Japanese ODA Loan

Ex-Ante Evaluation (for Japanese ODA Loan)
1. Name of the ProjectCountry: The Republic of Azerbaijan
Project: Provincial Cities Water Supply and Sewerage Project
Loan Agreement: May 29, 2009
Loan Amount: 32,851 million Yen
Borrower: The Government of the Republic of Azerbaijan
2. Background and Necessity of the Project
Water supply system coverage in Baku, the capital city of the Republic of Azerbaijan, ishigh at 95%; however, the average rate for regional cities is a mere 33% (2004), with24-hour service unavailable in most cities. Therefore, outside of the hours during whichwater is supplied, residents in regional cities have no choice but to obtain water from
polluted rivers and underground sources, which has caused sanitation problems. Inaddition, although sewage system coverage in the Country is approximately 30%, with the
exception of Baku, much of the sewage in regional cities goes untreated due to the factthat few areas outside of Baku have sewer pipes. For this reason untreated sewage water
is a significant source of surface and underground water contamination in the areas
surrounding cities without treatment facilities.
Based on the above understanding, the regional city water supply system rehabilitation
project is included in Priorities and Points of Concern in the Action Plan for The State
Program for Poverty Reduction and Economic Development (SPPRED), the Poverty
Reduction Strategy Paper (PRSP) of the Republic of Azerbaijan established in 2003.
Furthermore, the State Program on Social-Economic Development of Regions of theAzerbaijan Republic (2004-2008) also sets the improvement of infrastructure and utility
services as one of the main goals.
JICA has set the provision of assistance for the development of infrastructure andenvironmental measures as one of its Priorities and Points of Concern. Supporting thisProject matches these policies. In addition, providing assistance through this Project for
the improvement of basic infrastructure in regional core cities in Azerbaijan will contributeto forming the basis of geographically balanced social and economic development in theentire Country of Azerbaijan, which matches the Sustainable Growth set as one of thepriority issues for ODA.
Supporting this Project with an ODA loan is, therefore, necessary and relevant.
3. Project Description(1) Project Objective(s)The Project will improve water supply and sewage systems and enhance the Project
implementation and management structure in regional core cities in Azerbaijan. TheProject will improve sanitation and the sustainable living environment in the relevant cities,
further contributing to the geographically balanced social and economic development in
the entire Country of Azerbaijan.
(2) Project Site/Target Area
10 regional cities in the Republic of Azerbaijan (Shirvan, Salyan, Neftchala, Khachmaz,Yevlakh, Barda, Khizi, Quzar, Gobustan, Naftalan)(3) Project Components
1) New installation of water supply and sewage systems in the 10 above-mentioned cities(including remodeling), new installation of sewage system, etc.
2) Consulting Services (Detailed design, procurement support, supervision ofconstruction work, structure enhancement, etc.)(4) Estimated Project Cost (Loan Amount)
45,102 million Yen（Loan Amount: 32,851 million Yen）
(5) Schedule
Scheduled from May, 2009 to July, 2014 (63 months in total)
Project completion is defined as the time the systems are placed in service.
(6) Project Implementation Structure1) Borrower: The Government of the Republic of Azerbaijan
2) Executing Agency: Azersu Joint Stock Company (Public Water Supply Corporation)3) Operation and Maintenance System: Project Management Unit (PMU)
Project Implementation Unit (PIU)(Note) We will establish a PMU within the Azersu Joint Stock Company, and PIUs for eachof three surrounding regional cities to manage the implementation of the Project.
After the completion of the Project, United Sukanal in Azersu will be in charge of themaintenance and control of the systems centering on the relevant PIU.
(7) Environmental and Social Consideration/Poverty Reduction/Social Development
1) Environmental and Social Considerationi) Category: Bii) Reason for Categorization:
The Project is categorized into Category B due to the fact that it does not fall into thesector category, nor is it located in an area easily affected, as stipulated in the JBIC
Cooperation Guidelines for Confirmation of Environmental and Social
Considerations (established in April, 2002), and it is not considered to have any
undesirable impact on the environment.

