OP for Economic Development, 2012-2013 Draft 2.1 (main).… · Web viewIn 2008, all candidate and...

Government of the Republic of Serbia

DraftOPERATIONAL PROGRAMME FOR

ECONOMIC DEVELOPMENT

2012 - 2013

Instrument for Pre-accession AssistanceComponent III

2nd DraftMay 2011

http://www.ecinst.org.rs/storage/images/klijenti/grb_srbije_mali.jpg

OP for Economic Development, 2012-2013 2nd draft

Table of ContentsAbbreviations

Introduction & Summary

1. CONTEXT, CONSULTATION AND COORDINATION 1

1.1 National policy and socio-economic context..................................................................1

1.1.1 General 1

1.1.2 Transport9

1.1.3 Environment 24

1.1.4 Competitiveness 42

1.2 Community strategic framework..................................................................................69

1.2.1 Introduction 69

1.2.2 IPA regulations 70

1.2.3 European Partnership 71

1.2.4 Community Strategic Guidelines (CSG) for 2007-2013 71

1.2.5 Europe 2020 74

1.2.6 Coordination mechanisms 76

1.3 Partnership consultation..............................................................................................78

1.4 Ex ante evaluation........................................................................................................80

2. ASSESSMENT OF MEDIUM TERM NEEDS, OBJECTIVES AND STRATEGIC PRIORITIES 82

2.1 Socio-economic analysis (including SWOT analysis).....................................................82

2.1.1 General 82

2.1.2 Transport84

2.1.3 Environment 91

2.1.4 Competitiveness 101

2.2 Strategic priorities......................................................................................................117

3. PROGRAMME STRATEGY 122

3.1 Priority axes and measures.........................................................................................122

3.1.1 Priority axis 1 - Transport 122

3.1.2 Priority axis 2 - Environment 132

3.1.3 Priority axis 3 - Competitiveness 144

3.2 Technical assistance....................................................................................................155

3.2.1 Priority axis 4 - Technical Assistance 155

3.3 Horizontal issues.........................................................................................................162

3.3.1 Equal opportunities for men and women 162

3.3.2 Environmental protection and sustainable development 164

3.3.3 Participation of civil society 166


3.4 Complementarities and synergies with other forms of assistance.............................166

3.4.1 Coherence with national programmes 166

3.4.2 Coherence with other IPA Components 168

3.4.3 Coherence with bilateral and IFI assistance 173

3.5 Indicative list of major projects..................................................................................176

3.5.1 Measure 1.1 – Modernisation of railway lines within the Pan-European Transport Corridor X 176

3.5.2 Measure 1.2 - Improvement of navigation conditions within the Pan-European Transport Corridor VII 178

3.5.3 Measure 2.1 - Upgrading and improvement of waste management178

3.5.4 Measure 2.2 - Drinking and waste water management 179

3.5.5 Measure 2.3 – Improvement of air quality through reduction in emissions from thermal power plants 179

4. FINANCIAL TABLES 181

5. IMPLEMENTATION PROVISIONS 184

5.1 Management and control structures..........................................................................184

5.1.1 Bodies and authorities 184

5.1.2 Separation of functions 195

5.2 Monitoring and evaluation.........................................................................................196

5.2.1 Monitoring arrangements196

5.2.2 Management Information System 199

5.2.3 Monitoring system and indicators 199

5.2.4 Selection of operations 200

5.2.5 Sectoral annual and final reports on implementation 200

5.2.6 Evaluation arrangements 201

5.3 Information and publicity...........................................................................................202

5.3.1 Introduction 202

5.3.2 Partnership and networking 202

5.3.3 Internet 203


ABBREVIATIONS

AA Audit AuthorityAGC European Agreement on Main International Railway LinesAGR European Agreement on Main International Traffic ArteriesBAS Business Advisory ServiceBES Business Enterprise SectorBMI Business Monitor InternationalBPMIS Budget Planning and Management Information SystemCAB Conformity assessment bodyCAO Competent Accrediting OfficerCARDS Community Assistance for Reconstruction, Development and StabilisationCBA Cost-Benefit AnalysisCBC IPA component II (Cross-Border Cooperation)CC Community contributionCDM Clean Development MechanismCEE Central and Eastern EuropeCEMT La Conférence Européenne des Ministres des Transports (European Conference of Ministers of

Transport)CIP Competitiveness and Innovation Framework ProgrammeCIS Commonwealth of Independent StatesCOCOF Coordination Committee of the FundsCOMP Competitiveness CFCU Central Finance and Contract UnitCSG Community Strategic Guidelines on CohesionCSO Civil society organisationsCSR Corporate Social ResponsibilityCTC Central remote traffic controlDABLAS The Danube Black Sea Task ForceDEU Delegation of the European Union DG ELARG Directorate-General for EnlargementDG EMPL Directorate-General for Employment, Social Affairs and InclusionDG REGIO Directorate-General for Regional PolicyDIS Decentralised Implementation System DTD Danube-Tisa-Danube Hydro-systemEAS Environmental Approximation StrategyEBRD European Bank for Reconstruction and DevelopmentEC European CommissionEEA European Environmental AgencyEFTA European Free Trade AssociationEIA Environmental Impact AssessmentEIB European Investment BankENV EnvironmentEPS Electric Power Industry of SerbiaERA End Recipient AgreementERTMS European Rail Transport Management SystemESC Evaluation Sub-CommitteeEU European UnionEurostat European Statistical OfficeFDI Foreign Direct InvestmentFMIS Financial Management Information SystemFREN Foundation for the Advancement of EconomicsFS Feasibility studyFYROM Former Yugoslav Republic of Macedonia

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GAW Global Atmosphere WatchGCI Global Competitiveness IndexGDP Gross Domestic ProductGEM Global Entrepreneurship MonitorGIS Geographic Information SystemGOP Godišnji operativni Prlan (Yearly Operational Planning)GVA Gross Value AddedHOS Head of Operating StructureHRD Human Resources DevelopmentHWTF Hazardous Waste Treatment FacilityHS Hydro-systemIAUS Institute for Architecture and Urbanism of SerbiaICPDR International Commission for the Protection of the Danube RiverICT Information and Communication TechnologiesIDPs Internally Displaced PersonsIFI International Financial InstitutionILO International Labour OfficeIMF International Monetary FundIPA Instrument for Pre-accession AssistanceIPAMC IPA Monitoring CommitteeIPARD IPA component V (Rural Development)IPF Infrastructure Project FacilityIPPC Integrated Pollution Prevention and ControlIRI International Roughness IndexISDACON Inter Sectoral Development and Aid Coordination NetworkIT Information TechnologyITU Intermodal transport unitIWT Inland Waterway TransportIWW Inland WaterwaysJŽ Jugoslovenske Železnice (Yugoslav Railways)LFS Labour Force SurveyLLC Limited liability companyLSU Local self-government unitMATFWM Ministry of Agriculture, Trade, Forestry and Water ManagementMEGA Municipal Economic Growth Activity project (USAID)MEMSP Ministry of Environment, Mining and Spatial PlanningMIPD Multi-annual Indicative Planning DocumentMIE Ministry of Mining and EnergyMIS Management Information SystemMoERD Ministry of Economy and Regional DevelopmentMoF Ministry of FinanceMPA Major Project ApplicationMW MegawattNAD Needs Assessment DocumentNAO National Authorising OfficerNF National FundNGO Non-Governmental OrganisationNIMBY “Not in my back yard” principleNIP National Investment PlanNIPAC National IPA CoordinatorNGO Non-Governmental OrganisationNPAA National Programmes for the Adoption of the AcquisNPEP National Programme for Environmental ProtectionNPI National Plan for Integration with the European Union

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NSDS National Sustainable Development StrategyOCL Overhead Contact LineOECD Organisation for Economic Cooperation and DevelopmentOIS Operation Identification SheetOP Operational ProgrammeOP-ED Operational Programme for Economic DevelopmentOPWG Operational Programme Working GroupOS Operating StructureOSC Operation Selection CommitteePE Public EnterprisePIU Project Implementation UnitPM Particulate MatterPPFTA Project Preparation and Technical Assistance FacilityPRAG Practical Guide to Contract Procedures for EU External ActionsR&D Research and DevelopmentRCA Revealed Comparative AdvantageREBIS Regional Balkans Infrastructure StudyRIS River Information ServicesRPI Retail Price IndexRTD Research and Technological DevelopmentRSD Serbian DinarRSO Republican Statistical OfficeSAA Stabilisation and Association AgreementSBA Small Business ActSCF Strategic Coherence FrameworkSCFJB SCF Joint BodySCO Strategic CoordinatorSCTM Standing Conference of Towns and MunicipalitiesSEA Strategic Environmental AssessmentSEE South-East EuropeSEETO South East Europe Transport ObservatorySEIO Serbian European Integration OfficeSEPA Serbian Environmental Protection AgencySEPF Serbian Environmental Protection FundSIEPA Serbia Investment and Export Promotion AgencySIPRU Serbian Government’s Poverty Reduction Strategy UnitSME Small and Medium-sized EnterpriseSMC Sectoral Monitoring CommitteeSWG Sectorial Working GroupSWOT Strengths, Weaknesses, Opportunities and ThreatsTA Technical AssistanceTAM Turning Around ManagementTEA Total Entrepreneurial ActivityTEN-T Trans-European Transport networkTEU Twenty-Foot Equivalent Unittkm Tonne-kilometreTPP Thermal Power PlantTRAN TransportUIC International Union of RailwaysUIC GA UIC A GaugeUIC GB UIC B GaugeUIC GC UIC C GaugeUK United KingdomUN United Nations

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UNDP United Nations Development ProgrammeUNEP United Nations Environment ProgrammeUNECE United Nations Economic Commission for EuropeUNHCR United Nations High Commissioner for RefugeesUNICEF United Nations Children’s FundUNSCR United Nations Security Council ResolutionUS United States of AmericaUSAID United Stated Agency for International DevelopmentUWWD Urban Waste Water DirectiveUXO Unexploded OrdinanceVAT Value added taxVET Vocational education and trainingWBIF Western Balkans Investment FrameworkWFD Water Framework DirectiveWHO World Health OrganisationWL Water LawWW2 Second World WarWWTP Wastewater Treatment PlantZIT Železnički Integralni Transport (Railway Integral Transport)

A glossary of terms is included separately as Annex A.

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INTRODUCTION & SUMMARY

This document presents Serbia’s priorities for financing operations under component III of the Instrument for Pre-accession Assistance (IPA), in anticipation of the Republic becoming a candidate country for European Union membership.

IPA component III is designed to help aspiring member states to get ready for Structural Funds (specifically, the European Regional Development Fund) and the Cohesion Fund, by preparing and managing Operational Programmes (OPs) which are based on the same principles and practices, but with a tighter focus of eligible activities, a smaller scale of resources, and the application of pre-accession implementing rules that safeguard the financial interests of the EU.

Alongside the OP for IPA component IV (human resources development), which is intended to also equip Serbia for future Structural Funds (specifically, the European Social Fund), this represents a new endeavour: the first time that Serbia has prepared a multi-annual, sectoral programme to identify the most effective and efficient use of EU and national resources.

The OP itself covers the financial perspective 2012-2013, but under the EU’s funding rules, which follow the Structural and Cohesion Funds model, the timeline for implementing the programme’s activities extends in practice to 31 December 2016, which sets the mid-term outlook of the OP.

The potential scope of IPA component III is four-fold:

Transport infrastructure, in particular interconnection and interoperability between national networks, and between national and trans-European networks;

Environment measures related to waste management, water supply, urban waste water and air quality; rehabilitation of contaminated sites and land, and areas related to sustainable development which present environmental benefits, namely energy efficiency and renewable energy;

Enhancing regional competitiveness and a productive environment, and encourage creation and safeguarding of sustainable employment;

Technical assistance (TA) for preliminary studies, administrative capacity-building and preparatory, management, monitoring, evaluation, information and control activities and activities.

This Operational Programme for Economic Development (OP-ED) follows the programming logic which is applied to Structural Funds and Cohesion Fund in EU member states. This is about making informed choices on the best use of inevitably limited funding (the principle of concentration), based on: consistency with EU and national priorities; continuity from past investments, studies and project preparation; and complementarities with existing and parallel activities, including national programmes, other IPA components, donor and IFI assistance. Preparing the OP requires a regular process of inter-ministerial coordination and consultation with partners which represent economic, social and environmental considerations, including civil society organisations. It demands rigorous scrutiny by independent evaluators during the process of OP development (ex ante), as well as by the European Commission (EC). The OP also fits under the umbrella of the Strategic Coherence Framework (SCF), which is the overarching reference document for the planning and coordination of

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IPA components III and IV, and as such, provides the overall strategic structure and vision for the two OPs.The following table summarises the choices made in the OP-ED, with regard to concentration of resources:

Sector Potential scope Concentration within OP RationaleTransport Road, rail, inland waterways, air &

intermodalRail, inland waterways (IWW), intermodal

Commitment to TEN-T network; road network already being funded; historic under-investment in rail and IWW; important for freight transport in Serbia; intermodal infrastructure presents an opportunity to strengthen interoperability

Environment Waste management, water supply, urban waste water, air quality, rehabilitation of contaminated sites and land, energy efficiency, renewable energy

Waste management & rehabilitation of contaminated sites, water supply & urban waste water, air quality

Massive investment needs in all environmental sectors to achieve acquis compliance; need to build capacity, experience and project pipeline across institutions in sector

Competitiveness Business & technology services for enterprises, access & use of ICT, technological development, research & innovation, business networks and clusters, financing instruments, local business infrastructure and services, education & training infrastructure

Business & technology services for enterprises, access & use of ICT, technological development, research & innovation, clusters, business-related infrastructure

Serbia needs economic diversification, based on higher value-added sectors, direct investment, cluster effects & exporting; SMEs contribute job growth, further unrealised potential for start-ups & expansion; R&D & innovation has suffered from serious under-spending historically; need to lower barriers to doing business, strengthen public policy & improve infrastructure conditions for potential investors that could contribute to growth

In accordance with programming logic, the OP takes the following structure:

It takes the policy priorities of the Republic of Serbia and the European Union as its overall strategic context, all within the framework of preparations and negotiations for accession, and presents an analysis of the current situation, based on historic factors and recent performance, and describes the process of inter-ministerial and policy coordination, partner consultation, ex ante evaluation (chapter 1).

It then projects forward the medium-term needs and challenges facing Serbia in the fields of transport, environment and competitiveness, based on an assessment of existing, internal strengths and weaknesses and future, external opportunities and threats (chapter 2).

To meet these medium-term challenges, the OP sets out its own strategy (chapter 3), which follows a hierarchy of objectives and outcomes, starting with an overarching goal, identifying objectives for each sector (transport, environment, competitiveness and TA), which define the strategic priorities, and disaggregating these priorities into subsidiary measures, whose combined effect will accomplish the sector’s objective, as measured through results indicators. The measures are the key level of the OP for selecting and implementing operations, whose performance will be assessed through the achievement of output indicators (which in turn will achieve results at the level of the four sector-based priority axes). The operations themselves will be chosen or confirmed, and approved after agreement of the OP by the European Commission.

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Alongside the achievement of performance targets (defined alongside the indicators), the most important parameters for the OP are the financial tables (chapter 4), which lay down the funding limits for each priority axis and each measure, and the prescribed mix of IPA grant (85%) and national co-financing (15%).

The implementing arrangements for the OP (chapter 5) centre on the ‘operating structure’ of accredited bodies within Serbian ministries, which is responsible for sound financial management of the OP, maximising expenditure, minimising errors and irregularities, and ensuring its objectives and targets are fulfilled.

The relationship in the OP between context, analysis, strategy (goal, objectives and priorities) and action (measures), and the role of partnership and synergies, is summarised overleaf.

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1 CONTEXT, CONSULTATION AND COORDINATION

1.1 National policy and socio-economic context

The following section provides an overview of the contextual factors which will shape the strategy and medium-term perspective of the Operational Programme. It places a particular emphasis on key events in the recent past for Serbia which provide the starting point and baseline for the OP’s interventions from 2012 onwards1.

1.1.1 General

Demographic trends are vital for understanding the challenges facing economic development in Serbia, as they have a direct impact on the size and structure of the working-age population, and the non-working age population, supported by wealth creation and employment.

According to the Serbian Statistical Office’s official population data (population projections based on Census 2002), Serbia counted 7,306,677 inhabitants on January 1st 20102. The country has lost 3.6% of its population since 1998 when the figure amounted to 7,567,745. In 2010, the population ‘growth’ rate was negative (-0.39 %)3. The fertility rate, 1.4 children per woman in 2008, remains at a low level and below the rate necessary to maintain the population level in the long-term. This fertility rate almost corresponds to the EU-27 average, which amounted to 1.5 in 2007.

The decline in population (figure 1) reflects both low fertility rates and continued emigration due to the hardships linked with economic transition and a shortage of work opportunities.

Figure 1: Population trends

7,100

7,200

7,300

7,400

7,500

7,600

TOTAL POPULATION, thousands 1998-2009

Population in the middle of the year

Source: Serbian Statistical OfficeSource: Serbian Statistical Office

According to the latest estimate (31st December 2010), the population of Belgrade accounted for 22.3% of the total population (figure 2).

1 All data presented in the OP excludes Kosovo and Metohija, in accordance with UN Security Council Resolution 1244 2 Labour Force Survey (October 2009) shows a higher population base amounting to 7,528,262, because it includes Kosovo according to UN Security Council Resolution 1244/99. Please note, this chapter will be updated when the latest LFS is published in April 2011. 3 Statistical Office of the Republic of Serbia, January 2010 vs. January 2009. Census 2002: 7.50 million.; 1991: 7.58 million

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Figure 2: Population by area

1,0002,0003,0004,0005,0006,0007,0008,000

working-age population

Total population

Population (2009), thousands

Belgrade

Vojvodina

Central Serbia without Belgrade

Source: Serbian Statistical Office

The population of Serbia comprises 51% women and 49% men. The age structure of the population in Serbia is very similar to the EU-27 average. Like these countries, Serbia is experiencing demographic ageing4. 17.1 % of the population was above sixty-five5, which is almost equal to the EU-27 average in 20086 (figure 3).

Figure 3: Age and gender profile of the population

Source: US Census Bureau, International Data Base, 3rd August, 2010

The population of Serbia is predominantly made up of ethnic Serbs (83%) with significant minorities of Hungarians (around 300,000 persons or 3.9% of the total population), Roma (1.4 %7), and Albanians (0.8 %). There were 86,154 refugees and 205,835 internally displaced persons resident in

4 According to Eurostat, the share of the persons of 80 years and over in the EU-27 is projected to grow from 4.1 % in 2006 to 11.2 % in 2050.5 Statistical Office of the Republic of Serbia, estimate in mid-20096 17%, Eurostat (2008)7 According to NGO estimates, the Roma account for 6.2% of the population

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Serbia8. The Serbian diaspora is estimated at 3.5 million people9. The working age population (aged 15-64) numbered 4,822,936 people in April 2010.

The underlying context for socio-economic development in Serbia is a macro-economy which has demonstrated strong year-on-year expansion since 2000, until the global economic crisis started in 2008 and hit hardest in 2009. The key headline facts and figures10 are set out below:

Serbia’s national output grew strongly and consistently through most of the last decade, with GDP almost trebling in value from €12.8 billion (2001) to €33.4 billion (2008). After inflation, Serbia enjoyed overall real GDP growth averaging over 6% at times over the period, which was marginally above the long-term trend rate. The global financial crisis started to affect the economy in the fourth quarter of 2008, leading to a 3.1% contraction in 2009 to an estimated €30.0 billion, but is forecast to show a modest increase of 1.5% in 2010, and to rise to 3.0% growth in 2011.

The wealth of the average household also improved significantly from 2001 to 2008. Annual GDP per capita more than doubled from €1709 (2001) to €4547 (2008), due to high rates of real GDP growth. However, GDP per person remains low by EU-27 standards (the average being €25 100 in 200811), and even by comparison with other EU candidate and potential candidate countries. In line with GDP trends, per capita levels in Serbia fell to €4093 in 2009, and have slid further in 2010 to €4016. However, Serbia’s GDP per capita is forecast to recover in 2011 (€4388).

Real GDP growth in Serbia has been partly due to falling inflation12, which was brought under tighter control in the 2000s through monetary and fiscal policy measures, management of the dinar-euro exchange rate, and economic reforms. Measured through the retail price index (RPI), the inflation rate reduced from 93.3% (2001) to 7.0% (2007). A temporary upward turn in 2008 (13.5%) was followed by a lower rate in 2009 (8.6%), and inflation measured through RPI continued to decline in 2010 (6.8%). However, the predictions for 2011 are bleaker (9.4%).

Inflation rates have fallen despite a surge in household and investment spending, which has been the driving force behind GDP growth and which caused import consumption to rise three-fold between 2001 and 2008. While exporting also increased and over half went to EU countries, the total value of exports stood at only 45% of imports in 2008. A widening import-export gap has produced a growing trade deficit, which reached €9 billion in 2008, and a current account deficit13 of 21.6% of GDP in 2008, before improving in 2009 to €5.5 billion (trade deficit) and 7.6% of GDP (current account deficit). The current account deficit is

8 UNHCR data as of 1 August 20099 The Serbian diaspora comprises all people who consider Serbia their homeland and who identify with Serbian culture and language, regardless of whether they have Serbian citizenship or they belong to the second and third generation of emigrants, whether they are living overseas or within our region, whether they are Serbs or national minorities who live in Serbia. Most members of the Serbian diaspora are living in the USA and Canada, in the countries of Western Europe and in the other countries of former Yugoslavia. Source: Ministry for Diaspora10 Unless stated otherwise, the historic data quoted below concerning macro-economic performance is taken from the Ministry of Finance’s “Basic Indicators of Macroeconomic Trends” from February 2011. These statistics will be updated in later drafts of the OP, as new data becomes available and estimates are confirmed. Estimates for 2011 and forecasts for 2012 and 2013 are taken from the Government’s “Revised Memorandum on the Budget and Economic and Policy for 2011, with Projections for 2012 and 2013” (December 2010)11 Eurostat, Compact Guides 201012 Measured by consumer prices, as an average for the period; to allow comparisons with 2001, the COICOP methodology is not applied to this data13 Excluding donations

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expected to have worsened in 2010 (9.3% of GDP), despite the surge in exports, exceeding the rise in imports, compared with the same period in 2009. The current account is expected to begin to improve in 2011 (8.2%), nevertheless, the Serbian economy remains highly dependent on inflows of foreign capital (investment and credits) to achieve its balance of payments.

Net foreign direct investment (FDI) in the period 2001-2008 amounted to more than €11 billion, mostly directed into the financial, transport and processing sectors. This inflow reached a peak in 2006 of €3.3 billion, mainly from privatisation in the areas of telecommunications, banking, insurance, etc. Net FDI fell sharply from €1.8 billion in 2008 to €1.4 billion in 2009, as a result of the global financial crisis, while net FDI for the first 11 months of 2010 (€0.8 billion) did not reach half the value of 2008.

By the end of October 2010, some 2405 socially-owned enterprises had been privatised with total employment of 340,899, achieving revenues of almost €2.7 billion, and investment of over €1.2 billion. In 2009, only 94 enterprises were privatized and 34 in the first ten months of 2010, which is well below the approximate average of 325 in the period between 2002 and 2008.14

The Government had adopted an expansionary fiscal policy before the international economic and financial crisis hit Serbia. Public expenditure by the whole of Government reached the equivalent of around € 12.4 billion15 in 2010, an increase in nominal terms of 92% over 2005 levels. At the same time, public revenues amounted to around €11.3 billion 16

in 2009, leading to a fiscal deficit of 4.8% of GDP. reflecting in part the ‘automatic stabilisers’ of lower tax and other revenues and higher welfare spending. The deficit is expected to narrow to 4.1% in 2011, as fiscal retrenchment measures take effect and the economy returns to healthier growth rates.

While the Government has been running fiscal deficits since 2006, the proceeds from privatisation have helped Serbia to manage public debt successfully through the 2000s. Measured against national output, Serbia succeeded in reducing its public debt from 104.8% of GDP (end 2001) to 26.3% (end 2008). Debt has increased during the global crisis, and stood at 32.9% in December 2009, and 41.4% by December 2010 which, despite rising, is still in line with the Budget System Law that provides a limit of 45% public debt to GDP. In the first two months of 2011, public debt stood at 39.7%.

However, Serbia’s overall external debt has been rising since 2004, due to rising private debt with foreign lenders, reaching 77.1% of GDP in September 201017, and is estimated to have reached 79.3% by end 2010, before falling back to 74.2% by the end of 2011.

Strong output growth up to 2008 was largely achieved through productivity improvements, rather than higher levels of formal employment18. By 2008, official employment levels were just under 2 million on average, out of the working age population of almost 5 million. The crisis reduced formal employment levels by around 110 000 in 2009 (on average) or 5.5%, and have slid further in 2010 by 93,000 (a further 5% fall compared to the previous year). In

14 Ministry of Finance, “Revised Memorandum on the Budget and Economic and Policy for 2011, with Projections for 2012 and 2013”, December 201015 1359.9 billion dinars converted at the agreed budgeting rate of 110 RSD: 1 EUR16 1223.4 billion dinars converted at the agreed budgeting rate of 110 RSD: 1 EUR17 “Analysis of the Republic of Serbia’s Debt – September 2010”, National Bank of Serbia (December 2010)18 Statistical Office of the Republic of Serbia, Survey “RAD” (translation is “work”) - the establishment survey and the main national source of data on formal employment

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fact, the number of people in work stood at less than 1.7 million in January 2011. The MoF expects employment to level off in 2011. At the same time, productivity is expected to have risen by 5.8% in 2010 and grow 3.0% in 2011.

These figures do not take account of informal employment19, which raised the number of people who declared themselves to be working in 2008 to 2.6 million. This group was hit hardest by the recession, the number of informal jobs standing at just below 400,000 in January 2011, one third lower than the 2008 peak.

Taking into account both formal and informal employment, the employment rate20 of the population aged 20-64 stood at just 54.2% in 2008, well below the proposed Europe 2020 target21 of 75%, but has since fallen still further to 51.9% (April 2010).

The employment data is matched by high levels of unemployment. While the rate fell to 14.4% in 2008, according to the ILO definition, this has since climbed to 20.0% (January 2011). No EU member has a national unemployment rate higher than Serbia. Labour market inefficiencies remain prevalent, and long-term unemployment (more than one year) has been endemic. Already high during the economic peak (10.4% in 2008) 22 the long-term unemployment rate climbed higher during the recession, as expected, and stood at 13.4% in April 2010, compared to 3.3% in the EU-2723

Serbia also suffers from a high inactivity rate, accounting for 40.9% of the working-age population, meaning that the economy and society is not only losing people to joblessness, but also losing people from the labour force, especially as only around one-third of the inactive population state they are willing to work. This places a greater pressure on a small, formally-employed workforce to generate sufficient output and tax revenue to support social welfare and an ageing population.

Unemployment has also fallen disproportionately hard on vulnerable groups, including young people (15-24 years) and older people (over 55 years), as well as Roma and other vulnerable groups, such as refugees and IDPs, people with disabilities, single parents, social benefit beneficiaries and women, contributing to the picture of social exclusion.

The growth in GDP through the early-mid 2000s has helped to take people out of absolute poverty, defined at subsistence level. However, absolute poverty (7401 RSD24 per person per month in 2008) was suffered by 6.1% of the general population25. The previous downward trend was reversed in 2009, with 6.9% of the population of Serbia, or approximately 500,000 people, lived below the absolute poverty line26, with a monthly consumption of less than RSD 8,022 (€85)27 per consumer unit.

By contrast, Serbia exhibits greater income equality than wealthier European economies. The Gini coefficient, which measures the distribution of incomes in society ranging from 0 as

19 Labour Force Survey, Statistical Office of the Republic of Serbia; 15-64 age group20 Foundation for Economic Development21 Europe 2020 target refers to the population aged 20-64.22 LFS definition of long-term unemployed: those out of work for 12 months or longer, as a percentage of 15-64 year olds. 23 Eurostat, Q4 200924 Approximately €88 in 2008 25 Statistical Office of the Republic of Serbia (March 2010)26 The Household Budget Survey in 2009 (April 2010)27 Exchange rate EUR/RSD: 95.5. Source: EC inforeuro (2009)

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perfect equality to 1 as perfect inequality, has Serbia at 0.32 (for 2008)28. This compares favourably with the EU-27 (0.31 in 200829) and the United States (0.47 in 200730).

As elsewhere in Europe, the recession in Serbia has had a devastating short term impact on the gains made from 2000 to 2008, particularly on output, employment, unemployment, poverty and the Government’s fiscal position, leading to retrenchment in public spending and financial support from the EU and IMF. However, it is expected and inevitable that, while the human costs are high in the short term, most of the economic effects will be temporary, at least taking the medium-term perspective of the OP. Hence, the analysis in the OP focuses on structural factors, rather than cyclical set-backs, and underlying trends based on the return to growth anticipated from 2011 onwards.

The macro-economy sets the overall context, but the micro-economy of industrial sectors provides a better understanding of what is happening ‘on the ground’.

Figure 4 shows the output of the Serbian economy broken down by sector, as measured by gross value added (GVA)31 in 2008. As with all mature economies, the picture is dominated by the service sector, which accounts for 60% of output, while manufacturing provides 17%, agriculture, forestry and fishing stands at 11%, the rest comprising construction (5%) and primary industries (mining 1% and utilities 4%).

While not directly comparable with GVA data, GDP data shows that the service sector is characterised by consumer-oriented industries, such as property, finance, trade and communications, as well as the public sector (administration, services social welfare and defence).

The share of manufacturing (17%) in GVA is comparable with European economies - industry as a whole, including mining, is very close to the EU-27 average (18%)32. While not directly comparable, industry figures for GDP at a more disaggregated level show production to be dominated by food & drink, chemicals and basic metal products.

Agriculture is a proportionately large sector for a European economy, the EU-27 average being just 2% of GVA, and only Bulgaria and Romania of the EU-27 having more than 5% (and both less than 10%). Combined with processing, the wider ‘food and drink’ sector represents a potential source as comparative advantage to the Serbian economy.

28 Social Inclusion and Poverty Unit29 Eurostat (http://appsso.eurostat.ec.europa.eu/nui/show.do?dataset=ilc_sic2&lang=en)30 US Census Bureau (2008)31 Gross value added (GVA) is defined as the value of all newly generated goods and services in basic prices less the value of all goods and services consumed as intermediate consumption. Gross value added is compiled according to the industry that created it. Source of GVA data is the Serbian Statistical Yearbook 2009, Statistical Office of the Republic of Serbia32 Eurostat, “European Economic Statistics”, 2010 (GVA data for 2009),

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Figure 4: Structure of the Serbian economy (2008)

The so-called ‘high technology’ sub-sectors, which typically operate in international markets - vehicle manufacture (automotive, aerospace and others), the production of electrical, electronic, IT, communications and medical equipment, and the provision of R&D, design and IT services - have seen their share grow in recent years, but still account for less than 3% of total output.

In this sense, the Serbian economy can be said historically to be structurally geared more towards consumption and import, rather than high value production and export. However, agriculture and food industries run a strong trade surplus, along with some other industries, such as wood processing. In 2009 and 2010, the trade gap narrowed, with the increase in exports exceeding the increase in imports, and the Ministry of Finance predicting that such a trend will continue in the 2011-2013 period.

There is a strong correlation between GVA of sectors of the Serbian economy and the number of persons employed in those sectors (figure 5). The biggest discrepancies can be seen in real estate, renting and business activities, and agriculture (where % of GVA far exceeds the share of employed persons), as well as manufacturing (the greater percentage of employed persons, compared to GVA, could be explained through labour-intensive food and other processing activities).

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Figure 5: Employment and Gross Value Added in the Serbian economy (2008)

The number of employed people in 2009Error: Reference source not found was the highest in manufacturing: 339,428 (17.97%), in the field of wholesale and retail trade 193,065: (10.22%), health and social work: 162,369 (8.60%), education: 134,795 (7.14%), transportation: 106,739 (5.65%) and construction industry: 78,936 (4.18%).

No description of the economy would be complete without reference to the informal economy. By definition, this exists largely outside the realm of official statistics, and comprises both the ‘black economy’, which includes economic activity which is outlawed (illegal goods and services), and the ‘grey economy’, which covers businesses in otherwise legal trades, but which are not registered / incorporated, declare their accounts and are taxed. As such, grey businesses enjoy a cost advantage which creates unfair competition for legitimate businesses, which tends to tip whole sectors towards informality, while at the same time starving the state budget of revenue to pay for public services and social welfare. While the informal economy is concerned with enterprises, informal employment is about people, and comprises jobs where the employment relationship is not subject to national labour legislation, income taxation, social protection or entitlement to certain employment rights (for example, advance notice of dismissal, and paid annual leave). Informal employment covers not only all employees in the informal sector, but also informal jobs in the formal sector, where there is no explicit, written agreement, because the person is casually employed or not declared to the authorities, not registered for tax or social protection purposes and hence enjoy fewer rights than other workers.

Unlike the informal economy, however, the scale of informal employment is estimated frequently by the Labour Force Survey. The informal employment rate in April 2010 stood at 17.2% 33, or almost 400,000 people. Since there is almost no informal employment in the public sector, this corresponds to an informality rate of around one fifth of all employed in the private sector.

33 Population aged 15-64

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1.1.2 Transport

The Republic of Serbia is considered, and often described as, the crossroads between the East and the West. Its geographic location makes Serbia an important transit route; the Danube and the Morava Rivers valleys in central part of the country are by far the easiest way of land travel from continental Europe to Greece and Asia Minor. The transport sector includes road, rail, inland waterways and air modes, and intermodal transportation.

Transport development depends on the economic development of the country and the surrounding region. Recent transport trends in Serbia are similar to all Western Balkans countries. After a period of expansion since 2000, the growth in inland freight and passenger traffic halted in 2008, due to the global financial crisis which resulted in economic recession and falling domestic and international demand. Its recovery is expected from 2010 with the renewal of economic growth.

Road transport was the only mode demonstrating stable performance for freight traffic during the recent recession. Rail freight in 2007-2009 dropped by 31%; inland waterway transport decreased in 2006-2009 by 47%; while air transport performance dropped from 7.5 million tkm in 2004 to 2.7 million tkm in 2009, which represents a 64% reduction (table 1).

Table 1: Freight transport trends in Serbia, 2004-2009 (million tkm)2004 2005 2006 2007 2008 2009

Railway transport 3,164 3,482 4,232 4,551 4,339 2,967Road transport 277 680 798 1,161 1,112 1,185Inland waterways transport 1,115 1,622 1,640 1,584 1,370 872Air transport 7.5 5.9 5.5 4.6 4 2.7Total 4,563.5 5,789.9 6,675.5 7,300.6 6,825.0 5,026.7

Source: Statistical Yearbook 2009, Statistical Office of the Republic of Serbia34

Statistical data on transport performance in the Western Balkans region indicate a similar situation to Serbia, a dynamic growth in rail and road freight transport in 2000-2007. The annual growth of railway freight (figure 6) was around 7%, and by 2007 had reached a level 2.4 times higher than in 2000; the decrease in railway freight performance in the majority of Western Balkans countries started from 2008.

34 The data on passengers and goods transportation by inland waterways, air and road transport refer to the transport realised by organisations registered for transport activities; the railway transport operations relate only to the transport carried out within the territory of the Republic of Serbia.

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Figure 6: Rail freight transport trends in the Western Balkans region, 2000-2008 (million tkm)

(1) Excluding empty private wagonsSource: Eurostat Pocketbook on candidate and potential candidate countries, 2010 edition

In the case of road transport (figure 7), Serbia recorded a small decline in freight in the period 2001-2004 (9%), but this was followed by growth starting in 2005, leading to a level that was, in 2009, four times as high as 2004.

Figure 7: Road freight transport trends in the Western Balkans region 2000-2008 (million tkm)

(1) 2001, break in seriesSource: Eurostat Pocketbook on candidate and potential candidate countries, 2010 edition

The core actors in Serbian freight traffic (figure 8) are the railway and road modes, with a significant contribution from inland waterways transport. Though the roads represent a dynamic and dominant transport mode, the road freight performance expressed in tkm represents 23.6%, while railways reaches 59.0%. This indicates an ideal division between transport modes, when transportation of bulk and raw materials is undertaken mainly by rail and inland waterways modes which are considered more environment friendly and cost efficient.

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The EU modal split of freight transport is different from Serbia (table 2). Road transport is clearly the dominant mode for transporting freight within the EU-27; the share has been rising slowly since 2000, reaching about 77% in 2007. Of the candidate countries, Croatia has levels very similar to EU-27 for inland transport, while both the FYROM and Turkey have much higher levels (FYROM has 80% and Turkey up to 95%). The contrast is striking that Serbia’s freight transport is dominated by the rail mode, with roads accounting for just 16% in 2008.

Table 2: Road share trends in inland freight transport, 2004-2008, in tkm (%) 2004 2005 2006 2007 2008EU-27 (1) (estimated values) 76.0 76.4 76.3 76.5 --Croatia 76.7 76.0 74.8 74.0 76.0FYROM 92.6 91.3 93.1 88.5 84.0Turkey 94.4 94.8 94.9 94.9 --Serbia 11.7 11.7 12.0 15.9 16.3Iceland 100.0 100.0 100.0 100.0 100.0

Source: Eurostat Pocketbook on candidate and potential candidate countries, 2010 edition

This situation is influenced by carrying capacity (table 3). In 2008, the carrying capacity of railways was 406,000 tonnes, compared with roads (37,000 tonnes), while the inland waterways transport carrying capacity was 338,000 tonnes. Other factors are infrastructure capacity, distance (in-country transportation import/export/railways transit), the international road transport restrictions (multilateral and bilateral permits) and customs regulations.

Table 3: Carrying capacity of transport in Serbia in 2004-2008 Thousand tonnes Thousand passengers

2004 2005 2006 2007 2008 2004 2005 2006 2007 2008Railways 479 496 439 413 406 49 49 49 49 49Road 24 30 30 30 37 99 106 139 133 119Urban - - - - - 452 429 461 394 445Inland waterway 383 404 348 336 338 0.2 0.2 0.2 0.2 0.2Air 0.4 0.2 0.3 0.2 0.2 3.2 2.1 1.7 1.7 1.8

Source: Statistical Yearbook 2009, Statistical Office of the Republic of Serbia Passenger transport in Serbia is provided mainly by road and urban transport modes (tables 3 and 4). While, like freight, the growth in passenger transport operations also halted in 2008, with a reduction of 10% in operations in 2009, it is striking that passenger rail transport has been in almost continuous decline from 2004 (annually between 5-15%) and lost about 37% of operations. By

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comparison, the road, urban and air transport data show a largely stable performance over the period.

Table 4: Passenger transport trends, 2004-2009 (million pkm)2004 2005 2006 2007 2008 2009

Railways transport 821 715 684 687 583 522Road transport 3,576 4,820 5,480 4,456 4,719 4,385Urban transport 4,784 4,662 5,376 5,448 5,325 4,904Air transport 1,387 1,218 1,252 1,395 1,445 1,123Total 10,568 11,415 12,792 11,986 12,072 10,934

Source: Statistical Yearbook 2009, Statistical Office of the Republic of Serbia

Data from 2009 (figure 9) demonstrate the largest share in passenger transport being held by urban transport with 45% and road transport mode with 40% of total usage expressed in pkm.

Statistical data of passenger transport does not include transportation by passenger cars, which are important for consideration in the case of road infrastructure development. Between 1998 and 2008, the number of passenger cars in Serbia decreased by 15% and reached 1,486 thousands in 2008, while in the EU-27 the total car parc (stock of cars) grew by 1.5% per year. The number of cars per thousand inhabitants in the EU-27 rose from 416 in 2000 to 440 in 2008. In 2008, all candidate and potential candidate countries, except Iceland and Croatia, had densities of personal cars (number of cars per thousand inhabitants) less than half the average in the EU-27, including 202 cars per 1000 inhabitants in Serbia. Croatia recorded a rise from 250 in 2000 to 348 cars in 2008, a 39.2% increase, while Iceland, with 662 cars, has the highest absolute number of passenger cars per 1 000 inhabitants.

The core traffic flows of the rail, road and inland waterway transports are recorded within the main European corridors crossing the country (the Pan-European Corridors X and VII35 and Route 4 of the Core Regional Transport Network36); these are considered the backbone of the Serbian transport network. Specific traffic data on distribution of traffic flows per sections are introduced in the General Master Plan for Transport in Serbia (see figure 10 overleaf).

35 The Pan-European transport corridors were defined at the Pan-European transport Conference in Crete (March 1994), and in Helsinki (1997), when the 10 Pan-European multimodal corridors were complemented by segments of these corridors in the territory of countries situated at the south-east of Europe, including Serbia’s sections of Corridor X and Corridor VII (the Danube River), as well as of the Corridor branches Xa and Xb.36 In 2004, the Western Balkans countries and the European Commission signed a Memorandum of Understanding (MoU) for the development of a regional core transport network, which would become part of the trans-European transport networks upon accession.

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Figure 10: Traffic flows of the road (number of vehicles), rail (number of daily trains) and inland waterway (annual million tons) networks (2006)

Source: General Master Plan for Transport in Serbia

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Investment in transport infrastructure development

A lack of continuous investment in transport infrastructure maintenance and development in the last decade has resulted in outdated technology and infrastructure capacity and quality below EU standards. Data provided (table 5) indicate financing for all transport infrastructure development; however, analysis shows that the Government has strongly prioritised roads.

Table 5: Investment in transport infrastructureGross investment spending (€ million) 2000 2001 2002 2003 2004 2005 2006 2007 2008Railways 3 4 6 5 4 4 4 2 2Roads 49 81 139 169 185 174 351 405 381Inland waterways 4 6 14 12 19 15 29 24 38Airports 0 n/a n/a 1 1 0 1 0 0

Maintenance expenditure (€ million) 2000 2001 2002 2003 2004 2005 2006 2007 2008Railways 8 10 15 24 22 22 18 20 21Roads 21 61 106 100 184 259 259 300 329Inland waterways 1 2 4 4 6 6 7 11 13Airports n/a n/a n/a n/a n/a n/a n/a n/a n/a

Source: International Transport Forum, 2010

Several comparisons of transport infrastructure development are available from the Eurostat statistics, based on data available from individual countries.

Table 6 shows new roads development, excluding motorways, indicating growth in road length, for the EU-27, as well as the candidate and potential candidate countries. In 2008, Croatia recorded 28 thousand km and FYROM 14 thousand km. Turkey reported 352 thousand km for the same year. For the years available, the EU-27 and all the candidate and potential candidate countries, except Serbia, showed a growth of road lengths. For the EU-27, growth averaged around 0.7% per year while in Croatia and Turkey (2004 to 2008) there was very little change (0.3% and 0.2% respectively), while road lengths in Albania (2003 to 2008) grew by more than 7% per year.

Table 6: Roads infrastructure developmentLength of all roads (excluding motorways) in thousand kilometres

2000 2001 2002 2003 2004 2005 2006 2007 2008EU -27(1) 4,668.1 4,700.5 4,829.4 4,842.3 4,843.5 --- -- -- --Croatia 27.7 27.8 27.9 27.8 27.6 27.6 27.9 28.0 28.2FYROM 12.5 12.9 13.0 13.0 13.1 13.3 13.7 13.8 13.9Turkey (2) 4 16.0 425.0 426.0 427.0 348.0 348.0 348.0 - 352.0Albania - - - 2.5 2.6 2.7 2.7 - 3.6Bosnia and Herzegovina - - - - - - - - 18.4

Montenegro 7.2 7.3 7.3 7.3 7.3 7.4 7.4 - --Serbia 43.5 37.7 38.0 37.0 38.6 38.6 38.4 38.8 38.4Kosovo under UNSCR 1244/99 1.3 1.7 1.7 1.7 1.9

(1) EU-25 data estimated values; (2) 2004 break in seriesSource: Eurostat Pocketbook on candidate and potential candidate countries, 2010 edition

The railway lines in operation have changed relatively slowly (table 7). In the period from 2000 to 2006, the length of railway lines in the EU-27 declined about one percent per year. Candidate and potential candidate countries, including Serbia, show an unchanged situation. This means that no new railway lines have been constructed.

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Table 7: Railways infrastructure developmentLength of railway network (lines in operations) in thousands km

2000 2001 2002 2003 2004 2005 2006 2007 2008EU-27(1) 210.6 208.7 208.7 207.6 205.8 200.6 200.8 - --Croatia 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7FYROM 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7Turkey (2) 8.7 8.7 8.6 8.7 8,7 8.7 8.7 8.7 8.7Albania 0.4 0.4 0.4 0.4 0.4 0.4 0.4 - 0.4Bosnia and Herzegovina - - - - 1.0 1.0 1.0 1.0 1.0

Montenegro 0.3 0.3 0.3 0.3 0.3 0.3 0.3 - --Serbia 3.8 3.8 3.8 3.8 3.8 3.8 3.8 3.8 3.8Kosovo under UNSCR 1244/99 - - - - 0.4 - - - --

(1) EU-25 data estimated values; (2) 2004 break in seriesSource: Eurostat Pocketbook on candidate and potential candidate countries, 2010 edition

The situation in investment in transport infrastructure development began to change when the Government adopted the Strategy of Railway, Road, Inland Waterways, Air and Intermodal Transport Development in the Republic of Serbia for 2008-201537, and the National Plan of the Republic of Serbia for Road and Railroad Infrastructure Development in the period from 2008 to 2012, and decided about the specific financial scheme for future development of infrastructure. The State budget, with contribution from IFIs’ loans, has been considered for financing. Priority has been given to completion of the roads and railway lines within the Pan-European Corridor X and the South East Core Regional Transport Network.

Transport’s contribution to economic development

Transport should establish conditions for the free movement of persons and goods within Serbia, as well as internationally. The sector makes a valuable contribution in terms of activity and GDP growth, and is considered one of the major contributors to the economy’s development, employment and future increase in competitiveness.

As Table 8 shows, transport provided increasing output during the mid-2000s, and a stable share of GDP within a strong overall economic performance.

Table 8: Level and share of GDP Millions of RSD Structure (%) 2005 2006 2007 2008 2005 2006 2007 2008Transport, storage and communication 125,522.1 145,227.9 170,153.0 203,516.4 7.5 7.4 7.4 7.5

Land transport and pipelines 52,277.2 63,563.8 74,912.5 87,306.9 3.1 3.2 3.3 3.2

Water transport 660.4 822.4 852.4 871.9 0.0 0.0 0.0 0.0Air transport 2,507.7 2,229.3 2,956.3 1,031.4 0.1 0.1 0.1 0.0

Source: Statistical Office of the Republic of Serbia

By contrast, the number of employees in the transport sector fell from 2005 to 2009 by 10.5% (table 9), although road and inland waterways transport recorded small increases in 2009, despite the state of the economy.

37 "Official Gazette RS", No. 55/05, 71/05 – rectification and 101/07

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Table 9: Employees in transport (average of months)2005 2006 2007 2008 2009

Railways transport 22,271 20,857 20,920 20,131 19,249Road transport 11,775 11,203 10,351 10,979 11 081Urban transport 14,970 15,496 13,607 13,882 13 616Inland waterways transport 1,754 1,898 1,677 1,685 1 699Air transport 3,087 2,744 1,695 2,288 1 862Total 53,857 52,198 48,250 48,965 47 507Source: Statistical Yearbook of Serbia, 2009

Transport infrastructure

The quality of transport performance strictly depends on the capacity and the quality of transport infrastructure provided for traffic and on the quality of transport services, including the interoperability of different transport modes, networks and systems. In accordance with the Treaty Establishing the Transport Community in the South East Europe, as well as requirements resulting from the candidate country status, the transport sector in Serbia is due to adopt all rules and install conditions relevant to the future extension of the EU single transport market to the Western Balkans area.

The transport infrastructure of the Republic of Serbia consists of 43,838 km of roads, 3,809 km of railways, 1,680 km of inland waterways, four airports used for commercial purposes, of which two for international flights, and three partly developed intermodal terminals.

The Danube River flowing through Serbia allows central Europe's connection to the Black Sea and through Danube-Rhine-Main canal the North Sea. The Tisa River offers a connection with Eastern Europe while the Sava River connects Serbia to western former Yugoslav Republics near the Adriatic Sea.

Serbia is surrounded by the Pan-European Transport Corridors and through Corridor X and Corridor VII links with the EU Trans-European Transport Network (TEN-T)38 . Its basic transport infrastructure is relatively well established and can be considered a good base for further development.

The most significant infrastructure priorities of the Republic of Serbia involve inland waterways along Corridors VII and roads and railway lines along Corridor X and Route 4 often referred to as “Corridor XI”. Corridor X in Serbia includes 835 km of roads and 872 km of railway lines 39. Pan-European Corridor VII of the Danube River (Northwest-Southeast) represents 2,300 km of navigated waterways including 588 km in Serbia. Transport infrastructure within both corridors and Route 4 is an integral part of the South East Europe Core Regional Transport Network (see Annexes B-E) that is defined as a supplement of the TEN-T in South East Europe.

Pan-European Transport Corridor X links the EU with the Balkans and Turkey and further with the Caucasus and the Caspian Sea as well as with the Middle East to Egypt and the Red Sea and includes the route (Salzburg - Ljubljana - Zagreb) - Šid-Belgrade - Niš - Preševo-(Skopje – Veles – Thessaloniki), with branches Belgrade-Budapest (Xb) and Niš-Sofia (Xc). Serbia is surrounded by Corridor IV in the east, Corridor V in the west and Corridor VIII in the southwest.

Route 4 includes the planned motorway, as well as the rail line Timisoara - Vršac – Belgrade -Podgorica - Bar.

Road network38 The Commission Communication COM(2007)32 on the Guidelines for Transport in Europe and Neighbouring Regions 39 General Master Plan for Transport in Serbia

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The total length of roads of the Republic of Serbia40 at the end of 2009 was 43,838 km, of which 5,107 km of main roads (this includes 494.67 km of motorways), 10 399 km of regional roads and 28,333 km of local roads. The length of tolled roads was 603 km. Though the road network is at the level of medium developed European countries, its quality is reduced due to insufficient investments and inadequate maintenance in the last period. The main road routes connecting Serbia with the neighbouring countries are within the Corridor X and the main international traffic arteries covered by the AGR agreement, these are the E80 - (Pristina) – Niš – Dimitrovgrad – (Sofia), E 75 - (Szeged) – Belgrade – Niš – Kumanovov – (Skopje), E763 - Belgrade – Čačak – Nova Varoš – Bjelo Polje, and E771 - Dobeta Tumu Severin – Niš; all are included in the South East Europe Core Regional Transport Network (see Annex C).

The management of main roads and regional roads is delegated to the Public Enterprise “Roads of Serbia”. The local roads and street network is within the competence of local self government bodies.

The motorway density41 of 4.8 km/1000 km2 is much lower than in Austria (19.9 km/1000km2) or the UK (14.85 km/1000km2), and is comparable with countries like Bulgaria (3 km/1000km2) or the Czech Republic, Slovakia or Hungary with around 7 km/1000 km2 (figure 11).

Figure 11: Comparative density of the motorway network (km/1000 km2 of land area)

EU-27 data excluding Greece, Bulgaria and Romania are estimatedSource: Eurostat, Pocketbook on candidate and potential candidate countries (2010 edition)

The density of the rest of roads of 500.8 km/1000km2 can be compared with FYROM or Montenegro, and is about a half of the density of this category road in Austria or the United Kingdom. The EU-27 average is 1,214.9 km/1000km2.

The intensity of road traffic in Serbia depends mainly on the traffic within international routes; Corridor X is the most loaded part of Serbian road network that needs a special investment.

The technical condition of roads is not satisfactory, more than half of local roads are not appropriate for needs of modern traffic; 32% of highways and regional roads are over 20 years old; and only 14% were constructed less than 10 years ago.

The rehabilitation of roads in the Republic of Serbia started in 2001, according to the financial resources available for this purpose. The priority was given to Corridor X, where the condition of

40 Statistical Office of the Republic of Serbia (2010)41 Eurostat, Pocketbook on candidate and potential candidate countries (2010 edition)

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50% of roads is classified as “medium42” needing new wearing course or pavement rehabilitation43. Significant investment and construction works are currently going on completion of the Corridor X road sections Belgrade-Novi Sad-Horgoš-Hungarian border, the bypass in Belgrade and the Žeželj bridge in Novi Sad, the Niš-Domitrovgrad section in connection to Sofia. The management of construction within Corridor X is under competency of the LLC Corridor X established for this reason.The rehabilitation of Route 4 of the Core Regional Network connecting Belgrade with Bar in Montenegro (E-763) continues by construction works started in July 2010 on the section Ub – Lajkovac, financed from national resources and also by development of the main design of selected priority parts of this Route.

PE Roads of Serbia financing44 comes from own income (toll collection and other fees), the taxes (20% of tax on oil derivates, the loans from IFIs and credits from commercial banks. Financing includes also support from the National Investment Plan (NIP) for selected projects of country’s importance. The gross toll income in 2008 was €200.8 million and in 2009 around €147.4 million. IFIs co-financing has an increasing trend (24% in 2008, 27% in 2009 and 36% in 2010 expected).

As stated in the General Master Plan for Transport in Serbia, about €9 billion is required for rehabilitation and maintenance of Serbian road network in 2009-2027.

Railways network

The total length of the Republic of Serbia railways network is 3,809 km, 1,768 km of which are the main lines and 1,254 km (32.7%) are electrified. Only 7% of the lines (272 km) are double-tracked. About 45% of the railway lines in the Republic of Serbia have allowed axle load of 22.5 t, while 30% is less than 16 t45.

The Pan-European Transport Corridor X is the backbone of the railway infrastructure system, since over 50% of transport operations are realised on Corridor X that shares 25% of the network. Most of the revenues of the railways are generated from the freight transport – international transit.

Besides Corridor X and its branches, Serbian rail network includes lines covered by international agreements, such as Belgrade – Vrbnica (-Bar) - AGC route E79, (Budapest) – Subotica – Niš - Preševo (-Skopje-Athens) - AGC route E85, Subotica – Vrbnica - (Vinkovci - Sarajevo) - AGC route E771, (Tovarnik) – Šid - Belgrade – Niš - Dimitrovgrad - (Dragoman) – AGC route E 70 and Belgrade - Vršac - (Timisoara -Bucharest) - AGC route E66. For links of Serbian rail network within the South East Europe Core Regional Transport Networks, see Annex D.

