Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No: 59131 - TJ

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED GRANT

IN THE AMOUNT OF

SDR 10.10 MILLION

(US$ 16 MILLION EQUIVALENT)

TO THE

REPUBLIC OF TAJIKISTAN

FOR THE

SECOND DUSHANBE WATER SUPPLY PROJECT

May 6, 2011

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.

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CURRENCY EQUIVALENTS

(Exchange Rate Effective {Date})

Currency Unit = TJ Somoni

TJS 4.4668 = US$1

US$1.5855 = SDR 1

FISCAL YEAR

January 1 – December 31

ABBREVIATIONS AND ACRONYMS

AF CIS

Additional Financing Commonwealth of Independent States

CPS CQS DA DC

Country Partnership Strategy Selection Based on Consultants’ Qualification Designated Account Direct Contracting

DVK Dushanbe Vodokanal DWSP Dushanbe Water Supply Project (on-going. predecessor project) DWSP2 Second Dushanbe Water Supply Project (the Project) EBRD European Bank for Reconstruction and Development ECA EIB

Europe and Central Asia European Investment Bank

EMMP FBS FM

Environmental Management and Monitoring Plan Fixed Budget Selection Financial management

GDP GNI

Gross Domestic Product Gross National Income

GORT Government of the Republic of Tajikistan GPF IC

Governance Partnership Facility Individual Consultant selection procedure

ICB IDA IDB IFCA IFR ISA

International Competitive Bidding International Development Association Islamic Development Bank

Investment Facility for Central Asia

Interim Financial Reports

International Standards on Audit KAF Kafarnigan wellfield KMK LCS

Khojagii Manziliyu Kommunali Least Cost Selection

MDG M&E

Millennium Development Goals Monitoring and evaluation

MIDP Municipal Infrastructure Development Project MOF Ministry of Finance MTR Mid-term Review NAP NCB

Napornaya Water Treatment Plant National Competitive Bidding

OPIAP PCU

Operational Performance and Improvement Action Plan Project Coordination Unit

PDO PFS

Project Development Objectives Project Financial Statement

PIP PMC POM PPP QBS QCBS RAP

Priority Investment Program Project Management Consultant Project Operational Manual Public-Private Partnership Quality Based Selection

Quality and Cost Based Selection

Resettlement Action Plan RPF Resettlement Policy Framework SAM Samotechnaya Water Treatment Plant SCADA Supervisory control and data acquisition SIC State Investments Committee SIL SOE SSS SUE

Specific Investment Loan Statement of Expenses Single (or Sole) Source Selection State Unitary Enterprise

SWAP Sector-wide Approach SWW TA

South-West wellfield Technical Assistance

TOR Terms of Reference VAT WHO WSS

Value Added Tax World Health Organization Water Supply and Sanitation

Regional Vice President: Philippe H. Le Houerou (ECAVP)

Country Director: Motoo Konishi (ECCU8)

Sector Director: Country Manager Sector Manager:

Peter Thomson (ECSSD) Marsha Olive (ECCTJ) Wael Zakout (ECSS6)

Task Team Leader: Pier Francesco Mantovani/Anna Cestari (ECSS6)

TAJIKISTAN

SECOND DUSHANBE WATER SUPPLY PROJECT

I. Table of Contents

I. STRATEGIC CONTEXT ................................................................................................. 1

A. Country Context ................................................................................................................ 1

B. Sector and Institutional Context ........................................................................................ 2

C. Higher Level Objectives to which the Project Contributes ............................................... 3

II. PROJECT DEVELOPMENT OBJECTIVES ................................................................... 4

A. Project Development Objectives ....................................................................................... 4

Project Beneficiaries ............................................................................................................... 4

PDO-level Results Indicators .................................................................................................. 4

III. PROJECT DESCRIPTION ............................................................................................... 5

A. Project Components .......................................................................................................... 5

B. Project Financing ............................................................................................................... 6

Lending Instrument ................................................................................................................. 7

C. Lessons Learned and Reflected in the Project Design ...................................................... 8

IV. IMPLEMENTATION ....................................................................................................... 9

A. Institutional and Implementation Arrangements ............................................................... 9

B. Results Monitoring and Evaluation ................................................................................... 9

C. Sustainability ................................................................................................................... 10

D. Conditions for Effectiveness ........................................................................................... 11

V. KEY RISKS AND MITIGATION MEASURES ........................................................... 11

VI. APPRAISAL SUMMARY .............................................................................................. 12

A. Economic and Financial Analysis ................................................................................... 12

B. Technical ......................................................................................................................... 14

C. Financial Management .................................................................................................... 15

D. Procurement ..................................................................................................................... 15

E. Social (including safeguards) .......................................................................................... 16

F. Environment (including safeguards) ............................................................................... 17

G. Other Safeguards Policies triggered (if required) ............................................................ 18

H. Readiness: ........................................................................................................................ 18

Annex 1: Results Framework and Monitoring.............................................................................. 21

Annex 2: Detailed Project Description ......................................................................................... 27

Annex 3: Implementation Arrangements ...................................................................................... 39

Annex 4: Operational Risk Assessment Framework (ORAF) ...................................................... 52

Annex 5: Implementation Support Plan ........................................................................................ 55

Annex 6: Team Composition ........................................................................................................ 58

Annex 7: Financial and Economic Analysis ................................................................................. 59

Annex 8: Governance ................................................................................................................... 69

Annex 9: Social and Customers Satisfaction Survey .................................................................... 77

Annex 10: Map ............................................................................................................................. 82

TAJIKISTAN

SECOND DUSHANBE WATER SUPPLY PROJECT

PROJECT APPRAISAL DOCUMENT

EUROPE AND CENTRAL ASIA

ECSSD

Date: May 6, 2011 Team Leader: Pier Mantovani/Anna Cestari

Country Director: Motoo Konishi

Sector Manager/Director: Wael Zakout/Peter

Thomson

Sectors: Water supply (100%);

Themes: Access to urban services and housing

(100%)

Project ID: P118196 Environmental category: B

Lending Instrument: Specific Investment Loan

Project Financing Data

[ ] Loan [ ] Credit [X] Grant [ ] Guarantee [ ] Other:

For Loans/Credits/Others:

Total Bank financing (US$m.): 16.00

Proposed terms: IDA Grant, no principal or interest repayment.

Financing Plan (US$m)

Source Local Foreign Total

BORROWER/RECIPIENT 0.00 0.00 0.00

CO-FINANCING 1.00 2.00 3.00

IDA Grant 5.00 11.00 16.00

Total: 6.00 13.00 19.00

Borrower: Republic of Tajikistan

Responsible Agency: Dushanbe Vodokanal

Contact Person: Fasulokhon Isupov

Telephone No.: 221-09-92

Fax No.: 221-77-45

Email: dwspcu@gmail.com

Estimated disbursements (Bank FY/US$m)

FY 12 13 14 15 16

Annual 1 4 4 4 3

Cumulative 1 5 9 13 16

Project Implementation Period: August 2011-December 2015

Expected effectiveness date: August 29, 2011

Expected closing date: December 31, 2015

Does the project depart from the CAS in content or other significant respects?

Ref. PAD I.C. [ ]Yes [ X ]No

Does the project require any exceptions from Bank policies?

Ref. PAD VI.G. OP7.50 International waterways

Have these been approved by Bank management?

[ X]Yes [ ] No

[ X]Yes [ ] No

Is approval for any policy exception sought from the Board? [ ]Yes [X] No

Does the project include any critical risks rated ―substantial‖ or ―high‖?

Ref. PAD III.E. [ X ]Yes [] No

Does the project meet the Regional criteria for readiness for implementation?

Ref. PAD VI.H. [X]Yes [ ] No

Project development objective Ref. PAD II.A.

Improve water utility performance and water supply services in selected areas of Dushanbe.

Project description Ref. PAD III.A

Component 1. Metering and Demand Management (US$ 7.62 million of which IDA US$ 5.97

million): The component will finance consumption metering and bulk metering of water, for

increased revenue, reduced wastage, and better tracking of losses, including: (i) supply and

installation of 76,500 residential meters (i.e. approximately 46% of DVK users) and installation

of 1,500 apartment building master meters in selected areas of the city; (ii) rehabilitation of

1,500 apartment building service connections; (iii) supply and installation of bulk flow meters at

water production facilities; (iv) supply and installation of a Network Information System (NIS);

(v) communication strategy and public awareness campaigns to promote metering and demand

management; and (vi) installation of SCADA system.

Component 2. Water Quality Improvement (US$ 6.27 million of which IDA US$ 4.91 million): The component will support system upgrades for improved quality of water, including: (i) partial

renewal of filtration capacity at Samotechnaya WTP (SAM); (ii) network cleaning; (iii)

installation of in-network re-chlorination systems; (iv) equipment for water quality monitoring;

(v) reconstruction of pumping station and tanks at the Napornaya WTP (NAP); and (vi)

provision of maintenance equipment.

Component 3. Institutional Strengthening and Capacity Building (US$ 3.34 million of which

IDA US$3.34 million): The component will finance activities to build institutional capacity and

improve utility performance of DVK, which includes (i) Carrying out an assessment of DVK’s

organizational and capacity-building needs; (ii) Installation of modern accounting, billing and

water revenue collection systems; (iii) Provision of technical assistance to the management of

DVK to improve its financial performance; (iv) Provision of technical assistance, and carrying

out of studies to improve the water supply operations of DVK, including studies for hydraulic

modeling, and for design of pressure zones and SCADA system; and (v) Implementation of

training programs for DVK staff.

Component 4. Implementation Support (US$ 1.78 million of which IDA US$ 1.78 million): The component will provide project Implementation support including (i) design and supervision

of works; (ii) project implementation unit operating costs, and (iii) annual project audits.

Safeguard policies triggered?

Environmental Assessment (OP/BP 4.01)

Natural Habitats (OP/BP 4.04)

Forests (OP/BP 4.36)

Pest Management (OP 4.09)

Physical Cultural Resources (OP/BP 4.11)

Indigenous Peoples (OP/BP 4.10)

Involuntary Resettlement (OP/BP 4.12)

Safety of Dams (OP/BP 4.37)

Projects on International Waterways (OP/BP 7.50)

Projects in Disputed Areas (OP/BP 7.60)

X Yes ○ No

○ Yes X No

○ Yes X No

○ Yes X No

○ Yes X No

○ Yes X No

X Yes ○ No

○ Yes X No

X Yes ○ No

○ Yes X No

Significant, non-standard conditions, if any, for:

Board presentation: N/a

Grant effectiveness:

The Subsidiary Agreement has been executed on behalf of the Recipient, the Project

Implementing Entity and the Municipality of Dushanbe.

The Recipient has adopted the Project Operational Manual, satisfactory to the Association.

Covenants applicable to project implementation:

Except as the Association shall otherwise agree, the Project Implementing Entity shall

not incur any debt unless a reasonable forecast of its revenues and expenditures shows

that the estimated net revenues for each fiscal year during the term of the debt to be

incurred shall be at least 1.2 time the estimated debt service requirements of the Project

Implementing Entity in such year on all its debt, including the debt to be incurred.

The Recipient shall take all the necessary measures, including reasonable annual

adjustments of water supply and sewerage tariffs and annual provision of subsidies to the

Project Implementing Entity, in order to maintain for each of the fiscal years of the

Project Implementing Entity after the fiscal year ending on December 31, 2011, a ratio of

total cash operating expenses to total cash operating revenues not higher than 0.90 and to

enable the Project Implementing Entity to collect effectively all operating revenues

related to its operations.

Upgrade/install automated accounting system with capacity to generate IFRs within 3

months of effectiveness

DVK will establish an internal audit unit within 6 months of effectiveness.

1

TAJIKISTAN

SECOND DUSHANBE WATER SUPPLY PROJECT

I. STRATEGIC CONTEXT

A. Country Context

1. Tajikistan is a land-locked country with mountains over 90 percent of its surface. Its

population of 7.3 million people is young and growing rapidly. A severe lack of employment

opportunities has led a large number of workers (up to 40 percent of the working population) to

seek better job prospects abroad—largely in Russia. The resulting dependence on remittances

increases the vulnerability of the Tajik economy. Tajikistan is also prone to natural disasters,

such as floods, mudflows, landslides, avalanches, earthquakes, droughts and epidemics. Heavy

rains in the spring of 2009 claimed lives and destroyed villages and arable land.

2. Immediately after independence, the country fell into a devastating civil war (1992–

1997). With the political stabilization that ensued and with the support of the international

community, economic growth has been robust, averaging 8.6 percent per year between 2000 and

2008. Tajikistan nevertheless remains the poorest country in the Europe and Central Asia (ECA)

region with a per capita gross national income (GNI) of US$560 and 41 percent of the population

below the poverty line. With stability, a more modern government based on democratic

principles has emerged, however, decision making remains centralized and political

accountability is limited.

3. Tajikistan shares a 1,400 km-long border with Afghanistan, and it is only separated from

Pakistan by the narrow Wakhan corridor. Tajikistan’s remoteness, unfavorable geopolitical

location, deteriorating Soviet-era transport networks, and weak governance and regulatory

frameworks pose significant barriers to international trade, connectivity and investment. In

2000–2008 economic growth was driven mainly by the restoration of fiscal discipline and

macroeconomic stability, which stimulated consumption, production and investment and was

facilitated by implementation of structural reforms to liberalize the economy. In the past decade,

positive impacts also resulted from a favorable external environment: world prices for cotton and

aluminium—Tajikistan’s two main export commodities—soared, while growth in Russia and

other partner countries boosted demand for Tajik labor. The resulting remittances fuelled a

consumption boom, which helped support buoyant growth in real gross domestic product (GDP)

during the period. With its dependence on commodity exports, such as aluminium, cotton and

labor, accounting for 51.8 percent of GDP in 2008 (measured through remittances), Tajikistan

was hit hard by the global economic crisis.

4. Despite progress in some areas, it is unlikely that Tajikistan will achieve its Millennium

Development Goals (MDG) by 2015. The indicators related to infant mortality (per 1,000 live

births), under-five mortality (per 1,000 live births), and maternal mortality (per 100,000 live

births) stand at 56, 68 and 97 compared to the 2015 MDG targets of 25, 30 and 30 respectively.

The incidence of tuberculosis and HIV/AIDS has been increasing, whereas the use of

contraception and knowledge of HIV/AIDS prevention remains limited. Social sector

expenditure remains lower than in other Commonwealth of Independent States (CIS) countries.

Despite efforts to improve its social sector, the quality of education and health services remains

2

below Soviet-era levels. A large proportion of the population still has only limited access to basic

services. The social safety-net system established to protect the vulnerable and unemployed is

rudimentary.

B. Sector and Institutional Context

5. Water supply service covers about 59 percent of the population.1 Coverage averages 93

percent in urban areas and is almost universal in the capital Dushanbe. Access to service in rural

areas, however, is inadequate and lags substantially at 47 percent. Water quality in most

communities does not meet national drinking standards, and service interruptions are frequent.

Furthermore, only 14 percent of the population has access to centralized sanitation services (44

percent in urban areas and 3 percent in rural areas). This impacts people’s health negatively and

adds a burden to daily household management, inevitably affecting women and children. Water

supply and sanitation (WSS) infrastructure, largely inherited from the Soviet era, is deteriorating

quickly and is plagued by poor operation and maintenance. In general, sector institutions and

providers have weak capacity. Since decentralization in 1997, institutional arrangements have

changed significantly. Tajikistan lacks a ministry responsible for WSS planning, policy

development and regulation. The central government has transferred virtually all of its

responsibilities for urban water delivery and sewerage services to the municipalities (Hukumats).

A central agency, Khojagii Manziliyu Kommunali (KMK), retains regulatory oversight and

provides operational and investment support to all municipal operators, except for the capital city

Dushanbe.

6. The Dushanbe WSS utility or Dushanbe Vodokanal (DVK) is set up as an independent

―State Unitary Enterprise,‖ operating de facto under close and undivided control by the

Municipality. Dushanbe features a fairly developed yet degraded WSS infrastructure. Decades of

underinvestment with limited technical and managerial capacity have caused water losses and

consumption to reach extremely high levels by international standards with demand approaching

1000 litre/capita/day (l/c/d). Most residents have a home or yard connection, but service is of

poor quality. Pressure is often insufficient, and service frequently discontinued in summer,

especially in the upper floors of apartment buildings. Inadequately treated ―brown‖ water, high

in suspended solids, is occasionally distributed after strong rains increase raw water turbidity in

the Varzob River (which provides 50 percent of DVK’s supplies). DVK’s customer service

performance is particularly weak: door-to-door controllers issue handwritten bills for cash

payment and achieve extremely low collection levels. The extensive sewerage network suffers

substantial degradation and saturation, resulting in chronic sewer overflows. A decrepit

secondary wastewater treatment plant reduces pollution marginally with serious environmental

impacts on the Varzob River.

7. To date, the World Bank, the European Bank for Reconstruction and Development

(EBRD) and the Swiss Cooperation are Tajikistan’s main partners for water supply

rehabilitation. The World Bank-financed improvements to urban services have mainly focused

on water supply through two ongoing operations, the Dushanbe Water Supply Project (DWSP)

and the Municipal Infrastructure Development Project (MIDP), targeting eight provincial towns.

1 MDG target for 2015 is 79 percent

3

8. DWSP implementation, launched in 2002 and due to close in June 2011, has had major

delays linked to DVK capacity and governance weaknesses, as well as the termination of the

management contract operator responsible for project implementation and utility operations

improvement. More recently import restrictions on equipment and materials shipped via

Uzbekistan have also delayed DWSP completion. Implementation challenges aside, it is

generally accepted that DWSP will have contributed2 to tangible improvements in the reliability,

safety and quality of Dushanbe’s water supply. Almost 40 km of pipe network were replaced,

pumping facilities for groundwater extraction upgraded, energy-efficient equipment installed,

filter and chlorination systems partially renovated, and production and consumption meters

purchased. DVK’s technical and managerial capacity as modern utility, however, has only

improved marginally.

9. In Dushanbe, the need for vast infrastructure upgrades remains unattended. A

comprehensive 2010 feasibility study of WSS rehabilitation, renewal and expansion

requirements3 assesses the 2011-2035 investment needs at about US$400 million, including the

development of new remote water sources and the extensive upgrading of sewage collection and

treatment systems. Over the period 2010-2017, urgent unfunded needs have been assessed to

exceed $40 million. In this seven-year horizon, targeted rehabilitation is needed to strengthen

water supply reliability and quality, including the critical renewal of pumping and storage

facilities, as well as filtration and chlorination capacity. In a medium-term strategic perspective,

multi-year system-wide demand management investments are needed to reduce losses and

wasteful water uses, improve operational cost efficiency, and foster DVK's long-term

sustainability.

10. On the institutional side, DVK continues to feature weak technical and managerial

capacity, limited focus on customer service and cost recovery, and hands-on involvement by the

Municipality in utility decision making. Stronger management capacity, performance incentives

and institutional governance are needed to bring about change.

C. Higher Level Objectives to which the Project Contributes

11. For the period FY10-13, water, including the improved provision of WSS services, is a

priority in the Country Partnership Strategy (CPS) between the Government of the Republic of

Tajikistan (GORT) and the Bank, together with improvements in public service governance.

12. Dushanbe continues to feature one of the worst water supply services among CIS

capitals, constraining the fulfilment of the city’s economic potential. The project will afford

critical improvements in water and service quality, as well as in revenue collection and financial

sustainability. These will, in turn, improve health outcomes and quality of life for Dushanbe's

population, while facilitating economic activity and freeing municipal resources for other

productive investments. Importantly in the medium term, the project is expected to promote

greater accountability in water usage and utility management, setting DVK on a path of more

sustainable and efficient service and resource management. Given its limited funding against

vast program needs, the project is also likely to leverage fruitful collaboration with other donors.

2 Along with other investments by the Islamic Development Bank

3 GWCC and TBW Tajikistan, 2010

4

II. PROJECT DEVELOPMENT OBJECTIVES

A. Project Development Objectives

13. The proposed project development objective (PDO) is to improve water utility

performance and water supply services in selected areas of Dushanbe.

14. The PDO is the result of project scope maturation with DVK and the Municipality. It

reconciles the city’s pressing dual imperatives for safe and satisfactory public service and for

improved financial performance. Considering the scale of rehabilitation and upgrade needs and

the limited available funding, the targeted improvements cannot be achieved system wide but

rather in selected DVK service areas. The objective is to be attained through (i) water treatment

and distribution infrastructure upgrades to achieve water quality and service improvements

noticeable by customers, (ii) metering programs and improved billing and collection systems to

quickly enhance revenue generation while improving customer service, and (iii) technical

assistance and capacity-building activities to strengthen DVK’s management and operational

performance. Achievement of the objective will be measured through improvements in water

quality for selected areas of Dushanbe, in service satisfaction and in revenue collection and

financial viability of DVK.

Project Beneficiaries

15. The project beneficiaries are the people of Dushanbe connected to the water supply

network and receiving DVK services. Most of Dushanbe’s 700,000 inhabitants, regardless of

their income level, face hardship caused by inadequate water supply services. Given the very

high rate of connection to the water supply network, tangible improvements in the quality,

delivery and efficiency of potable water services are expected to benefit the great majority of the

population, including its poorer segments. The social analysis and customer survey done during

project preparation and through implementation will be an important means to inform and

involve beneficiary groups and to address their needs.

16. The intermediate project beneficiary is the Dushanbe Vodokanal (DVK). The provision

of targeted technical assistance throughout project implementation aims to improve management,

operational and technical knowledge within the utility. Furthermore, project activities and

investments will help set DVK on a path of improved compliance, customer service and financial

viability.

17. Effective metering and billing practices are expected to reduce water demands and bring

associated economic and environmental benefits. Improvements in drinking water quality and

water supply system operation are expected to bring health benefits and respond to a priority

expressed clearly by the population.

PDO-level Results Indicators

18. The Project Development Objective will be measured by the following main indicators:

5

Indicator one: Water quality in the network. This indicator is measured through the most

relevant three parameters for the Dushanbe water supply systems: turbidity in the network,

concentration of residual chlorine in the network and bacteriological water quality.

Indicator two: Customer satisfaction with water supply service. Currently DVK has no

technical means to describe city service levels in detail (hourly duration of regular supply,

average number of ad hoc service interruptions and network water quality on the consumer

side). Indicators will be measured through customer satisfaction surveys (baseline, first

follow-up survey at midterm and yearly surveys to follow), which should target about 10

percent of system customers (about 1,600 households). The survey will measure main

indicators: number of people satisfied with water quality and number of people receiving

continuous water supply (24-hour service).

Indicator three: Improvement of DVK's financial performance. This indicator will be

measured through the following parameters: financial operating ratio,4 increase in the

number of registered customers in DVK's billing database, increased billing and collection

rates as reflected in improved accounts receivable collections (as percent of revenue)

19. These indicators will provide information on DVK's service quality and performance

(water safety and quality, customer satisfaction, and improved revenue and cost recovery) in

Dushanbe. Other indicators to be monitored during the project are intermediate results indicators

specific to various project components. The measurement will be done in accordance with the

project implementation schedule.

III. PROJECT DESCRIPTION

A. Project Components

20. The project includes four components:

Component 1. Metering and Demand Management (US$ 7.62 million of which IDA US$

5.97 million): The component will finance consumption metering and bulk metering of

water, for increased revenue, reduced wastage, and better tracking of losses, including: (i)

supply and installation of 76,500 residential meters (i.e. approximately 46% of DVK users)

and installation of 1,500 apartment building master meters in selected areas of the city; (ii)

rehabilitation of 1,500 apartment building service connections; (iii) supply and installation

of bulk flow meters at water production facilities; (iv) supply and installation of a Network

Information System (NIS); (v) communication strategy and public awareness campaigns to

promote metering and demand management; and (vi) installation of SCADA system.

