Republic of Iraq

AB1970 REPUBLIC OF IRAQ

SECOND EMERGENCY WATER SUPPLY AND SANITATION PROJECT

INITIAL PROJECT INFORMATION DOCUMENT

Project Name Second Emergency Water Supply and Sanitation Project Region Middle East and North Africa Region Sector Water Supply and Sanitation Project ID P094650 Recipient Government of Iraq Implementing Agencies Ministry of Municipalities and Public Works Environment Category B (Partial Assessment) Date PID Prepared October 27, 2005 Expected Date of January 15, 2006 Appraisal/Negotiations Expected Approval Date March 1st, 2006

A. Background Country and Sector Background

1. Before the conflict in 2003, Iraq was already a country in distress. The last two decades have witnessed a dramatic fall in almost all human development indicators, including poverty, health standards, life expectancy and literacy. A series of wars and international sanctions coupled with misdirected government policies have left the country’s infrastructure in shambles. Income per capita in 2004, about US$940, although 47% higher than 2003, is still a quarter of what Iraqis enjoyed 25 years ago. Recent surveys suggest that poverty has worsened in recent years and unemployment is estimated to be at least 30%.

2. Today most Iraqis have limited access to essential basic services such as electricity, water supply, sanitation and refuse collection. Serious environmental and health risks associated with lack of basic services, contaminated water supplies and poor disposal of sewage overburden the already stressed health system. Child mortality under the age of one continues to increase, today estimated at 112 per 1000 children (up from 109 in 2004 and 16 in 1990). It is estimated that water related diseases are responsible for about 25% of all deaths of children in Iraq.

Water Supply and Sanitation Sector

3. The Water Supply and Sanitation Sector (WSS) in Iraq is governed by three entities:

. The Ministry of Municipalities and Public Works (MMPW) is responsible for 15 governorates with a total population of about 19 million;

1 . The Ministry of Municipalities of the Kurdistan Regional Government (KRG) is responsible for the three northern governorates, with a total population of about 3.7 million; and . The Mayoralty of Baghdad is responsible for approximately 5.5 million inhabitants of the Capital City of Baghdad.

4. Water Supply Infrastructure: The production capacity is currently 6.8 million cubic meters per day1 (equivalent to about 240 liters per capita per day). However, the efficiency of the service delivery is only 32% due to the deteriorating condition of the water treatment facilities, electrical power cuts of up to 12-16 hours per day, lack of operation and maintenance requirements and network losses of up to 57%. This makes the actual amount of potable water reaching consumers about 2.17 million cubic meters per day. Consequently, the water supply is unreliable for over half of the connected population, with households not receiving water for days at a time. Access in urban areas is about 73% and is lower in rural areas, being estimated at 40-45%. Recent data indicates a substantial deterioration in access to safe and stable drinking water, particularly in urban areas. The MMPW believes that most of the water produced does not meet the World Health Organization’s water quality standards. It is also estimated that 40% of children who visit health centers suffer from gastro-intestinal diseases due to the lack of access to safe drinking water.

5. Sanitation Infrastructure: Wastewater collection and treatment facilities are only available at a few large cities and are in dire need of rehabilitation. The wastewater treatment capacity is currently 350,000 cubic meters per day2 (equivalent to about 12 liters per capita per day), covering about 8% of the population in the 15 governorates. Most of the untreated water runs into shallow surface channels, illegal connections to the storm water networks or, in many cases, directly into rivers and lakes. The river system receives the untreated waste of more than 20 million people.

6. Sector Issues: For the past 30 years the public works sector has been driven by a supply side, input or project-based philosophy. Little attention has been given to broad programmatic outcomes, and indicators of success have been couched in terms of the construction or installation of new treatment capacity. Preliminary findings of many studies indicate that Iraq’s water sector currently faces several strategic issues:

. The level of services is very poor for both water supply and sanitation and far below international practices. . Currently more than one agency is responsible for resource development and planning. There is an urgent need to centralize and integrate water resources management and allocation. . Regulation of services is being done by the Ministry of Planning and Development Cooperation (MoPDC), the Ministry of Health and the Ministry of Environment.

