KWSSIP-2

The World Bank has approved the Second Karachi Water and Sewerage Services Improvement Project (KWSSIP-2). The Project Development Objective (PDO) is to provide safely managed water and sanitation services in Karachi and increase KWSC’s financial and operational performance. KWSSIP-2 builds upon the successes of KWSSIP-1 and introduces targeted solutions to address critical challenges in Karachi’s water and sewerage systems, focusing on structural reforms and expanded service delivery.

Component-1: Capacity Building and Reform of KWSC (US$14 million, of which IBRD US$5.6 million, AIIB US$5.6 million, GoS US$2.8 million). This component will finance capacity building and reform support activities to enable KWSC’s evolution into a well-functioning utility that is resilient to climate change. The component will finance: (i) technical assistance and capacity building related to technical and commercial operations, including asset management, geographic information systems (GIS) and data systems, hydraulic modeling, NRW reduction, billing and revenue management, financial management, communications, and customer service; (ii) implementation of organizational structure reforms to enhance efficiency, accountability and commercial orientation in service delivery; (iii) implementation of a human resource reform plan, including a gender-inclusive recruitment and training strategy; (iv) preparation and implementation of water safety plans, including the establishment of a centralized water quality testing laboratory capable of carrying out biological and key chemical tests (including lead and other heavy metals); (v)rehabilitation and upgrade of office spaces and establishing an innovation, research, development, and learning center; (vi)technical assistance on PPPs, their outsourcing and management; (vii) preparation of all required rules, regulations and guidelines to enable full operationalization of the KWSC Act and their adoption as standard operating procedures for operationalizing the utility; and (vii) any other capacity-building activities necessary to strengthen KWSC’s corporate governance and increase its operational and financial performance and adaptive capacity, such as technical trainings for women in the KWSC, support to the newly established Environmental and Social (E&S) cell at KWSC, and support to improve groundwater management.

Component-2: Safely Managed Water Supply and Sanitation Services (US$958.56 million, of which IBRD US$223.824 million, AIIB US$223.824 million, GoS US$241.912 million, private capital US$269 million). The component will finance investments to enhance Karachi’s water supply and sanitation infrastructure. The medium-term investment plan addresses five interlinked structural problems in Karachi’s water and sanitation system: a bulk water supply shortfall, a leaky water distribution network, an intermittent supply that does not meet drinking water quality standards, a lack of wastewater collection and treatment capacity, and persistent poor service levels, especially in Katchi Abadis.

Sub-component-2.1: Provision of Safely Managed Drinking Water and Sanitation Services in selected Unplanned Settlements (Katchi Abadis) (US$28.88 million, of which IBRD US$11.55 million, AIIB US$11.55 million, GoS US$5.78 million). This sub-component will finance the expansion of safe drinking water and sanitation services in at least seven Katchi Abadis, benefiting over half a million people. Investments will include rehabilitation and expansion of water distribution systems, installation of ILC units, metered house connections, sewerage network rehabilitation and expansion, and accompanying social marketing and WASH behavior change communication. The KWSC will deliver services in partnership with local non-governmental organizations and community-based entrepreneurs as well as local women’s organizations and transgender people’s organizations.

Sub-component-2.2: Priority Sewer Network Rehabilitation and Expansion (US$23.22 million, of which IBRD US$9.29 million, AIIB US$9.29 million, GoS US$4.64 million). This sub-component will finance priority sewerage network rehabilitation and expansion to restore network integrity in critical areas and reduce sewer overflows and flooding that currently impact an estimated 3.02 million people in these areas. The networks for rehabilitation have been identified based on levels of deterioration, under-sizing, and combined sewer/ open channel sewers. These sewers carry wastewater to TP-I and TP-III, which are under rehabilitation by the KWSC.

Sub-component-2.3: Priority Water Distribution Network Rehabilitation and Expansion (US$56.93 million, of which IBRD US$22.77 million, AIIB US$22.77 million, GoS US$11.39 million).  This sub-component will finance rehabilitation and upgrading of the water distribution network, including the creation of pressure zone boundaries and District Metered Areas for physical water loss monitoring, installation of ILC units, and installation of modern, digital network monitoring systems, including modern flow meters (district, domestic and bulk customer meters), pressure loggers, automatic metering reading and advanced metering infrastructure, and remote monitoring and sensing tools to monitor real-time residual chlorine levels. The sub-component will also finance network expansion to areas of Karachi that are currently not covered. In addition, the sub-component will finance a performance-based NRW reduction program to reduce physical and commercial water losses, prioritizing physical water losses by improving system maintenance, active leakage control, speed and quality of leak repairs, and pressure management. Reducing physical water losses will help reduce pressure on water sources and build resilience to droughts. An initial set of areas for rehabilitation has been established based on the potential for NRW reduction and energy-saving benefits relative to E&S complexity and costs. District Metered Areas financed under this sub-component, complemented by the installation of customer meters from the KWSC metering program, will support the implementation of NRW reduction plan.

