for official use only report no:...

FOR OFFICIAL USE ONLY

Report No: PAD3291

INTERNATIONAL DEVELOPMENT ASSOCIATION

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED GRANT

IN THE AMOUNT OF US$15 MILLION

FROM THE TRUST FUND FOR GAZA AND WEST BANK (TFGWB)

WITH CO-FINANCING FROM THE PARTNERSHIP FOR INFRASTRUCTURE DEVELOPMENT MULTI-DONOR TRUST FUND (PID MDTF)

IN THE AMOUNT OF US$42 MILLION

TO THE

PALESTINE LIBERATION ORGANIZATION (FOR THE BENEFIT OF THE PALESTINIAN AUTHORITY)

FOR THE

WATER SECURITY DEVELOPMENT - GAZA CENTRAL DESALINATION PROGRAM —

ASSOCIATED WORKS PHASE I PROJECT

December 19, 2019 Water Global Practice Middle East and North Africa Region

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

(Exchange Rate Effective Sep 30, 2019)

Currency Unit = Israeli New Shekel (NIS)

US$ 1= NIS 3.46464

NIS 1 = US$ 0.2879

FISCAL YEAR

July 1 – June 30

Regional Vice President: Ferid Belhaj

Country Director: Kanthan Shankar

Regional Director: Ayat Soliman

Practice Manager: Carmen Nonay

Task Team Leaders: Suhail J. S. Jme'an, Adnan Farouq Saad Aldin Ghosheh, Anders Jagerskog

ABBREVIATIONS AND ACRONYMS AHLC Ad Hoc Liaison Committee

AS Assistance Strategy

BWSU Bulk Water Supply Unit

CBA Cost Benefit Analysis

COGAT Coordination of Government Activities in the Territories

CO2eq Carbon Dioxide Equivalent

DA Designated Account

DALY Disability-Adjusted Life Year

DMA District Metering Area

EC European Commission

EIB European Investment Bank

EIRR Economic Internal Rate of Return

ESIA Environmental and Social Impact Assessment

ESMP Environmental and Social Management Plan

ESS Environmental and Social Specialists

EU European Union

FCV Fragility, Conflict and Violence

FM Financial Management

GA Grant Agreement

GCDP Gaza Central Desalination Program

GDP Gross Domestic Product

GoI Government of Israel

GRC Grievance Redress Center

GRM Grievance Redress Mechanism

HDPE High-density polyethylene

ICC International Coordination Committee

IFRs Interim Financial Reports

IPF Investment Project Financing

ISDB Islamic Development Bank

JWU Jerusalem Water Undertaking

KFAED Kuwait Fund for Arab Economic Development

LCD Liters per Capita per Day

LGUs Local Government Units

M&E Monitoring and Evaluation

MCM Million Cubic Meters

MENA Middle East and North Africa

Mg/Lt Milligram per Liter

MOF Ministry of Finance

NGEST North Gaza Emergency Sewage Treatment

NGO Non-Governmental Organization

NRW Non-Revenue Water

NSPIP National Service Provider Improvement Program

NWC National Water Company

OHS Occupational and Health Safety

O&M Operation and Maintenance

OPEX Operational Expenditure

PA Palestinian Authority

PAP Project Affected Persons

PCBS Palestinian Central Bureau of Statistics

PDO Project Development Objective

PENRA Palestinian Energy and Natural Resources Authority

PIC Project Implementation Consultant

PID MDTF Partnership for Infrastructure Development Multi-Donor Trust Fund

PIM Project Implementation Manual

PLO Palestinian Liberation Organization

PM Project Manager

PMO Office of the Prime Minister

PMSU Project Management and Support Unit

PPE Personal Protective Equipment

PPP Public-Private Partnership

PPSD Project Procurement Strategy for Development

PSC Project Steering Committee

PWA Palestinian Water Authority

RAP Resettlement Action Plan

RWUs Regional Water Utilities

SCADA Supervisory Control and Data Acquisition

SDP Strategic Development Plan

SPs Service Providers

STEP Systematic Tracking of Exchanges in Procurement

STLV Short Term Low Volume Desalination Plant

TDS Total Dissolved Solids

TF Trust Fund

TFGWB Trust Fund for Gaza and the West Bank

ToR Terms of Reference

UfM Union for the Mediterranean

UNOPS United Nations Office for Project Services

WASH Water Supply, Sanitation and Hygiene

WB&G West Bank and Gaza

WBG World Bank Group

WBWD West Bank Water Department

WHO World Health Organization

WSRC Water Sector Regulatory Council

The World Bank Water Security Development - Gaza Central Desalination Program — Associated Works Phase I (P168739)

TABLE OF CONTENTS

DATASHEET ........................................................................................................................... 1

I. STRATEGIC CONTEXT ...................................................................................................... 6

A. Country Context .............................................................................................................................. 6

B. Sectoral and Institutional Context .................................................................................................... 6

C. Relevance to Higher Level Objectives ............................................................................................. 10

II. PROJECT DESCRIPTION .................................................................................................. 11

A. Project Development Objective ..................................................................................................... 11

B. Project Components ....................................................................................................................... 11

C. Project Beneficiaries ....................................................................................................................... 14

D. Results Chain .................................................................................................................................. 14

E. Rationale for Bank Involvement and Role of Partners ................................................................... 14

F. Lessons Learned and Reflected in the Project Design .................................................................... 15

III. IMPLEMENTATION ARRANGEMENTS ............................................................................ 16

A. Institutional and Implementation Arrangements .......................................................................... 16

B. Results Monitoring and Evaluation Arrangements......................................................................... 17

C. Sustainability ................................................................................................................................... 17

IV. PROJECT APPRAISAL SUMMARY ................................................................................... 17

A. Technical, Economic and Financial Analysis (if applicable) ............................................................ 17

B. Fiduciary .......................................................................................................................................... 20

C. Safeguards ...................................................................................................................................... 22

V. KEY RISKS ..................................................................................................................... 27

VI. RESULTS FRAMEWORK AND MONITORING ..................................................................... 30

ANNEX 1: Implementation Arrangements and Support Plan .......................................... 36

ANNEX 2: Detailed Description of Selected Project Activities ......................................... 48

ANNEX 3: Economic and Financial Analysis .................................................................... 52

ANNEX 4: Environmental Audit – Action Plan for South and Der el Balah STLVs ............. 56

ANNEX 5: Integrated Bulk System Map ......................................................................... 66


Page 1 of 66

DATASHEET

BASIC INFORMATION BASIC_INFO_TABLE

Country(ies) Project Name

West Bank and Gaza Water Security Development - Gaza Central Desalination Program – Associated Works Phase I Project

Project ID Financing Instrument Environmental Assessment Category

P168739 Investment Project Financing

A-Full Assessment

Financing & Implementation Modalities

[ ] Multiphase Programmatic Approach (MPA) [ ] Contingent Emergency Response Component (CERC)

[ ] Series of Projects (SOP) [✓] Fragile State(s)

[ ] Disbursement-linked Indicators (DLIs) [ ] Small State(s)

[ ] Financial Intermediaries (FI) [ ] Fragile within a non-fragile Country

[ ] Project-Based Guarantee [✓] Conflict

[ ] Deferred Drawdown [ ] Responding to Natural or Man-made Disaster

[ ] Alternate Procurement Arrangements (APA)

Expected Approval Date Expected Closing Date

30-Jan-2020 31-Dec-2024

Bank/IFC Collaboration

No

Proposed Development Objective(s)

Improve the quality and quantity of bulk water supplied to the municipalities served in the project area and to strengthen the capacity of the Palestinian Water Authority.

