Annex 3. Economic and Financial Analysis

Document of The World Bank

Public Disclosure Authorized Report No: ICR00001637

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-46550 IDA-36200 TF-54224)

ON A

Public Disclosure Authorized LOAN IN THE AMOUNT OF US$20.0 MILLION AND A CREDIT IN THE AMOUNT OF SDR 15.9 MILLION (US$23.88 MILLION EQUIVALENT)

TO THE

REPUBLIC OF UZBEKISTAN

FOR A

BUKHARA AND SAMARKAND WATER SUPPLY PROJECT

Public Disclosure Authorized

December 17, 2010

Sustainable Development Department Public Disclosure Authorized Europe and Central Asia Country Department Europe and Central Asia Region

CURRENCY EQUIVALENTS

(Exchange Rate Effective August 23, 2010)

Currency Unit = Uzbekistan Sum (UZS) 1.00 UZS = US$0.000615385 US$1.00 = 1625.00 UZS

FISCAL YEAR January 1 – December 31

ABBREVIATIONS AND ACRONYMS

AM Aide-memoire BSSP Bukhara and Samarkand Sewerage Project BSWSP Bukhara and Samarkand Water Supply Project BVK Bukhara Water and Wastewater Utility/Bukhara City VodoKanal BYDR Base Year Data Report CAS Country Assistance Strategy CIS Commonwealth of Independent States EMP Environmental Management Plan FM Financial Management GoU Government of Uzbekistan HOA Housing Owners Association IBRD International Bank for Reconstruction and Development ICR Implementation Completion Report IDA International Development Association IDC International Development Consultancy IF Investment Fund IPR Independent Procurement Review ISR Implementation Status and Results Report JSDF Japan Social Development Fund KPI Key Performance Indicator LICUS Low Income Country Under Stress M&E Monitoring and Evaluation MMS Ministry of Macroeconomics and Statistics MoF Ministry of Finance MOFERT Ministry of Foreign Economic Relations and Trade MTR Mid-term Review O&M Operations and maintenance PAD Project Appraisal Document PCU Project Coordination Unit PDO Project Development Objective PIU Project Implementation Unit PO Private Operator PSP Private Sector Participation QAG Quality Assurance Group QEA Quality at Entry Assessment

QPR Quarterly Progress Report QSA Quality of Supervision Assessment SA Special Account SC Service Contract SVK Samarkand Water and Wastewater Utility/ Samarkand City VodoKanal TA Technical Assistance TTL Task Team Leader UzK UzKommunkhizmat UZS Uzbekistan Soum VK VodoKanal WB World Bank WTP Water Treatment Plant

Vice President: Philippe H. Le Houerou Country Director: Motoo Konishi Sector Manager: Wael Zakout Project Team Leader: Pier Francesco Mantovani ICR Team Leader: Pier Francesco Mantovani ICR Main Author: Roohi Abdullah

REPUBLIC OF UZBEKISTAN Bukhara and Samarkand Water Supply Project

CONTENTS

Data Sheet A. Basic Information ...... i B. Key Dates ...... i C. Ratings Summary ...... i D. Sector and Theme Codes...... ii E. Bank Staff ...... ii F. Results Framework Analysis ...... ii G. Ratings of Project Performance in ISRs ...... vii H. Restructuring (if any) ...... vii I. Disbursement Profile ...... vii 1. Project Context, Development Objectives, and Design ...... 1 2. Key Factors Affecting Implementation and Outcomes ...... 4 3. Assessment of Outcomes ...... 12 4. Assessment of Risk to Development Outcome ...... 16 5. Assessment of Bank and Borrower Performance ...... 17 6. Lessons Learned...... 19 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners ...... 20 Annex 1. Project Costs and Financing ...... 21 Annex 2. Outputs by Component...... 22 Annex 3. Economic and Financial Analysis ...... 31 Annex 4. Bank Lending and Implementation Support/Supervision Processes ...... 39 Annex 5. Beneficiary Survey Results ...... 41 Annex 6. Stakeholder Workshop Report and Results ...... 46 Annex 7. Summary of Borrower’s ICR and/or Comments on Draft ICR ...... 47 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders ...... 63 Annex 9. Key Performance Indicator ...... 64 Annex 10. Project Background ...... 66 Annex 11. Mission and TTL Trajectory ...... 70 Annex 12. List of Supporting Documents ...... 75 MAP ...... 77

A. Basic Information Bukhara & Samarkand Country: Uzbekistan Project Name: Water Supply Project IBRD-46550,IDA- Project ID: P049621 L/C/TF Number(s): 36200,TF-54224 ICR Date: 12/17/2010 ICR Type: Core ICR REPUBLIC OF Lending Instrument: SIL Borrower: UZBEKISTAN Original Total USD 40.0M Disbursed Amount: USD 43.3M Commitment: Revised Amount: USD 39.8M Environmental Category: B Implementing Agencies: BSWSP PCU, Uzkommunkhizmat Bukhara Water Utility Samarkand Municipal Water Utility Cofinanciers and Other External Partners: Government of Switzerland (Except for FOFEA)

B. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 09/02/1999 Effectiveness: 01/17/2003 01/17/2003 Appraisal: 02/26/2001 Restructuring(s): Approval: 03/19/2002 Mid-term Review: 10/09/2006 10/20/2006 Closing: 06/30/2007 06/30/2010

C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Moderately Satisfactory Risk to Development Outcome: Moderate Bank Performance: Moderately Unsatisfactory Borrower Performance: Moderately Unsatisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Moderately Moderately Quality at Entry: Government: Unsatisfactory Unsatisfactory Quality of Supervision: Moderately Implementing Moderately

Unsatisfactory Agency/Agencies: Unsatisfactory Overall Bank Moderately Overall Borrower Moderately Performance: Unsatisfactory Performance: Unsatisfactory

C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments (if Indicators Rating Performance any) Potential Problem Project Quality at Entry Yes None at any time (Yes/No): (QEA): Problem Project at any time Quality of Supervision Yes Moderately Satisfactory (Yes/No): (QSA): DO rating before Moderately

Closing/Inactive status: Satisfactory

D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Water supply 100 100

Theme Code (as % of total Bank financing) Access to urban services and housing 67 67 Other financial and private sector development 33 33

E. Bank Staff Positions At ICR At Approval Vice President: Philippe H. Le Houerou Johannes F. Linn Country Director: Motoo Konishi Dennis N. de Tray Sector Manager: Wael Zakout Hossein Razavi Project Team Leader: Pier Francesco Mantovani Ede Jorge Ijjasz-Vasquez ICR Team Leader: Pier Francesco Mantovani ICR Primary Author: Roohi Abdullah

F. Results Framework Analysis

Project Development Objectives (from Project Appraisal Document) The Development Objective of the project is to improve the safety, quality, reliability, efficiency, financial viability and sustainability of the water supply services in Bukhara and Samarkand. The Development Objective would be achieved through: (a) strategic rehabilitation and efficiency improvement of existing facilities in critical condition; (b) institutional strengthening of the Bukhara and Samarkand Water Utilities (Bukhara City Vodokanal - BVK and Samarkand

City Vodokanal - SVK) through a performance-based management contract (SC) with an internationally experienced water utility operator (the Operator); and (c) strengthening of BVK's and SVK's financial capacity through improved financial management and commercial practices.

Revised Project Development Objectives (as approved by original approving authority) N/A

(a) PDO Indicator(s)

Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Safety and quality: The percentage of samples taken according to agreed procedures Indicator 1 : that fail the chlorine residual stands rds. Bukhara: <5% Value Bukhara: 7.9% failing Bukhara: 5% failing samples. quantitative or samples; Samarkand: 40% N.A. Samarkand: 0.0% Samarkand: <5% Qualitative) failing samples failing samples failing samples Date achieved 06/30/2007 06/30/2010 06/01/2010 Comments (incl. % achievement) Indicator 2 : Improved reliability of water supply: As per beneficiary survey. Value Considerable Bukhara: 87.3% Bukhara: 99.9% quantitative or improvement of WS N.A. Samarkand: 48% Samarkand: 99.9% Qualitative) services Date achieved 06/30/2007 06/30/2010 06/01/2010 Comments (incl. % achievement) Indicator 3 : Efficiency: Reduction in energy use (kWh) per m3 of water [%]. Value Bukhara: 9.7% Bukhara: 10% Bukhara: 53.22% quantitative or N.A. Samarkand: 5.9% Samarkand: 9% Samarkand: 13.2% Qualitative) Date achieved 06/30/2006 06/30/2010 06/01/2010 Comments (incl. % achievement) Indicator 4 : Efficiency: Partial replacement of worn out water networks. Value Bukhara: 114.4 km Bukhara 44.8 km Bukhara: 110 km quantitative or N.A. Samarkand: 130.1 Samarkand: 50.6 km Samarkand: 130 km Qualitative) km Date achieved 06/30/2006 06/30/2010 06/30/2010 Comments (incl. % achievement) Indicator 5 : Efficiency: Increase in accounted for water (conversion of unregistered connections).

iii

Bukhara: 60.269 Value Bukhara: 90.3% Bukhara: 100% registered customers quantitative or N.A. Samarkand: 67.5% Samarkand: 100% Samarkand: 102,537 Qualitative) registered customers Date achieved 06/30/2007 06/30/2010 06/01/2010 Comments Change in reporting mode. Positive trend confirmed. Percentages will be elaborated in (incl. % ICR. achievement) Indicator 6 : Efficiency: Non Revenue Water (percent of production losses). Bukhara: 30%.* Samarkand: 35% **Because water Value Bukhara: 38.45% production meters Bukhara: 31.5% quantitative or N.A. Samarkand: 70.45% are not yet Samarkand: 36.5% Qualitative) operational, 2006 data remain approximations Date achieved 06/30/2006 06/30/2010 Comments Trend anomaly is attributed to change in reporting mode, deemed more accurate, still (incl. % approaching target values of respectively 30% for Bukhara and 35% for Samarkand. achievement) Financial Viability: (1) Collected Revenue/Operating Expenses. (2) Collected Revenue Indicator 7 : plus subsidy/Operating Expenses + loan credit repayment. Bukhara: (1) 0.76; Bukhara: 1.>1 Bukhara: (1) 0.61 Value (2) 0.92 Samarkand: 1.>1 (2) 2.05 quantitative or N.A. Samarkand: (1) 0.72; (2) Bukhara: 2.>1 Samarkand: (1) 1.21 Qualitative) 1.43 Samarkand: 2.>1 (2) 0.94 Date achieved 06/30/2010 06/01/2010 Comments (incl. % achievement) Indicator 8 : Financial Viability: Collection rate residential customers. Value Bukhara: 67% Bukhara: 87% Bukhara: 107% quantitative or N.A. Samarkand: 44% Samarkand: 80% Samarkand: 68% Qualitative) Date achieved 06/30/2006 06/30/2010 06/01/2010 Comments (incl. % achievement) Indicator 9 : Financial Viability: Collection rate commercial customers Value Bukhara: 96.6% Bukhara: 95% Bukhara: 74% quantitative or N.A. Samarkand: 75% Samarkand: 92% Samarkand: 108% Qualitative) Date achieved 06/30/2006 06/30/2010 06/01/2010 Comments (incl. % achievement)

(b) Intermediate Outcome Indicator(s)

Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised Target approval Completion or Values documents) Target Years (i) Establish Water quality sampling and testing program and training; (ii) Pipe Indicator 1 : replacements; (iii) better disinfection facilities and procedures; (iv) rehabilitation of water treatment facilities. (i) Water quality (i) Water Quality sampling and testing Sampling & Testing (i) No standard procedure program approved; Program in place; (ii) for sampling and (ii) Target pipe Pipes are being Value monitoring; (ii) Dilapidated replacement replaced; (iii) Repairs (quantitative pipes; (iii) Dilapidated (110/160 km B/S) of disinfection or Qualitative) disinfection facilities; (iv) completed; (iii) facilities substantially Water treatment facilities in Disinfection complete; (iv) Rehab need of rehabilitation. facilities upgraded; of WTP substantially (iv) WTPs complete. upgraded. Date achieved 06/30/2004 06/30/2010 06/23/2010 Comments (incl. % achievement) (i) Flow meters installed; (ii) Consumption meters installed; (iii) Pressure meters Indicator 2 : installed; (iv) Network zoning done; (v) Proxy indicator in the meantime established. (i) Some production (i) Service meters installed; (ii) interruption 22 044 and 48 267 No standard procedure for monitoring consumptions meters monitoring service mechanism in place; installed in Bukhara Value interruptions; No baseline (ii) zoning, pressure and Samarkand, (quantitative established by operator; No and flow metering respectively, or Qualitative) flow or pressure meters, done; (iii) HMS, including as procured not network zoning, not NIS in place; (iv) under Swiss grant; proxy indicators. Expost HH survey (iii) NA yet; (iv) done. Zoning & modeling non completed. Date achieved 06/30/2004 06/30/2010 06/01/2010 Comments (incl. % achievement) (i) Water loss data collected more accurately; (ii) Leakage detection program in place, Indicator 3 : and staff trained; (iii) Better loss reduction investment planning; (iv) Dilapidated pipes replaced. No quality/reliable physical (i) More reliable (i) Hydraulic Value loss measurements. Ad-hoc measurement of Network Modeling, (quantitative investments. No trained water losses in Network information or Qualitative) staff for preventive place; (ii) Leakage system underway; (ii)

investments. detection program Meters being adopted; (iii) installed; (iii) Production and Leakage detection consumption meters strategy in place; (iv) substantially in Pipes being replaced. place; (iv) Pipe replacement substantially done. Date achieved 06/30/2004 06/30/2010 10/30/2009 Comments (incl. % achievement) Better financial management. Better commercial information. Introduction of financial Indicator 4 : planning. Introduction of customer service concept. Accounting and commercial Accounting and Unreliable accounting data. information system commercial No commercial data base. fully functional and information systems Value Very little consumption updated accurately. are being (quantitative metering. No practice of Auditor's report with implemented and or Qualitative) customer service and fewer number of staff trained. accountability. qualifications. Consumption Concept of customer metering being done. service introduced. Date achieved 06/30/2004 06/30/2010 10/30/2009 Comments (incl. % achievement) Pipe breakage and hours of supply stoppages. The data will be collected bi-monthly Indicator 5 : and monitored without specific targets. Bukhara: 125 leaks - repaired same month; Value 0.005% WS stoppage (quantitative Samarkand: 187 or Qualitative) leaks - 159 repaired same month; 0.04% WS interruptions. Date achieved 10/30/2009 Comments (incl. % achievement) Indicator 6 : Completeness of billing system. Value Bukhara: 95%; Bukhara: 100%; (quantitative Samarkand: 85% Samarkand: 100% or Qualitative) Date achieved 06/30/2010 12/01/2009 Comments (incl. % No further progress. achievement)

G. Ratings of Project Performance in ISRs

Date ISR Actual Disbursements No. DO IP Archived (USD millions) 1 06/28/2002 Satisfactory Satisfactory 0.00 2 11/12/2002 Satisfactory Satisfactory 0.00 3 05/13/2003 Satisfactory Satisfactory 0.20 4 08/08/2003 Satisfactory Satisfactory 0.20 5 11/18/2003 Satisfactory Satisfactory 0.20 6 02/25/2004 Satisfactory Satisfactory 0.46 7 03/05/2004 Satisfactory Satisfactory 0.46 8 03/16/2004 Satisfactory Satisfactory 0.48 9 07/07/2004 Satisfactory Satisfactory 1.04 10 10/21/2004 Satisfactory Satisfactory 2.16 11 03/08/2005 Satisfactory Satisfactory 5.67 12 01/02/2006 Unsatisfactory Moderately Unsatisfactory 10.72 13 08/06/2006 Unsatisfactory Moderately Unsatisfactory 14.67 14 12/24/2006 Moderately Unsatisfactory Moderately Unsatisfactory 18.24 15 06/04/2007 Moderately Satisfactory Moderately Satisfactory 20.94 16 08/14/2007 Moderately Satisfactory Moderately Satisfactory 22.36 17 06/01/2008 Moderately Satisfactory Moderately Satisfactory 28.17 18 12/12/2008 Moderately Satisfactory Moderately Satisfactory 31.95 19 06/17/2009 Moderately Satisfactory Moderately Satisfactory 35.13 20 02/05/2010 Moderately Satisfactory Moderately Unsatisfactory 39.44 21 06/30/2010 Moderately Satisfactory Moderately Satisfactory 42.88

H. Restructuring (if any) Not Applicable

I. Disbursement Profile

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1. Project Context, Development Objectives, and Design

1.1 Context at Appraisal

Uzbekistan is an upper-low-income, resource-rich country accounting for nearly half of Central Asia’s population. Until 1991, Uzbekistan’s centrally-planned and state-controlled economy was largely supported by the Soviet Union. Following independence in 1991, the Government of Uzbekistan’s (GoU) home-grown, gradualist, state-led development strategy delivered consistent, and since the mid-2000s, robust, economic growth and gradual reforms. This approach eased the social costs of transition and reduced the economy’s vulnerability to external shocks. Uzbekistan was classified as a Low Income Country Under Stress (LICUS) from 2003 to 2005, at the time of project initiation. It suffered from problems typical of a LICUS: a backlog of deferred investments; limited government resources; and weak policies, institutions, and governance.

The Bukhara and Samarkand Water Supply Project (BSWSP) was designed to respond to the rapidly deteriorating water and sanitation services in Uzbekistan in the decade since independence. At independence, there was a fairly well-developed infrastructure and centrally supported services. In the ensuing decade, the following factors contributed to a rapid deteriorating water and sanitation services: (a) highly inefficient operations, (b) poor service levels, (c) creeping disrepair of facilities, (d) financial shortfalls, (e) weak human resource and institutional capacity, (f) lack of adequate information, and (g) local scarcity of water resources. These constraints directly impacted water service delivery in Bukhara and Samarkand.

Against this backdrop, the GoU envisioned the upgrade of the water supply in Bukhara and Samarkand as a pilot project for a new sector strategy, based on two premises: (a) full decentralization of responsibilities to the local level for the provision of services and full cost recovery of operational, maintenance, and debt service expenses through water and wastewater tariffs; and (b) introduction of private sector skills and resources for utility services. Further background on project genesis is presented in Annex 10.

The project was fully consistent with the 1998 Country Assistance Strategy (CAS) and supported two of the four CAS focus areas: (a) the need to remove inefficiencies in resource utilization in municipal services, infrastructure, and social services; and (b) the need to address environmental problems. Progress on these fronts would lead to significant cost recovery, institutional strengthening, and privatization of municipal services. The project was also aligned with a strategic GoU objective to develop Bukhara and Samarkand into international tourist destinations. The proposed approach was to design the simplest operation to address critical technical and financial issues, while building capacity and preparing Bukhara City VodoKanal (BVK) and Samarkand City VodoKanal (SVK) to attract other donors. The Loan and Credit Agreement was signed between the GoU and the World Bank (WB) on April 12, 2002, becoming effective on January 13, 2003. The project closed on June 30, 2010, after three years of cumulative extensions.

The pioneering ambition of the project, in the context of a recently independent former Soviet republic, cannot be over-emphasized. Decision makers and managers at the time had limited familiarity with commercial business management practice, and with expectations of cost recovery, asset management and customer service in utility operations. Public-private partnerships were an alien concept in the region. Central administration, local governments, sector agencies and utilities had thus yet to undergo a tremendous cultural shift. One of the fundamental assumptions of BSWSP was that institutions and individuals would have the versatility to adjust and perform under new economic and governance rules almost overnight, while embracing and implementing radical utility turnarounds, with leadership and capacity building to be provided by a foreign private operator.

1.2 Original Project Development Objective (PDO) and Key Indicators

The PDO was to improve the safety, quality, reliability, efficiency, financial viability, and sustainability of the Bukhara and Samarkand water supply services. The PDO was to be achieved through:

 Strategic rehabilitation and improved efficiency of existing facilities in critical condition;  Institutional strengthening of BVK and SVK through a performance-based service contract (SC) (or management contract) with an internationally experienced water utility private operator (PO) (or the Operator); and  Strengthening of BVK’s and SVK’s financial capacity through improved financial management and commercial practices.

The Project hinged on five key performance indicators (KPIs) to assess progress toward the PDOs:  Safety and Quality: Percentage of water quality samples meeting target values of key parameters;  Reliability: Continuity of service;  Efficiency: Reduction in energy use per cubic meter of water, reduction in water losses, and increase in accounted-for water;  Financial Viability: Annual ratio of collected revenues over the sum of operations and maintenance (O&M) costs and project-related expenses; and  Sustainability: Satisfaction of population with water services, and agreement on effective institutional arrangement for sustainability of project achievements after completion, possibly with expanded private sector participation.

In addition, the progress achieved against the annual target values for such indicators would be used to calculate the amount of annual performance incentive compensation to be earned by the PO under the SC. Monitoring systems and data collection for the KPIs and for managing BVK and SVK operations was part of the PO’s responsibility. Independent technical and financial auditors verified the results.

1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and Reasons/Justification

The PDO was not revised, nor were the five KPIs (also comprising 14 secondary indicators) to track SC performance. In hindsight, both the PDO and KPIs should have been revised as part of a formal project restructuring when the SC ended in 2007 ahead of project closing. At the time, a technical restructuring was agreed with the implementing agencies and enacted by GoU, but not submitted to the Board, by which the number of secondary indicators was brought down to eight. As part of supervision also, the Bank and the Client agreed to revise some KPI definitions, as well as some target values deemed too ambitious.

1.4 Main Beneficiaries

The final beneficiaries of the project were the residents of Samarkand and Bukhara who were connected to the deteriorating water supply system (estimated at 260,000 and 390,000, respectively). They were to benefit from improved utility services through rehabilitated infrastructure, reduced inefficiencies, and implementation of long-deferred capital renewal and expansion needs. The intermediate beneficiaries were the Samarkand and Bukhara water and wastewater utilities. The involvement of an experienced PO would ensure better management, knowhow, and resources for water supply O&M, customer service, and financial management. Furthermore, the policy and institutional reforms promoted under the project may have helped BVK and SVK take initial steps toward improved self-sustainability, technical efficiency, and financial viability. In addition, the success of this project aimed to demonstrate the great opportunity for reforms in Uzbekistan’s urban water sector.

1.5 Original Components

The PDOs, under the Specific Investment Lending (SIL), were to be achieved through four main components:

Project Component 1: Investment Fund (IF) (estimated cost: US$46.88 million at appraisal; actual cost US$49.19 million). This component financed essential short-term expenditures (such as materials, equipment,

and vehicles) and a least-cost capital investment program (including associated engineering and construction supervision services) aimed at improving the water supply system operations and services to the population by achieving the performance improvement targets in the service contract. The PO, together with BVK and SVK staff, were to propose the investments required to optimally restructure and rehabilitate key components of the systems (such as sections of the water distribution networks and block distribution systems, specific components of the treatment plants, and pumping stations), and were to implement a demand management program, as well as new financial management, accounting, and commercial systems.

More specifically, the PO’s annual plan for the use of the Investment Fund (IF) generally spanned the following goods and works subcategories of expenditure: (a) rehabilitation of water distribution systems and water production, treatment and pumping equipment, and structures; (b) bulk and retail water-metering equipment; (c) technical and administrative water supply support systems; (d) O&M consumables and administrative supplies and services; and (e) engineering and supervision services. Component 1 represented 76 percent of the appraised project costs.

Project Component 2: Service Contract (SC) (estimated cost: US$5.20 million at appraisal; actual cost US$2.14 million). This component financed the costs related to the SC, to be compensated through a fixed- base fee and a performance-based fee. The costs included: (a) salaries and expenses for the PO’s core group of management staff with international experience in water supply who would execute the SC; and (b) funds for a performance-dependent bonus paid to the PO for achievement of specific targets defined in the SC. The PO was given full responsibility for (a) managing the investment program, (b) operating the water supply system, (c) developing and implementing the demand management program, and (d) upgrading the capacity of the customer service (billing and collection) and financial management departments. Component 2 amounted to 8 percent of the appraised project costs.

Project Component 3: Consulting Services and Project Coordination Unit (PCU) (estimated cost: US$1.05 million at appraisal; actual cost US$5.64 million). This component financed: (a) PCU operations (including salaries, incremental operating expenditures, travel, training, and related expenses) with skilled staff to facilitate project implementation, coordinate project activities between the PO, the Municipalities of Samarkand and Bukhara, and other government agencies, in addition to supervising the PO’s performance; and (b) project-related consulting assignments on technical, legal, and financial aspects. Component 3 added up to 2 percent of the appraised project costs.

Project Component 4: Swiss-Financed Component (estimated cost: US$9 million; revised cost: US$11.23; actual cost US$10 million). The Government of Switzerland provided a US$9 million grant for parallel financing of two activities: (a) an investment fund for goods and services of Swiss origin, with usage to be determined in parallel to those of the IF under Project Component 1; and (b) independent technical and financial audit services. The auditors were to monitor the PO’s performance against SC obligations and performance indicators and to prepare financial audits of the project and of the utilities. The auditors were also to provide complementary consulting services to support the PCU. Component 4 constituted 14 percent of the appraised project costs.

Project Costs: At appraisal, the total project costs were US$62.33 million, to be funded by a US$20 million International Bank for Reconstruction and Development (IBRD) loan, an SDR 15.9 million International Development Association (IDA) credit (equivalent to US$20 million, subject to parity adjustment), US$8 million contributed by the GoU, US$5.33 million contributed by the beneficiary VKs, and a US$9 million grant by the Swiss Cooperation.

1.6 Revised Components

The original components were not formally revised. In retrospect, Component 2 should have been scaled down following the expiration and non renewal of the SC while project implementation was still de facto at mid-

course. Subsequently, the mechanism adopted to achieve the PDO in the PO’s absence was not reflected in the project components nor in the legal stipulations of the Loan and Credit Agreement.

