ࡱ> CE@AB` 4bjbj .Z &ZZZ`    VVV8VlNWf#X~\Z"~Z~Z~Z~Zv c g$hZ Ax~Z~ZAxAx  ~Z~ZȻSSSAx* ~Z ~ZSAxSSѲ  )~ZX .TVk"y޻0D) )PhBm`SpVshhhhhhAxAxAxAxf#f#f#D3Vf#f#f#V 0 BV      GUYANA WATER SECTOR CONSOLIDATION PROJECT PROJECT INFORMATION DOCUMENT (PID) Report No.: AB804 Project NameGY Water Sector Consolidation ProjectRegionLatin America and CaribbeanSectorWater supply (100%)Project IDP088030Borrower(s)Government of the Republic of GuyanaImplementing AgencyGuyana Water Inc. (GWI)Environment Category[ ] A [X] B [ ] C [ ] FI [ ] TBD Date PID PreparedMarch 7, 2005 and updated July 28, 2005Date of Appraisal AuthorizationMarch 14,2005Date of Board ApprovalJuly 28, 2005 Country and Sector Background In 2000 Guyana embarked on a major and comprehensive reform program for the water and sanitation sector. Reforms were initiated by the Government with the assistance of the donor community under the leadership of DfID and IDA, with the goal of providing sustainable universal access to safe and affordable water for the population of Guyana. Reforms implemented to date have facilitated a complete reorganization of the water and sanitation sector around three key principles: (i) a modern, efficient and customer-oriented utility; (ii) long-term financial sustainability; and (iii) a governance and institutional framework characterized by independent regulatory functions and a clear division of responsibilities. Key achievements of the reform program to date include: (i) a modern legal, regulatory and institutional framework under the Water and Sewerage Act of 2002; (ii) the creation of Guyana Water Inc (GWI) in May 2002 through the merger of the two water utilities, GS&WC and GUYWA; (iii) the award of a performance-based management contract (MC) for five years to an international operator, which started operations in January 2003; and (iv) the elaboration of a ten year investment program. Severn Trent Water International (STWI) is currently managing GWI and working to implement the investment program that will deliver the coverage and quality targets outlined in the MC. However, despite the significant achievements of the Governments reforms to date, the full benefits of the measures undertaken and the efficiency gains derived from the management contract will take some time to be achieved. The sector still faces major challenges towards improving performance: Financial Sustainability: A key goal for the reform process is to achieve financial sustainability in the medium-term through the implementation of a tariff review mechanism to set tariffs at cost recovery levels and eliminate operating subsidies from the Government. A study undertaken by KPMG in 2000 concluded that this would be achievable by 2004. However, in 2004 the utility was still far from achieving recovery of O&M costs with annual operating income of US$ 10.6 million and operating expenses excluding depreciation of US$ 11.6 million. The Government has therefore had to extend the operating subsidies, transferring to GWI over US$ 7.5 million in the last 2 years. From a cash-flow perspective, the current gap between collected revenues and operating payments is approximately US$ 4.7 million. The achievement of cost recovery is been negatively affected by a combination of the following: Electricity costs: The significant rise in electricity prices since 2003 (approximately 16%) which had not been factored into the KPMG work - has had an impact of approximately US$ 1 million extra cost. Electricity costs accounted in 2004 for around 65% of GWIs total operating expenditures. Total revenue collected in 2004 around US$ 6.3 million was not enough to pay the electricity bill of US$ 7.5 million. The current cost of electricity in Guyana of US$ 0.25/kWh is double the typical world averages and it constitutes a real challenge for further costs savings to transpire in improvements of the financial situation of GWI. Insufficient tariff levels: After a March 2003 increase of around 40%, there has been no increase in tariff levels during 2004 and 2005 due to Government affordability and social acceptability concerns and the desire to accompany tariff adjustments with significant improvements in the levels of service. As a result, the second 40% part of the 2-stage 80% tariff increase recommended by KPMG in 2002 was never implemented, which has had an impact of around US$2.5 million in reduced revenues. Modest revenue growth: In the first year of the MC, GWI has shown a slower than anticipated rate of improvement in billings and collections due to an inherited malfunctioning billing system, low metering rates caused by delays in funding, household rateable value problems and low sewerage tariffs. These factors have prevented all the revenues projected by KMPG from being realized the estimated difference being around US$ 0.5 million. A combined plan to increase GWI revenues and reduce costs is being implemented. First, the Government has committed to GWI preparing a Tariff & Revenue Study for submission to the Public Utilities Commission (PUC) in 2005 which is now underway. The study will develop a series of options combining targeted subsidies to the sector and review of current tariff structure for consideration of the PUC and the Government. The objective is to enable coverage of GWIs operations & maintenance costs by end 2005, and operations, maintenance & depreciation costs by end 2006. If as a result billings increase by 30%, income would rise by some US$ 1.8 million at current collection rates. Second, collection performance is expected to improve in line with the achievement of the contract target. Preliminary figures on collection rates for 2004 seem to indicate that the 2004 target of 76% would have been met. In moving towards the 2007 target of 90% collection rate, an improvement of about 5% per year is required. In real terms this means an increased collection of about US$ 0.5 million/year. Third, the reduction in non-revenue water figures by 10% is expected to save GWI US$ 1.5 million in 2005. As NRW comes down in line with the contract targets very significant savings can be envisaged around US$ 3 million. This is the key area to close the gap between revenue and costs. However, it will require time and investment in the repair and rehabilitation of the distribution network. In the meantime, the Government will have to extend its commitments of transfers to the sector. The analysis shows that the subsidies could be completely eliminated by the end of 2006 if a tariff restructuring takes place and the leakage reduction strategy and energy management plan are implemented. Low coverage rates and poor service levels: The quality