World Bank Document...municipalities Podgorica, Niksic, Danilovgrad and Cetinje) and North (Kolasin, Berane, Bijelo Polje, Andrijevica, Mojkovac, Plav, Pluzine, Savnik, Pljevlja i

E1545vol. 2

C E E D

The World Bank Center for Entrepreneurship and EconomicWashington DC, US Development

Podgorica, Montenegro

Poverty and Social Impact Analysis (PSIA) for the Water Sector Reform in Montenegro and Social Assessment(SA) for the Montenegro Tourism Development Project

SECOND DRAFT REPORT

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With the support from

UNITED NATIONS DEVELOPMENT PROGRAMME (UNDP)

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Poverty and Social Impact Analysis (PSIA) for the Water Sector Reform in Montenegro

Table of Contents

Acknowledgements .......... .................................................................................. 4Abbreviations .................................................................................................... 5Glossary of Terms ............ ............................................................................... 6EXECUTIVE SUMMARY .............................................................................................. 7

A. Summary of Key Findings ................................................. 7Tariff increases ............................................................................................... 8Access to water .............................................................................................. 8Support for the poor ........................................................................................... 8Other channels of impact on the reform .......................................... 9

B. Conclusions and recommendations ......................................... 10PSIA Matrix for the Water Sector Reform in Montenegro ............................... 11

I. INTRODUCTION AND METHODOLOGY .......................................... 15Structure of the Report ........................................................................................ 19

II. COUNTRY AND REFORM CONTEXT ........................................................................ 20A. Legal Framework by which the system of water-supply is organized in Montenegro ... 20B. Background of Water Sector Reform in Montenegro ............................ 21C. The Regional WSC Project for Montenegrin Coast .............................. 22D. Institutional Structure of the Water Supply Sector ............................. 22

Vodacom ................................................................................................... 23E. Reform Stakeholders ....................................................................................... 28

Stakeholders that affect/implement the Reform ..................................... 28Stakeholders affected positively by the reform ....................................................................... 28Stakeholders affected negatively by the reform ......................................................................... 29Stakeholders with influence over the reform policy ....................................................................... 29

F. Poverty in Montenegro in the Context of the Water Sector Reform ................. 29G. City Profiles ............................................................................................... 30

Access ................................................................................................... 30Billing .......... ................................................................ 31Collection ratio and enforcement mechanisms ..................................... 31Water losses ............................................................................................... 31

III. FINDINGS AND ANALYSIS ................................................. 34A. Impact analysis ................................................................................ 34

Tariff increases ................................................................................... 34Affordability and willingness to pay ............................................. 35Access to water and water services (water network) ................................. 42Subsidies - measures to support the poor ........................................ 48Impact on Economic Development of the Area ..................................... 50

Vulnerable Groups: Roma population in Montenegro and water supply problems they arefacing with ....................................................................................... 53

Living conditions ................................................................................... 53Accommodation conditions .................................................. 54Water supply network and problems ............................................ 54Improvement in the service of the Water Supply Management Company .................... 55Ability and willingness to pay water bills ......................................... 55Willingness to pay Water Supply Management Company's services ........................ 56Public awareness .................................................................................. 56Subsidies for vulnerable households ............................................ 57Health care ....................................................................................... 57Recommendations and conclusions ............................................. 57

B. Stakeholders and Institutional Issues ....................................... 59Stakeholders and a New Institutional Environment .................................. 59Main issues related to stakeholders ............................................ 60

IV. CONCLUSIONS AND RECOMMENDATIONS ...................................... 62V. REFERENCES ...................................................................................... 66

Second Draft Report, prepared by Center for Entrepreneurship and Economic Development (CEED) 2


Annexes

Annex 1 - City Profiles 66Annex 2 - Report on Key Informant Interviews in the Five Target Cities 76Annex 3 - Report on Focus Groups Discussions Held in Podgorica on non-water thematic topics 88Annex 4 - Report on Focus Groups Discussions Held on Water Thematic Topics 104Annex 5 - Socio - economic Household Questionnaire 115Annex 6 - Terms of Reference for Local Consultant 130Annex 7 - Guidance on the focus and scope for data collection 136Annex 8 - CDM - Potential financial gain for utility by recovering lost water based on the winter 137tariff in Budva of 0.6 E/m 3

Annex 9 - Vodacom- Overview of completed activities within the "Intervening measures 1" 138Annex 10 - Tables and Descriptive Statistics Obtained from HHQs 139

Tables

Table 1.1 Roma population in Montenegro (source: NGO "Po&etak'" 17Table 2.1 Condition and access to water infrastructure in five targeted cities 33Table 3.1 Water's share in the monthly household expenditures by cities 36Table 3.2 Water's share in the consumption basket 36Table 3.3 Average monthly water bill amounts in target cities (E) 37Table 3.4 The average water bill amounts for water supplied from WSC and other sources in target 38cities (E)Table 3.5 Willing to pay higher price for better quality service (by poverty status) 40Table 3.6 Willing to pay higher price for better quality service (by municipality) 40Table 3.7 Target groups for public campaign (by targeted cities) 42Table 3.8 The primary problem in water system (by targeted cities) 44Table 3.9 The effect of piped water shortages on households (by poverty status) 46Table 3.10 The effect of piped water shortages on households (by municipality) 46Table 3.11 Public awareness of GoM water supply reforms 47Table 3.12 Families receiving social assistance 48Table 3.13 Households' perceptions of the reform impact on employment, especially in tourism 52sector (in %)

Schemes

Scheme 2.1 Existing institutional framework 24Scheme 2.2 Future institutional framework 27

Graphs

Graph 3.1 Problems with the water supply during the tourist season (by targeted cities) 43Graph 3.1 Problems with the water supply during the tourist season (by targeted cities) 44Graph 3.3 Average daily water supply, in hours/per season 46

Boxes

Box 4.1 An example of giving a concession for part of the water supply network to private company 64in municipality of Tivat



ACKNOWLEDGEMENTS

The study was accomplished with the assistance of many individuals, institutions and organizations, all ofwhom provided substantial support for the study. We would like to thank Hermine De Soto, Arben Bakilamajaand Sabine Beddies, for the supervision and their sincere support and feedback throughout the study.

Our special thanks goes to United Nation Development Programme (UNDP) in Podgorica, especially MiodragDragisic for their support in collecting data for Roma population; this study would have been far lesscomprehensive without their support.

The field research was coordinated with the local research team - the Center for Entrepreneurship andEconomic Development (CEED), Podgorica. Data for Roma community were collected in cooperation withRoma non-governmental organizations. We use this opportunity to thank to Veselj Beganaj who facilitatedthis communication.

We also would like to thank representatives of the central government, local governments in targeted citiesand experts from Water Supply Companies who kindly offered their time and support. We are most gratefulto the representatives of the Regional Water Supply Project and donor community including USAIDimplementers CDM, IRD and Urban Institute. Without their time and expertise, this study would not havebeen possible.

We also express gratitude to all the individual consumers and households, and business sectorrepresentatives who participated in the survey, and those who took part in the focus group discussions.Without their views, perceptions and opinions, this study would not have been able to capture the povertyand social impacts of the water sector reform.



ABBREVIATIONS

CG - Central Government

FG - Focus Group

IRD - International Relief and Development

HHQ - Household Questionnaire

KfW - Kreditanstalt Fur Wiederaufbau (German Cooperation)

LG - Local Government

MAFWM - The Ministry of Agriculture, Forestry and Water Management

MEPUP - The Ministry of Environmental Protection and Urban Planing

MONSTAT - Statistical Office of the Republic of Montenegro

NGO - Non-Governmental Organization

PEW - Public Enterprise for water supply, waste water collection and treatment and solid waste disposal for

coastal region of Montenegro and municipality of Cetinje

PO - Private Operator

PRSP - Poverty Reduction Strategy Paper

PSIA - Poverty and Social Impact Analysis

SME - Small and Medium Size Enterprises

WB - World Bank

WSC - Water Supply Company

WSR - Waters Supply Reform

1 Euro = 1.22870 US Dollar1 US Dollar (USD) = 0.81387 Euro (EUR)



GLOSSARY OF TERMS

Cubic meter: Metric unit of volume equaling 1,000 liters

Euro: The currency of Montenegro (at the time of the study preparation, US $1= EO.804635)

Municipality: Administrative division within the Republic; there are 21 municipalities in Montenegro

MC cities: The fours study sites including Budva, Bar, kotor and Ulcinj.

Service quality: This standard for "hours of supply'" and "water pressure"

Region: A local territorial/administrative unit, usually comprising more than one municipality; there arethree regions in Montenegro: South (Bar, Budva, Ulcinj, Hereg Novi, Tivat, Kotor), Center (includingmunicipalities Podgorica, Niksic, Danilovgrad and Cetinje) and North (Kolasin, Berane, Bijelo Polje,Andrijevica, Mojkovac, Plav, Pluzine, Savnik, Pljevlja i Zabljak).

Target cities: The collection of all four-study cities considered together including Bar, Budva, Kotor andUlcinj.



EXECUTIVE SUMMARY

This study combines a Poverty and Social Impact Analysis (PSIA) and a Social Assessment for both theWater Sector Reform in Montenegro and the Montenegro Tourism Development Project. The study willbenefit the implementation of Montenegro's Development and Poverty Reduction Strategy (DPRS),stakeholders of Water Sector Reform, and beneficiaries/existing customers, particularly the vulnerablegroups. The World Bank Tourism Development Project in Montenegro will support creating ecological andeconomic sustainability of the solid waste and waste water disposal in coastal area in Montenegro, aiming toestablish an ecologically attractive, clean coast. The building of regional dump sites such as Lovanja and thesanitation processing of waste water disposed of into the sea, create conditions for high tourismdevelopment and availability of healthy drinking water in adequate quantities. Bringing additional waterquantities to the Montenegrin coast will support the creation of a positive climate for development andinvestments in tourism sector. This will influence an increase in the number of employees in the tourismsector, increase the influx of tourists on an annual level, prolong the tourism season and ultimately, reducepoverty in the area.

This report presents the results and analysis of a qualitative and quantitative research, of which theobjectives are as follows:

Set baselines to assess consumer/beneficiaries' perceptions of and satisfaction with current waterservice delivery and measure the distributional impacts of the water reform on the well-being ofvarious stakeholder groups against those baselines, regarding:

o Willingness to payo Tariff increaseso Access to water through public and private provisiono Inclusion and Support for the pooro Changes in employment for different groups, ando Other impacts of the reform.

To identify and provide insight into some of the main institutional issues and obstacles of the watersector reform.

Provide recommendations for enhancing the pace and sustainability of the reform, as well asrecommendations for mitigation of undesired, negative impacts on vulnerable groups of society.

A. SUMMARY OF KEY FINDINGS

General characteristics of the selected cities

* All targeted cities exhibit similar characteristics with respect to WSC managing model (a publiccompany established by the local government) and a similarly high percentage of coverage.

* Project cities differ in terms of billing system, collection ratio and level of water losses. Also, theydiffer in terms of illegal connections, population size resulting from urbanization trends during thelast 12 years, increasing numbers of tourists in the summer season, and labor market opportunities.

Also, all targeted cities have different priorities in relation to the water supply problem:

* Kotor - saltiness of the sweet water source during the summer season.

* Budva - lack of sweet water capacities during the peak tourism season.

* Bar - substandard infrastructure network for water supply and sewage system.

* Ulcinj - diminished water supply system, and poor water quality.



Tariff increases

* Currently, creating the tariffs is the responsibility of the WSC, but must be approved by the LG. Thisis a problem since LG regards water as a social category and not a market commodity. Therefore,the current price covers only operational and maintenance costs, with no funds available forinvestments.

* Pensioners are the most regular payers, while businesses and public institutions are carry debts.

* Tariff increases are negatively impacting the most vulnerable categories of the population, such asthe urban poor. All stakeholders approve of the introduction of subsidies for vulnerable groups.

* Affordability is mainly an issue for poor households identified as recipients of social assistance,households of retirees and Roma population.

* Consumers would accept the rise of water prices only if an improved supply of water is provided 24hours per day, and there is an opportunity to pay bills on a monthly calculation from correctlycalibrated water meters.

* Households are not ready to accept the high price of installing water meters.

* The introduction of two tariffs, summer and winter, is necessary since the tourist industry has tobear the additional costs of water supply in the summer.

* A "lack of financial resources" is the main reason why poor households do not pay their bills, whileservice dissatisfaction is a reason given by well-off families.

. Having to use some other water sources during the summer season increases the costs tohouseholds.

Access to water

* A high percentage of households are connected to the water network. This percentage goes from90% in Budva to 100% in Ulcinj.

* Rural regions have their own WSCs, but substantial problems are caused by illegal settlements thatuse illegal connections for water supply.

* Service quality, meaning "hours of supply" and "water pressure" are the primary problems the watersystem delivery is facing.

* Illegal connections are mostly utilized in illegal settlements without an urban license, and in manyhouseholds that use WSC water for gardening.

. The most common way of overcoming the lack of water is illegal connections. Other copingmechanisms include: (i) filling barrels with sweet water from local sources and out of WSCs inperiods when water is available (ii) buying bottled water, (iii) storing water in pools and tanks, (iv)using water pumps.

Support for the poor

* The water bill comprises only a tiny fraction of a household's monthly budget. Still, in each city thereare households not able to pay for it. These are disabled persons, recipients of social assistance andthe Roma population.

* All stakeholders are supportive towards providing subsidies for those who cannot afford their waterbill. Experts' and consumers' opinion differs as to what type of subsidy. Consumers think thatsubsidies need to be in the form of free water provided to the socially vulnerable (lifeline tariff).



Keeping in mind that the water bill is not a significant household expenditure and the need for waterconservation, experts are suggesting that two tariffs are implemented: a lower tariff for instanceswhere household consumption is below a certain defined optimal per capita consumption, and ahigher tariff if the quantity used exceeds optimal levels of consumption.

Other channels of impact on the reform

Employment

o The link between water supply and employment clearly exists. Poor water quality and supplyhas an obvious negative impact on business opportunities in tourism development. On theother hand, it is expected that improvement of the water delivery system will increaseemployment opportunities, especially in regard to tourism development but also forinvestment opportunities for businesses. Better water supply and a greater influx of touristsin the area would support the creation of new jobs in service areas.

o Water supply improvement will lead to a better investment climate in all target cities.

o Very often people don't consider the relationship between water supply and employment asan important issue.

o Restructuring of WSC and optimizing the organization will cause some unemployment, butsome employees already have alternative occupations. This would certainly lead to areduction of the operational costs of WSCs.

. Health

o Due to a lack of confidence in the acceptability of water quality supplied from WSC duringthe summer, households are using other sources of water for drinking and cooking.

o In some cities, individual cases of diseases caused by contaminated water have beenreported.

o Poor sewage system is a problem for illegal settlements and the Roma community inparticular.

Extra costs

o Though relatively small in cost (in comparison to overall monthly household expenditures),poor water supply in the coastal area is creating additional costs for households eitherthrough buying a pump, water tank or digging a well, or through the additional expense ofbuying bottled water or driving to the public tap or natural spring. In addition, due to thesalty water, citizens of Kotor complain that their household appliances are damaged andhave a shorter working life.

o Both households and businesses consider improved water supply beneficial to propertyvalues and future investments in the region.

Stakeholders and institutional impact

* Stakeholders of the reform are divided into three groups: (i) those that affect/implement the reform;(ii) those affected by the reform either positively or negatively; and (iii) those that have influence onthe reform policy.

* To date, except for the legal framework, CG was not involved in providing water supply services.This exception remains the same for the CG involvement (through ownership and managing role) inthe work of newly established Vodacom. The role of the CG is to make an effort to unite localgovernments in one, unique entity, and find the way to solve the water supply problem.



* Stakeholders do have necessary information about each other's roles and responsibilities. However, itseems that sometimes there are overlaps on the CG level between the different Ministries.

* Authority over the water supply is transferred to the local level by local government law. WSC's donot work independently but rely on a LGs board of directors.

* There are some stakeholders (LG and some WSCs) that might impede the progress of reform eitherby refusing to accept new roles and responsibilities assigned to the different stakeholders, byrefusing to delegate its authority or because they perceive themselves as being left out of theprocess.

* The WSC are faced with an issue of working closely under the LG and are very often driven bypolitical aspirations of local parties.

* The allocation of financial resources from LGs' budgets is not directed to WSCs as needed. WSCsdon't receive investment resources.

* Independent WSC functioning is suggested, but under local government regulations.

* The current water law does not predict privatization of WSC companies.

B. CONCLUSIONS AND RECOMMENDATIONS

All targeted cities on the Montenegrin coast face similar water supply problems. All have a similarly highpercentage of water network coverage, but differ to some extent in terms of billing system, collection ratioand level of water losses.

These problems are reflected in tourism development to an equal extent in each of these cities. Watersupply is becoming an even greater problem due to large tourism influx in the region. Both LGs and WSCsare aware of the importance of solving these problems as soon as possible in order to facilitate development.

Some problems regarding organizing WSCs into an integrated system exist but these are solvable. Few WSCsaddressed their problems to the consultant company Vodacom, which would improve conditions in WSCs inorder to gain benefits from the reforms.

Realizing the complexity of water sector restructuring in southern Montenegro, and after analyzing thefindings with regard to distributional and institutional impacts of the reform, the study presents a number ofpolicy recommendations that benefit the reform, the stakeholders and the beneficiaries; especially poorhouseholds - recipients of social assistance.

The following policy matrix gives a detailed description of recommendations and suggestions.



PSIA MATRIX FOR THE WATER SECTOR REFORM IN MONTENEGRO

A. Transmission Main issues Relevance Proposed Policy RecommendationChannels

Lack of effident enforcement All targeted cities (except Improved enforcement through disconnecting non payers; improvement in chargingmechanisms. Ulcinj) including large debtors such are businesses and public companies, supported by a stronger

Podgorica court authority and local government assistance. A consumer awareness campaignshould go hand in hand with this, in order to avoid any potential opposition.

Customer perceptions that tariffs Budva Before a price increase takes effect, consumers need to experience an improvementare already high and no in water supply quality. Only then will they accept new prices with WSCimprovements are visible. explanation.

1. Lack of water bill delivery on a All four cities, especially Before water prices rise, WSCs must improve the water bill delivery process andTariff increases monthly basis. Ulcini calculate costs on a monthly level.

Billing system based predominantly Municipality of Bar and Encouraging citizens by the WSC, and developing paying benefits for water gaugeon a flat rate. Podgorica, including Kotor implementation. Citizens need to be informed about this action.

due to the damagedwater meters

Water is still seen as a social All targeted cities Establishing a transparent calculation of the water price by the WSC and LG andcategory rather than a market providing subsidies for WSC in case LG decides not to sell the water for ancommodity. adequate price.Tourism industry, which is the All targeted cities There is a need to introduce two tariffs where a higher tariff would be chargedprimary reason for water shortages during the tourism season and part of the costs transferred to the tourists who areduring the summer, is not the majority of consumers.contributing to solving the problem.Insufficient water capacities during All targeted cities, Repairing current network, reduction of water loses and ultimately increasingthe summer season. excluding Podgorica capacities by investing in new resources.Incomplete network coverage, Budva Capital investments, through donor participation, are necessary to increase themainly due to uncontrolled internal access level and improve access quality, in the framework of the poverty reductionmigration, leading to illegal strategy.constructions and illegalconnections, well digging and septictanksNon selective cut off of illegal All targeted cities Contacting illegal customers is perceived as a better alternative than disconnection,connections which has not proved successful.Unsatisfactory water quality due to Especially for Ulcinj and Closing the Lisna Bori spring in Ulcinj, and ensuring its use only as technical water.

2. inadequate sanitary conditions of Kotor Preventing salty water in Kotor from being delivered to the households.Access to Water water reservoirs

Services Unsatisfactory water quality due to All targeted cities Urgency to reconstruct the water network.

I sewage infiltration into water pipes I I

Draft Report, prepared by Center for Entrepreneurship and Economic Development (CEED) 11


Lack of wastewater treatment All targeted cities Podgorica is the only city in Montenegro that has a purifying system for wastewater.plants Existence of these capacities is needed, especially in the coastal area. Continued

capital investment and donor cooperation is extremely important.Citizens' awareness of water All targeted cities A public campaign should be provided in each city, with rising awareness as aimportance and the effects of over priority goal. It should target consumers who use drinking water for gardening,consumption on water supply cleaning streets and sidewalks, illegal consumers, owners of agricultural land, andquality business owners who depend on water. Penalties must be defined in cases of

abuse. Active cooperation from government, business and civil society might provesuccessful.

No clear subsidy policy All targeted cities, Criteria for subvention categories should be defined.especially Kotor and Bar Cooperation with government, social institutions and LGs is needed. Mechanism for

preventing the abuse of subvention rights is needed.Necessity of installing properly Kotor and Buda With such a measure, poor households confirm that they would be in a position toworking water meters control consumption. With donor support, a program for installing water meters

under favorable conditions (2-3 installments) is recommended.Perceived inadequacy of the lifeline Budva The subsidy mechanism needs to be defined. Some experts do not agree with the

3. tariff by some experts and proposed lifeline subsidy mechanism, because water bills are very low, andSupport for the households everyone can afford them. Still, the application of a lifeline tariff implies the

Poor presence of meters. Meanwhile, other forms of subsidy, such as increasing theamount of state economic assistance received by eligible households arerecommended.In addition to this and a proposed double tariff system (depending on the season)introduction of a block tariff is recommended, which would mean a defined optimalper capita water consumption and a lower price. In cases where a household doesnot conserve water, entire water consumption should be charged by the higherprice. Such an approach would also require properly working and calibrated watermeters.

Most citizens are not aware of the All targeted cities Organizing awareness campaigns that aim at creating a better understanding of the4. importance of the water supply for importance of responsible water service management. This campaign should focus

Other channels of employment on the direct link between the water supply and employment, and the localimpact economic development of each municipality.

Citizens' disinterest in participating All targeted cities Developing mechanisms for citizens' participation in decision making processes.I in LGs decisions I I



B. Institutional Main issues Relevance Proposed Policy RecommendationIssues

All WSCs are owned by LGs All targeted cities WSCs are under the LGs authority. According to experts, conditions under which theWSC can turn into an independent WSC company should be defined, but under thelocal LGs' authority.

Investment problems in WSCs All targeted cities Property rights between the WSC, the LG and the allocation of financial sources forwater supply and investments should be precisely defined.

Problem of political influence on All targeted cities The selection of members of WSCs board of directors and their decisions depend onwater supply issues the political will of LGs instead of citizens' desires or experts' opinions.Selection of WSC Director All targeted cities Selection of WSC director should be based on qualifications and experience, rather

than political background.Water supply regulation agency All targeted cities Establishment of this agency would improve regional cooperation and improved

water supply in urban areas. Still, as recommended by some experts, a regulatoryagency is not needed unless privatization of WSC will be organized.

Over employment in WSCs. All targeted cities Systematization and monitoring of working place and employees is needed. TheEmployees in WSCs perform their number of employees in WSCs should be reduced. This will lead to optimaljob in private practice organization and lower operational costs.WSCs' privatization All targeted cities Creating conditions for enabling the private sector to provide part of the water

service, such as billing, water supply, network maintenance. Experts believe thatthe private sector would perform these jobs better. Developing strong monitoring

Isystems by LG and WSCs for privatization process.



C. Legal basis for Main issues Relevance Proposed Policy Recommendationthe Reform

Incompleteness of the legal On republic level Urgency to proceed with the remaining bylaws and government decisions which areframework necessary to support pending.the implementation of the reformWSC privatization On republic level Developing regulation preconditions for privatization in the area of water supply and

abuse prevention.Lack of water supply law On republic level Adopting a water supply law, which would include defined tariffs, privatization of

part of the WSC, and infrastructure investments.Court procedure to non payers On republic level There is a need for simplified court procedures in cases of unpaid water bills.Lack of WSCs protection when On republic level Protection of WSC companies' rights in cases of disconnecting illegal consumers.disconnecting illegal consumers.Lack of law on urban regulations On republic level Individual and general urban planning would solve illegal building problems and

illegal connections to the water system as well.Lack of harmonization between On republic level Harmonization between detailed urban plans and a master plan of tourismurban plans and tourism development is needed.development.



I. INTRODUCTION AND METHODOLOGY

The PSIA/SA report analyses the distributional impacts of the proposed water sector reform priorities thatthe Government is addressing in the following areas: (1) rehabilitation of the existing water and wastewaternetworks to improve the operation and service quality to meet the increased demand from the tourismindustry and completion of the regional water supply scheme to cover current and future water demands ofthe coastal tourism industry; (2) improvement of the management of the public water utilities to enhancethe effectiveness of their operation, and to assign key management positions on the principles of technicalexpertise and merit; (3) institutional and organizational changes in the sector; (4) improvement of the legaland regulatory framework that would provide for tariffs at cost recovery levels and adequate mechanisms fortariff settings; and (5) establishment of a benchmarking system to monitor and evaluate the sectorperformance and better allocate resources.

This Study will benefit the implementation of the Montenegro Tourism Development Project as well as theMontenegro's Development and Poverty Reduction Strategy (DPRS), stakeholders of Water Sector Reform,and beneficiaries/existing customers, particularly the vulnerable groups.

The Water Sector Reform in Montenegro is considered to be an important part of the DPRS. As stated in theDPRS, the water supply system in Montenegro is characterized by: (i) unreliable water supply, particularly incoastal and some of the municipalities in the central region during the summer season; (ii) substantialdisproportion in the water supply coverage of urban and rural areas; (iii) high depreciation of water supplynetwork, which results in large losses and contributes to a deterioration of drinking water quality; (iv) lack ofreservoir capacities and of the equipment for automatic control and management of the water supplysystem; (v) and inadequately protected extraction of water from almost all water sources.

In addition, one of the key problems of the sector is associated with prices of water supply and sewageservices. For a prolonged period, these prices have been set at a lower level than the actual economic costof water supply and wastewater disposal. Such a pricing policy led to a deficit for maintenance andinvestments on one hand, while on the other it contributed to excessive consumption. Furthermore, the lowcollection ratio is a high burden to the proper functioning of the water works companies. According to theDPRS, negative trends observed with the collection rate show that there was a drop by almost 20% in theperiod from 1998 to 2000. When we calculate the balance between the total bills issued but not collectedcompared to the total bills issued during one month, we come up with a coefficient, ranging between 3 inBerane and 24 in Cetinje, with an average value of close to 10 when all Montenegrin municipalities areincluded'.

This reform is intended to improve access to water, in terms of coverage, quantity, and quality of watersupply. However, one part of the reform will relate to a new pricing policy as well as to sustainable watermanagement and financial viability of the water utilities. It is expected that the reform will also havenegative social impacts, especially on vulnerable groups such as the urban poor.

This paper presents the results and analysis of a qualitative and quantitative research study, assessing thepoverty and social impacts of the Governments' proposed reform measures in the water sector and itsimplications for the local economy, dominated by the tourism sector. These include but are not limited to theproposed regional scheme, planning to provide bulk water from Lake Skadar for coastal municipalities, andthe water supply law covering the entire country.

The guidelines were:• What are the key issues and current constraints in the water and tourism sectors?* How could those constraints be overcome through different reform options in the water sector?* What are the expected poverty and social impacts of each of the different reform options, i.e. who

are the winners and losers of each reform option?

During the analysis of the water sector reform priorities, special attention is given to (a) institutional reformaspects within the decentralized context of Montenegro, (b) financial viability of water utilities through tariff

1 Diagnostic Assessment of Montenegrin Water and Sewerage Works, Urban Institute/USAID project (2004)



increases to reach cost recovery and establishment of commercially oriented business practices, and (c) anyother key reform aspects that accompany the ongoing reform dialogue and/or emerge during the datacollection and analysis.

PSIA/SA method- The first PSIA methodology in Montenegro was developed and implemented in theperiod of February-June 2003, targeting five cities: four of the coastal municipalities - Budva, Kotor, Bar andUlcinj; and Podgorica, capital of Montenegro which served as a benchmark for water supply systems with agreater number of consumers (135,000 citizens), good water sources but similar problems relating to lowcollection ratio and intermittently inadequate water pressure due to a small tank capacity.

Site selection -The cities were selected by the World Bank as stipulated in the Terms of Reference (ToR).Four PSIA sites have been selected in the Coastal Region - three cities that participate in the water sectorreform through the proposed regional scheme (under the proposed Bank's Montenegro TourismDevelopment Project), and one city outside of the project area, that lies in the vicinity of the regionalscheme.

The PSIA was focused on the five cities of Bar, Budva, Kotor, and Ulcinj:

City Selection CriteriaBar Coast: WB project site with actual reform measures, local economy has both tourisms and

industry (port), biggest city on CoastBudva Coast: WB project site with actual reform measures, largest tourist city with huge water

shortage during tourist seasonKotor Coast: WB project site with actual reform measures, UNESCO heritage site with large number

of tourists, no natural sources (except rainfall), low quality water (saltiness, backwaterpollution of network creates health issue)

Ulcinj Coast: high tourism development and economic growth potential; environmental sustainability(wetlands); outside of WB project area as comparative PSIA site

Podgorice

In addition, one municipality was chosen to be included in the project as a benchmark: Podgorica, in thecentral region of the country, the most populated municipality in Montenegro, and administrative, culturaland industrial capital of the country. This approach allows for comparison between two regions andespecially having in mind a population increase due to tourism influx during the summer season.

Both quantitative and qualitative data collection techniques were used to gather information on thedistributional impacts of the reform. The research techniques employed included:

Desktop review - The research team reviewed the existing literature relevant to the Water Sector Reformin Montenegro. The documents reviewed are noted throughout the footnotes, and reference section.

Key informant interviews at the central government level -A total of nine key-informant interviewswere conducted at the Central Government level. Additional interviews were performed to properly addressthe primary issues raised in some of the meetings with experts. A detailed list of the experts interviewed andtheir respective institutions appear in Annex 6.

Key informant interviews at the local government level - At least six expert interviews at the localgovernment level were performed for each of the five project cities. Additional interviews were conducted insome cities, depending on the city's distinctive characteristics. A detailed list of experts interviewed and theirrespective institutions appear in Annex 6.

Focus group discussions - Five focus group discussions (about 8-10 people with attention to gender-balance) were conducted in each city to gather qualitative feedback from the population on the expecteddistributional impact of the planned water sector reform, regarding, but not limited to tariffs, quality,employment, access, transfers of taxes. More specifically, discussions provided feedback on the nature ofwater supply services; the public's willingness and ability to pay for water supply improvements -(includingquality of water); feedback on health issues associated with existing conditions; perceptions of links betweencurrent and future water supply conditions and the local economy, especially tourism; perceptions regarding



the tourism development potential per se, and its implications for environmental protection andsustainability; and the public's perspective on institutional obstructions and necessary organizationalchanges. Five extra focus groups were conducted in Podgorica with experts on agricultural businesses, smalland medium-size enterprises, environmental protection, tourism and urban planning.

Socio-economic household questionnaire - The household survey covered four municipalities: Kotor,Budvar Bar, and Ulcinj. The survey was carried out on a purposive representative sample of about 25households in each of the four cities. It provided statistics regarding population, education, employment,income, and health status. It focused on public perceptions regarding water supply conditions and priorityproblems with service. The survey polled residents in urban center and periphery; lower and higherelevations; legal and illegal settlements; different poverty levels (poor and non-poor); different ethnicgroups; vulnerable and non-vulnerable groups (e.g. large families, retirees, unemployed, IDP, Roma);metered and un-metered households; and connected and unconnected households, particularly an issue forpopulation groups located South of the city Bar and Ulcinj.

City profiles - For each city, our research team prepared a community profile describing the situation of (a)the water supply, (b) the local socioeconomic conditions (tourism, industry, etc.), (c) impacts of the watersituation on the local economy and vice versa, (d) the socio-economic situation (including income, (un)employment, ethnic groups), and (e) in regard to water issues - including issues of access to, and assets ofwater goods and services, tariffs, and the institutional and organizational setup of the water sector withinthe highly decentralized context of Montenegro.

In addition to described methodology, independent but similar exercise took place among Roma communityin Montenegro, since they were recognized as the most vulnerable population.2 Roma in Montenegroprimarily live in the central and southern parts of the republic (see Table 1.1): 68.7% of the population livesin the central part, 24.8% in the coastal area and 6.5% lives in the northern part of Montenegro 3. Romachoose the central and southern parts of the republic because of better earning opportunities. Crafts andtrade are more profitable there and the economic situation is more favorable.

Table 1.1 Roma population in Montenegro (source: NGO "Pocetak")Municipality Residential RAE Refugees IDP

population Number of Population Population Populationhouseholds

Andrijevica 7227 0 0 58 1074Bar 40283 171 1120 1786 4392Berane 42044 114 850 399 4368Bijelo Poije 59654 26 140 320 1030Budva 12647 41 270 799 986Cetinje 21919 23 150 68 42Danilovgrad 15886 2 10 254 530Herceg Novi 29783 149 1240 2918 714Kolasin 12002 0 0 213 207Kotor 24188 30 240 462 322Mojkovac 11689 0 0 72 157Niksic 80635 260 1260 1175 1073Plav 20837 0 0 159 1640Pljevlja 42735 9 50 464 121Pluzine 5663 0 0 106 2Podgorica 164090 2000 12000 2655 8922Rozaje 24799 38 230 54 1054Savnik 3983 0 0 11 2Tivat 12336 160 1100 904 890

2 For more information see Montenegro's Development and Poverty Reduction Strategy, 2003.3Vulnerability profile of Roma population in countries that realize Decade of the Roma Integration, UNDP,2004-2005



Ulcinj 26139 140 870 357 961Zabljak 5304 0 0 74 9MONTENEGRO 663843 3163 19530 13308 28496

Based on the structure and number of Roma living in Montenegro, the cities of Niksic, Podgorica and HercegNovi were chosen for data collection.

While the Roma population of Podgorica and Niksic does not fluctuate depending on the time of the year,seasonal migration does occur in the coastal cities. Here, the number of Roma increase during the summertourist season due to the greater opportunities for trade and begging and sometimes, complete Romasettlements move to these cities at this time. Roma later leave the coast when the season is over. As thissurvey was conducted in October-November 2005, after the tourist season had ended, it was not possible toinclude all specific Roma groups since some had already left the area.

Herceg Novi was selected as the coastal municipality with the highest number of stable Roma people. Thereare Roma in this city that have lived there for a number of years and are integrated in the society, dealing insmall business and trade, attending school, etc. As everyone else, they face the summer water supplyproblems caused by decreased hydro capacities and increased consumption by tourists.

Podgorica was included as the city with the most domestic and displaced Roma in Montenegro (12,000according to unofficial research conducted by the "Romski krug" network). The water supply situation incollective and illegal settlements is the most difficult in this municipality. The poor health conditions of thispopulation are caused by a lack of bathrooms, the small number of public taps, the lack of proper sewagesystems, poorly arranged accommodation facilities, etc. There are some illegal settlements here that haveneither water nor electric power connections. Domestic Roma households living in better economicconditions do exist, however, and they are obliged to pay water bills. While there are no water restrictions inPodgorica, Roma settlements have water supply problems because they are not connected to the network atall and are not provided with basic living conditions.

The Roma population of Niksi6 is the second-highest after Podgorica. Water supply there is well provided. Allsettlements have available drinking water through public taps. Roma do not, however, have running water intheir houses or barracks and they do not have bathrooms or toilets or a sanitary network for waste wateroutflow. They are also facing water shortages during the summer when water is cut for a couple of months.

Quantitative and qualitative methods were used for data collection, as follows:

Secondary data analysis - The survey included collection of existing literature related to the Romapopulation in Montenegro. Documents used are listed in footnotes or in the bibliography.

Interviews with key stakeholders at the central and local level - Interviews with representatives ofinstitutions at the central and local level, NGOs and humanitarian organizations were conducted. Interviewswith relevant experts are in Annex 2.

Focus group discussions (FG) - Three focus groups were organized in target cities with ten participantsin each, having in mind equal gender structure. FG participants were selected by age and place of residenceand were representative of all settlements suffering various degrees of water supply problems. Duringdiscussions, feedback was obtained regarding the obstacles that the population faces with regards to thequality of service provided by utility companies, drinking water availability, payment of water bills,accommodation problems, etc. Feedback on health conditions of the population as well as causes of diseaseand recommendations for improvement were given as well.

Social-economic questionnaire for households - The household survey was conducted in the threetarget cities with a sample of twenty households for each city. The sample is not representative of the entirerepublic but included population in those cities living in vulnerable settlements, poorly supplied with water,facing water shortages in the summer period and without water supply and sewage networks. The surveyfocused on how people in the sample perceive their living conditions, water supply, prior problems in thesystem, on their willingness to pay utilities, etc.



City profile - The situation overview of the target cities was completed in cooperation with representativesof Roma NGOs. City profiles included information on Roma settlements, accommodation conditions, watersupply, education and number of employed persons.

STRUCTURE OF THE REPORT

The Report is divided into five main chapters and 12 Annexes. In addition to the Summary of Key Findings atthe beginning of the report, Chapter I describes the objectives of the study and methodology used. ChapterII provides: (i) the legal framework, context and progress of the Water Sector Reform, (ii) a brief descriptionof stakeholders, (iii) a brief description of poverty as it relates to access to water services and goods, and(iv) brief overview of the four selected cities, adding Podgorica as a benchmark and current conditions of thewater services in all four project cities. Chapter III gives key findings of the research adding key finding onwater supply among Roma population. Chapter IV provides policy recommendations and conclusions, whileChapter V contains references.



II. COUNTRY AND REFORM CONTEXT

A. LEGAL FRAMEWORK BY WHICH THE SYSTEM OF WATER-SUPPLY IS ORGANIZED IN MONTENEGRO

The principle law defining the status of water resources is the Law on Waters (Official Gazette.16/95)adopted in 1995. This Law includes water as a natural resource, waterpower activity, and the exploitation ofwater for energy purposes and drinking water from springs. At the Montenegrin level this Law regulates allfields, taking into consideration waterpower engineering.

Water supply as an activity of water delivery from spring to end-user is arranged on a local level with thefollowing Laws and decrees:

* Law on Local Self-management (Official Gazette. 42/03), which arranges jurisdiction of LocalGovernment for the sector of waterpower engineering.

• Law on Public Utilities (Official Gazette. 12/95) includes the supply of water.* Law on water-supply and taking away of waste waters and dumping of waste material in the

community: Herceg Novi, Kotor, Budva, Bar, Ulcinj and Cetinje (Official Gazette. 46/91)* Decision on funding a public firm for water supply, treatment and removal of wastewater, and

disposal of waste material for the Region of the Montenegro Coast and Cetinje. (Official Gazette.50/91)

* Law on fluoridation of water for drinking. (Official Gazette. 27/94-391)

The draft of the water supply is in preparation, defining the legal framework for successfully performing thewater-supply activity. A new Law on Water supply is necessary for the following reasons:

. Inadequate structure and organization of the water-supply system (inadequately organizedrelationships between Local Governance and WSCs).

* The present regulation has no provisions for relations in the field of water-supply in an adequateand universal way in harmony with modern requirements, making it impossible to preserve the valueof infrastructure, equipment and means, eliding to an insufficient use of infrastructure.

* No defined methods of development, inadequate financing of water supply.

* Unsystematic and dislocation of regulations, which arrange relations for water supply (water-supplyis insignificant as part of waterpower engineering).

* Water supply is a complex activity in the public interest that requires key relations to be preparedclearly, consistently and precisely, in a framework of one of the law regulations.

* Comparable experiences of neighboring countries and the EU.

. Overlapping jurisdiction of Local and Central Montenegrin Government. Some of the Republicjurisdictions should be transferred on a local level (for example, Concessions on springs).

This law will be the foundation for establishing reforms that are predicted by Vodacom, based on followingbasic principles:

* The quality, quantity (optimal or minimal satisfaction) and continuity principle (to provide a 24 hourwater-supply).

* Intensify the obligation and the responsibility to the community to provide water-supply.• Diversify the means of organizing the water supply (public firms, corporations, and community

administration for water supply).* Ensure satisfactory delivery of general conditions for which the Community signs contracts with

operators.* Encourage users to change their habits towards water in general, to avert endangering public

welfare (for example, set different tariffs for water use as needed and for water used above thispre-determined need).



* Ability to cease water supply in instances when the user defaults or irregularly remits payment.* Regulating penalty - clearly define situations of unauthorized water usage and pursue felony

prosecution.* Concessions in the water supply only provided by the communities.* A sustainable water-supply system - expanding and compensating for water-supply services on

principles of sustainability. Compensation must cover the expenses of production and distribution ofwater as well as the expenses of the maintenance of the overall system.

* Transparency through provision of information to citizens, and published reports.

Changes in the Law on Waters are in preparation; it is currently undecided whether these two laws shouldbe passed individually or as a legal act.

B. BACKGROUND OF WATER SECTOR REFORM IN MONTENEGRO

The water supply system in Montenegro is on average 50 years old. All water supply networks, especiallythose in the coastal area are characterized by a lack of financial resources for investment in the existingnetwork. Significant loses occur due to this reduction in the collection ratio.

Another significant problem related to water supply at the Montenegrin coastal area is insufficient watersources capacities, which do not meet peak-season needs when tourism increases the population in allcoastal cities by as much as 10 times. As a result of migration and illegal constructions in the area (especiallyin Budva), many illegal connections to the water supply network significantly burden the situation.

Current situation regarding water supply and sewage network have a negative impact on economicopportunities and tourism potential of the coastal area as well as public health concerns. Availability andquality of water supply and wastewater disposal services are one of the main preconditions for coastaltourism development. Previous efforts directed toward commercialization of this sector and creatingpossibilities for new financing mechanisms (e.g. public-private partnerships) did not result in concreteimprovements.

Reforms - The Government of Montenegro put significant efforts towards upgrading water supply systemsto the level adequate to tourism development in Montenegro. By creating many financing preconditions andby finding investors, significant investments in water supply network were made recently, reducing the lossratio. At the same time, reforms conducted by the Government of Montenegro will contribute towardscreating an improved financial position of WSCs through increased tariffs, higher billing rates and billingenforcement, disconnection of illegal users, etc.

The Reform follow-up includes uniting WSCs at the local level and attempts to improve overall situation inwater supply networks through the following measures: i) to repair local water supply networks and findnew local water sources and ii) to improve the billing system.

The water supply system reform, which considers implementation of measures for improvements in feecollections, investments in existing network and reparation of damages, will increase collection ratio, bringhigher quantity of water into the system and reduce costs. The existing system results in high costs forentire region; it could be improved only by significant investments and with a different approach toconsumers. In addition, new connections through a regional water supply network would create improvedconditions for qualitative tourism development.

Measures for improving regulatory and institutional framework includes adoption of the new Water Law(according to the requirements of the EU General Directives) as well as establishment of the RegulatoryWater Agency. Establishment of administrative bodies at the watershed area and strengthening its capacities,as well as improved regulation implementation, especially regarding illegal resources exploitation, are alsoforeseen. One of the key problems that this sector is facing relates to price controls on the water supply andsewage services, which are traditionally underestimated. Such pricing policy caused enduring lack ofresources for investment and maintaining on one side and also contributes to a high consumption rate onthe other side. Besides significant investments made in infrastructural points of the water supply and sewagesystem recently, the water supply at the coastal area is not at a satisfactory level. At the same time,management structure, financial and operational activities of the public WSCs as the sole providers of those



services deteriorated. Negative trends were also recorded in the billing system, which decreased by almost20% in the 1998 - 2000 period.

