CONFORMED COPYApril 25, 2002

Mr. Valeri A. BorodinDirectorMunicipal Enterprise “Vodokanal” of Trusovsky District of Astrakhan7 Geologov Street Astrakhan 414047 Russian Federation

Re: Global Environmental Facility (GEF)Matched Small Grants Program Grant for Increase of Ecological Safety of Treated Sewage Thrown Off into the River Volga ProjectGrant Number UN003785-RU002Letter Agreement_________________________________________________

Dear Mr. Borodin:

I am writing on behalf of the International Bank for Reconstruction and Development (the Bank) acting as Executing Agency of the Priority Investment Portfolio Project (PIPP) to indicate the Bank’s agreement to award to the Municipal Enterprise “Vodokanal” of Trusovsky District of Astrakhan (the Recipient) a Grant in an amount not exceeding ninety-nine thousand seven hundred U.S. dollars (US$99,700) (the Grant) under Component 3, the Matched Small Grants Program (MSGP) of the PIPP. The PIPP is a part of the GEF Project “Addressing Transboundary Environmental Issues in the Caspian Environment Programme (CEP)” (TF UN003785) GlobalEnvironment Facility GlobalEnvironment Facility implemented by the United Nations Development Program (UNDP). The Bank and UNDP, through a letter dated January 25, 2002, have agreed that the resources of the Grant be provided directly to the Recipient under the terms and conditions set forth in this letterLetter Agreement.

The Grant is made in response to the Recipient’s request for financial assistance and for the purposes and on the terms and conditions set forth in the Annex I to this Letter Agreement including Attachments. The objectives and description of the Increase of Ecological Safety of Treated Sewage, Thrown Off into the River Volga Project under MSGP are set forth in the Project Description (Annex II). The Recipient, by confirming its agreement below, represents that it is authorized to contract the Grant for the said purposes and on the said terms and conditions.

Please confirm your agreement with the foregoing, on behalf of the Recipient, by signing, dating, and returning to us the enclosed copy of this letter Letter Agreement. Upon receipt by the

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Bank of the copy of this Letter Agreement countersigned by you, Tthis agreement will become effective as of onthe date of the countersignaturethe Bank receives the duly countersigned copy of this letter.

Very truly yours,

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

Acting as an Executing Agencyof the Global Environment Facility

By /s/ Laura TuckDirector

Environmentally and Socially Sustainable Development Sector UnitEurope and Central Asia Region

AGREED:MUNICIPAL ENTERPRISE “VODOKANAL” OF TRUSOVSKY DISTRICT OF ASTRAKHAN

By: /s/ Valeri A. Borodin Authorized Representative

Date: May 18, 2002

ANNEX I

1. Purposes, Terms and Conditions

1.1. The activities for which the Grant is given are as follows The Grant is made for the purposes of implementation of the Increase of Ecological Safety of Treated Sewage, Thrown Off into the River Volga Project (the Project) in accordance with the MSGP of the Bank executed PIPP. The activities (the Activities) for which the Grant is given are as follows:

(a) install mechanical sewage treatment equipment at the Trusovsky Vodokanal wastewater treatment plant in Astrakhan;

(b) repair and rehabilitate existing mechanical sewage treatment equipment; and

(c) replace existing aeration system with high-performance aeration system “Polypor”.

1.2. The Grant is made on the condition that the Recipient shall provide 100% matching funding to carry out the Activities thereby at least 50% of the funds shall be in cash and up to 50% shall be in-kind contributions.

1.3Any proposal to introduce modifications to any provisions of this Annex I including its Attachments affecting scope, schedule, products, delivery or budget shall be furnished to the Bank in writing for its prior review and approval. However, the reallocations in an amount of up to 20% to any items in the MSGP Project Budget (Attachment II, A) may be made by the Recipient without prior review and approval by the Bank.

2. Execution of the Activities

2.1. The Recipient shall: (a) carry out the activitiesActivities outlined above with due diligence and efficiency; (b) promptly provide the funds, facilities, services and other resources required for that purpose; (c) furnish to the Bank all information covering suchthe Activities and the use of the proceeds of the Grant as the Bank shall reasonably request; (d) from time to time exchange views with the Bank’s representatives on the progress and results of such activities the Activities; and (e) take all necessary measures required to enable the Bank to visit the territory of the Russian Federation for purposes related to the Grant.

3. Procurement

3.1Except as the Bank shall otherwise agree, procurement of goods, works and services shall be governed by the provisions of Attachment I (Procurement Plan) to this Annex I and by the “Manual for Conducting Very Small-Value Procurement for Small Grants, Loans and Credits” issued in October 2001 by the Bank and International Development Association.

3.2. The Recipient shall ensure that all imported goods to be financed out of the proceeds of the Grant shall be insured against hazards incident to the acquisition, transportation and delivery thereof to the place of use or installation, and that any indemnity for such insurance is payable in a freely usable currency to replace or repair such goods. The Recipient shall ensure that any facilities relevant to the Activities are at all times operated and maintained in accordance with appropriate practices and that any repairs or renewals of such facilities are promptly made as needed.

3.3. The Recipient agrees that: (i) the goods, works and services to be financed out of the proceeds of the Grant shall be purchased at a reasonable price, account being taken also of other relevant factors such as time of delivery and efficiency and reliability of the goods, works and, in case of services, of their quality and the competence of the parties rendering them; and (ii) such goods and services shall be used exclusively in the carrying out of the Grant activities Activities.

4. Payment of Grant

4.1. The Recipient shall open on its books an account (the Grant Account), and may withdraw therefrom for expenditures in respect of the reasonable cost of goods, works and services required

for the Activities and financed out of the proceeds of the Grant in accordance with Attachment III (MSGP Project Budget) to this Annex I.

