Report and Recommendation of the President to the Board of Directors
Project Number: 41548 September 2009
Proposed Loan and Asian Development Fund Grant Kyrgyz Republic: Issyk–Kul Sustainable Development Project
CURRENCY EQUIVALENTS (as of 31 July 2009)
Currency Unit – som (Som) Som1.00 = $0.023 $1.00 = Som43
ABBREVIATIONS
ADB – Asian Development Bank ADF – Asian Development Fund BRD – Biosphere Reserve Directorate EA – executing agency EIA – environmental impact assessment EIRR – economic internal rate of return EOCC – economic opportunity cost of capital FIRR – financial internal rate of return GAP – gender action plan GIS – geographic information system ICB – international competitive bidding IDEP – Interregional Department for Environmental Protection IEC – information, education, and communication MIS – management information system NCB – national competitive bidding PAF – project assistance facility PIO – project implementation office PMO – project management office SAEPF – State Agency for Environmental Protection and Forestry UNESCO – United Nations Educational, Scientific and Cultural Organization WACC – weighted average cost of capital
WEIGHTS AND MEASURES cum – cubic meter lcpd – liters per capita per day MT – metric ton
GLOSSARY
novostroiki – semi-informal settlements oblast – a territorial administrative unit rayon – district vodokanal – water and sewerage service provider in city enterprise tazalyk – solid waste management service provider in city enterprise state ecological – approval accorded by State Agency for Environmental expertise Protection and Forestry for compliance with Kyrgyz Republic laws prior to proceeding with construction
NOTES
(i) The fiscal year (FY) of the Government and its agencies ends on 31 December.
(ii) In this report, "$" refers to US dollars.
Vice-President X. Zhao, Operations 1 Director General J. Miranda, Central and West Asia Department (CWRD) Director M. Westfall, Urban Services Division, CWRD
Team leader V. Padmanabhan, Urban Development Specialist, CWRD Team member{s} H. Chen, Counsel, Office of General Counsel M. Davila, Young Professional, CWRD M. Kunzer, Senior Environment Specialist, CWRD C. Mambetova, Project Implementation Officer, Kyrgyz Resident Mission, CWRD I. Setyawati, Social Development Specialist, CWRD
In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.
CONTENTS Page
LOAN AND GRANT AND PROJECT SUMMARY MAP I. THE PROPOSAL 1 II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES 1 A. Performance Indicators and Analysis 1 B. Analysis of Key Problems 3 C. Development Opportunities 5 III. THE PROPOSED PROJECT 5 A. Impact and Outcome 5 B. Outputs 5 C. Special Features 8 D. Project Investment Plan 8 E. Financing Plan 9 F. Implementation Arrangements 9 IV. PROJECT BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS 13 A. Major Benefits and Impacts 13 B. Major Risks and Mitigation Measures 17 V. ASSURANCES AND CONDITIONS 18 A. Specific Assurances 18 B. Conditions for Loan and Grant Disbursement 19 VI. RECOMMENDATION 19
APPENDIXES 1. Design and Monitoring Framework 20 2. Urban Sector Analysis 24 3. External Assistance to the Sector 28 4. Infrastructure Improvement Component 29 5. Enterprise Resource Management Component 30 6. Detailed Cost Estimates and Financing Plan 32 7. Implementation Arrangements 33 8. Implementation Schedule 34 9. Procurement Plan 35 10. Summary Poverty Reduction and Social Strategy 42 11. Gender Action Plan 46 12. Financial Analysis 48 13. Economic Analysis 54
SUPPLEMENTARY APPENDIXES (available on request) A. Cost Estimate Spreadsheets and Maps B. Financial Management Assessment of the Executing Agency C. Outline Terms of Reference for Design and Supervision Consultants D. Outline Terms of Reference for Information, Education, and Communication Consultants E. Outline Terms of Reference for Management Information System Consultants F. Outline Terms of Reference for Geographical Information System Consultants G. Institutional and Financial Sustainability H. Financial Analysis Spreadsheets I. Economic Analysis Spreadsheets J. Environmental Impact Assessment K. Land Acquisition and Resettlement Due Diligence Report
LOAN AND GRANT AND PROJECT SUMMARY
Borrower Kyrgyz Republic
Classification Targeting classification: Targeted intervention Sector (subsectors): Water supply and other municipal infrastructure and services (water supply and sanitation, waste management, urban sector development) Themes (subthemes): Environmental sustainability (urban environmental improvement), social development (human development), capacity development (institutional development) Location (impact): Urban (medium)
Environment Category A: An environmental impact assessment (EIA) was Assessment undertaken, and the summary EIA was disclosed on 1 June 2009. An updated EIA is detailed in Supplementary Appendix J.
Project The Issyk–Kul Sustainable Development Project (the Project) is the first Description phase in a longer-term initiative by the Asian Development Bank (ADB) to support environmental management and to improve urban service delivery in the Issyk–Kul Oblast. ADB and government collaboration in Issyk–Kul will ensure that urban services interventions will increase access to potable water and safe sanitation, including use of proven technologies for treatment and disposal of solid and liquid waste. The Project will (i) improve urban infrastructure, including sewerage and sanitation, solid waste management, water supply, and community upgrading; and (ii) improve service delivery through better enterprise resource management.
The Project covers the cities of Balykchy, Cholpon–Ata, and Karakol. Its outputs are: (i) replacing a 13.4-kilometer (km) sewer network (specifically addressing pumping mains to sewage treatment plants); rehabilitating pumping stations in Balykchy and Karakol; extending the sewer network by 12 km to uncovered areas in Karakol; and supplying relevant tools, equipment, and vehicles for sewer maintenance; (ii) re-engineering 42.5 hectares of waste dumps into sanitary landfills, closing existing dumps in all three project cities, providing waste segregation and recyclable sorting equipment, and supplying vehicles and equipment for waste collection and transport; (iii) installing 8,550 water meters, training vodokanal enterprises in meter reading and leak control, constructing a presedimentation treatment tank at the Karakol water headworks, replacing a 2 km corroded transmission main in Balykchy, and reconstructing 10 boreholes (with treatment, energy efficient pumps, storage, and protection facilities) in Balykchy and Cholpon–Ata; (iv) providing in the three project cities, water and sanitation facilities in pre-schools, schools and neighborhoods, and public conveniences in markets, public centers, health care organizations, and public institutions; and
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(v) implementing an enterprise resource management component comprising a management information system, accounting and financial management, geographic information system, asset inventory and management, and institutional effectiveness program for cities, vodokanal enterprises and tazalyk enterprises.
Rationale Lake Issyk–Kul (“warm lake” in Kyrgyz) is the world’s second largest saline lake; a Ramsar site of globally significant biodiversity; and a United Nations Educational, Scientific and Cultural Organization (UNESCO)-designated biosphere reserve. The lake forms a significant part of Issyk–Kul Oblast and contributes to its economic growth by providing tourism opportunities. Attracting approximately 1 million tourists annually—equivalent to 70% of the country’s annual tourist of 1.4 million persons—the lake is a major economic driver in the region.
Increasing tourism has resulted in the construction of many resorts that are now sprawled around the lake's northern shores. However, existing water supply and sanitation infrastructure—including solid waste management—is decrepit, dysfunctional, and poorly maintained. Current infrastructure is unable to serve the high number of tourists, which exceeds the resident population by a factor of four. Excessive pressure on existing infrastructure is partially responsible for the lake's pollution.
The country development strategy, 2009–2011, emphasizes environmental sustainability. The Project, and its focus on protecting the lake, features under the strategy’s investment project for the Issyk–Kul region. In February 2009, the Concept of Sustainable Development of the Ecological and Economic System of Issyk–Kul was passed through a presidential decree. Subsequently, the Government of Kyrgyz Republic passed a resolution in May 2009 that prioritizes implementation of the Project.
ADB-led investment and policy dialogue in the region will improve the infrastructure and quality of urban services, foster tourism, and preserve the lake's environment. Institutional, legal, and municipal finance assessments in Issyk–Kul will provide a suitable platform for developing ADB's urban services sector development strategy for Kyrgyz Republic. Development of performance-based service contracts through the Project will also improve opportunities for public–private partnerships in the water supply and sanitation sector.
Impact and The Project is expected to improve the health of resident population in Outcome the Issyk–Kul Oblast and to ensure environmental preservation of Lake Issyk–Kul. The outcome of the Project is improved urban basic service delivery (comprising sewerage, sanitation, solid waste management, and water supply) in the cities of Balykchy, Cholpon–Ata, and Karakol.
Project The Project investment cost is estimated at $37.50 million, including Investment Plan taxes and duties of $3.17 million.
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Financing Plan ($ million) Source Amount % A. Asian Development Bank Asian Development Fund Loan 16.50 44.00 Asian Development Fund Grant 13.50 36.00 Subtotal (A) 30.00 80.00
B. Government of the Kyrgyz Republic Central Government 7.50 20.00 Subtotal (B) 7.50 20.00
Total 37.50 100.00 Source: Asian Development Bank.
Loan and Grant The Asian Development Fund (ADF) loan of $16.5 million equivalent will Amount and have a 32-year term, including a grace period of 8 years, an interest rate Terms of 1% per year during the grace period and 1.5% thereafter, and such terms and conditions as set forth in the draft Financing Agreement. The ADF grant is for $13.5 million and is subject to conditions set forth in the draft Financing Agreement.
Period of Until 30 June 2015 Utilization
Estimated 31 December 2014 Project Completion Date
Implementation The Project will be managed and administered through a combination of Arrangements a central-level steering committee, Ministry of Finance (Executing Agency), a project management office (PMO) at the central level within the Executing Agency, and a project implementation office (PIO) under the Issyk–Kul Oblast administration (Implementing Agency).
A representative of the Prime Minister's Office will serve as the steering committee's chairperson. A full-time project director will head the PMO, be responsible for overall project management and administration, and report directly to the Executing Agency. A full-time project manager will head the PIO and be responsible for project implementation, monitoring, and supervision.
Executing Ministry of Finance Agency
Procurement The PMO will procure works, goods, and services in accordance with ADB’s Procurement Guidelines (2007, as amended from time to time).
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Consulting Consultants will be selected and engaged in accordance with ADB’s Services Guidelines on the Use of Consultants (2007, as amended from time to time) using quality- and cost-based selection for firms and government procedures acceptable to ADB for individuals.
Project Benefits A socioeconomic survey indicated that urban residents’ top priority is and Beneficiaries improved water supply and sanitation services. Upon completion of the Project, the water supply system will comprise improved treatment facilities at water sources and household meters that directly benefit about 43,000 people in the three project cities, with notable improvements in water quality and regulated water supply. The sewerage and sanitation investments will benefit 68,000 persons through improved access to reticulated systems, sanitation facilities, and latrines. About 133,500 persons will benefit from solid waste collection and disposal services. The integrated improvement of the existing urban infrastructure facilities and services will provide better living conditions and enhance the surrounding environment in the project cities. The Project's enterprise resource management component will create a culture of prudent financial management in the cities and service utilities, enabling them to generate revenue surpluses in the longer term for equity investments and leveraging debt.
Risks and Potential risks associated with the Project include (i) lack of commitment Assumptions by city administrations to undertake or implement reforms in urban and financial management, and inability to implement the financial improvement action plan; (ii) inability of government staff to implement the environmental management and monitoring plan; (iii) sudden increase in cost of construction items; (iv) insufficient incentives by the Government to ensure vodokanal enterprises and tazalyk enterprises staff provide efficient service delivery; and (v) lack of viability gap funding from the Government to sustain urban services.
Early establishment of the PMO and PIO and commencement of surveys for engineering designs and information, education, and communication campaign to generate community awareness will mitigate start-up delays. Efficiently functioning PMO and PIO will ensure the project is completed on time and sudden price rise of construction items is adequately accommodated. The Prime Minister's Office has direct control over the Project's objectives and will monitor activities, improving the urban management and financial performance of cities. Appointing the Ministry of Finance as the Executing Agency cements commitment for viability gap funding as a key line item in the national budget as the Ministry of Finance prepares and disburses funds under the medium-term budgetary framework.
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KYRGYZ REPUBLIC ISSYK--KUL SUSTAINABLE DEVELOPMENT PROJECT K A Z A K H S T A N
Tyup o Dzhergalan o 42 30'N BISHKEK Ivanovka 42 30'N Kemin Cholpon-Ata Shopokov Kant Karakol Novopavlovka Tokmok Kara syk-Kul Kayingdy Balta Lake Is Pokrovka CHUI Balykchy Maimak Talas Kochkor ISSYK-KUL Bakay Ata TALAS Suusamyr Chaek Toktogul Lake Song-Kul Kanysh- NARYN Naryn Kiya Toktogul Reservoir Karajigach Karakul JALAL-ABAD Tash Kazarman Terek Kumyr Arslanbob Baetov At-Bashy Sai Kok Shamaldy Yangak Sai Kochkor Ata Jalal-Abad Lake Chatyr-Kul N Bazar-Korgon Andizhan Reservoir Uzgen Kara Su UZBEKISTAN Kara-Kulja Torugart Osh 0 50 100 Aravan Gulcha Kilometers Kyzyl Kiya Naiman OSH TAJIKISTAN Project Province Batken Frunze Chauvay National Capital o o 38 00'N PEOPLE'S REPUBLIC 38 00'N Irkeshtam Provincial Capital Haidarkan OF CHINA City/Town Sulyukta Sary Tash BATKEN Main Road Daroot-Korgon Other Road Railway River TAJIKISTAN District Boundary Provincial Boundary International Boundary 0
9 Boundaries are not necessarily authoritative. - 2 8 1 2
H o o
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I. THE PROPOSAL
1. I submit for your approval the following report and recommendation on (i) a proposed loan, and (ii) a proposed grant, both to the Kyrgyz Republic for the Issyk–Kul Sustainable Development Project (the Project).
II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES
2. Lake Issyk–Kul (“warm lake” in Kyrgyz) is the world’s second-largest saline lake; a Ramsar1 site of globally significant biodiversity; and a United Nations Educational, Scientific and Cultural Organization (UNESCO)-designated biosphere reserve.2 The lake forms a significant part of Issyk–Kul Oblast’s area, and contributes to its economic growth through tourism. Attracting about 1 million tourists annually, equivalent to 70% of the country’s annual tourist of 1.4 million persons, the lake is a major economic driver in the region. With the country’s political situation gradually stabilizing, there is exponential growth in tourist numbers to Kyrgyz Republic, most of them from neighboring Kazakhstan, Russian Federation, and Uzbekistan.
3. The country’s supply response to increased tourism is notable, with active construction and resorts sprawling around the lake's northern shores, primarily in three cities (Balykchy, Cholpon–Ata, and Karakol). However, existing water supply and sanitation infrastructure— including solid waste management—is decrepit, dysfunctional, and poorly maintained. It is unable to serve the high number of tourists, which exceeds the resident population by a factor of four. Excessive pressure on this existing infrastructure is partially responsible for the lake's pollution.
4. Project interventions will improve the infrastructure and quality of urban services in the region, foster tourism, and preserve the lake's environment. Feasibility and social studies were undertaken through an Asian Development Bank (ADB) technical assistance project.3 Appendix 1 contains the Project's design and monitoring framework, which will be updated based on Project inception baseline survey and implementation progress.
A. Performance Indicators and Analysis
1. Socioeconomic Context 5. Economy. Issyk–Kul Oblast is spread over 43,100 square kilometers (km), with approximately 430,000 persons (around 8% of the total Kyrgyz Republic population). Karakol has about 67,500 people; Balykchy, 42,000; and Cholpon–Ata, 12,000. The oblast’s gross regional product grew from $358 million in 2005 to $540 million in 2007 mainly from gold mining at the Kumtor gold deposit, one of the 10 largest gold deposits in the world. Capital investments in the oblast have risen from $39 million (2005) to $145 million (2007) but are largely limited to the mining industry due to additional gold deposit finds in the recent past. Urban infrastructure investments are mainly financed by donor agencies with negligible investments made by the oblast or central government. The oblast also produces and exports cereals, apples, pears, potatoes, livestock, and dairy products.
1 The Ramsar Convention is an international treaty for the conservation and sustainable use of wetlands, which came into force on 21 December 1975. 2 As per the United Nations, biosphere reserves combine nature conservation and sustainable development to protect natural and cultural landscapes. The biosphere reserve concept was developed by UNESCO and is a distinction, but it does not confer any legally binding protection on the area. 3 ADB. 2009. Technical Assistance to Kyrgyz Republic for the Issyk–Kul Sustainable Development Project. Manila.
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6. Tourism. Tourism constitutes about 10% of the oblast's gross regional product. The tourist population tends to increase substantially during summers (June through August). The tourist inflow is mainly to the city of Cholpon–Ata, but Balykchy and Karakol receive some tourist inflows as well. Karakol has a large tourist influx during the winter due to nearby ski resorts. The Integrated Development Plan 4 for the region focuses on the lake's northern, eastern, and southern areas, and Government support for tourism and resort development has increased pressure on urban services and the lake's environment.
2. Access to Services 7. A recent socioeconomic survey5 indicated that urban residents’ top priority is improved water supply and sanitation services. (i) Water supply. About one quarter of households indicated inadequate water supply for household needs. Waterborne illnesses due to poor water quality were significant, with 82% of households reporting incidences in the past 5 years. (ii) Sanitation. About 75% of households use dry-pit latrines, and 24% use flush or pour toilets. About 66% of households surveyed stated they would be willing to pay for connection to a sewerage system, indicating citizens’ priority for improved sanitation. (iii) Solid waste management. Approximately 84% of households stated that a solid waste collection service was unavailable on a daily basis. Waste disposal practices included plastic bottle and packaging collection by the tazalyk enterprise from 50% of households, waste incineration by 36% of households, and waste disposal into the nearest landfill or waste receptacle by 8% of households.
3. Social Issues 8. Poverty. In 2008, around 39% of the oblast’s population lived in poverty6 and 8% in extreme poverty. The poor account for 19% of the project beneficiary population, with the extremely poor making up 9%. Within the project area, poverty incidence ranges from 2.6% in Cholpon–Ata to 10.4% in Karakol and to 31.9% in Balykchy. The social analysis concluded that the poor mostly live in areas without regular water supplies, sewage, and solid waste collection services. They often suffer from serious water supply shortages, poor water quality, sewage pollution, and poor urban environmental sanitation.
9. Gender Analysis. Households headed by women account for 41% of project beneficiary households and are smaller than households headed by men. Single-person households are more often headed by women. Some 87% of households headed by women and 91% of households headed by men receive regular cash income. A higher proportion of women-headed households (20%) live in poverty when compared with men-headed households (18%). The total number of sick days due to waterborne illnesses is also higher for women (151) than for men (73). Women and girls are primarily responsible for collection of household water, household garbage disposal, and care of the sick and elderly. These activities negatively impact health and cause conflict and stress in communities during rush hours and given limited water supply schedules. Despite an active role in the sector, women lack decision-making powers, and their representation in management of water supply and sanitation services is low at 10%.
4 JICA. 2006. The Study on Integrated Development Plan of Issyk-Kul Zone in the Kyrgyz Republic. Bishkek. 5 ADB. 2009. Technical Assistance to Kyrgyz Republic for the Issyk–Kul Sustainable Development Project. Manila. 6 The National Statistics Committee established the poverty line at $22 per person per month.
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B. Analysis of Key Problems
1. Inadequate Urban Infrastructure and Services 10. Appendix 2 summarizes the country and project cities' urban services assessment. (i) Vodokanal enterprises, through a contractual arrangement with cities, provide water supply and sanitation services. The water network serves approximately 85% of the population but is in poor condition. Water production capacities are high to meet water requirement for domestic and household irrigation, which should be rectified to address long-term water conservation goals.7 The stated nonrevenue water ranges from 25% to 60%, but due to the lack of metering and the poor condition of the system, the actual amount is unknown. Poor water quality and lack of water conservation methods are key issues to address. (ii) Extended aeration-based sewage treatment plants were constructed in all three project cities during the Soviet period, but the plants are dilapidated and no sewage is currently treated. Population access to the sewerage system is low at 35% and is limited to residents of apartment blocks only. Dilapidated sewer lines result in sewage infiltration into the ground, resulting in low flows at the sewage treatment plants. Moreover, much of the population continues to rely on pit latrines, a serious threat to groundwater quality. Sewer rehabilitation and methods to control sewage flows into the groundwater are of immediate priority. (iii) Private tourist resorts, especially around Cholpon–Ata, are expected to operate sewage treatment plants. While most resorts do maintain a plant, monitoring of sewage treatment plant operations and the treated effluent quality is inadequate. The exact impact of effluent discharges, if any, on the lake water quality is unknown. Overall, the combination of partially operating central sewerage systems, private self-provision of sanitation facilities, and lax monitoring of sewage discharge from resorts presents a significant threat to Lake Issyk–Kul's water quality. (iv) Tazalyk enterprises provide solid waste management services based on contractual arrangements with the cities.8 The region generates daily waste of 1.5 kilograms per capita but daily collection is low at 50%.9 All waste is disposed of at existing dumps in each city, affecting groundwater, and surface water flow into the lake. Waste management and strategies to recycle waste are critical for these cities, in addition to developing sanitary landfills for safe waste disposal.
