Embed Size (px)
Citation preview
Document of
The World Bank
Report No. 14981-LT
STAFF APPRAISAL REPORT
REPUBLIC OF LITEUANIA
SIAULIAI ENVIRONMENT PROJECT
NOVEMBER 9, 1995
Natural Resources Management DivisionCountry Department IVEurope and Central Asia Region
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
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
CURRENCY EQUIVALENTS(as of October, 1995)
Currency Unit = Lithuanian Litas (LT)1 Litas = US $0.25US$1 = LT4.0
WEIGHTS AND MEASlRES
I metric ton = 1,000 kilograms = 2,205 pounds (Ibs)I kilometer (km) = 1,000 meters (m) = 3,281 feet (ft)1 meter (m) = 3.281 feet (ft)1 centimeter (cm) = 10 millimeters (mm)1 millimeter (mm) = 0.1 centimeter (cm)1 cubic meter (m3) = 35.3 cubic feet (cu ft)
LITHtANIAN FISCAL.YEAR
January 1 - December 31
ABBREVIATIONS AND ACRONYMS
BOD = Biological Oxygen DemandCEM = Country Economic Memorandum, published in an expanded
form as: "Lithuania: The Transition to a Market Economy"EAP = Environmental Action Program for Central and Eastern
EuropeEBRD = European Bank for Reconstruction and Development
EIA = Environmental Impact AssessmentEMC = Environmental Management Component
EU = European UnionEU (Life) = A financial instrument of the European Union to support
Environmental PolicyEU (Phare) = European Union Assistance Program for Central and Eastern
EuropeFSU = Former Soviet UnionGDP = Gross Domestic Product
GoLA = Government of LatviaGoLI = Government of Lithuania
HELCOM = Baltic Marine Environment Protection Commission (HelsinkiCommission)
IBRD = International Bank for Reconstruction and Development (WorldBank)
ICB = International Competitive BiddingICR = Implementation Completion ReportIDA = International Development AssociationIMF = International Monetary Fund
IS = International ShoppingIVL = Swedish Environmental Research 'i.tituteJCP = Baltic Sea Joint Comprehensive Environmental Action
ProgrammeLS = Local Shopping
MIS = Management Information SystemMoEP = Ministry of Environmental Protection
MoF = Ministry of FinanceMS = Municipality of Siauliai
NEFCO = Nordic Environment Finance CorporationPER = Public Expenditure ReviewPIP = Project Implementation Plan
PITF = Programme Implementation Task ForcePIU = Project Implementation UnitPSC = Project Steering Committee
REPO = Regional Environmental Protection OfficeSCL = Single Currency LoanSida = Swedish International Development Cooperation Agency
SMEO = Siauliai Municipal Environment OfficeSOE = Statement of ExpenditureSW = Siauliai Water
UN/ECE = United Nations Economic Council for EuropeUSAID = United States Agency for International DevelopmentUSEPA = United States Environmental Protection Agency
VAT = Value Added TaxWWIC = Water and Wastewater Improvement Component
REPUBLIC OF LITHUANIASIAULIAI ENVIRONMENT PROJECT
STAFF APPRAISAL REPORT
Table of Contents
LOAN AND PROJECT SUMMARY ......................................... i
I. BACKGROUND
A. Country Context ............................................. 1B. Sectoral Ct -'text . ............................................. 3C. The Project Area ............................................ 7D. Bank Environment Strategy in Lithuania, Past Experience and Rationale .... ... 11
II. THE PROJECT
A. Project Origin and Formulation .......... ........................ 13B. Project Objectives . .......................................... 14C. Participation by Other Organizations in Project Activities ................. 14D. Project Components and Description .............................. 15E. Cost Estimates ............................................. 19F. Project Financing Arrangements ......... ........................ 20G. Procurement .............................................. 22H. Disbursements ............................................. 24I. Accounts and Audits .......................................... 25J. Environmental Screening . ...................................... 26K. Water Resources Management Policy .............................. 26L. International Waters Issues . .................................... 27M. Participatory Approach . ...................................... 27
III. PROJECT IMPLEMENTATION
A. Organization and Management ............................. 28B. Project Implementation Agencies ............................. 29C. Project Supervision ............................ 29
IV. MANAGEMENT ASPECTS OF "SIAULIAI WATER"
A. Past Performance and Present Position ........................... 31B. Tariff Levels and Revenues ................................. 32C. Billing and Collection ............... - A .,. 33D. Accounting System ................................ 34E. Future Financial Performance .................... 34F. Tariff Affordability ................................... 37G. Financial Risks and Mitigation ............................ 37
V. PROJECT BENEFITS AND RISKS
A. Project Benefits ................................. 39B. Project Risks and Sustainability .................................. 40
VI. AGREEMENTS REACHED AND RECOMMENDATION
A. Agreements Reached During Negotiations .......................... 42B. Condition for Board Presentation ................... .. ..... 43C. Conditions of Effectiveness ................................... 43D. Recommendation ................................... 44
LIST OF TABLES
Table 1. Project Cost Summary by Project Component .. v.................... VTable 2. Disbursement by Year .. v................................ VTable 2.1 Project Cost Summary by Project Component ................... 19Table 2.2 Summarized Financing Plan ............................. 21Table 2.3 Procurement Arrangements ........................ 23Table 2.4 Disbursement by Year .................................. 25Table 4.1 Siauliai Water - Income Statement (1992-1995) .. ... .. 32Table 4.2 Siauliai Water - Financial Projections ........................ 35Table 4.3 Siauliai Water - Exptected Water and Wastewater Tariff Adjustments .... ..... 36Table 5.1 Project Risks and Mitigation Measures ......................... 40
LIST OF ANNEXES
Annex I Project Monitoring Indicators
Annex 2 Siauliai Water Action PlanAppendix 1: Enterprise Strategic Plan - an outlineAppendix 2: Operational Restructuring and Asset Divestiture
Annex 3 Project Description
Annex 4 Terms of Reference4A: Twinning Arrangement4B: Project Steering Committee4C: Project Implementation Unit4D: Water and Sewerage Tariff Study
Annex 5 Table la Project Cost Summary by Project ComponentTable lb Detailed Project CostsTable 2 Financing Plan by YearTable 3 Financing Plan by FinancerTable 4 Procurement ArrangementsTable 5 Implementation of Project Activities, Summary of Procurement PackagesTable 6 Financing Plan by Disbursement CategoryTable 7 Estimated Schedule of Disbursement
Annex 6 Environmental Review of the WWIC
Annex 7 Environmental Data Sheet
Annex 8 Supervision Plan
Annex 9 Financial Analysis
Annex 10 Review of Affordability
MAP: IBRD No. 27027
This report is based on the findings of an Appraisal Mission in June 1995. Members of the projectpreparation team include: Ms. Sari Soderstr6m (Task Manager), Mr. Kari Homanen (Deputv TaskManager), Mr. Stephen F. Lintner (Project Design Advisor/Principal Environmental Specialis.), Mr.Mahesh Babu (Financial Analyst/Consultant), Ms. Camilla Brown (Operations Analyst), Mr. Magnus Enell(Environmental Specialist/Consultant), Mr. Frederick Hasselback (Financial Specialist), Mr. KaleviHeinonen (livestock specialist/consultant); Mr. Inesis Kiskis (Regional Environmental Specialist), Mr.Benoit Laplante (Environmental Economist), Mr. Martti Lariola (Organization and ManagementSpecialist/Consultant), Mr. Jocelyn Mason (Policy Analyst), and Ms. Snezana Mitrovic (ProcurementSpecialist). The following cofinancers participated in project preparation: Mr. Lars Eklund(Environmental Engineer, Sida), Ms. Carola Johansson (Environmental Engineer, Sida), and Ms. Bj0rgStoresund (Senior Executive Officer, Norwegian Pollution Control Authority). Technical assistance forproject preparation was provided by the Government of Sweden. Peer reviewers were Mr. Janusz Kindler(EMTAW) and Mr. Richard MacEwen (EC2AU). The Division Chief is Mr. Geoffrey Fox (EC4NR) andthe Department Director is Mr. Basil Kavalsky (EC4DR).
REPUBLIC OF LITHUANIA
SIAULIAI ENVIRONMENT PROJICT
Loan and Project Summa
Borrower: Republic of Lithuania.
Beneficiaries: Siauliai Water (SW), Ministry of Environmnental Protection (MoEP).
IBRD Loan Amount: US $6.20 million.
Financing Plan: Local Foreign IQTal------- US $ million ---
IBRD, (loan) 2.76 3.44 6.20Government of Sweden (grant) 0.54 4.11 4.65Min. of Environment, Finland (grant) 0.22 1.88 2.10Min. of Environment, Norway (grant) 0.02 1.48 1.50Other Grants (to be confirmed) 0.21 0.19 0.40Government of Lithuania 6.96 0.64 7.60Municipality of Siauliai 0.40 0.00 0.40
TOTAL PROJECT COSTS 1IL"i 1L27 2ZA
Terms: Standard amortization term, grace period and interest rate for fixed rate USdollar single currency loans with an expected disbursement period of 3-6years.
Commitment Fee: 0.75 % on undisbursed loan balances, beginning 60 days after signing, less anywaiver.
Onlending Terms: The Ministry of Finance would provide funds (US $6.0 million) directly toSW payable in 10 years with 4 years of grace at the same interest rate asprovided by the Bank to the Borrower. The remaining funds of US $200,000would be passed on to the Ministry of Environmental Protection.
Objectives: The proposed Project would be the fourth Bank environment project (Haapsaluand Matsalu Bays in Estonia, Liepaja in Latvia and Klaipeda in Lithuania)with the purpose of reducing pollution in the Baltic Sea. The proposed Projectwould forn the first step in taking care of pollution originating from theUpper Lielupe River Basin, which is a major water pollution source into theGulf of Riga portion of the Baltic Sea. The overall purpose of the Project is
- ii-
to address point and non-point pollution sources in the Upper Lielupe RiverBasin and to foster its environmentally sustainable management anddevelopment while also promoting regional environmental cooperation. Themain objectives are to: (a) reduce the pollution load from the Siauliai area intothe Upper Lielupe River Basin, thus significantly decreasing the pollutionloads of this transboundary river into the Gulf of Riga; (b) improve thequality, reliability, and cost efficiency of water supply and wastewater servicesin the Municipality of Siauliai; (c) establish a financially sustainable provisionof municipal services; and (d) improve the regional and local environmentalquality monitoring programs and enforcement systems in the Upper LielupeRiver Basin.
Program CategoryObjectives: The proposed Project would promote environmentally sustainable development
through regional environmental cooperation and the strengthening of regionaland local environmental institutions complemented by investments ininfrastructure and specialized equipment.
Description: The proposed Project would be implemented over four years and would havetwo complementary components: a Water and Wastewater ImprovementComponent (WWIC) and an Environmental Management Component (EMC).The WWIC would include: (a) rehabilitation of selected elements of theexisting water and wastewater systems in Siauliai; (b) construction of a newwater treatment facility for a major well field (iron removal); (c) completionof the new, partially constructed wastewater treatment plant; and (d)institutional strengthening and training of Siauliai Water (SW), which wouldinclude a twinning arrangement incorporating advisory services, training, andinformation technology.
The EMC would consist of: (a) institutional support for the Lithuanian side ofthe "Lielupe River Commission" jointly run by Latvia and Lithuania, throughtraining, technical assistance, equipment and software, and a twinningarrangement with a foreign river basin management organization; (b)improvement of the regional environmental monitoring through technical andfinancial support to Siauliai and Panevezys Regional Environmental ProtectionOffices, including technical assistance, training and monitoring and laboratoryequipment; (c) implementation of a management plan and procedures tomonitor industrial discharges; (d) development of a plan for sludgemanagement; (e) technical and financial support for selected demonstrationactivities for cost effective approaches for pollution control at major pig farmsand improved methods for agricultural run-off control. Complementaryinstitutional strengthening and monitoring activities in Latvia are anticipatedto be supported by donors and carried out separately.
Project Benefits: The proposed Project is a necessary step for the GoLI to fulfill its obligationsunder the international treaty of HELCOM. Without the proposed Project,they would not be able to reduce water pollution originating from Lithuania,as agreed in the treaty. The benefits from the proposed Project are considered
- iii -
to be not only national, but regional and it has been included in the country'sPublic Investment Program, endorsed by the Parliament. The direct economicbenefits of the proposed Project are difficult to quantify. The tangiblebenefits include positive impact on health, implying lower health care costs,and positive impact on tourism, implying increased tourism revenues. Inaddition, short term direct benefits, include employment opportunities forLithuanian technical experts, skilled workers and laborers during theconstruction period of the proposed Project. The non tangible benefits aremore difficult to capture in monetary terms, although it is clear that the netdevelopment impact from the proposed Project is clearly positive. The non-tangible benefits of the project would include: (a) significant improvement inthe water quality of the tributary river that runs into the Lielupe River, thusreducing transboundary pollution into Latvia and ultimately into the Gulf ofRiga; (b) improvement in the quality and reliability of the water andwastewater services in Siauliai; (c) efficient, full cost-recovery pricing ofwater and wastewater services; (d) creation of a financially autonomous"model" utility providing cost effective municipal services supplemented byan adequate social safety net; (e) enhanced regional environmental cooperationand coordination, thus improved preparedness for control of emergencysituations; (f) improved aesthetic conditions around the river and expandeddomestic tourism through recreational use of areas along the river and atJurmala by the Gulf of Riga; (g) better evaluation of problems andmanagement of surface water and regulatory enforcement; and (h)demonstration of low cost control measures for agricultural run-off.
EnvironmentalScreening: The proposed Project has been placed in environmental screening category
"B". An environmental review, consistent with the provisions of the Bank'sOperational Directive 4.01, "Environmental Assessment" and the applicableenvironmental assessment procedures of the Government of Lithuania (GoLI),has been prepared for the WWIC and has been reviewed by MoEP.Supplemental environmental reviews would be prepared as part of the detailedplanning process for activities supported under the EMC. The proposedProject would not involve involuntary resettlement and is not anticipated tohave an impact on known archaeological or historical sites in Siauliai or otherproposed Project areas.
Water ResourcesManagement: The proposed Project is consistent with the Bank's Water Resources
Management Policy by supporting actions to improve the long-termmanagement of this resource through institutional development andcomplementary investment activities.
InternationalWaterwaysOD 7.50: A legal notification by the MoEP to the Latvian Ministry of Environment and
Regional Development concerning the proposed Project has been carried outin accordance with the Operational Directive 7.50, "Projects on International
- iv -
Waterways." The Government of Latvia (GoLA) has expressed its strongsupport for the proposed Project.
ParticipatoryApproach: The preparation of the proposed Project has involved a series of meetings with
representatives of the national government, local authorities, and expertsconcerning the findings and recommendations of the consultants and the scopeand objectives of the proposed Project. Workshops were held at whichinterested parties reviewed and discussed the proposed project. Thesemeetings have been given local coverage in the press, television, and radio.
Risks: The overall risks of the proposed Project include: (a) implementation delaysdue to inexperience with Bank procedures for procurement, accounting, anddisbursement; (b) overrun of construction costs due to the limited experiencewith actual implementation costs, the volatility of local prices, and previouslack of experience with construction activities executed to internationalstandards; (c) problems with timely provision of local funding. Risks for theWWIC include: (a) possible increase of leakages from the water supplydistribution network due to insufficient investments in rehabilitation; (b) lackof political commitment and ability of MS to approve required tariffadjustments; (c) difficulties for SW to collect tariff revenues from consumers;and (d) strong opposition for the organizational restructuring by Siauliai CityCouncil and/or employees. Risks for the EMC include: (a) inadequateinternational cooperation in the International Lielupe River Basin Commission;(b) inadequate coordination of activities between MoEP, MoF, the twoconcerned REPOs, SMEO, local governments, nongovernmental organizationsand other parties; and (c) resistance from local authorities and privatelandowners to proposed land use control measures.
In general, risks would be minimized through close Bank supervision andadequate project management arrangements. The overall Project risks wouldbe minimized by: (a) establishment of a strong PIU whose staff would receivetraining in Bank procurement and disbursement procedures.; (b) project designbased on conservative approaches to cost estimation combined with the use ofappropriate physical and price contingencies; and (c) close supervision ofmonthly disbursements of local funding and availability of interim measuresto bridge local tax collection shortfalls. Risks for the WWIC would beminimized by: (a) additional funding for network rehabilitation in the secondphase of investments; (b) adequate governance structure for SW and decisionauthority for tariff adjustments; (c) extension of the social safety net for lowincome households to mitigate negative impact of tariff adjustments (d)institutional strengthening of SW to improve its financial management, billingand collection practices; and (e) participation of employees in theorganizational restructuring. Risks for the EMC would be minimized through:(a) a well defined framework for routine cooperation between Latvia andLithuania in the International Lielupe River Basin Commission; (b)establishment of implementation teams for each sub-component; and (c) direct
v
public participation in the planning and implementation of proposed"demonstration" activities for the pig farms and agricultural runoff activities.
Government of Lithuania has selected US dollar loan terms because itscurrency is pegged to the US dollar and more than 60% of its foreignexchange revenues are in US dollars. Onlending from the Borrower to SWwould be in US dollars. Siauliai Water has no foreign exchange revenues andconsequently bears a currency risk when borrowing in foreign currency.Under the agreed tariff setting formula, SW would pass on all cost ofborrowing to the final consumers. SW's cash flow is allowing for a relativelyshort repayment period of the subsidiary loan from the Borrower to SW (10years) which would reduce the time during which SW is exposed to theexchange risk.
- vi -
Table 1: PROJECT COST SUMMARY BY PROJECT COMPONENT*exchange rate: US $1.00 = LT 4.00
-------- US $ Million --------Local Foreign Total
A. WATER AND WASTEWATER COMPONENT (WWIC)
Project Implementation Unit 0.14 0.37 0.51Water Supply 1.89 2.09 3.98Wastewater and Sewerage Rehabilitation 0.86 1.30 2.17New Wastewater Treatment Plant 2.96 4.40 7.36Technical Assistance and Training 0.09 1.08 1.17
Base Cost for WWIC 5.94 9.25 15.18
B. ENVIRONMENTAL MANAGEMENT COMPONENT (EMC)
Regional Environmental Monitoring 0.10 0.56 0.66Environmental Protection Activities in the Upper Lielupe River 0.19 0.51 0.70
Base Cost for EMC 0.29 1.07 1.36
Physical Contingencies 0.61 0.94 1.55Price Contingencies 4.27 0.50 4.76
TOTAL PROJECT COSTS: 11.10 11.75 22.85* Additions may not be fully consistent due to rounding up.
Table 2: DISBURSEMENT BY YEAR(Bank Fiscal Years)
1926 1922 129 12 20Bank Fiscal YearAnnual 0.11 1.00 2.27 2.68 0.14Cumulative 0.11 1.11 3.38 6.06 6.20Cumulative % Total 2% 18% 56% 100% 100%
Estimated Closing Date: June 30, 2000
Poverty Category: Not applicable
Economic Rate of Return: Non tangible benefits
Map: IBRD No. 27027
Project Identification Number: LT-PA-35783
I. BACKGROUND
A. Country Context
1.1 Background. Lithuania is the southernmost and largest of the Baltic countries. It covers65,000 square kilometers and has a population of about 3.8 million. About 600,000 people live in thecapital, Vilnius. During the Soviet period, Lithuania industrialized rapidly. It had a strong economy basedon specialized industries and agriculture, and was fully integrated into the larger Soviet system. The majorindustries were machine building, metal working, textile, leather and wood processing, and agro-processing, all of which were geared toward export within the Soviet system. While Lithuania does nothave abundant natural resources, it has inherited a highly skilled workforce and relatively well-developedinfrastructure.
1.2 Macroeconomic Situation and Future Outlook. Since independence in 1991, theGovernment of Lithuania (GoLI) has pursued a reform program aimed at reorienting its economy from acentrally planned to a market system. Progress towards this goal has been substantial, particularly in theareas of price and trade liberalization, currency and tax reform, privatization, and the development of thesocial safety net. However, the transition has not always been smooth, Lithuania's Gross Domestic Product(GDP) has declined more than half since independence. A formal macro-economic program was launchedin 1991, supported by two International Monetary Fund (IMF) standby arrangements (in October 1991 andOctober 1993), based on strict fiscal policy and tight monetary policy.
1.3 GDP began to stabilize in the second half of 1993 and the economy is expected to continueto improve. Economic growth of GDP was positive in 1994 and is expected to rise to 5 % in 1995 beforestabilizing around 4% per year over the medium term. Projected average growth for the period 1994-2000is close to 4.5%, which would imply a recovery to pre-independence income levels around year 2010.This recovery is partly reflected in the increased trade volumes since mid-1993. Annual inflation wasestimated at about 1,020% in 1992 but has declined steadily, except for brief temporary increases in late1993 and May 1994 related largely to energy price increases and the introduction of a Value Added Tax(VAT). Annual average inflation for 1994 was 72%, and is expected to decline to 37% in 1995, and tocontinue to decline gradually over future years. In mid April 1994, the Government pegged the Litas (thenational currency introduced in mid 1993), to the dollar, and instituted a new currency board to eliminatethe scope for discretionary monetary policy and to create a supportive environment for fiscal measures tobe effective. Capital inflows averaged some $20 million per month during 1994.
1.4 Industry and farming are the largest economic sectors in Lithuania. In 1993, agricultureaccounted for about 21 % of GDP while industry accounted for about 27%. Production of meat and milkand breeding of cattle and pigs are the most important sources of income for the Lithuanian farms. Themajority of industrial enterprises in Lithuania are engaged in the production of machinery and machineparts, processed foods, and light industrial products such as textiles, apparel, leather, furniture andhousehold appliances. However, both the agricultural and industrial sectors have suffered a significantdecline of activity since 1991 from the disruption of trading relations with Russia and other FSU countries.It is estimated that much of the decline in industrial output took place by the end of 1992. In 1994, it isestimated that average capacity utilization of enterprises was only 46.5%. Nevertheless, industrialproduction in the state sector had more or less stabilized in early 1993, and given the growth in the privatesector, which still remains partly unrecorded, it is estimated that total industrial output increased duringthe course of 1993 and early 1994.
- 2 -
1.5 The estimated per capita income level in 1994 was US $1,350. There is an increasingdisparity of incomes between those benefiting from a growing market economy and those, such aspensioners and the unemployed, whose incomes are fixed. In addition, the income gap is wideningbetween urban and rural populations. The Lithuanian Bureau of Statistics estimates the nationwideunemployment in March, 1995 at 5.7%. This figure, however, could conceal an unrecordedunemployment as many bankrupt large state owned enterprises, are unable to either pay their employeesor, because of legal constraints cannot release them from employment. The Government is committed tothe development of a comprehensive social protection program. Whereas it is focusing on re-designingand systematizing the social safety net system; progress is being made on the design of a new consumptionbasket to be used as the basis for targeting social assistance; finally, the unemployment system is beingrestructured to cope more effectively with the expected rise in unemployment.
1.6 Pnivatization. Privatization -- except of land -- is moving at a reasonable pace. Althoughthe Government's program aimed at completing enterprise privatization by the end of 1994, only theprivatization of small enterprises was completed by that time. Privatization, through issuance of vouchersto the public, is expected to be completed during 1995. As of June 30 1995, approximately 5,620 ofLithuania's 6,700 state-owned enterprises marked for privatization had been sold. The remaining non-privatized state property will be privatized commercially. The privatization of agricultural enterprises andthe process of land restitution is proceeding slowly, and the development of a land market remains impairedby restrictions on land use. Efforts to privatize the state enterprise sector has had mixed success, althoughthe Lithuanian authorities have, in order to facilitate eventual privatization, undertaken several initiativesto create independent, commercially-oriented entities from previous state-owned conglomerates and largeenterprises. Contraction and restructuring of inefficient agricultural and industrial activities, characterizedby out-dated technology and excess capacity, remain slow.
1.7 Bank Activities in the Country. The main objective of the Bank's country assistancestrategy for Lithuania is to support an acceleration of the economic transformation towards a market systemand a recovery of output and export growth and living standards. In this context, investments to improvepublic services and infrastructure are crucial. The Public Expenditure Review (PER) issued in July 1994,jointly prepared by the GoLI and the Bank, emphasizes infrastructure rehabilitation as a priority area. Todate the Bank has provided the GoLI with a Rehabilitation Loan (No. 3524-LT) of US $60 million inOctober 1992, and as a result of the need to support priority investments in energy and environmentalservices, including improved water supply and wastewater treatment, the Bank approved the PowerRehabilitation Loan (No. 3737-LT) for US $26.4 million in May 1994, the Klaipeda Environment Loan(No. 3816-LT) for US $7 million in December 1994, and the Enterprise and Financial Sector AssistanceLoan (No. 3866-LT) for US $25 million in April 1995.
1.8 Given the presence of numerous active donors and lenders in Lithuania, the CASemphasizes the importance of aid coordination. In all sectors in which the Bank is active, close contactis maintained with the bilateral donors and other major international institutions in order to coordinate areasof emphasis for lending and to mobilize cofinancing and technical assistance. In the case of theenvironment sector, this has included coordination on the preparation of studies, provision of technicalsupport and investment assistance by EU(Life), EU(Phare), NEFCO, Nordic Investment Bank, Denmark,Finland, Sweden and the United States.
- 3 -
B. Sectoral Context
1.9 Institutional Setting. The central environmental protection authority in Lithuania is theMinistry of Environmental Protection (MoEP) which was established in June 1994 and is the successor tothe Environmental Protection Department. The MoEP is responsible for: (a) formulating and implementingLithuania's policy for environmental protection and natural resource use; (b) supervising environmentalassessment procedures; (c) establishing environmental standards and guidelines; and (d) administering andenforcing environmental protection and natural resource use throughout Lithuania, and the nation's BalticSea economic zone.
1.10 Under the overall guidance of the MoEP, eight Regional Environmental Protection Offices(REPO) with environmental laboratories are responsible for enforcing environmental regulations, issuingpermits for projects and providing public information services to the local governments. Given the current44 administrative regions in Lithuania, each REPO covers several administrative regions'. These units areunder the administration of the respective municipality. The principal functions of the REPO's are: (a)determination of natural resource use and pollution charges; (b) pollution monitoring; (c) inspection forcompliance with requirements; (d) imposition of penalties for non-compliance; and (e) negotiation of stepstowards compliance.
1.11 Overall strengthening of the MoEP is provided by EU(Phare) and bilateral donors. ANational Environmental Action Plan is being prepared with support from EU(Phare). The GoLI hasrecently requested donor grant support, on a grant basis, for the implementation of a NationalEnvironmental Monitoring and Laboratory System Program developed with technical support from theUnited States Environmental Protection Agency (USEPA) (see para. 1.17).
1.12 International legislative framework. Lithuania is party to a number of internationalenvironmental conventions and treaties. It has signed and ratified the "Convention on the Protection ofthe Marine Environment of the Baltic Sea Area" ("Helsinki Convention"), which obliges it to undertakeconcrete actions to reduce marine pollution from land based sources and to implement a wide range ofrecommendations on various environmental matters developed by the Helsinki Commission (HELCOM).In this context, Lithuania has been an active participant in many programs of HELCOM, including theProgramme Implementation Task Force (PITF) which is responsible for coordinating implementation ofthe Baltic Sea Joint Comprehensive Environmental Action Program (JCP) adopted in 1992. In addition,Lithuania has adhered to, or is taking steps to, meet requirements of the Bern, Ramsar, and otherConventions concerning the conservation of animal and plant species including their critical habitats andwetlands. It is also active in the Environmental Action Programme for Central and Eastern Europe andthe environmental working groups of the United Nations Economic Commission for Europe (UN/ECE).
1.13 National legislativeframework. Environmental legislation is still under development inLithuania. The current transitional status of the country is characterized by a combination of administrativeprocedures, legislation and standards that were in use before independence and some new laws andprovisions stipulated by the GoLI. There are eight laws directly related to environmental protection. TheGeneral Environmental Protection Law, passed in 1992, is the core of the system. Nine othercomplementary laws are under preparation and review. The most important of these are: the Law on
1 Some cities have recently established Municipal Environment Offices to complement the REPO's.
- 4 -
Environmental Impact Assessment, about to be submitted to Parliament; the Waste Management Law, alsoclose to completion; and the Marine Environmental Protection Law, now under consideration inParliament. The Law on Protected Areas was promulgated in 1993, while a number of new laws, includingones on air quality, water quality, and the protection of wild life and the protection of vegetation, are underpreparation.
1.14 Current environmental standards in Lithuania are mostly those inherited from the Sovietsystem, which include almost 4,000 water quality standards applied which together are more stringent thanthose of the European Union or the United States. As a result of the stringency of the water qualitystandards, the monitoring of these standards was considered to be impossible, and the enforcement ofenvironmental standards was, for all intents and purposes, non-existent. Given Lithuania's participationin various international environmental conventions, in particular HELCOM, the GoLI is currently in theprocess of establishing a system of environmental standards reflecting European Union norms.
1.15 The pollution control policy in Lithuania relies on a mix of command and control regulationand economic incentives. Every industrial unit in Lithuania, including water supply and wastewatertreatment utilities, must obtain a permit to use natural resources and to discharge pollutants in theenvironment. For water, the natural resource permit specifies the quantity of water that the industrial unitcan consume during a given time period for which the firm has to pay a tax as specified by the "Law onTaxes on the Use of Natural Resources" (No. 190, March 1991) which is collected by the MoEP and paidinto the national budget. With respect to water discharges, the MoEP regulates only discharges directlyinto the environment. When a firm discharges pollutants into a municipal sewage network, the regulationof those discharges is the responsibility of the municipality or the receiving wastewater treatment plant.The "Law on Taxes on Environmental Pollution" (April 1992) defines pollution fees as well as penaltiesfor violations. The pollution permit obtained by the industrial unit serves as a basis to calculate the rateat which emissions of pollution are going to be taxed. Pollution charges are paid to the state tax authorities:70% are allocated to the Municipal Environmental Protection Fund, and 30% to national budget. All finesare paid into the State Environmental Protection Fund. The monitoring and enforcement of permitconditions is carried out by the relevant REPO.
1.16 Monitoring. The national water quality monitoring system currently in place in Lithuaniaincludes approximately 45 monitoring stations for receiving water quality measurements fromapproximately 2,600 discharge points. The REPOs have each an inspection unit supported by a laboratory.However, the laboratory equipment at most locations is considered old and obsolete. Consequently,samples are difficult to process accurately and in a timely manner. Moreover, there is no nation-wideaccreditation policy for such laboratories. Hence, despite the fact that emission data are collected fromapproximately 2,000 sources, systematic emissions monitoring is limited. There are no protocols formonitoring methods, and point-source emission data are not necessarily integrated into regional pollutionpatterns. In addition, although regulated industrial polluters must submit their emission data to REPOs ona monthly or quarterly basis, a vast majority of regulated industries lack self-monitoring equipment.Hence, most data submitted to REPOs are estimated on the basis of emissions factors.
1.17 A recent United States financed project to evaluate the Lithuanian air and water monitoringprograms and the laboratory capability necessary to support those programs, provides the following mainfindings and recommendations:
-5 -
(a) that substantial investment in new laboratory equipment, physical plant and samplingapparatus is needed to supply the monitoring programs with a minimum capability to detectpollutants at levels consistent with existing and emerging standards; and
(b) that organizational and procedural changes need to be taken to optimize data collection,analysis, and data management, mainly:
* steps should be taken to develop and implement a rigorous Data QualityManagement Program to improve the quality and the documentation of theprecision of the environmental data; and
* environmental monitoring, data quality and, environmental databasemanagement protocols and standards should be coordinated not only ona national basis but also on an international basis to address commonwatershed issues.
1.18 Country Environmental Policy and Strategy. Lithuania's environmental problems areconcentrated in the urban industrial areas, and improvements in water and wastewater services are one ofthe priorities. A National Environmental Strategy is under preparation with EU (Phare) support and isexpected to be finalized in 1996. At a Bank sponsored "Public Expenditure Conference" held in May1994, the Lithuanian Prime Minister noted that the GoLI has established the following intersectoralinvestment priorities, taking into account the impact on human health, loss of productivity, risk ofirreversible ecological damage and economic efficiency of funds involved: (a) reduction of water pollution,with an emphasis on construction of wastewater treatment plants, as water pollution, resulting fromorganic, nitrogen and phosphorus loads from point and non-point sources, is one of Lithuania's mostserious environmental problems; (b) hazardous waste management, including construction of regionaltemporary storage sites and later construction of hazardous waste treatment facilities; and (c) clean-up ofcontaminated sites which pose the most serious threat to public health and environment. The GoLI alsoseeks to maintain Lithuania's rich biodiversity through protection of areas of critical habitat and byundertaking activities to reduce pollution from agricultural sources. To fulfill these goals the GoLI seeksto effectively coordinate donor funding available for environmental activities by promoting cooperationbetween donors and multilateral actors.