4.2. Notwithstanding the provisions of paragraph 4.1 above:

No withdrawals shall be made from the Grant proceeds: (i) for payments made for expenditures prior to the date of signature of this Letter Agreement by the Bank, except that withdrawals, in an aggregate amount not exceeding US$2000 may be made on account of payments made for expenditures before that date but after February 6, 2002; (ii) on account of payments for any taxes levied by or in the territory of the Recipient; (iii) on account of expenditures in the territories of any country which is not a member of the Bank or for goods produced in or services supplied from such territories; or (iv) for the purpose of any payment to persons or entities, or for any import of goods, if such payment or import, to the Bank’s knowledge, is prohibited by a decision of the United Nations Security Council taken under Chapter VII of the Charter of the United Nations.

4.3. use, inThe Grant funds will be transferred to the Grant Account in United States dollars and deposited by the Bank to the following bank account of the Recipient:

Account number: 40702840005040200039The Joint-Stock Commercial Savings Bank of the Russian FederationBranch 6114 Trusovsky48 Dzerzhinskogo Street Astrakhan 414006SWIFT code: SABRUMM SE1 SAVINGS BANK OF RUSSIAN FEDERATION, POVOLZHSKY OFFICE, BR. 6114 TRUSOVSKOE

4.4. The Grant funds will be transferred to the Recipient in five payments in accordance with Sections 4.5 of this Annex I.

4.5. (a) The release of first payment of the Grant in an amount not exceeding fifteen thousand United States dollars (US$15,000) will take place upon: (i) receipt of a signed copy of this Letter Agreement; and (ii) submission by the Recipient to the Bank of evidence that the first counterpart contribution in an amount not less than fifteen thousand United States dollars (US$15,000) equivalent was deposited to the Grant Account from its sources for the benefit of the Project.

(b) The release of second payment of the Grant in an amount not exceeding twenty thousand United States dollars (US$20,000) will take place upon: (i) submission by the Recipient to the Bank of evidence that the second counterpart contribution in an amount not less than twenty thousand United States dollars (US$20,000) equivalent was deposited to the Grant Account from its sources for the benefit of the Project; and (ii) receipt by the Bank of a report on Project implementation that is satisfactory to the Bank.

(c) The release of third payment of the Grant in an amount not exceeding twenty thousand United States dollars (US$20,000) will take place upon: (i) submission by the Recipient to the Bank of evidence that the third counterpart contribution in an amount not less than twenty thousand

United States dollars (US$20,000) equivalent was deposited to the Grant Account from its sources for the benefit of the Project; and (ii) receipt by the Bank of a report on Project implementation that is satisfactory to the Bank.

(d) The release of fourth payment of the Grant in an amount not exceeding twenty five thousand United States dollars (US$25,000) will take place upon: (i) submission by the Recipient to the Bank of evidence that the fourth counterpart contribution in an amount not less than twenty five thousand United States dollars (US$25,000) equivalent was deposited to the Grant Account from its sources for the benefit of the Project and (ii) receipt by the Bank of a report on Project implementation that is satisfactory to the Bank.

(e) The release of fifth payment of the Grant in an amount not exceeding nineteen thousand seven hundred United States dollars (US$19,700) will take place upon: (i) submission by the Recipient to the Bank of evidence that the fifth counterpart contribution in an amount not less than four thousand two hundred fifty-seven United States dollars (US$4,257) equivalent was deposited to the Grant Account from its sources for the benefit of the Project; and (ii) receipt by the Bank of a final report on Project implementation that is satisfactory to the Bank.

4.6. Except as otherwise provided in Sections 4.5 (a), (b), (c), (d) and (e) above, the Bank will transfer the Grant in accordance with the Attachment III (MSGP Disbursement Schedule) to this Annex I.

4.7. Unless the Bank shall otherwise agree, any portion of the Grant unused at a date two years from the date of signatureof of this Lletter Agreement by the Bank shall be immediately returned to the Bank

4.8. The Bank will conduct periodic evaluations of the Activities under the Grant at any time during the implementation of the Activities to monitor progress in Project implementation or within three (3) years after the completion of the Activities of the Project to inspect financial and other Project records. To this end, the Recipient shall, upon the Bank’s request, enable the representatives of the Bank to visit their sites and facilities.

5. Accounts, Audits and Reports

5.1. Except as otherwise provided in Section 5.2 below, the reports required for the carrying out of the Activities and financed out of the proceeds of the Grant shall be governed by the provisions of the Part A, Part B, and Part C of Attachment IV (Reporting Instructions for the Matched Small Grants Program) to this Annex I.

5.2. The Recipient shall furnish to the Bank a final financial report on the use of the proceeds of the Grant and a final technical report on the outcome of the Activities financed by the Grant promptly upon completion of the activitiesActivities and in any event not later than sixty (60) days after the date of completion of the Activities in accordance with the Part B and Part C of the Attachment IV (Reporting Instructions for the Matched Small Grants Program) to this Annex I.

5.3. If the Bank shall have determined at any time that any payment out of the Grant Account was made for an expenditure or in an amount not eligible pursuant to this letterLetter Agreement, or was not justified by the evidence furnished to the Bank, the Recipient shall, promptly upon notice from the Bank, refund to the Bank an amount equal to the amount of such payment or the portion thereof not so eligible or justified.

6. Suspension and Cancellation

6.1. The Bank may at any time, by notice to the Recipient, suspend payment of any portion of the Grant if any of the following events has occurred and is continuing: (a) the Recipient has failed to comply with any of its obligations herein specified; and (b) the Recipient has failed to meet the matching and in-kind contribution requirements set forth in this Annex I including its Attachments.