Component 2. Water Quality Improvement (US$ 6.27 million of which IDA US$ 4.91

million): The component will support system upgrades for improved quality of water,

including: (i) partial renewal of filtration capacity at Samotechnaya WTP (SAM); (ii)

4 The working ratio, as defined in the financing agreement (ratio of cash operating expenditures/cash operating

revenues) is to be less than 0.9.

6

network cleaning; (iii) installation of in-network re-chlorination systems; (iv) equipment for

water quality monitoring; (v) reconstruction of pumping station and tanks at the Napornaya

WTP (NAP); and (vi) procurement of maintenance equipment.

Component 3. Institutional Strengthening and Capacity Building (US$ 3.34 million of

which IDA US$3.34 million): The component will finance activities to build institutional

capacity and improve utility performance of DVK, which includes (i) Carrying out an

assessment of DVK’s organizational and capacity-building needs; (ii) Installation of modern

accounting, billing and water revenue collection systems; (iii) Provision of technical

assistance to the management of DVK to improve its financial performance; (iv) Provision

of technical assistance, and carrying out of studies to improve the water supply operations of

DVK, including studies for hydraulic modelling, and for design of pressure zones and

SCADA system; and (v) Implementation of training programs for DVK staff.

Component 4. Implementation Support (US$ 1.78 million of which IDA US$ 1.78

million): The component will provide project Implementation support including (i) design

and supervision of works; (ii) project implementation unit operating costs, and (iii) annual

project audits.

21. Operational Performance Improvement Action Plan. The above project investments may

not suffice to achieve the sought-after transformation of DVK into a well-performing service

provider unless the Municipality and DVK are also committed to an Operational Performance

Improvement Action Plan (OPIAP). DVK and the Municipality have agreed to follow such an

OPIAP and will submit it to Bank approval as a condition to negotiations. Indicative OPIAP

tasks are outlined in Annex 2, Part B. The OPIAP will be further detailed and updated at project

inception with the support of the Project Management Consultant (PMC).

B. Project Financing

22. The project is a stand-alone US$19 million investment operation to be funded by a

US$16 million IDA 15 grant and US$3 million co-financing from the Municipality. The Ministry

of Finance would transfer the IDA $16 million to DVK as a grant for the exclusive benefit of the

project with no requirement for repayment of principal or interest. In exchange the Ministry of

Finance (MOF) expects the Municipality to provide counterpart co-financing of US$3 million.

GORT thus seeks to help DVK improve its dire financial situation, while inducing stronger

municipal oversight and accountability for DVK performance. MOF and the Municipality agreed

that such a short term loan from the Municipality to the DVK would carry no interest.

23. The Second Dushanbe Water Supply Project (DWSP2) investment scope was selectively

excerpted from a proposed DVK Priority Investment Program (PIP) estimated at US$47 million

(before taxes)1 and fully described in section VI-D and Annex 2 of this PAD. Additional funding

remains to be secured by DVK to finance other PIP needs. European donors, including EBRD,

the European Investment Bank (EIB) and the Investment Facility for Central Asia (IFCA) have

expressed interest to that effect. In November 2010, a joint World Bank, EBRD and EIB

preparation mission took place; however, as of March 2011, no European financing commitment

had been formalized.

7

Lending Instrument

24. The lending instrument is a Specific Investment Loan (SIL) in the form of a US$16

million IDA grant to GORT.

25. MOF has agreed to pass the grant through to DVK on the same grant terms (unlike the

previous project, no interest or principal repayments are due to MOF from DVK), whereas co-

financing funds will be made available from the Municipality to DVK on soft terms. A

Subsidiary Agreement acceptable to the Bank will be entered into between MOF, DVK and the

Municipality to reflect these arrangements.

26. The Municipality will provide the US$3 million co-financing to DVK on soft terms with

a commitment fee and repayment of principal. As a performance incentive, the commitment fee

may be softened if DVK satisfies certain financial performance milestones agreed with the

Municipality. Improvements sought may include increased billing and collection; registering and

billing all DVK customers by the end of the project's first year; overhaul and automation of the

billing and accounting departments; and streamlining the role of collectors no later than the

project's second year.

Project Cost and Financing

Table 2 Investment by Component 2011-2016 (US$ million)

Note: 7 percent contingency has been included in each component

Component

Total Cost

US$m

IDA US$ % IDA

Component 1: Metering and Demand Management 7.62 5.97 78

i)   Consumption metering : Installation of 76,500 residential meters and 1,500 master meters;

ii) Rehabilitation of apartment building connections.

iii)  Bulk metering

iv) Supply and installation of a Network Information System (NIS)

v)   Communications strategy and public awareness campaign.

vi) Installation of SCADA

Component 2: Water quality improvement 6.27 4.91 78

i) SAM filters reconstruction

ii) Network cleaning

iii) In-network rechlorination systems

iv) Water quality monitoring units;

v) Reconstruction of pumping station and tanks at NAP

vi) Procurement of maintenance equipment (hydraulic excavator)

Component 3: Institutional strengthening and capacity building 3.34 3.34 100

i)    Institutional Assessment

ii)    Modernization of accounting and, billing and collection systems

iii)    Technical Assistance for corporate development and financial performance

iv) Technical Assistance and studies for operational improvements

v) Training programs

Component 4: Implementation Support 1.78 1.78 100

i) Design and supervision of works

ii) Project management operating costs

iii) Annual audits

Totals (may not sum up due to rounding) 19.00 16.00 84

8

C. Lessons Learned and Reflected in the Project Design

27. There are several lessons to be learned from the first IDA financed project:

Governance Assessment: A Governance Assessment carried out by the World Bank as part

of project preparation confirms a critical need to improve DVK’s institutional capacity and

management quality if project outcomes are to be achieved in a timely manner in the short

term. More importantly DVK's sustainability and its future operations will be jeopardized if

steps are not taken to improve its overall governance, particularly in instituting improved

managerial accountability, operational transparency, staff incentives, and internal and

external communication. The Governance Assessment revealed the following issues

plaguing DVK performance (refer to Annex 8 for details): i) poor management capacity; ii)

lack of motivating performance incentives for staff; iii) weak accountability; iv) lack of

access to information; v) nonpayment or underpayment of user fees; and vi) lack of a

monitoring and evaluation (M&E) system. Within this context and given the limited project

funding, it is pertinent that the Municipality and DVK commit to improving DVK's

governance and overall performance in parallel with project implementation to ensure DVK

sustainability in the future

Alternative Approaches to Promote DVK and Project Performance. DWSP2 success is

dependent on better DVK performance in the areas of project implementation, utility

management and institutional governance. Based on client consultations, DWSP supervisory

experience, and the findings of a governance factors5 analysis (see Annex 8), project design

opts for different implementation arrangements than in DWSP. With the express support of

the Municipality, all project implementation oversight tasks and technical assistance will be

entrusted to a single Project Management Consultant (PMC) firm with relevant international

experience. The PMC will support and report to DVK. By comparison, since termination of

its service contract private operator, DWSP has been implemented by DVK with the support

of a Project Coordination Unit (PCU) of locally hired individual consultants reporting to the

Municipality. Utility operations will remain DVK's full responsibility with the support of

limited advisory resident technical assistance provided by the PMC and without the

introduction of a private public partnership with a management contract operator. DVK’s

commitments to improve utility operations will be embedded in the OPIAP. Finally, the

project deems it is premature to seek fundamental reforms of DVK status and by laws as a

means to reduce municipal interference with utility decision making. Rather, the project

recognizes the Municipality’s control of DVK and seeks to promote transparency, capacity

building and performance incentives for DVK managers and for DVK as a service provider

to render less frequent municipal involvement.

Relevant Level of Implementation Support is Required. The project combines infrastructure

investments with delicate institutional strengthening and capacity-building activities in a

challenging low capacity and weak governance environment. Supervision by the Bank will

require a relevant mix of technical expertise, spanning water supply engineering and utility

management and operations, as well as fiduciary expertise, with adequate frequency of

5 Supported by Governance Progress Facility in place for Tajikistan.

9

missions. During the first two years of the project, supervision missions will be needed at

least three times a year and subsequently twice a year.

IV. IMPLEMENTATION

A. Institutional and Implementation Arrangements

28. The recipient of the grant is the Ministry of Finance (MOF). The Dushanbe Vodokanal,

operating under the control of the Municipality of Dushanbe, is the implementing agency for the

project and the manager of project assets. The Municipality of Dushanbe will provide co-

financing for the project.

29. An internationally recruited Project Management Consultant (PMC) firm will provide

project management tasks, as well as technical assistance and capacity building for DVK. The

PMC will be responsible for managing and overseeing all project implementation tasks,

including (i) oversight of project procurement activities; (ii) oversight of project financial

management activities; (iii) oversight of detailed design preparation; (iv) works supervision; (v)

reporting; and (vi) training program coordination. The PMC will also oversee the delivery of the

institutional assessment. Finally, the PMC will provide a team of resident and short-term senior

experts and advisors qualified to provide utility management and operations technical assistance

to DVK’s director and managers. DVK will be responsible for collecting all data required for

project M&E and reporting.

30. The overall project financial management function, including budgeting, accounting,

reporting, internal control, funds flow and audit, will be the responsibility of DVK with support

of the PMC. This arrangement differs from DWSP and its additional financing in which the

PCU, established by DVK and the Municipality, has been responsible for fiduciary

responsibilities and implementation of the project. There will be limited ring fencing of the

fiduciary functions, including the use of dedicated Designated Account, maintenance of project-

specific financial management system and independent audit by auditors satisfactory to IDA.

B. Results Monitoring and Evaluation

31. The Results Framework and indicators for DWSP2 have been designed to be realistic and

measurable. DVK will retain the responsibility of data collection for the monitoring and

evaluation activities of DWSP2. The baseline data are available as collected during the DWSP

implementation and by the feasibility study prepared for DWSP2. Monitoring and evaluation of

project outcomes and results during its implementation will follow standard World Bank

practice. DVK will collect the data, and the PMC will compile the updated data in regular project

reports (quarterly and yearly) and in conjunction with World Bank missions. Indicators, which

require additional data or surveys (for example, the social and customer satisfaction survey) for

their measurement, will be collected at least three times during the course of the project: a

baseline survey currently under implementation for DWSP, a mid-term survey and an end-of-

project survey. The reports shall be published in a form accessible to DVK management,

Municipality of Dushanbe and other interested stakeholders. Core indicator number 4 has been

included as the number of household connections affected by the project rehabilitation works

(and metering) will be measurable. Given the already very high rate of connectivity to the main

10

network in Dushanbe, Core indicator number 1, as defined by the World Health Organization

(WHO) parameters, is not expected to provide relevant progress information.

32. DVK will be responsible for data collection for measuring the indicators: engineers will

be responsible for assessment of technical indicators; DVK financial staff will be responsible for

assessment of the state of DVK's financial viability and reporting on the financial indicators in

the progress reports. Financial data and assessments, including covenants, will be verified in the

annual audits. The overall responsibility for collection of data and issuance of the M&E reports

will be with an M&E specialist hired under the project. The assessment methodology has been

developed under the DWSP by a dedicated M&E consultant.

33. The Mid-term Review (MTR) will be conducted after completion of the project's second

year and will be focused on the review of results achieved under the project, as well as validation

of planned activities for the each project component.

C. Sustainability

34. DWSP2 will build on the achievements and experience of predecessor DWSP to improve

the sustainability of project investments and of DVK operations. The following include several

dimensions of sustainability that are taken into account:

Sustainability of project investments: Investments were prioritized to respect the client’s

paramount objective of increasing operational revenue, thus benefitting from a high level of

client ownership. The quality of design and works will be improved by reliance on an

internationally recruited PMC resident within DVK for the entire project duration. The

operation and maintenance of the infrastructure, equipment and systems provided under the

project will be relatively simple and manageable by duly-trained DVK personnel. The

project will further promote adequate private sector involvement in tasks with more

substantial ―modernization‖ contents, such as the turnkey delivery and initial operation of

rapid sand filters at SAM and the outsourcing of telephony-based billing, collection and

payments systems.

Institutional sustainability and performance of DVK: Despite some inefficiencies associated

with the institutional capture of DVK by the Municipality exemplified by hands-on

involvement in utility management and investment decision making, the project will not

pursue institutional reform of DVK as a condition for performance improvement. By

adopting simple and modest performance objectives focused on delivering potable water, on

improving billing and collection, and on metering consumptions (objectives that are

understood by DVK and the Municipality and are within their capabilities with outcomes

that customers will feel immediately), the project opts to empower gradual self-

improvement of utility performance. By providing advisory PMC technical assistance to

DVK’s management and operations, the project relies on client leadership to effect change

in DVK through project-funded investments. A DVK-supplied OPIAP embodies DVK’s and

the Municipality’s commitment to such discrete performance improvement steps. The

project further assumes that increased managerial capacity, coupled with new performance

incentives and relevant communication of performance goals, will not only result in service

quality and performance gains but will also reduce the need for municipal interference. In

11

the process, the frequent advisory support of Bank supervision missions will play an

important role. Beyond DWSP2’s strategic seeding, continued investment in DVK

infrastructure, systems and capacity modernization will be essential to sustain and expand

such gains. As a corollary activity to the project, the Bank will also seek to initiate and

mobilize funding for a South-South knowledge transfer partnership between DVK and the St

Petersburg Vodokanal.

Financial sustainability of DVK. In addition to the above, the new project should afford a

net gain in financial sustainability because its investments, although largely revenue

generating, will be financed by a grant. The mobilization of substantial unbilled and

uncollected revenues is expected to provide quick results for DVK, deferring the need for

substantial tariff adjustments. On a more fundamental level, the project will introduce

systematic metering in parts of Dushanbe, initiating the transition to accountable water

service—essential for the long-term financial sustainability of any utility.

D. Conditions for Effectiveness

35. The following are conditions for effectiveness:

The Subsidiary Agreement has been executed on behalf of the Recipient, the Project

Implementing Entity and the Municipality of Dushanbe.

The Recipient has adopted the Project Operational Manual satisfactory to the Association.

V. KEY RISKS AND MITIGATION MEASURES

36. The overall project risks are rated medium, impact-driven (M-I) and considered

manageable through planned mitigation measures. Potential risks are summarized in the

Operational Risk Assessment Framework (see Annex IV).

37. Implementation risks, such as associated with low DVK technical, management and

fiduciary capacity, are mitigated by relying on a private PMC to oversee project implementation

tasks, including procurement, disbursements and reporting, managing the design and works

supervision tasks, and providing technical assistance to DVK operations. Committing DVK and

the Municipality to the OPIAP will further mitigate utility management weaknesses and

municipal interference with the project and utility decision making. Component 3 of the project

focuses on institutional assessment and strengthening of DVK, as well as technical assistance

and training to build DVK's technical, financial and managerial capacity. A governance

assessment study financed through the Governance Partnership Facility (GPF) of the World

Bank also recommended measures to achieve better DVK corporate governance and lessen direct

Municipality influence in utility operations and investments to ensure results.

38. Dushanbe water users express high demand for improved quality of water supply service,

as well as reduced tolerance for service disruptions. In general users accept well the minor tariff

adjustments applied annually by DVK. More substantial increases, such as in 2008, do not cause

open discontent if preceded by noticeable service improvements. Acceptance of meter-based

billing and of new tariffs will be assessed by the GORT through ad hoc user surveys and

supported by relevant wide public information campaigns and focused interventions to ensure

effective asset rehabilitation with limited disruptions to service.

12

39. Project objective risk to DVK's financial sustainability lies in any backtracking on

commitments or delays in improving the billing and collection of the vodokanal, as the

installation of the payment system is a dated covenant. This would also impact the project’s

objective to reduce high wastage in the system. Relying on tariff increases will not ensure

sustainability without improvements in services and equity in payments. This risk is mitigated by

a high awareness among officials and their commitment to improved billing and collections.

Additionally a sustained public information and outreach program must accompany the

investments to highlight the water supply services improvements, spread awareness of bill

payment to maintain the system, and advise on avoiding water wastage, along with other public

health messages. Another project risk is the increased indebtedness of DVK that might make it

difficult for the company to reach the financial indicators. A covenant in the legal agreement and

agreement of the Government to pass the grant to DVK mitigates this risk.

40. There is also a risk that the project may negatively affect certain vulnerable consumer

groups through the higher tariffs and more stringent usage monitoring and collection system. The

social analysis and consumer satisfaction survey is designed to identify such potential groups and

mitigate the negative impacts. This risk is not expected to be high as all households in Dushanbe

are already included in the water authority's current billing network.

VI. APPRAISAL SUMMARY

A. Economic and Financial Analysis

41. Financial Analysis – Current Situation. DVK’s financial situation is weak. On the

revenue side, DVK bills its customers on a per capita norm consumption basis, and households

increasingly underreport the number of users. DVK currently registers (and bills) about 48

percent of Dushanbe citizens receiving its service, which is neither sustainable nor equitable.

Accounts receivable are about 25 percent of annual revenues and can be improved. Despite the

reported decline in consumers, DVK increased its revenue through substantial tariff increases

when tariffs doubled in 2008 and increased by about 15 percent in 2009. Budgetary and

commercial customers, however, pay three and seven times more than households respectively.

On the expenditure side, DVK operates at very low production cost levels, and it is not likely

that such costs can be reduced further. Production staff salaries are very low at 15 percent of total

cost of goods sold, while electricity costs (30 percent) are high due to unnecessarily high

volumes of produced and wasted water (about 75 percent). Other nonproduction costs (including

administrative and selling costs) are very high, and in 2009 reached 44 percent of DVK’s total

operating costs, resulting in negative income. The current cash operating ratio (an indicator) is

1.07, meaning expenditures exceed revenues (before payment of interest). This situation can be

corrected once the billing and collection system is operational. Technical assistance provided in

the project will recommend adjustments to align costs and focus resources on the greatest needs.

42. Debt. The Government’s decision to pass on the IDA grant terms to DVK (without

requiring DVK to repay principal or interest) is absolutely necessary to put DVK on a

sustainable path to financial recovery. Currently DVK is responsible for repaying MOF the

principal of the credit and the grant of DWSP. MOF also charges interest, which will soon reach

5 percent. The debt repayment (interest and principal) is estimated to reach 2.6 million TJS in

13

2011 on the existing DWSP credits and grant. DVK’s debt situation is critical and does not meet

tests such as the debt/asset ratio at 1.04 in 2009, which indicates its debt is just about equal to its

assets. A recommended healthy ratio is not more than 50 percent. Additionally in the long term,

DVK is exposed to a foreign exchange risk with the debt denominated in US$. Any additional

debt to DVK should be evaluated carefully to ensure the Bank’s covenant on debt/service ratio is

met and to ensure the long-term viability of DVK.

43. Projections and NPV calculations. Behind the financial and economic analysis, the main

assumption for project success in achieving financial sustainability is the improvement in

recording, billing and collection from the vast majority of customers. It is assumed that this will

be accomplished in the project's first year given the high level of awareness among officials at

both local and central government levels. Advanced steps are being taken to achieve these

actions. Projections of DVK income, expenditure and cost recovery tariffs are based on

estimated water demand increases, reductions in water waste, and improved billing and

collections. Major cost items added to the projections include depreciation and maintenance

costs of the new investments. Based on the assumption that DVK, with the support of the

Municipality, undertakes the actions prescribed under the project (improvements in billing and

collection, including alignment in the internal organization, debt relief and tariff increases) and

the very soft IDA financing terms, the financial net present value of the investments are high and

reach TJS 183 million and the financial rate of return approaches 30 percent.

44. Economic Analysis. Without the project, the main economic costs will include continuous

waste of water and electricity at high levels of water production. Lack of maintenance will

accelerate the deterioration of the water supply facilities in the city and erode benefits currently

accruing from the present system, while maintaining a weak billing and collection culture. In

broader economic terms, not undertaking the project will have substantial economic costs on

DVK as a provider of basic services to the capital of the country and on Dushanbe’s economy

and future development and growth prospects. With the project, additional capital investment

costs and larger operations and maintenance costs will be required. On the benefits side, the

project will allow for (a) reduction in electricity costs; (b) reduction of losses of economically

valuable water; and (c) increase of water supply to additional Dushanbe residents. Using these

assumptions and a discount rate of 10 percent, the project is economically justified with an

internal rate of return approaching 100 percent. Increases in costs and reductions in benefits of

20 percent each will keep the economic rate of return high at an estimated 75 percent. The

project includes other benefits that are difficult to quantify. There are costs to securing a clean

and reliable water supply, including fetching, boiling or other treatment. Water borne diseases

continue to be reported in Dushanbe due to inadequately treated water. Information on these

external economic costs is not available in a manner sufficient to attribute to the costs of

inadequate water supply (e.g., handwashing and other hygiene measures contribute directly to

reductions in water borne diseases but need the supply of clean water). Nevertheless these costs

are real to the beneficiaries and to the economy and providing clean water can reduce them.

45. Affordability. At the current tariff rates and using 2009 Tajik monthly poverty line and

extreme poverty line (TJS 162 and 104 respectively), household expenditures on water are

affordable (for a family of four) at 0.87 percent and 1.36 percent of these poverty rates

respectively. The average full coverage tariff, however, will require tariff increases that would

14

make household expenditure on water difficult to afford for very poor one-income families at 2.9

and 4.5 percent of the mentioned poverty lines. Nevertheless as mentioned above, the households

pay less than the average tariff, while budgetary and commercial units pay three to seven times

higher tariffs. In general, projected average cost recovery tariff is about three times current

tariffs. The Municipality and GORT’s Anti-Monopoly Committee will review annually DVK's

financial situation based on actual data of revenues, collections and costs to determine the

appropriate tariffs, subsidy levels and other actions required to ensure its sustainability. Tariff

adjustment proposals may also benefit from an updated social assessment and periodic customer

surveys, as well as from expert advisory technical assistance by the PMC.

46. Fiscal Impact. As a grant with no repayment requirements, the IDA grant repayment will

not have a fiscal or affordability impact on the national or municipal government budgets. The

Municipality of Dushanbe will be required to contribute US$3 million equivalent over the five-

year life of the project. Based on figures provided by the Municipality, the municipal budget is

growing by about 30 percent over 2010-2011. The largest part of this growth has been in capital

expenditures, while growth in current expenditure remained at a modest 10 percent. The total

contribution required from the Municipality is about 2 percent of its total budget and 4 percent of

its capital expenditure budget, and will not represent a significant burden on its financial

capacity.

B. Technical

47. The project can only cover a limited portion of DVK’s Priority Investment Program

(PIP). Targeting investments for the available US$16 million IDA grant amid overall PIP needs

estimated at US$47 million is a delicate process. The proposed scope is the result of extensive

optimization consultations with DVK and the Municipality, accounting for the uncertainty

affecting the potential availability of other sources of parallel financing, such as that envisioned

with European donors.

48. IDA investments will maximize meter installation for revenue generation and demand

management, which is expected to allow the metering of about 40 percent of DVK’s customer

base. Critical rehabilitation investments to improve water quality are retained in the project to the

extent that they are necessary to avoid blockage of meters by turbid water. Visible water quality

improvements will also create customer goodwill to accept new metering, billing and collection

practices. The project scope, will also fit investments for optimization of network operation

(pressure zoning, energy efficiency, SCADA systems), which would accelerate improvement of

service pressure in high apartment building during summer months.

