Project Name Turkey-Cesme-Alacati Water Supply and Sewerage project (

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Report No. PIC5013 Project Name Turkey-Cesme-Alacati Water Supply and Sewerage project ( Region Sector Project ID Borrower Implementing Agency Environment Category Europe and Central Asia Water Supply and Sewerage TRPE8985 Date This PID Prepared March, 1997 Projected Appraisal Date May, 1997 Union of Cesme and Alacati Municipalities Ministry of Tourism Ms. Elmas Arisoy, Project Manager ATAK Project Management Unit Ismet Inonu Bulvari, No. 5 Bahcelievler Ankara, Turkey Tel: Fax: Projected Board Date November, 1997 Country and Sector Background 1. Turkey has currently a population of about 61 million which has grown at an average annual rate of about 2.3 percent during the last decade. About 60 percent of the total population lives in urban centers. The per capita income was about US$2,700 in Although there is little absolute poverty, inequality is high, with considerable differences in income between regions and between rural and urban areas. Overall unemployment remains slightly above 10 percent. Educational enrollment at all levels has increased considerably since the 1970s. Most health indicators including infant mortality rates have shown substantial improvement over the same period but regional disparities remain significant. 2. Tourism is an important element of Turkey's economy. According to Turkey's Seventh Five-year Development Plan, the number of tourists increased from about 4.5 million in 1989 to about 6.5 million in 1994, generating a net tourism revenue of about US$3.5 billion, or about 19t of total merchandise exports (US$18.1 billion). Over the same period the tourism sector accounted for around 2.0w of total fixed capital investment, and total bed capacity increased from about 150,000 to about 300,000. Current plans call for a continuous expansion and the objective pursued is reach a total bed capacity of about 800,000, attract about 13 million visitors by the year 2000 and generate a net tourism revenue of about US$8.5 billion. However, as recognized by the Seventh Plan, achievement of these ambitious targets is put at risk by the persistence of severe insufficiencies in tourism related infrastructure and services. These, together with growing B

2 deterioration of environmental conditions in the main tourism host areas risk, if not remedied shortly, the loss of Turkey's competitiveness vis-a-vis other Mediterranean countries. Project Area 3. The project area is comprised of the two municipalities of Cesme and Alicati, located on Turkey's Aegean coast on the Cesme peninsula about 80 kms West of Izmir, Turkey's third largest city and capital of the Izmir Province. The Cesme peninsula is one of the most sought after recreational and vacation regions on the Aegean coast and a major attraction for domestic and foreign tourists. Up to the 1960's small fishing and agricultural communities, the two municipalities have become the main tourism centers of the area and have currently a total permanent resident population of about 20,000 (about 13,000 and 7,000, respectively), to which are added about 80,000 temporary residents and tourists during the summer period, from May to October. The area has a total current total bed capacity of about 10,500 beds in about 240 hotels and pensions and over 10,000 summer houses. The resident population is projected to increase to about 50,000 by the year 2010 while the tourism and temporary summer population is expected to reach about 120,000, with a total resulting peak population of about 170,000 during the summer period. In the longer term, growth is expected to decrease rapidly with the area's capacity peaking at around 220,000 due to environmental protection restrictions on land available for development. The area is located in a zone of seismic activity and, although no major earthquake has affected the project area directly since the beginning of the century, several earthquakes have occurred in other parts of the Izmir Province. Objectives 4. The primary objectives of the project are to: (a) to address the needs for water supply, sewerage, wastewater treatment services in ways that are financially affordable and represent technically satisfactory least cost solutions; (b) to develop new institutional and financial arrangements for the management of the above services, including the involvement of private sector operators in service delivery; and (c) to improve the environmental conditions in the project area and reduce the risk for health hazards that could adversely affect the local population and tourism industry. Description 5. To achieve these objectives, the project would comprise the following components: (a) Improvement of Water Supply - through provision of operational equipment and development of new water supply sources; - 2 -