Components

Component Name Cost (US$, millions)


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Improved Supply of Bulk Water to the Southern and Middle governorates of Gaza 91.00

Capacity Building and Performance Improvement of Selected Institutions 9.50

Project Management and Implementation Support 16.50

Organizations

Borrower: Palestine Liberation Organization for the Benefit of the Palestinian Authority

Implementing Agency: Palestinian Water Authority

PROJECT FINANCING DATA (US$, Millions)

SUMMARY-NewFin1

Total Project Cost 117.00

Total Financing 117.00

of which IBRD/IDA 0.00

Financing Gap 0.00

DETAILS -NewFinEnh1

Non-World Bank Group Financing

Trust Funds 57.00

Partnership for Intrastructure Development MDTF 42.00

Special Financing 15.00

Other Sources 60.00

KUWAIT: Kuwait Fund for Arab Economic Development 60.00

Expected Disbursements (in US$, Millions)

WB Fiscal Year 2020 2021 2022 2023 2024 2025

Annual 1.00 8.00 12.00 15.00 14.00 7.00

Cumulative 1.00 9.00 21.00 36.00 50.00 57.00


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INSTITUTIONAL DATA Practice Area (Lead) Contributing Practice Areas

Water

Climate Change and Disaster Screening

This operation has been screened for short and long-term climate change and disaster risks

SYSTEMATIC OPERATIONS RISK-RATING TOOL (SORT)

Risk Category Rating

1. Political and Governance ⚫ High

2. Macroeconomic ⚫ High

3. Sector Strategies and Policies ⚫ Substantial

4. Technical Design of Project or Program ⚫ Substantial

5. Institutional Capacity for Implementation and Sustainability ⚫ High

6. Fiduciary ⚫ High

7. Environment and Social ⚫ High

8. Stakeholders ⚫ Substantial

9. Other ⚫ High

10. Overall ⚫ High

COMPLIANCE

Policy Does the project depart from the CPF in content or in other significant respects?

[ ] Yes [✓] No

Does the project require any waivers of Bank policies?

[ ] Yes [✓] No

Safeguard Policies Triggered by the Project Yes No


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Environmental Assessment OP/BP 4.01 ✔

Performance Standards for Private Sector Activities OP/BP 4.03 ✔

Natural Habitats OP/BP 4.04 ✔

Forests OP/BP 4.36 ✔

Pest Management OP 4.09 ✔

Physical Cultural Resources OP/BP 4.11 ✔

Indigenous Peoples OP/BP 4.10 ✔

Involuntary Resettlement OP/BP 4.12 ✔

Safety of Dams OP/BP 4.37 ✔

Projects on International Waterways OP/BP 7.50 ✔

Projects in Disputed Areas OP/BP 7.60 ✔

Legal Covenants

Sections and Description TF Grant Agreement, Schedule 2, Section I.C: Arrangements with Service Providers The Recipient shall cause PWA to, not later than 12 months after the Effectiveness date, enter into arrangements, under terms and conditions acceptable to the Bank and included in the PIM, with Service Providers benefiting from the Project (jointly or through separate arrangements), for the purposes of: (i) handing over the management and operations of certain water production and storage infrastructure (including water wells) which will be part of the new bulk system; (ii) establishing a framework for gradual purchase of bulk water at an agreed price; (iii) identifying, and outlining the capacity building and institutional support needed for said Service Providers.

Conditions

Type Description

Effectiveness TF Grant Agreement, Article V, 5.01(a): The execution and delivery of the TFGWB Agreement

on behalf of the Recipient has been duly authorized or ratified by all necessary governmental

and corporate action. Type Description

Effectiveness TF Grant Agreement, Article V, 5.01(b): The Subsidiary Agreement has been executed on

behalf of the Recipient and the PA. Type Description

Effectiveness TF Grant Agreement, Article V, 5.01(c): The On-granting Agreement has been executed on

behalf of the Palestinian Authority and PWA.


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Type Description

Effectiveness TF Grant Agreement, Article V, 5.01(d): The PID-MDTF Grant Agreement has been executed

and delivered and all conditions precedent to its effectiveness have been fulfilled. Type Description

Effectiveness TF Grant Agreement, Article V, 5.01(e): The Project Implementation Manual, acceptable to

the Bank, has been adopted by the Recipient.


Page 6 of 66

I. STRATEGIC CONTEXT

A. Country Context

1. The West Bank and Gaza experience significant political instability and deteriorating economic conditions.

Real Gross Domestic Product (GDP) contracted in the two consecutive quarters of 2019, first by 2.5 percent in the first quarter of the year compared to the previous quarter, then by an additional 2 percent in the second quarter of 2019 compared to the previous one (preliminary data from the Palestine Central Bureau of Statistics (PCBS)). Large inflows of donor support had driven a consumption-led growth. However, inflows of transfers have significantly dropped in recent years. The trade and movement restrictions have created a high risk of disruption in projects or trade and have kept investment levels low, resulting in a bias towards non-traded services which have less potential for productivity growth. A significant decline in public revenue receipts was witnessed in the first half of 2019. The drop in public revenue forced the PA to adopt an emergency cash management plan in the first half of 2019. Poverty rates have increased during 2011-17, with nearly one in three persons living in poverty, and with growing divergence between the West Bank and Gaza. Data from PCBS show that the overall share of population below the national poverty line has increased from 26 percent in 2011 to 29 percent in 2017. This, however, masks a substantial divergence in trends between Gaza and the West Bank. During the same period, the poverty rate in the West Bank declined from 18 to 14 percent, while poverty in Gaza increased dramatically from 39 to 53 percent leaving every second Gazan below the national poverty line.

2. Gaza’s economic buffers are almost fully depleted, following its long-term isolation. The Gaza economy fell

into a deep recession in 2018, contracting by 7 percent year-on-year. Gaza’s economy has been kept afloat in recent years, despite its isolation, due to large transfers including donor aid and spending through the budget of the PA, both of which amounted to 70-80 percent of Gaza’s GDP. However, these two sources have significantly declined recently pushing Gaza into a deep recession. The economic decline has also led to a rapid collapse in humanitarian conditions in Gaza. Unemployment amongst Gaza’s youth reached 67 percent while it was even higher for females, amounting to 71 percent. Four fifths of Gaza’s population receive some sort of social assistance, and any change in social assistance flows can significantly affect the population's wellbeing. The United Nations Relief and Works Agency for Palestine Refugees in the Near East (UNRWA) provides food supplies to about one million Gazans and operates 275 schools and 22 health facilities that mostly provide services to the poor across the Gaza. Recently, UNRWA has seen major reduction in donor contributions. Classrooms are in very short supply and 85 percent of schools operate double shifts to accommodate the current number of students. There is an acute shortage of electricity supply: current electricity availability (about 170 MW) is a third of its needs (500 MW) with up to 120 MW received from Israel and around 45-60 MW from the Gaza Power Plant when fuel is available. Public services are acutely impacted by electricity rationing with the health sector (highly dependent on diesel generators) and water and wastewater services operating at minimal service levels. There is a severe shortage of drinking water, and scarce treatment of wastewater is resulting in an environmental disaster.

B. Sectoral and Institutional Context

Overview of the Water Sector

3. The water sector in WB&G faces systemic challenges constraining its development. The biggest challenge is the political and economic context, which limits availability and access to adequate quantities of acceptable quality water. Weak capacity throughout sector institutions and fragmentation of Service Providers (SPs) are


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the other two top systemic challenges. To address these systemic challenges, the Palestinian Water Authority (PWA) with support and endorsement from the donor community and the Bank, has developed two key complementary policy instruments for a transformational and sustainable shift in the sector: The Water Law (2014) and a medium-term Strategic Development Plan (SDP) 2017-2022.

4. SPs are fragmented. Most SPs are departments within the municipal structure and are still governed under the 1997 Ministry of Local Government Law, which restricts their ability to function as autonomous modern water utilities. Moreover, Local Government Units (LGUs) are reluctant to cede water-related revenue streams, leading to an absence of cost recovery for bulk water purchased by the PA from the Israeli national water company (Mekorot). The majority of the 300 water SPs across the WB&G do not generate enough revenues to cover their operation and maintenance (O&M) costs. Less than 30 percent of SPs across the WB&G meet the standard metric for O&M cost recovery (i.e., an operating cost ratio greater than 1.2). SPs are fragmented in terms of their structure, size and authority: (i) they serve from 200 to 600,000 people; (ii) they range from obtaining water entirely from their own wells to 100 percent through bulk purchases; and (iii) their institutional setup ranges from village, municipal, to joint service councils. Only Jerusalem Water Undertaking (JWU) is a corporatized utility.