Current water supply and sewage systems situation could negatively impact on economic condition ofhouseholds and public health. Availability and quality of water supply and wastewater disposal services areone of the main preconditions for tourism development in the coastal area.

The main documents that regulate the water supply system are as follows: Water Law (Official Gazette ofMontenegro, No. 16/95), Law on Local Governance and Law on communal services, which decentralized thissector transferring responsibility to the local governments. Inadequately arranged relations between localgovernments and WSCs also caused problems in this sector, by insufficiently elaborated legal solutions forinvestments and financing water supply. In addition, the Law does not prescribe existence of variousorganizational types for this sector (public utility companies, private companies) and sustainability of thewater supply system through defining market-based tariff and billing system.

The law on water supply, wastewater and solid waste disposal in municipalities of Herceg Novi, Kotor, Tivat,Budva, Bar, Ulcinj and Cetinje (Official Gazette No. 46/91) defines a common interest for solving drinkingwater shortage problems but a comprehensive water supply law does not exist. This law is currently in thepreparation process and is in the legislative process in the Montenegrin Assembly.

C. THE REGIONAL WSC PROJECT FOR MONTENEGRIN COAST

The solution for problems at the regional level started in 1976, with the establishment of the public company"Regional WSC Crnogorsko primorje" for water supply, collecting and treating wastewater and storage ofsolid waste in the coastal cities of Montenegro, including Cetinje. The Regional WSC project realizationstarted in 2000. The Government of Montenegro owns 100% of this company.

The Regional WSC "Crnogorsko primorje" specializes in the following fields: all activities related toconstruction of systems and facilities for supplying water; treating and disposing of liquid waste and treatingof solid waste; managing this system and facilities; servicing and reconstruction of facilities; research studiesand projections for the construction of new facilities; and information systems and statistical-analytical databases regarding water supply.

Current position of this company is connected to the Government of Montenegro and direct investments inthe water supply sector in the coastal area. In the future, reform envisions getting additional waterquantities from Skadar Lake as well as the cooperation with local Water Supply Companies. The idea ofwater supply for Montenegro from Skadar Lake was initiated in the '70s. Through the implementation of thisproject, the long-term solution for the water supply for the Montenegrin coast (Herceg Novi, Kotor, Tivat,Budva, Bar and Ulcinj) and Cetinje will be found. The total capacity is 1,400 I/s and the water will be usedfrom the Karuc Spring - Skadar Lake.

In addition to the above mentioned water supply for coastal region will be resolved through the monitoringand reducing losses in the network, investments in the current infrastructure and building the new facilities.In addition, new tariffs will be imposed as well as subsidies for vulnerable groups.

However, from an institutional point of view, there are still some problems related to joining the local WSCsand regional common WSC into one assembly, which could function on common principals.

D. INSTrrUTIONAL STRUCTURE OF THE WATER SUPPLY SECTOR

Considering future institutional framework, the water supply sector is to be divided into sub-sectors.

The first sub-sector is important for the region and related to the water supply system from the main springat Skadar Lake to local water supply networks, or in other words, to local water companies, as its users aremanaged by the Regional water supply public company "Crnogorsko primorje".



The second sub-sector is locally oriented and includes the local water supply systems in coastal cities; fromthe connection at the Regional system to water supply for end users. The local water supply and sewageservice companies manage these systems. Vodacom has been founded to provide services to local watersupply companies in the area of investments, billing, accounting, etc. and plays a role within the entiresector's scheme.

Currently, in the area of Montenegrin coast, water supply is provided by local companies called "WaterSupply and Sewage Companies" that were established before (in some municipalities) but mainly after theSecond World War. Existing institutional framework is presented by scheme 2.1

In 2001, a unique Public regional company for water supply, waste water, treatment, and solid wastedisposal was founded, "AQUA REGIA" headquartered in Budva. The establishment of that company wassupported by WSC of Herceg Novi, Kotor, Tivat, Budva, Bar, Cetinje and Ulcinj. However, the imposedconcept of "Aqua Regia" did not work.

Vodacom

After failing with the previous "AQUA REGIA" concept from an institutional aspect, the program for improvingthe water supply was realized in cooperation with KFW; the German Government decided to realize a newconcept based on a "bottom-up" principle, according to the Ministry of Tourism initiative in 2003.

Therefore, Vodacom was established as a multi-municipal waster and wastewater service company owned byparticipating municipalities. Vodacom is in charge of investments management and other services providedto WSCs. On the other hand, Vodacom services are paid from water tariffs.

Until now, four municipalities have taken part in the company's establishing process: Herceg Novi, Tivat,Budva and Bar as well as the Central Government. The act of establishing the company defines itsmunicipalities, which pay for the initial investments by taking a part in the ownership structure and thusreceive a partial management role.

The program of measures and activities consists of four parts:- internal measures of WSCs in municipalities,- intervening measures,- optimization of existing water sources, and- new local water sources.

In order to meet conditions determined in an agreement between the Government of Montenegro and KFW,the WSC immediately started the internal measures program in order to improve its performances.

The internal measures predict the following:- updating the data base of consumers,- improving procedures for water meter key reading,- improving the billing procedures,- short term investment coordination, and- correction of tariffs for water and sewage.

Scheme 2.1 Existing institutional framework



-------------------------------------

3 EXISING UCOSTUMERS S

INSTITUTIONAL Municipality ofm Investment institution Herceg NoviFRAME WORK Herceg Novi

- ---------------------------- ---------------Investments funded from munidpal

budgetTakeover of the investments once 100% Ownership for WSC and Investment institution

they are finished investment institution I Tivat Municipality ofCondition for water supply and Tivat

wastewater disposal I

Water Supply Company Tariff setting which covers O&M -I ..--

costs only

Investment institution Municipality ofMunicipality Kotor

Municipal investment __

' ~Institution lInvestment institution Municipality of

- I Budva Budva

PEW , ,PE "CRNOGORSKO PRIMORJE>> Water Source Fee

Investment institution Municipality oflBar Bar

100% ownership of PEWResponsibility for regional water

supply, wastewater treatment andsolid waste disposal

Investment institution uncinyOF MONTENEGRO Ulcinj



The WSCs of municipalities undertook steps toward implementation of the billing system by using banks andpost offices. In WSCs there were some corrections in software programs, in order to get more qualitativeand comparative data, i.e. unification of calculation systems. The proposal on financial report forms wassubmitted and WSCs must use it for reporting their activities to the Municipality Secretariat every month.

With a new calculation system, the mistakes that payment collectors are making would be eliminated andbetter communication with customers will be provided. According to the research, the reaction of customersis favorable and the sole criticism is related to the slow water meter key reading procedure. However, in theinitial period the slow water meter key reading is normal. The previously used billing system (by using cashoffice and bill-collectors) will be gradually minimized and they will consider phasing out this way of charging.

The "Intervention measures I" include providing a new quantity of water and accumulation of water becauseof sanitary issues in six coastal municipalities and the municipality of Cetinje, while the final result of thosemeasures would be a total of 166 liters per second of new water. The measures conducted in 2004 resultedin an approximately 10% improved water supply.

"Intervene measures II" will be financed by the Norway Bank credit and its implementation will beperformed only in cities that are members of "Vodacom". "Intervene measures II' include: the installation ofwater meters, and reconstruction and rehabilitation of the water supply network. Water supply systemreforms on the local WSCs level include: reduction of illegal connections, and an increase in the billing ratioand replacing of water meters. A reduction of employees in these companies is also predicted. Updatedresults of these measures are4 as follows: decrease of water losses, up to 20% more water in the systemand a profit rise in WSCs of about 30% compared to the same period of time last year.

Results of activities conducted so far show that there are large reserves in the system, as well as throughfurther detection of the losses and improvements of the network and objects in the network, water supply ofthe coastal area could be significantly improved. Therefore, Intervene measures II currently undertaken willbe focused on resolving those issues.

In every LG, excluding Herceg Novi and Kotor, the water supply during the season was regular. In these twoexcluded LGs, WSC is specific, and that is the main reason for minor problems, but in general, the situationis evaluated as good and significantly better than last year. It is important to mention that the WSCs'directors agreed that, in addition to a favorable hydrologic situation, the influence of measures undertaken isvery significant with special emphasis on Budva where there were significant problems and the media interms of a negative tourism campaign used that. According to experts, evaluation of the relationshipbetween activities undertaken and the hydraulic situation is 70:30 in favor of solving the water supplyproblems important for tourism development in the entire Republic.

The project of building reservoirs, measurement stations and the water pipes system that was justcompleted is US$8 million worth and financed by the US Congress through USAID and the CDM program.

The following scheme 2.2 is presenting future institutional framework.

4 The results of interventional measures and example of cost savings, by returning water in system are inAnnex 11.


I


Scheme 2.2 Future institutional framework

I. o . C.h ~-------------------------------------- -- .

enten set by .ater -appk t.., t ~~~ Tazittblstige'whichco.sailsboh&.^.M

-- - --- --- -- -- -- -- -- - -- -- -- -- -- -- -- -- -- -- fIi;g~w -R]' InS"iL SOtb 'h

- -a-t-r- an-d ssa-t-a-t-r ers -cd - s -A

,... ... .. ... ......... .... .........El -l

--- ---- -- ---- -- -- --- -- - - - - - -- - - - - - -- - -- - - -

Contract for purchalsing theadditional quantities of watcr r

from regional aealresupplysyslem ------------- ------------------------

- - - - - - - - - - -

I oan lir conipleti,,n Multi-municipal waler and

oflhe regional wastewaler servixco onipany

stater suppltl csteun owned by the participating

n.irnicipalitics

Invcstments managemttent

- I a. . ner h.p. I i* and other services proNided to ViKs

.K-.p ri.l.I,I. Ir .or,lr.ir, I. . - . "" . L 0 . IC I.:P1

.,

operation and maintenance of la in L- X L.f

the rogional sater supply system.wast.water treatmunt and solid

Guarauntee for waste'disposal

Loan repaymentWater Source Fe.

remnporaryinvolvementilt

> ~- - - - - - - - - - - - - - - - - - --

Guiarantee for the Contract with l'WPF for

additional quatitieios fts ater



E. REFORM STAKEHOLDERS

In the following analysis stakeholders are divided into three groups (i) stakeholders that affect/implementthe reform, (ii) stakeholders that are affected by the reform either positively or negatively, and (iii)stakeholders that have influence on the reform policy.

Stakeholders that affect/implement the Reform

Central Government (CG) - the Central Government plays a key role in the completion of the legalcomponents of the reform. The responsibilities of CG are to draft and propose laws to the Parliament andissue bylaws. Also, as presented in the scheme 2.2, CG will provide guarantee for loan repayment, whilemunicipalities will provide guarantee for the contract with PEW for additional quantities of water. Also, CGhas a temporary role in Vodacom Board.

Ministry of Tourism - initiated solving the water supply problems by organizing local WSCs and by startingthe water supply improvements in the Montenegrin coastal area. The Tourism Development Master Plancould only be implemented by executing this infrastructure development at the same time.

Ministry for Agriculture, Forestry and Water Management - recommends economic policy measuresregarding water management; monitors water management development with an emphasis on watersources use, water pollution protection, protection from harmful influences that water might cause;construction, maintenance and reconstruction of water supply facilities; creating programs on waterprotection; developing water management basis and balances; creating water registry, water managementfacilities and buildings, spring flows and anti-corrosive works; constructing water supply facilities in ruralareas without service; creating programs on protection from harmful influences caused by water; suggestinglaws and other regulations regarding water management; considering submitted documentation related towater management approvals and permits; monitoring constructions of investment facilities; cooperatingwith other governmental authorities, and scientific institutions; and completing obligations toward othercountries in the water management sector. This Ministry does not directly influence the water supply reform,but some of its authority overlaps with other ministries as can be seen from the list of activities above.

Ministry of Environmental Protection and Urban Planning - authorized for the water supply sector.The draft of the Water Supply Law is in the preparation process and some authorities within the watersupply sector, such as concessions, would be transferred from the central to the local level. To some extent,authority regarding the water supply sector under this Ministry overlaps with those under the Ministry forAgriculture, Forestry and Water Management.

The Regional water supply company (PEW) - will take over responsibility for construction, operationand maintenance of the regional water supply system, wastewater treatment and solid waste disposal.Within the upcoming reform process, PEW will contract municipalities (under Vodacom) for purchasingadditional quantities of water from the regional water supply system. On behalf of the municipalities involvedin the project, PEW will use the World Bank loan for completion of the regional water supply system, with aguarantee of payment provided from the Central Government.

Local Governments - the Reform is expected to improve the water supply situation for LGs in terms of abilling rate increase, infrastructural improvements, and assistance and investment projects. The Reformrequires active involvement of LGs regardless of a political basis for their. decisions in the water supplysector.

Stakeholders affected positively by the reform

Local Governments - will have improved water supply systems, along with a better picture on theprofitability of water supply companies, and better conditions for planning further tourism development.

Water Supply Companies -The reform will improve water supply service to consumers. Increased incomethrough tariffs that cover both O&M and investment costs should increase viability of the WSC, eventuallyleading to sustainability and profitability of the companies.



Customers (public, businesses, and households) - are expected to benefit from increased access andavailability of quality running water at a higher pressure for more hours per day and more days per week,leading gradually to a continuous water supply. Improved water supply will have a significantly positiveimpact on tourism development, which is the main pillar for development of the coastal area of Montenegro.Better water supply will facilitate further Greenfield investments in tourism development and consequentlyincrease employment. Continuous water supply will increase living standards for the population of this areaand prevent loses caused by using salt water for household devices.

Stakeholders affected negatively by the reform

Very poor households - the reform will lead to a price increase that will further negatively impact thesocial status of very poor households. It is necessary to determine subsidy schemes for socially vulnerablehouseholds, retired persons, disabled persons and the Roma population.

Unauthorized household users - the reform predicts restricted measures for illegal consumers and theirdisconnection from the network. This group includes inhabitants of illegal settlements and those with illegalconnections.

Unauthorized business users - unregistered legal entities that have cisterns and are selling water insettlements without a water system. Those businesses will be negatively affected by the Reform, as well asunregistered businesses that use water in their industry. Due to restricted measures and a unique meteringsystem they will be forced to register, which might cause negative reactions.

Stakeholders with influence over the reform policy

The government and the water utilities are significant stakeholders with influence over the reform policy.Since CG is serving as a guarantee for the loan, it is obvious that its participation is important and necessary.On the other hand, as final users of the reform results, WSC are crucial and there is a need for fostering thecooperation in the triangle CG, LGs and WSCs.

F. POVERTY IN MONTENEGRO IN THE CONTEXT OF THE WATER SECTOR REFORM

Montenegro has steady growth potential, with the GDP per capita in 2004 at around E 2,4705 and expectedreal GDP growth rate at 4.5% in 2005-20076. According to the National Development and Poverty ReductionStrategy (DPRS)7, the national poverty rate is 12.2%, with Roma, refugees and internally displaced personsthe most vulnerable. The poverty rates for the above mentioned groups are twice that of the generalpopulation. However, different indicators support the multidimensional concept of poverty, additionallyimproving conditions for some of those groups and the entire population in general.

According to the report on Poverty in Montenegro: Around 72% of the Montenegrin population are suppliedthrough public, and another 11% through independent water supply systems. On the other hand, as little as39% of the population is connected to public sewage system. More than one fifth of the populationexperiences interruptions in water supply, while problems with substandard quality of drinking water occur insome municipalities.

The water supply and sewage system is characterized by: (i) unreliable water supply, particularly in coastalmunicipalities and some municipalities in the central region during the summer season; (ii) substantiallydisproportionate sewage systems and water supplies in urban and rural areas; (iii) erosion of the watersupply network, which results in large losses and contributes to deterioration of drinking water quality; (iv)the lack of reservoir capacities and of the equipment for automatic control and management of the water

5 Source: Center for Entrepreneurship and Economic Development (CEED), Montenegro Business Outlook#14, July 20056 Source: Economic reform Agenda for Montenegro, 2002-2007 - Report and Recommendations7 Source: Development and Poverty Reduction Strategy (DPRS), Government of Montenegro, November 2003



supply system; (v) inadequately protected extraction of water from almost all the water sources, and (vi)insufficient sewage connections.

Consideration to PRSP Strategy share of water supply costs in the overall expenditure of poor households willbe monitored through household surveys (part of the monitoring and evaluation process), and an adequatesubsidy program will be defined. Subsidies will be realized through directs transfers to public utilitycompanies and will cover part of water consumption costs of the poor. In addition to targeted subsidies,measures intended to improve the access and quality of drinking water include: (i) measures for improvingwater supply systems in rural areas, (ii) measures for improving water supply to urban locations where somesocially marginalized groups reside, (iii) decreasing water supply interruptions, particularly in the southernand central regions, and tourist municipalities through construction of the regional water supply system, (iv)measures to reduce water losses in the network and to improve the drinking water quality, and (v) measuresto protect currently used and potential drinking water springs.

Descriptive data obtained from the present study in the four selected cities showed that 35% of surveyedhouseholds ranked the lack of water as their most urgent problem. About 95 percent of households haveaccess to tap water, while the daily supply in summer season averages only 10 hours.

This research presents the situation in urban areas on the Montenegrin coast. The research does not includerural areas with populations at a lower standard of living facing water supply problems. Those areas haveindependent water supply utilities provided by the Government of Montenegro and foreign donororganizations.

Water supply services quality correlates to location and poverty. In this respect, the PSIA will specificallyexplore the relationship that exists between poverty and access to water in the illegal settlements.

G. CrnY PROFILES

This section provides an understanding of similarities and differences among the five selected citiesregarding issues of access, billing, coverage, collection ratios and water losses. Detailed city profiles areincluded in Annex 1.

For all targeted cities water works are in municipal public ownership, operating as municipal publicenterprise. The oldest water systems are those in Bar (established in 1935) and Kotor (first organized watersupply recorded in 1939). In general, water supply systems are out of date and should be rehabilitated andinadequate parts of the system should be replaced. The widespread problem is a lack of modern monitoringequipment, and insufficient tank capacities. Despite the fact that the majority of consumers have watermeters incorporated into the connections and consumption is calculated on a monthly basis, a significantnumber of water meters are not calibrated regularly, while more than two fifths (43%) of water meters inKotor should be replaced due to non-functionality.

Access

The five cities are quite different in regard to population size, ranging from 16,000 inhabitants in Budva to170,000 in Podgorica. As indicated in table 2.1, population size has increased during the last 12 years inPodgorica, Budva and Bar, contributing to the deterioration of the water infrastructure. In addition, thepopulation size in coastal municipalities drastically increases during the summer season. For example, off-season there are 18,000 customers in the water system in Budva. During the summer season, the number ofconsumers increases to 100,000.8 Internal migration and tourism development caused illegal constructionand a significant number of illegal connections, especially in coastal cities.

Tourism influx during the summer season creates tremendous pressure on the water supply network, whichleads to a water deficiency. Insufficient water supply raises problems of water quality, in particular a problemof salt water in Kotor, due to poor structural conditions. In Ulcinj, they utilize springs that lack sanitarylicense, and the resulting problems caused by bacteriological contaminants.

Source: Diagnostic Assessment of Montenegrin Water and Sewerage Works, Urban Institute (2004)



All five cities provide water supply services for urban areas, while the majority of rural areas and suburbshave independent water supply networks and springs that are not part of the official water supply network.The network coverage is rather significant and goes from 90% in Budva to 100% in Podgorica.

Billing

Billing represent similar characteristic in all five cities, where the metered consumption is the prevailingmethod. In Kotor, Budva and Ulcinj, most consumers have water meters incorporated into their connections,while in Podgorica and in Bar, the water consumption is combined with flat rate. One of the problems withbilling is a large number of malfunctioning water meters. This percentage goes from 7% in Bar, up to 20% inPodgorica and 43% in Kotor. Often, those households using water for their gardens pay a flat rate, which isperceived as unfair by others. Water consumption is calculated on a monthly basis; water bills are handdelivered and can be paid on the spot (such as in Kotor) or in the WSC or Post office (Podgorica).

The PSIA has attempted to explore the relations between the type of billing system and consumer behaviortoward water conservation, payment of the water bill and financial situation in the cities. While this will beelaborated in ensuing chapters, in general one can say that consumers are interested in having properlyfunctioning water meters so they can be charged according to their consumption, especially those who usewater for their gardens. Also, this would help them to control the consumption. The high cost of installingwater meters has been recognized as a problem especially for poor families.

Collection ratio and enforcement mechanisms

The collection ratio is seen as a combination of affordability and willingness to pay. It is additionally anindicator of the efficiency and financial viability of the water companies. As such, the collection ratio can beviewed as an indicator of the absolute necessity to define new strategies and/or mechanisms for improvingenforcement.

In general, there are serious problems with collection practices all over Montenegro. The collection ratio ishighest in Ulcinj (85% for persons physically present) and lowest in Podgorica (collectibility at thehouseholds is about 15-20% at the first month). On the other hand, balance between the total bills issuedbut not collected compared to the total bills issued during one month in Podgorica is 1:9, in Budva 1:5, inBar and Kotor 1:7, while in Ulcinj it rises to 1:20. This significantly endangers capability of WSC to regularlyand properly maintains the network.

Enforcement mechanisms differ from one municipality to another. Disconnections are effectively used,especially from the point of view of water supply companies. However, as confirmed by the expert in Ulcinjthis is not always the case. "..It happened that in the area of Pinjes we disconnect water seven times in atwenty day period, After we leave, he turns on the valves and has water again."In Podgorica, charges arefiled if water is misused or if bills are unpaid, but the judicial system is lengthy. On the other hand, inaddition to an educational campaign, citizens believe that a better quality of water supply will increase thecollection ratio.

Water losses

Water losses are present in all selected cities. Water losses are seen as a combination of the dismal technicalcondition of the network (damage to the pipelines, outdated pipelines and bad intakes) and human factor,such as consumer behavior toward water consumption (illegal connections). The largest losses are inPodgorica and in Kotor (60% each). Main causes for this are an obsolete infrastructure, illegal connectionsand a flat rate method of billing. Such losses cause further negative implications on consumers' satisfactionregarding the water supply.

Table 2.1 presents a summary of basic socio-economic and technical data that relate to this analysis. Itprovides a better comparison of the five target cities, especially when analyzing the distributional impact ofthe reform.



Table 2.1 Condition and access to water infrastructure in five tarc eted citiesPodgorica Budva Kotor Bar Ulcinj

Area (km sq)4 1,441 122 335 598 255Population (2003 census data)'° 169,132 15,909 22,947 40,037 20,290Population (1991 census data)"' 145,696 11,538 22,112 34,282 19,667Population growth ratio, 2003 160o 370O 30o 160o 3%oUnemployment rate, 2004LI 18.1 % 13.5° o 22. 10 o 16.50o 22.6°oFamilies receiving social assistance (°/O) 2,430 (4.7')o) 78 (1.4 0o) 146 (2%) 275 (20o) 249 (4"o)Main economic activities (water related) Services, manufacturing Tourism and Tourism and Tourism and services, Tourism, fishery and

industry, agriculture services services Food processing services agricultureMain economic activities (not water related) Transportation, trade Construction, Transportation, Transportation, trade Trade

trade tradeWater utility coverage area Municipal Municipal Municipal Municipal -lunicipalBilling system Predominantly flat rate rMetered Metered Predominantly flat rate Metered consumption

combined with metered consumption consumption combined with meteredconsumption consumption

Tanffs'3

For physical persons 0.315E/m3 0.60 E/m' 0.70Q4 E/ml 0.60'V E/m' 0.455Elm3

For companies 1.104E/m' 1.20 E/m; 1.50 E/m3 1.20 E/m3 - 1.30 E/m'Last price increase April 2003 June 2003 December 2002 October 2003 March 2004Collection Ratio (%) 15-20 60 30 60 85Water losses (% 60 30 60 37.5 40Hours of supply' 20 - 8 12 12

Monthly household income (EUR)' 7 240 185 225 194 122Population having access to water service (%) 100 90 99 98 100

9 Statistical Yearbook, 2003.10 Monstat, Population census 2003.11 Monstat, Population census 2001.12 Source: Institute for Strategic Studies and Prognoses, ISSP13 Source: Diagnostic Assessment of Montenegrin Water and Sewerage Works, Urban Institute (2004)14 The water price usually doubles in the summer season.'5 Actual price= water+sewerage+fees; during the summer season, price is doubled and amounts 1.20 E/m316Average during the summer season.17 No contributions included, Monstat, May 2005



III. FINDINGS AND ANALYSIS

In order to understand the influence of reform on all stakeholders at Montenegrin coast, the following issueswere analyzed: a) the impact of the water sector reform and b) support or opposition of reform by (i)stakeholders, and (ii) institutional structures, as well as the impediments to reform. In addition, specificitiesof water supply among Roma community in Montenegro were analyzed in the context of the water supplyreform.

A. IMPACT ANALYSIS

Tariffs are becoming crucial both for consumers and utility companies. Due to the shortage of funding byWSC management, continuous investments in the water supply network are not otherwise feasible. Whilewater companies increase tariffs to cover costs, consumers must suffer the consequences. Main stakeholdersas regard to tariffs are: WSCs, local governments, POs and all types of consumers, especially vulnerablegroups and businesses. As a result of the decentralization process in Montenegro and the fact the WSC arepublic companies established by the local government, with its representatives dominating in the WSC Boardof directors, LG is becoming an important player in setting up the tariff policy in the water sector. The LG isauthorized to approve the minimal water price suggested by the WSC. Water sector reform envisions anincrease of the price of water since the current price does not include necessary funds for investments butonly operational costs and costs of maintenance of the network.

Tariff increases

However, before moving to the issue of tariffs and their level, for success of the water supply reform inMontenegro, collection ratio and illegal connections must be controlled.

Collection Ratio - Data received from the experts in the WSC are confirming low level of collection ratio inalmost all cities in Montenegro, and specifically in those covered by the reform project. The highestcollection ratio is in Ulcinj (85%); in Bar and Budva it goes up to 60% (for two months), while collectionratio in Podgorica is only 15-20% in the first month. For all targeted cities, the main reason for non-paymentis a long-standing attitude of entitlement. The public believes that water must be given to them and thatthere is no reason to pay for it. As suggested by the expert from PEW: "In order to increase the percentageof payment, non-selective punishment and disconnection of those who pay irregulady should be carried out "On the other hand, it is interesting that all focus groups' participants are confirming that pensioners are themost loyal in terms of paying water bills regularly. To some extent, this is confirming that the water bill is nota burden some budgetary item for Montenegrin households, meaning that they can afford it. Reasons forlow collection ratio should be found in other areas such as a general attitude towards water as a commodityand satisfaction with the service, as it will be discussed later.

The main problem in the existing billing system -In all cities covered by the study, the billing systemis computerized while consumption is calculated on monthly basis.

In three out of five target municipalities the billing system is completely based on metered consumption. ForPodgorica and Bar the billing system is predominantly flat rate combined with metered consumption. Thoughmetered consumption in Kotor is predominant in the billing system, the fact is that because of the damagedwater meters (43%) a flat rate is imposed.

The billing system on the flat rate is perceived as a problem since households are not motivated to savewater. On the contrary, such households are using water for their gardens. Flat rate for households inbuildings is also cited as unfair since costs for water are overestimated for some families and underestimatedfor others. In addition, citizens who are paying metered consumption are dissatisfied since they have lowerconsumption but higher bills. In addition, as stated by focus group participant "installation of the watermeter would allow us to control water consumption"-

Urgency for universal metering - Universal metering is a priority issue, which will affect the wayhouseholds will handle increased tariffs. One of the measures that WSR predicts within the Vodacom is



introducing a universal metering system. Currently, there are not enough water meters in the network. Thismeasure would enable detection and reclaiming of loses in the network caused by leaking and illegalconnections.' 8

The cost of water meter installation, however, represents one of the problems illustrated by FG discussions inPodgorica: "We asked about water meter installation but WSC informed us that we should pay all water billsbefore installation. We would accept to purchase and install water meters under the condition that it wouldreduce future bills by that amount' In this case, a water meter costs E50 and the consumer owns it. Mostcitizens could not afford it. Two options are suggested: i) installation free of charge for poor families, ii) thepossibility of partial payment within the water bills for other consumers. In addition, WSCs must replacemany damaged water meters and must improve the water meters' calibrating process.

A good example based on installation of water meters is WSC from Tivat. Water meter coverage is to 100%.The result of this is significant collection ratio, which amounts to 92% in Tivat.

Current water price - According to WSCs experts, current water price is sufficient only for coveringoperational costs of water exploitation and distribution to customers, but not for investments in theinfrastructure. In addition to this, the low collection ratio and significant debts are preventing sustainabilityand deterring profitability of this sector.

According to the household survey (HHS), 70% of households (represented by heads of households) knowthe current water price. The average water consumption per household in Bar is to 20m3, in Kotor 17m3,while 60% of the total sampling do not know their monthly water consumption. The average monthly waterconsumption per household, according to the research, is to 7m3 or 2341/per day, which is the averageconsumption on the National level. Citizens consider the current price as the optimal one and its increasedlevel would be justified only by an improved water supply. That improvement would be reflected through a24 hours a day water supply.

Affordability and willingness to pay

The water bill is not a significant share of consumption basket but water shortages are causingadditional costs. Water's share in household's total monthly expenditures' 9 varies between cities as well asdepending on the season (sees Table 3.1). In general, the monthly water bill accounts for about 4 percent ofhousehold expenditure/income during the summer. According to this, it would seem quite plausible thataffordability should not be an issue for most families. However, the reported water bill is very oftenaccompanied by additional expenditures relating to drinking water. Especially in the summer when lack ofdrinking water occurs regularly, families are forced to cope by obtaining the water from other sources.Therefore, families often buy water from vendors, travel to get the water from natural springs or public taps,buy water tanks and pay additional money for electricity in cases where they have pumps. For example,household surveys showed that electricity bills increase up to 10% due to the use of the water pump20. Nonmeasurables are costs in time when families must travel to get water from other sources, to rescheduleusual daily activities or face shortened life spans for house appliances in cases where salt water is utilized.For example, PSIA household survey in Kotor confirmed that shortage of piped water affect the households,causing: work at night (47.4%), purchase of more expensive water from vendors (45.6%) or fewer guestsduring tourism season (7%) for households involved in renting the rooms. This last consequence (fewerguests during tourist season) is even more important for businesses who report this being a problem in52.2% of cases.

18 Vodakom, An overview of intervention measures 1, in 2004 installed 41 water flow meters Annex 11.19 Total households monthly expenditures were defined through the household survey conducted for thepurposes of this PSIA as reported household's costs of leaving including: food, transport, rent, education,health and medical services, clothing and shoes, heating (other then electricity), electricity, water, telephone,entertainment, and other expenditures. As reported, average monthly households expenditures amountabout 530 EUR. The survey was undertaken in the period May 2005.20 Source: PSIA Household Survey, May 2005



Table 3.1 Water's share in the monthly household expenditures by citiesWater's share in the cnsumption basket

Summer Winter

Budva 3.2 2.1Bar 5.0 4.9Kotor 3.8 3.6Ulcini 4.9 5.1

MC/avg 4.2 3.8Source: PSIA Household Survey for the water sector reform in Montenegro, May-June 2005

For the purposes of comparison, water's share in the monthly household's expenditures calculated based onthe household survey data for the entire Montenegro accounts 1.3% with around 10 EUR of average bills(ISSP, Household Survey April 2004). Though, due to the different methodology, this data are not fullycomparable, it should be noticed that average water price in the southern cities is 38.5% higher comparingto the average price on the national level. Also, comparing the size, households in south have less members(2.9) then those in the central and northern part (3.35). We conclude that water's share in the monthlyhousehold expenditures in the south is caused not only by higher price but also larger consumption percapita.

Despite the fact that south of Montenegro is the region with the highest living standards in the country,some pockets of poverty exist. Just in the last year, every fourth surveyed family had a time when they didnot pay their water bill. This percentage is higher in Bar and Kotor (36%, each). Out of all surveyedhouseholds, in 14% of cases, the main reported reason for not paying the water bill was lack of money,while other were not happy with the service and some of the respondents claimed not to be receiving thebill. Other reported reasons for not paying the water bill were "not being in a region', or high aggregatetotals as a result of not paying the bill for couple of months in a row. In some cases, irregular payments ofwater bills are caused by neglecting consumer's requests. As focus group participants stated, a responsiveservice provider is an important part in building up customer loyalty.

"We were paying water bills regularly until the moment we started to receive very large bills. It wasconsumption of 750 m3 for our four-member family. I have called the water supply Company to come andcheck because there were business offices on the ground floor and I assumed a mistake had been made.They didn't want to come, and I became obstinate and didn't want to pay anymore, at my own damage."FG participant in Podgorica

If classified by poverty status, poor and economically vulnerable households21 face higher water costscompared to the total household expenditures. Table 3.2 shows that water bills for poor households areabove the average of all households in the targeted cities. This suggests that an increase in tariffs will be aheavier burden for poor households in cases where overall consumption and income is not changed.

Table 3.2 Water's share in the consumption basketWater's share in the consumption basket

Summer Winter

Poor 5.2 4.9Economic vulnerable 4.4 3.6Non poor 3.1 2.5

Source: Household Questionnaire for PSIA for the water sector reform in Montenegro, May-June 2005

21 Poverty groups have been created comparing reported household expenditures per capita with officialpoverty line (amounting 116 EUR per month per person). Poor are the households with per capita householdexpenditures below poverty line; economically vulnerable are households with per capita expenditures belowpoverty line increased for 50% (category recognized in the official document representing Poverty ReductionStrategy), while those with per capita consumption above the level of poverty line increased for 50% areconsidered as non poor.



Better water quality, no restrictions in water supply and better water pressure are keyrequested improvements. Though more then 50% of surveyed households raised their concernsregarding high price per cubic meter, when asked about the most important improvements in piped watersupply, only 9% of household heads stated lower price as the third priority. For all of them, more importantare: better water quality, building of adequate infrastructure, no restrictions in water supply, better pressureand discontinued service to illegal consumers. Some participants noted that they may accept a higher price ifthey had access to water during the entire day so that "water is no longer a category in the publics headsthat burdens them" (FG participant, Kotor) and if water were of good quality, to avoid the cost of bottledwater.For participants of the focus groups in Bar and in Ulcinj, health consequences caused by water quality are animportant concern. "People are afraid to use the drinking water because of several cases in which entirefamilles have been hospitalized due to contaminated water You should advise cltizens not to use the waterfor drinking if there is the possibility of reduced water quality. "(FG participant from Bar)

In Ulcinj, particular concern is raised when water from the spring Lisna Bori is used. Often, the water tasteslike mud and is yellow in color, or sometimes, it tastes like gas. Water is not being filtered enough. "Kidshere have problems with their teeth and kidneys due to bad quality of water, it is contaminated due tobacteria, and nobody is warning the population about it. "(FG participant from Ulcinj)

For households in Kotor that very often have salty water, one of the concerns is consequent increase inhousehold expenses since the life span of appliances that use water is reduced (boilers, washing machine,dishwasher, etc.)

No restrictions in water supply and better pressure are primary requests of businesses as well since thatinfluences the quality of their tourist product and weakens their competitive position. " The market exists andcompetition is great on an international level. If you are missing or are inadequate in your supply of any oneof these segments -- water, road, and beaches -- you are out of the game. The market dictates this. Even ifyou offer tourists all of the conditions or attractions, if the service in hotels is unsatisfactoly you are againout."(participant of the focus group on topic tourism)

An expert on the central level is emphasizing the importance of a good water supply as an infrastructureissue, the lack of which prevents tourism development. "With no municipal presumption, no paved roads, nopaved sidewalks, insufficient lighting and green areas, with water supply problems, soil pipe, waste, we willhave huge problems with investors, because none will come here to build."

In general, a tariff increase should not have a negative impact on the population; still,vulnerable groups should be subsidized. Having in mind that the water bill is not a significant share ofthe households' budget, experts believe that a tariff increase would not have a negative impact onpopulation in general. Also, the point of view in terms of the level of tariff increase differs. Whilerepresentatives of WSC advocate higher tariff increase under the excuse that there is not enough money fornecessary investments, those experts outside of WSC have the opposite view. An expert from aninternational organization involved in water supply reform on the coast is confirming that a tariff increasethough not significant is necessary, but only after some other measures are undertaken, for example:rational operations of WSC, cutting employment and restructuring of the water sector in Montenegro.

"The prices of water will increase for certain, although not dramatically, perhaps 10% or 20%. However,significant savings mean rational operations, less consumption of spare parts, cutting employment, rationalmanagement, reorganization, and restructuring of that sector. The significant savings are achieved throughthis. The price of water must be compared to the purchasing power of the population. However, 10 to 20%will be enough, with other measures, such as a reduction in employment. In my knowledge in the coastalarea, redundant labor is 20-50% of the total figure."

The average water bill during the season amounted to E20, while amounting to E15 during the off season.Minimum bill amount in both cases was E2 and maximum was E50. Table 3.3 gives the average of reportedwater bills in targeted cities during the season and out of season.



Table 3.3 Average monthly water bill amounts in target cities (E)Budva Kotor Ulcinj Bar

ISeason I 28.00 18.50 20.00 11.00Out of season 17.00 18.00 16.00 9.00

Source: Household Questionnaire for PSIA for the water sector reform in Montenegro, May-June 2005

Higher water bills during the summer season are understandable if we assume the impact of the summerhouses and also of the family tourism that boost the water demand during the season. It should bementioned here that almost 75% of interviewed households generate more then 50% of total householdincome from tourism as well as that 77% is involved in renting-out private rooms. Though they complainthat income generated from tourism during the season decreased during the last three years, official dataare showing that last summer season was the best one in the post-war period. Income from tourism isincreasing through increased level of tourists coming to the country and through attracting better payingtourists from all around the world (confirmed by higher percentage growth of foreign tourists coming toMontenegro). This is confirmed by the experts who believe that those with greater consumption percentageshould pay more, since they could transfer part of their costs to tourists.

Higher totals on water bills are obvious in Budva where WSC introduced a double tariffs system. In Kotorcitizens are buying bottled water with no variations in the bill amount, supporting the findings related todamaged water meters.

Other water sources used during the summer season increases household expenses. The table 3.4 showsthat citizens of Budva, Kotor and Ulcinj annually have significant costs for getting the water from othersources. Though amounts in Budva, Kotor and Ulcinj on annual basis are similar, it should be noticed thatthere are much less people living in Budva and to some extent in Kotor as well, then compared to Ulcinjthroughout the year. Season covers three months of the most extensive tourism activity, while month reflectsaverage expenses through the year (both on and off season). Bar is the only city where households did notreport costs for water purchasing, which could be explained by water supplied from natural sources andcisterns.

Table 3.4 The average water bill amounts for other sources in target cities (E)Source Period Budva Kotor Ulcinj BarOther Month 20.00 18.00 10.00 0.00

Season 60.00 59.00 30.00 0.00souces Year 131.00 136.00 131.00 0.00

Source: HHS, PSIA Montenegrin coastal area

Among those who reported an increase in the price per cubic meter during the last year, 50% reported nosignificant impact on their household budget; 25% of households reported reduced water consumption toafford the bill; while an additional 25% restricted other expenses to be able to pay the increased waterprice. At the same time, 75% of those respondents noticed no change in water supply after price increase,while 25% reported longer hours of supply.

Tariff increase should not stand alone. As stated by experts, tariff increase not accompanied with acampaign to increase collection ratio would bring WSC nowhere: regular payers would be additionallyburdened while those who do not pay now, would not pay after tariffs are increased either. At the sametime, if the economically vulnerable population is excluded, according to the experts' opinion, others couldafford higher tariffs especially if it is taken into consideration that the water bill is a relatively low householdcost. Furthermore, if households are ready to pay more for buying drinking water from vendors or to travelout of the city or to buy water pumps, they could afford higher tariffs as well. Business representativesbelieve that higher tariffs would bring WSC to the lower collection ratio, while if accompanied with serviceimprovement, tariff increase could bring higher profits for those involved in tourism industry.

"If the WSC decide to increase water price, we would definitely have to accept it as we already acceptedincreases in the electricity power price and phone impulse price. If I may make a suggestion, I'minterceding for gradual price increase instead of sudden. With a gradual price increase consumers couldnotice improvements in water supply system and would accept it more easily and pay bills on a moreregular basis". Focus Group Podgorica



WSC expert confirmed the fact that local government approves of a suggested price increase is a problemsince local government considers water to be a social category. Also, for 60% of surveyed households in Bar,45% those in Ulcinj, and 47% of surveyed households in Budva, paying the water bill is the households'fourth priority out of five stated. All experts confirmed that pensioners are the most regular payer of thewater bills, though with most limited income.

"The question is: why is it that the pensioners with low incomes pay the bills the most regularly? It isbecause they have established this habit from the time when they were young and starting to form familiesand build their houses. They knew that water bills must be paid and that commitments must be fulfilled,and what you consume, you have to pay for. Today this is not the case. This is the reason for pensionersbeing the best customers."

Willingness to pay is highly connected to satisfaction with the service. Willingness to pay isprimarily related to issues such as attitude and satisfaction with the service. All focus group participantsconfirmed willingness to pay more for drinking water, if provided with increased access and water quality,and improved service quality. Here "good service" would mean monthly issuing of the water bills, workingwater meters and improved water supply including good quality of water, access 24 hours and good waterpressure. Almost 60% of surveyed household members confirmed willingness to pay more if better watersupply is provided. Only exception are the citizens of Budva who believe that current price is already highenough and should not be inflated. Those households willing to accept higher tariffs for improved watersupply suggest a tariff increase up to 17%, while economically vulnerable households reported acceptableincrease up to 10%. However, gradual increase of water tariffs is suggested.

In its simplest form, the result above is no different from what many other studies have found in the nowvast literature on the willingness to pay for water-that households want improved water service and thatthey are willing to pay for these improvements.

Standard rule of thumb in defining an affordability measure in water supply and sanitation services is 5% ofmonthly household expenditures. If we apply the same standard here, we could say that households inMontenegro can afford higher water tariffs. Still, due to greater consumption and higher water prices in thesouth of the country, some target groups like poor people are on the very border of affordability or evenbelow it. On the other hand, for those involved in tourism activities the final tariff increase is expected to betransferred to the tourists.

All the experts interviewed agreed that the current water tariffs do not cover the cost of the service. On theother hand, improving situation in WSC by price increases would cause a negative reaction among citizensunless better water supply is provided in a short period of time. It is necessary to increase billing paymentrate and reduce distribution loses.

For most target WSCs, only about half of the water consumed is actually billed. Leakages, many illegalconnections and damaged water meters are the primary causes of inappropriate billing. In addition, citizensconsider water as a non-economic category they should pay for.

Reforms taken by the Vodacom consider possibility of making payments in post offices and by bank account.Those possibilities are available for citizens of Budva and Kotor. In most cases, payments were made to billcollectors or directly in the WSC office.

Obviously, citizens do not consider water as an economic category and water supply system as a service thatshould be paid. "Water price was social category for years and nobody paid for it except legal entities, whichdo not exist any more. WSCs survived by billing those legal entities" Therefore, the water bill is in fourthplace among the high priority bills in households.

