Attachment J-1 Background.doc

RFP 294-2008-003

ATTACHMENT J-1

BACKGROUND ON INFRASTRUCTURE NEEDS PROGRAM

INTRODUCTION

The United States Agency for International Development (USAID) has been helping people living in the West Bank and Gaza lead healthier and more productive lives. USAID has been supporting Palestinians since 1993 with more than $1.7 billion dollars through economic assistance, job creation opportunities, and infrastructure development through needs programs - more than from any other donor country. As Secretary of State Condoleezza Rice stated at the International Donor Conference in Paris on the 17th of December 2007, a real opportunity now exists to make progress toward the goal of two democratic states living side by side in peace and security.

At the International Donor Conference in Paris, the United States Government once again demonstrated its commitment to the Palestinian people with real pledges of tangible assistance totaling $555 million in economic assistance for 2008, including $150 million in budget support for the moderate Palestinian Government based in the West Bank. This was bolstered by a strong show of international support, where $7.4 billion was pledged by countries around the world to support the Palestinian Authority.

This effort built on the success of joint meetings hosted by the U.S. Government in Annapolis, Maryland on the 26th and 27th of November 2007, at which the two sides pledged to re-launch peace negotiations on the permanent status issues including borders, refugees, East Jerusalem, security, recognition of the state of Israel and a two state solution for the Israeli and Palestinian people by the end of 2008.

These developments support efforts to counter a trend that emerged since the Al Aqsa Intifada began in September 2000. Since then, the political, social and economic situation of Palestinians in the West Bank and Gaza has dramatically and critically declined. One of the most notable changes has been the deterioration of the underlying system of infrastructure needed for delivery of many basic human services, such as health care, education, water supply, sanitation, electricity, and transportation.

Civil strife and border crossings have sent the Palestinian economy into a dramatic decline of crisis proportion. The poverty rate in the Palestinian Territories at the end of 2006 was 56%. The unemployment rate in the last quarter of 2006 was 30% in the West Bank and 36% in Gaza. The number of deep poor (e.g. jobless, refugees) has almost doubled from an estimated 650,000 in the last six months of 2005 to an estimated 1,069,200 in the first six months of 2006.

Since assuming limited self-rule over portions of the West Bank and Gaza in 1993, the Palestinian Authority (PA) has struggled to allocate sufficient resources to fully support the maintenance of existing basic service infrastructure. But now, with the current economic crisis, the PA’s revenues have been reduced to the point where funding even minimal levels of infrastructure upkeep, repair, or expansion is extremely difficult. As a result, many children attend overcrowded and unsafe schools in shifts because of a shortage of classrooms, more than 100 villages in the West Bank have no piped water network, even fewer communities in the West Bank or Gaza have proper sanitation systems, irrigation canals are deteriorating, health clinics are in need of renovations and upgrades, road network for the transport of people and goods are in a poor state of repair, and there is a chronic lack of recreational or training facilities for children and youths.

Many donors, including the United States, the European Union, the World Bank, and the Arab League countries have played a critical role in preventing a humanitarian crisis from arising from the current economic crisis. By doubling their overall donor assistance from $480 million per year in the late 1990s to an average of $960 million per year since 2000, a minimum level of economic, social, and political stability has been maintained. Currently, the European Union is the largest donor to the West Bank and Gaza, expending more than $798 million in 2007. More than half of the U.S. funding has been devoted to the development of large-scale infrastructure projects, particularly in the water and road sectors. However, despite these large investments, there remains a vast, unmet need for infrastructure rehabilitation and expansion, especially at the smaller-scale community level.

To address this critical shortage of infrastructure, the United States Agency for International Development (USAID) has launched an initiative, the Infrastructure Needs Program (INP), to increase its investments in infrastructure construction. This initiative will include attention as well to a small infrastructure program. The INP will support the USAID West Bank and Gaza Mission’s new strategy for achieving the goal of a sovereign, independent, and viable Palestinian state, living side by side in peace and dignity with Israel. USAID believes that supporting the development or rehabilitation of small-scale as well as larger infrastructure will be a key part of achieving this goal. Furthermore, by strengthening local communities through the provision of infrastructure that emphasizes generating local employment opportunities, the INP will help Palestinian communities to realize tangible and immediate benefits from peaceful coexistence.

