Document of The World Bank For Official Use Only Report No: 58809-AL INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN IN THE AMOUNT OF EURO 62.5 MILLION (US$85.3 MILLION EQUIVALENT) TO THE REPUBLIC OF ALBANIA FOR A WATER SECTOR INVESTMENT PROJECT November 25, 2013 Sustainable Development Department Central Europe and the Baltics Country Unit Europe and Central Asia Region This document is being made publicly available prior to Board consideration. This does not imply a presumed outcome. This document may be updated following Board consideration and the updated document will be made publicly available in accordance with the Bank’s policy on Access to Information. CURRENCY EQUIVALENTS (Exchange Rate Effective October 31, 2013) Currency Unit = Albanian Lek (ALL) 100 ALL = 0.71 EUR or 0.97 US$ 1 EURO = 140.1 ALL or 1.37 US$ 1 US$ = 102.6 ALL or 0.73 EUR FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS DWU Durres Water Utility EIA/EMP Environmental Impact Assessment / Environmental Management Plan EIB European Investment Bank EU European Union FM Financial Management GDP Gross Domestic Product GDWSS General Directorate for Water Supply and Sanitation GFIS Government Financial Information System GIZ Gesellschaft für Internationale Zusammenarbeit GoA Government of Albania IBRD International Bank for Reconstruction and Development IDA International Development Association (of World Bank) IFR Interim Financial Reports IPA Instrument for Pre-Accession Assistance (from the EU) KfW Kreditanstalt für Wiederaufbau LGU Local Government Unit M&E Monitoring and Evaluation MoF Ministry of Finance MTI Ministry of Transport and Infrastructure NRW Non Revenue Water O&M Operation and Maintenance OP/BP Operational Policy / Bank Procedure PEFA Public Expenditure and Financial Accountability PIU Project Implementation Unit PMBU Performance Monitoring and Benchmarking Unit PMT Project Management Team RAP Resettlement Action Plan SAI Supreme Audit Institution WRA Water Regulatory Authority (of the WSS sector) WSS Water Supply and Sanitation WWTP Wastewater Treatment Plant Regional Vice President: Laura Tuck, ECAVP Country Director: Ellen A. Goldstein, ECCU4 Sector Director: Laszlo Lovei, ECSSD Sector Manager: Sumila Gulyani, ECSUW Task Team Leaders: Stephen Karam, ECSSD & David Michaud / ECSUW ALBANIA WATER SECTOR INVESTMENT PROJECT Table of Contents Page I.  Strategic Context.................................................................................................................... 1  A.  Country Context ............................................................................................................... 1  B.  Sectoral and Institutional Context .................................................................................... 2  C.  Higher Level Objectives to which the Project Contributes .............................................. 4  II.  Project Development Objectives........................................................................................... 5  III.  Project Description ................................................................................................................ 6  A.  Project Components ...................................................................................................... 6  B.  Project Financing .......................................................................................................... 7  C.  Lessons Learned and Reflected in the Project Design ................................................. 7  IV.  Implementation ...................................................................................................................... 9  A.  Institutional and Implementation Arrangements .......................................................... 9  B.  Results Monitoring and Evaluation ............................................................................ 10  C.  Sustainability .............................................................................................................. 11  V.  Key Risks and Mitigation Measures .................................................................................. 11  VI.  Appraisal Summary ............................................................................................................. 12  A.  Economic and Financial Analysis .............................................................................. 12  B.  Technical .................................................................................................................... 13  C.  Financial Management ............................................................................................... 15  D.  Procurement ................................................................................................................ 16  E.  Social (including safeguards) ..................................................................................... 16  F.   Environment ............................................................................................................... 17  Annex 1: Results Framework and Monitoring ........................................................................ 19  Annex 2: Detailed Project Description ..................................................................................... 21  Annex 3: Implementation Arrangements ................................................................................ 26  Annex 4. Operational Risk Assessment Framework (ORAF) ............................................... 40  Annex 5: Implementation Support Plan ................................................................................... 45  Annex 6: Team Composition ..................................................................................................... 49  Annex 7: Economic and Financial Analysis ............................................................................ 50  Map ALBANIA WATER SECTOR INVESTMENT PROJECT PROJECT APPRAISAL DOCUMENT EUROPE AND CENTRAL ASIA Datasheet Date: November 25, 2013 Team Leaders: Stephen George Karam / David Michaud Country Director: Ellen A. Goldstein Sectors: Water supply (60%); Sewerage 35%; Sector Manager: Sumila Gulyani Sub-national government administration (5%) Themes: Other public sector governance (15%); Water resource management (27%); Pollution Management and Environmental Health (20%); Infrastructure services for private sector development (10%); Access to urban services and housing (15%); Decentralization (13%) Project ID: P102733 Environmental Category B: Partial Assessment Lending Instrument: Investment Project Joint IFC: N/A Financing Joint Level: N/A Project Financing Data [X] Loan [ ] Credit [ ] Grant [ ] Guarantee [ ] Other: For Loans/Credits/Others: Total Bank financing (EURO): 62.50 million (US$85.3 million equivalent) Proposed terms: Fixed Spread Financing Plan (EURO) Source Local Foreign Total Borrower 0.34 0.00 0.34 International Bank for Reconstruction and 23.15 39.35 62.50 Development Total: 23.49 39.35 62.84 Borrower: Republic of Albania Ministry of Finance Blvd Deshmoret e Kombit, Tirana Albania Tirana, Albania Tel: (355-4) 228-8373 Responsible Agency: Ministry of Transport and Infrastructure (Ministria e Transportit dhe Infrastrukturës) Tirana, Albania Tel: (355-4) 223-0336 Estimated disbursements (Bank FY/EUROm) FY 13 14 15 16 17 18 19 Annual 0.00 1.00 9.00 19.00 18.00 11.00 4.5 Cumulative 0.00 1.00 10.00 29.00 47.00 58.00 62.5 Project implementation period: Start: December 20, 2013 End: June 30, 2019 Expected effectiveness date: April 1, 2014 Expected closing date: June 30, 2019 Does the project depart from the CAS in content or other significant respects? [ ]Yes [X] No Ref. PAD I.C. Does the project require any exceptions from Bank policies? Ref. PAD IV.G. [ ]Yes [X] No Have these been approved by Bank management? [ ]Yes [ ] No Is approval for any policy exception sought from the Board [ ]Yes [X] No Does the project include any critical risks rated “substantial” or “high”? [X]Yes [ ] No Ref. PAD III.E. Does the project meet the Regional criteria for readiness for implementation? [X]Yes [ ] No Ref. PAD IV.G. Project development objective Ref. PAD II., Annex 2 The Project Development Objectives (PDO) are to: (i) improve the quality of water and wastewater services in the Durres Water Utility Service Area; and (ii) improve the financial performance of Durres Water Utility. Project description Ref. PAD III.A., Annex 2 Component 1: Priority Water Supply Investments. This component will finance: (i) six water supply production wells and a bulk water supply transmission pipeline that will provide up to 630l/s additional supply capacity to address the acute water shortages in the Durres Utility Service Area; (ii) ancillary investments, including elevated reservoirs, linking municipalities/communes within the Durres area and along the transmission pipeline route to the water supply system in a sustainable manner; and (iii) priority investments in the water distribution network in Durres, as well as provision of leak detection equipment and pressure reducing valves to reduce losses. Component 2: Wastewater Network Investments. This component will finance priority wastewater investments aimed at enhancing the existing sewerage network’s capacity to handle the increased water supply in an environmentally and socially sustainable manner, including: (i) rehabilitation of critical parts of the existing sewerage system in Durres City to reduce sewage overflows during heavy rain events and separation of the stormwater network where necessary; (ii) construction of the secondary and tertiary sewerage network in the Durres Beach area; (iii) provision of high-powered sewer cleaning equipment for Durres Water Utility; and (iv) strengthening Durres Water Utility’s initial ability to operate and maintain the new Durres wastewater treatment plant. Component 3: Institutional Development Program, Utility Strengthening and Water Demand Management. This Component will support the Government’s broad-based policy and reform agenda at the national level with specific interventions at the local level, focused on the Durres region and its utility on a pilot basis. Investments would include: (i) design and implementation of a Water Demand Management Program; (ii) support to the Performance Monitoring and Benchmarking Unit; (iii) preparation and implementation of a Performance Improvement Plan and other support for Institutional Strengthening of Durres Water Utility to improve efficiency of operations, including design of a customer service survey and public awareness campaign; (iv) consultancy services for Technical Analysis and Capacity Building, in particular with regards to energy efficiency; and (v) a dedicated annual financial audit of the Durres Water Utility. Component 4: Project Implementation Support. This component will support implementation of the project including salaries for PIU staff, the PIU operating costs, provision of needed equipment, consultant services supporting project investment technical reviews, as well as overall project supervision, monitoring, evaluation and reporting. Which safeguard policies are triggered, if any? Ref. PAD VI E&F Environmental Assessment (OP/BP 4.01): The project triggers OP/BP 4.01 because it entails construction and rehabilitation works that could potentially have negative environmental and/or social impacts. The project has been classified as a Category B project, considering that those investments in the water supply and wastewater systems are expected to have moderate environmental impacts, that would mainly occur during the construction phases. An Environmental Impact Assessment (EIA) and an Environmental Management Plan (EMP) have been prepared for the project and disclosed within country on May 21, 2013 and to the World Bank’s Infoshop on May 22, 2013. Involuntary Resettlement (OP/BP 4.12): OP/BP 4.12 on Involuntary Resettlement is triggered, due to land acquisition and potential temporary or permanent displacement of people living or having an economic activity along the water transmission pipeline route to Durres or around other target areas for water or wastewater investments. A Resettlement Policy Framework and Resettlement Action Plan have been prepared for the project, which was disclosed to the World Bank’s Infoshop and within country on May 21, 2013. Natural Habitats (OP/BP 4.04): OP/BP 4.04 on Natural Habitats will be triggered as the pipeline transmission main crosses a forest area at Ishimi Hills with an approximate distance of 9,000 meters, which falls within a “Protected Area.” The project is expected to have temporary construction phase impacts only and would be mitigated by measures set out in the EMP. Projects on International Waterways (OP/BP 7.50): The project triggers OP 7.50 given the nature of water supply and wastewater collection investments and the location of the project area, which is along the eastern Adriatic Sea coastline. As of May 5, 2013, the proposed project has achieved compliance with this policy, as none of the riparian countries expressed any objections to the project within the 45 day notification period. Significant, non-standard conditions, if any, for: Loan/credit effectiveness: The Loan will become effective once:  The Borrower has prepared and adopted a Project Operations Manual satisfactory to the Bank. Dated Covenants  The Borrower, through MTI, shall no later than April 30, 2014, establish a Project Committee, with a composition, terms of reference, and resources satisfactory to the Bank.  No later than April 30, 2014, the Borrower shall cause MTI to enter into a Project Implementation Agreement with DWU, on terms and conditions satisfactory to the Bank. ALBANIA WATER SECTOR INVESTMENT PROJECT I. Strategic Context A. Country Context 1. The Republic of Albania is located on the Balkan Peninsula, along the eastern coast of the Adriatic and Ionian Seas, in South Eastern Europe. The total land area of the country is 28,748 square kilometers and it borders Montenegro and Kosovo to the north and north east, respectively, and FYR Macedonia and Greece to the south and south east, respectively. It has a total population of about 2.8 million people1, 54 percent of whom live in urban areas. 2. Albania’s economy, though still among the poorest in Europe, has recorded sustained growth over the last ten years. Average growth has been around 2.2 percent in recent years2 and Gross Domestic Product (GDP) per capita in 2012 was estimated at US$3,894, although an estimated 123 percent of the population still lives below the poverty line. The country faces increased fiscal pressures deriving from the Euro-zone crisis, though its positive economic performance in recent years should help to advance towards its goal of European integration. The World Bank has been playing a major role in supporting reforms, strengthening institutions, and financing investments across the full range of sectors in Albania over the past two decades. Albania graduated from the International Development Association (IDA) in 2008 and became creditworthy for loans from the International Bank for Reconstruction and Development (IBRD). 3. Albania is endowed with substantial water resources, equivalent to an estimated 8,600 cubic meter per capita per year, of which it withdraws only 6 percent annually. According to official data4 from the water sector Performance Monitoring and Benchmarking Unit (PMBU), established within the Ministry of Transport and Infrastructure (MTI) with support from the Bank, the share of the urban population currently connected to a piped water network is 91 percent compared to 57 percent in rural areas. Total population served by piped water supply is 80 percent, 76 percent of which are house connections. The relatively high coverage is however negated by the poor quality of service as Albania’s urban water supply sector is inefficient. For instance, average Non-Revenue Water (NRW), a measure of the share of water produced that does not generate revenue, was estimated at around 64 percent in 2011 for the utilities, far above that in other Europe and Central Asian (ECA) countries (38 percent) and many developing countries. The average city supplies only 11.2 hours per day of drinking water, which is well below the EU benchmark of 24 hours. As a result, Albanian citizens are forced to rely on investing in coping mechanisms like household water tanks and booster pumps to compensate for unreliable supply. 4. Wastewater services also need improvement. According to official data5, about 50 percent of the total population has access to a wastewater connection, while the rest use on-site 1 According to 2011 Census the population in 2011 was 2,831,741. 2 IMF, World Economic Outlook 2012 3 Official poverty data varies among sources, ranging from 12 to 25%. 4 Data from the PMBU covers only the 58 mainly urban utilities that report their performance data, and not the entire population. 5 Source: PMBU. Only 30 of these 58 utilities that report to the PMBU provide sewerage service data. 1 sanitation facilities. Currently, Albania has only a few operational conventional wastewater treatment plants, e.g. in Kavaja and Pogradec. More recently, wastewater treatment plants have been built in Durres, Sarande and Lehze and are just starting to come on line. In most cities where sewerage service is available, coverage is still limited and effluent is discharged untreated into the environment. Environmental protection of water sources and coastal waters therefore remains an important issue, and both ground and surface water, which constitute the main sources of drinking water, are at risk of pollution as a result of the discharge of untreated wastewaters into rivers and the sea, as well as inappropriate dumping of solid waste on river banks. 5. The coastal city of Durres, located along the Adriatic coast in the north western part of Albania is the country’s second largest city and its primary port. Durres and its surrounding local governments within the service area (5 municipalities and 10 communes in total6) have a total population of about 330,000 people during the off peak seasons. The area is one of the main tourist destinations in Albania and, as a result, its population increases during peak tourist season to an estimated 400,000 people. Yet the quality of its water and sewerage services is among the poorest in the country. 6. The Government of Albania (GoA) and in particular the newly elected administration assigns high priority to improving infrastructure services, including water supply and sanitation (WSS), in addition to improving environmental and public health conditions in the city of Durres and its adjacent municipalities and rural communes given the economic and political importance of the city. Water and sewerage services have remained poor in Durres despite the city having benefited from a series of World Bank projects over the past ten years. Reasons for the continued deficient services include the following: (a) investment funding allocations under past operations were inadequate and never focused on increasing the supply of water to a level that could match the demand in Durres and its adjacent rural communes; (b) historical investments did not adequately create the conditions for efficient and sustainable services, for instance through effective demand management and reduction of losses; and (c) the Durres Service Area municipalities and communes historically have not established an effective institutional structure for managing service delivery in a sustainable manner to all the areas that ultimately use its water supply. The service area currently served by the Durres Water Utility extends beyond the city limits to several adjacent municipalities and rural communes and settlements. B. Sectoral and Institutional Context 7. In implementing its Decentralization Policy, Albania in 2007 transferred the responsibility for management of WSS services and ownership of related assets from Central Government to Local Government Units (LGUs). All local governments have accepted this transfer of assets and responsibility for operating their respective utility, although in the case of Durres the five municipalities and 10 communes that comprise the Durres Water Utility Service Area have only very recently formally appointed the necessary utility governance bodies and utility management. The transition and consolidation towards a solid, sustainable utility is expected to continue and will be supported through the project. Other sector challenges are summarized below. 6 For details, see Annex 2 2  Water Service coverage: While official data on access to water service in Albania appear relatively high in aggregate terms, the sector still faces a systemic challenge of delivering reliable, high quality services. Rural service coverage also lags significantly behind urban areas. In the Durres service area, for instance, water supply service coverage in urban areas is estimated at 70% compared to 50% in rural areas. In addition, there are parts of the service area officially connected to the network that are not able to receive water due to inadequate water supply and system pressure, the latter of which is caused by an underdeveloped distribution system featuring intermittent water supply and an apparent lack of coordination between the utility and village authorities in preparing the secondary and tertiary network designs.  