2. Institutional Issues 11. The oblast administration oversees the functioning of local self-governments (including city administrations) in the region through rayon centers. The city administrations of Balykchy and Karakol report directly to the oblast, while that of Cholpon–Ata reports to the Issyk–Kul Rayon. Vodokanal enterprise and tazalyk enterprise report to the city administration, which is headed by an elected mayor. To improve efficiency and effectiveness of public administration, the Government of Kyrgyz Republic embarked on reform initiatives in 2004, and functional decentralization to local governments was a key initiative. Major decisions included delegation of authority and responsibility of urban basic services. However, paucity of capital investment funds, lack of human resources, and poor cost recovery have resulted in inefficient service delivery.
7 For example, the gross per capita production in Balykchy is 666 liters per day. 8 Tazalyk enterprises are also responsible for street lighting and park maintenance. 9 About 70%–80% of the waste generated is landfill material, 11%–20% is organic, and 8%–12% is dry recyclables.
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12. The Government is still in the process of approving its national water supply and sanitation policy. A national coordinating or regulatory body also does not exist for the water supply and sanitation sector. Under the National Agency on Local Self-Government Affairs, the Department of Rural Water Supply is responsible for rural water supply and sanitation and currently executes donor projects in rural areas. Consequently, water supply and sanitation services in urban centers are managed by vodokanal enterprises. The overfragmentation and decentralization of the water sector has resulted in few economies of scale and diversity of costs. The lack of a database and management information system for sound decision making and an overreliance on Soviet consumption norms restrict target definition for service delivery.
3. Sustainable Financing 13. Public budget expenditure for water supply and sanitation (WSS) is negligible and comprises less than 0.3% of central government budget expenditure, and is allocated through state transfers to finance operating expenditure not capital expenditure. Cities also rely extensively on state revenue transfers that constitute 18%–51% of their operating income. A review of project cities' operating accounts in 2008 indicated a deficit in Balykchy and Cholpon– Ata and a marginal surplus in Karakol confirming the strong dependence on state transfers. Consequently, there is no surplus generation for capital investments. Vodokanal enterprises and tazalyk enterprises also run into deficits or barely break even. While vodokanal enterprises occasionally meet their annual business plan, tazalyk enterprises rely on cities for budgetary support. Tariffs barely recover operation and maintenance costs, let alone generate surpluses for future capital creation or for leveraging debt. It is therefore imperative to create a culture of prudent financial management among the project cities and service utilities.
4. Environmental Management 14. The Biosphere Reserve Directorate (BRD) within the State Agency for Environmental Protection and Forestry (SAEPF) is responsible for the lake's environmental management and law enforcement to preserve the biosphere reserve. However, the BRD requires substantial strengthening (e.g., financial and personnel) to perform its functions and preserve the lake's environment. Similarly, the Issyk–Kul and Naryn Interregional Department for Environmental Protection (IDEP) under the SAEPF plays an important role in environmental management, monitoring of infrastructure projects, and environmental law enforcement. However, paucity of funds severely affects its ability to perform. Building BRD and IDEP capacities is critical for long- term environmental management in the region and to ensure that infrastructure projects comply with relevant environmental safeguards.
5. External Assistance 15. Appendix 3 summarizes external assistance to the country's WSS sector. Donor projects in the project area include (i) the completed World Bank Small Towns Infrastructure and Capacity Development Project that aimed to augment the quantity of water supply in Balykchy and Cholpon–Ata; (ii) an ongoing water supply project in Karakol ($8 million) financed by the Swiss State Secretariat for Economic Affairs; and (iii) a proposed sewerage project in Cholpon– Ata financed by the Japan International Cooperation Agency. As a key component of the Joint Country Support Strategy, 2007–2010,10 the Project will ensure that benefits accrued through donor support are synergized to improve urban basic service delivery. The Project is aligned with the Joint Country Support Strategy strategic framework and will (i) harmonize donor
10 This Joint Country Support Strategy, approved by the Board in 2007, was prepared by ADB, Department for International Development of the United Kingdom, Swiss Development Cooperation, United Nations agencies, and the World Bank Group. This assistance is closely aligned with the Government's development goals.
5 developmental objectives; (ii) collaborate on resource use (i.e., the appropriate use of the environment management and monitoring plan); (iii) capitalize on donor capacity-building initiatives (e.g., United Nations Development Programme training of tazalyk enterprises staff); (iv) promote good governance and transparency concepts; and (v) use information and communication efforts to disseminate project benefits.
6. Lessons Learned from ADB-Assisted Water Supply and Sanitation Projects 16. ADB's water supply and sanitation sector experience in Kyrgyz Republic provides many critical lessons.11 These include the need for (i) rapid commencement of project activities; (ii) greater coordination of government executing agencies and relevant local institutions; (iii) stronger technical, institutional, and administrative capacities at these institutions; and (iv) active support and participation of project stakeholders and beneficiaries.
17. ADB’s review of experiences indicated that early capacity building of project executing and implementing agencies is required to develop an efficient management system within the Executing Agency (EA) to monitor and supervise project activities. It also emphasized the need to train key project stakeholders on implementation arrangements, ADB policies and procedures, WSS sector development issues, and environmental management issues. During project design and implementation, experiences indicate the need to engage and educate project beneficiaries and stakeholders through public consultations and participation programs.
C. Development Opportunities
18. The Kyrgyz Republic country development strategy, 2009–2011, 12 continues to emphasize environmental sustainability and the need to protect Lake Issyk–Kul. In February 2009, the Concept of Sustainable Development of the Ecological and Economic System of Issyk–Kul was passed through a presidential decree. Subsequently, the Government passed a resolution in May 2009 that prioritizes project implementation.
III. THE PROPOSED PROJECT
A. Impact and Outcome
19. The Project is expected to improve the health of the resident population in the Issyk–Kul Oblast and to ensure the environmental preservation of Lake Issyk–Kul. The outcome of the Project is improved urban basic service delivery comprising sewerage, sanitation, solid waste management, and water supply in the cities of Balykchy, Cholpon–Ata, and Karakol.
B. Outputs
20. The Project comprises three parts. Part A covers urban infrastructure improvement, including the rehabilitation, improvement, and expansion of water supply and sanitation services, and upgrading common water and sanitation facilities in schools, neighborhoods, health care organizations, markets, public centers, and public institutions (Appendix 4 summarizes this component). Part B covers strengthening enterprise resource management to improve service delivery and to sustain investments in the long term (Appendix 5 summarizes this component). Part C will support project management and implementation activities at the
11 Lessons were learned from these ongoing projects: (i) ADB's supplementary grant to the Community-Based Infrastructure Services Sector Project; and (ii) World Bank and Department for International Development-funded Rural Water Supply and Sanitation Project II. 12 Kyrgyz Republic. 2009. Country Development Strategy (2009–2011). Bishkek.
6 project management office (PMO), project implementation office (PIO), and cities. The Project will develop monitoring capacities of BRD and IDEP by providing relevant equipment and training.
1. Part A: Infrastructure Improvement a. Sewerage and Sanitation 21. This subcomponent will benefit approximately 45,000 persons in the cities of Balykchy and Karakol, and will include (i) replacing 13.4 km of the sewer network including pumping mains to sewage treatment plants; (ii) rehabilitating pumping stations in both cities; and (iii) expanding 12 km of the sewer network to uncovered areas in Karakol. The subcomponent will also support vodokanal enterprises efforts to operate and maintain the system efficiently by providing relevant tools, equipment, and vehicles.
b. Solid Waste Management 22. This subcomponent will benefit the permanent resident and tourist population of 133,500 persons in all three project cities and will include (i) re-engineering 42.5 hectares of existing waste dumps into sanitary landfills, and closing existing dumps in all three cities – the landfills will include units for waste segregation and sorting of recyclables; and (ii) procuring vehicles and equipment for waste collection and transport.
c. Water Supply 23. This subcomponent will directly benefit 43,000 persons in the three project cities through district metering in pilot zones. The activity will determine the effect on water conservation, willingness to pay, and long-term impact on cost recovery and tariff rationalization. About 8,550 water meters will be installed in the three cities, and vodokanal enterprises members will be trained in meter reading and leak control. By constructing five boreholes with treatment, energy efficient pumps, storage, and protection facilities each in Balykchy and Cholpon–Ata, the subcomponent will improve the quality of water supplied. The subcomponent will include construction of a new presedimentation treatment tank at the Karakol water headworks, including upgrading of intake, overflow, and drainage structures, which are susceptible to being washed away during floods and without which potable water supply to the city's resident population of 67,500 persons is likely to be terminated. The subcomponent will replace a 2 km- long corroded section of the existing transmission main in Balykchy.
d. Community Upgrading 24. This subcomponent will benefit 23,000 persons in all three project cities, and will include constructing (i) water and sanitation facilities in pre-schools and schools; (ii) community water and sanitation facilities for a group of households and neighborhoods in distant areas; and (iii) public conveniences in markets, public centers, health care organizations, and public institutions. Selection of the beneficiary institutions will be made by the district managers within each city based on need and approved by city councils.
2. Part B: Enterprise Resource Management a. Management Information System, Accounting, and Financial Management 25. This subcomponent will develop the city, vodokanal enterprises, and tazalyk enterprises management information system, install accounting software to improve cities' accounting
7 practices, and improve the city's financial management capacity focusing on revenue enhancement measures (e.g., improved collection of taxes and user charges) and expenditure management measures. It will also improve existing complaint redress systems. A domestic MIS and accounting consultant firm will provide assistance under the subcomponent.
b. Geographic Information System, Asset Inventory, and Management 26. This subcomponent will procure satellite imagery for the Balykchy, Cholpon–Ata, and Karakol and will develop city base maps. Asset (including technical and condition) information on sewerage, solid waste management, water supply, and roads will be plotted and a database created for future planning. Based on accurate plans of the water supply and sewerage network, the design and supervision consultants will develop a calibrated network model to assess system performance and plan for extensions and reinforcements. A domestic geographic information system (GIS) consultant firm will provide assistance under the subcomponent.
c. Twinning Program and Capacity Building 27. This subcomponent will develop vodokanal enterprises capacity and (i) improve urban infrastructure asset planning and management practices; (ii) improve human resources management; (iii) introduce measures to reduce nonrevenue water; and (iv) ensure environmentally compliant effluent discharge and sludge disposal. A twinning agreement will be entered into with a water supply and sanitation utility from a developed or developing ADB member country,13 and specific improvement targets will agree to be achieved at the end of the twinning program. The program will span 3 years.
d. Performance-Based Service Contracts 28. This subcomponent will develop performance-based service contracts for water supply management, sewerage management, solid waste collection and transport, and sanitary landfill management focusing on performance efficiencies. Entering into performance-based contracts is contingent on completion of asset inventory and construction works, and improving financial management practices in the cities. Performance-based contracts will be concluded between cities and service utilities for water supply and sanitation and solid waste management services.
3. Part C: Project Assistance Facility a. Infrastructure Design and Implementation 29. Consulting services will be provided through a domestic design and supervision consultant to help the PMO and PIO (i) strengthen their project management and implementation capabilities; (ii) prepare detailed engineering designs for the infrastructure improvement component of each city; (iii) assist in bid process management; (iv) support construction supervision and quality control of civil works; and (v) contribute to benefit monitoring and evaluation by generating baseline data, assessing project impact, and providing feedback to the PMO to make adjustments. The DSC will be engaged to carry out works in future phases implemented during the Project period.
b. Information, Education, and Communication Campaign 30. The PIO will promote community awareness of the Project through an information, education, and communication (IEC) campaign, which will also communicate the Project's long-term benefits. This will increase support from project beneficiaries and stimulate demand
13 Potential countries include Armenia and Singapore.
8 for better urban basic services. Beneficiaries will also be made aware of issues such as water rates, user charges, and solid waste management fees. Among others, beneficiaries will be informed on preventing environmental health-related hazards and their responsibilities for reducing inefficient water use. Hygiene and sanitation education will form a key component of the IEC campaign. A domestic IEC consultant firm or nongovernment organization or civil society organization will be appointed to assist the PIO.
c. Project Management and Administration 31. Government appointed staff will manage and administer the Project with assistance from international and domestic consultants. This subcomponent will provide project oversight, quality control, ensure safeguard compliance, and undertake social development through the project implementation period.
C. Special Features
32. The Project is ADB's first urban sector intervention in Kyrgyz Republic. Its special features include (i) the enterprise resource management subcomponent addressing long-term urban management in the region; and (ii) the assessment of institutional, legal, and municipal finances in the urban centers of Issyk–Kul Oblast. Improved enterprise resource management underpins ADB's urban services sector strategy for Kyrgyz Republic, and insights from this component will facilitate ADB's urban development programs in Central Asia and the Caucasus. Development of performance-based service contracts will also improve the opportunities for public–private partnerships in the water supply and sanitation sector.
D. Project Investment Plan
33. The project investment cost is estimated at $37.5 million, including taxes and duties of $3.17 million (Table 1). Appendix 6 summarizes the Project's detailed cost estimates and financing plan, and Supplementary Appendix A provides a breakdown of cost estimates.
Table 1: Cost Estimates ($ million) Item Component Amount % A. Base Cost a Part A: Infrastructure Improvement 19.54 52.10 Part B: Enterprise Resource Management 1.34 3.57 Part C: Project Assistance Facility 5.53 14.75 Subtotal (A) 26.41 70.42 B. Contingencies b Physical Contingencies 1.65 4.41 Price Contingencies 5.27 14.05 Subtotal (B) 6.92 18.46 C. Taxes and Duties 3.17 8.45 D. Financing Charges c Interest During Construction 1.00 2.67 Subtotal (D) 1.00 2.67
Total 37.50 100.00 a In mid 2009 prices. b Physical contingencies computed at 6% for all items. Price contingencies calculated at 5% for all items. c Interest during construction has been computed at ADF terms and conditions. Source: Asian Development Bank estimates.
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E. Financing Plan
34. The Government has requested a loan of $16.5 million equivalent (Special Drawing Rights 10,566,000) and a grant of $13.5 million from Special Funds resources (Asian Development Fund [ADF]) to help finance the Project.14 ADB will finance a total of $30 million equivalent, and the Government will finance $7.5 million equivalent. The ADF loan will finance civil works under the sewerage and water supply subcomponents, project assistance facility (PAF) components, contingencies, and financing charges. The ADF grant will finance civil works and goods under sanitary landfills and community upgrading subcomponents, enterprise resource management and PAF components, and contingencies. The Government will finance 100% of the taxes and duties and 63% of the contingencies. Counterpart funds will be channeled to the PMO through regular budgetary allocations. Table 2 summarizes the proposed financing plan. Appendix 6 provides a further breakdown of the financing plan.
Table 2: Financing Plan a ($ million) No. Source Amount % A. Asian Development Bank Asian Development Fund Loan 16.50 44.00 Asian Development Fund Grant 13.50 36.00 Subtotal (A) 30.00 80.00
B. Government of the Kyrgyz Republic Central Government 7.50 20.00 Subtotal (B) 7.50 20.00
Total 37.50 100.00 a Discussions with Kuwait Fund are ongoing for parallel cofinancing of sewage treatment plants in Karakol and Balykchy, water quality improvement works in three project cities and additional vehicles and equipment. Source: Asian Development Bank estimates.
35. The Government confirmed that (i) there will be no onlending of ADF funds to the cities; and (ii) cities are not required to provide counterpart funding under the Project. Based on the cities’ fiscal assessments, the Government confirmed that city operating accounts barely break even, leaving no flexibility for counterpart funding or repaying debt early in the project.
F. Implementation Arrangements
1. Project Management 36. The Project will be managed and administered through a combination of a central-level steering committee, the Ministry of Finance (Executing Agency), a PMO at the central-level within the EA, and a PIO under the Issyk–Kul Oblast administration (Implementing Agency). BRD and IDEP will be responsible for implementing the environmental management and monitoring plans and ensuring project compliance with ADB and Kyrgyz Republic environmental safeguards. Appendix 7 summarizes the project implementation arrangements. The financial management assessment of the EA is summarized in Supplementary Appendix B and rates its financial management and reporting and monitoring systems capabilities as satisfactory. With
14 Kyrgyz Republic is classified as a group A developing member country based on its macroeconomic condition. Group A is eligible for ADF funds only (ADB. 2008. Operations Manual. OM A1/BP: Classification and Graduation of Developing Member Countries. Manila). The loan and grant mix is finalized based on a performance-based allocation formula defined in ADB. 2008. Operations Manual. OM Section A3/BP: Performance-Based Allocation of Asian Development Fund Resources. Manila.
10 experience on previous and ongoing externally financed projects, the Ministry of Finance as the EA creates a low-risk environment for the Project.
a. Steering Committee 37. A central-level steering committee will be set up within 1 month of loan and grant effectiveness, with full powers to decide on matters related to the Project. A representative of the Prime Minister's Office will be the steering committee's chairperson. The steering committee will oversee progress on the action plan under the President's Decree related to the Issyk–Kul development concept (para. 18) and will be primarily responsible for guiding development in the Issyk–Kul Oblast. The steering committee will use the project outcome to frame policies on water supply and sanitation, and institutional effectiveness for the country's urban sector development.
38. The steering committee will have members from relevant Ministries and other state entities as the Government thinks necessary. The PMO will be the steering committee's secretariat, and the EA will convene regular meetings in consultation with the chairperson, prepare and circulate minutes of the meeting approved by the chairperson, and ensure compliance with all steering committee decisions. The steering committee will meet at least once every 3 months, and the tenure of the steering committee will last until project completion.
b. Executing Agency 39. The EA will be responsible for project oversight. It will hold monthly meetings with the PMO and submit progress reports to the steering committee for decision making. It will ensure that project component technical and ecological expertise is sought before awarding contracts and/or commencement of construction works. The EA will obtain ADB approval for project component financing, ensure compliance with project covenants, coordinate with ADB on matters related to disbursements, and submit project documents (including audit reports) to ADB on time. It will play an active role in monitoring the Project's enterprise resource management component. Specifically related to the procurement process, the EA will monitor and review the bid process and coordinate with ADB on all approvals.
c. Project Management Office 40. A central-level PMO will be established at the EA. The PMO will be led by a full-time project director who will be responsible for overall project management and administration. This project director will be supported by a fiduciary unit comprising a procurement expert, financial manager, domestic project performance monitoring specialist, an office manager/translator, and office support. The PMO will (i) oversee project accounting and auditing; (ii) secure technical expertise and ecological expertise for all civil works prior to bidding; (iii) carry out project performance monitoring system surveys; (iv) ensure city administrations comply with project covenants; (v) with assistance of the Project consultants, invite bids, evaluate them, and prepare bid evaluation reports for the EA and, subsequently, for ADB approval; (vi) award contracts; and (vii) prepare quarterly progress reports.
d. Project Implementation Office 41. An oblast-level PIO, led by a full-time project manager, will be responsible for overall project implementation and supervision, and will report directly to the project director and governor of Issyk–Kul Oblast. The project manager will be assisted by three international specialists (for water supply and sanitation, environmental management, and solid waste
11 management), a domestic social and gender development specialist, accountant, office manager/translator, information technology specialist, and other support staff members.
42. The PIO will (i) manage detailed surveys, investigations, and engineering designs for all subcomponents; (ii) update the environmental impact assessment (EIA) and environmental management and monitoring plan; (iii) administer contracts (with support from vodokanal enterprise and tazalyk enterprise at the city level), and ensure quality control; (iv) evaluate work done by contractors, and certify payments; (v) implement the gender action plan; and (vi) conduct public awareness campaigns and participation programs. Under the enterprise resource management component, the PIO will (i) oversee development of city maps based on satellite imagery, (ii) oversee mapping of urban infrastructure assets on city maps, (iii) roll out the MIS and accounting software in the three project cities, and (iv) finalize draft contracts for performance-based service contracts.
2. Implementation Period 43. The Project will be implemented over a 5-year period. Appendix 8 summarizes the project implementation schedule.
3. Procurement 44. The PMO will procure works, goods, and services in accordance with ADB’s Procurement Guidelines (2007, as amended to date) based on the procurement plan presented in Appendix 9. The procurement plan is for an 18-month period and will be updated annually by the EA. Civil works, equipment, and material will be procured through international competitive bidding (ICB) and national competitive bidding (NCB) procedures as appropriate. (i) Civil works includes rehabilitation of sewerage systems (two ICB contracts), water supply improvement (two ICB contracts), construction of sanitary landfills (ICB and NCB contracts, turnkey), and construction of community water and sanitation facilities (three NCB contracts). (ii) Goods include equipment and selected materials for vodokanal enterprises, tazalyk enterprises, and the PMO (one ICB contract), environmental monitoring equipment for IDEP and BRD (one NCB contract) and waste collection and associated equipment (one NCB contract). ADB’s shopping procedures will apply to off-the-shelf items and standard products costing the equivalent of $100,000 or less.
