ON A PROPOSED PROJECT RESTRUCTURING IN PUNJAB RURAL WATER AND SANITATION SECTOR IMPROVEMENT PROJECT DEPARTMENT OF ECONOMIC AFFAIRS REPUBLIC OF INDIA

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1 Public Disclosure Authorized REPORT NO.: RES33387 Public Disclosure Authorized RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF IN PUNJAB RURAL WATER AND SANITATION SECTOR IMPROVEMENT PROJECT TO Public Disclosure Authorized Water Global Practice South Asia Region DEPARTMENT OF ECONOMIC AFFAIRS REPUBLIC OF INDIA Public Disclosure Authorized Regional Vice President: Country Director: Senior Global Practice Director: Practice Manager/Manager: Task Team Leader: Hartwig Schafer Junaid Kamal Ahmad Guang Zhe Chen Michael Haney Srinivasa Rao Podipireddy

2 ABBREVIATIONS AND ACRONYMS DWSS GoI GoP lpcd MTR NRDWP NWQSM ODF PDO PRWSSIP WB Department of Water Supply and Sanitation Government of India Government of Punjab liters per capita per day Mid-Term Review National Rural Drinking Water Program National Water Quality Sub Mission Open Defecation Free Project Development Objective Punjab Rural Water and Sanitation Sector Improvement Project World Bank

3 Note to Task Teams: The following sections are system generated and can only be edited online in the Portal. BASIC DATA Product Information Project ID P Original EA Category Partial Assessment (B) Approval Date 24-Mar-2015 Financing Instrument Investment Project Financing Current EA Category Partial Assessment (B) Current Closing Date 31-Mar-2021 Organizations Borrower Department of Economic Affairs Responsible Agency Department of Water and Sanitation Project Development Objective (PDO) Original PDO To improve water and sanitation service levels, reduce open defecation, and strengthen service delivery arrangements in targeted villages in Punjab Summary Status of Financing Ln/Cr/Tf Approval Signing Effectiveness Closing Net Commitment Disbursed Undisbursed IBRD Mar May Jun Mar Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No

4 Note to Task Teams: End of system generated content, document is editable from here. I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. Project Background 1. The Punjab Rural Water and Sanitation Sector Improvement Project (PRWSSIP) was approved on March 24, 2015, and became effective on June 19, 2015, for a total project cost of $354 million, of which the World Bank financing share is $248 million. The original closing date of the project is March 31, The project development objective (PDO) is to improve water and sanitation service levels, reduce open defecation, and strengthen service delivery arrangements in targeted villages in Punjab. 3. The project has four components: (i) (ii) (iii) (iv) Transformation Improved livability of villages ($160 million, Bank loan $102.4 million): Sub-component 1a will upgrade water supply schemes to provide improved service delivery through: -1a(i) rejuvenation of damaged canal water schemes; and -1a(ii) augmentation of water supply schemes. -1b. Construction of sewerage schemes with treatment systems: Villages that demonstrate operational and financial capacity in managing water supply schemes can compete for sewerage schemes under this subcomponent. Inclusive Household Water and Sanitation Services ($85 million, Bank loan $76 million): This has three subcomponents: -2a. Improve access to water through household connections; -2b. Strengthening operations for improved water supply levels; and -2c. Toilet grants for individual household toilets. Improved Water Quality ($60 million, Bank loan $38.4 million): This component is further divided into two sub-components. -3a. Strengthen water quality monitoring and develop mitigation measures. -3b(i) Finance cost-effective retrofitting of water schemes to treat arsenic, fluoride, iron and so on. -3b(ii) Construction of surface water supply schemes. Institutional Development and Project Management ($49 million, Bank loan $31.36 million): This component will support non-infrastructure-related project costs. -4a. Strengthening sector institutions including design and implementation of a project Management Information System (MIS), capacity building and cross-learning activities. -4b. Project management costs e.g. consultancies, audits and other operational expenses. B. Progress towards Achievement of the PDO

