Box1:ProjectOverviewPFSperiod Feb2014–July2014Focussectors

Wastewatermanagement;watersupply

CDIAsupportedactivities

(i)PFSonwastewatermanagementandwatersupply;(ii)PreparationofIntegratedUrbanInfrastructureProgram;(iii)CapacitydevelopmentforDarkhanCityGovt

L2FStatus FundedbyADBandDAG

TRACERSTUDYOFPFSINTERVENTIONSINDARKHAN,MONGOLIA(ConductedbyR.BaoyandB.Capati,April2018)

BackgroundofCDIAInterventionDarkhanisthethirdlargesturbanareainMongolia(after Ulaanbaatar and Erdenet) with an urbanpopulation of 75,000, of which an estimated 40%live in ger (traditional tent) areas. Darkhan islocated 220 km north of Ulaanbaatar and 130 kmsouth of the Russian Federation border. The citywas foundedas an industrial center in1961and itcontinuestoplaythisroleuntilthepresenttime.TostrengthendevelopmentofsecondarycitiesandtomitigatemigrationofpeopletoUlaanbaatar,wherealmosthalfofthecountry'spopulationresides,theGovernment of Mongolia, in 2012, identifiedDarkhan as a national model city for urbansustainability and livability with a vision ofbecominga“smartandgreencity”by2028.Moreover,thedrafturbandevelopmentmasterplanfor Darkhan aims to improve existing urban districts and ger areas, expand industrial andresidentialareasanddevelopenvironmentalprotectionzonesparticularlyalongtheKharaariver.Inpursuitoftheaboveplans,theDarkhanlocalgovernment(Darkhan-Uulaimag) hasprioritizedinvestments in water supply and sanitation fully recognizing the issues facing the sector.WhileDarkhanhasgoodwaterresources,waterqualityproblemsareexperiencedatthepointofdeliveryduetopoorconditionofthe50-yearoldpipenetworkresultinginanoverallleakagerateofabout50%andnon-revenuewaterlevelof48%.Watersupplyandsanitationconditionsingerareasarepoorwithwatersupplyonlyobtainablefromwaterkiosks.Bothwatersupplyandsewernetworksin apartments and low-rise housing in the core urban areas suffer from ageing and dilapidatedinfrastructureresultinginsignificantleakageandfrequentsystemfailures.

Built in 1965, the city’s wastewater treatment plant(WWTP), sewer network and pumping stations are inurgent need of structural rehabilitation andreplacement.ManycomponentsoftheWWTP(designedfor 50,000 cum/day but only operating at 9,000cum/day) are out of commission while three sewersections and two pumping stations need urgentreplacement. Frequent breakdowns of the existingwastewater collection and treatment system causeuntreatedwatertodischargeintothegroundwaterandthe Kharaa River. Sanitation in ger areas comes in the

formofon-plotpitlatrineswhichcausesoilandgroundwaterpollution.Gerareasarenotservedbythecitywastewatersystem.Darkhan-Us Suvag (DUS), a public company fully ownedbyDarkhan-Uul aimag (DAG) is the soleinstitutionresponsibleforwatersupplyandwastewatermanagementservicesinDarkhancity.Forseveralyears,DUShasbeenfacingmajorchallengesinrunningitsbusinessdueto:(i)accumulated