Sub-component-2.4: Improvement of Energy Efficiency (US$19.90 million, of which IBRD US$7.96 million, AIIB US$7.96 million, GoS US$3.98 million). This sub-component will finance a range of energy-saving interventions to reduce energy consumption in KWSC’s pumping stations and water treatment plants as well as the utilization of feasible renewable energy resources, and thus reduce energy costs and KWSC’s carbon footprint. The KWSC will partner with competitively selected Energy Service Companies (ESCOs) to develop, design, build, and co-finance interventions that save energy, reduce energy costs, and decrease operations and maintenance costs at Dhabeji water pumping station, secondary pumps, and other major facilities. ESCOs will function as project developers for comprehensive energy conservation measures and assume the technical and performance risks associated with the selected interventions. ESCOs will be engaged on performance-based contracts with payments linked to actual energy cost savings. If needed, about US$6 million is allocated for viability gap funding (VGF).

Sub-component-2.5: K-IV Augmentation (US$256.87 million, of which IBRD US$77.75 million, AIIB US$127.75 million, GoS US$51.37 million). This sub-component will finance: (i) 2.7 km of the transmission line from reservoir 2 running from National Institute of Public Administration to the Expo Centre in Hasan Square in Karachi constructed as part of a common corridor; and (ii) apart from those 2.7 km, the construction of three transmission mains to bring 260 MGD of treated water into the existing network from three separate treated water reservoirs currently under construction as part of the ongoing government-financed K-IV Phase-1.

Sub-component 2.6: Rehabilitation and Reconstruction of Existing Water Treatment Plants (US$120.75 million, of which IBRD US$29.50 million, AIIB US$29.50 million, GoS US$14.75 million, Private Sector US$47 million). This sub-component will: (i) finance the rehabilitation and upgrade of two water treatment plants (NEK-KII, 100 MGD; and Pipri JBIC, 50 MGD) with a total installed capacity of 150 MGD to ensure treated water entering the network from these plants is safe and meets national drinking water quality standard; and (ii) support the financing of the reconstruction of up to two water treatment plants (COD, 180 MGD, and NEK-KIII 100 MGD) with a total capacity of 280 MGD to increase treated water production design capacity. The KWSC intends to pilot the reconstructions through PPPs, lessons from which might enable future PPPs in other water treatment plants. A feasibility study indicates a total cost of US$87 million for these two water treatment plant reconstructions. A preliminary assessment suggests an opportunity for a PPP supported by a VGF of US$40 million. The VGF would finance payments against construction milestones outlined in the PPP contract. Of the estimated US$47 million of private capital mobilized, which will comprise US$14 million in equity and US$33 million as debt, 84 percent (US$40 million) is attributed to World Bank financing.

Sub-component 2.7: Construction of Malir Basin Wastewater Interceptor, TP-IV Wastewater Treatment, Recycling Plant, and new Recycled Water Distribution Network (US$452 million, of which IBRD US$65 million, AIIB US$15 million, GoS US$150 million18 , private sector US$222 million). This sub-component will finance: (i)a wastewater interceptor (21.7 km) along the Malir River to capture the untreated wastewater currently discharged in the river and convey it to the TP-IV; (ii) TP-IV to treat 120 MGD influent of mixed domestic and pre-treated industrial wastewater compatible with a domestic wastewater treatment plant; (iii) a recycling facility with advanced tertiary treatment to produce 50 MGD water for industrial use; and (iii) a distribution network to convey recycled water to industrial users. These investments will improve the KWSC’s ability to collect and treat wastewater in the Malir basin, reducing the pollution of the Malir River, which discharges into the Arabian Sea, and enhancing the resilience of the city’s water supply system to droughts with recycled water. The KWSC intends to implement the full scope of this subcomponent as a single hybrid PPP contract and this subcomponent will contribute towards the US$230 million of combined VGF from the IBRD, AIIB, and GoS (with financing from ADB under discussion). The ADB is advising the GoS on the PPP transaction with the issuance of a request for proposals expected in March 2025 and financial close estimated by March 2026. The VGF would finance payments against construction milestones outlined in the PPP contract. Of the US$222 million private capital mobilized, which will comprise US$67 million in equity and US$155 million as debt, 50 percent (US$111 million) is attributed to World Bank financing.

Component-3:  Project Management and Studies (US$25.24 million, of which IBRD US$10.096 million, AIIB US$10.096 million, GoS US$5.048 million). This component finances: (i) project management and coordination, including design review and construction supervision, project management support, E&S risk management, and project results monitoring and evaluation as well as beneficiary surveys and the Project’s impact evaluation; and  (ii) technical assistance for advance studies for potential subsequent water and wastewater infrastructure projects, including feasibility studies, engineering designs, E&S studies, and special studies on applicability of trenchless technology in water and wastewater infrastructure development in Karachi.

Component-4: Contingent Emergency Response Component (CERC) (US$0 million). The Borrower may request the Bank to reallocate project funds for the provision of immediate response to an Eligible Crisis or Emergency, as needed. This component would draw from the uncommitted loan resources under the project from other project components to cover emergency response.