75873 November 2012 PPIAF Assistance in the Republic of Serbia 1 Since 2003 PPIAF has been providing technical assistance to the Republic of Serbia (Serbia). The first request for assistance was related to defining and establishing the framework for railway infrastructure access and pricing, consistent with relevant European Union directives, and the second was related to an electronic toll collection highway system. In 2008 PPIAF also provided support to a working group created to discuss, review, and support a national strategy for local public utility companies. Technical Assistance for Serbia’s Transport Sector Railway sector On February 26, 2005 the National Assembly in Belgrade adopted a new Law on Railways with the objective of improving the efficiency of the railway system and its competitiveness, and to facilitate the integration of the Serbian railway system into the European Union ’s railway system . Following the establishment of the Railways Directorate as rail regulator in August 2005, the government of Serbia requested PPIAF assistance in 2006 to define and establish a framework for infrastructure access and pricing for the railway sector in Serbia, which was consistent with the relevant European Union directives and structured to encourage international movement, competition, and private investment. The government also requested assistance to prepare the methodology for the evaluation of the elements for decision-making on the level of fees charged for the use of the rail infrastructure, organization, and regulation of rail transport. In addition, PPIAF assistance was requested to prepare an action plan for the establishment of the defined Rail Infrastructure Access Regime, including institutional or organizational changes, recommendations, estimated costs, and prospective implementation to strengthen the regime, and to propose future steps necessary for the eventual completion of the Network Statement for Serbian Railways. The main results of this consultancy included: i) a detailed methodology for the access charging regime, which took into consideration legal and policy requirements, lessons learned, and European Union considerations; ii) a draft infrastructure access charging regime for the rail sector, consisting of a model to calculate access charges that include service categories and the proposed structure of charges; iii) a draft Network Statement in line with the European Union Directives and the Railway Law in Serbia, intended to provide general information on the railway network, conditions for transport, and conditions for access to the railway infrastructure; and iv) an action plan containing the specific steps required for the establishment of the proposed rail infrastructure access and pricing regime, the implementation schedule to allow the functioning of the charging system, and the resources required to implement the above regime. On October 2, 2007 a regional workshop took place in Belgrade to discuss the key findings and recommendations with stakeholders. Fifty stakeholders participated in the workshop. On September 1, 2010, the European Bank for Reconstruction and Development’s board of directors approved a €100 million sovereign guaranteed loan for Serbian Railways to finance a program of track renewal along the Corridor X railway line, the country’s primary transport route. This project was expected to contribute to the transition of Serbia to a member state of the European Union by focusing on market liberalization, assistance to the rail regulator, implementation of access charges, and a network statement. The introduction of the network statement and the track access regime were covenants in the loan; however, based on information gathered, the access charges and network statement have yet to be approved. 1 PPIAF’s first activity approved in March 2003 was with the Government of the Republic of Serbia, Federal Republic of Yugoslavia 1 Results of PPIAF’s Activities in Serbia’s Railway Sector Category Outputs Enabling environment reform  Designing an infrastructure access regime for the rail sector in Serbia, methodology, tariff base and calculations, July 2007 Plans/strategies prepared  Implementation action plan for the establishment of the proposed rail infrastructure access and pricing regime, September 2007 Policies prepared or legal or regulatory changes  Network Statement for the Serbian rail sector, August 2007 recommended Capacity and awareness building  Stakeholder workshop in Belgrade to present the infrastructure Workshops/seminars access regime, network statement, and implementation action plan, October 2, 2007 Category Outcomes Capacity and awareness building  During the workshop of October 2007 the study beneficiaries Consensus achieved confirmed their agreement with the recommended structure of charges for the rail sector in Serbia Highways sector In 2008 PPIAF received a request to assist the Public Enterprise Roads of Serbia, the agency responsible for the country’s highway system, with the improvement of the efficiency and effectiveness of Serbia’s highway toll collection system. Governance concerns, together with increasing operational costs of manual collection systems, prompted the Serbian government to investigate more efficient and effective means to collect toll revenue. The objective of the PPIAF study was