5. The institutional setup of water service provision across the WB&G neither encourages nor enforces the ring-fencing of water revenues. SPs within municipalities (typically water departments) are responsible for providing water and sanitation services to 70 percent of the people (3.7 million) across the WB&G and the JWU serves 15 percent of the population. Village councils, joint service councils and cooperatives cover the remaining 15 percent. As water and sanitation revenues form a large portion (> 50 percent) of municipal revenues, they are often used to fund other municipal services (such as street lighting, garbage collection, road maintenance, etc.). Many SPs do not pay their bulk water bills, which exacerbates the lack of cost recovery in the water sector.

6. The Water Law clarified roles and responsibilities within the sector. At the national level, two institutions already exist: (i) the PWA, which is responsible for the management of water resources, sector planning and development; and (ii) the independent Water Sector Regulatory Council (WSRC), which regulates and monitors the operation of water SPs. A third entity, which is yet to be established, is the National Water Company (NWC), which will assume the role of bulk water provider to SPs. The Law envisages service delivery at the local level to be through a limited number of Regional Water Utilities (RWUs), which are to be formed through the aggregation of existing small SPs (water departments at the LGUs).

7. The SDP has five main objectives: (i) enhancing the integrated management and sustainable development of water sector resources; (ii) improving the quality, continuity and reliability of water supply services, as well as ensuring equitable water distribution; (iii) improving wastewater services and structure, including collection, treatment and reuse; (iv) developing water sector institutions to reinforce good governance within an integrated legal and institutional framework; and (v) improving the financial sustainability of SPs.

8. However, weak capacity and political realities have limited full implementation of the Water Law and the SDP. The effectiveness of the PWA, particularly in Gaza, has been constrained by continued political fragmentation between the West Bank and Gaza, and the consequent establishment of a parallel structure in Gaza. In March 2017, the PWA finalized a roadmap for establishing the NWC based on the existing West Bank Water Department (WBWD) and launched the process of its implementation. In view of these constraints, there has been limited progress so far in achieving the objectives of SDP.


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9. In addition, the combination of low-cost recovery and failure to ring-fence water revenues results in a US$70 million annual burden on the PA’s finances. The PA covers this combined deficit by making payments not covered by SPs for: (i) bulk water purchases from Israel; (ii) electricity consumed; and (iii) the operating costs of wastewater treatment plants. In the West Bank, these subsidies amounted in 20181 to US$55 million (equivalent to US$18.3 per capita), while in Gaza they amounted to US$15 million (equivalent to US$7.7 per capita).

The Water Sector in Gaza

10. The water situation in Gaza is even more challenging, with undrinkable water supplied through the municipal networks and almost everyone relying on water from expensive and unregulated small-scale private providers. The main source of water in Gaza is groundwater from the coastal aquifer, which relies on rainfall for recharge.2 In the last five years, the average annual rainfall in Gaza has decreased by 20-30 percent, and the average recharge volume has dropped by 10-20 percent. The increased demand and over-abstraction of ground water (by an estimated 180 million cubic meters (MCM) a year) has led to increased salinity of the aquifer, making it an ecological catastrophe. Most of the 260 municipal wells have salt and nitrate levels above the World Health Organization (WHO) guidelines. Water quality measurements in 2018 indicated that the salinity of ground water used for municipal distribution networks was in the range of 800-3,000 milligrams per Liter (mg/lt) of Total Dissolved Solids (TDS).3 Currently, fresh water purchased from Israel (10 MCM a year)4 is improperly mixed with highly saline groundwater. The mixed water is not fit for human consumption and is not distributed equitably. As a result, and although 95 percent of the population is connected to the piped network, access to drinking-quality water is just one percent, compared to universal access 20 years ago. The result is that 97 percent of the drinking water consumed in Gaza is supplied, mainly via tanker, by small-scale private providers or non-governmental organizations (NGOs). They are not systematically regulated in terms of abstraction, quality and cost (which is often seven times the cost of public water supply).5 While the immediate needs of Gaza are at the center of the proposed project, challenges in the West Bank in terms of water shortages and bulk water supply are as important.

11. Overall, only 36 percent of households in Gaza are satisfied with the reliability and quality of water supply,

with little to no difference between female and male heads of households.6 Availability of water, however, affects men and women differently, with the latter being affected in various ways depending on where they are in their life-cycle. Poor toilet facilities and inadequate water are among the reasons “why post-pubescent girls drop out of school and women miss days from work.” For working women and those of child-bearing age, lack of access to reliable and clean water coupled with a limited role in the sector to give voice and act on change

are likely to increase domestic drudgery and impact their empowerment and status negatively.7

1 In the West Bank, US$40 million is used for bulk water purchases from Israel and US$15 million subsidy for wastewater treatment plants. In Gaza, US$10 million is used for bulk water from Israel and US$5 million for subsidy for wastewater treatment and electricity. 2 In addition, PWA in collaboration with municipalities undertake regular public awareness campaigns sensitizing the community, including on key aspects of water conservation. 3 WHO guidelines in relation to TDS levels are as follows: excellent, less than 300 mg/lt; good, between 300 to 600 mg/lt; fair, 600 and

900mg/lt; poor, between 900 and 1,200 mg/lt; and unacceptable, greater than 1,200 mg/lt

4 Currently water purchased from Israel is supplied as 5 MCM for Gaza City and northern governorates; and 5 MCM for southern and middle governorates. 5 West Bank and Gaza WASH Poverty Diagnostic, 2017. Report #127838 6 The Performance of Palestinian Local Governments: An Assessment of Service Delivery Outcomes and Performance Drivers in The West Bank and Gaza, June 2017 (this data was collected 2016/2017). 7 Das, Maitreyi. The Rising Tide: A New Look at Water and Gender. World Bank, 2018.


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12. The WB&G continue to be exposed to natural hazards such as drought; extreme heat hazard risk in the WB&G

is classified as ‘high’. The International Panel on Climate Change predicts that the annual mean temperature increase over the century in the WB&G will be larger than global annual mean warming – which is approximately between 2.2 to 5.1 degrees Celsius - with a similar expected rate of warming for all seasons and increased risk in the frequency and intensity of droughts. There is more than 25 percent risk that at least one period of prolonged exposure of extreme heat, resulting in heat stress, will occur in the next five years. Rainfall has been decreasing in the WB&G since the beginning of the century to levels below the historical average. This decrease in annual mean precipitation is expected to continue until 2050 (reaching up to 30 percent). Droughts are becoming more frequent and water scarcity is growing in severity; water security risk in the region is classified as ‘high’. This challenge will affect the Gaza population significantly and will result in additional pressure on an already scarce resource, thus underlying the need to achieve more effective water distribution.

The Proposed Project

13. The proposed project is part of a coordinated international effort to address chronic poor water quality in Gaza and the significant increase in domestic demand expected in the medium term, which is projected to reach around 145 MCM a year by 2030. PWA, in partnership with the European Commission (EC), the European Investment Bank (EIB), the Union for the Mediterranean (UfM), the Islamic Development Bank (ISDB) and the World Bank, formulated the Gaza Central Desalination Program (GCDP). The GCDP covers all Gaza and comprises two main components: (i) construction of a desalination plant with initial capacity to produce 55 MCM a year of desalinated water that can be doubled in the future; and (ii) construction of a north-south water carrier, including storage reservoirs to convey and properly blend the desalinated water with groundwater sources to achieve water supply meeting WHO guidelines for potable water. The latter component is referred to as “Associated Works.”8 In addition, as part of this component, the European Union (EU) is financing a Non-Revenue Water (NRW) reduction program in the project area to maximize use of the blended water.

14. Securing the required funding and implementing the GCDP will take several years, leaving the water situation

in Gaza, and particularly in the southern and middle governorates, in urgent need of improvement. In this context, the international community supported the construction of two Short-Term Low-Volume Desalination Plants (STLVs) which produce 4.7 MCM per year as interim measures to alleviate the needs for fresh water. In addition, PWA has negotiated the purchase of an additional 5 MCM per year of fresh water for the middle and southern governorates of Gaza from Mekorot for a total of 10 MCM. The proposed project, through blending these new high-quality water sources with 15.3 MCM per year from existing brackish groundwater, will supply bulk water to all 16 municipalities in the project area (with an estimated 870,000 people)9 with at least 90 liters per capita per day (lcd) meeting WHO guidelines for potable water. As these activities will increase the supply of drinking water in the project area, the project will raise the beneficiaries’ resilience to climate change–exacerbated droughts and extreme heat.