USAID’s newly approved Country Strategy for West Bank and Gaza, entitled “Towards a Viable, Democratic Palestinian State,” will focus on building democratic institutions, strengthening economies that offer alternatives to the disenfranchised, improving access to quality health care and education, and promoting public participation in decision-making. USAID will implement this strategy organized around five major program areas or strategic objectives (SO): (1) Promote Economic Stability; (2) Promote Democratic Reform; (3) Improve and Sustain Health System Performance; (4) Build a New Generation of Leaders; and (5) Provide Greater Access to Better Quality Water and Other Infrastructural Services. To assure a successful outcome for these programs, physical infrastructure such as adequate buildings, serviceable equipment, ready road access, and potable water supply must be available and sustainable operable. The INP addresses Item 5 in the listing above. The overall goal is to strengthen the commitment of the Palestinians to the peace process by helping them to realize and appreciate the tangible benefits that will affect their daily lives.

USAID has assisted the West Bank and Gaza in a wide variety of activities since 1994. Improvement in infrastructure has been a major element of U.S. development assistance since that time. The January 2006 elections won by Hamas led to a suspension of much of the assistance program and slowed rehabilitation of infrastructure drastically.

In June 2007 a violent takeover by Hamas in Gaza led to the formation of a new PA government which functions in the West Bank. As this government accepts the Quartet principles, U.S. policy is to support it through the USAID program. The program will deliver assistance targeted at restoring and upgrading major infrastructure in the West Bank and, as the political situation and security permit, in Gaza. As a result, the INP will create severely needed employment opportunities for a struggling Palestinian economy.

POTABLE WATER SUPPLY AND WASTE WATER DISPOSAL

In the West Bank and Gaza, Palestinians consume approximately 70 liters of water per day per capita, about 30% below the minimum standards established by the World Health organization and as little as 25% of consumption rates in Israel. About 90% of raw sewage produced in the West Bank is discharged untreated into numerous dry riverbeds causing both local health problems and contaminating the underground aquifers. In Gaza, only 60% of the Palestinian population is connected to a sewerage network. At present, breaks in water mains and pump failures, and leaks in sewage collection pipes occur frequently due to badly deteriorated water and sewage systems.

Over the past several years, the United States Government has been working to reduce the impact on affected families with immediate relief efforts and construction or repair of vital transportation infrastructure. USAID has financed both large-scale well-drilling and water pipeline projects in the Bethlehem-Hebron and Jenin areas as well as smaller, village-scale projects throughout the West Bank and Gaza. This has provided potable water to more than 800,000 beneficiaries, but many more remain unserved. In addition, USAID has funded several sewage projects including improvements to the Gaza sewage system and Gaza City Wastewater Treatment Plant benefiting more than 300,000 people.

The administration of water resources, the supply of water and the provision of wastewater services in Palestine have a long and complicated history. Many Palestinian water sector institutions were established during the period when the Kingdom of Jordan governed the West Bank. In 1967 all water resources in the Palestinian Territories came under the control of Israel and Israeli water companies were given a key role in planning, implementing, and operating water projects. The Israeli national water company, Mekorot, still drills wells in the West Bank and Gaza to sell water to Palestinians, the settlements, and Israeli citizens and any new wells drilled by the Palestinian Water Authority must be approved by the Israeli Water Commission.

The Oslo I Accords of 1993 contained a set of mutually agreed-upon general principles regarding a five-year interim period of Palestinian self-rule including full powers and responsibilities in the water and sewage sectors in the West Bank. However these responsibilities were not defined nor transferred due to the failure to reach agreement on permanent status issues. In September 1995, the Palestinians and Israelis signed Oslo II, an interim agreement. Oslo II makes reference to Article 40 of Oslo I Annex II, entitled “Water and Sewage.” Under Oslo II, both the Palestinians and Israelis jointly agreed that the Eastern Aquifer system would be a primary source of water supply to meet the needs of the Palestinian residents of the West Bank.

One of the outcomes of the Oslo II agreement was the establishment of a Joint Water Committee (JWC), which included representatives from both sides to function as a body on all new water development projects. The JWC has continued to meet on an irregular basis to discuss issues of mutual interest in the sphere of water and wastewater.

Since the Al Aqsa Intifada began in September 2000, the political, social and economic situation of Palestinians in the West Bank and Gaza has dramatically declined. One of the most notable changes has been the deterioration of water services. Urban systems have suffered from inadequate maintenance and the situation is even worse in rural areas where there is a chronic lack of personnel with adequate water engineering or mechanical skills. The population often relies on water delivered by tanker trucks that may not meet appropriate quality standards and whose price has increased many fold due to increased transportation costs and transportation barriers and Israeli checkpoints. Compounding these problems is the high rate of unemployment and underemployment experienced in West Bank and Gaza since the closure of borders with Israel. Local governments have had difficulty collecting sufficient revenues to maintain their operations and services. Consequently, local governments have often used revenues collected from water services to cover other costs rather than paying their own water bills in turn to their bulk water carriers. This has resulted in mounting debts for all levels in the water sector, greatly reducing the sector’s ability to operate and maintain their systems without substantial foreign donor assistance.

