Turkmenistan - Water Supply and Sanitation Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-7038-TM MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN THE AMOUNT OF US$ 30.3 MILLION TO TURKMENISTAN FOR A WATER SUPPLY AND SANITATION PROJECT April 24, 1997 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. CURRENCY EQUIVALENTS Currency Unit= Manat AVERAGE EXCHANGE RATES Manat per US$1 Parallel Official Commercial Market 1993 (end) 2 - 2 1994 (end) 75 - 200 1995 (end) 200 2,484 2,500 1996(end,estimate) 4,070 5,194 5,200 WEIGHTS AND MEASURES Metric System TURKMENISTAN - FISCAL YEAR January 1 - December 31 LIST OF ACRONYMS CAS - Country Assistance Strategy CC - Component Coordinators DRWASA - Dashkhovuz Regional Water and Sanitation Authority FSU - Former Soviet Union GDP - Gross Domestic Product IBRD - International Bank for Reconstruction and Development MOH - Ministry of Health and Medical Industries MWR - Ministry of Land Reclamation and Water Management NGO - Non Governmental Organization PCC - Project Coordination Committee PHRD - Japanese Policy and Human Resource Development grants PIU - Project Implementation Unit PPF - Project Preparation Facility SES - Sanitary Epidemiological Services TOR - Terms of Reference USAID - United States Agency for International Development WHO - World Health Organization Vice President: Johannes Linn. ECAVP Director Yukon Huang, EC3DR Division Chief: Robert Liebenthal. EC3HR Task Team: Rita Klees (Task Manager), Betty Hanan. Joana Godinho, Evelyn Villatoro. Ronald Venezia, Mona Malhotra (EC3HR), Zoe Kolovou (LEGEC); Subash Chandra (LOAEL), Donald Cullivan, Ian Walker. Michael Blackburn (Consultants). TURKMENISTAN FOR OFFICIAL USE ONLY Water Supply and Sanitation Project Loan and Project Summary Borrower: Turkmenistan Implementing Agency: Ministry of Land Reclamation and Water Management (MWR) Beneficiary: Ministry of Land Reclamation and Water Management (MWR) Ministry of Health and Medical Industries (MOH) Poverty: Program of Targeted Interventions Amount: US$ 30.3 million Terms: Payable in twenty (20) years, including five (5) years of grace at the Bank's standard interest rate for LIBOR-based US dollars single currency loans. Commitment Fee: 0.75 % on undisbursed loan balances, beginning 60 days after signing, less any waiver. Onlending Terms: Not Applicable. Financing Plan: See Schedule A. Rate of Return: 22.2% IERR for urban and 10.6% IERR for rural water supplies Staff Appraisal Report: 16142-TM Map: IBRD 28390 Project ID Number: TM-PE-8867 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.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE IBRD TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO TURKMENISTAN FOR A WATER SUPPLY AND SANITATION PROJECT 1. I submit for your approval the following memorandum and recommendation on a proposed loan to Turkmenistan for US$ 30.3 million to help finance the Water Supply and Sanitation project. The loan would be at the Bank's standard interest rate for LIBOR based US Dollar single currency loans, with a maturity of twenty years, including five years of grace. 2. The Project would be implemented by the Ministry of Land Reclamation and Water Management (MWR). Background 3. Turkmenistan, the southernmost republic of the Former Soviet Union (FSU), is bordered to the west by the Caspian Sea, to the south by Iran and Afghanistan, to the east by Tajikistan and to the north and northeast by Kazakstan and Uzbekistan. The country gained its independence on October 27, 1991. Turkmenistan lies in the midst of two of the largest deserts in the world, the Karakum and Kyzyl Kum, and 90 percent of its land is considered arid. With an area of 488,000 km2, it is the fourth largest country of the FSU republics. Turkmenistan is one of the least urbanized of the FSU countries with 45 percent of the total population in urban areas. The population of 4.5 million people is concentrated in a thin strip of land along the foothills of the South and in areas where the land is irrigated. The nation's capital, Ashgabat, is the largest urban center with a population of 500,000. 4. Turkmenistan's economy is dominated by energy and agriculture. It has 1.3 trillion cubic meters of proven and probable natural gas reserves and is the world's fourth largest natural gas producer. It also has 1.1 billion tons of oil reserves. Despite these energy reserves, the economy is still predominantly agricultural. 5. At independence in 1991, based on expectations of an impending natural gas export bonanza, the Government put adjustment and transition issues on hold and launched a plan to modernize the capital city. In addition to free health and education, it proclaimed an extensive subsidy and entitlement program and strengthened centralized controls. It maintained distorted trade and foreign exchange regimes and retained state orders and price controls on many items. Results were disappointing and over 1993-1995 real GDP fell by more than 30 percent; gas production declined by three-fifths; and real minimum monthly wages by an estimated 80 percent. By the end of 1995, annual inflation exceeded 1000 percent and per capita income (US$ 920 according to the modified Atlas Method) was significantly below the FSU average. However, a serious stabilization initiative was pursued in 1996 and this made substantial inroads in reducing inflation. There were also a number of positive developments during 1996 in structural and sectoral policies, especially in agriculture. Over the last year, the Government has outlined some of the main elements of a reform strategy and has stated its intention to accelerate efforts aimed at macroeconomic stabilization and structural adjustment. 6. All of Turkmenistan is located within the Aral Sea Basin. The Aral Sea, an inland lake fed by the Syr and Amu Darya Rivers, lies between Kazakstan and Uzbekistan and was once the fourth largest inland lake in the world. Over the past 35 years, intensive cotton farming and agricultural development have diverted so much water from the two rivers which feed the Aral Sea that almost no water flowed into the Sea. As a result, today the Aral Sea is biologically dead and has shrunk by approximately 70 percent in volume and 50 percent in area. The quality of ground and surface water resources in the Aral -2- Sea Basin has deteriorated as a result of intensive agricultural water withdrawals. Industrial and agricultural wastewater dischaiges, soil salinity, and erosion have further aggravated the situation. Once the location of successful commercial fishing, hunting, navigational and recreational activities, today the region in the immediate vicinity of the Aral Sea, including the Dashkhovuz region of Turkmenistan, is considered an environmental disaster zone and all traditional economic activities associated with the Aral Sea are terminated. 