15. The project will also contribute towards enhancing capacity of water sector institutions and reforms outlined

in the 2014 Water Law. The proposed operation includes institutional strengthening activities aimed at the establishment of a small unit to manage bulk water supply operations in Gaza laying a sound foundation for the future establishment of the NWC, which is mandated by the Water Law to manage and operate bulk water

8 The preparation of the designs, bidding documents and environmental impact assessment for the Associated Works under the GCDP were carried out through the World Bank-financed Gaza Sustainable Water Supply Program (P150494). 9 Based on the Palestinian Census Bureau for Statistics’ 2017 Census, 49 percent are women.


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throughout the West Bank and Gaza. The project also lays the foundation for enhancing the performance of service providers by supporting the design and piloting of a national services improvement program, which will serve to guide all future interventions aimed at improving municipal water and sanitation service delivery. As such the project will further enhance the reform efforts as outlined in the 2014 Water Law.

16. The design of the proposed operation is informed by lessons learned through the implementation of previous World Bank-financed water and sanitation operations in Gaza. The project incorporates several lessons listed in Section II.F below.

C. Relevance to Higher Level Objectives 17. The proposed project is aligned with the World Bank Group (WBG) Assistance Strategy (AS) for the WB&G

FY18-2110. It supports the strategy’s shift towards supporting the growth of private sector activity, including in infrastructure investments and the provision of basic services, such as water and sanitation. The project is aligned with pillars 1 and 3 of the strategy, by respectively supporting reforms essential to the emergence of private sector activity and strengthening of institutions for improved citizen-centered service delivery. Indeed, proposed investments and capacity building activities will generate much needed improvements in the efficiency, effectiveness and quality of bulk water distribution, which are essential to improve citizens’ willingness to pay for water and therefore advance towards a financially sustainable water sector. In addition, the project will contribute to citizen engagement (including women and vulnerable groups) and government accountability, which are also proposed outcomes under pillar 3, as well as to the enlarged 2019 MENA Regional Strategy by renewing the social contract between citizens and the state through improved delivery of basic services.

18. The proposed project would contribute to achieving the WBG twin goals of eliminating extreme poverty and

promoting shared prosperity in a sustainable manner by improving the quality of life of an estimated 870,000 residents in the southern and middle governorates through the provision of water that meets the WHO guidelines for potable water. Providing access to safe and adequate water is essential for improving the health, well-being, and productivity of the residents of the middle and southern governorates of Gaza. The project will also generate much needed short to medium-term employment for skilled and semi-skilled workers during construction (nearly 30,000 person-months) and will subsequently catalyze economic growth in the medium to long term. It will also contribute to improved transparency in decision-making (both policy and planning) for bulk water allocation at the national and local levels.

10 Report No. 115201 discussed by the Board of Executive Directors on December 5, 2017.


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II. PROJECT DESCRIPTION

A. Project Development Objective

19. Improve the quality and quantity of bulk water supplied to the municipalities served in the project area and to strengthen the capacity of the Palestinian Water Authority. PDO Level Indicators

20. The achievement of the PDO will be assessed using the following indicators:

a. The Gaza BWSU is established and is operational. b. Volume of bulk water supplied by the BWSU to benefiting municipalities. c. Percentage of bulk water samples meeting the quality standards set by WHO for potable water. d. BWSU bulk water quality report published biannually by PWA. e. National Service Providers’ Improvement Program is designed and approved.

B. Project Components

21. The project comprises three components which will: (i) build the necessary water infrastructure for improved bulk water supply by conveying and blending water from various sources in the southern and middle governorates; (ii) build capacity to improve the performance of selected institutions; and (iii) provide project management and implementation support. The three components are described below. Component 1: Improved Supply of Bulk Water to the Southern and Middle Governorates of Gaza (Estimated cost US$91.0 million)11

22. Component 1 comprises four packages to implement an integrated system of bulk water carriers and reservoirs to convey and blend water from three different sources to achieve the desired salinity (see map in Annex 5), and partially respond to the drinking water quality crisis in the southern and middle governorates of Gaza. Packages 1.1 and 1.2 are financed and supervised by a parallel grant from the Kuwait Fund for Arab Economic Development (KFAED) in the amount of US$58 million equivalent. a. Package 1.1: Southern Main Carrier System (US$48.0 million) will enhance the capacity for blending,

storage and bulk supply of drinking water to Rafah and Khan Younis Governorates. This package is being tendered and implementation will likely start in early 2020; implementation is expected to be completed by mid-2023.

b. Package 1.2: Additional Water Supply Network Improvement Works for Middle Gaza and Khan Younis

Governorates (US$10.0 million) will increase the capacity to effectively utilize the 10 MCM/year of fresh

11 The packages under Component 1 will increase the resilience to extreme heat and drought through the diversification of water sources, investments in water and wastewater infrastructure, better management and O&M of water and wastewater resources, and improvements in the quality of water and water services. These measures will enhance the beneficiaries’ resilience to climate change–exacerbated droughts and rising temperatures.


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water purchased from Israel at Bani Said and Bani Suhaila connection points. Implementation started in June 2019 and is expected to be completed by December 2020.

c. Package 1.3: Reconfiguration of the water distribution system in the Southern Gaza Governorate

(US$27.0 million) and Package 1.4: Reconfiguration of the water distribution system in the Middle Gaza Governorate (US$6.0 million) will reconfigure the municipal primary distribution networks where they connect with the new bulk water system to enable them to receive and effectively distribute the blended bulk water. These two packages will be funded jointly from the Trust Fund for Gaza and the West Bank (TFGWB) and Partnership for Infrastructure Development Multi-Donor Trust Fund (PID MDTF). The detailed design and tender documents for both packages were prepared in late 2017 and need to be revised. Tendering is planned in the first quarter of 2020 with activity implementation period of 30 months and 18 months, respectively.

Component 2: Capacity Building and Performance Improvement of Selected Institutions (Estimated cost US$9.5 million) 23. This component is designed primarily to create adequate capacity to ensure operations and maintenance of the STLVs during project implementation and subsequently during the O&M of the integrated bulk water supply system supported by the project. This component will also support the design of a National Service Provider Improvement Program (NSPIP) to improve service delivery in the West Bank and Gaza, and reduce the need for sector subsidies, as well as to prepare priority bulk water investments in the West Bank. This component will be jointly funded from TFGWB and PID MDTF.

a. Sub-component 2.1: Establishment of a unit to operate bulk water supply in Gaza (US$1.0 million) will

fund the design and implementation of an action plan establishing a unit that would over the implementation period of this project take on gradual responsibility for: (i) operation and maintenance of the STLVs; (ii) monitoring and management of bulk water purchases from Israel; (iii) management and operation of groundwater wells in the middle and southern Gaza governorates to be utilized for blending; (iv) blending of these bulk water sources for distribution and onward sale to municipalities (the SPs); and (v) billing and collection (on behalf of PWA) for bulk water sales to municipalities. In line with PWA’s long-term plan to create the NWC, this unit will eventually scale up its role and responsibilities to be the Gaza nucleus of the NWC envisaged in the 2014 Water Law. As part of the establishment of the Bulk Water Supply Unit, opportunities for female employment will be explored and enhanced to utilize the untapped resource that highly educated and skilled women represent.12 This sub-component will also fund a study of the impact on private water vendors’ livelihoods and potential mitigation measures.

b. Sub-component 2.2: Design of a National Service Provider Improvement Program (US$2.5 million) will

fund the design of a national program to improve the operational and financial performance of service providers across the WB&G. The NSPIP will set out a framework of incentives that will: (i) support SPs to move up the performance ladder; (ii) separate water service provision from other municipal services; (iii) where appropriate, support clustering of SPs to achieve economies of scale and work towards the establishment of regional utilities; and (iv) promote future public-private partnerships (PPPs) to the extent feasible, either through performance-based contracts to reduce NRW, meter reading, billing and collection, or more comprehensive management contracts. As part of the development of NSPIP, pilot measures for improving cost recovery will be tested in: (a) the municipalities in Gaza targeted by the

12 This will include support to the PWA Gender Unit.


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infrastructure improvements supported through Component 1; and (b) selected service providers in the West Bank. This sub-component will include support for municipalities to engage consumers in the process, and to ensure that consumers’ voices are represented in the policy discussions on how to develop the NSPIP. It will also include training, complemented with technical assistance to municipalities, on engaging with water consumers. Linked to these actions, representatives of women’s groups will be consulted on the design of the NSPIP and opportunities for empowering young women across the water supply and sanitation value chain will be explored through innovative partnerships with the private sector.

c. Sub-component 2.3: Priority investment planning for bulk water supply in the West Bank (US$6.0 million)

will finance: (i) updating the water sector policy and strategy; (ii) preparing an integrated bulk water master plan for the West Bank, which will identify and prioritize investments to set up a bulk water supply and conveyance system for the West Bank; and (iii) preparing detailed designs and Environmental and Social Impact Assessments (ESIAs) for the identified priority investments related to distribution of water.

