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Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No: 52785-UZ

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED IDA CREDIT

IN THE AMOUNT OF SDR 57.2 MILLION (US$88 MILLION EQUIVALENT)

TO THE

REPUBLIC OF UZBEKISTAN

FOR A

SYRDARYA WATER SUPPLY PROJECT

February 2, 2011 Sustainable Development Department Central Asia Country Unit Europe and Central Asia Region

This document is being made publicly available prior to Board consideration. This does not imply a presumed outcome. This document may be updated following Board consideration and the updated document will be made publicly available in accordance with the Bank’s policy on Access to Information.

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CURRENCY EQUIVALENTS (Effective December 31, 2010)

US$ 1 = 1642.5 UZS US$ 1.54003 = SDR 1

FISCAL YEAR

January 1 – December 31

ABBREVIATIONS AND ACRONYMS

BSSP BSWSP CAS

Bukhara and Samarkand Sewerage Project Bukhara and Samarkand Water Supply Project Country Assistance Strategy (of the World Bank)

CFAA Country Financial Accountability Assessment ECA Europe and Central Asia Region (of the World Bank) EA Environmental Assessment EMP Environmental Management Plan FM Financial Management FS Feasibility Study FSU Former Soviet Union GDP Gross Domestic Product GOU Government of Uzbekistan HOA Homeowners’ Association IBRD International Bank for Reconstruction and Development IDA International Development Association IFI International Financial Institution ICC Interagency Council for Cooperation IP Implementation Progress ISDS Integrated Safeguards Data Sheet LLC Limited Liability Company Lcd MoE

Liters per Capita and Day Ministry of Economy

MoF Ministry of Finance MOH Mussafo Obi Hayot (Subsidiary of Tashkent Vodokanal) MoFERT Ministry of Foreign Economic Relations and Trade O&M Operations and Maintenance PAD Project Appraisal Document PCU Project Coordination Unit PDO Project Development Objective PFM Public Financial Management PID Project Information Document PIU Project Implementation Unit (regional branch of PCU) PIP Public Investment Program PPC Public Performance Contract PSC Project Supervision Consultants PSP Private Sector Participation RPA RP RPF SCADA SVK

Regional Production Administration Resettlement Plan Resettlement Policy Framework Supervision, control and data acquisition Syrdarya Region Suvokova (Syrdarya Region Water Management Enterprise)

WIS Welfare Improvement Strategy

Vice President: Philippe H. Le Houerou, ECAVP Country Director: Motoo Konishi, ECCU8 Sector Manager:Sector Director:

Country Manager:

Wael Zakout, ECSS6 Peter D. Thomson, ECSSD Takuya Kamata, ECCUZ

Task Team Leader: Pier Mantovani, ECSS6

UZBEKISTAN Syrdarya Water Supply Project

CONTENTS

Page

I. STRATEGIC CONTEXT AND RATIONALE ................................................................. 1

A. Country and sector issues.................................................................................................... 1

B. Rationale for Bank involvement ......................................................................................... 2

C. Higher level objectives to which the Project contributes .................................................... 3

II. PROJECT DESCRIPTION ................................................................................................. 3

A. Lending instrument ............................................................................................................. 3

B. Program objective and phases ............................................................................................. 3

C. Project development objective and key indicators .............................................................. 3

D. Project components ............................................................................................................. 4

E. Lessons learned and reflected in the Project design ........................................................... 6

F. Alternatives considered and reasons for rejection .............................................................. 7

III. IMPLEMENTATION ...................................................................................................... 8

A. Partnership arrangements .................................................................................................... 8

B. Institutional and implementation arrangements .................................................................. 9

C. Monitoring and evaluation of outcomes/results ................................................................ 10

D. Sustainability..................................................................................................................... 10

E. Critical risks and possible controversial aspects ............................................................... 11

F. Credit conditions and covenants ....................................................................................... 13

IV. APPRAISAL SUMMARY ............................................................................................. 15

A. Economic and financial analyses ...................................................................................... 15

B. Technical ........................................................................................................................... 17

C. Fiduciary ........................................................................................................................... 18

D. Social................................................................................................................................. 20

E. Environment ...................................................................................................................... 21

F. Safeguard policies ............................................................................................................. 22

G. Policy Exceptions and Readiness...................................................................................... 24

Annex 1: Country and Sector/Program Background .............................................................. 26

Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ................. 29

Annex 3: Results Framework and Monitoring ........................................................................ 30

Annex 4: Detailed Project Description ...................................................................................... 35

Annex 5: Project Costs ............................................................................................................... 45

Annex 6: Implementation Arrangements and Institutional Capacity Building.................... 47

Annex 7: Financial Management and Disbursement Arrangements ..................................... 52

Annex 8: Procurement Arrangements ...................................................................................... 59

Annex 9: Economic and Financial Analysis ............................................................................. 67

Annex 10A: Safeguard Policy Issues ......................................................................................... 76

Annex 10B: Resettlement Policy Framework........................................................................... 79

Annex 10C: Social Assessment .................................................................................................. 94

Annex 11: Project Preparation and Supervision ..................................................................... 97

Annex 12: Governance ............................................................................................................... 98

Annex 13: Documents in the Project File ............................................................................... 103

Annex 14: Statement of Loans and Credits ............................................................................ 104

Annex 15: Country at a Glance ............................................................................................... 105

Annex 16: Maps......................................................................................................................... 107

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UZBEKISTAN

SYRDARYA WATER SUPPLY PROJECT

PROJECT APPRAISAL DOCUMENT

EUROPE AND CENTRAL ASIA

ECSSD

Date: February 2, 2011 Country Director: Motoo Konishi Sector Manager/Director: Wael Zakout/Peter Thomson Project ID: P111760 Lending Instrument: Specific Investment Loan

Team Leader: Pier Mantovani Sectors: General water, sanitation and flood protection sector (100%) Themes: Access to urban services and housing (P)

Project Financing Data [ ] Loan [X] Credit [ ] Grant [ ] Guarantee [ ] Other:

For Loans/Credits/Others: Total Project Cost (US$m.): 121.03 Cofinancing: 33.03 Total Bank Financing (US$m.): 88.00

Financing Plan (US$m) Source Local Foreign Total

BORROWER/RECIPIENT 33.03 0.00 33.03 International Development Association (IDA)

88.00 0.00 88.00

Total: 121.03 0.00 121.03 Borrower/Recipient: Republic of Uzbekistan Responsible Agency: Syrdarya Region Suvokova (Syrdarya Region Water Management Enterprise, SVK), with overall project management and coordination by Uzkommunkhizmat (National Communal Services Agency).

Sector Unit Estimate of Resources Required for Preparation and Approval

Source of Funds Identification and

Preparation Expenses to Date (US$)

Estimate of Resource Requirements (US$)

Bank Budget 200,000.00 360,000.00 Trust Funds 0.00 935,000.00

Estimate of Bank funds required for preparation and approval relative to average for this sector in this region

[ ] 50% [ ] 75% [X ] 100% [ ] 125% [ ] 150% [ ] < 50% or > 150%

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Estimated disbursements (Bank FY/US$m)FY 12 13 14 15 16 17 18 Annual 1 10 26 28 15 7 1 Cumulative 1 11 37 65 80 88 88 Project implementation period: Start: September 1, 2011 End: June 30, 2017 Expected effectiveness date: May 1, 2011 Expected closing date: December 31, 2017 Does the Project depart from the CAS in content or other significant respects? Ref. PAD I.3

[ ]Yes [X] No

Does the Project require any exceptions from Bank policies? Ref. PAD IV.7 Have these been approved by Bank management? Is approval for any policy exception sought from the Board?

[ ]Yes [X] No [ ]Yes [ ] No [ ]Yes [X] No

Does the Project include any critical risks rated “substantial” or “high”? Ref. PAD III.E

[X]Yes [ ] No

Does the Project meet the Regional criteria for readiness for implementation? Ref. PAD IV.G

[X]Yes [ ] No

Project development objective Ref. PAD II.C, Technical Annex 3 The Project development objective (PDO) is to improve the availability, quality and sustainability of public water supply services in selected districts of the Syrdarya region. Project description Ref. PAD II.D, Technical Annex 4. Component A: Improvement of Water Supply Infrastructure (total estimated cost US$95.99 million of which IDA is US$83.99 million) – Rehabilitation and limited expansion of water supply systems, in five districts in the Syrdarya region, namely: Akaltyn, Bayaut, Mirzaobad, Sardoba and Khavast, including: (1) civil works; and (2) provision of: (a) related design and supervision services; (b) operations and maintenance equipment; (c) spare parts; (d) information systems; (e) a pilot for supervisory control and data acquisition system (SCADA); and (f) water quality laboratories, through the carrying out of works and the provision of goods and consultants’ services.

Component B: Institutional Strengthening and Capacity Building (total estimated cost US$1.54 million of which IDA is US$1.54 million) - Institutional strengthening and capacity building of the Project Implementing Entity through: (1) the improvement of utility management and operational practices;(2) the preparation of an assessment of the institutional capacity of the Project Implementing Entity and a study for private sector participation; (3) the provision of local and international training on management and operations; (4) the provision of utility management equipment and software; (5) the development of communications strategies and public awareness campaigns; and (6) the preparation of customer satisfaction surveys, all through the provision of goods, consultants’ services and Training.

Component C: Feasibility Studies for Future Investments in Syrdarya Region (total estimated cost US$0.75 million of which IDA is US$0.75 million) – Financing of feasibility studies for future priority investments in the sewerage sector in the Syrdarya Region, through the provision of consultants’ services. Component D Project Management (total estimated cost US$1.68 million of which IDA is financing US$1.68 million) - Strengthening the PCU’s Project management, monitoring and coordination capacity as well as its branches in the Syrdarya region, through the provision of

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goods, consultants’ services, including Project audit, and Training, and financing of Operating Costs.

Which safeguard policies are triggered, if any? Ref. PAD IV.F, Technical Annex 10 Environmental Assessment (OP/BP/GP 4.01) Involuntary Resettlement (OP/BP 4.12) Disclosure Policy (OP17.50) Significant, non-standard conditions, if any, for: Ref. PAD III.F Board presentation: None Loan/credit effectiveness: 1. A SVK Subsidiary Agreement has been executed on behalf of Recipient and SVK. 2. A Project Operations Manual satisfactory to the Bank has been adopted by the Recipient. Covenants applicable to project implementation: 1. The Recipient shall maintain the Interagency Council for Cooperation (ICC) until completion

of the Project with the composition and terms of reference satisfactory to IDA. 2. The Recipient shall maintain the PCU within the Uzkommunkhizmat including

representatives at the Project Implementing Entity until completion of the Project with staff, resources and terms of reference satisfactory to IDA.

3. The Recipient shall cause the Project Implementing Entity to carry out the Project in accordance with the Financing Agreement, the Project Agreement and the Project Operations Manual and shall not amend, suspend, abrogate, repeal or waive any provision of said Manual without the prior written approval of IDA.

4. The Recipient shall take all necessary measures in order to maintain for the Project Implementing Entity for each fiscal year after the fiscal year ending on December 31, 2010, a ratio of total cash operating expenses to total cash operating revenues not higher than 0.90 and to enable the Project Implementing Entity to collect effectively all operating revenues related to its operations. Such measures shall include: (i) annual adjustments of water supply and sewerage tariffs; (ii) budgeting and paying for water supply and sewerage services that benefit its oblast budget organizations; and (iii) budgeting and payment of operating subsidies to cover shortfalls.

5. Except as IDA shall otherwise agree, the Recipient shall take all measures necessary to ensure that the SVK shall not incur any debt unless a reasonable forecast of SVK’s revenues and expenditures shows that the estimated net revenues for each fiscal year during the term of the debt to be incurred shall be at least 1.2 time its estimated debt service requirements in such year on all debt of the SVK, including the debt to be incurred.

6. To facilitate the carrying out of the SVK’s part of the Project the Recipient shall make part of the proceeds of the Financing available to SVK under the SVK Subsidiary Agreement. This Subsidiary Agreement shall be executed under the terms and conditions approved by IDA and laid out in the Financing Agreement.

7. The Project Implementing Entity shall take all necessary measures in order to maintain for each its fiscal years after the fiscal year ending on December 31, 2010, a ratio of total cash operating expenses to total cash operating revenues not higher than 0.90 and to collect effectively all operating revenues related to its respective operations, including: (i) annual adjustments of water supply and sewerage tariffs, (ii) budgeting and paying for water supply and sewerage services that benefit their respective oblast budget organizations; and (iii) payment of operating subsidies and debt service subsidies to cover shortfalls.

8. The Recipient shall cause the Project Implementing Entity to carry out the Project in accordance with the Environmental Management Plan and the Resettlement Policy Framework, and shall not amend, suspend, abrogate, repeal or waive any provision of said Plan or Framework without the prior written approval of the Association.

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9. For purposes of Part A of the Project and prior to the commencement of works for each proposed site, the Recipient shall cause the Project Implementing Entity to: (a) submit to the Association for its approval: (i) the proposed design and site for said works and, where required by the EMP and/or RPF, the related site-specific environmental management plan, land acquisition and/or resettlement plan and environmental management checklist, said site-specific plans and checklist to be in form and substance satisfactory to the Association; and (ii) the proposed contract for said works to ensure that the provisions of said site-specific plans and checklist are adequately included in said contract; and (b) ensure that such works are carried out in accordance with the EMP and the RPF.

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I. STRATEGIC CONTEXT AND RATIONALE A. Country and sector issues 1. Soon after independence in 1991, the Government of Uzbekistan (GOU) launched an ambitious program to reform municipal services and rehabilitate decaying public service infrastructure. These assets had long been neglected by centralized service providers who relied on central government funds to pay for operation and maintenance, and for capital programs. Since then, the responsibility for municipal services has been largely decentralized to local governments, and policies have been enacted in pursuit of better availability, quality and sustainability of services.

2. Uzbekistan’s water supply and sanitation infrastructure is thus fairly developed, yet largely crippled by decades of poor asset management. An estimated 82 percent of Uzbekistan’s population has access to potable water, with great disparities between urban and rural areas. The low capacity and weak regulation of utilities perpetuate poor service reliability, quality and cost-recovery. Despite gradual tariff increases in pursuit of autonomy and subsidy reduction, the financial viability of utilities is not substantially improving, as low tariff collections and high water losses (41%) persist.

3. Developed by the World Bank in partnership with GOU in 2009-2010, a Water Supply and Sanitation Sector Note reviews the status and issues of sector development. It identifies five priority reform and investment areas as follows: i) Enact demand management policies in urban water systems; (ii) Implement urgent maintenance and rehabilitation programs; (iii) Strengthen the institutional capacity of water supply and sanitation utilities; (iv) Rehabilitate and expand wastewater collection and treatment systems, and (v) Rehabilitate and upgrade rural water supply systems.

4. In this context, GOU has assigned high priority to improving environmental and public health conditions associated with seriously deficient water supply services in the predominantly rural Syrdarya region with a total population of about 700,000. At GOU’s request, the Syrdarya Water Supply Project (the Project) was included in the 2009-2011 Country Assistance Strategy. Specifically, the Government asked for 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 small towns and villages of five rayons (i.e., districts) of Akaltyn, Bayaut, Khavast, Mirzaobad, and Sardoba in the Syrdarya oblast (region). The population of the Project area is expected to reach 430,000 in the year 2025. The beneficiaries reside in about 1100 small towns and villages over an area of about 4,000 km2. The towns were originally supplied with treated water from regional transmission schemes and from about 250 individual wells, through networks operated by regional and district-level operators. Most assets have now reached a state of acute disrepair, resulting in a breakdown of water supply in many communities. 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% have 24-hour service. The consequences are dire: Potable water supply is unsafe and costly, as most consumers have to invest time and money in alternative supplies (including drawing polluted water from irrigation canals or buying water of uncertain quality from water vendors). Water utility operations are financially unsustainable as consumers

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refuse to pay for absent or grossly deficient service, and are bound to remain so until service quality is significantly upgraded.

B. Rationale for Bank involvement 5. Since the early 1990s, the World Bank has been active in the water sector, mainly via support to the Aral Sea recovery program, including the Rural Water Supply and Sanitation Project for Khorezm oblast and the Republic of Karakalpakstan (US$75 million loan) and the Bukhara and Samarkand water supply project (US$40 million). As part of a growing World Bank involvement in Uzbekistan’s water sector, the Syrdarya Water Supply Project follows the Bukhara and Samarkand Sewerage Project approved in August 2009 for an amount of US$ 55 million, and precedes the planned Alat and Karakul Water Supply Project of US$ 20 million scheduled approval in FY2011, and the Karakalpakstan Sewerage Project of US$38 million scheduled for in early FY2012. The projects respond to the Government’s determination to upgrade access and quality of water supply and sanitation services in urban and rural areas. In parallel to increased lending, the Bank is assisting the GOU in assessing and optimizing sector policies, including through the recent collaboration in developing the above mentioned Water Supply and Wastewater Sector Note outlining recommendations for policy and investment priorities. Following dissemination in the fall of 2010, the Note is expected to help mobilization and coordination of increased external funding for sector investments. The Government is indeed aware that large portions of Uzbekistan’s water supply and sanitation infrastructure are rapidly approaching the end of their useful life. The Government plans to rehabilitate the infrastructure, and to increase service efficiency, including through the introduction of consumption metering and of alternative options for service delivery, such as outsourcing of selected functions to domestic private firms.

6. The costs of rehabilitation are so large and the financial situation of the service utilities (vodokanals) so dire that only central government grants and external concessionary funding, such as from IDA, can afford the resources and technical know-how needed for viable infrastructure and sustainable operations.

7. The Bank is in a good position to assist GOU’s request. Through the implementation of the Bukhara and Samarkand Water Supply Project (BSWSP) closed on June 30, 2010, and of the new Bukhara and Samarkand Sewerage Project (BSSP) underway, the Bank has enjoyed increasingly good relations with the Uzbekistan sector authorities, Uzkommunkhizmat (National Communal Services Agency) and the respective vodokanals. The Bank’s international experience with financing large regional water supply schemes is relevant to assist regional authorities and Uzkomunkhizmat design and implement the Syrdarya Water Supply Project (SWSP). Such Project would help prepare and finance a mix of rehabilitation, replacement, and limited expansion of failing infrastructure. The Project would also focus on creating the institutional capacity for operating and maintaining the rehabilitated and expanded systems to ensure sustainable service. It is expected that improvements in service coverage and quality afforded by the Project will make it possible for the vodokanals to raise user charges to levels that would cover the cash costs of operation and maintenance\ and a marginal share of debt service.

8. Strong government ownership. The proposed Project responds directly to the GOU’s Welfare Improvement Strategy (WIS), which is the first Poverty Reduction Strategy Paper, giving priority to reforming environmental management. The Bank can assist the Uzbek government in sharpening investment priorities, mainly by focusing on improved maintenance

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and selective rehabilitation, preceded by a careful mapping of the location and condition of existing infrastructure.

C. Higher level objectives to which the Project contributes 9. The proposed Project fits the objectives of both Uzbekistan’s Welfare Improvement Strategy (WIS) and the World Bank’s 2008 Country Assistance Strategy (CAS) by addressing the need to improve service delivery and manage the environment in a sustainable manner. Also, the Project will contribute activities to improve governance in the water supply and sanitation sectors and devote sufficient supervision resources to monitor local water utilities.

II. PROJECT DESCRIPTION

A. Lending instrument

10. The Project will be financed by a Specific Investment Loan (SIL). The credit has a final maturity of 35 years with a grace period of 10 years.

B. Program objective and phases

11. Feasibility studies value the infrastructure and institutional investment needed to upgrade water supply in the five target districts of the Syrdarya region at over $140 million before taxes1. GOU intends to meet the infrastructure and associated operating capacity building needs in a two staged approach. As a substantial first stage, the proposed $100 million (excluding taxes) Project 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 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.

C. Project development objective and key indicators 12. The Project development objective (PDO) is to improve the availability, quality, and sustainability of public water supply service in selected districts of the Syrdarya region.

13. The objective is to be achieved through rehabilitation, replacement, and limited expansion of water supply infrastructure and through institutional capacity building of the Syrdarya Regional Suvokova (SVK) utility. Capacity building will in particular aim at improved operations and maintenance and at systematic billing and collection of user charges, to cover annual cash operating expenses (including repairs and maintenance) and a marginal share of annual debt service as agreed with GOU.

1 Unless otherwise specified, costs presented in this report do not include taxes.

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14. Progress towards the PDO during project implementation will be measured through the following performance indicators: (i) number of people with access to improved water supply service (core indicator); (ii) percentage of regulatory water samples meeting potable quality standards; (iii) increased water consumption of the served population (iv) number of piped households with meters; (v) improved financial working ratio of SVK; (vi) number of water utilities supported by the project (core indicator); and vii) improved energy efficiency of the water supply systems (as a ratio of power consumed and water flow supplied to the network, kWh/m3/yr).

D. Project components 15. The Government launched the preparation of the Project with a PHRD-funded feasibility study managed by Uzkommunkhizmat. The Feasibility Study was completed and submitted to the Bank, as drafts in January 2010, and as final drafts in April 2010 and the Final Feasibility Study in September 2010.

16. The Project will comprise the following components, for which cost estimates are hereby provided exclusive of taxes unless otherwise indicated

Project Component A: Improvement of Water Supply Infrastructure (total estimated cost US$95.99 million of which IDA is US$83.99 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

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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 (SVK) 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. SVK 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 SVK, 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 the Tashkent Vodokanal, free of charge, as facilitated by the Governement, in order to promote learning and the exchange of knowledge and applied experience in the water sector in Uzbekistan.

Sub-Component B2: Institutional Assessment and Study to Explore Local PSP Opportunities. The Project will finance an Institutional Assessment of the formal and informal arrangements and capacities in place to deliver water supply services. The assessment will examine the organization and capacity of the SVK and district vodokanals – Akaltyn, Bayaut, Khavast, Mirzaobad and Sardoba, and investigate the informal roles and capacities of local mahallas and shirkats. This sub-component will also include a study, to assess the enabling environment for local private sector participation in Syrdarya region water sector operations, with a particular focus on exploring opportunities to outsource select water utility tasks/services to local entrepreneurs. A grant will be identified for the funding of this study, which may recommend improved organization and capacity in SVK for the management of outsourcing contracts.

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

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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.

Sub- Component B5: Communication Strategy and Public Awareness Campaigns- given that improved water supply will increase consumption of water in the region, public awareness campaigns will be carried out and aimed to improve public hygiene practices, water conservation, and educate the public about the Project’s expected health and environmental benefits and the need for regular tariff payments to support O&M operations.

Sub-Component B.6: Consumer Satisfaction Surveys. Customer satisfaction surveys will be designed and conducted annually, to monitor water supply situation and Project impacts among various stakeholder categories, duly sampled for the socio-economic level, location, and status of water supply.

Component C: Feasibility Studies for Future Investments (total estimated cost US$0. 75 million of which IDA is US$0.75 million). Under the management of the central government, this component will finance consultant studies to identify sewerage investments needs in the Syrdarya Region. It is envisaged that the feasibility study will help financiers to consider financing the wastewater infrastructure sector in the Syrdarya region. The component will be executed by the Uzkommunkhizmat with support from the PCU.

Component D: Project Management (total estimated cost US$1.68 million of which IDA is financing US$1.68 million)

Subcomponent D1: US$ 1.0 million. This component will finance the Project Coordination Unit (PCU), and its branches in Syrdarya, along with their operating costs, technical assistance and capacity building needs, including the payment of the Single Socila Tax on PCU staff compensations. The component will also finance monitoring and evaluating (M&E) of project activities: technical, environmental and social monitoring (for example, periodic beneficiary assessments to determine consumer satisfaction, connection rates, and the effectiveness of public awareness campaigns). Implementation consulting and technical assistance costs for design and supervision of project investments and for vodokanal capacity building are included in components A and B respectively.

Subcomponent D2: US$ 0.7 million. Annual project financial and technical audits of district vodokanals and/or newly established inter-district vodokanal.

17. Project costs are estimated at US$100 million excluding taxes, except for the Single Social Tax on PCU salaries, and at US$ 121.03 million including taxes (of which VAT is estimated at 18% or US$ 18 million). The costs will be financed by IDA up to US$88 million equivalent, complemented by GOU’s co-financing of US$33.03 million, of which US$21.03million for taxes. . The equivalent cost of US$268 per capita of the beneficiary populations is relatively high and is explained by the dire state of the existing infrastructure and by the need for long-distance conveyance of water for those towns where nearby groundwater sources are of such poor quality that they cannot be treated economically to meet drinking water standards.

E. Lessons learned and reflected in the Project design 18. Projects must be designed to match the implementation capacity. The BSWSP, financed under Loan Number 4216-UZ and Credit 3620-UZ, was approved on March 19, 2002 and closed

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on June 30, 2010. Execution of BSWSP was slower than planned reflecting limited capacity of the implementing agency. The meter installation component among others was delayed due to the relatively high cost contribution expected of the customers. The proposed new project is designed to better the known and demonstrated implementation capacity of local agencies, and its meter installation component is to be financed by the Project.

19. Careful attention will be given to procurement of goods and services. Authorities have a policy of promoting national manufacturers and contractors. Preparation of procurement packages will strike a proper balance between the Government’s objectives and the requirements under the Bank’s policies that aim to procure goods, civil works and services at the lowest evaluated cost.

20. Local private sector participation in the form of outsourcing selected vodokanal services/tasks has shown signs of success and is gaining popularity. Although the capacity of the Syrdarya vodokanal is vastly inadequate to operate, maintain and manage in a financially sustainable way, the Project must take stock of the negative experiences incurred with management contracts under BSWSP. On the other hand, the Tashkent vodokanal has gained positive PSP experiences through selective and controlled outsourcing to local private firms. As a consequence, the Project proposes to proceed along parallel tracks to promote efficient and sustainable operations: (i) an effort will be made to build up capacity within the Syrdarya vodokanal to operate and maintain the water systems; and (ii) a plan will be drafted and implemented to outsource the operations and maintenance of individual systems to domestic, private firms. This dual capacity-building approach will allow greater flexibility since the Syrdarya vodokanal will not be under a single management or lease contractor, and will be able to benchmark individual outsourced operations, including comparing them to its own performance.

F. Alternatives considered and reasons for rejection 21. Private Sector Participation by international companies has been considered by the Government to be ineffective in transferring knowledge. Given the limited capacity of SVK, it was considered premature in view of the GOU to engage international private sector companies in improving SVK performance through knowledge transfer. An alternative considered to improve vodokanal management was to have greater participation by the private sector to bring know-how and accountability in the form of an explicit contract, such as a lease. However, this was rejected with respect to this project due to the limited benefit experienced with respect to a previous lease contract arrangement with an international management company in a past project.

22. Public Performance Contracts between vodokanals and Local Governments are perceived as ineffective tools to improve utility performance if the vodokanals have limited administrative and financial independence. To promote greater accountability, vodokanals were encouraged to enter into a Public Performance Contracts (PPC) with the Local Government where they would commit to specific performance targets on an annual basis. However, without effective administrative and financial autonomy for the vodokanals, and without incentives or job security for vodokanal managers, PPCs are perceived as creating complications rather than providing an effective tool for utility improvement and therefore this alternative was not pursued further On the other hand, outsourcing of select vodokanal functions to local private water operators and businesses has been tested with some success in Tashkent and Bukhara. The idea of engaging the private sector to improve the efficiency of service provision by vodokanals is

8

attractive, and the Uzkommunkhizmat agency strives to use the accumulated experience and pilot such alternatives in Bukhara region. Similar contracts are being developed under the Bukhara and Samarkand Water Supply Project and based on the experienced gained it is likely that local outsourcing to private entrepreneurs for water supply services will be considered under the proposed project.

23. Trade-off between highest national demand standards, and optimization of Project coverage. The feasibility study initially assessed a Project that would meet Uzbekistan’s highest standard design criteria for urban and rural water supply service (respectively 150 l/c/d and 105 l/c/d). Such service level was found to come at a considerable cost, limiting the water supply coverage and impact achievable with available funding. Acknowledging that water demands in Syrdarya’s small towns and villages, currently estimated to average as little as 15.2 l/c/d, would not in the foreseeable future such high levels, cost-benefit analyses and extensive consultations within GOU led to the adoption for the Project of more cost-effective variant service levels of respectively 125 l/c/d in urban settings and 95 l/c/d in rural areas.

24. Options for increased Project coverage. The feasibility study found that, despite the above-discussed service standard adjustment, achieving comprehensive water supply service rehabilitation (100% coverage) across the 5 target rayons would cost about US$ 140 million before taxes, a substantial increase from concept-stage budget forecasts of US$88 million. Since IDA-15’s US$ 88 million would only allow an estimated 60% coverage, a potential reallocation of US$20 million (earmarked in IDA-15 for the Karakalpakstan Sewerage Project) was considered, that would allow about 80% coverage, but which did not prove feasible. GOU’s eventually decided to commit US$12 million of its own funds for co-financing of a first US$ 100 million Project that would achieve 70% coverage, deferring full coverage to an ulterior phase 2.

25. Accounting for sanitation needs: GOU is aware that the increased provision of water to local communities, in particular through individual household connections, raises the issue of adequate wastewater management. The limited funds under this project, directly linked to IDA resource availability and the small borrowing capacity of the vodokanals and municipalities, require that priority phase 1 investments be focused on the most critical parts of the system, i.e., the severely deteriorated water supply systems. Extending the Project into the domain of sewerage collection and wastewater treatment would lead to an ineffective dilution of resources and may not bring sufficient and sustainable benefits to either Water Supply or Sanitation sectors. Project impacts and benefits are expected to be tangibly greater by focusing first on water supply, as preferred by the local community and as indicated by the Social Assessment, and preparing to address wastewater management needs by carrying out a feasibility study.

III. IMPLEMENTATION

A. Partnership arrangements 26. The investment need for the phase 1 and 2 of the Project exceeds foreseeable World Bank and GOU financing abilities. The Bank is committed to helping the GOU explore co-financing from other bilateral and multilateral institutions, and would welcome a confirmed interest by the Swiss Cooperation or other donors to fund selected infrastructure and capacity building needs. Furthermore, a water sector strategy note was finalized by the Bank and the Government which is due for dissemination in the fall of 2010. The note identifies priority investment needs in the sector, and may facilitate co-financing interests by International Financing Institutions (IFIs) and bilateral agencies for phase 2 of the water supply Project and for the potential follow-up sanitation project.

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B. Institutional and implementation arrangements 27. Consultants will be hired under the Project to render assistance in increasing the capacity of the utility in operating and managing the water supply system through provision of technical assistance and training to management and staff of Akaltyn, Bayaut, Khavast – Mekhnatabad zone, Mirzaabad, and Sardoba district vodokanals.

28. As part of the capacity building efforts under the Project, a “Technical Cooperation” sole-source contract arrangement between SVK and a commercial subsidiary of the Tashkent Vodokanal – Mussafo Obi Hayot (MOH) LLC will assist in building the capacity of SVK and of participating district vodokanals for utility operation, maintenance and management.

