Peri-urban water supply: a sustainable model in post-conflict Angola

One of the important challenges of post-war reconstruction is to provide more and better quality basic services, such as water. Previous attempts at upgrading main supply systems to accommodate peri-urban areas have been overwhelmed by the explosive demographic growth of Angola’s major cities brought about by many years of civil war.

A new paper [1] by the International Institute for Environment and Development (IIED) documents strategies developed by the informal private sector and local communities themselves to meet the demand for water services that the Angolan Government has been unable to provide.

The paper demonstrates that local communities’ own engagement in the management of water distribution and their assumption of the responsibility for maintenance and the payment of service fees is a sustainable and affordable model. The paper also points out that building on the successes of existing locally driven initiatives, can bring national and international water targets closer to realisation and that local innovations not only improve water provision, but do so in a manner that involves and responds to the urban poor more than conventional water projects do.

Drawing on a literature review and the experience of Development Workshop (DW) in supporting peri-urban water services in Luanda, the paper provides lessons and recommendations for partnerships, financing and cost recovery, mapping tools, and scaling-up.

Angolan politicians have often defended the position that basic services should be free of charge, but this has in practice resulted in a lack of funds being available for maintenance of the existing services. Central government income from the country’s extractive industries has rarely trickled down to basic service provision in peri-urban and rural areas and as a result, the poor find themselves paying more for essential services from the private sector or losing income because of frequent illness from contaminated water.

An opposite position, the “privatization” approach, has been promoted by international financial institutions, resulting in an obsession with “profitability”, with little attention being paid to affordability, accountability, maintenance, and regulation.

To provide a sustainable service, it is necessary to adopt cost-recovery principles and to charge an affordable fee for water that is used to keep the local infrastructure operational. Relying solely on centralized funds from the state budget to maintain local infrastructure in the peri-urban bairros has proved unrealistic. An inevitable part of developing sustainable basic services is the creation of accountable institutions. These principles have been incorporated into the legal framework for water services that has been formulated in the Water Law, 6/02, published in 2002. This document provides an overall policy and strategies and defines the organisational structures for an integrated management of the water resources. In this document amongst other regulations, it is indicated that users should pay a financial contribution (“taxes”) for the maintenance of their water systems.

In 2008 the Government launched the “Agua para Todos“ or Water for All Programme. At its launch the National Water Director made a public commitment to provide water to communities “wherever they are” signaling a new more inclusive government policy to bring water to poor-previously excluded communities.

[1] Cain, A. and Mulenga, M. (2009) Water service provision for the peri-urban poor in post-conflict Angola. (Human settlements working paper series. Water ; 8). London, UK, International Institute for Environment and Development (IIED). 56 p. ; 10 fig., 8 photos, 15 tab. ISBN 978-1-84369-754-1

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Output-Based Aid: an OBA Facility for the water and sanitation sector in Honduras

Results and lessons learned from a pilot Output-Based Aid (OBA) facility are presented in a new note [1] by the Global Partnership on Output-Based Aid (GPOBA).

Honduras has achieved a reasonable level of access to water supply and sanitation, but gaps in coverage remain, especially in rural and peri-urban areas, and service quality for those with access is often poor. To help the Government of Honduras achieve universal coverage and improve service quality, the Global Partnership on Output-Based Aid (GPOBA) is funding a project to test the viability of an innovative output-based aid mechanism for financing water and sanitation services. Housed within the Honduran Social Investment Fund, this “OBA Facility”—the first such facility funded by GPOBA—aims to improve access to water and sanitation services for about 15,000 low-income households, and to increase efficiency and transparency in sector investment funding. To be eligible for funding from the OBA Facility, projects must meet specific criteria and payments are made against verifiable results.

Results and Lessons Learned

The establishment of an OBA Facility is not without challenges. Unlike a traditional OBA project, the OBA Facility funds a number of projects with many characteristics. Some lessons learned from the implementation
include the following:

• The original structure envisaged that the regulatory agency ERSAPS would act as the OBA Facility’s independent verifier of outputs. However, the regulator’s actual capacity (both technical and financial) is very weak. Accordingly, it was necessary to hire consultants to act as verification agents.

