Study on issuing concession for regional integrated solid waste

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					Ministry of Environment and Physical
              Planning




 Study on issuing concession
 for regional integrated solid
  waste management in the
South-eastern planning region
in The Republic of Macedonia




            February 2009
CONTENT


1   INTRODUCTION ...................................................................................................................... 4
  1.1 Definitions ........................................................................................................................... 5
2 SUBJECT OF THE CONCESSION ....................................................................................... 10
  2.1 Rationale........................................................................................................................... 10
    2.1.1    Technical specifications for the South-East Region ................................................ 11
  2.2 Objectives of the concession project ................................................................................ 23
    2.2.1    Considerations about the responsibilities of the public and private partners
    regarding the achievement of the concession project’s goal/objectives ................................ 24
  2.3 Concession project scope ................................................................................................ 24
    2.3.1    Regional landfill (compulsory component) ............................................................... 25
    2.3.2    Waste collection and transportation (probable component) .................................... 27
    2.3.3    Unregulated landfills (probable component) ............................................................ 27
3 INSTITUTIONAL FORMS OF PUBLIC – PRIVATE PARTNERSHIP ................................... 28
  3.1      Basic assumptions about the partnership between the public and the private sectors 29
    3.1.1    Conceding authorities .............................................................................................. 29
    3.1.2    Contracting parties ................................................................................................... 30
    3.1.3    Models of partnership between the public and the private sector ........................... 32
    3.1.4    Possible role of the inter-municipal public company................................................ 37
    3.1.5    Establishment of an inter-municipal public company for regional integrated
    management of solid waste.................................................................................................... 38
4 JUSTIFICATION OF THE CONCESSION ............................................................................. 40
  4.1      Potential benefits .......................................................................................................... 40
  4.2      Potential risks ............................................................................................................... 40
  4.3      Possibilities for different ways of financing and managing the subject of the proposed
  concession ................................................................................................................................. 41
  4.4      Methodology for calculation of the landfilling fee ......................................................... 41
5. IMPLEMENTING THE COMPETITIVE DIALOGUE AND CONDITIONS FOR ISSUING A
CONCESSION............................................................................................................................... 49
  5.1.     Concession issuing procedure ..................................................................................... 49
    5.1.1    Types of procedures for issuing a concession ........................................................ 49
    5.1.2    Committee responsible for carrying out the procedure for issuing the concession . 54
    5.1.3    Decisions on procedure initiation ............................................................................. 55
  5.2 Basic requirements for issuing a concession or establishing a public-private partnership
        56
6. CALL FOR SUBMITTING APPLICATIONS FOR PARTICIPATION IN COMPETITIVE
DIALOGUE .................................................................................................................................... 58




                                                                                                                                              2
ABBREVIATION




CDM      Clean Development Mechanisms
EU       European Union
HDPE     High Density Poly-ethylene
LDPE     Low Density Poly-ethylene
MoEPP    Ministry of Environment and Physical Planning
PE       Public Enterprise
PP       Poly Propylene
PS       Poly Styrene
RM       Republic of Macedonia
SE       South-East Region
SWM      Solid Waste Management




                                                         3
1   INTRODUCTION


    The Government of the Republic of Macedonia adopted a Resolution at its session No.
    116 held on 20th October 2009 on issuing integrated waste management concessions in
    4 regions, as follows: Polog, South-western, South-eastern and Pelagonia regions. With
    a view to initiating and implementing the process in an efficient and transparent manner,
    the Ministry of Environment and Physical Planning commissioned the Regional
    Environmental Center, Country Office in Macedonia, to have the legal acts and technical
    documents prepared for the purpose of launching a Call for submitting applications
    for participation in a tender procedure by interested domestic and foreign entities.

    The type of tender procedure to be applied depends on the extent to which technical
    documentation has been prepared as well as the conceding authorities’ knowledge of
    the solutions in terms of the technical and institutional concepts which the goals of the
    concession project will be achieved through. The pre-feasibility study on municipal solid
    waste management for the South-eastern region includes only the landfilling technology
    as waste disposal option; in this regard, financing that involves a 75% share of grant
    money through the IPA is recommended as an optimal investment structure. Moreover, it
    considers neither the benefits nor the risks associated with a hypothetical involvement of
    the private sector in the area of municipal solid waste management, nor does it review
    the models of partnership with a private operator or elaborate the modes of
    intermunicipal cooperation as a precondition for the implementation of the regional
    concept which is aimed at optimizing the operating costs and maintaining the
    installations while applying economies of scale.

    In order to avoid additional consumption of resources for elaborating a sufficient number
    of alternatives which would then be evaluated by the municipalities and by the Ministry of
    Environment and Physical Planning as the holders of the responsibilities in the waste
    management area, and in order to give the possibility to experienced private operators to
    suggest the most favorable solution for the regional concept of integrated management
    of municipal solid waste, competitive dialogue has been indicated as the most
    appropriate method for carrying out the procedure for establishing an appropriate form of
    public-private partnership. More information on this type of procedure can be found in
    Chapter 5.

    The competitive dialogue procedure will be carried out in three phases. It will go through
    the phases of (i) launching the call for submitting applications for participation, pre-
    selection of candidates for the second phase of the competitive dialogie, (ii) candidate
    presentations, developing detailed tender documentation according to the selected most
    favorable alternative for the regional concept, all the way to the (iii) final selection of the
    most favorable bid, i.e. the signing of the Concession Agreement.

    Besides concession, other types of public-private partnership will be considered as well,
    with a view to integrating the existing public sector resources (municipalities and public
    utility companies) into the new regional integrated system of waste management.
    Information on the possible types of partnership with the private sector through the
    institutional models derived from the current legal framework in the Republic of
    Macedonia can be found in chapter 3.


                                                                                                 4
      Within this Study is elaborated: the subject, the competence, the procedure for
      issuing of a concession in SWM for the South-eastern planning region in the RM
      (description of all 3 phases), the possible institutional models and the general
      content of the Call for submitting of applications for participation in a tender procedure
      by which will be announced the intention for establishing of PPP in the area of solid
      waste management, in domestic and foreign public media. The following information is
      consisted within the Study, as well:

      -   data on the basic technical parameters of the subject of concession;
      -   data on the technical and legal aspects of the concession;
      -   financial aspects (the estimated value of the concession has been taken from the
          existing technical documentation, i.e. the Pre-feasibility study for the South-eastern
          region);
      -   the broader (economic) justification of the concession;
      -   no elaborate on the assessment of the environmental impact of the respective
          concession has been developed due to the extent to which the existing technical
          documentation has been developed (Pre-feasibility study); the environmental impact
          assessment procedure will be conducted following the signing of the Concession
          Agreement.

      Please find attached the texts of the Decision by the Councils of the municipalities
      and the Decision by the Government of the Republic of Macedonia, the adoption of
      which was followed by the initiation of the procedure for issuing the concession.

1.1   Definitions

      Waste management shall mean a business activity of public interest, which is
      conducted in conformity with the provisions of the Waste Management Law (Article 4 of
      the Waste Management Law, Official Gazette of the Republic of Macedonia No. 68/04,
      107/07, 102/08 and 134/08) and the regulations enacted on the basis of the Waste
      Management Law. In addition, waste collection including separate collection,
      transportation, recovdery, recycling and landfilling at regulated landfills are also
      considered as public utility activities (Article 3 of the Law on Public Utility Activities,
      Official Gazette of RM No. 45.97, 23/99, 45/02, 16/04 and 5/09).

      Regional concept of municipal solid waste management shall include a system of
      optimized procedures for prevention, collection and separate collection, transportation,
      recovery, treatment and final disposal of the waste, while using resources and
      equipment which prevent environmental pollution and human health deterioration.

      Concession shall mean the right to use a good of general interest, erect a structure of
      general interest or provide public services whereby the concessionaire is entrusted with
      constructing and/or managing, using and maintaining the subject of concession, with or
      without payments by the conceding authority. Concession, for the purposes of this call,
      shall mean the right to provide public services, i.e. provide services associated with
      regional integrated management of solid waste.




                                                                                               5
Other types of public-private partnership shall mean all undertakings for cooperation,
different from concession and public procurement, wherein the public and the private
partner join their resources and professional knowledge so that a public service is
provided through an appropriate direction of the resources, risks and benefits
(hereinafter referred to as public private partnership).

Conceding authorities shall include the Republic of Macedonia and the municipalities
in the South-eastern planning region.

Concessionaire shall mean a domestic or foreign (legal or natural) entity that will be
granted the concession by means of signing a Concession Agreement or a Public-
Private Partnership Contract upon competitive dialogue completion.

Public partners shall include:
   - the Republic of Macedonia;
   - the municipalities in the South-eastern planning region;
   - the public companies founded by the municipalities in the South-eastern planning
   region, where the latter have a direct influence on the former by virtue of the fact that
   they own them;
   - other legal entities discharging public duties.

Private partner shall mean a domestic or foreign legal or natural entity that has been
awarded a Public-Private Partnership Contract.

Concession project study shall mean a planning document developed by the
conceding authorities, which constitutes an integral part of the tender documentation for
pre-selection. This study defines the legal basis of the project and the baseline situation
including general technical specifications, indicates the alternative project components
and describes the procedure for carrying out the competitive dialogue.

The fee for concession may be paid by the private partner for the conceded right to
provide a public service, i.e. a service of public interest. The concessionaire may pay the
fee to the respective payment accounts under the Treasury account, and it shall
constitute a revenue for the Budget of the Republic of Macedonia, i.e. for the budgets of
the municipalities within the South-eastern planning region. Whether a fee for
concession will be charged at all, and if yes, how much it will be – this will be determined
in the third phase of the competitive dialogue.

The fee for the service provided by the private partner or the concessionaire, which will
be paid by the conceding authorities or the partners from the public sector, shall depend
on the duration of the agreement/contract, the volume of works and services, and the
estimated costs for construction and maintenance of the facilities and for provision of the
public service. The fee for the provision of the service to be paid by the end users will be
determined in the third phase of the competitive dialogue. There is a possibility that the
fee for service be different for different municipalities, which will depend on the regional
concept solution, as well as on the partnership models that will be applied for individual
components of the concession project (e.g. for collection, transportation and disposal of
waste).



                                                                                          6
Legal form of the partnership: when the concessionaire/private partner is a foreign
legal or natural entity, the conceding authority/public partner may request from the
bidder to establish a certain legal form prior to entering into the Concession
Agreement/Public-Private Partnership Contract.

Competitive dialogue shall mean a tender procedure for granting a concession or
establishing a public-private partnership which is conducted in three phases: (i)
launching a call for competitive dialogue and making a pre-selection of candidates, as
well as sending invitations to the pre-selected candidates to participate in the
competitive dialogue accompanied by descriptive tender documentation; (ii) presentation
by the pre-selected candidates of their initial bids and laying down detailed project
specifications (tender documentation); (iii) submission of the final bids by the participants
in the competitive dialogue and selection of the best bidder. Competitive dialogue is
used in order to ensure transparency and increased objectivity when granting
concessions or establishing public-private partnerships. This is applied in this specific
cases when (i) due to the large number of conceding authorities, (ii) the large number of
alternative regional concepts, technologies and operations for establishing integrated
management of municipal solid waste, (iii) varying models for partnership between the
public and the private sector and, consequently, the impossibility for the conceding
authorities to define all required specifications within the tender documentation, this
more flexible form of conducting the procedure is resorted to with a view to selecting the
most adequate solutions proposed by the pre-selected candidates in the course of the
dialogue phase.

Tender documentation for pre-selection shall mean a set of documents, information
and conditions constituting the basis for developing an application for participation in the
first phase by the candidates interested in presenting themselves during the competitive
dialogue.

Descriptive tender documentation constitutes a substitute for the technical
specifications that are present with standard tender procedures. Given the fact that
contracting authorities are unable to foresee the volume of technical resources needed
for the implementation of the project during the competitive dialogue procedure,
technical specifications shall have framework dimensions and values in the descriptive
tender documentation for the concession project. Descriptive tender documentation shall
be submitted in writing to the pre-selected candidates from the first phase alongside an
invitation to participate in the second phase, i.e. the competitive dialogue.

Tender documentation shall mean a set of documents, information and conditions
constituting the basis for developing, submitting and evaluating the bid. This tender
documentation shall be submitted alongside an invitation to submit a bid to the selected
candidates in the third phase of the competitive dialogue.

Application for participation shall mean a written proposal by the candidates whereby
they demonstrate their personal situation, technical and professional capacity and
financial and economic status, as a precondition for starting with the second phase of
the competitive dialogue.




                                                                                           7
Initial bid shall mean a written proposal whereby the candidates present their personal
data, their technical, professional and economic capacity, and, in particular, their
approach to implementation by all of the technical components of the project, as well as
their suggestions regarding what would be the most appropriate institutional forms of the
public-private partnership associated with each individual technical component. The
initial bid shall be submitted to the contracting authority within a specified period of time
following the contracting authorities’ submission of descriptive tender documentation to
the pre-selected candidates in order to protect the candidate’s confidential information,
and shall serve as a basis for the second phase of the competitive dialogue. The manner
in which the initial bid is to be submitted constitutes an integral part of the descriptive
tender documentation. The initial bid is not binding, which means that the candidate’s
final bid may totally deviate from the approach presented during the second phase of the
competitive dialogue, as a result of the need for the final bid to be consistent with the
requirements of the final scope of the project, which will be determined by the tender
documentation in the third phase.

Economic operator shall mean any domestic or foreign, natural or legal entity or a
group of such entities that offer goods, services or works on the market.

Candidate shall mean any economic operator that has submitted an application for
participation in the first phase of the competitive dialogue.

Responsible person shall mean an official that heads a state authority, a mayor of the
unit of local self-government, or a director of a legal entity.

In writing or in a written form shall mean any expression consisting of words or
numbers that can be read, replicated and communicated later, as well as information
that is transmitted and stored with the help of electronic devices provided that the safety
of the contents is secured and that the signature is identifiable.

Concession agreement shall mean an agreement of financial interest entered into
between the conceding authority and the concessionaire, the subject of which is the use
of a good of general interest to the Republic of Macedonia, the erection of a structure of
public interest or the provision of public services.

Public-private partnership contract shall mean a contract of financial interest
concluded between a public and a private partner, the subject of which is the design,
financing, construction and maintenance of infrastructure, supply of equipment and/or
provision of services by a private partner with the purpose of the latter being the provider
of a public service.

Contractual concession/public-private partnership shall mean a partnership between
the conceding authority/the public and the concessionaire/the private partner established
by means of a contract.