29. Measures to build institutional capacity will entail various policy reforms and training activities which will be financed under Component B, including:

Reviewing current tariff and financial policies, including water supply connection policies, to enable each vodokanal to rapidly connect new households;

Upgrading the capacity of each vodokanal to diagnose the state of its infrastructure and carry out preventive maintenance in an efficient and sustainable way;

Training in different aspects of water supply delivery and operations; and Launching better communication and public awareness campaigns.

30. The overall responsibility for the project within the Government rests with the Uzkommunkhizmat. The PCU established within Uzkommunkhizmat will be in charge of day-to-day project management and coordination. SVK is the implementing entity of the Project with full implementation responsibility. It will be assisted by the PCU office in Tashkent and its Syrdarya branch office (SPCU) in Gulistan, with the support of an international consultant.

31. Given the low capacity of SVK, the PCU will be responsible for project financial management, including accounting, reporting, and disbursements, including the management of the designated account. The PCU will have overall responsibility for submission of withdrawal applications to the Bank, and for consolidation and submission of periodic financial reports as well as audit arrangements. The PCU will need to recruit, and retain throughout project implementation, suitably qualified and experienced financial staff with adequate knowledge of the World Bank financial management and disbursement procedures. The PCU financial specialist will consolidate all the reports for submission to the Bank, and would also help to train the accounting staff of its Syrdarya branch SPCU.

32. As with previous World Bank projects BSWSP and BSSP, the PCU will continue to report to the Interagency Council for Cooperation (ICC) established to coordinate “Implementation of Large-scale and Strategically Important Investment Projects” under the Cabinet of Ministers of the Republic of Uzbekistan. The ICC has representatives from key national agencies of the central government (Cabinet of Ministers, MOF, MOFERT, Central Bank, State Property Committee, State Committee of Architecture and Construction, MOE, etc.) via the Coordination Group for Cooperation (CGC) established under the Ministry of Economy and set up for coordination with the World Bank Group. The ICC is led by the First Deputy Prime Minister and via the Coordination Group provides guidance on project-related issues and activities, where coordination of senior Uzbekistan management is required to ensure smooth implementation.

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33. For capacity building in the area of financial management the following actions were agreed and implemented as conditions to be satisfied ahead of credit negotiations:

Action Responsibility Completion Date

1 Recruit qualified and experienced financial manager at for the PCU in Tashkent

PCU Verified January 8, 2011.

2 Develop Financial Management Chapter in the Operational Manual for the Project to reflect the specific activities of the Project, the internal control procedures as well as the accounting policies and procedures applicable to the Project. The OM should also reflect the policies and procedures that will clearly define conflict of interest and related party transactions (real and apparent) and provide safeguards to protect the organization from them.

PCU Substantially completed by January 8,2011. Final OM to reflect Bank comments.

3 Develop the automated project accounting systems with capacity to generate interim financial reports. The automated accounting system at the PCU-Tashkent and its branches will be integrated PCU-branch Gulistan to be completed by project start.

PCU Installation at PCU-Tashkent verified on January 8,2011

C. Monitoring and evaluation of outcomes/results 34. Data collection and overall project monitoring. Project development objectives and implementation progress will be handled by the vodokanal and the PCU. Currently the lack of reliable data in the vodokanal makes it difficult to track and improve the efficiency of operations and investments. To streamline the process of collating, recording and analyzing data the Project will finance the installation of a basic MIS data collection software system in each of the local vodokanals which will be linked to a central MIS located at SVK. Relevant training to vodokanal staff will be provided under the Project to ensure familiarity and regular use of the system. The MIS will be used to collect both operational and financial management information. The data for assessing the Project outcomes will be drawn from the vodokanals’ financial records and the PCUs’ routine monitoring data, such as electricity bills, cash expenditures for O&M and cash revenues. The Syrdarya vodokanal will present semi-annual progress reports to the PCU which be submitted to the World Bank.

35. Monitoring improvements to vodokanal management practices. In addition to the “contractual” results indicators listed in Annex 3, the Project will also introduce a limited number of “non-contractual/management” indicators, compatible with the monitoring capacity of the vodokanal that will help introduce good operational practices and assist the PCU in monitoring overall improvement in vodokanal management. The following indicators may be considered – non-revenue water, frequency of pipe repairs, water production per capita, total staff, operational costs (chemicals, energy, personnel). The appropriate indicators will be established by the implementation consultant in consultation with the PCU and SVK during project implementation and will be based on the findings of the Institutional Assessment of the VK.

36. Customer Satisfaction Survey. A survey will be carried out both at mid-term and at the end of project implementation to evaluate the satisfaction of project beneficiaries with improvements in the water supply delivery system. The survey questionnaires will be developed by the implementation consultant.

D. Sustainability

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37. The Project is designed to assist the Government of Uzbekistan to improve water supply service delivery by rehabilitating deteriorated water supply networks. The Project will strengthen institutional capacity of the vodokanal in Syrdarya through provision of technical assistance for training of staff in O&M, accountability, financial management, communications, consumer orientation to handle complaints and corporate governance. Financial sustainability will be improved through increased revenue and improved operating cost efficiency of SVK through rehabilitation of the water supply system. .

38. The sustainability of the Project will be measured in the following manner:

(a) Institutional sustainability will be measured by the vodokanal’s ability to operate and maintain the water supply assets;

(b) Financial sustainability will be monitored with the cash working ratio (cash operating expenses/collected revenues);

(c) Operational sustainability will be measured by the reduction in water losses in the system.

E. Critical risks and possible controversial aspects 39. Project risks have been assessed along with relevant mitigation measures in Project design and implementation, as summarized in the table below. The overall risk rating, after mitigation measures, is deemed moderate. Project implementation will nevertheless require continuous implementation support by the Bank.

Description of risk

Mitigation measures

Ratinga of

residual risk

The size of the Project ($100m excluding taxes) and its geographical dispersion across the Syrdarya region present new implementation capacity challenges for the Government’s PCU/PIU and for low-capacity SVK, including in areas of project management, procurement, financial management, design and works quality supervision, monitoring and evaluation, and community outreach. Capacity and governance weaknesses could impair project implementation and performance.

The project will benefit from an experienced, Tashkent-based PCU , familiar with Bank procedures. Lessons learned from the last 7 years of World Bank funded project implementation have been incorporated in Project design. Increased PCU/PIU staffing by skilled professionals and adequate operating budgets are required. Technical assistance will be in place for overall Project management, design and supervision, and institutional capacity building tasks.

Moderate

Divergences between the Government’s and the Bank’s views on how to bring about more efficient and sustainable utility service could delay or impair the institutional capacity building and utility service objectives of the Project.

The Government of Uzbekistan (GOU) has had close and frequent dialogue with the Bank in the water sector, and on several occasions requested and received Bank assistance and advice on strategy. The Bank continues to analyze progress and opportunities for improved sector performance and governance. A Bank financed Water Supply Sector Note which comprehensively addresses the sustainability challenges and strategy in the water sector , was well received by Uzkommunkhizmat and finalized with comments from the Government

Moderate

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at a strategy workshop in March 2010, with a broader dissemination planned for late 2010.

Lack of commitment of the Government to take all measures necessary to help SVK Vodokanal maintain a sound financial ratio.

A loan financial covenant will commit the Government to take all measures necessary, including substantial or full uptake of Project debt-service responsibility, tariff adjustments, improved collections, rigorous cost control, and payment of operating subsidies to cover shortfalls, to enable the SVK vodokanal to maintain a financial working ratio of 0.90 or less.

Moderate

The Project will lead to increased scale and complexity of SVK operations, and require a new focus on meter-based customer service. Currently the SVK and its district level vodokanals seriously lack trained staff, skills, adequate tools and information systems to operate and maintain a newly built water supply system and to perform adequate customer service tasks.

The capacity of the SVK will be strengthened in five ways – i) reorganization of the SVK; ii) training of its staff; iii) selective use of outsourcing of operations and maintenance functions to local private operators and through a technical cooperation agreement with daughter companies affiliated with the Tashkent vodokanal; iv) procurement of O&M equipment; and v) technical assistance by utility management specialist included in the implementation consulting team. Sustainable operations and service for a fully developed customer base will nevertheless not be achieved by the end of the Project (phase 1), and will require strengthening under phase 2.

Substantial

Project will be in part implemented by a new regional Project Implementation Unit, with yet limited financial management capacity and is operating in a weak fiduciary environment. Given this, project may experience delays due to untimely or unreliable reporting, slow disbursement, poor accounting, weak record keeping and frequent staff changes.

Project implementation will rely on an experienced Project Coordination Unit (PCU, Tashkent) and a new local Project Implementation Unit (Syrdarya PIU). Adequate project FM arrangements will be established by Board, including automated project accounting system, with capacity to generate regular reports, and experienced financial management consultants hired to manage the FM function during implementation. Project funds will be subject to regular reporting and annual audit.

Substantial

The absence of a unified legislative framework for procurement; inefficient and non-transparent domestic procurement; protracted contract registration process; low capacity and qualifications of local contractors; low level national competition.

The IDA credit will finance about eighty eight (88)percent of the total project financing requirement. As such, all the major procurement packages will be subject to the Bank procurement rules and procedures; and the national procurement system would have limited impact on the Project. International consulting firm(s) will be hired to assist in procurement and contract management. The procurement activities will be packaged in a way and scale to attract international competition.

Substantial

The Project triggers OP 4.12 because it has the potential to require land acquisition or displace persons or enterprises to allow construction of

Construction of the new or replacement water supply pipes may require some displacement of commercial or agricultural activities, although

Low

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new water supply pipelines and facilities. .

the social impacts are not expected to be major. The Project will minimize impacts by seeking alternative locations should land acquisition be required. Because the exact locations will only be known during implementation, the Borrower has prepared a Resettlement Policy Framework that describes the process to be followed in the event any enterprises need to relocate to allow land to be available for the construction and operation of the water supply network, as needed. Any resettlement will be mitigated by providing alternative land of equal value.

The Project was assigned the environmental category B in accordance with OP/BP 4.01 as it involves mainly rehabilitation of existing water supply distribution systems with new construction of a one main water supply distribution line. Risks are customary for this type of project. While the Project will rely on groundwater to supply the population with safe and sufficient water the OP/BP 7.50 is not triggered because the groundwater to be accessed is not connected hydrologically with the Syr Darya river or any other international waterway.

The potential environmental impacts were assessed as part of the Environmental Assessment Report prepared in line with the Bank and the national environmental standards and legislation. The EA report includes an EMP that provides measures for managing the potential negative effects of the rehabilitation works and operation stage and related monitoring activities. The Project will finance a communication and awareness building campaign which will encourage and provide training to the community for use of water in an efficient and conservative way. In addition, the Project will facilitate consulting services for development of technical studies for future sewerage investments in the Project area. Furthermore, development of a sewerage project may be considered as part of the IDA 16 envelope.

Low

IV. Overall Risk (including Reputational Risks) Overall Risk

Moderate

F. Credit conditions and covenants

40. Effectiveness conditions

The SVK Subsidiary Agreement has been executed on behalf of the Recipient and the SVK. The Project Operational Manual satisfactory to the Association has been adopted by the

Recipient.

41. Legal Covenants

10. The Recipient shall maintain the Interagency Council for Cooperation (ICC) until completion of the Project with the composition and terms of reference satisfactory to IDA.

11. The Recipient shall maintain the PCU within the Uzkommunkhizmat including representatives at the Project Implementing Entity until completion of the Project with staff, resources and terms of reference satisfactory to IDA.

12. The Recipient shall cause the Project Implementing Entity to carry out the Project in accordance with the Financing Agreement, the Project Agreement and the Project Operations

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Manual and shall not amend, suspend, abrogate, repeal or waive any provision of said Manual without the prior written approval of IDA.

13. The Recipient shall take all necessary measures in order to maintain for the Project Implementing Entity for each fiscal year after the fiscal year ending on December 31, 2010, a ratio of total cash operating expenses to total cash operating revenues not higher than 0.90 and to enable the Project Implementing Entity to collect effectively all operating revenues related to its operations. Such measures shall include: (i) annual adjustments of water supply and sewerage tariffs; (ii) budgeting and paying for water supply and sewerage services that benefit its oblast budget organizations; and (iii) budgeting and payment of operating subsidies to cover shortfalls.

14. Except as IDA shall otherwise agree, the Recipient shall take all measures necessary to ensure that the SVK shall not incur any debt unless a reasonable forecast of SVK’s revenues and expenditures shows that the estimated net revenues for each fiscal year during the term of the debt to be incurred shall be at least 1.2 time its estimated debt service requirements in such year on all debt of the SVK, including the debt to be incurred.

15. To facilitate the carrying out of the SVK’s part of the Project the Recipient shall make part of the proceeds of the Financing available to SVK under the SVK Subsidiary Agreement. This Subsidiary Agreement shall be executed under the terms and conditions approved by IDA and laid out in the Financing Agreement.

16. The Recipient shall ensure that adequate electric power is available for the operation of the water pumps in the project districts.

17. The Project Implementing Entity shall maintain a financial management system and prepare financial statements in accordance with consistently applied accounting standards acceptable to the Association, both in a manner adequate to reflect the operations and financial condition of the Project Implementing Entity, including the operations, resources and expenditures related to the Project.

18. The Project Implementing Entity shall have its financial statements referred to above audited by independent auditors acceptable to the Association, in accordance with consistently applied auditing standards acceptable to the Association. Each audit of these financial statements shall cover the period of one fiscal year of the Project Implementing Entity. The Project Implementing Entity shall ensure that the audited financial statements for each period shall be: (a) furnished to the Recipient and the Association not later than six months after the end of the period; and (b) made publicly available in a timely fashion and in a manner acceptable to the Association.

19. The Project Implementing Entity shall take all necessary measures in order to maintain for each its fiscal years after the fiscal year ending on December 31, 2010, a ratio of total cash operating expenses to total cash operating revenues not higher than 0.90 and to collect effectively all operating revenues related to its respective operations, including: (i) annual adjustments of water supply and sewerage tariffs; (ii) budgeting and paying for water supply and sewerage services that benefit their respective oblast budget organizations; and (iii) payment of operating subsidies and debt service subsidies to cover shortfalls.

20. The Recipient shall cause the Project Implementing Entity to carry out the Project in accordance with the Environmental Management Plan and the Resettlement Policy Framework, and shall not amend, suspend, abrogate, repeal or waive any provision of said Plan or Framework without the prior written approval of the Association.

21. For purposes of Part A of the Project and prior to the commencement of works for each proposed site, the Recipient shall cause the Project Implementing Entity to: (a) submit to the Association for its approval: (i) the proposed design and site for said works and, where required by the EMP and/or RPF, the related site-specific environmental management plan, land acquisition and/or resettlement plan and environmental management checklist, said site-

15

specific plans and checklist to be in form and substance satisfactory to the Association; and (ii) the proposed contract for said works to ensure that the provisions of said site-specific plans and checklist are adequately included in said contract; and (b) ensure that such works are carried out in accordance with the EMP and the RPF.

42. Financial Management System (FMS) Covenants

The Recipient shall maintain a financial management system in accordance with the General Conditions as referenced in Financing Agreement.

The Recipient, through the PCU, shall prepare and furnish to IDA, no later than forty five (45) days after the end of each calendar quarter, interim unaudited financial reports for the Project covering the quarter, in form and substance satisfactory to IDA.

The Recipient shall have its financial statements audited annually in accordance auditing standards satisfactory to IDA. Each audit shall cover the period of one fiscal year of the Recipient. The audited statements for each fiscal year shall be furnished to IDA no later than six months after the end of the fiscal year.

IV. APPRAISAL SUMMARY

A. Economic and financial analyses Economic Analysis 43. The economic feasibility of the proposed Project should ideally compare the economic benefits with the economic costs. The economic benefits could be measured by consumers’ demonstrated willingness to pay for the perceived benefits received from the improved water supplied. The difficulty with this kind of economic cost-benefit analysis is that current tariffs are unrelated to safe water supply service; as such service is currently unavailable in most of the Project area. Current tariffs are Uzbek soums 36 (US$ 0.02) per m3 for the resident population, and Uzbek soums 140 (US$ 0.09) per m3 for wholesale consumers but, as noted, the Syrdarya Suvokova has great difficulties in collecting for billings as shown by the level of accounts receivable in the order of 820 days, or more than two years of billings.

44. The second difficulty of measuring economic benefits is the complete absence of metering of production and consumption. Unit tariffs are billed on the basis of Uzbek consumption norms that are 125 lcd for villages and 150 lcd for towns excluding the Uzbek compulsory norm for hypothetical industrial demand of an additional 5% and 10% for villages and towns, respectively. In other words, billings are based on a norm of about 130 lcd for village populations and 165 lcd for town populations. In contrast, rough estimates of consumption rates indicate that the population is receiving on average 15 lcd, a level that approaches the absolute minimum for satisfying basic needs. In order to supplement such inadequate water supplies, some households buy water from vendors for their yard reservoirs at prices that range from around UZS 3,000(US$ 2.2) to 8,000 (5.3) per m3. It is uncertain how much water is purchased per day at such high prices but the very high alternative water prices illustrate the inadequacy of the service provided by the Syrdarya Regional vodokanal, or Suvokova (SVK). The high coping costs also indicate the high benefits that abundant and safe water could be expected to produce.

45. According to the Social Assessment, 86% of the HHs are currently paying an average of 350 soums per HH per month for piped water; 14% do not pay for piped water due to poor service or “lack of money.” The majority of HHs indicated that they are willing to pay from 500

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to 1,000 soums per HH per month, or from about 2 to 3 times more than they are currently paying, for a more reliable supply of water 24 hours per day. Given the difficulties of measuring the level of economic project benefits, the cost-benefit analysis is impractical to undertake. Instead, the economic analysis has been restricted to least-cost analysis where the costs of different options to supply the population with continuous water that satisfies the Uzbek quality standards are compared. Since all options are assumed to produce the same level of (unmeasured) benefits the optimal project alternative is the one that provides the given level of service at the least cost. The least cost analysis in the Feasibility Study considers a total of six alternative supply options, or two for each of the Areas 1, 2 and 3:

46. The six water supply alternatives are:

Area 1 gravity supply from the southern Turttom/Sirgali wellfield.

Area 1 gravity supply from the southern Turttom/Sirgali wellfield to the southern part of Area 1 but with three independent local groundwater supplies for three towns in northern Akaltyn.

Area 2 pumped supply from the northern Beshbulok wellfield.

Area 2 pumped supply for the northern part of Area 2 from the northern Beshbulok wellfield and a gravity supply for sections of the southern part from the southern Turttom/Sirgali well-field.

Area 3 pumped supply from the northern Beshbulok wellfield through existing supply lines (to be considered in subsequent investments).

Area 3 pumped supply from a central, existing but deteriorated, Balikchi well-field that would have to be rehabilitated (to be considered in subsequent investments).

The sum of discounted investment and operations and maintenance costs has been calculated for each alternative service option. For each sub-area the option with the lowest total discounted costs has then been selected. The economic least-cost analysis demonstrates that, under assumptions of increases in power tariffs in line with recent increases, the least cost solution is to rely entirely on the Turttom/Sigali wellfield to supply Areas 1 and 3 by gravity and to rely entirely on the Beshbulok wellfield to supply Area 2 by pumping. The choice of gravity supplies for Areas 1 and 3 has the additional (unquantified) benefits of facilitating the operations and maintenance of the system. Financial Analysis 47. Annex 9 provides an assessment of the financial situation of SVK. SVK is the parent entity that includes 12 rayon (district) level utilities that are responsible for water supply in their particular districts. Water supply tariffs are subject to approval by the Government and have not yet been raised to cost-recovery levels on social impact concerns. SVK’s operations have been affected by financial constraints and institutional weaknesses, resulting in a poor condition of the facilities and network, with high levels of water losses. This has affected SVK’s service levels in terms of adequate delivery, quality and reliability. As a result, the consumers’ perception of SVK’s service quality has deteriorated, with reluctance to pay adequately for the current levels

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of service. Collection performance has been further affected by the fact that average household incomes in the Syrdarya area are significantly lower than the national average.

48. To progressively improve SVK’s service levels, the Project will provide a combination of measures for enhancing operational efficiency through investments in improving physical facilities for water production and distribution, and technical assistance for institutional strengthening, including appropriate outsourcing of activities where feasible. A key element of the plan for institutional strengthening will be the design and implementation of an effective public information campaign aimed at increasing the public’s awareness that timely and full payment of water bills will be essential for SVK to be able to achieve and sustain the anticipated service quality benefits under the Project.

49. The IDA credit amount will be USD 88 million. It is assumed that the Government will support SVK in the execution of their liabilities in debt servicing of IDA credit (as was the case under the recently completed World Bank Bukhara and Samarkand Water Supply Project) which will be legally secured by a Government Resolution. The Resolution will also approve the Feasibility Study of the proposed project and a GOU co-financing commitment is expected to be adopted after the project is approved by the World Bank Board.

50. With the implementation of the above measures, SVK’s financial performance is projected to gradually improve through a combination of improvements in operating efficiency, progressive increases in tariffs towards full-cost recovery, and improvements in collection performance. Tariff requirements have been assessed for three cost-recovery objectives, including (i) tariff needed for full cost-recovery including depreciation; (ii) progressive tariff increase needed to achieve full cost recovery in 2020; and (iii) minimum tariff required for cash cost recovery and 10% of debt service (see details in Annex 9). Scenario (ii), which entails a tariff increase to 182 UzS/m3 in 2011, followed by a gradual increase to UzS260/m3 in 2020, was retained as target base case for financial projections. Such cost recovery scenarios are of course highly sensitive to the timeliness of tariff adjustments, as well as to SVK’s billing and collection performance. Since tariff increases and collection performance will likely be influenced by affordability concerns and public perceptions regarding the service received, it will be some years before SVK is able to become financially self-sustaining. To cover any resulting shortfalls in SVK’s cash flow, the Government will therefore need to provide annual operating subsidies (in addition to the abovementioned 90% coverage of debt service). The magnitude of such annual operating subsidies has been assessed for various variance scenarios from the base case. For example, if tariffs only reach 80% of the required level and SVK only achieves an 80% collection performance, the peak annual operating subsidy could be in the order of about UZS 1.2 billion.

51. The respective obligations of the Government and SVK in regard to financial performance, including tariff increases, operating subsidies and debt service subsidies will be specified under appropriate covenants in the Financing and Project Agreements.

B. Technical 52. A series of technical challenges will be addressed by the Project: (i) water supply will be increased from 15 liter/capita/day to 125 l/c/d for urban areas and 95 l/c/din rural areas; (ii) the majority of water transmission main (87.5 km) will be replaced with new pipes; (iii) 24 hours water supply service with good water quality will be provided to 70% of the area population (430,000 people in 2025); (iv) finance individual household connections to the new piped

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system; (v) install water meters; (vi) a new gravity water transmission main will be extended from Tuttom/Sirgali to Khavast rayon, Yangier city and the southern villages of Bayaut rayon; (vii) water towers of 12 hours water supply will be constructed to ensure the stable pressure in the network; and (g) many of the worn-out and inefficient pumps that supply water through network will be removed

53. The original scope of the feasibility study of the project envisaged 100% coverage in the project area which included five rayons of Sardoba, Bayaut, Mirzaobad, Akaltyn and Khavast. The total cost for rehabilitating and improving the water supply system in Syrdarya is estimated at $140million, the $100 million (excluding taxes - $88 million under IDA15 plus $12 million from GOU) available under IDA 15 for the Project will therefore be limited to investments in two sub-regional areas covering 70% of the targeted population; Area 1 – which includes Sardoba and Akaltyn sub-regions and Area 2- which includes Bayaut and Khavast sub-regions. The first phase of the project will not carry out investments in Area 3 - Mirzaobad sub-region which accounts for the remaining 30% of the targeted population. Area 3 will be considered under subsequent investments. The selection of Area 1 and 2 were considered priority investment areas under this project since they have among the lowest water supply coverage (43.6% in Sardoba) and consumption levels (1.3 l/c/d in Sardoba) in the Syrdarya region, compared to Mirzaobad where 84% of the population is covered with higher consumption levels of 37 l/d/c.

54. The Project will address the deficiencies through various components, such as:

Rehabilitation and limited expansion. This component will include (a) a main transmission line of 370km; (b) selected rehabilitation of the production and distribution systems that will benefit the 50 project towns (the rehabilitated pipe sections are expected to be of much superior quality and workmanship than the original sections that they will replace); (c) selected new distribution systems in towns that can be supplied more economically and sustainably from local groundwater wells; (d) bulk water metering and metering of individual service connections in order to reduce wastage and promote financial sustainability; and (f) implementation consultant would support detailed design work, activities to obtain permits, present tender documents, help with contract awards, supervise construction.

Operational equipment will be procured. Procurement of key maintenance equipment (such as SCADA) and materials including cathodic protection of unprotected sections of the transmission lines;

Institutional strengthening, capacity building, and studies. This component will provide training and capacity building to the regional and rayon level vodokanal which will include a Technical Cooperation between SVK with Musafo Obi Hayot LLC (subsidiary of Tashkent vodokanal) .

C. Fiduciary 55. Financial Management. The PCU will be responsible for implementation of the financial management (FM) function of the Project including, flow of funds, budgeting, accounting, reporting, and auditing. The PCU has prior experience in the implementation of the Bank-financed projects.

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56. Fiduciary risk at the Project level. The FM arrangements of the PCU have been reviewed during the mission in December 2009 and have been found moderately satisfactory. Based on the FM assessment, it was established that the Financial Management (FM) arrangements PCU including accounting, reporting, budgeting, external audit and funds flow are overall acceptable to the Bank but need certain improvements in regard to timely submissions of financial reports (IFRs), establishment of better control from PCU’s side over financial information received from PCU branches, improvement of budgeting and planning process, recruitment of FM staff, etc. The overall financial management risk for the Project before mitigation measures is high and after mitigation measures, the risk is substantial.

57. As the Project will be implemented in an environment where corruption can be perceived as an important issue, adequate mitigation measures have been put in place and will be closely monitored to ensure that the residual project risk is acceptable, including: (a) a formal internal control framework will be described in the Operational Manual; (b) the flow of funds mechanism will be agreed with the Recipient and will be enforced; (c) the Project financial statements will be audited by independent auditors and on terms of reference acceptable to the Bank; and (d) regular FM supervision and procurement prior and post reviews will be conducted to monitor and assess the corruption risk.

58. Fiduciary Risk at the Country Level. The country’s PFM systems of accounting, financial reporting and audit are weak and the country fiduciary risk is assessed to be high. As a result Bank-financed projects continue to rely on stand-alone financial management systems for project implementation as a risk mitigation measure. Based on the assessments of the country PFM system, none of the elements of the country PFM systems are planned to be used under the Project. Fiduciary risk at country level is considered high before mitigation measures and substantial after mitigation measures.

59. Procurement. Since the country procurement assessment in 2003 (done by the Bank and ADB), little progress has been made in reforming the system. Thus, it still suffers from the following weaknesses: (a) absence of a unified legislative framework; (b) inefficient and non-transparent procurement practices; (c) absence of a single institution with oversight or regulatory authority for public procurement; (d) weak capacity for reviewing bidders’ complaints; (e) no independent scrutiny of contracts; (f) no comprehensive anti-corruption measures; and (g) low skills/capacity of the staff handling public procurement at every administrative level. Private sector suppliers and contractors remain unsatisfied with the rules governing public procurement and have little confidence in the system’s fairness. The perceived level of corruption remains high: Transparency International assigned the country a Corruption Preconception Index of 1.8 in 2008, which ranks it at the very bottom among the 20 countries in Eastern Europe and Central Asia and 166th in the world. Thus, the procurement environment is considered a high risk.

60. However, procurement capacity and arrangements at the Project level are considered acceptable. The existing PCU based in Tashkent has one procurement specialist and it has been agreed that another experienced procurement specialist will be hired soon in view of the increased procurement workload. In addition, a procurement specialist will be hired for the Project and will be based in the local PCU branch. Also, external engineering consultants will be hired to implement and manage functions, such as design and technical specifications, bidding documents, bid evaluation and contract award, as well as contract management and construction supervision. Various procurement activities will be packaged in a way and scale to attract international competition, and “slices and packages” will be adopted to promote national participation. To mitigate other risks, further procurement training will be provided during

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implementation and the Bank’s Anticorruption Guidelines (of October 2006) will be implemented. Procurement for the Project will be carried out according to the World Bank’s "Guidelines: Procurement under IBRD Loans and IDA Credits," published in May 2004 and revised in October 1, 2006 and May 1, 2010 (Procurement Guidelines) and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers," published in May 2004 and revised in October 1, 2006 and May 1, 2010(Consultant Guidelines). Further details are provided in Annex 8.

D. Social 61. A social assessment (SA) for the Project was undertaken in five rayons in Syrdarya. As part of the SA, a household survey of 1,491 respondents composed of 52% men and 48% women was conducted. Focus group discussions were held with 60 participants representing various groupings of local organizations. The data generated a wealth of information which was used to improve the design of the Project.

62. Demand for Water Supply. There is a strong demand for improved water supply to the households (HH). Over 65% of the HHs surveyed said it was their most important priority among all their household needs. Currently, 76% of HHs obtain water from outside their homes, mainly from a tap outside the house yard. This state of affairs is most inconvenient for women and children who have to fetch the water. Conflicts have arisen between households because of the lack of piped water. Among other important municipal service problems identified as priorities for the population in the project area, HHs highlighted the irregular or inadequate supply of electricity which makes it difficult for the water pumps to operate. Moreover, power surges and sudden interruptions in electricity supply result in pump failure and the need for the mahallas to collect additional money from the population to fix them.

63. Willingness to Pay. Willingness to pay for a water connection is also high. About 82% of the HHs are willing to connect to the system and pay for the connection. Based on a connection cost of 150,000 to 200,000 soums, about 44% of the HHs said they are willing to pay in two lump sums (half as an advance payment and the other half when they see water flowing from the house tap), while 38% said they would pay in installments. Another 18% of the HHs said they would not be able to afford a house connection. According to the SA, the citizen’s committees will be able to help these HHs through: social allowances for low-income families, (b) dividing the cost of connection among the other HHs in the mahalla territory, as long as the additional amount does not exceed the cost of 1 kg of meat (5,000-6,000 soums); (c) soliciting help from farmers and entrepreneurs; and (d) contributing earnings from the collection of tariffs for municipal services (from 10-20% of the money collected and transferred to the vodokanal or other utilities).

64. Willingness to pay for regular and high quality water supply is quite high. According to the SA, 86% of the HHs are currently paying an average of 350 soums per HH per month for piped water; 14% do not pay for piped water due to poor service or “lack of money.” The majority of HHs are willing to pay from 500 to 1,000 soums per HH per month, or from about 2 to 3 times more than they are currently paying, for a more reliable supply of 24 hours per day. They would pay less for a supply of only a few hours a day.