and coverage of water supply services in Guyana are poor. Major problems with the safety, continuity and reliability of supply persist both along the coastal strip and in the severely under-serviced Hinterland region. Source water treatment in some GWI areas is non-existent resulting in a high risk of bacteriological contamination. Most parts of the serviced areas - both in Georgetown and outside the capital - experience low water pressure and intermittent supply. In spite of an increase in coverage figures in recent years - with a near doubling of households connected to piped water between 2000 and 2003 - coverage levels remain deficient. Approximately 45.1 percent of the population had access to treated water in 2003. There is also a need to continue with ongoing improvements in the operations, management and levels of service. At the end of 2004, continuity of acceptable service was estimated on a composite basis as 4.3 hours of service per day, non-revenue water was estimated at a 50% of total water production in 2004, and metering coverage was recorded at 24 percent. High investment needs and limited funding: GWI, under STWI management, has developed a Ten Year Investment Program (TYDP) as part of the May 2005 GWI Strategic Plan. The TYDP builds upon the original ten year investment program developed in 2000 by KPMG. The current TYDP reflects changes in the sequencing and content of sub-programs based on the strategic and technical recommendations of STWI, availability of donor financing for capital investment, the changing operational context, available assumptions and predictions and most recent knowledge of GWI. The GWI TYDP outlines a comprehensive investment program required to substantially improve access to safe and reliable water. GWIs planned investment program (2005-2014) amounts to over US$ 170 million, of which US$ 52 million have been secured from the international community. In the immediate 3-year period 2005-2007, the investment program is estimated at US$ 74 million of which the US$ 44 million has been secured when including this proposed IDA Grant. GWI is currently engaged with other donors to secure a further US$ 18 million in investments during this period leaving an estimated financing gap of US$ 11 million, or approximately 15% of the medium-term investment program. Ensuring continued and consistent funding for the capital expenditure program and working capital will be essential for GWI to enhance operational efficiency and meet License targets. Despite initial delays in accessing donor resources, progress has been made. The IDB Georgetown Program II has begun disbursements and GWI and the Government are exploring the possibility of obtaining further investment resources from the global EU Water Facility and the CDB as well as through bilateral arrangements. Management Contract: The 5-year performance-based Management Contract (MC) for GWI initiated in January 2003 is a centerpiece of the Governments sector strategy to improve service levels, increase efficiency and achieve financial sustainability. Although GWI performance has been below targeted levels under the MC in 2004, considerable progress has been made against the performance targets for non-revenue water and collection efficiency, and there is now in place a well defined strategy to improve customer relation and commercial services and maximize revenues through improved billing and collections. The improvement in GWIs performance has been slower than expected also due to: (i) mixed initial performance by the management contractor, in part due to perceived security problems during the first year of operations; and (ii) a need for improvement of the governance framework for GWI to establish clear division of responsibilities between the Board and GWI management which has been addressed through the recent review of Board policies and procedures. These issues were, in particular during the first year of the MC, a source of friction between the Government, GWI Board and the private operator. In December 2004, the Government invited STWI to hold a series of meeting under the theme GWI- Moving Forward to gain a better mutual understanding of contract issues. The Government, the Board of GWI, STWI and the donor community participated in these discussions where the commitment of both the Government and the operator to making the MC a success was clearly stated. The main outcome was the signature of a memorandum of understanding with a concrete set of actions to be implemented during 2005 to deliver immediate improvements in the performance of GWI. The agreed upon Action Plan focused on 10 key issues and was incorporated in a Roadmap to Success document which has been updated in April to reflect progress to date and outstanding actions. The Roadmap provides an important and promising framework for collaboration in the sector amongst all stakeholders. The Roadmap process has resulted in five principal achievements: Production of Revised Final Strategic Plan for GWI, outlining GWIs corporate strategy for 2005 to 2008, and within that, setting out the path to financial sustainability and improved levels of service. The Strategic Plan sets out GWIs vision, the business objectives and outlines the actions, resources, finance and planning actions required to achieve GWI strategic goals and objectives for 2005-2008. Appointment of a new Managing Director for GWI with proven managerial, financial and operational capacity to lead GWIs ambitious reform and investment program. Development of an Asset Development Plan, setting out the companys capital investment program, including all donor-funded programs. Identification of ways to assist the Managing Director of GWI to meet the financial and technical targets for the company. Review of Board policies and procedures to ensure that the Board can maximize its effectiveness, in line with the strategic targets of GWI. A series of outstanding measures will be required to consolidate these advances in the ensuing months. The Government anticipates that, with continuing commitment to agreements in the Roadmap, significant improvements in performance of the water sector will be possible within a six month period. Institutional and Regulatory Framework: Considerable progress has already been made towards implementing key institutional and regulatory reforms associated with the program. In the short-term the Government will nonetheless need to focus attention on a few key pending institutional reform issues. The Public Utilities Commission (PUC) established as an independent regulatory body for the sector requires capacity strengthening to