Completion Report

Project Number: 31197 Grant Number: 0122 June 2014

Kyrgyz Republic: Community-Based Infrastructure Services Sector Project (Supplementary)

This document is being disclosed to the public in accordance with ADB's Public Communications Policy 2011.

CURRENCY EQUIVALENTS

Currency Unit – som (Som)

At Appraisal At Project Completion 25 August 2008 3 June 2013 Som1.00 = $0.028 $0.021 $1.00 = Som34.69 Som48.19

ABBREVIATIONS

ADB - Asian Development Bank ARIS - Agentstvo Razvitya i Investirovanya Soobshestv (Community Investment and Development Agency) CDWUU - community drinking water users’ union DRWS - Department of Rural Water Supply EA - executing agency NCB - national competitive bidding NGO - nongovernment organization O&M - operation and maintenance PIU - project implementation unit PSC - project steering committee JPMU - joint project management unit WSS - water supply and sanitation

NOTES

In this report, "$" refers to US dollars

Vice-President W. Zhang, Operations 1 Director General K. Gerhaeusser, Central and West Asia Department (CWRD) Country Director R. Hiraoka, Kyrgyz Resident Mission, CWRD Director A. Chiplunkar, Urban Development and Water Division, CWRD

Team leader M. Davila, Urban Development Specialist, CWRD Team member B. Omurzakova, Project Analyst, CWRD

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS

Page

BASIC DATA ii I. PROJECT DESCRIPTION 1 II. EVALUATION OF DESIGN AND IMPLEMENTATION 2 A. Relevance of Design and Formulation 2 B. Project Outputs 4 C. Project Costs 6 D. Disbursements 7 E. Project Schedule 7 F. Implementation Arrangements 8 G. Conditions and Covenants 10 H. Consultant Recruitment and Procurement 10 I. Performance of Consultants, Contractors, and Suppliers 11 J. Performance of the Borrower and the Executing Agency 12 K. Performance of the Asian Development Bank 12 III. EVALUATION OF PERFORMANCE 12 A. Relevance 12 B. Effectiveness in Achieving Outcome 13 C. Efficiency in Achieving Outcome and Outputs 13 D. Preliminary Assessment of Sustainability 13 E. Impact 13 IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 14 A. Overall Assessment 14 B. Lessons 14 C. Recommendations 14 APPENDIXES 1. Design Monitoring Framework 16 2. Information on Subprojects Financed by the Project 19 3. Status of Contracts 23 4. Vehicles and Equipment Procured 25 5. Summary of Project Costs 26 6. Utilization of Grant Proceeds 28 7. Project Implementation Schedule 29 8. Status of Compliance with Grant Covenants 30 9. Contribution to the ADB Results Framework 36 10. Economic Evaluation 37 11. Overall Assessment 42

BASIC DATA

A. Grant Identification

1. Country Kyrgyz Republic 2. Grant Number 0122 3. Project Title Community-Based Infrastructure Services Sector Project (Supplementary) 4. Borrower Kyrgyz Republic 5. Executing Agency Community Investment and Development Agency (ARIS)1 6. Amount of Grant $30,000,000 7. Project Completion Report Number KGZ 1452

B. Grant Data 1. Appraisal – Date Started 2 August 2008 – Date Completed 8 August 2008

2. Grant Negotiations – Date Started 26 September 2008 – Date Completed 26 September 2008

3. Date of Board Approval 3 November 2008

4. Date of Grant Agreement 24 November 2008

5. Date of Grant Effectiveness – In Grant Agreement 23 January 2009 – Actual 19 December 2008 – Number of Extensions None

6. Closing Date – In Grant Agreement 30 June 2013 – Actual 14 October 2013 – Number of Extensions None

7. Disbursements a. Dates Initial Disbursement Final Disbursement Time Interval

20 January 2009 11 July 2013 53 months

Effective Date Original Closing Date Time Interval

19 December 2008 30 June 2013 54 months

1 Previous executing agencies were the Department of Rural Water Supply, under National Agency for Local Self- Governance, Ministry of Natural Resources, and State Committee on Water Melioration. iii

b. Amount ($) Last Net Un- Original Revised Amount Amount Amount disbursed Category Allocation Allocation Canceleda Available Disbursed Balance 1. Works Water supply and sanitation 19,800,000 19,800,000 14,710,375 5,089,625 5,089,625 0 Rectification works 2,000,000 2,000,000 255,386 1,744,614 1,744,614 0 2. Equipment and Material Water supply and sanitation 1,000,000 1,000,000 805,533 194,467 194,467 0 Rectification works 2,000,000 2,000,000 2,000,000 0 0 0 3. Vehicles 150,000 150,000 18,330 131,670 131,670 0 4. Training and Capacity Building Community awareness and participation program 500,000 500,000 468,782 31,218 31,218 0 Hygiene and sanitation education program 500,000 500,000 394,888 105,112 105,112 0 Asset management and strengthening program 500,000 500,000 500,000 0 0 0 5. Consulting Services 1,500,000 1,500,000 1,097,385 402,615 402,615 0 6. Project Management JPMU and PIU staff salaries 600,000 600,000 428,940 171,060 171,060 0 Office expenses 600,000 600,000 310,807 289,193 289,193 0 7. Unallocated 850,000 850,000 850,000 0 0 0 Total 30,000,000 30,000,000 21,840,426 8,159,574 8,159,574 0 JPMU = joint project management unit, PIU = project implementation unit. a Amount canceled at grant account closing, as of 14 October 2013.

C. Project Data 1. Financing Plan ($ million) Cost Appraisal Estimate Actual Implementation Costs Borrower Financed 6.15 1.39 ADB Financed 30.00 8.16 Other External Financing 1.35 0.28 Total 37.50 9.83 ADB = Asian Development Bank.

2. Cost Breakdown by Project Component ($ million) Component Appraisal Estimate Actual A. Physical Infrastructure and Equipment 1. Water supply and sanitation 27.00 6.29 2. Rectification works and equipment 4.00 2.08 Subtotal (A) 31.00 8.37 B. Capacity Development 1. Capacity development program 1.00 0.03 2. Hygiene and sanitation education program 0.50 0.11 3. Consulting services 1.50 0.40 Subtotal (B) 3.00 0.54 C. Project Management and Administration 2.50 0.92 D. Contingencies and Financing Charges 1.00 0.00 Total 37.50 9.83

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3. Project Schedule Item Appraisal Estimate Actual Date of Contract with Consultants Community mobilization, hygiene, and sanitation education Q3 2008 Q4 2010 services Development of technical design of rural water supply systems Q3 2008 Q2 2010 PIU staff hired Q3 2008 Q1 2009 Annual audit of project accounts Q3 2008 Q3 2010 Civil Works Contracts Date of award Q1 2009 Q4 2008 Completion of work Q4 2012 Q4 2011 Equipment and Supplies Dates First procurement Q4 2009 Q2 2010 Last procurement Q1 2011 PIU = project implementation unit, Q = quarter.

4. Project Performance Report Ratings Ratings Development Implementation Implementation Period Objectives Progress From 3 November 2008 to 30 December 2010 Successful Successful From 1 January 2011 to 3 June 2013 a Actual Problem a From 1 January 2011 ADB projects are the rated using the new Project Performance Rating system. Projects are rated using the following five performance indicators, technical, procurement, disbursement, financial management and safeguards. These indicators have equal weight. Rating will use a three-level traffic light applied to each indicator, and to the aggregation of the individual indicators into a single project rating.

D. Data on Asian Development Bank Missions No. of No. of Specialization Name of Mission Date Persons Person-Days of Membersa Fact-finding 2–8 Aug 2008 4 28 a, c, d, e Inception 19–26 Jan 2009 3 18 a, b, e Review 23 Nov–11 Dec 2009 2 30 a, b Special project administration 19–29 Jan 2010 3 27 a, b, e Review 4–27 Oct 2010 2 20 a, b Review (joint with World Bank) 17–24 Jan 2011 1 5 a Midterm review 8 Jun–5 Aug 2011 3 54 a, b, e Project completion review 24 Sep–4 Oct 2013 3 24 b, e, f a a = project implementation officer, b = project analyst, c = counsel, d = senior urban specialist, e = urban development specialist, f = staff consultant (engineer).

I. PROJECT DESCRIPTION

1. On 8 June 2000, the Asian Development Bank (ADB) approved a SDR27.30 million (equivalent to $36.00 million) loan for the Community-Based Infrastructure Services Sector Project (the loan project).1 The project was to finance rehabilitation and construction of 240 water supply subprojects benefiting about 1.5 million people living in 730 villages in Chui, Jalal- Abad, Osh, and Batken provinces (oblasts). The project included rural sanitation, rural flood control and drainage, rural roads, urban water supply, and urban sewerage. Capacity building included institutional development, hygiene and sanitation education, and project management support.

2. On 4 December 2001, the World Bank with assistance from the Department for International Development of the United Kingdom approved the complementary Rural Water Supply and Sanitation Project for SDR12.0 million (equivalent to $15.00 million) to rehabilitate and construct 175 water supply subprojects to benefit 350,000 people in 175 communities in the remaining three oblasts (Issyk-Kul, Naryn, and Talas).2

3. The ADB-financed project experienced implementation issues including (i) increase in cost of construction materials, (ii) procurement problems, and (iii) poor project management and construction supervision.3 The loan was extended twice and project completion was delayed by 3 years. The project completed 118 of the planned 240 subprojects. Of these, 36 subprojects had serious deficiencies that needed to be rectified. Other subcomponents were deleted from the project scope. The project was closed on 27 January 2010 and rated partly successful.4

4. In 2008, during project implementation, nongovernment organizations (NGOs) from the Kyrgyz Republic visited ADB headquarters and protested about the poor quality of design and construction, unsafe drinking water supply, and poor coverage of some of the subprojects. ADB fielded a special review mission to identify problem subprojects, propose corrective measures, and take actions on the allegations of fraud and corruption.

5. Since less than half of subprojects were completed, the government asked ADB to allocate additional funds to rectify the deficiencies of the 45 subprojects rehabilitated under the loan project, and rehabilitate the remaining 122 subprojects. On 3 November 2008, ADB approved a $30.00 million grant for the Community-Based Infrastructure Services Sector Project (Supplementary) (the grant project) (footnote 3). This completion report covers the grant project.

6. While implementation of the grant project was classified as satisfactory up to the end of 2010, the project faced an increasing number of implementation issues including cost overruns, weak administration, poor project design, substandard works, irregularities in procurement processes, poor performance of contractors, and integrity issues. The ADB implementation team took several actions to address the problems, including suggesting revised procurement methods, holding regular implementation review meetings, conducting field inspections, and advising government on how to improve project implementation.

1 ADB. 2000. Report and Recommendation of the President to the Board of Directors: Proposed Loan and Technical Assistance Grant to the Kyrgyz Republic for the Community-Based Infrastructure Services Sector Project. Manila. 2 World Bank. 2001. Project Appraisal Document: Proposed Credit to the Kyrgyz Republic for the Rural Water Supply Project. Washington, DC. 3 ADB. 2008. Report and Recommendation of the President to the Board of Directors: Proposed Grant to the Kyrgyz Republic for the Community-Based Infrastructure Services Sector Project (Supplementary). Manila. 4 ADB. 2010. Completion Report: Community-Based Infrastructure Services Sector Project in the Kyrgyz Republic. Manila.

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7. However, the government ignored most of ADB’s requests and advice. As project implementation severely deteriorated, in March 2011 the ADB implementation team requested ADB’s Office of Anticorruption and Integrity to conduct a project procurement-related review of the grant project. The review, dated 1 April 2012, identified project implementation weaknesses and irregularities resulting from poor management and supervision of the project activities by the executing agency (EA) (para. 33).5 The project was suspended in June 2012 and canceled in June 2013. The delay between the suspension and cancellation of the grant project was due to delays in the reimbursement of ineligible expenditures.

II. EVALUATION OF DESIGN AND IMPLEMENTATION

A. Relevance of Design and Formulation

8. An understanding of the environment and circumstances surrounding the project is necessary to evaluate relevance of the grant project. When the grant project was approved, the country had no rural water supply and sanitation (WSS) policy. The legal and regulatory frameworks were weak and unsuitable for community-based WSS service provision. The institutional framework and allocation of responsibilities among sector entities was unclear. Furthermore, none of the country strategy documents included support for rural WSS. The project was basically approved in response to the strong government request to fulfill promises made under the loan project, especially for communities with systems needing to be rectified and for communities that had already provided their 5% share of the subproject cost. Overall, the request was politically motivated, but without government ownership or commitment to sustainability.