The Palestinian Water Authority (PWA) was established by Presidential Decree No. 90 of 1995 with the intention of creating a national-level management unit for water resources issues. However, initially, the PWA functioned largely as a project manager and counterpart for donor funded projects. In order to allow the PWA to focus more of its attention on general water sector management issues, a donor-funded Project Management Unit (PMU) was formed in 1998 within the PWA to assist in the administration and supervision of donor-funded water and sanitation programs.

The PMU filled a dual function of both acting as an official counterpart to donor-funded projects as well as a project-implementing unit, providing direct technical assistance to local governments in emergency repairs to water networks. In addition, the PMU acted as a conduit for critical spare parts, replacement pipes, and equipment needed to improve water distribution efficiency by reducing losses through pipe replacement, improved metering, and improved bulk water management.

With the passage of the Water Law in 2002, the PWA was given authority to regulate all water resources in Palestine, including all surface waters, groundwater, sewage water, desalination water, and brackish water. The PWA is now responsible for setting general water policies, licensing the exploitation of water resources, regulating water exploration, drilling, testing, production, and rehabilitating or developing water departments for bulk water supply at the level of the different national governorates.

As part of an on-going program of assistance to the PWA from the Governments of Norway and the Netherlands, the PWA has decided to focus its institutional energies on developing its regulatory capacity and role, vis-à-vis the water sector. In May 2005, all but 12 of its 180 employees were transferred to the Palestinian Authority’s payroll. The PMU has been moved out of the PWA and, though it still plays a significant advisory role for PWA decision-makers, the PMU’s staff and activities are now fully financed by international donors, primarily the World Bank and the Government of Finland. The PMU is administratively independent of the PWA. The PMU remains active as a technical coordination and implementation unit for the World Bank’s EWOCs program as well as USAID’s new SWIFT II program.

Several donors have pledged to provide additional technical assistance and training for institutional development of the PWA as the water sector regulator, including the Governments of Norway, the Netherlands, France, and Austria. The PWA has requested assistance from USAID specifically to assist its staff in establishing additional regional Maintenance and Training Centers and to provide opportunities for PWA staff to act in its new regulatory role.

The West Bank Water Department is the principal bulk water carrier for the West Bank. It delivers water to entities that serve 60% of the population of the West Bank. Consisting of 165 employees, the WBWD provides water to 320 municipal and corporate customers. Water supplied by the WBWD is obtained from Mekorot and from wells owned by the WBWD, primarily in the central and southern regions of the West Bank. Prior to the Intifada, WBWD consistently collected 85% of its bills each month. Since the Intifada, payment for bulk water charges has dropped to 20 to 25%, causing the WBWD and PWA to turn to donor funding in order to pay Mekorot for bulk water supplies. Currently payments to WBWD by its customers are approximately $70 million in arrears. In an effort to begin recapturing water revenues, the WBWD has launched a new initiative to encourage its customers to pay their water bills. In May 2005, WBWD took out advertisements in major West Bank newspapers advising the public and its local government customers that it would begin reducing by 20% the amount of water supplied every month to entities who failed to pay their May 2005 bill. Early results have been quite positive – there has been a marked increase in the number of local government customers who have paid their bills for the month of May and some large municipalities have begun negotiating a payment schedule for bills in arrears.

WBWD has received substantial technical assistance from donors in the past, notably from the U.S. and France. Their basic organizational structure, human resource systems, and billing and collection systems are already in place and functioning well. The WBWD has requested technical assistance from the WIC program in establishing expert teams for unaccounted-for water losses, ductile iron pipe repairs, bulk water metering, and maintenance of submersible and booster (vertical and horizontal) pumps. The WBWD has also requested software for billing, collection, inventory, and monitoring as well as replacement steel pipes and other commodities needed to carry out the critical function of reducing water leakage and unaccounted-for water losses.

