Document of The World Bankdocuments.worldbank.org/curated/pt/894041468103145608/pdf/ICR… ·...

Document of The World Bank

Report No: ICR2829

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-74660 IDA-38700 IDA-38701)

ON A

LOAN and CREDIT

IN THE AMOUNT OF TOTAL US$ 49 MILLION

TO THE

REPUBLIC OF SERBIA

FOR AN

ENERGY EFFICIENCY PROJECT

October 30, 2013 Sustainable Development Department South East Europe Country Unit Europe and Central Asia Region

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CURRENCY EQUIVALENTS (Exchange Rate Effective September 2013)

Currency Unit = RSD

1.00 RSD = 0.11 US$ US$ 1.00 = 84.70 RSD

ABBREVIATIONS AND ACRONYMS

AF Additional Financing CAS Country Assistance Strategy CHP Combined Heat and Power CCS Clinical Center of Serbia CCN Clinical Center of Nis CO2 Carbon Dioxide CPS Country Partnership Strategy EA Environmental Assessment EAR European Agency for Reconstruction EBRD European Bank for Reconstruction and Development EE Energy Efficiency ERR Economic Rate of Return ESCO Energy Service Company EU European Union FM Financial Management GDP Gross Domestic Product GWh Gigawatt hours IDA International Development Association IBRD International Bank for Reconstruction and Development ISR Implementation Status Report JICA Japan International Cooperation Agency KfW Kreditanstalt fuer Wiederaufbau LFO Light Fuel Oil M&E Monitoring & Evaluation MEDEP Ministry of Energy, Development, and Environmental Protection MOE Ministry of Education MOF Ministry of Finance MOH Ministry of Health MOME Ministry of Mining and Engineering MTR Mid-Term Review MW Megawatts NEEAP National Energy Efficiency Action Plan NOx Nitrogen Oxide PAD Project Appraisal Document PDO Project Development Objective PIU Project Implementation Unit PSC Project Steering Committee SAC Structural Adjustment Credit SEEA Serbian Energy Efficiency Agency SIDA Swedish International Development Cooperation Agency SO2 Sulfur Dioxide tpa Tons per annum TSS Transitional Support Strategy USAID United States Agency for International Development

Vice President: Laura Tuck Country Director: Ellen Goldstein

Sector Manager: Ranjit Lamech Project Team Leader: Arturo S. Rivera

ICR Team Leader Claudia Ines Vasquez Suarez ICR Author: Sandra Schlossar

SERBIA Energy Efficiency Project

CONTENTS

Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph

1. Project Context, Development Objectives and Design ..................................... 1 2. Key Factors Affecting Implementation and Outcomes .................................... 6 3. Assessment of Outcomes ................................................................................ 12 4. Assessment of Risk to Development Outcome ............................................... 14 5. Assessment of Bank and Borrower Performance ........................................... 23 6. Lessons Learned ............................................................................................. 23 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners 24 Annex 1. Project Costs and Financing ................................................................ 25 Annex 2. Outputs by Component ....................................................................... 26 Annex 3. Economic and Financial Analysis ....................................................... 31 Annex 4. Bank Lending and Implementation Support/Supervision Processes .. 35 Annex 5. Beneficiary Survey Results ................................................................. 37 Annex 6. Stakeholder Workshop Report and Results ......................................... 40 Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR ........... 41 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders ............. 46 Annex 9. List of Supporting Documents ............................................................ 47

MAP

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A. Basic Information

Country: Serbia Project Name: Energy Efficiency Project

Project ID: P075343 L/C/TF Number(s): IBRD-74660,IDA-38700,IDA-38701

ICR Date: 10/30/2013 ICR Type: Core ICR

Lending Instrument: SIL Borrower: SERBIA AND MONTENEGRO

Original Total Commitment:

USD 21.00M Disbursed Amount: USD 48.90M

Revised Amount: USD 48.99M Environmental Category: B Implementing Agencies: Ministry of Energy and Mining Serbian Energy Efficiency Agency (SEEA) Cofinanciers and Other External Partners: B. Key Dates

Process Date Process Original Date Revised / Actual

Date(s)

Concept Review: 04/29/2003 Effectiveness: 06/29/2004 06/29/2004

Appraisal: 11/10/2003 Restructuring(s): 06/20/2007 01/29/2010 10/20/2011

Approval: 03/16/2004 Mid-term Review: 06/15/2009 12/11/2008 Closing: 04/30/2010 04/30/2013 C. Ratings Summary C.1 Performance Rating by ICR

Outcomes: Satisfactory Risk to Development Outcome: Low or Negligible Bank Performance: Moderately Satisfactory Borrower Performance: Satisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings

Quality at Entry: Satisfactory Government: Satisfactory Quality of Supervision:

Moderately Satisfactory

Implementing Agency/Agencies: Satisfactory

Overall Bank Performance:

Moderately Satisfactory

Overall Borrower Performance: Satisfactory

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C.3 Quality at Entry and Implementation Performance IndicatorsImplementation

Performance Indicators

QAG Assessments (if any)

Rating

Potential Problem Project at any time (Yes/No):

No Quality at Entry (QEA):

None

Problem Project at any time (Yes/No):

No Quality of Supervision (QSA):

None

DO rating before Closing/Inactive status:

Satisfactory

D. Sector and Theme Codes

Original Actual

Sector Code (as % of total Bank financing)

Central government administration 3 Energy efficiency in Heat and Power 97

Theme Code (as % of total Bank financing) City-wide Infrastructure and Service Delivery 28 Climate change 29 Pollution management and environmental health 29 Public expenditure, financial management and procurement

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E. Bank Staff

Positions At ICR At Approval

Vice President: Philippe H. Le Houerou Shigeo Katsu Country Director: Ellen A. Goldstein Nancy J. Cooke Sector Manager: Ranjit J. Lamech Hinderikus Busz Project Team Leader: Arturo S. Rivera Mohinder P. Gulati ICR Team Leader: Claudia Ines Vasquez Suarez ICR Primary Author: Sandra Schlossar Claudia Ines Vasquez Suarez F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The development objective of the project is to improve energy efficiency in heating buildings in order to make heating more affordable as well as improve the functional and health environment of the users. An important associated objective is to reduce the local and global environmental impact of the use of dirty fuels for heating buildings in Serbia.

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Revised Project Development Objectives (as approved by original approving authority) (a) PDO Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Reduction in emission of local air pollutants (sulfur dioxide, nitrogen oxide, and particulates) and greenhouse gases (carbon dioxide) produced by the boilers used by the CCS & CCN for meeting their heating demand.

Value quantitative or Qualitative)

sulfur dioxide emission in CCS 780 tpa, in CCN 220 tpa; nitrogen oxide emission in CCS 100 tpa, in CCN 11 tpa; ash emission in CCS 130 tpa, in CCN 53 tpa; carbon dioxide emission in CCS 48,000 tpa, in CCN 9,000 tpa.

sulfur dioxide emission in CCS 20 tpa, in CCN 0 tpa; nitrogen oxide emission in CCS 40 tpa, in CCN 8 tpa; ash emission in CCS & CCN 0 tpa; carbon dioxide emission in CCS 20,000 tpa, in CCN 6,000 tpa.

0 tpa sulfur dioxide emission in CCS & CCN; nitrogen oxide emission in CCS 50 tpa; ash emission in CCS & CCN 0 tpa; carbon dioxide emission in CCS 25,000 tpa.

Date achieved 05/30/2003 04/30/2013 04/30/2013

Comments (incl. % achievement)

In the CCS & CCN now there is no actual sulfur dioxide emission; no actual ash, soot & other solid particles emission; significantly reduced nitrogen oxide emission; and significantly reduced carbon dioxide emission (in total ca. 90% achievement).

Indicator 2 : Quantified energy savings of the retrofitted public buildings, and cost of heat per square meter.


Average annual energy consumption in schools 373 kWh/m2; in hospitals 395 kWh/m2.

Average annual energy consumption in schools 207 kWh/m2; in hospitals 231 kWh/m2.

Average annual energy consumption in schools 125 kWh/m2; in hospitals 185 kWh/m2; in social buildings 175 kWh/m2.

Date achieved 05/30/2003 04/30/2013 04/30/2013 Comments (incl. % achievement)

Actual figures are averages from measured values (100% achievement).

Indicator 3 : Increased end-user satisfaction measured through perception surveys including perspectives in improved functionality and health environments.


Satisfaction in schools, hospitals, and social buildings with heating 24%; with lighting 18%.

Satisfaction in schools, hospitals, and social buildings with heating 55%; with

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lighting 41%. Date achieved 05/30/2003 04/30/2013 Comments (incl. % achievement)

Satisfaction increased by more than 100%.

(b) Intermediate Outcome Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Improved heat generation efficiency and reduction in heat losses in the rehabilitated network of the CCS & CCN.

Value (quantitative or Qualitative)

CCS: 6 coal-fired and 13 oil-fired boilers in operation; less than 40% heat generation efficiency. CCN: 50% boiler efficiency.

CCS: new gas-fired boilers & CHP; not less than 92% efficiency. CCN: not less than 94% efficiency.

CCS: total of 50 MW boilers capacity & 2+2 MW CHP; 93% efficiency. CCN: 95% efficiency.


100% achievement

Indicator 2 : Number of buildings (schools, hospitals, social buildings) retrofitted with energy efficiency equipment.


0 schools, 0 hospitals, 0 social buildings retrofitted or having an energy efficiency audit

53 schools, 48 hospitals, 10 social buildings retrofitted (total of 111 buildings); 70-80 energy efficiency audits performed in schools, hospitals,and social buildings

36 schools, 41 hospitals, 5 social buildings retrofitted;129 energy efficiency audits performed in schools, hospitals, and social care buildings


Total of 82 buildings retrofitted (74% achievement) due to cost overrun.

Indicator 3 : Level of awareness on energy efficiency measures and benefits increased.


A communication and outreach program carried out; 20 Local communities consulted; 14.6% of schools & hospitals and 20% of households were aware of energy efficiency works carried out; 11%

A communication and outreach program carried out; 20 Local communities consulted; 45.1% of schools & hospitals and 49% of households were

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of households were aware of benefits of implementing energy efficiency measures; 10% of households were aware of the application of energy efficiency measures in own household; 19.8% of teachers were aware of the importance of education for energy efficiency, renewable energy and climate change

aware of energy efficiency works carried out; 44% of households were aware of benefits of implementing energy efficiency measures; 19% of households were aware of the application of energy efficiency measures in own household; 34.8% of teachers were aware of the importance of education for energy efficiency, renewable energy and climate change

Date achieved 05/30/2003 04/30/2013 Comments (incl. % achievement)

Awareness increased by much more than 100%.

G. Ratings of Project Performance in ISRs

No. Date ISR Archived

DO IP Actual

Disbursements (USD millions)

1 06/04/2004 Satisfactory Satisfactory 0.00 2 12/02/2004 Satisfactory Satisfactory 0.37 3 05/27/2005 Satisfactory Satisfactory 0.47 4 05/27/2006 Satisfactory Satisfactory 2.29 5 01/28/2007 Satisfactory Satisfactory 6.64 6 11/08/2007 Satisfactory Satisfactory 13.84 7 03/31/2008 Satisfactory Satisfactory 17.58 8 02/08/2009 Satisfactory Satisfactory 21.10 9 08/04/2009 Satisfactory Satisfactory 24.83 10 04/15/2010 Satisfactory Moderately Satisfactory 26.39 11 05/19/2011 Moderately Satisfactory Moderately Satisfactory 28.25 12 02/15/2012 Satisfactory Satisfactory 39.19 13 04/02/2013 Satisfactory Satisfactory 48.62

H. Restructuring (if any)

Restructuring Date(s)

Board Approved

PDO Change

ISR Ratings at

Restructuring

Amount Disbursed at

Restructuring

Reason for Restructuring & Key Changes Made

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DO IP in USD millions

06/20/2007 N S S 7.36

To enable the government to complete the original scope of the project (cost overrun) and to scale up energy efficiency improvements to include: rehabilitation of the heat supply system of one large complex of buildings, such as the Nis Clinical Center; lighting in schools; energy efficiency improvements in social buildings; energy efficiency improvements in additional schools and hospitals across Serbia.

01/29/2010 N S S 25.58

Extension from closing date 04/30/2010 to 10/31/2011, due to long delay in effectiveness of AF and since AF has retained the same closing date as the original project.

10/20/2011 MS MS 34.53

Extension from 10/31/2011 until 04/30/2013 as disbursement was low due to additional time required for complex procurement packages.

I. Disbursement Profile

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1. Project Context, Development Objectives and Design 1.1 Context at Appraisal Energy sector. At the time of appraisal in 2003, the energy sector in Serbia suffered from a variety of problems, including underpricing of services, lack of adequate maintenance and investment expenditures, lack of competition, and excessive employment resulting in a large fiscal drain on government resources. In 2001, low energy prices caused a quasi-fiscal deficit of about US$ 1.1 billion, or 10 percent of Serbia’s GDP. The sector also faced the challenges of reconstruction and restoration of an adequate and reliable energy supply after the conflict of 1999. Compounding these issues, inefficient use of energy was a major concern in the country. At that time, the Serbian energy reform agenda was focused on establishing the legal framework to enable the commercialization of the sector, improve governance through the establishment of an independent regulator, and increase competition within the sector. In 2004, the new Energy Law aimed at opening up the electricity market to competition, and gave independent producers access to the transmission system. It also established the legal and institutional framework for signing of the “The Energy Community Treaty” in 2005, when South-East European countries and the EU began the process of creating an Energy Community with a view to broadening the internal EU energy market. At that point, Serbia formally joined the regional and European energy integration process. It was crucial back then that through improved corporate governance and increased competition, energy costs would be reduced, thus mitigating the upward pressure on prices. Efforts to diminish wasteful consumption of energy on the demand side were also considered critical to easing affordability constraints and expected to increase competitiveness and support GDP growth Energy efficiency market. Increased energy efficiency was an important element in managing future energy demand in Serbia. In 2003, relative to its GDP, the Serbian economy was four times more energy intensive than the EU average. The government acknowledged the need to tap into new opportunities for improving energy efficiency and for the development of renewable and alternative energy resources. In the buildings sector, Serbia had a large, unrealized potential for energy efficiency improvements. Public buildings in Serbia had either very poor or no insulation, worn-out building seals, and inefficient heating supply systems. The widespread use of dirty fuels for heating, such as in the Clinical Centers of Serbia (CCS) and Nis (CCN), was causing environmental and health problems. There was a clear need to improve end-use efficiency and a need for qualified energy auditors and competent contractors to execute the work. Beginning in 2003, the government introduced small-scale programs to improve energy efficiency, in particular in the public sector, and to encourage private financing schemes for energy efficiency investments. All efforts to increase the efficiency of energy use were led by the new Serbian Energy Efficiency Agency (SEEA). The agency was created under the initiative of the European Agency for Reconstruction (AER) and was financially supported by EAR during its first three years of operation. At that time, it was important to gain practical experience in energy efficiency

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investments and realization of energy savings to generate acceptance by local communities and political support for such measures. The project thus aimed to help Serbia overcome several barriers to the development of the energy efficiency market – in particular, the lack of information, coordinated policies, and practical examples of inter-governmental agency cooperation necessary to realize the untapped potential of energy efficiency. Rational for Bank assistance. The World Bank played a major role in the Serbian energy sector reform agenda. Its involvement was essential for: (i) leveraging its experience in facilitating public and private initiatives to undertake energy efficiency improvements; (ii) mobilizing other donors’ assistance for energy assistance; (iii) weighing in on important demand-side policy reforms identified during project preparation and implementation; and (iv) helping the government develop a comprehensive energy policy agenda. Higher level objectives to which the project contributed. At the time of appraisal in March 2004, the Transitional Support Strategy (TSS) for Serbia and Montenegro was updated and approved. The project was included in the TSS Update as part of the FY04 program and would help support two of the TSS’s strategic objectives: (i) restoring macroeconomic stability and external balance; and (ii) stimulating near-term growth and creating a basis for a sustainable supply response. In the Country Assistance Strategy (2005-2007), which built on the 2004 TSS, the World Bank’s goals (consistent with those of the country) were to support far-reaching structural reforms in the private sector (including energy sector reform). The CAS’s Goal 2 (“Creating a larger, more dynamic private sector”) illustrated how the project fit into this goal and would contribute to the energy sector restructuring. 1.2 Original Project Development Objectives (PDO) and Key Indicators The development objective of the project was to improve energy efficiency in heating buildings to make heating more affordable as well as to improve the functional and health environment of the buildings’ users. An important associated objective was to reduce the local and global environmental impact of dirty fuels used for heating buildings in Serbia. Key indicators linked to the PDO were: Quantified energy savings of the retrofitted public buildings and cost of heat per

square meter; Improvement in air quality through reductions in emissions of local air pollutants

(sulfur dioxide (SO2), nitrogen oxide (NOx), and particulates) and greenhouse gases (carbon dioxide (CO2)) produced by the boilers used by the Clinical Center of Belgrade for meeting its heat demand; and

Increased end-user satisfaction measured through improvements in indoor air quality, indoor temperature, and perception surveys of improvement in comfort of pupils and patients.

