Document of The World Bank FOR OFFICIAL USE ONLY Report No: 80684-BY PROJECT PAPER ON A PROPOSED ADDITIONAL LOAN IN THE AMOUNT OF US$90 MILLION AND RESTRUCTURING TO THE REPUBLIC OF BELARUS FOR A WATER SUPPLY AND SANITATION PROJECT MARCH 5, 2014 Sustainable Development Department Ukraine, Belarus and Moldova Country Unit Europe and Central Asia Region This document is being made publicly available prior to Board consideration. This does not imply a presumed outcome. This document may be updated following Board consideration and the updated document will be made publicly available in accordance with the Bank’s policy on Access to Information. CURRENCY EQUIVALENTS (Exchange Rate Effective February 25, 2014) Currency Unit = Belarusian Rubles (BYR) 1US$ = 9,740 BYR FISCAL YEAR January 1 = December 31 ABBREVIATIONS AND ACRONYMS AF Additional Financing MS Moderately Satisfactory BOD-5 Biological Demand for Oxygen MU Moderately Unsatisfactory BP Bank Procedure NPV Net Present Value BYR Belarusian Ruble OP Operational Policy CAS Country Assistance Strategy PAD Project Appraisal Document EA Environmental Assessment PDO Project Development Objectives ERR Economic Rate of Return PE Population Equivalent EMP Environmental Management Plan PCRAP Physical Cultural Resources Action Plan FM Financial Management PCT Project Coordination Team FMR Financial Management Report POM Project Operational Manual FY Financial Year RAP Resettlement Action Plan GDP Gross Domestic Product RF Results Framework IBRD International Bank for RVP Regional Vice President Reconstruction and Development IDA International Development S&I Supply and Installation Association IFC International Finance Corporation SIL Specific Investment Loan IFI International Financial Institution VAT Value Added Tax IFR Interim Financial Report WSSP Water Supply and Sanitation Project IP Implementation Progress WTP Willingness to Pay ISR Implementation Status and Results Vice President: Laura Tuck Country Director: Qimiao Fan Sector Manager: Sumila Gulyani Task Team Leader: Stephane Raphael Dahan BELARUS WATER SUPPLY AND SANITATION PROJECT ADDITIONAL FINANCING CONTENTS Project Paper Data Sheet Project Paper I. Introduction 1 II. Background and Rationale for Additional Financing 1 III. Proposed Changes 6 IV. Appraisal Summary 8 Mandatory Annexes 1. Revised Results Framework and Monitoring Indicators 16 2. Operational Risk Assessment Framework 19 3. Project Map 25 BELARUS WATER SUPPLY AND SANITATION PROJECT ADDITIONAL FINANCING DATA SHEET Basic Information - Additional Financing (AF) Country Director: Qimiao Fan Sectors: Water Supply (25%); Wastewater Sector Manager: Sumila Gulyani Treatment and Disposal (35%); Wastewater Team Leader: Stephane Raphael Dahan Collection and Transportation (25%); Project ID: P146493 General water, sanitation and flood Expected Effectiveness Date:09/01/2014 protection sector (5%); Public Lending Instrument: IPF administration- Water, sanitation and flood Additional Financing Type: Scale Up protection (10%) Themes: City-wide Infrastructure and Service Delivery (100%) Environmental category: Partial Assessment Expected Closing Date: 09/20/2018 Joint IFC: No Joint Level: Basic Information - Original Project Project ID: P101190 Environmental category: B Project Name: Water Supply and Sanitation Expected Closing Date:12/31/2014 Project Lending Instrument: SIL Joint IFC: No Joint Level: AF Project Financing Data [x] Loan [ ] Credit [ ] Grant [ ] Guarantee [ ] Other: Proposed terms: AF Financing Plan (US$m) Source Total Amount (US $m) Total Project Cost: 90 Cofinancing: Borrower: 0 Total Bank Financing: IBRD 90 IDA New Recommitted Client Information Recipient: The Republic of Belarus Responsible Agency: Ministry of Housing and Utilities 16 Bersona Street, 2200 10 Minsk, Belarus Contact Person: Mr. Alexander Zenevich, Director, SE Belcomtehinvest Telephone No.: + 375-17- 204 42 16 Fax No.: +375-17- 204 40 01 Email: belcti@yandex.ru AF Estimated Disbursements (Bank FY/US$m) FY 2014 2015 2016 2017 2018 Annual 0 7 25 33 25 Cumulative 0 7 32 65 90 Project Development Objective and Description Original project development objective: The Project Development Objective (PDO) is to increase access to water supply services and to improve the quality of water supply and wastewater services in selected urban areas in six (6) participating oblasts of the Borrower. Revised project development objective: The Project Development Objective (PDO) is to increase access to water supply services and to improve the quality of water supply and wastewater services in selected urban areas in all six (6) oblasts of the Borrower. Project description: Part A: Rehabilitation of Water Supply and Sanitation Systems (US$84.93 million). This component will finance the provision of goods, works and consultants’ services for: (a) rehabilitation and construction of deep wells, pumping stations, transmission mains, distribution network, ground and elevated reservoirs and iron removal plants, and other water supply facilities; and (b) rehabilitation and construction of wastewater collection systems and wastewater treatment plants including upgrade of monitoring stations and laboratories, and other water sanitation facilities. Part B: Support to the Preparation of Investments (US$4.60 million). This component will finance provision of goods and consultants’ services for, inter alia: (a) (i) preparation of feasibility studies, preliminary designs and bidding documents; and (ii) carrying out of bids evaluation; all for activities under Part A of the Project and/or future investments in the water and wastewater sector; (b) construction management, including supervision, monitoring and evaluation of physical implementation of activities under Part A of the Project; and (c) development of benchmarking systems and review of design norms. Part C: Capacity Building, Project Management, Monitoring and Evaluation (US$0.25 million). This component will finance: (a) provision of goods, consultants’ services and training to the Project Coordination Team (PCT) to assist in the implementation, management and auditing of the Project; and (b) strengthening social accountability mechanisms on water and wastewater services through, inter alia the provision of support to: (i) Selected Water and Wastewater Service Providers to develop communication plans to improve their communication with their customers through, inter alia: (A) the development and/or update of websites; and (B) the enhancement of the information contained in existing websites and/or information displayed publicly in their premises; and (ii) strengthen existing grievance redress mechanisms to enhance service delivery. A Front-end Fee is foreseen in the amount of US$0.22 million. Safeguard and Exception to Policies Safeguard policies triggered: Environmental Assessment (OP/BP 4.01) [x]Yes [ ] No Natural Habitats (OP/BP 4.04) [ ]Yes [x]No Forests (OP/BP 4.36) [ ]Yes [x]No Pest Management (OP 4.09) [ ]Yes [x]No Physical Cultural Resources (OP/BP 4.11) [x]Yes [ ] No Indigenous Peoples (OP/BP 4.10) [ ]Yes [x]No Involuntary Resettlement (OP/BP 4.12) [x]Yes [ ] No Safety of Dams (OP/BP 4.37) [ ]Yes [x]No Projects on International Waterways (OP/BP 7.50) [x]Yes [ ] No Projects in Disputed Areas (OP/BP 7.60) [ ]Yes [x]No Is approval of any policy waiver sought from the Board (or [ ]Yes [x]No MD if RETF operation is RVP approved)? Has this been endorsed by Bank Management? (Only applies [ ]Yes [ ] No to Board approved operations) Does the project require any exception to Bank policy? [ ]Yes [x] No Has this been approved by Bank Management? [ ]Yes [ ] No Conditions and Legal Covenants: Loan Agreement Description of Condition/Covenant Date Due Reference Section I.A.2 of The Borrower shall maintain the PCT during the Recurrent Schedule 2 Project implementation with staff whose qualification and terms of reference shall be satisfactory to the Bank and resources adequate to enable it to effectively implement the Project Section III. D. 2 The Borrower shall: Recurrent of Schedule 2 (a) No later than December 31 of every year during the implementation of the Project, beginning on December 31, 2015, prepare and furnish to the Bank a procurement progress report (Procurement Report), in form and substance acceptable to the Bank, which shall include, inter alia: (i) a description of issues arising during the full procurement cycle under the Project, from design through planning, bidding, contract implementation and completion; (ii) a list of proposed measures and actions to be taken to resolve the issues identified under (i) above; and (iii) a proposed timeline for the implementation of the said measures and actions. (b) No later than January 31 of every year during the implementation of the Project, beginning on January 31, 2016, exchange views with the Bank on the results of the Procurement Report completed for the Borrower’s previous calendar year and thereafter implement such recommended measures, as agreed with the Bank. BELARUS – Water Supply and Sanitation Project Additional Financing I. Introduction 1. This Project Paper seeks the approval of the Executive Directors to provide an additional loan in an amount of US$90 million to the Republic of Belarus for the Water Supply and Sanitation Project, P101190, Loan No.7589-BY (referred to as the original project hereinafter). 