Willingness to pay is noticeable in households where monthly calculations are accurate and bill distribution isregular, appropriate water metering is used and there is an improved supply. Improvement is related to goodquality, 24-hours water availability and good water pressure.

WSC experts believe that the primary problem is a lack of awareness of a paying obligation and that watershould be paid for.



The last water price increase - Water prices in Budva increased from EO.40 per m3 to E0.60 per m3 inMay 2004. As confirmed by the focus group participants in Budva that forced poorer households to reduceother expenses in order to pay water bills. However, positive changes in terms of the water supply quality, asthe result of increased tariffs did not occur. Still, citizens expect that higher tariffs should be accompanied byimproved water supply service. As stated by a focus group participant in Budva "The WSC must present aconcrete calculation, and show the reason for charging a higher price for water"

Future increase of water prices - When asked if they would be willing to pay a higher price per monthfor a 24-hour supply of water of good quality and pressure, households answered differently depending ontheir economic situation. As presented in the table 3.5, a significant percentage of each poverty group (morethen two fifths) would be willing to pay a higher price for better quality service. However, the percentage ofan acceptable increase differs and goes from 10% for poor up to 25% for those non-poor.

Table 3.5 Willing to pay high er price for better qualitY service (by poverty status)Yes Averaae tariff increase acceptable

Poor 42% 10%Economically vulnerable 45% 15%Non-poor 41% 25%

Source: PSIA Household Survey for the water sector reform in Montenegro, May-June 2005

On the other hand, as shown in Table 3.6 average percentage of acceptable water price increase is rathersimilar if different targeted cities are taken in consideration, while percentage of those that would be willingto accept such a change differs among the cities. The most willing to accept a higher price are thehouseholds in Bar, while the least inclined for that are households in Budva. The reason given for householdsfrom Budva that would not accept tariffs increase is that they consider current water prices to be too high.Also, FG participants in Budva confirmed that the last price increase (May 2004) was not accompanied byimproved water supply service.

If we consider the entire sample of the households in targeted cities, 43% respondents would be willing topay a higher price for better quality service, at an increase of no more than 17%.

Table 3.6 Willing t pay higher price for better quality service (by municipality)Yes ) Average tariff increase acceptable

Budva 20% 18%Bar 64% 19%Kotor 52% 16%Ulcini 36% 17%

MC/avg 43% 17%


According to experts' opinion, a price increase would burden regular payers and that would additionallycause an even lower collection ratio. "Nothing would be achieved since some of them would continue not topay and there would be fewer bills paid on a regular basis'

'If the WSC decides to increase the water price, we would definitely have to accept it as we alreadyaccepted the increase in electrical power price and phone impulse price. If I may make a suggestion, I'dintercede for a gradual price increase rather than a sudden. With the gradual price increase, consumerscould notice improvements in the water supply system and would more easily accept the price increase andpay bills on a more regular basis'. FG Podgorica

Most experts interviewed believe that the price increase could endanger the position of poor andeconomically vulnerable households. They suggest that WSC has to improve current conditions by usingsome other methods. At the same time, excluding poor households, most experts believe that citizens in thecoastal area could afford to pay water bills since it is one of the lowest bills. 'If they are willing to purchase



water in the supermarket or to travel out of the city to provide water or to pay electricity bills for pumpsystems, they should be willing to pay higher price for more qualitative supply" WSC expert

Need to define two tariffs system -According to experts and FG participants, coastal cities should havewinter and summer tariffs. Significant numbers of tourists and financial influx for budgets of households andlegal entities during the summer months would enable easier payments of water bills. Therefore, householdscould accept a higher summer tariff because of an increased households' income from tourism receipts. Onthe other hand, the tariff increase is justified by full exploitation of both water and technical capacities thatWSC has available.

The model that should be used for defining tariffs is consumption quantity. "Hotels have a greaterconsumption percentage and they should pay more. Besides, they could transfer part of their costs totourists because Budva would not have problems with water supply if there were no tournsts at all." Expertsfrom Budva believe that this is the way in which the water supply problem in Budva will be solved.

Example from Germany: water supply in Germany is more expensive for private persons than for the legalentities because their industry is using technical water for their activities instead of quality and drinkablewater. CDM expert

Billing improvement -A low water billing rate causes greater debts that WSC cannot collect. WSC expertsagreed that if the billing collection completely succeed, existing tariffs would be sufficient for coveringoperating services and small investments. In average, the billing rate in target cities is 60% for householdsand 20% for legal entities.

Positive example: WSC Tivat recorded billing rates of 96.5% in 2004 and 91% in 2003. This rate is to 90%on a monthly level, depending on the season. Large numbers of weekend-tourists are paying their bills forthe entire year and therefore the domiciled population does not have significant debts. This is the onlycase of such a high collection ratio in Montenegro. According to Tivat's WSC Director, this is the result ofhabitual bill payment by the population here and the constant presence of WSC's working teams in thefield so they could turn off water supply immediately in cases of nonpayment. Water meters are providedfor all consumers. Promptness notes and court proceedings motivate the non-payers. No consumer has yetto be disconnected from the network.The WSC in Tivat is the only one in Montenegro that conceded part of its network and water supply to aprivate company ten years ago. The private company is obliged by contract to charge tariffs determined bythe WSC and local government and to provide quality water supply service, which further resulted inincreased bill collection rates.

Need to improve collection ratio and enforcement - Households interviewed believe that WSC shouldimprove enforcement by: 1) cutting-off non-payers (37%), 2) cutting off illegal connections (36%) andmaintenance of the water supply network (23%), while remaining 4% have other suggestions. Following theopinion of the customers in each of the targeted cities, cutting-off illegal connections is necessary to getimproved enforcement in Budva (65% of respondents), while in Bar, Kotor and Ulcinj, the most necessary isbetter enforcement in cutting off non payers (44%, 50% and 40% of respondents, respectively). Keeping inmind the poverty status of respondents, for poor households improved enforcement of WSC is necessary incutting off of non-payers, while non-poor believe that cutting off illegal connections requires immediateimproved enforcement.

According to the HHS, three methods for improving enforcement that would bring the best results in theirneighborhood in target cities are as follows:

* Public awareness campaign* Financial penalties for late payments* Disconnect non paying customers, monitor these customers and charge for the re-opening of the

water connection.

For the poor and economically vulnerable, the most effective would be a public campaign regarding theimportance of water conservation, while non-poor think that a such campaign should be accompanied withcutting off illegal connections at customers' expenses.



According to most citizens interviewed, primary target groups to be included in the campaign are households(45%) while equally important are also business and public institutions (27.5% each). Taking financial statusof the respondents into consideration, the order of targeted groups is virtually the same for poor andeconomically vulnerable households (households, public institutions, private sector) apart from non-poorhouseholds that put priority on former public institutions in the private sector. In the focus group discussions,public and private sector representatives interviewed stated here that their sectors should be pressed evenmore since they are the largest non-payers.

The target groups differ much more depending on the city. As shown in the Table 3.7, households should bethe primary target group of a public campaign in Bar; while in Budva it is the private sector. In Kotor andUlcinj, public institutions are recognized as the priority target for a public campaign on the importance ofwater conservation.

Table 3.7 Targe groups for public campaign (by targeted cities)Households Private Public

.sector institutionsBudva 36% 52% 12%Bar 87.5% - 12.5%

Kotor 48% 12% 40%Ulcinj 12% 40% 40%MC/avg 45% 27.5% 27.5%


Most experts from WSCs stated that the collection ratio would increase if restrictive methods for non-payersand illegal connectors were applied. The problem with non-payers' disconnection is common water meters inthe buildings, meaning that cutting off individual consumers is not possible. In addition, WSCs'representatives believe that bill distribution and revising of an existing consumer's database should beundertaken. Other technical measures are related to the repair of water meters, installation of new metersand regular calibrating and maintenance.

"Non-regular payers should be slmply dlsconnected and enforced to pay in thls way Besides, Montenegrohas a lot of cell phone users and all of them pay phone bllls on a regular basls and therefore their phonelines should be dlsconnected if they do not pay water billl Cell phone is on the top of the pniorlty list andcould serve as a good way for sanctioning water bllls non-payers". An expert

FGs representatives stated that more regular water consumption metering, regular bill calculation andenabling payment during weekends would improve the collection ratio. By implementing these methods, themonthly water bill would be made affordable.

Access to water and water services (water network)

Main stakeholders: Service quality is the best way to measure the impact the reform is having onconsumers. Main stakeholders regarding this transmission channel are the GoM, Ministry of Tourism, donorcommunity, WSCs and local governments, as well as consumers, who are the main beneficiaries.

As could be seen from the city profiles, network coverage is good (between 90 and 100%). However,increased population in summer months as a result of tourism causes water shortages in the coastal cities.According to WSC experts, current capacities of available water springs are insufficient to meet needs duringthree months of the summer season. Data received from WSCs22 shows that each city covered by the studyfaces a certain number of days with inadequate water pressure. In Podgorica this is only during the periodfrom July to September, for 3-4 hours/day and only for those consumers from the upper parts of thedistribution network due to a small tank capacity. In Budva, 50 days per year all consumers are facinginadequate pressure while 5% of consumers have no water supply during the night either. The situation inBar is that for 60 days during the period July-September consumers have inadequate water pressure while

22 Source: Urban Institute



3% of consumers in the more elevated parts complain about insufficient pressure; about 1% of the citizensdo not have water at all and there is not enough tank capacity. In Kotor, restrictions in water supply areimposed for the period of 2-3 months/year. About 120 consumers (2%) do not have water during the night.In Ulcinj 10-15 days of inadequate water pressure is caused by the non-harmonized consumption and thelack of tank capacity.

In addition to the problem of insufficient water sources, large distribution loses due to an agedinfrastructure, misuse, many illegal connections, water overuse and flat rate billing contribute to a watershortage.

Graph 3.1 is showing the primary problems with the water supply during the tourist season by targetedcities, as reported by interviewed households. Being able to identify several problems (multiple answerquestion), respondents in Kotor stressed salty water as being a significant problem, while all other problems(supply/volume, reliability of the water supply and safety) were also highly emphasized. On the other hand,for respondents in Budva and Bar, inadequate pressure and unreliable water supply are causing the mostproblems during the tourist season. Ulcinj experiences similar problems, but a smaller percentage ofhouseholds are reporting those.

Graph 3.1 Problems with the water supply during the tourist season (by targeted cities)

100- D Supply/volume * Unreliable a Salt 0 Safety * All mentioned90 I

80-70-60-50

400

10,

MC Budva Bar Kotor Ulcinj

Due to the migrations from northern Montenegro and following the path of tourism development, coastalareas of Montenegro faced significant illegal construction in last ten years. This was not prevented due tothe lack of strict controls from the local governments. Illegal construction was followed by illegal connectionsto the water supply network. Since the water supply network as constructed cannot handle such an increasein the number of consumers, water shortages are not a surprise. This is particularly prevalent in Budva, withthe greatest tourism influx during the summer months.

Inadequate water pressure and water shortages have forced people to find alternative solutions. Forinstance, illegal connections are the most common coping mechanism regarding water access. Thepercentage of people having one or more illegal connections is highest in Ulcinj. Illegal connecting to thewater supply system in most cases was done by households themselves or with the assistance of theirfriends. In some cases these are private plumbers employed in WSC (cases reported mostly in Budva).

The main water sources during water shortages: When the main water sources are not available, thefirst alternative is filling drums with water from local springs and from WSC when it is possible. Citizens aswell as the business sector pay additional costs, primarily for transportation. Poor and economicallyvulnerable households are forced to use this alternative water supply as well.

Another way is purchasing bottled water, which is common for citizens of Kotor and Budva. This additionallyincreases household's expenses. In average, households purchase 5 liters per day by EO.5. On average,households utilize 20 liters of water from public taps daily. This possibility is available for citizens in Kotor



and Ulcinj who also purchase bottled water to a great degree as well as citizens in Budva and Bar. Citizens inBudva and Bar are forced to purchase bottled water due to a lack of natural water springs.

Additionally, this situation leads to "entrepreneurs" who are dealing in the illegal water trade and distributewater to neighborhoods in Bar, Kotor and Ulcinj suffering from complete water shortages.

The third source is water warehousing in cisterns and pools. Citizens in Ulcinj also provide water reserves bybuilding concrete pools next to their houses (so called "sandza'". Hotels in Ulcinj and Baru in the beach areaalso make use of wells in order to meet the demand during the summer season.

Cisterns and wells are used for water accumulating and collecting. Well-off households possess water tankswith a capacity of 5001 in Budva and Ulcinj and they are mostly individual owners. Collective tanks are morefrequent among the poor population in Ulcinj with a capacity larger than 5001.

Living conditions and a lack of resources are the two main reasons why households do not have water tanks.In most cases when a household possesses a cistern, it is 5001 capacity and that is sufficient.

Graph 3.2 Main source of water when drinking water is not available, by cities

100 -. r IC * Budva 0 Bar 0 Kotor Uklinj

901

80-

70--

60 -

50-

40-

30-

20

10 -

Water stored in Piped water from Public taps Buy water from Fill buckets whentank the neighbors vendors water s available

Table 3.8 shows the primary problems in the water system as identified by the households interviewed. Interms of technical problems in the water system, generally the most important is lack of access to the pipedwater supply network, while in Budva it is limited hours of water supply. Perception that water is unsafe is afar more serious problem in Bar and Ulcinj (70.8% and 67%, respectively, in comparison to 57% for theentire sample). In terms of service quality, unreliable supply is the greatest concern; this is particularly aproblem in Kotor (70.8%). Also, two fifths of respondents in Ulcinj reported that WSC technicians take bribes(40.9%). Regarding reported operational problems, high price per cubic meter and excessive consumption ormisused water are the greatest concerns. The price of water is particularly a problem for householdsinterviewed in Kotor, while excessive consumption or misused water are the primary water system problemfor citizens in Bar.

Table 3.8 The primary problem in water system (by targeted cities)I MC | Budva | Bar I Kotor| Ulcinj

Technical

Leaking pipes 11.5 12.0 16.0 28.0 0.0Lack of access to piped water supply network 38.5 0.0 48.0 32.0 63.6Low pressure 20.8 28.0 24.0 20.0 9.1Limited hours of supply 27.1 52.0 12.0 20.0 27.3Other 2.1 8.0 0.0 0.0 0.0



Qualitative

Perception that water is unsafe (lack of trust,taste, color, smell) 57.0 45.8 70.8 44.0 66.7The water is unsafe 36.6 45.8 12.5 56.0 33.3Other 6.4 8.4 16.7 0.0 0.0

Service

Unreliable water supply 55.9 62.5 58.3 70.8 27.3WSC technicians take bribes (are corrupted) 10.8 4.2 0.0 0.0 40.9Delays in repair and maintenance by WSC 20.4 8.3 33.3 16.7 22.7Non responsive customer relations 9.7 12.5 8.4 12.5 9.1Other 3.2 12.5 0.0 0.0 0.0

OperationalThe price per cubic meter is too high 53.3 59.1 16.0 79.2 59.2Dissatisfaction with the unmetered billing 5.4 4.5 4.0 8.3 4.5Dissatisfaction with the cumulative metering in theapartment building 5.4 4.5 12.0 0.0 4.5Too much water is used or misused 33.7 22.7 68.0 12.5 27.3Other 2.2 9.2 0.0 0.0 4.5

Need for repair of an existing network: 'The problem is comparable to the barrel leaking all over theplace and which was inadequately or not invested in for more than 20 years. Until you reduce loses it will bevery difficult to provide an appropriate or improved water supply. The main issue is what is least expensivein order to reduce loses? The question is whether to provide new quantities of water or patch the hollowsystem?"

Current distribution loses are large and amount to 60% on average, from city to city. Distribution loses inKotor amount to 60% of total exploited water and 30% in Budva. Technical loses are caused by anantiquated infrastructure. It is necessary to repair the current infrastructure by replacing old pipes, repairingdamaged valves and water flow meters and to reduce loses to 25-30% on average. In this case the quantityof water in the system would increase, costs of loses would be reduced and investments in new watersources could be initiated.23

Need for dividing technical and drinking water: Most citizens use drinking water for irrigation ofgardens, green areas, washing walking paths, cars, etc. It is necessary to designate substandard qualitywater (Spring Lisna Bori in Ulcinj, small local wells in Budva) for these kinds of needs. Citizens of Kotor useprocessed sea water for those purposes but are complaining of the effect they have of washing streets withthis water. Rising numbers of FG participants in all targeted cities stated that investments in reconstructionand extension of the existing system are needed to improve the water supply conditions and the overallhygiene of the city. "Technical, refined sea water, which has been used to clean pavements, is not efficientThe city is dirty."

Quality of water: According to most sources, water quality is satisfactory, except in individual cases. Poorwater quality is present in Ulcinj. Concerning water sources used, the worst quality of water for drinking andfood preparation is in Kotor and Bar. The highest percentage of the population in Ulcinj uses water fromwells for drinking and food preparation.

Citizens of Bar are satisfied with their water quality, but have a water shortage problem. Citizens of Budvaare facing problems of poor quality water and water with sand. Citizens of Kotor are dissatisfied with waterquality and salt content. Citizens in Ulcinj are not satisfied with water quality and quantity from the LisnaBori spring.

Regarding the water supply quality, priorities are the daily availability of water expressed in hours and aguaranteed supply. The third priority is the water pressure. Due to poor water quality, citizens are

23 See in annex 11 and CDM - potential financial gain for utility by recovering lost water



complaining of short working life of devices that use water. The private business community is facing thesame problems and high costs as a consequence.

Need to improve reliability of water supply and quality of access: According to the HHQ research,citizens stated that water distribution loses and pipe leaking are the biggest technical problems that WSCsare facing in all four cities. There is also insufficient water supply, which is on the top of the list forpopulation in Budva. Supply service is not reliable with permanent shortage and restrictions in water supply.

In addition to previously mentioned information from experts regarding availability of water during the year,household surveys confirm that the most reliable 24-hours daily water supply is in Bar. All other cities do nothave running water every day on a monthly level, averaging 11 days during three summer months and 2days during the winter without water. The longest period of water supply restriction was in Kotor, lasting 15days and in Budva for 10 days. The average water supply restrictions in Ulcinj were 5 days per month, whilethe shortest water supply restrictions were in Bar. Concerning the water supply problems, Kotor is the mostvulnerable during the winter season.

Households on average have 10 hours daily of water supplied from WSC. The most vulnerable are citizens ofKotor due to 16-hours long restrictions in some neighborhoods. During the winter season, running waterfrom WSCs is available on average 17 hours. The most vulnerable cases are in Ulcinj, with running wateravailable for 2-hours per day during the summer season.

Graph 3.3 Average daily water supply, in hours/per season

25 -3 Sunwer * winter

20-

151

10 _ _ _

Budva Bar Kotor Ulcini

Consequences of water shortages for most households are night work and purchasing of water in stores fora higher price. Table 3.9 and 3.10 confirm this dependence on the city and poverty status of the respondent.Lack of financial resources are forcing poor households to combat water shortages by working at night(64.3% of poor households in comparison to 37.5% of those non poor). Impact of losing guests during thetourist season is the largest in Ulcinj and Budva, while households in Bar and in Kotor did not report suchproblems.

Table 3.9 The effect of piped water shortages on households (by roverty status)Work at night Purchase more expensive Lose guests during

Il water from vendors tourism seasonPoor 64.3% 28.6% 7.1%Economically vulnerable 50.0% 42.9% 7.1%Non-poor 37.5% 56.3% 1 6.3%


Table 3.10 The effect of piped water shortages on households (by municipality)

water from vendors I tourism season



Budva 26.3% 63.2% 10.5%Bar 66.7% 33.3% 0Kotor 36.4% 63.6% 0Ulcinj 81.3% 6.3% 12.5%MC/avg 46.7%0/ 46.7% 6.7%


Priorities in water supply improvements reflect problems that exist in each city. According to citizenssurveyed, those problems are: shortage and quality of water in Budva and Kotor; water quality, price andsupply on regular basis in Ulcinj; while priorities in Bar are construction of WSC, reducing the illegalconsumers and lower water price.

Improvement of the wastewater outflow: Awareness of the need for solving issues on sewage networkwas expressed by 16% of citizens. Network connection is not established for 20% of households, mostly inUlcinj and Kotor. This problem is less prevalent in Budva.The second listed priority is cleaning the sewage holes. In addition, citizens of Kotor and Budva suggestedbetter maintenance of the sewage network and solving the problem of wastewater drainage into the sea.

Citizens of Bar and Kotor are in most cases interested in connecting into the sewage network and they arewilling to pay for it. Citizens must pay on average E70 per household for a connection to the sewagenetwork. Citizens of Ulcinj expressed the highest willingness for this connection. An average monthly sumthat households could afford is E10, regardless of their social situation. They are willing to pay E5 per visitfor cleaning of the sewage access opening on a regular basis.

Improvements in the wastewater disposal system that citizens suggested vary from city to city, depending onproblems they are faced with. Citizens of Bar insist on construction of the sewage system in the city, in Kotoron purifying wastewater before its drainage into the sea, while in Bar and Ulcinj, residents stated that theydo not face significant problem of this kind. Only citizens of Bar stated an average monthly production ofwastewater per household (17m3).

Citizens interviewed do not know the average daily production of solid waste in their households. Accordingto the sampling it is necessary to develop a mechanism of educating the population in methods of solidwaste disposal and importance of payments for such services.

In the case of wastewater, most citizens know the price of this service provided by the Water UtilityCompany. The bill for this service is incorporated into the water bill. Citizens show greater care for certainproblems according to their severity.

In 2003, citizens of Budva and Kotor faced severe problems of local waste disposal and transportation of thesolid waste out of the city zone. According to the HHQ research, citizens know that the price of thistransportation amounts 0.5E/m 3 of solid waste.

Need for increasing public awareness: Familiarity with the governmental policy on water issues is verypoor. Citizens know almost nothing or very little about water supply activities and are informed throughpublic TV stations. Second listed sources of information are local TV stations in Budva, Kotor and Ulcinj. Theinformation source in Bar where a local TV station does not exist is the radio station.

Table 3.11 gives concrete percentages on public awareness regarding Government reforms in the watersupply sector, by poverty status of respondents and by targeted cities. As the table 3.11 shows, citizens inBudva and in Bar are less informed about measures of the central and local governments to improve thewater supply, while this percentage is much higher among the poor households (60.0%).

Table 3.11 Public awareness of GoM water sup- reformsNothin Somewhat informed Adequately informed

Budva 57.7% 26.9% 15.4%Bar 52.0% 28.0% 20.0%

Kotor 36.0% 40.0% 24.0%



Ulcinj 33.3% 45.8% 20.8%MC/avg 45% 35% 20%Poor 60.0% 24.0% 16.0%Economically vulnerable 32.3% 41.9% 25.8%Non poor 45.5% 36.4% 18.2%


Most respondents believe that the National Government could improve water supply system by supportinglocal governments. All respondents are aware that the local governments are responsible for water supplyand they agreed with that.

Work of Water Supply Company (WSC)

Need for developing better relationship between WSCs and consumers: All participants interviewedexpressed dissatisfaction with WSCs' services. Among those services are: speed in repairing broken pipes,water meter repair, and damages to water supply network repair.Citizens are not well informed of the ability to lodge complaints about the WSCs work. They believe thatpositive steps could not be achieved at all. Half of all respondents are not aware that within the WSC existsan office for complaints. In cities with permanent shortage problems, such as Kotor and Ulcinj, residentsknow about these offices.

Mistrust is obvious as well, in cases of damages to the water supply network, since 40% of them called forprivate plumber, while WSC dispatched its repair crew 3 to 5 days later.

In cases where citizens were charged for the report on water supply problems, they usually contacted WSCand its staff. Concerning repair requests, citizens of Budva and Ulcinj mostly rely on WSC staff, while those inBar and Kotor in this situation call private plumbers.

When complaining about the water supply services, citizens in 70% of cases address complaints to WSC. InBudva, they address complaints to local government as well.

Subsidies - measures to support the poor

Main stakeholders Loca I government is authorized to provide subsidies for poor and economicallyvulnerable households. Rules for defining subsidy conditions vary from municipality to municipality. In thosecases, local government decides solely from case to case. One of the main problems that should be solved issubsidies scheme and target group.

In Podgorica, there are subsidies for those consumers who fall into the category of social cases; asconfirmed by WSC experts, these expenses are not covered by anyone. In Budva, subsidies are available forrecipients of social assistance and refugees. Officially, there are no subsidized consumers in Bar, but still,there are 39 consumers that receive subsidies for 10m3/month. In Kotor, there are no subsidized consumers,while in Ulcinj subsidies are available for the disabled.

Table 3.12 Families receiving social assistance_____ Number of households O/o of total population in the city

Budva 78 1.4Bar 146 2Kotor 275 2Ulcinj 249 4Podgorica 2,430 4.7

Source: Ministry of Labor and Social Welfare

Subsidies for vulnerable groups should exist. Again, though the water bill is not a significant share oftotal household expenditures, the majority of experts interviewed believe that higher tariffs would endangereconomically vulnerable households. Those are: refugees, internally displaced persons, the Roma community



and recipients of social assistance. Therefore, for such groups subsidies are necessary. One expert isemphasizing the importance of "setting up transparent criteria to determine which social groups shouldreceive subsidies."

When it is about the type of subsidies, the ideas are different, depending on the perspective of therespondent. This is how representatives of WSC think that subsidies for vulnerable groups should beprovided by the Central Government through the current social protection programs (family material supportetc.). According to expert opinion, subsidies should be provided by the Central Government to the vulnerablegroups. Mainly, respondents are in favor of cash subsidies along with social assistance that such householdsare already receiving from the central Government. In Ulcinj, lifeline tariff is proposed as a channel tosupport vulnerable groups. In Podgorica, in addition to those who receive social assistance, households withhandicapped members were recognized as a vulnerable group that should receive subsidies for waterconsumption. In this city, lifeline tariffs are proposed but the mechanism should "be very sensitive sincepeople don't ilke to be marked as poor in the public eye. Nobody likes it. "(FG participant in Podgorica)

Focus group participants in Budva think that "subsidies as a permanent solution cannot be conducive topositive effects, especially in the long term. "Though confirming that water should be billed "Selective tariffs should be introduced for those whobased on the actual consumption, almost all save water and are socially vulnerable, but are notsurveyed heads of household supported the idea illegal consumers; then, provide them a certain numberto facilitate paying the water bills for those of water cubic at production price."households that are economically vulnerable.

No subsidies for business sector. Experts believe that businesses should not receive any subsidies at all.On the other hand, representatives of businesses propose subsidies for the business sector as well as afurther decrease of the water price for entrepreneurs and SME sector since that would enable to decreasethe operation costs and create new jobs (FG in Budva). In Bar, participants of the FG with some tourismrelated business were also in favor of providing subsidies for the business sector, while the director of WSCwas not supportive to this idea. On the contrary, according to his opinion no subsidies should be providedunless the person is a recipient of the social assistance program. Everyone agrees that subsidies to citizensshould be under the authority of the Central Government. In Ulcinj, one expert interviewed believes thatlocal government should take care of subsidies for citizens, while the business sector is advocating subsidiesfor those SMEs that are depending on water (through lower price). In Kotor, representatives of the businesscommunity are strongly advocating water subsidies for businesses since they "will bring money to themunicipallty, and in that way, endangered groups will not be endangered any more... Local authorities haveto be interested in their local businesses so they would compensate 70% of subsidies, while the CentralGovernment would subsidlze a smaller portion, 30%, since it is in its best interest that the clty llves. " (FGparticipant in Kotor)

The expert for the international organization is strongly against subsidies for business sector.

"In the case of companies, without exception, they should not be subsidized, even if they need water toproduce something. In which case, these sources should be included in the calculation of final prices fortheir products. Large consumers pay higher prices here, even double, while smaller consumers pay less.This is not economically logical. So the subsidies should be avoided, except in the case of socially vulnerablepersons."

Representatives of the WSC also think that it would be good if WSC would receive grant support for capitalinvestments and this is considered as an important subsidy for them.

Need to improve mechanisms for the identification of beneficiaries According to the HHQ survey, allcitizens interviewed would support subsidies for households that cannot afford to pay their water bill.According to this, the Government should include subsidies and discounts for households that cannot affordtheir water bill into the Water Supply Reform Plan.

Concerning subsidies, both experts' and FG participants' opinions are closely correlated to living standard intheir cities. Thus, experts and FG participants in Budva think that the population should not receive subsidiesdue to the quality of living conditions.



Selective tariffs should be provided for socially vulnerable categories, such as retired persons, Romapopulation and consumers that conserve water. Montenegro should provide fees for all of those categories.Social institutions should prepare the list of persons that belong to those categories.

Business sector representatives believe that businesses that pay their bill on regular basis should also besubsidized. All WSC experts expressed an opposite opinion. WSC experts think that businesses are directbeneficiaries of the water supply system, based on which they generate income and therefore should be themost regular payers. According to them, the business sector should not have any subsidies related to waterconsumption and payments.Most WSC experts believe that WSC should use subsidies for investment purposes. It was suggested thatGoM should provide favorable electricity prices for WSCs since costs for electrical power is a significant itemin their expenditures.

Choosing the best subsidy policy - Data collected from different sources indicate a need for introducingsubsidies for vulnerable groups. A household survey conducted shows that citizens interviewed, regardless oftheir category, support introduction of subsidies and discounts for households that cannot afford their waterbill. However, "the mechanism should be very sensitive because people do not want to be labeled as poor inpublic. Nobody likes it' FG participant in Podgorica

In general, WSCs' experts think that water should not be supplied for free. According to them, the bestsolution is the introduction and definition of subsidies and certain discounts in billing for vulnerablehouseholds. It was suggested that the discount should amount to 30 to 50%.

FG participants believe that it is necessary to provide social assistance packages for the socially vulnerablethat would include some measures in addition to the water bill.

Keeping in mind the scarcity of water resources in the coastal area and lack of public awareness regardingthe importance of water conservation, as well as the necessity to protect vulnerable groups, water supplysubsidies should be defined as a way to both: 1) encourage consumers to conserve water, and 2) protectthose who are vulnerable. Therefore, a combination of different subsidies schemes is proposed. It issuggested that households pay a lower price if their total monthly consumption is below a certain level percapita per month. In instances when a households' overall consumption is above the defined limit, totalwater consumption is charged at a higher price. Such a tariff scheme is possible only if all households haveproperly working water meters. On the other hand, for vulnerable groups as identified earlier (recipients ofsocial assistance) the lifeline to services through 20 liters per capita per day would be provided. Since socialassistance programs are centralized at the level of the Government, central government will provide suchsubsidies for social cases.

Impact on Economic Development of the Area

The primary needs and problems of citizens in targeted cities

According HHQ survey, primary problems that citizens of coastal area face, ranked by importance, are asfollows:

• Shortage of money for buying principle food products and satisfying non-food needs* Insufficient quantity and pressure of water* Insufficient drinking water supply through the piped network (shortage of water)* Potable water is unsafe / unclean* Lack of sewage

The most serious problems that citizens of Budva face, ranked by importance are as follows:* Bad roads/inadequate access* Insufficient coverage of the water supply network. Crime* Water price (tariff) is too high* The necessity of paying bribes for provision of goods and services

The most serious problems that citizens of Bar face, by order of importance are as follows:



• Bad roads/inadequate access. Crime* The necessity of paying bribes for provision of goods and services• Insufficient coverage of the sewage network* Poor response of local government in cases of water and sanitation problems

The most serious problems that citizens of Kotor face, by order of importance are as follows:* Bad roads/inadequate access* Insufficient coverage of the water supply network* Insufficient coverage of the sewage network* Poor housing conditions• Problems with power supply

The most serious problems that citizens of Ulcinj are facing with, by order of importance are as follows:* Poor response of local government in cases of water and sanitation problems* Poor housing conditions* Insufficient coverage of the sewage network* Unsafe sanitation• Poor drinking water supply through the piped network (shortage of water)

Evidently, the water supply is one of the top five problems that citizens in each of the target cities identified.

Tourism development and households' income

Necessity of solving water supply problems because of tourism opportunities development: Allrespondents agreed that a good water supply is a precondition for tourism development and investmentopportunities in the southern region of Montenegro.

"This is a huge problem costing Montenegro a lot of money that is not invested due to water supplyproblems. The water supply network does not cover a significant part of the coastal area. On the otherhand, foreign investors are interested in building hotels in that coastal area. When the water supplyimproves, the business, investment and new job opportunities would improve as well." Expert opinion

Households' research showed that incomes did not improve for the last three years due to the overalleconomical situation in the country in target cities. The primary economic activity of most householdsdependent on tourism is room rentals.

In order to operate in the tourism industry, households must obtain a permit and they in most cases have it.That is a legal permit for room renting, restaurant use or permit of motor scooters and boats.

Most experts and FG participants agreed that private households offering accommodations should beregulated and registered for the purposes of tourism development. Legal regulations regarding legalizationof illegal construction and connections established on the supply network are also necessary.

Budva and Ulcinj are cities where the highest percentage of the population is dealing in tourism and iseconomically dependent on those activities. Therefore, income from tourism amounts to 60% of totalhousehold income. As citizens stated, a decrease in tourism income by 20% was recorded in the last threeyears.

In Bar, hotels do not face water supply problems after they made an agreement with WSC for a 24-hourssupply.According to households, reduced visits are directly connected to poor water supply. "Tourists do not visit acity that is facing water supply problems". Some households in Budva solved this problem by digging wellsand pools for water collection.

Experts and tourist workers consider waters supply as the most significant problem that influences ontourists' satisfaction and their return in subsequent years.



Water shortages in business cause longer night work and loss of guests. FG participants and expertsexpressed concern regarding a lower number of guests, considering a qualitative water supply as one of thepreconditions for a qualitative tourism service.

Businesses depending on water supply recorded lower incomes due to water shortage and economic life ofmachines that use salt water or water with sand and stone content.

Necessity of prolonging the tourist season: Luxury tourism development that would prolong the touristseason and create new job opportunities basically has a water supply problem. A master plan for tourismdevelopment predicts a luxury tourism industry, priority focus of hotel industry and its staff toward that goal.

According to citizens, tourist season currently starts at the beginning of June and continues to the end ofAugust. The season peaks for only one month, from 15th of July to 15th of August. This short seasonal periodis when households generate most of their annual income. In addition, tourism is the main developmentalindustry in the Montenegrin economy and it is necessary to invest in the development of conditions enablingthis type of tourism.Changes in employment for the local economy and in particular for the tourism industry

The ways in which the water sector reform is expected to influence employment is more or less the same forthe entire coastal area since all targeted cities are focused on tourism development. All the expertsinterviewed believe that the reform will enhance the attractiveness of targeted cities, which will bemanifested through an increase in the number of tourist flowing into these cities. This, in turn, will havepositive implications for the businesses themselves and at the same time it will contribute to increasingmunicipal funds from tax collections. As confirmed by the representative of the Ministry of Tourism, 'ooorwater supply in Montenegro coastal area back in 2003 caused penalties to the tour operators due to thecomplaints from tourists."

According to respondents, the water supply reforms of the Government of Montenegro would be visible in allfour cities and would have positive consequences on employment. Solving this problem would improvebusiness opportunities and therefore create new job opportunities. All the experts interviewed believe thatthe water supply improvement would create a more qualitative service and increase the number of tourists.In this way new job opportunities and businesses would be created.

Qualitative data from interviews with businesses in the service sector, mainly bars and restaurants, revealedthat business owners expect their businesses to grow after water supply situation improves.

According to the HHS survey, water shortages influence and reduce employment opportunities, especially inthe tourism industry. Also, current water shortages reduce business opportunities and investments andhouseholds' property values. On the other hand, it is expected that waters supply reform (WSR) will increaseopportunities for employment especially in regard to tourism, as well as business opportunities, investmentsand property values. The Table 3.13 shows that citizens expect positive steps regarding employmentopportunities by solving water supply issues. As shown in the table below, current water shortages restrictemployment opportunities for poor households more than for the others (88.5% vs. 77.3% according theopinion of the non poor households).

Table 3.13 Households' perceptions of the reform impact on employment, especially in tourism sector(in %

Current water WSR will increase Current water WSR will increaseshortages restrict opportunities for shortages reduce business opportunities,

employment employment business opportunities, investments, andopportunities investments and property values

property values

Yes No DK Yes |No DK Yes No [ DK Yes |No DKBudva 80.8 11.5 7.7 57.7 3.8 38.5 57.7 15.4 26.9 34.6 15.4 50.0Bar 64.0 16.0 20.0 40.0 36.0 24.0 56.0 36.0 8.0 36.0 52.0 12.0Kotor 88.0 4.0 8.0 48.0 16.0 36.0 52.0 12.0 36.0 52.0 20.0 28.0Ulci 100 0 O 100 0 0 100 0 0 100 0 0MC/avg 83.2 7.9 8.9 61.4 13.9 24.8 66.3 15.8 - 17.8 54.5 21.8 23.8



Poor 88.5 0 11.5 57.7 23.1 19.2 76.9 11.5 11.5 53.8 38.5 7.7Economically 87.1 9.7 3.2 71.0 12.9 16.1 71.0 9.7 19.4 67.7 9.7 22.6vulnerableNon poor 77.3 11.4 11.4 56.8 9.1 34.1 56.8 22.7 20.5 45.5 20.5 34.1

On the other hand, reforms could reflect on problems of employment in WSCs as well. WSCs' reform wouldreduce the number of employees. According to all respondents, an over employment problem exists andsome of workers could be fired by the reform implementation. Over employment is currently causing a lackof productivity of the water supply service. Staff employed in WSC are working as entrepreneurs and repairdamages and breakage in the afternoon hours as well.

It is very possible to connect the tourism industry with agricultural development in the back-coastal area.Focusing on the tourism market on the coast is a great opportunity for agriculture producers in this area.Dealing with agriculture as a coping mechanism in coastal areas is recorded only in Ulcinj. According to theHHS survey, they generate income based on locally grown produce. Qualitative water supply is veryimportant for this population. On the other side, those water consumers are illegally connected to the watersupply network in their city.

Other channels of impact of the reform

Health: Cases of diseases caused by poor water quality were recorded only in Ulcinj. Those cases werecaused by usage of water from the Lisna Bori water spring during the summer months. This water springdoes not have a permit to be used and is contaminated by bacteria.

The majority of those interviewed are purchasing bottled water in stores during the summer because theyare concerned by the poor water quality.

Living conditions: Considering the living conditions, the situation in the target cities is good. All of thempossess connections to the electricity grid. Some neighbors in Ulcinj are not covered by the water supplysystem. Most of them have a bath inside the house as well as an indoor tap, except for some economicallyvulnerable households in Kotor.

Almost all households possess a washing machine, except for poor households in Ulcinj. Dishwasher is usedin 40% of households; the lowest percentage is in Bar and it is related to households' financial abilities.Citizens of Kotor do not use a washing machine and dishwasher on a regular basis due to water shortageand salty water.

Sewage service: The impact on employment is largely, but not totally dependent on the water supplysituation. The importance of an adequate sewage service is perceived as especially relevant to the touristindustry, and it has clear implications for the future economic development of coastal cities. Wastewater iscurrently drained directly into the sea without previous cleaning treatment. Based on conversations withstakeholders, the conclusion is that the lack of adequate treatment of wastewater has an influence ontourists' return to this region.

Vulnerable Groups: Roma population in Montenegro and water supply problems they are facingwith

Living conditionsThe social and economic conditions of every city are reflected in the Roma population. The southern part ofMontenegro is richer and more developed, which is why the living conditions of the Roma people in thisregion, their position in the society and their outlook are all much better than in Podgorica or the northernpart of the Republic.

Living conditions of the Roma are also influenced by their specific, traditional way of life. Their lives aredetermined by very "strong" patriarchal family relationships where interrelations with members of other



communities are considered as a kind of separatism. In addition, extreme poverty is caused by low or absentincomes, which further cause poor nutrition and health conditions and the short lifespan of this population24.

Accommodation conditionsThe type of accommodation facilities where a typical Roma family lives is a barrack or house, which is asmall structure made of solid material but of poor quality. Living conditions are different for domestic anddisplaced Roma. Domestic Roma households have their own accommodation with adequate propertydocumentation. These families have for the most part lived in the region for a long time and own livingfacilities made of solid material similar to those owned by the non-Roma population. In addition, a numberof these households are quite a bit smaller than those of Roma refugees and IDPs living in collective centersand illegal settlements.

Most Roma families live in illegal settlements and these are the most vulnerable. Illegal settlements haveaccommodation units which are very small, made of wood and cardboard, with poor isolation and earthfloors. Access roads are very poor. Road infrastructure within these settlements does not exist. Water supplyis provided through pipes from the nearest settlements and most of the inhabitants obtain water from publictaps.

'Barracks are wooden and plastered with mud. Households obtain water supply and sewage tanks by them.Houses located near water sources are constantly exposed to the risk of flooding due to hard rains and thefact that the road lies above the foundation of the houses. Therefore, families must themselves dig ditchesotherwise their barracks would become rotten. "(FG participant in Niksic)

A long-standing problem that all Roma settlements face is that these have been illegally constructed. Romaare constantly afraid that their houses could be demolished. "If they could legalize our houses, so we wouldnot be afraid eveiy day' "In the settlement, 70% of the Roma population was born as Montenegrin, but inillegally built houses. My father built two small rooms twenty years ago, without any credit assistance, andhe is afraid now that it could be torn down. If they will not permit building, they should do so from the startinstead of reacting later"

Solving water supply problems is closely related to the above-mentioned problem. The Roma populationdoes not consider that connecting their barracks or houses to the water supply network is worth the effortsince these may be torn down eventually. With regards to electric power, 95% of interviewed households areconnected to the supply network, while 82% are connected to the water supply network. Different ways andtypes of access to the drinking water supply are used in all three target cities.

Water supply network and problemsWater supply problems in Roma settlements depend, in part, on the situation in the cities where thesesettlements are located. Thus, water shortages are a problem during the summer for the Roma as well asthe non-Roma population in Herceg Novi and Niksic due to a general lack of water capacity in those cities atthat time. It is evident that collective Roma settlements, consisting of barracks and houses are betterprovided with water supply and sewage networks than temporary illegal settlements.

24 More than 71% of Roma in Montenegro are younger than 30 - Vulnerability profile of Roma population incountries that realize Decade of the Roma Integration, UNDP, 2004-2005



With regards to drinking water sources, there are differences among citiesand settlement types. The main drinking water source in Herceg Novi forall of the respondents is the municipal water supply.

-s s Roma settlements in Niksic, except the Brija Place, are covered by thewater supply network. For most citizens, the main drinking water source isthe municipal water supply. For BrIja and the Steel Works Factory areas,public taps are used and a local water supply network. There is only onepublic tap in the BrIja Place which is used by 15-20 families in the summer

l! --- as well as in the winter season. "When the water supply is cut, we arewaiting until nightfall to fill the water balloons. The waiting line is too longbecause all of us use only one tap'

FG participants complained about the local population because running water is being used for gardeningduring the summer months, which leaves the Roma without drinking water. The Trebjesa settlement, locatedwithin the Klicevo community, is near the bauxite mine, therefore, every household is connected to the watersupply network. Low water pressure is a problem here however.

