Issyk-Kul Wastewater

Management Project -
Institutional Development and
Capacity Building Consulting

Inception report
Ref : IWMP/QCBS/SC-21/002

July 2023 In partnership with

Version 4
1 lssyk Kul Wastewater management project - lnstitutional Development Consultant
lnception report of the lnstitutional Development and Capacity Building

DOCUMENT CONTROL

GENERAL INFORMATION1

Project lssyk Kul Wastewater management project - lnstitutional Development Consultant

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Document Title lnception report of the lnstitutional Development and Capacity Building Consdltant

..
RECIPIENT

Organization Position (e-mail)

Office Manager ([email protected])

PMO Director ([email protected])
IWMP PMO Bishkek Gender and lnstitutional Development Specialist ([email protected]) 18/07/2023
Procurement specialist ([email protected])
IWMP PMO Secretary/Translat'or ([email protected])

Karakol IWMP PIU in Karakol ([email protected]) 18/07/2023

Balykchy IWMP PIU in Balykchy ([email protected]) 18/07/2023

■
VERSIONS

Date Comments Author Verified Approved

March 10th-13th 2023 V1 - draft for comment CA, GG, MB, AJ, BM

2 April 6th, 2023 V2 CA, GG, MB, AJ, BM CH

3 May 12th, 2023 V3 CA, GG, MB, AJ BM CH

4 July 18th, 2023 V4 CA, GG, MB, AJ BM CH

1 This Report is strictly confidential and is addressed only to the recipient indicated above, who may share it with its advisors on
a non-reliance basis. No other person may rely on it for any purpose whatsoever. This report shall be confidential and become
and remain the absolute property of the Client {in compliance with articles 22 and 27 of the IDC main contract for the IWMP
project).
This Report has been prepared solely on the basis of (i) the data and documents referenced therein and {ii) the investigations and
analysis described within. Seureca cannot be held liable for incorrect or incomplete data made· available by third parties at the
time of the report that may materially impact the conclusions and recommendations. Seure application of

'g ·
the contents of this Report for any purpose other than for the purpose and objective

SEURECA (i) VEOLIA 18557 70 00

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July 2023.
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 Issyk Kul Wastewater management project - Institutional Development Consultant
Inception report of the Institutional Development and Capacity Building

TABLE OF CONTENTS

1 Project context and objectives ...................................................................................................... 8

1.1 IWMP ........................................................................................................................................... 8
1.2 Project area: Balykchy & Karakol ................................................................................................ 9
1.3 Project Stakeholders ................................................................................................................... 9
1.3.1 Key stakeholders of the IWMP ........................................................................................... 9
1.3.2 Consultant team ...............................................................................................................10
1.4 Institutional Development and Capacity Building Inception ...................................................... 10
1.4.1 Inception mission .............................................................................................................. 10
1.4.2 Data collection .................................................................................................................. 11
1.5 Objective and content of this report ..........................................................................................12
2 Overview of Karakol Vodokanal .................................................................................................. 12
2.1 Institutional and legal context .................................................................................................... 13
2.2 Water Supply in Karakol ............................................................................................................ 18
2.2.1 Infrastructure .................................................................................................................... 18
2.2.2 Operations ........................................................................................................................ 20
2.3 Wastewater management in Karakol ........................................................................................ 22
2.3.1 Infrastructure .................................................................................................................... 22
2.3.2 Operations ........................................................................................................................ 24
2.4 Financial and Commercial processes in Karakol ...................................................................... 25
2.4.1 Customers ........................................................................................................................ 25
2.4.2 Financial operations .........................................................................................................27
2.4.3 Tariff calculation ............................................................................................................... 29
3 Overview of Balykchy Vodokanal................................................................................................ 30
3.1 Institutional and legal context .................................................................................................... 30
3.2 Water supply in Balykchy .......................................................................................................... 35
3.2.1 Infrastructure .................................................................................................................... 35
3.2.2 Operations ........................................................................................................................ 37
3.3 Wastewater management in Balykchy ...................................................................................... 39
3.3.1 Infrastructure .................................................................................................................... 39
3.3.2 Operations ........................................................................................................................ 41
3.4 Financial and Commercial processes ....................................................................................... 43
3.4.1 Customers ........................................................................................................................ 43
3.4.2 Financial operations .........................................................................................................44

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3.4.3 Tariff calculation ............................................................................................................... 46

4 Discussion and proposed approach ........................................................................................... 47
4.1 Key issues to be addressed by the IDC .................................................................................... 47
4.1.1 Corporate business plan and financial projections ........................................................... 47
4.1.2 Tariff roadmap .................................................................................................................. 48
4.1.3 Tariff methodology ............................................................................................................49
4.1.4 Non Revenu Water (NRW) ............................................................................................... 49
4.1.5 Geographic Information System (GIS) ............................................................................. 50
4.1.6 Septage Management ...................................................................................................... 50
4.1.7 Training plan ..................................................................................................................... 50
4.1.8 Other issues ..................................................................................................................... 51
4.1.9 Gender action plan ...........................................................................................................51
4.2 Workplan ................................................................................................................................... 52
4.2.1 Outline of the IDC support ................................................................................................ 52
4.2.2 Revision of the Work Plan ................................................................................................ 52
5 Conclusion and next steps .......................................................................................................... 62
6 APPENDIX ...................................................................................................................................... 63
6.1 Appendix 1 : List of vodokanal contacts provided during project kickoff meeting ..................... 63
6.2 Appendix 2 : Priority Data collection request (updated version based on inception) ................ 64
6.3 Appendix 3 : Revised workplan .................................................................................................65

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ACRONYMS

ADB Asian Development Bank

CAPEX Capital Expenditure

EM Electro-magnetic

GIS Geographic Information System

FST Final Settlement Tank

IFRS International Financial Reporting Standards

IWMP Issyk Kul Wastewater Management Project

IDC Institutional Development and Capacity Building Consultant

NRW Non Revenue Water

OPEX Operational Expenditure

WWTP Wastewater Treatment Plant

WWPS Wastewater Pumping Station

PST Primary Settlement Tank

ToR Terms of Reference

VK Vodokanal

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EXECUTIVE SUMMARY

In the frame of the IWMP, the IDC Consultant has started to gather information in order to perform a
transversal maturity assessment of the Karakol and Balykchy vodokanals. The first findings and
preliminary assessment are presented in this report, along with the IDC project objectives and revised
workplan designed to meet the objectives. The key points of this report are presented below:

WATER OPERATIONS

Thanks in particular to a high availability of resources, both Vodokanals are able to offer continuity of
service to their customers. Nevertheless, the culture of NRW reduction and preventive maintenance is
very slightly developed, and the tools, particularly in IT, are largely outdated. The project will therefore
endeavor to provide added value in the working methods and tools in order to improve the quality of
service and the operational performance of the Vodokanals.
The IDC Consultantproject team will propose solutions adapted to each Vodokanal, taking into account
their particular characteristics (production, metering, etc.) and a different organization in operations.

SEPTAGE AND WASTEWATER

Both of the existing wastewater treatment plants are out of service in terms of biological treatment.
However, the use of primary settlement tanks, final oxidation ponds and mixing with river water should
allow the vodokanals to use wastewater for agriculture irrigation and to avoid output of contaminated
water in surrounding rivers and lake.
Upcoming investments financed by ADB will include new primary sewers and a new Wastewater
treatment plants in both vodokanals.
The Operations could be improved to increase network maintenance with little additional resources
(main equipment investments needed would be a combined sewer cleaning truck in Karakol) .
The Septage management, which concerns approximately 62% of the population in Karakol and 56%
in Balykchy, is currently not controlled or financed in Karakol, while in Balykchy the vacuum trucks are
controlled (discharge point at the WWPS), and the population is charged for the service.

FINANCIAL SUSTAINABILITY

Today (per 2021 results), neither vodokanal covers their costs of operations (respectively 47.8 million
KGS in Karakol and 24.4 million KGS in Balykchy) nor their selling and administrative costs from the
tariffs. As a result, we observe that Balykchy vodokanal relies on subsidies (11.7 million KGS in 2021)
to maintain a positive net profit (3.5 million KGS), while Karakol suffers a persistent loss (6.7 million KGS
in 2021).
Although some operational costs efficiencies are reflected in the financial results (e.g. operational costs
have decreased by ~4 millions between 2020 and 2021 in Balykchy), the upcoming increase in
operational expenses with the works on water and wastewater networks and the development of
wastewater treatment plants pose a further threat to the financial sustainability of the vodokanals unless
tariffs can be increased to compensate for these higher costs, or subsidies are increased.

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The preliminary findings have shown that metering is unequal between the two vodokanals (almost
nonexistent in Karakol, covering half of the population in Balykchy) and that the vodokanals still rely
heavily on the application of the tariff norms per person, which could induce some errors in billing.
Additionally, it appears that both vodokanals are struggling to update tariffs regularly either due to
difficulties in calculating and applying for the tariff increase, or due to lack of approval by the relevant
authorities. The last tariff increase on water for domestic customers was in 2022 in Balykchy and 2021
for Karakol.

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1 PROJECT CONTEXT AND OBJECTIVES

1.1 IWMP
The Issyk-Kul Lake and surrounding region, located in the east of the Kyrgyz Republic, represents a
nationally valuable environmental, economic and cultural asset. The lake, world’s second largest high-
altitude lake and a well-known tourist destination, has over 100 rivers and streams feeding it and is part
of UNESCO's Issyk-Kul Biosphere Reserve.

Project scope

The Issyk-Kul Wastewater Management Project (IWMP) is a part of a long-term initiative of the Asian
Development Bank (ADB) to support environmental management and improve the provision of urban
services in the Issyk-Kul oblast. Its main objective is to improve access to drinking water and safe
sanitation for the cities of Balykchy and Karakol with 3 main outcomes:
1. Improvement of wastewater disposal and treatment
2. strengthening the institutional and service-oriented capacity of Vodokanal Enterprise
3. Improvement of septage management and increasing awareness of the consequences for
public health
The total budget of the IWMP project (loan and grant) is 41.82 million USD, where investments are
mainly focused on the Output 1 of the project.
This project of Institutional Development & Capacity Building aims at developing the outputs 2 and 3.

Financial impact of the project on the Vodokanals

The Consultant understands that the Vodokanals are not liable to the reimbursement of the ADB
loan (versus financial obligations in the frames of EBRD Project). Indeed,
● There is nothing in the loan agreement suggesting the liability for servicing the loan was passed
from the Ministry of Finance (on behalf of the government) to any other party including the
Vodokanals.
● The PMO head confirmed orally that the vodokanals have not entered into any other agreement
regarding the reimbursement of the loan.
However, the investments (new facilities and equipment) will increase operational costs (OPEX) related
to the operation of the new facilities and general improvement of services and performance of the
utilities.

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1.2 PROJECT AREA: BALYKCHY & KARAKOL

The map below presents the Issyk Kul lake and the location of the 2 cities targeted by this project:

Project area

1.3 PROJECT STAKEHOLDERS

1.3.1 KEY STAKEHOLDERS OF THE IWMP

The IWM Project is financed by the ADB and managed by the Executing Agency (EA): the Department
of Construction and Engineer Infrastructure (DCEI). The DCEI is under the State Agency for
Architecture, Construction, Housing and Communal Services, itself under the Cabinet of Ministers of the
Kyrgyz Republic.
The Beneficiaries of the IWM Project are the Vodokanals of Karakol and Balykchy, also called
Implementing Agencies (IA) according to the Loan Agreement between Kyrgyz Republic and Asian
Development Bank, Section 1.02. (c), (s), (j).
The Institutional Development and Capacity Building (IDC or the Consultant) reports to the Executing
Agency and works under the guidance of the IWMP Project Management Office (PMO). The IWMP PMO
includes the PMO Director, the Gender and Institutional Development Specialist, the Financial Manager,
the Procurement specialist.
In Balykchy and Karakol, the IDC works with the Project Implementation Offices (PIO) representing
Implementing Agency.

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In Balykchy the IDC office is established on the premises of the Vodokanal in accordance with the ToR.
In Karakol the IDC Consultant office was opened at the address city of Karakol, 21 Tynystanova str.,
office 24

1.3.2 CONSULTANT TEAM

Consultant team

1.4 INSTITUTIONAL DEVELOPMENT AND CAPACITY BUILDING INCEPTION

The Contract for the Institutional Development and Capacity Building Consultant (IDC) was signed
between Seureca and the Department of Construction and Engineer Infrastructure on the 26th of
January 2023.

1.4.1 INCEPTION MISSION

As soon as the Contract was signed, Seureca started mobilizing its team and experts in order to start
the Project early and meet the Project deadlines.
From the 20th to the 24th of February, a team composed of the key experts accompanied by non key
experts visited both Vodokanals, among them:
● The Area Manager and Contract Authorized Representative: Camille Hennequin
● The Team Leader (KE1): Bertrand Masure
● The Engineer in operation (KE2): Matthew Bullock

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● The Financial Analyst (KE3): Adrian Joliffle

● The Deputy TL: Constance Allegre
● The NRW expert: Guillaume Germier
● The Area Project Coordinator: Tatyana Klyuchko
● The Local Deputy Team Leader: Azamat Kasymov
● The Local Project Coordinator: Ulukbek Papanov
During the inception mission, the Consultant experts were introduced to both Vodokanals Management
& Operational teams, in particular the PIU representatives, the Vodokanal Directors, PTOs, Chief
Engineers, Heads of Accounts departments etc. The detailed list of Vodokanals representatives met is
presented in Appendix 1.
The Consultant team was in Karakol from the 20th to the 22nd of February and in Balykchy from the
22nd to the 24th of February.
The sites visited and the first findings from this mission are presented in the following chapters.

Presentation of first findings on Friday February 24th at Balykchy Vodokanal

1.4.2 DATA COLLECTION

Prior to the inception mission, the IDC Consultant provided a data request table to the PMO, to be
provided to the Vodokanals. During the inception mission, the IDC Consultant team proceeded to the
collection of available documents and information.
Based on the first exchanges with the Vodokanals, a revised data request with priority documents has
been assembled and is presented in Appendix 2.

The Consultant highlights the importance of collecting the documents presented in the revised data
request sheet. These documents include (but not limited to) :
● Information on networks, equipments, meters available or planned in the investments;
● Reporting on operations and maintenance activities ;
● Information on quantities of water billed to help design the NRW action plan and calculate the
water balance ;
● Information on the structuration of the Vodokanal (organisation, number of staff, etc.) ;
● Further information on procurements planned as part of the ADB and EBRD projects ;
● etc.

