South Kazakhstan Water Supply Project

Location:

Kazakhstan

Project number:

48089

Business sector:

Municipal and environmental infrastructure

Notice type:

Public

Environmental category:

B

Approval date:

16 Nov 2016

Status:

Signed

PSD disclosed:

27 Jul 2016

Translated version of this PSD: Russian

Project Description

The EBRD is considering extending a loan of up to USD 180 million to RGP Kazvodkhoz (the "Company" or the "Borrower"), wholly owned by the Government of Kazakhstan, for rehabilitation of the irrigation water conveyance infrastructure in South Kazakhstan, Zhambyl and Aktobe regions of Kazakhstan (the "Project"). The loan will be backed by a sovereign guarantee.

Project Objectives

The Project will help the Company to rehabilitate irrigation water conveyance infrastructure in South Kazakhstan, Zhambyl and Aktobe regions, provide rural employment, and make the water system more efficient and resilient to the impacts of climate change.

Transition Impact

Good.

The sources of transition impact are as follows: (i) Green Economy Transition - reduction of water conveyance losses and water demand, installation of water meters; (ii) Tariff reform - tariffs will become unified across regions, long-term and cost-reflective; and (iii) Economic inclusion - approximately 40,000 households will have access to rural employment thanks to new water connections.

Client Information

RGP KAZVODKHOZ

RGP Kazvodkhoz is a company providing water supply and irrigation water conveyance services in Kazakhstan and wholly owned by the Government of Kazakhstan.

EBRD Finance Summary

USD 180,000,000.00

A senior loan in the amount of USD 180 milliom (EUR 163.6 million equivalent) to the Company.

Total Project Cost

USD 201,400,000.00

The Project will be financed from two sources: (i) EBRD loan of up to USD 180 million (EUR 163.6 million) and (ii) a budget contribution of USD 21.4 million (EUR 19.5 million).

Environmental and Social Summary

The Project has been Categorised B in accordance with the EBRD's 2014 E&S Policy, primarily due to the fact that the proceeds of the EBRD loan will be provided to a centralised function (the Borrower) for implementation of a series of subprojects. The Project from an ESP viewpoint is therefore similar to a general corporate finance (as defined by paragraph 38 of the ESP). However, the EBRD recognises that the Borrower's proposed investment programme will include subprojects with varying E&S risk profile, and this has been addressed during due diligence and through formal agreement with the Borrower regarding the use of EBRD proceeds, as further defined below.

An environmental and Social Due Diligence (ESDD) was undertaken by the Bank and an independent E&S consulting firm. The ESDD included extensive interviews, reviews and management discussions with the Borrower; a review of available data relating to the investment programme; and visits to a selection of potential subprojects in the investment portfolio. The availability of adequate baseline data was limited and the approach to E&S governance of the Borrower and within the regions was highly variable.

Due to the Project's structure, the ESDD's primary objective was to determine the extent to which the Borrower has the capability and capacity in place to implement the Project and resulting sub-projects, in accordance with the EBRD's Performance Requirements. In addition, the specific nature of the subprojects defined was reviewed during the ESDD to further understand the risks and opportunities associated with the Borrower's proposed investment programme.

The ESDD concluded that the Borrower needs to strengthen its E&S capacity to implement the Project in accordance with the Performance Requirements. Furthermore, the ESDD concluded that due to the nature and scale of the investment programme, a coordinated response between various stakeholders will be required to appropriately manage the E&S risks and impacts, and delivery of the anticipated benefits associated with subproject implementation.

The ESDD identified the risks and impacts associated with typical subprojects in the Borrower’s proposed investment programme to include, amongst others:

  • Water Usage: While water usage will become more efficient as a result of the Borrower’s investment programme, demonstrating a significant improvement over the current situation, the overall result will be increase in water usage, with the sustainability of associated water supply as yet not entirely clear. Residual risks associated with impacts to biodiversity and conflicting uses of water will be further assessed during subproject preparation and detailed design. Any subprojects judged to result in unacceptable risks will not proceed.
     
  • Land Use: It is the Borrower’s intention that large areas of land will be restored and put into more productive use, which has a number of significant socio-economic benefits both locally, regionally and nationally.  While this is not considered to be part of the EBRD Project, issues associated with biodiversity, run-off management, water, pesticide and fertiliser use will need to be coordinated by the central function with other regulatory functions.
     
  • Potential Economic Displacement: Current formal leaseholders of semi-productive land may be considered as project beneficiaries as a consequence of subproject implementation, but it is possible that some informal land users may be displaced.  Due to the scale and extent of the Project, the extent of informal land users is currently not entirely clear. A formalised and participatory process is therefore required to manage the risks associated with loss of livelihood and realisation of the benefits of alternative employment creation. This will also extend to any land acquisition requirements that may have been completed in accordance with Kazakh legal requirements, but will need to be supplemented to meet the Bank’s requirements.
     
