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Dushanbe Water Supply and Sanitation Project: Economic Analysis

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Dushanbe Water Supply and Sanitation Project: Economic Analysis Dushanbe Water Supply and Sanitation Project (RRP TAJ 50437) ECONOMIC ANALYSIS A. Country Context 1. Tajikistan achieved lower middle-income status in 2015, fueled by an economic expansion that averaged 7.7% during the 1997–2004 post-war recovery phase. Economic growth from 2005 to 2016 continued but slowed to an average of 6.4%, dampened by the volatility in the international prices of cotton and aluminum, the country’s two primary exports. For the short to medium term, Tajikistan’s economic outlook is more positive because of the improved external environment, including the prices projected for major export commodities. On the supply side, industry will likely expand in 2018 and 2019 as construction on the Rogun hydropower project gains momentum and the mining sector recovers. In addition, the opening of the Tajik segment of a gas pipeline from Turkmenistan to the People’s Republic of China is expected to expand manufacturing. Agriculture will be less sluggish, moderately contributing to the economy, while higher remittances from overseas workers are anticipated to resume.1 2. Since 2000, Tajikistan’s record economic growth has been accompanied by significant poverty reduction. Poverty incidence fell from over 83% to about 47% from 2000 to early 2009, and from 37% to 31% from 2012 to 2016. However, while income poverty has decreased, the country has achieved less decrease in other poverty dimensions. The quality and accessibility of public goods and services have declined, with many residents expressing dissatisfaction.2 The National Development Strategy, 2016–20303 envisions achieving sustained and inclusive growth that is less susceptible to external shocks and capable of generating the jobs required by an increasing population. It aspires to address the multidimensional aspects of poverty and improve the living standards of its population by creating a more favorable environment conducive to increased investment in public infrastructure and services. The proposed project is strategically aligned with the development agenda of Tajikistan and has been designed to improve inclusive and sustainable access to safe and climate-resilient water supply and sanitation (WSS) services in Dushanbe, the country’s capital. B. Urban Context 3. Dushanbe, with a population of more than 800,000, is the capital and largest city of Tajikistan. Located at the confluence of the Varzob and Kafernigan rivers, it was a small village until the early twentieth century. Now transformed into a leading cotton textile center, Dushanbe also produces electrical appliances, leather goods, machinery, and food products.4 It is home to an increasing number of modern telecommunication, aeronautic, and other business corporations. Dushanbe’s local economy accounts for almost 20% of Tajikistan’s gross domestic product, making it attractive to rural migrants and returning migrant workers. Consequently, it has been exhibiting fast urban growth, which has put a strain on its already overburdened urban infrastructure and aging water supply and wastewater systems. 4. The State Unitary Enterprise Dushanbevodokanal (DVK) is the state-owned municipal enterprise responsible for WSS services in Dushanbe. DVK has had operational and financial difficulties since the post-Soviet era and has been struggling with systems that are obsolete, 1 ADB. 2018. Asian Development Outlook 2018: How Technology Affects Jobs. Manila. 2 The World Bank in Tajikistan. http://www.worldbank.org/en/country/tajikistan/overview. 3 Government of Tajikistan. 2016. National Development Strategy of the Republic of Tajikistan for the Period up to 2030. Dushanbe. 4 ADB. 2009. Tajikistan: Trade Facilitation and Logistics Development Strategy Report. Manila. https://www.carecprogram.org/uploads/Transport-and-Trade-Logistics-Tajikistan.pdf. 2 aging, and in disrepair. Its water supply services have been impaired by high nonrevenue water (NRW), estimated at nearly 65%, with technical system losses reaching as high as 35%. As a result, while most of the population of Dushanbe has access to piped water, many suffer from highly unreliable water supply with prolonged interruptions and very poor quality. The sanitation situation is characterized by a worn-out sewerage network, covering only about 60% of the city; a collector system with insufficient capacity, rendering it almost nonfunctional; and ineffective wastewater treatment caused by infrastructure deficiencies and high dilution of wastewater. The project will directly benefit 100,000 residents by improving their access to safer, more reliable, and climate-resilient water supply services. Rehabilitation of the almost nonfunctional south sewage collector