Report and Recommendation of the President to the Board of Directors Project Number: 37003 December 2005 Proposed Loans Pakistan: Rawalpindi Environmental Improvement Project CURRENCY EQUIVALENTS (as of 29 October 2005) Currency Unit – Pakistan rupee/s (PRe/PRs) PRe1.00 = $0.0167 $1.00 = PRs60 ABBREVIATIONS ADB – Asian Development Bank ADF – Asian Development Fund AIFC – average incremental financial cost AP – affected person CBO – community-based organization CCB – citizen community board CD – city district CDR – City District Rawalpindi CO – chief officer DA – development authority DPAC – district price assessment committee EA – executing agency EMP – environmental management plan EIA – environmental impact assessment EIRR – economic internal rate of return FIRR – financial internal rate of return GDP – gross domestic product GIS – geographic information system GRC – grievance redress committee HUD&PHED – Housing, Urban Development, and Public Health Engineering Department IA – implementing agency ICB – international competitive bidding IEE – initial environmental examination IS – international shopping LAC – land acquisition collector LCB – local competitive bidding LG – Local Government and Rural Development Department LIBOR – London interbank offered rate m3/day – cubic meters per day MDG – Millennium Development Goal mld – million liters per day NGO – nongovernment organization NRW – non-revenue water O&M – operation and maintenance OCR – ordinary capital resources P&D – planning and development PDP – 10-Year Perspective Development Plan PG – government of Punjab PHED – Public Health Engineering Department PLGO – Punjab Local Government Ordinance PMU – project management unit PPMS – project performance management system PPTA – project preparatory technical assistance PRS – poverty reduction strategy RAC – resettlement advisory committee RCB – Rawalpindi Cantonment Board RDA – Rawalpindi Development Authority RMC – Rawalpindi Municipal Corporation RP – resettlement plan RT – Rawal Town SDR – special drawing rights SDS – social development specialist SEIA – summary environmental impact assessment SOE – statement of expenditures STP – sewage treatment plant TA – technical assistance TMA – tehsil municipal administration TOTP – tax on transfer of immovable property UA – union administration UC – union council UNDP – United Nations Development Programme UNICEF – United Nations International Children’s Fund WACC – weighted average cost of capital WASA – Water and Sanitation Agency WHO – World Health Organization GLOSSARY district – A district as notified under the Punjab Land Revenue Act, 1967. Punjab province consists of 34 districts. katchi abadi – An unauthorized settlement on state-owned land of more than 40 dwellings, without land rights or physical and social infrastructure services and facilities nazim – Head of city district or a town, or tehsil, or union administration. tehsil – A tehsil as notified under the Punjab Land Revenue Act, 1967. Punjab has 122 tehsils. NOTES (i) The fiscal year (FY) of the Government ends on 30 June. (ii) In this report, “$” refers to US dollars. Vice President L. Jin, Operations 1 Director General K. Senga, South Asia Department (SARD) Director H. Kim, Social Sectors Division, SARD Team leader S. Khan, Senior Urban Development Specialist, SARD Team members T. Gallego-Lizon, Urban Development Specialist, SARD S. Zaidansyah, Counsel, Office of the General Counsel CONTENTS Page LOAN AND PROJECT SUMMARY ii MAP vii I. THE PROPOSAL 1 II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES 1 A. Performance Indicators and Analysis 2 B. Analysis of Key Problems and Opportunities 3 III. THE PROPOSED PROJECT 6 A. Impact and Outcome 6 B. Outputs 7 C. Special Features 10 D. Cost Estimates 10 E. Financing Plan 11 F. Implementation Arrangements 11 IV. PROJECT BENEFITS, BENEFICIARIES, AND RISKS 14 A. Benefits and Beneficiaries 14 B. Social and Environmental Safeguards 17 C. Risks 18 V. ASSURANCES 18 A. Specific Assurances 18 B. Conditions for Loan Effectiveness 20 C. Condition for Disbursement 20 VI. RECOMMENDATION 20 APPENDIXES 1. Design and Monitoring Framework 21 2. Government Policy 25 3. Urban Sector Analysis 28 4. External Assistance to the Urban Sector 31 5. Lessons Learned 32 6. Detailed Cost Estimates 34 7. Project Implementation Framework 35 8. Project Implementation Schedule 36 9. Proposed Contract Packages 37 10. Summary Resettlement Plan 38 11. Summary Poverty Reduction and Social Development Strategy 46 12. Financial Analysis 50 13. Economic Analysis 56 14. Summary Environmental Impact Assessment 58 SUPPLEMENTARY APPENDIXES (available on request) A. Institutional Strengthening B. Draft Terms of Reference for Consultants C. Project Performance Management System D. Resettlement