perform its functions, and the Government is behind schedule in implementing the 2004 tariff review as specified in the reform program. The National Water Council is yet to be operational. DfID is supporting a capacity building program for the PUC which is currently being implemented with Technical assistance from the consulting firm Castalia. Castalia has been working with the PUC for the last year towards achieving a sustainable regulatory framework in Guyana and helping the PUC to become an independent and strong regulator. Based upon the success of the recently completed IDA-financed Water Supply and Rehabilitation Project, its impact on poverty alleviation, the need for further financing, and the effective dialogue IDA has had in sector policy in recent years, there is a unique opportunity for a follow-up water investment operation that will support the Government in consolidating the reforms undertaken. The proposed IDA Grant would play an important role in helping Guyana achieve the Millennium Development Goals, while ensuring that the reforms undertaken to date are continued. In this respect, the proposed operation, although limited, is both timely and sound and its impact will be maximized through complementing available funding from GWIs internally generated resources, the Government, and from other donors, to achieve a financially sustainable sector for the long term. Emergency Component Beginning in late December 2004, unusually heavy rainfall in Guyana resulted in severe flooding within the coastal administrative regions of West Demerara/Essequibo Islands, Demerara/Mahaica, and Mahaica/West Berbice. These areas comprise 75 percent of Guyana's population and include the capital city, Georgetown. Flooding was severe in the onset and resulted from the saturation of upper watershed soils and the poor performance of the national drainage systems distributed within the coastal irrigation districts. Serious flooding began on January 15 reaching its peak around January 17, corresponding with the January spring (lunar high) tide. Rains continued until the first week of February 2005, causing floodwaters to reach a height of four to five feet in villages near the East Demerara conservancy. As of January 25, the Government of Guyanas Joint Operations Center (GOG/JOC) reported close to 200,000 residents directly affected by the floods. Regarding the Water Sector, the flooding along the coast, between the Demerara and Mahaica rivers, has seriously inhibited GWIs ability to supply potable water (approximately 164,000 people affected) and to dispose of wastewater in the affected areas. The principal water treatment plant in Georgetown is now operational, but due to breakdowns the plant is not run at full efficiency. The overall impact has been minimized due to an efficient response by GWI. Emergency arrangements to provide drinking water to the affected population were well managed and effective. In coordination with the military, drinking water in bags was effectively distributed to affected areas only accessible by boats. Tanks with safe water were set up in places accessible by road and a large team from GWI was sent out to the affected areas to monitor the distribution of water and assist the community. The floods have caused some damage to water distribution infrastructure in the affected areas on the East Coast, in particular to service connections of which thousands are in need of replacement water treatment plants and pumping stations. The floods have also damaged the wastewater pumping stations that are required to enable GWI to provide wastewater disposal service to approximately 11,500 customers in Georgetown. At present 15 of the 24 wastewater stations are in operation. However, it should be noted that immediately following the main flooding event, only one of the 24 stations remained operational and emergency repairs using spare parts from stores have been undertaken to rectify this situation. Since then, further breakdowns have occurred, at a rate of 9 per month on average, and more than 50 repairs have been executed. The situation has exposed vulnerabilities in GWIs emergency response capability. Although on this occasion GWIs response has been effective and well managed, it has had to rely upon the borrowing or hiring of tanks and equipment, particularly transport, from other public entities and the private sector. There is a need to strengthen GWIs response capacity if the utility is to be as effective in future emergency events. Immediately after the flooding occurred, IDA responded by sending a team specialized in disaster management to conduct a preliminary needs assessment in February 2005. At the request of the Government of Guyana, IDA is responding to these events through the incorporation of an emergency recovery component to the proposed Water Sector Consolidation Project in the amount of US$ 1.1 million. Objectives The Project development objective is to support the achievement of sustainable universal access to safe and affordable water for the population of Guyana, especially the poor. This Project will also help to consolidate the water sector modernization and reform process undertaken by the Government with support from IDA and other donors in recent years. Specifically, the Project will: Provide access to treated water to over 48,000 people through the development of treatment facilities in the coastal water supply systems in divisions 1, 2 and 4. Improve levels of service to low and medium income housing schemes already connected to the service. Provide the technical assistance needed to enable the modernization and financial sustainability of GWI and allow for the sustainable development of water resources in Guyana. Through the emergency component, provide funding to support recovery needs after the January 2005 floods. The Project will also contribute to the following three key higher-level objectives: Achievement of MDG and PRSP targets: The Project will support the Government of Guyana in reaching the MDG goals and its Poverty Reduction Strategy targets by extending access to safe water to 48,000 people. Health and environmental improvements: The Project is expected to bring health benefits to over 48,000 people by a reduction in morbidity and mortality related to water quality through the proper treatment of drinking water and management of wastewater. Immediate health improvements (which would especially benefit children who are often particularly susceptible to water-borne diseases) would include reductions in gastrointestinal illnesses, cholera, typhoid and hepatitis, among others. Poverty Reduction: The Project would