1.19 Water Supply and Wastewater Services. About 90% of Lithuanian urban householdsreceive piped water, while the rural communities mostly extract water from private wells. Average waterconsumption per capita has been estimated at 250 liter/day, which is relatively high compared to an averageof 175 liter/day in western European countries. This high consumption is partially encouraged by theabsence of metering, but can also be explained by leakages in the water distribution system which ingeneral is in poor condition. Leakage rates of drinking water are estimated at approximately 25-35 % andcan be as high as 50% in some water supply systems.
1.20 Groundwater is utilized for drinking water in the major urban and industrial areas due towidespread pollution of surface water and shallow groundwater. In general, deep groundwater suppliesare of good quality and require only limited treatment before consumption. Of the shallow groundwaterwells in rural areas, used by more than one million people, existing data suggest about 77 % are over theEU limits for bacteriological and nutrient contamination.
- 6 -
1.21 About 80% of urban households are connected to piped sewerage systems. Most existingwastewater treatment plants are severely overloaded, resulting in large portions of their flow beingdischarged after partial treatment or being bypassed with no treatment. Existing sewerage systems are inpoor condition, leading to groundwater contamination and an imminent risk of contaminating the watersupply system through infiltration into the water pipes. In addition, infiltration of groundwater and surfacerun off into the sewer system increases wastewater flows, causing additional overloading of the treatmentplants.
1.22 Responsibilities for urban services, including water and wastewater services have beenpassed to municipalities as part of the process of decentralization. Since March, 1995, as the result of anew national legislation, state owned water and wastewater utilities have been turned into municipallyowned, limited joint stock companies. Although the law allows for the privatization of up to 30 % of thestock of the utilities, these are currently owned entirely by the respective municipality. A separate law hasestablished municipal authority for setting the water and wastewater tariffs. The GoLI has reserved its rightto intervene (in some specified occasions) in municipal tariff policy.
1.23 In the past, wastewater tariffs were set to cover only operation and maintenance costs, andwere not allowed to be set higher in order to accumulate funds for capital construction or repair. Thelegislation has now changed, enabling the municipalities gradually to move from fully subsidizedinvestments to full cost recovery and to enter the commercial loan market for financing. Currently, basedon declared priorities, the main part of the National Environmental Protection Fund out of the State budgethas been allocated to investments in the rehabilitation and expansion of wastewater treatment facilities.
1.24 In the PER, a "Five Cities Program" for reducing water pollution was adopted. Theprogram includes: Kaunas, Klaipeda, Palanga, Siauliai and Vilnius. All of these projects are eitherapproved or under preparation: (a) Kaunas, supported by the European Bank for Reconstruction andDevelopment (EBRD); (b) Klaipeda, supported by the World Bank; (c) Palanga, self-financed; (d) Vilnius,supported by Danish assistance; and (e) Siauliai, the proposed Project. The MoEP plans to undertake"second-generation" water and wastewater projects which would address the needs of the secondary cities,towns, and settlements.
1.25 Agricultural Pollution. Although the agricultural activities in Lithuania have declined,agricultural run-off contributea significantly to the overall load of water pollution from Lithuania. The run-off results from the application and storage of manure and fertilizer, the application of pesticides, and fromlivestock operations. Pollution of surface and groundwater resources by manure and fertilizer is caused by:(a) poor application technology; (b) problems with fertilizer balance for specific fields; (c) poor tillagepractices that fail to incorporate manure and fertilizer into the soil; and (d) open and unsealed storagefacilities. Pesticide pollution problems are associated with improper application, poor storage practices,and inappropriate disposal of containers.
1.26 Lithuanian authorities want action to be taken to promote improved agricultural practicesto control current problems and as economic recovery accelerates, to avoid a resurgence of problems ofexcessive use of fertilizers and pesticides. To achieve this objective, Lithuania has undertaken cooperativeapplied research and demonstration programs for management of agricultural run-off with support fromDenmark, Sweden, and the United States. Lithuania also hosted a Baltic regional conference on themanagement of agricultural run-off in 1993, to support the establishment of a regional network of modelcatchment areas and promote the exchange of experience in addressing these concerns in agriculturalextension programs.
- 7 -
C. The Project Area
1.27 The Lielupe River and River Basin. The Lielupe River is the trunk river formed at theconvergence of the two main tributaries, Musa and Memele which flow through Lithuania. The LielupeRiver is the second largest river2 discharging into the Gulf of Riga, close to the city of Jurmala, 20 km westof Riga. The Lielupe River Basin covers a land area of more than 17,500 km2. This land is almost equallydistributed between Latvia and Lithuania. A total of about 843,000 people live within the borders of theLielupe basin, 58% on the Lithuanian side. The land of the river basin is mainly used for agriculture(about 55% of the basin area), while forests cover approximately 30% of the basin. The Upper LielupeRiver Basin is roughly 50% of the total drainage area of the Lielupe River. The Lithuanian part of theLielupe basin comprises two regions and 11 administrative districts, of which four are entirely situatedwithin the basin. The two regions are Siauliai and Panevezys.
1.28 Pollution discharges into the river basin have now reached such levels that there is a publichealth problem: most sections of the river are unsuitable for recreational use, and several beaches on theLatvian coast at Jurmala, the country's main summer resort area, have been closed for swimming forseveral years as a direct result of pollution from the Lielupe River. The discharge from the Lielupe basinconstitutes 12% of the total discharge, and 20% of the nitrate transports to the Gulf of Riga. The largestpollution point source in the Lielupe River basin is the city of Siauliai in Lithuania. Its discharges havemajor adverse effects throughout the basin and the Gulf of Riga. Pollution sources on the Latvian side ofthe river basin are geographically more dispersed. The main non-point source pollution is leakage ofnitrogen and phosphorous from agricultural land. Even though livestock production has declined withinthe basin, four major integrated pig breeding, butchering, and marketing complexes (each producing onaverage 20,000 animals per year) remain in the Lithuanian watershed constituting an important source ofpollution.
1.29 Lielupe River Basin Commission. In 1991, the "Lielupe River Project" was started betweenthe Ministries of Environment of Latvia and Lithuania with the long-term objectives of: (a) demonstratingthe feasibility of cooperative river basin management in the context of the Baltic Sea region; (b)establishment of a joint water quality data base; and (c) development of pollution abatement actions plans.Cooperation between the two countries has been quite effective and a basic inventory of sources and levelsof pollution has been completed. This international project has been supported by the Government ofSweden as a contribution to the Baltic Sea Environment Program. The Swedish Environmental ResearchInstitute - IVL3 has served as the Swedish counterpart organization for project implementation.
1.30 On the basis of initial experience with this cooperative project, the Ministries ofEnvironment of Latvia and Lithuania signed the "Agreement on Environmental Management of the LielupeRiver Basin" in May 1993 which established the "Lielupe River Basin Commission." The Commissiontakes the form of a "joint commission" composed of two delegations: (a) Latvia - Ministry of Environmentand Regional Development, Jelgava Environmental Protection Committee and the Riga EnvironmentalProtection Committee; and (b) Lithuania - Ministry of Environmental Protection, Panevezys RegionalEnvironmental Protection Department and Siauliai Regional Environmental Protection Department. Thefunctions and powers of the Commission include the coordination of cooperative actions to protect the
2 (after the Daugava River).
3 Institutet for Vatten- och LuftvArdsforskning
- 8 -
Lielupe River, by national and local governments within the drainage basin; preparation of cooperativestudies and investigations; and preparation of any future agreements. To date the work of the Commissionhas focused on data collection and baseline monitoring in the context of the cooperative program betweenLatvia. The Governments of Latvia and Lithuania have expressed to the Bank their interest in having theCommission become fully operational and to expand the scope of their cooperation to include theimplementation of priority actions. Priorities for future action include making the Commission operationalat the national and field levels, establishing a permanent monitoring system, providing information tosupport pollution control investments, promoting demonstration activities to control small scale point andnon-point source pollution, and development of an effective emergency warning system.
1.31 Siauliai. The city of Siauliai is situated in northeast Lithuania, some 150 km inland fromthe Baltic coast and about 50 km from the border with Latvia. The region surrounding Siauliai is flat andcrisscrossed by a large number of small rivers, forming the upper reaches of the Lielupe River Basin.Siauliai is situated on one of the smaller tributaries, the Kulpe, which is about three meters across and lessthan a meter deep when it reaches the city. All of the city municipal and industrial wastewater isdischarged into the Kulpe River and, in summer, often constitutes its entire flow. The Kulpe flowsdistressingly within 10 meters of the "Hill of Crosses", the principal tourist site near Siauliai and animportant holy and national shrine for Lithuanians.
1.32 With a current population of 147,000, Siauliai is the fourth largest city in Lithuania. Thepopulation is expected to increase slowly over the next decade to reach approximately 150,000 in year2000. The city's economic base is mainly industrial, the dominant industry being the food processingindustry. The majority of the industries are now operating considerably below capacity, and therestructuring of the economy makes it almost impossible to predict with accuracy which of these industriesare likely to survive in a market economy. However, there are indications that a number of industries, inparticular the brewery, some of the food-related industries, and the bicycle factory could succeed.
1.33 According to the Statistics Office of the Municipality of Siauliai, approximately 88,000individuals are of working age of which about only 50,000 are employed working in private and stateenterprises. Pensioners and those under sixteen years of age are the other two groups of people withapproximately 25,000 and 35,000 individuals respectively. Thirty-five percent of the working populationof Siauliai is currently employed in the industrial sector. Average wages in state enterprises in Siauliairange from 314 LT/month in retail sales to 552 LT/month in the construction industry. Pensioners receivea monthly pension of approximately 120 Litas from the state. The registered unemployed receive between75 and 120 Litas a month for a period of 6 months after registration. In addition, a significant greyeconomy provides many with their primary income or supplementary income.
1.34 Siauliai Water (SWJ. Siauliai Water, a municipally owned joint stock company, provideswater and wastewater services to approximately 85% of the population of Siauliai, or approximately125,000 people. Fifteen percent of the population, mostly in peri-urban areas, draw water from their ownshallow wells and use cesspits and septic tanks for disposal of wastewater. In addition, the utility providesapproximately 80% of the industry's water needs, the remaining industrial needs being satisfied by privatewells. SW currently receives all industrial wastewater from the city in its collection network.
1.35 The organization structure of SW is similar to utilities in the neighboring countries. It ischaracterized by self-sufficiency in the provision of services and a high number of people in both core andsupport services. The water and sewerage networks and process technologies are to a large extent outdated
- 9 -
and require therefore much repair and servicing. Nevertheless, the quality of housekeeping of SW is highthroughout the organization, which reflects good work discipline and competent management. SWcurrently employs more than 560 individuals, corresponding to about five employees per 1,000 servedcustomers. This is about 4-5 times more than in Western Europe on average.
1.36 The transformation of SW from a state enterprise to a municipal joint stock company hasrequired much attention from the City Council, municipal administration and the utility itself. Theobjective to safeguard public interest has created a governance process with an excessive number of layersof political and administrative representatives. In working with MoEP, the Bank, donor agencies, andconsultants, SW has demonstrated a willingness to examine new approaches to management, to developa balanced investment program and to place an increased priority on operation and maintenance issues.SW has drafted a detailed Action Plan (Annex 2), which includes a new governance plan, draft enterprisestrategy, tariff setting process and organizational restructuring plan. As a condition for negotiations, theCity Council transferred the tariff setting authority to the Executive Committee of the MS.
1.37 Water Supply and Levels of Service. Water supplied in Siauliai is generally availablewithout interruption. Drinking water is drawn from groundwater aquifers, and contains high levels of ironand calcium, making it both discolored and excessively hard. Both the iron and calcium levels exceedLithuanian standards and EU directives. Statistics collected by health care centers across Lithuania appearto show the incidence of kidney and liver ailments in Siauliai to be 10-15% higher than elsewhere in thecountry. It is widely believed by medical authorities and municipal officials in Siauliai that this higherincidence is the direct consequence of the iron and calcium content of the water consumed in Siauliai.Water extraction has decreased by about 30% from 60,000 m3 to approximately 40,000 m3 over the last2-3 years due to a decrease in water consumption by the industrial sector.
1.38 Leakage at the water supply station and from the network was estimated to be 7,000 m3/dayor 18% of total water extraction and is anticipated to increase. Such leakage from the system is to beexpected, given the age of the system. The oldest pipes are more than 40 years old, well above theestimated lifetime of steel pipes (estimated 20 years) and cast iron pipes (estimated 40 years). Thecondition of the pipes is worsened by the nature of the pumps (an "on/off" type) causing severe waterhammering. The reliability and energy efficiency of the equipment in the pumping stations are poor andthe supply of spare parts from former FSU sources unreliable. Accordingly, maintenance and energy costsare high.
1.39 Sanitation Facilities and Levels of Service. Industrial plants within the boundaries of theMS (approximately 56 plants, of which 35 are of a significant size) discharge their effluents into themunicipal sewerage system. The existing wastewater treatment plant, located immediately adjacent to aresidential area, is in poor condition and has a short remaining physical life.
1.40 The sewerage system is suffering from lack of rehabilitation, and infiltration of surface andgroundwaters into the system is substantial. In addition, leaks from the sewerage system are a potentialthreat to the groundwater. The sewerage system discharges to a treatment plant, originally built in 1967,and from there to the outfall into the Kulpe River. The existing treatment plant's capacity is below thecurrent flows, resulting in deficient treatment at the plant and routine bypassing of the wastewater flowsdirectly into the Kulpe River. Flow of the wastewater treatment plant is at present approximately 40-45,000 m3/day with a BOD load of 15 t/d. It is estimated that the plant can biologically treat between 35-40,000 m3/day. The average daily production of wastewater in 1994 was estimated to be 46,000 m3/day(25,500 m3 from the residential sector, 7,700 ni from the industrial sector, and 12,800 dh from waterinfiltration caused mainly by the poor condition of the wastewater pipes network). Peak flows, before the
- 10 -
decline in industrial activities, influenced by storm water, have exceeded 100,000 m3/day. The currentaverage BOD concentration of the treated effluent discharged in the river, even following the reduction inindustrial flows due to economic recession, is estimated to be 80-100 mg/l compared with the "HELCOMRecommendation" of 15 mg/I.
1.41 Toward the end of the Soviet period, the construction of a new wastewater plant outsidethe city was started in Siauliai. The new plant was scalcd according to Soviet norms for domestic andindustrial water use and wastewater generation. About half of the civil works for this plant are currentlycomplete. The new facility, however, vastly exceeds in capacity any expected flow from Siauliai, evenunder the most optimistic assumptions of industrial growth. A revised design has been prepared by a jointteam of Lithuanian and Swedish specialists. The revised design takes advantage of the fixed investmentsin civil works and has adjusted the design parameters to those consistent with western design norms.
1.42 SW's sludge handling capacity is inadequate. The wastewater treatment plant wasoriginally designed with a digester, and later with a centrifuge. However, neither of these has ever beenin operation. All the sludge is pumped into lagoons. The first set of these lagoons, covering 13.5 ha, wasclosed in the late 1970's. A second set of lagoons, located at the site of the new wastewater treatmentplant, covering approximately 100 ha, is expected to be filled by 1996. This area includes several pondsfor tannery and slaughterhouse wastes. SW estimates that 12 new hectares of lagoon are needed each year.The sludge is not differentiated according to toxicity. It is believed that the clay soil beneath the lagoonsprevents contamination of the groundwater; however, no groundwater monitoring exists to validate theseclaims.
1.43 Monitoring. There are currently approximately 4,600 water consumption meters(industry, 360; residential, 300; and commercial, 3,940) in operation in Siauliai. There is usually only asingle meter per multi-unit dwelling, discouraging households from undertaking measures to reduce theirwater consumption.
1.44 In order to establish the pollution charges SW and private industrial users have to payMoEP, the pollution content of their effluent must by analyzed on a weekly basis. The REPO monitorsand analyzes the effluent of the treatment plant on a monthly basis and pollution charges are paid by thetreatment plant on a quarterly basis. Plants discharging into the municipal sewerage network have toanalyze the pollution content of their effluent regularly (quarterly for larger plants) and submit to the utilitytheir total discharges of pollutants once a year. Sampling of the plants' effluents by the utility is performedirregularly but tends to be more frequent for larger plants. Compliance with the conditions of the permitsappears to be universal, but this is mainly due to the decline in industrial activity. Though Siauliairegulates the discharges of heavy metals by industrial sources, it is common knowledge that the incentivesare not large enough to induce any abatement of those emissions. The reported presence of heavy metalsin the plants' effluents undermines the efficiency of the biological treatment of the wastewater and makesthe sludge, after dewatering, unsuitable for use in agriculture or forestry.
1.45 The REPO of Siauliai monitors water quality at five different stations in the Siauliai region.Once a month, samples are taken from each of these stations, and the BOD, nitrogen, phosphorous,ammonia, and nitrate content are determined. These analyses are performed in the laboratory of theregional office. Four times a year, samples are analyzed by the central laboratory of the MoEP in Vilniusfor their heavy metals content, including copper, nickel, zinc, chromium, cadmium and lead. However,laboratory equipment is generally obsolete, and the data itself are not sufficiently reliable to identify thepollution load at specific point sources.
- I1 -
D. Bank Environment Strategy in Lithuania, Past Experience and Rationale
1.46 Environment is one of the focal areas of the Bank's country assistance strategy forLithuania; hence, priority investments in the sector, together with the project's intended support to thedecentralization process in the country, ranks highly in the Bank's program. The Bank's approach toenvironmental concerns is to support: (a) preventive measures to avoid adverse environmental impacts,through the use of policy and regulatory measures, environmental assessments, environmental planningmethods and economic instruments; and (b) curative measures to address existing problems of air, waterand soil pollution in a cost effective manner. The investment components should focus on the rehabilitationof critical infrastructure and support well justified and phased expansion of facilities at priority locations,complemented by support for institutional strengthening activities. Also, the Bank looks for a highdemonstration and replication value at the national and regional level. The Bank also seeks to developprojects where resources can be effectively mobilized from other international financial institutions,bilateral donors and non-governmental sources and which support local institutional capacity thuspromoting self-sufficiency for the future.
1.47 In the water and wastewater area, the Bank's strategy for Central and Eastern Europe hasbeen integrated into the Bank's environmental program and presented by the Bank in a number of forums,including the Workshop on Water and Wastewater Utilities held in Riga (1993) and the ResourceMobilization Conference for the Baltic Sea Environment Program held in Gdansk (1993). The keyelements of the strategy are:
(a) establishing strong water supply and wastewater utilities to support sustainable investmentsin municipal water and wastewater treatment through the development of autonomous self-financing municipal/regional public or private water and wastewater utilities;
(b) supporting least cost planning and investment selections for municipal/industrial watersupply and wastewater systems, which are properly sized and designed;
(c) promoting water demand management to maximize investment resources and reduceoperating costs;
(d) supporting actions for rehabilitation of existing systems, improvements in operationalefficiency, phasing and utilization of cost-effective technologies to reduce investment andoperating costs significantly; and
(e) promoting the careful analysis of the impact of industries and taking into considerationactions to reduce industrial water consumption and wastewater discharges.
1.48 Bank experience in the implementation of environmental management projects in Centraland Eastern Europe, to date, centers on the lessons learned from the Haapsalu and Matsalu BaysEnvironment Project in Estonia, the Environment Management Project in Poland, the Liepaja EnvironmentProject in Latvia, and the Klaipeda Environment Project in Lithuania, currently under implementation.These projects demonstrate the importance of:
- 12 -
(a) establishing locally staffed project implementation units which have personnel well trainedin project supervision, financial management and competitive procurement procedures,further supported with proper independent auditing; and
(b) careful monitoring of the availability of local counterpart funds.
These projects also demonstrate the high potential of a well designed and managed project to attract donorsupport for priority activities.
1.49 Bank experience worldwide in the water and wastewater sector is extensive. Importantlessons learned include:
(a) justifying investments in municipal wastewater treatment plants within the context of abasin-wide, least-cost strategy for improving ambient water quality, in accordance with aphased plan for water quality improvements;
(b) making investment decisions that are guided by a medium-term, prioritized least-costinvestment plan covering all of a utility's needs. The definition of this investment programrequires the preparation of comprehensive master plans and feasibility studies; and
(c) validating investment decisions by careful financial plans (including financial projections),complemented by institutional strengthening action plans, to ensure that the proposedinvestment program is financially viable and that the utility is prepared to assume theresponsibility for effective management of systems and facilities.
These lessons have been considered in the design of the proposed project.
1.50 The proposed Project would promote regional environmental cooperation andenvironmentally sustainable management and development of the Upper Lielupe River Basin. It would alsoprovide an opportunity to assist the Lithuanian Government in its efforts to improve its capacity tocoordinate and manage environmental projects, to improve national environmental quality, protect theBaltic Sea and demonstrate environmental management techniques. The implementation of the proposedProject is of particular importance because of the limited absorptive capacity of the Lielupe River Basinwhich extends into Latvia and drains into the Gulf of Riga at Jurmala. In the absence of Bank involvement,it is unlikely that the country would be able to mobilize the technical assistance and financial resourcesrequired to implement the proposed Project in such an integrated manner.
II. THE PROJECT
A. Project Origin and Formulation
2.1 In 1974, the countries of the Baltic Sea region signed the "Convention on the Protectionof the Marine Environment of the Baltic Sea Area" in Helsinki ("HELCOM"). In April 1992, theMinisters of Environment of the Baltic Sea region adopted a Joint Comprehensive Environmental ActionPlan (JCP) which identified a series of priority actions concerning policies and legislation, actions for thecontrol of point and non-point source pollution, measures for the management of coastal lagoons andwetlands as well as institutional strengthening and human resources development to be undertaken aselements of a long-term regional environmental program.
2.2 In Lithuania and Latvia, there has been considerable concern both about the adverseenvironmental effects of point and non-point source pollution discharged directly to the Lielupe River andits tributaries. More than half of the total pollutant load of the Lielupe River originates from the City ofSiauliai in Lithuania while on the Latvian side, pollution sources are relatively small and geographicallydispersed. The Latvian Government (GoLA) has raised its concerns about the transboundary pollutionoriginating from the Lithuanian side on a number of occasions. The GoLI has acknowledged the problem,and when Siauliai was pointed out in the JCP as a "priority Hot Spot" it was concurrently ranked byLithuanian authorities as a high priority for national and foreign investment in environmental protectionand included in the Public Investment Program and approved by the Lithuanian Parliamentary Committeeon Environment and the Cabinet of Ministers.
2.3 MoEP and MS obtained funding for preparation of the feasibility study4 for water andwastewater improvements in Siauliai from the Govermnent of Sweden. Concurrently, personnel fromMoEP, concerned REPOs, the Siauliai Environment Department, and the Swedish Environmental ResearchInstitute, reviewed potential environmental management activities for the Upper Lielupe River Basin.Preparation of the proposed Project included an identification mission in January 1995, a pre-appraisalmission in March/April 1995 and an appraisal mission in June 1995. These visits have also included theparticipation of representatives of Sida, the Finnish Ministry of Environment, and the Norwegian PollutionAuthority.
2.4 The proposed Project would be the second Bank-supported investment project forimprovement of environmental quality undertaken by the GoLI. It was developed by MoEP with theassistance of the Bank as an integrated environmental management project, with emphasis on reduction ofboth domestic and transboundary impacts of water pollution It supports the GoLI's objectives to promotethe decentralization of responsibility for environmental services to municipal governments and torestructure and modernize the water and wastewater sector. The proposed Project is also intended byMoEP to serve as a "model project" to demonstrate actions for management of point source pollution fromrestructured livestock enterprises and control of non-point source pollution from agriculture. In addition,the strategy of the MoEP is to have the proposed Project provide a technical and management frameworkfor an effective application of funds from diverse sources to maximize environmental benefits. Thesebenefits would be reduced if funds were used at a variety of separate locations.
4 Scanvironment (Sweden).
- 14 -
B. Project Objectives
2.5 Project Objectives. The overall purpose of the Project is to promote regionalenvironmental cooperation, address pollution sources in the Upper Lielupe River Basin and promote itsenvironmentally sustainable management and development. The following project objectives would bemonitored according to project monitoring indicators determined during appraisal (Annex 1):
* reduction of various pollutant loads from the Siauliai area into the Upper Lielupe RiverBasin, thus decreasing the transboundary pollution into the river and the Gulf of Riga;
* improvement of the quality, reliability and cost efficiency of water supply and wastewaterservices in Siauliai;
* assist in establishing financially sustainable provision of municipal services; and
* improvement of the regional and local environmental quality monitoring and enforcementsystem in the Upper Lielupe River Basin.
2.6 Complementary institutional strengthening and monitoring activities would be supportedby the Swedish International Development Cooperation Agency (Sida) in Latvia. These activities wouldshare a common design and consultants would be chosen in collaboration with the Bank.
C. Participation by Other Organizations in Project Activities
2.7 The GoLI would provide US $7.60 million equivalent and MS US $0.45 million equivalentin grants for financing Project activities. The limited municipal financing is caused by scarce fundingcapacity and the fact that the proposed Project is a regional environment project, requiring national levelparticipation, rather than a municipal water and wastewater project. The proposed municipal contributionper year constitutes about 5 % of the MS annual budget. Grant funds provided by donors are being madeavailable to MoEP specifically to support an integrated environmental project which has been designed andwould be supervised with the active support of the Bank. Most of the bilateral funds are provided in thecontext of national support for the Baltic Sea Environment Programme and cannot be transferred into otherprojects. Project preparation was coordinated by the MoEP, with the support of the Bank. Representativesof the Governments of Finland, Sweden, and Norway, participated actively in the project preparation. TheBank is assisting in the preparation of terms of reference for the EMC, to be used by participating donors.The following organizations have expressed their intent to support the implementation of the proposedProject:
(a) Swedish International Development Cooperation Agency. The Government of Sweden,through Sida, intends to provide a grant of SEK 29 million (about US $4.0 millionequivalent) to support investments for wastewater treatment improvements in Siauliai andabout US $300,000 to support EMC activities for reduction of non-point source pollution.In addition, the Swedish Government is already funding activities to support the "LielupeRiver Basin Commission"for about SEK 2.6 million (about US $350,000). Sida is alsoreviewing possible additional support for a twinning arrangement with a Swedish riverbasin management organization;
- 15 -
(b) Ministry of Environment of Finland. The Government of Finland, through its Ministry ofEnvironment, intends to provide a grant of FIM 7.30 million (about US $1.7 millionequivalent) to support investments for wastewater treatment improvements in Siauliai (US$1.5 million) and the preparation and implementation of the Industrial PollutionManagement Plan (US $200,000). The Ministry of Agriculture has indicated its interestin supporting the EMC activities (about US $400,000) for pollution control in pig farms;
(c) Norwegian Pollution Authority. The Government of Norway, through its PollutionAuthority, has indicated that it would provide a grant of about US $1.5 millionequivalent to support sewer network rehabilitation and institutional strengthening of SWin the form of a twinning arrangement with a water and wastewater utility; and
(d) Other Potential Donors. The GoLI and the Bank are currently consulting with EU(Phare),the Governments of Denmark, the Netherlands, Switzerland, and other selected bilateraldonors concerning possible additional funding for both components of the proposedProject.
D. Project Components and Description
2.8 Project Description. A Project Implementation Plan (PIP), based on an outline providedby the Bank, is under preparation by the Borrower. The PIP would provide details of the project and itsimplementation. The preparation of the PIP by the Borrower would promote greater sense of ownershipof the project and assure their active involvement in the implementation of the Project. A draft PIP wasdiscussed during negotiations. The final PIP will include an Action Plan (Annex 2) for the SW and anImplementation Program for the EMC. The Action Plan states the SW's operational, organizational, andfuiancial goals in the short- and medium-term and include proposed additional steps for achieving Projectobjectives and enabling efficient implementation of the WWIC. This includes changes in governance, tariffsetting practices, operational restructuring, and incentives for enterprise efficiency.
2.9 The finalization and submission of an acceptable implementation program, for the EMCby MoEP to the Bank was a condition of Board Presentation (para 6.5). During negotiations, it wasagreed that the Project would be carried out in accordance with the SW Action Plan and the EMCImplementation Program, as agreed with the Bank (para. 6.4a).
2.10 The proposed Project, consists of two complementary components, which would beimplemented over four years. A overview of the proposed project is presented as Annex 3. The projectwould comprise:
(a) Water and Wastewater Improvement Component (WWIC - US $21.0 million). This wouldinclude support for rehabilitation, upgrading, and expansion of the water and wastewatersystem, including equipment and works, and engineering services. An important elementfor institutional strengthening would be the contractual twinning arrangement with a waterand wastewater utility. A condition for effectiveness of the proposed Loan is that anagreement for a twinning arrangement between SW and a foreign water and wastewaterutility acceptable to the Bank, has been executed on behalf of SW and such utility, underterms and conditions acceptable to the Bank (para 6.6a) (Annex 4A). Key activities ofthe WWIC would be as follows:
- 16 -
(i) Water Supply and Distribution:
* construction of an iron removal plant at the existing Birutegroundwater well field;
* renewal of pumps requiring high maintenance and supply ofcritical spare parts; and
* carry out a leak detection and control program.
(ii) Wastewater Collection and Treatment:
* rehabilitation of the sewerage system to reduce infiltration andleakage;
* rehabilitation of pumping stations requiring high maintenanceincluding provision of energy efficient equipment;
* rehabilitation of the existing Siauliai wastewater treatment plantto allow operations during the construction of the new wastewatertreatment plant in Siauliai; and
* completion of the new wastewater treatment plant, including mainpumping station, screens, grit removal, primary sedimentation,aeration, phosphorus removal, final sedimentation, and sludgedewatering.
(iii) Technical Assistance and Training for:
* preparation of a detailed tariff study for SW;* support for PIU (engineering design, project coordination and
construction supervision); and* institutional restructuring and strengthening (including the
twinning arrangement) and training for SW.
All sub components, except Birute iron removal plant and the new wastewatertreatment plant consist of rehabilitation of existing networks or replacement ofpumps. The least cost options would be determined during the detailed design andsubsequent bidding process. Alternatives concern selection of materials (e.g.ductile iron versus plastic), construction methods (e.g. no dig or open trenchtechnology) or equipment.
The proposed Birute iron removal plant would be the same design as the existingplant at Dzidai. It is of conventional design, having a minimum level ofsophisticated equipment but still allowing automatic operation with relatively fewoperators required at site. The technology is considered appropriate for theproposed Project because it fits the specific soil conditions, and does not requireadditional land areas which would be a constraint. In addition, the operators arewell acquainted with the current technology.
- 17 -
Two alternative sites were considered for the new wastewater treatment plant: theexisting site, and the site for the partially constructed new plant. The existing siteis very close to residential areas (less than 200 meters) and existing land use wouldmake the storage of sludge from a reasonable distance from the plan impossible.In addition, considerable investmnents have already been made at the new site. Thecost estimate of the new wastewater treatment plant and related sub componentse.g. main pumping station are based on maximal utilization of already builtstructures. Detailed design phase will involve comparison of different alternativese.g. for water and sludge processes which is a normal practice in wastewatertreatment plant projects.
(b) Environmental Management Component (EMC - US $1.85 million). The activities to besupported under the EMC include:
Activity No. 1. Direct Support for the Lithuanian side of the "LielupeRiver Basin Commission (US $300, 000): "* Preparation of an administrative and management framework for
use by Latvian and Lithuanian authorities responsible for theCommission;
-- Establishment of a Commission field office at the REPO inSiauliai to be complemented by a Latvian field office in Jelgavaat the Regional Protection Committee with funding from abilateral donor;
* Training of personnel from the MoEP, Siauliai field office andconcerned local governments in the principles of integrated riverbasin management by a foreign "twinning partner" withcomparable training being offered with bilateral donor support forLatvian experts;
* Advisory support and applied study tours provided by the"twinning partner;"
* Provision of basic office equipment including furniture,computers, photocopying machine, and telefax;
* Establishment of a basic Geographic Information System, on acooperative basis with Latvia, for data collection, storage andanalysis; and
* Establishment of a cooperative emergency warning andmanagement system.
Activity No. 2. Regional Environmental Monitoring and Water QualityLaboratory System (US $850, 000):* Establishment, in cooperation with the Panevezys and Siauliai
REPOs, a regional water quality monitoring system to support thework of the Commission;
* Development of three water quality monitoring stations in theUpper Lielupe River Basin;
- 18 -
* Provision of required portable sampling and analytical equipmentfor field use and complementary equipment for laboratory use foranalysis of the following parameters: streamflow, temperature,turbidity, conductivity, color, pH, alkalinity, oxygen, BOD,COD, phosphorous and nitrogen;
* Equipment for the monitoring and analysis of air and waterdischarges from industrial facilities, including the analysis ofheavy metals;
* Equipment for the analysis of soil and groundwatercontamination;
* Training for personnel in the inter-calibration of equipment,sampling techniques, standardized methods for data collection andanalysis on personal computers and interpretation;
* Development and implementation of a management plan andprocedures to restrict the discharge of industrial wastewaters; and
* Preparation of an evaluation of old and current sludge disposalsites and development of a plan to improve sludge management.