4. Consulting Services 45. Consultants will be selected and engaged in accordance with ADB’s Guidelines on the Use of Consultants (2007, as amended to date) using quality- and cost-based selection for firms and government procedures acceptable to ADB for individuals. Simplified technical proposals or full technical proposals, as appropriate, will be required from firms. Outline terms of reference for consulting firms are detailed in Supplementary Appendixes C through F. The EA will ensure that position-based terms of reference (for each expert) will be used when it invites shortlisted consultants. Details on consulting services are elaborated in Appendix 9.
46. Individual Specialists. The PMO will appoint six individual specialists to support the PMO and PIO in overseeing consulting services. Three international specialists (40 person-months of water and sewerage, environmental management, and solid waste management strategy development) will provide third-party quality assurance on engineering designs and construction supervision, update the environmental impact assessment and
12 accordingly revise the environmental management plan, and develop a waste management strategy to reduce waste generation and disposal. Three domestic specialists (90 person-months of project performance monitoring, social and gender development, and procurement expertise) will assist the PIO.
5. Advance Contracting and Retroactive Financing 47. To facilitate timely implementation of the Project, ADB has approved (i) advance contracting; and (ii) retroactive financing of eligible expenditures up to 20% of the proposed loan and grant, incurred prior to effectiveness but not earlier than 12 months before the date of signing of the Financing Agreement. The Government acknowledges that any approval of advance contracting and/or retroactive financing will not constitute a commitment by ADB to finance the related Project.
6. Anticorruption Policy 48. ADB’s Anticorruption Policy (1998, as amended to date) was explained to and discussed with the Government and Ministry of Finance. Consistent with its commitment to good governance, accountability, and transparency, ADB reserves the right to investigate, directly or through its agents, any alleged corrupt, fraudulent, collusive, or coercive practices relating to the Project. To support these efforts, relevant provisions of ADB’s Anticorruption Policy are included in the loan and grant regulations and the bidding documents for the Project. In particular, all contracts financed by ADB in connection with the Project will include provisions specifying the right of ADB to audit and examine the records and accounts of the EA and all contractors, suppliers, consultants, and other service providers as they relate to the Project.
7. Transparency and Good Governance 49. For greater transparency and accountability, the Government will disclose to the public, and update annually, the current status of the Project and how the proceeds of the loan and grant are used. For each contract financed under the Project, the EA will disclose on its and the Project's website information on (i) the list of participating bidders; (ii) the name of the winning bidder; (iii) basic details on bidding procedures and procurement methods adopted; (iv) amount of contract awarded; (v) the list of goods and services, including consulting services procured; and (vi) the intended and actual use of the loan and grant proceeds.
8. Disbursement Arrangements 50. Loan and grant proceeds will be disbursed in accordance with ADB’s Loan Disbursement Handbook (2007, as amended from time to time). An imprest account will be established by the EA separately for the loan and grant component with a commercial bank acceptable to ADB, to expedite project implementation through timely releases. The EA is conversant with financial management of project funds as established through the financial management agreement. The amount to be deposited into each imprest account will not exceed 10% of the respective loan or grant, or the estimated expenditure to be funded through each imprest account for the next 6 months, whichever is lower. The imprest accounts will be established, managed, and liquidated in accordance with ADB’s Loan Disbursement Handbook and detailed arrangements agreed to by the Government and ADB. 15 ADB’s statement-of- expenditure procedure may be used to reimburse eligible expenditure and to liquidate advances made into the imprest accounts. Any individual payments to be liquidated or reimbursed will not exceed the equivalent of $100,000.
15 Bank charges will be financed from the loan and grant amount.
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9. Accounting, Auditing, and Reporting 51. Detailed consolidated annual project accounts, as maintained by the PMO, will be audited by duly qualified and independent auditors and will be submitted to ADB within 6 months of the close of each fiscal year. The annual audit report will also include a separate audit opinion on the use of imprest accounts and statement-of-expenditure procedure. The Project will maintain separate records and accounts by funding source (loan and grant).
10. Project Performance Monitoring and Evaluation 52. The PMO will be responsible for ensuring that the project performance monitoring system is established within 6 months of loan and grant effectiveness. The project performance monitoring system will track project implementation activities, target dates, expected outcomes, and assigned responsibilities. Some tasks will be outsourced to external contractors; others will form part of routine PMO reporting. Monitoring indicators will be formulated, discussed, and agreed to by the EA, oblast and city administrations, SAEPF, and ADB. Within 6 months of loan and grant effectiveness, the PMO will conduct initial baseline physical and socioeconomic surveys and submit a detailed implementation plan for benchmarking information and monitoring performance. This will be subject to ADB’s review and concurrence. The PMO will submit annual reports to ADB through the project period.
11. Project Review 53. Project performance will be reviewed first by the EA, second by the steering committee, and third by ADB. The first-level review will be conducted every month by the EA. It will be based on monthly performance reports for each project city, prepared by the PMO. The report will be sent to the oblast administration, EA, steering committee, and ADB. The second-level review will be conducted every quarter by the steering committee. The monthly reports on project performance, major policy issues, and actions required or taken by the respective authorities will be reviewed. The results will be circulated to ADB, EA, oblast and city administrations, and SAEPF. The third-level review will be conducted by ADB every 6 months throughout the project implementation period. A comprehensive midterm review will be carried out 24 months after the date of loan and grant effectiveness to identify problems or weaknesses in implementation arrangements and to agree on any corrective measures.
IV. PROJECT BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS
A. Major Benefits and Impacts
1. Institutional and Policy 54. The Project strongly hinges on institutional effectiveness and building strong local self-governments to manage urban basic services. (i) It will improve financial management practices in the project cities, vodokanal enterprises, and tazalyk enterprises, and create a culture of generating revenue surpluses for equity investments into capital assets or leverage for debt. (ii) The database on asset inventory and conditions will help vodokanal enterprises identify infrastructure improvements in the long term based on a well-developed asset management and maintenance system. (iii) Through the twinning program, vodokanal enterprises will build staff capacity to efficiently manage services.
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55. Lessons learned will provide the Government with (i) approaches to develop the national water supply and sanitation policy; (ii) a basis for developing a water supply and sanitation investment plan to upgrade and expand water supply and sanitation systems; (iii) pointers to improve financial management in local governments across urban centers in the country; and (iv) opportunities to develop vodokanal enterprises' staff capacity through a twinning network in the region. Supplementary Appendix G provides insights into the institutional and financial sustainability approach under the Project, providing a backdrop for future urban sector development in the country.
2. Social 56. The primary beneficiaries of the Project are the residents of the three cities and tourists. Some households will benefit manifold, as they will experience improvement in water supply, sanitation, and solid waste management services. More specifically, they include (i) households that are impacted when members suffer from waterborne illnesses resulting from insufficient or poor-quality water; (ii) people using markets, hospitals, clinics, and other public institutions with poor water supply and sanitation facilities (e.g., public toilets); (iii) schoolchildren and teachers at schools with poor water supply and sanitation facilities; and (iv) poor households using pit latrines and lacking community septic tanks. General and more widespread benefits are expected from the development of sanitary landfills and improvements to solid waste management practices, and connecting households, hotels, guesthouses, and institutions to the rehabilitated sewerage system. Appendix 10 summarizes the Project's poverty reduction and social strategy.
57. The poverty and social assessment indicates that women strongly support the Project across all components. Women perceive that the Project will improve their living environments, create employment opportunities, and reduce the incidence of waterborne illnesses and associated costs. Implementation of the gender action plan detailed in Appendix 11 will enhance benefits to women through a training and awareness-raising program focusing on drinking water safety, water source protection and treatment, water and environmental sanitation and diseases, toilet renovation, and hygiene and sanitation education.
3. Financial Analysis 58. Financial analysis and cash-flow statements were prepared for vodokanal enterprises and tazalyk enterprises. Fiscal analysis of city finances was also conducted to determine long- term prospects of generating revenue surpluses to provide equity for capital investments or collateral for leveraging debt. Appendix 12 summarizes the project financial analysis, and Supplementary Appendix H provides the spreadsheets. Results indicate the following. (i) The Project is financially viable, and the average financial internal rate of return in the base case is 15.90% for water supply and sanitation and 15.40% for solid waste management, exceeding the weighted average cost of capital estimated at 15.36%. The average financial net present value in the base case is $0.27 million for water supply and sanitation and $0.02 million for solid waste management. Sensitivity analysis indicates that the subcomponent financial internal rates of return are stressed under various conditions, implying a need for efficient project implementation and rapidly achieved physical and financial targets. (ii) The cities' financial management requires considerable improvements, especially efforts to enhance city own-tax revenues and to reduce dependence on state transfers in the long-term. 16 The Project will ensure cities make informed
16 State transfers account for approximately 50% of the city's annual operating revenues.
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decisions on revenue enhancement and expenditure management measures by implementing the MIS and accounting subcomponent. (iii) Vodokanal enterprises and tazalyk enterprises revenue base improvement is contingent on tariff rationalization. The analysis indicates a need to raise tariffs substantially from the current base to meet system operating costs.17 Tariffs can also be raised only after the system begins to show improved performance and customers perceive benefits. The Project proposes viability gap funding to bridge the shortfall in revenues for 2010–2015 (during implementation) and for 2016– 2029 (during operations) to meet financial internal rate of return conditions. Implementing the enterprise resource management subcomponent in parallel will help improve the financial performance of cities, vodokanal enterprises, and tazalyk enterprises and reduce dependency on viability gap funding after 2029. (iv) To achieve an operating ratio less than unity, a key determinant to assess financial performance of vodokanal enterprises and tazalyk enterprises, the Project will ensure (a) progressive tariff increases based on cost recovery and consumer affordability principles; and (b) that the Government will make available viability gap funding to ensure service sustainability.
59. To ensure project ownership, state revenue transfers will include viability gap funding to cities. The funding will be made contingent on vodokanal enterprises and tazalyk enterprises meeting performance standards set out in the service utilities' annual operations plan ratified by the city councils. For all three cities, current estimates of viability gap funding required to meet only operating expenditure shortfalls is $6.5 million during 2010–2015 and $8 million during 2016–2029. The actual viability gap funding will be established by January 2012 based on enterprise resource management component outputs.
4. Economic Analysis 60. Economic analysis was based on the results of a socioeconomic survey and drew from relevant statistics available at the country level, especially that available from the National Statistics Committee. The socioeconomic survey covered 514 households, randomly sampled in the three project cities. Focus group discussions provided further substantiation on service perception and demand for services. Appendix 13 summarizes the economic analysis, and Supplementary Appendix I provides the spreadsheets. Results indicate the following. (i) The Project is economically viable, and the average economic internal rate of return in the base case is 27.8% for water supply and sanitation and 19.5% for solid waste management, exceeding the economic opportunity cost of capital assumed at 12.0%. The average economic net present value in the base case was $3.17 million for water supply and sanitation and $0.69 million for solid waste management. A sensitivity analysis conducted to test the robustness of economic viability indicated that in all cases, subcomponent economic internal rates of return surpass the economic opportunity cost of capital. (ii) The average economic benefit–cost ratio for the Project was 1.42 for water supply and sanitation and 1.21 for solid waste management, denoting feasibility. Economic benefits were derived based on resource cost savings (e.g., time savings and coping costs savings), health benefits, and benefits from expanding
17 The estimated average annual operating expenditure for water and sanitation is 180% of the estimated annual water supply and sanitation revenue. The average annual operating expenditure for solid waste management is 200% of the estimated annual revenue. The viability gap fund was estimated for the following scenarios: (i) to meet operation and maintenance costs alone; (ii) to meet operation and maintenance costs and depreciation; and (iii) to meet operation and maintenance costs, depreciation, and debt (as a determinant of commercially viable operations).
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the existing water supply. Economic capital and annual operation and maintenance costs were derived from financial cost estimates.
5. Environmental Safeguards 61. The Project was classified as environmental category A under ADB's Environment Policy (2002) as its subcomponents are located in the Issyk–Kul Biosphere Reserve, which includes several protected wetlands registered under the Ramsar Convention. As part of the project preparatory technical assistance,18 an environmental impact assessment (EIA) was carried out for all subcomponents. Early in the environmental assessment process, relevant environment information was disclosed to likely affected people through stakeholder consultations, workshops, and focus group discussions. The summary EIA report in Russian was also disclosed by city governments and reviewed by SAEPF and its regional departments. News articles in local newspapers preceded the consultations, indicating the EIA content and its availability with the city governments. Stakeholder comments from consultations were integrated into the Project. In accordance with ADB's Public Communications Policy (2005), the summary EIA was posted on the ADB website on 1 June 2009 to meet the 120-day disclosure requirement before Board consideration of the Project. The EIA is in Supplementary Appendix J.
62. To ensure that the biosphere reserve is not affected by project activities, subcomponents have been suitably located. Location of sanitary landfills is critical. In Balykchy and Cholpon–Ata, the project component sites are located in areas designated for improvement, and in Karakol, the project component site is in the transition zone.
63. An efficient, detailed engineering design will mitigate any localized and/or temporary impacts. Relevant environmental mitigation measures specified in the ADB-approved environmental management and monitoring plan will be updated during detailed engineering design and be incorporated in bidding documents and civil works contracts. Impacts during operations will be mitigated through effective implementation of the environmental management plan. The following measures will mitigate key impacts. (i) Location. Buffer zones within and buffer strips with restricted development around sanitary landfill sites will mitigate moderate but permanent location impacts. (ii) Construction. Good construction techniques, provision of standby equipment in case of power failures and disruptions, soil surface stabilization, and safe disposal of contaminated water and oil will mitigate moderate to severe impacts. The impacts are anticipated from groundwork and transport activities; exhaust, gas, oil, and fuel spills; and soil excavation and storage causing runoffs and soil-level alteration. (iii) Seismic activity. Hydrogeological and geotechnical investigations will form the basis for designs, choice of materials, and construction methods to mitigate severe impacts through structural damage and sinking of foundations and soil. (iv) Operations. Effective implementation of sludge management plans, occupational and safety plans, and emergency response plans will mitigate system operations impacts resulting from leaks, spillovers, and sludge disposal; windblown waste; gases emitted from landfills; and improper closure of existing dumps.
64. The state ecological expertise, complying with Kyrgyz Republic laws on environmental clearance, will be made mandatory before bidding, and no contracts will be awarded without
18 ADB. 2009. Technical Assistance to Kyrgyz Republic for the Issyk–Kul Sustainable Development Project. Manila.
17 securing approval from the state ecological expertise. Kyrgyz Republic regulations on official public participation through the public ecological expertise will form a core part of the Project. The public ecological expertise involves citizens, local administrations, and public associations, usually represented by a nongovernment organization known as the independent ecological expertise. The independent ecological expertise will provide third-party quality assurance and ensure effective environmental management plan implementation; it will also address public grievances through the public ecological expertise process.
65. The environmental management and monitoring plan will be implemented by BRD and IDEP. IDEP will be directly responsible for mitigating and monitoring impacts during project design, construction, and operation. BRD will complement IDEP's activities through a parallel monitoring function and ensure that project activities comply with environmental regulations within the biosphere reserve. The Project will ensure both IDEP and BRD are adequately equipped to perform these functions. It will ensure institutional effectiveness through on-the-job training in inspection and monitoring techniques and fund the procurement of monitoring and laboratory equipment for effective environmental management plan implementation. The international environment specialist at the PIO will provide training to staff members on monitoring and mitigation activities and ensure that the plan is updated as required.
6. Social Safeguards 66. The Project will not have any land acquisition and resettlement impact as documented in due diligence reports prepared for each of the three project cities and included in Supplementary Appendix K. The Project has chosen existing sites for siting bulk facilities and made all efforts to avoid land acquisition and resettlement impacts by choosing appropriate design options and by prioritizing rehabilitation and reconstruction of existing facilities. New construction, to the extent feasible, will be done on unused land already owned by the Government. The due diligence reports were prepared recognizing ADB’s Policy on Involuntary Resettlement (1995) and applicable laws and regulations of Kyrgyz Republic. The Project is not expected to affect indigenous people as defined under ADB's Policy on Indigenous Peoples (1998). The project areas are fairly homogenous, with majority Kyrgyz and other ethnic minorities comprising Kazakhs, Russians, and Uzbeks. These ethnic groups do not differ in their needs or levels of water supply or sanitation services, and all will benefit from project activities.
B. Major Risks and Mitigation Measures
1. Risks 67. Potential risks associated with the Project include (i) lack of commitment by city administrations to undertake or implement reforms in urban and financial management, and inability to implement the financial improvement action plan; (ii) inability of government staff to implement the environmental management and monitoring plan; (iii) sudden increase in cost of construction items; (iv) insufficient incentives by the Government to ensure vodokanal enterprises and tazalyk enterprises staff provide efficient service delivery; and (v) lack of viability gap funding from the Government to sustain urban services.
2. Mitigation Measures 68. Early establishment of the PMO and PIO and commencement of surveys for engineering designs and information, education, and communication campaign to generate community awareness will mitigate start-up delays. Efficiently functioning PMO and PIO will ensure the project is completed on time and sudden price rise of construction items is adequately accommodated. The Prime Minister's Office has direct control over the Project's objectives and
18 will monitor activities, improving the urban management and financial performance of cities. Appointing the Ministry of Finance as the Executing Agency cements commitment for viability gap funding as a key line item in the national budget as the Ministry of Finance prepares and disburses funds under the medium-term budgetary framework.
V. ASSURANCES AND CONDITIONS
A. Specific Assurances
69. In addition to the standard assurances, the Government and Ministry of Finance have given the following assurances, which are incorporated in the legal document. (i) The Government will establish the steering committee and hold the first meeting no later than 3 months following loan and grant effectiveness. (ii) The Government will ensure smooth fund flow in accordance with the agreed mechanism. The corresponding government contribution, necessary to finance project activities, will be made available on time throughout the project implementation period. (iii) The Government will ensure that (a) the Project is carried out in compliance with ADB’s Environment Policy and relevant national environmental laws and regulations; (b) relevant environmental mitigation measures specified in the ADB-approved environmental management and monitoring plan updated during detailed engineering design are incorporated in bidding documents and civil works contracts; (c) no bidding documents will be issued before approval of the updated/final environmental management and monitoring plan by ADB and before securing State Ecological Expertise; (d) all mitigation measures and monitoring requirements set out in the environmental management and monitoring plan will be implemented and fulfilled, respectively, and supervised throughout project implementation; and (e) project environmental performance will be monitored, and a report describing the progress of environmental management plan implementation including issues and recommendations will be submitted to ADB semiannually. (iv) The Government will ensure that any unanticipated land acquisition and resettlement activities under the Project are implemented based on a resettlement plan prepared in accordance with applicable local laws and regulations, ADB’s Involuntary Resettlement Policy (1995), and ADB's Policy on Indigenous Peoples. The Government and ADB will agree on the resettlement plan before implementation. The EA will disclose all plans to the public and submit them to ADB for approval. Any civil works will be commenced only after land has been acquired and affected people are compensated at full replacement cost. The Government will ensure all recommendations in the Project's land acquisition and resettlement due diligence report is implemented and reported to ADB. (v) The Government and the EA will ensure that civil works contracts incorporate provisions to the effect that contractors: (a) will carry out HIV/AIDS awareness and prevention programs for labor, and disseminate information at worksites on risks of sexually transmitted infections and HIV/AIDS as part of health and safety measures for those employed during construction; (b) will not employ or use children as labor; and (c) follow and implement all statutory provisions on labor (including equal pay for equal work), health, safety, welfare, sanitation, and working conditions. (vi) The Government will ensure that the gender action plan as set out in Appendix 11 is implemented in a timely manner.
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(vii) The Government will ensure that all project cities will prepare and implement a financial improvement action plan to revise the water, sewerage, and solid waste management fees to meet at least operation and maintenance cost of services. The Government will ensure that this plan is prepared by January 2011. (viii) The Government and the EA will ensure that viability gap funding is made available to cities (and consequently to vodokanal enterprises and tazalyk enterprises) based on annual operating plans approved by the city councils. To ensure future sustainability of vodokanal enterprises and tazalyk enterprises, the Government shall progressively implement tariff increases with the goal of achieving full cost recovery, subject to consumer affordability.
B. Conditions for Loan and Grant Disbursement
70. The Government shall have appointed the project director and finance manager at the PMO and the project manager and accountant at the PIO. It shall have established the PMO and PIO.
VI. RECOMMENDATION
71. I am satisfied that the proposed loan and the proposed grant would comply with the Articles of Agreement of the Asian Development Bank (ADB) and recommend that the Board approve
(i) the loan in various currencies equivalent to Special Drawing Rights 10,566,000 to the Kyrgyz Republic for the Issyk–Kul Sustainable Development Project from ADB’s Special Funds resources with an interest charge at the rate of 1.0% per annum during the grace period and 1.5% per annum thereafter; a term of 32 years, including a grace period of 8 years; and such other terms and conditions as are substantially in accordance with those set forth in the draft Financing Agreement presented to the Board; and (ii) the grant not exceeding $13,500,000 to the Kyrgyz Republic, from ADB’s Special Funds resources, for the Issyk–Kul Sustainable Development Project, on terms and conditions that are substantially in accordance with those set forth in the draft Financing Agreement presented to the Board.
