Technical Assistance Report

Project Number: 40007 June 2006

Republic of Uzbekistan: Preparing the Djizzak and Surkhandarya Rural Water Supply and Sanitation Sector Project (Financed by the Japan Special Fund)

The views expressed herein are those of the consultant and do not necessarily represent those of ADB’s members, Board of Directors, Management, or staff, and may be preliminary in nature.

CURRENCY EQUIVALENTS (as of 11 May 2006)

Currency Unit – sum (SUM) SUM1.00 = $0.0008 $1.00 = SUM1,221

ABBREVIATIONS

ADB – Asian Development Bank DWCU – drinking water consumers union EU – European Union FFS – final feasibility study O&M – operation and maintenance TA – technical assistance UCSA – Uzbekistan Communal Services Agency WSS – water supply and sanitation

TECHNICAL ASSISTANCE CLASSIFICATION

Targeting – General intervention Classification Sector – Water supply, sanitation, and waste management Subsector – Water supply and sanitation Themes – Inclusive social development, environmental sustainability Subthemes – Human development, natural resource conservation

GLOSSARY

oblast – province rayon – district

NOTES (i) The fiscal year (FY) of the Government of Uzbekistan ends on 31 December. (ii) In this report, "$" refers to US dollars.

Vice President Liqun Jin, Operations 1 Director General J. Miranda, Central and West Asia Department (CWRD) Officer-in-Charge I.H. Keum, Social Sectors Division, CWRD

Team leader P. Wallum, Senior Project Economist, CWRD Team members R. Mamatkulov, Project Specialist, CWRD

o 75o 00'E 60o 00'E 55 00'E

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S e U a Z o o BE KYRGYZ REPUBLIC 45 00'N 45 00'N KIS Aral Sea o T o 40 00'N AN 40 00'N TURKMENISTAN KAZAKHSTAN TAJIKISTAN PROJECT AREA

AFGHANISTAN

55o 00'E 75o 00'E Muynak

Kungrad 69o 00'E KARAKALPAKSTAN

Khodzheyli Nukus NAVOI A m u d a r Uchkuduk y a R iv e KYRGYZ r REPUBLIC Urgench Turtkul KHOREZM Zarafshan Chirchik TASHKENT UZBEKISTAN Angren Namangah Andijan NAMAGANH DJIZZAK AND SURKHANDARYA S TASHKENT y rd ANDIJAN a Kokand r RURAL WATER SUPPLY AND DJIZZAK ya R . Gulistan SYRDARYA FERGANA Fergana SANITATION SECTOR PROJECT BUKHARA Navoi Sukh 39 o 00'N Gazh SAMARKAND 39 o 00'N Djizzak Jordan Bukhara Project Area (Djizzak and Surkhandarya) Samarkand National Capital Provincial Capital TAJIKISTAN City/Town Main Road Karshi Oklya T U R K M E N I S T A N Railway KASHKADARYA N River Denau Provincial Boundary International Boundary 0 50 100 150 SURKHANDARYA Boundaries are not necessarily authoritative. Kilometers Termez 0 6 - 0 5 5 4

AFGHANISTAN H 60o 00'E 69o 00'E R

I. INTRODUCTION

1. The Government of Uzbekistan asked the Asian Development Bank (ADB) for technical assistance (TA) to prepare the Djizzak and Surkhandarya Rural Water Supply and Sanitation Sector Project. The TA is included in the 2006–2008 country strategy and program update.1 Fact-finding was undertaken in January 2006 and an understanding was reached with the Government on the TA’s impact and outcome, scope, cost and financing, implementation arrangements, and terms of reference2. The design and monitoring framework is in Appendix 1.

II. ISSUES

2. Uzbekistan suffers from poor water supply and sanitation (WSS) services and a shortage of safe drinking water, especially in rural areas. This has many undesirable consequences. Consumers incur significant time, costs, and inconvenience in coping with poor services and many collect water from rivers, irrigation channels, and wells. Unsafe WSS services are responsible for deteriorating public health and increasing expenditure on health, with the poor being affected most. Inadequate WSS systems result from deficient design, inferior construction materials and methods, damaged water supply equipment, the collapse of institutional arrangements during the country’s economic transition, and insufficient maintenance and rehabilitation. Given the lack of funds and the poor state of repair of facilities, the quality of WSS services will continue to deteriorate. The capacity of the drinking water consumers unions (DWCUs) and local governments to implement projects and undertake operation and maintenance (O&M) of constructed facilities needs to be enhanced. There are plans to expand water supply coverage from the current 65% of the rural population to 90% by 2010.

3. Since independence in 1991, Uzbekistan has been making a difficult transition to a market-based economy. The social and economic costs of the transition have been sharp and immediate. Closing of facilities, privatization of public enterprises, and a falling budget for social sectors have resulted in service disruption and major price increases for these services. Social spending, including social assistance and provision of social services including WSS, has declined sharply. A sharp decline in output since independence has contributed significantly to an increase in poverty. The economic transition has been accompanied by increasing inequality in incomes and in access to services such as safe and reliable water supply. Health and demographic indicators show greater human deprivation in rural areas.