All main lines (corridors) primarily run through the Danube plains north of Belgrade and in the valley of the river Morava down to Niš and Preševo. When consideration is given to TEN-T Guidelines, all these are described as conventional railway lines, which mostly permit access to regional and local rail networks and interconnection with inland water ways (IWW) and sea ports.

The railways density46 of the Republic of Serbia of 49.2 km/1000km2 is comparable with the average of EU-27 (50.1 km/1000km2), and with France and Romania that have a density of 46 km/1000km2.

Table 10: Summary of Serbian rail network typology

42 International Roughness Index (IRI)43 South-East Europe Core Regional Transport Network Development Plan, SEETO (December 2009)44 General National Reports: 2009 Motorway Development in Serbia, 2010 Motorway Development in Serbia45 General Master Plan for Transport in Serbia46 Eurostat, Compact guide on candidate and potential candidate countries (2009 edition)

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Single track lines 3,533.2 km Double track lines 275.5 kmElectrified lines 1,254 km Non-electrified lines 2,555 kmNarrow gauge lines 21.7 km

Sources: General Master Plan for Transport in Serbia; SStatistical Office of the Republic of Serbia

Most lines have the 1,435 mm standard track gauge, except the tail line Sargan – Mokra Gora - State border with Bosnia and Herzegovina with 760 mm. All international lines have UIC GB type of loading gauge except for some parts of Valjevo - Kalenici and Grdelica - Deneral Jankovic line with UIC GA profile. Railway line Niš-Dimitrovgrad on Corridor X has been upgraded to UIC GC profile. For domestic traffic, JŽ (Jugoslovenske železnice) loading profile is applied, that is between UIC GA and UIC GB profile.

The major part of the main lines are of class D4, permitting an axle load of 22.5 t and 8.0 t/m, which is general in Western Europe. The Resnik - Markovac - Velika Plana section of Belgrade - Niš connection is down to class C3. Officially, Serbia has declared it will follow the standard C2. Gradients are not exceptional.

All electrified lines have basic energy supplying system – AC – 25 kV, 50 Hz. The majority of the main lines are equipped with automatic relay signalling interlocking installations and central remote traffic control (CTC). The lines Niš – Dimitrovgrad - Bulgarian border, Subotica – Bogojevo - Croatian border and Lapovo – Kraljevo – Kosovo and partly rebuilt line (Belgrade) - Nova Pazova - Šid have manual mechanical signalling system.

Serbian rail network has three types of stations: loading/unloading, passenger and mixed stations. Passenger stations are equipped with all necessary capacities as platforms, waiting rooms, and sanitary installations.

The current rail infrastructure conditions are not satisfactory; all lines within Corridor X have the main railways problems of a technical character, which results in a low level of capacity which cannot meet the existing transport demand. With the increase in traffic expected up to 2027, the great part of the Corridor X network within Serbia will be critical from the aspect of capacityError:Reference source not found.

The main lines have in general been designed for a maximum speed of 120 km/h. The Belgrade – Vrbnica - (Bar) line due to its difficult topography and many sharp curves has mainly been designed for 80-100 km/h. The same holds more or less for the most difficult sections of the Niš-Preševo and Niš-Dimitrovgrad lines.

However, the present permissible train speeds are far below the design speeds on most lines and line sections. 100 km/h is in reality the maximum speed on all lines, except for the rebuilt left track on the line (Belgrade) - Nova Pazova - Šid. The average permissible speed on the Corridor X lines is today reduced to 82 km/h, and this theoretical value corresponds in reality to a fastest train average speed (according to the current timetable) of just 60 km/h. However, the situation of speed restrictions has not worsened dramatically during the last 10 years. From 2006 to 2009, the number of temporary speed restrictions increased by 18%, and the total length of railway track restricted by 14%, reaching 490 km.

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Table 11: Review of temporary speed restrictions (2009)Order Speed km/h Number of speed

restrictionsIndex(4/3)

Length (km) Index(7/6)

31.12.06 31.12.09 31.12.06 31.12.091 2 3 4 5 6 7 81 5-40 159 167 1.05 217.4 215.77 0.992 41-60 61 86 1.4 156.9 186.41 1.183 61-80 11 17 1.55 56.7 73.01 1.29

4 81-100 - 3 - - 15.10 -Total: 231 273 1.18 431 490.29 1.14

Source: PE Serbian Railways

In Corridor X, which ought to be the best maintained part of the network, the difference between design and actual speed varies between 15% and 40 %. The speed of trains (figure 12) exceeds 100 km/h on only 3.2% of the lines, and about 50% of rail network allows maximum speed of up to 60 km/h. Except the rail Belgrade - Šid and Velika Plana - Niš, which are double-track, electrified and in some parts with greater speeds47, all other lines have obsolete technical and technological parameters.

Figure 12: Railway network characteristics (2006)


Over 50% of transport operations in Serbia are realised on Corridor X that accounts for 25% of the network. Traffic along international Corridor X, which also connects the main Serbian cities, is the most loaded section of the Serbian railway network.

Around €20-25 million48 was invested annually into rail infrastructure maintenance and development during recent years. Infrastructure development was influenced by the previous state of the economy in general, poor organisation, lack of resources, and social and personnel policy.

47 Even these lines have sections where the speed limit is often temporarily set at 20 km/h or less. 48 Source of information: Ministry of Infrastructure

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At present, the development of railway infrastructure has strong support from the Government, and the need for railway lines rehabilitation and modernisation to European standards has been confirmed. About 1000 km of main lines, which represents about 57% of the main routes (26% of the complete railway network), should be covered. Railway track reconstruction and modernisation works are ongoing for completion of Corridor X, specifically in sections between (Belgrade) - Batajnica - Golubinci, and Niš - Dimitrovgrad - Bulgarian border; studies are in development for sections Niš - Preševo - FYROM, Novi Sad – Subotica - Hungarian Border and the Route 4 section Belgrade - Vrbnica - Bar in Montenegro, where investments for the upgrade from current average speed of 40km/h to 100 km/h will cost from €200 million to €300 million.

The General Master Plan for Transport in Serbia introduces 14 main infrastructure projects for implementation up to 2027, for a total investment of €5 billion. These in general include specific works related to the rehabilitation of existing tracks to up to 160 km/h, doubling of existing single tracks, OCL and ERTMS implementation.

PE Serbian Railways is responsible for railway infrastructure maintenance and development; financing comes from own revenues, from the national budget and loans provided by IFIs.

Inland waterways

Serbia has favourable economic and geographic features for cargo inland waterway transport (IWT). The total length of Serbian inland waterways, at the average water level, is about 1,680 km. The basic elements are the Danube within the Pan-European Corridor VII, the Sava and the Tisa rivers, with a total length of about 960 km, as well as the network of navigable canals within the Hydro-system Danube -Tisa - Danube (HS DTD - 600 km). In its specific parts, the Danube River acts as the border between the Republic of Serbia and Croatia and between the Republic of Serbia and Romania. The inland waterway system is introduced in Annex E.

The most important ports on the Danube River are: Belgrade, Pančevo, Smederevo and Prahovo; Belgrade and Pančevo ports have container terminals.

According to the “Blue Book” (CEMT) classification, the Danube River in Serbia is classified as the Class VI b (from Hungarian border to Belgrade), the Class VII (from Belgrade to Iron Gate II navigational lock), and the Class VIb (from Iron Gate II navigational lock to Bulgarian border).

Normal operating speed on the Danube is given as 8 to 14 km/h upstream and 15 to 20km/h of downstream. The maximum draft of the vessels plying the Danube is between 2.5 and 4.5 m, this requires a minimum water depth in the range of 3.2 to 6 meter. The Danube Commission requires a minimum water depth of 2.5m. The fairway of the Danube River dimensions below these parameters requires restrictions in navigation and influences the navigation safety.

The RIS will be established on the Serbian part of the Danube River with IPA support, this should be completed in 2012, and relevant contracts for RIS design and development have been awarded in 2009. IPA support for RIS establishment on the Sava River is also under consideration.

Inland waterways transport is an important mode in Serbia; it is the second most widely used mode of freight transport after railways. The potential of IWW transportation is significant, but the current infrastructure conditions are not satisfactory, a number of problems are identifiedError: Referencesource not found:

Unexploded ordnances (UXOs) are present at eight locations along the river;

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The navigation locks49 Iron Gate I and Iron Gate II are in a bad condition and require a major overhaul and rehabilitation to prevent major stoppages on the river;

Sunken vessels dating from WW2 are located near or on the fairway downstream of the Đerdap II dam;

The fairway of the Danube River does not comply to the minimum dimensions at 19 critical sections;

Conditions on four winter ports along the Danube River in Serbia need to be improved.

A significant maintenance backlog of IWW and related infrastructure started in 1990. In the next 10 years, about €290 million is required for rehabilitation and maintenance of the system. An additional €220 million is required for intermodal transport50 development to improve IWW transportation competitiveness. Project documentation for training works and dredging to eliminate several critical sections/bottlenecks on the Danube River is currently under development.

The General Master Plan for Transport in Serbia introduces 18 critical sections on the Danube River, which should be eliminated to satisfy requirements of the Danube Commission regarding safety navigation and providing an unrestricted passage for an increasing number of vessels.

The Directorate for Inland Waterways Plovput is competent for maintaining the inland waterways in Serbia.

Airports

Four airports (Belgrade, Niš, Vršac and Bor), are used for commercial purposes. Belgrade Airport “Nikola Tesla” and Niš Airport “Konstantin Veliki”, being a part of the Core Network, are used for international flights. In addition, based on the official airport register published by Civil Aviation Directorate of Serbia, there are 22 more certified airports. Several military airports operated by the Military of Serbia have good potential for further network development as civil or combination civil-military category airports.

“Nikola Tesla” Airport in Belgrade is the biggest airport in the Republic of Serbia, where 90% of passenger and 90% of freight transport is performed. The capacity of the airport is above 5.6 million of passengers a year, and at the moment more than 35% of the capacity is being usedError:Reference source not found.

Intermodal terminals

Intermodal transport in the Republic of Serbia is on very low level of development. The main bottleneck is not lack of terminals, equipment or installation, but also shortage of development projects, policy and capability of responsible organisations.

There are only three partly developed intermodal terminals in Serbia: the ZIT (Railway Integral Transport) nearby the central railway station in Belgrade, in the port of Belgrade, and in the port of Pančevo. These employ mostly multifunctional equipments and universal devices which enable transhipment of containers and some hucke-pack transport units. There is no Ro-La terminal or terminal for the Ro-Ro transport in Serbia.

For container transhipment, there is partially constructed infrastructure in ZIT and in ports in Novi Sad, Belgrade, Pančevo and Prahovo.

49 Competency of the Ministry of Mining and Energy of the Republic of Serbia50 Master Plan and Feasibility Study Inland Waterway Transports for Serbia (April 2005)

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The demand for intermodal transport via river ports is considered negligible, positive tendencies are indicated through railways network where the volume of freight intermodal transport has increased from 400,000 tons in 2002 to 1,000,000 tons in 2005 and 1,400,000 tons in 2007. The increase was recorded when traffic from Adriatic ports to Belgrade were established.

Institutional and legal framework

The role of the National Council for Infrastructure, the Ministry of Infrastructure and Energy, and the special organisations established by the Law on the Ministries, regulatory bodies, and public enterprises, and limited liability company, responsible for developing and implementing transport policy are described in Annex F. It also describes the transport laws currently in operation in Serbia, set out below, along with those under preparation or consideration.

Strategic framework

Strategy of the Railway, Road, Inland Waterway, Air and Intermodal Transport Development in the Republic of Serbia

Recent national transport priorities were introduced in 2008, by adopting the Strategy of the Railway, Road, Inland Waterway, Air and Intermodal Transport Development in the Republic of Serbia (2008-2015)51 and the National Plan of the Republic of Serbia for Road and Railroad Infrastructure Development in the period from 2008 to 2012 (ending with 2015) by the Government of the Republic of Serbia.

These are considered the key national sector strategies dealing with development of transport modes, modernisation and improvement of free movement of passengers and goods on the national and international markets.

The Strategy incorporates principles of EU Transport Policy, the requirements of the SAA, and the Community Strategy Guidelines on Cohesion and the MIPD. Specifically, in relation to transport infrastructure development, the Strategy aims at:

Reaching higher public investment in infrastructure for attracting private investment, as the primary factor of long-term sustainable economic growth;

Establishing an efficient trans-European transport network (TEN-T), as a key element in the strategy for competitiveness and employment; and

Investment to complete and modernise a true trans-European network.

The Strategy determines directions for future transport sector development, taking into account the principles of efficiency and economy, safety, interoperability and intermodality, application of innovations and new technologies, and covers all modes of the transport sector in Serbia. The principal goal of Serbia’s transport strategy is to reach compatibility and interoperability with the neighbouring and the EU’s transport systems, while ensuring adverse environmental impacts of transport development are as low as possible. The Strategy underlines the importance of:

Implementing the South East Europe core regional transport network and integrating Serbian transport network into the TEN-T, while respecting the principle of sustainable development of Serbia and efficient use of comparative advantages of each transport mode;

51 Official Gazette of the Republic of Serbia No. 004/08, 13 January 2008

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Raising the quality of transport services, by increasing the efficiency of the transport network and productivity, by better organisation of transportation, and considering target-oriented planning and management of traffic flows;

Increasing the level of safety and security across sectors; Strengthening and gradual liberalisation of transport market; Reducing impact of transport to the environment; Establishing stable financing of transport system’s development.

The National Plan indicates activities in road and railway infrastructure for implementation to 2015, including estimation of costs and framework for infrastructure development financing from the national budget and IFIs loans. Priority is given to the Core Regional Transport Network that includes Pan-European Corridors X and VII and the main regional routes. Road and railway infrastructure development is specifically introduced for support. A total cost of infrastructure projects considered for implementation to 2015 is estimated to be €2.9 billion. Implementation of the National Plan started in 2008; the Action Plans are adopted and evaluated annually.

Specific objectives of the Strategy and the National Plan will be achieved by implementation of projects introduced in the General Master Plan for Transport in Serbia (June 2010) and the Master Plan and Feasibility Study Inland Waterway Transports for Serbia (2005).

The introduction and implementation of national priorities is coordinated with the neighbouring countries and the European Union within the framework of the Multilateral Agreement on the European Common Aviation Area, the Memorandum of Understanding on the Development of the South East Europe Core Regional Transport Network, the Treaty Establishing the Transport Community with the Western Balkans region, as well as the EU Strategy for the Danube Region. The Serbian Government considers this framework the tool for integration of Serbian transport fully into the regional and European transport family, and confirms strong support to implementation of all obligations.

General Master Plan for Transport in Serbia

The General Master Plan for Transport in Serbia was drafted in 2009 and adopted by the National Council for Infrastructure on 19 June 2010. It rolls out priority projects for transport infrastructure development to 2027 and encompasses road, railway, air, inland waterway and intermodal transport, and has been synchronised with the country’s development programme. The total costs of public investment required for transport infrastructure development in 2010-2027 have been calculated as €15 billion.

1.1.3 Environment

The quality of Serbia’s environment is a concern for both economic development and societal well-being, and their sustainability. Like transportation, environmental infrastructure is one of the bedrocks of economic life – a foundation upon which competitiveness is built, as well as being a specific factor in tourism potential. The state of the environment affects the standard of living of all citizens, both today and for future generations.

Natural habitat and biodiversity

The biological diversity of Serbia, both in terms of ecosystems and species is extremely high. The Balkan and Pannonian regions of Europe were an area of refuge for numerous species during the period of glaciations, offering numerous habitats due to geomorphology (mountains, canyons and

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caves) as well as climatic transition. Ancient “relic” and “endemic” species exist which are found only in Serbia or the Balkans52.

The socio-economic importance of Serbia’s biodiversity is highly significant, but not recognised. Genetic diversity of wild relatives of commercial agricultural crop and livestock species provides an insurance policy and a base for future agricultural and drug development (for example, there are several wild varieties of crab apples, common pear and cherry trees). Diversity of fungi, wild berries and game species has, contributed to livelihoods and continues to do so. Wetlands and migratory bird habitat has contributed to hunting, fishery and tourism revenues.

Agricultural land occupies about 65% of Serbian territory, which was originally covered with forests, shrubs, steppe vegetation and marshes. The original vegetation was removed to obtain areas for either mountain pastures or lowland arable land. Marshes were drained and steppes were irrigated for agricultural crops. These activities have significantly decreased, but the remaining natural vegetation is still endangered by overgrazing by livestock, especially in the mountains. Use of pesticides and fertilizers has dropped considerably during the last decades, however the ground and surface waters have been exposed to the pesticides and nutrients too long, which has caused degradation of their quality – especially in fertile and flat Northern Province Vojvodina. Another cause of environmental degradation is insufficient waste management, causing ubiquitous littering and exposures to toxic leachate.

The total area of forests in Serbia is 2,360,400 ha, and the percentage of forest cover is 26.7%, which is somewhat lower than the average percentage of forest cover in Europe 53. The degradation and loss of forest cover have increased in the past decade, due to illegal forest cutting, uncontrolled livestock grazing and forest fires. The map of distribution of forests and forested land according to corine land cover classification (Annex G) shows that the forest-covered surface increases in the north-south line. In lowlands of the republic, there are considerably fewer forests than in the highlands. The area of state-owned forests managed by the State Enterprises amounts to 1 375 553 hectares, which represents 51.4% of the area of forests and other wooded land in Serbia. The remaining forest area is managed by private owners, other social enterprises and national parks. The pressure on forests is increasing as the result of difficult economic conditions and higher demands for forest products and services. Forest cover has helped regulate water regimes and air quality.

The total area of protected land in the Republic of Serbia exceeds 543,500 hectares (see Annex H). There are six national parks in Serbia and altogether about 500 protected objects (table 12). Currently, 5.8% of the Serbian territory is under some form of protected status. The current goal is to increase this area to over 7%. The current system of protected areas in which forests and parks are administered by public enterprises continues to be problematic. Since enterprises currently rely on financing gained from natural resources extraction for their entire budget (excluding staff salaries), it potentially sets up a conflict of interest for sustainable use and is aggravated by a lack of systems for checks and balances. In addition, protected areas are understaffed and are not employing integrated state-of-the-art planning and management approaches, such as zoning and use based on inventories, clear goal-setting and budgeting, participation and community partnerships, or GIS and monitoring.

52 Biodiversity Assessment Update for Serbia and Montenegro, USAID (2005)53 Forestry Development Strategy of the Republic of Serbia (2010)

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Table 12: Protected nature objects in SerbiaNumber

National parks 5Parks of the nature 14Landscape 17Reserves 73Cultural monuments 312Areas of cultural and historic importance 43Total 464

Source: SEPA Annual Environmental Report 2007

Since the country was largely closed to tourism through the 1990s and its tourism industry faces strong competition from its closest neighbours (Croatia, Montenegro and Greece), Serbia’s natural attractions and unique sights – rivers, mountains, lakes, gorges, parks, forests, swamps and sands – have so far remained largely undiscovered by foreign tourists. However, properly managed to ensure sustainability, these attractions offer the potential for revenue generation and GDP growth, within a wider programme of environmental protection and upgrading.

Waste management and remediation of contaminated sites

Serbia’s population of around 7.3 million inhabitants generates 2.4 million tonnes of waste per year 54

(see table 13 for details of packaging waste). Each person in Serbia generates an average 318 kg of municipal waste each year. The quantity of waste generated in Serbia is at the level of 50 % of waste generation in highly developed countries of Europe, while its gross domestic product (GDP) is at the level of about 10 % of theirs.

Table 13: Estimated quantities of packaging waste in SerbiaWaste type Quantity (tons per year)Paper/cardboard 115,000Glass packaging 90,000Plastic packaging 88,000Iron packaging 19,000Composite packaging 17,300Aluminium packaging 5,200Total 334,500

Source: Serbian Recycling Agency, 2009

Collection of waste from households is performed by public utilities in the cities. The equipment of public utility companies is inadequate, outdated and inadequately maintained. Collection is mainly confined to urban areas; large parts of the country - particularly rural areas - are not served by municipal waste collection services.

Approximately 60% of the municipal waste in Serbia is collected in an organised manner and disposed at 164 officially registered municipal landfills, without pre-treatment before disposal. Waste collected is often disposed into unsanitary dumps, lacking waste separation. Most municipal waste landfills operate without valid permits, whereas even the legal landfills are not equipped with leachate collection system, bottom lining and landfill gas collection system. Illegally dumped waste heaps are often ignited, causing air pollution and releasing extremely toxic polluting agents.

54 Waste Management Strategy, 2010-2019

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Much of the municipal waste goes to nearly 4,481 “wild landfills”. These dumpsites are outside the control of municipal public utility companies, which leads to the pollution of the environment (water, soil and air). There is no organised separate collection, sorting and recycling of waste in place. The existing level of recycling or re-use of waste is insufficient.

Table 14: Basic municipal waste management facts for Serbia 2006-2008

IndicatorYear

2006 2007 2008 2009Total quantity of waste generated (million tons) 1.73 2.07 2.55 2.63Amount of waste collected and deposited by the public municipal utilities (million tons)

1.04 1.24 1.52 1.58

Average coverage of waste collection system (%) ~ 60 ~ 60 ~ 60 ~ 60Average daily amount of municipal waste generated per capita (kg)

0.62 0.77 0.95 0.98

The average annual amount per capita (tons) 0.23 0.28 0.346 0.36Source: SEPA Annual Environmental Report 200955

Municipal waste charges differ between households and enterprises and also widely across municipalities in the country. Charge rates for communal waste collection and disposal are still largely based on the size of residences (for households) and business premises (for enterprises), rather than on the volume and characteristics of waste. Charges are paid directly to the corresponding public utility company. In cities and larger towns, households generally pay the charges on a monthly basis, jointly with charges for water and sewage services; in smaller towns, separate payments for these services appear to be more common.56

Waste charges have been increased in recent years, to offset the adverse effects of high inflation on revenues in real terms, but on average, waste collection charges accounted for only 0.3 per cent of household expenditure in 2004 (table 15).

Table 15: Household expenditure on domestic waste collection and disposal, water services and energy products (% of household expenditures)

Item Urban areas Rural areas National averageWaste collection 0.4 0.1 0.3Sewerage collection 0.1 ... 0.1Water supply 0.8 0.6 0.8Electricity 6.4 6.7 6.5Gas 0.6 0.4 0.5Firewood 2.0 4.3 2.8Coal 0.7 1.5 1.0Central heating & hot water services 1.2 ... 0.8

Source: Statistical Office of the Republic of Serbia, Household Budget Survey 2004, Bulletin 449, Belgrade 2005.

At the moment, Serbia does not have even a basic hazardous waste management system that includes infrastructure for the treatment / disposal / storage of hazardous waste. Indeed, hazardous waste is not separately collected and is often dumped without processing at regular waste disposal sites, together with municipal waste. This causes pollution of surface and groundwater, soil and air as well as landscape degradation.

As there is no legal way to treat hazardous waste in Serbia and the costs of exporting are very high, which only a few industries can afford, there are currently large quantities of accumulated waste in 55 SEPA Annual Environmental Report (2009)56 UNECE Environmental Performance Reviews: Republic of Serbia – second review. Geneva, United Nations Economic Commission for Europe (2007)

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temporary storages. While some industries take reasonable care of their temporary stock piles, reports show that the majority do not. In some cases, these “temporary” storages have been used for decades and have turned meanwhile into historical pollution, which presents a potential danger for the environment and human health. Analyses indicate that 62% of temporary storage of hazardous waste does not meet the prescribed requirements, and that only 5% of hazardous waste temporarily stored in the prescribed manner.

Some locations in the Republic of Serbia (e.g. Grand Bačka Canal, Palić and Ludas Lakes, wastewater canal in Pančevo) are heavily polluted by unprocessed industrial and communal wastewaters that results with high concentration of heavy metals and poisons.

Consequently, a number of industrial towns in the Republic of Serbia face a complex challenge of past industrial development and pollution legacy. The environmental situation in these hot spots presents a potential danger for the environment (air, water and soil quality) and is a direct cause of poor health and related poverty. It also presents a major barrier to future investments and related economic opportunities for the local population. According to the Waste Management Strategy, there is around 100,000 tonnes of historical pollution left in the Republic of Serbia.

In addition, some locations (Pančevo, Kragujevac, Novi Sad and Bor) became heavily polluted as a result of the 1999 Nato air strikes, which was the topic of a UNEP assessment in October 1999 on the consequences for the environment and human settlements. The effects of contamination at these four ‘hot spots’ have been significantly reduced by the UNEP Clean-up Programme, which ran from 2000 until the end of 2003, particularly at Kragujevac and Novi Sad. However, at most locations, there were also pre-existing causes of pollution, as a consequence of improper storage and treatment of hazardous waste.

Water supply, consumption and wastewater treatment

The territory of Serbia is composed of five sub-river basins of the Danube River basin: the Sava, the Morava, the Tisa, Banat-Eastern Serbia and the Pannonian Central Danube. Each of these sub-river basins crosses international boundaries, although the Morava sub-river basin only has a limited area within Bulgaria. In consequence, it is estimated that over 90% are transit waters and that only around 8% of all available surface water originates within the territory of Serbia.

Both surface water and groundwater are used for the municipal water supply. Surface water is abstracted from main streams (approximately 4.5 m3/s) and river reservoirs (approximately 1.5m3/s). The overall capacity of groundwater sources is about 714 million cubic meters per year, most of which is provided by alluvial sources (approximately 390 million cubic meters per year). Today, the overall rate of groundwater abstraction for municipal water supply uses and for industries which use high-quality water within the territory of Serbia57 (excluding Kosovo under UNSCR 1244/99) is roughly 500 million cubic metres per year. The annual rate of combined groundwater and surface water abstraction is almost 700 million cubic metres58.

The length of the public water supply network in Serbia is 33,228 km. In 2008, 79% of the country’s population was connected to the public water supply (92% in Vojvodina)59.

57 Excluding Kosovo under UNSCR 1244/9958 667,552,000 m3 in 200959 Calculations based on the data from Statistical Office of the Republic of Serbia, 2009 municipal data: number of households (2002), connections to the water supply (2008)

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Almost 465 million cubic metres of water reached the public, industry and other users in 2009. Water was distributed to over 2 million households60, who benefited from almost three-quarters of all distributed water (figure 13).

Figure 13: Abstracted and distributed water quantities from public water supply system, 2009 (thousand m3)

Source: Statistical Office of the Republic of Serbia,“Environmental Statistics. Drinking water supply”, 14 May 2010*Other users include water from enterprises from the following divisions: agriculture, forestry, fishing, hospitals, schools, hotels,

restaurants and other public utilities, other public water supply systems, as well as water for own consumption.

However, one-third of abstracted water was lost in 2009, during water treatment and due to network leakage61 (figure 14).

Figure 14: Distributed water and losses, 2007-2009 (million m3)

Source: Statistical Office of the Republic of Serbia, “Environmental Statistics, Drinking water supply”, 14 May 2010

In relative terms, the World Health Organisation’s 2006 assessment placed Serbia (with Montenegro) as 35th out of 48 selected European and CIS countries for access to a treated water supply (figure 15).

60 2,033,04561 33.03%, source: Statistical Office of the Republic of Serbia, Communication Number 131, “Environmental Statistics, Drinking Water Supply” (14 May 2010)

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Figure 15: Percentage of the population with access to an improved water supply62 in urban and rural areas in the WHO European Region, 2006 or last available year (Serbia has been marked with arrow)

Source: Environment and health performance review: Serbia (with reference to WHO/UNICEF Joint Monitoring

Programme for Water Supply and Sanitation), World Health Organisation, 2009

This places Serbia and Montenegro in front of Romania and most of the countries of the former Soviet Union, but lagging behind its Balkan neighbours. The difference in blue (urban) and red (rural) bars illustrates regional disparities.

62 “Improved water” means that it comes from the water supply system, and hence is likely to be tested and treated for quality. The alternative (non-improved) stands for ground wells and surface water bodies.

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Turning to waste water, Serbia generated 67% from households, 19% from industry, and 14% from other users in 2009 (figure 16).

Figure 16: Wastewater by origin, 2007-2009 (in million m3)

Source: Statistical Office of the Republic of Serbia,“Environmental Statistics”, 14 May 2010

While connectivity to the water system is relatively high, access to wastewater systems is poor. The total length of the public sewage system network is 10,123 km, of which 1,648 km are main collectors (data from 2009), but the percentage of households connected to the public sewerage network is 35.8% in Central Serbia and only 23.4% in Vojvodina63. Almost two-thirds (64%) of households connected to the public water supply have sewerage.

Most of the sewage networks are collector systems with multiple discharge points and overflows; Niš, Leskovac, Pirot and Crna Trava have relatively large percentages of combined sewers. Most are constructed as dry weather systems, with surface run off for storm water. Most systems are in a fair state of maintenance, which can be deducted from the very low occurrence of collapsing sewers. However, the public sewers are maintained reactively; this means that more attention is paid to solving actual problems that to prevention of problems. By far the most problems are caused by clogging and blockage, as a result of inappropriate disposal of solid wastes into the system.

EU legislation requires agglomerations of 2,000 people and over to be connected to an appropriate wastewater treatment plant. The agglomerations have been classified into groups according to the number of population equivalent (PE) earmarked for communal organic waste load (table 16); there are 434 agglomerations in the Republic of Serbia with 2,000 PE.

Table 16: Number of agglomerations in Serbia (settlements ≥ 2000 PE)2000 ≤ PE ≤ 5000 5000 < PE ≤ 10000 10000 < PE ≤ 15000 15000 < PE ≤ 50000 50000 < PE ≤150000 PE > 150 000

63 Statistical Office of the Republic of Serbia, Communication Number 132, “Environmental Statistics: Wastewater discharged” (14 May 2010)

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Amount PE Amount PE Amount PE Amount PE Amount PE Amount PEBelgrade 15 50000 3 25000 2 25000 3 100000 4* 300000 1 1500000Bor 4 15000 0 0 2 24500 1 23000 1 50000Braničevo 5 12500 3 22500 1 12000 0 0 1 55000Zaječar 4 10500 1 5000 1 11000 1 25500 1 50000Zlatibor 4 9000 4 24000 2 25500 4 79000 1 80000Jablanica 6 18000 0 0 1 13000 1 20000 1 90000Kolubara 3 9500 2 12500 0 0 0 0 1 100000Mačva 18 45900 12 73000 0 0 1 25000 1 80000Moravica 3 9700 1 6500 0 0 2 46000 1 100000Nišava 2 5600 4 27000 0 0 1 25000 0 0 1 280000Pirot 2 4500 2 15500 1 11500 0 0 1 50000Podunavlje 15 44100 6 38000 0 0 2 52500 1 85000Pomoravlje 4 11000 1 6000 0 0 2 65000 1 55000Pčinj 3 8000 1 7500 2 23500 2 41500 1 75000Rasina 7 18700 3 21000 0 0 1 20000 1 80000Raška 15 43700 2 13500 2 24500 0 0 2 145000Toplica 0 0 2 12500 0 0 2 54000 0 0Šumadija 5 14000 3 20000 1 10000 1 32000 0 0 1 200000Central Serbia 115 329700 50 329500 15 180500 24 608500 15 139500 3 1980000Northern Bačka 10 27500 3 20000 3 32000 1 25000 1 140000Westerrn Bačka 10 26500 13 76500 3 35500 2 50000 1 80000Southern Bačka 23 75000 17 116000 5 58000 5 147000 0 0 1 350000North Banat 9 28000 4 31500 3 34000 1 30000 1 60000Middle Banat 16 51500 6 41000 0 0 1 20000 1 120000Southern Banat 13 40500 16 119000 1 13000 1 18500 2 150000Srem 23 72000 6 38500 2 24000 2 63000 2** 152500Vojvodina 104 321000 65 442500 17 196500 13 353500 8 702500 1 350000Total 219 650700 115 772000 32 377000 37 962000 27 2097500 4 2330000

Source: Ministry of Agriculture, Trade, Forestry and Water Management* Boleč, Banat, Batajnica and Ostružnica system

** Sremska Mitrovica and settlements within the regional sewage system Inđija-Stara Pazova-Nova Pazova

However, waste water treatment is essentially lacking in Serbia (figure 17). Only 15% of discharged waste water was treated in 2009Error: Reference source not found. Only 21 municipalities have waste water treatment plants (WWTPs) in the Republic of Serbia. Even the largest cities in Serbia, including Belgrade, Niš and Novi Sad release their waste water untreated into the passing rivers. Furthermore, some of the existing wastewater treatment plants are abandoned, many only provide primary (mechanical) treatment and many are not continually operated, due to poor maintenance and lack of financial resources.

Figure 17: Volumes of water (in thousand m3) processed in Serbia (2008)

Source: Statistical Office of the Republic of Serbia, “Municipalities of Serbia, 2009”

Industries within urban areas generally use the municipal wastewater systems to discharge their wastewater. Industries outside urban areas usually discharge directly into the nearest water course, mainly with minimal treatment. Wastewater treatment facilities of the larger companies had mainly

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fallen into disrepair and were not functioning to full capacity until 2000, when projects were implemented to develop new plants or renovate existing facilities. Most industrial and mining wastewater is discharged into the Sava River and its tributaries, only about 5% of industrial waste water is treated (2009)64.

According to the environment performance review done by the United Nations Economic Commission for Europe, 75% of the inorganic discharges are generated by 10 of about 250 industrial installations – particularly, the U.S. Steel factory in Smederevo, the Nikola Tesla A and B thermal power plants in Obrenovac, the non-ferrous metallurgy plant Zorka in Šabac, the Kostolac thermal power plant, the power cable factory in Jagodina, the Bor and Sjenica mines, and the Kolubara open-pit mine65.

The main point sources of organic discharge in Serbia are around 130 pig farms representing 1.2 million head. Farms with capacity of up to 20,000 head use the combined dry-humid method of animal waste disposal, while farms with capacity of more than 20,000 head use the humid method. There are 43 farms with capacity of more than 10,000 head, of which 34 are located in Vojvodina. It is estimated that farms in the Danube River basin in Serbia have organic loading of 9 million PE. Wastewater is discharged mostly into lagoons or natural depressions, from where, after a period of six months, it is extracted to fertilise agricultural areas. An extremely small number of farms have facilities for treatment equipment, aerators, separators and biogas production, but rarely are such facilities properly operated and functioningError: Reference source not found.

Some 15% of wastewater is subject to primary treatment (partial, physical removal of suspended solids and organic matter, using screening and sedimentation, sometimes aeration or flocculation), from which 11% also undergoes secondary treatment (which involves the biological removal of secondary and colloidal organics and suspended solids). Only 3% of wastewater is also put through tertiary treatment, to raise the effluent quality before it is discharged to the receiving environment (sea, lake, river, ground etc), by removing significant amounts of nitrogen, phosphorous, heavy metals, biodegradable organics, bacteria and viruses (figure 18).

Figure 18: Waste water treatment in Serbia 2009

Source: Statistical Office of the Republic of Serbia, “Environmental Statistics, Wastewater discharged”, 14 May 2010

Wastewater pollution of water sources and bodies used for drinking water and for recreation is a problem in Serbia. The breakdown of the main sources of wastewater is about: one-third from agricultural activities; one-third from industrial sources (production has decreased due to diminished industrial activity since the war); and one-third from household sewage (municipalities). Trans-

64 5.29%, according to Statistical Office of the Republic of Serbia, “Environmental Statistics: Wastewater discharged” (14 May 2010)65 UNECE Committee on Environmental Policy “Environmental Performance Reviews, Republic of Serbia – Second Review”, (2007)

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boundary pollution, leakage from landfills and dump sites, as well as contamination from river transportation vehicles also contribute to the pollution of water sources.66

It is perhaps unsurprising, therefore, that the water supply system suffers from high levels of pollution (table 17), the key sources being untreated industrial and municipal waste water, drainage water from agriculture, leachate from landfills, and pollution related to river navigation and operation of thermal power plants.

Table 17: Total amounts of wastewater and nutrient emissionsWastewater type Discharge of

wastewater (1000 m3/day)

Particulate matters(kg/day)

Population equivalent

(PE)

Total Nitrogen(kg/day)

Total Phosphorus

(kg/day)Municipal wastewaters 1,016 269,242 4,874,209 48,663 14,623Industrial (predominantly biodegradable substances)

997 802,846 6,814,743 16,918 5,377

Industrial (predominantly inorganic substances)

1,096 477,443 612,285 45,793 16,764

Total 3,110 1,549,531 12,301,223 111,374 36,764Source: NPEP 2010 (Water Management Base of the Republic of Serbia, 2002)

Non-point-source pollution contributes to more than 50% of total water pollution: these sources produce over 80% of total nitrogen, 50% of total phosphorus, and 90% of faecal and total coliform bacteriaError: Reference source not found.

Problems with drinking water are common in many areas. About one third of the samples67 do not meet either microbiological (33.97%) or physical-chemical quality standards (36.54%), as water is excessively polluted on many locations. The most common parameters of physical-chemical non-compliance are increased turbidity and colour, increased concentrations of iron, manganese, ammonia, nitrates, nitrites as well as increased consumption of potassium-permanganate. The most common causes of microbiological non-compliance were an increased number of aerobic mesophylic and total coliform bacteria, presence of coliform bacteria E. coli and streptoccocus of faecal origin.

As a consequence, Serbia is in the top 10 of the world’s countries where the population relies on bottled water.

Renewable energy and energy efficiency

The energy infrastructure in Serbia is aged and cannot meet the standards required in EU directives without substantial investment. The state-owned energy company, Electric Power Industry of Serbia (EPS), generates most of the energy from its lignite-powered thermal power plants (Obrenovac, Lazareva and Kostolac). However, almost one third of electricity generation comes from large hydro power plants; the total generation capacity of nine EPS’s hydro power plants with fifty hydro units is 2,835 MW68.

There is also a limited amount of geothermal energy deployed, but its share of overall energy production is negligible. The first wind parks in Serbia are about to emerge in the coming years, built with the involvement of Italian, Austrian and Spanish companies. Recently adopted feed-in tariffs for renewable energy creates incentives and will encourage renewable energy development in Serbia.

66 Environment and Health Performance Review, Serbia, WHO (2009)67 Serbian Health Statistics Yearbook (2008)68 EPS Annual Report (2008)

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EPS has an installed capacity of 8,359 MW and generates 41,122 GWh of electricity in lignite-fired thermal power plants (5,171 MW), gas-fired and liquid fuel-fired combined heat and power plants (353 MW) and hydro power plants (2,835 MW).

Although the share of renewables in electricity generation is rather high, reaching 28% in 2009, in the final energy consumption share of renewable energy is only 16% (figure 19). This occurs due to the fact that a considerable part of the electricity is being generated by the large hydropower plants, while district heating and also heating of the individual houses is based largely on fossil fuels (heating oil and coal). Unlike other European countries which deploy widely biomass, district heating plants use oil and gas almost exclusively in Serbia, while opportunities to extract energy from biomass remain so far largely unused.

Figure 19: Final energy demand in Serbia (scenario of prosperous economic activity)

Source: Energy Sector Development Strategy of the Republic of Serbia by 2015

Based on rough estimations, energy intensity in Serbia is 2-3 times greater than in EU-15 countries, as a result of decrease of industrial activities during the 1990s, slow recovery of industry, low electricity prices, and the disparity of energy prices, which are not stimulating for the rational use of energy.

According to the Action Plan for Energy Efficiency, which was adopted in August 2010, final energy consumption by 2018 will be 9% lower, compared with 2008.

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http://en.wikipedia.org/wiki/Hydroelectricity

http://en.wikipedia.org/wiki/Fossil_fuel_power_plant

http://en.wikipedia.org/wiki/Electricity


Air quality

Urban air quality is deteriorating, especially during adverse weather conditions and in the heating season. In 2007, the air in the Republic of Serbia was assessed as “polluted” (9.3%) or “very polluted” (2.4%), due to soot (table 18).

Table 18: Assessment of air quality in 2007 in the Republic of Serbia (%)SO2 NO2 Soot

Excellent 80.1 53.9 43.3Good 11.0 33.2 25.5

Acceptable 4.4 11.6 19.5Polluted 2.0 1.1 9.3

Very polluted 2.6 0.2 2.4Source: SEPA Annual Environmental Report 2007

This overall picture is typical of most urban environments in the Republic; in 2007, the most affected towns were Užice, Sevojno, Subotica, Belgrade-Vračar and Pančevo. ‘Polluted’ and ‘very polluted’ air is dominant in Bor, due to sulphur-dioxide. Polluted air occurred in Belgrade and Kostolac in 2007, too, due to sulphur-dioxide, but to a much smaller scale than in Bor. Polluted air occurred in 2007 in Belgrade and Čačak as a result of nitrogen-dioxide (figure 20).

Figure 20: Urban air quality (SO2 and NO2) at selected locations in 2007

Source: Statistical Office of the Republic Of Serbia, Statistical Yearbook of Serbia 2008

The high concentrations of particulate matter in industrial and urban areas in Serbia have received very little attention in the past, due to a lack of data. Because of this, but mainly because of fragmented and inconsistent monitoring systems, there is no estimate of the health burden due to this type of air pollutionError: Reference source not found.

Figure 21 demonstrates the exposure of European children to particulate matter (soot). According to the WHO assessment, only in Romania and Bulgaria (among the compared 27 European countries) is the situation worse than in Serbia.

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Figure 21: Exposure of European children to air pollution (to particulate matter) in outdoor air

Source: Environment and health performance review: Serbia. WHO 2009(Note: In several countries, the assessment is based on one city)

The main causes of mobile air pollution include poor quality of engine fuel (leaded petrol), out-of-date vehicles and generally poor technical standards of the vehicle fleet. The old vehicle fleet, much of which was recently imported, still uses leaded gasoline and low-quality motor fuels (diesel fuel with high sulphur content). Pollution resulting from traffic is increasing, including soot concentrations, especially in major towns.

The lead content in petrol is 0.04 g/l in Serbia, compared with 0.005 g/l in other SEE countries. The sulphur content varies from 350 ppm to 2,000 ppm depending on the type of fuel, compared with 150 ppm in other countries in the region. In the EU, leaded petrol was banned from the market as of 2000. The mandatory limit for the sulphur content of petrol and diesel fuels has been 50 ppm as of 2005, with a further reduction to 10 ppm as of 2009Error: Reference source not found.

The principal cause of air pollution from point sources in Serbia is outdated technology and lack of pollution abatement installations, low energy efficiency of the existing obsolete facilities in the energy and industry sector, as well as poor quality heating fuel in household installations. The main sources of air pollution are: thermal power plants (see figure 22), oil refineries, chemical facilities, metal and mineral industries, transportation, individual boiler and furnaces, inadequate storage and

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disposal of by-products, such as ash from power plants and tailings from the open cast coal mines (also see Annex J).

Figure 22: Location of major power plants in Serbia69 (excluding hydropower)

Source: EPS Annual Report 2008Note: dark red represents Thermal Power Plant, light red is TPP under construction, orange is combined heat and power

plant, green is coal mine

The following figures 23-25 illustrate the occurrence of main atmospheric pollutants emission (NO 2, SO2 and PM10) in Serbia. It is clearly observable that the main point sources match with major industrial enterprises - particularly with large power plants. The coloured spots west of Belgrade are the EPS Nikola Tesla power plants near Obrenovac; the major spot in east of Belgrade represents the Kostolac power plant.

69 Excluding Kosovo under UNSCR 1244/99

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Figure 23: NO2 emissions in Gg (2009)


Figure 24: SO2 emissions in Gg (2009)

Source: SEPA Annual Environmental Report, 2009

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Figure 25: PM10 emissions in Gg (2009): Main emitters are EPS large combustion plants



The legal obligations, administrative structure and human resource capacity of the four Ministries responsible for environment policy in Serbia, namely the Ministry of Environment, Mining and Spatial Planning, the Ministry of Agriculture, Trade, Forestry and Water Management, the Ministry of Infrastructure and Energy and the Ministry of Health, are described in Annex K. It also describes the roles of the Serbian Environmental Protection Agency (SEPA), the Serbian Environmental Protection Fund (SEPF), the Hydrometeorological Institute; the Regional and National Health Protection Institutes, the Secretariat for Environmental Protection of the Province of Vojvodina, the Statistical Office, Public Utility Companies, and municipalities.

Annex K also describes the current legal framework and progress with harmonising Serbian law with EU regulations and directives.

Strategic framework

National Sustainable Development Strategy

The National Sustainable Development Strategy (NSDS) of the Republic of Serbia was adopted by the Government of Serbia, on May 9th, 2008. The objective of the NSDS is to establish a balance between the three key factors, or three pillars, of sustainable development: sustainable economic growth and economic and technological progress, sustainable social development, based on social

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balance, environmental protection accompanied with reasonable use of natural resources, embracing them in one whole supported by an adequate institutional framework. The Strategy defines also sustainable development indicators for Serbia.

The Strategy is accompanied by an Action Plan for years 2009-2017, which was issued and adopted as a separate document in March 2009. The provisions of the National Sustainable Development Strategy cover both the short-term (2009-2011) and longer term (2009-2017).

Waste Management Strategy, 2010-2019

The Waste Management Strategy is a basic document that provides conditions for rational and sustainable waste management at level of Republic of Serbia. The Waste Management Strategy, adopted in April 2010, replaces the previous version (adopted in 2003) and establishes fundamental principles of waste management.

Different specific waste streams have been analysed. The Strategy proposes to establish 12 regional waste management centres in Serbia by the year 2013 (and defines 26 waste management regions) . Strategy also proposes to repair the existing dumps, which represent the greatest risk to the environment and the location of "hot spots" of historical hazardous waste pollution and to establish a hazardous waste management system. Also included is a Financial Plan with cost assessments. The Action Plan for 2010-2014 determines necessary activities for transposing EC waste directives.

National Programme of Environmental Protection of the Republic of Serbia, 2010-2019

The National Programme for Environmental Protection (NPEP) was adopted in January 2010 and will be implemented through an Action Plan adopted by the Government for the period of five years. In addition, the Government is to submit the NPEP progress report to the Parliament every two years. The NPEP lays down a set of objectives for Government policy over 2010-2019 at three levels: short-term (2010-2014), which are considered the most relevant to the SCF; continuous (over the whole period of the National Programme); and medium-term (applying to the 2015-2019 period only).

Energy Sector Development Strategy of the Republic of Serbia by 2015

This Strategy was published in 2005 by the (then) Ministry of Mining and Energy and compares different energy sector development scenarios until 2015. It gives overview of the situation in the energy sector of Serbia at the end of 2002, about the situation in the energy consumption and production sectors; lists Serbian energy resources. Current limitations in the operation, business activity and development of Serbian energy sectors have been described. The objectives of the Strategy have been listed – basic, specific and general developmental and strategic objectives. Instruments for realising the objectives of the new Energy Policy and the Serbian Energy Development Strategy have been described as follows: a) legislative/institutional instruments; b) structural/organisational and economic instruments and c) programme instruments – the Energy Efficiency Programme, the Programme of New Renewable Energy Sources Utilisation, the Environmental Protection Programme, the Programme of Scientific and Technological Development in the Energy Industry, and the Energy Statistics System. The Strategy also made projections of energy needs and macroeconomic assumptions and parameters of Serbian economy and industry development by 2015.

The priority programmes of Serbian energy sector development by 2015 have been set. Volume and structure of investments for the implementation of the Energy Development have been described, also implementation of the monitoring and strategy priority adjustment.

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The objectives formulated in the Energy Sector Development Strategy up to 2015 have been further elaborated in the Programme for the Implementation of the Energy Sector Development Strategy for the 2007-2012 (updated in 2010).

The Ministry of Infrastructure and Energy is currently in the initial phase of preparing the new Energy Strategy up to 2025.

There are also two national strategies for inclusion of the Clean Development Mechanism (CDM): Strategy for the implementation of CDM projects in the Serbian Energy sector; National Strategy for inclusion in the CDM for the waste management sector, agriculture and

forestry.

Strategy for Transformation of Public Utility Companies

The Government of Serbia, in cooperation with the EU and other donors (KfW and EBRD), is working on the preparation of the Strategy for Transformation of PUCs. The draft of the Strategy has been prepared by a working group, led by the Ministry of Economy and Regional Development, and will be put forward for adoption by the Government in 2011.

1.1.4 Competitiveness

Competitiveness can be defined as the capacity of the economy to make the most of its assets, bringing value added to its own resources, in order to achieve higher levels of productivity, raise living standards and expand employment opportunities. A competitive economy produces goods and services which meet the test of international markets, while at the same time maintaining high and sustainable levels of income.

The nature and meaning of economic competitiveness has been widely discussed for many years. According to the European Commission: “Competitiveness is determined by productivity growth: a competitive economy is one that experiences high and sustained productivity growth leading to an increase in standards of living. Many factors determine productivity performance”70. The Commission highlights the following factors:

The level of competition; Opportunities provided by market reforms to stimulate investment; The ability to innovate, both through increased investment in R&D and human capital

development, notably through education and training; The capacity rapidly to transform technological and non-technological innovations into

economic goods; The reorganisation of working practices through the adoption of information and

communication technologies; Competition regulations and consumer protection rules that ensure that competitive

pressure operates fully, thus maintaining incentives for higher productivity; and An integrated market for goods and services that ensures that all potential gains are

realised.

70 Communication from the Commission to the Council and the European Parliament: Some Key Issues in Europe’s Competitiveness – Towards an Integrated Approach (2003)

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Measures of competitiveness

Given the multi-faceted nature of competitiveness, which combines notions of competition, regulation and cooperation, the performance of institutions, enterprises and individuals, and the drive for economic and societal progress, it is hard to capture all the aspects of competitiveness in a single indicator. Even ‘headline’ measures such as GDP, GDP per capita, Gross Value Added (GVA) or Total Factor Productivity indicators fail to fully reflect the dynamism or potential in the economy and its institutions and interactions. Even sophisticated composite measures of competitiveness have their drawbacks, as many factors are hard to quantify, and each factor must be weighted, a process which is open to debate.

Notwithstanding these complications, one of the most widely recognised composite indicators is the Global Competitiveness Index (GCI), published annually by the World Economic Forum, which defines competitiveness as “the set of institutions, policies and factors that determine the level of productivity of a country”.

The Global Competitiveness Report is a contribution to enhancing the understanding of the key factors determining economic growth and to explaining why some countries are more successful than others in raising income levels and opportunities for their population; hence it offers policymakers and business leaders an important tool in the formulation of improved economic policies and institutional reforms. To describe the complex notion of competitiveness, the Global Competitiveness Index (GCI) offers comparative analysis of 12 major features of a competitive economy, from institutions to innovation71, in over 130 countries.The World Economic Forum draws its data from two sources: international hard data sources and the executive opinion survey, which captures the perception of business executives about the environment in which they operate.

According to the most recent Global Competitiveness Report (2010-2011), Serbia currently ranks 96 out of 139 nations72. Serbia’s placing among the lower ranked countries displays a performance that needs significant improvements and structural changes (figure 26).

Figure 26: 2010 Rankings on the Global Competitiveness Index (out of 133 countries)

71 Institutions, infrastructure, macro-economic stability, health, primary and higher education institutions, goods market efficiency, labour market efficiency, financial market sophistication, technological readiness, market size, business sophistication, and innovation72 The selection of presented countries was based on: comparable size to Serbia (medium-sized European countries); proximity and/or facing similar issues in economic transition (Western Balkans); and status in relation to EU membership, as ‘new’ member state (2004 or 2007 enlargement), candidate country or potential candidate country.

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As shown below, Serbia’s low-scoring in almost every aspect of GCI Report measurement highlights the major problem areas in Serbia’s competitiveness. The individual variable where Serbia scores rather better is health and primary education73, while performance in higher education and training is one of the better ranked factors, in relative terms. By contrast, Serbia ranks below 100 th on the quality and efficiency of its institutional environment, its macroeconomic stability, product and labour market efficiency and business sophistication, which together undermine efforts to achieve higher levels of productivity:

There is still much left to be done to strengthen the quality of institutions that have a great bearing on competitiveness levels. Serbia’s low level of property rights protection (122nd

place), for example, the burden of government regulation (131st place) and efficiency of legal framework in settling disputes (132nd place) strongly undermines private sector’s willingness to invest, imposes significant economic costs to businesses and slows the process of economic development.

As presented below, Serbia ranks low in all detailed aspects of infrastructure (road, rail, air, port) which reduces the prospect of effective functioning of economic activities, making them less accessible and more costly.

Serbia ranks low in every aspect of what the GCI report describes as “efficiency enhancers” 74, as well as “innovation and sophistication factors”75, thus pointing to priorities for raising the country’s competitiveness (figure 27).

Figure 27: Serbia’s score on individual factors in the Global Competitiveness Index

The most problematic factors for doing business in Serbia, according to the GCI 2010-2011, are listed in descending order as corruption, inefficient government bureaucracy, policy instability, access to

73 GCI Report states that countries ranked below 50th place can consider “an advantage” any individual variable above 50th place74 Higher education and training, goods market efficiency, labour market efficiency, financial market sophistication, technological readiness and market size75 Business sophistication and innovation

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finance, tax regulation, crime and theft, inflation and poor work ethics. Taking into account the GCI Report, it is clear that Serbia still needs to go further with economic reforms, to embed macro-stability and the operation of product markets and liberalise the economy. At the same time, Serbia needs to invest massively to modernise its outdated infrastructure, and improve the performance of public institutions. This includes committing fully to regulatory reform to ensure the state enables, rather than constrains, market activity and private sector operations, while at the same time stifling rent-seeking behaviour by business interests. Decades of under-investment have undermined Serbia’s competitiveness systematically and structurally, and hampered opportunities for faster growth and increases in productivity.

