ZAPORIZHZHIA - WATER UTILITY DEVELOPMENT & INVESTMENT PROGR.

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The project will finance critical investments in the water supply and wastewater sector in Zaporizhzhia and will enhance the financial and operational performance of Vodokanal, the publicly owned water company. The project objectives are to: (i) reduce the pollution of the Dnieper river and the Black Sea basin; (ii) reduce wastage of water through demand-side management and a leakage reduction programme; (iii) reduce energy use and operating costs; (iv) improve the quality and reliability of water and waste-water services; (v) enhance Vodokanal’s financial and operational performance; and (vi) introduce private sector participation in the municipal utility sector. The project will: (i) contribute to the institutions and policies that support markets through policies that promote market functioning and efficiency. In particular, it will include a new pricing methodology based on full cost recovery, the gradual elimination of cross-subsidies between categories of customers and the introduction of incentives for cost reduction; (ii) contribute to market-based behaviour patterns through the demonstration effect of new instruments to finance activities in a country where no international financial institution has yet signed a loan in this sector. More importantly, the project will include private sector participation through a Design, Build and Operate (DBO) approach for the waste-water treatment plant whereby a private party will be responsible for carrying out the extension of the plant under a turn-key contract and its operation under an operation and maintenance contract; (iii) contribute to the transfer of skills within the project through the technical assistance component. The borrower is the wholly municipally owned water and waste-water company (Vodokanal) of Zaporizhzhia (Zaporizhzhia region). US$ 28.0 million loan to Vodokanal. Total project costs, including interest during construction and fees, total US$ 48.3 million. The project concerns the upgrading and extension of the water supply and waste-water treatment facilities in Zaporizhzhia, a city of approximately 900,000 inhabitants located on the Dnieper river. The project was screened ‘B/0’, requiring an environmental analysis of the proposed investment programme. This analysis will be carried out as part of a project preparation study. The project aims to improve the reliability and efficiency of existing facilities and, once implemented, will bring substantial environmental and health and safety benefits. In particular, it will provide safer drinking water, reduce losses of drinking water currently caused by leakage in the supply system, reduce waste-water seepage into the ground, reduce discharges of untreated waste water into the Dnieper river, and improve the energy efficiency of the system. Technical cooperation funding was obtained from EU-Tacis for a corporate partnership with a reputable Western water operator.