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1.5 OBJECTIVE AND CONTENT OF THIS REPORT

This Inception Report, prepared within the initial project phase, intends to describe Seureca’s (“the
Consultant”) understanding of its assignment following the preliminary meetings and data collected from
the Companies.
This Report :
● first provides the Companies with a detailed vision of how the Consultant team understands the
present context (Blykchy and Karakol being presented in independent chapters).
● then focuses on specific issues to be considered within the Project and it proposes an
optimisation of the work plan.
● ends by presenting the next steps and remaining key data to be collected for a successful
implementation of the Project
Recommendations for improvements will be further outlined in the next deliverables, i.e. the Report 1
and Report 2 including the different actions plans for the holistic maturity improvement of the Balykchy
and Karakol Vodokanals.
In the following sections, the Consultant presents the first findings as an output of the inception mission,
offering a preliminary holistic oversight of the utilities on technical, financial and institutional aspects.
NB : The boxes in the report follow the below color code :

Important point

Opportunity for improvement

Strong point of the vodokanal

2 OVERVIEW OF KARAKOL VODOKANAL

Karakol is the administrative capital of the Issyk-Kul region and the fourth largest city in Kyrgyzstan. The
city is distributed in 5 administrative districts and holds a population of approx. 87,000 hab (Karakol +
Pristan Przhevalsk population, January 2022).
Karakol Vodokanal serves the city and its surrounding villages: Chelpek, Zholgolot and Pristan
Przhevalsk and operates more than 300 km of water network and 110 km of wastewater network.
According to the staffing table, 174 people are foreseen in the staffing. However, the actual situation as
of March 10th 2023 is that the Vodokanal is composed of 167 staff. The difference appears as 7 positions
are vacant and the Vodokanal is searching for the specialists.
This section presents the initial findings, resulting from the inception mission and initial data collection,
around 4 main axes:
● Institutional and legal context
● Water system: Infrastructure and Operations
● Wastewater system: Infrastructure and Operation
● Financial and Commercial processes

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Map of Karakol and the sites visited during the inception mission

2.1 INSTITUTIONAL AND LEGAL CONTEXT

During the initial site visit, the Consultant had meetings with all available departments of Vodokanal,
including the Head of the Project Implementation Unit of the Company, Chief Accountant and Economist
and Head of HR department.

It shall be noted that legal issues were discussed with the HR specialist who is coordinating legal issues
as the company does not have a position of legal specialist,. The position of a lawyer is foreseen in the
staffing of the enterprise, but there is no specialist.
During the meeting with the administrative staff of Karakol Vodokanal, it was revealed that it is necessary
to conduct an inventory of internal local documents and develop missing ones, as well as adjust existing
ones that do not comply with the current regulations and the goals and policies of the Company.
The initial visit allowed to identify some key points to be analyzed further and which will require
assistance of the Consultant:
● the organizational structure of the Company was developed in 2015, and needs to be updated,
● implementing the HR policy at the Company,
● review of the Company Charter and its amendment, if necessary,
● development of job descriptions for each position,
● review of the existing Public Service Agreement (PSA) - the PSA was developed and signed by
the Mayor's office and the Vodokanal, but the Company requested to review and provide
recommendations if required,
● water use regulations to update,

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● structure of existing contracts with customers of the Vodokanal needs to be updated.

Considering all the collected documents, the Consultant will analyze in detail the work done by the
Company during the last years, analyzing all the existing positive and negative aspects, and will develop
an Action plan for institutional development within the framework of the current ADB financed Project.
The Consultant will review all available legal information obtained both from public sources and provided
by the vodokanals, as well as independently collected by the Consultant's staff. The Consultant will also
analyze Kyrgyz legislation in terms of national programs in the Kyrgyz Republic for development of
drinking water supply and sanitation systems in settlements, construction of water pipelines and
rehabilitation of centralized water supply and sanitation systems in settlements, as well as available
materials of legal topics in the field of attracting investments during 2015 - 2022 in the field of water
supply and sanitation prepared by international financial institutions.
All improvements in the institutional and legal environment in water supply and sanitation will be
developed in cooperation with representatives of Karakol vodokanal and PMO, taking into account the
best international experience and practices in the field of water supply and septage.

Normative legal acts regulating the work of the Municipal Enterprises of the Karakol Vodokanal
№ RLA Description

 Article 83 establishes the right of founders to the property of

organizations that own property on the basis of the right of economic
management or the right of operational management (one of them is
municipal enterprises).
 Article 84 regulates the legal capacity of a legal entity, including those
with the right of economic management and operational management
Civil Code of
(municipal enterprises);
1 the Kyrgyz
 Article 87 fixes the norms on the statutory documents of a legal entity,
Republic
including a municipal enterprise;
 Article 227 regulates the norms of municipal property law, which
includes municipal enterprises;
 Article 230 establishes the norms of the right of economic
management, municipal enterprises participating in the project have
property on the basis of the right of economic activity.

The Law regulates activities of local self-government bodies and municipal

enterprises created by them:
 Article 65 establishes the rights of local self-government bodies to
create municipal enterprises;
Law of the  Article 66 Municipal order, regulates the norms for the placement by
Kyrgyz the executive body of local self-government of the placement of a
Republic “On municipal order for the performance of work or the provision of services
local state aimed at resolving issues of local importance. The transfer of
administration execution of the municipal order is carried out under the contract. The
2
and local self- transfer of municipal property under a municipal order agreement is
government made with the consent of the local kenesh.
bodies”, dated Financing of the municipal order is carried out on the basis of an
October 20, agreement from the local budget or other sources not prohibited by the
2021 No. 123 legislation.
For services that are provided to the population as monopoly services
(water supply, sewerage, heating, and others), local governments have
the right to delegate certain powers to municipal enterprises, provided
that the control of the local government over tariffs is maintained.

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№ RLA Description

The Law regulates the financial and economic relations of local self-
Law of the government bodies of the city with state bodies, other local self-government
Kyrgyz bodies, legal entities and individuals, and also determines the procedure
Republic dated and principles formation and execution of the local budget and off-budget
September 25, funds of local governments:
2003 No. 215  Article 22 fixes the rights of local self-government bodies to create
3 “On the municipal enterprises;
financial and  Article 23. regulates the relationship between the local self-
economic government body and the municipal enterprise or joint-stock company
foundations of established by it;
local self-  Article 25 regulates the municipal order, which can be executed by a
government” municipal enterprise. The transfer of execution of the municipal order
is carried out under the contract.

Relations between the municipal enterprise and the Departments of the

State Tax Service and Social Payments:
4 Tax Code of KR
Regulated by the Tax Code of the Kyrgyz Republic, in terms of tax liabilities
and mandatory payments to the republican and local budgets.

Regulations on
setting prices
(tariffs) for
goods (works,
services) for the
entities
regulated by the This Regulations set the tariff setting procedures and agreement of the
5
state - tariffs calculations with the antimonopoly bodies
approved by the
Decree of the
Government of
the Kyrgyz
Republic No 83
of 18.02.2013.

Law of the
Kyrgyz
The Law defines the basic requirements of relations in the field of domestic
Republic, dated
6 drinking water supply to the population and ensuring the quality of drinking
March 25, 1999
water;
No. 33 “On
Drinking Water”

The Law establishes mandatory requirements for application and

implementation of requirements for objects of technical regulation.
The Law of the
 Article 1 establishes the objectives of the Technical Regulation "On the
Kyrgyz
safety of drinking water":
Republic dated
- protecting the health and life of people from the harmful
May 30, 2011
effects of pollutants contained in water intended for human
No. 34
7 consumption;
“Technical
- prevention of actions that mislead consumers when using
Regulations
drinking water.
“On the Safety
 Article 2 establishes the scope of the Technical Regulation and applies
of Drinking
to drinking water intended to meet the needs of the population, and
Water”
regulates the principles, responsibilities, procedures and
organizational measures to ensure the safety of drinking water. The

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№ RLA Description

effect of the Technical Regulations applies to legal entities and

individuals engaged in economic activities (industrial, agricultural and
other enterprises), operating water supply systems.
 Article 3 defines the objects of technical regulation, which include:
- drinking water located in drinking water supply systems
(centralized, non-centralized, autonomous, transport water
supply systems, general and house distribution systems);
- drinking water intended for human consumption and use in
food production;
- drinking water in tanks, dispensers and other containers
(barrels, buckets, flasks) intended for human consumption.

The Law of the Article 22-1, establishes the norms of sanitary and epidemiological welfare
Kyrgyz of the population.
8
Republic "On
Public Health"

 Sanitary and epidemiological rules and regulations "Sanitary and

epidemiological requirements for sanitary protection zones of water
supply sources and water pipelines for household and drinking
purposes", which establishes sanitary and epidemiological
requirements for the organization and use of sanitary protection zones
for water supply sources and water supply systems for household and
drinking purposes. These rules apply to designed, constructed,
reconstructed and operating sources of drinking water supply and
Decree of the
water supply systems for domestic and drinking purposes, regardless
Government of
of their subordination and ownership.
the Kyrgyz
 Sanitary and epidemiological rules and regulations "Sanitary and
Republic, dated
epidemiological requirements for systems of centralized domestic
January 31,
9 drinking water supply and drinking water pipelines, which set out the
2018 No. 68
requirements for systems of centralized domestic drinking water
“On approval of
supply and drinking water pipelines" and establish sanitary and
acts in the field
epidemiological requirements for systems of centralized economic and
of drinking
drinking water supply. These sanitary rules apply to designed,
water supply”
constructed, reconstructed and operating facilities for household and
drinking purposes, regardless of their subordination and ownership,
with the exception of facilities, the design, reconstruction and
construction of which began before the entry into force of these
sanitary rules.
 Sanitary and epidemiological rules and regulations "Sanitary and
epidemiological requirements for sources of non-centralized drinking
water supply of the population".

Law of the The Law defines the main provisions of technical regulation in the field of
Kyrgyz environmental safety and establishes general requirements for ensuring
Republic environmental safety in the design and implementation of activities at
“General economic and other activities for the processes of production, storage,
Technical transportation and disposal of products. According to clause 4, Appendix 2,
10 Regulations for a definition of the hazard category is given for economic and other activities
Ensuring that discharge wastewater.
Environmental
Safety in the
Kyrgyz
Republic”,

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№ RLA Description

dated May 8,
2009 No. 151

The Law of the The Law aims implementation of the rights of citizens to an ecological
Kyrgyz environment favorable for life and health, maintaining a unified ecological
Republic “On system biosphere territory "Ysyk-Kol" ("Issyk-Kul"), the importance of
water disposal protecting and preserving flora and fauna, as well as reducing the adverse
and treatment impact of wastewater on the environment, preventing pollution of the
facilities of the ecosystem of Lake Issyk-Kul, as a result of economic, commercial,
11
Ysyk-Kol” recreational and other activities related to the direct discharge of domestic
(“Issyk-Kul”) and other household wastewater into the Issyk-Kul lake, the entry and
biosphere seepage of a significant amount of polluted (not treated) domestic
territory, dated wastewater into surface, groundwater and Issyk-Kul lake.
August 17,
2020 No. 133

Decree of the
Government of
the Kyrgyz
Republic No.
The Decree regulates the protection of surface waters from pollution,
128 “On
clogging and depletion, when water users carry out various types of
Approval of the
economic activities that have or may have an adverse impact on the state
12 Rules for the
of surface waters, regardless of their organizational and legal form, and also
Protection of
regulate the procedure for implementing measures to protect surface
Surface Waters
waters.
of the Kyrgyz
Republic”,
dated March
14, 2016

Decrees and decisions of local self-government governing the activities of

municipal enterprises for the provision of drinking water and the reception
13 Local RLA
of wastewater, as well as the Charter of the enterprise, which sets out the
main goals and objectives of the municipal enterprise.

Among other things, the activities of the municipal companies (Balykchy and Karakol Vodokanals) are
regulated by other legal regulatory acts of the Kyrgyz Republic, as well as the Company Charters that
fix the main aims and objectives of the municipal company providing the water and wastewater services.

Public relations

All the public awareness activities at the Company are coordinated by the Head of PIU of the Vodokanal.
There is a public relations specialist (Khomenko Alyona), who is hired on a contractual basis.
Within the framework of the EBRD CDP component, the Karakol Vodokanal is implementing a public
information program. The PIU of the Vodokanal informed that there is an approved program for media
and public awareness and the activities are planned for 2023.
The Consultant has requested the Karakol Vodokanal to provide a public information program to plan
the public awareness program within the objectives of ADB assignment.

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2.2 WATER SUPPLY IN KARAKOL

2.2.1 INFRASTRUCTURE

General Layout of the water supply system

General Layoutof the Karakol water supply system

Production:

Currently there are 2 primary sources of surface water for Karakol:

● Kaska Suu: located more than 5 km upstream from the water treatment plant (WTP), the intake
structure was rebuilt in 2014 under the previous ADB financed project. A steel transmission
main conveys water from the intake to an up-flow roughing filter system in poor condition.
Through 2 and then 3 pipes after crossing a pressure break chamber, the water continues to
the WTP and/or the Hippodrome reservoir according to the turbidity, managed by valve
manipulations.
● Karakol: on the River Karakol, the intake has recently had some rough concrete placed to
improve water off-take in low flow periods. There are no controls to restrict the flow into the pond
which means that a larger volume than necessary enters the pond, increasing flow and reducing
settlement efficiency. The water in the pond has a greenish / grey hue. Previous visits and local
reports indicate that very high levels of turbidity are experienced between April and August.
From the pond the water discharges to an insulated transmission main and then enters an
elderly roughing filter. The design or internal condition of this chamber could not be verified but
it appears to have no effect as the water exits with a high silt load. From the filter chamber the
transmission continues above ground to the WTP inlet. The sedimentation tanks recommended
and constructed under the ADB financed project are not in service.

In addition to the surface water sources, there are groundwater sources which are used primarily to
substitute the main surface sources when network pressure is low or there is a deficit of water at the
network extremities. The boreholes are exploited using Russian submersible pumps and pump to local
reservoirs. Second lift pump stations are then used to pump to the network. It is not clear what
contribution these boreholes make to overall water production as there are no water meters installed.

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The condition of the boreholes and infrastructure (fencing, power supply) appears adequate but second
lift pump stations are generally in poor condition.

Kaska Suu, Karakol and Airport pumping station

The pumps characteristics of the boreholes are presented in the following table:

Water Treatment Plant (WTP):

The plant capacity is designed to be 18,000 m3/d with a daily maximum of 20,000 m3/d. At the time of
visit the inflow showing on the main SCADA was 688 m3/h (16,510 m3/d) with an outflow from the
reservoirs of 585 m3/hr. meter (turbidity was different in the SCADA and on the turbidimeter).

The plant is automated with a single control

panel SCADA system, and the plant can run in
automatic or manual mode, depending on the
turbidity levels. All valves are actuated. Flow,
turbidity and chlorine levels are monitored via
SCADA. It has been noted that the SCADA data
does not always match the local display on the
meter (turbidity was different in the SCADA and
on the turbidimeter). WTP SCADA

On entering the station, water enters a very small contact chamber where a dose of Alum and Chlorine
should be added. Immediately after this chamber the water enters a 3 train conventional rapid gravity
filter unit. The filtered water is discharged to 2 tanks from where water is distributed under gravity. There
is no secondary chlorination.

