Technical Assistance Consultant’s Report by David King, Marcus Napud, Nelson Jose, Andrew Mcintyre, Wandert Benthem and Islohotkonsaltservis, Ltd. Tashkent, Uzbekistan For Uzbekistan

Technical Assistance Consultant’s Report

This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents. All the views expressed herein may not be incorporated into the proposed project’s design.

Project Number: 40007-02 September 2008

Republic of Uzbekistan: Djizzak and Surkhandarya Rural Water Supply and Sanitation Sector (Supplementary) Financed by Technical Assistance Special Fund

Prepared by David King, Marcus Napud, Nelson Jose, Andrew Mcintyre, Wandert Benthem and Islohotkonsaltservis, Ltd.

Tashkent, Uzbekistan

For Uzbekistan Communal Services Agency (UCSA)

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SUMMARY OF SUB PROJECT FEASIBILITY STUDIES I DESCRIPTION OF SUBPROJECTS

FS 1 TERMEZ CITY SUB-PROJECT А. Project Area The regional centre Termez is located in the south of the Surkhandarya oblast. Termez rayon borders in the north on Kumkurganskim area, in the east on the Republic of Tadjikistan, on the west Angor and Muzrabat rayon, in the south Afghanistan. Altitude above sea level is 302 m. The average annual precipitation is 200-170 mm. Figure 1 presents the rayon map, delineating the subproject existing and planned works.

B. Social and production infrastructure According to official Oblast data of January 2008 the city population is 127,280 people. Local administration is a City Khokimiyat and 33 Makhalla Committees. There is a railway station, an international river port, and airport. Termez is the industrial and cultural centre of Surkhandarya oblast. There is a cotton-cleaning plant, brickworks, meat-and-dairy enterprise and complex of ferroconcrete items and structures. Termez City has Termez State University, a music school, agricultural and medical colleges. The average income per capita in estimated at 55,200 sum.

Figure 1 – Termez city Map

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C. Existing Situation in Water Supply and Sanitation Water supply of Termez is from two groundwater water intakes "Manguzar" and "Northern". Parts of the boreholes on both these water-intakes have failed. The second elevation pumping stations need of equipment replaced. The centralized water supply system is obsolete and only partially operating. A water supply household survey in Termez city identified that the population complains of a lack of potable water. Water is supplied zonally on a schedule of 6 hours a day. 55 % of housing in the city is connected to a centralized sewage system. Rehabilitation of the waste water treatment plants and disposal system is planned. Physical coverage of the water supply network is 95 %. D. Subproject Reconstruction of the water supply of Termez is based on Resolution № 890 and ADB concepts. Total population covered by the end of the subproject construction (2014) is projected to be 147,040 person. Overall supply of water will make 63,710 m3/day. The Water supply in Termez City is sourced from deep groundwater aquifers. Development scheme will include:

1) “Manguzar” water-intake: reconstruction of 13 boreholes (11 in operation and 2 in reserve), cleaning and re-equiping of two reservoirs of 5 000m3 and 3 000m3 capacity, repair of pumping plant with installation of new pump-power equipment, repair and re-equip chlorination plant, replace process communications, installation of water meters, repair and replace electrical switchboards and control devices and electric power supply networks.

2) “Northern” water-intake - reconstruction of 8 boreholes (6 operating, 2 reserve),

Clean and re-equip two 2 000m3 reservoirs, repair pumping station with installation of new pump-power equipment. Repair and re-equip the chlorination plant. Replace process communications, install water meters. Repair and replace power supply devices and networks.

3) 4-th micro-rayon – Re-equip boreholes (1 operating and 1 reserve) and pumping

station, install transformers, install water meters. Clean and re-equip 1000m.3 reservoir.

4) 5-th micro- rayon – Re-equip two boreholes (1 operating and 1 reserve) and

pumping plant, install transformer substation, install of water meters. Clean and re-equip a 1000m 3 reservoir.

5) Re-lay 4.3 km of water mains D=600 mm. Re-lay 2 km water mains D=400 mm.

Reconstruct and build 11 km of new distribution networks D=300-200 mm and 47.7 km of.D=150-100 mm.

6) The school sanitation improvement program will be accompanied by the Hygiene

Education Program (HEP) addressed to school children, teachers and makhallya committees.

E. Environmental and social impact This subproject will have beneficial impact on the population of Termez through; enhanced local economies, contribute to reduction of poverty, and introduce improved hygienic practices and the economic use of water resources. Identified negative impacts during construction are very moderate in extent and can be easily mitigated. The project does not foresee any negative impacts in the long term. City branch PU "Suvokova ".is responsible

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for; (i) O&M of water supply and sanitary systems in the regional centre, and distribution of water and pump stations (ii), registration of consumers, billing and revenue collection. F. Subproject Investment and Per Capita Cost

For Termez subproject cost estimates have been developed using survey data obtained during site visit. A least cost option was developed after considering alternative water sources their relative distances from the city, necessary construction of for the delivery and distribution of water, and the number of consumers served. Investment costs were based on the population estimates at project completion in 2014. The total investment is estimated at $ 13.81 million including taxes and duties, and contingencies. This will service a target population of 147,040 at the per capita cost of $94.0.

G. Economic and financial analysis

Benefit-cost analysis was undertaken to determine subproject economic and financial viability. The main viability parameters used are the EIRR and ENPV for economic analysis, and FIRR and FNPV for financial analysis. The proposed subproject is economically viable if the resulting EIRR exceeds the economic opportunity cost of capital EOCC at 12%, and ENPV is positive. Similarly, the subproject is financially viable if FIRR is greater than the weighted average cost of capital WACC at 4.22%, and FNPV is positive. In the economic analysis, the quantifiable benefits related to incremental and non-incremental water that result into time-cost savings were compared with capital and O&M costs that have been converted from financial costs using shadow pricing and after elimination of transfer payments. The resulting cash flows were discounted at the EOCC. In the financial analysis, net revenues, calculated at a collection rate of 80-90 % of gross sales, were compared with capital and O&M costs and the resulting net cash flows were discounted at the WACC of 4.22 %. The subproject was subjected to sensitivity analysis to assess the effects of adverse circumstances on viability. The sensitivity scenarios include: a 10% increase in capital cost, a 10% increase in O&M cost, a 10% decrease in revenue, and a one-year delay in implementation. The results of the analysis show that the subproject is economically viable with EIRR at 31.1 % and an ENPV of Sum 6504 million for the base case. The subproject is also found financially viable with FIRR at 5.5% and an FNPV of Sum 1658 million. In all economic and financial sensitivity scenarios, the subproject remained robust. The results are summarized in Table 1.

Table 1: Summary Economic and Financial Analysis for Termez

Particulars Change EIRR ENPV EIRR SV FIRR FNPV FIRR SV Base Case 31.1% 6504 5.5% 1658 Investment Cost +10% 22.5% 5017 44% 4.8% 761 17.5% O&M Cost +10% 30.5% 6321 609% 5.3% 1364 Benefit -10% 20.7% 3533 37% 4.4% 258 11.9% Implementation 1 yr delay 21.6% 4843 22% 4.8% 759 SV = Switching Value

H. Average Incremental Cost and Cost Recovery

In assessing the appropriate water charge to attain the required level of cost recovery, both average economic and financial incremental costs AIC were calculated. AIC is an approximation of long term marginal costs and AIEC is the appropriate target for tariff setting. Subproject AIEC and AIFC are at Sum 132 and Sum 125 respectively. With AIEC higher than AIFC, setting the tariff at AIEC would result in sufficient cost recovery level. Termez vodokanal is projected to post a positive return on net fixed assets (ROA) of 2.4% to 16.3%

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from 2016 to 2020. Debt Service Ration (DSR) will be greater than 1.2 during the projection period.