Key output indicators included: Improved heat generation efficiency and reduction in heat losses in the

rehabilitated network of the Clinical Center; Number of buildings retrofitted with energy efficiency equipment; and Outreach programs performed.

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1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification The PDO was not revised. 1.4 Main Beneficiaries The direct beneficiaries of improved heating quality and working conditions were to be pupils, education staff, health care professionals, and patients using retrofitted buildings across Serbia. In particular, pupils were to benefit from the replacement of poorly designed and inadequate lighting with improved energy efficient lighting. Residents of Serbia would benefit from reduced environmental impacts as a result of more energy efficient public buildings and reduced trans-boundary pollutants and greenhouse gases. In particular, residents living in the neighborhoods surrounding the CCS and CCN were to benefit from decreased emissions of SOx and NOx due to the replacement of coal-fired heating boilers with gas-fired ones. The state budget (through the Health Insurance Fund) and participating municipalities were expected to record financial savings due to lower heating expenses for renovated schools and hospitals. In addition, the life of these buildings was to be extended by making investments critical to the preservation of the building envelope. Local communities were expected to benefit from improvements in highly visible public service buildings. It was expected that awareness and acceptance of energy efficiency measures and technologies would be enhanced, leading to their replication in the future by public utilities and local governments. The project would also develop the energy management retrofitting skills of local engineers and contractors, thus creating local job opportunities. 1.5 Original Components The total project cost was US$ 25 million (including US$ 4 million planned Borrower’s contribution), consisting of three components as follows: Component 1. Environmental Improvement, Rehabilitation of the Heat Supply System, and Energy Efficiency Improvements in the Clinical Center of Serbia (CCS) in Belgrade (financing US$ 7.47 million). The CCS in Belgrade was the largest medical complex in the country. It comprised 76 buildings supplied with heat and hot water from 72 very old boiler units using lignite and heavy oil. The component consisted of three original subcomponents: (i) replacement of all old boilers at the CCS with a new natural gas-fired, combined heat and power (CHP) plant for production of about 60 MW of heat, sanitary hot water, and steam, and 2 MW of power generation; (ii) modernization of building heat substations and reconfiguration of the heat distribution system; and (iii) energy efficient retrofitting of a maternity hospital in the CCS, selected as a high priority building by the government, to improve its envelope and roof insulation and windows and to install thermostatic regulators. Component 2. Energy Efficiency Improvements in Social Service Buildings (Schools and Hospitals) across Serbia (financing US$ 12.36 million). This component financed energy efficiency measures in selected school and hospital buildings across Serbia through tailored investment packages combining supply- and

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demand-side improvements. The types of investment included automatic temperature control, roof/ wall/ piping/ basement ceiling insulation, window repair or replacement, balancing and thermostatic valves, and improvements in lighting in schools by providing adequate and energy efficient luminaires. A total of about 60-70 buildings, including 17 primary schools with heated floor space of about 51,000 m2 and 12 hospital buildings with a total heated floor space of about 68,000 m2, were to be retrofitted over the project implementation. Component 3. Technical Assistance (financing US$ 0.46 million, plus US$ 0.5 incremental operating costs, US$ 1.5 million unallocated costs, and US$ 2.71 million contingencies). Specific tasks that were financed included: (i) design and supervision of works in public buildings, including design, technical specification, bid document preparation, procurement, implementation of civil works, and quality control; (ii) monitoring and evaluation (M&E), including purchase of monitoring equipment (such as heat meters, temperature data loggers, wind-meters, etc.). Social monitoring data were collected to measure the impact of the investments, if any, on the energy efficiency behavior of beneficiaries; (iii) development and implementation of a communication plan for the project; (iv) project preparation costs for consultants for energy auditing and investment proposal preparation; and (v) project financial management and auditing. Overall responsibility for implementation of the project was under an inter-ministerial “Project Steering Committee” (PSC) chaired by the Ministry of Mining and Energy (MOME) and consisting of eight different ministries’ representatives. To carry out the day-to-day activities of project implementation, including operation of the Special Account and consolidation of Project Management Reports, a small Project Implementation Unit (PIU) was created under the supervision of the PSC. Responsibilities of various agencies were as follows: for Component 1, the Ministry of Health (MOH), with the assistance of the CCS; for Component 2, the Ministry of Education (MOE) for implementation of energy efficiency improvements in the school buildings and the MOH for implementation of similar works in the hospitals; SEEA would provide technical support; and for Component 3, the SEEA was responsible for implementation together with MOME. 1.6 Revised Components (for Additional Financing)1 The objective of the Additional Financing (AF) of the project remained in line with the original development objective. The AF was approved to help Serbia go beyond the technology demonstration pilots, overcome several barriers to the development of the energy efficiency market, and implement demand- and supply-side energy efficiency improvements. The AF was to maximize cost-effectiveness and timeliness, complement ongoing activities, and utilize the existing implementation arrangements of the original project. The AF was approved for a total project cost of US$ 30 million (including US$ 2 million planned Borrower’s contribution). Changes in the scope of the project included:

1 As of May 25, 2007 - see Annex 1 of the ICR for Project Costs by Component for the initial project and its AF.

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Component 1. Energy System Modernization (AF US$ 5.94 million). The CCN is the second largest clinical center after the one in Belgrade. At the time of approval of the AF, the CCN got its heating and hot water from an old coal-fired plant and two oil-fired boilers. The coal-fired boiler was at the end of its operating life and constituted a safety and environmental hazard. Also, most buildings of the CCN were in need of rehabilitation and energy efficiency improvements. For the energy system modernization, two coal-fired and two oil-fired boilers were replaced by one gas-fired boiler and energy efficiency improvements were implemented in 19 buildings. The energy system was designed taking into consideration energy efficiency measures in all the CCN buildings, which reduced the energy supply requirements for the same energy demand. This approach was taken to demonstrate the enhanced benefits from coordinated implementation of supply- and demand-side energy efficiency measures. Component 2. Energy Efficiency Improvements in Social Service Buildings (Schools, Hospitals, and Orphanages) across Serbia (AF US$ 20.42 million). Building on the successful implementation of the buildings retrofit, the AF helped to further set the stage for improving end-use efficiency and triggering the development of a market for energy efficiency services. Public buildings requiring energy efficiency measures remained a priority for the government. Based on technical and economic criteria agreed with the World Bank, the government prioritized candidate sites for energy efficiency improvements. Based on experience gained during implementation of the original project, working conditions (quality of air, temperature, and lighting) and social and demographic impacts were additionally considered in the selection of sites and buildings for retrofitting. Additional public buildings covered under the project included the Kragujevac University, the Vranje Clinical Center, 32 schools, 35 hospitals, and 10 social buildings as well as provision of improved lighting in 20 schools. Eligible energy efficiency measures were the same as in the original project (Component 2). Component 3. Technical Assistance (AF US$ 1.13 million, plus US$ 2.51 contingencies). This component included: (i) funds to provide technical support such as energy audits and monitoring and to undertake external communication activities; and (ii) project financial management, auditing, and incremental costs covering office space and facilities for the PIU, operating and maintenance costs of equipment, vehicle, office supplies, utilities, communications costs, translation costs, and office equipment. 1.7 Other Significant Changes Dissolution of the State Union of Serbia and Montenegro on June 5, 2006. The Republic of Serbia took over all obligations of the project on the same date. Since the original goals of the project set out in the PAD were designated only for Serbia, the dissolution had no effect on the project. Adoption of the new Constitution on November 8, 2006, did not affect the project. Closure of the Serbian Energy Efficiency Agency. The SEEA established through the Energy Law of 2004 and financially supported by the EAR, had a broad mandate of improving energy efficiency in Serbia. The project was to help the SEEA develop its capacity to provide policy advice to the government, and to design and execute programs that raise awareness of energy saving opportunities. The SEEA was to provide technical advice and was responsible for implementation of the technical

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assistance (TA) component together with the MOME. After EAR’s financial support to the SEEA ended by the third year of its operation, the agency had to significantly adjust its salaries to be in line with the government’s compensation policies. This led to a significant disruption as most of its staff progressively left the Agency. As a result, by the end of the project, energy efficiency policy, coordination, and capacity building activities were mainly carried out by the MEDEP. Moreover, project implementation was mainly coordinated by the PIU at that time. In September 2012, the SEEA was closed in the context of fiscal consolidation, along with several other independent government agencies. The SEEA’s responsibilities were transferred to the Ministry of Energy, Development, and Environmental Protection (MEDEP) along with most of its staff. Because this happened at the very end of the project, the impact of the closure of the SEEA on the project was negligible. Project schedule and scope. The initial project (P075343 and IDA Credit No. 3870) was extended once – from April 30, 2010, until October 31, 2011. It closed on October 31, 2011. The AF (effective from November 13, 2008; P090492 and IBRD Loan No. 7466-YF, as well as IDA Credit No. 3870-1 YF) was extended twice, from April 30, 2010, until October 31, 2011, and later until April 30, 2013. Overall, the project was extended by three years. The extensions were granted following requests from the Ministry of Finance (MOF) to: (i) finalize the completion of heat supply rehabilitation works and energy efficiency improvements in the CCN and retrofit selected public buildings with energy efficiency equipment; (ii) compensate for delays due to complex procurement packages and cost overruns (see section 2.2 for details); and (iii) reallocate funds. Funding allocations. In November 2009, the Credit Agreement (IDA Credit No. 3870 YF) was revised to reallocate funds among expenditure categories to further utilize the unallocated category as well as address earlier category overdraws. The reallocation was necessary to maintain the continuity of the project and covered current and future commitments for the project up to the closing date. The reallocations are shown below: A transfer of US$ 133,000 from Category 5 (Unallocated) to Category 1 (Goods) A transfer of US$ 439,000 from Category 5 to Category 2 (Works) A transfer of US$ 167,000 from Category 5 to Category 3 (Consultants’ services) A transfer of US$ 301,000 from Category 5 to Category 4 (Incremental operating

costs) 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design, and Quality at Entry The project design considered lessons learned from several energy efficiency projects in the region, such as World Bank-financed projects in Belarus, Lithuania, Poland, and Romania. These projects highlighted the importance of high-level commitment at the ministry level and of quality control and support for investment proposals. This lesson learned was incorporated into the project design by creating a PSC with clear Terms of Reference, business processes, and resources before the project was approved. This was an important factor contributing to facilitate the decision making process during implementation, which involved the coordination of a complex institutional set-up involving eight different ministries. Ownership from local governments was also taken into account, as demonstrated by the funding contributions of the gas pipeline to the CCS by the City of Belgrade.

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Another lesson learned was that coordinated and significant donor support for institutional development was needed. This was addressed in the project by ensuring donor support (SIDA, EBRD, and KfW) for demonstration projects in the residential sector as well as EAR financing for the SEEA. During preparation, the project coordinated closely with KfW, which was working with the district heating companies and had conducted feasibility studies of heat metering and heat tariff reforms. The project was prepared by a large, experienced team of local and international experts. USAID had funded a market assessment study on the potential of energy efficiency that was an important input into the project design. Comprehensive supply and demand side EE measures were at that time an innovative approach to reducing energy consumption and harmful emissions in Serbia. Because of the lack of experience in Serbia and in the region in terms of the implementation of a comprehensive package consisting of investments in Combined Heat and Power plants, heat distribution networks, and thermal retrofits of buildings, cost estimates for the CCS were substantially underestimated. The implementation of such measures also proved to be more complex and lengthier that initially envisioned, leading to time over-runs. As part of project preparation, M&E was established. Moreover, communication and social monitoring were key elements in the project’s design. The communication strategy prepared included a design for feedback loops into technical monitoring, design and implementation, and effectiveness of communication. The overall project risk at appraisal was assessed as Moderate, with the following Substantial risks: (i) Energy price reform does not continue: This risk partially materialized. In the early years, the risk was adequately mitigated with the support of the Structural Adjustment Credit (SAC) 2 project, which successfully supported structural reforms to improve performance in the energy sector. Serbia enacted the Energy Law in 2004, set up an independent Energy Regulator, improved payment discipline and commercialization of the energy sector, and adopted regulated electricity prices for final customers as of January 2008. Power tariffs increased from ca. 2€cent/KWh when the project started to 5.2€cent/KWh by the closing date.2 However, power and district heating tariffs were and are still below full cost recovery. Although failure to increase prices did not directly affected the financial viability of the project’s investments (see section 3.3), they pose a serious barrier to scale-up energy efficiency investments in the buildings sector. (ii) The SEEA is not part of the energy policymaking process: As foreseen in the mitigation measures, technical assistance was provided by EAR for the institutional development of the SEEA for the first three years of its operation. Once EAR support ended, salaries and staff had to be reduced to bring it in line with government compensation policies. This led to considerable demotivation and posed important sustainability risks for the agency. The agency became more of an implementer than

2 Energy Agency Annual Report, Republic of Serbia, 2011.

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a facilitator or coordinator, and the SEEA had difficulty establishing a strong relationship with the relevant government entities and contributing to energy efficiency policy development in Serbia. By the end of the project, SEEA was closed and its entire staff was transferred to MEDEP. As a result, MEDEP took over all the responsibilities for policy making, coordination, and capacity building in the energy efficiency field. (iii) Weak implementation capacity of the SEEA and the CCS affects the pace of implementation: This risk did partially materialize, although the proposed mitigation measure (engaging qualified consultants) significantly helped to overcome it. Continuous facilitation and institutional oversight from the PSC was needed. Several staff were hired by the PIU to better handle the large number of project sites and procurement packages. (iv) Sufficient counterpart financing for the CCS, schools, and hospitals is not available: Large cost overruns for the CCS component and public building retrofitting did materialize. Although planned in the Serbian budget for 2013, the central government contribution of US$ 2 million for the AF was not realized as of the project’s closing date. To compensate for this short-fall, the borrower made available through the MOH and the City of Belgrade some funds to avoid a further reduction in the number of hospital buildings to receive energy efficiency investments and for the financing of the gas pipeline to the CCS.