The key for raising competitiveness is increasing the levels of productivity as a simple mechanism of economic growth. There is much evidence internationally that drivers of the higher productivity that underpin competitiveness include:

Business start-ups and a dynamic SME base – new entrants putting pressure on established firms to innovate, improve quality and keep prices down creates a diverse and thriving small and medium-sized business base, able to supply home and foreign markets, and compete with larger enterprises which in turn stimulates their productivity;

Investment in infrastructure, ICT and productive capital – well-functioning transport, communication, communal and environmental systems are the foundations of economic activity, facilitate trade and ensure a competitive cost base, while spending on equipment and IT creates efficiencies and raises the output and value-added of the workforce;

A skilled, motivated and creative labour force – alongside technological change, long-run growth is determined by the level of knowledge in society, making education and training a priority investment for the economy, as well as being the basis for expanding know-how further through research and development;

Innovation and technology transfer – converting ideas from the public and private sectors into products and processes, both new and improved, creates opportunities for enterprises to improve efficiency and quality, opens up new markets, and generates spillover benefits throughout local clusters and the wider economy; and

An effective public administration – facilitates private sector productivity, by encouraging competition, investment and innovation, enabling businesses to start-up and flourish, based on a fair regulatory regime and efficient procedures, and directing resources cost-effectively into public services the market cannot provide, like infrastructure, education and public research.

In all of these areas, Serbia is currently lagging behind EU standards and practices.

Enabling environment - ease of doing business

A key factor in defining national competitiveness is the extent to which government makes the establishment and operation of a business simple, rapid and low cost and thus encourages enterprise establishment and growth.

The World Bank prepares an annual study “Doing Business Report”, as a basis for understanding and improving the regulatory environment for business. It looks at small and medium-sized companies and measures for applying regulations through their life cycle in more than 180 countries. It encompasses two types of data: relevant laws and regulations of an individual country, and time and

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other indicators that measure the efficiency in achieving a regulatory goal. Within the latter indicators, cost estimates are recorded from official fee schedules. The study is useful in providing a basis for analysing how different policy approaches and different policy reforms contribute to desired outcomes such as competitiveness, growth and greater employment and incomes.

In the 2011 study of the ease of doing business, with 1st being the best performer, Serbia ranked 89th

out of 183 economies (figure 28). This suggests there is still work to be done on reforms, to ensure a favourable environment for business operation, investment and innovation.

Figure 28: Doing Business (2011)

Serbia is in 83rd position in ‘starting a business’ (which is a drop of 10 places since 2010). It takes seven administrative steps to start a business, 13 days, and costs 7.9% of income per capita, with minimum capital of 6% of income per capita. Serbia shows good performance in ‘getting credit’, which appears to contradict the GCI Report’s finding that ‘access to finance’ is a problem in doing business in Serbia. The ranking of 15 th in the study for ‘getting credit’ can be mainly explained by to the scope of the indicator that measures quality and accessibility of credit information and registered assets used as collateral through public credit registries, and not the actual availability of loans to the business sector76. Other aspects of business regulation and its enforcement are also rated very low. For example, obtaining construction permits in Serbia is extremely complex, time consuming and costly, placing Serbia on the 176th place (figure 29).

76 Serbia is specifically mentioned in connection to the regulation which now guarantees borrowers the right to inspect their own data

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Figure 29: Breakdown of factors (Serbia's rank out of 183 economies)

Furthermore, factors central to day-to-day running of a business such as enforcing commercial contracts are an important determinant of business performance based on trust between customers and suppliers and country’s ability to enforce that trust. Serbia is ranked low in 94 th place, making its capability to deal with commercial litigations a major challenge.

Serbia’s performance against each of these factors suggests that economic development is held back by an unfavourable business environment, resulting in considerable difficulties that enterprises face when trying to run their businesses in Serbia. The ‘Doing Business’ study provides useful benchmarks from high-performing and high income countries, against which Serbia’s practices and processes can be compared, and which can be used with other methodologies to systematically improve the performance of public policy and institutions, and their interface with start-up and existing businesses.

Size structure of business

Engagement in entrepreneurial activity also has an important impact on the size, quality and competitiveness of the business sector. New firms are often established by people keen to drive and shape innovation, which has the effect of speeding up structural changes in the economy, and introducing new competition, thus contributing to an increase in productivity. Entrepreneurial activity results in emerging new businesses, including more flexible self-employment, which brings new dimensions to economic development. Furthermore, increase in entrepreneurial activity increases chances for enterprise growth, development of new products and services and enhancement of innovation.

According to the Global Entrepreneurship Monitor 200977, Serbia has an “early stage entrepreneurial activity” (TEA) index78 of 4.9, meaning that almost 5 out of 100 adults in 2009 were active in 77 The Global Entrepreneurship Monitor (GEM) is an international research project which, since 1999, has been monitoring development of entrepreneurship in its early stages, as well as reasons that motivate entrepreneurial behaviour. 78 The Global Entrepreneurship Monitor (2009); ‘early stage’ entrepreneurial activity (TEA) is defined as a percentage of 18-64 population, who are either nascent entrepreneurs (actively involved in setting up a business they will own or co-own; this business has not paid salaries, wages, or any other payments to the owners for more than three months) or new business owner-manager (owning and managing a running business that has paid salaries, wages, or any other payments to the owners for more than three months, but not more than 42 months). GEM also introduces the concept of an established business ownership rate, as a percentage of 18-64 population who are currently owner-managers of an established

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entrepreneurship (figure 30). This variable measures the share of the adult population who are either actively involved in starting a business or are the owner/manager of a young business (less than 3.5 years since start-up).

Figure 30: Entrepreneurial activity in the selected Global Entrepreneurship Monitor countries in 200979

However, 41% of those early-stage entrepreneurs are engaged in entrepreneurship due to necessity (transitional countries with a high level of unemployment where population has been forced into an entrepreneurial activity due to a number of circumstances) and not as an opportunity for improvement, demonstrating the population’s reluctance to engage in entrepreneurship, mainly due to the unfavorable business environment for opening and running a business.

Engagement in entrepreneurial activity in Serbia has been reflected in 43 active SMEs per 1,000 citizens on average, which is slightly above the EU-27 average of 41.6 SMEs. In terms of economically active population, there are 63.5 SMEs per 1,000 citizens (figure 31).

business, i.e., owning and managing a running business that has paid salaries, wages, or any other payments to the owners for more than 42 months.79 Serbia was not included in the Global Entrepreneurship Monitor 2010

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Figure 31

Density of SMEE and newly establishment enterprises

7.6 8.0 7.3 6.710.0 11.5 12.0 9.4

26.5

40.1 41.3 43.040.0

59.6 61.2 63.5

0

10

20

30

40

50

60

70

2006 2007 2008 2009 2006 2007 2008 2009

1 000 INHABITANS 1 000 ACTIVE INHABITANS

Number of newlyestablishedenterprises

SME Total

Source: Report on Small and Medium-Sized Enterprises and Entrepreneurship 2009, Ministry of Economy and Regional

Development (2010)

The SME sector in Serbia accounts for 99.8% of the total number of enterprises, and are incorporated as either ‘entrepreneurs’ (exempt from VAT) or limited liability companies. The classification of SMEs is standard80, according to the number of employees: micro enterprises have up to 9 employees, small enterprises employ 10-49, and medium-sized enterprises employ 50-249. Entrepreneurs are physical persons doing business independently and data related to this category is included in micro enterprises.

The total number of SMEs has fluctuated during the years of economic growth in the mid-2000s, but their contribution to job generation has been substantial and increased steadily (figure 32), providing very positive signals for the potential role of SMEs in employment creation, once Serbia returns fully to trend growth after the recession.

80 The Law on Accounting and Auditing classifies legal entities,depending on the average number of employees, annual turnover deriving from regular activity and asset value determined on the day financial statements in the business year are composed. Legal entities are clasified as medium-sized legal entities if they fulfill at least two of the following criteria on the day of composing of financial statements:1) average number of employees in the year for which the annual statement is submitted is from 50 to 250;2) annual turnover amounts from EUR 2.500.000 to EUR 10.000.000 in RSD counter-value; 3) average business assets value (at the beginning and in the end of the business year) amounts from EUR 1.000.000 to EUR 5.000.000 in RSD counter-value. The legal entities with lower than the thresholds in at least two of the mentioned criteria are classified as small legal entities, and the legal entities who have amounts exceeding the largest thresholds in at least two of the mentioned criteria are classified as large legal entities.

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Figure 32: SME and employment in SME sector growth trends

Serbia’s SME business base is relatively similar in structure to the EU-27, but skewed towards the smallest firms - 96.1% of SMEs are micro enterprises (compared with an average of 92% in the EU-27), 3.1% are small enterprises (7% in the EU-27), while only 0.8% are medium-sized enterprises (1% in the EU-27). A similar situation is observed in Serbia’s neighbouring countries, presenting micro enterprises as the most dynamic and flexible business form, able to absorb market requirements and adapt quickly to any challenging issues occurring during the life-cycle of a company. The SME sector highly influences performance of Serbian economy accounting for more than 66% of all employees, 67% of its turnover and 57% of GVA (figure 33).

Figure 33: SMEs share in non-financial sector indicators in 2008 (%)

Despite SMEs’ dominant share in forming GVA over the recent years before the economic crisis, large companies have shown consistently higher productivity levels than SMEs, but this has actually

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led to job cuts, as figure 34 shows. By contrast, SMEs have served as a valuable employment generator in this period, but have been unable to compensate for job-shedding in large enterprises.

Figure 34: Real growth rates of GVA and labour productivity (%)

Investment trends

An important driver of labour productivity growth is the level, quality, and structure of investments. Investment in plant, machinery and infrastructure can increase the productive capacity of an economy by raising the capital stock available to workers.

The share of the SME sector in investment of Serbian enterprises (non financial sector) in 2007 was 50.4% of total investment with 21.5% share of medium sized companies and 28.9% of small enterprises (figure 35). However, taking into account the fact that SMEs comprise 96% of the Serbian economy, their share in the investment reflects their low level of productivity growth and limited capacities to produce highly competitive products.

Furthermore, even though SMEs comprise more than 50% of total investment, investment per enterprise and per employee in Serbia is significantly lower compared to neighbouring countries and EU-27 average. Nevertheless, GVA per investment is significantly higher than the EU-27, and closer to Hungary and Romania. This can be partly explained by the nature of transitional countries, which retain a historically low baseline of capital stock; increased investment in assets can significantly reduce production costs and increase production per unit over a short period (figure 35).

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Figure 35: SME investment in fixed assets in 2008 (€‘000)

Exporting

While Serbia benefited from strong economic growth in the early-late 2000s, the level of exports has covered only 47% of import levels by value, with little variation in this ratio over the years (figure 36). Within the SME sector, which has also enjoyed increased exporting, the ratio has been lower still - at 35% - indicating the low penetration and competitiveness levels of their products and services in international markets, and an over-reliance on imports for inputs. However in 2009, the level of exports has shown noticeable increase, covering 42.8% of import levels, and within the SME sector covering almost 44%, which can be partly attributed to the devaluation of the national currency.

Figure 36: Coverage of import by export (%)

According to the Index of Revealed Comparative Advantage of the SME sector (see Annex L), Serbia currently has particular strengths internationally in food and beverage production, as one of its most promising sectors, and in the leather and leather production sector. However, foreign trade mainly consists of low-tech products that had the fastest growth since 2005. A mix of low investment in

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innovation and new technologies, together with a low percentage of highly educated population and high ‘brain drain’, placed Serbia on the list of countries that almost exclusively produce and export row materials and labor-intensive products and other products of lower processing phase with a smaller presence of technology-intensive products, which usually have high unit values. The export based on these products poses the greatest challenge for Serbian economy and the efforts of strengthening exports of more competitive high technology products remains a challenge in the near future.

ICT and Information Society

As noted in section 1.1, Serbia’s ICT sector accounts for a relatively small share of the national economy, in terms of output. Nevertheless, over 2,300 ICT companies currently operate in Serbia, employing more than 60,000 people, and more than €1.5 billion has been invested in Serbia’s ICT sector over the last 5 years. Moreover, before the recession, Serbia was enjoying an outstanding expansion of the ICT market with a growth rate of 37% in 2007.

This is reflected in the official statistics on business use of ICT showing that the use of computers by Serbian SMEs for business. According to the Report on SME and Entrepreneurship 2009, published by the Ministry of Economy and Regional Development in 2010, almost 98% of enterprises81 use computers in their business, exceeding the EU-27 average (96%), and 94% of enterprises using computers have Internet connection.

Despite significant progress in the use of broadband connections, which increased from 7.3% to 23% in the period 2007-2009 alone (while, at the same time, the EU-27 had 56% connectivity in 2009) 82, development of Internet use for business purposes among Serbian SMEs has been at a low level. Again, according to the Report on SME and Entrepreneurship:

20% of enterprises with Internet connection ordered products/services via the Internet; 17% of enterprises with Internet connection were receiving orders via the Internet.

Serbian SMEs mostly used the internet for the purpose of banking and financial services (figure 37). Insufficient use of Internet technologies in doing business is holding back Serbian companies’ ability to seize the opportunities83 that e-business offers.

81 More precisely, 97.7%. The figures for households are 40.8% have a PC, 5.8% have a laptop and 33.2% have an Internet connection; 86.3% of Internet users have never purchased or ordered goods or ervices via the Internet82 Data refer to the entire economy, since Eurostat and the Statistical Office of the Republic of Serbia have not released specific data for SMEs for 2008.83 For example, easier market monitoring, tracing and communicating potential business partners, cutting procurement costs, usage of the electronic service of public government, electronic payment

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Figure 37: Business usage of internet (%)

Overall, the Serbian SME sector is vibrant and dynamic, but its contribution to the economy is still insufficient when compared to its share in the total number of companies. The environment in which SMEs operate is still burdened with bureaucracy and weak institutional structures, as well as under-developed government-to-business (G2B) services making them uncompetitive and incapable of contributing to economic development further.

Research & development

National competitiveness is directly linked to a country’s investment in research and development and the extent to which that research and development is utilised and commercialised by the private sector through innovation. R&D affects economic growth through various channels. It can contribute to the creation of new markets or production processes; it can lead to incremental improvements in already existing products and production processes; and it increases the capacity of a country to absorb new technologies.

The EU’s Europe 2020 strategy has set the target of devoting 3% of GDP to research and development activities by 2020. In 2008, the EU-27 invested 1.9% of GDP in R&D, of which the business enterprise sector (BES) financed 55% of R&D expenditure which is the trend in the last decade. Serbia is well below the EU-27 average with 0.37% of GDP invested in R&D in 2008. Spending in R&D decreased from 1.04% in 1999 to 0.37% in 2008. Higher levels of R&D spending are recorded in all member states and Croatia as a neighbouring candidate country (figure 38).

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Figure 38: Expenditure on R&D as % of GDP in 2008

Of the 0.37% of GDP invested in R&D in Serbia during 2008, Government expenditure on R&D (GOVERD) contributed the largest share, with 0.21% of GDP. Higher education R&D (HERD) contributed 0.11% of GDP, while the business sector R&D (BERD) contributed only 0.05% of GDP84.After 2000, the subsequent increase in appropriations for R&D activities was concentrated in the Government and higher education sectors, but the erosion of the business sector continued85 (figure 39).

Figure 39: Allocated funds for R&D in Serbia per sector

Source: Statistical office of the Republic of Serbia

The high level of public sector R&D investment also explains the nature of research work in Serbia, of which 50% is basic research, 19% is experimental development research, and less than 32% is applied research, which would then present commercial opportunities from innovation.

84 Statistical Office of the Republic of Serbia (2009), Ministry of Science and Technological Development (2009)85 GERD / GDP – Gross Expenditure for Research and Development as a share of Gross Domestic Product

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Serbia has a strong academic infrastructure of six state universities - University of Belgrade, University of Niš, University of Kragujevac, University of Novi Pazar, University of Novi Sad and University of Priština. The total student body is 235,940 students86 (a doubling of numbers since the 1990s) with over 14,000 teaching staff; out of that, nearly 7,600 have PhDs. There are also a number of private universities but the majority of students go to public universities. In 2008 there were 128 faculties with 8,412 scientist – researchers. Total number of researchers was 11,534, of which 6,429 with PhD and 3,463 post-graduates. Government sector had 2,738 scientist – researchers. In 2008, there were 232 registered R&D institutions of which 77 are R&D units of enterprises, employing 372 scientist-researchers.87

These figures clearly indicate that the majority of research in Serbia has been done at the universities and is poorly commercialised and embedded into economy. Furthermore, it can be observed that the university research was primarily done for teaching purposes, since the number of registered patents by public scientific-research organisations is extremely low (figure 40). The relevant figures in the corporate sector were not remarkably better, with about 20 patents registered per year. On the other hand, individuals registered more than 300 patents in the same period but their application in the economy is insignificant.

Figure 40: Structure of patent applications by domestic applicants

In contrast to the period 2000-2003, when Serbia was at the bottom of the list in Europe according to the number of published papers and number of citations, also lagging behind severely in relation to the neighbouring countries, in the recent period 2006-2008, Serbia managed to surpass certain countries in the region in terms of the number of papers (Bulgaria, Croatia) and managed to catch up with Slovenia88.

86 Academic year 2008/2009 (Statistical Office of the Republic of Serbia, 2009)87 Statistical Office of the Republic of Serbia (2009)88 National Strategy for Scientific and Technological Development, 2010-2015

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It can be concluded that past policy decisions, which have limited R&D investment, and directed them mainly to basic research and for teaching purposes, have created a vacuum in applied research, which has restrained Serbia’s ability to gain economic profit from its higher education base. The current Government is fully committed to investing in R&D in the public sector, raising spending as a proportion of GDP, improving infrastructure, and encouraging cooperation with the private sector.

Foreign direct investment (FDI)

As well as employment and output benefits, foreign direct investment is a proven vehicle for introducing innovation into economies in transition, in terms of new products and processes, management and organisation, opportunities for suppliers, and sometimes the later establishment of R&D facilities, in the right conditions. The total inflow of net foreign direct investment (FDI) in Serbia in the period 2001 to 2009 was €12 billion (figure 41), with the dominant part coming through privatisation.

Figure 41: Trends in net FDI since 2001

Source: Serbia Export and Investment Promotion Agency (SIEPA), 2010

FDI during the 2000s was mostly directed into the financial, transport, storage and communication, and processing sectors (figure 42).

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Figure 42: Inflow of FDI to Serbia from 2004 to 2009 by economic activities

Source: National Bank of Serbia

Investment in the financial sector has been achieved in the past through bank privatisations, while several foreign companies have invested heavily in the mobile communication market. On the other hand, foreign investors in manufacturing, which could be the engine of productivity and value added for the country’s economy, appear to have often located in Serbia because of huge government incentives and a lower unit-cost labour force than other European countries.

These factors cannot be the drivers of economic development in the long run, as the country becomes wealthier, labour becomes relatively more expensive, and EU state aids rules constrain incentives. Instead, Serbia will need to become increasingly reliant on workforce education and skills, process quality, innovation, transport and communication links, and a strong public-private interface, as well as the ‘virtuous circle’ of better performing industry attracting more investment and opportunities to open new supplier and service businesses.

Clusters

While under-employed assets in under-developed regions and localities can attract inward investment, the location of FDI in Serbia to date shows the magnetic effect of ‘clustering’, which can lead investors to seek out opportunities close to existing enterprises in their sector, and sources of specialist labour, know-how and innovation. Clusters are geographic concentrations of interconnected companies, specialised suppliers, service providers, and associated institutions in a particular field. They enable creation and refinement of new ideas in networks of cooperating companies and institutions.

Clusters typically emerge spontaneously, as businesses in the same sector co-locate to exploit the presence of natural resources, pools of (skilled) labour and/or market opportunities, resulting in value chain coordination, sharing of knowledge, innovation, increase access to markets and still more investment, spin-offs and new business opportunities. They are usually located in the same area and specialise in a distinct economic activity, and can include day-to-day competitors, both buyers and suppliers of goods and services, and the public bodies, education institutions and

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associations which facilitate their existence. Cluster recognition enables the Government to work actively through its programmes and institutions to promote cooperation among its potential members that want to work together to reduce costs, increase productivity and competitiveness of their products, and develop new market offers, alongside the normal processes of healthy competition among enterprises in the same sector.

There were 28 registered89 clusters in Serbia supported by the Government in 2009, comprising 713 members, of which 605 were private companies and 108 were support institutions, including R&D centres, educational institutions and/or public institutions (see Annex M for details). They are at different stages of development, with automotive, IT, production of agriculture machinery and flower production being the most developed.

Support to cluster development has been implemented through annual programmes since 2007. This state support is similar to policies in the rest of Europe and relates to areas such as marketing, promotion, market penetration, internalisation, joint innovative, projects, education, networking at all levels, development of financial resources etc. However, Serbian clusters are still unable to fulfil their purpose of being a source of dynamic development, without further enhancement of the structure and services they currently offer to their members.

Regional disparities

Serbia has one of the highest levels of regional disparities in Europe.

The degree of district development, measured by the level of income per capita, is within the ratio of 4:1, where the highest levels are present in the area of the City of Belgrade and the Southern Bačka county (74% and 41% above the average in the Republic), and the lowest in Toplički and Jablanički counties (around 60% below the average) in 2009. In terms of local self government units (LSU), the ratio is even more disturbing – in 2008, the richest LSU was 10 times more developed then the poorest one.

The highest registered unemployment rates (measured as an average over the whole of 2009) are also present on the territories of the Toplički and Jablanički counties (44.2%) and they are almost two times higher than the average in the Republic (26.0%), unlike the City of Belgrade (13.5%), where this rate is the lowest (figure 43).

89 Clusters in Serbia are registered according to the Law on Associations and Law on Business Entities and can be registered as a business entity, association or fund. The criteria for Government support include having at least 12 active members, out of which, there must be 9 business entities and 3 support institutions (at least 1 of which must be a research-development institution)

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Figure 43: Average registered unemployment rates by districts, 2010

According to the World Bank’s Policy Note “Mapping Serbia’s Growth”, Serbia’s largest cities have driven the country’s growth between 2001 and 2008: the largest four cities in terms of population (Belgrade, Novi Sad, Niš and Kragujevac), which together account for around 2.3 million inhabitants or less than one-third of population, contributed to almost two-thirds of Serbia’s growth90.

Large regional disparities reflect the concentration of industry and services within Serbia with higher-productivity manufacturing industries and services concentrated around the City of Belgrade and Novi Sad. The service sector had the highest growth in real terms in Belgrade and increased the share in the value added of the City of Belgrade from about 60% in 2000 to 74% in 2008, which is considerably above the national average (services account for about 60% of national level value added). On the other hand, agriculture sector is spread across regions of the country; the only region with a higher concentration is Vojvodina, northern Serbia.

Business demography indicators record large differences in development among local self government units and districts of Serbia showing that better possibilities for entering new business activities are given to potential entrepreneurs in more developed regions.. Some 39.5% of all SMEs are situated in the City of Belgrade and South Bačka District; they employ 42.5% of workers, generate 55.1% of turnover and create 56.1% of GVA of the SME sector. They also contribute to 49% of all SME exports.

Similarly, a characteristic of FDI witnessed in Serbia is its geographic concentration in more developed areas, particularly in the capital, showing that investors favour areas with basic infrastructure and a skilled labour force. According to “Mapping Serbia’s Growth” between 2001 and 2008, Belgrade and Novi Sad attracted the most significant amounts of FDI (see Annex N). Practically two-thirds (65%) of Serbia’s total cumulative FDI stock in the previous eight years was concentrated in the two largest cities. Looking at the sectoral breakdown of FDI, Novi Sad has led investments in manufacturing, while Belgrade has captured the investment in financial services,

90 Also, here is important to stress that only three cities in Serbia have share in the national economy above 2 percent

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transportation and trade. This high share of Belgrade in FDI in services is to a large extent due to the fact that head-quarters of all these sectors are in Belgrade (unlike for manufacturing).91

As a result, economic activity is concentrated around Serbia’s three largest cities, Belgrade, Novi Sad and Niš. Belgrade and Novi Sad alone have contributed to value added of almost 60% of Serbian economy (figure 44), while the share of cities and towns in the rest of Serbia is almost insignificant.

Figure 44: Share in the economy (2008)

In recent years, the importance of tourism for the development of regions in Serbia has grown and the Government is putting a lot of effort into improving the situation in the sector. Current statistics shows that the tourism sector is contributing 2.5% of GDP and 5% of total employment. In 2010, the number of tourists increased by 18.3% and the number of arrivals increased by 26 %, compared to 2009. The largest number of tourists visited the main administrative centres (32.7%), other tourist sites (26.0%), mountain sites (19.2%), spa seats (17.7%) and the rest (4.2%).92

However, Serbian tourism products are neither sufficiently developed nor well commercialised within the international tourism market. The present situation regarding tourist infrastructure is even more challenging. The average hotel in Serbia has 105 rooms and is 42 years old; the last time it was refurnished was 13 years ago. Hotels are mostly 2 or 3 stars. In 2004, the average annual income of a hotel in Serbia was €8000 per room, while international standards for the same categories expect 2.5 times higher income.93 By the end of 2009, 45,356 accommodation units (rooms) were registered in Serbia and 112,815 tourist beds. From total of accommodation units 56.47% (25,614) is basic capacities (hotels, motels, apartments, touristic villages etc.) and 43.52% (19,742) is complementary capacities (spa, mountain resorts, camps etc.)

Serbia is creating an institutional framework to create preconditions to deal with regional disparities. The Amended Law on Regional Development specifies five regions (figure 45) and according to the level of development, regions are classified in two groups:

Developed regions: level of development is above national average GDP per capita; Under-developed regions: level of development is below the national average GDP per capita

91 “Mapping Serbia’s Growth”, World Bank (2010)92 Statistical Office of the Republic of Serbia, 201193

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Figure 45: Regions according to the Amended Law on Regional Development

Together, the Belgrade and Vojvodina regions comprise 65.5% of the national Gross Domestic Product, while the other three regions are classified as under-developed, with below national average GDP per head (figure 46).

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Figure 46: Regional GDP in 2009

Source: Statistical Office of the Republic of Serbia, 2010

Infrastructure supporting enterprise creation and growth

In addition to the core infrastructure of transport networks and environmental systems, businesses require a backbone of built infrastructure to generate a conducive environment for new firm formation and development, and inward investment. This includes industrial zones and business parks connected to communal services, serviced incubators for start-ups and job creation, education, training, research and testing facilities, and tourism infrastructure based on existing heritage, natural and new attractions. Good infrastructure can nurture clusters by efficiently connecting firms to their customers, suppliers and business service providers, including public institutions. Conversely, deficiencies in infrastructure create barriers to seizing business opportunities or increase costs for all firms, from micro enterprises to large corporations94.

There are a significant number of industrial zones in Serbia, taking into account that the majority are still under construction or in preparation (table 19).

94 Enterprise Surveys; World Bank (2009)

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Table 19: Number and area of industrial zones in cities/municipalitiesNo. City / Municipality Industrial Zone / Park

No Total Area in (ha)1. Zrenjanin 2 2002. Indjija 3 3813. Stara Pazova 4 8924. Loznica 1 835. Subotica 4 1976. Svilajnac 1 237 Pirot 4 Not known8 Sabac 2 9219 Kragujevac 4 900+10 Batočina 1 1711 Velika Plana 2 30812 Jagodina 1 15014 Lapovo 1 Not known15 Niš 3 32216 Pećinci / Šimanovci 2 Not known17 Sombor 1 50018 Paracin 2 5819 Kraljevo 48920 Ruma 2 308+21 Smederevo 4 16522 Leskovac 3 441

Source: Municipal Infrastructure Support Programme (2011)

According to the “Business Infrastructure Requirements and Priorities- Sector Analysis” performed by the EU funded project Municipal Infrastructure Support Programme, road and technical infrastructure on most of the planned sites is only partly developed or totally undeveloped. A particular problem area is power installation shortage in a significant number of planned industrial zones. A significant number of projects is under preparation or in initial phase of development (Krusevac, Bogatić, Bor, Knjaževac Koceljeva, Mali Zvornik, Malo Crniće, Negotin, Požega, Požarevac, Sečanj, Apatin, Kanjiža, Bačka Palanka, Ruma, and Žabalj) substantially supported by National Investment Plan funds. A number of municipalities and cities have a marketing strategy for the construction of organized industrial zones, but basically none has an industrial zone with pre-built units. The number of completed, functioning industrial zones in Serbia is very low.

Business incubators provide entrepreneurs with premises and support to develop their business ideas and establish a company. By providing services on a 'one-stop’ basis, and enabling sharing facilities, business incubators can significantly improve the survival and growth prospects of start-ups and small firms at an early stage of development. Most incubators in Serbia are considered “traditional”, providing exclusively office space and basic office equipment, and are operated directly by national or more often, local authorities. Specialised incubators have been established by universities or private sector organisations. There are different types of incubators in Serbia: mixed, combined, innovative, production-oriented, technological, and service-oriented. As figure 47 shows, there are currently 15 active business incubators in Serbia (shown in blue), while there is an initiative to establish six more (shown in green and red).

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Figure 47: Business incubators in Serbia

Source: http://www.bitf.rs/cms/item/clubs/sr/networks/incubators.html

According to analysis95 funded by ‘The East-East Partnership beyond Borders Programme’96, managers of Serbian incubators are faced with considerable resource needs in the appointment and development of staff, both in numbers and skills, due to uncertainty of revenues. Consequently, the services that most incubators provide are minimal (administrative and accounting services). Only half of the incubators manage to organise training and seminars for their tenants and less than one third of incubators provide services in the field of innovation so the combined value of support services does not exceed 20% of the total annual cost of incubators in Serbia. In terms of funding, one third of all incubators have annual revenues of less than € 30,000; disparity in the income structure ranges from incubators that do not have access to any subsidies and have no direct investment from institutions, to incubators that are fully covered from the municipal budget.


The ministries responsible for policy and legislation in the field of competitiveness, namely the Ministry of Economy and Regional Development, the Ministry of Education and Science, and the Ministry of Culture, Media and Information Society, are described in Annex P. It also describes the roles of other key bodies, namely the National Council for Regional Development, the National Agency for Regional Development, the Regional Development Councils (RDCs), the Regional Development Agencies (RDAs), the Council for Small and Medium-sized Enterprises, the National Council for Competitiveness, the National Council for Science and Technological Development, the National Information Technology and Internet Agency, and the Serbia Investment and Export Promotion Agency (SIEPA). It also sets out the current body of laws governing competitiveness , as defined by IPA Implementing Regulation.

Strategic framework

95 ‘Business Incubators - Successful model for creating favourable environment for local and regional development’96 This Programme is implemented by Soros Foundation/Open Society Institute (OSI) network in Central and Eastern Europe, Turkey, Central Asia, and Mongolia and with institutional partners in Slovenia, Croatia and Russia. The Programme does not plan or implement activities centrally. Rather, the Programme supports initiatives as determined by each foundation and partner in consideration of its comprehensive strategies and priorities as outlined in a yearly vision statement.

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The National Strategy for Economic Development (2006-2012)

The Strategy defines six key economic goals for Serbia:

Creating an attractive business environment as a basic condition for increasing the overall competitiveness of the Serbian economy. This is seen to involve: (i) acceleration of privatisation and restructuring of existing enterprises; (ii) general policies on enhancing competitiveness including simplifying the legislative framework and support SME establishment and growth; and (iii) stimulating export and foreign direct investments; (stimulating the development of high technology sectors.

Knowledge-based development. This is seen to involve: (i) continuation of education reforms; (ii) reform goals in secondary, college and university education; (iii) employment and human resources management; (iv) research and technological development; and (v) development of information and communication technology.

Development of efficient economic infrastructure: energy, transport, water, etc. Balanced stabilising, developmental and social role of the state. More balanced regional development. Sustainable development.

The National Strategy of Regional Development (2007-2012)

The Strategy defines the goals of regional development as being: Sustainable development; Enhancing regional competitiveness; Alleviation of regional disparities and poverty; Curbing negative population trends; and Continuation of the decentralisation process

This Strategy was the first planning document whatsoever dealing with regional development and disparities in Serbia, and thus it was more a descriptive one, without listing concrete actions and indicators for measuring its realisation. Therefore, three years after its adoption, there have been a lot of new developments which required a new approach, and hence the Law on Regional Development envisages the preparation of new, a more operational document – the National Plan for Regional Development (10 year period) and five Regional Development Strategies, one for each region (five year period). These are to be in line with already adopted local development strategies, regional and national strategies, but also with the new Europe 2020 Strategy.

The Strategy for Fostering and Development of Foreign Investment97

The Strategy identifies the key barriers to the development of FDI in Serbia as:

Legislative and regulatory issues e.g. complicity concerning land-ownership and non-market prices for the land usage, non-specialised court systems;

Slow pace of reforms and overall poor and inconsistent quality of implementation; Limited institutional capacity at both policy development and operational levels to activate

issues; Infrastructural deficiencies in comparison with neighbouring countries; Lack of support structures for modern industry; Lack of focused national investment promotion programme.

97 Official Gazette vol. 22/200

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The Strategy proposes a wide range of legislative reform, institutional development and other actions. The actions addressed at increasing competitiveness are:

Development and implementation of a programme on public/private partnership and concessions in key utility and infrastructural areas;

Accelerating liberalisation of key sectors and maximise industrial development role of key research and scientific institutions;

Support for development of clusters at sectoral level and initiatives to address common challenges;

Development of policies and initiatives on the provision of Scientific and Technology Parks and Industrial Parks;

Measures to facilitate full operation of regional and international trade agreements; Development and facilitation of supports for quality and accreditation proposals to facilitate

international market access; Development of support to productivity and training issues through focused initiatives in

cooperation with private sector; Elimination of barriers to export development, including focus on facilitating modern logistics

through development of physical and regulatory environment; Preparation of programme for support to introduction of standards and certification.

The Strategy for Development of Competitive and Innovative Small and Medium-sized Enterprises (2008-2013)

The SME strategy is built on 5 pillars:

Pillar 1: Promotion & Support for Entrepreneurship and Establishment of New Enterprises. Pillar 1 activities are designed to increase the number of new SMEs and private entrepreneurs operating within the formal economy. It consists of three measures: (i) increase Serbia’s potential to produce new entrepreneurs and business start-ups; (ii) improve business development support to new businesses; and (iii) improve the business environment for start-ups.

Pillar 2: Human Resources for a Competitive SME Sector. Pillar 2 actions are designed to improve the quality of human resources as a key factor for the future development of SME sector in Serbia. It consists of four modules: (i) better quality of entrepreneurship education; (ii) more efficient business services to support SME sector; (iii) improvement of management capabilities of SME owners and entrepreneurs; and (iv) highly qualified labour force for SMEs.

Pillar 3: Financing SMEs and Taxation. Pillar 3 actions will upgrade existing knowledge in financial management and improve the financing of SMEs as well as the efficiency of financing and taxation system. It consists of two modules: (i) finance and financial expertise for SMEs; and (ii) taxation for SMEs.

Pillar 4: Competitive Advantage for SME on Export Markets. Pillar 4 actions are designed to improve the international competitiveness of SMEs. It consists of four modules: (i) developing a culture of investing in innovation by SMEs; (ii) standards and quality control; (iii) clusters and business links; (iv) support for export-oriented SMEs

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Pillar 5: Legal, Institutional and Business Environment for SMEs. Pillar 5 actions are designed to improve the regulatory and institutional framework, in order that they collectively contribute to SME development and growth. It consists of five modules: (i) legal and regulatory framework which encourages entrepreneurship; (ii) an efficient public sector serving SMEs and improved business environment; (iii) developed regional infrastructural support for SMEs; (iv) efficiently uphold SME sector interest through public/private dialogue; and (v) public procurement and SMEs.

Strategy of Scientific and Technological Development of the Republic of Serbia for the period 2010 – 2015

The Strategy, adopted by the (then) Ministry of Science and Technological Development, sets out a vision of Serbia as an innovative country where scientists have attained European standards, contributing to the overall level of knowledge of the society and promoting the technological development of the economy. The Strategy defines national priorities, partnership arrangements, its implementation and key benchmarks. The Strategy reflects the intentions of the governing structures to restructure Serbian R&D sector and stimulate urgently needed measures with this purpose. It envisages investing in science and technology as the only way for Serbia to create a sustainable economy and society. Among the primary goals that the Strategy tries to achieve is that of reorganising and capacity- building of existing R&D institutes, ensuring application of knowledge based innovations into production that will enhance Serbian knowledge based on economy and its competitiveness. Innovation results from effective R&D through effective technology diffusion, and policies to better integrate national innovation and education systems.

The implementation of the Strategy requires definition and planning of the following actions: Integrated R&D programmes; Programme of technological development; Programme of incentives for development of innovations; Programme of knowledge transfer

The National Strategy for Tourism Development until 2015

This prioritises key areas to stimulate economic growth, employment and quality of life, including development of a positive international image of the country, ensuring the long term protection of natural and cultural resources, and achieving international quality standards.

Strategy for the Development of Information Society until 2020

The Strategy was adopted in June 2010 and identifies priorities in six key areas: 1) electronic communications (country-wide broadband coverage, digital switch over for Serbian terrestrial radio and television broadcasting and digital dividend, communication infrastructure of the public sector); 2) e-government, e-health, e-justice (electronic identity in the provision of public services, ICT application in public administration, health services and justice systems; 3) ICT in education, science and culture (academic computer network, ICT in education, ICT research and innovation, digital contents); 4) e-commerce (abolishing formal constraints to the development of e-commerce, electronic accounts and electronic payments, development of e-business, consumer protection in e-commerce, coordinating development of e-commerce); 5) business ICT sector (human resource development, development of start-ups and innovative companies, exports and cross-border outsourcing, software and digital content intellectual property rights); and 6) information security (improvement of legal and institutional framework, protection of critical infrastructure, fight against high-tech crime, academic research and development in the area of information security).

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Strategy and Action Plan for the development of e-Government until 2013

This identifies four pillars for the development of e-Government: 1) establishment of basic drivers of the process (ICT infrastructure, electronic identity, electronic signature and electronic document, digital registries, interoperability standards, open source solutions, R&D in the area of innovative ICT solutions, coordination of ICT initiatives, information security); 2) modernisation of the process (digitalisation of cross-sectoral processes, protocol standardisation of inter-institutional communication, in-depth reform of public administration processes); 3) establishment and continual development of e-Government services (e-Government portal, common and specific services); and 4), human resource development (ICT literacy of civil servants, recruiting ICT experts).

1.2 Community strategic framework

1.2.1 Introduction

The strategic context for the analysis, priorities and measures of the OP has two dimensions – a national (including local and regional) and a supranational level. The key strategy documents for the sector within Serbia, adopted by the Government, were described in the preceding section. The following section describes the European Union’s priorities for the sector, taken from its regulations, plans and guidelines, as transposed into agreements with the Republic of Serbia.

In particular, the OP has been shaped by:

The Council regulation establishing IPA98, and the Commission regulation which governs its implementation and determines its eligible actions99;

The Multi-Annual Indicative Programming Document (MIPD), which sets out the Commission’s objectives and expectations for all interventions using IPA funding over the programming period100;

The European Partnership101, adopted by the Council of the European Union, which sets out mid-term objectives for Serbia to meet the requirements of EU membership, within the context of the Stabilisation and Association process (SAp).

The Community Strategic Guidelines on economic, social and territorial cohesion for 2007-2013102, also adopted by the European Council, which elaborate how the Lisbon 103 and

98 Council Regulation (EC) No 1085/2006 of 17 July 2006 establishing an Instrument for Pre-Accession Assistance (IPA)99 Commission Regulation (EC) No 718/2007 of 12 June 2007 implementing Council Regulation (EC) No1085/2006 establishing an Instrument for Pre-Accession assistance100 The MIPD for 2011-2013 will not be published by the European Commission until autumn 2010, and hence this sub-section will be added later. Moreover, specific guidance for IPA components III to V will only be issued when Serbia achieves candidate country status.101 Council Decision (Official Journal of the European Union, L 80 of 19.03.2008)102 Council Decision of 6 October 2006 on Community strategic guidelines on cohesion (2006/702/EC)103 In March 2000, the European Council adopted the Lisbon Strategy and set a goal for the Union to become the most competitive and dynamic knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion by 2010. In 2005, the European Council re-launched the Lisbon Strategy by focusing on growth and jobs.

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Gothenburg104 agendas should be interpreted within the context of funding the EU’s cohesion policy;

“Europe 2020”, which was adopted by the Council on 17 June 2010 and provides the framework for Europe-wide action to achieve smart, sustainable and inclusive growth over the next decade105.

In accordance with the principle of concentration, the OP will focus limited resources on priority themes this OP, by matching Serbia’s priorities and development needs with the most relevant aspects of the EU’s strategies and guidelines.

1.2.2 IPA regulations

The European Council’s IPA Regulation describes IPA Component III as “accessible only to candidate countries accredited to manage funds in a decentralised manner, in order to help them prepare for the time after accession, in particular for the implementation of the Community's cohesion policies” . According to Article 10, IPA component III “shall support countries … in policy development as well as preparation for the implementation and management of the Community's cohesion policy, in particular in their preparation for the European Regional Development Fund and the Cohesion Fund” .

Article 147 of the IPA Implementing Regulation defines the eligible actions under IPA component III as follows:

(a) Transport infrastructure, in particular interconnection and interoperability between national networks, and between national and trans-European networks;

(b) Environment measures related to waste management, water supply, urban waste water and air quality; rehabilitation of contaminated sites and land; areas related to sustainable development which present environmental benefits, namely energy efficiency and renewable energy;

(c) Operations which enhance regional competitiveness and a productive environment, and encourage creation and safeguarding of sustainable employment, involving in particular:

(i) provision of business and technology services for enterprises, particularly in the fields of management, market research and development and networking;

(ii) access and use of information and communication technologies(iii) promotion of technological development, research and innovation including through

cooperation with tertiary education and research institutions and research and technology centres;

(iv) development of business networks and clusters; (v) creation and development of financing instruments which facilitate access to

revolving financing through venture capital, loan and guarantee funds; (vi) provision of local infrastructure and services which contribute to facilitate

establishment, development and expansion of new and existing business;(vii) education and training infrastructures, where necessary for regional development

and in close coordination with the human resources development component.

104 By adopting the Gothenburg Strategy in June 2001, the European Council agreed on the first EU Sustainable Development Strategy, adding an environmental dimension to the Lisbon process for employment, economic reform and social cohesion. In June 2005, the European Council adopted a Declaration on Guiding Principles for Sustainable Development.105 http://ec.europa.eu/eu2020/index_en.htm

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http://ec.europa.eu/eu2020/index_en.htm


Technical assistance may also be granted for preliminary studies and technical support related to eligible activities, including those necessary for their implementation. Technical assistance may also finance preparatory, management, monitoring, evaluation, information and control activities and activities to reinforce the administrative capacity for implementing the assistance under the IPA Regulation provided through this component.

The strategy of the OP is entirely aligned with the eligible actions in the IPA regulations.

1.2.3 European Partnership

The European Partnership set out specific challenges for Serbia to be positioned for EU membership. Some of these priorities, when enacted, will set the context for the programming of IPA component III in Serbia, while others provide the framework for actual assistance under the OP. Table 20 sets out all the relevant mid-term objectives, and identifies which are covered by the OP, relative to the three main themes.

Table 20: Relationship of EP mid-term objectives to OP-ED prioritiesMid-term objective TRAN ENV COMPStrengthen further administrative capacity, including project preparation for large investments and maintenance of infrastructure

P - -

Continue implementation of the Memorandum of Understanding on the Development of the South East Europe Core Regional Transport Network and strengthen cooperation with the South East Europe Transport Observatory

P - -

Adopt and start implementing strategies on air pollution, waste management and nature protection

- P -

Implement fully the national environmental protection strategy and the water strategy

- P -

Implement the multi-annual plan for financing the environmental protection policy, including for investment

- P -

Finalise construction of a facility for treatment and safe disposal of hazardous waste

- Y -

Adopt and implement a long-term strategy for an environmentally sustainable energy policy

- N -

Improve the business environment to increase greenfield foreign direct investment

- - P

Continue the implementation of the European Charter for Small Enterprises

- - P

Y = fully; P = partly; N = not applicable

1.2.4 Community Strategic Guidelines (CSG) for 2007-2013

The OP has also been prepared to move Serbia closer to the Lisbon and Gothenburg agendas, as articulated through the CSG. The CSG state that the programmes supported by the EU’s cohesion policy in the 2007-2013 financial perspective should seek to target resources on the following three priorities:

Improving the attractiveness of Member States, regions and cities by improving accessibility, ensuring adequate quality and level of services, and preserving the environment;

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Encouraging innovation, entrepreneurship and the growth of the knowledge economy by research and innovation capacities, including new information and communication technologies; and

Creating more and better jobs by attracting more people into employment or entrepreneurial activity, improving adaptability of workers and enterprises and increasing investment in human capital.

While the CSG is intended to guide the implementation of the Structural Funds and the Cohesion Fund, which have a far greater scope than IPA, the OP will follow the most appropriate guidelines for action, set out below.

Transport

Guideline 1.1.1: Expand and improve transport infrastructures

The CSG highlights the role of efficient, flexible, safe and clean transport infrastructure as a necessary precondition for economic development, increasing efficiency, stimulating productivity, boosting opportunities for trade, and integrating national markets.

In order to maximise the benefits deriving from transport investments, the CSG proposes that assistance should be based on a number of principles:

Objective criteria should be used to determine the level and nature of the infrastructure investment to be undertaken, including the level of economic development, the prevailing density and quality of infrastructures or the degree of congestion, while due account should also be taken of environmental and social implications of prospective infrastructure projects.

The principle of environmental sustainability should be respected to the greatest possible extent; shifts to the more environmental friendly modes should be pursued, while the environmental and general performance of each mode of transport should be optimised, in particular concerning the use of infrastructure within and across the different modes.

Particular attention should be paid to modernising the railway system by carefully selecting the priority sections, ensuring their interoperability within the framework of the European Rail Transport Management System (ERTMS).

Investments in transport infrastructure should be accompanied by proper traffic management, with particular attention to safety, in accordance with national and EU standards, taking into account the need to achieve a balanced (and clean) modal split that serves both economic and environmental needs.

These principles will be fully integrated into the selection of operations under the OP to achieve the SCF’s strategic priority for transport investment in the TEN-T network.

Environment

Guideline 1.1.2: Strengthen the synergies between environmental protection and growth

The CSG highlights the three contributions that environmental investments can make to the economy: ensuring the long-term sustainability of economic growth, decreasing external

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environmental costs to the economy (e.g. health costs, clean-up costs or damage recovery) and stimulating innovation and job creation. In this context, the CSG proposes the following guidelines for action:

Addressing the significant needs for investment in infrastructure to comply with environmental legislation in the fields of water, waste, air, nature and species protection and bio-diversity.

Ensuring that attractive conditions exist for businesses and their highly skilled staff, by promoting land-use planning which reduces urban sprawl, and by rehabilitating the physical environment, including the development of natural and cultural assets. Investments in this area should be clearly linked to the development of innovative and job-creating businesses on the sites concerned.

Promoting, in addition to the investments in sustainable energy and transport covered elsewhere, investments that contribute to the EU-Kyoto commitments.

Undertaking risk prevention measures through improved management of natural resources, more targeted research and better use of ICTs, and more innovative public management policies including, for example, preventive monitoring.

Given resource constraints under IPA III, compared with the considerable scale of investment need, the strategic priority of the SCF is oriented on the first guideline, ensuring compliance with environmental legislation, specifically through infrastructure investment in the fields of water, waste and air.

Competitiveness

Guideline 1.2.1: Increase and better target investment in RTD

The CSG notes that research and technological development (RTD) in the less developed territories should be developed around existing poles of excellence. The specific guidelines include:

Strengthening cooperation among businesses and between businesses and public research/tertiary education institutions.

Supporting RTD activities in SMEs and technology transfer (enabling SMEs to access RTD services in publicly funded research institutions).

Strengthening R&D capacity building, including ICT, research infrastructure and human capital in areas with significant growth potential.

In this context, the strategic priority for competitiveness focuses on assistance to RTD institutions and their relationships of cooperation and collaboration with business, especially SMEs.

Guideline 1.2.2: Facilitate innovation and promote entrepreneurship

The CSG identifies innovation as an overarching priority for cohesion policy, with the objective of fostering a business climate which promotes the production, dissemination and use of new knowledge by firms. The specific guidelines include:

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Making regional RTD innovation and education supply more efficient and accessible to firms, in particular SMEs.

Providing business support services to enable enterprises, and in particular SMEs, to increase competitiveness and to internationalise, in particular by seizing the opportunities created by the internal market.

Ensuring full exploitation of European strengths in the area of eco-innovation, together with the improvement of SME practices through the introduction of environmental management systems.

Promoting entrepreneurship and facilitating the creation and development of new firms, with emphasis on promoting spin-out and spin-off companies from research institutions or firms using a variety of techniques.

The strategic priority for competitiveness will allow the funding of business advisory and infrastructure services, the attainment of European standards (including environmental management) and the facilitation of exporting, and the creation of new businesses from research institutions.

Guideline 1.2.3: Promote the information society for all

According to the CSG, policy measures in the area of ICT dissemination should focus on connectivity. Resources available under IPA component III are too restricted in scale and scope to finance investment in ICT infrastructure, but the relevant guideline for ICT services is as follows:

Ensuring uptake of ICTs by firms and households and promoting development through balanced support for the supply and demand of ICT products and both public and private services, as well as through increased investment in human capital.

Given resource constraints under IPA III, the strategic priority for competitiveness focuses on the development of e-business and e-government services to business.

1.2.5 Europe 2020

The OP will also adopt the priorities of Europe 2020, within a Serbian context. As a Europe-wide strategy which will be implemented at the national level and therefore attuned to national circumstances, Europe 2020 sets out a vision of Europe's social market economy delivering high levels of employment, productivity and social cohesion, and based on three mutually reinforcing priorities:

Smart growth: developing an economy based on knowledge and innovation; Sustainable growth: promoting a more resource efficient, greener and more competitive

economy; Inclusive growth: fostering a high-employment economy delivering social and territorial

cohesion.

In order to establish a clear direction, the Commission has proposed a series of headline targets for the EU as a whole, which will be converted into national targets and trajectories for Member States. In relation to this OP, these are:

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Improving the conditions for research and development, in particular with the aim of raising combined public and private investment levels in this sector to 3% of GDP; the Commission will elaborate an indicator reflecting R&D and innovation intensity;

Reducing greenhouse gas emissions by 20% compared to 1990 levels; increasing the share of renewables in final energy consumption to 20%; and moving towards a 20% increase in energy efficiency; the EU is committed to taking a decision to move to a 30% reduction by 2020 compared to 1990 levels as its conditional offer with a view to a global and comprehensive agreement for the period beyond 2012, provided that other developed countries commit themselves to comparable emission reductions and that developing countries contribute adequately according to their responsibilities and respective capabilities.

The Commission has also put forward seven flagship initiatives, of which four apply to the field of this OP:

Transport and Environment

The Commission has proposed one flagship initiative under Europe 2020, which covers both transport and environment:

"Resource efficient Europe" - to help decouple economic growth from the use of resources, support the shift towards a low carbon economy, increase the use of renewable energy sources, modernise the transport sector and promote energy efficiency.

The strategic priorities of the OP envisage a modernised and greener transport sector (rail and inland waterways), while assisting Serbia to become more efficient in its resource utilisation by investing in basic environmental infrastructure. Given limited resources, Serbia is not able to invest in de-carbonising the economy through support to renewables or energy efficiency through IPA component III.

Competitiveness

The Commission has proposed three flagship initiatives in the field of competitiveness, and which are well aligned with the priorities of the OP:

"An industrial policy for the globalisation era" - to improve the business environment, notably for SMEs, and to support the development of a strong and sustainable industrial base able to compete globally;

"Innovation Union" - to improve framework conditions and access to finance for research and innovation so as to ensure that innovative ideas can be turned into products and services that create growth and jobs;

"A digital agenda for Europe" - to speed up the roll-out of high-speed internet and reap the benefits of a digital single market for households and firms.

The strategic priority of the OP focuses on upgrading the business environment, helping SMEs to compete more effectively in domestic and international markets, investing in innovation of new materials, products, services and processes, and stimulating take-up of digital services by enterprises.

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1.2.6 Coordination mechanisms

The programming and management of IPA III monies will be coordinated with those of other IPA components, and with national programmes, bilateral funds and International Financial Institutions (IFIs), in line with the principles of complementarity and consistency. Inter-ministerial and donor coordination will evolve from the preparation of the OP (described in the following section) into the implementation phase.

According to Article 9 of the IPA Implementing Regulation, assistance under IPA shall be consistent and coordinated within and between the IPA components, both at planning and programming levels. Any overlap between actions covered by different components shall be avoided and no expenditure shall be financed under more than one operation. Coordination between different components has been ensured through the inter-ministerial working groups for IPA components I, III and IV and with strong involvement of the NIPAC Technical Secretariat throughout the process of SCF and OP preparation.

The NIPAC and NIPAC Technical Secretariat, with support from eight Sectorial Working Groups (SWGs), have prepared the Needs Assessment Document (NAD) for international assistance in 2011-13, as the basis for identifying annual IPA I programmes and bilateral donor projects. These SWGs comprise representatives from Line Ministries and other beneficiaries as the main actors in programming and project identification, with considerable cross-over with the OPWGs for IPA III and IV. The SWGs will contribute to the identification and prioritisation of projects, ensuring co-financing and analysis of project implementation, and will be structured according to the following eight sectors, in line with the eligibility criteria for IPA component I and the transition from potential to full candidate country status: the rule of law; public administration reform; civil society, freedom of speech and cultural rights; transport; environment and energy; competitiveness; human resources development; and agriculture and rural development. As with IPA III and IV, the IPA I programming process has engaged representatives of partners, donors and IFIs.

Experiences and lessons learned from CBC programmes have been taken into account during drafting of SCF and OPs. The key task concerning future coordination will be implementation of specific grant schemes. Concerning IPA component V (IPARD), the process of conducting sector analysis for the chosen sectors (dairy, meat, fruits and vegetables) of agricultural production will be completed by 30th June 2010. Drafting of the Rural Development Programme, in line with article 184 of the IPA Implementing Regulation, will proceed in parallel with drafting of the SCF and the OPs under IPA III and IV, and is expected to be prepared by November 2010. Preparation for IPARD will be supported by IPA 2007 project ‘Strengthening the capacities of the Republic of Serbia for the absorption of EU Rural Development Funds in pre-accession period’.