Activity No. 3. Small Point Source Pollution Control (US $400, 000):* Implementation on a "demonstration basis" of cost-effective
management and control actions to reduce pollution at pig farmsin the Upper Lielupe River Basin; and
* Training seminars and technical assistance for representatives ofthe pig farms in the Project area and other livestock producers.
Activity No. 4. Non-Point Source Pollution Control (US $300,000):Implementation of an agricultural run-off demonstration activities;* -Establishment of measurement facilities to assess nutrient runoff;* Annual on-farm inventories to assess responses to changes in
management;* Demonstration activities for the more efficient use of manure,
fertilizers and pesticides;* Measures to limit animal density;* Actions to increase nutrient trapping and improve biological
diversity;* An active extension and information program with an emphasis on
direct farmer participation; and* Complementary activities to improve the management of
household wastes and other measures to protect drinking water.
2.11 It is anticipated that Project supported institutional strengthening activities in Lithuaniaunder the EMC would have complementary activities for institutional strengthening in Latvia supportedby bilateral sources. Discussions concerning funding for these complementary activities in Latvia havebeen initiated with the Government of Sweden.
- 19 -
E. Cost Estimates
2.12 The total cost of the Project is estimated to be US $22.85 million (about LT 91.40 millionequivalent) including contingencies. SW does not have any net Value Added Tax (VAT) payments, all paidVAT is reimbursed to SW and is therefore not included in Project costs. As an environmental project, theproposed Project qualifies for exemption from local taxes. Price contingencies are based on a predictionfor international inflation of 2.5% - 1995-98 and 3% for 1999. Local inflation in Litas is predicted at 26%- 1996, 22% - 1997, 18% - 1998, 14% - 1999. The estimated cost distributed among components is shownin Table 2.1 and in greater detail in Annex 5, Tables la and lb.
Table 2.1: Project Cost Summary By Project Component*exchange rate: US $1.00 = LT 4.00
--- LT million -US $ Million -- % %Local Foreign Total Local Foreign Total Foreign Base Cost
A. WATER AND WASTEWATER COMPONENT (WWIC)
Project Implementation Unit 0.55 1.49 2.04 0.14 0.37 0.51 73% 3%Water Supply 7.55 8.35 15.90 1.89 2.09 3.98 53% 26%Wastewater and Sewerage Rehabilitation 3.45 5.21 8.66 0.86 1.30 2.17 60% 14%New Wastewater Treatment Plant 11.84 17.62 29.46 2.96 4.40 7.36 60% 48%Technical Assistance and Training 0.34 4.33 4.68 0.09 1.08 1.17 93% 8%
Base Cost for WWIC 23.74 36.99 60.73 5.94 9.25 15.18 61% 100%
B. ENVIRONMENTAL MANAGEMENT COMPONENT (EMC)
Regional Environmental Monitoring 0.40 2.25 2.65 0.10 0.56 0.66 85% 49%Enviromnental Protection Activities in the Upper Lielupe River 0.75 2.03 2.78 0.19 0.51 0.70 73% 51%
Base Cost for EMC 1.15 4.28 5.43 0.29 1.07 1.36 79% 100%
Physical Contingencies 2.44 3.76 6.21 0.61 0.94 1.55 61% 9%Price Contingencies 17.06 1.98 19.05 4.27 0.50 4.76 10% 29%
TOTAL PROJECT COSTS: 44.40 47.02 91.41 11.10 11.75 22.85 51%
*Additions may not be fuly consistent due to rounding up.
2.13 The WWIC cost is estimated at about US $21.00 million or LT 84.00 million equivalent,including contingencies. The total WWIC base cost is estimated at US $15.20 million. Physicalcontingencies are estimated at US $1.40 million. Price contingencies would amount to approximatelyUS $4.40 million or 27% of base cost, plus physical contingencies. Total contingencies represent 38% ofthe base cost. Conservative contingency factors have been used given the limited experience withconstruction cost estimates and prices in Lithuania. The foreign exchange component is estimated at aboutUS $10.50 million including contingencies, or about 50% of the total cost of the WWIC.
2.14 The EMC cost is estimated at about US $1.68 million or LT 7.40 million equivalent,including contingencies. The total base cost is estimated at US $1.40 million. Physical contingencies areestimated at US $0.10 million. Price contingencies would amount to approximately US $0.40 million or27 % of base cost plus physical contingencies.
- 20 -
F. Project Financing Arrangements
2.15 Single Currency Loan. GoLI is eligible for single currency loans (SCL) under theexpanded SCL program for 100% of its anticipated FY96 lending program of US $42.1 million equivalent.The Borrower informed the Bank during negotiations that it wishes to borrow in single currency (USdollar) at a fixed interest rate for the proposed Project. The Lithuania delegation justified the choice ofa single currency loan by: (a) the composition and structure of Lithuania's foreign exchange reserve; (b)that Lithuania's currency is pegged to the US dollar; and (c) that more than 60% of Lithuania's foreigntransactions are based on the US dollar. In addition, the Lithuania delegation pointed out that SW wouldbenefit from a fixed interest rate as it would enable more accurate calculations of interest obligations whichis desirable as these calculations impact SW's consumers through water and wastewater tariffs.
2.16 The proposed Bank Loan of US $6.20 million would finance about 27% of total Projectcosts including contingencies. The proposed Bank Loan would finance about 33 % of the foreign costs and26% of the local costs. The Bank Loan would be a fixed rate US dollar single currency loan with standardamortization terms, grace period and interest rate for such loans that are expected to disburse within 3-6years. As no other financing is available, an advance of US $250,000 (or about 4%) has been requestedfrom the Project Preparation Facility (PPF) and would be used to support the immediate establishment ofthe PIU, preparation of bidding documents and to conduct a tariff study for SW.
2.17 WW7C. A portion of the proposed Bank Loan (US $6.0 million) would finance about 29%of the WWIC including contingencies. Parallel grant cofinancing by the Governments of Finland(US $1.50 equivalent), Norway (US $1.50 million equivalent), and Sweden (US $4.00 million equivalent)would comprise about 33 % of total component costs. Local counterpart contribution of LT 30.40 millionor US $7.60 million equivalent would be provided by the GoLI and LT 1.60 million or US $400,000equivalent would be provided by the MS and comprises about 38% of the total component costs.
2.18 EMC. A portion of the proposed Bank Loan (US $200,000) would finance about 11 % ofthe EMC including contingencies. Grant financing would comprise US $1.65 million or 89% of the costs.Parallel grant cofinancing by the Government of Sweden (about US $ 650,000) has been preliminaryconfirmed and additional support for a twinning arrangement with a Swedish river basin managementorganization is under review. The Finnish Ministry of Environment would provide US $200,000equivalent for the preparation and implementation of an Industrial Pollution Management Plan and theFinnish Ministry of Agriculture would provide US $400,000 for activities in the pig farms. Participationof EU(Phare), Governments of Denmark, the Netherlands, Switzerland, and other donors for an amountof at least US $0.40 million equivalent is under discussion.
2.19 A condition for loan effectiveness was that all conditions precedent to the effectiveness ofthe Finnish Grant Agreement, the Swedish Grant Agreement and the Norwegian Grant Agreement havebeen fulfilled (para 6.6b). During negotiations it was agreed that if proposed grantfinancing for the EMCwould not be confirmed by June 30, 1997, the GoLI would find alternativefinancing (para. 6. Ia).
2.20 The Project has been collaboratively designed with the direct participation ofrepresentatives of the Governments of Finland, Norway and Sweden. Extensive discussions have been heldconcerning the respective responsibilities of the cofinancers in implementation and supervision of theProject. Proceeds from the proposed Bank loan would be utilized to finance water supply and wastewatercomponents and selected subcomponents of the EMC. Proceedings from the Finnish, Norwegian andSwedish grants, would finance rehabilitation subcomponents for the old wastewater plant, activities at thenew wastewater treatment plan, and the twinning arrangement. A detailed breakdown of the financing ofsubcomponents by financier is provided in Table lb in Annex 5.
- 21 -
2.21 The sumnmarized financing plan presented in Table 2.2 includes the proceeds of the BankIoan, local contribution and cofinancing. More detailed financing plans can be found in Tables 2 and 3in Annex 5.
Table 2.2: Summarized Financing PlanA. WWIC B. EMC
US $ Million US $ MillionFinancers Lal Foreign Total La Freign TDIIBRD (loan) 2.76 3.24 6.00 0.00 0.20 0.20Min. of Environment Finland (grant) 0.00 1.50 1.50 0.22 0.38 0.60Government of Norway (grant) 0.02 1.48 1.50Government of Sweden (grant) 0.33 3.67 4.00 0.21 0.44 0.65Gov. of Lithuania (grant) 6.96 0.65 7.60Municipality of Siauliai (grant) 0.40 0.00 0.40 0.00Other financers (grant) 0.21 0.19 0.40Total 10.46 10.54 21.00 0.64 1.21 1.85Project Total 22.85
2.22 Onlending Arrangements. The GoLI views the proposed Project as a priorityenvironmental investment, and is therefore willing to guarantee the Bank Loan and to provide direct grantassistance to the municipal government for implementation of the Project. For the EMC, the GoLI's MoFwould pass on the funds received from the Bank (US $200,000) to the MoEP (Siauliai and PanevezysRegional Environmental Protection Office).
2.23 For the WWIC, the GoLI would provide the funds received from the Bank (US $6.0million) directly to SW in US dollars at the same fixed interest rate as provided to the Borrower by theBank. SW would repay the subsidiary loan in 10 years, with a grace period of 4 years. The onlendingwould be The SW together with the MS would enter into a project agreement with the Bank. A conditionof effectiveness of the Bank Loan is that a subsidiary is executed by GoLI and SW (para 6.6c).
2.24 The lack of a mark-up for onlending should be viewed as a means of GoLI supportingmajor deferred investments in rehabilitation of deteriorated infrastructure and critical major capitalinvestments in modern water and wastewater treatment facilities, allowing these companies to becomecapable of developing into effective self-financing organizations. In its current state, SW is not yet ableto raise money for its investments on the commercial market5, thus no displacement of market borrowingis occurring. In the longer term (by year 2001), once the utility becomes fully operational and financiallyautonomous, it would be able to raise its own funds for additional system expansions and treatment plantupgrades.
5 Current commercial market rates for long-term lending are greatly distorted in Lithuania.
- 22 -
G. Procurement
2.25 During negotiations, it was agreed that all goods, works and services to be financed fromthe loan proceeds would be procured in accordance with the "Bank's Guidelines for Procurement '(January, 1995) including amendments as of the loan signing date, using the Bank standard biddingdocuments. Consulting Services would be procured in accordance with the Guidelines for "Use ofConsultants by World Bank Borrowers and by the World Bank as an Executing Agency" (August 1981),including amendments as of the loan signing date (para 6.4b).
2.26 The laws and regulations governing public procurement procedures and the commercialpractices in Lithuania have been reviewed by the Bank. The review found that competitive practices areincreasingly being used in Lithuania both in the public and private sectors. The Bank is assisting theGovernment in developing the legal and institutional framework for public procurement.
2.27 A "General Procurement Notice" containing information about bidding opportunities (forprocurement on the basis of International Competitive Bidding) has been submitted for publication in the"Development Business" in accordance with paras. 2.7 and 2.8 of the Bank Guidelines for Procurement,January 1995.
2.28 Cofinancing would be parallel, thus procurement for non-Bank financed sub-componentswould be carried out in accordance with procurement regulations of the respective financier. The PIUwould carry out the Bank financed procurement for both the WWIC and the EMC. The division betweengoods and works would be determined in the detailed design of the Project sub-components. Detaileddesign would be carried out as a first task by the PIU. Procurement for Bank financed activities would beundertaken in the following manner:
(a) Internatiorsal Competitive Bidding (ICB). All Bank-funded contracts for goods which areestimated to cost more than US $260,000 equivalent per contract would be procuredfollowing ICB The Borrower would use the Bank's Standard Bidding Documents. Onesupply and erect contract would be awarded for civil works and supply of necessary goodsand equipment for the Birute water treatment plant (about US $5.3 million). One contractwould be awarded for pipes for the raising main in the new wastewater treatment plant(about US $1.50 million).
(b) National Competitive Bidding (NCB). Procedures for NCB would be used for contracts forworks under US $120,000. ICB should be used for contracts above that amount. It isanticipated that only one contract for works (about US $120,000) would be awarded underNCB.
(c) International Shopping and National Shopping (IS and NS). Procedures for IS andNS would be used for procurement of smaller contracts up to US $260,000 andUS $50,000 respectively for the WWIC because the cost of ICB would outweigh possibleprice advantages. It is expected that components such as water pumps would be procuredthrough IS. NS procedures would be used for procurement of office equipment andvehicles for the PIU. Contracts awarded under IS procedures for the WWIC (totalingapproximately US $260,000) would be based on comparing price quotations obtained fromat least three suppliers from two eligible countries in accordance with Bank guidelines.Contracts awarded under NS procedures (totaling approximately US $85,000) would bebased on comparing price quotations from at least three local suppliers. For the EMC, IS
- 23 -
would be used for contracts up to US $100,000. Two contracts would be procured for theEMC through IS and would include monitoring and laboratory equipment (totalingapproximately US $150,000);
(d) Sole Source Procurement. Procurement of spare parts for the water supply systemrehabilitation (about US $100,000) would be through direct contracting as the spare partsare anticipated to be available only from very specialized suppliers; and
(d) Consultant Services. Consultant support would be procured for the PIU and training andtechnical assistance to the Siauliai Regional Environmental Protection Office (totalingapproximately US $490,000). Requested consultant services would include support forthe preparation of bidding documents, evaluation, training, and construction supervision.Potential candidates would be short listed and selected on a competitive basis or throughsole source contracting when appropriate, according to Bank Guidelines for the Use ofConsultants (August 1981) and terms of reference acceptable to the Bank. Hiring wouldbe on terms and conditions acceptable to the Bank.
Table 2.3 gives a summary presentation of procurement arrangements. A detailed presentation of allprocurement arrangements can be found in Tables 4 and 5 in Annex 5.
Table 2.3: Procurement Arrangements (US $ Million)Total
Project Element ICB Other N.B.F CostA. WATER AND WASTEWATER COMPONENT(WWIC)
Project Implementation Unit 0.42 1,2 0.24 0.66
0a2 Q.42Water Supply 5.31 0.36 3.4 5.67
Wastewater and Sewerage Rehabilitation 0.12 5 2.91 3.03QA. 0.10
New Wastewater Treatment Plant 1.48 8.80 10.28
QL2 0A2Technical Assistance and Training 0.052 6 1.31 1.36
0a52B. ENVIRONMENTAL MANAGEMENTCOMPONENT (EMC)
Regional Environmental Monitoring 0.25 7,8 0.60 0.850.20 0.20
Environmental Protection Activities in the UpperLielupe River Basin 1.00 1.00
TOTAL 6.78 1.20 14.86 22.85[BRD financed £02 LiL 62underlined nubers M itls = IBRD loan financed portion Consultant Guidelines = US $ million 0.34N.B.F - Not Bank Financed 2 National Shopping - US S million 0.08
3International Shopping - US $ million 0.264Direct Contracting - US $ million 0.10
National Competitive Bidding - US $ million 0.12' Sole Source/Indiv. - US S million 0.052
International Shopping - US $ million 0.150'Sole Source/lndv. - US S million 0.10
total 1.20
- 24 -
2.29 Personnel from SW have participated in a procurement training course, organized by theBank, in May, 1995 in Vilnius. A World Bank Procurement Specialist provided an overview of Bank'sprocurement practices during appraisal. Additional procurement advice would be provided to theBorrower, SW and the REPO before loan effectiveness. The efficiency and capability of the Borrower tocarry out the Bank's procurement procedures would be strengthened through ongoing training, the use ofStandard Bidding Documents, and provision of international procurement expertise for the PIU, financedunder the proposed Loan.
2.30 Procurement Review. As the number of Bank financed contracts is small, and the borrowerhas limited experience with Bank procurement procedures, prior review would apply to all contracts forgoods, works and consultants.
2.31 Procurement Monitoring. Procurement data would be collected and recorded by the PIUfor: (a) prompt reporting of contract award information by the Borrower; (b) comprehensive quarterlyreports to the Bank by the Borrower; and (c) revised timing of procurement actions, including advertising,bidding, contract award, and completion time for individual contracts. A computerized procurementmanagement system would be installed by the PIU.
H. Disbursements
2.32 To facilitate Project implementation, the Borrower would establish a Special Account ina major commercial bank on terms and conditions satisfactory to the Bank to cover the Bank's share ofeligible expenditures. The authorized allocation would be US $500,000 representing about four monthsof average expenditures made through the Special Account. During the early stage of the project, theinitial allocation to the Special Account would be limited to US $250,000. When the aggregatedisbursements under the Loan have reached the level of US $1,000,000, the initial allocation may beincreased up to the Authorized Allocation of US $500,000 by submitting the relevant application forwithdrawal. At the request of the Borrower, and based on Project needs, the Bank would make an initialdeposit or deposits into the Special Account up to the amount of the authorized allocation. Applications forreplenishment of the Special Account would be submitted monthly or when one-third of the amount hasbeen withdrawn, whichever occurs earlier. Documentation requirements for replenishment would followthe standard Bank procedure. Monthly bank statements of the special account which have been reconciledby the Borrower would accompany all replenishment requests. The terms and conditions of theestablishment and operation of the Special Account were agreed during negotiations (para 6. Ib).
2.33 Training in disbursements would be provided to relevant staff of the PIU. The PIU isexpected to benefit from experience gathered by the Klaipeda Environment Project PIU. Disbursementadvice is also available from the Bank's Regional Mission in Riga.
2.34 The proposed Loan is expected to be disbursed over a period of four fiscal years (1997-2000) with an estimated closing date in June 2000. Annual estimated disbursements are shown inTable 2.4. A financing plan by disbursement category is shown in Annex 5, Table 6. An estimatedschedule of disbursement is shown in Annex 5, Table 7.
- 25 -
Table 2.4: Disbursement By Bank Fiscal YearUS $ million
Bank Fiscal Year 1996 1922 1998 1922 20Annual 0.11 1.00 2.27 2.68 0.14Cumulative 0.11 1.11 3.38 6.06 6.20Cumulative % Total 2% 18% 55% 98% 100%
2.35 The proceeds of the Bank Loan would be disbursed as follows:
(a) For goods: 100% of foreign expenditures, 100% of local ex-factory expenditures and 80%of local expenditures for other items procured locally;
(b) For works: 100% of foreign expenditures and 80% of local expenditures; and
(c) For consultancy services and training: 100% of expenditures.
2.36 Disbursement requests would be prepared and submitted to the Bank directly by the PIU.Copies of requests would be sent to the MoF. All cofinancing is parallel, not joint. Thus all confinancerswould manage their own disbursements.
2.37 Disbursements would be made against standard Bank documentation. The documentationto support these expenditures would be retained by the PIU for review by Bank supervision missions andverification by external audits. Disbursement requests would be fully documented except for expendituresunder contracts for goods and equipment valued at less than US $260,000 equivalent and contracts forservices valued at less than US $100,000 equivalent for firms and less than US $50,000 equivalent forindividuals, where statements of expenditure (SOE's) may be used. The minimum size of application forpayments directly from the Loan Account and issuance of special commitments is 20% of the currentSpecial Account authorized allocation.
I. Accounts and Audits
2.38 It was agreed during negotiations that the Special Account would be audited in accordancewith the Bank's "Guidelinesfor Financial Reporting and Auditing of Projects Financed by the World Bank"(March 1982) (para 6. Ic). It was also agreed that SW would have its records, accounts and financialstatements for each fiscal year audited by independent auditors in accordance with appropriate auditingprinciples consistently applied, and that such audits and copies of its financial statements would befurnished to the Bank, no later than six months after the end of each fiscal year (para 6.2). The audit
- 26 -
reports would contain separate opinions on: (a) compliance by implementing agencies with all financialcovenants under the Bank Loan; and (b) the statements of expenditure. It is expected that a local branchof a private, international, commercial auditor, in association with a local auditing firm if available, wouldcarry out the audits, and this arrangement is considered acceptable. Separate project accounts for the EMCwould be kept and submitted for audit at the same time as the WWIC accounts.
2.39 The PIU and the local EMC Project Coordinator, would prepare semi-annual descriptiveand financial reports on each sub component, objective, and Project activity (beginning from the date ofLoan Effectiveness). An Implementation Completion Report (ICR) would be carried out according to BankGuidelines.
2.40 Project performance indicators would be monitored by the implementing agencies inaccordance with methodology acceptable to the Bank as described in Annex 1.
J. Environmental Screening
2.41 Preparation of the proposed Project include environmental studies consistent with therequirements of the GoLI and the provisions of World Bank Operational Directive 4.01, "EnvironmentalAssessment." In accordance with these procedures, an environmental review for the WWIC has beenprepared by "Scanvironment" consistent with the requirements for a category "B" project (Annex 6).Supplemental environmental reviews would be prepared as part of the detailed planning process foractivities supported under the EMC. Representatives of the Siauliai REPO and the Siauliai MunicipalEnvironment Office have participated in the feasibility study process and in the activities of the pre-appraisal and appraisal missions. The environmental reviews for the EMC would be subject to evaluationby the MoEP, the REPO and Bank environmental specialists. Attached as Annex 7 is the Bank'sEnvironmental Data Sheet.
2.42 The proposed Project would not involve involuntary resettlement and is not anticipated tohave an impact on known archaeological or historical sites in Siauliai or other Project areas. The old andnew wastewater treatment plants and sludge disposal facilities are at already established sites.
K. Water Resources Management Policy
2.43 Water Resources Management Policy. In recent years several major studies have beenprepared concerning environmental aspects of water resources management in Lithuania in conjunctionwith the Baltic Sea Environment Program. These include the comprehensive "Pre-Feasibility Study of theLithuanian Coast and Nemunas River Basin" prepared by a joint Lithuanian, Danish and Swedish team,complemented by studies in support of the "Lielupe River Project" undertaken by a joint Latvian,Lithuanian, and Swedish team. In addition, a detailed national study concerning the management ofagricultural run-off has been completed by a joint Lithuanian and Swedish team. A comprehensive reviewof water quality monitoring requirements has been prepared by a team of Lithuanian and Americanspecialists. The activities proposed under the Project have been identified as priority investment actionsunder both the Baltic Sea Environment Program and the Lithuanian PER. They would have a positiveimpact on water resources management through strengthening institutional capacity and improving waterquality in the Upper Lielupe River Basin.
- 27 -
2.44 The proposed Project has been prepared in a manner consistent with the recommendationsunder the Water Resources Management Policy of the Bank. It would support the objectives of the WaterResources Management Policy by: (a) developing the "International Lielupe River Commission" as amanagement organization; (b) strengthening SW and supporting its development into an administrativelyand financially autonomous utility; (c) promoting full cost recovery for water and wastewater services; (d)preparing a plan to control the discharge of industrial wastewaters in Siauliai; and (e) establishing apractical water quality monitoring systems at regional and local levels. The responsible implementationagencies for the WWIC and EMC (MoEP, Panevezys and Siauliai REPOs, SW, and SMEO) are establishedorganizations with legal authority and responsibility for water resources management functions.
2.45 With regard to non-point source pollution management the MoEP intends to support theimplementation of the recommendations from the 1993 Lithuanian-Swedish study, in cooperation with theMinistry of Agriculture. Water quality monitoring efforts would be based on implementation of therecommendations of the recently completed Lithuanian-USEPA study.
L. International Waters Issues
2.46 A legal notification concerning the proposed Project by MoEP to the Latvian Ministry ofEnvironment and Regional Development has been carried out in accordance with the Operational Directive7.50, "Projects on International Waterways". The Government of Latvia (GoLA) has expressed its strongsupport for the proposed Project, and its intent to cooperate fully for its successful implementation.
M. Participatory Approach
2.47 The proposed Project was prepared with the direct participation of the MoEP, Panevezysand Siauliai REPOs, MS, Siauliai City Council, SMEO and municipal health authorities. A series ofworkshops were held at the offices of SW at which interested parties reviewed and discussed the findingsof the consultants and local experts. A similar process was used during Bank identification, pre-appraisal,and appraisal missions in which meetings with up to 40 participants were held to review the scope andobjectives of the proposed Project. These meetings have been the subject of significant coverage byregional and local press, radio and television. In addition, meetings have also been conducted by the Bank,at the request of MoEP, with representatives of the Latvian Ministry of Environment and RegionalDevelopment and the Jelgava Regional Environmnental Protection Committee to review currenttransboundary pollution impacts and to assess benefits from planned pollution control measures to besupported under the proposed Project.
III. PROJECT IMPLEMENTATION
A. Organization and Management
3.1 Project Coordination. The GoLI's MoEP would provide overall coordination to theProject, coordinating actions of funding organizations and local implementing agencies and managinginteractions with the Bank. The coordination would be carried out by the MoEP's Economics and ForeignRelations Department where the MoEP has appointed a Project Coordinator to perform this task.
3.2 Project Steering Committee. To facilitate implementation of the proposed Project and topromote communications between the various parties of the proposed Project, the MoEP would establisha Project Steering Committee (PSC). The PSC would provide general guidance and it is anticipated thatthe PSC would include representatives of MoEP and MoF, the Environmental Advisor to the Government,the Environmental Advisor to the Nature Protection Committee of the Parliament, staff of the Ministry ofUrban Affairs and Construction, MS, and SW, and representatives of local government authorities whereenvironmental management activities would be undertaken. Draft terms of reference for the PSC werediscussed during appraisal (Annex 4B).
3.3 Project Implementation Unit. Implementation of the WWIC would be delegated to SW.The director of SW would be responsible for supervision of all Project supported activities concerningwater and wastewater. The EMC would be coordinated and supervised by the MoEP. Implementation ofthis component would be delegated to the Regional Environmental Protection Office's (REPO) in Siauliaiand Panevezys, Siauliai Municipal Environment Office, and other local authorities. A local EMCcoordinator has been nominated by the MoEP. A Project Implementation Unit (PIU), located within SWwould be established. The PIU would carry out all implementation and supervision of the WWIC. Forthe EMC, the PIU would provide assistance in procurement, disbursement, and project administration.The PIU would be assisted, as required, by international consultants to support the preparation of technicalspecifications, bidding documents, tendering, bid evaluation, contract awards, supervision of civil worksand equipment installation, and follow-up activities. Draft terms of reference for the PIU were discussedduring appraisal (Annex 4C). Establishment of the PIU within SW with functions and responsibilitiesacceptable to the Bank, with staff that shall include a director, an accountant, an English speaking assistantwhose qualifications and terms of reference are acceptable to the Bank, and a consultant to the PIUproviding project management and procurement advice, whose qualifications and terms of reference areacceptable to the Bank, would be a condition for Loan effectiveness (para 6.6d).
3.4 Project implementation is anticipated to begin in May 1996 and would be carried out overa four-year period. The estimated disbursement period is two years shorter than the Bank's average forsimilar projects. A number of contracts are anticipated to be ready for bidding by the time of Loaneffectiveness. Bank experience with implementation of environmental management and small-scale civilworks projects are limited in Central and Eastern Europe; however, given the small size and limited scopeof the proposed Project, the current advanced state of completion of major elements of the required civilworks for the new wastewater treatment plant, and assessment of the implementation capacity in Siauliai,a four-year implementation appears reasonable.
3.5 In the case of the EMC, this time frame is justified by the successful negotiation andsigning of the joint Latvian and Lithuanian agreement establishing the "International Lielupe RiverCommission," the three years of experience gained by the two countries in cooperative data collectionunder the Swedish supported "Lielupe River Project", and success to date in cooperative agricultural run-off management activities undertaken with support from Denmark and Sweden.
- 29 -
B. Project Implementing Agencies
3.6 Ministry of Environmental Protection. The MoEP has adopted a decentralized approachto environmental management through a network of REPO which provide local level support for theimplementation of its policies and programs. The regional offices are supported by recently establishedmunicipal units in a number of selected cities, including Siauliai. An assessment of project implementationcapacity of the REPOs in Siauliai and Panevezys and the Siauliai Municipal Environment Office wascarried out during appraisal causing institutional support and strengthening activities to be included in theEMC.
3.7 Siauliai Water. The MoEP has appointed SW to implement the WWIC. This approach isfully consistent with the policy of the MoEP to support the decentralization of environmental managementresponsibilities to local authorities. In the past, municipal water and wastewater services in Lithuania havebeen provided through state owned enterprises. Since 1991, the management of these enterprises weredelegated from the central government to the municipal governments. The ownership of the assetsremained with the state. In March, 1995, as a part of the GoLI's broad strategy to decentralize municipalservices, the ownership of all water and wastewater assets were transferred to the managing municipalitiesin accordance with recently passed national legislation, SW was subsequently established in March 1995as a 100% municipally-owned, limited joint stock company responsible for providing municipal water andwastewater services.
3.8 Siauliai Water is managed by a Director appointed by MS. In addition, MS appoints themembers of an internal Management Board of SW consisting of executives of SW and the ChiefEnvironmentalist of the MS. The Management Board is chaired by the Director. SW's annual budget andtariffs were prepared by the Director, presented for the approval of six different committees of theMunicipality before submitted for voting in the City Council. Since September 28, 1995, as a conditionfor negotiation of the proposed Loan, the City Council transferred the tariff setting authority to theExecutive Committee of MS. During negotations, agreement was reached, that except as the Bank shallotherwise agree, the responsibility for setting water and wastewater tariffs would be maintained with theExecutive Committee of the MS, which includes the Mayor, Vice Mayor and six Chairmen of the StandingCommittees of the Siauliai City Council (para 6.3a). Currently SW lacks a supervisory board or board ofdirectors that is independent from the utility and that represent the interests of the public/owner. Acondition for loan effectiveness is that a Supervisory Board of SW with composition and functionsacceptable to the Bank has been created, and SW Statutes have been amended in accordance withapplicable laws of the Borrower and in manner satisfactory to the Bank to reflect the creation of suchSupervisory Board (para 6. 6e). The Supervisory Board would be responsible at least for approving the SWannual budget and for reviewing the tariff proposal for the Executive Committee of the Municipality. TheAction Plan further defines and clarifies the division of decision making powers between the City Council,the Executive Committee of the Municipality, the Supervisory Board and SW.
C. Project Supervision
3.9 The proposed Project would be supervised by Bank staff in accordance with a proposedsupervision plan summarized in Annex 8. Representatives from MoEP and the donors (Sida, FinnishMinistry of Environment, and the Norwegian Pollution Authority) have informed the Bank that they wouldparticipate in joint supervision missions. Supervision of the proposed Project would be particularly intense
- 30 -
during the first two years when considerable input would be required for: (a) procurement aspects of theWWIC; and (b) preparation and initial implementation of activities under the EMC.
3.10 A mid-term review would be conducted around April 1998 to evaluate overall Projectprogress including progress towards the SW's Action Plan and to assess the development andimplementation of an amended tariff structure (see terms of reference, Annex 4D). During the mid-termreview, adjustments would be made in the implementation schedule, if deemed necessary, to improve SW'smanagement capacity, and review the long-term tariff rates based on the findings of the tariff study.
IV. MANAGEMENT OF FINANCIAL ASPECTS OF "SIAULIAI WATER"
A. Past Performance and Present Position
4.1 Overview. The Municipality of Siauliai expects its water and wastewater utility, SW, todevelop into a financially sound municipal enterprise, able to provide services to its customers in a costeffective manner. At the same time the City Council has to develop its own Corporate Governancerequirements which balance municipal interests, social interests, oversight of public funds, and also permitsthe management to exercise full professional judgement. In turn, in order to develop into an efficiently runutility, SW needs to improve its technology and financial management through undertaking complementaryinvestment, cost reduction and institutional strengthening activities.
4.2 Central to the approach of institutional strengthening in the proposed Project is thedevelopment of a formal "twinning arrangement" on a contractual basis with an experienced water andwastewater utility. In SW there is significant potential for improving operational efficiency at the technicaland managerial level. The Twinning Arrangement would assist SW to identify and realize potential costsavings. SW and MS has also shown interest in exploring alternative ways to provide the services in amost cost effective manner. Support for a review of various alternatives is included in the proposedProject. To assure full transparency in potential changes in management of the water and wastewaterservices, during negotiations, it was agreed that SW shall not implement any substantial management,structural or operative changes without prior approval of the Bank (para 6.3b).