The water supply situation is very bad in the Konik and Vrela Ribni&a settlements where most of the Romapopulation of Podgorica live. According to focus group participants, neither settlement has water supplynetwork connections for all households. Inhabitants in those settlements mostly use public taps as a watersource. The water source is on average 100m far from houses. Water is usually transported in waterballoons or by rubber hoses to each accommodation unit. Besides the municipal water supply system, wellsand rivers are the main water sources. Kakaricka Gora and Vrela Ribnicka in Podgorica are the mostvulnerable, with the worst water supply conditions. Water sources are 200m to 300m far from houses. Thetime needed to get water from the spring 200m away is 30 minutes. The FG participants, concerned abouttheir living conditions, decided to organize themselves and jointly with foreign donors installed a watersupply system for households in the illegal settlements. "We found donors for installing hoses and 30 housesare now connected to the water supply and that cost 6500'

The settlement under the Kakaricka hill is not connected to the water supply or sewage system. 'They arebringing water in balloons loaded on donkeys' The situation is better in Camp I and Camp II because theyare connected to the municipal water supply network and they have public taps. When asked about the mostfrequent problems regarding water and water supply in their settlements, FG participants answered that thewater shortage during the summer months is the most pressing problem.

Improvement in the service of the Water Supply Management CompanyThe Roma population in Podgorica is interested in having an improved sewage system in the Konik andVrela Ribnicka settlements. In the Kakaricka Gora settlement, inhabitants are interested in having watersources closer to their houses or in introducing a water supply network in the settlement. Inhabitants of theVrela Ribnicka settlement would like to have new water pipes, a sewage system (second listed improvement)and constant water inflow. Inhabitants of Herceg Novi suggested constant water inflow and better waterpressure, while their second suggestion related to safe and clean water. Inhabitants of NikWkc suggestedbetter water pressure and constant water inflow, especially in summer months, as well as the introduction ofwater supply network connections in the houses.

Ability and willingness to pay water billsMore than half of the interviewed households in target cities did not pay their water bills on a regular basis.All households in Herceg Novi received water bills regularly, while this was the case for 62% of households inPodgorica. The average bill in Podgorica was E7, in Herceg Novi E9 and in Niksic E5 per month.

Every Roma household in Herceg Novi has installed its own water meter and billing is calculated based onactual consumption. Roma stated that the price of water in this city is 0.65 E/m3 and consider this to be thehighest in the region. Participants are also aware of what is included on the water bill, mentioning sewageservices, for example. They are willing to regularly pay those dues because otherwise they will bedisconnected from the water supply network.



In Niisic, 35% of interviewed households have a water meter installed and the Water Supply ManagementCompany conducts bill collection, based on actual consumption. The Roma stated that they do not pay waterbills on a regular basis primarily because of a lack of money: "When we have money, we pay bills, but ifthere is no money we do not pay Roma households were never disconnected from the water supplynetwork"Adding to the problem of paying bills is the fact that billing service is not prompt. Delivery of billsoccurs once in four to five months and Roma households cannot pay these accumulated debts.

In most cases, Roma displaced from Kosovo are illegally connected to the water supply network and they donot pay bills for water and electricity. Authorities allow this since, as they said: "utilities should bereimbursed by the international organizations."

In Podgorica, bill collection and installation of water meters varies from settlement to settlement. Accordingto the survey, 50% of interviewed households in Podgorica have a water meter, 20% pay the same billamount regardless of consumption, while 20% of households do not have a water meter installed.

Inhabitants of Konik and other settlements stated that they do have water meters but that they pay a flatrate for the water, sometimes in the amount of E80 per month. The same occurs in the illegal settlement. Aspecial problem exists with the billing service. Roma households stated that bill collectors are fake,misrepresenting themselves as employees from the Water Supply Management Company and that theseimpersonators charge E10 - E15 per month without offering any invoices.

"I know that 100 m3 costs O3 and I do not want to pay other peoples dues. I want to receive an invoicefrom the Water Supply Management Company instead of some private in voice"

"We complained to the Water Supply Management Company and they told us that we are obliged to pay Wedo have a water meter and sometimes it calculates 620-630 per month, while sometimes the amount is CIOalthough the water meter is functioning correctly'

In addition, FG participants stated that they were forced to pay water meter installation and that itamounted to E50. This policy of the Water Supply Management Company should be implemented incooperation with social welfare services since they have records on the material conditions of each family.However, this was not done in this situation and Roma households had to pay money even though theycould not afford to.

Willingness to pay Water Supply Management Company's servicesAccording to Roma families in Podgorica, an affordable service charge for establishing a sewage systemconnection would be about E85; according to families in Herceg Novi that amount would be about E70 andfamilies in Niksic say they could afford about E34. Affordable rates for channeling waste water outflow alsovary between target cities. In Niksic6 and Podgorica, 40% of Roma would not be willing to pay this service,while households in Herceg Novi would be willing to pay for this service on average E3.5 per month. InPodgorica, only Roma with a regular monthly income would pay E5 per month. The main improvement thatRoma households in the three target cities would expect relates to installation and maintenance of sewagesystems. This would be a precondition for achieving normal living conditions in other settlements as well.Inhabitants of the Steel Works Factory Settlement in Niksic gave as a precondition the maintenance of asewage system which would include manholes, this due to the fact that they face many problems during therainy days. An affordable rate for the cleaning of septic tanks on a regular basis varies depending on thefinancial situation of each household. In Podgorica, the average amount is to E12, in Herceg Novi E26 and inNiksic E17.

Public awarenessAccording to interviews, Roma do not know much about the Government's water policy -- as many as 90%know nothing about this issue. The Roma population in Podgorica believes that the Government will improvewater supply conditions in their community, while in other cities Roma are skeptical when it comes togovernmental measures. Specifically, half of the Roma interviewed believe that there will not be anyimprovements. Roma in Herceg Novi are aware of the regional water supply problem and therefore expectthat the Government will solve their problems. The Roma population in Niksic and Podgorica believe that thelocal government is responsible for the problem. According to them, the local government should create aseparate budget to assist them with this problem but such a thing has not happened yet. FG participants in



Herceg Novi stated that many humanitarian organizations played a more significant role in water supply andsewage system improvements. Awareness of the possibility of filing complaints at the offices of the WaterSupply Management Companies, in cases of poor water supply service, is highest in Podgorica (90%) andleast in Niksic (37%).

Subsidies for vulnerable householdsThe Water Supply Management Company of the Municipality of Niksic has already provided subsidies forvulnerable groups. A FG participant stated the following: "I belong to the vulnerable group and receiveFamily Material Support in a monthly amount of 683. My total debt for electric power is C983 and the ElectricPower Company of Montenegro told me that I could pay part of this amount now and the rest, in paymentsthat could be made by the Social Security System. "The participant added an important point which was thateveryone who receives Family Material Support has to apply at the Water Supply Management Company inorder to be released from payments. When asked if the Government should release vulnerable householdsfrom water bill payments, 95% of families stated positively. FG participants in Podgorica believe that theGovernment should provide subsidies for poor and vulnerable households. "The Government.should assist usat least with water supply problemsl"

Health carePersonal hygiene is one of the challenges that should be met by the Roma people in order to avoiddiscrimination when communicating with the non-Roma population. Changes in their way of living areunavoidable. A good water supply system would contribute to better living conditions, health and personalhygiene habits.

FG participants are aware that the proximity of garbage dumps is very dangerous for inhabitants of severalRoma settlements, especially children. They are also aware that many Roma people survive on what theycan collect from the dumps such as secondary materials, food and other disposed of goods. They alsomentioned the problem of waste burning which can seriously injure the health of inhabitants as well. As theparticipants said, inhabitants of Camp II, which is located near city dumping grounds, are primarilythreatened by this situation, some of them suffering heart and lung diseases which cause terrible problemsin their already difficult lives. "The director of the Water Supply Management Company promised that thewaste would not be burned any more, but they are still doing so. There was a wall but it is ruined".

Recommendations and conclusions

The intent of this survey was to obtain a general picture of the Roma position and to better understand theirpoverty level and vulnerability from the perspectives of water supply and accommodation conditions.

The Roma integration process signifies complete social integration, including interactive relations betweenRoma and non-Roma populations. A major obstacle to this process is the very mentality of Roma people, aswell as their lifestyle and different value system which keep them at odds with other populations. Theythemselves are aware of the barriers that exist due to their way of thinking: "The Government does not havethe power to change our awareness. We need education on all levels"

Resolving the plight of the Roma is a complicated process which includes solving water supply problems inorder to improve their health and personal hygiene. In this way, children would be less discriminated againstin schools and the number of children attending school would increase. The number of adult Roma workingregular jobs would also increase.

Better water supply systems and proper drainage of wastewater outflow would also improve the generalliving conditions of the Roma population. In order to make it feasible to begin such improvements, it isnecessary to legalize the facilities where Roma people live. The survey shows that problems faced by Romacommunities are very complex and that solving one problem requires resolving another one beforehand.Regarding the Roma integration issue, success requires that everybody be involved: local governments, thenon-Roma population and the Roma population, to start.

Regarding the resolution of water supply problems, the following are necessary:



* Increase the number of Roma households with access to drinking water. The situationwould be improved by investments in new water channels and pipes to accommodate many newconnections and consumers.

* Increase percentage of Roma living in accommodation units with interior water supply connections.* Take measures to protect current water sources, as well as potential water sources in rural

areas.. Legalize consumers and regulate the billing system in Podgorica. Roma with regular

monthly incomes are willing to pay water bills and to install water meters. However, many familiesare struggling to survive and cannot afford to pay water. These families should receive subsidies orother assistance from social welfare programs.

* FG participants believe that the Water Supply Management Company (WSMC) in Podgorica shouldimplement a plan to improve the bill collection process so that bills are collected in anorganized and timely fashion and reflect actual consumption. A control on WSMC employees wouldprevent collection abuse, which occurs in some settlements.

* A better-informed Roma population about the services provided by the Water SupplyManagement Company and the various methods of paying for these, would reduce abuse in billcollection. Additionally, closer cooperation between representatives of Roma communities and theWSMC is necessary. Representatives of the water supply companies stated that Roma are notinterested in employment with those companies, but that there are jobs available for them.

Poor access to water causes the poor health conditions of the population, although representatives ofthe Roma population believe that they have become immune to all problems.

Activities that need to be started are as follows:* Epidemiologic monitoring in order to ensure hygienic conditions for Roma.* Increase the number of health professionals who communicate with Roma.* Educate the Roma population in the matter of personal hygiene and epidemic prevention and

increase their awareness of the importance of these issues.

The second most significant problem that Roma people face in their settlements is the lack of sewagesystems. Open sewage channels in Roma settlements with unprotected septic tanks cause health problems.The mixing of wastewater and drinking water often causes hepatitis and stomach diseases, especially amongchildren. All settlements are affected and Roma who attempt to seek solutions at the utility companiesexperience discrimination there and are told that services are available only in emergency situations.

According to the survey, the Roma are willing to pay for sewage network connections and consider this to bethe best solution to their problems. Therefore:

* It is necessary to increase the number of constructed/reconstructed sewage systems inRoma settlements and increase the number of households connected to the municipal sewagesystem.

* It is necessary to construct or repair existing public bathrooms in illegal settlements.

Water supply and sewage system problems can not be solved before solving housing problems. Many Romafamilies live in illegal facilities which they do not own. Roma in all settlements are afraid that their homesmay be torn down. They are aware that very few of them possess property documentation for their homesand mentioned having problems with city building authorities.

In order to solve these problems, the following needs to be done:* Complete legalization and enforce property rights before addressing water supply problems.

Water supply problems can not be solved before solving accommodation problems. "It is not worth itto invest in this system."

* Construct new and reconstruct existing accommodation facilities for Roma, to reduce thenumber of Roma households living in barracks, to expand their living space and to increase thenumber of houses with bathrooms.

Local governments in all municipalities consider these problems to be marginal ones. These problemsactually require significant financial resources and defined property rights. Since Roma families do not owntheir homes, investments for improvement are postponed. Local governments conduct few activities and



these, only in emergency situations when existing temporary solutions such as septic tanks and channels cannot hold pressure.

One of the solutions for establishing better communication between the Roma population and localgovernments and institutions is the appointment of a Roma representative in municipal bodies which wouldadvocate solutions for their problems. Better living conditions for the Roma population, which meansinstallment of quality water supply systems, proper garbage disposal and adequate accommodation, wouldincrease the psycho-physical readiness of children and adults for integrated education and employmentprocesses as well as for acceptance by the non-Roma population.

The social integration of the Roma people and an increase in the number of educated Roma would createthe conditions necessary for their employment. This would improve their material situation and preventgreater poverty.

B. STAKEHOLDERS AND INSTITUI1ONAL ISSUES

Chapter II provided a description of the roles and competencies of each of the stakeholders. This partprovides an in-depth analysis, which aims to identify stakeholder issues and institutional gaps and obstacles,which interfere with reform implementation.

Stakeholders and a New Institutional Environment

Data obtained has revealed the current readiness of the Government of Montenegro, Ministry of Tourism andlocal WSCs for solving water supply problems through the Vodakom project of uniting local WSCs.

Currently, WSCs in Montenegro have not been recognized as efficient organizations but rather "arms" of localgovernments with political parties' representatives sitting in the Board of Directors of WSC. Lack of expertiseof those running WSC operations was a factor but also limited maneuvering space, since LG considers waterto be a social category, created a poor image of WSC in public opinion. Poor water supply and a tariffincrease not accompanied by adequate improvement in the water supply service further supported this view.Therefore, all stakeholders are looking forward to the reforms, recognizing this as an opportunity to improvewater supply service in the coastal area of Montenegro.

An expert of an international organization is confirming that WSC should be an independent service, ratherthen a municipality company. "These companies are usually understood as sources of income for themunicipality Usually management boards of these companies mirror the structure of local parliaments. Thissituation is not good; it leads to strange situations and conflicts of interest, because the same people are onthe board of directors and are debtors of a company if, for example, they work in the municipality Thisconcept is not good. "

One CG expert believes that the establishment of Vodakom with CG as a shareholder at the very beginning isan important issue since it would facilitate coastal municipalities to reach a consensus through mutualcooperation and organization. However, both Vodakom and WSC should have adequate and capable staffthat has a grasp of the political dimension. As confirmed by an international expert "WSCdirectorsshould beexperts rather then political appointees. ... Unless they act strictly as experts, no matter how right they arethey will make the entire situation problematic, which will lead to distancing among the municipalities andVodakom."

While the director of the existing Water Directorate supports the idea of establishing an agency that wouldserve as regulatory body, CG experts see no meaning in establishing an Agency for Water Supply Regulation.Despite the decentralization process, he suggests that some of the functions of smaller WSC (i.e. Niksic,Savnik, Pluzine) could be merged by combining the technical and human resources into one place, in orderto make their work more efficient. An expert of an international organization agrees that a regulatory body isnot necessary if there is no privatization in the water sector. In case of privatization, the regulatory agency isnecessary but it should be financed from the water supply activity and partially from state funds. The role ofthis agency would be to regulate private investments in the sector and to ensure that the investor has areasonable and not excessive profit.



The opinions regarding private vs. public management of WSC are divided: while everyone agrees thatprivate companies would be more efficient in improving enforcements, they are at the same time afraid thatthe privatization of water supply sector would directly lead to a significant tariff increase. Therefore, in thecase of privatization in this sector, clear legislation is necessary as well as either some kind of LG control overprivate operators or setting up a Regulator Agency. Otherwise, there is a fear that private operators will hurtliving standards of the population through a tariff increase.

Based on collected data, the most recent characteristics of the water supply sector are:* Inadequate water supply system structure and organization (inadequately determined relations

between: local governments - WSCs);* Non-systematical and dislocated regulations used for determining water suppliers' relationships

(supply is a marginalized part of the water industry). Water supply is a complex activity of publicinterest, and it requires key relations to be determined clearly, permanently and precisely within onelegal regulation;

* Interlock of LGs' and CG's authority; some of the Republican authorities should be transferred tolocal level (e.g. water spring use concessions);

* Water resources and water supply management are not clearly defined in Montenegro;* It is evident that authorities responsible for the water supply system on the Montenegrin coast

should be divided on local and regional levels. Regional level should be under the authority ofregional water supply management, while local water supply should be under the local WSCs;

* According to the Law on local management, water supply management is decentralized and is underLGs' authority;

* CG is creating laws and through information on water supply is recognizing and solving problems inthat area together with local self-government. The Central Government is also trying to providefinancial resources through more favorable credit lines that could be used for solving water supplyissues.

According to Montenegrin experts, the Central Government, with all respect to local governments, isindicating ways and directions by which local governments could develop their water supply systems, suchas:

* Most WSCs' experts stated that allocation of the LG budget is often uneven, and that it is necessaryto have more understanding for investments in WSC;

* Possibility of private and public sector cooperation for billing, maintaining and water distribution tothe customers (Merkur in Tivat as an example);

* The current Law on water does not define WSC privatization issue.Main issues related to stakeholders

Independent functioning of WSCs -An independent WSCs is an issue that should be solved for WSCs'interest. WSCs do not receive funding for their development, while the land construction fees fund LGs and itshould be used for WSC infrastructure investments. LGs as WSCs' founders have not paid off their liabilitiesto the WSCs."WSCs should be organized as a partnership of central government and LGs. Central government mustassure clear regulations and technique standards for WSC work. According to those standards, LG shoulddevelop into a companies' organization. This would enable further development and urbanization of theinfrastructure." WSC Expert

WSC dependence on LG decisions -The problem of WSC management by the board of directors lies inthe fact that selection of board members depends on local political party composition. There are only tworepresentatives of WSC in a board that counts seven members. In that case there is a conflict of interest.People employed in LG for example, and in some other company at the same time, could be directors in oneand debtor to the same institution as well. LG board decisions are often under political influence.

Politics involved in reforms and the need for stabile institutional organization -One of the risksof reform is involving politics, meaning that reforms will depend on the political attitude of certain LGs. It isnot possible to meet the needs of all LGs at the same time. Vodakom's public function is managing servicesfor meeting consumers' needs, and very often that will be one of many LG's interests. This could leadVodakom to separating from LGs.



Understanding reforms as WSC privatization - Most citizens understand reforms as privatization or apreparation for the privatization process of WSC. One Montenegrin expert said: "With WSC the situation is alittle different, regarding privatization. We had one unsuccessful try with regional WSC, which developed as apublic-private company. That project had no effect. Managing must be private, but local government musthave control, price control, and control of social categories."

Need to improve legal framework- What the reforms lack are clearly defined technical regulations andprocedures, representative of the critical moment of reform.

Utility service law regulates water supply problems to be solved by the local government. Republican levelregulation regulating this activity does not exist. Local governmental law predicts that LG should managewater supply, and the Government regulates official policy on water supply. Current law regulation does notconsider water supply as an independent service, does not define liabilities of consumers, neither does itprotect WSC assets in the case of illegal connections.

Large dispersion of current law regulations - Existing problems that are not included in lawregulations are: large dispersion of regulation in a water industry, over which many government bodies haveauthority. In this way, some ministry authorities overlap. Experts from Montenegro and WSC expect that thenew water supply law will solve and define specific authorities.

Knowledge and information dissemination -Private sector representatives are afraid that reforms willonly remain on paper and not be carried out. They suggest defining in advance a monitoring system and asystem of regular, periodic reports about undertakings and their effects.

Existence of water supply regulatory agency - On the one hand, the water companies merging issuggested, enabling a single, united company to work more efficiently and reduce administrative costs.Existence of this type of agency means the initiation of privatization, and profit distribution regulation withinthis sector. On other hand, the idea of establishing a regulatory agency, to supervise activities in all thewater companies, concessions, water resources, water protection and hydrodynamics and water supplyindustry. The water law is in the process of preparation and it should define water agency issues.

One director of the WSC stated that the Agency for water supply regulation would not be necessary if a"regional WSC already existed and collected a percentage of each investment with no result in either thefield of water supply or waste water disposal".

Joint work of water and sewage services - current working conditions under these two systems arenot appropriate and further investments in both are needed. Division and individual privatization are notpossible without previous living standard increase.

Corruption of WSC employees - many FG participants cited corruption cases of WSC employees. Inaddition, many WSC employees provide some private water supply services after working hours. Most of therespondents in this and HHS research stated that WSC employees often assisted providing illegal watersupply connections.

Bad communication between WSC and consumers - The public is not informed enough on currentchanges, activities, donors. Many complain of not knowing that there are particular offices in the WSC wherethey can lodge complaints.



IV. CONCLUSIONS AND RECOMMENDATIONS

This study should be seen as part of a wider context of tourism industry development in Montenegro. As astarting point, the primary problems and limitations, which prevent development of the tourist sector in thecountry, are as follows:

* Inadequate or substandard system of water supply in the Montenegrin coastal area. Absence of the Republican Urban Plan where needs and capabilities for development of the

Montenegrin Coast and Communities would be defined* Absence of a system for diverting and refining waste water in coastal region. Substandard road infrastructure. The problem of poor roads in Montenegro is a substantial

restriction for development of tourism.* Absence of citizens awareness that Montenegro depends on tourism.* Absence of local solid waste material dump (with the exception of the Lovanja dump)

In the water supply sector for the Montenegro Coast, based on opinion of citizens as consumers and localexperts, basic problems are:

* Insufficient water source capacities of all coastal towns during tourist season• Substandard water supply system infrastructure* Inadequate quality of water* Large number of illegal connections* Poor cooperation between water supply companies and citizens* High percentage of loses on the main water supply network* Improperly working water meters and flat rate billing* Low collection ratio.

A participatory monitoring and evaluation (PM&E) process would be beneficial to undertake. In this process,indicators based on the challenges above would need to be established. In the PM&E, primary stakeholderswould actively select and manage the interventions, and take the lead in tracking and making sense ofprogress toward achievement of self-selected/jointly agreed indicators/results. This PM&E process willimprove results and sustainabililty of interventions by empowering primary stakeholders: (information,capacity building; collaborative learning; and influence).

A project social impact analysis would be beneficial to assess the impact of the Montenegro TouristDevelopment Project.

The Water Sector Reform in Montenegro is an important undertaking due to the significance of the tourismindustry for the country's development and the current socio-economic situation in Montenegro. The ultimategoal of this reform is to offer better quality service to more customers. In this regard, this study hashighlighted the urgent need for certain activities. A list of more detailed recommendations follows:

Public awareness of the obligation of water bills payment and conservative use of drinking andtechnical water. Low collection ratio accompanied with tariffs that do not include investment costs is anadditional burden on WSC. The most regular payers are pensioners. Since there is no understanding of waterimportance, there is a need to organize an adequate public campaign to educate citizens on their obligationto pay for water as well as to conserve water. Cutting off irregular payers should also be accompanied bysuch a campaign to insure that no opposition is created.

Strategy for tariff increase - All the data available leads to the conclusion that tariff increases should beimplemented only after consumers believe that access has improved significantly to justify another increase.This is particularly important in Budva since citizens have not seen any improvements in water supply sincethe last tariff increase. All respondents confirmed that citizens could accept the water price increase as partof an improved water supply system. In that case, a price increase should be implemented gradually inincrements of 10%. It is necessary to define water charges and explain this decision to citizens as well asthe dual tariffs for institutions and households.

Need to consider subsidy policies for poor households - All stakeholders agree that it is necessary todefine subsidy policies for the most vulnerable (mostly recognized as social assistance recipients and Romahouseholds). However, while residents would prefer to have a lifeline tariff to be introduced, experts believe



that water bills are low and that subsidies are not necessary. In contrary, they advocate that a block tariff isintroduced, in such a way that a certain optimal water quantity is charged by a lower price, while in caseswhere households exceed a given per capita water consumption, the entire consumption is charged by thehigher tariff. This should lead to water savings and more responsible behavior of consumers (eliminatingunnecessary watering of the gardens etc.) It is necessary to establish closer cooperation between LGs, CG,WSCs and civil society regarding necessities on this level.

Consumer representation and consumer panels - Though such influence of the consumers would beimportant and in the direction of democratic development, as suggested by the experts, this could not worksince consumers (households) cannot agree on other less complex issues. Anyway, it is recommended thatbusiness sector representatives take over an initiative in such a process since for them it will be easier torecognize their own interest and to set up such councils to participate in decision making processes that caninfluence WSC work. This should help to establish better cooperation between WSCs or LG and customers. Itis necessary to inform the population about current reforms and related changes as well as of donors andinvestments for improving water supply system.

Reduction of water distribution loses would increase available water capacities without additional inputsfrom alternative sources. Projects for repairing many damages and water distribution loses are currently inthe process. In addition, an entire campaign regarding installment of properly working water meters shouldbe undertaken. Since the study showed that poor households are not willing to pay current costs of watermeter but are interested in billing based on the actual consumption, a donor supported program to pay forwater meters in 2-3 installments should be introduced.

To distinguish ownership of the water supply system between LG and WSC - It is necessary toclearly define the mechanism for financing and authority that LG and WSC have as well as to increase thelevel of independence of WSC as a public service. This is very important so that WSC accepts responsibilityfor its performance rather than to hide behind decisions of LGs. More concretely, WSC should be lead byexperts and not political figures. Also, LG should not consider water as a social category but rather a marketcommodity that should have an accurately set price.

New legal regulation - By defining the new Law on water supply, authorities in the water supply sectorwould be defined as well. This Law would also include regulation and conditions for the privatization process.

Establishment of the Agency for billing in each city - this type of agency would assure morequalitative and complete consumers' data base and documentation on the billing rate for the water andsewerage services. This is not a priority measure since privatization of WSC is still not planned.

Formulate strategic human resource development plans for WSC - According to the WSC experts,WSCs need a clearly formulated strategic human resource development plan. Research showed that mostWSCs employ too many workers. Cost reduction and optimal work of WSCs should also includesystematization of work places.

Possibility of partial privatization of the WSC - All experts at the Republican level and in WSCssuggested privatization of certain segments of the water supply such as billing, water supply networkmaintenance and water distribution to consumers. Therefore, further promotion of public-private partnershipin water service delivery is necessary.

Calling to multi sector partnership - Water supply and wastewater are established as a public sectorservice that requires investments in order to achieve higher standards and sustainable development.Therefore, partnership between the public and private sectors would improve their work.

Conducting feasibility study and cost-benefit analysis on exploitation of the Karuc water spring- According to technicians, a cost-benefit analysis completed 30 years ago showed that constructing thissystem is not feasible. Thus, the feasibility of this project is doubtful due to the unreliable water quality fromthat spring.

Research on perception of population living in the Skadar Lake area on water usage from theKaruc spring. The suggestion is to develop a feasibility study on water use from the water spring Karuc for



supplying the entire Montenegrin coastal area. The study should include examination of water quality,consequences that exploitation might have on plants, animals and birds, local authorities and population.

With respect to tourism development sectors, the research pointed out the following:

1. Urban plan of the Republic to be developed. In 2001, Parliament of Montenegro adopted aDecision to start developing an urban plan for the Republic of Montenegro, covering the period until2020. The campaign for developing such a plan is an opportunity to complete the transition processin this area (reform of the system and adoption of the new Law); to evaluate and put togethersectoral strategies and programs; to set up a network of capable institutions; to create a base forthe development of GIS (Geographic Information Portal); and to provide a qualitative basis forconducting developmental politics and urban planning. In addition to the above mentioned, it isnecessary to develop general and detail urban plans for each municipality as well.

2. Regional networking of those employed in the tourism sector and agricultural producersfrom rural areas of Montenegro. Increase public awareness about the market needs of the tourismand agricultural business sectors.

3. Development of the road infrastructure - As one of the primary problems, both experts andhouseholds singled out bad road infrastructure. The main precondition for high quality tourism isdefinitely a good quality road infrastructure and regional connections.

4. In order to foster development of medium and small business, there is a need to reduceadministrative barriers, high taxes, as well as to reduce grey economy participation. There is alack of knowledge and skills in the tourism sector, as well as a marketing strategy for smallcompanies.

An Illustrative case study from Tivat WSC

Box 7.1 An example of giving a concession for part of the water supply network to a privatecompany in the municipality of Tivat

In 1998, WSC Tivat signed a contract with the private company "Hidromont - Merkur" regarding assumingresponsibility for water supply in the region of the water supply system pump station Toplis in livat.

By signing the contract, this private company assumed responsibility to provide water supply, safely andwith quality during the entire year, following communal policies and regulation of local government for tenyears.

With this concession, WSC Tivat managed to provide an improved water supply in this area, to enhancereconstruction and modernization of the water supply network, to introduce rational business organizationand obeying the actual paying power of certain groups of customers.

Private company alHidro-Montv assumed responsibility for workers that were employed in WSC Tivat,depreciation of goods and equipment of the WSCT, on-going and investment maintenance, as well as toconduct necessary repairs with no delays. In addition, the company is obliged to manage properfunctioning of the equipment, machinery and pumps and to prevent their collapse.Company is obliged to provide water for the end consumers in a quality and safe manner, as well as to setthe price of water in accordance with local decisions regarding water tanffs. On behalf of compensation foruse of pump station, Hidromont is obliged to transfer 20% of its profit to the WSC.

WSC Tivat will accept and consider prolonging the current contract; each investment for purchasing,replacement or embedding of equipment or parts; or construction of new objects in water supply systemToplis. The value of the investments will be seen as a paid concession fee.



Sevat is the only muniRtpality in Montenegro, which has annual collection ration above 91%. Certainly, suchWSC management contributed to achieving mentioned results. l



V. REFERENCES

* MONSTAT (Statistical Office Of The Republic Of Montenegro) 2003. Census of population inMontenegro, Podgorica

Materials Used In Desktop Review

* Hermine G. De Soto, et al. 2001. "Social Assessment." The Albania Municipal Water and SanitationProject. Social Assessment. The World Bank, Washington, DC.

* Republic of Montenegro. Ministry of labor and social welfare, "Montenegro Poverty ReductionStrategy Paper." 2005. Podgorica

* Radevic, Dragana and Beegle, Kathleen, 2002. "Living Standards and Poverty in Montenegro in2002." ISSP, Montenegro and World Bank, Washington D.C.

* Urban Institute. 2004. "Diagnostic Assessment of Montenegrin Water and Sewerage Works".Montenegro, Podgorica

* Republic of Montenegro. The Ministry of Agriculture, Forestry and Water Management, "WaterSupply Law', (Si. 16/95)

* Republic of Montenegro. Ministry of Justice and Ministry of Finance "Law on Local Self-Governance"(Si. 42/03)

* World Bank. 2003. "A User's Guide to Poverty and Social Impact Analysis." Poverty Reduction groupand Social Development Department, Washington D.C.

* Material describing the water and tourism situation in the four study sites

* ISSP/UNDR 2003. "Household Survey of Roma, Ashkaelia and Egyptians, Refugees and InternallyDisplaced Persons". Podgorica, Montenegro

* UNDP, 2004-2005. "Roma vulnerability profiles in countries that realize Decade of Roma Integration"

* Center for Roma Initiative, 2005."Survey on Roma Women's Position in Nikgic', Niksic, Montenegro

* Government of Montenegro, 2005. "National Action Plan on Decade of Roma Integration 2005-2015

in Montenegro', Podgorica,

* ISSP/UNDP, 2005. Montenegro "Human Development Report in Montenegro", Podogrica, Montenegro

* The World Bank, 2003. "Roma in an Expanding Europe Breaking the Poverty Cycle" Washington D.C.

* Diagnostic Assessment of Montenegrin Water and Sewerage Works, Urban Institute/USAID project

(2004)

* Co Plan, Sabine Beddies, Hermine de Soto and Arben Bakllamaja, 2005. "Decentralization and WaterSector Privatization in Albania". A Poverty and Social Impact Analysis. The World Bank, WashingtonDC, and United Nations Development Programme, Tirana, Albania.


[II


* Civil Engineering Faculty. May 2001. "Water Power Engineering of Montenegro" Montenegro. Podgorica



Annex 1 - City Profiles

PODGORICA

Type of ownership Public ownership; Podgorica municipality isthe owner.

Population (2003 census data)25 169,132Population (1991 census data)26 145,696Population growth (1991- 2003, %) 16%Unemployment rate, 200427 18.1%Households receiving social assistance 2,430 (4.7% of all households)Main economic activities (water related) Services, manufacturing industry, agricultureMain economic activities (not water related) Transportation, tradeBilling system Predominantly flat rate combined with

metered consumptionTariffs

2 8

For individuals 0.315E/m3For companies 1.104E/m3

Last price increase April 2003Collection Ratio (%) 15-20Water loss (%) 60

1. Local socio-economic conditions

Municipality of Podgorica is administrative, industrial, educational and cultural capital of the country. It hasan area of 1441 km2. Major economic resources for the city include trade, construction, manufacturingindustry, services and agriculture. The unemployment rate is 18.1%.

During transition years, there has been a significant increase in population of Podgorica as result of freemovement of population, mainly from the north or rural areas. The population of Podgorica increased from39,653 inhabitants in 1991 to 152,025 in 2003, with a population growth rate of 16.1%. Around 2430households, which represent 4.7% of all households located in Podgorica, are under economic assistance.

Except Podgorice, another settlement marked as an urban area is Tuzi. Just in period from 1971-1991,population number in Podgorica doubled, while the growth rate of population is decreasing. Tuzi settlementis recording increasing growth rate of population.

Ethnicity: Montenegrins (57%), Serbs (26.2%), Albanians (5.4%), Muslims (2.6%), Croats (0.6%) andothers (8.2%).

Economy: Municipality of Podgorica has great economic potential making it significant factor of influence onthe entire economy of Montenegro. More then two thirds (41%) of all companies registered in Montenegroare located in Podgorica. The total number of registered business organizations is 7,118, while the mostfrequent organization form is Limited Liability Company (3.974) and entrepreneurs (2,480). The most viableeconomic activity is trade (3,638 of registered companies are involved is some type of trade), thentransportation (1,025). The most important roads are modern high road (length 54km) which connectsPodgorica with the coastal area, then railroad Belgrade-Bar which connects north and south of the Republic,and airport Golubovci, the main pillar of transportation facilities during the tourism season.

Tourism: Podgorica has it own tourist potential and possibility to enrich tourist product of Montenegro,through business, transport, and recreational, hunting, sport and congress tourism. Also, agricultural activityis very much present (the total surface of agriculture land that belongs to the municipality of Podgorica is

25 Monstat, Population census 2003.26 Monstat, Population census 2001.27 Source: Institute for Strategic Studies and Prognoses, ISSP28 Source: Diagnostic Assessment of Montenegrin Water and Sewerage Works, Urban Institute (2004)



61,224ha). In the flat area of the municipality, there is a great potential for growing the vegetables, whilenorthern part of the municipality is more suitable for continental species of fruits and cattling.

Large number of underground water flows makes this municipality well known according its healthy drinkingwater.

2. Water Supply

Excluding small number of households, municipality of Podgorica, is fully covered by public water supplynetwork. In Tuzi, 86% of households is covered by public water network, while additional 9% of householdsdo have own wells. Something about 5.3% of population doesn't have water in the flat/house, which isunacceptable for capital of the country. In Tuzi this percentage goes up to 10%. The situation in neighboringvillages is unsatisfactory, since only half of the population is covered by the water supply network, whileremaining 50% (about 2,500 households in total), posses their individual wells.

The water network of Podgorica covers 43km2, which represents 51% of the entire city surface covered byGeneral Urban plan.

Aside to the resident population, Podgorica is hosting additional almost 8,500 of refugees and internallydisplaced persons (5.1% of resident population29) which also use the water from the public water network.

3. Water system in Podgorica and water supply problems30

Pipeline system was established in 1953, and at that time water was delivered through public fountains. In1965, capacity of the pipeline was 200 I/s and two reservoirs, one at Gorica and the other at Ljubovic. Threeareas for water intake through the wells were formed as follows: at Zagoric in 1968, Konik in 1972 andCemovsko polje in 1999. The greatest system upgrade was done in 1965 when Mareza spring was enlargedand pipeline DN 800 put into function.

Important deficiencies of the system include lack of enough tank capacity (20,000 m3 were meant to beexecuted in Ljubovic). Other problems include the old network, which causes a lot of losses at the systemand lack of modern monitoring and functional system. The total number of inhabitants connected to thedistribution network is 135,000 that means 100% of connectivity.

Inadequate water pressure is present only during the period from july to September for 3-4 hours/day andonly to the consumers from the upper parts of the distribution network due to small tank capacity.

Billing and collection practices: Consumers' connections are equipped with water meters and consumption iscalculated on monthly basis. Law does not calibrate some of the water meters within the time frameworkprovisions due to the limited capacity of the calibration department. It is estimated that about 20% of watermeters should be replaced. Bills are delivered once a month, personally. Collectibility at the households isabout 15-20% at the first month, while the balance between the total bills issued but not calculatedcompared to the total bills issued during one month is approximately 1:9.

Subsidies: Consumers registered in the Center for social work are subsidized and these expenses are notcovered by anyone

As the enforcement mechanisms, disconnections are used and they are effective. Also, filing charges areused if water is misused, while file charges against debtors are also used.

Water loss: An estimation of unaccounted water quantities goes up to 60%.

29 Source: Strategy for Resolving Issues of the Refugees and Internally Displaced Persons in Montenegro,April 200530 Diagnostic Assessment of Montenegrin Water and Sewerage Works, Urban Institute (2004)



BUDVA

Type of ownership Public ownership. Podgorica municipality is theowner.

Population (2003 census data)3" 15,909Population (1991 census data)32 11,538Population growth (1991- 2003, %) 37%Unemployment rate, 2004 13.5%Households receiving social assistance (%) 78 (1.4%)Main economic activities (water related) Tourism and servicesMain economic activities (not water related) Construction, tradeBilling system Metered consumptionTariffs 33

For physical persons 0.60 E/m3For companies 1.20 E/m3

Last price increase June 2003Collection Ratio (%) 60Water loss (%) 30


Budva is one of the oldest settlements on the Adriatic coast. It has an area of 122 km2. The population ofBudva increased from 11,717 inhabitants in 1991 to 15,671 in 2003, with a population growth rate of 37%.Majority of inhabitants are located in urban area of Budva (83%).

The population of Budva is significantly increased during the summer season, while attractiveness of thistourist destination caused a lot of illegal construction in last couple of years.

Ethnicity: Montenegrins (45.4%), Serbs (41%), others 13.6%.

Tourism: industry is main developing force of economy of Budva. Existing natural resources and developedtourist infrastructure represent solid background for further investments and economic development of thisarea. There is a strong correlation between main industry and water supply in Budva. With no good watersupply, all other aspects of tourist product are neglected. However, during the season, number of consumersis increased form more then 10 times which cannot be supported by current infrastructure and therefore,restrictions in water supply are often.

2. Water Supply

Situation with water supply in Budva is relatively satisfactory, if taken in consideration the public networkcovers that 92.6% of citizens, while 96.5% has pipelines in their flats/houses.Budva is using three natural springs, wells at "Dobra Voda" spring in Buljarica, and spring "Podgor-Sjenokos"which is shared with Cetinje. Low altitude or topographic barriers caused that water from all springs(excluding Piratac and Loznica) is executed to the consumers artificially. There are no problems with waterquality.

3. Water system in Budva and water supply problems

Company water supply functions as municipal public company. Company is in charge for providing followingservices: water supply, fecal sewerage and storm drainage.

The system was formed in the 60s by in taking water from "Rezevici" spring. System upgrade was done in1972 - "Podgor" and in 1994 - "Sjenokos" - by intaking overflowing water from the joint spring shared withCetinje.

31 Monstat, Population census 2003.32 Monstat, Population census 2001.33 Source: Diagnostic Assessment of Montenegrin Water and Sewerage Works, Urban Institute (2004)



There are 18,000 consumers in the system, while during summer season; the number of consumers isincreased to 100,000.

There is a lack of appropriate equipment so leaking detection mechanisms are poor. Additional problem arebroken parts and need for new capacities. It is necessary to remove "bottle neck" at the intake pipelineleading from Rezevici spring to Sveti Stefan34.

Collection ratio: As other municipalities in the region, Budva is facing problems with collecting the moneyfrom costumers. There is no unique registry of all connections in the municipality. Buildings are notdistinguished from houses and there is no simple relation: one water meter-one consumer. Collectibility atthe households is 30% for the first month and 30% more for the second. Subsidies are provided to familiesreceiving social assistance and displaced persons (almost 8% of all inhabitants - 1260 refugees andinternally displaced persons). Enforcement mechanisms (e.g., fines for illegal connections, termination ofservice for non-payment) disconnection and filing charges are used. There is no enough pressure during thetourist season (for approximately 50 days) while 5% of consumers do not have water supply during thenight.

Water losses - Estimated water losses go up to 30%.

Since water is artificially (by pumping) brought to the consumers, electricity expenses are additional burdenfor Water Supply Company.

Billing: The water price for households is 0.60E/m 3, and doubled for companies. Consumers mostly havewater meters incorporated at their connections. If they do not have them, lump sum is calculated at theamount of 5m3/member of the household. Water meters are calibrated regularly. About 1% of summerresidences have dysfunctional water meters.

34 Source: Diagnostic Assessment of Montenegrin Water and Sewerage Works, Urban Institute (2004)



KOTOR

Type of ownership Public ownership. Municipality of Kotor is theowner.

Population (2003 census data)35 22,947Population (1991 census data)36 22,112Population growth (1991- 2003) 3%Unemployment rate, 2004 22.1%Households receiving social assistance (%) 146 (2%)Main economic activities (water related) Tourism and servicesMain economic activities (not water related) Transportation, tradeBilling system Metered consumptionTariffs37

For physical persons 0.70E/m3For companies 1.50E/m3

Last price increase September 2003Collection Ratio (%) 30Water loss (%) 60


Municipality of Kotor has an area of 335km2. The population of Kotor increased from 22,112 in 1991 to22,947 in 2003, with a population growth rate of 3%. Urban area represented 74% of the entiremunicipality. The population significantly increased in some areas of Kotor (like Risan and Dobrota, wherenumber of inhabitants doubled).

Ethnicity: Montenegrin (47%), Serbs (30.1%), Croats (7.6%), Muslims (0.4%), Albanians (0.3%), and others(9.6%).

Impact of the water supply on the local economy: Kotor is facing with water problems for a long timealready. Number of tourists visiting this municipality is lower when compared to Budva and Bar, but stillrepresent significant source of city's income. Just in 2004, more then 36,000 of tourists visited Kotor, whichis more, then 60% of its population number.

2. Water Supply

Majority of inhabitants of urban area (95%) are connected to the public water supply network; 92% ofinhabitants do have pipelines into their apartments/houses.

Excluding consumers in the area from Perast to Old City Kotor covered by Orahovacki springs, during thesummer season there are restrictions in water supply. When it is about other settlements, restrictionsdepend on richness of Grbaljski springs and Vrmac as well as their saltiness.

In addition to resident population, there are about 2.2% of refugees and internally displaced persons.Consumers are considered to be owners of holiday houses as well.

3. Water system in Kotor water supply problems38

The water supply company is publicly owned. It is in charge of providing following services: water supply,fecal sewerage and storm drainage. First organized water supply in Kotor began before World War II. Thebiggest upgrades were executed in the 80s and 90s.