Project Costs: At closing, the total project costs were US$63.11 million, of which US$8 million was financed through the GoU (see Annex 1 for details).1 By project end, after parity adjustments, the SDR 15.9 million IDA Credit equaled US$23.88 million. Moreover, the Swiss grant for equipment was increased to US$11.23 million and its closing date extended to December 5, 2010. Total disbursements amounted to US$57.75 million, not accounting for disbursements on the US$2.23 million Swiss grant extension.

1.7 Other Significant Changes

Amendments to the Loan Agreement: The first amendment was made at the Borrower’s request regarding the scope of “Incremental Operating Costs of the PCU”, and was enacted by WB on December 15, 2003, with changes to the April 12, 2002, Credit and Loan Agreements. A second request for amendment of cost category allocations was accepted by the WB on July 21, 2005. The Borrower requested a third amendment to reflect the discontinuation of the SC over the term of project implementation, which the WB accepted on May 29, 2007. A final amendment request was satisfied on January 22, 2009 for reallocation of the savings from Component 2 to the preparation of two new projects.

Project Extensions: The Credit Closing Date was extended twice. The Borrower’s first request was made on the recommendation of the Mid-term Review (MTR) due to delays of one-and-a-half years in hiring the PO, which were leading to a substantial non completion of civil works and equipment procurement. On May 29, 2007, the WB accepted the request, establishing June 30, 2009, as the revised closing date. On May 6, 2009, the WB approved a second request for extension because US$11 million remained undisbursed and critical activities remained to be completed. Accordingly, the WB established June 30, 2010, as the Project Closing Date, with the grace period ending on October 30, 2010.

Revision of Project Implementation Arrangements: Initially, an international private operator (PO) was hired to implement the project as per the PDO and Component 2. At the end of the SC in early 2007, staff released by the PO and hired as individual consultants ensured interim project implementation support, while an Institutional Development Consultancy (IDC) was tentatively being procured 2 . As individuals, these consultants did not always have the expertise and capacity to make complex technical decisions or train VK staff. They were also often former VK staff, and their past subordination limited their advisory authority and effectiveness. In early 2008, after the interrupted procurement of IDC services, individual local consultants were hired to help implement the project. The WB agreed to this contingent approach, in the interest of time and with the understanding that it might still achieve the Project institutional objectives. These adjustments were formally enacted by the Client3, but not accompanied by a Board approved restructuring.

Project Budget: The project budget, based on procurement categories as stipulated in the Loan Agreement, was revised three times.

2. Key Factors Affecting Implementation and Outcomes

1 In 2003, BVK’s and SVK’s contribution of US$5.33 million was omitted due to inability to pay. 2 Per the Development Credit Agreement Sch. 4, Para 4: “The Borrower, together with BVK and SVK and the Bukhara and Samarkand Regions, shall: (a) review with the Association, not later than March 31, 2005, proposals for continued management of the water services of Bukhara and Samarkand upon completion of the Service Contract, with due consideration to various options for public and private sector management; and (b) based on the conclusion and recommendations of said review, take appropriate measures regarding the management of the water services upon completion of the SC.” 3 GoU reportedly processed a revision of the project feasibility study and of the VK’s subsidiary agreements.

2.1 Project Preparation, Design, and Quality at Entry

Project Preparation: Project preparation was in direct response to priorities expressed in the Government Sector Strategy and reflected in the 1998 and 2002 CASs. The project focused on promoting the financial viability of BVK/SVK, and on introducing public-private partnership approaches to rapidly upgrade water supply utility service while preserving BVK and SVK roles as project-executing agencies. The project would follow a two-pronged approach to improve utility operations: (a) rehabilitation of existing key infrastructure, and (b) implementation of well-defined strategic changes in BVK/SVK financial management structures and institutional framework. This approach provided the basis for better and more sustainable operations and for sounder investment decisions. At the time of project preparation, PSPs were strongly advocated by the WB and other development agencies. The PSP component was designed with the assistance of hired advisors.

Project Design: Alternative approaches were considered, including traditional technical assistance (TA), and long-term lease or concession. Traditional TA was omitted because of its limitations in achieving rapid implementation of cost-effective investments and institutional reforms, and in raising the efficiency and sustainability of low-capacity utilities. The lease and concession options were rejected by GoU because of uncertainties surrounding the physical condition of the water supply systems and the resulting risk-mitigating cost premiums of a long-term PSP commitment. Components such as sanitation, cultural heritage, and a traditional master plan with a focus on major system facilities were also assessed and finally rejected by the GoU given that the water supply problems were seen as urgent, requiring project objectives focused on accruing larger benefits from the limited financing.

Lessons learned in a previous sector project were acknowledged, including pertaining to the fact that: (a) multiregional, multisector designs involving several international agencies are difficult to implement; (b) activities, selection, and contracting of international consultants must be discussed with the borrowing government well before project launch; (c) project arrangements must be not only well defined among coordinating agencies but also efficient; (d) government officials and VK staff should be continuously involved in project preparation and implementation from the onset irrespective of their frequent replacements; (e) PDOs should be modest, well defined, and achievable; and (f) all counterpart financing agencies should understand the expected disbursement profile to plan adequately. Preparation also recognized (g) the WB’s limited experience in Commonwealth of Independent States (CIS) countries; (h) the WB’s global and regional water sector experience, particularly in transition economy countries; and (i) points raised during the project Decision Review Meeting.

The project design pioneered utility-service PSPs in Central Asia as well as in Uzbekistan. Although the Borrower declared its commitment to the PSP approach during preparation, it later reconsidered, and did not strongly support the introduction of the PO. In hindsight, project design should have given greater weight to the risks associated with a LICUS, including limited institutional, managerial and operational capacity, lack of baseline data, and the absence of any private sector experience. Other risk factors that should have been considered include: (a) the high-security status of water supply and resources in Uzbekistan, which made access to data problematic and subject to high-level confidentiality protocol; (b) Uzbek policies regulating the work of foreign firms;4 and (c) the inability to develop the M&E framework baselines up-front, and obligation to defer it to implementation.

Quality at Entry (QEA): No QEA of the project was carried out by the Quality Assurance Group (QAG) for this project. However, as part of a Quality of Supervision Assessment, QAG did rate the Quality at Entry as Moderately Unsatisfactory (QSA7, September 11, 2006).

4 The required registration and review of import contracts by the Ministry of Foreign Economic Relations and Trade (MOFERT) before work could commence required all foreign firms to undergo an additional procurement step, which lengthened the process and caused cascading delays.

2.2 Implementation

The US$62.33 million BSWSP was approved by the WB Board on March 19, 2002, and came into effect only on January 17, 2003. This delay was caused by internal audit within the line ministry and lack of project coordination till late 2002, when GoU’s decided to shift project responsibility to the Public Utilities Agency, Uzkommunkhizmat (UzK). The Project closed on June 30, 2010, after eight years of implementation, at which time the commitments were approximately US$63.11 million and disbursements reached US$58.79 million, or 94 percent of the approved amount.

Project implementation. From an implementation viewpoint, the project roughly comprised three main phases: a 2-year phase for SC procurement; a 3-year phase coinciding with the SC; and 3-year final phase without SC. Project implementation suffered substantial delays and disruptions, none so consequential as the procurement delays, execution impediments and ultimate non-reconduction of the SC. Key events, important to understand a complex project, its accumulated delays, and the quality of its outputs and outcomes, are summarized below:

 Implementation was disrupted by the transfer, announced in August 2002 and effective in January 2003, of project responsibility from the Ministry of Macroeconomics and Statistics (MMS) to UzK.  After a lengthy tendering process, an SC was signed with the Ondeo-Safege consortium in December 2002, only to be cancelled in March 2003 with the sudden withdrawal of Ondeo from the consortium, and the failure of Safege to meet pre-qualification requirements alone. Given that the second-ranked bid was substantially higher and above budget, GoU opted to retender the SC, de facto upholding project activities for 16 months. The new SC was awarded in February 2004 to Swedish Water Development/Stockholm Water Utility (Sweden) and InfraMan GmbH (Austria), who mobilized on July 1, 2004, 28 months after project approval.  SC startup activities were affected by a 3-month contract review and registration process by MOFERT during which the PO was not paid its advance, initial and monthly invoices. The priority development of the Base Year Data Report (BYDR), critical to establish KPI baselines and to assess PO performance, was only acceptably completed in February 2005.  A major external factor of SC disruption, fatal to PO activities for improvement of VK operations, intervened in May 2004. At the time, a court order imposed that 80 percent of cash collected by SVK and 75 percent of cash collected by BVK, be escrowed to accelerate payment of tax, energy and other liabilities sanctioned by an Economic Court decision in 2003. This effectively blocked VK accounts, and left them and the PO with insufficient resources for day-to-day operations. The VKs ceased paying salaries while depleting stock to sustain operations, increasingly unable to ensure basic O&M, let alone provide 10 percent counterpart funds to the project. A government resolution of July 2005 improved the situation by writing off a substantial part of VKs debts and deferring payments by six months. A Presidential Decree in August 2006 resolved SVK’s remaining issues, leading to the unblocking of SVK’s accounts. BVK’s accounts were only unblocked in February 2007. The VKs were also relieved of their co-financing obligations. VK operations were thus deeply impaired for almost two-and-a-half out of three years of PO tenure.  Despite major project implementation delays and an already approved extension of project closing date, the SC was let expire at the end of its original 3-year term on June 30, 2007. Local staff released by the PO was temporarily hired as individual consultants, while an International Development Consultancy (IDC) was being procured to replace the SC. Upon cancellation of the IDC tendering process, decided by GoU in response to the Bank holding up the process (due to INT investigation of the 1st ranked consultant proposed for the contract award), the default option was retained to continue supporting the project through locally recruited consultants. Such contingent arrangements compensated for the loss of PO and of its unevenly experienced staff, during the last three years of the project. They were further essentially focused on infrastructure implementation, with lesser emphasis at capacity building and financial sustainability objectives.

SC performance (July 2004 to June 2007): The non-extension of the SC at the end of its original term denotes a failure of the PSP experience as implemented under the project, brought about by the non-optimal PO performance and by the degradation of the relationship between the parties under BSWSP’s extenuating circumstances. In terms of groundwork, the PO completed the BYDR, which verified and established the technical, operational, and commercial (unreliable and often nonexistent) baseline information. It is appreciated that the PO established sound investment plans for the project, which the VKs executed with limited deviations through project closing. The SC also delivered substantial diagnostic and planning documents, as well as upgrades in operating plans and procedures5. Operating in constant crisis conditions, the SC has however had less lasting impacts over staff training, management capacity and financial performance of the VKs.

The partnership between the PO and the PIU/PCU/VK did not start off optimally due to initial PO staff turnover and delayed delivery of the Base Year Data Report (BYDR) and other agreed outputs. A year later, based on performance monitoring indicators, the PO’s performance was less than satisfactory. Frequent international staff replacements affected SC implementation. Improvements in commercial performance were slow, because they were impeded by a lack of information, an inability to pay creditors, and the failure by some government entities to pay tariffs. More generally, the inability to use very limited utility revenues impaired SC operational performance. The SC implementation continued to lag behind schedule, aggravated by growing distrust and miscommunication between the PO and the Uzbek counterparts, and by the reported insufficient qualifications or commitment of some international experts.

As discussed in section 1.1-Context at Appraisal - and above, the PO intervened under extremely challenging conditions, and its partial underperformance must be assessed against “force majeure”-type situations such as the fact that VK staff could not be paid their salaries fully and on time over a period of two-and-a-half years, with delays of up to five months. Other factors of SC quality degradation included: (a) a prevailing unfamiliarity with the concept of partnership with a private foreign firm in the delegation of public services, (b) limited PCU/PIU/VK’s experience and capacity to manage the PO; (c) the initial nonpayment of the PO, due to SC registration delays; (d) limited access to data due to confidentiality and protocol associated with water resources; and (d) exposure to interferences by external agencies (including the Samarkand Regional VK, the Prosecutor’s Office, the Ministry of Finance, and MOFERT).

Mid-term Review (MTR): The MTR mission took place October 16–20, 2006. Two follow-up MTR missions were undertaken during February 5–7, 2007, and April 23–25, 2007. Despite the fact that BSWSP was flagged as “problem project” since early 2006 6, the MTR missions (11 days in total) were probably not long enough to tackle the complex history, imperfect documentation, and high stakes of the two-city project. The fragmented missions also probably did not allow sufficient participation of technical, institutional and operational specialists to comprehensively assess all project issues and components. In hindsight, this MTR organization may denote the fact that under BSWSP circumstances, the MTR had to troubleshoot an ever evolving project situation, as opposed to conducting a methodical review of project performance.

5 Including : Procurement guidelines, a staff training and development program, a safety deficiency correction plan, an occupational health and safety program, operation and maintenance manuals, a facilities database, an initial condition survey, a Network Information System plan, a Hydraulic Network Model, a financial management and customer services information systems plan, a customer service plan, a customer service training program, a public education program, subscription contracts, and an organization and human resources plan 6 Per the QSA7/QAG, one of the key recommendations was that the MTR should assess the future of the project, including the cancellation of the remaining funds if firm commitments and/or actions are not assured that will strengthen the financial position of the utilities. If the decision is to continue with the project, a realistic assessment needs to be made as to what can be achieved in the remaining one to three years, and the current SC is unsatisfactory both in terms of the PO’s performance and in achieving the main institutional building objectives. Revised arrangements will need to be implemented before project completion.

Critical decisions at the end of the MTR determined that: (a) the PDO would remain the same, but the project would be restructured; (b) an extension of the loan/credit date would be pursued as necessary to complete the loan-financed works; (c) the Borrower would not extend the SC with the PO; (d) an IDC would be recruited to support the Client in implementing the project in lieu of the PO; and (e) the closing date extension would be considered when the project was upgraded to Satisfactory status. Conditions to be met to that effect included (a) confirmation of lifting the block on BVK’s bank accounts; (b) submittal and acceptance of revised KPIs and targets; (c) minutes of the meeting among the Borrower, contractual parties, and the PO outlining the agreements reached on the main points of disagreement; (d) project implementation arrangement post-SC and terms of reference for the IDC; and (e) confirmation that a procurement/technical specialist had been hired. The project file contains no record of project restructuring in the MTR aftermath, nor any documented rationale for not processing the announced restructuring.

Risk Status: Project risks were considerably underestimated and focused primarily on possible failure of the Government or the local utilities. The SC performance risk was rated Moderate but materialized repeatedly, with high impact on all PDO dimensions; SC subsequent failure was not assessed. The financial failure of the utilities and its consequences were not fully factored in, nor were low institutional capacity and governance issues, especially regarding implementation by SVK/BVK.

Supervision: Project implementation spanned eight years and included 23 supervision missions, with an average of three missions yearly, two project extensions (see Annex 11). The supervision challenge was substantial and required a broad mix of specialized skills: An ambitious and pioneering project had indeed to be supported in two cities, through low-capacity operators and implementing agencies, with complex issues spanning infrastructure rehabilitation, PSP contract administration, utility capacity building and financial management. In retrospect, supervision effectiveness might have been increased if teams had been able to include, at critical junctures, specialists in PSP, M&E, and institutional development, and engineers or construction specialists. Aide-Memoires could also have been structured more thoroughly around component progress, which would have made it easier for management to gauge PDO and KPI and allocate relevant supervision resources. Project documentation attests to highly committed supervision TTLs and teams. It is however unclear why supervision did not implement the required restructuring, thus inducing imperfect compliance with legal covenants. A key weakness of the Bank’s supervision engagement resides in the excessive TTL rotations (8 TTLs in 8 years), which may have led to insufficient appropriation of a most complex project.

QAG: The project underwent two Quality of Supervision Assessments (QSA) by the Quality Assurance Group (QAG), first in 2004 (QSA6) and again in 2006 (QSA7). The first QAG Panel assessed the project’s overall supervisory quality as Moderately Satisfactory. 7 The Panel’s key concerns were: (a) the WB’s direct monitoring of the utilities’ performance on the basis of a flawed baseline would not have been very helpful pending rebidding of the service contract; (b) quality of project performance reporting was deficient in the review period; and (c) although project implementation was delayed by more than two years, Implementation Progress (IP) continued to be inappropriately rated as Satisfactory. According to the Panel, the main problems encountered by the project were (a) delayed effectiveness; (b) underbidding followed by withdrawal of first SC/PO; and (c) lack of counterpart capacity on institutional/financial issues, requiring much WB “hand- holding.” The Panel’s key lesson was that “when relying exclusively on a management contract for project implementation, it is vital to ensure that the bidding process results in a contract that is likely to be sustained…”

7 The QSA6/QAG point scale comprised: (a) focus on development effectiveness (2), (b) supervision of fiduciary/ safeguard aspects (3), (c) adequacy of supervision inputs and processes (2), and (d) candor and quality of project performance ratings (4).

The second QAG review in 2006,8 prior to the project MTR, rated the overall quality of project supervision Moderately Satisfactory with a rating of “3.” 9 The Panel’s key concerns were (a) weak government commitments to resolve VK’s financial problems, (b) the SC’s continuing poor performance under stressful operating conditions, and (c) the history of implementation difficulties in Uzbekistan. According to the Panel, the project’s main problems were (a) slow implementation since approval because of rebidding of the SC after the first PO withdrew; (b) a new SC with a second PO just prior to the period under review; and (c) VK’s weak financial position, which threatened the sustainability of the overall project and needed to be urgently addressed. The Panel’s key systemic lesson was that the “practicality and realism of bringing about institutional strengthening of a developing country’s main utilities through a performance based management contract needs to be re-examined. The Bank needs to adopt a more flexible approach, which balances more effectively weaknesses in local capacity with external partnerships—of individuals or teams—that can strengthen operating performance of the utility’s business in key areas.”

The Panel made these additional observations: (a) pursuing PSPs in Uzbekistan in 2000 with the goal of improving BVK/SVK operations through a performance-based management contract proved infeasible in terms of both limited market interest and insufficient Borrower buy-in; (b) definition and measurability of the KPIs were missing; (c) attempts to establish a meaningful M&E system and baseline data through the private PO contract failed, which undermined the M&E under the project; and (d) project risks were considerably underestimated and focused primarily on possible failure of the Government or the local utilities to perform, and not on the failure of the PO. In 2006, the project was classified as problematic.

2.3 Monitoring and Evaluation (M&E) Design, Implementation, and Utilization

A monitoring framework was in place at the start of the project and the M&E, comprising mainly of the KPIs, hinged on it. Its design, however, proved ineffective in terms of indicator availability and measurability. The delayed onset and non-extension of the SC undermined and delayed M&E. The Borrower’s own M&E framework was largely missing, and M&E was only partially embraced by the VKs, as some indicators were not typically documented in Uzbekistan’s water sector and exceeded the VK/PIU capacity to monitor them effectively.10 After the SC termination, VK/PIU entrusted M&E reporting to consultants, which were not ideally integrated in VK operations.

M&E Design: The M&E approach opted to wholly rely on the PO for its execution., and assumed it would be possible to get an accurate picture of the utilities’ situation in the first year of the SC, as well as to develop a baseline. . That picture showed the following: (a) during project design, assessment of the utilities was weak; (b) the reality of what was measurable and what was not among the extensive set of proposed KPIs was a big unknown for the project; and (c) the scope of the Borrower M&E framework was limited to the KPIs. The WB, the Client, and the project may have been better off using a rudimentary M&E framework with baselines for the project acquired during appraisal and only requesting the PO to revised it. With the rebidding of the SC, the new PO was not in place until July 2004, more than two years after approval to initiate measurement of KPIs. The data were also audited by technical auditors for monitoring purposes. The QAG/QSA7 rated the QEA of the M&E framework Moderately Unsatisfactory, and it rated the adequacy of arrangements linking the project results framework to the Borrower’s M&E Unsatisfactory.

M&E Implementation and Utilization: M&E implementation and utilization were both less than optimal for the following reasons: (a) the baseline was not established before project initiation; (b) methodology for each indicator was not defined and was also not clearly identified at the onset; (c) targets set at launch were too

8 QAG/QSA7 assessment date was September 11, 2006. 9 The QSA7/QAG point scale comprised: (a) focus on development effectiveness (3), (b) supervision of fiduciary/ safeguard aspects (3), (c) adequacy of supervision inputs and processes (2), and (d) candor and quality of ISR (3). 10 Per the QSA6/QAG, the project KPIs were formulated in the absence of adequate financial data and, more broadly, in the absence of detailed knowledge of the status of the utilities.

ambitious and lacked knowledge of the sector;11 and (d) WB supervision of the project M&E was questionable since no specialist was part of the project team over the eight-year period of implementation, which made it difficult to audit or monitor information received from the technical auditor and the PCU/PIU/BVK/SVK. As a result, project M&E could not comprehensively, accurately, and effectively report on the KPI results. Based on project documentation, it appears that WB supervision during and after the PO/SC may not have actively engaged in designing, monitoring, or revisiting the KPIs or the Borrower’s M&E framework.

2.4 Safeguard and Fiduciary Compliance (focusing on issues and their resolution, as applicable)

Environmental Safeguards: The project was classified as a Category B based on the WB’s Operational Policy 4.01 Annex C on Environmental Assessment (EA); an Environmental Management Plan (EMP) was already prepared and approved at appraisal. Environmental Safeguard monitoring was instituted as part of the SC. Compliance with environmental safeguards was supervised twice by a Bank specialist during the eight years of implementation, an aspect flagged under project QAG. In June 2009, the ISR rating for the Environmental Safeguards was downgraded from Satisfactory to Moderately Satisfactory until project closing.

It was observed at the time that contractors rarely enforced mitigation measures related to environmental management and occupational health and safety. Lapses were seen in (a) management of waste and debris; (b) exercise of appropriate safety measures; (c) fencing/securing of construction sites; and (d) provision of essential safety equipment for workers. EMP compliance lapses were due to (a) weak WB supervision; (b) weak oversight capacity of the PCU/PIU to oversee environmental management aspects of the project; (c) irregular implementation of the EMP; and (d) lack of active environmental safeguards or monitoring of its progress. Due to Bank team’s supervisory insistence, by project closing, improvements in contractor compliance with the EMP were noted, particularly regarding the occupational health and safety of workers.

Social Safeguards: A social assessment was undertaken as part of project preparation, with its findings contributing to project design; however, the findings were not adopted fully during implementation. Findings from a 2007 independent social beneficiary assessment for both the BSWSP and Rural Water Supply and Sanitation Project in Uzbekistan were also not integrated or disseminated during implementation. Moreover, the supervision of social safeguards was weak; a project specialist was on the team just three times, and only during the last two years of the eight-year project.

To implement a social outreach program, through the VKs, the WB requested a US$1.69 million grant from the Japan Social Development Fund (JSDF) for a community-based urban water supply management project. Initiated at the end of 2005, the grant’s main objective was to develop a water-loss-reduction model by implementing pilot projects in selected low-income apartment buildings in Bukhara and Samarkand in collaboration with Housing Owners Associations (HOAs). The project entailed replacement of internal cold water supply piping in 46 buildings in Samarkand and 39 in Bukhara, installation of master meters in each building, and placement of water meters in each household. It also rehabilitated hot water in-house networks, as proposed by the Client due to savings available during procurement. The program implemented under the grant which closed on September 9, 2008, resulted in cost savings for poor households.

Financial Management and Disbursement: The PCU/PIU Financial Management (FM) and disbursement arrangement and capacity are rated Moderately Unsatisfactory. It is noted that the Client disagrees with this rating and its assessment. Overall, the FM arrangement (including accounting practices, reporting, external audit, and funds flow) was deemed inadequate by WB standards. A fiduciary review was conducted at project closing in June 2010 to facilitate final disbursement application processing and to assess weaknesses to be addressed in future projects. The findings of the review have been shared with GoU in November 2010 and

11 KPIs were too optimistic with target indicator values, especially without knowing the true baseline, and grossly underestimated the time it would take to have a network information system and hydraulic modeling in place, purchased and installed measurement devices, complete network zoning, and so forth—all necessary to have a reliable baseline.

are undergoing clarification and reconciliation by the implementing agencies. As such, specific findings are for must be considered as preliminary in nature. Overall however, the emerging pattern is one of uneven fiduciary capacity, performance and compliance. Observations point to: (a) inefficient accounting practices, low automation of, and weak coordination between, the PIUs and the PCU; (b) delayed and irregular submission of financial management reports, which were often found unacceptable, requiring revision and resubmission; (c) weak internal control systems at both the PCU/PIU level; (d) weak and insufficient financial staffing of the PCU and Bukhara PIUs; (e) an inadequate and nontransparent recruitment process; (f) frequent underpayment/overpayment under each contract; (g) poor and nontransparent documentation of contractual work expenditures; (h) PCU’s improper execution of monitoring and verification of contract management; and (i) inefficient reconciliation of project accounting records with Statements of Expenditures/Expenses and summary sheets submitted to the WB, caused by reporting of expenditures which, at the time of the review, were ineligible, and non-documentation of some eligible expenses.

Procurement: The overall rating of procurement during the project cycle is Moderately Unsatisfactory. On the whole, procurement, compounded by weak capacity, led to substantial delays in implementation by both the Borrower and the WB, as well to output quality issues. It is noted that the Client disagrees with this rating.

The ex-post contract review of December 2005, during the SC phase, identified the following problems: (a) poor-quality procurement documents; (b) unclear terms of reference and technical specifications in bidding documents; and (c) delays in processing procurement documents. These problems resulted from (a) poor technical quality and experience of the PO staff and frequent technical staff turnover, (b) procurement coordination by a PO specialist unfamiliar with WB operations, (c) unclear lines of responsibility for document preparation and dissemination, (e) weak and subjective appraisals by inexperienced evaluators, and (f) insufficient monitoring of implementation activities. This situation might have improved during implementation, but not significantly.