65. Ability to Pay for Tariff. While willingness to pay for metered piped water to household is high, affordability may be another matter. Based on self assessment of how their HH compares to others with regard to their general level of well-being, about one third (32%) of the

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HHs surveyed said they could not afford to pay for municipal services while two thirds of HHs said they could. On the basis of this finding, the vodokanals will need to ensure there are clear arrangements for subsidizing the households who cannot afford to pay their monthly water tariff.

66. Institutional and Financial Strengthening. Attention is needed in the institutional and financial aspects of operation and maintenance of water supply. Funding of Suvokova (vodakanals responsible for the O&M of the water supply) activities has been decentralized and Mahallas (local citizens’ group) and Shirkats have been transformed into ‘mini-Suvokova’ which bear the responsibility of maintenance of water supply networks in their settlements and at the expense of households. Suvokova enterprises have been experiencing serious funding shortage for qualified workers, equipment, parts and operations and maintenance of the water supply networks. The Mahallas and Shirkats, in spite of their valiant efforts, are not able to properly maintain water-supply networks because they are not trained for the tasks nor are they the right groups to accomplish them.

67. Recommendations. The Social Assessment yielded rich information and valuable insights taken into account in the design and implementation of the Project. Some of these recommendation are as follows:

Consumers should be well informed about the Project and the actual cost for connecting their households to the piped water supply as well as the expected tariff payments.

Agreements on connection and use should be signed between Suvokova and consumers with proper observance of rights and obligations by parties to these agreements as specified in the legislation.

Connection to households and installation of water meters should be done only after signing of the agreements; consumers indicated that that they want to pay a partial fee in advance of the connection and pay the remaining balance only after the connection is completed.

Consumers prefer to begin payment for connection in late summer or early autumn after harvesting or selling their cattle; or get low interest loans; for those who cannot afford to pay for a new connection, local leaders suggest some form of cross subsidy from wealthier households.

Consumer representatives from the Mahallas and Shirkats should be involved in the technical design, selection of contractors for the construction, and in the final acceptance of the completed works.

Attention should be given to waste water disposal when water supply systems are rehabilitated.

Training and other support should be provided to the Mahallas and Shirkats for tariff collection, operation and maintenance of the water system as well as other utilities, such as electricity and gas.

E. Environment 68. In accordance with the World Bank’s safeguard policies and procedures including OP/BP 4.01 on Environmental Assessment the Project has been classified as a Category B for environmental assessment purposes. The environmental issues relate to civil works associated with replacing of existing water supply pipelines, rehabilitation of existing water intakes and in some cases adding new pipelines or drilling limited new deep wells to improve efficiency and quality of the water supply system. Therefore, most environmental impacts expected during the

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construction phase are minor, temporary and related to activities such as preparation of the terrain, excavation of ditches and trenches, pipe laying, and installation of other related water supply infrastructure.

69. The rehabilitation works will follow the existing water supply infrastructure, thus minimizing any potential environmental and social adverse impacts. Works for drilling new deep wells will be recommended if the rehabilitation of some of the existing wells (e.g., in Khavast and Bayaut rayons) will not ensure proper functionality based on their pre-inspection. The new wells will be constructed next to the existing ones (while the old ones will be properly sealed) in compliance with national construction standards and mitigation policies.

70. The rehabilitation-related impacts are likely to be localized and efficiently prevented by applying international construction practice and planning. Such potential impacts may be related to: (i) dust, noise, vibration, temporary access restriction and temporary closure of traffic during works, (ii) improper disposal of construction related waste; (iii) temporary pollution of soil, groundwater and surface waters as a result of leaching of chemicals used sometimes as pipe coating or lining, and by accidental spillage of oil and other products used as lubricants and fuel during works; (iv) lowering of the water table level may potentially occur in the close surrounding areas when the excavation of ditches and trenches goes deeper than the former; this effect, combined with the decompression of the soil, may lead to increased terrain instability with potential risks to nearby infrastructures and buildings; (v) impacts and risks associated with leaks and spills of chlorine and other chemicals or safety hazards including worker safety specially related to dismantle of asbestos pipes; and (vi) chance finds of physical cultural resources. However, these impacts will need to be properly managed during the construction phase by the contractor and closely supervised by Syrdarya PCU (SPCU), respective vodokanals, and designated supervisor engineer.

71. Although substantial improvements will be achieved in terms of operation and maintenance of the rehabilitated facilities through development of measures to reduce water leakages and losses in the system, there still remains the likelihood of occurrence of some indirect impacts such as temporary flooding in case of improper functioning of pumps services or accidental pipe bursts. Furthermore, increase in household wastewater production may be observed due to increase in water use in the Project area. The SPCU will encourage and provide training for use of water in an efficient and conservatory way. In addition, the Project will facilitate consulting services for development of technical studies for future sewerage investments in the Project area.

F. Safeguard policies

Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP/GP 4.01) [x] [ ] Natural Habitats (OP/BP 4.04) [ ] [x] Pest Management (OP 4.09) [ ] [x] Physical Cultural Resources (OP 4.11) [ ] [x] Involuntary Resettlement (OP/BP 4.12) [x] [ ] Indigenous Peoples (OD 4.20, being revised as OP 4.10) [ ] [x] Forests (OP/BP 4.36) [ ] [x]

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Safety of Dams (OP/BP 4.37) [ ] [x] Projects in Disputed Areas (OP/BP/GP 7.60)7 [ ] [x] Projects on International Waterways (OP/BP/GP 7.50) [] [x ]

72. The proposed rehabilitation water supply infrastructure investments will trigger the following Bank policies: OP/BP 4.01 on Environmental Assessment; OP/BP 4.12 on Involuntary Resettlement; and OP 17.50 on Disclosure Policy. The proposed Project is categorized as “B”, based on the fact that the Project involves mainly rehabilitation of existing water supply distribution systems. Selected new construction of distribution systems (e.g., main distribution) that can be supplied more economically and sustainably from local groundwater wells is also planned under the Project.

73. Environmental Assessment The environmental impact of the Project is mostly expected during the construction stage of the proposed investments including rehabilitation and improvement of existing water supply infrastructure.

74. An EA with EMP satisfactory to the Bank requirements and related national laws was prepared by Uzkommunkhizmat to help them implement the necessary measures to minimize potential negative environmental impacts and implement the Project in an environmentally sound and sustainable manner. The EA also included an assessment of potential risks to quantity and quality of the groundwater supply which the Project depends upon. The EMP outlines the impacts during the construction period (noise, dust etc.) and operational phase and defines mitigation measures and related monitoring indicators. The EMP includes measures for managing the potential negative effects of the rehabilitation works and operation stage and related monitoring activities while meeting the applicable national environmental, health and safety standards and Bank’s requirements for Environmental Assessment. In order to ensure adequate implementation of the necessary measures and monitoring aspects, the specific provisions in the EMP and good construction practices will be incorporated in the contractors’ bidding documents. A brief summary of the EA and EMP is presented in Annex 10.

75. No major impacts on Physical Cultural Resources (PCR) are expected during the Project implementation, yet attention will be paid to the possibility of built PCR being affected by dust and vibration during works. Also, the EMP includes provisions for chance finds during works.

76. Projects on International Waterway. The Project will rely on groundwater to supply the population with safe and sufficient water. The team, in consultation with Bank legal and environmental specialists, concluded that the OP/BP 7.50 is not triggered because the groundwater to be accessed is not connected hydrologically with the Syr Darya river or other international waterways. It is expected that the amount of water used will decrease significantly through greater efficiency and better maintenance of the system.

77. Public Consultation and Disclosure. The draft EA with EMP was disclosed in local language during November-December 2009 when public meetings were held in each of the 5 rayons covered by this project. The revised draft EA with EMP addressing comments discussed during the public meetings as well as those proposed by the Bank team was disclosed in English in Infoshop March 4, 2010.

7 By supporting the proposed Project, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas

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78. Involuntary Resettlement (OP/BP 4.12). A screening during project preparation established that the proposed Project is not expected to involve permanent land acquisition because the focus of the Project will be rehabilitation and/or replacement of the existing water supply infrastructure. Should land be needed for these investments, the Project plans to use state-owned land located on existing rights of way designated for municipal infrastructure, and not occupied by residents (legal or illegal) or enterprises.

79. Although the exact lengths and locations of new pipeline construction are not yet known, a reconnaissance of the potential sites where new construction may occur suggests that the Project may necessitate some temporary relocation of households as well as private and other enterprises, or for certain people living in the Project area, lead to a loss of access to assets or loss of income sources. The screening also confirmed that there are numerous illegally occupied plots and unauthorized buildings/structures, including additions to houses, cattle-pens, warehouses, garages, toilets, sheds, and vegetable gardens as well as electrical, gas and phone networks in the Project area. Some of these structures are located near Suvokova facilities and networks, near non-functioning or functioning artesian wells, water towers, over WSNs and SNs, near gas and electrical networks, and too close to residential buildings.

80. To avert any negative social or economic impacts on persons losing access to land, assets and income as a result of the Project, a Resettlement Policy Framework (RFP) was prepared by the Borrower. The RPF was made available locally on February 4, 2010, and further disclosed on a local website on March 4, 2010. The final RPF was submitted to the Bank’s Infoshop on March 9, 2010. The purpose of the RPF is to clarify the policies and principles and organizational arrangements for the delivery of compensation and other entitlements in the event that land acquisition and/or displacement occurs; the process by which these will be determined and delivered; and arrangements for possible grievance redress mechanisms as well as independent monitoring of the implementation of a specific resettlement plan (RP) or abbreviated resettlement plan (if impacts are minor or fewer than 200 people are displaced) that may become necessary as a result of the Project. For any project component requiring land acquisition, specific RPs consistent with the principles in this RPF will be submitted to the Bank for approval when detailed investment planning information and the scope of the civil works becomes available, and the extent of the land acquisition needed for the investment is known.

G. Policy Exceptions and Readiness 81. The Project does not require any policy exceptions.

Readiness

82. The Project will be considered ready for implementation after the Draft Project Operations Manual, satisfactory to IDA, and financial management capacity building measures are in place by negotiations and finalized by Effectiveness.

83. A minimum level of operating subsidy to be provided by GOU to SVK has been agreed at negotiations.

84. Due to lack of funding to anticipate the launch of the detailed design and bidding packages, Project construction and loan disbursements may suffer from an estimated 18 month lead time after loan effectiveness.

85. Project implementation will be further facilitated by the following actions:

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The PCU will start the process of hiring an implementation consultant after negotiations, towards completing selection before project effectiveness. This will allow the consultant to start developing designs and works bid packages soon after effectiveness. The PCU starts to prepare the bidding documents for operation and maintenance equipment (detailed in the table of Fig. 4-7) so that the PCU can issue the bidding documents once the Project becomes effective.

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Annex 1: Country and Sector/Program Background

UZBEKISTAN: Syrdarya Water Supply Project

1. Uzbekistan is an upper low-income, resource rich, landlocked country located in the heart of Central Asia. It occupies an area over 447,400 square kilometers, has a population of 27 million, and is the most densely populated country in the region. The country has a young, educated labor force and rich agricultural resources.

2. Uzbekistan has adopted a gradualist state-led development approach to introduce features of an open-market economy to the existing command economy. The guiding principle of reform is to reduce the risk of external influences in the political and economic spheres. This has been manifested through, inter alia, a policy of minimizing public debt, accumulating considerable external reserves, and cultivating wheat on irrigated land for food security and self-sufficiency. Adherence to this model is also based on the Government’s fundamental belief that this approach is necessary for: (i) building up Uzbekistan's domestic real sector economy before it can face open competition in the global marketplace with any chance of success; and (ii) for maintaining social and political stability in an ethnically heterogeneous and potentially volatile region.

3. Uzbekistan’s approach to development has resulted in a gradual economic growth and less severe social transition than experienced in most CIS countries; high public spending during these years mitigated the impact of the economic transition on human capital and the quality of infrastructure. Market-oriented reforms have been slow and uneven and progressed only where they were consistent with the GOU’s development model and where support for them prevailed over vested interests. More recently, the GOU achieved strong macroeconomic performance but its gradual approach to reform hampered the country's economic potential: Emphasis on large public sector, capital-intensive projects and slow private sector development meant not enough jobs were created to absorb the country’s growing working age population.

Municipal Service Sector

4. Soon after independence, the GOU launched an ambitious program to reform housing and municipal services. These assets had long been neglected by centralized service providers who relied strictly on central government funds for O&M and capital investments.

5. Much was achieved in the past decade. When the GOU began reforms in 1992, all housing was government-owned and people did not pay for municipal services, which were managed mainly by the central government. Within a short period (1991-94), housing was successfully privatized, ahead of many Former Soviet Union (FSU) countries. Also, publicly-owned housing maintenance organizations were restructured and largely privatized. Home owners’ associations (HOAs) were created for about 90% of multi-story buildings, again, ahead of many FSU countries.

6. Also during this period, municipal services were largely decentralized and responsibility was transferred to local governments, which were made responsible for a larger share of

expenditures on housing and utilities services. Municipal service tariffs were raised gradually to

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achieve full cost recovery and phase out government subsidies to the service providers. By 2000, the transition was largely completed—at least on paper—except for heating and hot water supply.

7. However, tariff collection rates remained low and the utilities’ financial situation deteriorated. Today, many municipal service companies are highly indebted and some are nearly bankrupt. Despite recent economic growth, the country’s poverty levels have decreased little. The steady rise in tariffs increased the percent of income that households must spend on municipal services and other utilities—a trend even more pronounced outside Tashkent. Unfortunately, the existing subsidies—in the form of cash compensation—do not accurately target low-income populations. Although some may be able to pay, they do not— either because they lack awareness regarding the importance of paying tariffs or because they do not receive bills.

8. Despite the GOU’s reform efforts, it still needs clear policies to encourage efficient, cost-effective operations. Current tariff-setting mechanisms have no incentives for service providers to reduce their expenditures and they ignore the large investment backlog. Although consumption meters were seen as a priority some time ago, implementation has been slow. Thus, crumbling infrastructure and the lack of meters lead to substantial waste of water and heat.

9. Under the reforms, municipal services were largely decentralized but the managerial and technical capacity of local service providers is weak, and regional and local governments have little capacity to supervise and control quality. Some service providers (for example, solid waste collection and disposal companies) were privatized but were not given clear contractual or regulatory requirements. Thus, service quality is low.

10. Although the investment backlog is massive (after years of poor maintenance and no investment), Government investments in municipal services have been minimal and the quality questionable. Funds were invested without medium-term planning, reliable technical data, or effective monitoring of outcomes. Although each sector has specific barriers to overcome before reforms are fully implemented, all have the following problems: (a) most assets are deteriorating; (b) benchmark data, although plentiful, are unreliable or irrelevant to improving performance; and (c) no plan exists to resolve the current financial deadlock. Thus, service quality continues to plummet and rampant systemic inefficiencies waste valuable resources.

Water Supply and Sanitation

11. The Cabinet of Ministers sets policy for water supply/sanitation as well as other municipal services, while the Uzkommunhizmat establishes technical and other norms and gives technical support. Regional and local governments manage and regulate services, which are mainly provided by regional government-owned water supply companies. Despite the reforms to policies that affect water supply/sanitation, the following areas are still problematic.

12. Water supply. In 2005, the water supply, including the central system and standpipes, covered about 82% of the population, (88% in urban areas), which is lower than average for most ECA countries. As in the others, infrastructure exists but must be rehabilitated or replaced (e.g. about 25% of water distribution networks needed replacing) and water loss averages around 41%. However, water loss, plus a low metering rate of 29% (2005) may be even higher because

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production volumes are not accurately measured or billed. Rather, volume is based on established consumption norms, which tend to be overestimated. Not surprisingly, water service reliability and quality are unsatisfactory; some upper floors of apartment buildings do not even receive water, water supply in most small towns and rural settlements is intermittent, and inadequate water treatment has caused water quality to deteriorate.

13. Resource distribution. The most critical technical challenge is the distribution of water, which is quite uneven. During the Soviet era, the Government built thousands of kilometers of inter-regional water networks connecting relatively water-abundant areas to those that were water-scarce (in the northwest); but, these networks require enormous energy to function. As a result, when the Government phased out subsidies to the regional bulk water companies and raised bulk water tariffs to near cost-recovery levels, many local companies stopped buying from the regional ones and developed local sources of water. Since then, water supply volume has fallen steadily. However, considering the large sunk cost of the inter-regional water networks (some of them more than 500 km), and the cost of developing local water sources, it is unclear if this strategy is sustainable.

14. Water quality. The quality of drinking water sources has deteriorated over time, partly due to agricultural chemicals and pesticides that seep into groundwater and are carried by surface water. Also, in northern and central Uzbekistan, salinity levels are high due to Aral Sea problems, despite extensive efforts to improve water quality through desalination plants. In addition, aggressive soil conditions with high salinity cause the pipes to deteriorate further.

15. Wastewater treatment. Only 48% of urban areas have sewerage treatment facilities, which results in substandard wastewater treatment and creates potential environmental and health risks. Thus, more than half the sewage is discharged into pit latrines that are poorly maintained, and it is estimated that only a small percent of wastewater is treated to acceptable standards before being discharged into the nearest water body. Still, little monitoring exists. When latrines are full, residents simply bury the old ones and build new ones nearby.

16. To address these challenges, the Uzkomunhizmat prepared “The Model of Development of Water Supply in the Republic of Uzbekistan based on New Regulations and Technologies for the Period up to 2010.” It recommends wider use of modern, durable polymeric and glass fiber pipes, efficient equipment, more stringent requirements to water safety norms, and greater use of local water sources with small fresh water reserves to supply drinking water, among other measures. The document proposes a water supply target to cover 100% of urban populations but does not list plans, priorities, or investment and financing sequences.

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Annex 2: Major Related Projects Financed by the Bank and/or other Agencies


Sector Issue/Objectives

Project

OED and latest supervision

ratings (Bank-financed

projects only) IP & DO

World Bank

The PDO is to improve agricultural production in areas affected by water-logging, and to reduce damage to housing and infrastructure from rising ground water levels and salinity in the Project districts. The objective would be achieved through the rehabilitation of the I&D system and through institutional capacity building in sustainable water resources management and agricultural production. Achievement of project objectives would be measured by the following key performance indicators: (a) the lowering of the ground water table, (b) an increase in crop yields, and (c) the reduction of land area flooded in settlements.

Ferghana Valley Water Resources Management Phase I Project Total Project Cost: USD81.852 million IDA Credit: USD 65.544 million equivalent Board Date: 09/24/2009 Closing Date: 07/31/2016

N.A.

The Bukhara and Samarkand Water Supply Project seeks to improve the safety, quality, reliability, efficiency, financial viability, and sustainability of the water supply services in these cities.

Bukhara and Samarkand Water Supply Project Total Project Cost: US$62.33 million IBRD loan: US$20 million IDA Credit: US$20 million Board Date: 09/09/2004 Closing Date: 06/30/2010 Co-financed by Govt of Switzerland

IP/DO – S

The Bukhara and Samarkand Sewerage Project seeks to mitigate the environmental impact from wastewater pollution and improve the efficiency and sustainability of wastewater management in the two cities.

Bukhara and Samarkand Sewerage Project Total Project Cost: US$66.16 million IDA Credit: US$55 million Board Date: 08/04/2009 Closing Date: 12/31/2015

IP/DO - S

The Drainage, Irrigation and Wetlands Improvement Phase-I Project (DIWIP-I) for Uzbekistan seeks to: (a) increase productivity of irrigated agriculture, employment and incomes in Karakalpakstan, one of the poorest regions in Central Asia; (b) improve the water quality of the Amu Darya river by the safe disposal of the drainage effluent, and enhance the quality of wetlands in the Amu Darya delta; and (c) develop institutions to improve water management, O&M of the irrigation and drainage systems, and to promote sustainable irrigated agriculture through participatory irrigation.

Drainage, Irrigation and Wetlands Improvement Project – Phase1 Total Project Cost: US$74.55 million IBRD Loan: US$35 million IDA Credit: US$25 million Total Project Cost: US$74.55 million Date: 12/11/2006 Closing Date: 12/11/2010

IP/DO – S

The Rural Water Supply and Sanitation Project seeks to: (a) improve the water supply, sanitation and health of the population of Karakalpakstan and Khorezm Oblast; (b) strengthen the institutional capacity for management, operation and financial performance of the regional water supply and sanitation utilities as well as the Health Centers and the Sanitary Epidemiological Stations; and (c) increase efficiency of project institutions.

Rural Water Supply and Sanitation Project Total Project Cost: US$75 million IBRD Loan: US$75 million Board Date: 8/21/1997 Closing Date: 6/30/2008

IP/DO – S

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Annex 3: Results Framework and Monitoring


Results Framework PDO Project Outcome Indicators Use of PDO

Information To improve the availability, quality and sustainability of public water supply services in selected rayons of the Syrdarya Region

Improved availability and quality of service as reflected by:

1. Number of people with access to improved water sources under the Project (CI2).

2. Percentage of regulatory water samples meeting potable quality standards.

3. Increased water consumption of the served population.

Improved sustainability as reflected by:

4. Number of piped households with meters.

5. Improved financial working ratio of SVK.

6. Number of utilities supported by the Project (CI).

7. Improved energy efficiency of water supply systems in the Syrdarya region (as a ratio of power consumed and water flow supplied to the network, kWh/m3/yr)

Measure progress towards financial and operational sustainability of water supply management in Syrdarya Region.

Intermediate Outcomes

Intermediate Outcome Indicators Use of Intermediate indicators

Component A Improved water supply infrastructure in selected rayons in the Syrdarya region.

11. Length of water transmission main constructed/rehabilitated (DN 100 -700mm).

2. Length of water distribution network constructed /rehabilitated (DN 100-250 mm). 3. Length of service network constructed / rehabilitated (DN 20- 63). 4. Rehabilitation of wells with new pumping equipment installed.

5. Maintenance effort of 2% of the replacement value of fixed assets of the water supply system is sustained.

Help SVK track physical progress and take early remedial action, as needed.

2 CI – World Bank Core Indicator

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PDO Project Outcome Indicators Use of PDO Information

Component B Improved capacity of vodokanal staff to manage, operate and maintain the water supply system Increased community satisfaction with improved level of water supply services

1. Reorganization of SVK and establishment of inter-district unit. 2. Increased awareness with regard to proper hygiene, water saving and environmental issues; measured as a percentage of mahalla population aware of communication campaigns carried out under the project. 3. Improved capacity of the vodokanal to manage the system due to installation of MIS and SCADA systems. 4. Percent of staff trained in utility management, O&M, communications and data transmission process. 5. Percentage increase in community satisfied with improved services (as per 2009 Social Assessment 38% of community members are satisfied with existing services). 6. Water loss reduction (ratio of total hydraulic and technical losses to the water production) 7.Improved tariff collection rates for households (7a) and other consumers (7b)

Determine if capacity building efforts contribute to service improvement and financial and operational sustainability of utilities.

Component C Central Government can identify priority investment needs for wastewater infrastructure in Syrdarya

Integrated Feasibility study for future sewerage investment completed.

Help GoU identify priority investment for sewerage system in Syrdarya region as well as potential financiers

32

Arrangements for monitoring results (1)

Project Outcome Indicators Baseline Target Values

Frequency of Reports

Data Collection Measures

Data Collection

by YR1 YR2 YR3 YR4 YR5 YR6 YR7 Improved service availability and quality as reflected by:

1. Number of people with access to improved water sources under the Project.

0

3,335 36,680 103,370 183,398 270,095 280,099 Semi-annually Contractors progress reports

PCU branches and SVK

2. Percentage of regulatory water samples meeting potable water standards. TBD 98% Semi-annually

SVK’s Operation data


3. Increased water consumption of the served population 15.2 l/d/c 15.2 16.3 27.6 50.2 77.3 106.6

95 l//d/c (rural)

125 l/d/c urban)


Improved sustainability as reflected by:

4. Number of piped households with water meters

0 0 556 6,113 17,228 30,566 45,016 46,683 Semi-annually



5. Improved financial working ratio of SVK.

0.98 0.9 0.9 0.9 0.9 0.9 0.9 0.9 Semi-annually



6. Number of water utilities that the Project is supporting (CI) 5 1 1 1 1 1 1 1 Semi-annually



7. Improved energy efficiency of the water supply system in Syrdarya region (as a ratio of power consumed and water flow supplied to the network, kWh/m3/yr)

The existing ratio for

2009 is 1.24 1.24 1.23 1.17 1.04 0.88 0.71 0.69 Annually



33

Intermediate Outcome Indicators Baseline Target Values

Frequency of Reports

Data Collection Measures

Data Collection

by YR1 YR2 YR3 YR4 YR5 YR6 YR7

Component A

1. Length of water transmission main constructed/rehabilitated (DN 100 -700mm).

0

0.00 4.40 48.45 136.55 242.26 356.79 370 Semi-annually Project Progress Report


2. Length of water distribution network constructed /rehabilitated (DN 100-250 mm).

0 0.00 4.29 47.14 132.86 235.71 347.14 360 Semi-annually

Project Progress Report


3. Length of service network constructed / rehabilitated (DN 20- 63). 0 0.00 5.00 55.00 155.00 275.00 405.00 420 Semi-annually



4. Rehabilitation of wells with new pumping equipment installed.

0 0 10 20 28 28 28 28 Semi-annually



5. Maintenance effort of 2% of the replacement value of fixed assets of the water supply system is sustained.

2% 2% 2% 2% 2% 2% 2% Semi-annually



Component B

1. Reorganization of SVK and establishment of inter-district unit

Reorganization

initiated

Inter-district unit is

established



2. Increased awareness with regard to proper hygiene, water saving and environmental issues; measured as a percentage of population aware of communication campaigns by the project.

0 30% 50%



3. Improved capacity of the vodokanal to manage the system due to installation of MIS and SCADA systems.

MIS and SCADA not installed

Procurement of MIS and SCADA

Installation of MIS

and SCADA

Systems fully

operational



4. Percent of staff trained in utility management, O&M, and communications. 0% 20% 40% 70% 80% Semi-annually



34

5. Percentage of community satisfied with improved water service delivery 38% 38% 40% 45% 50% 60% 70% 80% Annually



6. Water loss reduction (ratio of total hydraulic and technical losses to the water production)

40.2% 40.2% 39.9% 36.9% 30.9% 23.7% 15.9% 14.0% Annually


SVK

7.Improved tariff collection rates for households (7a) and other consumers (7b) 76.3% 76.3% 77% 78% 81% 85% 89% 90% Annually


SVK

87.5% 87.5% 87.5% 87.8% 88.4% 89.1% 89.9% Annually


SVK

Component C

1. Integrated feasibility study for future sewerage investment has been completed. 0

Procurement of consultants

Draft Feasibility

study

Final FS submitted to Cabinet Ministers

Semi-annually Project Progress Report


35

Annex 4: Detailed Project Description


Background

1. The Project area is characterized as rural, with small towns and many small settlements distributed over the region. Administratively it is structured into 5 rayons (districts). The rayons are divided into Rural Community Centers (RCC) which represent the Project towns. These are again subdivided into community groups or Makhallas, which represent neighborhoods of the towns or villages. For its water supply the Syrdarya region relies on groundwater aquifers, in the Syrdarya basin and Zaamin river basins. Where available, such aquifers are of limited local reach (intra-regional categorization). The existing water supply systems were mainly constructed over the period 965-1980, with some new wells added during 2007-2009. In rayons with no or scarce groundwater resources, the water is supplied through large water trunk lines (Sardoba, South of Akaltyn and Mizaobad). Rayons with locally available groundwater are supplied from local wells but the water quality is uneven (Bayaut, Khavast). There are two large water intakes operating in the Project area: (i) Tuttom and Sirgali water intake (Zaamin System) in Djizzak region (south) in an altitude of about 430 m from where water is transmitted by gravity to a 2nd lift pumping station and subsequently to the clean water reservoirs at the settlements in Sardoba rayon and towns in Khavast rayon; and (ii) Beshbulok water intake located in Saichinobod Region (north east) from where water is pumped to Gulistan and Yangier and three towns in Bayaut rayon (see Figure 4-1 below).

Figure 4-1: Existing Water Supply Scheme

2. The status of water supply services in Syrdarya Region is characterized as critical. As summarized in Fig. 4-2, service coverage is incomplete, and due to intermittent service throughout all districts the average water consumption per capita is estimated at only 15.2 l/capita/day in 2008. Figure 4-3 below further illustrates water supply service hours for each district.

36

Figure 4-2: Water Consumption (2008)

Figure 4-3: Population by Districts and Supply Hours

3. The current unsatisfactory water supply service condition is due to a lack of investments and maintenance. The deteriorated services level does not allow the vodokanal to establish and collect adequate tariffs creating a vicious unhealthy financial situation in the vodokanal- high level of accounts payable and receivable; low and delayed salary payments; and rejection of water service bills by the population.

37

Project Development Strategy:

4. The proposed Project development objective (PDO) is to improve the availability, quality and sustainability of public water supply service in selected rayons of the Syrdarya Region. The proposed Project would improve the water supply system and provide uninterrupted 24 hours supply of potable water to the population. To achieve this objective the following project design strategy was adopted: (i) Where possible, water transmission and supply will be rehabilitated using gravity flow instead of pumping stations; (ii) The reliability, water quality and service coverage areas of the Beshbulok and Turttom/Sirgali groundwater intakes will be increased; (iii) The number of stand-alone small water supply systems will be reduced, and interconnection will be promoted, for increased reliability of service and easier maintenance; (iv) Water towers will be favored over pumping stations to achieve constant pressures in the distribution networks ; (v) Water meters will be systematically installed for measuring water production and consumptions; and (vi) Machinery and pipelines will be renewed with long lasting equipment and materials according to international standards.

5. In view of above, and in order to maximize beneficial economic and public health impacts, the proposed Project design was also optimized to comply with variant per capita water consumption norms of 125 l/c/d in urban centers and 95 l/c/d in rural settlements (as opposed to commonly used base consumption norms of respectively 150 l/c/d and 115 l/c/d). It is estimated that infrastructure investments of $115 million net of taxes would be needed to rehabilitate and improve the water supply services in the five target districts (at 100% coverage) of the Syrdarya region for a total of 430,000 estimated populations in 2025, not including required design and supervisory engineering services and institutional capacity building. This translates into a unit investment cost of US$268 per capita. Such high investment cost is explained by (i) the dire state of disrepair the existing infrastructure, (ii) by the substantial water transmission investment needed to supply towns and villages where local groundwater quality is poor and cannot be treated economically to meet drinking water standards, and (iii) the impact of design standards and criteria specific to Uzbekistan.

