The Commission on the Protection of the Black Sea Against Pollution

Permanent Secretariat

see also: Current status of Black Sea projectsDABLAS Activities of the Commission on the Protection of the Black Sea Against Pollution

Prioritization of Water Sector Investment Projects (2003)

A data collection, evaluation exercise was carried out with the aid of EC Grant support in 2003 where the main activities carried out were:

  • Data gathering from Bulgaria, Georgia, Romania, the Russian Federation, Türkiye and Ukraine / design and development of a database for the gathered data.
  • Development of criteria for ranking of investment projects and ranking the projects according to the developed criteria..

Background

The first meeting of the DABLAS Prioritization Working Group identified the need to review and update existing project lists of the Danube and the Black Sea Commissions, and to select priority projects in the field of municipal wastewater treatment.

A data gathering exercise was carried out by employing national consultants from the Black Sea countries to collect, verify, systematize data on priority investment projects, and to determine the national, regional and local authorities’ commitment to these projects.

The data was gathered in standardized fact sheets, containing basic and extended information to allow quantification and analyses of the data.

The objective of the project is to develop an operational database for the prioritization of municipal wastewater treatment investments in the 6 Black Sea countries.

Development of Criteria for Project Ranking (download criteria weight visualiation Excel file // priority project location map preview [under construction])

The outline for development of criteria was adopted at the First Meeting of the DABLAS Working Group on Prioritization, Brussels, 18 April 2002 and further elaborated on during the Second Meeting os the DABLAS Prioritization Working Group, Brussels, 07 October 2002. The DABLAS Working Group Meeting to be held on the 10 January 2003, Brussels decided on finalizing the weight and selection of criteria.
Following the refinement and grouping into four criteria groups by the The ICPDR and the Black Sea Secretariats into:

  • Environmental criteria
  • Black sea impact
  • Economic/financial criteria
  • Compliance criteria

some additional work was still needed after the third meeting of the Prioritization Working Group on the 10th January 2003 to make sure the reports correctly reflect the “bankability” criteria. For this purpose the economic criteria are referred to as Financial/Economic (Bankability).

download criteria weight visualiation Excel file

dablas criteria

Country Summaries

A total of 67 project sheets were developed for Bulgaria, Georgia, Romania, Türkiye and Ukraine. Russia did not respond. Key data is presented below:

Country summaries of selected municipal wastewater treatment projects

    Average reduction of:
  Number of projects BOD COD N P
Bulgaria 16 70% 69% 71% 75%
Georgia 6 84% 56% 75% 79%
Romania 8 88% 61% 79% 8%
Türkiye 26 53% 53% 90% 90%
Ukraine 19 71% 81% 73% 74%

Ranking of the projects

The ranking of the projects according to the adopted criteria and their weights is presented on the map below:

dablas map

Notes 1) the Russian Federation did not respond to the data gathering, 2) information presented by Türkiye does not allow good mapping of the priorities (the issue has been adressed and the above map shall be updated accordingly)

Development of bankabality of investment projets (2004 - 2006)

PHASE 1

The principle objectives of the Phase 1 assignment were to:

  1. Review and prioritize the investment projects identified in the Black Sea countries within the work of the DABLAS Task Force (summarized in table 1 below):

Table 1: Projects short-listed as Priority DABLAS Project List (February 2005).


Country

BG

GE

RO

RU

TR

UA

Number of projects

15

5

6

 

26

19

  1. Identify new bankable projects where possible for inclusion to the DABLAS list, and
  2. Assist the key stakeholders in the Black Sea countries develop their knowledge of good practices in public water utility project preparation.

