PROJECT INFORMATION DOCUMENT (PID)

APPRAISAL STAGE

Report No.: 58210

Project Name

/ Uzbekistan Syrdarya Water Supply Project
Region / EUROPE AND CENTRAL ASIA
Sector / General water, sanitation and flood protection sector (100%)
Project ID / P111760
Borrower(s) / REPUBLIC OF UZBEKISTAN
Implementing Agencies / 1. Uzkomunhizmat
2.Syrdarya Regional Production and Enterprise Suvokova (SRVK)
Environment Category / [ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined)
Date PID Prepared / November 24, 2010
Date of Appraisal Authorization
Date of Board Approval / March 1, 2010

A. Country and Sector Background

The Government of Uzbekistan (GOU) has assigned high priority to improving environmental and public health conditions associated with seriously deficient water supply services in the province of Syrdarja. The total population of the Syrdarja province is about 700,000 spread over a large area. Following the Government’s request, through letter No 2-8/8-111, for Bank financing a Syrdarja Water Supply Project was included in the 2009-2011 Country Assistance Strategy to help finance a wide range of water supply works. Specifically, the Government has requested Bank assistance of US$ 88 million to “improve the level of service in terms of safety, quality, reliability, efficiency, financial viability, and sustainability of the water supply services in the six rayons of Akaltyn, Bayaut, Kvasast, Mekhnatobad, Mirzaobad, and Sardoba in the Syrdarja oblast” with a total population of 340,000 in an area of about 4,000 km2. The beneficiaries reside in about 50 towns... The towns were supplied originally with treated water through regional transmission schemes or from around 250 individual wells that have now reached a state of acute disrepair. The result has been a breakdown of supply in many towns. It is estimated that 25% of the project towns receive no piped water and have to rely on water tankers; another 55% receive less than 6 hours daily, 10% between 6 and 24 hours daily, and only about 10% 24-hour service. The consequences are dire. Service is unsafe and costly for consumers who have to invest time and money in alternative supplies (including drawing raw water from irrigation canals). Under the circumstances there is little hope of having efficient and sustainable services since consumers naturally refuse to pay financially sufficient tariffs for the absent or deficient services.

The Bank is in a good position to assist the Government’s request. Through the implementation of the Bukhara and Samarkand Water Supply Project the Bank has enjoyed increasingly good relations with the Uzbekistan sector authorities, Uzkomunkhizmat, and the respective vodokanals. The Bank is now preparing a follow-up Bukhara and Samarkand Sewerage Project with Board presentation planned for July 2009. The Bank’s experience from financing large regional water supply schems elsewhere could help guide the regional authorities and the central government Uzkkomunkhizmat in the preparation and implementation of the Syrdarja Water Supply Project. The proposed project would help prepare and finance a mix of rehabilitation of the existing infrastructure and replacement of such systems that are beyond rehabilitation. Equally important, the Bank project would focus on creating the infrastructure for maintaining the rehabilitated and newly built systems to ensure sustainability. The investment in building institutional capacity would comprise training of maintenance staff and the creation of an institutional infrastructure in each of the 50 project towns, supported by specialized maintenance capacity in the regional capital of Gulistan. It is expected that improvements in service coverage and quality from the Project would improve the chances that user charges could pay for the cash costs of operations and maintenance.

B. Objectives

The proposed project development objective (PDO) is to improve the availability, quality and sustainability of public water supply services in selected rayons of the Syrdarya Region. The objective would be achieved through rehabilitation and/or replacement of the existing water supply infrastructure that has now reached the end of its useful life. In order to reach sustainable operations the project would focus on creating the institutional capacity in the project towns and in the regional vodokanal Suvokova (SRVK) to maintain the town systems and to charge user charges that would be sufficient to pay for the cash costs of operations and maintenance.

Progress towards the PDO during project implementation will be measured through the following performance indicators: (i) percentage of people with access to improved water supply service (core indicator); (ii) percentage of water samples meeting potable quality standards; (iii) increased water consumption of the served population (iv) number of piped households with water meters; (v) improved financial working ratio of SRVK; (vi) number of water utilities supported by the project (core indicator); and vii) improved energy efficiency of the water supply systems (reduced specific energy consumption per liter)

C. Rationale for Bank Involvement

The financial needs of rehabilitation are so large and the financial situation of the vodokanals so weak that only the central government budget and external concessionary funding, such as IDA, can bring the needed resources and the technical know-how for sustainable operations and good maintenance.

