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1 Public Disclosure Authorized Document of The World Bank FOR OFFICIAL USE ONLY Report No: GZ Public Disclosure Authorized Public Disclosure Authorized PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT (FROM TRUST FUND FOR GAZA AND WEST BANK) IN THE AMOUNT OF US$6.4 MILLION TO THE PALESTINE LIBERATION ORGANIZATION (FOR THE BENEFIT OF THE PALESTINIAN AUTHORITY) FOR A GAZA WATER SUPPLY AND SEWAGE SYSTEMS IMPROVEMENT PROJECT Public Disclosure Authorized Sustainable Development Department Middle East and North Africa Region November 2, 2012 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.

2 CURRENCY EQUIVALENTS (Exchange Rate Effective October 31, 2012) Currency Unit NIS 1 = = NIS (New Israeli Sheqalim) US$ US$1 = ILS 3.96 FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ADC BD CAS CAT CMWU COGAT CQS DA EIA EMP ESIA ESMP EU FBS FM FMR FMS GA Gaza GDP GEWP GIS GoI WSSSIP HR IBRD IC ICB ICRC IDA IFR IMF IsDB ISL KfW kwh LCS M&E MCM Austrian Development Cooperation Bidding Document Country Assistance Strategy Central Treasury Account Coastal Municipality Water Utility Coordinator of Government Activities in the Territories Consultants Qualification Selection Designated Account Environmental Impact Assessment Environmental Management Plan Environmental and Social Impact Analysis Environmental and Social Management Plan European Union Fixed Budget Selection Financial Management Financial Management Report Financial Management Specialist Grant Agreement Gaza Strip Gross Domestic Product Gaza Emergency Water Project Geographic Information Systems Government of Israel Gaza Water Supply and Sewage Systems Improvement Project Human Resources International Bank for Reconstruction & Development Individual Consultant International Competitive Bidding International Committee of the Red Cross International Development Association Interim Financial Report International Monitory Fund Islamic Development Bank New Israeli Shekel Kreditanstalt für Wideraufbau Kilowatt Hour Least Cost Selection Monitoring and Evaluation Million Cubic Meters

3 MOF MOLG MOU NCB NGEST NGO NIS NRW O&M ORAF PA PAD PCBS PCU PEA PIM PIP PLO PMU PNA PP PPM PWA QBS QCBS RFP RO SOE STLV TA TDS TFGA TFGWB ToRs TP UN WA WB WB&G WHO WSSSIP WWTP Ministry of Finance Ministry of Local Government Memorandum of Understanding National Competitive Bidding North Gaza Emergency Sewage Treatment Project Nongovernment Organization New Israeli Shekels Non-Revenue Water Operational and Maintenance Operational Risk Assessment Framework Palestinian Authority Project Appraisal Document Palestinian Central Bureau of Statistics Program Coordination Unit Palestinian Energy Authority Project Implementation Manual Project Implementation Plan Palestine Liberation Organization Project Management Unit Palestinian National Authority Procurement Plan Parts Per Million Palestinian Water Authority Quality Based Selection Quality and Cost Based Selection Request for Proposal Reverse Osmosis Statement of Expenditure Short-Term Low Volume Technical Assistance Total Dissolved Solids Trust Fund Grant Agreement Trust Fund for Gaza and West Bank Terms of References Treatment Plant United Nations Withdrawal Application World Bank West Bank and Gaza World Health Organization Water Supply and Sewage Systems Improvement Project Waste Water Treatment Plant Vice President: Country Director: Sector Director: Acting Sector Manager: Task Team Leader: Inger Andersen Mariam Sherman Junaid Kamal Ahmad Caroline van den Berg Iyad Rammal

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5 WEST BANK & GAZA Gaza Water Supply and Sewage Systems Improvement Project (WSSSIP) TABLE OF CONTENTS Page PAD DATA SHEET....i I. STRATEGIC CONTEXT...1 A. Country Context... 1 B. Sectoral and Institutional Context... 2 C. Higher Level Objectives to which the Project Contributes... 3 II. PROJECT DEVELOPMENT OBJECTIVES (PDO)...4 A. PDO... 4 B. Project Beneficiaries... 4 C. PDO Level Results Indicators... 4 III. PROJECT DESCRIPTION...5 A. Project Components... 5 B. Project Financing... 7 Lending Instrument... 7 Project Cost and Financing... 7 C. Lessons Learned and Reflected in the Project Design... 7 IV. IMPLEMENTATION...8 A. Institutional and Implementation Arrangements... 8 B. Results Monitoring and Evaluation... 8 C. Sustainability... 9 V. KEY RISKS AND MITIGATION MEASURES...10 A. Risk Ratings Summary Table B. Overall Risk Rating Explanation VI. APPRAISAL SUMMARY...10 A. Economic and Financial Analysis B. Technical Issues C. Financial Management and Disbursement... 11

6 D. Procurement E. Social (including Safeguards) F. Environment (including Safeguards) Annex 1: Results Framework and Monitoring...16 Annex 2: Detailed Project Description...21 Annex 3: Implementation Arrangements...24 Annex 4: Operational Risk Assessment Framework (ORAF)...42 Annex 5: Implementation Support Plan...46 Annex 6: Retroactive Financing...49 Annex 7: CMWU Budget for Annex 8: WB and IsDB Investments...53 Annex 9: Water Sector and Utility Background Information.60 Annex 10: Economic and Financial Analysis...65 Annex 11: MAP 70

7 PAD DATA SHEET West Bank and Gaza GZ-Gaza Water Supply & Sewage System Improvement (P101289) PROJECT APPRAISAL DOCUMENT MIDDLE EAST AND NORTH AFRICA MNSWA Basic Information Report No.: PAD152 Project ID Lending Instrument EA Category Team Leader P Specific Investment Loan B - Partial Assessment Iyad Rammal Project Implementation Start Date 29-Nov-2012 Expected Effectiveness Date 01-Jan-2013 Joint IFC No Project Implementation End Date 31-Dec-2015 Expected Closing Date 30-Jun-2016 Sector Manager Sector Director Country Director Regional Vice President Caroline van den Berg Junaid Kamal Ahmad Mariam J. Sherman Inger Andersen Borrower: Palestine Liberation Organization (PLO) Responsible Agency: Palestinian Water Authority Contact: Dr. Shaddad Attili Title: Head (Minister) Telephone No.: sattili&pwa.ps Project Financing Data(US$M) [ ] Loan [X] Trust Fund Grant [ ] Other [ ] Credit [ ] Guarantee For Loans/Credits/Others Total Project Cost (US$M): Total Bank Financing (US$M): Financing Source 0.00 Amount(US$M) Borrower 0.00 Islamic Development Bank Special Financing 6.40 Total i

8 Expected Disbursements (in USD Million) Fiscal Year Annual Cumulati ve Project Development Objective(s) The project development objective is to improve the quality and efficiency of water supply and wastewater service provision in Gaza. This will be achieved through (i) rehabilitation and expansion of existing water and wastewater systems, and (ii) enhancing the capacity of the Coastal Municipalities Water Utility (CMWU) to sustain water and wastewater services. Components Component Name Cost (USD Millions) Improving Water Supply and Wastewater Facilities Utility Capacity Building and Operational Support 3.15 Project Management, Monitoring and Evaluation 3.10 Policy Compliance Does the project depart from the CAS in content or in other significant respects? Yes [ ] No [ X ] Does the project require any waivers of Bank policies? Yes [ ] No [ X ] Have these been approved by Bank management? Yes [ ] No [ X ] Is approval for any policy waiver sought from the Board? Yes [ ] No [ X ] Does the project meet the Regional criteria for readiness for implementation? Yes [ X ] No [ ] Safeguard Policies Triggered by the Project Yes No Environmental Assessment OP/BP 4.01 X Natural Habitats OP/BP 4.04 X Forests OP/BP 4.36 X Pest Management OP 4.09 X Physical Cultural Resources OP/BP 4.11 X Indigenous Peoples OP/BP 4.10 X Involuntary Resettlement OP/BP 4.12 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 ii

9 .. Legal Covenants Name Recurrent Due Date Frequency Effectiveness condition 01-Jan-2013 Description of Covenant The subsidiary agreement between the borrower (PLO) and the beneficiary (PA) has been signed. Conditions Name Type Description of Condition Bank Staff Team Composition Name Title Specialization Unit Richard W. Pollard Sr Water & Sanitation Spec. Sr Water and Sanitation Spec. MNSWA Nikolai Soubbotin Senior Counsel Senior Counsel LEGAM Tracy Hart Caroline van den Berg Nina Bhatt Senior Environmental Specialist Lead Water and Sanitation Specialist Senior Social Development Specialist Senior Environmental Specialist Lead Water and Sanitation Specialist Senior Social Development Specialist Magalie Pradel Language Program Assistant Language Program Assistant MNSEN MNSWA MNSSO MNSSD Fifi Z. Antar Program Assistant Program Assistant MNCGZ Aissatou Diallo Senior Finance Officer Senior Finance Officer CTRLA Lina Abdallah Operations Officer Operations Officer MNSUR Maya Abi Karam Counsel Counsel LEGAM Zeyad Abu-Hassanein Sr Water & Sanitation Spec. Co-Team Leader MNSWA Randa Talal Faisal Team Assistant Team Assistant MNCGZ Lina Fathallah Rajoub Procurement Specialist Procurement Specialist MNAPC Iyad Rammal Nadi Yosef Mashni Non Bank Staff Senior Infrastructure Specialist Financial Management Specialist Task Team Leader Financial Management Specialist Name Title Office Phone City MNSWA MNAFM Locations iii

10 ... Country First Administrative Division Location Planned Actual Comments Sector Board Water Institutional Data Sectors / Climate Change Sector (Maximum 5 and total % must equal 100) Major Sector Sector % Adaptatio n Cobenefits % Water, sanitation and flood protection Water supply 75 Water, sanitation and flood protection Sanitation 25 Total 100 Mitigation Cobenefits % I certify that there is no Adaptation and Mitigation Climate Change Co-benefits information applicable to this project. Themes Theme (Maximum 5 and total % must equal 100) Major theme Theme % Urban development Urban services and housing for the poor 100 Total 100 iv

11 WEST BANK & GAZA GAZA WATER SUPPLY AND SEWAGE SYSTEMS IMPROVEMENT PROJECT PROJECT APPRAISAL DOCUMENT I. STRATEGIC CONTEXT A. Country Context 1. The economy of the West Bank and Gaza (WB&G) is fragile and largely sustained by donor support. In 2012, a combination of declining donor aid, a slowdown in growth, and a rise in unemployment in Gaza and the West Bank brought on an economic crisis. 2. During , the West Bank s real Gross Domestic Product (GDP) grew by an annual average rate of 9 percent, reflecting sound economic management and reforms supported by donor aid, and an easing of Israeli restrictions on internal movement in the West Bank. However, growth declined to 5 percent in 2011 and the first quarter of 2012, while unemployment rose to 19 percent in the first half of 2012, up from 16 percent in the same period in The situation in Gaza is more troublesome, with growth declining to 6 percent in the first quarter of 2012, after a rebound in its real output by over 20 percent in due to an easing of restrictions by the Government of Israel (GoI). Unemployment in Gaza is estimated at 30 percent in 2012, up from 28 percent in Stringent Israeli security restrictions on access to and from Gaza have resulted in constraints to economic activity, which in turn have exacerbated poverty and economic hardship. Goods legally entering Gaza via Israel are limited to only 72 items for humanitarian purposes. All Gaza exports must pass through Israel. Recent easing of restrictions on fuel, as well as spare parts, and a limited quantity of inputs, have allowed some production to resume in Gaza. 5. The current restrictions limit private sector contribution to GDP growth in the West Bank and Gaza. Nevertheless, investor confidence has increased with the easing of the GoI s restrictions and the Palestinian Authority s (PA) implementation of reforms has improved security and service delivery. 6. The rehabilitation of the infrastructure networks in Gaza, including water and wastewater systems, comprise a large part of the required recovery for the economy to improve. These systems have been compromised severely by years of neglect and destruction. Business owners in Gaza have been struggling to survive with minimal services until circumstances permit them to operate fully again. A recent survey by the Palestinian Federation of Industries found that only 54 percent of industrial establishments destroyed in December 2008 were rebuilt partially or fully, and only 23 percent of the work force was rehired. The longer Gaza endures restrictions and the infrastructure is not rebuilt, the more difficult it will be for businesses to resume normal operations and for the deteriorating infrastructure to provide services. 1 World Bank report to the Ad hoc Liaison Committee (AHLC), September