2. The proposed additional financing (AF) would help fund: (i) scale-up activities to enhance the impact of the ongoing project; and (ii) support modernization of the sector. The proposed AF would also provide additional funds to prepare future high priority investments and finance additional costs associated with project management. 3. The proposed scope of activities is fully aligned with the current Project Development Objective (PDO) to increase access to water supply services and to improve the quality of water supply and wastewater services in selected urban areas in six (6) participating oblasts of the Borrower. The PDO is slightly adjusted to clarify the fact that all six oblasts of the country participate in the project. The new PDO is to: increase access to water supply services and to improve the quality of water supply and wastewater services in selected urban areas in all six (6) oblasts of the Borrower. It does not trigger any new Safeguard policies. The AF will reinforce original project outcomes in terms of: (i) increased access to water supply services; (ii) improvement in water quality to comply with potability standards (through the modernization of water production and distribution systems); and (iii) reduction in discharge of untreated wastewater (through rehabilitation of wastewater treatment plants and sewerage systems). An implementation period of four years (closing date on September 20, 2018) will be required to procure and implement the new proposed activities, and to achieve the PDO. 4. All activities will be financed entirely by the proposed AF loan. No co-funding, from the Government, from multilateral or bilateral agencies is foreseen. II. Background and Rationale for Additional Financing Country and sector context 5. Up until 2008, Belarus was a strong economic performer, with an average economic growth rate of 8.1 percent during 2001–2008. Growth was propelled by a combination of favorable external factors, including strong export demand by key trading partners, underpriced energy imports from Russia and favorable terms of trade for key export goods. Over that period, absolute poverty declined from 30 percent in 2002 to 5 percent in 2009 and 2010 (CPS FY14- FY17). The strong economic and social progress came to a halt in 2009, with the current account deficit widening to over 12 percent of GDP. After a significant loss of reserves at the beginning of 2011, confidence in the Belarusian Ruble (BYR) collapsed, sparking a foreign exchange crisis. By December 2011, the BYR had lost about 70 percent of its value to the US Dollar and inflation soared to 109 percent. However, by early 2013, the authorities managed to restore macroeconomic stability by tightening monetary and fiscal policies. Overall, structural reforms remain slow and piecemeal and Belarus continues to rely on a largely unreformed economic model based on the dominance of the state-owned sector and an implied “social contract” with 1 broad-based income distribution and a high level of equity. In addition to exposing existing macroeconomic vulnerabilities, the economic crises reinforced the need for structural reforms to regain competitiveness and diversify and modernize Belarus economy. Growth will remain difficult to sustain until Belarus manages to remove key constraints such as ageing of its infrastructure, inefficient use of energy, and significant unrealized economic potential of the country’s natural resources. 6. The level of water supply and wastewater service in urban areas is high by regional standards, and has shown steady improvement in the last 15 years: water supply coverage in 2011 reached 86 percent and sewerage coverage 74 percent, due to massive investments since 2006. Water is supplied on a continuous basis in almost all utilities at acceptable quality levels for human consumption. Despite these important achievements, vast new investments are required to close the remaining coverage gaps, in particular in small towns and rural areas. Wastewater treatment, affected by obsolete equipment and technology, often fails to meet acceptable standards in terms of nutrients removal. Water with iron content exceeding World Health Organization and national standards is still supplied to more than 20 percent of the population across the country. Low operational efficiency, coupled with user charges well below cost-recovery levels in many cities, puts a strain on public utility and communal budgets which forces local authorities to postpone important capital replacement and rehabilitation investments. As a result, operational efficiency is deteriorating and past gains are being lost. 7. The sector’s legal and institutional framework is, overall, well-defined and functional. However, several factors hinder sector operational efficiency: (i) the lack of performance requirements for service providers; (ii) insufficient monitoring of performance data that would enable benchmarking; and (iii) allocation of operational subsidies on the basis of short-term needs to cover utility losses, and without commitment to improve performance. Service providers have low staff productivity and do not follow good business management practices. Their human resources policies are clearly not geared towards the stimulation of efficiency and performance. Customer relations are still emerging in most utilities, and social accountability mechanisms are weak. Investment planning is not oriented towards efficiency either, specifically: (i) existing infrastructure design and sizing norms often lead to excessive investment and operating costs; and (ii) investments are often identified without any reference to a master plan and appraised without the clear and transparent procedures required to guarantee the efficiency of capital investments. As a result, infrastructure renewal is often planned without any updated assessment of current needs, perpetuating infrastructure overcapacity. 8. Tariff regulation, performed by the Ministry of Economy and by oblast authorities, lacks transparent tariff adjustment instruments, which would enable customers to anticipate tariff changes. The socially driven tariff policy leaves the sector dependent upon recurrent budget support and revenues generated from a few large customers. Local authorities’ discretion in setting tariff levels is limited and deficits are generally covered by subsidies and transfers. It is estimated that, on a nation-wide average, revenues collected from residential customers cover less than 30 percent of the operating costs required to provide them with water and wastewater services. Overall, across consumer categories, tariffs cover about 90 percent of the cost of water and wastewater services (much less so in small utilities), with the difference covered through cross subsidies from non-residential customers and other transfers from national budgets. The 2 2011-2015 Social and Economic Development Program aims to eliminate both operational subsidies and cross-subsidies among consumer groups by 2015. This reform of sector financing policies is further complicated by the continuing decrease in residential consumption and the inability of local markets to provide funding on terms consistent with the needs of the sector. These challenges call for (i) sound sector policies conducive to economically efficient investment programs and water and wastewater operations, and (ii) financing mechanisms (including tariff policies) guaranteeing sector sustainability, while ensuring the affordability of services. Original loan 9. The Water Supply and Sanitation Project (WSSP) was approved by the Board on September 30, 2008 in the amount of US$60 million. It was the first Bank engagement in the sector. The loan became effective on February 17, 2009 and was initially expected to close on June 30, 2013. The original PDO was to improve the quality, efficiency and sustainability of water supply and wastewater treatment services in six (6) participating project oblasts of the Borrower. Three years after effectiveness, the project faced implementation difficulties. These related to (i) drastic changes in inflation and exchange rates in Belarus in 2011 that caused the cancellation of two works contracts, (ii) a shortage of funds due to cost underestimates at appraisal, which resulted in a reduction of project scope, and (iii) the need for re-bidding of three construction activities. Project activities were not adequately aligned with the PDO and the results framework. These issues were addressed by a first-order restructuring, approved on December 20, 2012 to enable a modification of the PDO and results framework, extension of the closing date from June 30, 2013 to December 31, 2014, and the triggering of two additional safeguards policies. The PDO was modified and the revised objective is to “increase access to water supply services and to improve the quality of water supply and wastewater services in selected urban areas in six (6) participating oblasts of the Borrower”. 