NWWEC AND WWC FOR AHWAZ, SHIRAZ, MAZANDARAN AND

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1 THE WORL D BANK GROUP AWo,rI r,l, r,l Prvrjr,,' InfoShop Project Name Region Sector Initial Project Information Document () Project ID Supplemental Project Borrower(s) Implementing Agency Address Environment Category A Date Prepared May 26, 2003 Auth Appr/Negs Date October 27, 2003 Bank Approval Date April 8, 2004 Report No: AB96 IRAN, ISLAMIC REPUBLIC OF-IR-WATER SUPPLY AND SANITATION Middle East and North Africa Region Sewerage (60%); Water supply (30%); Central government administration (10%) P ISLAMIC REPUBLIC OF IRAN NWWEC AND WWC FOR AHWAZ, SHIRAZ, MAZANDARAN AND GUILAN National Water and Wastewater Engineering Company (NWWEC) Address: # 8, Shahid Abdolah-zadeh Street, Keshavars Boulevard, Tehran, Iran Contact Person: Mr. Elahipanah, PMU Director for water and wastewater projects Tel: Fax: elahipanah@nww.co.ir Water and Wastewater Companies (WWC) Address: Gueno Consulting Engineers, # 40 Delpazir (Mahnaz Street), Shahid Beheshti Avenue, Tehran, Iran Contact Person: Mr. Nader Khakpour, Project Manager Tel: /1 Fax: n. khakpour@tavana. net 1. Country and Sector Background The Government has in recent years reorganized the sector and created I I Regional Water Boards responsible for water resources management and allocation, and 33 Provincial and City Water and Sewerage Companies (WWCs) responsible for the provision of water supply and wastewater services. The WWCs can further delegate the responsibilities for operation and maintenance in specific geographical areas to separate entities. The WWCs are supported, at the national level, by the National Water and Wastewater Engineering Company (NWWEC) - attached to the Ministry of Energy (MOE) - in matters of policy, investment planning, human resources development and in the establishment of standardized systems and procedures.

2 2 The Interim Assistance Strategy has been complemented by an Urban Water and Sanitation Sector Note, dated October 14, 2002, which was discussed at a World Bank Institute workshop on June 2002, but has still to be finally approved by the Government. The main conclusions of the Sector Note are: The Government has been successful in raising the water supply coverage, while corresponding coverage in wastewater collection is lagging far behind. The WWCs should be strengthened and allowed greater financial and institutional autonomy and should promote private financing to advance implementation of investment proposals. There is a need to create modern tariff scheme, with tariffs to be linked to the efficient cost of services and to affordability. There is a need to introduce integrated water conservation in view of increasing pressure on available water resources. In the extension of wastewater collection services, an appropriate mix of on-site and collective sanitation with wastewater treatment should be considered. Effective river basin management and, where economical, reuse of treated wastewater should also be considered. On sector investments: (i) the first priority should be to rehabilitate and upgrade water supply systems; (ii) the second priority to collect wastewater from urban areas; and (iii) the third priority to provide for wastewater treatment. 2. Objectives The project development objectives are: (a) To improve the quality of life and alleviate poverty in the proposed six cities in Iran, namely Ahwaz, Shiraz, Rasht, Anzali, Babool and Sari by: (i) improving the access of the residents to satisfactory water supply and increasing coverage of sanitation services; (ii) implementing a pilot program of hygeine and sanitation practices to improve health conditions of targeted population; and (iii) improving environmental conditions and promoting reuse of treated effluents. (b) To strengthen and develop the capacity of the Ahwaz, Shiraz, Mazandaran and Guilan Water and Wastewater Companies into fully autonomous entities to be operated on a commercial basis. (c) To implement an appropriate tariff scheme. 3. Rationale for Bank's Involvement The six cities have been selected for eligibility under the proposed project from a list of prioritized urban areas included in the five-year development plan. This selection is based on the criteria of the existing environmental conditions, including important environmental externalities going beyond the city' geographical boundaries, the sewerage conditions and threat to health, the existing social conditions, and the stage of preparation of the project for each city. The degree of pollution or pollution threat is the first selection criterion, in accordance with the recommendations of the Urban Water and Sanitation Note where it is stressed that "the priority for expansion of sewerage systems should be given to cities with high groundwater levels and where groundwater supplies are at risk of contamination". The water tables are indeed very high in the cities of