Continuity of service: The Durres area currently receives an average of 6 hours of water supply per day, below the current 11.2 hour national average and EU 24 hour benchmark. Consequently, water quality cannot be guaranteed given the increased risk of contamination when water supply pipes are unpressurized.  Inefficiencies of commercial services: The majority of Albania’s water utilities are currently unable to cover their operating costs due to a combination of factors, including high operating costs, low metering, low bill collection rates, and high levels of non- revenue water. In order to cover utilities’ financial deficits the Government is forced to provide operational subsidies of about US$30 million per annum sector wide, or about one third of operating costs. While average reported utility collection rates nationally stand at 84%, collection rates in Durres were as low as 60% in 2010 and 69% in 2011. Overstaffing at Durres Water Utility is also a major challenge, with 7.3 staff per 1,000 water/sewerage connection compared to an EU benchmark of 2 staff per 1,000 connections. The utility had a Financial Working Ratio7 of 1.69 against an EU benchmark of 0.50. The chronic lack of resources has forced the Durres utility like several others, to defer costs of infrastructure maintenance, ultimately contributing to accelerated deterioration and premature breakdown of assets.  Inadequate demand management: Only 45% of the household connections nationally, and 50% in Durres are metered, which generally encourages wastage, overconsumption and lack of accountability for water resource usage. Low metering levels undermine billing and collection efficiency, as many households refuse to pay when billed against the norm rather than for actual water consumed.  Inadequate sewerage services: Wastewater coverage is still relatively low in Durres Service Area (52%) and the existing Durres sewerage system is in dire need of rehabilitation due to age, poor design and construction, haphazard illegal connections from the sewers to and from storm water drains, and poor maintenance. Consequently, the system is plagued with chronic problems such as sewer blockages and overflow of pumping stations, leading to flooding. The newly constructed Durres wastewater treatment plant was connected to the wastewater network and is receiving effluent flows, and operation of the plant started only in March 2013. However, untreated wastewater continues to flow into the Adriatic until the plant becomes fully operational. 7 Financial Working Ratio is the ratio of operating costs excluding depreciation to the operating revenues of the utility. 3  Institutional challenges: In addition to the governance issues linked to the current impasses in transfer of some of the utilities to LGUs, the sector at both the national and local levels faces other institutional challenges such as: weaknesses in managerial staff capacity to operate the utilities on a commercial basis; weaknesses in the regulatory framework for the sector; and the absence of adequate asset documentation. 8. Alongside other donors, the Bank has provided a steady stream of investments to help improve water and sanitation services while also contributing to institution building measures in Albania, including help in establishing the PMBU within MTI, which is the most reliable source of sector monitoring data. In recognition of its long-standing sector engagement, convening power, and global experience, the Bank was requested by the Government of Albania to assist in preparing its new National Water and Sanitation Strategy for the 2010-16 period. The new strategy, which was endorsed by the Government in September 2011, updates the 2003 Sector Strategy with a vision to develop proper policies and commit sufficient resources to improve the provision of water supply and sewerage services, and to consistently move towards compliance with EU standards. Having indicated to donors that the water sector should be a major focus of infrastructure support going forward, the Government has recently prepared a comprehensive capital investment masterplan for the sector with the support of KfW. The proposed project was designed within this strategic framework and the Government seeks to use it as a vehicle to implement its reform agenda. C. Higher Level Objectives to which the Project Contributes 9. The project is fully consistent with the latest IBRD/IFC Country Partnership Strategy (CPS) for Albania (R2010-0175 [IDA/R2010-0249, IFC/R2010-0263]) discussed by the World Bank’s Board of Directors in July 2010, covering the period FY11-FY14. It is the first CPS to be presented to the Board following Albania’s graduation from IDA. The project directly supports the CPS’s third strategic objective of reducing vulnerability to climate change by improving water conservation and water demand management. The CPS program will also continue to support governance improvements in Albania through use of a “governance filter” for all Bank-financed operations in order to promote management, efficiency and transparency improvements across government ministries with broad agreement on strengthening public expenditure management, administrative and accountability systems. The Bank’s commitment to supporting Albania’s water sector is in alignment with the CPS and progress on these fronts would have a substantial impact on reduction of infrastructure deficits in a fiscally sustainable way. Additionally, given that Albania is very vulnerable to climate change (due to high dependence on water for power and irrigation for the economically-important agriculture sector) it is vital that the country moves rapidly to appropriately adapt its water infrastructure and usage to changing climatic conditions. Finally, the Project is also contributing to the Bank Group’s goal of promoting shared prosperity by addressing water service quality that disproportionally affect the rural and urban poor populations. 10. The proposed project is also very closely aligned with the GoA priorities. Beside the 2011 Sector Strategy, the recently adopted “2013-2017 Government Program” lists the setup of strong, efficient and sustainable regional utilities as well as improvements in water and wastewater treatment services, as important building blocks of its Program. The Durres area is specifically outlined as a priority. The Project would therefore provide an ideal opportunity to 4 advance the policy and institutional reform agenda outlined in the new Government Program and the recent Sector Strategy8, coupled with financing for priority investments. II. Project Development Objectives 11. The Project Development Objectives (PDO) are to: (i) improve the quality of water and wastewater services in the Durres Water Utility Service Area; and (ii) improve the financial performance of Durres Water Utility. 12. These objectives will be achieved by building upon the important foundation established under earlier investment programs in the Durres region and scaling up the Bank’s level of engagement by: (a) implementing priority water supply investments, including additional water abstraction approximately 13 km. to the northeast of the existing source, and construction of a bulk water transmission pipeline to address the acute water shortages experienced especially during peak seasons; ancillary investments linking villages and settlements along the transmission route to the city’s water supply system; and priority investments to reduce losses in the city’s water distribution network; (b) implementing priority investments to enhance the existing sewerage network’s capacity to reduce blockages and unsanitary conditions caused by sewage overflow, and expanding the sewerage network to transfer wastewater from the touristic beach area to the newly constructed Durres Wastewater Treatment Plant (WWTP); (c) consolidating and further improving the operations and sustainability of the Durres Water Utility through effective enhancements in financial management and cost recovery; and (d) supporting project implementation through an established Project Implementation Unit (PIU). 13. Project Beneficiaries: The primary beneficiaries will be water consumers (both residential and commercial users) in the Durres region and its environs totalling up to 400,000 people in the peak season (330,000 off-peak), who would benefit from service improvements in terms of reliability and quality of water supply services. In addition to direct benefits, such as increased convenience and consumer satisfaction with improved water supply, improvements in water quality are generally deemed to contribute to public health benefits by reducing the risk of waterborne diseases in the project areas. Other beneficiaries of the project would comprise the institutions responsible for managing water supply to the region, including (a) the Durres Water Utility, which is in charge of operation and maintenance (O&M) of the water supply and sanitation (WSS) system, and (b) the local governments that own and are ultimately responsible for overseeing the utilities through Supervisory Boards under the existing Decentralization legislation, both of which will benefit in terms of enhanced sustainability of services owing to improved technical and financial performance. Finally, the Central Government would be supported in (i) meeting part of its broad-based policy and reform agenda, as well as its investment priorities for the sector in terms of efficiency and quality of service, and (ii) improving water supply to the rural population that is currently under-served. It would also benefit from increased capacity of the existing monitoring and benchmarking unit to monitor sector performance. 8 . The main areas of focus of the Sector Strategy aim to: (a) expand and improve the quality of water supply and sewerage services; (b) orient the water utilities toward principles of cost control and full cost recovery; (c) improve governance and regulation in the sector; (d) invest in enhancing the capacities of the sector work force; and (e) move toward convergence of Albanian law with EU Water Directives. 5 14. PDO Level Results Indicators: The following performance indicators will be monitored on a regular basis to measure achievement of the project development objectives:  Piped household water connections that are benefiting from rehabilitation works undertaken by the project (measured as the cumulative number of piped household water connection benefiting from rehabilitation works)  New household sewer connections implemented under the project (measured as the cumulative number of new sewer connections constructed under the project.)  Improved Financial Working Ratio (measured as the relationship between the collected revenues and cash operating expenses)  Direct project beneficiaries (measured as the cumulative number of people who benefitted from the project), of which females (percentage) III. Project Description A. Project Components 15. Component 1: Priority Water Supply Investments. This component will finance: (i) Six water supply production wells and a bulk water transmission pipeline that will provide up to 630l/s additional supply capacity to address the acute water shortages experienced in the Durres Water Supply Service Area; (ii) Ancillary investments linking settlements/communes in the Durres service area and along the transmission pipeline route to the water supply system in a sustainable manner; and (iii) Priority investments in the water distribution network in Durres, as well as provision of leak detection equipment and pressure reducing valves to reduce losses. 16. Component 2: Wastewater Network Investments. This component will finance priority wastewater investments aimed at enhancing the existing sewerage network’s capacity to handle the increased water supply in an environmentally and socially sustainable manner, including: (i) Rehabilitation of critical parts of the existing sewerage system in Durres City to reduce sewage overflows during heavy rain events and separation of stormwater networks where necessary; (ii) Construction of the secondary and tertiary sewerage network in the Durres Beach area; (iii) Provision of high-powered sewer cleaning equipment for effective network maintenance by the Durres Water Utility; and (iv) Strengthening DWU’s initial ability to operate and maintain the new Durres wastewater treatment plant. 17. Component 3: Institutional Development Program, Utility Strengthening and Water Demand Management. This Component will support the Government’s broad-based policy and reform agenda at the national level with specific interventions at the local level, focused on the Durres region and its utility on a pilot basis. Investments would include: (i) Design and implementation of a Water Demand Management Program; (ii) Support to the Performance Monitoring and Benchmarking Unit; (iii) Preparation and implementation of a Performance Improvement Plan and other support for Institutional Strengthening of Durres Water Utility to improve efficiency of operations, including design of a customer service survey and public awareness campaign; 6 (iv) Consultancy services for Technical Analysis and Capacity Building, in particular with regards to energy efficiency; and (v) A dedicated annual financial audit of the Durres Water Utility. 18. Component 4: Project Implementation Support. This component will support implementation of the project including salaries for PIU staff, the PIU operating costs, provision of needed equipment, consultant services supporting project investment technical reviews, as well as overall project supervision, monitoring, evaluation and reporting. B. Project Financing Lending Instrument 19. The lending instrument would be an Investment Project Financing (IPF). Project Cost and Financing 20. The total cost of the project is EURO 62.84 million, to be financed through an IBRD loan of EURO 62.5 million (US$85.3 million equivalent) and Government counterpart funds of EURO 0.34 million. (In Millions of Euros) Project IBRD % Project Components Cost Financing Financing 1. Component 1: Priority Water Supply Investments 44.14 43.80 71 2. Component 2: Wastewater Network Investments 10.00 10.00 16 3. Component 3: Institutional Development Program 3.86 3.86 6 4. Component 4: Project Implementation Support 0.68 0.68 1 Total Baseline Costs 58.68 58.34 94 Physical contingencies 3.00 3.00 4.5 Price contingencies 1.00 1.00 1.5 Total Project Costs 62.68 62.34 100 Interest During Implementation Front-End Fees (0.25%) 0.16 0.16 Total Financing Required 62.84 62.50 C. Lessons Learned and Reflected in the Project Design 21. Several lessons learned from previous Bank-financed water projects in Albania and elsewhere, including the Durres Water Supply Project (DWSP) approved in May 1994, the Water Supply Urgent Rehabilitation Project (WSURP) approved in February 2000, and the Municipal Water and Wastewater Project (MWWP) approved in January 2003, are reflected in the Project design as follows:  Lesson 1: Funding allocations for investments within projects should be commensurate with existing sector needs if they are to have an impact on improving the quality of service 7 delivery. The three prior Bank supported operations in Durres did not succeed in raising water supply and wastewater services to adequate levels, due primarily to inadequate investments in comparison to the needs. For instance, the US$13.6 million investment budget under the MWWP was spread out among four cities and allocation for Durres was about US$2.6 million (less than 5% of the city’s estimated investment needs). The current operation would allocate the entire investment budget to priority investments in the Durres service area including not only Durres City but also for surrounding municipalities and communes in the service area, thereby having sufficient scale to have a more significant impact.  Lesson 2: It is often unrealistic to attempt to garner Government support for substantial institutional changes in a local water enterprise or utility without linking it to broader sector reforms that address fundamental sector-wide issues. Institutional issues in Durres are aligned with implementation of broader sector reforms and priorities in line with the National Water Sector Strategy for the 2010-16 planning period, as well as the 2013-2017 Government Program.  Lesson 3: Securing commitment to reforms by the utility is an essential element critical to the Project’s success. The management of the Durres Water Utility (DWU) has taken numerous steps to improve performance over the past two years. Recent reforms have earned it the title of “top improving utility” in the 2011 ratings of the Water Regulatory Authority (WRA). During the period 2009-11, the utility increased its collection rate by 21 percent, expanded metering, increased its tariff, and reduced NRW by over 7 percent. The recent formal transfer of the utility by local governments will provide further impetus for utility reform.  Lesson 4: Politicization of tariff rate setting, staff recruitment and other administrative and financial matters may undermine the potential for reform in the WSS sector and diminish improvements in service delivery at the utility level. Ensuring positive commercial and financial performance of utilities requires reducing political interference in their day-to-day management in order to achieve their operational and financial objectives. DWU has secured tariff rate increases in recent years and has been supported by national policy makers and the Albania WRA who recognize the need to improve cost recovery.  Lesson 5: During implementation, projects often tend to focus more on meeting physical investment targets while critical institutional reform and development activities tend to be marginalized at the expense of sustainability of operations. There has been extensive dialogue during project preparation involving central and local government stakeholders, DWU, the Bank and other donors, particularly within the context of development of the new Water Sector Strategy. Implementation of the proposed institutional reform and technical assistance (TA) sub-components are scheduled earlier in the project implementation period to set the foundation for performance improvements. In addition, the TA sub-components are designed in accordance with the absorption capacity of the utility and their implementation will be sequenced so as to maintain realistic expectations.  Lesson 6: Preparatory work for major institutional reforms such as introduction of private sector participation (PSP) and/or other new approaches should involve a thorough 8 assessment of the political economy of the sector and consultations with key stakeholders to assess their level of commitment to the approaches. An Institutional Options Study9 was prepared to explore different institutional arrangements, including unbundling of water supply services. The recent transfer of the utility to local governments is an opportunity to continue exploring the options set forth in the study with stakeholders to ensure a feasible model for managing the water supply to Durres and the surrounding areas is in place. IV. Implementation A. Institutional and Implementation Arrangements 22. The project will be implemented over a period of five years. Institutional arrangements and responsibilities of the different institutions are outlined below. 23. Ministry of Finance: The Borrower would be the Republic of Albania, represented by the Ministry of Finance (MoF). As the Borrower’s representative, MoF’s key responsibilities under the Project will be to provide timely co-financing for the project in accordance with the Loan Agreement, and to ensure that the line Ministry and implementing agency, MTI, through its PMT carries out its responsibilities in accordance with the terms of the Loan Agreement. 24. Ministry of Transport and Infrastructure (MTI): The MTI as the line Ministry responsible for the water sector in Albania will be responsible for overall implementation of the project. Implementation responsibilities will be delegated to a Project Implementation Unit (PIU), with the Project Director reporting directly to the Minister. The existing PIU will have primary responsibility for overseeing all aspects of project implementation including fiduciary aspects, with financial management of loan proceeds and procurement of goods, works and services for the project. It will be strengthened and supported by qualified consulting companies to supervise the implementation of works. A Project Management Team (PMT) would also be established to facilitate critical policy-level decisions and actions necessary for successful project implementation. The PMT would be headed by the Minister and comprised of the Project Director, General Director of the General Directorate for Water and Sanitation Services (GDWSS), and the General Manager of the Durres Water Utility, among others. A detailed review of the implementation arrangements is provided in Annex 3. MTI has proposed in its draft Operations Manual for the Project a clear and streamlined set of procedures for securing all investment project activity official licenses and approvals well before reaching the implementation stage. 