Uzbekistan - Pilot Water Supply Engineering Project

Document of The World Bank Report No. 15434-UZ STAFF APPRAISAL REPORT REPUBLIC OF UZBEKISTAN PILOT WATER SUPPLY ENGINEERING PROJECT August 15, 1996 Infrastructure, Energy and Environment Division Country Department III Europe and Central Asia Region  CURRENCY EOUIVALENTS CURRENCY UNIT = SUM US$1 = 38.0 MARKET EXCHANGE RATE Sum per US$1 December 1994 25.0 March 1995 25.1 June 1995 29.1 September 1995 33.5 December 1995 33.5 March 1996 36.1 June 1996 37.5 WEIGHTS AND MEASURES CONVERSIONS Metric System US System I meter (m) = 3.2808 feet I kilometer (km) = 0.6214 mile I square meter (m2) = 1. 196 square yards I metric ton (ton) = 1. 102 short tons ABBREVIATIONS AND ACRONYMS CIF - Cost Including Freight JICA - Japan International Cooperation Agency CPPI - Center for Project Preparation KEO - KEO International Consultants (Kuwait) and Implementation KfW - Kreditanstelt fur Wiederaufbau CTF - Consultant Trust Fund MIS - anagement Information System CV - Curriculum Vitae MPU - Ministry of Public Utilities EC - Executive Committee of Aral Sea NCB - National Competitive Bidding EMP - Environmental Management Project NGO - Non Governmental Organization EU - European Union OECF - Overseas Economic Cooperation Fund FSU - Former Soviet Union O&M - Operation and Management GIS - Geographic Information System PHRD - Policy and Human Resource Development GOSTs - Russian Standards PICG - project Implementation Consultiiig Group GOU - Government of Uzbekistan PIU - Project Implementation Unit IBRD - International Bank for Reconstruction SAR - Staff Appraisal Report and Development SOE - Statement of Expenses ICB - International Competitive Bidding TOR - Terms of Reference IDA - International Development Association UNDP - United Nations Development Program IT - Information Technology Borrower's Fiscal Year January 1 - December 31  STAFF APPRAISAL REPORT REPUBLIC OF UZBEKISTAN PILOT WATER SUPPLY ENGINEERING PROJECT CONTENTS LOAN AND PROJECT SUMMARY . .......................... PART 1. INTRODUCTION .1 PART 11. WATER SUPPLY, SANITATION AND HEALTH PROJECT. 7 PART 111. THE PROJECT. 9 PART IV. PROJECT IMPLEMENTATION ................................ 15 PART V. INSTITUTIONAL AND FINANCIAL ASPECTS .22 PART VI. BENEFITS AND RISKS .27 PART VII. AGREEMENTS AND RECOMMENDATIONS .29 ANNEXES A. Detailed Project Cost Estimates B. Project Implementation Schedule C. Estimated Disbursement Schedule D. Selected Documents Available in the Project File E. Part A: Terms of Reference for Project Implementation Unit Part B: Terms of Reference for GIS Management Information System F. Terms of Reference for the Engineering Design and Supervision Consultant G. Supervision Plan H. Organization Structure of the Procedure Enterprise "Vodokanal" of the Republic of Karakalpakstan MAPS IBRD No. 27770 IBRD No. 27771   STAFF APPRAISAL REPORT REPUBLIC OF UZBEKISTAN PILOT WATER SUPPLY ENGINEERING PROJECT LOAN AND PROJECT SUMMARY Borrower: Republic of Uzbekistan Implementing Agency: Goskomprognostat Beneficiaries: Goskomprognostat, Karakalpakstan Vodokanal Poverty: Program of Targeted Interventions Amount: US$5 million equivalent Terms: 20 years, including 5 years of grace at the Bank's standard variable interest rate. Commitment Fee: 0.75 % of undisbursed loan balances, beginning 60 days after signing, less any waiver. Onlending Terms: Not applicable Financing Plan: See para.32. Net Present Value: Not applicable Staff Appraisal Report: 15434-UZ Maps: IBRD 27770 and IBRD 27771 Project ID Number: UZ-PA-44942   STAFF APPRAISAL REPORT REPUBLIC OF UZBEKISTAN PILOT WATER SUPPLY ENGINEERING PROJECT I. INTRODUCTION Background: General 1. At a meeting of the Heads of Governments of the five Aral Sea states in February 1994, it was decided to include the Uzbekistan Rural Water Supply, Sanitation, and Health Project in the Aral Sea Program presented to an international donor's conference held in Paris in June 1994. At this conference, it was decided that the World Bank would take the lead in preparing a project focusing on the two regions of Uzbekistan most severely affected by the Aral Sea disaster: the Republic of Karakalpakstan and Khorezm Oblast. 2. The Republic of Uzbekistan is the most populated of the five Central Asian Republics with a population of 22.2 million, of which some 60% live in rural communities. Agriculture is the predominant economic activity in this semi-arid country. Only 10% of the land is cultivated, of which 95% is irrigated by two major river systems: the Amu Darya and the Syr Darya, both of which flow into the Aral Sea. Since the 1960s, increasing use of these rivers for agriculture, particularly cotton growing, has resulted in greatly reduced volumes of run off entering the Aral Sea and excessive contamination from leached salts and agricultural chemicals. In 1960 it was the fourth largest inland lake in the world. Since then it has shrunk to less than half its original size because of the nearly total cut off of river inflow from the AmuDarya and Syr Darya rivers as a result of heavy withdrawals for irrigation. The desiccation of the Sea has resulted in the loss of its fishing, tourist and shipping industry, the destruction of the ecosystem of the Sea and deltas, the blowing of salts from the exposed seabed and severely depressed the economy of the region. The most adversely affected regions in Uzbekistan are the Republic of Karakalpakstan and Khorezm Oblast. Background: Aral Sea Disaster Region 3. Population. Uzbekistan comprises 12 provinces (oblasts) as well as the Republic of Karakalpakstan, and includes 123 cities and 157 rural regions. Karakalpakstan encompasses 37% of the land area of the Republic and has a population of 1.37 million, most of whom occupy the Amu Darya delta. Approximately 50% live in very small rural communities associated with state and collective farms. By contrast, Khorezm Oblast occupies only 1.4% of the land area of the Republic, but due to intensive cultivation and irrigation, it supports an almost similar size population of 1.17 million, of which more than 75 % live in very small rural communities. The ethnic structure of the populations in the two regions also are quite different from each other with Karakalpakstan consisting of almost equal numbers of Uzbeks, Karakalpaks, and Kazakhs, while 95% of the population in Khorezm are Uzbeks. The average family size in Karakalpakstan is 7.6 compared to 7.1 in Khorezm (both are above the national average of 6.9). 