1 MMPW, “Water and Sanitation: Prioritized Projects to be Funded by International Donors,” The Dead Sea, Jordan, 18-19th July 2005. 2 ibid.

2 . Cost recovery is almost non-existent for both operation and maintenance and capital expenditure. Water in Iraq is practically free, with prices below one US cent/m3. . There is a need to separate bulk supply from distribution operations with proper regulations, in addition to having sound allocation policies. . There is a need to centralize and coordinate planning and regulation. . There is a need to decentralize distribution and sanitation operations and move towards operating on a commercial basis. . There is a need to have the right legal framework for private sector participation.

7. MMPW’s main constraint is its lack of funding for urgently needed projects. The National Budget allocations for drinking water, sanitation and municipal services in the years 2004 and 2005 have been approximately US$200 million. Of that amount, approximately one third is directed towards the operation and maintenance of the system and the remaining towards new investments. This translates into an average of less than US$10.5 per capita, far below international standards.

8. This situation is further exacerbated by the fact that the local Water and Sanitation Directorates at the MMPW are unable to operate as self-standing, profit making entities. On the one hand, water tariffs in Iraq remain heavily subsidized and cover 2-5% of the costs of operation and maintenance of the water and sanitation systems. Recent attempts in early 2005 by the MMPW and the Ministry of Finance (MoF) to reduce subsidies have not been successful and this situation is likely to persist in the future. On the other hand, operational costs are increasing. Increased employee salaries, coupled with an increase in the cost of doing business in Iraq and last but not least, the high costs of producing water reduce the available budget for much needed capital expenditures.

9. The “United Nations/World Bank Joint Needs Assessment for Iraq (October 2003) estimated total sector needs to be US$7-8 billion for the coming 5 years. The MMPW is facing a large financing gap and relies heavily on donor funding for its capital investments.

10. The issues above highlight the need for a comprehensive study for restructuring Iraq’s water and sanitation services. It is important to identify on of institutional reforms as early as possible to drive the reform process forward, ensure sustaining improvements in sector performance, increase efficiency and minimize costs, and thus effectively manage and use water resources.

Government Strategy

11. The MMPW is currently processing basic data for a water supply and sanitation strategy to address the serious prevailing sector issues. The strategy will be broadly in line with the recently published National Development Strategy (NDS) of the Transitional Government, which places water supply and sanitation at the top of the government’s priorities. The urgent objective of the Transitional Government’s strategy is to bring water and sanitation services to an acceptable level and to increase its

3 coverage through needed rehabilitation and/or reconstruction of water supply and sanitation facilities.

12. The proposed MMPW Potable Water and Wastewater Strategy for the next 10 years will include:

. Continue the efforts to reconstruct existing and establish new water networks in urban and rural areas to ensure full coverage of all regions of Iraq, and reduce the variation between the urban areas on one hand and the rural ones on the other. . Improve the quality of water provided to citizens. . Develop a timetable to train executive and supervisory staff for water and sewerage projects, and to establish high level training centers for this purpose. . Provide adequate water resources for all regions of Iraq. . Maintain and qualify the existing pumping stations and sewerage networks and improve their efficiency. . Maintain and qualify the existing pumping stations and sewerage networks to obtain the required environmental specifications for processed water prior to pumping to drainage points in order to maintain a proper environment. . Develop a timetable for the implementation of a number of new projects in all governorates in order to increase the scope of sewerage service coverage. . Acquire specialized machinery used in cleaning and clearing sewerage networks. . Reconsider the subsidy policies of the sector and to develop a timetable for the gradual increase in prices of drinking water supply taking into account the pricing differences between the various social slots, regions and consumption.

