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Home , Pakistan, Rawalpindi, Rawalpindi Cantonment

Report and Recommendation of the President to the Board of Directors

Project Number: 37003 December 2005

Proposed Loans : Environmental Improvement Project

CURRENCY EQUIVALENTS (as of 29 October 2005)

Currency Unit – Pakistan /s (PRe/PRs) PRe1.00 = $0.0167 $1.00 = PRs60

ABBREVIATIONS ADB – ADF – Asian Development Fund AIFC – average incremental financial cost AP – affected person CBO – community-based organization CCB – citizen community board CD – CDR – 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 – 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 – and Department LIBOR – 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 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 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 – Development Programme UNICEF – United Nations International Children’s Fund WACC – weighted average cost of capital WASA – Water and Sanitation Agency WHO – Health Organization

GLOSSARY district – A district as notified under the Punjab Land Revenue Act, 1967. Punjab consists of 34 . 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 (FY) of the Government ends on 30 June. (ii) In this report, “$” refers to US dollars.

Vice President L. Jin, Operations 1 Director K. Senga, South Department (SARD) Director H. , Social Sectors Division, SARD

Team leader S. , 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 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, 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 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 ); 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, 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 (Asian Development Fund [ADF]). The loan will have a 32-year term including a grace period of 8 years, an interest rate of 1% per year during the grace period and 1.5% per year thereafter, and such other terms and conditions set forth in the draft loan agreement. A second loan of $20 million equivalent from ADB’s ordinary capital resources (OCR) will be provided under ADB’s London interbank offered rate (LIBOR)-based lending facility. The loan will have a 25-year term including a grace period of 5 years, an interest rate determined in accordance iv

with ADB’s LIBOR-based lending facility, a commitment charge of 0.75% per annum, no front-end fee, and such other terms and conditions set forth in the draft loan agreement.

Allocation and Relending ADB will provide the loan to the of Pakistan, Terms which will relend it to the government of Punjab (PG) on the same terms and conditions. The foreign exchange risk will be borne by the PG, which will make the loan proceeds available to City District Rawalpindi (CDR) as a grant.

Period of Utilization Until 30 September 2011

Estimated Project 31 2011 Completion Date

Executing Agency City District Rawalpindi

Implementation The Executing Agency (EA) will establish a project management Arrangements unit (PMU) headed by the project director located at the Water and Sanitation Agency (WASA). The PMU, comprising professional supported by a team of consultants, will assist CDR, Rawal Town (RT), Rawalpindi Development Authority (RDA), and WASA in providing policy guidance and implementing project components. For internal coordination, two committees will be set up. A project implementation review committee—comprising officials of CDR, Pothar Town, RT, RDA, WASA, union administrations, and community-based organizations—will monitor the progress of all project components on a quarterly basis. A project steering committee will be set up in the PG in to ensure smooth implementation, resolve interagency problems, and provide policy guidance. It will be headed by the chairman of PG’s Planning and Development Board (P&D), with members comprising senior officers from the P&D; Housing, Urban Development, and Public Health Engineering Department (HUD&PHED); and finance department of PG; as well as RDA, WASA, and CDR and RT heads (nazims). It will meet at least once every 6 months.

Procurement All procurement services for the Project will follow ADB's Guidelines for Procurement and the Government’s rules and regulations. Contracts for civil works estimated to cost more than $5 million equivalent will be issued using international competitive bidding (ICB) procedures. Contracts estimated to cost $5 million equivalent or less will be carried out through local competitive bidding (LCB) procedures. Minor development and maintenance may be carried out on a force account basis. Procurement of goods will preferably be grouped into packages larger than $500,000 to be suitable for ICB procedures. Miscellaneous minor goods that cannot be grouped into larger contracts, and are estimated to cost less than $500,000 per contract, will be procured through international shopping (IS) procedures. Minor items estimated to cost less than $100,000 equivalent per v

contract may be purchased directly, following proper procedures to ensure economy, efficiency, and quality.

Consulting Services An input of 1,334 person-months of consulting services is planned, consisting of 18 international and 1,316 domestic person-months, all under two packages. Package A will be for project management and implementation support to the PMU, including subproject detailed design, construction supervision, and monitoring and evaluation. Package B will be for institutional development. In addition, local nongovernment organizations (NGOs) and social mobilizing teams (Package C) will be engaged for community development and participation (144 person- months).

Packages A and B will be procured from domestic consulting firms. Package C will be procured on an individual basis and by contracting local NGOs. Consultants for Package A and B will be selected and engaged in accordance with the quality- and cost- based selection method of ADB's Guidelines on the Use of Consultants or other arrangements satisfactory to ADB for the engagement of domestic consultants. Whereas, consultants for Package C will be selected either as individual consultants or as firm. In the case of a firm, it will be selected and engaged in accordance with the quality-based selection method.

Project Benefits and The Project will improve the living conditions of about 1.4 million Beneficiaries residents of Rawalpindi city by enhancing the quality of life and health, improving the environment, and creating conditions conducive to sustained urban development and economic growth. It will contribute to reduction of mortality, morbidity, and poverty, and mitigate loss of amenity caused by environmental degradation in the city, especially among slum inhabitants and poor groups (particularly women and children). The Project will support improvements to RT and WASA capacity by improving their financial and operational management and planning, including local resource generation. The financial internal rates of return (FIRRs) for the components are estimated as follows: solid waste (7.3%), sewerage and stormwater drainage (2.7%), and water supply (6.2%). The overall project economic internal rate of return (EIRR) is estimated at 15.8%.

Risks and Assumptions Major risks associated with the Project include the following. (i) Acquisition of required land may be delayed or not be forthcoming, which could delay or impede implementation of some subprojects. (ii) Frequent turnover of trained staff and delayed decision making on critical issues by CDR, WASA, and RDA may jeopardize project benefits. (iii) Future legislation could gradually erode the comprehensiveness and consistency of the Punjab Local Government Ordinance (PLGO), 2001, which could vi

seriously impede the CDR’s effectiveness as a main actor in project implementation.

(iv) Implementation of the agreed Government Policy (Appendix 2) may be delayed and efforts for enhancement of the revenue base and institutional strengthening of RT and WASA may not give sufficient sustainable results. This could affect project implementation or the long-term sustainability of improvements, or both.

CDR will initiate the land acquisition process before loan approval to avoid implementation delays. Close monitoring and early flagging for action by the project implementation review and steering committees will minimize the risk of delayed decision making. Considering lessons learned from phase 1, the PG has provided a firm commitment to minimize staff turnover and recruit qualified staff for PMU, WASA, and RT. Strict attention to timely project progress reporting, including staffing and accounting, will also help. Devolution is one of the Government's particular commitments to reform, particularly capacity building of RT and WASA. The Project is a timely contribution to the devolution process. The risk of delays in implementing the Government Policy will be minimized by a water audit that will lead to updating the Government Policy, and its monitoring by a civil society task force.

vii

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PAKISTAN nu R. Indus National Capital Provincial /Town Proposed Sewage Treatment Plant Proposed Landfill Site Proposed Slaughterhouse Proposed Outfall Sewer Main Water Pipeline National Road Other Road River District Boundary Provincial Boundary International Boundary PAKISTAN Boundaries are not necessarily authoritative. IMPROVEMENT PROJECT o o 64 00'E 64 00'E RAWALPINDI ENVIRONMENTAL o o 26 00'N 35 00'N

05-5882 HR

I. THE PROPOSAL 1. I submit for your approval the following report and recommendation on two proposed loans to the Islamic Republic of Pakistan for the Rawalpindi Environmental Improvement Project.

II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES 2. Rawalpindi is the third largest city in Pakistan. About 40% of its 2.2 million inhabitants are in the low-income group. Like other urban areas in Pakistan, high urban growth (4% per year) has resulted in uncontrolled urban sprawl, deteriorated urban environments, and deficiencies in the city’s urban services. Lack of sanitation facilities (mainly sewerage, sewage treatment, drainage, and solid waste collection and disposal) has caused serious environmental problems, particularly to drinking water quality, due to pollution of surface and groundwater sources. Water quality analyses performed in 20021 show that over 85% of water samples analyzed for physical, chemical, and bacteriological parameters were unsafe for human consumption due to bacterial contamination. A 2003 study2 indicates that typhoid, hepatitis, and other gastrointestinal water-related diseases have reached an alarming level and hospitals are continuously registering more patients. This situation has particularly affected the urban poor and caused a considerably lower quality of life, including poor health and increased poverty. The incidence of has increased from 20.0% to 32.1% over the past 15 years. Unemployment was 9.7% in urban areas and 7.7% nationwide during FY2004.3

3. The poverty reduction strategy of the Government of Pakistan4 (the Government) envisages a multipronged strategy of reviving growth, improving governance, reorienting public expenditure toward poverty-reducing programs, and revamping the social security system. The Government is committed to increasing pro-poor budgetary expenditure by 0.2% of gross domestic product (GDP) per year to 4% of GDP in FY2004.5 The Government is implementing comprehensive governance reforms, with particular emphasis on enhancing the effectiveness of basic social services through its Punjab Local Government Ordinance (PLGO), 2001. The government of Punjab’s (PG’s) poverty reduction strategy6 also emphasizes the need to implement broad-based governance reforms and improve social services to poverty.

4. The Asian Development Bank (ADB) approved a loan of $72 million in 1993 for the Rawalpindi Urban Water Supply and Sanitation Project,7 as the first phase of a proposed three-phase project for improving water and sanitation services in Rawalpindi. Upon completion of the first phase 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 Implementing Agency— Rawalpindi Water and Sanitation Agency (WASA)—and engineering 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 a 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 augmentation of water supply sources in accordance with the master plan and extension of water and sanitation in unserved areas of the city.

1 Pakistan Council of Research in Water Resources. 2002. 2 Institute of Public Health and National Institute of Health. 2003. Water Quality Status in Pakistan. Islamabad 3 Federal Bureau of Statistics, . 2003–2004. Pakistan Labour Force Survey. Islamabad. 4 Ministry of Finance, Government of Pakistan. 2003. Poverty Reduction Strategy Paper. Islamabad. 5 Expenditures are on education, health, water supply and sanitation, population planning, , rural development, , roads and bridges, social security and other welfare, relief for natural calamities and disasters, food subsidies, and food support programs. 6 Planning and Development Board, Government of Punjab. 2003. Punjab Poverty Reduction Strategy Paper. Lahore. 7 ADB.1993. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Islamic Republic of Pakistan for the Rawalpindi Urban Water Supply and Sanitation Project. . 2

5. This document is based on consultants’ feasibility reports prepared during an ADB-financed 8 9 technical assistance (TA) project, understandings reached between the Loan Appraisal Mission and both federal and provincial governments, and extensive consultations with elected town officials and beneficiaries representing all community groups, including women. The design and monitoring framework is in Appendix 1.

A. Performance Indicators and Analysis 6. In accordance with PLGO 2001, responsibility for delivery of municipal urban services and environmental improvement rests mainly with tehsil10 municipal administrations (TMAs)/towns. Union Administrations (UAs), the lowest level of local government, are in charge of community development and related tasks. The district government, a level above TMAs/towns, handles affairs related to government land as well as the health and education sectors. Implementation of PLGO 2001 has considerably reduced the previously dominating roles of provincial agencies. Special development authorities have been set up for major in Punjab, including Rawalpindi, through the Development of Cities Act, 1976, and district governments have been designated city governments.11 TMAs/towns are supervised by the provincial Local Government and Rural Development Department (LG) which supports and monitors progress in the implementation of PLGO 2001, including all required adjustments and improvements in institutional and organizational setups as well as financial management. Within LG, the Directorate General of Katchi Abadi and Urban Improvement has responsibility for resolving problems related to katchi abadis.12 Rawalpindi has a mixed and conflicting land use pattern, with residential, commercial, and industrial uses. Urbanization has caused several slum areas to emerge in the city. At present, there are about 24 identified slums, including 6 katchi abadis, of which 3 have been regularized.

7. Piped water supply coverage in the city increased from 35% to 46% of the population following implementation of the phase 1 project, which addressed urgent needs by expanding water supply sources and extending and rehabilitating distribution networks. There are about 76,000 registered and an estimated 15,000 unregistered water supply connections. Commercial consumers account for another 5,500 connections. Total water production (including groundwater and surface water) is about 163 million liters per day (mld). The city relies to a large extent on groundwater. The number of tubewells increased from 33 in 1980 to 209 in 2005. Persistent during 2001–2004 and excessive withdrawal of groundwater have caused the water table to drop to an alarming level with consequent reduction in the quantity and quality of water. Unserved households that can afford tanker water have to pay about PRs1,800 ($31) per month whereas those on piped WASA water pay on average only PRs40 ($0.7) per month. All other unserved settlements have to rely on unsafe water sources. The City District Rawalpindi (CDR) needs to urgently strengthen water management with sound water and sanitation policy and objectives, including: (i) long-term planning and development of water resources for water supply purposes; (ii) piped water supply services and adequate sanitation for all Rawalpindi inhabitants, maintained in a sustainable manner through sound financial and human resources management; (iii) water conservation aimed at metered water supply services for all consumers and consumption-based billing; (iv) sustainable use of groundwater; and (v) safeguarding water quality.

8. The existing sewerage system only covers about 30% of the city but has no sewage treatment. In the remaining 70% of the city, raw sewage is discharged to street-side drains which ultimately discharge into the Lai , the main drain passing through the city. Lack of a proper

8 ADB. 2003. Technical Assistance to the Islamic Republic of Pakistan for Rawalpindi Environmental Improvement Project. Manila. 9 The Loan Appraisal Mission was fielded 6–16 September 2005. 10 A tehsil is a local government unit under a corporate municipal administration. 11 On 24 June 2005, PG declared eight tehsils of as a city district to be called City District Rawalpindi (CDR). Rawal Town is one of the towns of CDR, which includes Rawalpindi City. 12 A katchi abadi is an unauthorized settlement on state-owned land of more than 40 dwellings, without land rights or physical and social infrastructure services and facilities. 3 sewerage network, sewage disposal, and treatment have worsened conditions, especially for poor people living in low-lying areas. Heavy rains cause extensive local flooding and storm water mixes with raw sewage, spreading contamination throughout the neighborhood while low-lying areas remain flooded for a long time. Most of the existing drains in the city have been encroached upon, which has further deteriorated the situation. The storm water channels carrying the untreated sewage of Islamabad and Rawalpindi are virtually sludge carriers that ultimately discharge into nearby , affecting aquatic life and . All these factors have seriously affected drinking water quality: (i) open water storage reservoirs are being contaminated with the discharge of uncontrolled and untreated sewage; (ii) defective, old, leaking water pipelines that run alongside the sewerage system receive sewage at leaking points; (iii) groundwater sources become contaminated by percolation of sewage because of the inadequate sewerage system; and (iv) discharge of untreated sewage from Islamabad in Lai Nullah has contaminated all the tubewells located along this drain.

9. Solid waste is managed by Rawal Town (RT), which is suffering from numerous operational and financial problems. Only 60% of the waste generated is collected and disposed of, and the existing landfill site has ended its useful life. The sanitary tax paid to the TMA for solid waste disposal is about PRs20 ($0.33) per month and its collection efficiency is low. There are two slaughterhouses in Rawalpindi where up to 2,000 are slaughtered daily. However, there is no adequate arrangement for the disposal of animal waste, which causes serious environmental hazards.

B. Analysis of Key Problems and Opportunities 10. PLGO became effective in 2001 but much remains to be done in terms of strengthening the capacity of LG agencies, clarifying roles and responsibilities, realigning the relationship between the provincial government and LG, and ensuring increased and predictable funding to LG to meet social services needs. While LG is now responsible for the delivery and management of social services, its administrative and financial authorities are not capable of the assigned responsibility. The PG has a critical role in providing an enabling environment for the LGs to improve their functional, financial, and managerial autonomy, in line with the PLGO, to empower LGs to improve social services. The proposed Project will (i) collaborate with the Decentralization Support Program,13 Punjab Resource Management Program,14 and the Punjab Devolved Social Services Project;15 and (ii) enhance CDR’s skills in rationalization and planning of social services. It is essential to institutionalize the overall working of CDR to make its monitoring system more effective, transparent, and accountable.

11. Some major financial and institutional reforms to enhance institutional efficiencies were implemented in WASA under the phase I project. As a result, financial management improved substantially and WASA started generating more revenues than expenditures in 1999. However, progress towards WASA’s self-sustainability could not be maintained because the top management was changed frequently; turnover of trained staff was high; inexperienced and less qualified staff were appointed; and, above all, the Government failed to follow up on WASA’s sustained operations. Considering the potential for improvement, important policy actions (Appendix 2) have been agreed with the PG to address the problems outlined above and pursue sustainable urban services from a strengthened WASA and RT.

12. The Government’s policy of decentralization and devolution is critical to developing greater local responsibility. Efficient and cost-effective community services cannot be provided until: (i) communities are involved in all phases of project design, execution, and post-implementation; and (ii) accountability and management are improved at each level of local government operations. The mobilization of local resources and improved management of existing infrastructure and services are

13 ADB. 2002. Report and Recommendation of the President to the Board of Directors on Proposed Loans to the Islamic Republic of Pakistan for Decentralization Support Program. Manila (Loans 1935, 1936, 1937, and 1938-PAK). 14 ADB. 2003. Report and Recommendation of the President to the Board of Directors on Proposed Loans to the Islamic Republic of Pakistan for Punjab Resource Management Program. Manila (Loans 2030 and 2031-PAK). 15 ADB. 2004. Report and Recommendation of the President to the Board of Directors on Proposed Loans to the Islamic Republic of Pakistan for Punjab Devolved Social Services Program. Manila (Loans 2144 and 2145-PAK).

4 necessary to achieve these objectives. The Government has agreed to support these objectives through the Project by: (i) strengthening the managerial, financial, and technical capacity of the CDR by delegating more responsibility and upgrading staff capacities; (ii) providing adequate staff, equipment, and procedures to enable RT and WASA to increase resource mobilization and improve management and delivery of existing urban infrastructure and services; and (iii) providing a training program to increase the managerial proficiency of their staff. The Government has committed itself to greater continuity in the appointment of key professional and administrative staff in these organizations.

13. At the start of the proposed Project, a comprehensive water audit will be undertaken which will examine the consumption and cost of water from the perspective of various water suppliers (WASA, small-scale water providers, water vendors, and bottled water suppliers) and water users. This is expected to provide new information on service coverage, the main source of water revenues, and use of non-revenue water (NRW). The results of the audit will be analyzed and discussed in consultation with stakeholders, and will form the basis of new government policy on water supply services, which is expected to deal with the following: (i) rate of increase in new connections, (ii) targeting of services for the urban poor, (iii) tariffs and the elimination of flat rate tariffs, (iv) billing collection, (v) metering of all services, (vi) groundwater management, (vii) organization development, (viii) NRW measurement and reduction, (ix) water conservation, and (x) community awareness and community development. Appendix 2 summarizes the policy actions agreed with the PG.

14. The Government is concerned about the low levels of social services and that greater investment will accelerate productivity gains, reduce poverty, and promote smaller, healthier, and better-educated families. Pakistan’s national urban and housing policy is reflected in the 10-Year Perspective Development Plan (PDP), 2001–2011, which describes the main urban problems as: (i) environmental degradation and breakdown of infrastructure and municipal services; and (ii) lack of vision, inadequate institutional setups, and weak financial base. Improvements will start with the following: (i) strengthening CDR’s role in planning, determining actual needs, preparing action plans, and enhancing capabilities for water supply and sanitation services; (ii) preparing or updating master plans; and (iii) for water supply and sanitation, PDP envisages that an additional 55 million people (28 million rural and 27 million urban) will be provided with water supply services, increasing national service coverage from 63% to 84%, and another 54 million people (26 million rural and 28 million urban) will benefit from sanitation facilities, increasing national service coverage from 39% to 63%. Private sector participation in environmental sanitation and water supply will be encouraged and the institutional capacity of service providers will be upgraded. In line with the goals of the national poverty reduction strategy (PRS), the Punjab PRS emphasizes restoration of good governance, enhancement of public expenditure, improvement in service delivery for social sectors, and addressing environmental concerns, among key factors to reduce poverty in Punjab. An urban sector analysis for Pakistan is in Appendix 3.

15. The proposed Project is formulated to support the Government’s poverty reduction initiatives, as well as devolution of power and responsibility to local governments for providing and financing environmental sanitation, water supply services, and environmental support services. The Project incorporates several strategic features and incentives for participation, including: (i) promotion of policy reforms in accordance with PLGO 2001; (ii) financial management and resource generation at the levels of the TMA, UA, and WASA; (iii) priority for investments that meet the basic needs of urban communities; (iv) community participation and ownership; and (v) equity participation by UAs in investment packages.