7. Although the Aral Sea is not located within Turkmenistan, the country suffers from the basin-wide environmental impacts. The area of Turkmenistan most severely impacted is Dashkhovuz because this administrative region, "velayet", is located on the lowest reaches of the Amu Darya River. The velayet has a population of 951,000 of whom 68 percent are rural. The region is characterized by families larger than the national average and high population densities. Approximately 50 percent are women and children under the age of 14. There is a capital city, Dashkhovuz City, with a population 154,000, and eight administrative zones called "etraps" which each have a center city ranging in population from 10,000-32,000. The rural population live in an estimated 104 collective farms which are further divided into villages of which there are about 520. The average collective farm population is about 6,000; the average village has a population of 1,200. In terms of water supply and sanitation characteristics, only residents of the capital city can be classified as urban. The etrap urban centers and collective farms have similar levels of service which are effectively rural in nature. 8. Compared to other countries of the FSU, Turkmenistan's health indicators are poor, and health status in Dashkhovuz is worse than in the rest of the country. The infant mortality rate in Dashkhovuz is the highest of any etrap in the country (47.5/1,000 live births). Maternal mortality is more than twice as high in Dashkhovuz (96.3/100,000 live births) than in the rest of the country. Malnutrition, anemia and goiter are common problems in Dashkhovuz. There is a high incidence of communicable diseases including water and sanitation related diseases such as diarrheal diseases and hepatitis A. Children below age 14 account for about 80 percent of registered cases of diarrhea, and 50 to 70 percent of hepatitis A cases. The poor and declining health is attributed to degradation of the environment; qualitative and quantitative deterioration of the drinking water supply; poor sanitation and hygiene practices; protein and vitamin deficiency; and inadequate and declining health care services. 9. A Social Needs Assessment conducted as part of project preparation revealed that the major problems facing households are lack of flour (51 percent); poor water supply quality (18 percent); and low income insufficient to buy basic foods (13 percent). Households spend about 85 percent of their earnings on food. Average annual household income was reported to be $356 ($376 rural and $336 urban). Close to 40 percent of households describe the general state of health of their family members as "not very healthy." 10. Water Supply and Water Use:2 Approximately 40-45 percent of all households use a piped water supply system for their primary drinking water source. This percentage is much lower for rural households (10 percent) than for urban households (70 percent). All of the etrap centers have a piped drinking water supply which delivers water to communal street standpipes. The piped systems 1/ The term "urban" is applied to the etrap centers in this report to distinguish the centers from the collective farms which are classified as "rural." The etrap centers, however, do not show "urban" features and can be considered "rural" in nature. 2/ Information on household water supply and sanitation comes from the "Turkmenistan Water Supply and Sanitation Needs Assessment", The World Bank, November, 1995. The household survey of 790 households included all etrap centers in the project area and 14 farms of the 104 farms in the region. 55 percent of households were urban. -3- theoretically serve approximately 108,000 people (75 percent of the total population in the seven etrap centers included in the project). However, the existence of these systems does not mean actual delivery of safe drinking water. Due to the enormous losses within the system and the deteriorated condition of the wells and pumping facilities, the piped system is unable to achieve the design pressures and supply volumes. Low pressure in the system leads to the deliberate removal of faucets from street standpipes in an effort to facilitate access to the small amount of water which arrives. Overpumping of the wells in an effort to compensate for losses in the system leads to increased salinity and accelerated depreciation of the pumps. Thus water is delivered only 3-4 hours per day, is not disinfected, and is supplied at very low pressures. Those who do not depend upon piped water supplies as their primary drinking water source resort to hand dug wells (12 percent) and bored wells (7 percent). About 9 percent of urban households use water purchased from a vendor as their primary source of drinking water. The most important source of drinking water in rural households is wells, often communal. About 20 percent of rural households have access to a functioning piped water system. Water vending is non-existent in rural areas. In some collective farms where piped water supplies are not available and wells not feasible, surface water (irrigation canals, ponds, rivers), which is known to be highly polluted, is the primary source of drinking water. Household boiling of drinking water for disinfection purposes is generally not practiced. 11. Water Source. Water is distributed throughout Dashkhovuz Velayet by an extensive network of irrigation canals the majority of which are open and unlined. The piped water supply systems described above use shallow wells adjacent to, and hydraulically linked with, an irrigation canal as the water source. The water is pumped to a nearby ground reservoir where chlorine is intended to be added, but rarely is because of lack of funds or equipment failure. The distribution pump station then draws water from the reservoir and pumps directly into the distribution system. Water is delivered to public street standpipes. It is estimated (there are no metering devices) that 100-200 liters per capita per day (lpcd) is provided while observed and reported consumption is 15-25 lpcd. This extremely high level of unaccounted for water relates both to the deteriorated condition of the system and to lack of incentives for water conservation particularly the provision of water free of charge. 