EBRD loan for the Water and Sewage Company will be repaid by citizens, through water prices or taxes

By: Sead Omeragić

In July this year, the contract for the project "Sarajevo Water Supply" was signed. The signatures were affixed by the Prime Minister of Sarajevo Canton Elmedin Konaković and the Deputy Director of the EBRD for the infrastructure sector, Lin O'Grady. The EBRD loan in the amount of 25 million euros would be realized in three tranches.

"The first and second tranches would amount to 10 million euros each, and the third to five million euros. The funds are taken for 15 years with a three-year grace period," Konaković stated.

He noted that if the funds from the first tranche are sufficient to resolve the water supply issue, then the second and third tranches can be waived without any negative interest.

Given that the contract was only adopted by the House of Representatives, and not the House of Peoples, it is clear that the project for the reconstruction of the water supply and sewage network is delayed.

Namely, the EBRD loan for the reconstruction of the water supply network has been a topic since 2006.  

For more than four years, discussions were held about its activation, but the problem was not resolved. Exactly seven years ago, in November 2010, the Loan Agreement between BiH and the EBRD for the reconstruction of the Sarajevo Water Supply was signed.

The Prime Minister of the Canton Government was supposed to make an agreement with the Federation, and then a sub-agreement with the Sarajevo Water and Sewage Company (ViK). That sub-agreement stated that the project would be implemented entirely through ViK. Namely, the bank's principle is that the loan must go to the end user, i.e., ViK Sarajevo. Thus, the obligations of repaying the loan fell on the weak company Water and Sewage Sarajevo. Even then, there was talk of a monthly installment exceeding 600,000 KM. Now the loan is somewhat smaller, so it is assumed that the monthly installment could be around 400,000 KM. Of course, that ViK would repay it, then and now, is science fiction.    

In September 2009, the then director of ViK, Fahrudin Pilavdžić, said that he did not reject the obligation to repay the loan, but he wanted to know how much the share of loan servicing costs would be in the price of water. Translated into plain language, how much would the increase in water prices bring in money for repaying the loan tranches?

This was most likely the reason why Pilavdžić soon had to leave his director position.  

These days, the dismissed director of ViK, Nezir Hadžić, is saying the same thing. Loan repayment is impossible without a drastic increase in water prices.

A particular problem will be the relationship with ViK. Will the Canton, which is, after all, the direct guarantor of the loan to ViK, provide financial assistance? At a meeting exactly eight years ago, one of the directors of the Water Supply, Muamera Srna, said that there was an implementation plan and project documentation for the first year of the water supply network reconstruction. This means that the works could have started, but the question is why they did not.

By all accounts, the first loan also failed for one single reason: the utter greed surrounding such large and expensive undertakings. Namely, already in the Assembly of Sarajevo Canton, there is talk that the so-called Bjelašnica lobby has come to the helm of ViK, starting with the new director and including Mirsad Pindžo, an independent representative, who has been dealing with ViK and the relationship towards ViK on behalf of the Assembly for years. The Prime Minister of Sarajevo Canton should think about all this, because, as with the first EBRD loan, many will „get their hair combed“ (i.e., benefit illicitly). The only thing the public should push for in this case is total control of the loan funds and complete transparency of expenditure. The new EBRD loan is smaller by about ten million KM. This means that the price of water could at least double in order for the debts to be regularly repaid to the creditor.

The Prime Minister's announcements that large debtors will repay the EBRD loan have not yet been officially confirmed in public. How successful has the collection of funds been before the court lawsuits against, as Prime Minister Konaković called them, water thieves?         

Tarik Badnjević, former technical director, said eight years ago that the losses in the water supply network are a consequence of the poor treatment of this company for a full 35 years. The water supply network, pumping stations, and other equipment were already depreciated at that time. According to last year's data, Sarajevo Canton allocated ten times more for its public companies Rad, Park, Bakije than for Water and Sewage. So, for decades, nothing has changed, and the attitude towards a company vital for Sarajevo residents is catastrophic.

Either way, citizens fill the Canton's budget, so they will directly, through water prices or through taxes, repay the EBRD loan. Only transparency and an open attitude towards the public can save us from yet another disaster. The EBRD loan must be protected from any manipulation. The work could have started. And why didn't it?