9. However, the project supported economic development in rural areas, human development through training, improved governance through stakeholder participation, and environmental sustainability. These were relevant focus areas in the Joint Country Support Strategy, 2007–2010 and the National Poverty Reduction Strategy, 2003–2005, which emphasize productivity, competitiveness, and improved governance.6 Overall, at the time of its inception, the project supported relevant needs in the Kyrgyz Republic, but the motivation for the project and the implementation environment did not support delivery of sustainable project outputs.

10. The Country Partnership Strategy 2013–20177 at project completion explicitly supported WSS as one of five priority areas. Furthermore, WSS is included in the country’s Medium-Term Development Plan, 2012–2014. This renewed focus on WSS has come about because of implementation problems of the WSS projects, especially the grant project. The Country Partnership Strategy 2013–2017 supports the provision of water supply in rural areas only under the condition that rural WSS sector reforms are implemented to achieve sustainability.

11. While the grant project design could be considered basically sound under normal circumstances, the conception of the project and the sector environment compromised the

5 ADB. 2012. Project Procurement-Related Review Report for Grant 0122-KGZ(SF): Community-Based Infrastructure Services Sector Project (Supplementary) in the Kyrgyz Republic. Office of Anticorruption and Integrity. Manila. 6 ADB. 2007. Joint Country Support Strategy: Kyrgyz Republic, 2007–2010. Manila. Prepared jointly by the Asian Development Bank, Swiss Agency for Development and Cooperation, Department for International Development of the United Kingdom, United Nations, and the World Bank. 7 ADB. 2013. Country Partnership Strategy: Kyrgyz Republic, 2013–2017. Manila.

3 design right from the start of the project. The grant project was prepared in response to government requests to rectify problems and complete the works from the loan project. However, it was not designed to ensure long-term sustainability of the investments and the rural WSS sector as a whole. This led to three main problems: (i) use of similar implementation arrangements as the loan project, (ii) lack of enabling environment before the project began, and (iii) underestimation of costs. For the implementation arrangements, the grant project used the same EA and joint project management unit (JPMU) and similar procurement arrangements as the loan project. These implementation arrangements had already proved to be problematic during the loan project. While the project did provide for improvement of JPMU capacity and some grouping of procurement, it did not critically analyze the implementation arrangements and propose major changes to make them more effective.

12. The grant project included reforms to create the enabling environment for sustainable rural WSS operations, including adoption of rural WSS policy, and legal and regulatory frameworks, as a project output to be delivered during the project. However, the reforms should have been implemented as a precondition for the start of the grant project to ensure sustainability of investments made under the project and government ownership of the project. Furthermore, continued use of the community drinking water users’ unions (CDWUUs) as a service delivery mechanism was not questioned and no institutional reforms were proposed, despite the fact that CDWUUs proved to be a problematic service delivery mechanism (footnote 3). Another unusual feature was that while reforms were included as an output and a covenant, no resources were allocated within the project to support them. Finally, during grant project design, the required resources were not adequately estimated. The average actual cost of subprojects under the loan project was $437,000, while the average estimated cost for the grant project was $290,000 (footnote 5). While it is not clear why this was done, judging by government resistance to reduce the number of subprojects during the review missions, it seems that available funds were just allocated to cover the promised number of villages. The use of outdated and inefficient national technical standards, which the government was unwilling to either revise or waive, was another reason for increased costs.

13. However, the grant project introduced some important improvements in the project design, including (i) elimination of in-kind contributions, (ii) introduction of a project steering committee, (iii) greater involvement of project stakeholders and beneficiaries, (iv) introduction of comprehensive subproject selection criteria, and (v) provisions for purchasing operation and maintenance (O&M) equipment. Furthermore, the grant project was processed in 5 months, to quickly respond to NGO complaints in 2008 (footnote 3), and the design team operated under significant information asymmetry due to lack of available information.

14. Stakeholders participated actively in the project design. The special review mission, which was a precursor to preparation of the grant project, consulted extensively with beneficiaries and NGOs, and conducted joint site visits and inspections. Most of the improvements in the project design (para. 13) resulted from these discussions. Central government institutions, including the JPMU (para. 42), also participated in the project design. However, their motivation seems to have focused on getting the grant project approved (para. 8). Stakeholder participation and level of ownership during project implementation, which depended on heads of the CDWUUs and ayil okmotus,8 were generally mixed. In some cases, such as the Orto-Azia subproject in Suzak rayon of Jalal-Abad oblast and Bujum in Batken, the community leaders were strongly engaged with good results (paras. 18 and 19). But during the field visits, many communities stated that they were not properly consulted. Project steering

8 Local name for village administration.

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committee protocols indicate that the communities and NGOs were engaged in the subproject selection process. Also, NGOs were part of the procurement committee. Some communities, while interested in receiving the WSS system, really struggled with collecting the 5% community contribution. JPMU and other government agencies actively discussed the project with the ADB implementation team, but mostly ignored ADB advice and reneged on the commitments they made during these discussions.

B. Project Outputs

15. The scope of the grant project included (i) rehabilitation of the 122 subprojects, which were not implemented under the loan project; (ii) rectification of 26 subprojects, which were poorly constructed under the loan project, and provision of O&M equipment; (iii) training of the staff and capacity building of the implementing agencies; (iv) consulting services for design, construction supervision, and community mobilization; and (v) project management and monitoring. The grant project covered four oblasts: Batken, Chui, Jalal-Abad, and Osh, and was envisaged to benefit about 300,000 people living in 200 villages.

16. Based on all lessons from similar ongoing projects financed by ADB and the World Bank, together with the Department for International Development of the United Kingdom, the project was designed to include (i) a selection of subprojects on a demand-driven basis; (ii) use of simple, technically sound, and cost-effective techniques; (iii) community involvement at all stages; (iv) improved and stricter project selection and design criteria; (v) sanitation as an integral part of the water supply subprojects; (vi) hygiene education program; and (vii) training of CDWUUs on sound financial management and O&M practices.

17. Output 1: Rehabilitation of subprojects. Of the planned 122 rehabilitation subprojects serving 300,000 people in 200 villages (Appendix 1), only 12 subprojects serving about 55,000 people in 33 villages were implemented (Appendix 2). This group of subprojects constituted the first batch approved by the Project Steering Committee (PSC) during 2009. Sanitation facilities were not included in the design of any subproject at the request of beneficiaries who struggled to collect the 5% contribution for more expensive subprojects, which included sanitation. The beneficiaries of many systems complained of poor design and quality of construction, and lack of consultation with local officials and beneficiaries on technical aspects of the project. Generally, the beneficiaries stated that the supply of relatively clean water has led to reduction in the incidence of waterborne diseases. However, the exact extent of the reduction is impossible to determine due to lack of data. The project completion review mission visited 10 of the 12 rehabilitated subprojects. In general, tariff collection ranged from 40% to 60%, water was supplied for 6–12 hours a day, water treatment units were not functional or not used, construction quality was poor, and systems were already showing signs of disrepair and deterioration. Overall, while all of the systems are currently operating or partially operating,9 they will likely not be sustainable. Only two subprojects, Bujum and Orto-Azia, could be rated successful (paras. 18 and 19).

18. Bujum subproject (Batken Oblast). The subproject serves about 7,400 people in 2,000 households. Ayil okmotu and the CDWUU head worked together and went to Bishkek to monitor the civil works bidding process and to determine if the selected bidder had sufficient capacity. They also persuaded JPMU not to pay the contractor unless the CDWUU head verified the contractor’s bills. This led to excellent quality of materials and construction. Currently, only 30

9 Some systems are only partially operating due to unforeseen increases in the village population or other villages were connected to the subproject.

5 households have meters. All 150 standpipes have taps and are maintained to minimize wastage. Currently, water is being supplied 12 hours a day, but with complete metering they expect 24-hour water supply. Collection efficiency is about 60%.

19. Orto-Azia subproject (Suzak Rayon, Jalal-Abad Oblast). Subproject supplies treated drinking water to about 3,700 people living in 350 houses. The CDWUU head actively participated in monitoring the quality of materials and construction. Considering that standpipes were the main source of water wastage, the community decided to have metered domestic connections. The system supplies water for 24 hours per day. The tariff is set at Som20/cubic meter (m3) and tariff collection is close to 100%. Cooperation between the CDWUU head and ayil okmotu is excellent.

20. Rectification of subprojects. At appraisal, when the loan project was ongoing, 36 subprojects were estimated as needing to be rectified using grant funds.10 Of these, 10 were rectified using loan funds, while the remaining 26 were rectified using grant funds. Even after rectification, many CDWUU staff and beneficiaries complained of poor quality materials; leaking pipes, especially at joints; and water that was not properly treated. The lack of quality control and construction supervision were the main reasons for poor quality. In most of the systems, standpipes are the main source of water wastage. Many are not fitted with taps, while for others the taps are not functional. The project completion review mission visited 7 of 26 rehabilitated subprojects, and the system performance and likelihood of sustainability are the same as for rehabilitated subprojects (para. 17).

21. Water treatment. All of the rehabilitation and rectification subprojects included water treatment through either chlorination for surface water, or ultraviolet treatment for groundwater. Most of the treatment plants were not working because (i) they were not completed and commissioned properly, (ii) some parts were missing, or (iii) O&M was not adequate. Many systems mix chlorine in the reservoir once a week or once a month, which is not an appropriate method of water treatment. It is recommended that all chlorination units be operated correctly to ensure treatment of water supply.

22. Provision of O&M equipment. Procurement of O&M equipment was included in the grant project, and $1.00 million was allocated for O&M equipment for rehabilitation subprojects and $2.00 million for rectification subprojects (footnote 3). Fifteen sets of O&M equipment were supplied through two contracts during May 2010–May 2011 (Appendix 3). Each set comprised a portable welding machine, portable compressor, gas welding unit, electric water pump, portable device for joining polyethylene pipes, and tool sets. The procured O&M equipment was in storage for 6 months due to inability of the EA to adopt an effective distribution mechanism. As a result, the portable generators had discharged batteries and flat tires. During the Nov–Dec 2009 review mission, JPMU proposed to handover the O&M equipment to the CDWUUs that could pay 30% of their cost. However, the communities were not able to pay the contribution and the equipment was handed over without any payment on 20 June 2011. All of the equipment supplied is currently in use and operating (Appendix 4). Procurement of backhoe loaders, which are an essential part of WSS O&M equipment, was delayed due to numerous changes in the specifications, which ADB resisted, to suit the potential suppliers favored by the EA and JPMU. In the end, the contract was not signed due to an unclear distribution mechanism and lack of CDWUU capacity to maintain the equipment.

10 The special project review mission identified 45 subprojects needing to be rectified, but the grant project documentation identified 36 subprojects needing rectification.

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23. Training of the staff and capacity building of the implementing agencies. The project provided $1.5 million for training and capacity building, which was allocated for building community awareness and participation, hygiene and sanitation education, and asset management and strengthening (footnote 3). For these programs, a consulting firm or an NGO was to provide 324 person-months of services (footnote 3).

24. From the start of project implementation, JPMU hired individual specialists for training and capacity building for community awareness and participation, and hygiene and sanitation education programs. Two NGOs belatedly joined these programs in October 2010 (para. 49). Asset management and strengthening programing remained weak as no support was provided. While communities rated the training on hygiene as effective, capacity development in other areas remained weak.

25. Consulting services for design and construction supervision. The project provided $1.5 million: $0.3 million for community mobilization, $0.75 million for design, and $0.45 million for construction supervision. Construction supervision consultants were never hired and instead the JPMU and project implementation unit (PIU) staff performed these tasks, which did not match their qualifications and experience, and created a conflict of interest. This was both inappropriate and inefficient. The contract for design was belatedly awarded in May 2010, after the award of construction contracts for the first and only rehabilitation subprojects. Therefore, the design consultant’s work for the subsequent packages was never utilized.

26. Output 2: Community mobilization. The contracts for community mobilization, and hygiene and sanitation education were belatedly awarded in August 2010. Before then, a JPMU specialist performed these tasks. The beneficiaries considered the hygiene training effective. However, capacity development in other areas remained weak, in particular, asset management and program strengthening, as no support was provided.

27. Output 3: Sector reforms. The government did not take any significant actions to adopt a rural WSS policy and reform the legal and regulatory frameworks for rural water asset creation and service delivery, despite the requests from review missions. The policy and frameworks have still not been prepared or adopted. It is unclear how these outputs could be delivered under the grant project as no resources were allocated.