• The use of technical assistance funds is crucial for enhancing implementers’ capacity to execute projects, particularly in the case of poor municipalities or communities.

• The eligibility methodology, as currently devised, gives an advantage to projects that are able to supplement funding from other donors or other sources. Furthermore, the ranking methodology tends to favour areas with high population density and flat topography. Giving a high weight to the greatest number of beneficiary households for every dollar of subsidy spent means that small communities are less likely to benefit from the scheme. Water service provision is more expensive for projects that require pumping; thus those projects may not be deemed eligible or may be assigned a lower ranking score.

• The increase in construction prices has made it necessary to lower physical targets and to adjust benchmark costs used to determine eligibility and rank projects. Cost increases between the time the contract is signed and the work is executed pose a significant risk to implementers.

• Establishing a more efficient and accountable way to use public money for investments in the sector will take time. In particular, donors in Honduras use input-based funding mechanisms (which do not require implementers to assume any prefinancing risk) and provide a higher subsidy for capital costs. It is hoped that through the results of the pilot OBA Facility, stakeholders—notably donors that are willing to fund investments—will progressively adopt the OBA approach to channel funds in the sector, in order to improve access and increase the service level to underserved or unserved communities on a wider scale. Using the mechanism already established by the OBA Facility for all projects in the sector would also reduce transaction costs for the government.

• It is too early to tell whether using an OBA approach as opposed to a traditional approach to funding sector investments reduces the time needed for implementation. However, this experience does suggest that setting up an OBA Facility takes time.

• The actual needs on the ground are somewhat different from what had been expected at project design. For example, the project assumed that there would be a demand for yard taps, while users actually want and are willing to pay for house connections.

Conclusions

A number of challenges have been identified when using an OBA Facility. To a certain extent, the jury is still out as to whether an OBA Facility is right for Honduras. FHIS is considering applying an OBA approach to all its funding for the sector if the pilot facility is successful; it could even be extended to all publicly funded water and sanitation projects in Honduras.

The benefits of using an OBA Facility approach for water and wastewater sector investments include the following:

• The process by which projects are chosen may become fairer and more transparent, as projects are evaluated according to their respective merits and compared against one another.

• The fact that payments are linked to outputs sharpens the implementers’ focus on results and improves the quality of monitoring and evaluation, since all results must be validated through independent verification agents.

• Tariffs for each project must cover at least operation and maintenance costs, in contrast to the current situation in Honduras, where many service providers barely cover their operating costs and defer maintenance.

• For public implementers, prefinancing is available through bridge loans. While this type of financing involves complex arrangements between the loan recipient (the implementer) and the government, it places responsibility on the implementer to achieve or meet the agreed results. This enhances accountability for the use of such funds.

• For private implementers, prefinancing can be arranged by tapping their own revenues or through local commercial banks.

• Some of the projects funded by the OBA Facility complement upstream investments supported by other donors. OBA Facility-supported projects filled in a critical gap in these efforts. Cases include SANAA and San Agustin, where the European Union and USAID respectively have funded water distribution trunks, but water connections have not been installed for all beneficiaries and sanitation infrastructure is still missing.

The OBA Facility also builds upon and strengthens good practices in the sector, such as the contribución por mejoras initiative, under which municipal governments negotiate the cost-sharing and payment arrangement with community residents for the installation of new public works; as well as community work in-kind, local government involvement, and community participation in decision making.

[1] Mandri-Perrott, C., Schiffler, M. and Aguilera, A.S. (2009). Output-based aid in Honduras : an OBA Facility for the water and sanitation sector in Honduras. (OBApproaches note ; no. 29). Washington, DC, USA, Global Partnership on Output-Based Aid (GPOBA). 6 p.