12. Deficiencies in sanitation and hygiene practices, and inadequate health education compound the water and sanitation related health problems. Although sanitation coverage is almost universal with shallow, unlined pit latrines, the latrines are usually unsanitary and hygiene practices extremely poor. Neither health officials nor the general population are well informed about the linkages between environmental conditions, hygiene and health. 13. Water supply and sanitation infrastructure deficiencies are exacerbated by weak institutional settings. The water and sanitation sector suffers from the following weaknesses: (i) allocation of responsibility for the sector among too many government agencies; (ii) a wide range of responsibilities other than water and sanitation assigned to the principal agency charged with providing water supply; (iii) lack of technical and management skills throughout the sector; (iv) the absence of a coherent program for the effective operation and maintenance of water and sanitation facilities; (v) inadequate focus on the importance of providing effective means of excreta disposal; (vi) inadequacy of funding for both capital construction of new and replacement facilities, and for operation and maintenance of existing facilities; and (vii) a national policy which provides water services at no cost to the users. Weaknesses within the public health and health education institutions include scarce financial resources; an inadequately trained staff; and an emphasis on curative over preventive interventions. 14. In June 1994 an international donor's conference in Paris agreed to support a program to address the most pressing problems in the Aral Sea Basin; potable water, basic sanitation and improved health -4- care. At the conference it was decided that the World Bank would take the lead in preparing a project focusing on Dashkhovuz Velayet the region of Turkmenistan most severely affected by the Aral Sea crisis. This project is the outcome of that decision and constitutes Project 5.2 of the Bank's Aral Sea Program (see para 21). Project Objectives 15. The objectives of the proposed project would be to: (i) improve water supply systems and sanitation in seven etrap centers and nine collective farms in Dashkhovuz velayet; and (ii) initiate institutional changes in the water and sanitation sectors to ensure that the project is financially and technically sustainable. Project Description 16. The project would comprise four components: (a) water supply improvements; (b) sanitation and health; (c) institutional strengthening; and (d) project management and construction supervision. a. Water Supply Improvements (US$ 20.1 million or 70 percent of project base cost.) The aim of this component is to rehabilitate and expand water systems to seven etrap centers3 and nine collective farms and to provide a supply of spare parts and repair materials to assist in operating these systems for the first year after completion. Project preparation determined that the piped water systems already in place in much of the region, although in a state of disrepair, were appropriate for the region and the least cost solution for improving drinking water supplies. The household survey revealed that piped systems were the service of choice. Furthermore, from a public health perspective the piped water systems offer the best quality of water and the opportunity for disinfection. The rehabilitated distribution system would have capacity to allow a doubling of water supplies sufficient to meet demands of urban and rural centers, for the next 16 and 18 years, respectively. The three subcomponents include: i. Urban Water Supply System Improvements (US$ 8.7 million). This subcomponent will rehabilitate the piped water supply systems serving 108,000 residents in seven etrap centers in the Velayet from the water source to public street standpipes. The project would repair existing street standpipes and provide new taps with an improved design that will reduce wastage and freezing during the winter. The project will include the rehabilitation of transmission mains; distribution pipework; and wellfields; and water distribution centers. New boreholes and new electrical systems, mechanical plant, and appropriate chlorination equipment will be installed as appropriate. The present street standpipes will be replaced with an improved design that will reduce wastage and freezing during winter months. As a result of these improvements, physical water losses will be reduced; operation and maintenance costs will be reduced; and water quality will be improved by reducing the risk of groundwater infiltration. ii. Rural Water Supply System Improvements (US$ 10.4 million) This subcomponent would rehabilitate and expand the water supply systems in about 47 villages in nine collective farms distributed amongst the seven etraps. It would include rehabilitation of 3/ The eighth etrap, Turkmenbashi, is the site of a USAID $3 million Water Supply and Sanitation Project and thus was excluded from the water supply and sanitation component of the project. Turkmenbashi is included in the health and institutional development components. -5- boreholes; transmission mains; and distribution pipework; and distribution centers. It would install new pumps; new mains; and chlorination systems. Existing street standpipes would be renovated and new standpipes installed. This subcomponent would have the same benefits as the urban component and would allow chlorinated water to be supplied to 82,000 people (including 62,000 not previously served by a piped water system). iii. Operational Support (US$1.0 million) This subcomponent would provide supplies essential for operation and maintenance of the water systems. b. Sanitation and Health (US$ 3.4 million or 12 percent of project base cost). The objective of this component is to optimize the project's health benefits by improving sanitation and hygiene. The three subcomponents are: i. Improvement of Sanitation, Hygiene, and Water Supplies Utilizing Community- Based Approaches (US$ 0.8 million). The objective of this subcomponent is to improve sanitation facilities and hygiene practices. It would rehabilitate latrines and install hand- washing