C. Project Costs

28. At appraisal, the total project cost was estimated at $37.50 million, of which ADB was to provide $30.00 million (80%) as a grant, the government $6.15 million ($4.60 million in the form of waiver of taxes and duties and $1.40 million for cost of civil works and project administration), and beneficiaries $1.35 million, a 5% contribution (footnote 3).

29. The costs of civil works increased significantly during the project from the estimated average cost of $290,000 per subproject at appraisal, to actual cost of $515,000 per subproject for the 12 rehabilitated subprojects, to estimated cost of nearly $1 million per subproject in 2012 (footnote 5). Inflation in the Kyrgyz Republic11 cannot explain the increase of over 200% in subproject costs. Based on the documents reviewed, the project completion review mission believes that the costs were underestimated at appraisal, and the cost of the 12 rehabilitated subprojects was a reflection of actual costs of initially envisaged designs, while the estimated costs in 2012 were a reflection of what it would cost to have high-quality subprojects.

11 Average of about 12% for 2008–2012.

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30. ADB suspended the grant (para. 37) on 6 June 2012, and canceled the grant on 3 June 2013. The government reimbursed ADB for ineligible expenses amounting to $199,477.14 (para. 38). The final project cost is $9.83 million, comprising $8.16 million from the grant, $1.39 million from the government, and $0.28 million from the beneficiary contribution (Appendix 5). The remaining $21.84 million of the grant was canceled.

D. Disbursements

31. A total amount of $8,159,574 was disbursed under the grant and the unused grant amount of $21,840,426 was canceled on 3 June 2013. Annual utilization of the grant fund is shown in Appendix 6. Only 0.04% of the disbursement was made in 2009, 0.05% in 2010, and then 99.92% in 2011. This indicates poor JPMU capacity for processing the withdrawal applications, which all accumulated in 2011, the last year of major activity before suspension of the grant in June 2012. Overall, the disbursements were much lower than anticipated at appraisal due to numerous project management and integrity issues.

32. An imprest account with a ceiling of $2.00 million was established on 10 December 2008 at Aman Bank. The project provided statement of expenditure procedures with individual payment that may be reimbursed or liquidated not to exceed $50,000.

33. The ADB Office of Anticorruption and Integrity team (footnote 5) reviewed the project financial management system including financial management, internal controls, and the disbursement process. Issues such as misuse of the ADB imprest fund to finance ineligible expenses and use of other development partner funds to finance ADB expenses were noted. Also, issues of noncompliance in the areas of insufficient performance securities, improper advance payments, and delayed payment of the communities and government’s shares were identified. The government reimbursed ineligible expenditures to ADB (para. 38). Overall, the use of the imprest account was one of the catalysts that enabled payment of ineligible expenditures (footnote 5).

E. Project Schedule

34. The project was approved on 3 November 2008, declared effective on 19 December 2008, and scheduled to complete the physical works by 31 December 2012. The grant was scheduled to close on 30 June 2013. In 2009, the PSC approved 12 rehabilitation subprojects for which detailed designs were prepared during implementation of the loan project. During the first year, bidding for these 12 rehabilitation and 26 rectification subprojects was completed and contracts awarded. These were the only project activities completed according to the schedule, and were the last civil works procurements during the project.

35. During the first year of implementation, the JPMU failed to recruit the consultants for technical design, construction supervision, community awareness, and sanitary and hygiene education. Thus JPMU and PIU staff performed tasks assigned to the consultants. This led to further delays due to weak capacity of JPMU and PIU staff.

36. On the PSC recommendation, in 2009 ADB approved the first batch of subprojects, as per post-approval procedure. In January 2010, the special project review mission noted that the EA did not provide PSC subproject appraisal reports for the first batch of subprojects, and that the EA had not provided clearance from state technical and ecological expertise. These were

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subsequently provided during the midterm review mission. The mission also requested that the establishment of a project performance management system be expedited.

37. The midterm review mission (June-August 2011) rated overall implementation progress unsatisfactory and concluded that achievement of project outcome and outputs would not be possible nor sustainable unless an effective project management was in place and a sector development policy and dedicated institution with adequate capacity were adopted. During the following 8 months, these fundamental conditions were not created and project implementation did not improve. Despite ADB efforts, the project remained stagnant with no improvement in performance. Following the findings of the project procurement-related review and considering the recurrent project implementation failures, on 6 June 2012, ADB Management approved suspension of the recipient’s right to withdraw from the grant account due to the recipient’s failure to perform its obligations under the grant agreement and improbability that the recipient can carry out its obligations under the grant agreement.12

38. On 12 December 2012, ADB asked the government to refund ineligible expenses from the imprest account for civil works, project management, training, and capacity building to ADB by 1 March 2013. This was based on the audit report, the special purpose project financial statements, and the management letter submitted by the Community Development and Investment Agency (ARIS) in August 2012. The expenses were ineligible because they were incurred before grant effectiveness.

39. On 18 January 2013, ADB temporarily lifted the grant suspension to enable ADB to make eligible payments to contractors and consultants affected by enforcement of the grant suspension. On 3 June 2013, ADB Management approved termination and cancellation of the right of the recipient to withdraw from the grant account. The grant account was finally closed on 14 October 2013. The proposed and actual implementation schedules are in Appendix 7. Overall the project failed to follow the original project schedule due to a multitude of project management failures and failed procurements.

F. Implementation Arrangements

40. Following the project provisions, a PSC was established in February 2009, and conducted seven meetings up to August 2011 to select subprojects and monitor the institutional development program, sanitation, hygiene, and other activities. A project coordination committee was established in August 2009 to coordinate, oversee, and monitor project activities. However, it never met due to restructuring of the government.

41. During appraisal, responsibility for project execution was moved from the Ministry of Agriculture, Water Resources, and Processing Industry (the EA for the loan project) to the Department of Rural Water Supply (DRWS), which had a mandate to develop rural WSS, provide the policy direction, and provide financial support to the sector. DRWS implementation and project management capacity was assessed through a financial management assessment during appraisal and found to be adequate.

42. The JPMU managed the project. It was established in 2008, at Central Government level, specifically to implement rural WSS projects, The project management and monitoring arrangements envisaged at appraisal were considered appropriate as they were considered to

12 ADB. 2005. Special Operations Grant Regulations, Manila. The memo referred to clause 8.1 subparagraphs (b) and (e).

9 be effective during implementation of the ADB and World Bank projects.13 However, over the 3.5 years from grant effectiveness in December 2008 to grant suspension in June 2012, four EAs and three project directors managed the project. The EA was changed from DRWS (under the National Agency of Local Self-Governance) to the Ministry of Natural Resources in April 2010, to the State Committee on Water Melioration in November 2010, and to ARIS in July 2011. On 30 April 2012, the government appointed the Agriculture and Industry Division of the Prime Minister’s Office as the EA and instructed ARIS to continue as the implementing agency. ARIS did not agree with this. Hence the government’s notification of 30 April 2012 remained ineffective. At the time of the project completion review, ARIS was inactive on the (ADB- financed grant) project, all project records were in government archives, and the Department for Drinking Water Supply and Sewerage Development, a successor to DWRS, coordinated with the project completion review mission and facilitated field visits and other meetings. Some of the changes in the EA resulted from the government’s poor institutional framework, overall changes in the entire government structure, and development partner requests to improve project ownership and management. JPMU staff remained largely the same. The PIUs established in the oblasts during the loan project continued to supervise implementation of the subprojects under the grant project.

43. Overall, the implementation arrangements were flawed from the beginning of the project. The JPMU was selected on the basis that it had already implemented the loan project and the World Bank-financed project, yet the grant project was envisaged to rectify the problems of the loan project, many of which stemmed from poor implementation. In addition one of the covenants required that no JPMU staff should be replaced. While well-intentioned and meant to retain JPMU capacity, this covenant further locked in poor performance. Furthermore, DRWS capacity was assessed to be adequate through the financial management assessment. The project review mission reviewed the assessment and found that it was too optimistic. Even now, none of the entities in the country’s WSS sector have the financial capacity described in the assessment. The poor capacity of the JPMU and the EA, and lack of government ownership of the project and sector, gave individuals connected with the project an opportunity to exploit it for their own gain. The Office of Anticorruption and Integrity investigations resulted in sanctioning of two firms and three individuals, including the JPMU procurement specialist. The JPMU and the various EAs constantly resisted hiring of independent supervision consultants, and insisted on providing the supervision themselves, which resulted in conflict of interest. Finally, frequent changes in the EA and project directors resulted in changes in critical decisions made by the previous EA, thus leading to poor management and implementation delays.

44. The ADB project implementation team expended significant efforts to improve implementation. The team constantly advised and assisted the JPMU and EAs on procurement, safeguards, compliance with ADB procedures, and compliance with the covenants and grant agreement. In particular, after the first batch of civil works was procured, the ADB team monitored all of the procurement activities and documents very closely and strictly. The team even conducted weekly project review meetings to monitor implementation. Furthermore, the ADB team hired a national engineer to review the subprojects under the grant project. Unfortunately, due to low government ownership, most of the ADB team advice was ignored and agreements between ADB, the JPMU, and the EAs were reneged on. ADB and the World Bank, which experienced similar implementation issues, coordinated closely, shared information, and conducted a joint review mission of the rural WSS projects. However, even findings and recommendations of the joint review were ignored.

13 Jointly financed by the World Bank and the Department for International Development of the United Kingdom.

10

G. Conditions and Covenants

45. Compliance with conditions and covenants was poor. Of the 26 grant covenants, the government failed to comply with 12 covenants, compliance with 7 covenants was partial, compliance with 5 was full, while 2 covenants turned out not to be applicable. Noncompliance resulted from poor project administration and financial management, including frequent changes in the EA; the nonfunctional project coordination committee; problems associated with bid evaluation and contract awards; failure to submit timely initial environmental examinations, environmental management plans, and environmental clearances; failure to comply with ADB’s Anticorruption Policy and incorporate its relevant clauses in the contract documents; and failure to establish a project performance monitoring system. The government also failed to issue a sector development policy, and legal and regulatory framework for rural water asset creation and service delivery.

46. Covenants that were partially complied with included involvement of beneficiaries in some subprojects in the selection of water sources and project implementation, poor maintenance and collection of water charge, failure to regularly communicate with ADB on the revised water tariff, and failure to timely identify some implementation issues during the biannual grant review mission. Covenants on land acquisition and voluntary land donation turned out to not be applicable as no land acquisition was involved. Covenants that were fully complied with included Ayil Okmotus and CDWUU’s close cooperation in system operations; regular monitoring of water quality under contract by the Department of Disease Prevention and State Sanitary and Epidemiological Supervision; involvement of NGOs and community-based organizations in capacity building, including health and hygiene aspects; and provision of counterpart funds.

47. Grant effectiveness was not delayed as the loan became effective only 1.5 months after approval. All covenants were relevant, except the covenant on retention of JPMU staff, which was well meaning but had unintended consequences (para. 43). Some of the covenants for operations, such as service delivery, O&M, tariffs, and billing and collection were not realistic as they did not include strict targets against which compliance could be measured and ADB’s ability to monitor and enforce these covenants is limited in the WSS sector in the Kyrgyz Republic. Poor compliance was symptomatic of management, financial, and integrity issues; and was fostered by the lack of government ownership of the project. None of the covenants were modified, suspended, or waived during implementation. Details on compliance with covenants are given in Appendix 8.

H. Consultant Recruitment and Procurement

48. The project included three consulting services packages: 840 person-months with estimated cost of $0.75 million for technical design consultancy to support PIUs in the oblasts for conducting feasibility studies, preparing detailed designs and drawings, and providing bid process management support; 68 person-months of international and 1,080 person-months of national consultants for technical supervision consultancy; and 324 person-months of national consultants at an estimated cost of $0.30 million for community mobilization, hygiene, and sanitation education; and information, education, and communication (footnote 3). The selection method for all consulting assignments was quality cost-based selection.

49. A year and a half after the grant became effective, in May 2010, the PMU hired the services of Association Musai-Encon for technical design consulting for $0.68 million. In August 2010, 1 year and 8 months after the grant became effective, the PMU hired the services of the

11

Association for Health Promotion to provide 153 person-months of services in Chi Oblast and the Central Asian Alliance for Water to provide 285 person-months of services in Batken, Jalal- Abad, and Osh oblasts for community mobilization, and hygiene and sanitation education services. They started working in October 2010 with costs of $0.14 million used against the provision of $1.5 million (Appendix 5, Table A5.2). No firm was hired for construction supervision. The PMU also hired individual specialists for training and capacity building for community awareness and participation, and hygiene and sanitation education programs.

