FINANCIAL ANALYSIS FOR ADDITIONAL FINANCING

Transcription

1 Additional Financing of Second Rural Water Supply and Sanitation Sector Project (RRP CAM 38560) FINANCIAL ANALYSIS FOR ADDITIONAL FINANCING 1. Background. Approved in 2009, the ongoing Second Rural Water Supply and Sanitation Sector Project was designed to expand access to improved rural water supply and sanitation (RWSS) of residents in six provinces around the Tonle Sap Basin in Cambodia: the five original provinces under the Tonle Sap Rural Water Supply and Sanitation Project (Battambang, Kampong Chhnang, Kampong Thom, Pursat, and Siem Reap), and one new province (Banteay Meanchey). 459 communes in these provinces were ranked according to criteria including poverty, coverage of household water supply and sanitation, basic access to RWSS, and RWSS activities of development partners in the commune. The project targeted the 40 first-ranked communes (400 ). 2. Project implementation. The water supply component focused on rehabilitating, upgrading, and developing water facilities, including wells, rainwater jars, water filters, and river water distribution points. The sanitation component of the project focused on two parallel activities for households: sanitation grants for latrine substructures for poor households, and sanitation marketing promotion for self-financed households (who are not eligible for sanitation grants) to encourage them to construct household latrines using their own resources. Since population density in rural areas is low, developing RWSS solutions requires small-scale investments for hundreds of with various hydrologic and socioeconomic conditions. Most water supply facilities serve a relatively small number of households. Therefore, the project does not propose a single, specific technology for either water supply or sanitation but offers a selection of recommended options. Upon completion, the facilities are turned over by the government to the beneficiary households (rainwater jars, water filters, latrine substructures, and other facilities) and water supply user groups (WSUGs) are formed to organize the community, as further detailed below. 3. Sustainability and covenants. To ensure that the community-based water supply facilities operate properly after handover, the Ministry of Rural Development (MRD) committed to ensure that (i) the provincial department of rural development (PDRD) of each of the six provinces (Banteay Meanchey, Battambang, Kampong Chhnang, Kampong Thom, Pursat, and Siem Reap) provides technical support to the participating communes and through the PDRD s project team (PPT), and (ii) water supply user groups (WSUGs) are formed to organize the community and collect the required contributions upfront to at least cover the O&M costs of community-based water supply facilities (e.g., hand pumps and wells) for sustainability. For each participating village, during the preparation of the village action plan and subproject formulation (including the identification of the proposed water points), the PPTs explain to the communities and local authorities the roles and responsibilities of WSUGs and the procedure for electing the WSUG s five board members (with at least 40% women s participation). Each WSUG board will include two members who are trained to operate and maintain the water supply facilities, and to collect fees. The WSUG, commune council, and village development committee (VDC) supervise the construction or rehabilitation, and are obligated to regularly check to ensure that the facilities are functioning. The relevant PPT provides support during construction or rehabilitation, and regularly monitors the facilities (i.e., 6 months after completion and every year thereafter). The PPTs are also in charge of conducting semiannual water testing of all water points, though the records indicate this is not being done currently. 4. Water supply components. Water supply alternatives include deep tube wells with hand pumps, shallow tube wells with hand pumps, covered dug wells with hand pumps, combined wells with hand pumps, ponds with either communal or household filtration, rainwater collection and storage, and household ceramic or bio-sand water filters. Where appropriate,

2 2 small piped water supply systems are considered. During implementation, in a participatory approach, each community chooses its preferred technical option and the least overall cost alternative. For community-managed water supply investments, WSUGs are formed to organize the community and collect the required contributions upfront and any ongoing cost-sharing. 5. Sanitation components. Sanitation alternatives include dug-pit latrines with pits lined with concrete rings, water-sealed latrines, and pour-flush latrines. PCU and PPTs contract local small business groups to produce latrine parts and install latrines in the households that are eligible for sanitation grants, with these households contributing labor for pit digging and the construction of the toilet superstructure. A least-cost analysis for the sanitation output was not done, since each household will choose its preferred latrine type. Implementation was undertaken by MRD through the PCU, which worked with the PDRD of each of the six provinces (Banteay Meanchey, Battambang, Kampong Chhnang, Kampong Thom, Pursat, and Siem Reap), as further detailed below. 6. Additional financing. The project performed well and the government requested additional financing to (i) finance partial changes in scope, and (ii) scale up activities. 7. Required financial analysis. The facilities are turned over to the beneficiary households and communities upon completion. Therefore the financial analysis required is primarily an assessment of sustainability and affordability for ongoing operation and maintenance (O&M) costs, especially where user fees are charged (e.g., for hand pumps and small piped water supply systems). It is important to assess whether the implementation of the original project achieved sustainability and affordability, and to recommend improvements, if necessary, for the requested additional financing. A. Water Supply 8. Achievements. Since approval in 2009, the project completed in four batches RWSS initiatives in 32 communes (364 ) as summarized in Table 1. During implementation, it was decided not to rehabilitate wells that were not likely to produce water during the dry season. As a result, more new, costlier wells were required. In addition, $500,000 was reallocated for emergency well rehabilitation in 2012 following the severe 2011 flooding. Table 2 summarizes the achievements. Table 1: Subproject Preparation of and Villages by Batch Batch 1 Batch 2 Batch 3 Batch 4 Total Bantway Meanchey Battambang Kampong Chhnang Kampong Thom Pursat Siem Reap Total