1.2.      Timeline

The time allocated for the completion of the assignment was 3 months (16 March 2005 – 16 June 2005)

1.3.      Approach

The staged approach adopted to implement the assignment was:

Stage 1:

  1. To focus on the review and identification of priority projects in municipal wastewater treatment, on the basis that the financing of pollution abatement investments associated with industrial projects is the responsibility of the private sector to comply with national environmental legislation.
  2. Before focusing on individual DABLAS projects within the Black Sea Basin area, to review the background physical (current levels of wastewater treatment and current pollution loads discharged), institutional and financing framework under which water utilities are operating, with the objective of identifying the priority municipal wastewater pollution problems, the water utilities responsible for them, and the institutional and financial constraints under which these water utilities are operating.
  3. To review the financing structure of recent and planned water and wastewater investments in each of the Black Sea countries financed both by international donors and financing institutions e.g. EC (ISPA), EIB, EBRD, World Bank, and by national domestic sources of finance (e.g. state budget transfers, national water companies or directorates, local budget transfers, national water funds, national environmental funds, local government transfers etc.)

Stage 2:

  1. To evaluate the suitability of projects included in the Priority DABLAS List (February 2005) and to identify potential new projects for financing, comparing the projects short-listed with the results of Stage 1, evaluating both the existing projects for suitability for international and domestic financing, and selecting potential new projects for evaluation (in particular for Russia). Key items evaluated include the availability and eligibility of grant-funds, the financial strength of the water utility, the technical documentation prepared for each project to date, the commitment of the stakeholders, and the ability to secure local or central guarantees to reduce the cost of finance.
  2. To prepare a revised list of Priority DABLAS Projects identifying their future project development and preparation needs and commence discussions with potential project financiers.

Stage 3:

  1. To translate into each of the Black Sea languages, circulate to and solicit feedback from key project stakeholders, the “Good Practices in Project Preparation – Public Water Utilities” document.

Results

As a result of this assignment 8 investment projects have been prioritized identifying their future project development and preparation needs. The projects are:

  1. Romania: Constanta Regional Wastewater Treatment Project (an existing DABLAS list project restructured)
  2. Bulgaria: Bourgas Regional Wastewater Treatment Project  (an existing DABLAS list project restructured)
  3. Türkiye: Ordu Wastewater Treatment Project (an existing DABLAS list project)
  4. Türkiye: Turhal Wastewater Treatment Project (a new project identified)
  5. Russia: Novorossijk Wastewater Investment Project (a new project identified)
  6. Russia: Anapa Wastewater Investment Project (a new project identified)
  7. Ukraine: Mykolaiv Water and Wastewater Investment Project (an existing DABLAS list project)
  8. Ukraine: Uzhgorod Water and Wastewater Investment Project (a new project identified)

In addition the “Good Practices in Project Preparation – Public Water Utilities” guidance notes were translated into all 6 Black Sea languages and circulated to key stakeholders in all 6 Black Sea countries for comment and feedback

Key Comments and Observations

Romania and Bulgaria:

In general the Priority DABLAS Project List (February 2005) contains municipal wastewater projects for Romania and Bulgaria that are too small to be financially viable or sustainable. Both countries have benefited from EU ISPA and PHARE pre-accession funds to co-finance wastewater investments but still have a large investment burden in wastewater outstanding in order to meet their Chapter 22 compliance commitments. Both countries need to regionalize and consolidate their water and wastewater investment measures for small and medium sized settlements in order achieve economies of scale, prepare viable and sustainable projects, and benefit from EC Structural and Cohesion type funds for grant co-financing.

The 2 projects identified above (Bourgas Regional Wastewater Treatment Project – Bulgaria, and Constanta Regional Wastewater Treatment Project – Romania) have been conceptually restructured to achieve proposed economies of scale and aim to benefit from 2007 EC Cohesion Funds.

Russia and Ukraine:

The Priority DABLAS Project List (February 2005) contains projects for Ukraine that propose investment in wastewater treatment where the existing wastewater treatment facilities already achieve effluent quality higher than that required to meet the EC Urban Wastewater Directive discharge standards.

In general the technical norms for urban wastewater effluent discharges in both the Ukraine and the Russian Federation are more stringent than the standards set within the European Union. Both the Ukraine and the Russian Federation are benefiting from their investments in wastewater infrastructure assets made mostly prior to 1991. The quality and technical competencies of water and sanitation sector staff is very high. However the lack of investment in recent years, the reduction in state subsidies and the general lack of cost recovery tariffs is resulting in the gradual decapitalization and physical asset degradation of the sector. Both countries need to reinvest in asset replacement to maintain and improve service quality. To do this tariff reform is essential to facilitate the cost recovery of reinvestments made.