Wastewater Collection. The proposed Project does not come with the resources needed to develop or rehabilitate sewerage systems. Such need is currently beyond the means of the Syrdarya vodokanals and beyond cost-recovery by realistic user tariffs. In line with the expressed preference of the communities consulted in the Social Assessment, and consistent with Governmental planning priorities, there are benefits in focusing first on rehabilitating water supply systems, and pragmatically plan and prepare sewerage investments over time. In addition, the weak vodokanal institutional and implementation capacity would simply be exceeded by the simultaneous implementation of massive water supply and sewerage rehabilitation programs. The approach proposed for the Project would be to design this operation in the simplest possible way to improve the water supply services with a view to address, only the technically and financially most critical issues and to use it to build up a basis for future, gradually expanding support to the SVK from the World Bank, other International Financial Institutions (IFIs) or bilateral donors. Nevertheless, the Project will finance a sewerage feasibility study for the towns and district centers of the Syrdarya region.

Project Components

6. The Project will comprise the following components:

38

Project Component A: Improvement of Water Supply Infrastructure (total estimated cost US$95.99 million of which IDA is US$83.99 million) - This component will finance the 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 and Area 2) as shown in Figures 4-4 and 4-5 below.

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). As illustrated in Figure 4-4, Area 1 will be supplied from the south by the Turttom/Sirgali water intake. The Project will finance rehabilitation of all 12 intake wells, transmission water mains, distribution networks and household connections in all the settlements supplied from the transmission mains. The system will function in a gravity mode with water supplied to reservoir-towers and then on to the networks in the settlements.

Figure 4-4: Sardoba/Akaltyn (Area 1)

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.

39

A new transmission line (DN700mm) of 26 km will be constructed from the Tuttom and Sirgali groundwater intake in the south, to supply water by gravity to Khavast district, Yangier City and the southern villages of Bayaut district. Investment costs for this new gravity transmission system are approximately $5 million higher than an alternative based on water pumping from Beshbulok, but are justified reduced operation and maintenance costs over time (Figure 4-5).

Water supply in the southern part of the Bayaut district will have to be rehabilitated as part of a subsequent investment project or phase, yet to be financed. Water will be supplied by the pumping station ‘Gulistan Severniy’ to the Project transmission main laid along the southern border of Bayaut district, from the Beshbulok water intake and via the existing Dekhkanobad transmission main.

Figure 4-5: Bayaut/Khavast (Area 2)

Area 3: Mirzaobad sub-region:

Area 3 was originally included in the scope of the feasibility study of the Project. The Project will not allow investments in Area 3. System rehabilitations in Area 3 must be object of subsequent investments. The water will then be pumped from Beshbulok water intake via the existing pipeline to Gulistan pumping station. The Project will rehabilitate 5 wells at the Beshbulok water intake. In the south of Gulistan a new pipeline will be installed to supply water to Mirzaobad rayon. (Figure 4-6).

Figure 4-6: Mirzaobad (Area 3) under ulterior investment phase.

40

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. The following will be financed:

Equipment for Operation and Maintenance: the equipment listed in Figure 4-7 will be procured. Heavy equipment (crane and excavator, etc.) will be stored at the Syrdarya Suvokova in Gulistan, because the equipment requires trained operators and is normally not needed for everyday use. Spare parts for equipment will be also be procured. Every day spare parts will be stored in the district Vodokanal’s storage but spare parts not needed regularly would be stored at the Syrdarya Regional Vodokanal.

Laboratory: A central laboratory in Gulistan will be financed and equipped to carry out more complex analyses of water quality such as – arsenic, nitrates, nitrites, lead, fluorine, dry residue, iron, hardness, manganese, copper, polyphosphates, sulfates, chlorides, etc. In addition, the Project will finance establishment of smaller site laboratories at (i) Water intake Turttom, (ii) Water intake Beshbulok, (iii) Suvokova Mirzoabad (Water intake Balikchi), (iv) Suvokova Bayaut, (v) Suvokova Khavast, (vi) Suvokova Sardoba and (vii) Suvokova Akaltyn.

Pilot SCADA system (software and hardware) to assist with monitoring and controlling the operating conditions of the infrastructure and to help vodokanal staff to collect, store and analyze required information and data to monitor the day-to-day operations.

41

Figure 4-7: Equipment for Operation and Maintenance

Total

Equipment

1 Excavator one-bucket, swamp, crawler, tractor type, increased crawler surface support, bucket capacity of 0,5m³

3

2 Mobile compressor unit on diesel fuel with 10bar capacity 3

3 Automotive crane, diesel with lifting capacity of 6 tn. with hydraulic drive and telescopic boom

3

4 Central laboratory equipment 2

5 Equipment for local laboratories 6

6 Motor car, 4 seats. 5

7 Truck 3

8 Emergency-repair vehicle 7

9 Motor Cycles for large water intakes 4

10 Mobile welding unit on diesel fuel, nominal welding current 400A, and nominal operation tension 36Wt, nominal rotation rate 1800 rpm.

3

11 Under Pressure Tapping Machine for house connections 3

12 Tool kits (wrench, drilling machine, hammer, grinders, etc.) 14

13 A special trail for pipe transportation 1

14 Welding machine for PE pipes with DN 100 – 250 mm 2

15 Welding machine for PE pipes with DN 250 - 400 mm 2

16 Welding machine for PE pipes with DN 400 – 700 mm 1

17 Monoblock pumps 7

18 Tank-truck 3

Sub-Component A3: Design and supervision of works. 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$1.54 million of which IDA is US$1.54 million) - The Syrdarya Regional Vodokanal (SVK) 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. SVK in particular lacks adequate capacity to manage customers, intall and read meters, issue bills and collect tehm, and detect, maintain and repair system failures. The Project aims at strengthening SVK’s operations in three ways:

Reorganization of SVK and district vodokanals and establishment of a new interdistrict vodokanal,

Staff training and procurement of necessary equipment and information systems; Selective use of outsourcing of O&M functions to local private operators.

42

The Project will in particular finance the following sub-components:

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, including: i) organizational restructuring of the regional and district vodokanals including some local outsourcing of select vodokanal tasks such as customer service, billing and collection; ii) implementation and preparation of customer database information and customer contract documents; iii) implementation of training components not covered under the “Technical Cooperation”; and iv) evaluation of suitable hard and software packages, and equipment, preparation of procurement documents. In addition, the establishment of a modern customer service capacity at SVK, 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 the Tashkent Vodokanal, free of charge, as facilitated by the Governement, in order to promote learning and the exchange of knowledge and applied experience in the water sector in Uzbekistan

Sub-Component B2: Institutional Assessment and Study to Explore Local PSP Opportunities. The Project will finance an institutional assessment of the formal and informal arrangements and capacities in place to deliver water supply services. The assessment will examine the organization and capacity of the SVK and district vodokanals – Akaltyn, Bayaut, Khavast, Mirzaobad and Sardoba, and investigate the informal roles and capacities of local mahallas and shirkats. This sub-component will also include a study, to assess the enabling environment for local private sector participation in Syrdarya region water sector operations, with a particular focus on exploring opportunities to outsource select water utility tasks/services to local entrepreneurs. A grant will be identified for the funding of this study, which may recommend improved organization and capacity in SVK for the management of outsourcing contracts. As part of this study the consultant would in particular develop sample “Service Contract” templates, identify potential private entrepreneurs, and assist SVK with piloting local PSP service contracts for customer service, billing and collection. The Study will also culminate in proposing a draft Framework for Local Private Sector Participation in Uzbekistan. A PSP Business workshop will be organized to market the concept of outsourcing opportunities in Syrdarya to local businesses and private entrepreneurs. Learning from the Tashkent vodokanal experience, the study will also evaluate the Tashkent model of establishing a private subsidiary to improve service delivery and assess the viability replicating the model more broadly in Syrdarya and other regions in the country..

Sub-component B.3 Training Activities for Utility Staff and Management Training

I) Local training - 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. The Project aims to build on and use the CRM manual and training trainer’s efforts under this TA to benefit Syrdarya SVK. The aim is to also to improve the capacity of each vodokanal to diagnose the condition of its infrastructure and carry out preventive maintenance in an efficient and sustainable manner. Local training activities may in particular include, but not be limited to: i) Customer Database Preparation including CAD & GIS components; ii) Training

43

Billing & Accounting Software; iii) Vodokanal management training in respect to general and specific management of operational - technical and financial issues; iv) Theoretical training on repair and maintenance including equipment (in general as well as specific ,reference to materials used for construction); v) Theoretical training on supply systems monitoring and operation (SCADA related); vi) Theoretical training on wellfield operation, pumps and electrical equipment, monitoring systems; vii) Training on warehouse management and material forecasting, procurement procedures - tendering – contracting; viii) Theoretical training on domestic water meter test bench operation, handling, maintenance, calibration of meters, repair and assembling; ix) 'On the job' training for repair and maintenance including equipment (reference to materials used for construction), x) 'On the job' training for wellfield operation, pumps and electrical equipment, monitoring systems; xi) 'On the job' training for supply systems monitoring and operation (Scada related); xii) 'On the job' training for domestic water meter test bench operation, handling, maintenance, calibration of meters, repair and assembling; etc.

II) International Training for management - 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. Training abroad may encompass: i) VK management training in respect to general and specific management of operational - technical and financial issues; ii) Training for repair and maintenance (reference to materials used for construction); iii) Training for wellfield operation, pumps and electrical equipment, monitoring systems; iv) Training for supply systems monitoring and operation (Scada related); v) Training for domestic water meter test bench operation, handling, maintenance, calibration of meters, repair and assembling.

Sub-component B.4: Utility Management Equipment and software: This will include: i) Computer hardware and accessories for VK management, operation & maintenance, billing & accounting, laboratory; ii) Billing & accounting software; iii) Water Supply & Sewerage GIS software package including customer database, system monitoring & maintenance components, iv) CAD software package; v) Hydraulic modeling software package (GIS based), vi) Warehouse management and material procurement software; vii) Latest high accuracy satellite images of all project areas; viii) Equipment for operation and maintenance; ix) Domestic water meter test bench, repair and assembling equipment workshop tools, machinery and accessories; x) Basic Management Information System (MIS), or database for the collection of operational, financial management and results indicators data during project implementation.

Sub- Component B5: Communication Strategy and Public Awareness Campaigns- given that improved water supply will increase consumption of water in the region, public awareness campaigns will be carried out and aimed to improve public hygiene practices, water conservation, and educate the public about the Project’s expected health and environmental benefits and the need for regular tariff payments to support O&M operations. The communication campaigns will also aim at mitigating any environmental risks that may be associated with increased consumption and discharge of household wastewater into surrounding drain, streets and open areas due to the lack of a sewerage system currently in place in most of Syrdarya Region;

44

Sub-Component B.6: Consumer Satisfaction Surveys. Customer satisfaction surveys will be designed and conducted annually, to monitor water supply situation and Project impacts among various stakeholder categories, duly sampled for the socio-economic level, location, and status of water supply. Survey findings will contribute to Vodokanal planning and to Project monitoring and evaluation, by measuring parameters such as: i) Level and quality of service; ii) satisfaction with service; iii) ability and willingness to pay for improved service; iv) perceptions towards water service and SVK; etc.

Component C: Feasibility Studies for Future Sewerage Investments in towns of the Syrdarya Region (total estimated cost US$0. 75 million of which IDA is US$0.75 million). Under the management of the central government, this component will finance consultant studies to identify sewerage investments needs in the Syrdarya Region.. It is envisaged that the feasibility study will help financiers to consider financing the wastewater infrastructure sector in the Syrdarya region. The component will be executed by the Uzkommunkhizmat with support from the PCU.

Component D: Project Management (total estimated cost US$1.68 million of which IDA is financing US$1.68 million)

Subcomponent D1: This component will finance the Project Coordination Unit (PCU), and its branches in Syrdarya, along with their operating costs, technical assistance and capacity building needs, including the payment of the Single Socila Tax on PCU staff compensations.. The component will also finance monitoring and evaluating (M&E) of project activities: technical, environmental and social monitoring (for example, periodic beneficiary assessments to determine consumer satisfaction, connection rates, and the effectiveness of public awareness campaigns).

Subcomponent D2: Annual financial audits of district vodokanals and/or newly established interdistrict vodokanal.

45

Annex 5: Project Costs

Uzbekistan Syrdarya Water Supply Project

Note : Annex 5a reflects cost for capital investments only

IDA Financing, US$ thsd

Government Financing

(excl/taxes), US$ thsd

Government Financing

(without tax and custom duties

priviliges), US$ thsd

Cost, US $ thsd

(a) Water System Turtom Sardoba-Sirgali

Lot 1: Reconstruction of water intake (incl. disinfection)

1,091 0 191 1,282

Lot 2 Construction of main lines 20,213 0 3,534 23,747

Lot 3: Water towers 1,735 0 303 2,038

Lot 4: Town water networks and house connections 9,862 0 1,724 11,587

(b) Water System Sirgali Khavast-Bayaut

Lot 5: Reconstruction of water intake (incl. 1,810 0 316 2,127

Lot 6 Construction of main lines 22,203 0 3,882 26,085

Lot 7: Water towers 2,395 0 419 2,813

Lot 8: Town water networks and house connections 9,270 0 1,621 10,891

(с) Water System Beshbulok

Lot 9: Construction part of pumping stations (beshbulok and Gulistan North)

1,963 0 0 1,963

(d) Operational and maintenance equipment 2,357 0 9 2,366

(e) Contingencies 5,573 0 0 5,573

(f) Implementation Consultant

Detailed design, bidding documents, assistance at contract award, construction supervision

5,527 0 0 5,527

0 0 0 0

B 1 Technical Assistance for Improvement

790 0 0 790

B 2 - Utility management equipment

d

0 0 0 0

B 3 - Training activities for utility staff 300 0 0 300

B 4 - Institutional assessment and PSP 350 0 0 350

B 5 - Communication campaign 100 0 0 100

B 6 - Customer Survey 30 0 0 30

750 0 0 750

0 0 0 0

(a) Consultant services of PCU 1,000 0 0 1,000

(b) Audit 683 0 0 683

TOTAL 88,000 0 12,000 100,000

Part C - Feasibility Studies for Future Investments and investment to sewerage (Government)

Part B - Institutional Strengthening and Capacity Building (Syrdarya vodokanal)

Part D - Project Management

Part A - Physical Investment (Syrdarya vodokanal)

46

Annex 5: Project Costs Uzbekistan Syrdarya Water Supply Project

Expense categories US$ million

IDA Financing

Republic of Uzbekistan Total Project

Cost

% of costs to be funded by IDA

(with taxes) Capital investments

Tax & custom duties

(1) Goods and works for Part A 1 and A 2 (b)-(f) of the Project 72.90 12.00 18.01 102.91 70.84%

(2) Consultant services for Part A 2 (а)

5.41 0.00 1.08 6.49 83.33%

(3) Institutional Stregthening and Capacity Buildig for Parts B and C f the Project

2.03 0.00 0.41 2.44 83.33%

(4) Project Management for Part D of the Project

1.58 0.00 0.32 1.90

Unallocated funds 6.08 0.00 1.21 7.29 83.33%

TOTAL AMOUNT 88.00 12.00 21.03 121.03

Category Amount of the Credit Allocated (expressed in

SDR)

Percentage of Expenditures to be Financed

(1) Works 16,360,000 70.84%

(2) Goods under:

(a) Parts A.2 (b) through (f) of the Project

(b) Other Parts of the Project

30,980,000

150,000

70.84%

83.33%

(3) Consultants’ services, Training and Operating Costs for the Project

5,710,000 83.33%

(4) Unallocated 4,000,000

TOTAL AMOUNT 57,200,000

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Annex 6: Implementation Arrangements and Institutional Capacity Building


Implementation Arrangements Executing agencies: SVK is the implementing entity of the Project with full implementation responsibility. Overall responsibility for the project within the Government rests with Uzkommunkhizmat, whose PCU will be in charge of day-to-day project management and coordination. SVK will be assisted by the PCU office in Tashkent, the PCU Syrdarya branch (SPCU) in Gulistan, and the Project Management Consultant. The PCU will be responsible for project financial management, including accounting, reporting and the management of the designated accounts and Direct Payments. The PCU will have overall responsibility for submission of withdrawal applications to the Bank, and for consolidation and submission of periodic financial reports as well as audit arrangements. The PCU will control the Project financial management function and will ensure sound financial management systems. The PCU will need to recruit suitably qualified and experienced financial specialists with adequate knowledge of the World Bank financial management and disbursement procedures. The PCU financial specialist will consolidate all the reports for submission to the Bank, and would also help to train the accounting staff of its Syrdarya branch SPCU. The PCU SVK will also report to the Interagency Council for Cooperation (ICC) established to coordinate “Implementation of Large-scale and Strategically Important Investment Projects” under the Cabinet of Ministers of the Republic of Uzbekistan. The ICC will have representatives from key national agencies of the central government (Cabinet of Ministers, MOF, MOFERT, Central Bank, State Property Committee, State Committee of Architecture and Construction, MOE, etc.) via the Coordination Group for Cooperation (CGC) established under the Ministry of Economy and set up for coordination with the World Bank Group. The ICC is be led by the First Deputy Prime Minister and via the Coordination Group provides guidance on project-related issues and activities, where coordination of senior Uzbekistan management is required to ensure smooth implementation. It will meet at least quarterly to review the implementation progress and will be the forum for discussions on sectoral policy issues and those related to implementation. The PCU has been fully staffed and operating since 2002, under the ongoing BSWSP, and is experienced in IDA/Bank–financed implementation. The Syrdarya vodokanal (SVK) operates as a legally separate, government-owned enterprises (called Regional Production Enterprise). In coordination with the SVK PCU, the SPCU will carry out procurement according to the World Bank’s Procurement Guidelines (published in May 2004 and revised in October 2006), including contract signing, management and disbursement. Regional governments will help the vodokanal and SPCU perform their responsibilities. Project management: The PCU is staffed with the Project Coordinator, Syrdarya Water Supply Project Manager, Financial Manager, Chief Accountant, Procurement specialist and support staff in Tashkent, while the SPCU in Syrdarya will have the Head of Unit, Chief Accountant, Procurement specialist, Civil work supervisor and support staff. The PCU SVK will receive technical support from an international consulting team with expertise in project management and construction supervision.

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Monitoring and evaluation of outcomes/results: The monitoring and evaluation of outcomes and results during implementation shall follow World Bank’s practice. The SVK and the PCU will collect and present data and reports for semi-annual review by the World Bank task team, during its supervision missions in addition a customer satisfaction survey will be carried towards the end of project implementation.

Structure of Water Supply Administration: The Syrdarya Regional Vodokanal or “Suvokova” is subordinated to the regional Khokimiyat, located in the city of Gulistan, and reports to the Uzkommunkhizmat. Regional Production Administration Water Management Enterprise (RPA “Suvokova”) is responsible for operation of water supply systems and provision of potable water to the population and organizations in Syrdarya Region as well as drainage and treatment of sewage waters. There are 12 subsidiary enterprises, which are shown in Figure 6-1. Out of them 7 subsidiaries are located within the Project rayons. In total 430 staff are employed in Syrdarya Suvokova and its subsidiaries.

Figure 6-1: Organizational Structure of Syrdarya RPA Suvokova (prior to Project)

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Cabinet of Ministers Interagency Council for Cooperation (ICC)

via Coordination Group Review project implementation, coordinate the PCU’s activities

Figure 6-2: Syrdarya Water Supply Project Implementation Organizational Chart

“Uzkommunhizmat” Implementing Agency Control over project implementation and regulation of PCU activity

World Bank Supervision over project Implementation

Financing Issue no objection for procurement plans and bids

Ministry of Finance Coordination of borrowing conditions Provision and control over co-finance

Official correspondence behalf on Borrower

Project Coordination Unit Control and coordination of project implementation and SPCU

activities. Preparation of consolidated plans and reports. Procurement activity, expenditure control and Financial

Management

Syrdarya Regional PE “Suvokova” (SVK) Implementing Entity/Interdistrict ‘Suvokova” Implementation of the Project and related activities

Syrdarya PCU Branch (SPCU) Assistance with development of procurement plan

and management, settlement with suppliers and contractors

Expenditures accounting and reports preparing

Ministry of Economy Coordination and monitoring

over project implementation and control of co-financing.

Syrdarya Regional Authority (Khokimiat)

Supervision and assistance in

project implementation

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Institutional Capacity Building Action Plan The Syrdarya Regional Vodokanal (SVK) and its district level vodokanals are currently facing an acute shortage of trained staff and appropriate tools to manage, operate and maintain the water supply system in the Syrdarya Region. The SVK faces the following key challenges among others : i) the current system of billing and collections of payments from subscribers works inefficiently and is maintained manually, ii) service delivery suffers from chronic disruption of water supply where available due to breakdowns in the system and inefficient and badly managed detection mechanism, maintenance and repair works by the SVK, iii) lack of customer service tools and knowledge of good customer service practices limits the capacity of the utility managers and staff in responding to customer grievances, and iv) funding of SVK and rayon (district) vodokanals is decentralized and therefore maintenance of networks are generally expected to be financed by consumer payments, however, due to poor billing and collection the tasks for maintenance of the system and customer relations is left to Mahallas (community organizations) and Shirkats (building associations) with no financial support. The Project proposes concrete steps under Component B: Institutional Strengthening and Capacity Building to improve the institutional and operational capacity of the SVK and its rayon level vodokanals. In addition to the detailed description of activities under Component B (refer to Annex 4), the Action Plan further articulates the areas of intervention and the envisaged sequence of activities. 1. Institutional Assessment

A Consultant will be hired to undertake an institutional assessment of SVK and its district vodokanals. The study will include a thorough assessment of the institutional arrangements currently in place to manage water supply and sanitation in the Syrdarya region, including the roles of the Mahallas and Shirkats. It will analyze at the organizational capacity of the regional and district entities responsible for water supply services and also assess the current engagement of the local private sector in the provision of water delivery services. This activity will include the following:

a) Development of a Comprehensive Institutional Framework for SVK with recommendations on strengthening the Vodokanal’s performance in: utility management, tariff setting and collection, contracting out appropriate operations to the private sector, raising public awareness and needed organizational changes and arrangements most suited to achieve efficiency and sustainability of services.

b) Articulation of the roles and responsibilities of the reorganized institutional set-up including those of the Provincial level (Khokimiyat) authorities with respect to levels of autonomy allowed to the SVK, areas of oversight and monitoring of operations and service delivery.

2. Institutional Capacity Building Arrangements

Technical capacity requirements: Prior to starting construction and rehabilitation works under the Project it is essential that the following improvements in technical capacity are carried out to ensure smooth and efficient management of the SVK during and after completion of the system:

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a) Reorganization of SVK and establishment of the inter-district unit with a single balance sheet and the following departments which could include but is not limited to i) technical O&M department in charge of managing the system; ii) water meter management department with the responsibility of installing, calibration and repair of water meters; iii) accounting department; iv) billing and collection department; and v) customer relations, communication and complaints department.

b) Hiring of relevant technical and administrative staff and updating terms of reference (TOR) as per new organizational requirements.

c) Inventory and installation of a Customer Database or Management Information System (MIS), and identification of current and future customers, before initiating detail design.

d) Installation of an integrated billing and collection software and hardware is envisaged at the beginning of project implementation.

e) Installation of Financial Management system software is envisaged before project implementation and corrective measures will be instituted to improve accounts payable and receivables in each water utility.

f) Staff training is expected during project implementation phase, civil works phase and at the completion of system construction.

g) Development of a Communications Strategy and Public Awareness Campaign is at the beginning of project implementation.

3. Instituting Technical Cooperation Arrangements

Under the project, the Tashkent Vodokanal (TVK), the Uzkommunkhizmat and the Syrdarya Regional Vododkanal (SVK) have agreed to instituting a “Technical Cooperation” agreement between the SVK and Tashkent Vodokanal, free of charge, whereby the experience and knowledge gained by the more experienced water utility, in this case Tashkent Vodokanal, is shared with the less experienced partner/utility SVK in the following areas:

i. Sharing, installing and adapting the Customer Service and billing/collection System acquired by Tashkent Vodokanal under the EBRD project in the SVK. The billing system is licensed and Tashkent Vodokanal has the right to share this program with other utilities in the country as mandated by the Government of Uzbekistan.

ii. Sharing, installing and adapting the Customer Inventory Database.

iii. Provide advisory services to develop a methodology for possible outsourcing of relevant vodokanal tasks based on TVK experience develop and provide sample sub-contracting templates and share performance indicators used to track performance of such contracts.

The duration of the technical cooperation contract would be for 5 years during implementation of the Project. The Project would finance associated costs such as acquisition of relevant software and goods, hiring of local consultants (programmers, surveyors etc.), cost of training for SVK staff, travel, hotel and per diem and staff time for advisory services under the terms of a consultancy contract.

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Annex 7: Financial Management and Disbursement Arrangements


Country Issues

1. According to the Country Financial Accountability Assessment report for Uzbekistan capacity of the accounting profession in the country is still low, and there is no critical mass of professionally qualified accountants. Knowledge of internationally recognized accounting and auditing standards, such as IFRS, IPSAS, ISA, is limited, in both the public and private sectors. Although Uzbekistan has a large number of bookkeepers who are trained in the basic concepts of accounting and are proficient in their application, there are significant capacity constraints which hinder the development of a modern system of accounting and financial reporting in the public sector. Accounting systems used at the central and local government levels are predominantly manual. There is no central management information system, and significant reliance is placed on banking records and computer spreadsheet packages. 2. Bank-financed projects in the country are implemented through stand-alone project implementing agencies that install parallel accounting systems to those used in the respective line ministries. The Project implementing entities use the cash basis of accounting, which is not in accordance with IFRS, but is allowed under IPSAS, and in many cases sufficient for proper project accounting. Internal audit function exists in the form of Control and Revision Units (CRU) that carry out inspections in budget organizations, mainly to ensure compliance with laws and regulations. External audit is conducted by the Chamber of Accounts, but due to capacity constraints the Bank does not place any reliance on audits conducted by this agency. Audit of Bank-financed projects in the country has been performed by private sector firms that meet the Bank’s eligibility criteria. In 2009 the Bank conducted a review of local audit firms to determine their capacity to audit Bank-financed projects. At present, only two firms are eligible to conduct such audits, although other firms from outside the country can and do participate in tenders for audit of Bank-financed projects. 3. Due the above factors the Bank does not rely on the country’s PFM systems of accounting, financial reporting and audit, and Bank-financed projects continue to rely on stand-alone financial management systems for project implementation. The country risk is assessed to be high before and substantial after mitigation measures.

Risk Assessment and Mitigation 4. The overall financial management risk for the Project before mitigation measures is high and after mitigation measures, the risk is substantial. Although the Project will be implemented in an environment of high perceived corruption, adequate mitigation measures are in place to ensure that the residual risk is acceptable. The Table below summarizes the financial management assessment and risk ratings of this project:

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Table 7-1 Risk Assessment and mitigation FM

Risk Risk Mitigating Measures Residual

Risk INHERENT RISKS

Country level: Weak PFM institutions (see text below)

H Project implementation arrangements in the PCU and its branchoffices will maintain independent financial management system, useof private auditors, and recruit qualified, experienced FM staffChanges to the institutional structure can only be made withconcurrence by the World Bank..

S

Entity level: Risk of political interference in entity’s management

S Project will maintain organizational structure and staffingsatisfactory to IDA. Any changes to structure or key staffing(including Financial Management Staffing at PCU and itsbranches) will require prior World Bank agreement

M

Project level : Project is medium sized, and will be implemented by agencies that have limited financial management capacity, operating in weak fiduciary environment

H Strong institutional arrangements will be established, includingassigning FM responsibility to the PCU (and its branch offices) andappropriate systems and procedures developed and documented inthe Project Operational Manual.

S

Overall Inherent Risk H Risk-based FM supervision, and annual audits S COUNTRY RISKS Budgeting: Budgeting procedures under closed BSWSSP and ongoing BSSP have not been effective, and budget figures have not been consolidated and entered into the accounting system

S PCU will strengthen its budgetary process, ensuring the budget isproperly compiled and approved before spending begins. Budgetprocedures will be elaborated in the POM. The approved budget willbe entered into the accounting system and used for IFRs.

M

Accounting: The automated accounting system for closed BSWSSP and ongoing BSSP has not worked satisfactorily. The PCU and its branch in Gulistan lack experienced financial management staff.

S The new Accounting software will be installed at the PCU and itsbranches with capacity to process all projects transactions andgenerate reliable financial statements. Recruit an experienced financial management staff. Develop Financial Management Chapter in the POM for the Projectto reflect the financial management policies and proceduresapplicable to the Project.

M

Internal Controls, including internal audit. Internal controls under the closed BWSSP are considered to be generally weak, at both PCU and vodokanals levels, resulting into lengthy management letter points raised by the external auditor

H Sound internal control procedures will be elaborated in the FinancialManagement Chapter of the OM. No internal audit function isenvisaged, but experienced newly recruited PCU’s financialmanagement staff will ensure the internal control system is sound.

S

Funds flow. Funds flow under existing BWSSP project is not effective and there are certain delays in transferring funds to suppliers.

S Funds to the Project will flow through traditional channels--designated accounts—Designated account will be maintained by thePCU and IDA funds will flow through the PCU’s designatedaccount to the PCU’s branches or via direct payments to the finalsuppliers.

M

Financial Reporting: The PCU has been submitting interim financial reports to the Bank with some delay, and often with mistakes

S A reporting system, which will have functionality for automaticgeneration of IFRs, will need to be established and maintained forthe Project . Capacity to generate reliable financial reports will bebuilt and their timeliness will be enforced by the PCU, which will beresponsible for consolidating them before they are submitted to theBank

M

Auditing: Past audited financial statements, especially of the vodokanals, have not been satisfactory and submitted to the Bank with delays

H Improvements in accounting and internal controls will ensure thataudit reports will be submitted to the Bank in a timely manner.

S

Overall Control Risk S M OVERALL FM RISK H S

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H – High S – Substantial M – Moderate L – Low Strengths. 5. PCU staff (in Tashkent) has been implementing the World Bank-financed project and have acquired experience in implementing the World Bank-financed projects. Audited project financial statements for 2008 and 2009 with unqualified (clean) audit opinion, though submitted with delays, were satisfactory to the Bank, (ii) the Project’s designated account to be maintained by the PCU and thus more control will be established over the use of Designated Account and payments to final suppliers will be made without delays. Weaknesses and Action Plan 6. Past audit reports for FY 2007, 2008 and 2009 on entity financial statement have been qualified, and management letters have consistently reported significant weaknesses in accounting and internal control systems. During fiduciary review of the closed BSWSP (conducted in June 2010) it was identified serious internal control weaknesses on the PCU and Vodokanals’ level. The FMRs were submitted with delays and continued to be produced in excel due to inability of the accounting system to generate the reports and sometimes contain mistakes.

The following actions have been agreed to be implemented:

Table 7-2 Action Responsibility Completion Date

1 Recruit qualified and experienced financial manager at for the PCU in Tashkent

PCU Verified January 8, 2011.