Overall, the risk assessment at appraisal proved to be accurate and well estimated. Mitigation measures contributed to diminish the impact of the risks that did materialized. Project design was ambitious in view of the complex institutional implementation arrangements but it was highly relevant for providing these institutions with a learning experience essential to change their attitude and behavior towards energy efficiency investments. Flexible project design that allowed the PIU to offset weak implementation capacity at CSS and SEEA together with a strong coordination role of the PSC helped overcome the main risks.

2.2 Implementation During the course of the project (both initial project and AF), three extensions were approved (see section 1.7). The project was never at risk and ratings for project implementation performance were almost exclusively Satisfactory throughout implementation. However, important delays in works at the CCS and large cost overruns were not adequately flagged during implementation (see below under “negative factors”). Increased realism when rating the Implementation Status Reports (ISRs) may have helped garner additional attention and potentially resolve implementation issues sooner. Mid-term review. In December 2008, the World Bank conducted a Mid-Term Review (MTR) that assessed progress to date on all project components and implementation issues as Satisfactory. The MTR expected that the objectives of the project would be met. It also identified actions to be taken to ensure successful project completion. The following factors affected project implementation:

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Positive Strong government commitment. Even before appraisal, a PSC comprised of

several relevant ministries had been established for coordination. The PSC was chaired by the MOME and was responsible for timely approval of investment packages for schools and hospitals, compliance with World Bank procurement guidelines, and monitoring of project implementation.

Economically attractive energy efficiency investments. Rising energy prices reduced the payback periods on energy efficiency investments (i.e., the retrofitting works saved 42.5 GWh, equaling approximately €2.5 million, with an average payback time of seven years). This helped strengthen public interest in energy efficiency savings.

Increased interest in the implementation of energy efficiency measures. The city of Nis requested an increase in the capacity of the CCN’s new heat supply system. The objective was to allow the shutdown of a nearby low quality fuel oil fired 8MW plant to further improve efficiency of supply and diminish the environmental impacts in neighborhoods surrounding the facility. The MOH successfully sought World Bank approval and the PIU worked closely with the technical staff of the CCN to ensure the smooth integration of this additional capacity increase in the overall project scope and schedule.

A legal framework for a solid enabling environment for the creation of a market for energy efficiency investments. This framework was established in parallel with the implementation of the project. The Energy Law of 2004 ceased to be valid when a new Energy Law was adopted in August 2011 (further amended twice in 2012 – see section 3.5). In July 2010, the first National Energy Efficiency Action Plan (NEEAP) was agreed on, setting the targets for domestic energy consumption. The project was included in the NEEAP. Other key pieces of legislation included the enactment of an Energy Efficiency Law in March 2013, amendments to the Construction Law to introduce buildings standards for new buildings and renovations, and amendments to the Public Procurement Law to include energy efficiency criteria.

Build-up of a market for energy efficiency goods and services. Fostered partially by the project’s demand, a market for energy efficiency goods and services quickly developed. Engineering skills for conducting energy audits, establishing technical specifications for bidding documents, and supervising installation of energy efficiency measures were significantly enhanced. More than 100 quality energy audits were performed in public buildings during implementation and more than 1,000 energy efficiency auditors were trained and certified by the Ministry of Construction and Urbanism. Also, the capacity of contractors improved, providing the possibility of retrofitting a much higher number of buildings per year with good quality work. Finally, a manufacturers’ base for provision of energy efficiency goods and services was created including: window producers such as PVC frame and assembling of double and triple glazing; lighting and fittings; and imports of insulation materials.

Negative Large cost overruns for the CCS component and for the retrofitting of schools and

hospitals. Costs overruns (about twice the original estimate for the CCS) are explained by the following factors: (i) an upward trend in costs for labor, insulation materials, and energy installations; (ii) adverse exchange rate developments for imported materials; and (iii) underestimated costs in the

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technical specifications due to the lack of experience in the implementation on large and complex demand and supply side investments in the country and the region (i.e., in the original project, budget proposals were initially based on preliminary designs for the CCS while little information was available to better estimate these costs). Despite these cost overruns, the investments were still economically attractive, as savings in operational expenditures were also higher than expected due to the investment in highly efficient heat delivery systems (see section 3.3).

Delays in implementation. Cost overruns and limited capacity for procurement and implementation of complex supply-side energy efficiency measures in the CCS led to delays specially in the initial implementation period (until 2007). Overall, frequent changes in Task Team Leaders (seven in total) also negatively affected the Bank’s ability to effectively support implementation and adequately flag such issues for management attention and action. The PIU experienced a steep learning curve, but overcoming these challenges actually helped to optimize technical specifications and contributed to the significant acceleration in implementation thereafter.

Significant delays in Parliamentary approval of the AF. This caused delayed completion of retrofitting for two schools planned for the first phase and of rehabilitation works at the CCS maternity hospital (planned for the first phase) as the CCS had to wait for funds from the AF. As the delay in approval would have also caused engineering design and supervision consulting contracts to extend beyond the initial project closing date, the government requested an extension of closing on three occasions.

Nonsustainability of the SEEA as an implementing agency. The SEEA was financially supported by EAR, but once the support ended, the agency was not transferred to the state budget due, among others, to a significant misalignment in compensation policies. This experience proved that the sustainability of a nonrevenue earning and budget-dependent new agency divergent from other budget entities can be a challenge.

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization Step-by-step monitoring, verification, and evaluation by the PIU and external consultants were critical for this project. The M&E design was established and described in the Project Implementation Plan. Ongoing M&E was conducted by the PIU, and quarterly progress and financial monitoring reports were submitted to the World Bank. Appropriate data were evaluated and used to inform decision making (e.g., for the reallocation of funds) and to improve the technical specifications of subprojects. For instance, M&E results from the implementation of the first phase of building retrofits helped improve the design of energy efficiency measures in the AF, resulting in a 10 percent increase, on average, in energy savings. The regular M&E data served as a basis for the MTR and for definition of key implementation issues requiring management attention. There were some drawbacks in the monitoring of indicators on emissions reduction (air pollutants and greenhouse gases) and financial savings, which required significant efforts in terms of data collection and were managed by third parties. This led to some shortcomings during implementation. In 2007/08, the Institute of Public Health partly stopped monitoring soot as monitoring stations ceased to exist. Also, there were some monitoring distortions for NOx indicators because of nearby major road works and

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traffic rerouting. Some indicators, in particular for financial savings, relied on information gathered by other stakeholders, such as CCS Institutes, schools, and hospitals. The energy and financial savings at the CCS, for instance, were not monitored with the usual metering tools (i.e., heat meters at the building level to establish the baseline), which made a before-after comparison of values difficult. Social monitoring data were also collected to establish the impact of energy efficiency investments on end-users’ behavior, awareness, and level of satisfaction. Baseline data were collected before the retrofitting works. Satisfaction information from end-users was used to identify and solve unforeseen issues that arose after implementation. For instance, it was decided to change the ventilation system for classrooms given that the upper sash window was not being well operated by users. 2.4 Safeguard and Fiduciary Compliance Safeguards. The Environmental Assessment (EA) category for the project and its AF was B since the project mostly involved rehabilitation works. An Environmental Impact Assessment, including an Environmental Management Plan, for the CCS and CCN component was prepared, publicly consulted on, and publicly disclosed. An Environmental Management Plan for the energy efficiency retrofits of buildings was prepared during project implementation and was also used for the retrofitting activities under the AF. Rehabilitation of the CCS and the CCN required environmental protection measures during the construction works and provisions for emission controls in the design and operation of boilers. The energy efficiency retrofitting works involved improvements in heating systems, insulation, thermostatic valves, and other installations in public buildings. The PIU ensured that contractors complied with applicable health and safety regulations during execution. Regular environmental safeguards reviews were undertaken by the World Bank team, which: (i) assessed that the works were executed with due care for environmental protection as well as for the users of public institutions; and (ii) recommended proper documentation with respect to safeguards control. Feasibility studies for the rehabilitation works in the CCS and the CCN confirmed that no acquisition of land or displacement of people was required. There were no significant deviations or waivers from the World Bank’s safeguard policies. Compliance with World Bank environmental safeguards was considered Satisfactory throughout implementation. Financial management. The project used a suitable, automated accounting system and quarterly financial management (FM) reports were submitted within the given deadlines to the World Bank. A FM action plan, agreed upon with the borrower and based on frequent integrated fiduciary reviews, was successfully implemented. The plan contained specific deadlines and remedial actions for internal control weaknesses. The FM function in the PIU was adequately staffed with an experienced and qualified specialist. External auditor reports were satisfactory and reliable. The World Bank’s FM specialist frequently carried out FM supervisions to assess the FM arrangements, which were rated Satisfactory throughout project implementation. Procurement. There were no major procurement issues during implementation. The ISRs’ ratings were Moderately Satisfactory or Satisfactory. Delays in evaluation and approval of consultancy procurements resulted in small slippages in procurement

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milestones. However, risks were timely and appropriately identified and the PIU continuously increased its procurement management capacity and experience. 2.5 Post-completion Operation/Next Phase Transition and post-completion. The MEDEP is currently working with KfW and JICA to undertake the thermal rehabilitation of schools that were in the pipeline of the World Bank-financed energy efficiency project under the same financing modality (i.e., providing grants). In terms of follow-up, the MEDEP confirmed its interest in scaling up efforts in energy efficiency in the buildings sector as a way to: (i) reduce the fiscal deficit by decreasing energy expenditures; (ii) mitigate the impact of needed energy price increases; and (iii) undertake renovation of the building stock while helping to meet its national energy savings target. To this end, it requested technical assistance from the World Bank on the formulation, design, and implementation of a large-scale energy efficiency program for the buildings sector, building on the implementation experience under the project and other experiences across the region. Operation and maintenance arrangements (Component 1). After its rehabilitation, the CCS is considered the most modern and environmentally friendly heat supply system in the country. The official license for the heating system operation of the CCN was received in February 2012. The heating system operations of both the CCS and the CCN are assisted by professional operators fully qualified in modern and fully automatic central control systems and emissions monitoring. As of today, the operations of the heating systems in the CCS and CCN are profitable, as revenues from energy sales are able to cover the costs of inputs and maintenance. However, given that revenues and expenditures are managed by other institutions than the CCS and CCN themselves, maintenance costs have been reportedly reduced to the lowest levels in the case of the CCS. Sustaining reforms and institutional capacity. During the project, important progress was made to put in place the legislative and regulatory framework to support the development of an energy efficiency market in the buildings sector. Key pieces of legislation include the enactment of the Energy Efficiency Law, amendments to the Construction Law to introduce buildings standards for new buildings and renovations, and amendments to the Public Procurement Law to include energy efficiency criteria. The government also started the process of developing its Second NEEAP and energy efficiency indicators. Significant technical capacity was developed at the PIU during project implementation. However, since these staff were hired as consultants, there is a risk that this capacity is lost after the project’s closure. 3. Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation Rating: Satisfactory The relevance of project objectives was high given the needs of the energy and environment sectors, as the objectives supported the country’s economic development. Serbia is one of the most energy inefficient economies among countries in the Europe and Central Asia region. The country uses two times more energy per dollar of GDP than its neighbors in the Western Balkans and almost 2.5 times more than EU countries. It has enormous potential to realize fiscal savings, improve competitiveness, and move towards EU standards.

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The relevance of the project design proved to be high as it focused on energy efficient retrofitting measures in public buildings, which are highly visible, have a significant demonstration effect, and create awareness of energy efficiency. Project benefits are understandable to the wider community and boost the trust into further public expenditure decisions. The project design served as a model for other Bank-financed energy efficiency projects in the region (such as projects in Macedonia, Montenegro, and Bosnia and Herzegovina). The relevance of the institutional implementation arrangements involving several institutions is also high. They allowed public officials to gain practical experience through managing energy efficiency investments in a few high priority buildings and also helped reinforce public approval to foster broader replication. The project’s objective, design, and implementation are therefore still highly relevant for Serbia. Reducing energy consumption and air pollution and making heating more affordable continue to be priorities for Serbia, as stated in its Energy Strategy to 2030 and evidenced by recent legal and regulatory measures to support these goals. The project is also consistent with the environmental sustainability pillar of the ongoing FY12-15 CPS. The World Bank’s Environment Department gave the 2007 Green Award to this project for its effectiveness and results. 3.2 Achievement of Project Development Objectives Rating: Satisfactory The project has fully achieved its development objective, as energy efficiency in buildings improved, heating became more affordable, the functional and health environment of users improved, and the local and global environmental impact of the use of dirty fuels for heating buildings in Serbia was reduced (a detailed table reflecting the project’s achievements and detailed outputs is in Annex 2). One rather complex formulation of the PDO (heating affordability measured through cost of heat per square meter) was difficult to precisely measure and compare as the state Health Insurance Fund pays the heating bills and consumption-based billing is often not possible. Nevertheless, the improvements in heating efficiency were measurable and significant, supporting the conclusion that more efficient heating allows more affordable heating (details as summarized below). Table 1. Project development objectives results

Indicators Baseline 05/30/2003

Target Value 04/30/2013

Actual Comments

PDO Indicator 1: Improvement in air quality through reduction in emission of local air pollutants and greenhouse gases produced by the boilers used by the CCS & CCN Reduction in SO2 CCS 780 tpa +

CCN 220 tpa CCS 20 tpa + CCN 0 tpa

0 tpa emission Achieved

Reduction in NOx CCS 100 tpa + CCN 11 tpa

CCS 40 tpa + CCN 8 tpa

50 tpa emission Achieved

Reduction in Ash CCS 130 tpa + CCN 53 tpa

0 tpa 0 tpa emission Achieved

Reduction in CO2 CCS 48,000 tpa + CCN 9,000 tpa

CCS 20,000 tpa + CCN 6,000 tpa

25,000 tpa emission

Achieved

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Indicators Baseline 05/30/2003

Target Value 04/30/2013

Actual Comments

PDO Indicator 2: Quantified energy savings of the retrofitted public buildings, and cost of heat per square meter. Average annual energy consumption in schools

373 kWh/m2 207 kWh/m2 125 kWh/m2 Achieved

Average annual energy consumption in hospitals

395 kWh/m2 231 kWh/m2 185 kWh/m2 Achieved

Cost of heat per sq. meter in public buildings

N.A. N.A. N.A. See below

PDO Indicator 3: Increased end-user satisfaction measured through perception surveys including perspectives in improved functionality & health environment. Improved indoor comfort & satisfaction re: heating (% of respondents reported to be satisfied with heating)

Schools: 9.7 Hospitals: 18.0% Social buildings: 44.4%

N.A. Schools: 5.3% Hospitals: 59.2% Social buildings: 70.8%

Achieved

Reduced noise disturbance (% of respondents who reported noise disturbances)

School teachers: 50.7% Pupils: 57.90%

N.A. School teachers: 9.7% Pupils: 21.50%

Achieved

Improved indoor comfort & satisfaction re: lighting (% of respondents reported being satisfied with lighting)

School teachers: 19% Pupils: 17.4% Hospitals: 16.90%

N.A. School teachers: 55.5% Pupils: 23% Hospitals: 45.30%

Achieved

PDO Indicator 1. Improvement in air quality through reduction in emissions of local air pollutants and greenhouse gases produced by the CCS and CCN boilers: Reduced emissions - Achieved. Emissions of local air pollutants (SO2, NOx, ash,

soot, solid particles) and greenhouse gases (CO2) produced by the CCS and CCN boilers were significantly reduced. In particular, emissions of SO2, ash, soot, and other solid particles were eliminated since both the CCS and the CCN now use gas instead of low-quality coal to meet their needs for heat, hot water, and steam (e.g., the CCS’s SO2 emissions of 780 tons per annum (tpa) and the CCN’s SO2 emissions of 220 tpa both reduced to 0 tpa; the CCS’s NOx emissions reduced from 100 tpa to 50 tpa; the CCS’s ash emissions of 130 tpa and the CCN’s ash emissions of 53 tpa both reduced to 0 tpa). The CCS and CCN’s greenhouse gas CO2 emissions were reduced by more than 50 percent (e.g., the CCS’s CO2 emissions of 48,000 tpa reduced to 25,000 tpa).