Haruhiko Kuroda President
9 September 2009
20 Appendix 1
DESIGN AND MONITORING FRAMEWORK
Data Sources and/or Performance Targets and/or Reporting Design Summary Indicators Mechanisms Assumptions and Risks Impact Improved health of By the end of Project plus three Gender-disaggregated Assumptions resident population years (2017): baseline survey The Government continues in the Issyk–Kul (i) Average annual household conducted at project to provide support for an Oblast and expenditure on treating inception (2010), at enabling investment environmental waterborne illnesses project completion climate. preservation of reduced by 25% (from (2015) and annually Issyk–Kul Som1,500 to Som1,125) thereafter. (ii) Public satisfaction with the lake's recreation Surveys conducted as a environment increased part of PPMS and by the from xx% to yy% a/ Sanitary and Epidemiological Services of the Kyrgyz Republic's Ministry of Health
Outcome Improved urban By end of Project (2015): Annual Assumptions basic services (i) Population access to safe gender-disaggregated Timely provision of viability comprising sanitation increased from socioeconomic surveys gap funding by the sewerage and 43,000 persons in 2010 to undertaken as part of Government. sanitation, solid 68,000 persons (45,000 PPMS to determine , waste persons through sewerage public satisfaction with Government provides management, and system and 23,000 the quality of water adequate incentives to water supply in the persons through onsite supply, sanitation, and ensure vodokanal three project cities sanitation) waste management a/ enterprises and tazalyk (ii) Municipal solid waste enterprises staff provide collection increased to National statistics for the efficient service delivery. cover 133,500 persons lake water systems and from 61,500 persons in water quality monitoring 2010 by the Sanitary and Risks (iii) Improved water supply Epidemiological BRD and Interregional ensured to already Services of the Ministry Department for connected households of Health Environmental Protection are unable to implement the Statistics of the State environmental management Agency on Environment and monitoring plan. Protection and Forestry A financial improvement ADB project completion action plan is not report implemented.
Outputs Part A: Infrastructure Improvement
Sewerage: 13.43 (i) Access to sewerage Quarterly progress Assumptions km of sewer lines network increased from reports prepared by the Ongoing donor financed replaced in 43,000 persons in 2010 to PAF projects are efficiently Balykchy and 45,000 persons in 2015 implemented. Karakol, 12 km of (ii) Sewage flows increase Disbursement and new sewer lines laid from 5,000 cum/day in reimbursement records Risks in Karakol, and 6 2010 to 5,500 cum/day in maintained by the PMO Sudden increase in cost of pumping stations 2015 construction items. rehabilitated in (iii) 10 vehicles procured and PPMS reports prepared
Appendix 1 21
Data Sources and/or Performance Targets and/or Reporting Design Summary Indicators Mechanisms Assumptions and Risks Balykchy and made operational by 2011 by the PAF Karakol for sewer maintenance (iv) Sewage pumps operating Annual work plans on a daily basis and ADB review mission discharging sewage to reports and back-to- treatment plants office reports
Solid waste (i) Solid waste collection As-built drawings management: 42.5 system expanded to cover developed by hectares of existing 133,500 persons contractors waste dumps (comprising 103,000 reengineered into resident and 30,500 tourist Project component sanitary landfills in population) in 2015 from completion and all three project 92,000 persons in 2010 commissioning cities and waste (ii) 100 MT of solid waste certificates provided by segregation and treated and disposed daily design and supervision recyclable sorting (iii) 22 waste collection, consultants units installed transportation and landfilling vehicles procured and made operational for daily waste management by 2011
Water Supply: (i) Nonrevenue water 8,550 domestic progressively reduced water meters from 60% to 20% installed in three (baseline to be established project cities, 2 km at project inception) of water (ii) Energy savings achieved transmission through efficient pumping pipeline replaced in systems (baseline to be Balykchy, established at project presedimentation inception) treatment tank at (iii) Residual chlorine at tail Karakol water ends of water supply headworks system maintained constructed, and 10 between 0.2 and 0.4 parts boreholes with per million treatment, energy efficient pumps, storage, and protection facilities constructed in Balykchy and Cholpon-Ata
Community (i) 23,000 persons in 2015 Upgrading: benefited from improved Community water water supply and onsite and sanitation sanitation system in facilities neighborhoods (especially constructed female-headed households), pre-schools and schools, health care organizations, public centers and institutions. In 2010, the communities depend on pit latrines, which will be converted to septic tanks
22 Appendix 1
Data Sources and/or Performance Targets and/or Reporting Design Summary Indicators Mechanisms Assumptions and Risks Part B: Enterprise Resource Management
Accounting systems (i) All cities' operating ratio Quarterly progress Assumptions developed for all improved to 0.8 by 2015 reports prepared by the Government provides cities, vodokanal from greater than 1 in PAF satellite images for enterprises, and 2010, indicating improved developing the GIS and tazalyk enterprise financial management PPMS reports prepared support to map urban (ii) Vodokanal enterprises by the PAF infrastructure revenue collection efficiency improved from 70% in 2010 to 90% in Annual work plans 2015 prepared by the PMO (iii) Gender-disaggregated consumer database created for vodokanal ADB review mission enterprises and tazalyk reports and back-to- enterprises office reports
GIS developed for (i) Satelitte images each city and purchased and land infrastructure cadastral maps procured assets mapped (ii) Calibrated network models developed for water and sewerage networks based on GIS maps
Management (i) Twinning program with capacity of service utility from vodokanal developed or developing enterprises member country enhanced completed by 2014 (ii) Vodokanal enterprise staff trained on metering and leak rectification through district metering pilots (iii) Vodokanal enterprise staff ensure safe sewage disposal and compliance with environmental legislations (iv) Capacity of women staff in database and financial management improved
Performance-based Performance-based service service contracts for contracts approved by the water supply and Government based on public– sewerage awarded private partnership law, and incentive and penalty mechanism agreed
Appendix 1 23
Data Sources and/or Performance Targets and/or Reporting Design Summary Indicators Mechanisms Assumptions and Risks Part C: Project Assistance Facility IEC campaign (i) Community and Quarterly progress Assumption effectively stakeholders aware of reports prepared by the Nongovernment implemented, Project benefits and PAF organizations actively materials on educated on hygiene and involved in educating hygiene and sanitation practices PPMS reports prepared beneficiaries on project sanitation by the PAF benefits disseminated, and women developed Annual work plans as hygiene and prepared by the PMO sanitation advocates ADB review mission reports and back-to- office reports
Activities and Milestones Inputs
Project Preparatory Activities ADB Project assistance facility operational (January 2010) ADF loan: $16.5 million Baseline socioeconomic surveys conducted (June 2010) equivalent ADF grant: $13.5 million Part A: Infrastructure Improvement Government: $7.5 million Sewerage system rehabilitated and expanded (January 2014) equivalent Municipal waste equipment and vehicles procured (January 2011) Total: $37.5 million Sanitary landfills constructed (January 2013) equivalent Water distribution system rehabilitated and expanded (January 2014) Construct presedimentation tank and replace main (December 2011) Construction of boreholes (January 2012) Community infrastructure constructed (January 2014)
Part B: Enterprise Resource Management Accounting procedures and MIS developed (January 2012) Consumer database created (January 2013) MIS and revenue enhancement plans rolled out (January 2015) Satellite images procured (January 2011) GIS developed (January 2013) Asset inventory completed (January 2013) Twinning program partnership established (January 2013) Twinning program implemented efficiently (January 2015) Performance-based services contracts approved (January 2013)
Part C: Project Assistance Facility Detailed engineering design finalized (November 2010) Technical and environmental expertise secured (December 2010)
ADB = Asian Development Bank; ADF = Asian Development Fund; BRD = Biosphere Reserve Directorate; GIS = geographic information system; IEC = information, education, and communications; km = kilometers; MIS = management information system; MT = metric ton PAF = project assistance facility; PIO = project implementation office; PMO = project management office; PPMS = project performance monitoring system. a Based on project preparatory technical assistance socioeconomic survey results. Survey at project inception will reestablish baseline.
24 Appendix 2
URBAN SECTOR ANALYSIS
A. Overview
1. Kyrgyz Republic is the second smallest of the five former Soviet Central Asian republics, with a land area of only 198,500 square kilometers. It is located east of People’s Republic of China and south of Kazakhstan, and it also shares borders with Tajikistan and Uzbekistan. The Tian Shan mountain range covers 80% of the country, while the remainder is valleys and basins. Lake Issyk–Kul, in northwestern Tian Shan, is the second-largest saline lake in the world and a major tourist attraction. The population of Kyrgyz Republic is estimated at 5.2 million (50.7% women and 49.3% men), of which 1.8 million (35%) live in urban areas. The country's population density is 26 persons per square kilometer, which is relatively low.
2. There are 25 urban settlements in Kyrgyz Republic. Both country and urban populations have been increasing, but at a declining rate. The urban population increased from 1.10 million in 1970 to 1.67 million in 1990, and to 1.80 million in 2007. The growth rate, however, declined from 3.4% in 1970 to 1.6% in 1990, and to 1.3% in 2007. Furthermore, the percent of urban population has declined from 38% in 1990 to about 35% in 1998, and it has remained relatively steady since then. Both the country and urban populations are expected to grow at 1% over the next 20 years—the urban population is expected to reach 2.2 million by 2030.
3. Kyrgyz Republic is a low-income country, and the gross domestic product per capita was $715 in 2007. In 2005, 43.1% of the population lived below the national poverty line. In urban areas, 29.8% of population lived below the poverty line, and in rural areas, 50.8% of the population lived below the poverty line. Also, unlike rural poverty, urban poverty has decreased significantly from 41.2% in 2001 to 35.7% in 2003, and to 29.8% in 2005. Unemployment was relatively low at 8.27% in 2006, but it may have increased since then due to the global economic crisis.
4. Adult literacy is high, at 99.3% for the adult population. There is little difference in literacy between genders, with 99.0% literacy among adult females and 99.5% literacy among adult males. Primary school enrollment is high at 95.3% of the total population, with a completion rate of 94.7%. Secondary enrollment is 86.4% of the total population, and tertiary enrollment is 42.8% of the total population.
5. Life expectancy at birth is 65.3 years as measured for 2000–2005. The infant mortality rate in 2005 was 58 deaths per 1,000 live births, and the under age 5 years mortality rate was 67 per 1,000 live births. The human development index is 0.696, which ranks Kyrgyz Republic 116th out of 177 countries in the United Nations 2007/2008 Human Development Report.1 This ranking reflects both the strengths and weaknesses of Kyrgyz Republic—it scores well in literacy and education, but is dragged down by low incomes and short life expectancy. Kyrgyz Republic scores 0.692 on the gender-related development index and ranks it 53 out of 156 countries in the report, and shows reasonably high gender equality in Kyrgyz Republic.
6. Urban Services in Kyrgyz Republic. Although most of the urban population lives in Soviet-style apartment blocks, some live in novostroiki. About 56.0% of urban residents have piped water in their homes, and another 42.3% rely on street water taps. Water quality is poor; in 2007, about 11% of water tests failed on microbiological parameters. The water quantity is limited, and the supply is intermittent. Most of the water supply infrastructure was built in 1960s
1 United Nations Development Programme. 2007. The Human Development Report 2007/2008. New York.
Appendix 2 25 and is in poor condition today. In addition, about 75% of the urban population has access to sanitation services. Population access to sewerage facilities is 21%—in Bishkek, it is 78%, while in other regions, it is about 10%. Most sewage treatment plants are not operational, or are barely operational. Waterborne illnesses, such as typhoid and parasitic diseases, are a major problem. Finally, solid waste collection and disposal systems are inadequate. Data on the solid waste management are scarce, but 1997 statistics indicate that only 28.5% of the population is served by regular municipal waste collection services. Out of 155 dumps around the country, only one can be considered a full sanitary landfill.
B. Urban Services in Issyk–Kul
7. There were 432,556 people in Issyk–Kul Oblast in 2007, which is around 8% of the country’s total population. In 2007, around 39% of the oblast’s population lived in poverty. There are three major cities: Karakol (67,500 people), Balykchy (42,000 people), and Cholpon–Ata (12,000). Lake Issyk–Kul is a major tourist area, and the oblast’s population tends to increase during the summer thanks to tourists. Being a protected site, environmental preservation of the lake takes high priority when considering the oblast's development.
1. Water Supply
8. Water supply services are provided by vodokanal enterprises, which are public enterprises. Water supply systems in the three cities cover approximately 85% of the population, were built during the Soviet period, and are in poor condition. Karakol (13,000 cubic meter per day) and Cholpon–Ata (5,650 cum per day) use a mix of surface and groundwater sources, while Balykchy (28,000 cum per day) only uses groundwater sources. Gross per capita production is high the three centers at 666 liters per capita per day (lpcd) in Balykchy, 471 lpcd in Cholpon–Ata, and 192 lpcd in Karakol. All cities also supply continuous water to the connected population. Nonrevenue water is unknown, and vodokanal enterprises estimates range from 25% to 60%. Net per capita supplies are high due to piped water being used for irrigation. The water quality needs substantial improvement as it is biologically contaminated.
2. Sewerage and Sanitation
9. Vodokanal enterprises also operate the sewerage systems. Population access to sewerage systems is low at about 35% or less in the three centers. Sewage treatment plants in Balykchy (36,000 cum per day), Cholpon–Ata (25,000 cum per day), and Karakol (22,000 cum per day) were constructed on extended aeration technology but now are dilapidated. Only the sewage treatment plant in Karakol is partially operational. Much of the population continues to rely on pit latrines, which present a serious risk to groundwater contamination and consequent contamination of the lake. Many tourist resorts, especially around Cholpon–Ata, generate domestic sewage and are required to have their own wastewater treatment facilities. However, the monitoring of operation and discharge quality from these facilities has been inadequate, and the impact on lake water quality is unknown. Overall, the combination of partially operating central sewerage systems, private self-provision of sanitation facilities, and lax monitoring of wastewater discharge from resorts presents a significant threat to lake quality.
3. Solid Waste Management
10. Solid waste management services are provided by communal utilities (tazalyk enterprises), which also take care of town maintenance and services such as street lighting and park maintenance. The region has a substantially high per capita waste generation rate at 1.5
26 Appendix 2 kilograms per person, with a total daily waste of 200 metric tons (MT) generated in the three cities, including waste from resorts (e.g., Balykchy, 64 MT; Cholpon–Ata, 34 MT; and Karakol, 101 MT). About 70%–80% of the waste generated is landfill material, while 11%–20% is organic and 8%–12% is dry recyclables. Domestic and commercial waste generation is at a 3:1 ratio. About 50% of the waste generated is collected and disposed at existing open dumps in the three cities. Safe disposal of medical waste is absent in all cities.2 In addition, the tazalyk enterprises in Karakol and Cholpon–Ata are unable to cover their operating costs from their revenues, and instead rely on budgetary transfers. Balykchy’s tazalyk enterpise can cover its operating costs but relies on budgetary transfers for investments.
C. City and Utility Finances
1. City Finances
11. In 2008, revenue surplus on operating accounts was generated in Karakol ($0.35 million), while both Balykchy (–$0.36 million) and Cholpon–Ata (–$0.01 million) generated deficits. The operating incomes for the cities varied from $1 million in Cholpon–Ata to $2.8 million in Karakol. Central transfers constituted 18%–51% of operating incomes, while own-tax revenues accounted for 39%–59%. Salaries constituted 34%–58% of operating expenditures, and operating expenditures ranged from $1 million in Cholpon–Ata to $2.5 million in Karakol. Nontax sources comprising water, sewerage, and solid waste charges were not accounted for as they form the income base for vodokanal enterprises and tazalyk enterprises, which are separate profit centers.
12. The operating ratio in Karakol was lower than unity for the 2004–2008 period (5 years) indicating prudent financial management. Similar performances were witnessed in Balykchy and Cholpon–Ata during the years 2006 and 2007. However, the surplus build-up is unable to subsidize water, sewerage, and solid waste management services and infuse equity or leverage debt for capital creation.
2. Vodokanal Enterprises Finances
13. The vodokanal enterprises in Karakol and Balykchy are unable to recover operating costs from their revenues and rely on budgetary support. Cholpon–Ata’s vodokanal enterprise is just able to cover its operating costs. None of the vodokanal enterprises are able to cover capital expenditures. Vodokanal enterprises' operating income ranges from $0.11 million (Karakol) to $0.25 million (Cholpon–Ata). Collections are 70% in Karakol, 90% in Cholpon–Ata, and 90% in Balykchy. Domestic water tariffs range from $0.03 per cum in Karakol to $0.09 per cum in Cholpon–Ata, while nondomestic water tariffs range from $0.30 per cum in Karakol to $0.48 per cum in Cholpon–Ata. Collections from commercial consumers constitute about 40% of the operating income and are the largest income source. Domestic sewerage tariffs range from $0.30 per cum in Karakol to $0.09 per cum in Cholpon–Ata, and nondomestic and commercial sewage charges range from $0.27 per cum in Karakol and Balykchy to $0.42 per cum in Cholpon–Ata. The current tariffs do not cover operation and maintenance costs. For improved cash inflows, vodokanal enterprises must provide better services so customers are willing to pay an increased tariff. Investment in assets, operations and maintenance equipment, and training is likely to result in better services.
2 Balykchy alone produces 3 kilograms of placenta daily and lacks appropriate mechanisms to dispose of it.
Appendix 2 27
14. Vodokanal enterprises expenditures are high due to operational inefficiency arising from the aging system and lack of vehicles, tools, and equipment. The expenses of Cholpon–Ata’s vodokanal ($0.24 million) are within its operating income, while those of Balykchy ($0.30 million) and Karakol ($0.34 million) far exceed their operating incomes, indicating efficient management of services by Cholpon–Ata (the tariffs there are the highest among the three cities). Staff salaries constitute 32%–57% of total expenditure, and electricity, 10%–39%. Staffing levels are high, between 4.5 and 7.0 staff members per 1,000 connections. Water losses are high due to leaks and commercial losses in the network.
3. Tazalyk Enterprises Finances
15. Tazalyk enterprises' operating incomes range from $0.14 million in Cholpon–Ata and Karakol to $0.48 million in Balykchy. Budget transfers and income from customers constitute 60% (Cholpon–Ata) to 100% (Karakol) of operating income. Domestic waste management tariffs (for individual houses) range from $1.18 per cum in Karakol to $4.36 per cum in Cholpon–Ata; nondomestic tariffs range form $1.09 per cum in Karakol to $6.98 per cum in Cholpon–Ata. Karakol indicates 95% income collection, while Cholpon–Ata indicates a 35% collection performance. Given that both stated incomes remain similar, the demand in Cholpon–Ata is very high, and improved performance will benefit its operations.
16. Operating ratios for Balykchy and Karakol are less than unity. Balykchy has made substantial efforts to improve tariff collection, while Karakol depends on budget transfers. Cholpon–Ata is in debt, and its poor tariff collection is attributed to the fiscal status. Staff and operation and maintenance costs constitute 60% (Cholpon–Ata) to 99% (Karakol) of operating expenditure. Surpluses generated are not ploughed back into capital creation.
17. Tariffs (for water, sewerage, and solid waste) are approved by city councils, based on submissions made by agencies. They are then assessed for appropriateness by an antimonopoly committee in each city, and the city council passes a decree to implement the tariffs. Current tariffs in Balykchy and Cholpon–Ata were approved in 2008, while Karakol's tariffs have not been revised since 2005.
D. Urban Sector Issues and Challenges
18. Inadequate basic services hamper the region's economic development—and tourism in particular. They also endanger Lake Issyk–Kul and its environment. The following principles should govern future development. (i) Preservation of Lake Issyk–Kul. It is important that improvements in infrastructure (e.g., water and sanitation) are done concurrently. (ii) User-pays cost recovery principles. Infrastructure improvements will lead to significant increases in tourism revenues, and it is important that the cost of services is recovered from these. (iii) Integrated development. Economy, infrastructure, and environment are strongly linked. (iv) Strong focus on improving institutional effectiveness. Better financial management, improved systems and procedures, and improved staff skills will deliver efficient services.