12 B. Sectoral and Institutional Context 7. Groundwater is currently the main resource available to meet Palestinian water demand in the West Bank and Gaza. In Gaza, the groundwater is over-abstracted and of poor quality. 2 The coastal aquifer, which is the only groundwater source, is rapidly deteriorating due to seawater intrusion and pollution of recharge sources. Per capita withdrawal levels are among the lowest in the region, at around 100 liters per capita per day in the West Bank and Gaza. According to a World Bank study published in 2009, water withdrawals per capita for Palestinians are about one quarter of those for Israelis. Withdrawals have declined over the last decade; in 2007, only 113 million cubic meters (MCM) were withdrawn from the shared aquifers in the West Bank compared to 138 MCM in Although 90 percent of the population and 64 percent of communities in the West Bank and Gaza have access to a water network, service discontinuity results in low consumption rates and significant negative economic impacts. Water losses and bill collection rates hover around 40 percent and 50 percent respectively. 8. The coastal aquifer Gaza s main water resource is over-drafted by approximately 100 million cubic meters (MCM) annually. The groundwater aquifer underneath Gaza provides more than 95 percent of Gaza s water demand. Its estimated abstraction volume in 2010 was about 160 MCM, divided roughly equally between abstraction from agricultural and domestic municipal wells. About 5 MCM are supplied annually by Mekorot, the Israel National Water Company. The aquifer replenishment from rainwater is estimated at MCM annually, and the annual deficit in the water resource budget is around 100 MCM. The over-drafting of the aquifer is causing a rapid decline of the groundwater table, seawater intrusion, and deterioration of the aquifer s water quality. 9. Poorly managed wastewater contaminates the coastal aquifer. Wastewater volumes are increasing, but collection and treatment infrastructure is inadequate. Treatment at existing plants is far from complete, and a considerable amount of raw sewage is dumped into open pools and directly into the sea. The four existing wastewater treatment plants (WWTPs) in Gaza are located in Beit Lahia, Gaza, Khan Younis, and Rafah. These WWTPs are overloaded and in various stages of disrepair. Inadequate treatment and disposal have seriously contaminated the aquifer on which most Gazans depend for their water supply, which has resulted in serious public health problems particularly among but not limited to young children. However, several new wastewater collection and treatment projects throughout Gaza are either planned or under construction. Reuse of treated wastewater offers opportunities for increasing the efficiency of water use, reducing pollution, and facilitating agricultural production. 10. Recently, the Palestinian Water Authority (PWA) the agency responsible for managing and regulating the water sector in the West Bank and Gaza instituted a strategic rolling program to improve the water supply in Gaza. This strategy has two main tracks: (i) slowing the deterioration of the groundwater aquifer by relatively small interventions in the short-term, while (ii) introducing high-volume interventions, e.g., large-scale desalination and importing additional water from neighboring countries to allow the aquifer to recover over the medium and the longer terms. The short-term strategy comprises three initiatives: (i) improving the efficiency of the 2 WHO guidelines stipulate 250 parts per million (ppm) as the maximum acceptable chloride concentration in drinking water. The average chloride concentration in Gaza groundwater ranges from 385 (ppm) in the northern Gaza Strip to 993 ppm in Gaza city. The chloride concentration will increase exponentially in the next nine years and all ground water wells will be producing water with high chloride concentrations. The future minimum chloride concentration in the Northern Governorate of Gaza is predicted to be 538 ppm. 2

13 Gaza water utility, reducing losses, and optimizing the use of available resources by upgrading and rehabilitating the networks, and reconfiguring the distribution system to manage additional supplies of water; (ii) adding approximately 13 million cubic meters of desalinated water to the water supply network by introducing short-term low-volume desalination plants (STLV) in the governorates where water quality has deteriorated most and seawater intrusion is advancing in the aquifer; and (iii) piloting and expanding schemes for treated wastewater reuse in agriculture. 11. For additional information about the status of the water sector in Gaza, see Annex 8, Water Sector and Utility Background Information. C. Higher Level Objectives to which the Project Contributes 12. The project contributes to the PA s strategic goals and the Palestinian National Development Plan (PNDP) for developing the infrastructure in the West Bank and Gaza and building capable institutions to meet the future needs of the Palestinian people. 13. This project supports the PWA s program to rehabilitate and expand water supply and wastewater service systems in Gaza. 3 It also operationalizes cooperation between the water utility in Gaza (CMWU) and the PWA consistent with the roles and responsibilities of the ongoing sector reforms. The sector reforms stipulate a regulatory role for the PWA and a policy and planning role assigned to a separate ministerial function, while water utilities retain the role of service provision along with project implementation to improve services. 14. The project supports the second pillar of the Bank Interim Strategy for the West Bank and Gaza to support the creation of an enabling environment for private sector led growth 4. It is also a natural continuation of the Bank s strategic involvement in the West Bank and Gaza s water sector since The project complies with the Bank s strategy for the Middle East and North Africa Region in the following ways: It will work toward increasing social and economic inclusion by improving access to water supply and wastewater services in underserved areas. It is also expected to accelerate sustainable economic growth by helping to improve the management and allocation of scarce water resources in Gaza. 15. The proposed project builds on the Bank s previous operations aimed at the strategic goal of establishing a functional and sustainable utility in Gaza capable of running the water and sanitation services. In 2011, the World Bank approved an extraordinary replenishment of US$20 million for the Trust Fund for Gaza and the West Bank to support infrastructure rehabilitation in Gaza. In particular, the funds were designated for projects to improve service provision in water and sanitation, solid waste, and electricity. The proposed operation is supportive of this strategy. Discussions between the World Bank and the Islamic Development Bank (IsDB) resulted in a 3 The European Union (EU) has signed a memorandum of Understanding (MOU) with the PWA, CMWU, and UNICEF to construct a STLV desalination plant with a capacity of 6,000 m 3 /day to serve Khan Younis and Rafah at a cost of Euro 10 million. In addition, the EU is at the identification stage for a supplemental grant of Euro 5 million to reconfigure and rehabilitate the water supply system in the targeted areas. In addition, IsDB has signed an agreement with CMWU to rehabilitate the Deir El-Balah desalination plant and expand its production capacity by 2,000 m 3 /day. 4 Interim Strategy for the WB&G Report # GZ Discussed by the Executive Directors on March 13,

14 joint agreement whereby the IsDB would match the World Bank s financing of this project as the first step of a strategic cooperative partnership in the reconstruction of Gaza. 5 II. PROJECT DEVELOPMENT OBJECTIVES (PDO) A. PDO 16. The project development objective is to improve the quality and efficiency of water supply and wastewater service provision in Gaza. This would be achieved through (i) rehabilitation and expansion of existing water and wastewater systems, and (ii) enhancing the capacity of the CMWU to sustain water and wastewater services. B. Project Beneficiaries 17. The geographic distribution of the project s investments and activities cover all governorates and municipalities in the Gaza Strip. Therefore, in a broad sense, the entire population of the Gaza Strip, estimated at around 1.6 million, 49 percent of whom are women, will benefit from project activities and the anticipated improvements in water supply and sanitation service provision. 6 Direct beneficiaries include (i) the entire population of the Gaza Strip, as it benefits from sustaining the disinfection rate of the water supply; (ii) areas/neighborhoods benefiting from improvements in wastewater systems, estimated at 560,000 people in Rafah, Khan Younis, and the Middle Area and Northern Governorates; (iii) populations in the Middle Area, Rafah and Khan Younis Governorates will benefit from improvements in water supply efficiency, (iv) staff of the CMWU will benefit from capacity building activities; and (v) the utility itself will benefit from higher cost recovery, operational cost for sustaining service delivery, and goods, including spare parts and chlorine. 18. Improving access to more reliable water supply services and improved water quality can be expected to have positive impacts on public health and reduce the amount of time and financial resources that households in Gaza currently spend to obtain and manage relatively limited supplies of water of variable quality. As with most projects that aim to improve access to safe water supplies, women, as the primary managers of household water and family health can be expected to benefit disproportionately from the project s expected outcomes through reduced sick days for children, and reduced time and money spent managing domestic water supplies. The project will work with other infrastructure operations in the West Bank and Gaza portfolio to conduct a household survey of females on how to best improve service delivery of water, electricity and solid waste removal. Women will be consulted on their awareness of service provision, their satisfaction with existing services and preferences for future needs. Furthermore, issues with utility fee collection will be incorporated into the questionnaire. There is an ongoing effort to raise awareness of gender issues in the WB&G portfolio, and the proposed operation will be an integral part of the effort. C. PDO Level Results Indicators 19. Improvement in the quality and efficiency of water supply and wastewater service provision will be measured using the following indicators: 5 The IsDB signed total agreements of US$ million with the CMWU to support this project objective. 6 Palestinian Central Bureau of Statistics,

15 a. Achieving and maintaining high water quality: Disinfection efficiency of water supply in the Gaza Strip is sustained at the baseline level of 99.8 percent throughout the project. b. Improving efficiency of water supply systems: i. Decrease in the percentage of non-revenue water in Rafah, Khan Younis, and Deir El-Balah as a result of the project, and; ii. Nominal increase in the collection rate of CMWU in Rafah, Khan Younis, and Deir El-Balah Governorates as a result of the project. c. Improving wastewater management services and facilities: i. People(49% female) in the project area would benefit from improved wastewater management facilities, and; ii. Improvement in wastewater effluent quality in Gaza. III. PROJECT DESCRIPTION A. Project Components Component 1: Improving Water Supply and Wastewater Facilities.(US$ million comprising US$ 2.81 million from the Trust Fund for Gaza and West Bank (TFGWB) and US$ 8.48 million from IsDB) 20. Subcomponent 1.1: Water Supply Network Rehabilitation and Reconfiguration. (US$ 7.00 million comprising US$1.2 million from TFGWB and US$5.8 million from IsDB). This subcomponent will finance: (1) the construction and installation of three concrete water tanks, associated booster pumping stations and transmission lines to connect to the water supply distribution networks. The water tanks will be added to the network at three predetermined locations according to the water supply master plan. 7 The water tanks will be connected to the major well fields supplying the Middle Area and Southern Governorates. They will be used to blend the water supply from different supply sources to improve the water quality and the performance of the networks and help the utility cope with demand fluctuations; (2) the rehabilitation and reconfiguration of water mains and water distribution networks in Rafah, Deir El-Balah, Bani Suhaila, and Beit Lahia. 21. Subcomponent 1.2: Rehabilitation of water wells. (US$ 1.76 million comprising US$ 0.76 million from WB and US$ 1.0 million from IsDB). This subcomponent will finance the upgrading of 30 water wells, the maintaining of 160 wells for unexpected breakdowns, and the relocation of five wells in the Middle Area and Southern governorates to improve yields, 8 reduce energy demands and unit production costs, and reduce the stress on the aquifer. Rehabilitation works include upgrading of the electro-mechanical systems, the stand-by electrical generators, water 7 4,000 m 3 reservoir serving Deir El-Balah, 3,000 m 3 reservoir in Al-Moghraqa to serve the Middle Area Governorate, and 4,000 m 3 reservoir to serve Bani Suhaila and surrounding communities in the Khan Younis Governorate. 8 Two of the wells are located within the security zone near the Gaza border two along newly opened roads, and one in a cemetery. 5

16 pumps for wells in Rafah, Bani Suhaila, Deir El-Balah, and other municipalities in the Gaza Strip. 22. Subcomponent 1.3: Service water meter replacement and installation of district meters. (US$ 0.90 million comprising US$ 0.2 million from TFGWB and US$ 0.7 million from IsDB). This subcomponent will finance the supply and installation of about 12,000 water meters. 10,000 meters will be financed by IsDB, and the remaining 2,000 meters will be financed by the World Bank, which will include bulk meters and pressure gauges for selected areas in the network. This component will improve utility billing, reduce system losses, and improve collection. 23. Subcomponent 1.4: Upgrading and maintenance of wastewater pumping stations. (US$ 1.63 million comprising US$ 0.65 million from TFGWB and US$ 0.98 million from IsDB). This subcomponent will finance additional pumping capacity at five pumping stations, maintenance of 26 existing pumps to improve the screening facilities, security and safety measures, and upgrading of electro-mechanical systems to improve efficiency and safety in the pumping stations, and to handle the increase in demand. Component 2: CMWU Capacity Building and Operational Support. (US$ 3.15million comprising US$ 0.49million from TFGWB and US$ 2.66 million from IsDB) 24. Subcomponent 2.1: Construction of utility central facilities (US$ 1.37 million comprising US$ 0.07 million from TFGWB and US$ 1.3 million from IsDB). This component covers the cost of constructing, furnishing, and equipping the utility warehouse, central workshop, and central water and wastewater lab. (The IsDB will finance the construction of these facilities and the TFGWB will finance the equipment). 25. Subcomponent 2.2: Technical Assistance for CMWU (US$ 0.23million from TFGWB). This subcomponent will include the provision of technical assistance to improve CMWU s management systems as a tool for planning and enhancing customer services, update the tariff regulation, conducting a customer outreach and public awareness campaign to introduce new activities and to improve collections fees, cater to design needs for new water supply and wastewater facilities, and assist with identifying and preparing new water supply and wastewater projects. 26. Subcomponent 2.3: Operational Assistance for the CMWU (US$ 1.55million; US$ 0.19million TFGWB and US$ 1.36 million IsDB). This component will support the operations of CMWU by financing the purchase of chemicals, chlorine, regents, and fuel to run the water and wastewater facilities. 9 These goods will be used by the CMWU in fulfilling its operations to continue to provide water and wastewater services for the citizens of the Gaza Strip. Component 3: Project Management, Monitoring, and Evaluation (US$ 3.1 million from the TFGWB) 27. ThePWA will establish a Project Management Unit (PMU) responsible for the day-to-day implementation of the project, including procurement, project management, and CMWU water and wastewater facilities operations.this component will support the PMU s project management by financing: (i) an external monitoring and evaluation expert, (ii) an external audit, and (iii) the PMU s incremental operating costs. The incremental costs include 37 staff members 9 The CMWU will receive goods and services contracted by the PMU. The PWA will pay the suppliers and service providers directly. 6

17 in the Project Management Unit of the World Bank-financed Gaza Emergency Water project (GEWP), within the Coastal Municipalities Water Utility. The PWA rehired these staff members and assigned them to the PMU. The PMU in consultation with relevant CMWU departments will manage service delivery operation, and maintenance of the facilities. B. Project Financing Lending Instrument 28. The proposed World Bank financing instrument to be used for this project is a Specific Investment Loan through from the Trust Fund for Gaza and the West Bank. Project Cost and Financing 29. The project is estimated to cost US$ million and will be financed by a US$ 6.4 million grant from the TFGWB and a grant of US$11.14 million from the IsDB. The IsDB has already signed grant agreements with the CMWU for US$ million for project activities. Financing details for project components and subcomponents are included in Annex 7. Part of the activities for the project preparation was done during the project preparation therefore a retroactive financing of US$ 930,000 equivalent will be made for payments made for such activities after January 1, Project Components Table 1.Summary of Project Costs and Financing Total Project Cost World Bank financing (US$ million) (US$ million) % financing C. Lessons Learned and Reflected in the Project Design Parallel financing (US$ million) IsDB (US$ million) % financing 1. Improving Water Supply and Wastewater Facilities % % 2. Utility Capacity Building and Operational Support % % 3. Project Management, Monitoring and Evaluation % Total Financing % % 30. The project builds on PWA s experience in managing donor and World Bank-funded projects. The PWA has gained experience in complying with the Bank s fiduciary requirements during implementation of the Second Gaza Emergency Water Project (GEWP II), which closed on January 31, 2012, as well as experience in procurement, financial management and environmental and social safeguards from the ongoing Northern Gaza Emergency Sewage Treatment (NGEST) Project. Lessons learned from these projects are reflected in the design of the proposed project. Specific lessons that have been documented from GEWP II and informed the design of this project include: 7