PDO Indicator 2. Quantified energy savings of the retrofitted buildings and cost of heat per square meter. Energy savings - Achieved. Overall 82 buildings were retrofitted during the

project, including 36 schools, 41 hospital buildings, and 5 social care institutions. Energy consumption in these buildings decreased by about 60 percent after completion of works according to monitored data, compared to an expected target value of 45 percent in the PAD. There were shortcomings in the completeness of baseline data in the CCS so energy savings for this component are based on an average of only those values that were measurable. In all other buildings,

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measurement equipment was installed before the works, thus allowing the monitoring of energy savings.

Financial savings. End-beneficiaries (schools/hospitals) were not obligated to repay investment costs. Financial savings from energy efficiency improvements accrued to the municipalities (in the case of schools), to the State budget (in case of hospitals through the Health Insurance Fund) which reportedly made budgetary adjustments to the entities’ energy budgets as a result of the projects. It is estimated that the new heat supply systems of the CCS and the CCN resulted in annual financial savings between EUR 0.5 and 1 million, as visualized by energy bills and registered by the Health Insurance Fund. In addition, 14 retrofitted buildings (out of 82 in total) were connected to District Heating (DH). Given that consumption-based billing is not the norm and that buildings are based on their floor area, it is reasonable to assume that financial savings accrued to these publically owned DH utilities.

Heat cost per square meter. The heat cost varies significantly depending on the type of fuel. Since there is no baseline for the cost of heat per square meter in public buildings and that in some cases buildings were connected to DH, a comparison was not possible. However, the efficiency of the new heating systems was measured. It increased from about 45 percent to 96 percent as a result of the rehabilitation work in the district heating networks of the CCS and the CCN.

PDO Indicator 3. Increased end-user satisfaction as measured through perception surveys, including perspectives on improved functionality and health environment. End-user satisfaction increased – Achieved. Satisfaction increased by around 130

percent, including satisfaction due to improved functionality and health environment such as from improved heating and lighting. Noise disturbance decreased by around 50 percent (see Table 1 below).

End-user awareness increased - Achieved. The selection of public buildings, such as schools, hospitals, and other social buildings, for retrofitting helped to increase awareness of energy efficiency within local communities. Awareness of energy efficiency works undertaken and the benefits of energy efficiency increased by an average of 240 percent, thus demonstrating the multiplier effect of implementing energy efficiency measures in highly visible public buildings. End-users confirmed they were inspired by the energy efficiency works implemented in public buildings, and their application of energy efficiency measures at home reportedly increased by 90 percent, according to social monitoring surveys (see Table 2 below).

Table 2. Results (before and after) of the social monitoring surveys (original

project and AF) on end-users’ satisfaction and awareness End-users’: Survey Result Satisfaction with heating Increased by 129% Noise disturbance Decreased by 48% Satisfaction with lighting Increased by 132% Awareness of energy efficiency works Increased by 172% Awareness of energy efficiency measures and benefits of energy efficiency Increased by 309% Application of energy efficiency at home Increased by 90% Awareness of importance of energy efficiency education Increased by 28%

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Other achievements Capacity building of technical skills in energy efficiency. Important engineering

skills were developed through project implementation. A professional pool of trained energy auditors was established in regional energy efficiency centers within local universities across the country (Belgrade, Novi Sad, Nis, Kragujevac, and Kraljevo). Both preliminary and detailed high-quality energy audits were conducted to identify a final list of public buildings to be retrofitted. In total, 129 energy audits were completed in 64 schools, 48 hospitals, and 17 social care institutions.

Development of technical standards for energy efficiency investments. During implementation, technical specifications such as energy efficient standards for building renovation were enforced and tested. These standards were explicitly requested, strictly supervised, and continuously improved by the PIU. Their successful implementation triggered local demand for energy efficiency measures and increased awareness of the importance of high-quality work when undertaking such investments. The project contributed to developing contractors’ and manufacturers’ capacity (both in quality and quantity) all over the country and provided the possibility of retrofitting more buildings per year.

Tested and improved energy efficiency technology. The project further increased end-user satisfaction due to a change in the ventilation options for school classrooms. It was noticed that in the newly retrofitted schools, the upper window sash for ventilation was not well controlled by users, which could create excessive heat consumption due to an overly high ventilation rate. Also, when temperatures were very low, the cold air coming from these windows was not acceptable for pupils, so the windows were often not open. To prevent such weaknesses in the operation procedure, ventilation devices were installed at the top of the windows that could be opened and closed according to the needs for ventilation (without opening the windows during classes), which ensured a minimal fresh air rate.

A communication drive to increase demand for energy efficiency. Tailored communication tools for each target group were designed and an outreach program was carried out, particularly during the original project (e.g., learning days and information workshops, educational material, videos, regional round tables). In addition, a Benefit Sharing Scheme was developed and Memoranda of Understanding were signed with 10 local self-governments to ensure that part of the financial energy savings was kept by end-users. However, in only one municipality, Velika Plana, the scheme was implemented and the local government re-invested the savings in further energy efficiency measures in the local school.

3.3 Efficiency Rating: Satisfactory Realized energy savings and therefore environmental benefits for the retrofitted buildings were much higher than expected at appraisal and are comparable with international benchmarks in the UK and Germany. Over the 10 years of implementation (initial project and AF), energy efficiency investments were implemented in a total of 82 buildings (36 schools, 41 hospitals – including hospital buildings within the CCS and the CCN – and 5 social care institutions). Relevant economic, financial, and environmental information includes cost-benefit and incremental cost analyses (see Annex 3).

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Component 1 (CCS of Belgrade – original project). The cost-benefit analysis at appraisal resulted in an economic rate of return (ERR) of 32.4 percent. The simulation in Annex 3 shows an estimated ERR of 33 percent after project completion. The indicative investment cost of the thermal rehabilitation of the CCS was US$ 7.53 million, compared to a final investment cost of US$ 15 million. As mentioned in section 2.2., the following factors explain the cost overruns: (i) an upward trend in costs for labor, insulation materials, and energy installations; (ii) adverse exchange rate developments for imported materials; and (iii) underestimated costs in the technical specifications. Although the cost overrun was significant, the ERR remains good, and just about the same as the one calculated at appraisal. One of the key determinants of the project’s profitability include: (i) the substitution effect in the heat supply system from high-cost fuel oil to lower-cost natural gas. Together with the energy efficiency, the reducing of the air pollution was the main objective of this project. Reducing of C02 emission amounts 64 to 70 percent, reducing of SO2 emission is 100 percent (no SO2 in natural gas), and reducing of NOx emission is about 76 percent. The emissions taken into account for low-quality fuel oil, light oil and coal are based on a very low efficiency of the boilers of the CCS of Belgrade. A shortcoming of the economic analysis is that the technical monitoring of the energy efficiency works for Component 1 (CCS – original project) for the baseline information is weak. It was not conducted with the usual metering tools and the baseline was insufficient for an exact comparison (such as before and after metering of the heat on every outlet, metering the indoor temperature, collecting precise data on the delivery of raw fuel, and taking into account all eventual parameters that influence the comparison of heat consumed and energy delivered and paid). Therefore, it is not possible to know exactly how much energy was saved or to compare the energy consumption before and after project implementation, which also hinders a precise calculation of the payback time and the ERR. However, by the end of the project, accurate monitoring and management systems were in place, providing reliable data for heating and energy consumption. Component 1 (CC of Nis – AF). The ERR calculated during preparation of the AF was about 13 percent for the CCN. The calculation in Annex 3 shows an ERR of about 24 percent, which can be explained due to important increases in fuel costs for alternative fuels. The indicative investment cost for the thermal rehabilitation works in the CCN was US$ 5.94 million, compared to a final investment cost of US$ 6.4 million. The cost overrun was minimal, due to improved feasibility studies, as well as lessons learned from the original project, and increased experience in terms of technologies and cost evaluation. Energy savings and the reductions in CO2, SO2, and NOx emissions were greater than for the CCS, as not only was the heating plant rehabilitated, but all of the distribution piping, heat substations, and building envelopes were also retrofitted. Component 2. The ERR of this component refers to the retrofitting works in public buildings (schools, hospitals, and social care institutions). Annex 3 provides details of the calculated gross ERR of 13 percent (with energy prices adjusted for inflation). Assuming a growth rate of 3 percent per year for the energy cost, the ERR is 16 percent. The investment cost per m2 was higher in the AF. However, the increase in

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energy savings was higher than the increase in the investment, which substantially increased the actual savings from 87kWh/m2 (original project) to 118 kWh/m2 in the AF. The calculated payback time of about seven years makes the energy efficiency investments in public buildings attractive. The results of the economic and financial analysis show that such projects can become fully sustainable. In addition to energy savings, the project yielded additional benefits that increase the ERR even further, due to: (i) environmental improvements associated with reductions in CO2, SO2, and NOx emissions (see Annex 3); (ii) increased end-user comfort and awareness about energy efficiency and its benefits; and (iii) improved air quality and working conditions of end-users (both see Annex 5). 3.4 Justification of Overall Outcome Rating Rating: Satisfactory Based on the discussion in sections 3.2 and 3.3, the overall outcome is rated as Satisfactory. The PDO remained highly relevant for the country throughout imple-mentation and continues to be relevant. The project achieved its PDO and contributed to two sector-related TSS Goals (see Annex 2). In the light of the above economic and financial calculations on efficiency and despite cost overruns, significant energy savings were achieved, with good payback times and relatively high ERRs. The project had not only economic, financial, and environmental impacts (as illustrated above), but also a transformational impact by: (i) developing and testing buildings’ technical standards; and (ii) increasing awareness of the importance of energy efficiency amongst end-users and other players, including local manufacturers and contractors. In addition, project-related technical specifications and work contracts triggered local demand for energy efficiency and certification and established energy efficiency standards and measurements for control. Therefore, the project investments and the contemporaneous development and reform of energy efficiency regulations and policies (as noted in section 3.5) significantly contributed to establish the foundation for a growing energy efficiency market in Serbia. 3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development Social benefits. The retrofitting of public buildings, such as schools, hospitals, and social buildings, provided social benefits in addition to the energy cost and emission reductions. These benefits were measured and analyzed in social monitoring surveys before and after the retrofitting of public buildings. They included improved working conditions for school and hospital staff as well as patients and pupils, such as comfortable indoor temperatures during the winter season. In addition, the demonstration effect of these energy efficiency retrofitting works and the energy efficiency outreach and communication activities (including learning days, educational material, videos, regional round tables, etc.) resulted in increased end-user awareness about the benefits of energy efficiency measures. For example, every fourth respondent in the social monitoring surveys confirmed that s/he was inspired by the energy efficiency investments in public buildings and was planning to proactively undertake similar investments in her/his own home (see details of the surveys’ results in Annex 5).

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Gender. Women were the main beneficiaries of the retrofitting works in the maternity hospital (of the CCS). The social monitoring surveys before and after the retrofitting works were conducted and their results presented in a gender-sensitive manner. The survey findings revealed certain differences between male and female respondents in their perceptions of thermal indoor comfort. Women were less satisfied with the heating overall, more frequently experienced cold, and stated higher temperature ranges as optimal for their work environment. (b) Institutional Change/Strengthening Energy efficiency policy development. The government has incorporated energy efficiency as an important pillar of the sector’s strategic development. The Energy Law adopted in 2004, revised in 2011, and amended in 2012 put in place incentives to decrease energy consumption. Specifically, a robust legislative framework for energy efficiency exists and includes: Law on Planning and Construction (2009) – bases the development and use of

space on several principles, inter alia on energy efficiency; Rulebook for Energy Certification of Buildings (2011) – clarifies energy

characteristics and the method of calculating thermal characteristics of buildings, and defines energy and energy efficiency requirements for new and existing buildings;

Law on Efficient Use of Energy (2013) – plays a key role in developing an energy efficiency market as it provides regulations for the efficient use of energy and energy sources in the generation, transmission, distribution, and consumption of energy. This law: regulates the promotion of energy efficiency and sets standards for energy efficiency products and energy efficiency in the production, transmission; and distribution of electricity and thermal energy; and identifies measures in this area as well as other issues of importance regarding rights and obligations in relation to energy efficiency; and

Law on Public Procurement (2013) – defines criteria for the most economically beneficial offers, including energy efficiency as one criteria, and several principles of protecting the environment and ensuring energy efficiency.

In 2005, a new Strategy of the Long-Term Energy Development of the Republic of Serbia by 2015 was finalized. In addition, the first Serbia National Energy Efficiency Action Plan (NEEAP) was agreed on in July 2010, setting the targets for domestic energy consumption. The project was included in the NEEAP as one of the measures helping the government to achieve its energy savings target. Strengthening capacity in the public administration. Users’ control of heat consumption empowered hospital and school administrators and municipalities with information to understand the benefits of tracking and monitoring energy efficiency consumption. Furthermore, the CCS and the CCN now have fully qualified staff managing the CHPs who are also trained in energy efficiency. At the ministry level, professional experience was gained in managing and implementing complex supply-side energy efficiency projects, thus building ministries’ capacity to scale up programs. In addition, the PSC established for the project contributed to strengthening networks and better linking institutions. However, the dissolution of the SEEA, the lack of a sustainable energy efficiency financing scheme, and uncertainties for the transition arrangements for staff at the PIU all suggest a probability of significant loss

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of technical capacity built within the project, which may have a negative impact on the prospective sustainability and replicability of the investments. Energy efficiency market development. The project contributed to creating an energy efficiency industry in Serbia. Market participants significantly benefited from the project’s demonstration effect. Some examples are presented below: Energy efficiency is considered a new specialty, with newly trained and accredited

thermal, mechanical, and electrical engineers and architects (more than 1,000 engineers have already been licensed in the field of energy efficiency). During implementation, a professional pool of 22 trained energy auditors was created across the country. The accreditation strengthened the credibility of energy efficiency investment projects and reduced the risk of nonperforming projects.

Construction firms improved their technical responsiveness and ability to implement large-scale energy efficiency works with good technical quality. More than 40 companies have already been certified in the field of energy efficiency. Between 2003 and 2013, the number of soft-coated glass processors increased from one company to 55.

Local manufacturers increased their capacity for supplying materials and equipment thanks to strict procurement rules, quality controls, and constantly improved technical specifications for production and installment works within the project.