50. The project awarded 39 civil works contracts, 5 supply contracts, and 7 services contracts (Appendix 3). Of 39 civil works contracts, 12 contracts for a total of $5.47 million were awarded for rehabilitation subprojects using national competitive bidding (NCB) procedures. The remaining 27 contracts for a total of $2.44 million for 26 rectification of subprojects were generally small and awarded using the shopping procedure. NCB and shopping were originally specified to have post approval. The rehabilitation contracts were completed by November 2011; the rectification contracts were completed by April 2010.

51. Overall, multiple procurement issues were experienced, and the ADB implementation team put considerable effort to ensure integrity of the procurement process. One flaw in the ADB team efforts was the procurement of the 12 civil works contracts. The project completion review mission reviewed 7 of the 12 NCB bid evaluation reports, and found them to be consistent with what would be expected of collusive or corrupt procurement. In six of the seven reports, all but two bidders were disqualified, and reasons for disqualification were not clear, not specified, or did not accord with ADB guidelines (such as national licensing requirements). The mission believes ADB should not have approved even these contract awards.

52. After this, on instructions of the ADB team, the post review was changed to prior review, which was a necessary decision considering the project issues. Upon advice of the ADB team, the project switched to international competitive bidding and larger contract packages. ADB did a thorough review of the international competitive bidding bid evaluation report. One of the initial batch of civil works was awarded as NCB, despite the fact that ADB warned the JPMU that this could not be awarded as NCB as both the engineer’s estimate and the bid price were more than $1 million. Since the JPMU ignored ADB advice, ADB declared misprocurement. During consultant selection, the ADB team required multiple resubmissions to ensure the integrity and quality of the process. Overall, after the first initial procurements, the ADB implementation team ensured the integrity of the procurement process. The fact that most documents and procurements after the first batch could not be approved or did not succeed under stronger scrutiny shows the continued JPMU efforts to distort the procurement processes. ADB’s Office of Anticorruption and Integrity eventually sanctioned the JPMU procurement specialist.

I. Performance of Consultants, Contractors, and Suppliers

53. The performance of civil works contractors was quite poor. Project documentation and observations of the review mission and comments of the beneficiaries show many deficiencies in the construction of civil works, and quality of materials provided. Many subprojects have leaks due to poor quality materials and improper pipe bedding, most of the water treatment facilities are inoperable, concrete work is of poor quality and crumbling, and standpipes are broken. At this stage discerning how much of these problems were due to improper design, done under the loan project, is difficult. However, the capacity of local civil works contractors combined with the lack of independent supervision did result in poor asset quality.

12

54. The performance of the supply contracts, which involved the supply of O&M equipment and vehicles, was satisfactory, and all equipment supplied is still operating. The design consultants were fielded in May 2010 when the contracts for the first batch of subprojects were already awarded, and the subprojects they designed and contracts they prepared were never tendered. Hence their performance cannot be evaluated. On the basis of feedback from the project beneficiaries, the performance of the community mobilization, and hygiene and sanitary education consultants are rated satisfactory.

J. Performance of the Borrower and the Executing Agency

55. The problems with project management, integrity, procurement, delays, complying with ADB procedures, complying with covenants, and ignoring ADB advice are well documented in this report. However, what needs to be understood is the root cause of this was general lack of government ownership and willingness to ensure delivery of project outputs. Under these circumstances, any effort to strengthen capacity was ineffective because no incentive was provided to correctly implement the project. The selection of the EA and the JPMU at appraisal was not appropriate considering the problems under the loan project. This is corroborated by subsequent performance under the grant project. Thus, the performance of the borrower is rated unsatisfactory.

K. Performance of the Asian Development Bank

56. ADB made considerable efforts to improve project performance. It provided close supervision and advice to the JPMU. The efforts went beyond usual project implementation efforts with weekly project supervision meetings and field technical reviews of subprojects (through a national engineer hired by ADB). The ADB implementation team, correctly, disagreed with the JPMU and the EA on different aspects of procurement and contract awards, and in the process maintained the integrity of the procurement processes. Problems in project implementation were identified in a timely manner and ADB made significant efforts to resolve them. Unfortunately, most of the efforts of the ADB team were not effective because the team lacked leverage to actually make the JPMU and the EAs comply with the team’s suggestions. Also coordination with other development partners in the sector was effective. The team did make some mistakes at the start of the project, probably due to pressure for quick action. Also it would have been useful if the implementation team did more to address the information asymmetry with regard to civil works contracting and the WSS sector as a whole. Considering these factors, ADB performance is rated satisfactory.

III. EVALUATION OF PERFORMANCE

A. Relevance

57. At the time of approval, the project was relevant for the development of the Kyrgyz Republic, since it supported economic development in some of the poorest parts of the country (paras. 8 and 10). However, the structure of the rural WSS sector was weak and government ownership or support was poor, except for the political imperative to quickly fulfill the promises made under the previous loan project. This lack of support resulted in unwillingness to do what was necessary to implement the project correctly and sustainably, and left the project open to abuse. Furthermore, the grant project was designed to quickly fix problems with the loan project rather than to deliver long-term sustainability of the investments and the rural WSS sector as a whole (paras. 11 and 12). As a result the project had significant design flaws, including (i) use of flawed implementation arrangements, (ii) not creating an enabling environment before beginning

13 the project, and (iii) underestimated costs. Overall the project addressed real needs, but it had a flawed design and operated in an unsupportive environment, which meant it had very low chance of success. Thus the project is rated less relevant.

B. Effectiveness in Achieving Outcome

58. The project was able to achieve around 10% of the rehabilitation targets using more than 25% of the relevant resources for civil works. It rehabilitated only 12 subprojects serving about 55,000 people living in 33 villages. Even in these 33 villages, the water supply is not safe, adequate, or efficient. The project did not deliver any sanitation services. The project made a small contribution to achieving results in ADB results framework (Appendix 9). Overall, the project is rated ineffective.

C. Efficiency in Achieving Outcome and Outputs

59. The project wasted valuable resources and its achievements were proportionately less than the resource utilization. Completed subprojects had major quality issues. The economic reevaluation noted that the economic internal rate of return decreased from 26.6% to 33.9% at appraisal to 1.2% to 21.2% at completion (Appendix 10). Therefore, the project is rated inefficient.

D. Preliminary Assessment of Sustainability

60. Currently, the tariff collections are not sufficient to cover needed O&M expenditures (para. 17). Current collections are only 40%–60%. Furthermore, the systems are poorly constructed, which is likely to lead to more rapid deterioration. The combination of a lack of O&M funds and poor construction raises serious doubts about long-term sustainability of the systems. The capacity development activities for CDWUUs seem to have a negligible effect on their sustainability. Therefore, the project is rated less than likely sustainable.

E. Impact

61. The 12 completed subprojects had some impact on the living conditions of the beneficiaries. Overall, by delivering the water at home or at the doorstep, the project saved residents, particularly women and children, the effort of fetching water from distant and poor quality sources. Generally people saved a couple of hours every day. With sufficient water available at home or at the doorstep, residents have more frequent baths, wear cleaner clothes, and have better personal hygiene. What the women value most is the possibility of using a washing machine, which saves them the labor-intensive work of washing clothes particularly during winter. Now, in most subprojects, about 70%–90% of the households have washing machines and those with household connections generally have automatic washing machines. Residents indicate a positive impact on health with reduction in the incidence of waterborne diseases and reduction in the number of school and working days lost due to illness. However, in the absence of statistics or surveys, this impact could not be quantified.

62. Beneficiary participation and training in hygiene will have a long-term impact. Continued effort is required in educating residents on payment of tariffs to ensure service sustainability. While 12 villages experienced some impacts, the project achieved only 10% of the rehabilitation target and the overall project impact is rated negligible.

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IV. OVERALL ASSESSMENT AND RECOMMENDATIONS

A. Overall Assessment

63. The project rehabilitated only about 10% of planned subprojects and was canceled due to various project management integrity issues and implementation delays. The main factor behind this poor achievement was lack of government ownership of the project and commitment to delivery of sustainable results.

64. Based on the ADB evaluation criteria for overall assessment (Appendix 11), the project is rated unsuccessful.

B. Lessons

65. The lessons from this project could be applicable to other additional financing projects that follow difficult projects or when reengaging in a sector where performance of projects has been poor. The following are the key lessons from project implementation: (i) Do not reengage in a sector with poor past performance until the government demonstrates its commitment and ownership by creating an enabling environment for delivery of sustainable outputs. (ii) At appraisal, all parts of previous project arrangements should be thoroughly reviewed to identify the real causes of past project implementation issues. For key past problems, new solutions should be sought, rather than trying to modify past arrangements. (iii) Despite the urgency of government requests for additional financing, conduct a thorough due diligence on all government entities involved and ensure that the available resources fit the scope of the project. (iv) Understand that project implementation will require significant ADB staff resources, and allocate resources for additional support to bolster areas where project implementation was previously weak.

C. Recommendations

1. Project Related

66. Future monitoring. The government should undertake the following: (i) Monitor drinking water quality on a frequent but random basis for each subproject to ensure that water is treated regularly. (ii) Encourage installation of household connections with water meters. (iii) Review the water tariff annually and work on improving collection efficiency. (iv) Ensure adequate preventive and emergency maintenance of the systems.

67. Further action or follow-up. The following follow-up actions are recommended: (i) The government must provide funds to rectify the deficiencies of the subprojects, including leaking pipes, broken taps of stand pipes, and water treatment units. (ii) The Department for Drinking Water Supply and Sewerage Development and the Department of Disease Prevention and State Sanitary must train CDWUUs on the proper use of water treatment equipment and regular chlorination. (iii) The government should reform the WSS sector, by adopting a WSS policy and revising institutional, regulatory, and legal frameworks.

15

(iv) The government should field a strong public education campaign to promote metered domestic connections and ultimately abolish standpipes.

68. Additional assistance. The government has asked ADB to use savings from cancellation of the grant project for another rural WSS project. ADB will consider this request only when the following conditions are met: (i) the rural WSS policy and strategy are approved; (ii) 25 rural WSS subprojects are rectified; (iii) the government accepts and implements recommendations prepared under ongoing technical assistance on institutional and project implementation arrangements; (iv) the government provides sufficient budget for staff and resources for rural WSS institutions; and (v) the government continues to prevent the involvement of any corrupt staff, from the grant project, in participating in ADB-financed projects. These conditions have been communicated to the government.

69. Timing of the project performance evaluation report. As the project was canceled in June 2013 and no additional activity is envisaged, the project performance evaluation report could be conducted at any time.

2. General

70. Recommendations to be considered at appraisal include the following: (i) Consider providing policy advisory or capacity development technical assistance for sector reforms before the start of project processing. This would create an enabling environment and demonstrate government ownership. (ii) In low integrity environments, conduct a thorough financial management and procurement capacity assessment of the executing and implementing agencies, preferably with assistance of ADB staff specializing in these fields. If no suitable institution is available or cannot be created, then do not approve the project. (iii) Build a performance-based financing mechanism into project design to enable the financing to be canceled easily if the project does not perform. (iv) Embed international experts into the executing and implementing agencies. (v) Provide a dedicated integrity specialist to monitor the project.

71. During project implementation, the review mission should undertake the following: (i) Ensure the ADB implementation team has the mandate, autonomy, and leverage to act on identified project implementation problems. (ii) Consider using extended missions and outposting, in addition to joint venture with the resident mission, to facilitate rapid response to any implementation problems. (iii) Provide staff consultants with particular expertise required by the project, such as procurement, engineering, and integrity, to support the ADB specialists.

16 Appendix 1

DESIGN AND MONITORING FRAMEWORK

Performance Design Summary Indicators/Targets Assumptions and Risks Actual Achievement Impact By 2012: Assumptions Improved public Public satisfaction with the The improved water supply Improvement in public health and availability, quality, and systems are effective and health is marginal in environment in quantity of water is increased will be sustained after 33 villages with project villages (to be quantified when intensive training population of 55,000. baseline is established through a social survey at project The project communities Achievement is marginal, inception) remain committed to as stakeholders in the participating in all activities 33 villages seem to be with the help of the more satisfied with the National Agency for Local service than before. No Self- Government formal data is available.

Increased population coverage Risk Marginal achievement. in project villages with access The communities do not 33 villages have to safe and adequate water properly maintain the improved but not safe supply from existing 32% to infrastructure and adequate water 100% supply.