4. The Government is conscious of the urgent need to improve rural WSS services through policy and institutional reforms and the repair and upgrading of existing infrastructure. It has prepared a national plan for the WSS sector, including specific targets, actions, and a medium- term sector investment program. The sector strategy includes (i) improving the capacity of DWCUs and local governments in administration, financial management, and O&M; (ii) integrating water supply development with improvements to sanitation facilities; and (iii) increasing access to safe and reliable WSS services. In consultation with partner organizations, the Government has adopted a community management approach to the delivery of rural WSS services to ensure they are sustainable.

5. The project area will cover two oblasts (provinces): Djizzak and Surkhandarya. These were selected because of an urgent need to improve the poor condition of their basic rural WSS

1 ADB. 2006. Country Strategy and Program (2006-2010): Uzbekistan. Manila. 2 This TA first appeared in ADB Business Opportunities on 6 February 2006.

2 facilities. The Project will link with ongoing ADB assistance in both Djizzak (the Urban Water Supply Project3) and in Surkhandarya (the Amu Zhang Irrigation Project4). In these two oblasts, about 300 of a total of 1,400 villages are without safe and reliable WSS services. Of the 300 villages, about half have water supply systems in need of rehabilitation and the other half need new systems. The proposed project is expected to cover about 200 of the poorest and most in need villages, with populations ranging from 300 to 8,000 people. In total, the Project will cover about 250,000 persons. About half of the villages will be covered by individual groundwater supply systems serving up to 20 villages. The other half will be linked to group water pipelines or interregional trunk mains.

6. ADB will help the Government to improve WSS services in the rural areas. This will include helping to implement the national WSS sector plan, strengthen the local institutional capacity for the sustainable management of sector facilities, improve the quality and efficiency of safe WSS services, and rehabilitate and develop rural WSS facilities. The Project will enhance rural WSS coverage, and contribute to improving living and health conditions, as well as the institutional capabilities of DWCUs and local governments. Improving the health conditions of the poorest, in addition to addressing poverty reduction directly, will lessen the fiscal burden on local and central governments in the future, and thus contribute to a better allocation of resources in the economy. The TA is needed to prepare the Project and a program of capacity building for DWCUs and local governments.

III. THE TECHNICAL ASSISTANCE

A. Impact and Outcome

7. The TA will (i) review the sector WSS investment program, the national WSS sector plan, and the capacity of institutional arrangements; (ii) prepare four representative core subprojects for upgrading of WSS facilities; and (iii) prepare a sector project that will increase WSS service coverage in the two selected oblasts to 90% by 2012, thereby improving the health and quality of life of their residents.

8. The Project will fulfill the immediate demand for potable WSS services in the project area. It will cover (i) rehabilitation and extension of piped water supply services; and (ii) sanitation, including improvements to public bathhouses and school latrines. The stakeholders and beneficiaries will participate in designing the Project through consultations and socioeconomic surveys that will be undertaken for all subprojects. During project design, consultation with stakeholders and beneficiaries will include women’s groups and poor communities in the project area. The Project will address poverty reduction, social aspects, and gender issues.

B. Methodology and Key Activities

9. The TA will consist of two parts (i) a review of the WSS sector road map, plan, sector investment program, and capacity of institutions; and (ii) preparation of the sector project.

3 ADB. 2001. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Republic of Uzbekistan for the Urban Water Supply Project. Manila. 4 ADB. 2003. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Republic of Uzbekistan for the Amu Zhang Irrigation Project. Manila.

3

10. Part A: National WSS Sector Plan, Investment Program, and Capacity of Institutions. Consultants will carry out a review of the WSS sector road map, plan, and investment program. The review will include an assessment of physical, institutional, and human resources and a description of current facilities, planned future coverage, cost recovery, O&M arrangements, private sector involvement, and related policies. The review will pay particular attention to integrated water resources management and environmental concerns to ensure water resources are protected at regional and local levels.

11. Part B: Sector Project. Consultants will prepare the sector project, including four core representative subprojects (two in each oblast) and appropriate capacity-building measures. The subproject feasibility studies will cover (i) the technical, economic, and financial feasibility of the subproject components; (ii) cost estimates; (iii) an implementation schedule for each component; (iv) resettlement, poverty, social, and gender analysis (the initial poverty and social analysis is in Appendix 2); (v) community participation; and (vi) environmental considerations. The Project has an indicative total estimated cost of about $35 million. The Government has asked ADB to consider a loan for $25 million for the construction of new WSS systems and rehabilitation of existing systems in the two oblasts. The remaining cost of about $10 million will be financed by the central and local governments.

