Statement by Andrei Bugrov at the Board meeting of May 27, 1997

International Bank for Reconstruction and Development International Development Association 87187 International Finance Corportation Multilateral Investment Guarantee Agency FOR OFFICIAL USE ONLY CONFIDENTIAL EDS97-177 May 27,1997 Board Meeting of May 27,1997 Statement by Andrei Bugrov Turkmenistan: Country Assistance Strategy and Urban Transport Project and Water Supply and Sanitation Project 1. We welcome the opportunity to discuss the first Country Assistance Strategy for Turkmenistan and the two projects presented in conjunction with the CAS. We commend the staff for their preparation. Country Assistance Strategy 2. The CAS document contains a thoughtful and frank analysis of the state of economic and social affairs in Turkmenistan, discussion on most critical development issues and assessment of the Government's gradual approach to reform. On the basis of thorough consideration the Staff make a convincing conclusion that, while being broadly appropriate in terms of the overall thrust and direction, the Government's reform program at present falls short - both in the scope of reform it envisages and the pace of implementation - of what would be needed to achieve its economic and social objectives. 3. We appreciate the openness and realism of the CAS in dealing with the issues on which differences of view between the Government and the Bank exist (e.g., the exigency of price, trade and foreign exchange liberalization, budget consolidation and rationalization of public investments) and the fact that the Staff candidly recognize their limited knowledge and the need to strengthen their understanding of the Turkmen economy. 4. We agree with the concept and design of the CAS. The suggested phased plan for the Bank Group's assistance, involving CAS Progress Report at the end of FY98, seems quite appropriate. It provides for the needed flexibility and leaves enough room for adjustment. Indeed, one should not expect a full-fledged Bank program for the three-year This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  2 term in a situation where serious uncertainties yet remain as regards the country's overall development context and the Government's plan of action. 5. Thus far the Turkmen authorities have performed very cautiously on the reform front. They keep arguing in favor of gradualism as a fundamental principle of change. At the same time they continue to work very actively on the modalities of their reform program, trying to find optimum approach to the large and rather specific set of the transition problems of the country. And we would not be surprised if in the near future we would witness a major broadening of the scope and significant acceleration of the pace of the reform process in Turkmenistan. 6. It is important to note that in their active search for solutions to pressing structural and sectoral problems, the Turkmen authorities remain open to dialogue with the Bank and its advice. The very fact that the CAS document before us has been prepared at the special request of the Government is a clear indication of its increasing interest in a closer relationship with the Bank. 7. In our view, this is also an indication that the authorities are indeed considering a more decisive advancement on the reform front and, with this in mind, would like to have a formal Bank CAS as a framework for their own possible action and for likely financial support from the Bank Group and other donors. And we find that the CAS paper is good in this respect. 8. We agree with the composition, sequencing and triggers of the proposed Bank lending program. We appreciate the thorough discussion on donor coordination. In our opinion particularly commendable is the depiction of how the World Bank Group planned assistance interlaces with other donors' programs (para. 48 and Annex A6). 9. From our point of view, the intended significant increase in the Bank's non-lending activity is fully warranted. We agree with the selected priorities for analysis and dialog in FY98 (para. 40, 41) and the planned shift of the analytical emphasis in FYs 99-00 toward poverty and natural resource management. While endorsing the incorporation of all suggested studies and activities into Bank assistance program, we would like to stress in particular the importance of providing the Turkmen authorities with an independent and realistic assessment of the prospects for gas export. Such an assessment would be very useful due to the centrality of the gas factor in many of the Government's strategic considerations. 10. We welcome very much the recent broadening and strengthening of Government-Bank dialog and cooperation, of which the CAS document is not the only concrete result. Also before us today are two investment projects which have been prepared by the Staff in close collaboration with the Turkmen authorities at national and sub-national level and with extensive participation of various stakeholder groups. Both projects are badly needed by Turkmenistan and will facilitate important institutional and policy reforms in the urban transport and water and sanitation sectors. We extend our full support to these projects and would like to make only a few very selective comments on each of them.  3 Urban Transport Project 11. This project addresses high priority needs of the majority of the population in the cities of Turkmenistan who depend exclusively on public transport for work and social trips. In order to meet this increasingly undersatisfied demand urgent improvements in the sector are necessary in terms of quantity, quality and efficiency of service. Cun·ently the fleet of public transport vehicles and maintenance facilities have deteriorated and are in very poor condition. Besides the severe infrastructure deficiencies the urban transport sector in Turkmenistan suffers from weak institutional settings and low cost recovery. 12. Given the Bank's extensive experience in dealing with urban transport sector issues-- especially its most recent experience gained from Russian and Kazakh Urban Transport Projects that are similar in many respects to the project under consideration-- this institution is very well positioned to effectively support the Government's reform program in the sector. 13. The project includes purchase of nearly a hundred buses of which only ten will be CNG- powered. Common sense suggests however that, taking into account the economic (low cost abundant supply of CNG), climatic (temperature very seldom drops below freezing point) and environmental (lower noxious emissions) considerations, the CNG-powered buses would be the most appropriate for Turkmenistan. Could the Staff provide some clarification in this regard? Water Supply and Sanitation Project 14. This project addresses very serious problems of increasing access to potable water and improving basic sanitation. Geographically it is focused on Dashkhovuz velayet, the administrative region where these problems are particularly pressing. Dashkhovuz is also the poorest region of Turkmenistan and the one severely affected by the Aral See environmental crisis. In Dashkhovuz velayet most of health indicators, including the incidence of water and sanitation related diseases, are worse than in the rest of the country. 15. We are pleased to note that this project incorporates an extensive amount of stakeholder participation. The range of participatory activities which took place during project identification and preparation includes an impressive number of stakeholder workshops and focus group discussions, and two demonstration mini-projects conducted with involvement of different stakeholders and active engagement of a local NGO. In conclusion 16. With the adoption of the CAS and two investment projects the Government of Turkmenistan and the Bank enter a new phase of cooperation. The implementation of their joint plans will have a strong influence on the people's attitude to reforms and the further reform disposition of the authorities. We wish the Bank and the Government every success in this new phase of cooperation.