18 a. Infrastructure investments, capacity building measures, and operational assistance to CMWU should be designed to (i) maintain and sustain the core functions and operations of the utility, (ii) provide enabling measures to improve the efficiency of the utility, and (iii) provide incentives to increase tariff collection and cost recovery and thereby build the financial sustainability of the utility. b. Beyond infrastructure investments, stakeholders in the sector should encourage the CMWU, the PWA, and the municipalities to pursue institutional reforms that would lead to a consolidated CMWU that serves as a regional utility, able to achieve economies of scale. c. The current difficult political and security circumstances prevailing in Gaza justify continuing the operational assistance to the utility to maintain its services. However, the utility should be encouraged to take further steps to improve its financial standing, invest to improve operational cost recovery, prepare a viable tariff structure and liaise with both consumers and local governments for its approval and implementation. CMWU is currently preparing a strategic plan towards those objectives. Furthermore, assistance to the utility should be provided based on performance and results. IV. IMPLEMENTATION A. Institutional and Implementation Arrangements 31. The grant recipient is the Palestinian Liberation Organization (PLO) for the benefit of the Palestinian Authority (PA). The PA will implement the project through the Palestinian Water Authority (PWA) for the benefit of the people of Gaza in accordance with legal agreements between the Bank and the recipient. A PMU will carry out day-to-day project implementation in consultation with the Coastal Municipalities Water Utility (CMWU) through inter-agency arrangements. 32. The PWA and the CMWU have signed a memorandum of understanding describing the relationships, roles, and responsibilities between the two entities to be applied during project implementation. The PWA will be responsible for the fiduciary and safeguard aspects of project implementation through a PMU that it will establish. The PMU will make available to the CMWU consultants services, goods, and works benefitting the CMWU and financed out of the proceeds of the IDA administered trust fund. The parties agreed that following completion of the construction, rehabilitation, and expansion of the facilities, the CMWU will continue to operate and maintain them. B. Results Monitoring and Evaluation 33. Project achievements and results will be monitored based on the indicators and targets specified in the results framework (see Annex 1). Implementation progress will be gauged against the intermediate indicators. The PMU in cooperation with the CMWU will prepare semiannual progress reports, updating achievements against targets in the results framework and reporting on implementation aspects including procurement, financial management, physical implementation, and environmental and social safeguards. The Bank in coordination with the IsDB will conduct regular supervision missions during which project progress, outputs, and 8

19 results will be evaluated and regular procurement (including physical inspections) and financial management reviews will be conducted. The PMU will contract an independent consultant to conduct monitoring and evaluation shortly before the midterm review and prior to project closure. C. Sustainability 34. Project sustainability will depend upon the following factors: a. Improving the financial standing of the water utility by increasing its capacity for cost recovery, increasing collection, and upgrading the tariff structure. b. The PWA and the utility will need to secure additional bulk water supplies to meet increasing water demand. 10 c. The PWA will need to develop an investment program and leverage additional funds to sustain the needs of the rolling water supply program in Gaza. d. Improving the efficiency of the system, resulting in financial savings by reducing energy consumption. 35. The risks associated with the sustainability factors above are mainly political in nature and measures were taken to mitigate them as much as feasible. The purchase of some goods, by the PMU for the CMWU to utilize in the water and wastewater operations, such as chemicals, chlorine, regents, fuel, etc., will maintain the core functions of the utility. The infrastructure investments and capacity building components are to empower the utility to improve the efficiency of operations by reducing system losses, cost of operations, developing utility inhouse assets and maintenance capabilities. In addition, these interventions will result in tangible improvements in the quality of water supply and wastewater services, thus enhancing the position of the utility to improve its collection and cost recovery performance. 36. Major efforts to develop the water sector (i.e., sector reforms aimed at separating PWA s policy and regulatory functions through different programs, water supply development through desalination projects, wastewater systems improvements, etc.) are underway and the PWA has planned additional initiatives. A number of wastewater reuse pilot projects are underway or planned to help protect and recover the quality of water in the Gaza aquifer and optimize the use of treated water for agriculture. In addition, the PWA is considering the construction of a largescale desalination plant. These plans will help improve water supply quantity and quality. 37. The CMWU planned budget for 2011 was US$ 3,266.42, while the actual revenues (US$3.4 million) exceeded actual expenditures. Revenues were mainly generated from donor support and only partially from CMWU s own revenues. The CMWU budget for 2012 is about US$ 3.3 million, but the expected revenues are about 20 percent lower than this amount (deficit).the CMWU expects additional funds from other financial or donor institutions during the year. It is therefore important that the CMWU improve its billing and collection efficiency. The proposed project includes a component that will provide operational support to the CMWU in this regard. 10 The PWA is negotiating with Israel to increase the quantity of water purchased for Gaza in addition to increasing water supplied from the STLVs and ongoing efforts for a large-scale desalination program. 9

20 V. KEY RISKS AND MITIGATION MEASURES A. Risk Ratings Summary Table Table 2. Risk Rating Summary Risk Stakeholder Risk Implementing Agency Risk: Capacity Governance Project Risk: Design Social and Environmental Program and Donor Delivery, Monitoring, and Sustainability Overall Implementation Risk Rating M M M L L M S H B. Overall Risk Rating Explanation 38. The investments under the project are coherent with the water supply strategy prepared by the PWA in July 2011 in close coordination with CMWU, and in consensus with donors and stakeholders. 39. The coordination and the interaction of the PWA and CMWU throughout project implementation may present a potential challenge that could delay project implementation. However, both have signed a memorandum of understanding to define and facilitate relationships and clarify their respective roles and responsibilities. 40. Under normal utility operation, the proposed infrastructure investments are straightforward with low implementation risks. The equipment and materials supplied under the project will have standard technical specifications and designs, most of which are similar to those used by the CMWU under the GEWP. The proposed project will follow the successful procurement arrangements applied in the GEWP and NGEST projects. However, the aggregate risk at implementation is rated high due to the exceptional political and security risks extant in Gaza. VI. APPRAISAL SUMMARY A. Economic and Financial Analysis 41. The project is economically feasible, as shown by detailed economic analysis carried out for a sample of activities. The sample is representative of the overall scope of activities financed by the project. The analysis excludes two subcomponents related to operational support to CMWU and the component of Project Management. The latter shows relatively high PMU costs as the PMU staff are the same PMU used to implement the Gaza Emergency Water Project and was in charge of operating the CMWU. The same PMU was rehired by the PWA to continue the service provision to the people and to enable the restructuring of the water sector in the Gaza Strip. These analyses are presented in Annex 9. 10

21 42. Financial Results. The project is not financially viable except for the energy cost savings in the water rehabilitation program and the program for reduction of non-revenue water (NRW) through a reduction of illegal connections. Net financial losses amount to NIS 12 million, and the project is projected to have an internal financial rate of return of 4 percent. The network rehabilitation and wastewater pumping programs are not viable, but these programs provide nonfinancial benefits because of water quality improvements that cannot be translated into direct financial benefits to the CMWU. Economic Results. All project components are economically viable; except for the wastewater pumping sub-component that is below the economic rate of return threshold of 10 percent. However, the wastewater pumping component also has significant political and unquantified external benefits that justify implementation. The net economic benefits for the project overall are NIS 65 million, and the internal economic rate of return for the entire project is 33 percent. B. Technical Issues 43. The infrastructure investments financed by the World Bank are complementary to the investments by the IsDB (see Annexes 2 and 7 for details).the infrastructure investments were selected to meet the criteria of (i) addressing the immediate needs of maintaining the continuity of water and sanitation services to the Gaza population, and (ii) consistent with the PWA s shortterm and long-term strategies to improve water supply in Gaza. CMWU s network modeling results showed significant improvements in the performance of the networks because of the proposed reconfiguration. The three water reservoirs and booster stations in the selected locations in Al-Moghraka, Deir El-Balah, and Bani Suhaila will improve the network performance in terms of distribution control, water quality, and coping with fluctuations in demand. The location and configuration of the reservoirs will facilitate the future connection of these reservoirs to the main water carrier, which is part of the water supply master plan. The new reservoirs in Deir El-Balah will be connected to the desalination plant 11 and well fields to allow for water blending. In Khan Younis, the Mekorot (Israel national water company) water supply will be blended with water supplied from the Khan Younis well field, thus improving the water quality and reducing the salinity. C. Financial Management and Disbursement 44. Overall responsibility for the project s financial management (FM) and disbursement functions will rest with the PWA through the PMU. The PWA will hold the sole responsibility to disburse on behalf of the project to suppliers, contractors, and consultants. The PMU in consultation with the CMWU will be responsible for day-to-day project implementation and financial management World Bank funds will be disbursed through a segregated Designated Account (DA) in US Dollars as advances, reimbursements, direct payments, and special commitments. The MoF 11 The IsDB is financing the desalination plant under a separate project. Reverse osmosis (RO) technology has been selected for the plant due to its relatively favorable financial feasibility and least capital cost investment requirements. RO technology requires specialized skills to operate and maintain the plant. The CMWU technical department has been managing the existing RO plant and other brackish water desalination plants in Gaza successfully, but CMWU staff require additional training on operating and maintaining the plants as part of CMWU s capacity building priorities. 12 Funds will not be channeled to the CMWU. 11

22 will open the DA under the Central Treasury Account (CTA) at the Bank of Palestine (in Ramallah) and it will be managed by the PWA who will make all payments directly to the contractors, consultants, and suppliers, including the incremental and operating costs of the PMU. Each financier s funds will be spent on separate activities as agreed with the Bank, the PWA, and the IsDB. Therefore, the Bank will finance 100 percent of its respective activities. 46. The PWA s accounting system will be used to record, report, and monitor the project s accounts. The system is capable of capturing all project-related transactions by component and by each financier. The system will be used to generate the Quarterly Interim Unaudited Financial Reports (IFRs), while the variance analysis and DA reconciliation statement will be done using Excel. The PWA will submit the IFRs to the Bank within 45 days after the end of each period. 47. An external auditor, acceptable to the Bank, will be hired competitively by the Ministry of Finance (MOF) to audit the project s financial statements based on terms of reference (TOR) acceptable to the Bank. Additionally, the external auditor, using relevant technical specialists as needed, will conduct an annual technical audit. 48. Taking into account the risk mitigation measures proposed in Annex 3, the overall financial management risk for this grant is assessed as substantial. The implementation of such risk mitigation measures would satisfy the Bank s financial management requirements. D. Procurement 49. Procurement of goods, works, and non-consulting services will be carried out in accordance with the Guidelines: Procurement of Goods, Works and Non-Consulting Services under IBRD Loans and IDA Credits and Grants by World Bank Borrowers, (World Bank, January 2011). For the selection of consultants, Guidelines: Selection and Employment of Consultants under IBRD Loans and IDA Credits and Grants by World Bank Borrowers will be used (World Bank, January 2011).Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants, shall apply to the project (World Bank, October 15, 2006, revised January 2011). 50. The overall procurement responsibility for project components financed by the World Bank will rest with the PWA. The PWA will establish a PMU to be responsible for the day-today implementation of the project, including procurement. The PWA rehired thirty-seven staff members from the project management unit of the World Bank-financed GEWP, within the Coastal Municipalities Water Utility and assigned to the PMU. The PMU will assume procurement and contract management responsibilities, in consultation with the relevant CMWU departments and units. 51. The PWA procurement capacity was assessed based on the proposed implementation arrangements. Although the PWA s procurement capacity is weak, the PMU procurement capacity has improved throughout its implementation of Bank-financed projects. Key members of the PMU are experienced in implementing similar projects under the Bank s procurement guidelines. The PMU has established procurement procedures with comprehensive and clear instructions through each step of the procurement and contract management process. The GEWP s procurement performance has been satisfactory. 52. The PWA may be unable to meet procurement implementation requirements, if it does not retain key PMU staff. Moreover, the coordination and the interaction of the PWA and CMWU throughout project implementation may present a potential challenge that could delay 12

23 project implementation. Restricted competition among local contractors resulting from Gaza closure could encourage collusion among local bidders. Furthermore, increased restrictions imposed on movement of people and goods into Gaza may delay or hinder the supply of equipment, spare parts, and other materials necessary for the execution of the rehabilitation/expansion works. 53. A project implementation structure has been established and the detailed responsibilities of the PWA, the PMU, and the CMWU have been defined as part of the Project Implementation Manual. The PMU procurement staff of GEWP will be retained for the Water supply and Sewage Systems Improvement Project (WSSSIP).The PMU has developed a Manual of Procurement Procedures to document the proper procurement and contract management processes, including detailed responsibilities of the concerned units. To ensure efficient implementation of project procurement, TORs/Request For proposals (RFPs) have been drafted for the main Technical assistance (TA) assignments and Bidding Documents (BDs) for the main procurement packages to be implemented during the first year of project implementation. Procurement packaging has been determined to allow for wide competition among local qualified bidders. 54. The overall procurement risk rating for the project is moderate. The Bank s prior review thresholds were based on the existing procurement capacity and the identified procurement risks. In addition to prior review, the Bank will carry out at least two supervision missions per year, during which a follow up of procurement matters will be reviewed. 55. Procurement activities financed by the WSSSIP are mostly similar to the contracts financed under the GEWP. The PMU, in consultation with CMWU, prepared a procurement plan (PP) for the first eighteen months of project implementation. The PP specifies the procurement packages and consultancy assignments, cost estimates, methods, and schedule. The PP will be updated at least annually or as needed to reflect actual project implementation needs. E. Social (including Safeguards) 56. The project does not trigger the Bank s Operational Policy 4.12 on Involuntary Land Acquisition and Resettlement. All land requirements for the project are confirmed as belonging either to the municipalities or under the Ministry of Religious Affairs, thus designated as waqf, 13 and no squatters or encroaches are present. For lands designated as waqf, the municipalities have already leased and allocated them for the project s purpose. The needed lands are in the context of subcomponent 1.1 for the three water reservoirs in Al-Moghraka, DeirEl-Balah, and Bani Suhaila. These water reservoirs will be constructed using the IsDB financing, whereas the WB will finance the equipment and the connection line. The Bank s due diligence confirms that these water reservoirs will be located on public lands (under either the municipalities or waqf ownership). The remaining works under subcomponent 1.1 entail rehabilitation of water mains, but these are on existing sites. For the remaining subcomponents under component 1, the land requirements are either on right of way or owned by the municipalities, i.e., for the rehabilitation of water wells and the relocation of water wells, or are confirmed as not entailing any acquisition of private land for the construction of the water 13 Donated lands or properties managed by the Ministry of Religion affairs. The properties can be leased in accordance with local laws with the income going to charity or to support religious affairs. 13