Availability of energy efficiency technologies such as improved PVC frames, double and triple glazing, and improved insulation materials also increased. For instance, in 2003, three-chamber window profiles constituted 75 percent of sales; in 2013, no three-chamber profiles were sold, while five-chamber profiles constituted 75 percent of sales.

Communication and outreach activities could have been better exploited for broader audiences compared to what was envisioned during the project design. Communication activities were actively implemented in the original project. However, during the AF and in particular the last years of the project, the feedback loop was weakened and communication activities could have been better utilized to showcase the success of the project and disseminate the project results more widely to foster broader replication. Target audiences that were not reached included local governments, publicly-owned service companies, suppliers of energy efficiency goods and services, and commercial banks. (c) Other Unintended Outcomes and Impacts (positive or negative) Noise reduction. The retrofitting works in public buildings, particularly in schools and the maternity hospital of the CCS, significantly contributed to reduced noise disturbance in these institutions. The social monitoring surveys of the AF phase measured these unintended impacts and found a decrease of noise after works of around 50 percent. Increased supply market for the CCS and the CCN. Due to the increased heat-generation capacities of the new CHPs, the CCS and the CCN now supply a larger area and more customers than initially planned.

21

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops Social monitoring surveys. Social monitoring surveys were conducted in 31 selected buildings before and after the retrofitting works to systematically measure the social impact of project activities. The survey showed that all directly measured elements of comfort as well as the quality of the indoor environment significantly improved in schools, social care institutions, and health care facilities. A significant increase in the level of satisfaction of end-users of around 130 percent was assessed due to improved functionality of heating and lighting services. Due to retrofitting, noise disturbances decreased by around 50 percent. The awareness of energy efficiency measures and their associated benefits increased by an average of 240 percent. End-users confirmed they were inspired by the energy efficiency works implemented in the public buildings, and the application of energy efficiency measures at home increased by 90 percent. Almost three out of four pupils (72.5 percent) interviewed mentioned that they learned about energy savings, renewable energy sources, and climate change. Almost unanimous satisfaction with the results of the works and achieved benefits was recorded during in-depth interviews with decision makers in public buildings and local self-governments, such as school and hospital directors and managerial staff. 4. Assessment of Risk to Development Outcome Rating: Low The rating is based on a comprehensive view of the risks from the three components. The achievements for the CCS and the CCN and the public buildings due to the rehabilitation of their heating systems and improvements in their end-use energy efficiency are sustainable. The functional and health environments of the CCS and the CCN and the selected public buildings were retrofitted with improvements that will last. With the recent closure of the SEEA, MEDEP took over the responsibilities assigned to the agency. Given the large breath of the issues under the responsibility of the Ministry, there is a risk that sustained attention is given to the EE agenda. This risk is mitigated however, by the governments committed to scale up efforts in the energy efficiency field, as demonstrated by its target to reduce the country’s energy consumption by at least 9 percent by 2016. In addition, energy efficiency regulations and laws were recently adopted, thus further strengthening the legal framework for energy efficiency and supporting the development of this field. Finally, through its demonstration effect, sustainable end-user demand for energy efficiency goods and services was created (see section 3.5). 5. Assessment of Bank and Borrower Performance 5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory The Bank played a key role in the Serbia energy sector agenda and during project preparation by guiding the MOME, the PIU, and the SEEA on fundamental issues with respect to the project design – considering all major relevant aspects, such as technical, environmental, social, financial, economic, as well as procurement and FM. The World Bank effectively transferred and incorporated best practices from across the region and on-the-ground implementation experience from other energy projects in Serbia (e.g., energy sector pricing reform in a SAC). However, there were some minor shortcomings in the M&E program, which contained indicators that required

22

“nonimplementing” entities to collect data (mainly within the CCS). The project was consistent with TSS and government priorities in the sector at the time and exceeded the expected TSS milestones (realized energy savings, reduced emissions, improved air quality). Although the project design was complex, a positive outcome was the emphasis on the need for close project steering amongst the many relevant ministries and institutions and for regular coordination with other donors to ensure implementation of complementary activities. (b) Quality of Supervision Rating: Moderately Satisfactory The World Bank’s performance during supervision was Moderately Satisfactory. The World Bank team focused on the project’s development impact and alerted the borrower about issues found during project execution and encouraged prompt corrective action. World Bank supervision took place regularly and provided appropriate and well-targeted advice. Next steps and follow-up actions were regularly agreed with the borrower, and included in Aide Memoires. However, high turnover of Task Team Leaders (totaling five) over the lifetime of the project sometimes made it difficult to ensure continuity in the policy dialogue and track progress on actions agreed upon. In general, the ISRs realistically rated the performance of the project – both in terms of achievement of development objectives and project implementation and management commented appropriately. However, it might have been useful to down-rate the ISRs, particularly during the first phase of the project when disbursements were slow due to the delayed contracts for works in the CCS (as mentioned in section 2.2) in order to flag these shortcomings for management and borrower’s attention. The World Bank’s procurement and FM staff worked with the PIU staff to explain rules and procedures to be applied and consistently performed FM supervision of the project. The safeguard and fiduciary policies were well-managed and reported. The FM was rated Satisfactory throughout project implementation. An environmental specialist conducted Environmental Reviews and supervision to assess the quality of the procedures for environmental safeguards compliance. The World Bank team carried out one MTR in December 2008. Based on the recommendations of the MTR, measures were taken to contain the costs of retrofitting works and to support the government’s request for the AF to address the cost overruns and delays in implementation. The project would have benefitted from an update of the results framework at the MTR or at the restructuring due to the AF to better reflect the new scope of the project (i.e., the CCN and additional social buildings). At the end of the project, the World Bank is still engaged in dialogue with the Borrower to ensure sustainability of the project (see section 2.5). (c) Justification of Rating for Overall Bank Performance Rating: Moderately Satisfactory Based on the World Bank’s performance during the design phase and supervision - as discussed above - the overall Bank performance was adequate to the tasks. However, some shortcomings could have been better and earlier addressed during supervision to expedite the successful implementation of the project.

23

5.2 Borrower Performance (a) Government Performance Rating: Satisfactory Government ownership and commitment remained consistently strong. During the course of the project, key pieces of the legal and regulatory framework needed to support the project development objective and keep it relevant (see section 3.5) were enacted. As discussed above, the institutional and implementation arrangements were relatively complex given the nature of these cross-sectoral projects (covering energy, health, education, social welfare issues) and coordination mechanisms required important resources and efforts. In this regard, MEDEP was effective in coordinating the inter-ministerial PSC and effectively supervised the PIU. Borrower counterpart financing through the MOH and the City of Belgrade was made available to cover for shortfalls in financing from central government. To address the issue of scarce staff resources, a number of additional technical and administrative staff were hired by the PIU in 2010. These additional resources successfully accelerated the overall project implementation processes. Due to delays in the country’s Parliamentary approval, the AF from IDA and IBRD became effective 17 months after the World Bank’s Board approval, thus significantly affecting the initial project implementation plan. (b) Implementing Agency or Agencies Performance Rating: Satisfactory The project implementation was mainly done and supported through a newly established PIU as project implementing agency. The capacity of the implementing agency in the field of energy efficiency in public buildings increased continuously over the 10 years of project implementation. Highlights of the unit’s achievements include: (i) technical improvements for project design and activities which became well integrated into “standard” technical specifications; (ii) social monitoring activities that evaluated progress in terms of users’ satisfaction, energy efficiency awareness, and proper working conditions; (iii) well-organized and robust procedures for implementation of large-scale projects (such as preparation with energy auditors, engineering with consultants, implementation with contractors, and supervision and monitoring). (c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory The government showed its commitment to the project and the PIU performed well. As a result of the explanations above, the borrower’s performance is rated Satisfactory. 6. Lessons Learned Four key lessons emerged from the project: Lesson 1: Replication effect of energy efficiency investments in public buildings. The project’s energy efficiency investments into essentially social public buildings had a catalytic effect on local markets by demonstrating the exemplary role of the government to the private sector and general public, while at the same time stimulating nascent markets for EE goods and services. The success of this project certainly underscores the relevance of this approach, as it has been replicated in most of recent World Bank-financed energy efficiency projects in the region (Montenegro, Kosovo, and Bosnia and Herzegovina). To maximize local and popular interest for

24

follow-on energy efficiency measures and to foster broader replication, strong emphasis and adequate resources should be made available to disseminate project results widely. Efforts should be made to “market” energy efficiency by showcasing the changes in end-users’ satisfaction of indoor comfort and awareness of energy efficiency works, as well as the jobs and business opportunities created at the local level by developing an market for energy efficient goods and services. Target audiences may include local self-governments, publicly-owned utility companies, suppliers of energy efficiency goods and services, and commercial banks. Lesson 2. Pilot project for broader replication through local self-governments. Realizing the large potential for energy savings in the buildings sector requires the implementation of large-scale, sustainable energy efficiency programs. To help the transition to these more complex undertakings, upfront consideration must be given to a transition strategy for World Bank pilot projects supporting energy efficiency investments through grants. One option is to foster replication by local self-governments by increasing their interest in saving energy as these savings will feed back into their own budgets. Options to foster local ownership in project design may include: (i) basing the selection of potential beneficiary institutions on their interest, commitment, and level of awareness of energy efficiency issues; (ii) requesting financial participation through co-financing; (iii) directly involving municipalities in the selection of public buildings; and (iv) implementing benefit-sharing schemes between local self-governments and participating institutions to ensure that financial savings as a result of increased energy efficiency are partially kept by beneficiaries. Lesson 3: Improve technical and social monitoring and better utilize data. Technical monitoring should be designed and implemented with adequate metering tools to provide solid information that can inform the decision-making process during implementation. In addition, technical monitoring could be improved by inducing the private sector to take on some risks associated with project performance (e.g., introducing work contracts with construction firms that tie a portion of the final payment to actual energy savings). Social monitoring has proven to be an effective tool for capturing the impact of energy efficiency measures in terms of increased comfort levels, awareness, and consumer satisfaction. Such information has proven to be useful for improving the project design and dissemination strategy for greater impact. Lesson 4: Focus on strengthening government implementation capacities in dedicated government agencies. During design and implementation supervision, special attention should be given to ensuring that implementation arrangements are fully integrated within the government administration to build capacity. One of the key issues is to ensure the sustainability of new dedicated non-revenue earning and budget-dependent agencies (such as energy efficiency agencies) by ensuring that their organizational policies should not be too divergent from other budget entities. 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies (b) Cofinanciers n/a (c) Other partners and stakeholders n/a

25

Annex 1. Project Costs and Financing

Components Appraisal Estimate

(US$ millions)

Actual/Latest Estimate

(US$ millions)

Percentage of Appraisal

Environmental improvement, heating system renovation, and energy efficiency improvement at the Clinical Center Belgrade (original and additional financing)

7.47 15.00 200%

Environmental improvement, heating system renovation, and energy efficiency improvement at the Clinical Center Nis (additional financing)

5.94 6.40 107%

Energy Efficiency Improvements in social service buildings (schools & hospital) across Serbia (including original and additional financing)

32.78 26.41 80%

Technical Assistance (including original project and additional financing)

0.66 1.38 209%

Incremental Operating Cost 1.43 2.20 154% Unallocated 1.50 0.00 0%

Total Baseline Cost 49.78 51.39 103% Price and Physical Contigencies 5.22

Total Project Cost 55.00 51.39 93% (b) Financing

Source of Funds Type of

Cofinancing

Appraisal Estimate

(US$ millions)

Actual/Latest Estimate

(US$ millions)

Percentage of Appraisal

Borrower 6.00 2.16 36% International Development Association (IDA) and International Bank for Reconstruction and Development (IBRD)

49.00 49.23 100%

26

An

nex

2. O

utp

uts

by

Com

pon

ent

K

ey P

erfo

rman

ce I

nd

icat

ors

Ou

tcom

e/ R

esul

ts

Com

men

ts, C

onst

rain

ts/ H

indr

ance

s T

SS

Goa

l 1:

Red

uce

mac

roec

onom

ic im

bal

ance

s in

ene

rgy

Ade

quat

e in

crea

se in

pow

er

tarif

fs to

cov

er c

ost o

f sup

ply.

Po

wer

tarif

fs g

radu

ally

incr

ease

d (a

t pro

ject

star

t: ca

. 2 €

cent

/kW

h fo

r ele

ctric

ity, a

t pr

ojec

t end

: 5.2

€ce

nt/k

Wh3 ).

The

tarif

fs d

o no

t yet

cov

er c

ost o

f su

pply

.

TSS

Goa

l 2:

Stim

ulat

ing

near

-ter

m g

row

th a

nd

crea

ting

a b

asis

for

sus

tain

able

sup

ply

resp

onse

N

ew e

nerg

y po

licy

and

new

en

ergy

law

ado

pted

. Fu

lly a

chie

ved

– ne

w e

nerg

y po

licy

and

new

ene

rgy

law

was

ado

pted

(see

sect

ion

3.5)

.

PD

O I

nd

icat

ors

Ou

tpu

t In

dica

tors

B

asel

ine

05/3

0/20

03

Tar

get

Val

ue

04/3

0/20

13

Act

ual

C

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ents

& e

xpla

nati

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onst

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ance

s

PD

O I

ndic

ator

1:

Impr

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in a

ir q

ual

ity

thro

ugh

redu

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em

issi

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f lo

cal a

ir p

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itro

gen

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nd

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ticu

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s) a

nd

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gas

es (

carb

on d

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pro

duc

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y th

e bo

ilers

use

d b

y th

e C

CS

& C

CN

for

mee

tin

g th

eir

hea

ting

dem

and

. R

educ

tion

in S

O2

CC

S 78

0 tp

a +

C

CN

220

tpa

CC

S 20

tpa

+ C

CN

0 tp

a 0

tpa

emis

sion

A

chie

ved

-No

actu

al S

O2 e

mis

sion

.

Red

uctio

n in

NO

x C

CS

100

tpa

+ C

CN

11

tpa

CC

S 40

tpa

+ C

CN

8 tp

a50

tpa

emis

sion

A

chie

ved

-Sig

nific

antly

redu

ced.

Red

uctio

n in

Ash

C

CS

130

tpa

+ C

CN

53

tpa

0 tp

a 0

tpa

emis

sion

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chie

ved

-No

actu

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sh, s

oot a

nd o

ther

solid

par

ticle

s em

issi

on.

Red

uctio

n in

CO

2 C

CS

48,0

00 tp

a +

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,000

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,000

tpa

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CN

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a 25

,000

tpa

emis

sion

A

chie

ved

-Sig

nific

antly

redu

ced

by m

ore

than

50%

.

PD

O I

nd

icat

or 2

: Q

uan

tifi

ed e

nerg

y sa

ving

s of

th

e re

trof

itte

d p

ubl

ic b

uild

ings

, an

d c

ost

of h

eat

per

sq

uar

e m

eter

. A

vera

ge a

nnua

l ene

rgy

cons

umpt

ion

in sc

hool

s 37

3 kW

h/m

2 20

7 kW

h/m

212

5 kW

h/m

2A

chie

ved

-Act

ual f

igur

es a

re a

vera

ges f

rom

mea

sure

d va

lues

. Not

e: N

ot a

ll da

ta fr

om a

ll bu

ildin

gs w

ere

cons

ider

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as c

onsu

mpt

ion-

base

d bi

lling

for p

ublic

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ldin

gs is

still

not

3 Ene

rgy

Age

ncy

Ann

ual R

epor

t, R

epub

lic o

f Ser

bia,

201

1.