Reduced incidence of No information. waterborne diseases from 30% to 5%

Outcome By 2012: Assumptions Safe, adequate, and In 200 villages environmental Water supply systems are Overall, only 55,000 efficient water supply degradation is controlled and rehabilitated and new people in 33 villages and natural resources are systems developed as have improved water sanitation services appropriately tapped to meet scheduled services, which cannot community demand be described as safe. No Communities are involved improvement in in subproject planning and sanitation services. design, and trained in asset management Partially achieved. Communities collect tariff Situation seems to be efficiently and set aside somewhat improved in funds for major 33 villages. breakdowns

Water supply and sanitation Not achieved. Even assets are strengthened and Risks rehabilitated subprojects community is fully involved in High turnover of existing are not likely to be operating and maintaining the staff of the PMU affects sustainable in the long subprojects project implementation term. Lack of community Service delivery is improved involvement in project cycle Marginal achievement. through adequate supply and Stakeholders for quality of water rehabilitated projects report improvement in service. Outputs By 2012: Assumptions 1. Rehabilitated and Continuous and potable water Communities participate in Marginal achievement. newly constructed supplied at pressures subproject planning and Only 12 subprojects, water supply and according to approved design design serving 33 villages, out of sanitation systems in standards to communities 122, were rehabilitated project villages residing in 200 villages of the and even these did not

Appendix 1 17

Performance Design Summary Indicators/Targets Assumptions and Risks Actual Achievement four oblasts (provinces) Water resources remain get potable water. protected and reliable All communities are willing Sewage is disposed of and to pay for improved water Not achieved. Sanitation treated in all project villages supply and sanitation component was through simplified technology services, and systems are removed. financially sustainable

Communities provided with Achieved. tools and equipment for system maintenance 2. Communities are Project undertakes institutional Risks Overall not achieved, managing water strengthening and capacity Poor selection of communities are still not supply systems and enhancement of communities, contractors able to maintain the collecting tariffs to through appropriate systems sustainably and address cost recovery information, education, and Communities do not recover costs. communication campaigns maintain the filters and water treatment facilities Communities undertake Selected sources of water Not achieved. preventive maintenance of supply prove to be Communities are still not systems unsustainable capable of maintaining Lack of training provided to systems properly. communities for technical Communities achieve 80% and financial management Not achieved. Tariff tariff collection efficiency collections are around 50%. 3. Government issues Government ratifies a sector Not achieved. a sector development policy addressing community- policy and legal and based water supply and No reforms were regulatory framework sanitation services, asset implemented. for rural water asset management, and principles of creation and service cost recovery delivery Government enacts a law Not achieved. detailing the responsibilities and charter of community drinking water users unions Government enacts a law on Not achieved. local self-governments and responsibilities for drinking water supply and sanitation to rural communities Activities 1. Rehabilitated and 1.1 Consultants appointed by newly constructed March 2009 water supply and 1.2 Award of civil works to sanitation systems commence by June 2009 1.3 Completion of all civil works by December 2012

2. Communities 2.1 Information, education, and managing water communication campaign on supply and sanitation community and stakeholder systems, and participation commenced by collecting tariffs to March 2009 and continued

18 Appendix 1

Performance Design Summary Indicators/Targets Assumptions and Risks Actual Achievement ensure cost recovery through the project period 2.2 Project coordination committee and adequate oversight mechanisms in place by April 2009 2.3 Tariff collection performance for completed systems to progressively reach 90% through the project period based on subproject completion 2.4 Voluntary land donations appropriately monitored

3. Government issues 3.1 Government ratifies a rural a sector development water supply and sanitation policy, and legal and sector policy by June 2009 regulatory framework for rural water and 3.2 Government enacts a law sanitation asset on CDWUU charter and creation and service responsibilities by June 2009 delivery 3.3 Government enacts a law on local self-government responsibilities for drinking water supply and sanitation services by December 2009 CDWUU = community drinking water users’ union; PMU = project management unit. Source: Asian Development Bank.

INFORMATION ON SUBPROJECTS FINANCED BY THE PROJECT

Oblast Sub- Villages Served Actual Cost Construction S. Project Pump / Population Current No. No. Subproject Rayon No. Names Gravity Served Som $ Started Completed Status A. Rectification Subprojects Chui Oblast 1. 1 Ak-Beket- Kemin 2 Ak-Beket, P 2,967 7,104,250 160,725 23-Dec-08 9-Jul-09 Operating Janyalysh Janyalysh 2. 2 Ak-Tuz Kemin 1 Ak-Tuz G 1,635 84,575 1,927 19-Dec-08 19-May-09 Partially operating 3. 3 Bekitai Jaiyl 3 Bekitai, G 5,483 1,137,812 25,806 25-Mar-09 30-Dec-09 Partially Kaiyrma, operating Bokso-Jol 4. 4 Jaiylma Panfilov 1 Jaiylma P 1,382 1,370,760 31,665 25-Mar-09 15-Oct-09 Partially operating 5. 5 Kara-Bulak Kemin 1 Kara-Bulak P/G 1,644 2,697,010 62,157 28-Nov-08 18-Jul-09 Operating

6. 6 Kok-Jar Alamudun 1 Kok-Jar P/G 4,392 2,880,497 65,201 17-Mar-09 30-Dec-10 Operating 7. 7 Kum-Aryk Panfilov 1 Kum-Aryk G 2,269 551,650 12,798 17-Mar-09 17-Jul-09 Operating 8. 8 Orto-Aryk Panfilov 1 Orto-Aryk G 1,223 692,595 15,896 17-Mar-09 15-Oct-09 Partially operating 9. 9 Bordu- Kemin 2 Bordu, G 1,057 1,213,064 27,496 27-Nov-08 18-Jul-09 Operating Podgornoe Podgornoe 10. 10 Saz Sokuluk 2 Berilu, Tosh- G 10,960 13,048,598 298,676 14-Apr-09 30-Dec-09 Partially Bulak, Konush, operating Jany-Turmush, Asylbash, Kirovskoe, 1 Maya 11. 11 Tash-Bashat, Issyk-Ata 2 Tash-Bashat, G 959 1,379,087 29,782 1-Oct-08 26-Oct-09 Operating Uch-Emchek Uch-Emchek 12. 12 Telman- Panfilov 2 Telman, G 3,440 835,021 19,144 17-Mar-09 15-Oct-09 Operating 2 Appendix Bukara Bukara 13. 13 Erkin-Sai Panfilov 2 Orto-Kaiyrma, G 2,454 585,640 14,861 25-Mar-09 30-Dec-09 Partially Erkin-Sai operating 14. 14 Kojomkul Jaiyl 1 Kojomkul P 1,309 5,367,412 136,700 28-Jan-10 25-Feb-10 Operating

Subtotal 22 41,174 38,947,971 902,832 19

Oblast 20 Appendix 2 Appendix Sub- Villages Served Actual Cost Construction S. Project Pump / Population Current No. No. Subproject Rayon No. Names Gravity Served Som $ Started Completed Status Jalal-Abad Oblast

15. 1 Abdraimovo Bazar- 4 Abdraimovo, P 21,472 2,364,104 55,566 10-Dec-08 30-May-09 Operating Korgon Kyzyl-Oktyabr, 1 Maya, Kyzyl 16. 2 Kazarman Toguz- 1 Kazarman G 13,315 5,907,715 129,165 1-Aug-08 18-Jan-10 Partially Toroz operating 17. 3 Safarovka Suzak 11 Safarovka, G 42,527 5,151,801 118,334 3-Jul-09 18-Feb-10 Partially Oktyabrskoe, operating Besh-Bala, Sary-Bulak, Kyzyl-Тuu, Bagysh, Taran- Bazar, Mazar- BUlak, Jergetal, Kara- Cholok, Jalgyz- Jangak 18. 4 Kerben Aksy 1 Kerben G 14,000 3,763,020 84,016 11-Mar-09 10-Dec-08 Partially operating Subtotal 17 91,314 17,186,641 387,082

Osh Oblast 19. 1 Maya Kara-Kulja 3 1 Maya, G 21,288 1,413,448 30,221 11-Mar-09 31-Dec-09 Partially Karakulja, operating Byimyrza 20. 2 Boru Karasu 2 Boru, Toguz- G 3,095 656,478 14,228 11-Mar-09 31-Dec-09 Partially Bulak operating 21. 3 Kurmanjan Alai 4 Kurmanjan, G 2,549 1,822,909 41,794 16-Jul-09 16-Jul-10 Operating Kommunizm, Jar-Kyshtak, Novostroika 22. 4 Furkat Karasu 3 Furkat, Marufii, G 13,020 126,758 4,367 11-Mar-09 31-Dec-09 Partially Kulieva operating 23. 5 Erkin-Telman Karasu 2 Erkin, Telman P 7,166 189,301 4,396 11-Mar-09 31-Dec-09 Partially operating 24. 6 Japalak Karasu 4 Teeke, G 10,485 5,606,311 123,533 10-Nov-09 10-Jan-10 Partially Gulbaar- operating

Oblast Sub- Villages Served Actual Cost Construction S. Project Pump / Population Current No. No. Subproject Rayon No. Names Gravity Served Som $ Started Completed Status Toloikon, Kerme-Тоо, Tatar Subtotal 18 57,603 9,815,205 218,539

Batken Oblast 25. 1 Isfana Leilek 8 Ai-Kol, Kara- G 31,283 1,326,550 30,535 15-Jan-09 29-Oct-09 Operating Bulak, Gordoi, Min-jigach, Sabirov, Toguz-Bulak, Golbo, Tailan

26. 2 Kulundu Leilek 4 Kulundu, P 23,295 9,122,122 205,626 17-Feb-09 28-Dec-10 Partially Internatsional, operating Razzakovo, Akaryk Subtotal 12 54,578 10,448,672 236,161 Total Rectification 69 244,669 76,398,488 1,744,614

B. New Subprojects Chui Oblast 27. 1 Tuz Issyk-Ata 4 Tuz, Daiyrbek, G 4,100 19,728,895 438,752 16-Jul-09 17-Dec-10 Operating Jaylma, Nijniya Serafimovka 28. 2 Syn-Tash Issyk-Ata 9 Syn-Tash, G 12,365 30,773,645 678,132 19-Oct-09 19-Oct-11 Operating Telman, Ak-sai, Jetigen, Kyzyl- Aryk, Nurmambet, Epkin, 2 Appendix Pervomaiskoe, Yurievka 29. 3 Kalinovka Chui 1 Koshoi G 1,865 8,763,710 196,352 19-Oct-09 9-Dec-10 Operating

30. 4 Kyzyl-Oi Jaiyl 2 Kyzyl-Oi P 900 10,240,638 230,103 16-Jul-09 10-Jan-11 Operating

21 Subtotal 16 19,230 69,506,888 1,543,339

22

Oblast 2 Appendix

Sub- Villages Served Actual Cost Construction S. Project Pump / Population Current No. No. Subproject Rayon No. Names Gravity Served Som $ Started Completed Status Jalal-Abad Oblast 31. 1 Min-Oruk Suzak 7 Min-Oruk, P 7,935 29,636,150 656,910 19-Oct-09 13-Nov-10 Operating Tolos, Jany- Aiyl, Tashtak, Kandy, Kara- Jygach, Boz- Chychkan 32. 2 Orto-Azia Suzak 1 Orto-Azia P 2,545 23,265,917 511,240 19-Oct-09 16-May-11 Operating 33. 3 Jetigen Toktogul 1 Jetigen G 2,830 11,669,990 257,570 18-Oct-09 26-Oct-10 Operating Subtotal 9 13,310 64,572,057 1,425,719 Osh Oblast 34. 1 Oktyabr Kara-Kulja 1 Oktyabr P 2,415 9,646,960 219,030 16-Jul-09 17-Nov-10 Operating 35. 2 Karatai, Bash- Karasu 2 Karatai, Bash- P 7,016 33,752,205 752,280 19-Oct-09 30-Jul-11 Operating Bulak Bulak 36. 3 Bolshevik Uzgen 1 Bolshevik P 2,541 10,573,354 236,917 19-Oct-09 4-Nov-11 Operating

Subtotal 4 6 11,972 53,972,520 1,208,226

Batken Oblast 37. 1 Bujum Batken 1 Bujum P 7,420 29,329,945 652,085 16-Jul-09 23-Dec-10 Operating 38. 2 Koktash Leilek 1 Koktash G 3,187 11,693,245 260,255 16-Jul-09 19-Nov-10 Operating

Subtotal 2 2 10,607 41,023,189 912,340 Total New 31 33 55,119 229,074,654 5,089,625

Rectification +New 100 299,788 305,473,142 6,834,239 Source: Asian Development Bank estimates.