16. ADB Strategy. The focus of ADB’s Strategy and Program Update (2006–2008) for Pakistan is on reducing poverty by providing help in the key strategic areas of good governance, sustainable pro-poor economic growth, and inclusive social development. ADB lending to devolved sectors will aim to strengthen devolution by ensuring that future ADB projects are consistent with the new governance structure under PLGO 2001. Where appropriate, efforts will be made to realign 5 recently approved ADB projects for devolved sectors. ADB’s emphasis will remain on improving delivery of social services, which support increased public sector allocations and improved governance through devolution, sector administration, and financial management. ADB’s water policy also supports ADB’s strategy for poverty reduction by addressing each of the three framework elements of poverty reduction: pro-poor sustainable growth, social development, and good governance. The main focus of ADB assistance to the urban sector will be on environmental aspects and needs of the poor, and will broadly cover: (i) institutional restructuring and devolution of service delivery; (ii) private sector involvement in the delivery of selected services; (iii) budgeting and finance, and increased cost recovery and municipal revenue; (iv) increased community participation; and (v) attainment of the Millennium Development Goals (MDGs). The Project will develop linkages with strategies by forums such as the Global Water , World Water Council, and Water Supply and Sanitation Collaborative Council, to facilitate achievement of the vision, goals, and targets set in the MDGs.

17. External Assistance to the Sector. ADB has provided eight loans, totaling about $450 million, since beginning assistance to Pakistan’s urban sector in 1976 (including loans for the water supply, sanitation, and urban development sectors). Another $7.1 million was provided for TA projects in water supply, sanitation, and urban development. So far, ADB projects in Pakistan’s urban sector have focused on Sindh, North-West Frontier, and Punjab . has provided the largest external support to the urban sector, and the has given the second largest amount. Both donors mainly focused on Sindh and Punjab provinces. Other bilateral assistance is provided by the governments of Germany, , Netherlands, Switzerland, and . The United Nations Development Programme (UNDP), along with United Nations International Children’s Fund (UNICEF), and World Health Organization (WHO), have provided assistance, mostly in community water supply and low-cost sanitation projects. Further details are in Appendix 4.

18. Lessons Learned. The key lessons learned from the phase 1 project are as follows:

(i) Project administration. Implementation delays can be avoided by: (a) streamlining lengthy administrative procedures for approval of selection of consultants; (b) avoiding frequent turnover of the project director and qualified project management unit (PMU) staff; (c) strengthening the monitoring and evaluation system and holding regular steering committee meetings to take timely action on issues hindering implementation progress; (d) improving consultants’ performance to efficiently process and implement the subprojects; (e) making timely payments to contractors and consultants; and (f) devolving decision making of noncritical issues to the appropriate lowest level. (ii) Institutional aspects. Efficient municipal urban services require the following: (a) continuity of policy—management and senior operating staff are critical to maintain direction and achieve required goals; (b) qualified PMU management and staff; (c) appointment of regular EA staff in PMU instead of contract staff to achieve sustainable institutional reforms; (d) autonomy of WASA—for setting water tariffs to meet its financial needs, engaging staff as necessary to operate and maintain the water supply and sanitation system to acceptable standards, and making it independent of budgetary support from the PG; and (e) consistent monitoring of development impacts by the Government to achieve sustainability of the implemented reforms.

19. Key lessons learned from other ADB-financed projects for water supply and sanitation and urban development in Pakistan, as well as a review of multilateral and bilateral projects in Pakistan and the region, are summarized below. (i) Project accountability and transparency are undermined by failure to comply with specific covenants, delays in recruitment of consultants, minimal beneficiary participation, poor operation and maintenance (O&M) of completed facilities, low financial and economic rates of return, and frequent changes in senior management.

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(ii) The quality of governance is critical to a project’s success. Highly centralized project management adversely affects project performance and ownership by major stakeholders. (iii) All stakeholders should be fully involved in project identification and design from an early stage, and sufficient information should be gathered regarding the active nongovernment organizations (NGOs) and community-based organizations (CBOs) in the project area to facilitate their involvement.16 (iv) Community participation requires intensive interaction among the project team, participating community, and local authorities, and project must be relevant to service needs. (v) Women should be empowered to participate in decision making at the micro level to bring about constructive changes in the living conditions of the urban poor. (vi) Institutional strengthening should be given the greatest emphasis and carried out systematically. (vii) Delays in start-up implementation should be avoided by taking advance procurement actions.

20. A main lesson learned from the Karachi Sewerage Project17 is that the sustainability of sewerage projects can only be assured if the utility is in good financial health. Important lessons learned from the District Towns Water Supply18 in and Second Water Supply and Sanitation Project19 in Bangladesh emphasized: (i) a need for greater involvement of pourashava () and community in implementing environmental sanitation programs, (ii) training for pourashava personnel, and (iii) monitoring of the implementation performance of the EA and pourashava. An important lesson learned from the Karnataka Urban Development and Coastal Environmental Management Project20 in India, which ADB started financing in early 1996, is that women should be empowered to participate in decision making at the micro level to bring about constructive changes in the living conditions of the urban poor. Furthermore, people’s perceptions of, and attitudes toward, sanitation must be changed because public awareness and community participation are critical in any sanitation improvement program. Appendix 5 summarizes the lessons learned and measures taken to incorporate these lessons into the proposed Project.

III. THE PROPOSED PROJECT A. Impact and Outcome 21. The expected impacts of the Project are 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 Project will result in sustainable reduction of environmental degradation and ensure sustainable operation of basic urban services.

22. The operational area of RT and WASA covers the inner city area, over 50 newly developed colonies, and low-income slums. During the project preparatory technical assistance (PPTA), low- income areas were identified by undertaking the following: (i) extensive socioeconomic surveys to assess the status of urban service coverage, the need and demand for services, assessment of household incomes, and willingness to pay for services; (ii) participatory analysis and planning with households (especially women’s groups) which produced knowledge on the impact of poverty and

16 ADB. 2003. Pakistan Sector Assessment Review. Manila. 17 ADB. 2001. Project Performance Audit Report, Karachi Sewerage Project. Manila (Loans 1001-[SF]PAK and 1002-PAK). 18 ADB. 1982. Report and Recommendation of the President to the Board of Directors on the Proposed Loan to the People’s Republic of Bangladesh for the District Town Water Supply Project. Manila. [Loan 571-BAN (SF)]. 19 ADB. 1993. Report and Recommendation of the President to the Board of Directors on the Proposed Loan to the People’s Republic of Bangladesh for the Second Water Supply and Sanitation Project. Manila. [Loan 1264-BAN (SF)]. 20 ADB. 1991. Report and Recommendation of the President to the Board of Directors on the Proposed Loan to India for the Karnataka Urban Development and Coastal Environmental Management Project. Manila. (Loan 1704-IND).

7 poverty reduction priorities for vulnerable communities; and (iii) specific and detailed queries about the level, availability, and quality of water supply, solid waste, and sewerage services. The proposals for improving the urban environment and extending coverage of urban services were developed based on the above, using lessons learned in the phase 1 project and other externally funded projects (Appendix 5).

B. Outputs 23. The Project will comprise the following main components: (i) part A—environmental sanitation; (ii) part B—water supply services; and (iii) part C—institutional development, including municipal management system development, environmental support services, asset management, urban development, project implementation assistance, and incremental administration support. The project components are described below.

1. Part A. Environmental Sanitation a. Sewerage System 24. Only 30% of Rawalpindi City is covered by the sewerage system, which was laid in Town in the 1950s and Khayaban-e-Sirsyed in 1969. Inappropriate subdivision of urban lots, increasing population density, and corrosion and deterioration of pipes and seals have caused the network pipes to leak continuously. The Project will install major sewerage networks which include: (i) laying about (a) 160 kilometers (km) of sewerage network (trunk and area sewers) within the boundary limits of RT over 384 hectares (ha) to benefit a population of 190,000, and (b) secondary and lateral sewers in the catchment of existing trunk sewers in sewerage (SW) 02 and SW03; (ii) construction of a transfer/outfall sewer to the STP; (iii) replacement of undersized sewers in identified areas; (iv) environmental mitigation works upstream of filtration plant; and (v) procurement of sewer cleaning equipment and machinery.

b. Sewage Treatment Plant 25. The STP will treat sewage from Rawalpindi and suburban areas, which will be received through a 24.5 km box conduit along the Lai Nullah and Soan River. Waste will be treated in stabilization ponds. The quantity of sewage from the city and suburban areas (with about 1.4 million inhabitants) is 141,000 cubic meters per day (m3/day) and is expected to increase to 272,000 m3/day by 2025. The STP will be designed for projected demand in 2025 but plant construction in this phase will be for 2015, with a projected flow of 199,000 m3/day. Treated effluent will be disposed of in the Soan River. The effluent must comply with Pakistan’s National Environmental Quality Standards. About 250 ha will be required for the plant. Components will include inlet and outlet structures, forestation, laboratory, administration buildings, and protection bunds against the Soan River. The conceptual design and layout have been prepared for 4 meter (m) deep anaerobic ponds, 2.5 m deep facultative ponds, and 1.5 m deep maturation ponds.

c. Stormwater Drainage 26. The stormwater draining component includes: (i) remodeling existing drains and construction of new drains at selected areas such as Asghar Mall Road, Jamia Masjid Road, the general bus stand, Nia Mohallah, and Road; and (ii) carrying out (a) bank protection works at critical locations of Lai Nullah to mitigate negative impacts from floods, and (b) the necessary works for the protection of the rights-of-way of Lai Nullah.

d. Solid Waste Management 27. A public–private partnership program has been proposed to: (i) improve solid waste collection, transportation, and disposal; and (ii) augment RT’s capacity. This is an innovative approach that meets the Government’s decentralization and devolution goals. UAs, with the help of experienced

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NGOs and private partners, will collect solid waste in their constituencies and dispose of it at designated transfer stations. RT, with the assistance of private agencies, will be responsible for final disposal of solid waste at the landfill. This component will consist of: (i) institutional strengthening of RT; (ii) procurement of vehicles and equipment; (iii) construction of solid waste transfer stations and provision of garbage bins throughout the city; (iv) development of a new lined uncovered sanitary landfill site with a leachate collection system in Mouza Losar, 30 km east of Rawalpindi; (v) preparation and implementation of a community participation program; (vi) establishment of a solid waste recycling and composting program; (vii) development of licensing and institutionalizing of scavengers; and (viii) privatization of solid waste management systems. The 30 ha landfill site will replace the temporary landfill site near central Rawalpindi. The new landfill site is expected to fulfill solid waste management requirements until 2010–2011. Solid waste segregation is to be carried out at the community level. Bins and other adequate facilities will be provided for this purpose.

e. Slaughterhouse and Public Toilets 28. Two slaughterhouses currently exist in Rawalpindi. The slaughterhouse in the city center is old, and its sewerage and drainage facilities are inadequate. Waste from this slaughterhouse poses a health hazard and disturbs adjoining areas. The other slaughterhouse at , in an industrial estate outside Rawalpindi, is jointly operated by Board (RCB), Capital Development Authority, and RT. The Project proposes to build additional hygienic, environmentally acceptable slaughterhouse facilities on the premises of the existing Sihala slaughterhouse. This would provide a cost-effective solution with no land acquisition costs.

29. Rawalpindi has very few public toilets, which are in poor conditions because of inadequate O&M. The Project will construct about 15 properly designed, suitably located public toilets connected to the nearby sewer network—near shopping centers, bus stops, and densely populated areas. Regular water supply will be enhanced through overhead tanks. O&M of the toilets will be undertaken by the private sector and revenues collected through user fees, following the example of similar successful programs in the region.21

2. Part B. Improving Water Supply 30. This component will improve the service and quality of existing water distribution systems. It will increase revenues by updating consumer databases, converting illegal connections to registered accounts, detecting and repairing leaks, and monitoring water quality. Distribution systems will be extended or rehabilitated for poorly served low-income communities with scarce or brackish groundwater. This component will include: (i) replacement of about 29 contaminated and/or inefficient tubewells and rehabilitation of 32 existing tubewells; and (ii) construction or rehabilitation of distribution systems, including the rehabilitation of storage reservoirs and the supply and installation of 50,000 water meters. It will also include a water quality and monitoring program to be conducted by WASA and the private sector, review and finalization of Rawalpindi master plan for water supply, and feasibility studies of additional water supply sources as part of the respective master plan. Under this component, the agreed PG policy for water supply (Appendix 2) will be implemented and updated following the water audit to be undertaken within a year of loan effectiveness. A comprehensive water audit will verify coverage, service level, status of actual payment of water dues and use of NRW, and examine people’s access to water.

31. As a priority, all schools in the project area will be provided latrines and safe drinking water connections. Health and hygiene education will be promoted. The Project will monitor the effects of improvements in water quality on health, especially child stunting, by organizing a representative sample study and project performance management system (PPMS).

21 Good examples are the Sulabh (privately financed) and Pune (publicly financed) public pay toilets in India; the ongoing successful experience in Karachi through the Citizen Police Liaison Committee; TMA toilets (public–private partnership); and a similar program that was initiated in Lahore in 2003 by the Lahore Horticulture Department. 9

3. Part C. Institutional Development a. Municipal Management System Development 32. Planned interventions under the institutional development subcomponent will include (i) training in technical and financial management for RT and WASA staff, including mapping and asset management; (ii) increasing public awareness on urban issues, water quality, sustainability of facilities, and options for improving delivery of urban services; (iii) improving municipal financial management by introducing improved accounting procedures and management information systems that include budgeting, resource mobilization, enhanced O&M of assets, and improved billing, revenue collection, and reporting systems; and (iv) establishing regulatory systems to ensure that laws, standards, rules, and regulations are equitably and consistently applied. These interventions are critical to the long-term sustainability of urban centers. Wherever possible, technical training will be linked to measurable outputs to help determine whether skill levels have been achieved and technical training is applied. The design and implementation of measures for institutional strengthening will be coordinated with training programs provided under other ongoing programs.

b. Environmental Support Services 33. An environmentally sound urban development plan will be elaborated to ensure a well- managed urban expansion in a fast-growing city with high demand for housing. This will include preparation of base as well as geographic information systems (GIS) mapping of RT/WASA administered areas.

34. Land use, zoning, and building laws will also be revised and legislated to control urban expansion and monitor water and sanitation connections and charges. A comprehensive database will be available through this subcomponent to enable the asset management and billing departments of Rawalpindi Development Authority (RDA), RT, and WASA to increase and maintain revenue, in addition to controlling and guiding urban development, and improving urban transport.

c. Asset Management 35. The assets of WASA and RT are scattered and no records are readily available. This subcomponent will also set up a separate asset management section to maintain, update, and record assets, resulting in greater transparency and sustainability.

d. Urban Development 36. A baseline survey and GIS mapping of additional specified areas are proposed under this subcomponent, as are detailed land use, housing, and consumer surveys. This will lead to development of land use and urban housing databases to identify areas available for development. These actions are vital for both urban development and consumer records of water supply and sanitation.

e. Project Implementation Assistance 37. The project implementation assistance component will comprise various types of consulting services, including project implementation support to the PMU for infrastructure design, construction supervision, community development, and institutional strengthening.

f. Incremental Administration Support 38. Incremental administrative support for project implementation is required for the PMU, which, headed by a project director, will be responsible for coordination among RT, RDA, and WASA for planning and management of project activities. The PMU will include eight professional staff, representing different disciplines, and administrative support staff.

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C. Special Features 39. Following the Southern Punjab Basic Urban Services Project, this is the second ADB- supported investment project in urban development to make concerted efforts to align its scope and focus, and institutional and financing modalities, with the new governance structure under PLGO 2001. The Project supports the PG and CDR authorities for adoption of arrangements envisaged under PLGO 2001. The Project has a number of special features with respect to devolution and collateral policy actions. The project design seeks to ensure that execution arrangements do not compromise the devolved authorities of the CDR. Project implementation follows the spirit of PLGO 2001, shifting from vertical to horizontal programming. It offers particular assistance to the transition from programs that are vertical and province-driven to programs that the CDR (through WASA and RT) should carry out autonomously.

40. In the past, a top-down approach was used in project preparation but the Project was designed in close collaboration with the CDR, beneficiaries, and NGOs at the grassroots level. In addition to extensive meetings in the field with these groups, three consultative workshops were organized at the inception, interim, and final stages of the PPTA. In the final workshop, all stakeholders endorsed the proposed scope and implementation arrangements of the Project, which confirms that the project scope is strictly in line with the urgent need for improved environmental and basic urban services.

D. Cost Estimates 41. The total cost of the Project is estimated at $85.7 million equivalent (including taxes and duties), comprising $12.5 million equivalent (14.6%) in foreign exchange costs (including $1.1 million in interest charges during construction) and $73.2 million equivalent (85.4%) in local currency costs. Table 1 summarizes the estimated costs and detailed costs are in Appendix 6.

Table 1: Cost Estimates by Component ($ million) Item Foreign Exchange Local Currency Total Cost A. Base Costa 1. Environmental Sanitation 7.7 35.8 43.5 2. Water Supply Services 2.2 6.6 8.8 3. Institutional Development 0.1 0.4 0.5 4. Project Implementation Support a. Consultancy Services 0.6 3.5 4.1 b. Equipment and Vehicles 0.1 0.2 0.3 c. Incremental Administrative Support 0.0 0.8 0.8 5. Land Acquisition and Compensation 0.0 9.0 9.0 6. Taxes and Duties 0.0 9.4 9.4 Subtotal (A) 10.7 65.7 76.4 B. Contingencies 1. Physical 0.3 2.0 2.3 2. Price Contingenciesb 0.4 5.5 5.9 Subtotal (B) 0.7 7.5 8.2 C. Interest During Constructionc 1.1 0.0 1.1 Total Cost 12.5 73.2 85.7 Percent 14.6% 85.4% 100%

a 2005 prices. Physical contingencies have been taken as 3% of base cost. b Price contingencies have been calculated using the real inflation rate of 4.05% and 1.80% per year of project cost. c Interest during construction has been worked out on the basis of an interest rate of 1% per year. Source: ADB estimates.

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E. Financing Plan 42. The Government has requested two loans: one of $40 million equivalent from ADB’s Special Funds resources (Asian Development Fund [ADF]) and a second of $20 million equivalent from ADB’s ordinary capital resources (OCR) to help finance the Project.

43. The ADF loan will be provided from ADB’s Special Funds resources with a 32-year term, including a grace period of 8 years, an interest rate of 1% during the grace period and 1.5% thereafter, and such other terms and conditions as are substantially in accordance with those set forth in the draft loan agreement.

44. The OCR loan of $20 million equivalent will have a 25-year term, including a grace period of 5 years, an interest rate determined in accordance with ADB’s London interbank offered rate (LIBOR)- based lending facility, a commitment charge of 0.75% per annum, no front-end fee, and such other terms and conditions set forth in the draft loan agreement. The Government has provided ADB with: (i) the reasons for its decision to borrow under ADB’s LIBOR-based lending facility on the basis of these terms and conditions, and (ii) an undertaking that these choices were its own independent decision and not made in reliance on any communication or advice from ADB.

45. The ADB loans will cover the entire foreign exchange cost ($12.5 million), including interest and other charges amounting to $1.1 million, and will finance $47.5 million equivalent (64.9%) of the local currency costs. The local currency cost to be financed by ADB will cover portions of the civil works, vehicles, consulting services, project management support, and land—excluding duties and taxes. ADB’s financing of local currency expenditure is justified by the nature of the Project, which will address poverty, gender, and environment issues within the project area. The financing of land acquisition will be carried out in accordance with the requirements of R193-05 Cost Sharing and Eligibility of Expenditures for Asian Development Bank Financing: A New Approach, and the detailed staff instructions to be promulgated thereto.

46. ADB will provide the loan to the Islamic Republic of Pakistan, which will relend it to the PG on the same terms and conditions. The foreign exchange risk will, however, be borne by the PG, which will make the loan proceeds available to CDR as a grant. Table 2 summarizes the following plan.

Table 2: Financing Plan ($ million) Source Foreign Exchange Local Currency Total % ADB 12.5 47.5 60.0 70 PG 0 21.4 21.4 25 RT/WASA 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, Rawalpindi. Note: The allocation of loan proceeds in the Loan Agreement will be presented in special drawing rights (SDR) equivalent of $40 million and $20 million, with reference only to total expenditure, in accordance with Cost Sharing and Eligibility of Expenditures for Asian Development Bank Financing: A New Approach. Source: ADB estimates.

F. Implementation Arrangements 1. Project Management 47. The Executing Agency (EA) for the Project will be the CDR. WASA will be the Implementing Agency (IA) for the sewerage system and STP subcomponents, and improving water supply component. RT will be the IA for the storm water drainage, solid waste management, slaughterhouse, and public toilets subcomponents. RDA will be the IA for the environmental support services and

12 urban development subcomponents. WASA and RT will be the joint IAs for the municipal management system development and asset management subcomponents.

48. The EA will establish a PMU headed by the project director and located at WASA. The PMU, comprising professional staff (Appendix 7) supported by a team of consultants, will: (i) assist CDR, RT, RDA, and WASA in providing policy guidance and implementing the project components; and (ii) support monitoring and evaluation of project implementation. The implementation framework is in Appendix 7.

49. For internal coordination, two committees will be set up within 3 months of loan effectiveness: (i) A project implementation review committee: headed by the CDR nazim (head); comprising of RDA, managing director of WASA, the RT and Pothar town nazims, a city district officer of CDR, and one elected female representative from the district council. This committee will review the implementation progress of all project components at least once every 3 months. (ii) A project steering committee: headed by the Chairman, Planning and Development Board, PG; comprising senior officials from P&D; Housing, Urban Development, and Public Health Engineering Department (HUD&PHED); the PG finance department; RDA; WASA; and CDR and RT nazims. This committee will be set up at P&D, PG in Lahore to ensure smooth and orderly implementation, provide policy guidance on ongoing and new government initiatives, and resolve interagency problems. The committee will meet at least once every 6 months and decisions of the meetings will be reported to ADB.