After the SC conclusion, the PIU/PCU took the lead in procurement, but low capacity and staffing problems directly affected implementation. In early 2010 an Independent Procurement Review (IPR) of Bank projects in Uzbekistan assessed a few BSWSP contracts as part of a sample spanning several sectors of Bank intervention. Published in March 2010, IPR findings specific to BSWSP contracts stated that: (a) procurement capacity varied significantly among PCU/PIUs/VKs, (b) PCU/PIU/VK contract management capacity was limited, (c) there was no feedback on previous WB post-reviews, (d) extensive and unjustified use of the Small Works procedure deviated from the legal agreement, (e) procurement packages were improperly managed by splitting contracts without justification, (f) evaluations were delayed due to the coexistence of tendering/selection committees and the actual evaluation team, (g) contract effectiveness and implementation were delayed by contract registration and price verification, (h) confidentiality/conflict of interest disclosure forms were not signed by tendering committee members, (i) filing/availability of procurement documents was weak, and (j) procurement plan updates and maintenance lagged. The IPR found that there was room for improvement in procurement filing and contract management (particularly supervision of civil works).

2.5 Post-completion Operation/Next Phase O&M: The BVK and SVK are exclusively mandated to provide potable water service in Bukhara and Samarkand, respectively. Accordingly, O&M of project assets and equipment falls under their responsibility and jurisdiction and are programmed as part of their annual budgets.

Follow-up Operation: In 2008, at GoU request, the WB began preparing a natural follow-up to BSWSP, i.e. the Bukhara and Samarkand Sewerage Project (BSSP), which was approved by the Board on August 4, 2009. The WB was well suited to help finance and implement the BSSP because of the experience and trust developed between the WB and the central, regional, and municipal governments during the eight-year implementation of the BSWSP. The BSSP built on the improved efficiency of water operations and on the institutional strengthening carried out under the BSWSP. The BSSP will help (a) rehabilitate deteriorated sections of the existing sewerage network, (b) expand sewerage to currently unconnected areas, and (c) undertake selected investments to save electric energy at the wastewater treatment plants of each city. The

BSSP will benefit from the PCU’s strengthened capacity and long experience in implementing WB-financed projects.

3. Assessment of Outcomes

3.1 Relevance of Objectives, Design, and Implementation

The objective of improving the safety, quality, reliability, efficiency, financial viability, and sustainability of the water supply services in Bukhara and Samarkand may still be relevant, as noted in the 2008–11 CAS, which identifies basic infrastructure as a potential constraint to growth. Uzbekistan has generally maintained its infrastructure better than some neighboring states, by investing in selected basic infrastructure projects throughout the transition period. It still faces major challenges going forward, however, given its large stock of Soviet-era infrastructure assets. Thus, it needs immense financing to ensure that the provision and quality of rural and urban infrastructure services support future growth objectives. Emphasizing the need to improve the performance of utility and communal services nationwide, the CAS proposed rehabilitation and extension of water supply, sewerage, and solid waste management systems; reduction of physical and commercial losses; and installation of energy-efficient systems, with a focus on combining operational efficiency with financial sustainability.

3.2 Achievement of Project Development Objectives

The PDO was to improve the safety, quality, reliability, efficiency, financial viability, and sustainability of the Bukhara and Samarkand water supply services. As discussed above, progress and achievement of the PDO was not consistently captured by the M&E framework in place which was based on five main indicators (water quality, continuity of service, energy efficiency, cost recovery; and customer satisfaction). PDO achievement is rated Moderately Satisfactory.

Overall, the project disbursed 98 percent of the loan amount and 94 percent of project financing at closing. Project works were fully implemented and PDO 1 - strategic rehabilitation and improved efficiency of existing facilities in critical condition - was fully accomplished—albeit with weak oversight of technical design and quality of works and supervision. Improvements in water service safety, quality, reliability, efficiency and sustainability are also recognized, beyond the gaps and weaknesses in the original M&E framework.. Generally consistent and positive trends have been measured for relevant indicators, through the KPIs in place since the MTR (see Annex 9). Quantified improvements approaching or exceeding target values include: (a) improved safety of water, as measured by the percentage of samples failing the residual chlorine test; (b) improved reliability or continuity of water supply – as measured by customer surveys: (c) renewal of worn out mains – as measured by length of renewed mains pipes in excess of target of 240 km; (d) installation of approximately 70,000 meters and (e) reduction of non-revenue water, estimated to approach the targets of 30% in Bukhara and 35% in Samarkand. Service quality improvements are also confirmed by customer surveys (see Annex 5), which found significant trends in improved service reliability, pressure, reduced leaks, and overall satisfaction with VK service.

On the other hand, PDO 2 - institutional strengthening of BVK and SVK through a performance-based SC with an internationally experienced water utility PO - and PDO 3 - strengthening of BVK's and SVK's financial capacity through improved financial management and commercial practices - were only partially accomplished. Despite some improved trends on selected financial indicators, such as working ratio or recovery of operating expenses, much remains to be done at the utility and at the sector level to enhance and sustain the management and financial viability of BVK and SVK.

Key Performance Indicators: KPI performance is rated Moderately Unsatisfactory. During the SC phase, the PO was responsible for establishing, defining, monitoring, and collecting KPI data. Responsibility for KPI monitoring shifted to the PIUs/PCU/VKs after SC expiration. Although the KPIs were to be audited annually

by independent auditors under the Swiss grant, KPIs were audited four times (three times during the SC phase, once afterwards) during the eight years of implementation. Although no final KPI audit was undertaken at closing, ad hoc studies and surveys for assessment of project impacts were launched in Bukhara and Samarkand to mitigate M&E gaps.

Despite improvements during implementation, indicator reporting quality and KPI definitions remained affected by unexplained trends and anomalies, and by residual inconsistencies between PIU consultant and SECO auditor estimated values. Besides measurement and data harmonization flaws, Bank reporting and monitoring of KPIs lacked diligent documentation and supervision. A prime rating factor is that notwithstanding extensive work over eight years, KPI monitoring and indicator definitions were neither resolved nor streamlined.

(i) Safety and Quality: Percentage of water quality samples meeting target values of key parameters. The indicator definition changed mid-project along with subsequent baseline changes. Significant changes in the baseline make quality questionable. At closing, the indicator value falls/borders within the target value (see Annex 2).

(ii) Reliability: Continuity of service. KPIs consisted of two parts, one based on the prevalence of uninterrupted water supply to households (24 hours), and the other on the number of service interruptions due to pipe breaks. The baseline for the first was established during appraisal through the social assessment, but the indicator could not be measured afterwards. The second part incorrectly used the same baseline as the first to gauge progress; thus, progress cannot be qualified (Annex 2).

(iii) Efficiency: Reduction in energy use per cubic meter of water; Reduction in water losses; and Increase in accounted-for water. The four KPI sub indicators were (a) reduction of specific energy consumption—the measure of this indicator against the baselines and target were inconclusive. The data trajectory suggests an anomaly in definition or methodology; (b) water mains replacement—this indicator monitored pipe rehabilitation progress, showing a positive progression toward the target value, although the baseline should have not changed midterm and should have remained at “0” to gauge progress; (c) conversion of unregistered connections—the target and baseline were not clear; the unit was not consistent over the term; and progress toward target value of “substantial” and 100 percent could not be confirmed; and (d) nonrevenue water— production meters were not operational in June 30, 2006, so baselines are inaccurate and needed revision. The trend line anomaly was attributed to a change in reporting mode, raising questions about the level of metering in place at project closing (Annex 2).

(iv) Financial Viability: Annual ratio of collected revenues over the sum of O&M costs and project- related expenses. The three KPI sub-indicators were (a) cash flow sufficient to cover production costs alone and then with subsidies—the ratio should be more for the latter. However, an anomalous trend line and an inverse relationship between indicators suggest a data collection or calculation problem, making this data assessment unreliable and inconclusive; (b) the collection rate for both residential and commercial customers—the trend line does not show a natural progression as it should, indicating flawed data collection; and (c) completeness of customer database—this indicator was neither in the audit report nor in the latter years of ISRs; therefore, it cannot be qualified; also the target value was “to increase considerably,” making the indicator relative (Annex 2). Beyond the KPI inconsistency, other financial indicators such as working ratio, suggest a steady if insufficient trend of improved cost-recovery, and by extension, viability, in VK operations.

(v) Sustainability: Consumer satisfaction with water services, and agreement on effective institutional arrangement for post-project sustainability of achievements, possibly with expanded private sector participation. Customer surveys at project closing point to substantially improved overall customer satisfaction in the two cities linked to Project interventions. The follow-up Bukhara and Samarkand Sewerage Project is ensuring consolidation of institutional strengthening and capacity gains, as well as ensuring mitigation of the environmental management impacts of increased water supply.

Project Development Objectives (PDOs): The PDOs are rated Moderately Unsatisfactory.

PDO 1: Strategic rehabilitation and efficiency improvement of existing facilities in critical condition. This PDO is rated Moderately Satisfactory. Significant rehabilitative work occurred, including replacement of pipe segments and rehabilitation of water intake, a water treatment plant, water reservoirs, and metering. However, technical oversight and supervision of civil works was weak, including for the inventory of renewed household connections.

PDO 2: Institutional strengthening of the Bukhara and Samarkand Water Utilities (Bukhara City Vodokanal [BVK] and Samarkand City Vodokanal [SVK]) through a performance-based management contract (SC) with an internationally experienced water utility operator (the Operator). This PDO is rated Moderately Unsatisfactory. Due to the short PO/SC tenure, this objective was partly accomplished, with improved operational efficiency in billing and customer care. Largely, this component lagged after PO/SC termination.

PDO 3: Strengthening of BVK’s and SVK’s financial capacity through improved financial management and commercial practices. This PDO is rated Moderately Unsatisfactory. Some gains were seen in automation of billing, computerization of customer database, better customer responsiveness, and some cash flow improvement. However, with weak VK capacity and the short PO term, the improvement did not fully materialize (see Annex 2).

Project Components: Overall, considering the prevalence of physical investment components 1 and 4, the project component performance is rated Moderately Satisfactory.

Project Component 1: Investment Fund. This component is rated Moderately Satisfactory. Extensive rehabilitations of civil works were complete and service quality improved, with modest impact on energy efficiency. However, M&E was poorly managed, weak, or nonexistent in Borrower’s M&E results framework, with uncertainties affecting as far as the number of households effectively connected to the rehabilitated networks. Beneficiary surveys were not incorporated for assessment during implementation (see Annex 2).

Project Component 2: Service Contract. This component is rated Moderately Unsatisfactory. With delayed mobilization, challenged implementation and unplanned premature expiration, the SC only partially delivered on expected benefits under PDOs 2 and 3. Of the 31 SC-envisioned reports, the PO prepared 28, with 15 approved by the VKs and Technical Auditor. The SC is nevertheless credited for relatively successful planning, sector assessment, BYDR, and implementation tasks under its tenure, conducive to positive PDO 1 outcomes (see Annex 2).

Project Component 3: Consulting Services and Project Coordination Unit. This component is rated Moderately Unsatisfactory. Weak implementing agency and consultant capacity led to inadequate progress reports, problem identification, and solution. Low fiduciary and procurement compliance, and no Borrower M&E also factor in the rating. The Louis Berger consultancy hydraulic network model was based on simulation rather than real-time data (see Annex 2).

Project Component 4: Swiss-financed Grant Component. The output and performance of this component is rated Satisfactory. Independently handled by the Swiss Cooperation, this component entailed procuring Swiss goods and services to complement project activities under Component 1. This component was well managed, with diligent Swiss-funded supervision throughout. In Bukhara, this grant financed drainage pumps, water meters, welding units, and valves; in Samarkand it financed energy-efficiency services, water meters, switchboards, and pumps (see Annex 2).

3.3 Efficiency

At project closing, many critical data pieces were still missing, including reliable economic data values, willingness to pay assessments, marginal costs of water provision, assessment of consumer and tourism

demands, beneficiary assessments, public health benefits, environmental benefits associated with water conservation, social benefits associated with improved water supply, energy costs associated with coping mechanisms, etc. Accordingly, no new cost benefit economic analysis was undertaken as part of the ICR. A comprehensive financial analysis was undertaken based on utility data to assess the efficiency of the investments, as presented in Annex 5.

In Bukhara, the project has had a positive but insufficient impact on BVK financial performance particularly in its working ratio which decreased from 1.25 in 2006 to 1.07 in 2009. This seems to be related to two main factors: i) the increase in revenues from all levels of customers and ii) the completion of the debt repayments, which substantially reduced BVK’s obligations. In Samarkand too, the project has had a positive but insufficient contribution to increase SVK performance particularly in its working ratio which decreased from 1.5 in 2006 to 1.2 in 2009. This seems to be related to two main factors: i) the increase in revenues from residential customers and ii) the completion of the debt repayments, which substantially reduced SVK’s liability. Delays in residential meter installation affected project efficiency in both cities. Due to inconsistencies in the financial model used at appraisal, investment rate of return analysis could not be completed as part of the ICR effort.

3.4 Justification of Overall Outcome Rating Rating: Moderately Satisfactory

Infrastructure works were fully completed. Despite the fact that service and performance improvements cannot be accurately substantiated due to lack of baselines and reliable indicator data, a clear pattern of improved service safety, quality, reliability, efficiency and sustainability emerges from available indicator measures and customer surveys. The project has however only achieved limited and inconsistent capacity building and financial viability gains, and failed the introduction of PSPs to Uzbekistan. On this basis, the overall outcome of the project is rated Moderately Satisfactory. It may further be argued that, against strong odds, the primary objective of public service provision, directly contributing to the MDGs, was achieved. In retrospect, the Project also allowed a laborious but effective experience towards supporting the modernization of urban service and institutions in Uzbekistan’s water sector and has laid the groundwork on which new projects are being built. In that respect, and together with its substantial SC lessons, the Project is in fact a pioneering effort of great significance for the region.

3.5 Overarching Themes, Other Outcomes, and Impacts

(a) Poverty Impacts, Gender Aspects, and Social Development

Poverty Impacts: Considering the nature of the project, poverty reduction might well be a spill-over effect of a water supply project. The project might in fact have resulted in poverty reduction due to creation of construction industry jobs, technical capacity gains, and cost savings in water bills. However, since poverty reduction was not identified from the outset as a project impact, that outcome cannot be qualified.

Gender Aspects: Not applicable

Social Development: The successful implementation of the social outreach program under the JSDF for a community-based urban water supply management involved (a) targeting poor neighborhoods, (b) cost savings in water bills, (c) project implementation through community participation, (d) rehabilitation of water supply hardware, and (e) household-level water meters.

(b) Institutional Change/Strengthening

The institutional change/strengthening gains under the project remained limited because the PO/SC was onboard the project for just three years; after the SC, local consultants did not take an active role in any institutional capacity building of the VKs.

(c) Other Unintended Outcomes and Impacts (positive or negative)  An intended result of policy dialogue rooted in the BSWSP supervision challenges was the development of a “Municipal Service Sector Study”, and of a financial assessment of Bukhara and Samarkand water utilities in late 2006/early 2007. The findings of these studies allowed to elevate the discussion of project issues to a more systemic policy level. A workshop was held to disseminate the findings on May 25, 2007, with representation from all tiers of government and utility managers from other cities. A “Water Supply and Sanitation Sector Note” completed in March 2010 also helped sustain dialogue on investment and policy reform priorities.  Preparation for two proposed projects began during implementation to ensure ongoing sector engagement and country dialogue.  There was innovation in the technology for nonmetal pipes used in this project.  The institutional memory of the project suffered due to project TTL transitions, and supervision tasks and focus suffered from discontinuity. Aide-Memoire documentation was not systematically arranged to assess progress toward PDOs.

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops

As supplement to M&E conducted during implementation, project impact assessment studies were conducted at the end of the project. The studies included further documentation of project performance indicators, and importantly, customer surveys of perceived improvements in water service. Household surveys were conducted in project areas benefitting from water production or distribution rehabilitation investments, as well as in control areas within the VK’s service perimeter untouched by the project. A total of 175 households were thus surveyed in Samarkand and 120 in Bukhara. The main findings are summarized here and detailed in Annex 5. Households in the project areas attest to significant improvements in water supply service since 200512:  Almost half the surveyed households report better service regularity in the project areas of Samarkand and Bukhara (as compared to 10 to 20% in control areas)  In both cities, beneficiaries report clear improvements in water pressure: Positive opinions are 1.2 to 1.5 more frequent that negative ones in the project areas. By comparison, the pressure situation may have further degraded in control areas.  There is no clearly perceived water quality improvement or deterioration since 2005. The overall appreciation is neutral in the project areas, while a sense of deterioration prevails as in control areas.  Leaking mains are deemed less frequent by 37% of households in Samarkand project areas, whereas they are unchanged or more frequent for 86% of the sample in control areas. In Bukhara, a reduction in leaks perceived in the project areas and, to a lesser extent, in the control areas.  Finally, in both cities, overall satisfaction with water service has increased as a result of the project. In Samarkand, 60% of surveyed households in project areas are satisfied with service evolution since 2005, compared to 40% in control areas. In Bukhara the contrast starker, with two-thirds of project area households deeming service satisfactory or significantly improved, whereas in control areas two- thirds of households report that the service remains unsatisfactory or that it has deteriorated.

4. Assessment of Risk to Development Outcome Rating: Moderate

12 Reported trends are statistically significant with a 5% confidence interval, when compared to control areas. However, since impact assessment reports were only available late in the ICR process, certain anomalies or outliers in the results could not be reconciled. Since impact assessment reports were only available late in the ICR process, certain anomalies or outliers in the results could not be reconciled survey results for Bukhara’s service regularity, pressure, leaks in the streets and leaks in homes, do not add-up to combined frequency of 100%. Results had to be adjusted to fit a total of 100%. See for more details in Annex .5.

The majority of the financed and rehabilitated infrastructure was completed. However, the Assessment of Risk to Development Outcome is rated cautiously as Moderate, for four reasons: (a) low gains in institutional capacity building and technical knowledge transfer due to terminated SC; (b) lack of internalization and sustainability of M&E as a mechanism for VK service improvement; (c) weak project ownership at higher tiers of the GoU; and (d) the use of consultants on the implementation team whose association with the project ended with the expiration of their contracts.

The major positive impact of the BSWSP can best be observed in the rehabilitated physical infrastructure, pipes, water treatment plant (WTP), new machinery, and equipment; automated billing system; a complaint response center; exposure to some efficiency gains and better management practices in water utility operation; and a follow-up sewerage project that complements and continues work done under the BSWSP.

5. Assessment of Bank and Borrower Performance

5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry (that is, performance through lending phase) Rating: Moderately Unsatisfactory

The Bank’s performance during preparation is rated Moderately Unsatisfactory. The concept of the project responded to an ambition to accelerate infrastructure rehabilitation and utility turnaround in a context of weakened sector governance and capacity. The project design was however too ambitious and untested, driven by yet unmitigated Bank confidence in the universal applicability of PSP solutions, and ill-adapted to a LICUS country with conservative post-Soviet institutions. From a methodological standpoint, the failure to establish a rudimentary indicator baseline before project initiation was a major design weakness which led to some target values that proved too ambitious for the KPIs. Attributable to inadequate background sector work, the lack of baseline was inherent to the data-poor environment in which the project had to be designed. The M&E approach was to rely fully on the PO, which may not have been the best strategy. Also, the risk of termination of the SC/PO was not assessed during project design. The fact that project design might have benefited had the project team more cautiously considered client capacity and the prevailing country-level institutional conditions and processes does not diminish the concrete signs of relative project success: (a) all the infrastructure was laid despite uncommon contractual and institutional challenges, and (b) nearly three- quarters of a million people are now being supplied safe and affordable water.

(b) Quality of Supervision (including fiduciary and safeguards policies) Rating: Moderately Unsatisfactory

The Bank’s performance during implementation is rated Moderately Unsatisfactory. As seen above, this ambitious and complex project in a challenging environment operated almost continuously in crisis mode, placing extraordinary demands on Bank supervision teams and on implementing agencies. The range and magnitude of disruptions experienced by the project imposed a reactive and adaptative supervision style. At any given time TTLs had to focus on “putting out the biggest fire”, and work with the Client in keeping the project, at times even the VKs, “afloat”. Such pragmatic supervision focus explains the remarkable infrastructure completion outcome. It may also explain why project restructuring was not formally processed.

Supervision teams generally responded well to the many implementation challenges (see section 2.2). The above mentioned priority trade-offs only partly justify the uneven supervision focus on some components. Project progress was not systematically documented because reports did not gauge progress based on the PDOs or project components. Consequently, assessment of progress, KPIs, issues, constraints, and implementation problems was relatively weak. Frequent changes in project TTLs led to inconsistent attention to key issues and delayed responses to requests for “no objections.” Despite two QAGs, panel recommendations were not clearly enacted through supervision. QAG assessments also suggest that project ratings were not realistically assessed, and project issues thus remained under the management’s radar.

As discussed in section 2.3, M&E was weak, and since it was delegated to the PO and technical auditors, the Bank may not have felt vested enough to supervise this aspect of the project. It should have been an area of focus to help the VKs better understand and integrate the value of performance indicators.

The Bank team’s support of the Borrower’s decision not to extend the SC over the term of the project, was a complex and possibly unavoidable decision, reached with the help of PSP experts, based on a pragmatic assessment of SC renegotiation chances and of likely impacts on project outputs and calendar. Such decision has unfortunately had a lasting negative impact on PSP perceptions in Uzbekistan, and potentially set back sector modernization and rationalization. Accessorily, the Bank did not thoroughly document the reasons or claims for failure on the part of the PO and the Borrower.

Finally, during the MTR mission, the Bank team reported the need to restructure the project. However, Bank management did not stress or address such need in the ISRs. With subsequent TTL transitions, the opportunity was not followed through. Similarly, when the implementation arrangement of the project changed with the PO’s departure, the PDO/components of the project should have been amended to reflect that in the Loan/Credit Agreement. A factor in this rating is the non-compliance that ensued between the actual project implementation provisions of Component 2 and the provisions of the legal agreement.

The project was unusually complex and difficult to supervise and finding the right project leadership (TTL) covering all the core areas of infrastructure, PSPs, and utility management, was difficult. This problem could have been eased by augmenting the supervision budget to incorporate expertise relating to PSP, engineering, utility operations, M&E, safeguards, etc. The task team worked extremely hard despite highly stressed project and dialogue conditions, and its effectiveness is recognized in the fact that GoU and the Bank engaged in the follow-up BSSP. The country-office staff played an invaluable role in ensuring continuity and responsiveness of supervision and of client relationship. Finally, the important day-to-day supervision support by the Bank team in the last three months of implementation must be acknowledged for facilitating the completion of the critical but lagging contracts for the Mulyion Reservoir in Samarkand and Shokrud WTP in Bukhara.

Overall, the rating does not do justice to the uncommon commitment and skill deployed by supervision teams, but reflects the inconsistent quality, continuity and internal compliance of supervision as managed by the Bank.

The Bank is largely responsible for the very ambitious design and quality at entry weaknesses of the project. Despite the strenuous efforts of supervision teams, the project struggled from the start. Some hurdles lay beyond the design and scope of the project, but others warranted mitigation by the Bank during implementation stages. In retrospect, because it was within Bank’s control to design a less risky and aggressive project approach, to ensure more consistent M&E and supervision capacity and less TTL rotations, and to restructure the project in a timely manner, the overall Bank performance is rated Moderately Unsatisfactory.

5.2 Borrower Performance (a) Government Performance Rating: Moderately Unsatisfactory

The GoU’s performance is rated Moderately Unsatisfactory. Although the Government supported the project concept, it did not consistently support its implementation, and should have responded to problems more proactively. The first delay in the project implementation resulted from the GoU’s transfer of project responsibility from MMS to UzK, which had limited prior experience in handling WB projects. Although caused by a court decision, and thus not under the direct control or competence of GoU, the ensuing blockage of SVK/BVK accounts during the core implementation period adversely affected the SC/PO’s performance for two-and-a-half years of the three-year SC term. The Bank could not circumvent the situation in time to benefit

project implementation prior to the SC. Another problem within GoU’s control was the lengthy registration and review of import contracts, which delayed work commencement by three to six months after the contract award. All these factors are evidence of uneven ownership of the project. Both central and local governments deserve credit for their diligent attention to approving annual, albeit ultimately insufficient, tariff increases.

(b) Implementing Agency’s or Agencies’ Performance Rating: Moderately Unsatisfactory

The Implementing Agencies’ performance is rated Moderately Unsatisfactory. The biggest issue faced by the implementing agency was the requisite capacity, or lack thereof, to implement the project in response to the PDO. The project design intended PSP to fill any capacity gap needs while phasing out capacity transference during the project. The signatories of the SC were the VKs, while UzK and regional governors’ offices of Bukhara and Samarkand were responsible for the project implementation. The PCU (with two PIUs) coordinated project activities between the VKs, PO and national entities (ministries and agencies) as well as with the Bank. The SVK/BVK–PO relationship was technically productive, but contractually problematic because of the strained operating context, mixed PO performance, and reportedly weak VK commitment to salvage the SC. The PIU/SVK/BVK’s rigid following of the business plan developed by the PO instead of revising it in the context of the utility’s changing demands was evidence of weak capacity. This was compounded by limited ownership of the project and its PSP approach by implementing agencies, poor oversight of works and technical design, and continuous management changes in the VKs. High staff turnover and the lack of a dedicated M&E Specialist during implementation and post-completion proved problematic. The implementing agencies nevertheless deserve full credit for completing the infrastructure component, despite PO departure, including through an impressive acceleration of works achieved in the last three months. However, the quality control of execution and supervision of works remains questionable due to an overall weak capacity for engineering design, innovation and works oversight during implementation, and insufficient focus was sustained on the project institutional components and objectives.

As discussed, initiation of the project was delayed by almost 24 months. When the PO came onboard, the financially strapped water utilities could not provide an environment conducive to undertaking an effective PSP operation, which took another 30 months to resolve, impeding technology and capacity transference. Based on the GoU’s and implementing agencies’ performance, overall Borrower’s performance is rated Moderately Unsatisfactory.