Joint Services Councils (JSCs) have their origins in Jordanian law and are included in the 1997 Palestinian Local Government Law. JSCs are groups of local authorities that gather within a defined framework to jointly provide one or more services to their respective citizens. The services provided are varied and generally consist of those services where the users pay all recurrent costs, such as garbage collection, water distribution, or electricity. Because they provide economies of scale, JSCs are seen as efficient ways for small communities to operate and deliver higher quality services. As of 2003, there were 49 JSCs operating in West Bank and Gaza providing services to 360 small communities, most with populations of 8,500 or less. However most of these JSCs provide garbage and solid waste services. Only a handful of JSCs in the West Bank, operating in the area of Jenin, Nablus, and Tulkaram, provide water services. As yet, no JSCs provide wastewater collection services. Under previous activities, USAID has assisted in the creation of two JSCs for water services in the West Bank: a group of eleven villages northwest of Jenin and a group of villages in the Beit Dajan area. Both JSCs remain active and USAID believes that this approach has great potential to be replicated on a much larger scale.

Experience and technical capacity to manage water services varies widely among local governments and municipalities in the West Bank. Many larger municipalities such as Jenin, Nablus, Ramallah, Jericho, Bethlehem, and Hebron employ full-time staff to operate and maintain their systems. In Hebron, for example, the city employs a full time staff of 35 to manage its water services department. Water is obtained from a variety of sources including from the West Bank Water Department, the Jerusalem Water Undertaking Authority, privately owned wells, and local government owned wells. Technical capacity to maintain and operate water systems in larger municipalities is often quite high although staff must contend with a bewildering array of different models of pumps and network materials. Smaller local governments including villages are often unable to employ full time staff or staff with the requisite skills needed to maintain their wells, pumps, and networks. Even in the most technically skilled utilities, unaccounted-for water losses (UFW) often exceeds 50% due to aging and damaged pipes and valve fittings. Reducing UFW is key to improving water productivity, water efficiency, and raising revenue streams from existing water sources.

The Water Law of 2002 identifies the creation of Regional Water Utilities as the most desirable approach to managing the delivery of water and wastewater services in Palestine. This approach is expected ultimately to achieve greater economies of scale and enable the utility to deliver more efficient and higher quality of service to its customers. To date only one Regional Utility has been created. The Coastal Water Utility in Gaza began operation on June 1, 2005 with funding and support from the World Bank. Merging the water systems and local government water utility staff of all Palestinian municipalities and communities in Gaza created this Regional Utility. A private sector consortium will operate the utility on behalf of its local government owners. The World Bank is funding capacity building and retraining for the new Gaza Regional Water Utility staff.

The PWA has asked the World Bank to support similar efforts in the West Bank. The first Regional Water Utility for the West Bank is likely to be established in the southern region and may include the municipalities of Bethlehem and Hebron. The World Bank has indicated to USAID that funding for this activity would be available in 2008. Creation of additional Regional Water Utilities in the West Bank would have to follow later on as funding became available. Consequently it is unlikely that the present system of water service delivery for the West Bank will be replaced with a full-scale Regional Water Utility structure in the next 5 to 10 year period. USAID believes that strengthening capacity of existing water sector institutions can be designed to achieve immediate improvements in service and access to water and wastewater services while ultimately strengthening the capacity of staff that might be transferred eventually to a Regional Water Utility operation.

Additional background information on the status of institutional capacity in the water sector of the West Bank and Gaza is available in a USAID-funded report entitled “Capacity Building for O&M of Water Infrastructure and Developing Small Water Infrastructure in the West Bank and Gaza”.

OTHER INFRASTRUCTURAL SERVICES

Road Infrastructure

Transportation infrastructure has been damaged and is deteriorating quickly. Road infrastructure has deteriorated to the point where, without immediate rehabilitation, past investments may be completely lost. Some 50 percent of the roads in Gaza are unpaved, and it is estimated that 40 percent of the road system in the West Bank is below acceptable service levels. This situation has developed as a result of rapid population growth and chronic under-investment in infrastructure. During recent years, USAID has rehabilitated a total of 170 kilometers of important roads and streets throughout the West Bank and Gaza.

In spite of such donor efforts, infrastructure facilities are inadequate to meet basic domestic and commercial needs across much of the West Bank and Gaza. The existing infrastructure perpetuates poor and deteriorating public services and constitutes a significant brake on economic growth and development. USAID/WBG intends to consider rehabilitating severely damaged road segments that are presently unsafe for existing traffic levels and restoring or replacing damaged utility structures above and below the traveled roadway including water, wastewater, storm water, natural gas, electricity, telephone and manholes of utilities located in the right-of-way and in the immediate vicinity of the roads.