13. Moreover, the MMPW supports, in terms of long-term planning, the decentralization of sector management and public-private partnership initiatives for water demand management. In this respect, the MMPW is preparing for a “Drinking Water and Wastewater Investment Program” for Iraq, as well as an “Organizational Restructuring Plan” and “Operation and Maintenance Program.” Topics to be reviewed include:

. Water resources and supply management; . Demand management; . Water and wastewater utilities; . Environmental quality control; and . Institutional, human resources and socio-economic aspects.

14. The MMPW has also drawn-up an emergency investment program for the coming 10 years based on the findings of the UN/WB Iraq Joint Needs Assessment (October 2003) and on the projects identified by the US (2004) and

4 the new NDS which was initiated by the MoPDC (September 2004). Based on the results of the UN/WB needs assessment, 83 water supply projects and 12 sanitation projects were identified by the US for urgent intervention. These projects were developed and prioritized in conjunction with MMPW officials and local government representatives, taking into account equitable distribution of aid to the 18 governorates. The MMPW has proposed to the World Bank financing sub-projects out of the list of potential ones. Moreover, it indicated that the MMPW’s strategy regarding International Development Association (IDA) financing for this project is to focus on water supply and sanitation components. The MMPW proposed that a follow-up International Bank for Reconstruction and Development (IBRD) - funded project will focus on urban reconstruction from the on-going project.

Donors’ Involvement in the Sector

15. The main donors supporting the Iraq WSS since May 2003 include the US, Japan, UN and the World Bank through its Iraq Trust Fund (ITF).

16. The US is the single largest donor for the sector and its total allocation to date is approximately US$1 billion, down from the US$4.3 billion planned in 2003. The US has implemented several projects throughout the country through the Iraq Reconstruction Management Office (IRMO), the Projects and Contracting Office (PCO), United States Agency for International Development (USAID) and the US Military. US support has been largely focused on urgent rehabilitation and reconstruction of both water supply and sanitation facilities throughout the country.

17. Japan, the second largest donor (with allocations of US$1.5 billion in grants and US$2 billion in soft loans) has focused its assistance on the governorates of Ninawa and Al-Muthana. Part of the grant was directed towards the rehabilitation of sewage treatment plants and the supply of water treatment units and heavy machinery.

18. UN support of about US$100 million, channeled largely through UNICEF and financed from the UN ITF, has focused on supply of equipment and materials for operational activities, technical assistance, training and on completion of rehabilitation projects, which started under the Oil-for-Food Program.

19. The World Bank ITF financed two water supply and sanitation projects in 2004 for a total amount of US$155 million. The first, amounting to US65 million, benefits the City of Baghdad; and the second, amounting to US$90 million and implemented by the MMPW, benefits about ten other cities and villages. The two projects focus on reconstruction of water supply and sanitation facilities, capacity building and institutional support.

20. The MMPW is planning to hold soon a donors’ meeting to seek funding for the unfunded sector needs and priorities over the next 5 to 10 years.

5 B. Rationale for Bank Involvement 21. The Government of Iraq has asked the World Bank to initiate IDA lending in four key sectors: education; electricity; transport (roads); and water supply and sanitation. The World Bank is already providing support for two water supply projects through the ITF and will build on its experience to deepen its support. The project will be designed to maximize local ownership, local content, and short-term employment. Projects will be clustered geographically to facilitate implementation, institutional building, and impact.

22. The proposed project is fully consistent with the World Bank’s Second Interim Strategy Note for Iraq, which was discussed by the Board in September 2005. The Note emphasizes the need for rapid rehabilitation of critical infrastructure services and institutional support as pre-requisites for long-term sustainable recovery.

23. At the sub-sector level, the proposed project is in line with the priorities of the Government of Iraq and MMPW to restore urgently needed water services. The proposed sub-projects have been selected while ensuring that they (i) address urgent needs identified by the local councils and the MMPW; (ii) can be implemented within 18-24 months from the beginning of works, and have a large impact on the affected communities; (iii) can generate much needed short- and long-term employment; and (iv) can provide support to the government in addressing equity in access to international aid.

