Report No. PID10560
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Report No. PID10560 Project Name KAZAKHSTAN-Northeastern Kazakhstan Water Supply and (@) Sanitation Project Region Europe and Central Asia Region Sector Water supply (50%); General water/sanitation/flood protection sector (25%); Sub-national government Public Disclosure Authorized administration (25%) Project ID P070008 Borrower(s) GOVERNMENT OF KAZAKHSTAN Implementing Agency Address PARTICIPATING WATER UTILITIES Water and wastewater enterprises (vodokanals) of the cities of Karaganda (JSC Vodokanal), Temirtau (Nizhny Bief Ltd.) and Kokshetau (Gorvodokanal). Address: JSC Vodokanal, Karaganda City; Nizhny Bief, Temirtau City; Public Disclosure Authorized Gorvodokanal, Kokshetau City: Contact Person: S.B Uteshov; Deputy Governor of Karaganda; Mr. Erbol Toleuov, Director, Nizhny Bief Ltd.; S.V. Kulagin; Governor of Akmola Oblast, Kokshetau; Tel: 7(3212) 482970; 7(32135) 51644, 62292; 7(32135) 44555; 7(31622) 70963 Fax: 7(3212) 482970; 7(32135) 51644; 7(32135) 44555; +7(31622) 70963 State Committee for Water Resources Address: 28-A Mozhaiskiy Str., 473201, Astana, Kazakhstan Contact Person: Anatoly Ryabtsev, Chairman Public Disclosure Authorized Tel: 7-3172-356727 Fax: 7-3172-356770 Email: [email protected] Ministry of Agriculture Address: Contact Person: A.K. Kurishbayev, Deputy Minister Tel: 7 (3172) 32 37 84 Fax: 7 (3172) 32 39 73 Environment Category F Date PID Prepared February 4, 2003 Auth Appr/Negs Date January 27, 2003 Public Disclosure Authorized Bank Approval Date July 15, 2003 1. Country and Sector Background Water and wastewater services in the urban centers of Kazakhstan are provided by water and wastewater enterprises (vodokanals). In 1993, the central government decentralized the responsibility for the water and wastewater sector to municipalities and phased out operating and capital subsidies to the sector. As a result, all vodokanals are required to be self-financing. In practice, most vodokanals are unable to cover operations and maintenance costs from revenues, and without any subsidies, their financial situation is extremely difficult and many of them cannot raise tariffs sufficiently and are able to survive only by delaying payments to their suppliers, particularly the energy suppliers. Although over 80% of the households in Kazakhstan have piped water connections in their houses, the water supply service in Temirtau, Kokshetau and Karaganda is poor, both in terms of quantity and quality. A social assessment carried out as part of project preparation showed that about 559 of the people interviewed in the three cities are dissatisfied with water services. Among those who are not satisfied, the main reason for their dissatisfaction was the quality of the water supply, particularly problems with salinity and turbidity of the water, as well as sedimentation that ends up in household taps. A second reason for dissatisfaction with the service, was irregular supply. This problem was considerably higher in Temirtau, but to a lesser extent in Kokshetau where the second biggest problem was insufficient water pressure. Because of these problems, a lot of the families have adopted a variety of coping mechanisms, which include storing water in tanks, pots and containers; filtering drinking water; to buying bottled water for drinking. Data collected during project preparation also indicates significant wastage of water through leakage, and poor raw water quality (including heavy metals pollution in parts of the Nura River, a major source of raw water for Temirtau and Karaganda). The high level of water losses and wastage is of particular concern. For example, the estimated demand for the Karaganda urban area is equivalent to 420 liters per capita per day, with losses in the system conservatively estimated at 55% or more. This very high consumption estimate is not a reflection of actual consumption, but the lack of water conservation measures in the system, and the poor condition of the system. The water requirements associated with these levels of losses and wastage put a significant strain on the water resources of the catchment and does not provide an adequate level of service to the population. Much of the existing water supply and wastewater infrastructure is in dire need of replacement and repair. Almost all infrastructure in the three cities, including water intakes, water distribution and wastewater collection networks, pumping stations, and water and wastewater treatment plants, suffer from advanced deterioration. The current financial performance of the vodokanals, coupled with the withdrawal of state subsidies to the sector, and lack of maintenance, has exacerbated the situation even further. Therefore, one of the critical challenges facing the Government, is