basins in about 35 schools in the nine collective farms for which water supply improvements are being provided, and in one market in each of the seven etrap centers. Community participation activities developed during the school sanitation and community water supply demonstration projects will be used in this sub-component. Community involvement in the installation of new facilities and operation and maintenance will be implemented. ii. Health Promotion and Hygiene Education in Rural Areas (US$ 0.7 million). The objective of this subcomponent is to strengthen the capabilities of the Dashkhovuz Center of Health and to provide health promotion and health education activities in the schools and markets covered by subcomponent (a) above. The Center of Health would be rehabilitated and equipped; health promotion materials regarding water, sanitation, hygiene and health developed; and health programs delivered. iii. Water Quality Monitoring and Sanitation and Hygiene Surveillance in the Dashkhovuz Velayet (US$ 1.9 million). The objective of this subcomponent is to improve water quality monitoring; and sanitation and hygiene surveillance capabilities. It would provide equipment, supplies and training for the water quality monitoring in each of the etraps; rehabilitate and upgrade the water quality laboratories; improve data collections, analysis, and reporting; and conduct epidemiological studies. c. Institutional Strengthening (US$ 2.4 million, or 8 percent of project base cost.) The objective of this component is to improve the effectiveness of the delivery of water and sanitation services to the population of Dashkhovuz Velayet by addressing the water sector weaknesses (para 13). It would finance a two-year program of technical assistance, training and equipment to strengthen the capacity of the government to manage, operate and maintain the facilities which provide water and sanitation services to the people of Dashkhovuz. Four sub-components are: (1) identification of national sector reforms; (2) reorganization of the water and wastewater sector in Dashkhovuz velayet; (3) strengthening of the newly established Dashkhovuz Regional Water and Wastewater Authority (DRWASA); and (4) Public Awareness Campaign. The centerpiece of this component is the establishment of the DRWASA. This specialized Authority would be granted the responsibility and powers to provide sector services to the entire Velayet. The project includes initiation of cost recovery mechanisms for operation and maintenance of the new water -6- supply systems. Given the present inadequacies of the piped water systems, it is difficult to justify charges now, but, as the new water supply systems come on line, water charges will begin for the beneficiaries with the goal of full cost recovery of operation and maintenance costs. This subcomponent would support the Government in analyzing options for cost recovery and establishing the Authority's capacity to carry out water pricing. d. Project Management and Construction Supervision (US$ 3.0 million or 10 percent of project base cost). This component would cover the costs of project management (US$1.93 million) and supervision of construction of the water supply improvements (US$1.20 million). Overall project management will be provided by a Project Implementation Unit, which will have personnel in both Ashgabat and Dashkhovuz. The construction supervision team will be based in Dashkhovuz. Project Implementation 17. The project would be implemented over a period of five years and is expected to be completed by August 31, 2003. Overall responsibility for project management would rest with a Project Implementation Unit (PIU) within the MWR, the project's implementing agency. The PIU has already been established (November, 1996) under a Project Preparation Facility (PPF) of $430,000. Responsibility for the implementation of the water supply and institutional strengthening component would rest with the MWR. Implementation of the sanitation and health component would rest with the Ministry of Health and Medical Industry (MOH). Local authorities in Dashkhovuz Velayet and the etraps would be assigned responsibilities for specific components as appropriate. Project Sustainability 18. The proposed project builds on the strengths of the existing infrastructure. Institutional sustainability would be enhanced by the establishment of a specialized autonomous regional water and wastewater authority which is a major output of the Project. The project's physical works concentrate on rehabilitation, the minimization of physical and commercial water losses and the correction of deferred maintenance to improve efficiency. The project emphasizes strengthening of operations and maintenance capacities. Long term financial sustainability of the project is compromised by the national policy of free drinking water. Therefore, the project would initiate water charges in Dashkhovuz with the goal of full cost recovery of operation and maintenance costs and, through the institutional strengthening component, assist in the development of appropriate tariff levels while strengthening the institutional capacity to establish and collect tariffs. Although current water resources are sufficient to meet current and projected water demands, environmental sustainability of the project depends upon water resource conservation. The project includes rehabilitation of the supply systems, redesign of the standpipes, water pricing and consumer education all intended to conserve water resources. Lessons Learned from Previous Bank/IDA Involvement 19. The Institution Building/Technical Assistance project approved by the Board in FY95 is the first project in Turkmenistan and the only one in implementation. It experienced initial delays but currently ratings for development objective, implementation progress and project management are satisfactory. Early supervision missions indicated the Government's lack of awareness and knowledge of procurement, the competitive bidding process, and noted that the Government would need significant support throughout the project implementation process. Lessons learned from other FSU projects include (i) the need to identify a consistent counterpart team with sufficient authority to move the project forward; (ii) -7- the difficulty of coordinating among interested parties; (iii) the importance of early detailed attention to procurement and other implementation issues; and (iv) the importance of including local institutes in project preparation and design. Major lessons learned from the Bank's past water supply and sanitation projects indicate that projects should include the following: (i) an adequate regulatory framework and, linked to it, appropriate tariff levels and billing and collection mechanisms to generate the funds needed for financial autonomy and to signal the real cost of water to the consumers; (ii) reversal of the preference of decision-makers for new capital expenditure over proper operation and maintenance; (iii) clear measures to reduce unaccounted-for-water; and (iv) user involvement in the setting of priorities to improve ownership and cost-sharing of operation and maintenance functions. 