I. Tariff affordability The viability of subproject operation ultimately depends on household capacity to pay for their monthly water bills. As the Project aims to extend water service to the poor within the community, the proposed tariff was tested against the average income of the low-income household. The affordability analysis shows that the proposed tariffs will result to a monthly bill to household income ratio of 0.3 to 1.6 during the projection period for families belonging to the low-income group.

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FS 2 SARIASIYA SUB-PROJECT А. Project Area Sariasiyskiy Rayon is situated on the foothills of Gissarak mountain range in the north of Surkhandarya Region and borders on the Republic of Tajikistan in the north and in the east, Kashkadarya Region in the west, Boysun, Kumkurgan, Denau and Uzun rayons in the south. The rayon covers 380,095 hectares of which 15,806 ha are classified as irrigated agricultural lands consisting of 10,296 ha of crop lands, 209 ha of permanent crops, 916 ha of small holdings (farmlands) and 3 613 ha. of dry lands. The remainder 128,383 ha is designated as pasture and 61,115 as forest. Rayon topography ranges from 500 m. to 4,500 m. asl. Annual mean precipitation is 250 – 308 mm. Figure 2 presents the rayon map, delineating the subproject, existing, and planned works.

B. Social and production infrastructure According to official Oblast data of January 2008 the rayon population is 173,923 of which 148,750 (85.5% of the total) live in 108 rural settlements and 25,173 (14.5% of the total number) live in Sariasiya rayon center (14,350 – 8.3%) and Shargun urban-type settlement (10,701 – 6.2%). Population density is 38.7 persons/km². Local administration is a Rayon Khokimiyat (Municipality), City Khokimiyat, 8 Makhalla Committees and 108 Village Community Assemblies. Agriculture the dominant economic activity in Sariasiya rayon is based on livestock grazing and cattle-breeding. Pastoral enterprises include sheep, goats, cattle, horses and others. Irrigated lands are used for fodder production for pastoral holdings and farmlands. Most rural communities are involved in the agrarian sector. Industry is based on coal mining, and rock quarries for construction materials (“Sariasiya rock grading plant, repair of agricultural machinery and processing of food products.

Figure 2 – Sariasiya Rayon Map

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According to Oblast data of January 1st, 2007 the employable population is 62,909 people in rural settlements and 7,623 in Sariasiya Rayon Center. This represents about 7% of the employed population of the Surkhandarya Oblast. Average monthly income per capita in Sariasiya Rayon is estimated at 38,383 sum. However this rate does not give the adequate picture of the population income especially in rural areas. Rural households revenues are much lower than those in urban industrial centers where industrial enterprises are concentrated. C. Current Situation in Water Supply and Sanitation A household survey conducted in rural settlements of Sariasiya Rayon ascertained that most of the population of this area suffers from a lack of potable water. Currently the centralized water supply system has reached the end of its economic life and is badly deteriorated with some sections partly operating, and some not operating at all. Therefore supply from the water main is irregular. It is also exacerbated by frequent electric power outages. Overall water supply coverage is about 25%. People have to use untreated, and potentially unsafe water from nearby rivers and canals for domestic needs. There is no centralized sewage system in this rayon. D. Subproject Based on the Resolution of the Cabinet of Ministers No.405 and ADB concepts the Regional Khokimiyat and Suvokova Trust has recommended the Sariasiya Rayon Center and 5 rural settlements with a total population of 33,969 people covered under this subproject (system design is based on demand for the estimated population in 2020).

1) Water supply to Sariasiysa rayon center and rural settlements is sourced from Saribazar ground water deposits. Water will be extracted from the new water intake “Sariasiya” with an estimated sustainable capacity of 6,675 m³/day. The project plans 4 new boreholes (3 operating and 1 backup) the installation of new pumping equipment; and construction of the re-lift pumping plant and chlorination room. The pumping plant will include automatic control mechanisms. Other construction works includes; systems communications; distribution networks and installation of water meters; construction of two new 1400 m³ water reservoirs with universal filter-absorbers. External and internal electrical supply and transformer substation 2*160kVA will be upgraded. For the surrounding rural settlements 6.5 km of pipes of D=400-350 mm will be laid from the water intake to Sariasiya and connections to 5 settlements on the existing network; reconstruction of 26 km of distribution network and 12 km of in-house connection with water meters.

2) The sanitation program will include the construction of ventilated improved pit

(VIP) latrines and provision of the toilet compound with water supply and hand washing facilities. The school sanitation improvement program will be accompanied by a Hygiene Education Program (HEP) addressed to school children, makhallas and teachers.

E. Environmental and social impact This subproject will have a beneficial impact on population through: enhanced local economy, which will contribute to a reduction of poverty, improved health through access to potable water and the introduction of improved hygienic practices. Households will have access to continuous water supply reducing time and effort for collection. During construction there will be some minor disruption to fields but no long term negative impacts.

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The project will also benefit woman and children, who will be released from the duties of collecting water. Women will participate actively to the organization of local water supply and in the villages’ social life. There will be no displacement of households or other village structures. Implications related to involuntary resettlement are minor and are being compensated through a resettlement plan. Sariasiya rayon vodokanal will service the communities and will be responsible for (i) O&M of the water supply and sanitation systems in the villages, water distribution centers and pumping stations, and (ii) collecting fees from the households to cover O&M and depreciation costs. F. Subproject Investment and Per Capita Cost

Cost estimates were developed for Sariasiya subproject using field data that considered possible supply sources, distances from the target communities, treatment facilities required and number of target beneficiaries. The investment cost per capita was derived using target population to be served in 2014 (completion of the construction) and estimated to 2020. The total investment requirement for this subproject is estimated at $ 2.29 million including taxes, duties and contingencies. This will service a target population of 33,969 at the per capita cost of $67.5.

G. Economic and Financial Analysis Benefit-cost analysis was undertaken to determine subproject economic and financial viability. The main viability parameters used are the EIRR and ENPV for economic analysis, and FIRR and FNPV for financial analysis. The proposed subproject is economically viable if the resulting EIRR exceeds the economic opportunity cost of capital EOCC at 12%, and ENPV is positive. Similarly, the subproject is financially viable if FIRR is greater than the weighted average cost of capital WACC at 4.2%, and FNPV is positive. In the economic analysis, the quantifiable benefits related to incremental and non-incremental water that result into time-cost savings were compared with capital and O&M costs that have been converted from financial costs using shadow pricing and after elimination of transfer payments. The resulting cash flows were discounted at the EOCC. In the financial analysis, net revenues, calculated at a collection rate of 75-90 % of gross sales, were compared with capital and O&M costs and the resulting net cash flows were discounted at the WACC of 4.2%. The subproject was subjected to sensitivity analysis to assess the effects of adverse circumstances on viability. The sensitivity scenarios include: a 10% increase in capital cost, a 10% increase in O&M cost, a 10% decrease in revenue, and a one-year delay in implementation. The results of the analysis show that the subproject is economically viable with EIRR at 24.4 % and an ENPV of Sum 893 million for the base case. The subproject is also found financially viable with FIRR at 5.7% and an FNPV of Sum 343 million. In all economic and financial sensitivity scenarios, the subproject remained robust. The results are summarized in Table 2