4. Socio Economic Conditions. Karakalpakstan is the poorest region of Uzbekistan with a significant percentage of the population living below poverty level. The most striking result of the recent needs assessment survey of 951 rural and urban households representing 100 communities in the region indicates that 93% and 78% of the family budget is spent on food in Karakalpakstan and Khorezm, respectively. Average monthly family income in November 1994 from all sources, including garden plots and livestock was 567 sum (US$23) and 695 sum (US$28). Another key finding of the needs assessment was that the majority of households (about 65%) mentioned lack of food, particularly flour, as their most  - 2 - important problem, about 59% of the households mentioned that lack of money to buy food products was their second most important problem and about 25 % said that their third most important problem was lack of water. Notwithstanding the poor economic conditions, only 4% of the households surveyed expressed a desire to leave the area. 5. Water Supply System. Because of the low rainfall (about 110 mm/year), water supply in the region depends almost entirely on the Amu Darya River and its system of irrigation canals; the one exception being deep saline ground water from wells drilled down to 400 meters for domestic (after desalination) and industrial/farm use. Communities in the region obtain water from a variety of sources, including: piped water supplies to community stand pipes, yard and household connections; hand dug wells; drilled wells with hand pumps; and open water bodies, such as lakes, rivers, and canals. More than one source may be used by any given household. The piped water is supplied from a variety of sources' including: Tuyamuyun reservoir, Amu Darya River, and canals; 30-40 meter wells near the river and irrigation canals; and 300-400 meter wells with desalinization units. 6. Official statistics indicate that about 80% of the urban population in both Karakalpakstan and Khorezm is served by piped water supplies (mainly through stand pipes as well as yard and house connections). In addition, 29% of the rural population in Karakalpakstan and 54% of the rural population in Khorezm are served by piped water supplies. According to the needs assessment covering towns and villages of less than 20,000 inhabitants, however, 85% and 91% of the urban households in Karakalpakstan and Khorezm, respectively, are served with piped water, and 23 % and 41 % of the rural households in Karakalpakstan and Khorezm, respectively, are served. On average, 17 % of the households surveyed have access to piped water from stand pipes in the street outside their yard, while 14% have piped connections in their yards and 6% have piped connections in their houses. Other sources of household water include untreated supplies from hand pumps and shallow wells (64% of the households) as well as canals, lakes, ponds, and rivers (26% of households surveyed). The survey also revealed that a rural family of 7 persons uses on average 38 liters/day for drinking and cooking purposes, and 57 liters/day for dish and clothes washing, clean up, etc., for a total household domestic consumption of 95 liters/day, or 14 liters/person/day. 7. These low domestic consumption rates must be contrasted with actual piped water supply figures for various cities, towns, and villages in the region. For example, in Karakalpakistan and Khorezm, piped water supply for households averages approximately 220 and 415 liters/person/day in urban areas. The large discrepancy between these household supply and consumption figures are due to the high system losses, particularly at stand pipes and yard connections which are allowed to run continuously, and from non-domestic uses such as irrigation of household plots and livestock watering2. Currently, some 180,000 and 200,000 m3/day are supplied to the urban areas of Karakalpakstan and Khorezm, respectively, by piped water from the following sources: Tuyamuyun reservoir, surface water from the Amu Darya River and irrigation canals, and 30-40 meter wells near irrigation canals. Piped water is supplied to about 80 remote villages in Karakalpakistan from 300-400 meter wells treated by Russian built 1/ Gazprom, which operates a gas export pipeline through the region, supplies treated Amu Darya water to towns and villages in Karakalpakstan on the left bank of the River. 2/ Approximately 24% of households surveyed are using piped water for livestock and irrigation, while 59% use wells and hand pumps and 66% use canals, lakes, and ponds for these purposes.  - 3 - Ekos3 electrodialysis desalinization units (310 units with a capacity of 25 cubic meters/day each). In 13 locations, however, these units are not in operation due to a lack of spare parts. And at five locations the units are now used only for emergency purposes. 8. Due to the limited water supply and/or water treatment capacity and the need for water conservation, piped water is available on a 24 hour basis only in approximately 12% of the service area. According to the results of the needs assessment, in other service areas, it is available only on an intermittent basis, either for one or two times during the day, but usually for less than 2 hours per day (for greater than 70% of the area served). Open water storage tanks are installed in 22% of the households surveyed4. 9. Water Quality. Drastic reductions in the use of mineral fertilizers, pesticides, and herbicides have occurred over the past several years as local prices have increased to world market levels. As a result, residual levels in water supplies are usually well below the Uzbekistan water quality limits. Local surface water sources, however, may still be contaminated by inappropriate methods of application or excessive use of chemicals. The most immediate water quality problem in the region from a heath perspective is pathogenic contamination from humans and livestock. Results of bacteriological analyses in the Tuyamuyun reservoir as well as aquifers at depths of 30-40 meters and in deeper wells at 300-400 meters, show little contamination. Nonetheless, the Sanitary Epidemiological Service (Sanepid) found unacceptably high levels of bacteriological contamination in shallow wells, surface irrigation canals, and other surface waters in the region that are used by rural communities for drinking. In areas with intermittent piped water supplies, similar problems may exist because of the infiltration of contaminated shallow ground water. A water quality survey of 500 handpumps (400 in Karakalpakstan and 100 in Khorezm) indicates very high levels of salinity in the samples taken from shallow aquifers near the Aral Sea (up to 5-7 times the National Standard of 1,000mg/1), with 50% of the samples having a salinity higher than 2,000 mg/I, as well as bacteriological contamination of almost all samples. Contrary to expectations, at least a half of the households do not boil their water before drinking. 