The restoration of transportation infrastructure will improve access to markets and facilitate movement of labor, commercial goods, and services. Good roads reduce business transaction costs and lower the cost burden on commercial vehicles and personal automobiles. As one result, the Palestinian construction industry will receive an economic stimulus. There will be new employment opportunities, increases in demand for materials supply, and a consequent reinvigorated manufacturing sector.

Political and implementation circumstances permitting, USAID intends also to consider supporting upgrade of infrastructure facilities at primary commercial crossing points to improve the movement of commercial traffic between Israel and the Palestinian Authority. Such an activity will be consistent with the Agreement on Movement and Access brokered by the U.S. Secretary of State in November 2005.

The implementation of other infrastructure to support other USAID programs will also be considered under this INP. These activities will address USAID sectors such as agricultural and enterprise development, health, education and local government. Such other infrastructure may include, but not be limited to, the construction of structures and buildings such as schools, health clinics, courthouses, youth centers, and offices.

Institutional Capacity Building

To reduce dependency on international donor funding and to promote sustainability for results, Palestinian institutions must develop internal capacity to manage, operate, expand and finance key infrastructure Institutional capacity building is needed to improve such functions as operation and maintenance of equipment and facilities, billing and collection, strategic planning and financing in bulk water carriers, municipalities, and Joint Services Councils who have primary responsibility for the delivery of water in their service areas. Additional areas of need include strengthening PWA regulatory capacity, and work among other relevant ministries, communities, and the private sector to promote more effective wastewater reuse and ensure cleaner water supplies through watershed management, environmental pollution control and remediation, improved solid waste management, regular road maintenance, and the creation of systems that can generate sufficient funding to support maintenance planning and execution at various levels of government.

Water Supply Infrastructure

In the West Bank, where water supplies are drawn largely from over-exploited aquifers, USAID/WBG will consider achieving increased access to potable water by reducing losses from aging water systems, construction or expanding pipelines and reservoirs to improve the distribution of water supplies, and developing new water sources.

Completing the construction of the Eastern Hebron Bulk Water Supply project is project currently undertaken by USAID contractors. This project represents the final phase of a six year USAID activity to deliver potable drinking water to the southern part of the West Bank. Upon completion, this project will double the amount of potable water available and 600,000 people will be supplied with sufficient quantities of portal water to meet their normal, daily needs.

The supply of safe and sustainable water services to un-served and under-served villages southeast of Nablus. Under this potential project, USAID/WBG could equip a well developed by the PWA, and provide, pumps, storage tanks, Transmission lines, and household distribution systems to a cluster of villages southeast of Nablus. Another activity is the consideration of a water reservoir for the Jericho District to improve distribution network.

Sanitation Infrastructure

Wastewater continues to increase in major urban areas in the West Bank. Raw sewage currently flows to the southern valley and causes both local health problems and the potential for long term contamination of the western aquifer. This could impact future water supply options for both the Palestinians and Israelis. The PWA has expressed the highest priority need for the construction of a regional wastewater facility in the Hebron district and Bethlehem district that will meet the needs of the southern West Bank lacking treatment facilities for major urban areas.

USAID/ WBG could consider developing alternative sources of water for agricultural use through the construction of wastewater collection networks and treatment plants in the Bethlehem and Hebron areas. The program could finance the construction of a regional Wastewater Treatment plant in the Hebron area, located 10km to the southeast of the Hebron Municipality. The construction of a phased 15,000m3/day wastewater includes a pre-treatment facility at the Bani Naim location to treat the wastewater from the municipality of Hebron, a conveyance system from Hebron to Bani Naim of 11km and the operation and maintenance training on that plant for a period of 2 years. Included in the phased construction programs may be a pumping stations and conveyance pipeline, wastewater treatment facility, reuse storage and distribution programs and a solid waste landfill expansion project.

Other Infrastructure

Political and implementation circumstances permitting, USAID could also consider supporting the upgrade of infrastructure facilities at primary commercial crossing points to improve the movement of commercial traffic between Israel and the Palestinian Authority. Such activities will be consistent with the Agreement on Movement and Access brokered by the U.S. Secretary of State, Condoleezza Rice, in November 2005.

The implementation of other infrastructure to support USAID programs under this program could include activities in USAID sectors such as agricultural and enterprise development, health, education and local government and may include, but not be limited to, the construction of structures and buildings such as schools, clinics, courthouses, youth centers and offices.

Institutional capacity building would also focus on the PA and municipalities to undertake road maintenance on a regular basis. USAID/WBG To reduce dependency o