Institutional concession/public-private partnership shall mean a partnership
between the conceding authority /the public and the concessionaire/the private partner
established in the form of a joint legal entity founded pursuant to the law.



                                                                                           8
More details about the manner of organizing and carrying out the procedure for granting
the concession for financing, designing, constructing and managing a regional landfill for
municipal solid waste in the South-eastern planning region are given below.




                                                                                        9
2     SUBJECT OF THE CONCESSION


2.1   Rationale

      Waste management in Macedonia is not satisfactory due to the fact that the public
      sector has no financial capacity to invest in equipment modernization, has not built any
      landfills that would make sure that environmental impacts are minimized, and the price
      of the service has not been formed in a manner that would create an enabling
      environment for the Polluter Pays Principle.

      Following its independence in 1990, Macedonia has been oriented towards EU
      accession, which certainly generated the need for paying more attention to the
      environment, thus to waste management. A new Waste Management Law was enacted
      in 2004; this law transposed the key EU directives, which practically marked the
      commencement of the environmental legislation approximation.

      In the meantime, given the need to meet the requirements of the EU’s Waste Framework
      Directive, one got down to developing the National Action Plan on Environment (2006),
      as well as the National Strategy and Action Plan on Waste Management (2009). The
      Ministry of Environment and Physical Planning (MoEPP) of the Republic of Macedonia is
      responsible for the implementation of these planning documents, whereas the genuine
      responsibility for municipal solid waste management has been vested in the units of local
      self-government – the municipalities. This practically means that strategic leadership,
      legislation enactment and control over the enforcement of the laws are at a national
      level, whereas organization and financing of the municipal solid waste management
      service are in the hands of the municipalities.

      According to these strategic documents developed by the MoEPP and adopted by the
      Government of the Republic of Macedonia, the establishment of regional integrated
      systems for municipal solid waste management is considered to be one of the top
      priorities of the Government. In this regard, a municipal solid waste management region1
      represents an area for which a sustainable and financially viable system can be
      established through economies of scale. In line with the abovementioned Action Plan on
      Waste Management, the whole territory of the Republic of Macedonia is divided into 6 to
      8 regions, where the number 8 denotes the number of statistical regions, whereas the
      number of 6 regions is obtained by merging two times two small-sized neighboring
      statistical regions. The statistical regions in the Republic of Macedonia are as follows:

      1.   Skopje region;
      2.   Polog region;
      3.   South-western region;
      4.   Pelagonia region;
      5.   Vardar region;
      6.   North-Eastern region;
      7.   Central region; and
      8.   South-eastern region.

      1
        Officially accepted definition according to the National Strategy and Action Plan on Waste Management
      (2009)



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        Pursuant to the Law on Balanced Regional Development (Official Gazette of the
        Republic of Macedonia No. 63/07), the 8 statistical regions represent planning regions at
        the same time.

        This study explores the possibilities for involving the private sector in the regional
        integrated management of the municipal solid waste in the South-eastern region as one
        of the 8 planning regions.

        A Pre-feasibility study has been developed for this region with a view to: (i) identifying an
        optimal location for a regional sanitary landfill; (ii) estimates of the amounts of generated
        waste and projections of the future amounts have been made; (iii) the existing capacities
        of the public companies dealing with waste have been examined; (iv) the amounts of
        currently collected waste have been determined; (v) analysis of the extent to which the
        costs have been covered with the current prices of the services; (vi) the amount of the
        investment required to establish a regional integrated system for municipal solid waste
        management has been determined with the help of the financial model; and (vii) a
        preliminary concept of the future regional landfill has been developed. The Pre-feasibility
        study constitutes an integral part of the descriptive tender documentation that will be
        submitted to the pre-selected candidates.

2.1.1   Technical specifications for the South-East Region

        Location

        The South-east – Strumica-Radovis – statistical Region is situated in the south-east part
        of Macedonia; it includes the 10 municipalities listed below; map of the region is given in
        Appendix 1.

           •   Radovis
           •   Konce                                                               Bulgaria
           •   Vasilevo
           •   Bosilovo
           •   Strumica
           •   Novo Selo
           •   Valandovo
           •   Gevgelija
           •   Dojran
                                                                             Greece
           •   Bogdanci.


        The region borders Greece to the south and Bulgaria to the east. Within the country it
        borders the Vardar Region (to the west) and the Eastern Region (to the north). The total
        area of the region is 2,741 km2, or 11% of the country territory. The total number of
        settlements in the region is 187. Basic information about the region is given in Table A1
        below.




                                                                                                  11
            Item                                                            South-East Region
            Number of municipalities                                                           10
            Number of settlements                                                              187
                     2
            Area (km )                                                                     2,741
            Population                                                                   171,416
            Households                                                                    49,705
                                         2
            Population density (inh/km )                                                        63
            Urban population                                                              82,772
            Rural population                                                              88,694

                                Table A1: Basic data about the SE Region



Geographical characteristics and climate

The climate in the region is categorized as Continental-Sub-Mediterranean. The
southern basin, which is under influence of the Aegean Sea, is dominated by Sub-
Mediterranean climate; the northern basin, due to hindered penetration of the
Mediterranean influence by the Belasica Mountain, is mainly subject to Continental-type
climate. Overall, the climate in the region is characterized by mild winters, long and dry
summers, and high daily average temperatures. The winter temperatures may fall to -
20ºC, while summer temperatures can rise to 40°C.


Average monthly and annual air temperatures
  o
in C
                                                                                                Annua
Station        I    II    III     IV      V     VI     VII    VIII   IX      X     XI    XII
                                                                                                  l
Gevgelija     3.8   5.6   8.8     13.4   18.5   22.4   25.4   24.7   20.2   14.4   8.8   4.9     14.2
Strumica      1.0   3.6   7.7     12.5   17.6   21.8   23.7   22.9   18.6   12.6   6.5   2.1     12.6


              Table A2: Average monthly and annual air temperatures in the SE Region


The annual average precipitation reaches around 600 mm/sqm and have a
Mediterranean regime, i.e. maximum in November and December and minimum in
August and September. There are about 230 sunny days annually, i.e. an average of
2,377 hours per year, and on average 20 days per year with fog. More detailed
information regarding the climate in the region is given in Tables A2 and A3.




                                                                                                        12
Average monthly and annual precipitation sums
in mm
Station        I        II     III    IV     V       VI     VII     VIII    IX      X      XI    XII       Annual
Gevgelija     53.0     61.2   59.8   54.3   59.4    42.3   31.6     33.8   33.1    72.5   86.7   73.1       649.4
Strumica      34.6     43.8   40.8   49.3   55.6    41.7   37.6     33.3   37.8    50.5   64.1   61.4       547.2


                     Table A3: Average monthly and annual precipitation in the SE Region


 Demographics, employment and labor structure

 The population of the region equals 171,416 (49,705 households)2, or 8% of the
 country’s total population (Table A4). The entire region is predominantly rural, with over
 50% of the population living in settlements with less than 5,000 inhabitants. Furthermore,
 there are only 4 towns in the region with population greater than 10,000. Strumica, the
 tenth biggest city in the country with a population of 45,087, is located in the region.
 Other larger towns are: Radovis, Gevgelija and Valandovo.

                                                   % of the total
                                                                           Area           % of the total
     Municipality               Population         population in
                                                                           (km²)          Project Area
                                                    the Region
     Total SE Region                 171,416                 100%           2,741.0                  100%
     Radovis                          28,244               16.48%             497.5                18.15%
     Konce                             3,536                2.06%             233.1                 8.50%
     Valandovo                        11,890                6.94%             331.4                12.09%
     Gevgelija                        22,988               13.41%             483.4                17.64%
     Bogdanci                          8,707                5.08%             114.5                 4.18%
     Dojran                            3,426                2.00%             129.2                 4.71%
     Strumica                         54,676               31.90%             321.5                11.73%
     Vasilevo                         12,122                7.07%             230.4                 8.41%
     Bosilovo                          14260                8.32%             162.0                 5.91%
     Novo Selo                         11567                6.75%             237.8                 8.68%

                      Table A4: Statistical data on municipalities in the SE Region (2002)


 Current State of Solid Waste Management in the Region

 As noted earlier, the information presented further in the Survey regarding the current
 status of SWM in the SE region is based mainly on responses to a questionnaire and
 field visits.

 All of the 10 municipalities in the region have some form of organized solid waste
 management service and reported on the current collected and disposed of waste

 2
     Source: State Statistical Office of R. Macedonia.


                                                                                                                13
    quantities. However, the extent of service coverage, in terms of covered area and
    population, varies considerably between the municipalities (Table A7 and A8). It can be
    concluded that by and large the service is centered around urban areas (larger towns
    and villages) leaving majority of the smaller, rural settlements without

                                Total        % of                        Total                    Un-served
                                                                                     % of rural
               Total urban     served       served     Total rural      served                    population
Municipality                                                                           served
               population      urban        urban      population        rural                     as % of
                                                                                     population
                             population   population                  population                    total
SE Region          82,722        66,011         80%          88,694          8,624         10%          56%
Radovis            15,068        12,479         83%          13,176             0            0%         56%
Konce                                          Rural          3,536           375          11%          89%
Valandovo           8,827         3,522         40%           3,063             0            0%         70%
Gevgelija          15,685        13,466         86%           7,303             0            0%         41%
Bogdanci            6,031         5,700         95%           2,676             0            0%         35%
Dojran              1,800         1,742         97%           1,626             0            0%         49%
Strumica           35,311        29,103         82%          19,365           162            1%         46%
Vasilevo                                       Rural         12,122          2,079         17%          83%
Bosilovo                                       Rural         14,260          1,761         12%          88%
Novo Selo                                      Rural         11,567          4,248         37%          63%


                    Table A5: MSW service coverage in the SE Region by population

    organized service at all. For the region as a whole the fraction of un-served population
    vs. total population is 56%; nevertheless, the percentage of un-served population varies
    between the minimum of 35% in Bogdanci to over 80% in Vasilevo, Bosilovo and Konce
    Municipality.

    Another important aspect that needs to be pointed out is that the waste management
    service discussed herein refers mainly to management of municipal solid waste (MSW),
    which is the predominant responsibility of municipal public enterprises (PE). For
    purposes of this report, municipal solid waste is assumed to include all the wastes
    generated in a community: from households, the commercial/institutional sector, street
    sweeping and park waste, with the exception of bulky industrial waste, construction and
    demolition debris, and agricultural solid waste.

                                                                                   % of
                                  Total       Number of         Served
                Municipality                                                     served
                                population    settlements     settlements
                                                                               settlements
                SE Region          171,416             187              35             19%
                Radovis             28,244              36               1              3%
                Konce                3,536              14               4             29%
                Valandovo           11,890              29               1              3%
                Gevgelija           22,988              17               1              6%
                Bogdanci             8,707               4               1             25%
                Dojran               3,426              13               2             15%



                                                                                                     14
                                                                         % of
                             Total      Number of       Served
            Municipality                                               served
                           population   settlements   settlements
                                                                     settlements
            SE Region         171,416           187             35          19%
            Strumica           54,676            25              2           8%
            Vasilevo           12,122            18              8          44%
            Bosilovo           14,260            15              7          47%
            Novo Selo          11,567            16              8          50%

      Table A6: MSW service coverage in the SE Region by number of served settlements


Waste generation

Before going deeper into the aspect, it should be pointed out that the existing data
regarding waste generation in the region is on the whole unreliable. Considering the
above-discussed fact that the current SWM service covers only a fraction of the total
population (served settlements), moreover even where there is an organized waste
collection service currently used methods of estimating waste quantities are inadequate,
hence there is no inclusive information concerning solid waste generation in the region,
either regarding the total volume or composition of the waste currently generated. There
are no weighbridges installed in any of the “official” landfills in the region, whereupon the
quantities of waste are often based on the volume of waste transportation vehicles and
average number of vehicle-trips to the landfills, which tends to importantly overstate the
waste quantities as the vehicles are frequently not full. On the other hand, individuals
and businesses often transport and dispose of waste to the landfills with their own
vehicles, and as there are no guards and/or tipping fees on the landfills, these wastes
are not recorded. Furthermore, there are no records on many illegal dumps in the region
where the local population – especially the part of population not covered with the
existing service – tends to dump solid waste indiscriminately.

Gathered information regarding the volume of currently collected municipal solid waste is
summarized in Table A9 and Fig. A1 below. The figures concerning average unit waste
generation (in tons/capita/year or kg/capita/day), hence the total volume of collected
waste, shown in the table are estimates and vary significantly; they are presented herein
as an approximation of the magnitude of the problem.

The average unit municipal waste generation for the region as a whole equals 348
kg/cap/year, with average for urban settlements of 449 kg/cap/year and 218 kg/cap/year
for rural settlements. These figures are higher than the average national statistical data
of 300 kg/cap/year for urban and 200 kg/cap/year for rural settlements3; the reason for
this is considered to be the inaccuracy in waste generation/collection monitoring, as
explained above. The total collected MSW in the region equals 25,954 tons annually.



3
  Calculated as an average based on information from various studies for other regions in the
country.


                                                                                          15
                                                            Waste
                                      Served
       Municipality                                       Collection          t/c/y         kg/c/day
                                     population
                                                           (t/year)
       SE Region                        74,635             25,954             0.348          0.953
       Radovis                          12,479              2,900             0.232          0.637
       Konce                              375                 100             0.267          0.731
       Valandovo                         3,522              1,000             0.284          0.778
       Gevgelija                        13,466              6,440             0.478          1.310
       Bogdanci                          5,700              1,150             0.202          0.553
       Dojran                            1,742                538             0.309          0.846
       Strumica                         29,264             12,260             0.419          1.148
       Vasilevo                          2,079                416             0.200          0.548
       Bosilovo                          1,761                300             0.170          0.467
       Novo Selo                         4,248                850             0.200          0.548
       Average RURAL                                                          0.218          0.598
       Average URBAN                                                          0.449          1.229

          Table A7: Annual volume and unit rates of MSW collection in the SE Region

Regarding composition of collected solid waste, all of the surveyed PEs reported that the
waste they collect and dispose of includes all “standard” components found in MSW
streams, such as: organic waste, paper, plastics, glass, textiles, bulky waste, etc;
however, none of the interviewed organizations was able to state precise
percentage/fraction of each component. Furthermore, only the PE of Strumica
Municipality provided information related to the volume of industrial wastes, construction
debris, and other (medical) waste collected by the organization (Table A10).