2. Implementation Period 50. The Project will be implemented over 5 years and will be completed in March 2011. The implementation schedule for all project components is in Appendix 8.

3. Procurement 51. All procurement services for the Project will follow ADB's Guidelines for Procurement and the rules and regulations of the Government. Contracts for civil works that are estimated to cost more than $5 million equivalent will be issued using international competitive bidding (ICB) procedures. Contracts estimated to cost $5 million equivalent or less will be carried out through local competitive bidding (LCB) procedures. Minor development and maintenance may be carried out on a force account basis. The procurement of goods will preferably be grouped into packages larger than $500,000 to be suitable for ICB procedures. Miscellaneous minor goods that cannot be grouped into larger contracts, and are estimated to cost less than $500,000 per contract, will be procured through international shopping (IS) procedures. Minor items estimated to cost less than $100,000 equivalent per contract may be purchased directly, following proper procedures to ensure economy, efficiency, and quality. Proposed contract packages are in Appendix 9.

52. To expedite implementation, the PMU will take advance action on recruiting all consultants and prequalifying the contractors. The PG has been informed that the approval of advance actions does not commit ADB to finance project expenditures.

53. ADB’s Anticorruption Policy was explained to and discussed with the Government and PG. 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 Regulations and the bidding documents for the Project. In particular, all contracts financed by ADB in connection with the Project shall include provisions 13 specifying the right of ADB to audit and examine the records and accounts of the Executing Agency and all contractors, suppliers, consultants, and other service providers as they relate to the Project.

4. Consulting Services 54. To support project implementation and build the long-term capacity of RT and WASA, which are responsible for the planning and delivery of urban services, 1,478 person-months of consulting services (18 international and 1,460 domestic person-months) will be provided, covering: (i) Package A: project management and implementation support to the PMU, including subproject detailed design, construction supervision, and monitoring and evaluation (13 international and 1,152 domestic person- months); (ii) Package B: institutional development (5 international and 164 domestic person-months); and (iii) Package C: community development and participation (144 domestic person-months), which will be contracted to local NGOs and individual social mobilizers. Supplementary Appendix B gives more details.

55. The consultants for the domestic person-months under Package A and B will be selected as firms. The selection and engagement of the firms will be in accordance with the quality-and-cost- based selection method under ADB's Guidelines on the Use of Consultants or other arrangements satisfactory to ADB for the engagement of domestic consultants. The consultants for the international person-months under the same packages will be selected as individual consultants. The Package C consulting services will be contracted to individual social mobilizers or local NGOs for facilitating the implementation of the solid waste component and community mobilization for the water supply and sewerage components. The individual social mobilizer will be selected as individual consultant and the local NGOs will be selected as firms using the quality-based selection (QBS) method under ADB's Guidelines on the Use of Consultants or other arrangements satisfactory to ADB for the engagement of domestic consultants. The use of QBS under Package C is due to the specialized nature of the assignment.

5. Disbursement Arrangements 56. To facilitate financial control, disbursement categories will be established by component and by expenditure type (work, goods, and services). The PMU will prepare disbursement projections and request budget allocations for counterpart funds. CDR will establish an imprest account in the name of the PMU at the of Pakistan (immediately after loan effectiveness) to expedite disbursement of loan proceeds, in accordance with ADB's Loan Disbursement Handbook and detailed arrangements between the Government and ADB. Except as ADB may otherwise agree, the account will consist of advances based on estimates of anticipated expenditure to be incurred for a 6-month period or 10% of the loan amount, whichever is lower. The ADB statement of expenditures (SOE) procedure may be used to reimburse eligible expenditures and to liquidate and replenish advances made into the imprest account for individual payment transactions not exceeding $100,000. The CDR will coordinate the timely release of funds and maintain acceptable levels of financial control.

6. Accounting, Auditing, and Reporting 57. The CDR, acting through the PMU, will maintain records and accounts adequate to identify works, goods, and services financed by the loan proceeds. Specifically, the CDR will: (i) maintain separate accounts for the Project; (ii) ensure that project accounts and financial statements are audited annually in accordance with sound accounting principles by independent auditors acceptable to ADB; and (iii) submit to ADB, not later than 6 months after the close of each fiscal year, certified copies of audited accounts and financial statements and the auditor’s report on them. Furthermore, unaudited financial statements will be provided to ADB no later than 6 months following the end of the fiscal year. Audit of the project accounts will include an audit of the use of the imprest account and SOE procedures, and the annual audit report will have a separate audit opinion on the use of these procedures.

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58. The PMU will prepare monthly progress reports, in a format acceptable to ADB, with information on: (i) progress made against established targets, including pre-identified monitoring indicators; (ii) delays and problems encountered, and actions taken to resolve them; (iii) work carried out by the consultants; (iv) updated results of water quality monitoring and action taken on problems encountered; (v) progress made on PPMS; (vi) compliance with loan covenants; (vii) proposed program of activities for the month; and (viii) progress expected during the next 3 months. The monthly report will be submitted to ADB by the end of the first week of the following month. Within 3 months of physical completion of the Project, the CDR will prepare and submit to ADB a project completion report on the execution of the Project, including costs and compliance with the loan covenants.

7. Project Performance Monitoring and Evaluation 59. A short list of verifiable performance indicators for monitoring and evaluation was prepared in accordance with ADB's Project Performance Management System (Supplementary Appendix C) during the PPTA. The PG, CDR, and PMU will ensure that comprehensive PPMS is established within 9 months of loan effectiveness and maintained to monitor and evaluate the technical performance and social and economic benefits of the Project, especially for the poor and for women. The performance monitoring indicators and procedures will be tested with respect to data availability and other constraints, revised if necessary, and institutionalized as part of the Project’s MIS. The PMU will be responsible for establishing the PPMS, and monitoring and assessment of the performance of subprojects at 6-month intervals. To measure the Project’s impact on beneficiaries, particularly low- income groups, baseline information established during the PPTA will be updated at the beginning of implementation of each project component. This information will be the basis for determining the resulting impacts. Indicators that can be monitored will comprise: (i) institutional development indicators, covering revenue generation, financial management, and O&M; (ii) subproject implementation indicators for the various categories and types of urban infrastructure, including levels of coverage and service delivery; and (iii) sectoral impact indicators, covering economic growth, public health, and community participation. The CDR will continue to update and forward to ADB the PPMS and MIS at 6 month intervals for at least 3 years after project completion. In addition, following the water audit, a civil society task force will be established to monitor implementation of the Government Policy (Appendix 2).

8. Project Review 60. The Project will be reviewed jointly by the EA and ADB semiannually to assess progress and will undergo a more comprehensive review at midterm. Taking into account the PPMS results, the midterm review will: (i) evaluate the Project’s scope, design, and implementation arrangements; (ii) evaluate the progress of the institutional reform and infrastructure development components; (iii) identify changes needed in any or all of the above areas; (iv) assess the implementation performance against agreed targets in the project framework; (v) identify critical issues and constraints, if any; and (vi) recommend adjustments to the project design and/or implementation arrangements, if necessary.

IV. PROJECT BENEFITS, IMPACTS, AND RISKS A. Benefits and Beneficiaries 61. The Project will improve the living conditions of about 1.4 million residents of Rawalpindi city,22 by enhancing the quality of life and health, improving the environment, and creating conditions conducive to sustained urban development and economic growth. The Project will contribute to reduce mortality, morbidity, and poverty; and help mitigate the loss of amenity associated with environmental degradation in the city, especially among slum inhabitants and poor groups (particularly

22 The city population is 1.4 million, excluding the cantonment area, out of the total population of Rawalpindi (2.2 million). 15 women and children). The Project will support improvements to the capacity of RT and WASA by improving their financial and operational management and planning, including local resource generation. A summary of project benefits and beneficiaries is in Supplementary Appendix E.

62. The effectiveness and sustainability of these improvements will be reinforced by efforts aimed at community development and revenue improvement. These efforts will also lead to: (i) a stronger sense of belonging at local level; and (ii) increased capacities of the RT and WASA to carry out their duties more effectively—especially to provide better O&M for existing, rehabilitated, and new infrastructure facilities, and meet people’s needs.

63. Community Involvement. Three consultative workshops attended by NGOs, CBOs, private and public sector representatives, and other stakeholders were held during the preparation of this Project to undertake brainstorming for each project component and its investment.

64. The Project will encourage and strengthen collective action within low-income and under- serviced localities. A main objective of this work will be to make RT infrastructure investment more responsive to the demands of low-income groups—more inclusive, more sustainable, and more cost- effective than supply-driven approaches. A secondary objective will be to empower low-income groups by making them capable of collective action through CBOs and UAs, and by forming functional links among communities, CBOs, and UAs (e.g., location, planning, construction, and long-term maintenance of the public toilets proposed under the Project).

65. The concept of community mobilization and participation in developing urban infrastructure is not new in Pakistan. The Pilot Project in Karachi simplified sanitation designs to make them affordable and technically viable for local implementation. It also involved training in community organization and technical details as well as supervision and organized work through local residents at the zone (ward) level.

66. To strengthen community participation in local level governance in Rawalpindi, the Project will undertake the following measures: (i) ward level committees (including beneficiary groups and elected UA councilors) will be formed to manage solid waste collection; (ii) various lanes will gather solid waste at a convenient place for onward transport to a transfer station, and a committee will be given a transfer trolley to be maintained by the community or NGO; (iii) a local committee, NGO, or CBO will conduct training for planning of sanitation and other activities in its area; (iv) public service committees will be formed to monitor public toilets and drinking fountains; and (v) local finance management committees and a civil society task force will be formed to monitor the outcomes and impact of budget and policy decisions.

67. Poverty Reduction. Socioeconomic surveys in Rawalpindi show that 35% of sample households, with an average family size of 6.5 persons, have a monthly income of less than PRs6,000 ($100), which reflects per capita income far below the poverty line of $1 per day. Urban poverty in Rawalpindi is multifaceted, ranging from lack of to deficiencies in basic urban services such as water and sewerage and solid waste disposal, to substandard housing. The surveys show that 53% of households are receiving piped water for 2–4 hours per day, while 35% receive it for less than 2 hours per day. Among households sampled, only 35% had access to sewerage. The combination of shortage of good quality water with inadequate sewerage systems has adversely affected public health and the urban environment. Solid waste collection and disposal among poorer households is almost nonexistent. Solid waste is thrown into drains or open lots, attracting flies and rodents. Households suffer from various degrees of environmental pollution through disposal of wastewater in open drains and flooding of such wastewater in residential neighborhoods.

68. The Project will provide water to poor communities through piped distribution systems, while the environmental sanitation component will provide for expanded sewerage pipe networks to low- income areas and an STP for the entire Rawalpindi city. Systems will be designed to give the urban

16 poor adequate access to improved sanitation. The expected benefits are public hygiene and health improvement as well as direct economic benefits from lower water costs in low-income areas and reduced pollution of groundwater. Improved solid waste management and recycling with the involvement of communities, NGOs, and UAs will also generate employment for the urban poor (especially women) who work as sanitary workers. A summary poverty reduction and social strategy is in Appendix 11.

69. Gender. A large portion of project benefits will accrue to women. Women’s time and energy will be saved by provision of water supply to households through pipes or communal water points. Women will also benefit from improved sewerage: (i) women spend more time in residential neighborhoods than men and will benefit more from improved hygiene; and (ii) women are traditionally charged with the care of sick family members and will thus benefit more from reduced illness. The Project will address gender issues by (i) strengthening the role of women councilors in municipal governance; (ii) involving women’s groups in community-level project activities; (iii) including women of local government institutions in training activities; and (iv) conducting community training and mobilization campaigns for project beneficiaries in wards at the UA level to ensure active participation of women. Appendix 11 includes a gender strategy approved by the PG.

70. Economic and Financial Benefits. Economic and financial analyses were undertaken in accordance with ADB's Framework for the Economic and Financial Appraisal of Urban Development Sector Projects (Appendixes 12 and 13). The economic benefits identified were based on each component in Rawalpindi. Economic internal rates of return (EIRRs) were prepared for the sewerage network and STP, water supply, and solid waste management. Benefits include significant poverty reduction and improvements in living conditions, particularly in the health and hygiene of the largely poor urban population—mainly through sewer connections and improved collection and disposal of solid waste. Sewage treatment is expected to provide additional water for agricultural production, reduce environmental hazards, and provide additional income.

71. The refurbishment and replacement of the old water supply network will entail health and non- incremental benefits, including: (i) savings in productive time due to reduction in sickness from contaminated water, (ii) greater availability of saleable water due to reduction in water wastage from leaks, and (iii) increased water revenue and better sustainability due to increased sales to new customers. In the old areas of Rawalpindi that have aging water supply networks, larger size plots have been subdivided into multiple units. However, the number of water connections has remained the same, resulting in a sizeable revenue loss. With improvement in the network, revenue is expected to increase significantly. These benefits are based on consumers’ willingness to pay.

72. The financial internal rate of return (FIRR) for the solid waste subproject is 7.3%, 2.7% for sewerage and storm water drainage subproject, and 6.2% for water supply. For the purpose of calculating FIRRs, a conservative estimate is based on the assumption that the collection efficiency of user fees is 80% (compared with the 95% target), the project implementation period takes 8 years (instead of 5 years as planned), and in the case of WASA, non-revenue water remains 50% (compared with the 20% target). Since WASA has initiated a consumer survey to update the consumer database, several thousand illegal connections will be legalized. Furthermore, concrete measures such as organizational development are being taken to enhance revenue collection efficiency and comply with the agreed tariff plan. Government policy (Appendix 2) demonstrates agreed action to ensure financial sustainability. All these factors will contribute to considerable increase in revenue. The FIRRs (except sewerage and the storm water drainage subproject) exceed the weighted average cost of capital (about 5%), demonstrating that the Project is financially viable at proposed tariff levels. Low FIRRs, in the case of sewerage and drainage, reflect nonpayment of user fees for the storm water drainage subproject and the conservative assumption that only 60% of 17 targeted connections would be made, considering lessons learned in earlier projects in Pakistan such as the Second Urban Development Project23 in North-West Frontier Province (Appendix 12).

73. The EIRR calculation was undertaken in constant 2004 prices using the domestic price numeraire, since the outputs are non-tradeable in nature. Economic costs (excluding taxes and market distortions) are converted using a standard conversion factor of 0.9. The EIRRs of the project components are 21.6% for water supply, 12.4% for sewerage, 15.8% for sewage treatment, 16.8% for drainage, and 21.1% for solid waste management. The overall project EIRR is estimated to be 15.8%. Switching values and sensitivity indicators were tested and standard and project-specific sensitivity analysis was conducted. All project components were found to be economically viable under adverse cost-benefit scenarios.

B. Social and Environmental Safeguards 74. Social. The EA has prepared a draft resettlement plan (RP) for the Project following national laws and policies: (i) Land Acquisition Act, 1894 (amended up to 2003); (ii) National Resettlement Policy, 2002; (iii) Project Implementation and Resettlement of Affected Persons Ordinance, 2001; (iii) Punjab Development of Cities Ordinance, 1981; and (iv) Pakistan Environmental Protection Act, 1997. The RP also follows ADB’s Policy on Involuntary Resettlement, 1995. The RP is summarized in Appendix 10 and the entire document is in Supplementary Appendix D. The Project is designed to minimize land acquisition and resettlement impacts. The resettlement and land acquisition under the Project was carried out in accordance with the requirements of R193-05 Cost Sharing and Eligibility of Expenditures for Asian Development Bank Financing: A New Approach and the related draft OM Section H3/BP. The Cost Sharing and Eligibility of Expenditures for Asian Development Bank Financing: A New Approach paper is broadly consistent with that of the World Bank and follows closely the rationale and presentation in its Eligibility of Expenditures in World Bank Lending: A New Policy Framework. Therefore, as instructed by ADB’s Regional and Sustainable Development Department, the formulation of the resettlement plan, including land acquisition, was also guided by the detailed staff instructions issued by World Bank’s Operations Policy and Country Services, in Bank Financing: Guidelines to Staff, April 16 2004. A total of 284 ha is required for the STP, solid waste transfer stations and landfill site, and service corridors (right-of-way) for laying trunk sewers and maintaining storm drains. The proposed STP site was chosen because it minimizes resettlement impacts, although it is not the most technically feasible option.

75. Land acquisition for the 250 ha proposed STP site will affect 197 landowners and 36 tenants/agricultural workers. The proposed solid waste transfer station and landfill site (32 ha) will be constructed in government-owned land. There are two brick structures occupied by transient brick workers in the proposed landfill site. To the extent possible, the sewerage network and storm drain components prioritize rehabilitation of existing infrastructure to avoid resettlement impacts. The acquisition of 2 ha is required for 7 m service corridors for the sewerage system and 8–10 m service corridors for storm drains. The sewerage network will partially affect 370 houses. Approximately 28 houses will be partially affected by the storm drain subcomponent. The Project is not expected to cause large-scale movement of people to distant locations. The overall impacts are to be further minimized through careful component siting and alignment during detailed design. The EA has assured ADB the implementation of the RP (finalized during detailed design in accordance with government laws and policies and ADB’s Policy on Involuntary Resettlement).

76. The Project provides direct social benefits through improvement and increased access to environmental sanitation and water supply—enhancing quality of life and health, the environment, and the potential for sustained urban development and economic growth. Social assessments undertaken during the PPTA reviewed the cultural and ethnic diversity of people in Rawalpindi. Analysis showed

23 ADB. 1989. Report and Recommendation of the President to the Board of Directors on the Proposed Loan to the Islamic Republic of Pakistan for the Second Urban Development Project. Manila. [Loan 1004-PAK(SF)].

18 no evidence of the existence of indigenous people or negative impacts on minorities. The RP ensures that vulnerable groups including indigenous people affected by land acquisition and involuntary resettlement will be given additional assistance.

77. Environment. The EA has prepared an environmental impact assessment (EIA) following ADB’s Environment Policy and Environmental Assessment Guidelines. The main findings were summarized in a summary environmental impact assessment (SEIA) circulated to the ADB Board and posted on ADB’s website in July 2005. The salient points of the approved SEIA (Supplementary Appendix F) are summarized in Appendix 14.

78. The SEIA shows that the Project will result in net environmental benefits, including improved ground and surface water quality, and improved solid waste and sewage collection and treatment. This will significantly improve health and quality of life in Rawalpindi, as well as agriculture and fishing in the Soan River downstream. Potential adverse impacts during construction and operation have been identified. Some impacts are minor and easily mitigated while others are potentially significant, long-term, and irreversible if suggested mitigation measures and monitoring plans are not enforced. Draft environmental management plans (EMPs) and associated monitoring plans have been developed for this purpose. The EA has assured the implementation of EMPs and associated monitoring plans (finalized during detailed design in accordance with government environmental regulations and policies, and ADB’s Environment Policy), and incorporation of mitigation measures identified in the SEIA and EIA in design and bidding documents.

C. Risks 79. Major risks associated with the Project include the following. (i) Acquisition of required land may be delayed or not forthcoming, which could delay or impede implementation of certain subprojects. (ii) Frequent turnover of trained staff and delayed decision making on critical issues by the CDR, WASA, and RDA could jeopardize project benefits. (iii) Future legislation could gradually erode the comprehensiveness and consistency of PLGO 2001, which could seriously impede CDR’s effectiveness as a main actor in project implementation. (iv) Implementation of the agreed Government Policy (Appendix 2) could be delayed and efforts for enhancement of the revenue base and institutional strengthening of the RT and the WASA may not give sufficient and sustainable results. This could affect project implementation or the long-term sustainability of improvements, or both.

80. CDR will initiate the land acquisition process before loan approval to avoid implementation delays. Close monitoring and early flagging for action by the project implementation review and steering committees will minimize the risk of delayed decision making. Considering lessons learned from the phase 1 project, the PG has provided a firm commitment to minimize staff turnover and recruit qualified staff for PMU, WASA, and RT. Strict attention to timely project progress reporting, including staffing and accounting, will also help. The Government is particularly committed to devolution reform, especially capacity building of RT and WASA. The Project is a timely contribution to the devolution process. The risk of delays in implementing the Government Policy will be minimized by a water audit that will lead to updating the Government Policy, and its monitoring by a civil society task force.