3 Rasht, Anzali, Babol and Sari and the quality of water resources is endangered. In addition the Anzali lagoon, which used to have a very rich marine life and attract various bird species from all over Asia, has become highly polluted from the wastewater discharged by the cities of Rasht and Anzali. In Ahwaz the main source of water, which is the Karoon river, is highly polluted by wastewater discharges. This river, which is the largest in Iran, is also the source of water for other important cities located downstream of Ahwaz. The incidence of poverty is also significant in the cities under the project. Data on poverty rates are not available separately for each city but are given at the provincial level for the year 199<8 Poverty in Iran, Trends Structure, >>, World Bank Document, Middle East and North Africa Region, 200ohile the urban poverty rate for the whole country stood at 14 percent, rates in Gilan and Khuzestan (Ahwaz) provinces reached 13 percent and in Mazandaran 12 percent. Thus although they do not have the highest incidence of poverty, these provinces have rates of urban poverty that are close to the country's average. It is however important to notice that the project is expected to cover large poor neighborhoods of these cities. 4. Description The project covers six urban areas (the project cities) and four WWCs, which are: The city water and wastewater company for Ahwaz; The city water and wastewater company for Shiraz; The provincial water and wastewater company for Guilan, responsible for the two project cities Rasht and Anzali; and The provincial water and wastewater company for Mazandaran responsible for the two project cities Sari and Babool. The project would finance the following four components: (a) Rehabilitation/extension of the existing water supply networks for Ahwaz, Shiraz, Rasht, Anzali, Sari and Babool. (b) Extension of wastewater collection and disposal facilities for Ahwaz, Shiraz, Rasht, Anzali, Sari and Babool. (c) Provision of operation and maintenance equipment and consumer water meters for WWCs. (d) Capacity building, Technical Assistance (TA), training and consulting services. S. Financing Total (US$m) BORROWER $ IBRD $ IDA Total Project Cost $ Implementation Project Management Each WWC will be responsible for management and implementation of its project and for subsequent

4 4 operation and maintenance of facilities to be built. Project Support Units (PSUs) will be established for each WWC and the NWWEC within their respective organizations, so that capacity built can stay within Government institutions. The responsibilities of the PSUs in WWCs, will include planning coordination, monitoring and reporting. The PSU in NWWEC will be responsible for consolidating periodic reports for all implementing agencies. The NWWEC will also be in charge of International Competitive Bidding (ICBs) on behalf of WWCs. The organizational and staffing structures of PSUs will report directly to their respective WWCs and NWWEC. During appraisal of the project, agreements will be reached on the PSUs' configuration and responsibilities. Project Implementation and Schedule WWCs/PSUs will use local consultants for engineering design and construction supervision for routine works, but would need foreign expertise for complex works such as wastewater treatment works. Agreements will be reached during appraisal on this matter. The proposed project will cover a period of 5 years ( ). This takes into account: (i) the assumption that WWCs are supported by competent PSUs; and (ii) the Management and Planning Organization (MPO) and WWCs provide counterpart funds on a timely basis. Project Monitoring and Supervision Key performance indicators will be established for project implementation. These will include operational, financial, social and health indicators. The monitoring will also cover specific environmental requirements regarding compliance with standards set for quality of drinking water, wastewater and treated effluents for re-use in irrigation. The project is geographically spread over six cities (North and East) and would need important resources for the Bank to supervise. Bank supervision will be significant during the first two years. Capacity building will require major effort. On average, two to three supervision missions per year will be needed with approximately 40 staff weeks for each year, i.e. 200 staff weeks for the whole project implementation period. Financial Management For the proposed project, the assumption is that the IBRD loan will be lent to The Islamic Republic of Iran, which will on-lend the proceeds of the loan to the WWCs. The initial project design reveals that the project funds, channeled through the loan, and the counter part financing including all related financial transactions will be, mainly, the responsibility of the WWCs and the NWWEC. The WWCs despite being owned, indirectly by the government, are operated as private sector entities and the systems in place are based on the principles and procedures of the commercial law of the Islamic Republic of Iran. While the NWWEC is a public agency and follows the government applicable laws, procedures and controls. To facilitate the project execution a PSU will be established in each implementing agency. The Financial Management Systems in place at the four WWCs are characterized with good controls and are capable of generating, in the local language, year end financial statements. These financial statements are audited, yearly, by an external auditor assigned by the NWWEC. However, the accounting systems will require improvements to become capable of generating, in English, quarterly project reports known as Financial Monitoring Reports (FMRs). While the financial arrangements at the NWWEC will require the introduction of a parallel accounting system to follow on the accounts and generate the quarterly FMR for the NWWEC part and to consolidate the overall accounts of the project provided by the W{WCs.

