institutional Reforms and PPP Options for the Port of BrÄ?ko Category Outputs Enabling environment reform ï‚· Reforming the Management of the Port of BrÄ?ko, Towards Plans/strategies prepared improved port efficiency and operational performance, January 15, 2010 Capacity and awareness building ï‚· Workshop to present findings of study on port reform Workshops/seminars management for the port of BrÄ?ko, held in the offices of BrÄ?ko Port, June 10, 2009 Technical Assistance for Private Sector Participation in Infrastructure In an effort to stimulate the economy and promote private sector participation in infrastructure in the country, Concession Laws were enacted, and Concession Commissions were established in the three administrative units/governments in the country: the Concession Commission of the State of Bosnia and Herzegovina, the Concession Commission of the Federation of Bosnia and Herzegovina, and the Concession Commission of the Republika Srpska. The objectives of the Concession Commissions are to ensure that: i) the laws on Concessions and their bylaws are implemented; ii) the rights of parties to the concession agreement are protected; and iii) transparency and fairness are applied in awarding concession rights. By 2007 these Concession Commissions had initiated efforts to compile a list of PPP projects awarded as of early 2007, and were gradually getting involved in evaluating upcoming PPP projects such as the major 330 km Corridor Vc toll road project. However, these Commissions and other officials in infrastructure departments needed capacity building support regarding the development and appraisal of PPP projects, and on particular issues such as how to deal with unsolicited projects. The Concession Commissions requested PPIAF support in 2007 to: i) strengthen their institutional capacities; and ii) enable a sound Private Sector Participation in Infrastructure framework in the country. In this context, PPIAF funded a three-day seminar in Sarajevo on July 24–26, 2007 that included training and consensus building activities for states and institutions involved in granting infrastructure concessions. This seminar aimed to facilitate coordination between various Concession Commissions, as well as coordination among States’ and Entities’ Line Ministries to work together for granting infrastructure concessions. The seminar was attended by approximately 50 government officials. The initial main objective of the seminar was to provide training to approximately 25 representatives from Concession Commissions and State and Entity-level government institutions in charge of promoting private sector participation in infrastructure. According to government officials at the time, it was the largest seminar organized for, and attended by, high-level government officials and Concession Commission directors in several years. It was also the first seminar focused on private sector participation in infrastructure ever to be held in the country. By bringing international experts and their experiences into the discussion, the audience benefited on how to design and implement the most appropriate structure for the infrastructure needs of the country. Concession Commission officials were trained on a number of basic elements relating to the development and evaluation of PPP projects including: PPP procurement methods and related problems; steps in technical and financial evaluations; importance of public information and consultation; flow of information during the tendering process; and how to manage political influence. The seminar was not linked to any specific World Bank operation; however, the expectation was that it would have a significant positive impact in future private sector participation and/or PPP projects in the country. It was expected that the impact of the seminar could be of significant importance in the country when evaluating and granting the 6 first transport sector concession involving private sector participation (Corridor Vc), which was under evaluation by the Bosnia Commission at the time. This capacity building initiative was instrumental in sensitizing officials from the Concession Commission to develop PPP projects in a fair manner that provides optimal value to the government and is also sustainable. Discussion on key issues such as how to deal with unsolicited bids will hopefully help in transparent project evaluation and bidding procedures. Results of PPIAF’s Activities for Private Sector Participation in Infrastructure Category Outputs Capacity and awareness building ï‚· Seminar on private sector participation schemes in infrastructure and concession evaluation procedures to officials Workshops/seminars and staff of the Concession Commission and PPPs in infrastructure in Sarajevo, July 24–26, 2007 Category Outcomes Capacity and awareness building ï‚· Bosnian public sector officers more familiarized with the concept of PPP mechanisms and how to design and implement Technical capacity enhanced the most appropriate structure for the infrastructure needs of the country, July 2007 7