49. By renewing filters at SAM, the project will complete the restoration of DVK’s filtration

capacity initiated by DWSP with the installation of Napornaya Water Treatment Plant (NAP) filters

and will ensure the lasting distribution of filtered, non turbid water in Dushanbe. The project opts

to renew only 50 percent of the SAM filtering capacity with the assumption that all water savings

gains induced by metering and demand management programs across DVK’s service areas will

translate in reduced demand for SAM production.

50. Project component implementation will apply all modern materials and technology.

Accurate designs and selection of appropriate solutions will precede physical investment.

15

Modern and adequate quality materials and equipment will be purchased for the rehabilitation

works and installations. Capacity building and technical assistance will be sought from

competent experts with extensive international experience in the field of utility management and

service provision.

C. Financial Management

51. The financial management arrangements established for the ongoing DWSP are

satisfactory and can be replicated for the proposed DWSP2. Under the ongoing DWSP (which

will close in June 2011), the PCU is responsible for the financial management function. DVK is

involved in the payments process through approval of invoices and works completion statements,

as well as payment requests prepared by the PCU. Both DVK and PCU have installed automated

accounting system, using the 1C accounting software. The accounting system has limited utility

as the installation was only about 60 percent complete. At DVK the accounting system is used

mainly for cash, bank and payroll transactions. All reports by DVK and PCU are prepared

manually.

52. Based on the assessment of DVK’s financial management capacity, it was determined

that the DWSP financial management arrangement will change, and DVK would be able to

maintain the project accounting system for the proposed project. The chief accountant of DVK

would be responsible for the project financial management system but would require the

assistance of a financial management consultant to be provided by the PMC to establish an

effective project accounting system and to maintain the system during project implementation.

To meet the minimum financial management requirements of the World Bank, DVK would need

to implement the following actions: (i) install a new accounting system, preferably the latest

version of 1C software (8.0); (ii) fully document the financial management procedures

(budgeting, accounting, reporting, internal control, audit) in a manual of financial procedures;

and (iii) receive the support of a financial management consultant to assist the chief accountant

in handling day to day project financial management and disbursement functions.

53. The project operating manual (POM) has to be updated to reflect activities under the

proposed project and the changes to the financial management responsibilities. DVK will submit

unaudited interim financial reports on a quarterly basis, and the project and entity financial

statements will be subject to audit by independent auditors and under Terms of Reference (TOR)

satisfactory to IDA. The project will also be subject to risk-based financial management reviews,

initially after every six months as part of the project implementation support. The entity financial

statements will be required to monitor financial performance and as part of DVK's institutional

strengthening, including the modernization of accounting and of billing and collection systems.

D. Procurement

54. The PMC shall absorb functions fulfilled by the currently existing PCU established for

implementation of the ongoing DWSP, including responsibility for carrying out project

procurement. The PMC will work in close collaboration with DVK staff to ensure knowledge

transfer to DVK procurement staff through on-the-job training and to build procurement capacity

within the water supply service. A procurement capacity assessment was carried out at DVK,

revealing little existing procurement capacity and no established internal procurement

16

procedures. Procurement delays due to these factors were identified as a main procurement risk.

Experience with DWSP indicates that procurement in the country does not attract adequate

competition. To mitigate these risks, experienced procurement consultants of PMC should be

engaged to support the DVK procurement team. The Bank team will closely supervise and

monitor the procurement processes and provide support to facilitate capacity development in

procurement. Procurement packages will be developed to ensure competition in line with the

market of procured items. More details on procurement arrangements are provided in Annex 3.

55. Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by

IBRD Loans and IDA Credits and Grants, dated October 15, 2006 and updated in January 2011,

shall apply to this project.

E. Social (including safeguards)

56. The project's social development objectives focus on (a) ensuring that the water supply

service needs and constraints of all categories of customers are addressed; (b) specifically

ensuring that the needs and constraints of the economically and socially vulnerable sub-groups

are recognized and addressed; and (c) putting in place mechanisms for customer information,

feedback and involvement in relevant aspects of the service provided.

57. To facilitate achievement of these objectives, the project focuses on both the demand and

supply side of water provision. The main tool used is a Customer Satisfaction and Social

Analysis Study, which will be completed at the beginning of the project and will be repeated

annually during implementation. The main purpose of this study is to develop a baseline on

customer satisfaction, willingness and capacity to pay, and perceived needs and gaps in current

service provision. It will also feed into completing the evaluation of DWSP. The study findings

will specifically provide guidance on the following aspects of project design: (a) identify specific

areas and customers who may be more disadvantaged and underserviced; (b) specify priorities of

customers that link to their willingness and ability to pay; (c) inform indicators for project

monitoring on beneficiary impact; (d) provide information to better target the awareness

campaign on reducing water usage; and (e) highlight preferences linked to improving the image

of the service provider. In addition, the study will inform activities in the sector, such as tariff

structure and payment procedures, which will impact project outcomes.

58. The study uses a mix of quantitative and qualitative data, supplementing interviews with

some focus group discussions across the different user groups. The methodology ensures that a

comprehensive set of criteria are used to cover (a) users of different income levels; (b) the four

different water sources; (c) categories of housing (house versus apartment block); (d) floor of

residence (top versus ground); (e) different geographical regions of the city; (f) views of

nonhouseholds, particularly businesses, on water services and tariffs; and (g) peak and low water

seasons.

59. The study will serve as a baseline to measure project impact, as well as to provide a

framework within which ongoing project impacts on customers are monitored. It is expected that

follow up data will be collected once or twice a year during each year of project implementation,

so the impact of project activities initiated in that year and the resulting changes in customer

satisfaction can be captured. The follow up studies are expected to be conducted in a shorter

17

period: they will focus only on specific issues and will target the users affected by specific

activities implemented in that period.

60. The final survey at the end of project will be more comprehensive to capture

improvements in customer satisfaction and overall project impacts, both those directly linked to

project-financed activities and those with indirect impacts resulting from the general

improvement of the utility and sector.

61. Involuntary Resettlement OP 4.12 is triggered. Since these detailed impacts will only be

known once project implementation commences and technical designs are finalized, the

possibility of land acquisition and restrictions in access cannot be ruled out at this stage. The

project has developed and disclosed a Resettlement Policy Framework (RPF), which will inform

all activities involving land acquisition, restriction of access to land or services and loss of assets.

The completed prefeasibility studies indicate that the project will largely be limited to

rehabilitation of existing structures. The planned filters at SAM and the water pumping station

and tanks at NAP will be built on the premises of DVK where there are no activities or

residences. However, as project design is further detailed, there is a possibility that some

construction may exceed available land and may have to take place on sites not yet identified.

Further, some land within residence compounds may have to be temporarily used or accessed for

works, such as excavation of trenches. In addition if sanitary protection areas need to be

established to avoid water source contamination at the water treatment plants, the identified areas

will need to be cleared of settlements (if any) and existing structures. Further, certain polluting

and quality threatening activities will be restricted (e.g., livestock access) in the designated

sanitary protection area. This activity will also include some mitigation measures, such as

installation of fences, septic tanks and drains.

62. The RPF identifies the possible impacts from project activities, describes the range of

potential impacts (temporary and permanent) to land use, access and structures, and specifies the

compensation rates and procedures for the same. Where there is a gap between national and

World Bank procedures, the latter will prevail for all activities financed under this project. The

RPF will serve as a screening device to ascertain if there will be any impacts resulting from

project activities. If any impacts are identified, the Borrower will develop relevant Resettlement

Action Plans as described in the RPF, which will detail the specific impact and compensation

and present it to the World Bank for approval. No civil works will commence until the World

Bank approves such plans. The RPF will be implemented by DVK with the support of the PMC

and with assistance from the Municipality who has authority on land acquisition issues in

Dushanbe.

F. Environment (including safeguards)

63. The project is qualified as category B and would support rehabilitation works equivalent

in nature to those of the predecessor DWSP on water supply systems (rehabilitation of pumping

station facilities and water reservoirs; renovation of the chlorination facilities and of rapid sand

filters; replacement of distribution network; and rehabilitation, replacement or installation of

production water meters), which are not expected to generate significant environmental and

social impacts. Potential adverse impacts relate to (i) inappropriate disposal of water treatment

sludge; (ii) safety hazards from the chlorination process; (iii) pollution by construction site run

18

off; (iv) disturbances during construction, including by dust, noise, vibration, access restriction,

closure of roads and increased traffic; (v) improper disposal of demolition debris; (vi) damage to

existing utility services during pipe repairs and installation; (vii) safety hazards from

construction activities; (viii) spillage of fuel and oil from construction; and (ix) damage to trees

and vegetative cover. At the same time, the project is expected to bring significant environmental

and health benefits, such as improvements in public health through better quality and availability

of treated water and improvements in the sustainability of raw water sources through reductions

in losses and wastage.

64. As the nature of the work to be financed under the project does not change compared to

DWSP, the current Environmental Management and Monitoring Plan (EMMP) for DWSP will

be applied. The document specifies required mitigation measures for the project activities that

are standard and widely used in construction projects. The EMMP stipulates all contracts for

construction works will include requirements for implementation of the specific measures, as per

EMMP provisions and good construction practices. Furthermore, daily control and monitoring of

construction works will be part of responsibilities of the PMC. The quality of drinking water

supply will be monitored according to national standards, using new laboratory equipment to be

financed by the project.

65. The project does not impact cultural property or natural habitats. The Borrower and DVK

are familiar with the World Bank's Safeguard Policies. The Bank team will continue to closely

monitor EMMP implementation, providing relevant assistance and capacity building. The

EMMP has been disclosed locally and in the InfoShop.

G. Other Safeguards Policies triggered (if required)

66. The project, as it predecessor DWSP1, continues to finance investments in rehabilitation

of water supply and sanitation infrastructure within the Amu Darya river watershed which

extends into Uzbekistan and Turkmenistan. Accordingly the project triggers O.P. 7.50

―International Waterways‖. The Bank has considered these aspects and is satisfied that because

of its rehabilitation and demand management focus the project will not (i) cause appreciable

harm to the other riparians as it will not adversely change the quality or quantity of water flows,

and (ii) it will not be appreciably harmed by the other riparians' possible water use. Thus an

exception to the notification requirements has been granted on the grounds that the project

involves rehabilitation or reconstruction of currently operating schemes (including the pumping

station and tanks at Napornaya WTP, which are required to replace decaying assets. The project

investments will not increase the volume of water abstraction, nor affect the rights of other users.

Further, the project aims to improve efficiency of water use and to substantially reduce

Dushanbe’s high water consumption rates.

H. Readiness:

67. This is a repeat project, the objectives and scope of which are defined and agreed with the

Client. The feasibility studies are very thorough in their technical and cost estimates. The PCU of

DWSP1 is drafting the TOR for the detailed engineering designs. The draft revision of the POM

to include updated financial management chapters was finalized before negotiations. The Client

19

also submitted their draft OPIAP. The task team is working with the Client on the preparation of

the PMC's TOR to accelerate its recruitment and selection will be completed by the end of 2011.

20

Fig. 1 Project Implementation Plan

A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D

1 Preparatory Works/Tender Preparation

1.1 Preparation of ToR for the PMC and tendering

1.2 Preparation of the TOR for detail designs SAM filters

1.3 Preparation of TORs for design of pumping station and reservoir at NAP

2 Implementation Support

2.1 PMC hired

2.2 Tendering works for cleaning the water supply system

3.2 Feasibil ity Study, Designs, Tender Documents and tendering for SAM filters

4.2 Designs, tender docuemnts and tendering of NAP pumping station

5.2 Detailed Designs, Tender Documents and tendering for Chlorination Plants

6.2 Tendering of Laboratory Equipment

7.2 Tendering Phase for Procurement of Water Meters and Service Connections

8.2 Preparation of tech. spec. and tendering for SCADA

9.2 Supervision of Works

2.9 Audits

3 Component 1 -- Metering and Demand Management

3.1 Procurement and installation of Bil l ing Software

3.2 Procurement of consumption water meters

3.2 Installation of Water Meters and Service Connections

- Pilot Zone

- Groundwater Zones (SWW/KAF)

3.4 Procurment and installation of Production Meters

3.5 Installation of SCADA

4 Component 2--Water Quality and Efficiency Improvement

4.1 Maintenance Works for cleaning the water supply system

4.2 Construction of Filters at SAM Treatment Plant

4.3 Installation of rechlorination units

4.4 Reconstruction of NAP pumping station and tank

4.5 Water Quality Monitoring/Laboratory equipment

4.6 Procurment of hydraulic excavator

5 Component 3 -- Institutional Strengthening

5.1 Institutional assessment

5.2 Procurement of Software NIS/Hydraulic modelling

5.3 TA for water quality monitoring unit and Laboratory

5.4 TA for Operational Performance Improvement (Long-term)

5.5 TA for Operational Performance Improvement (Short term expert pool)

5.6 TA on SCADA and Hydraulic Modelling and pressure zones

5.7 Training

5.8 TA for Corporate Development and Finance

5.9 Development of a demand management strategy

5.10 Development of a metering and bil l ing strategy and program

5.11 Tariffs, planning and budgeting, Financial modelling

5.12 Support Accounting department

5.13 Implementing bil l ing and metering program

5.14 Capacity building in HR management

5.15 Customer Relationship Management

5.16 Support of Legal department

2012 2013 2014 2015

Year 2 Year 3 Year 4Preparation Year 5

E

F

F

E

C

T

I

V

E

N

E

S

S

Corporate Development & Financial Performance Improvement

Operational Performance Improvement

TasksN°Year 1

2011

21

Annex 1: Results Framework and Monitoring

TAJIKISTAN DUSHANBE SECOND WATER SUPPLY AND SANITATION PROJECT

Results Framework

Project Development Objective (PDO): Improve water utility performance and water supply services in selected areas of Dushanbe.

PDO Level Results Indicators*

Co

re Unit of

Measure Baseline

Cumulative Target Values**

Frequency

Data

Source/

Metho

dology

Responsi

bility for

Data

Collectio

n

Descriptio

n

(indicat

or

definiti

on, etc.)

YR 1 YR 2 YR3 YR 4 YR5

Indicator One: Water quality in

the network:

Parameter 1: Turbidity in the

network

Mg/l; 2009: 40%

of samples

comply

with the

standard

(MAC* is

2mg/l)

To start the

design of

the SAM

filters

To start

constructio

n of SAM

filters

To start

operation

of the

SAM

filters;

99% of

samples

comply

with the

standard

99% of

samples

comply

with the

standard

99% of

samples

comply with

the standard

Accessed

annually,

based on

daily

measureme

nts by

DVK

DVK

laborat

ory

DVK/

PMC

Improvement of

indicators is

subject to

successful

operation of

NAP filters,

construction and

operation of

SAM filters, and

partial washing

of the network.

Parameter 2: Residual chlorine

in the network:

% 2009: 98%

of samples

show

residual Cl

Design and

installation

of

rechlorinati

on

equipment

in the

network

Completion

and start up

of the re

chlorinatio

n

equipment

in the

network

99% of

samples

show

residual

Cl

99% of

samples

show

residual Cl

99% of

samples

show

residual Cl

Accessed

annually,

based on

daily

measureme

nts by

DVK

DVK

laborat

ory

DVK/

PMC

Note: sensitivity

of the test is

0,02 mg/l of Cl

concentration-

this is a

traceable

border.

The indicator is

subject to

installation of

rechlorination

systems and

general

reduction of

turbidity in the

network.

Parameter 3: Bacteriological

water quality:

% 2009: 96%

of samples

comply

Subject to

improveme

nt of water

Subject to

improveme

nt of water

99% of

samples

comply

99% of

samples

comply

99% of

samples

comply with

Accessed

annually,

based on

DVK

laborat

ory

DVK/

PMC

The indicators

are subject to

reduction of

22

with the

standard

(MAC* is 3

coli

forms/l)

treatment at

SAM and

NAP and re

chlorinatio

n in the

network

treatment at

SAM and

NAP and re

chlorinatio

n in the

network

with the

standard

with the

standard

the standard daily

measureme

nts by

DVK

turbidity in the

network and

presence of

residual Cl in

the network.

Indicator Two: Customer

satisfaction with water supply

services

In the absence of relevant technical data on the

quality of water supply services in DVK (due to the

lack of relevant technical means), the selected

parameters and characterizing customer’s opinion on

water quality were selected as indicators to measure

the project progress.

Parameter 1: Improved water

quality (in general) - Percentage

of customers, satisfied with water

quality

% 2010 TBD

by the

Customer

Satisfaction

Survey,

conducted

under the

DWSSP 1

No changes

are

excepted

No changes

are

expected

Improved Improved Improved Measures

annually

starting

year 3 of

the project

Survey

by

PMC/

DVK

DVK/

PMC

Note: the target

value will be set

after the

baseline will be

determined

under the

DWSSP 1.

Parameter 2: Availability of ws

services- Percentage of customers

with 24h of ws service per day

% 70% of

population

have 24h

per day

access to

ws

services; to

be revised

based on

the results

of 2011

Customer

Satisfaction

Survey

(DWSSP) 2

No changes

are

excepted

No changes

are

expected

Improvem

ents due

to

installed

meters

Improveme

nts due to

installed

meters

90% of

customers

receive 24h

services; the

final target

will be

revised after

hydraulic

model is in

place

Before the

start of the

project;

progress is

measured

in the

middle and

at the end

of the

project

Survey

by

PMC/

DVK

and

data

from

hydrau

lic

model

DVK/

PMC

Hydraulic

model will be

developed by

the project.

Indicator Three: Improvement of

financial performance of DVK

Parameter 1: Cash operating

ratio has improved

ratio 2009: 1,07

Setting of

project

accounts,

no target is

imposed

To reach 1 Not

higher

than 0,9

Not higher

than 0,9

Not higher

than 0,9

Annually PMC/

DVK

DVK/P

MC

Financial

working ratio of

total cash

operating

expenses

(excluding

interest and

other charges

on debt) to total

cash operating

23

revenues;

ideally should

be less then 1;

improvement of

ratio means

increase of

revenues (if

revenues grow

faster then

expenses).

Parameter 2: Number of

residential customer registered

and billed.

Num

ber

2009:

154,000

residential

customers

or 340 495

people

Intensive

inventorying

of customers

should take

place

By the end of

2011 the

baseline

number

should be

increased to

cover reflect

the actual l

population of

Dushanbe

(plus the

service area

in Rudaki

rayon)

To reach

actual

population

of the DVK

service area

To reach

actual

population

of the DVK

service area

To reach

actual

population

of the DVK

service area

Annually PMC/

DVK

DVK/P

MC

Officially,

population in

Dushanbe is

720,000 people,

plus the

population in

the service area

in Rudaki rayon

should be

reflected.

The baseline

data are taken

from the

feasibility study

report.

Parameter 3: Accounts

receivable as % of revenue

% 25% Gradual

decrease

towards

15%

Gradual

decrease

towards

15%

15% 15% 15% Annually PMC/

DVK

DVK/P

MC

Reaching the

target by the

end of the year

3 is subject to

overall

improvement of

water quality in

the system.

INTERMEDIATE RESULTS

Component 1: Demand management

component

Intermediate Result indicator 1: Number

of household connections impacted by

the project: (Installation of meters and

rehabilitation of service connections in

the pilot area)

core

in

dic

ato

r

Num

ber of

meter

s

instal

led

2887

individual

residential

meters;

about 700

non

residential

consumers

are billed

on the pipe

Preparation

of the

component

Implementa

tion is in

progress

Implemen

tation is in

progress

Implementa

tion is in

progress

76,500

meters

installed in

ground

water area

and about

1500 service

connections

are

rehabilitated

In

accordance

with

project

implementa

tion

schedule

PMC/

DVK

DVK/P

MC

Nonresiden

tial

consumers

should be

encouraged

to install

meters at

their own

expense.

Service

24

diameter

basis

connection

is from the

network to

the

apartment

building.

Intermidiate result indicator 2:

Installation of SCADA and NIS with

technical assistance

Syste

ms

instal

led

and

functi

oning

Partial

hydraulic

modeling

in pilot

zones only

Preparation

of technical

specification

s

Procureme

nt and

installation/

training

TA and

training

continued

System in

operation

System in

operation

In

accordance

with

project

implementa

tion

schedule

DVK DVK

Component 2: Water quality and

reliability improvement

Intermediate Result Indicator1:

Improvement of water turbidity at the

outlet of SAM

% 2009: 90%

of samples

do not

comply

with the

standard

(MAC is

2mg/l)

To start the

design of

the SAM

filters

To start

constructio

n of SAM

filters

To start

operation

of the

SAM

filters;

99% of

samples

comply

with the

standard

99% of

samples

comply

with the

standard

99% of

samples

comply with

the standard

Accessed

annually,

based on

daily

measureme

nts by

DVK

DVK

laborat

ory

DVK/

PMC

Intermediate result indicator 2:

Improvement of water turbidity at the

outlet of NAP

% 2009: 70%

of samples

do not

comply

with the

standard

MAC

(2mg/l);

At the end

of the year

filters are

in

operation,

99% of

samples

comply

with the

standard

99% of

samples

comply

with

standard

MAC

99% of

samples

comply

with

standard

MAC

99% of

samples

comply

with

standard

MAC

99% of

samples

comply with

standard

MAC

Accessed

annually,

based on

daily

measureme

nts by

DVK

DVK

laborat

ory

DVK/

PMC

Illustration:

max daily

average in

2009 was

8,6 mg/l.

Intermediate result indicator 3:

Operational improvement of DVK:

Parameter 1: Per person water

production in the system

m3/p

erson

2009: 938

lcd

No changes

are

expected

No changes

are

expected

About

40% of

population

will

reduce

their

Same as for

year 3;

To be

reduced by

50% for

these 40% of

the

population

Annually DVK/

PMC

PMC 2009:

246700

000m3 per

about

720000 p-n

(without

25

consumpti

on by

50% as a

result of

metering;

system

wide

reduction

by 20% is

expected

who will be

metered;

system wide

reduction of

consumption

by 20% is

expected

Rudaki

rayon).

Parameter 2: Yearly energy

consumption (only ws services)

kWh 2009 (ws

system

only): 112

037 073

kWh

No changes

are

expected

No changes

are

expected

To be

reduced

by 10%

systems

wide

Same as for

year 3

To be

reduced by

10% systems

wide

Annually DVK/

PMC

PMC Total

energy

consumptio

n 2009 (ws

and

sewerage):

116 257 21

0 kWh.

Intermediate Result indicator 4:

Construction and commissioning of

SAM treatment plant

Fact

of

opera

tion

2010: not

available

Design of

the filters

Start of

constructio

n of filters

at SAM

Start of

the

operation

of filters

at SAM

Filters are

in

operation

Constructed

and in

operation

In

accordance

with

project

implementa

tion

schedule

PMC/

DVK

PMC

Intermediate Result indicator5:

Introduction of rechlorination systems

in the network

2010:

New

disinfection

(Cl) system

at SAM

Preparation

of the

component;

Implementa

tion has

started

Implemen

tation is

completed

3 reservoirs

in the

network

stations

have new

re-

chlorinatio

n

equipment

3 reservoirs

in the

network

stations have

new

rechlorinatio

n equipment

In

accordance

with

project

implementa

tion

schedule

PMC/

DVK

PMC 3 reservoirs

(zone III,

Bahar and

Suhrob).