Component 3: Project Management and Implementation Support (Estimated cost US$16.5 million)

24. This component is designed to support effective implementation of the project and provide funds to ensure continued operations of vital water assets in Gaza and comprises four sub-components: (i) project management; (ii) project supervision; and (iii) incremental operation and maintenance costs of bulk water operations in Gaza. This component will be jointly funded from TFGWB and PID MDTF, with US$2 million funded through a parallel grant from KFAED for sub-component 3.2

a. Sub-component 3.1: Project management (US$3.2 million) will support PWA to implement the project through a Project Management and Support Unit (PMSU). It will finance, inter alia: (i) resettlement compensation costs and expenses associated with the implementation of the Resettlement Action Plan (RAP) for the project; (ii) salaries of PMSU staff (with retroactive provision); (iii) PMSU operating costs; (iv) provision of reasonable office equipment; (v) consultant services to support technical reviews and implementation of environmental and social safeguards; and (vi) overall project management, monitoring, evaluation and reporting.

b. Sub-component 3.2: Project supervision (US$3.6 million, of which US$2.0 million financed through a

parallel grant from KFAED) will support the procurement of an independent international Project Implementation Consultant (PIC) who will provide technical assistance on procurement process and will supervise the implementation of construction contracts.13

c. Sub-component 3.3: Incremental operations and maintenance costs (US$9.7 million) will support on a

declining basis the new bulk water supply unit in Gaza, inter alia: (i) salaries and incremental operating costs of the BWSU; (ii) cost of STLVs’ consumables (including fuel, lab testing kits, chemicals, cartridge filters, and membrane replacement); and (iii) maintenance costs.

13 The supervision consultant was selected competitively in accordance with the World Bank Procurement Guidelines, under the previous World Bank-financed Gaza Sustainable Water Project, for the design and supervision of the associated works packages. PWA entered into a subsequent contract with the consultant for the supervision of the works packages financed by the KFAED. PWA plans to hire the same consultant under a separate contract to supervise the works packages financed by TFGWB and PID MDTF.


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C. Project Beneficiaries

25. Component 1 will benefit 16 municipalities in the middle and southern governorates of Gaza with an estimated population of 870,00014 people. Technical assistance activities under Component 2 will benefit PWA through support for sector reform and institutional capacity building. In turn, these activities will benefit the entire population of the WB&G through improved and sustainable water services in the medium term.

D. Results Chain

E. Rationale for Bank Involvement and Role of Partners

26. With significant international experience in the water sector, as well as long-term and deep engagement in

the water sector in the WB&G, the Bank is well positioned to help PWA address the most pressing water challenges in Gaza. The involvement of the World Bank is crucial to guarantee the effectiveness and the best use of funds raised through a transparent procurement process. The Bank would also use its convening power to bring in consolidated international support, blended with analytical and advisory activities. The Bank is managing the PID MDTF, which is designed to improve the coverage, quality, and sustainability of services in the water, urban development, and energy sectors, in addition to improving aid efficiency by consolidation under a single fund using the World Bank’s financial and project management procedures. The Bank has also provided technical advice to PWA and has participated in efforts to design GCDP and to seek funding for GCDP. Bank safeguard policies will ensure that social and environmental aspects are addressed appropriately

14 Based on the Palestinian Census Bureau for Statistics’ 2017 Census, 49 percent are women.


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throughout project preparation and implementation.

27. The Bank has contributed to the ongoing discussions with Coordination of Government Activities in the Territories (COGAT) on material entry into Gaza. Considering the size of this project, which is part of the larger PWA GCDP, a Task Force was created to be the primary platform for exchange of information relevant to material entry. The Task Force is facilitated by the Office of the Quartet and is comprised of PWA, COGAT, the EU, and the World Bank. Utilizing this structure, the PWA and COGAT agreed on special arrangements to ensure transparency, predictability, and timely facilitation of material entry as well as monitoring arrangements.

28. Role of partners. This project is part of a coordinated international effort to address chronic poor water quality

and the significant increase in domestic demand expected in the medium term in Gaza. Several donor pledges in support of the GCDP were registered at the Donor Pledging Conference on March 20, 2018. KFAED has already committed US$60 million as parallel grant financing for two works packages under Component 1 and their related supervision costs. The project will also receive US$42 million in co-financing from the PID MDTF, which receives contributions from ten donors to improve the coverage, quality, and sustainability of infrastructure in the WB&G. Additional financing to expand work activities to the northern governorates of Gaza may be considered once funding is available and technical feasibility is demonstrated. Towards this end, the French Development Agency (AFD) declared in writing their intent to channel Euro 10 million through the PID MDTF in 2021. PWA is encouraging donors to align support for the water sector and Associated Works through the co-financing of the PID MTDF.

F. Lessons Learned and Reflected in the Project Design 29. The project takes stock of and includes lessons from four recently finalized projects in the water sector: the

Gaza Sustainable Water Supply Program (P150494); the North Gaza Emergency Sewage Treatment (NGEST) Project (P074595); the Water Sector Capacity Building Project (P117443); and the Gaza Water Supply and Sewage System Improvement Project (P101289). In addition, the project is informed by the results of the recently completed WB&G WASH Poverty Diagnostic (P157979).

30. Close supervision and flexibility to adapt are key to achieving results in FCV situations, where project

readiness and client commitment are high. Component 1 will require close oversight of the task team to address challenges related to the changing political circumstances and the import of materials into Gaza.

31. In the Palestinian context, close coordination at the technical, political, and donor levels is important.

Technical coordination with the client, as well as with the GoI, is important for implementation and having coordination mechanisms in place upfront can speed up construction activities. This requires almost daily interaction and facilitation: on material entry, energy supply and construction, which are critical to successful implementation of Component 1. Likewise, high level engagement from the Bank with the PA, as well as GoI and development partners, is critical for effective implementation. In addition, the identification of common interests between parties is important to resolve bottlenecks affecting project implementation in Fragility, Conflict and Violence (FCV) context.

32. Current fiscal constraints call for contemplating financial support for infrastructure development, but also for

its operation and maintenance. Implementation, as well as operations and maintenance, of complex infrastructure investments - such as wastewater treatment plants, sea water desalination facilities, or other utility-scale infrastructure - typically goes beyond the current financial capacity of the municipalities and PWA


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without extended financial support, often beyond the closing date of the project. Support for operations and maintenance in the water sector is included in the project budget.

33. Lessons from recent engagements have informed the design of the proposed project. Work on the Gaza

Sustainable Water Supply Program resulted in the studies that were used for the design of Component 1. In addition, the project builds on and will strengthen existing mechanisms for the facilitation of goods and materials through the Israeli border. A specific lesson of the Water Sector Capacity Building Program is that political will is key for a reform-oriented program to succeed. This applies, in particular, to activities under Component 2. In addition, given the longer-term nature of policy and reform agendas, lasting partnerships with clear responsibilities are needed to see them come to fruition.