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It is reported that backwashing takes place currently every 72 hours, which is quite long. The operator
explained that he can switch to the manual mode when the turbidity increases and performs the
backwashing each 10 to 15 hours.

Distribution system:

The system has 2 main reservoirs: the 2 tanks at the WTP and the Hippodrome one. There is a third
reservoir in Parkavaia but it is currently bypassed.

The network is 130 km long according to the initial version of the GIS. Nevertheless it looks
underestimated, the GIS will be updated during the project.

2.2.2 OPERATIONS

Operations:

The dispatch department is staffed by 3 people who ensure during 12 working hours daily operation of
phones to receive reports of problems (such as low pressure, no water, water quality problems) from
consumers. The report is detailed in a log book and then communicated to the maintenance teams (one
main team, another dedicated to the blocks/multi-storeyed buildings). The requested team will then visit
and either fix the problem or call back to the office for further support / equipment /materials, etc. The
log books indicated most problems are solved within 1 day. There are a significant number of leaks
reported, as well as lack of water as detailed below (figures for January 2023):
● 28 leaks,
● 11 bursts,
● 69 interventions for no delivered service (mostly due to a frozen connection).

The dispatch department produces a monthly report in Word.

Maintenance:

There appears to be low levels of preventive maintenance other than the removal of silt from the Karakol
river pond. Most maintenance is reactionary based on reporting of problems by consumers. These
reports are communicated to the dispatch department.

Existing GIS and modeling:

The Vodokanal has a functioning GIS system based on an old Postgre database and QGIS front end
which has been customized to prevent access to many GIS features. The GIS is installed on a local
server (in the production manager office) which does not appear to be backed up to a remote location.

The GIS is used only by the production manager to

reflect changes in the network but no facility exists
for network problem reporting asset management
analysis or similar ongoing overview of the network.
There is no interlinkage with any external
organisation and the Consultant was not able to
export the layers.

GIS presentation

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Network modeling was reportedly carried out by SECO. The former ADB financed project did not carry
out modeling activities. There is no record of the SECO model at the vodokanal.

Update:

The GIS of the Vodokanal has finally been exported successfully. It will be updated with the missing
projects of extension and verified by the IDC GIS expert (checking the topology, filling the missing
information as diameter, etc.).

The updated GIS will be the base to build the hydraulic model. The calibration will be basic due to the
lack of flow metering (Kaska Suu, boreholes pumping stations, customers, etc.) and pressure
measurements in the network. The software used for the modeling is Epanet, as suggested in the terms
of reference. It is internationally recognized, free and quite simple to use (important for the handover to
the vodokanals).

It is not planned in the contract to make additional field measurements.

Non-revenue water:

There is no existing system for the calculation of non-revenue water. The lack of customer meters means
that actual consumption is impossible to determine and therefore estimated consumption is derived
using local norms (number of people, floor area, car ownership etc). Actual water supplied is recorded
using the surface water meters but any contribution by the groundwater pumps cannot be measured
and is difficult to estimate.

The network in the city suffers from poor pressure control, leakage and high levels of wastage due to
taps being left open in the belief this prevents freezing in winter. In summer, there is a high level of water
use for gardens and irrigation which is not currently served by the separate irrigation system. The lack
of domestic meters means there is no incentive to either close taps in winter or reduce irrigation water
use in summer.

There is no active leakage control although some support for leak detection and localization was
provided in the previous SECO project.

Open tap in Parkavaia reservoir

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2.3 WASTEWATER MANAGEMENT IN KARAKOL

2.3.1 INFRASTRUCTURE

General Layout of the Karakol wastewater system

General Layout of the Karakol wastewater system

The current Karakol city wastewater network was built around 1980, in ceramic, asbestos-cement and
cast-iron materials. It covers the apartment block in the city, with a 110 km network. It works by gravity,
and ends with a 700 mm diameter pipe to the WWTP located in the valley of the Karakol river,
downstream of the city.
The WWTP is currently out of service, except one of the 3 primary settlement tanks (PST) and its sludge
extraction to one drying bed. The wastewater flows through the rest of the plant without any treatment.
It goes through a further radial settlement tank, then an outlet pond (1 out of 4), and then flows to a large
pond (1,5 Mm3) 3 km downstream where the wastewater is mixed with river water and stored during
winter to be used for irrigation during spring and summer. This way, there is no wastewater discharge
to the river, except a leak at the by-pass valve in the inlet chamber, but probably discharging to the 1st
outlet pond.

Inlet Channel at Karakol WWTP

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Another part of the Karakol wastewater system covers the Pristan network (apartment block in Pristan),
the wastewater being pumped to the WWTP through 3 WWPS in series (WWPS n°1 nearby the lake,
WWPS n°2 & n°3 on the way to the WWTP nearby the road access to Pristan). There is a 4th WWPS
at Prjevalsk quays (East side of Pristan) where an old industrial compound stands. This WWPS was
pumping the wastewater from the industrial compound and the local houses to the WWPS n°2. It is no
longer working and the residual flow is rather small (35 m3/day). The Karakol VK is working on a project
(ADB financed Project output 1(iii)) to install a receiving tank of 50 m3 to collect the houses' wastewater.
This tank will be emptied by vacuum trucks (also part of the ADB financed Project) which will deposit
the wastewater to WWPS n°2.

PRISTAN VILLAGE SPECIFIC RISK

Pristan village is located on the shore of the Issyk Kul lake, with a risk of direct pollution in case
of WWPS n°1 malfunctioning, and with a part of the village without any wastewater system.

The ADB financed Project output 1 will also provide:

● (i) The construction of the new WWTP (currently under detailed design - the preliminary design
has been produced by Bioworks).
● (ii) The construction of 24 km of new sewers. 12 km have been already built, but are not yet in
operation. 12 more km must be built. These new sewers are the primary network in the South-
East and West of the city (houses quarters).
● (iii) The modernization of 0.2 km effluent pipeline and 28 chambers of the main collector in
Karakol.
● (iv) The desludging of a reservoir (SSP - Sludge Settlement Pond) and oxidation ponds by
100,000 m3 of sludge and rehabilitation of the Karakol Irrigation Pumping Station.
● (v) The procurement of 4 sewage vacuum trucks.

SECONDARY NETWORK

The ADB financed project (output 1 (ii)) as shown by the vodokanal and the Karakol PIO doesn’t
include a secondary network. This secondary network can’t be at the cost of the consumers (only
the final connections). It will be at the cost of vodokanal/municipality, but this has to be planned
quickly, if not the current extensions (primary network) will bring only a little additional income.

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2.3.2 OPERATIONS

Wastewater operations are managed by the wastewater team

leader. The team has 11 people, the team leader, an engineer, a
secretary, 1 worker at the WWTP, 3 teams of 2 (1 worker and 1 driver
acting also as worker), and 1 additional worker for replacements
(illnesses and holidays).
1 team is operating from 8am to 5pm, 5 days per week (monday to
friday), with a utility van. It constitutes the 1st brigade.

Utility van
The second brigade is run using 2 teams on shifts: The first team works
one week from 8am to 8pm, and then rests for a week, while the 2nd
team is on shift. This 2nd brigade operates with their vacuum truck.

Vacuum truck
The wastewater team does not have any high pressure devices. They only use sucking (vacuum truck)
and manual sewer cleaning rods. This equipment doesn’t provide an efficient service and rags are not
collected, which means that downstream blockages can occur. In fact, the number of blockages is very
high, between 5 and 6 per day, 150 to 200 per month, around 2.000 per year. For 110 km of sewer, the
blockage ratio is 18 blockages/km/year, while the industry best practices levels in Europe are between
0.5 and 3 blockages/km/year. There is no preventive cleaning of the sewage network, because of lack
of equipment. These very limited equipment lead to sewer “repair”, involving digging out the pipe, when
the team does not succeed to unblock the sewer. They perform 3 to 5 “damage repairs” per month.
When the problem is large, the 2 brigades join their forces, and can be mobilized also at night if required.

SEWERS CLEANING

We advise the Karakol vodokanal to purchase a combined sewer cleaning truck, to be able to
deal faster with blockages, and reduce their number by collecting the rags during unblocking. A
preventive cleaning plan should also be formed. International Best Practices (Veolia worldwide
and french water industry) stand that 20% preventive cleaning of the network should be sufficient
on average if well prioritized (using GIS). The Vodokanal told us that the purchase of the
equipment and trucks was planned.

SMALL INVESTMENTS PLAN ON SEWER NETWORK

The wastewater team leader each year produces a list of small investments required for the
following year, which is validated by the director. The 2023 list includes 10 operations (~40
manholes repairs, and ~600 meters replaced), which is quite a good level of pipe replacement and
a good practice, all being executed by the own wastewater team with the support of the excavator.

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The operation of the Pristan wastewater system is delivered by the local manager which was not met
during the inception mission.
Septage management: One manhole on the network has been identified for septic sludge discharges
by the approx. 4 private trucks operating on septage, and for Vodokanal's vacuum truck. We have not
seen any trace of activities on that manhole. There is no Vodokanal control on that manhole, and
probably the trucks discharge elsewhere, hopefully on the sewage network and not in nature. There is
currently no contract between Vodokanal and the private companies, and neither any payment.
Negotiations are underway to conclude contracts with private individuals pumping septic sludge in
Karakol for the 2023 season.

2.4 FINANCIAL AND COMMERCIAL PROCESSES IN KARAKOL

2.4.1 CUSTOMERS

Water service
The Karakol vodokanal currently serves 19,368 domestic customers for water services, covering 48,165
inhabitants according to the database (2.48 inhabitants/household on average). The majority of
domestic customers have individual connections (only ~50 street taps, see detail below).
In addition to domestic customers, the Vodokanal serves 1,044 legal entities (or organizations).

Table : Split of customers from Karakol Vodokanal by category of water service (Source : Database
extraction “ВОДА 31.12.2022г. инв”.)

Category of water service (Domestic customers) %

Households with connections to the water, wastewater and district heating networks 8%

Households with connections to the water and wastewater networks 22%

Households with connections only to the water network 67%

Street standpipes 2%

Yard standpipes 0%

Metered connections in the town 1%

Metered connections to customers in Pristan 0%

NB : It is unclear which of these households have access to wastewater.

Wastewater service
7,427 customers are provided with wastewater services, accounting for 15,149 inhabitants according to
the database. We assume all these customers are also serviced in Water and included in the above
19,368 domestic water customers, but this should be confirmed by the Vodokanal as it does not appear
to be the case in the database extraction.
NB : The number of inhabitants registered in the database appears to be low (2 inhabitants/household
on average according to the database) compared to the national average of 4.4 inhabitants/household
(According to the National Statistical Committee of the Kyrgyz Republic).

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Table: Estimation of the population potentially depending on septage management in Karakol (Source
: Extraction of the system : “СТОКИ 31.12.2022г”. инв.)

Percentage of
Number of customers
population

Access to [Water +
7,427 38%
Wastewater] service

Access to [Water]
11,941 62%
service

Total customers
19,368 100%
(Serviced with water)

Meters
The majority of customers do not have water meters. According to the Vodokanal, there are 400 to 600
meters currently deployed but the metering does not appear to be controlled or systematic. Indeed,
meter readings rely mostly on a declarative basis (customers providing meter reading by mobile phone
messaging or through a visit with limited control over the frequency and accuracy of these readings).
The company does not have a reliable map of the location of the meters nor monitor their condition on
a regular basis.

Tariff applied
As a result of the status on metering deployment, most customers are billed according to the norm
(estimation of water consumption per inhabitant) and the number of inhabitants per household. The main
usage norms in operation are as follows:

Table : Water consumption and tariff norms applied in Karakol

Consumption
Tariff (KGS/year/person)
(m3/year/person)
Karakol
Water Wastewater Water Wastewater Total

‘New’ apartment with

67.11 76.75 393.26 225.65 618.91
District heating

‘New’ apartment
without District 60.23 60.23 352.95 117.08 470.03
heating

Individual house
36.5 NA 213.89 NA 213.89
without WW service

Yard pipe 21.9 NA 128.33 NA 128.33

Street pipe 12.78 NA 74.89 NA 74.89

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According to the database, the average household is composed of 2 to 2.5 inhabitants (respectively
from water and wastewater data) which is lower than the average for Kyrgyzstan (4,4
inhabitants/household according to the National Statistical Committee of the Kyrgyz Republic) bringing
into question the accuracy of the database.
It is also surprising to see that the customer database presents only 48,165 inhabitants supplied with
water when the population of Karakol city is 87,000 and when the water coverage area is reported to be
very good.
Norms provide a better basis of estimation than no norms at all but are no substitute for the metered
measurement of actual water consumption. Reliance on norms when alternatives are available supports
(conceals) operational inefficiency and potentially the misuse of natural resources.

Collection
The cash collection rate calculated from the 2022 billing system extraction is 95.7% for domestic
customers and 100% for legal entities (detail below). However, this collection rate does not not reflect
accurately the proportion of bills settled in the same period as it also includes customers’ advance
payments and amounts to pay off debts from previous periods.

Table: Collection rate calculation for the Karakol Vodokanal in 2022

2022 Billed Paid Collection rate

Domestic 30,045,812 28,746,789 95.7%

Organizations 23,130,403 23,200,413 100%

2.4.2 FINANCIAL OPERATIONS

Overview
The financial management function is headed by a Chief Accountant and Chief Economist. The Chief
Accountant is responsible for the production of financial reports from the accounting system including
annual financial statements. He is also responsible for finalizing the sales figures for the month. The
Economist performs various management accounting tasks including forecasting and internal reporting
on costs. Revenues tend not to be combined with costs in regular reporting although they are compared
for tariff computations.
The current accounting and billing platform is the software system “BIS” (software name to be confirmed)
but such is the dissatisfaction with this system’s functionality that the company is in the process of
switching to the widely supported and more configurable “1C” platform.
The ADB financed the production of IFRS-compliant audited financial statements for the years 2019 -
2021. The statements for 2020 were presented as comparatives for the 2021 financial statements. The
2019 financial statements received an adverse audit opinion and the 2020 and 2021 statements were
qualified by the auditors in respect of a number of issues.