                                 Fig. A1: Municipal waste collection volume



                        12,000                                                  Radovis
                                                                                Konce
                        10,000
                                                                                Valandovo
                         8,000                                                  Gevgelija
             (t/year)




                                                                                Bogdanci
                         6,000
                                                                                Dojran
                         4,000                                                  Strumica
                                                                                Vasilevo
                         2,000
                                                                                Bosilovo
                            0                                                   Novo Selo




It is considered that organic materials constitute by far the largest share of the waste
stream, averaging to about 25% and in some municipalities to over 40%. The organic
materials discussed here, however, do not include a large amount of agricultural waste.
The agricultural waste in the region, especially in rural areas, is in deed not part of the


                                                                                                       16
current MSW stream; by and large local farmers either cart and dump the waste from
their farming activities on illegal dumps, or deal with it in some other way4. The organic
materials being part of collected MSW, though, include significant amount of garden
waste (especially in urban areas) and waste collected from greenmarkets.

As for the other components of collected MSW, it is considered that most important are:
paper and cardboard, plastics, ashes, and other waste (fines). Of these, ash is a
critically important component; it is present in significant quantities, since the entire
region is not served with district heating, and poses specific problems for management
as hot ash damages waste containers and other equipment.

                                                    Volume
                       Waste composition                           (%)
                                                    (t/year)
                                                        12,26
                       Communal waste                                54.7
                                                             0
                       Industrial waste                 7,060        31.5
                       Public area waste                  785         3.7
                       Construction waste               1,500         6.7
                       Other      waste   (e.g.
                                                          780         3.4
                       medical)
                                                        22,47        100.
                       Total
                                                            5          0

         Table A8: Composition of collected waste as reported by Strumica Municipality


As regards industrial waste, as pointed earlier, in most cases the municipal PEs deal
only with collection and transport of a portion of the waste generated by industrial plants
which is compact and “manageable” (municipal-waste-like) for them. The bulky industrial
solid waste is being disposed of at separate landfills (e.g. mining waste at Bucim,
Radovis), or collected, transported and disposed of at either separate municipal or
micro-regional “industrial landfills” or at common municipal landfills by the individual
industrial plants. Two separate, major “industrial landfills” were reported to exist in the
region, the one being close to the town of Strumica and the other near Gevgelija; both
these landfills are operated by the responsible PEs, and are also used for disposal of
construction debris. More information on the current landfilling practices is provided
further in this document.

The current generation volumes of the remaining important types of wastes – hazardous
waste and construction/demolition debris – are also not available. As elsewhere in the
country there is no separate collection of hazardous waste, with the exception of medical
waste; however, in the SE region even the medical waste, although separated by the
health organizations, is not properly treated but disposed of at the municipal landfills.
Similarly, the construction waste is also a particular problem, since it is present in
significant amounts, and with few exceptions (e.g. Strumica and Gevgelija) it is being

4
 As elsewhere in the country, the agricultural wastes – including animal manure – are either used
as compost (fertilizer) or burned.


                                                                                              17
indiscriminately dumped by the generators at illegal dumps, ravines, along public roads,
riverbeds, etc.

Waste collection and transport

Most of the municipalities in the region use three types of waste containers: 1,100 litters
(1.1 m3), metal or plastic bins of 120 litters, and old metal barrels of 80 liters.
Additionally, some municipalities use large metal open containers (skips) with volume 5
to 7 m3. The 1.1m3 containers are used mostly in residential parts of towns dominated
by multi-story buildings, while the 120 litter bins and barrels are used by private
households. The 1.1m3 containers, along with the 5m3 skips, are also used by larger
public institutions and the industry. The types and numbers of waste containers used in
the region are indicated in Table A11. Significant percentage of used containers are
damaged and need to be replaced.

                                          Waste Containers
                 Open                                                      Total volume
                                          Bin (60,               Bags
Municipality     skips     Container                   Metal               of collection
                                          100, 120                and
                (5, 7, 9    (1.1 m3)                   barrel               containers
                                            lit)                 other
                  m3)                                                          (m3)
Radovis                        100           120                                124
Konce                                         30                                  4
Valandovo                                    900                  150           108
Gevgelija         35           125                                              313
Bogdanci                                                1,700                   255
Dojran                         83            120                                106
Strumica          37           243          4,800                   4          1,028
Vasilevo                                     635         35                      81
Bosilovo                       2             100         325                     63
Novo Selo                      15                       1,150                   189
TOTAL             72           568          6,705       3,210     154          2,271

                  Table A9: Containers for waste collection in the SE Region

As regards waste transportation vehicles, most of the “smaller” municipalities use
“traditional” trucks or tractors that haul un-compacted waste, while the larger
municipalities (in deed towns) in addition to these also use more modern compactor
vehicles with volume of 5 to 15 m3. By and large the vehicle fleets in use are quite
obsolete, with majority of trucks being older than 15 years and by the end of their
operational life, thus causing extremely high expenses for operation and maintenance.
Collected waste is being transported directly to the nearby landfills.

Although details regarding existing daily routes of the waste transportation vehicles were
not obtained, it was stated that in the biggest towns major part of the vehicles need to
make several routes during the day in various parts of the settlements to achieve the
required service coverage (waste collecting frequency). Data on the vehicle fleet



                                                                                           18
deployed by the SE region municipalities is presented in Table A12 and in the individual
surveys.

The frequency of waste collection varies depending on the size of the town and the size
of containers for waste collection. In the central parts of the larger towns (Strumica,
Gevgelija, Radovis, Valandovo) the frequency of collection is in general 6 times per
week. In sub-urban parts of the towns waste collection is carried out twice per week,
while in smaller, rural settlements the collection usually takes place once per week. It
was reported that the current waste collection frequency – in those towns/areas where it
is organized – is satisfactory; a major problem, however, remains the significant number
of settlements which are not part of the existing SWM service.

                                             Waste Collecting Vehicles
                                                                        Total volume
            Municipality          Truck,                                      of
                                              Compactor       Skip
                                 Tractor,                               transporting
                                               vehicles     vehicles
                                  Trailer                                equipment
                                                                            (m3)
       Radovis                                     2                         14
       Konce                         1                                       2.5
       Valandovo                     1             1                         8.5
       Gevgelija                     2             5                         48
       Bogdanci                      2                                        5
       Dojran                        2             1                         12
       Strumica                      2             5            1            89
       Vasilevo                      1                                       2.5
       Bosilovo                      1                                       2.5
       Novo Selo                     2                                        5
       TOTAL                        14             14           1            189

         Table A10: Vehicles used for waste collection and transport in the SE Region


Waste disposal

As elsewhere in the country, every settlement – town and village – in the region has its
own landfill or dump, and most settlements have several. Except for the landfills that are
used by bigger towns and operated by the accountable PEs, often designated as
“municipal landfills”, the sites/dumps used by the villages are not regulated, although
some are authorized by municipal councils as official waste disposal sites. List of the
official municipal landfills in the region is given in Table A13 and more detailed
information in Appendix 2; exact locations of the municipal landfills and larger identified
illegal dumps are shown on Appendix 1 and the maps attached to the individual
municipal surveys.

Current landfilling practices in the entire SE region are at an extremely low level. Even
the official municipal landfills cannot be classified as sanitary landfills. The solid wastes


                                                                                          19
are commonly dumped over the edge of the sites/dumps. In some cases, though very
seldom, a bulldozer is used to compact the deposited waste and place cover material
over a portion of the exposed waste. However, in all cases there does not appear to be
an accessible amount of soil for creating a waterproof cap/soil cover, resulting in
significant volumes of disposed of solid waste always opened to the atmosphere.
Spontaneous landfill-fires occur frequently.

Except for the municipal landfill in Gevgelija and the industrial landfill “Trkanja” near
Strumica, all other sites are not fenced; non-authorized persons freely approach the
sites. No attempt is made at any municipal landfill to segregate residential, commercial
or industrial recyclable wastes. The types and amounts of chemicals being disposed are
also not known. There does not appear to be an alternative program for disposal of
hazardous waste.

                                                                                  Year of
                    Municipality                     Landfill Name
                                                                                construction
            Radovis                          River Susica, Radovis                   1963
            Konce                            Krst Cuka                               2004
            Valandovo                        Suva Reka, Valandovo                    1962
            Gevgelija                        Suva Reka, Gevgelija                    1976
            Gevgelija,     construction
                                             Suva Reka, Gevgelija                     n.a.
            waste
            Bogdanci                         Brdanov Kamen, Bogdanci                 1985
            Dojran                           Dikiltas                                1980
            Dojran                           Karac                                    n.a.
            Strumica                         Sapkar, Dobrasinci, Vasilevo            1992
            Strumica, industrial waste       Trkanja, Strumica                       1998
            Vasilevo                         Vasilevo                                1996
            Novo Selo                        Solena Reka, Novo Selo                  2004

                       Table A11: Official municipal landfills in the SE Region

The exact volume of waste deposits on the municipal landfills is not known. Based on
information from the NWMP 2006-20125, the total volume of deposited waste at 7 of the
12 municipal landfills in the region listed in Table A136 is estimated to be approximately
562,000 m3. However, based on rough information collected with the Survey, this figure
is significantly underestimated and should be treated very carefully.

The status of waste disposal sites used by villages where there is no organized service,
also termed as “illegal or village dumps”, is even poorer than the municipal landfills. As a
matter of fact, the exact number of such dumps is not known, as the local population – in
spite of the existence of designated village waste disposal sites – quite often violently

5
  National Waste Management Plan 2006 – 2012; Government of Macedonia, Ministry of Environment and
Physical Planning; 2005.
6
  The following municipal landfills are taken into consideration: Novo Selo, Valandovo, Strumica, Gevgelija,
Dojran, Radovis and Bogdanci.



                                                                                                         20
dumps the waste at ravines, along public roads, riverbeds, etc. An attempt was made
with the Survey for registering as many of the illegal dumps as possible, however, only
the “larger” village dumps in the region were identified. These sites are indicated on
maps attached to the individual municipal surveys.

Recycling efforts

As a common feature in Macedonia, there is no evidence of a comprehensive recycling
program organized by any of the municipalities in the SE region. Nevertheless, recovery
and recycling of some waste materials – above all ferrous and non-ferrous scrap metals
– as an economic activity exists. As elsewhere in the country, such activities are carried
out entirely by private sector firms, i.e. small-size (micro) private enterprises.

Another important recycler located in the region is Damjan Plast, Radovis. The company
deals with recycling of plastic materials, above all HDPE, LDPE, PP and PS.


Current tariffs for waste management

The tariffs that are currently applied in the municipalities vary in such a way that they
range from 1-2 EURO per family a month (in the rural municipalities) to 4,5 EURO per
family a month in Strumica. Higher tariffs have been established for businesses and
industry, so these revenues compensate to some extent for the uncollected account
receivables from households. Collection rate ranges from 50 to 100% (in the municipality
of Konce). The average collection rate is around 70%.

Generally speaking, some surveys have confirmed that households’ discipline in paying
for utility services has improved. This is probably due to economic factors, as well as to
legal measures that have been made available to municipalities based on which they
can engage in enforced collection of debts.

Affordability and willingness to pay analyses have been carried out which show that: the
amount of the present waste charges participates with 0,5% up to 0,9% into the average
disposable income of a family, or with 2,9% up to 4,5% from the total charges paid for
communal services, including energy supply and telecommunications. When comparing
the World Bank indicator of 0.75% up to 1.75% participation of waste charges into the
average disposable family income, with the present percentage of waste charges for
various socio-economic groups which are distinguished by their income as well, it was
concluded that 20% of the population can not afford to pay even the present waste fees.
On the other hand, 51% of the interviewed households would be willing to pay higher
fees for improved services; while out of the remaining 49%, 24% stated that they would
happily see the improvement first, and than pay higher fees. The remainder of 25%
would not pay increased fees.

The level of income in the rural part of the region may depend on the agricultural season
– does it fruitful or not. Due to the seasonal variation of the revenues and expenditures
of the households, there are some fluctuations in fee payment. In some of the
settlements, the households may pay for the waste management services at once, per




                                                                                       21
        debt number of months for which they didn’t pay previously, during the month when they
        get the income from the harvest.

        An average of 20% of the population has been estimated to be financially incapable of
        paying for the utilities. There isn’t any set of measures at national and/or local level that
        would subsidize the households for the part that, realistically, cannot be collected.


2.1.1.1 Summary of the identified problems

        Waste generation:

            •   There is no organized and reliable waste generation measurement and
                monitoring
            •   Agricultural waste is not treated with the current SWM system.


        SWM service organization:

            •   Significant portion of the population (rural settlements) is not covered by the
                existing service
            •   The waste containers used are old and insufficient
            •   The waste transportation equipment/vehicles used is obsolete and too expensive
                to operate and maintain
            •   Current waste disposal practices at both official municipal landfills and illegal
                dumps are at an extremely low level, causing significant threat to human health
                and environmental pollution
            •   There are too many authorized municipal landfills
            •   There are no dedicated separation and storage, as well as appropriate disposal,
                of medical, hazardous and construction waste
            •   In many municipalities the current waste fee collection efficiency is at a level that
                does not enable cost recovery for the SWM service
            •   Current waste fees are insufficient to cover costs for SWM
            •   There are no waste recycling activities organized by the public sector.


        Public awareness:

            •   The awareness of the population regarding the environmental threat and
                pressure created by inappropriate waste management practices is very low.



2.1.1.2 Summary of project’s financial information

        Results of the financial analyses for the different project components are shown in the
        overview below, as follows: for the regional landfill, for the procurement of waste


                                                                                                  22
      collection and transportation equipment, and for remediation of unregulated landfills. In
      addition, an estimate of the expected revenues was made by adding up the fees
      collected from the service users.

            Project’s financial information
                                                       SE region

          1 Expected investment:                      (Mil €)        up to 20
           (if the project lasts for 30 yrs)
                                Landfill operations and equipment:   9 - 11
                                               Mobile equipment:     5-6
                          Remediation of unregulated landfills:      2-3

         2 Generated waste estimate                (in 1000 tons)      40
           (in 2011)

         3 Estimated annual revenues                  (Mil €)           1
           (in 2011)




2.2   Objectives of the concession project

      At present, it is the public utility companies that provide the solid waste management
      service in the majority of municipalities. This situation prevents competition, as a result
      of what the service level is not in line with the requirements of the European Acquis, nor
      are the principles underlying the Waste Management Law observed, which law has been
      fully harmonized with the relevant EU Directives. In addition to the unsatisfactory service
      level, the current costs for waste management are not covered because of the relatively
      low price of the service and the low rate of fee collection. The lack of reforms in the
      public utility sector is reflected in the unsatisfactory financial performance of the public
      utility companies; these reforms are delayed because of the problems that are expected
      to occur with jobs re-organization and possible staff downsizing.