positively impact poor households that are now boiling or purchasing water from vendors (amongst other coping strategies). The percentage of people in Guyana living below the poverty threshold is currently 33.1%. The Project targets largely rural and peri-urban communities with a disproportionate number of poor residents. Rationale for Bank Involvement Linkage to the PRSP, CAS and ongoing sector dialogue: The Governments Poverty Reduction Strategy Paper (PRSP) outlines a reform agenda stemming out of an extensive consultative process which involved discussions at the local, regional and national levels. The PRSP consultations identified increasing access to safe water and sanitation services to the poor and improving the institutional framework in the sector as key priorities. Consequently, sector reform and the needed investments in infrastructure to support better services and increased access to safe water and sanitation were included as core goals in the PRSP seven pillar approach to reducing poverty. The Country Assistance Strategy (CAS) focused IDAs assistance to Guyana for FY03 FY05 on the implementation of the PRSP reform agenda through a series of planned Poverty Reduction Support Credits (PRSCs), accompanied by a Public Sector Technical Assistance Credit (PSTAC). In 2000, the Government initiated a major and comprehensive reform program for the water and sanitation sector. At the time of the preparation of the 2002 CAS, IDA was actively engaged in the reform process and policy dialogue through the restructuring of its Water Supply TA and Rehabilitation Project - Cr. 2559-GUA and its participation as a member of the Government/Donors Steering Group (now Water Thematic Group). In 2004, in conjunction with the sector policy support provided by IDA under the three planned PRSCs, the Government requested the resumption of investment support to fund its long term investment program to achieve universal and sustainable access to safe water for the population of Guyana. The proposed operation would support the consolidation of progress and reforms made to-date, contribute to fill in the existing funding gap to address sector needs and increase access to safe water for the poor. The proposed Grant will play an important role in helping Guyana achieve the Millennium Development Goals outlined in the PRSP. In this respect, the proposed operation, although limited, is both timely and sound and its impact will be maximized through complementing available funding from GWIs internally generated resources, the Government, and from other donors, to achieve a financially sustainable sector for the long term. IDAs technical leadership: IDAs broad international experience in private sector participation in the water and sanitation sector and in the design of institutional regimes for infrastructure service provision will enable it to respond quickly to the Governments need for advisory support to facilitate the successful development of the Management Contract. Response to the January 2005 Emergency: Lastly, in the aftermath of the emergency situation, IDA responded to the Governments request for IDAs assistance by mobilizing a specialized team to conduct a preliminary needs assessment. Following this assessment, it was concluded that addressing the needs in the water sector through the proposed Project is the most timely and effective manner for IDA to support the Government in its reconstruction efforts. The proposed operation is funded with IDA 14 resources and does not involve diversion of resources from other operations. Description The Project will support the Governments Program through a Specific Investment Grant to be implemented by GWI. The Grant will finance a capital investment component for the construction and rehabilitation of three water supply infrastructure subprojects, each within an operating division of GWI, and the corresponding design, project management and supervision activities. The Project will also finance an institutional strengthening component and an emergency component to support reconstruction needs after the January 2005 floods. GWI will have overall technical responsibility for project implementation (including procurement). Table 1 below summarizes the four components included in the overall Project: Table 1: Project Components and Financing SourcesComponentsIndicative Costs (US$M)% of TotalIDA-Financing (US$M)Counterpart Financing (US$M)1. Water Supply Infrastructure 10.182%9.11.02. Design, Project Management & Supervision0.97%0.80.13. Institutional Strengthening 0.32%0.30.034. Emergency Component1.19%1.10.0Total project costs12.4100%11.31.1 Component 1: Water Supply Infrastructure (US$ 10.1 million, including US$ 9.1 million of IDA financing). The component will finance the following three subprojects: Anna Regina Area Water Supply System in Division 1 of GWI (Region 2) - (US$ 3.6 million, including US$ 3.3 million of IDA financing). Parika Area Water Supply System in Division 2 of GWI (Region 3) (US$ 3.7 million, including US$ 3.3 million of IDA financing). Rosignol Area Water Supply System in Division 4 (Region 5) of GWI (US$ 2.8 million, including US$ 2.5 million of IDA financing). In all three cases, the Project will finance the following infrastructure works: Upgrading of raw water source works to secure supplies from the groundwater aquifer; Installation of water treatment facilities for the reduction of iron content in the water delivered into the supply systems, thus enabling the effective operation of the associated disinfection systems and the delivery of safe water to customer beneficiaries; Upgrading of the water transmission system to enable continuous supply to customers at minimum 10 psi (7m) pressure; Rehabilitation of the distribution systems, with targeted pipeline and service connection replacement and installation of 100% customer metering; and Purchase of necessary spare parts for mechanical and electrical equipment. Each of the three subprojects relate to predominantly peri-urban and rural areas of the coastal strip. A detailed feasibility study has been completed by GWI for each of these subprojects to ensure their soundness from an engineering and design standpoint and the least cost solution adopted among different alternative options. These feasibility studies can be found in the Project files. Sanitation Facilities: With regards to sanitation arrangements, the three subproject areas rely on on-site sanitation facilities pit latrines and septic tanks. On-site facilities are an appropriate means of sanitation in these less densely populated areas, if they are properly constructed, operated and