10. The original project finances activities under three components to achieve this objective. The cost per component and funds allocated under the original loan are summarized in Table 1. The original components include: Part A: Rehabilitation of Water Supply and Sanitation Systems. The component supports (i) the provision of goods, works and consultants services for rehabilitation and construction of deep wells, pumping stations, transmission mains, distribution network, ground and elevated reservoirs and iron removal plants, and other water supply facilities; and (ii) the provision of goods, works and consultants’ services for rehabilitation and construction of wastewater collection systems and wastewater treatment plants including upgrade of monitoring stations and laboratories, and other water sanitation facilities. Part B: Support to the Preparation of Investments. The component finances the provision of works, goods and consultants’ services for: (i) feasibility studies, preliminary and detailed designs, bidding documents, assistance with bidding and evaluation review; and (ii) construction management, including supervision, monitoring physical implementation, monitoring and evaluation. 3 Part C: Project Implementation and Management: The component supports the strengthening of the management capacity of the Project Coordination Team (PCT) to monitor and administer the project implementation, including training and financial audit. Table 1: Original cost and fund allocation by component (US$ million) Component Original cost Total estimate IBRD loan (incl. VAT) A: Rehabilitation of Water Supply and Sanitation Systems 53.60 53.60 B: Support to the Preparation of Investments 6.05 6.05 C: Project Implementation and Management 0.20 0.20 Front-end fee 0.15 0.15 Total 60.00 60.00 Original project implementation performance 11. Following one and half years of difficulty, project implementation started to improve in late 2012 after (i) new contracts were signed to complete works interrupted following the 2011 macroeconomic crisis, and (ii) a new implementation plan based on reliable engineering designs and cost estimates was prepared and reflected in the project restructuring. As of December 12, 2013, cumulative commitments stood at US$48.2 million (80.3% of loan amount) and disbursements at US$34.2 million (57.0% of loan amount). By the proposed Board date for the AF of March 31, 2014, the loan is expected to be fully committed and disbursements are expected to reach at least 60% of total loan amount. 12. Implementation progress has significantly improved since late 2012, and the issues that caused the slow-down over the previous 18 months have been addressed. Over the last 12 months, commitments have increased by US$26.6 million (from US$21.6 million to US$48.2 million) and disbursements have increased by US$12.2 million (from US$20.0 million to US$32.2 million). The Implementation Status and Results (ISR) rating for Implementation Progress (IP) over the most recent 12 months has been Moderately Satisfactory (MS) and the PDO rating was upgraded from Moderately Unsatisfactory (MU) to MS in January 2013 following project restructuring. 13. The project’s impact, also discussed in earlier sections, has been consistent with the expectations laid out in the PAD and in the restructuring paper. The PCT has met all of the financial and legal covenants under the project and there are no outstanding or unresolved safeguard, environmental, social or fiduciary issues. 4 Rationale for additional financing 14. Scaling up project impact. The AF will deepen investments in five towns and provide first time investments in three new towns, for which designs were prepared under WSSP. These activities will help in particular to: (i) reduce the discharge of untreated wastewater (through rehabilitation of wastewater treatment plants and sewerage systems); and (ii) improve water quality to achieve compliance with standards for potable water (through the modernization of water production and distribution systems). 15. Improving sector sustainability. Whereas WSSP focused exclusively on physical investments, the proposed AF is part of a larger commitment by the Government to support the overall sustainability of the water sector. The Belarus Municipal Water Sector Review (2013) identified a number of acute challenges, in particular (i) ageing infrastructure requiring urgent modernization; and (ii) low levels of financial sustainability in the context of decreasing budget support. To address these challenges and foster sector efficiency and sustainability, the Government has requested Bank support to address, under the AF, topics such as: the revision of design norms, benchmarking of service providers, and improving the energy efficiency of water and wastewater services. 16. Piloting the use of master planning to guide priority investments. As recommended by the Sector Review (2013), the appraisal and financing of future investments should be based on a comprehensive master plan that identifies and prioritizes activities based on clear and transparent criteria. The proposed AF will support the piloting of such studies and prepare a pipeline of future high-priority investments. Consistency with the Bank Poverty Goals and with the Country Sector Partnership 17. The AF will address the goal of boosting shared prosperity by enhancing the welfare of largely low-income population through (i) increasing access to water supply services, (ii) improving quality of supplied water, and (iii) improving the quality of urban environment. Five of the eight subprojects will be conducted in small towns, where households’ revenues, as well as the availability and quality of services are generally behind those found in large Belarusian cities. The lack of access to centralized water systems prompts households to rely on shallow wells, which are contaminated and inappropriate for human consumption in almost half of cases. In response to the inadequate quality of water supplied by centralized systems, consumers who can afford it rely on water filters or bottled water at the household level. Associated costs can represent five to ten times the average water bill. 18. The AF is included in the CPS FY14-17 and is fully consistent with the CPS Pillar 2 “Improved efficiency and quality of public infrastructure services, enhanced and sustainable use of agricultural and forestry resources and increased global public good benefits” (CPS FY11-14; Report No. 77458-BY). The AF contributes directly to the Outcomes “Improved quality of supplied water” and “Improved performance of wastewater treatment systems” under the CPS Results Area 3 “Improved public infrastructure and municipal public utility services”. Alternatives to additional financing 5 19. To plan the development of water and wastewater infrastructure the Government of Belarus elaborates 5-year investment programs called the Clean Water Programs. In the absence of self-financing capacity among most water and wastewater utilities, capital investments are mostly financed through public grants or with donor contribution. The 2011 macroeconomic crisis has spurred increased budget discipline, leading to a decrease in budget allocations for sector capital investments: from US$60 million for the 2006-2010 program down to US$28 million for the 2011-2015 program. To address a much larger scope of investment needs and close the financing gap, the current Clean Water Program also relies on donors’ support, notably IBRD (under the original project and the proposed AF), the European Bank for Reconstruction and Development and the Nordic Investment Bank. III. Proposed Changes 20. The proposed AF will remain consistent with the original project. There are no changes to existing implementation arrangements. There are no new safeguard policies triggered for the AF. The PDO is slightly adjusted to clarify the fact that all six oblasts of the country participate in the project. The revised PDO is: to increase access to water supply services and to improve the quality of water supply and wastewater services in selected urban areas in all six (6) oblasts of the Borrower. The Results Framework is updated to accommodate the AF and additional subprojects. 21. The AF introduces editorial changes to component A of the original project, and expands the scope of components B and C to include activities aiming at sector modernization and improved social accountability: Part A: Rehabilitation of Water Supply and Sanitation Systems. This component will finance the provision of goods, works and consultants’ services for: (a) rehabilitation and construction of deep wells, pumping stations, transmission mains, distribution network, ground and elevated reservoirs and iron removal plants, and other water supply facilities; and (b) rehabilitation and construction of wastewater collection systems and wastewater treatment plants including upgrade of monitoring stations and laboratories, and other water sanitation facilities. Part B: Support to the Preparation of Investments. This component will finance Provision of goods and consultants’ services for, inter alia: (a) (i) preparation of feasibility studies, preliminary designs and bidding documents; and (ii) carrying out of bids evaluation; all for activities under Part A of the Project and/or future investments in the water and wastewater sector; (b) construction management, including supervision, monitoring and evaluation of physical implementation of activities under Part A of the Project; and (c) development of benchmarking systems and review of design norms. Part C: Capacity Building, Project Management, Monitoring and Evaluation. This component will finance: (a) provision of goods, consultants’ services and training to the Project Coordination Team (PCT) to assist in the implementation, management and auditing of the Project; and (b) strengthening social accountability mechanisms on water and wastewater services through, inter alia the provision of support to: (i) Selected Water 6 and Wastewater Service Providers to develop communication plans to improve their communication with their customers through, inter alia: (A) the development and/or update of websites; and (B) the enhancement of the information contained in existing websites and/or information displayed publicly in their premises; and (ii) strengthen existing grievance redress mechanisms to enhance service delivery. 