6. Lessons Learned

Lesson Learned 1: Project design should be simple in a newly reforming, low-capacity context. Project designs should be sensitive to the borrowing country’s institutional capacity. In a low-capacity context, a complex project design with a heavy reform agenda may not be feasible because of the steep learning curve. Despite the reasonable scope of the BSWSP, improving SVK/BVK operations through a performance-based management contract proved infeasible and lacked Borrower buy-in. Lesson Learned 2: Projects should be restructured or amended to reflect important changes in implementation. This is especially necessary when a loan’s binding legal and credit agreement changes during project implementation, and is needed to prevent the Project from being in a state of legal non-compliance. Lesson Learned 3: TTL transitions should be managed carefully in difficult projects. TTL transitions impact project implementation; if implementation is problem-ridden, due attention should be given to ensuring overlap, smooth handover, and task-team continuity.

Lesson Learned 4: International consultants provide a valuable service. Despite costs that may seem unjustified to local partners, international consultants provide valuable service, capacity transference, technical astuteness, and better transparency, especially in the context of LICUS countries like Uzbekistan. Lesson Learned 5: Civil works oversight/audit obligation by the Borrower is critical and should be built into the contractual project implementation. A supervision consultant/contractor plays an essential role in monitoring contractor work quality, providing technical oversight, and amending design during implementation. With the BSWSP, supervision was handled by the PO during its contract term. After the PO left, the BSWSP undertook the major chunk of physical work during which oversight was weak. Lesson Learned 6: Monitoring should be simple and adapted to client capacity, and M&E plans and collection of baseline data should be in place for projects by time of appraisal. Optimal M&E and KPIs should have been based on parameters that could be realistically measured and reported by VKs on a regular basis, and which provided actionable information to VKs and the PCU to improve project and utility performance. In addition, especially for complex projects like the BSWSP, it is critical to have an M&E plan in place and collection of baseline data instituted during the design phase. Lesson Learned 7: Readiness of fiduciary and procurement capacity is essential to overall project implementation success. Procurement packages should be completed ahead of bidding to avoid substantial variations and delays. Similarly, financial management should be planned ahead of project launch. With the BSWSP, compliance with both procurement and fiduciary management was weak.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners

(a) Borrower/implementing agencies

The Borrower and implementing agencies submitted their own implementation completion report as consigned in Annex 7.1 Their detailed comments on a draft version of this ICR are also presented in Annex 7.2 as received on December 9, 2010. The finalized ICR accounts for these comments.

(b) Cofinanciers Not available

Annex 1. Project Costs and Financing

(a) Project Cost by Component (in USD Million equivalent) Actual Actual Disbur- Appraisal Commitment sement/Latest Percentage of Components Estimate (USD Estimate Estimate (USD Appraisal millions) (USD millions) millions) Component 1: INVESTMENT 46.88 49.16 FUND Bukhara 21.30 20.35 Samarkand 25.58 28.81 Component 2: SERVICE 5.20 2.14 CONTRACT Bukhara 1.03 Samarkand 1.11 Component 3: CONSULTING 1.05 5.60 SERVICES AND PCU Bukhara 2.36 Samarkand 3.24 Component 4: SWISS 9.00 FINANCED GRANT

Total Baseline Cost 62.13 56.90 Physical Contingencies 0.00 0.00 0.00 Price Contingencies 0.00 0.00 0.00 Total Project Costs 62.13 56.36 Front-end fee PPF 0.00 0.00 .00 Front-end fee IBRD 0.20 0.20 100.00 Total Financing Required 62.33 57.10

(b) Financing Actual Actual Appraisal Disbursemen Commitment Type of Estimate t/Latest Percentage Source of Funds Estimate Cofinancing (USD Estimate of Appraisal (USD millions) (USD millions) millions) Borrower Co-financing 13.33 8.00 5.72 42.91 SWITZERLAND, Govt. of (Except Grant 9.00 11.23 10.0 111.11 for FOFEA) International Bank for Loan 20.00 20.00 19.48 97.4 Reconstruction and Development International Development Credit 20.00 23.88 23.64 118.20 Association (IDA) Total 62.33 63.11 58.79 94.32

Annex 2. Outputs by Component

BASELINES INDICATOR VALUES TARGET VALUES

June 30, May 4, Dec. 31, PAD/June June 30, June 30, 2006 Author’s PAD 2005 June 30, June 30, June 30, April 30, 2007/ Sept.30, October May/June 30, 2007 2009 (Under 2010 (Under under stage under 2004 2005 2006 2007 April 2008 30, 2009 2010 (Under PIU/PCU/ PIU/PCU/ Data Data Comment PIU/PCU

Location Location PO/SC 2008 PO/SC) BVK/SVK) BVK/SVK) Source of of Source /VK)

Safety and

Quality

1 Percentage of Definition of the No 100%/ 90%/ indicator changed 7.9% 70.0% 80.0% 0% 0.5% 4.5% 1.8% 5.0% 98%/<5% <5% <5% samples taken Baseline 70% 7.9% according to during mid-project agreed and subsequent Bukhara baseline were also procedures changed - that fail the significant change chlorine in baseline makes No 87%/ 90%/ PIU/PCU/VK’s 40.0% 86.0% 72.0% 2.2% 1.2% 0.1% 0.4% 0.0% 98%/<5% <5% <5% residual the quality Baseline 86% 40% standards questionable Samarkand Samarkand

Reliability

60%/ HH 2a Indicator not Consider- Continuity of surveys measurable. PO did able Supply - No not No No under- No No No No No improve- Target value for 87.3% Baseline provide ment of Percentage of Data Data way/ Data Data Data Data Data Consider- Consider- the indicator not the data water households No able able qualified. in its supply

Bukhara Bukhara Data improve- improve- surveyed that Beneficiary survey BYDR services ment of ment of report 24 because 80%/ conducted during water water of HH Consider- hours a day appraisal for supply supply measure surveys able water supply baseline - Midterm services services -ment No No under- No No No No No beneficiary survey No improve- PIU/PCU/VK’s/WB 48.0% Baseline problem Data Data way/ Data Data Data Data Data ment of undertaken but not s No water integrated supply

Samarkand Samarkand Data services

BASELINES INDICATOR VALUES TARGET VALUES

Location Location PO/SC 2008 PO/SC) BVK/SVK) BVK/SVK) Source of of Source /VK)

Reliability

2b Continuity of PO did No not No Incorrect baseline 87.3% This This 91.0% 51.0% 87.0% 99.9% 99.9% 99.9% Supply - Pipe Baseline provide Target/ Consider- Consider- for measurement - indicat- indicat- breakage and the data Consider- able able the same baseline Bukhara or was or was hours of in its able improve- improve- for the indicator BYDR added added supply improvement of ment of 2a. was used. because after after ment of water water stoppages Target value for of the the water supply supply the indicator not No measure PO/No PO/No PIU/PCU/VK’s -ment 48.0% 22.0% 3.0% 48.0% 99.9% 99.9% 99.9% supply services services qualified Baseline Data Data probl- services ems Samarkand Samarkand

Efficiency

70,980 3 m3/day 15% No No 5%/ Reduction of / 0.577 9.7% 1.6% 10.0% 42.0% 40.2% 42.9% 53.2% (12%) 10% 10% Baseline Data 9.7% Specific The movement of kwh/ /10% 3 Energy the data trajectory Bukhara m Consumption - alludes to some Reduction in anomaly in 121,814 Energy Use definition or m3/day 20% methodology No No 5%/ (KWh) per3 of PIU/PCU/VK’s / 1.140 5.9% 0.2% 5.0% -12% -8.0% 6.1% 13.2% (15%) 6% 6%/9% Baseline Data 5.9% water kwh/ /9% m3 Samarkand Samarkand

4 this indicator 15.3km Water Main shows a positive No No 75.3 97.0 114.4 0km /44.8 81km 60km 110km 110km Replacement - progression Baseline Data km km km toward the target km

km of water Bukhara main replaced value, although the baseline should from starting have not changed date to the end midterm and 13.6km No No 100.0 119.0 130.1 of the project PIU/PCU/VK’s should have 0km /50.6 40km 73km 130km 130km Baseline Data km km km years remained at “0” to km gauge progress Samarkand Samarkand

BASELINES INDICATOR VALUES TARGET VALUES June 30, May 4, Dec. 31, PAD/June June 30, June 30, 2006 Author’s PAD 2005 June 30, June 30, June 30, April 30, 2007/ Sept.30, October May/June 30, 2007 2009 (Under 2010 (Under n

of under stage under 2004 2005 2006 2007 April 2008 30, 2009 2010 (Under PIU/PCU/ PIU/PCU/ Data Data Comment PIU/PCU Source Source Locatio PO/SC 2008 PO/SC) BVK/SVK) BVK/SVK) /VK)

Efficiency

No 5 56, 891 Substan- Conversion of The target and Data / No No water No No No No tial baseline were not 11 90.0% 15.00 61 60,269 Data/100 100% Unregistered Baseline connec Data Data Data Data increase clear; the unit was connec % Connections / -tions in not consistent over Bukhara Completeness -tions registra- the term; and tion/bill- of Customer progress toward No ing and Database target value of 92, 657 Data / No input into “substantial” and No water No No No No PIU/PCU/VK’s 3 70.0% 218.00 1,158 102,537 Data/100 commer- 100% 100% could not be Baseline connec Data Data Data Data connec % cial confirmed -tions -tions database Samarkand Samarkand Production meters 6 No Non Revenue were not 10,000 No Data/ 70,000 No 24,000 operational in June 38.5% m3/day/ 36.0% 29.0% 29.0% 28.6% 31.5% 30.0% 30.0% Water - NRW Baseline 70,000 m3/day Data m3/day 30, 2006 so 38.45% in percent of m3/day

baselines are Bukhara the total water inaccurate. The production trend line anomaly was attributed to No change in 27,000 reporting mode, No Data/ 121,000 9,000 3 45,000 PIU/PCU/VK’s 70.5% 3 3 m /day/ 60.1% 58.0% 51.0% 50.0% 36.5% 3 35.0% 35.0% raising questions Baseline 121,000 m /day m /day m /day 3 70.45% about the level of m /day metering in place at project closing Samarkand Financial

Sustainability Anomalous trend 7a Cash Flow - line and inverse No No No The revenue relationship 0.42 0.76 0.77 0.84 0.76 0.67 0.79 0.61 >1 >1 >1 Baseline Data Data collected by between 7a and 7b

VK is enough suggest data Bukhara to cover collection or calculation production problem – making costs this data No No No PIU/PCU/VK’s 0.36 0.72 0.83 0.81 0.72 0.75 0.86 1.21 >1 >1 >1 assessment Baseline Data Data unreliable and

inconclusive Samarkand

BASELINES INDICATOR VALUES TARGET VALUES

June 30, May 4, Dec. 31, June 30, June 30, 2006 June 30, Author’s PAD 2005 June 30, June 30, June 30, April 30, 2007/ Sept.30, October May/June 2009 (Under 2010 (Under under 2007 (Under stage under 2004 2005 2006 2007 April 2008 30, 2009 2010 PIU/PCU/ PIU/PCU/ Data Data Comment PIU/PCU PO/SC)

Location Location PO/SC 2008 BVK/SVK) BVK/SVK) Source of of Source /VK)

Financial Sustainability the ratio should be 7b Cash Flow - more for 7b. 0.77/ Anomalous trend No The collected 0.99 0.92 0.41 0.68 No 0.64 0.92 0.7 1.08 2.05 >1 >1 >1 Baseline amount of VK line and inverse Data plus Govt. relationship subsidies are between 7a and 7b Bukhara suggest data enough to collection or cover calculation production problem – making 0.83/ PIU/PCU/VK’s No 0.67/ 1.43 0.47 0.55 No 0.80 1.43 0.49 0.67 0.94 >1 >1 >1 costs and this data Baseline 0.73 expenses for assessment Data the loan/credit unreliable and repayment inconclusive Samarkand the trend line does 8a Domestic not show a natural No No 71.0%/ 104.0 98.0%/ progression, Data/ 67.0% 42.0% 61.0% 126.0% 97.0% 92.0% 107.0% 87% 87% Collection Baseline 67.0% % 85.0% Rate indicating flawed 42.0%

data collection. Bukhara The over 100% collection rate indicates No methodology No 61.0%/ 98.0%/

PIU/PCU/VK’s Data/ 44.0% 30.0% 30.0% 72.0% 57.0% 45.0% 66.0% 68.0% 80% 80% problems– making Baseline 44.0% 80.0% this assessment 30.0% unreliable and inconclusive Samarkand the trend line does 8a Commercial not show a natural No No 96.6%/ 85.0%/ 102.0 101.0 98.0% Collection progression, Data/ 99.0% 88.0% 131.0% 88.0% 74.0% 95% 95% Baseline 93.3% 93.3% % % 98.0% Rate indicating flawed 99.0% data collection. The over 100% Bukhara collection rate indicates methodology No No No 88.0%/ 116.0 98.0%/ PIU/PCU/VK’s problems– making Data/ 75.0% 73.0% 71.0% 97.0% 98.0% 108.0% 92% 92% Baseline Data 75.0% % 98.0% this assessment 67.0% unreliable and inconclusive Samarkand

BASELINES INDICATOR VALUES TARGET VALUES

Location Location PO/SC 2008 BVK/SVK) BVK/SVK) Source of of Source /VK)

Financial Sustainability

To To 9 Completeness Indicator No No No No No No increase increase 90.3% 90.3% 90.3% 91.0% 71.0% did not of Customer Baseline Data Data Data Data Data considera considera exist Database Indicator not part bly/95% bly/95% of the audit Bukhara evaluation, also not in the latter To To Indicator year ISRs No No No No 69.5%/ 69.5%/ No No increase increase

PIU/PCU/VK’s 67.5% 72.0% 67.3% did not Baseline Data Data Data 67.5% 67.5% Data Data considera considera exist bly/85% bly/85% Samarkand Samarkand Note: PAD = Project Appraisal Document.

Works completed under PDO 1: Strategic rehabilitation and efficiency improvement of existing facilities in critical condition/ Component 1: Investment Fund (IF) Samarkand Bukhara

Civil-rehabilitation works on pipelines Reconstruction of water mains and water pipe networks

Construction and repair of the small houses above the wells on Installation of water meters including fittings the Chupan-Ata and Dagbit water intakes.

Construction of fencing for water chambers on the water main Repair of roofing and premises of the laboratory

Construction of mains between reservoir and pumping station Reconstruction of enclosures at WTP Shakhrud in Mulyon

Construction of manholes in selected mains Reconstruction of facades of buildings

Major repairs of departments o Bukhara RPE Construction of straight-arch on the water main “Suvokova” Construction works for replacement Telpher Dagbit water- Reconstruction and building of production base intake Reconstruction of water mainline from Shakhrud WTP Construction works of reconstruction of SVK production base through Gazlinskoe highway to the existing water main line located apposite to Karvan Bazaar; Construction works of replacement of emergency area on Installation of water meter units in private houses Chupan-Ota-Mulyon water-conduit Construction works on reconstruction of cable lines for Reconstruction of loading bunkers at WTP Shakhrud electric supply Construction works on reconstruction of dispatcher building Connection of customers to newly constructed water and customer service building pipe networks Construction of control building and reconstruction of Construction works on reconstruction of roof of chemical lab office building of PRE “Suvokova” Repair of roof and installation of heating systems in Construction works on reconstruction of water supply administrative office of BVK Building and assembling operations on water pipeline Construction works on water supply of boiler house from Zarafshan Water Intake Construction of closed premises, where ultrasonic flow Construction of 10,000 m3 reservoir in Mulyon meters are installed

Expansion of car fleet – construction of garage Clearing of sediments ponds at Zarafshan PS

Installation of electric equipment and pumps on Chupan- Reconstruction and construction of internal electrical Ata/Dagbit water-intake power networks at WTP Shakhrud

Reconstruction of water treatment facilities at Shakhrud Installation of electric equipment and pumps on Dagbit water- WTP and Zarafshan water intake, construction of filter intake station at Shakhrud node

Installation of fire alarm in head office of SVK Current reconstruction of Kuyu-Mazar pump station Samarkand Bukhara Reconstruction of control building and the building of Installation of fittings in water intakes of Samarkand reagent unit at WTP Shakhrud Installation of flow meters, pressure meters and necessary Replacement of water distribution network accessories in pumping stations in Samarkand Reconstruction of heating system and water supply line Installation of water meters in apartments on reagent unit at WTP Shakhrud Installation of water meters in individual houses Connection of consumers to new-built streets

Internal area networks of houses Installation of fire alarm in Head office of VK PDD development (turnkey contract),the connection of Reconstruction of security lighting at WTP Shakhrud consumers Repair of the premises of sales dept and other Pipe replacement works departments of BVК, Reconstruction of electricity system of reagent unit at Reconstruction and expansion of administrative building WTP Shakhrud Reconstruction of technological communications on Reconstruction of Chupan-Ata/Dagbit water intake electrolysis and tank 5,000 m3 at WTP Shakhrud Reconstruction of water conduits

Reconstruction of internal area networks

Reconstruction of small water intakes

Reconstruction of the water supply network Rehabilitation of lifting construction and other repair- rehabilitation works Repair of chlorination plants in Chupan-Ata and Dagbit water- intakes Repair of Dagbit dam

Repair works for rehabilitation of newly given office premises

Repair-construction works in Mulyon

Replacement of water pipelines

Restoration of pumping stations

Testing of water meters Construction of roads, accomplishment works at Chupan-

Ata/Dagbit water-intake

Works completed under PDO 1: Strategic rehabilitation and efficiency improvement of existing facilities in critical condition/ Component 4: Swiss Finance Grant Component

Bukhara Quantity Cost Samarkand Quantity Cost Drainage Pumps n/a n/a Cons. Re. Energy n/a n/a Water Meters Water Meters Welding Unit Switchboards Valves Pumps Water Meters Water Meters Drainage Pumps Switchboards Welding Unit

Tasks completed for PDO 3: Strengthening of financial capacity through financial management and commercial practices/Component 3: Consulting Services and PCU Bukhara and Samarkand Bukhara Samarkand Elaboration and further updating of the Consulting services on project - design Elaboration of DED for connecting the Network Information System. Developing documentation for streets in Samarkand customers to newly constructed water pipe and further up-dating of Hydraulic city (up to 62 km) incl. Supervision of systems in Bukhara city. Network Model. contract execution Providing of consulting services on design - budget documentation in 11 streets Preparation of the feasibility study for Elaboration of DED for connecting the (Rustavelli, Islohat, Gijdivanskaya, project “Reconstruction of waste water customers to newly constructed water pipe Jeleznodorojnaya, I.Bukhoriy, Minskaya, treatment plants and sewage system in systems in Bukhara city. Ayni-Shabadskaya water line, Bukhara and Samarkand” Shevchenko, Navruziy, Ogahiy, Sadriddin Ayni) and Karimov str. In Samarkand Planning and design of construction works in filtration station and reconstruction of water facilities in Shakhrud station and reconstruction of Zaravshan water intake station. Planning and design of Elaboration of Design estimates for reconstruction and/or construction or Consulting services for elaboration of construction of control building and office extension of booster pumping stations and DED for Samarkand streets building of PRE “Suvokova” wells in Samarkand incl. Chapan Ata & Dagbit and all pipes to the booster pumping stations. Well fields performance testing including hydro geological, quality and quantity. Elaboration of PED (project estimate Architectural planning and design services documents) for reconstruction of water Consultant for Social assessment for technical premises, stores and pipelines and water pipe network with laboratory. length of 29,58 km in Bukhara. Providing of consulting services on design - budget documentation in 11 streets (Rustavelli, Islohat, Gijdivanskaya, Elaboration of DED for reconstruction of Consultant for Environmental assessment Jeleznodorojnaya, I.Bukhoriy, Minskaya, water supply network on Ayni-Shabadskaya water line, Suzangaranskaya Str. Shevchenko, Navruziy, Ogahiy, Sadriddin Ayni) and Karimov str. in Bukhara Elaboration of DED for reconstruction of Elaboration and implementation of water supply network around architectural Automatic Management System (AMS) Geological engineering survey monument Registan, Serebraynye Ryady (for PCU, Bukhara and Samarkand PIU’s) street

Bukhara and Samarkand Bukhara Samarkand Examination of work project Consulting services for elaboration of Water consumption decrease program “Reconstruction of water-supply in DED for Samarkand streets (up to 36 km) Bukhara city,” with distance 15.8 km Development of design-estimate Realization of supervision works of the documentation for reconstruction of Consultant for Project Impact assessment site object "Reconstruction of water Gormolkombinat - Sattepo water conduit supply networks" and water networks in Kurchatova str. in Samarkand Consultant on carrying out both of independent expertise of contract and preparatory works for realization of Individual Project Consultant - Financial Geological engineering survey imported goods pre-shipment inspection specialist - Tairova under the contract № ICB -02 for Universal Lathe of August 28, 2004. Consultant on carrying out of Contract The charges connected with customs Consulting services for elaboration of Individual Project Consultant - registration and declaration DED for Bukhara streets Commercial specialist - Kamalov Realization of supervision works of the site Planning of clearing sediments at Individual Project Consultant - technical object "Reconstruction of water supply Zarafshan pump-station specialist (supervision), - Tsoy networks" Updating of existing construction design Conducting quality surveillance CIW both Individual Project Consultant - Technical for replacement of DN700 water main let out building production and design specialist on NIS and HNM - Kadirov from Shokurd PS 3rd level to Microrayon2 Individual Project Consultant - Technical Elaboration of DED for reconstruction and specialist - programmer on billing and 1С construction of production basis. accounting - Djamalov

Individual Consultant for financial Individual Project Consultant - Financial analysis specialist - Norov Individual Project Consultant - Financial Individual Project Consultant specialist - Kerimova/Babakhanov Individual Project Consultant - Commercial specialist - Norbaev Individual Project Consultant - Mechanical Engineer -Rakhmanov Individual Project Consultant - Electrical Engineer - Kosyanov/Usmanov Individual Project Consultant - NIS/HNM & zoning specialist - Yakubov Individual Project Consultant for Institutional Development Assistance - Mavlan Kariev/Khalmukhamedov Individual Project Consultant for Tashkent - Grishenko

Annex 3. Economic and Financial Analysis (including assumptions in the analysis)

Economic Analysis At appraisal a cost benefit economic analysis was undertaken, which, due to major data limitations, was understood as largely speculative. A disclaimer indicated that further review of the economic analysis was granted for better assessment of economic benefits of the project, based on diligent data collection to be conducted by the PO. Such data gathering and economic analysis update did not however materialize during the term of the PO nor after it. At project closing, many critical data pieces were still missing, including reliable economic data values, willingness to pay assessments, marginal costs of water provision, assessment of consumer and tourism demands, beneficiary assessments, public health benefits, environmental benefits associated with water conservation, social benefits associated with improved water supply, energy costs associated with coping mechanisms, etc. Accordingly, no new cost benefit economic analysis was undertaken as part of the ICR effort.

Financial Efficiency Given the inconsistencies detected in the financial model used at appraisal to calculate project investment rate of returns (IRR), such IRR analysis was not replicated as part of the ICR effort. A financial analysis is instead presented based on utility data to assess the efficiency of the investments.

Progress towards financial viability of BVK and SVK was at the core of sector issues addressed by the project at appraisal. Aside from considerable technical problems, the main obstacle identified in the PAD was to set up the financial and institutional framework that would eventually allow BVK and SVK, over a long-term horizon, to operate as both technically and financially sound local utilities. Increasing BVK's and SVK's water tariffs and revenue collection was the most critical challenge at the time. The main problems facing BVK and SVK in the area of finance included: (i) tariffs that were below operating and maintenance costs (and no adequate provision for asset renewal); (ii) low collection of service charges which resulted in ever increasing accounts payable and receivables; (iii) minimal cash collections particularly from the budget organizations and industrial consumers that cancel their service fees through a complex and cumbersome clearing system that leaves the vodokanals stranded for cash; (iv) a highly distorted tariff structure with commercial tariffs about 8-10 times higher than those for domestic consumers; (v) inadequate short and medium-term operating and capital planning; and (vi) insufficient and outdated information about customers that directly affects billing.

The project's strategic choice was to jointly prepare and agree with the municipal governments a feasible financial recovery plan aimed at reducing costs associated with system inefficiencies, increasing tariffs and collections, reducing accounts payable to BVK and SVK from Government-owned entities, reducing non-cash forms of payment, and improving financial and accounting information and planning. The original financial analysis included two assumptions that prove critical in the results of the financial analysis: i) it included an inflation factor of 0% and ii) an increasing exchange rate that would increase from 200 UZS/dollar in 2000 to 790 UZS/dollar by 2004 and constant hereinafter.

Inflation rate in Uzbekistan has averaged 16% for the period 2000-2009. By not incorporating an inflation factor in the model, all tariff-related increases were nominal, and not real. Tariff adjustments should be real to allow for modifications to reflect changes in input prices.

In 2004 the exchange rate was already close to 1100 UZS/dollar and by 2010 the rate is approximately 1650 UZS/dollar. The more than doubling of the exchange rate from the base case has imposed severe

financial limitations on the water operators particularly to comply with the debt service obligations (see attached tables below).

Analysis In order to provide an analysis of the financial efficiency, it is important to address the two VKs separately as performance varied substantially among the two.

Samarkand Vodokanal. At the time of appraisal, tariff levels ranged from 5.4 UZS/m3 for domestic users to 24 UZS/m3 for industry. Collection rate was 86%, close to 40% of the costs were for energy use and revenues did not cover operation and maintenance. Energy use was to be reduced by 25% by the end of the project and tariff levels would range from 22 UZS/m3 for domestic to 35 UZS/m3 for industry. The current tariff level is much higher, ranging from 120 UZS/m3 for residential consumers to 131 UZS/m3 for industry. But given the very high level of inflation, these increases have been marginally positive in real terms. Collection rates have not improved and energy costs have remained at the same levels described at appraisal.

The project has had a marginal contribution to increase performance of Vodokanal particularly in its working ratio which decreased from 1.5 in 2006 to 1.2 in 2009. This seems to be related to two main factors: i) the increase in revenues from residential customers and ii) the completion of the debt repayments, which substantially reduced SVK’s liability. However, the increase in revenues from residential customers should have taken place earlier if metering programs had not been delayed.