24. The World Bank has considerable experience in supporting construction projects in conflict-affected settings, and has demonstrated the effectiveness of existing implementation arrangements for water supply construction projects in Iraq. The World Bank has established a good working relationship with the MMPW, and continues to work closely with all development partners interested in the water sector in Iraq, including USAID, Japan Bank for International Cooperation, UK’s Department for International Development, UNICEF and the UN.

25. There are other important reasons for the World Bank to be involved at this stage in rehabilitating Iraq’s water infrastructure, and more specifically, in this project:

. The MMPW is in dire need of funds, especially since the US diverted funds from WSS to security and judicial needs. The World Bank is seen by both the MMPW and the donor community as a leader in attracting funds for the MMPW’s sectoral objectives. Thus, the World Bank is seen as capable of attracting resources from other development agencies and/or governments and can assist in the coordination of investments.

. The World Bank can build on the experiences of its involvement in Iraq for the last 2 years, and more specifically in the WSS through the ongoing projects to ensure successful implementation and maximize impact of the proposed.

6 . The World Bank will couple financing for rehabilitation with policy advice, assisting the Government of Iraq with urgent policy decisions, while laying the ground for sector restructuring that is essential for long-term sustainability of infrastructure investments.

. World Bank financing, unlike the financing of many other donors, will be implemented by Iraq through the country’s own institutions (ministries and agencies), which will ensure Iraqi ownership and build Iraq’s institutional capacity, both crucial for the country’s sustainable development. Use of World Bank competitive procurement procedures and implementation by the Iraqi government will also help reduce the estimated cost of rehabilitation.

C. The Project Bank’s Framework for Selection of Sub-Projects

26. The MMPW has submitted a list of 36 geographically diverse priority sub- projects aiming to ensure balanced development and equitable distribution of funds across the various governorates of Iraq. The project team and the MMPW identified 8 sub-projects for IDA financing based on the following criteria:

)a Urgent Needs: All of the sub-projects submitted meet the requirement for urgent needs. Sub-projects for upgrading and replacement of water supply systems were given priority, followed by construction of sewerage projects.

)b Size: Small to medium sized sub-projects (costing less that US$25 million) were given preference. To ensure speedy execution, sub-projects with an average implementation period of 18-24 months were also given priority.

)c Balanced Development and Other Sources of Financing: Governorates that have previously not received funding for the water sector were given precedence over those with already committed funding. Other possible sources of funding were explored prior to selection to ensure equity in the distribution of funds, geographic diversity and no duplication. Sub-projects with committed financing from other donors were not selected and focus was maintained on those with no previous or potential future financing. The committed investment capital per capita was also taken into consideration and those governorates with a minimum investment capital per capita were given priority.

)d Local Priorities: The proposed sub-projects are a top priority for the MMPW, as has been conveyed by the Governorate Councils. They have also been approved by the Iraqi Strategic Review Board (ISRB) as priority projects for IDA financing in this sector.

27. In order to reduce sustained water losses, the rehabilitation and replacement of old water systems and networks is of paramount importance. Loss of pressure, disintegration of pipes and dilapidated networks pose a major health hazard due to the high possible risk of water contamination. Precedence will be given to the rehabilitation of major units

7 instead of replacement of spare parts for maximum impact on the production of water and reduction of losses. The MMPW proposed upgrading and replacement of old networks and in parallel, the construction of a complimentary treatment plant.3

Project Objectives

28. The principal objective of the proposed project is to improve water supply and sanitation services in selected governorates through upgrading and reconstructing/replacing existing facilities. Other objectives of the project are to start laying the foundation for a sustainable policy framework for the sector, and continue the programs of support services and training. The project will also create vitally needed short-term employment, help build Iraq’s capacity to manage medium to large-scale reconstruction and mitigate health hazards posed by contaminated water as a result of deteriorated pipes and networks. During project appraisal a set of monitoring and evaluation indicators will be developed and agreed upon.