2 Develop Financial Management Chapter in the Operational Manual for the Project to reflect the specific activities of the Project, the internal control procedures as well as the accounting policies and procedures applicable to the Project. The OM should also reflect the policies and procedures that will clearly define conflict of interest and related party transactions (real and apparent) and provide safeguards to protect the organization from them.

PCU Substantially completed by January 8,2011. Final OM to reflect Bank comments.

3 Develop the automated project accounting systems with capacity to generate interim financial reports. The automated accounting system at the PCU-Tashkent and its branches will be integrated PCU-branch Gulistan to be completed by project start.

PCU Installation at PCU-Tashkent verified on January 8,2011

Implementation arrangements. 7. Daily project activities will be supervised by the PCU, which will have full time staff headed by a director, The PCU and its branch within the vodokanal, will manage project funds, maintain accounts and have them audited, facilitate consultants’ work and review their output. The PCU and implementing agencies will ensure that resources are used in a way that promotes economy, efficiency and effectiveness, and that funds are earmarked solely for project objectives.

8. The PCU will manage project funds, including a Designated Account, maintain

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accounts, have the accounts audited, facilitate the work of consultants, and review consultant outputs. The ministry will ensure that project resources are managed with due attention to economy, efficiency and effectiveness, and that project funds are used only towards the realization of project objectives. Risk associated with implementing agency is high before risk mitigation and substantial after mitigation measures. Planning and Budgeting. 9. Budgeting procedures under BSWSSP have not been effective, and figures have not been consolidated/entered into the accounting system. Under the current project, the PCU will be responsible for preparing annual consolidated budgets based on procurement plans and in line with the Project Operational Manual. These budgets will form the basis for allocating funds to project activities and requesting counterpart funds from the government, where appropriate. The budgets will be prepared according to the IFR format (disbursement categories, components and activities, account codes, and broken down by quarter). Annual budgets will be agreed with IDA before submitted to the Ministry of Finance for final approval. Approved annual budgets will then be entered into the accounting system and used for periodic comparisons with actual results as part of the interim reporting. The risk with budgeting is substantial before and moderate after mitigation measures are taken.

Accounting Staffing

10. The PCU will hire qualified financial management and accounting staff for its office in Tashkent and branch in Gulistan. The Project’s financial management function will be the responsibility of a financial manager at the PCU, assisted by the Financial Specialist at the PCU and an accountant/disbursement specialist at the branch. All staff should be experienced and have sufficient knowledge in World Bank requirements for project financial management and disbursements. Financial Manager should be highly qualified professional with prior work experience at the Financial Manager’s position. The accountant/disbursement specialist at the PCU branch offices will assume full responsibility for performing accounting and disbursement functions at the branches under the direction of the financial manager at the PCU office in Tashkent. The risk associated with staffing is substantial before and moderate after risk mitigation measures. Information Systems

11. Accounts and records under the closed BWSSP and ongoing BSSP have been maintained mainly in an Excel spreadsheet form, although the PCU and its branches have installed automated accounting systems. Accounts/records for the proposed Project will be maintained by the PCU and its branch in an accounting system capable of producing interim financial reports. Books of accounts for the Project will be maintained through accounting software that will allow for resources and expenditures to be tracked, and will have capacity to generate interim financial reports and other reports required by the Government. The system shall have the safeguards against the input of inaccurate data or unauthorized access to the system. In addition, regular back ups of the accounting data shall be made by the accounting staff. The accounting system at

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the PCU and the PCU branch will be linked with each other. The risk associated with information systems is substantial before and moderate after mitigation measures. Accounting Policies and Procedures 12. The PCU has a prior experience of maintaining an independent accounting system. The Project accounting will be maintained on the cash basis. For reporting purposes, cash basis IPSAS and Bank guidelines for borrowers will be used under the Project. All supporting documents will be maintained in files for ready access by auditors and Bank staff. The Project’s chart of accounts will track all transactions and report them according to source of financing, project components, and type and category of expenditure. For current project, the PCU will develop Operational Manual(OM) and Financial Management Chapter in the OM to reflect the specific activities of the Project, the internal control procedures, as well as the accounting policies and procedures applicable to the Project. The PCU will maintain a separate chart of accounts for the Project

The risk associated with accounting policies and procedures before the mitigation measure is substantial and after the mitigation measure, the risk is moderate.

Internal Control Systems 13. Overall, internal control system at the PCU needs to be enhanced. The PCU specified accounting, internal controls and administrative procedures in the 2002 Operations Manual as part of the FM actions agreed upon with the Borrower for BSWSP. Financial Management Manual (FMM) was updated for the purpose of the BSSP and SWSP Projects, but the revised versions still don’t properly document key current internal control and accounting policies and procedures. The Financial Management Chapter in the OM for the proposed Project will describe in details internal control procedures, including division of responsibilities among project staff (including PCU branches), authorization of expenditures, review and verification of invoices before payment; incorporate templates of the primary documents; withdrawals and general management/control of bank accounts, including designated account; accounting and financial management policies; (d) budgeting and planning; flow of funds; financial reporting; audits and; internal control procedures, etc. The reconciliation of the proposed Project records with IDA disbursement data will be performed regularly (at least once a month) via the WB Client Connection. The risk associated with internal controls is high before and substantial after risk mitigation measures. Financial Reporting 14. The PCU has been submitting Financial Monitoring Reports (FMR) required under the closed BSWSP project, but they have often been submitted late and contained mistakes. For the new project, Interim Financial Reports (IFR) will be generated by the accounting system based on formats agreed with IDA. The IFRs will include: (a) sources and uses of funds, (b) use of funds project’s activities, (c) both the designated and local bank account statements, (d) SDR-US$ reconciliation, including that of exchange rate movements and unspent/uncommitted credit funds, and e) SOE withdrawal Schedule. The reports will be submitted to the Bank within 45 days of the end of each calendar quarter, with the first reports under the new project submitted at

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the end of the first full quarter after initial disbursement. The 1-C software installed by the PCU will be upgraded to have capacity to automatically generate financial reports required under the Project. The risk associated with accounting and record is substantial before and moderate after risk mitigation measures.

External Audit 15. The audit of the proposed project will be conducted (i) by independent private auditors acceptable to the World Bank, on terms of reference (TOR) acceptable to the World Bank, and procured by the PCU; and (ii) according to the International Standards on Auditing (ISA) issued by the International Auditing and Assurance Standards Board of the International Federation of Accountants (IFAC). Annual audit reports will be in a format according to ISA and will include an opinion on the Project financial statements, incorporating the Statement of the Designated Accounts and Summary Statements, and a management letter. 16. The annual audited project financial statements will be provided to the World Bank within six months of the end of each fiscal year and also at the closing of the Project. The contract for the audit awarded during the first year of project implementation may be extended from year-to-year with the same auditor, subject to satisfactory performance. The cost of the audit will be financed with the IDA Credit. The World Bank does not intend to place reliance on the government external auditing activities conducted by the Chamber of Accounts, nor audits conducted by the Control and Revision Unit (CRU).

17. The following table identifies the audit reports that will be required to be submitted by the Project implementation agency together with the due date for submission.

Table 7-3 Audit Report Due Date

Audit Report Due Date Entity financial statements, including balance sheet, income statements, cash flow statement, Statement of Changes in Equity, and Notes comprising a summary of significant accounting policies and other explanatory notes for Syrdarya vodokanal

Within six months after the end of the fiscal year

Project financial statements (PFS), including SOEs and DA.The PFS include Sources and Uses of Funds, Uses of Funds by Project Activity, SOE Withdrawal Schedule, Designated Account Statement, Notes to the financial statements, and Reconciliation Statement.

Within six months of the end of each fiscal year with a final audit after the closing date

The risk associated with external audit is high before and substantial after risk mitigation measures The audited financial statements will be disclosed to public in a manner acceptable to the Bank; following the Bank’s formal receipt of these statements from the borrower, the Bank makes them available to the public in accordance with The World Bank Policy on Access to Information. Funds Flow and Disbursement Arrangements

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18. Credit funds will flow to the Project via disbursements to a designated account (DA) maintained by the PCU in one of the UZ commercial banks that is satisfactory to the Bank. The Project will follow transaction-based disbursement procedures (advances to the DA, documentation of the advances based on statements of expenditures and supporting documents, direct payments and special commitments). Withdrawals from the Credit Account will be made in accordance to what is stated in the Disbursement Letter. The Ceiling of the Designated Accounts will be: US$4,000,000. Withdrawal applications will be signed by two persons: (a) an authorized representative of the Borrower (Ministry of Finance) and (b) another designated official, such as the PCU Director, or other persons delegated in writing by the Ministry of Finance. 19. Disbursements will be made on the basis of full documentation (a) works contracts over US$500,000 each; (b) goods/services contracts for consulting firms over US$100,000 each; and (c) individual consultants’ contracts over US$50,000 each. Disbursements under these amounts as well as training and operating costs will be made according to certified Statement of Expenditure (SOEs). Documents to support the SOEs will be held by the implementing agencies for at least one year after IDA receives the audit report for the fiscal year in which the last withdrawal from the Credit Account was made. This information will be available for review during Bank staff supervision missions and for annual audits that assess the propriety of SOE disbursements and the quality of the records. The risk associated with flow of funds is substantial and moderate before and after mitigation measures, respectively. 20. Direct Payments. The Disbursement Letter will state the minimum size of direct payments and special commitments; applications for their withdrawal must be supported by documents 21. Project Account Counterpart funds provided by the Borrower/Recipient will be deposited into project accounts managed separately from the designated account. Project accounts may also be used as transit accounts for payments in the local currency.

22. The risk associated with fund flow is assessed as substantial before mitigation measures and as moderate after mitigation measures.

Supervision Plan

23. As part of its project supervision missions, the Bank will conduct risk-based financial management supervisions, at appropriate intervals (first supervision will be conducted within six month since the Project effectiveness). During project implementation, the Bank will supervise the Project’s financial management arrangements in the following ways: (a) review the Project’s quarterly IFRs as well as the Project’s annual audited financial statements and auditor’s management letter and remedial actions recommended in the auditor’s Management Letters; and (b) during the Bank’s on-site supervision missions, review the following key areas (i) project accounting and internal control systems; (ii) budgeting and financial planning arrangements; (iii) disbursement management and financial flows, including counterpart funds, ;and (iv) any incidences of corrupt practices involving project resources. As required, a Bank-accredited Financial Management Specialist will assist in the supervision process.

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Annex 8: Procurement Arrangements


A. General

1. Procurement under the Project will be conducted according to the World Bank’s (a) "Guidelines: Procurement under IBRD Loans and IDA Credits" published in May 2004 and revised in October 1, 2006 and May 1, 2010, (b) "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" published in May 2004 and revised in October 1, 2006 and May 1, 2010, and (c) the Financing Agreement. Procurement under different expenditure categories is described below. For each contract, the various procurement or consultant selection method, estimated cost, prior review requirement, and time frame has been agreed upon between the implementing agencies and the Bank, in the initial Procurement Plan, which will be updated at least annually or as required to reflect actual implementation needs and improvements in institutional capacity. A General Procurement Notice (GPN) immediately following the project negotiations in UNDB on-line and in a printed version, as well as in dgMarket online. Specific notices will be published for all ICB/NCB procurement and consulting contracts according to the Guidelines, when the bidding documents or TORs are available.

B. Assessment of the Agencies’ Capacity on Procurement

2. During the pre-appraisal mission in December 2009, the Bank team assessed the implementing agencies’ capacity to carry out procurement and considered the procurement related institutional arrangement acceptable.

3. Procurement will be carried out by the Implementing Entity, the Syrdarya Vodokanal (SVK), with the assistance of the PCU based in Tashkent. There is one procurement specialist in Tashkent PCU who has attended Bank procurement training workshops and handled Bank- financed procurement, and another experienced procurement specialist will be added soon. The SVK will also hire a procurement specialist based on the Project site. In addition, engineering firm(s) will be hired to provide technical and project management services (eg. preparing bidding documents, evaluating bids, awarding and managing contracts, and supervising construction). Evaluation of bids or proposals will be conducted by ad hoc committees to be established; contract award recommendations will be approved by an inter-governmental tender committee to be established for the Project.

C. Procurement Risk Assessment

4. The overall procurement risk is rated substantial after mitigation measures. The risks and measures were identified by an assessment of the agencies’ capacity and are summarized below:

Table 1: Summary Risk Assessment

Description of Risk Risk

Rating Mitigation Measures

Residual Risk Rating

The lack of a unified legislative framework, inefficient and non-transparent domestic modes of procurement

H All procurement will be subject to the Bank’s rules/procedures. The national system of procurement will affect the bidding process minimally. Though the import contracts expertise requirement affects the Project delaying the signed contract implementation

M

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significantly

Procurement delays due to limited capacity H The PCU have gained substantial experience in managing Bank-financed projects. External engineering consultants will be hired to assist in procurement (including technical specifications, bidding documents, bid evaluation, contract award and management). A comprehensive procurement training workshop was conducted in Tashkent in November 2009 with the attendance of the PCU procurement specialist. Further procurement training will be provided during project implementation.

S

Minimal competition and insufficient qualifications of local contractors

H All major packages will be subject to ICB to promote competition among qualified international contractors. Prequalification and slice & package would be used as warranted. Local contractors are expected to bid for lots or join international contractors as subcontractors.

M

Perceived level of corruption is high. Transparency International assigned a corruption preconception index of 1.8 in 2008, which ranks it 166th in the world (highest or lowest).

H The Recipient will adopt the Bank’s Anti-Corruption Guidelines (“Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants” of October 2006.

S

Overall H S H: High; S: Substantial; M: Moderate; L: Low.

D. Procurement Implementation Arrangements

5. Procurement will be carried out by the SVK and the PCU. The Bank’s ICB SBD, SRFP, sample NCB or shopping documents will be used. Domestic preference according to clause 2.55 and Appendix 2 of the Procurement Guidelines will apply to works/goods contracts.

6. Works: These would involve rehabilitating the existing or constructing new water supply networks, drilling of wells, etc.

7. Goods: These would include equipment for water supply systems (such as water pipes, pumps, power supply equipment, communication equipment) and institutional development (such as office equipment).

8. Design, Supply & Installation: Depending on the nature and value of the works/goods in a particular package, design, supply &installation contracts may be adopted as warranted. This will be determined when the detailed design is completed and reflected in the Procurement Plan.

9. Consultants: These would include: capacity building for staff in the vodokanal; services for improving vodokanal operational efficiency and consumer orientation; technical design, construction supervision, project management; audit; and feasibility studies for new sewerage investments. Single-Source Selection (SSS) arrangements will be made with the following state owned entities for the following services: the Regional Branches of UzArkhitectStroy for the development of architectural layout; UZGITI for the hydrologic survey audits; and GASN for the works supervision. According to the applicable legislation of the Republic of Uzbekistan, the

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above mentioned entities are authorized with monopolistic rights for such mandatory services. All the entities are legally and financially autonomous, operate under commercial law and are not dependent agencies of the contracting authority.

10. Operating Costs: These expenditures will cover office rent, utilities, communication and translation costs, bank charges, office supplies, advertisements, photocopying, mail and travel expenses. They will be financed through the annual budget approved by the Bank and according to the implementing agency’s administrative procedures which were reviewed and found acceptable to the Bank. Operating costs will not include civil servants’ salaries.

11. Technical Aspects: The PCU, its branches and the SVK will be responsible for developing related technical specifications or TORs in collaboration with the relevant department of the implementing agency. To this end, external engineering consultants will be hired to provide assistance.

12. Domestic preference will apply to works/goods contracts as appropriate.

13. Filing and record-keeping: The PCU and SVK will use current filing and record keeping systems established under the on-going Bank-financed project, including hard and/or electronic copies of procurement documents. The reporting format agreed upon is in the Project implementation plan.

E. Procurement Plan

14. The PCU developed a Procurement Plan for the Project that is consistent with the implementation plan, which provides information on procurement packages, methods and Bank review requirements. It will be available in the PCU’ project database; and will be updated in a manner agreed upon with the Bank project team, annually or as required, to reflect the needs and improvements in the implementing agencies’ institutional capacity.

15. The initial plan as agreed at the negotiations is provided below in Table 2.

F. Frequency of Procurement Supervision

16. Besides the Bank team’s prior review, the capacity assessment of the implementing agencies recommends ex-post reviews on at least 20% of the contracts subject to post review. It is expected a field supervision mission will occur every six months during which procurement post reviews will be performed as needed. At the least, one post review report, which will include physical inspections of sample contracts including those subject to prior review, will be prepared each year. No less than 10% of contracts will be physically inspected.

G. Additional Provisions for National Competitive Bidding (NCB)

17. To ensure economy, efficiency, transparency and consistency with Section I of the Guidelines, the following criteria and provisions shall be adopted under NCB procedures:

(1). General

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The Recipient represents that the procedures to be followed for national competitive bidding under Section III, Part B, paragraph 2, of Schedule 2 to the Financing Agreement shall be those set forth in Council of Ministers Resolution No. 456 on Measures to Improve the Organization of Tenders for Purchases of Raw Materials, Spare Parts and Equipment, that became effective on November 21, 2000, with the clarifications set forth in the following paragraphs required for compliance with the provisions of the Procurement Guidelines.

(2). Registration

(a) Bidding shall not be restricted to pre-registered firms. (b) Where registration is required, bidders (i) shall be allowed a reasonable time to

complete the registration process and (ii) shall not be denied registration for reasons unrelated to their capability and resources to successfully perform the contract, which shall be verified through post-qualification.

(c) Foreign bidders shall not be precluded from bidding. If a registration process is required, a foreign bidder shall be given a reasonable opportunity to register.

(3). Advertising

Invitations to bid shall be advertised in at least one widely circulated national daily newspaper allowing a minimum of 30 days for the preparation and submission of bids.

(4). Pre-qualification

When pre-qualification shall be required for large or complex works, invitations to pre-qualify for bidding shall be advertised in at least one widely circulated national daily newspaper a minimum of 30 days prior to the deadline for the submission of pre-qualification applications. Minimum experience, technical and financial requirements shall be explicitly stated in the pre-qualification documents.

(5). Participation by Government-owned enterprises

Government-owned enterprises in the Republic of Uzbekistan shall be eligible to participate in bidding only if they can establish that they are legally and financially autonomous, operate under commercial law and are not a dependent agency of the contracting authority. Furthermore, they will be subject to the same bid performance security requirements as other bidders.

Syrdarya Vodokanal (implementing agency) lacks sufficient capacity to operate and manage the new water supply system that will be constructed under the project. The proposal under the project is to institute a Technical Cooperation Contract between the Syrdarya Vodokanal and M/S Mussafo Obi Hayot, subsidiary of the Tashkent Vodokanal, whereby the experience and successes of Tashkent VK can be shared with Syrdarya VK. The services envisaged under this arrangement will be -

1. Sharing and installing the billing and collection system acquired under the EBRD project in the SVK. Adapting the system for Syrdarya VK. 2. Sharing and installing Customer Inventory Database

63

3. Advisory service on carrying out assessment of the SVK capacity, developing a methodology for possible outsourcing of relevant vodokanal tasks based on TVK experience, developing and providing sample sub-contracting templates and sharing performance indicators used by Mussafo Obi Hayot and Tashkent VK to track performance of such contracts. 4. Providing training and on-going support to staff of Syrdarya Vodokanal in areas of O&M, billing and collection, installation and reading of meters etc.

A Time Based contract would be signed with M/S Musaffo Obi Hayot LLC on the single source basis(SSS). As part of this contract the project would finance costs hiring of local consultants (programmers, surveyors etc.), cost of training for SVK staff, travel and per diem, staff time for advisory services among other things. A draft Terms of Reference would be agreed during Project Negotiations.

This assignment is reflected in the PP below accordingly.

(6). Bidding Documents

Purchasers shall use the appropriate standard bidding documents for the procurement of goods, works or services, acceptable to the Association.

(7). Bid Opening and Bid Evaluation

(a) Bids shall be opened in public, immediately after the deadline for submission of bids.

(b) Evaluation of bids shall be made in strict adherence to the monetarily quantifiable criteria declared in the bidding documents.

(c) Contracts shall be awarded to the qualified bidder having submitted the lowest evaluated substantially responsive bid and no negotiation shall take place.

(d) Price verification should not be applied to Bank-financed contracts. (8). Price Adjustment

Civil works contracts of long duration (e.g. more than eighteen (18) months) shall contain an appropriate price adjustment clause.

(9). Rejection of Bids

(a) All bids shall not be rejected and new bids solicited without the Association’s prior concurrence.

(b) When the number of bids received is less than three, re-bidding shall not be carried out without the Association’s prior concurrence.

H. Anti Corruption Measures

18. The Bank’s Anti-Corruption Guidelines (of October 15, 2006) and the transparency and disclosure provisions of the Bank’s Procurement and Consultants Guidelines (published in May 2004 and revised in October 2006) will be enforced. More details are provided in Annex 12.

64

Table 1 - Procurement Plan Goods and Works

Note: Package Reconstruction of water network would be tendered and contracted through separate ICB packages by regions

No.Package Number

DescriptionPlan vs.

Actual

Estimated Cost (US$ equivalent)

Procu. Method

WB Review (Prior/ Post)

Date of Draft BD to WB

WB No-objection to BD

Date of Invitation to Bids

Date of Bid Opening

Bid Evaluation Report

WB No-objection to Contract

Award

Date of Contract Signing

Date of Contract Completion

Remarks

GOODSPlan 2,170,419.68 November 2, 2011 November 16, 2011 November 19, 2011 January 3, 2012 January 24, 2012 February 7, 2012 February 14, 2012 July 14, 2012ActualPlan 120,252.74 January 5, 2012 January 19, 2012 January 22, 2012 March 7, 2012 March 28, 2012 April 11, 2012 April 18, 2012 July 17, 2012ActualPlan 75,000.00 January 5, 2016 January 19, 2016 January 22, 2016 March 7, 2016 March 28, 2016 April 11, 2016 April 18, 2016 April 18, 2017Actual

WORKS

Plan 1,281,791.01 December 17, 2011 December 31, 2011 January 3, 2012 February 17, 2012 March 9, 2012 March 23, 2012 March 30, 2012 November 1, 2016ActualPlan 23,747,399.53 December 17, 2011 December 31, 2011 January 3, 2012 February 17, 2012 March 9, 2012 March 23, 2012 March 30, 2012 November 1, 2016ActualPlan 2,037,949.62 December 17, 2011 December 31, 2011 January 3, 2012 February 17, 2012 March 9, 2012 March 23, 2012 March 30, 2012 November 1, 2016ActualPlan 11,586,855.56 December 17, 2011 December 31, 2011 January 3, 2012 February 17, 2012 March 9, 2012 March 23, 2012 March 30, 2012 November 1, 2016Actual

Plan 2,126,574.99 December 17, 2011 December 31, 2011 January 3, 2012 February 17, 2012 March 9, 2012 March 23, 2012 March 30, 2012 November 1, 2016ActualPlan 26,084,973.37 December 17, 2011 December 31, 2011 January 3, 2012 February 17, 2012 March 9, 2012 March 23, 2012 March 30, 2012 November 1, 2016ActualPlan 2,813,193.71 December 17, 2011 December 31, 2011 January 3, 2012 February 17, 2012 March 9, 2012 March 23, 2012 March 30, 2012 November 1, 2016Actual

Plan 10,890,530.43 December 17, 2011 December 31, 2011 January 3, 2012 February 17, 2012 March 9, 2012 March 23, 2012 March 30, 2012 November 1, 2016

Actual

Plan 1,962,932.94 December 17, 2011 December 31, 2011 January 3, 2012 February 17, 2012 March 9, 2012 March 23, 2012 March 30, 2012 November 1, 2016Actual

13 5,572,680.49

ICB Pior

(e) Unforeseen expenses

(b) Water System Sirgali Khavast-Bayaut

11

Water Towers

Reconstruction of water conduit (including purification)

SRV/W/-10

SRV/W/-08

8

SRV/G/-01Equipment for operation and maintenance

2

Reconstruction of water conduit (including purification)

(a) Water System Turtom Sardoba-Akaltyn

6 SRV/W/-05

3

12 SRV/W/-11Construction part of pumping stations

10 SRV/W/-09

7 SRV/W/-06Town networks and house connections (including water

Construction of trunk lines

Town networks and house connections (including water meters)

(с) Water System Beshbulok

9

5 SRV/W/-04 Construction of trunk lines

4

1

SRV/W/-03

ICB

ICB

Pior

Pior

Pior

SRV/G/-02 The laboratory equipment

SKADASRV/G/-03

ICB

Pior

Pior

Pior

Pior

Pior

Pior

Water Towers

SRV/W/-07

ICB

Pior

Pior

ICB

ICB

ICB

ICB

ICB

ICB

ICB

65

Procurement Plan - Consultants

Procurement Plan - Consultants (CQS or Individual Consultants)

No.Package Number

DescriptionPlan vs.

Actual

Estimated Cost (US$ equivalent)

Firm or

Ind.

Select. Method


Request for Exp. Of Interest

Draft RFP (incl. TOR, Short List)

WB No-objection to

RFP (full package)

RFP IssuedDate of Proposal

SubmissionTech. Evaluation

Report (TER)WB No-

objection to TER

Combined Tech & Fin Eval.

Report

Draft Final Contract

WB No-objection to Draft Contract



Remarks

Plan 5,526,562.65 Firm QCBS Prior March 1, 2011 April 11, 2011 April 25, 2011 April 25, 2011 June 9, 2011 June 9, 2011 June 30, 2011 July 5, 2011 July 12, 2011 July 26, 2011 August 2, 2011 January 15, 2017

ActualPlan 682,883.30 Firm QCBS Prior November 14, 2011 December 25, 2011 January 8, 2012 January 8, 2012 February 22, 2012 February 22, 2012 March 14, 2012 March 19, 2012 March 26, 2012 April 9, 2012 April 16, 2012 January 30, 2017ActualPlan 750,000.00 Firm QCBS Prior April 4, 2016 April 25, 2016 May 2, 2016 May 4, 2016 June 15, 2016 June 29, 2016 July 6, 2016 July 27, 2016 August 5, 2016 August 12, 2016 August 19, 2016 December 31, 2016ActualPlanActual

Implementing Consultant (Detail Design, Tender documentation, Construction Supervision and start up assistance)

2 SRV/CS/02 Audit (Financial and Technical)

1 SRV/CS/01

3 SRV/CS/03Development of Feasibility Studies for future projects

4

No.Package Number

DescriptionPlan vs. Actual

Estimated Cost (US$

equivalent)

Firm or Ind.

Select. Method


Draft TORWB No-objection

to TOR Request for Exp.

of Interest

Evaluation report for Short

list

WB No-objection to RFP/ Short list

RFP Issued (for CQS)

Proposal Submission

Draft Final Contract

WB No-objection to Draft Contract



Remarks

Plan May 2, 2011 May 16, 2011 May 19, 2011 June 2, 2011 June 7, 2011 June 21, 2011 June 23, 2011 December 31, 2017

Actual

Plan January 5, 2012 January 19, 2012 January 22, 2012 February 5, 2012 February 19, 2012 February 21, 2012 March 22, 2012 March 27, 2012 April 10, 2012 April 12, 2012 May 5, 2012

ActualPlan

ActualPlan

Actual

1 SRV/CS/04

PIU Consultants (Project Manager, Project monitoring specialist, Procurement and contract supervision specialist of the PCU branch in Gulistan,Financial analyst and accountant for the PCU Branch in Gulistan,PCU Office-manager/Translator in PCU branch)

Prior/ Post

4

2 SRV/CS/05

Institutional Strengthening and Capacity Building (Syrdarya Vodokanal (Training activities for utility staff , and management software and etc.)

3

Post

1,000,000.00 Ind. IC or SSS

1,570,000.00 Firm CQS

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THRESHOLDS FOR PROCUREMENT METHODS AND BANK PRIOR REVIEW

Expenditure Category

Contract Value Threshold (US$)

Procurement Method

Contracts Subjects to Prior Review (US$)

Goods (including techncial services)

>=100,000 ICB All ICB contracts

<100,000 Shopping First 2 contracts

NA DC All DC contracts

Works

>=500,000 ICB All ICB contracts

<500,000 NCB First 2 contracts

<100,000 Shopping First 2 contracts

NA DC All DC contracts

Consultant Services

(including training)

>=200,000 QCBS/QBS/LCS/FBS

a/ b/ >=100,000 for firms; all SSS contracts; all TORs <200,000 CQS

NA SSS

NA IC >=50,000 for individuals & all SSS contracts

Notes: a/ Shortlist may compose entirely of national consultants for assignments of less than US$100,000 equivalent per contract. b/ As appropriate, these methods may be adopted for assignments costing less than $200,000.

ICB – International Competitive Bidding NCB – National Competitive Bidding DC – Direct Contracting QCBS – Quality and Cost Based Selection QBS – Quality Based Selection LCS – Least Cost Selection FBS – Fixed Budget Selection CQS – Selection Based on Consultants’ Qualifications SSS – Single Source Selection IC – Individual Consultants

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Annex 9: Economic and Financial Analysis


ECONOMIC ANALYSIS

1. The economic feasibility from the proposed Project should ideally compare the economic benefits with the economic costs. The economic benefits could be measured by consumers’ demonstrated willingness to pay that measures their perceived benefits from the water supplied. The difficulty with this kind of economic cost-benefit analysis is that current tariffs are unrelated to safe water supply service that does not exist. Current tariffs are Uzbek soums 36 (US$ 0.02) per m3 for the resident population, and Uzbek soums 140 (US$ 0.09) per m3 for wholesale consumers but, as noted, the Syrdarya Suvokova has great difficulties in collecting for billings as shown by the level of accounts receivable in the order of 820 days, or more than two years of billings.

2. The second difficulty of measuring economic benefits is the complete absence of metering of production and consumption. Unit tariffs are billed on the basis of Uzbek consumption norms that are 125 lcd for villages and 150 lcd for towns excluding the Uzbek compulsory norm for hypothetical industrial demand of an additional 5% and 10% for villages and towns, respectively. In other words, billings are based on a norm of about 130 lcd for village populations and 165 lcd for town populations. In contrast, rough estimates of consumption rates indicate that the population is receiving on average 15 lcd, a level that approaches the absolute minimum for satisfying basic needs. In order to supplement such inadequate water supplies, some households buy water from vendors for their yard reservoirs at prices that range from around UZS 3,000(US$ 2.2) to 8,000 (5.3) per m3. It is uncertain how much water is purchased per day at such high prices but the very high alternative water prices illustrate the inadequacy of the service provided by the Syrdarya Suvokova. The high coping costs also indicate the high benefits that abundant and safe water could be expected to produce.

3. The Social study reports that interviewed consumers declared their willingness to pay UZS 244 (US$ 0.16) per m3 for continuous water service. This willingness to pay is hypothetical since it is likely that consumers, when asked for a tariff under hypothetical service conditions, find it difficult to indicate a maximum unit tariff per m3, given that they do not know how much water per day they are presently consuming or would like to consume with continuous service.