6.2. The Bank may, by written notice to the Recipient, terminate the right of the Recipient to make further withdrawals from the Grant Account: (a) at any time after the right of the Recipient to make withdrawals from the Grant Account shall have been suspended pursuant to the provision of paragraph 6.1 above; or (b) if the Recipient shall have failed to take action, satisfactory to the Bank, within six months after the effective date hereof, to carry out the Activities.

7. Disclosure of Information

7.1. The Bank may include basic information about the Project and the Grant in periodic reports it makes available to the parties of the CEP and the public at large.

7.2. The Recipient shall ensure that any products issued by the Recipient as a result of the Activities, such as studies, manuals, newsletters, or brochures shall clearly indicate that the Activities in question have received funding from the MSGP of the PIPP executed by the Bank.

8. Settlement of Disputes

8.1. The Bank and the Recipient will use their best efforts to settle amicably any dispute, controversy, or claim arising out of or relating to this Letter Agreement. Where the Bank and the Recipient wish to seek an amicable settlement through conciliation, the conciliation will take place in accordance with the UNCITRAL Conciliation Rules. Any such dispute which is not settled by agreement of the parties thereto, will be finally settled by arbitration in accordance with the UNCITRAL Arbitration Rules as at present in force. The number of arbitrators will be three. The place of arbitration will be Washington, D.C., U.S.A. In the event of a conflict between the UNCITRAL Arbitration Rules and the terms of this Letter Agreement, the terms of this Letter Agreement will govern.

Attachment I to Annex I

PROCUREMENT PLAN

Description of Contract Packages

Estimated Cost (US$)

Procurement Method (*)

Contract Signature

Start Finish Remarks

1 2 34 5 6 7

GOODS

Comminuting screens CS-600

12,654.00NS

04/2002 04/2002 05/2002

System of aeration “Polypor” (**)

1,747.00S

07/2003 07/2003 07/2003

Stop valve DY-400 195.00 S 07/2003 07/2003 07/2003

Valve DY-300 112.00 S 07/2003 07/2003 07/2003

Steel eductor DY-530 116.00 S 07/2003 07/2003 07/2003

Blowing engines 28,877.00 NS 06/2003 06/2003 07/2003

Pumps 7,398.00 S 08/2002 08/2002 08/2002

Overflow weirs 5,397.00S 08/2002 08/2002 08/2002

Ferro-concrete spouts

3,991.00 S 08/2002 08/ 2002 08/2002

02/2003 02/2003 02/2003Conveyer belt

2,724.00 S 08/ 2002 08/ 2002 08/ 2002

Cement

1,214.00 S 04/ 2002 04/ 2002 04/ 2002

solution

08/ 2002 08/ 2002 08/ 200202/2003 02/2003 02/200305/ 2003 05/ 2003 05/ 2003

Wire netting

134.00 S 04/ 200205/ 2003

04/200205/ 2003

04/ 200205/ 2003

Steel pipes of big diameter

1,989.00 S 04/ 2002 04/2002 04/ 2002

05/ 2003 05/ 2003 05/ 2003Painting material 2,517.00 S 04/ 2002 04/2002 04/ 2002

08/ 2002 08/ 2002 08/ 200202/2003 02/2003 02/200305/ 2003 05/ 2003 05/ 2003

Cable products 312.00 S 04/ 2002 04/ 2002 04/ 2002

Cast-iron valve gates D-150

772.00 S 05/ 2003 05/ 2003 05/ 2003

Adapter fitting 1,026.00 S 04/2002 04/ 2002 04/ 2002

05/2003 05/ 2003 05/ 2003Cement 84.00 S 04/2002 04/ 2002 04/ 2002

08/2002 08/ 2002 08/ 200202/2003 02/2003 02/2003

05/2003 05/ 2003 05/2003

1 2 34 5 6 7

Sand 47.00 S 04/2002 04/2002 04/2002

08/2002 08/2002 08/200202/2003 02/2003 02/200305/2003 05/2003 05/2003

Welding electrodes 824.00 S 04/2002 04/2002 04/2002

08/2002 08/2002 08/200202/2003 02/2003 02/200305/2003 05/2003 05/2003

Steel pipes of small diameter

2,319.00 S 05/2003 05/2003 05/2003

Lamps 1,274.00 S 04/2002 04/2002 04/2002

Concrete 7,942.00 04/2002 04/2002 04/2002

S

08/2002 08/2002 08/2002

02/2003 02/2003 02/2003

05/2003 05/2003 05/2003

Sawn goods 860.00 S 04/2002 04/2002 04/2002

08/2002 08/2002 08/2002

05/2003 05/2003 05/2003

Electric equipment 2,175.50 S 08/2002 08/2002 08/2002

05/2003 05/2003 05/2003Flat-rolled steel 8,671.00 S 04/2002 04/2002 04/2002

08/2002 08/2002 08/200202/2003 02/2003 02/200305/2003 05/2003 05/2003

Sheet steel 6,928.00 S 04/2002 04/2002 04/2002

08/2002 08/2002 08/200202/2003 02/2003 02/200305/ 2003 05/ 2003 05/ 2003

Round bar steel 6,970.00 S 04/2002 04/2002 04/2002

08/2002 08/2002 08/200202/2003 02/2003 02/200305/2003 05/2003 05/2003

Other consumable materials

8,047.50 S 04/2002 04/2002 04/2002

08/2002 08/2002 08/200202/2003 02/2003 02/2003

05/2003 05/2003 05/2003

SERVICES

1 234567

Keeping accounting and tax records and operations with hard currency

4,296,00SC03/200203/200203/2002

Preparation of technical documentation for reconstruction works

1,000.00SC08/200208/200208/2002

02/200302/200302/2003

TOTAL 122,613.00

Footnote:

(*) Abbreviations used for Procurement methods:S – Shopping (for goods contracts estimated at less than US$10,000 equivalent each) ÑOP – Comparison of Prices (for services estimated at less than US$10,000 equivalent each)