The Bank is in a good position to assist the Government’s request. Through the implementation of the Bukhara and Samarkand Water Supply Project (scheduled to close on June 30, 2010) and the Bukhara and Samarkand Sewerage Project (approved on August 4, 2009) the Bank has enjoyed increasingly good relations with the Uzbekistan sector authorities, Uzkommunkhizmat, and the respective vodokanals. The Bank’s experience with financing large regional water supply schemes elsewhere could help guide the regional authorities and the central government Uzkkomunkhizmat in the preparation and implementation of the Syrdarya Water Supply Project. The proposed project would help prepare and finance a mix of rehabilitation and replacement of existing infrastructure systems that are beyond repair. Furthermore,, the Bank project would focus on creating the institutional capacity for operating and maintaining the rehabilitated and newly built systems to ensure sustainability. It is expected that improvements in service coverage and quality through the Project would improve the likelihood of user charges being used to pay for the cash costs of operations and maintenance.

Parallel to the preparation of the proposed project, the GOU and the World Bank are working together to create the basis for a dialogue on the optimal sector development path. The World Bank financed the preparation of a Water Supply and Sanitation Sector Note which has been finalized taking into account comments from the Government. The sector note is the basis for a strategy workshop scheduled for the fall of 2010 to which all domestic and external stakeholders will be invited. The workshop results could include common agreement on optimal sector strategies and possibly additional financing commitments from other lenders, including the Asian Development Bank. The proposed project will also finance a feasibility study for a future Sewerage Project in Syrdarya, paving the way for potential donor financing.

Strong government ownership. The proposed project responds directly to the GOU’s Welfare Improvement Strategy (WIS), similar to the first Poverty Reduction Strategy Paper, which stated that reforming environmental management was a priority. The Bank can assist the Uzbek government in sharpening investment priorities, mainly by focusing on improved maintenance and selective rehabilitation, preceded by a careful mapping of the location and condition of existing infrastructure.

D. Description

The Government initiated the preparation of the proposed project, for which a PHRD grant in an amount of US$935,000 was provided under the management of the Uzkomkhizmat, to finance a full feasibility study of the proposed Project. The following draft studies were completed and submitted to the Word Bank during January-February 2009 for comments: i) Technical, and Economic Feasibility of the Project; ii) Financial and Commercial Feasibility; iii) Social Assessment; and iv) Environmental Impact Assessment of the proposed Project.

Feasibility studies value the infrastructure investment needed to upgrade water supply in the five target districts of the Syrdarya region at over $140 million before taxes[1]. GOU intends to meet the infrastructure and associated operating capacity building needs in a two phase approach. As a substantial first phase, the proposed $100 million Project ($88 million IDA and $12million GOU) will finance water production, conveyance and distribution works for all five target districts, giving priority to improving the availability, quality and efficiency of water supply in the largest and/or least served communities. The proposed Project will focus primarily on the rehabilitation of existing water systems and selective expansion and replacement covering 70% of the population in the project area. A continuation second-phase investment project will be needed to extend rehabilitated infrastructure coverage and modern utility service to the remaining 30% of the population. Development and rehabilitation of wastewater management works will be addressed in subsequent projects. Other water supply projects are underway and may be launched in the Syrdarya region outside of the five districts targeted by the proposed Project, including an on-going Asian Development Bank-funded project in the regional capital Gulistan.

The proposed Syrdarya Water Supply Project responds to the Government's determination to rapidly upgrade access and quality of water supply and sanitation services in urban and rural areas. It includes the following components:

Project Component A: Improvement of Water Supply Infrastructure (total estimated cost US$96.49 million of which IDA is US$83.79 million) - This component will finance rehabilitation and limited expansion of water supply systems, including production, conveyance and distribution works, in five districts in the Syrdarya region, namely: Akaltyn, Bayaut, Mirzaobad, Sardoba and Khavast, including the provision of: (1) related design and supervision services; (2) operations and maintenance equipment; (3) spare parts; (4) information systems; (5) a pilot for supervisory control and data acquisition system (SCADA), and (6) water quality laboratories, through the carrying out of works and the provision of goods and consultants’ services.