Table 2: Summary Economic and Financial Analysis for Sariasiya

Particulars Change EIRR ENPV EIRR SV FIRR FNPV FIRR SV Base Case 24.4% 893 5.7% 343 Investment Cost +10% 18.5% 602 42% 4.9% 170 18.6% O&M Cost +10% 23.7% 840 322% 5.4% 269 Benefit -10% 16.7% 370 32% 4.4% 46 -11.6% Implementation 1 yr delay 18.3% 604 22% 4.9% 161 SV = Switching Value

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H. Average Incremental Cost and Cost Recovery In assessing the appropriate water charge to attain the required level of cost recovery, both average economic and financial incremental costs AIC were calculated. AIC is an approximation of long term marginal costs and AIEC is the appropriate target for tariff setting. Subproject AIEC and AIFC are at Sum 166 and Sum125 respectively. With AIEC higher than AIFC, setting the tariff at AIEC would result in sufficient cost recovery level. Sariasiya vodokanal will have a positive net income by year 2018 and a positive net cash flow starting year 2015. ROA is projected to range from 1.1% to 12.4% from 2016 to 2020. DSR will range from 1.7 to 6.6 after project completion. I. Tariff affordability The viability of subproject operation ultimately depends on household capacity to pay for their monthly water bills. As the Project aims to extend water service to the poor within the community, the proposed tariff was tested against the average income of the low-income household. The affordability analysis shows that the proposed tariffs will result to a monthly bill to household income ratio of 0.3 to 1.2 during the projection period for families belonging to the low-income group.

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FS 3 SHURCHI SUB-PROJECT А. Project Area Shurchi Rayon is situated in the Surkhandarya River valley, spread between Boysuntau mountain ridge in the west and Babatag mountain ridge in the east. Shurchi rayon borders on the Denau rayon in the north, the Republic of Tajikistan in the east, Boysun rayon in the west and Kumkurgan rayon in the south. The rayon covers 85,594 hectares of which 15,806 ha are classified as irrigated agricultural lands and 46,142 pasture lands. Topography of the rayon changes from 800 m to 400 m above sea level. Annual mean precipitation is 250 – 308 mm. Figure 3 presents the rayon map, delineating the subproject existing and planned works.

B. Social and production infrastructure According to the data of January 2007 – 159,986 people reside in the rayon of which 137,636 people (86% of the total number) live in 43 rural settlements and 22,350 people (14%) live in Shurchi rayon center. Population density is 186.9 persons/km². Local administration is structured as Rayon Khokimiyat (Municipality), City Khokimiyat and 43 Village Community Assemblies. The dominant agriculture in Shurchi rayon is livestock grazing and cattle-breeding. Pastoral enterprises include sheep, goats, cattle breeding, horses and others. Irrigated lands are used for fodder production for pastoral holdings and farmlands. Villagers are mainly involved in the agrarian sector. Industry of the rayon is mainly light manufacturing, agricultural products processing, construction industry (JSC “Shurchi don makhsulot”), and small-scale businesses.

Figure 3 – Shurchi Rayon Map

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Oblast data of January 1st, 2007 sets the employable population at 79,725 in rural settlements and 14,042 in Shurchi Rayon Center. As of January 1st 2004 the rate of the employed population is about 33% in Surkhandarya Oblast. Average income rate per capita is 40,700 sum in Shurchi rayon. In rural areas household revenues are much lower than in urban industrial centers. C. Existing Situation in Water Supply and Sanitation Based on the household survey conducted in Shurchi rayon center it is ascertained that the population of this area suffers lack of potable water. The centralized water supply system is badly deteriorated with some parts inoperable. Water supply to the rayon center is irregular but delivery ranges from 4-6 hours a day. Power supply is frequently interrupted adding difficulties to water supply. Water supply coverage rate in Shurchi rayon center is 82%. There is a centralized sewage system which is only partially functioning. D. Subproject Based on the Resolution of the Cabinet of Ministers No. 405 and ADB concepts the Regional Khokimiyat and Suvokova Trust have planned to improve supply to Shurchi Rayon Center. Total population residing in the subproject area is 25,597 people. Design has incorporated an estimated population growth to 2020. Water supply for Shurchi rayon center and rural settlements is sourced from ground water of the North-Surkhan deposit. The “Shurchi” water intake will supply the rayon center while the Dalvarzin water intake currently under construction will supply the rural settlements. Development will include:

1) Shurchi water-intake facilities: reconstruction of 3 existing boreholes; new pumping equipment for all boreholes, reconstruction of a 1000 m³ reservoir and construction of one new 1000 m³ reservoir; construction and equipping of an automatic re-lift pumping station with built-in chlorination room and new process communications with water meters on production and transmission systems, installation of automatic electrical controls and transformer substation, rehabilitation of electric network system and site improvement; Reconstruction of 46 km of distribution networks D=200, 150 and 100mm.

2) The sanitation program will include construction of 2 ventilated improved pit (VIP) latrines and provision of the toilet compound with water supply and hand washing facilities. The school sanitation improvement program will be accompanied with Hygiene Education Program (HEP) addressed to school children teachers and makhallya committees. E. Environmental and social impact Given subproject will have a beneficial impact on public health through, enhanced local economies, contribute to reduction of poverty, improved hygienic practices and the economic use of water resources. Identified negative impacts during construction are very moderate in extent and can be easily mitigated. The project does not foresee any long term negative impacts.. The project will also benefit woman and children, who will be released from the duties of collecting water. Women will participate actively to the organization of local water supply and in the villages’ social life. There will be no displacement of households or other village structures. Implications related to involuntary resettlement are minor and are being compensated in the frame of a resettlement plan. The Shurchi rayon vodokanal will provide water supply services to the communities and will be responsible for (i) the O&M of the water supply and sanitation systems in the villages,

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water distribution centers and pumping stations, and (ii) collecting fees from the households to cover O&M and depreciation costs. F. Subproject Investment and Per Capita Cost

Cost estimates were developed for Shurchi subproject using field data that considered possible supply sources, distances from the target communities, treatment facilities required and number of target beneficiaries. Alternative technical options were analyzed for each using least-cost analysis to arrive at the most suitable solution in terms of capital and O&M requirements. The investment cost per capita was derived using target population served in 2014 (completion of the construction) and estimated period to 2020. The total investment requirement for the subproject is $0.74 million including taxes, duties and contingencies. With a target population of 25,597 the cost per capita is estimated at $28.7.

