*OFFICIAL USE ONLY PD000314-UZB March 13, 2020 Project Document of the Asian Infrastructure Investment Bank Sovereign-backed Financing The Republic of Uzbekistan Bukhara Region Water Supply and Sewerage Project *OFFICIAL USE ONLY Currency Equivalents (As of Jan. 20, 2020) Currency Unit – Uzbekistan Sum (UZS) UZS1.00 = USD0.0001048 USD1.00 = UZS9,538 Borrower‟s Fiscal year Jan. 1—Dec. 31 Abbreviations ADB Asian Development Bank AIIB; the Bank Asian Infrastructure Investment Bank BWC Bukhara Water Company, the water utility of Bukhara Region DSCR Debt Service Coverage Ratio EIRR Economic Internal Rate of Return ENPV Economic Net Present Value ESMP Environmental and Social Management Plan ESMPF Environmental and Social Management Planning Framework ESP Environmental and Social Policy ESS Environmental and Social Standards FM Financial Management GAP Gender Action Plan GDP Gross Domestic Product GRM Grievance Redress Mechanism IFI International Financial Institution MDB Multilateral Development Bank MHCS Ministry of Housing and Communal Services MoF Ministry of Finance NRW Non-Revenue Water O&M Operation and Maintenance OCCR Operating Cost Coverage Ratio OHS Occupational Health and Safety PCU Project Coordination Unit PDS Project Delivery Strategy PIA Project Implementing Agency PP Procurement Plan RPF Resettlement Policy Framework SECO Swiss State Secretariat for Economic Affairs SDG Sustainable Development Goal TA Technical Assistance WSS Water Supply and Sanitation ii *OFFICIAL USE ONLY Contents 1. Summary Sheet............................................................................................................1 2. The Project Description ..............................................................................................3 A. Rationale .............................................................................................................. 3 B. Project Objective and Expected Results ............................................................. 8 C. Description and Components .............................................................................. 9 D. Cost and Financing Plan.................................................................................... 11 E. Implementation Arrangements........................................................................... 12 3. Project Assessment ..................................................................................................16 A. Technical ............................................................................................................ 16 B. Economic and Financial..................................................................................... 18 C. Fiduciary and Governance................................................................................. 19 D. Environmental and Social Aspects .................................................................... 21 E. Operational Policy on International Relations ................................................... 25 F. Risks and Mitigation Measures.......................................................................... 26 Annex 1: Results Monitoring Framework ......................................................................... 30 Annex 2: Detailed Project Description .............................................................................. 32 Annex 3: Economic and Financial Analysis...................................................................... 40 Annex 4: Sovereign Credit Fact Sheet ............................................................................. 58 *OFFICIAL USE ONLY 1. Summary Sheet The Republic of Uzbekistan Bukhara Region Water Supply and Sewerage Project Project No. PD 000314 Borrower Republic of Uzbekistan Project Implementation Ministry of Housing and Communal Services (MHCS) Entity Project Implementation Kommunkhizmat Agency Agency (PIA) Sector/ Water and Waste / Subsector Water Supply, Sewage Project Objective Provide access to safely managed water and sanitation services in the Bukhara Region and strengthen the operational performance of the water utility of Bukhara Region. Project Description Component 1. Investment in Water Supply Infrastructure. Construction and rehabilitation of intakes, main water lines, water treatment facilities, pumping stations and distribution networks. Component 2. Investment in Sewage Infrastructure. Construction of centralized sewage systems in district centers, consisting of collectors, pumping stations and sewage treatment plants, as well as discharge facilities. Component 3. Project Implementation and Management Support. Project management and implementation support to assist the Implementation Agency in ensuring seamless coordination, efficient implementation and compliance with the