20. The project reflects concern for learning from past experience and reduction of risks. The proposed project has been developed through close collaboration with the Turkmen authorities at the national and velayet level and concerned sectoral ministries and institutes which will be involved in implementation. An interagency working group was formed at project identification and it has been involved in project preparation and design. To ensure that the Government assumes greater responsibility for the project and develops a sense of ownership and capacity for implementation, the Government fully executed the PHRD grant which funded project preparation. All preparation missions have conducted workshops for the Government and other stakeholders on Bank operations. The project will require close Bank supervision and monitoring and sustained assistance to authorities throughout implementation. A PIU has been established using a PPF. Specific to the water and sanitation sector lessons learned, one of the project's main components is institutional strengthening of the water and wastewater sector. The establishment of a specialized autonomous regional water and wastewater authority is one of the major outputs of the Project and capacity building of the water and health sectors at the regional level is a primary objective of the Project. The proposed project will assist in training and information dissemination through the national institutional strengthening component. The project's physical works concentrate on rehabilitation, the minimization of physical and commercial water losses and the correction of deferred maintenance as a means of improving efficiency. Strengthening of operation and maintenance capacities is emphasized. Rehabilitation of the supply systems, redesigning of the faucets to provide automatic shut-off; and consumer education will reduce unaccounted for water. The project would initiate water charges in Turkmenistan and, through the institutional strengthening component, assist in the development of appropriate tariff levels while strengthening the institutional capacity to establish and collect tariffs. User involvement has been extensive (para 29 ). Rationale for Bank Involvement 21. The proposed project is consistent with the Bank's discussions with the Government as part of the Institution Building/Technical Assistance Loan (P-6334-TM, para 40.) which was discussed by the Board in September, 1994. A first Bank Group Country Assistance Strategy (CAS) has been prepared for discussion by the Board on May 27, 1997, together with this operation. The proposed Bank strategy is designed to assist the Government to remove remaining distortions which could constitute barriers to the transition, and to the efficient development of its designated priority sectors -- agriculture, oil and gas, social sectors and infrastructure. The proposed project also supports the Government's sector strategy of increasing access to potable water, particularly in under-served rural areas, whilst initiating institutional and water sector policy reforms. As the designated lead organization in the Aral Sea Program, the Bank will play a pivotal role in setting priorities, coordinating mitigating activities, and applying the lessons learned elsewhere in the region to the Aral Sea Program. The involvement of the Bank would also help expand and improve access to basic social services, ensure participatory project design and implementation, and act as a catalyst for bilateral aid mobilization (see para 14). -8- Agreed Actions 22. Prior to negotiations the Government confirmed that it has: (a) issued a Presidential Decree indicating that water charges will be imposed on beneficiaries of the project's water supply systems sufficient to fully recover operation and maintenance costs; (b) authorized the establishment of the DRWASA as part of the Institutional Strengthening component of the project; (c) appointed the Director of the PIU and submitted to the Bank a list of candidates for the economist/planning specialist; accountant/disbursement specialist; and health specialist for review; (d) established the Project Coordination Committee (PCC); (e) appointed the Component Coordinators (CCs); (f) selected the modality and terms for passing of project funds to Dashkhovuz velayet satisfactory to the Bank; and (g) confirmed the tax status of imported goods to be financed by the loan. 23. The Borrower provided assurances that: (a) The project would be implemented with reliance on annual work programs and budgets. (b) The PIU will be maintained throughout the project implementation period with staffing, funds, facilities, and other resources in a manner satisfactory to the Bank. (c) The Borrower shall maintain the PCC, CCs, and Regional CCs with resources and under TOR satisfactory to the Bank until completion of the Project. (d) The Borrower shall adopt the Project Implementation Plan. (e) The Borrower shall employ by December 31, 1997, consultants with experience and TOR satisfactory to the Bank to prepare the National Sector Reform Study under the project. (f) The Borrower shall prepare and discuss with the Bank the National Sector Reform Study by December 31, 1998, and shall prepare an Action Plan satisfactory to the Bank. (g) The Borrower shall prepare and discuss with the Bank by June 30, 1998, the draft legal instrument for the establishment of the DRWASA. (h) The Borrower shall establish and begin operation of the DRWASA no later than December 31, 1998. (i) Upon its establishment, the DRWASA shall begin to charge tariffs for water supply services when the water supply systems become operational. (j) The Borrower shall maintain in Manat the Project