V. ASSURANCES A. Specific Assurances 81. The Government, the PG and the CDR have given the following specific assurances, in addition to the standard assurances, which have been incorporated in the legal documents. 19

(i) PG policy for water supply and sanitation, solid waste management, and urban development (Appendix 2) will be implemented and updated within one year of loan effectiveness following the water services survey to be undertaken within six months after loan effectiveness. (ii) PG and CDR will ensure the implementation of a tariff revision in accordance with the tariff plan, agreed during phase-1 project. (iii) PG and CDR will privatize the operation of the water tankers (bouzers) to the private sector through a fair and transparent mechanism to ensure that such operation will be undertaken by the most qualified and efficient private operator. (iv) PG and CDR will ensure that the solid waste collection presently managed by the RT will be devolved to UAs within 6 months after loan effectiveness. Such devolution will be followed by the proper allocation of resources to the UAs. (v) The Government and PG acknowledge that ADB, consistent with its commitment to good governance, accountability and transparency, reserves the right to conduct audits (including nonfinancial procurement audits) of any possible financial or management impropriety in the conduct of the Project. The Government, PG and CDR will cooperate fully with any such audit and will extend all necessary assistance, including access to relevant books, records and personnel. (vi) The Government will update the environmental impact assessment (EIA), the summary environmental impact assessment (SEIA), and environmental management plans (EMPs) based on detailed engineering design. The EA will submit the revised EIA, SEIA, and EMPs to ADB for review and approval prior to award of any civil works contracts. (vii) The PG will ensure that the design, construction, operation and implementation of all project facilities is carried out in accordance with the EIA agreed upon between the Government and ADB, and complies with the Government’s environmental laws and regulations, and ADB’s Environment Policy, 2002 and Environmental Assessment Guidelines, 2003. Any adverse environmental impacts arising from the construction, operation and implementation of the project facilities will be minimized by implementing the EMPs and associated monitoring plans, and PG will implement all mitigation and monitoring measures specified in the EIA and SEIA. Project implementation will include consultation with local communities on environmental issues and all necessary environmental clearances will be obtained from the Punjab Environmental Protection Department for all applicable components prior to starting any construction activities. The Government will ensure environmental requirements will be incorporated in bidding documents and civil works contracts. (viii) The Government will update the draft resettlement plan (RP) based on final detailed design. The Government will submit the revised RP to ADB for review and approval prior to award of any related civil works contracts. (ix) The Government will ensure that all land and right-of-way required for the Project are made available in a timely manner, adequate compensations are provided prior to the signing of relevant civil works contracts, and involuntary resettlement is carried out in accordance with the updated resettlement plan agreed upon between the Government and ADB, the Government’s land acquisition and resettlement laws and regulations, and ADB’s Policy on Involuntary Resettlement 1995. (x) PG and CDR will ensure that no civil contracts will be awarded over the Mouza Losar landfill site until outstanding complaints regarding compensation for the purchase of the site have been redressed in accordance with (a) the updated resettlement plan agreed upon between the PG and ADB, (b) the Government’s land acquisition and resettlement laws and regulations, and (c) ADB’s Policy on Involuntary Resettlement, 1995. (xi) The Government will ensure that the Project will not negatively impact on vulnerable groups and be carried out in accordance with ADB’s Policy on Indigenous Peoples, 1998 and Policy on Gender and Development, 2003.

20

(xii) PG and CDR will carry out a comprehensive organization development program for RT and WASA commencing within 6 months after loan effectiveness. (xiii) The PG will ensure that adequate budgetary allocations of required counterpart funds are made and released in a timely manner to CDR.

B. Conditions for Loan Effectiveness 82. The following are conditions for the effectiveness of the loan: (i) The Planning Commission Proforma-I (PC-I) of the Project will have been approved by the duly competent authority of the Government, and (ii) The PMU will have been provided with core staff to the satisfaction of ADB.

C. Condition for Disbursement 83. No withdrawals will be made from the loan account for the execution of the outfall sewer and STP until all land and right-of-way required for these subcomponents are acquired and involuntary resettlement is carried out in accordance with the updated resettlement plan agreed upon between the Government and ADB, the Government’s land acquisition and resettlement laws and regulations, and ADB’s Policy on Involuntary Resettlement, 1995.

VI. RECOMMENDATION 84. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Asian Development Bank (ADB) and, acting in the absence of the President, under the provisions of Article 35.1 of the Articles of Agreement of ADB, I recommend that the Board approve (i) The loan in various currencies equivalent to Special Drawing Rights 27,727,000 to the Islamic Republic of Pakistan for the Rawalpindi Environmental Improvement 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 Loan and Project Agreements presented to the Board; and (ii) The loan of $20,000,000 to the Islamic Republic of Pakistan for the Rawalpindi Environmental Improvement Project from ADB’s ordinary capital resources, with interest to be determined in accordance with ADB’s London interbank offered rate (LIBOR)- based lending facility; a term of 25 years, including a grace period of 5 years; and such other terms and conditions as are substantially in accordance with those set forth in the draft Loan and Project Agreements presented to the Board, provided that $4,500,000 of the said loan allocated for land acquisition and compensation shall not be disbursed until the R. Paper 193-05 Cost Sharing and Eligibility of Expenditures for Asian Development Financing: A New Approach shall have become effective.

Joseph Eichenberger Vice President 17 November 2005 Appendix 1 21

DESIGN AND MONITORING FRAMEWORK

Design Summary Performance Data Assumptions and Risks Indicators/Targets Sources/Monitoring Mechanisms Impact People’s perception Citizen score cards Living conditions, quality • of life, and health of improved for better quality of PMU reports 1.4 million people in life Rawalpindi improved • Quality of drinking water Water quality surveys improved WASA reports • Number of household connections to sewers and Annual Report of flush latrines increased Economic Survey, • Average monthly medical Government of Pakistan expenditures per household reduced from PRs510 to PRs350 per month Outcome Assumption Sustained reduction of • Water supply coverage Annual Report of • Future legislation continues environmental improved from 46% to 70% Economic Survey, to support consistency of degradation by end of 2010 Government of Pakistan the PLGO 2001 and CDR • Drinking water and sanitation sustainability Sustained operations of facilities in all schools in ADB review mission Risks basic urban services Rawalpindi ensured. reports • Land acquisition may delay • Sanitation coverage the implementation of STP improved from 30% to 75% Project completion and outfall sewer by end of 2010 report components • Sewage treated from the • Efforts for enhancement of existing no treatment to PPMS reports the revenue base and 199,000 m3/day by 2015 institutional strengthening • Frequency of solid waste Financial records and of RT and WASA may not collection and disposal to MIS of RT and WASA give sufficient and landfill sites improved sustainable results

significantly • Frequent turnover of

• Actions taken regarding trained staff and delayed

capacity building of RT and decision making on critical

WASA as proposed under issues by RT, WASA, and component C RDA may delay project implementation

Assumption • Autonomy extended to RT and WASA will help them manage their own affairs and positively affect organizational development Outputs Infrastructure developed (i) Sewerage System PMU monthly progress Risk for environmental • About 160 km sewerage reports • Land acquisition for STP sanitation network of trunk & area may delay execution of key sewers laid in the West 1 ADB review mission project components Sewerage District reports Assumptions • Transfer/outfall sewer to the • Water supply and sewage treatment plant Project completion sewerage customers are constructed report willing to pay more for

• All undersized sewers in the better services city replaced PPMS reports • Environmental mitigation • Local communities are MIS of RT and WASA works undertaken upstream interested and respond of Rawal Lake filtration plant positively 22 Appendix 1

Design Summary Performance Data Assumptions and Risks Indicators/Targets Sources/Monitoring Mechanisms • Sewer cleaning equipment Environment and and machinery procured for resettlement monitoring WASA reports

(ii) STP of 199,000 m3/day • Continued government capacity constructed with: support for a • Inlet and outlet structures, comprehensive and forestation, laboratory, consistent devolution administration buildings, and policy protection bunds against the Soan River • Provincial governments • 4.0 m deep anaerobic ponds, and CDR remain 2.5 m deep facultative ponds, committed to actions on and 1.5 m deep maturation institutional policy reforms ponds

(iii) Storm Water Drainage Risks • Existing drains remodeled • Efforts to enhance the RT and new drains constructed revenue base may not be at Asghar Mall Road, Jamia successful, thus affecting Masjid Road, the general bus the sustainability of stand, Nia Mohallah, and improvements in financial Eidgah Road management and resource generation • Bank protection works

undertaken at all critical locations of Lai Nullah • Frequent turnover of trained staff and delayed (iv) Solid Waste Management decision making on critical • About 47 RT staff trained for issues by RT, WASA, and improved solid waste RDA may jeopardize management project benefits • 6 trucks, 3 dumpers, and 6 tractors procured • RT staff respond positively • Solid waste transfer stations to training, and successfully constructed and 100 refuse use new skills and facilities collection containers provided throughout the city • A lined uncovered sanitary landfill site of 30 ha developed with a leachate collection system • A community participation program prepared and implemented • A solid waste recycling and composting program prepared and implemented • Scavengers licensed and institutionalized

(v) Slaughterhouse and Public Toilets • Additional hygienic, environmentally acceptable slaughterhouse facilities provided within the premises of the existing Sihala slaughterhouse • About 15 properly designed, suitably located public toilets Appendix 1 23

Design Summary Performance Data Assumptions and Risks Indicators/Targets Sources/Monitoring Mechanisms constructed and connected to nearby sewer network Water Supply System • About 29 contaminated rehabilitated and and/or inefficient tubewells improved replaced and existing 32 tubewells rehabilitated • About 71 km of existing water pipeline rehabilitated and about 24 km added, with the rehabilitation of 2 storage reservoirs of 5 million gallon capacity, and about 50,000 water meters supplied and installed • Water quality and monitoring program established and implemented. • Latrines and safe drinking water connections provided to all schools in the project area

Institutional capacity of • 47 RT staff and 57 WASA RT and WASA staff provided training in strengthened technical and financial management, mapping, and asset management • Public awareness program conducted on urban issues, water quality, and sustainability of facilities • Improved accounting, management, and budgeting systems implemented by 2005, and over 80% collection efficiency of water and sanitation revenues achieved by WASA • Regulatory systems established and implemented • An environmentally sound urban development plan developed with base maps and GIS mapping of the specified area • Land use, zoning, and building laws revised and legislated • A separate asset management section set up in WASA and RT to maintain, update, and record assets for greater transparency and sustainability

24 Appendix 1

Design Summary Performance Data Assumptions and Risks Indicators/Targets Sources/Monitoring Mechanisms

Activities with Milestones Inputs ($ million)

1.1 PMU established and fully staffed by end of January 2006 • ADB 60.0 1.2 Consulting firms and individual consultants recruited by March 2006 • PG 21.4 • RT/WASA 4.3 2.1 Surveys conducted and detailed designs and tender documents prepared for Total 85.7 components A and B by June 2007 2.2 Community participation ascertained 2.3 Land acquired for STP by end of 2006 2.4 Tendering completed and contracts awarded for all components by end of 2007 2.5 Construction supervision conducted and implementation of all civil works completed by 2010

3.1 Training to WASA and RT staff completed by end of 2006 3.2 Design and implementation of public awareness program by end of 2006 3.3 Establishment of urban development plan and GIS mapping by mid-2007 3.4 PPMS update and regular quarterly reports prepared by PMU 3.5 Loan covenants monitored and respective actions taken by PG and CDR with regular follow-up by ADB during project implementation

ADB = Asian Development Bank, CDR = City District Rawalpindi, m3/day = cubic meters per day, MIS = management information system, PG = government of Punjab, PLGO = Punjab Local Government Ordinance, PMU = project management unit, PPMS = project performance management system, RDA = Rawalpindi Development Authority, RT = Rawal Town, STP = sewage treatment plant, WASA = Water and Sanitation Agency (Rawalpindi).

Appendix 2 25

GOVERNMENT POLICY

Water and Sanitation Objectives Water Supply and Sanitation Policy (i) Piped water supply services and Rawalpindi Water and Sanitation Agency (WASA) will be staffed with adequate sanitation for all people in competent trained management and employees committed on a long- Rawalpindi maintained in a sustainable term basis to providing services to the public. WASA management will manner through sound financial and human be given autonomy to manage and operate the water supply and resources management. sanitation services without outside interference. WASA shall publish for the public an annual report on its operations and development each year. A structured and systematic program of organization development will be implemented for WASA. (ii) Long-term planning and development of • The long-term goal is that tariffs will cover the operation and water resources for water supply purposes maintenance (O&M) costs plus capital costs plus debt servicing for all water supply, and the O&M costs of all sewerage. WASA will meet O&M costs for water supply and sanitation through enhancement of collection efficiency and increase in tariffs as per already agreed tariff plan, which require not to impose the tariff beyond the affordability of the consumers and increase it gradually with increase in the level of service. WASA will become a self-sustainable organization. Collection efficiency of tariffs must exceed 80% by March 2006 and non-revenue water should decrease from the existing estimated 40% to less than 15% by September 2006. Disconnections for nonpayment, presently enforced, will be further strengthened. WASA has computerized its revenue and accounting system and computerized bills are being issued to the consumers. Privatization of billing and collection will be introduced to improve the revenues and the billing will be conducted on a monthly basis. All complaint offices will be functional and WASA will maintain a management information system (MIS) to record and monitor the status of registered complaints. • Operation of delivering and selling water through the tankers (bouzers), currently facing financial loss shall be privatized by June 2006. Standposts shall be provided at identified locations and the O&M of these posts shall be handed over to the union administrations (UAs). • Rawalpindi Development Authority (RDA) on 15 March 2004 reduced the water connection fee from PRs1,500 to PRs500 for domestic consumers and from PRs3,500 to PRs1,500 for commercial consumers, effective 20 March 2004. This step helped to expand the consumer network and reduce the illegal connections. (iii) Conservation of water • All water supply services will be metered and payment for water use will be made on the basis of the volume consumed. No flat rate tariffs will be allowed. The tariff structure will reflect government policies on water conservation and lifeline rates for the urban poor. These reforms will be fully implemented by end of 2007. • Installation of water meters is in progress and out of 19,000 domestic and commercial meters procured under phase-I project, 10,000 water meters have already been installed. WASA has started billing on meter reading for metered supply. However, all the connections will be completed on procurement and installation of another 50,000 meters under the proposed project. • Non-revenue water, which includes both physical and commercial losses, shall be measured and reduced progressively each year. • WASA is making all efforts to minimize non-revenue water and this will be reduced to less than 15% by September 2006. (iv) Equitable access to and use of water • Service levels shall, wherever possible, be a household connection. If this is not possible, it shall be no less than a standpipe within 100 meters of any dwelling. Increase in service connections will be closely monitored and reported to the public each year. • Every in Rawalpindi shall be provided adequate piped water supplies and toilets (latrines). Public toilets maintained by user charges shall be constructed in all high density public locations. 26 Appendix 2

(v) Awareness of the public and • A comprehensive water audit will be undertaken in 2005 to verify government about the facts of water supply coverage, examine the way all people get water, how much they get, services in Rawalpindi. and how much they pay; and to explore the use of non-revenue water. After analysis, the findings of this audit will be discussed at a stakeholder consultation and this will be the basis for formulation of new government policy. This will be conducted under the proposed Project. • Community awareness and community development will be promoted through WASA. It is already holding regular meetings with UA’s heads (nazims) and naib nazims. However, in the future, NGOs will be involved to promote community awareness. Print and electronic media are also being used for this purpose. (vi) Sustainable use of groundwater All groundwater use other than that for one household shall be registered as to owner, type of installation, location, volume extracted, and use of water. (vii) Optimum utilization of sewerage • The sewerage connection fee will be reduced from the existing network PRs500 to PRs250 as an incentive to encourage consumers. • Prior to laying any new sewer in any UA, the communities will sign a memorandum of understanding with the project management unit (PMU), where a 50% connection fee will be collected by the UAs in advance and PMU will commence the work in those UAs where at least 80% of people have deposited the connection fee to their UAs. • Payment of recurrent sewerage charges will be added to the water supply bill. Failure to pay the water and sewerage bill may then result in disconnection of the water supply. • Those connecting to the sewerage network will no longer pay for the cost of periodic desludging of their septic tank or latrine. • Civil society and community-based organizations (CBOs) would be involved in the monitoring and reporting regarding the O&M of sewers. Solid Waste Management Solid Waste Management Policy Center Objectives are 100% collection and • Introduce public-private partnerships for collection. UAs, with the disposal of solid waste in Rawalpindi; and help of experienced nongovernment organizations (NGOs), CBOs and the cost of solid waste collection and private partners, will collect solid waste in their respective disposal be borne by the creator of the constituencies and dispose of it at designated transfer stations. RT, waste with the assistance of private agencies, will be responsible for final disposal of solid waste at the landfill. Long-term objective is to maintain efficient • Develop a new landfill site with transfer stations. solid waste management in a sustainable • Full cost recovery for solid waste management. manner through sound financial and human • Introduce sorting and recycling of materials. resources management • Rawal Town (RT) will be staffed with competent trained management and employees committed on a long-term basis to providing services to the public. • RT management will be given autonomy to manage without outside interference. • RT shall publish for the public an annual report on its operations and development each year. • A structured and systematic program of organization development will be implemented for RT. Urban Development Objectives Urban Development Policy Center Preparation, approval, and implementation • Implement land use planning and zoning. of land use plans, including adequate open • This will also include the base mapping/GIS system and manual areas, parks, playgrounds, and graveyards with legal backup of each category. • Coordinate infrastructure and services development. • Introduce public asset management. • Target housing and services for the poor. Source: Asian Development Bank staff. Appendix 2 27

A. Eligibility Criteria of Rawal Town

1. Complying with the Punjab Local Government Ordinance, 2001 (PLGO 2001), Rawal Town (RT) will take following outstanding actions to become eligible to use the project funds for its respective subcomponents of storm water drainage, solid waste management and slaughterhouse:

2. The elections of members to the Monitoring and House Committees and the passage of the by-laws for these committees, as required under the PLGO 2001, are met.

3. The RT Council Secretariat is strengthened with required staff and equipment, and as per PLGO 2001, budget provisions are made for its functioning.

4. Organization of Offices. (i) RT office to be organized in accordance with PLGO 2001 requirements and the TMA rules of business. (ii) Where required, suitably qualified and trained engineering and technical staff may be provided to RT for provision of municipal services. (iii) All staff will be suitably designated to meet their specific job responsibilities and job descriptions.

5. An executive committee, as required under the Tehsil Municipal Administration (TMA) rules of business, is to be established.

6. Transfer of Functions. RT is to hold discussions and prepare action plans for the transfer of functions to the union administration as per PLGO 2001.

7. Citizen Community Boards. The RT will observe requirements of PLGO 2001 for allocating 25% of the development budget for CCB projects, and the recently developed rules for registration of CCBs should be widely disseminated for public awareness.

8. Details of documents and other information to be made available to the public will be prepared, along with procedures for dissemination of the information, and how it can be obtained from RT.

9. Revenue-Enhancement Measures. A baseline survey will be initiated to determine revenue potentials of items such as licensing, parking stands, and transport stands. A program will be developed for conducting regular surveys to keep the revenue database updated.

10. Arrears. Budget rules regarding arrears will be complied with. All arrears will be detailed in the budget format, and reasons for non-recovery of arrears will be given.

28 Appendix 3

URBAN SECTOR ANALYSIS

A. Urbanization and Urban Infrastructure

1. Rapid urbanization in Pakistan has overtaxed the abilities of government institutions to provide adequate infrastructure and urban services. Much of the urban growth has been uncontrolled and unplanned, because of the absence of effective planning and enforcement tools, and insufficient development of human resources. Most towns and cities lack plans for controlled urban development, and for linkage between the development of new housing and commercial or industrial areas. Most urban areas have not developed the infrastructure and urban services needed to support such urban growth and expansion.

2. Urban areas suffer from various deficiencies in infrastructure. Town centers generally have most required elements of physical infrastructure (including roads, markets, bus stands, and water supply systems) without community involvement, sewerage systems, and solid waste collection systems. Some systems (especially roads, markets, and bus stands) suffer capacity problems because urban populations and commercial activities in the town centers have grown to a level beyond their original design. As a result, commercial activities spill over into the streets, which are already overburdened by a vehicle traffic volume far higher than their design capacity.

3. Systems for water supply, sewerage, and solid waste collection suffer greatly from poor operations and maintenance (O&M). The Government of Punjab (PG) often designed and constructed water supply systems and turned them over for O&M to the local government, which has to handle gaps between system design and real consumer demand. The gaps are often considerable and have led to poor utilization of systems, resulting in poor cost recovery and the need for permanent subsidies from local government budgets. The collection and disposal of municipal solid waste is mostly poor, without the participation of local communities, nongovernment organizations (NGOs), or the private sector. Uncollected waste causes adverse environmental effects, such as bad odors and breeding of flies. Poor collection and removal of solid waste also leads to the clogging of sewer lines, which is a major problem of urban infrastructure systems. Blocked sewer lines make household sewage collection ineffective and cause ponding of sewage in lanes and streets. This leads to damage to private and public property, disruption of traffic, breeding of mosquitoes and other pests, and infiltration of sewage into shallow groundwater. This leads to serious health problems because most households use shallow groundwater, through hand or motor pumps, as their main water source. Some basic services are totally missing in peripheral and under-serviced areas of most towns, where people use shallow, brackish water or take water from public standposts, where available. Sewerage systems are nonexistent and sewage often flows uncontrolled into depressions where it ponds. There is often no organized collection of municipal solid waste.

B. Urban Sector Institutions

4. The Punjab Local Government Ordinance 2001 (PLGO 2001) transferred responsibility for delivery of municipal urban services and environmental improvement mainly to the tehsil (subdistrict) municipal administration (TMAs) or district towns in large cities (where district governments have been renamed City District Governments). Some responsibility rests with (i) the lowest level of local government, union administrations, which are charged with community development and related tasks; and (ii) district governments, which handle affairs related to government land as well as the health and education sectors. Appendix 3 29

5. Implementation of the PLGO 2001 has considerably reduced the previously dominating roles of provincial agencies, especially the Housing, Urban Development, and Public Health Engineering Department (HUD&PHED), whose staff has been transferred to local government agencies.