25. Durres Water Utility (DWU): As the future operator of much of the infrastructure built under the project, DWU will play an important technical role in the project and contribute to the technical oversight of the project. DWU will be responsible for adopting and implementing its Business Plan and adhering closely to the Financial Model that has been prepared and a Performance Improvement Plan (PIP) that will outline the details of specific actions. Upon training of its technical staff, DWU will also be invited to participate in the procurement evaluation committees for relevant activities of the project. 26. Durres Region Local Governments: The DWU service area comprises 10 communes and 5 municipalities. They have been consulted throughout project preparation and have 9 Identification of Institutional Models for Durres Bulk Water Supply and Distribution, Castalia, September 2011. 9 supported the Project from the beginning, even before the recent transfer took place. Following their recent acceptance of the DWU, they have appointed representatives to the assembly of shareholders, which in turn has named the utility’s supervisory board and general manager. Besides being represented through the DWU’s governance structure, LGUs will also be invited to appoint representatives to the Project Committee (see next paragraph). 27. Project Committee. In order to ensure effective coordination and communication between the Project’s main actors and stakeholders, a Project Committee will be formed, chaired by the Minister of Transport and Infrastructure or a delegate, and comprised of representatives of the MTI, DWU and the LGU, with detailed membership, roles and functions as defined in the Project’s Operations Manual. 28. Possible restructuring for greater DWU responsibilities. The GoA recognizes the recently transferred DWU does not currently have the financial and fiduciary capacity to directly implement the WSIP, and has appointed the Line Ministry, MTI, as sole implementing agency. However, GoA has indicated its interest to reconsider this situation during Project Implementation, in particular once the institutional strengthening and capacity building activities under Component 3 demonstrate their positive impact. Any change of implementing arrangements would be subject to appraisal of proposed arrangements and formal Project restructuring. B. Results Monitoring and Evaluation 29. The MTI, through the Performance Monitoring and Benchmarking Unit (PMBU), is responsible for overall monitoring and evaluation (M&E) of the water sector at the national level. It currently monitors the performance of 58 urban water utilities, including Durres, against established indicators and will continue to do so. The PMBU however needs strengthening in some areas, such as expanding capacity to monitor the entire sector including rural areas and communes, and being able to verify reported data, among other measures. The project envisages provision of technical assistance and capacity building to support the PMBU in data collection and monitoring capacities. Specific activities would seek to: improve the data verification process as well as to scale up its scope of monitoring beyond the utility to the sector wide level; review and update the core set of indicators that will be appropriate for both urban utilities and for rural communal systems; fine-tune and optimize the frequency of data collection; improve the monitoring function at the utility levels; and improve data dissemination and usage. 30. At the project level, the PIU, working in close collaboration with the Durres Water Utility and Commune authorities to collect data, will be responsible for M&E of the project towards achievement of its objectives, and for relevant aspects of utility performance. It will prepare and submit to the Bank bi-annual reports (i.e. twice a year) to monitor project progress on the basis of performance indicators defined in Annex 1. In addition to the specific monitoring indicators required as part of the formal Results Framework for the project, the utility will be required to monitor additional performance indicators linked to its Performance Improvement Plan (PIP). Currently, available data on sector performance within the Durres Water Utility and the surrounding municipalities and communes is not subject to verification, and the data collection and recording function will need strengthening at this level. The project will provide technical support to the utility to improve its M&E function. 10 C. Sustainability 31. The long-term sustainability of the Project will depend on several factors:  The consolidation of effective institutional arrangements to manage services to the entire Durres Water Utility service area, including within the settlements and communes outside of Durres City that are served by the existing facilities.  Financial sustainability of the project will depend on the extent to which the Durres Water Utility, supported by the broader institutional and political environment governing the sector, is able to pursue a sound cost-recovery policy that in the first instance would enable it to cover at least its operations and maintenance (O&M) costs. A detailed financial model has been prepared that sets specific performance benchmarks that are feasible and will enable DWU to achieve a viable financial working ratio within the first four years of the project. To support achievement of this target, the project will initiate specific measures, including preparation and implementation of a Performance Improvement Plan outlined in the Business Plan. Tariff adjustments would be designed so as not to pass on the cost of the utility’s inefficiencies to the end consumers, as well as to avoid negative impacts on the poor.  Operational sustainability will depend on the extent to which the Durres Water Utility staff can be motivated to improve efficiency and effectiveness of operations and maintenance of the investments installed through the project, and to be more accountable to consumers as well as to Government for performance. It will also depend on the success of the capacity building efforts that would be made through the institutional strengthening activities.  Environmental sustainability of the project will depend, in addition to implementation of the priority wastewater investments in Durres, on the sound and continuous operation of the newly-commissioned Wastewater Treatment Plan in Durres to ensure appropriate treatment and disposal of wastewater effluent from the City of Durres. V. Key Risks and Mitigation Measures A. Risk Rating Summary Table Risk Rating Stakeholder Risk Substantial Implementing Agency Risk Capacity Substantial Governance Moderate Project Risk Design Moderate/Substantial Social and Environmental Moderate Program and Donor Low Delivery Monitoring and Sustainability Substantial Overall Implementation Risk Substantial 11 B. Overall Risk Rating Explanation 32. The overall risk rating is Substantial. While the economic and technical fundamentals of the Project are sound, the institutional consolidation that the Project is partially designed to support will pose a critical challenge. The principal aim is to ensure that the Durres Water Utility (DWU), following the recent transfer, is on a sustained reform and operational improvement path that will allow it to sustainably deliver high-quality services to its consumers at an efficient cost. To mitigate against institutional risks, extensive consultations have taken place with all key stakeholders, and a detailed financial analysis has been carried out to develop a viable financial model with critical assumptions that would guide the DWU during the period of Project implementation and beyond. This analysis will underpin the preparation of a detailed Performance Improvement Plan (PIP) that will prescribe specific actions to strengthen cost recovery, reduce water losses, and improve overall efficiency of DWU operations. 33. Specific capacity building measures have also been built into project design to ensure effective implementation of reforms and concrete achievement of operational improvements. In addition, a universal water metering program is designed to strengthen accountability for water use, reduce free-rider behavior, and strengthen billing and collection efforts that have been undermined by the limited meter coverage to date. A public awareness campaign will be supported under the project to promote water conservation, and a customer service survey will be implemented approximately every 18 months to assess improvements in service provision and ways to further enhance DWU performance. 34. As a measure to hedge against risks associated with macro-fiscal pressures, the Project would finance 100% of eligible expenditures, reducing dependence on fiscal resources to co- finance investments that might otherwise delay or compromise smooth contract implementation. VI. Appraisal Summary A. Economic and Financial Analysis 35. The Project would deliver substantial benefits by improving the water supply and sanitation services for the 330,000 residents of the Durres Utility Service area and the surrounding environment. An acute water supply deficit estimated at 10.4 million m3 per year would be addressed through the addition of six high capacity production wells and a water supply transmission line to Durres City. Elevated reservoirs to be installed in rural communities would improve water pressure, addressing the problem of unreliable water supply which currently stands at 6 hours per day, and reducing the need to rely on costly bottled water. Rehabilitation and upgrading of wastewater networks will reduce blockages, enhance network efficiency and deliver wastewater effluent for appropriate treatment to the newly commissioned wastewater treatment plant, preventing further deterioration of beaches in Durres and surrounding areas. These benefit streams far outweigh the Project costs. 36. The Project’s economic and financial analysis relied on identified investments to assess benefit and cost streams. Water supply investments comprising the production wells, transmission main and elevated reservoirs account for 80% of the project costs. Alternative options analysis taking into account four different production well/transmission main routing options and considering economic, social and environmental impacts yielded a preferred option that was selected and recommended by the design firm. Average Incremental Economic Cost 12 (AIEC) analysis was carried and provided a clear cost advantage of operating the new transmission main at full capacity and shifting the existing transmission main to function as a secondary supply option. This was due to the much higher efficiency of the new line, particularly due to energy cost savings. AIEC results showed a EURO 0.54 per m3 versus EURO 0.68 per m3 cost advantage. 37. Further analysis was carried out using with/without project assumptions using the economic price attributed to water at US$0.90/m3. This yielded an Economic Rate of Return (ERR) of 11%, Net Present Value of US$22.71 million, and Cost-Benefit Ratio of 1.26. 38. For the financial analysis a detailed financial model was prepared for Durres Water Utility. Under the base case scenario, using conservative billing and collection ratios, the FRR was projected at 9.8% with a NPV of $1.6 million. Sensitivity analysis was carried out whereby the collection ratio was adjusted downward by 5%, yielding a 7.98% FRR. Financial analysis was also carried out separately on the water meter investments. Collection rates for metered accounts stand at 82%, while unmetered accounts yield only 35% of billings. Comparing with/without project impacts, incremental improvements in collections due to metering under the project are expected to yield a robust 31% Internal Rate of Return against the cost of investment. B. Technical 39. Priority Water Supply Investments Component: The project’s technical design seeks to address the Durres water supply service area’s most critical water challenges. Past studies and those prepared during project preparation identify a shortage of some 30,000m3 of water to the city daily. This shortage is primarily due to insufficient water production. However, other challenges exist. Currently, non-revenue water is estimated at 68% of production, of which physical losses are estimated at 30%. The current water shortage and network losses have forced the Durres utility to reduce its water distribution resulting in intermittent supply to the population, with many customers receiving an average of 6 hours of supply a day. In response to the situation, the population is investing in various coping mechanisms such as storage of water in overhead tanks on house roofs and installation of household booster stations. Current total storage volume in private tanks is estimated at 35,000m3 which makes it difficult to balance supply, especially since many of these household installations are unsound and contribute to the water losses and wastage. Due to the continuous expansion of the built-up are of Durres City and growing tourism activity, the present situation is worsening. Today, water supply to the city is almost entirely dependent on one transmission pipeline that is forty years old and plagued by heavy illegal connections from the population in the villages and settlements along its route. 40. In order to address the above challenges facing the Durres service area, the project seeks to provide technically feasible investment measures to: (i) provide the population with drinking water in adequate quantity and quality to meet the actual and future demand up to 2040 by increasing water supply to the city through installation of new wells and construction of a new bulk transmission pipeline to the city; (ii) allocate sufficient water to the rural areas and settlements along the route of the main transmission pipeline from the Fushe Milot source, thereby increasing the proportion of the population connected to the water network and constructing ancillary investments such as reservoirs to balance pressures and improve supply pressure in these areas; (iii) reduce physical water losses in the distribution network in Durres from an estimated 30% to 21% through priority investments in rehabilitation and upgrading of 13 the network; and (iv) implement a demand management program that will include 100% metering of Durres and the surrounding areas. 41. The feasibility study identified four technical options focusing on improving the water supply situation in Durres in both the medium- (up to around 2025) and long-term (up to around 2040). The options were analyzed on the basis of technical, economic, and environmental criteria, as well as consideration of the implementation time. The preferred option will comprise installation of six (five for regular production and one for monitoring and back-up) wells that would provide up to 630 l/s of additional capacity from the Fushe Milot wellfield about 13 km to the northeast of the existing Fushe Kuqe wellfield. The existing polder pump station (Hydrovor) will be rehabilitated and will serve the new water supply network. The water will be transferred to Durres through a 63 km 700 mm diameter transmission main. The new pipeline will be dedicated to Durres City while the existing pipeline, to which service reservoirs and connection points would be installed to provide bulk supplies to serve the rural villages and settlements, would be dedicated to these areas. The original idea was to lay the new transmission pipeline along the route for the existing transmission pipeline. However, given changes in the demographics and landscape due to growth of settlements along the existing route, alternative routing of the pipeline along the western route parallel to the coast was recommended, based on technical, social, environmental and economic considerations. The water component will also include priority investments to upgrade the existing distribution network in order to reduce water losses through leakages. 42. Wastewater Network Investment Component: Design of the wastewater component seeks to address the most critical network problems in Durres City. The Durres sewerage system currently serves only 50% of the population in the service area, mainly located within the city boundaries. The system was designed and built as a separate system, to convey wastewater. It has however been operated as a combined system, i.e. conveying both sewage and stormwater, due to many illegal connections and interconnections with stormwater drains. Operation of the network as a combined system contributes to hydraulic overloading during heavy rainfall, leading to severe flooding in the city. The situation has been exacerbated by the poor quality of construction used for several of the connections, as a result of inadequate supervision during design and construction. The wastewater is collected by gravity and pumping, and is discharged directly to the Adriatic Sea through a surface drainage channel system. Several of the pumping stations are in need of rehabilitation and upgrading, which would be supported under the Project. The direct discharge of untreated sewage is also a constant threat to the environmental sustainability of the area and affects its tourism potential. A World Bank-administered GEF Grant and the European Investment Bank (EIB) have jointly financed construction of a new Wastewater Treatment Plant. The Plant was recently commissioned and wastewater effluent is now flowing to the Plant for treatment. EU IPA funding has in parallel financed a wastewater collector that enables effluent to flow from the network to the treatment plant. Furthermore, the GoA informed the Bank that it intends to develop a country-wide strategy to ensure the proper operation and maintenance of wastewater treatment plants, possibly with EU support. 43. The project will support upgrading and expansion of the existing sewer network in Durres City to collect the increased wastewater in other critical parts of the city such as the beach area, where it will finance an upgrading of the secondary and tertiary sewerage network. It will also support priority wastewater investments in Durres City to reduce sewage overflows during rain events, for instance rehabilitation of critical parts of the existing sewerage system and 14 separation of stormwater network where necessary, as well as high pressure sewer maintenance and flushing equipment to strengthen DWU’s initial ability to operate and maintain the wastewater treatment plant, in the context of the country-wide strategy mentioned in the previous paragraph. C. Financial Management 44. The financial management arrangements in the existing PIU and in the MTI were reviewed as part of the preparation of the project including such systems as: staffing, internal controls, project accounting and financial reporting for project purposes, planning and budgeting, disbursements and auditing. The financial management arrangements of the proposed project meet the minimum requirements under OP 10.02. 45. The proposed project aims to utilize the improvements in the functionalities of the Albanian Government Financial Information system for funds flow, accounting and reporting functions. However several weaknesses were identified and the assessment preliminary conclusion is that the project will be mainstreamed through Government Financial Information System (GFIS) only when the following requirements are met: 1) access to GFIS is provided to the project staff of in accordance with their defined role; user license cost is covered by the government and appropriate training on using the system; 2) enabling of appropriate project coding in Government Chart of Accounts and generation of acceptable IFRs; 3) the MTI and MoF commit to honor and settle timely the liabilities recorded in the system for payment for expenditure under Bank financed projects, until the economic situation recovers and proper cash management procedures exist. While the system may be capable of managing and executing financial transactions, there are still concerns regarding system functionality for commitment control and cash management (government-wide) which weaken the system's performance and lessen the predictability of funding availability for capital expenditures to honor commitments and contracts. Besides, due to cash crunch situations, cases have been reported that payment for project expenditures have been delayed (for those projects whose funds flow are mainstreamed through treasury system), as more pressing needs have been satisfied even though the funds earmarked for project expenditures have been available. The Bank acknowledges that the MoF has prepared an action plan to address such deficiencies, and that certain related system adjustments will be completed within a timeframe of two years. 