12. The Project will be based on consultations with stakeholders and beneficiaries (including household surveys, interviews, and focus group discussions); the estimated demand for WSS services in the project area; and the service delivery capacity of the participating DWCUs and local governments. Project formulation, with attention to financing aspects (local and central), will include analysis of cost recovery; community ownership; private sector participation; financing options; fiscal impact; and sustainability (technical, financial, and institutional) for all subprojects. Analysis of the Project’s impact on poverty reduction will also be undertaken. The consultants will undertake project framework analysis, including problem and solution analysis, to assist in the design of the Project and the selection of indicators for monitoring during implementation. The TA consultants will coordinate their work with three ongoing ADB-financed loan projects—Urban Water Supply Project (footnote 2), Amu Zhang Irrigation Project (footnote 3), Western Uzbekistan Rural Water Supply Project,5 and Kashkadarya and Navoi Rural WSS Sector Project.6

C. Cost and Financing

13. The TA is estimated to cost $930,000 equivalent. The Government has asked ADB to finance $400,000 equivalent. This portion of the TA will be financed on a grant basis by the Japan Special Fund, funded by the Government of Japan. The Government has also asked the European Union (EU) through EuropeAid to cofinance the TA through parallel financing of $250,000 equivalent. The Government will finance the balance of the local currency costs, equivalent to $280,000, by providing counterpart staff, office space, furniture, administrative support services, and logistics. Details of the cost estimates and financing plan are in Appendix 3. The Government has been informed that approval of the TA does not commit ADB to finance any ensuing project.

5 ADB. 2002. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Republic of Uzbekistan for the Western Uzbekistan Rural Water Supply Project. Manila. 6 ADB. 2005. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Republic of Uzbekistan for the Kashkadarya and Navoi Rural WSS Sector Project. Manila.

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D. Implementation Arrangements

14. The Uzbekistan Communal Services Agency (UCSA) will be the Executing Agency of the TA. A representative of UCSA will chair the TA steering committee, with members from the agencies for planning, construction, finance, environment protection, and water resources to ensure that their views are adequately considered and necessary support provided. The TA project office will be headed by UCSA and will include staff from the agencies to maintain coordination, ensure consultants have access to project information and data, and liaise with ADB on matters relating to TA implementation. The project management unit in Tashkent and the project implementation unit in Djizzak oblast for the Urban Water Supply Project will be used with additional staffing. The project implementation unit in Surkhandarya oblast for the Amu Zhang Irrigation Project with additional staffing will also be used.

15. The TA will be implemented over 7 months, from July 2006 to February 2007. Total consultants’ input is estimated at 89 person-months: 16 international person-months and 73 domestic person-months. ADB will finance 10 international person-months and 55 local person- months. The remaining person-months will be financed by the EU (Appendix 3). The three international consultants financed by ADB will be recruited as individual consultants. The ADB financed domestic consultants will be recruited through one package hiring a local design institute. The recruitment of the consultants to be financed by EU will follow EU’s procurement procedures. ADB will select and engage consultants in accordance with ADB’s Guidelines on the Use of Consultants and other arrangements satisfactory to ADB for the selection and engagement of domestic consultants. The consultants will have expertise in WSS development, tariff analysis, financial and economic analysis, institutional development, social analysis and poverty impact assessment, and environmental matters. The international consulting services will include expertise in WSS and institutional development (6 person-months), financial analysis (2 person-months), economic analysis (2 person-months), environmental engineering (3 person-months), resettlement planning (1 person-month), and community development (2 person-months). The domestic consulting services’ (person-months) are broken down as follows: water supply engineering (7 person-months; 2 positions), economic/financial analysis (6 person- months), engineering cost estimation (4 person-months), environmental engineering (5 person- months), community participation (5 person-months), institutional development (3 person- months), civil engineering (5 person-months; 2 positions), electrical engineering (5 person- months), hydro-geological engineering (5 person-months), design engineering (4 person- months; 2 positions), involuntary resettlement (4 person-months), and gender and poverty analysis (4 person-months). The consultants’ outline terms of reference are in Appendix 4. TA equipment will be procured by the ADB consultants in accordance with ADB’s Procurement Guidelines. TA equipment purchased by EU consultants will follow the EU’s procurement procedures. UCSA will keep the equipment once the TA is completed.

16. The consultant teams will submit to ADB separate inception, interim, draft final, and final reports. All reports will be prepared both in English and Russian. The ADB team will focus their work on the technical, economic, and financial analysis. The EU team will cover analysis of environment, resettlement, social and poverty, and community development. The combined final report, to be compiled by the ADB team, will be prepared as a final feasibility study (FFS) and should conform to standards of both the Government and ADB. The final report and FFS, including the approval of the project implementation arrangements, O&M, and budget requirements, should be approved by ADB and the Government. The ADB consultant team will be responsible for having the final report and FFS approved by all project shareholders and government agencies. Coordination between the two consultant teams and their respective outputs will be carefully managed and monitored by ADB.