G. Economic and Financial Analysis Benefit-cost analysis was undertaken to determine subproject economic and financial viability. The main viability parameters used are the EIRR and ENPV for economic analysis, and FIRR and FNPV for financial analysis. The proposed subproject is economically viable if the resulting EIRR exceeds the economic opportunity cost of capital EOCC at 12%, and ENPV is positive. Similarly, the subproject is financially viable if FIRR is greater than the weighted average cost of capital WACC at 4.2%, and FNPV is positive. In the economic analysis, the quantifiable benefits related to incremental and non-incremental water that result into time-cost savings were compared with capital and O&M costs that have been converted from financial costs using shadow pricing and after elimination of transfer payments. The resulting cash flows were discounted at the EOCC. In the financial analysis, net revenues, calculated at a collection rate of 70-95 % of gross sales, were compared with capital and O&M costs and the resulting net cash flows were discounted at the WACC of 4.2 %. The subproject was subjected to sensitivity analysis to assess the effects of adverse circumstances on viability. The sensitivity scenarios include: a 10% increase in capital cost, a 10% increase in O&M cost, a 10% decrease in revenue, and a one-year delay in implementation. The results of the analysis show that the subproject is economically viable with EIRR at 16.2 % and an ENPV of $ 103 million for the base case. The subproject is also found financially viable with FIRR at 5.9% and an FNPV of $ 151 million. In all economic and financial sensitivity scenarios, the subproject remained robust. The results are summarized in Table 3

Table 3: Summary Economic and Financial Analysis for Shurchi

Particulars Change EIRR ENPV EIRR SV FIRR FNPV FIRR SV

Base Case 29.7% 517 5.8% 125

Investment Cost +10% 23.2% 420 55% 5.0% 68 24.4%

O&M Cost +10% 29.2% 503 730% 5.5% 102

Benefit -10% 21.6% 302 44% 4.6% 28 -13.0%

Implementation 1 yr delay 22.3% 397 27% 5.0% 64

SV = Switching Value

H. Average Incremental Cost and Cost Recovery In assessing the appropriate water charge to attain the required level of cost recovery, both average economic and financial incremental costs AIC were calculated. AIC is an approximation of long term marginal costs and AIEC is the appropriate target for tariff setting. Subproject AIEC and AIFC are at Sum 59 and Sum 78 respectively. Shurchi vodokanal is

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projected to register a net income starting in year 2014 and a positive net cash flow starting 2015. ROA will range from 6.4% to 29.5% from 2015 to 2020. DSR will be greater than 1.2 during the projection period. I. Tariff affordability The viability of subproject operation ultimately depends on household capacity to pay for their monthly water bills. As the Project aims to extend water service to the poor within the community, the proposed tariff was tested against the average income of the low-income household. The affordability analysis shows that the proposed tariffs will result to a monthly bill to household income ratio of 0.4 to 0.9 during the projection period for families belonging to the low-income group.

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FS 4 KUMKURGAN SUB-PROJECT А. Project Area Kumkurgan Rayon is situated in the Surkhandarya River valley, between Boysuntau mountain ridge in the west and Babatag mountain ridge in the east. Kumkurgan rayon borders on Shurchi rayon in the north, the Republic of Tajikistan in the east, Boysun rayon in the west and Djarkurgan rayon in the south. The rayon covers 220,388 hectares of which 15,806 ha are classified as irrigated agricultural lands and 46,142 pasture lands. Topography of the rayon changes from 800 m to 400 m above sea level. Annual mean precipitation level is 250 – 308 mm. Figure 4 presents the rayon map, delineating the subproject existing and planned works.

B. Social and production infrastructure According to Oblast data of January 2008, 108 344 people reside in the rayon of which 92,913 (85.8%) live in 66 rural settlements and 15,431 people (14.2%) live in Kumkurgan rayon center. Population density is 234 persons/km². Local administration comprises a Rayon Khokimiyat (Municipality), City Khokimiyat and 66 Village Community Assemblies. Agriculture the dominant economic activity in Shurchi rayon is based on livestock grazing and cattle-breeding, vegetable-growing and silkworm breeding. Pastoral ranches graze sheep, goats, horses and others. The irrigated lands are used for pastoral holdings and fodder production for livestock. Villagers are mainly involved in agrarian sector. Industry in the rayon is focused on textiles (raw cotton production and silk processing), agriculture production of vegetable oils, flour and dairy products, a construction industry, and small-scale business sector.

Figure 4 – Kumkurgan Rayon Map

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According to Oblast data of January 1st, 2007 data the employable population is 75,081 people in rural settlements and 8,487 in Kumkurgan Rayon Center. As of January 1st 2004 the rate of the employed population is about 33% in Surkhandarya Oblast. Average income rate per capita is 33 870 sum in Kumkurgan rayon center. C. Existing Situation in Water Supply and Sanitation A household survey conducted in the Kumkurgan rayon center determined the population of this area suffers from a lack of potable water. The centralized water supply system is badly deteriorated with some parts inoperable. The rayon center is provided with an irregular water supply of about 4-6 hours a day. Power supply is frequently interrupted adding difficulties to water supply. The existing water supply network covers 80% of the Kumkurgan rayon center. There is no centralized sewage system. D. Subproject Based on the Resolution of the Cabinet of Ministers No. 405 and ADB concepts Regional Khokimiyat and Suvokova Trust have identified Kumkurgan Rayon Center with a total population 17,673 people. Overall water supply capacity is rated at 4,016 m³/day. Water supply for the Kumkurgan rayon center is sourced from ground water seeping from the South-Surkhan water reservoir. Water to Kumkurgan rayon center will be delivered from the “Vodokhranilische” water intake. Development will include: 1) “Vodokhranilische” water intake: reconstruction and replacement of pumping equipment for 4 existing boreholes; reconstruction of II elevation pumping plant and replacement of pumping and power equipment; construction and equipping of the chlorination facilities; repair and cleaning of 2000 m³ reservoir; replacement of process communications, reconstruction and site improvement; Rehabilitation and new construction of 35 km. of water mains of D= 150, 100, 50 mm. 2) The sanitation program will include construction 2 ventilated improved pit (VIP) latrines and provision of the toilet compound with water supply and hand washing facilities. The school sanitation improvement program will be accompanied with Hygiene Education Program (HEP) addressed to school children, teachers and makhallya committees. E. Environmental and social impact Given subproject will have beneficial impact on population health through, enhance local economies, contribute to reduction of poverty, and introduce improved hygienic practices and the economic use of water resources. Identified negative impacts during construction are very moderate in extent and can be easily mitigated. The project does not imply negative impacts in the long range. The project will also benefit woman and children, who will be released from the duties of collecting water. Women will participate actively to the organization of local water supply and in the villages’ social life. There will be no displacement of households or other village structures and any involuntary resettlement. Kumkurgan rayon vodokanal will be responsible for the management of the water supply to the communities including (i) the O&M of the water supply and sanitation systems in the villages, water distribution centers and pumping stations, and (ii) collecting fees from the households to cover O&M and depreciation costs.

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F. Subproject Investment and Per Capita Cost

Cost estimates were developed for Kumkurgan subproject using field data that considered possible supply sources, distances from the target communities, treatment facilities required and number of target beneficiaries. Alternative technical options were analyzed for each using least-cost analysis to arrive at the most suitable solution in terms of capital and O&M requirements. The investment cost per capita was derived using target population served in 2014 (completion of the construction) and estimated to 2020. The total investment requirement for the subproject is $1.0 million including taxes, duties and contingencies. With a target population of 17,673 the cost per capita is estimated at $56.6.