35 Monstat, Population census 2003.36 Monstat, Population census 2001.37 Source: Diagnostic Assessment of Montenegrin Water and Sewerage Works, Urban Institute (2004)38 Diagnostic Assessment of Montenegrin Water and Sewerage Works, Urban Institute (2004)



Out of five springs, during the summer season saltiness is increased at Skurda, Spila and Orahovac. Watersystem works at two seasonal regimes. During winter season, Skurda spring is used and by pumpingthrough two main tanks, Kotor is supplied with water. During the summer season, when a water shortage isevident, Orahovac spring is mainly used with direct water pumping into the system so that problems usuallyoccur due to bad electricity supply.

There are 22,800 inhabitants in Kotor that use the water system, out of which 99% are connected.Restrictions are imposed for the period of 2-3 months/year. About 120 consumers do not have water duringthe night.

Billing and collection ratio: Since all consumers have water meters incorporated at their connections, waterconsumption is calculated on monthly basis. However, water meters are not calibrated regularly, while 43%are broken and should be repaired. If the water meter is broken, lump sum charged amounts 6m3/memberof the household, while for legal entities an average from the previous period is calculated. Water bills arehand delivered and are paid on the spot. Mail delivery is used only for the customers who live in other cities.Payment collection percentage for the first month is 30% and additional 30% for the second month.

Water losses: Out of the completely produced water, 40% is recorded and 60% represent the losses. Thenetwork is out of date and there are illegal connections.



BAR

Type of ownership Public ownership. Bar municipality is theowner.

Population (2003 census data)39 40,037Population (1991 census data)40 34,282Population growth (1991- 2003) 16%Unemployment rate, 2004 16.5%Households receiving social assistance (%) 275 (2%)Main economic activities (water related) Tourism and services, Food processing

servicesMain economic activities (not water related) Transportation, tradeBilling system Predominantly flat rate combined with

metered consumptionTariffs

4 '

For physical persons 0.60E/m3For companies 1.20E/m3

Last price increase October 2003Collection Ratio (%) 60Water loss (%) 37.5


Municipality of Bar is the largest port of Montenegro. It has an area of 598km2. The population of Barincreased from 34,282 inhabitants in 1991 to 40.037 in 2003, with population growth rate of 16%. Aside toresident population, there are almost 4,000 of refugees and internally displaced persons (9.3% of totalpopulation) living in Bar. The most prominent economic driving forces in Bar are port of Bar and railwayBelgrade-Bar, as well as tunnel Sozina. Food processing industry is also developed for last more then 50years (company Primorka) focused on production of olive oil and pomegranate juice.

Ethnicity: Montenegrins (47%), Serbs (28%), Albanians (8%), Muslims (6%), Croats (1%), and others(10%).

Tourism: Good road connections, sandy beaches, large number of sunny days, and many natural beautiesattract many both domestic and foreign tourists. Additional resource is Skadar Lake and its coast, which hasbeen reserved from urbanization during transition years and has many development potentials. For thepurposes of nautical tourism, a marine with 982 spots is about to be constructed. Since 2002, number oftourists visiting Bar increased from year to year (88,477 in 2002; 106,870 visitors in 200442). Such increaseof consumers definitely influences water supply quality in municipality of Bar, and espedally tourist placeslike Susanj, Sutomore, and Canj.

2. Water Supply

About 98% inhabitants of Bar, Sutomore and Virpazar are supplied with water from public network. In OldBar this percentage is somewhat lower, since certain percentage of inhabitants are supplied from local watersupply network.

Among the households that are individually supplied with water, more then 60% are using water from wells,while 20% are using springs, and 15% are using water from tanks. Out of 329 households that use springwater, 174 are using not properly equipped springs.

39 Monstat, Population census 2003.40 Monstat, Population census 2001.41 Source: Diagnostic Assessment of Montenegrin Water and Sewerage Works, Urban Institute (2004)42 Monstat, 2004



3. Water system in Bar and water supply problems

The water supply company operates as municipal Public Utilities Company. The owner is the municipality ofBar. It is in charge for water supplies, fecal sewerage and storm drainage.

Water company was founded in 1935 and has been upgraded periodically since then by including allsignificant carst springs that exist around Bar. Today, water supply company in Bar is covering Bar, Sutomoreand Canj as parts of the unique system, and has separate unit and water supply system in Virpazar. Thereare 10 overflow stations at the system so that enough pressure could be obtained at all parts of the system.

Water supply system is out of date and should be rehabilitated while inadequate parts of the system shouldbe replaced. Widespread problem is the lack of modern monitoring equipment in such a complicated system.

Water losses - About 37.5% of water is considered as lost in the network due to the technical losses,damages on the pipelines, old pipelines and bad intakes etc. In addition, significant contribution to theselosses are uncontrolled and unidentified consumption because illegal connections.

However, it is important to notice that water supply company in Bar posses properly designed cadastre ofwater installations, which is an important precondition of organized inquiry of damages, in order to reducelosses. Unfortunately, cadastre is not regularly updated.

Billing -The current billing system is based on predominantly flat rate combined with metered consumption.There are different prices for water depending on the season (0.6 E/m 3 for the period from October 1- April30 and for the period May 1 - September 30 if more than 15 m3/household is consumed 1.2 E/m 3).Officially, subsidies still do not exist. However, 39 consumers are subsidized for 10m3/month.

Payment collection percentage for the first month is 60% and the most difficult problems water companyhave with illegally connected consumers changing the water meter on their own free will. In addition, watermeters are not calibrated regularly. There are about 1,000 broken water meters.



ULCINJ

Type of ownership Public ownership. Ulcinj municipality is theowner.

Population (2003 census data)43 22,47Population (1991 census data)44 22,12Population growth (1991- 2003) 3%Unemployment rate, 2004 22.1%Households receiving social assistance (%) 22.6 (4%)Main economic activities (water related) Tourism and servicesMain economic activities (not water related) Transportation, tradeBilling system Metered consumptionTariffs

4s

For physical persons 0.70E/m 3

For companies 1.50E/m3

Last price increase March 2004Collection Ratio (%) 30Water loss (%) 60


Municipality of Ulcinj is located at the southern part of Montenegrin coast. It has an area of 255km2. Thepopulation of Ulcinj increased from 24,217 inhabitants to 20,290 in 2003, with population growth rate of 3%.Aside to resident population, water consumers are refugees and internally displaced persons located at Ulcinj(almost 3% of total population).

Ethnicit/: Albanians (72.1%), Montenegrins (11,9%), Serbs (7,4%), Muslims (3,4%) and others (5.2%).

Tourism.: With more then 20km of beaches, out of which 15km are nice sandy beaches, with more then6,000ha of agricultural land and more then 88,000 of olive trees, medical characteristics of send, mud andmineral sulphur water, Ulcinj represents respectable economic-tourist potential for development of all kind oftourism (elite, nautical and health tourism), as well as for development of agriculture. As a touristdestination, Ulcinj is highly dependent from good water supply. This very much influences its economicperformance.

2. Water Supply

Water supply company in Ulcinj is in charge of following services: water supply, fecal sewerage, stormdrainage, public hygiene, green areas and parks, city's solid waste dump etc.

Urban population of Ulcinj is almost completely supplied from public network. In other settlements, thispercentage goes up to 70% of inhabitants.

Majority of households (94%) do have pipelines in their homes (flats/houses). Among the households thathave individual water sources, 60% use spring water, 34% water from wells, while 6% rely on tanks.

Water supply system of Ulcinj consists from two subsystems: water supply of Ulcinj and water supply systemof Vladimir. Aside to organizational relationship, those two systems do have technological connection as wellsince share the same spring - Lisna Bori.

Thank to the credit received from KfW bank amounting 300,000E, two wells equipment has been improved,so water supply system is better prepared for tourist season.

43 Monstat, Population census 2003.44 Monstat, Population census 2001.45 Source: Diagnostic Assessment of Montenegrin Water and Sewerage Works, Urban Institute (2004)



3. Water system in Ulcinj and water supply problems

Organized water supply in Ulcinj began before World War II by taking in water from Salc spring. WaterCompany was founded in 1953. Main capacity upgrade was done in 1987 by forming the underground springat Lisna Bori. Brajsa and Krute are separate and independent systems. Deficiencies of the water systeminclude: lack of wells so that consumption cannot be regulated. In addition, lack of the water treatment plantfor potable water is a problem.

Water losses: Estimated water losses are 40%.

Billing and collection ratio: The last price increase occurred in March 2004 and was not easily acceptedneither by the consumers, due to the poor living standards, not by the founders of the Company.

Currently, majority of consumers have water meters incorporated at their connections. Calibration isperformed when the collector reports that the water meter is broken. Lump-sum collection is only used for3% of the consumers. Water meters are replaced, but sometimes late. Currently, 261 water meters arebroken. Collectibility at the households is 85% on annual basis.



Annex 2- Report on Key Informant Interviews in the Five Target Cities

Kotor -

TariffsThe Municipality of Kotor established current water tariff. The municipality is owner of WC46; depending onthe type of consumer, two prices for water are defined: for physical persons 0.60 E/m3 and legal entities1.50 E/m3. Water price is usually increased for 50% during summer season. All consumers have watermeters incorporated at their connections and the consumption is calculated on monthly basis. Water metersare not calibrated regularly. There are about 3,445 (43%) broken water meters. If the water meter isbroken, 6 m3/member of the household are calculated and for the legal entities, average water consumptionfrom the previous period is calculated. According to the water company director actual collection ratio is60% with old debts. It is generally acknowledged that the pensioners pay on a regular basis, despite theirlimited income.

Last increase of prices was at the beginning of 2004. In the future period, WC is not planning to increase theprice of water. Technical director of WC thins that increase of the prices would endanger living standard ofthe population and that enough will be increase of the level of payment, with which the WC would manageto cover maintenance costs. Other experts think that the percentage of payment would increase with betterquality of service, better cooperation with consumers and with disconnecting of non-payers.

Business representatives are approving increase of the price if the supply will be qualitative, withoutrestrictions and salty of water. The question was made, why the price of water is two times higher forbusinesses. This is not case just with water but also with telephone and electricity.

WC is in process of negotiation with Post office, so the bills could be paid without a provision. The technicaldirector of WC thinks that people would not regularly pay bills if water supply would improve. The onlymeasure that could have effect is disconnecting non-payers from the network. According to him" citizens ofKotordo nothave culture of paying the waterbills' Legal acts are representing barriers for WC, because thelaw did not regulate connecting illegal constructions to water supply network. Experts are proposing solutionof this problem through new water supply law.

Current tariff system cannot cover costs of delivering water. Costs of marinating should be covered for theregular payment of bills. From the municipal budget 2% is going to capital investments and that is notenough for investment projects that WC has.

Percentage of payment can be increase just by disconnection of non payers thinks director of WC> Theyconsider that with sanitation of the existing infrastructure and decrease in the number of illegal consumersincome can be increased without increasing price of water. Public campaigns targeted to increase theawareness about the significance of payment would not have positive results.

The head of public services states that consumers would be informed with the system of prepaid paymentthat exists in world and can be in forced here.

Access to servicesAccording to the technical director of the WC, the amount of the water production is 300 I/sec from "Skudra"resources. During winter season, Skurda spring is used and by pumping through two main tanks, Kotor issupplied with water. During the summer season, when a water shortage is evident, Orahovac spring ismainly used with direct water pumping into the system so that problems usually occur due to bad electricitysupply.

During the summer period spring Orahovac do not have enough capacities, and WC experts state thatusually water supply is scheduled at two times a day: four hours in the early morning and the same durationin the evening. There are areas that have water just once a day and parts of the cities that are lacking waterwhole day.

46 WC Water Company



In Kotor, losses on network are more than 50%, due to the bad infrastructure, and majority due to the illegalconsumption. One-way of losses is irrational consumption with people that have bad water gauge. There is alow percentage of illegal construction in Kotor, so illegal connections are numerous with legal consumersusing it to water green areas.

Access to water is also a crucial issue for the businesses. Representative of business that depend on watersupply claim that the income in the summer period is lower by 5)% from that what could be gained if thewater is better quality. Also, lack of water increases the costs of doing business.

Business sector is suffering large consequences due to the salty water in Kotor. Non satisfaction of guestswith services, decrease of the capacities, increase costs for buying bottled water, decrease of life time forappliances that are using water are main problems that are following tourism development and slowing it.

According to the WC experts the quality of the drinking water is good. Other experts are very non satisfiedwith the water quality in the summer period, so they are forced to have additional costs for purchasingbottled water. Due to the bad quality of water, tourists are offered bottled water in coffee bars "then theythink that we want to earn on that bottle of water, so they demonstratively leave'

Subsidies (lifeline tariff) Kotor has 146 families that receive economic assistance on a monthly basis.That is two percent of the total number of households.

Representatives of the WC consider that subsidies for social cases are not necessary. People would beprovided with dual payment of bills if they would agree to pay them. Subsidies should be given to the WCthrough grants for capital investments. Private entrepreneur that is selling water is sharing the same opinion.

EmploymentPrivate sector thinks that WC is over employed with workers that are not employed enough and during theworking hours they have private jobs. Reform should start from the WC by reorganization and decrease ofthe number of employees. Optimization of the number of employees would bring to decrease of costs fordoing business.

Solving the problem of water supply, would improve conditions for tourism development in municipality ofKotor, and the number of employees in municipality would increase.

OtherLand: Migrations did not influence the water supply but urbanization did. Considering the low price of theland that is far from the see, bring to the construction on higher quotas, water supply of these areas isproblematic. Area of Sveti Vrac is having problem with water in the long period of time. Areas are spreadingand that negatively affects water supply, because of the fact that the existing network cannot satisfy needsof the growing population.

Institutional issues: The WC in Koror is public company and works as municipal company. All expertsagree that the private company would be better in doing some things (payment or disconnection of legalconsumers). If this job would be given to the private company, it is necessary to impose good controlsystem. Municipality is recommended as a controller. According to the expert opinion, control of the privateinstitutions that would be given some segments of water supply to manage would be crucial.

Considering the fact that the water is treated as a social and not as economic category, representatives ofthe WC are having the opinion that privatization would not be good thing to do. From the other side, theyagree that if there are no changes, further devastation of the company is inevitable. Representatives of theprivate sector consider that the privatization of the WC is necessary precondition for quality water supply.

Technical director of the WC thinks that simplification of the court procedure in the case of not paying thebills would increase degree of payment.

Legislation: According to the expert opinion, existing law framework for the water supply is adequate. WCexperts consider that the work on the new Law on water was not necessary. The local municipalities shouldmanage this area. Thanks to the established democratic process, every municipal decision is going to



debate, so the citizens have opportunity to say their opinion. But, so far practice showed that citizens are notinterested too much to take part in these debates.

VodacomAccording to the opinion of WC, Vodacom will bring increase of prices, for legal and physical persons so theywere not being able to pay the bills. Representatives of the private sector are afraid that reforms will stayjust on paper. They propose to define the monitoring system in advance and regular reports about the takenactivities and their effects.

Consumers' behaviorThe public is informed about the main decisions related to water provision (interruption hours, repair work,etc) trough the local radio stations. Most of the citizens are forced to buy bottled water from the store,because they don't have time to listen radio announcements that are talking about constant changes ofinterruption hours. Respondents said that buying of the bottled water is significantly increasing the costs ofliving and that everyone cannot afford it.

There is a large number of citizens that are illegally connected to the network during the summer, when dueto the empty pipes it is much easy to do it. In Kotor, they are deciding to illegally connect due to the largenumber of malfunctioning water meters.



Budva -

TariffsThe current billing system in Budva is based mainly on a metered consumption (98% of consumers have awater meter, only 2% pay water based on flat rate). The price of water is not enough even for covering thecosts of basic maintenance. According to the opinion of WC director, it should be higher for 0, 10E forcitizens and 0, 20E for legal persons. Current price of the cubic meter of water in Budva is 0, 60E/m3, forindividuals and 1, 2E/m 3, for companies. Part of the water bill is related to the wastewater disposal: 15% ofthe total water bill. Last summer Budva had a summer tariff higher than in the rest of the year. Last increaseof prices was in June of 2003.

Municipality as a founder of the WC is deciding on the price of water. Price of water in Budva has to behigher due to the system that demands highest consumption of the Electric energy for delivering the waterin the region. Based on suggestion of the WC that was sent to the consideration of the Municipality and it isexpected to be adopted, it is certain that the citizens of Budva will soon pay higher price of water. Expertsare having the opinion that there won't be resistance among the citizens, due to the good economicsituation of the households in Budva.

Percentage of payment is 60%. Reasons for non-payment are bad habits. Measures for improving thepayment are initiated by introducing software to help in monitoring of payment. New software provides moreclear water bill so the citizens understands better of what they are paying. Most regular payers are citizensand pensioners. Most problematic are those with lump sum calculation. Large consumers and non-payers arealso weekend tourists. Increase the tariff for the lump sum payment would decrease the number of suchconsumers.

Cost of the maintaining and reparation suppose to be covered primarily from the price of water and billpayment, says technical director of Budva WC. While the director thinks that the tariff should cover firstprocess of the reconstruction of the existing network.

Tariff system is not enough for adequate delivering water to the consumers, according to the WC experts.Every municipality should have winter and summer tariffs. They should be developed based onconsumptions. Hotels are large consumers and they should pay more. Part of the costs should be transferredto tourists, "because if there are no tourists Budva would not have problems with water' Experts from theprivate sector are proposing imposing of the two-tariff system, summer that would be expensive and winterthat would be cheaper.

Business representatives are protesting against high price of water that produce large water bills and theythink that it is necessary to make subsidies for companies depending on water.

Access to servicesCity of Budva is supplied from 5 springs with capacity of 3501/s. Needs of the 18000 people living in Budvaout of season are satisfied with these needs, during the summer season number of tourists can achievefigure of 100.000 and the existing capacities cannot satisfied needs.

From 2003.existing reservoirs were fixed and new pipelines were put. But, the director of the Regional WCthinks that apart from sanitation of the losses caused by old infrastructure, the lack of water will continuedue to the lack of capacities of existing springs that are significantly dropping during the summer period.

Other major problem in Budva is speed urbanization that is not followed with adequate water supplyinfrastructure. That cause large number of illegal consumers and over usage of existing network.

According to the directors of WC Budva, current losses in network are about 50%. According to director ofWC 25% of losses is stealing water. Other causes of losses are bad infrastructure and illegal connectionswithout the permit of the WC. WC started to recover and detect these losses.

Currently project is undertaken worth 8 million US$ (donation of the US Congress, through USAID and CDM),that is used to build reservoirs, meter stations and reconstruction of the pipeline.



Related to the business development, Budva is the city of tourism and development is requiring enoughwater capacities. That would provide longer tourist season and satisfaction of guests.

Interviewed business owners are stressing the fact that there are significant capacities of underground waterin Budva that they used as technical water.

Regarding water quality: Representatives of the WC has different opinions regarding the conditions andquality of water in Budva. Director of WC thinks that asbestos pipelines are old and they are representingdanger from carcinogenic diseases. Its family used bottled water for drink. Water is often mudded, but it isnever salted. Technical director said that he is satisfied with quality of water in Budva.

Subsidies (lifeline tariff)Experts of the Regional WC think that the subsidies to the people of Budva are not necessary due to thegood economic status. Selective tariffs would have social cases and consumers that are saving water. Allinterviewed experts are against the subsidies to the entrepreneurs.

Subsidies to the EC would be needed through capital investments that would provide increase of thecapacities and building the new ones.

Business representatives are proposing subsidies for business and decrees of the water price, what wouldenable to decrease the costs and creation of new jobs.

Employment: When asked about the potential impact that the water sector reform might have onemployment in the city, none of the interviewed experts could mention any relation between the two factors.

But, tourism development and development of Budva municipality is tighter with development of exclusivetourism that requests existing of the quality water supply system. Solving of this problem would bring to thecreation of new jobs in this sector.

OtherHealth: there was health problems caused by bad quality of water in Budva.

Business opportunities according to the opinion of the respondents would be significantly improved bysolving the water supply problems. Budva as a city living from tourism has to have quality water 24 hours aday. If the water supply problems would solve permanently, there would be growth of the foreign investorsin this area.

Urban planning: Urbanization and migration of the population in Budva cause increase in the number ofillegal build constructions that are illegally connected on the network. WC experts consider that theMunicipality and the WC should cooperate in solving of the legalization problem and payment of theseconnections.

Legislation: Montenegro has a high level decentralization when it is about space management. WC expertsconsider that the space plan of Montenegro should be adopted on the Government level, and that the areafor local management should be decreased, so the ad hoc building should be stopped. In that casemunicipality cannot adopt different decision about the purpose of the available space. Coastal zonemanagement should exist that from the Central Government was transferred to the local-regional companycalled Public Coastal Area ("Javno morsko dobro").

Institutional issues The WC Budve is a public company owned by the municipality. All experts think thatthere have to be control of the local municipality over the WC. This opinion leads from the attitude that thewater is resource that cannot be managed monopolistically.

Director of the WC consider that it is not necessary to exist Agency for regulation of the water supply when"There is a Regional water supply company, that is taking percentage from every investment, and it is notshowing results in the field of water supply and waste water disposal "

Forming of the association of consumers that would gather representatives of the water supply companiesand citizens would lead to the solution of some problems. Other thinks that the interest groups could not



gain their rights, because there is no law on public information. WC will not give information's without aclear legal framework.

Private versus public management Director of the WC is not satisfied with the current work of thecompany as a public service. Legal regulation does not prescribe overtaking of this sector by the privatecompanies. According to him, the negative effect of the privatization in the public sector would be hugegrowth of tariffs. Privatization of the sectors of public interests is seeking for more strict laws for doingbusiness from the side of private companies. "Montenegro, should not go in that adventure, while all thepreconditions are not made. "

WC, according to him should be organized through a partnership between the central government andmunicipalities. In that case, central government would provide clear legislation and technical standard forwork of the WC companies. In accordance with defined standards, municipalities would immediately startwith reorganization process. It would provide that infrastructure is following the development andurbanization.

VodacomWC Budva started the reform process, what is showed through works realized in the previous period. One ofgood examples of the reforms in WC is WC Podgorica. Reforms, according to the WC experts should providehigher degree of the satisfaction of consumers. On that way the percentage of payment will increase and itwould enable further maintenance of the system.Most critical moment of the reform could be lack of the financial sources as well as implementation of thelaw by consumers and suppliers. From the other hand, according to the opinion of WC director, politicalbarriers and represent problem in implementation of the reform processes.

Consumers' behaviorInforming of the population about the restriction on TV and radio network is slower than the way of livingand way of working of population of Budva in the summer period. Faster and better ways for informing areneeded. None paying the bills is cultural and moral problem that the population is facing. According to theexpert opinion, most efficient method of increase of payment is non-selective cut of non payers.



Bar -

TariffsThe current billing system is based on predominantly flat rate combined with metered consumption. Existingprice for household is 0.60 E/m 3, and for the companies 1.20 E/m 3. Regular payers are pensioners andhouseholds, while the public sector and private businesses are having large owes.

Even low, payment degree is substantially different depending on the type of consumer. So, payment decreeis 50% and in the economy lower than 20%. Currently it is invoiced 2,800,000 m3 instead of 7,000,000,what would enable all needs and provide investments.

According to the technical director, payment level can be increase just by engaging the WC to send billsmore regularly, buy reparation of the water meters and buy regular checking. It is planned to more oftenread the water consumption of water and to regular invoice it.

Increase of the price would pressure regular payers, what would lead to lower percentage of payment. "Wewould not achieve anything since those who did not pay would continue not to do it and the number ofregular payers would decrease'; is the opinion of WC experts. Other experts thinks that the citizens wouldaccept higher price if they would have water for 24h a day.

The existing tariff system is not enough for adequate delivering of the water and loan return, according tothe development director of WC. The price should be increased by at least 20% so the electricity bill can becovered. Director is suggesting subsidies like lower price of the electricity for Water Company. Increase ofthe price of water would not influence negative effects because complete service of Water Company wouldbe improved. But, increase of prices is not planned in the next six months.

From the other side, private sector thinks that the increase of prices would be acceptable in the case of 24hsupply. According to them the existing system is enough with increase of payment level.

Maintenance and reparation costs can be covered trough more efficient payment of bills, buy disconnectingthe illegal consumers and at the end buy increasing of the price of water. The best way to covermaintenance and reparation costs is decrease of the technical losses, reconstruction of the network andincrease of the percentage payment.The existing tariff cannot cover reconstruction of the water supply network but it is enough for servicing it"Reconstruction is priority but we don't have money. We haven't had help from the local and centralgovernment. We solve our problems buy taking loans, but later on we are facing with problems during thepay off.

Increase of the payment percentage can be done through the public campaign, but it would influence justhouseholds. Problems are businesses that are not paying bills and the court process does not have effects.

Quality of water is satisfactory. Chlorine is done regularly. Due to the old infrastructure intensive chlorine isimplemented. It is planed to disconnect springs were due to the increased in rain the water becomes muddy.In these cases citizens are informed about the current conditions and quality of water through media.

According to experts, it is necessary to warn citizens on the bad quality of water. Director of the privatecompany thinks that "WC is losing battle against bottled water; people lose their confidence into tap waterquality' Regardless the solid financial situation of the citizens of Bar, that could afford buying of the bottledwater; water supply should offer quality water.Access to servicesMunicipality of Bar is supplying 15.000 connections from the spring capacity 540 I/s at the winter period and358 I/s - during summer season caused by decrease of the capacities due to the lack of rain. Configurationof the terrain requires existence of large number of pump system that is used to deliver water to theconsumer. Consequences are large owes of the WC for electric energy.

Second problem is weak supervisory equipment and not enough dimension of the system. According to theWC, there is plenty of water but due to the old water supply network, weak payment, weak pump system,Water Company is having problems.



Connection to the water supply network is having 98% of the citizens of Bar or 33.000 people. Problems thatare occurring are different in the summer and winter period. Large inflow of guests during the summerseason is presenting huge pressure to the network so restrictions and decrease of the capacities occur. It isnot rare to have 12 hours restrictions. Central part of the cities are not staying without water, except forhigher floors, due to the watering the pavement and green areas and bad condition of the pump system.

Bad water supplying is having areas without urban license that are connected illegally. Lack of the water isdue to the over usage of the network. It is happening that the water is lacking for 24h, because instead of 5there are 20 connections. During the last ten years, number of citizens of Bar increase substantially andsame is for the activities of the private sector, Consequence is additional pressure to the water supplynetwork. Apart from that, problem is between municipal area that does not have sewage or water supplynetwork Experts are suggesting better municipal cooperation.

Water losses in Bar are 50%. Main problems are old water supply network and pump system. There are alarge number of illegal connections in the suburban areas. Large private companies solved this problem bydigging wells.

SubsidiesSubsidies should be related to economic vulnerable group of citizens. Subsidies for operational costs shouldbe responsibility of the central government in cooperation with the social institutions. WC is according to thewords of development director, ready to help vulnerable group of citizens through some benefits during thepayment and eventually lower price of water under the condition that those costs are reimbursed by thegovernment.

Interviewed experts from the private sector are proposing subsidies for entrepreneurs whose business islargely depending on water and that are using large amounts of water. Subsidies should be responsibility ofCentral government. Technical director of the WC thinks that citizens are having enough money for payingany price for water.

Other:Influence on tourism: Experts thinks that unsolved question of water supply has a bad influence ontourism. Bar has potentials: industrial, tourist but non-developed infrastructure is making Bar not interestingplace for tourists. According to Technical director of WC hotels in Bar are supplied with water 24h a day.

Health: Interviewed experts that are not representative of the WC are stating cases when the low quality ofwater caused yellow fewer.

Employment: Privatization of the WC would bring to decrease of the number of employees in WC becausethe productivity would increase. From the other hand orientation of the Bar industry on tourism is confirminghigh level of correlation so the expert opinion is that better water supply would increase possibilities forbusiness activities in Bar, and also creation of new jobs.

Group of citizens that are following the work of the WC are existing in Bar. Positive example is group ofcitizens that collect money for financing the local water supply network and they have water now.Organization and the activities of the interest groups can brought to better understanding of the problemthat exists, and by that finding appropriate solution.Legislation: Experts from the private sector are proposing defining legal regulation that would includeovertaking of the water supply by the entrepreneurs and prevent frauds in this area. Problem that expertsstated are construction permits that are easy to gain even though all precondition for building are notfulfilled. That cause illegal connections

Spatial planning and urbanizations are not adjusted with spatial tourist development because there is nodetailed urban plan. The adjustment of the infrastructure building and future development of the city isneeded. WC experts are complaining about the slow court processes in the cases of debt payment by thecitizens and large companies.

Institutional questions: Water Supply Company is public company owned by municipality of Bar.Existence of the regulatory Agency according to the experts of the WC is necessary, in the part of existenceof regional cooperation that would improve water supply of the among municipal areas that are not having



water or sewage network. Technical director of the WC is stating the example of the Agency for developmentand building Podgorica as a good example of development. Director of the development sector thinks that itis necessary to have some regulatory body, made of hydro experts, at the republic level they would considerthe question of water supply in Montenegro including seaside.

Private versus pubic managementInterviewed experts are not supporting idea on privatization of WC. WC is having large problems that privatecompany cannot solve, and privatization will lead to increase of the prices and the quality of service woulddecrease. According to the stated attitude, management of the WC should stay under control of theMunicipality as a regulatory body. Sector of payment should be privatized so the percentage of paymentwould increase.

Technical director of the WC thinks that the WC should have to be private companies, based on theexamples from surrounding countries. That would solve large financing problems. WC in Bar is not receivingmoney from the communalities that could be used to finance investments. Money stays in Municipality ofBar. Representatives of business are sharing the opinion, and they think that the state owned companies arenot functioning well.

ReformsReforms are important and necessary segment of the future development. Most important is to ensure lowerprices for the vulnerable group of citizens.

Board of Directors of the WCBoard is representing party members and representatives of the WC> According to the WC experts- boardshould be consisted of experts for water supply and hydrology and not people from parties.

Consumer's behavior: Problem of the city of Bar is a large number of illegal connections and stealing thewater. Large percentage of citizens in the area without construction license is having illegal connections. Inthe huge percentage, water is used to water arable land and green areas.



Ulcinj -

TariffsThe current water tariff established by the Municipality Ulcinj is 0.45 E/m3 for physical persons and 1.30E/m3 for legal entities. The last increase of water price was in March of 2004. Payment is done based onmetered consumption; just 3% of the citizens are having lump sum payment, Even though the percentage inUlcinj is low (3%), according to the WC experts, lump sum consumption is representing large problems withpeople that are renting room for tourists because the consumption stays the same and the number of peopleincrease. There is no measure to pay that.

Apart from that stealing of the water is large problem especially during the summer months. "Agriculturepeople are stealing the water to decrease high bills. They need water-to-water gardens with fruits andvegetables that they are selling to obtain money for living. "

Payment percentage is 85%. Even though this percentage is lot higher related to the other cities from theregion, experts think that it is not enough to cover all the costs that WC has: so the existing infrastructurenetwork cannot be renovated. The enforcement is needed for debts that large companies are having.

Most regular payers are pensioners, that have lowest income, and non-regular are entrepreneurs. Increaseof the payment percentage can be achieved just through improving the supply conditions.

The existing tariff system is not enough for adequate work of WC consider the WC expert. Water should bemore expensive at least for 20 cents so they could cover high electricity bills. The increase of the prices isnot planed but it will occur if the services of the WC are improved.

Tariff increase would negatively effect population since the purchasing power of the population is low.From the other side, if the quality of the water supply would improve, negative effect and resistance wouldbe significantly lower.

Maintenance and reparation costs can be covered with increase of payment and decrease of the price ofelectric energy for WC.

Increase of the payment percentage is possible if the water supply improve; quality of water improves andprovides water during all 24h. Respondents are proposing public campaigns about the water savings, as wellas stimulation of the citizens by free installation of the water meters and reparation. Director of the WC isproposing more strict measures and disconnection of non-payers, as well as more regular invoicing of billswhat h is accepting as a WC mistake. "If we disconnect them, they would connect by themselves. Ithappened that in the area of Pinjes§ we disconnect water seven times in twenty-day period. After we leave,he turns on the valves and has water again"

Access to servicesUlcinj is supplied with water from six springs: Lisna bora, Gac, Salc, Mide, Klezna, and Brajsa. Capacities arecovering the needs of 16500 inhabitants, which this municipality has of the season. During the season,number of tourist is 80.000 and due to the daily consumption and low capacities city stays without water.

Spring Lisna Bori is spring without the usage license, with bad quality of water that is pumped in the systemduring the summer season due to the lack of other capacities. Citizens think that this spring should be usedas a source of technical water.

Minimal measures that need to e immediately taken are building the reservoir of 5000 m3 as well asdecrease of the price of the electric energy, that WC is paying a lot. With this measures current water supplysituation would be improved.

Losses in water supply network are 60%. Structure of losses by WC experts is:* Fix losses of WC- up to 15%,• Losses due to the old network, especially secondary line that is covering city center, - up to 20%,* Losses due to the misusage, illegal connections that almost all agriculture people have - 30% of the

total consumption.



Special problem are the losses due to the lump sum payment. During the tourist season almost all houses inUlcinj is renting space for tourists. The increase in the consumption is three times, and the bill is the samelike during the winter. Apart from them, experts said that one of the causes is the non-regular invoicing ofthe water bills.

Special problem in Ulcinj are agriculture people that by watering the gardens and green areas are over usingthe network significantly. They are often illegal consumers. Aged network, weak pump system that is oftennot working, leaking pipes and broken pipes due to the illegal connections, with weak pressure lead to badsupplying of the people living on higher quotas.

WC experts are stressing that the priority measures that need to be undertaken are: reconstruction of thewater supply network. Building the reservoir for saving the water that would be used during the summerseason and saved during the winter. According to the expert opinion, Central Government should helpimprovement of the water supply by investing in Regional WC what would solve problem of water supply inMontenegrin seaside.

Quality of water: all participants of the FG agreed that the quality of water in the summer period is bad,due to the involvement of water from the Lisna Bori spring. The bacteriological not fit water characterizesthis source. Representatives of the WC claims that the water is good quality, while the other experts aresaying that the WC is not providing timely information's about the changes of the water quality.

Experts said that the "people lost trust into the quality of tap water and that rarely people drink that water inU/clnj except the people that cannot afford it"

Subsidies are not necessary to introduce, thinks experts of the WC, because the water bill is not large itemfor the family budget if paid regularly. If it would be introduced, subsidies would involve materiallyendangered families. The local authorities should manage it. It is needed to introduce special protectionsystem from frauds by imposing the certain amount of money that endangered families can spend withoutpayment. According to the 2003. Census the number of families that are receiving social help in Ulcinj is 249(4%).

Private companies depending on water should be subsidies by lower prices, so the payment of the bills fromthat sector should be more regular, consider people from the private sector.

OtherTourism: Ulcinj suffers large consequences due to the problem with water. According to the director of WC,hotels in Ulcinj have their own pools and pumps but they are aged. By the realization of the Master plan fortourism development it would lead to the solving of the problem of bad infrastructure, forgotten hotels, dirtybeaches. According to the business representatives, Ulcinj is living from tourism. All investors have alreadycome and they will attract more new ones but facing with the water supply problem is negative experiencethat can discourage them from the start, and it could influence them to choose some other country or citythat does not have water problems

Management and spatial planning: Non-existence of the urban plan leads to illegal construction. In theperiod from the earthquake in 1979. The number of citizens and illegal areas increased. The result is illegalconnection to the water supply network. Development of the water supply network has to follow the spatialplan of city development.

Employment: It is presumed that the existing reforms will lead to decrease of the number of employees inthe WC, because even now it is over employed. From the other side, reforms will bring more quality watersupply to the city and more successful tourist season and new jobs.

Institutional issuesThe WC in Ulcinj is Public ownership. This is the only Public Utilities Company in the municipality.

Directors of the WC are not for the privatization of the company and they consider that the mail usage willoccur. The business owner thinks that privatization of the payment department would be the best solution tosolve low payment percentage. The cooperation between consumers and suppliers would improve.



Consequence of the privatization according to the all experts would e rising tariffs. The Government in thiscase should define the price of water.

Agency for regulation of the water supply does not exist but its founding would be good solution. Expertsare having opinion that it should be private institutions and with it it would solve problems better. Associationof WC exists but it cannot act as an Agency because the individual that have the interest to solve theproblem would run it. According to the experts cooperation between the group of citizens and WC would notfunction because the citizens do not know the real conditions of the WC and its problems

LegislationLegal framework does not include court payment of bills and protection of the WC. The new law is notnecessary, the old law is good but is has to be obeyed.

Managing the water supply sectorBoard of directors has to consist of experts and functioning separately, independent from the municipality, sowe would avoid that the board members are coming from the political parties that are not experts and theyare not fond of the problems that the WC is facing.

According to the opinion of the director of communal sector, creation of the association of consumers wouldnot have wanted effects because the citizens do not understand real nature of WC problems and they areasking for impossible often.

Consumer's behaviorLack of water is caused by consumption of the huge amount of water by the peasants for watering largeareas under crops. According to all experts, the education of the citizens is needed about the right usage ofwater.Apart from that non-payment is caused by the revolt of citizens that are not satisfied with supplying. Thelack is also qualitative informing of the citizens about the conditions and water quality, which cause lacks ofbelieve and buying bottled water for drink.



Annex 3 - Report on Focus Groups Discussions Held in Podgorica on non-water thematic topics

Focus aroup (FG) discussion, topic: TourismMay 18, 2005

Key problems of tourism development in Montenegro

According to participant opinion, there are several problems and limitations for the development of tourismin Montenegro, such as:Bad water supply. One of the most important problems facing tourism is that of the water supply, which isespecially expressed in summer, during the tourist season on the Montenegrin seaside.Problems with sewage system. This is a very serious problem and has a negative consequence on thepresence of foreign tourists. "Non-treated waste water has a tremendous negative effect on foreign tourists.The western tourists are very sensitive to the issue of waste water"Bad road infrastructure. The unfavorable road conditions in Montenegro represent a huge limitation forthe development of tourism.

"Key problems that must be given attention are the problems of the infrastructure (poor road conditions, badwater supply, electricity problems, etc.)

The main reason for such a situation to exist in Montenegro is the lack of investment in the infrastructurenetwork.

Expectation from Government, i.e. from local government, in solving these problems to aid thedevelopment of the tourism industry:"Local government, by definition, is closer to the source of the problems and thus, the local governmentshould gain more capital and more responsibillties. ""There is a problem with comprehension as well as the presence of many conflicts; these issues make thewhole process slower on the local and central level. It is necessary to improve cooperation on all levels inorder to better solve common problems.""The lack of problem solving initiative that we have had for so long is now showing the consequences. Youcannot solve accumulated problems in one step. It is necessary to solve the problems in a continuous andsystematic way All political parties can benefit from this. "

The Action plan of the Ministry of Tourism includes projects that are involved in the water supply, electricityproblems, problems of parking, and decreasing the VAT rate. The plan also mentions improving the watersupply in Montenegro. The Action plan anticipates 33 projects and tries to create better cooperation on thelocal and republic level.

Define and separate the construction season from the tourist season. It should insist that all construction onroads be completed before the tourist season begins. "In this moment there is construction on all local andregional roads, thus creating a problem in the beginning of tourist season and making a bad impression onthe tournsts who have come to Montenegro. "

Recommendations for development and improvement to agricultural business with the purpose of improvingtourism:

It is necessary to initiate cooperation between service-oriented establishments, such as restaurants inMontenegro, and domestic agricultural producers."The Ministiy of Tourism initiates meetings with agricultural producers and representatives of hotels. The

idea was to build cooperation and support for promotion that would stimulate the purchase of domesticproducts Speclal attention is paid to domestic products promoting medlas."In Montenegro, there is no direct connection between agricultural producers and service providers, orrestaurants. Hotels supply themselves on the market, i.e. there is an indirect connection reflected in thebuying price. On the other side, agricultural producers have problems selling because they have to sell theirproducts to a re-seller at lower prices.

The main problems of tourists on our seaside related to water supply:



The lack of water and the low water pressure in some parts of town or on higher floors of buildings,Chemical and bacteriological correctness of water.

Readiness of tourists to pay a higher price for better accommodations and for a higher quality water supply.

The experiences of new hotels show that tourists are ready to pay a higher price for better accommodationsand a higher quality water supply. However, we should bear in mind that the problems facing Montenegro(electricity, water supply) are elements of the tourist supply, and in other tourist locations, there is noproblem with these resources. "The market exists and competition is great on an international level. If youare missing or are inadequate in your supply of any one of these segments -- water, road, and beaches --you are out of the game. The market dictates this. Even if you offer tourists all of the conditions orattractions, if the service in hotels is unsatisfactoly you are again out."

The way to solve tourist problems related to water:By investing in the existing infrastructure, network loses will be lower and the water supply will be improvedduring summer.It is necessary to start promoting the mandatory payment for water.Develop in citizens the sense for saving water and develop a mechanism for punishing non-payers.

How much lower was the number of tourists during the last season due to water supplyproblems?

In the Ministry of Tourism, this data is not available. They consider it to be impossible to measure theinfluence that the poor water supply has on the number of tourists visiting Montenegro. However, the sensethat this situation needs improvement in order to keep tourists does exist. "There are many tourists thatcome to Montenegro even though there is no water during 7 of 10 days of their stay The reason they comeanyway is because they do not have enough money for any other destination. We must think of a way toreturn our old guests, especially foreign.'"Conducting surveys is the mechanism used to learn the touristopinion of the situation. Other than some temporary research realized by non-government organizations andan open telephone line at the Ministry of Tourism for receiving tourist comments, there is no systematicaccess to research public opinion and impression of tourists.

Intervention of World Bank in solving these problems

Improving the water supply system by investing in the infrastructure - and by doing this, thehigher price of water will be justified. Establishing a rate on water that will repay the investment. "The issueof a higher water price and moving waste water is a domestic issue. The higher price of water means ahigher price of staying for tourists. That is the question for our expecting tourists. They have to be ourtarget In Croatla, there are special tourist rates for financlng projects like this. "

System for waste water treatment. "The system for waste water treatment is bad and there is a directissue of waste water at the sea, even though the system for cleaning and waste water treatment exists. Thisis a huge problem and it has to be solved. When you lost your guest you should make triple force to takehim back."

Education of citizens in the purpose of rational use of water. "We have a lot of jobs to do because ofthe irrational use of water and the huge loss on the water network, In my neighborhood, everyone watershis or her gardens. In Denmark, people could not belleve that That is our problem; we must find asolution."

Help in regulation of local places for hard waste. "The problem of waste water, moving this water,water supply system, safe transfer of hard waste into land, road infrastructure, electricty - these are theconditions for attracting investors and international tourists in Montenegro."

Construction of golf terrain for better tourist supplyThe participants are in agreement that the golf terrain is attractive for guests with a lot of money. Theseguests want several kinds of golf terrain and there is space for this on the Montenegrin seaside. A greatinvestment movement is golf terrain, although it is said to have a bad influence on the environment. Theexperts for the environment consider that a greater share of our water will be used to water the golf terrain



and states that we must think about priorities. Other participants consider that watering can be realized withtechnical water, and there is no elite tourism without developing golf. "Rich guest want go/f But first, wehave to solve the problems mentioned above and after that, we can construct a go/fterrain."