Intermediate Result indicator 6: Supply

of modern water testing laboratory

equipment to DVK

Fact

of

suppl

y and

com

missi

oning

Current

outdated

equipment

used by

DVK

laboratories

Procureme

nt is

prepared

Equipment

is

purchased;

New

equipment

is

functionin

g;

New

equipment

is

functioning

New

equipment is

functioning

to support

required

water testing

In

accordance

with

project

implementa

tion

schedule

PMC/

DVK

PMC New

equipment

is aimed at

the support

of the

existing

testing.

Intermediate Result Indicator 7:

Reconstruction of Napornaya pumping

station and tanks

Fact

of

opera

tion

2010:

reached its

limit

Preparation

of designs

Tenders

and works

begin

Works

continued

commissio

ning

New

pumping

station and

tanks are in

operation

In

accordance

with

project

implementa

PMC/

DVK

PMC

26

tion

schedule

Component 3: Institutional

strengthening

Intermediate Result indicator1:

Improvement in billing

Fact

of

impro

veme

nt

Billing

software is

not used by

DVK; the

billing is

based on

norms and

assumption

s

Setting of

accounts

and transfer

to billing

systems;

Billing is in

operation

Billing is

in

operation

Billing is in

operation

Billing is in

operation

In

accordance

with

project

implementa

tion

schedule

PMC/

DVK

PMC

Intermediate Result indicator 2.

Completion of the water supply master

plan

Fact

of

comp

letion

Not

developed

in DVK

Works

have

started

Works are

in progress

Works are

in

progress

State of the

progress

Water

supply

master plan

is completed

In

accordance

with

project

implementa

tion

schedule

PMC/

DVK

PMC

Intermediate Result indicator 3.

Completion of training in monitoring

of energy costs and energy audit

Fact

of

comp

letion

DVK

doesn’t

have the

methodolog

y for

conducting

the energy

audit

No changes

are

expected

Training

and audit

have

started

Training

is in

progress

Completed

and in use

by the staff

of DVK

Completed

and in use

by the staff

of DVK

In

accordance

with

project

implementa

tion

schedule

PMC/

DVK

PMC

*Please indicate whether the indicator is a Core Sector Indicator (see further http://coreindicators)

**Target values should be entered for the years data will be available, not necessarily annually.

27

Annex 2: Detailed Project Description

1. This annex is divided in two parts: Part A ―Detailed Description of Components,‖ and

Part B ―Operational Performance Improvement Action Plan.‖

Annex 2 - PART A: Detailed Components Description

2. This section discusses the tasks and investments in each component, including

implementation aspects.

Component 1. Metering and Demand Management (US$ 7.62 million of which IDA US$

5.97 million): The component will finance consumption metering and bulk metering of

water, for increased revenue, reduced wastage, and better tracking of losses, including: (i)

supply and installation of 76,500 residential meters (i.e. approximately 46% of DVK users)

and installation of 1,500 apartment building master meters in selected areas of the city; (ii)

rehabilitation of 1,500 apartment building service connections; (iii) supply and installation

of bulk flow meters at water production facilities; (iv) supply and installation of a Network

Information System (NIS); (v) communication strategy and public awareness campaigns to

promote metering and demand management; (vi) installation of SCADA system.

Subcomponent 1a: Consumption Metering (partial coverage): The project will finance

procurement and installation of 76,500 residential meters, allowing metering of about 46

percent of DVK's individual customers. About 1,500 master meters are already procured and

available to DVK will also be installed to measure volumes entering apartment buildings

before distribution to individual apartments, which will cover about 50 percent of

Dushanbe’s apartment buildings. The project will also provide for the any required

rehabilitation of the master service connections linking the apartment buildings being

metered to the network. The very high water consumption in Dushanbe is due to water

wastage, undeclared consumption by customers, and water losses within the buildings and

house connections. It is important to note, however, that little information is available

regarding the quantity of water lost and its distribution to the above mentioned loss and

wastage components. According to DVK’s assessment (GWCC report 2010) about 77

percent of the total water losses are attributable to service connections and internal

plumbing. Per capita consumption measured at apartment block buildings amounts up to

1,000 liters/capita/day. As part of a demand management program, the project will thus

tackle the difficult problem of reducing losses associated with leaks in the common piping in

apartment buildings, upstream of individual apartment meters and plumbing. Once losses in

common areas are measured, the Municipality is prepared to make the apartment building

associations and residents accountable to pay for leaked volumes or to repair leaking pipes

in their building common areas.

Subcomponent 1b: Bulk Metering: To address the water balancing in the Dushanbe system,

the project will install flow meters at all four production stations (NAP, SAM, KAF and

SWW) so that DVK can start measuring what is produced and correlate this with distributed

volumes to better assess water losses.

28

Subcomponent 1c: Communication and Public Awareness Campaign: Installation of meters

and the subsequent improvement in billing and collection under the project will require a

change in consumer habits. Improved water supply service will result in an increase in

consumption levels, which will require public awareness campaigns promoting good water

consumption and hygiene practices. The project will finance the development and

implementation of a communications strategy for DVK that will aim to promote DVK’s

image in improving water services in Dushanbe. As part of this effort, the project will

finance the establishment of a DVK website to improve transparency and public access to

information on current and on-going projects undertaken by the utility and to manage pubic

discontentment with regard to increased tariffs, etc. This subcomponent will also finance

multimedia awareness campaigns.

Subcomponent 1d: Installation SCADA with associated Technical Assistance. In order to

optimize the metering and demand management component the project will finance the

installation a SCADA system. This hardware will be accompanied by specific TA provided

by the PMC to build the capacity of DVK to operate and maintain the systems installed.

Component 2. Water Quality Improvement (US$ 6.27 million of which IDA US$ 4.91

million): The component will support system upgrades for improved quality of water,

including: (i) partial renewal of filtration capacity at Samotechnaya WTP (SAM); (ii)

network cleaning; (iii) installation of in-network re-chlorination systems; (iv) equipment for

water quality monitoring; (v) reconstruction of pumping station and tanks at the Napornaya

WTP (NAP); and (vi) procurement of maintenance equipment.

DVK faces chronic difficulties in providing potable water to its customers because of the

lack of working filtration capacity at the SAM and NAP water treatment plants. While the

situation has improved with the rehabilitation of SAM sedimentation ponds and the pending

commissioning of NAP filters under DWSP, high water turbidity associated with storms can

still get through the treatment plants and enter the network, resulting in ―brown‖ water being

distributed to clients. These accidents have historically also led to the silting of some areas

of the network and of most network storage tanks. The situation must be corrected not only

to ensure potable water service for customers, but also to avoid blockage of newly installed

meters by silt and sand particles. The project, therefore, will clean by flushing selected parts

the water supply network and the reservoirs, which silted up during previous years with the

high content of suspended solids that existed when SAM and NAP sedimentation and

coagulation ponds were out of operation. During the past two years, only a small part of the

network and reservoirs has been cleaned due to DVK's limited resources. Cleaning of the

network is a compulsory step before introducing demand management, as water meters

cannot be installed in water with a high content of suspended solids. Chlorination can only

work effectively to improve water quality if the network has been cleaned. Therefore,

outsourcing the cleaning works to a contractor as soon as possible is recommended.

Subcomponent 2a: Renovation of SAM: Although water quality has been improved

considerably at the SAM outlet during the past five years (renovation of sedimentation pond,

construction of new chlorination plant), the key element in the treatment chain, namely the

29

rapid sand filter station has not yet been renovated. High turbidity at SAM (20 mg/l) is due

to (i) poor performance of coagulation and sedimentation treatment step and (ii) lack of

operational rapid sand filters. The high turbidity rates are causing (i) high chlorine

consumption; (ii) ineffective disinfection with related health risks for consumers; (iii)

production of carcinogenic chlorine by-products; and (iv) injection of suspended solids into

the distribution system, causing tank sedimentation, pump, valve and meter dysfunctions.

Rapid sand filter units are clogged, and buildings (for example, roofs) are in poor structural

condition. Automation equipment and valves have been dismantled (IDB financing) but

have not been replaced; IDB decided not to continue financing of this investment

component. Metering and demand management programs are expected to substantially

reduce water consumption within the next decade. Accordingly, it is expected that part of

the existing production capacities (SAM, NAP, KAF, SWW) might no longer be required to

their full extent. There is, however, an imperative need to improve water quality from SAM

as early as possible to cover Dushanbe’s short- and medium-term water demands. As SAM

is the main production unit in Dushanbe and has the advantage of supplying water by gravity

to most of the supply area, DVK does not intend to cease its operation in the near future. It is

noteworthy that this investment component will enhance the demand management

component and allow more meters to be installed, as high turbidity in the network would

block consumption water meters. In summary, the SAM renovation is needed to improve

water quality and is an indispensable accompanying measure for metering and water

consumption reduction. Because of the uncertainty about the evolution of water demand in

Dushanbe, however, only 50 percent of SAM filtration capacity will be renewed.

Subcomponent 2b: Network Cleaning: DVK estimates that about 50 percent of the total

network (which corresponds to a length of about 370 km) has to be cleaned by flushing and

other hydraulic or mechanical means. Discrete segments of the network will be cleaned until

the purged water meets relevant turbidity and color criteria. This will apply mainly to

network sections that are supplied with surface water treated in SAM and NAP. An

estimated nine reservoirs with a total capacity of about 60,000 m³ and an estimated quantity

of sludge of 12,000 m³ also have to be cleaned. This subcomponent should include all

necessary auxiliary works for cleaning of about 40 percent of these pipes and reservoirs,

such as dismantling of valves, cutting and welding of dead-end pipes, sludge transport to a

landfill, etc. The works should be implemented with full mitigation of service disruptions,

including effective advance communications to the affected neighborhoods, streets and

customers, as well as effective management and disposal of liquid and solid waste to avoid

any flooding or soiling of streets or properties.

Subcomponent 2c: In-network Rechlorination Systems: This component will finance the

installation of secondary chlorination systems at selected distribution storage tanks to ensure

adequate residual chlorine levels are maintained in the distribution system. The systems will

rely on robust chlorinated lime dilution and mixing technology with none of the risks

associated with liquid or gas chlorination.

Subcomponent 2d: Water Quality Monitoring Equipment: This subcomponent will provide

for mobile water quality monitoring crews established to sample and test water quality

parameters in situ in the network, as well as laboratory equipment for DVK facilities.

30

Subcomponent 2e: Reconstruction of the pumping station and tanks at Napornaya WTP. The

existing pumping station in general is in very poor condition and has to be abandoned. The

building was constructed in 1932 and is in very bad shape (all civil works and in particular

the roof). The current structural condition of the building does not allow renovation of the

building. For this reason it is proposed to construct a new building at the location of the

existing warehouse. Pumps and other electromechanical equipment have already been

procured under DWSP 1. In addition to the new pumping station, the location of which

determines the new hydraulic layout, two new feeder reservoirs with a volume of 2,000 m³

(due to seismic regulations the second reservoir is required as reserve capacity) will be

necessary as equalizing tank between the filter building and the pumping station. One of the

existing reservoirs (1000 m³ and 500 m³) will be used to provide additional storage volume

in emergency cases.

Subcomponent 2f: Procurement of hydraulic excavator. The sedimentation ponds at SAM

and NAP station require regular cleaning but only SAM station has hydraulic excavators for

removal of sludge in the sedimentation pond. Manual cleaning is difficult to perform and

carries substantial health risks for workers involved (skin and respiratory infections due to

coagulants). It is a priority for DVK to acquire an excavator to be deployed at NAP WTP.

Component 3. Institutional Strengthening and Capacity Building (US$3.34 million of

which IDA US$3.34 million): The component will finance activities to build institutional

capacity and improve utility performance of DVK, which includes (i) Carrying out an

assessment of DVK’s organizational and capacity-building needs; (ii) Installation of modern

accounting, billing and water revenue collection systems; (iii) Provision of technical

assistance to the management of DVK to improve its financial performance; (iv) Provision

of technical assistance, and carrying out of studies to improve the water supply operations of

DVK, including studies for hydraulic modelling, and for design of pressure zones and

SCADA system; and (v) Implementation of training programs for DVK staff.

While the PMC will play a direct managerial and operational role in project implementation,

it will also oversee the delivery of the following subcontracted tasks under this component:

development of detail design, institutional assessment and staff training.

Subcomponent 3a: Institutional Assessment will be carried out to evaluate the current

capacity of DVK, its organizational structure and the operating environment influencing its

current non performance in delivering water service efficiently. This activity will include the

hiring of an international consultant to perform the assessment and recommend options for

DVK reorganization, modernization of management and operating procedures and

information systems, changes in staffing needs based on a functional review, improvements

in monitoring and evaluation, and options for mainstreaming performance incentives. The

assessment will also review compensation structures and performance incentive options. The

institutional assessment will build on the findings and recommendations of the Governance

Assessment of DVK carried out by the World Bank (attached as Annex 8).

31

Subcomponent 3b: Modernization of Accounting and Billing will be pursued through (i)

implementation of the automated system to assist DVK to effectively manage its customer

database, enhance its billing and collection processes for all customers, including those

provided by vendors of billing, collection and kiosk payment services, and (ii) the upgrade

and modernization of automated accounting system at DVK with built-in controls and

enhanced functions to meet operational requirements of improved business processes due to

the introduction of the automated billing/collection system and ensure reliability and

timeliness of financial reporting. Implementation of the subcomponent C1 will go along

with a functional review of DVK’s billing and collection operations and staffing.

Subcomponent 3c: Technical assistance (TA) for corporate development and financial

performance improvement includes support in the following areas: (i) corporate

development and finance; (ii) accounting department; (iii) accounting and customer

service/billing software; (iv) planning and budgeting of tariffs; (v) billing and metering

program; (vi) human resources functions; (vii) customer relationship management; and (viii)

measures to improve transparency, accountability and financial autonomy. This activity will

also pilot instituting performance-based incentives (monetary and nonmonetary) at DVK to

retain good staff, encourage better staff performance and improve overall DVK operational

performance. DVK modernization will be pursued through the reorganization of

management and operational capacities, modernization of procedures, promotion of utility

management performance, staffing of new operational needs, and outsourcing of some

utility functions.

Subcomponent 3d: TA for operational improvement includes i) resident TA for operation

and maintenance performance improvement; ii) hiring of short-term specialists for TA on

specific technical needs, i.e. hydraulic modelling, pressure zones and SCADA system

design.; iii) developing an assessment of seismic risks for SAM; iv) TA for a process

diagnostic and optimization study of the SAM coagulation/sedimentation ponds.

Subcomponent 3e: Staff Training will be performed by highly qualified institutional

development consultants. A training program will be developed and delivered based on the

results of the institutional assessment. The program could include on-the-job training,

technical training, and knowledge sharing with performing utilities either through video

conferences and/or study tours. Staff will also receive training on energy efficiency, water

quality monitoring, communications and customer service, among other things. To this end,

the training measures will contribute to improved operational performance (reduction of real

water losses, energy efficiency, proactive operation and maintenance, etc.) and to improved

service levels (water pressure, availability and reliability of water supply, water quality).

As a corollary activity to the project, the Bank will also facilitate the development and

funding of a South-South knowledge transfer and capacity-building partnership between

DVK and the St Petersburg Vodokanal.

Component 4. Implementation Support (US$ 1.78 million of which IDA US$ 1.78

million): The component will provide project Implementation support including (i) design

32

and supervision of works; (ii) project implementation unit operating costs, and (iii) annual

project audits.

The following tasks are included in this component:

• Supervision of network cleaning operations

• Engineering and supervision for SAM

• Tendering and supervision for demand management component

• Annual project audits

33

Annex 2 - Part B

Operational Performance and Improvement Action Plan (OPIAP)

1. Project investments may not suffice to achieve lasting performance outcomes unless

DVK organization and operations are also improved. In the absence of a contractual public-

private partnership (PPP) mechanism, such transformations cannot be directly affected by the

PMC but must be implemented by DVK and the Municipality.

2. DVK and the Municipality have thus agreed to develop and commit to an Operational

Performance Improvement Action Plan (OPIAP).

3. The following is a preliminary draft OPIAP outline based on commitments formulated by

DVK with key steps or tasks organized as strategic tasks. The Municipality and DVK will

provide management, staff and operating budgets for plan implementation. IDA will finance

investments and technical assistance. The indicative OPIAP outlined below remains to be

completed with other steps and tasks to be determined by the Municipality and DVK and

detailed with milestones, dates, responsibilities, resources needed and funding sources.

4. Submittal of an OPIAP outline by the Municipality and DVK, which is acceptable to the

Bank, will be a condition to engage IDA grant negotiations. The OPIAP will be adjusted,

detailed and finalized at the start of the project with the help of the PMC and periodically

updated as part of implementation. Once adopted, the OPIAP will be used to guide and monitor

DVK progress.

34

April 11, 2011 DRAFT

Second Dushanbe Water Supply Project

OPERATIONAL PERFORMANCE IMPROVEMENT ACTION PLAN (OPIAP)

Submitted for the development of SUE «Dushanbevodokanal»

Actions / Activity Responsible Implementation

date6

Description of follow-up actions / Comments

(i) Financial recovery of the DVK 1.1 Strategy for water use

management DVK, with PMC

support November 2011-

February 2012 1. Assessment of current situation, 2. Development of goals and objectives, 3. Development of strategy for achieving the goals and objectives, i.e.

installation of 65000 meters, master meters throughout all stations

of water production, rehabilitation of connection to house water

supply systems, supervision of works, operation and maintenance. 4. Procurement and installation of Network Information System (NIS)

with subsequent training. 5. Development and implementation of public information campaigns. 6. Assessment of resources for implementation. 7. Timeline for implementation.

1.2 Institutional assessment of

DVK Municipality, DVK

with PMC support October 2011-April

2012 1. Assessment of DVK management structure 2. Assessment of DVK performance and operations 3. Analysis of corporate culture of DVK 4. Analysis of performance incentives. 5. Analysis of HR management.

6. Assessment of costumer relations and public information 7. Assessment of resources required for implementation of

improvement strategy. 8. Timeline for implementation.

1.3 Technical support for

improving financial efficiency DVK, with PMC

support December 2011-

December 2013 1. Enhancement of financial management control system. 2. Development of a program aimed at reducing production costs. 3. Analysis of the causes of losses (physical and commercial) of the

6 Assuming that the Project becomes effective in August 2011.

35

enterprise, and development of action plan for reduction; 4. Develop and implement training programs for financial

improvement. 1.4 Tariffs Municipality, DVK

with support by

PMC

Analyses and

review every 6

months

1. Review of tariffs for all categories of consumers in order to prevent

over-consumption; 2. Optimization and update of structure of tariffs towards reduction of

water consumption (e.g. block tariffs). 3. Training of DVK staff to use, update and optimize the new tariffs

structure. 1.5 Implementation of the billing

and collection system

DVK, with PMC

support January 2012 -

December 2012 1. Inventory of consumers and registering newly identified

subscribers. 2. Purchase and installation of an automated payment system for DVK

by local company; 3. Procurement and implementation of new billing software,

accompanied by relevant training package; 4. Upgrade and modernize the customer database (including the

installation of new water meters). 5. Training for controllers and operators.

1.6 Support of Accounting

Department - Reform of accounting

system; - Systematization of

information; - Recover Lost Data (bad

debts); - Introduction of modern

methods of accounting and

reporting; - Automation system.

DVK, with PMC

support November 2011-

December 2015 1. Reorganization of financial management structure of the DVK. 2. Restructuring of financial management staffing scheme. Staff

development through trainings, certifications; 4. Develop and implement a system of performance rewards for

employees; 5. Setting service standards for the preparation of financial records and

financial statements. Control over the implementation deadlines; 6. Ordering the accounting system - the constant monitoring, careful

checking and rechecking reflect transactions in the account; 7. Development, approval and conformance of documents; 8. Rechecking of all analytical data accounting, ordering arisen

deviations and alignment with the necessary adjustments in

accordance with the data of analytic accounting and the ledger; 9. Full inventory of assests and fixed assts. 10. Based on the existing previously installed software 1C: Enterprise

7.7 introduced an updated version of 1C: Enterprise 8.0. 11. Continuation of training of employees of the enterprise accounting

under IFRS;

36

12. Support for accounting department. Short-term experts on specific

tasks (i.e., specialists in learning to use the software) should support

the company in improving the overall efficiency of the department. 13. Annual independent audit of projects and enterprises in the

submission of audit reports to the World Bank. 1.7 Development of human

resources capacity

DVK, with PMC

support June-July 2012 follow up activities

between January

2013- February

2015

1. Develop recommendations for improved management of human

resources; 2. Develop short, medium and long term strategies and plans for

capacity building to solve the urgent need to improve the capacity of staff of DVK. 3. Introduction salary schemes and incentives toward attracting and

retaining qualified staff. 4. Training

(ii) Improvement of Customer Service and Customer

Relationship

2.1 Managing relationships with

customers (including

consumer surveys and legal

support).

Municipality, DVK,

with PMC advice January 2012-

December 2013 1. Develop of recommendations for improving the management of

relations with consumers. 2. Develop short, medium and long-term strategy to address existing

weaknesses. 3. Capacity building to carry out consumer surveys regularly. 4. Strengthening of the legal department. 5. Training employees in professional approach with consumers. 6. Improve call center for receiving account/bill inquiries. 7. Improve call-in system to receive calls for service problems. 8. Report on changes in service and image of the company

(information campaigns, logo, website, uniform of controllers) 2.2 Public communication

strategy

Municipality, DVK,

with consultant

assistance

January 2012-

December 2015 1. Develop communication strategy to inform customers of:

DVK recovery goals,

New modernized billing/collection/metering practices

Investment program for water quality improvement

Service interruptions due to works

DVK news

etc.. 2. Establish DVK website 3. Conduct periodic customer surveys to assess the improvement of

service and of customer satisfaction

37

4. Communicate to the public results of service and performance

improvements (e.g. water quality, pressure, service interruptions, leaks

repaired, meters installed). (iii) Improving Water Supply Services 3.1 Reconstruction of filters on

Samotechnaya water station DVK with support of

PMC September 2011-

December 2013 1. Preparation of surveys , designs and tender documentation; 2. Tender; 3. Project Implementation; - demolition of existing nonfunctioning rapid sand filters; - Construction of new rapid filters; - supervision of works; - commissioning and operation.

3.2 Cleaning network and

reservoirs DVK and

Municipality with

support of PMC

September 2011-

June 2013 1. Survey and detection of the most silted sections of water supply

network and reservoirs; 2. Preparation of technical specifications, scope and tender documents 3. Tender; 4. Clean-up works; 5. Supervision of works.

3.3 Re-chlorination DVK with support of

PMC March 2012-

March 2013 1. Survey and preparation of technical specifications for equipment re-

chlorination and tender documents for the 5 reservoirs; 2. Tender; 3. Purchase and installation of equipment; 4. Supervision of works; 5. Exploitation.

3.4 Water quality equipment DVK with support of

PMC October 2012-

February 2013 1. Determination of the required laboratory equipment; 2. Preparation of specifications and tender documents; 3. Tendering and procurement of equipment; 4. Application.

3.5 Training of DVK staff to

operate and maintain the new

installations

DVK with support if

PMC September 2012 –

June 2014 1.Training on O&M of filters 2. Training on O&M of re-chlorination 3. Training on water quality monitoring 4. Training on O&M of water meters

3.6 Technical studies DVK with support

with PMC September 2011-

December 2013 1. Study for optimization of coagulation and sedimentation process at

SAM. 2. Study of seismic risk assessment & mitigation at SAM

3.7 Planning and implementation

of the program to provide the

Municipality, DVK

with support of PMC September 2011-

December 2015 1. Prepare multi-year strategy (goals, methods, plans, staffing, costs,

legal aspects, communication).