Plan E. Benefits and Beneficiaries F. Summary Environmental Impact Assessment LOAN AND PROJECT SUMMARY Borrower Islamic Republic of Pakistan Classification Targeting classification: Targeted intervention Sector: Water supply, sanitation, and waste management Subsectors: Water supply and sanitation, waste management Themes: Environmental sustainability, inclusive social development, gender and development Subthemes: Urban environmental improvement, human development, and gender equity in capabilities Environment Category A. An environmental impact assessment (EIA) was Assessment undertaken and the main findings were summarized in the summary environmental impact assessment (SEIA), which was circulated to the Board and posted on the Asian Development Bank (ADB) website on 19 July 2005. Project Description The Project—developed under the overall framework of the Government’s poverty reduction strategy outlined in its 10-Year Perspective Development Plan 2001–2011—will improve living conditions in Rawalpindi, a city of about 2.2 million people adjoining Islamabad in Punjab province. It comprises three parts: (i) environmental sanitation (including sewerage, sewage treatment, stormwater drainage, solid waste management, slaughterhouse replacement, and public toilets); (ii) water supply improvement (including replacement of tubewells, rehabilitation and construction of distribution networks, water meter installations, and water supply and sanitation facilities for schools); and (iii) institutional development (including development of municipal management, an urban environmental development plan, asset management, and urban planning). Rationale In Rawalpindi, high urban growth (4% per year), slow urban sector development, lack of resources, and inadequate institutional capacity have resulted in uncontrolled urban sprawl, deteriorating urban environments, and deficiencies in urban services (including water supply, sewerage systems, drainage, solid waste management, and community facilities). The resulting deficiencies particularly affected the urban poor and led to a considerably reduced quality of life, including poor health. In 1993, ADB approved a loan of $72 million for the Rawalpindi Urban Water Supply and Sanitation Project, as the first phase of a proposed three-phase project for improving water and sanitation services in Rawalpindi. When the first phase was completed in 2003, Rawalpindi had increased water supplies from 192,000 cubic meters per day (m3/day) to 256,000 m3/day, with considerable rehabilitation and extension of its water supply distribution network. In addition, major institutional and financial reforms were executed for the Implementation Agency— Rawalpindi Water and Sanitation Agency—and engineering iii studies for future development of sewerage and drainage, and a solid waste management plan were prepared. The second phase (the Project) is intended to implement these plans, focusing on improvements to sewerage and drainage, provision of sewage treatment plant (STP), and solid waste management. The third phase will complete the overall requirements of Rawalpindi's water and sanitation sector, including further expansion of water supply sources, in accordance with the master plan, and extension of water and sanitation in unserved areas of the city. The Government is implementing comprehensive governance reforms, with particular emphasis on enhancing the effectiveness of basic social services through its program for devolution of powers. The Project is formulated to support the Government’s poverty reduction initiatives, as well as devolution of power and responsibility to local governments for the provision and financing of urban infrastructure and municipal services. Impact and Outcome The Project’s impacts are expected to be improvements in living conditions, quality of life, and health of the people of Rawalpindi by improving water supply and sanitation facilities, solid waste management, wastewater treatment, and slaughterhouse. The outcome is sustainable reduction of environmental degradation and sustainable operation of basic urban services. Cost Estimates The total estimated project cost is $85.7 million equivalent, comprising foreign exchange costs of $12.5 million (14.6%) and local currency costs equivalent to $73.2 million (85.4%). Financing Financing Plan ($ million) Source Foreign Local Total % Exchange Currency ADB 12.5 47.5 60.0 70 PG 0.0 21.4 21.4 25 RT/WASA 0.0 4.3 4.3 5 Total 12.5 73.2 85.7 100 ADB = Asian Development Bank, PG = government of Punjab, RT = Rawal Town, WASA = Water and Sanitation Agency. Source: ADB estimates. Loan Amount and Terms It is proposed that ADB provide two loans. A loan of $40 million equivalent in various currencies from ADB’s special funds resources