46. The project will pursue an alternative plan for accounting, financial reporting and funds flow of the project until the above requirements are met and decision is taken by the World Bank to use GFIS. The PIU will be responsible for executing financial management (FM) activities, based on policies and procedures described in the draft Project Operations Manual, and in coordination and under the supervision of MTI. Key FM staff (the Director and Financial Officer) are in place and have adequate experience in implementing Bank projects. The PIU formerly implemented Integrated Water and Ecosystems Management Project, the Municipal Water and Wastewater Project is currently implementing the Land Administration and Management Project, Component D. An acceptable project financial management solution is currently in use; project funds will be accounted separately; existing chart of accounts and Interim Financial Reports formats are updated to accommodate the project. Project financial management policies and procedures will be implemented in line with Albanian public financial management legislation and WB guidelines. An independent audit of the use of project funds 15 will be conducted on an annual basis, by independent auditors and based on audit terms of reference, both acceptable to the Bank. Detailed FM arrangements are discussed in Annex 3. D. Procurement 47. The overall fiduciary risk for Albania’s budget system is considered to be significant (Country Fiduciary Assessment Update, 2006), but is being targeted for improvement by the Government, with support from the Bank and other development partners. Procurement arrangements at the project level were reviewed as part of preparation for the proposed project, and of an Emergency Project prepared in parallel. The PIU will be responsible for all procurement proceeds under the project. Key PIU Procurement staff (the Director and Procurement Specialist) are in place and have experience in implementing Bank projects; they will be further strengthened with support from an experienced international Technical Specialist with experience in procurement, to be hired prior to implementation. In addition, technical staff from DWU which might be called on sitting in evaluation committee will be previously trained on their specific role and general principles of Bank rules. 48. Key risks identified during the Procurement capacity review included: (a) unsatisfactory quality of technical designs leading to delays in contract implementation and contract amendments; (b) administrative delays in appointing evaluation committees; (c) delays in the evaluation process and issuing of final decisions for proposed award of contract; and (d) incomplete filing of procurement related documentation; and (e) low on contract monitoring resulting in extreme delays in contract implementation. Measures to mitigate these risks have been identified and are outlined under the relevant section in Annex 3. 49. Procurement process under the project will be carried out in accordance with World Bank “Guidelines: Procurement of Goods, Works, and Non-Consulting Services under IBRD Loans and IDA Credits and Grants by World Bank Borrowers” dated January 2011; and “Guidelines: Selection and Employment of Consultants under IBRD Loans and IDA Credits and Grants by World Bank Borrowers” dated January 2011 and the provisions stipulated in the Legal Agreement. The Bank Standard Bidding Documents, including evaluation for procurement of works and goods will be used, as well as the Bank’s Standard Request for Proposal for selection of consultants, including the standard evaluation report. E. Social (including safeguards) 50. A Social Assessment (SA) for the project has been completed as part of project preparation. The purpose of the SA is to assist in determining the social feasibility of the proposed investment as well as to ensure that the project contributes to building ownership in the proposed water supply improvements; contributes to povery reduction; identifies any potential social issues, negative impacts, or risks related to the project and measures that may be needed to help mitigate those impacts or risks; establishes baseline data for social monitoring and evaluation; and identifies measures that the water supply provider may adopt to strengthen its consumer orientation and improve its interactions with service users. A critical finding from the surveys and interviews is that rural areas and communes generally have good connection levels to water networks but lack water pressure and regular water supply. This has a higher impact on women in the household who typically rely on water access throughout the day. For this reason, seven elevated reservoirs will be constructed under the project to increase the supply of 16 pressurized water to these communities. A periodic customer service survey will also attempt to gather disaggregated data by gender and socioeconomic status to compare impacts and reactions from different user group profiles. 51. The Bank team features a Lead Social Specialist who has examined the project design aspects concerning social safeguards, reviewed conditions along the pipeline routing and related settlements and determined that if appropriate measures are taken in line with World Bank safeguard guidelines then the negative impacts on local populations should be short-term and minimal, while being offset by benefits accruing from the enhanced access to services, particularly in previously underserved areas. 52. A Resettlement Policy Framework (RPF) has also been prepared for this project, for the interventions to be defined during the implementation in addition to a Resettlement Action Plan (RAP) for the defined areas of the production wells and transmission main routing. The RPF sets out the policies, principles, institutional arrangements, schedules and funding mechanisms for any land acquisitions that may occur in the project areas as the result of the project. The RPF also provides guidelines to stakeholders participating in the mitigation of adverse social impacts of the project, in order to ensure that the social and economic well-being of project affected persons (PAPs) will not be worsened as a result of the project. Consultations took place with the PAPs in January 2013 and the RPF/RAP was disclosed in country and on the Bank’s Infoshop on May 21, 2013. F. Environment 53. The project is classified as Environmental Category B for purposes of the World Bank Operational Policy (OP) 4.01, in view of the nature of the water supply and wastewater investments under Components 1 and 2, respectively. An Environmental Impact Assessment (EIA) and Environmental Management Plan (EMP) have been prepared for the project and disclosed in country on May 21, 2013 and at the Bank’s Infoshop on May 22, 2013. The EIA and EMP outline the environmental policy, legal and administrative framework for undertaking the Project; presents baseline information, risk analysis and potential environmental impacts; compares various project alternatives and includes environmental mitigation and monitoring plans for various Project stages – design, construction and operation. 54. The main potential impacts and related environmental mitigation measures relate to general protection of the aquifer to be used for Durres water supply, protection of immediate zones around the extraction wells, and sustainability of groundwater use. Other impacts are related to general construction activities during the Project execution – noise, dust, vibration, soil pollution from machinery, which can be mitigated or avoided by application of good engineering practice. The Project is not expected to have any severe negative or long-lasting environmental impacts if measures detailed in the environmental mitigation plan are fully applied. G. Other Safeguards Policies triggered 55. Involuntary Resettlement (OP/BP 4.12): OP/BP 4.12 on Involuntary Resettlement will be triggered due to potential temporary and to a lesser extent permanent displacement of people along the water transmission pipeline route to Durres or around the other target areas for water or wastewater investments. A Resettlement Policy Framework (RPF) for the project and 17 Resettlement Action Plan (RAP) for the bulk supply line have been prepared to manage compensation for construction phase impacts and economic or physical losses to people resulting from the temporary and/or permanent land acquisition. Specific institutional arrangements for implementation, monitoring and closure have been set out in the RPF/RAP. 56. Natural Habitats (OP/BP 4.04): OP/BP 4.04 on Natural Habitats will be triggered as the pipeline transmission main crosses a forest area at Ishimi Hills with an approximate distance of 9,000 meters, which falls within a “Protected Area.” This area is comprised of marches and agricultural fields with a protection category of IV, but has over time become settled and is now peri-urban with residential housing in the areas along the pipeline route. Within the Protected Area, the transmission main follows mostly existing roads, and would consist of a shallow trench and manholes. Forests are at sufficient distance such that disturbance during construction are expected to be minimal during the construction phase, with no expected disturbances during the operation phase. The reservoirs will be placed in built up areas, and the pumping station is adjacent to the site of the pre-existing hydrovore, such that it shall not produce a disturbance of present (ex-ante) conditions. Pre-construction mitigation measures have been accounted for in design by identifying a pipeline routing in such a way as to minimize impact on natural ecosystems, namely by following existing roads for almost the entire length of the pipeline. In addition, the EMP identifies additional measures for the construction phase to mitigate remaining impacts on natural habitats. 57. Projects on International Waterways (OP/BP 7.50): The project triggers OP 7.50 given the nature of water supply and wastewater collection investments and the location of the project area, which is along the eastern Adriatic Sea coastline. However, the investments are not expected to adversely affect either the quality or quantity of water flows to the Adriatic Sea nor have a negative impact on any of its riparians. Pursuant to OP7.50, the Borrower has notified the riparians about the Project by its letters dated March 21, 2013 to all Adriatic Basin countries. The 45 day notification period concluded on May 5, 2013 and no objections were received from any of the notified countries. The project is therefore compliant with OP 7.50 requirements. Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP 4.01) [X] [] Natural Habitats (OP/BP 4.04) [X] [] Pest Management (OP 4.09) [] [X] Indigenous Peoples (OP/BP 4.10) [] [X] Physical Cultural Resources (OP/BP 4.11) [] [X] Involuntary Resettlement (OP/BP 4.12) [X] [] Forests (OP/BP 4.36) [] [X] Safety of Dams (OP/BP 4.37) [] [X] Projects on International Waterways (OP/BP 7.50) [X] [] Projects in Disputed Areas (OP/BP 7.60)* [] [X] * By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas 18 Annex 1: Results Framework and Monitoring ALBANIA: WATER SECTOR INVESTMENT PROJECT (P102733) Results Framework Project Development Objective (PDO): (i) improve the quality of water and wastewater services in the Durres Utility Service Area; and (ii) improve the financial performance of Durres Water Utility. Cumulative Target Values** Data Responsibil Core Unit of Frequenc Source/ Description (indicator PDO Level Results Indicators* Baseline ity for Data Measure YR 1 YR 2 YR3 YR 4 YR5 y Methodolo definition etc.) Collection gy Cumulative number of Indicator One: Piped household Durres piped household water water connections that are Semi- Number 0 0 0 10000 45000 77000 Water PIU connection benefiting benefiting from rehabilitation annually Utility from rehabilitation works undertaken by the project works.10 Cumulative number of Indicator Two: New household Durres Semi- new sewer connections sewer connections constructed Number 0 0 500 1000 2000 3000 Water PIU annually constructed under the under the project Utility project. Financial working ratio is Durres the relationship between Indicator Three: Financial Semi- Number 1.69 1.23 1.10 0.98 0.90 0.85 Water PIU the collected revenues Working Ratio annually Utility and cash operating expenses Durres Cumulative number of Indicator Four: Direct project Number 0 0 0 45000 200000 330000 Annually Water PIU people who benefitted beneficiaries Utility from the project. Percentage of people who Of which female Percent 48% 48% 48% 48% 48% Annually Census data PIU benefitted from the project who are females 10 Number of households that have more hours of water supply, improved drinking water quality, less interruptions in water service delivery, an upgrade of service levels or a combination of these enhancements. 19 INTERMEDIATE RESULTS Cumulative Target Values** Responsibil Core Unit of Freque Data Source/ Description (indicator PDO Level Results Indicators* Baseline ity for Data Measure ncy Methodology definition etc.) YR 1 YR 2 YR3 YR 4 YR5 Collection Intermediate Result (Component One): Priority Water Supply Investments. Intermediate Result indicator Contractor Length in kilometers Semi- One: Length of bulk water km 0 0 10 30 63 63 progress PIU constructed of bulk water annually pipeline constructed reports pipeline Intermediate Result indicator Contractor Length in kilometers of Semi- Two: Length of water supply km 0 TBC TBC TBC TBC TBC progress PIU water supply network annually network rehabilitated reports rehabilitated Intermediate Result indicator Meter Increased hours of water DWU, PIU Three: Duration of water supplied Semi- Readings and supply service to end- hrs 6 6 6 8 10 12 and PMBU to households in project affected annually Customer users in project affected Monitoring areas Surveys areas. Intermediate Result (Component Two): Wastewater Investments Intermediate Result indicator Length in kilometers of Contractor One: Length of sewerage network Semi- water supply network km 0 TBC TBC TBC TBC TBC progress PIU rehabilitated or constructed annually rehabilitated or reports constructed Intermediate Result (Component Three): Institutional Development and Demand Management Program Contractor Percentage of households Intermediate Result indicator progress in Durres Service Area One: Households with individual Semi- % 35 35 45 60 70 90 reports/ PIU with individual metered metered connection in the Durres annually Durres Water connection for water Service Area Utility supply Intermediate Result indicator Semi- Durres Water Percentage of water % 32 45 46 48 48 50 PIU Two: Billing Ratio annually Utility produced that is billed. Percentage of paid Intermediate Result indicator Semi- Durres Water % 74 75 80 85 87 92 PIU receipts against invoiced Three: Collection Ratio annually Utility amount Staffing ratio measured as Intermediate Result indicator Semi- Durres Water the number of staff Number 7.3 7.0 6.5 6.0 5.5 5.0 PIU Four: Staffing Ratio annually Utility members per 1000 costumers 20 Annex 2: Detailed Project Description Project Development Objectives: The Project Development Objectives (PDOs) are to: (i) improve the quality of water and wastewater services in the Durres Water Utility Service Area; and (ii) improve the financial performance of Durres Water Utility. The objectives would be achieved through a multi-pronged approach involving a combination of investments and activities, including: (a) priority water supply investments to address the acute water shortages experienced in Durres, through enhanced water supply production capacity through the rehabilitated Fushe Milot wellfield and construction of a new bulk water transmission pipeline dedicated to the city supply while the existing transmission pipeline would be dedicated to the municipalities, rural communes and villages outside the city; ancillary investments linking the mentioned villages and settlements to the water distribution network and improving access to currently underserved or unserved areas in the service area; and priority investments to reduce losses in the water distribution network in Durres City; (b) priority investments to enhance the existing sewerage network’s capacity to handle the increased water supply in an environmentally and socially sustainable manner and collect and transfer wastewater from critical areas, specifically around the Durres beach area, to the new wastewater treatment plant (WWTP); (c) activities aimed at improving the governance and sustainability of the Durres Water Utility through effective enhancements in financial management and cost recovery; and (d) a series of reforms and activities aimed at supporting implementation of the updated National Water and Sanitation Strategy. Specific components are described below. Project Components: The project would have four components. Component 1: Priority Water Supply Investments. This component will finance: (i) six water supply production wells and a bulk water supply transmission pipeline that will provide up to 630l/s additional supply capacity to address the acute water shortages in the Durres Utility Service Area; (ii) ancillary investments, including elevated reservoirs, linking municipalities/communes within the Durres area and along the transmission pipeline route to the water supply system in a sustainable manner; and (iii) priority investments in the water distribution network in Durres, as well as provision of leak detection equipment and pressure reducing valves to reduce losses. Sub-component 1: Bulk Water Supply Pipeline: This component would finance additional wells to the Northeast of the existing Fushe Kuqe wellfield to increase water production by about 500 l/s (with a 630 l/s capacity), as well as the new 63 km transmission pipeline running parallel to the coast from that source to Durres City. The new pipeline will be dedicated entirely to Durres City, while the existing pipeline would be dedicated to the municipalities, communes and villages along its route, which are currently underserved or unable to receive supply. Sub-component 2: Ancillary Investments for Water Supply to Villages: This sub-component would finance the ancillary investments to supply the villages in the areas along the route of the existing transmission pipeline from Fushe Milot, including; (a) service reservoirs that would allow for additional disinfection of water to improve its quality and safety as well as to increase pressures in the system to allow for improved access to several villages that currently have limited or no access to water in spite of having distribution networks installed; and (b) 21 installation of bulk meters that would allow for provision of water to the villages on a bulk supply basis, to be managed by the respective communities. Sub-component 3: Priority Investments in Distribution Network: This sub-component will finance rehabilitation and upgrading of the existing distribution network in Durres City to reduce physical losses, and ensure that the additional water to be supplied through the new pipeline is not lost. A technical assessment of the condition of the network will be carried out as part of the technical feasibility studies for the water supply investment component, and investment priorities will be identified and designed accordingly. Component 2: Wastewater Network Investments. This component will finance priority wastewater investments aimed at enhancing the existing sewerage network’s capacity to handle the increased water supply in an environmentally and socially sustainable manner, including: (i) rehabilitation of critical parts of the existing sewerage system in Durres City to reduce sewage overflows during heavy rain events and separation of the stormwater network where necessary; (ii) construction of the secondary and tertiary sewerage network in the Durres Beach area; (iii) provision of high-powered sewer cleaning equipment for Durres Water Utility; and (iv) strengthening DWU’s initial ability to operate and maintain the new Durres wastewater treatment plant. Sub-component 1: Sewerage Network Upgrading: This sub-component will finance priority rehabilitation on the existing sewerage system in Durres City to reduce sewage overflows during rain events. Although the system was designed as a separate system, it is now operating as a combined system carrying both raw sewage and storm water. The works will seek to remove all direct outlets of untreated sewage to the environment, and collection and delivery of all dry weather flow to the wastewater treatment plant for treatment before disposal. Where necessary, stormwater drainage networks will be rehabilitated and separated from wastewater networks. Sub-component 2: Construction of Secondary and Tertiary Sewerage Network in Durres Beach Area: This sub-component would finance construction of secondary and tertiary sewers in the rapidly growing Durres beach area. Designs for these networks, including relevant pumping stations, are already available and the construction of primary network and pumping stations to be financed separately by the European Union, is already contracted. Sub-component 3: Provision of Sewer cleaning Equipment: This sub-component would finance procurement of high pressure sewer cleaning equipment to improve operation and maintenance of the sewerage network. Sub-component 4: Strengthening of DWU for initial wastewater treatment plant operation: This sub-component would strengthen DWU’s initial ability to operate and maintain the new Durres wastewater treatment plant. Component 3: Institutional Development Program, Utility Strengthening and Demand Management Program. This Component will support the Government’s broad-based policy and reform agenda at the national level with specific interventions at the local level, focused on the Durres region and its utility on a pilot basis. Investments would include: (i) design and implementation of a Water Demand Management Program; (ii) support to the Performance Monitoring and Benchmarking Unit; (iii) preparation and implementation of a Performance 22 Improvement Plan and other support for Institutional Strengthening of Durres Water Utility to improve efficiency of operations, including design of a customer service survey and public