Coordination of programming at the policy level is the responsibility of the Commission for Programming and Management of EU Funds and Development Assistance106. The Commission is chaired by the Deputy Prime Minister for European Integration, who also fulfils the role of NIPAC, and is composed of nine ministers and the Director of the SEIO. The task of this Commission is to review draft documents that will be presented to donors, suggest priorities for use of resources of international development assistance, and consider and make proposals to the Government on other significant issues related to the use and management of EU funds and development assistance. Meetings of this Commission are organised on an annual basis. As a monitoring tool, the EU Delegation and NIPAC have also created monthly ‘’bottleneck meetings’’ between DEU, NIPAC and

106 Established by Government decision in 2007, and chaired by the NIPAC

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line ministries to discuss the progress of IPA funded projects and to ensure their smooth implementation.

Looking to the future, the IPA Implementing Regulation stipulates two levels of Monitoring Committee, in order to provide coherence and coordination in the implementation of IPA and engage all relevant actors:

IPA Monitoring Committee (IPA MC); Sectoral Monitoring Committees (SMCs) for each OP.

The IPA Monitoring Committee has been operational since 2009, to ensure coherence and coordination in the implementation of all IPA components. Among its members, the IPA MC includes representatives of the European Commission, the National IPA Coordinator, the National Authorising Officer, representatives of the Operating Structures, and the Strategic Coordinator. Meetings are organised regularly twice a year. The two Sectoral Monitoring Committees for IPA components III and IV will come into being following the approval of the OPs and signature of the Financing Agreements, but will be established as shadow SMCs in anticipation. It is expected that the core membership of the SMCs will mirror the participation in the OPWGs for IPA III and IV, and to a large extent, the SWGs for IPA I, offering both continuity and coordination. It will be necessary to review and to adjust the role of the Commission for Programming and Management of EU Funds and Development Assistance in programme management implementation, in light of this full and reconfigured set of Monitoring Committees.

A pivotal mechanism for coordination across IPA components is the role of the ‘IPA Units’ within each line ministry. In preparing the systematisations of staffing across the Government of Serbia, the management of IPA assistance has been largely unified at ministry level, by creating IPA Units based on the PIUs for IPA component I, which are responsible for the programming and implementation of IPA components III, IV and V, as appropriate. These IPA Units will form the basis of the Operating Structures for the two OPs under decentralised management of IPA III and IV.

Furthermore, donor coordination meetings on the central level are organised at least twice a year to discuss national priorities, international assistance reports, aid effectiveness progress, etc. Programming of IPA components IV has been integrated in the existing aid effectiveness framework. The main principle in aid design and delivery is an integrated approach to all sources of aid (EU funds and other donor funds) as well as integrated approach to planning of Serbian with external sources of financing. In that respect, the main achievements in the period up to 2011 include the following:

Establishment of a set of institutional mechanisms for effective aid planning, programming and reporting;

Deployment of IT as a tool for aid coordination (the ISDACON Information System); Developing the SLAP 2.0 Information System, as a database of municipal infrastructure

projects; Establishment of comprehensive national mid-term planning/ programming documents, as a

priority platform for all sources of financing (Needs Assessment document, National Programme for Integration etc);

Defining programming procedure for international assistance, including a set of programming tools and intensive capacity building activities – the programming process is defined as to ensure synchronisation with the GoS planning and budgeting processes, and envisages the common project identification phase for all development assistance.

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Sweden leads the donor coordination group for the environment, while the energy donor group is chaired by Germany’s KfW. Donor coordination in the area of private sector development and financial markets is led by Germany’s GTZ and World Bank, while the Austrians take the lead on regional development and the Standing Conference of Towns and Municipalities (SCTM) for local development.

Further details of synergies and complementarities between actual proposed measures under the OP, and the programmes and projects under other IPA components, national funds, donor aid and IFIs, are described in OP section 3.4.

1.3 Partnership consultation

This draft OP has been prepared through a process of inter-ministerial coordination and consultation with key economic, social and environmental partners and civil society organisations, which will continue and be further elaborated, until the OP is submitted for formal approval by the Government of Serbia and the European Commission.

In order to ensure full coherence with national policy goals, create full ownership, and ensure synergies and complementarities with other IPA components, the Strategic Coherence Framework Joint Body (SCFJB) was formally created on 28 August 2009 through the “Inter-ministerial Agreement on the SCFJB”, to act as a forum for discussing inputs to the SCF and two OPs and to review draft documents. The SCFJB is convened and chaired by the Strategic Coordinator for IPA Components III and IV and comprises senior representatives of Government institutions. The Inter-Ministerial Agreement is appended as Annex S, and the Rules of Procedure as Annex T.

The work of the SCFJB has been supported by Working Groups, including three for this OP, namely transport (TRAN), environment (ENV) and competitiveness (COMP). In accordance with the Inter-Ministerial Agreement, membership can also been extended to economic, social and environmental partners as required, to participate in SCFJB or Working Group meetings, along with other Government institutions. The core membership of the Working Groups consists of bodies that will constitute the actual Operating Structures for the OPs, to ensure that the right analyses, objectives and priorities are identified, and to give the members ownership and accountability for the entire process from programming through to implementation (table 21).

Table 21: Membership of Working Groups (as at March 2011)Working Group Represented institutions MembersTransport Office of the Deputy Prime Minister; Ministry of Infrastructure and Energy;

Directorate for Inland Waterways - Plovput; Ministry of Environment, Mining and Spatial Planning; Ministry of Economy and Regional Development; Public Enterprise Serbian Railways; Ministry of Finance; Serbian European Integration Office; Statistical Office of the Republic of Serbia.

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Environment Office of the Deputy Prime Minister; Ministry of Environment, Mining and Spatial Planning; Ministry of Agriculture, Trade, Forestry and Water Management; Ministry of Infrastructure and Energy; Ministry of Economy and Regional Development; Ministry of Health; Ministry of Finance; Serbian European Integration Office; Statistical Office of the Republic of Serbia.

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Competitiveness Office of the Deputy Prime Minister; Ministry of Economy and Regional Development; Ministry of Education and Science; Ministry of Culture, Media and Information Society; Ministry of Finance; Serbian European Integration Office; Serbian Investment and Export Promotion, Agency; Statistical Office of the Republic of Serbia.

20

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Following an initial briefing to prospective members on 24 July, the Working Groups had their inaugural meetings in September 2009, and have since held a further six meetings, with the following goals (table 22).

Table 22: Content of Working Group meetingsPurpose TRAN ENV COMPPresentation and discussion of situation analysis of sector 21.09.09 21.09.09 22.09.09Performance of SWOT analysis and implications for possible measures 21.10.09 21.10.09 22.10.09Adoption of socio-economic analysis, strategic priorities, measures and operating structures

26.11.09 26.11.09 20.11.09

Discussion of draft descriptions of priority axes and measures, indicative list of major projects, and implementation provisions

16.02.10 16.02.10 17.02.10

Discussion of outline content of OP and content of measures (operations, modalities and timelines)

28.05.10 28.05.10 31.05.10

Discussion of first draft OP 15.07.10 15.07.10 16.07.10Pre-meetings for discussions with Commission on first draft OP 18.01.11 19.01.11 19.01.11

The proposed content of the OP has been the subject of presentations by responsible line ministries and discussions with the European Commission, specifically the Directorate-Generals for Regional Policy (REGIO) and Employment, Social Affairs and Inclusion (EMPL), together with the Directorate-General for Enlargement (ELARG), during their missions to Belgrade, on 28-29 September 2009 and 2-4 December 2009. The Directorate-Generals for Regional Policy and for Employment, Social Affairs and Inclusion returned to Belgrade from 25-28 January 2011 to discuss the first draft OPs and provide informal comments.

On 16 December 2009, the first round of consultations with the donor community was held, regarding the SCF and the two OPs. The aim of the meeting with bilateral and multilateral donors was to initiate consultation and ensure coordination, synergy and complementarities with their actions. Besides avoiding overlap of funds or lack of absorption due to missed opportunities, consultations with other donors are viewed as crucial so that effects of their investments, together with complementary IPA funds, leave a more effective and deeper impact on Serbia.

Consultations with socio-economic partners and civil society organisations were held on the SCF and two OPs on 17 December 2009 and then again on the 2nd draft of the SCF on 17 May 2010. This included an introduction to IPA components III and IV and the process and content of OP preparation, in order to raise awareness and seek initial feedback. The aim of inviting partners was not merely for them to be informed about the process, but to engage them in the identification of the challenges facing Serbia and to provide comments, inputs and ideas on the wider objectives and more specific measures to be undertaken under the two OPs. All comments were taken on board in the SCF drafts, before its submission to the Directorate-Generals for Regional Policy, and Employment, Social Affairs and Inclusion. Participating institutions are set out in table 23.

Table 23: Participation in donor and partner consultationsPurpose Participating institutions to date NumberConsultation with multilateral and bilateral donors

Delegation of the European Union; EBRD; German Embassy; Italian Development Cooperation; KfW Entwicklungsbank; Swedish International Development Association; World Health Organisation

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Consultation with socio-economic partners and civil society organisations

European Movement of Serbia; Serbian Chamber of Commerce; Standing Conference of Towns and Municipalities; Union of Employers of Serbia; Union of Independent Syndicates; University of Belgrade Faculty of Transport and Traffic; Vojvodina CESS; Young Researchers of Serbia

8

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The preparation of the OP is an ongoing process, with the first draft submission to the European Commission in November 2010, and informal written comments provided by the Directorate-General for Regional Policy during February 2011. Consultations will continue with socio-economic partners and civil society representatives throughout the discussion and revision of subsequent drafts with the European Commission. In particular, a more formal and deeper consultation phase on the OP will take place in June 2011 on second drafts, with an extensive range of partner organisations at the national and local levels.

It is intended that the final draft SCF and OPs will be subject to inter-services consultation by the Commission, as soon as Serbia achieves Candidate Country status, assumed to be by December 2011. After the Commission’s final comments have been taken on board, the final SCF and OPs shall be submitted to the Government of the Republic of Serbia for approval, the target date being March 2012. Once approved by Government Decision, the SCF will be submitted to the European Commission for collective agreement and adoption, and the OPs will then be submitted for approval by COCOF and ESF Committee.

1.4 Ex ante evaluation

The ex ante evaluation of the OP commenced in March 2011, after informal comments had been received from the European Commission on the first draft, and a second draft had been produced which integrated this feedback. In line with Commission guidance, the purpose of the evaluation is to optimise the allocation of resources and to improve the quality of programming, by using independent experts to review drafts of the OP and assess, inter alia, the rationale, relevance and coherence of the OP, and, as far as possible, the potential effectiveness and efficiency of the assisted actions, whether the OP demonstrates that allocated resources contribute to the objectives of the measures, and an assessment of the implementing provisions, including plans for monitoring and evaluation and the proposed quantified indicators.

The evaluation is being carried out in accordance with the European Commission’s “Indicative guidelines on evaluation methods: Ex ante evaluation, Working Document No.1” (August 2006)107. In addition, the working papers on monitoring and evaluation for the 2000-2006 programming period may also be taken into account. The ex ante evaluation will be an interactive and iterative process whereby the judgment and recommendations of the experts are taken into account in subsequent drafts of different parts of programmes, based on a constructive dialogue, whilst acknowledging that the SCFJB is responsible for the final text of the programme submitted to the Government for approval.

At the same time, the external experts are performing a strategic environmental assessment (SEA), in order to assess systematically the expected and potential environmental impact of the OP, and ensure that the OP takes into consideration any material consequences for the environment, subjects them to public consultation, and that the measurement of environmental effects is built into the monitoring system. The SEA will be conducted in accordance with the “Handbook on SEA (Strategic Environmental Assessment) for Cohesion Policy 2007-2013”108. In applying the advice in the Handbook, the evaluator will be guided by the principle of proportionality, given the finite resources available for the OP and hence the limitations on environmental impact, and therefore a ‘light touch’ SEA will be appropriate.

107 http://ec.europa.eu/regional_policy/sources/docoffic/2007/working/wd1_exante_en.pdf 108 http://ec.europa.eu/regional_policy/sources/docoffic/working/doc/sea_handbook_final_foreword.pdf

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http://ec.europa.eu/regional_policy/sources/docoffic/working/doc/sea_handbook_final_foreword.pdf

http://ec.europa.eu/regional_policy/sources/docoffic/2007/working/wd1_exante_en.pdf


The ex ante evaluation and SEA was tendered and contracted by the Delegation of the European Union to Serbia (DEU), through a framework contract under IPA 2008. The evaluation will be conducted in parallel with the formal partnership consultation, described in section 1.3.

In later drafts of the OP, this section will present the chosen expert team, describe the scope, content and timing of the ex ante evaluation and the strategic environmental assessment, summarise the findings, and describe how they have been taken on board in revising the OP authors, and hence the impact on the draft. The experts’ full report will be appended to the final draft of the OP (in Annex W), before it is submitted to the European Commission for comments and, eventually, agreement and adoption.

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2 ASSESSMENT OF MEDIUM TERM NEEDS, OBJECTIVES AND STRATEGIC PRIORITIES

2.1 Socio-economic analysis (including SWOT analysis)

The following section identifies the challenges facing Serbia in strengthening its transport and environmental infrastructure and improving its competitiveness. It focuses on the future, and specifically the medium-term outlook (2012-2016), which will be the implementation perspective of the OP, based on reasonable assumptions and projections.

2.1.1 General

The mid-term outlook for the macro-economy is conducive to the OP’s interventions, according to forecasts by the Ministry of Finance109. As with section 1.1, further details are elaborated in the SCF, the principal highlights are as follows:

The economy is expected to recover from the recession and show renewed GDP growth coinciding with the programming period of 2012-2013. The MoF predicts that economic recovery in Serbia will come from rising capital investment in fixed assets, job creation and higher levels of personal spending, and return to pre-crisis real growth rates (above long-term trend) in 2012 (4%) and 2013 (4.5%). For its part, inflation is forecast to stay low and falling to 5.3% (2012) and 4.1% (2013) by the end of each year.

GDP per capita is expected to exceed pre-crisis levels in 2012 (€4751) and 2013 (€5127).

The MoF expects that growth rates for both exports and imports will remain relatively high in 2012-2013, but that exports will consistently exceed imports each year, reducing the trade deficit to 13.9% of GDP (2012) and 13.2% (2013), and the current account deficit to 8.0% and 7.6% respectively. Average expected FDI for the period 2012-2013 is around €1.7 billion.

The other key risk lies on the external side; trade and current account deficits are increasingly financed by borrowing from abroad, and careful management and supervision of lending standards will be necessary to avoid a painful contraction of the economy. External debt is projected to fall to 73.3% (2012) and 71.5% (2013).

The main short-term macroeconomic challenge is on the fiscal side. Government action to rein in public expenditure, and introduce a new framework of fiscal responsibility rules within the Budget System Law, means the MoF is forecasting reduced Government spending as a share of GDP in 2012 (41.4%) and 2013 (39.5%)110, to stand at €14.6 billion. A similar but smaller contraction in public revenues means the consolidated fiscal deficit would fall to 3.2% (2012) and 2.3% (2013). The MoF forecast is that public debt as a share of GDP will be held below 40% (39.6% in 2012 and 37.5% in 2013).

In line with the direction of its real GDP forecasts trends, the MoF predicts a modest expansion of formal employment opportunities in 2012, to an annual average of 1,838,000

109 Forecasts for 2012-2013 from the Government’s “Revised Memorandum on the Budget and Economic and Policy for 2011, with Projections for 2012 and 2013” (December 2010)110 Compared with the more expansionary fiscal policy pursued by the Government in the immediate aftermath of the crisis, when spending amounted to 44% of GDP in 2010

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employed, and a further increase by 39,000 jobs on average in 2013. Employment will remain below the pre-crisis levels of 2008, however, when the number of formal jobs stood at 1,999,000.

The difference between changes in GDP and employment over the period can be explained

through changes in labour productivity. According to the Budget Memorandum, the MoF is estimating that productivity will continue to show strong growth in 2012 and 2013, at 2.6% and 2.3%.

According to demographic forecasts for Serbia, the population decline and aging process will continue. The population growth rate in the next 10 years is expected to be negative (-0.5%). A minor increase in the fertility rate is expected from 1.4 to 1.5, but still far below the level necessary for generation change (in Serbia, the net reproduction rate was 0.7 in 2008 and forecasts show that it will be around 0.8111 over the period 2010 – 2020).

The number of young people aged 15-24 over the same period will decrease by around 17% (131,092 persons). The share of young people in the total population will decrease from 12% to 11%112 over the same period. The number of persons above the age of 65 will increase over the period 2010–2020 by 13% (around 181,000 persons) and their share in the total population will rise from 17% in 2010 to 20% in 2020 (figure 48). Life expectancy will remain stable and similar to neighbouring countries.

Figure 48: Future age profile of Serbia

Source: US Census Bureau, International Data Base, 3rd August, 2010

Hence, like many European countries, Serbia will be faced with a sharp increase in the number of inactive people aged over 65 dependent on the social contributions from a shrinking working-age population. This situation will make it crucial for Serbia to increase participation in the labour market, including to activate the long term unemployed population, without which it would be difficult to maintain the competitiveness of the country and ensure the sustainability of its welfare system. According to the last Census, Serbia is one of the “oldest” countries in the world with every sixth person aged over 65. It is expected that a quarter of the population will belong to that category by the second quarter of the century. On the other hand, the population aged less than 15, which has

111 Net reproduction rate that is equal to 1 means that the population is reproducing, and when the rate is below 1 it means that the population is not reproducing, i.e. a decrease in the total population can be expected.112 All percentage values were calculated based on the data of U.S. Census Bureau, International Data Base.

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http://www.census.gov/ipc/www/idb/index.php


been declining since 1995, will continue to shrink in both absolute terms and as a share of the overall population. 113

Regarding the labour market situation, the study “Evidence-Based Policy Making Initiative in Employment” 114 forecasts that employment and unemployment will not go back to their pre-crisis levels before 2013; the scenario being used as the basis for employment policy planning. The study foresees that the employment rate (15-64) in 2020 will amount to 61.4% as compared to 50.91% in April 2010 (+440,000 compared to 2010). Unemployment is expected to decrease by around 340,000.

However, the positive trend in the employment rate in the next decade will be due, to a large extent, to the contraction of the working-age population, which will result in much fewer labour market entrants than exiting cohorts, providing better employment prospects for young people as the competition for jobs becomes less fierce. However, the challenge for young people will be to meet the level of qualifications required by the labour market.

Looking at the distribution of employment per sector, the study makes the following forecasts for the same period (2011-2020): employment in industry will increase by almost a quarter (+170,000). Employment in services will slightly increase (+250,000). Employment in agriculture and in public sector will stagnate (the latter as a consequence of the Government’s agreement with the IMF).

2.1.2 Transport

Projections of future transport demand are based on data provided for GDP forecasts. Unfortunately, there is no specific transport forecast available for consideration of Serbian transport’s future development which takes into account the recent global financial and economic crisis. Nevertheless in general, a growth in demand for transportation inside the country, as well as of transit via Serbia, is expected, which will require increased transport capacity and quality of service:

The recent forecast provided by the Business Monitor International (BMI) 115 states that the state of the economy will lead to greater demand for freight across road haulage, rail, and river transport modes, and transport will in achieve average annual growth of 4.0% in 2010-2014, versus 3.6% for overall GDP.

The Regional Balkans Infrastructure Study (REBIS)116 for the period 2001- 2025 estimates that road traffic will increase by between 200-300% at the end of this period, and vehicle ownership will reach Western European levels of 500-600 vehicles per 1,000 head of population. Rail traffic is estimated to grow at a slower pace: 60-140%. Inland waterway transport growth is estimated to increase by between 160% - 215%, and air traffic is forecasted to grow by between 315% - 830%.

113 “Demographic Review: Serbia in the Mid-21st Century – Depopulated and Old?” No.25/2007. See also section 2.1.2. 114 In order to draft the next National Employment Strategy, 2010-2020, the Employment Sector of the Ministry of Economy and Regional Development, with the support of the Government’s Poverty Reduction Strategy Unit (SIPRU), has commissioned FREN to perform a study whose aims are to: i) analyse trends of the main labour market indicators in the period covered by the old strategy; ii) present EU experience with the implementation of the Lisbon strategy; iii). forecast employment trends up to 2020 and; iv) identify the major long-term labour market challenges 115 BMI: Serbia Freight Transport Report 2010 (December 2009)116 Cowi (2003), REBIS - Transport

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SEETO’s recent Five Year Multi Annual Plan 2010 to 2014 indicates that annual traffic flow in the South East Europe region will increase by 6.9%, and in total by 49.6%, for the period 2006-2014117.

The experience of new EU member states shows that demand for fast transportation has increased immediately after granting the status of candidate country.

The EU Strategy for the Danube Region opens new challenges for regional cooperation.

Medium-term investment needs

The transport infrastructure of the Republic of Serbia is not yet ready to satisfy expected traffic growth. Hence, transport development is considered important and supported by the Government: the capacity and quality of transport infrastructure and transport services is still far below EU standards, mainly because of a deficit of continuing financing of infrastructure maintenance and development.

The current transport infrastructure fights with network limitations as the speed limits, single rail lines, non-electrified rail lines, gauge UIC-C standard, critical sections and UXOs in the Danube, poor infrastructure of ports, etc., but also with lack of interoperability and coordination between transport modes and outdated technology.

Transport infrastructure requires long term investment to reach necessary capacity and quality (table 24). In accordance with REBIS study and World Bank118 estimates, the existing capacities of transport networks in the Republic of Serbia, with necessary modernisation and local improvements, will be sufficient until 2015.

Strategic transport development documents approved by the Government have stressed the need to establish an efficient transport network. In the medium term, this means developing and completing the infrastructure as much as possible, and in particular, interconnection and interoperability between Serbian national networks, and regional and trans-European networks.

Road transport in the Republic of Serbia has benefited from a faster development of road infrastructure and road service in the last 2-3 years, with the support of public financing and IFIs. As global freight transport volumes have increased, the external costs of traffic congestion, accidents, air pollution and noise have become more apparent, not only as an issue of concern for the quality of life, but also with respect to their potential for disrupting economic growth and mobility. In this context, the EU and national policies to promote alternative modes to road transport, in order to alleviate road congestion, railway and inland waterway transport and interoperability are considered as priorities for IPA 2012-2013, also given limitations in the resources and timeframe for implementation and the readiness of projects for implementation.

117 South-East Europe Core Regional Transport Network Development Plan (December 2009)118

“Reducing the ‘Economic Distance’ to Market - A Framework for the Development of the Transport System in South East Europe” (2004)

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Table 24: Preliminary investment costs, 2009-2027 (€ million at constant 2007 prices)

Transport mode ‘Do Minimum’ Scenario Preliminary Development Projects

Total Investment Costs

Railways 112 5,100 5,212Inland waterways 9 349 358Intermodality 17 88 105TOTAL 540 14,349 14,889


Transport share forecasts

The transport model developed for the General Master Plan for Transport in Serbia simulates future demand assigning it to the different networks, according to their respective development (table 25). Scenarios with strong infrastructure development show a larger demand (generated demand) for both passenger and freight. Forecast for a faster increase of demand in case of inland waterways and railway transports in the ‘strong scenario’ may improve the share of these two modes of transport in the transport market.

Table 25: Forecast of transport shares for 2006-2027Scenario Passenger Demand Freight Demand

Average annual growth rate (%) Average annual growth rate (%)’Do minimum’ scenario of infrastructure development

Rail network 1.35 4.83IWW network 5.76Total (multimodal) network 4.22 4.74

Strong infrastructure development scenarioRail networks 9.07 6.84IWW network 5.70Total (multimodal) network 5.02 5.38


Railway network

Improvements in railway infrastructure expected by the General Master Plan include rehabilitation and upgrading of exciting rail lines to European standards AGC/AGTC, for a higher speed, in specific sections for a speed of 160km/h, the UIC GC, as well as establishment of the European Rail Traffic Management System (ERTMS) and of Overhead Contact Line (OCL), and construction of new sections to complete or connect existing ones, if necessary.

The transport model established by the General Master Plan for Transport in Serbia allows for understanding the distribution of rail links according to their Flow to Capacity ratio (daily trains/daily capacity). Although there were only seven links critical as far as capacity is concerned in 2006, and the total length of these rail links was just 95 km (about 3% of total length, 12% of total traffic), the forecast for 2027 indicates growth in critical legth to 603km, which represents about 27% of the total length and 37% of total traffic. The overcapacity problems are on the Belgrade node and on Corridor X north of Belgrade to Novi Sad and Vrbac (figure 49). This is mainly due to the poor condition of the line with its speed restrictions that produce a strong reduction in capacity.

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Figure 49: Railway network of the Republic of Serbia

The General Master Plan for Transport in Serbia introduced a long list of projects suggested for implementation up to 2027, and the overall ranking within selected projects of the railway transport mode (table 26).

Table 26: Long list of railway projectsRail section Type of projects Rank

Dunis – Trupala Upgrading up to 160km/h & ERTMS; length of 40km 1Stara Pazova – Subotica Double track of up to 160km/h & ERMTS; length of 185km 2Velika Plana – Stalac Upgrading to160km/h & ERTMS; length of 88 km 3Belgrade – Vrsac Upgrading single track for up to 120 km/h; length of 104km 4Belgrade – Vrbnica (Bar) Upgrading a single track up to 120 km/h; length of 287km 5Stara Pazova - Sid Upgrading up to 160km/h & ERTMS; length of 87km 6Belgrade – Airport – Batajnica New double track for up to 160 km/h & ERMTS; length of 17km 7Stalac – Djumis New double track 160 km/h & ERMTS; length of 21km 8Niš – Presevo Double track 160 km/h & ERMTS; length of 156km 9Resnik – Klenje – Mali Pozarevac – V. Plana Double track of up to 160 km/h & ERMTS; length of 91km 10

Niš – Dimitrovgrad Double track of up to 160 km/h & ERMTS; length of 104km 11Regionla lines Rehabilitation deasign speed; length of 1,491km 12Resnik – Madenovac – Velka Plana Double track of up to 160 km/h & ERMTS; length of 76km 13Valjevo - Loznica New single track of up to 120 km/h; length of 110km 14


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The total costs of railway infrastructure projects suggested for implementation to 2027 was estimated to €5,212 million, of which the cost of projects for modernisation of Corridor X was estimated to €3,143 million.

Representatives of railway companies from Serbia, Croatia and Slovenia on 9 September 2010 have signed a protocol concerning the establishment of joint rail company "Cargo 10", which started working from October 2010. The new company, with headquarters in Slovenia, is tasked with speeding up freight and passenger transportation along the Pan-European Corridor X railroads and helping simplify border procedures.

Potential for time and cost savings, safety and security

All projects suggested by the General Master Plan for Transport in Serbia have the core objective to improve the capacity and quality of transport infrastructure and so to provide a modern, fast and safe infrastructure for passenger and goods transportation. Improvements in infrastructure capacity will result in time and operating cost savings, and increase the security and interoperability.

Inland waterways - Assessment of bottlenecks / investment needs (Corridor VII)

Improvements in inland waterways are addressed to eliminate the bottlenecks by undertaking the training works and dredging; this will improve the navigation and safety.

Together 18 projects on the Danube River demand river training works; five of which require bank excavation and protection, four construction of submerged groins and 3 requires construction of guiding and closure bunds. The majority of the bottlenecks occur on the stretch between km 1430 and 1250. On this stretch with a length of 180 km, 18 bottlenecks have been identified, relates to sharp bends or narrow cross-sectional profiles. The most urgent bottlenecks appear to be: Apatin – where a narrow section exits over a large stretch, the sharp bend near Vermelj – Petreš, and at Staklar, having a radius smaller than the absolute minimum of 750m (figure 50).

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The long list of projects was introduced by the General Master Plan for Transport in Serbia and suggested for implementation (table 27). All of them have the aim to improve the navigation safety and increase the capacity of inland waterways in Serbia.

Table 27: Ranking of inland waterways projectsRiver system Type of project Rank

River Danube Dredging and other works 1Danube-Tisa-Danube Channel System Dredging and other works 2Rive Sava Dredging and other works 3River Tisa Dredging and other works 4


Priority is given to the Danube River navigation. Furthermore, the General Master Plan identified 18 projects on the Danube for training works (table 28).

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Figure 50: Critical sections on the Danube


Table 28: Danube River training works

Project location Training works length (km) Project location Training works

length (km)1. Bezdan 2.8 10. Mohovo 0.82. Siga – Kazuk 3.2 11. Suseg 1.43. Apatin 3.9 12. Futog 2.34. Civutski Rukavac 4.7 13. Novi Sad 0.45. Vermelj – Petres 1.4 14. Arankinada Ada 2.06. Staklar 3.6 15. Sremski Karlovci 5.07. Bogojevo 2.3 16. Cortanovci 0.38. Dalj 0.9 17. Beska 1.89. Sotin 2.6 18. Preliv 1.3


The total costs of inland water way infrastructure projects suggested was estimated to € 358 million, of which costs of projects suggested for improvement of navigation of Corridor VII was estimated to € 240.9 million; this includes €65 million for training works and dredging.

Intermodal transport – potential for growth

One of the bottlenecks to intermodal transport development in the Republic of Serbia is lack of an appropriate intermodal terminal network.

The container transport on the railways has been gradually rehabilitated and is in constant growth. This has been reached also by reconstruction of six tunnels and 19 bridges in 2006, on the railway line Niš-Dimitrovgrad, by which the UIC-C profile of trains was enabled along the whole railway Corridor X in Serbia.

The “Railway Integral Transport (ZIT)” terminal in Belgrade removal to a new location is currently under consideration and a relevant study that includes project documentation for news intermodal terminal construction is under development.

SWOT analysis

The SWOT analysis of the transport modes relevant to the Operational Programme has been undertaken additional to the situation analysis presented in previous sections, to set out the medium term needs and objectives and strategic priorities and the strategy to achieve these objectives through implementation of measures and operations.

As the Government of the Republic of Serbia has considered development of the roads, railways and inland waterways infrastructure crucial for the country and the economy sustainable development, this SWOT analysis is mainly focused on the infrastructure of these transport modes. Its findings are necessary for selection of specific issues for support and introduction of medium term objectives.

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STRENGTHS WEAKNESSES• Strategic position in the region favourable for integrating

the national transport network with the Pan-European Transport Corridors and the Core Regional Transport Network;

• Good level of transport infrastructure, and the density of railways and roads and relatively long length of navigable inland waterways as a basis for further development;

• Satisfactory capacity of the Belgrade’s’ international airport;

• Strong political support to transport infrastructure, priority taken to activities within the Pan-European Corridors X and VII and the Route 4 of the Core Regional Transport Network;

• General Master Plan for Transport in Serbia and the Master Plan and Feasibility Study Inland Waterway Transport for Serbia in place;

• Low environmental impact and low accident rate of railway and inland waterway transport;

• Adequate split of shares of the current freight transport between railway, road and inland waterway transport; high share of railway transport;

• Growing demand for freight local transport and international transit after stagnation;

• Skilled labour force

• Low levels of maintenance and infrastructure development in last decade;

• Lack of continuous financing of infrastructure, including project documentation development;

• Lack of project preparation facility;• Outdated technology, infrastructure quality below EU

standards• Transport network limitations (speed limits, single rail lines,

non-electrified rail lines, gauge UIC-C standard, critical sections and UXOs in the Danube and Sava, poor infrastructure of ports, etc.);

• Lack of interoperability and coordination between transport modes;

• Insufficient political support to intermodal transport;• Restructuring of the railway company still in early stage;• Lack of forecasts for consideration of transport’s future

development which takes into account the recent global financial and economic crisis

OPPORTUNITIES THREATS The demand from the European Union to complete the

Pan-European Transport Network and the Core Regional Transport Network and improving interoperability;

Increasing demand for fast transportation within the country in relation with the growth of the economy;

Increasing demand for fast freight and passenger interregional and transit transport after granting the status of candidate country;

Enhancing potential of Serbia’s transport for higher productivity, increasing its business and job creation by improving the quality of infrastructure and services and the capacity of cost-effective intermodal transport;

Potential for stabilisation of the share of railway and inland waterway freight transport by providing infrastructure of necessary capacity and quality;

Reduction in the negative impact of transport on the environment by supporting environmentally-friendly transport modes;

New challenges resulting from participation in European and regional cooperation;

IFIs’ interest in financing/co-financing of infrastructure

Global economic crisis; Change of government priorities; Insufficient financing of infrastructure development; Losing qualified staff because of low motivation; Losing geographical advantage by slow harmonisation of

legislation and implementation of European standards leading to use of alternative routes and modes;

Inability to meet challenging environmental requirements in sufficient time;

Falling share of railway and inland waterway transport due to a faster development of the road infrastructure and road services;

Losing funds because of slow/late project documentation development;

Force majeure

2.1.3 Environment

Serbia faces considerable environmental challenges in the medium-term, as the Government seeks to satisfy the need for affordable environmental services for residents, businesses and visitors, while protecting its environmental resources and assets and attaining the standards set out in the environmental acquis.

The environment itself does not recognise the borders of administration or jurisdiction. Pollution is a trans-boundary issue: untreated sewage and landfill leachate does not stop at the riverbank; polluted rivers and atmospheric emissions do not halt at country, district or municipal borders. Improper waste management causes contamination of groundwater and surface waters. As a consequence, huge economic losses occur, since drinking water needs excessive treatment, public

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health problems occur due to the contaminated urban air, and finally, Serbia’s health system has to bear the costs. This burdens the public purse, but also detracts from Serbia’s economic development, undermining business operations and investment, affecting the natural habitat and discouraging tourism. Most importantly, it affects the quality of life of every resident.

Increased demand for environmental services

The weakness of Serbia’s environmental infrastructure, as described in section 1.1.3, sets the baseline for action in the next decade.

Preliminary estimates of costs regarding the environmental damage in Serbia show that environmental degradation caused by the annual costs to the domestic economy ranges from 4.4% (conservative scenario) to 13.1% (maximum scenario) of GDP, refers to 2005 119. It is estimated that the greatest burden is caused by air pollution (53% of total costs), water pollution (22%) and management of waste (11%).

In the medium-term, the pressure on this infrastructure will not abate. Although population trends have been negative through the 2000s, which would be expected to reduce household waste, lower consumption of drinking water, produce less wastewater for disposal and treatment, and decrease energy consumption and air pollution – and these trends are forecast to continue from 2010 – the return of GDP to trend growth rates suggests increased output from business and industry, absorbing natural resources, such as water, and placing additional demands on the environment, especially in terms of pollution and waste, including hazardous waste.

At the same time, Serbia has to adopt the EU environmental acquis, which is a considerable body of legislation, in order to meet the obligations of future accession to the European Union. The EU is an international community which is known for the strictest environmental norms in the world, so the Republic of Serbia faces a giant leap indeed in the oncoming years.

Medium-term investment needs and benefits

The National Programme of Environmental Protection of the Republic of Serbia (NPEP) has assessed the medium-term (2010-2019) need for environmental expenditure to be €4,165 million. This figure includes investment and operating expenses, however it does not cover necessarily all the transposition costs.

In this context, the NPEP has plotted the share of GDP which will need to be directed towards improving environmental performance through to 2016 and beyond, against the historic actual and planned expenditure in the state budget. Current expenditure on environmental protection is only 0.3% of GDP, which is only 50% of what was spent on the environment in 1989. While the share of the environmental expenditure in other Candidate Countries has been in the range of 1.5-2.4% during the EU accession process, the NPEP foresees growth of environmental expenditure to 1.2% of national GDP by the year 2014, and reaching 2.4% by 2019. This includes both investment and operational expenditure (figure 51).

119 National Programme for Environmental Protection (2010)

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Figure 51: Medium-term environmental investment & operational expenditures for 2010-2019 (€m)

Source: NPEP 2010

The assessment of the total estimated investment for the implementation of the programme for sub-sectors (figure 52) shows the largest investments are needed in the energy sector (29%), followed by the waste management sector (24%) and the water sector (21%), and finally, costs in the transportation sector, directly related to improvement of the environment (12.5%). The proposed investment to improve air quality is low, because it is largely covered already by the mining and energy sector, transport and industry; adding the investment which will benefit air quality in these sectors would increase notional expenditure to more than 40% of the total. Investments related to climate change (mainly extension of district heating) are considered as indirect investment, but will also produce some benefits for the environment.

Figure 52: Expected shares of environmental expenditure by sector

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0

€ 100

€ 200

€ 300

€ 400

€ 500

€ 600

€ 700

€ 800

Total expenditures (millions)

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Investment Operational


A rough estimation120 of the total cost of Serbia’s compliance with the EU’s environmental acquis is €9.6 billion, based on the following calculations:

€2.8 billion for water supply121

€4.8 billion for wastewater treatment122 €1 billion for air quality improvement by reduction of emissions from major power plants123

and €0.96 billion for waste management124

Implementation of the NPEP and expenditure of this scale will lead to a significant reduction of pollution and environmental degradation, and thus will also achieve savings in the domestic economy. It is estimated that the reduction in the pollution load and environmental degradation would generate savings in the national economy of between 2.2% of GDP (according to the conservative scenario) and 5.4% of GDP.

Waste management

Given the incomplete network of municipal landfills, the lack of pre-treatment before disposal, (separation, recycling and re-use), the major role of ‘wild landfills’, especially in rural areas, the inadequate state of official landfills, and the complete absence of hazardous waste treatment, it has been estimated125 that the total annual loss caused by undue waste management in Serbia is between €98 million and €276 million, equal to 0.4% to 1.1% of GDP. This includes the effect of air emissions and leachate from landfills, emissions from burning waste in the yard, damage due to improper disposal of hazardous waste, disposal of fly ash and the loss of resources.

The only economically feasible solution is the creation of regional waste management centres where the waste collected from several municipalities will be treated after separation of recyclable waste and the rest will be disposed at the regional landfills, as determined in the Waste Management Strategy (2010-2019). The Strategy’s Action Plan foresees construction of 12 regional waste management centres by 2013; however, specific locations are not determined in the Action Plan. It also identifies 26 areas which need to be serviced by these centres, based on leading towns or municipalities and their neighbouring local authorities (table 29).

Table 29: Areas to be serviced by 12 regional waste management centresLead town / municipality

Other municipalities Inhabitants*

Waste - t/year**

Bačka1. Sombor Apatin, Kula, Odžaci, Bač 230,252 59,914

2. Subotica Bačka Topola, Čoka, Kanjiža, Mali Iđoš, Senta, Novi Kneževac 280,025 89,653

3. Novi Sad Bačka Palanka, Bački Petrovac, Beočin, Žabalj, Vrbas, Srbobran, Temerin 510,522 192,226

Banat4. Kikinda Ada, Žitište, Nova Crnja, Bečej, Novi Bečej 187,011 43,922

5. Pančevo Opovo 138,178 54,927

120 A comprehensive assessment of the costs of heavy environmental directives will be conducted through the IPA 2007 project “Technical Assistance for Development of a National Environmental Approximation Strategy (EAS)”121 Source: “Study - Instruments for Water Sector Development”122 Source: EC Twinning Project “Capacity Building in Directorate for Water”123 Source: EPS “Green Book”, 2009124 Source: Waste Management Strategy, 2010-2019125 Within the CARDS project "Strengthening Environmental Capacity, 2003"

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6. Vršac Bela Crkva, Alibunar, Plandište 111,067 33,771

7. Zrenjanin Sečanj, Kovačica, Titel 193,368 67,512

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Srem8. Inđija Irig, Ruma, Sremski Karlovci, Pećinci, Šid, Stara Pazova 249,999 83,835

9. Sremska Mitrovica Šabac, Mali Zvornik, Loznica, Bogatić, Krupanj 358,276 75,506

Belgrade10. Belgrade Voždovac, Vračar, Grocka, Zvezdara, Zemun,

Mladenovac, Novi Beograd, Palilula, Rakovica, Savski Venac, Sopot, Stari Grad, Surčin, Čukarica

1,421,997 796,318

Kolubarski and Mačvanski11. Valjevo Osečina, Lajkovac, Mionica, Ub, Ljig, Vladimirci,

Koceljeva, Barajevo, Lazarevac, Obrenovac 382,340 88,075

Podunavski and Braničevski12. Smederevo Požarevac, Kovin, Smederevska Palanka, Veliko Gradište,

Golubac 305,139 79,219

13. Petrovac Malo Crniće, Žabari, Kučevo, Žagubica 90,979 9,300Moravički, Šumadijski and Pomoravski

14. Lapovo Velika Plana, Rača, Despotovac, Batočina, Svilajnac 124,646 22,14115. Kragujevac Aranđelovac, Topola, Gornji Milanovac, Knić 319,188 86,65316. Jagodina Paraćin, Ćuprija 160,087 44,117

Zlatiborski17. Užice Bajina Bašta, Požega, Arilje, Ivanjica, Čajetina, Kosjerić,

Čačak, Lučani, Ljubovija 378,668 91,516

18. Nova Varoš Priboj, Prijepolje, Sjenica 116,189 19,452Borski, Zaječarski and Pirotski

19. Zaječar Bor, Negotin, Majdanpek, Kladovo, Knjaževac, Boljevac, Sokobanja 271,465 31,819

20. Pirot Dimitrovgrad, Bela Palanka, Babušnica 100,133 21,617Raški and Rasinski

21. Kraljevo Vrnjačka Banja,Novi Pazar, Raška, Tutin 296,761 57,07722. Kruševac Trstenik, Varvarin, Rekovac, Ćićevac, Brus,

Aleksandrovac 263,740 54,595

Nišavski and Toplički23. Niš Gadžin Han, Svrljig, Ražanj, Doljevac, Aleksinac,

Merošina 363,851 91,374

24. Prokuplje Žitorađa, Kuršumlija, Blace 98,250 18,044Jablanički and Pčinjski

25. Vranje Preševo, Bujanovac, Trgovište, Bosilegrad 185,476 45,05726. Leskovac Lebane, Surdulica, Bojnika, Medveđa, Vlasotince, Crna

Trava, Vladičin Han 278,138 60,800

* data from 2002 census; ** data from 2009

According to the Waste Management Strategy, municipalities themselves should form waste management regions and either establish a public waste management company to run the centre or find an operating company. Financing would be possible either through the aid programmes or loans from IFIs. In addition, four foreign waste management companies - Asa (Austria), Brantner (Austria), Porr Werner ja Weber (Germany) and Trojon & Fischer ECO (Germany) - are currently operating in 12 municipalities126, in the place of public utilities and are interested in expansion and reconstruction of the landfills they are operating.

The Action Plan of the Waste Management Strategy also sets the objective of establishing a system of hazardous waste management in Serbia (construction of facility for physical-chemical treatment of hazardous waste and central regional storage for hazardous waste disposal by 2013) and to perform remediation of the existing dumps, which represent the greatest risk to the environment, as well as the location of “hot spots” of historical hazardous waste pollution.126 Kovačica, Opovo, Novi Bečej, Kikinda, Lapovo, Zagebica, Malo Cernice, Zabari, Smedrevsko Palanka, Jagodina, Rekovac, Leskovac

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An overall cost assessment for the transposition of EC waste directives has been conducted (table 30), which estimates that total costs of €447 million up to 2014, rising to €958 million by 2019.

Table 30: Summary of waste management related investment needs for 2014-2019 (€m)2010 - 2014 2015 - 2019 2010 – 2019

Municipal solid waste - a total investment costs, including: 380 426 806 Expanding the coverage of municipal waste

management system43 53 96

Landfill Directive 273 223 496 Directive on Packaging 57 142 199 Directive on Batteries - - - Directive on Waste from Electrical and Electronic

Equipment8 8 15

Construction and demolition waste 28 32 59Hazardous industrial waste 14 24 38Medical waste 2 1 3Directive on the disposal of waste oils 4 - 4Directive on waste vehicles 11 20 30Used tyres 5 - 5Sewage sludge - - -Animal waste 4 8 13Total investment costs 447 511 958

Source: Waste Management Strategy (2010)

Water supply and wastewater treatment

Water supply planning in Serbia is orientated towards regional water supply systems. The Government’s Annual Programme for Construction, Re-construction and Maintenance of Water Management Facilities identifies 10 regional systems: Gorni J. Moravski, Donji J. Moravski, Zapadnomoravsko-Rzavski, Ibarsko-Sumadijski, Rasinsko-Pomoravski, Timocki, Mlavsko-Moravski, Kolubarski, Savsko-Beogradski, and Macvanski. Municipal water supply includes the provision of high-quality water for households and other users (institutions, hospitals, schools, restaurants, etc.), as well as industries which require high-quality water for production processes.

Water supply has been the top priority of the water sector, and consequently capital investment has been highest in this area, which is reflected in the relatively high levels of connectivity to the public network described in section 1.1.2. Nevertheless, connectivity remains below 100%. Moreover, achieving compliance with EU Drinking Water Directive will be costly and long-term task. According to the study “Instruments for Water Sector Development”, investments worth €2.8 billion are needed for water supply upgrading in Serbia.

By contrast with supply, wastewater treatment has suffered a dearth of investment, and a massive programme of constructing sewerages and treatment plants should be launched for Serbia. According to the NPEP, €860 million is needed to modernise the Serbian water sector by 2019; by some other estimates, wastewater treatment alone may require €4.8 billion.

The NPEP identifies the Government’s goals for water management including:

To ensure that drinking water in settlements meets quality standards of the Drinking Water Directive 98/83/EC, and to extend the decentralised water supply to selected rural areas with the most unsatisfactory water quality;

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To improve water quality in water courses by reducing discharges of untreated industrial and municipal wastewater;

To provide wastewater treatment in agglomerations with organised sewerage system that have significant impact on the recipient waters, especially in sensitive areas;

To upgrade or renew operation of the existing municipal wastewater treatment plants; To extend sewerage system to cover 65% of population by 2019 - priority should be given to

agglomerations with more than 100,000 inhabitants, except those that discharge wastewaters directly into large watercourses (the Danube, the Sava), where WWTP will be finished after 2016 and cities in sensitive zones (proximity to water supply sources).

The Ministry of Agriculture, Trade, Forestry and Water Management has policy responsibility for water, and manages an allocation from the State Budget for environmental projects through its Water Directorate, which was worth around €40 million in 2008. In practical terms, the 23 cities and 150 municipalities have legal responsibility for meeting supply, sewerage and treatment needs (through the PUCs) and investing in plant. The owner of the companies is the Republic of Serbia, and management rights have been transferred to the founding entities, i.e. cities and municipalities. The rights include the appointment of managing directors, insight into financial performance, profit or loss distribution, etc.

As noted in section 1.1.3, there are currently 21 WWTPs in Serbia (table 31), although many are in the process of completion or reconstruction, or in need of reconstruction.

Table 31: Status of municipal wastewater treatment plants in Serbia

DistrictSettlements ≥ 2000 PE Municipal wastewater treatment plants

Amount Municipality (PE)*

Amount Constructed capacity (PE)

Name Status

Belgrade 28 2000000Bor 8 112500 1 10000 Kladovo Needs finalisationBraničevo 10 102000Zaječar 8 102000 1 5000 Soko Banja Needs reconstructionZlatibor 15 217500

Jablanica 9 141000 2 100006000

VlasotinceMedveđa

Ongoing reconstruction

Kolubara 6 122000 1 110000 Valjevo Needs finalisationMačva 32 223900Moravica 7 162200 1 50000 Gornji MilanovacNišava 8 337600Pirot 6 81500 2 9500

20000DimitrovgradBela Plankа

Ongoing reconstruction

Podunavlje 24 219600 1 35000 Velika Plana Needs reconstructionPomoravlje 8 137000 2 45000

35000JagodinaParaćin

Needs reconstruction

Pčinj 9 155500Rasina 12 139700Raška 21 226700Toplica 4 66500

Šumadija11 276000 4

250004000

1250008000

Aranđelovac IAranđelovac II Kragujevac Topola

Within testing period

Northern Bačka 18 244500 1 45500 Subotica Needs reconstruction

Western Bačka 29 268500 1 180000 Sombor (city and industry)

Southern Bačka 51 746000 2 5000013000

BečejBač

Needs reconstruction

North Banat 18 183500 1 60000 Kikinda Needs reconstructionMiddle Banat 24 232500Southern Banat 33 341000 1 110000 Vršac (city and industry)Srem 35 350000

Total 434 7189200 21 956000Source: Ministry of Agriculture, Trade, Forestry and Water Management

*Total organic load without large-scale industry to be connected to urban facilities

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From the viewpoints of operation (availability and maintenance) and development (construction of new structures and facilities), the companies entrusted with water supply and sewage disposal are faced with significant difficulties. The situation has existed for more than fifteen years in the water supply area, and even longer in the sanitation area.

Most municipalities have planned, in their General Urban Plans, the extension of the present sewerage systems and the construction of new sewerage systems in numerous villages. In practice, the execution of these plans is severely delayed and dependent on the availability of funds.

Due to concerns about affordability, water tariffs have historically been kept artificially low, which has had the effect of starving the water companies of funds to invest in plant maintenance, upgrading and replacement. Serbia’s water sector has no experience in public-private partnerships. Additionally, the private sector has no interest in investing in this sector because of the low level of tariffs which are not conducive to the successful performance of utilities and of other companies which provide services of general interest.

The Serbian Environment Protection Fund (SEPF) receives tax revenue and fees from polluters, retains 60% of the fees collected and returns 40% to the municipality in which the fee had been collected, for environmental projects. The New Water Law (Article 192) empowers the Ministry of Environment, Mining and Spatial Planning with the calculation of fees for water pollution, which go to the SEPF. However, the SEPF is small (€23 million in 2009) and its remit is wide; hence, to date, no money has been spent on water projects.

Among the IFIs, Germany’s KfW has been the most active in the water sector in Serbia. To date, the German government has provided €27m of subsidised loan and grant finance for water supply projects in Belgrade, Niš, Novi Sad and Kragujevac. In partnership with the (then) Ministry of the National Investment Plan (MNIP), the German government has provided or committed a further €65 million (approximately) for water projects in 13 medium-sized municipalities127 (defined as 50-200,000 inhabitants) through its ‘Rehabilitation of Water Supply and Waste Water Systems in Medium-sized Municipalities’ initiative, based on grant to loan ratios of 40:60 (seven municipalities in Programme 1) and 30:70 (six municipalities in Programme II). All projects to date have been in water supply. Programme II has been proposed for expansion with support from IPA component I in the 2011 annual programme.

The whole territory of Serbia lies inside the Black Sea Delta area, and hence it is likely to be designated as a sensitive area, in terms of the criteria set up in the Annex II of the Urban Waste Water Treatment Directive128. River Basin Directorates will have to be established and River Basin Management Plans, which include all the measures needed to prevent deterioration and achieve “good status” for water quality, will be designed. Official zoning of the sensitive areas, determining agglomerations and introduction of the River Basin based water management system, has not occurred yet, but will happen now that Serbia has adopted its Water Law, which introduces Water Framework Directive and Urban Waste Water Directive requirements into national legislation. For agglomerations with PE above 10 000, which discharge in sensitive zones, elimination of nitrogen and phosphorus is required. This requires extension, reconstruction and modernisation, as well as construction of new sewerage systems including urban WWTPs in the settlements.

127 Pancevo, Sabac, Kraljevo, Smederovo, Sombor, Loznica, Sremska Mitrovica, Vrsac, Leskovac, Vranje, Jagodina, Pirot, Aleksinac and Trstenik128 ICPDR (The International Commission for the Protection of the Danube River) materials at http://www.icpdr.org/icpdr-pages/home.htm

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http://www.icpdr.org/icpdr-pages/home.htm

http://www.icpdr.org/icpdr-pages/home.htm


Air quality

As described in section 1.1.2, the principal cause of air pollution from point sources includes outdated technology and lack of pollution abatement installations. The large lignite-powered thermal power plants of EPS are among the largest polluters in the whole country, emitting a wide range of pollutants – including soot, PM10, SO2 and NOx. One of the most dangerous pollutants from the public health aspect is dust (PM); dust particles can be caught with electrostatic precipitators.

The EPS “Green Book” (Environmental Action Plan) foresees projects for flue gas desulphurisation systems and the complete reconstruction of all electrostatic precipitators and bringing their operation to emission levels compliant with the EU’s environmental acquis (particulate matter emissions will be reduced over 90% to below 30mg/m3 from the current emission level). Investments, worth around €1 billion, are required.