STATUS OF CONTRACTS S. Contract Mode of Contract Contract Date of Final Amount Date No. No. Procurement Description Amount ($) Award ($) Started Completed Remarks

A. Civil Works Contracts 1 12 NCB Rehabilitation of 5,089,625 06-Jul-09 5,089,625.13 16-Jul-09 19-Oct-11 rural water supply systems (12) 2. 26 Various Rectification of rural 1,744,614 17-Mar-09 1,744,613.98 23-Dec-08 18-Mar-10 water supply systems (27)

B. Supply Contracts 3. G04551 NCB Supply of O&M 117,705 02-Mar-10 116,439.44 24-May-10 24-May-11 JSC ENVOD equipment lot 3 portable (trailing) welding machine (15 units) and portable compressor (15 units) 4. G04552 NCB Supply of O&M 78,568 02-Mar-10 78,027.50 24-May-10 24-May-11 JSC ENVOD equipment lot 4 tool sets and other O&M equipment (15 units) 5. G05559 Shopping Off-road vehicle 70,696 29-Nov-10 70,323.27 29-Nov-10 29-Jan-11 JSC ENVOD (5 seats) (4 units) 6. G05560 Shopping Vehicle-sedan 35,560 25-Nov-10 35,372.22 29-Nov-10 29-Jan-11 UZ DAEWOO (5 seats) (4 units) TYAN-SHAN 7. G05663 Shopping Minibus (1 Unit) 25,975 4-Jan-11 25,975.00 05-Jan-11 05-Feb-11 AziaMotors

C. Services Contracts 8. G04547 QCBS Development of 679,389 13-May-10 387,760.86 26-May-10 30-Apr-11 Association technical design of Musai-Encon rural water supply systems In Batken, Chui, Jalal-Abad, 3 Appendix and Osh, oblasts 9. G05200 CQS Audit of project 67,693 28-Jul-10 14,334.15 27-Aug-10 30-Aug-11 Grant Thornton accounts for Amyot LLC

FY2009–FY2013 10. PIU staff 171,580 1-Jan-09 171,579.75 1-Jan-09 11-Jun-12 Individual

11. PIU operating 259,380 1-Jan-09 259,379.55 1-Jan-09 11-Jun-12 23 expenses 12. Community 180,000 1-Jan-09 31,218.07 1-Jan-09 31-Dec-09 By PIU staff

24

S. Contract Mode of Contract Contract Date of Final Amount Date 3 Appendix

No. No. Procurement Description Amount ($) Award ($) Started Completed Remarks awareness and participation program 13. Hygiene and 60,000 1-Jan-09 305.80 1-Jan-09 31-Dec-09 By PIU staff sanitation education program 14. G05269 CQS Community 73,804 7-Aug-10 37,034.39 4-Oct-10 11-Jun-12 Association for mobilization, Health Promotion hygiene, and (153 person- sanitation education months) services for Chui Oblast 15. G05270 CQS Community 221,149 7-Aug-10 67,771.41 4-Oct-10 11-Jun-12 Central Asian mobilization, Alliance for Water hygiene, and (285 person- sanitation education months) services for Batken, Jalal-Abad, and Osh oblasts CQS = consultants’ qualifications selection, FY = fiscal year, NCB = national competitive bidding, O&M = operation and maintenance, PIU = project implementation unit, QCBS = quality- and cost-based selection. Source: Asian Development Bank estimates.

Appendix 4 25

VEHICLES AND EQUIPMENT PROCURED A. Vehicles Item Quantity Operating Current User 1. Off-road vehicle BJ 2024 4 Yes Department of 2. Sedan vehicle, Daewoo Nexia-2 4 Yes Water Supply and Sanitation 3. Off-road vehicle, 4-wheel-drive 4 Yes Department of 4. Minibus, Hyundai 1 Yes Water Resources Source: Department for Drinking Water Supply and Sewerage Development.

B. Operation and Maintenance Equipment Current Item Quantity Operating User 1. Portable (trailing) welding machine 15 Yes 15 CDWUUs 2. Portable compressor 15 Yes 15 CDWUUs 3. Portable generator with welding apparatus 15 Yes 15 CDWUUs 4. Gas-welding unit 15 Yes 15 CDWUUs 5. Electric water pump with power up to 5 m3/hour 15 Yes 15 CDWUUs 6. Portable device for posting of PE pipes 15 Yes 15 CDWUUs 7. Electric drill: working cartridge diameter 0–10 mm 15 Yes 15 CDWUUs 8. Electric drill: working cartridge diameter 0–16 mm 15 Yes 15 CDWUUs 9. Gas pipe wrench no.1–5 15 Yes 15 CDWUUs 10. Set of spanner wrenches no. 10–24 15 Yes 15 CDWUUs 11. Adjustable wrench no. 0–3 15 Yes 15 CDWUUs 12. Machine tool 15 Yes 15 CDWUUs 3 CDWUU = community drinking water users’ union, m = cubic meter, mm = millimeter; PE = public enterprise. Source: Department for Drinking Water Supply and Sewerage Development.

C. Recipients of Operation and Maintenance Equipment Location Subproject Name of CDWUU Rayon Oblast 1. Kara-Bulak Bel Ata Kemin Chui 2. Sotsialchy Dokturbek Kurmanaliev Issyk-Ata 3. Kok-Jar Bulak Azyk Alamedin 4. Saz Oroo Bashi Sokuluk 5. Sary Kolot-Kadyrsha Sary Kolot-Kadyrsha Kara Suu Osh 6. Kurshab Kurshab Taza Suu Uzgen 7. 1 Maya Sur Tash Taza Suu Kara-Kulja 8. Au-Tapan Pakiza Taza Suu Alai 9. Kulatov Teshik Taza Suu Nookat 10. Kazarman Kazarman Taza Suu Toguz Toro Jalal-Abad 11. Kerben Kerben Taza Suu Aksy 12. Safarovka Kok-Arskaya Dolina Suzak 13. Kulundu Kojo Bakyrgan Suu Leilek Batken 14. Tsentralyi Kelechek Arka Leilek 15. Batken Bakten town Vodokanal Batken CDWUU = community drinking water users’ union. Source: Department for Drinking Water Supply and Sewerage Development.

SUMMARY OF PROJECT COSTS 26 Appendix 5 Appendix

Table A5.1: Project Cost Estimates and Financing Plan by Source at Appraisal ($ million) Government and Item ADB Government Communities Communities Total Cost 1. Civil Works 1A. Water supply and sanitation (new) 19.80 0.25 1.35 1.60 21.40 1B. Water supply rectification works 2.00 … 2.00 Subtotal 21.80 0.25 1.35 1.60 23.40 2. Equipment and Materials 2A. CDWUU equipment for new works 1.00 … 1.00 2B. CDWUU equipment for rectification works 2.00 … 2.00 Subtotal 3.00 … … … 3.00 3. Vehicles 3A. PMU vehicles 0.15 … 0.15 4. Training and Capacity Building 4A. Community awareness and participation program 0.50 … 0.50 4B. Hygiene and sanitation education program 0.50 … 0.50 4C. Asset management and strengthening program 0.50 … 0.50 Subtotal 1.50 … … … 1.50 5. Consulting Services 5A. Community mobilization consultancy 0.30 … 0.30 5B. Technical design consultancy 0.75 … 0.75 5C. Technical supervision consultancy 0.45 … 0.45 Subtotal 1.50 … … … 1.50 6. Project Management 6A. Incremental administration 0.60 1.15 1.15 1.75 6B. Office management expenses 0.60 … 0.60 Subtotal 1.20 1.15 … 1.15 2.35 7. Contingencies 0.85 0.15 0.15 1.00 8. Taxes and Duties 4.60 4.60 4.60 Total 30.00 6.15 1.35 7.50 37.50 Percentage of Project Costs (%) 80.00 16.40 3.60 20.00 100.00 CDWUU = community drinking water users’ union, PMU = project management unit. Source: Asian Development Bank estimates.

Appendix 5 27

Table A5.2: Actual Project Costs and Financing Plan by Source at Completion

($ million) Government and Total Item ADB Government Communities Communities Cost 1. Civil Works 1A. Water supply and sanitation (new) 5.09 0.80 0.28 1.08 6.17 1B. Water supply rectification works 1.74 0.26 … 0.26 2.00 Subtotal 6.83 1.06 0.28 1.33 8.17 2. Equipment and Materials 2A. CDWUU equipment for new works 0.12 … 0.12 2B. CDWUU equipment for rectification works 0.08 … 0.08 Subtotal 0.19 … … … 0.19 3. Vehicles 3A. PMU vehicles 0.13 … 0.13 4. Training and Capacity Building 4A. Community awareness and participation program 0.03 … 0.03 4B. Hygiene and sanitation education program 0.11 … 0.11 4C. Asset management and strengthening program … … … Subtotal 0.14 … … … 0.14 5. Consulting Services 5A. Community mobilization consultancy … … … 5B. Technical design consultancy 0.40 … 0.40 5C. Technical supervision consultancy … … … Subtotal 0.40 … … … 0.40 6. Project Management 6A. Incremental administration 0.17 0.33 … 0.33 0.50 6B. Office management expenses 0.29 … 0.29 Subtotal 0.46 0.33 … 0.33 0.79 7. Contingencies … … 8. Taxes and Duties … … Total 8.16 1.39 0.28 1.67 9.83 Percentage of Project Costs (%) 83.04 14.15 2.81 16.96 100.00 CDWUU = community drinking water users’ union, PMU = project management unit. Source: Asian Development Bank estimates.

28 Appendix 6 Appendix

UTILIZATION OF GRANT PROCEEDS ($'000) Category 2008 2009 2010 2011 2012 2013 Total

1. Civil works … 2,726 3,315 6,828,094 92 12 6,834,239 2. Equipment and materials … ... 194 194,272 … 194,467 3. Vehicles … … … 131,670 … 131,670 4. Training and capacity building … 22 6 136,290 … 12 136,330 5. Consulting services … … 68 402,457 1 89 402,615 6. Project management … 184 197 459,872 … 460,253 Total … 2,933 3,780 8,152,656 92 113 8,159,574 Percentage of Total (%) … 0.04 0.05 99.92 0.00 0.00 100.00 Source: Asian Development Bank estimates.

Appendix 7 29

PROJECT IMPLEMENTATION SCHEDULE 2008 2009 2010 2011 2012 2013 TASKS 123412341234123412341234

Project Preparatory Activities Implementation of Rectification Works (Dec 2008 - Mar 2010)

Consultants Selection (Jan 2009 - Oct 2010)

CBO Formation and Community Mobilization (Oct 2010 - Jun 2012)

Part A: Physical Infrastructure Contract Award of Already Designed Subproject (Jan 2009 - Mar 2009)

Subproject Identification and Pre-Feasibility Studies (Jan 2009 - Jun 2009) 4

Surveys, Investigation, and Feasibility Studies (Jan 2009 - Jun 2012)

Detailed Engineering Designs (May 2010 - Apr 2011)

Bid Process Management (Jan 2009 - Jun 2012)

Asset Creation - Water Supply and Sanitation (Jul 2009 - Oct 2011)

Procurement of O&M Equipment (Jul 2009 - May 2010) Part B: Capacity Development Community Awareness and Participation Program (Jan 2009 - Jun 2012)

Hygiene and Sanitation Education Program (Oct 2010 - June 2012)

Asset Management and Strengthening Program (Jan 2012 - Jun 2012) Part C: Project Assistance Facility Project Management and Administration (Dec 2009 - Jun 2012)

Technical Supervision Consultancy (Jul 2011 - Aug 2011)

Community Mobilization Consultancy (Apr 2009 - Jun 2012)

Technical Design Consultancy (May 2010 - Apr 2011)

Project Performance and Management System Project performance and management system was not established PROJECT MILESTONES: Grant Approval (3 November 2008) Grant Effectivity (19 December 2008) Project Completion (Original: 31 December 2012) Grant Closing (Original: 30 June 2013) Suspension of rights to withdraw funds (6 June 2012) Cancellation of undisbursed grant funds (3 June 2013) Grant account closed (14 October 2013) Preparation of Project Completion Report