Account for its counterpart contribution to the financing of the project in a commercial Bank on terms and conditions satisfactory to the Bank and shall make agreed contributions to the Bank. 24. During negotiations the Government provided assurances that as conditions of Loan Effectiveness: (a) The Borrower would have employed consultants, with qualifications, experience and terms of reference satisfactory to the Bank, to assist the PIU in carrying out the activities under the project. (b) The Borrower would have submitted a draft Project Implementation Manual satisfactory to the Bank. (c) The Borrower would have opened a Project Account in a Commercial Bank acceptable to the Bank and would have deposited $200,000 into said Account. Poverty Category 25. The project falls in category (b) of the Program of Targeted Interventions. The proportion of the poor among project beneficiaries is significantly larger than their proportion in the overall population. The project will target the Dashkhovuz Velayet which is the poorest of all the regions of Turkmenistan. The proposed project would help meet the fundamental human needs of safe drinking water, basic sanitation, and basic public health interventions in an area where 50 percent of the population are children under age 14 and women. Environmental Aspects 26. The proposed project is classified as Category B. The project is expected to have a positive impact on public health while maintaining or improving quality and quantity of regional drinking water supplies. Rehabilitation of disinfection systems; leak repair; improved sanitation facilities; and increased -9- water delivery periods would reduce levels of bacteriological contamination in the drinking water supplies. Technical improvements to the distribution system including leak repair and the provision of automatic shut-off valves on public standpipes combined with public awareness and education efforts would promote water conservation. The project would have no adverse environmental impacts. No resettlement, international waterways or property rights issues are involved since the project focuses on rehabilitation of existing facilities. All works would be executed either within the premises of existing facilities, existing public streets or publicly owned property. The project will not affect any archeological or historical sites. Under the terms of the bidding documents, the contractors would be responsible for keeping worksites pollution free; returning sites to their original condition; minimizing dust, noise or other work-related nuisances; and environmentally sound conveyance, storage, and handling of disinfection chemicals. Contractors will be responsible for notification to authorities of the discovery of any previously unknown archeological or historic sites, and the suspension of work until decisions are taken concerning necessary steps to protect such sites. Program Objective Categories 27. The project fits into the Program Objective Category of Environmentally Sustainable Development (80%) and Poverty Reduction and Human Resource Development (20%). Improvements to the drinking water supplies would increase water conservation, improve water quality, and reduce contamination of supplies through infiltration. Sanitation improvements would reduce ground and surface water contamination. Improved service delivery would significantly reduce the amount of time spent fetching water (estimated at two hours per day per household), a task generally assigned to women and children. Human resource development within the water and wastewater sector would be increased under the institutional strengthening component. Participatory Approach 28. The proposed project incorporates an extensive amount of stakeholder participation at all project levels. During project identification and preparation, stakeholders were identified and an appropriate framework for their participation in project design and implementation was agreed upon. Nine stakeholder workshops were held to discuss the project concept and design, and key project issues including cost recovery, reorganization of the water and wastewater sector, community participation components, and project implementation arrangements. In these workshops, stakeholders endorsed the project concept and design and agreed upon the approaches taken within the project design to address the key issues. A Rapid Needs Assessment was conducted during project identification followed by a Social Needs Assessment which included surveys of 790 households; inventories of communal water supply and sanitation facilities; and fourteen focus group discussions. Results were used to provide baseline information and guide project development and were presented at Stakeholder Workshops. During preparation, additional focus group discussions were used routinely to guide two demonstration projects conducted under preparation and to provide additional background information. Two demonstration projects were conducted under project preparation. One looked at improved design of standpipes which would increase the service delivery area and pressure of the systems. This was done on a neighborhood basis with full community involvement and successfully demonstrated to city and water officials the important role of communities in designing, operating and maintainirig the communal standpipe system. The other demonstration was of improved school sanitation and hygiene facilities. A range of stakeholders was included on the school committee involved in designing, building, operating and maintaining the system, and the health promotion program. A local NGO has been actively engaged in project preparation and implemented the community components of the two demonstration projects. - 10 - Project Benefits 29. The direct benefits of the project would be to provide a safe, reliable water supply to 108,000 people in the seven etrap cities and to 82,000 in 47 villages in nine collective farms. 62,000 people in these collective farms would be receiving water from a piped system for the first time. Other direct beneficiaries would be the children in 35 schools in the nine collective farms and people who attend the markets in the seven etrap cities that would be provided with new latrines as part of a health education demonstration project. 