When, in early 2004, the EBRD started designing a potential project to improve the water supply in Tajikistan’s second city, Khujand – with the idea that it would become the EBRD’s first municipal financing venture in Central Asia –the Bank was taking on a huge challenge.
Although Tajikistan is plentifully supplied with fresh water, its depleted infrastructure – resulting from the Soviet break-up in 1991 and a civil war immediately afterwards – meant, paradoxically, that it was difficult to provide drinking water to municipal end-users.
Access to drinking water was limited to a few hours a day. Municipal water, drawn primarily from the polluted Syr Daria river, was shared with factories. Only sporadic repairs had been made since independence to the city’s antiquated water pipes – or the asbestos-and-iron sewage system - by the Khujand Water Company.
The Soviet tradition that water was a free good had created a vicious cycle in which tariffs were too low to sustain the water system’s maintenance, let alone investment. Available water was pumped at such low pressure that it had to be carried in buckets to people’s homes for storage. With summer temperatures reaching 40C, Khujand’s 165,000 people were prone to waterborne disease.
These challenges were faced with highly unconventional elements for mainstream bank projects. These included: a partnership with an inexperienced and institutionally weak borrower; entering a municipal market that was only just coming into existence; the proposed harnessing of donor support on an unprecedented scale; an idea that end-users’ support could be enlisted through a civic participation programme; and a small loan amount.
Phase 1 of the project – which was to cover water supply rehabilitation in 30 per cent of the city – was financed by a Bank loan of just $1.2 million. In tandem, the Swiss State Secretariat for Economic Affairs (SECO) provided a grant for capital expenditure of US$ 2.1 million.
This approached reflected the (then) new thinking of the Early Transition Countries Initiative, launched by the Bank a decade ago with the intention to do more in its lowest-income and lowest-transition countries with a three-pronged approach: more resources; a strategic partnership with the donor community; and a higher appetite for risk. So, smaller loans.
The project covered the investment need in phases, which gradually allowed for institutional strengthening and creditworthiness enhancement in the utility in parallel with improved water tariff collection rate. Each phase was accompanied by substantial technical cooperation funded by the donors of the ETC Fund and SECO, among others.
“So successful has work on Khujand water been in promoting cooperation between IFIs, municipalities and donors in this early transition country (ETC) that it has become a model for engagement across Central Asia,” said EBRD senior banker Catarina Bjorlin Hansen.
“It was a new way of working– an experiment,” Ms Bjorlin Hansen says. “The first time we’d worked in such a close partnership with a donor and the first time we had a Stakeholder Participation Programme to raise end-users’ awareness.”
Phase 2 of the project covering the rest of the city’s water supply has now also successfully concluded. Again this featured grant support from SECO, this time €3.5 million to the EBRD’s 1.5 million loan, with further grant funding for technical cooperation from SECO and the ETC Fund.