relevant policies. Implementation Start Date: May 1, 2020 Period End Date: April 30, 2025 Expected Loan Closing December 30, 2025 Date Cost and Financing Total cost USD437.62 million Plan Government of Uzbekistan USD52.50 million AIIB loan USD385.12 million including capitalized interest and fees of USD15.61 million Size and Terms of AIIB Size: USD385.12 million Loan 25-year maturity, including a 5-year grace period Environmental A and Social Category Risk High (Low/Medium/High) Conditions for Project Coordination Unit (PCU) established with staffing satisfactory to *OFFICIAL USE ONLY Effectiveness the Bank. Adoption of Financial Management Manual. Grievance Redress Mechanism (GRM) established at PCU level. Key Covenants PCU support appointed within three months after effectiveness. Quarterly Project Implementation Reports, including follow-up on the Environmental Management Plan and the Social Management Plan. Policy Assurance The Vice President, Policy and Strategy, confirms an overall assurance that AIIB is in compliance with the policies applicable to the Project. President Jin Liqun Vice President Konstantin Limitovskiy Director General, Supee Teravaninthorn Investment Operations Manager, Investment Gregory Liu Operations Project Team Leader Zacharias Ziegelhöfer, Infrastructure Sector Economist Project Team Mirza Nadia Bashnin, Young Professional Members Somnath Basu, Principal Social Development Specialist Alexander Grieb, Sr. Water & Sanitation Specialist (Consultant) Omar Khalid, Sr. Env. and Social Development Specialist (Consultant) Giacomo Ottolini, Principal Procurement Specialist Yogesh Malla, Financial Management Specialist Shodi Nazarov, Financial Management Specialist (Consultant) Yenda Noeurm, Young Professional Julius Thaler, Senior Counsel Pulat Zakirov, Water & Sanitation Engineer (Consultant) Xiao Zhang, Project Assistant Zhixi Zhu, Environmental Specialist 2 *OFFICIAL USE ONLY 2. The Project Description A. Rationale Country Context 1 The Republic of Uzbekistan is the geographic centre of the Central Asia region, and is bordered by five landlocked countries. It is one of two double-landlocked countries in the world. The climate of Uzbekistan is dry, with low annual precipitation. With a population of 32 million, it is the most populous country among the Central Asian countries. Half of the total population lives in rural areas and as of 2018, approximately 11.4 percent of the population lives below the national poverty line. 2 In 2017, following the first leadership change since the country’s independence in 1991, an ambitious program of market-oriented reforms as well as institutional reforms was introduced, which is still ongoing. Though Gross Domestic Product (GDP) growth was 5.1 percent in 2018, it is projected to accelerate to 5.5 percent in 2019 and to converge to about 6 percent in 2020. There are three key factors to continued growth: (i) favourable terms of trade and high market prices of the key export commodities such as gold, natural gas and copper; (ii) the Government’s macroeconomic management; and (iii) limited exposure to international financial markets which shielded the country from global financial crises. Sector Context 3 Water is the key factor for socio-economic development in Central Asia. Virtually all the water resources of the region originate from the year-round snow and glaciers in the Kyrgyz Republic and Tajikistan. Irrigated agriculture is concentrated in the populous valleys of the Amudarya and Syrdarya rivers which carry their water to Uzbekistan, Kazakhstan, and Turkmenistan. 4 Uzbekistan has the largest irrigated land area (4.3 million hectares), and the highest density of population in the region, and is highly dependent on cross-boundary water originating from upstream neighbours. Furthermore, it has been identified as one of the most water- stressed countries by the World Resources Institute and will remain so through to 2040, with droughts expected to occur on average every 5 years. 5 Uzbekistan has undertaken significant efforts in upgrading its water supply and sanitation services since its independence. Though access to water supply and sanitation services has steadily increased among households in the bottom 40 percent, substantial disparities remain between urban and rural areas. Less than half of Uzbekistan’s population (approximately 32 million people) remain unconnected to a piped water system, and only 17 percent of urban households receive water 24 hours per day. The situation is exacerbated in smaller cities and rural areas, with about 10 percent of the rural population without access to safely managed drinking water. About 15 percent of the 16 million rural population live below the national poverty line, and only half of all rural residents