4.3 Past Performance. SW's financial statements for the years 1992-1994 show that althoughthe utility has managed to cover costs, there has been a deterioration in financial performance. Pre-taxincome as a percentage of revenue, has decreased from 35 % in 1992 to 20% in 1994, and is expected tofurther decline to 5% in 1995. This decline can be explained by: (a) the significantly reduced localindustrial activities that has caused a drop in the volume of produced water and treated sewage6 ; (b) tariffsthat have not been adequately adjusted for inflation; (c) increased charges in depreciation due to inflationindexing of the assets; and (d) real input price increases (energy and material). As a result, the workingratio7 has increased from 0.63 in 1992 to 0.66 in 1994, and the operating ratio8 has increased from 0.65to 0.80 during the same time period.
4.4 This declining trend in performance is expected to continue through 1995 with the workingratio deteriorating further to 0.75 and the operating ratio to 0.91. The primary reason for the continuingdeterioration in financial performance in 1995, is a continuing reduction in volume of water and wastewater billed, coupled with a 11 % real decline in water prices and a 9 % decline in waste water prices from1994 to 1995. Also, staff costs have increased by 18 % in real terms between 1994 and 1995. A summaryof SW's financial performance is presented in Table 4.1.
6 Total billed water and wastewater volume, decreased approximately 27% from 1992 to 1994.
7 Working ratio = operating expenses divided by operating revenue.
8 Operating ratio = operating expenses, depreciation, and interest expenses divided by operating revenue
- 32 -
Table 4.1: Siauliai Water - Income Statement 1992-1994 (actual9), 1995 (estimated)
Mid-95 Constant US$ 000 1992 1993 1994 1995
Tariffs- Water (US$/m3) 0.72 0.30 0.22 0.20- Waste Water 0.60 0.28 0.19 0.17
(US$/m3)
Operating Revenues 23,318 7,592 5,134 4,382
Operating Costs 13,900 5,156 3,119 3,074
Environmental Charges 785 389 260 228
Depreciation 481 187 691 691
OPERATING PROFITS 8,151 1,860 1,065 389
Provision for Bad Debts - - - 178
Interest costs 93 19 59 0.18
NET INCOME BEFORE 8,058 1,841 1,006 211TAXES
Taxes 2,634 593 146 109
NET PROFIT AFTER 5,423 1,248 860 102TAXES
WORKING RATIO 0.63 0.73 0.66 0.75
OPERATING RATIO 0.65 0.76 0.80 0.91
Source: SW annual accounts and mission estimates (1995).
4.5 During the historic period reviewed, SW's ability to service debt is not relevantbecause GoLI has provided financing for the capital investment program in the form of grants.Currently, the enterprise has only small levels of short term bank loans, which will be repaid in 1995.
B. Tariff Levels and Revenues
4.6 All customers have the same base rates for their water and waste water services. As ofJune, 1995 the water tariff was adjusted to 0.78 LT/m3 (US $0.20), and the wastewater tariff to 0.69 LT/m 3
9 SW's historical financial statements should not be utilized to judge past financial performance, or becompared with the current financial position.
- 33 -
in 1995 (US $0.17). Industry is charged for their wastewater in accordance to their pollution loads byvolume. Currently, a Value Added Tax (VAT) of 18% is levied on industry and budget customers'°.Effective January 1, 1996 household customers will also pay the VAT. The tariff structure is in avolumetric form and does not include any standing charges or incremental charges for higher levels ofconsumption. The tariff structure needs to be reviewed in detail. During negotiations it was agreed thatSW would carry out a water and wastewater tariff study by October 30, 1996 in accordance with terms ofreference acceptable to the Bank with assistance of a consultant satisfactory to the Bank (Annex 4D) andtake all action required to implement the recommendations by June 30, 1997 (para 6.3c). In theinstitutional strengthening component of the proposed project, assistance for tariff planning and financialoperations would be provided based on the results of the tariff study.
4.7 SW's tariff policy has been aimed at cost recovery as granted by legislation. Analysis showthat the current water and sewerage tariffs are inadequate to cover all necessary cash and non-cashexpenses such as: (a) planned maintenance; (b) a provision for bad and doubtful debts; and (c) depreciationreflecting replacement cost accounting. The appraisal estimate of total required tariff increases to covertotal cash and non-cash costs is approximately 12-15%" in real terms each year for the next three yearswhereafter, full cost recovery would be achieved. During negotiations it was agreed that except as theBank shall otherwise agree, the level of the water and wastewater tariffs be increased by at least 15 % inreal terms by March 15, 1996, in accordance with methodology acceptable to the Bank (para. 6. 3d).
C. Billing and Collection
4.8 Consumers are divided into residential, industrial and budget customers. The system has4,700 customers (80% residential, 16% industrial and 4% budget) which are all metered'2 , though not allmeters are functioning.
4.9 Collection: Collection is currently not a major problem. The 1994 average collectionperiod, defined as annual collections over annual billings, is estimated at between 45 - 60 days which isnormal for a water utility. SW currently utilizes the services of collection agencies. State-owned apartmentblocks, still under state administration, are responsible for most of the outstanding payments. SW claimsthat this is largely because of the legal difficulty they have in disconnecting the apartment blocks' servicesfor non-payment. SW penalizes delinquent accounts at an interest charge of 0.2% per day for outstandingbills exceeding 40 days for individual and budget customers, and 10 days for industrial customers.Disconnection of water services is effected after a number of warnings. Cooperative apartment blocks arefairly current in their payment, reportedly because of both the interest penalty and the risk ofdisconnection.
10 Schools, hospitals, other municipal establishments and commercial non-industrial establishments.
11 provided there is no devaluation during this period which would result in large real increases of energy costs.
12 Block houses have one meter at the 'entrance", thus few individual apartments are metered. Meters forindustrial and budget subscribers are read by SW personnel on a monthly basis. Individual subscribers areresponsible for recording their meter information in a coupon book provided to them by SW. Thisinformation is verified by SW on a quarterly basis.
- 34 -
4.10 Records for all subscriber accounts in SW are currently maintained by hand, making itdifficult to analyze outstanding accounts. The utility is making significant progress towards computerizingall aspects of billing and collections. The computerization is progressing slowly due to lack of funds foradditional software and hardware purchases, and the low levels of computer knowledge among enterpriseemployees and workers. The proposed project would include support for information technology andadequate computer skills training.
D. Accounting System
4.11 The financial statements continue to be based on the former Soviet Union cash basedaccounting system. External auditing according to normally accepted international practices has not beenmade, although municipal officials undertake an annual review of the accounts. State officials also makean annual tax inspection. The SW Action Plan will prescribe the transition to an internationally recognizedaccounting system.
4.12 SW's historical financial statements should not be utilized to judge past financialperformance, or be compared with the current financial position. Assets are revalued using an inflationindex as opposed to a replacement cost procedure. The tariff study would address this issue in more detail.
4.13 The accounting is also undergoing computerization, but is still mainly carried out manually.The project supports the installation of a Management Information System (MIS), which would be linkedwith both operational budget planning and a strategic planning system.
E. Future Financial Performance
4.14 Financial projections show that SW is capable of servicing a total debt of approximatelyUS $6.0 million. The projections are built on recommended real tariff adjustments which wouldachieve the following financial ratios.
debt service coverage ratio'3 above 1.5 each year;
working ratio of 60% or below; and
- operating ratio below 85 %.
A summary of the financial projections are presented in Table 4.2.
13 defined as Net Profit after taxes, add back depreciation and interest, divided by interest payments andprincipal repayments.
Table 4.2: Financial Projections
(Constanit Mid 1995 US Dollars) simald | -- ----- ------------------------------ Projected-------------------------------
19951 1996 1997 1998 1999 2000 2005 2010
Water Tariffs (US$/m3) 0.20 0.22 * 0.26 0.29 0.29 0.29 0.29 0.29
Waste Waler Tariffs (US$/m3) 0.17 0.20 0.23 0.26 0.26 0.26 0.26 0.26
Percentagc Real Increase 0% 15% 15% 12% 0% 0% 0% 0%
FPROFIT AND LOSS
Gross Revenue 4382 5019 5786 6508 6574 6640 7080 7562
Operating Cost 3302 3043 3255 3480 3250 3440 3468 3548
Gross Margin 1080 1976 2531 3029 3324 3200 3612 4014
Net Income After Taxes 97 457 .432 709 898 753 1158 923
( = annual relained eamings)
Working Ratio(l) 75% 61% 56% 53% 49% 52% 49% 47%
Operating Ratio (2) 91% 83% 85% 81% 78% 81% 76% 80%I
BALANCE SIIEET
Cummulative Cash 935 2156 3770 3729 4021 2982 3771 5169
Net Working Capital 1100 2382 4084 4130 4410 3403 4229 5676
Cash as % of Working Capital 85% 91% 92% 90% 91% 88% 89% 91%
Net Fixed Assets 21,869 29,360 36,857 39,562 40,258 41,057 40,491 44,524
Long Term Debt 0 2903 5662 5923 6000 5000 0 0
Owner's Equity 22790 28412 34508 36302 36302 36302 36302 36302
of which Statutory Capital Reserve Fund 48 72 95 132 179 219 482 756
as % of Owner's Equity 0.2% 0.3% 0.3% 0.4% 0.5% 0.6% 1.3%E 2.1%
as % of Net Fixed Asset 0.2% 0.2% 0.3% 0.3% 0.4% 0.5% 1.2% 1.7%
Return on Investment (%) (3) 2 % 3% 3% 4 % 4% 4% 4% 3%
FLOW OF FUNDS 1
Deht Service Coverage Ratio(4) 5.42 7.76 5.17 6.00 6.63 2.00 3.12 129501
(I) Working Ratio = (Operating Costs + Environrmental Charges)/Total Revenues
(2) Operating Ratio = (Operating Cosis+Environmental Charges+Depreciation +Interest Costs)/Total Revenues
(3) Return on Investment = (Profit before Interest, Depreciation and Taxes)/ Net Fixed Assets + Net Working Capital
- 36 -
4.15 The proposed financing plan for SW would yield a debt-equity ratio which would notexceed 20% during the project lifetime. Projections of SW's financial performance assume that its future,outstanding long term debt obligation is only that owed to the Bank. The Bank loan is disbursed over afour year period, at the end of which SW would have a long term debt obligation totaling US $6.0 million.To insure financial stability, agreement was reached during negotiations that, except as the Bank shallotherwise agree, SW would not incur any debt unless its net revenues"4 , for the fiscal year immediatelypreceding the date of such incurrence (or the twelve-month period prior to such incurrence, whichever isgreater) would be at least 1.5 times the estimated maximum debt service requirements offor any succeedingfiscal year on all debt, including the debt to be incurred. (para 6. 3e). It was also agreed that SW shall notdeclare any dividend or make any other distribution with respect to its share capital prior to December 31,2001 (para 6.3J).
4.16 In the past SW was expected to pay Profit Tax (retained by MS) amounting to 20% to 26%of profits earned. In view of up-front equity investments it is anticipated that from 1994 onwards, MSwould exempt SW from such taxes. During negotiations, it was agreed that MS would exempt SWfromincome tax payable to MS on SW's net profit for eachfiscal year commencing with the fiscal year 1995 untiland including fiscal year 2001 (para 6.3g). The financial projections assume that SW will continue to beexempt of such taxes. However, with tariff increases of 15%, 15% and 12% in 1996, 1997 and 1998,respectively, SW would be able to pay profit taxes after year 2001, and still be able to meet the financialtargets.
4.17 The water and wastewater operations are expected to be financially sustaining and thetariffs are expected to provide full cost recovery, provided that the revenue projections are fulfilled. Thiswould require that: (a) water and wastewater tariffs are periodically adjusted to maintain achievement ofthe targeted operating ratio and full debt service cost recovery; (b) accounts receivables maintained at orbelow current levels; (c) adequate levels of maintenance are provided; and (d) operating efficiency and costreductions are achieved through the institutional strengthening assistance. The estimated real tariffadjustments over the 1996-1998 period are as presented in Table 4.3.
Table 4.3: Expected Water and Wastewater Tariff Increases (real)
Annual IncreasesYear Real Nominal
1996 15% 45%1997 15% 40%1998 12% 32%
4.18 The above projected tariff increases, accumulated over a three year period would accountfor a real increase of 48 %. These targeted increases over the next three years, are sufficient to enable SW
14 defined as Operating Revenues - Direct Operating Costs + (Provisions for bad debts and taxes - taxes)
- 37 -
to meet the targeted levels of flnancial performance. With the projected tariff increases SW will be underpressure to maintain and reduce the targeted levels of costs so as to be able to meet the projected workingratio, operating ratio, debt service coverage ratio and return on investment.
4.19 During negotiations, assurances were obtained that, except as the Bank shall otherwiseagree, SW would adjust its tariffs so as to maintain for each of its fiscal vears, a ratio of total operatingexpenses'5 to total operating revenues16 not higher than 85% (para 6.3h).
G. Tariff Affordability
4.20 The real tariff increases translated into an estimated nominal increases of 41 % in 1996. Inthe case of Domestic customers, there is a possibility that they, as with industrial and public customers,will also have to pay a VAT of 18%, effective January 1, 1996. Thus, the net increase in tariffs for theDomestic Group of customers in 1996, could be equivalent to 67% in nominal terms.
4.21 Given the estimated real tariff increase of approximately 48 % over a period of three years,adding the effect of the new VAT of 18 % for Domestic Customers, and a real income growth, the waterservice tariffs would correspond to an average of approximately 4.5 % of the average household income.In general, water and wastewater tariffs consisting of 3-5 % of average household income has beenconsidered acceptable in other Bank financed water and wastewater projects. Affordability and thenecessity of extending the social safety net to the lowest income categories was reviewed and discussed indetail with MS during appraisal. A mitigation plan for tariff affordabiliy has been prepared by the MS. MSintends to support its approximately 12,000 poorest citizens (defined as pensioners, disabled and family'swith 4 or more children) in mitigating any hardship caused by tariff increases due to the proposed Project.MS intends to finance this from its own budget, allocated into a special fund and administer it in the samemanner as support for heating bills. Assumptions underlying the affordability estimates are presented inAnnex 10.
H. Financial Risks and Mitigation
4.22 The key factors affecting SW's financial sustainability are: (a) tariff levels for water andwaste water; (b) direct operating costs; (c) debt service burden; (d) depreciation; and (f) foreign exchangerisks. In addition to the Base Case financial scenario presented in Annex 9, the analysis includes sensitivityof the financial parameters to various tariff levels. Given the political sensitivity of water and waste watertariffs, there is always a risk that tariffs would not be increased in real terms. Under such circumstancesas shown in the annex, SW would be unable to meet any of the required levels of financial pararneters, andin the years when the debt repayment on the World Bank loan starts, the debt service coverage ratio would
15 defined as direct operating costs including staff and social costs, energy and material costs which alsoincorporate maintenance costs, environmental charges, depreciation, and interest on long term loans, shortterm loans, other financial costs.
16 defined as revenues from water and waste water bills and related services and fees, interest income earnedfrom delayed payments and the compulsory reserve fund.
- 38 -
decline below 1.5. To mitigate the risk that tariffs would not be increased in real terms, duringnegotiations the tariff increase program, given in Table 4.3, would be agreed with GoLI and MS.
4.23 Real increases in operating costs could risk SW's financial health especially during the nextfew years (Annex 9). The mitigation of cost increases lies primarily in the control of SW. However, costcontrol, unless systematized and well defined, can be ineffective. The Action Plan of SW would includethe key actions to be taken to ensure that cost control will remain a high priority for SW management. Itshould be noted that even though the number of employees in SW is significantly higher than in comparablewestern utilities, the relative ratio between the various operational costs (staff, energy etc.) is quite normal.In the Base Case financial scenario for SW, it is assumed that for the future years, total staff costs wouldremain constant at 1995 levels in order to attract more skilled workers. Energy costs are expected toincrease by about 4% in real terms in 1996 and by 15% in 1997. The latter increase is because SW willcommission the new Waste Water Treatment Plant, a significant sub-component of the proposed Project.
4.24 SW is currently projected to be able to meet all its debt repayment obligations, exceptunder the scenario of zero real increases in tariffs. In the Base Case scenario, the debt repayment period(for SW) has been reduced from 20 years including 5 years grace to 10 years of debt repayment with fouryears grace. SW can (with the real tariff increases projected in Table 4.3) meet the required debt servicecoverage ratio of 1.5 and above. Given the fact that repaying a hard currency loan over a long period oftime, exposes the entity to foreign exchange risks, it is recommended that SW repay the long term debt ina shorter period. Institutional strengthening would help mitigate the above risks.
4.25 Utilization of a Financial Rate of Return is not appropriate, as it would by default bedetermined by the tariffs. Return on investment defined as gross profit before interest and taxes isapproximately 4%, keeping in mind that around 70% of the capital investments are grant. However, thereal rate of return of the proposed Project is higher as additional Project benefits are externalities whichcannot easily be quantified nor incorporated into SW's financial analysis. These include directenvironmental benefits and indirect financial benefits to the regional economy from reduced health costs,reduced transboundary water pollution, improved environment quality, enhanced aesthetic conditions, andincreased domestic tourism.
V. PROJECT BENEFITS AND RISKS
A. Project Benefits
5.1 The proposed Project is a necessary step for the GoLI to fulfill its obligations under theinternational treaty of HELCOM. Without the proposed Project, they would not be able to reduce waterpollution originating from Lithuania, as agreed in the treaty. The benefits from the proposed Project areconsidered to be not only national, but regional and it has been included in the country's Public InvestmentProgram, endorsed by the Parliament. The direct economic benefits of the proposed Project are difficultto quantify. The tangible benefits include positive impact on health, implying lower health care costs, andpositive impact on tourism, implying increased tourism revenues. In addition, short term direct benefits,include employment opportunities for Lithuanian technical experts, skilled workers and laborers during theconstruction period of the proposed Project. The non tangible benefits are more difficult to capture inmonetary terms, although it is clear that the net development impact from the proposed Project is clearlypositive.
5.2 The physical indicators below provide an indication of the overall positive impact of theproposed Project. Project performance indicators would be monitoried by the implementing agencies asdescribed in Annex 1.
(a) Improved Water Quality and Reduction of Transboundary Follution. The water quality ofthe Upper Lielupe River Basin would increase significantly through reduced discharges oforganic material, phosphorous and nitrogen into the Kulpe River, thus preserving naturalresources. The proposed Project would support the commitments of the GoLI, to fulfillthe "HELCOM" recommendations by reducing the BOD level of wastewater dischargedat Siauliai from 90 mg/l to 15 mg/l. The discharge reductions would reduce transboundarywater pollution from Lithuania into Latvia within the basin and the Gulf of Riga;
(b) Cost Effective Provision of Good Water and Wastewater Services in Siauliai. SiauliaiWater's organizational restructuring, technical assistance, and the proposed investmentswould strengthen its' managerial efficiency, financial viability, service quality, andcapacity to plan and implement investments. The drinking water quality would beimproved through iron removal and softening. Full cost recovery through tariffs togetherwith metering would encourage water conservation, and water losses would be reducedthrough leakage control and rehabilitation. A targeted social safety net, independent fromtariffs would minimize any negative impact of the proposed Project on the low incomehouseholds. At the technical level, the WWIC would provide opportunities for Lithuanianexperts to gain direct practical experience in the design, construction, operation, andmaintenance of the modern water and wastewater system. This process would allow foreffective transfer of technology;
(c) Enhanced Regional Environmental Cooperation and Coordination. Regional environmentalcooperation would be improved through joint strengthening of the International LielupeRiver Basin Commission, and twinning arrangement between the Commission and aninternational partner. The twinning arrangement would support the transfer of experienceand training of personnel in the complex issues related to basin management and providethe basis for both short- and long-term cooperation with another management organization;
- 40 -
(d) Aesthetic Improvements and Recreational Benefits. The Kulpe River (that runs through thecity of Siauliai and just by the "Hill of Crosses") would be transformed from a highlypolluted "septic ditch" to a more normal channel. Recreational use of large portions of thewestern tributaries of the upper Lielupe River which are currently heavily polluted wouldincrease. The water quality would improve at the popular recreational beaches of theLatvian tourist resort of Jurmala;
(e) Better Evaluation of Environmental Problems and Management of Surface Water andRegulatory Enforcement. A strengthened environmental monitoring capacity at theregional and local levels would allow for better evaluation of problems and managementof surface waters and more effective regulatory enforcement, more accurate esti-mvio 1 an(Icollection of environmental fees and fines; and
(f) Demonstration of Low Cost Control Measures for Agricultural Run-off. Model ,N vitiesfor cost-effective pollution control activities at pig farms could be replicaleci ,t otherlocations within the basin and in Lithuania, thus allowing for an incremental reduction ofpollution in the basin. Implementation of non-point source pollution control measures ina model basin through extension activities, improved agricultural practices and low-costcontrol measures, would provide an on-site location for the transfer of experience and thetraining of farmers within the basin and strengthen the developing Baltic regioial networkof demonstration sites.
B. Project Risks and Sustainability
5.3 The sustainability of the proposed Project depend on the sense of project ownership of theimplementing parties. This has and will be promoted through close cooperation and a high degree of publicparticipation in the preparation and implementation of the proposed Project. There are a number of criticalvariables for a positive net development impact. Table 5.1 presents the factors that are anticipated tocreate the greatest risk for the proposed Project and the available mitigation measures.
Table 5.1. Project Risks and Mitigation Measures.
RISK MITIGATION
OVERALL PROJECT
Implementation Delays. This is the Bank's fourth investment Establishment of a strong PIU whose staff would receiveproject in Lithuania since the initiation of lending operations training in Bank procurement and disbursement procedures asin 1992. While the Project is within the management an integral part of project implementation. The PIU would becapabilities of the MoEP, MS and SW, the risk of delays in supported by a consultant, experienced in projectproject implementation exists due to inexperience and the management.complexities of compliance with Bank procedures forprocurement, accounting, and disbursement.
Cost Overruns. Construction costs may be underestimated Project design has been based on conservative approaches tobecause of the very limited experience with actual cost estimation combined with the use of appropriate physicalimplementation costs for water and wastewater improvements and price contingencies.in post-Soviet Lithuania, the volatility of local prices, andprevious lack of experience with construction activitiesexecuted to international standards in this sector.
- 41 -
Foreign Exchange Risk. The Government of Lithuania will Siauliai Water has no foreign exchange revenues andonlend US $6.0 million to SW in US dollars. Since SW has consequently bears a currency risk when borrowing in foreignno foreign exchange revenues, it bears currency risk when it currency. Under the agreed tariff setting formula, SW wouldborrows in foreign exchange. pass on all cost of borrowing to the final consumers. SW's
cash flow is allowing for a relatively short repayment periodof the subsidiary loan from the Borrower to SW (10 years)which would reduce the time during which SW is exposed tothe exchange risk.
Local Funding Availability. On the basis of previous Bank Monthly disbursement requirements for local funding haveexperience in Eastern Europe, there is a risk that the GoLl been drafted for government and municipal contribution. Finaland MS may have problems with the timely provision of disbursement schedules will be closely supervised duringfunds required for local financing. This could be especially project implementation. Meetings have been held with thetrue in Lithuania where the local funding for projects is on Ministry of Finance to review interim measures which can bethe basis of the 'retention of collected taxes" by the used to bridge local tax collection shortfalls.municipal government rather than as a "transfer of funds"from the national government to the municipality.
WATER AND WASTEWATER COMPONENT
Technical Risk. Leakages from the water supply distribution Network leakages would be addressed in the second phase ofnetwork might continue and even increase due to insufficient investments as other priorities have consumed currentlyinvestments in network rehabilitation. available and affordable financing.
Institutional Risks. The political commitment and ability of Adequate governance structure which includes effective ownerSiauliai Municipality to approve the required tariff adjustments oversight of SW would facilitate approval of required tariffas well as the ability of SW to collect tariff revenues from adjustments. Support for institutional strengthening to SW toconsumers. In addition, over the medium-term, organizational improve its financial management, billing and collectionrestructuring is expected to result in a decrease in the number practices would insure correct tariff calculations and efficientof employees of SW. It is possible that this process could be collection. Provisions to ensure that MS take the necessarydisrupted by the Siauliai City Council or employees of SW. actions to adjust tariffs and improve efficiency are included in
the Project Agreement and the Action Plan. The MS hasdrafted a mitigation plan for adverse effects on low incomehouseholds of tariff adjustments. Organizational restructuringmeasures would be taken in a transparent manner with closecooperation with the employees.
Financial Risk. Financial risks for SW are discussedseparately in Chapter IV.
ENVIRONMENTAL MANAGEMENT COMPONENT
Inadequate International Cooperation. There could be A well defined framework for routine cooperation will beinadequate commnitment from Lithuania and Latvia in defined in the EMC implementation program. During Projectsupporting the Lielupe River Basin Commission. preparation, there have been direct consultations with the
Latvian Ministry of Environment and Regional Developmentand the Jelgava Environmental Protection Committee to assurethey are fully informed of the scope and objectives of theproposed Project and to assure that a framework is establishedfor regular working level meetings between representatives ofthe two concerned ministries and key personnel from theirfield offices within the drainage basin.
Local Institutional Coordination. Potential difficulties could Implementation teams for each of the activities will bearise in the coordination of activities between MoEP, MoF, established with the support of the EMC Coordinator.the two concerned REPOs, SMEO, local governments,nongovernmental organizations and other parties.
GCmwmuity Resistance. Resistance from local authorities and Cooperative design and public hearings would be utilized inprivate landowners to proposed land use control measures and the planning and implementation of proposed "demonstration"other recommended actions to manage agriculture originating activities with the managers and staff of the facilities.pollution in the upper river basin.
VI. AGREEMENTS REACHED AND RECOMMENDATIONS
A. Agreements Reached During Negotiations
6.1 During Loan negotiations, the following agreements were reached with the Borrower:
(a) that if proposed grant financing for the EMC would not be confirmed by June 30,1997, the GoLI would find alternative financing (para. 2.19);
(b) the terms and conditions of the establishment and operation of the Special Account(para. 2.32); and
(c) that the Special Account would be audited in accordance with Bank's Guidelines,(para. 2.38).
6.2 During Loan negotiations, it was agreed with Siauliai Water:
that it would have its company records, accounts, and financial statements for eachfiscal year audited by independent auditors acceptable to the Bank and that suchaudits and copies of its financial statements would be furnished to the Bank nolater than six months after the end of each fiscal year (para. 2.38).
6.3 During negotiations, the following agreements were reached with the Municipality ofSiauliai and Siauliai Water:
(a) except as the Bank shall otherwise agree, that the responsibility for setting water andwastewater tariffs would be maintained with the Executive Committee of the MS, whichincludes the Mayor, Vice Mayor and six Chairmen of the Standing Committees of SiauliaiCity Council (para 3.8);
(b) that SW shall not implement any substantial management, structural or operational changeswithout prior approval of the Bank (para. 4.2);
(c) that SW would carry out a water and wastewater tariff study by October 30, 1996 inaccordance with terms of reference acceptable to the Bank with assistance of consultantssatisfactory to the Bank, and take all action required to implement the recommendationsby June 30, 1997, in accordance with methodology acceptable to the Bank (para. 4.6);
(d) except as the Bank shall otherwise agree, that the level of water and wastewater tariffs beincreased by at least 15% in real terms by March 15, 1996 in accordance withmethodology acceptable to the Bank (para. 4.7);
(e) except as the Bank shall otherwise agree, that SW would not incur any debt, unless its netrevenues for the fiscal year immediately preceding the date of such incurrence (or for alater twelve-month period ended prior to such incurrence, whichever is the greateramount) shall be at least 1.5 times the estimated maximum debt service requirements forany succeeding fiscal year on all debt, including the debt to be incurred (para. 4.15);
- 43 -
(f) except as the Bank shall otherwise agree, SW would not declare any dividend or make anyother distribution with respect to its share capital prior to December 31, 2001 (para 4.15);
(g) that MS would exempt SW from income tax payable to MS on SW's net profit for eachfiscal year commencing fiscal year 1995 until and including year 2001 (para 4.16); and
(h) except as the Bank shall otherwise agree, that SW would adjust its tariffs so as to maintainfor each of its fiscal years a ratio of total operating expenses to total operating revenuesnot higher than 85% (para. 4.19).
6.4 During negotiations, the following agreements were reached with the Borrower, theMunicipality of Siauliai, and Siauliai Water:
(a) that the project would be carried out in accordance with the SW Action Plan and the EMCImplementation Program as agreed with the Bank (para. 2.9); and
(b) that all goods, works and services to be financed from the loan proceeds would beprocured in accordance with the "Bank's Guidelines for Procurement n (January, 1995)including amendments as of the loan signing date, using the Bank standard biddingdocuments. Consulting Services would be procured in accordance with the Guidelines for"Use of Consultants by World Bank Borrowers and by the World Bank as an ExecutingAgency" (August 1981), including amendments as of the loan signing date (para. 2.25).
C. Condition for Board Presentation
6.5 As a condition of Board Presentation:
the MoEP had finalized and submitted an acceptable implementation program for the EMCto the Bank (para. 2.9);
D. Conditions of Effectiveness
6.6 Conditions of effectiveness include:
(a) that an agreement for the twinning arrangement between SW and a foreign water andwastewater utility acceptable to the Bank has been executed on behalf of SW and suchutility, under terms and conditions acceptable to the Bank (para. 2.10);
(b) that all conditions precedent to the effectiveness of the Finnish Grant Agreement, theSwedish Grant Agreement and the Norwegian Grant Agreement have been fulfilled (para.2.19);
(c) that a subsidiary loan agreement has been executed by the GoLI and SW (para. 2.23);
-44 -
(d) that the PIU has been established within SW with functions and responsibilities acceptableto the Bank, with staff that shall include a director, an accountant, an English speakingassistant whose qualifications and terms of reference are acceptable to the Bank, and aconsultant to the PIU providing project management and procurement advice whosequalifications and terms of reference are acceptable to the Bank (para. 3.3); and
(e) that a Supervisory Board of SW, with composition and functions acceptable to the Bank,has been created, and SW Statutes have been amended in accordance with applicable lawsof the Borrower and in manner satisfactory to the Bank to reflect the creation of suchSupervisory Board (para 3.8).
E. Recommendation
6.7 With the above agreements and conditions, the proposed Project would be suitable for aBank Loan of US $6.20 million fixed rate US dollar single currency loan with standard amortization term,grace period and interest rate for an expected disbursement period of 3-6 years. The Borrower would bethe Republic of Lithuania.
ANNEXES
Annex 1 Project Monitoring Indicators
Annex 2 Siauliai Water Action Plan
Annex 3 Project Description
Annex 4 Termis of Reference4A: Twinning Arrangement4B: Project Steering Committee4C: Project Implementation Unit4D: Water and Sewerage Tariff Study
Annex 5 Table la Project Cost Summary by Project ComponentTable lb Detailed Project CostsTable 2 Financing Plan by YearTable 3 Financing Plan by FinancerTable 4 Procurement ArrangementsTable 5 Implementation of Project Activities - Summary
of Procurement PackagesTable 6 Financing Plan by Disbursement CategoryTable 7 Estimated Schedule of Disbursement
Annex 6 Environmental Review of the WWIC
Annex 7 Environmental Data Sheet
Annex 8 Supervision Plan
Annex 9 Siauliai Water - Financial Analysis
Annex 10 Review of Affordability
Annex 1
SIAULIAI ENVIRONMENT PROJECTProject Monitoring Indicators
1 ANNEX 1
SIAULIAI ENVIRONMENT PROJECTMONITORING AND EVALUATION
1. Actions to Monitor Development Objectives. Given the essential role programmonitoring and evaluation play in determining the impact of a given intervention on developmentobjectives, a number of project performance indicators will be used to monitor and evaluate progressduring the implementation of the Siauliai Environment Project. At the rnid-term review, the need tofine-tune the Project design will be based on the data received from these indicators.
2. Project Indicators. Project monitoring indicators were developed during appraisal inorder to enable tracking of Project inputs on key development objectives throughout the Project cycle.These indicators would be developed further during the project start up. The progress of these indicatorswould be evaluated in relative, not absolute terms. During supervision, a selected number of operational,financial and environmental indicators would be monitored in accordance with Project objectives. Anillustrative list of indicators follows for each component of the project.
(i) Water and Wastewater Improvement Component. These indicators would be recorded on amonthly basis by Siauliai Water and included in the Project Implementation Unit's (PIU) regularreporting to the Bank.
(a) Operational indicators.
- The quantity of water that is produced (extracted) and the quantity of water that issold are both going to be monitored. The ratiol (Water produced - Water sold) IWater produced } is expected to fall over time as the reliability of the watersupply distribution system improves;
- The collection ratio (total collections divided by total billings) for the industrial,commercial, and residential sectors are expected to improve; arrears are alsoexpected to fall;
- The total cost of extracting water that is not sold, and of selling water from whichrevenues are not collected is going to be monitored and expressed as a percentageof operational profits. This percentage should fall over time.
(b) Financial indicators.