5 4. The project progress towards achievement of the PDO was rated Moderately Satisfactory and overall Implementation Progress (IP) was rated Moderately Unsatisfactory as of September Progress on the rural household sanitation sub-component is on track and all villages in the state are likely to achieve open defecation free (ODF) status in The project sub-component targeting operational improvements in water supply has also exceeded its target. However, the reported physical and financial progress of other sub-components is below the anticipated target for this stage in the project cycle (albeit with a positive trend). C. Rationale for Restructuring 5. The Mid-Term Review of the PRWSSIP was conducted in November 2017 to critically review the implementation performance of all project components, with a focus on identifying strengths, resolving outstanding issues and agreeing on actions required to remedy the noted deficiencies in implementation. In pursuance of the findings of the MTR, the Department of Water Supply and Sanitation (DWSS) developed a strategic action plan to accelerate achievement of the service delivery objectives of the project, including enhancements required in staffing and capacity. 6. The DWSS also proposed that the project be restructured to align with the Government of Punjab s present needs and priorities. The DWSS would like to focus on improving drinking water quality by switching to surface-water-based piped water supply schemes in areas where groundwater is contaminated with arsenic or fluoride. This switch is also supported by the recently launched National Water Quality Sub Mission (NWQSM) of the Government of India (GoI). To improve access to water, DWSS proposes upgrading hand-pump based schemes to piped water supply under sub component 1.a(iii). To support these additional activities, the DWSS would like to re-allocate some funds from Subcomponent 1b. Sewerage as cost of sewerage schemes is found to be more expensive. Further, to utilize central funds available to GoP through the NWQSM, the GoP proposes to increase its financing share to 50% from 36% (which is resulting in overall increase in project cost) for various subcomponents. The details are: (1) under Sub-components 3b(i) retrofitting water treatment plants or providing deep tube wells, (2) 3b (iii) construction of surface water supply schemes in districts such as Patiala, Fatehgarh Sahib, Gurdaspur, Amritsar or any others and (3) under 2a (ii) water connections for connecting affected water-quality rural households to proposed large surface water supply schemes. A revision in the results framework is necessitated by the revision in the scope or physical targets for certain sub-components as well as the introduction of new sub-components. Hence, a restructuring of the project is proposed in order to accommodate the above changes as requested. Therefore, the additional activities and increased share from 36% to 50% are funded by GoI from NWQSM and reallocating funds locked under sewerage scheme which is almost a non-starter. At the same time, addressing water quality has taken precedence over sewerage which is found to be less economical than anticipated. II. DESCRIPTION OF PROPOSED CHANGES 7. The PDO is valid and remains unchanged. The restructuring will consist of the following changes: Revision in scope and/or introduction of sub-components; Reallocation of funds across components; Introduction of a new disbursement category; Revision of the disbursement schedule; and Revision of the results framework. A. Revision in scope and/or introduction of sub-components 8. A component-wise description of the restructuring is provided below.

6 (i) Transformation - Improved Livability of Villages Sub-component 1a(i) Rejuvenation of damaged canal water schemes: Under this sub-component, 110 damaged canal schemes were proposed to be rejuvenated. There is no change in this. Sub-component 1a(ii) Augmentation of water supply schemes: Against an original target of 460 villages, 120 villages are proposed to be added by re-allocating funds from other sub-components, taking the total to 580 villages. (New) Sub-component 1a(iii) Upgradation of Hand pump schemes to piped water supply schemes with service 70 lpcd: This is a new sub-component introduced with a target of 405 villages. This is proposed to be financed through the re-allocation of funds due to downsizing of sewerage schemes under sub-component 1b, see below. Sub-component 1b: Sewerage schemes with treatment systems: As the priority is to upgrade water service levels and address water quality affected villages, DWSS wants to restrict new sewerage schemes to 36 villages against an original target of 315 villages. One reason is that these schemes are found to be more expensive than anticipated at the start. Since Water Quality has become a pressing need and as GoI has also come forward with some additional funding, reallocation is proposed to implement more surface water supply based schemes which are sustainable. (ii) Inclusive Household Water and Sanitation Services Sub-component 2a(i): Household Water Supply Connections: This sub-component aimed to connect 650,000 rural households to the existing piped water supply network through provision of small network extensions, minor upgrades and free house connections. Given the current pace of progress, it is proposed to reduce the target for this sub-component to 582,000 house connections. However, the 68,000 connections are not dropped but proposed to be achieved under a new sub-component, 2a(ii), see below. (New) Sub-component 2a(ii): Improved access to water through household connections in water quality affected villages being covered under proposed surface water supply schemes: This is a new sub-component introduced to provide potable water in villages impacted by heavy metal contamination of groundwater. 68,000 house connections, carried over by modifying Sub-component 2a(i), will be provided in 561 villages, financed on a 50:50 basis, with 50% of the funds coming from the GoI under the NWQSM and the remaining 50% from the project under Sub-component 3b(ii). Sub-component 2b: Operational Improvement in Water Supply Schemes: As the target of 400 villages has been exceeded, this component is considered achieved and no new water supply schemes will be taken up. Sub-component 2c: Household Sanitation: On March 31, 2016, the World Bank agreed to the DWSS request to enhance the Bank s share for each household toilet from the original provision of Rs 6000 to Rs 7800 to offset reduction in GoI s funding per toilet from Rs 9000 to Rs By doing so, the total cost of a toilet funded under the project was kept constant at Rs 15000, but the target number of toilets was reduced from 625,000 to 477,678 toilets. It is now found that the revised target of 480,700 household toilets is adequate to achieve universal household toilet coverage in rural Punjab. Hence, the target of this sub component is revised to 480,700 toilets. (iii) Improved Water Quality Sub-component 3a: Water Quality Monitoring and Mitigation Measures: The DWSS has prepared a draft water quality mitigation strategy which is under finalization. There is no change in this sub-component.