Project Components

29. The objectives of the proposed project will be pursued through the three components detailed below:

i. Capital Investment Component

30. This component will focus on upgrading and replacing four to five water supply and sanitation systems and constructing water treatment plants from the following 8 sub- projects which were selected from a long list of priority sub-projects based on the criteria mentioned above (See paragraph 23):

a. Al-Mahaweel Water Treatment Plant and Water Distribution Network, Babil Governorate (US$20 million): this sub-project will serve Al- Mahaweel, Al-Mashro’o and Al-Imam towns. The existing two water treatment plants of Al-Mahaweel were built in 1958 and 1978 respectively, with a total capacity of 250m3/hr, in addition to a compact unit constructed in the late 1990s, with a capacity of 200m3/hr. The population currently serviced in these three towns is around 28% of the total, with an un-serviced population of around 173,000. The sub-project will include the implementation of a water treatment plant with an initial capacity of 1,000m3/hr, elevated water tank, and the replacement of 70km of water distribution pipes with different diameters, ranging in size between 100 and 250mm.

b. Gham'mas Water Treatment Plant and Water Distribution Network Rehabilitation, Al-Qadissiyah Governorate (US$20 million): the existing facilities comprise two water plants built in 1966 and 1980, respectively, with a capacity of 100 and 150m3/hr. The proposed sub-project includes the implementation of a water treatment plant of 1,000m3/hr capacity and a 3 Compact units and old treatment plants are totally exhausted and not fit for upgrading and rehabilitation.

8 transmission pipeline to service the growing population currently estimated to be 81,000. c. Al-Fajr Water Treatment Plant and Water Distribution Network, Thi- Qar Governorate (US$20 million): the existing treatment plant was built in 1967, in addition to five compact units commissioned in the 1970s. The existing treatment capacity is 184m3/hr. The proposed sub-project will serve an estimated population of about 42,000 with clean and safe water by implementing a new water treatment plant with a design capacity of 1,000m3/hr and the replacement of 15km of old water pipes, ranging in size between 100 and 250mm. d. Al-Naser Water Treatment Plant and Water Distribution Network, Thi- Qar Governorate (US$25 million): the existing water treatment plant was built back in 1967 with a capacity of 60m3/hr. Another three compact units were commissioned in the late 1970s with a total capacity of 264m3/hr, servicing approximately 80,000 people. The proposed sub-project will include the implementation of a new treatment plant and the replacement of 20km distribution pipes of different diameters, ranging in size between 100 and 300mm. e. Al-Karma Water Treatment Plant and Water Distribution Network, Al-Anbar Governorate (US$20 million): the proposed sub-project includes the rehabilitation and expansion of the existing 15,000m3/day water treatment plant, which was built in 1985, by an additional capacity of 1,000m3/hr, and the replacement of 200km of distribution pipes. The estimated population to be serviced by this sub-project is approximately 114,000. f. Wasit Water Treatment Plant and Water Distribution Network, Wasit Governorate (US$20 million): the existing water treatment plant was built in 1973 with a capacity of 90m3/hr servicing a population of 4,000 people. One compact unit capacity of 200m3/hr was commissioned in 2002. The sub-project includes the implementation of a water treatment plant and the replacement of 60km distribution pipelines of different diameters. g. Maimona Water Treatment Plant and Water Distribution Network, Missan Governorate (US$20 million): only 40% of the nearly 52,000 population has access to potable water supply. The plant was built in 1962, and five compact units were installed in 1986. This sub-project includes the implementation of a water treatment plant with an initial capacity of 1,000m3/hr and about 7.5km of a transmission pipeline. h. Al-Ramadi Sewerage Project, Al-Anbar Governorate (US$14 million): this sub-project includes the replacement of about 30km of wastewater collection pipes that range in size between 200 and 500mm and house