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IV. THE PRESIDENT'S DECISION

17. The President, acting under the authority delegated by the Board, has approved the provision of technical assistance not exceeding the equivalent of $400,000 on a grant basis to the Government of Uzbekistan for preparing the Djizzak and Surkhandarya Rural Water Supply and Sanitation Sector Project, and hereby reports this action to the Board.

6 Appendix 1

DESIGN AND MONITORING FRAMEWORK

Design Performance Data Assumptions Summary Targets/Indicators Sources/Reporting and Risks Mechanisms Impact Assumptions Improved living and Upgraded water UCSA report • Project design health conditions of supply infrastructure implemented selected rural and services Socioeconomic surveys effectively resettlements in the • Adequate background project area Adequate sanitation Technical surveys information provided services by UCSA Environmental surveys Improved capacity of local communities to manage and operate water supply and sanitation facilities

Increased hygiene and sanitation awareness Outcome Assumptions Project design and Memorandum of Memorandum of • Government priority feasibility study understanding to be understanding unchanged agreed by signed by the • Close coordination Government and Government and between ADB and EU ADB ADB during March consultants’ team 2007 appraisal mission Outputs Assumption 1. Key feasibility Draft final reports ADB documents • Competent studies and submitted to government staff analyses Government and Government documents available (technical, ADB by February financial, 2007 Risks economic, social, • Lack of government poverty, gender, familiarity with environment, and decentralized resettlement) infrastructure 2. Cost estimation management and financing plan • Inadequate tariff 3. Implementation setting and collection arrangements and schedule 4. Involvement of key stakeholders and beneficiaries

Appendix 1 7

Activities with Milestones Inputs 1.1 Review project area socioeconomic conditions, and water supply and sanitation infrastructure and service delivery ADB: $400,000 1.1.1 Assess physical, institutional, and human resources required • Consulting Services for project implementation (by December 2006). 65 person-months - 1.1.2 Describe current facilities, planned future coverage, cost $340,000 recovery, O&M arrangements, private sector involvement, and • Equipment - $10,000 related policies (by December 2006). • Training, seminars and conferences - 2.1 Feasibility studies for physical infrastructure $10,000 2.1.1 Prepare preliminary engineering designed and cost estimates • Representative for (by February 2007). contract negotiations - 2.1.2 Assess financial and economic viability and sustainability (by $10,000 February 2007). • Contingencies - 2.1.3 Assess environmental and social soundness (by February $30,000 2007). 2.1.4 Develop design and monitoring framework and EU: $250,000 implementation arrangements (by February 2007). • Consulting services 2.1.5 Establish criteria and guidelines to select subprojects to be 24 person-months - proposed by interested local governments (by February 2007). $192,000 2.1.6 Resettlement framework and core subproject resettlement • Equipment - $10,000 plans (by February 2007). • Training, seminars

and conferences - 2.2 Institutional development $10,000 2.2.1 Formulate a development plan for the EA, IA, and related • Surveys - $18,000 local government agencies to strengthen financial and managerial capacity needed for the proposed project (by • Contingencies - February 2007). $20,000 2.1.2 Prepare an effective O&M plan for the improved water supply and sanitation infrastructure (by February 2007). Government: $280,000 2.1.3 Develop project-specific education and training programs for • Personnel - $100,000 local government agencies and participating local • Logistics - $180,000 communities to increase hygiene and sanitation awareness (by February 2007).

ADB = Asian Development Bank, EA = executing agency, EU = European Union, IA = implementing agency, O&M = operation and maintenance, UCSA = Uzbekistan Communal Services Agency.

8 Appendix 2

INITIAL POVERTY AND SOCIAL ANALYSIS

A. Linkages to the Country Poverty Analysis

Is the sector identified as a national Yes Is the sector identified as a national Yes priority in country poverty analysis? priority in country poverty partnership No agreement? No

Contribution of the sector or subsector to reduce poverty in Uzbekistan:

The proposed Project will contribute to improved wellbeing and health conditions for about 250,000 people in rural Uzbekistan by providing basic water supply, and sanitation infrastructure and services. The proposed Project will also create employment opportunities during project construction.

B. Poverty Analysis Targeting Classification: General intervention

What type of poverty analysis is needed?

Poverty analysis will be carried out to summarize the causes of poverty in the project area, identify the highest incidence of poverty, develop poverty criteria to select additional subprojects, quantify how the Project will help reduce poverty, and incorporate other social measures within the scope of project design, implementation, and monitoring. The analysis will be conducted according to ADB’s Handbook on Poverty and Social Analysis.

C. Participation Process

Is there a stakeholder analysis? Yes No

Stakeholder analysis (through household surveys, interviews and focus group discussions) will be conducted to (i) identify key stakeholders and establish a framework for stakeholder participation in project design, implementation, and monitoring; and (ii) ensure the project objectives and incentives for change are acceptable to intended beneficiaries and that project design reflects gender and other social differences.