3 (b) Rehabilitation of Sewerage System - through construction of new trunk sewer lines, rehabilitation and repair of the existing sewerage network, retrofitting of pumping stations, and installation of preliminary treatment equipment; and (c) Institutional Development - through provision of technical assistance to Cesme-Alacati Union for (i) preparation and implementation of the contractual arrangements for hiring of a private operator for the water supply and sewerage services, and (ii) management and supervision of project execution. Financing 6. The cost of the above components and financing arrangements have not yet been finalized but a total project cost of about US$25 million is currently estimated with about half of the required financing expected from the Bank. Implementation 7. Cesme and Alacati are forming a Union to undertake the project and to provide water supply and sewerage services. The Project Management Unit of the Ministry of Tourism will provide guidance and support to the Union during project preparation and implementation. Project financed civil works, equipment supply and other activities will be the responsibility of the Union which will engage private contractors and suppliers in accordance with World Bank procurement guidelines. A Project Implementation Unit will be established to assist the Union, which would engage a private company to operate the water supply and sewerage systems. Sustainability 8. Three features of the project will ensure sustainability. Cesme and Alacati municipalities would pool their efforts and resources into a special purpose union established for the development and management of their combined water supply and sewerage systems. The operation of the systems would be entrusted to an experienced private operator under lease and/or management contract. Financing availability for operations, maintenance, debt service and further investment will be protected by an automatic tariff adjustment mechanism. These institutional arrangements will be substantially in place before consideration of the Bank financing by the Bank's Board of Directors. Lessons learned from past operations in the country/sector 9. The 1995 OED Water Sector Report notes that although projects have generally been successful in achieving their physical objectives, limited success has in general been obtained in improving the institutional performance of water and sewerage utilities. Among the reasons cited were inadequate linkage between institutional and physical objectives, lack of management and financial autonomy of utilities, and excessive complexity. More recently, the experience of the Antalya Project (Loan No TU) - 3 -

4 has shown the importance of an early start on the arrangements for engaging a private operator. These lessons have been taken into account in the design of the project. Poverty Category 10. NA Environmental Aspects 11. For the purpose of O.D on Environmental Impact Assessment, the Project has been classified as Category B, which requires a limited environmental review to determine potential negative environmental impacts and propose mitigation measures where needed, as well as to identify opportunities for environmental enhancement. The environmental assessment was carried out as part of the feasibility study and has been approved by the Ministry of Environment (see Annex). 12. The project would have minor negative environmental effects and would not raise any resettlement or property rights issues since it focuses primarily on rehabilitation of existing networks and facilities. All works would be executed either within the premises of existing facilities or the rights of way of the public street network and no acquisition or expropriation of new land would be required. The project would not affect any known archeological or historical site. Contractors would be responsible, under the clauses of the bidding documents, for maintaining work sites pollution free, returning sites to their original condition, and minimizing dust, noise and other work-related nuisances. They would also be responsible for notification of the discovery of, or any problem related to, a previously unknown historical site. The proposed project would not deal with international waters and, therefore, does not require a notification for the purposes of O.D Program Objective Categories 13. The project would introduce private sector participation in the operation of water supply and sewerage services and would contribute to improving environmental conditions and reducing health hazards. The gender impact of the project is expected to be positive because improved access to and reliability of water supply tends to alleviate existing burdens on women. Water and sewer tariffs would not exceed 5% of monthly income of the lowest income groups, which is the Bank's rule of thumb for maximum level of water/sewer charges for poor households. Project Benefits 14. The proposed project would contribute to the improvement of the quality and reliability of water supply throughout the project area, particularly during the summer period when demand generated - 4 -