maintained, and conclusions reached by the analytical work undertaken so far indicate that it would not be cost effective or affordable to put in full sewerage systems in these areas. Existing data would confirm that there is no risk to the groundwater from the use of pit latrines and improvements to these would be the most cost effective way forward. Funding to carry out these improvements is contemplated under the line Sanitation Improvements of DfIDs overall sector investment program. Component 2: Design, Project Management, and Supervision (US$ 0.9 million including US$ 0.8 million of IDA financing): The component will finance staff, consultant services and equipment to strengthen the capacity of GWI and its Asset Development Team to execute, supervise and monitor the results of the Project. Activities to be financed under this Component include: Specialized consultants and staff to work on the Asset Development Team under the integrated management of GWI; Detailed project design and construction supervision through independent supervision consultants; Information technology equipment; Technical assistance and training to the ADT and GWI for Project implementation, monitoring and financial management; Other operating expenses for the ADT including office supplies, etc.; and A baseline and after- Project analysis will be carried out to measure improvements in levels of service, customer satisfaction, health and other benefits to be derived from the investments. Component 3: Institutional Strengthening Component (US$ 0.30 million including US$ 0.27 million of IDA financing): The component will finance a technical assistance architecture around the Management Contract to bring the needed specialized skills and expertise to support GWI and its Board to turn GWI into a modern and efficient utility. This component would finance activities to strengthen and bring the utility to reasonable levels of management, operational efficiency and financial viability, banking on the private operators experience to achieve these. Capacity building will be provided through targeted technical assistance by consultants hired by GWI for specific tasks not envisaged at the inception of the MC but which are very much needed for the effective transfer of know-how from the private operator to GWI and the efficient operation of the company (training for Board members and GWI staff, tariff studies, energy management specialists, IT specialists, etc.). Consulting firms or individual consultants will be hired by GWI to support the provision of these technical assistance inputs. Given the potential for energy savings in Guyana discussed in section A.1, this component also includes a provision for funding the eventual preparation and co-financing of an energy efficiency project for funding by the GEF. Component 4: Emergency Component (US$ 1.1 million, 100% IDA financed given the emergency nature of the intervention). In January 2005, flooding along the East Coast and West Coast of Demerara and in Georgetown seriously affected GWIs ability to supply potable water to approximately 164,000 affected consumers and to dispose of wastewater in affected areas. Some of the water treatment plants, pumping stations (water and wastewater), and distribution systems were damaged and are in need of rehabilitation to recover to normal operation status. Under this Component, the Project will also finance minor capital works targeted at the distribution systems and small equipment repairs and replacements, household connection replacements, and other minor investments. Financing Financing Plan (US$ m)SourceLocalForeignTotalSDRUS$SDRUS$SDRUS$RECIPIENT0.71.1INTERNATIONAL DEVELOPMENT ASSOCIATION7.511.3TOTAL8.212.4 Implementation The Project will be implemented by GWI and coordinated through the utilitys recently established Asset Development Team (ADT). The ADT assumes responsibility within GWI for coordinating the planning and implementation of capital projects supported through international assistance. The ADT is integrated into GWI management structure with strong links to operational and financial management teams. The ADT builds upon GWIs recent successful performance in the implementation of capital investment programs and reflects a commitment within GWI and its Board to develop a more sustainable, integrated and operationally driven approach to capital investment. ADT Objectives: GWIs strategic objective is to have the ADT function as a medium- and long-term capital planning department within the utility with the ability to effectively match capital expenditure management with operational targets. More specifically, the objectives of the ADT are two-fold: (i) developing assets that are fully integrated at the technical level into the production, distribution and customer service functions of GWI; and (ii) developing assets that fully enable the achievement of GWIs business plan, License and MC targets. ADT Roles, Responsibilities and Structure: The ADT will manage a comprehensive process that will include: (i) strategic business and asset management planning based on a rolling analysis of consumer demand, progress towards target coverage levels and operational parameters; (ii) project preparation and presentation to donors based on overarching strategic priorities; (iii) detailed project design in close coordination with operational units; (iv) supervision of project execution; (v) transfer of physical assets to operational units. GWI and the international donors supporting the Governments water sector reform program have made a strong commitment to developing a coordinated approach to supporting the ADT. Donors and GWI have agreed to jointly support a pool of mid- and junior-level ADT technical and support staff that will be mobilized strategically by GWI management to meet the evolving and cyclical project implementation needs of donor-financed investment programs. A core group of senior project managers will be dedicated to coordinate each donor-supported program. The objective is to avoid past practice of each donor program supporting discrete project units that operate in silos with limited coordination and interaction. The GoG, DfID, IDB and IDA are committed to supporting the ADT in the short-term while other donors will provide funding as new projects become effective. The ADT is being led by an internationally experienced engineer with extensive exposure to the entire asset development process. The Team Leader participates as a key member of GWI senior management team and is being supported by a Head of Asset Development and Program Managers for each of the active donor-financed programs. Reporting