Focus aroup discussion. topic: Aaro BusinessMay 24, 2005

The main problems and obstacles for agricultural development in Montenegro in the context oftourism development in Montenegro

Agriculture producers and those within the tourism business community do not have a goodunderstanding of the market needs. The tourism and agriculture industries are very closely connectedin Montenegro. Since domestic products are not certified, it is very difficult to launch them on theinternational market. On the other side, offering domestic products to foreign tourists is the best way toindirectly export them. "If Montenegro has something special and distinctive from the other countries in theRegion to offer to the tournst market, this should be done with agriculture products as well as otherproducts. When visiting Zabl#ak, Kolasl'n, tourists do not want to taste the same food they have in their homecountries, but products that are typical for that area. "

Poor infrastructure. Most agriculture production is concentrated in the central part of the Republic.Distribution of these products to the southern and northern part is often difficult. Additionally, theMontenegrin households that deal with agriculture are quite small and dispersed. The procedure to purchasedairy products from remote villages is very difficult due to the poor road infrastructure, especially duringwinter. "The interest for visiting those villages simply does not exist Expenses are veiy high in comparisonwith what could be achieved."The small local producers are not well connected with the market or withother producers in the region and their products cannot be sold so easy in the market.

Lack of processing centers, which could enable better marketability and sale of domestic products atlocal and international markets.

Promotion, marketing. The campaign "Buy ours" is currently popular in Montenegro. One of the FGparticipants stated: "The goal of Montenegro should not be "buy" but "sell our products."Tourism in thenorthern part of Montenegro is at a very low level as well. Its recovery would also help to recover agricultureproduction in terms of offering domestic healthy food and all of the things that are demanded by tourists.

Regional connections. Montenegro possesses significant land potential and large water potential, whichshould be directed to locations that need water. "On one side, the Sozina tunnel that connects us with thecoastal area of Montenegro is to be completed, and on the other side, our food producers are located in theSkadar Lake area as well. A project of common interest for tournsm and agro business could be realizedthrough healthy food exchange and directing toward the southern and northern parts of Montenegro. "

Water pollution. One of the most significant problems facing the Zeta area, which is the largest productiveland area located near the Aluminum Plant Podgorica, is that all of the polluted rivers coming from Niksic,Danilovgrad, Podgorica, Cetinje, etc. "meet" here. Additionally compounding this problem is that mostfactories do not have adequate equipment for cleaning their waste and communal water. The goal is toimprove the quality of water and to provide water that is the cleanest and of the highest quality used inindustry. '"n this way water and land would be protected and conditions for agro business would be muchbetteri"

Unplanned building. "During the last couple of years, caused by the illegal building and uncontrolledforest cuttings, degradation of the land has appeared. Unfortunately, adequate control in this field still doesnot exist."

"Gaining" of productive land around Skadar Lake. Montenegro and Albania are conductingnegotiations on a project that should provide Montenegro with an additional 14,800 hectare of productiveland in the coastal area of Skadar Lake. The realization of this project is very important because, as the



experts claimed: "one hectare of land in the coastal area on Skadar Lake is more valuable than one inVojvodina4 ."

Bee products marketability. "Bee keeping in Montenegro is a low accumulative industry"It is necessaryto organize a Center for collecting and packaging produced honey. "Montenegro has a lot of medical herbsand our honey is at an adequate quality level, but it should be offered and sold at the market and tocustomers in an appropriate way"

Aid is needed for better connections between agro business and tourism.

If Montenegro wants to further develop as a tourism and agricultural country, much more should be done.First, those people who deal with agriculture and tourism should realize the purpose and benefits ofconnecting the two industries. The International market and the market of the European Union are bothsaturated with standardized products. "It is necessary to find a way for the Montenegrin agricultural industryto become connected with tourism in order to offer speclfic, oriental domestic products."The Government and the related ministries, such as the Ministry of tourism and the Ministry of agriculture,should invest in processing capacities, laboratories, and infrastructure instead of increasing customs,subsidies, etc. For agricultural development, many projects were realized in terms of credit lines foragricultural businesses: live stock was increased and many cows were given, mechanization was given bySlovenia, green houses by Israel, etc. The Ministry of agriculture is significantly included and for severalyears has organized exhibits of agricultural products and live stock fund and Days of bleak fish incooperation with some American organizations. Considering his field of work, stressed that 'oart of thepremiums should be given to the products'realization in order to stimulate producers of those products."

Promoting and establishing connections between healthy food producers and hotels and restaurants in orderto launch domestic products on the tourism market.

With respect to the current and future market (local, national, international) potential for agrobusiness regarding tourism, the FG participants found as follows:Montenegro has potential for food production and could make a strategic step forward if it is used in theright way. The special opportunity for Montenegro presents its direction as an "ecological state." However,Montenegro never completely valorized this attribute. Raising the ecological awareness is one of theconsequences for postindustrial societies. If ecological awareness exists, the willingness to purchase foodthat is 2-3 times more expensive due to its "healthy" production rather than the usual "industrial agriculture"would also exist. With very few exceptions, land, air and water in Montenegro are not industrially polluted.The basis for Montenegro becoming an "oasis for healthy food production" does exist. If Montenegro isstrongly determined in this strategic direction, the entire country might be an area for biologically acceptablefood production, while a recognizable trade mark could be established. Although production of food withoutchemical additives is 30-50% less than "traditional" production (which includes the use of chemicals), thefact is that the European market demand is a few times higher than the supply for such food. The loweroffer and supply is adjusted by higher prices that can be obtained at the market ("lower production iscompensated by higher prices'7. Biological food production does not require any subsidies. The EU marketwould absorb all products produced in this way for a long time to come. Biological food produced in this waycould be marketed through Montenegrin tourism capacities as well, which would automatically cause a stepforward in terms of quality, habits, and customers' purchasing power.

In this way, Montenegrin agriculture could join the integration processes and could be more competitive. Inthe first place, there would be no need for protection and subsidies (as is now the case), but the quality,competitiveness and position at the international markets would be the focus.

Potential that agro business has for improving tourism in Montenegro

Product quality improvement and adequate packaging as priorities. Tourism requirements need tobe understood. "I think that people dealing with agriculture do not understand the needs of tourism verywell. Their connection with hotels is very poor For example, honey served in hotels is usually imported. Thismeans that honey, butter, cheese, etc. should be offered in small packaging. Without understanding marketneeds, no industry can survive in the long run."

47 Agricultural land in the north Serbia



Agricultural producers should not pay the Value Added Tax (VAT). Agricultural producers inMontenegro usually sell their products at the green market. In most cases, the sale is not regular and theprices do not include VAT. On the other side, agricultural producers do pay VAT when purchasing rawmaterial.

Establishing a Distributive Center in Podgorica. In this way, the VAT could be paid, the resources forpurchasing raw material could be reimbursed, and the final product prices would be lower by 1/3, whichwould be helpful for both the local population and for the tourists. This situation would be much easier foragricultural producers as well.

Credit lines with favorable interest rates. "I need 03,000 for setting 1,000 in2 of green house. Theannual interest rate for this amount is 19%. If the interest rate would be lower (say, 6%), I would decdde tomodernlze my production. In time, the final product price would be lower as well."

The Bojana River regulation. This regulation is about the international project based on the principles ofsustainable development. The project goal is to avoid land soaking (as is the case with the 14,000 hectareborder of Montenegro with Albania) that is caused by the high water level in the Lake. In this way, the landwould be protected and could be used for ecological food production.

Education. It is necessary to educate agricultural producers on how to produce ecologically quality food sothey can become more competitive on the market and generate more income. Mr. Jeremija Radojevic fromthe bee keepers association stressed: "Here, bottled labeled honey costs U7 to CIO, while in Europe it costs(4 to 65. The price of the unloaded honey is even lower by (2. Product quality and price are vety importantfor customers. However, the price is a decisive factor for customers when choosing imported honey fromSerbia and Croatia instead of domestically produced honey"

More exploitation of herbals. The Northern part of Montenegro is extremely enriched with the herbcalled buckwheat (Fagopyrum aesculentum), also well-known as honey flower and is known to have dietcharacteristics. "Based on this, Montenegro can become an exporter of buckwheat, buckwheat flour andspecialties of buckwheat"

Better exploitation and directing of water as an obstacle for agro business. Water presents animportant resource. Mr. Nikola Spahic from the Ministry of agriculture, forestry, and water states that theplan is to realize a 'oroject for the waterless area of Kuel, which has agricultural land but is without waterand melioration. In this way; agro business would have a chance because households dealing withagrnculture would irrigate fruits and vegetables with clean water and would be more qualltative and the dairyproducts would be healthier in comparison to those at the green market."Activities of Agro business associations

There are some problems in this area. Existing associations that connect various producers of the same agrobusiness should solve the problems their members face and represent their interests in front of thegovernmental institutions. Very few associations work on market improvements through qualityimprovements, tax reductions, education of their members and similar activities. They are mostly requiringvarious subsidies and governmental protection, and in this way, the problems of agro businesses are onlytemporarily solved. A special problem of note is the lack of qualified staff within those associations.'Associations are not organized well and members do not pay membership fees. There is not enoughcapaclty for engaging experts to help members promote and sell their products."

Recommendations for development and improvement of agro business in the context of abetter tourist offerIt is recommended that Montenegro intensify the promotion of its agricultural products, especially inindustries where Montenegro has a competitive advantage to neighboring countries. This can be donethrough the preparation of brochures highlighting given products and promoting the geographic origin ofthose products as well. "For example, while presenting cheese or ham from Njegusi at food fairs, it shouldalso be presented where the cheese and ham come from and all of the advantages of that place forvacation; it should be connected with Loveen and other well known places that could attract tourists. Itshould be mentioned that this mountain village is only 20 minutes from the coast (Kotor) and should list



other similar advantages." Product packaging needs to be improved and adjusted to hotel and restaurantrequirements.

Importance of agriculture for Montenegro"If something has potential and if it can generate income for the entire economy than it is extremelyimportant. Montenegro has potential for agricultural development and it is doubtful that this potential will beused properly"

Participants agreed that open borders are a precondition for the connection and development ofMontenegro. Agriculture is an important industry, although households dealing with agriculture are quitedispersed. Special potential is recognized in selling domestic agricultural products to tourists. "This is thebest way to connect agriculture and tourism and is a very important element of the tourist offer for foreigntourists. Uniquely Montenegro is not only the landscape, but also the specific tastes and aromas of domesticfood and drinks."

Marketability of agricultural productsWhen asked why sales decreased this year in comparison to last year and what problems could arise evenwhen producers obtain adequate product quality, the focus group participants responded with:

The living standard decreased in the last couple of years. That is one of the main reasons for the decreasedsales in comparison to last year. Additionally, the population is more oriented towards the green marketssince the living standard decreased. In this market, sales and income could not be measured.Obstacles for sale outside of Podgorica are very significant. The association of plant producers in protectedareas does not have a vehicle for distribution of products in the northern and southern parts of Montenegro.Lack of adequate warehousing of final products, such as refrigerated warehouses, is one of the mainproblems.

Sale obstacles on the domestic and foreign marketsVery few Montenegrin agricultural products are sold outside of Montenegro. In fact, we can say that theforeign market does not exist at the moment. It is necessary to initiate an organized export. Individualproducers cannot sell on the foreign market alone.

Sales at the local market are being realized, though are accompanied with problems. Some of the identifiedproblems are the following:The factory for producing packaging does not exist;The premises and areas for sale are in very bad and unhygienic conditions. They are usually track marketsnext to green markets with an unarranged area for the sale of products that require specific conditions forwarehousing. Additionally, the payment system is very poor there.The sale is indirectly implemented. "Our product is not directly sold to customers. If we could avoid theintermediary salesmen, the price would be lower as well. Our prices are higher than those in Israel. Thisproblem would be avoided by opening a Distributive Center To rent a stall at this truck market for the sale ofagricultural products, it costs 6600 per day These funds could better be used to equip and maintain aDistributive Center"Unfair competition. Fruits and vegetables are imported in Montenegro by trucks, and due to mistakes at theborder, no customs are paid for them. This situation burdens domestic production.Poor control of the agricultural inspections. The import control should be stronger and the number ofagricultural inspectors should be higher in order to prevent the possibility of illegal import of products thatrequire fixed payments in addition to custom rates.

Information on sowing and harvestingAdequate information on sowing and harvesting does not exist. It is necessary to establish an agency orinstitution that would provide information on sowing, harvesting, credit lines available, weather conditions,etc. Namely, such an agency would provide data for agricultural producers and would help them to becomebetter connected and more functional.

Education in agro businessProduction of ecological food requires modern technology. Education on the existence and use of suchtechnology is necessary. It is also necessary to organize fair visits to introduce new technologies and seminar



attendance to exchange information and experiences with foreigners. It is necessary to organize courses foragricultural producers in order to learn how to 'oroduce in a less expensive way"

Very often, courses on modern technology use are not organized in the country, but abroad. It was mucheasier to obtain a visa before and business people were more likely to attend seminars, fairs, exhibitions,etc. Today "I cannot leave the country even in the former Yugoslavia area."

Agricultural prod ucts sale:Agricultural producers from the Zeta flatland near Podgorica sell their fruits and vegetables at green marketsin Podgorica and in the Montenegrin coastal cities. This is the typical method of product sales. Connectionsbetween hotels and agro businesses are indirect and realized at green markets. Some hotels have their ownsuppliers for dairy and meat products. There are strong obstacles for a new producer to enter an alreadyestablished supplier chain.A participant from the association of beekeepers reports that they usually sell honey at exhibition inPodgorica, in some stores, or at the places where it is produced. He stated that there is a lack of resourcesfor equipping laboratories for quality control and customer safety.

Recommendations that the World Bank could support:To enable tourism development likewise with agro business."Evely project should be economically feasible (within the Government and certain institutions). TheGovernment should provide help free of charge for those with ideas related to agro business to help themreallze and practice those ideas."To organize local product promotionsTo help connect local producers and hotel ownersTo establish a Distributive Center in Podgorica.



Focus arouR discussion. topic: Land Manaaement and urban DlanninaMay 23, 2005

What are the main problems regarding access to the land or ensuring land rental for buildingtourist facilities? Which of these problems depend on the Government, which on the localauthorities, and which problems are dependent on donor organizations?Main problems are:The inexistence of a Spatial plan of Montenegro with which the development of some areas wouldadjust. In 2001, the Parliament of Montenegro adopted the Decree on building the spatial plan ofMontenegro for a period through 2020. The campaign for the building represents the chance to finish thetransition process in this area (reform of the system and adoption of the new law), to criticize and gathersector strategies and programs, to establish a network of expert organizations, to create a base for buildingthe GIS (Geographic Information Portal), and to ensure a qualitative basis for the development policy andspatial planning.

The inexistence of general and detailed urban plans for every municipality in Montenegro. Thereare no basic studies within the existing plans that regulate for example the green areas that border Nationalparks, the areas of special assignment and the construction within its borders or in protected areas."Especially we have a problem with flora and fauna, with endemic species... Lets take the example of theriver Cyevna. Who is allowed to build in the middle of the Cijevna Canyon that is under the world heritageprotection?"

The inexistence of institutions that would coordinate building the basic studies. Based on thevarious studies, the needs would be defined in tourist development and they will adjust to capacities ofspace so the negative effects of an unplanned building would be avoided.

The inexistence of strategic planning that would polarize development in the previous ten years andharmonize it with urban plans. War effects and migrations stipulate accelerated construction and unplannedareas so that accommodations could be provided to the coming population. The strategic plan shouldcalculate the tendency of development of a certain region related to tourism, agriculture, and economicdevelopment, and according to that, detailed urban plans would be adjusted. "Space is like a person. It isborn in a geological sense and you constantly usurp it We work following the logic: first we build thebuilding and only after it is built we include it in the plan -

Certain areas of municipalities in the coastal area do not have a Detailed Urban Plan (DUP),thus persons who are planning to build tourist capacities are building them without a construction permit."It is only a matter of time until the new authorities will come and ask to devastate all the buildings withouta construction license. Investors are feeling insecure."

The Law on planning and aligning space does not have the permeability and quickness ingetting the plans. The law hasn't predicted some possibilities that could meet the demands of getting alicense, even though it hasn't been a registered parcel in DUR

The responsibility for these problems lies with the Government; it must decide on areas of development ofthe whole country and declare strategic plans for development. With it, we should modulate detailed urbanplans of development and demands from the local municipalities. "In the case of the economy and demandsby the local authorities about thelr needs for a certain territory, those changes are going faster than thedevelopment of the plans; this is the reason for such a vast amount of illegal construction. "Are all private accommodations registered and licensed? If they are not, why not - what are the obstacles?

The primary obstacle for licensing and registration of accommodations is the non-simulative policy of theMontenegrin Government. People are simply not well informed about what they gain through the licensingprocess, and on top of that, they do not want to take part of their income for paying taxes to theGovernment. "In the last twelve months, a lot has been done to improve controls. We are approaching anew tourist season and we do not want to leave it. In Montenegro, people are used to finding a way tocheat the government. Controls have to be regular and punishments must be rigorous and dissimulative."

Are spatial planning and urbanization modulated with the existing tourist development and modernization oftourist capacities? If so, at what level?



Participants agreed that adjustment is at a very low level. 'Spatial planning practically does not exist inMontenegro, or at least in an effective shape. It canters with every flow of development and tourism as well.Uncontrolled, everything is turning into tourist capacities. Later it is legalized through inclusion into theplans. This will be a dlsaster for the space in Montenegro."

Every municipality should have a tourist development plan, and in accordance with it, each municipalityshould correctly develop the spatial area. As a consequence of the illegal construction at the Montenegrinseaside, "The land is devastated, and what is the most beautiful in Montenegro, sandy beaches and nature,are lost in the invasion of concrete and uncontrolled constructon. "

What kind of threats does the illegal construction pose to the tourism development masterplan? Are there any problems regarding enforcement demolish or prevent illegal construction?Mijuskovic: "Illegal construction grew to its largest scale when the wars began. Political power in onemoment loosens the criteria and it quickly grew out of control There are around 20,000 illegal buildings inPodgorica. Those people haven't paid a cent to the municipality, and haven't contributed a cent to theinfrastructure development..."

If the building does not fit its intention and its caliber to the detailed plan of the Municipality, the lawanticipates destruction. According to one focus group participant, the master plan for tourism does not havelegal weight. '4 large problem with destruction of the illegally built buildings is the selective approach of theexecutive bodies, corruption within them, and the inefficiency of these bodies."

Large problems exist in cases where illegally built areas house many people; these people are often sociallyjeopardized by living in them and they are connected to the water supply and electrical network. Afterwards,these dwellings are often written to the urban plans by the local municipalities to avoid the destruction ofsocial peace.

How does the existing Law influence restitution on tourism development?The existing Law on restitution prescribes a moral obligation of the state toward former landowners to paythe difference between the paid price and the real price of the property when it was nationalized.

Existing owners of the tourist facilities are protected by this law and there is no legal continuity betweenthem and the previous landowners.

Suggestions to increase the positive and highlight the negative elements of the tourism/spatial planningrelationship:

Develop an efficient, responsible system of planning that would prevent destructive effects of building touristfacilities in the area.Garner political will and support to this process and stronger capacities.Predict the desired tourist capacities and adjust with existing capacities of the natural resources (water,land).

Expected support by the World Bank and other donorsHelp in monitoring the planning processHelp in building the infrastructureHelp in renewing the tourist spots at significant places like Skadar LakeHelp in conducting a campaign to create the mindset of the importance of preserving our living space.



Focus group discussion. tonic: Small and Medium Sized EnterRrisesMay 25, 2005

According to the observations of the FG participants, the main problems and barriers for development of theSME sector in Montenegro are:

Administrative barriers. These are problems concerning administrative barriers for business development;they are centered on the bureaucracy and procedures required to obtain certain licenses. A special problemof note is the cost of obtaining these licenses (both in terms of the money and time that is spent to collectthe various forms of required documentation). Administrative barriers are part of every step, starting frommunicipal administration, and going all the way to the republic one.

Illegal competition is one of the problems that tourist agencies are facing. For example, a significantnumber of NGOs (for example, student organizations) are organizing different types of excursions, and asNGOs, they are not obliged to pay certain taxes even though, according to the Law on tourism, penaltyprovisions are in place in situations where an uncertified organization (in this case the student NGO) isdealing with typical tourist agency business.

High taxes. This problem applies especially to taxes and contributions on wages, and value added tax. TheVAT tax rate is 17% flat and according to the opinions of the business representatives, it should be lower.This is most important for the tourism sector, as a lower VAT would allow their prices to be morecompetitive. Currently, just export activities are excused from paying the VAT. Among the private sector,there is an initiative to cut the VAT for services in tourism and to treat tourism as an export activity.According to the opinion of the representatives of the Chamber of Commerce, small and medium companieswould feel positive effects with the introduction of different tax rates. Even though the tourist season hasbegun and it is unlikely, due to obligations to the IMF, that the Government of Montenegro would possiblychange the tax rates, the Chamber of Commerce does expect improvement in this situation toward the endof this year.

Insufficient credit support is provided, especially for small hotels and motels. Interest rates are prettyhigh and companies are financed under bad terms. Small firms have problems obtaining loans and the termsof credit are not good. With the adoption of the Law on financial leasing, an improved climate for accessingthe sources of finance is expected.

Grey economy continues to be a barrier; its participation in GDP is estimated at 30%.

Lack of knowledge and skills among managers, as well as employers. The Director of Alliance tourssaid that: "In Kola, during the last 3-4 years, around 240 catering workers were educated. The skills thatthey possess are weak because of the fact that during their schooling, they don't have much connection withpractice. It is needed that schooling is combined with practice. A special problem of note is the lack ofmanagerial skills. As a representative of the business association indicated, in small and medium sizedcompanies, one person/owner is often times doing different jobs and is also acting as the general manager."Private entrepreneurs will rarely confess that they don't know how to do something and they typically havea wish to control everything. Training of the managers and their employees is needed,"

Marketing strategy of small companies "How to make better, more qualitative and cheaperadvertising?"FG participants agreed that for the foreign markets better advertising is needed.

It is necessary to found an association of tourist agencies. There are various problems that unitetourist agencies, from illegal competition to the levies that they are paying to the state and that increase theprices of their services. 'A Joint approach of the tourist agencies through an association would strengthentheir negotiating position in talks with Government "Bad infrastructure. "In the south we don't have water and in the north we don't have electricityAggregates are too expensive for us. If we put hard work into the preparation of the season and then wedon't have electrilcty for seven days, it ruins everything. I

Non existence of the certification system in tourist facilities ISO 9001, HASAP, ISO 14000. Arepresentative of the business association stressed the fact that in Montenegro, small and medium sizedcompanies are still not aware of the "standards" that foreign buyers/tourists expect. "It is necessary to



strengthen the minds of managers with regards to the importance of certification and internationalstandards. "

When discussing the existing regulation concerning the SME sector and whether there is a strategy for itsdevelopment, participants of the focus group said that:

"A Strategy for development and preservation of the SMEsector does not exist""That which concerns the SME sector concerns all others. There is nothing special that is tied just to the SMEsector while not affecting other companies in Montenegro. Companies are founded and registered under thesame conditions, regardless of whether they are SME's or large companies. The basic is that in Montenegro,97% of all companies are small and medium enterprises and they represent the major employers.Development of the Montenegrin economy is based on the SME sector Small and medium sized companiesare the major employers and the only ones that have the potential to create new jobs. "Bearing in mind the importance of tourlsm for the development of the Montenegrin economy, there is a needfor additional regulation of the companies that are working in the tounsm sector Companies whose mainscope of work is catering must be registered according to the basic laws, but also according to the Law ontourism. That regulation should respect the criteria regarding quality of accommodations, payment of fees,services in catering, and the proper sharing of income from tourism between the local and centralgovernments.

Suggested methods of how the SME sector can help to better contribute to the development oftourism in Montenegro?Promotion of Montenegrin tourism and small and medium sized companies working in the area of tourism.There is a boom of small and medium sized companies, starting from private accommodation, small cateringfacilities, rentals of private beaches, etc. Large scale, state-owned companies are no longer characteristic ofMontenegro; however, there are quite a few small accommodations, small restaurants, coffee shops, etc.and they need to receive more promotion through fairs, exhibitions, etc.Decrease the taxes and contributions on wages for employers; doing this will ultimately create thepreconditions for development of the SME sector in the area of tourism.'In some countries, the work of the Ministry of tourism is done by a private agency that is in charge ofpromotion and you pay it to promote you." In Montenegro, this work is done by the Tourist Organization ofMontenegro. It is partially financed by the private company's fees, and even so, this company has the rightto ask for better promotion and for the foreign tourists to be better informed of the capacities that they areoffering.

Organizing exhibitions. "Apart from the promotion through catalogues and brochures, the Association ofhotels organized promotion of Montenegro and its seaside in Berlin.

Organizing Information centers at country borders and within every city in Montenegro. Its assignmentwould be to create the picture for tourists that in Montenegro everything can be accomplished within oneday; tourists should be able to receive information regarding pricing for all hotels and privateaccommodations, camps, national parks, lakes, and anything else that might be interesting for tourists.

Training of the tourism providers/employees: "there is no institution in Montenegro that organizes adequatetraining for people working in the tourism industry and provides certificates for participation in training. Wedo not have educated and person certified for rafting, licensed by the state. If we are going to operate intourism, we have to concentrate to do business as it is done everywhere else in the world."

Current possibilities of the local, national and international market of the SME sector in relationto tourism"The potential of Montenegro is incredible. But, we have to create a product that could be sold on theinternational market."Focus of the SME sector in tourism is more towards the international market. There are more foreign touristscoming in Montenegro, especially from the European Union (in this case, we don't consider tourists fromSerbia as foreign). On the other hand, people from Montenegro are tending to choose other locations fortourism. Considering the possibilities, we should focus on the idea that Montenegro is an exclusive touristdestination for high income tourists. Some FG participants are of the opinion that the main guests are localpeople.



When discussing whether or not private associations have a role in the development of the SME sector, andwhich questions and problems they cover, participants of the FG agreed that:

There are private associations, like The Montenegro Business Alliance, that have a role in the development ofthe private sector through their advocacy for the interests of the private sector. In its agenda, they questionthe regulation and changes of the legal framework with the purpose of creating a better businessenvironment in Montenegro: "From the other side there is a need for advocacy in the area of promotion ofthe SMEs since you cannot rely on the state to promote you."There are associations that represent the interests of the SMEs (like the association of hotels that representsthe interests of hotels) and there are umbrella organizations, such as the MBA, that represent the interestsof different sectors on a national level. "It is necessary to create an association of tourist organizations.When someone is organized, it is easier iIt is suggested that a concrete solution would use the money collected from taxes for promotion, therebyindirectly giving the money back to the guests through the campaign. This is one interest that the touristassociation should advocate for.

Podgorica's need for green areas, other services, tourist attractions (souvenirs, bus stations, etc.):

We have to take care of the bus stations, railway stations, airport, etc. That is the first sight that touristshave when entering a country. The bus stations in Montenegro are in very bad condition. In most cities,there is no information bureau at the bus station, and in some cities, especially to the north of Montenegro,there is no bus station building.

There is stressed construction in Podgorica, especially in the central part of Podgorica, and the green area isdisappearing. Experts claim that the diminishing green area in Podgorica does pose a problem. Everything isbeing done to provide parking places; that is a problem. New settlements are rising and they are takingaway green areas, taking away our natural beauty. Due to the high temperatures during the summer and thelarge number of cars, "Park is worthiest in Podgorica."

In some coastal areas, like Budva, the green area disappeared as construction (legal or illegal) "ate" it. Wehave to work to preserve the existing green areas and build detailed urban plans in which green areas mustbe a part of.

We need national recognition; the originality of Montenegro exists just "in pieces." We do not have a highquality and complete offering of souvenirs and there is no cultural, historical, and national program.We have to work to develop the mindset of people in all areas: from the significance of the environment tothe quality of the services that we are providing to tourists. If tourism is basic for economic development, wehave to play the role of tourist worker "The essence is within us. Our mindset is on the low level."

Suggestions for development and improvement of the tourism and SME sector:Experts said that it is necessary to introduce standards.Suggestions were sent to decision makers to further work on creating a better business environment inMontenegro by further opening Montenegro and attracting foreign investors and beneficiaries that can begiven to the investors.Further decrease bureaucracy.Decrease the grey economy.Decrease taxes and contributions paid by the private sector.With this, as they said, the best push for the private sector will be provided, and especially for the SMEs.

Help by the World Bank:The World Bank could help to influence decision makers to provide development to the private sector. WorldBank is an important factor in every country, especially in the area of policy creation. As this situation existsin Montenegro, the World Bank could help with its suggestions. Decreasing the administrative barriers shouldbe in focus.Providing credit for infrastructure objects.Participating in the reform of the health and pension systems.With its suggestions, World Bank should insist on a market economy, its principles and implementation,"Because you haven't done anything if you insist on adoption but not on implementation of some law."



Help by the local municipalities and Government:Education as a continued process is recognized as a priority from the side of foreign experts. Education isnecessary at all levels, and in all areas that are directly or indirectly tied with tourism, from policemen toreceptionists. Foreign language courses must be organized. "Our culture doesn't have the right attitudetoward tournsts: everyone earns from tourlsts but I am afraid that we don't appreciate it enough."The Government has to eliminate existing barriers and not create new ones. Through the creation of fair andappropriate rules, the Government is doing its best to support the development of SMEs.Municipalities also have to compete with each other. With better conditions for doing business and simplerprocedures, municipalities have to attract founding a larger number of companies in their area. That wouldensure the creation of new jobs and they will have income coming through taxes.The task of the local authority is to create a favorable ambient for doing business and to create beneficiariesfor tourism. Water supply reform is the first step towards a more qualitative infrastructure.

Golf terrains and courses in Montenegro:Development of this elite sport will attract elite clientele. People that use terrains will use some other service.Experts consider that Montenegro has an unused area in the backyard of the coastal region that can be usedfor building golf courses.Experts didn't have doubts that this terrain would be functional.Investors in this business take care of their clientele and return of investments. It's his concern.Specialization is necessary. For example, education of the employees and maintenance of the terrain isneeded.

Focus arouD discussion. topic: Environmental and Ecological ProtectionMay 25, 2005

Ecological problems caused by tourism and suggestions for protecting the environment:

According to participant opinion, the most important ecological problems caused by tourism are:

Conversion of nature lairs into semi-natural and artificial areas as a consequence of the unplannedbuilding, fast expansion of new settlements and the development of mass tourism. Buskovic: "Occupation ofeverything that is free in order to create some tourist object, hotel, or beach, in order to gain more space fortourists. Tourism is one big industry and a significant factor in the development of Montenegro, but we haveto be conscious of its price. "Urbanization and illegal construction is especially expressed in the coastal areawhere we have experienced a retreat of biodiversity and some select species have even disappeared.

Absence of trash dumps and the citizens' lack of consciousness about that problem. Theproblems surrounding the inadequate trash dump system are being solved. Very often, a misunderstandingof the local authority, as well as citizens, decelerates the realization of projects that are related to reclaimingtrash dumps. "Citizens are negligent They are looking for others to respect something that they do notrespect themselves." Sekulic: "When our people visit another city where there is no garbage or cigarettebutts on the ground, they will respect that and will not litter either"

Bad infrastructure, roads, water supply network and waste water system. "The roads inMontenegro are very bad, with potholes, slowdowns, and construction that are managed without anyplanning and even occur during the peak of the season,"observed Mr. Da nilo Seku lic from Secretary.

Absence of laws to support protection of the environment and the development of tourism.Buskovic: "Nature is incapable of accepting tourism as a pressure. Now, limits of acceptable changes arebeing calculated; that is, how much change and pressure can a certain environment endure withoutdestruction and undesirable devastation appearing."

Existing regulations and legislation surrounding the environment and tourismThe common estimation of focus group participants is that certain legal decisions exist, such as those thatregulate the managing of nature, the protection of the environment and tourism. However, Mr. Vaso Buskovicsaid: "... the question is, how much do those regulations correspond to reality and how have they been putinto effect and in which mutual relation are they "



Sekulic: "If somebody comes to the National park, are there any clues to indicate that he is in a Nationalpark? Hardly."Katnic: "Therefore, he certainly wouldn't be able to conclude that Montenegro is an ecologicalstate. "

There are mechanisms and procedures that regulate protection of the environment and they establish theinfluence of some specific activities on the condition of the environment. Some of these mechanisms are:

Environmental Impact Assessment, which has been conveyed from 1996 "it is strongly formalized, itmakes a lot of sense but does not have participation of the public. It is positive that it still exists formally, atleast on paper "

Law about National parks is old. Protection of the environment of national parks and protected areas ofnature are not defined; however, the law still has some good solutions. However, Vaso Buskovic is of theopinion that "there are no appropriate solutions for what happens as society changes because those changesand those solutions are not brought to the end, neither privatlzation nor the transition process of social andeconomic life, which has to be brought to the European level. "Ana Katnic: "There is certain regulation thatthe Ministry for Urban Planing oversees regarding the illegal building in National Parks, and we are here justto report it National park cannot punish "Buskovic: "At the level of strategic documents, physical plans, and Strategy of tourism development, we donot have the mechanism called Strategic Environmental Impact Assessment, but it is in the Parliamentprocedure. Additionally, there is a draft of the Law on Environmental Impact Assessment and a draft of theLaw on Integrated Environmental Pollution, Prevention and Control.

Procedures for control of traffic of endangered species of flora and fauna

Buskovic: 'As a unique regulation, there is no completely defined relation between tourism and theenvironment at the country's level."

Focus group participants cited basic recommendations that would help the harmonization of environmentalprotection and tourism development. Therefore, there are recommendations and expert documentation thatare part of either convention or principles for which competent international organizations stand for.

There are documents that regulate, at the level of so-called directions, the relation between tourism and theenvironment in the Convention about biodiversity.

Buskovi6: "The International Union for Conservation of Nature, IUCN, creates directions for protected areasof nature and identifies how tourism should be regulated there. They have directions and recommendationsthat could be used for all of those who work in the sector of tourism and for the environment in order toadapt their jobs to what has been recommended But that is not defined by Law, it is not obligatory. "

Development of a specific sort of tourism. "It is not all the same if you, in a small country with limitedresources such as Montenegro, develop mass tourism, or so - called eco - tourism; this would not onlyprovide higher incomes but would also demand minimal intervention in nature."Education of citizens and raising consciousness about the significance of the environment and itspreservation. "Everything is in us. If we do not respect what we have, others will not respect us. And whatwill be left to coming generations?"The Ministry for Environmental Protection and Urban Planing, in cooperation with UNEP (United NationsEnvironment Program), prepared a National Strategy of sustainable development (NSOR- NSSD) that willunite economic development, the challenge of poverty reduction, and all of the pressures by which economicdevelopment influences the environment in accordance with sustainable development principles.

Private associations occupied with questions and problems of environment

According to focus group participants there are many organizations and associations occupied with problemsof environmental protection and their solutions, but the motive behind their existence is in question, as arethe strength of their actions and their influence. However, there is a tendency of networking, resulting in thecreation of "Green circle" by five or six NGOs.



Organizations that are occupied with the questions and problems of the environment should have influenceon:

An increasing sense of responsibility and the development of a consciousness and culture among citizens sothat they could adequately react and take over the initiative. "People are indifferent and unwilling to occupythemselves with the envlronment because they are in a bad economic situation. Who can care for someoneelse, some Ministly, Municipality, institution, who can be occupied with that, not we," Buskovic noticed.The Government and state institutions in the way that the "green" component is a part of every activity.Realization of projects from the area of environmental protection, such as the "Project for green trashdump,"Nikoli.Marketing activities.

Suggestions for solving ecological problems

According to participants, things that can be done to improve ecological protection are:Decentralization and deregulation of authorities that exist on the Republic level towards Municipaland local organizations. Mr. Buskovic thinks that "Even if Montenegro is 'small, we can not, on the centrallevel, know all of the problems within each municipality We have to give the local people the chance to beengaged in questions of their municipality."

Better cooperation of state institutions with the NGO sector, especially with respect to projectrealization.

Competence and authority for solving problems. Sekulic: "Evetyone wants to know everything.Doctors want to be architects, economists want to be lawyers. "

Initiation of projects from the area of environmental protection and regulation of themechanism by which every intervention on the environment is sanctioned. Scekic: "For every cuttree, we should plant three."

Determination of priorities. Sekulid: "The question mustbe asked, what do we want?"

Help from World Bank concerning the environment

The general conclusion among focus group participants is that the World Bank can help in solving theecological problems, first of all, through:Financing advanced trainings for domestic specialists abroad to apply their knowledge towards solvingconcrete problems in Montenegro.Help preparing projects in financial and cadre form, especially for projects through which problems oftourism, the environment, water supply and waste waters are treated.Clear formulation of needs and problems together with the Government and local authorities.Adjust the activities of international organizations to meet the real needs of Montenegro. Buskovic: " There isa barrier between the expression of local needs and their acceptance at international organizations."To anticipate the consequences of development, projects and plans and to find a model with theGovernment for a mechanism to control that development in order to protect that area. To insist atGovernment, on the application of laws and acceptance of its obligations. "As it is the case with protectedareas: Buijarica, Tivatska sollla. The Law is applled and there is no building."Assessment of influence on Skadar Lake and ecosystems of withdrawal of water from Skadar Lake.Social estimation of the influence the protection of Skadar Lake as a National park will have on the life andwork of citizens from this region.Estimation of the influence that the rapid development of tourism in the coastal area will have and howmany natural lairs will disappear.Planning of future building.

Receiving Governmental or local authority help in solving ecological problems participants takewith dose of doubt. "I think that there is a general disrespect of laws. This is a small country and we are allrelated."

Regional needs of Montenegro considering environmental protection



Involvement of Montenegro in regional organizations for solving the questions of environmental protection issupported by participants. Sekuli6: fl That is a good thing, but it is not its turn yet. We must, first of all,organize an internal situation and then go further in the neighborhood. "

There are opposite opinions also: Skadar Lake, as a natural object, which is of international importance,must be the object of international community interest. The same can be applied on massif Prokletija. Onthe other hand, there are projects in which Montenegro should not take large participation due to its sizeand experience. In such associations, programs, and projects, its participation in regional initiatives would beminor. Such a project, according to expert Mr. Buskovic is the Adriatic Ion Initiative.

However, according to experts, before all of that the following must be done:

Estimation of what is urgent, and what is feasible in the near future in Montenegro. It is necessary to makea list of priorities, and direct donations in that direction.

Creation of a document that would clearly define the priorities and needs in the sector of environmentalprotection.

"We must have projects for investments that wlll have some kind of application letter If Budva needs a newwater supply system, a new water supply system with new capaclties must be planted and we have to knowhow many tourists we can receive. We cannot receive tourists at any cost, and afteiwards think about thelack of water or trash dump. We cannot think in such a backwards way that we need tourists since we needmoney, and then afterwards think about the problems." Katnic.

World Bank has to anticipate the consequences of development and, together with the Government, mustdefine a mechanism for development control in order to protect the area in which operations are conducted.There are positive examples in Montenegro from which we have to learn. For example, managing protectedareas: Buljarica, Tivatska solila. Laws are applied and there is no building.

Golf terrains

Opening of a golf terrain in the coastal area has different consequences on the environment. Participantsthink that it is a good way to develop tourism, but as we have learned from past actions, in Montenegrothere exists euphoria to build objects or conduct projects that have proven popular in other countrieswithout first estimating the economic and ecological impact of such actions. They are sure that this elitesport would bring high paying guests to Montenegro.



Annex 4- Report on Focus Groups Discussions Held on Water Thematic Topics

First Focus GrouD Podaorica, May 17, 2005

TariffsAll focus group participants agree that water bills payment based on flat rate is unsatisfactory. Thatcalculation of bills cause high water bills delivered at the end of second or third month. Causers of thatsituation are non-existence of water meters and high price for their installing.Focus group participants think that most Podgorica citizens pay their water bills. The average water bill for afour-member family is E10. They emphasize that retired people and poorer citizens pay their bills regularly,while those who are the worst payers come from the private sector. "The best payers are retired people.With a pension of C80 I have to pay electricity trash, water.. and still, I have to lve!"

The majority of participants think that those who don't pay their bill do so out of indignation: "We werepaying water bills regularly until the moment we started to receive veiy large bills. It was consumption of750 m3 for our four-member family I have called the water supply Company to come and check becausethere were business offices on the ground floor and I assumed a mistake had been made. They didn't wantto come, and I became obstinate and didn't want to pay anymore, at my own damage. Until that moment Iwas a regular payer, then I received a written warning that they can sue me and I was afraid. After that Ididn't want to pay and I asked them to build in water meters; they responded that this could not be doneand that it is forbidden. "

Most participants will accept higher prices if the quality of service in the supply of water is also increased,not in order to pay water losses in the network system.Participants suggest a gradual increase, progressive at 2% every two months, but not all at once. "If thewater supply company decides to increase the price, we have to swallow that price of water in the same waywe have swallowed the price of electricity, telephone, etc. But, if I have the chance to advise the watersupply company I would tell them to introduce a higher price gradually not all at once. In that graduation,will be some space for consumers to feel improvement of water supply so they will easily accept higher priceand pay their obligations normally"

AccessRegarding the quality of water, focus group participants are very satisfied and they use it for drinking as wellas for cooking. "The water is so good that it was suggested to refine and bottle it." They deem that thequality of water in Podgorica does not require any improvement.The main problem is that the municipality pollutes the environment of the springs with wastewater andfeces. Considering the infrastructure and supply network, leaking water from the coal-pit and the low level ofsanitation are the critical points.

Suburbs with bad approach and quality of waterThere are places like the Roms settlement in Vrela Ribnicka that is in close proximity to the city trash dump,and they do experience the problem of having an inadequate water supply. During the summer months, themunicipality delivers water in cisterns to them, but the risk of infections and diseases is increased. " We havefilled plastic containers, cans, etc...."

Endangered groups are also citizens of the area around the aluminum combine. "The number of those whohave cancer in these settlements has grown in the past severalyears.

There are places, such as the settlement Konik, that didn't have a good quality of water supply and theytried to resolve the problem by bringing water from Mareza, "but the quality of water that we received twoyears ago from Mareza decreased after unlicensed connections at that system appeared, and now problemshave already begun at the end of May"

Main priority needs in the town/community in regard to water services and tourism:

Sanitation of the damaged points on the water supply network - invest in the improvement andsanitation of the temporary water supply network.Selective stimulation of consumers - define a minimum price of m3 (cubic meter water) up to a certainquantity that is consumed by one household. All quantities that are consumed over the optimal limit should



be paid for dearly. "Lets say that for consumption of 10mn3, which is optimal for a three member family, oneprice should be paid, and all consumption above that should be paid at a much higher price, so if someonewants to use water in the garden, he/she should pay for it!"

Stimulations by the Water Supply Company - build a special water meter for each household. "For thisinvestment, the Water Supply Company needs a huge amount of capital, and if it is possible, there should besome discounts for households when bying the water meter.'

Subsidies (lifeline tariffs)

Focus group participants think that if the Government organized subsidies, they should be directed to socialcases, people with small incomes, and handicapped persons. The Government, i.e. a competent socialinstitution that has evidence of the number of social cases, should do compensation for social cases.The mechanism should "be very sensitive since people don't like to be marked as poor in the public eye.Nobody likes it."They have record of such cases and they should receive 30% to 50% of relief.