Fig. 1: Existing central wastewater

treatment facility in Darkhan

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financial losses; (ii) ageing facilities, equipment and technologies; (iii) high operational andmaintenancecost;(iv)highsystemlosses;and(v)lowwatertariff.In order to address the above issues and in line with the government plan tomake Darkhan a“smart and green city” and a “model city for urban livability” by 2028, the local government ofDarkhan submitted an application for technical assistance to CDIA in November 2012 in thefollowingareas: (a) formulationofapre-feasibilitystudy (PFS) forprioritizedurbanWaterSupplyand Wastewater Management Infrastructure Improvement for the city of Darkhan; (b)developmentofanIntegratedUrbanInfrastructureInvestmentProgram(aspartofthePFS);andc)enhancing the capacity of the city government to prepare, implement and operate publicinfrastructureprojectsinthewatersupplyandsanitationsector.As part of its internalmonitoring and evaluation processes, CDIA conducted the tracer study inDarkhan City in April 2018 to track progress, effectiveness and results of its completedinterventions.Followingisasummaryofthetracerstudyfindings.ProgressofImplementationasofMarch2018Following the approval of the city application, CDIA deployed a consulting team to Darkhan toassist the city in preparing the PFS and an integrated urban infrastructure investment programfrom February to July 2014.Working closelywith the Darkhan local government, the consultingteamcompletedthePFSonWaterSupplyandSanitationInfrastructureImprovementProjectforDarkhan inJuly2014withthefollowingshort-term(upto2020)recommendations:a)monitoringofwaterextraction;b)rehabilitationof27kmofwaterpipelinesandreduceleakagesfrom48%to35%; c) rehabilitation of water pipelines in 17 apartment basements; d) remote controlledmonitoring of 4,000 water meters; e) rehabilitation of 6.2 km of existing sewer pipelines; f)rehabilitationofboosterpumps in3seweragepumpingstations;g)constructionorrehabilitationofcentralwastewatertreatmentplant;andh)extensionofwatersupplyandsewerageservicesingerareas.Over the long-term (up to 2030), the CDIA consultingteam recommended the following: a) remotemonitoringofwellsandcontrolofgroundwaterpumps;b)rehabilitationof30kmofwaterpipelinesandreduceleakages from 35% to 15%; c) remote controlledmonitoring of 3,277watermeters; d) rehabilitation of20kmofexistingsewerpipelines;e)remotecontroloroperation of 3 pumping systems; f) optimized dailyoperation process of central wastewater treatmentplant; and g) extension ofwater supply and sewerageservicesingerareas.WastewaterManagement(Sanitation)ProjectComponentPriortothePFScompletioninJuly2014,theGovernmentofMongoliawasablesecureatechnicalassistance (TA) grant from ADB for the preparation of the Darkhan Wastewater ManagementProject.TakingintoconsiderationthekeyrecommendationsoftheCDIAPFS,acomprehensiveTAreport on the Darkhan Wastewater Management Project was completed in September 2014.Subsequently,the$18.5millionADBloan(Loan3244-MON/Loan3245-MON)anda$0.4millionTAfortheDarkhanWastewaterManagementProjectwereapprovedinDecember2014.

Fig. 2: Ongoing maintenance works of

sewer pipes near the WWTP

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In linewith theCDIA-proposed strategy and investment program for thewastewater sector, theproject aims to improve the system for wastewater collection and treatment in Darkhan anddeliver the following outputs by 2020: i) improved wastewater treatment plant (WWTP) withcapacityincreasedfrom12,000cum/dayto16,000cum/day;ii)rehabilitatedpumpingstationsandsewerpipes;andiii)improvedprojectmanagementcapacityofDAG(seeTable1belowfordetails).As of March 2018, project implementation is ongoing with the DAG as the lead implementingagency supported by ProjectManagement Unit (PMU) and a local project steering committee.UndertheDAGsupervision,aProjectImplementationUnit(PIU)hasbeenestablishedwithintheDUS for managing and supervising project implementation. Two national competitive biddingcontracts for rehabilitation and construction of heating supply pipelines and sewers and theinternational competitive bidding contract for improvement ofWWTP and pump stations havebeenawarded.

Table1:DarkhanWastewaterManagementProject:Outputs,TargetsandCostOutputs Targets Cost(mil$)

1. Improvedwastewatertreatmentplant

WWTPprocess improvedandcapacity increasedfrom12,000cum/day to 16,000 cum/day; wastewater effluents meetsnationalstandards

15.00

2. Rehabilitatedpumpingstationsandsewerpipes

Two pumping stations renovated and fully equipped,operating efficiently at 10% reduction in operating cost; 1.8kmofsewerpipesreplaced

1.67

3. Projectmanagementandcapacitydevelopment

Newoperationalandfinancialmanagementsystems installedatDUS;10trainingsessionsonfinancialmanagement,projectmanagement and O&M of WWTP; tariff increase reviewed,proposedandconsidered

1.80

Total 18.47Source:ADB.2014.ReportandRecommendationsofthePresidenttotheBoardofDirectors:ProposedLoansandTechnicalAssistanceGranttoMongolia:DarkhanWastewaterManagementProjectUsing the QCBS method, consultants were mobilized in September 2016 to provide projectmanagement and capacity development support including preparation of bidding and contractdocuments, developing detailed design and tender documents and delivery of trainings,safeguardsreportsandactionplans.Project implementation is on track and progress was assessed by the ADB mid-term reviewmissiondispatchedinMarch2018assatisfactory.In2017,theprojectencounteredaminordelaywhen the DAG did not comply with ADB procurement guidelines but the PMU was able topromptlyaddressthisissue.SavingsrealizedbytheProjectManagementOfficeintheamountof$1.5millionwillberealignedandusedforrehabilitationofanadditional8kmofsewerpipelinespreviouslyidentifiedandprioritizedintheCDIAPFS.