38

subscribers with meters 2. Initiate a program to provide the subscribers with meters in

apartment buildings. 3. Initiate a program to provide the subscribers with meters in private

homes. 4. Long-term information campaign (media, trust building).

5. Monthly evaluation of progress.

6. Mobilizing additional funding. 3.8 Planning and implementation

of demand management

program.

Municipality, DVK

with support of PMC September 2011-

December 2015 1. Prepare multi-year strategy (goals, methods, plans, staffing, costs,

and communication) 2. Installation of production meters.

3. Implement a program to prevent leaks in residential apartment

buildings. 4. Systematic leak detection and reduction in networks.

39

Annex 3: Implementation Arrangements

Figure 2 – DWSP2 implementation arrangements

1. Project institutional and implementation mechanisms are summarized in Figure 1. The

implementing agency for the project is the Dushanbe water and sewerage utility, Dushanbe

Vodokanal (DVK), which is set up as a ―State Unitary Enterprise‖ (SUE) operating under the

direct and undivided control of the Municipality of Dushanbe. Decades of underinvestment and

DVK’s limited technical and managerial capacity have led water supply services to decay rapidly

and to be in critical need for rehabilitation. At the same time, DVK’s capacity and institutional

profile require enhancement. The project will balance physical investments, targeted at

improving DVK’s revenues by extensive metering and improved collection, with improvement

in the water production infrastructure, as well as technical assistance and capacity building to

improve DVK’s performance as a utility. The latter will be provided by an internationally

recruited Project Management Consultant (PMC) who will also be responsible for the oversight

of project activities, including overseeing the procurement of works, goods and consulting

services for the project, as well as DVK’s financial management (FM) of the project.

Project Management Consultants (PMC)

2. The PMC will be hired internationally and will consist primarily of a highly experienced

Senior Utility Manager and a Senior Utility Operations Engineer. The Senior Utility Manager

who is also the Team Leader of the PMC will support the DVK Director by providing technical

and operational advice with regard DVK management. The key responsibility of the Senior

40

Utility Operations Engineer will be to assist DVK line managers to manage the day-to-day

activities of the project, such as procurement of goods and services, financial management,

project supervision and reporting. Although the PMC will also provide dedicated TA and

training in some select areas of DVK’s operation (see detailed description of components and

cost tables in this annex), it will only play a supervisory role with respect to certain tasks that

will be subcontracted: development of detailed design, Institutional Assessment and DVK staff

training. A key responsibility of the PMC will be to ensure implementation of agreed actions

outlined in the Operational Performance Improvement Action Plan (OPIAP) by the Municipality

and DVK.

Project Administration Mechanisms

3. To ensure a smooth transition between DWSP and DWSP2, an improvement in DVK

capacity and institutional profile, and adequate project administration, the functions of the

Project Coordination Unit (PCU), originally established under the Municipality of Dushanbe

(owner of DVK and ultimately responsible for the provision of water supply services in

Dushanbe), will be transferred to a PMC who will be responsible, together with DVK, for day-

to-day implementation of project activities. Specific functions, such as financial management,

will be largely implemented by DVK’s dedicated department with oversight by the PMC, which

will provide technical assistance and training. Procurement under the project will be processed

by the PMC. Unlike the DWSP, however, the PMC will be integrated and share tasks with DVK

to build DVK capacity. The PMC would be responsible for the following: overseeing day-to-day

project activities; coordinating with DVK, the Municipality of Dushanbe, auditing consultants

and overseeing data gathering by DVK.

4. Institutional Capacity. In order to ensure the long-term sustainability of service and

infrastructure, DVK must address institutional modernization and capacity-building needs.

Priority needs include the development of a customer service culture, backed by appropriate

systems and infrastructure, and the improvement of cost recovery performance and financial

autonomy. On a more fundamental level, DVK should tackle its human resources management

weaknesses to build a better-trained and qualified workforce and to attract and retain more

skilled personnel. Measures remain to be agreed to achieve better DVK corporate governance

and utility performance. A governance study is being carried out during project preparation that

will help identify and recommend implementable medium-term measures under the project to

strengthen DVK’s managerial and decision-making capacity, as well as improve accountability

and transparency through improved public access to information. Efforts will be made under the

governance study to clarify roles and responsibilities and to leverage existing corporate links of

DVK with the Dushanbe Municipality to improve utility operations. Following DWSP’s

unsuccessful experience, PPP approaches are not deemed readily feasible to promote institutional

modernization and capacity building. In the short term, DVK is not assessed as ready to undergo

―corporatization‖ for improved governance.

Financial Management (FM)

41

5. The overall project financial management function, including budgeting, accounting,

reporting, internal control, funds flow and audit, will be the responsibility of DVK. This is

different from the ongoing DWSP, including the additional financing (AF) in which the PCU

established by DVK and the Municipality of Dushanbe is responsible for fiduciary

responsibilities. DVK will be supported by the PMC and will establish and maintain a project

financial management system capable of generating interim financial reports to be used for

monitoring fiduciary aspects of project implementation.

6. The inherent risk of the project is rated as high, while the control risk is rated substantial

with the overall FM risk being substantial. After satisfactory implementation of the mitigation

measures, the overall FM risk will be moderate. The table below lists the actions required to

ensure satisfactory financial management system by effectiveness.

Recommended Action Responsibility Deadline POM to be updated to include financial management chapters,

including project accounting and reporting, funds flow, audit

arrangements, disbursement procedures, etc.

DVK Draft by

negotiations

Upgrade/install automated accounting system with capacity to

generate IFRs DVK

Within 3 months of

effectiveness

Recruitment of PMC to include financial management consultant

to support chief accountant and be responsible for project financial

management and disbursement functions

DVK Effectiveness

Training of financial management staff on financial management

and disbursement procedures of the World Bank World Bank

During project

implementation

Establish an internal audit unit to be responsible for continuous

review of the internal control function, as a well as administrative,

operational and financial activities of DVK

DVK Within 6 months of

effectiveness

7. Budgeting and Planning. DVK will be responsible for timely preparation of project

budgets based on the procurement plan. Project budgets, prepared on an annual basis, will form

the basis for allocating funds to project activities. The budgets will be prepared in enough detail,

by activities and account codes, and broken down by quarter. Annual budgets should be agreed

with IDA before final approval, and approved annual budgets will then be entered into the

accounting system and used for periodic comparison with actual results as part of the interim

financial reporting.

8. Flow of Funds. The proceeds of the IDA Grant will be disbursed over a period of five

years or for such longer period as will be agreed with IDA. Project funds will flow from IDA

through the following mechanisms: (i) via a single designated account operated by DVK (to be

replenished in accordance with guidelines in the disbursement letter); (ii) reimbursement with

full documentation; (iii) direct payments from the Grant Account with full documentation; (iv)

special commitments.

9. Accounting and Records. The accounting system used by DVK is largely manual,

although an automated accounting system has been installed and used for certain functions,

including payroll. DVK's accounting system will be strengthened to enable tracking of all project

financial transactions and timely generation of interim financial reports. The automated

accounting system established under the original DWSP will be upgraded to have built-in

42

controls and capacity to generate interim financial reports (IFRs). DVK will use Cash

Accounting for project accounting and reporting, but corporate accounting and reporting will be

used on accrual accounting system.

10. Project Financial Reporting. Unaudited IFRs will be generated by the project accounting

system based on formats agreed with the World Bank. The reports, to include Statement of

Sources and Uses of Funds, Uses of Funds by Project Activities (Components & Expenditure

Categories) and Statement of Designated Account, will be submitted to the World Bank within

45 days of the end of each quarter with the first reports under the proposed project being

submitted after the end of the first full quarter following initial disbursement.

11. Internal Control & Internal Audit. Internal control procedures, including expenditure

and payment approvals, timely and complete recording of transactions, regular reconciliation of

accounts and balances, segregation of duties, safeguard of data and assets, as well as regular

reporting and audits, will be described in detail in the Project Operational Manual (POM) to be

developed before negotiations. This will supplement instructions and guidance issued by the

Ministry of Finance, including the Instruction on Accounting in Budget Organizations #157

issued on December 26, 2000 and updated in 2010.

12. There is currently no internal audit function within DVK, but establishment of an internal

audit unit will be encouraged in line with the ongoing process of establishing internal audit units

in public sector agencies. Establishment of an internal audit unit will be a dated covenant.

13. External Audit. Audits of project financial statements, under the IDA portfolio in

Tajikistan, have been contracted out in block by the State Investments Committee (SIC). Entity

audits, however, are contracted by the respective implementing entities. Project and entity audits

will be conducted by independent auditors acceptable to IDA on terms of reference (TOR)

acceptable to IDA and according to the International Standards on Audit (ISA) issued by the

International Auditing and Assurance Standards Board of the International Federation of

Accountants.

14. The annual audited entity and project financial statements will be submitted to IDA

within six months of the end of each fiscal year and also at the project closing. The entity

financial statements will be required to monitor financial performance and, as part of the

institutional strengthening of DVK, to include the modernization of accounting and of billing and

collection systems. The auditor will also be required to assess and report on adherence to the

project indicators and financial covenants. The audited project financial statements shall be made

publicly available in accordance with the World Bank’s Access to Information Policy. Upon

receipt of the audited financial managements the Bank will also make them publicly available.

The following table identifies the audit reports that will be required to be submitted by the

project together with the due date for submission:

Audit Report Due Date Entity Financial Statements of DVK Within six months of the end of each fiscal year

and also at the grant closing

Project Financial Statements (PFS), including Statement of

Sources and Uses of Funds, Use of Project funds by

Within six months of the end of each fiscal year

and also at the grant closing

43

Activities, SOE Withdrawal Summary, Statement of

Designated Account, and Notes to the Financial Statements.

Disbursements

15. The project will follow transaction-based disbursement procedures. Withdrawals from the

Grant Account will be requested in accordance with the guidance to be given in the

Disbursement Letter. DVK will be responsible for keeping the supporting documentation for all

project expenses, especially those reported through statement of expenses (SOEs), and for

making them available to World Bank supervision missions and the auditors.

16. The Minimum Application Size for direct payments and for issuance of Special

Commitments will be communicated to the Borrower in the Disbursement Letter. All withdrawal

applications for direct payment or for issuance of special commitments will be supported by full

documentation. DVK will maintain a Designated Account, in the currency of the Grant, in a

commercial bank satisfactory to IDA. The designated account will be subject to audit as part of

the audit of the project financial statements.

17. Designated Account (DA). To facilitate timely disbursements for eligible expenditures

on works, goods and services, the Borrower/Recipient will open and operate, under terms and

conditions acceptable to the Bank, DAs in US dollars in a commercial bank acceptable to the

World Bank. DVK will be responsible for the appropriate accounting of the funds deposited into

the designated accounts, for reporting on the use of these funds and for ensuring that they are

included in the audits of the financial statements. Consistent with the Disbursement Guidelines,

the advance method will not be available for use until the existing lapsed loan in the portfolio is

resolved. Ceiling of the DAs and the Minimum Application Size for Direct Payment or Special

Commitment will be communicated in the Disbursement Letter.

18. Applications documenting the advances to the DAs will be made on a quarterly basis or

more regularly as needed. Expenditures against contracts for the following will be fully

supported: (i) works estimated to cost greater than US$1,000,000 equivalent; (ii) goods estimated

to cost greater than US$200,000 equivalent each; (iii) consultant services for consulting firms

estimated to cost greater than US$100,000 equivalent each; and (iv) individual consultant

services estimated to cost greater than US$50,000 equivalent each. Expenditures against

contracts below these limits will use SOEs. Documentation supporting expenditures claimed

against SOEs will be retained by the respective implementing agencies and will be available for

review when requested by Bank supervision missions and project auditors.

Procurement

19. Procurement Capacity and Risk. The PMC shall absorb functions fulfilled by the

currently existing PCU established for implementation of the ongoing DWSP, including

responsibility for carrying out project procurement. The PMC will work in close collaboration

with DVK staff to ensure transfer of knowledge to DVK procurement staff through on-the-job

training to build procurement capacity within the water supply service. Procurement risk

assessment was carried out based on Procurement Risk Assessment and Management System (P-

RAMS). Little procurement capacity exists in DVK with no established internal procurement

44

procedures. Procurement delays due to these factors were identified as main procurement risks.

Experience with DWSP indicates that procurement in the country does not attract adequate

competition. To mitigate these risks, experienced procurement consultants of PMC should be

engaged to support DVK procurement team. It is expected that PMC will have been selected by

August 29, 2011 (effectiveness), pending contract signature and mobilization. POM with clear

description of procurement processes will be developed and consulted by DVK staff during the

project implementation. The Bank team will closely supervise and monitor the procurement

processes and provide support with regard to facilitation of capacity development in

procurement. Procurement packages will be developed such to ensure competition in line with

market of procured items. To facilitate timely implementation of the procurement plan, terms of

reference and for the initial procurement tasks will be prepared prior to effectiveness. The

procurement risk is rated as high.

20. Applicable Guidelines. Procurement for the proposed project will be carried out in

accordance with the World Bank’s "Guidelines: Procurement under IBRD Loans and IDA

Credits" published in May 2004 and revised in October 2006 and May 2010 (Procurement

Guidelines); "Guidelines: Selection and Employment of Consultants by World Bank Borrowers"

published in May 2004 and revised in October 2006 and May 2010 (Consultant Guidelines); and

the provisions stipulated in the Financing Agreement.

21. Procurement Plan. Initial procurement plan covering all procurement activities for the

entire project period has been developed and will be agreed at the negotiations. The plan will be

updated annually, or as required, to reflect the actual project implementation needs. Each update

will be subject to the World Bank’s review and will be published on the World Bank’s external

web site in accordance with the requirements of the World Bank Guidelines. A General

Procurement Notice will be published at the negotiations. Summarized Procurement Plan is

provided below.

Works. Works contracts for renovation of rapid sand filters at Samotechnaya water

treatment plant, reconstruction of pumping station and tanks at Napornaya WTP, network

cleaning, and renovation of house connections are expected under the project. Works will be

procured through NCB procedure except for the first two contracts (estimated at US$3.6

million and US$ 1.5 million respectively) where ICB procedure will be used.

Goods. Goods contracts, including supply and installation of flow meters (US$0.2 million),

supply and installation of water meters for apartments (US$5.1 million), and supply and

installation of the hydraulic modeling, pressure zones and SCADA (USD 1.2 million) will

be procured through ICB procedure. Other contracts for procurement of in-network

chlorination equipment, of laboratory equipment, of software for accounting and billing,

network information system and hydraulic modeling for DVK, as well as implementation of

the communication and public awareness program below US$100,000, will be procured

through shopping procedure.

Consultants' services. Consultants' services would include capacity building for operational

performance improvement and DVK institutional strengthening (US$2.7 million) and

engineering design and supervision of physical investments (US$0.4 million). In view of the

45

large value of the packages, QCBS will be applied for all contracts. LCS will be used for

hiring audit services.

Training. Training program, including management practices, operations and maintenance,

energy efficiency, human resource management, customer relations, and exploring a

partnership with a leading regional water utility, will be developed and cleared by the Bank.

Operating Cost. Budget for operating costs will be prepared and cleared by the Bank

22. Procurement Supervision and Ex-post Review: Procurement reviews and supervision

will be provided from the country office. In addition, two supervision missions are expected to

take place per year during which ex-post reviews will be conducted on a sample basis (one per

five contracts) for the contracts that are not subject to Bank prior review. One post review report,

which will include physical inspection of sample contracts, including those subject to prior

review, will be prepared each year. Not less than 10 percent of the contracts will be physically

inspected.

23. Procurement Thresholds: The thresholds for procurement methods and Bank prior

review are indicated in the following table.

Expenditure

Category

Contract

Value (US$) Procurement Method Bank Prior Review

Goods

>100,000 ICB All the ICB contracts

≤100,000 Shopping The 1st Shopping contract

NA DC All DC contracts

Works

>1,000,000 ICB All the ICB contracts

≤1,000,000 NCB The 1st NCB contract

≤ 100,000 Shopping The 1st Shopping contract

NA DC All DC contracts

Consultant

Services

>200,000 QCBS, QBS, FBS, LCS All contracts above US$100,000

for firms plus the 1st CQS

contract regardless of value; and

all contracts above US$50,000

for individuals; and all SSS

contracts.

≤200,000 CQS

NA SSS

NA IC

Notes: ICB – International Competitive Bidding

NCB – National Competitive Bidding

DC – Direct Contracting

QCBS – Quality and Cost Based Selection

QBS – Quality Based Selection

FBS – Fixed Budget Selection

LCS – Least Cost Selection

CQS – Selection Based on Consultants’ Qualification

SSS – Single (or Sole) Source Selection

IC – Individual Consultant selection procedure

NA – Not Applicable

Environmental and Social (including safeguards)

46

Safeguards Policy Compliance:

24. Environmental Management and Monitoring Plan (EMMP) and Resettlement Policy

Framework (RPF) Disclosure and Consultations: For the on-going DWSP, the EMMP was

disclosed in accordance with the WB’s policy in the country. On March 24 and 25, 2000, the

project approach and the technical, financial, institutional, social and environmental aspects were

discussed in a workshop with key stakeholders, government agencies, representatives from the

Ministry of Health, the Ministry of Environment, and the media. The EMMP was sent to the WB

InfoShop in October 2000.

25. For DWSP2, a repeater project, the borrower publicly disclosed the EMMP in both

English and Russian on the official site of the Dushanbe Municipality

(http://www.dushanbe.tj/ru) on January 14, 2011. Public consultation followed in selected

neighborhoods of Dushanbe to inform stakeholders and beneficiaries of the scope, expected

impacts and procedures of DWSP2, including EMMP and RPF (January 14 and 25, 2011).

Minutes were recorded. The EMMP was updated taking into consideration the results of the

consultations and posted on the municipality web site and submitted to the WB InfoShop (on

February 2, 2011).

26. Resettlement Policy Framework: Involuntary Resettlement OP 4.12 is triggered. Since

these detailed impacts will only be known once project implementation commences and

technical designs are finalized, the borrower has developed (in English, Russian and Tajik) and

disclosed (January 30, 2011) a Resettlement Policy Framework (RPF) which will inform all

activities involving land acquisition, restriction of access to land or services and loss of assets.

The RPF will serve as a screening device and, if any impacts are identified, the Borrower will

develop relevant Resettlement Action Plans (RAPs) as described in the RPF and present it to the

World Bank for approval. No civil works will commence until the World Bank approves such

plans. Since OP 4.12 was not triggered in DWSP, DVK has been informed and provided

documents to make them familiar with the WB requirements for social impacts. The Monitoring

and Evaluation officer will be given any additional training as required to manage the social

surveys, which will be undertaken by qualified consultants. The Resettlement and Compensation

Committees will also be provided any additional technical training needed to manage RAPs.

These committees will include and work closely with the Municipality of Dushanbe who has

both experience and ultimate responsibility for resettlement and land acquisition issues. In

addition, World Bank missions will include a specialist for guidance and advice on social

development issues (including safeguards).

27. Notification to riparian countries: OP 7.50 applies to the project as the city of Dushanbe

is located on an international waterway as defined by paragraph 1(b) of OP 7.50. However,

considering the nature of the investments, the exception to the external notification requirements

of OP 7.50 set forth in paragraph 7(a) is applicable (management memorandum is available in

project files). The project involves rehabilitation of ongoing schemes that (i) will not adversely

change the quality or quantity of water flows to the other riparians and (ii) will not be adversely

affected by the other riparian's water use.

47

Capacity of the Borrower for Safeguard Implementation:

28. The Borrower, including the Municipality of Dushanbe, the Dushanbe Vodokanal and the

Project Coordination Unit, have managed the initial DWSP and are familiar with the World

Bank's Safeguard Policies. Application of environmental policies has improved in the last two

years, following specific supervision and advice provided by the Task Team. The World Bank

team will continue closely monitor EMMP implementation, providing relevant assistance and

capacity building. The EMMP will be a direct responsibility of DVK, under the management of

an international PMC. Responsibilities for daily monitoring will be part of construction

supervision. Compliance with the EMMP and monitoring of the impact during the construction

phase will be undertaken by an Water Supply and Environmental Engineer of DVK with support

and oversight of the PMC as part of his/her contract supervisory duties and by the Municipal

Department for Environment.

Environment

29. Project Activities and Locations: DWSP2 is a repeater operation to continue improving

water supply service in Dushanbe. The project aims at combining investments for urgent

rehabilitations with more strategic investments in demand management and institutional

strengthening. Component 2, Priority rehabilitation works, which will have direct environmental

impacts, will cover the following activities: (i) the renovation of rapid sand filters at

Samotechnaya WTP; (ii) the installation of in-network re-chlorination; and (iii) network

cleaning; (iv) re-construction of pumping station and two tanks at Napornaya WTP. Civil works

will predominantly entail pipe replacement, which includes building and pavement demolition,

trench excavation, pipe laying, trench filling, civil works for foundations and erection of new

buildings and tanks, and pavement application, as well as renovation of sand filters. All works

under the investment program are planned to be of a reconstruction or rehabilitation nature, on

properties owned by DVK or rights-of-way assigned to municipal infrastructure. All these

activities are not expected to generate significant adverse environmental and social impacts.

30. Environmental Impacts: Potential negative impacts of the project would relate to (i)

inappropriate disposal of water treatment sludge; (ii) safety hazards from chlorination process;

(iii) pollution by construction runoffs; (iv) disturbance during construction including dust, noise,

vibration, access restriction, closure of roads and increased traffic; (v) improper disposal of

demolition debris; (vi) damage to existing utility services during pipe repairs and installation;

(vii) safety hazards from construction activities; (viii) spillage of fuel and oil from construction;

and, (ix) damage to trees and vegetative cover. At the same time, the project is expected to bring

significant positive environmental and health benefits, such as improvements in public health

through better quality and availability of treated water and improvements in the sustainability of

raw water sources through reductions in losses and wastage.

31. Project Environmental Category: Based on expected impacts, the project is qualified as

Category B for which a partial environmental assessment (EA) and a simple EMMP should be

prepared and applied during its implementation.

48

32. Key Measures to be Taken by the Borrower to Address Safeguards Policy Issues –

Environment: The required mitigation measures for the project activities are standard and widely

use in construction practices. They are well prescribed in the EMMP, which was prepared for the

initial project. As the new project will support same types of activities as under the initial project,

it is proposed that the existing EMMP be applied to new project. The most important mitigation

measures proposed would include (a) measures for reduction of noise and vibration. Excavation

and works related to will not be performed in residential area at night time. The daily control of

the equipment applied in construction and transportation will insure the allowable noise. The

over vibration from heavy machines and mechanisms will be maximally reduced; (b) Air

protection. The contractor will apply measures for air protection from dust during the process of

construction and materials transportation, conducting periodic watering of construction areas and

removing all unnecessary materials. All streets, pavements and construction areas shall be

cleaned up upon the completion of construction works; (c) Removal of silt and sludge formed

after the water treatment. These activities will be done strictly in accordance with the

construction standards and rules (SNiP-2.04.02-84), which require undertaking of special

measures for collection and utilization of sediment from the water treatment stations. Sludge and

silt disposal will be in special places approved by the environmental authorities. The sediments

will be not drawn into permeable soils close to the surface water and buildings; (d) Prevention of

underground water pollution. On the construction sites waste collection and drainage control will

be provided. To prevent the development of erosion, all the damaged vegetation shall be

transplanted, and all the formed pits and trenches shall be brought to their original state; (e)

Prevention of chlorine leakage. For prevention, the chlorine system should operate in a vacuum

for leakage prevention, the chlorinators shall be produced from materials that have the capacity

to withstand the corrosion effect of chlorine, and the chlorine meter shall be installed inside the

chlorination unit; (f) Prevention of accidents during construction. The contractors will take all

necessary precautions in all fields of construction work, in particular, in residential areas and

heavy traffic areas. The precautions will be directed to protect labor and construction workers'

health. Public access to the construction sites will be limited; (g) Control of fuels and lubricants.

