Projet Bassins Versants

Annex J
Water Balance before and after proposed Investments

Water-Balance component MCM/year	Before project (cropped area 99,000 hectare)	After project (cropped area 115,000 hectare by 2025) (Moderate)	Comments/assumptions
Reliable annual inflow available at Tuyamuyun Turkmenistan Abstraction SK crop evapo-transpiration SK irrigation demand (supply) SK river diversions including extras for pumping stations. Drainage water for natural habitats and for South Aral Sea. Fresh water for ecological functions in lower Amu Darya, and for M&I uses. Total (fresh plus saline) environmental flows.	25,000 MCM/year 7,000 MCM/year 475 MCM/year 1,125 MCM/year 4,200 MCM/year 650 MCM/year 16,875 MCM/year 17,525 MCM/yr	25,000 MCM/year Assume 7,000 MCM/yr 538 MCM/year 1,280 MCM/year 1,280 MCM/year 680 MCM/year 16,783 MCM/year 17,462 MCM/year	At 80% probability of exceedance. Assume neutral effect from climate change. There was a rising trend over latest decade. Assume further rises offset by water-saving I&D modernization in Turkmenistan by 2025. Cotton reduced by 20% Wheat increased by 200%, Efficiency increase 42% to 44% Major water savings due to switching to Bustan gravity irrigation. Difference between irrigation demand and ETc. Closing the balance. Exceeds 30% of basin inflows. Increased by project.

Key observations:

• 
  Estimates of SK crop evapotranspiration and irrigation demand are based on preliminary estimates being prepared for the DIWIP feasibility study being prepared by the Consultant.
  

• 
  Due to the limited topography, the live storage in Tuyamuyun reservoir is only around 5.5 BCM (including Turkmenistan). This is adequate for intra-seasonal storage but not for inter-annual storage.
  
• 
  Over the last 25 years, the annual inflow available at Tuyamuyun ranged from 27 to 60 BCM/year, with the mean annual being around 40 BCM/year, and a minimum 27 BCM/year recorded in 2001. Turkmenistan and Uzbekistan irrigation withdrawals were around 7 and 4 BCM/year respectively. The low-year inflows (such as 27 to 30 BCM/year) largely ascribed to the winter releases from the winter hydropower peaks in Tajikistan, hence cannot be fully reliable in meeting the summer peak irrigation demand in SKWRMIP areas (as the summer inflows in those low years were uncommonly much lower than the summer irrigation demands); hence backup releases from the Tuyamuyun storage would be needed during these low years. The reliable annual inflow (at 80% probability of exceedance) should therefore be deemed not higher than around 25 BCM/year.
  
• 
  The SKWRMIP irrigation demand is similar to current demand, as though cropped area increases demand remains similar due to changes in cropping pattern and modest increase in irrigation efficiency. Therefore, the environmental flows remaining for the downstream ecological functions and for Turkmenistan withdrawals will not be undermined (if a minimum base flow of around 200 m³/sec is maintained in lower Amu Darya).
  
• 
  SKWRMIP would help Uzbekistan to comply with the agreement signed with Turkmenistan in 1996 regarding on the joint and rational use of Amu Darya water. The agreement (Article 9) requires that both countries stop discharging drainage water into Amu Darya. DWIP helped to achieve this goal by re-directing the saline-drainage outflow to Aral Sea (with a better water quality), and SKWRMIP will build on this achievement. More importantly, as mentioned above, the irrigation developments under SKWRMIP would not undermine the current withdrawals from Turkmenistan, because SKWRMIP will not cause a net increase in basin water use.
  
• 
  To restore the Lower Aral Sea (from current 35m to its initial 53m BSL), the terminal flow at lower Amu Darya river should be a sustainable minimum 25 BCM/year, which is becoming very difficult due to the upstream irrigation expansions in the last 3 decades. The acceptable terminal flow in lower Amu Darya that can meet the water needs of the wetlands (adjacent to Aral Sea) can be around 10 BCM/year or 200 m³/sec.
  
• 
  Generally the non-irrigation environmental (saline plus fresh-water) flows are deemed adequate at around 30% of basin’s inflows.
  

Annex K
Financial Management

Tashkent PIU

The financial management (FM) arrangements at PIU, including accounting, budgeting and planning, reporting, internal controls, external audits, funds flow, organization and staffing are considered to be satisfactory and acceptable to the Bank. The FM staff is experienced in the Bank’s procedures. The level of counterpart funding was assessed to be satisfactory, however, counterpart funds are disbursed with delays.

The internal control system at the PIU is acceptable to the Bank and was assessed as capable of providing timely information and reporting under the DIWIP Project. The latest update of the Financial Management Manual (FMM) was made in September 2009. However, the revised FMM needs further enhancement in regard to internal control and accounting sections. i.e. authorization of expenditures and approval of the payments, bank reconciliation, verification of expenditures eligibility by the Chief Accountant and/or Disbursement/Financial Specialist; description of financial documents flow/circulation, formal reconciliation procedures of project records with Client Connection and XDR/USD reconciliation, safeguards for assets, maximum allowed daily cash operations, etc.