SWOT analysis

STRENGTHS WEAKNESSESGeneral Commitment of environmental institutions to

environmental protection High level of biodiversity and geodiversity Considerable potential of natural habitat Current low intensity and use of fertilisers and pesticides

in agriculture High quality of environment in non-industrialised areas Good cooperation in environmental monitoring with

European Environment Agency (EEA) Progress in developing project pipeline Adoption of the General Spatial Plan for the Republic of

Serbia

General Loss of fragile natural habitats Significant soil erosion processes Excessive air pollution in industrial zones and in energy and

mining regions Significant gaps in environmental infrastructure (wastewater

treatment, solid waste disposal and treatment, and air pollution abatement)

Gaps remain in the legislative framework Insufficient monitoring and use of monitoring data Insufficient law enforcement Limited institutional capacity at Ministerial, Regional and

Municipal levels Lack of efficient environmental financing system Lack of incentives for pollution reduction Prices of public utility services are not economic - charges do

not reflect full costs, in part due to concerns over affordability (citizen’s ability to pay)

Waste management & remediation of contaminated sites WM strategy in place Good progress in harmonisation of legislation Recent establishment of pilot municipal waste recycling

system

Waste management & remediation of contaminated sitesUncertainty about future ownership of industrial waste producers

(mining and energy industry)Polluter pays principle not fully applied, especially in relation to

industrial waste (e.g. mining tailings, slag ash) Weak municipal, hazardous and industrial waste management

system in placeInsufficient investment in waste management infrastructure Pollution of water, soil and air due to poor waste management

practicesWeak planning and management system (e.g. location of treatment

facilities) Lack of sufficiently detailed information on location and magnitude

of land / site contamination Water management Adequate volume of water resources Improving water quality monitoring system Movement towards integrated water management New Law on Water, introducing EU environmental acquis

principles Good history of participation in Danube convention

process (DABLAS) and ICPDR

Water management Excessive exploitation of aquifers Inadequate time/space distribution of water Excessive water pollution Limited infrastructure Insufficient system to monitor nitrates concentrations and

contamination in groundwater Poor enforcement and low fines Integrated river basin management not fully introduced

Urban air quality Improving air quality monitoring system Good progress in harmonisation of legislation Progress in developing project pipeline

Urban air quality Excessive air pollution from power and heating plants using

low grade fuel and old technology Excessive air pollution from traffic, aged vehicle fleet and

insufficient enforcement

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Energy efficiency and renewable energy Considerable renewable energy potential (hydro,

biomass, solar, wind) Kyoto Protocol Institution structure established Adopted feed-in tariffs Complementarity with implementation of activities

under The Energy Community Treaty

Energy efficiency and renewable energy Land use and administration difficulties in project development

(e.g. wind energy) Continued subsidisation of energy from fossil fuels Greenhouse gas inventory not yet completed

OPPORTUNITIES THREATSGeneral Approximation with EU norms and standards providing

for improved quality of the environment Strong political commitment to implement legal reforms

in environmental protection Access to EU funds during pre-accession process and

commitment of other donors Modernisation and privatisation of industry Enhanced economic competitiveness in the international

market Development of green industry sector Introduction of cleaner production concept and

environmental management systems (ISO 14001 and EMAS) and eco-labelling of products, processes and services

Improving energy and raw material efficiency Participation of stakeholders in environmental decision-

making Increasing public environmental awareness and

introduction of the corporate social responsibility (CSR) concept

Increased transparency of use of environment funds from e.g. fines

Clearly stated environmental policy objectives Intensive international cooperation Strengthening administrative capacity

General Poverty, indebtedness and slow economic growth Poor implementation of laws, programmes and plans Slow pace of institutional strengthening Insufficient institutional coordination Low level of environmental awareness Environmental funds not always used for ear-marked purpose Funding restrictions due to general economic crisis Re-starting industrial production with obsolete technologies Lack of fundable projects because of missing project

documentation

Waste management & remediation of contaminated sites Development of regional municipal waste management

system Untapped potential of recycling of municipal and

hazardous waste Waste to energy potential (municipal and hazardous

waste) Privatisation of industrial waste producers (mining and

energy) should include requirement to resolve legacy waste issues (through reuse or cleanup)

Creation of markets for recycled and reused products Implementation of waste prevention and waste

reduction at source High technical and project management capacity for site

remediation of mining companies, energy and heating utilities

Waste management & remediation of contaminated sites Very high clean-up costs, rising over time, due to past and

continued illegal dumping Continued problems in planning and locating waste treatment

facilities “Not in my back yard” (NIMBY) effect, whereby people want to

benefit from public facilities, but don’t want them to be built in their locality

Spread of contamination and increasing costs for remediation over time

Adverse effects to public health from contamination and resulting indirect expenses

Water management Strong interest from IFIs and donors Project development and funding in coordination with

the Ministry of Finance and under the DABLAS process

Water management Adverse effects on public health due to inadequate quality of

drinking water Water pollution due to inadequate water quantity on domestic

watercourses Gaps in harmonisation of environment acquis Operational costs of new infrastructure cannot be supported

due to artificially low water tariffs Environmental considerations insufficient in water

management due to lack of funds and understaffing of institutional structures

Urban air quality High technical and project management capacity of

energy and heating utilities Strong public interest in improved air quality Phasing out of low-grade vehicle fuels Public transport development

Urban air quality Increasing impact on air quality from motor vehicle transport

(with low quality fuel and old flee) and district heating plants

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Energy efficiency and renewable energy Ban on nuclear power plants Application of Kyoto Protocol clean development

mechanisms and emission trading schemes Increasing local and regional demand for clean energy

(market potential) Substantial potential for energy savings in high energy

consumption sectors

Energy efficiency and renewable energy Artificially low energy prices continue to discourage

development of renewable energy production and energy efficiency

2.1.4 Competitiveness

The medium-term priority facing Serbia to improve competitiveness and productivity, as it emerges from the global and domestic recessions of the late 2000s, is to tackle the structural and systemic weaknesses identified in chapter 1.

Institutions and infrastructure are not strong enough; R&D levels are too low and failing to translate into innovation on a sufficient scale; SMEs have become increasingly important contributors to jobs and the economy, but barriers remain to starting and doing business; the regulatory environment and its administration needs streamlining, and policy sharpened to become more effective and cost-efficient in a tight budgetary environment; exports levels, especially among SMEs, need to grow further to reduce the trade imbalance and finance consumption of goods and services produced elsewhere.

More positively, Serbia has untapped potential for still greater levels of entrepreneurship to expand the business community, and has an opportunity to nurture the SMEs which survived and thrived through the recession, facilitating the transition from micro to small to medium-sized businesses in a dynamic SME sector. The Government is also committed to science and innovation, industrial development through key sectors, and stimulating FDI, to broaden the economic base. Serbia’s cities in the north and west, especially Belgrade and Novi Sad, have been the main beneficiaries of economic growth in the 2000s; the medium-term objective will be to spread the gains of development, especially south and east.

In this context, the medium-term needs of the competitiveness sector have six dimensions:

Expanding the post-recession SME base; Improving public policy and public sector efficiency; Strengthening and diversifying the industrial base; Realising export potential; Boosting innovation and technology transfer; and Addressing regional disparities

The remainder of section 2.3 will describe these needs in more detail.

Expanding the post-recession SME base

Small and medium-sized enterprises (SMEs) and start-ups have been described by the European Commission as the backbone of the economy129, for their contributions to growth, innovation, employment generation and social integration. Although their individual impact is small, the cumulative impact is highly significant. They play a significant role due to the accelerating changes in many markets that depend on creativity and innovation. Even in the most developed economies, Governments have recognised that, to survive and grow, SMEs need specific policies and

129 “Small and medium-sized enterprises - Key for delivering more growth and jobs. A mid-term review of modern SME policy” (http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2007:0592:FIN:en:PDF)

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programmes – hence the comprehensive range of SME measures in place in most countries, including Serbia.

The global economic crisis has particularly hit the SME sector, since it is more difficult for these businesses to reduce their cost base as they are already small; they are individually less diversified in their economic activities; have a weaker financial structure; often have a lower or no credit rating; and are more vulnerable as they often feel the consequences of the difficulties of the large firms.

As the economy emerges from the recessionary years and is expected to return to trend rate of growth of 5-6% in 2012, the priority will be to nurture those SMEs which have survived and thrived during the contraction of the economy, while stimulating new entrants to expand the SME base and elicit higher levels of competition and innovation which requires further institutional and administrative reform that has been conducted in the last years.

Serbia needs to strengthen its SME policy and its implementation by improving the monitoring and evaluation of current SME support systems to be able to create efficient and reliable SME development strategies and programmes in line with sector needs. Overview of the impact of available SME support system and lessons learned from implemented exercises need to create databases established on knowledge to concentrate and properly allocate limited resources. Furthermore, Serbia has to continue with reducing administrative barriers for SMEs through engaging in development of e-business that increases efficiency, cuts costs and raises their competitiveness.

Another aspect that reflects the needs of Serbian SME sector is high quality professional support services, specifically targeting productivity and efficiency levels, with emphasis on the most promising sectors where SMEs can significantly improve their performance.

According to a survey of over 500 Business Service Providers (BSP) to SMEs across Serbia 130 , the most frequently-provided services relate to general management such as business planning; organisation development, human resources & leadership management; marketing communication, market research, branding and PR, as well as consultancy for start-ups. By contrast, more specialised and technical services, such as legal / contractual, IT, technology, manufacturing, and access to finance, are offered less frequently. The overall result of the mapping of types of business support is a reflection of the low levels of specialisation levels among business support providers.

By contrast, the survey conducted for the evaluation of the Business Advisory Services programme (BAS)131 in Serbia, implemented by EBRD, shows the demand among SMEs for more targeted support. The largest number of projects in 2009 was aimed at improving management effectiveness (37%); BAS beneficiaries were particularly interested in assistance with cost control and financial/goods flow management (10% of total portfolio). Quality management and certification projects ranked second, accounting for 31%, in which SMEs opted for introducing internationally recognised quality standards to improve their market opportunities, gain a competitive edge and comply with export requirements.

Therefore, Serbia’s next challenge is to tailor SME assistance still more closely to individual requirements, with emphasis on specific sectors, and to enhance the contribution of SMEs to economic performance in five areas. 130 “Mapping the provision of business support services for SMEs in Serbia”, IPA 2008 ‘Improved SME Competitiveness and Innovation Project’, Technical Report, February 2011131 The Business Advisory Services Programme (BAS) supports economic transition, by both achieving enterprise change in potentially viable micro, small and medium enterprises and developing sustainable infrastructures of business advisory services in the EBRD countries of operations.

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First, Serbia needs to increase the number and the performance of innovative and export-oriented SMEs through cluster development, such as the Serbian IT cluster which acts as “a catalyst for selection and specification of key areas in which Serbian innovative solutions and business expertise can be implemented at the international market”132.

Second, an opportunity presents itself to embed foreign investment into the local economy to modernise and diversify Serbia’s industrial base. For example Fiat’s joint venture with the Serbian Government in Kragujevac will make a significant and growing contribution to Serbian exports, to the development of quantity and quality of suppliers among local SMEs, and to the higher levels of technology absorption.

Third, Government commitment to raise levels of innovation, public R&D institutions and private sector needs to be expanded by targeting sectors where Serbia has existing or emerging comparative advantage, such as food and drink production, automotive manufacturing and wood processing. By spending more on science, Serbia will be able to expand its R&D base and open the door for applying different scientific solutions in industry. This will naturally benefit Serbia’s larger enterprises too, but will also help stimulate start-ups, spin-offs from research institutions and innovation-oriented SMEs.

Fourth, Serbia needs to ‘kick-start’ SME development in the more disadvantaged areas, when there is a demonstrable need and opportunity, for example linked to new investment or alternatively self-employment as a route to job creation. This would centre on filling gaps in the supply of services and infrastructure to help entrepreneurs establish and expand their businesses.

Finally, the Government wishes to explore which forms of SME assistance are the most effective, through monitoring and evaluation, and tailor policy accordingly.

Improving public policy and public sector efficiency

Serbia has already made significant progress in setting the strategic goals for the development of relevant economic sectors, such as strengthening SME development, R&D investments, FDI and export promotion. The instruments that help SME policy to be implemented are different programmes directly supporting SMEs through activities such as access to finance or training, funded by the national budget and other sources. The Government now needs to introduce a new tool that will improve monitoring and evaluation of the implementation of the public policy in the sector, to be able to measure the impact on beneficiaries and assess the efficiency of the policy itself. By improving support delivery mechanisms and establishing policy evaluation and review systems, Serbia will increase public sector efficiency and transparency.

E-government is another vehicle that the Serbian Government is actively promoting for improving public sector efficiency, transparency, accountability and effectiveness, which is also a crucial driving force for building a competitive market economy and investor-friendly economic climate through Government-to-Business (G2B) operations. Government-to-Business is the online interaction with local and central government, including dissemination of policies, rules and regulations or different business services such as registering businesses, renewing licenses, obtaining permits and payment of taxes. Along with e-business transactions, e-government improves the overall competitiveness of SMEs by increasing their efficiency of doing business and employing resources, which otherwise are diverted towards traditional, administrative and complex tasks, and by enabling a clearer focus on their core business and productivity improvements. In 2007, research on “Inclusive e-

132 Serbian software cluster web page

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Government”133 measured 20 e-Government services, using an assessment of their level of sophistication, according to the EU’s methodology, using the following scale:

1. Provision of information 2. One way interaction (availability of download forms) 3. Two way interaction4. Complete online transaction.

The level of online sophistication of Serbian e-Government was scored 43 out of 100, whilst it was also noted that no service is able to have a complete online transaction. The most sophisticated services were considered to be customs declaration, job search and public libraries. The survey further pointed to the necessity to improve and invest in e-Government services, especially in Government to business services, to strengthen the efficiency of public institutions and their interaction with private sector to be able to fulfill their needs.

Furthermore, the lack of interoperability of data across public administration institutions, and in particular in local self-governments, seriously hampers the development of G2B e-government services. A reliable document management framework for effective integration of data registries of different public administration institutions is therefore necessary for all e-government applications. The National Interoperability Framework needs to be developed as a common conceptual basis for all public administration data registries.

Strengthening and diversifying the industrial base

While Serbia is relatively strong and has a comparative advantage in food and drink, from field to factory, Serbian manufacturing industry produces mainly raw materials and semi-finished goods. While these basic and intermediate products have their own export markets, consumer are largely reliant on imports for finished goods, and the economy overall has faced a persistent trade deficit throughout the 2000s. Its industrial base is still structurally weak despite undergoing decade of changes, through the privatisation process and policy interventions aiming to establish modern market economy integrated in global economic trends.

Serbia’s main economic priorities, leading to transformation of industry, should focus on diversification of the relatively narrow industrial structure often including higher levels of foreign direct investment and strengthening of sub-sector networks such as clusters.

According to the Global Competitiveness Index Report 2010-2011, Serbia has a very modest position ranking 122 with respect to networking and clusters showing that Serbian SMEs have been unable to seize the benefits of clustering (figure 53). Serbia scores particularly low in the quality of local suppliers, competitive advantage of their products and sophistication of production showing that production capacities of cluster members are underdeveloped, they produce mainly semi-final products and involvement of the R&D institutions is inefficient.

133 Conducted by the Belgrade Open School and its Centre for Research of Information Technologies and funded by the Institute for Open Society, as part of the regional project “Inclusive e-Government Network in Western Balkans”

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Figure 53: Business sophistication factors (Serbia’s ranking out of 139 countries)

Serbian clusters are in early stage of development and it will take quite some time for their members to exploit the full benefits of membership. They need help in promoting and maintaining the economic conditions that enable new clusters to emerge and existing clusters to prosper, by strengthening links among them and realising new opportunities that might not happen otherwise by making the most of the role of the public sector (eg in education and training, information provision providing R&D or physical infrastructure) in tackling market failures.

The project ‘Technical Support to Enterprise Policy and Innovation Project’ implemented in the Ministry for Economy and Regional Development conducted a survey of existing clusters 134, based on telephone interviews and questionnaires. The main conclusions show positive trend of clusters’ involvement in the area of innovation activities, mainly in the products and services’ innovation and international networking, as well as the technological development and clusters’ internal research processes. However, active cooperation within a cluster requires a stronger evolution, as well as better facilitation of joint projects and processes by the cluster management, which still remains the major challenge.

Registered clusters have expressed the need for joint facilities and access to R&D and training premises to enable businesses to utilise joint projects and cooperation. Currently, and in the medium-term period, Government support is focusing on helping clusters to obtain services needed for their development that are not available on the market, promoting cluster members’ active participation in mobilising projects, training of management staff as well as promoting the greater involvement of research and development institutions in the cluster initiatives. The priority is innovative and export oriented clusters, having potential to grow and sustain their market presence, such as Serbia’s automotive cluster.

The Government continues to underline that the attraction of FDI is one of the priority measures for development in Serbia. So far, the inflow from investments has dominantly been directed at the service sector, especially trade and banking, while the volume of investments in the processing

134 “Cluster Analysis in the Republic of Serbia”

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industry has been smaller. It is expected that what foreign investors will find interesting in the coming period will be the privatisation of hotels, dependent enterprises from metal industry, fields of telecommunications, energy, construction industry, as well as transport potential.

For example, the forthcoming foreign investment in the automotive industry is substantial and is following the established pattern of international companies settling their production lines in Serbia (see Annex R).

To facilitate higher levels of FDI, the Government needs to resolve the issues of insufficient information and intelligence about the investment and business climate in Serbia, and specific opportunities for potential investors, within a highly competitive environment for foreign direct investment. There is a need to enhance capacities to detect suitable investors and target them with competitive promotional package, as well as to build capacities within the country, in order to achieve a better business environment both for domestic companies and prospective investors.

Realising export potential

A strong export sector reduces a large foreign trade deficit, absorbs existing unused production capacity in a small domestic market, adds to national wealth and employment, improves competitiveness and quality of enterprises and products, and provides the income which enables the economy to import other goods and services on a sustainable basis. It is closely linked with achieving high levels of innovation, accessing new technologies, and networking within sectors to ensure individual enterprises are able to compete on the international markets. In an open economy like Serbia, sustaining faster growth and reducing unemployment depends on improving export performance.

Industrial production in Serbia is faced with challenges that influence export activity and the position of domestic companies on the international market. Despite making 95% of total exports, manufacturing industry is exporting mostly primary and labour- and natural resource-intensive products; export turnover is heavily dependent on global market and commodity prices, rather than competing on the basis product quality and meeting customers’ design, delivery and after-care needs, which is an inadequate basis for sustainable growth of exports in the long run.

For example, the food processing industry is presently one of the most attractive sectors, achieving higher export revenues, as well as investment levels. Agriculture provides 10% of gross value added of Serbian economy and unlike the rest of the economy, agricultural output has already recovered to pre-1990 levels. Some 10% of the workforce is employed in agro-processing, and agricultural service industries and food-processing enterprises are the largest single employer in the industrial sector. Main processed export products by the quantity are frozen fruits, juices and concentrates, preserved and dried fruits. Despite the decreasing purchasing power of consumers and the dramatic decline experienced by this industry in the last 15 years, this sector has a long tradition of high quality production and the right potential for becoming a fast growing and high quality, competitive export industry after the completion of the privatisation process. However, although Serbia has remarkable natural resources and a sound, traditional production base, the industry still need innovation and modern technology transfer facilities that would enable companies in the sector to be able to produce competitive, high quality products.

Another area where Serbia would be able to influence export activity is the support to certification and testing of its products. At present, Serbia has eight system and 14 product public certification bodies135 and has achieved significant results in transposing EU Directives in the field.

135 Data provided by the Accreditation Board of Serbia

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A major number of these 14 product certification bodies perform certification according to the old technical regulations on mandatory attestation which are being gradually repealed by the new regulations harmonized with EU directives. At the same time, these conformity assessment bodies (CABs) are not equipped nor trained to meet the challenges posed by EU standards, which means that Serbia is not able to fully implement transposed EU directives. In order to be able to carry out essential check of product conformity with EC directives and new international standards, these bodies have to upgrade their capacities (both knowledge and equipment). As CABs are underequipped, testing and certification cannot be undertaken within the country and SMEs are then faced with extensive delays and high costs in sending their products to CABs in other countries. The MoERD is aware of this needs and, after full harmonization of legislation, the next priority is to support CABs to strengthen their technical capacity.

One of the needs prioritised in the next period is acquisition of laboratories and certification bodies for product/services testing, or knowledge to test products according to new, transposed regulations. As a consequence, businesses would no longer have to test their products abroad, for example in Hungary or Austria, which causes higher costs, make their product more expensive and thus less competitive136. In addition, introduction of such systems improves the quality of Serbian products, making them competitive and raises their chances for export opportunities.137

Boosting innovation and technology transfer

According to the Global Competitiveness Report 2010-2011, Serbia has very limited capacity in almost all aspects of innovation and technology transfer (figure 54). The transmission of public R&D benefits to private business, capacity for innovation, and companies spending on R&D are particularly weak, which mainly reflects mismatches between industry needs and research routes followed by universities and public research institutions. Relatively weak collaborative links between academia and the business sector seem to underlie these challenges.

136 For example, companies from the cluster “Embedded” have to perform testing and certification of their products in Slovenia, the nearest laboratory for electromagnetic compatibility.137 The Serbian Government is implementing programmes that, among other, provide subsidies for testing, certification and recertification of products. According to the Government institution’s databases, over 60% of approved applications were for certification, standardisation and introduction of quality system in SMEs

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Figure 54: Innovation factors (Serbia’s ranking out of 139 countries, 1 being top)

Due to insufficiently rapid economic development, the current state budget allocation is 0.3% of GDP, and private investments in R&D are still not significant. This has two main implications: the level of discovery in Serbian firms is very limited, meaning innovation has to come from outside the firm; and the pool of research-trained employees within Serbian companies is small, limiting their absorptive capacity (i.e. their ability to evaluate and absorb external knowledge).

However, it should be noted that the budget funding in 2008 was several times larger than 2001 levels and the Government is focusing its policy on efforts to bring public research more in line with the needs of enterprises and to strengthen technology transfer from the public to the private sector . According to the National Strategy for Scientific and Technological Development (2010 – 2015), Serbia plans to boost investment in R&D to 1% of GDP through investments in scientific and technological infrastructure, human capital and strengthening links between R&D and business enterprise sector.

The defined priorities are two-fold:

Public higher education and R&D institutions must be motivated to reach out and support business R&D and knowledge transfer needs and be a source of new product ideas and technical innovation and the capabilities to exploit new ideas;

Businesses must be stimulated and supported to commercially exploit research excellence, building an economy based on expertise and knowledge.

Serbia has clearly identified the need to prioritise and strengthen the cooperation of public and private R&D sector for the benefit of its economic development and has been taking steps to address that need.

The Government has been implementing a grant scheme programme to co-finance innovative and technology development projects, aiming at establishing firmer relationships between R&D institutions and the SME sector, and enabling transformation of knowledge to concrete

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improvement of process and development of new and better products. The programme is designed to support projects promoting:

Development of the innovative products, technologies, processes and services; Significant alteration of existing products, technologies, processes and services; Implementation and commercialization of scientific-research results; Enabling usage of the modern technologies; Development of the innovative organizations’ infrastructure; Development of the innovative organizations; Forming/establishing of the business-technology incubators providing services to businesses

working on the development and implementation of the high technologies; Research in different fields of technological development; Transferring of knowledge and technology and encouraging the implementation of the

results of scientific research.

While the grant scheme has targeted smaller infrastructure and ‘soft’ projects (below €50,000), the response has demonstrated considerable unmet demand from R&D institutions and higher education institutions. As table 32 below demonstrates, almost 500 projects could not be realised due to lack of funds from the State Budget, worth €26 million.

Table 32: Overview of the national grant scheme programme for funding innovative and technology development projects

Call Projects applied

Requested budget

(€million)

”Soft” projects selected

Infrastructure projects selected

Projects not funded due to lack of funds

Value of projects not funded due to lack of

funds (€ million) 1st 626 46.8 510 7 102 6.32nd 169 16.9 28 15 146 15.4

3rd 546 26.2 277 7 218 4.3

Total 1341 89.9 676 29 466 26Source: Ministry of Education and Science (2011)

Addressing regional disparities

The Serbian Government is committed to reducing the huge regional disparities that exist throughout the country. As presented in section 1.1.4, economic activity is concentrated in major cities, while other areas, especially east and south of the country, are faced with massive depopulation, lack of basic infrastructure, high unemployment rates, low productivity, the absence of ‘self-generating’ private activity, low levels of consumption and high poverty levels with insufficient investment and weak local administration heavily dependent on the central level.

As also described in section 1.1.4, the Government is in the process of creating the legal and institutional framework for efficient absorption of allocated aid, as well as establishing long term strategic policy to address regional disparities based on situation and needs analysis.

The level of development of local self government units is defined by the “Regulation on Establishing the Single List of Development of Regions and Local Self-government Units”, adopted by the Government in 2010, according to the main and corrective indicator of the economic development of the LSU. The main indicator for measuring the level of economic development of the local self government unit (EDLSU) is the sum of the incomes and pensions in the LSU and the budgetary incomes of the LSU upon the exemption of the resources received from other levels of government for the purposes of mitigating the consequences of emergency situations, expressed per capita .

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In addition, according to the level of development the local self government units are divided into four groups:

First group: local self-government units whose level of development is above national average;

Second group: local self-government units whose level of development is within the range between 80% and 100% of the national average;

Third group: local self-government units whose level of development is within the range between 60% and 80% of national average;

Fourth group: local self-government units whose level of development is below 60% of national average.

Particularly under-developed government units are those from the 4 th group (figure 49), including devastated areas whose level of development is below 50% of national average and the Government has identified 46 local self government units falling in the category. They are mainly located in the South of Serbia; 19 municipalities are situated in just four districts (representing statistical territorial units): Jablanički, Pčinjski, Nišavski and Toplički (figure 55).

Additionally, the above-mentioned Regulation stipulates that Šumadija & West Serbia and South & East Serbia are underdeveloped regions, since their regional GDP per capita values are below the national average.

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Figure 55: Distribution of particularly underdeveloped LSU by district (shown in red)

Jablanički district – Vlasotince, Lebane, Crna Trava, Medveđa, BojnikPčinjski district - Vladičin Han, Bujanovac, Preševo, Bosilegrad,Trgovište, SurdulicaNišavski district - Gadžin Han, Doljevac, Ražanj, Merošina, Svrljig Toplički district Žitorađa, Blace, Kuršumlija Braničevski district - Kučevo, Golubac, Žagubica, Žabari, Malo Crniće, Petrovac Zaječarsko - Knjaževac Pirotski district - Babušnica, Bela Palanka Južno-banatski – Plandište, Alibunar, Bela Crkva Srednje-Banatski district – Nova Crnja, Žitište Šumadijski district – Rača, Knić Pomoravski district – Rekovac Mačvanskoi district – Mali Zvornik, Krupanj, Ljubovija Kolubarski district – Osečina, Mionica Zlatiborski district - Prijepolje, Sjenica. Raški district - Tutin Rasinski district - Brus

In the short term, the government is trying to deal with regional imbalances by adopting annual programmes developed exclusively for underdeveloped areas:

The “Government Programme for Promotion of Balanced Regional Development for 2011”, provides support to production, entrepreneurship and employment in less developed and devastated areas;

The “Government Programme for Allocation and Absorption of Resources for Programming Regional Development and Support to SMEE”, co-finances the initiatives of local self-government units and accredited RDAs for preparation and implementation of local and regional projects, support to SMEs and innovation, and co-finances the annual fees of underdeveloped LSUs in accredited RDAs;

The ‘Programme for Revival of Large Industrial Centres (Niš, Zajecar, Kraljevo and Novi Pazar) and Extremely Underdeveloped Areas’ (in May 2010) aims to reduce regional differences

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through reviving production, opening new factories and supporting job creation, targeting areas with a level of development below 50% of the average in the Republic;

The ‘Programme for Attracting Direct Investment’, which is implemented by the Serbian Investment and Export Promotion Agency (SIEPA) provides subsidies to investors depending on the number of jobs created, investors references, involvement of domestic suppliers, project sustainability, technological level, impact on HR, volume of international trade, environmental impact, the location (focus on areas of special interest138 and extremely underdeveloped areas139), the size of the investment140 and the sector targeted (focused on automotive, electronics and information and communication technology industries).

The Government has prepared a programme for supporting sustainable development and is pledged to secure funds to invest in SME development, strengthening employment and industry, with the emphasis on processing industry, in underdeveloped municipalities through the Development Fund of the Republic of Serbia by providing loans of up to RSD 10 billion (approximately €100 million) in the framework of the ‘Programme for Stimulation of Balanced Regional Development’, whose goals are:

Stimulation of production and employment in extremely underdeveloped areas; Stimulation and development of enterprises and entrepreneurship in underdeveloped

municipalities; Investment in labour intensive processing industries141 in underdeveloped municipalities.

Furthermore, the Government has recognised that large investment backlog as a result of underinvestment in the construction of new and maintenance of old infrastructure represents an impediment to economic development at the local level; 15% of foreign investors142 perceive the weak infrastructure as a major disadvantage when investing in Serbia.

The Government is trying to tackle the issue through substantial budgetary funds such as the National Investment Plan, the Fund for Development, and donor resources. Furthermore, the need for substantial investment in infrastructure is particularly visible in underdeveloped areas suffering from low economic activity, lack of greenfield investment and insufficient enterprise development.

Business related and tourism infrastructure

As presented in the section 1.1.4, Serbia has dedicated a substantial area for the development of business and industrial zones. However, the greatest interest among investors is expressed in zones along the route section Belgrade - Novi Sad (Indjija, Stara Pazova) and the ones in the vicinity of

138 ‘Areas of special interest’ are towns representing large industrial centres and whose accelerated development is of special importance for Serbia: Niš, Zajecar, Kraljevo and Novi Pazar. 139 ‘Extremely underdeveloped areas’ are local self-governments whose level of development is below 50% of the national average. They include the following municipalities: Merošina, Bojnik, Trgovište, Malo Crniće, Tutin, Bela Palanka, Svrljig, Knić, Žabari, Bosilegrad, Golubac, Kuršumlija, Ražanj, Gadžin Han, Sjenica, Žagubica, Medveđa, Rekovac, Osečina, Blace, Crna Trava, Žitorađa, Vladičin Han, Mali Zvornik, Plandište, Žitište, Nova Crnja, Preševo, Bujanovac, Kučevo, Babušnica, Vlasotince, Lebane, Mionica, Prijepolje, Krupanj, Rača, Doljevac, Varvarin and Ljubovija140 ‘Investment of special importance’ is an investment of at least €200 million, creating at least 1000 new jobs within a three year period141 The labour intensive processing industries include: production of clothing and fur; production of leather and leather products; footwear; wood and cork based production and processing; production of items made of other minerals; production of metal products except from machines; production of other machines and devices; production of office and calculating machines; production of highly precise and optical instruments; production of other transportation vehicles; production of furniture and similar products; automotive industry production; electronic industry production.142 USAID MEGA Survey on Investor’s opinion (2008)

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Belgrade (Šimanovci), where land purchase or lease prices have reached rather high level already. Fiat’s announcements on production launch in Kragujevac have sparked an increased interest not only in sites around the city, but in the entire territory of Central Serbia as well143.

The research “Benchmarking Business Incubators 2002” conducted by DG Enterprise suggests that European incubators typically have around 5,800 square meters of space for tenants, sufficient to accommodate some 18 firms at any one time in a variety of units.The figures below show that Serbian incubators are well below the average. However, the results reflect the general situation, while performance and need should really be observed on case-by-case basis. For example, the Business Technology Incubator144 of the technical faculties in Belgrade University has 600m2 and is occupied by 11 innovative high tech companies. The demand for space in the incubator is such that there are already five SMEs waiting for others to finish their incubation phase, so that they can gain entry.

Therefore, in the medium-term, Government needs to promote infrastructure and management needs of the incubators that focus on innovative companies with growth potential and a strong network of strategic partnerships with educational institutions and business service providers, and which can appoint pro-active management, capable of running the incubator like a business and offering strategic guidance to the companies. Incubators whose existence is based on market needs assessment and sound financial analysis, as well as their ability to employ sufficient skilled staff that will serve the needs of incubators tenants, are more likely to sustain and grow, thus contributing to the economic development of the country.

One potential source of external income and economic opportunities, especially for local economies and clusters, is tourism revenue and investment. However in recent years, Serbia has suffered from under-investment in the infrastructure of tourism, and the maintenance of inherited tourist destinations, particularly within local communities which have lacked the resources to finance new developments and the upkeep of existing ones. In 2004, the average annual income of a hotel in Serbia was €8000 per room, while international standards for the same categories expect 2.5 times higher income.145 According to the assessment of the attained level of quality of the tourist product

143 “Business Infrastructure Requirements and Priorities- Sector Analysis”, performed by the EU-funded project ‘Municipal Infrastructure Support Programme’ (2011)144 www.bitf.rs145 Tourism Development Strategy of Serbia

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in Serbia, regarding the key factors of success146 on a scale of 1 (very poor) to 6 (excellent), the respondents underlined as the worst elements of Serbia as tourist destination: river tourism (1.7); tourist signalisation (2.4); information and presentation (2.6); tourist laws and legislative basis (2.6); accessibility and transport (2.8); and communal infrastructure (2.9). At the other hand, the best scores were obtained by the social elements and human resources (3.9), restaurants (3.8), natural and cultural heritage (3.7).

This assessment demonstrates the need for development of tourism infrastructure147 and capacity-building of all stakeholders involved in tourism to contribute to the local economic development, especially in the the priority areas148 such as spa centres, ski resorts, mountain centres, areas along Danube and large centres (Belgrade, Novi Sad and Niš).

SWOT analysis

STRENGTHS WEAKNESSESGeneral Steady GDP growth averaging between 5% and 6% over

the period 2001-2008 (until global economic crisis) - GDP per person more than doubled;

Growth in export levels over the last decade; Net foreign direct investment (FDI) has been on upward

trend over the 2000s (before the global economic crisis); National Council for Competitiveness established as a

high level advisory body; Existence of Government strategic documents and

programmes encouraging sectors driving competitiveness;

Positive investment climate – taxation and subsidies system, free trade agreements with various countries, opening towards markets of over one billion people, strong subsidies for each new employee;

Strong government commitment to science and innovation, industrial development through key sectors, clusters, SMEs, e-government and stimulating FDI, to broaden the economic base.

General GDP per person remains low by EU-27 standards; Recent economic growth driven by consumption (leading to

high import levels), more than production, suggesting structural imbalance;

Low percentage of total GDP attributable to ‘high technology’ industries – aerospace, electronics / ICT, precision equipment & pharmaceuticals;

Highly productive sectors underdeveloped and undercapitalised;

Export levels currently too low, insufficient to cover high import penetration, leaving Serbia depending on capital inflows including FDI;

Limited cooperation between exporters: there is no association of exporters;

Employment rate remains low, especially compared to EU-27 levels - gains in GDP largely through productivity improvements, rather than job creation;

Mismatch between demand for labour and supply - labour force lacks skills needed by the economy;

Growing share of informal ‘grey economy’, but limited information on scope, nature and causes;

Large disparities between developed and underdeveloped areas, particularly in comparison to EU regional disparities;

Poor planning coordination between the central and local government levels;

Insufficient monitoring and evaluation of government support programmes (lack of systematic and independent methodologies);

Serbia ranks low on international studies of country competitiveness and ease of doing business;

Detrimental impact of current global financial and economic crisis on Serbian economy;

Unfavourable global image of Serbia acts as a deterrent to foreign investment.

146 Tourism Development Strategy of Serbia : the competitiveness of Serbia as tourist destination scores 3.1 on average.147 Law on Tourism defines tourist infrastructure as the facilities intended for providing information, respite, supply, recreation, education and entertainment of tourists, namely: ski tracks, bathing sites and beaches, theme and amusement parks, tourist information centers, centers for the reception of tourists and visitors, rest areas by the roads, nautical tourism establishments, golf courses, tennis courts, indoor and outdoor sports-recreational facilities, small artificial accumulations with bathing sites, swimming pools, wellness facilities, amusement-recreational tracks and roads (trim tracks, health tracks, belvederes, panorama paths, bicycle tracks, pedestrian tracks, tracks for motor sleighs, etc), landscaped river and lake banks, facilities for observing natural rarities, facilities for respite and shorter stays of tourists, facilities for adventuristic activities and other148 As defined in the Tourism Strategy of the Republic of Serbia

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SME development Approved national policy for SME establishment and

growth; Effective coordination between all key ministries involved

in SME development; All Government institutions deemed essential for

supporting SME development have been established; Existing and fully functional government support

schemes to encourage enterprise start-ups; High percentage of SMEs in the economy making a strong

contribution to both GDP and employment; Effective cooperation on SME development established

between Government and key international SME support institutions;

Progress in improving the enabling environment for SME establishment and growth;

Established SME Business Council.

SME development Significant regulatory and administrative barriers to enterprise

establishment and growth remain at both national and local level;

Low total factor productivity (competitiveness) of Serbian SMEs in comparison with SMEs from neighbouring countries;

SMEs have difficulty in accessing finance for growth; Limited provision of information on potential market for

Serbian exporters and on Serbian market for potential investors;

Low labour force skills lead to low productivity and competitiveness;

SME sector tends to be based on low technology, low cost industries where scope for growth is limited;

The supply and value chains are poorly developed, limiting the linkages between large enterprises and SMEs;

Low development level of existing clusters limits their facilitation of innovation processes and enhancing technology;

Low level of linkages and cooperation among cluster companies, and undeveloped collaboration between R&D institutions and clusters;

Insufficient capacity and lack of SME knowledge for testing and certification of products and services in Serbia, to access EU and other export markets;

Limited range of available e-services, especially to businesses through e-Government.

R&D and Innovation Almost universal usage of computers by enterprises and

very high levels of connectivity with the Internet; Significant progress in adoption and implementation of

the legal framework for the information society; e-Government strategy adopted; Mobile telecommunications market and e-banking well

developed; Investment incentives to attract foreign direct

investment in information and communications technologies;

Existing government support programmes to encourage investment in business innovation;

Strong tradition in research and development enabled existence of centres of scientific excellence (Belgrade, Novi Sad, Niš);

Doubling of student numbers since the 1990s, and over 10,000 university teaching staff.

R&D and Innovation Very low percentage of R&D expenditure by the private sector

(almost entirely by public sector), especially compared to EU-27 levels;

Underdeveloped ICT infrastructure; Underdeveloped market (both supply and demand) for ICT

services; ICT sector accounts for a relatively small share of the national

economy; Only one-fifth of enterprises with internet connection use it for

e-business; Limited range of services available to the public through e-

government; Coverage of exports by imports of Serbian SMEs is below the

average of national economy and large systems; Underdeveloped innovation and technology transfer

infrastructure in the country; Poor transfer of technology from knowledge centres to

enterprises and existing vacuum in applied research, which has restrained Serbia’s ability to gain economic profit from its higher education base;

Limited access to risk capital for investment in innovation; Limited awareness of the importance of innovation among

SMEs; Low number of industrial patents reflecting low level of R&D

expenditure by Serbian enterprises; Inadequate protection of intellectual property rights

discourages investment in R&D.

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Regional development Existence of the system of national and local strategic

development planning; Established institutional and regulatory framework for

creation, implementation and monitoring of regional development policy, envisaged the strong link between the strategies at local, regional and national level;

Existence of Government measures to support the most underdeveloped areas in order to promote convergence;

Existence of resources for tourism development.

Regional development Regional disparities among the highest in Europe; High level of out-migration from disadvantaged districts, and

movement from rural communities and towns to the major cities;

Limited availability of business-related infrastructure and services in disadvantaged areas;

Limited capacity of municipalities in disadvantaged areas to attract foreign direct investment, in terms of both facilities and their understanding of investor needs;

Incompatibility of many local level plans with plans on national level;

Institutional capability and capacity of local self-government in disadvantaged areas is often poor;

Very low quality and quantity of statistical and other data at local level;

FDI is not well embedded into the local economy, partly due to poor quality and limited capacity among local suppliers.

OPPORTUNITIES THREATSGeneral Expected economic recovery during period of the OP

creates new business opportunities; Recovery expected to be led by investment, exports and

job creation, as well as higher levels of personal spending;

Serbian diaspora estimated at 4 million people, with skills and know-how;

Scope to use Public-Private Partnerships to invest in infrastructure and service delivery;

Sharing of best practice from EU and other countries in particular regarding lessons learned from previous and ongoing projects.

General Weaker than expected recovery from current world financial

and economic crisis undermines business and investor confidence;

Unfavourable demographic trends continue – low birth rate, ageing population, depopulation of rural areas and inflow to cities and major towns;

An increasing brain drain resulting from the state of the economy exacerbates Serbia’s productivity performance;

Potential to secure business and investment continues to be held back by an unfavourable image of Serbia, or lack of knowledge and understanding about its possibilities and resources.

SME development Alignment with the Small Business Act in Serbia’s EU

accession process helps reduce barriers to enterprise establishment and growth;

Foreign trade agreements lead to increased foreign direct investment;

Inward investing businesses tend to use local supply chains to cut production costs which allows greater embedding of FDI;

Access to external funding and EU programmes allows greater support for SMEs;

Boosting sectors where Serbia has existing or emerging comparative advantage, such as food and drink production, automotive manufacturing and wood processing;

Self-employment and start-ups increasingly seen as a creative opportunity to develop a new business idea or innovation, rather than a reaction to lack of jobs elsewhere.

SME development Economic crisis makes SME development extremely difficult

and reduces government resources for SME support.

R&D and Innovation Growing demand for use of both e-government and e-

commerce reduces administrative burdens on enterprise and open new market opportunities;

Strong academic base pushes for creation of linkages between the academic, research and education network and enterprises to improve application of R&D;

Opportunities to attract the return of the large Serbian diaspora of skilled professionals.

R&D and Innovation Macro-economic instability discourages both government and

private sector investment in innovation; Limited availability of funds (both government and risk capital),

to encourage innovation and technology transfer, due to budgetary constraints, results in steady decline in productivity and competitiveness.

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Regional development Political commitment to further establish and operate

regional development policy leads to reduction of regional disparities;

Business-related infrastructure and services as part of the FDI attraction package to poorer areas creates virtuous cycle of further investment and higher levels of SME creation;

Greater decentralisation encourages regional bodies (regional development councils and agencies) and local self-governments to work with foreign investors providing targeted assistance;

Investment and trade opportunities from SAA and further EU integration;

Ongoing support to capacity-building at all levels and project preparation through various EU and donor projects and programmes.

Regional development Insufficient future economic growth generates too few jobs in

disadvantaged areas; Reliance of disadvantaged local self-government units on

government incentives.

2.2 Strategic priorities

The Strategic Coherence Framework sets out an overarching goal for IPA components III and IV in 2012-2013, which is: to stimulate Serbia’s sustainable socio-economic development and accelerate Serbia’s readiness to join the European Union.

This goal is broad in scope but sets a clear direction, and signals Serbia’s determination to meet the standards of membership, as an equal and active partner in the European Union, by driving up political, socio-economic and environmental performance and adopting the systems and structures associated with the EU Member States.

The following three diagrams (overleaf) explain how this goal will be implemented through the OP for Economic Development, through the three main operational priorities: transport, environment and competitiveness.

Both the SCF and the OP take, as their starting points, Serbia’s obligations in acceding to the EU, as set down in the Stabilisation and Association Agreement, and the mid-term objectives in the European Partnership (which will become an Accession Partnership, once Serbia becomes a Candidate Country). These obligations and objectives are translated in operational terms in the National Programme for Integration of the Republic of Serbia into the European Union, and, after Candidate Country status is secured, the National Programmes for the Adoption of the Acquis (NPAA).

These priorities for meeting the EU’s expected norms and standards, along with other parameters - the IPA regulations, MIPD, Community Strategic Guidelines and Europe 2020 (described in section 1.2) - alongside Serbia’s own strategic priorities, set out in national and local strategies, programmes and action plans (as described in section 1.1), define the overall policy envelope for analysis and action.

Each diagram summarises the main themes in the socio-economic and SWOT analysis (as set out in sections 1.1 and 2.1), and identifies the main challenges facing Serbia over the programme period to benefit from existing strengths and potential opportunities, and to overcome existing weaknesses and potential threats.

These medium-term challenges are then articulated in a series of strategic priorities, which have a direct parallel in the objectives in the SCF. These are:

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1. To advance the completion, modernisation and sustainable development of the Serbian railway and inland waterway transport system within the Pan-European Corridors X and VII, to the required capacity levels and quality standards relevant to the TEN-T network;

2. To improve environmental protection through investment in environmental infrastructure for waste management, water supply, wastewater treatment and improvements in air quality, and creating conditions for sustainable development, in line with the EU acquis;

3. To increase the productivity and competitiveness of Serbia’s new and established SMEs, their internationalisation and capacity to innovate, by creating a more favourable environment, customised business services and infrastructure investment.

There is an additional strategic priority which relates to priority axis 4 (technical assistance): to enhance and reinforce Serbian capacities, in the context of the EU pre-accession process, for management of Structural Funds and the Cohesion Fund.

Cutting across each of these ‘vertical’ objectives is a commitment to ensure that ‘horizontal’ concerns are taken into due consideration in the preparation and implementation of programmes, namely the need to foster gender equality and tackle discrimination, to promote sustainability and to engage with civil society, wherever appropriate.

These strategic priorities will be realised through priority axes, each of which will be implemented through lower-level measures, which in turn will form the basis for selecting operations for funding. The priority axes and measures are described in detail in chapter 3.

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SAA / Accession Partnership – National Plan for Integration with the European Union / NPAA

National strategic priorities EU strategic priorities

Socio-economic and SWOT analysisOutdated technology, infrastructure quality below EU standards Transport network limitations, bottlenecks, lack of interoperability and interconnectionUnsatisfactory project documentation development; potential for improving and increasing the project preparation and implementation capacity through trainingDemand for completing the Pan-European Transport Network and the Core Regional Transport Network and improving interoperabilityInterest from IFIs in financing or co-financing infrastructureIncreasing demand for fast freight and passenger interregional and transit transport; potential of Serbia’s transport for higher productivity, increasing its business and job creationPotential to reduce the negative impact of transport on the environment

Medium-term challenges: overcoming weaknesses and threatsImprove the quality of infrastructure and services and the capacity for intermodal transport growthEnsure transport sustainable development, transport network completion and modernization to required capacity and European standardsReduce travel time, increase transport safety and security and interoperabilityContribute to economic and environmental sustainability in transport by supporting environmentally friendly transport modes

Medium-term challenges: benefiting from strengths and opportunitiesAccommodate increasing demand for fast freight and passenger interregional transport and transit Stabilise the share of railway and inland waterway freight transportAbsorb funds provided for transport developmentContribute to higher productivity in transport, and its business and job creationSupport internal, regional and European economic cooperation

SCF OBJECTIVE AND STRATEGIC PRIORITY 1:“To advance the completion, modernisation and sustainable development of the Serbian railway and inland waterway transport system within

the Pan-European Corridors X and VII, to the required capacity levels and quality standards relevant to the TEN-T network”

Measure 1Modernization of railway lines within the

Pan-European Corridor X

Measure 2Improvement of navigation conditions within the Pan-European Corridor VII

Partnership, coordination, complementarities and synergies – national programmes; IPA components I,II,III and V; IFIs and bilateral donors

Priority Axis 1 – Transport

++ +



Socio-economic and SWOT analysisGood progress in harmonization of legislation with EU acquis, opportunities from approximation with EU norms and standardsHigh level of biodiversity and geodiversity, and considerable potential of natural resources, but pollution of water, soil and air, loss of fragile habitats and significant soil erosionRecent introduction of municipal waste management services, particularly in rural areas, but weak municipal, hazardous and industrial waste management system in placeAdequate volume of water resources, but excessive water pollution, insufficient enforcement of laws and low finesInstitutions for Kyoto Protocol, scope to apply clean development mechanisms, but excessive air pollution from power and heating plants using low grade fuel and old technologySignificant gaps in environmental infrastructure, especially wastewater treatment, solid waste disposal and treatment, and air pollution abatementOpportunities from increasing public awareness and corporate social responsibility

Medium-term challenges: overcoming weaknesses and threatsDevelop regional waste management centres, along with facilities for separation and sorting, recycling and biological treatment of wasteExtend public water supply and treatment network, through rehabilitation of existing networks and construction of new ones, according to EU standardsRehabilitate and construct public wastewater collection and treatment systems, in order to protect receiving watersRehabilitate and construct facilities at Thermal Power Plants (TPPs) in order to reduce harmful atmospheric emissions and particulates

Medium-term challenges: benefiting from strengths and opportunitiesEnable the implementation of infrastructure development plans, in line with the National Programme of Environmental ProtectionSupport regional, inter-municipal organizations to improve access to, and delivery of, environmental services and waste management facilitiesSupport integrated water management solutionsMove towards fulfilling the key requirements of the EU’s Urban Wastewater Directive and Large Combustion Plants DirectiveAssist in the preparation of infrastructure projects for future funding

SCF OBJECTIVE AND STRATEGIC PRIORITY 2:“To improve environmental protection through investment in environmental infrastructure for waste management, water supply, waste water

treatment and improvements in air quality, and creating conditions for sustainable development, in line with the EU acquis”

Measure 1Upgrading and improvement of waste

management

Measure 3Improvement of air quality through reduction in emissions from thermal

power plants

Partnership, coordination, complementarities and synergies – national programmes; IPA components I,II,III and V; IFIs and bilateral donors

Priority Axis 2 – Environment

++ +

Measure 2Drinking and waste water management



Socio-economic and SWOT analysisEconomy over-dependent on traditional sectorsPoorly developed supply and value chains and linkages between large enterprises and SMEs, and underdeveloped cooperation among cluster companiesExport levels currently too low; limited provision of information on potential market for Serbian exporters and on Serbian market for potential investors Insufficient capacity and lack of SME knowledge for testing and certification of products and services in Serbia, to access EU and other export marketsLow total factor productivity (competitiveness) of Serbian SMEs in comparison with SMEs from neighbouring countriesVery low percentage of R&D expenditure by the private sector (R&D almost entirely by public sector), especially compared to EU-27 levelsUnderdeveloped innovation, technology transfer and ICT infrastructure & limited range of available e-services, especially to businesses through e-GovernmentLarge disparities between developed and underdeveloped areas, particularly in comparison to EU regional disparitiesLimited availability of business-related infrastructure and services in disadvantaged areas

Strategy to overcome existing weaknesses and future threatsSupport SMEs through improved tailor made services Support institutional framework for SME policy implementationImprove access of Serbian exporters to conformity assessment infrastructure Strengthen transfer of technology to SMEs and cooperation between R&D and enterprisesImprove access to business-related infrastructure nationallyUtilise e-Government to reduce administrative barriers and scope for corruptionDevelop capacity of existing clusters to maximize their potential

Strategy to benefit from existing strengths and future opportunitiesFurther progress in creation of positive business environment to reduce barriers for enterprise establishment and growth Strengthen institutional capacity to provide services for Serbian exporters and greater embedding of FDI in local economyEncourage relatively strong academic base to create linkages between the research network and enterprises to improve application of R&D in business sectorEnable instruments for implementation of regional development policy to reduce disparities

SCF OBJECTIVE AND STRATEGIC PRIORITY 3:“To increase the productivity of the Serbian economy and competitiveness of Serbia’s new and established SMEs, their internationalization and capacity to

innovate, by creating a more favourable environment, customised business services and infrastructure investment, with special focus on underdeveloped areas”

Measure 1Strengthening the development

of SMEs

Measure 2Improvement of enterprise competitiveness through innovation and technology transfer

Measure 3Supporting local economic development and enhancing business infrastructure

Partnership, coordination, complementarities and synergies – national programmes; IPA components I,II,IV and V; IFIs and bilateral donors

Priority Axis 3 - Competitiveness

++ +


3 PROGRAMME STRATEGY

3.1 Priority axes and measures

3.1.1 Priority axis 1 - Transport

Aim:

The aim of the priority axis is to contribute to improvement of the capacity and quality of transport infrastructure and transport services, within the Pan-European Transport Corridors and the Core Regional Transport Network.

EU legislation:

Implementation of activities within this priority axis contributes to the priorities of the European Union addressed to the Republic of Serbia and the Western Balkans, specifically oriented towards implementation of the 2004 Memorandum of Understanding for the Development of the South East Europe Core Regional Transport Network and the Treaty Establishing Transport Community that cover requirements for establishing an efficient trans-European transport network (TEN-T) and approximation of EU rules and legislation for transport sector in the Republic of Serbia and the Western Balkans region.

Since the railway and inland waterway infrastructure is the main subject considered for intervention, the priority axis contributes mainly to the fulfillment of obligations relevant to development of the transport network between the European Union and the South East European Countries, as introduced for the accession process under Chapter 21 (trans-European networks), as well as Chapter 14 (transport policy), specifically to satisfying requirements introduced in the Decision No 1692/96/EC of the European Parliament and of the Council of 23 July 1996 on Community guidelines for the development of the trans-European transport network as amended in 2001 and 2004 and related directives relevant to technical standards and interconnection and interoperability of Serbian transport network with TEN-T, as well as environment rules applicable to transport sector, for example:

Decision No 1346/2001/EC of the European Parliament and of the Council of 22 May 2001 amending Decision No 1692/96/EC as regards seaports, inland ports and intermodal terminals as well as project No 8 in Annex III;

Decision No 884/2004/EC of the European Parliament and of the Council of 29 April 2004 amending Decision No 1692/96/EC on Community guidelines for the development of the trans-European transport network;

Directive 2001/16/EC of the European Parliament and of the Council of 19 March 2001 on the interoperability of the trans-European conventional rail system;

Directive 2004/50/EC of the European Parliament and of the Council of 29 April 2004 amending Council Directive 96/48/EC on the interoperability of the trans-European high-speed rail system and Directive 2001/16/EC of the European Parliament and of the Council on the interoperability of the trans-European conventional rail system;

Directive 2004/49/EC of the European Parliament and of the Council of 29 April 2004 on safety on the Community's railways (Railway Safety Directive);

Directive 2008/57/EC of the European Parliament and of the Council of 17 June 2008 on the interoperability of the rail system within the Community;

Directive 2001/42/EC of the European Parliament and of the Council of 27 June 2001 on the assessment of the effects of certain plans and programmes on the environment and SEA

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protocol to the ESPOO convention; Council Directive 85/337/EEC of 27 June 1985 on the assessment of the effects of certain

public and private projects on the environment as amended by Directives 97/11/EC and 2003/35/EC and ESPOO convention;

Council Directive 92/43/EEC of 21 May 1992 on the conservation of natural habitats and of wild fauna and flora as amended by Directive 97/62/EC, 2006/105/EC and Regulation (EC) 1882/2003;

Directive 2000/60/EC of the European Parliament and of the Council of 23 October 2000 establishing a framework for Community action in the field of water policy as amended by Decision 2455/2001/EC.

Specific objective:

To advance the completion, modernisation and sustainable development of the Serbian railway and inland waterway transport system within the Pan-European Corridors X and VII, to the required capacity levels and quality standards relevant to the TEN-T network

Rationale:

Transport development contributes to employment growth, economic development and further improvement of the investment climate, as well as to more balanced regional development and improvement of people’s living standards. The expected growth of the Serbian economy, as well as the Western Balkans region, after the global financial crisis, will provide the basis for increasing transport demand.

Though the density of Serbia’s transport infrastructure can be comparable with similar sized European countries, lack of continuous investment in the maintenance and infrastructure development in recent years resulted in outdated technology, insufficient capacity and infrastructure quality below EU standards. Several transport network limitations, such as speed limits, single railway track traffic, non-electrified railway lines, gauge UIC-C standards, critical sections and UXOs in the Danube, poor infrastructure of ports, etc., together with the lack of interoperability and coordination between transport modes, has decreased network capacity. Passengers, transport operators and businesses using transport service are not satisfied with the quality of transport services currently provided and call for improvement.

Except of the direct impact to the national economy, the required completion and increasing of the capacity and quality of transport infrastructure in the Republic of Serbia positively influences regional cooperation between West Balkan countries as well as the overall European integration process within the European Union territorial cohesion activities.

Description:

Around €15 billion of investment is required in Serbian transport infrastructure maintenance and development, in order to meet the TEN-T and national transport needs. Recent decisions of the Government of 2008-2009 provide higher public investments in railway and inland waterway transportation to increase the competitive advantage of these safer, efficient, and environmentally sound and user friendly transport modes. Therefore, the improvement and modernisation of railway and inland waterway infrastructure within the main European corridors is required and addressed in transport development plans.