30. The total population of Dashkhovuz velayet would benefit indirectly from improvements to the Dashkhovuz Center of Health and the health and hygiene education programs to be funded by the project. They would also benefit from improvements to enhance the capabilities of the Dashkhovuz office of the MOH/SES in such areas as water quality monitoring, and sanitation and hygiene surveillance. The country and the velayet would benefit from the demonstration of how to improve water and sanitation services, and be able to apply these lessons to serve the remaining people outside the project area. Both nationally and regionally, the project would strengthen the water and sanitation sector through recommendations for reorganization and internal strengthening of the DRWASA. Finally, the country would benefit from the skills acquired in the management of large development projects through the establishment of the PIU. Risks 31. The various categories of risks include (a) the willingness of the national government to commit itself to sector reform, including adoption of recommendations for institutional reorganization and strengthening, and of a policy of cost recovery for the provision of sector services, (b) completion of the project facilities on time and within budget, (c) the establishment of a water and sanitation sector utility in Dashkhovuz capable of operating and maintaining the facilities for which they are responsible, and (d) the success of changing water users attitudes toward conservation of water and willingness to pay for the improved services being provided. 32. Failure to overcome one or two of these risks would threaten the success of the project. Should three or four of these risks occur, the project would almost certainly fail. The project has several safeguards to mitigate these risks. Dialogue between the government and the Bank is ongoing to encourage the government's commitment to sector reform, and the loan agreement incorporates specific actions to be accomplished to affirm this commitment. Strong project management, which would include a blend of knowledgeable local expertise with the support of experienced foreign consultants, would be in place at the start of the project. Technical assistance would be provided to assist the government in implementing needed reforms and in strengthening the capability of the regional water and sanitation sector organizations in carrying out their responsibilities. This support would be made available to both the utility providing the services and the organization responsible for ensuring that the services provided meet the government's quality standards. Finally, the project would incorporate public education programs to encourage improved water and sanitation practices and water conservation. - 11 - Recommendation 33. 1 am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank and I recommend that the Executive Directors approve it. James D. Wolfensohn President by Caio K. Koch-Weser Attachments: Schedules A - E Map IBRD 28390 Washington, D.C. April 24, 1997  SCHEDULE A TURKMENISTAN Water Supply and Sanitation Project Estimated Costs and Financing Plan TABLE 1. ESTIMATED PROJECT COSTS (US$ MILLIONS) Local Foreign Total % Foreign % Total Exchange Base Costsa Water Supply 4.78 15.36 20.14 76% 70% Sanitation and Health 1.27 2.17 3.44 63% 12% Institutional Strengthening 0.69 1.74 2.43 72% 8% Project Management and 0.81 2.22 3.03 73% 10% Construction Supervision Total Base Costs 7.55 21.49 29.04 74% 100% Physical Contingencies 0.80 2.45 3.23 75% Price Contingencies 0.11 1.30 141 92% TOTAL PROJECT COST 8.46 25.24 33.70 75% a/ Base cost date Apni, 1997 TABLE 2: FINANCING PLAN (US$ MILLIONS) Local Foreign Total % Foreign Ex-hange % Total Project Costs Government of Turkmenistan 3.40 0 3.40 0% 10% Bank 5.06 25.24 30.30 83% 90% TOTAL PROJECT COST 8.46 25.24 33.70 75% 100% SCHEDULE B TURKMENISTAN WATER SUPPLY AND SANITATION PROJECT TABLE 3: SUMMARY OF PROPOSED PROCUREMENT ARRANGEMENTS Procurement Method IntnMtonal Co-pkNe Nationl competive Othe Not Bank Total Cost Bidding Bidding Financed 1. Works 1.1 Rehabilitation 23.13 1 64" 24.77 (20.85) (1,50) (22.35) 2. Goods 2.1 Equipment 1 03b' 1.03 (1.03) (1.03) 2.2 Vehicles 0 33" 0.33 (0.33) (0.33) 2.3 Supplies 0.83 0 23"' 1.06 (0.83) (0.23) (1.06) 3. Consultant Services 3.1 Technical Assistance 4.40" 4.40 (4.40) (4.40) 3.2 Training 0 43" 0.43 (0.30) (0.30) 4. Operating Costs 1.249; 1.24 (0.40) (0.40) 5. PPF 0.43" 0.43 (0.43) (0.43) Total 23.96 9.74 33.70 (21.68) (8.62) (30.30) Figures may not total due to rounding. Figures in parentheses are the respective amounts financed by the Bank. a/ Includes Sanitation Civil Works $0.46 million to be procured by National Shopping and Construction Supervision Staff $1.18 million to be procured per Guidelines for the use of Consultants, August, 1981. b/ Includes Water Supply and Sanitation equipment $0.75 million and office equipment $0.28 million to be procured by International Shopping c/ Vehicles to be procured by International Shopping d/ Includes furniture of $0.02 million and other supplies of $0.02 million to be procured by National Shopping and Laboratory Furniture $0.13 million and water supply and sanitation supplies $0.06 million to be procured by International Shopping. e/ Includes Local TA of $0.88 million and Foreign TA of $3.52 million to be procured per Guidelines for the use of Consultants, August, 1981. f/ Includes workshops/seminars $0.29 million and study tours $0 14 million to be procured per Guidelines for the use of Consultants, August, 1981. g/ Includes office rent to be financed by the government $0.79 million; PIU personnel salaries after effectiveness $0.25 million procured per Guidelines for the use of Consultants, August, 1981; and office operation, maintenance and communication costs $0.08 million and miscellaneous expenses $0.12 milli )n to be procured by National Shopping. h/ Includes phase I of PIU consulting contract $350,000; local consultants $35,000; office equipment (National Shopping) $30,000; training $10,000: and recurrent costs $5,000. TABLE 4: PROCEEDS OF THE LOAN (US$ MILLIONS) AMOUNT PERCENTAGE OF EXPENDITURES CATEGORY (US $ MILLIONS) TO BE FINANCED 1. WORKS 19.00 90% 2. GOODS 2.40 100% OF FOREIGN EXPENDITURES, 100% OF LOCAL EXPENDITURES (EX-FACTORY COSTS), AND 75% OF LOCAL EXPENDITURES FOR OTHER ITEMS PROCURED LOCALLY 3. CONSULTANTSA/ 4.40 100% 4. TRAINING 0.30 100% 5. OPERATING COSTS 0.40 100% 6. RE-FINANCING OF PPF 0.43 AMOUNT DUE PURSUANT TO SECTION 2.02 (C) OF THE LOAN AGREEMENT 7. UNALLOCATED 3.37 TOTAL 30.30 Al INCLUDES FOREIGN