to review the existing highway toll collection system, which consists of manual and electronic toll collection, and assess options for the entire highway network, including a recommendation for the extension of electronic toll collection. The activity also identified the opportunities for private sector participation in the upgrading process, considering options such as outsourcing management of toll collection on the network to a private sector partner. This approach was in line with the government of Serbia’s transport strategy, which spelled out its vision for Serbia’s road transport system in 2015 (i.e., for the following five years). For roads, this vision included an integral system of electronic tolls to be operational on the whole highway network. As part of the study the toll collection system was reviewed. The most important conclusion from the study, completed in April 2009, was that the take-up of electronic toll collection was very low for various reasons, including the existence of many exempt vehicles, and therefore the advantages of electronic collection, such as increased revenue collection due to an automated process, had not been gained. The main recommendations of the PPIAF-funded study were: i) to take steps to start the process of appointing a private sector concessionaire to take over the complete toll operation in Serbia; and ii) to adopt some short-term measures to address the take-up of electronic toll collection and therefore to generate operational savings as soon as possible. A stakeholder workshop took place in Belgrade on December 4, 2008 to discuss the final report. 2 While these recommendations were proposed under the long-term transport strategy, in the last three years the government of Serbia changed the focus to build the new infrastructure (after almost 25 years of not building new roads) and completing the European Union highway corridors in the country, rather than focusing on “soft� issues like tolling. In the second stage, the government plans to introduce “closed� tolling system to newly constructed highways, as well as to close currently “open tolling� systems that are 2 in force at some parts of the existing highways. The World Bank is continuing its dialogue with the government on this issue, but does not foresee that the government will make any decision on concession of tolling in the next two to three years. Results of PPIAF’s Activities in Serbia’s Highways Sector Category Outputs Enabling environment reform  Review of existing toll collection system and assessment of Analyses/assessments prepared reform options, April 2009 Capacity and awareness building Workshops/seminars  Stakeholder workshop in Belgrade, December 4, 2008 Technical Assistance for Serbia’s Solid Waste Sector In 2003 the Government of the Republic of Serbia, Federal Republic of Yugoslavia requested PPIAF technical assistance to introduce private sector participation for solid waste management in Belgrade. Specifically this activity had two main objectives: i) develop a solid waste management strategy for Belgrade promoting private sector participation; and ii) build organizational and institutional capacity to successfully engage the private sector in delivering solid waste management services. The technical assistance consisted of a study report that was completed and submitted to the Government in December 2004. The report proposed a detailed strategy to initiate a pilot public-private partnership project for a period of about three years, in which a private partner would be invited to organize waste collection in an area with about 100,000 inhabitants. The report also included a procedure manual, which defined the functions of each government agency. It included recommendations on the institutional environment and proposed the creation of a Waste Management Office for the City of Belgrade, which would manage policy preparing, public awareness, as well as the concession contracts and their periodic re-tendering. Other specific recommendations were made on waste segregation at source, recognition and assimilation of informal waste collectors in service delivery, remediation of landfill site, and European Union compliance. A training workshop “Solid Waste Management Planning and Regulatory Capacity Building—The City of Belgrade� was held in Belgrade on December 7, 2004. This PPIAF-funded study contributed to build municipal capacity to successfully engage the private sector in solid waste management. Following this activity, the International Finance Corporation was hired as transaction advisor to assist the Government in implementing a public-private partnership project for solid waste management in Belgrade. The project was later dropped, and the tender was never launched. 