On May 4 the World Bank approved a second credit to Armenia for funding a water supply and sewerage project. The new project, the Municipal Water and Wastewater Project, envisages improvement of water and wastewater services in an area that includes 300 communities outside Yerevan. The credit to Armenia, worth $23 million, must be repaid within 40 years.

Armenia will receive the second water-supply loan at a time when implementation of the first project has given rise to questions.

The first World Bank loan funded the Municipal Development Project (MDP), which aims to improve the Yerevan water supply by installing meters throughout the system, improving the network connecting the northern springs to Yerevan, delivering the Davitashen district of the capital city with 24-hour water supply, and detecting and eliminating leaks in the system.

According to Varazdat Avoyan, director of the project management unit responsible for overseeing the project, much improvement has been made in Yerevan’s system. To date, meters have been installed in 80% of the city’s homes, which has led to lower water consumption and lower water bills. Overall, the city’s per capita consumption has dropped from well over 400 liters per day to approximately 150 liters per day. In addition, the residents of Davitashen are now receiving water throughout the day, according to Avoyan.

Not everyone is convinced of the project’s effectiveness, however. A National Assembly committee investigating the effectiveness of credits and grants to Armenia has voiced serious suspicions about the MDP. According to the committee’s chairperson, Vahan Hovanisyan, the number of accidents in the water supply system has increased 24% in 2003 as a result of the operator’s activities.

Hovanisyan believes that the installation of water meters has increased pressure on the city’s weak distribution pipes. The committee thinks that water goes up to two floors higher in apartment blocks due to increased pressure, which is presented by the water and sewerage company as a result of reforms. The wear and tear of the city’s water supply network, however, has resulted in leakages of enormous amounts. Most of the water does not reach the residents, instead penetrating under the city and creating an extra seismic threat for Yerevan.

Eduard Mesropyan, director of “Jinj” Consulting, states that 60-70% of Yerevan’s water pipelines are older than 20 years. Due to this wear and tear, two-thirds of the water entering Yerevan does not reach the users—a fact also confirmed by municipal water officials.

Over the last four years, two strategic programs for fighting the leakages were designed. However, according to the National Assembly committee, these programs were ineffective. The activities performed by the operator to detect and eliminate leaks were, in fact, given a “zero” rating by the independent Danish auditing company, Rambeau.

Henzel Khachatryan, advisor to the director of Yerevan Water and Sewerage Company, does not accept the definition “leakage” at all. In his conviction, the only effective program for fighting leakages is renovation of the system and installation of water meters. It seems, in fact, that the water company has no program for routine repair and replacement of water pipes. Instead, problems are addressed only after accidents occur.

According to the National Assembly’s committee’s report, issued this past March, the share of the MDP’s construction-related costs is sharply lessened in favor of administrative costs. According to Hovanisyan, a $175,000 project to improve the supply of water from relatively cheaper springs in Garni was designed four years ago but never implemented.

Despite doubts about the Yerevan project, the World Bank has promised Armenia an additional $20 million to extend the project, in addition to the new $23 million credit for water and wastewater work to be done outside of Yerevan. These amounts will combine with other World Bank credits to bring to $788.15 million USD the total Armenia has borrowed since joining the Bank. These funds have been loaned to implement a total of 33 projects.

Referring to the new water and wastewater initiative, Brian Steven Smith, head of the World Bank team designing the project, has called it “a first important step in extending improvements recently achieved in Yerevan to other parts of the country.”

At question is whether Armenia can pay for these credit projects. Khachatryan hopes that in 30-40 years the company can become self-sustainable. In the meantime, the company is only collecting 53.8% of fees due. According to Khachatryan’s calculations, the water supply system of the country can be rehabilitated also without World Bank support. In this case, however, the water tariffs will have to be 300 drams, more than triple the present 90.02 drams tariff, and collection of fees should not be less than 90%.

With these goals so far away, it appears that the government has decided to bequeath these debts to future generations.