28 Appendix 3
EXTERNAL ASSISTANCE TO THE SECTOR
No. Project Year Approved Donor Amount 1. Community Based Infrastructure Services Sector 2000 ADB $36,000,000 Project 2. Community Based Infrastructure Services Sector 2008 ADB $30,000,000 Project – Supplementary Grant 3. Rural Water Supply and Sanitation 2002 DFID $4,000,000 4. Rural Hygiene and Sanitation Project 2006 DFID $5,750.000 5. Second Rural Water Supply and Sanitation 2009 WB/DFID $17,250,000 6. Second On-farm Irrigation Project 2007 WB $20,550,000 7. On-farm Irrigation Project 2000 WB $29,000,000 8. Water Management Improvement Project (WMIP) 2006 WB $28,100,000 9. Rural Water Supply and Sanitation Project 2001 WB $24,560,000 10. Water Management Improvement Project 2006 WB $19,000,000 11. Small Towns Infrastructure Project 2005 WB $15,000,000 12. Irrigation Rehabilitation Project 1998 WB $46,800,000 13. Regional development of Issyk-Kul Oblast 2003 EU/TACIS €1,800,000 14. Promotion of the Biosphere Reserve Issyk-Kul 1995 GTZ $2,030,000 15. Study on Master Plan of Issyk-Kul Zone 2003 JICA $5,440,000 16. Karakol Water Supply ongoing Swiss SECO $7,750,000 17. Improvement of water products (TA) Ongoing TIKA $10,813 18. Renewable energy sources use (Installation of solar 2003 UNDP $210,000 pumps in remote regions of Issyk-kul and Naryn to provide local population with drinking water and water for cattle) ADB = Asian Development Bank, DFID = Department for International Development of the United Kingdom, EU = European Union, GTZ = Gesellschaft für Technische Zusammenarbeit, JICA = Japan International Cooperation Agency, SECO = State Secretariat for Economic Affairs, TACIS = Technical Aide to the Commonwealth of Independent States, TIKA = Turkish International Cooperation and Development Agency, UNDP = United Nations Development Programme, WB = World Bank. Source: Asian Development Bank.
Appendix 4 29
INFRASTRUCTURE IMPROVEMENT COMPONENT Total BalykchyCholpon-Ata Karakol Subcomponent Unit Qty Amount ($) Qty Amount ($) Qty Amount ($) Qty Amount ($) City Population (2015) No 128,750 44,500 12,750 71,500
A. Water Intake Facilities - Water transmission mains m 2,000 300,000 2,000 300,000 0 0 0 0 - Rehabilitation of presedimentation tank No 1 450,000 0 0 0 0 1 450,000 - Boreholes, rehabilitation, and pump replacement No 10 1,285,000 5 642,500 5 642,500 0.00 0.00 Subtotal (A) 2,035,000 942,500 642,500 450,000
B. Water Distribution System - Beneficiary population No 42,750 15,000 12,750 15,000 - Domestic water connections and meters No 8,550 1,624,500 3,000 570,000 2,550 484,500 3,000 570,000 Subtotal (B) 1,624,500 570,000 484,500 570,000
C. Sewerage System - Beneficiary population No 44,200 15,000 0 29,200 - Replace pressure main (D = 400 mm/PE) km 6.00 2,250,000 6.00 2,250,000 0000 - Replace sewer network (D = 200–500 mm) km 7.43 2,229,000 0.43 129,000 0 0 7.00 2,100,000 - New sewer network km 12.00 3,600,000 0 0 0 0 12.00 3,600,000 - Road overlay /asphalt km 19.43 777,200 0.43 17,200 0 0 19.00 760,000 - Replacement of manhole covers No 500 50,000 0 0 0 0 500 50,000 - Sewage pumping stations No 6 600,000 2 200,000 0 0 4 400,000 - Sewer connections No 1,200 120,000 0 0 0 0 1,200 120,000 - Sewer cleaning machines No 2 180,000 1 90,000 0 0 1 90,000 - Tools and equipment No 2 20,000 1 10,000 0 0 1 10,000 - Mobile repair unit No 2 60,000 1 30,000 0 0 1 30,000 - Excavators, bulldozers, cranes, etc. No 4 320,000 2 160,000 0 0 2 160,000 Subtotal (C) 10,206,200 2,886,200 0.00 7,320,000
D. Solid Waste Management - Beneficiary population No 133,500 42,000 24,000 67,500 - Collection receptacles No 650 113,750 200 35,000 150 26,250 300 52,500 - Personnel protective equipment No 75 30,000 25 10,000 25 10,000 25 10,000 - Vehicles and equipment Bulldozers at landfill site No 3 270,000 1 90,000 1 90,000 1 90,000 Compactor at landfill site No 3 240,000 1 80,000 1 80,000 1 80,000 Water bowser No 3 15,000 1 5,000 1 5,000 1 5,000 Grader No 2 20,000 - - 1 10,000 1 10,000 Dumper placers No 3 75,000 1 25,000 1 25,000 1 25,000 Trucks No 8 200,000 3 75,000 2 50,000 3 75,000 - Sanitary landfill Engineering, rehabilitation, and expansion - Surveys and investigations ha 44 22,000 23 11,500 15 7,500 6 3,000 - Capping material m3 3 450,000 1 150,000 1 150,000 1 150,000 - Groundworks m3 3 750,000 1 250,000 1 250,000 1 250,000 Fencing, security barrier, and landscaping m 21,500 1,505,000 11,000 770,000 7,500 525,000 3,000 210,000 Admin building, security quarters LS 3 30,000 1 10,000 1 10,000 1 10,000 Guardhouse No 3 21,000 1 7,000 1 7,000 1 7,000 Generator sets LS 6 15,000 2 5,000 2 5,000 2 5,000 Water supply LS 3 16,500 1 5,500 1 5,500 1 5,500 Storage shed for machines, stockpile No 3 15,000 1 5,000 1 5,000 1 5,000 Access road m2 120,000 1 40,000 1 40,000 1 40,000 Weighbridge No 3 45,000 1 15,000 1 15,000 1 15,000 Waste sorting and segregation area No 3 15,000 1 5,000 1 5,000 1 5,000 - Miscellaneous tools and equipment No 6 30,000 2 10,000 2 10,000 2 10,000 - Windrow compost plant No 3 75,000 1 25,000 1 25,000 1 25,000 - Baler for recyclables No 6 60,000 2 20,000 2 20,000 2 20,000 Subtotal (D) 4,133,250 1,649,000 1,376,250 1,108,000
E. Community Upgrading - Beneficiary population No 23,100 9,225 4,650 9,225 - Infrastructure Water and sanitation in schools No 9 450,000 4 200,000 2 100,000 3 150,000 Community septic tanks No 8 24,000 3 9,000 2 6,000 3 9,000 WSS facilities in commercial area No 6 300,000 2 100,000 1 50,000 3 150,000 WSS facilities in hospitals/clinics No 6 180,000 2 60,000 1 30,000 3 90,000 WSS facilities in public institutions No 9 270,000 4 120,000 2 60,000 3 90,000 Subtotal (E) 1,224,000 489,000 246,000 489,000
Total 19,222,950 6,536,700 2,749,250 9,937,000 km = kilometer, LS = lump sum, m = meter, m3 = cubic meter, mm = millimeter, no= number, PE = polyethylene, Qty = quantity, WSS = water supply and sanitation. Source: Asian Development Bank estimates.
30 Appendix 5
ENTERPRISE RESOURCE MANAGEMENT COMPONENT
A. Overview
1. This component of the Issyk–Kul Sustainable Development Project (the Project) will focus on improving the abilities of cities, vodokanal enterprises, and tazalyk eneterprises to deliver services by (i) addressing financial management practices; (ii) undertaking a conditional assessment of the existing water and sewerage system, creating an asset database, and plotting the asset database on city base maps developed from satellite imagery of the three project cities; and (iii) establishing a twinning program with a water and sewerage utility from a developed or developing Asian Development Bank member country to focus on vodokanal enterprises human resources management, capacity development to reduce nonrevenue water, and management of water and treated effluent quality. The twining program will be rolled out over a 3-year period to meet agreed objectives.
B. Management Information System, Accounting, and Financial Management
2. The subcomponent activities will comprise: (i) reviewing accounting practices, and prepare chart of accounts; (ii) developing accounting and billing software based on chart of accounts; (iii) purchasing new computers and printers for accounting, database management, and billing; (iv) computerizing database and records; (v) installing new accounting and billing software; (vi) preparing statement of service delivery standards that customers can expect to receive; (vii) improving the complaint redress system to resolve queries and handle payments; and (viii) linking management information system to geographic information system-based asset maps.
C. Geographic Information System, Asset Inventory, and Management
3. The subcomponent activities will comprise: (i) collecting asset information; (ii) updating water distribution network and sewerage system map; (iii) preparing inventory of water treatment plant and reservoirs; (iv) preparing inventory of sewage treatment plant and sewage pumping stations; (v) confirming water supply and sewerage asset location and locate missing assets; (vi) evaluating performance history and developing asset renewal, maintenance, and monitoring methodology/program; (vii) developing a plan on upgrading facilities and training personnel; (viii) improving asset information data banking and management of customer database; (ix) developing a geographical information system-based plan using satellite imagery and land cadastry; (x) developing a standard operating procedure manual for assets, and in the manual, incorporating brands that are acceptable based on established standards, leak detection methodology, and safety and construction methods; and
Appendix 5 31
(xi) formulating a 5-year (rolling) strategic or corporate plan for asset planning based on growth and management for efficient service delivery.
D. Twinning Arrangement and Technical Capacity Development
1. Human Resources Management
4. The subcomponent activities will comprise: (i) developing preconditions for human development; (ii) creating a database of personnel; (iii) determining required skills for each type of personnel; (iv) comparing existing personnel skills with standards (i.e., job descriptions); (v) confirming minimum period in jobs; and (vi) educating staff members on meter reading, nonrevenue water measurement, water network maintenance, wastewater treatment plant maintenance, and sewerage maintenance.
2. Water Quality Management
5. The subcomponent activities will comprise: (i) reviewing and proposing laboratory equipment, (ii) establishing monitoring standards based on national legislations, (iii) establishing algae control procedure, (iv) developing better sampling and collection methodology, (v) advising on optimal water treatment processes, and (vi) advising on water quality and laboratory management.
3. Nonrevenue Water Reduction
6. The subcomponent activities will comprise: (i) reviewing the work of the vodokanal enterprises on nonrevenue water reduction; (ii) developing a plan for nonrevenue water reduction, and assess staffing for that; (iii) developing leak detection strategies, and advising on establishing leak control procedures; (iv) developing standard operating procedures for nonrevenue water reduction; (v) educating staff on nonrevenue water reduction; (vi) implementing standard operating procedures; and (vii) monitoring results.
4. Wastewater Management
7. The subcomponent activities will comprise: (i) advising on sewer network maintenance, (ii) advising on sewage pumping management, and (iii) educating staff on wastewater treatment (i.e., effluent quality and discharge and sludge disposal).
32 Appendix6
DETAILED COST ESTIMATES AND FINANCING PLAN
Base Cost Price Contingency Landed Cost GoKR Financing ADB Financing Category & Component ($) ($) ($) Cost ($) Taxes ($) Total ($) % Loan ($) %Grant ($) % Total ($)
A. Civil Works 1. Sewerage System 10,781,344 1,921,274 12,702,618 1,921,274 1,155,144 3,076,418 24 9,626,200 76 - - 9,626,200 2. Sanitary Landfill 3,365,040 599,662 3,964,702 599,662 360,540 960,202 24 - - 3,004,500 76 3,004,500 3. Water Supply System 4,098,640 730,392 4,829,032 730,392 439,140 1,169,532 24 3,659,500 76 - - 3,659,500 4. Community WSS Facilities 1,370,880 244,296 1,615,176 244,296 146,880 391,176 24 - - 1,224,000 76 1,224,000 Subtotal (A) 19,615,904 3,495,624 23,111,528 3,495,624 2,101,704 5,597,328 24 13,285,700 57 4,228,500 18 17,514,200
B. Equipment & Material 1. SWM Vehicles 918,400 163,662 1,082,062 163,662 98,400 262,062 24 - - 820,000 76 820,000 2. SWM Tools & Receptacles 161,000 28,691 189,691 28,691 17,250 45,941 24 - - 143,750 76 143,750 3. SWM Equipment 184,800 32,932 217,732 32,932 19,800 52,732 24 - - 165,000 76 165,000 4. Vodokanal Vehicle & Equipment 649,600 115,761 765,361 115,761 69,600 185,361 24 - - 580,000 76 580,000 5. BRD & IDEP Equipment 235,000 41,878 276,878 41,878 25,179 67,057 24 - - 209,821 76 209,821 6. PMO Vehicles 116,279 20,721 137,000 20,721 12,458 33,179 24 - - 103,821 76 103,821 Subtotal (B) 2,265,079 403,645 2,668,724 403,645 242,687 646,332 24 - - 2,022,392 76 2,022,392
C. Enterprise Resource Management 1. MIS & Accounting 500,000 89,102 589,102 89,102 53,571 142,673 24 - - 446,429 76 446,429 2. Twinning Program 500,000 89,102 589,102 89,102 53,571 142,673 24 - - 446,429 76 446,429 3. GIS and Asset Inventory 500,000 89,102 589,102 89,102 53,571 142,673 24 - - 446,429 76 446,429 Subtotal (C) 1,500,000 267,306 1,767,306 267,306 160,713 428,019 24 - - 1,339,287 76 1,339,287
D. Project Assistance Facility Subtotal (D) 6,195,206 1,104,008 7,299,214 - 663,773 663,773 9 1,177,755 16 5,457,686 75 6,635,441
E. Contingencies 1. Physical Contingencies - - 1,653,228 164,548 - 164,548 10 1,036,545 63 452,135 27 1,488,680 Subtotal (E) - - 1,653,228 164,548 - 164,548 10 1,036,545 63 452,135 27 1,488,680
F Financing Charges A Interest During Construction - 1,000,000 - - - - 1,000,000 100 - - 1,000,000 Subtotal (F) - - 1,000,000 - - - - 1,000,000 100 - - 1,000,000
Total 29,576,189 5,270,583 37,500,000 4,331,123 3,168,877 7,500,000 20 16,500,000 44 13,500,000 36 30,000,000
BRD = biosphere reserve directorate; E&M = equipment and material; ERM = enterprise resource management; GIS = geographic information system; IDEP = Interregional Department for Environmental Protection; IEC = information, education, and communication; MIS = management information system; PAF = project assistance facility; PMO = project management office; SWM = solid waste management. Source: Asian Development Bank estimates.
IMPLEMENTATION ARRANGEMENTS Appendix 7 Appendix
BRD = biosphere reserve directorate, IDEP = Issyk-Kul Naryn Interregional Department for Environmental Protection, IT = information technology, PPMS = project 33 performance monitoring system, SAEPF= state agency for environmental protection and forestry, SWM = solid waste management, WSS = water supply and sanitation. Source: Asian Development Bank.
34
IMPLEMENTATION SCHEDULE 8 Appendix
Source: Asian Development Bank.
Appendix 9 35
PROCUREMENT PLAN
Basic Data
Project Name: Issyk–Kul Sustainable Development Project Loan Number: TBC Grant Number: TBC Loan Amount: $16.5 million equivalent Grant Amount: $13.5 million Executing Agency: Ministry of Finance Date of Original Procurement Plan: 4 September 2009 Date of Most Recent Procurement Plan: 4 September 2009 TBC = to be confirmed
A. Process Thresholds, Review, and 18-Month Procurement Plan
1. Project Procurement Thresholds
1. Except as the Asian Development Bank (ADB) may otherwise agree, the following process thresholds shall apply to procurement of goods and works.
Procurement of Goods and Works
Method Threshold ICB for Works More than $1,000,000 ICB for Goods More than $500,000 NCB for Works Beneath that stated for ICB, Works NCB for Goods Beneath that stated for ICB, Goods Shopping for Works Below $100,000 Shopping for Goods Below $100,000 ICB = international competitive bidding, NCB = national competitive bidding.
2. ADB Prior or Post Review
2. Except as ADB may otherwise agree, the following prior or post review requirements apply to the various procurement and consultant recruitment methods used for the Project.
Procurement Method Prior or Post Comments ICB Works Prior ADB SBD ICB Goods Prior ADB SBD NCB Works Prior and Post ADB SBD (prior followed by post) NCB Goods Prior and Post ADB SBD (prior followed by post) Shopping for Works Post ADB SBD Shopping for Goods Post ADB SBD Recruitment Method Quality- and Cost-Based Selection Prior RFP Quality-Based Selection Prior RFP Other Selection Methods: Consultants Prior RFP Qualifications, Least-Cost Selection, Fixed Budget, and Single Source Recruitment Method Individual Consultants Prior RFP ADB = Asian Development Bank, ICB = international competitive bidding, NCB = national competitive bidding, RFP = request for proposals, SBD = standard bidding documents.
36 Appendix 9
3. Goods and Works Contracts Estimated to Cost More than $1 Million
3. The following table lists goods and works contracts for which procurement activity is either ongoing or expected to commence within the next 18 months.
Prequalification Advertisement Contract Procurement of Bidder Date General Description Value Method (Yes/No) (Quarter/Year) Comments Works Rehabilitation of $12.70 ICB Yes Q3/2010 Two packages: one sewerage system million in Balykchy and one in Karakol Water supply district $2.14 ICB Yes Q3/2010 One package: metering in pilot zones million district metering in pilot zones in all three cities Water supply $2.69 ICB Yes Q3/2010 One package: improvements million transmission main in Balykchy, presedimentation tank in Karakol, and boreholes in Balykchy and Cholpon–Ata Goods Procurement of vehicles $1.98 One ICB and No Q1/2010 Vehicles for and equipment million two NCB vodokanal enterprises, tazalyk enterprises, and PMO ICB = international competitive bidding, NCB = national competitive bidding, PMO = project management office, Q = quarter.
4. Consulting Services Contracts Estimated to Cost More than $100,000
4. The following table lists consulting services contracts for which procurement activity is either ongoing or expected to commence within the next 18 months.
Appendix 9 37
Advertisement International Contract Recruitment Date or National General Description Value Method (Quarter/Year) Assignment Comments Design and supervision $3.89 QCBS 80:20 Q1/2010 National 708 person-months consultants million (FTP) Information, education, $0.79 QCBS 80:20 Q1/2010 National 200 person-months and communications million (STP) consultants or NGO Management information $0.59 QCBS 80:20 Q1/2010 National 120 person-months systems and accounting million (STP or BTP) Geographical information $0.59 QCBS 80:20 Q1/2010 National 150 person-months system and asset million (STP or BTP) inventory Individual consultants $1.20 Government Q1/2010 International For PMO and PIO: million procedures and national international WSS, acceptable to environmental and ADB solid waste management specialists, and national social or gender development, PPMS, and legal specialists ADB = Asian Development Bank, BTP = biodata technical proposal, FTP = full technical proposal, NGO = nongovernment organization, PIO = project implementation office, PMO = project management office, PPMS = project performance monitoring system, Q= quarter, QCBS = quality- and cost-based selection, STP = simplified technical proposal.
5. Goods and Works Contracts Estimated to Cost Less than $1 Million and Consulting Services Contracts Less than $100,000
5. The following table groups smaller-value goods, works, and consulting services contracts for which procurement activity is either ongoing or expected to commence within the next 18 months.
Procurement Value of or Contracts Number of Recruitment General Description (cumulative) Contracts Method Comments Works Construction of sanitary landfills $3.96 million 3 ICB and NCB All three cities Construction of community water and $1.62 million 3 NCB All three cities sanitation facilities Goods Procurement of environmental $0.27 million 1 NCB One package for monitoring equipment BRD and IDEP equipment Procurement of waste collection tools $0.41 million 4 NCB and Four packages, and receptacles, wind row compost shopping separate for each equipment, and recycling balers category BRD = Biosphere Reserve Directorate, IDEP = Interregional Department for Environmental Protection, NCB = national competitive bidding.
38 Appendix 9
B. Project Procurement Plan
1. Indicative List of Packages Required under the Project
6. The following table provides an indicative list of all procurement (goods, works, and consulting services) over the life of the Project. Contracts financed by the Borrower and others are also indicated.
Estimated Procurement or Domestic General Estimated Value Number of Recruitment Preference or Description (cumulative) Contracts Method Proposal Type Comments Works Rehabilitation of $12.70 million 2 ICB – One package each sewerage system in Balykchy and Karakol Water supply $2.14 million 1 ICB – District metering in district metering in pilot zones in all pilot zones three cities Water supply $ 2.69 million 1 ICB – Transmission main improvement in Balykchy, presedimentation tank in Karakol, and boreholes in Balykchy and Cholpon–Ata Construction of $3.96 million 3 ICB and NCB – All three cities sanitary landfills Construction of $1.62 million 3 NCB – All three cities community water and sanitation facilities Goods Procurement of $1.98 million 1 One ICB and two – Vehicles for vehicles and NCB vodokanal equipment enterprises, tazalyk enterprises, and PMO (ICB case to case and NCB for contracts less than ICB threshold) Procurement of $0.27 million 1 NCB – One package for environmental BRD and IDEP monitoring equipment equipment Procurement of $0.41 million 4 NCB and – Four packages, waste collection shopping separate for each tools and category receptacles, wind row compost equipment, and recycling balers Services Design and $3.89 million 1 QCBS FTP National supervision consultants consultants Information, $0.79 million 1 QCBS STP National education, and consultants communications consultants or NGO
Appendix 9 39
Estimated Procurement or Domestic General Estimated Value Number of Recruitment Preference or Description (cumulative) Contracts Method Proposal Type Comments Management $0.59 million 1 QCBS STP or BTP National information consultants systems and accounting Geographical $0.59 million 1 QCBS STP or BTP National information consultants system and asset inventory Individual $1.20 million 6 Government Biodata and For PMO and PIO, consultants procedures curriculum vitae three international acceptable to ADB specialists and three national specialists ADB = Asian Development Bank, BTP = biodata technical proposal, FTP = full technical proposal, ICB = international competitive bidding, NCB = national competitive bidding, NGO = nongovernment organization, PIO = project implementation office, PMO = project management office, QCBS = quality- and cost-based selection, STP = simplified technical proposal.