24 reservoirs. The letters confirming that no private lands will be used (either temporarily or permanently) were obtained from the PWA during appraisal. 57. Robust stakeholder consultations were conducted, especially throughout the Environment and Social Impact Assessment (ESIA) preparation process. Consultations with different groups and entities were conducted for the purposes of informing communities about the project, seeking their inputs to the design, including on the consideration of alternatives. The consultation process, which is well documented in the ESIA, was intended to improve transparency and accountability of decision-making, and increase public confidence in the ESIA process. The range of stakeholders consultations varied widely and included staff from Coastal Municipalities Water Authority (CMWU), the Palestinian Water Authority, mayors, wastewater experts, and local engineers. In addition, focus group discussions and interviews were conducted with community members and individuals residing in the project area to elicit their viewpoints regarding the project, e.g., teachers, representatives from women s organizations, citizens, etc. 58. During preparation, the Bank carried out a focus group discussion in Bani Suhaila Municipality with about 15 community members. It was confirmed that the proposed project was viewed as beneficial and necessary for the community. Some of the reasons supporting the project included current concerns about inadequate water supply quality and poor regularity and predictability. Major gains are anticipated with improvements in quality and regularity of water supply. Reducing the salinity in the water supply (both chloride and nitrates concentrations), increasing the daily per capita share, and maintaining the high level of disinfection in the networks are expected to bring significant social and public health benefits. The infrastructure investments are expected to improve the water quality and quantity in the targeted area. The third component of the project includes a study to establish a framework for a water quality and public health monitoring program. 59. Given the high-risk context of the project and the need to raise water revenues and service cost recovery by the water utility to viable business levels a social development outcome would be to enhance confidence and trust between the individual consumer and the service provider. Improving the levels of consumer satisfaction with the service and public trust in the sector s institutions is likely to bring about positive changes in customer behavior in relation to payment of water bills, water conservation, etc. 60. Project implementation therefore requires enhancing and improving customer satisfaction with services and also communicating progress regularly, and establishing mechanisms for consultations, responding to complaints, and a transparent institutional environment. During project implementation, the utility will be conducting broad-based public information campaigns and consultations to enhance public awareness. F. Environment (including Safeguards) 61. The proposed project will contribute to improving the environment through better management and rehabilitation of existing water and sanitation facilities, expenditures on essential operations and maintenance of the utility, and capital investment to expand and improve water and sanitation infrastructure. The rehabilitation and relocation of the water wells are expected to have an overall positive impact on local water balance, including the groundwater. The quality of water supply in the networks will be improved by blending water from desalination, new water wells, and other sources. The concentrations of chloride and nitrates in the water supply in the targeted areas will decrease, contributing positively to public health. 14

25 62. The project has been classified under the environmental category B in accordance with the World Bank s Operational Policy OP The client has prepared an Environmental and Social Impact Assessment (ESIA) as well as an Environmental and Social Management Plan (ESMP) to investigate the environmental and social impacts and to suggest appropriate mitigation measures. The client has also held consultations with relevant stakeholders as noted in the social safeguards section above, a summary of which is included in the ESIA. The ESIA was available prior to the project appraisal. The executive summary of the ESIA was released through the World Bank s Infoshop and locally in Arabic and English on September 23, No known archeological sites, historical sites, or natural habitats will be affected by this project. Construction-related impacts are localized and will be easily mitigated via the ESMP. Those impacts will be due to the rehabilitation of existing water and sanitation infrastructure, as well as the expansion of new infrastructure in the form of reservoirs, water booster stations, pumping stations, water mains, transmission lines, and water wells. 63. With careful planning, adherence to standard procedures of good engineering and construction practice and implementation of mitigation measures as described in the ESMP, potential adverse impacts will be minimized to acceptable levels. The borrower retains trained staff who have accumulated considerable knowledge during the implementation of the Gaza Emergency Water Project and are capable to implement the ESMP. The borrower also has modern laboratories performing regular monitoring of all essential parameters for water and wastewater quality. Lastly, an environmental capacity building and training program has been specified and budgeted to provide additional support to ESMP implementation. 15

26 ANNEX 1: RESULTS FRAMEWORK AND MONITORING. West Bank and Gaza: GZ-Gaza Water Supply and Sewage Systems Improvement Project (P101289). Project Development Objectives. PDO Statement The project development objective is to improve the quality and efficiency of water supply and wastewater service provision in Gaza. This would be achieved through (i) rehabilitation and expansion of existing water and wastewater systems, and (ii) enhancing the capacity of the Coastal Municipalities Water Utility (CMWU) to sustain water and wastewater services.. Project Development Objective Indicators Cumulative Target Values Data Source/ Responsibility for Indicator Name Core Unit of Measure Baseline Yr 1(2013) Yr 2 (2014) 1. Disinfection efficiency of water supply in the Gaza Strip is sustained at the baseline level of 99.8% throughout the project. 2. Decrease in the percentage of nonrevenue water in Rafah, Khan Younis, and Deir El-Balah as a result of the project. End Target (2015) Frequency Yes/No Yes Yes Yes Yes Weekly Percentage Monthly Methodology CMWU Technical Department CMWU laboratory testing Semiannual Progress Reports CMWU Customer Service Department CMWU Maintenance Department Water Meters maintenance and testing Water Meters reading results Customer Billing System Semiannual Progress Reports Data Collection CMWU PWA-PMU CMWU PWA-PMU 3. Nominal increase in collection rate of CMWU in Rafah, Khan Younis, and Deir El- Balah Governorates as a result of the project. Percentage Monthly CMWU customer service department Customer Billing System Semiannual Progress Reports CMWU PWA-PMU 16

27 4. People provided with access to improved sanitation facilities (49% women) under the project. Number 0 20,000 50, ,000 Annually CMWU Maintenance Department Semiannual Progress Reports CMWU PWA-PMU 5. Improvement in wastewater effluent quality in Gaza. Percentage 75% 76% 78% 80% Quarterly CMWU Technical department Average Removal efficiency in all plants Semi-annual Progress Reports CMWU PWA-PMU 6. People provided with access to improved water sources under the project (49% women). Core Number 1, , , , Semi-annually CMWU Technical department Average Removal efficiency in all plants Semi-annual Progress Reports CMWU PWA-PMU. Intermediate Results Indicators Component 1: Improving Water Supply and Wastewater Facilities Cumulative Target Values Indicator Name Core Unit of Measure Baseline YR1 YR2 End Target Frequency 1.1. Water tanks (3,000 4,000 CMs capacity) installed and connected to the existing water network according to the CMWU Master Plan Kilometers of water distribution networks rehabilitated. Number Annually Number Semiannually Data Source/ Methodology CMWU Construction and Technical Departments CMWU Master Plan Semiannual Progress Reports CMWU Construction and Technical Departments Semiannual Progress Reports Responsibility for Data Collection CMWU PWA-PMU CMWU PWA-PMU CMWU Construction and Technical Departments 1.3. Water meters installed/replaced. Number 0 8,000 10,000 12,000 Semiannually CMWU annual reports/progress reports Procurement Plan Semiannual Progress Reports CMWU PWA-PMU 1.4. Volume (mass) of BOD pollution loads Core (tons/year) 7,000 7,000 7,000 8,000 Weekly Laboratory testing results CMWU 17

28 removed by the treatment plant supported under the project. CMWU Technical Department Semiannual Progress Reports PWA-PMU 1.5. Volume of wastewater pumping capacity (m 3 / day) maintained, under the project. Number 120, , , ,000 Semiannually CMWU technical department verification Pumping meters reading Semiannual Progress Reports CMWU PWA-PMU Component 2: CMWU Capacity Building and Operational Support 2.1. Tariff proposal and adjustment system at CMWU upgraded. Yes/No No No Yes Yes N.A Consultancy contract signed Tariff regulation study completed Verification of World Bank Semiannual Progress Reports CMWU PWA-PMU World Bank Cost recovery study 2.2. Operational cost recovery instruments for CMWU developed. Text CMWU is recovering operational cost only in Rafah - - CMWU sign MOUs for membership with Khan Younis and Deir El-Balah Municipalities Semiannually MOUs signed with municipalities CMWU Financial department records Semiannual Progress Reports World Bank verification in supervision missions CMWU PWA-PMU World Bank 2.3. Reduction in energy consumption for operation of targeted water wells supported by the project in Rafah, Khan Younis, and Deir El-Balah Governorates. Kw/h/m Semiannually CMWU Technical Department Semiannual Progress Reports CMWU PWA-PMU 18

29 Results Framework. Project Development Objective Indicators Indicator Name 1. Disinfection efficiency 2. Non-revenue water in water supply networks 3. Collection rate 4. People in the project areas that would benefit from improvements in wastewater services out of which 49% are females 5. Improved wastewater effluent quality Description (indicator definition, etc.) Ration of the number of samples with positive residual chlorine out of total number of 550 samples for the locations distributed over the networks in the five Gaza Strip governorates. Negative samples are treated within 24 hours of detection, as a mitigation measure. Keeping the disinfection rate at 99.8% is an important indicator for the utility performance as such a high quality standard has been established under Bank support in previous interventions. The project will help the utility prevent this percentage from dropping to an unhealthy level. A lump sum of total losses, both technical and non-technical, such as commercial losses, illegal connections, etc., in the networks in Rafah, Khan Younis, and Deir El-Balah Governorates. Non-revenue is calculated as the ratio of billed water to produced water. Percentage of revenues collected (NIS) out of the total bills issued by CMWU in Deir El-Balah, Khan Younis, and Rafah. Improvement of collection by 1-4% annually will be achieved through improvement of service quality, replacement of meters, addressing illegal connections, and improving collection methodology and approach. Improvements in wastewater facilities: The project will finance sewage pump station upgrading and maintenance, wastewater network upgrading and rehabilitation, and treatment plant maintenance. People benefiting: Areas targeted by the project within four Gaza governorates and the estimated population targeted: Northern Governorate, Khan Younis Governorate, Middle Area Governorate, and Rafah Governorate. Effluent quality is measured by percentage reduction of biological oxygen demand (BOD) and total suspended solids (TSS) in effluent wastewater produced from the various wastewater treatment plants targeted by the project.. Intermediate Results Indicators Indicator Name 1.1. Water tanks installed and connected to the existing water networks 19 Description (indicator definition, etc.) Number of water tanks that are constructed under the project 1.2. Kilometers of water distribution networks rehabilitated Kilometers of water distribution networks rehabilitated 1.3. Water meters installed/replaced Number of water meters installed; either new installations or to replace existing deteriorated ones 1.4. Volume (mass) of BOD pollution loads removed by the treatment plant supported under the project 1.5Volume of wastewater pumping capacity (m 3 / day) maintained/added, under the project Volume (tons per year) of biological oxygen demand (BOD) pollution loads removed by the treatment plant supported under the project. Support can refer to construction, expansion, or rehabilitation. Volume (cubic meters per day) of wastewater pumping capacity at the treatment plant supported by the project either added or maintained. In the project context, the yearly targets are to maintain the level of

30 2.1. Tariff proposal and adjustment system at CMUW upgraded 2.2.Operational cost recovery instruments for CMWU developed 2.3. Reduction in specific energy consumption of operation of targeted water production facilities supported by the project 120,000 m 3 /day pumping capacity. The project will finance technical assistance activities to establish parameters for updating the existing CMWU tariff systems, for better management, efficiency, and sustainability. The project will finance goods, public awareness and technical assistance activities aiming at increasing the membership base and collections rate of CMWU for better cost recovery. Reduction in electricity consumption (kilowatt per hour per 1 cubic meter pumped) in the operation of targeted water wells under the project. 20

31 ANNEX 2: DETAILED PROJECT DESCRIPTION West Bank and Gaza: GZ-Gaza Water Supply and Sewage Systems Improvement Project (P101289) A. Detailed Description of Project Components Component 1: Improving Water Supply and Wastewater Facilities. (US$11.29million, comprising US$2.81 from TFGWB and US$8.48 million from IsDB). Subcomponent 1.1: Water Supply Networks Rehabilitation and Reconfiguration (US$7.00 million, comprising US$1.2 million from TFGWB and US$5.8 million from IsDB). This sub-component will finance the construction and installation of three water reservoirs (concrete water tanks), associated booster pumping stations, and transmission lines to connect to the supply distribution networks. These water tanks will be added to the network at three predetermined locations, 14 according to the water supply master plan: a 4,000 m 3 reservoir serving Deir El-Balah, 3,000 m 3 reservoir in Al-Moghraka to serve the Middle Area Governorate, and 4,000 m 3 reservoir to serve Bani Suhaila and the surrounding areas in the Khan Younis Governorate. The reservoirs will be connected to the major well fields supplying the Middle Area and Southern Governorates. The reservoirs will be used to blend the water supply from the wells and desalination plants, and the Mekorot water supply in the case of Bani Suhaila Reservoir, to improve the water quality. The water tanks will also improve the performance of the networks and help the utility cope with water demand and improving service quality. This component also includes procurement and installation of booster stations and connections to the networks at the three locations. Rehabilitation and configuration of water mains and water distribution networks in Rafah, Deir El-Balah, Bani Suhaila, and Beit Lahia are also a part of the subcomponent. Subcomponent 1.2: Rehabilitation of water wells (US$ 1.76 million, comprising US$ 0.76 million from TFGWB and US$ 1.0 million from IsDB). This component will finance the upgrading of the electro-mechanical parts and water pumps in water wells in Rafah, Bani Suhaila, Deir El-Balah, and other Gaza municipalities. The activities include the upgrading of 30 water wells, maintaining of 160 wells against unexpected breakdowns, and the relocation of five additional wells in the Middle Area and Southern Governorates to improve yield, reduce energy demands and unit production cost, and reduce stress on the aquifer. Rehabilitation of the water wells includes upgrading the electro-mechanical systems, water pumps, and stand-by electrical generators. Subcomponent 1.3: Service water meters replacement and installation of district meters (US$ 0.90 million, comprising US$ 0.2 million from TFGWB and US$ 0.7 million from IsDB).This subcomponent will finance the supply and installation of about 12,000 water meters. The IsDB will finance 10,000 meters and the World Bank will finance the 14 The locations for these reservoirs are already identified. One of the land slots required is owned by the Ministry of Religious Affairs (waqf lands), and was leased by the municipality of Deir El-Balah for 99 years, while the other land slots are owned by the municipalities and have been allocated for use by the project (water tanks). 21