IECHNICAL ASSISTANCE ($1.52M) AND LOCAL TECHNICAL ASSISTANCE ($0.88M) TABLE 5: ANNUAL AND CUMULATIVE DISBURSEMENTS (US$ MILLIONS) BANK FISCAL FY98 FY99 FY00 FY01 FY02 FY03 YEAR ANNUAL 2.0 5.0 8.0 8.0 5.0 2.3 CUMULATIVE 2.0 7.0 15.0 23.0 28.0 30.3  SCHEDULE C TURKMENISTAN WATER SUPPLY AND SANITATION PROJECT TIMETABLE OF KEY PROJECT PROCESSING EVENTS A. Project Preparation Time: February 20, 1995-January 15, 1997 (11 months) B. Prepared By: Government of Turkmenistan with IBRD assistance from Messrs./Mmes. Rita Klees (Task Manager), Betty Hanan, Joana Godinho, Evelyn Villatoro, Ronald Venezia, Mona Malhotra, Michael Blackburn, Donald Cullivan and Ian Walker. C. First Bank mission: October, 1994 D. Appraisal Mission Departure: January, 1997 E. Negotiations: March 31, 1997-April 2, 1997 F. Planned Date of Effectiveness: August, 1997 G. List of Relevant PCRs and PARs: None s SCHEDULE D TURKMENISTAN Water Supply and Sanitation Project STATUS OF BANK GROUP OPERATIONS IN TURKMENISTAN A. STATEMENT OF BANK LOANS4 (As of March 31, 1997) US$ Million Loan Fiscal (Less Cancellations) No. Year Borrower Proiect L Undisbursed 37910 1995 Turkmenistan Technical Assistance 25.00 20.80 Total s 25.00 Of Which: Repaid 00 Total number of Loans = 1 25.00 20.80 Total Now Held by the Bank 25.00 Total Amount Sold 0.00 Of Which: Repaid 0.00 Total Undisbursed 20.80 B. STATEMENT OF IFC INVESTMENTS (As of March 31, 1997) TURKMENISTAN IS NOT YET AN IFC MEMBER. 4/ The status of these projects is described in a separate report on all Bank/IDA financed projects in execution, which is updated twice yearly and circulated to the Executive Directors on April 30 and October 31. 5/ Total approved, repayments, and outstanding balance represent both active and inactive Loans.  Schedule E Turkmenistan at a glance Page 1 of 2 Europe & Lower- POVERTY and SOCIAL Central middle- Turkmenistan Asia income Development diamond* Population mid-1995 (millions) 4.5 488 1,153 GNP per capita 1995 (USS) 920 2,220 1,670 Average annual growth, 1990-94 Population (%) 2.3 0.5 1.4 Labor force (%) Most recent estimate (latest year available since 1989) Poverty: headcount index (% of population) Urban population (% of total population) 45 64 54 Life expectancy at birth (years) 66 69 67 Infant mortality (per 1,000 live births) 46 19 35 Child malnutrition (% of children under 5) Access to safe water (% ofpopulation) 78 Illiteracy (% of populaton age 15+) Gross primary enrollment (% of school-age population) . 97 104 Male .. 97 105 - Turkmenistan Female .. 97 101 Lower-middle-income group KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1975 1985 1994 1995 Economic ratlos Gross domestic investment/GDP Exports of goods and non-factor services/GDP Gross domestic savings/GDP Gross national savings/GDP Current account balance/GDP 2.0 1.3 Interest payments/GDP Total debt/GDP Total debt servicelexports .. 1.8 13.0 Present value of debt/GDP Present value of debtlexports 1975-84 1985-95 1994 1995 1996-01 (average annual growth) GDP 2.5 0.9 -19.0 -8.2 6.4 -Turkmenistan GNP per capita 0.2 -2.0 . . Lower-middle-income group Exports of goods and nfs .. .. -32.8 -5.3 11.0 STRUCTURE of the ECONOMY 1975 1985 1994 1995 (% of GDP) Cotton .. .. 7.6 18.5 Gas 65.9 48.4 Other 26.5 33.1 90 91 92 93 94 95 10 Private consumption .. .. 15 General government consumption . 2 Imports of goods and non-factor services GD. . . . -D ---GDP 1975-84 1985-95 1994 1995 (average annual growth) Cotton .. -11 5 0 Gas .. . -8.5 Is 90 1 92 93 94 s Other .. .. . -6.7 10 / 15 Private consumption .. 4.0 21 2 General government consumption .. 6.4 Gross domestic investment .. -11.6 3 Imports of goods and non-factor services .. .. -18.4 -15.5 3s Gross national product .. O.9 -18.8 -8.2 -Exports -+--Imports Note: 1995 date are preliminary estimates. Figures in italics are for years other than those specified. The diamonds show four key indicators In the country (In bold) compared with its Income-group average. If data are missing, the diamond will be incomplete. Turkmenistan Schedule E PRICES and GOVERNMENT FINANCE Page 2 of 2 Domestic prsce 9 8 1 199 Infon (% change) Consumer prices (average) .. .. 1.748,0 1.005.0 sw Implicit GDP deflator 2.1 -7.6 .. 0 1000 Government fifance (% of GoP) so Current revenue 1/ .. 28.8 10.0 12.0 Current budget balance .. 1.6 -1.0 -1.6 Overall surplusadeficit .9-DP d. TRADE 1975 196o 194 1995 (millions US$) Export and Import levels (mill. US$) Total exports (fob) .. .. 2,176 2,084 Energy .. .. 1,707 1.562 n.s. Manufactures Total Imports (cli) 1,60 1,64 Food Fuel and energy Capital goods Export price Index (1987-100) Import price Index (1987-100) .. .. o Terms of trade (1007w100) .. BALANCE of PAYMENTS 1978 198 1994 1996 (mlfon US) Exports of goods and non4actor services .. .. 2,276 2,231 Imports of goods and non-factor services .. .. 2,193 2,220 Resource balance .. .. 83 11 Net factor Income . .. 9 1 112 o1 Net current transfers .. .. 2 11 Current account balance, a before official transfers .. .. 84 23 Financing Items (net) .. .. .. . 2 Changes in net reserves (Increase*) .. .. -135 -238 Memo: as s s a e as Reserves Including gold (mi. USS) .. .. 927 1,170 Conversion rate (localSS) .. EXTERNAL DEBT and RESOURCE FLOWS 1378 1985 1994 1995 (millions USS) Total debt outstanding and disbursed .. .. 418 550 IBRD .. IDA Total debt service .. .. 41 281 IBRD .. IDA Composition of net resource flows Official grants .. Officile creditors .. Private creditors .. Foreign direct Investment .. .. 103 233 Portfolio equity World Bank program Commitments .. .. 25 0 Disbursements .. .. 0 1 Principal repayments .. .. 0 0 Net flows .. .. 0 0 interest payments .. .. 0 0 Net transfers .. .. 0 0 International Economics Department 4/23197 Note: Estimates for economies of the former Soviet Union are subject to more than the usual range of uncertainty. 11 Budget Is not consolidated and does not reflect all public sector transactions. IBRD 28390 -5 ' RUSSAN ss / FED FED KAZAKSTAN KA2A5TAN I UZBEKISTAN korFor Detail "UZBEKISTAN See Inset A KRY E ucK* , ¼,KYRGYZ REP 7 7, TAA5KISTÅA* 1 RSLAMCREPUBUJC CH1NA ..r rw,., OF RAN -- Guk 'A4~J5A DA Caspian Sea "E BALKAN Gy y ~ 5 0 751 0 -UZBEKISTAN - - TURK MENSTAN i S SANITATION PROJECT un n -odSLETEDoE *ope ASHAUZ RECSaoMrAROT a SANDY DESERT -- -D-RcER PROJ SADMINISTRATIVE BOUNDARIES ® V1LAYETCAP5TAL ..- INTERNATIONAL BOUNDARIES - --ADMINISTRATINE BOUNDARIES 60- 65.°... - . .-VEM-BER 199  s IMAGING Report No.: P 7038 TM Type: MOP