C. Indicative Person Months for Consulting Services
7. The following table indicates the professional staff members and person-months required over the life of the Project.
Consulting Assignment Person-Months A. Design and Supervision Consultants Team Leader and Wastewater Engineer 60 Deputy Team Leader and Water Supply Engineer 42 Landfill Design Engineer 42 Electrical and Mechanical Engineer 24 Environmental Specialist 15 Social Development Expert 15 Procurement Specialist 15 Quantity Surveyor 24 Structural Engineer 15 Senior Resident Construction Supervision Engineer 36 AutoCAD (computer aided design) Draftsperson 240 Design Engineers 72 Construction Supervision Resident Engineers 108 Subtotal (A) 708 B. Information, Education, and Communication Consultants Team Leader and Communications Expert 60 Hygiene and Health Specialist 40 Social Development Specialist 40 Publicity and Web Content Manager 60 Subtotal (B) 200 C. Management Information System Consultants Team Leader and Chartered Accountant 36 Accountants 60 Software Professional (with knowledge of Oracle or similar software) 24 Subtotal (C) 120 D. Geographic Information System Consultants Team Leader and Geographic Information System Expert 36 Satellite Imagery Mapping Specialists 60 Surveyors 24 Database Management Specialists 30 Subtotal (D) 150
40 Appendix 9
D. National Competitive Bidding
1. General. The procedures to be followed for national competitive bidding shall be for tendering with unlimited participation and two-stage tendering as set forth in Law of the Kyrgyz Republic on Public Procurement of Goods, Works, and Services (effective April 2004), with clarifications and modifications described in the following paragraphs required for compliance with the provisions of ADB's Procurement Guidelines (2007, as amended from time to time).
2. Eligibility. The eligibility of bidders shall be as defined under section I of ADB's Procurement Guidelines (April 2006); accordingly, no bidder or potential bidder shall be declared ineligible for ADB-financed contracts for other reasons than those provided by section I. Bidders must be nationals of ADB member countries, and offered goods, works, and services must be produced in and supplied from ADB member countries.
3. Prequalification. Normally, post-qualification shall be used unless explicitly provided for in the loan agreement and procurement plan. Irrespective of whether post-qualification or prequalification is used, eligible bidders (both national and foreign) shall be allowed to participate.
4. Registration and Licensing (i) Bidding shall not be restricted to preregistered or licensed firms. (ii) Where registration or licensing is required, bidders (a) shall be allowed reasonable time to complete the registration or licensing process; and (b) shall not be denied registration or licensing for reasons unrelated to their capability and resources to perform the contract, which shall be verified through post-qualification. (iii) Foreign bidders shall not be precluded from bidding. If a registration or licensing process is required, a foreign bidder declared the lowest evaluated bidder shall be given a reasonable opportunity to register or to obtain a license.
5. Bidding Period. The minimum bidding period is 28 days prior to the deadline for the submission of bids.
6. Bidding Documents. Procuring entities should use standard bidding documents for the procurement of goods, works, and services acceptable to ADB.
7. Preferences. No domestic preference shall be given for domestic bidders and for domestically manufactured goods.
8. Advertising. Invitations to bid shall be advertised in at least one widely circulated, national daily newspaper or freely accessible, nationally known website allowing a minimum of 28 days for the preparation and submission of bids. Bidding of national competitive bidding contracts estimated at $500,000 equivalent or more for goods and related services or $1 million equivalent or more for civil works shall be advertised on ADB’s website via the posting of the procurement plan.
9. Bid Security. Where required, bid security shall be in the form of a bank guarantee from a reputable bank.
Appendix 9 41
10. Bid Opening and Bid Evaluation (i) Bids shall be opened in public. (ii) Evaluation of bids shall be made in strict adherence to the criteria declared in the bidding documents, and contracts shall be awarded to the lowest bidder. (iii) Bidders shall not be eliminated from detailed evaluation on the basis of minor, nonsubstantial deviations. (iv) No bidder shall be rejected on the basis of a comparison with the employer's estimate and budget ceiling without ADB's prior concurrence. (v) A contract shall be awarded to the technically responsive bidder that offers the lowest evaluated price and who meets the qualifying requirements set out in the bidding documents. (vi) No negotiations shall be permitted. (vii) Price verification shall not be applied.
11. Rejection of All Bids and Rebidding. Bids shall not be rejected and new bids solicited without ADB’s prior concurrence.
12. Participation by Government-Owned Enterprises. Government-owned enterprises in Kyrgyz Republic shall be eligible to participate as bidders 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 and performance security requirements as other bidders.
13. Right to Inspect and/or Audit. A provision shall be included in all national competitive bidding works and goods contracts financed by ADB requiring suppliers and contractors to permit ADB to inspect their accounts, records, and other documents relating to bid submission and the performance of the contract, and to have them audited by auditors appointed by ADB.
14. Fraud and Corruption (i) The Government shall reject a proposal for award if it determines that the bidder recommended for award has, directly or through an agent, engaged in corrupt, fraudulent, collusive, or coercive practices in competing for the contract in question. (ii) ADB will declare a firm or individual ineligible, either indefinitely or for a stated period, to be awarded a contract financed by ADB, if it at any time determines that the firm or individual has, directly or through an agent, engaged in corrupt, fraudulent, collusive, coercive, or obstructive practices in competing for, or in executing, an ADB-financed contract.
15. National Sanctions List. National sanctions lists may be applied only with prior approval of ADB.
42 Appendix 10 SUMMARY POVERTY REDUCTION AND SOCIAL STRATEGY
Country/Project Title: Kyrgyz Republic/Issyk–Kul Sustainable Development Project
Lending/Financing Modality: Project Loan Department/Division: Central and West Asia and Grant Department/Urban Services Division
I. POVERTY ANALYSIS AND SOCIAL STRATEGY A. Link to the National Poverty Reduction Strategy and Country Partnership Strategy Lake Issyk–Kul ("warm lake" in Kyrgyz) is the world’s second largest saline lake; a Ramsar site of globally significant biodiversity; and a United Nations Educational, Scientific and Cultural Organization (UNESCO)-designated biosphere reserve. The lake forms a significant part of Issyk–Kul Oblast, and contributes to economic growth by providing tourism opportunities. Attracting approximately 1 million tourists annually, equivalent to 70% of the country’s annual tourist of 1.4 million persons, the lake is a major economic driver in the region.
Increasing tourism has resulted in the construction of many resorts that now sprawl around the lake's northern shores. However, existing water and sanitation infrastructure (i.e., water, sewerage, solid waste, and roads) is decrepit, dysfunctional, and poorly managed, and unable to serve the high number of tourists, which exceeds the resident population by a factor of four. The excessive pressure placed on the existing infrastructure is partially responsible for polluting the lake.
The country development strategy, 2009–2011a, emphasizes environmental sustainability, and its strategic investment project for the Issyk–Kul region focuses on protecting Lake Issyk–Kul with the Project. In February 2009, the Concept of Sustainable Development of the Ecological and Economic System of Issyk–Kul was passed through a presidential decree. Based on this, the Government of Kyrgyz Republic passed a resolution in May 2009 that prioritizes implementation of the Project.
The Government has adopted a poverty reduction strategy (now embedded in the country development strategy, 2009-2011) that seeks to increase opportunities to ensure that citizens have an adequate, equitable, and comfortable life in Kyrgyz Republic. The overall goals of the framework imply a large leap in socioeconomic development through mobilization of domestic resources, effective structural reforms and quality management (including bringing in professional managers to foster economic development), improvement of infrastructure, introduction of new technologies and information systems, and active involvement of civil initiatives. In other words, sustainable stabilization and dynamic development for the well being of all citizens will guide Kyrgyz Republic to prosperity.
Asian Development Bank (ADB)-led investment and policy dialogue will improve the quality of urban services, foster tourist growth, and preserve the lake's environment. The assessment of institutional, legal, and municipal finance assessments in the oblast will provide a suitable platform for developing ADB's urban services sector development strategy for Kyrgyz Republic. Development of performance-based service contracts will also improve opportunities for public–private partnerships in the water and sanitation sector.
The Project is consistent with ADB’s Water Policyb, and it will help achieve the Millennium Development Goal of environmental sustainability (goal 7) and specifically address target 10 (to halve the proportion of people without sustainable access to safe drinking water and basic sanitation by 2015). B. Poverty Analysis Targeting Classification: TI-M 1. Key Issues The National Statistics Committee calculates an annual poverty line adjusted to inflation. In 2008, the poverty line was calculated as Som963 ($22) per person per month, with the line of extreme poverty being Som640 ($15) per person per month. Although the national poverty level has decreased from 49% in 2003 to 35% in 2008, poverty reduction is larger for rural areas. Based on 2008 data, Issyk–Kul Oblast ranks fourth in terms of poverty incidence, with 39%, and about 8% suffering extreme poverty. The poor account for 19% of the beneficiary population, with the extremely poor making up 9%. Within the project area, poverty incidence ranges from 2.6% in Cholpon–Ata, to 10.4% in Karakol, and to 31.9% in Balykchy.
A socioeconomic survey indicated that urban residents' top priority is improved water supply and sanitation services.
Water supply. About one quarter of households and 19% of poor households indicated inadequate water supply for household needs. Waterborne illnesses were significant, with 82% of households stating incidences in the past 5 years. Overall, 23% of all people suffering from waterborne illnesses were poor, and the costs of treating such illnesses were a significant additional burden. Poor households also lost 75 potential labor days per year due to waterborne illnesses. Therefore, improved water quality is a high priority.
Appendix 10 43
Sanitation. About 75% of households use dry-pit latrines, and 24% use flush or pour toilets. The poor generally use pit latrines, which cannot be connected to a centralized system. About 66% of households surveyed stated that they would be willing to pay for connection to a sewerage system, indicating citizen priority for improved sanitation.
Solid waste management. About 84% of households stated that a municipal collection service was unavailable on a daily basis. Waste disposal practices included plastic bottle and packaging collection by tazalyk enterprises from 50% of households, waste incineration by 36% of households, and waste disposal to the nearest landfill or waste receptacle by 8% of households. All poor households stated that they sold household waste for recycling. Increased collection frequency was a stated requirement.
The social analysis concluded that the poor mostly live in areas without running water supplies, sewage and solid waste collection, and treatment services. They often suffer from serious water supply shortages, poor water quality, sewage pollution, and poor urban environmental sanitation.
2. Design Features The Project incorporates several strategies to facilitate the ability of households and communities to realize benefits from water supply, sanitation, and solid waste management improvements and maintenance, thus contributing to poverty reduction in the project area, including (i) priorities for employment of local men and women for both physical works and routine maintenance, particularly for poor households; (ii) contractor specifications for provision of HIV/AIDS and sexually transmitted infection awareness and prevention programs for construction crews (physical works) and surrounding communities; (iii) an information, education, and communication campaign to ensure public consultation and a participation program linked to different aspects of project preparation and implementation (including participation in monitoring) to be undertaken by the Executing Agency and to continue the consultation commenced during the project preparatory technical assistancec; (iv) a gender action plan focusing on a training program to deliver increased awareness and knowledge on water drinking safety, water source protection, treatment, water and environmental sanitation and diseases, toilet renovation, health education and promotion; and (v) community upgrading initiatives such as improvements in school water supply and sanitation; improvements to pit latrines used by the poor through community septic tanks; and provision of public toilets in markets, hospitals, clinics, and other public institutions. II. SOCIAL ANALYSIS AND STRATEGY A. Findings of Social Analysis The population of the project area (i.e., the three urban centers of Balykchy, Cholpon–Ata, and Karakol) is about 121,500 and is expected to increase to 128,750 by 2015. The household survey indicates that two thirds of households are Kyrgyz, 18% are Russian, 4% are Tajik, and 12% belong to other ethnic groups. Cholpon–Ata comprises the largest proportion of Kyrgyz, with 89%. Overall, some 41% of households are headed by women.
The primary beneficiaries of the Project are the residents of the three cities and tourists. Some households will experience improvement in water supply, sanitation, and solid waste management, including (i) households that are impacted when members fall sick due to waterborne illnesses resulting from insufficient or poor-quality water; (ii) those that use markets, hospitals, clinics, and other public institutions that will be provided with improved facilities (i.e., public toilets); (iii) schoolchildren and teachers to be provided with improved water supply and sanitation facilities; (iv) poor households using pit latrines that will be improved through provision of community septic tanks; (v) general and more widespread benefits from the sanitary landfill and improvements to solid waste management practices; and (vi) households, hotels, guesthouses, and institutions connected to the rehabilitated sewerage system.
Health benefits. The Project will reduce morbidity and mortality rates from waterborne, vector-borne, and airborne diseases and contribute to savings in associated medical costs and loss of healthy working days. The Project will (i) prevent an increase in the incidence of waterborne illnesses arising form contaminated or insufficient water; (ii) prevent an associated increase in medical expenses; and (iii) prevent an associated increase in time lost from work, thereby leading to loss of income.
Employment benefits. The Project will create direct short-term employment during the construction phase and long-term employment opportunities during the operation phase (maintenance). A target of 30% short-term employment opportunities will be filled by the poor and women during the construction phase. Since unemployment and redundancies within the informal sector (those most likely to be employed on the Project) are the major causes of poverty in the project area, the poor will benefit disproportionately from this job creation.
Tourism sector benefits. A small tourism survey of operators and tourists included in the project preparatory technical assistance was conducted, covering 30 tourists (10 in each city) and 31 tourism service operators (hotels, inns, and guest houses). Inadequate water supply and poor sanitation in hotels and guesthouses, and inadequate solid waste collection services (and unclean public places), were indicated as negatively impacting tourism. About 33% of tourists indicated that water supply and sanitation were poorly managed, but 55% indicated that solid waste was efficiently collected and transported. Clearly, improvements to basic services will have benefits for the tourism experience.
44 Appendix 10
Other economic benefits. In addition, improved health and quality of life will increase the capability of people and will promote local economic development. The improved water quality and urban environment will promote sustainable economic development and accelerate tourism development where the poor and women are particularly likely to find opportunities, as they make up a large proportion of small-service operators and vendors.
B. Consultation and Participation 1. Provide a summary of the consultation and participation process during the project preparation. A socioeconomic survey covered 514 respondents who were randomly sampled in the three cities. Stakeholder consultation workshops, focus group discussions, and key informant interviews on urban services, tourism development, and environmental management formed an integral part of the consultation process. Environmental impact assessment and resettlement due diligence report preparation also involved rounds of public consultation.
2. What level of consultation and participation (C&P) is envisaged during the project implementation and monitoring?
Information sharing Consultation Collaborative decision making Empowerment
3. Was a C&P plan prepared? Yes No The Project includes an information, education, and communication campaign comprising (i) a public environment and hygiene awareness program at the community level; and (ii) an HIV/AIDS and sexually transmitted infection awareness and prevention program aimed at the construction workforce. The campaign will be implemented in parallel with existing environment and health programs. Consultations with communities will be held during detailed engineering designs and implementation of components. Special attention will be paid to the participation of women and any other vulnerable group, such as the poor.
C. Gender and Development 1. Key Issues Although Kyrgyz Republic avoided some of the more drastic collapses in social and economic indicators experienced by countries in transition, effects have nevertheless been felt by its population, particularly women. Significant and growing gender disparities in political leadership, employment opportunities, and wage rates have increased rates of women’s income poverty.
Households headed by women account for 41% of beneficiary households and are smaller than households headed by men; single-person households are more often headed by women. Some 87% of households headed by women and 91% of households headed by men receive regular cash income. Higher proportions of households headed by women (20%) live in poverty than households headed by men (18%). The total number of sick days due to waterborne illnesses is higher for women (151) than for men (73). Women and girls at reproductive age are primarily responsible for collection of household water, household garbage disposal, and care for the sick and elderly. These tasks negatively impact health and cause conflict and stress in communities during rush hours and limited water supply schedules. Despite an active role in the sector, women lack decision-making powers, and their representation in management is low at 10%.
The poverty and social assessment indicated that women strongly support the Project across all components. Women perceive that the Project will improve their living environments, create employment opportunities, and reduce the incidence of waterborne illnesses and associated costs. Implementation of the gender action plan will enhance the benefits to women through a training and awareness-raising program focusing on drinking water safety, water source protection and treatment, water and environmental sanitation and diseases, toilet renovation, and health education and promotion.
2. Key Actions Measures included in the design to promote gender equality and women’s empowerment—access to and use of relevant services, resources, assets, or opportunities and participation in decision-making process: Gender plan Other actions/measures No action/measure
Gender has been mainstreamed into the design of the Project, including a range of gender-sensitive measures, requirements for consultation, and monitoring indicators. The Implementing Agency will work with contractors and communities to facilitate the participation of women in paid work opportunities for physical works and to ensure that all Kyrgyz labor laws are respected (e.g., equal pay for equal work and no use of child or trafficked labor). HIV/AIDS and sexually transmitted infection awareness and prevention programs will target women as well as men, including programs instituted by contractors to reach the construction crew. Project assurances will prioritize women for employment, including a 15% target for project employment opportunities for women and 15% for the poor during the construction phase, and will be monitored by the Project. The community-based environmental and hygiene awareness program that is at the core of the gender action plan will directly address women’s needs and health risks.
Appendix 10 45
III. SOCIAL SAFEGUARD ISSUES AND OTHER SOCIAL RISKS Issue Significant/Limited/No Strategy to Address Plan or Other Measure Impact Issue Involuntary resettlement Physical works associated Due diligence report Full plan with the Project are located prepared, and Short plan on sites that are already scavengers at sanitary Resettlement used for the same purpose landfill will be provided framework or use state-owned right of employment in waste No action way alongside existing segregation activities. Due diligence report roads. Resettlement Resettlement category C, impacts will be avoided or i.e., no impact. minimized. Indigenous peoples The Project will not All ethnic groups in the Plan adversely affect ethnic or project area will benefit. Other action cultural minorities in the All groups will participate Indigenous peoples project area. The Project is equally in the Project. framework classified as category C No action with respect to indigenous peoples. Labor The Project endorses the Civil works contracts will Plan Employment opportunities principle of recruitment of stipulate priorities to (i) Other action Labor retrenchment local people for physical employ local people, (ii) No action Core labor standards works. ensure equal opportunities for women and men for work, (iii) pay wages promptly, and (iv) not employ child or forced labor. Affordability The potential negative A consumption-based Action impact of water tariff tariff is operational. No action increases on the poor is Tariffs will be revised considered to be based on affordability (at acceptable, particularly less than 5% of given that the poor household income). currently pay a higher- than-average proportion of their incomes on water. Other Risks and/or The level of knowledge of The Project will Plan vulnerabilities HIV risks and transmission complement ongoing Other action HIV/AIDS and sexually is low, and key at-risk awareness programs No action transmitted infections groups include commercial through an information, Human trafficking sex workers who are education, and Others (conflict, political known to be associated communication campaign instability, etc.) with the tourism sector. covering HIV/AIDS and There is also the small risk sexually transmitted associated with infections for construction construction workforce workers. during the physical works phase of the Project. IV. MONITORING AND EVALUATION Are social indicators included in the design and monitoring framework to facilitate monitoring of social development activities and/or social impacts during project implementation? Yes No The long-term social monitoring study will document water and sanitation benefits for women. Gender-sensitive and -disaggregated monitoring indicators are included in the project performance monitoring framework. a Kyrgyz Republic. 2009. Country Development Strategy (2009–2011). Bishkek. b ADB. 2003. Water for All: The Water Policy of the Asian Development Bank. Manila. c ADB. 2009. Technical Assistance to Kyrgyz Republic for the Issyk–Kul Sustainable Development Project. Manila.
