Water privatisation: Yerevan water supply, going private gradually

In 1998, the Government of Armenia began to seriously weigh a private sector solution to the worsening situation with the water supply system in the country’s capital, Yerevan. The Government’s eventual decision to engage the private sector through a 4-year management contract – backed up by donor-funded projects-helped address some of the system’s biggest issues, such as high nonrevenue water and low revenue collection rates. With the system in a more promising condition following the management contract, the Government proceeded with a greater commitment to work with the private sector and offered a 10-year lease contract over the system.

For Yerevan, the Government employed the two-step approach to engaging the private sector: first with a short-term management contract (4 years, extended to 5 years) then a longer-term lease contract (10 years) with a private operator. The Yerevan experience proves the approach’s viability for attracting the private sector to an ailing utility. The Government has already put its second largest water utility-Armenia Water and Sewerage Company, a closed joint stock company-on the same path as Yerevan.

This model may provide confidence where governments are hesitant about involving the private sector but facing few alternative sources for the capital infusion and technical expertise that their failing systems call for. An Asian Development Bank (ADB) case study focuses largely on how the Government first embarked on private sector participation in its water supply and sewerage sector, which was through the 4-year management contract in Yerevan. The case study also examines Yerevan’s transition to the 10-year lease contract, which concluded its second year of private operations in 2008.

Read the full ADB case study (Aug 2008, 16 p.) here.

Philippines: evaluation of ADB assistance to water supply services in Metro Manila

The Asian Development Bank (ADB) has had more than 3 decades of partnership experience in supporting the development of water supply services in Metropolitan (Metro) Manila. During this period, ADB provided nine loans (worth US$ 425.3 million) and seven technical assistance (TA) grants (worth US$ 3.6 million).

The ADB conducted a special evaluation study (SES) to assess the performance of their assistance to draw lessons for future partnership operations. The findings were used as input to the Philippines Country Assistance Program Evaluation completed in 2008.

Overall, the SES rates ADB’s assistance to improving water supply services in Metro Manila as “partly successful”. All projects are rated relevant [...] and were well coordinated with other development partners. With the exception of the Manila South Project, they were generally effective in achieving their immediate objectives, efficient in resource use, and likely sustainable from the financial and economic perspectives, which was eventually strengthened following upward tariff revision. The Manila South Project experienced a shortage of raw water and did not utilize the full loan amount; hence, it could not meet its immediate objectives.

Key lessons identified from experience with implementing water supply projects in the Philippines relate to the need (i) for greater attention to demand-side issues in project design; (ii) to reduce the high levels of NRW [non-revenue water] as an integral way of responding to rapidly increasing demand; (iii) for water utilities to give priority to adequate maintenance of existing water supply facilities and investment for rehabilitation to reduce NRW over the investment in new assets; (iv) for better readiness for project implementation; and (v) to improve transparency and accountability in preparing concession agreements.

Read the full evaluation study report (Sept 2008) here.

Laos: evaluation of small towns water and sanitation project

In October 1999, the Asian Development Bank (ADB) approved the Water Supply and Sanitation Sector Project to sustain improvements in environmental health and the quality of life for the urban communities in small towns. The Executing Agency was the Department of Housing and Urban Planning (DHUP) of the Ministry of Public Works and Transport.

The purpose of the Project, , which ended in July 2008, was to provide 24-hour, potable water at affordable tariffs to 12 of the highest-priority small towns and to parts of the capital, Vientiane.

The Project is considered relevant though less effective, less efficient, and less likely to be sustainable. Its overall performance is therefore rated only partly successful. Sustainability will require (i) increased support and commitment from the Government and the PNPs ([provincial nam papa (provincial water supply company)];  (ii) continued training of operational and management staff, especially in minimizing non-revenue water and improving asset management, to improve operating performance and technical sustainability; and (iii) higher revenues, through the sale of more water and an increase in water tariffs.

Lessons Learned

Noncompliance with Financial Loan Covenants. The Loan Agreement included covenants on water tariff increases, sufficient to cover O&M, depreciation, and debt service. These covenants and the WASA [Water Supply Authority] recommendations on tariff increases were not followed, contributing substantially to the poor financial position of the PNPs and the Project’s low ratings for efficiency and sustainability. If the water tariffs had been increased before investments were made in water supply facilities, the Project would have been financially viable and sustainable.

Low Connection Rates Caused by High Connection Charges Up-front. Distribution mains, but not service mains, were part of the Project at the start. The PNPs were to provide the service connections and charge consumers in advance at marked-up rates. These rates made the connections less attractive. Moreover, given the low tariffs, the PNPs could not generate enough revenues to lay service mains and facilitate the connections. The project towns have low connection rates as a result.

Low Awareness of Loan Obligations, Leading to Low Project Ratings. The PNPs and provincial governors were apparently unaware of their obligations under the Loan Agreement between ADB and the Government, particularly with respect to tariffs, financial sustainability, and outputs to be achieved. This led to low achievement of the outputs and noncompliance with financial covenants.

Continuous Support Needed for Effective Community Participation. The CAPP [community awareness and participation program] appeared to be less effective, considering the low level of disbursements from the revolving fund and the slow implementation of the sanitation works. This was because the consultants were not based in the project area and could not provide continuous support to the newly formed WSS user groups.

Read full completion report (Aug 2008) here.