6. For major Punjab cities, including Rawalpindi, special development authorities () were set up through the Development of Cities Act, 1976. These authorities, which previously worked under HUD&PHED, are now fully devolved to the City Districts (CD) to undertake urban development functions. A director general heads DA and the head of CD, the nazim, is the chairperson. In this capacity, the nazim provides general oversight of the effective delivery of DA functions, including water supply and sanitation, which is undertaken through DA’s water and sanitation agency (WASA).

7. TMAs/towns and CDs are supervised by the provincial Local Development and Rural Development Departments (LGs), which support and monitor progress in the implementation of PLGO 2001, including all required adjustments and improvements in institutional and organizational setups, as well as financial management. This department is now the provincial agency best suited to steer TMAs in delivery of basic urban services.

8. Within the LG, the Directorate General of Katchi Abadi and Urban Improvement has specific responsibility for resolving problems related to katchi abadis (unauthorized settlements or slums on state-owned lands, with little or no infrastructure).

C. Government Policies and Plans

9. Pakistan’s national urban and housing policy is reflected in the 10-Year Perspective Development Plan 2001–2011, which describes the main urban problems as: (i) environmental degradation, mushrooming of katchi abadis, and breakdown of infrastructure and municipal services; (ii) lack of vision, inadequate institutional setup, and weak financial bases, (iii) backlog of 2 million housing units, in addition to 2.3 million units that are structurally obsolete; and (iv) absence of a housing finance institution to provide affordable loans for house construction.

10. The plan envisages the following strategies for urban development: (i) strengthening the role of local organizations in planning, determining needs, preparing action plans, and augmenting capacities for water supply and sanitation services; (ii) developing satellite, intermediate or secondary, and industrial towns as employment centers; (iii) preparing or updating master plans; (iv) implementing the national policy on katchi abadis; and (v) upgrading katchi abadis and slums through integrated packages for area improvement.

11. For water supply and sanitation, the plan envisages providing (i) water supply services to an additional 55 million people (28 million rural and 27 million urban), thus increasing national service coverage from 63% to 84%; and (ii) sanitation facilities for an additional 54 million people (26 million rural and 28 million urban), thus increasing national sanitation coverage from 39% to 63%. Private sector participation in water supply for major cities will be encouraged, and the institutional capacity of water supply and sanitation agencies will be upgraded.

12. Pakistan’s National Housing Policy, 2001, acknowledges the need for development of housing for the poor and needy. It envisages a strategy that combines community participation, institutional strengthening, and the development of a commercially oriented system of housing finance. It also emphasizes addressing the problem of katchi abadis, squatter settlements, and slums through regulation where appropriate, relocation where required, and urban improvement. 30 Appendix 3

13. The Government is committed to increasing annual pro-poor budgetary expenditures by the current 0.2% of gross domestic product (GDP) to 4.0% of GDP in FY2004. The Pakistan Poverty Alleviation Fund—established in 1997 to finance community income-generating projects, microenterprises, and infrastructure projects, mainly through nongovernment organizations (NGOs) and the private sector—has begun lending activities. In April 2000, the Government launched the National Poverty Alleviation Programme, with the objectives of stimulating employment and providing basic infrastructure and services to rural and low-income urban areas. A new program was initiated to rehabilitate the poor by giving one-time rehabilitation grants ranging from PRs5,000 to PRs50,000 from the Fund. The Government increased funding for a small public works program, the Khushal Pakistan Program, which aims to provide gainful employment for the poor and develop essential infrastructure such as -to-market roads, water supply schemes, and school repair in rural and low-income urban areas. The Government also set up the Khushali Bank, Pakistan’s first microfinance bank, with financial support from the Asian Development Bank (ADB)1 in 2001. The Government has initiated a mechanism for the quarterly tracking of antipoverty expenditures on the Finance Division’s website. Most intermediate human development indicators are now reported annually.

14. In line with goals of the National Poverty Reduction Strategy (PRS), the Punjab PRS also emphasizes, among key factors to reduce poverty in Punjab, restoration of good governance, enhancement of public expenditures, improvement in service delivery for social sectors, and addressing environmental concerns.

D. Relevant ADB Strategies

15. ADB’s Country Strategy and Program Update (2006–2008) for Pakistan focuses on supporting poverty reduction by assisting in the strategic areas of good governance, sustainable pro-poor economic growth, and inclusive social development. This strategy continues to be relevant, and in line with priorities of the new government. ADB lending to devolved sectors will aim to strengthen devolution by ensuring that future ADB projects are designed to be consistent with the new governance structure under local government ordinances of August 2001. Where appropriate, efforts will be made to realign recently approved ADB projects for devolved sectors. ADB will continue to emphasize the delivery of social services to support (i) increased public sector allocations made possible by enhanced fiscal space, and (ii) improved governance through devolution and better sector administration and financial management. ADB’s water policy also supports its poverty reduction strategy by addressing each of the three elements of its framework for poverty reduction (pro-poor sustainable growth, social development, and good governance). The main focus of ADB assistance to the urban sector will be on environmental aspects and the needs of the poor. Assistance will cover, broadly, institutional restructuring and devolution of service delivery, private sector involvement in the delivery of selected services, budgeting and finance, increased cost recovery and municipal revenue, increased community participation, and attainment of the Millennium Development Goals (MDGs). To facilitate achievement of the vision, goals, and targets set through the MDGs, the Project will develop linkages with strategies being developed by fora like the Global Water Partnership, World Water Council, and Water Supply and Sanitation Collaborative Council.

1 ADB. 1999. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Islamic Republic of Pakistan for the Microfinance Sector Development Program. Manila. Appendix 4 31

EXTERNAL ASSISTANCE TO THE URBAN SECTOR

Source Amount Approved ($ million) A. Asian Development Bank 1. Hyderabad Water Supply and Sewerage [Loan No. 263- 22.00 1976 PAK(SF)] 2. Water Supply, Sewerage, and Drainage [Loan No. 39.50 1977 331-PAK(SF)] 3. Karachi Urban Development [Loan No. 793-PAK(SF)] 55.20 1986 4. Karachi Sewerage [Loan No. 1001-PAK(SF)/1002-PAK] 85.00 1989 5. Second Urban Development [Loan No. 1004-PAK(SF)] 66.00 1989 6. Urban Water Supply and Sanitation, Rawalpindi [Loan No. 72.00 1993 1260-PAK(SF)] 7. North-West Frontier Province Urban Development Sector [Loan 20.80 2001 No. 1854-PAK(SF)] 8. Southern Punjab Basic Urban Services Project [Loan No. 2060- 90.00 2003 PAK(SF)/2061-PAK] B. World Bank 1. Lahore Urban Development 16.00 1982 2. Karachi Water Supply 25.00 1983 3. Karachi Special Development 70.00 1987 4. Punjab Urban Development 90.00 1988 5. Second Karachi Water Supply and Sanitation 125.00 1991 6. Community Infrastructure Project 21.50 1994 C. Netherlands 1. Quetta Sewerage and Sanitation 12.00 1987 D. United Kingdom 1. Faisalabad Area Urban Upgrading 18.50 1989 2. Lahore Water and Sewerage 28.59 1989 3. Second Karachi Water Supply and Sanitation 9.90 1990 E. Japan 1. Rehabilitation of Water Treatment Systems: Karachi, Phase 1 10.78 1989 2. Metropolitan Water Supply Project in Khanpur: Phase 1 115.95 1989 3. Metropolitan Islamabad Water Supply: Phase 1 92.04 1990 4. Rehabilitation of Water Treatment System: Islamabad, Phase 2 10.62 1990 5. Metropolitan Islamabad Water Supply: Phase 2 42.28 1991 6. Rehabilitation of Water Treatment Plant: Islamabad, Phase 1 8.60 1991 7. Rehabilitation of Water Treatment Plant: Islamabad, Phase 2 9.20 1992 8. Karachi Water Supply Improvement 95.41 1995 9. Metropolitan Water Supply 53.26 1996 F. Kuwait 1. Quetta and Wadar Potable Water Supply 16.00 1983

Note: The table does not include technical assistance projects. Funding was also provided by the Swiss Agency for Development and Cooperation and United Nations Children’s Fund. Source: Asian Development Bank estimates. 32 Appendix 5

LESSONS LEARNED

The following key experiences and lessons from implementation of similar projects have been incorporated in the project design:

Experience/Lesson Incorporation in Project Design The following conditions are necessary for WASA and TMA will be staffed with competent efficient municipal urban services: (i) continuity of trained management and employees committed on policy, management, and senior operating staff a long-term basis to public service provision. WASA are critical to maintain direction and achieve management will be given management autonomy required goals; (ii) PMU management and staff without outside interference. A structured and should be appropriately qualified; (iii) regular EA systematic program of organizational development staff should be appointed in the PMU instead of will be implemented for WASA. Policy on tariffs, contract staff to achieve sustainability of metering, non-revenue water, and continuity of institutional reforms; (iv) autonomy of WASA is management in WASA have been clearly spelled essential in setting water tariffs to meet its out. Strengthening of the PMU with qualified and financial needs, engaging staff as necessary to regular staff has been agreed and made a condition operate and maintain the water supply and for loan effectiveness. sanitation system to acceptable standards, and making it independent of budgetary support from the government of Punjab (PG).

Implementation delays can be avoided by Advance actions were agreed upon with regard to (i) streamlining lengthy administrative procedures the establishment and staffing of the PMU, for approval of consultants’ selection; (ii) avoiding consultant recruitment, and land acquisition and turnover of the project director and qualified PMU resettlement in the earliest stage. The Government staff; (iii) strengthening the monitoring and has assured the appointment of a permanent evaluation system and holding regular steering qualified project director and this has been made a committee meetings to take timely actions on condition for loan negotiation. To facilitate issues hindering implementation progress; monitoring and timely resolution of project-specific (iv) improving consultants’ performance in issues, two committees will be set up: (i) a project efficiently processing and implementing the implementation review committee at tehsil subprojects, and taking timely steps in processing (subdistrict) level will meet monthly to review contractors’ payments; (v) making timely progress, and (ii) a project steering committee at payments to contractors and consultants; provincial level will meet quarterly to provide overall (vi) taking timely actions for land acquisition and coordination. An agreement has been reached with resolving resettlement issues; and (vii) devolving the Government for continuity of recruitment of decision making of noncritical issues to the lowest senior project management staff. level.

Sustainability of sewerage can only be assured if The Government has committed to O&M cost the utility is in good financial health. recovery for sewerage and sewage treatment. Water supply tariffs will include a surcharge for sewerage. This is clearly spelled out in the Government Policy statement.

Urban upgrading is complex and a piecemeal An urban environmental development plan which approach involving just a few selected problems is incorporates appropriate land use planning will be not an optimal solution. A comprehensive developed under this project, supported by GIS approach should be designed from a plan that mapping and a comprehensive database associated integrates all aspects of urban infrastructure and with asset management. This plan will be prepared involves beneficiary participation. in consultation with stakeholders and will pave the way for the phase 3 project. Appendix 5 33

Experience/Lesson Incorporation in Project Design Accountability and transparency are diminished The design of loan covenants was closely and project sustainability is undermined by coordinated with the Government and TMA. The noncompliance with covenants, minimal project implementation review committee and beneficiary participation, poor O&M of completed project steering committee will monitor and regularly facilities, and low financial and economic rates of report on compliance, along with the PMU. The return. component for institutional capacity building and implementation of agreed financial reforms will improve financial and economic rates of return.

The quality of governance is critical to the The Project will give the greatest practical authority success of a project. Highly centralized project to TMA and WASA, and will involve communities management adversely affects project intensively in the implementation phase. performance and ownership by major stakeholders.

All stakeholders should be fully involved in project The subproject locations and proposed interventions identification and design from an early stage and were identified through consultative processes sufficient information should be gathered involving local governments and local communities. regarding active NGOs and CBOs in the project Three stakeholder workshops were held during the area to facilitate their involvement in the project. processing of the Project.

Women should be empowered to participate in A gender strategy has been agreed that will involve decision making at the micro level to bring about women throughout planning and implementation. constructive changes in the living conditions of the urban poor.

Institutional strengthening should be given the Institutional strengthening of TMA and WASA will be greatest emphasis and carried out systematically. carried out in a planned manner through the institutional capacity-building component,

CBO = community-based organization, EA = executing agency, GIS = geographic information system, NGO = nongovernment organization, O&M = operation and maintenance, PG = government of Punjab, PMU = project management unit, TMA = tehsil municipal administration, WASA = Water and Sanitation Agency (Rawalpindi). Source: Asian Development Bank staff. 34 Appendix 6

DETAILED COST ESTIMATES ($ million)

Foreign Local Total Item Exchange Currency Cost A. Civil Works 1. Environmental Sanitation a. Sewerage Network 0.41 5.79 6.20 b. Sewage Treatment Plant (i) Sewage treatment plant 1.02 9.41 10.43 (ii) Outfall sewer 2.14 14.81 16.95 c. Storm Water Drainage (i) City drains 0.00 1.66 1.66 (ii) Lai Nullah improvement 0.00 0.84 0.84 d. Solid Waste Management (i) Landfill site 0.00 0.05 0.05 (ii) Transfer station 0.00 0.17 0.17 e. Slaughterhouse and Toilets (i) Slaughterhouse 0.00 0.25 0.25 (ii) Public toilets 0.00 0.08 0.08 2. Water Supply Services a. Repair of WWI and II 0.00 0.36 0.36 b. Provision of Water Supply 0.90 4.52 5.42 c. Activation of OHR 0.00 0.52 0.52 d. Environmental Mitigation of Rawal Lake 0.00 0.51 0.51 e. Installation of Water Meters 0.00 0.42 0.42 3. Institutional Development a. Sub-office and Complaint Office 0.09 0.36 0.45 Subtotal (A) 4.56 39.75 44.31 B. Equipment and Material 1. Environmental Sanitation a. Sewerage Network 0.42 0.18 0.60 b. Sewage Treatment Plant (i) Sewage treatment plant 0.68 0.17 0.85 (ii) Outfall sewer tunneling 2.45 0.73 3.18 c. Solid Waste Management (i) Equipment and vehicles 0.44 1.53 1.97 (ii) Transfer station 0.08 0.08 0.15 d. Slaughterhouse and Toilets 0.09 0.00 0.09 2. Water Supply Services a. Repair of WWI and II 0.00 0.17 0.17 b. Provision of Water Supply 0.16 0.12 0.28 c. Supply of Water Meters 1.16 0.00 1.16 3. Institutional Development 0.04 0.09 0.13 Subtotal (B) 5.52 3.06 8.58 C. Project Implementation Support 1. Consultancy Services 0.55 3.52 4.07 2. Equipment and Vehicles 0.12 0.16 0.28 3. Incremental Administrative Support (PMU) 0.00 0.85 0.85 Subtotal (C) 0.67 4.53 5.20 Land Acquisition and Compensation 0.00 9.00 9.00 Taxes and Duties 0.00 9.37 9.37 Total Base Cost (A+B+C) 10.75 65.71 76.46 Physical Contingencies 0.32 1.97 2.29 Price Contingencies 0.39 5.50 5.89 Total Contingencies 0.71 7.47 8.18 Interest During Construction 1.07 0.00 1.07 Total Cost 12.53 73.18 85.71 OHR = overhead reservoir, PMU = project management unit, WW = water works. Source: Asian Development Bank estimates. Appendix 7 35

PROJECT IMPLEMENTATION FRAMEWORK

Nazim, CDR

DG, RDA/WASA PMU Nazim, RT

Project Director

Dy. Project Dy. Project Director Dy. Project Director (WS) (SD&SWM) Director (Finance)

AM AM AM AM AM AM Monitoring and Water Supply Solid Waste Sewerage and Finance Administration Evaluation Management Drainage

AM = assistant manager; CDR = City District Rawalpindi; DG = director general; Dy. = deputy; nazim = head of city district or a town, or tehsil, or union administration; PMU = project management unit; RDA = Rawalpindi Development Authority; RT = Rawal Town; SD&SWM = sewerage, drainage, and solid waste management; WASA = Water and Sanitation Agency (Rawalpindi). Source: Asian Development Bank staff.

36 Appendix 8

PROJECT IMPLEMENTATION SCHEDULE

Activities 2006 2007 2008 2009 2010 2011 1. Recruitment of Consultants 2. Surveys and Detailed Designs Part A: Environmental Sanitation a. Sewerage System • Laying of trunk and area sewers • Construction of a transfer/outfall sewer to

the sewage treatment plant • Replacement of undersized sewers in

identified areas • Construction of pumping lift stations along

the transfer sewer • Environmental mitigation works upstream

of Rawal Lake filtration plant • Procurement of sewer cleaning

equipment and machinery b. Sewage Treatment Plant • Land acquisition and resettlement • Construction of rising main from Moti

Mahal pumping station • Laying of gravity sewer pipes • Construction of sewage treatment plant c. Storm Water Drainage • Remodeling existing drains • Construction of new drains • Bank protection works at critical locations

of Lai Nullah d. Solid Waste Management • Land acquisition and resettlement • Institutional strengthening • Procurement of vehicles and equipment • Construction of solid waste transfer stations and provision of garbage bins throughout the city • Development of a new sanitary landfill

site e. Slaughterhouse and Public Toilets • Rehabilitation and improvement of slaughterhouse facilities in Sihala slaughterhouse • Construction of about 15 public toilets Part B: Improving Water Supply • Replacement/rehabilitation of selected

tubewells • Construction/rehabilitation of distribution

systems • Construction of water supply and

sanitation facilities for schools Part C: Institutional Development • Municipal management system

development • Environmental support services • Asset management • Urban development Source: Asian Development Bank estimates. Appendix 9 37

PROPOSED CONTRACT PACKAGES

Description Packages Method Amount ($ million) 1. Laying of lateral and trunk sewers in service areas of SW04, 05, and 3 LCB 2.51 06 2. Replacement of undersized sewers 1 LCB 0.40 3. Laying of trunk and area sewer connected to transfer sewer on 3 LCB 2.27 western areas 4. Laying of trunk and area sewer connected to transfer sewer on eastern 1 LCB 1.02 areas 5. Construction of transfer sewer to sewage treatment plant 3 ICB/LCB 16.95 6. Ancillary civil and E&M works for outfall trunk sewer including those for 2 LCB 3.18 500 m tunneling 7. Construction of sewage treatment plant 2 ICB/LCB 10.43 8. Supply and installation of E&M works for sewage treatment plant Multiple ICB/IS 0.85 9. Construction of city drainage works (upgrading and improvements) 3 LCB 1.66 10. Lai Nullah improvement works (strengthening of banks) 2 LCB 0.84 11. Construction of landfill site dumping stations and offices 1 LCB 0.05 12. E&M vehicles and equipment for solid waste management and transfer Multiple ICB/IS/DP 2.12 station 13. Construction of transfer station 1 LCB 0.17 14. Construction of slaughterhouse 1 LCB 0.35 15. Public toilets (15) and latrines in schools 1 LCB 0.08 16. Repair of storage tanks 1 LCB 0.40 17. Refurbishment and repair of 32 tubewells and replacement of 29 2 LCB 1.12 tubewells 18. Replacement of old leaking primary and secondary lines 5 LCB 3.62 19. Laying of pipelines in underserved inner city 1 LCB 0.44 20. Water supply in unserved and underserved areas 2 LCB 1.05 21. Equipment for water supply Multiple IS/DP 0.13 22. Supply of 50,000 water meters Multiple ICB/IS 1.16 23. Installation of water meters 1 LCB 0.41 24. Rawal lake catchment pollution mitigation civil works 2 LCB 0.51 25. Construction of complaint cells 1 LCB 0.41 26. Laying of pipelines for activating overhead reservoirs and ancillaries 1 LCB 0.52 27. Training WASA personnel in financial and assets management 1 LCB 0.13 28. Surveys Multiple LCB 0.11 29. Supply vehicles for PMU 2 LCB 0.24 30. Supply computers, printers, and other office equipment Multiple LCB/DP 0.03 31. Provide consultancy services for PMU (package A) 1 a 3.26 32. Provide consultancy services for PMU (package B) 1 a 0.73 33. Provide consultancy services for PMU (package C) 1 a 0.08 Total 57.23 Excluded Land Acquisition and Resettlement 9.00 Incremental Administrative Expenditures 0.85 Taxes and Duties 9.37 Grand Total 76.45 DP = direct purchase, E&M = electrical and mechanical, ICB = international competitive bidding, IS = international shopping, LCB = local competitive bidding, PMU = project management unit, SW = sewerage, WASA = Water and Sanitation Agency (Rawalpindi). a As per guidelines. Source: Asian Development Bank estimates. 38 Appendix 10

SUMMARY RESETTLEMENT PLAN

A. Scope of Land Acquisition and Resettlement

1. Following the Rawalpindi Urban Water Supply and Sanitation Project, the Rawalpindi Environmental Improvement Project (the Project), representing the second phase of development, will improve the living conditions of about 1.4 million residents of Rawalpindi city, by enhancing the quality of life and health, improving the environment, and creating conditions conducive to sustained urban development and economic growth. Its main components are: (i) environmental sanitation, which includes sewerage, sewage treatment, storm water drainage, solid waste management, slaughterhouse replacement, and public toilets; (ii) water supply improvement, which includes replacement of tubewells, rehabilitation and construction of distribution systems, water meter installation, and urban infrastructure facilities for schools; and (iii) institutional development, including development of municipal management, an urban environmental development plan, asset management, and urban planning. 2. The Project is designed to minimize land acquisition and resettlement impacts. A total of 284 hectares (ha) of land is required for the sewage treatment plant (STP), solid waste transfer stations, landfill site, and service corridors (right-of-way) for laying trunk sewers and maintaining storm drains. The proposed STP site was chosen because it has less resettlement impacts than the most technically feasible location. Some 197 landowners own 442 plots of land, which will be acquired for the proposed 250 ha STP site. The acquisition will also affect the livelihood of an estimated 36 tenants/agricultural workers. The proposed solid waste transfer station and landfill site (32 ha) will be constructed in unencumbered government land. There are two brick structures occupied by transient brick workers in the proposed landfill site. To the extent possible, the sewerage network and storm drain components prioritize rehabilitation of existing infrastructure, which avoids resettlement impacts. The acquisition of 2 ha is required for a 7 meter (m) service corridor for the sewerage system and an 8–10 m service corridors for the storm drains. The sewerage network will partially affect 370 houses and about 28 houses will be partially affected by the storm drain subcomponent.