22. Project costs. The overall amount of AF is US$90.0 million. The majority of funds will be allocated to finance physical investments in eight towns (component A). Additional funds will also be made available for design and supervision activities, and for sector modernization (component B), as well as for project management (component C). The specific costs and financing allocation by component for the original project and the proposed AF are presented in Table 2: Table 2: Project costs for original and AF by component (US$ million, including VAT) Component Original cost Additional Revised cost financing A: Rehabilitation of Water Supply and 53.60 84.93 138.53 Sanitation Systems B: Support to the Preparation of 6.05 4.60 10.65 Investments and Sector Modernization C: Project Implementation and 0.20 0.25 0.45 Management Front-end Fee 0.15 0.22 0.37 Total 60.00 90.00 150.00 23. Extension of closing date. An implementation period of four years (closing date on September 20, 2018) will be required to procure and implement the new proposed activities, and to achieve the PDO. The original project will not be extended, and its closing date will remain December 31, 2014. 24. Project readiness. A project implementation plan has been prepared. For seven out of the eight proposed physical investments (representing US$64.5 million), designs and bidding documents are at an advanced stage of preparation and will be completed before AF effectiveness. Additional engineering designs remain necessary for one subproject, and these are currently under preparation with financing from the original project. 25. Results indicators. Key performance indicators have been reviewed and amendments to the results framework (RF) are proposed to reflect additional activities. A summary of the revisions is provided in Table 3. The complete revised RF is presented in Annex 1. 7 Table 3: PDO indicators Indicator Original target Changes with AF Revised target People provided with access 7,910 people Revised: People provided 9,800 to “Improved Water Sources” with access to “Improved under the Project Water Sources” under the Project – urban Population provided with 307,300 people Continued 324,000 access to drinking water compliant with national quality standards New: Reduced volume 15,200 tons/year (mass) of BOD pollution loads transported in unreliable sewerage transmission systems % of treated wastewater 95% in six towns Revised: Volume (mass) 15,500 tons/year samples complying with of BOD (BOD-5) (750 above the national standards for BOD removed by the treatment baseline) level (BOD-5) plant supported under the project New: Volume (mass) of 340 tons/year Phosphorus removed by (120 above the the treatment plant baseline) supported under the project IV. Appraisal Summary 26. Implementation arrangements remain unchanged from the original project. The Ministry of Housing and Utilities (MHU) is responsible for the overall project coordination and monitoring of implementation progress. The PCT has overall responsibility for disbursement, financial and procurement management and coordination. The water and wastewater service providers will share the responsibility for civil works contracts management with the PCT. They are also responsible for supervising construction activities under the project and for reporting to the PCT any issue regarding the quality of the civil works and timely implementation of the contract. The PCT has been implementing two Bank financed projects since 2009 and has the knowledge and capacity necessary to implement the project. 27. The PCT is subordinate to the MHU. It will be responsible for daily project implementation and monitoring and adherence to the World Bank requirements. The PCT has experienced and trained technical and fiduciary staff. A weak point is that the PCT, as part of Government administration, is limited in its ability to hire qualified staff on attractive terms. The AF will include an opportunity to hire loan-financed consultants on terms sufficiently competitive to attract qualified professionals. The PCT has been recently reinforced with two 8 new specialists (procurement and technical), and with additional training and additional staffing it will have the required capacity to manage both the original project and the AF. 28. Technical appraisal. The AF will cover eight investment subprojects. Three main types of activities are foreseen: 29. Upgrading and modernization of wastewater treatment facilities. In the towns of Glubokoye, Verkhnedvinsk and Berezino (covering a total of 37,000 inhabitants) effluents are currently discharged into rudimentary systems of filtration ponds. The AF will finance upgrading of these systems to conventional wastewater treatment facilities complying with national standards for organic and nutrients pollution removal. The scope of work will also include rehabilitation and minor extension of collection and transmission sewerage infrastructure. In Gantsevitchi (13,900 inhabitants), the original project finances the rehabilitation of the wastewater treatment plant (WWTP). The AF will help complete the modernization of the facility through rehabilitating of the sludge drying beds and ancillary facilities. 30. Rehabilitation of sewerage systems. The cities of Mogilev (354,000 inhabitants) and Grodno (328,000 inhabitants) face similar challenges in the operation of their sewerage systems. Built in the 1970s, their transmission system is in a dire state of disrepair. The utilities experience recurrent breakages which pose a major environmental risk. In Mogilev, under the original project, the new trunk collector conveying effluents of the entire city to the new WWTP was laid on 1.8 kilometers. The AF will finance an additional 3.1 kilometers, which will enable the decommissioning of the existing collector. In Grodno, a transmission system collecting about 25 percent of all wastewater generated in the city is in poor condition and its pumping station is being operated without any back-up capacity. Under the original project, the situation was partly addressed through the creation of a sub-catchment area relieving the transmission system from part of incoming effluents. The AF will finalize the rehabilitation of this transmission system. 31. Upgrading of water supply systems. In the towns of Rogachev and Shklov (covering a total of 51,000 inhabitants), the water production and distribution systems do not offer the characteristics required of a modern water supply system. Specifically: (i) their water supply systems rely to some extent on unprotected boreholes located within the towns, vulnerable to local contamination; (ii) water from several of these boreholes does not comply with water quality standards in terms of iron content; and (iii) underground water is pumped directly into the network without intermediary storage and re-pumping capacity, which undermines system efficiency and reliability. In addition, water distribution networks are highly interconnected (and in poor condition); this does not allow for proper operational management. The AF will aim at addressing these various deficiencies, will help thereby increase quality of service and improve the operability of the water systems. 32. Summary. As a result of the AF, WWTP will be upgraded and modernized in four towns, trunk wastewater transmission systems will be rehabilitated in two towns, and water production facilities and distribution systems will be upgraded in two towns. 33. Economic analysis. Types of benefits expected. The following economic benefits are considered: (i) pollution loads prevented from being discharged to the environment from the 9 upgrade and modernization of wastewater treatment plants and sewerage systems; and (ii) improved quality and reliability of service from the modernization of water production and distribution systems. 34. Benefits from the upgrade and modernization of wastewater treatment plants. Assessing the benefits in wastewater projects is a data intensive activity and typically requires well applied contingent valuation techniques. In order to overcome the burden of information needs, the approach taken here assumes that the country has to comply with wastewater discharge standards, which leads to two methodological options: either a cost-effectiveness analysis that would meet that standard at the lowest cost, or a cost-benefit analysis that poses the question of what are the cost of restoring ambient water to levels before the discharge, i.e. effectively asking what are the cost of nutrients removal. This analysis is doing both: (i) investment costs for WWTP including biological treatment and nutrients removal represent between US$300 and US$360 per population equivalent (PE), which is consistent with values found elsewhere in the region; (ii) benefiting from a comprehensive evaluation of the benefits of wastewater treatment in neighboring countries 1, the cost-benefit analysis has transferred these benefits to the Belarus context and valued the economic cost of discharging one kilogram of nitrogen at $0.6, and one kilogram of phosphorus at US$400. 