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Financial performance
The financial results of the company for the period 2019 - 2021 based on the audited financial statements
prepared in accordance with IFRS are as follows:

Table : Main financial results of the Karakol vodokanal

Figures in KGS’000 2019 2020 2021

Revenue TBC 34,659 46,123

Cost of sales* TBC 39,486* 47,864

Gross Profit TBC (4,827) (1,741)

Selling costs TBC 6,168 5,391

Administrative expenses TBC 10,420 9,852

Other income* TBC 557 10,243

Interest and commissions on EBRD loan TBC

State subsidies TBC

Exchange rate differences TBC

Net profit before tax TBC (20,858) (6,741)

From these results it is evident that revenues increased in 2021 following a 60% rise in tariffs for water
and wastewater for domestic customers only. Gross production costs were better managed in 2021 and
the subsidy from the municipality was increased in that year. Nevertheless, even with that higher cash
subsidy the tariff increase was insufficient to avoid an overall net loss for the year 2021. It should be
emphasized that the municipality had planned for the tariff increase to be insufficient to cover all relevant
operating costs being reluctant to increase tariffs beyond the percentage rise required under the EBRD
loan and grant agreements preceding the current ADB investment project.
The company does not have any long-term debt in its balance sheet and therefore does not currently
incur financing costs. Neither is it intended that the company will be required to service the debt received
from ADB under the current project.

Management letter
The auditors of the financial statements also set out their concerns about the company’s accounting
processes and internal controls in the form of a Management Letter. Management Letters are prepared
for those charged with governance to consider ways in which the processes and procedures behind the
production of financial statements can be improved.
The Management Letters drafted by the auditors Marka Audit contain numerous points of a technical
accounting nature, including examples of incorrect allocations of expenses in the accounting system or
miscalculations of transaction amounts. Most of the points found in the Management Letter for Karakol
vodokanal are more usually found in the audit working papers for resolution by the audit managers prior
to the signing off of the financial statements. The auditor’s recommendations based on the points raised
and the response of the company are recorded in tabular format as an attachment to the management
letter. Unusually, the auditor appears to advocate in the management letter accounting for water

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resources extracted by the company as a commodity. Such a treatment would be inconsistent with
current international accounting practice.
It was highlighted by ADB that the Management Letter points may not have been fully understood by
the Company since they appear not to have been heeded and is considering engaging another advisory
firm to explain to the Company how they should respond to the issues raised in Letter. However, it is
not axiomatic that all of the advice given in that letter is appropriate. In particular, it is not correct to
recommend to a water operating company to account for water resources as a commodity and to qualify
financial statements on the basis of incorrect accounting for cost of sales as is the case in the audit
opinion accompanying the 2021 audited financial statements.

Budgetary controls
The company’s economist does not produce a full income and expenditure budget nor issue updated
surplus or deficit forecasts on a regular basis.

Internal controls
The billing is managed by the Chief accountant (both the Water and Wastewater service are on the
same bill). The Chief Accountant is also responsible for preparing the company’s financial statements.
While the Economist should be in a position to provide an independent view of the company’s finances
in this case she takes her cost and revenue data from the financial accounting system managed by the
Chief Accountant. Therefore, according to current arrangements there is insufficient segregation of
duties between the accounts and sales staff which could undermine management control over the
quality and accuracy of sales accounting and reporting.

2.4.3 TARIFF CALCULATION

The current tariff applied is the following:

Water Wastewater

Tariff KGS/m3 5.86 2.94

Water and wastewater tariffs have been raised only twice in just over a decade: in 2012 and in 2021.
The municipal authorities have in the past imposed ceilings on domestic tariff increases (e.g. 60% in
2021). According to the 2021 financial statements the municipality paid a subsidy to the water company
to partially offset the deficit from operations.
The company’s cash flows related to its operation are not systematically forecast. The pervasive lack of
cash flow management renders the company blind to the consequences of failing to bill all users or, in
some periods, failing to collect cash from consumers when payments fall due. The company may rely
on help from the municipality to cover operational expenses in cases where the cash flow does not allow
to cover all expenses. Old thinking and practices from the past remain ingrained in current day practice.
The existing method of calculating the tariff borrows mostly from traditional practices focusing on the
main costs of supplying the service according to historical records flexed for the volume and price
changes anticipated in the following year in which the tariff will come into force. A margin is applied on
top of the total forecast cost base to arrive at a tariff per unit (m3) per type of customer. Where applicable
the tariff per customer type is adjusted to partially compensate for shortfalls in forecast revenue
occasioned by the ceilings imposed on domestic tariffs.
Balance sheet and cash flow items such as capital asset acquisitions, debt repayments and provisions
for expenses are not included in the company’s tariff computation. The 2017 relevant regulation on water
tariff computations (“On the procedure for pricing (tariffs) for water and wastewater utilities providing
population with drinking water and wastewater collection services”, No. 83) envisages the inclusion in

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the normative profit gross revenue of costs for development and modernisation of the utility (such as
capital equipment), other obligations such as reimbursement of a loan and other expenses not related
to the main activity (such as contingencies and provisions for future expenses including bad debt write
offs and exchange rate losses). None of these are currently considered for inclusion in the tariff
computation.

3 OVERVIEW OF BALYKCHY VODOKANAL

Balykchy is a city located at the western end of Lake Issyk-Kul. It has a population of approximately
51,500 inhabitants.
In conformity with the staff list the Comapny is composed of 84 employees. In fact, as of March 10,
2023 Vodokanal has 76 employees.
The Vodokanal operates about 175 km of water network and 64 km of wastewater network.

Map of Balyckhy and the sites visited during the inception mission

3.1 INSTITUTIONAL AND LEGAL CONTEXT

During the initial mission, the Consultant held meetings with all available departments of the Vodokanal.
The initial visit allowed to identify some key points to be reviewed further and which will require
assistance of the Consultant:
● revision of the existing Charter of the Company,
● Staff turnover: due to a high turnover of personnel, there is no continuity of knowledge in the
Company. Within the framework of the ADB and EBRD Projects, specialized equipment was
purchased for the Company and relevant training sessions were held. However, due to staff
turnover, trained staff left the Company and new employees do not know how to operate the
equipment.

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Considering the collected documents, the Consultant will review in detail the Company performance for
the last years, focusing on the existing positive and negative aspects, and will develop an Action plan
for institutional development within the framework of the current ADB financed Project.
The Consultant will analyze all available legal information obtained both from public sources and
provided by the Company, as well as independently collected by the Consultant's staff. The Consultant
will also review Kyrgyz legislation in terms of national programs for development of drinking water supply
and sanitation systems in settlements of the Kyrgyz Republic, construction of water pipelines and
rehabilitation of centralized water supply and sanitation systems in settlements of the Kyrgyz Republic,
as well as available materials of legal topics in the field of attracting investments in the Kyrgyz Republic
during 2015 - 2022 in the field of water supply and sanitation prepared by international financial
institutions.
All improvements in the institutional and legal environment in water supply and sanitation will be
developed in cooperation with representatives of water companies of Balykchy city and PMO, taking
into account the best international experience and practices in the field of water supply and sanitation.

Normative legal acts regulating the work of the Municipal Enterprises of the Balykchy and
Karakol Vodokanals
№ RLA Description

 Article 83 establishes the right of founders to the property of

organizations that own property on the basis of the right of
economic management or the right of operational
management (one of them is municipal enterprises).
 Article 84 regulates the legal capacity of a legal entity,
including those with the right of economic management and
operational management (municipal enterprises);
Civil Code of the
1  Article 87 fixes the norms on the statutory documents of a
Kyrgyz Republic
legal entity, including a municipal enterprise;
 Article 227 regulates the norms of municipal property law,
which includes municipal enterprises;
 Article 230 establishes the norms of the right of economic
management, municipal enterprises participating in the
project have property on the basis of the right of economic
activity.

The Law regulates activities of local self-government bodies and

municipal enterprises created by them:
 Article 65 establishes the rights of local self-government
bodies to create municipal enterprises;
 Article 66 Municipal order, regulates the norms for the
placement by the executive body of local self-government of
the placement of a municipal order for the performance of
Law of the Kyrgyz
work or the provision of services aimed at resolving issues of
Republic “On local
local importance. The transfer of execution of the municipal
state administration
order is carried out under the contract. The transfer of
2 and local self-
municipal property under a municipal order agreement is
government bodies”,
made with the consent of the local kenesh.
dated October 20,
Financing of the municipal order is carried out on the basis of an
2021 No. 123
agreement from the local budget or other sources not prohibited
by the legislation.
For services that are provided to the population as monopoly
services (water supply, sewerage, heating, and others), local
governments have the right to delegate certain powers to
municipal enterprises, provided that the control of the local
government over tariffs is maintained.

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№ RLA Description

The Law regulates the financial and economic relations of local self-
government bodies of the city with state bodies, other local self-
government bodies, legal entities and individuals, and also
Law of the Kyrgyz determines the procedure and principles formation and execution of
Republic dated the local budget and off-budget funds of local governments:
September 25, 2003
 Article 22 fixes the rights of local self-government bodies to
No. 215 “On the
3 create municipal enterprises;
financial and
 Article 23. regulates the relationship between the local self-
economic foundations
government body and the municipal enterprise or joint-stock
of local self-
company established by it;
government”
 Article 25 regulates the municipal order, which can be
executed by a municipal enterprise. The transfer of execution
of the municipal order is carried out under the contract.

Relations between the municipal enterprise and the Departments of

the State Tax Service and Social Payments:
4 Tax Code of KR Regulated by the Tax Code of the Kyrgyz Republic, in terms of tax
liabilities and mandatory payments to the republican and local
budgets.

Regulations on setting
prices (tariffs) for
goods (works,
services) for the
entities regulated by This Regulations set the tariff setting procedures and agreement of
5
the state - approved the tariffs calculations with the antimonopoly bodies
by the Decree of the
Government of the
Kyrgyz Republic No
83 of 18.02.2013.

Law of the Kyrgyz

Republic, dated The Law defines the basic requirements of relations in the field of
6 March 25, 1999 No. domestic drinking water supply to the population and ensuring the
33 “On Drinking quality of drinking water;
Water”

The Law establishes mandatory requirements for application and

implementation of requirements for objects of technical regulation.
 Article 1 establishes the objectives of the Technical
Regulation "On the safety of drinking water":
- protecting the health and life of people from the
harmful effects of pollutants contained in water
The Law of the intended for human consumption;
Kyrgyz Republic - prevention of actions that mislead consumers when
dated May 30, 2011 using drinking water.
7 No. 34 “Technical  Article 2 establishes the scope of the Technical Regulation
Regulations “On the and applies to drinking water intended to meet the needs of
Safety of Drinking the population, and regulates the principles, responsibilities,
Water” procedures and organizational measures to ensure the
safety of drinking water. The effect of the Technical
Regulations applies to legal entities and individuals engaged
in economic activities (industrial, agricultural and other
enterprises), operating water supply systems.
 Article 3 defines the objects of technical regulation, which
include:

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№ RLA Description

- drinking water located in drinking water supply

systems (centralized, non-centralized, autonomous,
transport water supply systems, general and house
distribution systems);
- drinking water intended for human consumption and
use in food production;
- drinking water in tanks, dispensers and other
containers (barrels, buckets, flasks) intended for
human consumption.

The Law of the

Article 22-1, establishes the norms of sanitary and epidemiological
8 Kyrgyz Republic "On
welfare of the population.
Public Health"

 Sanitary and epidemiological rules and regulations "Sanitary

and epidemiological requirements for sanitary protection
zones of water supply sources and water pipelines for
household and drinking purposes", which establishes
sanitary and epidemiological requirements for the
organization and use of sanitary protection zones for water
supply sources and water supply systems for household and
drinking purposes. These rules apply to designed,
constructed, reconstructed and operating sources of drinking
water supply and water supply systems for domestic and
Decree of the drinking purposes, regardless of their subordination and
Government of the ownership.
Kyrgyz Republic,  Sanitary and epidemiological rules and regulations "Sanitary
dated January 31, and epidemiological requirements for systems of centralized
9
2018 No. 68 “On domestic drinking water supply and drinking water pipelines,
approval of acts in the which set out the requirements for systems of centralized
field of drinking water domestic drinking water supply and drinking water pipelines"
supply” and establish sanitary and epidemiological requirements for
systems of centralized economic and drinking water supply.
These sanitary rules apply to designed, constructed,
reconstructed and operating facilities for household and
drinking purposes, regardless of their subordination and
ownership, with the exception of facilities, the design,
reconstruction and construction of which began before the
entry into force of these sanitary rules.
 Sanitary and epidemiological rules and regulations "Sanitary
and epidemiological requirements for sources of non-
centralized drinking water supply of the population".

Law of the Kyrgyz

The Law defines the main provisions of technical regulation in the
Republic “General
field of environmental safety and establishes general requirements
Technical Regulations
for ensuring environmental safety in the design and implementation
for Ensuring
10 of activities at economic and other activities for the processes of
Environmental Safety
production, storage, transportation and disposal of products.
in the Kyrgyz
According to clause 4, Appendix 2, a definition of the hazard category
Republic”, dated May
is given for economic and other activities that discharge wastewater.
8, 2009 No. 151

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№ RLA Description

The Law aims implementation of the rights of citizens to an ecological

environment favorable for life and health, maintaining a unified
The Law of the
ecological system biosphere territory "Ysyk-Kol" ("Issyk-Kul"), the
Kyrgyz Republic “On
importance of protecting and preserving flora and fauna, as well as
water disposal and
reducing the adverse impact of wastewater on the environment,
treatment facilities of
11 preventing pollution of the ecosystem of Lake Issyk-Kul, as a result
the Ysyk-Kol” (“Issyk-
of economic, commercial, recreational and other activities related to
Kul”) biosphere
the direct discharge of domestic and other household wastewater into
territory, dated August
the Issyk-Kul lake, the entry and seepage of a significant amount of
17, 2020 No. 133
polluted (not treated) domestic wastewater into surface, groundwater
and Issyk-Kul lake.

Decree of the
Government of the
The Decree regulates the protection of surface waters from pollution,
Kyrgyz Republic No.
clogging and depletion, when water users carry out various types of
128 “On Approval of
economic activities that have or may have an adverse impact on the
12 the Rules for the
state of surface waters, regardless of their organizational and legal
Protection of Surface
form, and also regulate the procedure for implementing measures to
Waters of the Kyrgyz
protect surface waters.
Republic”, dated
March 14, 2016

Decrees and decisions of local self-government governing the

activities of municipal enterprises for the provision of drinking water
13 Local RLA and the reception of wastewater, as well as the Charter of the
enterprise, which sets out the main goals and objectives of the
municipal enterprise.

Among other things, the activities of the municipal companies (Balykchy and Karakol Vodokanals) are
regulated by other legal regulatory acts of the Kyrgyz Republic, as well as the Company Charters that
fix the main aims and objectives of the municipal company providing the water and wastewater services.

