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Towards a National Strategy for Sustainable Sanitation in Armenia

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Towards a National Strategy for Sustainable Sanitation in Armenia Towards a National Strategy for Sustainable Sanitation in Armenia DISCLAIMER This report has been developed within the framework of The European Union Water Initiative (EUWI) funded by the European Union, implemented by the OECD in partnership with UNECE. The views expressed herein can in no way be taken to reflect the official opinion of the European Union. FOREWORD The project was implemented as part of the National Policy Dialogue (NPD) on water policy in Armenia conducted in co-operation with the European Union Water Initiative (EUWI) in Eastern Europe, Caucasus and Central Asia and facilitated by the OECD and the United Nations Economic Commission for Europe (UNECE). The OECD commissioned Trémolet Consulting Limited (UK) jointly with JINJ Ltd. (Armenia), which included Sophie Trémolet, Lilit Melikyan, Kevin Tayler, Eduard Mesropyan and Aida Iskoyan, for the analytical work and whom are also the authors of this report. Tatiana Efimova at the OECD provided essential oversight and inputs. The authors gratefully acknowledge the contribution of participants of the EUWI National Policy Dialogue to the project and to this report, and would like to thank the State Committee of Water Systems of Armenia for a very productive co-operation. The authors thank Xavier Leflaive (OECD) for his valuable comments that helped improve both the content and structure of the report, and express their appreciation to Matthew Griffiths (OECD) for professional contributions to the project at its final stage. In addition, the authors thank Shukhrat Ziyaviddinov, Maria Dubois and Lupita Johanson (all OECD), for their valuable contribution to preparing publication of the report. The views presented in this report are those of the authors and can in no way be taken to reflect the official opinion of the Government of Armenia, the European Union, or the OECD and its member countries. 6 TABLE OF CONTENTS ABBREVIATIONS AND ACRONYMS ........................................................................................................ 9 EXECUTIVE SUMMARY ........................................................................................................................... 11 CHAPTER 1 INTRODUCTION ................................................................................................................... 17 Study overview .......................................................................................................................................... 18 Overall reform objectives .......................................................................................................................... 18 Report structure .......................................................................................................................................... 19 CHAPTER 2 THE STATE OF SANITATION SERVICES AND FUTURE TRENDS ............................... 21 Access to sanitation.................................................................................................................................... 22 Transport services (sewerage and sludge collection and transport services) ............................................. 22 Treatment, discharge and reuse .................................................................................................................. 23 CHAPTER 3. THE NEED FOR A STAGED APPROACH TO INVESTMENT ......................................... 25 Large investment needs, little financing resources .................................................................................... 26 The realistic approach: defining targets for specific activities ................................................................... 26 CHAPTER 4 . REFORMING MARKET STRUCTURE ARRANGEMENTS ............................................ 29 Why are market structure reforms needed and what are the options? ....................................................... 30 Current situation: a fragmented market .................................................................................................. 30 The need for reform ................................................................................................................................ 32 Choosing the optimal market structure ...................................................................................................... 32 Principles for market structure reforms and their application to Armenia ............................................. 32 Ongoing reforms affecting water and sanitation services market structure ........................................... 33 Summary recommendations for market structure reforms ..................................................................... 34 Implementing the reforms: alternative process options ............................................................................. 36 The supportive role of central government ............................................................................................ 36 Incentivising WSCs to serve new territorial units .................................................................................. 36 Fostering inter-municipal cooperation ................................................................................................... 37 Establish support systems for local governments ................................................................................... 39 CHAPTER 5. REFORMING FINANCIAL ARRANGEMENTS ................................................................. 41 Evaluation of the current situation ............................................................................................................. 42 Tariffs and charges ..................................................................................................................................... 42 Public funds for sanitation ......................................................................................................................... 44 Current situation ..................................................................................................................................... 44 Increasing funds through existing and prospective funds ...................................................................... 44 Creating a dedicated fund for sanitation? ............................................................................................... 48 Leveraging private funds: commercial banks and microfinance organisations ......................................... 50 CHAPTER 6. ACCOMPANYING LEGAL AND REGULATORY CHANGES ........................................ 51 Current legal and contractual framework and its limitations ..................................................................... 52 Explicit separation of sanitation-related legislation in the Water Code ..................................................... 52 Adequate legal framework to enable IMC ................................................................................................. 53 Model contracts ...................................................................................................................................... 54 7 CHAPTER 7. NEXT STEPS: TOWARDS THE DEVELOPMENT OF A SANITATION SECTOR STRATEGY .................................................................................................................................................. 55 Develop a strong information base on sanitation services ......................................................................... 56 Define a sanitation-specific strategy with a related action-plan ................................................................ 56 Reflect the strategy into the legal and contractual frameworks ................................................................. 56 ANNEX A. SANITATION INVESTMENT: OPTIONS CATALOGUE .................................................... 57 ANNEX B. ESTIMATED FINANCING NEEDS FOR IMPROVING SANITATION: INVESTMENT COSTS AND ASSOCIATED OPERATING COSTS .................................................................................. 63 ANNEX C. ILLUSTRATION CASE STUDIES: ALTERNATIVE MARKET STRUCTURES ................ 69 ANNEX D. OVERVIEW OF EXISTING AND PLANNED FUNDING CHANNELS .............................. 79 BIBLIOGRAPHY ......................................................................................................................................... 83 Tables Table 4.1. Market structure key issues and potential options from LSGB'S point of view .................... 35 Table 5.1. Alternative options for generating additional revenues from tariff .......................................... 43 Table 5.2. Existing and planned funds - what potential for sanitation? ..................................................... 46 Figures Figure 4.1 Modes of sanitation service provision in Armenia ................................................................... 31 Figure 4.2. Modes of sanitation service provision: frequency of distribution ........................................... 31 Boxes Box 4.1. Elements needed to trigger an ICU ............................................................................................. 38 Box 5.1. National Fund for Development of Water Supply and Sanitation (FNDAE), France ................. 48 8 ABBREVIATIONS AND ACRONYMS AMD Armenian Dram ANSF Armenian National Sanitation Fund ASIF Armenian Social Investment Fund ASHMS Armenian State Hydro Metrological Service AWHHE Armenian Women for Health and Healthy Environment AWSC Armenian Water and Sewerage Company
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