Given the limited resources of the OP (less than 1% of costed needs), the priority axis will concentrate on a small number of specific investments (major projects) plus infrastructure projects

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preparation for implementation after 2013 where appropriate, as demonstrations with ‘learning by doing’ benefits for future EU (IPA and Structural & Cohesion Funds), IFI and national funding. Priority is given to eliminating the current infrastructure bottlenecks and networks limitations introduced and to upgrading relevant part of transport infrastructure to required capacity and quality standards.

It is clear that limited support provided within this OP will not have dramatic influence on Serbian transport infrastructure and services improvements, but will also demonstrate immediate and potential long term benefits for the national economy and international transit relevant to improvement of specific sections of the core Serbian transport infrastructure, specifically to the following:

Increase of infrastructure capacity; Improvement of infrastructure quality and transport services; Increase in security, safety and interoperability; Reduction of transport impact to environment; Reduction of transport costs and energy savings.

By completing the investment proposed, the railway transport will be provided with a modern, double track electrified railway line with a train management system that will allow traffic of trains up to a design of 160km/h; the investment in inter-modality will increase potential for growth and suggested investment in inland waterways will eliminate existing traffic limitation and bottlenecks and ensure safe and unlimited navigation. Both measures will contribute to increasing the average commercial speed, the travel time and operating costs savings.

Targeting:

The priority is given to railways, inland waterways and intermodal transport within the Serbian part of the Pan-European Transport Corridors and the South-East Europe Core Regional Transport Network that will become part of TEN-T after Serbia’s accession to the EU, in a compliance with EU transport policy. The OP has focused on these two sub-sectors in order to strike a balance between meeting the enormous investment needs of the sector, which can only realistically be met over 10-15 years, and the more immediate benefits of learning from ‘demonstration projects’ being prepared to EU standards.

The passengers, transport operators, as well as businesses from the Republic of Serbia and transiting, will benefit from increasing the average commercial speed that results in time saving and operation costs reduction. This should also increase interest of the passengers and transport operators in using railway and waterway transport.

The end recipients, owners of specific projects and of outputs of operations will be the state owned entities, the PE Serbian Railways, the Directorate for Inland Waterways and the intermodal company149 (ZIT).

149 Currently, before establishment/transformation to a state-owned company

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Measures:

Two measures are being proposed for support under this priority axis:

Measure 1.1 - Modernisation of railway lines within the Pan-European Corridor X; Measure 1.2 - Improvement of navigation conditions within the Pan-European Corridor VII.

Delivery:

The delivery of support is expected by implementing works and supervision contracts relevant to major projects, and service contracts for project documentation development for implementation in 2014-2020.

In case of railway infrastructure, this will include reconstruction, modernisation and upgrading of existing railway tracks, including railway stations, yards, tunnels, bridges, and interconnections, railway line doubling, the Overhead Contact Line (OCL), and the European Rail Traffic Management System (ERTM – Level 1) structures instalment, etc. and construction of an intermodal terminal as an alternative to the railway line modernisation. In case of inland waterways, the river training works and dredging are expected to be performed on the Danube River.

Specific works contracts and service contracts will be awarded through competitive tender procedures, based on the EU’s PRAG procurement rules..

The projects listed for IPA support have been identified based on criteria listed for transport in the IPA Implementing Regulation and on the principles and criteria set out in the Decision No 1692/96/EC of the European Parliament and of the Council of 23 July 1996 on Community guidelines for the development of the trans-European transport network.

The following was considered when identifying operations for IPA support under this priority axis:

• Project maturity and project readiness for implementation in the eligible period (2012-2016);

• Compliance with relevant EU policy and priorities, including IPA regulations and European standards;

• Consistency with the national transport strategies and transport plans and priorities (in particular the Strategy of Railway, Road, Inland Waterway, Air and Intermodal Transport Development in the Republic of Serbia and the General Master Plan for Transport in Serbia and the Master Plan and Feasibility Study Inland Waterway Transports for Serbia);

• An integrated approach (e.g. contribution to integrated traffic, facilitating trade, interoperability and interconnection of transport networks, etc.);

• Major impact on the population and the economy (i.e. contribution to improvement of the main national and international routes);

• Cost-effectiveness of investment and operation;• Availability of national co-financing;• Availability of the capacity to manage operation by its end recipient;• Sustainability; ability to cover the operation and maintenance costs after implementation of

operation by its end recipient.

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Targets and indicators:

OP monitoring will ensure evaluation of the progress in implementation of measures introduced under this priority axis based on results indicators introduced on the level of measures.

Measure 1.1 – Modernisation of railway lines within the Pan-European Corridor X

Specific objective:

To upgrade and modernise the railway infrastructure on the core corridor of the Serbian railway network, to increase the capacity and efficiency of railway transport

Rationale:

Corridor X is the backbone of the railway infrastructure system, since about one quarter of the main railway tracks are on Corridor X and its branches. Corridor X runs from West to East of the country and connects the Serbian railway network with regional and local networks of neighbouring countries, including interconnection with inland waterway and sea ports. The majority of traffic on Corridor X is international transit that is expected to grow after 2010.

The maintenance and investment in railway has been far below required levels in last decade, and this was the main factor producing the existing bottlenecks of the whole railway mode. Design speed is no longer achieved. The main lines have in general been designed for a maximum speed of 120km/h, but the present permissible train speed is far below; 100 km/h is in reality the maximum speed on majority of lines. The average permissible speed on Corridor X lines today is reduced to 82 km/h, and this corresponds to the average train speed of just 60 km/h. All lines are affected by temporary speed restrictions. The number of critical railway links is increasing every year. Currently, there is insufficient capacity in 3% of the network (12% of total traffic) and this rate will increase over the years; most of these critical sections belong to Corridor X. With the traffic increase expected after 2010, a great part of the Serbian section of Corridor X will be critical. In case of absence of regular investment, the analysis of critical links indicates an increase of insufficient capacity to 27% of the total length or railway track (37% of total traffic) till 2027.

Serbia is at the initial phase of actual development of intermodal transport. Therefore, participation of intermodal transport in total freight transport will require not only reconstruction of railway lines for intermodal units transportation, but also development of a terminal for reloading of intermodal transport units, specifically in Belgrade, with a long term targeted capacity of 320,000 TEU/year.

Nine main railway sections and one intermodal terminal on Corridor X have been identified for reconstruction and modernisation. This will eliminate bottlenecks relevant to unsatisfactory railway line capacity and quality of transport service. TEN-T standards are expected to be reached (speed up to 160 km/h, double track traffic, with UIC-C gauge parameters, mass of 22.5 t per axle; max inclination of 12.5%).

The general design for Corridor X has been developed, and the first works on improvement for railway line have already started, in specific sections between Belgrade - Subotica and Niš -Dimitrovgrad. Pre-feasibility study has been developed for Niš - Preševo section.

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According to the preliminary assessment undertaken for the General Master Plan for Transport in Serbia, at least €5 billion of investments are needed to modernise the railway lines within the Pan-European Corridor X in Serbia. Description:

The measure will contribute to reconstruction and modernisation of railway infrastructure within this core corridor which permits access to regional and local railway networks and connects the main Serbian cities with the neighbouring countries.

The outputs that are expected from individual activities planned for implementation will contribute to:

Elimination of railway infrastructure limitations, critical sections and bottlenecks, and providing effective connection;

Completion and modernisation of railway lines; Improvement of services to European standards; Increasing railway transport security and safety.

Transport operators and transport users will benefit from providing faster, safer and more secure connections that will increase railway’s competitiveness within the transport market. A higher productivity of railway transportation is also expected, after increasing the capacity and quality of railway network, and transportation service organisation. Establishment of an intermodal terminal with relevant service will also be considered.

The investment in railway infrastructure modernisation will allow traffic of up to a design speed of 160km/h; the technical parameters of railway line will reach EU standards required for TEN-T.

Major investment projects will be proposed for implementation. The planned activities include construction works and assistance in supervising investment implementation, as well as the finalisation of project documentation and development of new project documentation for implementation in 2014-2020.

A competitive tendering procedure will be implemented to award contracts, based on the EU’s PRAGprocurement rules.. Implementation of operations selected for IPA support will be performed in close cooperation with IFIs.

Eligible actions:

The following actions are considered eligible for implementation:

Reconstruction and modernisation of tracks and plants of railway lines, along with improvement of path elements for running of double track traffic;

Doubling of track on existing routes, along with path elements improvement; Establishment of ERTMS (ERTMS – level 1), modernisation of signalling equipment on lines

by means of installation of electric plants; Reconstruction and modernisation of OCL; Reconstruction of telecommunications by installation of fibre-optic cable and digital systems

of communication and informatics; Construction of intermodal railway terminal for loading of intermodal units; Project documentation development.

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This will require the award of several work contracts for undertaking construction works and service contracts for supervision of investment projects implementation, as well as service contracts for documentation finalisation and preparation of documentation for new projects expected for implementation within Corridor X in the next programming period. It is expected that this measure will support 1-2 investment projects.

Selection criteria:

Before submission of applications for funding under the Transport priority axis, the following will be checked to all operations under this measure:

Readiness of project for implementation, full project documentation dossier availability, including the Request for Confirmation of Rate of Assistance and construction permit;

Project designed in accordance with national standards and EU requirements; Project designed parameters in compliance with technical requirements for TEN-T ; Intermodal terminal designed for a total capacity of 320,000 TEU/year (1 st phase of a

capacity of 80,000 TEU/year); Project implementation schedule within available budget and eligible time limits;

Final beneficiaries:

The final beneficiary under this measure, in accordance with IPA regulation, will be the Ministry of Finance’s CFCU as the Body Responsible for Contracting and Implementation within the Operating Structure.

The proposed end recipient of IPA support, directly benefiting from activities implemented under this measure, is the PE Serbian Railways that is competent for maintenance and development of railway infrastructure in the Republic of Serbia. PE Serbian Railways will receive technical assistance and will be responsible for the technical implementation of the operations and their outcome, as the owner of operations implemented and infrastructure constructed and/or improved.

Monitoring indicators:

This measure includes construction of new railway track section, and rehabilitation and upgrading/modernisation of existing railway track, as well as construction of intermodal railway terminal, as an alternative.

The main results should be measured by results indicators, the targets to achieve are introduced based on the preliminary project proposal.

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Objective Result indicator

Definition Unit Baselinevalue(2012)

Source of verification

Frequency of

monitoring

Target value(2016)

Upgrading and modernisation of railway infrastructure on the core corridor of the Serbian railway network to increase the capacity and efficiency of railway transport

Average commercial

speed (3)

Average commercial speed of a

vehicle trafficking through

relevant section of the Pan-European

Corridors X by completion of

operation.

Per cent (1)

0 Monitoring reports and operational data from

the PE Serbian Railways

6 monthly 30-50% increase

(2)

Capacity for reloading of intermodal transport

units(3)

Capacity for reloading of intermodal

transport units newly

established within Pan-European Corridor X

No. of TEU per

year

0 Monitoring reports

6 months 80 000

Projects prepared (2) for implementatio

n after 2013

Investment projects ready

for implementation by completion of operation.

Number 0 Monitoring reports

6 monthly ≥1

(1) Index indicates the rate of changing of situation by implementing of operation; Index= (B/A x 100)-100; (A) = t he average speed of vehicle before operation; (B) = the average commercial speed of vehicle after completion of operation

(2) A preliminary estimation that will be specified for individual operations by feasibility studies undertaken(3) Depending on the project selection (alternative projects)

Measure 1.2 - Improvement of navigation conditions within the Pan-European Corridor VII

Specific objective:

To contribute to the rehabilitation of the Danube River fairway, to achieve parameters required by the Danube Commission for safety navigation and the EU strategy for the Danube.

Rationale:

The Danube River represents a vital hinterland connection between Western Europe and the countries of Central and Eastern Europe (CEE). It extends to some 2,300 kilometres of navigated waterways, of which the Serbian section contributes 588 km. The Danube is the only river among ten Pan-European Corridors, offering the potential to become a catalyst for economic development in the region.

The navigation conditions on the Danube River are influenced by the fairway minimum dimensions, by unexploded ordnances (UXOs) and sunken vessels dating from World War II.

The Danube is classified as an international waterway. According to the “Blue Book” (CEMT) classification, the Danube in Serbia is classified as Class VI b (from Hungarian border to Belgrade), the Class VII (from Belgrade to Iron Gate II navigational lock), and Class VI b (from Iron Gate II

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navigational lock to Bulgarian border). Normal operating speed on the Danube is given as 8 to 14 km/h upstream and 15 to 20 km/h downstream. The maximum draft of the vessels plying the Danube is between 2.5 and 4.5 m; this requires a minimum water depth in the range of 3.2 to 6 metres. The Danube Commission requires a minimum water depth of 2.5 m.

Currently, the fairway of the Danube River in Serbia does not comply with required parameters, mostly connected with the navigation width and the radius of bend, at a total of 18 critical sections representing the bottlenecks and restrictions for an efficient and safe navigation of standard convoys. The majority of these are located between Novi Sad and Apatin, including a common part of the Danube with Croatia, and between Novi Sad and Belgrade

According to the preliminary assessment undertaken for the General Master Plan for Transport in Serbia, at least €160 million worth of investments are needed to improve navigation conditions within the Pan-European Corridor VII in the Republic of Serbia, of which around €55 million is required for river training and river dredging works in critical sections.

Description:

Specific river training works and dredging are expected for implementation to reduce the number of bottlenecks and critical sections in Serbian part of the Danube.

These are special engineering and construction activities, aiming to absorb river dynamics and maintain navigable conditions on rivers, and include construction of revetments, groins, training walls and dredging of river drifts. Dredging is required periodically to remove sediment, and is a necessity for almost every navigable waterway and port. In relation to navigation improvement, 18 projects of river training works have been identified, with a total length up to 6,500 m. Project documentation for the most critical sections will be developed under IPA 2010 support, and realisation of works is expected within this measure.

The outputs that are expected from the individual activities planned for implementation will contribute to:● Elimination of traffic limitations, critical sections and bottlenecks, and providing effective

connection;● Increasing waterway transport security and safety;● Reducing transport operating costs.

The investment in improvement of the river bank will allow a trouble-free and safe navigation, as well as a fluent and time- and cost-efficient transportation. By completing planned operations, transport operators and businesses will benefit from time saving, and operating costs reduction, as well as from increase of the Danube River fairway capacity and navigation safety. This will raise the competitiveness of inland waterways within the transport market, by increasing the commercial speed and economic benefits of unrestricted navigation.

The specific matter of river training works requires harmonisation of activities on the Serbian side with the Croatian authorities. The relevant bilateral agreement between the countries has already been signed.

One major investment project and technical assistance contracts for supervision of investment, as well as for project documentation development for implementation after 2013, will be considered for implementation.

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Eligible actions:

Specific actions relevant to waterway improvement, eligible for implementation, will be required within this measure, namely the award of several work contracts for performing specific river training works and dredging works to enlarge river bends, and service contracts to supervise works implementation.

A competitive tendering procedure will be implemented for selecting of contractors, based on the EU’s PRAG rules..

Finalisation of project documentation, and development of project documentation for new projects expected for implementation in the next programming period, will also be eligible for support.

Selection criteria:

Before submission of applications for funding for all operations under the Transport priority axis, the following will be checked to all operations under this measure:

Readiness of project for implementation, full project documentation dossier availability, including the Request for Confirmation of Rate of Assistance and construction permit;

Project designed in accordance with the national standards and EU requirements; Project designed parameters in compliance with technical requirements of the Danube

Commission and of the EU for TEN-T; Project implementation scheduled within available budget and eligible time limits; Confirmation of harmonisation of planned works with the Croatian side.


The final beneficiary under this measure, in accordance with the IPA implementing regulation, will be the Ministry of Finance’s CFCU as the Body Responsible for Contracting and Implementation.

The proposed end recipient of IPA support, directly benefiting from activities implemented under this measure, will be the Directorate for Inland Waterways, as the body competent for maintenance and development of inland waterways in the Republic of Serbia. The Directorate will receive technical assistance and will be responsible for the technical implementation of the operations and their outcome, as the owner of implemented operations.


The progress in implementation of planned operations and in reaching specific objectives introduced for this measure will be monitored and evaluated by using the following result indicators. The targets to be achieved are based on data relevant to projects proposed in the General Master Plan for Transport in Serbia.

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Frequency of

monitoring

Target value(2016)

Rehabilitation of the Danube River fairway to achieve parameters required by the Danube Commission for safety navigation and the EU strategy for the Danube

Safe navigation Days during which the

fairway parameters

required by the Danube

Commission (depth and

width) at the selected critical sections of Pan-

European Corridor VII are reached and the

level of navigation

safety improve by completion of operation.

No. of days per

year

200 Monitoring reports and database of

Plovput

Annually 350

Projects prepared for

implementation after 2013

Investment projects ready

for implementation by completion of operation

Number 0 Monitoring report;

6 monthly ≥1

3.1.2 Priority axis 2 - Environment

Aim:

The aim of this priority axis is to improve the state of the environment in Serbia, by protecting and improving the quality of environment, and build on the ongoing progress in harmonising the EU environmental acquis, with direct investment in waste management, water supply and wastewater treatment, and improving air quality.

EU legislation:

Relevant waste management directives Waste Framework Directive - Directive 2008/98/EC of the European Parliament and of the

Council of 19 November 2008 on waste and repealing certain Directives (Directives 75/439/EEC, 91/689/EEC and 2006/12/EC are hereby repealed with effect from 12 December 2010);

Landfill Directive - Council Directive 1999/31/EC of 26 April 1999 on the landfill of waste;

Water management (waste water treatment and water supply) directives: Water Framework Directive (WFD) - Directive 2000/60/EC of the European Parliament and

of the Council of 23 October 2000 establishing a framework for Community action in the field of water policy;

Urban Waste Water Directive (UWWD) - Council Directive 91/271/EEC of 21 May 1991 concerning urban waste water treatment as amended by Commission Directive 98/15/EC and Regulations 1882/2003/EC and 1137/2008/EC;

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Drinking Water Directive - Council Directive 98/83/EC of 3 November 1998 on the quality of water intended for human consumption as amended by Regulations 1882/2003/EC and 596/2009/EC;

Sewage Sludge Directive - Council Directive 86/278/EEC of 12 June 1986 on the protection of the environment, and in particular of the soil, when sewage sludge is used in agriculture;

Air quality and industrial control directives: Large Combustion Plants Directive (LCP) - Directive 2001/80/EC of the European

Parliament and of the Council of 23 October 2001 on the limitation of emissions of certain pollutants into the air from large combustion plants;

Air Quality Framework Directive - Council Directive 96/62/EC of 27 September 1996 on ambient air quality assessment and management (OJ L 296, 21.11.1996, p. 55–63);

Ambient Air Quality and Cleaner Air for Europe Directive (CAFE) - Directive 2008/50/EC of the European Parliament and of the Council of 21 May 2008 on ambient air quality and cleaner air for Europe;

Limit Values for SO2, NOx, NO2, Particulate Matter and Lead Directive - Council Directive 1999/30/EC of 22 April 1999 relating to limit values for Sulphur Dioxide, Nitrogen Dioxide and oxides of Nitrogen, Particulate Matter and Lead in ambient air (OJ L163, 29.06.1999, pp.41-60);

Integrated Pollution Prevention and Control Directive (IPPC) - on 24th November 2010, the European Parliament and the Council adopted a new Directive on industrial emissions (integrated pollution prevention and control) 2010/75/EU, which entered into force on 6th January 2011.

Specific objective:

To improve environmental protection through investments into the environmental infrastructure, and creating conditions for sustainable development, in line with the EU acquis

Rationale:

There are significant gaps in the overall environmental infrastructure in Serbia (particularly in solid and hazardous waste disposal and treatment, water supply systems, wastewater treatment and air pollution abatement).

Large parts of the country are not served by the municipal waste collection system (particularly in rural areas), waste collected is often disposed into unsanitary dumps, lacking waste separation leachate drainage and gas collection systems. Hazardous waste is not collected separately and disposed long-term in temporary storages or dumped together with municipal waste, causing ground- and surface water contamination. Illegally dumped waste heaps are often ignited, thus causing air pollution and releasing extremely toxic polluting agents. Recycling is negligible so far. There is a sorting station in Novi Sad, waste oil recycling in Belgrade, battery recycling plant in Zajača, Sombor (total capacity for both is 12.000 tones/year) and recycling of electronic waste in Pančevo.

Temporary storage of hazardous waste within industrial complexes, and the improper waste and wastewater treatment, cause pollution of soil, groundwater and surface water and sediment. A number of industrial towns and regions face a complex challenge of past industrial development and pollution legacy. The environmental situation in these hot spots is a direct cause of poor health and

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related poverty and presents a major barrier to future investments and related economic opportunities for the local population.

The drinking water network is in a poor technical condition and characterised by inadequate time/space distribution of water. Large share of the samples (20-30%) do not meet either microbiological or physico-chemical quality standards, water is excessive polluted on many locations. Most of the towns with water quality problems are located in Northern Serbia, Vojvodina, where groundwater quality has been badly affected by the intense agriculture practices. According to WHO statistics, the Republic of Serbia in on the top list of the countries in which the population relies on the bottled drinking water (7% of urban population and 4% of rural population)150.

Waste water treatment is almost lacking in Serbia, there are only 33 municipal waste water treatment plants in the whole country, whereas only five of them functioning properly. Largest towns in Serbia, including Belgrade and Novi Sad release their waste water untreated into the passing rivers, in some rivers the share of the untreated sewage may reach close to half of the stream.

Lack of proper technical solutions, effective filters/precipitators and usage of low grade fuel causes huge atmospheric emissions from the thermal power plants, further worsening bad air quality (polluted by traffic and individual/district heating emissions) and causing respiratory illnesses.

This current situation causes widespread pollution of soil, surface and groundwater with untreated wastewater and leachate from landfills. Air pollution caused by uncontrolled burning of waste dumps and containers, and by emissions of methane from landfills. Significant air pollution occurs by particulate matter (PM), SO2, NOx and CO2 from the energy sector. Landscape degradation occurs as a result of improper disposal of waste. As a consequence, there are several significant “hot spot” locations in the Republic of Serbia. The state of the environment in Serbia can be improved by investing in environmental infrastructure – by constructing new regional waste management centres and cleaning up polluted locations, and by building wastewater treatment plants, drinking water treatment plants and flue gas purification facilities at the thermo electric plants. According to the preliminary assessment, Serbia needs a minimum of €9.6 billion worth of investments, in order to comply with the EU environmental acquis and modernise Serbia’s environmental infrastructure.

Economic and societal benefits of development of infrastructure aiming to increase employment rates, to attract new productive investment, raise citizen standard and quality of life of residents. Also this will lead to achieving sustainable development in Serbia refers to the protection and enhancement of the environment and rational use of natural resources. This means optimal management, preservation and enhancement of water quality and rational use of water, preserving and improving air quality (especially in urban areas and in the vicinity of major power and industrial plants) and proper waste management system.

Description:

The IPA objectives and priorities are a subset of the national ones and they must reflect the strategic direction given in national strategic documents. Nevertheless, because IPA has a much smaller scope, it is necessary to focus the operations under PA Environment on more clearly defined objectives and priorities. Therefore, PA Environment will concentrate on a small number of direct investments in waste management and remediation of polluted sites, water supply and wastewater treatment major projects as well as improving air quality projects that will contribute the greatest impact with the limited resources available. For some of the major projects, project preparation

150 “Progress on Drinking Water and Sanitation, Special Focus on Sanitation”, WHO and UNICEF (2008)

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where appropriate will be done. Consequently, realisation of this projects will assist Serbia meet its obligations for implementing the EU environmental acquis governing the treatment and disposal of waste including hazardous waste, decrease the number of polluted sites, the supply of drinking water, collection, treatment and discharge of waste water, emission of polluters in the air and also developing the administrative and management capacity of those institutions implementing the PA Environment, that will be benefit for future EU (IPA and Structural and Cohesion funds), IFI and national funding. Consequently, the priority axis will improve access to, and delivery of, environmental services and facilities in the waste and water sub-sectors, and help to improve air quality by reducing PM emissions.

Targeting:

Given the resource constraints for investing in environmental infrastructure under the OP, the priority axis focuses on the sub-sectors of waste management and remediation of polluted sites, water supply and wastewater, and air quality, in order to strike a balance between meeting the enormous investment needs of the sector, which can only realistically be met over the next decades, and the more immediate benefits of learning from ‘demonstration projects’ being prepared to EU standards. Local communities, citizens as well as businesses from the Republic of Serbia and inward investors, will benefit from the implementation of planned operations.

The end recipients, owners of specific projects and, in particular, the outputs of operations, responsible for the operation and maintenance of infrastructure, will be the municipal/ public companies or State Public Utility dealing with hazardous waste management, Electric Power Industry of Serbia (EPS) but also the line ministries (MEMSP, MATFWM and MIE) .

Measures:

Three measures are being proposed for support under this priority axis:

Measure 2.1 – Upgrading and improvement of waste management; Measure 2.2 - Drinking and waste water management Measure 2.3 - Improvement of air quality through reduction in emissions from thermal

power plants

Delivery:

The delivery of support will be ensured by implementing major projects and project documentation development. This may include construction of new regional waste management centres, construction of a hazardous waste treatment facility; construction of wastewater treatment plants, construction of water supply systems, reconstruction of electrostatic precipitators in the thermal power plants, and project pipeline preparation for previously identified projects and development of project documentation for implementation in the 2014-2020 programme period.

Specific work, supply and service contracts will be awarded through competitive tender procedures. Criteria for selection of operations (projects) for IPA support are as follows:

Project maturity and readiness for implementation; Compliance with relevant EU legislation and standards; Consistency with environmental plans and sectoral strategies (esp. the National Programme

for Environmental Protection );

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Consistency with environmental priorities such as public health, protection of environment, protection of natural resources;

An integrated approach (project is part of a plan / strategy); Major impact on the population; Financial sustainability (compliance with ‘polluter pays’ principle); Availability of national co-financing; Cost-effectiveness of investment and operation.


OP monitoring will ensure evaluation of the progress in implementation of measures introduced under this priority axis based on result indicators introduced on the level of measures.

Measure 2.1 – Upgrading and improvement of waste management

Specific objective:

To develop waste management systems and establish regional waste management centres according to technical and operational requirements of the Landfill Directive 99/31/EC and establish national capacity for treatment of hazardous waste

Rationale:

According to the preliminary assessment (Waste Management Strategy), investments at least worth of €0.96 billion are needed to implement requirements of the EU waste-related directives in Serbia.

The only economically feasible solution to Serbia’s solid waste management needs is the creation of regional waste management centres, where the waste collected from several municipalities will be treated after separation of recyclable waste and the rest of it will be disposed at the regional landfills, as determined in the Waste Management Strategy (2010-2019). The Waste Management Strategy proposes to establish 12 regional waste management centres by the year 2013.

In the last few years, sanitary landfills were constructed in Vranje, Kikinda and “Vrbak” located at Lapovo municipality. The construction of sanitary landfills in Pirot, Užice, Sremska Mitrovica and Nova Varoš are ongoing. The strategy also recommends the clean-up of existing dumpsites that pose the greatest environmental risk and hot-spot locations (first of all in the locations in Bor and Pančevo, but also in other towns and municipalities where locations of historical pollution exist). Table 33 below shows the landfills which have recently been constructed, those which are underway, and proposed centres on the indicative list of major projects for IPA III funding – Halovo and Kalenić (see section 3.5).

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Table 33: Construction of sanitary landfills – completed, underway and plannedCarrier activity Population Carrier activity PopulationSombor 230 252 Lapovo (Vrbak) 179 013Subotica 266 193 Leskovac 234 018Novi Sad 510 522 Kragujevac 319 188Kikinda 80 834 Jagodina 160 087Pančevo 138 178 Užice 378 668Vršac 111 067 Nova Varoš 116 189Zrenjanin 193 368 Zaječar (Halovo) 271 465Inđija 211 026 Pirot 100 133Sremska Mitrovica 397 249 Kraljevo 296 761Belgrade 1 421 997 Kruševac 263 740Valjevo (Kalenić) 382 340 Niš 363 851Smederevo 250 772 Prokuplje 98 250Petrovac na Mlavi 90 979 Vranje 229 596

Source: Ministry of Environment, Mining and Spatial PlanningDark red = completed; light red = under construction; very light red = proposed for the indicative list of major projects for OP-ED.

Having in mind the existing data on generation of hazardous waste at the yearly level and changes in the industry of the Republic of Serbia, the Waste Management Strategy (2010-2019) recommends the establishment of one national centre for hazardous waste management.

Description:

The measure will support the construction of regional waste management centres and the national hazardous waste management facility.

Regional waste management centres will include a sanitary landfill for the municipal waste, a plant for separation of the recyclable waste, composting plants, as well as transfer stations. Also, in accordance with Landfill Directive 99/31/EC, proper "sanitary landfill” must also include leachate collection & treatment and landfill gas collection

The following wastes may not be accepted in a landfill: liquid waste; flammable waste; explosive or oxidising waste; hospital and other clinical waste which is infectious; used tyres, with certain exceptions;

In terms of hazardous waste, the following kinds of waste can be disposed at this facility:• densified and stabilised sludge emerged in the treatment of industrial waste waters;• ash from the process of waste burning;• waste from the incineration system for the treatment of smoky gases;• solidified waste;• stabilised sludge containing heavy metals which emerges during the treatment of waters

from the metal-processing industry.

In terms of hazardous waste, the HWTF complex will include physical and chemical treatment of hazardous inorganic waste and storage for hazardous waste.

Construction of regional waste management centres includes preparation of the planning documents and acts (according to national legislation), technical and project documentation. A part

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of this documentation will be prepared within priority axis 4. Technical and tender documentation for construction of HWTF will be prepared within IPA I component (IPA 2009 programme period).

The Serbian framework waste management legislation is in place; secondary legislation is under preparation. Full transposition of waste related acquis is planned to be completed in the following years and the implementation of transposed provisions will require substantial effort. Establishing an adequate and sustainable waste management system will therefore also aim at achieving the requirements of EU legislation.

Eligible actions:

Activities under this measure will cover the development of integrated regional waste management systems that include, inter alia, the collection, transport, separation, recycling, transfer, treatment and disposal (e.g. landfill) of municipal and, separately, hazardous waste through construction of new regional waste management centres; facilities for treatment, recycling and composting; and facility for treatment of inorganic hazardous waste (HWTF). It is expected that 1-2 major projects will be supported by this measure. Development of project documentation is also an eligible action. This will include assistance for preparation of technical documentation, tender documentation, procurement contracts and preparation of IPA application form.

A competitive tendering procedure will be implemented to award contracts.

Selection criteria:

The projects under measure 2.1 will help Serbia meet the objectives of the national Waste Management Strategy, which include the establishment of 12 regional waste management centres for municipal waste and the establishment of the national hazardous waste management system and rehabilitation of the existing dumps, which represent the greatest risk to the environment. The projects will be selected according to the following criteria:

Project maturity and readiness for implementation; Major impact on the population; Financial sustainability (compliance with ‘polluter pays’ principle); Availability of national co-financing; Availability of funds within the priority axis and measure.



The proposed end recipients of IPA support, directly benefiting from activities implemented under this measure, will be municipalities, regional public bodies dealing with waste management, or state public utility company for hazardous waste management.


The progress in implementation of planned operations and in reaching specific objectives introduced for this measure will be monitored and evaluated by using the following result indicator.

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Frequency of monitoring

Target value(2016)

To develop waste management systems with a focus on the establishment of regional waste management centres in determined regions according to technical and operational requirements of the Landfill Directive 99/31/EC and establishment of national capacity for treatment of hazardous waste

Solid waste which is

landfilled

Municipal waste landfilled on IPAIII-funded151 sanitary

landfills which meet EU Landfill Directive

(99/31/EC) requirements

Tons / year 0 SEPA annual environmental

report and end recipient’s

reports

Annual Minimum 80 000 t/year152

Measure 2.2 – Drinking and waste water management

Specific objective:

To upgrade/renew and construct public wastewater collection/ treatment systems and extend the public water supply and treatment network, in order to protect receiving waters, reduce pollution and move towards fulfilling the key requirements of the EU directives

Rationale:

As the statistics testify, historically, capital investment has been highest in water supply. Nevertheless, achieving compliance with the EU Drinking Water Directive will be a long and costly task; investments worth of €2.8 billion are needed for water supply upgrading in Serbia. Waste water treatment has not been a priority for Serbia for many years and the coverage of both sewerage and municipal & industrial wastewater treatment is small. Most waste water is discharged into the watercourses without treatment, affecting rivers and groundwater, which has an impact on water supply. This inevitably increases the cost of water treatment for the supply of drinking water.

151 Formulation ’IPA III – funded’ has been introduced hereby for monitoring purposes, in order to distinguish achievements of the current OP of the similar infrastructure improvement projects, which are not being funded by IPA.152 This figure is based on the lifetime capacity of the Halovo landfill (2 million tons until year 2041). Division with expected lifetime gives annual capacity of landfill: ~80 000 tons of waste. Similar calculation for the Kolubara landfill yields annual capacity ~115 000 tons/year.

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The circular nature of the water system means water management must be seen as a whole process, which is one of the principles of Serbia’s new Water Law (WL).

The Urban Wastewater Treatment Directive has not yet been transposed into Serbia’s national law. Even though the current WL and accompanying secondary legislation call for the protection of water from pollution, they do not expressly require the construction of urban wastewater treatment plants and do not specify the measures to be taken in order to achieve the declared goals. Consequently, the basic measure aimed at preventing the discharge of organic pollutants into streams is the enactment of the new WL, which calls for the Urban Wastewater Treatment Directive to be transposed into national law. It has been assessed that investments, worth of about €4.8 billion are needed for upgrading wastewater treatment in Serbia153.

Historically, municipalities have lacked the incentives to invest in wastewater treatment, due to low water tariffs. According to the new Governmental decision, water tariffs may now be increased to a level sufficient to cover the operating and maintenance costs of the waste water treatment plants. However, due to issues of affordability, these tariffs will remain insufficient to cover the billions of euros of investment costs required to modernise waste water treatment and ensure Serbia is able to implement the acquis.

Description:

Given the OP’s resource constraints, and historic under-investment in this sector, this measure will focus on the construction of wastewater treatment facilities, while also supporting preparations for future projects for both public supply and wastewater treatment.

The projects within this measure will allow the rehabilitation and construction of new wastewater collection and treatment in order to meet EU regulations and standards. The measure is based on the need to fulfil the requirements of the Council Directive 2000/60/EC laying down the framework for EU activities related to water, the Water Framework Directive (WFD), as well as the purposes of Council Directive 91/271/EEC for urban waste water treatment.

Eligible actions:

Activities under this measure cover the development of wastewater treatment that includes inter-alia rehabilitation and construction of wastewater collection and treatment systems, as well as development of water supply network and treatment systems. Development of technical documentation, tenders documentation and procurement contract is also an eligible action. It is expected that 1-2 major projects will be supported by this measure. A competitive tendering procedure will be implemented to awards contracts.

Selection criteria:

The projects under measure 2.2 will help Serbia meet the objectives of the National Programme for Environmental Protection, which aims to extend the percentage of population with access to the public sewage system up to 65% till the 2019.

Project selection criteria are following: Project maturity and readiness for implementation; Major impact on the population; Financial sustainability (compliance with ‘polluter pays’ principle);

153 Source: EC Twinning Project “Capacity Building in Directorate for Water”

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Availability of national co-financing; Availability of the site; Availability of funds within the priority axis and measure.



The proposed end recipient of IPA support, directly benefiting from activities implemented under this measure, will be municipal companies or other public bodies dealing with wastewater related activities. The end recipients will be responsible for the technical implementation of the operations and their outcome, as the owner of operations implemented and infrastructure constructed and/or improved.






Frequency of

monitoring

Target value(2016)

Upgrade/renew and construct public wastewater collection/ treatment systems and extend the public water supply and treatment network, in order to protect receiving waters, reduce pollution and move towards fulfilling the key requirements of EU Directives

Population with

access to Waste Water

Treatment Plants

(WWTP)

Providing access to the waste water treatment

service, which conforms with Urban Waste

Water Directive

(91/271/EEC)

Number of people

0 people living in the service area

of IPAIII-funded

WWTPs in Serbia

Data from Republic’s

Hydro-Meteorological

Institute annual report;

Data from SEPA

Annual 80 000 PE154

Measure 2.3 - Improvement of air quality through reduction in emissions from thermal power plants

Specific objective:

To reduce dust emissions and to support implementation of the key requirements of the EU Large Combustion Plants Directive, through the reconstruction of electrostatic precipitators at Serbian thermal power plants

154 The PE number is based on the projected capacity of Loznica WWTP.

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Rationale:

The poor quality of ambient air in a number of areas and towns in Serbia results from emissions of sulphur dioxide, nitrous oxides, carbon monoxide, soot and particulate matter. In particular, the air quality deteriorates during calm weather and during the heating season.

In Serbia in 2007, the air was mostly polluted (9.3% of the time) and very polluted (2.4% of the time), because of soot. That is characteristic of the majority of urban areas in Serbia, and in 2007 the most significant locations were Užice, Sevojno, Subotica, Belgrade-Vracar and Pancevo.

The high concentrations of particulate matter in industrial and urban areas in Serbia have received very little attention in the past, due to a lack of data. Because of this, but mainly because of fragmented and inconsistent monitoring systems, there is no estimate of the health burden due to this type of air pollution.

Among other sources, the main sources of air pollution are: the energy sector (coal-fired thermal power plants); district heating plants; oil refineries; the chemical industry; fuel combustion in households, industry, individual heating boiler plants; traffic, the construction industry; inadequate storage of raw materials; and waste dump sites. The major part of air pollution results from combustion of low-quality lignite and engine fuel. Lignite has a low calorific value and high moisture content, and its combustion produces high quantities of fly ash, sulphur and nitrogen oxides. Thermal power plants are equipped only with electrostatic precipitators and do not have means installed for desulphurisation and de-nitrification.

One of the priority environmental objectives within the energy sector is reducing dust emission from large combustion plants. Equipment for dust treatment of flue gases-electrostatic precipitators was installed on these TPP’s as an air protection measure when it was constructed. During the construction of existing TPP’s, there were no regulations concerning emission limits at the republic level. Electrostatic precipitators of these units have an design of 98-99.7% and a design value of dust concentration in flue gases after electrostatic precipitator is above of prescribed emission limit value, meaning that even if they operated within their design values they would not meet current legal regulations for dust concentration reduction in the atmosphere, i.e. the prescribed emission limit value. In 2006 Republic of Serbia ratified the Treaty Establishing the Energy Community, document which sets certain number of obligations for the signatories (for non EU member countries) in terms of harmonisation of national legislation with EU acquis.

Also road vehicles are considered a major contributor to air pollution in Serbia, especially in larger cities. Emissions from vehicle exhausts contribute sulphur dioxide, carbon monoxide, nitrogen oxides, ozone, particulate matter, and lead pollution to the air. The main reasons for the air pollution from the transport sector are poor quality of engine fuel (leaded petrol), out-of-date vehicles and generally poor technical standards for the vehicle fleet. Leaded petrol is still in use in Serbia, although the use of unleaded fuel is increasing.

Description:

Energy infrastructure in Serbia is aged and cannot meet EU directives without large investments. It has been estimated that more than €1 billion worth of investments are needed in order to refurbish Serbian power plants to bring them into compliance with EU environmental acquis. In the Action Plan of the EPS Green Book is foreseen to invest €1.2 billion in the implementation of environmental

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protection projects until the year 2015155. These are, in the first line, the projects for flue gas desulphurisation systems (the level of necessary investment is approximately €530 million for the existing power plants) and complete reconstruction of all electrostatic precipitators and bringing of their operation to the emission levels compliant with the EU standards.

Eligible actions:

Activities under this measure include all interventions that reduce dust emission, such as reconstruction of electrostatic precipitators.

Currently existing electrostatic precipitators have been designed with a number of sections per precipitator (2-4 sections). New electrostatic precipitators will be designed with 8 sections and with output dust concentration of maximum 30 mg/m3. Dust emission into the atmosphere from flue gases will be reduced thereby by 90%, which will have a strong positive impact on air quality improvement in the neighbourhood of the TPPs.

Development of project documentation is also an eligible action. It is expected that one major project will be supported by this measure. A competitive tendering procedure will be implemented to awards contracts.

Selection criteria:

The projects under measure 2.3 will help Serbia to meet the requirements of the Large Scale Combustion Plant Directive, particularly what concerns to the reduction the level of dust emission from Thermal Power Plants.

The project selection criteria are the following: Project maturity and readiness for implementation; Major impact on the population, diminishing of the exposure to the particulate matter; Financial sustainability (compliance with ‘polluter pays’ principle); Availability of national co-financing; Availability of funds within the priority axis and measure.



The proposed end recipient of IPA support, directly benefiting from activities implemented under this measure, will be the public utility company, Electric Power Industry of Serbia (EPS).

The end recipients will be responsible for the technical implementation of the operations and their outcome, as the owner of operations implemented and infrastructure constructed and/or improved.



155 The Green Book of the Electric Power Industry of Serbia, Belgrade 2009 - Action Plan of the public enterprise Electric Power Industry of Serbia for environmental protection (activities and measures), period 2009–2015.

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Source of verification Frequency of monitoring

Target value(2016)

To reduce dust emission and to support implementation of the key requirements of the EU Large Combustion Plants Directive

Dust emissions

from Thermal Power Plants

(TPPs)

Decrease of concentration of

particulates in the flue gases of

these TPPs so these plants meet Large Combustion

Plants Directive (2001/80/EC)requirements regarding PM

emissions

mg/Nm3 To be measured in 2012 at project locations

Measurements performed by EPS, by

the accredited laboratory

Annual ≤30 mg/Nm3

3.1.3 Priority axis 3 - Competitiveness

Aim:

This priority axis will aim to improve the competitiveness of the Serbian economy, by making critical aspects of the enabling environment more conducive to enterprise establishment and growth in the global market, by development of the knowledge-based economy through transferring technology from research institutions to enterprises and encouraging greater innovation amongst SMEs, and through facilitating more balanced regional development, through providing the infrastructure which enables the establishment and development of new and existing businesses, and support services essential to enterprise growth.

EU legislation:

There are no acquis requirements which will be implemented through this priority axis.

Specific objective:

To increase the productivity and competitiveness of Serbia’s new and established SMEs, their internationalisation and capacity to innovate, by creating a more favourable environment, customised business services and infrastructure investment.

Rationale:

The Serbian economy currently is consumption and import driven with five largest sectors of real estate, telecommunications, agriculture, retail and wholesale trade and financial services accounting for more than half of total output. It is characterised with low total factor productivity, low competitiveness and low export levels reflected in an unfavorable structure with the dominance of raw-materials and intermediate products.

In terms of structure, Serbian economy is similar to EU Member states and is dominated by SME sector. No economy can be sustained by large businesses alone, while SMEs are also an important part of the societal fabric, providing local services to urban and rural communities. The ability to create new SMEs is a major driver of the productivity growth which is necessary to make Serbia more prosperous. The ease with which SMEs are able do business will ensure they can compete effectively, become efficient and productive, and generate employment.

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There is a low share of high technology industries, as well as very low level of technology absorption at enterprise level linked with low levels of innovation which is closely related to poor cooperation of higher education and public research institutions and private sector. Serbia is investing only 0.48% of GDP into R&D and the level of applied research and commercialisation of research and development is extremely low. The supply of quality infrastructure that would enable both public research institutions and enterprises to exchange mutual knowledge and apply it for the benefit of Serbian economy is insufficient.

These challenges are especially visible in the underdeveloped areas adding up on already existing huge disparities in the country. Low availability and low quality of economic infrastructure in Serbia in general in the last two decades has contributed to insufficient and outdated supply of the same, thus lessening the opportunity of attracting more FDI in the areas where they are most needed and discouraging enterprise establishment and growth.

Description:

The priority will support the role of public sector in creating preconditions for modernisation and growth of Serbian economy. It will especially focus on strengthening the development of small and medium-sized enterprises by providing them access to business advisory services that will increase their knowledge on product improvements, management, cost effectiveness, strategic solutions or opportunities to linking production with foreign investors. Additional mechanism that would serve the SMEs to enhance their productivity and their capacity to export will be the provision of conformity assessment infrastructure and easing administrative burden by improving e-Government services to facilitate their everyday work.

The priority will also focus on promoting cooperation between higher education and private sector and enabling access to technology transfer infrastructure, in order to increase the level of applied research and utilise Serbia’s public R&D resources to raise the competitiveness of enterprises and their products.

Apart from these, the priority envisages investment into business infrastructure that will provide SMEs and clusters with access to necessary facilities and services, and more easily attract FDI and maximise local potentials. Targeting:

Given the resource constraints for supporting competitiveness under the OP, the priority axis focuses on the sub-sectors of small and medium-sized enterprises, innovation, ICT and technology transfer and providing business infrastructure, in order to strike a balance between meeting the enormous needs of the sector, which can only realistically be met over the next decades, and the more immediate benefits of learning from ‘demonstration projects’ being prepared to EU standards.The assistance under the priority axis will be directed towards end recipients who will be responsible for the technical implementation of the operations and their outcomes and may include Ministry of Economy and Regional Development, Ministry of Education and Science, Ministry of Culture, Media and Information Society, Serbian Investment and Export Promotion Agency. Ultimately, the beneficiaries of this assistance will include SMEs, clusters, business incubators, R&D institutions, local self government units, and accredited Regional Development Agencies.

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Measures:

Three measures are being proposed for support under this priority axes:

Measure 3.1 - Strengthening the development of SMEs; Measure 3.2 - Improvement of competitiveness of enterprises through innovation and

technology transfer; Measure 3.3 - Supporting local economic development and enhancing business

infrastructure

Delivery:

The operations identified under the measures this priority will be delivered through a mix of procurement (service contracts providing TA, and works and supplies for infrastructure projects) and grant schemes. To be supported under the OP, projects should be financially, economically, socially, and environmentally sound.

The following criteria must be fulfilled when selecting operations for IPA support under this priority axis:

Mature and ready for implementation; Complies with the overall SCF strategy, national and EU strategies; Must demonstrate coherence and logic with both measure and priority specific objectives Demonstrates good value for money; Compatible with the “cross-cutting” concerns of promoting gender equality and

environmental sustainability.


OP monitoring will ensure evaluation of the progress in implementation of measures introduced under this priority axis, based on result indicators introduced at the level of measures.

Measure 3.1 - Strengthening the development of SMEs

Specific objective:

To enhance the competitiveness of the Serbian economy by strengthening the SME sector and its performance, through improved quality of support available to SMEs and creation of a favorable environment for enterprise’s establishment and growth.

Rationale:

In spite of Serbia’s good progress in implementing the European SME Charter and thereby improving the public policy environment for small firms, the OECD 2009 assessment156 indicates that there is still much to be done to support Serbian SMEs to increase their competitiveness. This finding is reinforced by the rankings of the World Economic Forum’s Global Competitiveness Index and the World Bank’s Doing Business index. There are over 300,000 SMEs in Serbia, but the economy is

156 Progress in the Implementation of the European Charter for Small Enterprises in the Western Balkans: 2009 SME Policy

Index, OECD

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currently too reliant on micro-businesses in low value manufacturing and service sectors, which don’t operate in international markets. Serbia needs to broaden and upgrade its SME base, converting more micros to small businesses, and more small to medium-sized businesses.

Serbian SMEs face obstacles in developing their businesses such as: limited management skills and experience among owners; limited ability to evaluate their own problems and defining needs; lack of attention to strategic planning and strategic management in order to maintain or improve market position; limited use of market research and forming new channels for sales; outdated technology and limited automation of manufacturing process; insufficient level of innovation; lack of business information about foreign markets; and limited ability to comply with European standards, while e-business within the SME sector is underdeveloped. The metrology framework and institutional infrastructure for implementation of technology regulations and conformity assessment is lagging behind the needs of Serbian enterprises. At the same time, the majority of SMEs are not familiar with quality standards and only few of them introduce and implement them.

SME consultancy services in Serbia include information, training, and advice on different aspects of business and don’t always reflect the specific individual needs of SMEs. Easily accessible, high-quality and specific tailor-made consultancy services to strengthen SMEs’ abilities for growth and development are not provided on the market. Also, awareness among SMEs themselves on the importance of upgrading knowledge and skills on innovation, through engaging consulting services, is very low. Understanding of innovation is limited to provision of new machinery and equipment, while recognition of the necessity for innovation in processes, systems or management is at an early stage of development.

SMEs can be considered as significant mainstays of foreign trade, but relatively few SMEs export. Furthermore, in terms of export structure, Serbian SMEs are exporting raw materials and semi-finished goods (defined as products of ‘low processing phase’)157. The potential benefits to Serbia of increased exporting reveal a ‘virtuous circle’: SMEs must offer products and services at the right price, to recognised standards, and meet customers’ quality and delivery needs, in order to enter international markets; by competing in these markets, SMEs become leaner and fitter, enhancing their productivity and their capacity to export further, as well as compete in the domestic market.

Clusters represent an important mechanism for increasing productivity, by combining the normal processes of competition with enabling cooperation among SMEs, larger enterprises and institutions in the same sector and locality. This kind of cooperation provides an opportunity to strengthen the business base though collaboration (including development of supply chains, labour and skills, and innovation), which can both help raise export potential and encourage inward investment and new spin-off businesses. However, enterprises in Serbia are not sufficiently horizontally or vertically connected, their level of internationalisation is insufficient and cooperation among cluster companies remains underdeveloped. According to the European methodology of cluster mapping, the development of clusters in Serbia is generally weak and it is necessary to secure support for their further development through strengthening their capacities.

The public policy framework still needs refining, to reduce the administrative burden on business to the lowest necessary level, and to ensure that public sector interventions are well-targeted. The level of internet connectivity among Serbian SMEs is over 90%158, but the application of ICT in Serbian enterprises, institutions and state administration is much lower than the average level in the European Union, and there is only a limited scope of ‘Government to business’ (G2B) e-government 157 Products of low processing phase: food products; manufacture of textiles; manufacture of paper, publishing and printing; and manufacture of metals and metal products Source: Report on SMEs and Entrepreneurship 2008, Ministry of Economy and Regional Development (2009)158 Statistical Office of the Republic of Serbia (2009)

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services. Despite the fact that Serbia adopted medium term SME policy (Strategy for Development and Promotion of SMEs 2008-2013), modern and effective system for evaluation and monitoring of policy implementation has not been established. The SME policy framework is still underdeveloped and instruments targeting improvement of management capacities, introduction of quality systems into business operations and fostering innovation and up-to-date technology are insufficient.

All the above mentioned challenges are reflected in low factor productivity, unfavourable sector distribution and concentration in low-technology production within the SMEs.

Description:

This measure will build on the SME advice provided under CARDS 2005 (€2.5 million) and CARDS 2006 (€4.0 million) through the Turning Around Management (TAM) and Business Advisory Services (BAS) programmes. It will enable Serbian SMEs and cluster members to gain specific advice on developing and improving management skills, business planning, restructuring, improving products, reducing operating costs, improving capacities for innovation and cooperation and developing local and export markets. Individual enterprises and cluster members will be able to engage with consultants on narrowly-based, specific projects with a rapid benefit aimed at improving management effectiveness, quality management and certification, assistance with cost control and financial/goods flow management and introduction of internationally recognised quality standards to improve their market opportunities. Support under this measure will also focus on improving marketing intelligence of the business, in order to help them to place their products and services in selected international markets and to tailor production and the design and delivery of services to the actual needs of the market. Moreover, the measure will build on various CARDS/IPA projects developing efficient and sustainable capacity of Serbia’s quality infrastructure to carry out conformity assessment activities and promote introduction of technical standards among SMEs.

The measure will look into the possibilities of increasing the export performance of Serbian SMEs through strengthening institutional capacities in charge of assisting Serbian companies in reaching international markets. Additionally, it will increase abilities of national institutions to identify which economic sectors offer the best prospects for linking foreign investors to Serbia’s SME sub-contractor base.

The measure will additionally seek to improve the conditions for doing business through assessing the existing legislative situation with respect to G2B services and the existing provision of those services. It will promote the increase in accessibility of public e-services for enterprises through the development of an e-invoicing and e-ordering framework, as well as to boost the use of e-business within SME sector.

Also, a new and effective system for the monitoring and evaluation of policy implementation and new policy actions will accelerate efforts on upgrading SME policy in line with the Small Business Act and the current situation in the SME sector in Serbia.

Eligible actions:


Providing the specific, tailor-made consultancy services customised to the needs of each SME , in the most promising sectors,in areas such as strategic planning and management consulting, export consulting, innovation consulting, introduction of quality standards, financial management and investment readiness consulting, development of e-business

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strategy, and connecting with R&D institutions, through procurement of technical support to the SMEs and clusters;

Improving SIEPA’s capacity through developing new export support programmes for SMEs and programmes for improving linkages between SME suppliers and foreign investors;

Further improving e-Government, especially G2B services, to enhance the environment for e-Business solutions and raise awareness of SMEs on the importance of using ICT in different parts of the business process;

Setting standards for using e-Invoicing and e-Ordering in order to enable SMEs, regardless of their geographic location, to conduct business electronically not only with other companies but with public administrations and financial institutions;

Equipping bodies for conformity assessment in order to provide requested services in respect to conformity assessment of Serbian products and promoting the importance of technical standards and their adoption among SMEs;

Supporting the department in charge of SME development within the Ministry of Economy and Regional Development with defining new SME policy approaches and best practices relevant to SME development, the design of new SME support programmes and instruments, the alignment of the new instruments with EC State Aid rules and the Small Business Act and the establishment of a system for the monitoring and evaluation of existing and planned SME support programmes and instruments.

All the above mentioned actions will be delivered through services and supplies contracts. SME beneficiaries / clusters for the advisory services will be selected through an open and transparent selection process.