32 remaining 2,000 meters, including bulk meters and pressure gauges on selected areas in the network. This activity with the other system improvement included in other subcomponents such as reducing the system losses will improve the utility billings and collections. Subcomponent 1.4: Upgrading and maintenance of wastewater pumping stations (US$1.63 million, comprising US$0.65 million from TFGWB and US$0.98 million from IsDB). This subcomponent will finance additional pumping capacity of five pumping stations, maintenance of 26 existing pumps to improve their screening facilities, security and safety measures, and upgrading of electro-mechanical systems to improve efficiency and safety in the pumping stations, and to handle the increase in demand. Component 2: CMWU Capacity Building and Operational Support. (US$3.15 million, comprising US$0.49 million from TFGWB and US$2.66 million from IsDB). Subcomponent 2.1: Construction of utility central facilities (US$ 1.37 million, comprising US$ 0.07 from TGFWB and US$ 1.3 million from IsDB).This component covers the cost of construction, furnishing, and equipping the utility warehouse, central workshop, and central water and wastewater lab serving the Gaza governorates. The IsDB will finance the construction of these facilities and the TFGWB will finance the necessary equipment. Subcomponent 2.2: Technical Assistance for CMWU. (US$ 0.23 million from TFGWB).This subcomponent includes the provision of technical assistance to improve CMWU s management systems as a tool for planning and enhancing customer service, an update of the tariff regulation, conducting customer outreach, and public awareness campaigns to introduce new activities and to improve collections fees. The component will adapt the design of these activities to the needs of the new water supply and wastewater facilities and assist with identifying and preparing new water supply and wastewater projects. Subcomponent 2.3: Operational Assistance for CMWU. (US$ 1.55 million, comprising US$ 0.19 million TFGWB and US$ 1.36 million from IsDB). This component will support the CMWU s operations by financing the purchase of chemicals, chlorine, regents, and fuel to run the water and wastewater facilities. These goods will be used by the CMWU in its daily operations to continue providing water and wastewater services for the citizens of the Gaza Strip. Component 3: Project Management, Monitoring and Evaluation (US$ 3.1 million from the TFGWB). This component will support the PMU s project management by financing the external monitoring and evaluation expert, the external audit, and the PMU s incremental operation costs. The PWA will establish a PMU to be responsible for day-to-day project implementation, including procurement, project management, and CMWU water and wastewater facilities operations. The PWA rehired 37 staff of the PMU from the World Bank-financed Gaza Emergency Water Project (GEWP), within the CMWU, and assigned them to the PMU for this project. The PMU, in consultation with relevant CMWU departments/units, will manage service delivery, operation, and maintenance of the facilities. 22

33 B. Detailed Project Financing The project is estimated to cost US$17.54million and will be financed by a US$6.4 million grant from the World Bank s Trust Fund for Gaza and the West Bank and a grant of US$11.14 million from the Islamic Development Bank. The World Bank and IsDB financing will be provided on a parallel basis. Separate records will be maintained for each financier, and each financier s funds will be spent on separate components and activities, as agreed between the Bank and IsDB. Annex 7presents the detailed financing plan. 23

34 ANNEX 3: IMPLEMENTATION ARRANGEMENTS WEST BANK AND GAZA: GZ-GAZA WATER SUPPLY AND SEWAGE SYSTEMS IMPROVEMENT PROJECT (P101289) A. Project Institutional and Implementation Arrangements 1. The grant recipient is the Palestinian Liberation Organization (PLO) for the benefit of the Palestinian Authority (PA). The PA will implement the project through the Palestinian Water Authority (PWA) for the benefit of the people of Gaza in accordance with legal agreements between the Bank and the recipient. A PMU will carry out day-to-day project implementation in consultation with the Coastal Municipalities Water Utility (CMWU) through inter-agency arrangements, the details of which are set out below. 2. The PWA and the CMWU have signed a memorandum of understanding describing the relationships, roles, and responsibilities between the two entities to be applied during project implementation. The PWA will be responsible for the fiduciary and safeguard aspects of project implementation through a PMU that it will establish. The PMU will make available to the CMWU consultants services, goods, and works benefitting the CMWU and financed out of the proceeds of the IDA administered trust fund. The parties agreed that following completion of the construction, rehabilitation, and expansion of the facilities, the CMWU will continue to operate and maintain them. 3. The PWA will establish a project management unit (PMU), which will work closely with the CMWU in implementing this project. The PMU will be responsible for managing all procurement and financial issues related to the proposed project. PMU members will be experienced in implementing similar projects under the Bank s procurement and FM guidelines, policies, and procedures. 4. The PMU director will report directly to the PWA deputy head. The PMU technical specialists will follow up on all technical operations required by the project in consultation with the CMWU s relevant sections, i.e., the quality assurance section, building and facilities, garages, warehouse, water networks section, electro-mechanical section, etc. The financial and administrative specialists, along with the FM and procurement staff, will be responsible for supervising all procurement activities and will consult with the relevant sections of the CMWU. Annex 8 provides more information about the CMWU. 5. The PWA has in place an adequate computerized financial management system, a manual of financial management procedures, and employs qualified financial staff. It also has a positive track record with the Bank and other donor-funded projects. The PWA has developed a project implementation manual, which includes financial management procedures, internal controls, and documentation on the flow of funds. 6. The PMU will be responsible for overall coordination with Coordinator of Government Activities in the Territories (COGAT), World Bank, IsDB, CMWU, and the PA on the supply of equipment and materials and contract execution. The PMU in consultation with the CMWU will be responsible for following day-to-day project activities, including coordinating with COGAT 24

35 for materials entry into Gaza, and monitoring performance indicators during the implementation period. The PMU will also work with the Gaza municipalities, the Ministry of Local Government (MoLG), and other PA entities to ensure effective implementation of the project and other work carried out under parallel programs by other donors. 7. The PMU will coordinate closely with the CMWU on the implementation of the IsDB financed components. Some of the activities financed by the World Bank are linked to the activities financed by IsDB; therefore, the PMU and CMWU will follow the same fiduciary guidelines for financial management, procurement, and safeguards, and report to the World Bank (in addition to IsDB) in the same manner that the PMU reports for Bank-financed activities. 8. The PMU will be responsible for biannual reporting to the Bank on project implementation progress and performance. 9. The PMU, whenever needed, will be responsible for drafting ToRs and supervising the consultants, reviewing consultants reports, participating in the consultations and technical discussions, coordinating studies with the CMWU, ministries, municipalities, civil society, and other stakeholders. The PMU will also be responsible for reviewing and verifying the reports produced by the CMWU on project implementation progress and monitoring of the performance indicators. 10. The PMU will be responsible for coordinating, with the CMWU and Gaza municipalities, the design and preparation of technical specification of project components. The PMU will be tasked with the implementation and supervision of installation and civil works related to rehabilitation and expansion of water and wastewater networks. The PMU staff in consultation with the CMWU technical teams and engineers will be responsible for monitoring the installation and civil works networks rehabilitation and expansion, and supervising the contracts execution. The PMU will procure goods for this project in accordance with Bank procurement guidelines. The PMU will be responsible for receiving goods and ensuring compliance with contracts signed under the project. 11. The PMU in coordination with the CMWU will monitor the implementation of the ESMP and report to the World Bank on its compliance during the project implementation. The PMU will in turn aggregate project information and report to the Bank on the implementation of the ESMP in the progress reports. A separate annex on ESMP compliance by subcomponent will be added to the progress reports. Among its specialists, the PMU will have staff trained in safeguard policies and requirements. Capacity building of these staff, as well as the CMWU Environment Safety Unit staff, will be strengthened continuously during project implementation. The charts below are schematic presentations of the project s institutional and implementation arrangements. 25

36 B. Financial Management 12. The overall responsibility for the implementation of financial management (FM) and disbursement arrangements will rest with the PMU, which is housed at the PWA. The PWA has a proven track record of effectively operating in the complex political and institutional environment of Gaza. The PWA successfully implemented the Bank-supported ongoing project The Northern Gaza Emergency Sewerage Treatment (NGEST) and Water Sector Capacity Building Project (WSCBP). The PWA has effectively administered Bank and donor funds, and their respective fiduciary arrangements. 13. The overall financial management risk for the project is assessed as substantial, mainly due to the following factors: 26

37 a) The political situation and the GoI-imposed access restrictions to Gaza may affect the physical and financial progress of the operation and the verification of actual physical progress on the ground. b) The nature of the project, which involves large work contracts for the rehabilitation and construction of water reservoirs and water wells, may encourage collusive behaviors. c) Potential double dipping from donors funds. 14. The following is a summary of the agreed actions/mitigation measures: a) Contract management will be centralized at the PWA. b) The PWA will have the sole responsibility to disburse to suppliers, contractors, and consultants on behalf of the project. c) The technical team will review and approve project payment requests before further processing to provide assurance that payment related activities correlate to goods actually supplied and installed and to the physical progress of the operations. d) An independent external auditor, acceptable to the Bank, will be hired on a competitive basis to perform an external audit of the project s annual financial statements, in accordance with a ToR acceptable to the Bank. In addition, the ToR will be expanded to include a provision for annual technical audits of the project. e) A separate Designated Account for each financier will be opened by the MoF under the Central Treasury Account, and will be used solely for this particular project. f) The PWA will maintain separate financial transactions in its accounting software by opening separate cost centers for each financer. g) The PWA will maintain complete and orderly supporting documentation for each contract, including signed contracts and invoices, and other related supporting materials, readily available for audit. h) Quarterly financial management supervision missions will be undertaken by the Bank 15. Parallel Financing by Financing Partners: Each donor s contribution to the program (including the Bank s) will be through parallel financing towards the project s activities. The Bank will disburse its funds through a separate Designated Account (DA) opened by the MoF (under the Central Treasury Account) and operated (managed) by the PWA. World Bank funds will be spent on specific project activities as indicated in Annex Staffing at the PWA: The PMU staff consists of a full-time financial and administrative manager, as well as a financial officer. The financial and administrative manager holds a Business Administration (BA) degree in accounting and is capable to monitor the grant s FM and disbursement functions. The FM team is familiar with the World Bank s FM and disbursements guidelines. 17. Budgeting and Funds Flow: The PMU will maintain a project budget and detailed disbursement plans. The budget will be developed based on an initial procurement plan and revised as needed. The budget will be analyzed yearly and quarterly as part of the Interim Financial Reports (IFRs). A provision for retroactive financing in the amount of US $ 930,000 27

38 will be provided to the PMU to cover necessary project-related expenses. 15 January 1, 2012 is the agreed upon date after which payments may be disbursed on the project s account for eligible expenditures up to the date of effectiveness. Annex 5 provides additional information on budget aspects of the project. 18. The PMU is vested with sole responsibility to disburse on behalf of the project to suppliers, contractors, and consultants. Each disbursement check has to be signed by one signatory from Category (A) plus one signatory from Category (B), according to the following matrix: Category A: (1) PMU head based in Ramallah, and (2) PMU-GZ deputy head based in Gaza. Category B: (1) PMU manager, and (2) PMU financial and administrative manager. Figure 2: Flow of Funds World Bank PWA submits WA for MOF s cosignature Central Treasury Account at the MOF (Designated Account Managed by PWA) Suppliers, Contractors & consultants Legend Full Arrows Dotted Arrows Movement of funds PWA Request for fund transfer PMU submits Payment requests to PWA 19. Accounting & Reporting: The PWA has a fully automated accounting system in place, Al Aseel Accounting System. This system is capable of capturing all project-related transactions. Separate cost centers to track and report the use of project funds for each financier will be created after the Grant Agreements are signed. The accounting system, however, cannot generate the Interim Financial Reports (IFRs). Therefore, IFRs will be compiled manually using Excel spreadsheets. Transaction statements from the accounting system will be retained with the IFRs to provide an audit trail to the underlying documentation. 15 These expenses are associated with PMU staff salaries, its incremental operation s costs for services provision and consultancy services contracted by the CMWU during the project preparation stage while CMWU was acting as the implementing agency. It was agreed that the PWA will review and verify the contracts and pay these costs directly to the contracted individuals or entities in compliance with the World Bank financial management and procurement guidelines. 28