4. Given the difficulties of measuring the level of economic project benefits, the cost-benefit analysis is impractical to undertake. Instead, the economic analysis has been restricted to least-cost analysis where the costs of different options to supply the population with continuous water that satisfies the Uzbek quality standards are compared. Since all options are assumed to produce the same level of (unmeasured) benefits the optimal project alternative is the one that provides the given level of service at the least cost. The least cost analysis considers a total of six alternative supply options, or two for each of the sub-areas 1, 2 and 3:

5. The six water supply alternatives are:

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Area 1 gravity supply from the southern Turttom/Sirgali wellfield;

Area 1 gravity supply from the southern Turttom/Sirgali wellfield to the southern part of Area 1 but with three independent local groundwater supplies for three towns in northern Akaltyn;

Area 2 pumped supply from the northern Beshbulok wellfield;

Area 2 pumped supply for the northern part of Area 2 from the northern Beshbulok wellfield and a gravity supply for sections of the southern part from the southern Turttom/Sirgali well-field;

Area 3 pumped supply from the northern Beshbulok wellfield through existing supply lines;

Area 3 pumped supply from a central, existing but deteriorated, Balikchi well-field that would have to be rehabilitated.

The sum of discounted investment and operatons and maintenance costs have been calculated for each of alternative service options. For each sub-area the optionwith the lowest total discounted costs has then been selected. The economic least-cost analysis demonstrates that, under assumptions of increases in power tariffs in line with recent increases, the least cost solution is to rely entirely on the Turttom/Sigali wellfield to supply Areas 1 and 3 by gravity and to rely entirelyon the Beshbulok wellfield to supply Area 2 by pumping. The choice of gravity supplies for Areas 1 and 3 has the additional (unquantified) benefits of facilitating the operations and maintenance of the system.proposed Project FINANCIAL ANALYSIS Syrdarya Regional Suvokova (SVK) - the Beneficiary 6. The IDA credit proceeds will be on-lent by the Government to the Syrdarya Regional Suvokova (SVK hereafter), the entity that is responsible for the water supply for the Syrdarya Region. SVK consists of 12 subsidiarydistrict level utilities that are responsible for water supply in their particular districts. Each district level utility is a separate entity that has its own accounts and financial statements. The district utilities vary in size with the number of employees in 2009 ranging from 6 persons to 166 persons for a total of 473 employees in the SRPS system. SVK is the parent organization and consolidated accounts and financial statements are prepared for SVK as required under applicable Uzbek regulations.

SVK’s Financial Performance – Past, Current and Projected 7. Tariff Policy: As a state-owned utility, SVK’s tariffs for water supply and sewerage are subject to approval by the Government. The utility annually prepares its budget proposal, including proposed tariffs, which are then reviewed by the Regional Anti-Monopoly Committee in the light of existing regulations and guidelines for tariff-setting. In practice, the tariffs as approved by the Government have been at levels lower than required for full-cost recovery on account of social impact concerns. Residential tariffs are much lower than for other consumers,

69

reflecting the substantial levels of cross-subsidies at present between residential and other consumers. The recent progression of water supply tariffs in the Syrdarya Region is shown in the following table:

Table 9.1: Recent Water Tariffs

Water tariffs (UZS/m3) 2006 2007 2008 2009

Residential consumers 27.0 35.0 36.0 38.0

Other consumers 140.0 144.0 149.0 158.0

8. Main Issues in Financial Performance: Based on unaudited financial statements submitted by SVK, in the period 2006 to 2009, SVK incurred annual operating losses ranging from UZS 0.9 million to UZS 2.9 million. Financial audits by independent external auditors have not been carried out as yet for SVK. Detailed income statements are given in Table 9.3 (attached to this Annex). The main issues affecting SVK’s financial situation and performance are the following:

High levels of non-revenue water due to leakages resulting from the poor condition of the network, illegal connections, lack of adequate metering of water production and consumption, weaknesses in billing and collection systems.

Tariffs, as approved by the Government, have been at lower than full-cost recovery levels.

Institutional weaknesses in accounting, financial management, and commercial management.

Low quality of service in terms of water delivery, reliability and quality – per capita consumption levels in the 5 target districts in the Syrdarya area have been estimated at around 15 liters per capita per day (lpcd).

Average household incomes in the Syrdarya Region are substantially below the national average and this further contributes to the reluctance of the consumers to pay for the perceived poor service.

Weak revenue collection performance as the combined result of inadequate metering, weak billing and collection systems, and reluctance of the consumers to pay on account of the perceived poor quality of service as revealed by consumer surveys.

The weak collection performance has resulted in a build-up of receivables from consumers and payables to the electricity company and to the State.

SVK’s operating expenses, of which energy and personnel costs are the major components, are relatively low. In contrast to tariffs and collection performance, they have been rising each year.

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The net result of the above factors was that SVK incurred annual operating losses resulting in annul cash deficits which have led to delayed or accumulated payments to suppliers and other creditors.

9. Measures to Address the Weaknesses: The Project provides for a combination of institutional strengthening, revenue increasing and cost-efficiency improving measures, in particular the following:

Investments to (i) increase water production capacity, including appropriate metering for proper measurement, and (ii) improve water supply efficiency, including reduction of non-revenue water by reducing water losses through leakages due to poor quality of the network and illegal connections.

Increased metering of water consumption, and strengthening of SVK’s billing and collection systems to improve collection performance. Given the existing weaknesses in SVK’s staff capacity and skills, these functions are proposed to be outsourced at the start, accompanied by the gradual build up of necessary skills in SVK.

Institutional strengthening in accounting, financial management and commercial management.

Design and implementation of a sustained public information and public relations campaign aimed at raising the awareness of consumers of the benefits under the Project and the need for timely and sufficient payments for SVK to be able to provide efficient and reliable service.

Until such time as SVK is able to reach financially self-sustaining operations through gradual increases in tariffs and improved collection performance, both of which are dependent on increasing public acceptance, the Government will commit to providing in time and in adequate amounts the necessary funds (operating subsidies) for SVK to meet any shortfalls in operating revenues required to cover its annual cash operating expenses and agreed share of debt service. This will be reflected in appropriate covenants under the Loan Agreement.

In addition, to relieve the financial burden on SVK and the residential population in the area, it will be confirmed with the Government that it will assume 90% of the debt service on the IDA credit.

10. Future Financial Performance: Financial projections for the period 2011 to 2020 are provided in Table 9.3 (attached to this Annex). Given that SVK’s current tariff and revenue collection levels are not adequate to cover even its cash operating expenses (excluding depreciation), the approach in the projections is to determine what tariff levels are required to (i) provide for coverage of cash requirements including cash operating expenses and SVK’s share of debt service, and (ii) progressively move to full-cost recovery resulting in nominal profits by the year 2020. Three benchmark tariff levels are estimated: (i) full-cost recovery including depreciation; (ii) a progressive cost-recovery tariff aimed at full-cost recovery by 2020; and (iii) (i) minimum coverage of cash requirements and share of debt sevice. The Base Case financial projections are based on the progressive tariff in (ii) above.

71

11. The Projections are based on conservative assumptions as to the key underlying parameters as described below, and as otherwise derived from the Project feasibility study:

Water consumption growth is based on the following assumptions; (i) for households in the SVK operational area, the percentage of households connected to the water supply system is projected to increase from about 65 % at present to 100 % by 2020; for other consumers, the growth is assumed at 10 % per year based on projected growth of activity; (ii) for SVK as a whole, the weighted average per capita consumption of water (including both urban and rural areas) is projected to increase from about 40 lpcd at present to about 80 lpcd by 2016 and 100 lpcd by 2020; ;

Water production is projected to increase from about 22.0 million m3 at present to about 36.3 million m3 by 2016 and 38.0 million m3 by 2020; for SVK as a whole, losses through unaccounted for water (UFW) are projected to improve from about 35% at present to about 26% by 2016 and 25 % by 2020; for the 5 target districts in particular, the losses are projected to progressively decrease to around 10% with the improvements in the transmission and distribution systems under the Project;

SVK will realize operating cost-efficiency improvements, including in specific electricity consumption, as a result of the Project investments and institutional strengthening under the Project;

Collection performance will gradually be improved with the upgrading of utility management practice, establishment of meter-based billing, separation of billing and collection responsibility, outsourcing of collection to external agencies, as well as immediate public relations campaign to educate the public of the need for timely payments to maintain good service, and to aggressively pursue arrears owed by institutional customers;

Tariffs will gradually be raised, consistent with affordability considerations; and

The Government will provide timely and adequate operating subsidies, to cover any shortfalls resulting from tariffs below cost-recovery levels.

12. The IDA credit amount will be USD 88 million. It is assumed that the Government will assume the debt service for 90% of the IDA credit (as was the case for the Bukhara & Samarkand Water Supply Project and for the Bukhara and Samarkand Sewerage Project). At appraisal however, the official governemental resolution approving the Project feasibility study and committing the Government to co-finance the Project and to support its debt service and cost recovery needs had yet to be published. 13. Implications for Tariffs: The Project investments will lead to a very substantial expansion of SVK’s operations and the level of its annual operations and maintenance (O&M) expenses. To be able to generate adequate revenues to cover the O&M expenses, SVK will need to be able to progressively increase its tariffs while concurrently improving its collection performance. As benchmarks, the necessary levels of average tariffs are shown in Table 9.2 for three cases .: (i) full-cost recovery including depreciation; (ii) a phased progressive cost-recovery tariff aimed at reaching positive net income by 2020; and (iii) minimum tariff levels required to

72

cover SVK’s annual cash flow obligations including cash operating expenses plus its share of debt service. Under assumptions of a 100% revenue collection rate, the ranges and peaks for the three cases are shown in the Table 9.2 below. Such tariff levels are to be compared to the estimated users’ willingness to pay for continuous water service (measured at UzS 244/m3 through surveys), and to the current price of water acquired from vendors (3,000 to 8,000 UzS/m3).

Table 9.2: Tariff range and peak for various cost-recovery objective

Cost recovery objective Tariff range

UzS/m3 2011 – 20

Peak tariff UzS/m3 2011-20

(ii) full-cost recovery including depreciation 229-361 361 (ii) progressive tariff for net positive income by 2020 (Base case) 182-260 260 (iii) tariff to cover cash operating expenses and 10% of debt service 182-120 182 14. Impact of collection performance on tariffs requirements – The tariff ranges in Table 9.2 are calculated with the assumptions of 100% collection performance. Table 9.4 below simulates the impact of partial collection performance on minimum tariff levels, such as required for cost recovery objective (iii) above, i.e. cash operating expenses and 10% of debt service. Table 9.4 also documents the impact on tariffs of a scenario in which SVK would have no share of debt service to payback (i.e. 100% of debt service subsidized by the Governement). 15. Financial Risk Analysis – Possible Cash Deficits and Need for Operational Subsidies: Key parameters that will affect SVK’s financial performance are: levels of (i) tariffs, (ii) collection performance, and (iii) water sales volume. Table 9.5 shows the effect of variations in these key parameters on the minimum tariff level required to cover SVK’s cash requirements (cash operating expenses and share of debt service). Table 9.5 shows the effects on SVK’s cash flow due to adverse variations in each of the three parameters. These adverse variations will result in annual cash deficits for SVK that will need to be covered through operational subsidies from the Government. In particular, as can be seen from Table 9.5, if the adverse variations occur in more than one parameter, the combined effect can be considerable. For example, at a 80% tariff level and a 80% collection rate, the peak annual operating subsidy could be in the order of about UZS 1.2 billion. In particular, if tariffs and collections cannot be appropriately adjusted due to social impact and affordability concerns, there would be need for financial support from the Government in the form of operational subsidies. 16. To enable SVK to reach financially self-sustaining operations as soon as possible, the Government would need to provide the enabling environment through (i) payment of 90% of debt service, (ii) approval of timely and sufficient tariffs, (iii) appropriate support to SVK to enforce collections, and (iv) annual operating subsidies and debt service subsidies consistent with level of cost recovery targeted by the tariff. The respective obligations of the Government and SVK in regard to financial performance, including tariff increases, operating subsidies and debt service subsidies will be specified under appropriate covenants in the Loan and Project Agreements.

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Table 9.3: Syrdarya Regional Suvokova (SVK): Income Statements & Tariff Analysis (page 1 of 2) (Projections do not include effects of annual domestic inflation)

Unit 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Actual Actual Estimate

PHYSICAL PARAMETERS (Base Case)Population in SRPS operational area number 692000 698574 705210 711910 718673 725500 732393 739350 746374 753465 760623 767849 775143

Population in project area (5 districts) number 342000 345249 348529 351840 355182 358557 361963 365402 368873 372377 375915 379486 383091

Population in remaining areas (7 districts) number 350000 353325 356682 360070 363491 366944 370430 373949 377501 381088 384708 388363 392052

Water production in 5 target districts 000 m3 2095 2258 2434 2622 2824 2977 3134 7317 10738 11619 12518 12666 12819

Water production in remaining 7 districts 000 m3 12370 19561 19561 20766 21971 23176 24381 25586 25586 25586 25586 25586 25586

Total water production volume in SRPS 000 m3 14465 21819 21994 23388 24795 26153 27515 32903 36324 37205 38104 38252 38405

Water losses in 5 target districts 000 m3 712 768 827 891 960 893 784 1098 1074 1162 1252 1267 1282

% water losses in 5 target districts % 34% 34% 34% 34% 34% 30% 25% 15% 10% 10% 10% 10% 10%

Water losses in remaining 7 districts 000 m3 4701 7159 6812 7210 7207 7602 7997 8392 8392 8392 8392 8392 8392

% water losses in remaining 7 districts % 38% 37% 35% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30%

Water supplied to consumers in 5 target districts 000 m3 1383 1490 1606 1730 1864 2084 2351 6219 9664 10457 11266 11400 11537

Residential consumers 000 m3 1271 1368 1471 1582 1701 1904 2153 6002 9425 10194 10977 11081 11186

Other consumers 000 m3 112 123 135 149 164 180 198 218 239 263 290 319 351

Water supplied to consumers in remaining 7 districts 000 m3 7669 12401 12749 13556 14764 15574 16384 17194 17194 17194 17194 17194 17194

Residential consumers 000 m3 6843 8694 9100 9504 10351 10919 11486 12054 12054 12054 12054 12054 12054

Other consumers 000 m3 827 3707 3649 4052 4414 4656 4898 5140 5140 5140 5140 5140 5140

Total water supplied to consumers by SRPS 000 m3 9052 13892 14355 15286 16629 17658 18735 23413 26858 27651 28460 28593 28731

PAST & CURRENT WATER TARIFFS (2006 to 2010)Households UZS/m3 36.0 38.0 38.0

Other consumers UZS/m3 149.0 158.0 158.0

Average UZS/m3 68.0 71.0 71.0

BENCHMARK AVERAGE WATER TARIFFS (2011 to 2020)Full‐cost (including depreciation) recovery tariff UZS/m3 191.9 229.4 284.0 320.3 361.1 313.1 276.8 270.0 263.3 263.2 263.0

Progressive graduated full‐cost recovery tariff (used for projections) UZS/m3 71.0 182.3 182.3 182.3 182.3 250.0 250.0 255.0 255.0 260.0 260.0

Minimum cash requirements coverage tariff (to cover UZS/m3 182.9 182.3 165.3 161.0 157.2 135.1 122.4 120.4 118.2 118.8 119.5

cash operating expenses plus share of debt service)

REVENUES

Invoiced water revenues UZS 000 689850 905902 1019192 2786501 3031144 3218844 3415083 5853273 6714460 7050981 7257333 7434279 7469935

Invoiced wastewater revenues UZS 000 280577 286188 286188 286188 286188 286188 286188 286188 286188 286188 286188 286188 286188

Total operating revenues UZS 000 970663 1192090 1305380 3072689 3317332 3505032 3701271 6139461 7000648 7337169 7543521 7720467 7756123

EXPENSES

Salaries & wages for operations UZS 000 235514 261255 366288 371782 377359 383019 388765 394596 400515 406523 412621 418810 425092

Social benefits UZS 000 56524 62701 87909 89228 90566 91925 93303 94703 96124 97565 99029 100514 102022

Electricity UZS 000 1792592 1603266 1508775 1510545 1511422 1512308 1513202 1626509 1647399 1668668 1690321 1712362 1734797

Fuel UZS 000 231000 231000 231000 231000 231000 231000 231000 231000 231000 231000 231000

Materials & spares UZS 000 16414 16972 4457 4457 4457 4457 4457 4457 4457 4457 4457 4457 4457

Repairs & maintenance UZS 000 17858 4570 4631 4692 79459 154748 230039 305330 380623 380690 380758 380828 380898

Administrative & other cash operating expenses UZS 000 219072 203151 357319 360974 361365 361772 362195 362636 363093 363569 364064 364579 365115

Total cash operating expenses UZS 000 2337974 2151915 2560379 2572678 2655628 2739229 2822961 3019231 3123211 3152472 3182250 3212550 3243381

Depreciation UZS 000 748319 684253 195000 933758 2066244 2916212 3942649 4312275 4312275 4312275 4312275 4312275 4312275

SRVK share of interst on IDA credit UZS 000 141190 18627 27393 43124 61751 78735 90161 90161 90161 90161

SRVK share of interest on ADB loan UZS 000 32662 38247 42569 41418 40144 38741 37196 35491 33613 31540 29258 26743

Total operating expenses UZS 000 3086293 2868830 2793626 3690195 4781917 5722978 6847475 7430453 7549711 7588522 7616226 7644245 7672560

NET INCOME BEFORE TAXES UZS 000 ‐1488246 ‐617506 ‐1464585 ‐2217946 ‐3146204 ‐1290992 ‐549063 ‐251352 ‐72704 76223 83563

Projections

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Table 9.3 (continued): Syrdarya Regional Suvokova (SVK): Income Statements & Tariff Analysis (page 2 of 2)

(Projections do not include effects of annual domestic inflation)

Table 9.4 – Analysis of Minimum Required Tariffs

Unit 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Actual Actual Estimate

DEBT SERVICE REQUIREMENTS (SRVK SHARE 10%)World Bank loan (10% share of annual debt service)

Principal repayment UZS 000 0 0 0 0 0 0 0 0 0 0

Interest charges UZS 000 141190 18627 27393 43124 61751 78735 90161 90161 90161 90161

ADB loan

Principal repayment UZS 000 26649 30064 33311 36678 39444 44615 49065 54236 59648 65780 72515

Interest charges UZS 000 38247 42569 41418 40144 38741 37196 35491 33613 31540 29258 26743

Total annual debt service UZS 000 64896 213823 93356 104215 121309 143562 163291 178010 181349 185199 189419

UNIT OPERATING COSTS PER M3 SOLDCash operating cost per m3 of water sold UZS/m3 178.4 168.3 159.7 155.1 150.7 129.0 116.3 114.0 111.8 112.4 112.9

Cash opex plus share of interest expense UZS/m3 181.0 180.3 163.3 158.9 155.0 133.2 120.5 118.5 116.1 116.5 117.0

Operating cost (including depreciation excluding debt service) UZS/m3 191.9 229.4 284.0 320.3 361.1 313.1 276.8 270.0 263.3 263.2 263.0

Operating cost (excluding depreciation including debt service) UZS/m3 182.9 182.3 165.3 161.0 157.2 135.1 122.4 120.4 118.2 118.8 119.5

BENCHMARK WORKING RATIO ESTIMATES Cash operating expenses/collected revenues (at 100% collection rate) % 196 84 80 78 76 49 45 43 42 42 42

Cash operating expenses/collected revenues (at 95% collection rate) % 206 88 84 82 80 52 47 45 44 44 44

Cash operating expenses/collected revenues (at 90% collection rate) % 218 93 89 87 85 55 50 48 47 46 46

Projections

Unit 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

MINIMUM AVERAGE TARIFF REQUIREMENTS FOR CASH PAYMENTS COVERAGE100 % collection performance (Base Case) To cover cash operating expense UZS/m3 178.4 168.3 159.7 155.1 150.7 129.0 116.3 114.0 111.8 112.4 112.9

To cover cash opex + share of debt service UZS/m3 182.9 182.3 165.3 161.0 157.2 135.1 122.4 120.4 118.2 118.8 119.5

90 % collection performance

To cover cash operating expense UZS/m3 198.2 187.0 177.4 172.4 167.4 143.3 129.2 126.7 124.2 124.8 125.4





70 % collection performance 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0






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Table 9.5 – Financial Risk Analysis for Adverse Variations in Key Parameters:

Levels of Operating Subsidies Required To Cover Annual Cash Deficits

Unit 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

VARIATIONS IN COLLECTION PERFORMANCE

If 100% collection performance (Base Case) UZS million 0 0 0 0 0 0 0 0 0 0

If 90% collection performance UZS million 279 275 284 294 316 329 333 336 340 343





VARIATIONS IN ANNUAL WATER CONSUMPTION

If 100% consumption (Base Case) UZS million 0 0 0 0 0 0 0 0 0 0

If 90% consumption and no increase in tariff UZS million 279 275 284 294 316 329 333 336 340 343





VARIATIONS IN TARIFF LEVELS (AT 100% COLLECTION)If 100% minimum level tariffs (Base Case) UZS million 0 0 0 0 0 0 0 0 0 0

If 90% tariffs UZS million 279 275 284 294 316 329 333 336 340 343


If 70% tariiffs UZS million 836 825 853 883 949 986 999 1009 1019 1030



VARIATIONS IN TARIFF LEVELS (AT 80% COLLECTION)If 100% minimum level tariffs UZS million 557 550 569 589 633 657 666 673 680 687



If 70% tariiffs UZS million 1226 1210 1251 1295 1392 1446 1465 1480 1495 1510



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Annex 10A: Safeguard Policy Issues

UZBEKISTAN: Syrdarya Water Supply Project 1. Environmental Assessment (OP/BP 4.01) Overall, the Project will have positive impacts

through improvements in domestic hygiene and a reduction in health risks that were associated with poor water quality or inadequate access to services, as a result of improvements in drinking water quality and its availability in the 5 regions covered by this proposed Project investments. In addition, the provision of drinking water to the population that had no or limited access and had to resort previously on supply from unsafe wells will reduce the risks to public health associated with water borne diseases, and may also have a beneficial economic impact to these communities.

2. The Project comprises of an investment plan to rehabilitate and expend the existing water supply system in five rayons in Syr Darya region (Akaltyn, Sardoba, Mirzaobad, Khavast, and Bayaut). The main problem of these selected rayons is the scarcity of water resources, access to sources of drinking water supply, inadequate condition of the water supply system as well as high level of ground water (located at about 0.5 – 4 m), which leads to widely spread water logging and land salinization in the Project area. The source of the water supply in this region of Uzbekistan is mainly provided by fresh underground waters that occur naturally at 100-500 m depth. The water is provided mainly for domestic and agricultural use through main transmission pipe lines from deep intake facilities including of standalone wells most of which need urgent rehabilitation and new pumps given their current poor ability to function. Most towns in the Project area are supplied with water through pipelines via gravity given the high elevated location of the existing water intake facilities (e.g. Turttom/Sirgali). Additionally, a new pipeline is proposed to be constructed from the existing Turttom/Sirgali water intake facility (including of 16 wells to be rehabilitated) for supplying Khavast rayon, Yangier town and southern settlements of Bayaut rayon. Three additional new wells might be drilled in the surrounding of the seven existing wells assigned as part of the Beshbolug well field water intake to cover water supply for Bayaut and Mirzaobod rayons. Yet, rehabilitation of wells within the Project will be based on pre-inspection before any decisions on new boreholes will be made.

3. The Project has been classified as environmental category “B” since it will finance mainly rehabilitation of existing water supply infrastructure (transmission main, water distribution pipelines, water intakes wells and related pumps, pumping stations with integrated chlorinators, water towers, replacement of valves, water meters installation ) , and new installation of 26 km transmission main of 700 mm diameter from Turttom water intake to Khavast and Bayaut rayon. An EA with EMP was prepared by Uzkommunkhizmat to analyze the potential adverse environmental issues related to the proposed rehabilitation investments and to ensure that these aspects are mitigated during the Project design. The key environmental issues described by the EMP to be undertaken and mitigated during rehabilitation works are noise and vibrations; soil, air and water and groundwater pollution; damages to trees and existing flora and vegetation; waste construction management and disposal, and workers health and safety.

4. Minor environmental impacts during works including noise and vibration generation,

construction waste, soil disposal and dust pollution, and temporary effect on local vegetation are typical rehabilitation works related effects that could properly be mitigated and monitored if

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appropriate construction standards and operational practices are followed. Water and soil pollution could remain temporarily affected during operational phase of the Project (once works are finalized) due to accidental water bursts (at pumping stations or along the rehabilitated water supply networks) potential natural disasters and extreme climate events (e.g. floods, earthquakes) or improper household wastewater management generated due to the new domestic water use in the Project area. Also, there is the possibility of some risks to health and safety of operation personnel due to inappropriate handling or accidental release of chlorine at those water distribution systems that require use of chlorination equipment for disinfection purposes.

5. The EMP include a set of specific environmental mitigation measures and monitoring

requirements to be followed by the contractors, Uzkommunkhizmat and Suvokova (SPCU), works supervisor engineer, and local relevant institutions during implementation and operation. For example, the monitoring plan requires monitoring drinking water quality in the distribution network, based on a sampling program previously approved by local authorities, in which sampling frequencies, sampling locations, number of samples and type of analyses are denoted. Furthermore, health and safety procedures will have to be incorporated into all contracts for execution of works, and precise guidelines for the use of protective equipment, road signs and site access will have to be specified.

6. Responsibilities for daily monitoring during works will be part of construction and

rehabilitation supervision. Implementation of mitigation measures related to possible temporary environmental effects during works is the Contractor responsibility as stipulated in the technical specifications of their contracts. The overall EMP implementation will be managed by the Project designated SPCU team and consultants/supervisor engineers that will be responsible for preparation of the Project environmental monitoring reports as a follow-up to their regular or announced site inspection. The monitoring and progress reports should include parameters sampled and highlighted in the environmental monitoring plan revised once the detail designs of specific works are available within the Project area. SPIU should contract national laboratories equipped to conduct routine daily monitoring of main environmental parameters as indicated in the Project Monitoring Plan.

7. Physical Cultural Resources (OP 4.11) - There is no indication in the EA report that cultural

resources will be affected by proposed rehabilitation investments since works will be mainly done in existing locations. However, the EMP will include measures taken in the case of “chance finds” during works, which are consistent with the local regulations and inserted in the contractor’s bidding documents.

8. Projects on International Waterways (OP/BP 7.50) – The proposed Project will rehabilitate water supply networks and facilities that use existing underground water sources characterized as “local significance (category 3)” in accordance with the Uzbek legislation, which have no link with other international water resources. Consequently, the Project does not provide for supply of water from surface sources such as Syr Darya river or other transboundary international waterways or the ground waters located at 0.5 – 4 meters depth and hydraulically related to superficial waters. The EA evaluation concluded that the additional water amount extracted as a follow-up to the new project investments will remain in the limits of the

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operational reserves and utilization of fresh saline underground waters deposits (thousand cubic meters/day) approved by the national legislation. Consequently, the team assessment based on consultation with LEGEN is that the Project interventions do not trigger the OP/BP 7.50.

9. Public Consultation and Disclosure - The draft EA with EMP acceptable to Bank standards

was subject to one public consultation and disclosure by Uzkommunkhizmat and Suvokova (SPIU) to stakeholders involved and benefiting from the proposed Project investments. Public discussions on the draft report took place in each of the 5 selected rayons during November-December 2009. The draft report including minutes of theses public meetings as well as the Bank review was finalized, re-disclosed in country in local language and disclosed in English in Infoshop in February 2010.

10. Involuntary Resettlement (OP/BP 4.12). A screening during project preparation established

that the proposed Project is not expected to involve land acquisition as the focus of the Project will be rehabilitation and/or replacement of the existing water supply infrastructure. Should land be needed for these investments, the Project plans to us state-owned land which is located on existing rights of way designated for municipal infrastructure, and not occupied by residents (legal or illegal) or enterprises. Although the need for and locations of new pipelines have not been established, a reconnaissance of the potential sites where new construction may occur suggests that the Project may necessitate the (temporary) relocation of households, private and other enterprises, or that it may lead to a loss of access to assets or a loss of income sources for certain people living in the Project area. The screening confirmed that there are a lot of illegally taken plots and unauthorized buildings/structures, including additions to houses, cattle-pens, warehouses, garages, toilets, sheds, vegetable gardens, etc., as well as electrical, gas and phone networks in the Project area. Some of these structures are located near Suvokova facilities and networks, near non-functioning or functioning artesian wells, water towers, over WSNs and SNs, near gas and electrical networks, as well as too close to residential-buildings. To avert any negative social or economic impacts on persons losing access to land, assets and income as a result of the Project a Resettlement Policy Framework (RFP) was prepared by the Borrower. The purpose of the RPF is to clarify the policies and principles and organizational arrangements for the delivery of compensation and other entitlements in the event that land acquisition and/or displacement occurs; the process by which these will be determined and delivered; and arrangements for possible grievance redress mechanisms as well as independent monitoring of the implementation of a specific resettlement plan (RP) or abbreviated resettlement plan (if impacts are minor or fewer than 200 people are displaced) that may become necessary as a result of the Project. For any project component requiring land acquisition, specific RPs consistent with the principles in this RPF will be submitted to the Bank for approval when detailed investment planning information and the scope of the civil works becomes available, and the extent of the land acquisition needed for the investment is known.

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Annex 10B: Resettlement Policy Framework


Project Objectives and Components The Project development objective is improving environmental and public health conditions associated with seriously deficient water supply services in the province of Syrdarya. 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. Preparatory work for the Project included a Social Assessment that encompassed the following: (i) identifying the main stakeholders and their roles and interests, (ii) describing baseline conditions; (iii) understanding user needs, perceptions, and problems with the existing water supply and sanitation system; (iv) determining willingness and ability to pay for water supply improvements;(v) describing relationships among the vodokanal, consumers, and other actors; (vi) preparing a Resettlement Policy Framework (RPF); (vii) identifying appropriate mechanisms for improving service provider-consumer interactions and maximizing the benefits of the proposed investment; and (viii) identifying indicators and mechanisms for social monitoring and evaluation.