10. Due to continued leaching of salts into irrigation drainage waters throughout the Amu Darya river system an important water quality issue in the project areas is salinity. Seasonally fluctuating salinity levels in surface waters in the Amu Darya River and the Tuyamuyun reservoir are a cause of considerable complaint by local consumers. Over 68% of households in the survey area complained of the salty taste of their principal water supply5. A salinity taste tolerance survey of some 400 households in the project area indicates that the local population will tolerate salinities up to 2,000 mg/l, above the WHO recommended guideline limit of 1500 mg/l , but well above the National Standard of 1000 mg/l. This 3/ The Red Cross installed a modem German built 2,200 cubic meter/day reverse osmosis desalinization unit at Takhtakupr, some 100 km northeast of Nukus in April 1993, which has only been in operation for about 10% of the time since it was commissioned because of the high cost of operation. With the completion of the Tuyamuyun-Nukus pipeline extension to Takhtakupr in the summer of 1994, it is no longer needed. 4/ The capacities of these tanks vary from four buckets for small sized tanks to 2 cubic meters for large tanks. No bottled water is used in the area surveyed. 5/ Concentrations in Tuyamuyun reservoir vary from 0.6-1.6 grams/liter with the high values occurring in February, March and April, while downstream in Khorezm and Karakalpakstan in the Amu Darya river and irrigation canals slightly higher values are recorded. Salinity in the 3040 meter aquifers near the canals, however, are much less variable in the range of 0.7-1.3 grams/liter. Salinity in the deep aquifer varies from 1- 3 grams/liter in eastern areas of the region and up to 30 grams/liter in the western areas of Karakalpakstan.  - 4 - finding has very important cost saving implications for the project, but confirms that in certain regions close to the Aral Sea, water supplied from shallow wells and handpumps is of an unacceptable quality from a salinity perspective. Government's Objectives and Strategy 11. In the late 1980's, Government authorities in Uzbekistan launched a program to improve social and productive infrastructure in rural communities. A major focus of this program is the provision of safe piped drinking water. Because of the greater need for these public services and more adverse effects of the Aral Sea disaster in the Republic of Karakalpakstan and Khorezm Oblast, the Government has allocated approximately 30% of its piped water program budget to this region, amounting to approximately $130 million over five years. Good progress has been made in achieving the Government's goals and Phase I of this three-phase program is almost complete, although in the past two to three years the pace of construction has decreased considerably. Recent concern over widening inequities between urban and rural areas has led the Government to seek ways of further accelerating the development of rural areas through the provision of social and productive infrastructure. A resolution of the Council of Ministers to this effect was passed on January 1994, and a special working group chaired by the first Deputy Prime Minister was created to prepare a development program up to the year 2000. 12. The report of this group was submitted to the Council of Ministers in November 1994. The report concludes that while Uzbekistan as a whole ranks favorably among comparable middle/lower middle income countries, there are large geographical disparities due to the previous urban bias, and in the rush to meet overall targets, the tendency of planners to concentrate on areas where it is easier and less costly to provide infrastructure. This situation applied particularly to water supply and sanitation services in the western part of the country, which includes the Republic of Karakalpakstan as well as the Khorezm, Bukhara, and Navoi Oblasts. The UNDP Uzbekistan Human Development Report independently identifies similar priorities for funding by international donor agencies. Bank's Role and Strategy 13. The World Bank's country assistance strategy6 is designed to: (i) support macroeconomic stabilization and structural and sectorial reforms; (ii) strengthen market incentives, particularly in agriculture and energy; and (iii) protect vulnerable groups through establishment of an effective safety net and more efficient service delivery. In addition, the Bank's strategy is to provide support to ensure or expand access to basic social services which are largely poverty focussed. Bank support also would be directed at strengthening the Government's institutional capacity and acting as a catalyst for aid mobilization. 14. The Bank's role in the social infrastructure sector is to support Government efforts to improve the health status of rural populations in the western regions of the country, which are most severely affected by the consequences of the Aral Sea disaster and which are the most poorly served with regard to water supply, sanitation, and hygiene. In the proposed full scale Water Supply Sanitation and Health Project, which will be the first operation in the sector, it proposed to: (i) improve the cost effectiveness of investments through project design; (ii) involve the participation of local stakeholders in selecting the most efficient delivery mechanisms and in assessing their willingness and ability to pay for improved social infrastructure; and (iii) improve the management and operation and financial viability of the 6/ See Country Assistance Strategy for the Republic of Uzbekistan, March 3, 1995.  - 5 - regional enterprises responsible for delivering these services. As a precursor to the full scale project the proposed Pilot Water Supply Engineering Project is designed to test and refine project management and implementation arrangements and community participation approaches to ensure the more efficient and timely completion of the full scale project. In addition the preparation of tender designs and tender documents prior to negotiations for the main project will further enhance its quality and readiness for implementation. Lessons from Past Bank Projects 15. Although the Government is now fully committed to implementing a comprehensive reform program, the start-up of Bank activities in Uzbekistan has been slower than in some of the other FSU countries. This would be the first lending operation in the social infrastructure sector in Uzbekistan. Two other Bank projects are under implementation, the Institution Building Project and the Cotton Sub- Sector Improvement Project. Project implementation has been delayed in both cases because of delays in setting up the Project Implementation Units (PIUs) and the Government's preoccupation with the transition process. 16. Lessons highlighted by the Department's 1994 Annual Report on Portfolio Performance in Russia and Central Asia focus on: (i) the challenge of identifying a consistent counterpart team with sufficient authority to move the project forward; (ii) the difficulty of coordinating among key government agencies on critical issues; (iii) the importance of setting up PIUs early in the project cycle and the training of their staff in Bank procurement and disbursement procedures and requirements; and (iv) the importance of involving local institutes in project design and preparation. Review of lessons learned from water supply and sanitation projects world wide show that despite efforts at capacity building for the public institutions concerned, few countries achieved acceptable levels of performance for their public water and sewerage utilities, and that the financial performance of these utilities was equally poor. Some of the reasons for these deficiencies include: (i) lack of clear sector policies; (ii) lack of management and financial autonomy; (iii) inexperience in project implementation; and (iv) lack of participation of users and other stakeholders in the decision making process. 17. To the extent possible, these lessons are being incorporated into the preparation and design of the full scale project through: (i) an extensive social needs assessment survey, which has already been completed with the participation of local institutes, as well as a follow up survey of water usage and losses in piped distribution systems to domestic, commercial, and industrial consumers; (ii) implementation of community based pilot projects for water supply and distribution7 and for health, hygiene and sanitation8, which will be carried out during project preparation; (iii) an Interagency Working Group has been set-up to provide overall leadership of the project, while Goskomprognostat has been selected as the lead Government agency; (iv) a PIU is being established immediately to supervise all project preparation and implementation activities; (v) through the PIU, the Government will execute the 7/ In addition to the larger scale water supply and distribution pilot project proposed for financing under this engineering loan, the KfW has agreed to finance thiree or four smaller scale water supply and distribution projects in the more remote rural areas, which will include the use of modem small scale desalination units and packaged water treatment plants as appropriate. 8/ A PHRD grant has been obtained to finance two community based sanitation, health and hygiene pilot projects in Karakalpakstan and Khorezm Oblast, which are being carried out by a Swiss NGO consortium. The results of these pilot projects will be used to define the scope of, and implementation arrangements for the sanitation and health components of the full scale project  - 6 - Kuwait Fund financed project preparation feasibility study and PHRD funded pilot demonstration activity; and (vi) local institutes and NGOs will be contracted to assist in all these project preparation and design activities. 18. The proposed Pilot Water Supply Engineering Project will provide the Government and the Bank with early hands-on experience in dealing with project design, management and implementation issues and involvement of local communities under the same conditions as that of the full scale project. The lessons gained for this experience will facilitate the implementation of the full scale project and will likely result in improved and streamlined implementation arrangements and a more clearly defined role of the communities in the process, allowing them to achieve the greatest possible benefits from the project.  STAFF APPRAISAL REPORT REPUBLIC OF UZBEKISTAN PILOT WATER SUPPLY ENGINEERING PROJECT 11. WATER SUPPLY, SANITATION AND HEALTH PROJECT Full Scale Project Objectives 19. The objectives of the full scale Water Supply, Sanitation and Health Project, of which the proposed pilot project represents an initial learning phase, are to: (i) improve the health of the rural populations of the Republic of Karakalpakstan and Khorezm Oblast through the provision of safe drinking water, and improved hygiene education and sanitation facilities; and (ii) to strengthen institutional capacity for the management, operation and financial performance of the regional water supply and sanitation utilities. Full Scale Project Description 20. Possible components to be funded under the full scale project include: (i) Safe Water Supply (a) Water Conservation. Measures will have to be taken to reduce excessive water losses and water consumption in the urban and rural areas already served by the piped water distribution system. Otherwise the current system's operating and maintenance costs will prove financially unsustainable9. This component will possibly include, among other things: rehabilitation and system wide metering of major trunk lines, secondary distribution systems and major end users; repair of stand pipes and yard connections, which are allowed to flow continuously when there is pressure in the distribution systems; and incentives to both urban and rural households to use hand pumps, wells, or other low-cost sources of water for use in household gardens and livestock watering. This will increase service times, increase system pressure, and make potable water available to other users. (b) Provision of Safe Piped Water Supply to Unserviced Households. This will be achieved through the extension of secondary and tertiary water distribution systems connected to the main Tuyamuyan-Nukus, Tuyamuyun-Urgench trunk supply lines, or production from local fresh water aquifers of good quality (either with or without artificial recharge); rehabilitation of existing water treatment plants and installation of improved chlorine dosing facilities for controlling bacteriological contamination; completion of the Kaparass reservoir pumping station and main trunk lines to supply higher quality water during the winter months; and installation of new desalination units and improved maintenance and 9/ The complete picture regarding the financial management of the water and sewerage utilities in the region is only beginning to emerge, but already it is clear that substantial Central Government subsidies are being provided to cover 0 & M costs. Capital construction costs are fully subsidized by the Central Government.  - 8 - operation of existing Ekos desalination units in remote areas, where these are the only economically feasible option for a safe water supply. These investments will benefit new consumers in rural areas, as well as consumers already connected to the existing piped water distribution network. (ii) Improved Sanitation, Hygiene, and Health. This will be achieved through low-cost measures to be identified under a PHRD-funded community based pilot demonstration project preparation activity in two rural communities in Karakalpakstan and Khorezm, which will focus on improving household sanitation (through the development and installation of improved latrines) and hygiene; provision of improved commercial and public toilets (especially schools and medical facilities); and on health/hygiene education."0 To address the need to increase income levels in the project areas, the project will emphasize the use of labor intensive technologies and development of local small scale contracting services. (iii) Technical Assistance will be provided to improve the organization, management, operation and maintenance, and financial viability of the regional agencies responsible for water supply, sanitation and health. Results of the vendors survey will be applied in developing the cost recovery and incentive schemes to improve their financial viability and efficiency and promote piped water conservation by consumers. 21. The preparation of this project has involved extensive stakeholder consultation, household surveys and community focus group meetings to identify stakeholder needs, priorities and constraints, which are greatly influencing project design and implementation arrangements"1. The feasibility study for the full scale project is currently under preparation and is expected to be completed by July 1996. On this basis it is proposed to appraise this project in September 1996, and to present the project to the Bank's Board in February 1997. Several donor's including the Kuwait Fund'2, KfW, OECF and JICA'3 have expressed their interest in possibly cofinancing this project. 10/ While improved water supply is a high priority, there is very little appreciation among the communities surveyed of the need to improve hygiene and sanitation conditions and the close linkage between these factors and the health of their families. As recommended at the stakeholders workshop, awareness raising programs are needed to build public support for improved sanitation and hygiene. 11/ Due to the extensive involvement of communities and other stakeholders in the preparation activities being carried out under this project it has been included in the list of Presidential Participation Flagship Projects. 12/ The Kuwait Fund is financing the feasibility study that is being prepared for the full scale Water Supply, Sanitation and Health Project. 13/ JICA is financing a two year study of the water supply system in six cities of the Aral Sea Region in Uzbekistan which commenced in September 1994. This results of this study are being incorporated into the full scale project feasibility study being prepared for the Bank and donor financing.  - 9 - STAFF APPRAISAL REPORT REPUBLIC OF UZBEKISTAN PILOT WATER SUPPLY ENGINEERING PROJECT III. THE PROJECT A. Background on the Proposed Pilot Project 22. The Kizketken settlement is a peri-urban area, 14 km from Nukus City, just within the eastern limits of the Nukus Metropolitan Area. At present, the total population of the settlement is about 34,000 people, including some 1,700 people relocated to the settlement from villages close to the Aral Sea over the last two years. Of the 4,960 families living in the settlement, about 4,600 families are connected to the piped water distribution network, which is approximately 3 years old. The houses of the remaining 340 families are located in streets without a piped water supply network. These families are mostly young couples that have been resettled here in recent times. 23. As shown in Table 1, the piped water supply service in the settlement is characterized by intermittent supply and low pressure, specially in the higher elevation areas where the majority of the population live. The water situation is even more severe for those 940 families, or 7% of the settlement population, which are located at the far end of the piped water distribution network, or are currently not connected. Currently, these people rely on water delivered by vendors who are supposed to obtain their water from the main pipeline some 10-12 km from the settlement. However, in order to cut their costs the vendors abstract untreated water from the nearby Kizketken irrigation canal and sell it to the households as potable water. The households usually store this water in rusted metal tanks located outside their houses. Often these tanks are shared by 4-5 families. On average, each family consumes 0.8 cubic meter per week. Families pay for this water out of their household income at the rate of $2.8 per cubic meter (about 10% of average household income). Due to the closing down of several local enterprises that were manufacturing construction materials, many of the household heads are now unemployed. However, their trade skills can be usefully employed in constructing the proposed water supply system for the settlement, thereby providing them with at least temporary employment. 24. Three possible water sources were considered to improve the water supply to the Kizketken settlement. The first alternative considered withdrawing water from the Kizketken irrigation canal, 2 km from the settlement, or from underground aquifers linked to this canal. The second option considered abstracting water directly from the Amu Darya river, while the third option considered linking the settlement with the Tuyamuyun-Nukus trunk supply line. Following a technical and financial evaluation of these different options it was concluded that the main water supply pipeline was the preferred drinking water source for the settlement. 