Public-private partnerships: evaluation of ADB’s performance in infrastructure

The Asian Development Bank’s support for public-private partnerships (PPPs) in infrastructure development in general was rated “successful,” a special evaluation study concludes [1].  There are, however, areas for improvements for both, public sector and ADB’s Private Sector Operations Department (PSOD) operations, as implied by lower performance ratings in some specific areas and sectors.

For the water sector, the report recommends the PPP modalities that improve systems performance should be promoted. This means that the ADB should promote performance-based management contracts and affermages/leases, at least as strongly as the build-operate-transfer (BOT) type interventions. Decisions should be guided by the overall objective of minimizing investment and operating costs of the entire system and need to be sensitive to local political conditions and aspirations. Attracting private capital rather than achieving gains in technical, managerial, and allocative efficiencies is often wrongly perceived as the primary purpose of PPPs.

Since the 1990s, there is an increased use of PPP schemes that involve fiscal support to facilitate private sector participation (PSP) in water projects, which have had problems attracting private investment due to difficulties associated with predicting demand and charging cost-reflective tariffs.

ADB has implemented PPP in the water sector in many countries, including Bangladesh, India, Nepal, Pakistan, and Sri Lanka in South Asia, and in Cambodia, China, Indonesia, and the Philippines in East Asia. ADB’s support has included technical assistance and policy dialogue for sector reforms and commercialisation of water utilities.

The report notes that two-thirds of approved PSOD water transactions had to be cancelled due to disputes between project promoters and authorities, limitations of the BOT modality, and unresolved tariff issues. This highlights PSOD’s particular difficulties in identifying viable transactions in this sector despite numerous attempts to become more engaged.

Opposition to change and fear of consequences (job losses, higher tariffs, loss of political control) and resistance by non-governmental organisations (NGOs) opposed to private sector entry have thwarted many attempts to introduce PPP, particularly in the water sector. The development of PPPs was also derailed in several countries, e.g., Indonesia, Nepal, and Sri Lanka, due to changes in (local) government commitment. Sustained political will and support of key stakeholders is therefore seen as the ultimate determinant of PPP success.

[1] Feig, H. and Finlayson, B. (2009). ADB assistance for public-private partnerships in infrastructure development : potential for more success : evaluation study. Manila, The Philippines, Asian Development Bank. ix, 65 p. : fig., tab. 15 ref.
Download full report [PDF file]

Urban water supply: potential of pro-poor water connection subsidies in Cambodia

After decades of conflict, Cambodian water planners are struggling to provide supplies to urban residents. Many households do not use water from a network connection. Instead they rely on dirty and unreliable sources. Getting poor householders connected is unlikely without subsidies and regulatory reform.

A new journal article [...] uses household data from a range of Cambodian urban settings to assess the demand for water and identify the main factors determining household access to network water.

[O]utside the capital {Phnom Penh] the urban [water] coverage rate is only 15 percent. Many people obtain their water from rivers, streams, tanks, wells or private vendors [who charge] prices that are usually about ten times higher than the official rate.

[...] An examination of 200 household variables and price data reveals that:

• Educational attainment levels are higher among connected households compared to non-connected ones.
• Members of an ethnic (mainly Chinese) minority are more likely to be connected compared to the majority Khmer group.
• Connected households have significantly greater assets than non-connected ones: a household with a telephone is 33 percent more likely to be connected than a household without a telephone.
• A one percent increase in the water connection fee reduces the probability of a household getting connected by about two-fifths.

The researchers advise policymakers – in Cambodia and other developing countries – to use targeted subsidies to encourage more poor households to connect. Once they are connected even the less well-off households may be able to afford a non-subsidised tariff. This advice is based on growing evidence that with targeted connection subsidies, the probability of excluding a deserving household is significantly smaller than with a general consumption subsidy. Poorer households are often willing to pay more for water and sanitation services than what they cost to operate and maintain.

The [article urges] the Cambodian authorities to:

• better manage existing resources aimed at the provision of safe water targeted at the poorest, which could then provide the financial resources for a connection subsidy programme
• discuss with donors and concession operators how to finance a connection subsidy programme
• in addition to connection subsidies, consider other factors to improve service access and provision, such as developing sound regulations for the sector
• give an autonomous regulator a clear remit to promote accountability, transparency and competition between the public and private sectors
• undertake research comparing the efficiency of the private and public sectors
• generate data regarding the welfare effects associated with connection to and use of a water system.

Full reference: [1] Basani, M., Isham, J. and Reilly, B. (2008), The determinants of water connection and water consumption : empirical evidence from a Cambodian household survey. World development ; vol. 36, no. 5 ; p. 953-96. doi:10.1016/j.worlddev.2007.04.021. Read the full article here.

Source: id21, 01 March 2009

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)

Water distribution: small piped water networks as a long-term solution in Viet Nam

Tien Giang Province’s small towns, deemed unserviceable by major water utilities, found a permanent solution to their big water problem in small piped water networks.

When Viet Nam’s Tien Giang Province was selected as project site for piloting small piped water networks (SPWNs) [in 2005], it was on the premise that these small piped systems would provide a short-term, interim solution to the province’s water problem. The more permanent solution-connections from the water company with its huge pipes-has long been overdue.

SPWPs, which are businesses owned by persons or small organizations, were able to get water to more than 2,500 people within three months.