G. Economic and Financial Analysis Benefit-cost analysis was undertaken to determine subproject economic and financial viability. The main viability parameters used are the EIRR and ENPV for economic analysis, and FIRR and FNPV for financial analysis. The proposed subproject is economically viable if the resulting EIRR exceeds the economic opportunity cost of capital EOCC at 12%, and ENPV is positive. Similarly, the subproject is financially viable if FIRR is greater than the weighted average cost of capital WACC at 4.2%, and FNPV is positive. In the economic analysis, the quantifiable benefits related to incremental and non-incremental water that result into time-cost savings were compared with capital and O&M costs that have been converted from financial costs using shadow pricing and after elimination of transfer payments. The resulting cash flows were discounted at the EOCC. In the financial analysis, net revenues, calculated at a collection rate of 75-90 % of gross sales, were compared with capital and O&M costs and the resulting net cash flows were discounted at the WACC of 4.2%. The subproject was subjected to sensitivity analysis to assess the effects of adverse circumstances on viability. The sensitivity scenarios include: a 10% increase in capital cost, a 10% increase in O&M cost, a 10% decrease in revenue, and a one-year delay in implementation. The results of the analysis show that the subproject is economically viable with EIRR at 27.9 % and an ENPV of Sum 316 million for the base case. The subproject is also found financially viable with FIRR at 5.8% and an FNPV of Sum 154 million. In all economic and financial sensitivity scenarios, the subproject remained relatively robust. The results are summarized in Table 4

Table 4: Summary Economic and Financial Analysis for Kumkurgan


H. Average Incremental Cost and Cost Recovery In assessing the appropriate water charge to attain the required level of cost recovery, both average economic and financial incremental costs AIC were calculated. AIC is an approximation of long term marginal costs and AIEC is the appropriate target for tariff setting. Subproject AIEC and AIFC are at Sum 114 and Sum 145 respectively. Kumkurgan vodokanal is projected to post a net income starting in year 2017 and ROA of 1.1% to 16.3% from 2016 to 2020. DSR will be greater than 1.2 during the projection period.

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I. Tariff affordability The viability of subproject operation ultimately depends on household capacity to pay for their monthly water bills. As the Project aims to extend water service to the poor within the community, the proposed tariff was tested against the average income of the low-income household. The affordability analysis shows that the proposed tariffs will result to a monthly bill to household income ratio of 0.3 to 1.6 during the projection period for families belonging to the low-income group.

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FS 5 DJARKURGAN SUB-PROJECT А. Project Area Djarkurgan Rayon is situated in the Surkhandarya River valley, between Boysuntau mountain ridge in the west and Babatag mountain ridge in the east. Djarkurgan rayon borders on Kumkurgan rayon in the north, the Republic of Tajikistan in the east, Kizirik rayon in the west and Angor and Termez rayons in the south. The rayon covers 114,284 hectares of which 17,806 ha are classified as irrigated agricultural and 34,280 as pasture. Topography of the rayon ranges from 400 m to 500 m above sea level. Annual mean precipitation level is 250 – 308 mm. Figure 5 presents the rayon map, delineating the subproject existing and planned works.

B. Social and production infrastructure According to Oblast data of January 2007 – 157,371 people reside in the rayon of which 130,090 people (82.7% of the total number) live in 74 rural settlements and 27,281 people (17.3%) live in Djatkutgan rayon center. Population density is 137.7 people/km². Local administration comprises a Rayon Khokimiyat (Municipality), City Khokimiyat and 74 Village Community Assemblies. Dominant agriculture in Djarkurgan rayon is livestock grazing (sheep, goats, horses) and cattle-breeding, vegetable-growing and silkworm breeding. Irrigated lands are used for fodder production on pastoral holdings and crops on farmlands. Villagers are mainly involved in the agrarian sector. Industry in the rayon includes textiles (raw cotton processing by “Surkhantex” Joint Venture), vegetable oil production by JSC “Djarkurgan oil”, a construction industry and small-scale business sector. According to January 1st, 2007 data the employable population is 68,071 people in rural settlements and 13,785 in Djarkurgan Rayon Center. This represents about 8% of the

Figure 5 – Djarkurgan Rayon Map

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employed population of the Surkhandarya Oblast. Average income rate per capita is 23,127.4 sum in Surkhandarya Region. In rural areas household revenues are much lower than in urban industrial centers. C. Existing Situation in Water Supply and Sanitation Household surveys conducted in Djarkurgan center ascertained that the population of this area suffers from a lack of potable water. Currently the centralized water supply system is badly deteriorated with some parts inoperable so the rayon center is supplied on an irregular basis for 4 -6 hours a day. Power supply is frequently interrupted adding difficulties to water supply. Water supply network coverage in rural areas is 52% and in Djarkurgan rayon center is 85%. For domestic needs people use untreated, potentially unsafe, water from nearby rivers and canals. D. Subproject Based on the Resolution of the Cabinet of Ministers No. 405 and ADB concepts Regional Khokimiyat and Suvokova Trust have given priority to Djarkurgan Rayon Center and 17 rural settlements servicing a total population of 53,326 people. Water supply of rural settlements and Djarkurgan rayon center is based on ground water. Water to Djarkurgan rayon center will be delivered from “Djarkurgan” water intake. Development will include: 1) Djarkurgan water intake: completion of pumping station construction with integrated 24х6 chlorination room and supply of pumps and equipment; construction of transformer substation; replacement of process communications; reconstruction and site improvement; completion of the construction of 1400 m³ reservoir; completion of construction of mechanical-repair workshop. Rehabilitation and new construction of 15 km. of water-pipe with variable diameter D= 150, 100, 50 mm. 2) Surkhan” water intake to supply 17 rural settlements. Development will include: drilling and equipping of 7 new boreholes, installation of new pumping equipment in the water distribution center, reconstruction of the existing communications system and installation of water meters; rehabilitation of two 600 m³ reservoirs; construction of a new clean water reservoir of 200 m³; and construction and equipping of chlorinator room. Construction of 10 km of new water main from the pumping plant to Karajogoch village along the main Djarkurgan rayon road will provide supply for most of the rural population. Re-placing 2.5 km of existing transmission main with D= 500 mm and 3.5 km with D= 150 mm, and construction 23 km of new distribution network.

3) The sanitation program will include construction of 3 ventilated improved pit (VIP) latrines and provision of the toilet compound with water supply and hand washing facilities. The school sanitation improvement program will be accompanied with Hygiene and Sanitation Education Program (HEP) addressed to school children, teachers and makhallya committees. E. Environmental and social impact Given subproject will have beneficial impact on population health through, enhanced local economies, contribute to reduction of poverty, introduce improved hygienic practices and the economic use of water. Identified negative impacts during construction are very moderate in extent and can be easily mitigated. The project does not have any long term negative impacts.

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The project will also benefit woman and children, who will be released from the duties of collecting water. Women will participate actively to the organization of local water supply and in the villages’ social life. There will be no displacement of households or other village structures. Implications related to involuntary resettlement are minor and are being compensated in the frame of a resettlement plan. Djarkurgan rayon vodokanal will be responsible for (i) the O&M of the water supply and sanitation systems in the villages, water distribution centers and pumping stations, and (ii) collecting fees from the households to cover O&M and depreciation costs. F. Subproject Investment and Per Capita Cost

Cost estimates were developed for Djarkurgan subproject using field data that considered possible supply sources, distances from the target communities, treatment facilities required and number of target beneficiaries. Alternative technical options were analyzed for each using least-cost analysis to arrive at the most suitable solution in terms of capital and O&M requirements. The investment cost per capita was derived using a target population served in 2014 (completion of the construction) and estimated to 2020. The total investment requirement for the subproject is $ 4.73 million including taxes and duties, contingencies and IDC. With a target population of 62,897 the cost per capita is estimated at $75.2.