All above ground tanks will be kept in impervious beds, the tank capacity shall be 110 percent of

the amount stored and necessary measures for prevention of fuel leakage shall be taken during

the operation of equipment. Relevant requirements for the environment protection shall be

strictly followed.

33. Integration of environmental safeguards requirements into the project documents. The

EMMP stipulates all contracts for construction works will include requirements for

implementation of specific mitigation measures and good construction practices. Furthermore,

daily control and monitoring of construction work will be part of responsibilities of the PMC.

The quality of drinking water supply will be monitored according to national standards using

new laboratory equipment financed by the DWSP.

Social Impacts

34. The social development objectives of this project focus on ensuring that the needs and

constraints of all categories of customers are addressed with a special focus on vulnerable

subgroups and through establishment of information and feedback mechanisms. The main social

impacts will be that customers will now benefit from more reliable, regular and cleaner water

49

supply. Water use will now be monitored accurately, and billing options will be clearer and more

efficient. However, this means that customers will now have to pay according to their water use,

and earlier informal arrangements to reduce payment will no longer be possible. Further,

nonpayment will result in water supply cut off. This may have negative impacts on some

subgroups who may not have regular income streams or may be living in more temporary

housing.

35. Project Activities May Involve Some Land Acquisition. While the project will largely be

limited to reconstruction or rehabilitation of existing structures, some land within residence

compounds may have to be temporarily occupied for work.

36. Key Measures to be Taken by the Borrower to Address Safeguards Policy Issues – Social:

To facilitate achievement of the project’s stated social development objectives, the main tool

used will be a Customer Satisfaction and Social Analysis Study which will develop a baseline on

customer satisfaction and perceived needs and gaps in current service provision. This study will

(a) inform project design by identifying areas and subgroups who may be disadvantaged and

underserviced; (b) inform on customers willingness and ability to pay; (c) suggest indicators for

monitoring beneficiary impact; (d) guide the awareness campaign on reducing water usage; and

(e) highlight preferences linked to improving the image of the service provider.

37. The study will serve as a baseline to measure project impact, as well as a framework

within which ongoing project impacts on customers are monitored. It is expected that follow-up

data will be collected once or twice a year during each year of project implementation. The final

survey at the end of project will be more comprehensive to capture improvements in customer

satisfaction and overall project impacts: both those directly linked to activities financed by the

project and those that may have indirect impacts resulting from the general improvement of the

utility and sector.

38. Study Implementation Arrangements: The study will be conducted by an independent

firm, and it is expected that DVK will recruit a similar entity to carry out the mid-

implementation surveys, as well as the end of project surveys. Within DVK, the monitoring and

evaluation officer will be assigned to coordinate and manage the study, as well as the mid-

implementation and end project surveys. These will be crucial components of the M & E

framework of the project.

39. Social Safeguards Implementation Arrangements: The overall coordination of the project

will be provided by DVK, which will oversee all resettlement planning and coordinate all issues

relating to the compensation. They will have assistance from the Municipality who has authority

on land acquisition issues in Dushanbe. Screening for the RAP will be undertaken by the

consultants contracted to design the activity under the supervision of Land Management

Department of Dushanbe Municipality. Following the socioeconomic census and identification

of affected parties, a RAP will be developed. This will be coordinated by a Resettlement and

Compensation Committee that is set up and overseen by DVK. It is anticipated that a private

consultant will undertake the work or an NGO/CBO will be commissioned for this particular

task. Following completion of the RAP for an activity, the Resettlement and Compensation

Committee must submit the RAP to the Mayor of Dushanbe city for approval. The RAP is also to

50

be submitted to DVK office to ensure compliance with the RPF and consistency in approach

among different activities.

40. The grievance committee will be comprised of at least five members of whom two are

DVK and Municipality of Dushanbe representatives (but not those on the Resettlement and

Compensation Committee). The other three members should be independent of the project

implementing authorities and Government of Tajikistan. They should be chosen from recognized

NGOs/CBOs operating in Dushanbe along with eminent persons of appropriate standing.

41. The customer survey and social analysis will also serve as an important tool for

information sharing and consultation with potential affected persons. The intermediate surveys

during project implementation will further serve as a channel for continued dialogue. The use of

both qualitative and quantitative methods in these studies will provide adequate venues to ensure

that consumers’ priorities and problems are recognized and addressed.

Monitoring & Evaluation (M&E)

42. The project indicators and detailed targets to be achieved under the DWSP were

developed according to the project’s design with the performance-based service contract. Due to

the cancellation of the contract with the private operator, the project did not manage to

implement most of the detailed operation improvement programs, which included, inter alia,

reduction of energy consumption, optimization of pressure in the network, strengthening of water

quality control, financial management and improved customers relations. As a result, many

indicators were not technically measurable. In light of this experience, for DWSP2 the PDO-

level indicators were selected among these parameters, which are realistically quantifiable.

43. DVK will retain the responsibility for data collection for M&E activities of DWSP2. The

baseline data are available from collection during the implementation of DWSP and from the

feasibility study prepared for DWSP2. Monitoring and evaluation of outcomes and results during

project implementation will follow standard World Bank practice. DVK will collect the data and

pass them to the PMC, which will present updated data in regular project reports and in

conjunction with World Bank missions. Indicators, which require additional data or surveys (i.e.,

the social and customer satisfaction survey) for their measurement, will be collected at least three

times during the course of the project: baseline survey currently under implementation under

DWSP, mid-term survey and at the end of the project. The reports shall be published in a form

accessible to management of DVK, Municipality of Dushanbe and other interested stakeholders.

44. As DVK staff will be responsible for data collection for measuring the indicators,

engineers will be responsible for assessment of technical indicators and financial staff of DVK

will be responsible for assessment of the state of DVK's financial viability. The annual audit will

assess the indicators collected by DVK. The overall responsibility for data collection and

issuance of M&E reports will be with the M&E specialist hired under the project. The

methodology for assessment has been developed under the DWSP by a dedicated M&E

consultant.

Role of Partners (if applicable)

51

i. The project will not be co-financed, but EBRD, EIB and IFCA have expressed

strong interest in providing financing to other parts of the PIP.

ii. If other donors make funds available, these investments will be implemented as

parallel financing to the IDA project.

52

Annex 4: Operational Risk Assessment Framework (ORAF)

Negotiations and Board Package Version7

Project Development Objective(s)

Improve water utility performance and water supply services in selected areas of Dushanbe.

PDO Level Results

Indicators:

1. Water quality in the network

2. Customer satisfaction with water supply services

3. Improvement of financial performance of DVK

Risk Category

Risk Rating Risk Description Proposed Mitigation Measures

Project Stakeholder Risks

M-L Public discontent with meter-based billing, and increased tariffs, and service interruption (while rehabilitating works under the project). DVK employees and managers may resist operational, management and administrative changes, and unions may aggravate the situation. Qualified staff may leave in the face of these changes, especially with existing low salaries.

Project design includes focused intervention to ensure Regular Social Analysis and Customer Satisfaction Survey (SACSS) will be carried out to monitor the social situation and to prepare adequate measures. The project includes financing of public information campaigns and focused interventions to ensure effective rehabilitation of assets with limited disruptions to service. The project aims at strengthening the complaints and dispatch center in DVK. The selection of target communities to be covered under the limited scope of the project is based on technical criteria, while the identification and monitoring of potential vulnerable sub-groups is done though social analysis and follow up surveys As part of the OPIAP the municipality and DVK will have to commit to instituting staff incentives including carrying out a Compensation Review.

Implementing Agency Risks

High Implementation may fall behind schedule due to weak managerial strategic planning, implementation capacity at DVK.

The project will benefit from the services of a project Management Consultant internationally recruited, including TA and CB activities. Smooth transition between PCU and PMC will be monitored. As project

7 This is the version that should be used for Negotiations and submission for Board Approval.

53

implementation progresses gradual transfer of managerial responsibilities from PMC to DVK.

Project Risks

Design

Medium- I

Any backtracking or delays on improvements to the financial operations of the vodokanal may jeopardize or delay the rebounding of the financial health of the vodokanal, disappoint officials, and risk achievement of the financial sustainability objective. Demand management component is new for the country and needs further discussion with Client. There may also be public discontent with the meter installation and introduction of billing. Project may face delays and cost overruns before meeting its objectives.

Actions to ensure improvements in the billing and collection received support from all levels of Government and activities to address them (complete inventory of customers, software and mechanisms to improve billing and collection among others) are scheduled to be accomplished in the first year of the Project. These measures will be supported by public information and awareness raising. i) Studies will be carried out to better define and design demand management (DM) activities. ii) Supervision team will include experts experienced in water DM and utility capacity building. iii) Implementation consultation will be in place to assist with project implementation unlike DWSP1. iv) Institutional component will finance communication strategy and public awareness campaign. The hired PMC should jump-start capacity building actives. While the World Bank – and possibly other donors- will continue the dialogue with the GORT to strengthen the utility.

Social and Environmental

Low

i) Unexpected social opposition to the water demand management plan may result in decrease or reversal of Govt. commitment to demand management. ii) Risk that perhaps some vulnerable groups will be negatively impacted. The Project risks (category B) are linked to short term

A Social Analysis and Customer Satisfaction Survey (SACSS) is being carried and preliminary data is expected prior to Negotiations. Vulnerable groups will be captured under this survey. In addition, annual CSSs will be undertaken during the life of the project An awareness campaign and consultations with the stakeholders including local NGOs and CSOs will be included in project design. The project will begin with improving billing and collection, before altering the tariffs structure. This with the aim that those who can, and currently do not, start to pay. Further, the project will ensure that the applicable safety net for the most vulnerable apply, so that hardship risk is mitigated for these groups. EMMP provisions/measures will guide all contracts for

54

environmental impacts related to reconstruction and rehabilitation. Stipulated mitigation measures will be not implemented and monitoring activities could be not adequate.

construction works. Utility will monitor and control construction works The quality of drinking water supply will be monitored according to international and national standards. The WB team will closely monitor EMMP implementation, providing relevant environmental and social safeguards capacity building and assistance. DVK will develop and have the Resettlement Policy Framework agreed with the Bank.

Program and Donor

Low Unavailability of parallel financing for the PIP would reduce project’s impacts. Delayed/differed entry of other donors may negatively affect synchronization of activities

The project has been thoroughly fine-tuned as a stand-alone operation to strike a balance among priorities. The comprehensive feasibility study allows clear division of intervention, in a way that can facilitate a modular approach even at different times. Coordination with other potential donors is continued through frequent exchanges of information.

Delivery Quality Medium-I GORT fails to improve its billing and collection, and later to enforce a tariff policy compatible with DVK’s financial viability and demand management goals. Contract management is still a challenge.

Team is having on-going discussions with the Municipality and GORT. Study tour to St. Petersburg vodokanal for senior GORT and Municipal managers is being organized in summer 2011. (iii) Water Sector note was prepared and discussed with GORT.

Overall Risk Rating at Preparation

Overall Risk Rating During Implementation

Comments

M-I M-I

55

Annex 5: Implementation Support Plan

Strategy and Approach for Implementation Support

1. The strategy for implementation support (IS) has been developed based on many years of

experience gained during preparation and implementation of the DWSP1. This project will

require effective and robust management for it to achieve its development objective. To support

a weak implementing agency, the project design envisions an internationally recruited Project

Management Consultant (PMC), which will be a firm of national and international experts

contributing to project implementation from inception until the end. The IS will be supported by

the highly decentralized staff located in country, thus offering better opportunities for more

frequent field visits and daily interaction with the counterparts.

2. Technical: The World Bank will do a technical review of the procurement packages

(most expected to be ICBs for works, goods and consulting services) and will follow up with

technical review missions on a regular basis.

3. Procurement: Implementation support will include a) provision of support to DVK

capacity development; b) reviewing procurement documents and providing timely feedback to

DVK and the PMC; c) providing detailed guidance on the Bank’s Procurement Guidelines to

DVK and PMC; and d) monitoring procurement progress against the detailed procurement plan

through the two supervision missions are expected to take place per year, during which ex-post

reviews will be conducted for the contracts that are not subject to Bank prior review.

4. Financial Management: As part of its implementation support missions, the World Bank

will conduct risk-based financial management supervisions, initially after every six months and

thereafter at appropriate intervals, depending on the level of assessed risk. These will pay

particular attention to (i) project accounting and internal control systems; (ii) budgeting and

financial planning arrangements; (iii) review of unaudited Interim Financial Reports; (iv) review

of audit reports, including financial statements and remedial actions recommended in the

auditor’s Management Letters; and (v) disbursement management and financial flows and

counterpart funds, as applicable.

5. Environmental and Social Safeguards: The Bank team will actively support and build

capacity of DVK in implementation of the agreed actions in the EMMP and specifically in

screening the impact of the project activities using the RPF. If any impacts are identified, the

Bank will provide relevant support to DVK and the PMC in developing Resettlement Action

Plans to be approved by the World Bank to detail the specific impact and compensation.

6. Monitoring and Evaluation: DVK will retain the responsibility of data collection for the

monitoring and evaluation activities of DWSP2. The baseline data are available as collected

during the implementation of the DWSP and by the feasibility study prepared for DWSP2. DVK

will collect the data for the PMC to compile the updated data in the regular project reports

(quarterly and yearly) and in conjunction with World Bank missions. Indicators, which require

additional data or surveys (i.e., the social and customer satisfaction survey) for their

56

measurement, will be collected at least three times during the course of the project: baseline

survey currently under implementation under DWSP, mid-term survey and at the end of the

project. DVK staff will be responsible for collection of the data for measuring the indicators:

engineers will be responsible for assessment of technical indicators; financial staff of DVK will

be responsible for assessment of the state of financial viability of DVK and reporting on the

financial indicators in the progress reports. Financial data and assessments, including covenants,

will be verified in the annual audits. The overall responsibility for collection of data and issuance

of the M&E reports will be with M&E specialist hired under the project. The methodology for

assessment has been developed under the DWSP by a dedicated M&E consultant.

Implementation Support Plan

7. A majority of the Bank’s IS team members, including the co-TTL, are either based in the

World Bank Country Office in Tajikistan (Country Office) or in Central Asia. This will ensure

timely, efficient and effective implementation support to DVK and PMC. Formal IS missions

and field visits will be carried out semiannually or more frequently if needed. Operational staff

located in the Country Office will provide the daily interaction with DVK and the PMC.

8. Technical inputs: The team’s engineers, including co-TTL based in the region, will

conduct site visits on a semiannual basis throughout project implementation. Engineering inputs

can also be provided as and when required. Engineering and related inputs will be required to

review bid documents, technical specifications and fair assessment of the technical aspects of

bids. During construction and commissioning, technical supervision will be warranted to ensure

technical contractual obligations are met.

9. Institutional Strengthening Actions: Implementation of the OPIAP and institutional

strengthening actions are the key for success of the project. A Governance and Institutional

Capacity Building Expert will, therefore, be retained by the World Bank team to relevant provide

support to DVK and PMC ensure efficient implementation of the agreed actions.

10. Fiduciary requirements and inputs: Regular hand holding and on-the-job mentoring by

the Bank’s financial management specialist and procurement specialists will be available as per

the practice established during implementation of the DWSP1. DVK will be provided with the

opportunity to build the capacity of its staff to strengthen its financial management capacity and

to improve procurement management efficiency. Both the financial management and the

procurement specialists are based in the country office to provide timely support. Additional

support from the Headquarters and Almaty will be available in the areas of financial

management and procurement respectively. Formal support for financial management and

procurement will be carried out semi-annually.

11. Safeguards: Inputs from an environment specialist (based in the Headquarters) and a

social specialist (based in the region) will be available throughout the project period. They will

provide regular support to DVK and the PMC through regular and constant monitoring of social

and environmental issues and supervision mission.

57

Operations: An operational staff (based in the region and the Country Office) will be available

to DVK and the PMC for daily interaction, support to project implementation and regular advice

via email and telephone. The Bank’s implementation support is summarized as follows:

Time Focus Skills Needed Resource

Estimate

Partner

Role

First

twelve

months

Start up and

technical TORs

and procurement

of components

(consulting

services, good

and works)

Water Supply and Utility

Specialist/Procurement/FM

150,000

12-60

months

Implementation

of components 1,

2 and 3

Water Supply and Utility

Specialist/Procurement/FM/FA/Ops

Exp/Env exp/Soc Exp/M&E

540,000

Other

II. Skills Mix Required (over project implementation – 5 years)

Skills Needed Number of

Staff Weeks

Number of

Trips

Comments

Water Supply System and Utility

Expert

50 10

Governance and Institutional CB

Expert

30 8

Procurement Expert 15 5

FM Expert 15 5

Financial Analyst 20 5

Operations Expert 20 5

Environmental Expert 10 5

Social Expert 10 5

M&E 20 8

III. Partners

Name Institution/Country Role

DVK Utility/Tajikistan Implementing

Agency

58

Annex 6: Team Composition

World Bank staff and consultants who worked on the project:

Name

Title

Unit

Pier Francesco Mantovani Lead Water and Sanitation Specialist,

TTL

ECSS6

Anna Cestari Water Resources Specialist, Co-TTL ECSS6

Serdar Jepbarov Operations Officer ECCTM

Maha Armaly Sr. Urban Finance Specialist ECSS6

Takhmina Mukhamedova Operations Analyst ECSS6

Yarissa Lyngdoh Sommer Operations Analyst ECSS6

Arcadii Capcelea Sr. Environmental Specialist ECSS3

Roxane Hakim Social Development Specialist ECSS4

Leila Talipova Consultant ECSSD

Dilshod Karimova Procurement Specialist ECSO2

Shodi Nazarov Financial Management Specialist ECSO3

Friedrich Holzmann Consultant

Nils Junge Consultant

John Otieno Ogallo Sr. Financial Mgt. Specialist ECS03

Kenneth Mwenda Counsel LEGEM

Joseph Formoso Sr. Finance Officer CTRFC

Milane Reyes Program Assistant ECSSD

Maria Teresa Lim Program Assistant ECSSD

Farzona Mukhitidova Program Assistant ECCTJ

Aziza Nasyrova Program Assistant ECCTJ

Oscar Alvarado Sr. Water Supply and Sanitation

Specialist, peer-reviewer

LCSUW

Shyamal Sarkar Sr. Sanitary Engineer, peer-reviewer SASDU

59

Annex 7: Financial and Economic Analysis

1. IDA funds, co-financing and flow of funds. Departing from the previous approach of

charging DVK up to 5 percent interest on IDA funds, the Ministry of Finance (MOF) decided to

pass on IDA grant terms (US$16 million, no principal and no interest repayments) to DVK on

condition that the Municipality of Dushanbe (MOD) provides the counterpart financing to the

project (US$3 million). This is done to provide the critical support that DVK needs to lift itself

from a difficult financial situation and to free scarce resources from debt repayment obligations

to more productive and necessary activities, such as increased operations and maintenance and

training for employees. This is also required to ensure DVK’s debt service ratio in compliance

with the covenants in the legal agreement (>=1.2). MOD as DVK’s owner will provide the

necessary performance oversight of DVK and the project. MOF and MOD are considering

passing the co-financing funds on to DVK on a similar IDA grant funds basis (no interest or

principal) but with a commitment fee. The fee can be waived provided DVK meets certain

financial operational improvements including (a) full registration and billing of all customers

(first year of the project); (b) improvements in collection (annually); and (c) overhaul and

automation of the accounting and billing department and of the role of collectors (second year of

the project).

2. Financial Analysis – Current Situation. The financial statements of DVK are audited

under the DWSP project and, with other consultant reports, form the basis for the analysis of the

financial situation of DVK.

A. Revenues. A major problem for DVK is that it does not include all the consumers in its

billing data base. DVK bills its customers on a per capita basis (where meters are not

installed), and households increasingly underreport the number of users. DVK currently

registers (and bills) about 48 percent of its customers, which is not sustainable or equitable.

The number of apartment customers registered declined at an unrealistic rate (17 percent and

20 percent in 2007 and 2008 respectively) as households report fewer persons living in the

residences. Despite the reported decline in consumers, DVK increased its revenue through

substantial tariff increases (tariffs doubled in 2008 and increased by about 15 percent in

2009). However, the main burden of the tariffs and tariff increases fall on commercial and

budgetary customers who pay three and seven times more than households respectively.

Budgetary institutions generate about three times the revenue generated by households and,

therefore, represent the main source of revenue for the vodokanal. This, in effect, means that

the government provides a substantial subsidy to the vodokanal and an untargeted subsidy to

households, which reduces household incentive for water conservation. Improvements in

collection and management of accounts receivables are also needed. For tariff adjustments,

the MOD will review the tariff proposals by DVK twice a year to determine (a) the extent of

improvements in the billing and collections achieved and (b) extent of tariff increases or

subsidies needed, while giving increased importance to cost recovery from tariffs. Sustained

improvements to billings and collection, as well as overall sound financial operations of

DVK are the cornerstone for the success of the project in reaching its development objective

60

of financial sustainability. Backtracking on this important issue is a risk to the sustainability

of DVK as a viable commercial and service-oriented enterprise.

B. Expenditures. DVK operates at very low production cost levels, and it is not likely that

costs overall can be reduced. Staff salaries are very low, while electricity costs are very high

due to unnecessarily high volumes of produced and wasted water (about 75 percent).

Electricity costs are about 30 percent of total production and distribution costs and are more

than three times production salary costs. Salaries remain at a low level and do not allow

DVK to attract the level of skills that it needs to run a modern water and wastewater utility.

Overall staff numbers have increased by 56 in between 2007 and 2009 to reach a total of

973. The efficiency of DVK staff as measured by number of staff/000 registered customer

declined between 2008 and 2009. DVK does not appear to be an overstaffed utility given its

reliance on manual labor for its operation. On the other hand, other nonproduction costs

(include administrative and selling costs) are very high and reached 44 percent of DVK’s

total operating costs, leading DVK into negative income. A review of DVK structure and

organization will be part of the capacity building for the utility.

C. Debt. The Government’s decision to pass on the IDA grant terms to DVK (without

requiring DVK to repay principal or interest) is absolutely necessary to put DVK into a

sustainable path of financial recovery. DVK is almost unique in the water sector in the

region for not receiving any government capital subsidy, particularly given its weak starting

financial situation and large investment needs. Currently, DVK is responsible for repaying

MOF the principal of the credit and the grant of DWSP. MOF also charges interest, which

will soon reach 5 percent. The debt repayment (interest and principal) is estimated to reach

TJS 2.6 million in 2011 on the existing DWSP credits and grant. The Government and DVK

will also have to ensure that the debt service coverage covenant (not less than 1.2) under

DWSP is maintained. DVK’s debt (with IDA through MOF) is denominated in US dollars,

which exposes DVK to long-term foreign exchange risks. DVK’s debt is already high, and

its debt/asset ratio reached 1.04 in 2009, which means that its long-term debts are higher

than its long-term assets. By comparison healthy ratio is below 50 percent. This will require

that any additional debt by DVK be evaluated carefully in order not to jeopardize the long-

term sustainability of DVK.