Table2:ProjectAccomplishmentsasofMarch2018Outputs Accomplishments

1. Improvedwastewatertreatmentplant

ContractA1forimprovementofWWTPandpumpstationswassignedinDec2017withthesuccessfulbidderthroughICBprocess.Thecontractcommencedon4Jan2018andexpectedcompletiondate is10June2020,whichwillbefollowedbya12monthO&Msupport.

2. Rehabilitatedpumpingstationsandsewerpipes

The output includes two civil work packages: (1) rehab of a 1.1 km-long dualdistrict heating pipe and installation of new equipment for the pumping stationNo. 3 (Package A2-1); and (ii) renovation of 7.4 km sewerage system pipelines(Package A2-2). These two civil works were procured through NCB procedures.Commencedon11August2017,civilworkswillbecompletedon30October2018.

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ProgressofthecontractA2-1andcontractA2-2is36%and41%respectively.Dueto completion of the construction season, the civil works were stopped inNovember2017andwillresumeinApril2018.

3. Projectmanagementsupportandcapacitydevelopment

Consultants,selectedusingtheQCBSmethod,weremobilizedinSeptember2016.The consultants: (i) preparedemployer’s requirements andbidding and contractdocuments forPackageA1; (ii)developeddetaileddesignandtenderdocumentsforOutput 2 civilworks contracts; (iii) assisted theMinistry of Construction andUrbanDevelopment(MCUD)andDAGinthetechnicalandfinancialevaluationofPackageA1bids;(iv)deliveredtrainings,safeguardsreportsandactionplans,andotherdeliverablesperthetermsofreference.

Source:DarkhanWastewaterManagementProjectDataSheetasofMarch2018WaterSupplyProjectComponentKey PFS recommendations that wereimplemented by the DUS and DAG after 2014include:a)waterextractionmonitoringundertheGerman-funded Integrated Water ResourceManagement Project (MoMo project); b)rehabilitation of water supply pipelines; c)rehabilitation/replacement of pipelines inbasements of apartment buildings; d)installation/replacement ofwatermeters; and e)improvementofaccesstowatersupplyservicesingerareas.As a result of above initiatives, water connections increased from 50% to 65% of householdpopulationwhilenon-revenuewater(NRW)wasreducedfrom50%in2014to23%in2017.NRWlevel is expected to further declinewith the continuous rehabilitation ofwater supply networkbeingundertakenbyDUS.Intheabsenceofexternalsupport,thewatersupplyprojectcomponentrecommendationswereimplemented using local and state budget. Depending on the government’s fiscal position in agiven year, public investment inwater supply sector ranged from$0.15million to$0.75millionannually. Over the next four years, DAG has programmed $2.5 million for water pipelinerehabilitation.While extension of water supply network to ger areas has yet to be realized, improvement ofwaterandsanitationisincludedintheDarkhanGovernor’sActionProgram2020.AccordingtotheDirector of Operation and Maintenance Department of DAG, this action program took intoaccountthestrategyforextensionofwatersupplyintothegerareasrecommendedbytheCDIAPFSteam.CapacityDevelopmentComponentTheCDIAPFScarriedoutin2014adoptedaparticipatoryapproachwiththestudyteamworkingcloselywiththeProjectSteeringCommittee(PSC)composedof localcounterpartstafffromDUSandDAG.Fromtimetotime,intensivediscussionswereheldwithallkeystakeholdersatnational,aimag, soum (district) and household level to ensure responsiveness of the proposals tostakeholder needs. During the PFS implementation, training activities were conducted oninfrastructureplanningandoperationandmaintenanceofwater supplyandsanitation facilities.Moreover, the PSCwas involved in lengthy discussions regardingwater supply andwastewater

Fig. 3: Smart water kiosk supplying the water

needs of Ger area residents.

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technologyoptionsandtwoPSCmembersweresenttoSingaporetoparticipate in theEffectiveUrbanInfrastructurePlanning(EUIP)trainingin2014.

Apartfromformulatinganinfrastructureinvestmentplan, the CDIA PFS recommended capacitydevelopment measures aimed at establishing asustainable water supply and wastewatermanagement service provider. Following the PFSrecommendations, a capacity development TAfunded by a $0.4 million grant from the UrbanEnvironmental Infrastructure Fund (UEIF) wasattachedtotheADBloanwiththeprimaryobjectiveof improving theeffectivenessandefficiencyof theDUS.