The average unit price adjustments for water and sewerage supplied for eachconsumer category (the tariff schedule) would be monitored in accordance withthe Loan and Project Agreements;
In addition to the internal rate of return, the following standard financialindicators would be monitored:
2 ANNEX 1
A Debt Service Coverage Ratio (the extent to which internal cashgeneration covers total debt services) not to fall below 1.5;A Working Ratio (ratio of operating costs to operating revenues,excluding depreciation, interest payments, and debt service payments) notto exceed 70%;An Operating Ratio (ratio of operating costs to operating revenues,including depreciation and interest payments but excluding debt servicepayments) not to exceed 85%; andA Current Ratio (current assets divided by current liabilities) not to fallbelow 2.0.
(c) Environmental indicators
- Number of breaks and trouble calls on the water supply and distribution system;
- Number of breaks and trouble calls on the wastewater collection and conveyancesystem;
- Level of pollution load reduction achieved by the upgraded wastewater treatmentplant;
- Levels of pollution load reduction achieved at a number of selected locations.
(ii) Environmental Management Component. These indicators would be recorded on a monthlybasis by the regional environmental coordinator and included in the regular reporting to the Bank.Measurements of water quality would be performed by the Regional Environmental Offices ofSiauliai and Panevezys.
(a) Activity No. 1: Direct support for the Lithuanian side of the Lielupe River BasinCommission. Cooperation between Latvia and Lithuania should perform satisfactory withrespect to the management of water quality in the Lielupe River Basin. This includes:
- regular meetings between the Lithuanian and Latvian sides of the LielupeRiver Basin Commission;
- establishment of a functional office in Siauliai directly supporting theCommission;
- establishment of a Geographic Information System for the Commission;and
- establishment of an emergency warning system.
3 ANNEX 1
(b) Activity No. 2: Regional enviromnental monitoring and water quality laboratory system:
regular and accurate monitoring of water quality in the Upper Lielupe RiverBasin;
regular and accurate monitoring of emission of various pollutants to bedetermined;
(c) Activity No. 3: Small point source pollution control:
- Effective and reliable monitoring of run-off; and
- Reduced pollution from pig farms;
(d) Activity No. 4: Non-point source pollution control.
Effective and reliable monitoring of run-off;
Reduced pollution downstream from the pilot areas; and
Number of regular participants in the training activities.
Annex 2
SIAULIAI ENVIRONMENT PROJECTSiauliai Water Action Plan
I ANNEX 2
DRAFT ACTION PLAN FORSIAULIAI WATER
October 20, 1995
Siauliai Environment Project
1. The management of Siauliai Water (SW) has decided to initiate the preparation andimplementation of an Action Plan to improve the technical, financial and management performance of theutility through investments and management development, in order to (a) improve the quality of itsservices; (b) internally generate funds to finance its operations, maintenance and infrastructure; and ¢service the repayment of long term loans. This Action Plan states the SW's operational, organizational andfinancial goals in the short- and medium term and proposed additional steps for enabling efficientimplementation of the proposed capital investments and development of SW into an autonomous utility.These steps include changes in governance, tariff setting practices, operational restructuring, and incentivesfor enterprise efficiency.
2. A number of actions are needed to enable SW to achieve its objectives. Issues that requirespecial attention have been identified, and these include:
- Governance Framework;
- Enterprise Strategy;
- Operational Restructuring and incentives for enterprise efficiency; and
- Technical and Financial Management.
3. Governance Framework. The City of Siauliai will revise the governance of SW andclarify the distribution of decision making powers between the Municipality, the City Council, CityExecutive Committee and the utility in the area of water and wastewater services (see Appendix 1).
4. The proposal for the revision of the governance system was discussed during the loannegotiations with the World Bank in October, 1995. It is anticipated that the proposed changes will becompleted by the time of effectiveness of the proposed loan.
5. Enterprise Strategy. SW will prepare a long term Strategic Plan based on the FeasibilityStudv prepared by Scanenvironment and it will cover the time span up to year 2010. A proposed outlineof the Strategic Plan is attached as Appendix 1. It is anticipated that the Twinning Partner would assist SWin drafting the Strategic Plan. A draft strategic plan will be prepared by July 1, 1996.
2 ANNEX 2
6. Operational Restructuring and Enterprise Efficiency. SW will prepare an OperationalRestructuring Plan in conformity with the current investment program and the revised Enterprise Strategy.The objective of operational restructuring is to improve productivity and cost efficiency of SW and thusreduce pressures for tariff increases (see Appendix 2 for details). The Operational Restructuring Plan willbe completed by September 30, 1996
7. Technical and Financial Management. Siauliai Water will be contracting technical andfinancial management assistance through a Twinning Arrangement with a Nordic water and wastewaterutility. Terms of reference for the Twinning Arrangement have been developed in coordination with theWorld Bank (Appendix 4) and should be considered as an integrate part of this Action Plan. This ActionPlan would be implemented with the assistance of the Twinning Partner. Technical and financialmanagement issues not directly mentioned in the Terms of Reference for the Twinning Arrangementinclude:
1. Tariff Structure. A detailed tariff study will be carried out by October 30, 1996. Therecommendations of the study would be implemented by June 30, 1997; and
2. Tariff Level. The tariff level should be structured so as to allow the utility to achievea cash flow level adequate enough to:
- service debt obligations at a cash flow generation level which does notallow the debt service coverage ratio' to fall below 1.5 each year;
- achieve a working ratio2 of 60% or below; and
- achieve an operating ratio, below 85 %.
While awaiting the results of the Tariff Study, the tariffs would be increased by at least15% in real terms by March 15, 1996.
3. Revenue Collection. SW will improve revenue collection by taking control of allcollection systems (including collection from Municipal Housing Enterprises), pressuringdefaulters, obtaining additional authority for debt recovery through the court system andproviding incentives to customers who pay promptly. By December 31, 1996, SiauliaiWater will:
produce a Lomprehensive statement of accounts receivable by consumercategory and age;
I Debt service ratio =( net profit - depreciation +interest expense) divided by (interest expense + loan repayment).
2 Working ratio = operating expenses divided by revenue
3 Operating ratio = operating costs, depreciation, and interest expense divided by revenue
3 ANNEX 2
iimplement a program of improved recovery of outstanding accounts; and
for the financial year of 19964, include a provision in the incomestatement for non-performing receivables.
4. Performance Standards. Development of quality standards for each service (e.g. waterquality, leak reports, water pressure etc. based on corresponding EU standards. A set ofphased quality standards would be developed by January 1, 1998.
5. Environmental Monitoring. In coordination with the Municipal and Regional EnvironmentOffices to establish a computer based environmental monitoring program to evaluate thecurrent and future performance of the collection system, treatment processes and status ofreceiving water. This program should be established by October 1, 1996.
4 January I - December 31.
l
ANNEX 2Appendix 1
Siauliai Water Enterprise Strategic PlanYear 1996 - 2010Proposed Outline
1. CURRENT SITUATION
1.1 History and background1.2 Operating environment1.3 Technical evaluation1.4 Environmental evaluation1.5 Organization and management1.6 Financial analysis
2. FUTURE OUTLOOK OF OPERATING ENVIRONMENT
2.1 Population growth, purchasing power and economic structure2.2 Demand projections for fresh water and waste water services
3. STRATEGIC OBJECTIVES AND PERFORMANCE TARGETS
3.1 Strategic objectives3.2 Operational performance targets
4. PLANNED INVESTMENTS
4.1 Water supply4.2 Wastewater collection4.3 Wastewater treatment4.4 Other investments4.5 Implementation schedule
5. INSTITUTIONAL AND MANAGEMENT DEVELOPMENT
5.1 Legal framework5.2 Tariff policy and revenue collection5.3 Organizational restructuring5.4 Institutional strengthening
6. FiNANCIAL PROJECTIONS AND AFFORDABILITY
6.1 Revenue projection6.2 Profit and loss projection6.3 Cash flow projection6.4 Financial Performance Targets6.5 Affordability
7. ENVIRONMENTAL REVIEW
1 ANNEX 2Appendix 2
Operational Restructuring and Asset Divestiture
1. Objectives. Currently major operational changes of SW are difficult, however SWmanagement, must identify and influence future trends. SW must actively promote organizationalrestructuring, because only productivity increases and improvements in service quality, reflected in lowercosts and customer satisfaction, will justify higher wages and technological progress at SW. The objectivesof operational restructuring are to:
(a) improve productivity, cost efficiency and employee motivation at SW;(b) reduce need for tariff increases; and(c) release idle assets through divestment.
2. Current facts. The current capital and labor productivity of SW is low by internationalstandards (initially estimated at 10 - 30 % of western best practice) for three main reasons:
(a) Outdated technology;(b) Inefficient organization of work; and(c) Lack of sub-contracting services.
3. The current investment program will address the outdated technology and gradually reducethe need for staff in many core and support functions.
4. Functional restructuring. In order to improve its efficiency, SW should concentrate onits core functions, i.e. tasks that are directly related to the provision of water and the treatment ofwastewater. The productivity of these functions must be constantly improved through investments andbetter organization of work. At the same time, service quality and customer orientation must be drasticallyimproved.
5. SW will identify support functions, i.e. tasks that are not directly connected with theprovision of water and wastewater services. SW will analyze these functions with the assistance of aconsultant and suggest measures to gradually separate these functions and related assets from SW, if foundto be feasible.
6. "In-house" versus sub-contracted services. The present manner of organizing activitiescould be explained by following reasons:
(a) Private services are not readily available;(b) Even if private services were available, private sub-contractors couldn't be
competitive with SW's in-house services, because of SW's low wage level incomparison with the private sector;
(c) Private contractors would have to pay Value Added Tax and profit tax, whichwould make their services too expensive; and
2 ANNEX 2Appendix 2
(d) There are contractual problems in dividing responsibilities between SW and sub-contractors.
These arguments are valid, but they may lead to biased conclusions for the following reasons:
(a) Competitive private services will gradually become available as soon as there isdemand for them;
(b) The present accounting practice at SW does not allocate costs in a correct way,and therefore in-house services look cheaper than they actually are; and
(c) There are many institutional and policy disincentives for small scale privatebusinesses; the climate for entrepreneurship will improve.
7. SW will select one or two SW support functions, analyze the present operations in detail,allocate the costs (including overheads) in a new way, and investigate alternative ways of doing things.These simplified case studies will add concrete examples to the discussion on operational restructuring andon core functions versus support functions. They will also demonstrate the potential for divestment andrevenue from asset sales.
8. SW will take active steps to encourage the growth of competitive sub-contracting services.Selected in-house projects should be subjected to outside competition on experimental basis, even if thereis little interest in SW's projects in the beginning. The rules and procedures of contractor selection mustbe openly communicated to all interested parties. The growth of support services can take a number ofyears, but SW should start the process now and show example to other public organizations.
Annex 3
SIAULIAI ENVIRONMENT PROJECTProject Description
Annex 3 LITHUANIA - SIAULIAI ENVIRONMENT PROJECTPart A. Water and Wastewater Improvement Component
in US $ Million
Local Loan Grant Element BenefitsContribution
Ministry of World Sweden I. Water: Would result in improvements in water conservation andEnvironmental Bank * Improve Water Quality 3.70 improved quality of water provided to residents. Water
Protection $ 4.0 quality would be improved by treating groundwater$ 6.0 * Leakage Reduction Program 0.25 through aeration and filtration for iron removal. Leak
$ 7.60 Finland reduction program would reduce infiltration into sewage* Replacement of Pumps/Spare 0.30 4.25 system. Pumping stations would be rehabilitated.
Municipality S 1.5 Partsof Siauliai
Norway II. Wastewater: 2.10 Improved collection and conveyance of wastewaters,S 0.4 * Rehabilitation of Sewer Network greater capacity for wastewater treatment would increase
$1.5 and Pumping Stations treatment levels and reduce frequency of by-passing;* Wastewater Treatment. better treatment performance would improve the quality
a. Rehabilitation of Existing of wastewater discharges. Improvements would alsoWastewater Treatment Plant 7.50 9.60 lower energy costs through installation of energy efficient
b. Completion of Elements of equipment for pumping and in treatment plants. TheNew Wastewater Treatment proposed interventions would reduce BOD load fromPlant Siauliai by approximately 85%, resulting in significant
improvement in water quality in the Upper Lielupe RiverWater and Wastewater Subtotal 13.95 basin. The proposed activities are at established sites and
would not require involuntary resettlement.
Ill. Institutional Strengthening Would provide opportunity for Lithuanian experts to* Project Implementation Unit 0.55 develop new skills in project planning, implementation and
construction supervision.
* Twinning Arrangemient 0.75 A twinning arrangement would be used to strengtheninstitutional capacity.
* Information Technology 0.20 1.50 Would allow utility to upgrade management methods.
* Other Technical Assistance 0.05
BASE COST 15.30
Physical contingencies 1.40 The project would provide accurate cost data for bothphysical and price contingencies for projects implemented >
Price contingencies 4.40 in Lithuania and thus support financial, economic andtechnical planning of similar projects in the future.
w
__ __ __ _ __ __ __ __ __ COST FOR COMPONENT A __ _ _ 21.00 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Annex 3LITHUANIA
SIAULIAI ENVIRONMENT PROJECTPart B. Environmental Management Component
in US $ Million
Local Loan Grant Element BenefitsContribution
Ministry of Sweden Support for selected activities for development ofEnvironmental $0.18 * Activity No. 1: Support institutional capacity of the "International Lielupe River
Protection for Lielupe River Basin Commission." Would include a twinning arrangement withsupport would (T.B.D) Commission 0.30 a foreign river basin management unit. It is anticipated thatinclude personnel $ 0.12 parallel bilateral support would be provided forcosts and I_complementary actions in Latvia.contributions inkcid. Sweden * Activity No. 2: Support 0.85 Establishment of basic water quality monitoring stations atInd. World $ 0.17 for a Regional three locations, provision of portable analytical equipment
Bank Environmental Monitoring and training for personnel. Parallel bilateral support wouldFinland and Water Quality be provided for complementary actions in Latvia. Sida has
$ 0.2 $ 0.200 Laboratory System contracted IVL to undertake this work in Latvia and toLithuania. Additional environmental monitoring and
(T.B.D) laboratory equipment would be provided for the Regional$ 0.28 Environmental Office of Siauliai. TA and training would be
provided, including development of a sludge managementplan and the development and implementation of anindustrial pollution management plan.
Finland * Activity No. 3: Small Point 0.40 Support for demonstration activities for use of low-cost$ 0.400 Source Pollution Control pollution control technologies at restructured livestock
production facilities.
Sweden * Activity No. 4: Non-Point 0.30 Would expand upon previous work under$ 0.30 Source Pollution Control Lithuanian/Swedish and Lithuanian/USEPA cooperative
__ __ __ ___ __ ____ prograrns for non-point source pollution at a site near Birzai
COST FOR COMPONENT B 1.85 _
TOTAL ESTIM. PROJECT COST 22.85
3
Annex 4
SIAULIAI ENVIRONMENT PROJECTTerms of Reference - Siualiai Water
- A: Twinning Arrangement- B: Project Steering Committee- C: Project Implementation Unit- D: Water and Wastewater Tariff Study
l ANNEX 4A
"Twinning Arrangement" for Siauliai WaterDraft Terms of Reference
1. Background. With a population of 147,000, Siauliai is the fourth largest city in Lithuania.The city's economic base is mainly industrial. The region surrounding Siauliai is flat and criss-crossedby a large number of small rivers, forming the upper reaches of the Lielupe River Basin. Siauliai issituated on one of the smaller tributaries draining to the Lielupe River, the second largest river flowing intothe Gulf of Riga in the Baltic Sea. All of the municipal and industrial wastewater from Siauliai is emittedinto Kulpe, a small tributary of the Lielupe and, in summer, this often constitutes its entire flow.
2. Pollution discharges to the river basin have reached such levels that there exist a publichealth problem. Most sections of the river are unsuitable for recreational use, and several beaches of theLatvian coast at Jurmala, the country's main summer resort area, have been closed for swimming for yearsas a direct result of pollution from the Lielupe River. The largest point source of pollution in the LielupeRiver basin is the city of Siauliai being responsible for approximately 50 % of the total discharge into thebasin.
3. The Government of Lithuania has acklnowledged the problem and has committed itself toreducing the pollution load meeting the recommendations of the Helsinki Commissiorn. lTrn-'ition, Siauliaihas been identified as a "Priority Hot Spot" in the Baltic Sea Joint Comprehensive Environmental ActionProgramme (JCP), and it is included in the Public Investment Program, approved by the LithuanianParliamentary Committee on Environment and the Cabinet of Ministers. The Government of Lithuaniaand the Municipality of Siauliai is now discussing with the World Bank and the Governments of Finland,Norway and Sweden potential funding of investments for technical, financial and institutional improvementsin the water and wastewater services in Siauliai. These discussions are based on a detailed study' assessingthe situation of Siauliai Water (SW).
4. When planning the implementation of possible improvements in water and wastewaterservices in Siauliai, it is important to bear in mind, that water and sewerage services in the country haveonly recently been decentralized from state responsibility to the responsibility of the appropriatemunicipalities. Therefore, water and wastewater facilities are not yet autonomous in accordance withmarket-oriented management practices but managed as direct extensions of municipal governments. Oneof the principal obstacles in promoting the creation of autonomous enterprises which could provide cost-effective, affordable municipal services, is the municipalities' lack of experience in market-orientedoperational, organizational and financial management practices. Consequently, in order to facilitate thedevelopment of the utility into an autonomous, service-oriented and efficiently run enterprise with modernmanagement practices, external support is required. As a part of the proposed Siauliai EnvironmentProject, it is recommended that an organized Twinning Arrangement between SW and a reputable foreignwater and wastewater company/ies be formed in order to achieve the overall project objectives. Thisdocument sets out the terms of reference for such an arrangement.
I Prepared by Scanvironment, financed by the Government of Sweden, through BITS (now merged with Sida).
2 ANNEX 4A
5. Objectives. The main objective of this Twinning Arrangement would be to improve SW'soverall performance through changes in it's operational, organizational and financial management practices.These changes would be in accordance with a detailed Action Plan, which is under preparation by SW andwould be agreed by the World Bank. The overall objective of the Action Plan is to define and formulatea strategic vision of the short- and long-term future of the company in terms of its operations, legal identity,organizational setup and financial condition. A particularly important objective for the TwinningArrangement would be to provide SW with a commercial attitude and a sense of service directed atproviding the best water supply, and best wastewater services possible to its customers at an affordable costwithout further municipal or government subsidies in the future.
6. Scope of Work. The twinning partner/s, in close coordination with the ProjectImplementation Unit (PIU), would support and assist SW to improve its operational practices in wastewaterservices and water supply, and implement the Action Plan. This Twinning Arrangement would take placeduring the first three year of the proposed project implementation period. Following this term, the "new"SW would be expected to operate in accordance with modern utility management practices and be fullyequipped with computerized management information systems. The twinning partner/s would bring to SW,state-of-the-art know-how in utility management, administration and operation.
7. Working Arrangements. All activities and tasks under this arrangement are intended tobe carried out in close coordination of both/all twinning parties. Counterpart systems would be appliedwhenever appropriate and the participation of a maximum number of SW staff would be emphasized. Thetwinning partner/s would provide advisors recruited from its own staff and/or outside the utility, minorequipment as agreed upon, and subcontract consultants as and when necessary. The selection of consultantswould be done jointly with SW. Cooperation under this Twinning Arrangement would be regarded as abinding agreement betweeni the parties. A contract specifying duties, responsibilities, and fees andexpenses, would be established and agreed between the SW and the twinning partner/s. Each of partieswould nominate an English speaking twinning coordinator to be responsible for the execution of theagreement. This contract and its execution would be supervised by the PIU and World Bank supervisionmissions. Cooperation would be initiated by drafting and agreeing upon a specified work plan which wouldinclude a detailed time schedule and budget. The work plan, time schedule and bLJget would be clearedby the PIU and submitted to the Bank.
8. Reporting. The Twinning Arrangement would follow the same reporting requirementsas the PIU. The twinning coordinators would be jointly responsible for preparing annual financial reportsand annual progress reports for each activity included under the twinning agreement. These reports wouldbe cleared by the PIU and submitted to the Bank.
9. Main Tasks. The main task of the twinning partner/s is to further refine and improveSW's Action Plan in order to create a long-term strategic vision of the future of the company. Theoperational experience and knowledge of the twinning partner, including administrative, organizational andfinancial competencies would be transferred to SW through support in the following three main areas: (a)formulation and implementation of all management and administration procedures and systems; and(b) formulation and implementation of a program for system rehabilitation and operationalimprovements.
3 ANNEX 4A
(a) Management and Administrative Procedures and Systems
(I) Objective. The main objective of this component would be to improve existing,and implement new management and information/administrative procedures andsystems within SW to assist with the transformation of the company into anefficiently run utility. An important objective would be to provide SW with acommercial attitude and a sense of service aimned toward providing the best watersupply possible to its customers.
(ii) . Support would be provided for the:
- preparation of an organization and human resources development plan,including definition of tasks and joh descriptions. aqqevun'Pnlt of wvorkperformance and conformity with tru tasks;
identification of an appropriate computerization strategy, consideringbudgetary constraints, computer systems expertise available in Lithuaniaand training needs. The strategy would include hardware and softwarespecifications, modular growth and compatibility, software dev lopmlentstandards, programming and interface languages, network requirements,remote access, database integrity, etc.;
development and improvement all of SW's managerial, administrative,information and operating functions. This would include reporting formatsfor internal and external parties and design or adaptation of existingmodern and appropriate computerized applications for the followingfunctions:
* financial management (accounting, budgeting, financial planning,etc.);
* custom-oriented commercial management (meter reading,customer master file, billing, collection, customer services,consumer census, consumer education programs, etc.);
* supply management (requirements planning, purchasing,inventory control etc.);
* administration (budget controls, payroll, performance, etc.);* personnel management (recruiting, promotion, remuneration
etc.); and* operations and maintenance management (production control,
work-orders generation and control, collection of water andwastewater data, etc.);
4 ANNEX 4A
development of a Management Information System (MIS), which willallow timely access to all information required for effective control andmanagement of the company is needed. The computerization of themanagerial, administrative and operating functions would be developed inan integrated manner. Any databases would require the storage ofinformation in a common format for future retrieval and analysis; and
- development of a reporting system for the follow-up of capital investmentwith the objective of providing the company's management withappropriate tools for: making effective and efficient use of existing asse's;monitoring and controlling its investment programs; and accounting forthe impact of future renewals. It is proposed that the implementation of aGeographic Inforrnation System (GIS) be considered.
(iii) Trajn*ng. It is expected that drafting new managerial and administrative functionswould be done jointly with the twinning partner and SW. Most of the knowledgetransfer from the twinning partner to SW would take place through visits to thetwinning company and on-the-job training during the process of carrying out thedifferent tasks under the component. However, specialized training throughexternal consultants or attendance in external training courses for utilizingcomputers and associated software would be required as an initial step ofimplementation.
(b) Sy e tation Progr. and Operational Impovements
(I) Qbjective. The main objective of this component would be to technically improveoperations and maintenance practices in the water supply and wastewater systemincluding the production plants and distribution systems;
(ii) S~p:
Water System. Operation and maintenance water loss reduction, equipmentmaintenance, etc. and the design or adaptation of existing modem and appropriatecomputerized applications:
- system repair and improvements, establishment of appropriatepreventative maintenance system and storage control;
- formulation of a network optimization program;
- demand management; supporting the implementation of a leak detectionand repair program, which includes the establishment of a reliable recordof system leaks, their causes and appropriate repair methods; and
- system mapping (GIS).
5 ANNEX 4A
Wastewater System. Operation and maintenance, advanced operation of biologicalprocess, sewer rehabilitation program and adoption of appropriate computerizedapplications when appropriate.
- assisting in establishment of preventative maintenance system for sewernetwork, pumping stations and treatment plant;
- preparation of sewer rehabilitation program including reliable recordingsystem of leaks and repair method;
- assisting in network mapping;
- introduction of state of art operation of biological phosphorus and BODremoval process including appropriate control systems; and
- establishment of a water laboratory.
(iii) lrain8ng. Most of the knowledge transfer from the twinning partner/s would takeplace through on-the-job training during the process of carrying out the differenttasks under the component. Specialized training through external consultants orattendance in external training courses and visits to the twinning company wouldbe applied as appropriate.
1 ANNEX 4B
Draft Terms of Reference for Project Steering CommitteeSiauliai Environment Project
1. Objective. To facilitate implementation of the Project, the Ministry of Environmental Protection(MoEP) would establish a Project Steering Committee (PSC) which would meet periodically to providepolicy guidance, support coordination with multilateral and bilateral financiers, and facilitate financial andtechnical support for the project from Lithuanian sources. While the PSC would provide general guidance,it should be recognized that responsibility for implementation of the Project would rest as follows:
(a) Component 1. Water and Wastewater Improvement Component -- "Siauliai Water" withsupport of the Project Implementation Unit; and
(b) Component 2. Environmental Management Component -- MoEP would have leadresponsibility for this component while the implementation would be delegated to theRegional Environment Protection Office in Siauliai and Siauliai Municipal EnvironmentDepartment.
2. Membership of the PSC. The Minister of Enviornment would appoint a chairperson for the PSCwho may also act as Project Coordinator. The membership of the PSC would include, but not be limitedto, representatives from the following:
(a) MoEP;
(b) Ministry of Finance;
(c) Environmental Advisor to the Government;
(d) Environmental Advisor to the Nature Protection Committee of the Parliament,
(e) Ministry of Urban Affairs and Construction,
(f) Regional Environment Protection Office in Siauliai and Panevezys,
(g) Siauliai Municipal Environment Department, and
(g) Siauliai Water.
In addition, a representative from The World Bank Regional office in Vilnius would serve as an ex-officiomember for purposes of coordination.
2 ANNEX 4B
3. Key Tasks of the PSC. The PSC would have the following tasks:
(a) provide overall guidance for the Project;
(b) facilitate national and local cocrdination on project related issues;
(c) facilitate donor coordination;
(d) assure that financial resources required from Lithuanian sources are made available to theimplementing agencies in a timely manner;
(e) periodically review Project expenditures and costs to assure they are consistent with theobjectives of the project; and
(f) periodically review compliance with procurement guidelines of main Project financers.
1 ANNEX 4C
Project Implementation Unit for Siauliai Environment ProjectDraft Terms of Reference
The duties of the Project Implementation Unit (PIU) would include:
(a) On behalf of Siauliai Water (SW) and the Municipality of Siauliai coordinaterelations with the World Bank, the bi-lateral donors, consultants and thecontractors during the project implementation phase;
(b) Advise SW and Municipality regarding the use of the World Bank loan and the bi-lateral grants;
(c) On behalf of SW and the Municipality, prepare short lists of consultants to beinvited to submit proposals, draft terms of reference, issue invitations, respond toquestions raised, prepare addenda as needed, evaluate consultant and contractorprequalifications as well as proposals, and help support the management of SWand the Municipality with the negotiation and signing of the resulting contracts;
(d) Follow-up the implementation of the recommendations of supervision reports ofthe World Bank;
(e) Not later than 60 days after each calendar quarter ending on March 31, June 30,September 30 and December 31, prepare for the Bank a consolidated report onproject implementation activities for the preceding quarter covering the physicalprogress measured against construction and procurement schedules, institutionaldevelopment activities, and monitoring indicators acceptable to the Bank;
(f) Monitor project implementation and expenditures, and prepare and submitdisbursement requests and progress reports on implementation. Copies ofdisbursement requests should be submitted to the Ministry of Finance;
(g) Prepare terms-of-reference and tender documents for consultancy contracts, (e.gcontract coordination/technical support and institutional strengtheningconsultancies) and monitor the training to be provided under these contracts;
(h) Follow all aspects of the implementation of the Water and WastewaterImprovement Component of the Project and when needed prepare writtenwarnings about possible problems and delays as well as proposing technical,financial and institutional measures needed to improve project implementation;
(I) Coordinate the services among suppliers and contractors for timely deliveries; and
2 ANNEX 4C
(j) Prepare the special reports and update periodically the action plans, required asa consequence of the World Bank Loan and Project Agreements, the bi-lateralgrant agreements and the subsidiary loan agreements. All relevant reports shouldalso be sent to the Project Steering Committee.
1 ANNEX 4D
Water and Sewerage Tariff Study for Siauliai WaterDraft Terms of Reference
1. bjective. The objective of the tariff study is to design a tariff system for Siauliai Water(SW) which meets the following criteria: (a) allows the entity to generate sufficient cash flow for meetingits financial requirements; (b) provides incentives for conserving water and for undertaking pollutioncontrol and abatement activities; (c) reflects as closely as possible the costs to the economy of meetingincreasing demands for water and sewerage services; and (d) ensures that services will be affordable to thewhole population.
2. Scope The scope of the tariff study will include:
(a) estimating the incremental costs for the water supply system, resulting frombuilding new capacity, rehabilitating and updating infrastructure, reducingunaccounted-for water, and operating and maintaining the infrastructure;
(b) estimating the incremental costs for the sewerage system, resulting from buildingnew capacity and operating and maintaining the infrastructure. The capacity costincludes investments for sewerage connections, collectors and pumping stations,interceptors, and final disposition and treatment;
(c) estimating the incremental cost of servicing different types of customers with watersupply;
(d) estimating the incremental cost of servicing different types of customers withsewerage services, taking into account both the quantity and quality of theeffluent, so that the costs of the sewage system and treatment can be equitably andefficiently distributed between domestic and industrial dischargers and between thevarious industrial firms;
(e) estimating the financial requirements for SW meeting preestablished targets suchas a viable cash position, contribution to maintenance and investments frominternal generation of funds, provision for bad debts, and debt service;
(f) estimating the customer's ability to pay for the services in the context ofanticipated increase of other utilities (e.g. heating and electricity); and
(g) training of relevant SW staff in the development and use of cost estimationmodels.
2 ANNEX 4D
3. OutQt. The study, based on the estimates enumerated in para. 2 should recommend:
(a) alternative tariff policies which meet the requirements outlined in para. 1;
(b) a plan of action and strategy to implement the recommended tariff policies, to theextent that Siauliaiand SW's authorities have the legal capability to do it; and
(c) ways in which the public can be made more aware of the need of implementingthe proposed tariff policy.