awareness campaign; (iv) consultancy services for Technical Analysis and Capacity Building, in particular with regards to energy efficiency; and (v) a dedicated annual financial audit of the Durres Water Utility. Sub-component 1: Demand Management Program: The Durres water service area, in addition to the technical challenges related to access to and quality of services, faces institutional challenges and inefficiencies at both the utility and consumer levels, including high levels of non-revenue water due to, among other reasons, inadequate demand management demonstrated by heavy wastage by consumers, low levels of metering (currently more than 50% of consumers are unmetered), etc. This sub-component would support: (i) Implementation of an effective universal metering system in the entire Durres service area, involving supply and installation of meters at both bulk pipeline and individual connection points, and establishment of a reliable customer database. This is expected to help reduce the problem of water wastage by many currently unmetered consumers, and in turn help reduce non- revenue water. (ii) Implementation of a public awareness campaign focusing on water conservation and improved water management targeting both residential and institutional users. These activities would complement the supply side measures such as the reduction in technical losses. Sub-component 2: Support to Performance Monitoring and Benchmarking Unit: This sub- component would finance support to the Performance Monitoring and Benchmarking Unit within the MTI through technical assistance and capacity building activities to enhance the data collection and monitoring dimensions of its work. Specific activities under this activity would seek to improve the data verification process, as well as to scale up its scope of monitoring beyond the utility to the sector wide level. Specific activities that may be covered may include (i) possible extension of the monitoring to performance at the rural commune levels; (ii) creation of a core set of indicators that will be appropriate for both urban utilities and for rural communal systems; (iii) fine-tuning the frequency of data collection; (iv) capacity building to improve the monitoring function at the utility levels that collect the primary data; (v) improving data dissemination and usage, including ways for the Water Regulatory Entity to make use of the data in its licensing of utilities and for approving tariff schedules; and finally (vi) exploring the appropriate use of the Benchmarking Unit’s data for allocating operating subsidies (if desirable) and investment financing. Sub-component 3: Support for Institutional Strengthening of Durres Water Utility to improve efficiency of operations: This sub-component would support the Durres Utility to improve the efficiency of its operations through implementation of a comprehensive Business Plan. An integral part of the Utility’s Business Plan would be a Performance Improvement Plan (PIP) to improve the financial and operating efficiency of its service delivery in a sustainable manner over the next five years (2013-2017). The plan would define a comprehensive set of realistic performance improvement targets for the delivery of WSS services over the planning period, backed up with specific action programs and investments needed to achieve those levels, financial, commercial, operational, and management activities that need to be implemented to meet the set annual targets. Actual support on the ground could comprise either of several 23 different options, including technical assistance in form of either a partnership arrangement with another international utility or individual consultant with broad hands-on experience in managing utilities on a commercial basis, that would be able to transfer specific technical and managerial support to the Utility management. This sub-component would also finance the key financial, commercial, operational and management improvement measures emerging from the Business Plan, such as improvement of user and network cadasters, water leakage audit, commercial and billing improvement strategy etc., based on priorities established in the Business Plan and PIP. Sub-component 4: Consultancy services for Technical Analysis and Capacity Building. Among other consultant services, technical support would be provided for an Energy Efficiency Study in Albanian Utilities, focusing on Durres as a pilot. The study will include an energy audit, identification of an energy saving management plan, including identification of energy saving investments; and capacity building through training to the utilities’ operational staff who will be responsible for implementing an energy management plan. Sub-component 5: Audit of Durres Water Utility. A dedicated annual financial audit of the Durres Water Utility will be conducted. Component 4: Project Implementation Support. This component would support overall implementation of the project, including salaries for PIU staff, the PIU operating costs, the cost of an annual audit of accounts, provision of needed equipment, supporting the monitoring, evaluation and reporting function. Table 2.1: Project Cost by Component EUR WSIP Components Million A. Priority Water supply Investments Bulk Water Supply Pipeline 36.39 Ancillary Investments for Water Supply to Villages 3.00 Priority Investments in Distribution Network 4.75 Subtotal 44.14 B. Wastewater Network Investments Sewerage Network Upgrading 6.82 Sewerage Network in Durres Beach Area 2.60 Sewage Network Cleaning Equipment 0.08 Capacity Building to DWU for initial O&M of Durres Wastewater Treatment Plant 0.5 Subtotal 10.00 C. Institutional Development Program Demand Management Program 2.61 Support to MTI Monitoring Unit 0.10 Institutional Strengthening of Durres Water Utility 1.00 Capacity building and energy audit 0.10 Durres Utility Audit 0.05 Subtotal 3.86 D. Project Implementation Support 0.68 Total BASELINE COSTS 58.68 24 EUR WSIP Components Million Physical Contingencies 3.00 Price Contingencies 1.00 TOTAL PROJECT COSTS 62.68 Front-end fee 0.16 Total Costs to be financed 62.84 Table 2.2: Durres Service Area Composition of Municipalities and Communes11 DURRES SERVICE AREA Municipality of Durres Municipality of Shijak Municipality of Vore Municipality of Sukth Municipality of Manez Commune of Thumane Commune of Ishem Commune of Xhafzotaj Commune of Rrashbull Commune of Katundi i Ri Commune of Bubq Commune of Preze Commune of Fushe Kuqe Commune of Maminas Commune of Gjepalaj 11 As per Decision No. 660 of the Republic of Albania dated September 12, 2007 in connection with the DWU Service Area. 25 Annex 3: Implementation Arrangements 3A. Project Administration Mechanisms The project will be implemented by the Ministry of Transport and Infrastructure (MTI), which has the delegated powers to act as the Implementing Agency. The MTI with the support of donors active in the water sector, is willing to consolidate responsibilities and commence the process of harmonizing different donors PIUs to reduce transaction costs and facilitate greater capacity building. The aim is to establish a single PIU for all Bank funded projects, which will initially be staffed with individual consultants who would eventually be incorporated as full-time members of MTI. The PIU will be responsible for the implementation of all project components, with the MTI as Contracting Authority and Certified Institution to prepare and technically endorse the project components. The implementation arrangements of this project are simple and the project will be entirely administered by the MTI, in agreement with several Local Government Units12 (LGUs), which will benefit from its components. The identified investment components will be consulted and endorsed at every stage with the Durres WSS Utility. The MTI and its PIU will prepare and approve studies and designs which will allow the procurement and implementation of project components. They will report to the MTI, MoF and the Bank on all implementation aspects, including procurement, contract and financial management, compliance with the safeguards, etc. The detailed implementation arrangements and reporting requirements are elaborated in the draft Project Operations Manual for the project, which will be available on MTI’s websites. Structure and capacity strengthening of the PIU and MTI’s staff. The PIU structure will allow for implementation of more than one project, with one Director and the possibility of adding separate coordinators if necessary for implementation of different projects13. They will however use the same fiduciary (procurement and financial management) and administrative staff. A Project Director has already been appointed with substantial experience in working on World Bank-financed projects, including the PHRD grant that supported preparation of this project. In addition to the overall responsibility for the smooth implementation of both projects, he will ensure: (i) full coordination with MTI staff, (ii) duly reporting to the MTI, MoF and the Bank (including co-financiers), (iii) combination of efforts and agreements with the Durres WSS Utility, and respective LGUs technical staff. In addition to the above, the project will finance a permanent International Technical Specialist with the objective to: (i) support the day-to-day implementation of the project components, (ii) support and strengthen PIU capacities in planning/budgeting, procurement, contract management, financial management and reporting to the financiers. It is expected that the international specialist will prepare a detailed plan for staff training needs and implement this plan during the course of the project. The PIU’s work will be facilitated by a Project Management Team, which will be headed by the Minister of MTI and consist of the General Director of the General Directorate for Water and Sanitation Services (GDWSS), the Project Director, the General Manager of DWU, and one of 12 Corresponding to Durres City and surrounding municipalities and communes within the Durres WSS Utility Service Area, listed in previous Annex. 13 Other projects managed under the existing PIU, in addition to the proposed, include the on-going Land Management and Administration Project, also financed by the Bank. 26 the technical staff at MTI. Its purpose will be to ensure that the project is implementing smoothly and would support the PIU in arrangements for securing licenses and other internal governmental approvals. Chart 1 below illustrates the overall structure of the PMT and the functional areas that it would support under the project. Chart 2 below presents the structure of the PIU, its staffing and reporting relationships. Project Committee. In order to ensure effective coordination and communication between the Project’s main actors and stakeholders, a Project Committee will be formed, chaired by the Minister of Transport and Infrastructure or a delegate, and comprised of representatives of the MTI, DWU and the LGU, with detailed membership, roles and functions as defined in the Project’s Operations Manual. Chart 1: Overview of Project Management Structure and Project Management Team Ministry of Transport and Infrastructure (MTI) Project Management Team  Minister of MTI (Chair) Project Committee:  Director General of General Ministry of Durres Regional Council Directorate of Water and Finance Durres Service Area LGUs Sanitation Services (GDWSS) (Debt, Budgeting Ministry of Environment  WSIP Project Director Departments) Ministry of Interior  MoF Representative  General Manager of DWU Project ImplementationUnit (PIU) WSIP Project Director Contract Project Results Fiduciary – Safeguards and Management and Monitoring, Financial Coordination with Engineering Reporting & Management and other Institutions Evaluation Procurement Tasks Environmental and Social. An Environmental and Social Specialist (ESS) has already been engaged by MTI. His function is to oversee safeguards compliance by the contractors during implementation, to report on compliance with relevant safeguard policies and instruments in progress reports, and to organize training sessions and consultations as needed during project 27 implementation. The ESS has participated actively in the preparation of the Environmental Impact Assessment, the Environmental Mitigation Plan, Resettlement Policy Framework and Resettlement Action Plan for this project. Agreed indicators will be monitored and reported on quarterly basis to the PIU, which will include them in the overall monitoring indicators and its reports to the MTI/GDWSS and the Bank (including any project co-financiers). Chart 2: Project Implementation Unit Structure and Reporting Relationships PIU Director-Lead Engineer Driver Financial Procurement Procurement/FM Manager Officer Assistant PIU PIU site Engineer Environmental Specialist PIU International TA specialist Sustainability. The strong commitment of the Government to improving the performance of the water and sanitation sector and to the project is reflected in the coordinated actions they are planning to undertake toward (i) streamlining the procedures for the reporting and implementation of foreign funded projects, (ii) joint benchmarking and monitoring indicators and their further strengthening with the support of all donors, (iii) coordinated technical assistance efforts, with special emphasis on sector strategy and master plan implementation, as well as regulatory framework and design and construction standards. As a sign of these commitments, the GoA has also agreed to the inclusion of specific covenants to (i) commit DWU to adopt and commence implementation of a Performance Improvement Plan (PIP), and (ii) conducting an annual audit of DWU financial statements by an independent auditor, acceptable to the World Bank, in accordance with terms of reference acceptable to the Bank, among other things. The 28 audit report will be submitted to the Bank within six months from the closing of each DWU financial year. 3B. Financial Management Country Issues The Public Financial Management system in Albania has improved significantly during 2008- 2010 as confirmed by the latest Country Policy and Institutional Assessment (CPIA -2012); and Public Expenditure and Financial Accountability (PEFA – November 2011). Both the CPIA and PEFA identified a number of areas for further development to increase the efficiency and accountability in public spending. These areas include planning, budgeting, and execution of public investment projects; strengthening lines of accountability, enabling better access to information by all stakeholders; building stronger monitoring and evaluation system, etc. Additional functionality is being implemented in the treasury system to, inter alia, provide selected ministries with direct access to the Treasury system, as so far they have been unable to get on-demand budget updates or special-purpose reports. The information made available to the Parliament and to the public, while not being particularly poor compared to other countries, has not improved much since the Albanian Ministry of Finance Treasury System (now Government Financial Information System – GFIS) was activated in 2010.  The GFIS consists of an ERP platform supported by Oracle Business Suite and operated in a centralized manner by the Treasury Department. Internal control and internal audit are at a nascent stage in their development. The High State Control (a.k.a. the Supreme Audit Institution (SAI) has a role established in the Constitution and its operations set out in a separate law. The SAI audits the government’s revenues, expenditures, financial assets and liabilities, including donor financed project expenditures. Only recently (2012) SAI commenced issuing audit opinions based on the audit work performed. The PEFA Assessment concluded that the public financial management has improved significantly during the last few years in areas such as budgeting, internal control, internal and external audit, though from a relatively weak base. The fiduciary area will benefit from the ongoing improvements of the treasury system (especially an improved financial reporting enabling follow-up of programmatic budgeting as well as giving more analytical information down to the level of individual service units). Albania’s growth outlook has recently weakened even further due mainly to the deterioration in the external environment. The resulting budget constraints affected the capital investments ceiling for both foreign financing and counterparty funding under Bank financed Projects. In addition, due to the resulting cash crunch situations, cases have been reported that payment for project expenditures have been delayed (for those projects whose funds flow are mainstreamed through treasury system), as more pressing needs have been satisfied (priorities 1 to 4), even though the funds earmarked for project expenditures have been available. Financial management and funds flow arrangements The MTI will be responsible for overall implementation of the project. Implementation responsibilities, including maintaining an acceptable project financial management system throughout the project implementation period, will be delegated to the existing Project 29 Implementation Unit (PIU) with the Project Director reporting directly to the Minister. The PIU will have the primary responsibility for executing financial management (FM) activities based on policies and procedures outlined in the draft Project Operations Manual (POM) and in coordination and under the supervision of MTI. The Financial Management Specialist (FMS) will report directly to the Project Director. Key FM staff (the Director and FMS) have an adequate track record in implementing Bank projects, including experience gained from the closed Integrated Water and Ecosystems Management Project, the Municipal Water and Wastewater Project and the ongoing Land Administration and Management Project (LAMP) Component D. The PIU will report to the MTI General Directorate of Supporting Services for the preparation and monitoring of project medium term plans and annual budget. The operation will rely on country public budget and planning systems. The PIU will be responsible for the preparation of project medium term plans and annual budgets. The FM specialist will prepare the documents based on the forecast and technical inputs to be provided by the procurement specialist and engineers in line with the approved Project Implementation Plan and Procurement Plan. The project annual budgets will be approved by the project director. The PIU will coordinate the project budget and planning process with the MTI process, and finally, the project budget will be integrated in the MTI budget, and approved by it the head of Budget and Finance Department and Secretary General. The investment spending forecast prepared in accordance with Project Implementation Plan should be included in the Medium Term Plan and the Budget for 2014 and onward. The proposed project aims to utilize the improvements in the functionalities of the Albanian Government Financial Information system for funds flow, accounting and reporting functions. However several weaknesses were identified and the assessment preliminary conclusion is that the project will be mainstreamed through Government Financial Information System (GFIS) only when the following requirements are met: 1) access to GFIS is provided to the project staff of in accordance with their defined role; user license cost will be covered by the government and appropriate training on using the system; 2) enabling of appropriate project coding in Government Chart of Accounts and generation of acceptable IFRs; 3) the MTI and MOF commits to honor and settle timely the liabilities recorded in the system for expenditure under Bank financed projects. While the system may be capable of managing and executing financial transactions, there are still concerns regarding system functionality for commitment control and cash management (government-wide) which weaken the system's performance and lessen the predictability of funding availability for capital expenditures to honor commitments and contracts. Besides, due to cash crunch situations, cases have been reported that payment for project expenditures have been delayed (for those projects whose funds flow are mainstreamed through treasury system), as more pressing needs have been satisfied even though the funds earmarked for project expenditures have been available. The Bank acknowledges that the MoF has prepared an action plan to address such deficiencies, and that certain related system adjustments will be completed within a timeframe of two years. The project will pursue an alternative plan for accounting, financial reporting and funds flow arrangement until the above requirements are met and decision is taken by the bank to use GFIS. The project financial management policies and procedures are developed and will be implemented in line with Albanian public financial management legislation and Bank related guidelines. The detailed financial management, disbursement and funds flow arrangements, are elaborated in the draft Operations Manual for the project. The FM part of the manual provides 30 details of the key controls activities including verifications, authorizations, segregation of duties and reconciliations. An acceptable project automated accounting and reporting system (Alpha- PMR14) is currently in use; project funds will be accounted separately; existing chart of accounts and Interim Financial Reports (IFRs) formats are updated to accommodate the new project. The financial records will be maintained on the cash receipts and disbursements basis of accounting. The IFRs will be an integral part of quarterly Project Reports, that will submitted within 45 days from the end of the quarter. The reporting currency will be both EUR and Albanian Leke (ALL). The project financial statements will be audited annually by independent auditors acceptable to the Bank. The auditor for the project will be appointed annually by the Ministry of Finance (MoF) as part of an overall agreement for the audit of the non-revenue earning Bank-financed portfolio in Albania. Specific TORs are used for the projects covered by this agreement and are cleared annually by the Bank. In the framework of MoF’s arrangements, the MTI will be responsible for facilitation of annual audit. The audited financial statements for this project will need to be issued within six months of the end of each fiscal year. The annual cost of the audit will be covered by the GoA as part of the portfolio audit. The audited project financial statements will be made publicly available in a timely fashion and in a manner acceptable to the Bank. MTI will publish the annual project audit reports in its website within two months from their submission. 