      The aim of Government of the Republic of Macedonia and of the municipalities in the
      South-eastern planning region is to make provisions for penetration of experienced and
      well-renowned private operators on the market, with a view to protecting the
      environment and improving the service level.

      The goal of the concession project is to establish an integrated system for regional
      management of municipal solid waste in the South-eastern region.

      The objectives of the concession project are as follows:

                   Protect the environment by way of applying European standards for municipal
                   solid waste management;
                   Establish inter-municipal cooperation;
                   Apply the Polutter Pays Principle;


                                                                                               23
                   Apply the principle of waste hierarchy.

2.2.1   Considerations about the responsibilities of the public and private partners
        regarding the achievement of the concession project’s goal/objectives

        In order for the goal/objectives to be achieved, the national and local competent
        authorities will create all necessary preconditions with regard to the adoption and
        enforcement of the respective primary and secondary legislation, will make the existing
        human and technical resources available, as well as land for construction of the
        installations and facilities for managing the municipal solid waste at a regional level. In
        addition, the public partners will make sure that the necessary infrastructure, with all the
        connections thereto, will be available at the locations where waste management facilities
        will be built, including ones for disposal. Moreover, the MoEPP will ensure that an
        environmental impact assessment procedure will be carried out following the signing of
        the concession agreement.

        On the other hand, the private partner that will be hired at the end of the competitive
        dialogue procedure is expected to invest funds, professional staff and necessary
        equipment for the purpose of gradual improvement of the existing waste management
        system through a partnership with the public sector. The private partner will obtain all the
        necessary permits as provided by the law (general environmental audit, environmental
        integrated permit, building permit and operation permit), will develop comprehensive
        project documentation, will hire machinery for the construction of the facilities, and will
        thereafter act as provider of the waste management service.

2.3     Concession project scope

        In order to create conditions for investments in improving the existing system for
        municipal solid waste management, including improved quality of service, it is planned to
        hire a private partner that will demonstrate, during the competitive dialogue procedure,
        that they have both experience and technical, financial and organizational capacity to
        achieve the goal/objectives of the concession project.

        The central facility, and at the same time the most expensive one in the concession
        project, is the regional sanitary landfill that will be located in the immediate vicinity of the
        town of Strumica as the largest urban center in the valley of the Strumica river where the
        majority of the municipalities in the region is concentrated. In addition to the landfill, it is
        possible that a need for constructing a transfer point in the municipality of Gevgelija be
        determined for the sake of establishing a regional waste management concept, given
        that the Gevgelija plane and the valley of the Strumica river are morphologically
        separated. The technology of waste disposal will be a subject of discussion during the
        second phase of the competitive dialogue, with a view to adequately meeting the
        requirements arising from the national legislation and the EU Landfill Directive.

        A decision will be made during the competitive dialogue as to what extent the private
        partner will be involved in the operations of waste collection and transportation, given
        that at present there is a number of more or less functioning public utility companies
        established by the municipalities that collect the waste generated by citizens,
        businesses, public institutions and industry. The decision as to whether and in which


                                                                                                     24
        way the private partner will be assigned the role to collect and transport waste will
        depend on their offer regarding the institutional model, the distribution of the managerial
        rights, the takeover of staff from the existing utility companies, but first and foremost it
        will depend on how the finally adopted concept of the regional system will affect the price
        of the service that will be paid by the end users.

        Closure and remediation of the existing non-compliant landfills will be necessary to do in
        order to prevent illegal dumping of waste following the construction of the regional
        landfill, as well as reduce the harmful effects on the environment from the accumulated
        amounts of waste. The private partner will be offered to do the gradual closure of the
        non-compliant landfills through activities such as designing, financing and construction.

        As mentioned above, the concession project consists of a compulsory component
        associated with regional waste disposal and two probable components that are subject
        of discussions during the second phase of the competitive dialogue, which relate to the
        operations of waste collection and transportation to the regional landfill and closure of
        the non-compliant landfills. Moreover, another subject of consideration in relation with
        the compulsory first component is the waste disposal technology.


2.3.1   Regional landfill (compulsory component)

        The private partner will finance, design, build and operate a regional landfill for municipal
        solid waste that is generated in the South-eastern planning region. In addition to
        landfilling, other waste disposal technologies consistent with the EU standards will be
        reviewed during the second phase of the competitive dialogue provided they are
        applicable and that the fees charged to the population for the service provided are
        affordable for their purchasing power.

        The location of the landfill, which is in the vicinity of the village of Dobrashinci
        (municipality of Vasilevo), was in principle accepted by both the authorities and the local
        population. The waste from the municipalities of Strumica and Vasilevo is currently
        landfilled on a part of the selected location. An integral part of the construction works
        intended for rendering the location suitable for sanitary landfilling will be the closure and
        the remediation of the existing landfill.

2.3.1.1 Technical specifications for the regional landfill

        The central facility and at the same time the most important element of the concession is
        the regional sanitary landfill7 that the concessionaire will build on a location designated
        by the municipalities in the region8 and the Ministry of Environment and Physical



        7
          Landfills are considered as basic installations of the public utility infrastructure (Article 9 of the Law on
        Public Utility Activities);
        8
           Provided there is a successful completion of the procedures for granting a concession for regional
        integrated waste management, 3 landfills will be built in the following planning regions: Polog, south-eastern
        and south-western regions.



                                                                                                                   25
Planning9. The regional sanitary landfill will meet the requirements of the Waste
Management Law (Article 79 thereof) and of the Rulebook on the manner and procedure
of operating, monitoring and controlling a landfill during its operation, monitoring and
controlling a landfill at closure and after-care of the landfill, as well as on the manner and
conditions of after-care upon termination of their operation (Official Gazette of RM No.
156/07).

The construction of the regional sanitary landfill will provide for a long-term protection of
the environment and for rational utilization of water, energy, equipment, labor and area
at the designated location.

The following facilities will be installed at the landfill, serving the following purposes:

-   Control the leachate from the body of the landfill;
-   Control the generation and capturing of the landfill gas;
-   Controlled drainage of the wastewater from the surrounding area;
-   Access road;
-   Receiving, measuring and inspecting the waste;
-   Administrative building;
-   Workshops for maintaining equipment and vehicles;
-   Facility for washing vehicles and containers;
-   Recycling yard;
-   Lighting;
-   Wells for monitoring the quality of ground water.

No technical specifications for a waste disposal technology different from landfilling have
been considered so far. However, candidates that will participate in the competitive
dialogue are encouraged to propose other appropriate waste disposal technologies that
are in line with the European Union standards.

Conceding authorities will designate the location of the regional sanitary landfill and will
do the land acquisition, if necessary, in order to provide sufficient area for the
construction of all facilities according to the design. Conceding authorities will provide
access to the landfill site, as well as connections for water supply (or alternatively wells
for supply of technical and sanitary water will be dug), electricity and
telecommunications, and will ensure that sanitary wastewater will be collected.

The exact value of the investment will be determined during the negotiations with the
selected candidate following the evaluation of the bids at the end of the third phase of
the competitive dialogue, and it will constitute an integral part of the concession
agreement.




9
  Municipalities submit applications for establishing landfills (Article 80 of the Waste Management Law);
provided the requirements included in Article 79 of the Waste Management Law are met, the Minister of
Environment and Physical Planning issues a License for establishing a landfill (Article 84 of the Waste
Management Law).



                                                                                                      26
2.3.2   Waste collection and transportation (probable component)

The private partner will be eligible for obtaining the right to provide the service of
collection and transportation of the waste from the municipalities to the regional landfill,
so the concession project may additionally include:

        a) Financing, designing and building waste transfer installations, and supplying
        equipment and service required for the regional transportation of the municipal
        solid waste generated in the South-eastern planning region;
        b) Planning and organizing waste collection and providing the service of
        municipal solid waste collection;
        c) Carrying out primary selection and marketing the recyclable types of waste.

The private partner will ensure that the whole territory of the municipality will be covered
with the waste collection service at a given point in time.

The private partner will gradually organize the primary selection of the waste.

The principal criterion to be used when making the analyses for determining the speed
of service expansion and primary selection introduction will be the amount of the fees for
the service.

2.3.3   Non-compliant landfills (probable component)

The third component may include financing, designing, closure and remediation of the
non-compliant landfills.

The concessionaire will be offered to participate in the closure of the existing non-
compliant landfills: should there be a possibility to register the closure of the existing
non-compliant landfills as a project under the Clean Development Mechanism (CDM),
the concessionaire will finance the closure of the non-compliant landfills through the
carbon credits that they would receive from the project. In case of impossibility to
register the closure of the non-compliant landfills as a CDM project, this component
would be fully financed by the private sector.

However, if it is established that the fees for the service of integrated municipal solid
waste management will rise significantly in case of attaching the third component to the
concession project, it is possible that the municipalities, in cooperation with the MoEPP,
will develop a Plan on closure of the non-compliant landfills and proceed with gradual
closure thereof for the purposes of mitigating the environmental impacts and avoiding
illegal dumping of the waste.

In the event when the closure of the non-compliant landfills is not an integral part of the
concession project, the MoEPP inspectorate, in cooperation with the local authorized
inspectors for environment and the communal inspectors, will ensure that all quantities
of collected waste, which will not be recycled or processed, end up at the regional
sanitary landfill. Fines collected for illegal dumping of waste will be paid to a special
treasury account in favor of municipal budgets.



                                                                                         27
3      INSTITUTIONAL FORMS OF PUBLIC – PRIVATE PARTNERSHIP


The practice hitherto has demonstrated that the inter-municipal cooperation, despite the
generally improved conditions, still remains one of the biggest problems for
implementing regional integrated management of solid waste. Every municipality has
different priorities and it is difficult to find a common ground around some key inter-
municipal cooperation issues. During 2009 in the South-east Region were made great
efforts to provide the establishment of an inter-municipal public cooperation that would
assume the duty of regional integrated management of the municipal waste.

Almost all municipalities have their own temporary landfill that does not meet the
standards set by the Waste Management Law. In case the municipalities would like to
achieve the EU standards by way of upgrading the existing landfills, they should invest
several million Euros, and in order to be able to maintain them, the cost of landfilling
would be reflected in a multiple increase in the waste management fees. Inter-municipal
cooperation, i.e. the establishment of regional sanitary landfills and of inter-municipal
public companies for the management thereof, is the only way to benefit from economies
of scale; this practically means that investment costs decrease multiple times with the
construction of one regional sanitary landfill, whereas the landfilling of larger amounts of
waste from the whole region streamlines the operating and maintenance costs. In other
words, instead of having 10 bulldozers and 10 tippers working in 10 municipalities,
instead of constructing 10 plants for treatment of the leachate from the landfill, and
instead of employing 10 times 10 employees, only one facility will be built that will
operate in accordance with the highest standards for landfilling.

On the other hand, the transportation costs of the municipalities increase with the
construction and the operation of a regional landfill. However, the transport of the waste
collected from each municipality may be optimized in order to reduce to a minimum the
number of transport means, the volume thereof and the frequency of the transport. This
is possible only if one regional body owns the transport means and plans the transport
routes with a view to optimizing the transportation costs. Worldwide experiences indicate
that transportation costs are far lower than the costs that each municipality would have if
it were to operate and maintain a sanitary landfill in its backyard.

All assumptions made in the analysis of the types of institutional models, will actually
serve as a basis for establishing relationships between public and private sectors and
will point out the elements of the concession agreed. More details about the basic
assumptions in establishing of partnership between public and private sectors are given
hereinafter.




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3.1    Basic assumptions about the partnership between the public and the
private sectors

3.1.1   Conceding authorities

Conceding authorities are the municipalities in the South-eastern planning region and
the Republic of Macedonia (Article 21 of the Law on Concession and Other Types of
Public – Private Partnership).

The responsibility for waste management regarding the waste collection, transportation
and disposal segments is regulated by the Waste Management Law (Articles 43, 44, 46
and 80) and the Law on Local Self-Government (Article 22). Moreover, Article 80
(Paragraph 2) of the Waste Management Law provides that one or more municipalities
may establish a landfill for municipal waste provided that the establishment of the landfill
is in line with the Waste Management Plan of the Republic of Macedonia. The right of the
municipalities to act as conceding authorities has been vested in them pursuant to Articles
46 and 80 of the Waste Management Law and Article 21 of the Law on Concession and
Other Types of Public–Private Partnership.

The Government of the Republic of Macedonia appears as a conceding authority grantor
because of the MoEPP’s jurisdiction over the establishment of a landfill as per Article 80
(Paragraph 12) of the Waste Management Law. Notably, this article stipulates that for
the sake of protecting the environment and human life and health, unless the
municipalities agree or actually establish a landfill, the Government of the Republic of
Macedonia may establish landfills on their behalf, i.e. on behalf of those municipalities
that were envisaged to establish landfills in accordance with the Waste Management
Plan of the Republic of Macedonia.

In the South-eastern planning region, the municipalities have actually agreed to establish
a joint landfill. For this purpose, they have signed an Agreement on inter-municipal
cooperation aiming to establish a region for municipal solid waste management, based
on the Decisions10 on establishment of inter-municipal cooperation adopted by the
councils of the municipalities in the region. However, these legal acts have not fully
defined the requirements for the inter-municipal cooperation, which pursuant to Article
80, Paragraph 4 of the Waste Management Law, should be specified in terms of the
following qualitative and quantitative parameters:

-    The exact names of the founders (the municipalities and the private partner);
-    The projected capacity (including data on each municipality’s share in terms of the
     specific amounts of waste);
-    The total population covered by the system (including data on the speed i.e. dynamics of
     covering the total population for each municipality separately);
-    The financing sources and the possible contributions to the provision of the financial
     means by each of the municipalities (if it is decided so during the competitive dialogue
     procedure);

10
    An Agreement on Inter-Municipal Cooperation shall be signed by the Mayors of the
municipalities following the adoption of a Decision by the Councils of the municipalities (Articles 4,
5, 6 and 7 of the Law on Inter-Municipal Cooperation, Official Gazette of the RM No. 79/09)


                                                                                                   29
-    Authorized applicant (for example, the municipality of Vasilevo may be the authorized
     applicant submitting the request for establishing a landfill in the South-eastern region,
     since the location of the regional landfill is on its territory; in addition, the private partner
     may be authorized to establish the landfill, or the Government may establish the landfill
     on behalf of the municipalities. The final choice of the authorized applicant submitting the
     request for establishing a landfill will be made in the third phase of the competitive
     dialogue process);
-    Deadlines for the completion of each individual phase, including the development of
     project documentation, construction, operation, closure and after-care.