2 With a closed tolling system, vehicles collect a ticket when entering the highway and upon exit, the driver must pay the full amount of the ticket for a given exit. In an open tolling system, no cash collection takes place. Tolls are collected with the use of a transponder mounted on the windshield of mounted on the windshield of each vehicle, which is linked to a customer account which is debited for each use of the toll road. 3 Category Outputs Enabling environment reform  Report “Planning and Regulatory Capacity Building for Solid Plans/strategies prepared Waste Management for the City of Belgrade,� December 2004 Capacity and awareness building  Workshop “Solid Waste Management Planning and Regulatory Workshops/seminars Capacity Building—The City of Belgrade,� December 7, 2004 Category Outcomes Capacity and awareness building  Municipal capacity increased to engage private sector in solid Technical capacity enhanced waste management, December 2004 Technical Assistance for the Reform of Serbia’s Public Utilities In early 2008 the Ministry of Economy and Regional Development requested PPIAF assistance for a working group created to discuss, review, and support a national strategy for local public utility companies. Several international organizations, including the World Bank and European Bank for Reconstruction and Development, supported the design of the strategy. Significant resources from a range of organizations were allocated to the identification and examination of challenges facing municipalities and public utilities in Serbia, resulting in a substantial number of recommendations for reform. Many actors in Serbia had identified the challenges facing municipalities and public utility companies in their delivery of essential communal activities (e.g., water supply and sanitation services, solid waste management, district heating, local roads and streets, public lighting, public transportation, public parking, and marketplaces). Among the issues identified were: unclear governance arrangements between the municipalities and the utility companies, since performance expectations and criteria for satisfactory delivery of services, universal service obligations, and internal use of resources were not specified in contracts or performance agreements; financial transfers from the municipalities to the utilities were not specific to performance or based on clear parameters such as management of costs and revenues; the procedures for tariff review were rigid and cumbersome, as they needed to be reviewed by five ministries and annual increases were not permitted to exceed the general inflation index; and tariffs at most reflected operating costs without provision for capital costs. These issues, coupled with the unpredictability of the municipalities’ own finances and the lack of transparent reporting and auditing of either municipalities’ or utilities’ accounts, lead to a very poor environment for mobilizing funds from internal revenues or from external creditors to meet the extensive investment needs. Municipalities had not been permitted to guarantee commercial loans to public utility companies or to provide property as collateral, and arrangements to provide alternative forms of security for municipal investment loans had been ad-hoc and time-consuming. The consultant supported by PPIAF played an active role in structuring the issues of the public utility company reform strategy and contributed to the actual strategy design in several ways, including preparing background documents and writing some sections of the strategy. The draft utility reform strategy was presented at the working group session on December 19, 2009 for review and discussion; it had sixteen specific reform topics, including ownership of companies and the infrastructure network, corporate forms and management, user charge setting, financing of capital investments, and private sector participation. Although progress was made in the design of the reform strategy, its preparation was hindered by many factors, and at the end of the consultancy the implementation tools were not specified. 4 Subsequent to PPIAF’s assistance, the government of Serbia and the technical working group continued to work on the strategy and on its translation into manageable actions. A draft Strategy for Restructuring the Public Utility Companies in Serbia was completed on July 4, 2011, and the working group submitted it to the Ministry of Economy and Regional Development for a public debate. The public debate was conducted between July 15, 2011 and October 15, 2011. The final draft strategy is based on the draft public utility company strategy of 2009. Its key recommendations follow those of the initial working group, such as improving the operational performance of the public utility companies, introducing a methodology for tariff-setting and business standards, defining relations between municipalities and the public utilities, improving and increasing capital investment, allowing participation of private capital, and reforming utility ownership and management structure. As of April 2012 we could not find information regarding the outcome of the public debate; we will continue monitoring this to capture additional outcomes. Results of PPIAF’s Activities in Support of Reform of Serbia’s Public Utilities Category Outputs Enabling environment reform  Advisory support to the working group designing a reform Plans/strategies prepared strategy for municipal public utility companies, January 2010 Capacity and awareness building  Discussion of draft public utility companies reform strategy at Workshops/seminars the working group session of December 19, 2009 Category Outcomes Enabling environment reform  Strategy for Restructuring the Public Utility Companies in Plans/strategies adopted or Serbia approved by Ministry of Economic and Regional implemented Development and submitted for public consultation, October 2011 5