Twinning: boosting performance in Asian water utilities

The Asian Development Bank (ADB) has adopted twinning as part of its Water Operators’ Partnership (WOPs) Program. The WOPs program promotes knowledge sharing and builds the capacity of water operators and utilities in the Asia and the Pacific region. Among its key initiatives is the twinning of 20 water utilities and operators.

Whereas most twinning arrangements pair off entities with similar characteristics on the assumption that they will share similar problems and solutions, ADB’s approach is to match a stronger water and sanitation utility (expert) with a developing utility (recipient). The aim is to enable the latter to improve service coverage and delivery, financial sustainability, and other aspects of its performance.

With the exception the Phnom Penh Water Supply Authority (Cambodia) and Binh Duong Water Supply Sewerage Environment Company (Viet Nam) partnership, which commenced in July 2007, ADB has completed six of eight currently operational twinning arrangements between November 2007 to June 2008. The latest partnership between Karachi, Pakistan and Selangor, Malaysia began in September 2008. The eight twinnings in progress as of September 2008 were:

Expert	Recipient
Malé Water and Sewerage Company Pvt. Ltd. (Malé, Maldives)	Thimphu City Corporation (Thimphu, Bhutan)
Jamshedpur Utilities and Services Company Ltd. (Jamshedpur, India)	National Water Supply and Drainage Board (Colombo, Sri Lanka)
Korea Water (Daejon, Korea)	Dhaka Water Supply and Sewerage Authority (Dhaka, Bangladesh)
City West Water (Melbourne, Australia)	Metropolitan Cebu Water District (Cebu, Philippines)
Ranhill Utilities Berhad (Johor Baru, Malaysia)	Davao City Water District (Davao, Philippines)
Phnom Penh Water Supply Authority (Phnom Penh, Cambodia)	Binh Duong Water Supply Sewerage Environment Company (Binh Duong, Vietnam)
Haiphong Water Supply One Member Company Ltd. (Haiphong, Viet Nam)	Da Nang Water Supply Company (Da Nang, Viet Nam)
Puncak Niaga Holdings Bhd. (Selangor, Malaysia)	Karachi Water and Sewage Board (Karachi, Pakistan)

Focus Areas of Twinning Work Programs

Utility location	Nonrevenue water	Water quality	Distribution system design, maintenance	Management practices, including human resources	Energy saving	Metering
Binh Duong, Viet Nam	x		x			x
Thimphu, Bhutan	x	x		x
Dhaka, Bangladesh				x
Da Nang, Viet Nam	x			x
Davao, Philippines	x			x		x
Cebu, Philippines	x		x	x
Colombo, Sri Lanka	x				x

Making Twinnings Work

Both parties pour in time, knowledge, and financial resources to make sure the twinning works. While it is too early to judge what works best, it is possible to discern conditions that could contribute to this end. Obviously, the recipient twin’s commitment to implement the improvement programs that will result in the partnership is a must. But other factors also contribute, among them the following:

• Creating choices for the twins
• Matching the personal/organizational chemistry
• Ensuring easy flow of communications
• Facilitating the diagnostic stage
• Knowing what the expert twin wants from the association

Read the full ADB water brief  “Power of Two-Boosting Performance Through Twinning” (Sept 2008)

Output-based aid: community water project in Andhra Pradesh, India

A project supported by the Global Partnership on Output-Based Aid (GPOBA) is piloting a project providing safe drinking water to 12,500 poor households in 25 villages in three coastal districts of Andhra Pradesh: Guntur, Krishna, and West Godavari.

Each village will have a water treatment plant connected to a water distribution point from which users will purchase water in jerry cans.

The scheme involves a public-private partnership between the Naandi Foundation, a local Indian NGO, Water Health International, a water purification technology provider, and the village councils.

As of September 2008, four Community Safe Water Schemes (CSWSs) have been constructed and verified, three in Krishna and one in West Godavari. The remaining 21 villages have been selected and 10 are in the process of making their community financial contributions. The GPOBA subsidy has made it easier for Naandi to borrow funds from commercial banks. The OBA approach is also promoting participatory community involvement and building capacity in the villages for managing and delivering efficient services. The grassroots fee-for-service model coupled
with a sense of community engagement and ownership will help ensure the long-term sustainability of the water supply schemes.

It is anticipated that the lessons learned and methodology developed for each CSWS can readily be applied to other villages in the State of Andhra Pradesh and ultimately in other parts of India. GPOBA, Naandi, and WHI believe that scaling up is possible, as the demonstration effects of each pilot will motivate adjoining villages to engage in similar projects, accelerating demand and willingness to pay for clean water through user fees. Lessons from this project may also assist in the design of national programs aimed at achieving the Millennium Development Goals for water
and sanitation.

Project web site: GPOBA – India: Safe water shouldn’t be a luxury (includes slideshow)

Source: Mandri-Perrott, C. (2008). Output-based aid in India : community water project in Andhra Pradesh. (OBApproaches note ; no. 21). Washington, DC, USA, Global Partnership on Output-Based Aid (GPOBA), World Bank. 4 p. Download here

Institutional reforms: introducing a customer charter and quality circles in Sri Lanka

To improve customer service,  Sri Lanka’s National Water Supply and Drainage Board (NWSDB) introduced a customer charter and quality circles.

“Water Champion”, M.A.M.S.L. Attanayake, Deputy General Manager for the Regional Support Centre- Central of NWSDB explains how these innovations came about and what they have achieved.

Read more:  Ma. Christina Dueñas, ADB, Dec 2008