3C. Disbursements The Government of Albania will be the Borrower of the IBRD Loan. The PIU will be responsible for managing project funds and maintaining adequate financial management arrangements to safeguard project assets throughout the life of the project. The Country Financing Parameters (CFP) allow for financing 100 percent of project expenditures. Main disbursement categories will include: (i) works; (ii) goods and non-consulting services; (iii) consultants services and training; and (iv) operating costs. The Bank will disburse Loan proceeds through traditional disbursement methods which include: (a) Reimbursement to the Borrower for expenditures eligible for financing that the Borrower has pre-financed from its own resources; (b) Advance Loan proceeds into a Designated Account of the Borrower to be opened at the Bank of Albania to finance eligible expenditures as they are incurred and for which supporting documents will be provided at a later date when requesting replenishment of the Designated Account; (c) Direct Payment to third parties (i.e. supplier, consultant, contractor) for eligible expenditures at the request of the Borrower; and (d) Special Commitment to pay a third party for eligible expenditures under special commitments entered into, in writing, at the Borrower’s request and on terms and conditions agreed between the Bank and the Borrower. The Designated Account in EUR will be opened in the Bank of Albania (the Central Bank). Supporting documentation will be required to be submitted to the Bank when requesting funds 14 Alpha-PMR is a locally developed software for World Bank projects in Albania. The application generates automatically all the required financial reports; support accounting for multiple projects and multi currency reporting. The software has contract monitoring, liquidity and payroll modules. 31 from the Loan Account under the referenced disbursement methods. The Bank will require either copies of the original documents evidencing eligible expenditures or summary reports of expenditure in such form and substance specified in the Disbursement Letter. Records include such documents as invoices and receipts or a statement of expenditure summarizing eligible expenditures paid during a stated period. In all cases the Borrower/PIU is required to maintain original documents evidencing eligible expenditures and making them available for audit or inspection. These documents should be maintained for at least two years after receipt by IBRD of the audit report and for a period required by local legislation. Further details on the project disbursement arrangements are provided in the Project Disbursement Letter. Table 3.1: Allocation of Loan Proceeds Category Amount of Loan Percentage of Expenditures financed Allocated (EURO) Works 53.9 100% Goods and non- 3.7 100% consulting services Consultant’s Services and 4.50 100% Training Operating Costs 0.24 100% Front-end Fee 0.16 Amount payable pursuant to Section 2.03 of Loan Agreement in accordance with Section 2.07 (b) of General Conditions 3D. Procurement Procurement arrangements. The PIU contracted by the Ministry of Transport and Infrastructure (MTI) which at present is established within the General Directorate of Water Supply and Sanitation (GDWSS) will be responsible for all procurement under the project. The PIU will report directly to the Minister. The Minister, Director General of GDWSS, Project Director and the General Manager of the Durres Water Utility, among others deemed appropriate would comprise the Project Management Team (PMT) which will serve to facilitate decisions and actions necessary to ensure effective implementation of the Project, as may be necessary. Key PIU Procurement staff (Procurement Specialist) are in place and have experience in implementing Bank projects; they will be further strengthened with support from an experienced international Technical Specialist with experience in procurement during implementation. The Operations Manual defines the steps, service standards, responsibilities and accountability of PIU staff and management for carrying out the activities. In addition, technical staff from DWU which might be called on sitting in evaluation committee will be previously trained on their specific role and general principles of Bank rules. Guidelines. Procurement for the proposed Project would be carried out in accordance with the World Bank’s “Guidelines: Procurement of Goods, Works, and Non-Consulting Services under IBRD Loans and IDA Credits & Grants” dated January 2011; and “Guidelines: Selection and Employment of Consultants under IBRD Loans and IDA Credits & Grants by World Bank Borrowers” dated January 2011; and Guidelines on Preventing and Combating Fraud and 32 Corruption in Projects Financed by IBRD Loans and IDA Credits & Grants, and the provisions stipulated in the Legal Agreement. Risk Rating: The procurement risk is assessed as substantial. The following measures were agreed to mitigate the risks and maintain the implementing team’s capacity. Table 2: Summary Risk Assessment Risk Rate Mitigation Rate  Unsatisfactory quality of S  Feasibility studies and technical designs are M technical designs may lead to prepared by qualified consultants hired under delays in contract implementation the preparatory Grant; and to contract amendments and  Close involvement of Bank technical expert in delays the review of the TOR for hiring such consultants, and the review of the TS and designs.  Hiring of international Technical Specialist with experience in procurement  Administrative delays in S  Set out in the Operations Manual are the M appointing evaluations composition and procedures for appointing and committees convening the Evaluation Committees  Specific provision is made for a joint order of appointment for EC member for activities based on the nature of procurement.  Delays in the evaluation process S  The order for appointment of evaluation M and issuing the final decision for committees shall specify the timeframe by proposed award of contract which the evaluation committee would make its recommendation to award.  Low capacity in contract H  Hiring of an International Consultant with S monitoring, resulting in extreme strong sector technical and procurement delays in contract experience. implementation.  Incomplete filing of procurement M  Allocation of space and cabinets for proper and L related documentation complete filing of all procurement related documents.  Procurement Section of Operations Manual defines the roles and responsibilities in the management and coordination of the procurement process, preparation of terms of reference and technical specifications, evaluation, establishment and appointment of evaluation committees, conflict of interest mitigation measures, record keeping, contract management, and complaint handling mechanisms, etc. 33 Risk Rate Mitigation Rate  Insufficient knowledge of the M  PIU staff, and especially the Procurement M latest Procurement and Expert would attend procurement training Consultants Guidelines organized by the Bank  The Bank’s Procurement Specialist assigned to the project has provided the PIU with a full set of the relevant, most recent procurement documents, including but not limited to standard and sample bidding documents, proposal formats, evaluation report documents, etc. Average S M Risk Ratings: H: High; S: Substantial; M: Moderate and L: Low. The Procurement Plan The Borrower, at appraisal, developed a Procurement Plan (PP) for project implementation which provides the basis for procurement methods. It includes the Bank review requirements and thresholds. It is available as a separate project document. The PP has been reviewed and agreed between the Borrower and the Bank during negotiations. It will be available at the office of the PIU, and on the Bank's external website. The Procurement Plan shall be updated in agreement with the Bank annually or as required to reflect the actual project implementation needs. Procurement Arrangements The following methods may be used for procurement of goods, works and non-consulting services as agreed in the procurement plan: International Competitive Bidding (ICB), National Competitive Bidding (NCB), Shopping (S), and Direct Contracting (DC). Procurement of Works Works procured under this project will include construction of service reservoirs and network connections to provide bulk water supplies to village and small municipalities within the Durres Utility service area; Additional wells and a bulk water supply transmission pipeline that will provide about 630l/s additional supply to address the acute water shortages experienced in the Durres Water supply Service area for the medium-term. Procurement for all ICB procedures will be done using the Bank’s Standard Bidding Documents (SBD). The NCB documents acceptable to the Bank shall be prepared so as to ensure economy, efficiency, transparency, and broad consistency with the provisions of Section I of the Procurement Guidelines. Minor works, as relevant, using ITQ for Works acceptable to the Bank for contracts less than or equal to EURO 75,000. 34 Procurement of Goods and non-consulting services Goods and non-consulting services procured will include investments for reducing physical losses in the distribution network, procurement of high pressure sewer cleaning equipment, individual, bulk water meters, network cadaster and surveys. Procurement for all ICB procedures will be done using the Bank’s Standard Bidding Documents (SBD). Smaller value contracts as needed will be procured using harmonized NCB documents for Goods or shopping using ITQ (June 2011), depending on the cost estimate for the package. Selection of Consultants The following methods may be used for the selection of consultants: Quality and Cost-Based Selection (QCBS), Quality-Based Selection (QBS), Least-Cost Selection (LCS), Fixed Budget Selection (FBS), Selection based on Consultants Qualifications (CQ), Individual Consultant Selection (IC), and Single Source Selection (SSS) of consulting firms and Individual Consultants. The World Bank's Standard Request for Proposals will be used. All Terms of Reference, irrespective of prior/post review status, are subject to Bank’s review and no objection. Training. The institutions providing standard training, conducting seminars, and organization of study tours would be selected on the basis of analysis of the most suitable program of training offered by the institutions, availability of services, the period of training and the reasonableness of cost. However, consultants hired to deliver training under the Project shall be selected in accordance to the selection methods as stipulated in the Consultant Guidelines applicable to the project. Training activities shall be agreed with the Bank through the duration of the Project to reflect the actual project implementation needs. Operating Costs The activities to be financed by the project (to be consistent with the LA) will be procured using the implementing agency’s administrative procedures which were reviewed and found acceptable to the Bank. 35 Summary of Procurement Plan Table A. Procurement Arrangements and Schedule for Civil Works and Goods Procurement Expected Bid Packages Project Title and Scope (Prior/Post) Method Opening date Bulk Water Supply Pipeline, WDFK 1 Production Wells and Elevated ICB Prior June 29, 2014 Reservoirs Rehabilitation and Upgrading of the existing distribution WD1 ICB Prior Jul 23, 2014 network for water supply and sewerage system in Durres city. Construction of secondary and WD4 tertiary sewers in Durres Beach ICB Prior Aug 7, 2014 area Construction works for removing the direct outlets to WD3 NCB Prior July 8, 2014 the sea of wastewater effluent from Durres city Supply and Installation of bulk GD1.1 ICB Prior Aug 14, 2014 meters for Durres city Supply of a universal metering GD1 system in Durres area in water ICB Prior July 22, 2014 supply system. Procurement of High Pressure sewer cleaning equipment for GD4 NCB Prior Aug 2, 2014 sewerage network of Durres city Table B. Procurement Arrangement and Schedule for Selection of Consultants Selection Prior Expected Proposal Package Description method Review Submission Date Preparation of technical and feasibility studies for CsD1 QCBS Yes Apr 27, 2014 the water supply system in Durres region Supervision of the construction works for Bulk CsD4 QCBS Yes Apr 11, 2014 water supply Pipeline, under the contract WDK1 Consultancy services for implementation of a CsD5 public awareness campaign and customer service FBS Yes Jul 8, 2014 survey focused on improving services Supervision of the construction works according to CsD2 QCBS Yes Jun.25, 2014 contracts no WD1 and WD2 Supervision of the construction works according to CsD3 QCBS Yes Jun. 25, 2014 contract no WD3 & WD4 CsD8 Consultancy services for 1) creation of a core set IC Yes Jun 30, 2014 of indicators for both urban utilities and rural 36 Selection Prior Expected Proposal Package Description method Review Submission Date communal systems, 2) improving data dissemination and usage for the Water Regulatory Entity and for approving tariff schedules, 3) exploring the appropriate use of Benchmarking unit's data. Capacity Building and technical analysis, CsD9 including the preparation and implementation of QBS Yes Jul. 2, 2015 Business Plan and Performance Improvement Plan Consultancy services for an Energy Efficiency CsD10 Study in Albania utilities focusing on pilot of QBS Yes May. 12, 2014 Durres. Post-review Percentages and Frequency. Contracts not subject to Bank’s prior review will be subject to post review by the Bank’ procurement specialist assigned to the project. Post review of contracts will be carried out once per year. At a minimum, 1 out of 5 contracts will be randomly selected for post review. Physical inspection will be conducted for at least 10% of the number of contracts. 3F. Environmental and Social (including safeguards) a) Environmental Assessment: An Environmental Impact Assessment (EIA) and Environmental Management Plan (EMP) have been completed and publicly disclosed within country and at the Bank’s Infoshop on May 21 and 22, 2013 respectively. The EIA and EMP outline the legal, environmental and administrative framework for undertaking the Project, evaluate potential risks and environmental impact of proposed actions, compare various Project alternatives and identify feasible cost effective measures to mitigate any adverse environmental impacts that might occur as a result of the Project. Key measures for mitigation of negative impacts in order to protect human health, environment, natural and cultural heritage are included in EMP. The negative environmental impacts, which are mostly expected to occur during construction or rehabilitation works, will be minimized by proper planning and application of preventive and mitigation measures, as detailed in EMP. It will be the responsibility of the contractors to ensure that mitigation is carried out successfully during construction works as required. The specific mitigation measures will be implemented by the contractor under the supervision of the construction supervision manager. The provisions described in this EMP will be incorporated in the contract with construction companies selected to perform the works. The cost of mitigation measures will be included in the overall price of the contracts and will be borne by contractors, who will make the necessary provisions for implementation of mitigation and monitoring measures as a part of their contractual obligations. The contractors shall take also all necessary precautions for the types of civil works involved, especially in residential areas and those with high circulation of persons and vehicles. The construction contract document will incorporate all requirements to minimize disturbance from construction activities, which will be monitored by the Supervision Engineer and the PIU staff (Environment Specialist) to ensure compliance and implementation of the required provisions by the contractors. 37 b) Resettlement Policy Framework: A Resettlement Policy Framework (RPF) has been prepared for this project, for the interventions to be defined during the implementation in addition to the RAP for the defined main water pipe. The RPF sets out the policies, principles, institutional arrangements, schedules and funding mechanisms for any land acquisitions that may occur in the project areas as the result of the project. The RPF also provides guidelines to stakeholder participating in the mitigation of adverse social impacts of the project, in order to ensure that the social and economic well-being of project affected persons (PAPs) will not be worsened as a result of the project. 3G. Project Monitoring & Evaluation The MTI, through the PMBU within the GDWSS, is responsible for overall monitoring and evaluation (M&E) of the water sector at the national level. It currently monitors the performance of 58 urban water utilities, including Durres, against established indicators and will continue to do so under the Project. The PMBU however needs strengthening in some areas, including expansion of monitoring coverage to the entire sector that includes rural areas and communes, and to verify reported data. The project design envisages provision of technical assistance and capacity building to support the PMBU to enhance its data collection and monitoring capacities. Specific activities under this activity would seek to improve the data verification process, as well as to scale up its scope of monitoring beyond the utility to the sector wide level; create a core set of indicators that will be appropriate for both urban utilities and for rural communal systems; fine-tune the frequency of data collection; improve the monitoring function at the utility levels; and improve data dissemination and usage. At the project level, the PIU, working in close collaboration with the Durres Water Utility and Commune authorities to collect data, will be responsible for M&E of the project towards achievement of its objectives, and for relevant aspects of utility performance. It will prepare and submit to the Bank bi-annual reports (twice a year) to monitor project progress on the basis of performance indicators defined in Annex 1. In addition to the specific monitoring indicators required as part of the formal Results Framework for the project, the utility will be required to monitor additional performance indicators that will help monitor improvements in the Durres Water Utility’s overall performance. Currently, the quality of available data on sector performance within the Durres Water Utility and the surrounding municipalities and communes has not been very reliable, and the data collection and recording function will need strengthening at this level. The project will provide technical support to the utility to improve its M&E function. 