5 5 As the WWCs are independent and are operated as private sector entities, the project funds should be allocated to each of the implementing agencies, separately. Therefore, to facilitate project implementation and make timely payments of the Bank's share of eligible expenditures to contractors, suppliers, consultants and others, each of the implementing agencies will open a US Dollars Special Account (SA), at a commercial Bank in the Islamic Republic of Iran. The SAs and all project expenditures, including those made using statements of expenditures (SOE), would be audited annually by independent auditors acceptable to the Bank. Audit reports should be submitted to the Bank for review no later than six months after the end of each project fiscal year. In addition to the project audits, each WWC and the NWWEC should make available and remit to the Bank, within six months from end of fiscal year, copy of the entity audited financial statements for that year. 7. Sustainability The sustainability of the project would be ensured through: at the local level, strengthening the capacity of individual WWCs, in order to operate on a commercial basis and implement a tariff scheme that will ensure, progressively, full cost recovery; at the national level, strengthening the capacity of the NWWEC for its role in advising and guiding the WWCs, and in monitoring their performance; and increasing the participation of the private sector in operation and maintenance of water and wastewater facilities. 8. Lessons learned from past operations in the country/sector Lessons learned from the preparation and execution of the Tehran Sewerage Project that have been or will be incorporated under the design of this project have particularly focused on the following aspects: to establish strong PSU that will take into account the active participation of respective WWCs, NWWEC, Ministry of Economic Affairs and Finance (MEAF), Management and Planning Organization (MPO), Department of Environment (DOE) and other agencies; PSU experience in Tehran Sewerage Company revealed that PSUs established within Government entities are more efficient than those established outside. Institutional capacity built during project implementation stays within the Government system. to project the flow of revenues emanating from connection fees, taking into account linkages to the scheduling for the extension of water distribution and wastewater collection networks; selection of competent consultants; familiarity with Bank requirements, including those related to safeguards; need to have an appropriate tariff scheme; focus on financial viability of the WWCs; and use of the private sector.

6 6 9. Environment Aspects (including any public consultation) Issues : The components of the proposed project have been reviewed and environmentally screened. It is proposed to classify the project as Category A, consistent with the provision of the Operational Policy OP 4.01 "Environmental Assessment". The A rating has been assigned because of (i) the construction of major wastewater treatment plants, (ii) the re-use of treated effluents and sludge for irrigation and soil conditioning, and (iii) the proximity of two cities to an ecological site of international importance (Anzali). Through a PHRD fund that has been made available to the borrower, environmental consulting firms have been recruited to undertake the environmental and social assessment (ESA) studies consistent with Bank's requirements and based on the Terms of Reference (TOR) that have been prepared following the identification missions. The studies will cover the project proposed components as well as existing/under construction on-site and off-site facilities that might be affected by the project. In parallel an environmental health assessment is being conducted to identify the direct and indirect water related health risks in conjunction with the state of water and wastewater systems in the six cities. This assessment will lead to a health program which will: (i) raise awareness on health hygeine; (ii) establish a database on health conditions and water-related diseases, (iii) identify monitoring indicators, and (iv) develop an integrated environmental and health monitoring program. The results of the environmental health assessment will extend beyond the objectives of the project and could evolve in a nationwide effort to address health issues related to water-born diseases. During the initial project preparation, the technical, financial, environmental and social issues associated with the project were discussed in meetings attended by design consultants, representatives of the City Councils, Municipalities, WWCs and various other stakeholders. Further consultations will be held during pre-appraisal and appraisal to facilitate stakeholder involvement and awareness at all levels of project implementation and to ensure that information required for decision making is available to all interested parties. Ongoing environmental and social assessment studies (ESA) are also facilitating consultation with beneficiaries as well as groups that may be adversely affected by the project. In this respect, public consultations are being conducted in each city to identify social and environmental issues as well as the concerns of the communities and stakeholders regarding the execution of the proposed project. 10. List of factual technical documents: Draft Feasibility Studies, Environmental Assessment and Social Assessment. I I. Contact Point: Task Manager Mohammed Benouahi The World Bank 1818 H Street, NW Washington D.C Telephone: Fax: For information on other project related documents contact: The InfoShop

7 7 The World Bank 1818 H Street, NW Washington, D.C Telephone: (202) Fax: (202) Web: Note: This is information on an evolving project. Certain components may not be necessarily included in the final project. Tables, Charts, Graphs: Processed by the InfoShop week ending: 05/27/2003 For a list of World Bank news releases on projects and reports, click here SEARCH FEEDBACK StrE MAP SHOWCASE