3. The Project is not expected to cause large-scale relocation of affected people. There are no residential structures at the STP site, so no relocation is involved. Of the households affected by the sewerage network and storm drain works, impacts for many will be temporary and most will retain a substantial portion of their landholding, so they will not require relocation.1 The overall resettlement impacts will be further minimized through careful component siting and alignment during detailed design. 4. A resettlement plan (RP) has been prepared for the Project (Supplementary Appendix D). A summary of resettlement impacts and key socioeconomic information is in Table A10.1.

B. Policy Framework and Entitlements

5. The policy framework and entitlements for the Project are based on national laws and policies: (i) Land Acquisition Act, 1894 (amended up to 2003); (ii) National Resettlement Policy, 2002; (iii) Project Implementation and Resettlement of Affected Persons Ordinance, 2001; (iii) Punjab Development of Cities Ordinance, 1981; (iv) Pakistan Environmental Protection Act, 1997; as well as ADB’s Policy on Involuntary Resettlement, 1995. The entitlement matrix for the Project, based on the above policies, is in Table A10.2.

1 For the storm drain component, it is estimated that more than 70% will not require relocation. Appendix 10 39

Table A10.1: Summary of Resettlement Impacts

Item STPa Landfill Site Sewerage Storm Drain Network Affected Households 197 2 370 28 Affected Persons 1,379 10 2,960 225 Nontitled Affected Persons’ Households 36 2 10 8 Female-Headed Households 28 0 26 4 Vulnerable Affected Persons 34 0 11 13 Affected Structures 8 2 370 28 cattle sheds/ storage, 27 wells, and 73 tubewell bores Affected Common Property Resources 32 0 6 Nil Average Household Annual Income (PRs) 137,800 79,000 96,000 144,000 Primary Source of Income Agriculture Brick Making Agriculture Agriculture Average Household Size 7 5 8 8 PR = Pakistan rupee/s, STP = sewage treatment plant. a Figures for the STP were derived from a socioeconomic survey of 129 households at the STP site conducted by the Water and Sanitation Agency (Rawalpindi) in 2005. Sources: Rawalpindi Development Authority and Water and Sanitation Agency (Rawalpindi), 2005. Socioeconomic survey and studies, Rawalpindi

C. Information Dissemination, Consultation, Disclosure, and Grievance Redress

6. RPs were prepared in consultation with all project stakeholders. Focus group discussions and meetings were held involving affected households, elected local representatives, councilors of concerned union administrations (UAs), and residents living close to the proposed component sites. A socioeconomic survey was conducted to determine the potential impacts of land acquisition. Information has been disseminated to affected persons (APs). A local version of the summary RP, including the entitlement matrix, has been made available in UAs and posted on the Executing Agency’s (EA’s) website.2 The RP will be posted on the Asian Development Bank’s (ADB’s) website, and information dissemination and consultation will continue throughout project implementation.

7. Grievances of APs will first be brought to the attention of Musalehat Anjumans (reconciliation associations at the UA level established to resolve disputes) or (noninstitutionalized systems comprising a UA head (nazim) and local elders who are collectively accepted as mediators in most disputes), where established. Grievances not redressed by the Musalehat or will be brought by the AP to the grievance redress committee (GRC) through the assigned project management unit (PMU) social development specialist. GRCs will have representation from APs (including vulnerable households), EA, PMU social development specialist (SDS), nongovernment organizations (NGOs), and community- based organizations (CBOs). GRCs will meet every two weeks, determine the merit of each grievance, and resolve grievances within a month of receiving the complaint. If the grievance is not resolved within this timeframe, APs will refer it to appropriate courts of law.

2 http://www.rda.gov.pk

40 Table A10.2: Entitlement Matrix

Type of Application Entitled Compensation Policy Implementation Issues Responsible Agency 10 Appendix Loss Person 1 Loss of Homestead Owner(s) with 1. Replacement/market value of land or land-for- • Charges will be limited to The (revenue officer) and private land land, legal title land where feasible (including compensation for those for: (i) land purchased deputy district officer, in consultation agricultural nonviable residual portions). within a year of compensation with the project RAC, will determine a land, or 2. Subsistence allowance based on 3 months’ payment, and (ii) land of replacement value using DPAC vacant plot minimum wage rates. equivalent size. rates as base. 3. Free transport facility or shifting assistance.b • Vulnerable households will be 4. Provision of all fees, taxes, and other charges identified during the census EA will confirm minimum wage rates (registration, etc.) incurred for replacement land. conducted as part of the RP. during detailed socioeconomic 5. Additional compensation for vulnerablec surveys conducted during the RP, households (item 6). determine shifting assistance, verify all charges, and identify vulnerable households. 1-a Loss of Homestead Tenants, 1. Subsistence allowance based on 3 months of • Landowners will reimburse EA will confirm land rental, ensure private land land, leaseholders, land rental. tenants’ and leaseholders’ tenants and leaseholders receive agricultural and 2. Additional compensation for vulnerable land rental deposit or value of reimbursement for land rental land, or sharecroppers households (item 6). the unexpired lease. deposit or unexpired lease, and vacant plot • Vulnerable households will be identify vulnerable households. identified during the census conducted as part of the RP. 1-b Loss of Homestead Non-titled AP 1. 60 days’ advance notice to shift from encroached Vulnerable households will be EA will ensure provision of notice private land land, (encroachers land. identified during the census and identify vulnerable households. agricultural and squatters) 2. Additional compensation for vulnerable conducted as part of the RP. land, or households (item 6). vacant plot 2 Loss of Residential Owner(s) of 1. Replacement value of structure and other assets Vulnerable households will be The tehsildar and deputy district residential structure and residential (or part of structure and other assets if remainder identified during the census officer in consultation with the structure other assetsd structures with is viable). conducted as part of the RP. project RAC will determine legal title 2. Free transport facility or shifting assistance. replacement value using DPAC 3. All fees, taxes, and other charges (registration, rates as base. etc.) incurred for replacement structure. 4. Rights to salvage material from structure and EA will determine shifting other assets. assistance, verify all charges, 5. Subsistence allowance based on 3 months’ confirm minimum wage rates during detailed socioeconomic surveys minimum wage rates. conducted as part of the RP, and 6. Additional compensation for vulnerable identify vulnerable households. households (item 6).

Type of Application Entitled Compensation Policy Implementation Issues Responsible Agency Loss Person 2-a Loss of Residential Tenants and 1. Replacement value of structure and other assets • Vulnerable households will be The tehsildar and deputy district residential structure and leaseholders (or part of structure and other assets if remainder identified during the census officer, in consultation with the structure other assets is viable) constructed by the AP. conducted as part of the RP. project RAC, will determine 2. Free transport facility or shifting assistance. • Structure owners will replacement value using DPAC 3. All fees, taxes and other charges (registration, reimburse tenants’ and rates as base. etc.) incurred for replacement structure. leaseholders’ rental deposit or 4. Rights to salvage material from structure and unexpired lease. EA will determine shifting other assets constructed by the AP. assistance, verify all charges, 5. Subsistence allowance based on 3 months’ confirm minimum wage rates during minimum wage rates. detailed socioeconomic surveys 6. Additional compensation for vulnerable conducted as part of the RP, identify households (item 6). vulnerable households, and ensure tenants and leaseholders receive reimbursement for rental deposit or unexpired lease. 2-b Loss of Residential Non-titled APs 1. Replacement value of structure and other assets Vulnerable households will be The tehsildar and deputy district residential structure and (encroachers (or part of structure and other assets if remainder identified during the census officer, in consultation with the structure other assets and squatters) is viable) constructed by the AP. conducted as part of the RP. project RAC, will determine 2. Free transport facility or shifting assistance. replacement value using DPAC 3. All fees, taxes and other charges (registration, rates as base. etc.) incurred for replacement structure. 4. Rights to salvage material from structure and EA will determine shifting other assets constructed by the AP. assistance, verify all charges, 5. Subsistence allowance based on 3 months’ confirm minimum wage rates during minimum wage rates. detailed socioeconomic surveys 6. Additional compensation for vulnerable conducted as part of the RP, and households (item 6). identify vulnerable households. 3 Loss of Commercial Owner(s) of 1. Replacement value of structure and other assets Vulnerable households will be The tehsildar and deputy district commercial structure and commercial (or part of structure and other assets if remainder identified during the census officer, in consultation with the structure other assets structure with is viable). conducted as part of the RP. project RAC, will determine legal title 2. Free transport facility or shifting assistance. replacement value using DPAC 3. All fees, taxes and other charges (registration, rates as base. etc.) incurred for replacement structure. 4. Rights to salvage material from structure and EA will determine shifting other assets. assistance, verify all charges, 5. Subsistence allowance based on 3 months’ confirm structure rental rates during structure rental rates. detailed socioeconomic surveys 6. Additional compensation for vulnerable conducted as part of the RP, and 10 Appendix households (item 6). identify vulnerable households. 3-a Loss of Commercial Tenants and 1. Replacement value of structure and other assets Vulnerable households will be The tehsildar and Deputy District commercial structure and leaseholders (or part of structure and other assets if remainder identified during the census Officer, in consultation with the structure other assets is viable) constructed by the AP. conducted as part of the RP. Project RAC, will determine 2. Free transport facility or shifting assistance. replacement value using DPAC 3. All fees, taxes and other charges (registration, rates as base. 41

42 Type of Application Entitled Compensation Policy Implementation Issues Responsible Agency Loss Person

etc.) incurred for replacement structure. EA will determine shifting 10 Appendix 4. Rights to salvage material from structure and assistance, verify all charges, other assets constructed by the AP. confirm structure rental rates during 5. Subsistence allowance for 3 months based on detailed socioeconomic surveys structure rental rates. conducted as part of the RP, identify 6. Additional compensation for vulnerable vulnerable households, and ensure households (item 6). tenants and leaseholders receive reimbursement for rental deposit or unexpired lease. 3-b Loss of Commercial Non-titled APs 1. Replacement value of structure and other assets Vulnerable households will be The tehsildar and Deputy District commercial structure and (encroachers (or part of structure and other assets if remainder identified during the census Officer, in consultation with the structure other assets and squatters) is viable) constructed by the AP. conducted as part of the RP. Project RAC, will determine 2. Free transport facility or shifting assistance. replacement value using DPAC 3. All fees, taxes and other charges (registration, rates as base. etc.) incurred for replacement structure. 4. Rights to salvage material from structure and EA will determine shifting other assets constructed by the AP. assistance, verify all charges, 5. Subsistence allowance based on 3 months’ confirm structure rental rates during structure rental rates. detailed socioeconomic surveys 6. Additional compensation for vulnerable conducted as part of the RP, and households (item 6). identify vulnerable households. 4 Loss of Livelihood Business 1. Assistance for lost income based on 3 months’ • Vulnerable households will be EA will confirm minimum wage rates Livelihood owner, tenant, minimum wage rates. identified during the census during detailed socioeconomic leaseholder, or 2. Additional compensation for vulnerable conducted as part of the RP. surveys conducted as part of the RP employee/ households (item 6). • Larger businesses, if affected, and, through NGOs, will determine agricultural may be compensated on the assistance for loss of business and worker basis of demonstrated loss of identify vulnerable households. profit subject to submission of formal evidence such as historical income tax returns. 5 Loss of trees Standing Owner/farmer 1. Notice to harvest standing seasonal crops. • Harvesting prior to acquisition The tehsildar and Deputy District and crops trees and with legal title, 2. If notice cannot be provided, compensation for will be accommodated to the Officer, in consultation with the crop tenants, standing crop (or share of crop for sharecroppers) extent possible. Project RAC, will determine leaseholders, at market value. • Work schedules will avoid valuation of standing crops, sharecroppers, 3. Compensation for perennial crops and fruit harvest season. perennial crops, and trees using encroachers, bearing trees at annual net product market value • Market value of trees/crops DPAC rates as base. or squatters multiplied by remaining productive years. has to be determined. 4. Compensation for non-fruit trees at market value EA will ensure provision of notice. of timber. 5. Subsistence allowance for one cropping cycle in case of seasonal crops. 6 Impacts on All impacts Vulnerable 1. For loss of land, option of land-for-land. • Vulnerable households will be EA will identify vulnerable vulnerable APs 2. For loss of residential or commercial structure, identified during the census households, confirm minimum APs additional subsistence allowance for 3 months conducted as part of the RP. wages, and make arrangements

Type of Application Entitled Compensation Policy Implementation Issues Responsible Agency Loss Person based on minimum wage rates, and skills training. with contractors for project 3. For loss of livelihood, additional assistance for employment. lost income based on 3 months’ minimum wage rates. Prioritization in project employment. 7 Temporary Land Owner(s) with 1. 60 days’ advance notice. EA will determine rental values and loss of land temporarily legal title, 2. Provision of land and structure rental value during finalize compensation rates in required for tenants, the duration of temporary acquisition. consultation with the RAC. project leaseholders, 3. Compensation for any lost income during activities sharecroppers, temporary acquisition based on minimum wage EA will confirm minimum wage. employee/ rates. agricultural 4. Restoration of land to original state. Contractor will be responsible for workers, restoration. encroachers, or squatters. 8 Temporary Commercial Owners, 1. 60 days’ advance notice • During construction, the EA EA will confirm minimum wage. disruption of and tenants, 2. Compensate any lost income during temporary will identify alternative livelihood agricultural leaseholders, acquisition based on minimum wage rates. temporary sites for vendors activities sharecroppers, and hawkers to continue employee/ economic activity. agricultural • EA and PMU will ensure civil workers, works will be phased to hawkers, or minimize disruption. vendors. 9 Impacts on Loss or Community or 1. Replacement or restoration of affected EA and contractor. common disruption to local body community. resources common resources 10 Any other Unanticipated involuntary impacts shall be EA loss not documented and mitigated based on the principles identified provided in ADB’s Involuntary Resettlement Policy. AP = affected person, DPAC = District Price Assessment Committee, EA = executing agency, NGO = nongovernment organization, PMU = project management unit, RAC = resettlement advisory committee, RP = resettlement plan. a Subsistence allowance is a transitional allowance for APs provided for utilization/consumption until an alternate source of livelihood is obtained. b Shifting assistance will be a one-time payment based on the amount of materials/assets to be shifted and the distance. Alternatively, the EA may provide free 10 Appendix transport facilities. c Vulnerable households comprise female-headed households, disabled-headed households, indigenous person-headed households, and below poverty line households. d Other assets include, but are not limited to, walls and fences, sheds, and wells. Sources: Rawalpindi Development Authority and Rawalpindi Water and Sanitation Agency. 43

44 Appendix 10

D. Compensation and Income Restoration

8. Loss of land,3 structures, trees and crops, and other assets will be at replacement cost. A District Price Assessment Committee (DPAC) provides valuation of assets when the Government acquires land. To ensure that DPAC prices are consistent with prevailing market rates, the Board of Revenue appoints the revenue officer (tehsildar) and deputy district officer to review DPAC determined values. For the Project, the tehsildar and deputy district officer, in consultation with the project resettlement advisory committee (RAC)4 will determine replacement values. Vulnerable households will be given additional assistance in the form of land-for-land replacement options and additional allowances identified in Table A10.2. Short-term income restoration activities include the provision of short-term allowances such as: (i) subsistence allowances (3 months), and (ii) shifting assistance (Table A10.2). Longer-term income restoration activities include: (i) credit provision for leasing replacement land or acquiring capital for livelihood, (ii) establishing microcredit schemes for APs, (iii) provision of skills training, (iv) microenterprise development, and (v) nonfarmer education. The EA will engage a qualified NGO for the implementation of longer- term income restoration activities.

9. The EA, through the PMU, will coordinate land acquisition and resettlement activities. The Project SDS, in coordination with land acquisition collectors (LACs) in concerned district governments and an NGO engaged by the EA, will be responsible for RP implementation. The responsible agencies are outlined in Table A10.3, resettlement costs are in Table A10.4, and an implementation schedule is in Table A10.5.

Table A10.3: Institutional Roles and Responsibilities

Activities Agency Responsible Finalization of sites/alignments for project components SDS/PMU/PC Disclosure of proposed land acquisition and subproject details by issuing public notice SDS/LAC/tehsildar, Meetings at community/household level with APs of land/property DDO, RAC/PMU/UA Conducting census of all APs SDS/PMU/PC Conducting focus group discussions/meetings/workshops during census SDS/PMU/RAC/PC Computation of replacement values of land/properties proposed for acquisition and tehsildar, DDO, associated assets RAC/SDS/PMU/PC/ LAC Categorization of APs for finalizing entitlements PMU/PC Formulating compensation and rehabilitation measures SDS/PMU/RAC Conducting discussions/meetings/workshops with all APs and other stakeholders Fixing compensation for land/property with titleholders SDS/tehsildar, DDO, RAC/LAC Finalizing entitlements and rehabilitation packages PMU/PC Disclosure of final entitlements and rehabilitation packages SDS/PMU/PC/NGO Approval of RP PMU/ADB Deed of sale execution and payment SDS/NGO/LAC Taking possession of land Implementation of proposed rehabilitation measures SDS/NGO Consultations with APs during rehabilitation activities SDS/NGO/RAC Grievances redress NGO/RO/GRC/LAC Internal monitoring SDS/PMU External monitoring Expert Panel ADB = Asian Development Bank, AP = affected person, DDO = deputy district officer, GRC = grievance redress committee, LAC = land acquisition collector, NGO = nongovernment organization, PC = project consultants, PMU = project management unit, RAC = resettlement advisory committee, RO = resettlement officer, RP = resettlement plan, SDS = social development specialist, UA = urban administration. Sources: Rawalpindi Development Authority and Rawalpindi Water and Sanitation Agency.

3 Loss of land will be compensated with land-for-land where feasible. Vulnerable APs that suffer loss of land will have the option of land-for-land compensation. The EA will identify all government land available near project facilities that can be provided for land-for-land compensation. The EA will survey private land available near project facilities that can be purchased by the Project in case land-for-land option is chosen by APs, particularly the vulnerable. 4 The RAC will comprise representatives from APs, CBOs and NGOs, PMU, and other stakeholders. Appendix 10 45

Table A10.4: Resettlement Costs (PRs million)

Item STP Landfill Site Sewerage Storm Drain Network Permanent Land Acquisition 392.11 62.17 4.92 Compensation for Structure 0.80 162.18 10.22 Compensation for Crops/Trees 4.00 Compensation for Wells 3.18 Subsistence/Shifting Allowance 1.77 0.02 25.16 1.65 Registration Charges 15.68 9.98 0.67 Longer-Term Income Restoration 0.50 0.50 0.20 Cost of NGO Services 8.24 5.20 0.35 Contingencies 12.61 7.96 0.54 Total 438.89 0.02 273.15 18.55 NGO = nongovernment organization, STP = sewage treatment plant. Sources: Rawalpindi Development Authority and Rawalpindi Water and Sanitation Agency.

Table A10.5: Implementation Schedule

Activity Month 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Recruitment of NGO Development of RP Implementation Tools and RP Committee Formation Information Sharing, Consultations, and Disclosure Meetings Land Survey and Identification of Plots Census and Identification of Affected Persons Issue of Identity Cards Preparation of Land Acquisition Plan Compensation Payment and Resettlement Assistance Resettlement of Affected Persons Training (Income Restoration Activities) Takeover Possession of Acquired Property Internal Monitoring External Monitoring Handover of Acquired Land to Contractors for Construction Start of Civil Works NGO = nongovernment organization, RP = resettlement plan. Sources: Rawalpindi Development Authority and Rawalpindi Water and Sanitation Agency.

F. Monitoring and Evaluation 10. A project implementation review committee comprising officials of the implementing agencies and union administrations, will monitor the progress of all project components monthly. The committee will develop detailed monitoring indicators. The EA, through the project director, with assistance from Resettlement Officers, field level staff, and NGOs will be responsible for monitoring the progress of resettlement activities. The monitoring reports will be submitted to ADB’s Pakistan Resident Mission for review.