3. Projections and NPV Calculations. Behind the financial and economic analysis, the

main assumption for project success in terms of achieving financial sustainability is the

improvement in recording, billing and collection from the vast majority of customers. It is

assumed that this will be accomplished by the first project year given the high level of awareness

among officials at both local and central government levels, and advanced steps are being taken

to take action. Projections of DVK’s income, expenditure and cost recovery tariffs are based on

the estimated water demand increases, reductions in water waste, and improved billing and

collections. Major cost items added to the projections include depreciation and operations and

management costs of the new investments. Based on these assumptions and IDA financing

terms, the financial net present value of the investments are high and reach TJS 183 million, and

the financial rate of return approaches 30 percent. Provided DVK undertakes the necessary

financial improvements, its sustainability will be assured in the medium to long term. The

project, and particularly the full grant element of the financing, gives DVK the appropriate tools

and time to reach sustainability.

61

4. Economic Analysis. The economic analysis evaluates the economic costs and benefits

with and without the project. Without the project, the main economic costs will be continuous

waste of water and electricity at high levels of water production. Lack of maintenance will

accelerate the deterioration of the water supply facilities in the city and erode benefits currently

accruing from the present system, while maintaining a weak billing and collection culture. Not

having the planned improvements in water supply services and the operational management of

DVK as the provider of a basic service in the capital will have broader economic implications on

the vodokanal itself and on the long-term social and economic growth prospects of Dushanbe.

With the project, additional capital investment costs and larger operations and maintenance costs

will be required. On the benefits side, the project will allow for (a) reduction in electricity costs,

(b) reduction of losses of economically valuable water, and (c) increase of supply of water to

additional Dushanbe residents. Using these assumptions, the project is economically justified

with an internal rate of return around 100 percent. This high rate of return is largely due to the

assumed reduction in water losses valued at the cost recovery tariff, which are real ―economic‖

gains due to the project. Increases in costs and reductions in benefits of 20 percent each will keep

the economic rate of return high at an estimated 75 percent.

5. The Project includes other benefits that are difficult to quantify. In Tajikistan in

general, and in Dushanbe in particular, the population has suffered hardships due to an

inadequate water supply system. These hardships include leakages; interruptions to overall water

supply services in general and to dwellers in high rise sections of apartment buildings in

particular; and inadequate water quality. These hardships are reflected in time and financial costs

to secure clean water (including fetching, boiling or other treatment). In addition, water borne

diseases continue to be reported in Dushanbe due to inadequately treated water. Information on

these external economic costs is not available in a manner sufficient to determine their partial

attribution to the costs of inadequate water supply (e.g., handwashing and other hygiene

measures contribute directly to reductions in water borne diseases but need the supply of clean

water). Nevertheless these costs are real to the beneficiaries and to the economy and providing

clean water contribute to their reduction.

6. Affordability. At the current tariff rates and using 2009 Tajik monthly poverty line and

extreme poverty line (TJS 162 and 104 respectively), water expenditures are affordable (for a

family of four) at 0.87and 1.36 percent respectively. However, average full coverage tariff

(including interest and principal but excluding depreciation), will require tariff increases that

would make household expenditure on water difficult to afford for very poor one income

families at 2.9 and 4.5 percent of the mentioned poverty lines. On average, projected cost

recovery tariff is about three times current tariffs. The MOD will review annually the financial

situation of MOD, based on actual data of revenues, collections and costs, to determine the

appropriate tariffs, subsidy levels and other actions required to ensure DVK's sustainability.

7. Fiscal Impact. As a grant with no repayment requirements, the IDA grant will not have a

fiscal or affordability impact on the national or municipal government budgets. The MOD will

be required to contribute US$3 million equivalent over the five-year life of the project. Based on

figures provided by the municipality, the municipal budget is growing at about 30 percent over

2010-2011. The largest part of this growth has been in capital expenditures, while growth in

current expenditure remained at a modest 10 percent. The total contribution required from the

62

MOD is about 2 percent of the total MOD budget and 4 percent of the capital expenditure

budget, which will not represent a significant burden on MOD's financial capacity to contribute

to the project.

63

Dushanbe Vodokanal - Income Statement Actuals and Projections: 2009-2030

Page 1

Water Demand Projections (000 m3) 2009 2010 2011 2012 2013 2014

Domestic Consumers 35,586.9 38,296.8 51,639.6 67,042.0 67,640.4 62,593.3

Boiler Plant 4,218.9 7,266.0 7,266.0 7,266.0 7,411.3 7,559.5

Public Consumption 14,807.7 13,326.9 12,660.6 12,660.6 12,660.6 12,660.6

Commercial Consumption 3,643.3 4,189.8 4,608.8 4,701.0 4,795.0 4,808.7

Total Consumption 58,256.8 63,079.5 76,174.9 91,669.6 92,507.3 87,622.1

Production 246,754 230,000 200,000 180,000 160,000 140,000

UFW 76% 73% 62% 49% 42% 37%

Cost/m3 produced with Dep without i 0.099 0.124 0.150 0.190 0.226 0.266

Electricity Costs/m3 projected at 15% 0.017 0.019 0.022 0.026 0.029 0.034

Cost/m3 sold/consumed (incl. dep, excl. i) 0.419 0.452 0.394 0.373 0.390 0.425

Cost/m3 sold incl. I and p excl. dep 0.387 0.417 0.379 0.351 0.393 0.448

Cost/m3 sold incl. I and p and dep 0.462 0.488 0.436 0.417 0.456 0.531

revenue/m3 sold/consumed 0.32 0.42 0.379 0.35 0.39 0.45

1.10 1.14

Tariffs (water) Effective Average Tariff 0.217 0.318 0.291 0.273 0.311 0.358

Domestic Consumers 0.118 0.126 0.136 0.145 0.153 0.161

Boiler Plant 0.118 0.126 0.136 0.145 0.153 0.161

Public Consumption 0.35 0.375 0.404 0.431 0.454 0.477

Commercial Consumption 0.85 0.910 0.982 1.046 1.104 1.159

Revenues (Water) 12,976.6 14,554.3 17,680.1 21,162.6 22,544.2 22,899.2

Domestic Consumers 4,199.3 4,835.4 7,041.6 9,736.1 10,363.3 10,069.5

Boiler Plant 497.8 917.4 990.8 1,055.2 1,135.5 1,216.1

Public Consumption 5,182.7 4,990.9 5,120.7 5,453.5 5,753.5 6,041.2

Commercial Consumption 3,096.8 3,810.6 4,527.0 4,917.7 5,291.9 5,572.4

Total Sales Proceeds 18,532 26,297 28,870 32,198 36,322 39,251

Water Sales Proceeds 12,637 20,087 22,163 25,055 28,786 31,338

WW Sales Proceeds 5,804 6,210 6,707 7,143 7,536 7,913

Other Sales 91

Total Cost of Sales 1/ 13,657 17,021 17,594 20,941 22,143 22,577

Cost of Water Sold 12,084 15,338 15,776 19,005 20,101 20,433

64

Dushanbe Vodokanal - Income Statement Actuals and Projections: 2009-2030 Page 2

Water Demand Projections (000 m3) 2009 2010 2011 2012 2013 2014

Staff Salaries 1,310 1,402 1,514 1,612 1,701 1,786

Social Fund 328 351 379 404 426 447

Materials 1,743 1,865 2,014 2,145 2,263 2,376

Electricity Costs 4,159 4,458 4,458 4,614 4,717 4,746

Other Costs 173 185 200 213 225 236

Maintenance all new Assets 899 1,079 2,020 2,909 1,449

Depreciation 4,371 4,495 4,315 6,061 5,818 7,247

Cost of WW Sold 1,573 1,683 1,818 1,936 2,042 2,145

Gross Profit on Sales 4,875 9,277 11,276 11,257 14,178 16,674

Other Operating Income 114

Gross Profit on Sales 4,989 9,277 11,276 11,257 14,178 16,674

Selling Expenses 3,420 3,659 3,952 4,209 4,441 4,663

General Administrative Expenses 3,747 4,009 4,330 4,611 4,865 5,108

Other Operating Costs 3,591 3,842 4,150 4,419 4,663 4,896

Total Other Operating Expenses 10,758 11,511 12,432 13,240 13,968 14,667

Total Operating costs 24,415 28,532 30,026 34,181 36,112 37,244

Operating income (5,769) (2,235) (1,156) (1,983) 210 2,007 Interest expenses 1,460 990 1,276 1,584 1,979 2,330

Taxes -

Income/Loss for the period (25,863) (3,224) (2,433) (3,567) (1,769) (323)

Income before interest (5,769) (2,235) (1,156) (1,983) 210 2,007

income before interest and depreciation (1,398) 2,260 3,158 4,078 6,028 9,254

Debt Service Ratio 1.00 1.00 1.00 1.00 1.00

Cash Operating Ratio 1.08 1.04 1.06 0.99 0.95

65

Dushanbe Vodokanal - Income Statement Actuals and Projections: 2009-2030 Page 3

Water Demand Projections (000 m3) 2015 2016 2017 2018 2019 2020

Domestic Consumers 53,301.8 51,403.0 47,433.9 43,401.5 43,249.1 43,854.7

Boiler Plant 7,710.7 7,865.0 8,022.3 8,182.7 8,346.4 8,513.3

Public Consumption 12,660.6 12,660.6 12,660.6 12,660.6 12,660.6 12,660.6

Commercial Consumption 4,988.7 5,088.5 5,190.2 5,294.0 5,399.9 5,507.9

Total Consumption 78,661.8 77,017.0 73,307.0 69,538.8 69,656.0 70,536.5

Production 120,000 100,000 95,000 90,000 90,000 91,809

UFW 34% 23% 23% 23% 23% 23%

Cost/m3 produced with Dep without i 0.320 0.396 0.443 0.463 0.488 0.508

Electricity Costs/m3 projected at 15% 0.039 0.045 0.052 0.059 0.068 0.078

Cost/m3 sold/consumed (incl. dep, excl. i) 0.488 0.515 0.574 0.599 0.630 0.661

Cost/m3 sold incl. I and p excl. dep 0.558 0.545 0.596 0.611 0.648 0.682

Cost/m3 sold incl. I and p and dep 0.646 0.632 0.684 0.699 0.733 0.762

revenue/m3 sold/consumed 0.56 0.54 0.60 0.61 0.65 0.68

1.25 0.98 1.09 1.02 1.06 1.05

Tariffs (water) Effective Average Tariff 0.452 0.432 0.471 0.472 0.503 0.532

Domestic Consumers 0.169 0.177 0.186 0.196 0.205 0.216

Boiler Plant 0.169 0.177 0.186 0.196 0.205 0.216

Public Consumption 0.501 0.526 0.552 0.580 0.609 0.639

Commercial Consumption 1.217 1.278 1.341 1.409 1.479 1.553

Revenues (Water) 22,719.3 23,673.3 24,283.6 24,886.9 26,290.1 27,938.9

Domestic Consumers 9,003.5 9,116.9 8,833.6 8,486.8 8,879.8 9,454.4

Boiler Plant 1,302.5 1,394.9 1,494.0 1,600.1 1,713.7 1,835.3

Public Consumption 6,343.2 6,660.4 6,993.4 7,343.1 7,710.2 8,095.7

Commercial Consumption 6,070.1 6,501.0 6,962.6 7,457.0 7,986.4 8,553.4

Total Sales Proceeds 43,873 41,964 43,712 42,458 45,151 48,110

Water Sales Proceeds 35,564 33,240 34,553 32,840 35,052 37,507

WW Sales Proceeds 8,308 8,724 9,160 9,618 10,099 10,604

Other Sales

Total Cost of Sales 1/ 22,966 23,460 25,090 23,826 25,181 27,004

Cost of Water Sold 20,714 21,095 22,608 21,219 22,444 24,130

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Dushanbe Vodokanal - Income Statement Actuals and Projections: 2009-2030 Page 4

Water Demand Projections (000 m3) 2015 2016 2017 2018 2019 2020

Staff Salaries 1,875 1,969 2,067 2,171 2,279 2,393

Social Fund 470 493 518 544 571 599

Materials 2,495 2,620 2,751 2,888 3,033 3,184

Electricity Costs 4,678 4,483 4,898 5,336 6,137 7,199

Other Costs 248 260 273 287 301 316

Maintenance all new Assets 1,739 2,226 3,206 1,231 1,477 1,891

Depreciation 6,957 6,679 6,412 6,156 5,909 5,673

Cost of WW Sold 2,252 2,364 2,483 2,607 2,737 2,874

Gross Profit on Sales 20,906 18,504 18,622 18,632 19,970 21,106

Other Operating Income

Gross Profit on Sales 20,906 18,504 18,622 18,632 19,970 21,106

Selling Expenses 4,896 5,140 5,398 5,667 5,951 6,248

General Administrative Expenses 5,364 5,632 5,914 6,209 6,520 6,846

Other Operating Costs 5,140 5,398 5,667 5,951 6,248 6,561

Total Other Operating Expenses 15,400 16,170 16,978 17,827 18,719 19,655

Total Operating costs 38,366 39,630 42,069 41,653 43,900 46,659

Operating income 5,506 2,334 1,644 805 1,251 1,452 Interest expenses 2,665 2,948 3,158 3,239 3,289 3,095

Taxes

Income/Loss for the period 2,842 (614) (1,514) (2,434) (2,038) (1,644)

Income before interest 5,506 2,334 1,644 805 1,251 1,452

income before interest and depreciation 12,464 9,014 8,056 6,960 7,160 7,125

Debt Service Ratio 1.00 1.00 1.00 1.00 1.00 1.00

Cash Operating Ratio 0.87 0.94 0.96 0.98 0.97 0.97

67

Dushanbe Vodokanal - Income Statement Actuals and Projections: 2009-2030 Page 5

Water Demand Projections (000 m3) 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Domestic Consumers 44,469 45,091 45,723 46,363 47,012 47,670 48,337 49,014 49,700 50,396

Boiler Plant 8,632 8,753 8,876 9,000 9,126 9,254 9,383 9,515 9,648 9,783

Public Consumption 12,661 12,661 12,661 12,661 12,661 12,661 12,661 12,661 12,661 12,661

Commercial Consumption 5,508 5,508 5,508 5,508 5,508 5,508 5,508 5,508 5,508 5,508

Total Consumption 71,270 72,013 72,767 73,531 74,306 75,092 75,889 76,697 77,517 78,348

Production 87,783 88,699 89,627 90,569 91,523 92,491 93,473 94,468 95,478 96,501

UFW 0.23 0.23 0.23 0.23 0.23 0.23 0.23 0.23 0.23 0.23

Cost/m3 produced with Dep without i 0.56 0.57 0.60 0.64 0.68 0.70 0.75 0.80 0.86 0.90

Electricity Costs/m3 projected at 15% 0.09 0.10 0.12 0.14 0.16 0.18 0.21 0.24 0.28 0.32

Cost/m3 sold/consumed (incl. dep, excl. i) 0.70 0.70 0.74 0.78 0.84 0.86 0.92 0.98 1.05 1.11

Cost/m3 sold incl. I and p excl. dep 0.72 0.73 0.77 0.81 0.87 0.90 0.95 1.02 1.09 1.15

Cost/m3 sold incl. I and p and dep 0.80 0.80 0.84 0.88 0.93 0.96 1.01 1.07 1.14 1.20

revenue/m3 sold/consumed 0.57 0.59 0.62 0.65 0.68 0.71 0.74 0.77 0.80 0.84

1.05 1.01 1.05 1.06 1.07 1.03 1.06 1.07 1.07 1.05

Tariffs (water) Effective Average Tariff 0.562 0.566 0.599 0.638 0.685 0.707 0.756 0.813 0.879 0.929

Domestic Consumers 0.226 0.238 0.250 0.262 0.275 0.289 0.303 0.319 0.334 0.351

Boiler Plant 0.226 0.238 0.250 0.262 0.275 0.289 0.303 0.319 0.334 0.351

Public Consumption 0.671 0.705 0.740 0.777 0.816 0.857 0.900 0.945 0.992 1.042

Commercial Consumption 1.631 1.712 1.798 1.888 1.982 2.081 2.185 2.294 2.409 2.530

Revenues (Water) 29,502 31,154 32,899 34,745 36,695 38,757 40,937 43,241 45,677 48,252

Domestic Consumers 10,066 10,717 11,411 12,149 12,935 13,772 14,663 15,612 16,622 17,697

Boiler Plant 1,954 2,081 2,215 2,358 2,511 2,673 2,846 3,031 3,227 3,435

Public Consumption 8,501 8,926 9,372 9,840 10,332 10,849 11,392 11,961 12,559 13,187

Commercial Consumption 8,981 9,430 9,902 10,397 10,917 11,462 12,036 12,637 13,269 13,933

Total Sales Proceeds 51,218 52,462 55,885 59,779 64,403 67,320 72,321 77,992 84,591 90,096

Water Sales Proceeds 40,084 40,772 43,610 46,890 50,870 53,110 57,400 62,325 68,141 72,823

WW Sales Proceeds 11,134 11,691 12,275 12,889 13,533 14,210 14,921 15,667 16,450 17,272

Other Sales

Total Cost of Sales 1/ 28,938 28,968 31,133 33,725 36,996 38,509 42,050 46,202 51,221 55,078

Cost of Water Sold 25,920 25,799 27,806 30,231 33,328 34,657 38,006 41,956 46,762 50,397

68

Dushanbe Vodokanal - Income Statement Actuals and Projections: 2009-2030 Page 6

Water Demand Projections (000 m3) 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Staff Salaries 2,513 2,639 2,771 2,909 3,055 3,207 3,368 3,536 3,713 3,899

Social Fund 629 661 694 728 765 803 843 885 930 976

Materials 3,344 3,511 3,686 3,871 4,064 4,267 4,481 4,705 4,940 5,187

Electricity Costs 7,916 9,198 10,689 12,421 14,435 16,776 19,497 22,660 26,338 30,613

Other Costs 332 348 366 384 403 424 445 467 490 515

Maintenance all new Assets 2,723 1,046 1,255 1,606 2,313 888 1,066 1,364 1,964 754

Depreciation 5,446 5,228 5,019 4,818 4,626 4,441 4,263 4,092 3,929 3,772

Cost of WW Sold 3,018 3,168 3,327 3,493 3,668 3,851 4,044 4,246 4,458 4,681

Gross Profit on Sales 22,280 23,495 24,752 26,055 27,407 28,811 30,271 31,789 33,370 35,018

Other Operating Income

Gross Profit on Sales 22,280 23,495 24,752 26,055 27,407 28,811 30,271 31,789 33,370 35,018

Selling Expenses 6,561 6,889 7,233 7,595 7,975 8,373 8,792 9,232 9,693 10,178

General Administrative Expenses 7,188 7,547 7,925 8,321 8,737 9,174 9,633 10,114 10,620 11,151

Other Operating Costs 6,889 7,233 7,595 7,975 8,373 8,792 9,232 9,693 10,178 10,687

Total Other Operating Expenses 20,637 21,669 22,753 23,890 25,085 26,339 27,656 29,039 30,491 32,015

Total Operating costs 49,575 50,637 53,886 57,615 62,081 64,848 69,706 75,241 81,711 87,094

Operating income 1,643 1,825 1,999 2,164 2,322 2,472 2,615 2,750 2,879 3,002 Interest expenses 2,894 2,684 2,466 2,238 2,001 1,754 1,496 1,226 946 653

Taxes

Income/Loss for the period (1,251) (859) (467) (74) 321 718 1,119 1,524 1,934 2,350

Income before interest 1,643 1,825 1,999 2,164 2,322 2,472 2,615 2,750 2,879 3,002

income before interest and depreciation 7,089 7,053 7,018 6,983 6,948 6,913 6,878 6,843 6,808 6,774

Debt Service Ratio 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00

Cash Operating Ratio 0.97 0.97 0.96 0.96 0.96 0.96 0.96 0.96 0.97 0.97

69

Annex 8: Governance

Governance Assessment - Objective

1. An assessment to identify opportunities for medium-term capacity building and

institutional strengthening interventions to strengthen DVK management was conducted between

February 7- 21, 20011. The purpose of the assessment was to analyze the institutional and

political factors affecting the management, performance and accountability of DVK and to

identify appropriate and implementable entry points and achievable milestones to be

implemented under DWSP2.

2. The analysis and recommendations are based on discussions with a range of stakeholders,

including the Director of DVK, the PCU Director, Deputy Mayor, the department of complaint

handling in the Municipality, the press office of the Municipality, the Consumer Union, the

Home Owners Association, and international organizations and donors. A World Bank

Governance Trust Fund funded the study.

Key messages

i) Linking disbursements to performance. An assessment of DWSP indicates that

DWSP2 will be more effective if performance conditions that trigger release of funds

are incorporated into the design.

ii) Mainstreaming Incentives. Incentive mechanisms should be mainstreamed, both

within project design and DVK operations. Under present arrangements, managers

and staff have little apparent reason to change practices or achieve time-bound

results. Political will and professional pride, while they may exist in some measure,

are insufficient to improve performance. Incentives must go beyond financial

remuneration and bonuses, particularly since there are presumed to be countervailing

financial incentives (informal payments).

iii) Risk that outside intervention will not achieve intended impact. DWSP revealed

internal resistance to externally-driven assistance, through lack of cooperation with

the Private Management Operator contracted under DWSP1 and severe delays or

nonimplementation of components. External assistance can sometimes serve more

like a patch, leading to superficial changes without addressing the core issues. To

increase the chances that recommendations prepared by the World Bank or expert

consultants (e.g., M&E, mission statement, incentives structures, communication,

etc.) are accepted and implemented, analysis and recommendations should be

developed in close coordination with local partners (e.g., DVK, PCU).

iv) Improve monitoring with DVK. As long as DVK management does not know or

demonstrate concern for monitoring its operations, progress will be compromised.

Analysis and evaluation will be difficult if not impossible. While external monitoring

will be necessary and critical, developing and internalizing a corporate norm of

monitoring will be as important.

70

v) Tajikistan’s institutional environment, although challenging, is only one factor.

DVK’s relatively poor performance to date cannot be entirely blamed on the weak

institutional environment (or even on the local mentality, a factor often voiced by

local stakeholders). Other utilities, e.g., Khujand Vodokanal and Barki Tojik, have

demonstrated that, even if they still have far to go, significant progress is possible

under local circumstances.

Findings and recommendations

3. Preliminary findings indicate a critical need to improve DVK’s institutional capacity and

management quality to ensure achievement of project outcomes, timeliness of project

implementation and financial sustainability of DVK.

DVK Management

Issues. DVK technical and managerial capacity is inadequate to meet the needs of an

efficient and effective water company. This is reflected in DVK’s poor performance.

Contributing factors include lack of independent decision making and relatively high

turnover of DVK directors. Short-term appointments or an environment of frequent

management turnover reduces the incentive to promote changes at DVK. Interference by the

municipality in utility and project decision making reduces autonomy. Furthermore, while

accountability to the municipality for errors or service problems may be stringent,

accountability for improving overall performance is low. This is partly related to poorly

aligned incentives, to an old-style bureaucratic company culture, and to poor record keeping.

The low attention given to customer service (there is no dedicated customer service

department) and cost recovery clearly signals that they are not priorities. Enhanced

institutional governance and capacity are needed to improve the sustainability of DVK’s

assets and operations.