NS – National Shopping (for goods contracts estimated to cost US$10,000 or more) SC -- Selection of Consultants (for contracts estimated less than US$10,000 equivalent per contract)

(**) Aeration pipes for aeration system “Polypor” are provided by ME “Vodokanal” as in-kind contribution (581 m at total cost US$ 16,043.00)

Attachment II to Annex 1

MSGP PROJECT BUDGET A. Budget Summary

Category TotalExpenses

Grant (max.50% of

total)

In-Kind Contribution

(max.25% of total)

Matching (min. 25% of

total)

additional funds

1 Equipment 72,539.00 36,275.50 16,043.00 20,220.50 ------2 Supplies 60,821.00 30,410.50 ------ 30,410.50 ------3 Services 5,296.00 2,648.00 ---- 2,648.00

-----4 OPERATIONAL

COSTS61,344.00 30,366.00 ---- 30,978.00 ----

4.1. EMPLOYMENT COSTS/SALARIES

46,030.00 23,015.00 23,015.00

4.2. TRAVEL COSTS 1,300.00 650.00 650.00

4.3. TRANSPORTATION CHARGES

10,114,00 5,051.00 5,063.00

4.4 COMMUNICATION COSTS

1,600.00 500.00 1,100.00

4.5. OTHERS 2,300.00 1,150.00 1,150.00

TOTAL

200,000.00 99,700.00 16,043.00 84,257.00 -----

B. Detailed Budget

1. Equipment ( >100 USD per piece)

BUDGET LINE ITEMS UNITUNIT COST# OF UNITSEXPENSESGRANT (max. 50% of total)IN-KIND (max. 25% of total)MATCHING (min. 25% of total)

Comminuting screens CS-600Piece5.542.50211,085.005,542.50 ---- 5,542.50

Overflow weirSet2,698.5025,397.002,698.502,698.50

System of aeration “Polypor” Set 116,47.00151,747.00873.50 ----873.50

Aeration pipes for aeration system “Polypor” m27.6158116,043.0016,043.00

Stop valve DY-400Piece195.001195.0097.50 ----97.50

Valve DY-300Piece112.001112.0056. 00 ----56.00

Steel eductor

DY-550Piece116.001116.0058.00 ----58.00

Blowing enginePiece14,438.50228,877.0022,466.00 ----6,411.00

PumpsPiece924.7587,398.003,699.00----3,699.00

Subtotal for 1.72,539.0036,275.5016,043.0020,220.50

2. Supplies ( <100 USD per piece)

BUDGET LINE ITEMS UNITUNIT COST# OF UNITS EXPENSESGRANT (max. 50% of total)IN-KIND (max. 25% of total)MATCHING (min. 25% of total)

Ferro-concrete spouts Piece35.001143991.001,995.501,995.50

Conveyer beltSq.m.32.43842724.001,362.001,362.00

Cement solutionCub.m.25.9446.81214.00607.00607.00

Wire nettingSq.m.1.4990134.0067.0067.00

Steel pipes of big diameterm.18.941051989.00994.50994.50

Coloring materialKg.1.9512932517.001,258.501,258.50

Cable productsm.0.8413312.00156.00156.00

Cast-iron valve gate D-150piece55.114772.00386.00386.00

Adapter fittings piece19.00541026.00513.00513.00

Cement Ton42.00284.0042.0042.00

SandTon4.909.647.0023.5023.50

Welding electrodeKg.0.84976824.00412.00412.00

Steel pipes of small diameterm.6.43632319.001,159.501,159.50

Lampspiece37.5341274.00637.00637.00

Electrical equipmentpiece2175.5012175.501,087.751,087.75

ConcreteCub.m.38.92047942.003,971.003,971.00

Sawn goodsCub.m103.98.28860.00430.00430.00

Flat-rolled steelTon414.8720.98671.004,335.504,335.50

Sheet steelTon414.8716.76928.003,464.003,464.00

Round bar steelTon414.8716.86970.003,485.003,485.00

Other consumable materials8,047.504.023.754.023.75

Subtotal for 2.60,821.0030,410.5030,410.50

3. ServiceS

BUDGET LINE ITEMS UNITUNIT COST# OF UNITS EXPENSESGRANT (max. 50% of total)IN-KIND (max. 25% of total)MATCHING (min. 25% of total)

Keeping accounting and tax records and operations with hard currency 4,296.002,148.00-----2,148.00

Preparation of technical documentation for reconstruction works1,000.00500.00500.00

Subtotal for 3.5,296.002,648.00----2,648.00

4. operational costs

4.1. EMPLOYMENT COSTS/SALARIES: LIST ALL STAFF (NAME AND/OR POSITION) WORKING ON THE PROJECT

BUDGET LINE ITEMS UNITUNIT COST# OF UNITSEXPENSESGRANT (max. 50% of total)IN-KIND (max. 25% of total)MATCHING (min. 25% of total)

Project directorDay20,003537,060.003,530.00------3,530.00

Associate director of the ProjectDay10,003333,330.001,665.00-------1,665.00

WorkersDay4,00891035,640.0017,820.00------17,820.00

Subtotal for 4.1.46,030.0023,015.00-----23,015.00

4.2. Travel COSTS

Traveling expenses connected with participation in the Grantee Orientation in Bakupersons650.0021,300.00650.00650.00

Subtotal for 4.2.1,300.00650.00650.00

4.3. TRANSPORTATION CHARGES

Charges on transportation of workers1,114.00551.00-----563.00

Transport charges on transportation of the equipment4,000.002,000.00-----2,000.00

Transport charges on transportation of the system of aeration2,000.001,000.00----1,000.00

Transport charges on transportation of construction materials1,500.00750.00----750.00