11. A panel of experts will be engaged by the EA to evaluate RP implementation independently, and provide an independent and objective perspective on all matters pertaining to the implementation of the RP. Independent evaluation will be undertaken every 6 months during the project implementation period. The panel will be selected by the EA, with advice and concurrence from ADB. Evaluation reports will be sent to ADB for review.

46 Appendix 11

SUMMARY POVERTY REDUCTION AND SOCIAL DEVELOPMENT STRATEGY

A. Linkages to the Country Poverty Analysis

Is the sector identified as a national Yes Is the sector identified as a national priority Yes priority in country poverty analysis? in country poverty partnership agreement? No No Contribution of the subsector to reduce poverty in Pakistan Pakistan faces twin challenges of reviving economic growth and reducing poverty. The incidence of poverty in Pakistan has risen slowly but steadily from 20.0% to 32.1% over the past 15 years. At present, only 63% of the country’s population has access to safe drinking water (83% in urban areas and 53% in rural areas). Proper sanitation facilities are available to only 39% of the total population (59% in urban areas and 27% in rural areas). Poor access to water supply and sanitation is often associated with poor health conditions. Consolidated (federal and provincial) expenditures on water supply and sanitation have actually decreased over the last 5 years, both in nominal terms and as percent of gross domestic product (GDP). As a result, extension in public water supply and sanitation facilities have failed to keep pace with the growing needs of the rising population.

The Government of Pakistan considers poverty alleviation to be a high priority. In 1999, it launched stabilization and a broad-based program to address severe macroeconomic imbalance, leading to increased incomes, thereby reducing poverty. The proposed strategy focuses on poverty alleviation. In particular, it includes upgrading family welfare and improvement in drinking water supply and sanitation conditions to increase sustainable access to safe drinking water and basic sanitation in rural and urban areas. The Government is encouraging local communities and nongovernment organizations (NGOs) to actively participate in planning, designing, implementing, operating, and maintaining water supply and sanitation schemes. The function has already been devolved to the tehsil (subdistrict) municipal administration (TMA) level under the Punjab Local Government Ordinance, 2001.

The Poverty Partnership Agreement between the Government and the Asian Development Bank (ADB) reflects Government’s vision for poverty reduction and key priorities of ADB’s Country Strategy and Program Update 2006-2008. ADB’s country strategy for Pakistan emphasizes water supply, sanitation and urban development, and the need to target the poor to reduce both poverty and inequality. The Government has agreed that long- term poverty reduction requires sharper focus on good governance, considerable allocation for social sectors, and improving basic social services to enhance human development. The Poverty Partnership Agreement also focuses on attainment of the Millennium Development Goals (MDGs). ADB aims to assist the Government in making devolution a success and improving service delivery and municipal services, with particular focus on services for the poor.

The Project will provide water to poor communities through piped distribution systems or standposts. The environmental sanitation component will provide for expanded sewerage pipe networks to low-income areas. The system will be designed to give the urban poor adequate access to improved sanitation. The expected benefits are improvement in public health situation and reduction of pollution of groundwater. Improved solid waste management and recycling, preferably with the involvement of community-based organizations, NGOs, and union councils (UCs) will also generate employment for the urban poor (especially women) who work as sanitary workers. Downstream of the Soan River, recycling of treated effluent for irrigation will help improve agriculture production and enhance poor farmers’ income.

The availability of safe drinking water and improved sewerage system will improve quality of life and the environment in urban areas. Improved public health will increase the productive capacity of the people, many of whom are poor.

B. Poverty Analysis Targeting Classification: Targeted intervention

What type of poverty analysis is needed? Until recently, Punjab’s economy had been based largely on agriculture. However, as growth prospects for agriculture are limited—largely due to the restricted availability of water suitable for irrigation—the province is developing toward a more urban economy and faces high-income inequalities and entrenched poverty with the Appendix 11 47 formation of slums and squatter settlements, and urban environmental degradation. The main factors that have contributed to the rapid rise in overall urban populations are migration from rural to urban areas and extension of municipal boundaries.

Urban poverty in Rawalpindi is multifaceted, ranging from underemployment to limited or inadequate poor quality water supply, lack of sanitation facilities (with no sewerage system), limited solid waste disposal, and rundown housing. A socioeconomic survey in five selected localities of Rawalpindi indicates that about 35% of households, with an average family size of 6.5 persons, have a monthly income less than PRs6,000 ($100) per month, which indicates per capita income far below the poverty line of $1.00 a day. The percentage of poor households among sample households is almost 50% in two localities (Dhok Ratta Amral and Dhok Illahi Baksh), where a significant number of households are engaged in casual labor.

The survey also indicates that about 53% of households sampled receive piped water supply for 2–4 hours, and about 35% for even less than 2 hours. In Dhok Ratta and Pirwadhai, water supply pipes are leaking and community taps are located far from households. In the sample area, about 55% of water carriers are women, while the rest are young boys or men. About 49% of households make two trips per day to bring water, while 28% make more than two trips. The supply of water is intermittent and the amount of water available is lower than requirements. In addition, water quality for drinking water in all the surveyed localities is below World Health Organization (WHO) standards, mainly due to bacteriological contamination as a result of poor sanitation facilities, or the location of tubewells close to main sewage and storm water channels.

The coverage of sewerage system and storm water drainage system in Rawalpindi is limited. About 64% of sample households do not have sewerage facilities and domestic wastewater is carried in open drains to nearby storm water channels. These drains are often clogged with plastic bags and solid waste and streets are often flooded with sewerage water. In Rawalpindi, only 36% of sampled households have access to adequate sewerage systems.

In almost all the surveyed localities, with the exception of Satellite Town, there is no solid waste collection or disposal system. Due to the absence of an institutionalized disposal system, entire solid waste is thrown in drains and/or open lots, attracting flies and rodents. Households suffer from various degrees of environmental pollution, through disposal of wastewater in open drains and flooding from drains in residential neighborhoods. There is no wastewater treatment plant in Rawalpindi and raw sewage is disposed in storm water channels that ultimately fall into Soan River, adversely affecting the population downstream and their source of livelihood— agriculture and fisheries.

The shortage of good quality water and inadequate sewerage systems has an adverse effect on public health and the urban environment. The survey in selected project areas on the occurrence of cases of diarrhea, hepatitis, and typhoid suggests that almost 40% of all reported diseases and 30% of all deaths in Rawalpindi are attributed to Ecoli—bacteriological and contamination of drinking water. The incidence of these illnesses is much higher for poor people. Consistent press reports about the incidence of cholera, typhoid, hepatitis, and dysentery cases support these figures.

Community Benefit Monitoring and Evaluation Report on the ADB-assisted Punjab Rural Water Supply and Sanitation Project shows that provision of safe water and adequate sanitation have considerably reduced water-borne diseases from 20% to 3% and expenditure on medicines is reported to have fallen from PRs339 per household to PRs180. In addition, the number of children attending school has increased due to increased water services to households. It is expected that the public health situation will improve under the proposed Project, which would contribute to reduction of water-borne diseases. Household medical expenses could be minimized and the savings would improve family welfare. A direct positive contribution of the Project towards poverty reduction will be through employment generation in civil works. The Project will also ensure that poor households in low-income areas have access to basic urban services and resources under the Project. The Project will address peoples’ needs through: (i) provision of piped water supply; (ii) provision of sewerage systems; (iii) improved access to service providers through sub-offices or complaint offices; (iv) better sanitation through provision of public toilets; and (v) good quality food through better agricultural production in downstream areas and improved quality of meat from the centralized modern slaughterhouse.

48 Appendix 11

C. Participation Process

Is there a stakeholder analysis? Yes No

Is there a participation strategy? Yes No For the planning of the proposed components and subcomponents of the Project, a participatory approach was adopted through consultation with the relevant stakeholders. The NGOs, community-based organizations (CBOs), private and public sector representatives, and citizens attended three consultative workshops held during project preparation. During project implementation, lessons learned from other successful locally-funded projects (, Hyderabad) regarding community mobilization and participation of local communities in developing urban infrastructure and provision of urban basic services, will be used to plan and implement community-level services.

To strengthen community participation in implementing project activities, the Project will adopt the following measures: (i) specific zone (ward)-level committees composed of representatives from union administrations (UAs) and CBOs will be formed to manage solid waste collection, (ii) NGOs/CBOs will be selected to conduct training for planning of sanitation and other activities in their areas, (iii) public service committees will be formed to monitor the privately operated toilets constructed under the Project, and (iv) finance management committee will monitor outcomes and the impact of budget and policy decisions. Community-level committees will be formed to conduct an awareness campaign for solid waste management in their wards and neighborhoods. D. Gender and Development

Strategies to maximize impacts on women: Over the last three decades, some headway has been made in improving women’s situation in Pakistan. However, Pakistan ranked 127 out of 162 in the 1999 gender-related development index and 100 out of 102 countries in the gender empowerment measurement. Women, especially poor women, are generally vulnerable to . Specifically, poor women suffer low social status and limited access to economic options and social services. In recent years, there has been a significant attempt in promotion and use of gender-sensitive approaches in water and sanitation programs at the international level. Given that women are mainly responsible for the collection of water, family health maintenance, and taking care of sick household members, the lack of adequate water supply facilities and sewerage systems is a great burden on them. Recognizing this situation in the project areas, women’s active participation is encouraged in planning community-level water sanitation and sewerage services, local level governance, and project implementation.

Gender Plan. The Project proposes to enhance the participation of women from the community and women councilors in municipal activities. The Project will facilitate strengthening the role of women councilors in Rawal Town (RT) and UAs to work with the project management unit (PMU) and plan water and sanitation services at the ward level. The design features of the Project include the following activities.

Community Level. Women groups will be formed at the ward/neighborhood level by participant NGOs/CBOs for social mobilization activities: (i) women councilors from wards/communities will be involved with the PMU in planning infrastructure for water and sanitation services, (ii) women from poor households will be encouraged to introduce recycling and composting, (iii) local sanitation groups will be formed with women from the community, (iv) employment opportunities will be created in civil works for interested poor women; (v) women’s groups will be represented in managing new facilities, (vi) women will be the primary beneficiaries of the public health and hygiene campaign, (vii) women community volunteers will be developed for the health and hygiene campaign, (viii) employment will be created for poor women (at least 20%) in the community-based solid waste management program.

Local Governance. To ensure local governance at RT and UA, following steps will be taken: (i) capacity building training will be provided to the elected women representatives of RT and UAs on their role and responsibilities (if they have not yet received training) and planning community water and sanitation facilities; (ii) a gender sensitization training workshop will be provided for men and women councilors from UAs for better collaboration in preparing the plan of activities for their ward, UA, and RT; (iii) community women leaders and women councilors in their ward/community-level planning committee will be involved in ward level planning; (iv) women councilors will be included in various users groups, such as lane-level sewerage management committees, solid waste management groups, and public health awareness groups.

Appendix 11 49

In the PMU, women officials will be recruited as professional staff. A national consultant on gender and development will be included in consulting services to develop a detailed gender action plan to operationalize the gender plan. The detailed gender action plan will include budget, implementation schedule, and resource requirement. Gender disaggregated monitoring indicators and a database will be developed (i) for the management information system (MIS) and; (ii) at the UA and RT level (a) to monitor men and women beneficiaries of the Project and, (b) participation of men and women councilors of local bodies in planning and implementation of the Project.

Has an output been prepared? Yes No E. Potential Issues

Significant/ Strategy to Address Issues Plan Item Not Significant/ Required None

Resettlement Significant Land acquisition for the proposed sewage treatment Full plant (STP) site will affect 197 landowners and Not significant 36 tenants/agricultural workers. The Project is Short designed to minimize land acquisition and None None resettlement impacts. Compensation will be provided according to ADB guidelines and is reflected in the Project. Affordability Significant Ensure by financial analysis. Yes

Not significant No

None Labor Significant The Project will ensure fair wages for laborers in Yes construction works, as well as equal wages for men Not significant and women laborers for same types of construction No

work. No child labor will be used for construction None works.

Indigenous Significant There are no indigenous people in the project area. Yes Peoples Not significant No

None

Other Risks Significant Low-income communities might not have adequate Yes and/or access to water sanitation services due to lack of Not significant awareness among the authorities for services in poor No Vulnerability communities. Community participation and None involvement of local women leaders in community Local-level groups for local-level planning under the Project will planning is ensure services to low-income areas. incorporated in the project design.

50 Appendix 12

FINANCIAL ANALYSIS

A. Methodology and Approach

1. The financial analysis of the revenue-generating subprojects in the Rawalpindi Environmental Improvement Project (the Project) was undertaken in accordance with the following Asian Development Bank (ADB) guidelines: (i) Framework for the Economic and Financial Appraisal of Urban Development Sector Projects; (ii) Guidelines for the Preparation and Presentation of Financial Analysis of Projects; (iii) Guidelines for the Financial Governance and Management of Investment Projects Financed by the Asian Development Bank; and (iv) Guidelines for the Economic Analysis of Water Supply Projects.

2. For financial analysis, financial internal rates of return (FIRRs) were calculated for water supply, solid waste management, and sewerage and drainage subcomponents. To assess the Project’s sustainability, the overall performance of the operating enterprise—Rawalpindi Water and Sanitation Agency (WASA) and Rawal Town (RT)—were also reviewed.1 Projected income and expenditure statements and cash flows were prepared for “without Project” and “with Project” scenarios. FIRRs were calculated over 25 years. Residual value has been assumed in the last year and FIRRs have been computed on an after-tax basis.

B. Financial Internal Rates of Return

3. FIRRs were calculated for water supply, solid waste management, and sewerage and drainage subcomponents. These were compared with the weighted average cost of capital (WACC) of 5%.2 The financial viability of the proposed subcomponents were assessed from the perspective of operating entities (WASA and RT), rather than the economy as a whole.

4. All subcomponents revenues and costs are in constant 2004 prices and on an incremental basis. Investment costs are derived from estimated costs less interest during construction. Revenue estimates are based on current consumer user charges and their willingness to pay for improved services, based on socioeconomic surveys and community consultations undertaken during the project preparatory technical assistance (PPTA). Survey results indicated a low willingness to pay, relative to affordability levels, which reflects beneficiaries’ perception of RT’s and WASA’s lack of capability for effective service delivery. It has been assumed that user charges will not be increased during the construction period. After completion of project works, user charges will increase by 10% after every 5th year with the exception of the water tariff, which has been proposed to increase by 2% per year so that clean water availability will remain within the affordable level for the large poor segment of society.

5. FIRRs have been calculated conservatively, assuming that the collection efficiency of user fees is only 80%, project implementation takes 8 years instead of the planned 5 years, and, in the case of WASA, non-revenue water remains at 50%. Standard sensitivity tests were undertaken to assess the robustness of the FIRR calculation.

1 On 24 June 2005, the of Punjab declared eight tehsils (subdistrict) of district Rawalpindi as a city district to be named as City District Rawalpindi (CDR). Rawal Town (RT) is one of the towns of CDR, which covers Rawalpindi city. According to the Punjab Local Governance Ordinance (PLGO), 2001, CDR has overall responsibility for urban municipal services, including WASA and RT. WASA is responsible for water supply and sanitation, and RT is in charge of solid waster management. For financial analysis purposes, WASA and RT have been analyzed independently, and RT terminology has been used for the former tehsil municipal administration (TMA). 2 The WACC is 5%, based on funding arrangements and respective weights. Appendix 12 51

1. Solid Waste Management

6. Estimates of capital costs for the solid waste management component are based on planned investments for equipment, transport vehicles, land for landfills, and civil works. Capital cost, operations and maintenance (O&M), and replacement costs are based on 2004 prices. Other assumptions are: (i) salaries of incremental staff were included;3 (ii) incremental O&M expenses are 5% of the component cost (excluding land), while diesel and O&M of vehicles are assumed to be 15% of the vehicle cost; (iii) additional vehicles will be procured during the second and fifth years of the implementation period; (iv) vehicles will be replaced every 10 years; and (v) the residual value of vehicles, based on remaining life at the end of the implementation period, will be treated as cash inflow.

7. Average monthly user charges per household (based on actual survey results for willingness to pay) were estimated at PRs25 (low-income groups), PRs35 (middle-income), and PRs50 (high-income). The rates are within the affordability and willingness to pay of households, which is about PRs25 to PRs50 per household monthly. Population projections are based on the 1998 census. Household size is seven persons.

8. Financial projections using cost and revenue assumptions indicate that operation of the solid waste management subcomponent is financially viable. Specifically, cash flows generated by the Project are sufficient to meet all operating cost requirements. Full cost recovery is achieved and resulting FIRRs are higher than the WACC (5% rate of return). The FIRR of the solid waste management subcomponent has been calculated as 7.33%

2. Water Supply

9. The water supply subcomponent comprises water source development (tubewells and pumps), water transportation and communal water points, transmission mains and distribution systems, and storage. Currently, WASA is charging flat tariff rates for residential and commercial consumers. The existing tariff for house connections ranges between PRs55 per month for a 5-Marla (21 square meters) plot to PRs500 per month for a 2-Kenal (840 square meters) plot. While commercial connections are charged at PRs100 per month for social welfare institutions, up to PRs5,000 per month is being charged for gas stations.

10. It has been assumed, as planned under the Project, that all water supply services will be metered and payment for water use will be made on the basis of the volume consumed. No flat rate tariffs will be allowed. The tariff structure will reflect government policies on water conservation and lifeline rates for the urban poor. Therefore, the water tariff has been calculated to ensure the sustainability of the proposed Project and affordability for low-income groups. An affordable water tariff rate has been estimated based on a demand management study, whereby the average tariff must be equal to the average incremental financial cost (AIFC), which has been calculated at PRs8.34 per cubic meter (m3). Tariff rates for low-, middle-, and high-income groups have been calculated for cross subsidization.4 These tariff rates have been applied to estimate incremental revenue generated.

11. The government of Punjab (PG) has decided that the water connection fee will be reduced from PRs1,500 to PRs500 for domestic consumers and from PRs3,500 to PRs1,500 for commercial consumers in order to expand the consumer network and reduce illegal connections.

3 Staff include those working on collection and disposal of solid wastes, such as those working with tractors with bucket loaders at landfills, or with tractors for container carriers and transfer trailers. Staff include drivers and sanitary workers at sites such as landfills, transfer stations, and container carriers. 4 Low-income group: PRs4.38AIFC=8.34. 52 Appendix 12

The water supply tariff is assumed to increase by 2% per annum. O&M costs include expenditures for salaries, power, chemicals, spare parts, and miscellaneous expenses. Only incremental revenues and O&M expenditures were included in calculating the FIRR. Since WASA recently completed a consumer survey and updated the consumer database, several thousands of illegal connections have been legalized. Furthermore, concrete measures (such as organization development) have to be taken to enhance revenue collection efficiency and comply with the agreed tariff plan. Based on these developments and assumptions, the FIRR for the water supply project was calculated at 6.21%, which is greater than the WACC.

3. Sewerage Component

12. Average monthly user charges per household (based on actual survey results for willingness to pay) have been estimated at PRs35 (low-income groups), PRs100 (middle-income), and PRs200 (high–income). These have been increased by 10% after every fifth year in order to cover O&M of sewerage. The rates are within households’ affordability and willingness to pay. The FIRR has been estimated at 2.72% based on the conservative assumption that only 60% of targeted connections would be made, considering lessons learned in earlier projects in Pakistan such as Second Urban Development Project in the North-West Frontier Province (NWFP).

4. Sensitivity Analysis

13. All subcomponents are considered financially viable, based on cost and revenue assumptions. Computed net revenues and the FIRR for the base case compare favorably with the WACC, with the exception of the sewerage project. The FIRR base case ranges from 2.72% for sewerage and storm water drainage to 7.33% for the solid waste management subcomponent. The FIRR for the water supply subcomponent was 6.21%. Table A12 shows the sensitivity scenarios and FIRR under various scenarios.

Table A12: Financial Feasibility (FIRRs) (%)

Assumption Water Supply Solid Waste Sewerage/Drainage Base Cost 6.21 7.33 2.72 Sensitivity Analysis Revenue Decreased by 10% 4.00 5.76 1.76 Cost Overrun by 10% 4.2 5.91 1.85 Revenue decrease + cost overrun 1.6 4.26 0.88 Source: ADB estimates.

C. Financial Position of Rawal Town

14. In addition to the financial analysis of subcomponents, RT’s financial sustainability was assessed. RT budgets, actual revenues, expenditure accounts, and taxation schedules were reviewed.

1. Revenues

15. Revenues include both current and capital revenues under various revenues headings. Taxes include the urban immovable property tax (UIPT), tax on transfer of immovable properties, and tax on television and/or cable. Property and enterprise includes rent from municipal properties, and activities such as transport stands, slaughterhouses, and cattle markets. The octroi (abandoned local import taxes) compensatory grant, which forms a major part of municipal revenues, has been shown separately.

Appendix 12 53

2. Rawal Town Current Revenues

16. The major revenue of the newly devolved RT is from building fees, which contributes about 13.28% of total revenue, followed by rent of land/property in the city area (about 4.65%), and cattle mandi and the general bus stand (5.32%). The share of current grants in lieu of octroi tax is 33.57% of total income generated and UIPT was 21.25%. At present, RT is dependent on subsidies and grants from PG to meet its expenditure. Different items regarding source of income and expenditure are analyzed to identify problem areas responsible for the organization’s weak financial position. Under the devolution plan, City District Rawalpindi (CDR), through WASA and RT, will play a vital role in providing urban services in Tehsil Rawalpindi. The financial profile of RT and WASA has been formulated to ensure their sustainability, enabling them to provide urban services without facing financial constraints.