Is there a participation strategy? Yes No

User participation in project design and implementation and water service management is crucial to (i) increase efficiency, equity, and cost recovery; and (ii) facilitate the extension of service coverage to poor communities. A community participation strategy will be developed for operation and maintenance.

D. Gender Development

Strategy to maximize impacts on women:

Women should have equal opportunities in terms of access to water, participation in carrying different responsibilities, control of water resources, and the capacity and skills to participate in water management. The active participation of women in water management is crucial to equitable and productive water use and the sustainability of the water sector. Gender analysis will be conducted to ensure the inclusion of a gender perspective in project design, implementation, and monitoring. A gender action plan will be prepared to incorporate gender issues in water management.

Has an output been prepared? Yes No

Appendix 2 9

E. Social Safeguards and Other Social Risks

Item Significant/ Plan Required Not Significant/ Strategy to Address Issues None

Significant In view of the sector loan approach of the proposed Full Resettlement project, specific land acquisition and resettlement Not significant requirements have not been identified. However, it is Short envisaged that the proposed project may require small None areas of land for groundwater pumping stations and None storage tanks. Resettlement plans for all core subprojects and a resettlement framework will be prepared following the Government land administration laws and ADB’s Policy on Involuntary Resettlement.1

Significant An affordability analysis will be conducted as part of the Yes Affordability economic analysis. Not significant No

None

Significant The proposed project will not have any negative impacts Yes Labor on employees of the Uzbekistan Communal Services Not significant Agency. It will create employment opportunities— No particularly for the rural poor—during and after None construction of water supply and sanitation services.

Significant The presence of ethnic minority groups will be reviewed Yes Indigenous and analyzed in the project area in accordance with Peoples Not significant ADB’s Policy on Indigenous Peoples.2 A plan for specific No actions will be prepared, if necessary. None

Significant Other social risks and vulnerability issues will be Yes Other Risks assessed as part of the poverty and social assessments. and/or Not significant No Vulnerabilities None

1 ADB. 1995. Policy on Involuntary Resettlement. Manila. 2 ADB. 1998. Policy on Indigenous Peoples. Manila.

10 Appendix 3

COST ESTIMATES AND FINANCING PLAN ($'000)

Total Item Cost A. Asian Development Bank Financinga 1. Consultants a. Remuneration and Per Diem i. International (10 person-months) 185.0 ii. Domestic (55 person-months) 110.0 b. International and Local Travel 25.0 c. Reports and Communications 20.0 2. Equipmentb 10.0 3. Training, Seminars, and Conferences 10.0 4. Representative for Contract Negotiations 10.0 5. Contingencies 30.0 Subtotal (A) 400.0

B. Europe Union (EuropeAid) Financingc 1. Consultants a. Remuneration and Per Diem i. International (6 person-months) 111.0 ii. Domestic (18 person-months) 36.0 b. International and Local Travel 25.0 c. Reports and Communications 20.0 2. Equipmentb 10.0 3. Training, Seminars, and Conferences 10.0 4. Surveys 18.0 5. Contingencies 20.0 Subtotal (B) 250.0

C. Government Financing 1. Office Accommodation and Transport 100.0 2. Remuneration of Counterpart Staff 100.0 3. Others 80.0 Subtotal (C) 280.0 Total 930.0 a Financed by the Japan Special Fund, funded by the Government of Japan. b Equipment will include a computer, a printer, a copier, and a facsimile machine. c The international consulting services to be financed by EuropeAid are 6 person- months, as follows: one environmental specialist (3 person-months), one resettlement specialist (1 person-month), and one social development/community participation specialist (2 person-months). In addition, 18 person-months of domestic consulting services will be financed by EuropeAid, as follows: one environmental specialist (5 person-months), one involuntary resettlement specialist (4 person-months), one community participation specialist (5 person-months), and one gender and poverty specialist (4 person-months). The remaining international and domestic consultants will be financed by ADB. Source: Asian Development Bank estimates.

Appendix 4 11

OUTLINE TERMS OF REFERENCE FOR CONSULTANTS

A. General

1. The two consultant teams, financed by ADB and European Union (EU), will comprise international and domestic consultants. All consultants will work collectively in developing all outputs. Consulting services required for the technical assistance (TA) will include, but not be limited to, the services described in this appendix. The team leader and the Asian Development Bank (ADB) project officer may increase the tasks outlined as required to (i) comply with ADB guidelines and procedures, and the Government’s feasibility study requirements for budget investment projects and programs; and (ii) improve the quality of the overall TA. Tasks are to be carried out in close cooperation with the Government, and extensive consultation is needed to ensure knowledge transfer and full ownership of the processes and documents by the government agencies concerned.

2. The consultants will coordinate closely with ongoing ADB-financed projects to ensure that they complement each other and support overall improvement of the rural water supply and sanitation sector. The consultants will also reflect the lessons learned from implementing these projects into the design of the proposed project.