[...] Whether by fluke of circumstance or by incredible insight on the part of Viet Nam’s legislation, Decree 117, which reconsidered water’s status from a social good to a business commodity, was passed in August 2007 while the pilot projects were in progress. The decree opened up the entire sector to change-high and upfront connections were done away with, water connections were offered free or on flexible 12-month installment schemes to the extremely poor, and water tariffs were adjusted.

[...] SPWNs [...] were also environmentally beneficial, as they put an end to uncontrolled well-drilling that can lead to soil subsidence and groundwater table pollution.

[...] In Viet Nam’s case at least, SPWNs do not offer interim solutions-they are the permanent solution to bringing piped water connections to poor households and communities.

Source: Cezar Tigno, ADB, Dec 2008

Making Innovations Stick

When things are going smoothly, why would someone bother to innovate? Where do ideas for innovations come from? How come some succeed but many do not leave the drawing board or the pilot stage?

[...] Innovation in the water sector mostly comes through technical or technological breakthroughs [in] membranes and nanotechnology in water and wastewater treatment, water reuse and disinfection, the use of helium for tracing nonrevenue water, and [...] for instance the use of rubber, plastic or polyethylene sheets instead of a concrete structure for water storage.

But recent years have also seen legal and institutional as well as financial changes. In 2005, the Asian Development Bank (ADB) introduced innovative financial products [including the] multitranche financing facility, sub-sovereign and non-sovereign public sector financing facility, local currency lending for the public sector, and refinancing modality. In 2007, Viet Nam passed [...] legislations [that] transformed water from a social good to a business commodity and opened up the entire sector to change.

[It took] Singapore’s Public Utilities Board (PUB) [...] 30 years of research and experimentation before they perfected the multiple barrier process that [transformed] recycled wastewater [into] a source of safe drinking water. And even when the reclaimed water has passed world standards on safety, PUB continued to test the product in increments.

[...] In a nutshell, an environment conducive to innovation in the water and sanitation sector is possible but only with a real partnership among research, industries, operators and clients, where risk would be properly identified, shared and managed among all parties.

Source: Hubert Jenny and Alexis Ngo,  ADB, Dec 2008

Project Performance and the Project Cycle: lessons from the Asian Development Bank

Despite a general trend to higher numbers of projects being rated successful or better over the past few years, about 30% of ADB’s project portfolio of the Asian Devlopment Bank (ADB) is still rated less than successful during the evaluation phase.

In order to better understand why this happens, a business practices study was undertaken to look at project performance in the project cycle.

The retrospective analysis was able to determine 17 common factors which affected project success. The most frequently occurring of these factors were deficient capacity-building and ownership measures during project design, insufficient or deficient supervision by ADB during project implementation, less than rigorous ADB internal review, and inadequate technical analysis or inappropriate project design.

Based on an analysis of each stage of the project cycle, three main issues were highlighted:

1. Overloading of the Project Team Leader
Recommendation. Project teams have been less than effective in adequately supporting the project team leaders. Management should continue to explore modalities for strengthening team work (including through appropriate incentives) to have better burden sharing in teams.

2. Budgetary Support not Commensurate with Expanding PPTA (project preparatory technical assistance) Scope
Recommendation. Management should review PPTA funding requirements in light of the current and future scope of PPTAs and ensure the necessary PPTA funds.

3. Need for Greater Project Supervision to Avoid Implementation Delays
Recommendation. Current resource allocation for project implementation supervision should be reexamined for adequacy. Start-up delay, which is a common feature for most projects, should receive special attention, and adequate resources should be made available including thorough flexible use of TA and loan funds and/or greater internal human resource allocation.

Read the full ADB report (September 2008)

Small-scale providers: success story highlights the need for cheap and accessible financing, Philippines

Elsa D. Mejia is General Manager of the Inpart Waterworks and Development Company (IWADCO), a family enterprise that started as a small construction company specializing in the production of water tanks for small towns and municipalities in and around Metro Manila, Philippines.

During the 1990s, IWADCO (then known as Inpart Engineering) invested US$350,000 over a 5-year period in low-income communities. Raising this amount, which enabled IWADCO to deliver water to 125,000 people either through piped connections or hose connections from storage tanks, wasn’t easy. Commercial banks refused to give loans, forcing Ms. Mejia to lend from relatives and other nonbank lenders, often at usurious rates of 5%-15% interest per month.

Ms. Mejia took this risk knowing that IWADCO can recover its costs and even earn profits because people were willing to pay for water. With its US$100,000 investment (around US$30-40 per household), IWADCO sold 30,000 cubic meters (m3) of water in a month, serving over 3,000 households.

Since then, governments have shown increasing interest in partnering with small enterprises for water supply provision. With its extensive experience, IWADCO stands out as one of the most viable and trustworthy partners in the water sector.

In August 2007, Ms Mejia became president of the National Water and Sanitation Association of the Philippines (NAWASA), a new organization of small-scale private water providers (SSPWPs) in the country.

When asked what where the most important lessons she had learned, Ms Meija mentioned:

• the need to create a strong relationship with partners (local government and other SSPWPs),
• the need to work together to be able to appeal more strongly to donors, the government, and big private companies for support, especially for greater access to cheaper and accessible financing, and
• the need to learn from collective experience, use better technologies, and become more efficient and sustainable water providers.

Read more: Cezar Tigno, Water Champion: Elsa Mejia – Small Private Providers at the Water Front, ADB, June 2008