7 Sub-component 3b(i): Retrofitting Water Treatment Plants: Against a target of 150 treatment plants, an additional 23 plants are added, taking the revised target to 173 water treatment plants. Further, as GoP is receiving central funding to address water quality, the Bank share for financing this sub-component is proposed at 50%. Sub-component 3b (ii) Surface Water Supply Schemes to quality affected villages in Moga district: Two schemes were to be implemented in Moga and Barnala districts. Construction of the Moga scheme is on track, whereas the Barnala scheme is dropped as water quality re-testing in August 2017 found that only 1 out of 33 samples was above the permissible limit. With the removal of Barnala district, the original target of 121 villages is reduced by 36 villages. The updated target is 85 villages of Moga district. (New) Sub Component 3b (iii) Surface Water Supply Schemes to qualify affected villages in Districts such as Patiala, Fatehgarh Sahib, Gurdaspur, Amritsar or any others to be agreed between the Bank and Punjab: The DWSS is taking up surface water supply schemes in 561 water-quality-affected villages in the districts of Patiala, Fatehgarh Sahib, Gurdaspur and Amritsar. Further, as GoI is providing financing from the NWQSM, the Bank financing is restricted to 50%. (iv) Institutional Development and Project Management There is no change in this component. B. Reallocation of funds 9. The allocation of $90 million for sewerage schemes is being reduced to $7 million. Funds are being re-allocated to Sub-component 1a(iii) Upgradation of Hand pump schemes to piped water supply schemes with service 70 lpcd; and Sub-component 3b(iii) Surface Water Supply Schemes to qualify affected villages in Districts such as Patiala, Fatehgarh Sahib, Gurdaspur, Amritsar or any others to be agreed between the Bank and Punjab. C. Introduction of a new Disbursement Category 10. Providing potable drinking water in areas affected by heavy metal contamination of groundwater is a key priority of the GoP. Funding for this initiative has also recently become available through the NWQSM. Hence, it is proposed to create a new disbursement category with 50:50 sharing between the GoP and the World Bank (WB) which will apply to the following sub-components: Sub-component 2a(ii) Improved access to water through household connections in water quality affected villages being covered under proposed surface water supply schemes (target: 561 villages and 0.68 lac connections); Sub-component 3b(i) Retrofitting water treatment plants or providing deep tube wells; and Sub-component 3b(iii) Surface Water Supply Schemes for quality affected villages. This new disbursement category is in addition to the two existing categories which are: (i) (ii) GoP:WB financing in the ratio of 0:100 for household sanitation, and GoP: WB financing in the ratio of 36:64 for all other sub-components. A summary is provided in the section on Disbursement Categories below. 11. The project cost has increased with funding from GoI to address water quality from $354 million to $372 million. However, World Bank share is unchanged; retained at $248 million. Hence, the Bank s share of the financing of the total project costs will decrease from 70% to 66.6%. D. Revision of the Disbursement Schedule

8 12. This is adjusted based on the current disbursement and work plan for future disbursement. Details provided under Disbursement in Section IV below. E. Revision of the Results Framework 13. Details provided indicator-wise in Section IV below. The indicators remain the same, but target values are changed based on the changes in scope under this restructuring for various components. Note to Task Teams: The following sections are system generated and can only be edited online in the Portal. III. SUMMARY OF CHANGES Changed Results Framework Not Changed Components and Cost Reallocation between Disbursement Categories Disbursement Estimates Implementing Agency DDO Status Project's Development Objectives Loan Closing Date(s) Cancellations Proposed Disbursements Arrangements Overall Risk Rating Safeguard Policies Triggered EA category Legal Covenants Institutional Arrangements Financial Management Procurement Implementation Schedule Other Change(s) Economic and Financial Analysis