External international finance with an associated high foreign currency risk is a difficult option due to the difficulty in securing state guarantees, resulting in a high cost of finance if borrowed at sub-sovereign rates. Bootstrapping, generating cash internally through utility and tariff reform, is probably a more viable way of financing modest investments in asset replacement.

The projects identified above have been selected because of environmental issues (effluent discharges from Mykolaiv, Uzhgorod and Novorossijk are not in compliance with EC UWWD norms), and the need for priority asset replacement and improvement (Anapa), and the potential to secure finance for the investments.

Georgia

Georgia does not have a viable water sector policy or institutional structure in place nor are any of the proposed Priority DABLAS Project List (February 2005) projects financially viable or sustainable. Its wastewater treatment infrastructure assets in the Black Sea watershed area (19 wastewater treatment plants), operational prior to 1991, have now completely degraded and are out of operation.

Water tariffs are well below cost recovery levels and bill collection rates are approximately 30% for households. None of the water utilities in the Georgian Black Sea watershed area are financially viable. Reform in the Georgian electricity sector will mean that the water utilities will have to pay their electricity bills from mid 2005 onward. This will further aggravate the water utilities existing poor financial situation.

Türkiye

Türkiye had included 26 projects on the Priority DABLAS Project List (February 2005). Due to time and resource constraints on this assignment only the projects associated with the 10 largest municipal wastewater pollution loads to the Black Sea Watershed area could be evaluated.

In general the institutional structure of the water and sanitation sector in Türkiye is different from the other Black Sea countries. With the exception of 16 of the largest public water and sanitation systems in Türkiye, the local municipal governments operate all other public water and sanitation systems in-house. Hence the “Good Practices in Project Preparation – Public Water Utilities” guidance notes do not apply well here.

Also in general tariffs and collections are reasonably good and Türkiye does not have the ‘willingness-to-pay’ problems typically encountered in the Former Soviet Union countries.

The 2 projects identified above for Türkiye have been selected because of environmental needs, the relatively robust financial situation regarding tariffs and collections, and the commitment from the municipalities.

Phase 2

Project Preparation

  1. To continue with the development and preparation of the 8 investment projects identified under the first assignment

Capacity Building

  1. To amend the “Good Practices in Project Preparation – Public Water Utilities” document to incorporate local stakeholder comments, and in particular amend to suit the particular institutional and legal structure of the Republic of Türkiye.
  2. To prepare ‘Good Practice Guidance Notes on Water Utility Financial and Operational Analysis’ (this is an area of high stakeholder capacity development need).

Summary of Phase 2 results

Project Preparation

Romania: Constanta Regional Water & Wastewater Treatment Project

A strategic framework has been developed together with all project stakeholders outlining:

  • the legal strategy for project development and implementation and the legal framework documents necessary for the cooperation between parties within the region
  • technical scoping and project definition to define the scope of the project, its objectives, estimated costs and implementation timeline to comply with legislative requirements
  • the financial engineering necessary to secure EC cohesion funds and co-financing debt finance.

The strategic framework (see Annex 4) has been presented to and agreed with the County Council of Constanta, the County’s regional water utility service provider of Constanta (RAJAC), other local water service providers and towns, the Romanian Ministry for Environment and the EC DG ENV.

Bulgaria: Bourgas Regional Water &Wastewater Treatment Project

Due to the initial contracting difficulties in securing a local consultant this item has been deferred to Phase III. The Project Broker resources for this component were reallocated to develop further the Strategic Framework for the Constanta Project.

Türkiye: The City of Ordu and the City of Turhal wastewater treatment projects

Terms of Reference for Project Preparation of both of these Projects were completed together with the Project stakeholders. The procurement of the services contractor to implement the ToR services is now in the hands of the EC Delegation in Ankara. The remaining 16 potential DABLAS projects were screened but none short-listed.