27

the

norm

in S

erbi

a (th

ey a

re b

illed

bas

ed o

n th

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loor

are

a).

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vera

ge a

nnua

l ene

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cons

umpt

ion

in h

ospi

tals

39

5 kW

h/m

2 23

1 kW

h/m

218

5 kW

h/m

2 A

chie

ved

-Act

ual f

igur

es a

re a

vera

ges f

rom

mea

sure

d va

lues

. O

utp

ut

Indi

cato

rs

Bas

elin

e 05

/30/

2003

T

arge

t V

alu

e 04

/30/

2013

A

ctu

al

Com

men

ts &

exp

lana

tion

, Con

stra

ints

/ Hin

dran

ces

Ave

rage

ann

ual e

nerg

y co

nsum

ptio

n in

soci

al

build

ings

N.A

N

.A.

175

kWh/

m2

Min

istry

of L

abor

, Em

ploy

men

t and

Soc

ial P

olic

y w

as n

ot

invo

lved

from

the

begi

nnin

g in

the

proj

ect i

mpl

emen

tatio

n.

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t of h

eat p

er sq

. met

er in

pu

blic

bui

ldin

gs

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ost o

f hea

t sig

nific

antly

dep

ends

on

type

of f

uel a

nd ra

nges

fr

om €

0.5

to €

1.0.

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nanc

ial s

avin

gs re

gist

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MO

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nd th

e C

CS

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w h

eat s

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stem

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nnua

l fin

anci

al sa

ving

s of n

early

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mill

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have

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n re

gist

ered

by

the

Hea

lth In

sura

nce

Fund

, whi

ch tr

ansf

ers

mon

ey to

hos

pita

ls fo

r pur

chas

e of

fuel

.

Fina

ncia

l sav

ings

regi

ster

ed b

y th

e M

OH

and

the

CC

N b

y us

ing

the

new

hea

t sup

ply

syst

em.

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firs

t hea

ting

seas

on, t

he d

iffer

ence

bet

wee

n ac

tual

ene

rgy

bill

and

bill

for l

ast s

easo

n w

as re

gist

ered

by

CC

N a

t the

le

vel o

f nea

rly €

0.5

mill

ion.

Ou

tpu

t In

dica

tors

B

efor

e re

trof

itti

ng

Aft

er r

etro

fitt

ing

Com

men

ts &

exp

lana

tion

, Con

stra

ints

/ Hin

dran

ces

PD

O I

nd

icat

or 3

: In

crea

sed

end

-use

r sa

tisf

acti

on m

easu

red

thro

ugh

per

cep

tion

su

rvey

s in

clu

ding

per

spec

tive

s in

imp

rove

d f

un

ctio

nali

ty &

hea

lth

envi

ron

men

t.

Impr

oved

indo

or c

omfo

rt &

sa

tisfa

ctio

n re

: hea

ting

Scho

ols:

9.7

% o

f re

spon

dent

s rep

orte

d to

be

satis

fied

with

hea

ting

Hos

pita

ls:

18.0

%

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al b

uild

ings

: 44.

4%

Scho

ols:

35.

3%

resp

onde

nts r

epor

ted

to

be sa

tisfie

d w

ith h

eatin

g H

ospi

tals

: 59.

2%

Soci

al b

uild

ings

: 70.

8%

The

proj

ect c

ontri

bute

d to

an

incr

ease

in th

e he

atin

g qu

ality

in p

ublic

in

stitu

tions

.

Red

uced

noi

se d

istu

rban

ce

Scho

ol te

ache

rs: 5

0.7%

re

porte

d no

ise

dist

urba

nces

Scho

ol te

ache

rs: 9

.7%

re

porte

d no

ise

dist

urba

nces

Gla

zing

repl

acem

ent h

as si

gnifi

cant

ly re

duce

d th

e no

ise

dist

urba

nces

from

ou

tsid

e.

Pupi

ls: 5

7.90

%

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ls: 2

1.50

%

Impr

oved

indo

or c

omfo

rt &

sa

tisfa

ctio

n re

: lig

htin

g Sc

hool

teac

hers

: 19%

re

spon

dent

s rep

orte

d Sc

hool

teac

hers

: 55.

5%

resp

onde

nts r

epor

ted

New

win

dow

s, br

ight

col

ors,

and

new

pai

ntin

g co

ntrib

uted

to im

prov

emen

t of

indo

or li

ghtin

g qu

ality

.

28

bein

g sa

tisfie

d w

ith

light

ing

bein

g sa

tisfie

d w

ith

light

ing

Pupi

ls: 1

7.4%

Pu

pils

: 23%

H

ospi

tals

: 16.

90%

H

ospi

tals

: 45.

30%

Inte

rmed

iate

Ou

tcom

e In

dic

ator

s O

utp

ut

Indi

cato

rs

Bas

elin

e 05

/30/

2003

T

arge

t V

alu

e 04

/30/

2013

A

ctua

l C

omm

ents

& e

xpla

nati

on

Con

stra

ints

/ Hin

dran

ces

Inte

rmed

iate

Out

com

e In

dica

tor

1: I

mpr

oved

hea

t ge

ner

atio

n ef

fici

ency

an

d r

edu

ctio

n in

hea

t lo

sses

in t

he

reh

abil

itat

ed n

etw

ork

of

the

CC

S &

CC

N.

CC

S he

at g

ener

atio

n ef

ficie

ncy

impr

ovem

ents

6 co

al-fi

red

&

13 o

il-fir

ed b

oile

rs

New

gas

-fire

d bo

ilers

&

CH

P To

tal o

f 50

MW

bo

ilers

cap

acity

and

2+

2 M

W C

HP

Less

than

40%

hea

t gen

erat

ion

effic

ienc

y N

ot le

ss th

an 9

2%

effic

ienc

y M

easu

red

93%

CC

N h

eat g

ener

atio

n ef

ficie

ncy

impr

ovem

ents

50%

boi

ler e

ffic

ienc

y N

ot le

ss th

an 9

4%

Mea

sure

d 95

%

Inte

rmed

iate

Ou

tcom

e In

dica

tor

2: N

um

ber

of b

uild

ings

(sc

hoo

ls, h

ospi

tals

, soc

ial b

uild

ings

) re

trof

itte

d w

ith

ene

rgy

effi

cien

cy e

quip

men

t.

Num

ber o

f sch

ools

0

Initi

al p

roje

ct (S

EEP

I): 1

3 A

F (S

EEP

II):

40

SEEP

I: 1

5 SE

EP II

: 21

SEEP

II &

I: In

tota

l, 10

scho

ols w

ith in

tern

al li

ghtin

g up

grad

e.

SEEP

II: A

dditi

onal

ly c

ontra

cted

ere

ctio

n of

one

new

gas

fir

ed b

oile

r hou

se a

nd o

ne re

plac

emen

t of c

oal-f

ired

boile

rs w

ith d

istri

ct h

eatin

g su

bsta

tion

for t

wo

scho

ols

retro

fitte

d w

ithin

SEE

P I.

Num

ber o

f hos

pita

ls

(incl

udin

g C

CS

– m

ater

nity

hos

pita

l &

CC

N)

0 SE

EP I:

12

SEEP

II: 3

6 SE

EP I:

11

SEEP

II: 3

0 SE

EP I:

Inte

rnal

ligh

ting

upgr

ade

in th

ree

hosp

itals

co

ntra

cted

with

in o

ther

ene

rgy

retro

fit w

orks

.

Num

ber o

f soc

ial

build

ings

0

SEEP

II: 1

0 SE

EP II

: 5

Min

istry

of L

abor

, Em

ploy

men

t and

Soc

ial P

olic

y w

as n

ot

invo

lved

in S

EEP

I im

plem

enta

tion

and

for S

EEP

II it

s co

oper

atio

n fo

r the

bui

ldin

g se

lect

ion

was

lack

ing.

Num

ber o

f ene

rgy

audi

ts

0 70

-80

129

Ener

gy a

udits

per

form

ed in

64

scho

ols,

48 h

ospi

tals

and

17

soci

al c

are

build

ings

.

29

Ou

tpu

t In

dica

tors

B

efor

e re

trof

itti

ng

Aft

er r

etro

fitt

ing

Com

men

ts &

exp

lana

tion

, Con

stra

ints

/ Hin

dran

ces

Inte

rmed

iate

Ou

tcom

e In

dica

tor

3: L

evel

of

awar

enes

s on

ene

rgy

effi

cien

cy m

easu

res

and

ben

efit

s in

crea

sed

. C

omm

unic

atio

n pl

an &

ou

treac

h pr

ogra

m

Com

mun

icat

ion

plan

O

utre

ach

prog

ram

car

ried

out

Out

reac

h pr

ogra

m e

ncom

pass

ed ta

ilore

d co

mm

unic

atio

n to

ols,

desi

gned

for e

ach

targ

et g

roup

. N

umbe

r of l

ocal

com

mun

ities

co

nsul

ted

20

20

This

num

ber h

as b

een

targ

eted

to b

e co

mpa

rabl

e w

ith so

cial

surv

ey

on in

door

com

fort,

satis

fact

ion,

and

aw

aren

ess.

A

war

enes

s of

sur

veye

d e

nd

-use

rs o

n e

nerg

y ef

fici

ency

rel

ated

issu

es.

B

efor

e re

trof

itti

ng

A

fter

ret

rofi

ttin

g

Com

men

ts &

exp

lana

tion

C

onst

rain

ts/ H

indr

ance

s A

war

enes

s of t

he w

orks

un

derta

ken

by th

e p

roje

ct

Scho

ols &

Hos

pita

ls: 1

4.6%

Sc

hool

s & H

ospi

tals

: 45.

1%

This

indi

cato

r has

bee

n su

mm

ariz

ed fo

r sch

ools

and

hos

pita

ls, b

y al

l sub

sam

ple

targ

et g

roup

s, i.e

., te

ache

rs &

pup

ils, m

edic

al st

aff &

te

chni

cian

s & p

atie

nts.

Hou

seho

lds:

20%

H

ouse

hold

s: 4

9%

Aw

aren

ess o

f ben

efits

of

impl

emen

ting

ener

gy

effic

ienc

y m

easu

res

Hou

seho

lds:

11%

H

ouse

hold

s: 4

5%

App

licat

ion

of e

nerg

y ef

ficie

ncy

mea

sure

s in

own

hous

ehol

d

Hou

seho

lds:

10%

H

ouse

hold

s: 1

9%

The

low

hou

seho

ld b

udge

t was

men

tione

d as

mai

n co

nstra

int f

or

bigg

er in

vest

men

ts th

an e

nerg

y ef

ficie

nt li

ght b

ulbs

.

Aw

aren

ess o

n im

porta

nce

of

educ

atio

n fo

r ene

rgy

effic

ienc

y, re

new

able

ene

rgy

and

clim

ate

chan

ge

Teac

hers

: 19.

76%

Te

ache

rs: 3

4.84

%

Res

pond

ents

als

o fo

und

that

the

med

ia re

porti

ng o

n en

ergy

ef

ficie

ncy

has i

mpr

oved

and

that

this

topi

c is

bet

ter r

epre

sent

ed in

ed

ucat

ion

and

scho

ol c

urric

ula.

Pu

pils

: 61.

26%

Pu

pils

: 68.

82%

31

Annex 3. Economic and Financial Analysis Component 1. CCS of Belgrade (original project) The indicative investment cost of the thermal rehabilitation of CCS Belgrade (in the original PAD) was US$ 7.47 million. The final real investment cost was US$ 15 million. The cost overrun was significant and has already been explained as a result of several interfering components (see section 2.2). The ERR calculated at appraisal was 32.4 percent. After project completion and according to this simulation, the ERR at the end of the project was 33 percent (see table below). One of the key determinants of the project’s profitability was the fuel substitution. The main fuel used in the boilers was low-quality fuel oil (mazut), and in a much smaller proportion, light fuel oil (LFO - very expensive) and coal (much less expensive). To simplify the calculation, the price of mazut was used, implying that the average between LFO and coal is closer to the mazut price. Mazut prices increased significantly between 2003 and 2013, from US$ 0.0172 to US$ 0.069 per KWh. For the calculation, an increase of 1 percent per year was applied to the mazut cost after year 5 (2013). By the end of the project, the main fuel used in the CCS was natural gas. The price of gas also increased, from US$ 0.143 in 2003 to US$ 0.0437 per KWh in 2013. For the calculation, an increase of 2.5 percent per year was applied for the gas price after year 5. Since the price of gas is still much lower than that of mazut, the ERR remains high (34 percent), despite the huge increase in the investment cost. Together with enhancing energy efficiency, reducing air pollution was the main objective of this project. The table below provides the emissions of CO2, SO2, and NOx before and after the project. C02 emission were reduced 64-70 percent (depending on the real consumption after renovation); SO2 emissions were reduced 100 percent (there is no SO2 in natural gas); and NOx emissions were reduced about 76 percent. CC of Nis (AF) The economic analysis for the CCN includes both Components 1 and 2, i.e.: 1. The full thermal rehabilitation of the CCN including: (i) the new gas boiler plant

replacing all other boilers (coal, LFO) and district heating supply; (ii) the complete replacement of the heat distribution piping; (iii) the complete replacement and creation of new heat substations; and (iv) internal rehabilitation of some of the indoor heating systems, in particular radiators and networks previously operated with steam.

2. The energy retrofitting of most of the buildings within Component 2. The indicative investment cost of the thermal rehabilitation of the CCN (in the Project Paper for AF) was US$ 5.94 million. Final investment cost was US$ 6.398 million for the heating systems and US$ 2.768 million for the building retrofitting, for a total of US$ 8.672 million. The overrun in cost was quite reduced, and much smaller than for the CCS of Belgrade. This can be explained by: (i) more accurate costing information from pre-feasibility and feasibility studies; (ii) more experience in terms of technologies and

32

evaluation of cost; and (iii) better experience with the methodology for procurement and investment cost negotiation. The ERR calculated during project preparation was 13.3 percent, while the ERR of the finalized project using actual data was 23.9 percent. The consumption of energy before project implementation was provided in the 2007 feasibility study, based on real consumption of coal and other fuels. For the purpose of economic analysis, actual heat consumption reported by the CCS from October15 2012 to April 30 2013 was used. This period of time represents 75% of the whole yearly consumption which is then 15,651MWh while the calculation of the feasibility study resulted in 15,065 MWh. The heating season 2012/2013 being colder than usual, the amount of 15,065 MWh was kept. The accurate monitoring (and management) system is now in place and should give more accurate data in the future. As in the case for CCS, energy prices increased significantly over time. This explains why the benefits are considerably higher in the new economic analysis compared to that of 2007. The energy savings and the reductions in CO2, SO2, and NOx emissions were greater than those achieved in the CCS. This was expected because in the CCN, not only was the heating plant totally rehabilitated, but all of the distribution piping, heat substations, and building envelopes were also retrofitted. Finally, as in the case of the CCS, the improvements in air quality and working conditions for the CCN’s end-users represent a concrete and tangible result. Component 2. Energy Efficiency in Schools and Hospitals In the original project, 26 buildings were retrofitted (15 schools and 11 hospitals). In addition, the lighting and some electrical networks were renovated in 14 schools. In the AF, 56 buildings were retrofitted (21 schools, 30 hospitals, and 5 social buildings). The investment per m² was higher in the AF. However, the increase in energy savings was higher than the increase in investment. Therefore, the payback time was reduced and the kWh saved per invested US$ was substantially increased.