G. Economic and Financial Analysis Benefit-cost analysis was undertaken to determine subproject economic and financial viability. The main viability parameters used are the EIRR and ENPV for economic analysis, and FIRR and FNPV for financial analysis. The proposed subproject is economically viable if the resulting EIRR exceeds the economic opportunity cost of capital EOCC at 12%, and ENPV is positive. Similarly, the subproject is financially viable if FIRR is greater than the weighted average cost of capital WACC at 4.2%, and FNPV is positive. In the economic analysis, the quantifiable benefits related to incremental and non-incremental water that result into time-cost savings were compared with capital and O&M costs that have been converted from financial costs using shadow pricing and after elimination of transfer payments. The resulting cash flows were discounted at the EOCC. In the financial analysis, net revenues, calculated at a collection rate of 75-90 % of gross sales, were compared with capital and O&M costs and the resulting net cash flows were discounted at the WACC of 4.2 %. The subproject was subjected to sensitivity analysis to assess the effects of adverse circumstances on viability. The sensitivity scenarios include: a 10% increase in capital cost, a 10% increase in O&M cost, a 10% decrease in revenue, and a one-year delay in implementation. The results of the analysis show that the subproject is economically viable with EIRR at 39.4% and an ENPV of Sum 3246 million for the base case. The subproject is also found financially viable with FIRR at 5.2% and an FNPV of Sum 528 million. In all economic and financial sensitivity scenarios, the subproject remained robust. The results are summarized in Table 5 Table 5: Summary Economic and Financial Analysis for Djarkurgan (including Surkhan)

Particulars Change EIRR ENPV EIRR SV FIRR FNPV Base Case 39.4% 3246 5.2% 528 Investment Cost +10% 27.5% 2645 48% 4.5% 166 O&M Cost +10% 38.9% 3205 1591% 5.1% 469 Benefit -10% 25.3% 1954 40% 4.3% 23 Implementation 1 yr delay 25.2% 2531 21% 4.6% 200 SV = Switching Value

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H. Average Incremental Cost and Cost Recovery In assessing the appropriate water charge to attain the required level of cost recovery, both average economic and financial incremental costs AIC were calculated. AIC is an approximation of long term marginal costs and AIEC is the appropriate target for tariff setting. Subproject AIEC and AIFC are at Sum 136 and Sum 93 respectively for Djarkurgan, and Sum 192 and Sum 338 respectively for Surkhan. I. Tariff affordability The viability of subproject operation ultimately depends on household capacity to pay for their monthly water bills. As the Project aims to extend water service to the poor within the community, the proposed tariff was tested against the average income of the low-income household. The affordability analysis shows that the proposed tariffs for Djarkurgan will result to a monthly bill to household income ratio of 0.2 to 1.0 during the projection period for families belonging to the low-income group. The ratios for Surkhan range from 0.4 to 3.2.

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FS 6 MUZRABAD SUB-PROJECT А. Project Area Muzrabad Rayon is situated in the south-west of Surkhandarya region Muzrabad rayon borders on Angor and Sherabad rayons in the north, Termez rayon in the east, the Republic of Turkmenistan in the west and Afghanistan in the south. The rayon covers the territory of 73,923 hectares of which 18,806 ha are classified as irrigated agricultural lands and 1 865 pasture lands. Topography of the rayon changes from 400 m to 200 m above sea level. Annual mean precipitation level is 200 – 170 mm. Figure 6 presents the rayon map, delineating the subproject existing and planned works.

B. Social and production infrastructure According to Oblast data of January 2008 – 87,282 people (82.6% of the total population) reside in the 56 rural settlements and 18,431 (17.4% of the total number) in Khalkabad rayon center. Population density is 143 persons/km². Local administration is comprises a Rayon Khokimiyat (Municipality), and 56 Village Community Assemblies. Agriculture the dominant economic activity in Muzrabad rayon is livestock grazing (sheep, goats, horses and others), cattle-breeding, vegetable-growing and silkworm breeding. Irrigated lands are used for pastoral holdings and farmlands. Villagers are mainly involved in agriculture. Industry is presented by textiles (raw cotton and silk processing), vegetable oil production, flour milling and dairy products, construction industry, small-scale business sector. According to Oblast data of January 1st, 2007 the number of employable population is 54,053 people in rural settlements. This represents about 5% of the employed population of the

Figure 6 – Muzrabad Rayon Map

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Surkhandarya Oblast. Average income rate per capita is 25,100 sum in Muzrabad rayon. However this rate does not reflect a real situation with household revenues in rural areas. C. Existing Situation in Water Supply and Sanitation The 2007 household survey conducted in the rural settlements of Muzrabad rayon showed that the population of this area suffers a lack of potable water. Currently the centralized water supply system and “Sentralniy” water intake are depreciated and only partially operating. The 29 km. water main was built in 1968 of steel and cast-iron pipes. Due to the highly aggressive soils in the area the pipeline is severely deteriorated (to the point of collapse), and water is available only to communities close to the water intake. Other communities use untreated water from canals supplemented by tanker deliveries organized and paid for by the communities themselves. There is a pumping plant and 500 m³ water reservoir at Kungrad water distribution center, but due to the poor condition of the main transmission line water does not reach this area. The equipment is worn out and needs replacement. For those areas receiving water, frequent interruption of electric power supply means service is irregular. Distribution networks cover 70% of the communities. There is no centralized sewage system. D. Subproject Based on the Resolution of the Cabinet of Ministers No. 405 and ADB concepts Regional Khokimiyat and Suvokova Trust has adopted the list of 22 rural settlements taking water from “Central” water intake. Total population covered by the project is 55,359 people. Total approved water supply availability is 8,102.03 m³/day. Water supply is sourced from ground waters extracted at the “Sentralniy” water intake. Development will include: 1) Sentralniy water intake: Redrilling of 10 boreholes (8 - operating, and 2 – back-up); installation of new pumping equipment; repair of re-lift pumping plant and installation of new pumping equipment; repair of chlorination facilities; cleaning and repair of two 1000 m³ reservoirs and rehabilitation of one 400 m³ reservoir with filter installations; construction of new process communications with water meters installation; internal and external electric power supply; repair of the check point, construction of pit latrine, site improvement. Reconstruction of protection fence. Re-laying of 29 km of non-steel water pipeline of pipes of various size from D=450 mm to D=280 mm Connection of rural settlements to the water main and construction of 50 km. of distribution network D=100-50 mm. 2) Kungrad water distribution center: Repair and equipping of water 500 m³ reservoir; pumping plant repair with installation of new equipment; rehabilitation of process communications and electric power supply. The alternative opting to deliver water by motor transport was also considered during design stage. Comparing the feasibility studies of the two proposed options the first one was approved (water supply from the pipeline and its distribution through Kungrad water distribution center). 3) The sanitation program will include construction of 3 ventilated improved pit (VIP) latrines and provision of the toilet compound with water supply and hand washing facilities. The school sanitation improvement program will be accompanied with Hygiene Education Program (HEP) addressed to school children, teachers, and makhallya committees. E. Environmental and social impact The subproject will have a beneficial impact on population health through, enhanced local economies, contribute to reduction of poverty, introduce improved hygienic practices and the economic use of water resources. Identified negative impacts during construction are very moderate in extent and can be easily mitigated. The project does not foresee any long term negative impacts..