9 connections in the city center and other areas of Al-Ramadi4 destroyed by recent fighting.

ii. Sector Reform and Restructuring Options Study

31. Under the on-going project, the MMPW will initiate the development of policy statements and strategies as well as a sector planning and investment program for the Iraq water and wastewater sector over the coming 10 years. It includes the review of existing policies and strategies for the water and wastewater sector in Iraq, drafting new/modified policy statements and strategies including those related to institutional arrangements.

32. As a follow-on under the proposed project, a study will be initiated focusing on developing options for sector restructuring and a comprehensive strategy to improve the operations and maintenance of existing and/or new facilities. iii. Support Services and Training

33. This component will offer provision for consultants’ services to prepare designs and tender documents for the proposed and follow-on projects, supervise construction of activities, prepare studies for follow-on projects, carry out auditing requirements, and provide training for MMPW staff.

Cost and Financing

34. The current notional allocation for this project, as approved by the ISRB, is US$74 million. Taking into consideration the costs of the individual sub-projects mentioned above, a cohesive project comprising four to five priority sub-projects will cost an estimated US$75-80 million. Recent World Bank policy on Iraq states that the IDA loans will finance 100% of the cost of projects including taxes.

D. Institutional Arrangements and Project Implementation Implementation Arrangements

35. The project implementation arrangements are similar to the ones adopted by the MMPW for the on-going project financed by the World Bank’s ITF. The proposed structure includes the expansion of the existing PMT with experienced staff seconded, on a full-time basis, from existing technical and financial units or consultants. Many of existing PMT staff attended training courses and workshops organized by the World Bank, UN agencies and other bilateral donors and are familiar with WB procedures. The PMT will closely coordinate its daily activities with the different departments of the MMPW. The expanded PMT staff would comprise: a director, three procurement specialists, three water specialists, two wastewater specialists, three urban reconstruction specialists, one environment specialist, one IT specialist, two financial management specialists, one administrator, one executive secretary, and one administrative assistant.

4 This project is subject to receiving commitment from the MMPW to upgrade and rehabilitate Al-Ramadi Sewage Treatment Plant.

10 The PMT will report directly to the Minister of the MMPW, the responsible implementing agency.

36. Existing arrangements for procurement, financial management and disbursement have been adopted for this project. Project implementation will be carried out in conformity with the Master Implementation Manual (2005) for World Bank-financed projects in Iraq. A Project Implementation Manual will be prepared by the project’s start.

Environment

37. The project will be processed as an Emergency Recovery Project, consistent with other World Bank’s operations in Iraq. Considering the emergency situation and the current security conditions in Iraq, the Environmental and Social Screening Assessment Framework designed for Iraq will be used for this project. The main component of the project is the financing of water treatment plants and water distribution networks in several cities (listed above), and a sewage collection network in Al-Ramadi. Such projects are normally rated as category "B". Besides providing much needed potable water, the projects involving water treatment plants and water distribution networks are expected to bring about significant positive health impacts by providing improved water quality. Similarly, the sewerage collection network will avoid population exposure to wastewater in congested urban areas particularly during rainfall events when sewer lines are currently flooded. However, this project is subject to receiving commitment from the Government to upgrade and rehabilitate Al-Ramadi Sewage Treatment Plant. Under World Bank guidelines for emergency projects, an Environmental Management Plan (EMP) including mitigation, monitoring and institutional strengthening will need to be prepared before construction starts. MMPW will be hiring consultants to prepare the EMP, which will be funded from the existing or proposed project. The MMPW is currently providing details of the sites and existing data. The World Bank will assist in preparing Terms of Reference for the environment consultant and provide guidelines on the EMP preparation based on the WB’s safeguards provisions.