35. Benefits from the rehabilitation of sewerage systems. From an engineering perspective, the replacement of the worn out trunk sewers cannot be postponed. A full collapse of their structure would lead to the spillage of all wastewater generated across the entire city into surface water bodies. Designs for the rehabilitation of sewerage transmission systems have been identified as effectively addressing the problems at least cost (and consistent with unit costs applied elsewhere in the region). This included the review of technical alternatives in terms of pipeline routes, rehabilitation technologies (collector relining or replacement), and restructuring of sewerage catchment basins. Similar to transferring the cost of pollutants removal as mentioned above, addressing the spillage in Mogilev and Grodno would amount to US$163,000 and US$24,000 per day respectively. 36. Benefits from the modernization of water supply systems. Water systems and services will be improved with respect to (i) water quality in the form of lower iron content, (ii) reduced potential water contamination from unprotected boreholes; and (iii) improved leakage control. Benefits from improved water quality will be observed at household level and measured through Willingness to Pay (WTP); benefits from closing unprotected boreholes are measured in terms of the cost of treating the water to drinkable standards, if not addressed; and finally, benefits from leakage control are measured at the opportunity cost of producing leaked water. (a) As confirmed by the 2007 Social Assessment Survey in prospective project towns, excessive iron content prompts consumers to rely on water filters or bottled water at the household level. Associated costs can represent five to ten times the average water bill, as evidenced by a 2013 social survey in Borovukha. The economic analysis could have focused on the reduction of these coping costs, but such approach would not capture all the benefits 1 The economic valuation of the benefits of wastewater treatment based on: Ing-Marie Gren (2008), Cost effectiveness and fairness of the Helcom Baltic Sea Action Plan against eutrophication, Department of Economics, SLU, VATTEN 64:273–281. Lund 2008) 10 households reap from improved water services. Instead and making use of the planned and agreed tariff increases of 200 percent, the economic analyses applied the incremental tariff as household’s WTP for better services. However, this approach may assess incorrectly the WTP both on the lower and the higher side: on the one hand, households may be willing to pay more, but WTP higher than the tariff is not observable and is consumer welfare gain; on the other, some households are not satisfied paying more and will try to opt out of regular payment schemes, which should be observed through a decrease in tariff collection efficiency or commercial non-revenue water. (b) The disposal of water boreholes located in urban areas and that are lacking sanitary protection zones, will reduce the risk of bacteriological and chemical contamination of the water source. Associated economic benefits have been valued considering the avoided cost of treating the contaminated water, under the assumption that it would cost US$0.6 per cubic meter 2, on average, to remove common organic pollutants. Since this measure is to retain existing water quality (in terms of bacterial content) it does not double count benefits with the WTP approach taken earlier. (c) The benefits from reducing water leakage are assessed at the economic cost of producing the amount of water lost. As these are not reaped by households, this approach is not double counting benefits. 37. Economic rate of return. The cost benefit analyses have found economic rates of return (ERR) of (i) 14.4 percent for the upgrading and modernization of wastewater treatment plants, with a Net Present Value (NPV) of US$5.0 million; and (ii) 18.8 percent for the modernization of water production and distribution systems, with a NPV of US$4.3 million. The usual assumptions on converting financial to economic cost (standard conversion factor of 0.9) and the discount rate (12 percent) are made when computing these estimates. 38. Financial analysis and impacts. The loan will be repaid by the regional authorities and by the national Government. Therefore, utilities participating in the AF will not be imposed debt servicing obligations or required to provide financial resources to finance investments as the regional authorities and the national Government will repay the loan. 39. In subprojects where the investments will focus on rehabilitation of existing infrastructure, no increase in operation and maintenance cost is expected (Mogilev, Grodno, and Gantsevitchi). The modernization of water production and distribution systems in Rogachev and Shklov foresee the optimization of pumping schemes and will therefore result in a decrease of operation cost. The only investments which will lead to a significant increase in operating and maintenance cost is the implementation of new wastewater treatment plants (Glubokoye, Verkhnedvinsk and Berezino). Additional costs are expected to be US$0.30 per cubic meter treated. This includes costs for: assets maintenance, labor, energy consumption, and sludge disposal. The financial sustainability of these investments cannot be guaranteed under the current socially driven tariff policy. The average residential tariff for water and wastewater services is currently US$0.28 per cubic meter, about 37 percent of actual operating costs on a country wide 2 EPA, 1990, Technologies for Upgrading Existing or Designing New Drinking Water Treatment Facilities. Data updated taking into account past inflation and current practice. 11 average. Despite substantial cross-subsidizations from non-residential customers, current operating costs (ranging between US$0.64 and US$1.17 in these three utilities) are not covered by current revenues and require substantial budget support. Based on the 2011-2015 Social and Economic Development Program, tariffs will be aligned with actual operating costs by 2015. Component B will support the identification of measures conducive to higher utility operational efficiency by contributing to the development of a benchmarking system to the improvement of utilities’ energy efficiency. 40. Financial management (FM). In the on-going project, there are no outstanding audits and Interim Financial Reports (IFRs), and Financial Management (FM) rating is Satisfactory, as was confirmed by the FM monitoring visit in September 2013. The project is fully compliant with the FM covenants in the loan agreement. 41. The FM arrangements for the AF loan would be largely similar to those that are in place for the on-going project. The only addition will be the requirement for the public disclosure of the audited project financial statements. 42. The project records will be kept in the same accounting system, although on a separate set of accounts. A new Designated Account will be opened in the same commercial bank as is used for the original project. The same sample formats of IFRs will be used, and reporting will continue to be quarterly. Annual audits of the project financial statements would need to be carried out by eligible auditors and submitted six months after the end of each year. Staffing and internal control arrangements will remain unchanged. 43. Procurement. The procurement implementation arrangements would remain the same. However the proposed AF loan will be subject to the Bank’s January 2011 Procurement and Consultant Guidelines. The Bank will provide training to the PCT on the new features introduced in these Guidelines and Bank's relevant Standard Bidding Documents. The PCT has experienced Procurement Specialists, and will be reinforced with an additional procurement specialist and a legal expert. Hands-on training and advice will be provided by the Bank, in particular on design, supply and installation contracts. 44. A key challenge under the original project was the lack of interested contractors. This challenge remains acute for the AF, for which timely procurement and implementation is required. A recent contractor market analysis has identified several reasons for local market response, including: (i) local contactors sometimes do not understand Bank standard contractual provisions and find making tenders unattractive; (ii) contractors who do not notice project invitations to bid; (iii) while the market of competent private companies is limited in size and capacities, large state-owned companies are used to working on a direct contracting basis and may find proposed contract amounts not sufficiently attractive enough to engage in competitive bidding; and (iv) contract amounts under the original projects were too low to foster interest from international contractors (beyond Lithuania). Based on these lessons, the proposed AF foresees the organization of a contractors’ outreach campaign (to local and international contractors) early into project implementation. Presentations of procurement and contracting approaches will be carried out to familiarize potential contractors with Bank requirements. In addition, procurement packages will on be average more than three times larger than the ones 12 proposed under the original projects, and in most cases reach sizes attractive enough to international or eligible state-owned companies. 