39 20. The PMU will be required to issue quarterly IFRs composed of (i) Statement of Sources and Uses of Funds for the period and cumulatively by donor and by component and subcomponent; ii) Comparison between budget versus actual costs along with explanations of significant variances between budgeted and actual amounts; (iii) Statement of Designated Account reconciling the period s opening and end balances; (iii) Contract listing; (iv) Fixed assets schedule; and (v) Physical Progress Reports, which include narrative information linking financial information with physical progress, and highlighting issues that require attention. The IFRs will be comprehensive and will cover all aspects of the project including all financing sources. IFRs content and format have been communicated and discussed with the project team. 21. Internal Control and Internal Audit: Project control procedures will follow the PWA s internal control procedures, supplemented by the FM manual, to ensure that project funds are used only for intended purposes and for financing eligible expenditures. The PWA s internal control procedures are summarized as follows: (i) PMU technical team review and approval;(ii) Procurement officer review and approval, and financial and administrative manager review and approval; (iii) MoF financial controller review; and (iv)each payment will be signed by two authorized signatories as mentioned above. All parties must approve payment requests before the authorized signatories sign the requested check. 22. External Audit: The project financial statements will be audited annually by a qualified independent external auditor acceptable to the Bank and in accordance with internationally accepted auditing standards and ToR acceptable to the Bank. The audit will be comprehensive covering all financiers and will be conducted in accordance with International Standards on Auditing. The scope of the audit will be expanded to assess and report on the effectiveness of internal controls and compliance with the Grant Agreement, FM manual, and applicable laws and regulations. Deficiencies will be reported through a management letter. The audited financial statements and management letter will be sent to the World Bank not later than six months following the end of the project s fiscal year. 23. The PWA in coordination with the MoF will be responsible for preparing the ToR for the external auditors. The ToR is to be submitted to the Bank for clearance three months after project effectiveness. The cost of the external auditor will be financed from the grant. 24. In addition to the financial audit, the auditor is expected to perform a technical audit on an annual basis. In this context, auditors should use relevant technical specialists as needed to perform the technical audit in accordance to the Bank-accepted ToR. The PMU has no outstanding audits for the ongoing or implemented Bank projects. 25. According to the World Bank s access to information policy issued on July 1, 2010, the project s audit report with audited financial statements will be made available to the public. 26. Fixed Assets and Contracts Registers: The Fixed Assets Register will be maintained by the PWA and regularly updated and checked. The register will include all necessary information including fixed asset description, location, type, identification numbers, purchase date, invoice number, etc. Contracts registers will be maintained for all contracts. 27. Supervision: The project s FM arrangements and activities will be supervised quarterly. The financial supervision activities will include, inter alia, review of IFRs, review of annual audited financial statements and management letters, technical audit reports, as well as timely 29

40 follow up on issues raised by the auditor and a review of Statement of Expenditures (SOEs) if needed. 28. Record Management: The PMU and CMWU will keep the project files for three years from the last audit of the project. 29. Governance and Anti-Corruption 16 : Although it is impossible to eliminate the risk of fraud and corruption, prevention policies and internal control can reduce opportunities for it to occur. Fraud and corruption may affect project resources, thereby negatively affecting project outcomes. The World Bank financial management specialist (FMS) worked closely with the project s task team leader to develop with the project team an integrated understanding of possible vulnerabilities and agreed upon actions to mitigate the risks. The above-proposed fiduciary arrangements are expected to reduce the risks of fraud and corruption that are likely to have a material impact on the project outcomes. 30. Disbursements: The proceeds of the grant will be disbursed in accordance with the Disbursement Letter and the Bank s disbursement guidelines for projects. Transaction-based disbursement will be used under this project. Authorized signatories, names, and corresponding specimens of their signatures will be submitted to the Bank prior to the receipt of the first withdrawal application (WAs). For direct payments above the minimum application size, as specified in the Disbursement Letter, withdrawal applications will be submitted to the World Bank for payments to suppliers and consultants directly. A segregated Designated Account (DA) in US Dollars will be opened by the MoF under the Central Treasury Account (CTA). The DA will have a ceiling of US$ 500,000 equivalent to four months of forecasted project expenditures. There will be no subaccounts under this DA, and reimbursements to the PA for payments made from its own resources will be made to accounts opened under the CTA with adequate safeguards to monitor accounts to which reimbursements would be made. Withdrawal applications submitted to the Bank will be prepared by the PMU and signed by the authorized signatories at the MoF, prior to submission to the Bank for processing. 31. Supporting documentation. In requesting disbursements into the DA or reimbursements for expenditures pre-financed by the recipient, the PMU will make use of a Statement of Expenditures (SOE) or records. The SOE could be used for (i) goods contracts costing less than US$100,000 equivalent; (ii) works contracts costing less than US$250,000;(iii) service contracts for individual consultants costing less than US$50,000 equivalent each, and for consulting firm services costing less than US$200,000; and for (iv) incremental operating costs. 32. Allocation of grant proceeds. The proposed allocation of grant proceeds is shown in the table below. 16 Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants, dated October 15, 2006 and updated January 2011, shall apply to the project. 30

41 Category (1) Goods, works, non-consulting services, consultants services and training under parts A and C of the project (2) Goods, works, non-consulting services, consultants services and training under part B of the project Table 1: Allocations per Category Amount of the Grant Allocated (expressed in USD) Percentage of Expenditures to be Financed (inclusive of taxes) 2,840, % 490, % (3) PMU operating costs 3,070, % TOTAL AMOUNT 6,400,000 C. Disbursements Plan Table 2: Disbursement Plan per Quarter per Component Component FY 2013 FY 2014 FY 2015 FY Improving Water Supply and Wastewater Facilities (US$K) Q2 Q3 Q4 Sub Total Q1 Q2 Q3 Q4 Sub Total Q1 Q2 Q3 Q Sub Total Q1 Q2 Sub Total Total 2. Utility Capacity Building and Operational Support (US$K) Project Management, Monitoring and Evaluation TOTAL (US$K) D. Procurement 33. Procurement for project goods shall be carried out in accordance with the Guidelines: Procurement of Goods, Works and Non-Consulting Services under IBRD Loans and IDA Credits and Grants by World Bank Borrowers(World Bank, January 2011).For consultant services, the accompanying standard bidding documents/standard request for proposal and the Grant Agreement apply Guidelines: Selection and Employment of Consultants under IBRD Loans and 31

42 IDA Credits and Grants by World Bank Borrowers (World Bank, January 2011).Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants shall apply to the project. (World Bank, October 15, 2006, updated January 2011). 34. The overall procurement responsibility for project components financed by the World Bank rests with the PMU established within the PWA. The PMU will be responsible for the dayto-day project implementation, including procurement. The PWA hired staff for the project PMU from the PMU of the World Bank-financed GEWP, within the Coastal Municipalities Water Utility. The PMU, in consultation with relevant CMWU departments/units, will manage the procurement process, preparation of ToRs, advertising, bid/proposal opening, bid/proposal evaluation, contract negotiations (if applicable), and contract awards. The PWA-PMU in consultation with the CMWU departments/units will also be responsible for contract management, including the review and approval of consultants deliverables, the supervision of the execution of the works, and the receipt/inspection and acceptance of goods, and for advising on the release of funds to the consultants/contractors/suppliers in accordance with the signed contracts. 35. The PWA s procurement capacity was assessed as part of project preparation based on the proposed implementation arrangements. The assessment, which was finalized during appraisal, evaluated the PWA s institutional capacity to implement procurement for the project activities financed by the World Bank under the Bank s procurement guidelines. Although the PWA s procurement capacity is weak, its capacity has improved throughout the implementation of Bank-financed projects. Key members of the PMU are experienced in implementing similar Bank projects. The PMU has established procurement procedures with comprehensive and clear instructions for each step of the procurement and contract management process. The procurement performance for GEWP has been satisfactory. 36. Furthermore, the assessment evaluated procurement risks and recommended mitigation measures for efficient procurement under the project. The following is a summary of the identified procurement risks and mitigation measures. 37. Identified Risks: (i) PWA may be unable to meet procurement implementation requirements due to the lack of experienced procurement staff. (ii) The coordination and the interaction between the PMU and CMWU throughout project implementation may present a potential challenge that could delay project implementation. (iii) Limited competition among Gaza-based contractors, resulting from Gaza s closure, may encourage collusion among bidders. (iv) Increased restrictions imposed on movement of people and goods into Gaza may delay or hinder the supply of equipment, spare parts, and other materials necessary for the execution of the rehabilitation/expansion works. 32

43 38. Mitigating Measures: (i) Key PMU members, including procurement staff, will be retained for this project and will be assigned the responsibility for implementing all aspects of project procurement. (ii) The PMU has established adequate procurement and contract management procedures and has updated its Project Implementation Manual (PIM) to document properly its procurement and contract management processes, including detailed responsibilities of the concerned units. The PIM was approved by the Bank during negotiations. (iii) Procurement packaging will be determined to allow for wide competition among local qualified bidders. (iv) To ensure project readiness for implementation, draft BDs/RFPs for the main procurement packages/consultancy assignments is to be implemented during the first year of project implementation has been prepared. 39. The overall procurement risk rating for the project is moderate. Procurement Plan 40. Procurement activities, to be financed under WSSSIP, are mostly repeaters of contracts financed under GEWP. Procurement of works will include the construction of reservoirs and water booster stations in the Middle Area and Southern Governorates, rehabilitation and reallocation of water wells, upgrading and maintenance of wastewater pumping stations, and the replacement of service connections and bulk meters. Under goods, the project will finance the supply of electrical and mechanical equipment and spare parts for water wells and pumping facilities and for wastewater pumping and treatment facilities, equipment and tools for CMWU warehouses, and GIS software. Under consultants services, the project will finance calibration and modeling of water networks in Rafah and DeirEl-Balah, design of water and wastewater projects, a tariff study, a monitoring and evaluation specialist, as well as financial and technical audits. 41. The PMU prepared a procurement plan (PP) for the first 18 months of project implementation, in consultation with CMWU, and agreed upon with the Bank during appraisal. The PP, summarized below, specifies the procurement packages/consultancy assignments, estimated cost, methods and schedule, taking into consideration the project implementation schedule. The PP will be updated at least annually or as needed to reflect actual project implementation needs. 42. Summarized Procurement Plan: (i) General: 1. Project Name: Gaza Water Supply and Sewage Systems Improvement Project 2. Period covered by this procurement plan: first 18 months (ii) Goods, Works, and Non-Consulting Services: 1. Procurement Methods and Prior Review Thresholds: Procurement decisions subject to prior review by the Bank as stated in Appendix 1 to the Guidelines for Procurement. 33

44 Table 3: Methods of Procurements based per Category Category Method of Procurement Threshold (US$ Equivalent) Prior Review Threshold (US$ Equivalent) Goods NCB <500,000 First contract Shopping <100,000 None Direct Contracting No threshold All contracts Works NCB <2,000,000 First contract Shopping <200,000 None Non-consulting Services Direct Contracting No threshold All contracts NCB <500,000 First contract Shopping <100,000 None Direct Contracting No threshold All contracts 2. Summary of the procurement packages planned during the first 18 months after project effectiveness. Ref. No. Goods Table 4: Procurement Plan for the Goods under the Project for the first 18 months Review Estimated Domestic Proc. No. of by Bank Description Cost Preference Method lots (Prior / US$ (,000) (yes/no) Post) 1. Electrical and mechanical equipment and spare parts for water wells and pumping facilities and wastewater pumping and treatment facilities Estimated BDs issue date 325 NCB 2 No Prior Equipment and tools for CMWU warehouses 30 S 1 No Post Furniture for CMWU headquarters 40 S 1 No Post GIS (hardware and software) 30 S 1 No Post Supply of fuel for water and wastewater facilities 190 NCB No Post Supply of electro-mechanical 5. spare parts, equipment, and NCB materials for sewage lifting (Retroactive stations, fittings, fixtures, and financing) pipes for wastewater 3 No Prior Done networks 34

45 Review Estimated Domestic Proc. No. of by Bank Description Cost Preference Method lots (Prior / US$ (,000) (yes/no) Post) Ref. No. Total Estimated BDs issue date Ref. No. Works Table 5: Procurement Plan for the Works under the Project for the first 18 months Review Estimated Domestic Proc. No. of by Bank Description Cost Preference Method lots (Prior / US$ (,000) (yes/no) Post) 1. Construction of service building and installation of electromechanical equipment at Bani Suhaila Reservoir 35 Estimated BDs issue date 375 NCB 1 No Post Construction of carrier lines and connections for Al-Moghraka 145 NCB 1 No Post Reservoir 3. Electro-mechanical rehabilitation and upgrading of water wells including pumps replacement & electro and mechanical repairs and 450 NCB 2 No Prior refurbishment of electrical power supply generators for water facilities 4. Reallocate Wadi Al-Salga and Al-Nussirat water wells, drilling new wells with all associated 200 NCB 1 No Post facilities 5. Electrical upgrading of water wells systems 50 S 1 No Prior Upgrading of wastewater pumping stations in Gaza Strip & electro and mechanical repairs and refurbishment of electrical 400 NCB 2 No Post power supply generators for wastewater facilities 7. Electro-mechanical maintenance for sewage lifting stations and its associates & upgrading of wastewater networks to cope 250 NCB 2 No Post with the pump stations upgrading 8. Repair and replacement of water meters 200 NCB 1 No Post Replacement, rehabilitation and 200 NCB 1 No Post

46 Review Estimated Domestic Proc. No. of by Bank Description Cost Preference Method lots (Prior / US$ (,000) (yes/no) Post) Ref. No upgrading of water distribution networks Electro-mechanical rehabilitation and upgrading of water wells including pump replacement Electrical services for CMWU water and wastewater facilities Total 2,330 S Retroactive financing S Retroactive financing Estimated BDs issue date 1 No Post Done 1 No Post Done 1. Selection Methods and Prior Review Thresholds: Selection decisions subject to prior review by Bank as stated in Appendix 1 to the Guidelines Selection and Employment of Consultants. Table 6: Thresholds for Consultancy Services Category Consulting Services Firms Selection Method QCBS/QBS Threshold (US$ Equivalent) No threshold FBS/CQS/LCS <300,000 Sole Source No threshold All contracts Prior Review Threshold (US$ Equivalent) First contract selected under each of the two methods and thereafter all contracts above $1,000,000 First contract selected under each of the three methods Individuals IC No threshold All contracts above $300,000 Sole Source No threshold All contracts 2. Short list comprising entirely of national consultants: Short list of consultants for services, estimated to cost less than $300,000 equivalent per contract, may comprise entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. 3. Consultancy assignments with selection methods and time schedule Consultancy Services Table 7: Procurement Plan for the Consultancy services under the Project for the first 18 months Review Estimated Proc. by Bank Description Cost Method (Prior / US$ (,000) Post) Ref. No. 36 Estimated BDs issue date