3. Respective consultant teams will submit to ADB separate inception, interim, draft final, and final reports. The ADB team will focus on the technical, economic, and financial analyses. The EU team will cover environmental, resettlement, social, poverty, and community development analysis. The combined final report, to be combined by the ADB team, will be prepared as a final feasibility study (FFS) and should conform to standards of both the Government and ADB. The final report and FFS should be approved in parallel by ADB and the Government, including the approval of the project implementation arrangements, operation and maintenance (O&M), and budget requirements. The ADB consultant team will be responsible for the final report and FFS approved by all project shareholders and government agencies.

4. The ADB team leader will (i) assist in the overall organization of the TA; (ii) guide, supervise, and coordinate the work of team members; and (iii) take overall responsibility for preparing and consolidating reports prepared by team members. The EU and local deputy team leaders will support the ADB team leader in accomplishing these tasks.

B. Data and Information Collection

5. Government Policies and Plans. The consultants will review the Government’s policies, road map, and investment plans for water supply and sanitation, propose improvements, and make specific recommendations on local government investment plans in the project area. They will link the policies and plans with the proposed project, and describe how they will promote the sector’s efficiency and economic growth in the project area. The consultants will focus on integrated water resources management and environmental concerns to ensure protection of water resources at the regional and local levels.

6. Project Area. The consultants will collect information on (i) socioeconomic conditions, (ii) spatial and physical environmental conditions, (iii) demographic information, (iv) land use and settlement patterns, (v) poverty incidence, and (vi) incidence of waterborne and hygiene- related diseases. The consultants will review ADB water knowledge center, and use model terms of reference for the surveys and stakeholder consultations.

12 Appendix 4

7. Rural Water Supply and Sanitation Infrastructure and Services. The consultants will collect and assess data in the project area regarding (i) current and future use of existing water resources; (ii) service levels and conditions of existing infrastructure for rural water supply and sanitation (including water intake, water distribution networks, pumping stations and water treatment plants, wastewater drainage, private and school latrines, and bathhouses); (iii) water demand for the next 10–15 years; (iv) water use, quality, and unaccounted-for water; (v) institutional relationship and responsibilities of central and local government agencies; (vi) budgeting and financial management for rural water supply and sanitation; (vii) existing operation and maintenance (O&M) system of rural water supply and sanitation facilities; and (viii) level of community involvement and participation in project preparation, implementation, and post-project O&M activities.

8. External Assistance to the Sector. The consultants will review past and ongoing external assistance by ADB and other funding agencies in water supply and sanitation, identify broad patterns of assistance and sector policy thrusts of these agencies, and document the lessons learned.

C. Feasibility Studies

9. Sector Project. The consultants will prepare a sector project following the sector lending approach, including the required policy dialogue and assessment of institutional capacity. Feasibility studies will be conducted for four core representative subprojects in the project area. Based on the selection and eligibility criteria developed under the TA, the consultants will also identify target subprojects for the proposed project.

10. Project Design. The consultants will (i) describe the overall features of the core subprojects for rural water supply and sanitation improvement (including public bathhouses, and school latrines); (ii) determine if the subprojects are justified (based on poverty reduction, demand trends, supply constraints, and growth potential); (iii) review alternative technologies and recommend the lowest cost and most environmentally sustainable option for improved rural water supply and sanitation infrastructure and services (considering transition from costly long- distance water pipelines to local water supply networks); (iv) propose the use of modern water treatment and distribution technologies, and environmentally friendly techniques for sanitation and wastewater management; (v) review and prepare design criteria and standards (including per capita water consumption for house connections and public standpipes); and (vi) prepare preliminary engineering designs for the core subprojects.

11. Cost Estimates. The consultants will prepare cost estimates for the core subprojects broken down into direct and indirect foreign exchange costs and local currency costs, and presented by generic category—i.e., by land, civil works, materials and equipment, consulting services, incremental administration, and O&M—for each year. Physical and price contingencies should be included in the cost estimates. The tax and duty elements and interest during construction should be calculated separately. The consultants will identify procurement contracts for international competitive bidding, local competitive bidding, international shopping, or direct purchase in accordance with ADB’s Procurement Guidelines. The consultants will prepare a procurement plan. The consultants should also consider turn-key domestic private sector contracts for building water supply and sanitation facilities and for operating them.

12. Financial Analyses. The consultants will conduct financial analyses with sensitivity tests of the core subprojects in accordance with ADB’s Guidelines for the Financial Governance

Appendix 4 13 and Management of Investment Projects Financed by ADB.1 The consultants will (i) review the water tariff level and structure, and determine its adequacy, comparing it with the average incremental financial cost of the core subprojects; (ii) review installation of water meters for all water users and assess the possible impacts on water tariff and conservation; (iii) recommend improvements, cross-subsidies, affordability, water conservation, future operating capacity, replacement and expansion, and debt repayment; and (iv) recommend a tariff increase plan, considering affordability. The consultants will (i) assess the financial viability of the core subprojects, analyze the financing plan, estimate the financial internal rate of return, and perform sensitivity and risk analysis (including switching values and calculation of the real weighted average cost of capital); (ii) identify areas for improvement and training; (iii) review past financial performance and evaluate the financial capacity of the EA and IAs; review current internal and external or government audit arrangements; and (iv) prepare an income statement, balance sheets, and cash flow statements for relevant water and wastewater entities in nominal terms and forecast the results for 5 years from full project start.