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The project will also benefit woman and children, who will be released from the duties of collecting water. Women will participate actively to the organization of local water supply and in the villages’ social life. There will be no displacement of households or other village structures. Implications related to involuntary resettlement are minor and are being compensated in the frame of a resettlement plan. Muzrabad rayon vodokanal which will be responsible for (i) the O&M of the water supply and sanitation systems in the villages, water distribution centers and pumping stations, and (ii) collecting fees from the households to cover O&M and depreciation costs. F Subproject Investment and Per Capita Cost

Cost estimates were developed for Muzrabad subproject using field data that considered possible supply sources, distances from the target communities, treatment facilities required and number of target beneficiaries. Alternative technical options were analyzed for each using least-cost analysis to arrive at the most suitable solution in terms of capital and O&M requirements. The investment cost per capita was derived using target population served in 2014 (completion of the construction) and estimated period - 2020. The total investment requirement for the subproject is $7.34 million including taxes, duties and contingencies. With a target population of 55,359 the cost per capita is estimated at $132.7

G. Economic and Financial Analysis Benefit-cost analysis was undertaken to determine subproject economic and financial viability. The main viability parameters used are the EIRR and ENPV for economic analysis, and FIRR and FNPV for financial analysis. The proposed subproject is economically viable if the resulting EIRR exceeds the economic opportunity cost of capital EOCC at 12%, and ENPV is positive. Similarly, the subproject is financially viable if FIRR is greater than the weighted average cost of capital WACC at 4.49%, and FNPV is positive. In the economic analysis, the quantifiable benefits related to incremental and non-incremental water that result into time-cost savings were compared with capital and O&M costs that have been converted from financial costs using shadow pricing and after elimination of transfer payments. The resulting cash flows were discounted at the EOCC. In the financial analysis, net revenues, calculated at a collection rate of 75-90 % of gross sales, were compared with capital and O&M costs and the resulting net cash flows were discounted at the WACC of 4.48 %. The subproject was subjected to sensitivity analysis to assess the effects of adverse circumstances on viability. The sensitivity scenarios include: a 20% increase in capital cost, a 20% increase in O&M cost, a 20% decrease in revenue, and a one-year delay in implementation. The results of the analysis show that the subproject is economically viable with EIRR at 11.9 % and an ENPV of $ -17 million for the base case. The subproject is also found financially viable with FIRR at 0.1 % and an FNPV of $ -3 013 million. In all economic sensitivity scenarios, the subproject remained robust. The results are summarized in Table 6.

Table 6: Summary Economic and Financial Analysis for Muzrabad


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H. Average Incremental Cost and Cost Recovery In assessing the appropriate water charge to attain the required level of cost recovery, both average economic and financial incremental costs AIC were calculated. AIFC is an approximation of long term marginal costs and AIEC is the appropriate target for tariff setting. Subproject AIEC and AIFC are at Sum 244 and Sum 436 respectively. Muzrabad vodokanal will generate net income starting only in year 2017, due mainly to higher per capita investment, although net cash flow will be positive from 2015 to 2020. DSR will be greater than 1.2 during the projection period. I. Tariff affordability The viability of subproject operation ultimately depends on household capacity to pay for their monthly water bills. As the Project aims to extend water service to the poor within the community, the proposed tariff was tested against the average income of the low-income household. The affordability analysis shows that the proposed tariffs will result to a monthly bill to household income ratio of 0.3 to 3.6 during the projection period for families belonging to the low-income group.

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FS 7 KIZIRIK SUB-PROJECT

А. Project Area Kizirik Rayon is situated in the west of Surkhandarya region on foothills of Boisuntay mountain range. Kizirik rayon borders on Bangdikhan rayon in the north, Djarkurgan rayon in the east, Sherabad rayon in the west and Angor rayon in the south. The rayon covers 35,127 hectares of which 18,806 ha are classified as irrigated agricultural lands and 1,865 pasture lands. Topography of the rayon ranges from 600 m to 300 m asl. Annual mean precipitation is 200 – 170 mm. Figure 7 presents the rayon map, delineating the subproject existing and planned works.

B. Social and production infrastructure According to Oblast data issued in January 2008 - 81,416 people reside in the rayon with 71 376 people (87.7% of the total number) living in 46 rural settlements and 10 040 (12.3%) in Kizirik rayon center. Population density is 231.8 persons/km². Local administration is structured in Rayon Khokimiyat (Municipality), City Khokimiyat, 8 makhallya committees and 46 Village Community Assemblies. Dominant agriculture in Kizirik rayon is livestock grazing, (sheep, goats, horses), cattle-breeding, vegetable-growing and silkworm breeding. Irrigated lands are used for cotton growing, vegetables, melons and gourds. Industry concentrated in the rayon center processes raw cotton, quarries for construction aggregate, agricultural machinery repair and food products processing. According to January 1st, 2007 data the employable population is 37,696 people in rural settlements and 5,195 people in Kizirik rayon center. As of January 1st 2004 the number of

Figure 7 – Kizirik Rayon Map

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the employed population in Kizirik rayon center was 33%. Average income rate per capita is 31,000 sum in Kizirik rayon. C. Existing Situation in Water Supply and Sanitation Household surveys conducted in Kizirik rayon center ascertained that the population of this area suffers lack of potable water.. Khodjiipak regional trunk main which provide water for this rayon is under reconstruction resulting in irregular water supply averaging about 4 hours a day. Power supply is frequently interrupted adding to the difficulties of supplying water. Water supply network coverage is about 65% in Kizirik rayon center. There is no a centralized sewerage system. D. Subproject Based on the Resolution of the Cabinet of Ministers No. 405 and ADB concepts Regional Khokimiyat and Khodjiipak inter-regional trunk main Directorate Trust prepared a list of rayon centers including Kizirik Rayon Center as one of the subprojects. The total population of the subproject area is 12,018 people. Total water supply volume (water situation) is 2,730.98 m³/day. 1) Water supply to the Kizirik rayon center will come from the Khodjiipak IRTM. Development will include: repair of 2 elevation pumping station and installation of power and pumping equipment; cleaning and repair of three 200 m³ reservoirs; construction of a new 500 m³ reservoir; repair and re-equipping of the chlorination room; replacement of process communications; construction of a sanitary protection zone and site improvements. Reconstruction of 2 km water main D= 150 mm., reconstruction and construction of 24 km of new water mains, D= 100-150mm, house connections and water meter installation.

2) The sanitation program will include construction of 2 ventilated improved pit (VIP) latrines and provision of the toilet compound with water supply and hand washing facilities. The school sanitation improvement program will be accompanied with Hygiene Education Program (HEP) addressed to school children, teachers, and makhallya committees. E. Environmental and social impact Given subproject will have beneficial impact on population health through, enhance local economies, contribute to reduction of poverty, and introduce improved hygienic practices and the economic use of water resources. Identified negative impacts during construction are very moderate in extent and can be easily mitigated. The project does not have any long term negative impacts. The project will also benefit woman and children, who will be released from the duties of collecting water. Women will participate actively to the organization of local water supply and in the villages’ social life. There will be no displacement of households or other village structures. Implications related to involuntary resettlement are minor and are being compensated in the frame of a resettlement plan. Khodjiipak IRTM Directorate which will be responsible for (i) the O&M of the water supply and sanitation systems in the villages, water distribution centers and pumping stations, and (ii) collecting fees from the households to cover O&M and depreciation costs. F. Subproject Investment and Per Capita Cost

Cost estimates were developed for Kizirik subproject using field data that considered possible supply sources, distances from the target communities, treatment facilities required and number of target beneficiaries. Alternative technical options were analyzed for each

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using least-cost analysis to arrive at the most suitable solution in terms of capital and O&M requirements. The investment cost per capita was derived using target population served in 2014 (completion of the construction) and estimated to 2020. The total investment requirement for the subproject is $0.8 million including taxes, duties and contingencies. With a target population of 12,018 the cost per capita is estimated at $66.9.