Selection criteria:

In addition to the selection criteria for all operations under the Competitiveness priority axis, the following criteria will apply to all operations under this measure:

The operation builds on the implemented and ongoing activities

The operation will provide services for growth oriented SMEs, SMEs with a potential to export and those which wish to export further , existing and newly created clustersActions planned under operation have positive (in)direct impact on increasing the competitiveness of SMEs and increasing employment

The operation has a positive (in) direct impact on strengthening the capacity of beneficiaries


The final beneficiary under this measure, in accordance with the IPA implementing regulation, will be the Ministry of Finance’s CFCU, as the Body Responsible for Contracting and Implementation within the Operating Structure. The end recipients who will be responsible for the technical implementation of the operations and their outcomes may include: Ministry of Economy and Regional Development, Serbian Investment and Export Promotion Agency and the Ministry of Culture, Media and Information Society.

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The progress in implementation of planned operations and in reaching specific objectives introduced for this measure will be monitored and evaluated by using the following result indicators.


Definition Unit Baseline

value(2012)


Frequency of

monitoring

Target value(2016)

To enhance the competitiveness of the Serbian economy by strengthening the SME sector and its performance through improved quality of support available to SMEs and creation of the favorable environment for enterprise’s establishment and growth.

Jobs created Full time equivalent

jobs directly generated by the activity in question

Number 0 Programme evaluation

report

The end of the

programming period

Minimum

200

Measure 3.2 - Improvement of enterprise competitiveness through innovation & technology transfer

Specific objective:

To improve the competitiveness of enterprises through the development of key elements of the national technology transfer infrastructure and actions to encourage effective cooperation between research institutions and the SME sector. Rationale:

Serbia is under-investing in R&D compared with EU benchmarks (existing levels in the EU-27 and the proposed 2020 target), and virtually all R&D expenditure is concentrated in the public sector. The Government has started to address the issue by investing in research and development infrastructure through a 200 milion € loan provided by EIB that will be implemented in the next 5 years. It will encompass construction of technological parks of national importance and higher education facilities dedicated to research. Physical infrastructure will set the basis for improvements in R&D, but in terms of the commercialisation of new ideas, inventions and discoveries, the role of higher education and public research institutions in innovation and technology transfer in Serbia has so far been limited. Most of them primarily function as teaching institutions, with research as their secondary activity. There is little tradition or support for the exchange of personnel between public research institutions and companies to research and implement technical solutions, patents, pilot facilities, and technological upgrading.

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Additionally, the under-provision of adequate technology infrastructure dedicated to strategic economic sectors with access to laboratory facilities, has prevented successful commercialisation of research outputs, including spin-offs and knowledge-based start-ups, and the transfer of knowledge, especially to businesses in strategic sectors of the economy. Such infrastructure has been insufficient and rare, apart from pioneering projects at particular university departments, and has been unable to produce wider impact on the overall development of applied research in Serbia. Therefore, Serbia needs complementary action that will strengthen the capacities of respective stakeholders to make the most of provided infrastructure by enabling them to engage in commercially viable projects and to introduce mechanisms to facilitate business links often seen in EU countries.

Description:

The measure will build on the results of the cooperation between research institutions and enterprises provided under MoSTD’s public calls in the period 2008-2010 and the spending of the EIB loan for R&D infrastructure. It will enable Serbian R&D and academic community interested in cooperation with private sector to demonstrate that readiness through competition of projects aiming at strengthening their capacities to apply their research in enterprises and offer required services to SMEs. It will seek to improve public sector understanding of the business sector needs for new technological solutions as well as create opportunities to increase the level of applied research.

It will particularly focus on further improvement of access to physical infrastructure needed to promote establishment of start-ups and provide technology transfer solutions in strategic sectors with a competitive advantage for Serbia. Implementation of those solutions and use of the facilities will enable SMEs in the sector to develop competitive products and cut their production costs.

Eligible actions


Construction works and equipping the technology transfer incubator providing necessary facilities, equipment and services for development and growth of innovative start-ups and spin-offs;

Supporting commercialisation of academic knowledge through strengthening capacities of higher education institutions and their ability to offer services to SME sector, such as support to establishment of technology transfer offices in the universities, performing audits across university departments to identify innovations which might be commercialised through licensing of intellectual property or spin-off, development of sector specific knowledge transfer networks;

Supporting enterprise development through the transfer of academic knowledge by development of user-friendly sector-specific knowledge transfer databases, and knowledge transfer partnership schemes

Selection criteria:


Operation builds on the implemented and ongoing activities;

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Operation will provide projects that are highly innovative, high quality and generate knowledge in a particular industrial or scientific field which is likely to lead to commercial exploitation;

Operation has a positive (in)direct impact on increasing enterprise competitiveness and increasing employment;

Operation has a positive (in)direct impact on strengthening the capacity of beneficiaries.


The final beneficiary for procurement under this measure, in accordance with the IPA implementing regulation, will be the Ministry of Finance’s CFCU, as the Body Responsible for Contracting and Implementation within the Operating Structure and for grant schemes will be grant recipients. The possible end recipients who will be responsible for the technical implementation of the operations and their outcomes may include: accredited faculties of the accredited universities, registered public research institutions159 and Ministry of Education and Science (Department for Technological Development).



Objective Output indicator Definition Unit Baseline

value(2012)


Frequency of monitoring

Target value(2016)

To improve the competitiveness of enterprises through development of key elements of the national technology transfer infrastructure and actions to encourage effective cooperation between research institutions and the SME sector

Cooperation agreements between scientific

community and business/industry

Agreements signed to conduct R

cooperative R&D projects by

researchers from HEIs/PROs and

business partners (SMEs and industry)


report

The end of the programming

period

Minimum 10

159 According to the Law on Innovation Activity

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Measure 3.3 - Support to the local economic development and enhancing business infrastructure

Specific objective:

The objective of the measure is to support more balanced regional development in Serbia and strengthen economic activity by building business-related infrastructure, linked to business services, to increase investment and the number of enterprises and accelerate their growth.

Rationale:

Serbia considers the development of business infrastructure to be one of the keys to economic growth, with municipalities dedicating significant allocations of land for business use. The business – related infrastructure is one of the most important factors for achieving sustainable economic and social development of the Republic of Serbia, also it is the primary initiator of balanced regional development and utilisation of comparative advantages of local self -government units. However, in practice, only a low percentage of this land has actually been developed, with operational business premises for start-ups or other business development purposes. Quality of infrastructure and services provided by the available infrastructure is not standardised, primarily due to the differences in their stage of development, but also due to the lack of legal and institutional framework which should enable this standardisation. Limitations for the development of business-related infrastructure is the lack of financial resources, unresolved property relations, lack of awareness about the benefits of business infrastructure, lack of professional staff who have the necessary experience to manage the business infrastructure etc.

Serbia has 41.2 active SMEs per 1,000 citizens and is well below the EU average in terms of SME density160. There are few challenges emerging SMEs have to face to be able to grow, such as access to finance, administrative barriers and a more positive business environment. One of the mechanisms that can induce enterprise development is the provision of high quality business-related infrastructure that can significantly improve the survival and growth prospects of new start-ups and speed the growth of established enterprises161. At the same time, industrial legacy of previous systems and policies in former Yugoslavia has left a large number of unused existing brownfield locations.

Furthermore, Serbia has reached significant levels of foreign direct investments in recent years. According to the USAID Municipal Economic Growth Activity programme survey of investors in Serbia, availability and cost of business premises is graded as 8 out of 10162 on the list of relevant factors influencing the investors’ decisions on where to invest163. Foreign investors have mainly settled in the richer areas such as Belgrade and South Bačka District, while the poorer areas have faced extremely low levels of inward investments.

160 EU average is 55 active SMEs per 1000 citizens (Eurostat)161 Studies undertaken to evaluate the performance of incubators in Western Europe and North America suggest that they can reduce the failure rate amongst start-ups to below 10% over a three year period (compared with failure rates of between 60% and 80% for small businesses generally).162 1 being least relevant and 10 being crucially relevant163 Investment climate in Serbia: Investors’ Perspective, MEGA (2008)

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Description:

The measure will build on the results of previous me and various EU and donor regional development projects, (eg. National Investment Plan, and programmes supporting the enhancement of business-related infrastructure throughout Serbia). The aim of the measure is provision of local infrastructure which will facilitate establishment, development and expansion of new and existing business Support under this measure will focus on the establishment of new infrastructure, and improvement of the efficiency (capacity, quality and attractiveness) of existing infrastructure, where the lack of such infrastructure is an impediment to enterprise development. It will include industrial zones, industrial parks, basic infrastructure essential to business development, business incubators, common infrastructure for cluster development164, other business support infrastructure and public tourism infrastructure (tourism information centres, cycle paths, etc.). The measure will put special focus on underdeveloped areas through the operation whose selection criteria will weight towards them taking into account the challenges those areas are facing when applying for funding . All investments in physical infrastructure will be combined with investments in accompanying services to maximise the benefit of the infrastructure to foster SME growth and job creation.

Eligible actions:


Provision of local infrastructure which contributes to facilitate establishment, development and expansion of new and existing business, such as: Improving availability of fully equipped and fully functional industrial zones and parks,

business incubators through engaging in all construction activities essential for their successful functioning;

Modernisation/extension of basic communal infrastructure essential to business development (e.g. access roads, waste water treatment plants, improved water supply, etc.);

Upgrading access to joint facilities for registered clusters; Development and improvement of public tourism-related infrastructure165, through

infrastructure and capital investments and “soft” investments into improved service delivery;

Provision of support services designed to maximise the benefit of the investment.

Selection criteria:


Operation builds on the implemented and ongoing activities; Operation will provide access to infrastructure and services for investors, growth oriented

enterprises, enterprises with a potential to export and those which wish to export further; Operation will put additional emphasis on reducing regional imbalances; Operation have positive (in)direct impact on increasing the enterprise competitiveness of

and increasing employment;

164 For example, common testing/standardization facilities (for example: Mini Tool Rooms, Design Centre, R&D centre, Training Centre, Testing centre, Laboratory etc), common exhibition centres, common distribution centres, common raw material depots, common outlet centres, common logistics centres etc.165 Including development of tourism information centres, visitor centres, interpretation facilities, exhibition and event sites, reconstruction and renewal of monuments of national and regional importance, development and renewal of hiking paths, cycle paths, cycle routes and nature trails, etc

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Preference will be given to operations implemented in the underdeveloped areas; Preference will be given to inter-municipal cooperation projects.


The final beneficiary for service procurement under this measure, in accordance with the IPA implementing regulation, will be the Ministry of Finance’s CFCU, as the Body Responsible for Contracting and Implementation within the Operating Structure and for grant schemes will be grant recipients. The possible end recipients who will be responsible for the technical implementation of the operations and their outcomes may include Ministry for Economy and Regional Development.






Frequency of

monitoring

Target value(2016)

To support local development and strengthen economic activity by building business related infrastructure with provided business services to increase investment as well as the number of enterprises and speed up their growth

Jobs created Full time equivalent

jobs directly generated by the activity in

question


report

The end of the

programming period

Minimum

200

3.2 Technical assistance

3.2.1 Priority axis 4 - Technical Assistance

Aim:

This priority axis will support the effective and efficient management of the OP, the absorption of IPA assistance, and preparation for future programming periods, including the design and development of strategies, and identification of operations for elaboration into mature and high-quality proposals.

EU legislation:

Not applicable.

Specific objective:

To enhance and reinforce Serbian capacities, in the context of the EU pre-accession process, for future management of Structural Funds and the Cohesion Fund

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Rationale:

The greatest challenge facing national authorities in managing EU, national and IFI funds is to maximise both its absorption and its impact, while ensuring that spending is efficiently administered and completely aligned with all relevant regulations and agreements. This triple focus on spending fully, correctly and wisely will be the basis of IPA programme management by Serbian institutions under the decentralised implementation system (DIS), and in the longer term, the administration of Structural Funds and the Cohesion Fund as an EU member state. The raison d’ětre for IPA is pedagogical as much as developmental, with an explicit goal of preparing accession candidates for the tasks ahead of them. The structures and systems under IPA component III and IV are designed to facilitate ‘learning by doing’, but at a smaller scale of disbursement and hence a lower level of absorption risk.

Nevertheless, the transition from the traditional pre-accession environment of CARDS and IPA component I, under centralised management, is not an easy one. IPA III and IV introduces entirely new challenges for the Serbian authorities based on multi-annual programme implementation, including flexibility in programme expenditure (under the N+3 rule), and managing, monitoring and evaluating the OP to optimise the use of resources to achieve its strategic objectives, including switching resources across operations, measures and priority axes, if appropriate. Decentralised management means procurement, grant scheme management and contracting is transferred to the Ministry of Finance, with ex ante approvals by the EU Delegation, and responsibility for drawing down finance from the EU, and making payments (and recoveries and repayments, if necessary) transferred wholly, with ex post controls only.

Moreover, the management of IPA component III will involve extraordinary costs that do not form part of the Serbian administration’s traditional operating expenses. This includes: information and publicity on IPA; the development of monitoring indicators and an EU funds Management Information System; the commissioning of external, independent experts for interim and ongoing evaluations; and the costs of managing and implementing the IPA programmes.

Finally, the programme period of 2012-2013 will shortly be followed by the 2014-2020 financial perspective. The direction of the Europe 2020 strategy, adopted by the EU’s European Council of Ministers, indicates that transport, environment and competitiveness will remain pivotal to ensuring Europe’s future prosperity and hence will play a guiding role in the governance of future EU funds. Serbia needs to be fully up-to-date in its strategic planning and put in place an active pipeline of potential projects for funding, which correspond with this agenda.

Description:

The priority axis will provide technical support to all aspects of OP implementation, including promotion, project appraisal and selection, procurement, grant scheme management, contracting and contract management, financial management and control, monitoring, evaluation, reporting, audit and any necessary revisions to the OP.

The priority axis will ensure that the public and beneficiaries are well informed about IPA support from the EU, and future end recipients are able to generate and prepare concepts, elaborate viable ideas into eligible and high quality proposals, and apply for IPA assistance in future funding perspectives. It will finance studies, analysis and strategic planning, with a view to ensuring successful programming and absorption in 2014-2020.

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It will facilitate close working relationships across the Operating Structure and with the rest of the IPA administration, and promote networking and cooperation with the wider partnership of economic, social and environmental partners and civil society. It will enable the Operating Structure to apply the horizontal themes of equality of opportunity, tackling discrimination and ensuring sustainability

Most importantly, technical assistance under this priority axis will embody the ‘learning by doing’ principle, strengthening the administrative capacity for sound management of the OP, and enhancing its effectiveness and efficiency.

Targeting:

It is proposed that the activities under this priority axis are fully aligned with the eligible activities allowed in the IPA implementing regulation, without exception.

The assistance under the priority axis will be directed towards end recipients who will be responsible for the technical implementation of the operations and their outcomes, and the members of the Operating Structure. Ultimately, this assistance will include: members of the Sectoral Monitoring Committee, Project Selection Committees and evaluation committees for tenders and grant schemes; end recipients of assistance under the other priority axes; works, supplies and service contractors and grant recipients; and economic, social and environmental partners, civil society, the general public and the media.

Measures:

Two measures are proposed for support under this priority axis:

Measure 4.1 – Programme management, information and publicity; Measure 4.2 – Preparation of studies, programmes and projects

Delivery:

The operations which will be performed under this priority axis will be specified in the Operation Identification Sheet (OIS) for submission to the EU Delegation for approval. Service and supply contracts will be awarded through competitive tender, according to EU procurement rules and will be tendered and contracted by the Central Finance and Contracting Agency, as the Body Responsible for Contracting and Implementation within the Operating Structure, subject to ex ante controls by the DEU.

The priority axis will complement past and ongoing EC technical assistance projects. Any overlap with projects to be financed under other priority axes of the OP or IPA component I will be avoided. Approximately 6% of the total budget of the OP is allocated to this priority axis.

The use of funding for technical assistance under this priority axis will be addressed specifically within the annual and final implementation reports.

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OP monitoring will ensure evaluation of the progress in implementation of measures introduced under this priority axis, based on result indicators at the measure level.

Measure 4.1 - Programme management, information and publicity

Specific objective:

To ensure effective OP management and implementation, information and publicity, and develop the institutional capacity for managing and absorbing IPA

Rationale:

When Serbia adopts decentralised management, as an essential pre-condition for receiving funds under IPA components III and IV and an important step to membership status, it is likely that the absorption of funds will come under pressure initially, based on the experience from other countries which have gone down this path. The administration lacks experience in the direct management of EU funds, particularly the processes of project appraisal and selection, contracting, project management and control, including payments, verification and monitoring.

As detailed in chapter 5 of this OP, the IPA implementing regulation sets out the responsibilities on the Operating Structure under Article 28, which includes aspects of programme management (such as information and publicity, and for evaluation, as set out under Article 166) which are entirely new to the Serbian administration in regard to EU funds. Among its responsibilities, the Operating Structure will be expected to promote the OP and its operations and make potential beneficiaries (such as possible grant recipients), and the wider public, aware of the assistance under the OP and its outcomes (in line with Articles 62 and 63). The Operating Structure is also required to establish Sectoral Monitoring Committees (under Articles 59 and 167), and may convene Operation Selection Committees (arising from the provisions of Article 158). Procurement, grant management, contracting and payments are governed by the Practical Guide to contract procedures for EC external actions, including the establishment of evaluation committees to appraise tenders (for service, supplies and works contracts), and calls for applications (under grant schemes), which typically require the employment of external experts as assessors.

Together, these obligations will formulate an administrative capacity to support the management and implementation of the OP, including institutions and individuals outside the Operating Structure and assessors. Much of this administrative infrastructure has yet to be assembled, and incur costs additional to budgetary plans.

Description:

This measure will support the strengthening of the newly established structures and underpin the foundation of OP management in two ways.

First, it will enable the procurement of consultancy and training services, for the benefit of the Operating Structure, which will provide valuable advice and capacity-building during the lifetime of the OP. This will help consolidate and enhance the competences and capabilities of the Serbian administration, building on the momentum from previous technical assistance under IPA component I, and focus on transfer of knowledge, skills and techniques. It is essential that the Serbian administration is able to train and retain a body of technically competent and committed staff, which

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can ensure high levels of absorption and be capable of putting in place programmes for the next financial perspective.

Second, it will co-finance specific implementation costs of the OP, including information and publicity, project appraisal, monitoring and evaluation activities, including services, equipment and supplies, software and hardware. These constitute items of expenditure arising entirely from OP management, which the Serbian administration would not normally bear in the course of its conventional day-to-day activities

Eligible actions:


TA consultancy support (including advice and training) to the Operating Structure regarding any aspect of management, project appraisal and selection, monitoring, control, audit, evaluation, visibility, publicity and control, including grant scheme management and procurement (for example, fees for expert assessors and evaluators of project applications) and interpretation of the horizontal themes;

Preparation and implementation of information and publicity strategy and specific activities; Setting up and maintaining an information exchange system (through the internet, media,

brochures, folders, CDs etc) for potential beneficiaries and end recipients, on the contents of the assistance, and accessibility of the IPA funds for implementation of specific projects;

Support (including advice and training) to socio-economic partners and civil society, to engage them on the delivery of the OP, performance, progress and any planned revisions;

TA support to the Operating Structure in the preparation of guidelines for potential applicants;

Aid to enhance the specification, collection and use of statistics for effective monitoring and evaluation;

Costs of external evaluators engaged for interim and ongoing evaluations; Expenditure related to the organisation and administration of meetings of the Sectoral

Monitoring Committee and Operation Selection Committees, including interpretation services, ad-hoc hiring of meeting rooms and audio-visual and other necessary equipment, provision of documentation and related facilities, fees for the participation of experts and travel expenditure in accordance with EC rules;

Exchanges of experience for staff involved in OP management through study visits and internships;

Organisation of briefings, seminars, conferences and workshops; Provision of translation and interpretation services.

Salaries and allowances of members of the Sectoral Monitoring Committee (and any sub-committees) incurred in the context of their participation in such committees, will not be eligible.


The final beneficiary for procurement under this measure, in accordance with the IPA implementing regulation, will be the Ministry of Finance’s CFCU, as the Body Responsible for Contracting and Implementation within the Operating Structure.


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Objective Result indicator Definition Unit Baseline

value(2012)


Frequency of

monitoring

Target value(2016)

To ensure effective OP management and implementation, information and publicity, and develop the institutional capacity for managing and absorbing IPA

Staff trained Officials of the Operating

Structure, Sectoral Monitoring

Committees and possible end

recipients participating in

OP-financed

Number 0 Project monitoring

reports

Quarterly Minimum 150

Absorption of OP funds

Incurred expenditure

declared by the NAO to the European

Commission and accepted by the latter without corrections,

deductions or seeking recoveries

Per cent 0 Annual and final

implementation reports

Annual 95%

Effective use of OP funds

Evaluation findings reporting a

positive impact from OP

expenditure

Ex post evaluation by

the EC

0 Ex post evaluation

report commissioned

by EC

Completion of OP

Positive report

Measure 4.2 - Preparation of studies, programmes and projects

Specific objective:

To ensure the future absorption of IPA funds, through the development of sector planning and programming documents and the generation of a pipeline of mature, eligible and high quality projects.

Rationale:

Like all countries receiving EU funds, Serbia needs to ensure that absorption is maximised, but that it is also well-targeted, to have the maximum positive effect on the problems and challenges facing the country.

The preparation for IPA III and IV in 2012-2013 is Serbia’s first experience of multi-annual programming under EU funds. Unlike IPA component I, IPA III takes a medium-term rather than annual perspective, and organises priorities for expenditure, which govern the selection of operations for funding, based on robust sector analysis, a clear hierarchy of objectives and outcomes and widespread consultation. This places new obligations on the Serbian administration to plan its programming and to ensure national strategies and plans are up-to-date and aligned with the timeframes and opportunities of EU funding.

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At the same time, while there are databases of projects in various stages of preparation and readiness, such as the ISDACON Information System at the national level and the SLAP database for municipalities, there are insufficient projects which are fully implementation-ready for future programme needs and to required standards. Moreover, many potential end recipients do not have the necessary knowledge and techniques to prepare projects to the level required for approval under EU regulations and conventions.

Description:

Serbia needs to prepare itself fully now for the next financial perspective. While the preparation of the next set of operational programmes for the 2014-2020 financial perspective will be supported by technical assistance under IPA component I (2011 programme), this measure will support the development of strategic documents, , and researching and producing sector strategies relevant to eligible activities in the IPA implementing regulation. The measure will also finance the preparation of a future project pipeline and support relevant institutions and potential beneficiaries in the preparation of required documentation. This includes the generation of project ideas and their elaboration into mature and high-quality proposals with all the supporting technical documents, and will involve both advice and training services. This measure complements other priority axes, which allow for the development of project documentation within the specific and narrow scope of eligible actions under the measure, by looking at emerging needs in the preparatory phase for the 2014-2020 programmes.

Eligible actions:

The following actions are considered eligible for implementation: Support with the preparation of sector studies related to the strategic priorities of the OP

and future programming documents; TA to identification of project ideas and preparation of project pipeline for future IPA

assistance; Consultancy and training in project conception, design, preparation and implementation; Capacity building for conducting pre-feasibility and feasibility studies, environmental impact

assessments, cost benefit analyses, financial and economic analyses, detailed technical designs, affordability studies, sector consolidation studies;

Organisation of seminars, conferences and workshops; Printing, publishing and provision of translation and interpretation services.


The final beneficiary for procurement under this measure, in accordance with the IPA implementing regulation, will be the Ministry of Finance’s CFCU, as the Body Responsible for Contracting and Implementation within the Operating Structure.



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Frequency of

monitoring

Target value(2016)

To ensure the future absorption of IPA funds, through the development of sector planning and programming documents and the generation of a pipeline of mature, eligible and high quality projects.

Staff trained Officials of the

Operating Structure, Sectoral

Monitoring Committees and possible

end recipients

participating in OP-

financed


reports

Quarterly Minimum 150

Adopted strategic

documents and prepared

projects

Strategy documents

approved by Ministers or

Government, and projects

ready for submission

for Operating Structure and EC approval,

including completed application

forms(1) with supporting documents


reports

Annually Minimum 2

(1) Major project application, operation identification sheet, or equivalent

3.3 Horizontal issues

3.3.1 Equal opportunities for men and women

Political will and commitment to build gender equality policy by introducing modern standards in gender issues is enshrined in the Constitution of the Republic of Serbia, which prohibits all forms of discrimination (Article 21) and guarantees the equality of women and men and developing equal opportunities policy (Article 15). This proclamation is underpinned by legislation, namely the Gender Equality Law, the Law on the Prohibition of Discrimination, the Family Law, the Labour Law, the Law on Employment and Unemployment Insurance166, the Criminal Code167, Election laws168, and the Ombudsman Law169.

Various institutions are involved in the promotion and protection of gender equality in Serbia, namely, the Parliamentary Committee for Gender Equality; Government Council for Gender Equality, the Directorate of Gender Equality within the Ministry of Labour and Social Policy, the Committee on Gender Equality within the Assembly of the Autonomous Province of Vojvodina, and the Provincial 166 See Annex B167 It penalises domestic violence and marital rape and defines human trafficking as organised crime168 It sets a system of quota of 30% for the less represented gender for the national, provincial and local elections169 Gender issues are one of the priorities

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Secretary for Labour, Employment and Gender Equality, while Local Municipal Committees for gender equality exist in majority of Serbian LSGs.

The objectives of the National Strategy for Improved Status of Women and Gender Equality Promotion are in line with the recently adopted Strategy for Equality between Women and Men in Europe 2010-2015. The EU Strategy identifies five priorities: equality in the field of economy and labour market, equal pay, equality in senior positions, tackling issues of gender violence and promoting equality beyond the EU. It spells out a series of actions such as facilitating the entry of women into the labour market and putting forward targeted initiatives to get more women into top jobs in economic decision-making, promoting female entrepreneurship and self employment; instituting an annual European Equal Pay Day and EU-wide cooperation against women violence.

Principles of equal opportunities have been applied throughout the programming process, where possible:

Given the resource levels and eligible actions under priority axis 1, which is specifically focused on advancing the construction of the pan-European transport corridors, it is not anticipated that the activities will have a specific gender dimension. However, the economic, social and environmental benefits of a more complete, efficient and safe transport system will contribute to opportunities for both men and women in employment and society.

Similarly, priority axis 2 will involve a series of specific actions to improve environmental performance and reduce pollution, which will help to improve the well-being of residents in selected project areas. Like the transport system, better environmental protection is broadly ‘gender blind’, as men and women both benefit from using the new environmental infrastructure. However, there is evidence that women tend to be disproportionately affected by unemployment and poverty, and hence may gain more benefit from actions designed to generate employment opportunities and improve quality of life. While construction of both transport and environment infrastructure if overwhelming dominated by male employment, additional ‘green’ jobs will be created by enhancing infrastructure which is aimed at sustainable development.

Women still face a degree of gender discrimination in the business community that goes beyond the traditional challenges facing all SMEs in terms of gaining information, training, markets and technology. Women’s dual role as business owners and as the primary family caregiver in Serbian society means that they generally have less time to devote to training and related activities needed to maintain the competitiveness of their businesses. Within priority axis 3, measure 3.1 will tackle these issues through provision of consultancy services that will contribute to greater competitiveness of women enterprises. Measures 3.2 and 3.3 will encourage women start up businesses through easier access to business premises thus shortening the time to launch a business, making the process more efficient and easier for the individual woman entrepreneur.

The impact of the OP on equality of opportunity will be factored into its implementation, as will also tackling discrimination against minorities and other vulnerable and disadvantaged groups. To ensure that these principles are taken into account at all levels of implementation, the following procedures will be adopted:

The requirement to ensure gender equality and non-discrimination in the operation of IPA projects will be included in information and publicity campaigns, and materials provided to

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potential contractors during the tendering process and to potential grant recipients during calls for applications, with the use of case studies and examples;

Applicants for IPA assistance for non-major projects will be expected to demonstrate how their project promotes equal opportunities or otherwise takes account of potential gender bias (for example, by describing the efforts the project to overcome any barriers to equality) and/or ensures that its actions do not compound and reinforce discrimination;

Gender and anti-discrimination implications will be taken into account through the project appraisal process and selection criteria;

The requirement to observe equality of opportunity and avoid discrimination during project implementation will be built into agreements with end recipients and contractors, and will be checked, as part of the verification process;

The outputs and results indicators for projects will be broken down by gender where appropriate, for the purposes of project and programme monitoring;

Commentary will be prepared on operations linked to equal opportunities in the annual and final implementation reports of the Operational Programme;

The impact of the OP on gender equality will be written into the terms of reference for its interim evaluation, where relevant;

Representatives of Government bodies with related responsibilities and relevant NGOs as members of the Sectoral Monitoring Committee, to monitor implementation of the principle of gender equality and anti-discrimination.

The Operating Structure will make sure that all operations co-financed by the IPA programme are in compliance with, and contribute to, the equal opportunities policy and legislation of the European Union. Support to the Operating Structure in developing and interpreting guidelines on ensuring equal opportunities will be provided under the technical assistance priority axis through consultancy and training (measure 3.1).

3.3.2 Environmental protection and sustainable development

The Republic of Serbia has adopted the Sustainable Development Strategy (“Official Gazette of the RS” no. 57/08), which is harmonised with the objectives from other national strategies (National Strategy of Serbia for the Accession of Serbia and Montenegro to the European Union, the Poverty Reduction Strategy, The Serbian Strategy of Economic Development 2006–2012), as well as the EU Sustainable Development Strategy, EU Lisbon Strategy and UN Millennium Development Goals.

The objective of the Sustainable Development Strategy is to establish a balance between the three key factors of sustainable development, embracing them in one whole supported by an adequate institutional framework:

sustainable economic growth and economic and technological progress; sustainable social development, based on social balance; and environmental protection accompanied with reasonable use of natural resources.

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These objectives refer to EC priorities from Community Strategic Guidelines 2007-2013 and Europe 2020.

Integration of environmental issues in other sectoral policies in one of the principles of the Sustainable Development Strategy. This has been introduced through the promotion of integration of economic, social and environmental approaches and analyses and support of use of instruments, such as the Strategic Environmental Assessment (SEA). During its preparation, the OP will be subject to an independent SEA (SEA), in line with practices established by EU Directive, set out in the “Handbook on SEA for Cohesion Policy 2007-2013”. This will assess systematically the expected and potential environmental impact of the OP, and ensure that the OP has taken into consideration any material consequences for the environment, subjected them to public consultation, and that the measurement of environmental effects is built into the monitoring system. The SEA will be appended to the final draft of the OP. The results of the SEA will be central to future evaluations (interim and ex post) of the OP, as well as to the monitoring of performance.

The SEA will be complemented by Environmental Impact Assessments (EIAs) which will be performed on individual operations, specifically major projects of infrastructure investments, under the priority axes 1 and 2. Only operations which receive positive EIAs will receive financing under the OP. Advice and training to potential future beneficiaries will include the preparation of EIAs through priority axis 4. Serbian legislation. Projects within each measure in the OP will be realised in accordance with Serbian legislation on EIA, which is harmonised with the relevant EU regulation on EIA, and thus they will be compliant with the EU EIA standards.

The effect on the environment will be taken into consideration in the implementation of all measures of the OP, where relevant. To ensure that sustainability and environmental protection are taken into account throughout programme management and implementation, the following procedures will be adopted:

The requirement for IPA to promote environmental protection & sustainable development will be included in both information and publicity campaigns, and materials provided to potential contractors during the tendering process and to potential grant recipients during calls for applications, with the use of case studies and examples;

Applicants for IPA assistance will be expected to demonstrate that their project will not have a detrimental environmental impact, to certify that it is environmentally neutral, and/or to present how the project will make a positive contribution to sustainable development; these factors will be taken into account through the project appraisal process and selection criteria, if appropriate; where appropriate, projects should be compliant with EU Environmental Impact Assessment standards

Any consequences of the appraisal of environmental impact during the selection stage will be reflected in agreements with end recipients and contractors, and will be checked, as part of the verifications process;

Commentary will be prepared on operations linked to environmental protection & sustainable development in the annual and final implementation reports of the Operational Programme;

The impact of the OP on environmental protection & sustainable development will be considered as part of its interim evaluation, where relevant;

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Representatives of Government bodies with related responsibilities and relevant NGOs as members of the Sectoral Monitoring Committee, to monitor implementation of the environmental effects of the OP.

All activities carried out in the framework of the OP should be carried out in compliance with EU environmental legislation.

3.3.3 Participation of civil society

Civil society organisations (CSOs) will be engaged in the preparation of the OP, as described in section 1.3 on partner consultations, and will be involved in supervising its implementation as members of the Sectoral Monitoring Committee. The active involvement of civil society will be encouraged through the opportunity for social partners and NGOs to participate as individual grant applicants. Civil society actors will also benefit from improved cooperation between the Government, and socio-economic partners and civil society organisations, to support strategic planning and future programming including partner consultation.

3.4 Complementarities and synergies with other forms of assistance

The measures proposed for funding under this OP have been selected to complement other national and international interventions to facilitate economic development in Serbia, starting with the State Budget and taking into account other EU programmes, and bilateral and multilateral assistance.

These synergies take many forms. In some cases, this national and international assistance sets a broader context for action, by intervening in complementary areas which will not be targeted in the OP. In other cases, past funding has laid the ground, by instigating studies and projects which are eligible for implementation through the OP. There are also recent and ongoing projects which will operate in parallel with the OP, and thereby will strengthen the impact of funded actions.

The guiding principle in programming the OP is to maximise coordination, complementarities and consistency, while concentrating limited resources to achieve the maximum impact from the programme’s implementation. In this way, the OP seeks to prevent deadweight and duplication, and to ensure the optimal deployment and added value of IPA resources.

The OP places a particular weight on continuity. Its measures and operations draw heavily on experiences and lessons learned from national programmes (for example, the financing of regional landfills and remediation by the Environmental Protection Fund), past and ongoing EU projects (for example, SME consultancy through the EU’s CARDS programme and development of project documentation through IPA I), and multilateral and bilateral donors (for example, EIB, EBRD and World Bank loans to finance infrastructure investment). The IFIs, in particular, will play a crucial supporting role in co-financing major projects under this OP.

3.4.1 Coherence with national programmes

The State Budget is set on an annual basis in the Republic of Serbia and hence may fall or rise, depending on economic circumstances and political priorities. Each approved budget includes expenditure projections for the following next two years. The Government has introduced programme budgeting on a pilot basis with launch of the GOP (yearly operational planning) process since 2005. Total budget allocations of relevant line ministries in the 2010 are shown in table 34.

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Table 34: State budget 2010 allocations to relevant ministries (in millions)Budget*

Ministry of Infrastructure €202.59mMinistry of Environment & Spatial Planning €108.77mMinistry of Agriculture, Forestry & Water Management (Water Directorate) €37.60mMinistry of Mining and Energy €26.63mMinistry of National Investment Plan €191.92mMinistry of Economy and Regional Development €412.06mMinistry of Science & Technological Development €184.46mMinistry of Telecommunications & Information Society €7.00mTotal €1,171.04m* Converted at the RSD:€ rate of 99.9956 (January –June 2010)

Since the programme budgeting is still in the pilot phase, figures presented in Table 36 include both the programme and the annual running costs of relevant ministries. Major programmes, which are relevant to the OP, include:170

Programme for Start-up Loans– facilitates access to finance for new businesses through the Developing Fund (slightly below €40 million in 2009);

Credit support to the economy through the Fund for Development of Serbia (€35 million in 2010);

Programme for Enterprise and Entrepreneurship Development in the Most Undeveloped Municipalities – also financed through the Developing Fund (slightly below €30 million in 2009);

Programme for Promotion of Balanced Regional Development - support to production, entrepreneurship and employment in less developed and devastated areas (€75 million in 2011);

Programme for Allocation and Absorption of Resources for Programming Regional Development and Support to SMEs - co-financing the initiatives of local self-government units and accredited RDAs for preparation and implementation of local and regional projects, support to SMEs and innovation, and co-financing the annual fees of underdeveloped local self-government units in accredited RDAs (€1.9 million);

Export Credit and Insurance Agency – provides export financing loans, export insurance services and factoring (€27 million in 2009);

The Serbian Environmental Protection Fund (SEPF) - established in 2005, SEPF finances different projects in the area of environmental protection (worth around €23 million in 2009), including rehabilitation of landfills in Serbia and preparation of technical documentation;

Start-up credits for entrepreneurs and companies - €10 million in 2010;

Support for tourism development projects (€ 9.8 million in 2010);

Support to innovative activities of SMEs and R&D (€4 million in 2009). 170 Budgets are allocated in RSD, but expressed in EUR here for comparison purposes, based on a approximate conversion rate of 100 RSD to 1 EUR

168


In addition, the National Investment Plan (NIP) is supporting a set of infrastructure related projects. For example, inadequate waste management, as one of the most serious threats to environment in Serbia, was a motive for project ‘Let’s Clean Up Serbia’ financed by the National Investment Plan (NIP) with the total budget of €2.6 million. In addition, development and upgrading of environment (waste water and garbage dumps) has been financed by the NIP with a total budget of €25 million.

3.4.2 Coherence with other IPA Components

The preparation of this OP has been closely coordinated with actions under IPA components I and IV in particular, building on the activities funded under the previous CARDS programmes.

In the four annual programmes approved by the European Commission since 2007, IPA component I (transition assistance and institution-building) has financed projects in the transport, environment and competitiveness sectors worth around €400 million, as presented in Annex X:

IPA I has contributed to the development of the institutional and legislative framework for transport, in line with acquis requirements (e.g. aviation legislation, intermodal transport facilitation) and other capacity-building activities, such as a system for railway track condition analysis, track infrastructure survey and information system establishment, and preparation and implementation of infrastructure projects. This includes project management and supervision of construction works on selected sections of the road Corridor X, development of project documentation for intermodal terminal establishment, for modernisation of railway lines, and supervision or works and construction of Žeželj bridge on the Danube River in Novi Sad. In regard to Corridor VII, IPA I is implementing projects for improving navigation along the Danube through establishing the river information system, development of project documentation for river training and dredging works on critical navigational sections, and removal of unexploded ordinances (UXOs) from the Danube River.

Concerning environmental protection, IPA I support has been directed towards, again, preparing for acquis approximation and strengthening the institutional framework (environmental inspection at republic, provincial and local levels to enforce regulations, and the capacity of SEPA as a national focal point for cooperation with European Environment Agency) and administrative capacities for nature protection. The bulk of spending, however, has been targeted on preparations to introduce a hazardous waste treatment facility, and mitigating the environmental impact of energy production, by upgrading the air quality management system in line with EU standards, and reducing emissions from thermal power plants in Serbia in line with EU directives, by decontaminating facilities and replacing equipment. In addition, IPA has financed the development of a national flood management framework, and the production of a sewerage & wastewater strategic master plan for the West Morava river basin.

As regards competitiveness, IPA assistance has also been directed to improving the quality, range and availability of business support services, supporting cluster development, supply chain development, export promotion and innovation within SMEs and technology transfer through an enhanced institutional framework, improvement in the business support infrastructure, strengthening the conformity assessment structure and development of instruments for financing SMEs innovation. IPA is also enabling the implementation of the National Tourism Strategy. The EU has played a very active role in the revitalisation and modernisation of local self-government in particular, since 2000. These projects include:

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support to regional policy at the national level and strengthening the capacity of regional development agencies; improving capacities for municipal planning, finance and governance (in the context of decentralisation) and infrastructure development and project preparation; providing grants to municipalities to facilitate socio-economic development, focused on economic, social and physical infrastructure; and supporting the transformation of public utility companies.

After granting Candidate Country status to Serbia, the future allocation of IPA component I resources will be largely restricted to acquis harmonisation (particularly with the environmental acquis), institution-building (except for support to ministries as Operating Structure for the OP) and complementary activities which are not eligible under IPA component III (for example, initiatives to promote competition, the effective operation of markets, consumer and intellectual property rights, etc). In the meantime, programming of IPA 2011 is ongoing. The projects listed provisionally in Annex X, which are directly relevant to the OP-ED, have been proposed for the Commission’s approval, with a total value of around €100 million.

In addition, there are cross-cutting projects under IPA component I, both currently running and proposed for the 2011 programme, relevant for management of IPA component III, such as project preparation facilities and support to the decentralised implementation system for IPA components III an IV.

The vast majority of projects under IPA 2007-2011 will be operational during the lifespan of this programme, and hence active management and synchronisation of their activities and outcomes will be important for ensuring the success of the OP. Table 35 below explains how the measures proposed under this OP will build upon the foundations of previous EU funding, based on the principles of continuity and coordination, by summarising the content of past and ongoing projects.

Table 35: Relationship between OP-ED measures and past / ongoing EU assistanceProposed OP measure Past and ongoing projects CommentMeasure 1.1 - Modernisation of railway lines within the Pan-European Corridor X

IPA 2008 – Harmonisation with acquis communautaire in the field of transport (€1.5m); IPA 2008 - System for the analysis of track conditions (€3.0m);IPA 2008 - Facilitating intermodal transport in Serbia (€2.0m);IPA 2008 - PPFTA: feasibility study and EIA for the railway section Stara Pazova – Novi Sad (€0.4m);IPA 2009 - Žeželj bridge – rebuilding Serbian infrastructure (€60.0m)

Activities within these projects are directly related to the modernisation of the railway line and improvement of the capacity, quality and railway services within Corridor X, including adoption of technical regulations relevant to TEN-T.


IPA 2008 – Harmonisation with acquis communautaire in the field of transport (€1.5m); IPA 2007 – Danube River Information System (€11.0m);IPA 2010 – Preparation of design and tender documentation for river training works and dredging on the critical sections of the Danube river (€2.0m);IPA 2010 - Removal of unexploded ordinances (UXO) from the Danube River (€2.0m).

Interventions relevant to listed projects contribute to improvement and increasing of the capacity and navigation safety within Serbian part of the Danube River.

Measure 2.1 – Upgrading and improvement of waste management

IPA 2007 – Technical assistance for development of an Environmental Approximation Strategy (€2.0m);IPA 2008 – Hazardous waste management (€1.5m);IPA 2008 – Treatment of healthcare waste (€6.0m);

Activities within these projects provide a basis for approximating Serbian environmental legislation with the EU environmental acquis. They also strengthen the national waste management system in the field of hazardous waste, by

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IPA 2009 – Technical assistance for hazardous waste facility (€3.0m);IPA 2008 & 2010 – Municipal infrastructure support programmes (€96.52m)

implementing legislation and strategic documents and enhancing the capacity and awareness of all stakeholders, improve infectious healthcare waste management & provide TA for the analysis, planning and preparation for the future construction of a national Hazardous Waste Management facility in Serbia. They also improve capacities for good governance and municipal management at the local level and helps to establish environmental infrastructure.

Measure 2.2 – Drinking and waste water management

IPA 2007 – Sewerage & wastewater strategic master plan for the West Morava River Basin (€3.0m);IPA 2008 & 2010 – Municipal infrastructure support programme (€96.52m);IPA 2011 - Construction of wastewater treatment facilities at TPP Nikola Tesla B and TPP Kostolac B (€22.5m).

These interventions improve the water quality in the West Morava River Basin, strengthen capacities for good governance and municipal management at the local level and help to establish environmental infrastructure.


IPA 2007 – Strengthening administrative capacities for implementation of the air quality management system (€1.0m);IPA 2007 – Air quality pollution prevention and clean-up (€12.0m);IPA 2008 – Environmental protection at Electric Power of Serbia (€17.0m)

These activities strengthen capacity of the competent bodies at central level, as well as regional/local authorities, to implement and enforce air quality environmental legislation, and help to fulfil Directive 2001/80/EC for large combustion plants, by modernising specified Thermal Power Plants, and EU Directive 96/59/EC by decontaminating facilities and replacing equipment using PBD – pyralene oils.


CARDS 2006 - Support to enterprise policy and innovation (EPI)IPA 2007 – Support to private sector competitiveness and export promotion (€3.5m);IPA 2008 – Improved SME competitiveness and innovation (€3.0m)

The activities under these projects developed the capacities of national stakeholders to provide support for SMEs, the quality, range and availability of business support, and the business environment that will foster development of innovative and export-oriented SMEs.


IPA 2010 – Integrated innovation support programme (€3.0m);IPA 2010 – Higher education teaching infrastructure programme (€25.0m)IPA 2011 - Support to implementation of the Scientific and Technological Development Strategy (€8.4m);

The projects contribute to strengthening the R&D sector in Serbia through investment in higher education infrastructure and human capacities, as well as institutional capacity for efficient support to product and process innovation and technology transfer within SMEs. They also support greater linkages between public research and development and business sector.


IPA 2007 – Support to implementation of national strategy for tourism (€1.0m);IPA 2007 – Regional socio-economic development programme (€24.0m);IPA 2007 – Municipal support programme (€22.0m);IPA 2008 & 2010 – Municipal infrastructure support programmes (€96.52m);

These interventions strengthen the municipal and regional capacities in planning and project preparation and provided municipal infrastructure, as a basis for quality living conditions, , to enable grounds for business development and further contribution to sustainable

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IPA 2011 - Support socio-economic development of the Danube Serbia Region (€21.0m);IPA 2011 - Municipal investment programme (€20.0m)

development. The project related to implementation of national strategy for tourism aims to support the policy framework ensuring the link between tourism potential and economic development.

Serbia also receives support under multi-beneficiary IPA, which is accessible by all the Candidate Countries and Potential Candidate Countries in the Western Balkans and Turkey. In the context of the OP-ED, the main instrument has been the Infrastructure Project Facility (IPF), which has a budget for technical assistance of €15.122 million for IPA 2010 alone. This project is designed to support the preparation and implementation of investment projects that may be financed by grants and/or loans from the beneficiary countries, IPA, the IFIs and/or other sponsors and donors, with the aim of increasing the number and quality of investment proposals for infrastructure remediation and improvement in the context of national and regional investment plans, and enhancing donor coordination and financial cooperation and promoting the exchange of skills and knowledge (see table 36).

Table 36: Projects supported by Infrastructure Project Facility in SerbiaPriority axis Relevant IPF projects ValuePA1 – Transport Railway reconstruction NIš – FYROM border (Corridor X) – Pre-

Feasibility Study, Feasibility Study & Preliminary Design €0.25m

PA2 - Environment Rehabiltation of water supply, wastewater collection & treatment networks of the Cities of Novi Sad and Niš

€1.0m

Feasibility study for collection, transport and treatment of waste waters in municipality of Vranje

€0.25m

Feasibility study for collection, transport and treatment of waste waters in municipality of Užice

€0.25m

PA3 - Competitiveness Building the knowledge economy – R&D infrastructure initiatives €0.7m

For Western Balkans, projects will be financed under the Western Balkan Investment Framework (WBIF), which was launched in December 2009 (see section 3.4.3).

Serbia will also benefit under IPA 2010 from:

‘Implementation and follow-up of the Small Business Act (SBA), worth €0.34 million, which aims to support the Western Balkans and Turkey in implementing the SBA, especially by improving the overall policy approach to entrepreneurship, by irreversibly anchoring the “Think Small First” principle in policymaking from regulation to public service, and by promoting SMEs’ growth;

The ‘Western Balkans Regional Strategy on Research and Development for Innovation’, worth €1.5 million, which is designed to define a regional strategy to further improve the region’s potential and capacity for research and development, stimulating innovation.

Two projects under Erasmus Mundus, with a combined value of €20 million, providing scholarships to enable highly qualified graduates from the Western Balkans and Turkey to engage in postgraduate study at European universities and to obtain qualifications and/or experience in the European Union and EFTA-EEA States (€8 million) and enabling the exchange of academic staff and students at all levels between Western Balkans and EU member state institutions, thereby enhancing their knowledge and skills (€12 million).

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Concerning IPA component II (cross-border cooperation), Serbia participates in cross-border programmes (CBPs) with its six neighbouring countries and in two trans-national programmes (TNPs). In each case, operational programmes already have been prepared and the following areas of support identified (table 37).

Table 37: Coverage of IPA component II programmesProgramme Scope of interventionsAdriatic TNP Economic, social and institutional cooperation, natural and cultural resources

and risk prevention and accessibility and networksBosnia and Hercegovina CBP Social and economic cohesion through actions to improve physical, business,

social and institutional infrastructure and capacityBulgaria CBP Development of small-scale infrastructure and enhancing capacity for joint

planning, problem solving and developmentCroatia CBP Sustainable socio-economic developmentHungary CBP Infrastructure and environment and economy, education and cultureMontenegro CBP Socio-economic cohesion through joint actions to improve physical, business,

social and institutional infrastructure and capacityRomania CBP Economic and social development, environment and emergency preparedness

and promoting “people to people” exchangesSouth-East Europe TNP Facilitation of innovation and entrepreneurship, protection and improvement

of the environment, improvement of the accessibility and development of trans-national synergies for sustainable growth areas.

Experiences and lessons learned from CBC programmes have been taken into account during drafting of the OP. The key task concerning future coordination will be implementation of specific grant schemes.

In each case, the priorities of the programme are realised through projects on each side of the border. In the implementation of OP-ED measures, the Operating Structure will coordinate with the relevant CBPs and TNPs, to ensure that the scope of intervention is well-targeted (for example, in the designing of calls for proposals) and that no applicant receives funding through more than one programme for the same project.

The relationship with IPA component IV (human resources development) has been firmly established through the Strategic Coherence Framework, as the overarching reference document for both the OPs. The SCF notes the importance of the interaction of the supply and demand sides of the economy in creating jobs and strengthening Serbia’s productivity and competitiveness. Improving transport infrastructure rejuvenates the economy, increases the efficiency of trade, reduces costs and eases access to employment in growth centres, by reducing travel times and improving safety performance. Spending on environmental infrastructure creates uplift in living standards, especially in poorly served and remote communities, and improves the outlook for attracting investment and job generation, reducing unsustainable demands on natural resources and boosting tourism potential. Encouraging enterprise, enabling investment and innovation, and spending on education and skills are all proven generators of higher productivity in the economy. At the same time, boosting activity and employment rates leads to GDP growth, as the economy moves towards full employment and makes greater use of its most important asset, its people. Promoting a more inclusive labour market and wider society spreads the gains from wealth generation to all communities and sections of the population, and should particularly benefit those who are presently most disengaged and disadvantaged.

The cross-over between the two OPs is inevitably constrained by the scale of resources available under IPA III and IV, relative to the scale of need. However, wherever possible and appropriate, the

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resources of the OPs will be concentrated spatially to exploit synergies to maximum effect, particularly on under-developed municipalities. For example:

Investments in environmental (waste and water) infrastructure and business-related infrastructure under OP-ED will target poorer localities, which will also be the focus of measures under OP-HRD for employment, education & VET, and social inclusion;

Support to SME development under OP-ED will include consultancy advice to businesses on human resources, which dovetails with the support to businesses in employing and training young people and adults who are unemployed and inactive under OP-HRD.

Concerning IPA component V (rural development), the preparation of the Rural Development Programme (IPARD), in line with article 184 of the IPA Implementing Regulation, is taking place in parallel with drafting of the OP-ED. There is very limited scope for overlap, given the IPARD is focused on production in the dairy, meat, fruits and vegetable sectors, but any sectors funded under this OP will be excluded from IPARD and vice versa. The actions envisaged under OP-ED will include support to technology transfer solutions in food processing, as a strategic sector with a competitive advantage for Serbia, under measure 3.2.

3.4.3 Coherence with bilateral and IFI assistance

IPA assistance has been complemented by a substantial portfolio of IFI financial support and bilateral aid, which is set out in Annex Y.

As noted in section 3.4.2, the Western Balkans Investment Framework was established in 2009 to finance priority projects in the Albania, Bosnia and Herzegovina, Croatia, the Former Yugoslav Republic of Macedonia, Kosovo (under UNSCR 1244/99), Montenegro and Serbia, by pooling and coordinating different sources of finance, and leveraging loans with grants; the WBIF consists of a joint grant facility and a joint lending facility. The partners in this enterprise are the European Commission, the European Investment Bank, the European Bank for Reconstruction and Development and the Council of Europe Development Bank, with the endorsement of EU Member States. An initial focus on infrastructure sectors, including social infrastructure, will be expanded to include support to small and medium-sized enterprises (SMEs), energy efficiency and other investment sectors. A first meeting of the WBIF steering committee decided to allocate €26 million of grants for technical assistance support to 26 projects across the region in various sectors. The projects are expected to attract €2.2 billion of loans from IFIs.

Financial construction for investment in road infrastructure development and traffic safety will be completed with support from the EIB, EBRD and the World Bank, through a series of loan packages; the total costs has been estimated to be €1.6 billion. Substantial support has also been ensured for rehabilitation and modernisation of railway lines and improvement of the service (€100 million loan from EBRD, and a ‘Loan for the Railway Reconstruction II’ of €80 million from EIB). Bilateral donors which have supported transport are Canada, Italy, the Czech Republic, the Netherlands, Norway and Switzerland. The General Master Plan for Transport in Serbia adopted in 2010 provides priorities and a comprehensive list of investment projects for implementation in the period until 2027 and serves as a basis for planning and coordination of national and international financing.

The multilateral and bilateral donor community has been prominent in resourcing environment projects. Major multilateral donors in Serbia include EBRD, UNDP and the World Bank, while bilateral donors include Austria, Czech Republic, Germany, Italy, Japan, Netherlands, Slovakia, Sweden, Switzerland, Norway, United Kingdom and United States. These donors have been especially active

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in support to energy efficiency and renewable sources. Outside energy, UNDP has supported Serbia’s biodiversity, Sweden has aided chemicals risk management and implementation of the National Sustainable Development Strategy, while Spain is helping prepare the feasibility study, environmental impact assessment, conceptual design, and staff training for the construction of the Kolubara District Regional Landfill, and UNDP has helped with remediation of Grand Bačka Channel, to finalise communal and industrial wastewater collection for the municipalities of Vrbas and Kula.

Promotion of national growth by increasing the competitiveness of Serbian SMEs, supporting firms to attain international standards and certification, supporting sales and marketing (trade shows and market research), creating industry groups and associations, stimulating business clusters, establishing cooperative network of public and private actors, encouraging e-government through website standardisation and regional and municipal development have been supported by Austria, Denmark, EBRD, Germany, Italy, Slovakia, Switzerland, United States, and the World Bank. Furthermore, the European Investment Bank has also agreed a €200 million loan for R&D infrastructure with the Serbian Government. Serbia also participates in two of the EU’s Community Programmes for 2007-2013: Competitiveness and Innovation Framework Programme (CIP) and the Seventh Framework Programme (FP7), which are supporting the development of research and innovation capacity, stimulating creativity and excellence, developing and strengthening the human potential of Serbian research and improving the competitiveness of Serbian economy.