13. Financial Management Assessment. The consultants will (i) assess the financial management of the proposed EA and IAs, including (a) corporate planning and budgetary control, (b) financial and management accounting, (c) cost accounting, (d) internal control and audit systems, and (e) data processing; (ii) suggest appropriate financial covenants to monitor financial conditions for the proposed project; and (iii) recommend ways to improve financial management and corporate governance in light of ADB’s Governance: Sound Development Management2 policy, and refer to ADB’s “Financial Management Assessment Questionnaire”, and “Financial Due Diligence Methodology Note” in completing the financial management assessment.

14. Economic Evaluation, Development Economics, and Public Finance. The consultants will analyze the Government’s investment plan and ADB’s role in supporting the plan through the proposed project. The economic analysis will cover at least the following areas: (i) the rationale for government involvement; (ii) overall goals of the sector development plan; (iii) how the plan relates to the goals, including selection criteria for investments; (iv) associated economic policies, including user charges; (v) government capacity to execute the sector development plan and implement subprojects; (vi) fiscal impacts, including overall budgeting and financing for the sector development plan; (vii) economic risks to reaching the goals, including risks to the overall plan and subprojects; (viii) government commitment to the goals and the sector development plan; (ix) coordination of foreign aid efforts in supporting the sector development plan; and (x) conditions attached the loan. The analysis should be consistent with ADB’s Guidelines for the Economic Analysis of Projects, 3 recent retrospective reports on economic analysis, and relevant technical notes published by ADB’s Economics and Research Department—in particular technical note 14.

15. Environmental Assessment. The consultants will (i) identify sector development needs, examine policy and institutional changes to be pursued in the proposed project (to determine their environmental implications), and introduce appropriate beneficial policy interventions that can be included in the design and monitoring framework; (ii) establish criteria for environmental categorization of subprojects depending on their scope and scale (including categories A, B, B sensitive, and C); and (iii) establish environmental assessment and review procedures during

1 ADB. 2002. Guidelines for the Financial Governance and Management of Investment Projects Financed by ADB. Manila. 2 ADB. 1999. Governance: Sound Development Management. Manila. 3 ADB. 1997. Guidelines for the Economic Analysis of Projects. Manila.

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subproject selection, design, appraisal, and implementation in accordance with ADB’s environmental guidelines. The consultants will select and appraise the core subprojects. As part of appraisal, the consultants will (i) develop alternatives; (ii) assess comprehensive environmental impacts; (iii) design mitigation measures, an environmental monitoring plan with monitoring indicators, and institutional arrangements and responsibilities (including cost estimates and training); (iv) develop environmental impact assessment methodology (including cumulative and/or synergistic impacts); and (v) develop environmental assessment and review procedures for the remaining subprojects to be financed under the proposed project. On this basis, the consultants will help the Government (i) prepare the initial environmental examination (IEE) for the whole project—including sample IEEs for core subprojects, an environmental management plan (EMP), and summary IEEs (SIEEs)—in accordance with ADB’s Environmental Assessment Guidelines;4 (ii) conduct public consultation at least once; (iii) submit SIEEs to the national environmental protection agency for final review; and (iv) decide if significant impacts warranting environmental impact assessments are likely. The consultants will review the institutional capacity of the EA and IAs to conduct environmental monitoring and management, and prepare a capacity development program, if necessary.

16. Community Participation and Cost Sharing. The consultants will (i) prepare a community participation strategy for project preparation, implementation, and post-project O&M; and review the performance of community-based organizations and their interaction with project-affected communities; (ii) conduct stakeholder analysis using tools such as household surveys, interviews, and focus groups discussions; and (iii) review of NGO capacity and roles within the community participation to be developed. Careful attention will be paid to central and local government financing capacity, cost recovery, community ownership/participation, and cost-sharing options.

17. Poverty and Social Analyses. The consultants will conduct poverty and social analyses for the core subprojects in accordance with ADB’s Handbook on Poverty and Social Analysis.5 The consultants will prepare a socioeconomic profile based on (i) gender disaggregated data covering water supply and sanitation use (including the availability and accessibility of water and consumption levels); (ii) knowledge, attitudes, and practices of water supply and sanitation; (iii) existence and formation of water user groups; and (iv) current financing systems for water, household income levels and ability to pay by different groups, and tariff levels and their impact on household budget. The consultants will (i) conduct gender analysis for the core subprojects in accordance with ADB’s Gender Checklist: Water Supply and Sanitation 6 and develop a gender action plan linked to project components with targets, indicators, implementation arrangements, and budgetary requirements; (ii) assess the socioeconomic benefits of the proposed project and its possible negative impacts—especially on the poor; and (iii) ensure the project design reflects local needs, preferences, and concerns. The consultants will review and analyze the presence of ethnic minority groups in the project area in accordance with ADB’s Policy on Indigenous Peoples,7 and a plan for specific actions will be prepared, if necessary.