Hospitals Schools Social

buildings Savings Savings InvestmentBuilding

area Savings per m²

Payback time

Invest. per m²

kWh saved/

invested $

(number) (number) (number) (kWh) (US$) (US$) (m²) (kWh/m²) (y) (US$/m²) (kWh/US$)

SEEP 1 11 15 0 13,000,000 1,018,680 8,489,000 150,000 87 8.3 57 1.53

SEEP 2 30 21 5 29,496,000 2,311,307 15,155,822 250,000 118 6.6 61 1.95

TOTAL 41 36 5 42,496,000 3,329,987 23,644,822 400,000 106 7.1 59 1.80

33

The ERR of this component of energy efficiency in buildings is presented below. The first table finds a gross ERR of 13 percent, in which energy prices are constant in real terms; i.e., they are adjusted for inflation. The second table assumes a growth rate of 3 percent per year for the energy cost, which is the difference of the increase between the prices of mazut and gas. Between 2008 and 2013, this difference was higher than 7 percent per year. In this case, the ERR becomes 16 percent.

Total savings/net benefits –assuming energy prices constant in real terms

Year 1 Year 2 Year 3 ….

Year 18 Year 19 Year 20

Investment 23,644,822

Savings -23,644,822 3,329,987 3,329,987 3,329,987 ....

3,329,987 3,329,987 3,329,987

ERR (20y) 13%

Total savings/net benefits –assuming energy price increase by 3% in real terms

Year 1 Year 2 Year 3 ….

Year 18 Year 19 Year 20

Investment 23,644,822

Savings -23,644,822 3,329,987 3,429,886 3,532,783 ....

5,503,960 5,669,079 5,839,152

ERR (20y) 16%

34

Cli

nic

al C

ente

r o

f S

erb

ia –

Est

imat

ed e

mis

sio

ns

F

uel

C

on

sum

pti

on

C

on

ten

t C

0 2

To

tal

CO

2 C

on

ten

t S

O2

To

tal

SO

2 C

on

ten

t N

OX

To

tal

NO

X

Fue

ls

(Ton

/y)

(Kg/

kg)

(Ton

/y)

(g/k

g)

(T

on/y

)

(g/k

g)

(T

on)

Maz

ut

11,5

00

3.3

37,9

50

133

1,53

2 16

.8

193

Ligh

t oi

l 64

5 2.

6 1,

677

10

6 7

5

Coa

l 7,

100

2.3

16,3

30

30

216

15

108

To

tal

Em

issi

on

s b

efo

re t

he

pro

ject

55,9

57

1,75

4 30

6

Gas

70

,000

(M

Wh)

0.

24

1680

0 0

0 0.

81

57

To

tal

Em

issi

on

s af

ter

the

pro

ject

16

800

0

57

To

tal

Em

issi

on

Sav

ing

s

39

,157

1,75

4

249

Cli

nic

al C

ente

r o

f S

erb

ia, i

n B

elg

rad

e -

Est

imat

ed c

ost

an

d s

avin

gs

bas

ed o

n t

he

resu

lts

pro

vid

ed b

y th

e C

CS

2009

20

10

2011

20

12

2013

20

14

2015

20

16

2017

20

18

2019

20

20

2021

20

22

2023

20

24

2025

20

26

2027

20

28

To

tal

hea

t en

erg

y co

st w

ith

ou

t p

roje

ct:

Maz

ou

t, c

oal

, lig

ht

fuel

, ele

ctri

city

- B

ased

on

th

e ra

w e

ner

gy

bef

ore

in

clu

din

g e

ner

gy

pri

ce i

ncr

ease

Fue

l cos

t 17

9,93

2 7,

219

8,22

9 9,

381

10,6

9512

,475

12,6

0012

,726

12,8

5312

,982

13,1

1113

,242

13

,375

13,5

0913

,644

13,7

8013

,918

14,0

5714

,198

14,3

4014

,483

Ele

ctric

ity c

ost

19,0

00

760

760

760

760

760

760

760

760

760

760

760

760

760

760

760

760

760

760

760

760

Ope

ratio

n &

mai

nten

ance

39

8 41

0 42

2 43

444

545

746

948

149

350

551

8 53

154

455

757

158

660

061

563

164

7T

ota

l co

st w

ith

ou

t p

roje

ct

8,37

7 9,

399

10,5

63

11,8

8913

,680

13,8

1713

,955

14,0

9414

,234

14,3

7614

,520

14

,666

14,8

1314

,961

15,1

1215

,264

15,4

1815

,573

15,7

3015

,890

To

tal

hea

t en

erg

y co

st w

ith

CH

P p

roje

ct -

Bas

ed o

n t

he

new

co

nsu

mp

tio

n p

rovi

ded

by

the

CC

S

Fue

l cos

t, ga

s 10

7,95

9 3,

375

3,27

9 3,

680

3,53

94,

635

5,06

85,

541

6,05

86,

624

7,24

27,

918

8,65

79,

465

10,3

4911

,315

12,3

7113

,525

14,7

8816

,168

17,6

77

Mai

nten

ance

27

4 27

4 27

4 27

427

427

427

427

427

427

427

4 27

427

427

427

427

427

427

427

427

4

Ele

ctric

ity c

ost

6,00

0 15

6 15

9 16

2 16

616

917

217

617

918

318

619

0 19

419

820

220

621

021

421

822

322

7

To

tal

cost

wit

h p

roje

ct

3,80

5 3,

712

4,11

6 3,

979

5,07

85,

514

5,99

16,

512

7,08

17,

703

8,38

2 9,

125

9,93

710

,825

11,7

9412

,855

14,0

1415

,280

16,6

6518

,179

To

tal

savi

ng

s/n

et b

enef

its

Inve

stm

ent

15,0

00

18,7

50 (a

ctua

lized

inve

stm

ent c

ost)

Net

ben

efit

s -1

8,75

0 4,

571

5,68

7 6,

447

7,91

08,

602

8,30

27,

964

7,58

27,

154

6,67

46,

138

5,54

04,

875

4,13

73,

317

2,40

91,

404

293

-935

-2,2

89

ER

R (

20y)

33

%

35

Annex 4. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members

Names Title Unit Lending Mohinder Gulati Task Team Leader ECSEG Gailius J. Draugelis Lead Energy Specialist EASCS Pekka Kalevi Salminen Sr. Energy Specialist ECSEG Miroslav Ruzica Social Scientist Nirmala Saraswat Environment Engineer Devesh Chandra Mishra Consultant ECSOQ Michael Gascoyne Sr. Resource Management Officer WBICA Miroslav Frick Operations Officer ECSEG Marc Bellanger Consultant ECSEG Juderica Zilla Josephine Dias Program Assistant ECSEG Vesna Kostic Sr. Communications Officer ECCYU Gennady Pilch Legal Counsel LEGOP Joseph Paul Formoso Disbursement CTRLA Supervision/ICR Marc Bellanger Consultant ECSEG Aleksandar Crnomarkovic Sr. Financial Management Speciast ECSO3 Juderica Zilla Josephine Dias Program Assistant ECSEG Gailius J. Draugelis Lead Energy Specialist EASCS Miroslav Frick Operations Officer ECSEG Michael Gascoyne Sr. Resource Management Officer WBICA Nikola Ille Sr. Environmental Specialist ECSEN Plamen Stoyanov Kirov Sr. Procurement Specialist LCSPT Vesna Kostic Sr. Communications Officer ECCYU Peggy Janice Masterson Operations Officer ECSEG Devesh Chandra Mishra Consultant ECSOQ Pekka Kalevi Salminen Sr. Energy Specialist ECSEG Ashok Sarkar Sr. Energy Specialist SEGEN Helen Z. Shahriari Sr. Social Scientist AFTCS Salvador Rivera Lead Energy Specialist ECSEG Claudia Vasquez Suarez Young Professional ECSEG Sandra Schlossar Social Development Specialist ECSSO Jose Martinez Sr. Procurement Specialist ECSO2 Milan Popovic Operations Officer ECCYU Surekha Jaddo Operations Analyst ECSEG Bjorn Hamso Program Manager ECCYU Varadarajan Atur Lead Evaluation Officer IEGPS Mohinder Gulati Task Team Leader ECSEG

36

(b) Staff Time and Cost

Stage of Project Cycle Staff Time and Cost (Bank Budget Only)

No. of staff weeks US$ Thousands (including travel and consultant costs)

Lending FY02 59.86 FY03 159.47 FY04 45.2 194.29

Total: 413.62 Supervision/ICR

FY04 4.2 35.44 FY05 22.2 109.61 FY06 25.2 78.57 FY07 30 110.10 FY08 28.5 103.39 FY09 25.5 85.60 FY10 34.5 84.75 FY11 33.3 95.93 FY12 7 61.22 FY13 15.4 110.80

Total: 875.41

37

Annex 5. Beneficiary Survey Results

During the course of the project (initial project and AF), regular social monitoring surveys were conducted. In total, 7,545 end-users (such as pupils, teachers, administrative and technical staff, patients, and medical staff) were interviewed in more than 30 institutions and households before and after the retrofitting works. The survey methodology utilized quantitative (survey questionnaires for research in the institutions and in households with family members of the institutions’ users) and qualitative (in-depth interviews with decision makers in relevant institutions and local self-governments) approaches to systematically measure the social impact of project activities. In particular, the survey focused on the following parameters: Level of indoor comfort and end-users’ satisfaction with heating, acoustics, and

lighting; Level of awareness of energy efficiency works, their benefits, and their importance in

regard to education; and Changes in behavioral patterns with respect to application of energy efficiency

measures at home. The following table illustrates that all directly measured elements of comfort as well as the overall assessment of indoor environment quality and energy efficiency awareness significantly improved amongst end-users of public buildings (schools, social care institutions,4 and health care facilities). A significant increase (around 130 percent) in the level of satisfaction of end-users was assessed. Due to the retrofitting works, disturbances due to noise decreased by around 50 percent. Awareness of the energy efficiency works and the general benefits of energy efficiency increased by an average of 240 percent. End-users confirmed that they were inspired by the energy efficiency works implemented in public buildings, such that the application of energy efficiency measures at home increased by 90 percent. Almost three out of four pupils (72.5 percent) interviewed mentioned that they learned about energy efficiency, renewable energy sources, and climate change.

4 One social care institution was in the sample for the surveys.

38

Before (in %) After (in %)

Schools Hospitals Social Schools Hospitals Social Satisfaction with heating 10 18 44 35 59 71

total 24 55

Satisfaction increased by 129%

Noise disturbance 51 58 41 10 22 41

total 50 24

Disturbance decreased by 48%

Satisfaction with lighting 19 17 17 56 23 45

total 18 41

Satisfaction increased by 132%

Before (in %) After (in %)

S&H Households S&H Household

s Awareness of EE works 15 20 45 49

total 17 47

Awareness increased by 172%

Awareness of EE measures/ EE benefits 11 45

total 11 45


Application of EE at home 10 19

total 10 19

Application increased by 90%

Awareness of importance of EE education 20 61 35 69

total 41 52


All end-users of the institutions clearly recognized the project’s contribution to increased indoor comfort. More than two-thirds of the respondents were either “very familiar” or “partially familiar” with the activities undertaken by the project. Respondents favorably assessed the improvement of all dimensions of indoor comfort as a result of the works. Survey respondents also highly valued the reduction of draft and mentioned it as the most significant achievement (ranked first among all users in health care institutions and pupils), followed by the improvement in heating (ranked first by users in schools). Heating quality in after-surveys was much more favorably assessed than in baseline

39

surveys and was assessed to be “…of excellent quality” (44 percent of respondents) or “…of good quality, but it might be warmer” (39 percent). In addition, almost unanimous satisfaction with the results of the works and achieved benefits was recorded during in-depth interviews with decision makers.

40

Annex 6. Stakeholder Workshop Report and Results An ICR workshop was held on October 25 at the Zira Hotel in Belgrade to share the results from SEEP with various stakeholders and solicit comments on the World Bank team’s options for scaling-up investments for energy efficiency in the public building sector. About 40 people, mostly municipal representatives, were in attendance. Participants highlighted tangible results and important benefits from the implementation of the Serbian energy efficiency project in their municipalities. Specific benefits included improved comfort and health of final beneficiaries, reductions in energy expenditures, and creation of local jobs. Also, a strong consensus among local authorities emerged on the need for the Government to demonstrate its commitment to foster the development of sustainable EE investments that would support planed local and private-sector initiatives.

41

Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR

Republic of Serbia Ministry of Finance and Economy

Ministry of Energy, Development and Environmental Protection

Ministry of Health Ministry of Education, Science and Technological Development

Ministry of Labor, Employment and Social Protection

Serbia Energy Efficiency Project - SEEP (IDA 3870 YF, IDA 3870-1 YF & IBRD 7466 YF)

BORROWER’S Implementation Completion Report - ICR

July 2013 Project Arrangements Republic of Serbia has agreed with the World Bank, and based on the Bank’s assistance program for 2003-2004, on support to stimulating near-term growth and creating a basis for sustainable supply response. The energy sector was among the main topics at the time as the Government of Serbia was committed to an energy price reform strategy and to its program to strengthen public expenditure management. The commitment of the Government to energy reforms, and energy efficiency in particular, was very strong at the time as well, partially because of growing concern for the impact of price increase to the population and partially because inefficient use of energy was a

42

major concern in Serbia energy sector. Today still, policy formulation clearly states the adoption of a government program to improve energy efficiency as an explicit objective. Pursuant to that objective, the Government had entered in preparation of a Serbia Energy Efficiency Project – SEEP seeking financial support from the Bank. First IDA Credit was agreed in September 2004 to help implement an energy efficiency program in selected public buildings and demonstrate to the municipal and government officials and local communities the benefits of investment in energy efficiency measures. Additional financing was agreed in September 2008 consisting of blend of IDA Credit and IBRD Loan. It was clear from the beginning that environmental issues are inherent to the energy efficiency measures implementation for less energy spent less emission of air pollutants and greenhouse gases. That was an important associated objective of the project. Social issues were not less expected to be tackled as it was perceived that improvements in indoor air quality, indoor temperature and comfort in general will lead to increased end-user satisfaction and better learning and living conditions for pupils, patients and employees. The First Phase – P075434 On September 8, 2004 a financing agreement was signed between the Republic of Serbia and the World Bank (International Development Association) towards the cost of Serbia energy efficiency Project (SEEP). Original project size was USD 21 million with USD 4 million contributions by the Serbian budget. The Government of Serbia made credit proceeds available to the Ministry of Health and Ministry of Education. Overall coordination was carried out by the Ministry of Energy, while Energy Efficiency Agency of the Republic of Serbia (SEEA) was in the capacity of the implementation body. The Second Phase – P090492 (Additional Financing) On September 10, 2008 agreements were signed for additional financing of the Project to the size of USD 28 million (IDA Financial Agreement on USD 10 million and IBRD Loan Agreement on USD 18 million) with USD 2 million contribution by Serbian budget. The Government of Serbia again made those proceeds of the credit/loan available to the Ministry of Health and Ministry of Education, plus the Ministry of Social Policy was included. Overall coordination and implementation arrangements remained the same. Project Objectives Achievements Component A – Clinical Centers in Belgrade (CCS) and Nis (CCN) The rehabilitation of energy supply system in CCS and CCN resulted with significant reduction of air pollutants emission in the environment, mainly due to: (i) the change from harmful fuels as coal, heavy fuel oil (mazut) and light fuel oil to environmentally friendly natural gas; and (ii) centralized production of energy instead of numerous decentralized heat generation sources. Improvement of old coal fired boiler plants efficiency from less than 50% to more than 90% of the modern gas fired boiler facilities additionally reduced greenhouse gases emissions of CO2 and NOx and totally eliminates emission of to human health hazardous SO2, CO and solid particulates as ash and soot. This vast energy efficiency and environmental undertake has been envisaged by Ministry of Health as one of the greatest achievement in health sector in the last several years. Moreover, in the CCN all the clinics were energy retrofitted thus reducing heat demand which additionally contributed to optimizing heat supply capacity and fuel consumption, and subsequent emissions of combustion products in atmosphere. Through a modern fully automatic central control system all emissions obliged by the law to be monitored are now registered in real-time manner. Component B – Public Buildings