Social

38. As indicated in component one, the proposed project will focus on the upgrading and replacement of old networks and, in parallel, the construction of a complimentary treatment plant (compact units and old treatment plants are totally exhausted and are not fit for rehabilitation). This work, as it appears in the current stage, will take place on the already existing and expanded networks. The MMPW will need to provide plans indicating construction sites, closest community grouping and public land titles, particularly for the expanded networks. Beneficiaries of this project will be mainly low- income groups who are not serviced with water and sanitation facilities.

Procurement

11 39. The procurement capacity of the MMPW undertaken by the current Emergency Water Supply, Sanitation and Urban Reconstruction Project will be updated. Based on the lessons learned from the on-going projects, works will be packaged into relatively few contracts and with an expanded National Competitive Bidding (NCB) threshold. For consultancy contracts, the World Bank will favor the use of the Least Cost Solution method and Consultant’s Qualification Selection methods coupled with a shortlist of firms that are present in Iraq and have participated actively in competing for consultancy assignments under the current project.

40. NCB will be the preferred method for works contracts and the International Competitive Bidding (ICB) will be limited to supply contracts for equipment and materials not produced in Iraq. Competitive procedures will be used for most consultancy contracts.

Financial Management 41. The Financial Management (FM) arrangements of this project will be set based on the experience gained through the current project and the new or revised factors, whether introduced by the nature of the financing or the methods of implementation. Further discussions between MMPW, MoF, MoPDC and the World Bank will be undertaken to identify the IDA credit arrangements needed. Measures to address limitations of coordination and reporting between governorates and the PMT will be discussed during the pre-appraisal mission. Additional arrangements will be introduced based on the final implementation arrangements that might include the KRG governorates.

42. Accordingly, the FM capacity of the current PMT needs to be supplemented with the addition of a dedicated financial officer and an accountant for this project. It is required that both of these persons are identified prior to project appraisal and attend the appraisal mission to better update the FM risk assessment of this project. In terms of records management and accounting, although the experience with the use of Excel had been suitable as an interim arrangement; accounting software, financed by the project, will be considered for more reliable and secure information. Like the current project, an external independent auditor with an international experience and acceptable to the World Bank will be engaged to perform the project audits and issue an independent opinion on the project financial statements. Having the Supreme Board of Audit review the project, whose financing is allocated within the MMPW budget, is an added-value control.

Project Supervision

43. Considering the brief exposure of the Iraq counterparts to World Bank guidelines and procedures, strong supervision efforts including frequent field visits would be needed, particularly during the early stages of project implementation. Should the security situation prevent World Bank staff and international consultants from traveling to Iraq during project implementation, project supervision would primarily rely on local Iraqi consultants, supported by World Bank staff and international consultants working

12 from outside Iraq. Regional consultants with branch offices in Iraq could also be recruited to assist with project implementation.

Monitoring and Evaluation

44. Performance indicators for the project will be identified during project appraisal and will be measured annually during supervision. The MMPW will establish a monitoring baseline against which performance can be measured. Annual reviews by the MoPDC and the MMPW would be carried out to track compliance with IDA conditions and highlight lessons from implementation.

E. Project Benefits 45. The project would lead to significant health and welfare benefits. Overall, the project is expected to: (i) produce an improvement in the quality of life of about 5-7 million people who represent the total population of the above-mentioned governorates; and (ii) reduce the incidence of oral-fecal diseases and the rate of mortality in children who are most affected by water-borne diseases.

46. Due to the emergency nature of the project and the lack of available information and data, an economic rate of return analysis could not be carried out during the pre- appraisal phase. A preliminary overview of the selected sub-projects indicated that these are reflective of the least cost solution criteria. However, this has yet to be confirmed by the feasibility studies to be carried out.