3H. Roles of Partners The Project has benefitted from extensive consultations and joint planning with other donors, including GIZ, KFW, the Austrian Development Agency (ADA) and European Commission, among others. In parallel with WSIP, GIZ is supporting institutional strengthening of the Water Regulatory Authority (WRA), which plays an important regulatory role in the sector. A KFW-financed Masterplan for the Sector has also been prepared and serves as the guiding framework for capital investment planning in the sector in the coming years. More recently, ADA has launched a comprehensive Technical Assistance and Training Program in the sector supported by EU IPA funding. This program is aimed to support national level reforms and 38 utility specific capacity building. Training and tailored technical assistance has been provisioned to support the Durres Water Utility under its current administrative arrangements and would be utilized as well to facilitate the smooth transition to local authority ownership and operation at the appropriate time. 39 Annex 4. Operational Risk Assessment Framework (ORAF) Project Stakeholder Risks Rating: Substantial Description: The main stakeholders are the MoF, MTI, Durres Regional Local Risk Management: Governments, DWU and project beneficiaries. (i) The Government prepared recently, with the Bank’s assistance, a National Water Supply and Sewerage Services Sector Strategy for the 2010-2016 (i) Stakeholders’ ownership issues. With the passage of major period. This strategy identifies and clarifies the roles and responsibilities of decentralization reforms in 2007, significant powers were devolved to local national and local governments, utilities and citizens. At the project specific authorities. Water network assets were corporatized into utilities, but scale level an institutional options study was carried out during preparation to efficiency was compromised at the expense of political voice, and many present a variety of options taking into account the views of local and central utilities today are not economically viable. government concerning ownership and management of assets delivered under the Project, and local governments have recently agreed to receive the utility (ii) Public Expectations. Three prior interventions in Durres supported by the and formed the related governance structure. While overall responsibility for Bank have not succeeded to raise water supply to adequate levels. Local the project will remain with MTI for capacity reasons, the project will support citizen support for project may not materialize due to past experience in the the consolidation and strengthening of the DWU and involve its shareholders, water sector. the LGUs, in project oversight. (iii) Willingness to Pay. Introducing metering would address the “free-rider” (ii) Project design calls for nearly a doubling of supply of water to Durres from problem of illegal connections and over-consumption of network water, but existing levels. A Water Demand Management Program, including metering, would also impose costs that may be resisted by some of the beneficiary will reduce unaccounted for water losses. Consultations and discussions with population. local stakeholder groups have been carried out during the preparation phase by consultants and the Bank team to solicit input and explain project design at the outset and there has been an overwhelmingly positive response. (iii) A “Water Practices and Willingness to Pay for Improved Water Services in the Durres District” study was jointly designed and implemented by the Project RISK RATING EXPLANATION, Successful project implementation will require Team with PREM. Results from this survey provide insights about appropriate proper involvement of all actors, enhanced communication among them and strategies for delivering services while recovering connection and operating strengthening of their technical and management capacities. This risk is costs over time. This study would also serve as a baseline to explore how substantial in view of the institutional arrangements that have recently changed different level of subsidies can be implemented and how to target those that and will undergo continued consolidation during the Project. need them the most. This study provided evidence of how many households today depend on water bottles for drinking water and the cost advantages of piped network water. In addition, the project will include a Water Demand Management Program aimed at rationalizing and controlling water use so that consumers pay only for the water they consume. Resp: Bank/Client Stage: rep/Imp Due Date: recurrent Status: In progress 40 Implementing Agency Risks (including fiduciary) Capacity Rating: Substantial Description: Risk Management : (i) Capacity constraints for the procurement of large investments. The (i) The PIU has experience implementing other Bank projects, including the implementing agency might have capacity constraints which may affect the on-going Land Management and Administration Project. Key PIU overall project implementation and disbursement, especially for the procurement staff (the director and procurement specialists) are in place procurement of large investments such as the bulk water pipeline. and have experience in implementing Bank’s projects; they will be further strengthened with support from and International Technical Specialist with (ii) Monitoring and reporting. Systems of monitoring implementation progress experience in procurement. and results and their reporting can be weak. Processes and systems constraints could impair reporting on project progress and results. (ii) Recent donor consultation meetings have achieved consensus on supporting MTI in establishing a single Water PIU for all sector investment projects (iii) Coordination with stakeholders. In order to have a smooth project that would include a joint management and reporting mechanism. This aims implementation and high level of project ownership by all stakeholders the PIU to strengthen the programmatic approach, placing greater emphasis on needs to develop efficient communication and consultation mechanisms. information sharing and effective reporting and monitoring results. In addition, consultant supervision contracts will include requirements to report on implementation progress by percentage completion of physical works. In addition, the Bank recently financed the creation of a Water Sector Performance Monitoring and Benchmarking Unit (PMBU) which provides reliable sector monitoring data that will be used in particular for project monitoring. RISK RATING EXPLANATION. The risk for the procurement of large investments (iii) The implementation arrangements of this project are relatively simple and due to capacity constraints is considered to be substantial as the bulk pipeline the project will be entirely administered by the MTI, in agreement with represents the first investment of this type and size done in the country. This risk is relevant area Local Government Units (LGUs). The identified investment expected to be mitigated by hiring an international technical specialist with components will be consulted and endorsed at every stage with the Durres experience in procurement to support the PIU. In addition the Bank will provide Water utility. In addition, the project director has the responsibility of assistance, by maintaining a close involvement of its technical and procurement ensuring (i) full coordination with MTI staff, (ii) duly reporting to the MTI, specialists in the procurement of the large bulk pipeline and production well MoF and the Bank and (iii) effective coordination with the Durres Water contract. Utility, as needed. Resp: Client Stage: Imp Due Date: recurrent Status: In progress Governance Rating: Moderate Description: Risk Management : (i) Government ownership and risk of change in sector priorities. General (i) During supervision, the task team and consultants will devote extensive elections took place in June 2013 and a new administration is in place. The efforts to ensure commitment remains in place across the board, including new Government has conveyed strong signals of its commitment to the sector at the local government level through consultations and engagement in and to the Bank’s financial and technical support. In addition it has conveyed project design discussions. The aim will be to ensure that both national and its strong desire to address water shortages problems in Durres (noting it as a local governments maintain a stake in the project and strong ownership of it constraint to tourism and economic growth). Local government commitment over time. The Bank has demonstrated willingness to help the Government 41 has been indicated as well and confirmed through a series of consultation build political consensus with all political parties and other stakeholders. meetings and the recent transfer of the Durres Water Utility. RISK RATING EXPLANATION. The new administration has signaled strong commitment to the Project and will remain in place for much of the Project’s duration. Resp: Client/Bank Stage: Imp Due Date: recurrent Status: In progress Project Risks Design Rating: Moderate/Substantial Description: Risk Management : (i) Institutional Arrangement Complexity. Durres is the only instance where the (i) During preparation the Bank team has reached out extensively to local corporatized utility has only recently been accepted by the local governments actors to ensure broad ownership for the Project’s design and objective, and A new management has just been appointed and the level of commitment it the new management will be held accountable by the same actors that will have with regards to the Project’s objective is uncertain due to the supported the project from the beginning. transitional status of the Durres Water Utility. (ii) Project preparation was delayed due to unexpected changes in the design of (ii) Possible changes in the design of some of the investments might delay the bulk water pipeline and well field location – as specific technical studies implementation. Changes in the design of large investments - such as the bulk indicated that the first and second option were not feasible. For this purpose water pipeline and well field location – due to unexpected constraints might – alternative routes and options – have been considered in the design – delay implementation, increase the costs of the investment and delay which reduces the scope for unanticipated changes later. In addition, a disbursements. series of additional technical studies have been performed to assure the viability of the alternatives selected. RISK RATING EXPLANATION. The risk due to the complexity of the institutional arrangements is considered to be substantial. The risk related to the possible changes in the design of some of the investments – in particular of the bulk pipeline and well field location – is considered to be moderate due to the extensive attention to alternative design options and taking into account potential implementation Resp: Client /Bank Stage: Prep/Imp Due Date: Recurrent Status: In progress bottlenecks during the design stage. Social & Environmental Rating: Moderate Description: Risk Management : (i) Social. Land rights in Albania are sometimes uncertain and citizen engagement (i) A RPF for the project and RAP for the bulk supply pipeline and production has been weak and unevenly applied in the past. Temporary resettlement may wells have already been developed and disclosed. The preferred route for be needed during the construction phase and land acquisition has been the bulk supply pipeline follows existing roads and an initial assessment of identified as a need in areas surrounding the production wells and in some of land in which wells and pumping stations will be located indicates that most the pipe routing locations. of this land is public. Potential negative economic impacts to affected people due to land temporary or permanent land acquisition for construction (ii) Environmental. Increased water supply to Durres could result in increased needs are not expected to be major. The RPF will provide guidance for untreated wastewater discharge into the Adriatic Sea. At present, untreated investments which have not yet been fully identified and the Bank will wastewater from Durres is discharged to the sea. Potential negative impacts on actively review implementation of the RAP during supervision missions. the environment due to the construction of the bulk pipeline. The main risks of the project regarding component 1 are: possible saline intrusion and pollution (ii) The Bank and EIB have financed construction of a WWTP in Durres and 42 from the infiltration of surface waters. the EU financed a collector that should address this critical risk. The WWTP is now receiving effluent flow from the Durres City network and is (iii) Poor monitoring and low capacity of institution and private contractors operating. In addition, results from the EIA suggest that impacts are likely for safeguards compliance during project implementation. to be localized, temporary, and can be efficiently mitigated by applying RISK RATING EXPLANATION. The project safeguard rating is category B in view good international construction practice and planning. The EMP will be an of the nature of the water supply and wastewater investments under component 1 essential tool to mitigate these impacts. The risk of saline intrusion and and 2. Risk is low because a series of mitigation measures have already been pollution from infiltration of surface waters has been minimized through the applied (i.e. selection of alternatives for investments was aimed at reducing selection of a suitable well field location as a result of a detailed hydro environmental and social impacts) and identified which can efficiently be geological study. In addition, an effective monitoring program of water implemented by applying good international construction practices, and will be quality has been included in the EMP. monitored closely during project implementation. (iii) Provision of training for project management staff and contractors on environmental and social safeguards, inclusion of contractors’ safeguards obligations in contracts and monitoring of its compliance by technical staff will address the low capacities of public and private agencies. Works contracts will contain EMP clauses to ensure compliance of the contractor, and works supervision will monitor this. Resp: Client Stage: Imp Due Date : Recurrent Status: In Progress Program & Donor Rating: Low Description: Risk Management : Donor coordination will require paramount attention given the broad sector needs, (i) A donor coordination matrix has been elaborated and extensively vetted by involvement of multiple donors in the sector, and the need to facilitate decision the Government with all donor sector partners on capacity building needs. making and prioritization of investment programming with key national and local KfW has supported preparation of a Master Plan for Capital investments in level counterparts. the Water Sector while the Bank helped the Government in the preparation and updating of the Water and Sanitation Sector Strategy. RISK RATING EXPLANATION. This risk is expected to be low as the Bank has ongoing relationships with other donors in the sector and a donor coordination matrix has already been elaborated. Resp: Bank Stage: Prep/ Imp Due Date: Recurrent Status: In Progress Delivery Monitoring & Sustainability Rating: Substantial Description : Risk Management : Monitoring and evaluation (i) Monitoring and Evaluation. M&E may not be consistently applied or (i) A Bank-financed Water Sector Performance Monitoring and Benchmarking generating meaningful results. PIU has good technical skills but reporting on Unit (PMBU) was established in MTI and is considered a reliable source of M&E in the past has been sporadic. information. Under the project its data collection and analysis capacity would be further strengthened. The PMBU however need strengthening in (ii) Sustainability. The establishment of effective institutional arrangements to certain aspects, including the ability to verify reported data. manage services to the entire Durres Water Utility service area, including within the settlements and communes outside the official service area that are (ii) The project will support measures aimed at improving the efficiency of the served from the existing facilities, is critical to the sustainability of service utility’s operations through implementation of the Performance 43 delivery. In addition, financial sustainability of the project will depend on the Improvement Program outlined in the Business Plan. Tariff adjustments extent to which the Durres Water Utility is able to pursue a sound cost- would be designed in consideration of, among other things, potential recovery policy that covers at least its operations and maintenance (O&M). negative impacts on the poor. In addition, an improvement of collection efficiency and revenue is expected to result from the metering program. (iii) Environmental sustainability. For component 1, the risk of excessive lowering of the underground water table, seawater intrusion and pollution of (iii) The selection of the location of the wellfield (Component 1) 1 has taken the underground water table may be exacerbated by climate change. For into account these risks and the EMP identifies measures to offset these component 2, effective operation of the WWTP will need to be confirmed and risks and monitor key parameters such that early detection of threats make sustainable arrangements in place for managing wastewater treatment and take place and appropriate action are taken . The design of component 2 disposal in an efficient and effective manner. comprises the upgrading and connection of the existing sewerage network seeking to remove all dry weather flow to the wastewater treatment plant RISK RATING EXPLANATION. M&E related risks are considered to be low since for treatment before disposal. Under contractual arrangement, the WWTP mitigation measures have already been identified and some are currently being contractor is providing hands-on training to DWU staff for operation of the implemented. Sustainability risks are considered to be substantial since the plant, and limited initial support for operation is included in the Project’s sustainability of the project depends on the establishment of suitable institutional scope. arrangements and operating mechanisms that will allow Durres Water Utility to cover O&M costs. Resp: Client Stage: Imp Due Date: Recurrent Status: In progress Overall Risk Implementation Risk Rating: Substantial Comments: The implementation risk will be substantial, related mainly to the political/economic situation, and the likely impact of the debt crisis on project implementation. Institutional arrangements are in flux and dependent on urgently needed reform measures that will consolidate the recent handover of the utility to local government stakeholders. Mitigation measures for all risks have been defined and specific plans are in place, including a detailed financial model for the utility to use as the basis for its revenue and expenditure targets, operating margin and other factors relating to putting the utility on sound financial footing. Appraisal and Post Appraisal Package Version15 15 This is the version that should be used for Appraisal stage as well as for seeking clearance by management to move forward with negotiations. 44 Annex 5: Implementation Support Plan The Implementation Support Plan (ISP) describes how the Bank and other development partners will support the implementation of the risk mitigation measures (identified in the ORAF) and provide the technical advice necessary to facilitate achieving the PDO (linked to results/outcomes identified in the Result Framework). The ISP also identifies the minimum requirements to meet the Bank’s fiduciary obligations. Its content is as follows. Strategy and approach for the IS Project management and implementation support is largely centralized at the PIU within the MTI’s GDWSS, which will be responsible for all key aspects of implementation, including inter- alia fiduciary functions (procurement and FM), oversight of safeguards compliance, monitoring and evaluation and reporting. Implementation Support Plan Implementation support will be provided by the Bank team throughout project preparation and implementation to address issues arising and help mitigate some of the risks identified in the ORAF (Annex 4). Table 5.1 below summarizes the skills and estimated resources needed to carry out necessary due diligence and/or provide technical support to the project team as needed. A summary of the key staff and roles is also outlined below. Procurement: Procurement related issues such as implementation delays linked to inefficiencies in completing procurement processes and potential fraud and corruption, are among the key risk areas under the project. Adequate procurement support and adequate attention to due diligence from the Bank will be critical to mitigating some of these risks. The Bank core task team will include at least one experienced Procurement Specialist who will provide regular support to the team in handling the technical, commercial and legal aspects of procurement (in consultation with Legal and Policy departments as necessary) at all stages of the project cycle. The role of the Procurement Specialist, which will be carried out through both participation in missions and remote support as needed, will include but not be limited to:  Ensuring Quality at Entry work on Procurement during preparation by assessing the adequacy of Borrowers' Procurement capacity and advising on required capacity building requirements;  Providing support as needed in procurement planning;  Reviewing procurement documentation as required for prior- and post-reviews;  Providing operational advice to clients and Bank staff on concepts, policies and procedures for international and local procurement. Technical Specialist: The core task team will include at least one Technical Specialist with experience in water engineering or related discipline who will provide support to the team throughout implementation in carrying out technical due diligence as required under the project. The Technical Specialist will work closely with the PIU and the consultants supporting the 45 Borrower to ensure that implementation support is provided as needed, to address technical issues that arise. The Technical Specialist’s role will include but not be limited to:  Technical review of technical specifications and requirements in procurement documentation required as part of Bank due diligence to assure the soundness of proposed goods, works and services to be procured under the project.  