Other

Mechanism to increase paymentsFocus group participants suggest:

* Bills should be delivered at the beginning of the month, after monthly wages are received.. The Water Supply Company should form a group that would control the number of citizens

connected to the water supply system.* A list of non-payers should be posted at public places twice a month.* The water supply company should react to citizens' comments about bills and problems. "Disregard

for their concerns will only increase the problems."

Institutional issues - Private versus public management

Working groupsIn this case, citizens think that the Water Supply Company has a monopoly and think that nothing could bedone at the local level. The larger citizen's initiative group should be made only at the republic level, withoutpolitical impacts. "The local community is occupied by political issues and by organization of elections."

Local communities should be organized, in suburban areas within the municipality. Representatives of theworking group should be presidents of the home council and they should demand reports from the watersupply company about the level of payment, dates, etc.

Focus group participants think that in the case of making the water supply company a private service, thesituation would be significantly improved. A private company would invest resources, establish a plan,establish ways to solve problems and establish repressive measures if bills are not paid on time, such asturning water off to a particular apartment or house if bills are not paid regularly.

Water management serviceThe water Supply Company should function as an independent service and that is the best way offunctioning. Although it has a monopoly, it should function independently.Ongoing action of the Water Supply Company in Podgorica, wherein an information about the damage issent by SMS and a worker comes to repair the problem with no charge, was positively received byparticipants, with the comment: "we don't have anything against it, just the water supply Company has tobuy us a mobile phone!"

The water supply company should have the responsibility for turning off illegal consumers, but also,to disconnect those consumers who are not right: "Those illegal connectionsshould be legalized somehow."

Measuring - Water metersIn Podgorica, there are a small number of individual water meters; water meters are common and bills arecalculated based on the number of family members. "We have asked about building water meters but weretold that it would only be possible after the debts are paid. We would also agree to buy and build the watermeters ourselves if it could be later deducted from our bills."



Water meters are under the ownership of the consumer; the price is E50, which is not suitable for mostinterrogated people.

Participants think that they get high quality water, and also they agree that current water price is not enoughfor covering of the costs of Water Supply Company and maintenance.

Migrations and urbanizationDue to the ongoing migration, in Podgorica, illegal buildings have increased, and there are a lot of illegalconnections. The consequence of these illegal connections is lower water pressure. "Preventive measuresshould exist that would stop them from doing this."

Consumer's behaviorFocus group participants think that citizens in Podgorica haven't expanded their consciousness to savingwater. "We have to start education from the kindergarten generations.5"Profuse consumption of water during the summer time when people use water for cooling sidewalks andgardens leaves those people in higher elevated flats without water.

Second Focus aroup discussion - Kotor. 05/19/05

TariffsBill Payment in Kotor is charged based on the registered water consumption at the water meter. A smallnumber of citizens pay for water based on a flat rate and thereby receive lower water bills. Thesehouseholds do not report the exact number of household members and in summer months they water theirgardens and yards, thereby making it impossible for citizens who live on higher elevations to have water.The Average monthly water bill is 10 euros. Water meters are placed in common parts of buildings and billcollectors may come to them. The living space of individual apartments is also written on the bills andparticipants tend to think that this also influences the amount of bill, though they are unsure as to whatinfluence it has since they pay for water according to consumption that is read from the water meter.

A large number of users do not pay for water. The opinion of focus group participants is that young people,in particular, are revolting because they are dissatisfied with the quality of water and lack of water and theproblems surrounding water force them to adjust their lives around the times when water is available.

Participants believe that the most regular payers are retired people and poor people.

Focus group participants think that the existing price of 0.90 Euros is the highest price of water in theRepublic. With a further increase in the price of water, the percentage of water bills that are actually paidwould be reduced. Some participants noted that they may accept a higher price if they had access to waterduring the entire day so that "water is no longer a category in peoples'heads that burdens them"and ifwater were of good quality, so extra money must not be spent for bottled water.

They think that the price should not be increased during the summer months and even suggest that itshould be cheaper during that period since there is such a lack of water. "The price is higher and service isnot obtained."According to participants, the Water Supply Company may want to increase the price of waterin order to pay all of its workers, and there are too many of them.

AccessKotor provides water from two springs, and one of them dries up during the summer; those springs areOrahovac and Gurdic, and partly from the Tunnel. According to focus group participants, all of thesemethods are ad hoc. Citizens are of the opinion that Kotor does not have an adequate water supply. Theexisting method of supplying water to the city cannot be the solution.

The most important problems of the city concerning water cited by focus group participants are:Salty water and the lack of water during the summer months.Shortages or periodic lacks of water due to breaks in the water pipes of the water supply system.Muddy water at the spring occurs frequently and water from the system cannot be used in households.The consequence of using salty water is an increase in household expenses since the lifespan of appliancesthat use water is reduced (boilers, washing machines, dishwashers, etc.).



When the quality of water is considered, participants are not satisfied. Some of them do report to use thatwater for drinking and in their households, while others drink only bottled water. Also, participants mentionhaving a problem paying for water, especially in times when they have to buy drinking water, and theysuggested that during those periods, water bills should be reduced.During the times when water restrictions are in place, expenses of a household increase since people cannotuse cheaper electricity tariffs. During that period, citizens have to adjust themselves to situations when thereis water.

Water supply improvementTo reduce water losses in the water supply system, it is suggested that the existing system be renewed andmaintained to avoid frequent damage.It was also suggested that filters and water cleaners be used to eliminate stones and dust that come withwater to improve the overall quality of water.

Subsidies (lifeline tariffs)Participants of the focus group agreed that if the Government introduces subsides that private businessesshould receive them since they have found a solution for water supply in their facilities and invested in theirbusinesses in order to provide water to their guests. Private businesses own whole systems for water supply.Subsidy priority should be given to businesses since they will be bringing money to the municipality, and inthat way, endangered groups would not be endangered anymore.

Local authorities have to be interested in their local businesses so they would compensate 70% of thesubsidies, while the Government would subsidize a smaller portion, 30%, since it is in its best interest thatthe city lives.

Other

Sensitive areas and groups of citizens: In the city, there is an area of Dobrota that is at a higherelevation, Sv. Vraca, which, during the summer, has poor water pressure and sometimes people go withoutwater for several days. When this occurs, they are provided with water by cisterns that are provided by theWater Supply Company.

Family business in tourism: The water shortage problem is solved by using technical water for washingand bathing, while people buy water for drinking and cooking. Other solutions to the problem include havingwater tanks with pumps, plastic containers holding 50 liters of water, and installation of boilers holdingtechnical water that is heated by the sun for bathing. Complaints to the Water Supply Company are noteffective since the whole town has problems.

Institutional questions - Private versus public management

Working groups - Some participants said that private businesses would best represent the citizens incommunication with the Water Supply Company since they benefit the most and consume much more waterthan households. It was suggested that that group should work voluntarily and have a representative thatcompletely understands the problems of the water supply.Focus group participants think that private enterprise would find a better solution for the water supplyproblem. "That enterprise would act as a good host toward this problem."The Water Supply Company should be an independent service that works independently from municipalauthority.

Employment: Without any doubt, a reduction in the number of employees in the Water Supply Companywould occur, and that would have a negative effect on the whole economy of the city. However, privatizationwould increase the efficiency of those workers who would remain.A higher price as a consequence of privatization would be accepted by focus group participants only if thequality of water is better and if water would be available 24 hours per day.Reform: Participants positively estimated the reforms that are planned in the water supply system and theyhave a positive attitude toward this project. Reforms in the water supply system are not only significant tothe ordinary life of citizens, but for the whole economy of one coastal city.



Reform would bring long-term solutions and improvements. The number of citizens has risen andinvestments in reconstruction and extension of the existing system are needed. By that, conditions ofsupplying water and the overall hygiene of the city would be improved. "Technical, refined sea water, whichhas been used to clean pavements, is not efficent The city is dirty."

The most critical problem of the reform could be the efficiency of the reform, to which attention should bepaid so that citizens do not bear this situation for too long a period. Participants agreed that they wouldaccept a higher price in a certain period, if after that, permanent improvements in the water supply wouldbe made.

Mechanism to increase payments for water: Payments may be increased if service is improved, therebyincreasing consumer satisfaction. Service could be improved if employees were to provide exact informationabout water restrictions and were more efficient towards consumers and their needs.

Focus group participants think that the water supply company should invest its money in the existinginfrastructure since the consequences of a bad infrastructure are great: from breaks in the water pipes toflooding of the whole town. "People would most probably accept a tariff and some water restrictions for acertain period, but only if it would result in a better quallty of water supply"

Water management serviceWork of the Water Supply Company - There is certain dissatisfaction with the work of the Water SupplyCompany at the moment because work is done just to be done. Very often, some pipes are left at thesurface or damage is not being repaired completely. "It is much easier to repair certain damage if you call aworker from the Water Supply Company to come as a private entrepreneur rather than calllng the WaterSupply Company to send an employee."

Migrations: The greatest increase of citizens occurs during the summer period and in the period oftraditional manifestations and fiestas, such as New Year's, February, and March. Participants deem that thequality of tourists is changed according to the water. "oreipner's wouldn't come, even if he/she only had topay S euros for a bed if he/she does not have basic life conditions. After all, he/she has those conditions athome. Such a situation with the water supply definitely is not a precondition for elite tourism development."Increased number of tourists positively influences the economy of the citl but it has a negative influence onthe water supply One focus group participant said: "I am ashamed in front of those tourists. I am a nativeand the city has never been dirtier, there is no drinking water, there is trash wherever you look,. your footsticks to the pavements..."

Consumer's behavior: All participants agreed that citizens have not developed a conscience about thenecessity to save water. As an argument, it is cited: "Why do we have to save water at home when muchmore water is lost due to breaks in the pipes and no one repairs that for days or months." In Kotor, most ofthe apartments have water meters, so people tend to have the opinion that, "I pay for it and I can use asmuch as I need."

Third Focus aroup discussion - Bar 05/20/05

TariffsAll focus group participations state that they pay based on metered consumption, or flate rate aif they don'thave water meter. Usualy they pay their water bills to a bill collector who comes to the home of consumers.The average water bill is E20. In their opinion, the pension group, people with low salaries, are the mosttypical to pay bills. "Those in the greatest debt, who owe thousands of euros, will never pay a bll, but thosewho have bills of 10-20 euros pay their obligation immediately"The main reason for late bill payment is thatthe other utility bills (electric energy, telephone, etc.) are too high and consumers' salaries are irregular.

Mechanism of increasing the price of water: The current price of water is already high, according tothe opinion of focus group participants. A further increase in price will have negative effects. "Whatever theWater Supply Company does, everything tends to take money from the citizens'pocket."Mechanism of increased charges: The higher quality of water and the punishment of illegal consumerswill have an effect on the charge associated with water, it will increase. One of the suggested mechanisms isto switch from the network. Participants think that those holding the largest debts should be pushed by



jurisdiction to pay their bill. Additionally, it was suggested to make it possible for consumers to pay their billsin installments.

AccessMain water problems facing the town are lack of water and lack of cleanliness. When discussing thebacteriological wellness of drinking water, a great share of citizens lack confidence. There should be asystem in place that checks the water in laboratories from time to time. "People are afraid to use thedrinking water because of several cases that have hospitalized whole families due to water incorrectness.You should appeal to citizens not to use the water for drinking if there is the possibility of waste water orreduced water quality"

Quality of water which is at an unsatisfactory level. There is no water filtering and the water pressure is low."Last year, there were epidemics in the living areas of Popovic, Rena, and Bjelise. One man became sickwith hepatitis B."Focus group participants think that illegal network connections are "huge problem", andthere are a lot of illegal connections to the water network in Bar's environment. " The number of houses withan illegal network connection increases, but the network of water pipes remain the same, so there is lowcapacity and we don't have enough water'

Improvement of tourism: The areas near the beach have the most problems with water because theseareas host the greatest number of tourists. "People, during the whole year, collect bottles in order to fillthem with water that they will be able to use later when there won't be water At times, cltizens may waitthree full days to be able to get water, and then, it is available only for a couple of hours before it disappearsagain. How can families of four take a bath? How can you wash your laundry? What can you expect fromtourists then?' For every tourist location, and Bar as well, a top priority should be the quality of the watersupply; the pipes should be fixed and maintained and the citizens should be allowed to have a normal life,even during the season. "The lack of water influences tourists to leave Bar and to visit other places instead."

Focus group participants are not satisfied with the quality of water, but also express dissatisfaction withthe supply of water. "In places where I have built house there is a lack of water during the whole year. Itsometimes occurs that there is no water for two months straight causing me to move into my old house thatis in another part of town." Citizens are forced to buy water from private businessmen that deliver water incisterns costing "nearly a whole month's salary, but you just have to find a way."

Supplying in periods when there is no water: From indoor taps you can use water for cooking, whilefor drinking you should use water directly from sources or buy bottled water. It often happens that you needto wait for water until late into the night, and then you fill balloons so that you have enough water forcooking and washing during the day. You cannot use this water for drinking because it's incorrect. "Duringthe most beautiful part of the year (summer) we spend our time waiting for water until late in the nightWhen the water comes, we are 'begging'neighbors to turn off taps for at least one half hour so that we canfill bottles or wash laundry The problem is that when one tap is turned on, the rest have no water."Somebuildings don't have huge problems with the water supply and quality of water, and other buildings have"hydrophones" so they don't have problems like this during the year.

Water savings: Everything indicates that citizens of Bar don't save water. "How can we save water whenwe don't have enough water? When we get water, we are trying to wash more laundry and fill more bottles.In places around Bar, people actually use water to water their garden!"

Subsidies (lifeline tariffs)The focus group participants believe that subvention should be for pensioners, unemployment, and socialcases. These expenses should be refunded by the community of Bar, and should be careful not to misuse.Social institution should identify those who will be free from paying bills."

Institutional issue - Private versus public managementParticipants believe that, even with privatization of the Water Supply Company, the reforms would be slowbecause of a lack of money and trained staff. The price would be even higher with privatization, andproblems with illegal consumers and losses in water exist as well - and these problems are not easy tosolve. "Who would pay the higher price? The current price is already high, not to mention a higher one."Participants believe that a mechanism to monitor the privatized Water Supply Company should be developed.



Reforms: If the water supply system were improved, participants believe that this would have a positiveeffect on the development of tourism and investment in Bar. "I have not heard that hotels have anyproblems with water, so there is no fear of this problem for foreign investors."

Water management service

Work of Water Supply Company: The participants feel that the Water Supply Company should functionas an independent service and should be independent from the community. The current tariff on watercovers the company's expenses, but the problem comes in when bills are not paid and when illegalconnections are made, both of which reduce Company's income. If the Water Supply Company is successfulin charging whole receivables, priority will be given to investing in the infrastructure.Focus group participants believe that everything should be done to improve cooperation between the WaterSupply Company and citizens - Employees in the Water Supply Company services should be more pleasant,should provide more information about the quality of water, and should organize free repairs of watermeters, pipes, etc. 'Several times I tried to get information about the plan for reconstruction of the watersupply network from the Water Supply Company and I would get feedback that our part of the network isnot in the plan for reconstruction."Even though water meters exist in most households in Bar, problems appear due to the lack of existingservices and the infrequent calibration of the water meters.

Land, which is far away from the coast is cheaper and because there is no detailed urbanizationplan for the town, illegal building cause a big number of illegal connections. "There is no detailedurbanization plan for the town of Bar and that may be the cause of problems for the citizens' supply ofwater."

Fourth Focus aroup discussion - Ulcini May 21, 2005

TariffsParticipant opinion is that the poorest population and pensioners pay water bills most frequently, while thelarger consumers are less likely to pay. "It can hardly be managed to pay electricity water, and telephonewith a small pension, but the most regular payers are pensioners, while the hotels, Salt Company andmunicipality are not paying their bills regularly" Consumption is calculated based on the water gauge or alump sum calculation based on the number of people living in the household. The average water bill rangesfrom 12 to 20 Euro per month. The price of water is 0.35 Euro per m3. The bill can be paid directly to thedelivery person, at the Water Supply Company, or at the special identified place for such purpose. Theparticipants consider that the price of water is too high and that the high price has a negative influence,especially on the pensioner population.

An increase in the price of water would be justified if the Water Company could provide enough qualitywater. There is also a second opinion that: "Everything is calculated in this price of water There is no needto increase."

Increase in charging can be made through a court process against the large consumers that are notpaying.

AccessThe city is supplied with water from several springs: Lisna Bora, Rec, Salc, Gac, and Klezna.

A main water problem facing the town is lack of water during the tourist season. "The pumps arenot working and water is missing in the areas of Meterlzi and Pinjes since they are at higher altitudes.Additionally peasants from the villages are stealing water to water fruits and vegetables, which leaves notenough water in the clty." "My opinion is that the citizens are used to living with a water shortage. "

Due to the overwhelming demand of the water supply network and the lack of pumps, and also a largenumber of guests (up to 100,000 during the summer months), it is typical to involve the water supply fromLisna Bora. Often, the water tastes like mud and is yellow in color, or sometimes, it tastes like gas. Water isnot being filtered enough. "Kids here have problems with their teeth and kidneys due to the bad quality ofwater, it is defective due to bacteria, and nobody is warning the population about It "



As a huge problem, focus group participants recognized the non-payment of water bills by the largeconsumers (municipality, court, etc.)Purchasing drinking water or delivering it from springs in canisters, while tap water is used for cooking doeswater supply during the restricted months. "Drinking water is brought from the springs since people don'thave enough money to buy it regularly; it is not cheap."

Vulnerable groups: "I am forced to collect water at the spring since my area (Kodre) is almost alwayswithout it."Parts of the city like Stari grad, Meterizi, and Pinjes that are at higher altitudes have the mostproblems with water, especially during the tourist season. The Kodre area has a lack of water constantly andthey are forced to collect both drinking and cooking water from the spring.

Influence on tourism: The poor water supply is recognized as a major problem during the tourist season.The problem with the quality and quantity of water negatively reflects on tourism." All of that is leaving abad impression on our guests, and due to the problem with the water supply, they may not visit Montenegronext year." So, everyone agreed that because of tourism, Ulcinj and all of the other coastal cities need tosolve the problems with their water supply. One of the participants said that the best way to solve theproblem is to build water towers, like in Belgrade, so the planned hotel in the area of Grand Beach, as wellas the rest of the city, will have enough water. "I think that separators are a good solution since we haveenough water but the pumps are not working properly. They are not expensive, and we can use them."Tourist workers said that "guests can be without electricity for a couple of days, but not without water. Thatis deadly for tourism. We live in the 21st Century!"

Subsidy (life line tariffs) Groups should include, pensioners, social cases, Roma's, and invalids. TheGovernment should take subsidies for operational costs. "The Governmentshould help the poorer part of thepopulation cover those expenses through taxes collected from the citlizens."

Other:

The increased number of tourists during the season influences water consumption. The water supply ofUlcinj depends exclusively on pumps that are not working properly, so there is not enough water for citizensand tourists. That leaves a negative impression on tourists. "Who would consider coming again to a touristdestination that has water problems during the season when it is most needed? The kids become sick Iwouldn't go back there. "

Improving the water supply system:Reconstruction of the existing infrastructure and pump stations is suggested so that higher parts of the citywould have water. "The city of Ulcinj obtained pumps on two occasions, but no pump was installed and noone knows what the story is with them. We should bring foreigners to finance the purchase and monitor theinstallment of the pumps to avoid the same thing happening again, where pumps are not installed and theydisappear while somebody puts the money into their own pockets and Ulclnj remains with a lack of water""Some substation pumps should exist that would provide water to Meterize and PinjeA."Distinguish between technical and drinking water.

Exclude the spring Lisna Bora from the network for drinking water, and use that water as a technical sourceonly.

Improve the warning system to citizens about the changes in the water supply system and the quality ofwater. "It is easy to solve the problem with pumps, but we should work on the quality of water and theregular controls of it."

Private versus public managementWorking groups Participants of the focus groups think that a city council should be formed fromparticipants that could be trusted (most significant people form Ulcinj) and that could help in solving thewater problem. They would be in contact with people from the Water company and demand regular reportsregarding the quality of water.



With privatization of the Water Company, the situation would improve, as well as the quality of water,but the amount of water would not significantly increase. The local or central government should control thewhole process.

Reforms: Participants of the focus groups consider that reform will not be successful since the planningprocess started during the seventies of the last century, and so far nothing has been done. "I don't believethat anything can be changed because everything is going slowly so why would the Water Company bedifferent?"

Employment: Reforms would cut the number of employees because they think that the "Water Company isover employed, the employees are not doing anything, and they receive salaries more regularly than theother state companies. "

Water gauges in Ulcinj are correct in large percent. Almost every house owns them but they are notcalibrated regularly.

Water supply: The existing price of water is enough for investments in the existing infrastructure. Weshould work towards more effective charging of the water bills. The largest problem that the Water SupplyCompany is facing is the illegal consumers and the non-payers. The Water supply Company Ulcinj is anindependent subject, "The Municipality of Uldnj is one of the most problematic payers. I think that they donot pay for water at all." Participants think that it should remain as an independent subject since thecompany will be easier to privatize. "If the company is part of the municipality it would just cause moreproblems."

The complete range of service offered by the Water Supply Company is satisfactory, but the processshould be lower. Complete service should be free of charge. "Wheneversomething breaks, we are forced tocall pri vate companies to fix it, and that costs money."

Consumer's behavior: Water is not saved in Ulcinj. We need to educate the citizens and appeal to them tosave water. "Water is not saved because when it becomes available, everyone starts using it enormously, andthe pressure is weak. "We should start with the education in elementary school.

Fifth Focus group discussion. Budva May 24. 2005

TariffsMost flats in Budva have water meters; some have two. Bills are in correlation with consumption.Citizens of Budva pay bills in the offices of the Water Supply Company or in the post office. One participantmentioned an expeence in Croatia with electricity bills, and later with water bills: "In Croatia, bills forelectricity and water are calculated after getting data (once a year) about consumption per hour - on anannual level. Consumers get bills for two months in order to escape the oscilation between the summer andwinter seasons. After this innovation, the number of employees in the Water Supply Company in Croatiadecreased."

Focus group participants think that most Budva citizens pay their water bills. They emphasize that retiredpeople and poorer citizens pay bills regularly, while those who own weekend cottages are the worst atpaying their bills.

Participants think that the price of water isn't enough to cover the expenditures of the Water SupplyCompany. Increasing the price of water "will generate a revolution!" Water is a source of life like air, and theCompany wouldn't try to stipulate people. It is similar to the phrase "you need air for breathing, you mustpay for it!" The Water Supply Company must present a concrete calculation, and show the reason forcharging a higher price for water in Budva than is done in the Northern part of the Republic.Participants also agree that everybody must pay their bills in order to decrease the price and to increase thequantity of water.

AccessThe problem for Budva is lack of water, especially during the summer season. This problem is less significantnow than it was a few years before. Last year this problem was less significant and we face restriction inwater supply not earlier then August.



Overload of water supply network during the summer season causes lack of water. The water supply systemin Budva was built in 1979 after an earthquake. In that period, in the Old part of Budva, there were onlyabout 1,300 citizens, and this system 4 cannot any more meet the needs of our city.Participants think that the infrastructure is old and a demand for changing the water pipe lines. One of thefocus group participants used Germany as an example where companies don't replace water pipe lines. "Onecompany in Germany uses special machines and equipment to clean and maintain the water pipe lineswithout changing them."

Citizens and private companies in tourism use water from balloons and polyester tanks. They buy bottledwater or use water from springs. Many private houses have tanks, and recently, many owners of flats alsouse this water source.

Focus group participants are not satisfied with the water quality.During the summer season, they buy drinking water and use the water from pipe lines only as tehnical. "Youcan easily see backlog in dishes with water, and it is probably very dangerous for health, especially forchi/dren."Participants agree that the quality of water is low, and not for drinking, in Budva.

Water saving. Participants think that consumer consciousness for saving water is very low because peopledon't understand the importance of water. "Citizens usually fill their baths with water during periods ofrestriction, but only use a few dishes worth of water for the toilet. "

Sensitive groups. Participants agree that there are no settlements in Budva without a water supply;however, higher flats often have low pressure.

Subsidies (lifeline tariffs)Focus group participants think that subvention is not conducive to positive effects. In case that there is aneed for subsidies, they suggest introduction of the "package" targeting really poor people, which wouldassist them not only with their water bills. "Subvention as a permanent solution cannot be conducive topositive effects, especially in the long term."

Other

Mechanism for improving water supply:Participants agree that the territory of the Budva municipality is morass, and probably has many springs ofdrinking water. Participants also mentioned a problem with the water meter toll, which is very expensive.Participants suggested that the Water Supply Company, or another organization, should begin to researchsprings, and the capacity of the springs so that this water can be used. Also, it is very important to researchthe quality of the water from unknown springs.

Losses in the water supply network are very big. It is very important to improve and maintain the currentwater supply network.

Sometimes, people try to find new water springs; this is especially true of business people. Participantsagree that the municipality must stop that - "everybody dig everywhere!" The lack of water is a problem atthe municipality level, not a problem for individuals. "We always need water, and we don't want to dependon rainfall."

The municipality must try to use alternative water sources, such as rainwater, in order to accumulate waterthat can later be used for consumption during periods of restriction.

Institutional questions - Private versus public managementWorking groups. There are groups in settlements in Budva that have been formed to communicate withthe Water Supply Company. One of these groups is in the settlement of Lazine. Focus group participantsthink that having groups in the local community is a good idea. Consumers, citizens, and representatives ofthe SME sector should be involved in these groups.

Focus group participants do not think that the situation would be improved if the Water Supply Companywere made into a private service. "Only if a private company could offer a high quality of water and an



adequate price would It be OK A private company will be more effective, people just need quality water -- itisn't important to them whether it comes from a public or private company -- maybe competition would bethe best solution. "

Reforms. Participants think that reforms can respond as a long term solution. A big problem could be thelack of water. Using water from Skadar Lake is a positive for participants, but they aren't sure about the priceand quality of that water. They hear on TV that the quality of water in Skadar Lake isn't good.

Water management service. The focus group participants think that the Water Supply Companies shouldact independently, not under the authority of the community. "Workers of the WaterSupply Company wouldbe faster in doing business if it were privately owned. 'The participants notice bad organization of service inthe Water Supply Company, especially when discussing smaller repairs needed in private homes.

Participants are satisfied, to some degree, with the Water Supply Company Budva because they seeprogress, so they hope that losses to the network will be lower. They also mention that the Water SupplyCompany is well informed about the current state of restriction and fixing.

Mechanism to increase payingIt is necessary to prolong the working days of the Water Supply Company to include Saturday because manycitizens cannot pay bills during the workweek. This would likely increase the percentage of payingcustomers, especially among those who are weekend visitors.

Water meters. In every apartment in Budva there is a water meter, sometimes even two. During therestriction of water, water meters still work, so consumers get bills for water that they didn't use.

Urbanization problem. In Budva, there is an illegal building that suggests a huge number of illegalconnections. Additionally, there is a construction problem in some places where water sources exist. As aconsequence of such constructions, there is a risk of landfall, which can put in danger existing settlements.



Report on Focus G oups Discussions Held on Water Thematic TopicsCity Datum Number of participants Total

Podgorica 05/17/05 8Kotor 05/19/05 6Bar 05/20/05 8 36Ulcinj 05/21/05 8Budva 05/24/05 6

Conditions: 8-10 people, gender (4 male, 4 female i1i 5 male, 5 female)

Ethnic Structure:l Albanian Montenegrin Croatian Serbian

Urban RuralUlcinj 6 2 4 4Kotor 4 2 5 1Bar 6 2 1 5 3Budva 5 1 5 1Podgorca 6 2 4 4

Selection conditions:* Urban center and periphery of city* High and lower leveling* Legal and illegal connections* Poverty line (poor and non poor)* Ethnics structure* Vulnerability and non vulnerable group (big family, retired, unemployed, IDP)* Have and don't have water meter

Focus group Podgorica - 17.05.2005.8 participants; 2 participants from urban periphery; flat rate metering, non paymentconsumersFocus group Kotor - 19.05.2005.6 participants, all have problems with water supply, 2participants from periphery,metering consumption

Focus group Bar - 20.05.2005.8 participants, problems with water supply in summer,2 participants from periphery

Focus group Ulcinj - 21.05.2005.8 participants, 3 urban periphery, illegal connectionsFocus group Budva - 24.05.2005.6 participants, 2 urban periphery



Annex 5. Socio - economic Household Questionnaire

CONFIDENTIAL

Center for Entrepreneurship and Economic DevelopmentOmiadinskih brigada 1, 81000 Podgorica, Montenegro

Phone/Fax: (00 381 81) 633 855, 633 623e-mail: cfepag(cq.vu

Web site: www.ceed-visit.org

HOUSEHOLD 48 OUESTIONNAIRE

Poverty and Social Impact Analysis (PSIA) and SAfor theWater Supply System Reform in Montenegro, and the Montenegro Tourist Development Project.

Household ID Code:

Interviewer Code:

Date:

1. Municipality

2. Settlement

3. Address

4. Phone number5. Head of the Household

Name of Data entry person and date of data entry

The purpose of this questionnaire is to assess the consumer perceptions of, and satisfaction with, the watersupply as part of the Poverty and Social Impact Analysis of water sector reforms in Montenegro. Thisinformation will be used for purpose to provide a broader understanding of household conditions andproblems they have with water supply and to set a baseline for water supply against which consumersatisfaction can be measured in the future. The survey is being conducted in four municipalities: Kotor,Budva, Ulcinj and Bar. All respondents will be anonymous. Survey results will be analyzed and used in aprocessed form only. The full confidentiality of this discussion is guaranteed.

48 Households are defined as all individuals living in the same dwelling and are part of the same economicunit.



(TO BE COPMLETED BY THE MOST KNOWLEDGABLE RESPONDENT)

Number of household members: Respondent ID code

Id. 1. 2. 3. 4. 5. 6. 7. 8. 9.

Name What is the relationship Sex Ethnic affiliation How old is [...] Level of education How would you What is [...] current What was [...]'s primarybetween you and the head rate your own social status? activity during the pastof the household? 1. None health status? week?1. Head 1. M 1. Montenegrin 2. Preschool/kindergarten 1. Live unmarried 1. Working/helping to2. Husband/wife 2. Serb 0 if <1 Enter if 3. No complete primary 1. Very good with someone earn income.3. Son/Daughter 2. F 3. Moslem year <1 year school 2. Good 2. Married 2. Seeking employment4. Son/Daughter in Law 4. Bosnjak 4. Primary school 3. Average 3. Widow 3. Attending school5. Parents/Parents in Law 5. Croatian 5. Incomplete secondary 4. Poor 4. Divorced 4. At home, not working6. Grandchild 6. Yugoslavian 6. Complete secondary 5. Very poor 5. Single 5. Retired7. Other relatives 7. Roma 7. Associate (2 - years) 6. Separated 6. Under 6 years old8. Servants 8. Egyptian College 7. Under 15 years 7. Sick/disabled9. Tenant 9. Albanian 8. University and higher old 8. Other, specify10. Other non-relatives 10. No answer 9. Special school

11. Other

= Name Code Code Code Years Months Code Code Code Area1.

2.

3.

4.

5.

6.

7.

8.

1. Agriculture, hunting, forestry 6. Construction 11. Real estate and renting activities 16. Humanitarian organizations, NGO etc.2. Fishing 7. Wholesale and retail trade, repair 12. Public administration Army or Police 17. Communal services3. Mining and stone quarrying 8. Hotels and restaurant 13. Education 18. Other, specify4. Manufacturing 9. Transport, storage and communication 14. Health or social work5. Water, electric and gas supply 10. Financial intermediation 15. Crafts and services



Does your house/apartment have the following?| Yes No

1 Connection to the electricity grid2 Coverage by the water supply system/network3 Connection to water supply system/network4 Shower/bath inside house5 Shower/bath outside house6 Toilet inside house7 Toilet outside house8 Toilet "eastern-style" (squat plate)9 Toilet "western-style"10 Indoor tap11 Outdoor tap

Which of the following do you have in your hou sehold, and do you use regularly?Availability Use Regularly If not used

regularly, why not?1.Yes/2. No 1.Yes/2. No

Washing machineDish Washer

Do you have a garden plot where you grow some products for household consumption?1. Yes 2. No If yes, do you use water from the piped water network, and when do you use it(season, off-season)? Does it help promote tourism?Please explain:

MAIN NEEDS AND PROBLEMS

What are the most important problems, which you are facing in every day life?(Please rank five of them in the following table, on the scale 1-5, where 1 is the least important problem and5 - the most important problem)

Ranking1 Shortage of money for buying principle food products2 Shortage of money in satisfying non-food needs3 Poor housing conditions4 No connection to the water supply network5 Potable water is unsafe / unclean6 Insufficient drinking water supply through the piped network (shortage of water)7 Insufficient quantity and pressure of water8 Lack of sewerage9 Worn out sewage network10 Poor response of water company in case of water, sanitation problems11 Problems with power supply12 Poor public health services13 Health14 Poor public transportation15 Unemployment16 Lack of business opportunities17 Shortage of agricultural land18 Water price (tariff) is too high19 Lack of meters per apartment/ house20 Difficulty in getting a building permit21 Difficulty in purchasing land for tourism development22 Don't know/hard to say23 Other (specify)



What in your opinion are the most serious problems confronting your city? (Please rank five ofthem in order in the following table on the scale 1-5, where 1 is the least important problemand 5 - the most important problem)

Ranking1 Bad roads/inadequate access2 Inadequate health care3 Inadequate schools4 Inadequate child health care services5 Poor drinking water supply through the piped network (shortage of water)6 Insufficient coverage of the water supply network7 Insufficient coverage of the sewerage network8 Worn out sewage network9 Unsafe sanitation10 Poor drainage (flooding)11 Problems with power supply12 Poor telecommunications13 Poor housing conditions14 Crime15 Bribing needed for provision of goods and services16 Poor response of local government in case of water, sanitation problems17 Weak local government capacity to provide public services (specify which services)18 Lack of coordination in the water supply sector19 Problems with public order & security20 Land conflicts21 Conflicts between political parties22 Water price (tariff) is too high23 Lack of meters per apartment/ house24 Difficulty in getting a building permit25 Difficulty in purchasing land for tourism development26 Other (specify)

HOUSEHOLD INCOME and EXPENDITURES. AND EMPLOYMENT

15. How much does your household spend, on average, per month on:E/month Which of the listed Please rank(fill each cell) items do you pay your five

regularly? priority bills1 Food2 Transport3 Rent4 Education5 Health and medical services6 Clothing and shoes7 Heating (other than electricity)8 Electricity (summer)9 Electricity (winter)10 Piped water (summer)11 Piped water (winter)13 Telephone14 Entertainment, vacations, celebrations15 Toursim-related business (e.g.:

accommodation, restaurant, vendor,please specify: )

16 Total expenditures



16a. What is the total household monthly income from:£/month

1 Wages2 Pensions3 Unemployment benefits4 Social assistance5 Money received from relatives working in Montenegro6 Money received from relatives working abroad7 Other gifts/donations8 Income from business operated by the household9 Income from the property10 Income earned from other sources (specify)11 Total income

16b. Is there any change in your family income during the last three years?1. Increase in family income2. Decrease in family income3. No change (Go to Q17)

16c. What do you think are the main factors causing this change? (multiple answers are allowed)1. Age2. Changes in employment and salary3. Changes in schooling4. Changes in position (promotion, demotion)5. General economic situation in the country6. Chances for employment out of country (migration, remittances)

7. Other (specify)_

Does your HH have income from tourism?1. Yes 2. No (if NO go to Q22)

18. Which economic activities of your household are related to tourism?(Please tick where appropriate)

1 Restaurant2 Hotel3 Small Business4 Renting-out private rooms5 Renting-out private beds6 Service (please specify what kind of

services)

19. Do you have a license for the activities mentioned in Qlg.Please specify:

20a. How many percent of your total household income is generated from tourism during theseason? %

20b. Has income generated from tourism during the season increased during the last 3seasons/ years?1. Yes 2. No, it decreased 3 No, no change (if NO, go to Q21a.)

20c. How much on average (in percentage): _0/

21a. Is there a change in income connected to the situation of piped water supply ? (Pleaseexplain the reasons):1. Yes,2. No,



21b. How do you define the season:Start Month:End Month:

21c. How do you define peak of the season:Date in frame:

22. Which one from the statements is the most appropriate in accordance with the financialsituation of your household?

Tick oneanswer only

1 We do not have enough money to buy food.2 We have enough money to buy food, but it is difficult for us to buy clothes or shoes.3 We have enough money for food and clothes, and we are able to save some money,

but we can't afford expensive goods such as a refrigerator or television.4 We can buy expensive goods, but not everything we want.5 We can afford anything we want.

23. How would you evaluate the financial situation of your family in comparison with theaverage financial situation of the residents of y ur city?

Tick one answer only1 Much below average2 Below average3 Average4 Above average5 Much above average

WATER USAGE & PROBLEMS

24. What percentage of the water you receive is used for the following purposes?Percentage of Total Water Used

Drinking, cooking, washing, sanitationGardeningCar washingStreet cleaningOther (specify)

25a. What is the main water resource you use for drinking and cooking? (water supply, yard well,vendor, cistern)

25b. Are you satisfied with this source of drinking water?Using Satisfaction

Water source Use for drinking Use for cooking 1. Yes/ 2. No(a) (b)

1. Indoor tap (piped water)2. Yard well3. Outdoor tap4. Neighbor's indoor tap5. Neighbor's outdoor tap6. Public taps/naturalresources7. Vendor8. Cistern

25c. If no, explain why (for each source)



26. Do you have problems with the water supply during the tourist season?(Please tick where appropriate)

1 Supply/volume2 Unreliable3 Salt4 Safety5 All of the above6 Something else, specify7 None

27. What are your priorities regarding piped wat r supply during the season?Please rank (1 high, 3 low)

1 Hours of supply per day2 Pressure3 Schedule of supply4 Something else, specify

28. When your main source of drinking water is not available, how do you obtain water?(multiple responses allowed)

Tick1 Water stored in or outside the house in a tank2 Piped water from the neighbors3 Hand pump in the backyard (well)4 Dig out a well5 Public taps6 Natural resources /springs7 Buy water from vendors8 Fill buckets when water is available9 Other (specify)-

29. If you obtain water from "public taps/natural resources" or you buy it from "vendors":Quantity in liters/day Time spent to receive Price (day)

waterPublic tapsNatural resources (springs)VendorNote: A verage quantities/prices during the season when there is no enough water supply

IF THE PERSON IS NOT CONNECTED, GO DIRECTLY TO QUESTION 35a.

30. Since when you are connected to the water supply network/system and who connectedyou?

We are connected to the water supply network/system since (specify year of connection)

| Tick1i Yourself2 A friend3 The water company4 A private technician5 Other (specify) _____

31. How many water connections do you have in your household?Legal connections __ (number)

Illegal connections (number)



32. Has your household been warned to become disconnected or has your household actuallybeen disconnected last year? (multip!e responses allowed)

1. Warned, explain the reason2. Disconnected, explain the reason_3. Neither, explain the reason_

33. For each cateaorv, please choose the most important problem in your water systemaccording to their perceived importance?

Tick one for eachcategory

Technical1 Leaking pipes2 Lack of access to piped water supply network3 Low pressure4 Limited hours of supply (hours)5 Other (specify)

Qualitative6 Perception that water is unsafe (lack of trust, taste, color, smell)7 The water is unsafe (health reasons)8 Other (specify)

Service9 Unreliable water supply (unavailable for hours/day, or days/week)10 Water Company technician take bribes (are corrupted)11 Delays in repair and maintenance by the Water Company12 Non responsive customer relations13 Other (specify)

Operational14 The price per cubic meter is too high15 Dissatisfaction with the not metered billing16 Dissatisfaction with the block metering apartment building17 Too much water is used or misused18 Other (specify)

34a. Do you have piped water every day of the month?1. Yes (if YES, go to Q35a.) 2. No

34b. If NO, how many days a mo th isn't it available?Season Number of DaysSummerWinter

34c. How many hours per day do you receive water from the water system/network? ( onaverage per day)(hours per day, every day)

Season Number of HoursSummerWinter

34d. How does the piped water shortage affect your household/ business?1. Household Answers

a) Work at night



b) Purchase more expensive water fromvendorsc) Lose guests during tourism seasond) OtherAnswersa) lose business

2. Business b) lose customers/guestsc) work longer at nightd) other, specify

35a. Do you have a tank?1) Yes (if YES (a) individual or (b) collective) 2) NO (if NO why not ) -Q36a

35b. What is the capacity C of the tank?I Tick

1 C<1OOL2 100L<C<500L3 C> 500L

35c. Does the tank satisfy the needs of your household / family (drinking, cooking, andwashing)?

1. Yes 2. No

36a. Does your household have a water pump?1) Yes (if YES (a) individual or (b) collective) 2) NO (if NO why not ) -Q37

36b. Does the water pump add to your electricity bill?1) Yes (if YES how much in % ) 2) Don't know 3) No

37. If you could choose, which important improvements would you like in your piped watersupply?

First most important:Second most important:Third most important:

38. Do you have your own water meter (household)?1. Yes2. No, (If NO, would you like to have your own water meter? )

3. Non metered billing4. We don't obtain bills and don't pay water (go to Q51)

39. How much do you pay for your piped water supply:1) Season: _/per month2) Off-Season: _/per month

WILLING NESS AND AFFORDABILITY TO PAY

How much is your household supposed to pay for water? Euro per month (or indicateannually, quarterly) [INDICATE DK IF THE RESPONDENT DOES NOT KNOW]

TickGo to water supply company and personally pay billwater supply company's collectorPost office - water supply company's drawing accountOther (specify)



40b. How do you pay for sewage?

40c. How do you pay for garbage disposal?

41a. Do you know how much is the price per cubic meter of water from the water supplynetwork? _ E/per month

41b. Do you know the unit cost for water in sewage sistem?_ E/per month

41c. Do you know the unit cost for garbage disposal?i E/per month

42. Do you know your household's average consumption of water in cubic meters per month?cubic meters per month

43a. How much does your household pay on average for piped wat er per season /month /year?Time Period Euro

1 Month2 Season3 Year

43b. How much does your household pay on average for non-piped water per season /month/year?

Time Period Euro1 Month2 Season3 Year

44. Do you think the price is justified for your current water services?1. Yes 2. No. If NO, please specify why not:

45a. Do you know your household's "generation" of waste water in cubic meters?1. Yes _ monthly/ quarterly/annually 2. No

45b. Do you know your household's "generation" of garbage in square meters?1. Yes _ monthly/ quarterly/annually 2. No

46a. Has there been any increase in the price per cubic meter from the water company duringthe last year?1. Yes 2. No (go to Q48a) 3. Don't know (go to Q48a)

46b. How much has the price per cubic meter for water increased during the last year?Price before increase _ / m3

Price after increase: _ _E/ m3

Specify month of increase_

46c. What was the impact of this increase on your household income?1. No significant impact2. Unable to afford the bill3. Restrict other expenses to be able to pay the increased bill4. Reduce water consumption to afford the bill5. Switch to other means to access water6. We became irregular payers



47. After the tariff increase how has your water supply changed? (multiple answers are allowed)1. Longer hours of supply2. Higher water pressure3. Better water quality4. Improved responsiveness of the company in case of technical complaints5. Improved company-customer relations6. No change7. Other (specify)e

48a. In the last year, was there a time when you did not pay your water bill?1. Yes 2. No (go to Q49)

48b. If YES, what are the reasons why you do not pay this bill regularly?