  • Construction Related Risks: The implementation of this subproject will include construction and / or rehabilitation of linear infrastructure across large areas. The construction effort will therefore be significant, and construction-related risks such as contractor management, noise, emissions and discharges, waste and dust, occupational health and community safety, and labour conditions, will require appropriate management.
     
  • Associated Facilities:  In addition to the upgrades to the infrastructure network, the subprojects require a series of associated facilities such as transmission lines, pumping stations, reservoir improvements, etc. which were reviewed during the ESDD.  Through appropriate commitment to E&S stewardship, risks similar to those already identified can be appropriately identified and mitigated.
     
  • Downstream Issues: The Borrower has limited leverage over some of the E&S related risks following subproject implementation, such as responsible use of pesticides and fertilisers, efficient use of resources, and Project Beneficiaries’ labour and working practices. The Borrower’s institutional framework therefore needs to be strengthened to address these issues and will be addressed through the corporate development programme.
     
  • Promotion of Gender Equality:There are large gender gaps in the Company’s workforce. The EBRD will work with the Company to address these gaps and promote equal opportunities and practices in the Company.

Building on the above, as well as the ESDD findings, an Environmental and Social Action Plan (ESAP) has been developed, and will be formally agreed with the Borrower to ensure that the Project can be structured to meet the EBRD’s Performance Requirements.  The pertinent requirements of the ESAP are as follows:

  • The Borrower will establish a governance structure fully responsible for E&S matters associated with the investment programme. The appropriate resources, staffing and budget will be made available for the E&S department. This element of the ESAP will be loan-financed and included in the capacity-building component.
     
  • The central function will develop appropriate policies, procedures and systems so that all subprojects, regardless of whether they receive EBRD funds or not, can be implemented in accordance with the EBRD’s PRs.
     
  • Detailed project design will be fully integrated with E&S considerations to ensure that subprojects are both technically feasible and sustainable. The Borrower will apply the above policies to its implementation of the Project, and liaise with appropriate bodies such as the Design Institute to coordinate efforts.
     
  • A set of criteria will be developed, and agreed with the Bank, to further review all subprojects as design progresses. The criteria will include a list of exclusions for any subprojects that cannot be implemented in accordance with the PRs - although none have been identified to date.
     
  • On the basis of the above, any Category A subprojects will not be eligible for EBRD financing. All Category B subprojects may be eligible EBRD financing, and the appropriate level of E&S mitigation will be applied, studies completed, measures implemented and management plans established to meet the requirements.
     
  • A Land Acquisition and Livelihood Restoration Framework has been developed and will be implemented by the Borrower if economic displacement occurs. A detailed Livelihood Restoration Plan will need to be prepared in line with the Framework at the appropriate time.
     
  • A Stakeholder Engagement Plan will be developed and implemented at a local and regional level to ensure adequate information disclosure and local participation.

The ESAP items will be tied to timing of specific elements of Project implementation, and these will become Conditions of Effectiveness within the financing agreements. The EBRD has engaged with the Borrower at an early stage to establish practical measures for ESAP delivery. Such measures are likely to include provision of capacity building support and ensuring that adequate budget within the financing agreement for ESAP implementation is provided.

The investment programme is still in Preliminary Design and the local permitting requirements will be fulfilled at the appropriate stage in the project cycle.  The Borrower is required to fulfil national E&S requirements by way of the ESAP.

Following approval of the Project, the Bank will engage in Project monitoring commencing with detailed negotiations with the Borrower regarding ESAP implementation. Further, the Bank will support the Borrower by assisting with capacity building and developing the Company’s institutional capacity, to enable it to implement the Project in accordance with the PRs.

Technical Cooperation

Pre-signing

  • TC 1: Technical, financial, environmental and social due diligence.

Post-signing

  • TC 2: Corporate Development Support to the Company to secure sustainability of the Company's operations and build institutional capacity.
     
  • TC 3: Project Implementation Support, Design and Engineering Supervision, including preparation of design and tender documents, procurement and engineering support.
     
  • TC 4: Project Manager, an independent consultant to manage implementation of the Project, which would manage PIU staff and Project consultants.
     
  • TC 5: Interim Procurement Support, an independent consultant to provide procurement training to the Company and assist with the tender for Project Implementation Support, Design and Engineering Supervision consultant.

Company Contact Information

Erik Yakubayev
rgp-kazvodhoz@mail.ru
+7 (7172) 51-83-41
+7 (7172) 51-83-41
http://qazsu.kz/
010000, Astana, Aliya Moldagulova street, 25

 

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