Feature stories Water 46229 ISSUE 13 | October 2008 Hydropower Investments for Developing a Stable Regional Energy Market: Bosnia and Herzegovina's Infrastructure Rehabilitation Support Project BackgrounD network. Bosnia and Herzegovina's Infrastructure Rehabilitation Support Project (ECSEE APL3) was In 2005, seven countries of South East Europe the third APL under the ECSEE APL program (the instituted the Energy Community of South East Eu- first and second APLs were awarded to Romania rope (ECSEE) in an effort to regionally integrate and Albania, respectively). the energy market and so to address the inefficien- cies of isolated national markets. The goal of the Project DescriPtion ECSEE is to stabilize the balance between energy supply and demand in South East Europe, through economically efficient electricity generation and dis- The objective of the Infrastructure Rehabilitation tribution mechanisms that contribute to sustaining Support Project, which started in 2006, is to im- economic development. The ECSEE now includes prove power system performance through invest- nine countries (Albania, Bosnia and Herzegovina, ments in dam safety, as well as to increase the Bulgaria, Croatia, the Former Yugoslav Republic reliability and availability of hydropower. of Macedonia, Kosovo, Montenegro, Romania, Project investments support dam safety mea- Serbia) and the European Union. With the signing sures to address and repair leakages at the Rama, of the Energy Community Treaty, the countries of Visegrad, Grabovica, Salakovac and Trebinje II the ECSEE committed to market-oriented reforms in hydropower dams; augment spillway capacity at order to improve overall energy conservation and the Bocac dam; and rehabilitate, replace and ex- efficiency and to adapt to European Union practices pand supporting equipment at the Rama, Visegrad, and standards. A regional energy market offers sig- Grabovica, Salakovac, Bocac, Capljina, and Jab- nificant advantages in terms of improving utilization lanica hydropower stations. of existing supply and production capacities, as well as optimizing future investments. In addition to improving overall dam safety, investments are also designed to reduce adverse Since Bosnia and Herzegovina met the ba- environmental impacts at thermal power stations; sic entry requirements of the Energy Community replace aging facilities and equipment at hydro- Treaty, it was eligible to borrow under the World power and thermal power stations; rehabilitate Bank ECSEE-Adaptable Program Loan (APL) pro- distribution systems and introduce a supervision and gram. The APL program funds priority investments data acquisition system; establish a market opera- to support a functioning electricity market, and is a tion system, and improve financial management in- flexible mechanism that countries can benefit from formation systems; and provide technical assistance when they have met the policy triggers. Of particu- to facilitate project implementation. The investments lar importance for Bosnia and Herzegovina were in dam infrastructure and operations will both im- investments to ensure dam safety in several of the prove dam safety and benefit the ecosystem through country's most important hydropower stations, to improved environmental flows. The infrastructure reduce adverse environmental impacts in thermal components of the project consist mainly of replac- power stations, and to enhance the distribution ing existing equipment in existing locations. No land CROATIA BOSNIA AND HERZEGOVINA AT A GLANCE Human Development Index Ranking: MORE INFORMATION Population: 3.8 million ­ 47% urban, 53% rural; 66 out of 177 countries Bosnia and Herzegovina Energy Community of SERBIA ­0.11% annual growth rate % below the basic needs poverty line: South East Europe (APL3) Program. Project Appraisal BOSNIA AND 19.5% (2001­2002) Document. World Bank, 2006. CROATIA HERZEGOVINA Surface area: 51,210 km2 Sarajevo Life expectancy: 74.6 years "Energy in South East Europe." Economic Reconstruction and Development in South East GNI per capita: US$ 3,330 Europe. Website of European Community/World Bank. MONTENEGRO Adriatic Sea FEATURE SToRiES acquisition or negative influence on surface and · Political commitment and adequate financial groundwater quality are expected. support are key ingredients for successful re- form programs. The regional energy program Project outcomes was developed with the political commitment of the countries of South East Europe and backed by strong donor involvement. Although the project is still under implementation, measurable benefits over the life of the investments are anticipated to include: scaLing uP · Increased generation at power plants. Leakages at dams, and equipment outages as a result of The project builds on the successful performance rehabilitation or replacement will be reduced. of the first two projects of the ECSEE APL program in Romania and Albania. It demonstrates the politi- · Reduction in costs. Operation and maintenance cal commitment of the Government of Bosnia and costs will be reduced as a result of improved Herzegovina to integrate within the larger European dam efficiency and safety, as well as the reha- network and be an active participant in the imple- bilitation of equipment. mentation and operation of the regional energy · Increased revenue. Additional revenue will result program. The World Bank estimates that to meet from the reduction in operation and mainte- the growing demand for electricity in South East Eu- nance costs, and from investments in distribution rope, investments of approximately US$ 40 billion that will result in a reduction in metering costs. in power generation, transmission, and distribution are required over the next 15 years. The expecta- · Aquatic ecosystem benefits. Improved operation tion is that private-sector investors will meet some will benefit the aquatic ecosystem through man- of these investment needs once South East Europe aged environmental flows. becomes a financially attractive, EU-compatible en- ergy market. Lessons LearneD The ECSEE program, as a whole, reflects two main lessons: reLeVant Project · Regional electricity markets require strong na- Infrastructure Rehabilitation Support Project tional market operational capabilities. They should be built on the progressive integration of Project ID P090666 energy markets based on energy security needs Timeline: 2001­2006 and national electricity operations. Loan Amount: US$ 74 million Water Feature Stories are published by the Water Sector Board of the World Bank. They are available online at www.worldbank.org/water and in hardcopy from whelpdesk@worldbank.org. 2