17. A review of income and expenditure accounts, as in the RT’s Annual Budget 2003–04, indicates that income generated from RT operations comprises building fees of PRs50.0 Million (13.28%), tax on transfer of immovable property of PRs23.5 million (6.24%), rent of land/property of city area PRs17.50 million (4.65%), and cattle mandi and general bus stand fee at PRs20.0 million (5.32%). It has been observed that the low level of RT income may be attributed to the following factors: (i) Taxes, rates, and fees for various categories have not been revised since 1998. (ii) Untrained and inefficient staff has negatively affected revenue collection efficiency. (iii) According to the socioeconomic survey, about 90% of people are not satisfied with RT operations so they are reluctant to pay user charges (iv) Further recovery from rented shops and property is quite low and most shopkeepers have not paid rent since the inception of RT.

18. A review of the RT’s development budget shows that out of the total budget of PRs177.52 million, about PRs81.60 million (46.02%) has been allocated for payment regarding development works arrears. A sizeable amount, PRs60.00 million (33.80%), has been allocated for the salary and expenditure of education, health, and library staff, although PLGO 2001 states that this is the responsibility of the district government. The salary of RT staff is PRs260.00 million (72.23%) of non-development budget allocations.

3. Improvement of Rawal Town Financial performance

19. PG has agreed to comply with the following recommendation. (i) In order to enhance RT’s income, a comprehensive survey must be undertaken to collect census data regarding rented shops and property. (ii) All taxes, rents, and fees must be adjusted based on the escalation of energy and gasoline charges, which are subject to frequent increases. (iii) Capacity building of institutional and financial management staff is required to enhance the working efficiency of RT. (iv) Arrears in development works may be deferred until RT become sustainable. (v) Expenditure of education, health, and library staff may be excluded from the RT budget and transferred to CDR, in accordance with PLGO 2001.

20. The projected income statement and fund flow statement for RT have been prepared. The main assumptions for construction of the income statement and fund flow statement are stated below.

21. Urban Immovable Property Tax. Information has been obtained from the: (i) PG excise and taxation staff at CDR, and (ii) Provincial Finance Department. The higher figure for 2003–04 54 Appendix 12

has been taken as the base for the UIPT. This has been increased by considering increases in the number of properties in future. A departmental survey by the Excise and Taxation Department is conducted every 5 years, which results in a major increase in the assessment/collection of UIPT. In line with the usual results of these surveys, UIPT projections have been increased by 25% every fifth year, although some cities have increased from 50% to 100%.

22. Tax on Transfer of Immovable Properties. The actual revenue collection contract has been taken as the base for tax on transfer of immovable properties (TOTP), which has been increased by 25% per year. The rates for levy of stamp fees and registration fees is fixed/revised by district revenue authorities every 3 years, which results in an increase in TOTP. Projections of TOTP have been increased by 25% in the fifth year to give the effect of this increase in property value, although the actual increase is usually much higher.

23. User Charges. Budgeted user charges of 2003–2004 have been considered as the base line. User charges have been increased at 10% per year until 2015, after which they have been increased by 3% per year.

24. Inter Government Transfers. Following considerations have been made regarding the inter government transfer: (i) The entire amount of grant for salary and non-salary expenditure of staff of the decentralized departments has been considered to be utilized for RT operations and not for the RT area; (ii) development grants received by RT have been allocated on a per capita basis to the population of the RT area, the actual development grant received by RT for 2003–04 has been taken as the base, and this has been increased by 10% per year; (iii) the actual amount received by RT as octroi compensatory grant during FY2004 has been considered as the baseline and has been increased by 10% per annum—this compensates a revenue source of the defunct Rawalpindi Municipal Corporation (RMC), so it has been shown separately in these projections.

25. In the “with project cash flow projections”, incremental salaries and O&M expenditure (including repairs and utilities) for the proposed interventions have been included in the expenditures. The cash flows show that RT will have sufficient cash to meet all its expenditures as well as a surplus. Actual results would be better because of the institutional development and capacity building component of the Project. A number of recommendations with action plans have been made for revenue enhancement, expenditure control, transparency, and good governance: (i) including display of unit costs to improve transparency, (ii) improvement in budgeting, records, and (iii) monitoring of O&M expenditures to reduce costs and wastage.

D. Financial Position of WASA

26. Following the creation of WASA in 1992, assets relating to water and sewerage of the defunct RMC were transferred to WASA, its staff was trained, a management information system (MIS) was established and made functional, and other major actions were taken satisfactorily. It has been observed that actual income generated through WASA’s sources was in excess of estimated income for FY2001 and FY2002 due to WASA’s increased efforts in initiating quarterly billing and establishing a well-organized bill distribution system. In addition, in order to improve arrears recovery, an enforcement section was created in WASA with the assistance of the senior special magistrate and police contingent. However, during 2003-2005, most WASA performance indicators have worsened, including financial management, resulting in reduced efficiency in all areas. This is mainly due to: (i) frequent changes in upper management, (ii) high turnover of trained staff, (iii) appointment of inexperienced and less qualified staff in designated disciplines, and (iv) above all, lack of follow-up by the PG for sustained WASA operations.

27. During the phase 1 project, the collection efficiency of water and sanitation bills increased from 51% in FY1999 to 61% in FY2001 but decreased to 44% in FY2004. Arrears of PRs28.4 Appendix 12 55 million in FY1999 increased to PRs77.4 million in FY2003. WASA has recently launched a serious campaign to collect and reduce these arrears. Recovery staff has been increased, inefficient staff removed, and complaint cells are now fully functional. Agreement has been reached that WASA’s collection efficiency will be improved to 80% by March 2006 and non-revenue water will decrease from the current estimated 40% to less than 15% by September 2006. To achieve these targets, actions related to recruitment of qualified staff, establishment of three additional complaint cells, and a more aggressive disconnection policy will be implemented. It has been agreed that WASA will outsource collection of water bills during FY2007.

E. Policy Guidelines for Sustainability of WASA

28. Based on WASA budget analysis and interviews conducted with relevant authorities, the following policy has been approved by the PG for the improvement of WASA’s financial performance. WASA will be staffed with competent trained management and employees committed on a long-term basis to public service provision. WASA management will be given autonomy to manage without outside interference. WASA shall publish for the public an annual report on its operations and development each year. A structured and systematic program of organization development will be implemented for WASA.

1. Water Supply and Sanitation Policy

29. The long-term goal is that tariffs will cover O&M costs, capital costs, and debt servicing for all water supply and the O&M costs of all sewerage. WASA will meet O&M costs for water supply and sanitation through enhancement of collection efficiency and increase in tariffs by the end of 2006.

30. Tariffs will not be imposed beyond the affordability of consumers and they will be gradually increased with increase in the level of service. WASA will try to become a self-sustainable organization. WASA is making all efforts to improve collection efficiency and revenue collection has increased substantially in 9 months, from January to September 2005.

31. Collection efficiency of tariffs must not exceed the equivalent of 3 months of billings. Disconnections for nonpayment will be enforced. Privatization and user-friendly computerization of billing and collection will be introduced. Billing and collection will be conducted on a monthly basis. WASA has already computerized its revenue and accounting system and computerized bills are being issued to consumers. However, monthly billing requires more resources.

32. All water supply services will be metered and payment for water use will be made on the basis of volume consumed. No flat rate tariffs will be allowed. The tariff structure will reflect government policy on water conservation and lifeline rates for the urban poor. These reforms will be fully implemented by the end of 2006.

33. Installation of water meters is in progress out of 19,000 domestic and commercial meters procured under the phase I project and 10,000 water meters have already been installed. WASA has recently started billing based on meter reading for metered supply. However, all connections will be completed upon procurement and installation of another 50,000 meters under the Project. 56 Appendix 13

ECONOMIC ANALYSIS

A. Introduction 1. The proposed Rawalpindi Environmental Improvement Project is aimed at increasing urban services such as water supply, sewerage, drainage, and solid waste disposal in the project area. Economic analysis has been developed to provide a framework to evaluate all aspects of project activity in a coordinated and systematic way. The purpose of the economic analysis is to foster better allocation of scarce resources. Analysis has been undertaken separately for each of the following five project components: water supply, sewerage facilities, sewage treatment plant, storm water drainage, and solid waste management. Standard methodology has been used. Under the Project, all water supply services will be metered and payment for water use will be made on the basis of the volume consumed—a major innovation in managing urban water supplies in Pakistan. This will involve a significant change in tariffs, which could significantly reduce water use. During project implementation, an international consultant with expertise in public economics will be appointed to reassess the tariff policy, recommend improvements based on that assessment, and update demand forecasts based on projected tariffs. The updated demand forecasts may identify potential cost savings, increasing the actual net benefits of the Project relative to estimates reported in this appendix.

B. Economic Benefits 2. Current and future water demand for domestic and nondomestic consumers of the Rawalpindi Water and Sanitation Authority (WASA) areas has been assessed on the basis of 28 gallons (gal) per capita per day; demand for adjacent rural localities is estimated at 31 gal. Future water supply and sewerage connections for domestic and nondomestic categories have been estimated based on the population of the above areas.

3. Savings in health expenditure due to improvement of public health and reduction in the incidence of water- and sewerage-borne diseases has been assessed for the Project.

4. The total billing of receipts against urban services has been computed on the basis of the projected number of connections under “with Project” and “without Project” conditions. Collection efficiency was used to establish a summary of total water receipts under “with Project” and “without Project” conditions. The difference is taken as a measure of the incremental project benefits.

5. The sewage treatment plant will produce 199,000 m3/day of treated wastewater (2015) per year, which needs to be adjusted for an estimated 15% conveyance loss in bringing it to the fields. A value of PRs4,850 per 123 m3 of water has been used to calculate the economic benefits of the sewage treatment plant. The benefits foregone to the economy due to the construction of the sewage treatment plant have been added to the operation and maintenance (O&M) cost for the economic analysis.

6. The improvement of drainage, solid waste management facilities, and other urban services would result in enhanced property value in the city area. The incremental share of the property tax for WASA and tehsil municipal administration (TMA) has been computed on the basis of property tax assessment for various categories in the area. Sanitation tax received by TMA has also been tabulated.

C. Economic Cost 7. The analysis uses the domestic price numeraire, excludes taxes and other market distortions, includes standard conversion factor, and is undertaken in constant May 2005 prices, and benefits are non-tradable in nature. The capital costs for all components are estimated at PRs4,587 million. The total investment cost in economic terms is PRs4,209 million. Appendix 13 57

D. Results of Economic Evaluation

8. To judge the economic viability of the Project, economic indicators such as net present value (NPV), benefit cost ratio, and economic internal rate of return (EIRR) have been calculated. The economic analysis will guide the Executing Agency on implementation of similar projects in the future. The results assume a 12% discount rate as indicated in Table A13.1. The results of the urban services projects are economically viable as the EIRRs for the subprojects fall within an acceptable range for social sector projects.

Table A13.1: Results of Economic Analysis

Sewage Economic Water Overall Sewerage Treatment Drainage SWM Indicators Supply Project Plant Net Present Value 498.9 50.5 329.6 63.1 194.7 1142.4 (PRs million) Benefit/Cost Ratio 1.99:1 1.03:1 1.3:1 1.45:1 1.8:1 1.3:1 EIRR (Base Case) 21.6% 12.4% 15.8% 16.8% 21.1% 15.8%

EIRR = economic internal rate of return, SWM = solid waste management. Source: ADB. 2003. Technical Assistance to the Islamic Republic of Pakistan for Rawalpindi Environmental Improvement Project. Manila.

E. Switching Values and Sensitivity Analysis

9. The results of the analysis above have been computed on the basis of certain assumptions. Alternate analysis has therefore been undertaken by varying the assumptions and the percentage increase/decrease in costs and benefits to achieve an EIRR of 12% have been computed in Table A13.2.

Table A13.2: Sensitivity Analysis/Switching Values

Sensitivity Water Sewerage Sewage Drainage SWM Overall Analysis Supply Treatment Project Plant 10% decrease in project 20.0 11.1 14.2 15.4 19.3 14.3 benefit 10% increase in project 20.1 11.3 14.4 15.5 19.5 14.5 cost Simultaneous 10% 18.6 10.1 12.9 14.1 17.8 13.1 reduction in benefits and 10% cost overrun

Benefits delayed for 1 year 18.9 11.0 13.8 14.8 18.3 13.9 Switching values Costs (+) 100.7 3.3 30.8 44.7 84.2 33.0 Benefits (-) 50.2 3.2 23.6 30.9 45.7 24.8 SWM = solid waste management. Source: ADB. 2003. Technical Assistance to the Islamic Republic of Pakistan for Rawalpindi Environmental Improvement Project. Manila.

10. A review of the results above indicates that all projects are not sensitive to the assumptions made. Nevertheless, implementation decisions regarding public utility projects, such as provision of solid waste management, cannot be based purely on EIRR results. 58 Appendix 14

SUMMARY ENVIRONMENTAL IMPACT ASSESSMENT

1. An environmental impact assessment (EIA) was prepared for the proposed Rawalpindi Environmental Improvement Project (the Project). This summary focuses on the Project’s key environmental impacts and mitigation measures, and environmental management plans.

A. Key Environmental Impacts and Mitigation Measures

2. Water Quality. The groundwater table in Rawalpindi has sharply depleted over the past 20 years. Provision and rehabilitation of new tubewells will consider the overall impact that further water extraction would have on the local water table and existing tubewells. Detailed engineering design will undertake modeling and provide calculations to establish an optimal extraction rate. Selected aquifers should be suitable for water consumption and contain sufficient resources. Water testing will be undertaken in all cases by the Public Engineering Health Department. At the proposed sewage treatment plant (STP) site, lining and sealing of the base and sides of the ponds with high-quality, impermeable material will be ensured during the detailed design. Protection embankments will be provided to prevent flooding of the STP and sewage overflow from the stabilization ponds. Effluent from the proposed STP is designed to meet national standards. The Project includes a comprehensive water quality monitoring plan, and onsite laboratory facilities.1 Construction and operation of a larger slaughterhouse will generate additional biological waste, which, if improperly managed, could contaminate watercourses and spread communicable diseases. Collection, treatment, and disposal systems for different types of slaughterhouse wastes are an integral part of the design.2

3. Air Quality. Unmanaged air pollution from construction may create nuisance and, in extreme cases, adverse health impacts and property damage. Mitigation measures will include (i) operating construction vehicles within agreed time periods, (ii) covering wagons and skips, (iii) enclosing demolition sites, (iv) spraying dusty roads, (v) maintaining moisture on construction materials, (vi) covering transportation and garbage vehicles, (vii) controlling vehicle speed, (viii) selecting transportation routes to minimize impact on sensitive receptors, (ix) covering exposed soil or storage areas, (x) limiting excavation and land leveling works to rainy season, and (xi) minimizing the onsite storage time of construction material. All vehicles and construction machinery will be operated in compliance with prescribed vehicle emission standards and engines will be properly maintained to reduce air pollution from exhausts and oil spills.

4. The proposed landfill is expected to produce certain amounts of toxic gases3 that could create nuisance and health hazards for nearby communities if they are not appropriately controlled. Mitigation measures proposed include provision of proper soil cover, , plantation and an adequate gas control system. Methane monitoring will be essential, especially considering the close proximity of brick kilns. Odor from open stabilizations ponds will disturb

1 The STP is designed to treat municipal sewage from the city. Its operational efficiency and life could be seriously affected by the ingress of any industrial/hazardous waste. Although Pakistan’s environmental legislation prohibits such practices, implementation and monitoring are weak. Municipal authorities have committed to address this issue by preventing the issuance of sewage discharge permits, exerting tight control, and issuing heavy fines to violators. 2 Environmental monitoring and compliance mechanisms will be built into the structure of the slaughterhouse management and a waste management plan developed during detailed design will be endorsed and implemented prior to slaughterhouse operation. 3 Primarily methane and carbon dioxide; and small quantities of hydrogen sulfide, carbon monoxide, and ammonia as a result of solid waste decomposition. Appendix 14 59 neighboring areas when the STP is operating. Odor control measures will be based on an impact assessment during detailed design. Proper operation and maintenance of the plant—and mitigation measures such as tree planting and development of a greenbelt as a buffer zone— will be required to minimize odor.

5. Geology and Soils. Project design will ensure against soil erosion and damage to water quality resulting from construction works by immediate resurfacing and stabilizing newly exposed surfaces and cuts. Wherever possible, surplus earth and spoil material from excavation will be used to produce bricks, to mix with cement, or to build embankments for the STP site. Surplus material will be appropriately disposed of in designated areas. Engineering design and construction will include a detailed geological study that will carefully consider topography, faults, and any other soil characteristics to ensure safe practices. The contractor will provide satisfactory treatment and disposal of solid and liquid wastes at the work site and workers’ camps to prevent soil degradation, pollution, and abuse of natural resources. Adequate monitoring and mitigation of complaints from the community will also be undertaken.

6. A drainage system for upper areas of the STP will be developed during detailed design. Sludge will be sampled and tested to ensure compliance with agricultural standards and if toxic materials are found in the dry sludge, municipal authorities will consider safe underground disposal and the significant cost increases associated with treatment.

7. Change in Land Use. The proposed site for the STP is currently used to grow food crops and vegetables. The proposed STP requires a large surface area and will significantly change the present land use, degrade aesthetics of the area, and depress property value. These impacts will be permanent, but intensity will be minimized with suitable landscaping, planting, and vegetation.4

8. Ecosystems. Mitigation measures are required to limit sediment concentration during construction which can affect aquatic habitat, minimize construction noise which can disturb and birds, minimize impacts on human settlements, and minimize effects on ecosystems. The Project will significantly improve aquatic environments by treating sewage. Tree plantation at the proposed landfill and STP sites will be undertaken to enhance the appearance of the sites and provide a natural buffer. This will enhance soil retention and erosion control, providing an aesthetic and visual screen against sound, , toxic emissions, night glare, and pollution of watercourses. Preference will be accorded to indigenous species to ensure their adaptability to the natural ecosystem.

B. Environmental Management Plans

9. Environmental management plans (EMP) have been formulated for the proposed STP and landfill site. They will serve as guidelines for municipal authorities, selected contractors, and other parties involved in mitigating potential environmental impacts. Regular environmental monitoring will be carried out and results will be used to evaluate the actual extent of the environmental impacts, performance of the environmental protection, prevention and mitigation measures, compliance with rules and regulations, and overall EMP effectiveness. A comprehensive EMP will be prepared for every component during detailed design. During review missions, ADB will assess environmental compliance by the Project Management Unit (PMU), authorities, and communities. To ensure that contractors comply with the EMPs, the following specifications should be incorporated in all construction bidding procedures: (i) a set of

4 Land acquisition and resettlement impacts are discussed in Appendix 10. 60 Appendix 14 environmental prequalification conditions for potential bidders, (ii) a list of environmental items to be budgeted by the bidders in their proposal, (iii) environmental evaluation factors for bid reviewers, (iv) environmental clauses for contract conditions and specifications, (v) full EIA for compliance, and (vi) ADB’s environmental procurement guidelines.

10. The executing agency for the Project will be the Rawalpindi Development Authority. The PMU will be responsible for overall coordination, planning, implementation, and management of all project activities. Private contractors will execute subprojects and be responsible for implementing environmental mitigation measures. The PMU, with the assistance of the environmental consultant, will supervise and monitor compliance.5 During the operation phase, the TMA will be responsible for compliance and monitoring of environmental mitigation measures for the proposed landfill site and slaughterhouse, while the Rawalpindi Water and Sanitation Agency will ensure compliance and monitoring of mitigation measures for the remaining subprojects. The Punjab Environmental Protection Department may check at any point whether activities comply with national environmental legislation and monitor enforcement of recommendations for environmental mitigation measures as prescribed in the EIA.6

C. Conclusions

11. The Project will result in substantial environmental benefits including improved ground and surface water quality, as well as improved solid waste and sewage collection and treatment. This will significantly improve health and quality of life in Rawalpindi, as well as agriculture and fishing in the Soan River downstream.

12. Predicted adverse significant impacts have been identified. Some impacts are minor and easily mitigated, while others could potentially be significant, long term, and irreversible if mitigation measures and monitoring plans are not enforced. In this regard, draft EMPs and monitoring plans have been developed for finalization during detailed design based on recommendations documented in the summary EIA (Supplementary Appendix F). ADB will review the finalized EMPs. Since all project components are still at the preliminary design stage, the EIA and EMP need to be updated based on the final engineering design. The revised EIA and EMP will be submitted to ADB for concurrence.

5 As part of the consulting services provided to the PMU under this Project, an environmental engineer with good knowledge of water treatment, disposal, and solid waste management will be engaged on a full-time basis for the duration of the Project. In addition, environmental monitoring and occupational health and safety services training will be provided as part of the training requirements provided in the EMPs. 6 The government of Punjab is committed to providing at least one environmental engineer and one environmental for the STP every shift of operation. The engineer will undertake environmental compliance and day-to- day running of the wastewater treatment plant and effluent, the scientist will conduct discharge analysis and general environmental onsite monitoring.