Annex 5
SIAULIAI ENVIRONMENT PROJECT
Table la Project Cost Summary by Project ComponentTable lb Detailed Project CostsTable 2 Financing Plan by YearTable 3 Financing Plan by FinancerTable 4 Procurement ArrangementsTable 5 Implementation of Project Activities,
Summary of Procurement PackagesTable 6 Financing Plan by Disbursement CategoryTable 7 Estimated Schedule of Disbursement
1 ANNEX 5
Table la: PROJECT COST SUMMARY BY PROJECT COMPONENTr-------- LT Million** -------- -------- US S Million --------Local Foreign Total Local Foreign Total
A. WATER AND WASTEWATER COMPONENT (WWIC)
Project Implementation UnitPremises 0,09 0.00 0.09 0.02 0.00 0.021Office equipment 0.00 0.10 0.10 0.00 0.03 0.025Vehiclels 0,00 0.09 0.09 0.00 0.02 0.023PIU Support/Project Supervision 0.00 1.22 1.22 0.00 0.31 0.305PIU Training 0.00 0.08 0.08 0.00 0.02 0.019Local Staff Salaries & Admin. costs 0.47 0.00 0.47 0.12 0.00 0.117
Sub Total 0Q5 1.49 24 0.14 QI 0.i1W
Water SupplyBirute, Water Quality Improvement 7.35 7.35 14.70 1.84 1.84 3.68Replacement of Pumps/Spare Parts 0.20 1.00 1.20 0.05 0.25 0.30
Sub Total L5 L85 1LD 1.89 2L92 2
Wastewater and Sewerage RehabilitationRehabilitation of Sewer Network 2.10 2.10 4.20 0.53 0.53 1.05Rehabilitation of Pumping Stations 1.05 3.11 4.16 0.26 0.78 1.04Rehabilitation of Old WWTP 0.30 0.00 0.30 0.08 0.00 0.08
Sub Total .45 5.21 8.66 0Q6 1D3 2.12
New Wastewater Treatment PlantMain Pumping Station 2.10 2.21 4.31 0.53 0.55 1.08Pre-treatment 0.26 1.68 1.94 0.07 0.42 0.49Raising Main 2.31 3.68 5.99 0.58 0.92 1.50Aeration 0.53 4.31 4.83 0.13 1.08 1.21Secondary Sedimentation 1.84 1.05 2.89 0.46 0.26 0.72Dewatering of Sludge 1.05 1.89 2.94 0.26 0.47 0.74Heat, Electricity, Plumbing 1.16 2.31 3.47 0.29 0.58 0.87Areal Civil Works 2.60 0.50 3.10 0.65 0.13 0.78
Sub Total 11D84 17.2 29246 296 4.40 723k
Technical Assistance and TrainingTariff Study 0.00 0.12 0.12 0.00 0.03 0.03TA/Training for New WWTP& laboratory 0.11 1.09 1.20 0.03 0.27 0.30TA/Training for Water Supply and Management 0.16 1.63 1.79 0.04 0.41 0.45Leakage Detection 0.07 0.83 0.90 0.02 0.21 0.22Information Technology 0.00 0.67 0.67 0.00 0 17 0.17
Sub Total 0.34 4.33 4.48 0Q09 LA8 L7
Total Base Cost for WWIC (incl. detailed design) 23.74 36.99 60.73 5.94 9.25 15.18
B. ENVIRONMENTAL MANAGEMENT COMPONENT (EMC)
Regional Envirommental MonitoringLielupe River Basin Commission 0.23 0.63 0.86 0.06 0.16 0.21
Portable Monitoring and Laboratory Systems 0.17 0.72 0.89 0.04 0.18 0.22Management Plan for Industrial Pollution Reduction 0.00 0.73 0.73 0.00 0.18 0.18Management Plan for Sludge 0.00 0.38 0.38 0.00 0.10 0.10Point Source Pollution Control in Pig Farms 0.39 0.60 0.99 0.10 0.15 0.25Non-Point Source Pollution Control 0.36 0.32 0.68 0.09 0.08 0.17
Sub Total 1I a 3.38 4.53 0.29 0.84 1.13
Environmental Protection Activities in the Upper Lielupe River BasinMonitoring Systems 0.00 0.27 0.27 0.00 0.07 0.07Laboratory Systenm 0.00 0.27 0.27 0.00 0.07 0.07
Technical Assistance and Training 0.00 0.37 0.37 0.00 0.09 0.09Sub Total a£ m .9 000 0.0 0.22 0.22
Total Base Cost for EMC 1.15 4.28 5.43 0.29 1.07 1.36
Total Physical Contingencies 2.44 3.76 6.21 0.61 0.94 1.55Total Price Contingencies 17.06 1.98 19.05 4.27 0.50 4.76
TOTAL PROJECT COST: 44.40 47.02 91.41 11.10 11.75 22.85* Additions may not be fully consistent due to rounding up.** Exchange rate US$I - LT 4.00
37
20 NO-i.21 0000 d0i0II2 0.00 0.21 % 60 6 O 2 .07 1 7 -)1% 4W12021 A.lb ii P h- .1ow I. EM 0.00320 0.4021.000 000 0.0522 S1bTu .2 .0 .2 .2 .0 0.22 -%T62 3 .0 2 .09 .07 " j6 % 04 2923 P Pi * C (--I USS 2 2601 2.5% 2201 2 0.010 0.140210.030
20A W dil 45% 0320.000 0.03200320% 003290%7.0320 0320~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~04
28 PONENT eNW 0.01 0.01040 001 0.0
20 260m NS I 0.021 0.026 0.0061 I 0.026 -0.02630 -Phy-AC mig--S 0.0-001 __._01 -0001 0.000 0 0010.2
22S . .022 0.0.c ~002 0.12 027 __2__00270.02710 .2
234 f. NOkUS 0.000 0.023 0.023 00100 02 0.02320- WB ~1 db 0 0.000 0.001 0.0320020 .3210% .3 o
30 amn ou NS 0.101), 0.024, 0.024 .W T--37 Poyl Cou £W i. USO0DOOD 0I000 .0 .0
I1TOA A=S EO2XL Aooo= amel
A B C D E F 22 1H I J 24 L U N 0 P 0 R IS T U V 99 K Y AS AC AD IAE AF AG AH Al Aa 1~~~~~~~~ ~ ~~~~~~~~~997 1995 1999 TOAL FINANCING WWIC
9 LI F IT L F T L F T L F T L IF T W- IWO 1 U01 2 H0108 I 22N I NM I OW I 6LoooTMT70 99.1 S..pl
71 ~~~ ~~~~~~~~~~~~~~~~ICB I.6 ON .750 .750 0.750 1.00D .750 1.750 1 750 3 50072 Dij & 09. 10% 0 070 0 039 0 099 0038 0 050 0.06 0.000 006 0.17573 T.Wb... . I__ 1050 0.708 1 830 070 1.050 1 850 1 038 1 830 3.67574 P6y, 6.Co.Wift- 101% 0.105 0.079 0.184 0.079 0.105 0 084 0.184 0.104 0.56070 SuI.Tot.J 1.255 08066 2 021 00$66 1 55 3.021 2.021 2.021 4.043761 Pnc Co -. US$ 05S19 0 022 0.540 0 665 0.050 0.724 1.114 0 060 I 26477 1ToTAL _17 _U IW I .L212 - 2.20 Lm76 WBd Ii6n 153391 0.0814 2.227 1.220 1.2131 2.439 25564 2 101 4.665760l GoUJd.44 053351 0 055 .35 0 306 0 0001 0.306 10 641. 0 00 0.6418i 2 562 _ __ 2.745 5306 84% 4 6631 12% 0 641 3 30602
82 ~~~~~~~~~~~~~~~~~~~is 0.600 0.25 05306 0090 0.~250 -0 3-0U4 Diz. ~ 0% %0.00(4% .0 0 .060 0.0D 0 000
80 b 0 050 0.250 03060090 0.250 0 30D86 P6 A k.Co.. .~ 10% 0.095 0.025 0.050 0.O95 0.025 0 05
87 0 050 0273 0 350 0 093 0.275 0.33060 F. Co,i.1-i 2JSI M0 0 025 0 007 0 032
09 lOTAL 0099D 0.202 05362. 0.000 0.282 0.36290 WB d.h..no. 0 064 02021 0 3461 0 064 0 202 0 346.
91 G.oU d6b..n~ 9016 0.016 0 016 0.OD 0016192 95362 0.3621 961 0.346 410060.362
94 BASE COST. WW, SkWy 1090 L.009 2.050 03750 I O0D15 2.750 2 800 2(000 3.800100 D.qn. ~.,0 050 0.030 0.006 0.030 0 050 0.060 0.06 0.0on 0.17590 o' 25.l..n,. 1.100 1.058 2.2503 0708 2.050 10830 I 80 2O 06 39759L7 Ph,i,r4 C.,m.w. k 0 110 0.104 0.214 0.079 0.109 0.104 0.209 0.209 0.399e8 ftw, C,,.g.4 . ~ 0340 0 0s 29 0572 0 665 0.030 0 724 12206 0.067 1.293_a TOTAL WA3ER SUPPLY 1.22 I1.21 2m 23 LI 1.242 1242 --292 2.6100 W w800....... 2405 1.1301 2.572j 1.225 2.213 2 439 2.656 2.383 5.011502f Goj.6.,,.. 0 351 0.OD0 0.3511 0.306 0.OD 0.306 0 657 0 OD 0 657103S 2.9231 2.745 306062. 5.660
150 NBF 0.250 0.200 0.509 0.29 0.250 0. 06 0509 03509 I 061107 D ip 0 % 0 013 0 023 0 099 0.013 0.023 0.025 0 093 0.025 09108 T092 b... 0.263 0 263 05225 0.263 0.263 0 523 0520 03525 2 050309 P6pk 6.Cood .... 10% 0 026 0 026 0.093 0.026 0 026i 0.0930 0.0953 0 093 02109110 0 209 0 289 05370 0.289 0.269 0.578 9 570 0.570 .5Ill, P6. .C ,e-. U213 0.2530 0 022 0.232 0.222 0.030 0 252 0.351 0 092 0.4014112 TOTAL OM am 0.822 922 2n 8.67 1U22113 (GoU clt..~ 0 403 0.403 0.510 0.320 0 914 0 OD 0.914 __114 NOR di6b.- ..... 0.025 0.311 0 326 0 319 0.319 0 023 0 630 0 645118 0 729 0.029 1.959 59% 0 924 421 0.645 20559116
117 di i&Smi tNBF 0.120 0.370 0.495 0.125 0.370 0.495 0.250 0 740 090911l0ie. 0% 0 009D6 0 029 0 023 0.096 0 029 0.025 0 025 0037 0.0211903T.62b0O 0.132 0.309 03520 02521 0.389 0 520. -0263 0 777 2 040120 P6 ,.m~ C.... .- 10%, 0 013 0 099 0 052 0.013 0.039 00921 00726 0.078 0.10123 S..bToUI 02144 0 427 03572, 0.144 0 427 035721 0289 0033 2243122 Pn- C_R_i,...0 USO 0 063 0011 007 0.22I 0.022 _02320.7 032 263223 TOTAL Im2 am 0.22 9.8 .2L0 M .2124 G..Ud....tl... 0 209 0.020 0290.5 255 0 464 0 090 0 4041223 Fl d..5n..n 0120g 0 420 0449 04.49 0 0.867 00867 -% - 4 6126 0 647 0 704 2 35216 .0 406 1.3551127I128 NCR- 0.0O7-2 0.600 0 022 0022 0 ODO 0.072129 Di.j nc0 0% % 0.090 - 0.1%000 009D4 0093O 0094130 T.W b-___0 076 0009D 0 076 __0 076 0009 0 0761311 P6y, .2Cm,.w.i.. 10% I000 09 009,0OD 0 0D. .000 0 ODD 009013221S..T..61___ 0 065 0.D 00631 0 065 02 0.0631233 Fi...CoUgi.. 6US$ 0.037 0 OD 00971 0 057 0 02% 0 0371341TOTAL 0.121-Az1 L 0. 0.12I35 GoU I.05.... 0 024 0 024 0.024 0. 0024136 wBai.6..o.o.0.097 0 00 0.997 007 0160.0971357 0.1212 0122201 0.9 0% 6097iO -0094 -0.12221
139 W.E COS3. WW R b..0 0 447 0 620 1.067 0.375 0 620 0.9931 0.6221 .240 2.062 -14 D.,, .i,0 022. 0.032 0.093 0.019 0.031 0.00101 0.052 0002 0203 - -- - P341 r...6..,n,.. 0.4691 0.652 1.120 0 394 0 631 20453 0.063 1.302 2.2t69142 C-i.1-.dI 0 0471 0 065 0.222 0.039 06065 02105 0 066 0 130 0.227143 P,fr-C-.., -.,, u1$ 03 033 26 053 .32 0.3094[09a64 0004 04649
44TOTAL WWRd,,.61,.... 0.21 lAO 0.26 211401 G..Udnn.. ____ 67 00067 0060-076_____ 402 02 62_
2 BASENEW2 XLW A,.-5 7.64. l b
A a 0 E F tT U V 0 I Y A A A BA A .* 90 1907 1909 1909 TOTAL FINAN4CING WWICI9 L F T IL F T L F T LI F I1 L F T
1444 R ~~~~~~~~~~0.9WD 0.411 0.418 0.9WD 0.449 0.449 .G 0.000 0.51 CM141 NORW dube- 0.015 0.311 0.326 0.91W 0.319 0.319 0.015 0.630 0.445
WI 4b. 0.09r7 0.9W 0.09 0.800 0.09W 0.00 0.097 0.9W 0.09714 ~~~~~~~~~~~~~~~~~~~~~~~~~~~1.497 2.533 3.031
151 NAm Wan~ T.i. PI.mIS ~~~~~~~~~~~~INBF sin9 0.590 0.400 G.29 6375 0.622 0.500 0.522 1.025
10 D~~~~~~~~. ~~5% 29% O.O13 0.00W 0.020 0.013, 0.019 0.031 0.023, 0.026. 0.002b- ma ~~~~~~~~~~~~0.265 0.I59 0.420. 0.262 0.390 0.626 1 .2 53 107
rby"w cmit-i. 10% ~0.02 0.012 0001 0.009 003. 17 00039 0 39 .06 0.203 0.061 0.208
L~ ~ ~ ~~~~ ~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~L
I G.LJ di" -t ~ ~ ~ ~ ~ OF 0.42 029 0.375 0.25190 5 0.373002 0607 0.275 0.520 0.929
31 ~~~~~D.i e. 0% 10% 0.003 .2 .1 .0 0.020.2000 0.00.31 0.004 0.020 0.0423
3- OASE0NEW24.20 .4A6 0066 0a40 0.48
A B C 0D EKFIGL2I M N KIL H N PRQIR S T IU IV I W X IY IAB IAC IADI AE AF IAG IAHl Al
220 T.W b- -et ~ ~ ~ ~ NOF 0.135 0.263 0.594 0.131 0.260 01504 0026 0.0530 0.029 0.2650 0.178 0.7765221 hykgC-D -. ol 0% 0% 0 030 060.03 0.000 0.02 0.000 0.00 0.000 0.00 0.09 0 000 0.007
222 SO T.W ~~~~~~~~~01425 00275 0.533 0.144 0.050 0.433 0.129 0 000 0.027 06310 01235 0.77532233 P S C bl US 04060 0.007 0.507 0.110 0.055 0.125 0.031 O.OD 0.036 0 710 01302 0.233
2354TOTAL A = - = - L -a-R- a-iL22 G.U46donw0-u 0610 0.020 0.230 0.270 0.250 0.250 20403 00001.404226 SW dlb.n~ 0006 0005 0.3191 0.026 0.3050 0.0771 0.029005 0.029 01145 0642 0.2562271 0.75m 0.2529 01207 15018 40% 0 470 60% 02306 1 1361239
NF 00475 0005 0.120.04 0.1001.5 0.4 0.1 000 0.12 5 I._012 01650 01204 0.754
230 0.4 ..c/n, 0 000 0 63 .D 000000 0.030 000 0OD 0050D 00300I201 T.W baw C? 00005 0 072 0.50020 O .5 .5 O 2 0 .2 00050 00152 0.002
232 Pbysiw C..fig~~i. 10% 0.0693 0.020 251 2620 03825 009 0.979 0.243 12543 05005 04413 0.045233 S.b 0.46 0.063 0.509 0.000 0.004 0.154 0.000 0.010 0.13 0.715I 0.19 0.853268 M.Cigk § 0.290 2.446 1.636 0.204 1.405 0.057 0.149 0.466 0.507 05334 3366 0.449L30 G8W.h.,dM , 0.6150.1 0.3610 0.17.31 0.319 0.00 000 0.250 10013 060D 10.43237 SW3dsh I0.0697 0.032 0.152 0.oi 0.220 0.210 0.0000.2 0.022 0097 01452 0.248271. 0.369 0.292 101 227.3301 D .4 D 5 .0237
24 4T. bASE04E49 .40 .69X.0S .16A.m4 .4g30.11 1. 2T60 440 l6b
I A a C 0 E I K L I N 0 P a R I 99vI X IY IAS IAC IAD IAE IAF IAG AI Al AJEl 1997 1999 1999 TALFINAN4CING WWICI L P T L IF T L F T L F T L F T I WBI U I Ma I EI2 I I U L_0I0h27 I1.AMA.W 5., T L A-B-,
27 ~ ~~~~~~~~~mNBF 0.000 0.093 0.102 0.099 0.091 0.10200 9 0.009C 0 097 0.027 0.272 0.29927- ft cal Corn -I 5% 0.000 0.021 0.005 0.0K 0.M2 0.025 0020 000D4 0000 0.001 0.014 0.01527 IS.,bT. 0.010 0.000 0.107 C.0W 0.006 0.102 0.009 0.092 0.102 0029 0.206 0.3142TY fti. owC irn us$ 0.004 0.002 11.007 0.007 0.000 0.012 0019O 0007 0.017 0.022 0.014 0.036
279 SWE di.abn.au0.100 0.100 0.100 0.100 0.100 0. [O 0.0K0 0.300 0.302 MLIoUS4 o, ~0.014 0.014 0.017 0.017 0.019 0.019 0.000 0.000 0.s.2*11014 .1011035 14% 0.00I 0%. 0.300 0.550
NF 0.024 0.135 0.100 0.01407136 0K 10 00112M 0.4 0.011 0.000 0.01
20R. T OBWd0O.014u0.143 0.1130.1 0.143 0.112 0040.4 .5 0.000 0.4222 0.2252 MaWri doo 6,mnus006 .4 0.010 0.014 .0 0.016 mo 0.016 0.030 0.033OM 0.05
204 NORW db~~~~ 0.146 0.14~6 027 0 010 0140.28 01 040.2 50 %00 S02503
301 ~~~~ ~~~~~~~~~~~~~~NBF 0.80K 6.342 0.142 0.0K 0.1023 0.102 0.000 0.267 0.147230 ftk -U1i 5% 0.0K0 0.007 0.007 0.001 0.021 0.001 0.0KI 0.000 0.020304k SOTI 0.0K0 0.349 0.10 0.0K9 0.026 0.026 0.019 0.2175 0.236
P.1w COR m ISb . 0.1103 .0.0113 0.002 0.113 0.0K0 0.225 0.225N91 MWWAk,.n0am0.14 3 0.014 0 0.02 0.026 0.0K0 0.100 0.30"
0.127 0.1n 0.255 12% 0.03 &BS 0.225 0.235~~~~~~~~I3001~~~~ ~~~ ~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~L
0 BASENEW2.XLW AawuaS Table lb.420.42D. fn .0 J0.00 016 016
A a C 0 F 0 2 I I J K I L N N 0 ft UI WY AD0 AES AF IAG AlIl A1 1~~~~~997 1990 2999 TOTA.L FINAN4CING WWIC
33 ~~~~ ~~~~~~~~~~~~~~~NSF a.013 6.043 0.058 0.0411 0.04 0.016 0.0121 0.040 0.024 8.014 0.AI5 0.014 0.043 0.110 0.1223ftlk 10%wf 0.101 0.0 -OD[010 0.002 D.007 0.0102 0.00 0.105 0.001 0.OD 0.0 0.004 0.018 0.022
l4aSk,. 0.024 0.050 0.004 0.022 0.000 0.064 0.0161 0.050 0.02 0.016 0.010 0.02 0.047 0.190 0.246hi4 prom 0.067 0101 0.106I 0.0109 0.002 0.02_2 0.022 0.014 0.023 0.023 O.00 0.020 0.042 0.027 0.104
34TOTrALSW 66S.~~~~~~~~~~~~~~~ns ~~~~0.043 0.045 0.042 0.045 0.045 0.012 0.035 0.033 0.OD 0.270 0.22
(340 d.M,nuw 0.023 .0 0.023 0.0201020.7 0.432 0260.022 0.435 .02 0.043 0.2009 0.0421 0.2203371 ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~.1 0. 073 - 0.076 0.019 0.300 60% 0.270 43S% 0. 22l0 .3100
334
34118 ______ S 0.0140,0 6.44064 017 .5 .6 .1 .5 .5 OOl000000 0107 0.197 0.0467
325 pnctC =.. cm 0 01 02 08Oo9 00022 om1 004001 .1 005002 4 01023 0.06231TOTrAL -m - =-
344W04 0.075 00321%0050 73451OLh. ~ ~ ~ 52 S.2.d.044 .06046040 04 0.0455005. 0. 04 -0030050100 0102 01702
ft ~~~~~ca2Co,g ~~~~~~~~ 5% om~002 0102S 0.022 0.02 0.1027008OO2OW.031 2 om .2 005 .9 0001 0.1303461 ~ ~ ~ ~ ~ ~ ~ ~ m 090.049 o. 0 047073 047 om 0046 0.0967~010 43 .3 .0
30 m ~ 10 I om0 .0102 010267 . G. I 2OmD 01047 0104730 WBd2.S.n 0023 0022~~~~~~~~~~~~OOD 0.027 00.022 om0 om 00030
37 c56od.fvwmeO 4025025 002 0 0.022 0 mD 00020 00302
371 .. .07 0.0530000.7 0207 2%0002% .1 .1
37 84SE~~~ST, Reg4..d~~~.2.MIN..h.,j. 0027~O 0309 03276 0.2 .43026 0.2 .23009 004002 0 00 05062 0.662
0120090.0 220.30 0.07323 0 0.0073 03 .m Gm 060.020 00732 0.062
PM SASE.I4EW 0.0.00 00A..O2 0. T .0020.00
I A B C D I 0 F 0 I 4 I JI K I L H N 10 1 P 0 1R IS TI U IV I9 W 0 Y IAD IAC IAD IAE IAF IAG AI Al IAJo I 12 1997 1990 1999 TOTAL FINAS4CING WWIC0 L F T IL F T L F T L F T L F IT I W I II GoU I1020I6II 6II 2NO IM IJi IQIn
382 E-b-sn.. Pl.I o4db Adl,kI. t.1th. Uw LW.. Rl,e S.A.3831
m-iM,l,gda NBF 0.000 0.074 0.074 O.00 0.054 0.054 0.005 8.004 0.05.4 0.D 0.102 0.18238 l .Cm.em-- __% _ 0_40 0054 0054 00ODD 0m03 005D3 0005O 0.003 0.003 0005 000D9 054D9
34S..6TT46 0540 0.078 00C78 0.00 0.057 0.057 0.054 0.057 0 057 0.00 0.191 0.191387 Pi. C~iM-mUS$ -5-00 -0-02 -005-2 0.054005O3 0.053 0005O 0.544 0.054 0.005 0059 0 059
38d .. d0 08 0005 000 05460 0.061 0.061 005 0.20 0205 105% 0.205 0.200
4l7TgNlFF,ab,s.,w o 00095 0.090 00801703 07 12 16 0000103902 03735 0005 I I 45 TagJSWd,.ag..n..,,.g 0540 oooo 000 050 0100 0003 11 07 0201 03000 0093 03005341 bTOW.a00..e.u0.005 0.105 0.100 m 0 50 0 (5 0 0500 050.0o 0105 0.105
345 M..JZ0C-ifte.. US$0057 04000600.27 34 00703 07 04 0131 014 020 1059D 107042 ITe*F,M.ig.le ____ 05 070 00902 03 m 01602 00 0305 0020 -ou -Lis-o…
3971 Od- dmbwse~00140010 005 0601 01 00 0601 1 0001301420338 0.036 0376 -…- -
i, pi. F NB 006F007 0 04 000 0037 0123 0123 0.051 01443 01036 002 0164 0349 0A44 02490
kw C-ti.2-i. 10% ~010073 033O.W 06005 0609.0003 0.1340.09 104 OS0 00,.013 1.405 1.505401 S.6 )013I 4 13 0.049 1.054 0.09407036 410.3660011 607 3005 .U 0.3338 3.0065 0.2
443 m 0.00200050.32 .090.6050. 0.6.0S .0 0.4050.14 I.0 0070
1312baa0(5 17 07 0.06 0.023 0.025 0.005 0.05 0.13 0.07 0.06 0.13 0.22 02548 0.20050%040 .0
445 Go.om.... d Sw~~d.. I 0 ~~ 0 140 0 140F0.407 0.M3 0.1057 0.030 0.00 0.017 0070 0.030 O0.13 0.250 0.443 0.6750448 cm .o.~~F,4a I lo%00 000 0000 0.117 0.100 0076 0.03 0.096 0.070 0.061 0.139 0.222 0.370 0.005
447 l)3~~~~~~~g ~~~ 0044 0 131 0 174 ~~~~~~~~~0.04. 0032 0.090 0.073 0.030 0.063 0.053 0.020 0.052 0.254 0o 90 0405448 aaol 0044 0326 0769 ~~~~~~~~~~~~~~~~~~~0.0253 0.002 0.027 0.190213 .1 .1 05 .3 .3 1.213 01.12
T~~o.I lORD I 532 I 570 3 154 1.225 1.539 2.764 0.~~~~~~~~ 0.261 0.261 0 0.04060 0.004560_02737 3.444 6.254OD
408IS T.4alw.ko024 I I719 0.15.2 0.03106 .090 0.093 0.0374 0.070 0.543 0.0320 0.1002 0.204.4 03.05 4.05110 .0 .0
402 Tool*m F -1,a P A . .VNLkq t B I004 0.121 1.169 0.70fS0 1321 01.96 0.063 0.131 0.141 0.060 0.107 0.1376 0.637 02713 0.370
432TocolWOdl. 0044 01310 5174 0.009 0.032 0.080 0.057 0.002 0.543 0.063 0.070 0.547 0.206 0.095 0.405 ____
419iT.W 00- 0.000 0.100 0.100. 0.000. 0.000 Mo. 0.000, 0.00( 0.000 0.0w. 0.000 0.000 0.000. 0. IOD 0.100 I 1~~~~~~~~~~~l.
4201 A0S79E0.271XLW0.A7 0.l493. TabL o La
ANNEX 59
Table 2: FINANCING PLAN BY YEARUS $ million
Bank Fiscal Year (July 1 - June 30) 1.99 1998 1992 20 TotalwwIcIBRD (loan) 2.93 2.76 0.26 0.05 6.00Min. of Environment Finland (grant) 0.60 0.90 0.00 0.00 1.50Government of Norway (grant) 0.74 0.61 0.15 0.00 1.50SIDA, Sweden (grant) 1.74 1.66 0.61 0.00 4.00Gov. of Lithuania (grant) 3.06 3.32 1.22 0.00 7.60Municipality of Siauliai (grant) 0.07 0.12 0.13 0.07 0.40
Subtotal 9.14 9.37 2.37 0.12 21.00EMCIBRD (loan) 0.18 0.02 0.00 0.00 0.20Government of Sweden (grant) 0.14 0.20 0.16 0.16 0.65Govermnent of Finland (grant) 0.08 0.19 0.20 0.14 0.60Other (grant) 0.17 0.08 0.06 0.08 0.40
Subtotal 0.57 0.49 0.42 0.38 1.85TOTAL 9.71 9.86 2.79 0.50 22.85
ANNEX 510
Table 3: FINANCING PLAN BY FINANCERUS $ millionIzal ForeiD Tota
USA 1. UL$ YE .1WWICIBRD (loan) 2.76 12% 3.24 14% 6.00 26%Min. of Environment Finland (grant) 0.00 0% 1.50 7% 1.50 7%Government of Norway (grant) 0.02 0% 1.48 6% 1.50 7%SIDA, Sweden (grant) 0.33 1% 3.67 16% 4.00 18%Gov. of Lithuania (grant) 6.96 30% 0.65 3% 7.60 33%Municipality of Siauliai (grant) 0.40 2% 0.00 0% 0.40 2%
Subtotal 10.46 46% 10.54 46% 21.00 92%EMCIBRD (loan) 0.00 0% 0.20 1% 0.20 1%Government of Sweden (grant) 0.21 1 % 0.44 2% 0.65 3%Government of Finland (grant) 0.22 1 % 0.38 2% 0.60 3%Other (grant) 0.21 1% 0.19 1% 0.40 2%
Subtotal 0.64 3% 1.21 5% 1.85 8%TOTAL 11.10 11.75 22.85
11 ANNEX 5
Table 4: Procurement Arrangements(US $ mrllion)
TotalProject Element ICB Other N.B.F. Cost
A. WATER AND WASTEWATERCOMPONENT (WWIC)Equipment aDd Cliv Works
Water SulyBirute, Water Quality Improvement 5.31 5.31
Replacement of Punps 0.26 0.26
Spare Parts 0.10 2 0.10
020Q QifOSub total 5.67
iLaWastewater and Sewerane Rehabilitation
Rehabilitation of Sewer Network 1.56 1.56Rehabilitation of Pumping Stations 1.35 1.35
Rehabilitation of Old WWTP 0.12 0.12
Sub total 3.03
New Wastewater Treatment PlantMain Pumping Station 1.56 1.56
Pre-treatment 0.58 0.58Raising Main 1.48 0.60 2.08
0.2 012Aeration 1.52 1.52
Secondary Sedimentation 1.10 1.10Dewatering of Sludge 0.95 0.95
Heat. Electricity. Plumbing 1.19 1.19Areal Civil Works 1.30 1.30
Sub total 10.28
n.2Intitutinnal Sup,oortTwinnrin Arrangement
Leakage Detection 0.26 0.26Information Technology 0.18 0.18
Sub total 0.44
Premises 0.03 4 0.03
Office equipment 0.03 4 0.03
0.03 03Vehicle/s 0.02 4 0.02
112 Sub total 0.08
C _mauta ServicesWater StLv and Wastewater
TariffStudy 0.03 0.030P0 0.03
Sub total 0.130.03
tInutional Sunnort/Twinning ArrangementTA/Training for New WWTP & laboratory 0.35 0.35
TA/Training for Water Supply and Management 0.53 0.53Sub total 0.88
PIU Support/Project Supervision 0.34 6 0.34
PIU Training 0.02 0.02
Local Staff Salaries & Admin. costs 0.24 0.24Sub total 0.60
Ail
ANNEX 5
12Total
Project Elernent ICB Other N.B.F. CostB. ENVIRONMENTAL MANAGEMENTCOMPONENT (EMC)Equipment, Works and Consulting ServicesRegional Environmental Monitoring
Lielupe River Basin Commission 0.30 0.30Portable Monitoring and Laboratory Systems 0.30 0.30Point Source Pollution Control in Pig Farms 0.40 0.40
Non-Point Source Pollution Control 0.30 0.30Sub total 1.30
Equipment
Environmental Protection Activities in the Upper Lielupe River Basin
Monitoring Systems 0.08 0.08
am 11damLaboratory System 0.07 0.07
Q1!Z LQZSub total 0.15
Consultant Services
Environmental Protection Activities in the Upper Lielupe River BasinManagement Plan for Industrial Pollution Reduction 0.20 0.20Managemnent Plan for Sludge 0.10 0.10
Technical Assistance and Training 0.10 0.10
am 05Sub total 0.30
TOTAL 6.78 1.20 14.86 22.85Total World Bank 5LO LII .2
.n1fdi,i alm,eM in iflict = IBRD loan financed
N.B.F - Not Bank Financed'Internamonal Shopping = US S million 0.41
2 Direct Contracting = US S million 0.10National Competetive Bidding = Us S million 0.12
' National Shopping = US S million 0.08'Sole Source/lnov. = Us S million 0.15
'Short Usuing Form = US S million 0.34total 1.20
ANNEX 5
Table 5: IWPLEMENTATION OF PROJECT ACTIVITIES - SUMMARY OF PROCUREMENT PACKAGES
Preparation ofEstimated Cost Procurement Bidding Tender Documents Contract(US $million) Method Documents Issued Bid Submitted Contract Signed Completed
A. WATER AND WASTEWATER COMPONENTEquipment and WorksWater SupplyBirnte, Water Quality Improvement 5.31 ICB Mar-96 - Aug-96 Sep-96 Nov-96 Feb-97 Oct-98Replacement of Pumps 0.26 IS Mar-96 - May-96 Jun-96 Aug-96 Sep-
96Apr-97
Spare Parts 0.10 Direct Contr. Mar-96 - May-96 Jun-96 n/a Aug-96 Dec-96
Wastewater and Sewerage RehabilitationRehabilitation of Sewer Network 1.56 NBF Mar-96 - Aug-96 Sep-96 Dec-96 Feb-97 Oct-98Rehabilitation of Pumping Stations 1.35 NBF Mar-96 - Aug-96 Sep-96 Dec-96 Feb-97 Oct-98Rehabilitation of Old WWTP 0.12 NCB Mar-96 - May-96 May-96 Jul-96 Jul-96 Mar-97
New Wastewater Treatment PlantMain Pumping Station 1.56 NBF Mar-96 - Aug-96 Sep-96 Dec-96 Feb-97 Oct-98Pre-treatment 0.58 NBF Mar-96 - Aug-96 Sep-96 Dec-96 Feb-97 Oct-98
ICB (pipes)Raising Main 2.08 NBF NCB (works) Mar-96 - Aug-96 Sep-96 Dec-96 Feb-97 Oct-98Aeration 1.52 NBF Mar-96 - Aug-96 Sep-96 Dec-96 Feb-97 Oct-98Secondary Sedimentation 1.10 NBF Mar-96 - Aug-96 Sep-
96 Dec-96 Feb-97 Oct-98Dewatering of Sludge 0.95 NBF Mar-96 - Aug-96 Sep-96 Dec-96 Feb-97 Oct-98Heat, Electricity, Plumbing 1.19 NBF Mar-96 - Aug-96 Sep-96 Dec-96 Feb-97 Oct-98Areal Civil Works 1.30 NBF Mar-96 - Aug-96 Sep-96 Dec-96 Feb-97 Oct-98
Institutional Support/Twinning Arrangement ULeakage Detection 0.26 NBF Mar-97 - Jun-97 Jul-97 Nov-97 Dec-97 Apr-98information Technology 0.18 NBF Jun-96-Jul-96 Jul-96 Aug-96 Aug-96 Oct-96
Project Implementation UnitPremises 0.03 NS Nov-95-Dec-95 Jan-96 Feb-96 Feb-96 Mar-96Office equipment 0.03 NS Nov-95-Dec-95 Jan-96 Feb-96 Feb-96 Mar-96Vehide/s 0.02 NS Nov-95-Dec-95 Jan-96 Feb-96 Feb-96 Mar-96
Consulting ServicesWater and WastewaterTariff Study 0.03 Sole Source/Indv. Nov-95-Dec-95 Jan-96 Feb-96 Feb-96 Jun-96
Institutional Support/Twinning ArrangementTA/Training for New WWTP & laboratory 0.35 NBF n/a n/a n/a n/a Jun-99TA/Training for Water Supply and Management 0.53 NBF n/a n/a n/a n/a Jun-99
Project Implementation UnitPIU Support/Project Supervision 0.34 Shortist. Oct-95-Nov-95 Nov-95 Dec-95 Dec-95 Dec-97PIU Training 0.02 Sole Source/Indv. Oct-95-Nov-95 Nov-95 Dec-95 Dec-95 Jan-95 >
Local Staff Salaries & Admin. costs 0.24 NBF n/a n/a n/a n/a Jul-99:CD
Sub Total 21.00 t
ANNEX 5
Preparation ofEstimated Cost Procurement Bidding Tender Documents Contract(US Smnillion) Method Documents Issued Bid Submitted Contract Signed Completed
B. ENVIRONMENTAL MANAGEMENT COMPONENT(EMC)Equipment, Works and Consulfting ServicesLielupe River Basin Commission 0.30 NBF Mar-96 - Aug-96 Aug-96 Nov-96 Jan-97 Sep-98
Portable Monitoring and Laboratory Systems 0.30 NBF Mar-96 - Aug-96 Aug-96 Nov-96 Jan-97 Sep-98Point Source Pollution Control in Pig Farms 0.40 NBF Mar-96 - Aug-96 Aug-96 Nov-96 Jan-97 Sep-98Non-Point Source Pollution Control 0.30 NBF Mar-9% - Aug-96 Aug-96 Nov-96 Jan-97 Sep-98
Equipment
Monitoring Systems 0.08 IS Mar-96-May-96 May-96 Jun-96 Jun-96 Oct-96Laboratory System 0.07 IS Mar-96-May-96 May-96 Jun-96 Jun-96 Oct-96
Consulting Services
Management Plan for Industrial Pollution Reduction 0.20 NBF Jun-96-Aug-96 Aug-96 Oct-96 Nov-96 Dec-97Management Plan for Sludge 0.10 NBF Mar-96-May-96 May-96 Apr-96 Apr-96 Oct-96Technicl Assitance and Training 0.10 Sole Source/indy. Mar-96-Apr-96 Apr-96 May-96 May-96 Dec-97
Sub Total 1.85
TOTAL 22.85
CD
15 ANNEX 5
Table 6: FINANCING PLAN BY DISBURSEMENT CATEGORYUS $ Mlillon
IBRD LocalAmount % Contribution % Grants % Total
A. WATER AND WASTEWATER COMPONENT
Equipment and WorksWater SupplyBirute, Water Quality Improvement 4.67 88% 0.64 12% 5.31Replacement of Pumps 0.25 94% 0.02 6% 0.26Spare Parts 0.10 100% 0.10
Wastewater and Sewerage RehabilitationRehabilitation of Sewer Network 0.91 59% 0.64 41% 1.56Rehabilitation of Pumping Stations 0.48 36% 0.87 64% 1.35Rehabilitation of Old WWTP 0.10 80% 0.02 20% 0.12
New Wastewater Treatment PlantMain Pumping Station 0.93 59% 0.63 41% 1.56Pre-treatment 0.09 16% 0.49 84% 0.58Raising Main 0.42 20% 1.66 80% 0% 2.08Aeration 0.24 16% 1.28 84% 1.52Secondary Sedimentation 0.72 65% 0.39 35% 1.10Dewatering of Sludge 0.38 40% 0.57 60% 0.95Heat, Electricity, Plumbing 0.47 40% 0.72 60% 1.19Areal Civil Works 1.04 80% 0.26 20% 1.30
Institutional Support/Twinning ArrangementLeakage Detection 0.03 12% 0.22 88% 0.26Information Technology 0.00 0% 0.18 100% 0.18
Project Implementation UnitPremises 0.03 100% 0.03Office equipment 0.03 100% 0.03Vehicle/s 0.02 100% 0.02
Consultant ServicesWater and WastewaterTariff Study 0.03 100% 0.03
Institutional Support/Twinning ArrangementTA/Training for New WWTP & laboratory 0.05 14% 0.30 86% 0.35TA/Training for Water Supply and Management 0.08 14% 0.45 86% 0.53
Project Implementation UnitPIU Support/Project Supervision 0.34 100% 0.34PIU Training 0.02 100% 0.02Local Staff Salaries & Admin. costs 0.24 100% 0.24
Sub Total 6.00 8.00 7.00 21.00
B. ENVIRONMENTAL MANAGEMENT COMPONENT(EMC)Eqgupment, Works and ConsultIng ServicesLielupe River Basin Commission 0.30 100% 0.30
Portable Monitoring and Laboratory Systems 0.30 100% 0.30Point Source Pollution Control in Pig Farms 0.40 100% 0.40Non-Point Source Pollution Control 0.30 100% 0.30
EquipmentMonitoring Systems 0.08 100% 0.08Laboratory System 0.07 100% 0.07
Consulting ServicesManagement Plan for Industrial Pollution Reduction 0.20 100% 0.20Management Plan for Sludge 0.10 100% 0.10Technical Assistance and Training 0.05 50% 0.05 50% 0.10
Sub Total 0.20 0.05 1.60 1.85
Totd Disbursement 6.20 8.05 8.60 22.85
16 ANNEX 5
Table 7: ESTIMATED SCHEDULE OF DISBURSEMENTS
StandardDisbursementFY Quarter Loan Disbursement Cumulative % Profile
From Approval Quarter Cumulative Total Sector* Regional **
FY 1996 II 0.11 0.11 2% 0% 0%FY 1997 VI 1.00 1.11 18% 6% 6%FY 1998 X 2.27 3.38 55% 18% 14%FY 1999 XIV 2.68 6.06 98% 38% 26%FY 2000 XVI 0.14 6.20 100% 50% 30%
Loan Closing Date: 30-Jun-00* All regions - sector set.