Another important aspect related to the sharing of the duties falling under the role of
conceding authority among the municipalities is the after-care of the landfill, which will
move into the hands of the municipalities once the validity of the Concession Agreement
has expired. The responsibility for the closure and the after-care of the landfill should be
specified in the relevant inter-municipal agreement, including the methods of sharing
these costs among the municipalities and of providing these resources during the period
from the establishment of the landfill until the closure thereof. These provisions, besides
finding their place in the Agreement between the municipalities, should also constitute
an integral part of the concessionaire’s agreement.

3.1.2    Contracting parties

Given that the municipalities are working on harmonizing their mutual interests regarding
the establishment of the regional landfill, and that they have not adopted a final common
position concerning the technical, institutional and financial aspects of the landfill yet, the
Government of the Republic of Macedonia, through the MoEPP, has assumed a
coordinating and advisory role until such time when all the preconditions for the
establishment of the landfill have been fulfilled. Therefore the Government, in addition to
the Councils of the municipalities – conceding authorities, adopted a Decision11 on
initiating a procedure for issuing a concession for financing, designing, building and
operating a regional landfill in the South-eastern region.

The municipalities in the South-eastern planning region have also adopted Decisions on
initiation of a procedure for issuing a concession for integrated municipal solid waste
management. This leads to an integration of the project components that are generally
under the jurisdiction of the local authorities (collection, transportation and disposal of
waste) with the competence of the Government with regard to the establishment of the
landfill, the idea being that the candidates should propose solutions for full coverage of
the system with appropriate regional approach concepts. The integration of these
components will enable adequate planning of the operations of collection, transportation
and disposal of the municipal solid waste aimed at cost optimization, i.e. at setting an
acceptable amount of the fees that will be collected by the end users (households,
institutions, businesses and industry).

11
   Decisions on initiation of the procedure for granting a concession are adopted by the
Government of the Republic of Macedonia when the Republic of Macedonia is the conceding
authority, as well as by the Councils of the municipalities when the municipalities are the
conceding authorities (Article 26 of the Law on Concession and Other Types of Public-Private
Partnership, Official Gazette of the RM No. 07/08 and 64/09).


                                                                                                   30
In accordance with the Decisions adopted by the municipal Councils and by the
Government of the Republic of Macedonia, the MoEPP will lead the process and create
all the necessary preconditions for the municipalities to reach a consensus regarding the
selection of the future conceding authority. In addition, the MoEPP will see to it that the
municipalities accept and deliver on their obligations in terms of developing the location
of the landfill, securing appropriate amounts of waste to be collected within their
respective territory for landfill operation sustainability reasons, as well as providing the
financial means necessary for covering the costs of landfill operation, closure and after-
care.

Once the Agreement on Inter-Municipal Cooperation has been signed, the MoEPP will
appear as one of the signatories to the Concession Agreement for the regional sanitary
landfill (in addition to the ten municipalities in the region), which will ensure that the
obligations undertaken by the municipalities are consistently delivered on.

It should be noted that if the final scope of the concession project includes only the first
component (the regional landfill), a conflict might emerge between the operations of
landfilling (which would be done by the private partner) and collection/transportation of
the waste (which would be done by the public utility companies that are owned by the
municipalities). Notably, the tendency of the public utility companies will be to have as
little quantities of waste delivered for landfilling as possible (because in this way their
total costs are reduced through the savings made), whereas the intention of the private
operator will be to receive as large amounts of waste for landfilling as possible because
this increases their revenues and decreases the total operating costs. Consequently, it is
thought that the best economic performance will be achieved if the concession project
includes the component of waste collection and transportation to the regional landfill as
well.

The agreements on the second component (collection and transportation of the waste)
will be signed between the individual municipalities and the private partner, as annexes
to the agreement on the regional landfill. It is possible that some municipalities will enter
into such agreements, whereas the rest will continue to provide the waste collection and
transportation service through the existing public utility companies. The final decision on
the scope of the concession project regarding the private sector participation, i.e. the
type and the size of the partnership for the second component, will be made upon
completion of the second phase of the competitive dialogue.

The model of the agreements on waste collection and transportation will depend on the
institutional concept, i.e. on the model of partnership with the private partner. The
alternative options are discussed below.




                                                                                          31
3.1.3     Models of partnership between the public and the private sector

3.1.3.1         Regional landfill

The concession to be granted to the private partner, whereby they will acquire the right
to build and operate the landfill, can be contractual or institutional concession.

In case of a contractual concession, the conceding authorities (the municipalities and the
Republic of Macedonia) will enter into a Concession Agreement with a foreign private
entity that will establish a subsidiary of its own in Macedonia. The private legal entity with
limited liability in Macedonia will assume the obligations in accordance with the
agreement for a period of 25 years, during which period the concessionaire will finance,
design, build and operate the facilities and the infrastructure. The ownership of the
facilities will be in the hands of the conceding authorities. Prior to signing the Concession
Agreement, the conceding authorities will sign an agreement (chapter 3.1.2) regarding
some aspects related to the supply of adequate amounts of waste for landfilling, the
price to be paid for the landfilling service by each individual municipality etc.

In case of an institutional concession, the conceding authorities will establish an inter-
municipal public company12 that will be transformed into a limited liability company so
that a mixed company with the private partner could be established. The inter-municipal
public company will be established in accordance with the agreement between the
municipalities signed beforehand. The conceding authorities will sign a Concession
Agreement with the mixed company that will be responsible for delivering on the
contractual obligations over a period of 25 years, which will be the period of validity of
the agreement.

Both types of agreements will ensure that the private partner, either through the legal
entity that they will establish in the country or through the mixed company that will be
established by the municipalities and the concessionaire, will have the right to provide
the service of regional landfilling of the waste within the territory of the South-eastern
planning region, and to charge the conceding authorities a fee for landfilling. This
practically means that the public utility companies should build in the landfilling cost
when setting the fees to be charged to the end users. At the moment, landfilling costs
are minimal, which means that the fees will need to be increased in almost all
municipalities in the future in order to cover the additional costs related to the sanitary
regional landfilling.

In case when the concessionaire is an independent legal entity (contractual concession),
it will be possible to change the landfilling fee in a manner as stipulated in the
agreement. Changes in the mode of operation, including changes in the price of the

12
   Public-private partnership may also be institutionalized directly by way of founding a mixed
company, without previously establishing an inter-municipal public company. In any case, a
precondition for the establishment of such a company is the signing of an Agreement on Inter-
Municipal Cooperation. The inter-municipal public company is suggested as a possible
institutional form because of the fact that the public sector can still play a role in terms of some
kind of a regulatory body responsible for monitoring the fulfillment of the obligations from the
Concession Agreement.


                                                                                                 32
service, which have resulted from changes in the conditions defined in the Concession
Agreement, will be regulated by an annex to the agreement.

In case of an institutional concession, i.e. when the conceding authorities and the private
partner have established a joint legal entity (mixed company), a company management
board shall decide on all the changes associated with the agreement. The mixed
company (the public-private partnership) will ensure that the conceding authorities are
represented in the management board and that they are proportionately involved in the
day-to-day policy and management of the mixed company.

The Concession Agreement between the conceding authorities and the private partner,
be the latter an independent legal entity or a mixed company established by the public
and the private partner, will regulate the following issues:

1) the subject of the agreement which includes scope of work (civil works, procurement
of equipment), services, quality and manner of doing the work;
2) the financial provisions of the agreement;
3) the rights that the public partner hands over to the private partner;
4) the resources that the public partner hands over to the private partner, as well as the
procedure for transferring those resources;
5) the contracting parties' rights of ownership over the facilities and the infrastructure that
are subject of construction and operation according to the agreement, as well as the
ownership with regard to all non-monetary resources such as permits, licenses and other
documentation;
6) the validity period of the agreement;
7) the time limits for construction and the length of the period for provision of the
respective services, as well as the conditions under which those time limits can be
revised;
8) the method of returning the resources handed over to the private partner, including
the facilities and the infrastructure that are subject of the agreement and that are
necessary for the provision of the service by the public partner, in case of premature
termination or expiration of the agreement;
9) restrictions with regard to changes around the managerial rights in case of an
agreement with the private partner represented in the mixed company, which are
associated with changes in the status of the parent company of the foreign legal entity;
10) the scope and the type of risks which the public partner is transferring to the private
partner;
11) payment of the fees that are paid between the public and the private partners,
method of payment, time limits for payment etc.;
12) the right of the private partner to charge the end users fees, methodology of
calculating the amount of the fees, and method of collecting the fees;
13) obligations on the side of the private partner in order to provide continuity of service
throughout the period of validity of the agreement;
14) rights of the contracting parties to transfer to third parties the rights and the
responsibilities arising from the agreement, and conditions restricting these rights;
15) provisions whereby the private partner commits to insuring the risks associated with
the execution of the agreement, as well as the value of the risks that need to be insured;
16) obligations of the private partner associated with the protection of the environment;




                                                                                            33
17) rights and responsibilities of the contracting parties relating to acquisition of real
estate, equipment or other assets that are directly associated with the execution of the
agreement, which are not foreseen with the financial conditions of the agreement;
18) procedure whereby the public partner will monitor the execution of the agreement;
19) “force majeure” situations, as well as activities by the contracting parties in such
cases;
20) cases when the agreement can be terminated by mutual consent, as well as
compensation for damage in such cases for the contracting parties;
21) cases of unilateral termination of the agreement and compensation for damage;
22) conditions for and frequency of amending the agreement and related restrictions and
procedures;
23) obligations of the contracting parties arising from previous agreements;
24) conditions under which the public partner may assume and deliver on the obligations
of the private partner with a view to providing continuity of service;
25) competent authorities for dispute resolution;
26) other provisions in accordance with the law.

Usual reasons for amending the agreement include:

1) sudden significant changes in the legislation that are applicable to the conditions in
the agreement;
2) sudden significant changes in the economic environment that affect the conditions of
the agreement, including changes in the current prices that affect the planned
investments and operating costs.

3.1.3.2 Collection and transportation of municipal solid waste

When signing an agreement for collection and transportation of municipal solid waste
with the private partner as part of the concession project, the following will be made
possible:

-   The private partner will be able to optimize the whole system in order to reduce the
    overall costs, which will be reflected in the total price charged to the end users;
-   There will be no need for guarantees for annual waste amounts delivered for
    landfilling in order for the private operator’s costs for landfilling to be covered;
-   There will be no need for strict control over the amounts of landfilled waste, based on
    which the amount of the fees for landfilling that will be invoiced to the municipalities /
    public utility companies will be determined;
-   There will be no need for frequent amendments to the agreement in terms of
    corrections of the fees.

Agreements for collection and transportation of the municipal solid waste may be
entered into between the municipality and:

-   The legal entity operating the landfill;
-   Mixed company that will be established by the municipality and the private operator.

In both cases, the private operator is enabled to have a certain type of monopolistic
situation, but this allows the private operator to optimize the available resources with a
view to making savings. The first model is more efficient, but its implementation requires


                                                                                           34
dramatic changes in relation to the current situation, i.e. total revocation of the waste
collection activity performed by the existing utility companies. The second model yields
certain advantages over the organization of the services by the private operator as well
as acceptable economic results, but it delays any radical reform in the public utility
sector.

Institutional forms of partnership between the private and the public sectors will depend
on whether the final regional concept will cover only the first (compulsory) component, or
it will also cover the second component. The third component does not affect the
decision on the institutional model of partnership.

3.1.3.3 Entering into an agreement on municipal solid waste collection and
transportation with the legal entity operating the landfill (operator)

It is when the component of collection and transportation of the municipal solid waste
constitutes an integral part of the Concession Agreement that regionalization of the
municipal solid waste management takes place in the true sense of the word.

With this model, the only operator of the overall regional integrated system for municipal
solid waste management is one regional legal entity (contractual concession) or a mixed
company established as a joint venture by the municipalities and the private partner
(institutional concession). This practically means that the regional operator will organize
the entire system for collection, transfer (if necessary), regional transport and landfilling
of the waste. For the operations of waste collection and regional transport, the regional
company will establish subsidiaries in each municipality where a public utility company is
currently operating. In municipalities where no public utility company for waste collection
has been founded so far, the waste collection service will be provided by the regional
operator or by a subsidiary of theirs, depending on the location of the municipality and its
distance from the headquarters of the regional operator.

The headquarters of the operator will be on the regional landfill, or in the largest
municipality located relatively close to the landfill. As for the south-eastern planning
region, the headquarters of the regional operator will be either on the location of the
Dobrashinci landfill (municipality of Vasilevo), or in Strumica. The regional operator,
regardless of whether the concession is contractual or institutional, will do the overall
administration related to the organizational, financial, personnel and legal operations of
its own subsidiaries that will be located in each municipality with a public utility company.
Each subsidiary (e.g. in Valandovo, Dojran, Radovish) will take over some of the staff
members from the existing utility companies and part of the equipment that can be used
with reasonable maintenance costs. There would be no joint services in the subsidiaries,
as was mentioned, so the staff there will be directly involved in the activities of waste
collection and transportation. Moreover, the maintenance of the equipment for waste
collection and transportation (containers and vehicles) will be fully centralized in order to
make savings when purchasing spare parts; at the same time, the regional operator will
be able to plan for the procurement of spare vehicles that will be activated the very
moment when some vehicle is at a garage for repair or is out of order for whatever
reasons. The regional operator will do the invoicing and the collection, whereas the
database of service users (households, institutions, businesses and industry) will also be
maintained centrally. Every service user will sign a Service Contract with the regional


                                                                                          35
operator. All revenues from the operations of the system will go to the account of the
regional operator, and the salaries of the staff in the subsidiaries will be paid out of the
joint account.

This (regional) institutional model of the Concession Agreement will include both project
components (collection/transportation and landfilling of waste), and the agreement will
be valid for a period of 25 years.

3.1.3.4 Entering into agreements on municipal solid waste collection and
transportation with mixed companies established independently from the regional
operator

The private partner may establish public-private partnerships with the municipalities in
which there are public utility companies currently operating. The private partner and the
municipalities will establish mixed companies; the staff and the fixed assets from the
group of utility companies that are currently involved in waste collection will be
transferred to the mixed companies. For example, in Strumica, Gevgelija, Radovish and
Dojran, new mixed ownership companies with varying shares in terms of managerial
rights may be established, where the shares will depend on the relative value of the
public sector’s fixed assets and the number/density of population, which are closely
associated with the amounts of waste. This, on the other hand, influences the
relationship between the revenues and the expenditures (expenditures per ton of
collected waste).