will result in better hygienic and environmental sanitation, with reduced incidence of waterborne diseases for a section of the city that has a catchment area of 5,700 hectares comprising about 352,000 residents. C. Economic Rationale for Government Intervention 5. Tajikistan’s economic growth prospects and climate vulnerability underscore the need for public interventions to enable more inclusive and sustainable access to safe and resilient WSS services. The growing demand for these services is particularly evident in Dushanbe, which has a fast-growing urban population and an expanding local economy. The old and dysfunctional WSS of Dushanbe reflects market failure and lack of private sector involvement, necessitating government involvement. 6. The project will deliver inclusive and sustainable access to safe and resilient WSS services in Dushanbe. Output 1 will rehabilitate and expand climate-resilient WSS infrastructure. It will include (i) the rehabilitation of 17 wells, 22 pumps and second stage pump stations, water metering, chlorination, and other facilities at Kafernigan-I, including the installation of a supervisory control and data acquisition (SCADA) system; (ii) reduced NRW through the rehabilitation of a 17.2 kilometer (km) transmission main, the establishment of 18 district metering areas (DMAs) with about 5,200 smart meters installed, and the improvement of 57.5 km of distributional network in six DMAs with expansion of the system to serve 2,000 new households; and (iii) rehabilitation of 9.8 km of the south sewerage collector.5 Output 2 will focus on developing a sustainable business model for DVK as well as institutional strengthening. This will cover (i) a business model for DVK that strategically links technical, operational, institutional organizational restructuring, and human resources management; (ii) an accountability and incentive mechanism with a performance benchmarking matrix; (iii) a smart information management system for operational efficiency and seamless integration of the customer database, billing, collection, accounting, and reporting; (iv) an NRW management system operationalized with the installation of SCADA for new network management practices; and (v) customer care service standards and behavior change communication on water conservation and smart metering. D. Demand Analysis 7. The water supply project area is located in the Shomansur district and has a population of 100,000. Using an average annual urban population growth rate of 2%,6 the population in the 5 The expansion of the water supply system will be made possible with the interventions in output 1 to reduce NRW. By reducing NRW from 64% to 15% in the six selected DMAs and to 40% for the rest of the project areas, efficiency gains in water production and consumption will be achieved—enabling DVK to deliver more efficient water services to more unserved and underserved segments of the city’s population. 6 ADB. 2017. Tajikistan: Key Indicators for Asia and the Pacific 2017. Manila. 3 project area is projected to be 106,120 by 2025 and 154,588 at the end of the benefit period in 2047. Based on the pre-feasibility study funded by the Cities Development Initiative for Asia and consistent with the findings of the socioeconomic survey conducted during the transaction technical assistance 7(TA), DVK’s water supply system only services about 30% of the population in the project area. The rest of the population, while connected, has intermittent access, with water interruptions lasting for hours because the system is deteriorated. Non-incremental demand, which will replace the existing, more costly water supply as the population switches back from alternative sources to piped water, was calculated from the survey at 37 liters per capita per day (lpcd). Incremental demand, which pertains to the additional demand for water arising from the safer, more continuous supply of water, was assumed to be 80–160 lpcd. Incremental demand was also derived for the increasing urban population in the project area from 2025 to 2044, to be met by the additional water supply from the reduced NRW of DVK. For commercial and institutional users, it was assumed that their consumption would be equivalent to 30% of residential demand, a universally accepted approach for estimating non-domestic water consumption. 8. The population to benefit from the rehabilitation of the south sewage collector was forecast at 373,545 by 2025, reaching 544,185 by 2044. E. Cost–Benefit Analysis 9. The cost–benefit analysis of the project was undertaken in accordance with the relevant Asian Development Bank (ADB) guidelines.8 The analysis used cost estimates based on the preliminary engineering designs prepared by consultants under TA financed by the Cities Development Initiative for Asia. The estimated costs and benefits of the project were valued using
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