to the Head of Asset Development will be a core support unit with technical and administrative staff. A Project Accountant based in the Finance Department and supported by a technical assistant in the ADT will be responsible for the financial management aspects of all donor-financed programs. The remainder of the ADT structure includes technical staff pooled into a flexible group to be mobilized according to periodic needs for implementation and supervision. Role of GWI Board: The Board of GWI will provide strategic guidance to the utility during the process of project implementation by reviewing progress periodically. Beyond the Project, the Board will review and endorse the strategic investment priorities being identified by GWI senior management and the ADT. Sustainability The main factors affecting the sustainability of the Project are: Management Contract: The success or failure of the ongoing Management Contract will affect Project sustainability. A successful MC would foster support for the broad reform agenda and institutional reforms. Conversely, a failing MC due to either a non-performing management contractor or the lack of Government support would imperil the reform process and make it difficult to meet Project objectives. Progress under the Management Contract has been slow for reasons including a lack of clarity in the governance framework for GWI. The relationship between the GWI Board and management has been strained since the inception of the MC largely due to conflicting perceptions of the appropriate division of responsibilities between the two entities. GWI management asserts that a greater degree of financial delegation and human resource management autonomy would facilitate further performance improvements. As described above, recent measures undertaken by the Government, STWI, GWI Board and other stakeholders to ensure a successful implementation of the MC include agreement on a concrete Action Plan (included in the Roadmap to Success Document) to deliver immediate and long-term improvements in the performance of GWI. The Action Plan developed contains ten key deliverables under the responsibility of the different parties. Progress against the agreed actions will be monitored closely. The commitment of both the Government and the operator to making the MC a success has thus been clearly stated by both parties and momentum for a successful transformation can be built. The knowledge transfer from the private contractor to GWI staff that is expected to occur will reinforce the long-term impact of the reform process. Lastly, the proposed Project will contribute to the success of the MC by supporting the achievement of the contract targets (addressing 4 of the 8 performance targets and the water quality target established in GWIs operating license). Financial Sustainability: Cost recovery is critical to long-term sustainability of the sector and, therefore, for achieving Project development objectives. The key issue to enhancing the sustainability of water and sanitation service provision in Guyana is to move towards greater cost recovery while maintaining affordability for users, especially the most poor. Cabinet has been reluctant to review tariffs in 2004 given social affordability concerns and the wish to accompany any tariff review with tangible improvements in levels of services. While recognizing the complexity of any tariff increases in areas where the services have not improved, establishing an equitable, manageable and sustainable tariff structure is a key priority for the sector. GWI has initiated a Tariff and Revenue Study that will analyze current tariff structure, level and subsidy mechanism and identify the existing funding gap to achieve full cost recovery. Following the review of the study by the PUC, the Government will commit to sector financial sustainability through (i) implementing the new tariff structure and/or level approved by the PUC; and (ii) outlining a clear proposal for subsidy policy for the sector for 2005 and its phasing out going forward. This discussion has been incorporated in the negotiations of the new water sector operation and in preparation of the Guyana Poverty Reduction and Public Management Operation (PRPMO), formerly known as the Poverty Reduction Strategy Credit II (PRSC II). Investment Sustainability: Appropriate maintenance of the investments will also affect sustainability. The technical solution chosen, which is appropriate for Guyana and sufficiently simple given current capacity, maximizes likelihood of sound maintenance and sustainability of investments. Additionally, the management contractor has put in place a maintenance framework based on their international experience, as well as other measures and mechanisms for the proper functioning of operations. These include the Leakage Inspection Teams, which ensure repairs in a timely fashion, and the establishment of DMAs for adequate monitoring and control. Implementation Capacity: Ensuring that the new ADT has the capacity to effectively implement the Project, the overarching investment program and meet performance targets is critical for sustainability. An effective ADT will help to mobilize further funding which is critical for the overall success of the reform process and the achievement of Government goals for the sector. The funding of the necessary equipment and staff under component two of this Project and the commitment of other donors to do the same will minimize the risk of low implementation capacity. Lessons Learned from Past Operations in the Country/Sector Project design incorporates the lessons learnt from the implementation of the recently completed IDA project in the country, the Guyana Water Supply Technical Assistance & Rehabilitation Project and IDAs regional and global experience with the preparation and implementation of urban and rural water supply projects that involve private sector participation in politicized and economically stressed environments. Additionally, the Project design reflects consumer demand and preferences as assessed through a series of community consultations and informal survey conducted in 2004 and 2005. The Project also reflects important lessons from Output-to-Purpose Reviews (OPR) conducted by DfID in November 2003 and 2004. The following are the most relevant lessons learned that have been applied in the preparation of this Project: Capacity Building. The ability to effectively implement proposed investments under the Project will depend considerably upon the overall management capacity of GWI. An Asset Development Team (ADT) has been established within GWI to lead medium-term