The mixed companies owned by the municipality and the private partner will be more
independent than the subsidiaries of the regional operator in the previous case. The
municipalities will be more directly involved in the work of these companies, since they
will be directly interested in being paid a dividend, i.e. in the successful financial
performance of the company. Joint services will be reduced, but they will be necessary
for the purpose of administering the operations of the companies. The private partner will
see to the streamlining of the costs and the efficient organization of the operations,
which will have a positive reflection on the total costs at the regional level. The collection
of the fees will be done by the mixed companies at municipality level, and these
companies will have sub-accounts under the account of the regional operator.

Following the establishment of these mixed companies, the municipality will sign a
Service Contract or a Management Contract, depending on the types of rights and
responsibilities that will be awarded to the mixed company with regard to investments
and maintenance of the equipment, i.e. of the real estate of the company. In case of a
Service Contract, the municipality will assume the obligations for making investments
(replacement of the worn out equipment, procurement of containers etc.) and will collect
fees from service users, whereas the mixed company will be paid a fixed fee for the
service provided. It is also possible for the mixed company to be involved in fee
collection, but it will be obliged to pay a fee to the municipality, and with this money the
municipality will make the necessary purchases due to the depreciation of the fixed
assets.




                                                                                           36
The authorizations of the mixed company are larger in case of a Management Contract,
thus the municipality will primarily be involved in monitoring its operations, whereas the
mixed company will make all the investments.

These contracts can be concluded as part of the concession project, but their validity will
be between 5 and 8 years, with a possibility for extension. This is how competition is
encouraged, so that upon expiration of the contract it will be possible for the
municipalities to hire another operator, irrespective of the fact that the former employees
of the public utility company will make up the majority of the staff in these mixed
companies. Competition will also be possible between the mixed companies in the
region; so, for example, the company that will have a contract with the municipality of
Strumica will be able to appear as provider of the service of waste collection and
transportation in the municipality of Radovish and vice versa, following the expiration of
the contract.

With this model, it is possible that some municipalities will not establish mixed
companies with the regional operator and will retain the existing public utility companies.
The position of each municipality will be known at the end of the second phase of the
competitive dialogue, so those municipalities that will decide to enter into a public-private
partnership with the regional operator by way of establishing mixed companies will
define the scope of the second component, as well as the type of contract to be signed
as an integral part of the project under this second component.

3.1.4    Possible role of the inter-municipal public company

The institutional concession for managing the regional landfill would be implemented in
the most adequate manner if the municipalities first established an inter-municipal public
company. The establishment of the inter-municipal public company is an alternative to
the signing of the agreement between the municipalities on inter-municipal cooperation,
as a precondition for signing the Concession Agreement.

In order to allow for the entry of private capital, the inter-municipal public company would
be transformed into a limited liability company or a joint stock company; it is possible for
the public company to continue to function, and to establish a subsidiary of its own for
the sake of establishing a mixed company (pursuant to Article 4, i.e. 4а of the Law on
public enterprises; the procedure referred to in Article 4a is subject to the Law on
Transformation of the Enterprises with Social Capital).

In case of a subsidiary separation from the inter-municipal public company, the public
       company may perform the following functions:

 -      Develop municipal and regional waste management plans, as well as programs
        on implementation of the plans; carry out the procedure for Strategic Assessment
        of the Impact by the waste management plans and programs.
 -      Develop a plan on extension of the service to rural settlements and a plan on
        closure of non-compliant landfills; monitoring of the implementation of these
        plans.
 -      Draft legal acts in accordance with the Law on Solid Waste Management, for the
        purpose of regional integrated management of the municipal solid waste.


                                                                                          37
    -    Representing the ownership of the conceding authoritys over the regional
         facilities and infrastructure, including the non-compliant municipal landfills.
    -    Carry out the procedure for obtaining all necessary licenses, including the
         submission of an application for the establishment of a landfill; carry out the
         environmental impact assessment procedure; obtain a permit to establish a
         landfill; develop an application for integrated pollution prevention and control and
         obtain an “А” integrated permit; develop a general environmental audit; develop
         an urban plan outside of a settlement; obtain a construction permit etc.
    -    Correct the fees for waste management in accordance with the changed
         conditions (amendment of a law, change in the oil price etc.).
    -    Monitor the performance of the private operator/concessionaire with a view to
         enforcing the provisions of the Concession Agreement.
    -    Organize and deliver training for the existing public companies operating in the
         municipalities.
    -    Design and carry out public awareness campaigns with a view to achieving the
         environmental objectives and enforcing the provisions of the Concession
         Agreement.
    -    Keep records on the amounts of landfilled waste with a view to assessing the
         fees for landfilling that municipalities are paying to the private operator.
    -    Manage a special treasury account that concession fee is paid to, with the money
         supplementing the conceding authoritys’ budgets.
    -    Draft annex concession agreements regarding the handling of packaging and
         packaging waste, as well as other types of waste different from the municipal
         waste (e.g. collection, transport, recycling, processing/treatment of waste tires,
         electrical and electronic equipment, waste oils etc.); as regards the handling of
         the specific types of waste, it is necessary to develop plans that are subject of
         the Ministry of Environment and Physical Planning’s approval.
    -    The inter-municipal company is established, inter alia, for the purpose of securing
         the continuity of service in case of any kind of financial or legal problem faced by
         the private operator, which would cause a temporary or permanent cancellation
         of the Concession Agreement.


3.1.5 Establishment of an inter-municipal public company for regional integrated
management of solid waste

The procedure for establishing an inter-municipal public company is stipulated in Article
4 of the Law on Inter-Municipal Cooperation. It is stipulated as follows:

-       The joint public company is established based on a Decision adopted by the
        municipalities, with a majority of votes from the total number of members of the
        council in each municipality, which is a founder of the company.
-       The Mayors sign an Agreement on the establishment of the company, in which the
        mutual rights and responsibilities are regulated (pursuant to Article 16 of the Law on
        Public Utility Activities, the legal act with a similar intention is called Arrangement).




                                                                                              38
-    The Decision13 on the establishment of the inter-municipal public company shall
     regulate the following in particular:
            The business;
            The sign and the headquarters;
            The organization of the company;
            The manner in which the decisions taken by the company bodies are
            enforced;
            The liability of the company regarding the obligations in the legal turnover
            towards third parties;
            The deadline for the adoption of a Statute and the appointment of the bodies
            of the company.
            The appointment of a person who will manage the operations of the company
            until the institutionalization thereof.
            The method of selection of the company director.
            The composition and the method of electing the members of the Board of
            Directors and of the Steering Committee.

Upon the establishment of the inter-municipal public company, funds will be invested by
the municipalities (as authorized capital) with a view to covering the operating costs of
the company until the system has started operating, i.e. until the start of the generation
of income from the collection of landfilling fees/concession fee.




13
  NB: in the Law on Public Utility Activities, the contents covered by the Decision referred to in
Article 4 of the Law on Inter-Municipal Cooperation are regulated with an Arrangement.


                                                                                               39
4        JUSTIFICATION OF THE CONCESSION


4.1      Potential benefits

The global experiences with private sector involvement in the waste management sector
can be sublimated in the following manner:

-     Speeding up the process of building an infrastructure that is harmonized with the EU
      requirements: it is possible to finance capital structures with the assistance of the
      private sector; so, in conditions of a lack of national and local financing, the private
      partner can obtain favorable conditions from commercial banks and international
      financial institutions and proceed with the implementation of projects for regional
      integrated waste management. Private operators tend to get special discounts from
      manufacturers and distributors because of their large-scale procurement of vehicles
      and equipment. In addition, they have a spare capacity of vehicles and equipment
      that they are able to make available under favorable conditions.
-     Faster implementation: an experienced private operator can produce the required
      project documentation in the shortest period of time, because of their motivation to
      start with service provision and obtain an appropriate compensation for that.
-     Reduced management and maintenance costs: the private sector is motivated to
      organize the operations and the maintenance of the infrastructure with minimum
      costs, which guarantees that the price of the service to be paid by the citizens will be
      sustainable, while making profit as well.
-     Efficient risk allocation: depending on the volume of responsibilities of the private
      sector, the risk they have undertaken reflects on the price of the service. A fair risk
      allocation leads to a lower price of the service.
-     Improved quality of the service: the Concession Agreement defines the type and the
      volume of the service in such a way that the private operator should be interested in
      complying with these conditions, because otherwise the penal provisions will be
      applied.
-     Strengthened control by the public sector: the municipalities, through their bodies,
      will monitor the performance of the private operator in order to ensure that the
      provisions of the Concession Agreement are enforced. The best-suited body to
      monitor the performance of the private operator is the inter-municipal public
      company.

Unless an inter-municipal public company is established, it will be necessary to establish
a body that will be designated as an authority for monitoring the fulfillment of the
contractual obligations by the private operator.


4.2      Potential risks

Potential risks associated with private sector participation include:

-     Loss of control by the public sector over the organizational matters of the private
      operator: because of the increased risk for the private operator in case when he has


                                                                                           40
      completely taken over the financing duty, he will demand greater rights with regard to
      decision-making.
-     Increased prices/fees: currently, the price of the fees is formed without establishing
      the actual cost of the service provided by the public sector; the participation of the
      private sector is likely to lead to a progressive increase in the fees as a result of the
      economic logic applied in price formation.
-     Financing the risks: given that the structures and equipment will be financed with
      credits, the price of the service will include in itself the interest, the amount of which
      will depend on the risk estimated by the international financial institutions and
      commercial banks.
-     Political risks: due to the insufficient experience with private sector participation in
      the waste management sector and the lack of information among the citizens, there
      is a possibility that the Concession Agreement will be unpopular among the
      population.
-     Private sector vulnerability to economic tendencies: private companies may have
      financial hurdles (especially in conditions of a global economic crisis), and this may
      result in unforeseen events and in service provision discontinuity.

Risks may be covered by the Concession Agreement in the majority of cases, and the
public sector should be prepared to resolve the issues in a transparent and fair manner.


4.3    Possibilities for different ways of financing and managing the subject of
the proposed concession

The selected concessionaire will finance the construction of the regional sanitary landfills
and will purchase the mobile equipment. In case the Government of the Republic of
Macedonia and the municipalities in the regions provide co-financing, this will ensure
better starting points for the negotiations around the price of the service and other
aspects of the public private partnership.


4.4      Methodology for calculation of the gate fee

The Methodology developed within the frame of this Study for the purpose of calculation
of the gate fee, basing on the following input data:

 Table 1. GENERAL DATA for Southeast region

 Population                                              171,416       inhabitants
 Growth rate                                              0.22%            (%)
 Urban Population                                         40.6%            (%)
 Rural population                                          59%             (%)

 Average (2011-2040)
 Total Population                                        180,438
 Population Urban                                        73,325
 Population Rural                                        107,113
 Total Waste Less recycling                               38,863        tons/year


                                                                                             41
TOTAL                                                       1,165,888   tons/lifecycle
Daily waste generation                                         106         tons/day
Generated waste in urban areas                               18,827       tons/year
Generated waste in rural areas                               20,036       tons/year


Table 2. BoQ for Sanitary landfill in the Southeast Region

PLANNING AND PREDEVELOPMENT
Land Pre-Purchase / Pre-Leasing Agreements                                                  € 1,000
Survey and Preliminary Design                                                              € 15,000
Geotechnical & Groundwater Investigations                                                  € 50,000
Other Detailed Studies (I.e. Noise, Traffic, Visual, etc)                                  € 25,000
TOTAL PLANNING AND PREDEVELOPMENT                                                          € 91,000

BASE COSTS
Engineering
 Detailed Design and Documentation (%)                                                     € 275,823
 Construction Management (%)                                                               € 344,779
Contractor's Preliminary & General (%)                                                     € 482,691
TOTAL BASE COSTS                                                                         € 1,103,293

DEVELOPMENT

SITE ACCESS
Intersection Upgrade                                                                       € 50,000
Other Roading Network Upgrades/ Contributions                                             € 100,000
Reconstruction of Existing Access Road - Intersection to Footprint (6m x 5000m)           € 450,000
Special Structures (Diversions, Bridges, etc)                                              € 45,000
TOTAL SITE ACCESS COSTS                                                                   € 645,000

SITE AMENITIES & SERVICES
Site Entrance                                                                               € 5,000
Administration Building                                                                    € 60,000
Weighbridge & Kiosk                                                                        € 30,000
Machinery Shed, Maintenance Facility                                                       € 20,000
Power & Phone (including Connection to electricity grid)                                   € 10,000
Sewerage                                                                                    € 5,000
Water Supply (including water supply reservoir 50 m3, fire protection reservoir 100
m3)                                                                                        € 37,750
General Civil Works (Sealing, Parking) -Administration                                    € 112,500
Washdown Facility/Wheel wash                                                               € 25,000
Fencing                                                                                    € 42,500
Landscaping                                                                                  € 5,000
TOTAL SITE AMENITIES & SERVICES                                                           € 352,750

LANDFILL EQUIPMENT
Landfill compactor                                                                        € 225,000


                                                                                           42
Bulldozer                                                                   € 125,000
Tracked Excavator                                                           € 100,000
Dump Truck (10m3)                                                           € 120,000
Other equipment (car, van, water tank)                                       € 50,000
TOTAL LANDFILL EQUIPMENT                                                    € 620,000

LANDFILL (Cells) CONSTRUCTION - Earthworks, Liner, Leachate
Land Acquisition & Associated/ Set Up Costs                                  € 20,000
Clearing (old refuse replacement)                                            € 75,000
Excavation, bottom and sides formation, levelling, compaction                € 60,000
Supply and placing of GEOEXTILE (under the gravel layer 400g/m2)            € 200,000
Placing of fine sand-bed under pipes                                         € 13,500
Supply, lay and assembly of drainage pipes (PVC or PE), Nominal Diameter
(200mm)                                                                       € 30,000
Supply and placing of GEOEXTILE (drainage pipes protection 200g/m2)             € 1,969
Placing of gravel above the drainage pipes                                 € 1,000,000
Supply and placing of GEOEXTILE (above the gravel layer 1200g/m2)            € 400,000
Transverse embankments (5)                                                   € 140,625
Perimeter Access Road                                                         € 90,000
TOTAL LANDFILL (Cells) CONSTRUCTION                                        € 2,031,094

LANDFILL Leachate Treatment System
Leachate pre-treatment Disposal Facility                                     € 25,900
Instrumentation for Leachate pond                                              € 2,590
Pump Station                                                                 € 10,000
Leachate Treatment System                                                    € 94,000
TOTAL LANDFILL Leachate Treatment System                                    € 132,490