45. The PCT will prepare every year a procurement report that will provide (i) a description of issues arising during the full procurement cycle under the project, from design through planning, bidding, contract implementation and completion; (ii) a list of proposed measures and actions to be taken to resolve the issues identified under (i) above; and (iii) a proposed timeline for the implementation of the said measures and actions. This requirement will encourage the Borrower to pro-actively identify difficulties throughout preparation and implementation of sub- projects, and to adopt mitigation measures in consultation with the Bank. 46. Social safeguards. The AF will not involve changes in water infrastructure or institutions that will pose any adverse impacts on final consumers. Moreover, increased access and/or improved quality of water and wastewater services will contribute to enhancing social welfare. The project triggered OP/BP 4.12 on involuntary resettlement in response to the possible relocation of one family in Mogilev. A Resettlement Policy Framework has already been prepared and disclosed in the local language on December 2, 2011, to allow for public feedback. A draft abbreviated resettlement action plan (RAP) has been prepared for the Mogilev subproject. It was disclosed in the local language on November 19, 2013. Under the original project, public consultations were held at all project locations. For locations where there were no activities under the original project, public consultations will be organized by the client before the initiation of any activity. Should the need for any new RAP be identified, participating utilities will finance their preparation as is currently the case in the original project. 47. Social accountability. The participating utilities, which have high collection rates because of the low tariffs, face no acute issues with customers’ trust and satisfaction with the services. However, citizens indicate that the utilities could better provide important types of information (in particular, details about how water bills are calculated and structured, information on utilities budgets and expenditures, and schedules for planned public works). The information provided by the water and wastewater utilities is often discretionary, varying among cities. 48. Better provision of information on issues related to water and wastewater services that matter to citizens could improve the public perception of their service providers. Many of the participating utilities do not have sufficient experience and capacity to communicate proactively with their customers. Support in developing proactive communication plans will be provided to the utilities through a series of training events and expert support in developing communication materials. In addition, specific support will be provided to the utilities to reinforce their customer relations functions, including development and/or improvement of their websites. A consultant will assist utilities selected by the MHU in reviewing and if needed improving mechanisms for managing inquiries and complaints. Finally, efforts will be made to assist the participating utilities to involve monitoring by consumers of civil society of all aspects of service delivery. 49. Gender aspects. The project design recognizes the importance of involving both women and men in water supply and wastewater policies and practices and to ensure that their respective needs and concerns are taken into account to make the project more sustainable. Women and 13 men traditionally have different roles in water supply and sanitation activities. Women tend to benefit most when access to water, and the quality and quantity of water improves. Improved water and sanitation services provide women more opportunities for productive endeavors, empowerment and leisure, and they may have a greater incentive to work for project success. A Gender Filter has been introduced and following gender specific activities have been considered to improve gender equity in project participation, benefits and opportunities. Specifically: (i) gender assessment will be integrated into all project surveys and data collection to obtain gender- disaggregated information at minimal cost; and (ii) the share of female beneficiaries is included in the monitoring indicators. 50. Environmental impact. The original project, as well as the AF, have been classified as Environmental Category B. The investments proposed under the AF are very similar, in size and type, to those under the original project. The Environmental Management Plan (EMP) prepared and approved by the Bank for the original project will be used for activities under the AF. During project implementation, the EMP provisions will be applied to all undertaken activities and appropriate mitigation measures specified in the EMP will be incorporated as requirements in the bidding documents. The contracts will include adequate provisions to ensure that contractors undertake EMP-specified measures. 51. The proposed AF is in compliance with the Belarusian and World Bank regulations, policies and procedures for environmental assessment (EA). The anticipated adverse environmental impacts will occur mainly during the construction stage and are likely to be site- specific and manageable. The project will not adversely affect human populations or involve conversion or degradation of natural habitats, or have a negative impact on forest ecosystems. The mitigation measures foreseen in the EMP will prevent and/or significantly reduce any adverse impacts. Should the need for any additional Environmental Impact Assessment be identified, the AF will finance their preparation. Several subprojects under the AF will have positive impacts on the environment and on human health as a result of decreased pollution discharge to water bodies. 52. A Physical Cultural Resources Action Plan has been prepared for the Mogilev subproject, where on part of the construction site, movable cultural artifacts may be found during excavation works. 53. The OP/BP 7.50 International Waterways applies to water projects that involve “the use or potential pollution of international waterways”. Bank management deemed that notification or riparian states was not warranted, since the scope of AF investments will not adversely change the quality or quantity of water flows to other riparians. 54. Lessons from the original project. Lessons drawn from past WSSP implementation difficulties have been incorporated into the design of the AF. This includes: (i) ensuring a higher level of preparedness of technical designs at appraisal stage to mitigate cost uncertainties; (ii) introducing price adjustment clauses for all contracts to mitigate risks associated with macroeconomic crises; (iii) fostering competition for civil works contracts by intensifying business outreach and by reflecting lessons of current contractors' market study in the design of 14 procurement packages; and (iv) hiring PCT staff financed directly by the project and on terms sufficiently competitive to attract highly qualified professionals, as previously described. 15 Annex 1: Results Framework and Monitoring BELARUS – Water Supply and Sanitation Project Additional Financing Results Framework Revisions to the Results Framework Comments/ Rationale for Change PDO Current (PAD) Proposed Increase access to water supply Increase access to water There are six oblasts in Belarus, and all services and to improve the quality of supply services and to six participate in the project. water supply and wastewater services improve the quality of water in selected urban areas in six (6) supply and wastewater participating oblasts of the Borrower services in selected urban areas in all six (6) oblasts of the Borrower PDO indicators Current (restructuring paper) Proposed change People provided with access to Revised: People provided The core indicator focused on urban “Improved Water Sources” under the with access to “Improved areas is used. Results are presented at Project (core indicator) Water Sources” under the an aggregated level (not anymore at Project - urban (core subproject level). indicator) Population provided with access to Revised: Population The indicator will be specifically drinking water compliant with national benefiting from improved monitored as the number of population quality standards (of which female) quality of water supplied. that is receiving water complying with national norms for iron content, as a result of the project. Results are presented at an aggregated level. A sub-indicator is added to describe the percentage of female beneficiaries. New: Reduced volume Introduced to