Transport charges for machinery1,500.00750.00------750.00

Subtotal 4.3.10,114,005,051.005,063.00

4.4 COMMUNICATION COSTS

Telephonemonth50.0018900.00250.00650.00

Mailing costs (DHL)700.00250.00450.00

Subtotal for 4.4.1,600.00500.001,100.00

4.5. OTHERS (specify)

Translation of documentation1,000.00500.00500.00

Procurement related costs1,000.00500.00500.00

Bank fees300.00150.00150.00

Subtotal 4.5.2,300.001,150.001,150.00

Subtotal for 4.61,344.0030,366.0030,978.00

GRAND TOTAL for 1. –4.200,000.0099,700.0016,043.0084,257.00

Attachment III to Annex 1

MSGP DISBURSEMENT SCHEDULE

Number of

Installments

Schedule for Installment

MSGP GRANT

AMOUNT

IN-KIND CONTRIBU

TIONS AMOUNT

MATCHING FUNDS

AMOUNT

TOTAL AMOUNT

Òranche 1

Initial InstallmentÌarch 2002

$15,000 $15,000 $30,000

Òranche 2

July 2002 $20,000 $20,000 $40,000

Òranche 3

January 2002 $20,000 $20,000 $40,000

Òranche 4

April 2002 $25,000 $25,000 $50,000

Final Òranche

December 2003

$19,700 $16,043 $4,257 $40,000

TÎTAL $99,700 $16,043 $84,257 $200,000

TOTAL GRANT BUDGET: US$ 99,700TOTAL IN-KIND CONTRIBUTION: US$ 16,043TOTAL MATCHING FUNDing: US$ 84,257TOTAL PROJECT BUDGET: US$ 200,000

Attachment IV to Annex I

Reporting Instructions for the Matched Small Grants Program (MSGP)

A. GENERAL

The Matched Small Grant (MSG) beneficiary receives the grant in three or more instalments. The first instalment will be wired to the designated bank account within 15 working days of signing the Award Agreement. Upon completion of the work of each project phase, a Progress Report must be submitted to the MSGP team in Baku.

The Grantee will prepare 2 Progress Reports and 1 Final Report for grants less than 25K, 3 Progress Reports and a Final Report for grants between 25K and 50K and 4 Progress Reports and 1 Final Report for grants more than 50K. The final instalment will be disbursed upon completion of the project and approval of the Final Report.

All reports consist of two components, Technical and the Financial. For each phase of the project there is a Technical Progress Report and a Financial Progress Report. At the completion of the project there is a Technical Final Report and a Financial Final Report.

Progress and Final Reports must be received in original form and by e-mail in the Baku office not later than 4 weeks prior to the next scheduled grant funds transfer, as specified in the disbursement schedule that is appended to the Grant Agreement. Responsibility for delivery is that of the grantee. Late delivery of reports may result in delays in disbursements. Reports must be in English.

The financial reports document all expenditures of the project, including the grant funds, the in-kind contribution and the matching funds. Financial reports are made only on the funds spent for work done in that particular project phase.

The MSGP staff has a maximum of 15 working days from the date of arrival of a Progress or Final Report at the MSGP office to approve or reject the report. The MSGP staff will contact the Grantee by phone, e-mail or fax concerning acceptance of the grantee’s report. If the report is accepted, the next instalment will be transferred to Grantee’s bank account within 2 weeks. If the report is rejected, the MSGP staff will ask in writing for clarification of the report, which the Grantee must answer. From receipt of the Grantee’s clarification MSGP has a maximum of 15 working days to approve the Grantee’s report, or request additional clarification. Until MSGP staff is satisfied with the clarification, the next disbursement will not occur. In case of delays in the receipt of grant funds into the designated account, the Grantee may choose to halt work on the project. Adjustments to the workplan in this case would be subject to the Bank's prior approval.

The World Bank including the MSGP staff has the right to visit the Grantee at any time during the project or within three years after its completion. They have the right to audit the project or bring an external auditor with them to do this. They have the right to inspect all bookkeeping, project results, equipment, staff and any other project related goods and personnel. The Grantee must maintain financial records for three years after completion of the project.

B. TECHNICAL REPORTING

Technical Progress Report(s)

Each Progress Report describes the progress accomplished during the specific (first, second, third, fourth or fifth) phase of the project. Relevant items to be described are listed below. All items must be addressed separately and in detail.

Each Technical Progress Report is to be provided to the MSGP Administrator not later than two weeks after completion of the project phase that is the subject of the report.

Section 1: Activities

Describe all activities from the work-plan, relevant to the phase of the Grantee’s project. Provide detailed information on implemented activities, such as:

• Numbers, names and responsibilities of participants, staff, project partners, relevant contacts, etc.; • Logistics of trips, meetings, field-work, office operations, etc.;• Detailed description of activities listed in workplan for this phase.

Section 2: Results

In this section, a clear summary of results achieved by the project should be included. These should correspond to indicators in the original proposal.

• The results of each activity;• Deliverables produced during each activity (including a copy, photo, or other report on the deliverable);• A comparison of the anticipated and actual results;• Justification for equipment purchased in relation to activities, including a description of the equipment purchased, purpose, which activity required the purchase and how it has been used.

Section 3. Challenges and Changes

In this section the Grantee outlines problems faced during the implementation of this phase of the report. Explain what alternatives you found for problems and/or how you solved the problems successfully. Discuss the causes of potential problems and think about both external and internal causes. Internal causes lie for example in the organizational structure of the project, a mismatch in the staffing of the project, planning mistakes, etc. External factors include difficulties with political issues, economic changes, impact from competitors, weather, etc. If problems lead to changes in the planned implementation of the project phase, provide this information in section 3 of the narrative progress report.