LANDFILL Storm water Management System
Major Storm water Diversion (Open Drain Canal)                                59,500 €
Storm water Treatment Ponds
  Ponds                                                                      39,000 €
  Instrumentation & pump station & piping                                    13,900 €
TOTAL LANDFILL Storm water Management System                                € 112,400

LANDFILL Gas Management System
Vertical Extraction Wells                                                     € 37,500
Ring Header (below grade)                                                     € 49,000
Laterals to vertical wells (above grade)                                      € 24,975
Flare Stations
  Interim                                                                    € 20,000
  Final                                                                     € 200,000
TOTAL LANDFILL Gas Management System                                        € 331,475

CLOSURE
Gas removal layer (sandy gravel Dmax=32mm)                                  € 350,000
Geotextile (400 g/m2)                                                       € 200,000
Mineral insulation (clay 2x25cm, Kf<10-9m/s)                                € 625,000


                                                                             43
Mineral drainage (clay 50cm, Kf>10-4m/s)                                             € 750,000
Topsoil cover (the upper 40 cm contains humus)                                       € 600,000
Removal of Facilities                                                                 € 15,000
Modifications to site storm water, leachate, landfill gas and other systems          € 130,373
TOTAL CLOSURE                                                                      € 2,670,373

AFTERCARE
Administration                                                                           € 4,000
Site Inspection                                                                          € 1,000
Final Cover System
  Final Cover maintenance                                                                € 5,000
  Vegetation maintenance                                                                 € 1,500
Leachate System maintenance
  Leachate Disposal                                                                      € 2,000
  System maintenance                                                                     € 2,500
  Electricity                                                                            € 3,000
Gas Management System
  Maintenance                                                                            € 2,500
  Replacement                                                                            € 1,000
  Electricity                                                                            € 2,000
Environmental Monitoring System
  Groundwater                                                                           € 5,000
  Landfill Gas                                                                        € 12,500
  Leachate                                                                              € 3,000
  Storm water                                                                           € 1,000
Removal of Remaining Facilities                                                       € 10,000
TOTAL AFTERCARE                                                                    € 1,275,000

CONTINGENCIES
Predevelopment                                                                          € 13,650
Development                                                                            € 360,521
Closure                                                                                € 267,037
Aftercare                                                                               € 63,750
TOTAL CONTINGENCIES                                                                    € 704,958

TOTAL COSTS                                                                      € 10,069,833



Table 3. SUMMARY table of investment costs for Sanitary landfill in Southeast Region

PLANNING AND PREDEVELOPMENT                                                       € 91,000
BASE COSTS                                                                     € 1,103,293

SITE ACCESS                                                                      € 645,000
SITE AMENITIES & SERVICES                                                        € 352,750
LANDFILL EQUIPMENT                                                               € 620,000
LANDFILL (Cells) CONSTRUCTION - Earthworks, Liner, Leachate                    € 2,031,094



                                                                                       44
LANDFILL Leachate Treatment System                                                  € 132,490
LANDFILL Storm water Management System                                              € 112,400
LANDFILL Gas Management System                                                      € 331,475

CLOSURE                                                                            € 2,670,373
AFTERCARE                                                                          € 1,275,000

CONTINGENCIES                                                                       € 704,958

TOTAL COSTS                                                                       € 10,069,833



Table 4. Annual operating costs for sanitary landfill in Southeast Region

ANNUAL OPERATION COSTS
Direct Costs & Indirect Costs
Refuse Placement                                                              €
                                                                       120,000           3.00 euro/t
Daily Cover                                                            € 8,000           0.20 euro/t
Nuisance Control Litter, Odour, Birds, Vector                           € 5,000         5000 euro/yr
General Maintenance                                                    € 2,500          2500 euro/yr
Salaries, Wages & Overhead                                            € 66,300
       Landfill manager                                                                    8,160 €
       Accountant                                                                          5,100 €
       Drivers / Plant operators (3)                                                      15,300 €
       Labourers (2)                                                                       8,160 €
       Weighbridge operator                                                                4,080 €
       Office clerk                                                                        4,080 €
       Security (4)                                                                       16,320 €
       Mechanics                                                                           5,100 €
Intermediate Cover                                                     € 6,000           0.15 euro/t
Roading (Temporary)                                                   € 10,000           0.25 euro/t
Leachate Tmt & Disposal                                               € 19,500          0.50 euro/m³
                                                                                             200
Gas Control                                                            € 2,000           euro/ha/yr
Stormwater Maintenance                                                 € 2,500          2500 euro/yr
Monitoring - Stormwater, Groundwater, Leachate, Landfill Gas, Local
Ecology, Topographic and Aerial Survey, Waste Analysis Surveys,        € 5,000          5000 euro/yr
Regional Council Costs                                                 € 2,000          2000 euro/yr
Electricity Charges                                                    € 5,000          5000 euro/yr

                                                                            €
TOTAL OPERATING COSTS                                                 253,800




                                                                                         45
PROJECT COSTS ANALYSES

Investment Costs

Operation and Maintenance (O&M) Costs

Replacement costs

Closure

Aftercare

Other Costs (Municipal charge)

IRR = 5 - 12%
NPV = 0
C/B Ratio =1




Disposal Fee= DFInvestment Costs+DF(O&M) Costs+DFReplacement costs+DFClosure+DFAftercare+DFOther Costs


                                                                                  Discount rate
 Landfill                                   Unit         5%                 8%               10%                12%

       28 €
 Investment costs                           €/T    € 8.25     40%       € 10.70   46%     € 12.40      49%   € 14.25   52%
                             27 €
     26 €
 O&M costs only                             €/T    € 6.73     32%       € 6.73    29%     € 6.73       27%   € 6.73    25%
                             25 €
   Disposal Fee (Euro/ton)




 Replacement costs
      24 €                                  €/T    € 1.10     5%        € 1.15    5%      € 1.15       5%    € 1.15    4%
                             23 €
 Closure €
      22                                    €/T    € 2.55     12%       € 2.65    11%     € 2.75       11%   € 2.90    11%
                             21 €
 Aftercare                                  €/T    € 1.15     6%        € 1.15    5%      € 1.15       5%    € 1.15    4%
                             20 €
                             19 €
 Other costs                                €/T    € 1.00     5%        € 1.00    4%      € 1.00       4%    € 1.00    4%
                             18 €
                             17 €
 TOTAL costs                                €/T    € 20.78              € 23.38           € 25.18            € 27.18
                                    5   6            7              8              9              10          11             12
                                                                    Discount rate (%)




                                                                                                                       46
Disposal Fee = F1xInvestment Costs + F2x Annual Waste Amount (O&M) Costs + F3xReplacement
costs + F4xClosure + F5xAftercare + F6x Annual Waste Amount Other Costs


                                                                                            Discount rate
                                                     Fi 5%                        Fi   8%                   Fi   10%           Fi   12%

                                    -6
 Investment costs (millions 10 )                     1.424                        1.847                     2.140              2.460
                                         -3
 O&M costs only (thousands 10 )                      0.160                        0.160                     0.160              0.160

 Replacement costs (millions 10-6)                   0.591                        0.618                     0.618              0.618
                     -6
 Closure (millions 10 )                              0.868                        0.902                     0.970              0.987
                       -6
 Aftercare (millions 10 )                            0.859                        0.859                     0.859              0.859
                               -3
 Other costs (thousands 10 )                         0.024                        0.024                     0.024              0.024




Sensitivity Analysis

1. Investment Costs (IRR = 10% NPV = 0 C/B Ratio =1)
                                                                                                                                            16

                                                                                                                                            15




                                                                                                                                                 DF investment costs (euro)
                                                                                                                                            14

                                                                                                                                            13

                                                                                                                                            12

                                                                                                                                            11

                                                                                                                                            10

                                                                                                                                            9

                                                                                                                                            8
 -25%        -20%           -15%              -10%     -5%               0%                5%        10%               15%   20%          25%
                                                             Investemn costs sensitivity




  Investment Costs                 DF investment costs                 DF investment                   DF total costs          DF total
          (±)                             (euro)                         costs(±)                         (euro)               costs (±)
        -20%                               10.1                            -19%                            22.98                 -9%
        -15%                               10.6                            -15%                            23.48                 -7%
        -10%                               11.2                            -10%                            24.08                 -5%
         -5%                               11.8                             -5%                            24.68                 -2%
         0%                                12.4                             0%                             25.28                 0%
         5%                                13.2                             6%                             26.08                 3%
        10%                                13.8                             11%                            26.68                 6%
        15%                                14.3                             15%                            27.18                 8%
        20%                                14.9                             20%                            27.78                 10%




                                                                                                                                    47
                                                                                                                   DF O&M
                                                                                                             6.5

                                                                                                             6

                                                                                                             5.5

                                                                                                             5
 -30%     -25%    -20%        -15%       -10%      -5%         0%       5%      10%   15%      20%        25%
2. O&M Costs (C/B Ratio =1)                        O&M sensitivity



                                                                     DF total costs   DF total costs
  O&M Costs (±)          DF O&M (euro)          DF O&M (±)
                                                                        (euro)              (±)
        -20%                 5.5                  -19%                   24.05             -5%
        -15%                 5.75                 -15%                   24.30             -4%
        -10%                 6.1                  -10%                   24.65             -3%
         -5%                 6.45                  -4%                   25.00            -1%
          0%                 6.75                  0%                    25.30             0%
          5%                 7.1                   5%                    25.65             1%
         10%                 7.45                 10%                    26.00             3%
         15%                 7.8                   16%                   26.35             4%
         20%                 8.1                   20%                   26.65             5%




                                                                                                     48
5.       IMPLEMENTING THE COMPETITIVE                   DIALOGUE       AND     CONDITIONS          FOR
         ISSUING A CONCESSION


         The second phase of the competitive dialogue will be carried out under precisely
         determined conditions that will be defined in the descriptive tender documentation, which
         will be sent only to the pre-selected candidates at the end of the first phase of the
         competitive dialogue.

5.1.     Concession issuing procedure

         Pursuant to Article 31 of the Law on Concessions and Other Types of Public Private
         Partnership, concessions are issued through a public call, as follows:

         -   Open call;
         -   Limited call;
         -   Competitive dialogue.

5.1.1   Types of procedures for issuing a concession

         An open call is when all interested candidates that have picked up the tender
         documentation submit offers for entering into a Concession Agreement.

         A limited call consists of two phases: (i) pre-selection and (ii) submission of offers by the
         candidates selected after the first phase.

         The so-called competitive dialogue is a procedure that is implemented when the
         conceding authority is unable to prepare a detailed tender dossier due to the complexity
         of the tender documentation or due to lack of information. Therefore, interested
         candidates are enabled to join in the procedure when technical and financial
         specifications are being defined, as well as the legal framework for the Concession
         Agreement. The competitive dialogue consists of three phases:

         -   Call for submission of applications for participation by the interested candidates;
         -   Receipt of the applications and presentations by the pre-selected candidates;
         -   Invitation to the candidates to submit offers.

         When issuing a concession for regional integrated management of solid waste, the
         subject of the concession may have several alternative solutions, which depend on the
         extent to which technical documentation is prepared and on the technology available to
         the candidates for concessionaires; during the concession issuing procedure, one will
         need to negotiate about the decision-making method while one is managing the regional
         waste management system. Regarding the components of waste collection (including
         recycling), regional transport and landfilling (including the mechanical-biological
         treatment of the biodegradable waste, and the system for capturing and treatment of the
         landfill gas etc.), the candidates may have a different approach in terms of the scope,
         the phases of implementation of the project as well as the technological solutions. As a
         result, the concession issuing procedure for regional integrated management of solid
         waste will be implemented as a competitive dialogue, where the technical, financial and


                                                                                                    49
institutional aspects of the Concession Agreement will be specified through the
envisaged phases.

The three phases of the competitive dialogue are explained below.

5.1.1.1 Phase of pre-selection of candidates

The first phase of the competitive dialogue is similar to the first phase of the limited
procedure. Conceding authorities / contracting authorities are obliged to publish a call for
awarding a concession agreement / public private partnership contract, which should
include a short description of the needs. The call should also specify the criteria for
determining the candidate’s capability status, the minimum number of candidates that
are planned to be invited to go further into the procedure, and if necessary their
maximum number. The following rule should be taken into account: the only criterion for
awarding the contract when implementing a competitive dialogue procedure is the
economically most favorable offer, which is not necessarily the lowest price. In those
cases where the reason for using technical dialogue is technical complexity, the
contracting authority may set the criteria for determining the candidate’s capability status
based on the description of their needs. For instance, if the agreement refers to building
integrated system for managing municipal solid waste in a certain region, with a
specified capacity of the regional landfill but without specifying the combinations of the
different ways of organizing the system, the candidates will need to prove their capacity
to build and operate such integrated systems regardless of the combination of ways of
waste management that would be used for this purpose.

According to the legislation in the Republic of Macedonia, the deadline for receiving the
applications for participation in the pre-selection phase must not be shorter than 37
days, if the estimated value of the contract exceeds 130.000 euros for goods and
services and over 4.000.000 euros for works. If the estimated value of the contract is
below these thresholds, the minimum deadline for receiving the applications for
participation may be 7 days shorter, i.e. it must not be shorter than 30 days in total. In
this specific case, the value of the concession project is around 20 million euros, so the
deadline for submission of the applications for participating in the competitive dialogue
will be fixed at 37 days.

Every economic operator may take part in the first phase of the competitive dialogue. If
the contracting authority intends to limit the number of candidates that will be selected
for the further procedure, the minimum number of candidates in the call must not be
lower than 3.

However, there is a certain flexibility that is favorable for countries like the Republic of
Macedonia, which have a small market and a very limited number of business entities
that are able to participate in the procedure. Namely, if there are less than 3 capable
candidates following the completion of the first phase, the contracting authority may
either terminate the procedure or continue it with those that have qualified, provided their
number is sufficient for ensuring competition. In practice, this could mean that even with
two qualified candidates, the contracting authority may move to the second phase of the
dialogue.



                                                                                         50
The option of restricting the number of candidates that the contracting authority intends
to invite to the dialogue phase may be used in cases when they think that the entry of
too many candidates into the dialogue phase would make the negotiations difficult and
would not lead to quality solutions. The contracting authority must indicate the maximum
number of candidates in the call, and the criteria for determining the capability status
must be detailed enough so as to enable easy ranking of the most capable candidates
that will fit within the abovementioned maximum number. If all submitted applications
fulfill the criteria, the rule is that they should all be invited to take part in the second
phase of the competitive dialogue.