reflect the key outcomes (mass) of BOD pollution of activities carried out in two major loads transported in AF subprojects (Mogilev and Grodno) unreliable sewerage transmission systems % of treated wastewater samples Revised: Volume (mass) of Core indicator complying with national standards for BOD (BOD-5) removed by BOD level (BOD-5) the treatment plants supported under the project – (tons/year) New: Volume (mass) of Since a key objective of the phosphorus pollution loads investments is to increase nutrients removed by the treatment removal, it is proposed to monitor plants supported under the phosphorus removal as main PDO project – (tons/year) indicator. The indicator is defined on the model of the core indicator related to BOD removal. Intermediate Results indicators Current (PAD) Proposed change % of produced water effectively treated Continued with iron content below 0.3 mg/l (regulatory water samplings) 16 Revisions to the Results Framework Comments/ Rationale for Change Number of km of transmission and Continued distribution pipelines laid/replaced Piped household water connections Dropped This indicator is largely redundant with affected by rehabilitation works the second key outcome indicator undertaken under the Project Share of customers in relevant Project Consumers complaints Baselines and targets have been derived areas reporting improved satisfaction addressed to the utility and from a social assessment (2007) which with water supply service related to the quality of was purely qualitative and cannot be supplied water considered reliable. The indicator is kept, but will be based on quantitative analyses of past and current customer complaints filed with utilities. They will enable to establish an ex-post baseline, and to assess achieved results following the same methodology. Targets are at least a 70% decrease in the number of complaints related to water quality (up to two complaints per year considered acceptable in any case). New: People provided with Introduced to reflect activities carried access to “improved out in one AF subproject (Glubokoye) sanitation facilities” under the Project – urban % of treated wastewater samples Revised: Volume (mass) of This indicator, aligned with the complying with national standards for nitrogen pollution loads proposed core indicator on BOD, nitrogen content removed by the treatment enables to better quantify actual plants supported under the benefits for the environment: it project – (tons/year) integrates not only the level of performance of the plant, but also the amounts of treated effluent. % of treated wastewater samples Revised and upgraded to complying with national standards for PDO indicator phosphor content Number of km of wastewater collectors Continued laid/replaced Piped household wastewater Dropped This indicator is largely redundant with connections affected by rehabilitation the third main outcome indicator works undertaken under the project Number of subprojects for which Dropped The preparation of engineering studies feasibility studies and detailed designs is an elementary aspect of project have been completed and have been implementation and cannot be competitively awarded considered as a meaningful project monitoring indicator Water utilities the Project is supporting Continued Only applied to service providers covering more than 10,000 inhabitants New: Other water service Applies to service providers covering providers the project is less than 10,000 inhabitants supporting Successful implementation and Dropped This activity will be discontinued when utilization of IBNET tools new benchmarking tools (whose preparation is considered under the Component B) are in place. 17 Revisions to the Results Framework Comments/ Rationale for Change PCT can independently appraise, Dropped PCT adequate capacity is an monitor, supervise and report on elementary condition to project subprojects successful implementation and is not considered as a meaningful project monitoring indicator Utilities using benchmarking system New Number of utilities that are submitting their performance data to centralized database, and using it for benchmarking and efficiency improvement Review of design norms completed and New discussed with the Government Consumer access to information New Introduced to measure the impact of social accountability improvement activities. The indicator is measured on a scale from 1 to 3, with scores assigned in the following way. - a score of 3: website of a water supply and sanitation utility is updated consistently (on a monthly basis) and has information on the services provided by the utility, water quality parameters, the rights and responsibilities of customers, the mechanisms for dealing with complaints, addresses and phone numbers, working hours of responsible persons, and detailed disaggregated information on tariffs; this information is publicly displayed at the utility’s premises. - a score of 2: the same information can be accessed by telephone, and this information is publicly displayed at the utility’s premises. - a score of 1: this information is publicly displayed at the utility’s premises. 18 REVISED PROJECT RESULTS FRAMEWORK Project Development Objective (PDO): The Project Development Objective is to increase access to water supply services and to improve the quality of water supply and wastewater services in selected urban areas in all six oblasts of the Borrower Baseline Cumulative Target Values Progre Responsi- Original UOM ss To 2014 2015 2016 2017 2018 Data Source/ bility for PDO Level Results Indicators 3 Project Frequency Comments Core Date Methodology Data Start (2013) 4 Collection People provided with access to Semi- “Improved Water Sources” under Nb. 0 5,570 7,910 7,910 7,910 9,800 9,800 Utilities report PCT Annually the Project - urban Population benefiting from Semi- Nb. 0 8,800 307,300 307,300 307,300 307,300 324,000 Utilities reports PCT improved quality of water supplied Annually Annual Semi- Of which female % - 54 56 56 56 56 56 Demographic PCT Annually Yearbook 5 Reduced volume (mass) of BOD pollution loads transported in Tons/ 0 0 4,700 4,700 4,700 15,200 15,200 Annually Utilities reports PCT unreliable sewerage transmission year systems Volume (mass) of BOD pollution Tons/ loads removed by the treatment 14,750 14,800 15,400 15,400 15,400 15,500 15,500 Annually Utilities report PCT year plants supported under the project Volume (mass) of Phosphorus pollution loads removed by the Tons/ 220 220 330 330 330 340 340 Annually Utilities report PCT treatment plants supported under year the project 3 UOM = Unit of Measurement. 4 For new indicators introduced as part of the AF, the progress to date column is used to reflect the baseline value. 5 Issued by the National Statistical Commission 19 Project Development Objective (PDO): The Project Development Objective is to increase access to water supply services and to improve the quality of water supply and wastewater services in selected urban areas in all six oblasts of the Borrower Baseline Progre Cumulative Target Values Responsi- Original ss To Data Source/ bility for Intermediate Results Indicators UOM Project Frequency Comments Core Date Methodology Data Start 2014 2015 2016 2017 2018 (2013) Collection INTERMEDIATE RESULTS % of produced water effectively treated with iron content below 0.3 mg/l (regulatory water samplings) Baranovichi 94 95 95 95 95 95 95 Bogushevsk 0 95 95 95 95 95 95 Sharkovchina 0 46 46 46 46 46 46 Semi- Rogachev % 75.5 75.5 95 95 95 95 95 Utilities report PCT Annually Mar'ina Gorka 0 0 0 95 95 95 95 Smolevichy 0 0 0 95 95 95 95 Bobruisk 30 70 70 95 95 95 95 Polotsk (Borovukha) 0 95 95 95 95 95 95 Shklov 85 85 85 85 85 95 95 Number of km of transmission and Semi- Km 0 40 44 48 56 60 60 Utilities report PCT distribution pipelines laid/replaced Annually Consumers complaints addressed to the utility and related to the quality of supplied water Baranovichi 10 ≤3 The year Bogushevsk 0 0 before and Sharkovchina 0 ≤2 the year Specific utility Nb. PCT following surveys Rogachev 16 ≤3 project Mar'ina Gorka 1 ≤2 completion Smolevichy 2 ≤2 Bobruisk 53 ≤ 15 Polotsk (Borovukha) 0 0 People provided with access to Semi- “improved sanitation facilities” Nb. 0 0 0 0 0 1,000 1,000 Utilities report PCT Annually under the Project - urban Volume (mass) of Nitrogen pollution loads removed by the Tons/ 1,300 1,300 2,140 2,140 2,140 2,220 2,220 Annually Utilities report PCT treatment plants supported under year the project 20 Number of km of wastewater Semi- Km 0 30 38 40 49 54 54 Utilities report PCT collectors laid/replaced Annually Water utilities the Project is Nb. 17 17 17 17 17 17 Annually PCT PCT Cumulative supporting Other water service providers the Nb. 4 4 4 4 4 4 Annually PCT PCT Cumulative project is supporting Utilities using benchmarking Nb. 0 0 0 10 20 30 Annually PCT PCT Cumulative system Review of design norms completed Yes/ No No No No No Yes Yes Annually PCT PCT Cumulative and discussed with the Government No Consumer access to information Berezino 1 1 2 2 3 3 Gantsevitchi 2 2 2 3 3 3 Glubokoe 1 1 2 2 3 3 Grodno Index 2 2 3 3 3 3 Annually PCT PCT Mogilev 2 2 3 3 3 3 Rogachev 2 2 2 3 3 3 Shklov 2 2 3 3 3 3 Verkhndevinsk 2 2 2 3 3 3 21 Annex 2: Operational Risk Assessment Framework (ORAF) Belarus Water Supply and Sanitation Stage: Board