Provide information on any changes that occurred during the implementation of the phase you are reporting about, including changes in scope of activities/tasks, work plan, expected result, outcomes, personnel, timeline, etc. Also list those activities that were planned but were not implemented and of course those implemented but not planned. In addition, provide a detailed explanation of the reasons for all changes and modifications you made in the project.

Section 4: Plans for the next phase

Describe in detail, the activities for the next phase of the project, including the activities and/or tasks that were started already, but were not completed by the time of submission of the progress report.

Technical Final Report

The Technical Final Report is due at the end of the project unless another date was agreed upon in your MSG Award Agreement. The Technical Final Report should follow the regular Technical Progress Report for the last phase; both reports may be submitted at the same time. There must be a regular progress report for the last phase of the project. The Technical Final Report is to be provided to the MSGP Administrator not later than two weeks after completion of the project.

The final report is applicable to ALL phases of the project and should contain the following:

Section 1: Sustainability and Replicability of the Project

A major criteria in selecting projects for the Matched Small Grants Program was sustainability. This section should explain how the given activity will be sustainable; e.g., how the benefits of the project will continue after the grant funding has terminated. Also, describe how the project can be used as a demonstration project for application elsewhere in your country or in the region. In case the knowledge and/or expertise from the project will be used elsewhere, describe which aspects of the project are being transferred and where to.

Section 2: Final Results

Provide detailed information on the results of the project. Describe the results in terms of indicators, as outlined in the proposal, such as figures related to the environmental impact of the project, the economic results, the positive consequences for the society, the savings of natural resources made, the number of species successfully protected, etc.

Give a description of the qualitative results achieved by the project.

Provide a comparison of the anticipated results versus the actual results using the verifiable indicators specified in the project proposal.

Section 3: Lessons Learned

In this section describe what your organization learned during the implementation of the project. Answer questions like:

• What were the most critical factors of success?• What should be done differently in future similar projects?• What are your recommendations for others who wish to implement similar projects?• When answering the above questions think about both internal and external factors for the lessons you learned. Your experiences can be very valuable for other project managers in the Caspian area.

C. FINANCIAL REPORTING

As described in the Application Guidelines, Matched Small Grant recipients are responsible for tracking and reporting on all sources of funding for the project, including:

• Funds received as the MSGP Grant;• Matching Funds;• In-kind contributions of the MSG grantee in the form of labor, facilities, supplies, etc.

Each Grantee shall establish and maintain a system of accounting and record keeping such that funds received, costs incurred and contributions used for the grantee’s project can be segregated from the grantee’s other business/operating income and expenses. Grantees may use a “direct-cost” allocation system, an “indirect-cost/cost pool” allocation system, or a combination of both, as long as their financial management system complies with generally accepted accounting practices for their operations in their country and can be verified through an independent audit.

Stated another way, the grantee’s system must be able to assign a cost or contribution to the project, and must be able to allocate that cost or contribution to one of the three “funding sources” described above. Matched Small Grants recipients must open a separate bank account to be used only for the MSG project implemented with a Matched Small Grant. The Matching Funds must be transferred to this bank account in installments corresponding to the phases of the project as defined by the MSG Award Agreement. The Grantee must make all purchases according to “Manual for Conducting very Small-Value Procurement under World Bank/IDA Small Grants, Loans and Credits” (October 2001), and the procurement plan at Attachment II of Annex I.

Financial Progress Report(s)

The Financial Progress Report lists all expenditures per budget item and compares the actual expenditures with the envisioned budget over the project phase under reporting.

Each Financial Progress Report is to be provided to the MSGP Administrator not later than two weeks after completion of the project phase that is the subject of the report.

The Financial Progress Report includes the following completed forms and attachments:

• Matched Small Grants Financial Reporting Form (Appendix I);• Budget Tracking for MSG (Appendix II);• Overview of Expenses for Matched Small Grants (Appendix III). This overview should include both expenses covered by the grant, as well as the in-kind contribution and the matching funds.

Receipts are necessary for expenditures greater than $25, but expenditures of less than $25 do not require a receipt. Organize the copies of invoices and receipts by budget line. Label every document appropriately so that the number on the receipt/invoice corresponds with the reference number shown on the Overview of Expenses. Copies of receipts are acceptable for the financial reports. Original receipts must be retained by the grantee for a minimum of three years after completion of the project, and may be audited by the World Bank or by an outside auditor.

Expenses

Clearly mark the amount spent on the receipt/invoice. Highlight either the total cost, or the particular

expense(s) covered by the MSG funds, as in-kind contribution, or from matching funds.

Official receipts for all exchanges of dollars should accompany reports. Rates used for all calculations in the financial reports must be the rates received in exchange if that rate differs from the daily exchange rate.

The type of documentation required of grantees in each proper financial report is described below for each budget line of the MSGP Budget Table.

Employment Costs/Salaries

This section provides payroll records of all employees performing tasks on the project. Hours or days worked on the project must be recorded on timesheets or have other certification from the project manager verifying time spent on the project.

Travel

For all transportation costs exceeding $25, receipts must be collected. For accommodation hotel bills must be submitted. The Grantee should maintain a consistent policy of Per Diem rates throughout the project. The Matched Small Grants Program covers only coach class airfare.

Equipment

All receipts for equipment should be included in the Financial Report. For equipment costing over $250 all documentation related to the procurement rules of the Matched Small Grants Program must be kept in your organization’s financial records. For the MSGP Reports provide a copy of the list of three offers for the item you purchased including the reason for your purchase decision (if other than lowest price). Equipment which is part of an in-kind contribution, should be reported based on the accepted fair rental market value as budgeted plus a copy of the proof of ownership of the equipment.

Supplies

All receipts for supplies costing over 25 USD should be included in records.