Reasons for a Resettlement Policy Framework (RPF) In the process of project preparation, the screening by the consulting firm carrying out the social assessment established that the proposed Project is not expected to involve land acquisition because the focus of the Project will be rehabilitation and/or replacement of the existing water supply infrastructure. Should land be needed for these investments, the Project plans to use state-owned land which is located on existing rights of way designated for municipal infrastructure, and not occupied by residents (legal or illegal) or enterprises. Although the need for and locations of new pipelines have not been established, a reconnaissance of the potential sites where new construction may occur suggests that the Project may necessitate temporary relocation of households and/or private and other enterprises, or that it may lead to a loss of access to assets or a loss of income sources for certain people living in the Project area. The screening confirmed that there are numerous illegally occupied plots and unauthorized buildings/structures, including additions to houses, cattle-pens, warehouses, garages, toilets, sheds, vegetable gardens, etc., as well as electrical, gas and phone networks in the Project area. Some of these structures are located near Suvokova facilities and networks, near non-functioning or functioning artesian wells, water towers, over WSNs and SNs, near gas and electrical networks, as well as too close to residential buildings. To avert any negative social or economic impacts on persons losing access to land, assets, and/or income as a result of the Project, the World Bank’s Operational Policy 4.12 on “Involuntary Resettlement” requires the development of a Resettlement Policy Framework (RFP) by the borrower. The purpose of the RPF is to clarify the policies and principles and organizational arrangements for the delivery of compensation and other entitlements in the event that land acquisition and/or displacement occurs; the process by which these will be determined and delivered; and arrangements for possible grievance redress mechanisms as well as independent

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monitoring of the implementation of a specific resettlement plan (RP) or abbreviated resettlement plan (if impacts are minor or fewer than 200 people are displaced) that may become necessary as a result of the Project. For any project component requiring land acquisition to be financed by the Bank, specific RPs consistent with the principles in this RPF will be submitted to the Bank for approval when detailed investment planning information and the scope of the civil works becomes available, and the extent of the land acquisition needed for the investment is known. Legal Framework for Land Expropriation According to the Land Code of the Republic of Uzbekistan, all land in Uzbekistan is state property and permits for use of land are granted and monitored by the State through the rayon and oblast administrations. National legislation envisages the following types of land transfers: for use, lease, or ownership by legal entities (only with objects of trade and services infrastructure), and for lifelong inheritable ownership (with housing), use, or lease by individuals. While all land transactions are subject to State regulation; some transactions occur with special permission of the State The laws and procedures for expropriating agricultural and urban land are treated differently under Uzbek Law. While agricultural land issues are covered and treated under the Land Code, urban land issues are covered under the Civil Code, the Housing Code, and the Urban Construction Code. The Land Code identifies several categories of land users, who are eligible for compensation for losses and damages in connection with land acquisition:

Land tenants – citizens who were allocated land plots for individual housing construction and/or dehkan farming on the basis of life-long tenure

Lessees (leaseholders) – farmers, who were allocated land plots for agricultural production purposes, on the basis of a long-term lease

Land owners – users of land plots occupied by trade and services infrastructure, which are used as private property. Land, occupied by trade and services infrastructure, however, may not be sold separately from the latter

Land users – all other enterprises, organizations and institutions, which are entitled to use non-agricultural lands. This is the largest category, which includes enterprises and institutions of all types (private and public). Examples include hospitals, schools, private enterprises, and factories.

Legislation envisages compensation for damages to land users in full, including lost profits, in the following instances: (a) seizure, purchase or temporary occupation of land; (b) limitation of the rights of users; (c) deterioration of land quality due to the effects of construction works, servicing, and other activities that lead to reductions in the quantity or quality of agricultural products. According to the legislation, compensation for loss of agricultural production is not provided if: (i) land is acquired for the construction and servicing of individual housing; (ii) land is acquired for the construction of schools, boarding-schools, orphanages, preschool and healthcare establishments; and (iii) land was allocated for water management purposes and for the construction of irrigation and water- related facilities.

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Agricultural Land According to the legislation of the Republic of Uzbekistan, the following State organizations are responsible for implementing resettlement activities: Regional and district hokimiyats; Regional land acquisition commission; District department of Geocadastre; District evaluation commission; District HGME; District department of nature protection; District SES; and the District departments of fire supervision. The procedures, functions, and powers of organizations responsible for implementation and observation of procedures for land acquisition for purposes other than agriculture and forestry, are established by the Resolution of the Cabinet of Ministers No. 248 of 27 May 1992. According to the Resolution, the following are the procedures for acquiring agricultural lands:

The SVK submits an application to the Oblast Hokimiyat for the selection of lands subject to acquisition for construction of facilities within the Project framework.

The Oblast Hokimiyat considers the submission within five days, and requests the permanent regional land acquisition commission to: (a) define the location of constructions and facilities, and (b) select a land plot for design of their construction. The commission includes representatives of the enterprises and/or organizations which are being allocated land plots, and persons (legal and physical) whose lands are subject to acquisition, normally farmers and dehkhan representatives. In Syrdarya Oblast, the commission was established on August 26, 2009 by the Order of the Hokim №128. Chairman of Commission is Z.Karshiboev, Deputy Regional Khokim.3

The department of the Goskomzemgeodezkadaster (Geocadastre) within the city hokimiyat selects alternative land plots to be allocated for construction of the facilities. It also (a) assesses the losses of land incurred by land users (b) defines options to restore land for farming, including removal and temporary storage of topsoil; (c) elaborates proposals for compensation with an equivalent land area of the same or better quality in other areas in consultation with citizens; and (d) in the case of permanent occupation of irrigated lands, estimates the requirements and cost for the reclamation of replacement lands.

Simultaneously, a detailed estimate of the potential losses of agricultural production and other potential damages to land owners and land-users is obtained. The procedures for assessing the compensation for losses of agricultural production are specified in the RCM No. 223 of 16 June, 1995. Accordingly, any losses of agricultural production are assessed by an Evaluation Commission, whose members are determined by the head of the district Hokim, along with the respective landowners and land-users. The findings of the evaluation commission is finalized in a certificate of the right to land use, which has to specify the acquired agricultural lands, the agreed conditions, and the total value of the losses of agricultural production and losses of land users. All of the above documents will be submitted to the regional land acquisition commission for approval.

3 The scanned document in the original is given in Annex 1. The original document is in Uzbek. The translation in English is unofficial (Annex 2).

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For the Syrdarya Water Supply Project, information was obtained from Project Coordination Unit of the “Uzkommunhizmat” Agency that stated “rehabilitation of Dekhakanabad waterway, Zaamin waterway from Tertom/Sirgaly water intake, construction of new waterway line and water mains within ‘Water Supply in 5 Raions of Syrdarya Oblast Project’ are planned without demolition of any buildings, apartment houses and other units.” Urban Land and Structures 11. In compliance with the Housing Code of the Republic of Uzbekistan, the Cabinet of Ministers of the Republic of Uzbekistan issued Resolution Number 97 on May 29, 2006 setting out the procedures for the compensation individuals and legal entities in the event that the urban land they occupy or use is needed to be acquired for State and public needs. The following are the general provisions and specific procedures covered in the Resolution No. 97. 12. General Provisions. The following are the general principles and procedures that will be carried out for acquiring a land plot or portion thereof (hereafter referred to a land plot) and compensating individuals and legal entities for residential , manufacturing, or other special purpose buildings, facilities, and plantings subject to demolition in connection with land withdrawal for government or public needs. (a) Withdrawal (or acquisition) of a land plot for public needs shall be carried out with

landowner’s consent or upon agreement with the land-user/tenant, by a resolution of the Hokim of a particular jurisdiction (rayon, town, city, oblast), or by the resolution of the Cabinet of Ministers of the Republic of Uzbekistan.

(b) If the landowner, land-user, or landholder disagrees with the resolution of the Hokim of the

relevant jurisdiction or the Cabinet of Ministers on withdrawal of a land plot, then the resolution may be appealed in a court.

(c) A resolution on the withdrawal of a land plot and demolition of residential, manufacturing,

or other assets (that is, buildings, facilities, and plantings) shall be made in accordance with the general layouts, as well as the detailed plans for the development of residential areas and neighborhoods in cities and settlements.

(d) Unjustified demolition of residential, manufacturing, or other buildings, facilities, or

plantings shall be prevented. (e) Based on a resolution of the Cabinet of Ministers, the Hokims of the respective

rayons/towns shall adopt their own resolutions on withdrawing a land plot and demolishing residential, manufacturing, and other buildings, facilities, and plantings.

(f) The Hokimiyats of the respective rayons/towns shall notify the owners of relevant

residential, manufacturing and other buildings, facilities, and plantings in writing and against a receipt about the resolution at least six months before the targeted demolition date. The notification shall be supported by copies of the respective resolutions on withdrawal of

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the land plot and demolition of residential, manufacturing, and other buildings, facilities, and plantings located on the land plot.

(g) Landowners may appeal the Resolution of the respective Rayon/Town Hokim on demolition

and approval of the value of residential, manufacturing, and other-purpose buildings, facilities, and plantings subject to demolition in the Khokimiyats of the Oblasts as well as in the court system.

(h) The value of residential, manufacturing, or other-purpose buildings and facilities built

without proper authorization shall not be reimbursed. (i) If the withdrawn lands are allocated to enterprises, institutions, or agencies, those entities

will be responsible for the payment of compensation, provision of houses or apartments, and temporary housing, as well as the reimbursement of all relocation costs based on the decision of the respective Rayon/Town Hokim.

13. The following are the specific procedures and terms for compensating individuals and legal entities for houses, buildings, facilities, and plantings. Procedure for Calculating Compensation to Individuals and Legal Entities for the Residential Houses or Apartments, Buildings, Facilities, and Plantings to be Demolished (a) The respective Hokimiyats shall establish commissions (hereafter referred to as the

“Commission”) to determine the size and type of compensation. The Commission will be headed by the Deputy Hokim of the rayon/town and include the representatives of financial and other departments of Hokimiyats, the State Inspector for Supervision over Land Use and Protection, local authorities, landowner (that is, land-user or landholder) in charge of the land plot to be withdrawn, representative of the enterprise, institution, or agency to which the land plot is to be allocated, as well as representatives of other relevant authorities at the discretion of Hokimiyats.

(b) The technical condition of houses or apartments, buildings, and facilities are appraised, and

the value of plantings to be withdrawn will be determined by the Rayon/Town Land Resource and State Cadastre Departments at the expense of the applicant. In case of disagreement with the results of the appraisal by the Rayon/Town Land Resource and State Cadastre Departments, the owner has the right to contract independent licensed appraisers which will be paid for by the applicant. The appraisal materials are to be submitted to the Commission.

(c) If the land plot to be withdrawn is owned by an individual who has acquired a lifetime

ownership with the right of inheritance through an auction, the individual will be provided with lifetime ownership to an equivalent new land plot with the right of inheritance. The appraisal will be performed by the licensed appraisers of the Rayon/Town Land Resource and State Cadastre Departments in current prices at the expense of the applicant.

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(d) Any materials resulting from the dismantlement of houses or apartments, other buildings, and facilities (except unauthorized constructions) shall remain at the disposal of the developer or landowner (land-user, landholder) who pays full-scale compensation to the owner. In specific cases, at the request of the owner of the demolished property or plantings, and by the decision of the respective Hokim, the materials resulting from the dismantling of the property may be transferred to the owner. In this case, the Commission shall determine the value of the materials transferred to the owner at current market prices, taking into account wear-and-tear.

(e) The specific timing and procedures of monetary compensation payment shall be set forth by

resolutions of the relevant jurisdiction. However, monetary compensation is to be paid prior to commencement of demolition process.

Procedure and Terms for the Provision of Housing to the Owners of Houses to be Demolished (a) If privately owned are to be demolished, the individuals, members of their families, as well

as the individuals permanently residing in these houses or apartments at their own choice and subject to agreement of the parties, will be provided with an equivalent suitable dwelling with the floor space meeting the public norms on an ownership basis, and will receive compensation for the value of the plantings, or will get compensated for the value of demolished houses or apartments, other buildings, facilities, and plantings. Equivalence is determined as being an amount equal to the value of the house or apartment to be demolished. If the value of the house or apartment to be demolished is higher than the value of the housing provided, the owner will be compensated for the difference.

(b) The respective Rayon/Town Hokimiyats will be responsible for providing housing and/or

paying other types of compensations to the owners of the demolished houses or apartments out of the funds from local budget revenues.

(c) In order to get living quarters, the owner of the residential house or apartment to be

demolished after receipt of a notification about the upcoming demolition shall, within a month’s time, file an application agreed with family members and other people residing (registered) in the house or apartment to the respective Rayon/Town Hokimiyat requesting assignment of living quarters in exchange for the housing to be demolished, specifying family members, number of permanently residing persons, as well as any available benefits which entitle them to extra housing floor space in addition to the public norm.

(d) After the respective Rayon/Town Hokimiyats approves the Commission resolution on the

size and type of compensation, assignment of living quarters in exchange for the demolished residential house or apartment, or, at the request of the owner, on provision of monetary compensation, the owner shall file with the Hokimiyat a letter providing a guarantee to vacate the residential house (apartment) subject to demolition.

(e) A house or apartment may only be demolished subject to agreement of the parties and after

the owner was provided with living quarters in exchange for the house or apartment to be demolished.

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(f) In specific cases, subject to agreement of the owner of the house or apartment to be

demolished, the Rayon/Town Hokimiyat may provide living quarters in houses, which are in the course of construction, specifying in the resolutions the exact timing when the house is to be commissioned. If the living quarters in the houses being constructed are not provided by the established date, the Hokimiyat shall be responsible for providing the living quarters within a month’s time.

(g) Belongings of the owner of the residential house (apartment) to be demolished shall be

moved to a new location at the expense of the developer or landowner (land-user, landholder) to whom the plot was allocated.

(h) The respective Rayon/Town Hokimiyats will compensate the owner of the house to be

demolished due to the withdrawal of the land plot. Procedure and Terms for Provision of Land Plots for Private Housing Construction to Individuals in Exchange for Residential Houses (Apartments) to Be Demolished (a) In case of demolition of privately owned residential houses or apartments in connection with

a land plot acquired for public purposes, the owners of the property, their family members, as well as individuals permanently residing in these houses or apartments at their request could be provided with a land plot for private housing construction within the established norms. Here, temporary housing under the terms of a lease shall be provided for the development period of up to two years along with full-scale compensation for the value of the houses or apartments, buildings, facilities, and plantings to be demolished.

(b) A land plot for private housing construction and monetary compensation shall be provided

to the owner of the demolished houses or apartments by the respective Rayon/Town Hokimiyat. If the withdrawn land plots are to be allocated to enterprises, institutions, or agencies, these entities will be responsible for providing compensation land plots for private housing construction and compensation payments to the owners of the demolished residences.

(c) To obtain a land plot, the owner of a house or apartment to be demolished after receipt of

notification on the upcoming demolition shall, within a month’s time, file with the respective Rayon/Town Hokimiyat an application for assignment of a land plot for private housing construction specifying the family members, number of permanently residing persons, and the need for temporary housing.

(d) After the respective Rayon/Town Hokimiyat approves the Commission resolution on the

size and type of compensation, the owner shall file with the Hokimiyat a letter providing a guarantee to vacate the house (apartment) subject to demolition within the term specified by the respective Rayon/Town Hokimiyats.

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(e) A house or apartment may be demolished only after the owner is provided with a land plot for private housing construction and with temporary housing on terms of a lease for the period of development of the land plot of up to two years.

Procedure for Compensating Legal Entities for Damages Resulting from Land Withdrawal for Government and Public Needs (a) In the case of withdrawal of a land plot that accommodates residential, manufacturing, or

other buildings, facilities, or plantings owned by a legal entity, the legal entity is to be provided with equivalent property and is fully compensated for all damages due to the withdrawal of land plot for public needs.

(b) Land-owners/users/tenants/proprietors of land plots in urban areas shall be compensated for

the damages in agriculture and forestry-based production in accordance with the land laws of the Republic of Uzbekistan.

(c) Legal entities shall be compensated for damages resulting from withdrawal of land plots by

the respective rayon/Town Hokimiyat. If the withdrawn land plots are to be allocated to enterprises, institutions, or agencies, then payment of compensation, provision of living quarter and temporary housing, as well as moving the property to the new location shall be carried out at the expense of such enterprises, institutions, and agencies according to the resolution of the respective Rayon/Town Hokimiyat.

(d) To be compensated for the withdrawal of a land plot, the legal entity following the receipt of

notification of the upcoming demolition shall, with a month’s time, file an application specifying the type of compensation with the respective Rayon/Town Hokimiyat.

(e) After the respective Rayon/Town Hokimiyat approve the resolution of the Commission, the

legal entity shall file with the Hokimiyat a letter providing a guarantee to vacate the residential house, other buildings, and facilities subject to demolition within the term specified by the respective Rayon/Town Hokimiyats.

(f) Residential, manufacturing, and other special purpose buildings as well as facilities

belonging to a legal entity may be demolished only after the type and size of compensation and timing of payment thereof are agreed to with the owner.

Procedure and Terms of Movement and Restoration in a New Location of Residential Houses, Buildings, and Facilities Subject to Demolition (a) At the request of individuals and legal entities, the residential, manufacturing, and other-

purpose buildings and facilities owned by them, which are subject to demolition may be moved and restored in a new location in accordance with a resolution of the respective Rayon/Town Hokimiyats, and shall be funded out of local budget revenues. The individuals and legal entities who own the housing shall be provided with temporary housing under a lease for the period of land plot development up to two years.

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(b) The property will be moved and restored within the limits of a given locality on land plots assigned in accordance with the established norms, subject to a condition that the technical state of houses, buildings, and facilities allows for their movement, i.e. the condition of the engineering structures and structural components must be able to withstand disassembly, transport, and reassembly in a new location. The Commission will determine the feasibility of moving the houses, buildings, and facilities based on a feasibility study and design estimates developed by specialized design agencies at the expense of the developer to whom the withdrawn land plot is allotted. The movement of residential, industrial, or other buildings and facilities and their restoration in a new location shall be carried out within the timeframe set forth by the respective Rayon/Town Hokimiyats. However, the term should not exceed a period of one year.

(c) All costs associated with the movement of residential, manufacturing, and other buildings

and facilities and restoration thereof in a new location, rent of temporary housing, movement of property of individuals or legal entities to the temporary housing and from there to the restored buildings/facilities based on the decision of the respective Rayon/Town Hokimiyats shall be borne by the developer or land owner (land-user, landholder) to whom the plot was allocated.

(d) Relocation of equivalent residential, manufacturing, or other-purpose buildings and facilities

owned by a legal entity shall be carried out only after the type, the size, and the timing of payment of compensation are agreed to with the owner.

Procedure and Terms of Settlement in Cases of Construction of Houses and Buildings in a New Location for Individuals and Legal Entities Whose Residential Houses (Apartments) are Subject to Demolition (a) At the request of individuals and legal entities whose houses or apartments are subject to

demolition, residential houses and buildings may be constructed in a new location and transferred to their ownership. In this case, no monetary compensation for the demolished residential houses or apartments is paid.

(b) Construction of residential houses and buildings in a new location and their transfer to the

ownership of individuals and legal entities whose residential houses or apartments are subject to demolition shall be carried out by the respective Rayon/Town Hokimiyats.

(c) If the withdrawn land plots are to be allocated to enterprises, institutions, or agencies, then

the construction of residential houses and buildings in a new location and transfer thereof to the ownership of individuals and legal entities, whose residential houses or apartments are subject to demolition, will be carried out at the expense of such enterprises, institutions, or agencies.

(d) Construction of residential houses and buildings in a new location for individuals and legal

entities, whose residential houses or apartments are subject to demolition shall be carried out within the limits of a given locality (population center). Here, for the period of construction of residential house/building at the new location, the respective Rayon/Town Hokimiyats

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will provide the individuals and legal entities concerned with temporary housing on terms of a lease.

(e) All costs related to the leasing of temporary housing, movement of property of the

individuals and legal entities to the temporary housing, and from there to the residential houses built in a new location based on the decision of the respective Rayon/Town Khokimiyats, shall be borne by the developer or land owner (that is, land-user, landholder) to whom the withdrawn land plot was allocated.

(f) In order to get the residential house/building constructed in the new location in exchange for

the house or apartment to be demolished, the individuals and legal entities, owning houses or apartments subject to demolition shall, within one month after receipt of notification about demolition, file an application specifying the family members, number of permanently residing persons, as well as the available housing benefits with the respective Rayon/Town Hokimiyats.

Additional Procedures or Principles Relating to Expropriation of Urban Land 14. Based on the Civil Code, the Housing Code, and the Urban Construction Code, the real estate value and corresponding compensation are determined on the basis of the registered price in the Cadastre. However, this price may be an underestimation of the real price of the property. In some cases, the registered price can be several times below a real estate’s actual market value. The real estate owner is given a choice between cash compensation or the provision of real estate of equal value on a different plot of land. Given that all land in Uzbekistan is state-owned, loss of land is not compensated in cash. Enterprises or businesses that are expropriated will be compensated by a new plot of land and building, thus allowing affected people to pursue their activities. 15. There is no provision for compensation for loss of income or profits. This is in contrast to the Land Code, according to which farmers are compensated for lost income. 16. It is important to note that because of State ownership of lands in Uzbekistan, land use is only possible with the permission of local authorities on the basis of a lease or on other terms. Accordingly, land use issues are fully covered by land legislation and are not governed by provisions of customary law, traditional practices, or neighborhood relationships, etc. Thus, according to Uzbek laws, those who use or occupy land without a lease or other type of official permission will not be entitled to legal compensation. The State will have the right to seize the land from those “illegal land users.” Review of the Consistency of Uzbek Legal Framework for Expropriation with OP 4.12 and Gap Filling Measures 17. The following describes the few inconsistencies between the Uzbek legal framework and the World Bank policy. Wherever Uzbek Laws and World Bank policies are not in agreement, the World Bank policies and principles agreed upon in this RPF will be followed within the scope of the proposed Project, regardless of the source of funding.

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18. Treatment of those without legal rights to use land. While World Bank OP 4.12 embodies the principle that a lack of legal land title does not disqualify people from resettlement assistance, under relevant Uzbek legislation, discrepancies with this principle arise. Under Uzbek law, if the construction of new public infrastructure requires the destruction of informal structures, the users of such structures are expropriated without any form of compensation. Furthermore, the users have to come up for the costs of the demolition.4 However, within the scope of this project, informal users of land without title or lease who use the land will be entitled to rehabilitation assistance or some form of support to assist persons who have lost their source of livelihood in either improving their livelihoods or at least restoring their income levels to pre-project levels.

19. Loss of Income. It should also be noted that in most cases less than 10-20% of an individual’s land holdings can be expected to be adversely affected by any land acquisition needed for the Project; thus, no significant loss of income is expected and impacts can be generally considered to be minor. While the Land Code allows the provision of compensation for lost agricultural income, there is no provision for loss of income from businesses under the Uzbek law. Therefore, under the Project, income restoration assistance will be provided to people who lose a share of their holdings, and those who lose their business or source of livelihood. This will be in the form of “Rehabilitation Assistance” meaning assistance comprising job placement, job training, cash compensation, transition support, or other forms of support to assist displaced persons in their efforts to improve their livelihoods and standards of living or at least to restore them, in real terms, to pre-displacement levels or to levels prevailing prior to the beginning of project implementation, whichever is higher. 20. Loss of Structures. It is not expected that there will be any residential structures that will need to be acquired in the Project site. However, in the event that there are other structures (barns, kiosks, small commercial buildings, etc.,) that will need to be demolished, “depreciation” will not be considered in calculating the compensation payable for affected structures, if cash is being offered as compensation. Typically, alternative structures are offered as compensation. 21. Additional measures.

Affected persons will be consulted in the course of the preparation and implementation of a specific Resettlement Plan (RP).

All households, regardless of their legal status, will be informed several times six to eight months in advance of the construction works to ensure that they are fully aware of the planned project activities and the options they will have regarding how they will be compensated for the loss of their home, business, trees, and crops. The final designs for the sewerage pipelines will indicate the number and location of structures and land currently in use, and affected persons will be called to the hokimiyat to discuss procedures and entitlements.

All households will be informed about the expected Project activities at least six months in advance, and will be instructed not to plant any trees in the rights of way of sewerage pipelines or other sewerage facilities.

4 This provision of the law is, however, not widely practiced. Normally the costs related to the demolition of informal structures are born by the authorities.

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In addition, the local authorities also agree not to require illegal occupants to pay any charges for demolishing a building or illegally planted tree.

Compensation will assist affected persons in restoring their pre-project incomes and standard of living following the implementation of the RP.

Costs of transfer of property—purchase or swap—are waived or borne by the investor, including taxes, fees, documentation and court appeals.

Compensation will be fully provided before any civil works or demolition may begin. Under Uzbek law, compensation is not provided if agricultural land is acquired for the

construction and servicing of individual housing; or the construction of schools, boarding-schools, orphanages, preschool and healthcare establishments; or for water management purposes and for the construction of irrigation and water related facilities. However, under the Project, the above mentioned conditions will not preclude payment of compensation.

Entitlements and Compensation 22. The following entitlement matrix describes the eligibility for compensation and/or assistance for impacts/losses for different types of assets and categories of project affected persons, applicable under the Project.

Entitlement Matrix

Asset Impact Affected Parties Compensation Entitlements Loss of garden plot (tomorka) or dekhan farm plot land used for planting fruit trees, vegetables, or other crops

All losses irrespective of the severity of impact

Leaseholder, owner of house, dekhan farmer (legal or illegal user or occupant of garden plot)

Land for land compensation with a plot of equal value.

Loss of building (kiosk, shop, house)

Permanent loss Users of structures, covering both legal and illegal users

House: provision of alternative house of equal value or cash compensation for the difference and for the value of any plantings, plus moving costs. Other structures: Provision of comparable alternative structures and for the value for all damages, plus moving costs.

Loss of business income

Permanent or temporary loss of income

Business owners, workers, including those who own or work in shops, kiosks, or other businesses that are not legally registered

Worker: provision of compensation equal to one year of wages based on tax declaration or official minimum salary Owner: provision of allowance for lost income during interruption (up to 3 months) plus start up costs. Provision of rehabilitation assistance if required (assistance with job placement, skills). training).

Loss of agricultural income (trees)

Permanent impact Dekhan farmers and households who lose a

Cash compensation equivalent to gross income for 1 year (based on the

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Asset Impact Affected Parties Compensation Entitlements significant share of land holdings, covering both legal and illegal land users.

average of the prior 3 years); and either (a) If given replacement plot of equal value, cash compensation based on net value of average yearly production times the number of years to grow another tree of similar productivity, plus purchase price of seedlings and starting materials, or (b) If replacement plot is not allocated, cash compensation based on net value of average yearly production times the number of years of the remaining productive life of the tree(s). Rehabilitation assistance if required (assistance with job placement, skills training).

Loss of income from annual crops during construction

Temporary impact Household, dekhan farmer, covering both legal and illegal users of land

Gross income for 1 year.

Land Acquisition Planning and Implementation 23. Once the final design of project investments is completed and accepted by the oblast and city, and the scope of any land acquisition is determined, a specific abbreviated RP will be submitted to the World Bank for approval. If approved, all compensation and other entitlements will need to be paid prior to proceeding with the civil works. The RP will include the following: Census of affected persons and an inventory of assets to ascertain their current standard of

living and assess expected impacts Description of compensation and other assistance to be provided Description of the local consultations carried out to engage affected persons in designing the

RP Local publication of the RP for comment in the appropriate medium, location, and language Institutional responsibility for implementation and procedures for grievance redress Arrangement for monitoring and implementation Time-table and budget 24. The PIU will be responsible for the application of the RPF, including commissioning and overseeing the census of affected persons, inventorying of assets, and preparing the abbreviated specific RP in collaboration with local officials and with the participation of affected persons. The implementation of the specific RP will begin only after approval by the Bank. 25. The RP will be implemented by hokimiyat level officials, for the most part, with support from the oblast administration, civil works contractors, and officials of the Mahalla Committee.

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Evaluation and compensation will be managed by the oblast level Commission established for this purpose. The Commission will include representatives from hokimiyat and raion/oblast administrations and officials representing different relevant offices (for example, vodokanal, agriculture, roads, land resource management, and registration). For purposes of eligibility, the cut off date in any location is the adoption of the final detailed design. Persons who occupy affected areas after that date are not entitled to compensation provisions. Grievance Redress Measures 26. During the land acquisition process, complaints regarding valuation, payment, support, and follow-up are inevitable. As discussed above, national laws and bylaws provide for procedures for multi-party consultations and coordination at all stages of land acquisition in order to avoid possible conflicts and violation of land users’ rights. These procedures envisage participation of all land users and their representatives in decision-making on the selection of the acquired land, on land acquisition, in preparation of land marking plans, etc., and on the extent of losses and damages incurred. Decisions and certificates, not agreed upon or not endorsed by all consultation participants (including users of land plots and users of neighboring plots), shall have no legal effect. If persons, legally entitled to use land plots subject to acquisition, disagree with decisions of organizations and institutions in matters of compensations and other decisions, they may submit their claims to local authorities (district and regional hokimiyats). 27. All project-related land acquisition complaints will follow the following steps, as will be described in the Project’s public information brochures and posted in local offices:

Affected persons take their complaints to the Chairman of the Mahalla who registers the complaint and attempts to resolve it. If the complaint is not resolved in one week, it is passed to the city hokimiyat level.

A designated person in the hokimiyat receives the complaint, registers it, and attempts to resolve it. If there is no resolution in two weeks, the person has the option to take the case to the civil court system.

While reports and grievance resolution will be handled by the hokimiyat, persons who feel that their grievances are not given adequate attention may also seek assistance from the PCU in presenting their concerns to the hokimiyat, or their case in the civil court system. Contact details will be announced to the local population at the time of RP consultation meetings.

Monitoring and Evaluation 28. Land acquisition activities are subject to internal and external monitoring. The PCU will hire an independent consultant to carry out an independent assessment of the land acquisition process to ensure that the land acquisition and provision of compensation were carried out as planned. Specific monitoring indicators will include:

Information campaign and consultation with the affected person(s) Status of land acquisition and payments for compensation Selection and distribution of replacement land areas structures Payments for loss of income

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The cost of administrative oversight and monitoring and evaluation activities will be included in the respective vodokanal or hokimiyat budget and reflected in the budget of the specific RP.

Disclosure The RPF was placed on the Bank and GOU websites; hard copies are available in the vodokanals and other government offices for public viewing. The draft RPF was presented in Uzbekistan on February 4, 2010, and disclosed on the web in country on March 4, 2010. The final RPF was submitted to the Bank’s Infoshop on March 9, 2010.