Public relations:
There is no PR specialist in the company. All the public awareness activities are coordinated by the
Head of the PIU of Balykchy Vodokanal.
Previously, under the EBRD Project the Company contracted “Grant Thornton” as a Consultant for CDP
(corporate development project). Grant Thornton's contract has been completed. Within the framework
of the CDP contract, Grant Thornton developed and implemented a public awareness program. However
Balykchy Vodokanal noted that the public awareness program results did not fully meet the Company's
initial expectations.
As part of the ADB assignment, the Consultant is going to review the plan of activities performed within
the framework of previously completed Projects in the Company and taking into account all pros and
cons previously encountered by the Company, the Consultant will develop a public awareness program
within the framework of the ADB assignment.

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3.2 WATER SUPPLY IN BALYKCHY

3.2.1 INFRASTRUCTURE

General Layout of the water supply system

General Layout of the Balykchy water supply system

Production:

Water Supply in Balykchy is primarily from groundwater sources, with a small contribution from a surface
water source:

● The main intake comprises 7 boreholes which pump to a local reservoir (reservoir 1).
● 8 other boreholes across the city complete the underground production. 7 have been
rehabilitated by the ADB financed project and 1 new borehole was drilled. All the boreholes are
connected directly to the network and are reportedly used when there is a water deficit in the
network, likely indicated by low pressure.

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Wellfield pumping station and borehole Kumtor (new)

● Finally, there is a surface water source to the North, at around 8 km from the city. This source
feeds directly the highest part of the city, and reservoir 3. The source is captured from a river
descending from the mountains and goes through 2 reservoirs, the first for primary settling and
the second for distribution. Before joining the distribution network and reservoir 3 there is a
break pressure tank.

Open surface source and break pressure tank

There is virtually no treatment of any water entering the network. Some rehabilitated or replaced
boreholes have basic chlorination systems and / or bactericide systems using UV lamps. No chlorination
system was operational at the time of visit.

Distribution system:

From reservoir 1, a 2nd lift pump station pumps water to the main reservoir at the vodokanal main site
in the city (Reservoir 2), and 2 other smaller reservoirs (called 4 & 5). From reservoir 2, another pump
station can lift water to reservoir 3, which serves the higher areas of the city. Currently reservoir 3
receives surface water from the source.

At reservoir 3, there is a pumping station in construction, with the objective of lifting water to the areas
currently feeded by the source, and then being able to abandon this resource. The pertinence of
abandoning this resource will be checked.

The network is 130 km long according to the existing GIS.

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3.2.2 OPERATIONS

Operations:

The dispatch department ensures 24/7 operation of phones to receive reports of problems (such as low
pressure, no water, water quality problems) from consumers. The report is not recorded but information
is communicated to the maintenance team. The team will then visit and either fix the problem or call
back to the office for further support / equipment /materials etc. Problems are summarized into a 6
monthly report.

The Vodokanal staff appear to be responsive to pressure data and switch on only those pumps which
are required to ensure continuity of service.

Maintenance:

There appears to be low levels of preventive maintenance. Most maintenance is reactionary based on
reporting of problems by consumers. These reports are communicated to the dispatch department.

Existing GIS and modeling:

The Vodokanal has a functioning GIS system based on an old Postgre database and QGIS front end
which has been customized to prevent access to many GIS features. The GIS is installed on a local
server (in the deputy director office) which does not appear to be backed up to a remote location.

The GIS is not updated to reflect changes in the network and no facility exists for network problem
reporting asset management analysis or similar ongoing overview of the network. A desire for the
dispatch department to have access to the GIS was mentioned by the deputy director.

Network modeling was carried out under the old ADB financed project but this was not institutionalized
and no local copy was found, no staff able to operate the model or software.

Update:

The GIS of the Vodokanal has finally been exported successfully, and the consultant confirms that it has
not been updated since its installation in the Vodokanal. It will be updated with the available information:
currently only the EBRD financed project of rehabilitation and extension (2020). The ADB financed
project (Kumtor Borehole and connection to the existing network) and the list of rehabilitations made
internally have been requested to the Vodokanal but not provided.

After this step, the GIS will be verified by the IDC GIS expert (checking the topology, filling the missing
information as diameter, etc.), but the GIS quality looks very good.

The updated GIS will be the base to build the hydraulic model. The calibration will be basic due to the
lack of flow metering (many flowmeters are not working anymore) and pressure measurements in the
network. The software used for the modeling is Epanet, as suggested in the terms of reference. It is
internationally recognized, free and quite simple to use (important for the handover to the vodokanals).

It is not planned in the contract to make additional field measurements

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Non-revenue water:

● DMA:

A beginning of NRW strategy has been developed under the previous ADB financed project.

The system has been subdivided into DMAs in

accordance with the ADB financed Project
recommendations and inter and intra DMA
meters were installed.

It is not clear if the DMAs are watertight

(hydraulically isolated). In some cases pipes
would have needed to be cut or valves installed
and this work remains to be verified.

DMAs theoretical map

In fact, it is reported that at least the main network (feeded by reservoir 2) is operated as one pressure
zone and then there is no consistent pressure management of the network.

● Metering:

Water meters with data loggers have been installed. There is a mix of mechanical meters with digital
readouts (mostly at boreholes at reservoirs) and battery powered electromagnetic (EM) meters in the
network.

Few of the meters are now working due to:

● Digital readouts have flat batteries,

● Mechanical meters have damaged
impellers (due to sand or other debris),
● EM meters have flat batteries.

Batteries can be fairly easily replaced in both

mechanical and EM meters. Damaged
impellers need to be investigated.
Meter battery checking

Nevertheless, most of the meters were running until at least 2019 and this may have provided sufficient
data to allow better network operations.

Most of the data loggers do not have the pressure transducer connected. The loggers are also likely to
have flat batteries. It was not possible to determine if data was captured as the download cable (to
connect loggers to a computer) could not be found.

Customer metering: Domestic water meters have been installed in over 50% of connections. Staff has
reported that water demand has significantly reduced following water meter installation (but without
figures to justify).

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● Leak detection:

The Vodokanal has a full equipment for leak detection in its warehouse but they never used it
(acoustic - leak noise - correlator, ultrasonic flowmeter, pipe
detector, ground microphone / listening stick etc.). The staff who
received the training under the previous ADB financed project
left the company quickly after.

Leak detection equipment

● NRW calculation:

There is an existing system for the calculation of non-revenue water although this is based on norms
and estimates and is not compliant with an internationally recognised method. For many consumers the
lack of meters means that actual consumption is impossible to determine and therefore estimated
consumption is derived using local norms (number people, floor area, car ownership etc). The method
currently used determines some form of loss value using the total production less allowances for fire
flow, meter inaccuracy and domestic usage. There is no reference to the actual amount of water sold
(volumetric or monetary). Given the lack of working meters, the production volumes should also be
treated with some caution.

There is no active leakage monitoring, detection or control in evidence although staff expressed their
understanding and willingness to improve these activities.

3.3 WASTEWATER MANAGEMENT IN BALYKCHY

3.3.1 INFRASTRUCTURE

General Layout of the Balylchy wastewater system

General Layout of the Balykchy wastewater system

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Network
The current Balykchy wastewater network was built around 1985. It covers the apartment blocks in the
city, with a 64 km network. It works by gravity down to a central WWPS nearby the lake, and then the
wastewater is pumped with two 500 mm diameter PEHD pipes to the WWTP located nearby the road to
Bishkek (5,7 km from WWPS n°1).

Pumping station (PS)

The WWPS n°1 was rehabilitated in 2016 with, among other things, the construction of a 2,000 m3
emergency tank where all the flow arrives before entering the WWPS well. This emergency tank can be
by-passed for cleaning, but has never been cleaned since its construction. There is no mixing system a
priori. We strongly recommend cleaning this tank regularly to remove any sediment (grit, sludge, etc.).

SEPTAGE MANAGEMENT
The 1st manhole inside the perimeter of the WWPS is equipped with a screening basket and is
used for septage truck discharge. There are currently 6 septic tank vacuum trucks (3 m3) operating
in the city (3 private, 2 vodokanal and 1 municipal). They all discharge at the WWPS through a
contract (except for the vodokanal’s truck). They buy vouchers at Vodokanal to be authorized by
the WWPS operator to discharge (around 75 to 80 KGS/truck). The contract specifies the obligation
to come and discharge at the WWPS. If there is discharge anywhere else, a fine is provided for in
the contract at 100 times the normal cost. It is dissuasive and non-authorized discharges are
reported to never happen.

The second manhole before the emergency tank is equipped with a screen from which rags are removed
manually. The entry at the wet well of the WWPS is equipped with another screen and a chewer. It is
not clear if the 2 equipments are in series or in parallel. The screen doesn’t seem to be used much.
The WWPS has 4 grundfos pumps installed in the dry well. Their flow is 250 m3/h with around 20 m
head. Only one pump works at a time. They are controlled by a level transmitter. The control levels are
1,25 m and 1,73 m. There is a possibility of reversed pressure water for mixing the well, but they don’t
seem to be used. We noticed some vibration and noise which could be a cavitation issue. This should
be investigated in order to avoid premature damage on the pumps.

WWPS SECURITY
In addition to the existence of the 2,000 m3 emergency tank, and of the redundancy of 4 pumps,
the WWPS is connected to 2 mains lines on the electrical network, and will soon have an
emergency generator ready to substitute for the electrical network.

Wastewater treatment plant (WWTP)

The WWTP construction started in the 1980s but was stopped before works completion and thus it was
never fully commissioned (the biological treatment part of the WWTP was never completed).
The WWTP is currently out of service except one of the 3 Preliminary Settlement Tanks. The wastewater
flows through a concrete pipe without any further treatment, to a set of 6 ponds (1 being out of service
for several years). The wastewater is stored in the ponds during winter, to be used for irrigation during
spring and summer, by pumping the wastewater mixed with river water (Tchou river). When the
Consultant visited the pond, a direct discharge channel open to the Tchou river was observed at the
irrigation pumping station. If well managed, this system should avoid any wastewater discharge to the
river. It is important to note that the Tchou river flows down in the direction of Bishkek and Kazakhstan,
and does not flow into the Issyk Kul Lake.

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Oncoming ADB program

The ADP Project output 1 will also provide:
● (i) The construction of the new WWTP for 4.500 m3/day (currently under construction by China
Road through a design and build contract). The construction includes 2 inlet regulation tanks in
parallel, a coarse screen on the outlet of these tanks, an intermediate lift pumping station with
4 pumps, a fine screen, 2 grit removal chambers in parallel, a biological treatment using A2O
process (Anaerobic-anoxic-oxic method), 2 rectangular FSTs, and a final disinfection channel.

RECOVERY OF TREATED WASTEWATER

Even if currently the “treated” wastewater is used for irrigation without a tariff, considering the
high quality of treated wastewater achieved with such a WWTP (full process including carbone,
nitrogen and phosphorus removal, and final disinfection), we could think about establishing a
price for the use of this water for irrigation.

● (ii) The construction of 11 km of new sewers. These new sewers are the primary network in the
West of the city (houses quarters).
● (iv) The desludging of oxidation ponds nearby the Tchou river.
● (v) The procurement of 3 sewage vacuum trucks.

MASTER PLAN

There is a Master Plan for the wastewater services in Balykchy, with the objective of achieving
80% of water customers connected to wastewater. In the frame of this master plan, it will be
important to develop further projects with the secondary network to bring significant additional
revenue to the Balykchy VK. If not, the ADB financed project will not bring sufficient additional
revenues. Be careful that 4.200 m3/day capacity of the new WWTP corresponds to around
30.000 inhabitants, which is slightly below 80% of the population, which is the overall objective
for wastewater services coverage.

3.3.2 OPERATIONS

Wastewater operations are managed directly by the chief engineer with one brigade of 4 people (1 driver
+ 3 workers) operating with the new high pressure jetting (300 bars) combined vacuum sewer cleaning
truck 6x4 (2022). The team works from 8 am to 5 pm Monday to Friday. If there is an emergency, they
are called.

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New combined sewer cleaning truck in operation

The team deals with blockages and preventive cleaning. During summer (from March to November) they
perform around 15 to 20 unblockages a month (2 to 3/month during the 2 months of winter - December
to February), and between 200 and 300 meters/day of preventive cleaning. Their equipment allows a
high efficiency of unblockages (with rag removal). They carry out preventive cleaning upstream to
downstream systematically, with no prioritization.
The number of unblockages dropped down since they are operating with the new truck. In 2022, their
number was 611, and 448 in 2021. It seems to be less than 200 nowadays (with sewers preventive
cleaning), and at the level of best international practices (0,5 to 3 unclokages/km/year - 3 in Balykchy).

SEWER CLEANING

Considering the length of the network, the Vodokanal team could clean the whole sewage
network in less than 2 years. The international best practices stand around every 5 years on
average. There is some margin for optimization. They could sell services for septage, or for
external sewage networks (other vodokanals or non domestic customers).

The company seems to operate the 2 old vacuum trucks for septage services, but only occasionally for
public administrations. They could organize teams to exploit them in a more commercial way.

Old vacuum trucks

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They also have a high pressure truck no longer used. This small truck could be sold to a smaller
vodokanal.

Old high pressure jetting truck

The Vodokanal does not perform any formal analyses of their blockage removal, nor does it has any
small investment plan for resolution of “black-points”. However, the WW team does some small pipe
replacement operations in emergency situations (43 meters in total in 2022). They deliver these pipe
replacement jobs with the same team plus the excavator (and its driver).

3.4 FINANCIAL AND COMMERCIAL PROCESSES

3.4.1 CUSTOMERS

Water and wastewater service

The Balykchy Vodokanal currently serves 10,644 domestic customers for water services, covering
approximately 35,230 inhabitants (For metered customers, for which the number of people is not
registered in the database, we use the national average of 4.4 inhabitant/household).
Among these customers, 4,658 are provided with wastewater services, accounting for ~20,495
inhabitants according to the database (4.4 inhabitants/household on average in Kyrgyzstan)
Table : Estimation of the population potentially depending on septage management in Balykchy

Percentage of
Balykchy Number of customers
population

Access to Wastewater
4,658 44%
service

Septage 5,986 56%

Total customers
10,644 100%
(serviced with water)

In addition to domestic customers, the vodokanal serves organizations (or legal entities, both private or
public) which amount for ~25% of the billed water (as shown in the table below).
Table : Split of the water billed in 2022

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TOTAL billing 2022 (in m3) Water (71%) Wastewater (29%)

Domestic (75%) 1,370,100.216 338,930.202

Organizations (25%) 252,202.266 331,524.836

Metering

The deployment of meters has reached approximately 58% of domestic customers and the majority of
organizations. Out of the 7,200 meters deployed during the EBRD project (number to be confirmed),
6,127 meters are currently installed and registered in the database. Customers often have more than
one meter when living in apartments (one in the kitchen, one in the bathroom). In total, 3,908 customers
are currently billed based on meter readings and among them, 3,020 are served with both water and
wastewater service.
The controllers of the customer department read customer meters every month and provide them to the
head of the commercial department for billing computation. They perform a control check based on the
last meter reading to make sure that the meters are working properly.