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Implementation of component B in the 1st Project Phase provided a sufficiently wide range of good practice examples and lessons learned in all areas of project activities thus establishing decent quality ground for the continuation of the Project into the 2nd Phase for improved implementation of already tested measures, methods and technologies and for corrections to be applied where needed. Therefore, savings verified through actual measurements have been at average of 40% in the 1st Project Phase and increased up to average of 50% in the 2nd Phase, while CO2 reduction calculated on measured energy consumption increased from approximately 41 % to 52% respectively. By retrofitting 36 school buildings, 41 hospital buildings (including Maternity hospital in CCS and 19 clinics within CCN compound) and 5 social care institutions (in total 82 single buildings) across Serbia, and in more than 30 municipalities, project clearly demonstrate huge energy saving potential stored in public building sector, displaying at the same time that application of modern technologies, materials, equipment and systems, with the highest possible on the market quality implementation and manufacturers/producers warranties, lead to significant financial savings. Although planed in the Serbian budget for 2013 on health and education allocations, contribution of USD 2 million has not been realized until April 30, 2013, the project closing date. Component C – Technical Assistance Technical assistance to the Ministries in charge of Energy, Health, Education and Social Affairs, and to in meantime abolished Serbian Energy Efficiency Agency, has been established in a way to help them in capacity building, developing methodologies for energy audits and investment proposals, public outreach/communications and monitoring and evaluation, and training of municipal and government officials in evaluating capital expenditure decisions on energy efficiency investments. Individual consultants with expertise in project management, heat energy production and distribution, building energy efficiency retrofit, monitoring and evaluation, and communications performed their duties to the highest professional standard and carried out general preparation of the project activities and supervision of outsourced consultancies’ performance. Therefore, Design and Supervision, and Social Monitoring consulting companies have been selected and accordingly have conducted and completed activities in compliance to the highest professional standards setting up Monitoring and Evaluation System and carrying out activities with overall deliverables submitted according to designated delivery schedule. Communication plan and related activities’ implementation schedule has been completed successfully. Outreach and visibility of the Project, its benefit and demonstration effect has been accomplished at the given possible level. However, sustainability of the project results and energy savings achieved rest with end-users maintenance behavior and incentives by line ministries and municipalities. Preliminary and detailed energy audits have been conducted according to procedure proposed and prepared by PIU staff and WB technical consultants, and found out to be very practical. A pool of 22 trained auditors has been established in all the biggest Serbian cities (Belgrade, Novi Sad, Nis, Kragujevac and Kraljevo regional energy efficiency centers within local universities). This was very helpful and operational when more than 120 preliminary energy audits have had to be performed across the Serbia for the purpose of drafting final list of buildings to be included into the project. Finally, Ministry of Energy through selected PIU teams of individual experts, and in the capacity of the coordination and implementation agency of the Project, proved its ability to manage projects of this scale and accordingly built its own capacities for further activities and forthcoming scale-up programs. The Project Steering Committee under the chairmanship of the Ministry of Energy, and assisted by PIU staff, has overseen strictly all the project activities and

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made necessary decisions in a timely manner thus supporting smooth project implementation. Although this body was consisted out of nine members from six different line ministries and two other agencies, a quorum of five present members was rarely in question thus enabling legitimate decisions to be made. Lessons Learned Implementation of such a project needs thorough dedication of all the stakeholders to the process of design and implementation, strict following of operational procedures and outstanding professional performance both the implementing staff and government administration officials. It is off course understood that without the World Bank’s strong administrative and technical support, overseeing of procurement and financial actions, and follow-up of overall project progress this kind of operations are almost impossible to be accomplished. Therefore, experiences earned during this project implementation may be helpful in the future development of similar projects aiming at higher sustainability and effectiveness of operations which should enable Serbia to launch its own program in building stock and which than could be implemented following domestic legal framework and available human and institutional resources. Project was designed for public sector buildings where fuel expenses are covered by government or municipal budgets. But during implementation there have been noticed huge interest by citizens and municipalities to include as well residential buildings in the program. Some municipalities have already prepared projects in that respect and are now looking for technical assistance and favorable financial arrangements to implement them. Decision making process by the Borrower and clearance by the Bank in some cases took longer period of time than initially planned generally because of deviations form agreed schedules and set criteria. Therefore better planning and anticipation of possible issues have to be invested by all stakeholders involved. Any additional action that has not been foreseen at the beginning causes unnecessary delay in implementation and often is accompanied with additional costs. Quite often, there was a need for financial and technical participation of end-users in preparatory works, preceding energy retrofiting works. In order for this to happen, future programs would have to insist on end-users’ participation in percent not less than 15-30% of envisaged investment, thus obtaining commitment for works to be done properly. Selection of potential beneficiaries for some future programs should be based purely on their interest and commitment and level of awareness on the energy efficiency issues to enhance prospects for success and sustainable behavior. Also, some scheme of investment repayment should be introduced to obtain ownership of the investment by the users thus keeping them involved in whole process. Quality of the works should not be compromised whatsoever, for only this guaranteeing maximization of energy savings. The newest technologies available on the market with the longest functionality and durability warranty periods should be procured together with qualified trained and certified workforce. Highly competitive and professional staff engaged through implementation units, and skilled and competitively selected experienced consultancy companies guaranteed timely and quality performance of implementation actions and are essential for any successful operation. Standard Bank’s procurement procedures and biding documents helped a lot in effective contracting of the works and services and together with professionally oriented PIU staff made implementation of the project accurate and smooth as much as possible. Besides that, detailed technical specifications and precise employer’s requirements developed and set within the bidding documents by the technical consultants, and supported and

45

cleared by the Bank, contributed substantially to the timely completion of the works with no or very small costs overruns. We have to say that envisaged contribution by Serbian budget has not happened by the Project’s Closing Date April 30, 2013, in spite of the fact that we prepared final designs and bidding documents for two biomass boiler houses in mid of 2012, together with valid construction permits and other necessary administrative approvals, and that timely provisions in sufficient amounts were allocated in the 2013 budget appropriations (at Ministry of Health RSD 130 millions for Surdulica hospital boiler house, and at Ministry of Education RSD 80 millions for Priboj school boiler house). It shows that dedicated program financing has far better chance for success than budget capture financing which is subject to different and quite often unexpected changes. Although communications of project results has accessed satisfactory in terms of compliance what was planned, there is need to disseminate those results more broadly especially to public-owned service companies, suppliers of EE goods and services, and commercial banks. Conclusions and Prospects for Continuation The project was well designed and implemented at a very appropriate time for improving energy efficiency is one of key issues of the Government energy policy. Successful implementation of the project has helped the country a lot in creating respective targets and financial estimates of a national energy efficiency action plan (NEEAP). It has to be mentioned that tremendous support of WB energy and procurement team in charge of this project implementation helped Serbia very much in successful accomplishment of project objectives gaining at the same time precious experiences for further operations in energy efficiency field. Based on SEEP achievements, the government is now more committed to scale-up energy efficiency in the buildings sector as a way to mitigate the impact of needed energy price increases, reduce the fiscal deficit by decreasing energy expenditures, and undertake the renovation of the building stock. There is also strong demand, created partially by the project results outreach, for such a program by a broader range of stakeholders including regional and local governments, other publicly-owned service companies, and suppliers of energy efficiency goods and services. Ministry of Energy already confirmed for several times that further World Bank assistance is more than welcomed in designing a energy efficiency program in building stock and respective options of financing mechanisms to be proposed. Financing support from the Bank to such a program is being considered by Ministry of Energy and Ministry of Finance. However, it should be highlighted that there is a need to disseminate more broadly the results achieved during the implementation of both the project’s phases. Possible scope and implementation arrangements for the eventual new energy efficiency project should build on the successful implementation experience from SEEP and recent study undertaken by the Bank for Serbia residential, public and commercial building stock. Based on the results and the implementation experience gained under SEEP, a possible scaled-up program should include principle of sustainability of future funding through repayment of investment costs, leverage to possible funding in order to meet the very high investment needs imposed by NEEAP and to initiate moving towards more commercial financing as Energy Service Companies (ESCO) in order to shift some of the performance risks away from the public beneficiaries.

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Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders n/a

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Annex 9. List of Supporting Documents Project Appraisal Document Aide Memoires and Implementation Status Reports Financial Monitoring Reports Legal documents, including IBRD loan and IDA credit agreements Project Implementation Plan First and Second Phase Final Reports Borrower’s Implementation Completion Report Social Monitoring Survey Final Report (initial project & AF) WBG – Republic of Serbia Country Partnership Strategies

S E R B I AS E R B I A

V O J V O D I N AV O J V O D I N A

ZZllaatt iibboorr

BBeell jjaanniiccaa

DDeell ii JJoovvaann

SSuuvvaa PPllaanniinnaa

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VVllaass iicc PP llaanniinnaa

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TTiissaa

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ZZaappaaddnnaa MMoorraavvaa

JJuuzznnaa MMoorraavvaa

VVeelliikkii

LakeLakeScutariScutari

VVeelliikkaa MMoorraavvaa

VrsacVrsacˇ

BackaBackaTopolaTopola

ˇ

BosilegradBosilegrad

SurdulicaSurdulica

VlasotinceVlasotince

SokoSokoBanjaBanja

MajdanpekMajdanpek

RaskaRaskaˇ

UsceUsceˇ

SjenicaSjenica

IvanjicaIvanjica

PozegaPozegaˇ

KladovoKladovo

PetrovacPetrovac

Ravni GajRavni Gaj

GolubacGolubac

GornjiGornjiMilanovacMilanovac

BujanovacBujanovac

KnjazevacKnjazevacˇ

ParacinParacin´

BorBor

NegotinNegotin

Novi PazarNovi Pazar

PribojPriboj

PresevoPresevoˇ

PrepolakPrepolak

AleksinacAleksinac

PrijepoljePrijepolje

BeloljinBeloljin

Velika-Velika-PlanaPlana

LoznicaLoznica

CacakCacakˇ CuprijaCuprija´

Bela CrkvaBela Crkva

KovinKovin

AdaAda

ApatinApatin

BajmokBajmok

KulaKula

SentaSenta

PrnjavorPrnjavorZminjakZminjak

RumaRuma

ObrenovacObrenovac

KanjizaKanjizaˇ

SidSidˇ

ZeleznikZeleznikˇ

AlibunarAlibunar

TemerinTemerin

BecejBecejˇ

BackaBackaPalankaPalanka

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IndijaIndija

SivacSivac

MladenovacMladenovac

BelaBelaPalankaPalanka

RogacicaRogacica

LjubovijaLjubovija

ElemirElemir

ZagubicaZagubicaˇ

BELGRADEBELGRADE

SomborSombor

SuboticaSubotica

ZrenjaninZrenjanin

SremskaSremskaMitrovicaMitrovica

KikindaKikinda

PancevoPancevoˇ

SabacSabacˇ

ValjevoValjevo

SmederevoSmederevoPozarevacPozarevacˇ

KragujevacKragujevac

JagodinaJagodina(Svetozarevo)(Svetozarevo) ZajecarZajecarˇUziceUziceˇ

KraljevoKraljevo

KrusevacKrusevacˇ

NisNis

ProkupljeProkuplje

PirotPirot

LeskovacLeskovac

VranjeVranje

Novi SadNovi Sad

S E R B I A

V O J V O D I N A

Vrsacˇ

BackaTopola

ˇ

Bosilegrad

Surdulica

Vlasotince

SokoBanja

Majdanpek

Raskaˇ

Usceˇ

Sjenica

Ivanjica

Pozegaˇ

Kladovo

Petrovac

Ravni Gaj

Golubac

GornjiMilanovac

Bujanovac

Knjazevacˇ

Paracin´

Bor

Negotin

Novi Pazar

Priboj

Presevoˇ

Prepolak

Aleksinac

Prijepolje

Beloljin

Velika-Plana

Loznica

Cacakˇ Cuprija´

Bela Crkva

Kovin

Ada

Apatin

Bajmok

Kula

Senta

PrnjavorZminjak

Ruma

Obrenovac

Kanjizaˇ

Sidˇ

Zeleznikˇ

Alibunar

Temerin

Becejˇ

BackaPalanka

ˇ

Indija

Sivac

Mladenovac

BelaPalanka

Rogacica

Ljubovija

Elemir

Zagubicaˇ

BELGRADE

Sombor

Subotica

Zrenjanin

SremskaMitrovica

Kikinda

Pancevoˇ

Sabacˇ

Valjevo

SmederevoPozarevacˇ

Kragujevac

Jagodina(Svetozarevo) ZajecarˇUziceˇ

Kraljevo

Krusevacˇ

Nis

Prokuplje

Pirot

Leskovac

Vranje

Novi Sad

H U N G A R Y

ROMANIA

ALBANIA

BULGARIA

FYRMACEDONIA

CROATIA

BOSNIAAND

HERZEGOVINA

MONTENEGRO

KOSOVO

Tisa

Danube

Sava

Drina

Zapadna Morava

Juzna Morava

Veliki

LakeScutari

Velika Morava

To Sarajevo

To Bijeljina

To Vinkovci

To Vinkovci

To Gorazde

To Podgorica

To Kiskoros

To Szeged

To Arad

To Timisoara

To Timisoara

To Carbunari

To Gura Vail

To Vidin

To Vidin

To Sofia

To Sofia

To Pernik

To Kumanovo

To Priština

To Priština

Zlat ibor

Bel janica

Del i Jovan

Suva Planina

Zaglavak

Juhor R tan

Zelgin

Gol i ja

Radan Rogozna

Cemerno

Javor

Maljen Povlen

Homol jske P lanina

Vel ik i

Jas trebac

Vlasic P lanina

Fruska Gora

B a l k a n Mt s .

Midzor(2168 m)

19°E 20°E 21°E

19°E 20°E 21°E 22°E

43°N

44°N

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43°N

44°N

SERBIA

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other informationshown on this map do not imply, on the part of The World BankGroup, any judgment on the legal status of any territory, or anyendorsement or acceptance of such boundaries.

0 25 50

0 25 50 Miles

75 Kilometers

IBRD 34847R

JULY 2009

SERBIASELECTED CITIES AND TOWNS

OKRUG (DISTRICT) CAPITALS

POKRAJINE (PROVINCE) CAPITALS

NATIONAL CAPITAL

RIVERS

MAIN ROADS

RAILROADS

OKRUG (DISTRICT) BOUNDARIES

POKRAJNE (PROVINCE) BOUNDARIES

INTERNATIONAL BOUNDARIES

Document of The World Bankdocuments.worldbank.org/curated/pt/894041468103145608/pdf/ICR… ·...

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