The following sub-components will be financed:

Sub-Component A1: Physical Investments. Physical investments will be divided into two sub-regional areas; Area 1- Sardoba/Akaltyn and Area 2 – Bayaut/Khavast (refer to annex 4 for details). Selection of communities/villages in the respective investment areas will be done in close participation with the community through their respective Mahalla committees.

Area 1: Sardoba and Akaltyn sub-region. The extent of rehabilitation and extension of water supply production, transmission and distribution systems in this area will be as follows: i) Rehabilitation of all settlements in Sardoba district; ii) Rehabilitation of all settlements in Akaltyn district, except for Shodlik town; iii) Rehabilitation of three towns in Mirzaobad district; iv) Rehabilitation of settlements in the north-western part of Khavast district (Mekhnatobad zone).

Area 2: Bayaut/ Khavast sub-region. Rehabilitation and extension works in this area will be as follows: i) Partial rehabilitation of settlements in Bayaut district; ii) Full rehabilitation of Khavast district except Mekhnatobad zone; and iii) rehabilitation of the town of Birlashgan in the Mirzaobad district.

Sub-Component A2: Operations and Maintenance Assistance. The Project will finance the procurement of equipment and spare parts for improved operations and maintenance of the newly rehabilitated water supply system (refer to Figure 4-7 in Annex 4), central and site laboratory to carry out complex water quality analysis and installation of a pilot SCADA system to assist with monitoring and controlling the operating conditions of the water network.

Sub-Component A3: Implementation Consultants. The Project will finance procurement of Implementation Consultants that will assist the Syrdarya Regional vodokanal and the PCU in the following areas of project implementation - Detailed design, preparation of bidding documents, assistance during award of contracts and construction supervision.

Component B: Institutional Strengthening and Capacity Building (total estimated cost US$1.76 million of which IDA is US$1.76 million) - The Syrdarya Regional Vodokanal (SRVK) and its district level vodokanals feature broad capacity weaknesses in terms of qualified management and operational staff, information systems and methods needed to operate and maintain large water supply systems. SRVK in particular lacks adequate capacity to manage customers, install and read meters, issue bills and collect them, and detect, maintain and repair system failures.

The Project will in particular finance the following sub-components (refer to Annex 4 for details):

Sub-Component B1: Improvement of Utility Management and Operational Practices: A consulting firm will be retained to provide consulting service for the design, implementation or support of the institutional strengthening activities. In addition, the establishment of modern customer service capacity at SVRK, will benefit from the expertise and systems acquired in recent years by Tashkent Vodokanal (TVK). A Technical Cooperation agreement for capacity building, technical support and software provision will be put in place with Mussafo Obi Hayot LLC (subsidiary of Tashkent Vodokanal) to promote learning and the exchange of knowledge and applied experience in the water sector in Uzbekistan.

Sub-Component B2: Institutional Assessment and Local PSP Study. The Project will finance an institutional assessment of the formal and informal arrangements and capacities in place to deliver water supply services. The study will examine the organization and capacity of the SRVK and district vodokanals – Akaltyn, Bayaut, Khavast, Mirzaobad and Sardoba, and investigate the informal roles and capacities of local mahallas and shirkats. The study will make recommendations for improved organization and increased capacity in the vodokanals while assessing opportunities for outsourcing of selected vodokanal tasks to local private entrepreneurs.

Sub-component B.3 Training Activities for Utility Staff and Management (local and international) Training will be provided to staff in the rayon Vodokanals, Mahallas and Shirkats so that they are equipped with the information needed to communicate to project beneficiaries. Consumer orientation training will improve staff responsiveness to user concerns and complaints and will build on the Bank funded technical assistance aimed at improving Customer Relationship Management (CRM) in Bukhara vodokanals. More advanced or specialized training will be offered to Vodokanal management and technical staff through formal training study tours at foreign equivalent size utilities, technology vendors, suppliers, and training institutes.

Sub-component B.4: Utility Management Equipment and Software: This will include computer hardware and accessories for vodokanal management, operation & maintenance, billing & accounting, laboratory; relevant vodokanal software such as GIS, CAD and hydraulic modeling warehouse management and material procurement software packages; latest high accuracy satellite images of all project areas; equipment for operation and maintenance; domestic water meter test bench, repair and assembling equipment workshop tools, machinery and accessories; basic management information system (MIS), or database for the collection of operational, financial management and results indicators data during project implementation.