Ukraine: Mykolaiv and Uzhgorod Projects

Due to timing problems with providing assistance to Uzhgorod all resources in Ukraine were concentrated on the development and preparation of the Mykolaiv Water and Wastewater Investment Project.
A detailed analysis of the utility’s institutional and legal structure, financial position and technical needs were carried out (see Annexes 6.1-6.4) and discussions were initiated with both the EC and EIB to explore project financing. The EIB confirmed their interest and Terms of Reference for further project preparation were prepared to facilitate the contracting of a consultant under the BSIF facility. The consultant has been contracted and is presently working on the completion of its project preparation tasks. These are due to be complete by November 2006 after which the proposed Phase III works will reengage to assist secure project financing (see recommended phase III works below). In parallel a submission and economic case was prepared to secure EC grant assistance for investment co-financing for the investment (see Annex 6.1). This submission was successful and the EC has committed to set aside EUR 3 million as grant co-financing for the project.

Russia: Novorossijk and Anapa Projects

In the interim period between the completion of the Project Broker Phase I assignment and the mobilization of the Phase II works the conditions impacting the assistance needs for these 2 projects changed. The water sector in the Krasnodar Krai region of Russia is now undergoing major organization restructuring. As a result it was decided, in agreement with the EC, to review the Krasnodar Krai sector developments and present these findings together with alternative proposals on how DABLAS could assist and cooperate with the Russian authorities with project development and preparation in Russia’s Black Sea region. The findings were presented to the DABLAS Task Force in July 2006 in Istanbul and an alternative program for future assistance and cooperation was proposed.

The alternative program for future assistance and cooperation with the Russian authorities in the Black Sea Region essentially proposes to focus on the Krasnodar Krai water utilities’ needs to improve energy efficiency and would utilize EC resources available under the TAIEX program to facilitate funding the short-term placement of some of the regions water utility professionals with western European water utilities where they can gain first hand experience and knowledge of best practices adopted in Western Europe in energy management.

Georgia: Preparation of Briefing Notes

Briefing notes were prepared (see Annex 5) and circulated on the Georgian water sector and exploratory efforts were made together with USAID to develop discussions with the Government of Georgia on the reform of policy, law and institutional structure of its water sector. Due to the political climate during this Phase II period these could not be pursued but could be reinitiated again during Phase III.

Phase 3 results

Assignment Objectives for Phase III

The objectives of this Phase III assignment were to produce the anticipated outputs summarized in the table below:

Table 1: Phase III Anticipated Outputs Table 1: Phase III Anticipated Outputs

Country

Phase III Anticipated outputs

Romania

ToR for further TA development needs defined for follow-on EC fund aid assistance for Constanta Regional W &WW Project

Bulgaria

Strategic Framework Document for Bourgas Regional W & WW Project drafted (Technical needs defined, legal structure for regional cooperation proposed, financial structure assessed.)
Further TA development needs defined for follow on EC funded assistance

Russia

The design and launch of a program for Russian water utility operations engineers exchange under EC TAIEX
One pilot exchange underway

Türkiye

Work with the Cities of Ordu and Turhal and Iller Bank to structure the co-financing for the W&S investments. IPA Co-financing.

Moldova

Briefing notes on the status of the W&S sector in Moldova and the potential for EC DABLAS assistance.

 Timeline

The time allocated for the completion of the Phase III assignment for the Project Broker was 9 months - November 2006 and September 2007.

Summary of Phase III Results

Romania: Constanta Regional Water & Wastewater Treatment Project

Under the Grant Agreement there are 5 tasks devoted concretely to the development of the project pipeline, 1 task related to capacity building of the beneficiary and 1 task related to the dissemination of the project results with a view of increasing the decision maker capacity for preparation of bankable projects.
The original tasks are presented below:

Task ID

Task Title

Actions

Deliverables

Objectives

A

W&S Project Preparation Assistance Phase III [Bulgaria]

  • Strategic Framework Document for Bourgas Regional W & WW Project drafted (Technical need defined, legal structure for regional cooperation proposed, financial structure assessed.)
  • Further TA development needs defined for follow-on EC funded assistance
  • One pilot Bulgarian regional W&S project  (Bourgas Regional W & WW Project) structured for co-financing using 2007 Cohesion Funds

Development of a project pipeline for the Black Sea

B

 W&S Project Preparation Assistance Phase III [Romania]