version Project Stakeholder Risks Rating Moderate Description : Risk Management: The stakeholders of the project are: (i) the Ministry The team will continue regular meetings and consultations with the stakeholders to fully take of Housing and Utilities (MHU), and its PMU, (ii) into consideration their implementation capacity and undertake capacity-building efforts Oblast Administrations; (iii) participating local whenever necessary. The team will closely monitor implementation progress and identify any municipalities and their water utilities, and (iv) the issues, or delay risks. The team will support the PCT in strengthening coordination with local final beneficiaries (water consumers). Although the authorities to facilitate decision making that would be crucial to improve implementation. The ownership of the project is high, scattered project will support the development of customer relationship culture among utilities, and aim subprojects and uneven institutional capacity of local at improving transparency and public engagement within the utilities companies would municipalities might expose the implementation improve accountability in the sector and service provision. progress to a moderate risk of slowing down. The planned drastic residential tariff increase across the Due Date : Status: In country might undermine final beneficiaries’ support Resp: Client Stage: Both Recurrent Progress for their service providers and for the project. Implementing Agency Risks (including fiduciary) Capacity Rating: Moderate Description : Risk Management : The project is implemented by a coordination team The AF will include an opportunity to finance PCT staff from the project on terms sufficiently (PCT) set up by the Ministry of Housing and Utilities competitive to attract qualified professionals. Moreover, the AF will include training (MHU) specifically for the implementation of Bank- opportunities that can provide good incentives for hiring professional staff. The PCT has been supported projects. The PCT has experienced and recently reinforced with two new specialists (procurement and technical), and with additional trained financial management staff. A weak point training and additional staffing it will have the required capacity in place to further manage the though is that PCT as part of the Government project and the AF. administration is limited in hiring additional qualified staff on attractive terms. This could lead to In addition to the regular project monitoring visits, the team will continue reviewing weekly implementation difficulties on particularly complex project progress reports and exchanging on a weekly basis with PCT on the phone. technical or procurement activities. Due Date : Status: In Resp: Both Stage: Both Recurrent Progress Governance Rating: Moderate 22 Description : Risk Management : The PCT has a relatively simple and clear system of The Bank team's procurement and financial management reviews and training will support the decision-making in procurement and financial PCT during the implementation. The Bank’s team will increase the focus on strengthening the management. The risk of mismanagement in PCT’s existing system of checks and balances. procurement and financial management is moderate. Due Date : Status: In Resp: Both Stage: Both Recurrent Progress Project Risks Design Rating: Substantial Description : Risk Management : Investments are spread across a number of Competent and eligible contractors across the country have been identified through a market beneficiaries, which limits the size of contracts and study. Direct outreach to local and international contractors will be carried out at project the potential interest from international contractors. inception (and if needed repeated during project implementation) through a workshop Because local contractor market is dominated by convening potentially interested local companies and economic representative from foreign state-owned companies that may show little interest countries (embassies). Presentations of procurement and contracting approaches will be carried in competitive procurement conditions and are often out to familiarize potential contractors with Bank requirements. Procurement packages will on not eligible to Bank tenders, competition among average be more than three times larger than the ones proposed under the original projects, and contractors for Project contracts is likely to be in most cases reach sizes attractive to international or state-owned companies. limited. Due Date : Status: In Resp: Both Stage: Both Recurrent Progress Description : Risk Management: Cost estimation in Belarus has proven in many cases Current designs have been conducted by teams on international and local consultants, which not sufficiently reliable under the original project, have been able to perform more precise cost estimates using much larger samples of analogous leading to contract amounts larger than expected, and projects across the region. In addition, component A incorporates significant contingencies to requiring counterpart funding to cover all costs. allow for unexpected markets responses to the tenders for civil works. Due Date : Status: In Resp: Client Stage: Both Recurrent Progress Social & Environmental Description : Risk Management : Potential social issues (minor land acquisition needs) The Bank team’s Environmental and Social Development Experts will advise the counterparts are expected in at least one subproject. Adequate and visit the sites regularly during the project preparation and implementation to discuss management of physical cultural resources will be potential issues and how to resolve them. required in at least one subproject. Due Date : Status: In Resp: Both Stage: Both Recurrent Progress Program & Donor Rating: Low 23 Description : Continuous dialogue with the EBRD and NIB teams involved in water and wastewater sector The Bank’s has a new Country Partnership Strategy operations to look for complementarities. (CPS) for Belarus for FY14-17 and the Bank's program in Belarus is expanding. Other donors have Due Date : Status: In limited involvement in Belarus’ water sector, except Resp: Both Stage: Both Recurrent Progress for the EBRD and NIB. Delivery Monitoring & Sustainability Rating: Substantial Description : Risk Management : Risk to sustainability is substantial because some of The Municipal Water Sector Review (2013) has identified clear recommendations to improve the beneficiary utilities have low capacity, and lack the sustainability of service assets and operations. The AF will support the implementation of financial resources and incentives to maintain and some of the key recommendations aiming at improving sector efficiency and sustainability. The operate assets properly. Government is highly committed to sector modernization, as evidenced by the ongoing tariff adjustments defined in the 2011-2015 Social and Economic Development Program, and by its expressed interest in many of the sector reform options outlined in the Sector Review. Sector transformation is however a long-term endeavor, and this process entails significant risks for the sector (e.g. customers’ willingness to pay water bills following drastic tariff increases). In the short term, the Bank team will seek to enhance the sustainability of investments by: (i) ensuring that extensive training activities on the operation and maintenance of assets are included in civil works contracts; and (ii) advising counterparts on the progressive adjustment of sector financing mechanisms guaranteeing a stable flow of funds to utilities. Should tariffs increase not materialize as quickly as expected, the Government remains fully committed to subsidize non profitable service providers and cover their operational losses. Due Date : Status: In Resp: Both Stage: Both Recurrent Progress 5. Overall Risk Following Review 7.2 Implementation Risk Rating: Substantial Comments : Note : Include on average no more than 3 Risk Management Measures per Risk Category 24 IBRD 40606 BELARUS 24°E 26°E 28°E 30°E 32°E WATER SUPPLY AND SANITATION PROJECT ADDITIONAL FINANCING: L AT V I A 56°N WATER SUPPLY SUBPROJECTS WASTEWATER SUBPROJECTS 56°N BELARUS ORIGINAL PROJECT: WATER SUPPLY SUBPROJECTS Verkhnedvinsk WASTEWATER SUBPROJECTS Braslau CITIES AND TOWNS OBLAST CAPITALS LITHUANIA Navapolack Sharkovschina Poloysk Gorodok Borovukha a NATIONAL CAPITAL vi n a Dz oyav Vitebsk RIVERS Postavy VITEBSK Za kh o d OBLAST BOUNDARIES Glubokoye INTERNATIONAL BOUNDARIES Lepel Casniki Bogushevsk RUSSIAN FED. a Dubrovno Viliy Orsha Vilejka RUSSIAN Molodechno Gorky F E D E R AT I O N Talacyn 54°N Borisov Shklov Be 54°N re Smolevichi zin a Lida Mogilev MINSK Berezino Ne Krichev Grodno ma n MINSK Maryina MOGILEV So zh Gorka Mosty Slavharad Kascjukovicy GRODNO Osipovichi Volkovysk Baranovichi Rogachev Slonim Bobruisk Slutsk Zlobin Zabalocce Ivattsevichi Soligorsk Gantsevichi Dn ep r Bjaroza Svetlahorsk Gomel' Dobrus BREST GOMEL POLAND Kobrin Luninets Micasevicy Rechitsa Brest 52°N Pinsk Kalinkavicy 52°N Dneprovsko- Pripy at Mozyr Bugskiy Canal Turov Hojniki Stolin 0 25 50 75 100 Kilometers 0 25 50 75 Miles UKRAINE This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank GSDPM Map Design Unit Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. 22°E 24°E 26°E 28°E 30°E 32°E 34°E JANUARY 2014