iii) Environmental Permit:
In accordance with the domestic laws of the Republic of Azerbaijan, an EIA reportwill be created when the system implementation plan in the Detailed Design isdetermined for approval of the application.
iv) Anti-Pollution Measures:
Appropriate construction machinery will be used for the prevention of air pollution
and the reduction of noise. Sewage water will be treated to satisfy the domestic
water emission standards and discharged into the agricultural drainage and theCaspian Sea. Therefore, no significant impact is predicted from the discharge oftreated sewage water. Sewage sludge will be dried in the sun at the facility andgiven to the residents as fertilizer.
v) Natural Environment:
The targeted area of this Project is not located in an area easily affected, such as
national parks, etc., nor is it located in an area surrounding such an area; therefore,
the project is not considered to have the potential for any undesirable impact on thenatural environment.
vi) Social Environment:
The Project requires the acquisition of a maximum of 35ha of land and theacquisition procedures will be carried out in accordance with domestic procedures in
the Republic of Azerbaijan at the time the details of the Project are designed.
Resident transfer is not required.
vii) Other / Monitoring
The executing agency shall monitor the quality of water and sludge, etc. duringservice.
2) Promotion of Poverty Reduction:
Through the implementation of the Project, public water will be supplied at one tenth
the cost of purchasing tanked water from private companies, which will contribute toreduction of costs for individuals suffering from poverty. The Project is, therefore,
significantly beneficial for individuals suffering from poverty.
3) Promotion of Social Development (e.g. Gender Perspective、Measure for Infectious
Diseases Including HIV/AIDS, Participatory Development, Consideration for theHandicapped, etc.): None in particular(8) Collaboration with Other Donors: World Bank, Asian Development Bank, Kreditanstalt
für Wiederaufbau (KfW)(9) Other Important Issues: None in particular

4. Targeted Outcomes(1) Performance Indicators (Operation and Effect Indicator)
Indicator(Common to 10 cities)

Baseline(Actual Value in 2007)

Target (2016)[Expected value 2 years after
project completion]

Set by each city

Set by each city

Access to water supply(persons)Amount of water supplied(m3/ day)Access to water supply(households)
Population connected tosewage treatment (persons)Amount of sewage treated(m3/ day)
System usage rate (%)
BDD concentration (Finaleffluent mg/ l)
Sewage system coverage(%)(2) Internal Rate of Return
Based on the conditions indicated below, the Economic Internal Rate of Return(EIRR) of the Project is 9.5% and the Financial Internal Rate of Return (FIRR) of the
Project is 2.6%.
【EIRR】
Cost: Project costs (excluding tax and duty), Operation & maintenance costs
Benefit: Reduction of water purchase costs, pump electricity costs, water supply andsewage fees, and sludge disposal costs
Project Life: 30 years【FIRR】
Cost: Project costs, Operation & maintenance costs, Land acquisition costsBenefit: Water supply and sewage user fees
Project Life: 30 years

5. External Factors and Risk Control
None in particular
6. Lessons Learned from Past Projects
Ex-post evaluation of similar ODA loan projects in the past has shown that it isnecessary to utilize external manpower for project supervision in countries without
overseas JICA offices. There is no JICA office in Azerbaijan, and Azersu Joint Stock
Company, the executing agency, has no experience in either implementing ODA loan
projects or procedures. Therefore, JICA will ensure the ability of the relevant externalmanpower to supervise the Project through training and seminars.
Furthermore, JICA will promote the utilization of assistance for start-up and provide
assistance with procurement and procedures for the ODA loan for the Project throughconsulting services during the implementation of the Project.
7. Plan for Future Evaluation(1) Indicators to be used
1) Access to water supply (persons)2) Amount of water supplied (m3/ day)3) Access to water supply (households)
4) Population Connected to Sewage treatment (persons)5) Amount of sewage treated (m3/ day)6) System usage rate (%)7) BDD concentration (Final effluent mg/ l)8) Sewage system coverage (%)9) Internal rate of return (EIRR, FIRR)(2) Timing: 2 years after the completion of the Project