Bukhara Vodokanal. At the time of appraisal, tariff levels ranged from 5.75 UZS/m3 for domestic users to 24 UZS/m3 for industry. Collection rate was 95%, close to 26% of the costs were for energy use and revenues did not cover operation and maintenance. Energy use was to be reduced by 25% by the end of the project and tariff levels would range from 22 UZS/m3 for domestic to 35 UZS/m3 for industry. The current tariff level is much higher, ranging from 120 UZS/m3 for residential consumers to 480 UZS/m3 for industry. For Bukhara, tariff levels for industry has seen a considerable increase although the implicit cross subsidy implied by an increase in only this level creates additional inefficiencies in the sector. Collections have continued to improve and the utility has reduced energy consumption by 42%.

The project has had a marginal contribution to increase performance of BVK particularly in its working ratio which decreased from 1.25 in 2006 to 1.07 in 2009. This seems to be related to two main factors: i) the increase in revenues from all levels of customers and ii) the completion of the debt repayments, which substantially reduce the BVK’s obligations.

Conclusions and recommendations  The financial performance of the VKs calls for substantial improvements and efficiencies to be achieved. The project fell short of its targets.  With the current tariffs and collection rates levels, the utilities are not able to generate sufficient cash to cover their operating expenses and annual debt service.  Increases in tariff levels should be contemplated in real, rather than nominal terms,  Financial, technical and commercial efficiency activities should be mainstreamed into project design and carefully monitored during project implementation,  Water metering is essential for improving financial efficiencies and such programs should be implemented early on, not at the near end of the project,  Basic assumptions such as exchange rates and inflation should be carefully embedded in financial simulators. Future modeling exercises should include a risk analysis section to identify sensitive variables that have a stronger influence on the outcome of the results.

BUKHARA VODOKANAL – Financial Indicators 2009 2009 Unit 2006 2007 2008 Jan-Jun Jan-Dec 2010 Plan Water production & sales volume Water production 1000 m3 68337 57243 54410 25126 51986 52469 Water losses (technical & non-technical) 1000 m3 19118 16461 15824 7033 14686 14999 Water sales (billed volume) 1000 m3 49219 40782.7 38586 18093 37300 37470 Residential consumers 1000 m3 15668 13314 12462 6948 13403 13452 Industrial consumers 1000 m3 3639 2486 1719 656 1468 1546 Budgetary consumers 1000 m3 2682 2448 2298 1124 2305 2344 Other consumers (Technical water uses) 1000 m3 27230 22538 22107 9365 20124 20128

Wastewater (billed volume) 1000 m3 10601 9676 9164 4327 8694 8790 Residential consumers 1000 m3 6542 6545 6815 3329 6637 6625 Industrial consumers 1000 m3 2382 1535 930 307 656 665 Budgetary consumers 1000 m3 1677 1596 1419 691 1401 1500

Approved water tariffs - see Note 1 below Residential consumers UzS/m3 60 75.4 94 114.2 117.34 145 Commercial/industrial consumers UzS/m3 239.2 305.2 386.8 471.9 480.9 584 Budgetary consumers UzS/m3 147.5 193.4 241.2 296.9 301.1 366 Technical water uses UzS/m3 19.1 29.9 38.1 47 47 57 Realized water tariffs - see Note 2 below UzS/m3 Residential consumers UzS/m3 60 75.4 94 114.2 117.34 145 Commercial/industrial consumers UzS/m3 239.2 305.2 386.8 471.9 480.9 584 Budgetary consumers UzS/m3 147.5 193.4 241.2 296.9 301.1 366 Technical water uses UzS/m3 19.1 29.9 38.1 47 47 57 Average realized water tariff UzS/m3 55.4 71.4 83.4 104 104.92 126.4

Billed water and wastewater revenues (including VAT)

Residential consumers K UzS 940070 1114673 1331170 919334 1809807 1891445 Commercial/industrial consumers K UzS 1044388 1351162.8 1078183 468364.8 1056928 1099143 Budgetary consumers K UzS 474672 850398 932542.8 537325.2 1114532 1128334 Technical water uses K UzS 625225.2 809402.4 1011266 528205.2 1135058 1135058 Total billed revenues (including VAT) K UzS 3084355 4125636.2 4353162 2453229 5116325 5253981 Total billed revenues (excluding VAT) K UzS 2726974 3623809 3849497 2197580 4565239 4693559

Collected water and wastewater revenues (incl. VAT) Residential consumers K UzS 790598.9 1163718.6 1253962 911979.3 1543765 1853616.1 Commercial/industrial consumers K UzS 906882 882255.8 889546.6 438520 1041247 1095240 Budgetary consumers K UzS 356004 858902.0 895241.1 526578.7 1069951 1150901 Technical water uses K UzS 575207.2 760838.3 920252.4 464820.6 1055604 1044253 Total collected revenues (including VAT) K UzS 2628692 3665715 3959002 2341899 4710568 5144011

Collection ratio (%) % 85.2 88.9 90.9 95.5 92.1 97.9 Residential consumers % 84.1 104.4 94.2 99.2 85.3 98.0 Commercial/industrial consumers % 86.8 65.3 82.5 93.6 98.5 99.6 Budgetary consumers % 75.0 101.0 96.0 98.0 96.0 102.0 Technical water uses % 92.0 94.0 91.0 88.0 93.0 92.0

Operating expenses Salaries & wages K UzS 286825 554748 768442 456419 1054442 1364029 Social fund contributions K UzS 71706 133140 184426 109540 253066 341007 Materials & spare parts K UzS 418495 453507 705984 393148 839493 822634 Electricity K UzS 934139 1024116 1128029 615352 1298671 1448138 Fuel K UzS 19590 36436 52280 30409 68188 71148 Taxes & compulsory contributions K UzS 81565 118995 118996 66750 141554 173624 Administrative expenses K UzS 69909 198198 244724 142114 269047 332380 Other cash operating expenses K UzS 212940 227469 248110 145451 410308 239272 Total cash operating expenses K UzS 2095169 2746609 3450991 1959183 4334769 4792232

Depreciation K UzS 923688 2469560 2609446 1514328 3160707 4160871 Total operating expenses K UzS 3018857 5216169 6060437 3473511 7495476 8953103 Interest expense & financial charges K UzS 4163754 3983253 4753264 587758 4734610 2291531 Total expenses K UzS 7182611 9199422 10813701 4061269 12230086 11244634

Annual working ratio - see Note 3 below ratio 1.25 1.33 1.15 1.20 1.09 1.07

Current assets & current liabilities Accounts receivable from residential customers K UzS 1468599 1435245 1492957 1498375 1686716 1650000 Accounts receivable from budgetary customers K UzS 156552 101862 84621 109439 132382 110000 Accounts receivable from other customers K UzS 1371519 1970971 2333638 2431346 2438984 2460000 Total accounts receivable K UzS 2996670 3508078 3911216 4039160 4258082 4220000 Other current assets K UzS 2720726 1925117 3060550 3312543 2970203 2980000 Total current assets K UzS 5717396 5433195 6971766 7351703 7228285 7200000 Trade accounts payable K UzS 819701 108214 144493 151247 174589 300000 Other accounts payable K UzS 154782 161254 152477 154987 154258 150000 Other current liabilities K UzS 6175595 3915672 2615600 800131 564026 400000 Total current liabilities K UzS 7150078 4185140 2912570 1106365 892873 850000

Current ratio (current assets/current liabilities) ratio 0.80 1.30 2.39 6.64 8.10 8.47

BVK's share of annual debt service - see Note 4 below K UzS 0 0 0 9% 9% 9% Interest & financial charges K UzS 1067431 2134863 2668578 Loan principal repayment K UzS 2013901 4027801 5034751 Total annual debt service K UzS 0 0 0 3081332 6162664 7703329

Note 1. Approved tariffs are the tariff levels approved by the municipal/regional authorities. Note 2. Realized tariffs are the tariff levels actually realized by DVK; they are calculated as annual billed revenues divided by annual billed volume. Note 3. Annual working ratio is annual cash operating expenses divided by annual collected revenues (excluding VAT). Note 4. BVK's share of debt service is the share it is actually expected to pay; the share of debt service to be paid by the Government should be excluded.

SAMARKAND CITY VODOKANAL – Financial Indicators 2009 2009 Unit 2006 2007 2008 Jan-Jun Jan-Dec 2010 Plan Water production & sales volume Water production 000 m3 95,972.0 82,303.1 83,481.4 40,005.8 72,093.3 68,136.0 Water losses (technical & non-technical) 000 m3 61,427.0 39,692.8 44,848.7 20,331.6 34,256.9 20,436.0 Water sales (billed volume) 000 m3 34,545.0 42,610.3 38,632.7 19,674.2 37,836.4 47,700.0 Residential consumers 000 m3 22,501.0 29,686.5 26,541.9 13,552.8 26,996.7 31,700.0 Industrial consumers 000 m3 6,174.0 6,941.1 6,905.7 3,586.3 5,539.6 1,520.0 Budget consumers 000 m3 3,740.0 3,497.3 3,035.4 1,540.8 3,152.7 5,000.0 Other consumers 000 m3 2,130.0 2,485.4 2,149.7 994.3 2,147.7 9,480.0

Wastewater (billed volume) N/a Samarkand City Vodokanal does not provide sewerage service

Approved water tariffs - see Note 1 below Residential consumers UZS/m3 62.0 77.2 96.5 119.1 120.6 145.0 Commercial/industrial consumers UZS/m3 61.7 85.0 105.7 129.5 131.4 450.0 Budget consumers UZS/m3 145.0 175.4 221.9 268.8 272.3 327.0

Realized water tariffs - see Note 2 below Residential consumers UZS/m3 62.0 94.5 121.6 148.4 148.7 143.5 Commercial/industrial consumers UZS/m3 70.0 86.0 105.0 129.2 132.0 248.6 Budget consumers UZS/m3 145.0 171.8 217.6 267.6 270.3 323.0 Average water tariff UZS/m3 80.4 106.9 136.0 165.2 169.0 186.0

Billed water revenues (including VAT) Residential consumers K UZS 1,395,120.8 2,804,356.8 3,228,321.7 2,011,285.6 4,013,971.0 4,548,200.0 K UZS Commercial/industrial consumers 1,005,540.6 1,374,070.5 1,631,654.5 992,765.7 1,832,423.0 3,281,850.0 K UZS Budgetary consumers 648,014.6 720,809.5 792,123.8 494,509.7 1,021,920.3 1,938,435.0

K UZS Total billed revenues (including VAT) 3,048,676.0 4,899,236.8 5,652,100.0 3,498,561.0 6,868,314.3 9,768,485.0 K UZS Total billed revenues (excluding VAT) 2,775,806.8 4,555,354.5 5,253,916.7 3,250,948.4 6,393,270.3 8,898,435.0

Collected water revenues (including VAT) K UZS Residential consumers 925,590.2 1,253,758.3 1,690,579.4 1,264,617.0 2,633,577.7 3,411,150.0 K UZS Commercial/industrial consumers 1,199,804.3 995,271.7 1,267,374.1 1,163,956.0 1,693,772.1 3,281,850.0 K UZS Budgetary consumers 654,110.3 714,603.6 820,163.6 422,871.5 867,034.2 1,938,435.0 K UZS Total collected revenues (including VAT) 2,779,504.8 2,963,633.6 3,778,117.1 2,851,444.5 5,194,384.0 8,631,435.0 K UZS Total collected revenues (excluding VAT) 2,470,519.0 2,678,654.4 3,430,194.2 2,586,973.3 4,767,583.0 7,761,385.0

Collection ratio (%) Residential consumers % 66.3 44.7 52.4 62.9 65.6 75.0 Commercial/industrial consumers % 119.3 72.4 77.7 117.2 92.4 100.0 Budgetary consumers % 100.9 99.1 103.5 85.5 84.8 100.0 All consumers % 91.2 60.5 66.8 81.5 75.6 88.4

Operating expenses Salaries & wages K UZS 315,147.1 405,262.0 558,967.8 353,503.1 743,959.0 903,780.0 Social fund contributions K UZS 78,232.2 98,929.4 132,491.0 83,357.1 174,154.1 225,945.0 Materials & spare parts K UZS 178,188.8 270,643.5 174,392.5 91,213.3 236,808.0 230,220.0 Electricity K UZS 2,362,138.4 2,762,660.4 3,171,311.7 1,660,427.1 3,553,935.7 3,508,213.0 Fuel K UZS 48,657.0 79,318.6 89,225.4 50,313.6 118,431.3 103,850.0 K UZS Taxes & compulsory contributions 222,206.5 282,372.2 383,865.3 239,648.4 500,324.6 653,122.0 K UZS Administrative expenses 20,240.5 10,320.2 113,760.4 102,210.3 27,418.3 44,500.0 K UZS Other cash operating expenses 495,576.4 513,430.9 307,257.1 181,400.8 385,021.5 286,354.0 K UZS Total cash operating expenses 3,720,386.9 4,422,937.2 4,931,271.2 2,762,073.7 5,740,052.5 5,955,984.0 K UZS Depreciation 634,132.9 1,064,795.5 1,516,864.7 939,878.0 1,106,881.6 1,725,500.0 K UZS Total operating expenses 4,354,519.8 5,487,732.7 6,448,135.9 3,701,951.7 6,846,934.1 7,681,484.0 K UZS Interest expense & financial charges 1,737,176.0 2,572,455.5 3,710,206.2 2,212,544.6 4,354,818.6 1,341,991.0 K UZS Total expenses 6,091,695.8 8,060,188.2 10,158,342.1 5,914,496.3 11,201,752.7 9,023,475.0

Annual working ratio - see Note 3 below ratio 1.5 1.7 1.4 1.1 1.2 1.05

Current assets & current liabilities K UZS Accounts receivable from residential customers 2,998,436.6 4,565,606.8 6,082,376.0 6,842,452.0 7,488,939.2 K UZS Accounts receivable from budget customers 77,121.8 83,702.0 54,132.8 14,741.8 178,789.6 K UZS Accounts receivable from other customers 775,244.4 1,098,177.4 1,522,992.0 1,593,495.2 1,821,343.8 K UZS Total accounts receivable 5,075,943.0 8,101,166.0 8,720,907.0 9,942,897.0 11,232,059.0 K UZS Other current assets 650,523.0 2,404,038.0 2,239,559.0 1,935,681.0 1,311,043.0 K UZS Total current assets 5,726,466.0 10,505,204.0 10,960,466.0 11,878,578.0 12,543,102.0 K UZS Trade accounts payable 888,483.0 1,109,434.0 3,287,995.0 3,349,339.0 1,285,332.0 K UZS Other accounts payable 1,475,239.0 3,196,054.0 3,650,664.0 1,122,019.0 966,482.0 K UZS Other current liabilities 2,464,592.0 6,012,902.0 9,101,338.0 K UZS Total current liabilities 2,363,722.0 4,305,488.0 9,403,251.0 10,484,260.0 11,353,152.0

Current ratio (current assets/current liabilities) ratio 2.4 2.4 1.2 1.1 1.1

SVK's share of annual debt service - see Note 4 below K UZS Interest & financial charges 482,956.4 1,117,853.0 1,149,575.0 33,604.6 158,840.6 1,062,851.0 K UZS Loan principal repayment 0.0 824,279.7 1,477,827.0 49,683.9 107,333.3 279,140.0 Total annual debt service K UZS 482,956.4 1,942,132.7 2,627,402.0 83,288.5 266,173.9 1,341,991.0

Notes: Note 1. Approved tariffs are the tariff levels approved by the municipal/regional authorities. Note 2. Realized tariffs are the tariff levels actually realized by SVK; they are calculated as annual billed revenues divided by annual billed volume. Note 3. Annual working ratio is annual cash operating expenses divided by annual collected revenues (excluding VAT). Note 4. SVK's share of debt service is the share that SVK is actually expected to pay; the share of debt service to be paid by the Government should be excluded.

Annex 4. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members Responsibility/ Names Title Unit Specialty Lending Ede Jorge Ijjasz-Vasquez Sector Manager ECSCS TTL Walter Stottmann Retired Ex-Sector Leader Motoo Konishi Country Director ECCU8 Sector Leader Rinat Iskhakov Operations Officer ECSS6 Operations Janis D. Bernstein Senior Environmental Specialist ECSS4 Social Takao Ikegami Senior Sanitary Engineer EASIN Procurement Hiran Heyat Consultant ECSPF Financial Mgt. Christophe E. Bosch Sector Leader AFTUW Economics Hannah Koilpillai Senior Finance Officer CTRFC Disbursement Zoe Kolovou Lead Counsel LEGOP Legal Piotr Krzyzanowski Senior Environmental Specialist Environment Tamara Noel ECSIN Project Support

Supervision Pier Francesco Mantovani Lead Water and Sanitation Specialist ECSS6 TTL Takao Ikegami Senior Sanitary Engineer EASIN Ex-TTL Jonathan Kamkwalala Sector Leader AFTUW Ex-TTL Christophe E. Bosch Sector Leader AFTUW Ex-TTL Anna Cestari Water Resources Specialist ECSS6 Ex-co-TTL Yoko Katakura Senior Investment Officer CSFDR Ex-TTL Jan Drodz Senior Water and Sanitation Specialist AFTUW Ex-TTL Sana Kh.H. Agha Al Nimer Senior Water & Sanitation Specialist MNSWA Technical Galina Alagardova Financial Management Specialist ECSO3 Financial Irina Babich Financial Management Specialist ECSO3 Financial Janis D. Bernstein Senior Environmental Specialist ECSS4 Social Loup J. Brefort Country Manager ECCYU Management Alexander V. Danilenko Senior Water & Sanitation Specialist ETWWP Technical Ruxandra Maria Floroiu Environmental Engr. ECSS3 Environmental Simone Giger Social Development Specialist ECSS4 Social Luz Maria Gonzalez Consultant LCSUW Technical Rinat Iskhakov Operations Officer ECSS6 Operations Ma Dessirie Kalinski Finance Analyst CTRDM Financial Elena Klementyeva Program Assistant ECCUZ Project Support Kishore Nadkarni Consultant ECSS2 Financial John Otieno Ogallo Sr. Financial Management Specialist ECSO3 Financial Fasliddin Rakhimov Procurement Specialist ECSO2 Procurement Klas B. Ringskog Consultant ECSS6 Technical

Leila Talipova Consultant ECSSD Technical Alexandru Ursul Consultant ECSSD Technical

ICR Pier Francesco Mantovani Lead Water and Sanitation Specialist ECSS6 ICR Team Leader Roohi Abdullah Consultant ECSS6 Primary Author

(b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands (including No. of Staff Weeks travel and consultant costs) Lending FY98 28.44 FY99 122.42 FY00 46 115.71 FY01 35 101.07 FY02 29 69.88 FY03 0.07 FY04 0.00 FY05 0.00 FY06 0.00 FY07 0.00 FY08 0.00

Total: 110 437.59 Supervision/ICR FY98 0.00 FY99 0.00 FY00 0.00 FY01 0.00 FY02 1 4.16 FY03 29 156.78 FY04 44 167.49 FY05 47 121.91 FY06 36 91.83 FY07 36 141.27 FY08 36 105.47 FY09 24 0.00

Total: 253 788.91

Annex 5. Beneficiary Survey Results

As supplement to M&E data gathering and interpretation conducted during implementation, specific project impact assessment studies were conducted at the end of the project in Bukhara and Samarkand. The studies included further documentation of project performance indicators, and importantly, an assessment of the evolution in water service quality and satisfaction since 2005 through customer surveys. The studies were conducted by Donaev Management Consulting. A total of 175 households were surveyed in Samarkand and 120 in Bukhara, distributed in “pilot raion” and “control raion” areas:  The “pilot raion” areas were selected in parts of the VK service perimeter that had directly benefited from water production or distribution rehabilitations by the project.  The “control raion” areas were selected inside the VK service perimeter, but outside the zone of direct project intervention.

In both cities, statistically significant numbers of households attested to improvements in water supply service in project areas since 2005, as detailed in the tables and graphs below. Reported trends are statistically significant with a 5% confidence interval, when compared to control areas. Survey results were however received late in the ICR process and certain data anomalies could not be fully reconciled13.

 Almost half the surveyed households report better service regularity in the project areas of Samarkand and Bukhara (as compared to 10 to 20% in control areas)  In both cities, beneficiaries report clear improvements in water pressure: Positive opinions are 1.2 to 1.5 more frequent that negative ones in the project areas. By comparison, the pressure situation may have further degraded in control areas.  There is no clearly perceived water quality improvement or deterioration since 2005. The overall appreciation is neutral in the project areas, whereas a sense of deterioration prevails in control areas.  Leaking mains are deemed less frequent by 37% of households in Samarkand project areas, whereas they are unchanged or more frequent for 86% of the sample in control areas. In Bukhara, a reduction in leaks perceived in the project areas and, to a lesser extent, in the control areas.  Finally, in both cities, overall satisfaction with water service has increased as a result of the project. In Samarkand, 60% of surveyed households in project areas are satisfied with service evolution since 2005, compared to 40% in control areas. In Bukhara the contrast starker, with two-thirds of project area households deeming service satisfactory or significantly improved, whereas in control areas two-thirds of households report that the service remains unsatisfactory or that it has significantly deteriorated. The surveys also convey other perceived improvements by households, including increased VKs’ maintenance responsiveness and reduced prevalence of water-borne diseases.

13 For instance, the frequency results for Bukhara’s service regularity, pressure, and leaks do not add-up to a total frequency of 100%, and such results had to be adjusted to fit a total of 100% in bar chart representation.

1. Type of supply mode (evolution 2005-2010)

Samarkand Bukhara Piped water in the Piped water Piped water Piped water in the Piped water Piped water Source of water house/apartment inside the yard outside the yard Non piped water house/apartment inside the yard outside the yard Non piped water Control raion 37% -> 37% 50% -> 50% 11% -> 11% 11% -> 11% 22% -> 26% 43% -> 41% 23% -> 21% 12% -> 12% Pilot raion 25% -> 46% 58% -> 50% 10% -> 0% 7% -> 4% 47% -> 81% 29% -> 18% 24% -> 1% 0% -> 0%

2. Main water service performance results

Samarkand (surveyed areas) Bukhara (surveyed areas) Service regularity Pilot Pilot raion raion

Improved Control Control No change raion raion Deteriorated No water/no opinion 0% 20% 40% 60% 80% 100% No answer 0% 20% 40% 60% 80% 100%

Water pressure Pilot Pilot raion raion

Improved Control Control No change raion Deteriorated raion No water/no opinion No answer 0% 20% 40% 60% 80% 100% 0% 20% 40% 60% 80% 100%

Water quality Pilot Pilot raion raion

Improved Control Control No change raion Deteriorated raion No water/no opinion No answer 0% 20% 40% 60% 80% 100% 0% 20% 40% 60% 80% 100%

Samarkand (surveyed areas) Bukhara (surveyed areas)

Leakages in the Pilot Pilot streets raion raion More Control Control No change raion Less raion No water/no opinion No answer 0% 20% 40% 60% 80% 100% 0% 20% 40% 60% 80% 100%

Leakages Pilot Pilot inside the HH raion raion

More Control Control No change raion raion Less No water/no opinion 0% 20% 40% 60% 80% 100% 0% 20% 40% 60% 80% 100% No answer

Overall satisfaction with drinking Pilot Pilot water raion raion Control Control raion raion More satisfied Still satisfied Still not satisfied 0% 20% 40% 60% 80% 100% 0% 20% 40% 60% 80% 100% Less satisfied No answer Note: the survey results for Bukhara water Service regularity, Water pressure, Leakages in ths streets and in the HH showed sums of % different from 100%. In the graphs above, these results had to be adjusted to fit a total of 100%.

3. Survey raw results data:

Samarkand surveyed areas Bukhara surveyed areas No water / No No water / More No change Less no opinion answer Improved No change Deteriorated no opinion No answer Service regularity Control raion 10% 68% 14% 8% 0% 20% 56% 21% 0% 0% Pilot raion 47% 48% 5% 0% 0% 45% 47% 5% 7% 0% Water Pressure Control raion 10% 56% 25% 8% 0% 15% 50% 50% 0 0% Pilot raion 31% 43% 25% 1% 0% 23% 15% 15% 8% 0% Water quality Control raion 8% 66% 25% 2% 0% 8% 40% 51% 0% 0% Pilot raion 18% 59% 23% 0% 0% 28% 52% 20% 0% 0% Leakages in the streets Control raion 24% 62% 3% 2% 8% 15% 27% 37% 8% 0% Pilot raion 14% 47% 37% 1% 1% 7% 27% 43% 12% 0% Leakages inside the HH Control raion 9% 57% 7% 19% 8% 3% 23% 60% 2% 0% Pilot raion 6% 81% 10% 1% 2% 3% 22% 72% 12% 0%

60% Sum of % different from 100% Samarkand surveyed areas Bukhara surveyed areas No change No change More Still Still not Less No More Still Still not Less sa tisfie d sa tisfi e d sa tisfi e d sa tisfie d answer sa tisfi e d sa tisfie d sa tisfi e d sa ti sfie d No a nsw e r Overall satisfaction with drinking water Control raion 9% 31% 39% 14% 7% 21% 11% 23% 41% 4% Pilot raion 37% 24% 28% 11% 0% 33% 33% 13% 20% 1%

4. Regularity of piped water supply (hours of supply per day) Samarkand surveyed areas Bukhara surveyed areas 24 24 18 18 Control Control 12 raion 12 raion Hours Hours 6 6 Pilot Pilot raion raion 0 0 2005 2010 2005 2010

5. Opinion on Vodokanal’s involvement on system maintenance - Repair works (up to HH entry) witnessed by households : Samarkand surveyed areas Bukhara surveyed areas

100% 100% Does not know Does not know 80% 80%

60% 60% By other By other 40% insitutions/people 40% insitutions/people than Vodokanal than Vodokanal 20% 20% At least some At least some time by time by 0% 0% Vodokanal Vodokanal Control raion Pilot raion Control raion Pilot raion

- Institutions/people to which HHs turn in turn of problem : Samarkand surveyed areas Bukhara surveyed areas

100% 100%

80% 80% Not to Not to 60% Vodokanal 60% Vodokanal

40% At least some 40% At least some time to time to 20% 20% Vodokanal Vodokanal 0% 0% Control raion Pilot raion Control raion Pilot raion

6. Health Samarkand Bukhara

100% 100%

80% Did not 80% Did not report any report any 60% disease 60% disease

40% Reported at 40% Reported at least one least one 20% 20% disease * disease * 0% 0% Control raion Pilot raion Control raion Pilot raion

* including: gastro-intestinal diseases, diseases of locomotor system, urogenital diseases, infectious diseases.