25. In initial meetings with the community on the design options for this pilot project, they expressed a strong preference for a self-managed water supply scheme, because they believed the Vodokanal would provide a poor level of service, if it was to install and manage the scheme. However, when the community was provided with information on the advantages and disadvantages and the costs of the various schemes they finally agreed with the experts' conclusion to link the community with the main water supply pipeline. This community consultation approach was a first time experience for the Vodokanal, and while there was initially a hostile reaction from the community and much apprehension from the Vodokanal perspective, the end result has been most beneficial for all stakeholders.  - 10 - Table 1: Characteristics of Water Supply Services in Kizketken Village ... ,,. . .... . .., ,,-,-R R ''" % ' -- -- , - - . Western 7,000 1,000 Piped water distribution network, enough pressure and (20.8%) continuous supply all year round. During the summer season, even watered gardening is practiced. Middle 21,000 3,000 With piped water distribution network, but lack of pressure and (62.3%) intermittent supply (less than 2 hours), especially during the summer. Eastern 4,000 600 With piped water distribution network but no pressure during (11.9%) the summer. Families rely on the Kizketken Irrigation Canal located 2 km away from the settlement, or on water delivered by vendors and stored in unsafe containers. Recently 1,700 340 Without piped water supply network. Families rely on the Settled (5.0%) Kizketken Irrigation Canal, or on potable water delivered by vendors. B. Project Objectives 26. The main objectives of this project are to: (i) improve the design and implementation arrangements for the full scale project through a "learning-by-doing" piloting approach and by incorporating community participation into the planning and implementation process for water supply and distribution; (ii) speed up implementation of the full scale project through early completion of detailed engineering design and preparation of bidding documents; and (iii) developing and testing joint financing and cost recovery schemes to improve the financial viability of the Vodokanals and the sustainability of their investments. C. Project Description 27. The project consists of two components: (i) an investment component to finance a pilot project for a community based water supply and distribution scheme in Kizketken peri-urban area of Nukus in the Republic of Karakalpakstan; and (ii) a technical assistance component for management and supervision of pilot project implementation, and for preparation of tender designs and bidding documents for procurement packages for the full scale project, followed by preparation of detailed engineering designs, project management plans and implementation schedules. (i) Water Supply Pilot Project Component The water supply scheme as proposed under this pilot project will involve pumping water from the Tuyamuyun-Nukus main pipeline through a secondary main to the highest point of Kizketken village, where it will connect with an existing tertiary distribution system supplying approximately 25,000 people in the poorly served middle and eastern sections of the settlement. In addition it will connect  - 11 - with a new network of tertiary distribution pipelines to be constructed under the pilot project to serve the 2,100 people (340 existing families as well as 60 new families), which have been relocated from villages near the Aral Sea. With the support and concurrence of the community it is proposed to test a lower water consumption design standard for water distribution networks in this settlement to reduce investment and operating costs. The current design norm of 350 I/person/day has been reduced to 150 I/person/day. Unserviced households in the settlement that are currently supplied by water vendors consume approximately 15 I/person/day. Households will have the choice of standpipe or yard connections, but will pay a higher charge for the latter. 28. Under the pilot project it is proposed to construct the following: (a) The Kizketken pumping station of 310 ml/hour capacity including two treated water storage reservoirs with storage capacity of 1000 m3 each, chlorination dosing and a transformer substation with two transformers; (b) the secondary trunk main of approximately 6.6 km length and 300 mm diameter from the pumping station to the point of highest elevation in the settlement to connect with the existing tertiary distribution network; and (c) new extension of the tertiary distribution system network of approximately 5 km length and of 100 to 150 mm diameter along 6 unpaved streets to serve an additional 400 families. (ii) Technical Assistance Component 29. The technical assistance component will finance the following sub-components: (a) Engineering design and supervision: (i) Pilot project review, revise and improve as needed and approve detailed engineering designs for the pilot project; prepare tender documents for procurement of goods and works; arrange local and international tenders for procurement of goods and works according to World Bank and GOU requirements, and assist in selection of successful bidders and in agreeing contracts; provide overall project management for pilot project implementation; coordinate financing arrangements and approve payments to suppliers and contractors; supervise construction to ensure overall quality control; monitor and report on implementation progress; assist the community to set up a Water User Association to collect community cash and arrange in-kind contributions to the investment and in future to collect water charges according agreements reached with the Vdokanal; (ii) full scale project, the first phase of this work to be financed under the proposed engineering loan will involve preparation of full scale project engineering design and bid documents for equipment and works including: based on feasibility study results firm up all design criteria for major project facilities; review all detailed topographic surveys and soil investigations along alignments of proposed transmission mains and sites for civil works and identify need for further surveys; prepare hydraulic designs of the proposed project facilities; prepare detailed engineering designs and construction drawings of the proposed facilities; prepare bill of quantities and divide the procurement of civil and erection