Following pre-selection, the committee conducting the procedure shall develop a report
on the evaluation of candidates’ capability status as well as a list of qualified candidates.
Based on the report and the list of qualified candidates, the contracting authority shall
decide on the selected candidates who will receive an invitation to participate in the
dialogue phase. All candidates that have participated in the first phase of the procedure
shall be notified at the same time of the outcome and of the decision made.

The contracting authority shall submit an invitation to participate in the dialogue phase to
all selected candidates. The invitation must include a reference to the number of the call
for awarding a concession agreement, a date and venue of holding the dialogue and, if
necessary, additional documents that economic operators must submit so as to
substantiate the statements or add to the documents submitted in the pre-selection
phase intended for demonstrating their capability. Descriptive tender documentation
shall be enclosed with the invitation.

Descriptive tender documentation is actually a replacement for the technical
specifications that are present in the case of open and limited procedures. Bearing in
mind that the contracting authority is unable to foresee the technical resources needed
for implementing the project in the case of competitive dialogue procedure, technical
specifications about the subject of the agreement cannot be included in the descriptive
tender documentation.

As a result, instead of drafting technical specifications, the contracting authority shall
develop a descriptive tender documentation, which should include a description of their
needs and goals that they want to achieve with the implementation of the Concession
Agreement. It is recommended that the descriptive documentation should be prepared
prior to the commencement of the competitive dialogue procedure.

There are no detailed provisions about the form and the contents of the descriptive
tender documentation. Only general directions regarding its contents are provided.
According to these directions, the descriptive tender documentation should include, in
particular, a description of the needs, objectives and restrictions based on which the
dialogue will be conducted (its goal being to identify an appropriate solution), as well as,
if envisaged, the compensations that will be awarded to the participants in the dialogue.
It is impossible for the contents of the descriptive tender documentation to be fixed in
details because a wide variety of cases can appear in practice.

This gives the contracting authorities the freedom to specify the descriptive tender
documentation’s form and contents themselves. It may include a pretty general narrative


                                                                                          51
of the objectives that the contracting authority wants to achieve, but it may also include
more details that the contracting authority knows. The more detailed the descriptive
tender documentation is, the more alike technical specifications it will seem. The level of
detail depends on the information that the contracting authority has at its disposal at the
time of development of the documentation. Of course, the more details the descriptive
tender documentation contains, the more focused the dialogue with the selected
candidates will be.

5.1.1.2 Dialogue phase

The second phase of the competitive dialogue is known as the dialogue phase. This
phase is characteristic of the competitive dialogue procedure and it basically cannot be
found with the other procedures. As mentioned above, the goal of the dialogue is for the
contracting authority to consult the selected candidates on the way(s) in which the goals
stated in the descriptive tender documentation could be best achieved. The candidates
are expected to present their ideas and proposals based on their prior experiences.

Therefore, it is of utmost importance that only serious candidates with abundant
experience in the given area enter the dialogue phase, i.e. proper pre-selection be made
in the first phase. There are several basic rules about the dialogue phase, but the
process itself is not regulated for the most part of it. The contracting authority starts a
dialogue with each and every of the selected candidates separately. The dialogue
discusses the options (variants) related to the technical and financial arrangements, the
methods for resolving the issues associated with the legal framework and on all other
elements of the future agreement; all this is done in order to find the solutions
corresponding to the needs of the contracting authority.

This means that all aspects of the agreement may be discussed during the dialogue
phase, not just about the technical means or financial/legal arrangements in the
agreement. The reason why the dialogue is conducted with each candidate separately is
to avoid stealing ideas and solutions between the candidates.

The confidentiality of ideas and solutions offered by the candidates is protected with
additional rules as well, according to which the contracting authority must not disclose to
the other selected candidates the proposed solutions or any other confidential
information given by the candidate during the dialogue without the candidate’s consent
to it.

The dialogue phase does not address prices or any other conditions that can be usually
found in offers, since there are no offers in the true sense of the word in this phase yet. It
relates to identifying the best way in which the technical specifications of the subject of
the agreement should be developed, which should constitute the basis for the
development of the offers.

The European practice regarding the technique of conducting the dialogue is different.
For instance, the contracting authority may envisage in the descriptive tender
documentation that the selected candidates should submit their ideas as “initial offers“,
which they will refine and further specify as the dialogue unfolds. The suggested new
solutions do not envisage the concept of “initial offer“ with the competitive dialogue,


                                                                                           52
probably with a view to avoiding any misunderstandings with regard to the offers that
need to be submitted in the last phase of the competitive dialogue. It is envisaged that
the contracting authority should take minutes of each meeting, including issues that were
subject of the dialogue. The minutes shall also be signed by the candidate whom the
dialogue was conducted with.

In the descriptive tender documentation sent to the pre-selected candidates together
with the invitation to participate in the dialogue phase, the contracting authority requests
from them to submit a written proposal containing their ideas and solutions which they
consider as the most adequate for achieving the desired objectives. New moments can
of course emerge in the course of the dialogue, which may influence the initial proposals
of the selected candidates, i.e. the initial written proposal of the candidates may change
during the dialogue.

In the course of the dialogue, the contracting authority shall make provisions for equal
and non-discriminatory treatment of all candidates. It must not provide information in a
discriminatory manner, which may put some of the selected candidates in an
advantageous position vis-à-vis the others. No deadline has been foreseen for
completion of the dialogue phase. This is due to the reason that it is impossible to
predict how long it will take the contracting authority to identify the best solution based
on which the offers will be developed. It depends on the complexity of the agreement
and will differ from one case to another. However, practice has shown that dialogue
phase may last for more than one year, because there is a certain degree of complexity
of the Concession Agreement in all procedures involving competitive dialogue.

It is possible for the dialogue phase to take place in several rounds, whereby the number
of solutions that are subject of scrutiny would gradually decline. Namely, the contracting
authority can provide in the descriptive tender documentation that the procedure should
unfold in subsequent phases with a view to reducing the number of possible solutions.
The resulting reduction of the number of solutions will be made on the basis of quantified
criteria for awarding of the Concession Agreement, which will be determined during the
dialogue phase.

5.1.1.3 Phase of submission of offers

The third phase of the competitive dialogue is basically the same as the second phase of
the limited procedure. In this phase, the contracting authority has already identified the
best solution based on which the candidates are invited to submit offers.

Notwithstanding that the part about the competitive dialogue procedure speaks in
singular about the most appropriate solution, the definition, as well as the Directive itself,
provide an opportunity for the contracting authority to identify more than one appropriate
solutions that could constitute the basis for the development of the offers of the
candidates. It seems, however, that defining several appropriate solutions to be used for
the development of the offers is a more complex way of implementing the procedure,
since the contracting authority will have problems comparing the offers if they are based
on different technical solutions, i.e. they would have the status of alternative offers to the
decision that the contracting authority has determined as a basic decision. In addition,
the development of several technical specifications would pose an additional difficulty for


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        the contracting authority. Therefore, it seems that it would be best if the contracting
        authority identified one most appropriate solution, which would be the basis for the
        development of all offers.

        Upon completion of the dialogue phase, the contracting authority shall invite all selected
        candidates to submit their offers. The invitation should include, inter alia, the tender
        documentation with technical specifications and other elements as prescribed by the
        rules.

        A characteristic of this phase of the competitive dialogue is that the law does not
        envisage a minimum time limit for the development of the offers, unlike the other
        procedures. The deadline for the submission of the offers is one of the elements
        negotiated during the dialogue phase; it should be agreed with all the participants in the
        dialogue. This should give the bidders enough time to develop their offers. The deadline
        indicated in the invitation to submit an offer and in the tender documentation must not be
        shorter than the deadline agreed in the dialogue phase. This solution represents a good
        mechanism for preventing abuses by the contracting authority when determining the
        deadline for the submission of the offers. This prevents the contracting authority from
        setting a too short of a deadline, which would make it impossible for the bidders to
        submit their offer.

        It turns out from the rules that the contracting authority should submit an invitation to
        submit an offer to all candidates that have entered the second phase of the competitive
        dialogue; it must not discriminate against any capable candidate that has gone through
        the pre-selection phase.

        After receiving the offers, the procedure is the same as with the open and the limited
        procedures, which means that the contracting authority organizes public opening of the
        offers and makes evaluation and selection of the most favorable offer based on the
        criteria awarding of the contract.

        Conclusion

        It can be concluded that the competitive dialogue procedure should be used only when
        the complexity of the agreement does not allow other procedures to be used. This is not
        only because the competitive dialogue is envisaged as an exceptional procedure, but
        also as a result of the fact that the very procedure is extremely complex and requires
        great ability on the part of the contracting authority; in addition, it may take long time to
        identify the best solution that will satisfy the contracting authority’s needs.

5.1.2   Committee responsible for carrying out the procedure for issuing the concession

        The Government and the municipalities shall establish a Committee responsible for
        organizing and carrying out the procedure for issuing the concession (Article 37 of the
        Law on Concessions and Other Types of Public-Private Partnership). The Committee
        shall be established by the Minister of Environment and Physical Planning (as the
        Minister authorized by the Government) and the Mayors of the municipalities in the
        south-eastern planning region. The Committee consists of a President, Deputy President
        and at least three members and deputies thereof. The minimum number of members of


                                                                                                  54
        the Committee is five (5), whereas the maximum number will be determined at the start
        of the concession issuing procedure.

        Members of the Committee will include representatives of the Ministry of Environment
        and Physical Planning, the Ministry of Finance, the Ministry of Local Self-Government,
        the Ministry of Economy, the Cabinet of the Deputy Prime Minister responsible for
        economic issues and for coordination with the economic ministries, representatives of
        municipalities and solid waste management experts (Article 37 of the Law on
        Concessions and Other Types of Public-Private Partnership). The Committee shall have
        its Rules of Procedure that will be adopted at its first constitutive meeting.

        The Committee will be responsible for the following:

        -   Prepare the tender documentation;
        -   Publish the call for submission of applications for participation and provide
            clarifications to the interested candidates;
        -   Rank the candidates and select the best ones;
        -   Conduct negotiations with the pre-selected candidates;
        -   Send invitations to submit offers;
        -   Final selection of the future concessionaire;
        -   Draft the Concession Agreement;
        -   Report to the competent authorities about its work.


5.1.3   Decisions on procedure initiation

        The concession issuing procedure begins with the adoption of Decisions on initiation of
        the concession issuing procedure. As future conceding authorities, the competent
        authorities for the adoption of these Decisions are the Government of the Republic of
        Macedonia and the councils of the municipalities (Article 21 of the Law on Concessions
        and Other Types of Public-Private Partnership).

        The Government of the Republic of Macedonia and the councils of the municipalities in
        the south-eastern planning region shall adopt Decisions on initiation of the procedure for
        issuing concession for the regional solid waste management, based on a Proposal
        (Article 27 of the Law on Concessions and Other Types of Public-Private Partnership)
        containing the following elements:

        -   Goals of the concession;
        -   Possibilities for different financing and management of the subject of the proposed
            concession; and
        -   Study on the concession project.

        The Decisions of the Government of the Republic of Macedonia and of the councils of
        the municipalities in the south-eastern planning region have already been adopted. They
        have determined the ways of selecting the Committee members. Rules of Procedure of
        the Committee have been developed, in which the number of members and the way of
        decision-making are specified. The Government authorizes the Minister of Environment
        and Physical Planning to establish the Committee.


                                                                                               55
5.1.3.1 Contents of the Decisions

       The following shall be included in the Decisions:
       − Justification for issuing the concession;
       − Indication of the objectives of the Concession;
       − The subject of the concession and basic requirements for issuing the concession;
       − The type of procedure for issuing the concession;
       − Calculation and method of payment of the concession fee;
       − The manner and the deadline in which the concession issuing procedure will be
          implemented; and
       − The amount of the compensation for the issuance of the tender documentation.


5.2    Basic requirements for issuing a concession or establishing a public-private
       partnership

       The validity period of the Concession Agreement/Public-Private Partnership Contract for
       financing, designing, building and operating a regional landfill for municipal solid waste is
       at least 25 years, with a possibility for extension. The commencement of the period of
       concession is the day of putting the regional landfill into operation.

       The potential Service Contracts for collection and transportation of the municipal solid
       waste concluded with the mixed companies14, which will potentially be established for
       the purpose of implementation of the concession project’s second component, shall
       have validity period of 5 - 8 years, with a possibility for extension.

       The land intended for construction of facilities and infrastructure required for the
       functioning of the regional concept for municipal solid waste management in the south-
       eastern planning region is property of the Republic of Macedonia. This will be
       considered as a contribution to the overall investment for construction of the facilities
       and infrastructure by the public sector, in a manner as prescribed by law.

       The ownership of the facilities and infrastructure will be in the hands of the public sector,
       i.e. the municipalities. The owners will be responsible for the activities of after-care of the
       landfill, whereas the funds for these activities will be provided through the public-private
       partnership within the agreement validity period.

       Given that conceding authorities make different contributions to the coverage of the
       expenses for managing the concession project’s infrastructure (thus participating
       differently into the repayment of the credit that will be used to finance the investment),
       their shares in the ownership structure will be determined proportionately to those
       contributions. Ownership shares will be especially important at the time when the
       facilities under the concession project are returned to the conceding authorities, i.e.

       14
         NB: In case of municipalities concluding a waste collection and transportation contract with the
       regional operator, its duration may be 25 years, like the duration of the Concession Agreement for
       the regional landfill.


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when the after-care of the landfill starts. The relationships between the conceding
authorities and the distribution of the property between them will be part of the
Agreements on Inter-Municipal Cooperation that they will sign prior to the awarding of
the Concession Agreement.




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6.   CALL FOR SUBMITTING APPLICATIONS FOR PARTICIPATION IN COMPETITIVE DIALOGUE


     The purpose of the call, which will be published in local, national and international
     media, is to attract experienced and renowned operators in the area of integrated solid
     waste management, who will offer an adequate solution from a technical, financial and
     institutional point of view.

     The call for submitting applications for participation in competitive dialogue has a
     standard form for the pre-selection of candidates and determines the criteria for
     evaluation of the received applications. Candidates will present and prove their personal
     situation and their professional, technical and economic capability by filling in standard
     forms and submitting relevant documents and certificates.

     There are possibilities for the candidates to apply as individual firms, or to make up a
     group of economic operators, or to hire subcontractors.

     The elements of the call are as follows:
        − Contracting parties;
        − Type of procedure;
        − Subject of the concession project;
        − Right to participate;
        − Time limit, address and method of applying for participation in the first phase of
            the concession issuing procedure;
        − Language of the applications;
        − Conditions for awarding a concession;
        − Required documentation;
        − Contents of the tender documentation for pre-selection.




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