Dear colleagues:

I would like to use this opportunity to present you a brief overview of Bank's activities in water sector in Russia and share with you some of the issues which we are facing.

Before doing that it would be appropriate to say a few words about global Bank's Water Portfolio and Strategy:

• An estimated $60 billion is invested in water in developing countries each year.

• About 90 percent of this investment comes from domestic sources.

• The World Bank accounts for about 50 percent of external financing - about $3 billion a year, or about 15 percent of all World Bank lending.

Currently the World Bank has outstanding commitments of about $17 billion in water projects. Between 1993 and 2001 about 17 percent of Bank lending was for water-related projects, with similar proportions being spent on water supply and sanitation, irrigation and drainage, hydropower and water resource management components.

A new Water Resources Sector Strategy is planned for mid 2003. This strategy is being developed through an extensive consultation process with a wide variety of stakeholders both local and global. The strategy would be closely aligned with the corporate commitments to achieve MDGs, particularly of halving, by 2015, the proportion of people without sustainable access to safe drinking water.

In general Bank's contribution will focus on supporting counties to:

• Reform their water sector policies

• Built their institutional and regulatory structures

• Invest in sustainable water supply and sanitation infrastructure.

Russia which possesses a very large share of global freshwater resources has at the same time to deal with a range of serious water supply, water management and water quality issues well described by previous speakers. The integrity of environment and public health improvements are particularly important in this respect.

The Bank, in assisting the government to address water issues is employing various types of operations and tools: loans, grants, economic and sector works, training and capacity building. Main operations associated with water sector are as follows:

Komi Oil Spill Recovery and Mitigation Project. This is US$99M loan helped to contain one of the world's largest oil spills, clean up affected territories and mitigate environmental and social consequences to the effected ecosystems and communities in the Pechora River basin. Project is complete.

The objective of Municipal Water and Wastewater Loan (US$ 122.5M) is to arrest decline of water and wastewater services in a number of medium-size cities through support of the most critical investments and implementation of institutional reforms. The project is effective but project is stalled and implementation is at the initial phases.

Environmental Management Project. There are two components of the project dealing with water:

Technical assistance components supported improved water quality and resource management in three regions: the Upper Volga, the Urals and the Lower Don. Accomplishments have been considerable, particularly at the regional level. They have included preparation and signing of Inter-agency and Inter-Oblast agreements on river basin management, improvement of water monitoring and information exchange, and small watershed management. This work is supported by comprehensive analysis of environmental and water data, inventory and ranking of pollution sources and health risk assessments associated with poor water quality. Various policy and economic tools of water resources management have being tested including new system of water extraction and pollution charges. Development of a decision-support system for river basin and reservoir management was particularly successful and it was disseminated by the Government to all river basins.

National Pollution Abatement Facility is a credit line for financially viable environmental investments. This credit line was recently restructured and resumed its work. It now finances various pollution abatement projects in the pulp and paper mills in Arkhangelsk, Karelia and Irkutsk Oblasts. The largest project here is creation of a close loop water supply system for Baikalsk BPPM which is the largest single source of water pollution of the lake Baikal. We hope that elimination of the industrial waste water discharges to the lake will contribute to protection of the unique Baikal ecosystem, (you may wish to elaborate)

Swiss grant. Feasibility study of Krasnodar Dam showed a great risk of dam failure to the downstream communities and suggested specific remediation interventions.

GEF Grant for Reduction of Nutrient Discharges and Methane Emissions in Rostov on Don. Total grant amount is about US$11 million, advance for project preparation has just been approved after long delay.

Review of the Federal Volga Revival Program. This was the study done by the Bank where it evaluated and ranked major Volga river basin management priorities and developed concepts for potential pilot lending operations. The study did not have a follow up due to low Government interest.

Dam Safety Workshop. New Dam safety assessment tools have been presented and disseminated to professionals.

Overall development impact of operations is low and often not sustainable due to range of sectoral, generic and operational issues.

Lack of substantive policy dialog in water resources and water quality management

Frequent institutional changes have distracted attention from river basin management and diluted the impact of the project activities; in particular, it has been difficult to transfer the lessons from these "pilots" to other river basins.

Difficulties to address water supply and wastewater priorities due to very slow pace of municipal (and communal) reform.

Delays in project preparation and launching. This includes grants as well (examples: over US$ 1 million Dutch grant was cancelled after being not countersigned by the Gov-t for over a year, it took about 18 month to make effective US$ 340,000 GEF advance for preparation of larger US$11M GEF grant for Rostov Nutrient Reductions Project).

Complexities to on-lending to regional and municipal gov-ts (you may wish to refer to direct on-lending scheme through MOF).

Frequent change of implementation arrangements

The sustained Government commitment to institutional strengthening and capacity building, as well as legal and regulatory improvements are key prerequisites for success.

In closing, let me say that despite these difficulties the Bank stays ready to scale up its support to the Government in the water sector in order to contribute to economic growth, achieve public health improvements, and protect aquatic ecosystems. We are looking forward to the improvement of the policy dialog with the key Government stakeholders - Ministry of Natural Resources, Gosstroi and MOEDT.