Annex 6. Stakeholder Workshop Report and Results (if any)

Not required.

Annex 7. Summary of Borrower’s ICR and/or Comments on Draft ICR

A7.1 EXCERPTS OF BORROWER’S ICR Report on “Bukhara and Samarkand Water Supply” Project

Introduction

The main goal of the project was to improve safety, quality, reliability, efficiency and sustainability of water supply in the cities of Bukhara and Samarkand. Project objectives are achieved through:

 Strategic Recovery and effectively improve the existing facilities in critical conditions;  strengthening institutions of water utilities cities of Bukhara and Samarkand (Bukhara Vodokanal [BVK] and Samarkand Vodokanal [SVK]);  Strengthening the financial capacity of BVK and SVK by improving financial management and business practices.

The total cost of the Project is US$62.54 million, including:

 Credit of International Development Association (IDA) in the amount equivalent to US$23.71 million (38.3%).  Loan of International Bank for Reconstruction and Development (IBRD) in the amount of US$20.0 million (33.3%).  Grant of Swiss Government in the amount equivalent to US$9.0 million (15.0%).  Capital investments of State Budget in the amount equivalent to US$8.0 million (12.8%).

Project provided own funds of Bukhara RPE “Suvokova” in the amount equivalent to US$2.43 million and Samarkand MPSE “Suvokova” in the amount equivalent to US$2.9 million. According to the letter of the Minister of Finance of the Republic of Uzbekistan No. СР/07-04-2/284 of 5.07.2005 and approval of the World Bank from 21.07.2005 the investment of own funds were excluded from the project.

Projects main goals were increasing of efficiency, improving the quality, reliability, and water-supply safety as well as strengthening of financial situation and stability of water-supply in Bukhara and Samarkand cities:

(а) Reconstruction of strategic elements and increasing of efficiency of existing water-supply systems, which are in critical situation; (b) Strengthening of managing organization structure of Bukhara RPE “Suvokova” and Samarkand MPSE “Suvokova” through Service-Contract signed with experienced international Operator of water-supply systems based on performance indicators; (c) Strengthening of financial situation of Bukhara RPE “Suvokova” and Samarkand MPSE “Suvokova” through improvement of performance of financial management and introduction of market mechanisms.

The implementing agency is the “Uzkommunkhizmat” Agency. The Samarkand Regional Khokimiyat and Bukhara Regional Khokimiyat carry out the assistance in the implementation. There were established the Project Coordination Unit under the “Uzkommunkhizmat” Agency and Project Implementation Units in Bukhara and Samarkand cities. In order to coordinate the implementation of the Project, carry out the strategic management and general monitoring of the performance of the Project there was established the Coordinating Committee, which includes the representatives of Ministries and Departments of the Republic and local government bodies.

BACKGROUND

Origin of the Project

The water and sanitation services in Uzbekistan were rapidly deteriorating and the reliability and safety of drinking water were continuously decreasing in a downward spiral. The water supply and sanitation sector in Uzbekistan and in particular in Bukhara and Samarkand faced several constraints:

 Inefficient operations: Potable water and wastewater treatment plants were poorly maintained and operated resulting in poor performance in terms of quality of output and efficiency. For example, In Bukhara, the main and the network pumping stations of the wastewater system were in a dramatic poor state of maintenance.  Poor service levels: The excessive water losses and waste result in poor service levels to the population and industries. The water supply services in the two cities were poor in different dimensions.  Poor state of repair of facilities: although the percentage of urban households connected to pipe water supply was greater than 80%, the water treatment and distribution facilities, as well as the wastewater collection and treatment installations were rapidly deteriorating. In both cities a good part of the secondary network of the wastewater system is hydraulically overloaded. The lack of appropriate maintenance, poor planning, the use of low quality materials and equipment, and poor construction quality, combined with the recent shortages of resources, are responsible for the poor state of repair of water supply and wastewater assets. This trend brings the water and sanitation systems toward lower and lower service levels that will bring parts, and eventually the totality of the system, to a halt.  Unviable financial shortfalls: The water and wastewater utilities in Uzbekistan are facing reduced government transfers due to fiscal constraints, very low tariffs in Uzbekistan, it was about US$0.005/m3 in 1999), high cross-subsidies (in Bukhara and Samarkand the level of tariffs for nondomestic consumers was about 8 to 10 times higher than for domestic consumers), and poor collections. Not only revenues were insufficient to cover basic operational costs (much less maintenance costs), the BVK and SVK were only able to recover about 18% and 27% of their billings in cash respectively. The rest was either paid through a cumbersome system of invoice clearing and compensation with other utilities and customers’ own invoices and payments, or simply not recovered at all leading to a total collection level of 56% and 79% of billing in Bukhara and Samarkand respectively. In both cities the utilities’ accounts receivable represent about seven months of billing leaving them in a financially untenable situation. The utilities continue their operations by cutting maintenance expenses and not paying vodokanal staff and their suppliers, most notably electricity providers.  Weak human resource and institutional capacity: Despite many of skilled technical professionals working in the water sector in Uzbekistan, there was an urgent need for updating and improving skills in modern utility management systems (including management and operations of water supply and sanitation systems), planning strategies, financial and commercial management, and investment selection. The capacity of Municipalities and anti-monopoly commissions to monitor and regulate the vodokanals without undue interference also needs substantial strengthening. The accounting, financial and operational data collection and management systems were inadequate and did not provide a clear picture of the problems faced by the utilities. In fact, financial reports severely overstate the financial performance of vodokanals.  Water resources scarcity: Many water supply enterprises in Uzbekistan were located in basins with limited water resources. Although urban water supply was not the largest user of water resources, the competition with other sectors, mainly agriculture becomes particularly important during drought periods. The problem of water resources was compounded by poor management of regional water systems, poor allocation of water, pollution caused by agriculture and industry in some areas, and

wastage in the drinking water systems, both from leakage and lack of water conservation practices. In addition, operational costs of some of the utilities, such as BVK, are increased by their dependence on water resources located at a long distance from the population they serve and transported through channels or large mains over hundreds of kilometers.

The Government strategy for the proposed Bukhara and Samarkand project is twofold. First, to define a new relationship between the central and local governments based on a full decentralization of responsibilities to the local level for the provision of services and full cost-recovery of operational, maintenance and debt service expenses through water and wastewater tariffs. Second, to test for the first time in Uzbekistan, a new strategy to improve water supply services by involving the private sector in the provision of these services. This operation is designed as a first step in the implementation of this strategy, focusing on the two key areas that need the most improvement in the vodokanals, namely the operational efficiency of the water supply systems and the financial and commercial strategies.

As part of the Government strategy in the water supply sector, and more generally in the communal services, the Ministry of Communal Services was restructured in December 2000 as an Agency of Communal Services (ACS) with the main goal of commercializing the activities of city and district communal service providers.

Some of the key goals of this restructuring and the responsibilities of the new ACS include: (a) to coordinate the reforms in the communal services sector; (b) to act as regulator and to monitor the compliance of local authorities and commercial entities with the sector legislation; and (c) to attract foreign investments into the sector, including the establishment of joint ventures. As part of the reform, the local governments received the responsibility for the provision of water supply and sanitation services. The new policy calls for the promotion of alternative contractors for such provision so as to create a competitive environment. In addition, the policy gives a clear mandate to the local governments and service providers to improve efficiency and focus on water demand management.

PROJECT SCOPE AND COSTS

Scope of project:

Including Sanitation Component. The limited funds under this Bank operation, directly linked to the small borrowing capacity of the vodokanals and municipalities, require a focused operation in the most critical part of the systems. An evaluation of the sector indicated that water supply has several components close to collapse with potentially major negative consequences for the population. Furthermore, the expected benefits are expected to be greater by focusing first on water supply and the expressed preference of the population is for initial improvement in water supply services as indicated by the Social Assessment results (improving water quality is the first priority in Bukhara and improving reliability of water supply services is the first priority in Samarkand).

Including Cultural Heritage. The initial concept of the project included a component in cultural heritage to restore historical monuments with support by donors in order to develop the tourism industry. As project preparation progressed, it became clear that the water supply problems were very urgent and this area was selected to focus the project objectives in order to have greater benefits with the limited funding available. Separate donor programs for the cultural heritage activities were initiated.

Project Components Project Component 1: Investment Fund. This component would finance essential short-term expenditures (such as materials, equipment, vehicles) and a least-cost capital investment program aimed at improving the operations of the water supply system and the services to the population by achieving the performance improvement targets in the service contract. The Operator, together with BVK and SVK staff, will propose

the investments that are required to optimally re-structure and rehabilitate key components of the systems (such as sections of the water distribution networks and block distribution systems, specific components of the treatment plants, pumping stations), implement a demand management program, and set up financial management, accounting and commercial systems.

Project Component 2: Service Contract. This component would finance the costs related to the service contract. These costs include a base fee and a performance-based fee to be paid to the private Operator based on achievement of targets defined in the contract. The Operator would be given full responsibility for managing the investment program, operating the water supply system, and developing and implementing the demand management program and the commercial (billing and collection) and financial management departments.

Project Component 3: Consulting Services and Project Coordination Unit. This component would support the Project Coordination Unit (PCU); Independent technical and financial auditors that would monitor the Operator’s performance; independent financial auditors to prepare the financial project audits; and other consulting services.

Project Component 4: Refinancing of Project Preparation Facility (PPF).This component would refund the PPF advance used for PCU establishment and operational expenses, necessary equipment and software for the implementation of the financial management system, procurement assistance, training and operational travel of PCU staff.

For the first time in Central Asian region, there has been developed and implemented a computer model of NIS (Network Information System) in both cities, which provided the creation of a centralized database on water pipes, water lines, nodal points, to conduct an inventory of networks and was developed by the NHM (Network Hydraulic Modeling) to display system pressure and flow rate that allows you to quickly identify and fix leaks.

Under the Project there was realized “Community (makhallya) based urban water supply” рroject financed by Japan Social Development Fund in the amount of US$1.69 million, aimed for assistance in reduction of losses and decreasing of wasteful treatment to water in selected high-rise apartment buildings of Bukhara and Samarkand cities. Repair and rehabilitation operations for replacement of house pipe line, equipment and widgets were provided in 85 blocks of flats in Bukhara and Samarkand cities (Bukhara – 39, Samarkand – 46).

Project Achievements for Bukhara city

Bukhara is one of the oldest cities in Central Asia and the center of Bukhara region. Population of Bukhara city is about 300,000 people. The city’s area is 39.4 km². The basic layout of the city, established by the terrain, remained to date. The city is located in Zarafshan valley, in the bottom of the basin, on the right side of the shore. Area is about 2.6 thousand hectares and consists of a single-story and multistory buildings: the central part of the old city is single-storey buildings, new micro-districts in the southern and southeastern parts with multistory decent dwellings. At present, coverage of Bukhara with centralized water supply is 98% and with centralized sewerage—more than 50%.

The total project cost for Bukhara city was US$23.63, including funding from IBRD loan and IDA Credit— US$19.98 and the national budget—US$3.65 million.

For successful project implementation, international operator’s services for water supply, improvement of technical and financial performance of public utilities for water and sanitation were involved. Service contract signed with an international operator was completed on July 1, 2007.

Individual consultants for technical, commercial and financial fields have been involved to ensure continuous monitoring objectives.

In accordance with technical consultant that helped in the continued timely implementation and completion of the project, including:

• Monitoring of reduction of energy consumption, water losses; • Ensuring quality control; • Monitoring of the procurement process; • Advising RPE “Suvokova” in the financial and commercial activities; • Promotion of Project Coordination Unit (PCU) and Project Implementation Unit (PIU) in the two cities in the area of monitoring and technical supervision of the project, as well as in the preparation of required reports for the World Bank and the Swiss Government.

Analysis of specific energy consumption in BVK was conducted at Shokhrud pumping stations, Zarafshan and Kuymazar (water supply in Bukhara city), providing its own water production. The total active energy consumption in March, 2010 made 1,607,547 kW/h.

Considering water production at its own pumping stations—2,843,061 m³ and power consumption— 1,252,766 kW/h. BVK specific consumption in March, 2010 amounted to 0.441 kW/h per m³.

In the base year (2003), and specific power consumption in the BVK was 1.104 kW/h per m³.

There is a gradual decrease of volume of specific energy consumption. For the period of 30.06.2006 decrease in specific energy consumption in comparison with base period was 9.7%, while for the period of 01.04.2010 energy consumption decreased by 60.09%. Target indicator at the end of the project was 10%. Consequently, significant decrease of specific energy consumption with respect to indicators in 2003 has been noted in Bukhara.

At the time of project completion the works on the replacement of pipes are finished, and the scope of the completed works was 114.4 km of replaced worn-out water networks, which the target indicator exceeds 110 km by 4.4 km. This confirms the successful achievement of the target, replacement of worn pipes.

Replacing of worn-out water networks in Bukhara city for the period of 2005 - 30.06.2010

Target Project Indicator for Indicator for Indicator for Indicator Indicator Indicator for Indicator 2005 2006 2007 for 2008 for 2009 30.06.2010 15,3 km 44,8 km 71,85 km 74,83 km 97 km 114,4 km 110 km

BVK carried out the reconstruction of water treatment facilities at Shokhrud water treatment plant. Works completed on reconstruction have been executed on time, that is June 30, 2010, and are as follows:

1) Horizontal sedimentation pools. The reconstruction of two tanks of 50,000 m³ has been performed, which were not used because of depressurization, trays and dampers that allowed for settling and water cleaning in volume of 100,000 m³, coming from “Kuyu Mazar” water intake;

2) Filtering station. US$1008.35 thousand was spent for the reconstruction of filtering plant with capacity of 100,000 m³ per day. Full load of filter bunkers with zeolite in the volume of 630 tons has been performed. Filtration is carried out in a semi-automatic mode;

3) Electrolysis plant. Productivity of electrolysis—20 kg / d of chlorine.

The station produces a ready solution of sodium hypochlorite with a concentration of 0.6– 08% of chlorine (6–8 g/l). Installation cost jointly with delivery, installation supervision and commissioning—US$469,000, manufactured by CRUNDFOS ALLDOS. Production and use of chlorine are performed automatically.

4) Civil and erection works on the fence, installation of watchtowers, burglar alarm at “Shokhrud” WTP and “Kuyu Mazar” and “Zarafshan” water intakes have been carried out in accordance with the regulatory requirements for the protection of objects related to clause 2.

5) In general, works done at “Shokhrud” WTP—the reconstruction of horizontal sedimentation pools, construction of filtration plant and installation of electrolysis - allowed for water supply in full compliance with sanitary standards.

Also the following works have been executed:

 Reconstruction of water mains from the Shokhrud WTP of distribution channel station up to the existing water main Karvan Bazaar, D-700 mm, 0.96 km;  Reconstruction of 700 mm water main of "Shokhrud" WTP along Gazliyskoe road up to Carvon Bazaar with length of 3.84 km. 3.84 km of water networks with D 700 mm have been put into operation.

As of 31.08.2007, 49 new connections were registered, which were transferred from the illegal status to status of legal connections and included in the database of consumers. 42 connections of them are commercial customers and 7 connections—residential consumer. As of 31/10/2009, there were 61 new connections. Illegal connections have not been revealed for the period of 01.04.2010.

Volume of nonrevenue water/losses during water supply to population for the period of 2003 –January- 2010, thousand cubic meters in Bukhara city

January- Target 2010, 2003 2004 2005 2006 2007 2008 2009 June, Project forecast 2010 Indicator 35 749 46 243 23 568 19 117 16 463 15 888 14 686 7 769 15 537 45,8% 47,5% 36,7% 27,9% 30,9% 29,2% 28,2% 29,4% 29,4% 30%

Monitoring tests with regard to nonrevenue water revealed that nonrevenue water was 28.4% of production water balance. Permissible target indicator of “nonrevenue” water losses at the end of project completion should be 30% of production water volume. This indicator for 2007 reached 30.9%. This indicator was 29.2% in 2008. On the whole, the indicator of nonrevenue water/losses volume—30%—was achieved at the project ending. As of June 30, 2010, the percentage of nonrevenue water was 28.4%.

Base indicator of water volume production makes up 42,273 thousand m3.

The sales of water volume supplying to customers decreased during 2005–09. Annual water sales in 2005 were 96% of annual water sales of 2003.

The gradual increase of tariffs for water and installation of water meters promoted more economical water discharge and timely elimination of water losses in water supply networks.

Size of household duties as of June 30, 2006, was 67%. For the reporting period of July 1, 2010, this figure increased up to 110%. In light of project target at the time of its completion is 87%, we can conclude that the positive trend of increasing rate of debt reduction of household consumers.

Status of procurement

Procurement plan for the period of 2009-2010 was approved in order to achieve project objectives of procurement. The Plan approved by the World Bank where total amount of procurements made up US$54.54 million. US$21.82 million was for Bukhara city, including the World Bank – 18.17 million and State budget 3.65 million. Funding of Swiss Grant made up US$2.3 million.

Goods

Pumps, transformers, spare parts for pumps, cable and wire, spare parts for electrical equipment were procured to restore the buildings of the city water system. To ensure timely and effective elimination of accidents in the networks bought the necessary equipment such as pumps, cranes, excavators, emergency vehicles, as well as repeatedly carried out procurement of goods and materials and spare parts that were used for the repair activities.

Works

Forty-eight contracts have been concluded during the period of project implementation included in “Works” section in total amount of 28 038,36 mln. UZS, including reconstruction of water pipeline networks—21 contracts in the amount of 21 342,52 mln. soum with total length of 110,00 km. As of 01.07.10, water pipe networks with length of 114,40кm have been reconstructed and put into operation.

More than 120,000 people living in Bukhara and in vicinity of Bukhara have been supplied with uninterrupted qualitative water.

Services

Executed contracts:

 Consultancy services for the development of design estimates urgent work of reconstruction of water supply systems, the Bukhara;  Consulting services to develop design and construction documents for the further reconstruction of water supply networks and power systems;  Consulting services to develop PDS reconstruction of “Shokhrud” wastewater treatment plant “Zarafshan” intake and “Kuyu-Mazar” pumping station;  Development of Network Information Systems and hydraulic model of the network.  Consulting services to develop PDS for the reconstruction of water supply networks streets of Bukhara total length of 28.4 km;  Architectural planning and design services for industrial facilities, warehouses, laboratories, and customer department (production basis);  To organize the integration of SCE and EMG, signed a contract to develop and implement an automated control system (ACS);  Program to reduce water consumption, which provides for training of technical and commercial staff “Suvokova”;  Consulting services to develop PDS for the reconstruction of water supply networks of the city of Bukhara length 29.58 km;  Consulting services to develop PDS for the reconstruction of water supply networks of the city of Bukhara length 31.92 km.

Project Achievements for Samarkand

Samarkand, located in the northwestern part of Uzbekistan, in the center of Zerafshan valley on the left bank of Zerafshan River, is the administrative, cultural and tourist center of Samarkand region and the Republic. The modern city’s population is 392,000 people, given the rural villages surrounding the city—442,109. At the present 100% of Samarkand city population is covered by centralized water supply system.

The total project cost for the city of Samarkand was 28.03 million U.S. dollars, including funding from IBRD loan and IDA credit—23.88 million and the Republican Budget—4.15 million U.S. dollars. In addition, there were financed 6.25 million U.S. dollars from the Swiss Government Grant.

For the successful implementation of the project there were involved an international Operator services for water supply, improvement of technical and financial performance of public utilities for water and sanitation. Signed service contract with an international Operator was completed on July 1, 2007.

In order to ensure continuous monitoring objectives there have been involved individual consultants for technical, commercial and financial areas.

In accordance with the technical consultant it helped in the continued timely implementation and completion of the project, including:

 Monitoring the reduction of energy consumption, water losses;  Ensuring quality control;  Control of the procurement process;  Advising MPSE “Suvokova” in the financial and commercial activities;  Cooperation with Project Coordination Unit (PCU) and Project Implementation Unit (PIU) in the two cities in the area of monitoring and technical supervision of the project, as well as in the preparation of necessary reports for the World Bank and the Swiss Government.

At the time of completion of the project, the works on replacement of pipes were completed and the volume of the completed works was 130.1 km of replaced worn-out water networks in 147 streets, which corresponds to a target amount of 130 km. This confirms the successful achievement of the targeted replacement of worn pipes.

Replacement of worn-out water networks in Samarkand for the period from 2005 to June 30, 2010. Indicator for Indicator for Indicator for Indicator Indicator Indicator for Target 2005 2006 2007 for 2008 for 2009 June 30, 2010 indicator 16,1 km 41,9 km 76,3 km 100,4 km 125,6 km 130,1 km 130 km

Works

The 130.1 km of water networks put into operation include 26.8 km of main water pipes, including:

 9.2 km of water conduit to transport water from Chupan-Ata water intake to the city. The construction of this water conduit provide the improvement of water supply to the old part of the city and to the distribution point in Mulyon, which in its turn, supplies drinking water to the densely populated settlement Sattepo and central city heat-house.

 13.9 km of water conduit to transport water from Dagbit water intake to the city. This network provided the improvement of water supply to the third level pump stations Sogdiana, Mikrorayon, and Beruni, which supply water to densely populated settlements.  3.7 km of water conduit were constructed in the settlements of Samarkand.

As an addition to the constructed water conduit with length of 9.2 km, there was built a reservoir with capacity of 10,000 m3, which provided uninterruptible water supply to Sattepo settlement.

One of the successful construction projects is the reconstruction of the Tashkent water conduit with D = 1,000 mm and length of 6.75 km. Construction of the facility, besides the emergency replacement of water conduit, provided the reallocation of the water conduit from historical area to the safer distance from the historic—architectural ensemble of Registan and Bibikhanym mosque.

Under the project, with the purpose of improvement of the efficiency of the utilities and for energy saving, there were also reconstructed main and local water intakes, pumping stations of third lift. In particular:

• In Chupan-Ata water intake there were reconstructed 17 wells, replaced 7 km of cable and 3 horizontal pumps, as well as 48 deep-well pumps. There was installed a flow meter, electronic electricity meter, Russian company “Interenergoinvest” installed high-voltage frequency converters, which currently yield savings of electric energy in up to 20%. • In Dagbit water intake there were reconstructed 5 wells, replaced 1.3 km of cable, 5 horizontal pumps and 33 deep-well pumps. There was installed a flow meter, electronic electricity meter, the frequency converter. Renovated a lifting hoist. • In Mulyon distribution point, there was renovated the building of pumping station, expanded the territory of the distribution point, produced improvements, replaced 4,5 km of cable and additionally installed 4 Swiss horizontal pumps. Installed a flow meter, electronic electricity meter and two sets of frequency converters. • In the pumping stations of the third lift, there were reconstructed power systems with the replacement of transformers and pumps. Renovated buildings of pumping stations, upgrading and installation of flow meters. Reconstruction of the fencing of "Leo Tolstoy" pumping station and protection of the zone of the station and chemical laboratory. In “Gormolzavod” pumping station there was mounted a lifting hoist. • In local small water intakes of Charhin, Khimiki, Farhad, Khishrau, there were reconstructed of power systems with the replacement of transformers and pumps. There was renovated the building of pumping station, upgrading and installation of flow meters. Also performed the audit of wells and site preparation for installation of pumping equipment procured from the funds of the Swiss Grant.

As a result, along with upgrading the obsolete pumping and electrical equipment, there was put into account the production of water from water intakes and the water supply from pumping stations of the third lift. With the installation of frequency converters in the main pumping stations, there was achieved the reduction in electricity consumption by 20%.

• Consumers are equipped with water meters, including 47,500 units installed in private households, 800 pcs. installed in the main water supply inlets of apartment buildings, which provided equipment of SVK consumers by 67% (58,388 consumers equipped from total of 87,517 consumers in July 1, 2010)

Goods

Under the project, there were procured:  For the purpose of on time and effective elimination of emergency situations in the water supply system of the city, there were procured special vehicles such as: 55

. Sludge collectors (2 pcs) . Water transporters (2 pcs) . Truck cranes (2 pcs) . Excavators (4 pcs) . Emergency vehicles (4 pcs) . Tractors (2 pcs) . Dump truck . Compressors (2 pcs) . Mobile electric power generator . Mobile electric laboratory . Passenger vehicles (microbus – 3 pc and car – 1pcs) . Besides there were repeatedly procured goods, materials and spare parts which were used for repairing activities.

 For the purpose of reconstructing the city water supply system, there were procured pumping equipment including: . Horizontal pumps (30 pcs) . Well pumps (88 pcs) . Drowned pumps (3 pcs) . Besides there were procured spare parts for pumps.

 For the purpose of improving the electric supply and decreasing energy costs, there were procured: . Transformer substations (15 pcs) . Electric cabinets 6 kV (4 sets) . Frequency convertors (4 sets) . Electric switchgears (83 pcs) . Cable and wires (28 km) . Also there were procured spare parts for electric equipment.

 For city water supply network there were procured: . Nonmetal pipes (5.4 km) . Fire hydrants (150 pcs) . Stop valves (436 pcs) . Also pipes and repair pump clamps of different diameter for emergency works.