47 Review Estimated Proc. by Bank Description Cost Method (Prior / US$ (,000) Post) Ref. No. Estimated BDs issue date 1. Tariff Study 30 IC Prior Design of water and wastewater project 40 QCBS Post Financial and Technical Audits 30 LCS Prior Modeling and calibration of water networks in Rafah and Deir El-Balah 50 QCBS Prior Environmental Impact Assessment for GWSREP Consultancy service for design of water supply projects CQS Retroactive financing QCBS Retroactive financing Prior Prior Done Done 7. M&E Consultant 15 IC Post IC Consultancy service for preparation of Retroactive Prior Done CMWU strategic plan financing 9. Consultancy service for CMWU documented management systems 35 Total IC Prior NCB Provisions: For National Competitive Bidding, the following additional procedures shall apply. a. Public enterprises in parts of the West Bank and Gaza under the jurisdiction of the Palestinian Authority shall be eligible to participate in bidding only if they can establish that they are legally and financially autonomous, operate under commercial law, and are not a dependent agency of the Palestinian Authority; b. Foreign bidders shall be eligible to participate under the same conditions as local bidders. In particular, no preference over foreign bidders shall be granted to local bidders in bid evaluation; c. Invitations to bid shall be advertised on at least two (2) consecutive days in a local newspaper of wide circulation, and prospective bidders shall be allowed a minimum of thirty (30) days between the date on which the notification appears for the first time and the deadline for bid submission. With the specific approval of the World Bank, this minimum period of 30 days may be reduced to a minimum period of 10 days in the case of emergency operations; d. Until standard bidding documents acceptable to the World Bank have been introduced by the PA, the standard bidding documents of the World Bank shall be used; e. Qualification criteria shall be clearly specified in the bidding documents, and all criteria so specified, and only criteria so specified, shall be used to determine whether a bidder is qualified. Bids of bidders not meeting such criteria shall be rejected as non-qualified. The fact that a bidder meets or surpasses the specified qualification criteria shall not be taken into account in the evaluation of such bidder s bid; 37

48 f. Evaluation criteria shall be clearly specified in the bidding documents, and all evaluation criteria other than price shall be quantified in monetary terms. All evaluation criteria so specified, and only criteria so specified, shall be used in bid evaluation. Merit points shall not be used in bid evaluation; g. If classification of contractors is required, contractors that have not yet been classified but meet the required qualifications shall be enabled to obtain the necessary classification during the bidding procedure. Any contractor that has been classified in a class higher than the lowest class shall not be restricted to bidding in his own class but shall be eligible also to bid in any lower class; h. Bids shall be submitted in sealed envelopes and shall be accepted whether mailed or handcarried; i. Bids shall be opened in the presence of bidders who wish to attend, and immediately after the deadline for bid submission. Said deadline, and the place of bid opening, shall be announced in the invitation to bid. The name of each bidder, and the amount of his bid, shall be read aloud and recorded when opened in the minutes of bid opening. The minutes of bid opening shall be signed by the members of the bid opening committee immediately after bid opening; j. Bids received after the deadline for bid submission shall be returned to the bidders unopened; k. A bid containing material deviations from or reservations to the terms, conditions and specifications of the bidding documents shall be rejected as not substantially responsive. A bidder shall not be permitted to withdraw material deviations or reservations once bids have been opened; l. The bid evaluation shall be carried out in strict adherence to the criteria specified in the bidding documents, and the contract shall be awarded to the qualified bidder offering the lowest evaluated and substantially responsive bid; m. A bidder shall not be required, as a condition for award, to undertake obligations not specified in the bidding documents or otherwise to modify his bid as originally submitted; and n. There shall be no post-bidding negotiations with the lowest or any other bidder. (iii) Frequency of Procurement Supervision 1. The Bank s prior review thresholds were set based on the existing procurement capacity and the identified procurement risks. In addition to prior review, the Bank will carry out at least two supervision missions per year during which a close follow up and quality control of procurement /contract management matters will be maintained. A post procurement review of contracts that are not subject to the above prior review requirements shall be conducted once a year. The post procurement reviews should cover at least 10 percent of contracts subject to post review. Procurement Records 44. Complete procurement documentation for each contract, including RFPs/bidding documents, advertisements, proposals/bids received, proposal/bid evaluations, letters of 38

49 acceptance, contract agreements, securities, related correspondence etc., will be maintained by the PMU in an orderly manner, readily available for audit. E. Social and Environmental Safeguards 45. The project does not trigger the Bank s Operational Policy 4.12 on Involuntary Land Acquisition and Resettlement. All land requirements for the project are confirmed as belonging either to the municipalities or under the Ministry of Religious Affairs, thus designated as waqf, 17 and no squatters or encroaches are present. Robust stakeholder consultations were conducted, especially throughout the ESIA preparation process. Consultations with different groups and entities were conducted for the purposes of informing communities about the project, seeking their inputs to the design, including on the consideration of alternatives. During preparation, the Bank carried out a focus group discussion in Bani Suhaila Municipality with about 15 community members. It was confirmed that the proposed project was viewed as beneficial and necessary for the community. F. Monitoring & Evaluation 46. Monitoring and Evaluation Arrangements at the Project Level: Progress towards achieving the development objective will be measured against a set of performance indicators and targets as detailed in Annex 1. Improvements in the utility efficiency and performance will be measured against an agreed set of indicators, including the reduction in energy consumption in targeted facilities, reduction in system losses, and improvements in collection. Improvements to water supply quality will be measured by a reduction in the salinity of water supply, maintenance of a high disinfection rate of water supply, etc. The PWA-PMU in coordination with the CMWU will maintain output dashboards to record achievements against those indicators on a frequent basis, and will also keep track of the direct and overall intended beneficiaries of the project. 47. Results-Based monitoring at the Utility Level: Being a utility, the CMWU already has an existing monitoring system, including laboratory testing and sampling points for both water and wastewater service provision domains. Data is tracked and stored in databases on a frequent basis, and CMWU management uses feedback for improving/maintaining vital services and their standards. The project, including the results framework, will improve on this existing data collection system. Most of the agreed upon project indicators in the results framework already were being monitored systematically by the CMWU, and specifically during the implementation of the Gaza Emergency Water project. As such, baseline values for indicators were readily available during preparation. The Project Implementation Manual (PIM) includes further details on the CMWU s monitoring system. In addition, the PIM includes the list of indicators on the output and outcome level that the CMWU uses to measure its performance standards, including the indicators to be tracked under the project and the adjustments necessary for that purpose. The PIM elaborates on the monitoring methodology, frequency, calculation formulas for the indicators, and indicators definitions. 48. The quality assurance department within the CMWU will be responsible for gathering data and updating databases on groundwater quality, wastewater and water supply quality monitoring, and tariff collection. This will be achieved through direct contact with other CMWU 17 Donated lands or properties managed by the Ministry of Religion affairs. The properties can be leased in accordance with local laws with the income going to charity or to support religious affairs. 39

50 relevant departments, including the Utility s Maintenance Department and Customer Service Departments. The CMWU has established well-equipped laboratories in different regions and main facilities to measure and track changes in different environmental indicators and has an updated database. This database was utilized to establish appropriate baselines and to agree on reasonable targets to be tracked over the project implementation period. 49. Indicators Monitoring: (i) For specific governorates, a set of indicators when appropriate will be monitored in the three governorates where CMWU is fully running service provision, i.e., Rafah, Khan Younis, and DeirEl-Balah Governorates. When appropriate, weighted averages from the governorates will be used as aggregate values for the indicators; (ii) For the entire Gaza Strip, some indicators will be monitored, e.g., the percentage of disinfection of the water supply. 50. Progress Reporting: The PMU will produce the following reports in direct coordination with the CMWU s key departments, including the technical, quality assurance, and financial departments: (i) Semiannual Progress Reports within 45 days of the end of the first semester of each calendar year, and cumulative Annual Progress Reports within 45 days of the end of the second semester; (ii) a Midterm Progress Report focusing on trends towards achieving the PDO from program start until midterm. This Report will be made available to the Bank and other Partners 15 days prior to the date of the Midterm Review; (iii) an Implementation Completion Report at the end of the project, focusing on final results and lessons learned; and (iv) Interim Financial Management Reports (IFRs), within 45 days of the end of each calendar quarter. 51. Supervision and Independent Reviews: The Bank in coordination with IsDB will conduct regular supervision missions during which project progress, outputs, and results will be evaluated and regular procurement (including physical inspections) and financial management reviews will be conducted. In addition to the financial audit, the PMU will contract an independent consultant to evaluate the project twice: shortly before the midterm and shortly before project closing. 52. Tariff collection rate: This indicator will measure the utility s tariff collection measured as the percent of the purchased and produced water bills out of the water billed to customers by the utility. The customer service department for Rafah, Khan Younis, and DeirEl-Balah Governorates will compile segregated values monthly. The monthly rates will be transformed to biannual values as weighted averages. The formula below will be used to produce the lump sum values: Collection rate = (X*R + Y* K + Z*D) / (R + K + D) Where X, Y, and Z are collection rates in Rafah, Khan Younis, and DeirEl-Balah, respectively, and R, K, and D, are the billed customers in Rafah, Khan Younis, and DeirEl-Balah, respectively. 53. The baseline values as of January 2012: X = 0.55, Y = 0.50, and Z = The values for R, K, and D are respectively 17,500, 14,800, and 7,000. Those values produce a lump sum value of collection (weighted average) of Daily share per capita of water supply (l/c/d): This indicator measures the per capita share of water per day, measured as an average of the total amount produced divided by the population. Segregated values will be produced monthly by the CMWU customer service department for the governorates of Rafah, Khan Younis, and DeirEl-Balah. An average will be 40

51 used for the three governorates by dividing the sum of amounts produced in R, K, and D, divided by the total population of the three governorates. The formula below will be used for calculation. 55. Daily per capita share of water supply = (Total amount of water supply produced in R, K, D) / (total population in R, K, and D). 56. The baseline value as of January 2012 was estimated at 70 l/c/d. 57. Disinfection rate of water supply: This indicator requires the utility to maintain a rate of chlorination (disinfection) of the water supply in the entire Gaza Strip at the current measured rate as of January For that purpose, CMWU is sampling and analyzing water samples from 550 sampling points distributed at different locations on the Gaza Strip networks. Sampling is performed by the utility on a weekly basis. Those values will be used to produce mathematical average biannually. 58. Salinity of water supply: The baseline salinity reported as of January 2012 is 1750 mg/l in total dissolved solids in water supply. The target values will be measured as the total dissolved solids measured at the blending reservoir s outlet. Monthly measurements will be taken and compiled to calculate an annual arithmetic average value for the indicator. 59. Total losses in water supply networks: This indicator measures the technical and nontechnical losses in the networks as a lump sum. The indicator is measured according to the following formula: Total losses = 1 (billed water supply quantity / produced water supply quantity) 60. The baseline values for R, K, and D as of January 2012 are 0.39, 0.38, and 0.41, respectively. The weighted average will be used as the indicator. Using the produced amounts as of January 2012, a weighted average is Unit energy cost of operation of targeted facilities: Baseline values for this indicator have been compiled and reported by CMWU as 0.27 NIS/m 3 for the targeted municipal production well. The energy cost is calculated as the cost of the monthly electricity, fuel, and maintenance bill of the facility divided by the total number of operational hours. Monthly values will be calculated by the utility and reported semiannually as a weighted average. 62. The PWA will hire an independent monitoring and evaluation (M&E) expert to conduct an M&E review shortly before the midterm and the project closure. A copy of the report should be submitted to the donors. G. Role of Partners 63. Financiers: The IsDB will provide financing for the subcomponents as detailed in Annex 7. The IsDB financing will be provided on a parallel basis. Implementation of the projects financed by IsDB will be coordinated and agreed upon by the CMWU and IsDB. Supervision missions of the project components will be coordinated between the World Bank and IsDB. The PMU will report semiannually on project activities implementation. 64. Implementing Institutions: The PMU will be responsible for the project implementation in close consultation with the CMWU. The CMWU will benefit from the project, which includes the infrastructure investments, capacity building of the CMWU. The PWA will be responsible to align these investments to the Gaza Water Supply Strategy and its rolling program. 41

52 . Project Stakeholder Risks ANNEX 4: OPERATIONAL RISK ASSESSMENT FRAMEWORK (ORAF) West Bank and Gaza: GZ-Gaza Water Supply & Sewage System Improvement (P101289) Stakeholder Risk Rating Moderate Description: The PA, PWA change priorities, donors not interested in further funding the program Risk Management: Stage: Board Water supply and infrastructure rehabilitation in Gaza is a pillar of the PNDP for Investments are aligned with the PA and PWA strategy for improving the water supply in Gaza and developed in full consultation with donors. Many donors are showing interest in the supporting the water sector in Gaza and the IsDB has signed a financing agreement of US$ million for this project. Resp: Client Stage: Prepa ration Implementing Agency (IA) Risks (including Fiduciary Risks) Capacity Rating Moderate Description: PWA is unable to meet project implementation requirements Risk Management: Recurrent: Due Date: 15-Jul-2011 Frequency : Status: Compl eted By establishing a PMU, PWA agreed with the CMWU to hire its PMU staffs who have acquired substantial experience in implementing the Bank support GEWP and other donors project. Resp: Client Stage: Imple menta tion Risk Management: Recurrent: Due Date: 01-Apr-2012 Frequency : Status: Compl eted Project Implementation Manual (including FM & Procurement procedures) has been developed and measures were taken also to enhance the FM, procurement, and safeguards functions within PWA, including the retaining of the FM & Procurement specialists. Resp: Client Stage: Prepa ration Recurrent: Due Date: 01-Sep-2012 Frequency : Status: Compl eted 42