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Annex 10C: Social Assessment


Introduction 1. A social assessment (SA) for the Project was undertaken between the months of August to December 2009 in five rayons in Syrdarya. As part of the SA, a household survey of 1,491 respondents composed of 52% men and 48% women was conducted. Focus group discussions were held with 60 participants representing various groupings of local organizations. The data has generated a wealth of information which was used to improve the design of the Project. Demand for Water Supply. 2. There is a strong demand for improved water supply to the households (HH). Over 65% of the HHs surveyed said it was their most important priority among all their household needs. Currently, 76% of HHs collect water from outside their homes, mainly from a tap outside the house yard. This state of affairs is most inconvenient for women and children who have to fetch the water. Conflicts have arisen between households because of the lack of piped water. Willingness to Pay 3. House Connection. Willingness to pay for water connection is also high. About 82% of the HHs are willing to connect to the system and pay a lump sum for such connection. Based on a connection cost of 150,000 to 200,000 Soums, about 44% of the HHs said they are willing to pay in two lumpsums (half of it as advance payment and the other half when they see water flowing from the house tap) while 38% said they would pay in installments. Another 18% of the HHs said they would not be able to pay for house connection. 19. 4. Water Tariff. Willingness to pay for regular and high quality water supply also is quite high. According to the SA, 86% of the HHs are currently paying an average of 350 soums per HH per month for piped water; 14% do not pay for piped water due to poor service or “lack of money.” The majority of HHs are willing to pay from 500 to 1,000 soums per HH per month, or from about 2 to 3 times more than they are currently paying, for a more reliable supply of 24 hours per day. They would pay less for a supply of only a few hours a day. Households also indicated that if water meters were installed, they would be willing to pay the following average amounts per cu.m of water under the following conditions:

Table 1: Willingness to Pay for Water Tariff

Amount of Water Supplied Soums per cu.m If water is being supplied 24 hours a day 2,200*

If water is being supplied 12 hours a day 1,500

If water is being supplied 6 hours a day 950

* Amounts are rounded to 100 Soums. Current tariff is about 50 Soums per cu.m.

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5. Ability to Pay for Tariff. While willingness to pay for metered piped water to household is high, affordability may be another matter. Based on self assessment of affordability, about one third (32%) of the HHs surveyed said they could not afford to pay for municipal services while two thirds of HHs said they could (see Table 2 below). The Project would have to work with the Government to consider ways to help those households who cannot afford to pay for house connection and those who cannot pay their monthly tariff.

Table 2: Affordability Level of Households Affordability Level % of HHs

Not enough money even to by main food items 5% 32% Enough money for main food items, but not enough to buy new clothes

or pay for municipal services 27%

Enough money for food, clothes and municipal services, but cannot afford to buy a new TV, refrigerator, etc. 44%

68% Can buy a new TV or refrigerator, but cannot afford a new car, apartment/house or a trip to another country, etc. 22%

Can afford a new car, apartment/house or a trip to another country, etc. 2% 6. Collection of Money. Households were also concerned about who will collect the money for connection to the water supply network. There are very few organizations they trust with money. The group most trusted is the Mahalla Committee, a local citizen’s group (see table 3 below).

Table 3: Groups Trusted by HH to Collect Money for Connection to WSNs % of HHs Mahalla Committee 50% Directly to Suvokova via banks or with plastic cards 11% Private individuals 10% Do not know 11% Not able to pay 18% Total 100%

Institutional and Financial Strengthening 7. The SA reports that the “Raion utilities and Suvokova (utility organizations) have stopped working, while Shirkats (home owners association) haven’t started yet.” Funding of Suvokova (vodakanals) activities has been decentralized and Mahallas (local citizens’ group) and Shirkats have been transformed into ‘mini-Suvokova’ which bear the high costs for maintenance of water supply networks in their settlements and at the expense of households. Operational costs for Suvokova (electricity, fuel, etc.) have been consistently rising while the increase in water tariffs has been much slower. Consequently, Suvokova enterprises have been experiencing serious funding shortage for qualified workers, equipment, parts and operations and maintenance of the water supply networks. The Mahallas and Shirkats, in spite of their valiant efforts, are not able to properly maintain water-supply networks because they are not trained for the tasks nor are they the right groups to do it.

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Waste Water Disposal 8. Many sewerage systems in households, especially the apartments, are not working properly or not at all. It is expected that piped water consumption will almost double upon completion of the Project which will further aggravating the problem with waste water disposal. The conditions of public latrines (non-flush) for apartment buildings are also non-hygienic and households collect funds to have the waste taken away by trucks to the fields for agricultural purposes, which is more often in the summer and less in the winter. Consumer Protection 9. The laws of the Republic stipulate and regulate legal relationships between suppliers and consumers of services. However, the practice is seldom implemented and consumers’ interests are not properly protected. This lack of consumer protection is also evident in the supply of utilities to the households. Consumers and residents expressed skepticism that the proposed Syrdarya Water Supply Project will be implemented given the poor past experience. Recommendations 10. The SA yielded rich information to be taken into account in the design and implementation of the Syrdarya Water Supply Project. Some of these recommendations are: • Consumers should be informed adequately about the Project and the actual cost for connecting to and tariff payment for the piped water supply to their households; • Agreements on connection and use should be signed between Suvokova and consumers with proper observance of rights and obligations by parties to these agreements as specified in the legislation; • Connection to households and installation of water meters should be done only after signing of the agreements; a partial fee should be paid in advance of the connection and the remaining balance paid only after the connection is completed; • Consumers prefer to begin payment for connection in late summer or early autumn after harvesting or selling their cattle; or get low interest loans; for those who cannot afford to pay for connecting, local leaders suggest some form of cross subsidy from wealthier households; • Consumer representatives from the Mahallas and Shirkats should be involved in the technical design, selecting the contractors for the construction and in final acceptance of the completed works; • Attention should be given to waste water disposal when water supply systems are rehabilitated; • Training and other support should be provided to the Mahallas and Shirkats for tariff collection, operation and maintenance of the water system as well as other utilities, such as electricity and gas.

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Annex 11: Project Preparation and Supervision


Planned Actual PCN review 03/12/2009 03/12/2009 Initial PID to PIC 03/26/2009 04/15/2009 Initial ISDS to PIC 03/26/2009 04/02/2009 Appraisal 03/22/2010 01/12/2011 Negotiations 05/11/2010 01/13/2011 Board/RVP approval 07/13/2010 03/01/2011

Planned date of effectiveness 10/13/2010 05/1/2011 Planned closing date 12/31/2017

Key institutions responsible for preparation of the Project: Uzkomunkhizmat Borrower: Republic of Uzbekistan Implemented by: Uzkommunkhizmat and Syrdarya Vodokanal Bank staff and consultants who worked on the Project included: Name Title Unit Takao Ikegami Senior Sanitary Engineer ECSS6 Pier Francesco Mantovani Lead Water & Sanitation Specialist (TTL) ECSS6 Rinat Iskhakov Operations Officer ECSS6 Kishore Nadkarni Consultant ECSS6 Anna Cestari Water Resources Specialist ECSS6 Klas Ringskog Consultant ECSSD Yarissa Lyngdoh Sommer Operations Analyst ECSSD Joseph Formoso Senior Finance Officer CTRFC John Ogallo Senior Financial Management Specialist ECSC3 Galina Alagardova Financial Management Specialist ECSC3 Yuling Zhou Senior Procurement Specialist ECSC2 Nikolai Soubbotin Senior Counsel LEGEM Ghada Youness Senior Counsel LEGEM Mary P. Judd Senior Anthropologist EASER Fasliddin Rakhimov Procurement Specialist ECSPS Janis Bernstein Senior Environmental Specialist ECSS4 Ruxandra Floroiu Environmental Engineer ECSS3 Simone Giger Social Development Specialist ECSS4 Gulnora Kamilova Program Assistant ECCUZ Milane Reyes Program Assistant ECSSD Maria Teresa Lim Program Assistant ECSSD

Bank funds expended to date on project preparation:

1. Bank resources: $277,489.92 2. Trust funds: $935,000.00 3. Total: $1,135,077.31

Estimated Approval and Supervision costs:

1. Remaining costs to approval: $30,000 2. Estimated annual supervision cost: $120,000

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Annex 12: Governance


Uzbekistan Country Context

1. Uzbekistan’s governance structure is hierarchical, with comparatively strong executives at every level of government. Political and socioeconomic decisions are as a rule taken and executed in a top-down manner, and upward accountability – from the local to the central level and from lower to higher layers in state bodies – is strong. While economic management and governance historically have been characterized by limited transparency and citizen input, practices in the municipal services sector indicate increasing openness, particularly at the local level.

2. Moreover, as previous experience has shown, GOU is willing to involve civil society in the implementation of state programs and donor-financed projects, provided that such involvement is likely to enhance program or project effectiveness. As part of the preparation activities for the Syrdarya Water Supply Project, GOU commissioned the implementation of a comprehensive social assessment which involved broad public participation.

3. Uzbekistan’s NGO sector is in a very early stage of development. However, there are a number of NGOs operating in the social and environmental spheres which demonstrate a relatively high degree of commitment and capacity. Furthermore, the country can draw on a unique system of “mahallas” (territorial subdivisions in urban settings, neighborhoods) and their institutional representations, the so-called mahalla committees (MCs). While historically MCs were autonomous social institutions - and thus true representatives of civil society -, during Soviet times they were gradually turned into quasi-state bodies. Nowadays, MCs can be best seen as “intermediaries” between the state and civil society. While they are regulated by the government, they strive to improve the welfare and well-being of their community and are thus an important stakeholder in any municipal services project.

Project Governance Plan

4. To mitigate the fiduciary risks associated with doing business in Uzbekistan, the Project will pay particular attention to the strict enforcement of the Bank’s procurement rules for all contracts. Further governance measures will include: Supporting the PCU through reputable consultants, introducing capacity-building measures for water utility staff and other project stakeholders, strengthening Bank supervision of the Project’s fiduciary, social and technical aspects, and proactively communicating the Projects’ objectives and activities in order to promote bottom-up support for the Project and control over its execution.

5. More concretely, the plan to strengthen governance involves the following:

(a) The SVK and the PCU will have fiduciary responsibility for contracts. In addition, the Project will finance qualified project supervision consultants (PSCs) to help build capacity and assure the transparency/integrity of procurement. The PSCs will focus on the reliability of contract cost estimates, over-pricing (by analyzing bids) and variations, and review the complaint mechanism.

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(b) During implementation, SVK and the PCU will apply the Bank’s Guidelines for Procurement of Consultants, which include special provisions for preventing fraud and corruption. The Financing and Subsidiary Credit Agreements will require SVK and the PCU to ensure the Project is carried out according to provisions of the Bank’s Anti-Corruption Guidelines (discussed below).

(c) Internal controls in SVK will be strengthened, and internal audit capacity will be established with assistance of experienced FM consultants, who will analyze the current internal control system including internal audit arrangements at the SVK; elaborate action plan aimed at improvement of the internal control system and assist SVK staff in its implementation. Moreover, the FM Consultants will train staff on how to address deficiencies revealed by financial and technical audits The PCU will hire technical auditors to inspect and review internal control and procurement procedures.

(d) The Project will support a public awareness-raising and information campaign designed to promote local ownership of the Project and community participation to support improvements, as well as to strengthen the consumers’ voice so they can demand and secure better services. In addition, the PCU will publish the costs, deadlines, and main characteristic of each contract for works in local newspapers and on information tables/billboards set up at the Project sites. Major deviations from the original contract terms will also be presented to the public.

(e) In order to verify whether the Project actually delivers the expected results to its beneficiaries, consumer satisfaction surveys and beneficiary assessments will be carried out periodically. The findings of these assessments will serve as inputs into the Project monitoring system and will be an important yardstick for judging the Project’s performance.

(f) SVK will establish a simple but effective complaints’ handling system, with detailed records kept of each complaint and the actions taken to investigate and solve it. The concrete complaints handling mechanisms are described in more detail below.

6. Under the Project, governance and anticorruption measures will focus on improving government capacity to use its own resources and Bank resource transfers, thereby ensuring compliance with the Bank’s fiduciary requirements. Because in-depth assessments of procurement and financial management capacity (made by the team during project preparation) have rated risks as “high,” and provide mitigation measures, the following actions were identified as the most appropriate to ensure full compliance with the Bank’s fiduciary policy and strengthen governance in the water sector:

(a) Hiring a Project Supervision Consultant (PSC). The PCU will be supported by the PSC, whose tasks will include (a) preparing procurement notices, bidding documents, bid evaluation reports, (b) overseeing quality control of works, (c) preparing progress reports, etc. This should lead to better control of the implementation schedule and assure quality for the works.

(b) Procurement Evaluations. The PSC will monitor the procurement evaluations to ensure transparency and independence of the process. Based on the information provided by the PCU and PSC, procurement will be reviewed comprehensively during the Bank’s

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supervision and will be the subject of detailed reports. These will include recommendations, including potential investigations, to government authorities.

Transparency of Procurement Processes

7. To ensure competition, equal access, probity, and accountability the following areas will be closely monitored: (a) disclosure; (b) procurement and implementation; (c) the independence of the evaluation committee; (d) collusion risks and (e) forgery and fraud risks.

8. Enhanced disclosure. To secure transparency, all procurement processes will be placed in the United Nations Development Business (UNDB) and dgMarket publications starting with GPN, SPN, and REOI for large consulting services. This will include contract award details to all bidders with a summary of the evaluation results. Key documents related to procurement will be made available to the public electronically as well as on paper, including, but not limited to: (a) requests for expressions of interest; (b) requests for proposals or bidding documents; (c) minutes of bid-opening meetings; (d) decisions of contract awards; (e) process of evaluations; and (f) decisions taken after contracts are awarded, such as time extensions or price revisions. A manual system for obtaining bid documents will also be used for those who need them. Prequalification documents and bidding documents, as well as requests for proposals, will be available through the Internet at no charge.

9. Improved procurement and implementation oversight. SVK and the PCU will inform the public through the local media and other means that representatives of civil society groups are permitted to attend public bid openings and contract signings as observers. In addition, technical observers will be invited from local universities or other independent institutions. Observers will be authorized to sign the attendance list for the procurement and selection processes. Through these measures, SVK and the PCU will have established a mechanism whereby the media and civil society can become involved in monitoring progress during implementation. This mechanism will include regular press releases about project implementation.

10. Independence of evaluation committees. Selection criteria and processes for the nomination of procurement committees will be agreed upon and formally adopted by the GOU. Committee members will have technical expertise and be required to declare actual or potential conflicts of interest (to the Committee) before serving. Independent evaluators will be included, for example, from design institutes and technical universities. Members of an evaluation committee, or those involved in any procurement process will disclose to the head of the Tender Evaluation Committee, that they or members of their immediate family are related or otherwise connected to members of the boards of directors or commissioners of the bidders and/or consultants participating in any procurement package (“Interested Member”). Interested members shall not participate in the evaluation process, or, if they are officials, shall not participate in decisions relating to the evaluations or contract awards. The PCU will adopt an institutional code of professional ethics, with guidelines and consequences for non-compliance, acceptable to the World Bank. The code will establish remedial actions and sanctions for cases of fraud and corruption that are reported and for which evidence is found. This will include sanctions for staff proven to be involved in such cases.

11. Mitigation of collusion risk. The PSC will monitor and support staff in carrying out procurement of all project contracts. The PSC will:

101

Monitor the bidding process and be an observer at bid openings Check the financial bids/proposals for any signs of collusion (using tracking

software or other means). The results of this analysis will be included in the bid evaluation report.

In all contracts, evidence of fraud, corruption, collusion and coercive practices will result in the termination of the contract, possibly with additional penalties (such as fines and blacklisting), according to with Bank and/or Government regulations.

The following standard procurement monitoring will involve: All procurement above the thresholds determined in the PAD and Procurement Plan

will be subject to the Bank’s prior review. As a general rule, no pre-bid meetings shall be conducted. All specifications shall be

defined clearly in the bidding documents or Requests for Proposals. Bidders may seek clarifications through written correspondence and these will be answered. Guidelines providing for this will be in the Project Operations Manual.

All contracts must be awarded within the original bid validity period. Any extension of time shall be made in consultation with the Bank or require the Bank to issue a “no objection” statement.

Works contracts are to be supervised by independent supervision consultants. For consulting services, the SVK, and PCU will ensure the technical evaluation

report is completed within four weeks after proposals are submitted and the proposal for the contract award made available, along with the draft contract, within four weeks after the technical evaluation report is completed or the Bank’s no-objection is presented (on the technical evaluation report), whichever occurs later.

12. Mitigation of forgery and fraud risks. SVK and PCU will maintain project and procurement records that include advertisements filed, bidding documents or requests for proposals, bid or proposal evaluation reports, contract awards and final contract documents. They will be required to keep electronic copies of all important documents through an appropriate e-filing system. Timelines for procurement decisions will be agreed upon between the PCU and Bank to establish service standards, avoid procurement delays, and reduce opportunities for corruption. These will be defined in the Project Operation Manual. Timelines for disbursements for interim payment certificates and invoices will be agreed upon between the PCU and Bank; these will also be presented in the Project Operational Manual.

Financial Audits

13. The PIE will be required to conduct:

Annual financial audits by independent auditors, following accepted international standards.

Specific forensic audits, if there is a major allegation of corruption during implementation.

102

Enhanced Bank Supervision

14. Bank supervision will be frequent (two mission a year) and will include technical staff, social development specialists, financial management specialists (FMS), and procurement accredited staff (PAS). In addition to monitoring overall progress, the mission will review the procurement processes (on a sample basis, but excluding the procurement packages subject to Bank prior review) and financial transactions in order to identify possible fraud or corruption at an early stage, and to alert the Bank and Government institutions for further actions, where needed. Bank technical supervision will include periodic and random site visits, additional checks over the PSC function, as well as unstructured interviews with project beneficiaries at different stages of project progress.

Complaint Handling System

15. A complaint-handling mechanism, which will include a project complaint log and filing system, will be established to record and monitor the follow up of each complaint. In order to ensure the effectiveness of the complaint-handling mechanism, information on its existence will be disseminated to all project stakeholders (SVK staff, consumers, civil society organizations, potential contractors and consultants), and the concrete procedures necessary to file a complaint will be publicized through different channels (local media, mahalla committees, references in procurement documents etc). –

16. The PCU shall respond to all complaints within seven days of their being received, and all correspondence shall be copied to the Bank. Contractors, suppliers, consultants or civil society organizations can lodge complaints directly to the World Bank Investigation Unit (INT) through the following channels:

By email, to [email protected] Through the Bank website: http://www.worldbank.org/integrity Through the Fraud and Corruption Hotline available at all times with translation

services. Toll-free: +1-800-831-0463, or Collect Calls/Reverse charge: +1-704-556-7046.

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Annex 13: Documents in the Project File


1. Mission Documents: Terms of Reference, Aide-Memoires, Letters, Back-To-Office Reports

2. Concept Review Package (Project Concept Note, ISDS, PID)

3. Minutes of the PCN Review 4. Technical, Commercial and Financial Feasibility Assessment Report 5. Final Environmental Impact Assessment

6. Final Resettlement Policy Framework 7. Focus Group Community Meetings Report

8. Safeguards Consultation Meeting Minutes

9. Procurement Documents (Procurement Plan, No-Objection and Objection Letters, Bid

Documents, Request for Proposals, Consultants’ Contracts and Deliverables, etc.)

10. Specimen Signatures Letter

11. Auditing Documents

104

Annex 14: Statement of Loans and Credits


Original Amount in US$ Millions

Difference between expected and actual

disbursements

Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev’d

P110538 2010 FERGHANA Valley Water Resources Mgt 0.00 65.54 0.00 0.00 0.00 63.60 4.26 0.00

P112719 2010 BUKHARA & SAMARKAND SEWERAGE PROJECT

0.00 55.00 0.00 0.00 0.00 54.54 4.17 0.00

P118737 2010 ENERGY EFF - INDUST ENTERPRISES 0.00 25.00 0.00 0.00 0.00 24.33 0.00 0.00

P107845 2009 BASIC EDUC - Phase Two 0.00 28.00 0.00 0.00 0.00 28.43 2.49 0.00

P109126 2008 RURAL ENTERPRISE SUPPORT PROJECT II

0.00 67.96 0.00 0.00 0.00 50.20 5.49 0.00

P094042 2007 BASIC EDUC 0.00 15.00 0.00 0.00 0.00 4.43 3.99 3.96

P051370 2005 HEALTH 2 0.00 40.00 0.00 0.00 0.00 8.95 7.36 1.37

P009127 2003 DRAINAGE, IRRIG & WETLANDS IMPRVMT

35.00 25.00 0.00 0.00 0.00 17.18 14.16 0.00

Total: 35.00 321.50 0.00 0.00 0.00 251.66 41.92 5.33

UZBEKISTAN

STATEMENT OF IFC’s Held and Disbursed Portfolio In Millions of US Dollars

Committed Disbursed

IFC IFC

FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic.

1996 ABN AMRO Uzbek 0.00 1.00 0.00 0.00 0.00 1.00 0.00 0.00

1999 Asaka Bank 2.00 0.00 0.00 0.00 2.00 0.00 0.00 0.00

2003 Asaka Bank 4.26 0.00 0.00 0.00 4.26 0.00 0.00 0.00

1999 NBU-SME 3.73 0.00 0.00 0.00 3.73 0.00 0.00 0.00

2000 SEF Asia Granite 1.00 0.00 0.32 0.00 1.00 0.00 0.32 0.00

1999 SEF Elma Cheese 0.51 0.00 0.00 0.00 0.51 0.00 0.00 0.00

1997 SEF Fayz 0.01 0.30 0.00 0.00 0.01 0.30 0.00 0.00

2001 SEF Hamkorbank 0.50 0.00 0.00 0.00 0.50 0.00 0.00 0.00

2001 SEF Parvina 0.00 0.00 0.82 0.00 0.00 0.00 0.27 0.00

1995 UZBEK LEASING 0.00 0.36 0.00 0.00 0.00 0.36 0.00 0.00

2000 UZBEK LEASING 0.00 0.18 0.00 0.00 0.00 0.18 0.00 0.00

2003 UZBEK LEASING 1.75 0.00 0.00 0.00 0.25 0.00 0.00 0.00

Total portfolio: 13.76 1.84 1.14 0.00 12.26 1.84 0.59 0.00

Approvals Pending Commitment

FY Approval Company Loan Equity Quasi Partic.

2007 Hamkorbank II 0.00 0.00 0.00 0.00

Total pending commitment: 0.00 0.00 0.00 0.00

105

Annex 15: Country at a Glance


Uzbekistan at a glance 12/9/09

Euro pe &P OVER T Y and SOC IA L C entra l Lo w-

Uzbekistan A sia inco me2008Population, mid-year (millions) 27.3 441 973GNI per capita (Atlas method, US$) 900 7,418 524GNI (Atlas method, US$ billions) 24.7 3,274 510

A verage annual gro wth, 2002-08

Population (%) 1.3 0.1 2.1Labor fo rce (%) 3.4 1.0 2.7

M o st recent est imate ( latest year available, 2002-08)

Poverty (% of population below national poverty line) .. .. ..Urban population (% of to tal population) 37 64 29Life expectancy at birth (years) 68 70 59Infant mortality (per 1,000 live births) 34 21 78Child malnutrition (% of children under 5) 4 .. 28Access to an improved water source (% o f population) 88 95 67Literacy (% o f population age 15+) .. 98 64Gross primary enro llment (% of school-age population) 94 98 98 M ale 96 99 102 Female 93 97 95

KEY EC ON OM IC R A T IOS and LON G-T ER M T R EN D S

1988 1998 2007 2008

GDP (US$ billions) .. 15.0 22.3 27.9

Gross capital formation/GDP 27.2 20.2 19.4 23.0Exports of goods and services/GDP .. 22.5 40.3 44.9Gross domestic savings/GDP 21.0 19.9 29.5 29.1Gross national savings/GDP .. 19.5 38.7 35.8

Current account balance/GDP .. -0.7 19.3 12.8Interest payments/GDP .. 1.0 0.8 0.5Total debt/GDP .. 22.4 17.6 14.3Total debt service/exports .. 10.3 6.8 5.0Present value of debt/GDP .. .. 16.2 12.0Present value of debt/exports .. .. 32.3 24.3

1988-98 1998-08 2007 2008 2008-12(average annual growth)GDP -1.7 6.0 9.5 9.0 7.5GDP per capita -3.7 4.7 7.9 7.2 6.0Exports of goods and services .. 13.9 40.7 39.5 1.2

ST R UC T UR E o f the EC ON OM Y

1988 1998 2007 2008(% o f GDP)Agriculture 29.3 31.3 24.0 21.4Industry 35.8 26.2 32.0 30.8 M anufacturing 25.1 10.5 12.6 12.1Services 34.9 42.5 44.0 47.9

Household final consumption expenditure 76.8 59.6 53.8 53.2General gov't final consumption expenditure 2.2 20.5 16.7 17.8Imports of goods and services .. 22.8 30.2 38.8

1988-98 1998-08 2007 2008(average annual growth)Agriculture -0.3 6.2 6.1 4.5Industry -4.3 4.1 6.6 6.8 M anufacturing .. 1.9 3.0 4.0Services -1.7 7.0 14.8 13.1

Household final consumption expenditure .. .. .. ..General gov't final consumption expenditure .. .. .. ..Gross capital formation -5.1 6.7 22.9 16.7Imports of goods and services .. 10.6 44.3 61.1

Note: 2008 data are preliminary estimates.

This table was produced from the Development Economics LDB database.

* The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete.

0

5

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03 04 05 06 07 08

GCF GDP

Growth of capital and GDP (%)

-20

0

20

40

60

80

03 04 05 06 07 08

Exports Imports

Growth of exports and imports (%)

Uzbekistan Low-income group

Development diamond*

Life expectancy

Access to improved water source

GNIpercapita

Grossprimary

enrollment

Uzbekistan Low-income group

Economic ratios*

Trade

Indebtedness

Domesticsavings

Capital formation

106

Uzbekistan

P R IC ES and GOVER N M EN T F IN A N C E1988 1998 2007 2008

D o mestic prices(% change)Consumer prices .. 29.0 6.8 7.4Implicit GDP deflator -1.3 39.0 24.0 19.9

Go vernment f inance(% of GDP, includes current grants)Current revenue .. 40.2 31.7 31.6Current budget balance .. 7.2 4.5 2.9Overall surplus/deficit .. -3.8 4.5 5.1

T R A D E1988 1998 2007 2008

(US$ millions)Total exports (fob) .. 3,048 8,026 11,130 Cotton .. 1,198 1,127 1,066 Gold .. 788 1,144 3,991 M anufactures .. 198 1,545 1,516Total imports (cif) .. 3,125 5,730 8,424 Food .. 512 434 700 Fuel and energy .. 16 174 414 Capital goods .. 1,554 3,094 4,884

Export price index (2000=100) .. 104 164 189Import price index (2000=100) .. 102 118 131Terms of trade (2000=100) .. 102 140 145

B A LA N C E o f P A YM EN T S1988 1998 2007 2008

(US$ millions)Exports of goods and services .. 3,372 8,991 12,539Imports of goods and services .. 3,417 6,736 10,850Resource balance .. -45 2,255 1,690

Net income .. -101 62 -84Net current transfers .. 43 1,990 1,980

Current account balance .. -103 4,307 3,585

Financing items (net) .. 104 -2,153 373Changes in net reserves .. -1 -2,155 -3,958

M emo :Reserves including gold (US$ millions) .. 1,168 2,593 2,684Conversion rate (DEC, local/US$) .. 94.5 1,263.5 1,318.8

EXT ER N A L D EB T and R ESOUR C E F LOWS1988 1998 2007 2008

(US$ millions)Total debt outstanding and disbursed .. 3,363 3,931 3,995 IBRD .. 177 317 313 IDA .. 0 43 55

Total debt service .. 352 754 692 IBRD .. 10 43 47 IDA .. 0 0 0

Composition of net resource flows Official grants 0 25 70 80 Official creditors .. 198 -2 42 Private creditors .. 432 -199 -146 Foreign direct investment (net inflows) .. 140 739 918 Portfo lio equity (net inflows) 0 0 0 0

World Bank program Commitments .. 82 15 68 Disbursements .. 10 33 28 Principal repayments .. 0 25 29 Net flows .. 10 8 -1 Interest payments .. 10 18 18 Net transfers .. 0 -10 -19

Note: This table was produced from the Development Economics LDB database. 12/9/09

0

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02 03 04 05 06 07 08

Current account balance to GDP (%)

0

3,000

6,000

9,000

12,000

02 03 04 05 06 07 08

Exports Imports

Export and import levels (US$ mill.)

0

10

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GDP deflator CPI

Inflation (%)

A: 313B: 55

D: 564

E: 1,744

F: 1,108

G: 211

A - IBRDB - IDA C - IMF

D - Other multilateralE - BilateralF - PrivateG - Short-term

Composition of 2008 debt (US$ mill.)

107

Annex 16: Maps

K A R A K A L P A K S T A N

N A V O I

B U K H O R O

SAMARKAND

K A S H K A D A R YA

TASHKENT

JIZZAKH

Am

uD

arya

Syr Darya

Am

uD

ar ya

Zerav shan

Uchkuduk

Muruntau

Kokand

Denau

Gagarin

Muynak

Navoi

Nukus

Termiz

Qarshi

Bukhoro

Jizzakh

Urgench

Guliston

Namangan

Samarkand

TASHKENT

Fergana

Andizhan

Adelunga Toghi(4301 m)

NAMANGANANDIJON

TURKMENISTAN

A F G H A N I S T A N PAKISTAN

TAJIKISTAN

KYRGYZREPUBLIC

K A Z A K H S T A N

KAZAKHSTANTo

Atyrau

ToMary

ToKabul

ToKhorugh

ToKashi

ToBishkek

ToQyzylorda

ToQyzylorda

SYRDARYASYRDARYA

K A R A K A L P A K S T A N

N O V O I

B U K H A R A

SAMARKAND

K A S H K A D A R YA

SURKHANDARYA

SYRDARYA

TASHKENT

NAMANGANANDIZHAN

FERGANA

KHOREZM

DZHIZAK

Uchkuduk

Muruntau

Kokand

Denau

Gagarin

Muynak

Navoi

Nukus

Termiz

Qarshi

Bukhara

Dzhizak

Fergana

Urgench

Guliston

AndizhanNamangan

Samarkand

TASHKENT

TURKMENISTAN

A F G H A N I S T A N PAKISTAN

TAJIKISTAN

KYRGYZREPUBLIC

K A Z A K H S T A N

KAZAKHSTAN

Am

uD

arya

Syr Darya

Am

uD

ar ya

Zerav shan

Syr Dar ya

AralSea

1990 level of Aral Sea



To Atyrau

To Mary

To Kabul

To Khorugh

To Kashi

To Bishkek

To Qyzylorda

To Qyzylorda

T u r a nL

ow

l

an

d

K y z y lK

um

U s t y u r tP l a t e a u

Adelunga Toghi(4301 m)

55°E

45°N45°N

40°N40°N

60°E

60°E

65°E

65°E

70°E

70°E

UZBEKISTAN

This map was produced by the Map Design Unit of The World Bank.The boundaries, colors, denominations and any other informationshown on this map do not imply, on the part of The World BankGroup, any judgment on the legal status of any territory, or anyendorsement or acceptance of such boundaries.

0 50 100 150

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200 Kilometers

IBRD 37545

JAN

UA

RY 2010

UZBEKISTANSYRDARYA

WATER SUPPLY PROJECTPROJECT OBLASTCITIES AND TOWNSOBLAST (VILOYATI) CAPITALSNATIONAL CAPITALRIVERSMAIN ROADSRAILROADSOBLAST (VILOYATI) BOUNDARIESINTERNATIONAL BOUNDARIES