The first municipal support programme was launched in 2001 with both EU and Swiss funding, while the United States has financed large countrywide programmes throughout this period, initially to support community-based development, and then municipal growth, legislative development and advocacy, organisational strengthening and mobilising public and private resources, on an ongoing basis. Like IPA, the concrete commitments of other donors over 2012-2013 also centre predominantly on South Serbia: the UNDP is supporting inclusive development and better access to public services across the area, the Danish Government is supporting economic development in Niš, the Austrian Government is concentrating its resources on sustainable development in Jablanica and Pčinja Districts, while the World Bank and EBRD has provided €31 million loans for Bor District, to revive Bor and Majdanpek municipalities through socio-economic and employment development, managing environmental problems and cleaning inherited polluted sites. The EIB is putting emphasis on investment in infrastructure with its €200 million loan that will boost Serbia’s R&D and technology transfer capacities. By contrast, Germany is promoting municipal development and services in the Danube region, including the development of tourism and entrepreneurship, and the Swiss Government is seeking more widely to improve the organisational effectiveness and efficiency of municipalities, improve planning capabilities and delivery of social services, in particular related to migration problems in the south-west Serbia.

Donor coordination groups have been established for specific topic, each led by nominated agencies, namely: environment (Sweden), energy (Germany’s KfW), private sector development and financial markets (Germany’s GTZ and the World Bank), regional development (Austria) and local development (Serbia’s Standing Conference of Towns and Municipalities).

Table 38 explains how the measures proposed under this OP will take forward previous bilateral and IFI assistance, based on the principle of continuity.

Table 38: Relationship between OP-ED measures and donor assistanceProposed OP measure Past and ongoing donor projects CommentMeasure 1.1 - Modernisation of railway lines within the Pan-European Corridor X

Switzerland - Enhancing railway traffic within the ZTP Belgrade (€1.24m);Norway - IMOD-X intermodal solutions for competitive transport in the Republic of

All activities implemented support transport sector further development, including infrastructure rehabilitation and

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Serbia (€0.37m);Netherlands –capacity-building in the Intermodal transport (€0.13m)The Czech Republic – supply of equipment for switch mechanism on the track and for the railway level crossings and loan provided for modernisation of railway line Niš-Dimitrovgrad (€120m)IPF/Western Balkans Investment Framework – feasibility study for railway line Niš-Presevo (€1m), and support to the PIU at the PE Serbian Railways

modernisation to reach necessary capacity, interoperability and quality of services


- -

Measure 2.1 - Waste management and remediation of contaminated sites

Spain - Preparation of a feasibility study, environmental impact assessment, conceptual design, and staff training for the construction of the Kolubara district regional landfill (€0.20m);Norway - Assistance in developing infrastructure environmental project: hazardous waste treatment facility (€0.33m);UNDP - Remediation of Grand Bačka canal ($2.12m)Sweden – Environmental infrastructure support programme (€164,167)

Kolubara regional landfill will be one of the first modern sanitary landfills in Serbia, meeting strict EU environmental acquis requirements. Grand Bačka canal has been characterised as one of the most contaminated site in the whole Europe. Serbia has to tackle with their past pollution and develop remediation plans for its environmental hot spots.

Measure 2.2 - Drinking and waste water management

- -


Switzerland - Modernisation of the monitoring and control system of Nikola Tesla Thermal Power Plant B (28.6m Swiss Francs)

Emissions from the coal-powered large combustion plants are the major air pollution source in Serbia. Serbian LCPs need serious upgrading, in order to meet EU environmental acquis


United States – Compete programme ($14.7m)UNDP - Development of website standardisation rules for e-Government ($0.025m)

Good practices implemented to enable SMEs to answer the market pressures will be accompanied by additional activities that will cut their running costs, increase the quantity and the quality of their production and strengthen their abilities to function according to the rules of the open market.


EIB - Improving R&D infrastructure in Serbia (€200m)

Access to R&D infrastructure will be the basis for Serbian higher education community to have more competitive research results and offer their expertise to the business sector: The approach will be further supported through the measure by creating preconditions for applying basic research in the private sector and creating long term cooperation between relevant sectors.


United States – Municipal economic growth activity (€26.5m);Denmark – Local economic development in the Balkans region ($10.0m);

Investments in communal and municipal infrastructure and in the capacities of local stakeholders to deliver services to

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Austria - Support to the sustainable regional development of Jablanica and Pčinja Districts (€1.95m)EBRD & World Bank – Regional development of Bor district (€24.3m + $6.6m)

their citizens have been promoting sustainable development in Serbia. The measure will use those investments as an engine for economic development by focusing on the business community and their needs for appropriate business infrastructure to drive the local economy.

3.5 Indicative list of major projects

The following tables set out the proposed major projects, which the Operating Structure intends to put forward to the European Commission for IPA funding under priority axes 1 and 2.

3.5.1 Measure 1.1 – Modernisation of railway lines within the Pan-European Transport Corridor X

Project name & location Estimated value Funding sources Implementation period1.1.1 Modernisation of the railway

line Stara Pazova - Novi Sad - Subotica

€47 million* IPA III and EIB loan to PE Serbian Railways

2013-2016

*To be confirmed by a feasibility study

Aim & intended results:

The aim of this operation is to increase the capacity and the quality of the railway line, as well as the safety, security and interoperability of the traffic, specifically to increase the train speed and eliminate the speed restrictions because of a low quality of the line within the Pan-European Corridor X.

As funds allocated for IPA assistance are limited, one technology segment of this railway line is considered for IPA intervention. This will be selected based on the conclusions of the feasibility study 171, hence, at this stage the investment value is an estimate only. The rest of this railway line will also go for modernisation with EIB financial support. Negotiations of the relevant loan for the benefit of the PE Serbian Railways are progressing.

The works expected for implementation include rehabilitation of existing single track and construction of second track/doubling with elements of the path for speeds up to 200 km/h, equipped with plants and devices for speed up to 160 km/h, including electrification, and installation of ERTMS – Level 1 structures. Technical parameters of modernised railway line should reach requirements introduced for TEN-T by the Decision No 1692/96/EC of the European Parliament and of the Council of 23 July 1996 on Community guidelines for the development of the trans-European transport network.

The passengers, transport operators and business customers will benefit from increasing the commercial speed that will result in reduction of travel time and operating costs, as well as from increased security, safety and future interoperability. Reduction of transport impact on the surrounding environment is also expected.

Status:

This operation has been approved as a priority project by the PE Serbian Railways and the Ministry of Infrastructure. The general design and preliminary EIA of this infrastructure project are already available for the whole line; these have been submitted to the Republic Agency for Spatial Planning for approval.

171 Currently under development

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Drafting of project documentation, including the feasibility study/CBA and EIA, is ongoing with the support of IPA 2008 ‘Project Preparation Facility’ (PPF3), starting from October 2010. This should be finalised in September 2011. PE Serbian Railways are contributing by undertaking the relevant land survey. The preliminary project design and the final project design development should be under the competency of Serbian Railways, with an expected deadline of February 2012. The final design will be contracted under the FIDIC Yellow Book.

Project name & location Estimated value Funding sources Implementation period1.1.2 Construction of intermodal

terminal in Belgrade*€20 million** IPA III and EIB loan to PE

Serbian Railways2013-2015

* Alternative project to 1.1.1**To be confirmed by a feasibility study


The aim of this operation is to increase the freight intermodal transport by establishing of intermodal railway terminal/logistic centre on the Pan-European Transport Corridor X; specifically in Belgrade. This is considered the base for further development of intermodal transport in the Republic of Serbia.

Intermodal transport in Serbia is in the initial stage of development. In comparison with EU countries it can be regarded as completely undeveloped because of inadequate and weakly developed suitable infrastructure, old mechanisation and equipment, in as well as bad transport organisation and missing network.

By completing the project, the freight intermodal railway terminal of a capacity of 80,000 TEU/year, with a long term targeted capacity of 320,000 TEU/year will be established and operational in Belgrade.

Project is composed from more components relevant to establishment of a modern logistic centre/railway freight terminal for intermodal transport in Belgrade, that include construction of rail accesses to the intermodal/logistic terminal construction of road accesses to the intermodal/logistic terminal construction of gantry crane path; construction of railway access to the gantry crane; construction of surface area for storage of ITU-s (Intermodal Transport Units); construction the parking places for road freight vehicles and purchase of necessary technical equipment for effective functioning of intermodal/ logistic centre.

The freight transport will benefit from new infrastructure provided for intermodal transport of a high capacity. This should also support increase of intermodal operations in Serbia.

Status:

This major project is being proposed as an alternative to the modernisation of the Stari Pazova – Novi Sad railway line under priority axis 1, measure 1.1, in case the latter does not proceed to approval. It has been approved by the PE Serbian Railways and the Ministry of Infrastructure.

Project documentation will be developed with support from IPA 2008 project titled: “Facilitating Intermodal Transport in Serbia” which kicked off in September 2010. The project will include the Pre- and Feasibility Study development, the CBA and EIA, the preliminary project design and tender documentation development; all expected to be completed by March 2012. The FIDIC Yellow Book is considered for project final design and works contracting. The specific site for establishing the intermodal terminal has been selected in Batajnica, Belgrade.

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3.5.2 Measure 1.2 - Improvement of navigation conditions within the Pan-European Transport Corridor VII

Project name & location Estimated value Funding sources Implementation period1.2.1 River training works and

dredging the riverbed on critical sections of the Danube River in Serbia

€10-12 million* IPA III and national co-financing

2013-2016

* To be confirmed by a feasibility study


The aim of this operation is to improve the navigation and safety conditions in Serbian part of the Danube River within the Pan-European Corridor VII, and to reach the parameters required by the Danube Commission for unrestricted navigation on the Danube.

The operation includes specific river training works and dredging undertaking in selected river sections that will eliminate existing bottlenecks, increase the capacity and safety of navigation of the Danube River waterway.

Status:

This operation has been approved as a priority project by the Ministry of Infrastructure and by the Directorate for Inland Waterways, which is the governmental agency responsible for inland waterway and the end recipient of IPA assistance. The selection of specific sections for IPA intervention and development of complete project documentation for expected works will be undertaken with IPA 2010 support, through the project “Preparation of documentation for river training and dredging works on selected locations along the Danube River“ which kicked off in May 2011. The critical sections will be selected after completion of the feasibility study, and hence the investment value is an estimate only at this stage. Documentation for investment is expected to be ready by December 2012 and project implementation to start from 2014. The End Recipient is competent for applying for the Location Permit and the Construction Permit.

3.5.3 Measure 2.1 - Upgrading and improvement of waste management

Project name & location Estimated value Funding sources Implementation period2.1.1. Construction of the Timok

District Regional Landfill –“Halovo”

€16.6 million* IPA III and national co-financing

2013-2016

2.1.2. Construction of Hazardous Waste Treatment Facility (HWTF)

€11.0 million IPA III and national co-financing

2013-2016

2.1.3. Construction of the Kolubara District Regional Landfill –“Kalenic”

€17.2 million* IPA III and national co-financing

2013-2016

2.1.4. Construction of the Subotica Regional Landfill

€21.8. million* IPA III and national co-financing

To be confirmed

* To be confirmed by a feasibility study

Aim & intended results: Development of waste management systems with a focus on the development of regional waste

management centres along with the facilities for separation and sorting, recycling and biological treatment of waste; thus improving access to, and delivery of environmental services and facilities in waste management. The major projects and technical assistance are considered for implementation of this measure.

The aim of the construction of the regional waste management centres is to improve waste management system in the relevant region.

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The construction of the treatment and final disposal facility for the hazardous waste is also foreseen. The aim of the construction of the hazardous waste treatment and final disposal facility which will improve hazardous waste management system in the Republic of Serbia

Status: Technical documentation for “Halovo” regional landfill will be provided by the End Recipient and the

“Project Preparation Facility” (PPF) projects under IPA component I. Technical documentation for the hazardous waste final treatment facility will be prepared in

accordance with national legislation under component I of IPA 2009. This project started in September 2010 and lasts until 2012.

Preparation of feasibility study, including CBA, for regional landfill “Kalenić”, financed by the Spanish Government. (July-December 2010). The revision of the FS with CBA will be prepared by the PPF2 team, in order to meet European Commission requirements and improve some technical solutions. Additional technical documentation will be funded by the municipality of Valjevo and Environmental Protection Fund and will be prepared by the Institute for Architecture and Urbanism of Serbia (IAUS).

The Preliminary Project Design for Subotica regional landfill is finished, the Feasibility Study is in process and the preparation of the EIA will be financed by the Environmental Protection Fund. PPF3 will ensure the FS meets European Commission requirements and will prepare tender documents for the first phase of the landfill.

3.5.4 Measure 2.2 - Drinking and waste water managementProject name & location Estimated value Funding sources Implementation period2.2.1. Construction of the Waste

Water Treatment Plant for the town of Loznica


2013-2015

Aim & intended results: The operations within this measure will allow the construction of new public wastewater collection

and treatment, systems and drinking water supply network facilities, the rehabilitation of run-down facilities and equipment, in order to meet EU regulations and standards. The major projects and technical assistance are considered for implementation of this measure.

The rehabilitation and construction of ms in order to protect receiving waters and move towards fulfilling the key requirements of the EU Urban Wastewater Directive, as well the Drinking Water Directive (98/83/EC) and appropriate Serbian Legislation requirements. The major projects and technical assistance are considered for implementation of this measure.

Aim of the construction of Loznica WWTP is to meet Urban Waste Water Directive (91/271/EEC) and appropriate Serbian Legislation requirements and serve population of 80 000 PE in the region.

Status: Project is nearing completion of the preparatory phase; project documentation is being prepared by

the End Recipient and the IPA 2007 ‘PPF2’ project team.

3.5.5 Measure 2.3 – Improvement of air quality through reduction in emissions from thermal power plants

Project name & location Estimated value Funding sources Implementation period2.3.1. Improvement of air quality

through reduction in dust emissions from thermal power plants Nikola Tesla A3 and Morava


2013-2014

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Aim & intended results: The aim of this measure is rehabilitation and construction of facilities at Thermal Power Plants (TPPs)

in order to reduce harmful emissions, such as SO2 (sulphur dioxide), NOx (nitrogen oxides) and particulates, thus helping to improve air quality and fill the key requirements of the EU Large Combustion Plants Directive. The major projects and technical assistance are considered for implementation of this measure.

New electrostatic precipitators procured and installed at TPPs that will significantly reduce atmospheric pollution in the region.

Status: Project is in preparation stage, with technical assistance from the IPA 2008 ‘PPF3’ team.

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4 FINANCIAL TABLES

2012 Total public eligible cost EU IPA CC National

PublicIPA co-financing

rate For information

(x+y) (x) (y) x/(x+y) IFIs*Priority axis 1: TRANSPORT €30,848,710 €26,221,404 €4,627,307 85%Measure 1.1: Modernisation of railway lines within the Pan-European Transport Corridor X €24,678,968 €20,977,123 €3,701,845 85%

Measure 1.2: Improvement of navigation conditions within the Pan-European Transport Corridor VII €6,169,742 €5,244,281 €925,461 85%

Priority axis 2: ENVIRONMENT €30,848,710 €26,221,404 €4,627,307 85%Measure 2.1: Upgrading and improvement of waste management €15,973,462 €13,577,443 €2,396,019 85%

Measure 2.2: Drinking and waste water management €8,770,288 €7,454,745 €1,315,543 85%Measure 2.3: Improvement in air quality through reduction in emissions from thermal power plants €6,104,960 €5,189,216 €915,744 85%

Priority axis 3: COMPETITIVENESS €26,174,663 €22,248,464 €3,926,199 85%Measure 3.1: Strengthening the development of SMEs €10,469,865 €8,899,385 €1,570,480 85%

Measure 3.2: Improvement of enterprise competitiveness through innovation and technology transfer

€7,852,399 €6,674,539 €1,177,860 85%

Measure 3.3: Support to local economic development and enhancing business infrastructure €7,852,399 €6,674,539 €1,177,860 85%

Priority axis 4: TECHNICAL ASSISTANCE €5,608,856 €4,767,528 €841,328 85%Measure 4.1: Programme management, information and publicity €2,804,428 €2,383,764 €420,664 85%

Measure 4.2: Preparation of studies, programmes and projects €2,804,428 €2,383,764 €420,664 85%

TOTAL 2012 €93,480,940 €79,458,799 €14,022,141 85%Please note: measure allocations are indicative* IFI loans are currently being explored, information on IFI contributions will be included in future drafts. In the meantime, please see Annex Y for current information on financing sources

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2013 Total public eligible cost EU IPA CC National



(x+y) (x) (y) x/(x+y) IFIsPriority axis 1: TRANSPORT €32,328,901 €27,479,566 €4,849,335 85%Measure 1.1: Modernisation of railway lines within the Pan-European Transport Corridor X €25,863,121 €21,983,653 €3,879,468 85%

Measure 1.2: Improvement of navigation conditions within the Pan-European Transport Corridor VII €6,465,780 €5,495,913 €969,867 85%


Measure 2.2: Drinking and waste water management €9,191,707 €7,812,441 €1,378,666 85%Measure 2.3: Improvement in air quality through reduction in emissions from thermal power plants €6,397,890 €5,438,206 €959,683 85%



€8,229,175 €6,994,799 €1,234,376 85%


Priority axis 4: TECHNICAL ASSISTANCE €5,877,982 €4,996,285 €881,697 85%Measure 4.1: Programme management, information and publicity €2,938,991 €2,498,142 €440,848 85%


TOTAL 2013 €97,966,367 €83,271,412 €14,644,955 85%Please note: measure allocations are indicative* IFI loans are currently being explored, information on IFI contributions will be included in future drafts. In the meantime, please see Annex Y for current information on financing sources

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2012-2013 Total public eligible cost EU IPA CC National



(x+y) (x) (y) x/(x+y) IFIsPriority axis 1: TRANSPORT €63,177,611 €53,700,970 €9,476,642 85%Measure 1.1: Modernisation of railway lines within the Pan-European Transport Corridor X €50,542,089 €42,960,776 €7,581,313 85%

Measure 1.2: Improvement of navigation conditions within the Pan-European Transport Corridor VII €12,635,522 €10,740,194 €1,895,328 85%


Measure 2.2: Drinking and waste water management €17,961,395 €15,267,186 €2,694,209 85%Measure 2.3: Improvement in air quality through reduction in emissions from thermal power plants €12,502,849 €10,627,422 €1,875,427 85%



€16,081,574 €13,699,338 €2,412,236 85%


Priority axis 4: TECHNICAL ASSISTANCE €11,486,838 €9,763,813 €1,723,825 85%Measure 4.1: Programme management, information and publicity €5,743,419 €4,881,906 €861,913 85%


TOTAL 2012-2013 €191,447,307 €162,730,211 €28,717,096 85%Please note: measure allocations are indicative* IFI loans are currently being explored, information on IFI contributions will be included in future drafts. In the meantime, please see Annex Y for current information on financing sources

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5 IMPLEMENTATION PROVISIONS

5.1 Management and control structures

This chapter describes the systems and arrangements in place, as they are known at the time of the preparation of the first draft OP and which have formed the basis of stages 0 and 1 of the preparation of the decentralised implementation system (DIS). As with the rest of the OP, the chapter will be subject to negotiations with the European Commission and the recommendations from the upcoming ex ante evaluation, and hence the bodies within the Operating Structure may be subject to change, not least as they are directly linked to the formulation of priority axes and measures in chapter 3. In addition, the precise allocation of responsibilities within the Operating Structure may be subject to adaptation, through DIS stage 2 and subsequent stages of assessment and accreditation, but the totality of responsibilities and functions of the Operating Structure will always remain entirely consistent with Article 28 and other relevant provisions of the IPA Implementing Regulation, as will be set out in the Financing Agreement, to which the OP will be annexed.

5.1.1 Bodies and authorities

Based on the IPA Implementing Regulation, the Government of Serbia has adopted the Law on Ratification of the Framework Agreement Between the Government of the Republic of Serbia and the Commission of the European Communities on the Rules for Co-operation Concerning EC-Financial Assistance to the Republic of Serbia in the Framework of the Implementation of the Assistance Under the Instrument for Pre-accession Assistance (IPA), which will designate specific bodies for IPA management and implementation roles.

Under the management and control provisions, the following bodies have been established and specific functions assigned through Government Conclusions:

National IPA Coordinator Strategic Coordinator for the regional development and the human resources development

components Competent Accrediting Officer National Authorising Officer National Fund Audit Authority Operating Structures

National IPA Coordinator (NIPAC)

The role of the National IPA Coordinator will be performed by: Deputy Prime Minister for European IntegrationThe Government of the Republic of Serbia, Nemanjina 11, Belgrade

The specific tasks of NIPAC in relation to the IPA programme include:

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a) to ensure partnership between the Commission and the beneficiary country, and a close link between the general accession process and the use of assistance under the IPA Regulation;

b) to bear overall responsibility for:

the coherence and co-ordination of the programmes provided under this Regulation;

the annual programming for the transition assistance and institution building component at national level;

the co-ordination of the participation of the beneficiary country in the relevant cross-border programmes, both with Member States and with other beneficiary countries, as well as in the transnational, interregional or sea basins programmes under other Community instruments. The national IPA co-ordinator may delegate the tasks relating to this co-ordination to a cross-border co-operation co-ordinator;

c) to draw up and, after examination by the IPA monitoring committee, submit the IPA annual and final reports on implementation as defined in Article 61(3) to the Commission with a copy to the national authorising officer.

The operational support in the fulfilment of the NIPAC role will be provided by the NIPAC Technical Secretariat - the Department for Programming and Management of EU funds and Development Assistance, under the Ministry of Finance.

Strategic Coordinator (SCO)

The role of the Strategic Coordinator for IPA Components III & IV will be assumed by:

Deputy DirectorEuropean Integration Office

As set out in Article 23 of the IPA Implementing Regulation and the Serbian Government’s Decision, number: 119-214/009-5 from 13th February 2009 and Government’s Conclusion 05 Number 119-6858/2010 from 30th September 2010, the Strategic Coordinator coordinates assistance in the regional development and human resources development sphere, drafts the Strategic Coherence Framework and ensures coordination between sectoral strategies and programmes.

Competent Accrediting Officer (CAO)

The role of Competent Accrediting Officer (CAO) will be performed by:

Minister of FinanceMinistry of Finance, Kneza Miloša 20, Belgrade

As set out in Article 24 of the IPA Implementing Regulation and the Serbian Government’s Decision, number: 119-3192/2008, dated 21st August 2008, the CAO is responsible for issuing, monitoring and suspending or withdrawing the accreditation of the National Authorising Officer and the National Fund.

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National Authorising Officer (NAO)

The role of the National Authorising Officer (NAO) will be performed by:

State SecretaryMinistry of Finance, Kneza Miloša 20, Belgrade

The NAO is the head of the National Fund and has overall responsibility for the financial management of the EU funds in Serbia, as defined under Articles 25 and 27 of the IPA Implementing Regulation and the Serbian Government’s Decision, number: 119-416/2009 dated 29th January 2009. The NAO is responsible for the following specific tasks:

1. As the head of the national fund, he shall bear overall responsibility for the financial management of EU funds in the beneficiary country. He shall be responsible for the legality and regularity of the underlying transactions. For these purposes, he shall in particular fulfil the following tasks:

a) provide assurance about the regularity and legality of underlying transactions;

b) draw up and submit to the Commission certified statements of expenditure and payment applications; the national authorising officer shall bear overall responsibility for the accuracy of the payment application and for the transfer of funds to the Operating Structures and/or final beneficiaries;

c) verify the existence and correctness of the co-financing elements;

d) ensure the identification and immediate communication of any irregularity;

e) make the financial adjustments required in connection with irregularities detected, according to the provisions of Article 50 of the IPA Implementing Regulation;

f) be the contact point for financial information sent between the Commission and the beneficiary country.

2. He shall be responsible for the effective functioning of management and control systems under the IPA Regulation. For these purposes, he shall in particular fulfil the following tasks:

a) be responsible for issuing, monitoring and suspending or withdrawing the accreditation of the Operating Structures;

b) ensure the existence and effective functioning of systems of management of assistance under the IPA Regulation;

c) ensure that the system of internal control concerning the management of funds is effective and efficient;

d) report on the management and control systems;

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e) ensure that a proper reporting and information system is functioning;

f) follow-up the findings of audit reports from the audit authority, in accordance with Article 30(1) of the IPA Implementing Regulation;

g) immediately notify the Commission, with a copy of the notification to the competent accrediting officer, of any significant change concerning the management and control systems.

3. Pursuant to the responsibilities laid down in 1 and 2 above, the National Authorising Officer shall draw up an annual statement of expenditure to be presented to the Commission by 28 February each year, with the copy forwarded to the competent accrediting officer. The statement of assurance shall be based on the NAO’s actual supervision of the management and control systems throughout the financial year.

4. Following receipt of the reports and opinions from the Audit Authority, the National Authorising Officer shall:

a) decide whether any improvements to the management and control systems are required, record the decisions in that respect and ensure the timely implementation of those improvements;

b) make the necessary adjustments to the payment applications to the Commission. National Fund (NF)

The National Fund will operate in the Ministry of Finance and will act as a central treasury entity through which the EU funds are channelled. It will be in charge of the financial management of assistance under IPA, as per Article 26 of the Implementing Regulation and the Serbian Government’s Decision, number: 110-1740/2008-2 from 5th February 2009.

It shall in particular be in charge of organising the bank accounts, requesting funds from the Commission, authorising the transfer of funds received from the Commission to the Operating Structures or to the final beneficiaries, and the financial reporting to the Commission.

Audit Authority (AA)

The Audit Authority is currently in the process of being established. The Audit Authority will be functionally independent of all other parts of the management and control system and responsible for the following tasks:

a) during the course of each year, establish and fulfil an annual audit work plan which encompasses audits aimed at verifying:

the effective functioning of the management and control systems;

the reliability of accounting information provided to the Commission.

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b) submit the following documents as required and described by the Article 29 of the IPA Implementing Regulation:

an annual audit activity report following the model to be found in the framework agreement;

an annual opinion as to whether the management and control systems functions effectively and conforms to the requirements of this Regulation and/or any other agreements between the Commission and the beneficiary country;

an opinion on any final statement of expenditure submitted to the Commission by the national authorising officer, for the closure of any programme or of any part thereof.

With regard to the methodology for the audit work, reports and audit opinions required by this Article, the audit authority shall comply with international standards on auditing, in particular as regards the areas of risk assessment, audit materiality and sampling. That methodology will take into account any further guidance and definitions from the Commission, notably in relation to an appropriate general approach to sampling, confidence levels and materiality.

Operating Structure (OS)

Functions

The Operational Programme for Economic Development (OP-ED) will be managed by the Operating Structure, which in compliance with Article 28 of the IPA Implementing Regulation will be responsible for the following functions:

a) drafting the annual or multi-annual programmes;

b) programme monitoring and guiding the work of the sectoral monitoring committee as defined in Article 59, notably by providing the documents necessary for monitoring the quality of implementation of the programmes;

c) drawing up the sectoral annual and final implementation reports defined in Article 61(1) and, after their examination by the sectoral monitoring committee, submitting them to the Commission, to the national IPA co-ordinator and to the national authorising officer;

d) ensuring that operations are selected for funding and approved in accordance with the criteria and mechanisms applicable to the programmes, and that they comply with the relevant EU and national rules;

e) setting up procedures to ensure the retention of all documents required to ensure an adequate audit trail, in accordance with Article 20;

f) arranging for tendering procedures, grant award procedures, the ensuing contracting, and making payments to, and recovery from, the final beneficiary;

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g) ensuring that all bodies involved in the implementation of operations maintain a separate accounting system or a separate accounting codification;

h) ensuring that the national fund and the national authorising officer receive all necessary information on the procedures and verifications carried out in relation to expenditure;

i) setting up, maintaining and updating the reporting and information system;

j) carrying out verifications to ensure that the expenditure declared has actually been incurred in accordance with applicable rules, the products or services have been delivered in accordance with the approval decision, and the payment requests by the final beneficiary are correct. These verifications shall cover administrative, financial, technical and physical aspects of operations, as appropriate;

k) ensuring internal audit of its different constituting bodies;

l) ensuring irregularity reporting;

m) ensuring compliance with the information and publicity requirements.

Composition

The Operating Structure will be composed of the following bodies:

Ministry of Finance’s “CFCU”; Ministry of Infrastructure and Energy; Ministry of Environment, Mining and Spatial Planning; Ministry of Agriculture, Trade, Forestry and Water Management; Ministry of Economy and Regional Development; and Ministry of Education and Science.

The organisation of the Operating Structure is represented by the following diagram, which shows responsibilities for OP, Priority Axes, Measures, and Contracting & Implementation. Each body also contains an internal audit unit which will be responsible for regular independent reviews of the functioning of the IPA IV management and control systems within the Ministry, in accordance with Article 28(2)(k) of the IPA Implementing Regulation, and Accreditation Criteria (4)(a).

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The heads of the bodies constituting the Operating Structure are responsible for the tasks assigned to their respective bodies, in accordance with Article 28 (3) of the IPA Implementing Regulation. The Assistant Minister in the Ministry of Finance will act as the Head of Operating Structure (HOS). In accordance with Article 11(3) of the IPA Implementing Regulation and Article 27 of the Financing Agreement, the Government of Serbia will ensure that the HOS and the other heads of responsible bodies listed in Table 40 are enabled to exercise their duties, including in cases where there is no hierarchical link between them and the bodies participating in that activity, through the preparation, implementation and enforcement of an Operating Agreement. The Agreement shall clearly identify the functions to be delegated by the Head of the Operating Structure to each body and authority, and shall respect the principle of segregation of duties. The final responsibility for the tasks delegated shall remain with the Head of the Operating Structure.

Description of functions

The Ministry of Finance’s CFCU, as the Body Responsible for the OP, will support the Head of Operating Structure (HOS) by executing the following functions:

Coordinating the preparation of the OP, including taking into account the findings and recommendations of the ex ante evaluation172;

Establishing and maintaining the management and control system for the OP;

172 See also sections 1.4 and 5.2.6

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Ensuring information on and publicity for the OP173,;

Establishing and organising the Sectoral Monitoring Committee (SMC) meetings for the OP174;

Proposing the general criteria for selecting operations to the SMC, and ensuring that all operations are properly prepared and selected in accordance with the Financing Agreement,175;

Following the approval of each operation by the European Commission, preparing an End Recipient Agreement (ERA) for signature by the HOS and the designated representative of the End Recipient, and monitoring and managing the End Recipient Agreement,;

Ensuring that the national contribution for the OP is secured each year,;

Ensuring all reporting and information requirements of the European Commission, NIPAC, Strategic Coordinator, NAO and National Fund are met,176;

Preparing annual & final Implementation Reports on the OP177;

Contributing to the preparation of annual & final Implementation Reports on IPA as a whole, if required by the NIPAC Technical Secretariat;

Advising the HOS as a member of the annual IPA Monitoring CommitteeError: Reference sourcenot found on upcoming issues and papers;

Ensuring the interim evaluation of the OP by independent evaluators, using funds under priority axis 4;

Ensuring the OP achieves its objectives, its financial targets (to avoid budgetary de-commitment) its outcome targets (outputs and results), and the application of horizontal issues 178, and proposing to the HOS any adjustments necessary to ensure these objectives and targets are met, including reallocation of funds across measures and priority axes and/or changes to implementation arrangements, as applicable.

Each Body Responsible for Priority Axis179 will execute the following functions in relation to its OP priority axis:

Contributing to the preparation of the OP;

173 See also section 5.3174 See also section 5.2.1175 See also section 5.2.4176 See also section 5.2.3177 See also sections 5.2.5 and 5.3.6178 See section 3.3179 Ministry of Infrastructure and Energy (PA1), Ministry of Environment, Mining and Spatial Planning (PA2), Ministry of Economy and Regional Development (PA3), and Ministry of Finance (PA4)

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Implementing any tasks relating to information and publicity in relation to its priority axis, as required by the HOSError: Reference source not found;

Contributing to the preparation of general selection criteria by the Body Responsible for OP, and participating in selection committees, as required by the HOSError: Reference source not found;

Participating in the SMCError: Reference source not found and coordinating inputs to the annual and final Implementation Reports for the OPError: Reference source not found and for the whole of IPA, as required by the HOS;

Monitoring performance of its priority axis, in terms of achievement of its objectives, its financial targets (to avoid budgetary de-commitment), its outcome targets (outputs and results)Error: Reference source not found and the application of horizontal issuesError:Reference source not found, and if necessary, proposing OP adjustments to the HOS.

Each Body Responsible for Measure180 will execute the following functions in relation to its OP measure:

Contributing to the preparation of the OP;

Implementing any tasks relating to information and publicity in relation to its measure, as required by the HOSError: Reference source not found;

Ensuring projects are prepared for the measure in accordance with the Operation Identification Sheet (OIS) or Major Project Application (MPA),Error: Reference source not found;

Contributing to the preparation of general selection criteria by the Body Responsible for OP, and participating in selection committees, as required by the HOS;

Ensuring that the national contribution for the approved operations under its measure is secured each year;

Contributing to the preparation of tender documentation and other activities related to procurement and calls for proposals, for submission to the CFCU as the Body Responsible for Contracting and Implementation;

Participating in the SMCError: Reference source not found and providing inputs to the annual and final Implementation ReportsError: Reference source not found for the OP, and for the whole of IPA, as required by the HOS;

Monitoring performance of its measure, in terms of achievement of its objectives, its financial targets (to avoid budgetary de-commitment), its outcomes targets (outputs and results) and the application of horizontal issuesError: Reference source not found, and if necessary, proposing OP adjustments level to the HOS;

Preparing documents for submission to the SMC on the quality of OP implementation.180 Ministry of Infrastructure and Energy (M1.1, M1.2 and M2.4), Ministry of Environment, Mining and Spatial Planning (M2.1), Ministry of Agriculture, Trade, Forestry and Water Management (M2.2 and M2.3), Ministry of Economy and Regional Development (M3.1 and 3.3), Ministry of Education and Science (M3.2), and Ministry of Finance (M4.1 and M4.2)

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As the Body Responsible for Contracting and Implementation, the CFCU will execute the following functions as contracting authority for all OP priority axes and measures:

Implementing any tasks relating to information and publicity, as required, and ensuring operations respect the EU visibility guidelines for external actionError: Reference source notfound;

Follow any procedures from the NAO on establishing, maintaining and reconciling bank accounts for payments to contractors and beneficiaries under the OP;

Preparing procurement plans, tender dossiers (procurement) and application packs (grant schemes), based on the approval decision of the European Commission on major and non-major projects, in compliance with the Practical Guide to Contract Procedures for EC external actions;

Organising the tender process for procurement of services, supplies and/or works, from forecast, through procurement notice, receipt of tenders, evaluation, selection and publication, in compliance with the Practical Guide to Contract Procedures for EC external actions, seeking ex ante approvals from the EU Delegation as appropriate;

Organising calls for proposals under grant schemes, from forecast, through calls for proposal, receipt of applications, evaluation to selection and publication, in compliance with the Practical Guide to Contract Procedures for EC external actions (PRAG), seeking ex ante approvals from the EU Delegation as appropriate;

Publicising the selected contractors and grant beneficiaries, and sending award notices for contracts to the EC for publicationError: Reference source not found;

Preparing and signing contracts with service, supplies and works contractors and grant beneficiaries, including approving or rejecting contract adjustments, within the framework of any approved adjustments to the priority axis or measure;

Ensuring the smooth and timely flow of funds by: forecasting commitments and cash-flow; providing information to the NAO and National Fund for expenditure declarations to the EC, financial adjustments, corrections and re-use; requesting funds transfer from the National Fund; and recovering irregular expenditure, or unused / overpaid funding from contractors and beneficiaries;

Managing contracts and making payments, once checked and approved, to grant beneficiaries and contractors, including expenditure verifications, and project / contract monitoring; the verifications shall cover administrative, financial, technical and physical aspects of the operations;

Ensuring that the National Fund and NAO receive all necessary information on the procedures and verifications carried out in relation to expenditure;

Maintaining a separate accounting system or codification covering all contractual and other financial operations;

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Participating in the SMCError: Reference source not found and providing inputs to the annual and final Implementation Reports for the OPError: Reference source not found, and for the whole of IPA, as required by the HOS, and providing inputs to monitoring reports prepared by each Body Responsible for Measure if requested and appropriate.

The internal audit units of the Ministries within the Operating Structure will be responsible for conducting regular audits of the management and control system and reporting to senior management on its effectiveness and efficiency, with recommendations for corrective action. Each responsible body within the Operating Structure which is subject to internal audit will cooperate fully with the internal audit department and follow-up its findings. The information on the audit plans and their execution, the audit findings and the follow-up actions shall be made available to the HOS, the NAO and the authorised external audit or control bodies.

In addition, there are functions which apply to, and will be executed by, all bodies within the Operating Structure, as follows:

Ensuring clear planning of steps needed to deliver objectives, ensuring that the quantity and quality of resources (staff, equipment, premises and other facilities) necessary for the performance of tasks and responsibilities are secured in a timely fashion, ensuring assets and data are kept secure from interference and damage, and ensuring that significant risks to continuity are identified and contingency plans are put in place where possible;

Ensuring that all bodies and individuals have the full legal authority to fulfil their functions, and managing human resources, including identifying sensitive posts, ensuring segregation of duties181, performing workload analysis and training needs analysis, developing training plans, and providing training and performance appraisal;

Identifying and managing risk, and preventing, detecting, reporting and correcting irregularities, corruption and conflicts of interest; cooperating fully with the activities of the Ministry’s internal audit unit, and cooperating fully with all external audits and verifications;

Maintaining an adequate audit trail, establishing a filing and archiving system, ensuring all documents are retained in line with the Financing Agreement and PRAG, ensuring that significant risks to continuity (for example, concerning loss of data, absence of individuals etc) are identified and contingency plans put in place where possible, and ensuring that assets and data are kept secure from interference or physical damage;

Meeting the information and reporting requirements of the HOS, participating in regular coordination meetings of the Operating Structure, and organising coordination meetings at priority axis or measure level, as appropriate;

Carrying out verifications, active supervision and quality checks over the tasks delegated to the subordinates;

181 See also section 5.1.2

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Ensuring that the HOS, the National Fund and the National Authorising Officer receive all necessary information on the procedures and verifications carried out;

Ensuring exceptions and variations to normal practices are always recorded and logged and reviewed at appropriate levels, and ensuring that the registration of any internal control weakness identified from any source and that management responses are recorded and followed-up;

Providing confirmations and annual statements of assurance/management declarations to the HOS and NAO, based on the actual supervision of the management and control systems, including:

A confirmation of the effective functioning of the management and control system; A confirmation regarding the legality and regularity of underlying transactions; Information concerning any changes in systems and controls, and elements of

supporting accounting information;

Ensuring the implementation of the recommendations by internal audit, the Audit Authority and other authorised audit bodies.

Role of the EU Delegation

The EU Delegation will execute ex ante control in all the areas to be laid down in the Commission Decision on conferral of management powers, until the Commission allows for decentralised management without ex ante controls, as referred to in Article 18 of the IPA Implementing Regulation.

5.1.2 Separation of functions

In accordance with the Article 21.2 of the IPA Implementing Regulation and with Article 6, Paragraph 3 of the Law on Ratification of the Framework Agreement Between the Government of the Republic of Serbia and the Commission of the European Communities on the Rules for Co-operation Concerning EC-Financial Assistance to the Republic of Serbia in the Framework of the Implementation of the Assistance Under the Instrument for Pre-accession Assistance (IPA) [Official Gazette of RS NO. 4046/07], as well as the DIS “Implementing Agreements” and “Operating Agreements”, which are to be adopted by the Government of the Republic of Serbia, and the abovementioned Government decisions appointing functions and bodies, the appropriate segregation of duties will be ensured between and within the designated bodies.

Separation of functions between the bodies

The separation of functions results from a division of tasks as described above.

This includes the following principles:

there shall be a clear separation between verifications, controls, and evaluations to be carried out by the Operating Structures and by the National Fund;

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there shall be clear separation between the audits carried out by the Audit Authority and the implementation and payment procedures.

Separation of functions within the bodies

The organisational structure of the bodies and their internal management and control procedures will take into account an adequate separation of functions. This includes the following principles:

before an operation is authorised, the operational and financial aspects shall be verified by members of staff other than the one responsible for initiation or implementation of the operation;

certificates of statement of expenditure shall be drawn up by a person or department within the National Fund that is functionally independent from any services that approve claims;

the initiation, the ex ante, and the ex post controls are separate functions, to be carried out by different persons, functionally independent from each other.

Division of duties is such that no individual will have responsibility for more than one of the three functions of authorisation, execution and accounting of sums charged to IPA.

Please note, in executing its responsibilities for OP management, the CFCU will ensure that separate units are tasked with first, the functions assigned to the Body Responsible for the OP, priority axis 4 and measures 4.1 and 4.2, and second, its functions as the Body Responsible for Contracting and Implementation (Contracting Authority). This will ensure that there is a segregation of the CFCU’s duties in programming and monitoring on the one side, and tendering, contracting and payment on the other side. The principle of separation of functions will also apply, particularly in terms of the sensitive posts involved in executing CFCU’s responsibilities as Contracting Authority, and the need for double-checks of all steps in a transaction based on the ‘four-eyes’ principle. Where the CFCU is a beneficiary under the OP (priority axis 4), it should be noted that the section responsible for execution of the operations and the section responsible for their verification will be separate.

5.2 Monitoring and evaluation

5.2.1 Monitoring arrangements

Monitoring Committees

In order to ensure coherence and coordination in the implementation of the IPA components, programmes and operations, as well as to follow the progress in the implementation of IPA assistance, the following monitoring committees should be established:

IPA Monitoring Committee

Sectoral Monitoring Committees attached to components or programmes

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IPA Monitoring Committee

The Republic of Serbia has established an IPA Monitoring Committee to ensure coherence and coordination in the implementation of all five Components of IPA. The first meeting was held on 17 June 2009.

Sectoral Monitoring Committee

The Head of the Operating Structure for the Operational Programme for Economic Development will establish a Sectoral Monitoring Committee within 6 months after the entry into force of the Financing Agreement.

The Sectoral Monitoring Committee for the OP for Economic Development (SMC-ED) will be co-chaired by the Head of the Operating Structure for the Operational Programme for Economic Development and a representative of the Commission. Its member will include:

The National IPA Coordinator or his/her representative;

A representative of the Commission;

A representative of the Strategic Coordinator for Components III and IV;

Representatives of each body of the operating structure for the programme – Ministry of Infrastructure and Energy, Ministry of Environment, Mining and Spatial Planning, Ministry of Agriculture, Trade, Forestry and Water Management, Ministry of Economy and Regional Development and Ministry of Education and Science;

The Sectoral Monitoring Committee includes representatives from the civil society and socio-economic partners, regional or national organisations with an interest in and contribution to make to the effective implementation of the programme182.;

The National Authorising Officer;

A representative of the National Fund.

The composition of the Sectoral Monitoring Committee can be reviewed and extended by the Head of the Operating Structure in agreement with the Commission in order to guarantee sufficient representation and membership.

The Sectoral Monitoring Committee will be assisted by a permanent secretariat provided by the Operating Structure for the preparation of papers for discussion by the committee or for clearance by written procedure. This secretariat will be located within the CFCU, as the Body Responsible for the OP.

The SMC-ED will report to the IPA Monitoring Committee. Its tasks will include to:

182 A mechanism for cooperation with civil society organisations will be developed during the coming months and will be used also as the basis for identifying members of SMCs.

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(a) consider and approve the Communication Action Plan, and monitor its implementation;

(b) consider and approve the general criteria for selecting the operations and approve any revision of those criteria in accordance with programming needs;

(c) receive information on operations under the OP, which have been or will be submitted to the Commission for approval, and the decision of the Commission;

(d) review at each meeting progress towards achieving the specific targets of the Operational Programme on the basis of documents submitted by the Operating Structure;

(e) examine at each meeting the results of implementation, particularly the achievement of the targets set for each priority axis and measures and interim evaluations, carrying out this monitoring by reference to the indicators agreed;

(f) oversee the effectiveness and quality of the programme implementation, and monitor the financial absorption capacity of the different interventions;

(g) examine the sectoral annual and final reports on implementation, including OP summary tables;

(h) be informed of the annual audit activity report or of the part of the report referring to the operational programme;

(i) receive the final report from the interim evaluation and consider its findings and recommendations;

(j) examine any proposal to amend the financing agreement of the programme and propose to the operating structure any revision or examination of the programme likely to make possible the attainment of the programme's objectives or to improve its management, including its financial management, as well as to oversee the cross cutting themes and publicity measures.

The Sectoral Monitoring Committee shall confirm or make proposals to the Head of the Operating Structure, the Commission, the Strategic Coordinator and the National IPA Coordinator to revise the programme following where relevant an evaluation, including the results, output and financial indicators to be used to monitor the assistance.

The Sectoral Monitoring Committee will set up its rules of procedure in agreement with the Operating Structure and the IPA Monitoring Committee. It will meet at least twice a year and upon request by the Commission. Intermediate meetings may also be convened as required.

In order to better perform its role, the SMC may appoint working groups, particularly for monitoring activities of horizontal issues and seek opinions of independent experts.

As a principle, the Sectoral Monitoring Committee will aim to take decisions by reaching consensus.

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5.2.2 Management Information System

The Head of the Operating Structure is responsible for the efficiency and correctness of management and implementation and in particular for setting up, maintaining and updating regularly a reporting and information system to gather reliable financial and statistical information on implementation, for the monitoring indicators and for evaluation, and for forwarding this data in accordance with arrangements agreed between the NIPAC and the Commission.

This system will be developed into one or several computerised system(s), in a form chosen by the Operating Structure, which will enable it to:

monitor and manage the implementation of operations and projects, from the moment of tendering and call for proposal to the closure of the OP, in particular results whenever feasible and outputs;

carry out and monitor financial transactions; and

ensure the reporting requirements on the implementation of the OP.

The Operating Structure and all other bodies involved in the implementation of the OP shall if possible have access to this system. There are preliminary plans to develop the MIS. Until this system becomes operational, reporting and collection of date will be done manually.

5.2.3 Monitoring system and indicators

The quantitative and qualitative progress made in implementing the programme as well as its efficiency and effectiveness in relation to its objectives will be measured by the use of monitoring indicators related to the results and outputs of the individual measures.

In identifying appropriate monitoring indicators, account has been taken of the methodologies, guidelines and lists of examples of indicators issued by the Commission, in particular the "Indicative guidelines on evaluation methods: Monitoring and evaluation indicators" (August 2006, working document No. 2 for the programming period 2007-2013).

The Head of the Operating Structure is responsible for programme monitoring. In this context, the Operating Structure will collect performance data (outputs, results and expenditure) from operations and projects. It will establish, maintain and update the reporting and information system by taking this project-level data and aggregate it to measure, priority axis and whole OP levels. Data on individuals who are the ultimate beneficiaries must be collected for each project and used for aggregation at measure and priority level. On this basis the Operating Structure will assess the progress of the OP at each level against objectives and targets, prepare reports to the Sectoral Monitoring Committee, draft the sectoral annual and final reports on implementation and to launch interim evaluations if required.

In the context of monitoring and for the purpose of using indicators, the role of the Operating Structure will also be to ensure that:

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a) monitoring requirements are built into the calls for tender and proposals documents (application forms and guidelines for applicants);

b) project applications (when appraised and selected) include proposed outputs and results, as well as data on individuals, that are consistent with the OP indicators for the appropriate measure;

c) provision of data is built into the contract with beneficiaries as an obligation, and that performance data is provided systematically and in a timely manner by beneficiaries alongside the project reimbursement claim.

5.2.4 Selection of operations

All service, supply, works and grant contracts shall be awarded and implemented in accordance with the rules for external aid contained in the Financial Regulation and in accordance with the "Practical Guide to contract procedures for EC external actions" (Practical Guide) as published on the EuropeAid website at the date of the initiation of the procurement or grant award procedure. The standard templates and models provided for in the Practical Guide shall be used in order to facilitate the application of the applicable rules.

All operations which are not major projects and which are implemented by final beneficiaries other than national public bodies shall be selected through calls for proposals in accordance with Articles 49-51 of the Financing Agreement.

For operations which are identified and prepared in parallel with the programming of the OP, and do not require calls for proposals, the relevant OP Working Group183 will ensure that the documentation is fully and properly prepared before submission to the Commission for approval, and that it has been selected in accordance with Articles 50 and 51 of the Financing Agreement. It will review completed Major Project Applications (MPAs) in the case of major projects, and Operation Identification Sheets (OIS’) in the case of non-major projects, to check that the project documentation is both complete and accurate (to minimise rejection and re-work), and that the MPA or OIS is fully in line with eligible activities and expenditure, measure-level selection criteria, the financial limits of the priority axis, the implications of the ‘N+3’ rule relating to automatic de-commitment, and the results targets at measure level.

Procurement (including the award of major projects) and calls for proposals for grant schemes shall also follow the above mentioned contract award procedures. Tender selection committees184 will be established for the evaluation of service, works and supply tenders, and grant applications will also be assessed on a transparent and competitive basis, using the PRAG.

5.2.5 Sectoral annual and final reports on implementation

Sectoral annual and final reports on implementation will be prepared by the Operating Structure in accordance with article 169 of the IPA Implementing Regulation. These reports will assess the implementation progress covering the attainment of set objectives, the problems encountered in

183 See section 1.3184 In the terminology of the European Commission’s Practical Guide to Contract procedures for EU external actions (PRAG), these are known as “Evaluation Committees”

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managing the programme and the measures taken, the financial execution as well as monitoring and evaluation activities carried out. This will include specific progress reports on each major project, in accordance with the format to be agreed with the Commission. They will be discussed at the spring meeting of the Sectoral Monitoring Committee meeting of each year, in order to ensure the operating structure meets the deadline of 30 June for submission of the report to the Commission, the NIPAC and the NAO.

5.2.6 Evaluation arrangements

Evaluations are a tool for assessing the relevance, efficiency and effectiveness of the financial assistance, as well as the impact and sustainability of the expected results. An ex ante evaluation and one interim evaluation will be carried out under the responsibility of the Head of the Operating Structure, in accordance with the principles laid down in the IPA Implementing Regulation and guidance provided by the Commission.

The evaluation arrangements and activities of each programme will fully respect the principle of proportionality.

Types of evaluations

Ex ante evaluation

Under the responsibility of the Operating Structure, an ex ante evaluation of the OP for Economic Development will be carried out under a Framework Contract, which is (currently) being tendered by the EU Delegation under IPA component I, and will be annexed to the programme. A summary of the results of the ex ante evaluation, and the way the evaluation was conducted, will be set out in section 1.5.

Interim evaluation

During the implementation of the OP-ED, the interim evaluation will be carried out to complement the monitoring of the programme, and to provide data on any indicators agreed upon in the OP that cannot be obtained through the monitoring system. In addition, strategic evaluations or thematic evaluations can be carried out under the responsibility of the operating structure. The results will be sent to the ad hoc committee on evaluations, to the Sectoral Monitoring Committee and to the Commission.

Evaluation function

The Head of the Operating Structure is responsible for ensuring that adequate evaluations of the Operational Programme are carried out. The evaluations will be carried out by external experts or bodies, functionally independent from the management and control systems, due to the lack of necessary capacity within the Operating Structure.

In order to ensure that evaluation requirements from the IPA Implementing Regulation are followed, an officer will be designated with responsibility for preparations for the interim evaluation and acting as the lead beneficiary and counterpart for the external evaluators, once selected. In order to ensure the capacity of the evaluation officer, training related to evaluation principles and methods will be provided under priority axis 4.

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The evaluation officer’s objective will be to ensure the successful planning and implementation of the interim evaluation(s) of the OP-ED. He/she will also ensure that the findings and recommendations are communicated to the HOS, the Sectoral Monitoring Committee and other interested parties, and that the outputs become inputs for future programming cycles.

Evaluation activities and timing

It is intended that there will be only one interim evaluation during the 2011-2013 programming period, at the mid-point of the programme under the ‘N+3’ rule. The evaluation activities will be designed in accordance with Commission guidelines.

5.3 Information and publicity

5.3.1 Introduction

Information and publicity are important aspects of pre-accession assistance and in particular to the successful design and delivery of the operational programmes, given the partnership basis on which they are undertaken. Communicating for a successful management and implementation of the operational programmes can be broken down into a series of information and publicity activities.

Accordingly, article 62 of the IPA Implementing Regulation sets out certain requirements regarding the information to be provided and publicity of programmes and operations financed by the EU, addressed to citizens and beneficiaries with the aim of highlighting the role of EU funding and ensuring transparency.

The information to be provided by the operating structures should include inter alia the publication of the list of final beneficiaries, the names of the operations and the amount of EU funding allocated to operations. The Commission must also ensure the publication of the relevant information on tenders and contracts in the official Journal of the European Union and other relevant media and websites.

Article 63 of the IPA Implementing Regulation provides further that the Commission and the relevant authorities of the beneficiary country shall agree on a coherent set of activities, to be funded from the TA priority of the Operational Programme, to make available and publicise information about IPA assistance.

In accordance with the above provisions, the CFCU in the Ministry of Finance, as the Body Responsible for the OP, shall be responsible for the information and publicity activities under the programme, within the context of the EU communications strategy and the strategy for IPA as a whole, prepared by the NIPAC. The information shall be addressed to the citizens of Serbia and to European citizens in general, and to the (potential) beneficiaries. It shall aim to highlight the role of the EU and ensure that IPA assistance is transparent.

5.3.2 Partnership and networking

Bodies that can act as relays for the programme and disseminate the information concerning the general public are the following:

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Professional and trade associations and organisations;

Economic and social partners;

Non-governmental organisations;

Educational institutions;

Organisations representing business;

Operators;

Information centres on Europe and Commission representations in Serbia;

Other main stakeholders of each priority.

The Operating Structure will work in close cooperation with the above-mentioned bodies for the dissemination of information regarding the programme and IPA pre-accession assistance strategy.

5.3.3 Internet

The ISDACON website will host information on the operational programme (also for IPA component IV) and will be linked to the websites of DEU, and the Directorate-Generals for Regional Policy, Employment, Social Affairs and Inclusion, and Enlargement.

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