Tariff applied
The tariff currently in operation are as follows:
Table : Tariff applied in Balykchy in 2022

Tariff applied in 2022 (KGS/m3) Water Wastewater

4.53
Domestic 9.6
planned increased in 2023 to 9.06

Organizations 30 25.49

Collection
The 2021 audited financial statements showed that the debtor repayment period (one of the key financial
covenants listed by the ADB Loan Agreement) was 60 days compared to the target set by the financial
covenants in the ADB loan and grant agreements for that year of less than 90 days.
In the end of 2022, the total debts accumulated for domestic customers amounted to 5,107,238.64 KGS,
which represents approximately 35% of the annual billed amount for domestic customers (14,688,285
KGS billed in 2022 to domestic customers for the water and wastewater service, according to the
extraction of the billing system).

3.4.2 FINANCIAL OPERATIONS

As with Karakol Vodokanal, the financial management function at Balykchy vodokanal is headed by a
Chief Accountant and Chief Economist. The Chief Accountant is responsible for the production of
financial reports from the accounting system including annual financial statements. The current
accounting and billing platform is the software system “1C”. Finance staff have a reasonable knowledge
of this programme but in general IT skills require improvement.
The ADB financed the production of IFRS-compliant audited financial statements for the years 2019 -
2021. The 2019 financial statements received an adverse audit opinion and the 2021 statements were
qualified by the auditors in respect of a number of issues. The basis for the audit qualification in 2021
was that water cost of sales was incorrectly calculated. This is, however, an invalid basis for an audit
qualification not least because it is based on the false premise that water resources should be
recognised as an asset in a water company’s balance sheet prepared under international financial
reporting standards.

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Qualification of Water as a GOOD or a SERVICE

Water in itself can be considered as a public good.

However, drinking water supply is a service (catchment, treatment, storage and distribution).
For more detail :
According to the Law on drinking water (dated March 25, 1999 No. 33)
1) Drinking water is the essence of life and activity of the population of the Kyrgyz Republic, has
strategic, practical and economic importance, is a commodity.
2) providing the population with drinking water is a service.
The tangible product of nature (water) is channeled to the user by man-made means. The whole
business of supplying water is captured by the English phrase 'a public good'. Yes, the good is the
water and the processing and channeling to the customer is the service but the whole activity is
deemed a public good.
From the accounting perspective there is no precedent for potable water from a natural source (i.e.
not in bottles for example) to be treated as a tangible 'good' i.e. as inventory.
Discussions about how to account for natural resources are currently being undertaken by financial
reporting experts but no outcome has yet been confirmed in terms of revisions to accounting
standards. The debate seems to be heading in the direction of agreeing that water from a natural
source that can be controlled by an entity (i.e. water in a reservoir or canal but not in a river) could be
recognised as an asset for resale (inventory). But it has not arrived at that point yet.
In conclusion, there is as yet no basis in international accounting standards to treat water as a good.
Nevertheless, in future it may become an issue if the accounting experts decide that entities have the
right to corral natural resources and include them in their financial statements.

Financial performance
The financial results of the company presented in accordance with IFRS are as follows:
Table : Main Financial figures of Balykchy vodokanal

Figures in KGS’000 2019 2020 2021

Revenue 23,868 25,785 25,064

Cost of sales (23,893) (28,910) (24,468)

Gross Profit (25) (3,125) (596)

Selling costs (7,439) (4,534) (2,568)

Administrative expenses (49,090) (5,652)

Other income 80

Interest and commissions on EBRD loan (1,973) (635) (565)

State subsidies 8,100 9,344 11,647

Exchange rate differences (148) (13 )

Net profit before tax (1,337) (48,188) 3,525

* including fines under business contracts in the amount of KGS 40,838. These fines were imposed by the
company’s electricity supplier for non-payment of bills and may be contested in court by the company.

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The above table summarises the results shown in the audited IFRS financial statements prepared by
the audit firm ‘Marka Audit’. From these figures it is clear that revenues did not increase significantly
over the three year period. In fact, there was a slight decrease in revenue from operations between 2020
and 2021. The company nevertheless posted a net profit before tax in 2021 by virtue of improved
operating cost control, avoidance of fines and an increase in subsidies paid to the company by the
municipality.

Management letter
The auditors of the financial statements also set out their concerns about the accounting processes and
internal controls in the company in the form of a management letter. Management Letters are prepared
for those charged with governance to consider ways in which the processes and procedures behind the
production of financial statements can be improved.
The management letters drafted by the auditors Marka Audit contain numerous points of a technical
accounting nature, including examples of incorrect allocations of expenses in the accounting system or
miscalculations of transaction amounts, many of which are more usually found in the audit working
papers for resolution by the audit managers prior to the signing off of the financial statements. The
auditor’s recommendations based on the points raised and the response of the company are recorded
in tabular format as an attachment to the management letter. Unusually, the auditor appears to advocate
in the management letter accounting for water resources extracted by the company as a commodity.
Such a treatment would be inconsistent with current international accounting practice.
It was highlighted by ADB that the management letter points may not have been fully understood by the
company since they appear not to have been heeded and is considering engaging another advisory firm
to explain to the company how they should respond to the issues raised in the letter. However, it is not
axiomatic that all of the advice given in that letter is appropriate. In particular, it is not correct to
recommend to a water operating company to account for water resources as a commodity and to qualify
financial statements on the basis of incorrect accounting for cost of sales as is the case in the audit
opinion accompanying the 2021 audited financial statements.

Budgetary controls
The company’s economist does not produce a full income and expenditure budget nor issue updated
surplus or deficit forecasts on a regular basis.

Internal controls
Customer billing is effectively controlled by the Chief Accountant although the head of the commercial
department is responsible for printing and distributing the individual bills. The Chief Accountant is also
responsible for preparing the company’s financial statements. While the Economist should be in a
position to provide an independent view of the company’s finances in this case she takes her cost and
revenue data from the financial accounting system managed by the Chief Accountant. Therefore,
according to current arrangements there is insufficient segregation of duties between the accounts and
sales staff which could undermine management control over the quality and accuracy of sales
accounting and reporting.

3.4.3 TARIFF CALCULATION

Water and wastewater tariffs have been raised several times in just over a decade. The municipality
pays a regular cash subsidy to the water company to partially plug any funding gap. As with Karakol,
Balykchy water company does not systematically forecast the cash flows related to its operations. The
pervasive lack of cash flow management renders the company blind to the consequences of failing to
bill all users or, in some periods, failing to collect cash from subscribers when payments fall due. An
agreement on the provision of public services has been drawn up with the Mayor's Office of Balykchy.
APS. Where it is said, the Contractor (Vodokanal) has the right to apply to the Customer (Mayor's Office)
with a claim for compensation for losses in the amount of expenses incurred. I.e. if the tariff does not

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correspond to the prime cost. At the same time, the mayor's office partially covers the difference in the
tariff. The received funds the BME "Vodokanal” uses strictly for its intended purposes, i.e. to pay current
bills for the used electric energy and to pay credit obligations. The enterprise's own funds are used for
the salary and other operating costs..
The existing method of calculating the tariff borrows mostly from traditional practices focusing on the
main costs of supplying the service according to historical records flexed for the volume and price
changes anticipated in the following year in which the tariff will come into force. A margin is applied on
top of the total forecast cost base to arrive at a tariff per unit (m3) per type of customer. Where applicable
the tariff per customer type is adjusted to partially compensate for shortfalls in forecast revenue
occasioned by the ceilings imposed on domestic tariffs. It is not clear whether fully accrued financing
costs (such as interest payments on foreign debt which does exist in the company’s balance sheet) are
also included in the cost-plus tariff calculation.
Balance sheet and cash flow items such as capital asset acquisitions, debt repayments and provisions
for expenses are not included in the company’s tariff computation. The 2017 draft of the relevant
regulation on water tariff computations (“On the procedure for pricing (tariffs) for water and wastewater
utilities providing population with drinking water and wastewater collection services”, No. 83) envisages
the inclusion in the normative profit gross revenue of costs for development and modernisation of the
utility (such as capital equipment), other obligations such as reimbursement of a loan and other
expenses not related to the main activity (such as contingencies and provisions for future expenses
including bad debt write offs and exchange rate losses). None of these are currently considered for
inclusion in the tariff computation.
NB : Balykchy staff informed that from April 1, 2023, the tariff for the population to receive wastewater
will be applied to increase by 100%.

4 DISCUSSION AND PROPOSED APPROACH

4.1 KEY ISSUES TO BE ADDRESSED BY THE IDC

In the following Section, the Consultant exposes his understanding of the main topics, as a result of its
review of the ToR and of the discussion with the PMO team and ADB representative on Monday
February 27th 2023. Programmes, approaches and a detailed action plan in conformity with the scope
of work defined in item 5 (XXI positions) will be explicated in further reports.

4.1.1 CORPORATE BUSINESS PLAN AND FINANCIAL PROJECTIONS

Reference to the Terms of Reference : 2. B. Scope of work, Section 5 items i) xv) xviii) xix) xx)
Experts responsible: Team leader (Bertrand Masure), Financial expert (Adrian Joliffe), NRW expert
(Matthew Bullock)
ADB pointed out that the Institutional Development Consultant (IDC) must work with a holistic approach
to support Vodokanals in their overall development.
The Corporate Business plan will be delivered in the form of an action plan separated into priority actions
on which the Consultant will provide support for the duration of the Project and suggests medium term
actions to be implemented by the Company outside of the IDC support.

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The objective of the Corporate business plan is to provide the utilities with a tailored strategy, adapted
to the specificities of each utility and based on an assessment of knowledge, technical capacity,
structuration of staff and processes, performance, and geographic context.  
The Corporate business plan explains where the overall business should be headed by identifying the
main issues to address for each main activity of the company and how to address them.
The program will include transversal actions including actions on the update of the commercial database
(item xv).
IDC will provide a time-bound action plan in improvement of the financial indicators of Vodokanals
related to the loan agreement including quantitative impact of each action to the particular financial
indicator and cost estimate, when it is possible to estimate for the implementation of each action (item
xviii).
Although the preliminary financial implications of the suggested actions will be presented in this first
Report (R1) the validation of the suggested action plan will be required before the submission of the
finalized financial projections which will be provided in Report 3. (item xix)
The financial projections will be accompanied by the calculation of financial and economic internal rate
of return of the project (item xx, provided in Report 6) and subsequent training sessions on financial and
economic assessment/reevaluation.
The Consultant has suggested to postpone the submission of Report #3 (containing the financial
projections) to allow time for review and validation of the Action Plan before the finalization of the
Financial Model.
Additionally, IDC will provide an assessment of the needs of Vodokanals in additional equipment, special
machinery, etc. to support operation and maintenance unit, as well as to prepare technical specifications
for them for the tender (item xvii).

Focus on the financial management in the Corporate Business plan:

The Consultant understands that some financial management improvements were achieved during the
previous phase of the Project. IFRS financial audits were carried out and an extensive list of points for
development were included in the auditor’s Management Letters. The PMO team is working on engaging
another audit firm to address some of these comments.
NB : Balykchy accounting team was informed that the audit company Mark Audit has extended the
contract for another three years.
However, on 2nd March 2023 the PMO team forwarded a list of additional requirements to the ToR
which not only covers issues arising from the Management Letters addressed to the Vodokanals but
also includes the support of the companies in the preparation of IFRS Financial Statements. The
Consultant suggests discussing these requirements further with the PMO in order to define the scope
of the financial management topics included in the Corporate Business plan while staying in line with
the initial ToR.
Indeed, the level of support provided by the Consultant on the financial and accounting issues will be
formulated in the frame of the Corporate business plan and training programme, based on the priorities
identified in the assessment.

4.1.2 TARIFF ROADMAP

Reference to the Terms of Reference : 2. B. Scope of work, Section 5 items ii) iii)
Experts responsible : Financial expert (Adrian Joliffe) and Local financial expert (Radion Diukov)
The Consultant will develop a tariff roadmap for both Vodokanals designed to identify a transition path
towards greater financial self-sufficiency. The roadmap will be linked to the recommended tariff
computation methodology which itself will be based on best practice and the relevant legislative
framework. The recommended measures in the tariff roadmap, including the timing and rate of tariff

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changes per customer type, will be fully aligned with the companies’ long-term financial projections that
are also a requirement of the ToR of this Project
The approval of the tariff roadmap by the municipalities and the preparation and approval of related tariff
increases will depend on the Vodokanals. The Consultant will not be held liable should the municipalities
decide not to approve the roadmap.
The tariff roadmap will be implemented through a continuous support of the Vodokanals aiming at
facilitating the approval of the 2024 tariffs in line with the tariff roadmap. If successful, the companies
would use the lessons learned from the 2024 increase to independently implement the tariff roadmap
outside the period of consultancy support.

4.1.3 TARIFF METHODOLOGY

Reference to the Terms of Reference : 2. B. Scope of work, Section 5 item iii)

Experts responsible : Financial expert (Adrian Joliffe) and Local financial expert (Radion Diukov)
The procedure for determining tariffs for water supply and sanitation services will be considered by the
CRC within the framework of the legislation of the Kyrgyz Republic.
According to the letter received from the PMO on 10/05/23, the Department of Drinking Water Supply
and Sewerage Development confirmed that the document requested by IDC the Decree No. 83, revised
in 2017. is the current Resolution of February 18, 2013 No. 83, as amended on January 20, 2017 No.
36.
A new version of the Regulations on the procedure for determining prices (tariffs) for goods (works,
services) of business entities regulated by the state has been developed and is under consideration by
the Cabinet of Ministers of the Kyrgyz Republic.
Based on the above mentioned, the PMO recommends to use the current version of the NLA, as well
as, to study other existing provisions on the formation of tariffs, in accordance with the ToR.
Comments on the current methodology will be included in the Tariff roadmap.
In case of changes in the NLA, the PMO is ready to consider and discuss the issue.

4.1.4 NON REVENU WATER (NRW)

Reference to the Terms of Reference : 2. B. Scope of work, Section 5 items iv), v)

Experts responsible: Team leader (Bertrand Masure), Financial expert (Adrian Joliffe), NRW experts
(Matthew Bullock, Guillaume Germier)

According to the Terms of Reference, the Consultant will start determining an initial water balance with
the available data, fitting as much as possible with internationally recognized methods. It will be a base
to analyze the level of water losses, physical and commercial. The Consultant will continue building a
program of NRW reduction adapted to the situation and equipment of each Vodokanal.

In parallel, the Consultant will build a hydraulic model, calibrated with the available data, creating an
additional tool to help the Operations team to make good decisions, particularly in pressure
management.

A first division of the network in several district metered areas will also be proposed by the Consultant.

The process will involve training and assistance all along the Project to ensure the good implementation
of the proposed Actions Plan.

