Petropavlovsk-Kamchatskiy Municipal Water Project

cancelled

The EBRD is considering to provide a senior loan of up to RUB 350 million (~ EUR 8.8 million) to the Municipal Unitary Enterprise “Petropavlovsk Gorvodokanal” (the “Company”), the water utility in Petropavlovsk-Kamchatsky (the “City”) in the Russian Far East to finance a priority investment programme. The loan will be supported by a guarantee from the City. The loan proceeds will be used to finance PIP focusing on: (i) rehabilitation and upgrade of pumping stations with the objective to improve energy efficiency of operations; (ii) installation of SCADA system to reduce operating costs and increase the service reliability; (iii) procurement of inspection equipment and special vehicles fleet. The project’s transition impact comes from: (i) Demonstration effect of successful restructuring of a local utility operator providing municipal water services in a remote region with harsh climate conditions through physical investments aimed at reduction of operating and maintenance costs and technical losses; (ii) Institutions, laws and policies that promote functioning and efficiency: the project will support (a) the implementation of a Tariff Setting Policy, which will allow tariffs to be set for municipal water and wastewater services at levels ensuring full cost recovery in conjunction with a Social Protection Policy based on targeted subsidies to low income consumer groups; (b) switch to the consumption based billing from the current practice of billing based on norms, and (c) introduction of an incentive-based Service Contract to ensure provision of efficient and quality municipal services, and provide a framework for establishing ground rules for possible future private sector involvement in the municipal services sector in the Russian Far East. (iii) Setting standards for corporate governance / business conduct through introduction of IFRS reporting, the FOPIP (Financial and Operational Performance Improvement Programme) and the training of staff. Petropavlovsk Gorvodokanal is a municipal unitary enterprise fully owned by the City, providing water supply and waste water services to Petropavlovsk and a number of neighbouring settlements: Avacha, Zaozerny, Khalaktyrka, Zavoyko, Dolinovka, and Chapaevka, which are also included in City limits. The Company is servicing 251 thousand residents, heat supply organisations, and other consumers. Senior loan to the Company, of up to RUB 350 Million (equivalent of approximately € 8.8 million) under a guarantee of the City. Total Project cost (Priority Investment Programme): RUB 525 million (~ EUR 13.1 million). Screened B/1. An environmental audit of the existing facilities and operations and an environmental analysis of the impacts of the Priority Investment Programme (PIP) were carried out by independent consultants as a part of the Feasibility Study. Results from the environmental analysis and audit indicate that the Company's facilities are currently in poor operating condition resulting in unreliable water supply, inefficient use of water and energy resources and uncontrolled discharge of waste water to Avacha Bay. The implementation of the PIP is therefore anticipated to significantly improve availability and quality of drinking water, reduce water losses by 1,350,000 m3 per annum and improve water supply reliability, improve wastewater collection and treatment facilities, reduce risks of soil and groundwater contamination and result in an overall energy savings (6,600 MWh per annum) for the Company. The operation will also decrease the level of polluting discharges into Avacha Bay by approximately 7,750,000 m3 of wastewater per year. The implementation of the PIP involves limited, localised and short-term adverse environmental impacts during the execution of construction works. These impacts can be easily mitigated or prevented by good construction practice. An Environmental Health and Safety Action Plan (“EHSAP”) has been developed to provide measures for mitigating the expected impacts at both the project preparation and implementation stages. The EHSAP also includes measures for the Company to develop an environmental, health and safety management system and a long-term investment programme aimed at achieving compliance with national environmental requirements and EU standards of operational efficiency and environmental performance. The PIP components have been designed to bring the water and wastewater services and related infrastructure into compliance with national regulatory requirements. Despite these proposed improvements, it is unlikely that wastewater effluent and the management of sludge will meet the EU quality standards in the short term due to affordability constraints. The Feasibility Study has also outlined a long-term investment programme for bringing the water supply and wastewater services into compliance with optimal service objectives based on European practice. The total investment costs of the long term programme, as outlined in the EHSAP, are estimated at EUR 92.5 million. Therefore, derogation from the EBRD Environmental Policy is required. Project Preparation (technical cooperation funds used): Project Implementation (technical cooperation funds to be used): Evgeny Ofrikhter, Operation Leader: ofrikhte@ebrd.com