46
GENDER ACTION PLAN
Appendix 11 Appendix Project Activities Targets and Indicators Institutions Timeline A. Infrastructure Improvement Component Ensure that women and girls at reproductive age have access to Targets Vodokanal By safe household-level sanitation. Water supply system rehabilitated for all poor households enterprises, January
Ensure that women and girls at reproductive age have access to headed by women, especially widows with children tazalyk 2012 and safe community- and neighborhood-level sanitation. Bath and laundry complexes provided with separate enterprises, city thereon bathing facilities for women and adequate lighting for safe administrations, Ensure women have adequate access to bath and laundry facilities and oblast (complex). and easy access Ensure water meters are installed in poor households headed by Sanitation facilities in schools include separate toilet women (including widows with children). facilities for girls and female staff members. Ensure that solid waste collection frequency is increased Public conveniences in markets and commercial areas throughout the city and specifically in areas with poor households include specific sanitation facilities for female customers headed by women (including widows with children). and stallholders. Ensure equal access of men and women to toilets and water supply Hospital facilities give special attention to improving water facilities in hospitals, public institutions, and markets. and sanitation in maternal health wards, including delivery rooms. Ensure girls of reproductive age have access to toilets and water supply facilities in schools. Indicators Ensure hospital facilities give special attention to improving water Number of women having access to proper water supply and sanitation in maternal health wards. and safe sanitation Number of girls at reproductive age having access to safe sanitation Number of water meters in poor households Number of toilets in schools and hospitals installed (upon request where lacking) Total number of potential labor days lost by poor households due to waterborne illnesses reduced from 75 to 25 B. Enterprise Resource Management Component Include city, vodokanal enterprises, and tazalyk enterprises female Targets Vodokanal Through staff members in governance and institutional reforms. Capacity of female staff members in vodokanal enterprises, project Include city, vodokanal enterprises, and tazalyk enterprises female enterprises and tazalyk enterprises improved, especially tazalyk implemen- staff in twinning program and capacity-development measures. regarding database management and financial enterprises, city tation management administrations, Provide gender equality briefing and/or trainings for consultants and PMO, PIO, MIS community facilitators to improve their understanding of gender consultants, perspectives and their capacity to implement the Project’s gender Indicators and GIS action plan sufficiently. Number of women staff involved in twinning program and consultants capacity development measures
Project Activities Targets and Indicators Institutions Timeline C. Cross-Cutting across Components Identify gender issues and include solutions in plans, frameworks, Targets PMO; PIO; Through and development strategies. To the extent possible, 30% or more representation of design and project Provide gender awareness and development inputs during project women at decision-making levels in project-related supervision implemen- implementation and ADB review missions. activities consultants; tation and information, Project Team to the extent possible, 50% women participation (to the extent possible) established education, and Women’s Participation communication Ensure women’s representation at the decision-making level in GAD Focal Point (Gender Specialist at PIO) appointed consultants project-related agencies and structures. and made responsible for IEC activities, hygiene and sanitation education and GAP implementation Gender Balance Effective participation, to the extent possible, 30% women Ensure balanced representation of both genders in all consultations ensured in all consultation and socialization activities and project activities. All gender training programs assessed on gender Ensure gender-balanced teams in the PMO and PIO. perspective content prior to delivery Specific gender trainings developed and provided to all Awareness Generation through Information, Education and consultants and community facilitators Communication Activities Gender action plan implemented and monitored Ensure gender awareness and development training is conducted for the PMO and PIO. Gender-disaggregated data collected in community-level social mapping Assist oblast and rayon managers and planners to understand gender differences and relevance to infrastructure provision. Gender awareness and development inputs to the main project reports and documents made, and analysis of Ensure students (especially girls) in schools receive trainings on gender-disaggregated data included in project progress reproductive health and hygiene and are provided necessary reports hygiene facilities and means. Employment opportunities for women via trainings Provide training for community facilitators and health advocates to increased (to the extent possible 15%) raise family and community awareness on hygiene and sanitation.
Indicators Number of students trained on hygiene and reproductive health (mixed groups) Number of awareness sessions conducted for construction workers on HIV/AIDS and sexually transmitted infection awareness and prevention
Number of gender awareness and development trainings 11 Appendix at all project levels Number of gender awareness and development trainings for community facilitators and health advocates
Number of field visits conducted by project gender 47 specialists to review progress in gender mainstreaming and to supervise community facilitators GIS = geographic information system, MIS = management information system, PIO = project implementation office, PMO = project management office. Source: Asian Development Bank.
48 Appendix 12
FINANCIAL ANALYSIS
1. Methodology. The subprojects (the three project cities of Balykchy, Cholpo-Ata and Karakol) of the Issyk–Kul Sustainable Development Project (the Project) were analyzed following the Handbook for Economic Analysis of Water Supply Projects1 and the Financial Management and Analysis of Projects2 of the Asian Development Bank (ADB). The financial analysis assesses subproject ability to meet future costs, including capital expenditure, operation and maintenance costs, and if appropriate, debt servicing and depreciation or reinvestment margins.
2. The analysis was conducted on a without- and with-project basis by estimating incremental costs and revenues over 25 years. The main financial viability parameters analyzed were (i) the financial internal rate of return (FIRR), which will be greater than the weighted average cost of capital (WACC), with the financial net present value as proxy; (ii) operating ratio, which will be less than or equal to unity when the Project becomes fully operational; and (iii) tariff affordability, normally acceptable at a maximum of 5% of average household income. Details of the analysis are presented in the Supplementary Appendix I.
3. The analysis looked closely at the operating ratio as a main indicator of sustainability, where operation and maintenance, depreciation, and interest expenses are measured against tariff revenues. A ratio at less than unity reflects cost recovery, thus a certain level of sustainability; at greater than unity, it shows the lack thereof, thus the need to increase tariffs or to obtain viability gap funding.
4. Assumptions. The key assumptions used were (i) investment cost at base June 2009 prices; (ii) physical contingencies at 10%; (iii) local inflation at 13% in 2009, 12% in 2010, 10% in 2011 and 2012, 9% in 2013 and 2014, and 7% in 2014 and onward; (iv) foreign inflation at 2.5% annually; (v) operation and maintenance costs covering salaries, chemicals, power, repair, and maintenance, and bad debts allowance based on historical operations and on design technology used; (vi) asset useful life assumed at 10 years for equipment, particularly service connection meters, and 50 years for civil works; and (vii) historical population growth rates.
5. The “floating population” of tourists and regular transients were accounted for, and was estimated at between 15% and 40% on top of base populations in the three project cities. The periodic population growth rates reported by the National Statistics Committee were adjusted to reflect the situation.
6. Revenues were projected from domestic and nondomestic demand for water and sewerage services, and tariffs programmed to increase every 2 years. As the basis for calculating existing tariffs is difficult to verify, the required initial increase at subproject completion by 2015 (year 5)—which would be substantial—was determined based on user affordability and targeted cost recovery levels, including (i) operation and maintenance costs coverage; (ii) operation and maintenance costs plus depreciation coverage; and (iii) operation and maintenance costs plus depreciation and debt interest coverage. Tariffs were maintained within consumer affordability limits.
7. The analysis on water supply and sewerage was based on the design demand of about 80 liters per capita per day (lpcd) for domestic connections increasing to 100 lpcd for Balykchy
1 ADB. 1999. Handbook for Economic Analysis of Water Supply Projects. Manila. 2 ADB. 2005. Financial Management and Analysis of Projects. Manila.
Appendix 12 49 and Karakol, and to 150 lpcd for Cholpon–Ata when systems become fully operational by 2015. Nondomestic demand is between 20% and 28% of the domestic. Sewage generation is at 70% of total water demand.
8. The demand forecast assumes all water from existing alternative sources (i.e., bottled, collected from point source, and pumped) will be replaced with subproject water supply. This has featured as nonincremental water in the economic analysis. System improvements with-project will curb nonrevenue water from the current amount of about 25% in Balykchy and Karakol to 20% upon project completion, and of about 60% in Cholpon–Ata to 55% by 2015 (year 5) and further to 20% by 2020 (year 10). The improvement in water recovery will make billable water available to the system, thereby contributing to the cost-recovery perspective. This has featured as incremental water, as a source of benefits in the economic analysis.
9. Capital Cost Estimates. Subproject capital investment has three major components: (i) physical infrastructure, consisting of civil works, materials and equipment, and taxes and duties; (ii) enterprise resource management; and (iii) project management and administration, including incremental administration; engineering and construction supervision; and an information, education, and communication campaign.
10. The three subprojects require an investment of $37.50 million including contingencies. The capital costs for the three subprojects are summarized in Table A12.1.
Table A12.1: Subproject Capital Cost ($ million) Subproject Subproject Subproject Particulars %Total Total Balykchy Cholpon-Ata Karakol Civil Works and Equipment 52.1 19.537 6.641 2.854 10.042 Water Supply 9.8 3.660 1.513 1.127 1.020 Sewerage 25.7 9.626 2.596 — 7.030 WSS Vehicles and Equipment 2 0.737 0.342 0.052 0.342 Solid Waste 11.4 4.290 1.701 1.429 1.160 Community Upgrading 3.3 1.224 0.489 0.246 0.489 Enterprise Resource Management 3.6 1.339 0.446 0.446 0.446 Project Assistance Facility 14.8 5.532 1.844 1.844 1.844 Total Basic Cost 70.4 26.408 8.932 5.144 12.332 Physical Contingency 4.4 1.653 0.547 0.306 0.800 Price contingency 14.1 5.271 1.781 1.012 2.478 Total Contingencies 18.5 6.924 2.328 1.318 3.278 Interest During Construction 2.7 1.000 0.344 0.193 0.463 Total Financing Charges 2.7 1.000 0.344 0.193 0.463 Taxes and Duties 8.5 3.169 1.072 0.617 1.480 Total Landed Cost 100 37.501 12.675 7.273 17.552 Source: Asian Development Bank estimates.
11. Financing Plan. The investment will be financed through a mix of ADB loans, estimated at $17.31 million (including financing charges) or 46% of total capital investment, and a government contribution of $7.43 million, or 20% of the total, including taxes, duties, and other charges. ADB will also provide a grant of $12.76 million, or 34% of total. Karakol, Issyk–Kul Oblast's capital, will receive bulk of the investment at 47% of the total. The summary financing plan is detailed in Table A12.2.
50 Appendix 12
Table A12.2: Subproject Financing Plan ($ million) Subproject Subproject Subproject Particulars %Total Total Financing Cholpon-Ata Karakol Amount to be financed: Investment In Project 97.3 36.50 12.33 7.08 17.09 Interest During Construction 2.7 1.00 0.34 0.19 0.46 Total Capital Investment 100.0 37.50 12.68 7.27 17.55 - Financed by: - ADB Loan 46.2 17.31 5.85 3.36 8.10 Disbursement 43.5 16.31 5.51 3.16 7.64 IDC 2.7 1.00 0.34 0.19 0.46 Government 19.8 7.43 2.51 1.43 3.50 Equity Contribution 11.4 4.27 1.43 0.81 2.02 Charges, Taxes, Other 8.5 3.17 1.07 0.62 1.48 Grant 34.0 12.76 4.32 2.49 5.95 Total 100.0 37.50 12.68 7.27 17.55 ADB = Asian Development Bank, IDC = interest during construction. Source: ADB estimates.
12. Weighted Average Cost of Capital. The WACC was calculated in real terms and was used as the hurdle rate for the FIRR to measure subproject viability. Funding sources are the ADB loan and government contribution, at about 80%–20% sharing. Inflation is estimated at 2.47% for foreign cost and at an 6.80% annual average for local costs. The rates are computed on after-tax basis, resulting in the WACC in real terms estimated at 15.4%. The WACC calculation for the three subprojects combined is presented in Table A12.3.
Table A12.3: Weighted Average Cost of Capital Cost of Weighted Inflation WACC Capital Capital Capital Rate Real Particulars ($ million) % Total % ($ million) %% ADB 30.07 80.2 1.50.452.50.00 Government 7.43 19.8 25 1.82 7.92 15.36 Total 37.50 100.0 2.27 15.36 ADB = Asian Development Bank, WACC = weighted average cost of capital. Source: ADB estimates.
13. Operation and Maintenance Costs. Subproject operation and maintenance costs include vodokanal enterprise and tazalyk enterprise staff salaries, power and energy, chemical treatment, maintenance, and miscellaneous expenses, and are based on vodokanal enterprise historical financial operations. Bad debt expense is assumed at 1% of sales. Escalation is applied based on local inflation. Depreciation is assumed at 2% annually (50-year items) for civil works and 6.7%–10.0% (10–15-year items) for replacement materials and equipment. Replacement of fully depreciated assets is to be financed through internal cash.
14. Cost-Recovery Analysis. The tariff was established by dividing all cash requirements plus margins by the combined volume of water sold and sewage and solid waste generated. It is projected that the collection rate will improve as services improve. In the analysis, an actual collection rate of about 60%–80% for the three project cities is expected to reach 90% by 2015 (year 5). The analysis determined the level of tariffs required to satisfy the defined cost-recovery options. Where tariffs are insufficient to attain full cost recovery, the required shortfall has been assessed in the form of viability gap funding.
Appendix 12 51
15. Current Tariffs. Current water tariffs differentiate between domestic and nondomestic use. All existing tariffs are volumetric and structured to prevent waste. However, metering is very limited at less than 3% in the three project cities. Where metering is available, wear and disrepair have rendered the equipment unreliable. Under the Project’s capital investment program, full metering is recommended. House and apartment connections for water supply are presently charged on average $0.08 per cubic meter in the three cities. Nondomestic connections are charged about five times that at $0.43 per cubic meter. For sewerage services, domestic charges average $0.06 per cubic meter; nondomestic, $0.36. Existing domestic tariffs for solid waste services average $2.20 per cubic meter, with nondomestic service users charged 2.3 times more, averaging $5.01.
16. Tariff Basis and Forecast. In financial projections, where costs are given in nominal terms, the tariffs are projected to increase biennially to cope with cost inflation. In the FIRR cash flows, the tariffs are taken in real terms. The projected increases will start after construction to allow time for service users to assimilate to the proposed tariff reforms that will include full metering for water consumption. For solid waste services, full costs of waste collection and disposal will remain the basis for cost-recovery tariffs; however, a higher tariff collection rate will be targeted and form part of financial management reforms. It is proposed to include tariff restructuring as part of financial reforms to re-examine existing norms and their bases to ensure more realistic design approaches for future projects in the water supply and sanitation sector.
17. Affordability Analysis. An affordability analysis was undertaken to check the level of water expenditure against average household income. Table A12.4 presents the affordability levels in each subproject for year 1 (2011), year 5 (2015), and year 10 (2020). The number of persons at an average of 5.0 per household and the unit consumption at 90 lpcd in 2009 are based on field surveys and actual operational reports. Average household incomes are based on social surveys conducted in the subproject cities during project preparation and adjusted to price inflation.
Table A12.4: Tariff Affordability Subproject Balykchy Subproject Cholpon-Ata Subproject Karakol Particulars Year 1 Year 5 Year 10 Year 1 Year 5 Year 10 Year 1 Year 5 Year 10 A. Water Supply and Sewerage Persons per householda 3.9 3.9 3.9 4.3 4.3 4.3 4.0 4.0 4.0 Consumption, lpcda 47.1 120.0 120.0 39.0 67.5 120.0 58.5 120.0 120.0 Average consumption/mo (m3) a 5.6 14.2 14.2 5.0 8.7 15.5 7.1 14.5 14.5 Average household income/mo ($) a 147.2 180.2 219.3 147.2 180.2 219.3 147.2 180.2 219.3 Average household water bill/mo ($) 0.6 1.8 3.3 0.4 0.9 2.8 0.2 0.5 0.9 Income spent for WSS 0.4% 1.0% 1.5% 0.3% 0.5% 1.3% 0.1% 0.3% 0.4%
B. Solid Waste Management Persons per household 3.9 3.9 3.9 4.3 4.3 4.3 4.0 4.0 4.0 Waste generation (m3/capita/yr)b 2.0 2.0 2.0 2.0 2.0 2.0 1.5 1.5 1.5 Average waste generation/mo (m3) 0.2 0.2 0.2 0.2 0.2 0.2 0.1 0.1 0.1 Average household income/mo ($) 147 180 219 147 180 219 147 180 219 Average household SWM bill/mo ($) 0.2 0.3 0.6 0.7 0.9 1.5 0.1 0.2 0.3 Income spent for SWM 0.2% 0.2% 0.3% 0.5% 0.5% 0.7% 0.1% 0.1% 0.1% lpcd = liters per capita per day, mo = month, SWM = solid waste management, WSS = water supply and sanitation, yr = year. aBased on Social Survey conducted in June-July 2009 in Balykchy, Cholpon-Ata and Karakol. b Based on Tazalyk records. Source: Asian Development Bank estimates.
52 Appendix 12
18. From the analysis, tariff increases for the three subprojects required to satisfy viability parameters are within consumer affordability. However, viability gap funding will need to be considered during the initial years of operation to recover costs fully, including asset replacements. Table A12.4 indicates that the proposed monthly charge for the three cities is far lower than the generally accepted limit of 5% of household income. Politically, exponential increases are unacceptable, and it is proposed that viability gap funding will provide the initial buffer to meet required operating ratios before financial reforms and progressive tariff increases reduce dependence on such funding.
19. A break-even analysis was undertaken for all subprojects. To cover operation and maintenance costs, tariffs are set to increase biennially at rates given in Table A12.5. Also indicated is the cumulative viability gap funding required under each scenario to ensure operations are sustainable within acceptable tariff increases. The accumulative viability gap funding is determined over 2010–2015 and 2016–2029 before the Government of Kyrgyz Republic plans an exit strategy from viability gap funding support. Project support through the enterprise resource management component should support financial management reforms to improve vodokanal enterprises and cities' ability to meet operation and maintenance costs.
Table A12.5: Cost Recovery Tariffs and Required Viability Gap Fund Balykchy Cholpon-Ata Karakol Tariff Tariff Tariff Level Cost Recovery Increase VGF Needs Increase VGF Needs Increase VGF Needs WSS (2010–2015) I O&M Cost 20% 0.446 20% 0.691 20% 2.675 II O&M + Depreciation 20% 0.956 20% 0.935 20% 3.727 III O&M cost + Deprn + Debt 20% 0.956 20% 1.001 20% 3.979
WSS (2016–2029) I O&M cost 67% 0.000 54% 0.059 93% 4.026 II O&M + Depreciation 63% 0.032 49% 0.143 87% 5.499 III O&M cost + Deprn + Debt 60% 0.091 49% 0.182 89% 6.058
SWM (2010–2015) I O&M cost 20% 0.683 20% 0.956 20% 1.051 II O&M + Depreciation 20% 0.952 20% 0.956 20% 1.051 III O&M cost + Deprn + Debt 20% 0.952 20% 1.021 20% 1.110
SWM (2016–2029) I O&M cost 110% 1.309 103% 1.392 131% 1.141 II O&M + Depreciation 111% 1.685 103% 1.958 129% 1.671 III O&M cost + Deprn + Debt 106% 2.503 97% 1.907 129% 2.749 deprn = depreciation, incr = increase, O&M = operation and maintenance, VGF = viability gap fund. Source: Asian Development Bank estimates.
20. For example, to break even in water, sewerage, and solid waste services in Balykchy, by covering only operation and maintenance costs, the Government would provide $1.13 million in viability gap funding for the period 2010–2015 and $1.31 million in viability gap funding for the period 2016–2029. This would be in addition to the average biennialtariff increase of 20% for the period 2010–2015 and 67%–110% for the period 2016–2029.
21. Financial Viability Approach. The subproject is considered viable if the resulting FIRR is greater than the WACC, and cost recovery tariffs within consumer affordability. Additionally, the operating ratio will need to be maintained lower than unity throughout the Project’s life to ensure sustainability. Initial spreadsheet iterations reveal that without proposed improvements, subproject operations will not be sustainable as operation and maintenance expenses exceed tariff revenues. To satisfy all viability and sustainability parameters, tariffs will need to be
Appendix 12 53 progressively increased, especially during the initial years after project completion. Spreadsheet iterations were run to determine the operating ratio in the with-project situation.
22. Financial Viability and Sensitivity Analysis. Table A12.6 provides the results of sensitivity tests and indicates that subprojects are highly sensitive to stress conditions.
Table A12.6: Subproject FIRR Subproject Balykchy Subproject Cholpon-Ata Subproject Karakol FNPV FNPV FNPV Particulars FIRR ($ million) FIRR ($ million) FIRR ($ million) Water Supply and Sewerage Base Case 15.9% 0.266 15.7% 0.066 15.8% 0.303 Capital Cost plus 20% 14.3% (0.557) 13.8% (0.285) 14.3% (1.047) O&M Cost plus 20% 15.3% (0.034) 14.9% (0.067) 15.1% (0.296) Revenue less 20% 13.3% (0.909) 12.7% (0.431) 13.3% (1.706) 1-year Delay in Benefit 13.9% (0.688) 13.5% (0.319) 13.7% (1.408) Switching Value - Capital Cost 7.0% 0.065 4.2% 0.037 4.9% 0.045 Switching Value - Revenue 4.3% 0.045 2.6% 0.026 2.9% 0.030 At WACC, Capital Cost change 5.6% 0.034 6.2% (0.043) 4.1% 0.025
Solid Waste Management Base Case 15.4% 0.017 15.4% 0.024 15.5% 0.043 Capital Cost plus 20% 14.2% (0.370) 14.2% (0.326) 14.3% (0.272) O&M Cost plus 20% 14.7% (0.206) 14.5% (0.233) 14.7% (0.148) Revenue less 20% 13.1% (0.596) 12.9% (0.589) 13.2% (0.472) 1-year Delay in Benefit 13.5% (0.529) 13.4% (0.510) 13.5% (0.419) Switching Value - Capital Cost 1.0% 0.009 1.5% 0.014 3.0% 0.027 Switching Value - Revenue 0.5% 0.006 0.8% 0.008 1.6% 0.017 At WACC, Capital Cost change 0.3% 0.011 2.0% (0.011) 1.7% 0.017 () = negative, FIRR = financial internal rate of return, FNPV = financial net present value, mill = million, O&M = operation and maintenance, WACC = weighted average cost of capital. Source: Asian Development Bank estimates.