G. Economic and Financial Analysis (Combined for Angor and Kizirik) Benefit-cost analysis was undertaken to determine subproject economic and financial viability. The main viability parameters used are the EIRR and ENPV for economic analysis, and FIRR and FNPV for financial analysis. The proposed subproject is economically viable if the resulting EIRR exceeds the economic opportunity cost of capital EOCC at 12%, and ENPV is positive. Similarly, the subproject is financially viable if FIRR is greater than the weighted average cost of capital WACC at 4.2%, and FNPV is positive. In the economic analysis, the quantifiable benefits related to incremental and non-incremental water that result into time-cost savings were compared with capital and O&M costs that have been converted from financial costs using shadow pricing and after elimination of transfer payments. The resulting cash flows were discounted at the EOCC. In the financial analysis, net revenues, calculated at a collection rate of 75-90 % of gross sales, were compared with capital and O&M costs and the resulting net cash flows were discounted at the WACC of 4.2%. The subproject was subjected to sensitivity analysis to assess the effects of adverse circumstances on viability. The sensitivity scenarios include: a 10% increase in capital cost, a 10% increase in O&M cost, a 10% decrease in revenue, and a one-year delay in implementation. The results of the analysis show that the subproject is economically viable with EIRR at 21.5 % and an ENPV of Sum million for the base case. The subproject is also found financially viable with FIRR at 2.2% and an FNPV of Sum 699 million. In all economic and financial sensitivity scenarios, the subproject remained relatively robust. The results are summarized in Table 7. Table 7: Summary Economic and Financial Analysis (Combined for Angor and Kizirik)


H. Average Incremental Cost and Cost Recovery In assessing the appropriate water charge to attain the required level of cost recovery, both average economic and financial incremental costs AIC were calculated. AIC is an approximation of long term marginal costs and AIEC is the appropriate target for tariff setting. Subproject AIEC and AIFC are at Sum 52 and Sum 273 respectively. Khodjaipak will implement tariff increases to cover annual increase in total O&M costs. DSR will range from 4.1 to18.3 while ROA will range from 8.2% to 34.7%. I. Tariff affordability The viability of subproject operation ultimately depends on household capacity to pay for their monthly water bills. As the Project aims to extend water service to the poor within the community, the proposed tariff was tested against the average income of the low-income household. The affordability analysis shows that the proposed tariffs will result to a monthly bill to household income ratio of 0.6 to 1.9 during the projection period for families belonging to the low-income group.

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FS 8 ANGOR SUB-PROJECT А. Project Area Angor Rayon is situated in the west of Surkhandarya region on foothills of Boisuntay mountain range. Angor rayon borders on Kizirik rayon in the north, Djarkurgan rayon in the east, Sherabad rayon in the west and Muzrabad rayon in the south. The rayon covers 38,731 hectares. Out of them 10 800 ha are classified as irrigated agricultural lands and 4 213 pasture lands. Topography of the rayon changes from 600 m to 300 m above sea level. Annual mean precipitation level is 200 – 170 mm. Figure 8 presents the rayon map, delineating the subproject existing and planned works.

B. Social and production infrastructure According to the data issued in January 2008 among 107,510 people residing in the rayon, 96,748 people (90.5% of the total number) live in 36 rural settlements and 10,761 (10%) in Angor rayon center. Population density is 246 persons/km². Local administration comprises Rayon Khokimiyat (Municipality), City Khokimiyat, 8 makhallya committees and 46 Village Community Assemblies. Dominant agriculture in Angor rayon is livestock, based on sheep, goat, and and cattle-breeding and grazing the most important economic activities. Non pastoral areas are used for growing, vegetables production, melons, gourds and other crops. Industry in the rayon is focussed on cotton production, agricultural machinery repair and processing food products. According to the data of January 1st, 2007 the number of employable population is 41,277 people in rural settlements and 8,269 people in Angor rayon center. This represents about 4 % of the employed population of the Surkhandarya Oblast (as of January 1st, 2004). Average income rate per capita is 31,650 sum in Angor rayon center.

Figure 8 – Angor Rayon Map

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C. Existing Situation in Water Supply and Sanitation Household surveys conducted in Angor rayon center ascertained that the population of this area suffers lack of potable water. Currently centralized water supply system is badly deteriorated with some parts inoperable. Besides Khodjiipak interregional water trunk main which provide water for this rayon is under reconstruction. That’s why water supply from water main to the settlements is irregular only about 4 hours a day. Power supply is frequently interrupted adding difficulties to water supply. Water situation (water supply coverage rate) in Kizirik rayon center comes to 86%. There is no a centralized system there. D. Subproject Based on the Resolution of the Cabinet of Ministers No. 405 and ADB concepts Regional Khokimiyat and Khodjiipak inter-regional trunk main Directorate Trust have prepared a list of makhallyas in Angor Rayon Center. Total population residing in the subproject area comes to 15,935 people. Total available water supply is 2,800.8 m³/day. 1) Water supply of Angor rayon center is based on the water from Khodjiipak IRTM. Development will include: repair of re-lift pumping plant, installation of power and pumping equipment; cleaning and repair of 2000 m³ reservoir; repair and re-equipping of the chlorination room; replacement of process communications with installation of water meters; internal and external power supply; establishment of sanitary protection zone and site improvement. Replace 2.04 km of 350 mm diameter transmission main, reconstruct and build 24 km. of new distribution networks of variable diameter (100-150 mm). An alternative option to use hard water from the existing borehole with the addition of a water softening plant was investigated at the design stage. After the development of feasibility study the option to use water from Khodjiipak IRTM was accepted. 2) The sanitation program will include construction of 2 ventilated improved pit (VIP) latrines and provision of the toilet compound with water supply and hand washing facilities. The school sanitation improvement program will be accompanied with Hygiene Education Program (HEP) addressed to school children, teachers and makhallya committees. E. Environmental and social impact This subproject will have beneficial impact on population health through; enhanced local economies, contribute to reduction of poverty, introduce improved hygienic practices and the economic use of water resources. Identified negative impacts during construction are very minor and temporary and can be easily mitigated. The project does not foresee any long term negative impacts. The project will also benefit woman and children, who will be released from the duties of collecting water. Women will participate actively to the organization of local water supply and in the villages’ social life. There will be no displacement of households or other village structures. Implications related to involuntary resettlement are minor and are being compensated in the frame of a resettlement plan. Khodjiipak IRTM Directorate which will be responsible for (i) the O&M of the water supply and sanitation systems in the villages, water distribution centers and pumping stations, and (ii) collecting fees from the households to cover O&M and depreciation costs. F. Subproject Investment and Per Capita Cost

Cost estimates were developed for Angor subproject using field data that considered possible supply sources, distances from the target communities, treatment facilities required and number of target beneficiaries. Alternative technical options were analyzed for each

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using least-cost analysis to arrive at the most suitable solution in terms of capital and O&M requirements. The investment cost per capita was derived using target population served in 2014 (completion of the construction) and estimated period - 2020. The total investment requirement for the subproject is $ 2.51 million including taxes, duties and contingencies. At the target population served of 12,325 the cost per capita is estimated at $203.9.

G. Economic and Financial Analysis

Economic and financial was combined for Angor and Kizirik.

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II SUBPROJECT COSTS

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Documents

Technical Assistance Consultant’s Report by David King, Marcus Napud, Nelson Jose, Andrew Mcintyre, Wandert Benthem and Islohotkonsaltservis, Ltd. Tashkent, Uzbekistan For Uzbekistan