  • ToR for further TA development needs defined for follow-on EC funded assistance for Constanta Regional W & WW Project
  • One pilot  Romanian regional W&S project  (Constanta Regional W & WW Project) structured for co-financing using 2007 Cohesion Funds

C

W&S Project Preparation Assistance Phase III [Ukraine]

  • (Funded by others – UNDP GEF: See UNDP GEF scope of works.)
  • Review of project investments for Kherson and Mariupol Vodokanals.                
  • 2 pilot Ukrainian W&S DABLAS investment projects structured (one pilot that meets TACIS low income grant eligibility criteria (Mykolaiv), and the other that does not (note UNDP GEF project to fund resources to complete 2 pilots).

D

W&S Project Preparation Assistance Phase III [Russia]

  • TA to assist launch the EC TAIEX program for Russia that would facilitate Russian water utility managers / engineers  to spend time working with western European water utilities.
  • Program launched for Russian water utility manager exchange under EC TAIEX.
  • One pilot exchange underway

E

 W&S Project Preparation Assistance Phase III [Türkiye]

  • Work with Iller Bank and the Cities of Ordu and Turhal to structure the co-financing for the W&S investments. IPA Co-financing structured.
  • FSs and EIAs underway for Turhal and Ordu W&S investments.
  • EC-IPA co-financing structured for Ordu and Turhal investments

F

W&S Project Preparation Assistance Phase III [Moldova]

  • Prepare briefing notes on the status of the W&S sector in Moldova and the potential for EC / DABLAS assistance.
  • The identification of potential best use of future EC / DABLAS assistance in the Moldovan W&S sector.

 

G

General Capacity Building Assistance in Project Preparation (Phase III)
[General]

  • Prepare “Amended ‘Good Practices in Project Preparation for Public water utilities’ documents” for each of the 6 Black Sea countries

 

  • Prepare “General Guidance notes on Water Utility Financial and Operational Analysis”
  • Amended ‘Good Practices in Project Preparation for Public water utilities’ documents
  • General Guidance notes on Water Utility Financial and Operational Analysis

Capacity Building of the Beneficiary

H

Project management, coordination

Conclusion of contracts, monitoring of deliverables, disbursement, etc.

Project management and progress monitoring services to the project.

 

I

Dissemination of project results/increasing decision maker capacity for preparation of bankable projects, maintenance of DABLAS Project Database.

Preparation, translation and publication of an edition of the Black Sea Commission Newsletter highlighting to DABLAS related work and identification of priority projects.
Database redesign to incorporate dynamic project development and dynamic project data.
Development of a special section dedicated to DABLAS Priority Investment Projects on the BSC web.

Publication of the Black Sea Commission Newsletter, printed version and translated electronic versions in the national languages of the countries, signatories to the Convention on the Protection of the Black Sea Against Pollution (Bulgaria, Georgia, Romania, Russian Federation, Türkiye, Ukraine).
Maintained and updated database of DABLAS project data.

Dissemination of the project results

The deliverables for the development of the ‘Constanta Regional Water & Wastewater Treatment Project’ changed during the implementation of the assignment due to the following 3 reasons:

  1. Romania developed its Sector Operational Programme for Environment in early 2007 that advocated a prescribed organizational / institutional structure for the reorganization of the water sector in Romania that presented a number of new challenges (e.g. the SOP conflicted with current Romanian law, and the organizational structure included in the SOP to promote regionalization conflicted with the organizational structure for the water utility sector in Constanta which already operated on a regional basis),
  2. The EC’s introduction of the ‘Funding Gap’ method for the calculation of grant contribution from EC Funds (Structural & Cohesion) was open to interpretation, and the various stakeholders were each interpreting it differently (hence there arose confusion on the methodology for the preparation of the ‘Cost Benefit Analysis (CBA)’ component in the application for EC Funds), and
  3. No developments in resolving the legal issues of ownership and control of water utilities in Bulgaria had taken place by February 2007, so the likelihood of progressing the Bourgas project as planned was low (see item 4.2 below).