to mobilize private and public resources to stem the deterioration in the economy's water supply physical infrastructure. This infrastructure, which was heavily subsidized by the Soviet Union until 1992, now faces important challenges as maintenance is being postponed due to resource constraints while new investments are being delayed. The continued deterioration has become one of the main causes of increased water borne diseases, deterioration of health indicators and decline in living - 2 - standards. Bank support in financing basic infrastructure, emphasizing rehabilitation and improved efficiency of existing assets rather than new investments, will therefore be very critical to the sustainability of the sector. In addition to the poor state of the distribution network, the following constraints also plague the urban water and sanitation sector, and in particular the three vodokanals in the project: Inefficient operations: Water and wastewater treatment plants were inappropriately designed and are poorly maintained and operated. As a consequence, these plants perform badly in terms of quality of output and efficiency. Other components of the water and sewage systems (e.g., distribution systems) are similarly inefficient. All these inefficiencies increase operating costs unnecessarily. Poor financial viability: Most of the vodokanals in the country, including the Nura-Ishim basin are facing reduced government transfers due to fiscal constraints. At the same time, they are not allowed to raise tariffs sufficiently to cover all operating and maintenance costs. Tariffs levels are controlled by the State Anti-Monopoly Committee (AMC) through a set of formulas that do not allow for adequate provision for all operating and maintenance costs. The collection efficiency is also very poor. The result is a poor financial situation that does not allow adequate maintenance of vodokanal assets. Most vodokanals have accumulated large debts to their suppliers, most notably electricity providers. Additionally, the utilities and municipalities have made little or no investments in rehabilitation, repair and/or expansion of facilities for years. Lack of incentives for water conservation: Inefficient water use in the municipal, industrial and irrigation sectors seems to be the norm. The low level of water charges for raw and bulk water and the low tariffs for treated water provide very weak signals to water users about the value of the resource. At the municipal level, households, industries and public agencies, not accustomed to water conservation and not faced with appropriate water tariffs waste significant amounts of water, driving up operating costs unnecessarily. The Government strategy is to address these inefficiencies through decentralization of responsibilities for managing utilities and service provision to local government institutions, revising the legislation regulating tariffs, and encouraging full cost recovery of operational, maintenance and debt service costs, including efficient utilization of public resources. The approach followed in the project, which focuses on rehabilitation and institutional and capacity building, using public/private partnerships to support service improvements, is consistent with the Government's strategy. The project approach focuses on: (i) halting the deterioration of urban water supply infrastructure; (ii) strengthening market incentives and institutions involved in service delivery; (iii) supporting private sector involvement where appropriate to improve efficiency; (iv) scaling up investments in rehabilitation of water supply and sanitation systems; and (v) increasing cost recovery and introduction of commercial practices in utility management and ensuring proper operations and maintenance, including allowing the vodokanals to - 3- finance system rehabilitation from own resources. The Central Government, as well as the local and regional governments, are in full support of this project approach. 2. Objectives The development objective of the project is to improve the quality and sustainability of the water supply and wastewater services in the cities of Termitau, Karaganda and Kokshetau, located in the Nura/Ishim river basin. The development objective would be achieved through: (a) strategic rehabilitation and efficiency improvements of existing water and wastewater facilities; and (b) institutional strengthening of the Nizhny Bief Vodokanal (NBVK) in Termitau, the JSC Vodokanal (JVK) in Karaganda, and Gorvodokanal (GVK) in Kokshetau, through a performance-based management and operation contract with an internationally experienced water utility operator (the Operator). 3. Rationale for Bank's Involvement Through its water supply operations (either ongoing or under preparation) and sector work in neighboring