Review of technical studies, designs and other assessments relating to the project, and provision of comments for the Borrower’s consideration to improve them as needed as needed to assure technical soundness, or to recommend approval. Financial Management Support: The core task team will include an experienced Financial Management Specialist who will be responsible for fiduciary compliance taking responsibility for all aspects of project accounting, audit management letter follow up, internal control reviews and SOE reviews in conjunction with disbursement and procurement staff. The Specialist’s responsibilities may include but not be limited to the following:  Ensuring Quality at Entry work on financial management by assessing the adequacy of borrowers' project financial management and reporting systems, including accounting, financial reporting, auditing, internal and other control procedures; and the financial management skills, adequacy in numbers and suitability of project staff.  Advising the Borrower on the Bank's financial management requirements, including monitoring and reporting criteria.  Assessing the selection and engagement of auditors, ensuring their suitability and competence to perform.  Assessing periodic project financial management reports for financial performance, linkage to physical and other monitorable indicators, and general compliance with financial covenants; and providing advice and support to the task team and the borrower on all matters affecting financial accountability including the work of consultants and other contractors providing advice and technical assistance.  Advising on and/or approving the Borrowers' requests for disbursements. Environmental and Social Safeguards Support: Risks relating to both environmental and social issues have been identified under this project and both an Environmental and Social Specialist will be part of the core team that will provide support to the project throughout preparation and implementation on all matters relating to environmental and social safeguards monitoring, respectively. The Environmental Specialist will in particular closely monitor and provide advice to the team and the Borrower on the EIA and implementation of the EMPs relating to both the water supply and wastewater components. The Social Specialist will be responsible for the due diligence relating to implementation and appropriate application of the Resettlement Policy Framework and Resettlement Action Plan, implementation of which has been identified as a potentially high risk issue that will need to be closely monitored with the Borrower. The Environmental and Social Specialist will participate in regular implementation support missions at least twice a year or as needed. 46 The following table highlights the key areas requiring technical support and the skills needs with resource estimates. Table 5.1 Skills and Resource Requirements Time Focus Skills Needed Resource Partner Role Estimate First twelve Large scale procurement Water/Sanitation 120,000 months contract for production Engineer with wells & pipeline Procurement Experience Utility Financial Model Utility Financial 50,000 Analyst Utility Performance Water Utility 100,000 ADA/EU IPA Improvement Plan Operations funded Specialist consultant to support Social due diligence due Social Specialist 30,000 to implementation of the RAP, and handling of potential land expropriation issues during construction. FM support. FM Specialist 30,000 12-48 months Technical due diligence Water/Sanitary / 120,000 relating to supervision Environmental during construction. Engineering or related discipline. Procurement support Procurement 30,000 relating to contracts for Specialist subsequent years of implementation. Environmental due Environmental 15,000 diligence to ensure that Specialist the EMP is adhered to during construction phases. Social due diligence due Social Specialist 15,000 to implementation of the RAP, and handling of potential land expropriation issues during construction. FM support FM Specialist Other 47 Table 5.2 World Bank Skills Mix Required Skills Needed Number of Staff Weeks Number of Trips Comments Task Team Leader 8/year 2 TBD Water & Sanitation 8/year 2 HQ/Regional Staff Specialist Sr. Infrastructure 8/year Local Trips Local Staff Engineer Operations Officer 8/year 2 HQ Staff Utility Financial 5/year 2 Consultant Analyst Procurement Specialist 3/year 1 Local/Regional Staff FM Specialist 3/year Local Trips Local Staff Environmental 3/year 1 Regional Staff Specialist Social Development 3/year 1 Regional Staff Specialist 48 Annex 6: Team Composition World Bank staff and consultants who worked on the project: Name Title Unit Stephen Karam Sector Leader and TTL up to negotiations ECSSD David Michaud Sr. Water and Sanitation Specialist and ECSUW TTL from negotiations on Aimonchok Tashieva Legal Assistant, Consultant LEGLE Artan Guxho Sr. Infrastructure Specialist ECS Bekim ImeriYmeri Sr. Social Specialist ECSSO Blaga Djourdjin Procurement Officer ECSC2 Delphine Hamilton Senior Program Assistant ECSSD Elda Hafizi Program Assistant ECCAL Federick Edmund Brusberg Lead Social Development Specialist ECSSO Gentian Keri Procurement Analyst ECSOQ Jonathan Pavluk Senior Counsel LEGAM Jonido Jonida Myftiu Financial Management Specialist ECSC3 Manuel G. Marino Lead Water and Sanitation Specialist ECSS6 Margaret Png Lead Counsel LEGEM Milane De Jesus Reyes Program Assistant ECSSD Nicola Ille Sr. Environmental Specialist ECSEN Nightingale Rukuba-Ngaiza Senior Counsel LEGAM Paula Restrepo Cadavid Young ProfessionalUrban Economist ECSS6 Sanyu Lutalo Environmental Engineer ECSEN Suha Satana Consultant Economist Van Anh Hong Young Professional ECSS5 Willem Starkenburg Water and Sanitation Engineer Consultant ECSSD 49 Annex 7: Economic and Financial Analysis ALBANIA: Water Sector Investment Project Background 1. Durres is the second largest city in Albania and as a coastal city is a major source of tourism receipts for the country’s economy. The Durres-Tirana corridor alone is estimated to generate some 60% of the country’s GDP. As such, reliable and efficient water and wastewater services are not only essential to the city’s residents and visitors, they are an important factor as well in the performance of the regional economy. Wastewater treatment is also a critical factor in Durres as a coastal city, as it will help reduce the degradation of Durres’ beaches and natural habitats along the coastline. 2. The Project would deliver substantial benefits by improving the water supply and sanitation services for the 330,000 residents of the Durres Utility Service area and the surrounding environment. An acute water supply deficit estimated at 10.4 million m3 per year would be addressed through the addition of six high capacity production wells and a water supply transmission line to Durres City. Elevated reservoirs to be installed in rural communities would improve water pressure, addressing the problem of unreliable water supply which currently stands at 3-4 hours per day, and reducing the need to rely on costly bottled water. Rehabilitation and upgrading of wastewater networks will reduce blockages, enhance network efficiency and deliver wastewater effluent for appropriate treatment to the newly commissioned wastewater treatment plant, preventing further deterioration of beaches in Durres and surrounding areas. These benefit streams far outweigh the Project costs. 3. The Project’s economic and financial analysis relied on identified investments to assess benefit and cost streams. Water supply investments comprising the production wells, transmission main and elevated reservoirs account for 80% of the project costs. Alternative options analysis taking into account four different production well/transmission main routing options and considering economic, social and environmental impacts yielded a preferred option that was selected and recommended by the design firm. Average Incremental Economic Cost (AIEC) analysis was carried out and provided a clear cost advantage of operating the new transmission main at full capacity and shifting the existing transmission main as a secondary supply option. This was due to the much higher efficiency of the new line, particularly due to energy cost savings. AIEC results showed a EURO 0.54 m3 versus EURO 0.68 m3 cost advantage 4. Further analysis was carried out using with/without project assumptions using the economic price attributed to water at US$0.90/m3. This yielded an Economic Rate of Return (ERR) of 11%, Net Present Value of US$22.71 million, and Cost-Benefit Ratio of 1.26. This meets the hurdle rate of the cost of capital estimated at 10%. 5. For the financial analysis a detailed financial model was prepared for Durres Water Utility. Under the base case scenario, using conservative billing and collection ratios, the FRR was projected at 9.8% with a NPV of $1.6 million. Sensitivity analysis was carried out whereby the collection ratio was adjusted downward by 5%, yielding a 7.98% FRR. Financial analysis was also carried out separately on the water meter investments. Collection rates for metered 50 accounts stand at 82%, while unmetered accounts yield only 35% of billings. Comparing with/without project impacts, incremental improvements in collections due to metering under the project are expected to yield a robust 31% Internal Rate of Return against the cost of investment (See Table 3). 6. A detailed financial model has been prepared for Durres Water Utility (DWU) with realistic revenue and expenditure projections over the next eleven years. The model was used to calculate the financial rate of return for the Project (Table 1) and to prepare a pro forma Income Statement for DWU (Table 2). Table 1: Project Financial Rate of Return Estimates (2013-2023) Financial Rate of Return Estimates 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Indicators‐With project case Investments     2,989,307   2,989,307   2,989,307                ‐                ‐                ‐                ‐                  ‐                  ‐                ‐                ‐ Billings         985,531   1,100,944   1,275,201    1,932,645    2,012,524    2,184,786    2,396,072     2,588,923     2,734,518    2,922,510    3,120,952 Average Collection ratio (%) 75% 80% 85% 87% 92% 97% 97% 97% 97% 97% 97% Collected revenues         739,148       880,755   1,083,921    1,681,401    1,851,522    2,119,243    2,324,189     2,511,256     2,652,482    2,834,835    3,027,324 Electricity expense         327,992       300,245       288,321       437,716       438,079       438,473       438,984         439,498         439,895       440,292       440,689 Personnel expense         261,983       248,439       231,943       231,648       201,808       208,821       217,936         227,098         190,082       195,731       201,370 BASE CASE (IN LINE WITH FINANCIAL STATEMENT PROJECTION) Investments    (2,989,307)   (2,989,307)   (2,989,307)                     ‐                        ‐                        ‐                        ‐                         ‐                         ‐                        ‐                        ‐    Collected revenues          739,148          880,755      1,083,921      1,681,401      1,851,522      2,119,243      2,324,189       2,511,256       2,652,482      2,834,835      3,027,324  Electricity expense        (327,992)       (300,245)       (288,321)       (437,716)       (438,079)       (438,473)       (438,984)        (439,498)        (439,895)        (440,292)       (440,689) Personnel expense        (261,983)       (248,439)       (231,943)       (231,648)       (201,808)       (208,821)       (217,936)        (227,098)        (190,082)        (195,731)       (201,370) Net Cash Inflow/(Outflow)    (2,840,133)   (2,657,236)   (2,425,649)     1,012,037      1,211,636      1,471,948      1,667,269       1,844,660       2,022,506      2,198,813      2,385,265  FRR = 9.80% NPV @ 6% OCC =      1,611,418  CASE 2: COLLECTION RATIO‐REDUCED BY 5% REDUCTION 70% 75% 80% 82% 87% 92% 92% 92% 92% 92% 92% Investments    (2,989,307)   (2,989,307)   (2,989,307)                     ‐                        ‐                        ‐                        ‐                         ‐                         ‐                        ‐                        ‐    Collected revenues          689,872          825,708      1,020,161      1,584,769      1,750,896      2,010,003      2,204,386       2,381,809       2,515,756      2,688,709      2,871,276  Electricity expense        (327,992)       (300,245)       (288,321)       (437,716)       (438,079)       (438,473)       (438,984)        (439,498)        (439,895)        (440,292)       (440,689) Personnel expense        (261,983)       (248,439)       (231,943)       (231,648)       (201,808)       (208,821)       (217,936)        (227,098)        (190,082)        (195,731)       (201,370) Net Cash Inflow/(Outflow)    (2,889,409)   (2,712,283)   (2,489,410)         915,405      1,111,010      1,362,709      1,547,465       1,715,214       1,885,780      2,052,687      2,229,218  FRR = 7.98% NPV @ 6% OCC =          828,040  51 Table 2: Projected Income Statement of Durres Water Utility (2013-2023) Income Statement ‐ '000 Lek 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 PROJECTED  INCOME STATEMENTS Revenues Water ‐ residential  metered     357,087      495,068     672,388  1,331,809  1,456,859  1,572,875  1,714,003  1,864,314   2,004,346   2,152,471  2,309,107  Water residential  unmetered     287,454      188,920       77,365               ‐                 ‐                 ‐                 ‐                 ‐                  ‐                  ‐                 ‐   Water ‐ commercial  metered       83,264        87,461       91,869       96,499     101,363     106,471     111,838     117,474      123,395      129,614     136,147  Water commercial  unmetered       36,094        26,863       16,812               ‐                 ‐                 ‐                 ‐                 ‐                  ‐                  ‐                 ‐   Water ‐ industrial  metered       14,207        15,513       16,941       18,499       20,201       22,060       24,089       26,305        28,726        31,368       34,254  Water industrial  unmetered            893             940         1,020               ‐                 ‐                 ‐                 ‐                 ‐                  ‐                  ‐                 ‐   Sewerage  ‐ domestic       73,020        98,176     106,888     183,411     197,805     213,566     232,727     253,134      272,137      292,249     313,527  Sewerage  ‐ Industry and  institutions       12,245        12,102       11,657       10,242       10,680       11,298       11,954       12,651        13,391        14,179       15,017  Connection  revenue     102,611      127,729     183,965     147,155       74,251     101,500     137,124     143,345      115,133      119,548     124,130  WW Treatment Revenue       18,656        27,526       35,665       67,982       82,136       85,203       89,176       93,170        96,258        99,346     102,434  Total billed revenues     985,531   1,080,299  1,214,570  1,855,598  1,943,295  2,112,973  2,320,909  2,510,394   2,653,386   2,838,776  3,034,615  Collection  ratio  (%) 75% 80% 85% 87% 92% 97% 97% 97% 97% 97% 97% Total collected revenues     739,148      864,239  1,032,384  1,614,370  1,787,831  2,049,584  2,251,282  2,435,082   2,573,784   2,753,612  2,943,577  Expenses Electricity     327,992      300,245     288,321     437,716     438,079     438,473     439,498      439,895      440,292     438,984     440,689  Personnel     261,983      248,439     231,943     231,648     201,808     208,821     227,098      190,082      195,731     217,936     201,370  Chemicals  and  materials       83,483        83,483       83,483     183,177     183,177     183,177     183,177      183,177      183,177     183,177     183,177  Repairs  & maintenance     101,332      101,332     101,332     205,798     205,798     205,798     205,798      205,798      205,798     205,798     205,798  Other operating expenses       49,469        49,469       49,469     101,702     101,702     101,702     101,702      101,702      101,702     101,702     101,702  WTTP operating expenses       36,904        46,284       47,975       76,205       78,918       81,864       89,520        92,487        95,453       85,682       98,420  Total cash operating expenses     861,163      829,252     802,523  1,236,246  1,209,482  1,219,836  1,246,793   1,213,140   1,222,152  1,233,279  1,231,155  Total operating income or (expense)    (122,014)       34,987     229,862     378,124     578,350     829,748  1,188,289   1,360,644   1,531,460  1,018,003  1,712,421  Debt Service ‐Current Loans               ‐                  ‐         (34,987)   (229,862)   (378,124)   (272,171)   (178,936)   (178,796)    (178,726)    (178,656)   (178,866)   (111,943) Debt Service ‐New Loan   (439,130)    (439,130)    (439,130)   (439,130) Net Income/(loss)    (122,014)               ‐                  ‐                  ‐                  ‐       306,179      650,812      839,137      570,363      742,788      913,673   1,161,348  Table 3: Internal Rate of Return Analysis for Universal Water Metering Rate of Return Analysis on Universal Metering (US$) Metering Without Project With Project Incremental Years Investment Billings Collection Collection Cash Flow Collections Collections Collections Cost Rate Rate 1 1,410,333 3,729,674 35% 1,305,386 40% 1,491,870 186,484 (1,223,849) 2 1,410,333 3,880,353 35% 1,358,123 45% 1,746,159 388,035 (1,022,298) 3 1,410,333 3,957,960 35% 1,385,286 50% 1,978,980 593,694 (816,639) 4 4,037,119 35% 1,412,992 55% 2,220,415 807,424 807,424 5 4,117,861 35% 1,441,251 60% 2,470,717 1,029,465 1,029,465 6 4,200,218 35% 1,470,076 65% 2,730,142 1,260,066 1,260,066 7 4,284,223 35% 1,499,478 70% 2,998,956 1,499,478 1,499,478 8 4,369,907 35% 1,529,468 75% 3,277,430 1,747,963 1,747,963 9 4,457,305 35% 1,560,057 80% 3,565,844 2,005,787 2,005,787 10 4,546,452 35% 1,591,258 85% 3,864,484 2,273,226 2,273,226 11 4,637,381 35% 1,623,083 85% 3,941,774 2,318,690 2,318,690 12 4,730,128 35% 1,655,545 85% 4,020,609 2,365,064 2,365,064 13 4,824,731 35% 1,688,656 85% 4,101,021 2,412,365 2,412,365 14 4,921,225 35% 1,722,429 85% 4,183,042 2,460,613 2,460,613 15 5,019,650 35% 1,756,877 85% 4,266,702 2,509,825 2,509,825 Assumption:  Billings to un‐metered connections will grow 2% annually. Internal Rate of Return 31% 52 IBRD 39991 19°E 20°E 21°E 19°30'E Milot Mat MONTENEGRO ALBANIA Fushë Milot project wellfield WATER SECTOR INVESTMENT PROJECT Fushë Kuqe MALSI E Valbona Valbon a DURRËS AREA PROPOSED PROJECT WORKS TROPOJË Laç ALBANIA To Podgorica MADHE Bajram Han i Hoti Curri KOSOVO KURBINIT Koplik Dri Fushë Kuqe Fushë Kuqe Fierzë n HAS To Lake SHKODËR Prizren Scutari Krumë PUKË Shkodër Koman (Scutari) Pukë Fush Kukës Arrëz Kalimash 42°N 42°N Mamurras M KUKËS Bunë LEZHË Zall-Rec MIRDITË Shëngjin Drinit Bay Rubik Drin i Zi Kurbneshi FUSHË KUQE FUSHE MILOT PROJECT WELLFIELD Lezhë Rrëshen RURAL Kodër Ishëm Thumanë TRANSMISSION MAIN FOR BULK PIPELINE Lake Peshkopi Shkopet Ulzës Fushë Kuge Rodonit Bay Laç Ulëz Burrel DIBRA A driatic Lalëz Kodër Thumanë EXISTING TRANSMISSION MAIN LAÇ EXISTING DISTRIBUTION MAIN Mamurasi M AT For detail, see Lalëzit Krujë Sea Ishëm WATER RESERVOIR map at right. Bay KRUJË FY R KRUJË Krujë PUMPING STATION DURRËS Fushë Krujë Bulquizë BULQIZË MA CEDO NIA 41°30'N WATER SUPPLY ZONES Vo rë Vorë TIRANË Durrës Shijak (TIRANA) MUNICIPALITY/COMMUNE WITHIN Bubq WATER SUPPLY ZONE Durrësit TIRANË Bay Ibë Fushë Krujë Bubq Adr i at i c Librazhd To EXPRESSWAY Ti r Kavajë Krrabë Struga LIBRAZHD nës a MAIN ROADS Se a KAVAJË PEQIN Elbasan Lake Manëz RAILROADS Vid hës Vidhës Perrenjas Peqin Ohrid SELECTED CITIES AND TOWNS 41°N ELBASAN 41°N an Nikël L Karavastasë LUS LU S HN J Ë Cërrik S Sukth ës Bay POGRADEC Erzen MUNICIPALITY/COMMUNE CAPITAL Lushnjë Lake Manëz Prezë Kajan Prespa DISTRICT CAPITAL Gramsh Pogradec Preze KUÇOVË NATIONAL CAPITAL GRAMSH FIER Kuçovë Katund i Ri DURRËS FUSHË KRUJË SHIJAK MUNICIPALITY/COMMUNE BOUNDARY Little Fier Lake Prespa Katund i Ri Marinzë Berat DISTRICT BOUNDARY Patos Maliq DEVOLL Vorë B E R AT INTERNATIONAL BOUNDARY Ballsh K O R Ç Ë Korçë Maminas Kafaraj Vjosë Bilisht Vore Kamëz MALLA- S K R APAR Bërxullë KASTER Çorovodë Ma Maminas M min am as nas Selenice Sukth i Ri Vlorës Vlorë EP ELEN Ë T EPELEN Bay Xhafzotaj Paskuqan Krahës Ersekë Mavrovë Durrës Shijak Kashar PËRMET Xhafzotaj VLORË KOLONJË Rrashbull Tepelenë Kelcyrë Shijak FUSHË KUQE DURRËS Gjepalaj Përmet TIRANË TIRANË Vjo GREECE së Durrës urrës ur Gjepalaj (TIRANA) GJ I R OK AS TË R ROK Rashbull FUSHË KRUJË Gjirokastër RURAL 40°N DELVINË 40°N Vaqarr Delvinë This map was produced by To the Map Design Unit of The Ioánina World Bank. The boundaries, Sarandë Kakavija GSDPM Map Design Unit colors, denominations and any other information GR EEC E SARANDË 0 10 20 30 40 Kilometers shown on this map do not imply, on the part of The 0 1 2 3 4 5 Kilometers World Bank Group, any Ndroq judgment on the legal status of any territory, or any 41°15'N endorsement or acceptance 0 10 20 30 Miles 0 1 2 3 4 5 Miles of such boundaries. 20°E 21°E 19°30'E 19°E NOVEMBER 2013