Services

For consultants and/or companies providing outside services the grantee should submit the signed contract along with the receipts. Contracts should include the following information:

• Date of signing contract or receipt of fees;• The name of the hiring and contracted person/organization;• Signature of the hiring and contracted person/representative of organization;• The amount of the contract;• Description of the work/tasks contracted; and• Charges per hour, day or month.

In the financial report attach copies of both the contract and the receipt for all contracts over $25.

Printing and Reproduction

All receipts over $25 for Printing and Reproduction expenses must be included in your financial reports. If Printing and Reproduction is done through a contract with an outside service provider, follow the instructions under ‘Services’.

Communication Costs

All invoices and receipts for project expenses over $25, must be included.

Rent

For rental of a facility, in addition to a receipt, a copy of the rental agreement (contract) with the landlord should be included in the financial report. If the rental is part of your in-kind contribution to the project, its value must be reported based on the current market rental price, plus a copy of the proof of ownership of the facility must be attached.

Other Costs

Receipts for bank fees should be included in the financial report in order to account for banking fees.

For tax payment you must have a receipt from the relevant governmental agency. The grant cannot be used for any tax payment, but taxes may be paid from your matching funds. Receipts for any tax payments should be included in the applicable part of the financial report.

If ‘Other Costs’ exceed $25 you must provide a copy of the invoice, receipt and/or contract in the financial part of your report.

NOTE: Please proofread financial reports carefully for calculation or typing errors. All financial reports should show figures rounded to two decimal places.

Financial Final Report

The Financial Final Report is similar to the Financial Progress Report(s), though the Financial Final Report summarizes all phases of the project. The Financial Final Report is to be provided to the MSGP Administrator not later than two weeks after completion of the project.

Appendix I – MATCHED SMALL GRANTS FINANCIAL REPORTING FORM

1. MATCHED SMALL GRANTS PROJECT NUMBER:2. TYPE OF REPORT: Progress Report Final Report

3. ORGANIZATION NAME: 4. PROJECT PHASE OF REPORT: First Second Third Fourth Final

5. PROJECT NAME:6. TOTAL PROJECT PERIOD: From: ____________

7. PROJECT LEADER: 8. CURRENT REPORTING PERIOD: From:

9. TOTAL PROJECT BUDGET (Grant+Matching+In-Kind): ________ USD 10. TOTAL IN-KIND CONTRIBUTIONS: ____________________

11. GRANT AWARD RECEIVED: ____________________________ USD 12. TOTAL MATCHING FUNDS: __________________________ _

NUMBER OF INSTALLMENTSMSGP GRANTMATCHING FUNDSIN-KIND CONTRIBUTIONSTOTAL

1st instalment2nd instalment3rd instalment4th instalmentFinal instalmentTOTAL

TO BE FILLED OUT BY MATCHED SMALL GRANTS PROGRAM STAFF

NARRATIVE REPORT APPROVED: _______________________ _ DATE: ________________________ , SIGNATURE: ___________________________

FINANCIAL REPORT APPROVED: _______________________ _ DATE: ________________________ , SIGNATURE: ___________________________

TRANSFER OF NEXT INSTALLMENT: _________________________ DATE: ________________________ , SIGNATURE: __________________________

Appendix II-Budget Tracking for MSGBUDGET LINE ITEMS MSGP GRANT FUNDS

MATCHING FUNDSIN-KIND CONTRIBUTION

Expenses for this phase Remaining budget for the project

Expenses for this phase

A B C1 Employment

Costs/Salaries2 Travel3 Equipment4 Supplies5 Services6 Printing &

Reproduction7 Communication

Costs8 Rent9 Other CostsTOTAL

Prepared by (Name & Title): ____________________________________________________________________

Date:______________________________Signature:_______________________________________________

Appendix III - OVERVIEW OF EXPENSES FOR MATCHED SMALL GRANTS

TEMPLATE & instructionsRef. # Budget

line category

Date(s) of expenditure (day/month/year)

Description of Expenditure Amount & Currency of Expenditure

Exchange rate

Equiva-lent in USD

Source:‘MSGP Grant’‘Matching Funds’‘In-kind Donation’

1 2 3 4 5 6 7 8

Please use this table to track all the project expenditures; Matched Small Grants funds, Matching Funds and your in-kind donation in chronological order. It is advisable to log-in expenditures as they occur.

Instructions for completion of Overview of Expenses for Matched Small Grants

Please provide all information in English

Ref. #: Please assign a reference number to each expenditure, in numerical order, starting with 1. The same numbers should be used when labeling the receipts, invoices, etc., that are justifying a particular expenditure and have to be attached to the financial part of your report. The receipts must be attached in the same order. Because you do not need to send copies of all contracts, receipts and/or invoiced not all expenditures will have a corresponding receipt.

Budget line category: Use only budget line categories listed in your original Matched Small Grants Budget as approved through the Award Agreement. Example Budget line categories for the Matched Small Grants Program are: Employment Costs/Salaries, Travel, Equipment, Supplies, Services, Printing and Reproduction, Communication Costs, Rent, Other Costs.

Date(s) of expenditure: Provide the date when the expenditure was made (consistent with the actual receipts or invoice)

Description of Expenditure: Please provide the following: description of a unit of measure (for example: trip, km, hotel room price/night, daily rate, pieces, issues, etc.); number of units; for expenditures related to travel, provide names of travellers, travel destination, number of travelers, purpose of travel, etc.

Amount & Currency of Expenditure: List amount and currency. If you provide a receipt, the amount should match the amount on the receipt. In those cases, where project related expenses are a part of a bigger amount on a receipt, the listed amount may be lower than on the receipt. You have to clearly mark the relevant amount on each receipt you attach to the financial part of your report.

Exchange rate: Use the exchange rate relevant for the project phase you are reporting about. The exchange rate has to be the same for all expenditures within one phase and justified by a (copy of a) bank statement attached to the financial part of your report.