 For ensuring control of accounting of water production and supply to customers, there were procured: . Water meter equipment including electronic ultrasonic flow meters (12 sets) . Electronic electric energy meters (30 pcs) . Water meters (47,500 pcs) . Water meters for block apartments (800 pcs) . Stand for calibration and repair of water meters (2 sets) . Mobile analytical devices for consumption and water level meters (1 sets).

 For ensuring the quality of supplied drinking water, SVK laboratory was furnished with necessary equipment and chemical reagents. Besides there were procured hypochlorite calcium and liquid chlorine.

As per the Agreement of financial assistance the Swiss Government granted the amount of US$9.0 million (the share for Samarkand is US$6.26 million) to the Government of Uzbekistan in order to implement the present Project, which will was used for the procurement of Swiss goods and services. The necessary

measures were executed and procurement of priority equipment for rehabilitation of main water-intake facilities in Samarkand in the frames of the Swiss Grant implementation. The scope of procurements under the present Grant is allocated the following way:

 Horizontal pumps in set with electric motor and accessories for Dagbit (2 sets) and Mulyon (4 sets);  Switchgears with built-in compensation device for the small well pumps in Chupan-Ata (50 wells) and Dagbit (33 wells) water intakes;  Electric switchgears 6 kV in Chupan-Ata and Dagbit water intakes;  Water-meters D=15 mm (7500 pcs.) and D=20 mm (15 500 pcs.) for block of flats houses and individual houses, incl. verification bench for water-meters.

Furthermore, Swiss Government allocated additional amount of US$2,335,000 for procurement of equipment for water intakes Charkhin, Khimiki, and Farhad with deadline of the contract set to December 31, 2011.

Services

Executed contracts:  Consultative services for development of project-estimate document (PED) of primary works on reconstruction of plumbing networks Samarkand;  Consultative services for development of project-estimate document for a further reconstruction of water supply and system of energy supply and replacement of pumps in the stations of pumps in Samarkand;  Architectural planning and services of projects for technical apartments, storages, laboratory and subscriber department (production base);  For organization of work on the account of PCU and PIU, a contract is concluded for development and realization of the Automated Control System (ACS);  Program on reducing the use of water on which was foreseen teaching of technical and commercial personnel of “Suvokova”;  Contract for development of project-estimate document (PED) for reconstruction of water intakes in Samarkand (Consultant – SMEC International Pty., Australia);  Development of Plan of Network Informative System and Plan of Hydraulic Design of Network (Consultant – Louis Berger Group Inc., the USA);  Consulting services on Vodokanal management (Consultant - Usbek Water Management GmbH Co&KG (Austria));  Consulting services for preparing tender documents and assistance in the procurement process of Swiss commodities in accordance with Procurement Guidelines of SECO of Swiss Government (Consultant – Basler & Hofmann Consulting Engineers, Switzerland);  Consulting services for financial audit, the task of which is to audit and to estimate the financial activity of Vodokanal (Consultant – Price Waterhouse & Coopers, Switzerland).

The Service Contract, signed with international Operator for rendering services in water-supply, was completed on July 1, 2007. However the positive results on improvement of technical and financial activity of Vodokanal were not reached by Operator, including the following measurements:  Reduction of the physical water losses  Saving of energy consumption  Financial stability.

After the completion of the contract with Operator, there were hired individual consultants in technical and commercial spheres with the purpose of performing a continuous implementation of performance indicators.

The task of consultants is to render advisory services and assistance in:

1. Timely implementation and completion of the Project; 2. Development of stable capacities for the efficiency of the activity of Vodokanal, that is: for control of the whole system; for timely leak detection and elimination; for study and operation of electromechanical equipment with application of modern energy saving technology; for corresponding works supervision; maintaining accounting and commercial systems in market conditions; execution of corresponding investment and financial planning 3. Assisting Project Coordination Unit (PCU) and Project Implementation Units (PIUs) in both cities in monitoring and technical supervision over the Project, as well as assistance in submitting of the required reports to the World Bank and Swiss Government.

Sanitation and Environmental assessment

An initial review of potential environmental impacts and appropriate mitigation measures indicated that the project activities fall within the Category B as per the Bank’s OP 4.01. The project is expected to bring significant environmental and health benefits, such as improvements in public health through better quality and availability of treated water, and improvements in the sustainability of raw water sources through reductions in losses and wastage. Potential negative effects can be minimized through appropriate mitigation measures, which for this project are basically normal construction and utility operation practices.

The EMP includes a description of the legal and administrative framework of the environment sector with specific application to the project, a description of the baseline conditions, identification of main impacts, specific mitigation measures with implementation and monitoring responsibilities and estimated budget.

The provisions in the EMP are adequate to minimize potential negative environmental impacts associated with project activities.

The EMP will be implemented by BVK and SVK, under the management of an international utility Operator. The provisions of the EMP and the applicable local environmental regulations will be incorporated in the service contract to be signed between the Municipalities of Bukhara and Samarkand cities and the international utility Operator. Having an international Operator managing the utility company ensured compliance with these measures as well as knowledge transfer.

Lessons learned

The proposed operation in Bukhara and Samarkand is the second Bank-financed project in the water supply sector in Uzbekistan. The project suffered numerous implementation difficulties and was in unsatisfactory status for more than two years. The first project, designed to assist communities most severely affected by the Aral Sea environmental disaster, is now in satisfactory status and the lessons learned during the restructuring process have been very useful in the preparation of the proposed operation.

The key lessons learned during the implementation of “Bukhara and Samarkand Water Supply” Project include:

1. Overly complex structure of problem solving in urban sector. 2. The activities of international consultants must be discussed in advance with the Government and their selection and contracting should be done as early as possible and at least before launching project implementation. 3. Project implementation arrangements must be well defined and the roles between project coordinators named by the Government and international consultants should be clearly identified so that adequate supervision can take place.

4. Officials from the central and local government and vodokanal staff should be fully involved in project preparation and implementation. 5. Project development objectives should be modest, well-defined, and achievable. 6. All agencies in charge of providing counterpart financing should understand the expected profile so that adequate planning can be made in advance.

An important lesson to be learned from this project in the water sector include: Continuous interaction of PCU with BVK and SVK, administrations of Bukhara and Samarkand region, Ministry of Finance, Economics, Ministry of Foreign Economic Affairs, Cabinet of Ministers and other concerned agencies during project preparation and implementation. This interaction continues throughout the project, with the participation of the Bank team supervising the project. Sustainability of the project depended on a realistic assessment and prediction of minimum financial capacity of utilities and liabilities of khokimiyats of Bukhara and Samarkand regions to support the financial recovery plan based on a larger collection and a commensurate increase in tariffs.

Progress on the financial position of BVK and SVK and changes in circumstances were carefully monitored to support the efforts and initiatives to improve the viability of water utilities. Strengthening of BVK and SVK was carried out by the project, as water utilities staff responsible for the daily activities of operational improvement programs under management consultant who implement specific, targeted for training on the job not only as a condition of contract for services, but also ensured the achievement of goals used to determine the bonus payment. In addition, the Operational Manual had clear and concrete measures to implement the project, including the responsibilities of each party. Successful preparation and implementation of the project required a strong PCU with the support of experienced international team of consultants with engineering and financial experience.

A.7.2 BORROWER’s COMMENTS on DRAFT ICR (Nov 2010)

The draft Implementation Completion and Results Report was considered by Bukhara RPE “Suvokova”, Samarkand RSPE ”Suvokova”, Municipalities of Bukhara and Samarkand Regions and “Uzkommunkhizmat” Agency. In joint opinion they are not agree with the “Moderate Unsatisfactory” rating. The Borrower insists that “Moderate Satisfactory” is more corresponding.

The ICR Report laid stress on financial and institutional problems of Vodokanals. Firstly public services sector is a part of the state social policy. The tariffs for water supplying are limited by the payment capacity of the population and should not require that financial position of Vodokanals have to be similar as financial position of any commercial entity. Secondly institutional issues depend on technical conditions of water supply facilities in cities. Although majority of intakes and pumping station were rehabilitated, the most troubling part – water supply networks were reconstructed for 15-20%. It is necessary 2-3 times more investments for achievement objectives required by ICR Report. It should not be required from the Project more than actual possible outcome.

Significant physical investments were utilized during the project implementation, water treatment facilities, pumping stations and 244.1 km of water supply networks were reconstructed. It was done more than planned. These achievements of the Bank Task Team and Implementing agency have to be assessed objectively.

Below are detailed comments to the text of the report:

1. Comment: Table B. Consolidated assessment – probably can lead to misunderstanding as we use the other scale of assessment therefore it is necessary to give interpretation of the scale of assessments before the table and remove all tables into the end of the report as annexes. Text evaluation of the Project and the actions of the Borrower and the Bank would give a clearer picture and allow evaluating the Project objectively. In the case of a tabular assessment there is a risk that nonobjective evaluation of the project will arise at the 59

concerned ministries and agencies and: or use excessive violent measures to the performers or considering the high estimate does not give necessary attention to the new project on sanitation. We kindly ask you to revise the evaluations from Moderately Unsatisfactory to Moderately Satisfactory and remove the Table B into the end of Report, and preface the Report from the brief summary, taking into account difficult launch conditions and achievement of most of the indicators. The executive agency, Municipalities of Bukhara and Samarkand regions and Vodokanals are against publishing current assessments of the Report.

2. Comment. Section «Data sheet» part F. Tables with PDO and IO indicators missed. There is Attachment 2 to Report with information about Indicators therefore delete these tables from Data sheet is proposing.

3. Comment. Section «Data sheet» part H. There is no information about restructuring conducted during Mid Term Review during 2007. Part H has to be filling up.

4. Comment: Item 1.3. Restructuring of the project was conducted during the Midterm review, secondary indicators were revised. The Feasibility Study of the project was adjusted. The basic objective of the Project such as safety, quality, reliability, efficiency, financial viability and sustainability were not be revised as rejection of them would make the project meaningless. Quantity indicators have been revised and method of their determination has been refined. The Government considered the new indicators and approved them.

5. Please clarify: the item 1.5. Section “Component 3” The estimated cost is specified incorrectly. The total estimated amount under the Component 3 “PCU Incremental Operating Cost“ was US$ 1.05 million. Actual expenditures consisted US$ 0.98 mln. (Bukhara 0.47 mln. Samarkand 0.51 mln.

6. Please clarify: the item 1.5. Section “Project costs” co-financing was planning in the amount of US$ 13.33 million including the Government share - US$ 8 million and own means of Vodokanals - US$ 5, 33 million.

7. Please clarify: the item 1.7. Section “Revision of the Project Implementation Arrangements to achieve the PDO”. After completion of the Service Contract by the letter of the World Bank dated May 29, 2007 to Municipalities of Bukhara and Samarkand regions and to the Heads of Vodokanals the item 2.06 about Service Contract was excluded from the Project Implementation Agreement. Hence on the basis of restructuring of the project in the legal documents necessary changes were made.

8. Comment: the item 2.2. (i) During the first selection of the Operator negotiations with the next bidder had not been maintained due to the fact that the financial offer of more than US$ 7 million given that the budget was US$ 5.2 million. It was obvious that the excess of the budget for more than 34% will not be approved by the Government.

9. PCU does not agree with the statement, that the Government decision insignificantly improved the financial standing of Vodokanals. The Government allocated more than UZS 10 billion UZS, that 1.56 times more of the revenue of both Vodokanals in 2006, Vodokanals were released from the obligations under the so-financing of the Project in the amount of US$ 5,33 million.

10. Amendments were introduced into the Agreements of Project Implementation in according with completion of the Service Contract with BVK and SVK.

11. Comment: item 2.2 (ii) Individual consultants have been former Operator staff, consequently they had an adequate potential for assistance in project implementation. The analysis of the Vodokanal operation showed that there were no abrupt negative changes in the enterprise activity. Sub-item (i)-(ii): assessment is not impartial and is underestimated. There were partial short-comings, but in general all planned civil works had been accomplished (244 km pipelines replaced out of planned 240 km).

12. Sub-item (v) As the contracts were funded from two sources (The World Bank and The Government) advance payment had been released by two tranches. When contract amounts substantially increased in accordance with addenda, the advance payment was paid additionally, as the contract conditions envisaged the 15% or 20% advance payment of the total contract amount. Therefore, the additional advance payments have been released as a result of increase of the contract amount.

13. Objection: Item 2.2 paragraph “Implementation” The implementing agency and Vodokanals disagree with the assessment that PCU/PIU/SVK/BVK had a low potential in management of private operator / Service Contract. Operator submitted almost all reports and relevant documentation. The Client ensured the permanent presence of Operator specialists at field. The Technical Auditor raised the availability of certain achievements under the performance indicators of the Service Contract. In general the Service Contract had been accomplished without conflicts between the Client and Operator, because there was a regular dialogue between the contract parties. The discussions were as a matter of work nature which mainly concerned technical issues. Exactly, the availability of discussions between parties proves that PCU/PIU/SVK/BVK had an understanding of what is required from Operator in order to achieve Project objectives and thereby the Client asserted his interests. Perhaps, the Service Contract itself was inconsistent with the actual circumstances, but the Operator and the Clients always strived for the fulfillment of it in full capacity. Consequently, PCU/PIU/SVK/BVK had an adequate potential in managing the private operator/ Service Contract.

14. Objection: Item 2.4 paragraph “Financial management and Disbursements”: The implementing agency and Vodokanals absolutely disagree with such an assessment and are against the publication of this paragraph. The given paragraph is based on the findings of Fiduciary report, with which PCU absolutely disagrees and is preparing its objections. Many facts described in Fiduciary report are wrong. The Implementing agency is against the publication of this paragraph.

15. Objection: Item 2.4 paragraph “Procurement”: PCU absolutely disagrees with such an assessment and is against the publication of this paragraph. For the first time the PCU is being informed on some kind of assessment of procurement process. The findings of independent assessment are not confirmed by facts. The paragraph cannot be published until the Implementing agency and Vodokanals are provided with the independent assessment report for preparation of objections and comments.

16. Please clarify: item 3.2 paragraph “Key Performance Indicators”: The Audit of project indicators was conducted annually starting from 2005 (Completion of the first year of Service Contract). The last audit was conducted in September 2010, i.e. after the Project completion works. A special consultant was hired for the monitoring of indicators, which was continued after the Operator. The reports were prepared monthly.

17. Objection: item 3.2 paragraph “Project components”: Assessment of project components as “moderate unsatisfactory” is inconsistent with the fact that components 3 and 4 are assessed as “satisfactory” and “moderate satisfactory”.

18. Component 2: There was no premature termination of the Service Contract. Initially, the contract was signed for 3 years. The Operator accomplished 28 out 31 reports, which makes an overwhelming majority. It is the service of Operator that Components 1, 3 and 4 were assessed as satisfactory and therefore Component 2 shall be assessed as “moderate satisfactory” too.

19. Component 3: A special consultant was hired for the monitoring of indicators, which was continued after the Operator. The reports were prepared monthly. In general, component shall be assessed “moderate satisfactory”.

20. Objection: item 3.4 - The justification of assessments shall be revised and extended; low assessments need more justifications. Connection of consumers was not the part of Project indicators, although water mains, street and internal area networks have been reconstructed at the progress of the Project. Distribution lines, to which consumers are connected, have not been reconstructed. Here, fairly satisfactory is more impartial.

21. Objection: item 5.2 (a) The Implementing agency and Vodokanals disagree with the assessment of effectiveness of the Government activity as “fairly unsatisfactory”. Handing over of the project implementation on the initial stage, from the Ministry of Macroeconomics and statistics to “Uzkommunhizmat” Agency, was an action directed to secure Project implementation. Release of BVK/ SVK accounts blocking is not the competency of the Government. The blocking of account is occurred due to inability of BVK and SVK to pay the bills of suppliers. To solve this problem it was necessary either to increase the collection of payments for water, which relates to the competency of Operator or allocate a subsidy. Allocation of subsidy from the State budget cannot be processed quickly, the amount of allocated subsidy exceeded the Annual Sales of BVK and SVK in 1,5 times. The Government undertook the greater part of the credit and loan and continues to render its help in attracting additional investments. The financial status of Vodokanals is permanently controlled by the

Government. The growth of tariffs for water services exceeds the indicators, planned in line with the project feasibility study. The assessment shall be revised to satisfactory.

22. Objection: item 5.2 (b) – Implementing agency and Vodokanals disagree with the assessment of the implementing agency activity. First of all, the Operator was approved by the World Bank and therefore he was hired. Consequently, PCU had potential to hire Operator in accordance with the Bank procedures. Secondly, the affirmation on the problematic character of relations with Operator is inconsistent with the statement where PIU/BVK/SVK carefully followed the business plan developed by the private operator. There cannot be problematic relations when carefully following the developed plan. The civil works supervision was conducted up to the mark by the following persons: Operator specialists, the relevant staff of department of Vodokanal, PIU supervision specialist and State Architectural-Construction Supervision Agency. All civil works planned by the Project have been accomplished in full capacity.

23. The monitoring has been conducted by the Consultant for assistance in institutional development. The assessment needs revision up to fairly satisfactory.

24. Please clarify: item 6 Lesson 10. The construction supervision has been properly conducted by the following persons: Operator specialists, the relevant staff of department of Vodokanal, PIU supervision specialist and State Architectural-Construction Supervision Agency. All civil works planned were performed in full.

25. Please clarify. Annex 1. (a) Component 3 should be renamed “Incremental Operation Costs”, actual disbursement under that component US$ 0.98 million (Bukhara US$ 0.47 million; Samarkand US$ 0.51 million). The budget and costs under the consulting services are included into Investment Fund. It is necessary to add data into the Table under actual disbursement of Component 4 Swiss Grant US$ 9.14 million. Total amount of financing under the column Actual disbursement will be US$ 61.62 million.

26. Please clarify. Annex 1. (b) The amount of actual disbursement of the Borrower (5.72) should be revised to US$ 7.9 million. The amount of actual disbursement of IBRD funds US$ 18.84 million; IDA – 23.88 million. Totally under the project was disbursed US$ 61.62.

27. Please clarify. Annex 2. Item 4 Indicator (water conduits replacement). The indicator value at June 30, 2010 be corrected for Samarkand 114,4 km and Bukhara 130,1km.

28. Please clarify. Annex 5. Social survey of beneficiaries had been conducted and incorporated into the Project Impact Assessment Report, which was submitted to the World Bank.

29. Please clarify. Annex 6 Instead the notice “not undertaken” it is necessary to indicate “not required”. Conducting of the workshop was not included into the ToR for Project Impact Assessment. The ToR was agreed with the World Bank.

30. Please clarify. Annex 7 It is necessary to indicate that the municipalities of Bukhara and Samarkand regions are Implementing agencies on a level with the “Uzkommunkhizmat” Agency.

31. Objection. Annex 7. Paragraphs of “Unviable financial shortfalls” and “Weak human resource and institutional capacity” it cannot be published. Finance is a very complicated and complex issue, and one paragraph does not give an objective picture. As regards human resources, no research has been conducted; the opinion expressed in the report is incorrect. During a brief visit is impossible to make an objective opinion on workers throughout the sector, municipalities and the anti-monopoly commissions, especially as a representative of the Bank not met with them.

Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders

Not available

Annex 9. Key Performance Indicator

Bukhara: The following table includes Project Performance Indicators of BVK as of May 2010

Under PO/SC Indicator value Project Objective Indicator Baseline End of Project Date Baseline value Date Progress to date Date Date value Target Value 5% The percentage of samples taken according to (samplings with SAFETY AND agreed procedures that fail the chlorine residual 0.5% 06.30.2007 inadmissible poor <5% QUALITY standards concentration of residual chlorine) Considerable Continuously water supply services to customers improvement of 87.3% 99.90% with interruptions according to applicable norms water supply RELIABILITY (according social 06.30.2007 (look calculation in and rules (on the base of the emergency on the pipe services and survey) item Loss reduction) lines) reduction of interruptions time 3 457 197 1 543 369 Reduction of specific energy consumption kVA/m3 kVA/m3 10% compared with Operator’s Base Year (2003) (from 1.104 1.104 2003 53.22% (kVA/hour per cubic meter) – 1.104 (average kVA/hour per cubic monthly power consumption and water production) 3 2 988 431 meter) 3 132 505 m m3 EFFICIENCY Replacement of worn out water supply network 44,8 km 06.30.2006 106,62 km 110 км Registration of illegal connections or disconnection 56 891 60 269 from water supply network (conversion of 06.30.2007 100% water consumers water consumers unregistered connections) Water losses («Non-Revenue Water») - on the base

38,45% 06.30.2006 31,5% 06.01.2010 30% 06.30.2010 of account calculation 1. [Revenues + Other Revenues] / 1) 0,76 1) 0.61 [Operational costs (without overhead costs)] > 1 1. Total revenues to operational costs of Vodokanal 2) 0,92 2) 2.05 2. [Revenues +

Other Revenues + 2. Total revenues plus the Governmental subsidies 06.30.2007 Subsidies]/ to operational costs plus expenses for the FINANCIAL [Operational costs loan/credit repayment SUSTAINABILITY (without overhead costs and exchange rate difference) + Repayment of loan/credit] > 1 1. Domestic Collection Rate (strong fluctuations 67.0% 107% 87% of the percent rate are tied with uneven payment 06.30.2006 for water consumption ) 2. Non-domestic Collection Rate 96.6% 74% 95%

To increase Completeness of Customer Data Base 90.3% 06.30.2006 95% considerably

Samarkand: The following table includes Project Performance Indicators of SVK as of May 2010

Project Indicator value Indicator End of Project Target jective Baseline value Date Progress to date Date Date Ob Value SAFETY AND The percentage of samples taken according to agreed 1,2% 06.30.2007 0,0% <5% QUALITY procedures that fail the chlorine residual standards 0.0 % Considerable improvement Continuously water supply services to customers with 48% (see loss reduction of water supply services and RELIABILITY 06.30.2007 interruptions according to applicable norms and rules (according social survey) calculation in monthly reduction of interruptions report,) time

6 097 113 kWh 4 336 067 kWh Reduction of specific active energy consumption 6% compared with Operator’s Base Year (2003) 0.914 2003 13,23% (from 0.914 kVA/hour per (kVA/hour per cubic meter) – 0.914 (average monthly 2 085 042 kVarh 1 751 264 kVarh cubic meter) power consumption and water production) 3 3 EFFICIENCY 8 703 000 m 4 516 134 m Replacement of worn out water supply network 50,6км 06.30.2006 126,78км 130 км Registration of illegal connections or disconnection from 92 657 102 537 water supply network (conversion of unregistered 06.30.2007 100% water consumers water consumers connections) Water losses («Non-Revenue Water») – on the base of 70,45% 06.30.2006 36.5% 35% account calculation 1. [Revenues + Other 06.01.2010 Revenues] / [Operational 06.30.2010 1) 0,72 1) 1.21 costs (without overhead 1. Total revenues to operational costs of Vodokanal costs)] > 1 2. [Revenues + Other 2. Total revenues plus the Governmental subsidies to 2) 1,43 06.30.2007 2) 0.94 Revenues + Subsidies]/ operational costs plus expenses for the loan/credit [Operational costs (without repayment overhead costs and FINANCIAL exchange rate difference) + SUSTAINABILITY Repayment of loan/credit] > 1 1. Domestic Collection Rate (strong fluctuations of the percent rate are tied with uneven payment for water 44,0% 68% 80,0% consumption ) 06.30.2006

75,0% 108% 92,0%

2. Non-domestic Collection Rate Completeness of Customer Data Base 67,5% 06.30.2006 68,28% (300 464) To increase considerably

Annex 10. Project Background

Context at Appraisal (brief summary of country and sector background, rationale for Bank assistance)

Background: The project was designed to respond to the rapidly deteriorating water and sanitation services in Uzbekistan, particularly in Samarkand and Bukhara. The downward spiral of decreasing reliability and safety of drinking water was due to identified sector constraints such as:

(i) Inefficient operations: Water systems were poorly operated and maintained resulting in poor performance of output and efficiency, mostly related to energy efficiency due to improper design of pumping stations, use of old equipment and low level of automation led to high levels of energy consumption, and excessive water system leakages. Compounded by rising energy prices, energy costs in 2000 were as high as 66% of operational and maintenance expense in Samarkand and 42% in Bukhara. The total production of water was about 700 lpcd in Samarkand and 750 Ipcd in Bukhara, much higher than Western Europe, resulted in higher operating costs much over the international average, and due to lack of water conversation practices, wastage of water was rampant.

(ii) Poor service levels: The water network experienced excessive water losses which resulted in poor service delivery to consumers, 39% for Bukhara and 48% for Samarkand.14 Moreover, in Samarkand, 30% of the network received supply for just two periods of two hours every day, and the rest of the network suffered from very low pressure; whereas, in Bukhara, the quality of potable water was deficient carrying very high content of solids.

(iii) Poor state of repair of facilities: More than 80% of the urban household in Samarkand and Bukhara were connected to piped water supply. However, amidst deteriorating capital infrastructure mainly due to lack of appropriate maintenance, poor planning, use of low quality materials and equipment, poor construction quality, and shortages of resources.

(iv) Unviable financial shortfalls: The utilities in Uzbekistan operated under reduced government transfer15 aimed at increasing self-reliance of local utilities, very low tariffs authorized by the local Governments,16 high cross-subsidies,17 and poor collections. Not only revenues were insufficient to cover basic operational costs (much less maintenance costs), BVK and SVK were only able to receive about 18% and 27% of their billings in cash,18 leading to a total collection level of 56% and 79% of billing respectively. The utilities continued their operations by cutting maintenance expenses and not paying vodokanal staff and their suppliers, most notably electricity providers.