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4.1.5 GEOGRAPHIC INFORMATION SYSTEM (GIS)

Reference to the Terms of Reference: 2. B. Scope of work, Section 5 item vi)

Experts responsible: NRW experts (Matthew Bullock, Guillaume Germier, Local team)
ADB pointed out the importance of integrating the GIS system in the operations of the Vodokanals.
In accordance with the Terms of Reference, the first task will consist in updating the GIS of each
Vodokanal. The as-built drawings of the extensions and replacement of pipes in the last 10 years will
be a key data to accomplish this task. Then a full review of the map will be led by the Consultant with
the Operating teams of the Vodokanals. GIS software QGIS (ver 3.28.5) will be used in this Project to
analyze, edit and prepare maps.
In a second step, the Consultant will implement the required tools and actions to make the GIS a
powerful software to help the Operations team in its daily activities (links with intervention reports,
preventive maintenance of the network, etc.).

4.1.6 SEPTAGE MANAGEMENT

Reference to the Terms of Reference: 2. B. Scope of work, Section 5 items ix, x)

Experts responsible : Team leader (Bertrand Masure) and Legal experts (local team)

During the inception mission, the Consultant has reviewed the organization of septage sludge collection
and discharge.

Holistic septage management also covers septic tanks construction controls (including specifications),
and periodic controls of existing septage tanks. It can also include compliance works campaigns of
septic tanks with public grants, managed by the Vodokanal.
Revision of the existing legislation will be the 1st step of this septage program elaboration.

4.1.7 TRAINING PLAN

Reference to the Terms of Reference : 2. B. Scope of work, Section 5 items vii) viii) xi) xii)
Experts responsible: All experts
The Consultant will develop a training plan in accordance with the Corporate Business plan actions. The
main objective of the training plan is to develop the human capacity of Vodokanals’ staff working on
water, sanitation, customer services, support and cross-functional processes.
Following the diagnosis phase and the missions of the IDC experts, training needs will emerge for the
short term (to ensure effective usage and operation of the new assets to be procured or built) and for
the long term (make the Vodokanals able to develop a training policy to ensure future continuous
improvement). These training programs will be detailed in a Training needs assessment (item vii) in
Report 2. The training plan will be conducted between validation of the training plan (i.e.June 2023) and
December 2023.
All training deployment techniques will be considered and proposed based upon the expected output:
Theoretical training as well as On-the-job training.
● Theoretical training : Theoretical knowledge serves as a basis before doing anything practically.
Some of the training will be performed by the international and national experts, and some
others will be directly provided by an international training centre (OiEau).
● On-the-job training : On-the-job training is a practical approach to acquire new competencies
and skills needed for a job in real training experience. Rather than showing employees
theoretical presentations, they learn about the job they are doing by cooperating (working side
by side) with the international counterparts.

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Additionally, IDC will propose an international approach on the training plan through :
● A twinning agreement with a utility within the framework of Veolia operations;
● An International training in collaboration with the International Office for Water (OiEau). The
certified courses will be provided either in Kyrgyzstan or OiEau Training Centre. OiEau core-
activities deal with the development of skills for better water management in France, in Europe
and worldwide. In the field of water and its related activities, OiEau facilitates exchanges
between the various decision-makers, designers, managers, industrialists, trainers, researchers
and users concerned, in order to better face together their problems, coordinate their actions
and disseminate their information. The minimum number of employees within international
training per each city is 6 people, half of whom shall be women.

4.1.8 OTHER ISSUES

Reference to the Terms of Reference : 2. B. Scope of work, Section 5 items xiii) xvi) and xxi)
Experts responsible : Institutional expert (Azamat Kasymov) and PR experts (Local team)
IDC will support in organizing public awareness and outreach programs through mass media on themes
agreed with the IAs; media coverage on hygiene, environmental sanitation and other relevant areas
based on a Gender Action Plan (GAP) and a Program to Ensure Public or Local Community Participation
with Stakeholders (PECPSH) (item xiii).
As part of item xvi) and in connection with the targeted measures of the Corporate business plan , IDC
will work with the Vodokanals and the relevant stakeholders (municipalities, legal entities, etc.) to
prepare/update legal acts with the aim of clarifying the corporate relations, empowerments, roles and
responsibilities for a smooth and efficient implementation of water supply services to the population and
other final customers. The legal acts considered in the frame of the project will include only those that
already exist and that shall be in the Vodokanals by local legislation, i.e.: Company Charter if it needs
to be updated, Public Service Agreement (PSA) with municipality, standard contracts with legal entities.
● The legal acts should provide the appropriate incentives for the Vodokanals and their
management to achieve the objectives set out in the legal act and hence include the following:
● Definition of tasks and responsibilities between the parties to the Agreement;
● Basis for the right of the Service Provider to use the physical infrastructure and their obligations
and responsibilities regarding its use, as well as maintenance and replacement of assets;
● Technical actions and corresponding Key Performance Indicators (KPIs) to improve water
supply/Wastewater services;
● Tariff implication.
● IDC will also identify appropriate monitoring mechanisms and tools for performance review and
contract monitoring by the City of Karakol and Balykchy.
IDC will provide support to the relevant body in circulating draft RLA with government bodies and
approving them by the Cabinet of Ministers of the Kyrgyz Republic (if necessary).
Additionnally, IDC will focus on exchanging with the involved organizations (EBRD consultants, etc.)
with the support of the PMO team in order to harmonize and not duplicate the consulting services
provided to vodokanals (item xxi).

4.1.9 GENDER ACTION PLAN

Reference to the Terms of Reference : 2. B. Scope of work, Section 5 items xiv)

Experts responsible : Institutional expert (Azamat Kasymov and local team)
The Consultant reviewed the IWMP Gender Action Plan with the PMO gender officer, and agreed to
provide support to the both Vodokanals in implementation of the GAP.

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The Action plan (according to the submitted form) of the IDC with regards to the GAP will be provided
in Report n°1 and reporting on GPA activities in accordance with the Work Plan. .
Inclusivity is critical to the success of all the tasks of this project from a gender perspective. arly in the
process, a gender approach will be initiated for the development of the Capacity Building Program, and
of the Public Awareness and Outreach Program.

4.2 WORKPLAN
In the following, the consultant will suggest a review of the Work Plan and schedule of deliverables,
based on the comments above.

4.2.1 OUTLINE OF THE IDC SUPPORT

In the Technical offer, the Consultant has phased the Work Plan in 3 phases :
● Inception phase with mobilization and first introduction to the Vodokanals ;
● Actions plan development phase for deeper assessment of the Vodokanal maturity,
identification of priority actions and evaluation of their financial implications ;
● Implementation phase with implementation of the training plan and transversal action plan
through continuous support to the Vodokanals.

Ph 1 Ph 2 Ph 3

Inception Program/Action Plan

Development

Mobilisation &
Kick Off Corporate Business Plan Assistance on Program /Action Plan
Data Collection &
Implementation
Tariff and Financial indicators
Review GAP
Non-revenue Water Reduction
Initial Situation
Analysis Septage Management

Stakeholder Public Awareness-raising

Consultation Material and Outreach Program

Inception
Workshop
Preparation of
Capacity Building & Training

IDC project outline

4.2.2 REVISION OF THE WORK PLAN

After having visited both Vodokanals, discussed with their teams, reviewed the initial data and carefully
reviewed the Terms of Reference, the Consultant proposes to adapt the initial workplan in order to best
fit the Project's needs, to best serve the Vodokanals interests and to improve the efficiency of the action
plans and capacity building throughout the 2 years of the Project.
The paragraph below details the content of each Project deliverable and the proposed adjustment of the
timeline. The main reasons for these changes are:
● Leaving time for the discussion and approval of the action plans before starting their
implementation,

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● Adjusting the training delivery to the Vodokanals availability and the evolution of the Vodokanals
all along the project,
● Spreading the Consultant inputs on the 2 years duration of the Contract so that the support to
the Vodokanals can be provided through time and not one shot.
The graphs below present a summary of the Project timeline as initially planned in the ToR and the
optimized timeline proposed by the Consultant (highlighting the changes in red).

Workplan (Top : initial version, Down : reviewed version)

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Table of Deliverables

ToRs Amendments

Scope of work report,

# implementation Timelines according to ToR Justification of changes to ToR New Timeline

within 30 days after the

commencement of the provision of
Inception Report (detailing the activities to complete the
services submits a report for
tasks and an updated work schedule) – including para 7 (i)
approval to EA, IA. Comments on
Updated Inception Report, including comments from EA, IA the report from EA, IA will be
1 – within 2 weeks after receiving the comment. provided within the next 2 weeks. NA 10/03/23

No later than than 120 days from

2 Report №1 – including para 7(ii), 7(iii), part of 7(iv), 7(v). the contract signing date 26/05/2023
a) Corporate business plans for each Vodokanal approved
by the municipalities (in Kyrgyz, Russian and English)
(Corporate business plans should take into account gender
issues/approaches) inclusive of Gender Action Plan (GAP)
according to the provided format. 
b) Program on reduction of non-revenue water (including
determination of water balance, GIS update, network
modelling, recommendations and an action plan);

c) Technical capacity enhancement assessment;

d) robust timebound action plans agreed with the

Vodokanals (in conformity with the Minutes of Contract
Negotiations) to achieve financial covenants by IA.

Report №2
No later than 120 days from the
3 Documents to be submitted – para 7 (vi), 7(vii), 7(viii): contract signing date 02/06/2023

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A draft of the suggested tariff roadmaps will be presented.

The draft will be reviewed with the adjustment of the
Financial projections and the approved Corporate Business
plan.
Support to the approval of the Tariff roadmaps by the
municipalities is switched to report 4, in order to present
Tariff Road Maps for each Vodokanal approved by the directly a final version.
municipalities (in Kyrgyz, Russian and English);
The submission of the report is postponed for one week to
Amended : Development of Tariff roadmap (Approval separate submission of Report 1 and 2 (for practical
changed to report 4) translation reasons).

a) Septage Program (in Kyrgyz, Russian and

English);

b) Training needs assessment.

Report №3
Documents to be submitted – para 7(ix), 7(x), 7(xi), part of No later than 120 days from the Submission date is postponed to allow time for the review
4 7(xii), part of 7(iv): contract signing date of the action plans suggested in Reports 1 and 2. 25/08/2023

a) Training materials endorsed by IAs, EA and ADB.

b) Septage Management Regulation and Septage

Management Operations Manual (in Kyrgyz, Russian and
English);

c) Financial projections for each Vodokanal for YY2023-

2026;

d) Assessment in RLAs development with the timeline for

circulation and approval. Draft Agreement on operational
management of core funds between municipalities and
Vodokanal enterprises of Karakol and Balykchy is agreed
with IAs and municipalities;

e) Technical specifications for special machinery/

equipment (if it is required)

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The Consultant will consider that discussions with the

municipalities will justify “approval of the tariff roadmap”.
Report №4
No later than 180 days from the Indeed, it is possible that municipalities would not agree to
5 Documents to be submitted – para 7(xii), 7(xiii), 7(xiv). contract signing date the roadmap. 01/09/2023

a) Draft RLA approved by IAs and municipalities (consulted

with the auditors if necessary):
-on water losses, their financial accounting, tariffs, provision
of services;
-Safety instructions and functional responsibilities for all
nomenclature specialties/professions within the ME
“Vodokanal”;
-Regulations on units indicating responsibility for the
performance of work;
on approving and implementation of roadmap on tariff
policy,
Amended : a) Draft RLA circulated to IAs and municipalities
and amended based on comments received (if comments
are received)

b) Public awareness-raising and outreach program for each

city with necessary actions (public events, television/radio
(advertising, broadcasts) posters, brochures, videos, social
networks, schools, universities, local communities etc.) and
the budget; public awareness-raising promotional materials
in Kyrgyz and Russian with English subtitles

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The Training plan implementation is switched to Report 5

to allow more time for implementation. The training plan
should be first developed, then discussed and approved by
the PMO and Vodokanals and then implemented. The
delay appears too short to obtain substantial results for the
following reasons :
The discussions for the validation of the training plan could
delay the time before the start of the implementation

The learning curve of the vodokanals staff is gradual and

the staff cannot receive all the training at the same time (30
days only) if we want sufficient and sustainable capacity
building

Amendedt: c) Conducting training on the developed

training materials (within 150 to 180 days from the The Training sessions have to be in line with the
contract signing) (the implementation is switched to implementation of the procurement process, to provide
Report 5) training on the basis of the new equipments

The Consultant will consider that discussions with the

municipalities will justify “approval of the tariff roadmap”.
Amended (from Report 2): Support to approval of Tariff Indeed, it is possible that municipalities would not agree to
roadmap the roadmap.

As requested by the PMO.

Addition : Support implementation and monitoring of the NB : This task will be reported into the CBP implementation
Gender Action Plan (GAP) reports only

Report №5
No later than 210 days from the Submission date is postponed to give time for validation
6 Documents to be submitted contract signing date and implementation of the action plan 07/12/2023

a) reaching an agreement with an international organization

for twinning purposes;

b) establishing the Septage Management Unit in each

Vodokanal;

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c) Organize and conduct the international training.

d) 30% Implementation of Program on non-revenue water

reduction

e) 30% implementation of the Action plan on achieving

financial indicators by IA.

See comment above (from Report 4)

Amended (from Report 4): Conducting training on the The completion of the training plan in 2023 seems to be
developed training materials ambitious given the complexity of the project

Addition : Support implementation and monitoring of the

  Gender Action Plan (GAP)     

No later than 270 days from the Changes : Progress report 1 moved postponed to give time
7 1. Progress Report 1 contract signing date of validation and implementation of the action plan 23/11/2023

b) Implementation of 20% of Tariff Road Map

c) Implementation of 20% of Public awareness-raising and

outreach program

d) RLA circulated to the Ministries

e) 50% Implementation of Program on non-revenue water

reduction

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f) 50% implementation of the Action plan on achieving

financial indicators by IA.

450 days from the contract signing

2. Progress Report 2 date 20/04/2024

540 days from the contract signing

3. Progress Report 3 date 19/07/2024

No later than 360 days from the

8 Report №6 contract signing date 19/01/2024

a) Implementation of 50% of Tariff Road Map

b) Septage Management Unit is operational

according to the regulation

c) Implementation of 50% of Public awareness-

raising and outreach program

d) RLA circulated to the Ministries and some of them

approved

e) Reevaluated EIRR and IRR with respected

spreadsheet calculation. Addition (in conformity
with the Minutes on Contract Negotiations): The Financial model provided in Report 3 will be needed to
Financial model and revised Financial Analysis calculate the correct IRR and EIRR as well to support the
agreed with Vodokanals implementation of the tariff roadmap

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As requested by the PMO, IDC will support the GAP

f) Implementation of Corporate Business plan.
activities which are directly related to the actions
Addition : Support implementation and monitoring of the implemented within the CBP. These actions will be detailed
Gender Action Plan (GAP) in the CBP implementation report.