** Region - sector set. (ECA)
Annex 6
SIAULIAI ENVIRONMENT PROJECTEnvironmental Review of the Water and Wastewater Improvement Component
1 ANNEX 6
SIAULIAI ENVIRONMENT PROJECTWATER AND WASTEWATER COMPONENT
ENVIRONMENTAL REVIEW
Introduction
1. Environmental Review. Development of the proposed Project has included preparationof an environmental review consistent with the requirements of the Lithuanian "Rules for the Elaborationof 'Environmental Protection' Section of a Study (RSN 153-93)" and the provisions of World Bank,Operational Directive 4.01, "Environmental Assessment" for a project in screening category "B." Theenvironmental review was prepared by specialists from Scanvironment (Sweden) with financial supportfrom BITS of Sweden.
2. Consultation Process. The environrmental review for the proposed Project was preparedin coordination with the Ministry of Environmental Protection (MoEP), Siauliai Regional EnvironmentalProtection Office (S-REPO), and Siauliai Municipal Environment Department (SMED). In addition,consultations have been conducted by both the Bank and consultants with representatives of theMunicipality of Siauliai (MS) and Siauliai Water (SW). Meetings have also been conducted by the Bankwith representatives of the Latvian Ministry of Environment and Regional Development and the JelgavaRegional Environmental Protection Committee to review current transboundary pollution impacts and toassess benefits from planned pollution control measures to be supported under the proposed Project
3. Protection of the Baltic Sea. Environmental conditions in the waters around the coastof the Baltic Sea are presently in the focus of research, monitoring, and national and internationalmeasures. Major remediation efforts are expected in the drainage area of the Baltic Sea to fulfilinternational agreements. For this purpose, a Joint Comprehensive Environmental Action Program wasinitiated to implement nutrient reducing measures around the Baltic Sea, especially in the eastern part ofthe drainage area (e.g. Russia, Estonia, Latvia, Lithuania and Poland). The decision to develop the JointComprehensive Program reflects the recognition that the environment problems of the Baltic Sea and itscatchment area are inextricably bound together and that their solutions require cooperative actions. Manycorrective measures and pollution control investments should be carried out in parallel in order to improvethe ecological condition in the Baltic Sea, its coastal zone and its catchment area. Municipal wastewatertreatment plants, discharging directly into the Baltic Sea or its sub-basins, have a more direct effect thantreatment plants located upstream on rivers. However, it is also necessary to conduct measures upstreamin river basins, since those would, in addition to impacts on the Baltic Sea, have significant improvementslocally and regionally in the river drainage basin.
Existing Situation
4. Municipality of Siauliai. The proposed project is part of the Baltic Sea JointComprehensive Environmental Action Program. MS has been identified as one of 132 "hot spots", whichare significant sources of pollution. The MS, with a population of about 147,000 people, is situated in the
2 ANNEX 6
northern part of Lithuania, on the border between the drainage basins of the Lielupe River in the north andthe River Nemunas in the south. The major industries in the Siauliai region are mainly in the agriculturalsector; e.g. dairy, meat processing factories, brewery and soft drinks, glucose production, and tanneriesand leather industries. Other industries are the bicycle and moped industry, as well as furniture andelectronic industries.
5. Water and Wastewater Treatment in Siauliai. The existing wastewater treatment plantin Siauliai serves about 85% of the city's population (about 125,000 persons). All, except one industrialplant which has its own treatment plant, are connected to public sewer system. Households not connectedto a sewer system have either pit latrines or septic tanks which discharge directly to the Kulpe River viasmall ditches. The wastewater treatment plant is situated close to the expanding city. The poorly treatedwater from the overloaded plant has had a significant detrimental influence on the receiving water, theKulpe River down to the confluence with Musa River some 20 km from Siauliai. Although the diminishedindustrial activity has resulted in a reduced load of organic matter (BOD); from about 10 tons/day to about2-3 tons BOD/day (corresponding to decreased effluent concentrations of about 200 mg/I to about 70 mg/I),the discharge level remains high (HELCOM recommendation for BOD is 15 mg/l). Available analysis ofthe NH4-N concentration in the effluent water from the wastewater treatment plant, made by the laboratoryat the plant, gives a load of about 305 tons NH4-N/year, corresponding to a concentration of 22 mg/I.Respective figures for total phosphorus are 70 tons/year and 4.7 mg/l which is considerably higher thanHELCOM recommendation of 1.5 mg/l.
6. To verify the accuracy of effluent quality data the discharges of nitrogen and phosphorusfrom the wastewater treatment plant have also been calculated using average load figures per person widelyused worldwide. The methodology assumed the following parameters:
(a) Nitrogen (N). 150,000 persons x 85 % connected x 10 g N/person and day = 465tons N/year + 210 tons N/year from the connected industries = 675 tons N/year -25 % reduction (assumed) of N in the wastewater treatment plant = about 500 tonsN/year discharged annually from the wastewater treatment plant; and
(b) Phosphorus (P). 150,000 persons x 85 % connected x 2.5 g P/person and day =120 tons P/year + 30 tons P/year from the connected industries = 150 tonsP/year - 50% reduction (assumed) of P in the wastewater treatrnent plant = about75 tons P/year discharged annually from the wastewater treatment plant.
The calculated loads above are higher than the measured ones (25 % for N and 8 % for P). Later on thisenvironment review uses data for BOD and suspended solids provided by SW but P and N loads are basedon the above calculations. The summary is presented in Table 1.
3 ANNEX 6
Table 1. Discharge of BOD, suspended solids, nitrogen and phosphorus to the Kulpe River fromthe Wastewater Treatment Plant.
Parameter | Discharge to the Kulpe River, Discharge to the Kulpe River,______________ mg/i tons/year
BOD 70 1,000Suspended solids, SS 70 1,000Nitrogen, N 35 500Phosphorus, P 5 75
7. Discharges from unconnected households and stormwater, are not included in the aboveestimates as no analysis is available to make a proper estimate. Those would probably add some 10 to 15% to the loads presented in Table 1. As the Project will not have any impact on discharges from areaswithout sewer or from the stormwater system, they have not been included in the analysis later on.
8. The Kulpe River. The Kulpe River is a small tributary to the Musa River, which togetherwith the Memele River, are the two main tributaries to the Lielupe River. The Musa River is the collectingriver for all small tributaries from the Lithuanian part of the drainage area. The Musa River flows initiallyeast-wards, finally turning north and crossing the boarder between Lithuania and Latvia. The main sourcesof the Kulpe River, Lake Rekyva and Siauliai Reservoir are located south of Siauliai. The total length ofthe Kulpe River is about 35 km. The river length through the city is about 8 kIn, 7 lan are situatedupstream of the city of Siauliai and about 20 km downstream of the city. In the upper part of the river thewidth is less than 1 m and before the river enters the Musa River the width is about 5 m. At certain partsthe river has been channeled off from its natural meandering downstream to the Musa River throughagricultural landscape. The agricultural land in the drainage area of the Kulpe River is extensively drained,thus causing drainage water with nutrients to be transported from the soil to the river.
9. The water flow in the Kulpe River is limited, especially during the summer season, whenonly small volumes of water leave Lake Rekyva and the reservoir. The water flow in the Kulpe River,during the dry period of May-July consists of nearly 100% of discharges from the wastewater treatmentplant, transforming the river into a highly polluted "septic ditch".
10. No accurate water flow measurements have been carried out on the Kulpe River. Theannual mean water flow at the outlet of Lake Rekyva can be estimated at 0.3 m3/s and at 1 m3 /s in theconfluence with the Musa River. Annual variation in the water flow upstream of the wastewater treatmentplant can be great, with a water flow in the summer of 0.0 m3/s, and a water flow > 25 m3/s during springthaw and fall rainy season. Estimated water flow characteristics for the Kulpe River are shown inTable 2.
4 ANNEX 6
Table 2. Estimated water flow in the Kulpe River
Location Water flow, m3/s | Water flow, MIll._______________________________[ j 113/year
The outlet of Lake Rekyva 0.3 9.5Effluent from WWTP (measured) (0.46) (14.6)Downstream (1 Iam) of the WWTP 0.8 25.2At the confluence with the Musa River 1 31.5
11. No comprehensive physical-chemical and biological measurements has been taken in theRiver Kulpe. The lack of accurate monitoring makes the evaluation of the present situation in the KulpeRiver and the environmental effects of the implementation of the proposed Project difficult. Table 3illustrates figures for the water quality in the Kulpe River for 1994. These values have been obtained fromthe laboratory at the wastewater treatment plant.
Table 3. 1994 annual mean of BOD, NH4 and PQ upstream and 1 km downstream of thewastewater treatment plant
Parameter, Upstream of 1 1 kmmg/I the WWVTP downstream of
the WWTP
BOD 7.6 50.2NH4 1.08 10.7 1)P04 0.18 1.8 1)
I) Figures for nitrogen and phosphorous downstream of WWTP seem verylow as the load from WWTP should raise the concentration levels muchhigher actually many fold.
12. In the following Table 4 transport of pollutants upstream from WWTP is based on the dataof Tables 2 and 3. As the quality data (Table 3) downstream of WWTP do not seem to correspond withthe real situation, the transport loads 1 km downstream and at the confluence with the Musa River havebeen calculated using load data from WWTP and information about non point pollution from similarconditions (agricultural land use pattern).
5 ANNEX 6
Table 4. Estimated transport of PO4-P, total phosphorus, NH4 -N and total nitrogen upstream and1 kan downstream of the wastewater treatment plant, and in the Kulpe River, just beforethe confluence with the Musa River. Loads from WWTP presented in brackets.
Parameter, Tranport upstream Transport 1 km Estimated transporttons/year of the WWTP downstream of the in the Kulpe River
WWTP just before theconfluence with the
Musa River
P04-P 1) 0.6 40 50Total phosphorus 1.2 80 (75) 100NH4-N 2) 8.0 450 750Total nitrogen 11 600 (500) 1000
t) The total phosphorus concentration is assumed to be 2 times the P04-P concentration.
2) NH4-N concentration is assumed to be 75% of the total nitrogen concentration.
12. The Musa River. The Musa River is the collecting river for all small tributaries from theLithuanian part of the drainage area. The River flows initially eastward and later on turns north passingthe boarder of Lithuania and Latvia. The Lielupe River Basin Management Project financed by BITS hasestablished a few sampling stations along the River Musa. Unfortunately the data was not yet availablewhen this study was made. However, the collected data can be utilized during the monitoring phase of theProposed Project.
13. The discharge of insufficiently treated wastewater from Siauliai city has a significantimpact on the aquatic ecosystems downstream of Siauliai; the Kulpe River and the Musa River. Theadverse impact is characterized by bad hygienic conditions, increased primary production, oxygendeficiency, odor problems, fish kills, etc. Since available nitrogen and phosphorus figures for these riversare scare and the accuracy is questionable, it is not possible to calculate in detail the impact from theSiauliai wastewater treatment plant. However, there is no doubt that the nitrogen and phosphorusdischarged from Siauliai city are the main source of nutrients transported in the two rivers. No other pointsources of this volume are located in the area.
14. The Lielupe River. The Lithuanian part of the Lielupe basin comprises 11 administrativedistricts, of which four are entirely situated within the basin, while the Latvian part covers a total of 9districts. A total of about 843,000 inhabitants live within the borders of the Lielupe basin; 58%, or 485,000on the Lithuanian side of the border, and 355,000 on the Latvian side. The Lielupe River is, with a waterflow at its mouth of roughly 110 m3/s, the second largest river discharging into the Gulf of Riga. The riverbasin covers 17,600 km2 of land, equally distributed between the republics of Latvia and Lithuania, withthe upper reaches situated in the latter. The Lielupe river discharges at the city of Jurmala, about 20 kmwest from Riga and the mouth of the larger Daugava river (discharge 680 m3/s).
6 ANNEX 6
15. The runoff from the Lielupe basin constitutes about 12% of the total annual discharge tothe Gulf of Riga. The nitrogen contribution of Lielupe into the Gulf of Riga is about 20 %. Other data fromthe lower reaches of the Lielupe river shows concentrations of nitrogen more than three times higher, andphosphorus almost double as high as in comparable parts of the Daugava river (data from the beginningof the 1990's). According to recent estimates about 12,000 tons of nitrogen (NO3-N) are annuallytransported in the Lielupe River and discharged to the Gulf of Riga, and the annual phosphorus load isabout 200 tons (P0 4 -P).
16. Most of the pollution load of BOD (about 90%) and phosphorus (about 30%) of theLielupe River comes from urban areas (mainly municipal wastewater treatment plants receiving effluentsfrom both households and industries). The generally high pollution load from the treatment plants is mainlya result of inferior treatment facilities, but also poor operation practices and toxic industrial sewagedischarged without pre-treatment into sewer system lower the effectiveness of treatment plants. The totalload from all urban areas (municipal sewage treatment plants) within the Lielupe River basin is estimatedto be approximately 7,200 tons of BOD/year, about 1,500 tons of nitrogen/year and about 230 tons ofphosphorus/year.
17. The Gulf of Riga. Gulf of Riga is characterized by a high ratio of river outflow inrelation to volume, the low mean depth and the exchange of water with the rest of the Baltic Sea. Thechanges of the water quality in the river discharge and in the Baltic Sea are well reflected in the Gulf ofRiga. During the last 20 years there have been increases in the winter loads of phosphorus and nitrogen,giving an increased primary production. In spite of the increased nutrient supply, the oxygen concentrationsin the Gulf of Riga are not alarming. The ratio between phosphorus and nitrogen loads, together withconcentration measurements during the vegetation season, indicate that the primary production in the Gulfof Riga is limited by phosphorus.
18. The present discharges from the wastewater treatment plant in Siauliai result in a load ofabout 500 tons of nitrogen and about 75 tons of phosphorus. If the retention of nitrogen and phosphorusin the Lielupe River are roughly estimated at 50 % and 25 %, respectively, the discharged quantities fromthe municipal sewage water treatment plant in Siauliai will result in an annual discharge to the Gulf of Rigaof 250 tons of nitrogen and 56 tons of phosphorus. These quantities are about 2 and 14%, respectively, ofthe current estimated total nitrogen and phosphorus discharges by the Lielupe River to the Gulf of Riga.This means that the discharge of insufficient treated sewage water from the municipality of Siauliai has aminor influence on the nitrogen load on the Gulf of Riga, but has an important role concerning thephosphorus load.
19. The Baltic Sea. The Baltic Sea is one of the most polluted sea areas in the world. Theprimary environmental problem is eutrophication. The eutrophic situation is caused by increased externalload of nutrients over decades. There is an essential difference between coastal and open sea problems. Thedeteriorated coastal environmental conditions are mainly of national origin, while open sea problems arethe result of total pollution load from the entire drainage basin.
20. Nitrogen and phosphorus are usually the limiting nutrients for the primary production inaquatic ecosystems. For marine ecosystems, especially the Baltic Sea, there has been an intense discussionabout which of the two nutrients is the limiting compound. However, taking into account seasonal changes
7 ANNEX 6
and dynamics in species composition, differences between coastal and open sea areas, etc., both nitrogenand phosphorus are considered to be limiting, especially in an annual perspective. There is a need for asignificant reduction of nitrogen and phosphorus loads on the Baltic Sea. If a program to reduce the loadby about 800,000 tons of nitrogen and about 35,000 tons of phosphorus would be implemented over a 10-20 years, the positive effects would be achieved after 40-50 years.
21. The Sludge Lagoons. The existing wastewater treatment plant is located close to the city,and some houses are situated just outside the fence of the plant. Earlier sludge was stored close to the plantbut since 1979 the sludge has been pumped to lagoons at the site of the new treatment plant (underconstruction). The sludge has a high water content, as the plant has no de-watering equipment and alsothe new sludge lagoons are rapidly filling. Today the lagoon area covers an area of about 80 ha and isanticipated to be filled up in two years time. The sludge lagoons are an odor nuisance and result in insectproblems (e.g. mosquitos) during the summer season. During heavy rains there is a risk of leakage andoverflow, and there is also a long term risk of adverse impacts on the ground water.
The New Wastewater Treatment Plant.
22. In the 1980's it was concluded that no extension was possible (due to the vicinity ofresidential areas and lack of space) at the old treatment plant site and works at the new plant site werestarted in 1990. The location of the new wastewater treatment plant is 8 km outside Siauliai and there isenough space for any future extensions. No land use conflicts or odor problems are expected due to theremote location. The Kulpe River will continue to receive the treated wastewater.
23. The present wastewater flow is about 40 - 45,000 m3/day down from 60,000 m3/day in1990. However, it is estimated that the flow could grow gradually but would not exceed 60,000 m3/dayin the medium term. The load on the Kulpe River has been estimated with a mean wastewater flow ofabout 50,000 m3/day. The estimates are presented in Table 6.
Table 6. The estimated future load of BOD, suspended solids, nitrogen and phosphorus from thenew wastewater treatment plant.
Parameter | Discharge to river Kulpe, Discharge to river Kulpe,mg/l tons/year
BOD 11 200Suspended solids 11 200Nitrogen, N 20 360Phosphorus, P 1.1 20
8 ANNEX 6
Potential Environmental Impact of the Proposed Project.
24. The proposed Project would include the following main elements:* construction of an iron removal plant in Birute;* rehabilitation of existing facilities of water supply and wastewater collection system in the
city of Siauliai, and* completion of priority facilities for wastewater treatment and sludge handling currently
under construction.
25. The main benefits of the proposed Project are summarized in Table 7.
Table 7. Main benefits of the proposed Project.
fAction Component Benefits ]Upgrading of the existing Decrease of the iron content Minimization of health risks.facilities for water supply and softening of potable water Decrease of clogging of
(especially Birute wellfield) distribution systems by ironand calcium carbonate
l _____________________________ ______________________________ precipitation
Control of industrial Enforcement of pretreatment of Minimization of heavy metalswastewater discharges industrial wastewater and persistent organic com-
discharged to the Siauliai pounds in the sewage sludgesewage collection system, thus improving of reuseespecially industries discharging possibilities. Contribution tofat, persistent organic the trouble free operation of thecompounds and metals treatment plant.
Upgrading of the performance Rehabilitation of wastewater Reducing the risk of dischargesof the sewer system pumping stations and leaking of untreated wastewaters to the
sewers Kulpe River and groundwaterpollution
Improving the efficiency of Completion of the construction - Reduce discharges ofwastewater treatment and works and procurement of untreated and partially treatedsludge handling necessary process equipment wastewaters to the Kulpe river
for the plant - Improve water quality in theKulpe River and furtherdownstream in the LielupeRiver- Fulfil the recommendations ofHELCOM regardingdischarges of phosphorus andorganic compounds
Upgrade the sludge dewatering Increase the dry solids contentand handling from 2 to 20 % in order to
facilitate the final disposal
Sludge disposal management Reuse of sludge in landscaping Use of nutrients in agriculture.and agriculture (fertilizer) Reducing the need of landfill
for sludge disposal.
9 ANNEX 6
26. Because of the lack of data necessary for calculating the situation in the receiving waters,the potential environmental impact of the proposed Project can only be estimated. The proposed Projectwould significantly decrease the discharged quantities of BOD, suspended solids, nitrogen and phosphorusinto the Kulpe River. See Table 8.
The water quality especially in the Kulpe and Musa Rivers but also in the Lielupe River would improve.
The positive effects include:- reduced or eliminated odor problems;- improved hygienic conditions;- improved oxygen conditions in the river water and bottom sediment;- decreased primary production (phytoplankton, periphyton, macrophytes) and improved
possibility for biological life in the river.
Table 8. Comparison between the present and the estimated future load of BOD, suspended solids,nitrogen and phosphorus from the wastewater treatment plant in Siauliai.
Parameter Discharge to the Kulpe Discharge to the KulpeRiver, River,
Old treatment plant New treatment plant
Water flow (m3/day) 40,000 50,000BOD, tons/year 1,000 200Suspended solids, tons/year 1,000 200Nitrogen, N, tons/year 500 360Phosphorus, P, tons/year 75 20
27. The present discharge from Siauliai correspond to about 250 tons nitrogen and 56 tonsphosphorus at the mouth of the Lielupe River(the Gulf of Riga). The corresponding figures after thecompletion of the Project would be 180 tons of nitrogen and 15 tons of phosphorus equaling to annualreduction of 70 tons of nitrogen and 41 tons of phosphorus in the Gulf of Riga.
28. The Lithuanian standards (under preparation), recommendations of the HELCOM (1988)and to the EU directives 91/271 are presented in Table 9. These regulations are valid for plants loaded withmore than 10,000 person equivalents. According to the HELCOM recommendations the wastewatersshould be treated by biological treatment as soon as possible and not later than 1998, when the limit valuesshould be achieved.
10 ANNEX 6
Table 9. Regulations in Lithuania, Helsinki Commission and European Union for municipalwastewater regarding plants with more than 10,000 person equivalents.
Parameter Draft Lithuanian HELCOM EU Directiveregulations 1994 Recommendation 9/2, 91/271
February 15, 1988 andRecommendation 16/9
March 15, 1995
BOD 15 mg/l 15 mg/l 25 mg/l90 % reduction 70-90 % reduction
Suspended solids 15 mg/l 35 mg/l90 % reduction
Total phosphorus 1.5 mg/l 1.5 mg/l 1.0 mg/l80 % reduction
Total nitrogen 12 mg/l 10 mg/l 10 mg/l70-8-% reduction 70-80 % reductionto be achieved by
l __________________ ___________________ year 2010
29. The final wastewater concentrations assumed for the new wastewater treatment plant inSiauliai would fulfill the standards and guidelines for BOD, suspended solids and total phosphorus ofHELCOM and Draft Lithuanian regulations.
Proposed Mitigating Measures
30. Mitigation Plan. The overall aim of the proposed Project is to implement measures whichwould improve the water supply and wastewater services in Siauliai. The major environmental impact ofthe Project would result from the improvement in surface and groundwater quality in the Project arearesulting in improved ecological conditions.
31. Few of the impacts of the completed Project would be adverse and none are likely to besignificant and require mitigation. The impact of construction would be largely limited to relatively minordisruption and disturbance. Nevertheless, it should still be possible to reduce the extent of thisinconvenience by implementing some relatively straightforward measures to minimize these impactsthrough clear requirements in the construction contracts combined with good construction supervision.
32. Proposed Enviromnental Monitoring. A monitoring program should be designed,including the frequencies and analyzed parameters to meet domestic and international standards,recommendations and agreements. The program should be designed for:
* Potable water quality monitoring (additional sampling and analytical work);
11 ANNEX 6
* Municipal wastewater monitoring (influent, effluent and sludge), according to therecommendations and agreements within HELCOM. There should beindependent supervision of the performance of the wastewater treatment plantcarried out by the MoEP;
* Industrial wastewater quality and quantity monitoring, including both industriesconnected to the wastewater treatment plant and non-connected industries; and
* Water quality monitoring in regard to physical-chemical and biologicalparameters for the receiving waters of the Kulpe and Musa rivers.
33. Proposed Sludge Handling. The long-term target for sludge treatment and handlingshould be recycling of the sludge for agricultural use. Sludge from municipal wastewater treatment plants,used in agriculture, is an excellent addition of nutrients (P and N) and organic matter to the soil. In orderto enable reuse for agricultural purposes, the sludge should be stabilized and should not contain harmfulsubstances (e.g. heavy metals and persistent organic substances).
34. Institutional Strengthening and Human Resources Development. The proposedProject includes use of a "twinning agreement" to support institutional strengthening and human resourcesdevelopment activities for Siauliai Water Enterprise. These activities would include training for SiauliaiWater Enterprise personnel in the collection, analysis and application of water and wastewater qualitymonitoring to the operation of the utility. Support would also be provided for training of personnel fromthe Siauliai and Panevezys Regional Environmental Protection Offices and Siauliai Water Enterprise in theuse of water quality data for the evaluation of trends in environmental quality and assessment of the impactof the wastewater discharges on the river environment.
Annex 7
SIAULIAI ENVIRONMENT PROJECTEnvironmental Data Sheet
ANNEX 7
ENVIRONMENTAL DATA SHEET FOR PROJECTSin the IBRD/IDA Lending Program
Country: LITHUANIA Project ID No: 39746Project Name: Siauliai Environment Total Project Cost: US$22.85 mAppraisal Date: June, 1995 Task Manager: Sari SoderstromBoard Date: December, 1996 Sector: EnvironmentManaging Division: EC4NR Status: NegotiationsLending Instruments: SILDate (est) for receipt of EA by Bank: N/A Date Assigned: March, 1995EA Category (AIBIC): B
Date Sheet Prepared/Updated September 12, 1995(Please do not leave any items blank: use 'N/A' or 'To be developed' when appropriate)
Major Project Components: (presents description of project components)
The proposed Project includes an Water and Wastewater Improvement Component (WWIC) and an Environmental Management Component (EMC) whichare intended to support implementation of the Baltic Sea Environment Program which identified Siauliai as a "priority hot spot.' The WWIC wouldsupport Siauliai Water, the local utility, to undertake: (a) rehabilitation and upgrading of water treatment and distribution facilities; (b) rehabilitation ofelements of the old wastewater treatment plant and completion of major elements of the partially constructed new wastewater treatment plant; (c) actionsto improve sludge management and reduce the discharge of industrial wastewaters into the sewerage system; and (d) institutional support and training toassist in establishing an autonomous and financially independent water and wastewater utility in Siauliai. The latter would include assistance for tariffrestructuring/tariff planning and financial operations and a twinning arrangement with a reputable foreign water and wastewater utility. The EMC wouldinclude support for: (a) the 'International Lielupe River Commission;" (b) a regional and local environmental monitoring and laboratory systems; and (c)technical and ftnancial support for selected activities designed to control pollution from pig farms.
Major Environmental Issues: (describes major environmental issues identified or suspected in project)
The WWIC of the proposed Project would result in: (a) improved water conservation and drinking water quality in Siauliai; (b) reduced infiltration ofwater into the sewerage system and wastewater into the groundwater; (c) reduced discharge of partially treated and untreated municipal and industrialwastewaters into the Upper Lielupe River; and (d) reduced industrial discharges and improved sludge management practices. All activities concerning thenew wastewater treatment plant would be conducted at an existing site which is removed from residential and cornmercial areas. The EMC of theproposed Project would result in a strengthened river basin management organization and support improved control of point and non-point source pollutionwould reduce discharges into Lielupe river and provide for the demonstration of low-cost control methods. Both components include activities to monitorenvironmental performance by Lithuanian authorities.
Other Envronmental Issues: (describes environmental issues of lesser scope associated with project)
N/A
Proposed Actions: (describes actions proposed to mitigate environmental issues described in project)
An environmental review has been prepared for the proposed project by a joint Lithuanian and Swedish team consistent with the environmental reviewprocedures of Lithuania and those of the Bank. Preparation of the study was coordinated with the Ministry of Environmental Protection, RegionalEnvironmental Protection Office and Siauliai Municipal Environment Department. Actions would be taken to mitigate disturbances during construction andmonitoring would be conducted for improvements in the wastewater treatment system.