(v) Weak human resource and institutional capacity: There was a dire need for updating and improving skills in modem utility management systems (including management and operations of water supply

14 Moreover, losses in Bukhara and Samarkand were 5.6 and 17.6 m3/km of main/day/meter of pressure, compared to 0.25 for systems in Westem Europe. In addition, losses inside apartment blocks were equally high. Measured consumption by apartment dwellers was about 112 liters per capita per day (lpcd), but leakage in apartment blocks was as high as an additional 100 lpcd. 15 Due to fiscal constraints and decentralization policies in Uzbekistan. 16 The household water tariff in Samarkand in 1999 was about US$0.014/m3 and in Bukhara US$0.005/m3. 17 In Bukhara and Samarkand the level of tariffs for nondomestic consumers is about 8 to 10 times higher than for domestic consumers 18 The rest was either paid through a cumbersome system of invoice clearing and compensation with other utilities and customers' own invoices and payments, or simply not recovered at all. In both cities the utilities' accounts receivable represent about seven months of billing leaving them in a financially untenable situation. 66

systems), planning strategies, financial and commercial management, and investment planning. Moreover, the capacity of Municipalities and antimonopoly commissions, that monitored and regulated the Vodokanals, also needed substantial strengthening.

(vi) Lack of adequate information: The data collected on accounting, financial 19 and operations and management systems were inadequate, not easily available to utility management, and not providing a clear picture of the problems faced by the utilities; resulted in inefficiencies in operations and planning and development of the systems.

(vii) Water resources scarcity: The problem of water resources was compounded by poor management of regional water systems, poor allocation of water, pollution caused by agriculture and industry in some areas, and wastage in the drinking water systems, both from leakage and lack of water conservation practices. In addition, operational costs of some of the utilities, such as BVK, were increased by their dependence on remote water sources transported through channels or large mains over hundreds of kilometers.

Original Components (as approved)

The project objectives, under the SIL, were achieved through four main components: (a) investment fund, (b) service contract, (c) consulting services and project coordination, and (d) Swiss financed component.

Project Component 1: Investment Fund (estimated cost: US$46.88 million; actual cost US$49.19 million).20 This component financed essential short-term expenditures (such as materials, equipment, vehicles) and a least-cost capital investment program (including associated engineering and construction supervision services) aimed at improving the operations of the water supply system and the services to the population by achieving the performance improvement targets in the service contract. The Operator, together with BVK and SVK staff, proposed the investments required to optimally re-structure and rehabilitate key components of the systems (such as sections of the water distribution networks and block distribution systems, specific components of the treatment plants, pumping stations), implemented a demand management program, financial management, accounting and commercial systems.

More specifically the Operator’s annual plan for the use of IF fund generally complied with the following categories of expenditures for goods and works:

(a) rehabilitation of water distribution systems. Includes piping and other items generally identified with a water distribution systems, including water pipes, valves, fittings, service connection assemblies, air release valves, blow off assemblies, taps, plumbing fittings, water meters, tools and equipment to rehabilitate the piping network, and leak detection equipment and surveys;

(b) water production, treatment and pumping equipment and structural rehabilitation of facilities. Includes various items of equipment generally identified with collecting, treating and distributing water from the source to the consumers. This includes but is not limited to pumping equipment, spare parts, mechanical and electrical parts, controls and control systems, wells and parts of well systems, wellhead protection works, chlorination equipment, and structural rehabilitation relating to the operating equipment or related facilities.;

(c) bulk and retail water metering equipment. Includes the purchase and installation bulk meters and water pressure gauges at outlets of production sites and distribution reservoirs, and water level measuring devices. New or repaired retail water meters at domestic service connections (apartment buildings or blocks rather than individual units);

19 Financial reports severely overstated the financial performance of Vodokanals. 20 Estimated cost included Bukhara IF for US$ 21.30 million and Samarkand IF for US$25.58 million. 67

(d) water supply technical and administrative support systems. Includes technical and administrative equipment necessary to support the operations of the water supply system, including maintenance and construction equipment, computer hardware and software, copy machines, office furniture, communications equipment, other administrative equipment and structural rehabilitation required for the efficient administration of the water supply system;

(e) operations consumables and administrative operations. Includes items used in the course of effective operation, maintenance, and administration of the water supply system, such as treatment chemicals, consumables for pumping and treatment equipment, maintenance supplies, and temporary labor for emergencies and bonuses; and

(f) engineering and supervision services. Includes engineering design, construction supervision, technical and related assessments to implement the rehabilitation activities under the Investment Fund.

This component constituted around 76% of the total project financing at appraisal.

Project Component 2: Service Contract (estimated cost: US$5.20 million; actual cost US$ 2.14 million). This component financed the costs related to the service contract. These costs included a base fee and a performance-based fee to be paid to the private Operator based on achievement of targets defined in the contract, which included: (a) salaries and expenses for the Operator’s core group of management staff with international experience in the water supply sector who will implement the service contract;21 and (b) funds for a performance-dependent bonus paid to the Operator for achievements of specific targets defined in the service contract.22 The Operator was given the full responsibility for managing the investment program, operating the water supply system, and developing and implementing the demand management program and the commercial (billing and collection) and financial management departments.

This component constituted around 8% of the total project financing at appraisal.

Project Component 3: Consulting Services and Project Coordination Unit (estimated cost: US$1.05 million; actual cost US$5.64 million). This component financed: (a) maintenance of the PCU (including staff salaries, incremental operating expenditures, travel, training, and related expenses) with skilled staff to facilitate project implementation, coordinated project activities between the Operator, the Municipalities of Samarkand and Bukhara cities and other Government agencies, in addition to supervising the Operator’s performance; (b) carried out related consulting assignments and studies of technical, legal, and financial nature during project implementation.

This component constituted around 2% of the total project financing at appraisal.

Project Component 4: Swiss-financed component (estimated cost: US$9 million; revised cost: US$11.23; actual cost US$10 million). The Government of Switzerland provided a US$9 million grant for parallel financing to the World Bank-financed project. This grant provided supplemental resources for two activities. First, it financed an investment fund (goods and services of Swiss origin) with usage to be determined in parallel to those of the IF under Project Component 1. It also financed independent technical and financial

21 Staff provided by the Operator included expertise in: (a) general management of water supply utilities; (b) financial accounting and management, cost accounting and budgeting; (c) water supply, mechanical, electrical, and environmental engineering; (d) computer systems administration and database management; (e) customer management, public information and community relations; (f) maintenance, repair, material and inventory management; and (g) human resources development and training. 22 This bonus provided the incentives necessary to ensure measurable improvements in reduction of water losses, increase of collection, and increase in water safety among other factors specifically defined in the contract. The actual amount of the incentive fee to be paid to the Operator will be determined by the application of a performance factor to the maximum annual incentive fee. 68

auditors that monitored the Operator’s performance in relation to the service contract obligations and achievements of performance improvement targets, and prepared the financial project and water utility audits, as well as complementary consulting services to support the PCU.

This component constituted around 14% of the total project financing at appraisal.

Project Costs: At appraisal, the total project costs were US$62.33 million, of which US$ 13.33 million was to be financed through the GoU (see Annex 1, for details) and US$9 million was financed through the Swiss Grant.23 The front-end fee was financed from the proceeds of the IBRD Loan and the denomination of the World Bank IDA Credit was in SDR, equivalent to US$20 million, subject to parity adjustment during the project implementation term.

23 The Borrower’s share consisted of Government (US$8 million), SVK and BVK (US$5.33 million) contribution. 69

Annex 11. Mission and TTL Trajectory

TTL Tenure Months Scope Ede Jorge Ijjasz-Vasquez 02/19/2002–07/30/2002 5 Preparation Jonathan Kamkwalala 08/01/2002–08/08/2003 12 Effectiveness/Supervision Jan Drozdz 9/1/2003–03/31/2004 6 Supervision Jonathan Kamkwalala 04/01/2004–01/31/2005 9 Supervision Yuko Katakura 02/01/2005–10/24/2007 32 Supervision Christophe Bosch 10/25/2007–04/10/2008 6 Supervision Takao Ikegami 04/11/2008–03/31/2010 23 Supervision Pier Francesco Mantovani 04/01/2010–present 3 Supervision/Closing

Purpose TTL Sector Manager Project Team

Identification Mission (September 21–October Identification W. Stottmann/B.Gomez 15, 1998)

Bernardo Gomez, Program (TTL), Walter Stottmann, Aide-Memoire of Preparation Mission (March W. Stottmann/Ede Sector Leader, ECSIN, Emilio Rodriguez, Consultant Preparation 11–17, 1999) Jorge Ijjasz-Vasquez Rinat Iskhakov, Resident Mission Tashkent

Walter Stottmann, Ede Ijjasz, and Rinat Iskhakov, Judy Aide-Memoire of Preparation Mission (July W. Stottmann/B. Preparation Wilson (consultant, management contracts) and Konrad 18–23, 1999) Gomez Wutscher (consultant, wastewater network and treatment).

Aide Memoire of Preparation Mission (March W. Stottmann/B. Walter Stottmann, Bernardo Gomez, Ede Preparation 13–20,2000) Gomez Ijjasz and Rinat Iskhakov

Aide Memoir (October 19-23, November 1– Ede Jorge Ijjasz- Ede Ijjasz (Mission Leader), Motoo Konishi (Program Preparation Motoo Konishi 4,10–15, 2000) Vasquez Team Leader), and Rinat Iskhakov (Operations Officer) Kazuko Ogawa (ECC08); William Kingdom (INFWS-Peer Decision Ede Jorge Ijjasz- reviewer); Jan Janssens (SASIN-Peer reviewer); Ricardo Decision Review Meeting (January 21, 2001) Motoo Konishi Review Vasquez Halperin, Walter Stottmann, Motoo Konishi, Ede Ijjasz, Takao Ikegami, Tamara Noel (ECSIN); and Piotr

Krzyzanowski (ECSSD).

Ede Ijjasz (Mission Leader), Motoo Konishi, (Program Appraisal Ede Jorge Ijjasz- Team Leader), Rinat Iskhakov (Operations Officer), Aide Memoire (February 26–March 16, 2001) Motoo Konishi Mission Vasquez Harkbash Sethi, Judy Wilson, and Roland Liemberger (consultants)

Ede Jorge Ijjasz- Negotiation (January 29, 2002) Negotiation Motoo Konishi Vasquez

Board Ede Jorge Ijjasz- Board Approval (March 19, 2002) Motoo Konishi Approval Vasquez

Takao Ikegami (Senior Water and Sanitation Specialist/Mission Leader), Jagdish Jassal (Procurement Pre- Supervision Mission (November 18–28, 2002) Takao Ikegami Motoo Konishi Specialist), Rinat Iskhakov (Operations Officer) and Marie Effectiveness Marguerite Bourbigot (Senior Water and Sanitation Specialist)

Effectiveness (January 17, 2003) Effectiveness Jonathan Kamkwalala Motoo Konishi

Jonathan Kamkwalala (Mission Leader), Takao Ikegami Project (Senior Sanitary Engineer), Piotr Krzyzanowski (Senior Supervision Mission (March 21–28, 2003) Jonathan Kamkwalala Motoo Konishi Launch Environmental Specialist) and Rinat Iskhakov (Operations Analyst)

Jan Drozdz (Task Team Leader/Senior Water and Sanitation Specialist), and included Rinat Iskhakov Supervision (December 15–19, 2003) Supervision Jan Drozdz Motoo Konishi (Operations Analyst) and Fasliddin Rakhimov (Operations Analyst).

Jonathan Kamkwalala (Task Team Leader), and included Supervision Mission (May 6–14, 2004) Supervision Jonathan Kamkwalala Sumter Lee Travers Takao Ikegami (Senior Sanitation Engineer) and Rinat Iskhakov (Operations Analyst)

Jonathan Kamkwalala (Task Team Leader), and included Supervision Mission (September 12–18, 2004) Supervision Jonathan Kamkwalala Sumter Lee Travers Rinat Iskhakov (Operations Analyst) and Lee Travers (Sector Manager Infrastructure and Energy)

Jonathan Kamkwalala (Task Team Leader), Yoko Jonathan Kamkwalala Supervision/H Katakura (Senior Financial Analyst), Rinat Iskhakov Supervision Mission (January 24–31, 2005) (OTM)/Yoko Katakura Sumter Lee Travers OM/TTLT (Operations Analyst) and Sana Al Nimer (Senior Water (ITM) and Sanitation Specialist).

Yoko Katakura (Task Team Leader) and Rinat Iskhakov Supervision Mission (March 15–17, 2005) Supervision Yoko Katakura Sumter Lee Travers (Operations Analyst)

Yoko Katakura (Task Team Leader), Sana Al Nimer Supervision Mission (April 25–29, 2005) Supervision Yoko Katakura Sumter Lee Travers (Senior Water Engineer) and Rinat Iskhakov (Operations Analyst).

Yoko Katakura (Task Team Leader), Sana Al Nimer Supervision Missions (September 26–30, 2005) Supervision Yoko Katakura Sumter Lee Travers (Senior Water Engineer) Rinat Iskhakov (Operations Analyst), and Fasliddin Rakhimov (Procurement Analyst).

Yoko Katakura (Task Team Leader), Rinat Iskhakov (Operations Analyst), Luz Maria Gonzalez (international Supervision Mission (Feb 1–14, 2006) Supervision Yoko Katakura Sumter Lee Travers financial consultant), and Murod Sattarov (local financial consultant).

Yoko Katakura (Task Team Leader), Sana Agha Al Nimer (Senior Engineer) and Rinat lskhakov (Operations Supervision Mission (July 17–21, 2006) Supervision Yoko Katakura Sumter Lee Travers Analyst), Martin Raiser (Country Manager) and Dilnara Isamiddinova (Country Officer)

Yoko Katakura (Task Team Leader), Sana Agha Al Nimer (Senior Water and Sanitation Engineer), Rinat Iskhakov Mid-term Review Mission (October 16–20, MTR (Operations Analyst), John Ogallo (Financial Management Yoko Katakura Sumter Lee Travers 2006) Supervision Specialist), Fasliddin Rakhimov (Procurement Officer), Luz Maria Gonzalez (Financial Consultant) and Dilnara Isamiddinova (Country Officer).

Yoko Katakura (Task Team Leader), Rinat Iskhakov Mid-term Review Follow-up Mission MTR Follow- Yoko Katakura Sumter Lee Travers (Operations Analyst), Fasliddin Rakhimov (Procurement (February 5–7, 2007) up Mission Officer), and Dilnara Isamiddinova (Country Officer).

Yoko Katakura (Task Team Leader), Rinat Iskhakov Mid-term Review Follow-up Mission (April MTR Follow- Yoko Katakura Sumter Lee Travers (Operations Analyst), and Mr. L. Brefort, Country 23–25, 2007) up Mission Manager

Yoko Katakura (Task Team Leader), Christopher Bosch Supervision Mission and Workshop (May 24– (Central Asia Regional Sector Coordinator), Alexandru Supervision Yoko Katakura Sumter Lee Travers 30, 2007) Ursul (Engineer Consultant), Luz Maria Gonzalez (Financial Specialist), Alexander Danilenko (Water Supply Specialist), and Rinat Iskhakov (Operations Analyst). Mr. L. Brefort, Country Manager

Supervision Mission (July 23–26, 2007) Supervision Yoko Katakura Sumter Lee Travers Yoko Katakura (Task Team Leader), and Rinat Iskhakov (Operations Analyst). Yoko Katakura (OTM) Christophe Bösch (Task Team Leader), Yoko Katakura Supervision Mission (October 25–November 7, Supervision/H / Christophe Bosch Wael Zakout (former Task Team Leader), and Rinat Iskhakov 2007) OM/TTLT (ITM) (Operations Analyst)

Christophe Bosch Takao Ikegami (Task Manager), Rinat Iskhakov Supervision/H Supervision Mission (April 27–May 5, 2008) (OTM) / Takao Ikegami Wael Zakout (Operations Analyst), Klas Ringskog (consultant), and OM/TTLT (ITM) Alexandru Ursul (consultant)

Takao Ikegami (Task Team Leader), Rinat Iskhakov Supervision Mission (October 27–November 8, Supervision Takao Ikegami Wael Zakout (Operations Analyst), Klas Ringskog (consultant) and 2008) Anna Cestari (Environmental Engineer)

Takao Ikegami (Task Team Leader), Rinat Iskhakov (Operations Analyst), Klas Ringskog (Consultant), Janis Bernstein (Sr. Social Development Specialist), Simone Supervision Mission (February 2–19, 2009) Supervision Takao Ikegami Wael Zakout Giger (Public Sector Specialist), Ruxandra Floroiu (Environmental Engineer), Leila Talipova (Consultant) and Anna Cestari (Water Resources Specialist)

Anna Cestari (Water Resources Specialist/Co-TTL), Leila Talipova (Consultant), Kishore Nadkarni (Consultant), Anna Cestari (Co- Fasliddin Rakhimov (Procurement Specialist), Rinat Supervision Mission (October 5–19, 2009) Supervision TTL)/Takao Ikegami Wael Zakout Iskhakov (Operations Officer), Simone Giger (Social (was on mission) Development Specialist) and Ruxandra Floroiu (Environmental Engineer)

Takao Ikegami (Outgoing Task Manager), Pier Mantovani Supervision/H Takao Ikegami (OTM) / Supervision Mission (March 26–27, 2010) Wael Zakout (Incoming Task Manager), Manuel Marino (Water Sector OM/TTLT Pier Mantovani (ITM) Program Leader) and Rinat Iskhakov (Operations Officer)

Pier Francesco Mantovani (Lead Water Supply and Sanitation Specialist), Galina Alagardova (Financial Management Specialist), Irina Babich (FM Specialist), Supervision Mission (June 21–26, 2010) Supervision Pier Mantovani Wael Zakout Janis Bernstein (Senior Social Development Specialist), Rinat Iskhakov (Operations Officer), Ma Dessirie Kalinski (Finance Analyst), Fasliddin Rakhimov (Procurement Specialist), Leila Talipova (Consultant)

Closing Date (June 30, 2010) Closing Pier Mantovani Wael Zakout

Annex 12. List of Supporting Documents

1. Project Status Report – Seq #01 Archived Version – BSWSP. Dated: 06/28/2002 2. Project Status Report – Seq #02 Archived Version – BSWSP. Dated: 11/12/2002 3. Project Status Report – Seq #03 Archived Version – BSWSP. Dated: 05/13/2003 4. Project Status Report – Seq #04 Archived Version – BSWSP. Dated: 08/08/2003 5. Project Status Report – Seq #05 Archived Version – BSWSP. Dated: 11/18/2003 6. Project Status Report – Seq #06 Archived Version – BSWSP. Dated: 02/125/2004 7. Project Status Report – Seq #07 Archived Version – BSWSP. Dated: 03/05/2004 8. Project Status Report – Seq #08 Archived Version – BSWSP. Dated: 03/16/2004 9. Project Status Report – Seq #09 Archived Version – BSWSP. Dated: 07/07/2004 10. Project Status Report – Seq #10 Archived Version – BSWSP. Dated: 10/21/2004 11. ISR – Seq #11 Archived Version – BSWSP. Dated: 03/08/2005 12. ISR – Seq #12 Archived Version – BSWSP. Dated: 01/02/2006 13. ISR – Seq #13 Archived Version – BSWSP. Dated: 08/06/2006 14. ISR – Seq #14 Archived Version – BSWSP. Dated: 12/24/2006 15. ISR – Seq #15 Archived Version – BSWSP. Dated: 106/04/2007 16. ISR – Seq #16 Archived Version – BSWSP. Dated: 08/14/2007 17. ISR – Seq #17 Archived Version – BSWSP. Dated: 06/01/2008 18. ISR – Seq #18 Archived Version – BSWSP. Dated: 12/12/2008 19. ISR – Seq #19 Archived Version – BSWSP. Dated: 06/17/2009 20. ISR – Seq #20 Archived Version – BSWSP. Dated: 02/05/2010 21. ISR – Seq #21 Archived Version – BSWSP. Dated: 06/30/2005 22. Aide Memoire Preparation Mission, March 11–17, 1999 23. Aide Memoire Preparation Mission, July 18–23, 1999 24. Aide Memoire Preparation Mission, March 13–20, 2000 25. Aide Memoir Preparation Mission, October 19–23, November 1–4, 10–15, 2000 26. Aide Memoire Project Supervision Mission, March 21–28, 2003 27. Aide Memoire Project Supervision Mission, December 15–19, 2003 28. Aide Memoire Project Supervision Mission, May 6–14, 2004 29. Aide Memoire Project Supervision Mission, September 12–18, 2004 30. Aide Memoire Project Supervision Mission, January 24 –31, 2005 31. Aide Memoire Project Supervision Mission, March 15–17, 2005 32. Aide Memoire Project Supervision Mission, April 25–29, 2005 33. Aide Memoire Project Supervision Mission, September 26–30, 2005 34. Aide Memoire Project Supervision Mission, February 1–14, 2006 35. Aide Memoire Project Supervision Mission, July 17–21, 2006 36. Aide Memoire Project Supervision Mission, October 16–20, 2006 37. Aide Memoire Mid-term Review Mission, July 17–21, 2006 38. Aide Memoire Mid-term Review Follow-up Mission, February 5–7, 2007 39. Aide Memoire Mid-term Review Follow-up Mission, April 23–25, 2007 40. Aide Memoire Supervision Mission and Workshop, May 24–30, 2007 41. Aide Memoire Project Supervision Mission, July 23–26, 2007 42. Aide Memoire Project Supervision Mission, October 25–November 7, 2007 43. Aide Memoire Project Supervision Mission, April 27–May 5, 2008 44. Aide Memoire Project Supervision Mission, October 27–November 8, 2008 45. Aide Memoire Project Supervision Mission, February 2–19, 2009 46. Aide Memoire Project Supervision Mission, October 5–19, 2009 47. Aide Memoire Project Supervision Mission, March 26–27, 2010 48. Aide Memoire Project Supervision Mission, June 21–26, 2010

49. Office Memorandum date May 24, 2007 50. Final Audited Statement for the Performance Calculation and Annual Report, dated December 16, 2005. Audit of the Service Contract Base Data and Operator’s Performance. Ernst Basler+Partners. 51. Final Audited Statement for the Performance Calculation and Annual Report, dated December 19, 2006. Audit of the Operator’s Performance during Second Contract Year. Ernst Basler+Partners. 52. Final Audited Statement for the Performance Calculation and Annual Report, dated October 9, 2007. Audit of the Operator’s Performance during Third Contract Year. Ernst Basler+Partners. 53. Report on Technical Audit of BVK and SVK Performance during 5th Project Year, dated August 31, 2009. Ernst Basler+Partners. 54. Loan Agreement – Bukhara and Samarkand Water Supply Project (Loan No. 4655 UZ). Dated: April 12, 2002. 55. Development Credit Agreement – Bukhara and Samarkand Water Supply Project (Credit No. 3620 UZ). Dated: April 12, 2002. 56. SVK Project Agreement – Bukhara and Samarkand Water Supply Project (Credit No. 3620 UZ/Loan No. 4655 UZ). Dated: April 12, 2002. 57. BVK Project Agreement – Bukhara and Samarkand Water Supply Project (Credit No. 3620 UZ/Loan No. 4655 UZ). Dated: April 12, 2002. 58. Republic of Uzbekistan – Water Supply and Sanitation Sector Note. June 2010. Sustainable Development Department. Europe and Central Asia Region. World Bank. Report No. 55647-UZ. 59. Sixth Quality of Supervision Assessment (QSA6) under Quality Assurance Group (QAG). Dated October 13, 2004. 60. Seventh Quality of Supervision Assessment (QSA7) under Quality Assurance Group (QAG). Dated September 11, 2006. 61. Republic of Uzbekistan – Fiduciary Review Report on Bukhara and Samarkand Water Supply Project (Project ID: P049621, Loan No. 4655-UZ, and Credit No. 3620-UZ). Dated: June 2010. Operations Policy and Services Unit. Europe and Central Asia Region, World Bank. 62. Office Memorandum: Uzbekistan: Proposed Bukhara and Samarkand Water Supply Project Minutes/Summary of Decision Review Meeting. Dated: January 29, 2000. 63. Handing over notes by outgoing TTL to incoming TTL- Dated: October, 2007. 64. Independent Procurement Review (IPR) of World Bank Financed Projects, Uzbekistan. Bukhara and Samarkand Water Supply Project. February – March 2010. 65. Project Impact Assessment of “Bukhara and Samarkand Water Supply Project” Donaev Management Consulting, October 2010.

76 55°E 60°E 65°E 70°E KAZAKHSTANKAZAKHSTAN TToo Atyrau Aral 45°N 45°N Sea 2001 level of Aral Sea

1990 level of Aral Sea UZBEKISTAN Syr D a r 1960 level of Aral Sea ya

Ustyurt Plateau Muynak KAZAKHSTANKAZAKHSTAN KARAKALPKARAKALPAKSTANAKSTAN K A y z m y u l D K a r y u a m Nukus d KYRGYZ n NOVOINAVOI TToo Qyzylorda Adelunga TToghioghi (4301 m) REPUBLIC a Uchkuduk TToo TToo l Qyzylorda NAMANGAN Bishkek w Urgench ANDIZHANANDIJON o Muruntau KHOREZM L SYRDARYASYRDARYA TTASHKENTASHKENT Namangan a n TASHKENTTASHKENT Andizhan 0 50 100 150 200 Kilometers r A Sy T u r D m a r u y D a Kokand a Gagarin Fergana r TToo 0 50 100 150 Miles ya Guliston DZHIZAKJIZZAKH Kashi 40°N 40° BUKHOROBUKHARA N Ze ra DzhizakJizzakh FERGANA v shan Navoi BukharaBukhoro SAMARKAND This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information Samarkand shown on this map do not imply, on the part of The World Bank TURKMENISTTURKMENISTANAN Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. 60°E KASHKADARYAYA TAJIKISTANTAJIKISTAN Qarshi TToo Khorugh TToo UZBEKISTAN MarMaryy Denau

SELECTED CITIES AND TOWNS SURKHANDARYA OBLAST (VILOYATI) CAPITALS NATIONAL CAPITAL TTermizermiz RIVERS MAIN ROADS TToo RAILROADS Kabul IBRD 33508R MARCH 2009 OBLAST (VILOYATI) BOUNDARIES AFGHANISTANAFGHANISTAN PAKISTANPAKISTAN INTERNATIONAL BOUNDARIES 65°E 70°E