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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.
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Municipal service delivery: new accounting software improves transparency in Kerala, India

The financial transparency of urban local bodies (ULBs) in the south Indian state of Kerala has increased thanks to an Asian Development Bank (ADB) project. The municipal corporations of Cochin and Trivandrum now publish their financial accounts online.

The ADB technical assistance (TA) project “Capacity Building for Municipal Service Delivery in Kerala” (2006-2008) assisted municipal corporations and selected municipalities to (i) improve their capacity to organize, record, update, and manage financial and other information on a routine basis; (ii) increase the efficiency and integrity of the data being collected; and (iii) promote good governance in relation to financial management. The TA project aimed to help ensure the sustainability of the investments under the Kerala Sustainable Urban Development Project (Loan 2226-IND), a $221.2 million loan approved by ADB on 20 December 2005 and which became effective on 19 March 2007.

The TA project successfully installed and implemented municipal accounting software in five municipal corporations and two municipalities. As a result of continuous recording, updating and managing financial information on a routine basis using accrual-based double-entry accounting, they managed to publish their financial statement regularly.

Some of the major lessons are:

• Accounting system alone does not do anything – it is just software. It became meaningful when the necessary financial information is entered in accordance with the new accounting policy, which had to developed. The necessary financial information includes the past income and expenditure, assets and liability, and cash flow statement for the last five years. In ULBs, there are backlogs in accounts for four to five years. Recovery of the backlogs and data entry tasks absorbed enormous amount of ULB staff’s and consultants’ time.

• Feeding income and expenditure information can be computerized by connecting the accounting system with the Payroll module and the demand collection balance (DCB) module. Staff salary is the largest expenditure item in the ULB and computerization by the payroll module will bring efficiency in accounts work. The DCB module compares (a) demand: how much to be collected, (b) collection: how much actually collected, (c) balance: how much is still due. This will help ULB in capturing the amount of the uncollected in tax and charges for urban service delivery, which is a good start for ‘management accounting.’ However, the amount of data entry is the same as the number of households in one ULB—again, this requires enormous amount of time and labour.

Read the full Technical Assistance Completion Report

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

Urban sanitation: putting people at the centre of informal settlement upgrading in Pakistan

The Orangi Pilot Project (OPP) has transformed sewage systems in low income, informal settlements (‘katchi abadi’), where 60 percent of Karachi’s population lives. OPP has challenged development approaches, which are very technical and overly-dependent on government and donor support. Such approaches treat poor communities as objects, rather than drivers, of development.

A report for the International Institute for Environment and Development, in the UK, explores how OPP has expanded from a focus on the ‘katchi abadi’ of Orangi to become an important voice on issues related to sewerage, drainage sanitation and informal settlement upgrading across Karachi.

[...] OPP has achieved credibility over years of rigorous mapping and documentation. [...]. OPP’s model of low-cost sanitation gives residents the responsibility of building household and lane-level sanitation infrastructure. Municipal authorities are responsible for building and maintaining secondary infrastructure. [...] Infant mortality rates have declined dramatically.

[...] In order to ensure individuals are driven by ideals, not [...] financial reward, OPP salaries are lower than those of other NGOs.  [...] OPP does not seek large-scale funding from donors. High standards of openness and financial transparency are central to building relationships. Staff numbers are kept low by training community members as activists and mappers, and encouraging them to work themselves.

OPP rejects all form of subsidy, believing it inevitably leads to dependence [and] increases costs and causes waste. When the community contributes towards a project – [..] costs are immediately cut: designs are simplified, methods of construction are cost-efficient, and profiteering, kickbacks and professional fees for contractors, engineers and supervisors are eliminated.

OPP’s experience shows that:

• It important to work on a single issue – or only a small number of issues – comprehensively before taking on related issues.
• In order to influence government it is vital not to be confrontational: it is necessary to work patiently over a period of time with department staff and build trusting relationships with civil servants.
• Meticulous documentation of findings, observations and processes, leading to the preparation of alternatives is critical to being taken seriously by decision-makers.

Source: id21, 01 March 2009

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.

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