investment planning and the execution of an integrated investment program. It is critical to build the appropriate capacity within the ADT - including proper staffing, systems and training. An emphasis on staffing ADT with competent professionals that are trained and retained over time is essential given recent patterns of high staff turnover within GWI. The proposed operation will support the strengthening and staffing of the ADT. Adequate technology and need for appropriate design standards. Past projects in the sector have often failed to achieve a balance between optimal and context-specific appropriate technical solutions. As a result, projects supported excessive automation and the use of sophisticated equipment that may not have been the most appropriate solution for the level of capacity in the country. IDA has learned that, given the existing environment in Guyana, future operations must emphasize more cost-effective and easier to maintain treatment solutions. Additionally, overestimation and over-dimensioning of investments can result in cost overruns for projects. The proposed operation has developed minimum cost and adequate technology designs while ensuring that environmental protections are in place. This approach will likely enable the Government to meet project objectives and minimize the risk of over-design in the proposed project. Flexibility in Project design and appropriate conditionalities and targets. Recent donor programs in Guyana have experienced long delays in initiation and implementation due to the design of complex project conditionalities, objectives and indicators that fail to reflect real and changing sector conditions. It is critical that future initiatives employ realistic and achievable targets and requirements that are in harmony with existing arrangements in the sector. The proposed IDA Grant builds on these lessons and to a large degree replicates the targets and indicators established under the MC to enable a convergence around core sector goals. Donor Coordination. The need for donor coordination has proven particularly important in Guyana where GWIs investment program would almost entirely be financed by a multi-donor program. During the restructuring of the last IDA project it was noted that the lack of donor coordination was having an adverse impact on sector performance due to uncoordinated standards, overlapping investments and a lack of coherent strategy. The Donor/Government Steering Group was subsequently established to facilitate greater donor coordination. The group later evolved into the Water Thematic Group (WTG), which is being used by the Government as a model for coordination in other sectors. During Project preparation IDA participated actively in the regular WTG meetings and worked closely with other donors to avoid the development of stand-alone, isolated projects and ensure that all sector financing fits within a framework that enhances efficiency. A key achievement during project preparation has been donor agreement on common financial management, reporting and monitoring procedures and the use of the ADT in GWI to implement all donor-financed projects so as to avoid the use of individual project implementation units. Consumer Responsiveness and Education. A broad body of knowledge in the water and sanitation sector clearly demonstrates the importance of closely monitoring levels of consumer satisfaction with service provision as a means to better target investments and focus rehabilitation efforts. Additionally, it is also well established that involving and educating consumers on the management of water and sanitation services should be a critical component of any utilitys demand management strategy. The proposed project will support a before and after impact assessment, and activities to cover the ongoing assessments of consumer satisfaction and an information and education service in target communities. Safeguard Policies (including public consultation) The proposed operation has been rated by QAT as category B for IDA processing purposes. Project activities are not expected to face any unusual environmental risks and would generally constitute a substantial positive environmental impact. The Project would support the Governments implementation of the 1996 Environmental Protection Act. As part of project preparation, GWI and the Government have developed Environmental Guidelines for Construction Projects and Corporate Environmental and Social Guidelines. These Guidelines have been reviewed, commented on and signed off by the EPA (Environmental and Protection Agency) of Guyana and can be found in the Project files. The construction works to be financed will require compliance with guidelines and contractors will be asked to develop Environmental Management Plans (EMP) to the satisfaction of GWI guidelines. All water supply facilities will complement the operating manuals with corresponding site specific EMP. Under these conditions the Project would not cause environmental damage, would strengthen EPA efforts to implement the Environmental Act, and create a culture of environmental awareness and actions to complement good management practices promoted by the Project. Safeguard Policies Triggered by the ProjectYesNo HYPERLINK "http://www.worldbank.org/environmentalassessment" Environmental Assessment ( HYPERLINK "http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/OPolw/9367A2A9D9DAEED38525672C007D0972?OpenDocument" OP/ HYPERLINK "http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/BProw/C4241D657823FD818525672C007D096E?OpenDocument" BP/HYPERLINK "http://lnweb18.worldbank.org/ESSD/envext.nsf/47ByDocName/EnvironmentalAssessment"GP 4.01)[ X][ ]Natural Habitats ( HYPERLINK "http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/OPolw/71432937FA0B753F8525672C007D07AA?OpenDocument" OP/ HYPERLINK "http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/BProw/62B0042EF3FBA64D8525672C007D0773?OpenDocument" BP 4.04)[ ][ X]Pest Management ( HYPERLINK "http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/OPolw/665DA6CA847982168525672C007D07A3?OpenDocument" OP 4.09)[ ][ X]Cultural Property ( HYPERLINK "http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/tocall/55FA484A98BC2E68852567CC005BCBDB?OpenDocument" OPN 11.03, being revised as OP 4.11)[ ][ X]Involuntary Resettlement ( HYPERLINK "http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/bytype/AA37778A8BCF64A585256B1800645AC5?OpenDocument" OP/ HYPERLINK "http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/bytype/383197ED73D421A385256B180072D46D?OpenDocument" BP 4.12)[ ][ X]Indigenous Peoples ( HYPERLINK "http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/bytype/0F7D6F3F04DD70398525672C007D08ED?OpenDocument" OD 4.20, being revised as OP 4.10)[ ][ X]Forests ( HYPERLINK "http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/OPolw/C972D5438F4D1FB78525672C007D077A?OpenDocument" OP/ HYPERLINK "http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/GPraw/97FA41A3D754DE318525672C007D07EB?OpenDocument" BP 4.36)[ ][ X]Safety of Dams ( HYPERLINK "http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/OPolw/C12766B6C9D109548525672C007D07B9?OpenDocument" OP/ HYPERLINK "http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/BProw/D3448207C94C92628525672C007D0733?OpenDocument" BP 4.37)[ ][ X]Projects in Disputed Areas ( HYPERLINK "http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/OPolw/72CC6840FC533D508525672C007D076B?OpenDocument" OP/ HYPERLINK "http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/BProw/5DB8B30312AD33108525672C007D0788?OpenDocument" BP/ HYPERLINK "http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/GPraw/C6B0F62BE7A10B338525672C007D078B?OpenDocument" GP 7.60)*[ ][ X]Projects on International Waterways ( HYPERLINK "http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/OPolw/5F511C57E7F3A3DD8525672C007D07A2?OpenDocument" OP/ HYPERLINK "http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/BProw/47D35C1186367F338525672C007D07AE?OpenDocument" BP/ HYPERLINK "http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/GPraw/CC209CF484469D2C8525672C007D07EE?OpenDocument" GP 7.50)[ ][ X] O.P. 4.01: In accordance with O.P. 4.01, the screening tool and Environmental Guidelines for Construction Projects prepared as part of project preparation has been applied to the three investment subprojects to be financed under the Project to produce the corresponding Environmental Assessments. The Environmental Assessments exemplify the application of the screening tool developed. The Guidelines provide recommendations to avoid, mitigate and ameliorate negative environmental impacts through the development and implementation of EMPs to be prepared by the contractors and approved by GWI and by IDA. The Guidelines and Environmental Assessments are available in the Project Files. Public consultation and dissemination: In accordance with IDA requirements, the Government has consulted and publicly disclosed the Environmental Guidelines for Construction Projects before its approval by the Board of GWI. List of Factual Technical Documents The following key documents are amongst those available at Project Files: Feasibility Studies for 3 Project Areas Project Financial Management and Procurement Assessments GWI Corporate Environmental Guidelines Environmental Assessments for Planned Investments in 3 Project Ares Guidelines for the Environmental and Social Management of Projects (EMP) and Operations Guyana Water Management Contract: Roadmap to Success Part 1 and II (January 2005) GWI Strategic Plan (May 2005) Performance-Based Management Contract for Water Supply and Sanitation Services in Guyana (October 2002) Guyana Water & Sanitation Sector: Volumes 1 and II (prepared by KPMG for DfID) Guyana Water Sector Scoping Mission: Possible Future World Bank Interventions (prepared by Halcrow for IDA) Output-to-Purpose Reviews 2003-2004 (DfID) Periodic GWI Management Reports (2003-2004) Performance-based Management Contract for Water and Wastewater Services (GWI): Baseline Year Data Report (February 2004) Determination of Performance Targets for the GWI Management Contract (Halcrow, June 2004) GWI Hinterland Report & Strategy (September 2003) Guyana Water Investment Plan Review: Pre-Feasibility Study (prepared by WS Atkins International December 2000) Contact point Patricia Lpez Finance, Private Sector and Infrastructure Latin America and the Caribbean Region The World Bank Room No. I5 - 190 Tel: (202) 473 7955 Fax: (202) 676 1821 For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-5454 Fax: (202) 522-1500 Web: http://www.worldbank.org/infoshop  These figures are round figures estimated for the year 2004 based on the Final Revised Strategic Plan for GWI dated May 2005, available in the Project Files.  The commencement of this study was a requirement for effectiveness of the IDB loan.  This represents only about 11% of the current shortfall and the balance will have to be found from other sources. However, increased collections as it approaches 90% will be an increasingly important component of the solution to the cost recovery issue.  The distribution system has expanded by 13% over the same period. Source: Guyana Poverty Reduction Strategy Progress Report 2004.  Currently under discussion with the Government  Available in Project Files  The use of appropriate technology (aeration and filtration) will ensure an affordable investment expenditure for the population of Guyana  Relaxed WHO standard, the current national standard for Guyana  PRSP Progress Report 2004  This Project was closed in March 2004. The ICR for this project was completed in September 2004 and has been rated as exemplary by OED. The outcome of the Project was rated as satisfactory and the institutional development as substantial. The component for squatter areas has been considered particularly successful in the ICR. This component, executed in coordination with DFID (which financed the design in coordination with IDA-financing of works), has brought piped water supply to approximately 20 squatter lots (26,000 people). This component also resulted in a change in Government policy reducing connections fees to dramatically improve the access to the services for poorer communities. In addition, the Project supported the rehabilitation of the Eccles and Bartica water systems and the start up of GWIs operations.  Through its recently established Asset Development Team (ADT)  Includes towns from Walton Hall to Dageraad.  Includes towns from St. Lawrence to De Kinderen.  Includes towns from Inverness to Shields Town.  KMPG report and Atkins Investment Plan Review, 2000.  KPMG report, Annex 3.  This component will complement funds allocated under the MC and support tasks and activities not envisaged under the original terms of reference of the contract.  The preparation of a Project Concept Note (PCN) is currently underway with funding from the Presidents Contigency Funds. Subject to a successful PCN review and decision to include it in the GEF pipeline, project preparation would begin.  By initiating the Tariff and Revenue Study, GWI was able to meet a condition for disbursement of the IDB Georgetown II loan currently under implementation.  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