PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No.: AB3462 Project Name Second National Water Supply and Sanitation Project Region EUROPE AND CENTRAL ASIA

Public Disclosure Authorized Sector Water supply (60%);Sewerage (40%) Project ID P109961 Borrower(s) REPUBLIC OF Implementing Agency AzerSu Joint-Stock Company 67, Moscow Avenue Azerbaijan Tel: 994 12 4314767 Fax: 994 12 4983814 State Amelioration and Water Management Agency of Autonomous Republic (SAWMA) Khatai Residential block

Public Disclosure Authorized Nakchivan Autonomous Republic Nachivan City Azerbaijan Tel: 994136447303 Fax: 994136447303 Environment Category [X] A [ ] B [ ] C [ ] FI [ ] TBD (to be determined) Date PID Prepared November 14, 2007 Estimated Date of January 22, 2008 Appraisal Authorization Estimated Date of Board April 24, 2008 Approval

1. Key development issues and rationale for Bank involvement Public Disclosure Authorized

Azerbaijan inherited a fairly extensive Water Supply and Sanitation (WSS) system from the Soviet Union. However, most of the WSS systems are now over fifty years old, and have deteriorated significantly as a result of deferred maintenance and limited capital investments. In most secondary cities, water supply networks are characterized by frequent bursts, high losses, and intermittent services. Many existing water and wastewater treatment plants are characterized by inefficient plant and equipment, leading to high operating costs. In addition, the sector needs to improve its financial viability.

The Government of Azerbaijan is committed to improving the performance of the WSS sector through better allocation of resources, and improvement of infrastructure service provision, as part of its effort to ensure sustainable growth in the non-oil economy. Improving infrastructure is one of the intermediate objectives of the Government’s poverty reduction strategy - the State Public Disclosure Authorized Program for Poverty Reduction and Economic Development (SPPRED). Government’s vision for the WSS sector in secondary cities focuses on rehabilitation of WSS facilities in all urban centers outside Baku, to provide reliable water supply and wastewater services.

1 Improving WSS services is also consistent with the World Bank Group’s FY07-10 Country Partnership Strategy (CPS) with Azerbaijan, which focuses on four pillars: (I) improving the quality and transparency in public sector governance; (II) sustainable and balanced growth of the non-oil economy; (III) increasing the quality of and access to social services; and (IV) improving environmental management. Strategies for achieving sustainable growth in the non-oil economy include investment in infrastructure and continued governance reforms in the utility sectors. The CPS supports the development of infrastructure and services including increasing the quality and coverage of WSS services nationwide. The proposed NWSSP II is foreseen in the CPS.

The proposed project will be the third Bank operation in the water sector in Azerbaijan and the second one outside Baku. It follows the Greater Baku Water Supply Rehabilitation Project (GBWSRP) completed in January 2006, which financed the upgrading of WSS facilities in Baku and its environs, and the National Water Supply and Sanitation Project (NWSSP) approved by the Bank in June 2007, covering 22 rayons across Azerbaijan.

The Government intends to cover the remaining 21 rayons which are not yet covered by financing plans from donors yet through the proposed project in order to have a comprehensive nationwide approach. Bank support for this project will leverage the knowledge and analytical tools developed from similar projects in the region and elsewhere.

2. Proposed objective(s)

The objective of the project is to improve the availability, quality, reliability, and sustainability of water supply and sanitation (WSS) services in 21 of Azerbaijan’s regional centers (rayons). This objective will be achieved through rehabilitation and reconstruction of water supply and sanitation infrastructure in the 21 rayons outside the Greater Baku Area, including five in Nakhchivan Autonomous Republic. Sustainable management of these investments to improve service delivery is expected to be leveraged through a comprehensive Institutional Modernization Component (IMC). An IMC is already part of the NWSSP, and it will be extended under the NWSSP II. Progress towards achieving the above development objectives will be monitored through the following key performance indicators in rayons under the project:

• Availability: (i) Number of people served by new piped water supply system, (ii) number of people connected to a sewerage network with an operating wastewater treatment plant. • Quality: Percentage of drinking water samples in project area meeting Azeri water quality standards • Reliability: Daily number of hours of water supply service • Sustainability: Working ratio (operating expenditures divided by collected revenues) of the rayon water utilities.

2 3. Preliminary description

The proposed project has three components.

Component A: Rayon Investment Component This component would finance the rehabilitation and reconstruction of water supply and sewerage systems in at least 21 rayons, as well as water, wastewater and septic sludge treatment facilities in these rayons. Rayons to be covered under the project include; , Kurdamir, , Aghsu, Ismayili, Udjar, , Lenkoran, Masalli, Astara, Jalilabad, Yardimli, Lerik, Davachi, Dashkesan, and Gedabey, and Sadarak, Kangarli, Shahbuz, Djulfa, in Nakhchivan Autonomous Republic. The project would cover the rayon centers and the villages located in close proximity of the urban centers or along the transmission mains supplying the centers. The five rayons of Sadarak, Kangarli, Shahbuz, Djulfa and Ordubad belong to the Autonomous Republic of Nakhchivan, and WSS services in them are managed by the State Amelioration and Water Management Agency of Nakhchivan. Given the Government’s approach to cover WSS improvements in all of Azerbaijan’s rayons, all rayons for which financing had not been previously identified were selected.