Equivalent in US$: If the expenditure was in local currency, provide equivalent amount in US$.

Source: Fill in the box with the words MSGP GRANT, MATCHING FUNDS or IN-KIND CONTRIBUTION. If expenditure is covered by grant funds and by matching funds and/or the in-kind donation, list this expenditure as two or three separate items

Attachment V to Annex I

Workplan

MSGP Work Plan

PROJECT ACTIVITIESFebruary 2002March 2002April 2002May 2002June 2002July 2002August 2002September 2002October 2002November 2002December 2002January 2003February 2003March 2003April 2003May 2003June 2003July

2003August 2003September 2003October 2003November 2003December 2003

Phase 1: Project Start upApplicable for all grants

Preparation for Grantee Orientation (book flight & accommodation, make presentation on project)XParticipation in Grantee OrientationXReceive first installment from Administation of AstrakhanÕReceive first installment from World Bank XHire all staff working on the projectXTender procurement of materials & equipmentÕReplacement of the equipment of mechanical sewage treatmentXXRepair of primary radial setting tanks XPrepare Progress Report for MSGP StaffX

Phase 2: Project ImplementationApplicable for all grants

Receive second installment from Administation of AstrakhanXReceive second installment from World BankXTender procurement of materials & equipmentXRepair of primary radial setting tanks .XXRepair of final radial setting tanks XPrepare Second Progress Report for MSGP StaffX

Phase 3: Project Implementation

Applicable only for grants over 25K

Receive third installment from Administation of Astrakhan

X

Receive third installment from World Bank

X

Tender procurement of materials & equipment

X

Repair of final radial setting tanks

X

Prepare third Progress Report for MSGP Staff

X

Phase 4: Project Implementation

Applicable only for grants over 50K

Receive fourth installment from Administation of Astrakhan

X

Receive fourth installment from World Bank

X

Tender procurement of materials & equipment

X

Repair of final radial setting tanks

XX

Repair of aerotanks XXXPrepare fourth Progress Report for MSGP Staff

X

Last Phase: Project Evaluation

Applicable for all grants

Check outcomes against indicators

X

Evaluate results and impact of the project

X

Ensure sustainability and/or follow up of the project

X

Prepare Final Report to MSGP Staff

X

Receive final installment from Administation of Astrakhan

X

Receive final installment from World Bank

X

ANNEX II

Project Description

Increase of Ecological Safety of Treated Sewage, Thrown Off into the River Volga

Baseline Technical Status of Waste Water Treatment Facilities

Waste water treatment plant (WWTP) of Trusovsky Vodokanal in Astrakhan has been exploited during 28 years (since 1974). Long-term exploitation of the equipment under the conditions of permanent contact with sewerage caused severe degradation of substantial part of installations and their withdrawal from exploitation. This in turn resulted in downgrading of efficiency of mechanical and biological waste water treatment throughout the whole process to the effect that discharges of treated water to the Volga River significantly exceed maximum permissible concentrations (presently observed concentrations are specified in Project Document).

Project Objectives

Major goal of the Project is the reduction of pollutants discharged with treated waste waters down to permissible limit values. This goal will be achieved due to rehabilitation measures defined in the Project’s workplan.

The Project will restore the mechanical sewage treatment equipment at the WWTP of Trusovsky Vodokanal and ensure improvement of treated waste water quality discharged to the Volga River.

Engineering Solutions

The restoration of all treatment phases will consist of the following:

• Replacement of existing comminuting screens CS-600A of mechanical treatment system;• Restoration of ferroconcrete constructions and switching devices in a path of mechanical sewage treatment; • Restoration of 2 sand catchers with circular driving water;• Restoration of 2 primary radial settling tanks with replacement of metalware in the system of removal of sludge and floating matter;• Repair of a section of aerotank with replacement of system of aeration;• Repair of 2 secondary radial settling tanks with replacement of metalware for sludge removal;• Replacement of air-blowing equipment in the system of aeration.

The Expected Results

The Project is aimed at reduction the amounts of pollutants discharged to the Volga River with treated sewage water down to maximum permissible concentrations (MPC).

Key overall indicators of successful completion of the Projects are achieved reduction of Suspended Solids (SS) and Biochemical Oxygen Demand (BOD) at various phases of treatment process as presented in the table below:

Treatment phase SS BODIncoming sewage into the inlet chamber and further into primary radial settling tanks: 200 mg/l BOD20 212 mg/l

Efficiency of sewage treatment in the primary radial settling tanks: • before rehabilitation operations• after rehabilitation operations at the primary radial settling tanks

100 mg/l

70 mg/l

______

Efficiency of sewage treatment in aerotank and secondary radial settling tanks discharged to biological ponds:• before rehabilitation operations• after rehabilitation operations at the aerotank

20 mg/l

10 mg/l

BOD20 30 mg/l

BOD20 8.73 mg/lConcentrations of pollutants in treated sewage water discharged to the Volga River from biological ponds:• before rehabilitation operations at WWTP• after completion of rehabilitation operations at mechanical and biological stages

12 mg/l

6 mg/l

BOD20 25mg/l

BOD20 3mg/l

Discharge standards (maximum permissible concentrations, MPC)

SS 12.2 mg/l BOD20 3 mg/l

Implementation Reporting

Rehabilitation operations at mechanical and biological treatment phases will be implemented by ME “Vodokanal” according to the schedule specified in the workplan of the Project. All accounting documents on procurement and installation of equipment as well as on executed works on each stage will be submitted to the MSGP’s Administrator and to the Project Coordinator. The reporting will be performed in the format similar to the one used in the work of ME “Vodokanal” with the Dutch company DHV within the framework of the World Bank Project “Municipal water supply and wastewater treatment”.