Given the above it was agreed with the DABLAS Task Force & DG ENV that more resources should be committed to the development of the Constanta project to address the first 2 issues listed above and that less resources would be committed to the Bourgas project until progress was made on the legal issues of ownership and control of the water utility and water infrastructure assets.
Given the above the revised deliverables prepared for the ‘Constanta Regional Water & Wastewater Treatment Project’ are:

Deliverable 1: Constanta Regional Wastewater Treatment Project: - Application Framework for EC Cohesion Funds – Part 1: Institutional Framework (included in Annex 1 to the Final Report for Phase 3)

and

Deliverable 2: Constanta Regional Wastewater Treatment Project: Application Framework for EC Cohesion Funds – Part 2: Financial & Economic Framework (included in Annex 2 to the Final Report for Phase 3)

The objective of Deliverable 1 was to work with the project stakeholders at County, Utility and Central Government level to develop a legal / institutional framework that would satisfy both the requirements of the SOP and the practical requirements of the County and the water utility service provider, necessary to progress an application for EC Cohesion Funds.

The Institutional Framework document developed proposes a solution but this solution now requires the support and approval of Constanta County and the Ministry of Environment.
The objective of Deliverable 2 was to work with the project stakeholders to develop a cost benefit analysis methodology for the water utility sector using the Constanta project as a pilot example upon which a standard approach and methodology could be developed.

The Financial & Economic Framework document developed recommends an approach using the Constanta project as a worked example upon which the financial analysis and calculation of EC Funds necessary for an application for EC Funds is made. It highlights the impact on tariffs and affordability, the level of co-financing that can be justified from EC Funds using the methodology, and the volumes of new debt to be taken by the water utility necessary to fund the proposed compliance water and wastewater investments. This document provides a base for discussion with the stakeholders (including DG Region) for the development of a consistent methodology for CBA analysis and the determination of EC contribution for the water utility sector using the ‘Funding Gap’ method (see next steps).

Bulgaria: Bourgas Regional Water &Wastewater Treatment Project

As mentioned in item 4.1 above the anticipated output for the Bourgas Regional Water &Wastewater Treatment Project had to be amended to address the problems encountered. The key issue for the preparation of water utility investment projects in Bulgaria in general is the legal conflict regarding the ownership and control of both the public water utility companies and water infrastructure assets.

Bourgas Water Utility Company is a stock- joint company and is solely owned by the State and wherein the Ministry of Regional Development and Public Works (MRDPW) exercises the rights of the owner on behalf of the State. The company is managed by a Board of Directors consisting of an Executive Director and 4 members. The Board is appointed by the MRDPW.

The company provides water and sewerage services to a territory that covers a number of municipalities and thus is considered as a regional company.

The rights and obligations for the operation and maintenance of water supply and sewerage networks are directly related to the ownership of the water utility infrastructure assets.

Russia & Ukraine:

Meeting were held with both the EC DG ENV, EC TAIEX and representatives from Russian water utilities to design and launch a program for Russian water utility operations engineers exchange using EC TAIEX funds however these discussions stalled (within the EC system). (The Russian water utility professionals wanted exchanges with Western European water utilities – and EC TAIEX where not able to set this up.)

Efforts were then focused on trying to launch a similar exchange initiative for Ukrainian and Georgian water utility engineers and professionals under EC TAIEX. This proved a little more successful. One exchange visit by water professionals from Georgia (Ministry of Environment officials) to Austria (not water utility) was completed, and another is scheduled for water professionals from the Crimea (Ukraine) (See Annex 4 to the Final Report for Phase 3).

Türkiye: The City of Ordu and the City of Turhal wastewater treatment projects

The procurement of the services contractor to implement the ToR services drafted under Phase II has now been completed and the preparation of detailed feasibility studies for both projects are now underway.
Discussions also took place with Iller Bank on follow-on DABLAS activities (see next steps) and a Presentation on Cost Benefit Analysis was prepared and presented in Türkiye (see Annex 5 to the Final Report for Phase 3).

Moldova: The Preparation of Briefing Notes

Briefing notes were prepared and circulated on the Moldovan water sector (see Annex 6 to the Final Report for Phase 3).


×
×
×

Search results:[coming soon]