The accounting at PIU is maintained in accordance with accrual basis of Uzbek National Accounting Standards. For reporting purposes, cash basis IPSAS is used. PIU utilizes 1C accounting software which has multi-user and dual currency (UZS and USD) functionalities and is capable of generating FMRs and SOEs. However, the 1-C version utilized by the PIU is outdated and PIU is still in the process of its modification.

FMRs for all four quarters for FY 2010 of the project have been received on time and found to be acceptable.

The auditor, Tsiar Finance of Uzbekistan, issued an unqualified opinion on DIWIP’s financial statements for FY2009. Audit report and accompanying financial statements for the FY2009 were received on June 30, 2010 and have been accepted by the World Bank on the exceptional basis as the Financial Statements missed a Balance Sheet, despite that it was required under agreed TOR. Moreover, from the audit opinion it was not clear what accounting standards have been applied while preparation of the financial statements. The auditor has raised five issues in the Management Letter, relating to (i) financing of banking charges; (ii) proportion of financing of invoices that include VAT; and (iii) improper calculation of vacation payments to the PIU staff; (iv) inaccurate calculation of income tax from salaries of local individual consultants caused by glitches of accounting software; (v) accuracy of price adjustments calculations under construction contracts. The first two issues are recurring from previous periods and the PIU Management have been making certain steps to address them. The PIU management reported that problems with accounting software has been eliminated and provided very satisfactory and detailed explanation on price adjustment methodology. The mission ensured that the software problems have been eliminated.

The auditor’s selection process for the FY year 2010 is underway. The auditors have been already shortlisted and the contract is to be signed by the end of April. The audit report is expected to be received on time, i.e. June 30, 2011.
Nukus PIU
The financial management (FM) arrangements at Nukus PIU, including accounting, budgeting and planning, reporting, internal controls, external audits, funds flow, organization and staffing are considered to be not fully satisfactory to the Bank.
The internal control system at Nukus PIU needs major improvements in order to become satisfactory to the Bank. There is no FMM in place and it is not clear under what internal control policies and procedures the project operates. There are generally weak controls over fulfillment of financial conditions of contracts, improper control over budget implementation, improper back-up arrangements, etc.
FMRs for FY 2010 for Pilot Silk Development Project have been received on time and found to be acceptable.
The accounting of the project is maintained in 1C Enterprise that is not adapted for special requirements of the WB financed projects, in particular does not have functions allowing automatic generation of FMRs, SOEs, GoU required reports, etc.
The audit report for Karakalpakstan Silk Development Pilot Project (JSDF Grant 057070) covering the period January 1 – December 31, 2009 was received with delays on July 7, 2010. The auditor, TSIAR FINANCE LLC, Uzbekistan, has issued an unqualified on the project financial statements.
The audit report, management letter and the accompanying project financial statements were found satisfactory to the Bank.
The auditor has issued a management letter that highlighted a number of internal control weaknesses, together with recommendations on how to address those weaknesses. It was noted that some of them are recurrent from the previous periods. The issue regarding late posting of accounting entries into the cash book have been mentioned by the auditor in its Management Letter for FY 2008. While the positive fact was that the Management in general agreed with the auditor’s recommendation, it noted that there was no progress made since last year in this regard.
The mission noted that the action plan agreed during the last visit was not implemented and need to be addressed urgently.

Compliance with financial covenants

The PIU is in compliance with the financial covenants under the DIWIP project. Particularly, the FMRs under the project are submitted on time and found to be acceptable. The audit report for the FY 2009 with unqualified (clean) opinion was received on time and found to be acceptable.

Actions Agreed as a result of the current mission

As a result of the current supervision separate action plans have been elaborated for the Project:

New actions agreed	Deadline	Responsibilities
Revise the Financial Management Manual to incorporate sections relating to: Financial reporting and auditing arrangements; and Update sections relating to accounting and internal control policies and procedures (including setting limits for volume of monthly cash operations)	By June 30, 2011	Chief Accountant and Financial/Disbursement Specialist
Finalize modification of the current accounting software	By June 30, 2011	PIU Management and Chief Accountant & Financial/Disbursement Specialist
Ensure that the audit report for the FY 2010 is submitted on time, i.e. by June 30, 2011	Immediately and continuously	PIU Management, relevant staff members and Chief Accountant & Financial/Disbursement Specialist
To implement last mission recommendations in regard to the KSDP	By June 30, 2011	PIU Director and Accountant

1^ CAR/1/1 = CAR/1 Additional Assignment No. 1

2^ CAR/1/2 = CAR/1 Additional Assignment No. 2

3^ For the purposes of this Aide Memoire the project abbreviation DIWIP is dropped as prefix to contract nos.

4^ Quarterly Progress Report, October to December 2010, February 2011.

5^ Monthly Construction Progress Report, February 2011

6^ As confirmed by the PIU at the Meeting of March 23, 2011

7^ Less than 3% of contract areas

8^ Personnel communication with the Consultant March 26, 2011

9^ Executive Summary of Progress Report, March 2011, Draft, Mott MacDonald - Temelsu

10^ Monthly Construction Progress Report, February 2011, Mott MacDonald - Temelsu

11^ As per communications with Mott MacDonald-Temelsu April 1, 2011