3 Drill well Hand dug well Combined well Community pond Drill well Combined well Rainwater Jar Household water filter Piped water supply system River water distribution points Production well Extension network 3 Table 2: Water Supply Systems in Participating Rehabilitation New Water Supply Number of WSUGs Bantway Meanchey , Battambang Kampong Chhnang , Kampong Thom , Pursat , Siem Reap , Total 1,980 1, ,330 1, Update. Based on the records of the PCU from field visits, reports from PPTs, conversations with villagers, VDCs and commune councils, almost 100% of water supply improvements are functioning. There are some isolated cases of nonfunctioning dug wells as a result of the drawdown of the water table in Pursat and Battambang. 10. Small piped water systems. Based on the PCU s records, 7 out of the 24 systems are not yet operational because of the drawdown of water level and poor electric supply. These are currently being addressed and the PCU expects operations to commence shortly, which will increase the number of connections. The 17 operational small piped water systems have 1,200 connections for 6,000 beneficiaries (assuming five beneficiaries per connection). For each of these systems, monthly user fees are collected based on the system s O&M costs (mainly electricity) and the volume of water consumed by each household (3.4 m 3 monthly on average, based on collections in May 2016). For all but one system, collections are more than enough to cover O&M costs. 11. Affordability. According to the PCU consultants, for the small piped water systems, the monthly household billed water consumption is 3.4 m 3 on average and the user charge to cover O&M costs is $0.375/m 3. On the assumption that a household consumes 3.4 m 3 of water monthly, at a tariff of $0.375/m 3, the household would have a monthly bill of $1.19. This represents 5.9% of the average monthly household income of $ For hand pumps, MRD s guidelines require the WSUGs to collect user fees regularly for the O&M costs. The estimated monthly O&M cost is $7/pump; assuming 20 user families, $0.35 is to be collected per family monthly (1.7% of monthly income). According to the PCU though, most of the time, especially if a few user families are poor, some groups will not collect until the pump breaks down or some repair work is necessary. B. Sanitation 12. Achievements. The project originally identified 47,384 households for sanitation grants, but this was revised to 46,032 at the end of March 2016 because of the permanently migrated families. Table 3 summarizes sanitation achievements. As of 30 June 2016, the PCU and PPTs confirmed that 44,845 of the grant-financed latrines have been installed. The number of self-

4 4 financed latrines actually installed was high only in Battambang, and fell far short of the targets in all other provinces. Reasons cited include saving for a very nice latrine, and waiting for donor support for latrines. Table 3: New in Participating as of 31 March 2016 Number of Villages Total Existing Pre- Project with Sanitation Grant with Selffinanced Total Post Project Target Actual Target Actual Bantway 92 20,772 4,007 9,059 8,908 2, , Meanchey Battambang 51 13,368 3,759 7,902 7,902 1,663 1,626 13, Kampong 40 7, ,253 4,208 1, , Chhnang Kampong 45 12, ,981 7,237 1, , Thom Household (%) Pursat 56 10,793 1,179 7,541 7,294 1, , Siem Reap 80 12, ,296 9,296 2, , Total ,840 11,228 46,032 44,845 12,223 4,219 60, Affordability. PPTs managed the construction of the household latrines under sanitation grants through the community procurement process, contracting local small business groups to produce latrine parts and install latrines in the beneficiary households with these households contributing labor for pit digging and the construction of toilet superstructure. Engaging local businesses naturally also benefited those households that did not qualify for grants, by providing access to local suppliers and reduced costs. 14. Sustainability and covenants. Five public latrines per commune were installed at schools and health facilities, with 10% of costs contributed in kind by the beneficiaries. The PCU and PPTs also mobilized and trained the community-based water and sanitation business groups on construction work including care and maintenance of household latrines; they will in turn educate householders on proper care and maintenance of household latrines. The MRD committed to cause the PDRDs to ensure that prior to the construction of public latrines in each village, each PDRD will sign an agreement with the WSUG for each school or health facility, outlining (i) the terms and conditions of the arrangement, including the cost-sharing principles; (ii) the WSUG's responsibility to carry out hygiene awareness campaigns in the village communities; and (iii) a detailed plan for the continued O&M of the sanitation facilities beyond the project period. 15. According to the progress report of the PCU, 99% of the latrines constructed under the project are used regularly. The primary reason the remaining 1% is not used is because the superstructure was not yet constructed. The most common reasons cited are that the family has migrated to another city, the main earner is abroad looking for a job, or the family intends to build the infrastructure as funds become available. To encourage the beneficiaries to complete the remaining superstructures, the PCU and PPTs are conducting intensive follow-up meetings and coordinating with the VDCs to convince the villagers. C. Conclusion 16. The additional financing will enable the MRD to continue the cost-effective decentralized RWSS initiatives undertaken since approval in The formation of WSUGs, with community participation in construction and with members of the community trained to operate and

5 5 maintain the facilities, has given the communities ownership over their new water and sanitation facilities and enhances sustainability. While the installation of more than 44,000 grant-financed latrines is laudable, the 4,000 plus self-financed latrines is noteworthy too and reflects the awareness-raising initiatives undertaken. 17. Importantly, it is recommended that MRD improve its monitoring arrangements for the completed facilities to maximize the impact of the investments being made for these households and communities, especially for components that are community-based, e.g., hand pumps, small piped water supply systems, and latrines. This should include a review of MRD s guidelines, particularly on the collection and use of monthly O&M fees, which is not being strictly followed and has shown mixed results during implementation from one location to another. Based on this review, measures will be taken to improve the trust-based system at the village level to strengthen and sustain O&M activities. It is also recommended that random checking of facilities, O&M activities, and tariff collection rates provided under the current project be undertaken, from which appropriate adjustments should be incorporated during the additional financing. The project s results will be strengthened by the PDRDs, and the PCU and PPTs, ensuring that the communes and regularly confirm user fees and report any problems. This will also enable MRD to assess if further technical support is required by beneficiaries.