9 OPS_DETAILEDCHANGES_COMPONENTS_TABLE Technical Analysis Social Analysis Environmental Analysis IV. DETAILED CHANGE(S) COMPONENTS Current Component Name Transformation - Improved Livability of Villages Inclusive Household Water and Sanitation Services Current Cost (US$M) Action Revised Revised Proposed Component Name Transformation - Improved Livability of Villages Inclusive Household Water and Sanitation Services Proposed Cost (US$M) Improved Water Quality Revised Improved Water Quality Strengthening Institutions and Project Management Revised Strengthening Institutions and Project Management TOTAL OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Current Allocation Actuals + Committed Proposed Allocation Financing % (Type Total) Current Proposed IBRD Currency: USD ilap Category Sequence No: 1 Current Expenditure Category: Toilet Grants under Pt B.3 of Proj 60,000, ,894, ,000, ilap Category Sequence No: 2 Current Expenditure Category: Gd,Wk,NCS,CS for all Prj excpt cat1 187,380, ,120, ,950, ilap Category Sequence No: 3 Current Expenditure Category: Gd,Wk,NCS,CS for all Prj excpt cat1 and cat 2

10 ,430, Total 247,380, ,014, ,380, OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates Yes Year Current Proposed ,000, ,000, ,000, ,000, ,000, ,000, ,000,

11 RESULT_FRAME_TBL_PDO. Results framework COUNTRY: India IN Punjab Rural Water and Sanitation Sector Improvement Project Project Development Objectives(s) To improve water and sanitation service levels, reduce open defecation, and strengthen service delivery arrangements in targeted villages in Punjab Project Development Objective Indicators by Objectives/ Outcomes Indicator Name DLI Baseline Intermediate Targets End Target Improve water and sanitation service levels (Action: This Objective is New) PDO Indicator: Villages with higher service levels managed by the GPWSCs , , , , , , , PDO Indicator: GPWSCs that are managing O&M of water supply schemes through full cost recovery , , , , , , , PDO Indicator: Villages receiving improved 8, , , , , , , ,797.00

12 RESULT_FRAME_TBL_PDO Indicator Name DLI Baseline Intermediate Targets End Target improved quality of water Direct project beneficiaries , ,000, ,500, ,832, ,733, ,473, ,473, Female beneficiaries ,445, Action: This indicator has SC Benificiaries , , , ,186, ,474, ,711, ,711, Action: This indicator has reduce open defecation (Action: This Objective is New) PDO Indicator: Villages declared ODF , , , , , , strengthen service delivery arrangements (Action: This Objective is New) PDO Indicator: Districts with MIS operationalized, and monthly reporting of scheme data

13 RESULT_FRAME_TBL_IO PDO Table SPACE Intermediate Results Indicators by Components Indicator Name DLI Baseline Intermediate Targets End Target Component 1 - Transformation: Improved Livability of Villages (Action: This Component is New) New piped household water connections that are resulting from the project intervention , , , , , , , New household sewer connections constructed under the project , , , , , , Component 2: Inclusive Household Water and Sanitation Services (Action: This Component is New) Piped household water connections that are benefiting from rehabilitation works undertaken by the project , , , , , , ,330.00

14 RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target Improved latrines constructed under the project , , , , , , , Component 3: Improved Water Quality (Action: This Component is New) Intermediate Results Indicator: Annual report published on the statewide rural drinking water quality status (Yes/No) No No Yes Yes Yes Yes Yes Yes Component 4: Institutional Development and Project Management (Action: This Component is New) Intermediate Results Indicator: DWSS organizational transition plan for improved service delivery approved and implemented (Text) zero Approval of new structure and posting a Head Filling of all senior Complete DWSS Development and Reporting of key Reporting of key Fully Operational sanctioned restrcturing; and reporting of key performance performance DWSS with service positions and approval and performance metrics at unit and metrics at unit and delivery efficiency implementing new implementation of metrics at unit and department level department level improved job descriptions training plans department level Intermediate Results Indicator:Percentage of grievances redressed within the stipulated time period /proposed time standard (Days) People trained to improve hygiene behavior/sanitation , ,000, ,500, ,642, ,642, ,642, ,642,255.00

15 RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target practices under the proj People trained to improve hygiene behavior/sanitation practices - female , , , ,268, ,268, ,268, ,268, Action: This indicator has GPWSCs that are managing O&M of sewerage schemes through full cost recovery IO Table SPACE.

16 Note to Task Teams: End of system generated content, document is editable from here.