LEGEND Original Actual/Revised

30 Appendix 8

STATUS OF COMPLIANCE WITH GRANT COVENANTS Reference to Grant Agreement / No. Covenant RRP Status Implementation Arrangements 1 The Recipient shall retain the existing Project Schedule 4, Partially complied Management Unit (PMU) under the Department of para. 1 with. Frequent Rural Water Supply (DRWS) and its key staff to changes were manage and administer the Project, subject to the made in the EA’s following: and the PMU-level (i) A Project director shall head the PMU, and staff while the shall be supported by three (3) deputy Project overall organization directors – one (1) each for technical and engineering, structure institutional development and financial management. particularly at PIU (ii) The PMU shall recruit additional four water level was retained. supply and sanitation specialists, an environment specialist, and a translator/interpreter. (iii) Four Project Implementation Units (PIUs) already established in each of the four (4) oblasts (provinces) Chui, Jalal-Abad, Osh and Batken shall be responsible for Project implementation in the villages. 2 The Recipient shall ensure that DRWS does not Schedule 4, Complied with even transfer any staff in the PMU and the PIUs during the para. 2 if this locked in Project implementation period. poor performance. 3 The DRWS shall strengthen the capacity of the PMU Schedule 4, Not complied with. and PIU staff for identifying subprojects, mobilizing the para. 3 PMU/PIU staff community, and forming and developing CDWUUs. capacity remained weak. 4 The Recipient shall cause the National Agency of Schedule 4, Complied with. Local Self Government (NALSG) to (i) join the PIUs in para. 4 the implementation of the Project, and (ii) seek participation, with the help of the PMU, of Ayil Okmotu and Community Drinking Water Users’ Union (CDWUUs) through the community awareness, hygiene and sanitation education, and asset management and strengthening programs. 5 Within three (3) months of the approval of the Schedule 4, Not complied with. supplementary grant by ADB, the Recipient shall para. 5 PCC was cause DRWS, NALSG, Ministry of Health, and established but it Ministry of Finance to establish a PCC, which shall never held any meet at six-monthly intervals or as earlier, if meetings. necessary, to oversee Project implementation and provide decision making support on all aspects of the Project. Subproject Selection The DRWS shall ensure that each proposed Schedule 4, Partially complied 6 Subproject meets the Subproject selection criteria and para. 6 with. Project the approval process set out in Appendix 11 of the Steering RRP. Committee (PSC) assessments were not presented on time. In other cases the community

Appendix 8 31

Reference to Grant Agreement / No. Covenant RRP Status contributions were made before selection of the subprojects was approved. Service Delivery 7 The DRWS shall continue to monitor the water quality Schedule 4, Complied with. of all the already completed schemes under the Initial para. 7 Sanitation and Project and the Subprojects at 6-month intervals, Epidemiological particularly after the monsoon season, and undertake Services monitor timely measures to address any case of the water quality contamination. and report regularly. 8 The Recipient shall ensure that the DRWS establishes Schedule 4, Not complied with. a suitable mechanism under the Project to finance the para. 8 EA was unable to procurement of operations and maintenance (O&M) establish a suitable equipment and water meters for the interested mechanism for CDWUUs. distribution of O&M equipment and water meters were never procured. 9 The DRWS shall ensure that the PMU (i) re-evaluates Schedule 4, Not complied with. the performance of existing contractors and qualifies para. 9 The capacity of only those contractors who have performed well contractors was not during the Initial Project implementation, and (ii) adequately applies a more stringent criterion for the evaluated. prequalification of new contractors. 10 The DRWS shall cause the PMU to ensure that Schedule 4, Partially complied comprehensive investigations are undertaken for the para. 10 with. Some selection of sustainable water sources, and that the communities communities are involved in the identification and complained of selection of water sources and the overall unsuitable water implementation of the Project. sources and inadequate consultation with the beneficiaries on source selection. Operation and Maintenance 11 The Recipient shall ensure that the Ayil Okmotus and Schedule 4, Partially complied CDWUUs operate and maintain the completed para. 11 with. Many Subproject facilities for water supply and sanitation in communities don’t accordance with sound administrative policies and have adequate procedures through efficient collection of user charges equipment and the and other local taxes. quality of O&M is generally not satisfactory. Also, tariff collection is generally poor.

32 Appendix 8

Reference to Grant Agreement / No. Covenant RRP Status Tariffs 12 The Recipient shall ensure that the Ayil Okmotus Schedule 4, Partially complied concerned (i) conduct annual review of the level and para. 12 with. Tariff are structure of the water tariffs and furnish the results to reviewed annually ADB within one month of completion of the review; (ii) but never reported revise the water tariffs as necessary to ensure that the to ADB. In most revenues from water tariffs cover at least the schemes, user operations and maintenance costs; and (iii) provide charged collection financial support, where necessary, to CDWUUs and is not sufficient to ensure that service is efficiently delivered and the meet O&M system does not experience breakdown. expenses. Ayil Okmotu do provide support to CDWUUs. Billing and Collection 13 The Recipient shall ensure that the Ayil Okmotus and Schedule 4, Partially complied CDWUUs take appropriate measures to effect proper para. 13 with. Tariff collection of outstanding water bills and protect their collections are still water resources and facilities through vigorous very low. prosecution for violations such as water meter tampering or water theft. Participation by Non-Governmental Organizations, Community-Based Organizations, and Women 14 The Recipient shall ensure that (i) relevant non- Schedule 4, Complied with. governmental organizations and community-based para. 14 organizations are involved at all stages of Subproject planning, design, construction and operations and maintenance, and actively assist in the capacity- development, including health and hygiene aspects of the Project; (ii) women’s community groups participate in all relevant Project-related decision-making activities; and (iii) adequate opportunities for employment of women in Ayil Okmotus and CDWUUs and for other activities under the Project are made available. Land Acquisition; Voluntary Land Donation 15 The Recipient shall ensure, and cause DRWS to Schedule 4, Not applicable, as ensure, that (i) the Subprojects do not require any para. 15 no land acquisition land acquisition or involuntary resettlement; and (ii) in was required. the event any land acquisition or resettlement becomes necessary, or any potential impact on indigenous peoples is identified, a suitable resettlement plan is drawn up in consultation with the affected people, and approval of ADB, in accordance with the applicable laws of the Recipient, ADB’s Involuntary Resettlement Policy (1995) and Policy on Indigenous Peoples (1998), and is implemented in accordance with its terms. 16 The Recipient shall ensure, and cause DRWS to Schedule 4, Not applicable, as ensure, that any voluntary donation of land made for para. 16 no land acquisition community development works (such as water source was required.

Appendix 8 33

Reference to Grant Agreement / No. Covenant RRP Status development, overhead reservoir, water transmission line, and wastewater disposal works) is undertaken in compliance with ADB’s Involuntary Resettlement Policy (1995), applicable laws of the Recipient, and in accordance with the terms of the Resettlement Framework. The Recipient shall further ensure that it obtains consent letters, in the form attached to the Resettlement Framework, from all affected people under the Initial Project and this Project for voluntary donation of their lands. Environment 17 The Recipient shall ensure, and cause DRWS to Schedule 4, Not complied with. ensure, that (i) the Subprojects are designed and para. 17 IEE and EMPs implemented, and the Subproject facilities operated were not submitted. and maintained, in strict conformity with the laws and Environment regulations of the Recipient, and ADB’s Environment clearance for Policy (2002); (ii) an IEE (or environmental impact subprojects assessment, if necessary) is undertaken for each contracted in 2009 Subproject in accordance with the EARF; (iii) IEE and was obtained in EMP are submitted to ADB for prior approval for any 2011. Subproject costing $300,000 or more; (iv) any adverse environmental impacts are minimized by implementing the mitigation measures and the monitoring program set out in the EMPs; (v) implementation of the EMPs and any violation of the environmental standards are reported to ADB semiannually; (vi) necessary governmental permits are obtained prior to commencement of civil works; (vii) EMPs are incorporated in the bidding documents and made a part of the civil works contracts; (viii) the implementation of the EMPs by the contractors is closely monitored; and (ix) annual reports are submitted to ADB on the implementation of EMPs. Anticorruption 18 The Recipient and DRWS acknowledge that ADB, Schedule 4, Not complied with. consistent with its commitment to good governance, para. 18 OAI investigations accountability and transparency, reserves the right to resulted in investigate directly, or through its agents, any alleged sanctions of JPMU corrupt, fraudulent, collusive or coercive practice staff sanctions. relating to the Project, and shall (i) comply with ADB’s Anticorruption Policy (1998, as amended to date); and (ii) cooperate with any such investigation and extend all necessary assistance, including access to all relevant books and records, and for engagement of independent experts who may be needed for satisfactory completion of such investigation. 19 The DRWS shall ensure that the anticorruption Schedule 4, Not complied with. provisions acceptable to ADB are included in all para. 19 The project bidding documents and contracts, including provisions contract documents specifying the right of ADB to audit and examine the used did not records and accounts of the executing and include

34 Appendix 8

Reference to Grant Agreement / No. Covenant RRP Status implementing agencies and all contractors, suppliers, anticorruption consultants, and other service providers as they relate provisions. to the Project. 20 The DRWS shall ensure that it (i) oversees financial Schedule 4, Not complied with. management of the Project based on the approved para. 20 A number of Guidelines on Administrative and Finance financial Management of the PMU approved by its order No. 9 mismanagement of 22 February 2007; (ii) institutes a system of controls instances were to ensure that all cash and banking transactions revealed in auditor undergo four levels of checks -- accountant, financial reports and during manager, director-PMU and director general-DRWS; CTL review. (iii) submits monthly and quarterly financial reports to An international the MOF and ADB to confirm compliance with audit company was accounting standards and fund utilization; (iv) submits recruited which all withdrawal applications for replenishment to the submitted its MOF and ADB with detailed information on current reports annually. expenditures for the related period and that all The auditor report supporting documents are confirmed by the director, for 2009 was PMU after verification by financial manager and PMU qualified. The consultants; (v) manages and tallies financial data report of 2012 was periodically on the "Software-1C" system at the PMU; very critical which (vi) has the Project accounts audited annually by the identified many Chamber of Accounts and by an independent auditing irregularities firm (recruited on a competitive basis) and that audit pertaining to the recommendation are promptly complied with; (vii) current and the requires the technical supervision consultant to previous years. provide third party quality assurance on construction practices, appropriate equipment and material usage by contractors, and apply adequate quality assurance and control measures during Project implementation; and (viii) requires the PMU staff and Project consultants to undergo training on ADB’s Anticorruption Policy, to understand how and where fraud and corruption may occur, and learn possible measures to reduce such occurrences. Counterpart funds 21 The Recipient shall ensure that adequate annual Schedule 4, Complied with. The budgetary allocations are made and the counterpart para. 21 government funds made available to DRWS and the PMU in a provided adequate timely manner. fund in a timely manner.

Project Performance Monitoring 22 The Recipient shall ensure that the implementation of Schedule 4, Not complied with. the Project, the benefits resulting from the Project, para. 22 Project and the overall operations of the Project facilities are performance monitored and evaluated bi-annually. Within six (6) monitoring system months of the Effective Date, the Recipient shall was not further refine the Project performance monitoring established. system, in a manner satisfactory to ADB, including the

Appendix 8 35

Reference to Grant Agreement / No. Covenant RRP Status use of relevant financial and technical monitoring indicators and information. Project Review 23 The Recipient and ADB shall review the progress Schedule 4, Partial compliance. under the Project bi-annually, and also undertake a para. 23 Review missions comprehensive mid-term review (MTR) two (2) years were conducted bi- after the Effective Date. These reviews shall focus on annually as the impact on poverty alleviation, implementation stipulated. MTR arrangements, community involvement, physical was conducted in implementation, design and technology, operation and June-August 2011. maintenance arrangements, institutional aspects However, the including training, hygiene and sanitation education, missions failed to and the role of women. The reviews shall also assess identify all the Project’s progress and achievement of its implementation objectives, identify any problems encountered and shortcomings in a recommend any required remedial measures. timely manner. Policy, Legal, and Regulatory Framework 1 Government ratifies a Rural Water Supply and Not complied with. Sanitation Sector Policy by June 2009 Design and 2 Government enacts a law on CDWUU charter and monitoring Not complied with. responsibilities by Jun 2009 framework in 3 Government enacts a law on local self-governments RRP Not complied with. and responsibilities for drinking water supply and sanitation to rural communities by Dec 2009 ADB = Asian Development Bank, CDWUU = community drinking water users’ union, CTL = Controller’s Department; EA = executing agency, EARF = environmental assessment review framework, EMP = environmental management plan, IEE = initial environmental examination, PCC = Project Coordination Committee, OAI = Office of Anticorruption and Integrity, RRP = report and recommendation of the President.