53 Governance Rating Moderate Description: The utility governance affected by political split between PA and Hamas Project Risks Risk Management: The PWA will be the implementing agency and will be responsible of the fiduciary aspects. The utility has been successfully surviving the political split and keeping a coherent governance by continuing to be politically neutral. Investments are spread for the entire population in Gaza and for all municipalities. Resp: Client Stage: Prepa ration Design Rating Low Description: Project design is not flexible enough to suit the volatile political and security conditions in Gaza and the parallel financing arrangements. Strong linkages between several activities financed by the World Bank and the IsDB might negatively affect the Bank s financing in case the IsDB investments are not implemented correctly Risk Management: Recurrent: Due Date: 01-Mar-2012 Frequency : Status: Compl eted Implementation arrangements were kept simple, utilizing the accumulated experience of PWA and CMWU in implementing previous Bank projects and the coordination mechanisms with the Israeli authorities on materials entry. Resp: Client Stage: Prepa ration Risk Management: Recurrent: Due Date: 01-Mar-2012 Frequency : Status: Compl eted The Bank activities are mostly independent of IsDB activities. For the linked activities, e.g., construction of reservoirs, IsDB financing has been secured already. The Bank activities that are linked to IsDB's are sequenced in a proper manner in the PP to ensure effectiveness of the Bank s investments. Close coordination between the involved parties (WB, IsDB, and Client) is already established and joint supervision missions will be conducted during implementation. Resp: Client Stage: Prepa ration Risk Management: Recurrent: Due Date: 01-Mar-2012 Frequency : CMWU has signed a financing agreement with IsDB and implementation has started for some activities. Resp: Client Stage: Prepa ration Recurrent: Due Date: 01-Mar-2012 Frequency : Status: Compl eted Status: Compl eted 43

54 Social and Environmental Rating Low Description: Construction and rehabilitation activities impacting communities. The PWA oversees monitoring the implementation of the ESMP. Customers may not be satisfied with the CMWU performance. Risk Management: The PMU staff is trained to implement and monitor the implementation of the EMP. CMWU will assist in monitoring the implementation of the ESMP; qualified staff at the quality assurance department are already in place. Resp: Client Stage: Prepa ration Risk Management: Recurrent: Due Date: 01-Oct-2012 Frequency : A tariff study will be conducted focused on protecting poor households. Resp: Client Stage: Imple menta tion Risk Management: Recurrent: Due Date: 01-Sep-2013 Frequency : Status: Compl eted Status: Not Yet Due PWA in consultation with the CMWU will conduct broad-based consultations; communicate progress achieved by the project to enhance customer confidence and trust. Resp: Client Stage: Imple menta tion Program and Donor Rating Moderate Description: Parallel financing by IsDB may face some problems and be affected by them. Donors coordination may not be effective, which may jeopardize project implementation Risk Management: Recurrent: Due Date: 20-Dec-2013 Frequency : Status: Not Yet Due CMWU and IsDB have signed agreements on financing the agreed activities. IsDB expressed interest to the Bank team to support the CMWU and the water sector in Gaza. Resp: Client Stage: Prepa ration Risk Management: Recurrent: Due Date: 31-Mar-2012 Frequency : Status: Compl eted Involved donors have started coordination at an early stage of project preparation and agreed to enhance coordination during implementation. Joint supervision missions will be conducted, along with regular communication among the involved parties. Resp: Bank Stage: Prepa ration Recurrent: Due Date: 30-Mar-2012 Frequency : Status: Compl eted 44

55 Delivery Monitoring and Sustainability Description: CMWU is unable to improve its financial standing and operational sustainability to operate and maintain the infrastructure investments. Overall Risk Implementation Risk Rating: Description: High Rating Substantial Risk Management: Measures were employed in project design to reduce (i) the operational costs of the utility and (ii) improve revenues. Resp: Client Stage: Imple menta tion Risk Management: Recurrent: Due Date: 31-Dec-2015 Frequency : Status: Not Yet Due External independent M&E specialist will be hired by the PWA to monitor project progress and evaluate CMWU operations and management functions. Resp: Client Stage: Imple menta tion Risk Management: Recurrent: Due Date: 31-Dec-2015 Frequency : Status: Not Yet Due CMWU will take measures and will sign MOUs with municipalities to ensure improved cost recovery. Milestones have been set and agreed. Resp: Client Stage: Imple menta tion Recurrent: Due Date: 31-Dec-2015 Frequency : Status: Not Yet Due Due to the volatile political conditions. PWA and CMWU are unable to meet the implementation requirements, and collective donors and Client coordination are not sufficient during implementation 45

56 ANNEX 5: IMPLEMENTATION SUPPORT PLAN COUNTRY: GZ- GAZA WATER SUPPLY AND SEWER SYSTEMS IMPROVEMENT PROJECT (101289) Strategy and Approach for Implementation Support 1. The Gaza Water Supply and Sewage Systems Improvement Project will entail high risks during implementation, primarily due to the volatile political and security situation in Gaza. The Project will benefit from the long experience of the Bank working with the Palestinian Water Authority to implement projects in Gaza. The project will also benefit from the ongoing Water Sector Reform Initiative (WSRI) that is being led by PWA with support from the World Bank, AFD, and Sida 18. WSRI is, inter alia, reorganizing PWA to more effectively delineate and execute policy and regulatory functions. It will also strengthen PWA s decentralized capacity to support project activities in Gaza. 2. The Bank and PWA have supported the establishment and operation of the regional water utility for Gaza, the Coastal Municipalities Water Utility, through a series of projects, the most recent of which was the Second Gaza Emergency Water Project (GEWP II), which closed in January Through that initiative a Project Management Unit was established that will continue to function as a decentralized unit of PWA in Gaza to manage project implementation. 3. Entry of goods, equipment and consultants to Gaza may be constrained by restrictions imposed by the Israeli Government. Both the GEWP II and the Northern Gaza Emergency Sewage Treatment Project (NGEST) have established effective modus operandi with the Israeli authorities, represented by the Coordinator of Government Activities in the Territories (COGAT) to facilitate timely clearances and entries to Gaza. These arrangements will be continued under this new project. 4. A separate Designated Account for each financier will be opened by the MoF under the Central Treasury Account, and will be used solely for this particular project. The PWA will be responsible for managing the DA and making all payments directly to contractors, consultants, and suppliers, including the incremental and operating costs of the PMU. Contracting will primarily be with local contractors based in Gaza to minimize security and political factors from impeding the execution of tasks. Contract management will be centralized at the PWA and it will have the sole responsibility to disburse to suppliers, contractors, and consultants on behalf of the project. The Bank s technical team will review and approve project payment requests before further processing to provide assurance that payment related activities correlate to goods actually supplied and installed and to the physical progress of the operations. An independent external auditor, acceptable to the Bank, will be hired on a competitive basis to perform an external audit of the project s annual financial statements, in accordance with a ToR acceptable to the Bank. In addition, the ToR will be expanded to include a provision for annual technical audits of the project. 5. The PWA will maintain separate financial transactions in its accounting software by opening separate cost centers for each financer and will maintain complete and orderly supporting documentation for each contract, including signed contracts and invoices, and other related supporting materials, readily available for audit. 18 This support is being provided through the Water Sector Capacity-Building Project and the Technical and Policy Advisory Team which that project finances. 46

57 Implementation Support Plan 6. Although the project entails, for the most part, a continuation of the operational support for the CMWU that was established through previous Bank support, the volatile environment for implementation will require close implementation support from the Bank s task team in order to monitor the effectiveness of and support the PWA s monitoring and evaluation systems. In particular the CMWU s evolving capacity to finance and manage increasingly complex wastewater treatment plants and seawater desalination facilities will need to be monitored. Water sector technical staff based in Gaza will provide day-to-day supervisory support and will also be able to flag issues that may require other specialist inputs form either PWA or the Bank in a timely manner. 7. The Bank s Task team will carry out overall supervision missions at least every six months. To the extent possible, these missions will be undertaken as a component of broader water sector program supervision missions in order to allow for the most efficient use of limited Bank resources and also to identify and coordinate synergies with related activities supported by the Bank and other donor partners. These sector supervision missions will also be joined by representatives from participating donor agencies, principally the IsDB. 8. In addition to (and coordinated with) technical supervision missions, the task team s financial management and procurement specialists will carry out FM and procurement supervision missions on a quarterly basis. 9. Environmental and social safeguards supervision and support will be centered on the ESIA and ESMP that were prepared as a part of project preparation. The task team s environmental and social specialists will monitor implementation of the ESMP through their active participation in the bi-annual technical supervision missions. Supplemental missions may also be undertaken if necessary to address any safeguards issues of particular concern. A supplementary ESIA will be carried out for any additional activities that may be identified in the course of project implementation. 10. Estimated implementation support requirements are summarized in the following table: Time Focus Skills Needed Resource Estimate Strengthening the Economist 1 SW financial viability FM 2 SW of the CMWU; Specialist Developing Procurement operation and Specialist 3 SW management O&M of capacity for Consultant input wastewater wastewater treatment management plants systems (service or management contract); Ongoing FM and procurement management First twelve months months Developing operation and FM Specialist Partner Role IsDB will take part in technical supervision missions. AFD may provide technical assistance to assess and advise on wastewater management aspects. 2 SW/year IsDB will continue to take 47

58 Time Focus Skills Needed Resource Estimate management Procurement 3 SW/year capacity for Specialist seawater Desalination Consultant input desalination specialist facilities and bulk water distribution (service or management contract(s)) Ongoing FM and procurement management Other Partner Role part in technical supervision missions. Skills Mix Required Skills Needed Number of Staff Weeks Number of Trips Comments Fin. Mgmt. 2 SW per year Locally based, 4x Procurement 3 SW per year trips per year; Envir. Safeguards 1 SW per year Others 2 x per year 1 SW per year Social Safeguards WSS Engineering 8 SW per year WSS Institutional 4 SW per year Development Partners Name Institution/Country Role IsDB Islamic Development Bank Parallel co-financier 48

59 ANNEX 6: RETROACTIVE FINANCING West Bank and Gaza: GZ-Gaza Water Supply and Sewage Systems Improvement Project (P101289) The following tables show the expenses that the PWA incurred (will incur) during the project preparation from January1, 2012 until December 31, US$ 925, Table (1): PWA/PMU Retroactive Financing 1. Contracts Total US$300, No. Works 1 2 Goods Contract No. NS W 01 02/2012- GWSREP NS W 02 02/2012- GWSREP NCB G 01-05/2012- GWSREP- Lot No.1 NCB G 01-09/2011-WB - Lot No. 2 NCB G 01-05/2012- GWSREP - Lot No. 3 Consultancy Services CS 03-10/2011- AFIII CS 01-07/2011- AFIII CS 04-10/2011- AFIII Contract Description Electromechanical rehabilitation and upgrading of water wells, including pump replacements Electrical Service Contract for CMWU Water & Wastewater Facilities Supply of Electromechanical spare parts, equipment and materials for sewage lifting stations, fittings, fixtures and pipes for WW distribution networks and 2000 water meter Consultancy service for preparation of CMWU strategic plan Consultancy Services for Design of major water supply projects Environmental Impact Assessment Signing Date 04-Mar Mar- 12 Contract Amount US$ 38, , Contractor Al Abnia Al Haditha Co. Electro for Trade & Contracting Co. Status Closed Closed Paid/ Not Paid Not Paid Not Paid 3-Jan-12 59, Gemco Closed Not Paid 3-Jan-12 33, Jan-12 68, Jan-12 24, Jan-12 30, Jan-12 26, Saqqa and Khudary Abed El Aziz Abu Rabi Dr. RefatRostom Engineering and Consulting Management Center Engineering and Consulting Management Center Closed Closed Ongoing Ongoing Ongoing Not Paid Not Paid Not Paid Not Paid Not Paid 49

60 Table (2); PMU Management Cost Item Month 9 Months (April-December) PMU salaries US$65, US$585, Office Space Rent US$4, US$40,000 Total US$69, US$625,

61 ANNEX 7: CMWU BUDGET FOR 2012 West Bank and Gaza: GZ- Gaza Water supply and Sewage Systems Improvement Project (P ) Table (1); CMWU Budget for 2012 Proposed Budget for the CMWU Operating Cost Description Cost Centers Total Allocated Southern WB CMWU Acc. DBSWDP Regions 35 7 Employees/ % from Employees STAFF COSTS Employees 5 Labors Employees 1 $2,456,883 $760,141 $339,983 $96,500 $1,260,259 Salaries & Benefits - Core Staff Salaries & Benefits - Temporary Staff 2,283,250 $760, $188, $84, $1,250, ,832 $86, $12, $10, Area Managers 18,000 $18, End of Service (31/12/2011 and Projects 20,090 $20, During 2012) Accrued End of Service (2010/2011 Should be transferred to ESB Acc.) 26,711 $26, % from % from 142% from 100% from OPERATING 82% from ACTIVITY COSTS 2 $756,337 $186,000 $436,050 $71,050 $63,237 Rental of Office Space 100, ,000 Utility Charges/ Electricity & Others 197, ,053 50,526 9,840 Fuel 92,421 77,947 14,474 Communication Cost 50,157 37,000 13,157 Stationary, Office Supplies & Consumables 42,000 18,000 21,000 3,000 Vehicles Rental Cost 55,200 16,800 28,800 9,600 Vehicles Maintenance (PMU) Maintenance Cost for Equipment 12,000 12,000 15,000 15,000 Insurance Cost 50,000 50,000 Per diem Allowances 36,000 36,000 Audit & legal Fees 30,340 25,000 5,340 51

62 Bank Charges 2,800 1,200 1, Other Miscellaneous 73,000 45,000 3,000 25,000 10% from 10% from 2011 PROJECTS COST/ 2011 Maintenance for Heavy 3 Machinery $10,000 $10,000 $0 $0 $0 2005& % Rewards for BOD 4 $43,200 $0 $43,200 $0 $0 5 Total Operating Budget Total Forecasted Revenue $3,266,420 $956, $819, $167, $1,323, $2,623,752 $956, $485, $140, $1,042, Total Budget Deficit ($642,667.30) $0.00 ($333,726.26) ($27,550.00) ($281,391.04) 52

63 ANNEX 8: WB AND ISDB INVESTMENTS West Bank and Gaza: GZ- Gaza Water Supply and sewage Systems Improvement Project (P101289) Map (1): WSSSIP Proposed Investments in Gaza Strip 53