23. Conclusion. Subproject vodokanal enterprises and tazalyk enterprises are financially viable when (i) tariff increases are required at least every 2 years and should be based on cost recovery and consumer affordability principles, and (ii) the Government should make available viability gap funding to ensure service sustainability. These conditions have been incorporated in the financial improvement action plan. These reform plans and related issues have been discussed and agreed with the Executing Agency with the aim of achieving financial sustainability of the overall investment. Income affordability is a major factor in rationalizing tariffs; thus, the household income base needs to be reviewed periodically. The sensitivity analysis indicates that subcomponent FIRRs are stressed under various conditions, implying a need for efficient project implementation to rapidly achieve physical and financial targets.
54 Appendix 13
ECONOMIC ANALYSIS
1. Methodology. The economic analysis for the Issyk–Kul Sustainable Development Project (the Project) followed Asian Development Bank (ADB) guidelines, including Guidelines for the Economic Analysis of Projects1 and Handbook for the Economic Analysis of Water Supply Projects.2 The analysis describes the economic rationale and target beneficiaries, and undertakes a viability analysis of the three subprojects (the three project cities of Balykchy, Cholpo-Ata and Karakol). A sensitivity analysis was conducted to determine the effects of certain adverse conditions on system capital investment and operation and maintenance costs, revenue generation, and overall subproject viability. The analysis used the domestic price numeraire, as benefits are nontradable in nature. The analysis was undertaken at a constant mid-2009 price level and assesses project effects over 25 years (2011–2035).
2. Economic Rationale and Goals. The project economic rationale was based on the following. (i) Improving urban services and Lake Issyk–Kul's environment. Urban services in the three project cities have deteriorated since the collapse of the Soviet Union. Lack of capital investments for infrastructure improvement and insufficient revenues to meet operating expenditures have affected the quality of the services. Consequently, due to poor access to sanitation and solid waste treatment and disposal, surface water runoff and contaminated groundwater have impacted the lake's environment. Project interventions will help improve the quality of infrastructure and terminate any future contamination of the lake. (ii) Fostering tourism growth. Improving the lake's environment and quality of services in the three project cities will foster tourism growth. Tourists visiting Lake Issyk–Kul account for 70% of the country's tourists, or about 1 million visiting the region each June to August (translated as four times the resident population in project cities). Dilapidated urban infrastructure is under excess pressure during the peak tourist season, and tourist perception and continued patronization of the region are contingent on efficient urban services. Improvements through the Project will ensure growth in tourist numbers, increased gross regional product, and accrued benefits to the oblast and country. (iii) Improving local government and service utility performance. To sustain efficient services, the Project will improve the institutional effectiveness of local governments and service utilities (i.e., vodokanal enterprises and tazalyk enterprises). Through the enterprise resource management component, the Project will (a) improve financial management practices in the project cities, vodokanal enterprises, and tazalyk enterprises, and create a culture of generating revenue surpluses to reinvest into capital assets or to leverage for debt; (b) create a database of water and sewerage assets and conditions to help vodokanal enterprises identify infrastructure improvements in the long term based on a well-developed asset management and maintenance system; and (c) build vodokanal enterprises staff capacity to manage services through a twinning program. (iv) Enabling public–private partnerships. Current arrangements between cities and service utilities 3 are loosely based on service agreements that require improvement in performance standards. The Project will improve service quality
1 ADB. 1997. Guidelines for the Economic Analysis of Projects. Manila. 2 ADB. 1999. Handbook for the Economic Analysis of Water Supply Project. Manila. 3 Vodokanal enterprises and tazalyk enterprises are quasi-private entities, as their relationships with cities are based on service agreements, and payments are based on city council-approved business plans.
Appendix 13 55
by concluding performance-based service contracts between cities and service utilities.
3. Selection Approach. The subprojects were selected based on (i) consistency with demand, based on community willingness to participate and contribute; (ii) the least-cost approach of meeting effective demand in terms of location, scale, scope, and appropriate technology, based on prudent engineering decisions; and (iii) that economic benefits are likely to exceed economic costs. The three project cities were prioritized due to the growing tourism industry that can easily be threatened with water- and sanitation-related health and environmental problems, which project interventions will help mitigate.
4. Project Alternatives. The Project will (i) improve urban infrastructure, including sewerage and sanitation, solid waste management, water supply, and community upgrading, and (ii) improve service delivery through better enterprise resource management. Component choice was based on the following decisions. (i) Replacing sewer lines and rehabilitating pumping stations. The Project will replace aging sewer networks, replace sewage pumps, and rehabilitate pumping stations (over 25 years old). This option is the least-cost, as continuing to use the existing system will result in (a) groundwater contamination through sewage infiltration from system leaks, and (b) high electricity charges due to poorly functioning sewage pumps. (ii) Expanding the sewer network and providing onsite sanitation systems. The Project will expand the sewer network in Karakol to increase access to approximately 30,000 persons. It will also ensure access to onsite sanitation (septic tanks) facilities to 25,000 persons. Sewer network expansion covers areas that are densely populated and have sufficient population density to generate sewage flushing velocity. Onsite sanitation facilities target areas that are sparsely populated with insufficient sewage flushing velocities. Not providing focused options would increase the incidence of waterborne diseases. (iii) Constructing sanitary landfills and closing existing dumps. The Project will ensure that indiscriminate waste dumping is discontinued, and new sanitary landfills are constructed. Alternative options of treating waste are to compost it or to adopt waste-to-energy technologies. Sanitary landfills are the preferred option as the organic portion of waste generated is approximately 10%, making composting unviable, and 70% of the waste is inert material, making waste-to- energy processing unviable. The sanitary landfills are located at existing dumps on state-owned land, thereby negating any land acquisition costs. (iv) Providing vehicles, tools, and equipment. Poor system operation and maintenance will be overcome through adequate supply of appropriate vehicles, tools, and equipment. Without provision, new systems constructed will enter into a state of disrepair within a short period. (v) Piloting district water metering, replacing water transmission mains, and rehabilitating water boreholes. The Project will (i) install water meters in pilot zones in three cities, monitor water supply, and identify system leaks to develop a leak rectification program; (ii) replace a 2-kilometer water transmission main to conserve water; and (iii) rehabilitate water boreholes by providing disinfection measures to improve water quality. The identified options will ensure savings in operational expenditure resulting from water losses, resource savings in terms of conserving treated water transmission, and improved health conditions through disinfection of groundwater supplies.
56 Appendix 13
(vi) Enterprise resource management. The subcomponents identified are based on meeting the Project's economic rationale on improving local government and service utility performance.
5. Service Delivery and Socioeconomic Analysis. City-level data provided by vodokanal enterprises and tazalyk enterprises (presented in Appendix 2) were verified through a socioeconomic survey and focus group discussions. The survey covered 514 respondents4 randomly sampled in the three project cities. Results are indicated in the Summary Poverty Reduction and Social Strategy, Appendix 11. (i) Sanitation. About 75% households use dry-pit latrines, and 24% use flush or pour toilets. Predominantly, apartment blocks in all cities are connected to the sewerage system. (a) About 31% households in the highest-income quintile, compared with 22% of households in the lowest-income quintile, have access to a flush or pour toilet. The poor generally use pit latrines, which cannot be connected to the centralized system. (b) About 66% of households surveyed (57% of the households in the lowest- income quintile compared with 60% of households in the highest-income quintile) stated that they would be willing to pay for a sewerage connection, indicating citizen priority for improved sanitation. (ii) Solid waste management. Approximately 84% of households (and 86% in the lowest-income quintile) stated that a municipal collection service was unavailable on a daily basis. Increased collection frequency was a stated requirement. The perception was corroborated through assessment of city-level data. (a) Waste disposal practices included plastic bottle and packaging collection by the tazalyk enterprises from 50% of households, waste incineration by 36% of households, and waste disposal into the nearest landfill or waste receptacle by 8% of households. All poor households stated that they sold household waste for recycling. (b) About 83% of households indicated that household waste earned an average of Som43 ($1) per month. Waste sold by poor households earned them an average of Som27 ($0.62) per month, equivalent to 10% of the amount earned through waste sold by non-poor households. (iii) Water supply. Existing water systems in the three project cities have undergone improvement due to recent investments to increase coverage to about 80% of the population. However, low-quality supplies still impact served and unserved populations. (a) The survey indicated that 25% of households and 19% of poor households had an inadequate water supply for household needs. (b) Improved water quality was a high priority, and only 39% of households (44% of households in the lowest-income quintile and 40% of households in the highest-income quintile) stated that they would drink the water without some form of treatment. Households in the lowest-income quintile on average pay nearly three times more (Som90 or $2 per month) than households in the highest income quintile (Som35 or $0.8 per month) for water treatment. (c) Waterborne illnesses were significant, with 82% of households (17% in the lowest-income quintile and 22% in the second-to-lowest-income quintile) stating incidences in the past 5 years. Overall, 23% of all people suffering from these illnesses were poor, and they lost 75 potential labor
4 175 households in Balykchy, 55 households in Cholpon–Ata, and 284 households in Karakol.
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days per year due to waterborne illnesses. The average annual expenditure on treating waterborne illnesses was Som1,472 ($34), with 29% households spending Som251 ($6)–Som700 ($16)per year and 26% of households spending Som701($16)–Som2,500 ($58) per year.
6. Subproject Beneficiaries and Projected Demand. Demand assumptions include the following. (i) Sewerage and sanitation. Project beneficiaries will include households presently connected to the existing sewerage systems that will gain from system rehabilitation, and households getting new connections through proposed sewer lines. Both types of households will benefit from improved environmental sanitation conditions that a properly functioning sewerage system provides. System coverage will increase to benefit about 50% of the population from the current 35%. (ii) Solid waste management. Project beneficiaries will comprise households across the three project cities that will gain from improved environmental sanitation, living conditions, and amenities that a properly functioning solid waste collection and disposal system will provide. Those households that currently spend time disposing of their solid waste will receive additional benefits from receiving primary waste collection. About 80% of project households will be covered by the improved waste management system. (iii) Water supply. Prior to and without the Project, households in the three project cities rely on alternative water collected from point source, bottled water, groundwater pumped from household boreholes, and standpipes. With the Project, piped water will replace alternative supplies. Connected households consume 80–100 liters per capita per day (lpcd), and unconnected households consume 35–l0 lpcd. With the Project, the demand will rise to 100–150 lpcd. The supply situation is projected to rise with the population growth rate and increase annually to reach a design target population of 90% on project completion.
7. Economic Benefits of Sewerage. The economic benefits for sewerage include (i) cost savings for residential and nonresidential sewage generators, which are no longer required to operate onsite disposal systems; and (ii) health benefits through avoided household medical costs5 and avoided income loss by wage-earners absent from work due to waterborne illnesses. The former was not considered directly as new customers currently use pit latrines that do not entail any operation and maintenance costs. Health benefits were calculated using morbidity rates obtained from the Ministry of Health and the National Statistics Committee, and from interviews with city epidemiological centers. Data from the National Statistics Committee on incidences of illnesses for population were also used.
8. Economic Benefits of Solid Waste Management. Valuation of economic benefits for solid waste management was based on economic value of savings in waste disposal time and health benefits.6 The former was derived from socioeconomic surveys, and the latter was not considered for the current analysis due to inability to derive health benefits from available data.
5 Medical treatment expense averages Som1,500 ($35) per year. 6 Includes (i) avoided medical costs to treat diseases mostly from rat infestations, and (ii) avoided costs due to absences from work.
58 Appendix 13
9. Economic Benefits of Water Supply. Valuation of economic benefits comprises the following. (i) Expanding supply of existing water. In supplying the existing volume of piped water more efficiently, measured in terms of the average cost of supply in with- and without- project scenarios, the following two major components are considered. (a) Nonincremental water supply. This component considers the increase in water sold from the public system due to the Project but resulting in no effect on total water consumption because (1) the nonincremental water supply replaces water purchased and consumed from alternative sources (bottled water sources in case of the Project), and (2) the nonincremental water supply due to reduction in nontechnical loss thanks to the Project. Only nonincremental benefits from a consumer shift from bottled water were considered. 1 There are no benefits assumed from nontechnical losses, such as pilferage, meter tampering, and illegal connections, as these occurrences are atypical in the three project cities. The benefit is evaluated by using the supply cost of replaced water sources. (b) Incremental water supply. This component has a positive effect on the total consumption due to the Project. Incremental water in the analysis comprises water arising from (1) additional system demand from the (previously) nonconnected population, and (2) additional supply from system improvements geared to recover nonrevenue water or system loss. The latter will induce higher demand from the existing and newly connected population given the lower price of project water relative to alternative supplies. This component of benefit is evaluated by using the supply price to be decided by the city periodically and based on affordability. (ii) Health benefits. Health benefits from improved water quality and supply are considered under the health benefits for sewerage, as it is assumed that improvements in both systems will reduce waterborne illnesses. (iii) Resource cost savings. Other benefits include resource cost savings arising from (a) overcoming time lost in collecting water from alternative sources, (b) overcoming storage or container acquisition and maintenance costs, and (c) reducing water treatment costs (e.g., boiling or filtering).
10. Economic Costs. The economic capital investment and annual operation and maintenance costs were based on financial cost estimates detailed in Appendix 12. (i) Taxes and duties are excluded from the financial costs as they represent transfer payments. Price inflation and market distortions are also excluded. (ii) The subproject capital and operation and maintenance costs are distributed into traded and nontraded components and labor. For traded and nontraded components, the shadow exchange rate factor is assumed at 1 based on previous and ongoing projects by ADB and World Bank in Kyrgyz Republic. (iii) Unskilled labor is available in urban centers, which means the opportunity cost is lower than the wage rate. The shadow wage rate is assumed at 0.7 for unskilled labor, following estimates made for agricultural and highway projects in the region.
1 The volume of bottled water use relative to total water consumption in households is small, but expenditure-wise, the cost to the household is high. In the three project cities, a liter of bottled water is about $0.40–$0.50. In comparison, a cubic meter of system water ranges between $0.03–$0.11. Bottled water cost through the system is derived using existing tariffs.
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(iv) The economic costs are given in real terms and phased over the project life of 25 years. For annual economic operation and maintenance costs, labor was assumed at 30% unskilled and the remaining as skilled. Unskilled labor is subject to the shadow wage rate at 0.7. For skilled labor and the other cost components, the shadow exchange rate factor at 1.0 is applied.
11. Benefit–Cost Assessment. The economic benefit–cost ratio was used in the analysis to assess whether project benefits outweigh costs, thus making the subproject economically feasible. The annual cost streams were set against the annual benefit streams and discounted using the economic opportunity cost of capital (EOCC) at 12% as the hurdle rate. The resulting present value of benefits was divided by the present value of costs, and if the resulting ratio is greater than or equal to 1.0, the subproject is deemed acceptable. Table A13.1 summarizes the results for the three subprojects, and indicates that the benefit–cost ratio averages 1.42 for the water supply and sewerage components, and 1.21 for solid waste.
Table A13.1: Benefit-Cost Analysis ($ million)
Subproject Subproject Cholpon- Subproject Particulars Average Balykchy Ata Karakol Water Supply and Sewerage Present value of benefits Non-incremental 6.49 5.43 3.28 10.76 Alternative source (bottled water, etc.)a 6.49 5.43 3.28 10.76 Non-technical water lossb 0 000 Incrementalc 2.64 3.28 1.49 3.15 Additional demand from previously non-connected population 0.33 0.45 0.23 0.30 Additional supply from recovered NRW 2.31 2.82 1.26 2.85 Health 0.23 0.14 0.05 0.49 Avoided lost wages due to illnessd 0.11 0.07 0.02 0.24 Avoided cost of medical treatmente 0.12 0.07 0.03 0.25 Resource savings 1.73 1.93 0.50 2.78 Time saved from collecting waterf 0.66 0.61 0.20 1.15 Cost saved from purchase of storage reservoirg 0.56 0.69 0.15 0.86 Cost saved from water treatment and storage maintenanceh 0.51 0.62 0.14 0.78 Total benefits 11.09 10.77 5.32 17.18 Present value of costs Capital investment + replacements 4.10 4.02 1.82 6.48 O&M 3.82 3.44 1.79 6.23 Total costs 7.92 7.46 3.61 12.70 Benefit-cost ratio 1.42 1.44 1.47 1.35 a Population using bottled water x SP. SP is calculated at $0.42/m3 for Balykchy, $0.38/m3 for Cholpon-Ata and $0.11/m3 for Karakol. b NTL is atypical in the 3 cities, thus valued at 'zero'. c Priced at the average of the existing tariff and the 'with-project' tariff (or the AIEC of water). For Balykchy, $0.45/m3; Cholpon-ata, $0.44/m3; Karakol, $0.29/m3 of incremental water d Economically active population x morbidity rate x Minimum daily wage rate x Days indisposed. (from survey). e Economically active population x morbidity rate x Medical treatment cost. (from survey). f Annual average time daily collecting water from source converted to 8-hour work-day x minimum hourly wage rate. (from survey). g Financing cost of storage reservoir (Som1,000–Som1,500) + 20% of cost for maintenance. h 0% of storage cost for treatment + 20% of storage cost and treatment for maintenance.
60 Appendix 13
Subproject Subproject Cholpon- Subproject Particulars Average Balykchy Ata Karakol Solid Waste Management Present Value of Benefits Time Savings for Disposali 3.90 3.99 4.43 3.28 Healthj 0 000 Total Benefits 3.90 3.99 4.43 3.28 Present Value of Costs Capital Investment + Replacements 1.81 1.98 1.81 1.64 O&M 1.40 1.42 1.62 1.16 Total Costs 3.21 3.40 3.43 2.80 Benefit-Cost Ratio 1.21 1.17 1.29 1.17 i Annual average time daily disposing waste to appointed waste collection areas, converted to 8-hour work-day x minimum hourly wage rate. (from survey). j Not quantified. AIEC = average incremental economic cost, NRW = nonrevenue water, NTL = non-technical water loss, SP = supply price. Source: Asian Development Bank estimates.
12. Economic and Sensitivity Analysis. The economic internal rate of return (EIRR) and discounted net cash flows were determined by comparing benefit streams with cost streams. Following ADB guidelines, the EOCC was set at 12%, and the results show base case EIRR exceeding the EOCC. The EIRRs for water and sewerage and solid waste management were tested for sensitivity, and Table A13.2 indicates that EIRRs at base and adverse economic conditions are robust. Supplementary Appendix I provides economic analysis spreadsheets.
Table A13.2: Economic Analysis – Summary Results Subproject Balykchy Subproject Cholpon- Subproject Karakol Average Average ENPV ENPV ENPV Particulars EIRR ENPV EIRR ($ million) EIRR ($ million) EIRR ($ million) Water Supply and Sewerage Base Case 27.8% 3.17 27.5% 3.311 27.4% 1.707 28.4% 4.478 Capital Cost plus 20% 21.2% 2.34 21.2% 2.506 21.7% 1.344 20.7% 3.182 O&M Cost plus 20% 23.5% 2.40 23.8% 2.623 23.3% 1.349 23.2% 3.232 Benefits less 20% 16.5% 0.95 17.0% 1.157 17.3% 0.644 15.3% 1.041 1-year Delay in Benefit 18.5% 1.88 18.8% 2.059 19.0% 1.086 17.9% 2.495 Switching Value - Capital Cost 48.6% 0.82 49.4% 0.823 53.9% 0.941 42.6% 0.691 Switching Value - Revenue 28.3% 0.30 29.4% 0.307 30.4% 0.321 25.0% 0.261 At EOCC, Capital Cost change 81.6% 0.00 82.4% (0.005) 93.1% 0.017 69.3% (0.012)
Solid Waste Management Base Case 19.5% 0.69 17.4% 0.587 22.6% 1.006 18.4% 0.474 Capital Cost plus 10% 16.9% 0.51 15.2% 0.389 19.7% 0.825 15.7% 0.310 O&M Cost plus 10% 17.9% 0.55 16.1% 0.445 20.8% 0.845 16.7% 0.358 Benefits less 10% 15.1% 0.30 13.7% 0.188 17.7% 0.563 13.9% 0.146 1-year Delay in Benefit 13.9% 0.24 12.9% 0.124 15.8% 0.492 13.0% 0.098 Switching Value - Capital Cost 28.2% 0.38 24.7% 0.296 36.5% 0.555 23.4% 0.289 Switching Value - Benefit 16.8% 0.17 14.6% 0.147 21.6% 0.227 14.1% 0.145 At EOCC, Capital Cost change 50.5% (0.22) 43.8% (0.281) 58.3% (0.50) 49.3% (0.335) () = negative, EIRR = economic internal rate of return, ENPV = economic net present value, EOCC = economic opportunity cost of capital. Source: Asian Development Bank estimates.
13. Conclusion. Selected subprojects are economically viable with EIRR values exceeding the EOCC at base case, with an average of 27.8% for water supply and sewerage and 19.5% for solid waste. The sensitivity analysis for the three subprojects demonstrates that the results are acceptable even when tested under stress conditions. The resulting average economic benefit–cost ratio for water supply and sanitation is 1.42. For solid waste management, it is 1.21.