36 Appendix 9

CONTRIBUTION TO THE ADB RESULTS FRAMEWORK

Level 2 Results Framework Indicators Aggregate No. (Outputs and Outcomes) Targets Outputs Methods / Comments

1 Households with new or improved water 42,000 7,800 55,000 beneficiaries in supply (number) approximately 7,800 households.

2 Households with new or improved 42,000 0 No sanitation component sanitation (number) was implemented.

Source: Asian Development Bank.

Appendix 10 37

ECONOMIC EVALUATION

1. The economic evaluation is based on the methodology used during appraisal to allow comparison of the targets set at appraisal and those achieved at project completion. The original economic analysis was based on three representative subprojects in Chui Oblast (Archaly, Krasnaya Rechka, and Sosonovka), which included two gravity-based systems and one pumped system. Since none of the originally analyzed subprojects were completed, the current analysis covers four completed subprojects in Chui Oblast (Kalinovka, Kyzyl-Oi, Syn- Tash, and Tuz), which includes three gravity-based systems and one pumped system. The analysis compares the costs and benefits in with- and without-project scenarios. The economic internal rate of return (EIRR) is estimated for the project as a whole. The analysis is based on data obtained from the Department of Drinking Water Supply and Sanitation Development, project records, and field visits undertaken by the project completion review mission.

A. Major Assumptions

1. Prices

2. All prices are expressed at world market prices in the national currency. The prices are adjusted to constant 2010 prices using the World Bank manufactures unit value index, since the subprojects started operating in 2010. Local costs are adjusted to constant 2010 prices based on the consumer price index for the Kyrgyz Republic, while foreign costs are similarly adjusted using the manufactures unit value index.

3. The price of labor is assumed at Som1,500 per day, which was the prevailing price found at project completion. Taking into account the relatively high and increasing underemployment of labor, labor costs are shadow-priced at 0.7 of the wage rates. Other inputs are adjusted by the standard conversion factor of 1.0, following the appraisal methodology.

2. Period of Analysis

4. The project’s economic life is assumed to be 25 years, from 2010 to 2035, as at appraisal. The major project activities were implemented over 1–2 years, from 2010 to 2011, depending on the subproject.

3. Project Costs

5. The economic costs for the total project are based on actual investment costs incurred for each subproject and on actual recurrent costs for operation and maintenance (O&M) for each subproject. While direct comparison with subprojects evaluated at appraisal is not possible, the actual investment costs are higher than at appraisal due to the underestimation of costs explained in the project completion report. Costs are expressed in economic prices by excluding taxes and duties, and applying the standard conversion factor of 1.0 to the local component of costs. Investment costs are expressed in constant 2010 base prices by adjusting the local cost element by the consumer price index, and the international cost component by the manufactures unit value index. O&M costs cover labor, power and fuel, and miscellaneous expenses. The average annual O&M costs are based on costs incurred during actual operation.

38 Appendix 10

4. Project Benefits

6. The project benefited around 55,000 rural residents, significantly fewer than the appraisal estimate of 300,000. The evaluated subprojects benefitted approximately 9,200 rural residents. Project benefits are derived from results of the field visits and some project data.

7. The economic cost savings, brought about by the subproject in terms of reduced collection time and cost savings from reduced need for domestic storage and treatment of water, are part of the economic benefits. Due to insufficient data, other quantifiable benefits (such as health benefits) were not specifically quantified in the economic analysis. These can be considered part of the economic cost savings, as improving the health of rural residents in the coverage area is a benefit from the potability of water provided by the schemes. Induced demand, which comprises incremental benefits, is valued using the average of the willingness to pay as proxied by the tariffs charged. Revenues from the imposition of water tariffs are added to the benefit stream as consumer surplus. On average, the projects are assumed to save approximately 0.5 hours/day for each beneficiary.

B. Economic Performance

8. Results of the economic analysis are summarized in Tables A10.1 to A10.4. The EIRR estimates for the four subprojects range from 1.2% to 21.2%, significantly lower than the base- case estimates at appraisal of 26.6% to 33.9%. Two of the subprojects have EIRRs lower than the 12% opportunity cost of capital, with Syn-Tash having an EIRR of 1.2% and Kyzyl-Oi an EIRR of 7.5%. These low EIRRs are the result of significant cost escalation and high capital costs per capita for the subprojects. In other cases where capital costs were more reasonable, the EIRRs are higher, such as for Kalinovka with an EIRR of 18.2% and Tuz with 21.2%.

Table A10.1: Economic Costs and Benefits for the Subproject Syn-Tash (Chui Oblast)

Economic Cost Year Benefit Capital O&M Total Net Benefits 2008 0 6,105 0 6,105 (6,105) 2009 0 18,314 0 18,314 (18,314) 2010 1,592 0 446 446 1,146 2011 1,618 0 446 446 1,172 2012 1,644 0 446 446 1,198 2013 1,670 0 446 446 1,224 2014 1,697 0 446 446 1,251 2015 1,724 0 446 446 1,278 2016 1,752 0 446 446 1,306 2017 1,780 0 446 446 1,334 2018 1,808 4,884 446 5,330 (3,522) 2019 1,837 0 446 446 1,391 2020 1,866 0 446 446 1,420 2021 1,896 0 446 446 1,450 2022 1,927 0 446 446 1,481 2023 1,957 0 446 446 1,511 2024 1,957 0 446 446 1,511 2025 1,957 0 446 446 1,511 2026 1,957 0 446 446 1,511 2027 1,957 0 446 446 1,511

Appendix 10 39

Economic Cost Year Benefit Capital O&M Total Net Benefits 2028 1,957 0 446 446 1,511 2029 1,957 0 446 446 1,511 2030 1,957 0 446 446 1,511 2031 1,957 0 446 446 1,511 2032 1,957 0 446 446 1,511 2033 1,957 0 446 446 1,511 Discount Rate @ 12% EIRR 1.2% ENPV (13,332) () = negative value, EIRR = economic internal rate of return, ENPV = expected net present value, O&M = operation and maintenance. Source: Asian Development Bank estimates.

Table A10.2: Economic Costs and Benefits for the Kyzyl-Oi Subproject (Chui Oblast) (Som'000) Economic Cost Year Benefit Capital O&M Total Net Benefits 2009 0 2,032 0 2,032 (2,032) 2010 0 6,095 0 6,095 (6,095) 2011 774 0 10 10 764 2012 786 0 10 10 776 2013 798 0 10 10 788 2014 811 0 10 10 801 2015 824 0 10 10 814 2016 837 0 10 10 827 2017 851 0 10 10 841 2018 864 0 10 10 854 2019 878 0 10 10 868 2020 892 2,438 10 2,448 (1,556) 2021 907 0 10 10 897 2022 921 0 10 10 911 2023 936 0 10 10 926 2024 951 0 10 10 941 2025 951 0 10 10 941 2026 951 0 10 10 941 2027 951 0 10 10 941 2028 951 0 10 10 941 2029 951 0 10 10 941 2030 951 0 10 10 941 2031 951 0 10 10 941 2032 951 0 10 10 941 2033 951 0 10 10 941 2034 951 0 10 10 941 Discount Rate @ 12% EIRR 7.5% ENPV (2,067) () = negative, EIRR = economic internal rate of return, ENPV = expected net present value, O&M = operation and maintenance. Source: Asian Development Bank estimates.

40 Appendix 10

Table A10.3: Economic Costs and Benefits of the Kalinovka Subproject (Chui Oblast) (Som'000) Economic Cost Year Benefit Capital O&M Total Net Benefits 2010 0 6,954 0 6,954 (6,954) 2011 1,220 0 116 116 1,104 2012 1,394 0 116 116 1,278 2013 1,416 0 116 116 1,300 2014 1,439 0 116 116 1,323 2015 1,462 0 116 116 1,346 2016 1,485 0 116 116 1,369 2017 1,509 0 116 116 1,393 2018 1,533 0 116 116 1,417 2019 1,558 0 116 116 1,442 2020 1,583 0 116 116 1,467 2021 1,608 2,086 116 2,204 (596) 2022 1,634 0 116 116 1,518 2023 1,660 0 116 116 1,544 2024 1,687 0 116 116 1,571 2025 1,714 0 116 116 1,598 2026 1,714 0 116 116 1,598 2027 1,714 0 116 116 1,598 2028 1,714 0 116 116 1,598 2029 1,714 0 116 116 1,598 2030 1,714 0 116 116 1,598 2031 1,714 0 116 116 1,598 2032 1,714 0 116 116 1,598 2033 1,714 0 116 116 1,598 2034 1,714 0 116 116 1,598 2035 1,714 0 116 116 1,598 Discount Rate @ 12% EIRR 18.2% ENPV 2,947 () = negative value, EIRR = economic internal rate of return, ENPV = expected net present value, O&M = operation and maintenance. Source: Asian Development Bank estimates.

Table A10.4: Economic Costs and Benefits of the Tuz Subproject (Chui Oblast) (Som'000) Economic Cost Year Benefit Capital O&M Total Net Benefits 2010 0 15,655 0 15,655 (15,655) 2011 3,413 0 582 582 2,831 2012 3,901 0 582 582 3,319 2013 3,963 0 582 582 3,381 2014 4,027 0 582 582 3,445 2015 4,091 0 582 582 3,509 2016 4,156 0 582 582 3,574 2017 4,223 0 582 582 3,641 2018 4,291 0 582 582 3,709 2019 4,359 0 582 582 3,777 2020 4,429 0 582 582 3,847

Appendix 10 41

Economic Cost Year Benefit Capital O&M Total Net Benefits 2021 4,500 4,696 582 5,278 (779) 2022 4,572 0 582 582 3,990 2023 4,645 0 582 582 4,063 2024 4,719 0 582 582 4,137 2025 4,795 0 582 582 4,213 2026 4,795 0 582 582 4,213 2027 4,795 0 582 582 4,213 2028 4,795 0 582 582 4,213 2029 4,795 0 582 582 4,213 2030 4,795 0 582 582 4,213 2031 4,795 0 582 582 4,213 2032 4,795 0 582 582 4,213 2033 4,795 0 582 582 4,213 2034 4,795 0 582 582 3,918 2035 4,795 0 582 582 3,990 Discount Rate @ 12% EIRR 21.2% ENPV (10,141) () = negative value, EIRR = economic internal rate of return, ENPV = expected net present value, O&M = operation and maintenance. Source: Asian Development Bank estimates.

42 Appendix 11

OVERALL ASSESSMENT Table A11.1: Criteria, Definitions, and Rating Values

Serial Weight Rating No. Criterion (%) Definition Description Value 1. Relevance 25 Relevance is the consistency of a Highly relevant 3 project's impact and outcome with the government's development strategy, Relevant 2 the Asian Development Bank's lending Less than relevant 1 strategy for the country and strategic Irrelevant 0 objectives at the time of the approval and evaluation, and the adequacy of the design.

Effectiveness describes the extent to Highly effective 3 2. Effectiveness 25 which the outcome, as specified in the design and monitoring framework, Effective 2 either as agreed at approval or as subsequently modified, has been Less than effective 1 achieved. Ineffective 0 3. Efficiency 25 Efficiency describes, postproject Highly efficient 3 completion, how economically resources were converted to the Efficient 2 results, using the economic internal Less than efficient 1 rate of return or cost-effectiveness of the investment or other indicators as a Inefficient 0 measure, and the resilience to risk of the net benefit flows over time. Sustainability considers the likelihood Most likely 3 4. Sustainability 25 that human, institutional, financial, and Likely 2 other resources are sufficient to maintain the outcome over its Less than likely 1 economic life. Unlikely 0 Overall Assessment: (weighted average of Highly successful: Overall weighted average is greater than or equal to 2.7. above criteria) Successful: Overall weighted average is greater than or equal to 1.6 and less than 2.7. Less than successful: Overall weighted average is greater than or equal to 0.8 and less than 1.6. Unsuccessful: Overall weighted average is less than 0.8.

Appendix 11 43

Table A11.2: Assessment of the Community-Based Infrastructure Services Sector Project Weight Criterion (%) Rating Value 1 Relevance 25 Less than relevant 1 2 Effectiveness 25 Ineffective 0 3 Efficiency 25 Inefficient 0 4 Sustainability 25 Less than likely 1 Weighted average 0.5

Overall Rating Unsuccessful

Project Impact (Substantial, significant, moderate, negligible) Negligible