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In the last twenty years insufficient funds were invested in the water supply systems of Serbia and Montenegro. The lack of rehabilitation and modernisation of systems for the detection and reduction of water losses and undeveloped measures for water demand management have led to an increase in water losses. Recent estimates show that, on average, water losses represent 40% or more of delivered water. As the first step towards a definition of measures for reduction of water losses and increase of water supply system efficiency, the Public Enterprise "Belgrade Water Supply and Sewerage" has contracted four local companies to perform analyses of the state of the water supply network and water losses in different suburban areas of Belgrade (i.e. "pilot zones"). The first phase of the project is completed and activities included the survey of the water supply network, the identification of all consumers and most of the illegal connections, the development of databases, mathematical modelling, the checking of the existing water meters and measurements of flow rates and pressures. The second phase of the project is about to begin and activities will include the preparation and execution of detailed field measurements, analyses of the results of measurements, the calibration of mathematical models, the definition and execution of rehabilitation measures and the monitoring of their effects. This paper presents the summary of preliminary results of the first phase of the project.