TheUEIF-fundedTAwasimplementedthroughaGermanconsultingoutfitfromSeptember2016toJune2017.WithDUSasthemainbeneficiary,theTAwasabletodeliverthefollowingoutputs:(i) institutional, financialandoperationalperformanceassessment;(ii) institutional improvementactionplan;andiii)capacitybuilding,trainingandactionplanimplementationsupport.GuidedbytheTArecommendations, theDUShasstarted implementingkey institutional reforms including:(i)increaseinwatertariffforhouseholdsby30%andforindustrialandcommercialusersby45%inOctober2017;(ii)adoptionofaneworganizationalstructureincludingoutsourcingofnon-corebusinesses; and (iii) preparation and approval of the 2018 business plan using the templatedeveloped by TA consultants. Per the TA completion report of the ADB Project Officer, thesereformshavesubstantiallyimprovedthefinancialpositionandoperationalefficiencyoftheDUS.CDIAInterventionResultsTheCDIA-proposedstrategyandinvestmentprogramforwatersupplyandsanitationimprovementaimed atmodernizing and expanding thewater supply and sanitation system inDarkhanwith aview towards: (i) enhancing the service access by residents; (ii) improving system efficiency andsustainability; and (iii) providing an attractive environment for investment. In line with thesestrategicobjectives, theDarkhan localgovernmenthasgradually implementedprojects identifiedintheinvestmentplanusinginternalandexternalresources.Basedoninterviewswithkeyofficialsof Darkhan city government, these projects have, so far, yielded positive results that can beattributedtotheCDIAinterventionin2014.

EnhancedaccesstowatersupplyservicesGuidedbytheinvestmentplanpreparedbyCDIAin2014,theDUShasimplementedrehabilitationworks on the water supply network including replacement of old and dilapidated pipelines inbasements of apartment buildings and installation of water meters in all service areas. Theseinitiatives have reduced the proportion ofwater lost as non-revenuewater (NRW) from 48% in2014 to 23% in 2017 and increased the water service connections from 56% to 60% of 12,600households inDarkhansoum.Althoughhouseholds ingerareashaveyet tobeconnected to thenetwork,waterkiosksdirectlyconnectedtothenetworkincreasedfrom38in2014to50in2017,overhalfofwhicharenowconnectedtothewatersupplynetwork.ImprovedcapacityofwatersupplyandwastewatermanagementserviceproviderAccordingtotheADBprojectofficer,thecapacitybuildingprogramforDUSinitiatedbytheCDIAPFSteamin2014andsustainedfrom2016to2017undertheUEIFgrant-supportedTAattachedto

Fig. 4: One of 17 low-rise apartments whose

basement pipe network was rehabilitated

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the ADB loan has resulted in improved financial position of the DUS. Total revenues of DUSincreasedby17%from$1.48million in2016to$1.73million in2017,while financial losseshavebeen reduced by almost 60% from $0.58 in 2016 to $0.24 million in 2017. Based on the TAcompletion report of the ADB project officer, this can be largely attributed to the institutionalreformsimplementedbytheDAGandDUSin2017.ReplicationoftheDarkhanexperienceinotheraimags- inspiredbytheDarkhanexperience,nineaimags in Mongolia will soon implement wastewater projects with the support of ADB. GoodpracticesinDarkhansuchaspreparationofstrategicinvestmentplanwiththeactiveparticipationof local stakeholders,establishmentofaproject steeringcommitteeandbuilding thecapacityofservice provider will be replicated thereby achieving the original PFS objective of establishingDarkhanasamodelofexcellenceinurbanwatersupplyandsanitationservices.ConclusionandLessonsLearnedOverall, the findings of this tracer study show thatsignificant progress has been made by the city ofDarkhan in implementing the recommendations ofthe PFS on Water Supply and SanitationInfrastructure Improvement Project whosepreparationwassupportedbyCDIAin2014.Factorsthat facilitated the implementation of keyrecommendations in the PFS include: (i) strongownership of the PFS and urban infrastructureinvestment plan by the local government; (ii) goodcoordinationworkbetweentheCDIAPFSteamandthe ADB TA consultants; (iii) good project preparationwork done by CDIAmobilizing the activeparticipationofkeystakeholders in thecity;and iv) sustainedcapacitybuildingofkeyofficialsofDAGandDUS.Key lessons learned from the Darkhan experience include the following: (i) ensuring that keystakeholderstakefullownershipofthestrategicinvestmentplanandthePFSbyengagingtheminall phases of project preparation; (ii) importance of creating a Steering Committee composedofsuitablecounterpartstaffwithclear rolesandresponsibilitiesduringTA implementation;and (iii)valueofensuringcontinuityofcapacitydevelopmentprogramofPFScounterparts insubsequentproject preparation and implementation activities. Moving forward, the ADB project officer inchargeoftheDarkhanWastewaterManagementProjectnotedthatthelessonsfromDarkhanwillbe very useful in the ongoing effort of the government and ADB to improve the system ofwastewatercollectionandtreatmentinnineotheraimagsinMongolia.

Fig. 5: One of Ger areas to be covered by

future DUS service expansion