47. In order to further prioritize the proposed sub-projects from the list of potential sub-projects, Cost-Benefit Analysis and/or least cost analysis will be done during pre- feasibility stage. This approach will ensure optimal returns across the preferred sub- projects. And to ensure a better assessment of the preferred sub-projects, other economic tools might be used, such as the benefit to cost ratio, etc. Moreover, this analysis will ensure maximizing economic returns from each of the sub-project chosen. Further information and financial data required for this assessment will be supplied by the PMT.

F. Major Project Risks 48. This project will be implemented in a high risk environment. The major risks to the project are the unstable security and political environment and the capacity limits of the government and the private sector. The geographic distribution of sub-projects responds to a political imperative, provides greater flexibility to accommodate an unpredictable implementation environment, distributes the implementation load across a wider base, and builds the capacity of the system at the governorate level. From the experience of previous and related projects, procurement and financial management risks exist, and they will be elaborated during appraisal.

13 Risk Rating Mitigation Measures

From Outputs to Objectives Keeping project simple and focused on clear and Transition to new Iraq government obvious priorities. Working closely with senior after December 2005 elections – H Ministry officials to promote ownership and unknown outcomes that could affect continuity. Project endorsed by the national project implementation government and the ISRB. Administration changes in MMPW – Building relationships at the technical level with jeopardizing current commitment to H current officials to ensure continuity in event of project design and inputs changes. Sectoral priorities – difficult to Ongoing communication with Bank counterparts establish in current political setting – working with MoF and MoPDC. Minister to make possible disagreements between the H good case for sector. Involving all stakeholders MMPW and other controlling agencies through PMT. (MoPDC, MoF) Deterioration of fiscal conditions – Avoiding capacity expansion that is likely to create H sustainability problems for operations budgetary constraints.

From Components to Outputs Goods could be lost or stolen from Using strict procedures for delivery of goods and central storage facility or from project H tight time schedules to install goods immediately. sites This risk is beyond the control of the MMPW or the Security conditions deteriorate making H Bank. Involving security and police personnel could project completion difficult alleviate problems. Support services will focus on local staff. Where possible, support services internationally will be Difficulty and delays in hiring provided through virtual meetings, and meetings in expatriate support services consultants H Amman. In the event that local capacity is initially wherever local expertise is lacking not adequate for rapid implementation, the MMPW needs to use agents for relevant aspects of implementation and monitoring in the early stages. Rely on local staff for supervision with the assistance of consultants who will be contracted. In The Bank’s inability to carry out in- addition, instruments will be designed for ITF- H country supervision financed projects and use of MMPW implementation staff, supervision consultant and monitoring agent has been issued. H = High Risk; S = Substantial Risk; M = Modest Risk; N = Low or Negligible Risk.

G. Project Processing Timetable Sequence Timing Identification/Preparation September, 2005 Pre-appraisal November 30, 2005 Appraisal/Negotiations January 15, 2006 Board Presentation March, 2006 Planned Effectiveness April, 2006 Planned Closing Date April, 2009

14 H. Names of Staff/Consultants Who Worked on this Project

Name Function Suhail Jme’an Task Team Leader, Senior Financial Analyst, MNSIF A. Amir Al-Khafaji Consultant, Procurement Specialist, MNSIF Sana Agha Al-Nimer Senior Water and Sanitation Specialist, MNSIF Sateh El-Arnaout Senior Municipal Development Specialist, MNSIF Mona El-Chami Financial Management Specialist, MNACS Hayat Taleb Al-Harazi Program Assistant, MNSIF Karim Sehnaoui Junior Professional Associate, MNSIF Nafie M. Mofid Field-Based Consultant, MNSIF Oroub El Abed Social Safeguards Specialist, MNACS Mutasem El Fadel Environmental Safeguards Consultant, MNSIF Imelda Sevilla Program Assistant, MNSIF Fadi Haddadin Economist, MNSIF Seema Manghee Peer Reviewer, ESCIE Colin Scott Peer Reviewer, MNSRE Abdelmoula Ghzala Peer Reviewer, AFTTR