IDC will support the vodokanal on achieving financial

g) 100% implementation of the Action plan on covenants, however IDC is not resposnible for reaching the
achieving financial indicators EA. covenants.

h) 100% Implementation of Program on non-revenue

water reduction

No later than 630 days from the

9 Report №7 contract signing date NA 17/10/2024

a) Implementation of 100% of Tariff Road Map

b) Implementation of 100% of Public awareness-

raising and outreach program

c) Septage Management Unit providing services as

per project output and related GAP indicators.

d) RLAs approved and used by Vodokanals in

financial accounting and operations

e) Implementation of Corporate Business plan.

Addition : Support implementation and monitoring of the
Gender Action Plan (GAP)

f) Trainings conducted on Reevaluated EIRR and

IRR

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Within 30 days before the contract

Draft Final Report as part of the Consultant’s Terms of
completion date – submits a draft
Reference with presentations of round tables in Karakol.
report for approval to EA, IA.
Final Report as part of the Consultant’s Terms of Comments on the report from EA,
Reference, including comments from EA, IA – within 2 IA will be provided within the next 2
10 weeks after receiving the comment. weeks.

*: the text in red in this table highlight the changes proposed compared to the ToR

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The detailed revised workplan is presented in Appendix 3.

NB: It is important to note that the delivered reports are related to the scheduled payments to the
Consultant . The implementation of the different road maps, mentioned above, are related only to the
Consultant assistance in implementing the action plans and are not linked to the Vodokanals’
performance.
NB : As agreed with the PMO team during the meeting of 27/02/2023, all reports will be submitted in
Russian and English for the Draft version and will be translated to Kirghiz after validation.

5 CONCLUSION AND NEXT STEPS

This inception Report presents the first findings observed by the Consultant and the resulting update of
Project workplan, scope and timeline proposed to best suit the Vodokanals needs and reach a
successful project delivery.
Following the Inception Report submission, the Consultant will immediately continue with the preparation
of the next assignments, and particularly Reports 1 and 2, which contain the following tasks:

● Report 1:
○ a Corporate business plan for each Vodokanal
○ a program on reduction of non-revenue water (NRW), including the water balance, a
GIS update, a network modeling, and recommendations (action plan),
○ a technical capacity enhancement assessment,
○ A robust timebound action plan agreed with the Vodokanals to achieve financial
covenants by IA.
○ Gender Action Plan (GAP) - plan and schedule in conformity with the provided format.
● Report 2:
○ a tariff Road Maps for each Vodokanal,
○ a septage Program (in Kyrgyz, Russian and English);
○ a training needs assessment.

The Consultant will complete the data collection in collaboration with the Vodokanals and the PMO,
and mobilize the local partner to achieve this task through on site visits as much as necessary. Indeed,
as described in the introduction of the Report, the Consultant is awaiting additional documents (in digital
format) in order to perform a complete holistic assessment of the Vodokanals. As previously presented,
the Consultant prepared a data collection table (see Appendix 2). A strong support is expected from the
Vodokanals and the PMO team in order to collect all information. One of the key data for improving the
IDC performance and usefulness are the reports from other Consultants and programs, among which
the ERBD CDP Consultants reports and the WWTP related studies.
The IDC Team Leader and Local Project Coordinator will visit Karakol Vodokanal and PIU on the
16 and 17th of March, and Balykchy Vodokanal and PIU on the 22nd and 23rd of March to ensure
the requested progress of the Project.

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6 APPENDIX

6.1 APPENDIX 1 : LIST OF VODOKANAL CONTACTS PROVIDED DURING PROJECT

KICKOFF MEETING

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6.2 APPENDIX 2 : PRIORITY DATA COLLECTION REQUEST (UPDATED VERSION

BASED ON INCEPTION)

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 Data request to the company Russian/Русский Karakol Balykchy ADB PMO
Legal/Institutional/General Правовые/институциональные/общие данные
General Общие
Все существующие отчеты в рамках проекта ПКР
ЕБРР, в т.ч. Программа участия заинтересованных
All existing reports completed by EBRD CDP project, including сторон, программы кампании информирования и
stakeholder participation programme, awareness campaign улучшения осведомленности, все программы развития
programs and capacity building programs потенциала x x
Legal Правовые
Technical / Operations - WATER Технические данные / эксплуатация - ВОДОСНАБЖЕНИЕ
Extensions and replacement of pipes for the last 10 years (as built Расширения сети и замены труб за последние 10 лет
drawings, etc.) (исполнительная документация и тд.) x x
List of leak detection equipment Список оборудования для обнаружения утечек x
Деятельность по обнаружению утечек: мероприятия,
Leak detection activities, teams, training бригады, обучение x x
Подробные данные о ремонтах потребительских
Details of domestic meter repairs / calibration regime счетчиков / режим поверки x
Technical / Operations - WASTEWATER Технические данные / эксплуатация - ВОДООТВЕДЕНИЕ
Данные о потреблении электроэнергии (кВт-ч) для
Energy consumption data (Kh) for wastewater pumping and перекачиванияи очистки сточных вод (за последние 3
treatment (for the last 3 years) года) x x
Затраты на транспортные средства (топливо и
Costs of vehicles (fuel and maintenance) техническое обслуживание) x x
Протяженность и разбивка сети по диаметрам и
Network length and allocation per DN and material материалам x x
Ежемесячный объем перекачивания (за последние 3
Monthly volumes pumped (for the last 3 years) года) x x
Стандарты подключений и ремонтов (сеть
Connections and repair standards (wastewater network) водоотведения) x x
Количество ремонтов сети водоотведения (за
Number of sewer repair (for the last three years) последние 3 года) x x
Количество устранений засоров сети водоотведения
Number of corrective sewer unblocking (for the last three years) (за последние 3 года) x x
Протяженность сети водоотведения, подвергавшейся
Lenght of preventive sewer cleaning (for the last three years) профилактической очистке (за последние 3 года) x
Карты проектов расширения сети водоотведения
Maps of Project of sewer extension (ADB) (АБР) x x
Спецификации для сооружения выгребных ям
Septage tank contruction specifications if any (септических резервуаров), если таковые существуют x x
Контракты между Водоканалом и компаниями по
Contracts between Vodokanal and septic tanks emptying companies очистке выгребных ям (септических резервуаров) x
Объем стоков/осадка из выгребных ям (септических
Volume of septic sludge disposed for the last 3 years резервуаров) за последние 3 года x
HR / Organisation Кадры / организация
Organisation chart and breakdown of staffing per service Организационная схема и разбивка персонала по служ x x
number of employees / Department / Gender / Age / Qualification / Численность сотрудников / подразделения / пол /
years in the company возраст / квалификация / стаж работы на Предприятии x x
Salary grid Сетка заработной платы x
HR policy in English Кадровая политика в переводе на английский язык x x
Finance / Accounting Финансы / бухгалтерский учет

Financial data Финансовые данные

Electronic copies of the financial statements for 2019-2021 audited Электронные копиии финансовой отчетности за 2019-
by Marka Audit; 2021 годы, проверенные компанией "Марка Аудит" x
Electronic copies of the financial statements in accordance with Электронные копиии финансовой отчетности,
IFRS prepared under the EBRD project; составленной согласно МСФО в рамках проекта ЕБРР x
Budget and investments Бюджет и инвестиции
Тарифная модель в формате Excel, созданная GWCC
The tariff model in Excel created by GWCC (electronic version); (электронная версия) x
Бизнес-план и финансовые прогнозы в формате Excel
The business plan and financial projections in Excel (electronic (электронная версия), подготовленные GWCC для
version) for the company prepared by GWCC (Corporate Предприятия (консультант по корпоративному
Development Programme consultants appointed by EBRD); развитию, привлеченый ЕБРР) x
Procurement plans related to ADB and EBRD projects in digital Планы закупок в рамках проектов АБР и ЕБРР в
fromat цифровом формате x x
Assets and Depreciation Активы и амортизация
Extraction of assets and related depreciation амортизации x x
Customer/Billing/Revenue Collection Потребители / выставление счетов / оплата счетов
Billing and Collection Выставление и оплата счетов
Копия закона или нормативного акта или ссылка на
A copy of or reference to the recent law or regulation proscribing эти документы, которые регулируют прямой сбор
direct collection in cash from subscribers. наличных денежных средств у потребителей x x
Подробная информация о выставлении счетов в м3 по
Detail of the billing in m3 per type of customer категориям потребителей x
Tariff payment and Subsidy Payment policy Тарифная политика и политика субсидирования
Вся документация и расчеты, обосновывашие
All relevant schedules supporting the 2021 tariff application in Excel обращение о пересмотре тарифов 2021 года
(electronic copies of the paper schedules you have given us (электронные копии документации на бумажных
already); носителях, которые вы нам уже предоставили) x
Tariff application for 2023 Обращение о пересмотре тарифов на 2023 год x
Subsidy Policy Политика субсидирования
Agreement with the municipality regarding the distribution of Соглашение с муниципалитетом о распределении
subsidies субсидий x x
Customers Потребители
Информация о счетчиках, в настоящее время
Information on currently deployed meters for each customers развернутых у потребителей x
План развертывания счетчиков (финансирование АБР
Meter deployment plan (ADB and/or EBRD financing) и/или ЕБРР) x x
Расчетное количество новых подключений, если
таковые предусмотрены, вследствие расширения сети
Estimated number of new connections if any from network (проект ЕБРР - сеть водоснабжения, проект АБР - сеть
extensions (EBRD for Water, ADB for Wastewater) водоотведения x x
Other Прочие
ADB request Запрос АБР
Любые другие соглашения, кроме кредитных
Any other agreements than the loan and grant agreements (e.g. договоров и грантовых соглашений (например,
project agreement, project support agreement) with obligations for проектное соглашение, соглашение о сопровождении
the water companies or the mayor’s office of the respective towns to проекта) с обязательствами для Водоканалов или
comply with; мэрии соответствующих городов x
Проекты нормативно-правовых актов относительно
тарифов на услуги водоснабжения и водоотведения,
Draft revised legislation on water tariffs mentioned in the meeting; упомянутые в ходе совещания x
Подтверждение того, что EIRR/FIRR (ЭВНД/ФВНД)
Confirmation that the EIRR/FIRR relates to the whole of the ADB относится ко всем инвестициям АБР в этот проект
investment for this project ($41.8m) [if this was not fully clarified in (41,8 млн долларов США) [если это не было
the meeting]. полностью разъяснено на встрече]. x
Procurement plan for Output 1 of the project (related to WW План закупок для Результата 1 Проекта (т.е. в
investments) отношении инвестиций в систему водоотведения) x
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6.3 APPENDIX 3 : REVISED WORKPLAN

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 General / Technical /
Financial / Institutional List of Deliverables 01/23 02/23 03/23 04/23 05/23 06/23 07/23 08/23 09/23 10/23 11/23 12/23 01/24 02/24 03/24 04/24 05/24 06/24 07/24 08/24 09/24 10/24 11/24 12/24
Legend : I R1R2 R3R4 P1 R5 R6 P2 P3 R7

Deliverable submission (1 box = 1 week)

Extended deadline for deliverable (presented in the Inception report)
Amendments to deliverable following comments
Implementation of tasks, Development of deliverables
Task or deliverable in red : Additions and amendments compared to initial ToR
Phase 1 Inception Period
General IR - Inception Report

Phase 2 : Program/Action Plan Development

R1 - Report No1
General a) Corporate business plans development
Technical b) Program on reduction of non-revenue water development
Technical c) Technical capacity enhancement assessment
General d) Addition (Contract negotiations MoM) : robust timebound action plans

R2 - Report No2
Financial a) Amendment : Development of Tariff roadmap
General b) Training needs assessment
Technical c) Septage Program

R3 - Report No3
General a) Training materials endorsed by IAs, EA and ADB.
b) Septage Management Regulation and Septage Management
Technical Operations Manual
Financial c) Financial projections for each Vodokanal for YY2023-2026;
d) Assessment in RLAs development with the timeline for
Institutional/Legal circulation and approval.
Draft Agreement on operational management of core funds
between municipalities and Vodokanal agreed with IAs and
Institutional/Legal municipalities;
e) Technical specifications for special machinery/ equipment (if it is
Technical required)

R4 - Report No4

a) Amendment : Draft RLA circulated to IAs and municipalities and

Institutional/Legal amended based on comments received (if comments are received)
b) Public Awareness-raising Material and Outreach Program
Institutional/Legal development
Addition : Support for implementation and monitoring of GAP
General activities
Financial Amendment : Support to approval of tariff roadmap

Phase 3: Program/Action Plan Implementation

R5 - Report No5
General a) Reaching an agreement with an international organization for
Technical b) establishing the Septage Management Unit in each Vodokanal;
General c) Organize and conduct the international training.
Technical d) Program on non-revenue water reduction implementation - 30%
Financial e) Action plan on achieving financial indicators by IA
General Amendment : Conducting training on the developed training
General Addition : Support for implementation and monitoring of GAP

P1 - Progress report 1
Financial b) Tariff Road Maps implementation - 20%
c) Public Awarness-raising and Outreach Program implementation -
Institutional / Legal 20%
Institutional/Legal d) RLA circulated to ministries
Technical e) Program on non-revenue water reduction implementation - 50%
f) Action plan on achieving financial indicators by IA
Financial implementation - 50%

R6 - Report No6
Financial a) Tariff Road Maps implementation -50%
b) Septage Management Unit is operational according to the
Technical regulation
c) Public Awarness-raising and Outreach Program implementation -
Institutional / Legal 50%
Institutional / Legal d) RLA circulated to the Ministries and some of them approved
e) Reevaluated EIRR and IRR with respected spreadsheet
Financial calculation.
Addition (Contract negotiations MoM) : Financial model and revised
Financial Analysis agreed with Vodokanals
General f) Corporate business plans implementation
Addition : Support for implementation and monitoring of GAP
g) Action plan on achieving financial indicators by IA
Financial implementation - 100%
Technical h) Program on non-revenue water reduction implementation - 100%

P2 - Progress Report 2

P3 - Progress Report 3

R7 - Report No7
Financial a) Tariff Road Maps implementation -100%
b) Public Awarness-raising and Outreach Program implementation -
Institutional / Legal 100%
c) Septage Management Unit providing services as per project
Technical output and GAP indicators
d) RLAs approved and used by Vodokanals in financial accounting
Institutional / Legal and operations
General e) Corporate business plans implementation
Addition :Support for implementation and monitoring of GAP
activities
General f) Trainings conducted on Reevaluated EIRR and IRR

FR - Final report
Draft Final Report as part of the Consultant’s Terms of
Reference with presentations of round tables in Karakol
including comments from EA, IA – within 2 weeks after
receiving the comment.
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