Recommendations. It is therefore recommended that a well-qualified DVK director,

committed to achieving results, be appointed prior to start of project implementation. The

director should be appointed through a transparent, competitive process with the

participation of the World Bank. Ensuring that DVK is led by such a director would go far

toward demonstrating the Hukumat’s commitment to municipal water sector reform. The

appointment of a good leader should be complemented by the appointment of Strategic Task

(ST) managers (in charge of implementing the Tasks outlined in the Strategic Action Plan

that will transform DVK operations). ST managers may be new hires or existing line

managers.

Mission statement

Issues. It is unclear what guides DVK’s operations, beyond addressing technical problems

on an ad-hoc basis (and is understandable, given its financial difficulties). Well-performing

water utility companies have a clear and well-defined mission statement, or corporate vision,

which guides management and employees in their work, create norms and provide focus,

something which DVK lacks at present.

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Recommendations. To promote a new corporate culture, DVK management is highly

encouraged to develop such a statement. It would serve three purposes: i) focus management

and staff on the essential purpose of their company; ii) guide actions and priorities and

responses to issues; iii) help to promote create an esprit de corps. It is important that the

discussion of a company vision, which would develop into a mission statement, begin

internally and in a consultative process.

Performance capacity

Issues. The capacity of DVK staff is currently very low. This is largely related to poor

qualifications, limited experience, and high turnover. Currently DVK employs 980 staff. HR

reports that there are 1,145 positions and the balance of 165 are vacancies. Although DVK is

not significantly overstaffed, its personnel often lack qualifications, equipment and

incentives to improve service performance. Staff skills are not in line with operational

requirements. There is no competitive selection process, leaving hiring decisions at the

discretion of managers. DVK also lacks the required technical capacity and modern

equipment (hardware and software) to improve service delivery, corporate performance and

efficient O&M. Current accounting systems are outdated and the absence of customer

database makes cash flows and payments difficult, if not impossible, to track. Nonetheless,

there are at least two reasons to work at a company like DVK, despite low remuneration.

First, high unemployment levels make any sort of employment attractive. Second, it can be

assumed that employees in at least some departments are able to benefit from informal,

nonwage payments.

Recommendations. A functional review should be undertaken to determine future staffing

needs. Improvements in Human Resource Management are essential to promote an

environment of transparency and objectivity in hiring and firing practices in DVK. In order

to be effective and reduce waste of resources, training programs or activities should be

targeted at DVK employees who can benefit the most. It is recommended that an employee

assessment be used to determine training needs. There is also the risk that employees who

receive training will leave the company after their skill set makes them more marketable.

High turnover of staff at DVK appears to be a recurrent problem. Therefore, training

programs should be designed and integrated with other measures (including higher salaries,

introduction of performance incentive system, etc.). It will also be important to create a

simple monitoring system to determine whether those designated for training actually

receive it, whether it makes any difference to the performance of their department, and how

long they remain employed after training is received. The training program can then be

reviewed periodically.

Performance Incentives

Issues: A critical issue at DVK is the absence of performance targets and performance-

related remuneration. This is not in line with good industrial practice. It can be assumed that

incentives are in place at DVK, but they do not necessarily lead to maximizing DVK

revenue. This is because many of them are informal and work against company interests.

Thus, an incentive strategy will need to take into account not just the introduction of new

incentives but the need to override (and eliminate) old incentives (of the informal kind).

72

Only the collections department has a formal incentive system, whereby collectors receive a

percentage of the amounts collected, if the collection rate hits certain targets. Yet even this

department has a high number of vacancies, suggesting the incentive system is inadequate,

alongside other issues. Basic salaries are low (average levels: TJS 275 for operational staff,

TJS 441 for administrative staff and TJS 814 for management), both in relation to the past

(five years ago they still compared favorably with other state entities) and in relation to other

utilities. In the economy as a whole, salaries increased by, on average, 40 percent per year

between 2006 and 2008, while at DVK they have been stagnant.

Recommendations: Well-aligned incentives will be critical to moving DVK to a

performance-based operation and will influence the success of DWSP2. They should be set

at sufficiently ambitious levels to ensure staff is motivated to reach the targets A number of

managerial and institutional key performance indicators should be proposed and the human

resource department should be in charge of managing these indicators, i.e., retrieving the

data, updating the data base, identifying trends and reporting those trends to the Director. In

addition to company performance incentives, incentives should be mainstreamed throughout

the project design as well, as they may be the most effective way of achieving results in a

low capacity and low motivation environment. Full commitment from the Municipality and

DVK management is required to introduce and implement performance incentive measures.

More broadly, a Compensation Review should be conducted to carry out a comparative

study of salaries across other utilities in the country and the regional at large which should

result in recommendations on future salary increases and staff performance measurements.

Accountability

Issues. At present, DVK management is not held accountable for poor results. Poor

performance on the part of DVK is overlooked or there appears to be no performance

evaluations in place. There are two types of accountability: i) external accountability,

referring to the utility’s responsibility toward outside stakeholders (the Hukumat, as the

owner and founder, and the donors, as provider of financing for outcomes) and ii) internal

accountability, referring to the fact that management and staff are responsible for

effectiveness and efficiency. Accountability should exist throughout the structure, so that

staff members are held accountable for work done by their subordinates, as well as being

accountable to their superiors.

There is a critical lack of accountability measures in place in DVK with respect to customer

relations and complaints handling, although the Municipality apparently has an effective and

functioning complaints department. Communication channels are limited via collectors who

are unlikely to pass on complaints and via various departments, which interact with

customers on an ad hoc basis. Similarly, continued poor implementation of donor projects

suggests there is also low accountability toward donors. At DVK, customer accountability is

not apparent without a dedicated customer service department or hotline.

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Recommendations. Accountability can be encouraged through i) awareness building and

training; ii) tracking progress through monitoring systems; iii) introducing incentives, both

rewards and sanctions; and iv) improving the "corporate culture."

Access to Information

Issues. Based on a review of the feasibility study and meetings, basic information—whether

concerning customers, leakage rates, tariffs, and many other issues—is often unreliable,

inaccessible, or nonexistent. The information vacuum makes diagnosing problems and

prescribing remedies difficult.

Recommendations. Information management is critical for efficient and effective operations

and responding to problems and opportunities. It includes collecting, storing, analyzing and

making information available. Addressing this situation should be a priority. As part of

DWSP2, it will be necessary to redress the information imbalance through a rigorous

monitoring program and constant presence. The project should aim to improve i)

communication and availability of basic information to customers and ii) installation of a

customer database in DVK. TojigGas and DushanbeGorSvet (the electricity company) both

have electronic databases through which they track and manage customer billing, suggesting

there is every reason to believe such a system can be replicated at DVK.

Nonpayment, underpayment and noncollection

Issues: Collectively nonpayment, underpayment, and noncollection present a major problem

for DVK, undermining its operations and its sustainability by constraining investments.

Nonwillingness to pay for water services is a result of one or a combination of the

following: i) poor quality water; ii) socioeconomic conditions; iii) inequitable billing, with

charges unrelated to usage; iv) absence of a customer contract; v) collectors willing to

collect less than the amount prescribed by the norm; vi) perception of corruption. Currently

customers and DVK may be engaging in a bargaining relationship with negative equity,

transparency and fiduciary implications.

Recommendations: To put the company on a reliable footing, the status quo will need to be

transformed from a bargaining into a transparent transaction relationship. This issue should

be quantified and explored further as part of the customer survey. Here again, improved

access to information combined with public awareness (to change customer consumption

habits due to newly installed metering systems) should be an essential part of DWSP2.

Civil society

Issues. Civil society in Tajikistan is weak as it relates to consumer or homeowner rights.

There are no NGOs, as far as can be determined, actively engaged on Dushanbe water

issues. Combined with the lack of access to DVK via a customer service department, this

has the effect of severely limiting consumer voice, despite consumers comprising the most

affected stakeholder group. To the extent that they are addressed, water issues fall under the

purview of the mohalla committees (nonformal, but often effective district/neighborhood

74

groups who elect volunteer representatives and act as community-driven self-help

organizations) with whom the Hukumat engages on a regular basis.

Recommendations: Include members of Home Associations and mahallas in discussions on

reform. Decisions on who is selected should be made in a transparent manner.

Monitoring and evaluation

Issues. The draft ICR stresses the critical role of data gathering, monitoring and evaluation

to project success. Monitoring is rudimentary while evaluation is a new and untested

concept at DVK. Data was often not made available, making calculations and reporting

difficult. For example, monitoring of water pressure or leak detection was not undertaken.

Most importantly, there appeared to be no interest on the part of DVK to track its systems or

progress.

Recommendations. Given the information and accountability deficit, a strong monitoring

and evaluation component will be critical to project success. It will signal to the borrower

that activities and results matter. It will allow project implementers and DVK staff and

managers to track their own progress and analyze weaknesses (although first a culture of

hiding deficiencies will need to be overcome). There should be a clear and (relatively easy)

indicators, progress should be prominently displayed (e.g., by hanging charts on the walls)

and results should be independently evaluated. Involving the state statistics department

should be considered as they have the authority to collect information and also sanction the

agency if distortions are found. Independent external monitoring should also be conducted

for medium-term and final evaluations.

Institutional Strengthening Actions

An Action Plan has been developed that outlines entry points under the project and the key

areas of intervention required to improve DVK performance with respect to indicators of

good governance. Prior to starting project implementation, it is essential that the following

improvements in technical capacity are carried out to ensure smooth and efficient

management of DVK during and after completion of the system:

Technical Actions:

a. Modernization of the billing and collection system shall (and can) be done before

start of physical works under the project.

b. Inventory and installation of a Customer Database and identification of current and

future customers.

c. Installation of accounting software is envisaged before project implementation and

corrective measures will be instituted to improve accounts payable and receivables in

DVK.

d. Promote metering.

Institutional Actions:

75

a. Revise customer contract.

b. Institute a dedicated customer relations department, including hotline phone service.

c. Establish a reliable customer feedback mechanism.

d. Establish a Compensation Review Committee consisting of relevant government

decision makers (Mayor, DVK director Ministry, etc.) to review current DVK staff

salary levels as compared to salaries at other utilities in Tajikistan and submit

proposal to revise and increase salary levels to relevant authority.

e. Development of a Communications Strategy and Public Awareness Campaign and

improve public access to information of tariffs, improvements under the project and

expected change in customer habits.

f. Staff training is expected during project implementation phase, civil works phase and

at the completion of system construction.

g. Updating terms of reference (TOR), i.e. roles and responsibilities as part of the

Institutional Assessment.

h. Hiring of relevant technical and administrative staff.

Performance Action Chart

DVK Performance Action Chart illustrates graphically the linkage between the critical

governance elements: capacity, transparency, accountability and performance incentives.

Central to improving governance is political will and commitment (through the Municipality and

DVK) without which most efforts in this area risk being wasted. A key issue is communication,

which is mainstreamed throughout the strategy. Establishing a norm of good communication can

achieve the following:

i. Faster identification of problems and response time

ii. Keep processes on track and reduce chances of implementation drift

iii. Better customer outreach and information sharing increases DVK’s accountability

iv. Increase trust between partners (team building)

v. Information becomes more available

vi. Faster response to problems as they arise

There are four dimensions to communication; each will require attention and a specific strategy

and each needs to be given careful consideration:

External communication – Project Implementation

External communication – DVK Operations

Internal communication – Staff

Internal communication – Management

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Fig 2: Operational Performance Improvement Actions Chart

77

Annex 9: Social and Customers Satisfaction Survey

Second Dushanbe Water Supply Project

Terms of Reference

Project Background

1. The Republic of Tajikistan is to receive a Grant from the International Development

Association (IDA) toward the cost of the Second Dushanbe Water Supply Project (DWSP2). The

overall objective of the project will be to improve water supply service delivery and efficiency in

selected areas of Dushanbe. This will be achieved through (i) urgent reconstruction and

rehabilitation works; (ii) installation of meters, leakage reduction and demand management

programs; and (iii) utility capacity building for improved customer service, HR management and

investment planning. As part of preparation (and subsequent implementation) of the project, the

Government of the Republic of Tajikistan will carry out a Customer Satisfaction and Social

Analysis Study (CSSS) (activity A of this TOR) in Dushanbe before, during and after the

investments are completed. These terms of reference provide a brief description of the project, as

well as the objectives and scope of work for the consultant firm who will carry out the tasks.

Project context and scope

2. The project will finance the following components: (i) Metering and Demand Management;

(ii) Water Quality Improvement; (iii) Institutional Strengthening and Capacity Building, and (iv)

Implementation Support. Depending of funding available, the components may include:

(a) Metering and Demand Management: Water demand management will aim to reduce

the volume of water produced per capita to a reasonable level. This will include (i) the

introduction of water metering for each household, (ii) a strategy for reducing the leaks within

residential buildings with common internal networks, (iii) a connection replacement program,

and (iv) a public communication and awareness campaign.

(b) Water Quality Improvement: Priority rehabilitation works will support urgent design,

repairs and rehabilitations to improve the reliability of water supply and its compliance with

drinking water standards. The component will cover two or more of the following activities: (i) a

new pump station facility and reservoir for the Napornaya water treatment plant (NAP); (ii) the

renovation of chlorination facilities in three production stations (NAP, Kafarnigan Wellfield

(KAF)-east, KAF-west and Southwest Wellfield (SWW); (iii) the renovation of rapid sand filters

at Samotechnaya water treatment plant (SAM); (iv) the renewal of around 7 percent of the

distribution network due to the high number of pipe breaks, which cause frequent supply

interruptions and water losses; and (v) rehabilitation, replacement or installation of production

water meters. Priorities will be selected with the Client during project preparation, accounting for

available cofinancing.

(c) Institutional Strengthening and Capacity Building. Management strengthening and

capacity building of DVK will aim to improve DVK operational performance and build its

strategic planning capacity. It will include (i) building DVK’s capacity for modern and effective

HR management, (ii) procuring maintenance equipment, (iii) implementing a Water and

Sanitation Master Plan and financial model, (iv) improving and updating the customer database

78

and introducing billing based on metered consumption, (v) an energy audit of DVK operations,

and (vi) implementing a training plan.

(d) Implementation Support. Project implementation support will cover staff, equipment

and operating costs of the PCU and of an international implementation consultant.

The contract will require distinct types of activities, each of which is described below.

Customer Satisfaction and Social Analysis Study (CSSS)

General Background and Objectives

3. The purpose of a CSSS is to obtain quantitative and qualitative data to inform an indicator of

project achievement—improved potable water supply service as assessed through customer

satisfaction. In general terms, the CSSS is used both as a benchmark for project baseline and as

an input to project design. It presents an opportunity to gather data from project beneficiaries to

inform both project design and implementation. The CSSS will be based on an overall

understanding of the social and institutional context of the project and its proposed interventions.

It will assess current needs, concerns and expectations of project stakeholders (including

customers). This ensures project activities respond to the needs of the target groups, identifies

specific concerns of vulnerable groups and provides an avenue to articulate the concerns of the

range of stakeholders. During implementation this tool will monitor project impacts by assessing

the immediate and long-term effectiveness of implemented activities. The CSSS will make

practical, concrete recommendations regarding ways to increase the positive impact of the

project and mitigate any negative impacts with a special focus on ensuring that no subgroup is

rendered unduly vulnerable, isolated or ignored.

Methodology

4. The Customers Satisfaction and Social Survey will be conducted during project preparation to

serve as a baseline and inform project design. This study will be adapted to be repeated annually

(or on a different scheduled is so agreed with the client) during project implementation to inform

activities and assess their impacts. It will also be the primary tool to inform about the baseline

against which progress will be measured at the end of project (evaluation). This contract will

only be for the first CSSS, which includes the designing of the subsequent annual studies but not

carrying them out. These will be contracted separately. The study will use a combination of

quantitative and qualitative research methods, including household surveys, focus groups and

case history. Each methodology will focus on the range of focus issues (see below) most relevant

to that set of informants. While the focus will be on the customer groups, key informants

(interviews and focus groups) in the Municipality and DVK will also be targeted to ensure a

comprehensive understanding of the issues.

5. Sampling: The sample size is expected to be approximately a 1 percent (1,600

households/commercial enterprises) of the current customer base. In order that the sample is

representative, the criteria for selection of households should take the following into

consideration: a) type of habitat (house, apartment building or commercial enterprise); b) height

of apartment, specifically the floor (30 percent of samples should be at the 1st floor and 70

79

percent at the highest floors of the building—top 2 floors; c) service area/source of potable water

(SAM, NAP, SWW, KAF); and d) socioeconomic status (to be assessed by living standards,

channels to voice concerns, use of informal procedures, job profile, etc.) in the case of

households and size of enterprise (small, medium, large) in the case of commercial enterprises;

d) household connection or public standpost.

6. Focus Issues of the CSSS: Includes elements of potable water supply services relating to users

and service provider. The indicators that will be used to determine the success of the project are

(a) coverage and reliability of public water supply, (b) quality of drinking water treated, (c)

efficiency, (d) collected revenue from sales to domestic and commercial customers, (e) ability to

effectively meet demands of vulnerable sub-groups, and (f) percentage of customers satisfied

with the service.

To promote the continuous improvement of potable water supply service to users the following

issues should be highlighted in the study:

i. Access to water supply and waste water services for the different subgroups of customers

ii. Provision of service

a. Application for service – time to establish new service provisions, repairs and price of

service.

b. Drinking water supply – quantity of drinking water supply, pressure of drinking water

supply, continuity of drinking water supply(hours per day/fluctuations in seasonal

availability), coverage and availability of drinking water services.

c. Drinking water quality (purity, color, taste, odor) and aesthetic aspects of water.

iii. Contract management and billing

a. Service agreement – availability of a clear service agreement.

b. Billing – accuracy of billing, response to billing complaints, clarity of billing and

methods of payment.

c. Unit of billing – how billing is organized in apartment blocks, tallying actual usage

with reported number of users, adjusting for fluctuations in use due to migrant

workers and other factors.

iv. Promoting a good relationship and channels of communication between the water authority

and users

a. Contact with users – written contacts, telephone contacts, user visits to the offices of

the water utility, visits of authority personnel to the user, notification of restrictions

and interruptions and availability of information, gaps or specific issues where

information is lacking.

b. Grievance channels – ease of access and time for processing enquiries, complaints

and requests.

c. Channels of communication to public – accessibility of information on DVK services,

information to public on planned works and disruption.

v. Safety and emergency management – channels to alert on emergencies, time and

effectiveness of the response.

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vi. Identification of different user subgroups – disaggregated by socio-economic status for

household and enterprise size for commercial enterprises, housing type/location of housing,

channels to voice concern, access to reliable service, etc.

vii. Informal channels and procedures in use – alternative channels of sources/access to water

for underserviced areas, informal means to cut queues for new connections, manipulation of

meter readings and bill payments, etc.

viii. Ability and willingness to pay – suitability of current tariff, conditions under which increase

tariff would be acceptable, etc.

ix. Expenses incurred due to lack of availability of potable water, such as in house purification

filters, boiling water, purchase/borrowing of water from neighbors, alternative sources or

informal vendors, health costs due to infections linked to impure water. etc.

x. Trust in water institutions and understanding the roles of water institutions.

7. The above issues will be covered as relevant to the different user groups, using the range of

techniques mentioned in the methodology section. Some areas will be better addressed through

the individual surveys (e.g., ability to pay), whereas others like trust in water institutions and

public information channels will be discussed in the focus group discussions. The case histories

will be done on select informants with focus on relevant issues.

Composition of Team:

8. The consultant will propose the composition of the core team and field supervisors. It is

suggested that the core team include at least the following: applied sociologist/anthropologist,

statistician, survey specialist and institutional specialist. It is suggested that field teams should be

trained together to assure consistency and quality. The consultant will decide how many field

teams the core team can successfully train and supervise to obtain quality field data.

It is recommended that the team proceed with its work in the following stages:

Brief field visits to few sites

Draft common instruments for interviews, focus groups and case history and submit for

review

Determine sample as per criteria and submit for review

Field training and field test instruments and approach on a sample (one week)

Complete field investigations and collate data (two weeks)

Draft reports

Submit draft reports for review

Deliver final report

Output

9. The social scientists whose services are procured through this contract will produce the

following:

i) An inception report, which will include a work plan for the duration of the consultancy, a

detailed methodology, sample questionnaires for the range of stakeholders, focus group

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discussion guiding points, a rationale for the choice of sample, field staffing, focus issues for the

analysis and a plan for data storage, handover and ongoing study during implementation. The

World Bank will review the methodology and questionnaire.

ii) A draft, which the World Bank will review and comment on, and then a final report on the

assignment, including executive summary, methodology used, analysis of findings for each focus

topic in the study, operational recommendations for project design and implementation. The

report will also include the design (methodology and focus issues) for the repeater annual studies

planned during project implementation, taking into account the sequencing of project activities

and the resource constraints. The report will give consideration to specific context of the

investment and relevant topics identified as elements of the drinking water services relating to

users to identify and assess risks and to develop recommendations for maximize benefits from

the design and implementation of the project. The reports must be brief and readable so that they

can be understood and used by project staff, design contractors, local leaders, staff of the local

water company and the general public. The data will be handed over and relevant training given

so it can be used as a monitoring tool during project implementation.

Deliverables

10. The consultant will conduct this first survey and produce outputs as outlined in the section

above (output).

11. Subsequent surveys and assessments will be contracted out separately during project

implementation and will follow this schedule approximately: surveys over a period of 4.5 years

and produce 4 or 5 reports. The first survey and report will be used as the baseline to measure

progress and impacts made by the projects. The second survey will be administered after two

years of project implementation and will be completed with a full analytical report of the

progress made and the impacts achieved by the investment. Finally, the consultant will

administer two subsequent surveys—annually on year three and four of implementation and the

final survey (year four) will be used to prepare the final report, which will summarize project’s

impacts.

12. The report for this first survey (scope of this consultancy) will be prepared in Tajik (or

Russian) and in English both in hard copy and electronic version, along with qualitative and

quantitative data (SPSS format) and a codebook. Draft documents are to be submitted to DVK as

they are prepared. DVK will forward the copy of the report to the financiers, allowing two weeks

for comments before preparing the final versions of the reports.

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Annex 10: Map

KAF

SAM

NAP

SWW

DushanbeAirport

Varzob RiverLushob River

Gissar Canal D

ushanbe ska River

Kafir

nigan

Rive

r

ISMAIL SOMONI

KARAMOVA

RUDAKI

RUDAKI

ACADEMIC GHAFUROV

NABIEV

NABIE

V

DJAMI

ABAYA

SHESTOPAVLOV

AINI

TITOV

DRUZHBA NARODOV

KORGAR

BORB

AD

NEGM

ATA

KARA

BAEV

A

HAFIZA SHEROZI

PROF

SIUZO

V

RUDAKI

AINI

AHMED DONISHKARAMOVA

0 1

0 1 2 Miles

2 Kilometers

TAJIKISTAN

SECOND DUSHANBE WATER SUPPLY PROJECTMain Components of Water Supply System

WATER TREATMENTPLANTS AND WELLFIELDS

THIRD STAGE PUMPING STATIONS

TREATED WATER STORAGE

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other informationshown on this map do not imply, on the part of The World BankGroup, any judgment on the legal status of any territory, or anyendorsement or acceptance of such boundaries.

MAIN ROADS

SECONDARY ROADS

RAILROADS

IBRD 38511

MAY 2011

TAJIKISTANDushanbe