5 by tourism, the area's single most important economic activity, is at its peak. The project would secure the permanence of supply of water of acceptable quality to the area's tourism facilities throughout the next decade. The investments of the proposed project in the rehabilitation of the sewerage network and installation of preliminary treatment equipment would help prevent the occurrence of future public health and environmental hazards. Another benefits would be: i) the change in the water pricing regime which, inter alia, would allow the establishment of a well-operated and financially viable water and sewerage system, managed by a private operator under a lease or management contract arrangement; and (ii) the potential for replication in other cities. Project Risks 15. The project faces three groups of risks: institutional/political, financial, and technical. The institutional/political risks relate primarily to the novelty of the proposed service Union and the possibility of political interference in its operations and finances. This risk is mitigated by the existence of precedents for the special purpose Union in Turkey, the strong support of Central Government authorities for this institutional approach, design of the Cesme-Alacati Union bylaws to specifically offset this risk and the creation of contractual arrangements for regular adjustment of tariffs. The financial risks arise from the possibility of a shortfall in counterpart financing and from the possibility of poor performance by Cesme-Alacati Union due to its lack of experience. These risks are mitigated by the commitment to the project concept demonstrated by the Union's member municipalities thus far and their consciousness that any failure in resolving the water supply and sewerage problems would have a negative effect on the local economy. The technical risks are those inherent in the implementation of a first-time operation by a new beneficiary lacking familiarity with World Bank procedures. These risks are mitigated by the provision of technical support to Cesme-Alacati Union for the duration of the project and the early completion of design and bidding documents for the first 2 years of project implementation. The possible effects of the above risks have been assessed in the sensitivity analyses for the economic evaluation. Contact Point: Mr. Bernardo Gomez, Task Manager The World Bank 1818 H Street N.W. Washington, D.C Telephone No.: (202) Fax No.: (202) Note: This is information on an evolving project. Certain components may not necessarily be included in the final project. Processed by the Public Information Center week ending April 25,

6 ENVIRONMENTAL IMPACT AND MITIGATION ANNEX EXISTING CONDITIONS 1. The present wastewater system for most of the project area consists of septic tanks, effectively operating as holding tanks, which are emptied regularly by tankers. The sewage is discharged at a number of locations resulting in severe localized impacts. Only the town of Alacati and a small seasonal summer housing area have piped collection systems. These systems have physical problems and discharge untreated wastewater into streams. In addition, there are discharges to the marine environment which include diffuse inputs from septic tanks via groundwater and from surface watercourses from small package treatment plants at summer holiday facilities. 2. Water to the area has been supplied mainly from springs, and from a number of small wells located around the municipalities. The main water source is becoming affected by saline intrusion caused by over pumping. Some of the small wells, which are not generally very deep, suffer contamination from the present method of sewage disposal in the area and from boat and shipping discharges. Monitoring data indicate that eutrophication is not a significant factor in the region. 3. The vegetation of the Project Area generally comprises plants such as olive trees, spring shrubs and wild grasses. None of the areas of land required for the Project are of significant nature conservation value. The marine ecology is typical of semienclosed seas at this latitude, with relatively low species diversity and abundance. Within the coastal zone there are no designated shell fisheries, although there are some small commercial and recreational fishery activities. A large part of the project area has recently been designated as a Natural Protection Zone in an attempt to control development. In addition, the area around the main water source has been designated as an Archaeological Protection Zone. POTENTIAL IMPACT OF THE PROPOSED PROJECT 4. The proposed project would significantly improve the quality of the water supply and sewerage services in the Municipalities of Cesme and Alacati and would bring a number of positive environmental impacts to the area such as: -- improve potable water quality as a result of reduced saline intrusion and more effective disinfection; -- improve the management and conservation of groundwater resources; -- possible effects on groundwater flows and marine water quality through a change in salinity; -- improve the ecology and aesthetics in locations where wastewater is presently discharged or overflows; -- improve groundwater quality by reducing wastewater - 6 -

7 contamination; and -- generate jobs for the local people during the construction period. 5. The negative impacts of the project would generally be of low significance, relating mainly to short-term construction period; they are: -- temporary localized noise, dust, and disruption to vehicular and pedestrian traffic; -- limited but possible adverse impact on archaeology at main water source; -- increase in wastewater discharges to the Aegean Sea and localized adverse impact on marine ecology; -- adverse visual impact of wastewater treatment works; -- temporary construction phase ecological disturbance at Alacati wastewater treatment works site; and -- possible occasional localized odor emissions from treatment works and pumping stations. MITIGATION AND MONITORING ACTION PLAN 6. The mitigation measures to be adopted include the scheduling of construction work outside the summer tourist season; using noise attenuation screens and ear defenders; aesthetic improvements and landscaping at visible sites; liaising with local residents; avoiding fuel and chemical spillages; minimizing tree felling and loss of agricultural land; implementing dust control measures. 7. The negative impact of the discharges into the sea would be mitigated through the preliminary treatment and the submarine outfall. Given the importance of tourism and associated bathing and water-based recreation in the area, the Project would include actions to systematically monitor the sea water quality