III. IMPLEMENTATION ARRANGEMENTS

A. Institutional and Implementation Arrangements 34. The Ministry of Finance (MOF), representing the Palestinian Liberation Organization (PLO), will sign Grant

Agreements (GAs) with the TFGWB and with the PID MDTF. The PA has already signed a grant agreement for the parallel grant from KFAED. PWA, headquartered in the West Bank, will be the implementing agency for this project. PWA will manage the project as part of GCDP, for which three main structures have been established and are operational:

a. A Project Steering Committee (PSC) will provide strategic guidance for the project. The PSC is comprised of decision-making representatives headed by the PWA, and representatives from the Prime Minister’s Office (PMO), the Palestinian Energy and Natural Resources Authority (PENRA), the Environmental Quality Authority (EOQ), and the Ministry of Finance. A donor representative will act as an observer.

b. The International Coordination Committee (ICC) will provide a forum to coordinate and lead the work of the international partners.

c. The Task Force will provide a forum to facilitate and coordinate between the Palestinian and the Israeli sides on all aspects, in particular on access to materials, goods, and personnel. The Task Force, facilitated by the Office of the Quartet, will meet on a monthly basis or as necessary.

35. A PMSU has already been set up within PWA, with key staff experienced in implementation of Bank-financed

projects on board. The PMSU will be responsible for project oversight, monitoring, reporting, facilitation, hiring of consultants, contract awards and contract management, financial management, implementation of environmental and social safeguards and coordination with stakeholders. A qualified and experienced Project Director has been appointed as Head of the PMSU and will be the focal person for communicating and coordinating with the Bank, other donors, and all other parties involved in the project. Key staff of the PMSU have already been hired: Project Director, two procurement managers, two financial management specialists, one accountant, site managers for the four packages, material access coordinator, institutional specialist, water supply expert, communication and outreach specialist, and administrative staff. The following have been identified and will be hired by effectiveness: environmental specialist, social safeguard specialist, and infrastructure manager. An international Project Implementation Consultant (PIC) will provide technical assistance on procurement and supervise the implementation of construction contracts. Annex 1 provides more detail on the institutional and implementation arrangements for the project.


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36. In view of the fiscal constraints facing the PA, retroactive financing up to US$500,000 is envisaged to cover a

defined list of eligible expenditures associated with payments made not more than 12 months prior to the date of the Grant Agreement. A detailed breakdown of these eligible expenditures is included in the project files.

B. Results Monitoring and Evaluation Arrangements

37. A dedicated monitoring and evaluation (M&E) specialist in PWA will monitor project progress and will prepare quarterly progress reports in accordance with the format outlined in the Project Implementation Manual (PIM) developed by PWA and cleared by the Bank in July 2019. Progress reports will include information on the indicators in the results framework, disbursements, Financial Management (FM) (including project financial reports and audits), procurement, social and environmental safeguards, updated annual plans for works and activities, and specific assessments of the impact of women’s participation in project design and implementation, as well as the Grievance Redress Mechanism (GRM). A Mid-Term Review will be conducted no later than three years after the first disbursement, and a final independent evaluation will be conducted at the end of project implementation to assess the project’s overall achievements. A beneficiary survey will be conducted at the beginning and at the end of project implementation and the results will be made public via the website of PWA.

C. Sustainability

38. A key element in the design of the project is to ensure that infrastructure constructed under Component 1

will provide a sustainable solution to the water challenges in the project area. Sub-components 2.1 and 2.2 respectively support the sustainability of infrastructure constructed under Component 1 and support the development of future policy directions and plans for a national program of sector reform and expansion. Sub-component 3.3 supports the provision of adequate funding for operation of a new BWSU in Gaza. The BWSU will be the foundation for the future NWC envisaged in the Water Law.

39. This project will support building consensus among stakeholders, including municipalities in the project areas,

by conducting multiple consultations to ensure buy-in from the different parties involved. Awareness campaigns among residents in the project area (including women and youth), supported by Bank technical assistance, will also ensure that the population is aware of the project’s milestones, and that the views of civil society are taken into account.

IV. PROJECT APPRAISAL SUMMARY

A. Technical, Economic and Financial Analysis (if applicable)

40. Technical analysis. The investment in: (i) a system of transmission lines, pumping and booster stations, and

service reservoirs, (ii) reconfiguration of the existing distribution systems, and (iii) components of the Southern Water Carrier will allow PWA to utilise the additional quantities of water imported from Israel and desalinated water produced from the two existing STLVs, and blend them in reservoirs with proportional quantities of brackish groundwater to achieve water quality in compliance with WHO guidelines. The new infrastructure will allow PWA to systematically regulate bulk water quantities, quality and cost by employing technology (SCADA) to continuously monitor and maintain normal functional parameters. It will also facilitate the work of the newly


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created bulk water unit in monitoring the flow of water supplied from Israel and locally produced in desalination plants, as well as extracted from underground wells, into water blending, storage and distribution reservoirs. This will enable bulk water to be provided to the 16 municipal water service providers in the project area with an average 90 lcd, meeting WHO quality standard for drinking water. The detailed design of the Associated Works components and ESIA have been carried out by the international consultant. The designs were based on hydraulic analysis to determine the size of pipes, pump efficiencies based on the design flow rates, and the proposed delivery points at reservoir levels. The system has been designed to be flexible and has been verified for different operating scenarios envisaged through 2030; it has been set up to be managed through a SCADA system. The final designs were reviewed and accepted by the Bank.

41. Sequenced implementation of works packages. Package 1.1 is already being tendered and implementation will

likely start in early 2020; package 1.2 implementation started in June 2019 and is expected to be completed by December 2020. Tendering is planned for the first quarter of 2020 for both packages 1.3 and 1.4 with implementation period of 30 months and 18 months, respectively. This sequence of implementation will enable PWA to start supplying water to some municipalities of the middle and Khan Younis Governorates in early 2021 and benefit approximately 370,000 inhabitants. The remaining works packages will be completed in stages, thus increasing the number of beneficiaries in a phased manner.

42. Materials entry to Gaza. The office for COGAT has agreed to provide blanket approval to the list of project and project contractors’ staff, materials and equipment (including heavy equipment and equipment needed on a temporary basis) based on a careful review of the Bill of Quantities and other related documents to be furnished by PWA and its consultants as per an agreed protocol. Considering the size of this project, which is part of the larger PWA GCDP, a Task Force was created by the PA through a Cabinet decision to be the primary platform for exchange of information relevant to material entry. The Task Force is facilitated by the Office of the Quartet and is comprised of PWA, COGAT, the EU, and the World Bank. Utilizing this structure, the PWA and COGAT agreed on special arrangements to ensure transparency, predictability, and timely facilitation of material entry as well as monitoring arrangements.

43. O&M. In the absence of a functioning regional water utility, PWA will work on O&M arrangements with the

beneficiary SPs. These arrangements will include a clear understanding of: (a) handing over the management and operations of certain water production and storage infrastructure (including water wells) which will be part of the new bulk system; and (b) a framework for gradual purchase of bulk water at an agreed price. The arrangements will also identify and outline capacity building and institutional support needs for the beneficiary municipalities, so they can gradually (but effectively) assume their role as service providers. This will include building capacity for customer information management and their billing/collection process. The bulk water unit will operate the two STLVs and will take on responsibilities for billing, collecting fees, and O&M of completed sections of the bulk supply water system in the project areas.

44. Economic analysis. The results of the cost benefit analysis (CBA) show an economic internal rate of return (EIRR) of 11 percent. Based on a time horizon of 20 years (2020-2040), the project would have an EIRR of nine percent as a result of household savings due to switching from privately sold desalinated water to municipal public water. This assumes that households are currently buying 10 lcd at US$8/CM of desalinated water and 50 lcd from the municipality at US$0.3/CM, and that after the project they would buy at least 60 lcd from the municipality at US$1/CM. If potential health benefits are included based on a reduction of diarrhea related disability-adjusted life years (DALYs), the EIRR would rise to 11 percent. Details of the economic analysis are provided in Annex 3.


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45. Financial analysis. Infrastructure investments under Component 1 will link three sources of bulk water in the

project area: STLVs; high yielding wells (currently managed by municipalities); and water purchased from Israel through Mekorot. Over the period of project implementation, the underlying O&M cost elements (costs of electricity and consumables for STLV operation; groundwater production costs; payments to Mekorot for bulk water supply; and BWSU staff and overhead costs) will be consolidated under the newly created bulk water unit (see Table 2 in Annex 3). The aim, ultimately, is that bulk water supply costs will be recovered from the SPs supplied. The municipalities in turn will recover costs from water users. However, cost recovery for water services by municipalities in the middle and southern governorates of Gaza was just US$4.4 million in 2017. This is only half of the cost of providing current poor-quality service. The other half is covered by the PA, which pays the electricity costs from the Gaza electricity plant and for bulk water from Mekorot.