18. Resettlement Planning. The consultants will (i) screen all core subprojects for involuntary resettlement impacts arising from land or right-of-way acquisition; and (ii) develop a resettlement framework for non-core subprojects and, if required, resettlement plans for all core subprojects---in accordance with ADB's Policy on Involuntary Resettlement 8 and

4 ADB. 2003. Environmental Assessment Guidelines. Manila. 5 ADB. 2001. Handbook on Poverty and Social Analysis. Manila. 6 ADB. Gender Checklist: Water Supply and Sanitation. Manila. 7 ADB. 1998. Policy on Indigenous Peoples. Manila. 8 ADB. 1995. Policy on Involuntary Resettlement. Manila.

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Operations Manual F2 on Involuntary Resettlement 9 (2003)—addressing any permanent or temporary, full or partial loss of housing, land, income from affected businesses and impacts on non-titled and vulnerable people. In preparing the resettlement plan for the core subprojects, the consultant should refer to the Handbook on Resettlement: A Guide to Good Practice.10 The consultants will (i) review the experience and capacity of the EA and IAs in screening subprojects for involuntary resettlement impacts, resettlement planning, implementation, monitoring and evaluation of resettlement; and (ii) prepare a resettlement management capacity building program to strengthen their ability to manage resettlement activities, if necessary.

19. Project Performance Monitoring System. The consultants will undertake a structured problem analysis, prepare a problem tree, and derive a design and monitoring framework in consultation with relevant government agencies and project stakeholders. The design and monitoring framework will aim to facilitate conceptualization of the proposed project design, monitoring of project implementation, and evaluation of project benefits and impacts—with emphasis on enhanced participation of beneficiaries and stakeholders. The consultants will develop a project performance monitoring system that includes the content and format of the progress reports and ensures that the beneficiaries also undertake monitoring and evaluation.

20. Implementation Arrangements. The consultants will (i) develop an implementation schedule and arrangements to execute all components; (ii) verify the flow of funds under the proposed project; (iii) assess the performance of previous water supply loans and propose implementation arrangements for the proposed project; and (iv) determine the requirements for and availability of national and local counterpart funds: (a) specify the amounts to be financed by ADB, central Government, local governments, and other agencies; and (b) prepare an ADB format financing plan (using COSTAB software) referring to ADB’s draft technical note on preparation and presentation of cost estimates. The financing plan will describe the maturity, grace periods, relending arrangements, and possible subsidies, if any. The consultants will (i) establish functional relationships between participating institutions and describe the EA and IAs for the proposed project; and (ii) recommend measures to facilitate project implementation (including staffing and training for staff of the EA and IAs, construction supervision, monitoring, and reporting of the subprojects, and consulting services during implementation).

21. Selection and Eligibility Criteria. The consultants will develop and agree with the Government a set of criteria to select target rural settlements in the project area, including (i) poverty incidence, (ii) water supply and sanitation infrastructure service level, (iii) affordability for rural households, (iv) sustainable environmental improvements, and (v) level of community participation.

D. Institutional Development

22. Capacity Building. The consultants will (i) assess the existing institutional capacity of the EA, IAs, local governments, and other participating agencies; (ii) identify needs for technical, financial, and organizational development; and (iii) develop a capacity-building program (including staff training for the EA, IAs, local governments, and other participating agencies) to strengthen their capacity to efficiently manage, implement, and monitor the proposed project.

23. Operation and Maintenance. The consultants will (i) review existing water supply and sanitation facility O&M systems; and (ii) recommend an organizational arrangement and

9 ADB. 2003. Involuntary Resettlement. Operations Manual, Section F2/BP. Manila. 10 ADB. 1998. Handbook on Resettlement: A Guide to Good Practice. Manila.

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financing mechanisms to facilitate decentralization and improve O&M effectiveness of improved water supply and sanitation infrastructure. A specific proposal to establish a technical unit at the rayon (district) level (i.e., state enterprise) and an operational unit at the settlement level (i.e., drinking water consumers union) will be prepared. The consultants will prepare a training program, list of equipment, and financial requirements necessary for decentralized O&M units.

24. Education and Training. The consultants will (i) assess the needs of government officials, local authorities, and local communities for education and training on hygiene and sanitation; (ii) develop education and training programs to increase people’s awareness of hygiene and sanitation and ensure community participation in O&M of the improved rural water supply and sanitation infrastructure; and (iii) develop a mechanism to promote community participation in planning, monitoring, and evaluation.