works and equipment into an  - 12 - appropriate number of contract packages according to the requirements and procedures of the donors that will be financing these packages; prepare cost estimates for each package; assist the PIU to review tender documents for each contract package; prepare a detailed construction management plan for the project; review the GIS database and project management information system that has been developed for the proposed full scale project to assess its completeness and recommend improvements; prepare a detailed design report presenting the results on the above tasks. A Terms of Reference for this assignment is given in Annex F. The second phase of this work, which not be financed under this engineering loan, but under the full scale project will overlap with the detailed engineering design and will be part of the same contract. It will involve services to assist the PIU in project management and monitoring, as well as contract bidding and in supervising construction of facilities proposed under the project. Details of the services to be provided in this phase of the work are described in the Terms of Reference in Annex F. (b) An independent Project Implementation Unit (PIU) has been set up under Goskomprognostat with initial financing from a Dutch Consultant Trust Fund until the feasibility study work has been completed. The PIU will assist in the implementation of the pilot project and continue its development and application of a GIS management and monitoring system for the full scale project. Following completion of the feasibility study it will also assist the consultants in preparing the detailed engineering design and in preparation of procurement packages for the full scale project. The PIU will also be responsible for approving disbursements under the engineering project and for financial management. A Terms of Reference for the operation of the PIU is given in Annex E. D. Cost Estimates 30. Total project costs, including contingencies and applicable taxes, are estimated at US$5.41 million. This estimate covers expected expenditures in foreign exchange in the order of US$3.33 million (61.7% of total costs) and expected expenditure in local currency, other than taxes, equivalent to US$1.77 million (32.8% of total costs). Taxes (VAT) are estimated at the equivalent of US$0.30 million (5.5% of total costs). A Cabinet of Ministers Resolution No 287 of July 25, 1995 entitled "On Measures for Further Liberalization and Perfection of Foreign Economic Relations" provides for exemption of import duties on "goods supplied under intergovernmental or credit arrangements concluded on behalf of the Government of Uzbekistan or against its guarantee". Table 2 summarizes project cost estimates by component and category of expenditures. Details on project costs are given in Annex A. The technical assistance component amounts to $3.35 million, equivalent to 61.9% of the project costs. 31. Cost estimates are derived from mission analysis based on discussions with Government officials and intended project beneficiaries, as well as on detailed engineering designs for the proposed pilot project prepared by local design institutes and revised by the Bank mission to reflect international prices for imported goods. Base costs are expressed in January 1996 prices. Physical  - 13 - contingencies are estimated at 12% of base costs for works and equipment, and 10% for the technical assistance components, which are in line with established Bank practice and experience under similar projects. Table 2: Summary of Project Costs (US$ thousand) _ . . . . . . .. X .: Project ~ ~ ~ ~ ~ q~ Component _onr l (i) Water Supply Pilot Project 923 1,136 2,059 44.8 38.1 l (ii) Technical Assistancel (a) Pilot Project Management; 217 72 289 75.0 5.4 l (b) Detailed Engineeringl Design for full scale 2,114 705 2,819 75.0 52.1 l project; andl (c) Project Implementationl Unit 79 159 238 33.2 4.4 l ..,, , ......., . , , , , . , -.,........ ...... ...... .. .. .. ........,I,,,. .....E [ T O T A L C O S T S .............~~~~~~~~ ~ ~ ~~~~~~~~~... ....._......_ 5 . ...... .......0 0.. Category of Expenditures _____ 1____ l___ _______ Equipment 923 157 1,080 85.5 20.0 Works -980 980 -18.1 | Technical Assistance 2,411 937 3,348 72.0 61.9 | am~~~~~~~~~~~~~~~~~~. r..... nm.:......: -.:. .. EOT.AL COSTS:.[:--3__ - I_v_I - MtsWO01" E. Project Financing 32. The proposed Bank loan of $5.00 million will finance 100% of expected expenditures in foreign exchange and about 80% of expected expenditures in local currency. Bank financing of incremental expenditures in local currency is needed because the project requires substantial and rapid build up of expenditures, which the Government is not yet able to meet. No Bank funds will be used to finance recurrent expenditures for Government agencies involved in the project. These will be fully funded by the Government and are not included in the cost estimates. The Bank loan to the Republic of Uzbekistan will have a maturity of 20 years, including a 5 year grace period, at the Bank's standard variable interest rate. The Government through Goskomprognostat, will finance about 17.0% (US$352,000), and the beneficiary community about 2.6% (US$54,000) of the local costs of the project, including applicable taxes. Table 3 summarizes the financing plan for the project.  - 14 - Table 3: Project Financing Plan (US$ Thousand) Sources of Funds Foreign Local Currency .TOTAL .retifT Exchange_ IBRD 3,334 1,66 5,000 92-5 Government 352 352 - 6.5-- - 0-l Private Sector 54 5410 |Percent of Total | 61.7 | 38.3 100.0o 33. The community is willing and fully committed to participate in the financing of the project investment. Community in-kind labor contribution would consist of voluntary labor for earth-moving works and laying of distribution networks' pipes, which has been estimated at US$ 14,000-16,000. The community would also make a cash contribution equivalent at the rate of Sum 360 per family. Thus, community in-cash contribution would amount Sum 1.44 million, equivalent to US$ 40,000.  -15- STAFF APPRAISAL REPORT REPUBLIC OF UZBEKISTAN PILOT WATER SUPPLY ENGINEERING PROJECT IV. PROJECT IMPLEMENTATION A. Implementation Arrangements 34. A Project Implementation Unit (PIU) has already been set up for the Water Supply, Sanitation and Health Project with funding from a Dutch Consultants Trust Fund (CTF), which is managed by the Bank. There are currently 5 full time local staff in the Tashkent office (located in Goskomprognostat's office building) and two regional PIU directors in Nukus and Urgench (see Annex E for the Terms of Reference (TOR) for these units). The Tashkent office has been fully equipped with the most modern office and GIS equipment and provides office space and facilities for the foreign feasibility study consultants. The Nukus office has been equipped by the Executive Committee of the Aral Sea and is sharing its office facilities with the PIU. A regional PIU office has also been established in Urgench and supplied with office equipment from the Dutch CTF. The national and regional PIUs will also provide services for the implementation of the pilot project and the detailed engineering design study for the full scale project. The PIU has been in operation since the beginning of the feasibility study in mid November 1995. During July 1996 it is proposed to send key staff from the PIU to be trained in Bank procurement, disbursement and financial management and reporting procedures at the Russia: Environmental Management Project (EMP) PIU in Moscow. 35. The feasibility study for the full scale project is being funded by a grant of KD 250,000 (approximately US$ 830,000) from the Kuwait Fund. An international consortium consisting of Binnie and Partners, Black and Veatch and KEO won the contract in competition with six other short listed international firms. The contract includes 35 months of foreign expert services, 150 months of local expert services, and 150 months of support services, with the foreign firm managing the overall study. With the assistance of Goskomprognostat, the foreign consultant firm has made effective management coordination and task contracting arrangements with the local institutes, which is working smoothly and efficiently. In order to ensure the rapid start up and completion of the pilot project and preparation of tender documents for the full scale project in a timely manner, it is proposed to use the same foreign consultant to be hired under a sole source contract. The PIU will assist with logistical and office support, and its staff will receive on-the-job training in Bank procurement, disbursement and contracting procedures. Agreement was reached with the borrower at negotiations on the Terms of Reference for the engineering design and supervision consultant services. The borrower has negotiated a contract for these services as a condition of Board presentation. 37. A detailed implementation schedule for the proposed engineering loan is given in Annex B. As shown in this schedule, the implementation of the pilot project is expected to take approximately 12 months, while tender designs and procurement packages for the first year's implementation of the full scale project will be prepared by the time of project negotiations. However, the work under this contract will proceed over a three year period with funding continuing under the main project once the engineering loan is refinanced.  -16- B. Procurement 38. Goods. Goods and works will be procured in accordance with the provisions of the "Guidelines for Procurement under IBRD Loans and IDA Credits" published by the World Bank in January 1995 and revised in January 1996. Goods contracts for the supply of pumps, valves, pipe and pipe fittings, electrical equipment, etc to a total value of US$1,080.000 (see Table 4) will be financed under this loan. Because of the limited availability of this equipment in Uzbekistan, goods and materials will be procured using International Shopping procedures based on price quotations from at least three different suppliers in two different countries. In conformity with current Bank practice the upper limit for International Shopping contracts has been set at US$300,000. 39. Works. Small works to be carried out under the pilot project, in packages not to exceed US$1 million, which would not be of interest to foreign contractors (in an aggregate amount not to exceed US$980,000 would be procured under National Competitive Bidding (NCB) procedures. Sample bidding documents and contracts, in accordance with IBRD policies, and based on the Bank's standard bidding documents for small works will be used. 40. Consultant Services. There will be one major consultant contract for consultant services (US$ 3.108 million) to carry out the detailed engineering design, preparation of bidding documents and supervision of the full scale project as well as review of detailed design, preparation of bid documents and supervision of the pilot project. This contract will be procured on a sole source basis with the international consultant consortium that won the feasibility study contract. The feasibility study contract is valued at KD 250,000 (approximately US$ 830,000) and is being financed by the Kuwait Fund. The sole sourcing of this contract can be justified for the following reasons: (i) the feasibility study consultant was selected through an international competitive bidding process from a short list of 8 firms; (ii) the client is fully satisfied with their performance and they are working very effectively with local institutes and the PIU staff; (iii) the same internationally competitive fee scale will apply as previously negotiated; (iv) the pilot project implementation and preparation of tender documents for the full scale project need to start immediately the engineering loan becomes effective - a protracted bidding process to hire a consultant would defeat the purpose of the engineering loan; (v) this consultant is in the best position to apply the lessons gained from implementation of the pilot project and to prepare the tender documents; and (vi) is familiar with World Bank and donor procurement practices. Hiring of local experts by the PIU will be on the basis of an evaluation of CVs of at least three candidates. 41. Prior Bank Review. The Bank will prior review all contracts for goods and works to be procured under the proposed loan following the requirements of Appendix I of "Guildelines for Procurement under IBRD Loans and IDA Credits". The Bank will prior review the negotiated contract for the sole source engineering design and supervision consultant services. In addition the Bank will review contracts for individuals hired by the PIU, which cost more than $50,000.  -17- Table 4: Procurement Arrangements (US$ Thousands) ~~~~~~~~~~~~~~~~~~~~~~~~~...,. .. ., ..,........ ' '.'; '''""'-''''"w . "-' .....'"': .... . ...... ..d . .. ..... ... .. . ....T A .......................... ...... ....... ......... ...... ... .. ...... Goods 1,080(a) 1,080 (923) (923) Works 980(