46. Sub-component 2.2 of the project will provide technical assistance to the municipalities in the middle and

southern Gaza governorates to increase cost recovery. On the assumption that revenues could be tripled over the implementation period of this project – as water quality would improve and so households would be prepared to pay more – there would still be an annual deficit of US$12.7 million a year by the end of the project. It is not realistic in the context of Gaza to expect the municipalities to cover such large deficits through increases in municipal revenues. For the foreseeable future, the PA will at the very least need to cover the cost of bulk water purchases from Mekorot (US$10 million a year) and likely the cost of electricity for running the STLVs (US$2.7 million a year), totaling (US$12.7 million a year).

47. Other potential benefits. These include:

a. Reduction of groundwater abstraction is expected to reduce the salinity of groundwater and reverse the

decline in the health of the aquifer. The STLVs, the additional 5 MCM/year imported from Mekorot and the water resources interconnection infrastructure that will be developed under the project will improve drinking water quality and increase availability while reducing groundwater abstraction by 44 percent in the 16 benefiting municipalities, where around 61 wells will be decommissioned. The additional water made available through the project will reduce the groundwater abstraction and also result in reduction of salinity. However, it is difficult to estimate the rate at which the aquifer will improve and thus not possible to attribute a specific monetary benefit stream to this.15

b. The ESIA assessed the impact of the project on the private desalinated water vendors and transporters who

will lose revenue once the project is completed as the municipal water system will both be cheaper and more convenient to households. According to the ESIA, the private vendors may lose the investment they made as well as at least part of the income they earn from selling water. In economic terms this means that the current producer surplus will be transferred from a few actors (private water vendors) to the many consumers connected to the public network in the form of a greater consumer surplus – a progressive shift of benefits. A study of private water vendors’ livelihoods and potential mitigation measures will be done under sub-component 2.1 of the project to ensure their livelihoods are restored.

15 PWA monitors the groundwater levels and quality of the aquifer on a regular basis and have also developed tools to model effects of, e.g. increased aquifer recharge on the health of the aquifer, developed in conjunction with the NGEST wastewater treatment plant.


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48. Affordability. For the projected Operational Expenditure (OPEX) costs to be covered, tariffs would have to increase to US$1 per cubic meter. This would be equivalent to a 113 percent increase in the average 2017 consumer tariff. For the one-third of Gaza households who fall under the “deep poverty” category (i.e., a household of five people living on under NIS 1,974 a month), consumption of at least 60 liters16 per capita per day would result in a monthly bill of around NIS 33 (based on the projected tariff of US$1 per cubic meter). This constitutes just under two percent of monthly household income of households at the “deep poverty” line. To ensure reasonable affordability of water to end-users in Gaza, for the foreseeable future the PA will need to continue covering on declining basis the cost of bulk water purchases from Mekorot and likely the cost of electricity for running the STLVs.

B. Fiduciary

(i) Financial Management

49. The PMSU, within PWA, will be responsible for financial management of the project. It will prepare and issue the annual work program and operating budgets, as well as progress and financial reports, including the Interim unaudited financial reports (IFRs) and annual audited financial reports. A Financial Manager for the project will be located in PWA. A second accountant will be appointed to ensure proper separation of duties adequate for the FM arrangements.

50. World Bank funds will be disbursed through two Designated Accounts (DA) -one per trust fund- in US dollars.

MOF will open the DA accounts at the Bank of Palestine. The PWA will prepare a detailed quarterly budget (disbursement plan), according to which the ceiling of the DA will be defined. Disbursement methods will include advances, reimbursements, direct payments and special commitments. The project’s DA will be managed by the PWA, which will be responsible for making payments to contractors, consultants and suppliers, including the incremental and operating costs of the PMSU. The Resettlement Compensation costs approved by the Bank will be disbursed through a Dedicated Account (an account to be opened specifically to receive the compensation amount from the TFGWB DA from which to transfer directly to the affected persons) to be replenished from the TFGWB only.

51. Invoices from contractors will be subject to the international PIC review before being sent to the PMSU for

payment. The project’s supervising engineer will then conduct a site visit to also verify physical progress. Invoices will be entered into the government accounting system (“BISAN”) and will go through all government procedures and will either be wire transferred from the DA accounts or made by direct payment from the World Bank. The procedures are detailed in Annex 1.

52. The government accounting system (“BISAN”, which will capture all project-related transactions by component

and by each financier) will be used to record, report and monitor project accounts. PWA will produce IFRs on a quarterly basis and submit them to the Bank within 45 days after the end of each period. Project financial statements will be audited in accordance with international audit standards by an independent audit firm competitively selected and acceptable to the World Bank or by the State Audit and Administrative Control Bureau (SAACB). The Terms of Reference (ToR) must be acceptable to the Bank. The external auditor, using relevant technical specialists as needed, will also conduct an annual technical audit. The cost of the audit will be financed from the grant proceeds. The audited annual project financial statements will be publicly disclosed

16 Difference between average 90 liters per capita per day supplied and minimum of 60 liters per capita per day consumed is due to potential water losses in the system.


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on the Bank’s public domain.

(ii) Procurement

53. Procurement for the project will be carried out in accordance with the “World Bank Procurement Regulations for Investment Project Financing (IPF) Borrowers” dated July 2016, revised November 2017 and August 2018. The project will be carried out in accordance with the “Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants”, dated October 15, 2006 and revised in January 2011 and as of July 1, 2016.

54. PWA will have overall responsibility for procurement and contract management under the project, through the

PMSU. The PMSU will include two qualified procurement specialists, one in the West Bank and another in Gaza, both of whom will report to the PMSU Director, and will manage all aspects of project procurement. An updated procurement risk and capacity assessment of PWA was carried out by the Bank to identify potential risks and propose appropriate mitigation measures. At the country level, the enactment of the procurement law represents a substantial improvement to the legal and institutional framework for public procurement. However, several aspects of the law are still work in progress (e.g., the complaint mechanism) and the law is not in effect for procurement carried out in Gaza. Therefore, the World Bank Standard Procurement Documents and the procedures for administration of procurement-related complaints outlined in Annex III of the Procurement Regulations will apply to procurement of all activities financed under the project. The principal risks and risk management measures are outlined below.

55. The key procurement risks identified in the assessment include: delays caused by bureaucratic decision-making

processes; qualified international bidders being discouraged from participating and cost and time overruns during contract implementation because of the prevailing security conditions, particularly in Gaza, and the restrictions on access of goods and people; poor quality of bidding documents (e.g., incomplete technical designs, poorly defined scope of work and technical specifications, or unrealistic completion periods), unrealistic cost estimates and failure to complete requisite actions prior to contract award; unclear lines of accountability and coordination among various project stakeholders, including between the project team in the West Bank and in Gaza; weak PWA contract management capacity; and fragmentation in donor funding and inadequate supervision and oversight.

56. The following key measures were taken during project preparation and/or are included in the project design to

mitigate the above procurement risks: engineering designs/technical specifications, acceptable to the Bank, have been prepared for the works packages under Component 1; an international PIC will be mobilized to support PWA in the finalization of bid documents, evaluation of bids, and contract awards, as well as construction supervision and contract management; the PMSU will assign a technical lead/contract manager for each of the works packages and TA sub-components; TORs for the main technical assistance packages under Component 2 are drafted and the consultant selection process will be launched after project effectiveness; detailed procurement processing procedures are outlined in the draft PIM, with clear responsibilities and business standards for various steps; a Task Force was created and the PWA and COGAT agreed on special arrangements to ensure timely facilitation of material entry as well as monitoring arrangements; and technical audits will be commissioned, including regular site visits and inspection of completed works.

57. The project will finance goods, works, non-consulting services, consulting services, training, resettlement

compensation costs, and operating costs. In line with the World Bank Procurement Regulations, PWA prepared


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a draft Project Procurement Strategy for Development (PPSD), which outlines the most appropriate procurement arrangements for the project, based on a market and risk analysis. The PPSD and Procurement Plan for the first 18 months of the project were cleared by the Bank. During implementation, the Procurement Plan will be updated with the Bank’s approval, at least annually and as required, to reflect actual project implementation needs. PWA shall use the Bank’s Systematic Tracking of Exchanges in Procurement (STEP) system to prepare, clear, and update its procurement plan and document procurement transactions.

