Kostanay Water

Location:

Kazakhstan

Project number:

47497

Business sector:

Municipal and environmental infrastructure

Notice type:

Public

Environmental category:

B

Approval date:

09 May 2016

Status:

Signed

PSD disclosed:

15 Feb 2016

Translated version of this PSD: Russian

Project Description

The EBRD is providing a loan of up to KZT 2.4 billion to the State Communal Enterprise Kostanay Su (the "Company"), a water supply and wastewater management company in the city of Kostanay (the "City") in Kazakhstan to support the rehabilitation and upgrade of the water and wastewater infrastructure in the City.

Project Objectives

The Project envisages improvements to the City's water and wastewater system through the PIP implementation comprising, inter alia, of the following: (i) modernisation of the wastewater pumping stations; (ii) modernisation of the water intake and water disinfection facilities, (iii) modernisation of water treatment plant, (iv) partial rehabilitation of the water and wastewater networks and other infrastructure, and (v) procurement and installation of SCADA systems.

Transition Impact

This project would deliver:
(i) energy efficiency improvements in the operations of the Company through the modernisation of the water supply and wastewater management facilities;
(ii) introduction of commercial water tariffs covering the full costs of service for all customer groups as part of the priority investment programme ("PIP") agreed with the tariff regulator and the commercialisation of the Company by means of introduction of a public service contract with the City Akimat and business planning; and
(ii) higher environmental standards.

Additionally, the transaction aims to increase transparency and improve business standards through the introduction of International Financial Reporting Standards ("IFRS") and the implementation of an Environmental and Social Action Plan ("ESAP").

Client Information

KOSTANAY-SU
SCE Kostanay Su, municipally owned water and wastewater company in the city of Kostanay,
Kazakhstan.

EBRD Finance Summary

KZT 2,400,000,000.00
A senior loan to the Company in the amount of up to KZT 2.4 billion.

Total Project Cost

KZT 4,402,926,162.00
KZT 4.4 billion, including a grant co-financing from the Government of the Republic of Kazakhstan (the "GOK") under the Enhanced Partnership Framework Agreement ("EPFA") for capital investments and related technical cooperation support for the Company with the project preparation, implementation and corporate development.

Environmental and Social Summary

The Project has been categorised B under the 2014 Environmental and Social Policy. The Project will enable the Company to improve its water and wastewater services through the rehabilitation and modernisation of the water supply, treatment and wastewater collection infrastructure in the City. The planned PIP is expected to result in enhanced energy and water efficiency, reduced losses and improvements in environmental standards. Any adverse future environmental and social impacts associated with the project are site-specific and can be readily addressed through mitigation measures.

The Environmental and Social Due Diligence (“ESDD”) was carried out by external consultants as part of the Feasibility Study and included an independent environmental and social audit/review of the Company's current operations and facilities, as well as the Company’s existing EHS management systems and policies/procedures, and an analysis of the potential environmental and social impacts associated with the PIP. The ESDD confirmed that implementation of the PIP will reduce water losses by more than 1 million m³ and energy consumption by about 218 thousands kWh annually through more efficient water supply and wastewater transportation services by 2019. Greenhouse gas emissions have been estimated to be reduced by over 576 tonnes of CO2 equivalent per year. The PIP implementation will also contribute to reducing the vulnerability of some of the project-related assets to seasonal flooding risks, such as the pumping stations and water reservoirs.

Currently 86 per cent of the population is covered by the centralised drinking water supply that mostly meets national requirements. However, it does not match the WHO’s recommendations for some chemical indicators, such as hardness and total mineralization, and some secondary contamination in depreciated water supply networks periodically results in microbiological contamination, higher turbidity and iron content. The ESDD confirmed that the Project has been structured to bring drinking water quality and distribution services in compliance with both national and EU standards.

Only 68 per cent of the City’s population is covered by a centralised wastewater collection and treatment system. The existing wastewater treatment plant (“WWTP”) was constructed in the 1980s, is outdated and not in use at present, and requires full reconstruction. Collected wastewater is discharged into the sedimentation reservoirs via the main pumping station for mechanical treatment and then into the four evaporation ponds system which is located 14 km away from the City, surrounded by vast areas of unused land. There is no direct discharge into the Tobol River or any other natural water bodies, and the clay layer under the evaporation ponds protects groundwater from contamination, although some limited pollution of the adjacent soil within the sanitary protection zone occurs due to infiltration, and the ponds are a source of unpleasant odours. The Company constantly monitors groundwater and soil quality, and reportedly no significant contamination was registered. A new WWTP will need to be constructed to improve wastewater treatment, and this will require an estimated investment of EUR 50 million. Due to affordability constraints and the limited borrowing capacity of the Company, this cannot be completed at present and a derogation from the EBRD’s 2014 E&S Policy is required with regards to compliance with national and EU standards for treated effluent quality. A blanket derogation has already been approved by the Board in May 2015 for the sub-projects under the EPFA facility for water and wastewater (Op Id 46814). No significant impacts on health or the environment are expected from this non-compliance since there is no direct effluent discharge into the natural water bodies. The reconstruction of the WWTP is included in LTIP prepared by the Project FS consultant.

The ESDD consultants have developed an Environmental and Social Action Plan (“ESAP”) to address the necessary improvement and mitigation measures and corrective actions identified during due diligence. Specifically, the ESAP requires the Company: (i) to enhance the Company’s environmental, health and safety policies and procedures for staff and contractors as part of their Environmental Management System in line with ISO 14001 and good international practice on occupational health and safety; obtain the required permits and approvals for the Project components in line with the national requirements; (ii) improve environmental monitoring and water quality monitoring; to incorporate Environmental Health & Safety and Social requirements into construction contracts and to monitor contractors compliance; ensure proper fencing of the construction sites; to develop a plan for managing industrial wastewater discharges; (iii) to develop a land acquisition policy/procedure including a compensation mechanism in case of any economic displacement during PIP implementation. The Company also needs to finalise and implement a Stakeholder Engagement Plan (”SEP”), including a grievance mechanism, to ensure adequate information disclosure and media announcements prior to the commencement of works. This will be further supported by a Stakeholders Participation Programme (“SPP”) in the City, which will be carried out as part of the CDP TC.

The Bank will monitor the project’s environmental and social performance and compliance with EBRD PRs by reviewing annual reports prepared by the Company on environmental and social matters, and the implementation of the ESAP. The TC funded PIU consultants will also monitor the day-to-day E&S performance and issues as well as providing assistance in the implementation of the ESAP. The Bank may also undertake monitoring site visits.

Technical Cooperation

Pre-Signing:
TC 1: Project due diligence including the water supply and wastewater PIP and the development of a comprehensive ESAP (EUR 251,000, financed by the GOK under the terms of EPFA);
Post-Signing:
TC 2: Project Implementation Support including assistance with procurement of goods and services under the PIP and implementation of the ESAP. The estimated cost of the assignment is up to EUR 500,000, proposed to be financed by the GOK under the terms of EPFA;
TC 3: Corporate Development Programme implementation to support the operational and financial improvements of the Company, including introduction of a Public Service Contract ("PSC") between the City Akimat and the Company. This assignment is proposed to be included under a Consultancy Framework Agreement covering a range of corporate development support envisaged for EPFA cofinanced projects. Under the Framework, the estimated cost of this individual assignment is up to EUR 230,000, given cost efficiencies of the Framework approach. The Framework is proposed to be financed by GOK under the terms of EPFA.


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Company Contact Information

Kurs Yuriy Igorevich
yuriy-kurs@mail.ru
+7 3142 221700
kostanay-su.kz
110000

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