TickWater should be freeWere not able to? (lack of money)Are not satisfied with the service?Did not receive any water bill?Have to wait too long in line to pay (long cues)Opening hours of water office are not convenient?No enforcement for non-paymentOther

49. How much has the water bill increased in the last 2 years?Yes Euro (or estimated bill doubled, tripled, ect.) 2. Don't know

50a. Would you be willing to pay higher price per month for a 24-hour supply of water of goodquality and pressure?

1. Yes, how much % per month (go to Q51) 2. No

50b. If no, why not?

1. cannot afford2. water should be free3. other (specify)

51. What are the priorities in your household's wastewater disposal services?1. Connection to central sewerage system2. Regular septic tank cleaning

3. Other (specify)

52. If you are not connected to central sewerage system, how much and would you be willing to pay for aconnection to the central sewerage system?1. Yes - Euro 2. No

53. Would you be willing to pav monthly for waste water disposal?1. Yes, i/month 2. No54. Which improvements of waste water disposal would you like to have?

55. How much would you be willing to pay for regular septic tank cleaning (if you have any)?E/month



PUBLIC AWARENESS

56. What do you know about the central/local government measures to improve the watersupply?1. Nothing (go to Q58a)2. Somewhat informed3. Adequately informed

57. Where do you get the information about the government measures to improve the waterservices?

Tick1 National TV2 Local TV3 Radio4 Newspapers5 Magazines6 Posters/ affiche/ billboards7 Direct marketing (someone came home to explain you or you got a leaflet at home)8 Other (specify)

58a. In your opinion, what should the local government do to improve the piped water supply?Please specify:

58b. In your opinion, what should the central government do to support the municipalities toimprove the piped water supply? Please specify:

59a. In your opinion, who is responsible for water supply in your town?Central governmentMunicipalityother, specify.

59b. In your opinion, who should be responsible for water supply in your town?Central governmentMunicipalityother, specify__

60a. Is there an office within the Water Company where you can direct your concerns?

1. Yes 2. No 3. Don't know

60b. If you have any problems (such as blockages, leakages, contamination etc.), how quick does the watercompany fix them?

Tick one1 Within one (1) day2 In two (2) days3 In three (3) to five (5) days4 In one week5 More than one week6 No response from the water company7 No problems experienced8 Usually I call a private plumber



61. When you want to report water/waste water problems, ask for repairs, or complainregarding water/waste water services, who do you contact, and what contact is it?:

Who do you contact? State whether this contact is:(write name of 1. Water companyorganization /agency) 2. Local government

3. Private technician4. Other

1. Report water/waste waterproblems (e.g. blockages,leakages, contamination, etc.)2. Ask for repairs3. Complain regarding water/waste water services

OTHER QUESTIONS

62a. Do you think that the water supply company should improve enforcement to:

Tick1 Collect the bills? i2 Cut-off illegal connections?3 Prevent constructions that affect water and sewage networks5 Other (specify)

62b. What do you think would be the three best ways to improve enforcement in yourneighborhood/community? (please rank,1-low, 3-high)

Ranking (1-3)

1 Public awareness campaign2 Send mailed reminder to non-paying customers3 Apply financial penalties for late payers4 Send water company representative together with municipal police5 Cut off non paying customers, monitor these customers and charge

for the re-opening of the water connection6 Take legal action for unlawful behavior by consumer in regard to

water7 Cut off illegal connections at customers' expenses

63. In your opinion, which goal grou should be included in campaign?Tick

HouseholdsBusinessesInstitutions

64. On what basis do you think each household should pay for water?Tick one

1 According to consumption2 According to household income3 According to number of people in the household4 According to house/flat size (including garden)5 Water should be free6 Other (specify)

65a Do you get subsidies for your piped water services? (coupon, cash, lower tariffs, etc.)1. Yes 2. No 3. Don't know



65b. Would you support that very poor households would receive subsidized tariffs71. Yes 2. No

65c. Do you think, that the government measures to improve the piped water services should include asubsidy for households who can not afford to pay their piped water services?1. Yes 2. No

66. Do you think that the current water shortages restrict your employment opportunities, especially inregard to tourism?1. Yes 2. No 3. Don't know

67. Do you think that the government measures to improve the piped water services will increaseopportunities for employment, especially in regard to tourisms?1. Yes 2. No 3. Don't know

68. Do you think that the current water shortages reduce your business opportunities or investments andthe value of your property?1. Yes 2. No 3. Don't know

69. Do you think, that the government measures to improve the piped water services will increase yourbusiness opportunities or investments, and the value of your property?1. Yes 2. No 3. Don't know

70a. Do you have a bank account?1.Yes 2. No

70b. If yes, would you be interested to pay your water bills directly through your bank account?1.Yes 2. No



Annex 6. Terms of Reference for Local Consultant

Poverty and Social Impact Analysis (PSIA) for the Water Sector Reform in Montenegro, andSocial Assessment (SA) for the Montenegro Tourist Development Project.

I. Background

The Poverty Reduction Strategy for Montenegro includes preparation of a water sector reform inMontenegro. Important steps toward this reform include a mid- and long-term sustainable water supply inthe coastal area that will improve the tourist industry. The Government has requested the Bank's assistancefor the development of a new regional water supply scheme. The Bank together with other donors will startoperational work in the water sector. KFW, for example will provide technical assistance for managementimprovements of water utilities, while with the help of USAID, the Government has drafted a new WaterSupply Law that has been passed in the Parliament of Montenegro and is expected to be discussed duringspring 2005. The draft law proposes that the tariffs should cover the costs of utility operation andmaintenance. In addition, USAID will assist the Government in preparing a tariff setting regulation andmethodology framework.

The intended countrywide water sector reform is interconnected with the Tourism Development Strategywhich is one of the most important future income-generating sectors in Montenegro. The most urgent areasin regard to water supply and tourism are the six coastal cities Herceg Novi, Tivat, Kotor, Budva, Bar andUlcinj, thus the WB project will focus on these sites. These coastal cities provide 95.6% of all beds availablefor tourism in Montenegro.

With the water sector reform still in its initial stage, the Government has agreed to conduct an upstreamPoverty and Social Impact Analysis (PSIA) and Social Assessment (SA). The study will inform the watersector reform, and will lend operational assistance to the World Bank's Montenegro Tourisms DevelopmentProject. Additionally, the findings of the PSIA will benefit the PRSP while at the same time; the study willcontribute to the Country Assistance Strategy with recommendations for programmatic lending as well asoperational work.

II. Objectives

PSIA/SA analyzes distributional impacts of policy reforms on the well-being or welfare of differentstakeholder groups, with particular focus on the poor and vulnerable. PSIA promotes evidence-based policychoices and fosters debate on policy reform options. It assists to better understand the intended andunintended consequences of operational interventions that aim to implement the borrowers povertyreduction strategies.

More concretely, this upstream study will analyze the distributional impacts of the proposed water sectorreform priorities that the Government is addressing in the following areas: (1) rehabilitation of the existingwater and wastewater networks to improve the operation and service quality to meet the increased demandfrom the tourism industry and completion of the regional water supply scheme to cover current and futurewater demands of the coastal tourism industry; (2) improvement of the management of the public waterutilities to enhance the effectiveness of their operation, and to assign key management positions on theprinciples of technical expertise and merit; (3) institutional and organizational changes in the sector; (4)improvement of the legal and regulatory framework that would provide for tariffs at cost recovery levels andadequate mechanisms for tariff settings; and (5) establishment of a benchmarking system to monitor. andevaluate the sector performance and better allocate resources.

III. Focus of the work

The study will assess the poverty and social impacts of the Governments' proposed reform measures in thewater sector and its implications for the local economy, dominated by the tourism sector. These include butare not limited to the proposed regional scheme, planning to provide bulk water from Lake Skadar forCoastal municipalities, and the water supply law covering the entire country. The guiding principles are:

What are the key issues and current constraints in the water and tourism sectors?



How could those constraints be overcome through different reform options in the water sector? (illustrationof various reform options)?What are the expected poverty and social impacts of each of the different reform options, i.e. who are thewinners and losers of each reform option?

During the analysis of the water sector reform priorities, special attention will be given to (a) institutionalreform aspects within the decentralized context of Montenegro, (b) financial viability of water utilitiesthrough tariff increases to reach cost recovery and establishment of commercially oriented businesspractices, and (c) any other key reform aspects that accompany the ongoing reform dialogue and/or emergeduring the data collection and analysis.

IV. Methodology

Due to the lack of reliable and up-to-date data in the sector, the study will draw heavily on primary collecteddata, while using existing secondary material as far as possible. The methodology comprises quantitativeand qualitative methods and tools, set out in the PSIA User's Guide, PSIA Website and E-Learning, i.e. (a) acombined Stakeholder and Institutional Analyses, (b) Social Impact Analysis, (c) Demand Analysis -Consumer Assessment (incl. willingness to pay and price sensitivity analysis), and (d) Social Risk Assessmentincluding a Scenario Analysis. Data collection tools include a desk review of relevant material; expert/ key-informant interviews; focus groups discussion; and community profiles. Sampling is purposefully withattention to a gender-balanced approach towards respondents. Specifically, the PSIA will assess theexpected reform actions impacts on different social groups in terms of:

* tariff increases to cover the financial operating costs of the utilities;* changes in access to water and water services;* measures to support the poor (lifeline, bulk tariff, etc. );* changes in any asset ownerships, e.g. tourism hotels and facilities;* changes in employment for the local economy and in particular for tourism industry.

V. Rational for Site Selection

Four cites have been selected in the Coastal Region - three cities that participate in the water sector reformthrough the proposed regional scheme (under the proposed Bank's Montenegro Tourism DevelopmentProject), and one city outside of the project area, but lies in the vicinity of the regional scheme. The studywill benefit the implementation of the PRSP, stakeholders of water sector reform, and beneficiaries/existingcustomers, particularly the poor.

The study will focus on the four cities of Bar, Budva, Kotor, and Ulcinj:

City Selection CriteriaBar Coast: WB project city with actual reform measures, local economy has both tourisms and

industry (port), biggest city on CoastBudva Coast: WB project city with actual reform measures, biggest tourist city with huge water

shortage during tourist seasonKotor Coast: WB project city with actual reform measures, UNESCO heritage site with large number

of tourists, no natural sources (except rainfall), low quality water (salination, brackwaterpollution of network = health issue)

Ulcinj Coast: high tourism development and economic growth potential; environmental sustainability(wetlands); outside of WB project area as comparative PSIA site

VI. Scope of Work and Responsibility of Local Consultant

The PSIA work entails: (1) preliminary work in preparation of the study (including site profiles), (2)preparation of the fieldwork, (3) data collection and fieldwork, and (4) data analysis and report writing. Ineach of these components, the main tasks to be carried out by the consultant include, but are not limited tothe following:

(1) Preliminary work:



The consultant should carry out a desk review of existing documents related to the water and tourism sectorand PSIA methodology to get a sense of the context and four study sites, e.g.:

* Montenegro Poverty Reduction Strategy Pape* Living Standards and Poverty in Montenegro, ISSP (2002)* Diagnostic Assessment of Montenegrin Water and Sewerage Works, Urban Institute (2004)* Water Supply Law, and Law on Self-Governance* PSIA User's Guide, PSIA Good Practice Note, PSIA Website, PSIA E-Learning* Material describing the water and tourism situation in the four study sites* UNDP Roma, Egyptian, Refugee, and IDPs Study* USAID water study* Albania Water PSIA "Decentralization and Water Sector Privatization in Albania"* Other relevant reports or studies

(2) Preparation of the fieldwork

The fieldwork comprises socio-economic household survey, focus group discussions and expert/keyinformant interviews in each of the four cities, plus community profiles of each site. The consultant shouldreview and eventually propose revisions of existing fieldwork material and specifically elaborate thehousehold questionnaire, focus group discussions and key informant interviews questionnaires. Stratificationcriteria will include, but are not limited to the following criteria and indicators:

Purposive selection criteria IndicatorsUrban center Urban periphery GeographyLower elevation Higher elevation I'llLegal settlement Illegal settlement Property StatusVery Poor - poor Noon-poor - well-off Income levelsEthnic groups (Roma, etc) Non-ethnic groups EthnicityVulnerable Groups (Large families, Non-vulnerable Groups Vulnerabilityretirees, unemployed, IDP, Roma, etcMetered Households Un-metered Households Billing methodConnected HH Un-connected Households Network ConnectionAffected by tourism Not affected by tourism Local economy

...any additional, useful criteria and indicator that emerge from the literature/ desktop review...

In each of the four cities, the consultant should prepare the sample for the socio-economic household surveyin accordance with the criteria agreed upon during the PSIA/SA training. In particular, while preparing thesample, the consultant should focus on (i) the distribution of the households within the network, in relationwith service area maps, taking urban center/ periphery and higher/lower elevations into consideration, (ii),property status of the settlement, (iii) metered-based billing (individual/ block meter), and (iv) the inclusionof households located outside of each service area.

While preparing the focus-group discussions, the consultant should select the participants according togender, ethnic and socio-economic diversity in each of the cities, size and type of business (large, medium,small / tourism and non-tourism related), and public and private civil society organizations (publicinstitutions, tourism agencies, NGOs, etc). Concerning the in-depth expert/key-informant interviews, theconsultant will identify and list the stakeholders to be considered in the water sector and tourism industry, inthe public and private sector, both at the central and local levels, and in the civil society.

(3) Field work

The field work will be carried out in the four specified sites of Kotor, Budvar, Bar, and Ulcinji will comprise butnot be limited to the following:

* 100 socio-economic household questionnaires = 25 per sity* 10 focus groups = 1 per site, plus 6 in Podgorica



* About 30 expert/key-informant interviews = minimum of 6 per site, a minimum of 5 at centralgovernment, and with key international partners. This is a mere indication, and the actual number ofinterviews to be determined by the context and the necessity to gather sufficiently satisfactoryinformation

* 4 community profiles = 1 per city + Podgorica

(a) Socio-economic Household SurveyThe household survey will cover four municipalities: Kotor, Budvar, Bar, and Ulcinij. The survey will be carriedout on a purposive representative sample of about 25 households in each of the four cities. It will providestatistics regarding population, education, employment, income, and health status. It will then focus onpeople's perceptions regarding their water supply conditions, priority problems with their water supplyservice.

(b) Expert/ Key-informant InterviewsTen expert interviews will be carried out in each of the four cities with representatives of public and privatesector and civil society related to water supply, and the local economy (tourism, industry, etc) to understandthe issues and dynamics of the expected distributional reform impacts on tariffs, access, transfer and taxes,and employment. This will help to evaluate and understand stakeholder perceptions, views, and institutionalpositions of water supply and local economy conditions, policies, roles and bottlenecks of institutions in eachcity.

(c) Focus Group DiscussionsFour focus group discussions (about 8-10 people with attention to gender-balance) will be conducted in eachcity to get qualitative feedback from the population on the expected distributional impact of the plannedwater sector reform, regarding, but not limited to tariffs, quality, employment, access, transfers of taxes.More specifically, discussions will provide feedback on the nature of water supply services, people'swillingness and ability to pay for water supply improvements - including quality of water-, feedback on healthissues associated with existing conditions, perceptions of links between current and future water supplyconditions and the local economy, especially tourism, perceptions regarding the tourism developmentpotential per se, and its implications for environmental protection and sustainability, and people'sperspectives on institutional bottlenecks and necessary organizational changes. One extra focus group will beconducted in Podgorica with experts on agricultural businesses, small and medium-size enterprises, andenvironmental protection. See focus group discussions for further guidance.

(d) Community profilesFor each city, the consultant should prepare a community profile describing the situation of (a) water supply,(b) the local socioeconomic conditions (tourism, industry, etc.) and (c) impacts of the water situation on thelocal economy and vice versa, (d) the socio-economic situation per se (including income, (un)employment,ethnic groups), and (e) in regard to water issues - including issues of access to, and assets of water goodsand services, tariffs, and the institutional and organizational setup of the water sector within the highlydecentralized context of Montenegro. Each community profile should be 3-4 pages in length.

VII. Data analysis and report writing

The consultant will be responsible for the data processing, data analysis as well as the writing of a report inexcellent English. Data analysis should include, but not be limited to areas such as statistics regardingpopulation, education, employment, income, and health status. It will then focus on people's perceptionsregarding their water supply and local economy conditions, priority problems with their water supply serviceand institutions, and willingness and ability to pay for improvements in their water supply conditions. Thefinal report will presents (a) the main findings, (b) concrete recommendations and different options forpolicy reform, and (c) the expected positive and negative poverty and social impacts of each of the proposedreform options, which will guide the government and the Bank project on choosing an appropriate structureand process for the planned water sector reform in Montenegro. The consultant will prepare a policy matrixsimilar to the one in the Albanian water PSIA.

In 2003, UNDP has supported the Household Survey on Roma, Askaelia, Egyptians, IDPs and Refugees, andhas showed interests in data collection for vulnerable groups such as Roma, IDPs and Refugees. During thelast rapid appraisal mission, UNDP expressed interest to join the WB PSIA and agreed to conduct thefieldwork for the study for these vulnerable groups. After completion of the fieldwork, the local consultant



will incorporate into the PSIA report the UNDP data/report on vulnerable groups. UNDP agreed to conductand to pay for both, the fieldwork on vulnerable groups and the PSIA dissemination workshops.

VII. Time-table

It is expected that the assignment will commence in April 2005. The duration of the assignment is expectedto be about 5 months:April 20, 2005 - April 15, 2005: preliminary work and preparation of the fieldwork (all survey and interviewmaterial and logistics)April 25 - May 20: fieldworkMay 20 - June 15, 2005: data processing and analyzing, submission of draft outline of reportJune 15 - June 28, 2005: report writing (first draft)June 20, 2005: Deliver the draft report to the World Bank.July 2005: Revision and incorporation of commentsAugust 1, 20, 2005: Deliver the revised draft report to the BankAugust 25: final report submitted to the BankSeptember: Dissemination through a workshop in country

VIII. Outputs and reporting requirements:

The consultant should report to the PSIA team: Hermine de Soto, Sabine Beddies (Social Scientists), AndreasRohde, and Arben Bakllamaja (Water Sector Experts). All documents shall be submitted in English. Electronicversion of each document should be available in MS WORD format and as pdf files.

Once ready, and before the launching of the fieldwork, the commented/revised socio-economic householdsquestionnaires, key informants interviews and focus group discussions questionnaires shall be sent to theWorld Bank for comments, and no objection.

During the fieldwork, the consultant will submit three progress reports of no more than two pages. The firstone will be submitted two weeks after the starting of the fieldwork, the second one in the middle of thefieldwork and the third one at the end of the fieldwork. These progress reports should state the number,type and location of fieldwork carried out, any problems identified and the solution developed to deal withthem, as well as a very brief summary of preliminary key findings that the fieldwork has identified. Aftercompleting fieldwork and quantitative data entry into a database, an extract of this database containing theanswers to the aforementioned questions should be provided to the Bank electronically.

After the data analysis, and no later than two weeks after the end of the fieldwork, the consultant willsubmit a draft outline of the report for comments. Upon agreement on the outline, the consultant will submitdraft chapters for review and comments, in accordance with the agreed timeline. Two weeks before thedeadline for the submission of the final report, the consultant submits a full draft report, including allcomments received for each of the draft chapters. The final report will be submitted to the World Bank forapproval. The final report will be submitted electronically, alongside all data collected and material generatedduring the study.



Annex 7 - Guidance on the focus and scope for data collection

a. Socioeconomic Household Survey

Stratification will cover residents in urban center and periphery, lower and higher elevations, legal and illegalsettlements, different poverty levels (poor and non-poor), different ethnic groups, vulnerable and non-vulnerable groups (e.g. large families, retirees, unemployed, IDP, Roma), metered and un-meteredhouseholds, and connected and unconnected households, particularly an issue for population groups locatedSouth of the city Bar and Ulcinj).

b. Expert/key Informant Interviews

Expert interviews will help to understand legal and institutional bottlenecks related to inadequate watersupply and tourism growth, in the areas of: (1) institutional responsibilities and accountability ofstakeholders at central and local government levels; (2) tariffs increases to cover the costs and self financingof the utilities; (3) operation and management of the water utilities as commercial oriented utilities; (4)willingness to pay for service provision; (5) enforcement of payment from delinquent customers; (6) accessto land and land tenure security for construction of tourism facilities; (7) registration and licenses of thesmall private accommodations for tourism taxes; (8) harmonization between urban planning and regulationwith spatial tourism development and modernization of existing ones plans; (9) the threats that the illegalconstruction are posing to the tourism development master plan and level of enforcement; (10) theimplications of the current Law on restitution of the private property to the former owners for tourismdevelopment. Impacts of the water supply conditions on the tourism industry, Identify expert perceptions onwhich organizational changes need to take place to improve the efficiency of legal system regardingenforcement of standards, management and efficiency of the water utilities, the current water shortage andimplications on and from the local economy. For each site, a minimum of six interviews will be conductedwith a technical water expert in the municipality, the director and employees of the water utilities, andrepresentatives of the local business sector, such as tourism and non-tourism related businesses (large andsmall), chambers of commerce (if applicable), and water supply-related businesses, as well as one interviewwith a representative of Vodacom. Additionally a minimum of five interviews will be conducted with expertsfrom the Central Government, i.e. the Ministry of Environmental Protection and Urban Planning (MoEPUP),Ministry of Tourism, Ministry of Agriculture, Forestry and Water Management (MoAFWM), PEW and the WaterAgency, as well as with representatives of Parliament's Committee on Finance, Environment, protection, andthe Committee on Tourism (or equivalent titles). Additionally, several interviews will be held with keyinternational partners including the Urban Institute/ USAID, KfW, EAR, IDR, and UNDR

c. Focus Group Discussions

Focus group discussions will help to understand both individual and collective perceptions on the proposedimprovements. It will also contribute to our understanding of the social organization of communities, theirability and readiness to participate in project implementation and monitoring and evaluation. Focus groupswill be organized with representatives of the business sector, consumers, and community representatives.Specifically, focus groups with (a) businesses will comprise large and small tourism-related business (hotels,B&Bs, private accommodations, restaurants, etc), large and small non-tourism-related business, chambers ofcommerce, and water supply-related businesses; (b) consumers will include residents in urban center andperiphery, lower and higher elevations, legal and illegal settlements, different poverty levels (poor and non-poor), different ethnic groups, vulnerable and non-vulnerable groups (e.g. large families, retirees,unemployed, IDP, Roma), and metered and un-metered households, (c) community representatives willinclude tourist agencies, NGOs/CBOs, local public institutions such as hospitals, schools, kindergartens, and(d) tourists. One additional focus group with experts is conducted to get insights into the links betweentourism and agricultural businesses, small and medium-size enterprises, and environmental protection.



Annex 8. CDM - Potential financial gain for utility by recovering lost water based on the wintertariff in Budva of 0.6 E/m3

WaterLeakage, Price, Daily, Daily, Monthly, Monthly, Annually, Annually,

I/S C/M33 c m 3 c m

3 c

1 0.60 86 52 2,592 1,555 31,104 18,6625 0.60 432 259 12,960 7,776 155,520 93,31210 0.60 864 518 25,552 15,552 311,040 186,62420 0.60 1,728 1,037 15,840 31,104 622,080 373,248

Losses of 20 I/s in one year equal lost revenue of (373,000



Annex 9. - VODACOM - OVERVIEW OF COM PLETED ACTIVITIES WITHIN THE "INTERVENING MEASURES 1"

Municipal Detected Changed and Changed and Installed Installed new Installed Savings New Total ofity number of installed installed new caused by quantum of new

the rebuild water quantum ofdamages New Frequency damages injected in water

pipelines >0 New pumps Throughput regulators water systemNumber of 80 mm (Repair) meters Water Q (I/s)

the (m) meter Q (I/s) Q (I/s)damages

1 2 3 4 5 6 7 8 9 10

Herceg 80 1,566.24 0 20 0 0 7.00 0.00 7.00NoviKotor 12 190.00 4 (3) 0 0 798 11.50 0.00 11.50

Tivat >30 174.00 8 11 1 293 10.00 9.00 19.00

Budva 6 730.00 5 + 4 6 14 (5) 0 0.50 25.00 25.50

Cetinje 118 225.30 0 0 0 1,765 47.00 0.00 47.00

Bar 10 4,948.00 2 0 0 0 1.00 40.00 41.00

Ulcinj 0 2,438.00 3 4 0 0 0.00 15.00 15.00

TOTAL >255 10,271.54 26 (3) 41 15 (5) 2,856 77.00 89.00 166.00


III

Ii


Annex 10. Tables and Descriptive Statistics Obtained from HHQs

MunicipalityP Frequency Percent

Budva 25 25

Bar 25 25Kotor 25 25Ulcinj 25 25Total 100 100

Poverty line by municipalityOpstina Poverty line Frequency Percent

Budva Poor 3 11.5Economically vulnerable 2 7.7Non poor 21 80.8Total 26 100

Bar Poor 9 36.0Economically vulnerable 10 40.0Non poor 6 24.0Total 25 100

Kotor Poor 6 24.0Economically vulnerable 10 40.0Non poor 9 36.0Total 25 100

Ulcinj Poor 8 32.0Economically vulnerable 9 36.0Non poor 8 32.0

Total 25 100

Q2 Number of household members GenderFrequency Percent Frequency Percent

1 15 15 Male 184 54.282 9 9 Female 155 45.723 20 20 Total 339 100

4 33 335 18 186 5 5

Total 100 100

Q4 Ethnic affiliation by municipalityOpstina Poverty line Frequency Percent

Budva Montenegrin 80 72.07

Serb 22 19.82Non answer 9 8.11Total 111 100.00

Bar Montenegrin 51 66.23

Serb 10 12.99Croatian 9 11.69Albanian 7 9.09Total 77 100.00

Kotor Montenegrin 51 62.96



Serb 10 12.35Croatian 20 24.69Total 81 100.00

Ulcinj Montenegrin 15 21.43Serb 37 52.86Moslem 2 2.86Roma 1 1.43Albanian 15 21.43Total 70 100

Ethnic affiliation 05 AGE OF INTERVIEWSFrequency Percent Frequency Percent

Montenegrin 197 58.11 17 age < 68 20.06Serb 79 23.30 18 - 30 98 28.91Moslem 2 0.59 31 - 40 30 8.85Croatian 29 8.55 41 - 50 54 15.93Roma 1 0.29 51 - 60 53 15.63Albanian 22 6.49 > 60 35 10.32Non answer 9 2.65 Total 338 99.71Total 339 100 System 1 0.29

339 100

Q6 Level of educationFrequency -Percent

None 8 2.36Preschool/kindergarten 12 3.54No complete primary school 13 3.83Primary school 41 12.09Incomplete secondary 11 3.24Complete secondary 170 50.15Associate (2 - years) College 36 10.62University and higher 47 13.86Total 338 100

Q9 What was [...]'s primary activity during the past week?Frequency Percent

Working/helping to earn income 69 69Seeking employment - 3 3Retired 24 24Sick/disabled 3 3

Area of workFrequency Percent

Agriculture, hunting, forestry 5 2.99Fishing 1 0.60Mining and stone quarrying 1 0.60Manufacturing 3 1.80Water, electric and gas supply 8 4.79Construction 4 2.40Wholesale and retail trade, repair 23 13.77Hotels and restaurants 14 8.38Transport, storage and communication 5 2.99Financial intermediation 5 2.99



Real estate and renting activities 1 0.60Public administration Army or Police 17 10.18Education 7 4.19Health or social work 4 2.40Crafts and services 4 2.40Humanitarian orga nizations, NGO etc 1 0.60Communal services 4 2.40Other 2 1.20Total 109 65.27

Q1O Does your house/partment have the following?Frequency Percent Budva Bar Ulcinj Kotor

Connection to the electricity Yes 100 100 25 25 25 25grid No 0 0 0 0 0 0Coverage by the water Yes 90 90 24 25 16 25supply system/network No 10 10 1 0 9 0

Connection to water supply Yes 95 95 25 25 20 25system/network No 5 5 0 0 5 0Shower/bath inside house Yes 95 95 24 25 21 25

No 5 5 1 0 4 0Shower/bath outside house Yes 12 12 7 0 3 2

No 88 88 18 25 22 23Toilet inside house Yes 75 75 20 25 24 19

No 25 25 5 0 1 6Toilet outside house Yes 11 11 4 0 5 2

No 89 89 21 25 20 23Toilet eastern-style" (squat Yes 12 12 3 2 5 2plate) No 88 88 22 23 20 23

Toilet "western-style" Yes 46 46 8 21 12 5No 54 54 17 4 13 20

Indoor tap Yes 96 96 23 24 25 24No 4 4 2 1 0 1

Outdoor tap Yes 48 48 15 14 15 4No 52 52 10 11 10 21

Qll Washing machine have in household Use Regularly

Frequency Percent Frequency PercentYes 92 92 No water 1 8.33No 8 8 Water is sally 11 91.67Total 100 100 Total 12 100

If not used regular ly, why not?Frequency Percent

Yes 36 92.31No 3 7.69Total 39 100



Dish Washer have in household Use Regularly

Frequency Percent Frequency PercentYes 40 40 Yes 35 87.5No 60 60 No 5 12.5Total 100 100 Total 40 100

If not used re ularly, why not?Frequen Percent

Water is sally 4 80It old 1 20Total 5 100

Q12 Do you have a 9 rden plot where you grow some products for household Consumption?Frequency Percent

Yes 26 26No 74 74Total 100 100

Q 16b Is there any change in y ur family inco me During three years?Freq uency Percent

Increase in family income 18 18Decrease in family income 19 19No change 63 63Total 100 100

Q16 c What do you think are the main factors causing this change?Frequency Percent

Age 3 8.11Changes in employment and salary 7 18.92Changes in schooling 2 5.41Changes in position (promotion, demotion) 5 13.51General economic situation in the country 10 27.03Other 8 21.62Total 35 94.59

Q17 Does your HH have income from tourism?Frequency Percent

Yes 17 17No 83 83Total 100 100.00

Q 18 Which economic activities of your household are related to tourism?Frequency Percent

Restaurant 1 5.88Smile business 2 11.76Renting-out private rooms 13 76.47Renting-out private beds 1 5.88Total 17 100.00



Q 20a How many percent of your total household income is generated from tourism during theseason?

Frequency Percent

20 1 5.8830 4 23.5350 5 29.4160 3 17.6580 4 23.53

Total 17 100.00

Q 20 b Has income generated from tourism during the season increased during the last3seasons/ years?

Frequency Percent

Yes 1 5.88No, it decreased 11 64.71No, no change 5 29.41Total 17 100.00

20 c How much on average (in percentage)Frequency Percent

10 3 25.0020 4 33.3330 3 25.0050 2 16.67

Total 12 100.00

Q21b How do you define the season?Frequency Percent

June 2 11.76July 4 23.53The end of June 4 23.53May 1 5.88

End MonthFrequency Percent

1 August 2 11.7610 September 1 5.8815 august 2 11.7625 august 1 5.88August 2 11.76The finish of august 3 17.65Start September 2 11.76September 4 23.53Total 17 100



Q 21 c How do you define peak of the season?Frequency Percent

2 11.761.07-15.08 1 5.8810 august 1 5.8810. august 1 5.8815 July - 15 august 1 5.88laugust 1 5.8820 July - 15 august 1 5.8820 July - 20 august 1 5.8820. July 1 5.8825. July - 10 august 1 5.8825 July-15august 1 5.88August 4 23.531 August 1 5.88

Q23 How would you evaluate the financial situation of your family in comparison with theaverage financial situation of the residents of your city?

Frequency Percent

Much below average 15 15Below average 23 23Average 47 47Above average 13 13Much above average 2 2

Q 22 Which one from the statements is the most appropriate in accordance with the financialsituation of your household?

Frequency Percent

We do not have enough money to buy food 13 13We have enough money to buy food, but it is difficult for us to buy clothes orshoes 26 26We have enough money for food and clothes, and we are able to save somemoney, but we can't afford expensive goods such as a refrigerator or television 39 39We can buy expensive goods, but not everything we want 16 16We can afford anything we want 4 4Total 98 98

WATER USAGE & PROBLEMS

Q 24 What percentage of the water you receive is used for the following purposes?Percentage of Total

Water UsedDrinking, cooking, washing, sanitation 88.8Gardening 17.5Car washing 6.2Street cleaning 10.2Other (specify) 10.4

Q 25b Are you satisfied with this source of drinking water?Y Usi ng Satisfaction

Water source Use for drinking (a) Use for cooking (b) Yes1. Indoor tap (piped water) 84.0 89.0 53.02. Yard well 8.0 15.0 16.03. Outdoor tap 12.0 14.0 13.0



4. Neighbor's indoor tap 1.0 1.0 1.05. Neighbor's outdoor tap6. Public taps/natural resources 9.0 8.0 11.07. Vendor 77.0 46.0 70.08. Cistern 4.0 2.0 5.0

Q 26 Do you have problems with the water supply during the tourist season?Percent

1. Supply/volume 68.02. Unreliable 58.03. Salt 23.04. Safety 37.05. All of the above 9.06. Something else, specify 1.07. None 9.0

Q 27 What are your priorities regarding pi ed water supply during the season?Rank

Hours of supply per day Low - 33.0%Pressure Medium - 42.0%Schedule of supply High - 26.0%Something else, specify

Q 28 When your main source of drinking water is not available, how do you obtain water?(Multiple responses allowed)

Percent1. Water stored in or outside the house in a tank 19.02. Piped water from the neighbors 5.03. Hand pump in the backyard (well) 3.04. Dig out a well 7.05. Public taps 16.06. Natural resources /springs 10.07. Buy water from vendors 58.08. Fill buckets when water is available 64.09. Other (specify) 2.0

Q 29 If you obtain water from "public taps/natural resources" or you buy it from "vendors":Quantity in Time spent to Priceliters/day receive water (day)

Public taps 20.8 46.1 xxxNatural resources (springs) 18.9 20.3 xxxVendor 4.4 xxx 1.6

Q 30 Since when you are connected to the water supply network/system and who connectedyou?

Percent1. Yourself 6.52. A friend 1.13. The water company 85.94. A private technician 6.55. Other (specify) I _ _



Q 32 Has your household been warned to become disconnected or has your household actuallybeen disconnected last year?

Percent1. Warned 5.02. Disconnected 3.03. Neither 87.0

Q 33 For each catecorv, please choose the most important problem in your water systemaccording to their perceived importance?

Tick one for eachcategory

-_ Technical1 Leaking pipes 11.52 Lack of access to piped water supply network 38.53 Low pressure 20.84 Limited hours of supply (hours) 27.15 Other (specify) 2.1

-Qualitative

6 Perception that water is unsafe (lack of trust, taste, color, 57.0smell)

7 The water is unsafe (health reasons) 36.68 Other (specify) 6.4

Service9 Unreliable water supply (unavailable for hours/day, or 55.9

days/week)10 Water Company technician take bribes (are corrupted) 10.811 Delays in repair and maintenance by the Water Company 20.412 Non responsive customer relations 9.713 Other (specify) 3.2

Operational14 The price per cubic meter is too high 53.315 Dissatisfaction with the not metered billing 5.416 Dissatisfaction with the block metering apartment building 5.417 Too much water is used or misused 33.718 Other (specify) 2.2

Q 34 a Do you have piped water every day of the month?Percent

1.Yes 35.4 |

2. No 64.6

Q 34 d How does the piped water shortage a Ffect your household?Percent

1. Work at night 47.42. Purchase more expensive water from vendors 45.63. Lose guests during tourism season 7.04. Other j

Q 34 d How does the piped water shortage a ffect your business?Percent

1. Work at night 4.32. Purchase more expensive water from vendors 43.53. Lose guests during tourism season 52.24. Other j



35 a Do you have a tank?_ _ Percent1.Yes 22.02. No 78.0

If YES: (a) individual or (b) collectivePercent

1. Individual 85.72. Collective 14.3

35 b What is th caacit C of the tank?Percent I

1. C<100L 10.02.100L<C<500L 45.0 |3. C>500L 45.0

35 c Does the tank satisfy the needs of your household/family (drinking, cooking, andwashing)?

_ [Percent1.Yes 70.02. No 30.0

36 a Does your household have a water pump?Percent

1.Yes 27.62. No 72.4

If YES: (a) individual or (b) collectivePercent]

1. Individual 72.72. Collective 27.3 |

36 b Does the water pump dd to your electricity bill?Percent

1.Yes 47.42. Don't know 47.43. No 5.3

37 If you could choose, which important improvements would you like in your piped watersupply?

PercentFirst most important

1. Better quality 19.02. Without restriction 13.03. Building water network 8.0

Second most important1. Bother quality 28.02. Cutting illegal consumers 1 9.03. Better pressure 6.0

Third most important1. Lower price 9.02. Better quality 7.03. Without restriction 6.0



WILLINGNESS AND AFFORDABILITY TO PAY

40 a How much is your household supposed to pay for water?Percent

1. Go to water supply company and personally pay bill 36.92. Water supply company's collector 51.23. Post office - water supply company's drawing account 8.34. Other (specify) 3.6

How much does your household pay on average for piped water?Time period Percent1. Month 17.332. Season 42.313. Year 152.06

How much does your household pay on average for non-piped water?Time period Percent1. Month 16.132. Season 46.353. Year 130.85

Do you know how much is:

MeanThe price per cubic meter of water from the water supply network? 0.58 E/per monthHousehold's average consumption of water in cubic meters per month? 19.64 m3/per month

Q 45a Do you know your household's "generation":

I Mean |Waste water in cubic meters? | 14.57 l

Q 44 Do you think the price is justified for your current water services?Percent

I.Yes 44.92. No 55.1

Q 46 a Has there been any increase in the price per cubic meter from the water company duringthe last year?

Percent1.Yes 5.62. Don't know 76.43. No 18.0

46 b How much has the price per cubic meter for water increased during the last year?Mean

1. Price before increase 0.31 /m332. Price after increase 0.60 E/m 3

How much would you be willing to pay for:Mean

1. Connection in the waste water network 88.30 E/per month2. Pay monthly for waste water disposal 9.67 E/per month3. Regular septic tank cleaning 4.98 E/per month



46 c What was the impact of this increase on your household income?Percent

1. No significant impact 50.02. Unable to afford the bill _

3. Restrict other expenses to be able to pay the increased 25.04. Reduce water consumption to afford the bill 25.05. Switch to other means to access water6. We became irregular payers

47 After the tariff increase how has your water supply changed?Percent

1. Longer hours of supply 25.02. Higher water pressure _

3. Better water quality _

4. Improved responsiveness of the company in case of technical complaints _

5. Improved company-customer relations6. No change 75.07. Other (specify) _

Q 48a In the last year, was there a time when you did not pay your water bill?Percent

1.Yes 28.12. No 71.9

Q 48 b If YES, what are the reasons why you do not pay this bill regularly?Percent

1. Water should be free2. Were not able to? (lack of money) 45.53. Are not satisfied with the service? 13.64. Did not receive any water bill? 4.55. Have to wait too long in line to pay (long cues)6. Opening hours of water office are not convenient?7. No enforcement for non-payment _

8. Other 36.4

PUBLIC AWARENESS

Q 56 What do you know about the central/local government measures to improve the watersupply?

Percent1. Nothing 45.52. Somewhat informed 35.43. Adequately informed 19.2

Q 57 Where do you get the information about the government measures to improve the waterservices?

Percent(non weighted values)

1. National TV 92.02. Local TV 56.43. Newspapers 52.6



Q 59 a In your opinion, who is resDonsible for water supply in your town?Percent

1. Central government 18.22. Municipality 79.83. Other 2.0

Q 59 b In your opinion, who should be resDonsible for water supply in your town?Percent

1. Central government 21.92. Municipality 72.93. Other 5.2

Q 60 a Is there an office within the Water Company where you can direct your concerns?Percent

1. Yes 30.32. No 19.23. Don't know 50.5

Q 60 b If you have any problems (such as blockages, leakages, contamination etc.), how quickdoes the water company fix them?

Percent1. Within one (1) day 2.02.Intwo(2)days 5.13. In three (3) to five (5) days 8.14. In one week 2.05. More than one week 3.06. No response from the water company 1.07. No problems experienced 38.48. Usually I call a private plumber 40.4

Q 61 When you want to report water/waste water problems, ask for repairs, or complainregarding water/waste water services, who do you contact, and what contact is it?:

Who do you contact? State whether this contact:(non weighted values) (non weighted

values)1.Report water/waste water problems (e.g. Water company (79,1%) Water company

blockages, leakages, contamination) (72,0%)2. Ask for repairs Water company (57,6%) Water company

(50.0%)3. Complain regarding water/waste services Water company (84,7%) Water company

(78.3%)

OTHER QUESTIONS

Q 62 a Do you think that the water supply company should improve enforcement to:| Percent

1. Collect the bills? 37.42. Cut-off illegal connections? 36.43. Prevent constructions that affect 23.2water and sewage networks4. Other (specify) 3.0



Q 62 b What do you think would be the three best ways to improve enforcement in yourneighborhood/community? (please rank: 1-low, 3-hi h)

Percent(non weighted values)

1. Public awareness campaign High - 56.92. Send mailed reminder to non-paying customers Medium - 42.23. Apply financial penalties for late payers Medium - 55.34. Send water company representative together with Low - 40.0municipal police5. Cut off non paying customers, monitor these Medium - 44.9customers and charge for the re-opening of the waterconnection6. Take legal action for unlawful behavior by consumer High - 53.3in regard to water I7. Cut off illegal connections at customers' expenses High - 43.8

Q 63 In your opinion, whi ch goal group should be included in campaign?Percent

1. Households 45.92. Businesses 26.53. Institutions 27.6

Q 64 On what basis do you think each household should pay for water?Percent

1. According to consumption 62.62. According to household income 17.23. According to number of people in the household 8.14. According to house/flat size (including garden) 6.15. Water should be free 6.16. Other (specify)Q 65 a Do you get subsidies for your piped water services? (coupon, cash, lower tariffs, etc.)

Percent1.Yes 5.02. No 55.03. Don't know 41.0Q 65 b Would you support that very poor households would receive subsidized tariffs?

Percent1. Yes 99.02. No 1.0

Q 65 c Do you think, that the government measures to improve the piped water services shouldinclude a subsidy for households who can not afford to pay their piped water services?

Percent1. Yes 96.02. No 4.0

Q 66 Do you think that the current water shortages restrict your employment opportunities,especially in regard to tourism?

Percent1. Yes 66.02. No 16.03. Don't know 18.0



Q 67 Do you think that the government measures to improve the piped water services willincrease opportunities for employment, especially in regard to tourisms?


Q 68 Do you think that the current water shortages reduce your business opportunities orinvestments and the value of your property?


Q 69 Do you think, that the government measures to improve the piped water services willincrease your business opportunities or investments, and the value of your property?


Q 70 a Do you have a bank account?L Percent

1. Yes 43.02. No 57.0

Q 70 b If yes, would you be interested to pay your water bills directly through your bankaccount?

Percent1.Yes 67.42. No 32.6