58. Procurement risk is rated Substantial. Detailed procurement arrangements are included in Annex 1.

C. Safeguards

(i) Environmental Safeguards

59. Environmental and Social Assessment. The project spans a large portion of south and middle Governorates of the Gaza Strip with multidimensional environmental, social, and contextual risks. The project has been assigned Environmental Category “A” which requires full environmental and social assessment in accordance to the Bank Policy on Environmental and Social Assessment (OP 4.01). PWA prepared an Environmental and Social Impact Assessment (ESIA) which covers the entire Gaza strip “Associated Works”, including the south and middle governorates covered by the scope of this operation. The ESIA was cleared by the Bank in May 2018 and was subsequently disclosed on February 21, 2019 on the Bank external website and on PWA’s website. Two stakeholders’ consultations were conducted by PWA as part of the preparation of the ESIA.

60. Environmental and social impacts are expected primarily during the construction phase of the project. They include noise, dust generation, air emissions, worker health and safety, increased traffic congestion, generation of solid and liquid wastes, and damage to proximal landscape and aesthetics. During operation, the rehabilitation of water wells will have a general positive impact, the reduced groundwater abstraction is expected to reduce the alarming salinity of groundwater and capture the decline in the health of the aquifer. However, if water abstraction is increased, negative impacts on the aquifer may occur and/or go beyond the Gaza portion of the aquifer.

61. The project will support the establishment of BWSU to operate and maintain the two existing STLVs and the

bulk supply infrastructure implemented under Component 1. Since these two STLVs were constructed prior to the Bank’s engagement, the Bank reviewed the two ESIA reports prepared for these two STLVs and determined that the reports were generally in accordance with the Bank safeguard policies. The ESIAs covered environmental and social impacts of construction and operation and proposed mitigation measures for these impacts. The main operational risks of the STLVs include seawater intake and brine disposal outlets and their impacts on marine habitats and species. The ESIA reports and field visits indicated that the seawater intake for both STLVs are beach wells with limited impact on marine environment. The brine disposal outlets for both STLVs are in the form of 100 meters offshore diffusers. The ESIA reports indicated that the brine volumes and mixing zones are of minimal impact to the marine environment. In addition, the ESIAs covered the potential negative impacts on the surrounding community as well as workers health and safety during the plants’ operation. Environmental and Social Management and Monitoring Plans were prepared as part of the ESIAs which were adequate to address the anticipated risks and impacts, however with inadequate operational performance to date. Since the two STLVs were already constructed, the Bank required PWA to carry out an operational audit to assess compliance of the two STLVs with their ESMPs prepared as part of the ESIAs. PWA hired an independent consultant who prepared an Environmental Audit for the operation of the two STLVs,


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including all environmental and social aspects identified in the ESIAs/ESMPs as well as per the Bank’s safeguard policies. The audit identified gaps in ESMP implementation at both plants. PWA prepared a time-bound Action Plan17 covering measures including, but not limited to, public and occupational health and safety. The Action Plan also determined the resources needed to implement each of the identified actions. The latter will be undertaken as part of the support provided for the O&M of the STLVs under sub-component 3.3 and PIM.

62. Climate co-benefits. The project addresses and responds to a vulnerable situation in which climate changes, in

particular rising temperatures and drought, are already apparent and will likely accelerate during the years to come, in both the West Bank and Gaza. In the last five years, the average annual rainfall in Gaza has decreased by 20-30 percent, and the average recharge volume has dropped by 10-20 percent. The increased demand and over-abstraction of groundwater (by an estimated 180 MCM a year) has led to increased salinity of the aquifer and most of the wells have salinity and nitrate levels above the WHO guidelines. This has led to decreasing availability and quality of the water, and the project will address this vulnerability, particularly in Gaza, thereby providing adaptation benefits, by assisting in providing bulk water of acceptable quality and quantity while at the same time contributing to a decrease in the pumping of the aquifer. The packages under Component 1 will increase the resilience to extreme heat and drought through the diversification of water sources, investments in water and wastewater infrastructure, better management and O&M of water and wastewater resources, and improvements in the quality of water and water services. These measures will enhance the beneficiaries’ resilience to climate change–exacerbated droughts and rising temperatures. Under conservative assumptions, the project will see estimated net emissions of 10,951 tCO2-eq over the economic lifetime of the project, with an annual average of 547 tCO2-eq per year. The gross emissions are 48,097 tCO2-eq. The project’s investments have several activities that lead to net emission reductions: in renewable energy sources (solar PV and hydroelectricity), expansion of gravity-based systems, reductions in leakages (NRW reduction) and reductions in groundwater pumping. The final three factors mentioned all yield energy efficiency gains. These four factors have a combined net emission of -28,327 tCO2-eq, representing a net reduction in emissions. Two factors were net emissive: the investments in the two STLV desalination plants are estimated to result in net emissions of 38,952 tCO2-eq, while the introduction of new reservoirs yield an estimated net emission of 325 tCO2-eq due to land use changes.

63. Safety of dams. The project includes the construction and rehabilitation of numerous water reservoirs in

different urban and rural locations for blending water supply from different sources. These are concrete structures with different shapes, heights, and capacities which do not fit the definition of the Bank Policy on Dam Safety (OP 4.37). Yet, the structural safety and integrity of those structures shall be assured via best industrial practices including the World Bank Environmental Health and Safety Guidelines.

64. Risks and risk mitigation measures. PWA confirmed that the Bank safeguards policies and instruments will be

applied to all project packages, including those financed by KFAED. Supervision protocols have been consulted and agreed with PWA and KFAED to ensure joint supervision missions and compliance of all packages to the Bank safeguards policies. The Bank will monitor closely the compliance with Bank safeguards policies during civil works construction as part of the implementation support missions and on a more frequent basis by the country office staff. Given the high contextual risks in the water sector in the West Bank and Gaza; the parallel financing by KFAED to two project packages; and the multidimensional social and environmental impacts in a densely populated area, the environmental risk is rated high.

17 Time-bound Action Plan for South and Deir Al Balah STLVs was prepared by PWA in October 2019 as part of the Environmental Audit. See Annex 4.


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(ii) Legal Safeguards

65. Projects on international waterways. The Bank Policy (OP7.50) is triggered for this project because the activities will involve the use of the Gaza aquifer which is hydrologically connected and part of the Coastal Aquifer which extends between Israel, Gaza (Palestinian Authority), and Egypt (see map in Annex 5). The rehabilitation and upgrading of 80 municipal groundwater wells in the middle and southern governorates of Gaza Strip, under Packages 1.3 and 1.4, include four wells near the border between Gaza and Egypt (1 km), which may draw from parts of the aquifer with direct hydrologic connectivity with Egypt.

66. PWA provided two groundwater model numerical simulations, done independently by two professional hydrogeologists, which have shown that: (i) the general direction of groundwater flow is from east to west towards the Mediterranean in the parts of the Aquifer in Egypt, Gaza (the Palestinian Authority), and Israel; (ii) the current (2019) net groundwater flow across the border between Israel and Gaza (the Palestinian Authority) in the southern part of Gaza Strip is close to zero, and (iii) the net groundwater flow across the border between Egypt and Gaza is in the range of 0.5 MCM annually. The two models also confirm that groundwater flow across the border will decrease gradually over time to approach a net zero flux between the years 2030-2035. This is due to the fact that the abstraction from the aquifer will drop from the current value of 33.1 MCM annually to a value of 18.65 MCM once project implementation is completed, i.e., 61 water wells are closed, and 80 wells are rehabilitated. The project activities will not adversely affect the quantity or quality of groundwater flows to other riparian countries in any significant way and will not be adversely affected by the other riparian’s possible water use. Therefore, an exception to the riparian notification requirement applies according to paragraph 7 (a) of the policy and was approved by Bank management on October 21, 2019. (iii) Social Safeguards

67. Activities under Component 1 will require some land acquisition and/or will have livelihood impacts. As a result, Bank Policy on Involuntary Resettlement (OP4.12) has been triggered and a RAP has been prepared. It was disclosed on the Bank’s external website on August 7, 2019, as well as on the PWA website on July 28, 2019. The RAP