Justzflcaton/Rationale for Enuronmental Category: (reasons for environmental category selected & explanation of any changes from initial classification)
The project has been placed in environmental screening category "B" as the potential impacts are restricted in scope and are largely beneficial. Theproposed improvements and upgrading of the water and wastewater facilities have been approved by the Ministry of Environmental Protection. Activitiesfor improved management of the Lielupe River basin are anticipated to a have positive impact on the environment and would be implemented under thedirect supervision of the Ministry of Environmental Protection. Proposed actions under the Project would not require involuntary resetlement or haveadverse impacts to known archaeological or historic sites.
Status of Category A Environmental Assessment: (presents EA stan-up date, EA first draft, and current status)
-N/A
Remarks: (gives status of any other environmental studies, lists local groups and local NGOs consulted, tells whether borrower has given permission to release EA, etc)
Preparation of the proposed Project has been coordinated with the ongoing work of the "Lielupe River Project' which is being conducted by a Latvian,Lithuania and Swedish team. The Ministry of Environmental Protection, Regional Environmental Protection Offices and the Siauliai MunicipalEnvironment Office have directly participated in project design. Preparation of the Project has included a number of meetings with representatives ofnational and local authorities and experts concerning the findings and recommendations of the consultants. Given the transboundary nature of the LielupeRiver, consultations have been conducted with the Latvian Ministry of Environment and Regional Development which strongly supports the proposedProject as it would reduce pollution of Latvian surface and coastal waters.
lSigned Signedl
lby: by:l
Geoffrey Fox, Chief, EC4NR Aniarnd K. Seth (EMTEN) Noebrl,19
Annex 8
SIAULIAI ENVIRONMENT PROJECTSupervision Plan
ANNEX 8
SUPERVISION PLAN
Env. Total
Approx Activity Staff Weeks TM Fin.Spec. Proc. Spec. Engin. Env. Spec. Staff weeksDate
FY May-96 Supervision I Headquarters 39 (Project Startup) Regional Office I 1 2
6 Donors ______ J _ 2 3
Sep-96 Supervision 2 Headquarters 1e I 3Regional Office _ 1 1 2
Donors 1 3F
Y Dec-96 Ist Annual Review Headquarters 1 1 1 49 Regional Office I 1 2
7 Donors 1 2 3
Apr-97 Supervision 3 Headquarters 1 I 1] I | || 3 |
Regional Office I I 2Donors 1 I__ 1 2 3________________________ ____. ___ _ _. _-__
Sep-97 Supervision 4 Headquarters 1 1 I I |_| _ | 3Regional Office I I _ 1 1 2
Donors 1 J 2 1 _3
F
Y Dec-97 Supervision S Headquarters 1 1 I 1 _ | _ 3
9 Regional Office | |_ |_ | ] 1 2
8 Donors _ 1 I _ | 2 __3
Apr-98 2nd Annual Review/ Headquarters 1 1 4 I_I__I |
Mid-terrn Review Regional Office __ j_____I _ I [ 2
Donors _ [1I j2 3 2
Dec-98 Supervision 6 Headquarters 1 1 3Regionor Office |_I I I I 2
Donors I | 2 3
FY Apr-99 3rd Annual Review Headquarters 1 I I ____ 1 49 Regional Office | I T 1 I 1 1 2-9 Donors ___I 1 2 3 J 3
F Dec-99 4th Annual Review Headquarters 1I I 4Y RegionalOffice 1 1 I 20 Donors {1 ____ 2 _ __3
0
ImplementationCompletion Report
Mar-00 Preparation Headquarters 2 _ _ _ _ _ 2Regional Office 1 I
Annex 9
SLAULIAI ENVIRONMENT PROJECTSiauliai Water - Financial Analysis
Annex 9
1
UNDERLYING ASSUMPTIONS OF THE FINANCIAL MODEL FOR SW
STATISTICAL DATA
1. An increase in population of 0.6% for each year from 1995 to 2010, and a correspondingincrease in the number of people served by the Siauliai Water (SW) utility is assumed. Theproportion of the population is therefore maintained at 87% through out the project.
2. The proportion of non-revenue to total water produced is assumed to remain flat at 20%.This amount of 20% non-revenue water is low for a system such as SW, and indicates thatmeasurement of water production is probably not accurate.
INFLATION ASSUMPTIONS
3. Average nominal water and waste water prices for the years 1992-1994 have been inflatedto mid- 1995 litas by the inflation factors as shown below.
122 1993 1994mid 1992 to mid 1995 mid 93 to mid 95 mid 94 to mid 95
33.78 4.510 1.53
4. The above inflation factors have been calculated using annual inflation from the middle ofthe year to the middle of the next year. The annual inflation rates are in 1992 - 1021%, 1993 - 401%,1994 - 72% and 1995 - 37%.
5. For the Balance Sheet the 1992-1994 figures have been inflated from end of year to mid-1995as shown below:
1992 1993 1994end 1992 to mid 1995 end 93 to mid 95 end 94 to mid 95
10.080 2.010 1.170
UNIT OF PROJECTION
6. All projections are in constant US dollars for the Income Statement, Balance Sheet and theFunds Flow Statement, using an exchange rate of Litas 4 = 1US$ on mid-1995 Lita figures.
Annex 9
2
LNCOME STATEMENT
7. The tariffs for water and waste water are taken as given up to 1995 and have been convertedto mid-1995 Litas and then into constant US dollars. The Base Case Scenario projects real increasesin tariffs of 15% in 1996. 15% in 1997 and 12% in 1998.
8. Revenues from other services include water limit fees and a BOD fee for waste water.Sale of goods and services for both water and waste water are expected to reduce over time, as theseservices will be contracted out more and more.
9. Interest rate earned on delayed payments is assumed to be a nominal rate of 19% starting in1995, and deflated to real levels to project interest earnings and interest charges in real terms.Delayed payments are projected to be 2% of total water and waste water billed. Interest income fromthe compulsory reserve fund (which is 5% of after tax profits each year) is calculated at 19%nominal per year deflated to real rates and is shown as a separate revenue item.
10. For the Base Case scenario, the staff costs have been projected to remain constant in realterms for the period 1995-2010. The expected reduction in employees will not reduce the wage billin absolute terms due to the costs of redundancy payments and compensation of the remainingemployees who would be the better skilled and better qualified employees. Social costs are projectedat 31% of wages and salaries.
11. In the Base Case Scenario, Energy and Material costs for water and waste water services, isexpected to increase by 4-5% in real terms in 1996, and then by about 20% in 199, and thereafter byless than 1% each year up to 2010, with the exception of a 4% decline in 2003. This is due tophasing out of one of the units of the water treatment facility. The large real increase in energy andmaterial costs in 1997, is primarily due to the commissioning of the new waste water treatment plant.In the Base Case, it has been assumed that SW will introduce cost cutting measures so as to containthe increase in energy and material costs to 15%. as opposed to the 21% projected for 1997.
12. Depreciation has been calculated using a 30 year straight line for existing assets. For newassets being created or existing asses being rehabilitated in the SW project, it is assumed that theassets will be depreciated using straight line depreciation over 25 years for the water supplyfacilities, 50 years life for the collection network and pipeline, and 10 years for the rehabilitatedexisting waste water treatment plant. For fixed assets created from the investments financed by SWafter the project. straight line depreciation for 25 years has been assumed.
13. Assumptions on the various environmental and other taxes are as follows:
* VAT which was charged for 1993 and 1994, is projected to be 0 in future years since SW hasbeen granted an exemption on paying VAT.
Annex 9
3
* Traffic tax is taken to be 0.5% of total water and waste water billed.
* Land Tax, Natural Resources Tax, and Pollution Tax are projected to increase in real terrmsby 2% each year starting in 1996.
14. Interest expenses on the World Bank loan have been calculated at the World Bank's currentlevel (7.2%) lending rate which is variable. The projections on interest expenses are made keepingthis current lending rate constant, through out the twenty year repayment period. The interestexpenses on the World Bank loan have not been deflated for these projections, assuming potentialdevaluation, which cannot be easily projected. Thus by using the 7.2% interest rate through out theproject, interest expenses are in effect being kept constant.
15. Other Financial Costs comprise of interest charged of 19% (nominal rate which has beendeflated using local inflation projections) per annum, on delayed payments to suppliers which isassumed to be 0.1% of energy and material bills.
16. Profit taxes are taken to be zero after 1994, since SW as a municipal entity, it will be exemptfrom profit tax.
17. SW used to pay taxes on State Capital at the rate of 7% per year. Out of these taxes, one-thirdwas paid to the Government and two-thirds went to an external account from which SW could drawdown for investments. Since the ownership of SW shifted from the Central Authorities to theMunicipality, the tax on State Capital is to be eliminated and instead there will be a property taxequivalent to 0.5% on assets to be paid to the Municipality.
18. Provisions for bad debts are expensed in the Income Statement. The provision for bad debtsis taken to be 5% of annual domestic water and waste water bills and 3% of annual public andindustry bills. It is assumed that the provisioned amount is accurate and there is a correspondingwrite down of Accounts Receivable in the Balance Sheet.
19. SW is required to set aside 5% of net after tax profits as contribution to a Reserve Fund.Contribution to the Reserve Fund is shown as a separate row item in the income statement. In theBalance Sheet, the compulsory reserve fund is included as part of Retained Earnings.
20. The Income Statement automatically calculates for each year the projected Working Ratioand Operating Ratio for each year. The Working Ratio is defined as operating costs (material andenergy costs, staff costs and environmental charges) divided by operating revenues (water and wastewater revenues, water limit fees and BOD fees, goods and services provided and interest earned ondelayed payments and on the compulsory reserve fund). The Operating Ratio is the same as abovewith addition of depreciation and interest expenses to the numerator, while the denominator remainsthe same.
Annex 9
4
BALANCE SHEET
1. For the years 1992-1994 all Balance Sheet items expressed in Nominal Litas have beeninflated by the end of year to mid- 1995 inflation factors to constant mid- 1995 Litas. These have thenbeen converted to constant US dollars using the current exchange rate of Litas 4 = US$ 1.
2. The Balance Sheet figures for 1994 are according to the figures presented in the BalanceSheet of SW for this year.
3. The projections for Current Assets from 1995 to 2010 are based on the assumptions describedbelow.
(a) Cash and Bank Balance for 1995 to 2010 have been projected. using a minimum cashbalance requirement equivalent to six months of operating costs. The final cash andbank balance for each of the projection years. is derived from the closing cashbalance calculated from the Source and Uses of Funds statement.
(b) Accounts receivable are maintained at current levels, of 45 days of sales.
(c) The provision for bad debts which have been expensed in the income statement arepresumed to be accurate and the Accounts Receivable are written down to the sameextent each year. The assumptions for provisioning for bad debts are: 5% of annualdomestic customer bills; and 3% of public and industrial customer bills.
(d) Inventory is assumed to be 60 days of energy and material bills which is in keepingwith current levels.
(e) Advance Payments made for energy and materials are assumed to be 10% of annualenergy and material costs.
4. The Gross Fixed Assets of SW for 1994 is taken as given in the SW Balance Sheet andconverted into constant US Dollars. The project is expected to begin in 1996, and all new projectinvestments are added to the existing asset base as increments. Accumulated Depreciation has beencalculated as the total of depreciation on existing assets and on the incremental assets, as describedin the assumptions on the income statement. Investments in the Project Implementation Unit, isshown on the Asset side as "Intangible Asset". It is also assumed that SW would continueinvestments from 1998 onwards. financed through its own sources.
Annex 9
5
5. On the Liabilities Side, Current Liabilities include the following:
(a) Short term borrowing in 1994, is equivalent to US$149,000. No further short termborrowing is projected for future years, since SW has adequate funds to finance itsworking capital and short term needs.
(b) Advance Payments received is about 0.4% of water and waste water bills. Thisprojection is based on 1994 level of advance payments to bills.
(g) Accounts Payable for each year is projected at 45 days of energy and material bills.
(h) Other overdue payments include - taxes and charges which have been maintained atthe same level as in previous years; wages and social charges which is 1 1% of thetotal wage bill for each year.
6. Long Term Liabilities comprise of the World Bank Loan of US$6 million, disbursed acrossthe calendar years 1996 to 1998, according to the financing plan shown in the SAR.
7. The Owner's Equity for the past years comprised of State Capital which is the State'scontribution to the financing needs of SW. For the current project the Government will contributean equivalent of US$7.60 million in the form of a grant. This grant as well as the grants fromforeign governments for this project have been shown as a part of owner's equity.
8. The Retained Earnings shown in the Balance Sheet for the year 1994 is as given in theBalance Sheet of SW. However, there is some discrepancy between the retained earning as shownin the income statement and those shown in the Balance Sheet. For the purpose of this analysis, theBalance Sheet retained earnings of the previous years are assumed to be the correct numbers and thebuild up of retained earnings starts with the retained earnings as stated in 1994. The footnote in theBalance Sheet against retained earnings explains the compulsory reserve fund (described earlier 5%of net profit after tax) is included in the Balance Sheet as part of Retained Earnings.
9. The Current Ratio: is defined as current assets over current liabilities and indicates theliquidity position of SW.
10. The Return on Equity is defined as Net Profits after taxes and before dividends andcompulsory reserve fund contribution. divided by Owner's Equity.
11. The Return on Investment is defined as Gross Profits before Interest and TaxeslNet WorkingCapital + Net Fixed Assets.
Annex 9
6
SOURCES AND USES OF FUNDS STATEMENT
I . The Sources and Uses of Funds Statement projects the funds flow from 1995 to 2010, startingwith 1994 as the base year. The funds flow from operations are taken from the net profit after taxesas projected in the income statement, with depreciation and interest costs added back.
2. The funds from external financing are projected from the incremental growth in equityfinancing and debt financing as shown in the Balance Sheet. These include the World Bank Loan,the Grants from Norway, Sweden and Finland and the Grant from the State.
3. The uses of funds show the incremental investments undertaken by SW and calculated fromthe asset growth as shown in the Balance Sheet. As described in the Balance Sheet Assumptions.the Funds Flow projections are set up in such a wy so that an luses between sources and usesafter satisfvin2 a minimum cash balance of six monthsf operating costs. will be used for futureinvestments. startin2 in 1998. These investments, further increase SW's asset base. and the assetsare depreciated using 25 years straight line depreciation.
4. The Debt Service requirements includes projections on both interest payments and principalrepayment for future years. Since the World Bank loan to the Government of Lithuania is on-lentto SW, the terms of the loan that have been adopted in the Base Case Scenario are those offered toSW. The rate of interest is the same as the World Bank rate but the grace period and repaymentperiod has been reduced from 5 to 4 and 20 to 10 years respectively. As described in theassumptions underlying the income statement projections, the interest payments on the World Bankloan has been projected using the current interest rate (7.2% per annum paid twice a year) throughout the repayment period of 10 years. These projections are as if in constant dollars, from aconservative perspective, given that future devaluations may end up increasing the debt burden onSW in Lita terms. The principal repayment have also been projected in nominal terms for the samereason.
5. Non-cash working capital is defined as Current Assets (except cash) minus CurrentLiabilities. The change in non-cash working capital is calculated from year to year from the BalanceSheet, the assumptions for which are included in the previous section. Increases in non-cashworking capital is added to the uses of funds, whereas decreases in non-cash working capital arededucted from the uses of funds.
6. The opening cash balance for 1995 is taken as a given from the 1994 closing balance. Thefuture projections for closing cash balance of 1995 and cash balances for all future years are shownin the last line of the Source and Uses of Funds Statement.
7. The debt service coverage ratio for each year is calculated as net profit after taxes +depreciation + interest costs divided by the debt service including interest costs and repayment.
ASSumpnomON04 FliflRE TARIFF INCREASES - - - - -- - - -
Red l mw in WMU Prices - 0% 0% 151 15% 12% 0% 0% 0% 0% 0% 0% 0%* 0% 0% 0% 0% 0%RaI bc,m .WatWawPrkcu 0% 0% Is% I5% 12% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
SIAULUAI WATER AND WASTM WATE SYSTEM -1992 (99 1994 1995 1996 1997 1991 1999 200D 2oDi 200 2003 2O4 2 00 26 2007 2006 2009 2010RICOIIE SIATEIZWT - BASE CASE TOrAL WATER & WASTE WATER REVENUBTOM WiNe 1d Waf wan Dow (US5$ 000) 21173. 7405 4775 4061 4719 $41 6199 257 6317 6377 6472 6566 6660 6754 6853 6947 7046 7142 7236
Wow LJmk FuLIBO he (US$000) 044 02 IV_ 141 165 I" 203 21 211 211 221 22 221 231 231 241 241 21 211
Ndu t Gods hua Ses&Canbka (Ier MO300) a.5 1 41 17 97A 457 432 71D 898 752 816 903 .2 1.09IO IOD5 IOD5 1.100 1.04 986 922
__se ________en_deby _______ MU_ ODD) 3% 66 73 61 56 33 49 42 42 41 40 49 49 49 4% 48 47 47%(
TOTIAL EVNUESTI 65%S$OD 2.1 76%9 8013 91%8 583% .836 6810 678% 6,64 8.00 6796 6779 76%9 76%8 7617 7273 7837 7946 805%
TOALOERT_ CSTW___ w__o__00_139___16 .19 3.7 2__11 3_01 3'3.01 ,0I 3.1 ,2 ,9 ,33 337 332 335 ,7 .3 .0
(I)W A io-( Cam s+ (Uone S$ICODO) 773 3.2 .38112ha.4 153 i.7 ,s2 ise1,5 ,v , 1n9 1.6 .1 .9 117 192 ,3(2) R at -g (USi$ CoasEjri4ona1.I 14 +IteutCn* 1oI Reenus 118 IIs Ils Ils 118 Il 'l .1 'l .1 .1 ,1 .1 .1 .
SUVLUAI WATER AND WASTE WATER SYSTEMBALANCE SHEEr, Constant Mid 1995 US$ 000
US$1- 4Ultas1993M 1994 1995 1996 1997 19981 1999 2000 2001 2002 20031 2004 2005 2006 2007 2008 2009 2010
ASSETSIIICashundOBark 141 151 56 935 2156 3770 37311 4022 2982 3133 3287 34711 3619 3771 4857 4935 5013 5092 5169Accounts Receivable 733 471 450 508 590 685 7751 782 790 797 809 821 832 844 857 g68 881 893 905
Write Off of Bad Debts 0 0 0 178 206 239 2701 _273 __275 277 281 285 289 293 297 301 305 309 313Inventory 1018 244 291 214 224 259 296 275 307 309 311 306 308 311 313 315 318 320, 323AdvawcePaymsents Made 680 29 135 128 135 155 177 165 184 185 187 183 185 186 1881 189 -191 192 194ContracssnoCornpleted 0 19 0 0l 0 0 0 0 0 0 0 0 0 0 0l 0 0 0 0TOTAL CURRENT ASSETS 2572 914 931 1607 2899 4630 4708 4972 3988 4147 4312 4496 4655 4819 5917 6006 6098 6189 6277
Gross Fixed Assets - Post Project (I) I __ ___ 0 2151 4324 6693 80171 9485 111231 12938 14893 1699 20172 23421 26741 30133Gross Fixed Assets -Existing + Project 18,419 6.471 23.920 23,920 32,343 41.086 43,027 43.027 43,027 43,027 43.027 43,027 143.027 43,027 43.027 43,027 43.027 143,027 43,027Accumulated Depreciation 481 669 1359 2050 2983 4228 56161 7091 8660 10283 11964 137101 15530 17427 19408_ 21517 237561 26127 286341NET FIXED ASSETS 17,937 5,802 22.560 21.869 29.360 36.857 39.562 40,260 41,059 40.761 40,548 40,439 140,435 140,492 40,611 41.681 42,692 143.641 44,525
Other Assets (2) 1 _234 344 395 441 4-41 441 441 441 441 4411 441 441 441 441 441
T'OTAL ASSETS 20,510 6,716 23,492 23.476 32,493 41,832 44,665 45,673 45.488 45,349 45.302 45.376 45,531 45.752 46.968 48.129 492.231 50,270 51.244
CURRENT LIABIILITIES 3,596361 624 507 517 546 577 56 586 587 589 586 588 590 592 594 597 5991 601Shoe-TernnBank Loan 645 0 146 0 0l 0 0l 0 0 0 0 0 0 0 __0 -0 0 0 _ 0Advance Payments Received 20 13 16 16 191 22 25 25 25 261 26 26 27 27 271 28 29 29 29Accounts Payable 2568 108 151 160 1681 194 222 207 230 232 233 229 2.31 233 235 236 238 240 242Taxes ankd Chsarges 176 126 169 169 169 169 169 169 169 169 169 1691 169 169 169 169 169 169 169Wages and Social Paymnents 186 114 142 161 161 161 161 161 161 161 161 161 161 161 161 161 161 161 161
LONG TERM LIABILITIESIWorld Bank Loan _ 0 0 __ 0 0 2,903 5,662 5,923 6,000 5.000 4,000 3,000 2,000 1,000 - - - - -
AdditionalfBorrowing Required (3) __ _ _ 0 0 0l 0 0 0 0 0 0 0 0 0 0l 0 __0 00
TOTAL LIABILITIE 3,596 361 624 507 3,420 6,208 6.50D 6,562 5,586 4.587 3,589 2.586 1.588 590 592 594 597 599 601
EQUITY 16095 6146 22790 22790 28412 34508 36302 36302 36302 36302 36302 36302 36302 36302 36302 36302 36302 36302 36302Owner's Equity - State Capital (4) 16095 6146 22790 22790 22790 22790 22790 22790 22790 22790 22790 22790 22790 22790 22790 22790 22790 22790 22790State Grant Funds 0 ___ __ 0 0 3064 6380 7604 7604 7604 7604 7604 7604 7604 7604 7604 7604 7604 7604 7604Foreign Grant Funids 0 ___0 ___0 0 2558 5338 5908 5908 5908 5908 5908 5908 5908 5908 59081 5908 5908 5908 5908
Retained Profit (5) 819 210 77 179 660 IllS 18631 2808 36001 4459 5410 64881 7641 886 I10074 11232 12331 13369 14340
*tncl.compulsory reserve fund 271 62 43 48 72 95 132 180 219 262 310 3641 421 482 543 601 656 708 756TOTAL EQUITY 16914 6356 22867 22969 290V731 35623 38165 39111 39903 40762 41712 42790 43943 45162 46376 47534 48634 49671 50642
TOTAL LIABILMiES AND EQUITY 20.510 6,716 23,492 23,-4763243 4,3 44,665 45,672 45,488 45.349 45,301 45,376 45,531 45.752 46.9684.29 9,3 3070 524C'URRENT RATIO (6) 0.721 2.531 .49 3.17 5.0 8.48 8.17 8.85 6.81 7.06 7.32 7.68 7.9 8.7 .9 01 1.2 1.3 1.4RET-URN ON EQUITY(7 34% 20% 4% 0% 2 I 1 2% 3% 2% 2% 3 % 3 % 3 % 3 % 3RETURN ON INVESTMENT(S) I 48%I 29%1 5% 2% 3% 4% 4% 4% 4- 4 % 4 % 4 % 3 % 3General Commnent: Alt figures for the years priorto 1995 taken an given in SW Balance ShItd. (3) AdditionLal borrowing, if required, for bridging (6) Current Ratio = Current Assets/Current Liabilities
the gap between sources and urea of funds. (7) Return on Equity = Net Profit after taxes(I) The additional investments financed from interntal (4) State Capital -contribution from the State before dividends and contributions to reserve funds/
Resourees generted by SW in the years after to SW is aecounted forma part of Ownier's Ownier's Equitythe Project. (5) Retained Prorit is cummulated from 1994 wan (8) Return on Investmnent = Net Profit before Taxes and Interest/
(2) COther Assets refer to the intangible assets includes 5 % of after tax profits an a reserve Net Fixed Assets + Net Working Capital \created in the Project - for example, the fund.
I Project Implementation Unit.
Basw Case: 15%. 15%, 12% SIAULIAI WATER AND WASTE WATER SYSTEM+ 10 year repyment of debt SOURCES AND USES OF FUNDs
In Constant MIfd-95 US$ 000UIS$ = 4 U tas _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
SOURCES OF FUNDS 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010INTERNAL CASH FLOWIINet Income after Taxes 860 102 481 455 748 945 792 859 951 1078 1153 1.219 1214 1158 1099 1038 971
Interest and Other Financial Costs 59 0.18 209 408 427 430 358 286 214 242 70 0 0 0 0 ___00
Depreciation _____ 691 691 933 1245 1388 1475 1569 1622 1681 1747 1829 1897 1981 2109 2239 -2371 2507Total ftunds from Operatins ___1610 793 1623 2108 2563 285 2720 2767 2846 2967 3042 3117 3196 3267 3338 3409 3478
GRANTS AND LOAN DISBURSEMENTSState Grants 1664.4 0 30641 3316 12241_ 0 0 0 o 0 0 0 0 o 0 0 _ 0 0 0Foreign Granits 0 0 2558 2780 570 0 0 0 0l 0 _ 0 0 0 0 _ 0 0l 0World Bank Loan 0 0 2903 2759 261 77 0 0 0 _0 0 0 0 0 0 0Total hisndfrom ftnancinig _ __ 16644 _ 0 852588355 2055 77 0 0 0 0 __0 0 0 0 0_ 0 0 0
Additional Borrowings Required (1) _ __ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 -0 0
TOTAL SOURCES OF FUNDS _____ 182541 7931 10148 10963 4618 2927 2720 2767 2846 2967 3042 3117 3196 3267 3338 3409 3478
ProjectlInvestmsent Years 1996 -1999 17449 0 8657 8853 1992 46 0 0 0 0 0 0 0 0 0 00Future Investment Years 1998-2010 (2) - - 0 0 0 0 2151 2172 2369 1324 1468 1638 1815 1955 2200 3179 3249 3320 3392
DEBT SERVICEfnteresi ~~~~~59 0 209 408 4261 430 358 286 214 142 70 __0 _ 0 0l 0 0 0
Other FinLarcial Costs 0.00 0.18 0.19 0.23 0.251 0.23 0.26 0.26 0.26 0.25 0.26 0.26 0.26 0.26 0.26 0.27 0.27Repaynients -short term borrowing 0 146 0 0 __0 __0 0 0 0 0 __0 __0 _ 0 0 __0 0 0oRepayments -long term borrowing 0 0 0 0 ___0 ___0 1000 1000 1000 1000 1000 2000DO _ 0 0 ___0 0 ___0
Repayments -additional borrowing,if any _____ 0 0 0 0 ___0 0 0 0 ___0 ___0 __ 0 0 ___0 00____ ___ ~ ~ ~~~~~~~~0 0 __ 0 ___o 0 _ 0 o_ 0 o 0 _ 0 0 0
Total Debt Service ___591 146 2091 408 427 430 1358 1286j 1214 1142 2070 I0ODO __ 0 0 ___0 00
Inc.(Decr.) in Non-Cash Working Capital (3) _ -4 -235 60 88 87 -13 32 6 9 3 9 9 10 9 to 10 t0
TOTAL APPLICATION OF FUNDS ___ 17504 -89 8927 9349 4657 2636 3759 2617 2692 2783 2894 2965 2110 3189 3260 3330 3402
Surplus (Deficit) Funds __ 750 882 1221 1614 -40 291 -1039 150 1.54 184 148 152 1086 78 78 79 77Opening Cash Balance 53 935 2156 3770 3731 4022 2982 3133 3287 3471 3619 3771 4857 4935 5013 509Closing Cash Balance 53 935 216 3770 3731 40221 29821 3133 32871 3471 3619 37712 4857 4935 5013 5092 5169Debt Servic-e Cover Ratio (DSCR) (4) 1 _27.321 5.42 7.761 5.17 6.01 6.63 F-2.001 2.151 2.341 2.601 2.841 3.121 122701 124651 12621 12788 12950
(I) If fthre is any need for additional rinancing, it (3) Annual Changes in Working Capital is definiedwould be in the formn of additional borrowings and as change in Curfent Assets (except cash) minusreflected in this linec itemn Current Liabilities (except abiort termn debt) from
year to year.(2) If there are large surpluses in funds generatedthen after mnaintaining a cash balance of 6 months (4) Debt Service Coverage Ratio (DSCR) 0loperating expenses, the cash is diverted to real Internal Resources (Net Profit after taxes +
SIUALIAI WATER AND WASTEWATER SYSTEM - Sensitivity of Financial Parameters to Risk Factors and Risk Mitigation
Scenario Description Finandal Criteria 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Increase Real Prices by 15%, 15%, 12% Base Case 61% 56% 53% 49% 52% 52% 51% 50% 49% 49% 49% 48% 48% 47%
No Real Increase in Prices - 0%, 0%, 0% _ Scenario 1 69% 73% 77% 72% 75% 75% 74% 72% 72% 71% 70% 70% 69% 69%
Increase Costs by 5% real each year Scenario 2 63% 59% 56% 52% 54% 54% 53% 52% 52% 51% 51% 50% 50% 50%
_Odraan RaIri_o_Increase Real Prices by 15 %, 15 %, 12% Base Case 83% 85% 81% 78% 81% 80% 79% 77% 76% 76% 76% 77% 78% 79%
No Real Increase in Prices -0%. 0%, 0% _Scenario 1 95% 110% 116% 110% 112% 110% 107% 104% 101% 99% 98% 97% 96% 96%_~~~~~~~~~~~~_ *1-'
Increase Costs by 5% real each year =Scenario 2 86% 87% 84% 80% 83% 82% 81% 79% 78% 77% 78% 78% 79% 80% 0
Debt Scrvicc Coverage RatioIncrease Real Prices by 15%, 15%, 12% Base Case 7.76 5.17 6.00 6.63 2.00 2.15 2.34 2.60 2.84 3.12 12270.00 12465.00 12621.00 12788.00
No Real Increase in Prices - 0%, 0%, 0% Scenario I 4.96 2.04 1.51 2.14 0.57 0.63 0.71 0.84 0.94 1.00 74.56 4480.27 4630.14 4773.87i
Increase Costs by 5 % real each year Scnario 2 7.09 4.80, 5.62, 6.27 1.88, 2.02 2.21 2.46 2.69 2.95, 11646.00 11845.00 12005.00 12177.00
Working Ratio = Operating Costs/Operating Revenues = =Operating Ratio = Operating Costs + Depreciation + Interest/Operatiing Revenues . _Debt Service Coverage Ratio = Net Profit after Taxes + Depreciation + Interest / Interest + Principal Repayment
'C
Annex 10
SIAULIAI ENVIRONMENT PROJECTSiauliai Water - Review of Affordability
Annex 10. Review of AffordabilityAffordability Projection at Fixed (1995) Prices
Number of persons per household: 3.2Number of wage earners per household: 1.7Average income/capita: 450Average household income: 765
1996 1997 1998 1999 2000 2001Real Wage Growth: I-Sep-95 2% 2% 2% 2% 2% 2%
Average household income LT/month 765 780 796 812 828 845 862Water Consumption Liter/day 164 165 167 168 169 170 170- per household m3/month 15.96 16.06 16.25 16.35 16.45 16.55 16.55
Water Tariffs LT/m3 0.78Sewerage Tariffs LT/m3 0.69Total Tariffs LT/m3 1.47Sub Total Monthly Charges LT/month 23.47 26.98 31.03 34.76 34.76 34.76 34.76Value Added Tax 18% 4.86 5.59 6.26 6.26 6.26 6.26Total Monthly Charges 23.47 31.84 36.62 41.01 41.01 41.01 41.01Annual Real Tariff Increase 15% 15% 12% 0% 0% 0%
Monthly Charges as % of income 3.07% 4.08% 4.60% 5.05% 4.95% 4.86% 4.76%
IBRD 27027
X prOVeOvIIs fwE >+srol=9rle t / / rOl 9 rO . .~~~. T. T
TALS) (E) ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~LITHUANIAor ) \ S'IAULIAI ENVIRONMENT
PROJECT
T. ~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~* PROJECr SITE
PROJECT AREA
/JURMALA ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~LIELUPE RIVERWATERSHED) BOUNDARY
PREVIOUS PROJECT LOCATIONS (,-,I
c ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~SELECTED MAAJOR ROADS
T. ~ ~ ~ ~ ~ ~ ~~ ~~~ ~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ooo 0 SELECTED TOWNS
@ PROVNCE CAPITALS
NATIONAL CAPITAL
-PROVINCE BOUNDARIES
--NTERNATIONAL BOUNDARIES
1_S .,- -- ~~~~~AKIJJI ,--Z A- '1-- )i VaeN ROKISKIS-5
T.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~AV
DO&E~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~- tSA
AIZKPAUKLE ~ ~~~~~~~~~~ TELRU
To ToUW.g.Auce LToA* ,hATPOLANKodo,,o, K BAWo, KAd,i,~MIo 0
-
P'I'~~~~~~~~~~~~~PE'E
-L-)- 'lbU I
J-Y A' l >VA-i