Component B: Institutional Modernization Component This component would support development and implementation of activities needed for capacity building and modernization of Azersu and its subsidiary companies and to SAWMA, to improve the efficiency and sustainability of WSS services. It would specifically include training in management, financial management, customer service, procurement, preventive maintenance and other subjects pertinent to effective and efficient management of the utilities, as well as provide continued support to activities such as development of performance monitoring, preventive maintenance and leak detection and repair. It would also provide support for preparatory work towards further investments in Greater Baku WSS, including a study on safe disposal of wastewater for Greater Baku, and design of a sea outfall for the main Hovsan Wastewater Treatment Plant effluent and modernization of the Plant itself.

Component C: Project Implementation and Management This component will support project implementation by financing project management activities. It will also finance costs of design and technical support for construction management including contract supervision for the investments.

4. Safeguard policies that might apply

Environmental Assessment (World Bank OP 4.01) The project main component will finance the rehabilitation and reconstruction of water supply and sewerage systems in at least 21 rayons, as well as water, wastewater and septic sludge treatment facilities in these rayons. As in the first project, environmental category “A” is assigned since the project will finance wastewater treatment plants of considerable size with potential environmental impact. Site selection and technology to be used will be determined during project implementation. The Environmental Impact Assessment Framework (EIAF) prepared for the first project will be updated to reflect the new rayons and will be disclosed prior to appraisal. The EIAF will have mechanisms to screen sub-project EA category and the

3 appropriate instruments for assessment, mitigation and monitoring. No sub-project will be identified for this project prior to implementation. However, as part of due diligence, an EA/EMP prepared for one or more sub-projects identified for financing under NWSSP I will be reviewed by the Bank after the public disclosure of the final EIAF in the Infoshop and in country, but before appraisal of NWSSP II.

Safety on Dams The safeguards policy OP 4.47 (safety of dams) is triggered, even though the project will not finance the construction or rehabilitation of any dams or other large control structures. However, water supply facilities included in the project might be fed by such structures, rehabilitation works might include intake structures situated in or near a dam.

International Waterways (World Bank OP 7.50) The Project triggers the World Bank’s Operational Policy on International Waters OP 7.50 (the Operational Policy) and falls within the exception to the notification requirement under Paragraph (7a) of the Operational Policy Several of the rayons under the Project are dependant on canals linked to the Kura River or its tributaries for their drinking water supply. The works to be carried out under the project are not expected to have adverse impacts on the quality and quantity of water to the riparians, and will not be affected by the other riparians water use. The team has received clearance from the Regional Vice President, dated November 27, 2007, for application of the exception to the external notification requirement.

Involuntary Resettlement (World Bank OP 4.12)

Under Operational Policy (OP) 4.12, the project might involve land acquisition of either fallow land, used agricultural land, and/or pasture areas used for sheep and cattle for specific infrastructure investments, such as wastewater treatment plants and water and sewage investments mainly outside the urban centers, if any, such as pumping stations that might involve the acquisition of land. As the exact location, land type and size will not be determined until implementation, the Resettlement Policy Framework (RPF) prepared for the first project will be updated to reflect the new rayons and will be disclosed prior to appraisal.

4 Documents for disclosure before appraisal:

Environmental Impact Assessment Framework (EIAF), and Resettlement Policy Framework (RPF).

When will meaningful consultations with the public and stakeholders take place (default assumption is before appraisal and for all but category C projects)?

Environmental category “A” requires at least 2 public consultations before appraisal. The first consultation is already ongoing with the TORs for the EIAF being disclosed on December 7, 2007 on the webpage of Azersu. This disclosure was announced in a local newspaper the same day. People are invited to submit written comments to the TOR by December 14, 2007. Based on these comments Azersu plans to publish the draft EIAF on December 17, 2007 and to hold a national level consultation meeting on December 25, 2007. For the sub-projects, additional consultation/s will be done depending on the EA category as per OP/BP4.01.

5. Tentative financing

Source: ($m.) BORROWER/RECIPIENT 60 International Bank for Reconstruction and Development 160 International Development Association (IDA) 30 Total 250

6. Contact point

Contact: Andreas Rohde Title: Sr. Sanitary Engineer Tel: +1-202-473-6672 Fax: Email: [email protected] wb19534 P:\AZERBAIJ\INFRA\NationalWater\1LENP\CONCEPT DOCUMENTS\Project Information Document-Concept Stage.doc December 11, 2007 11:37:00 AM