PART ONE FOR SITUATION ASSESSMENT DISCUSSION

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1 Case Study Use of Results Based Management Concept and Tools in Implementation of the Commercialization of Afghanistan Water and Sanitation Activity (CAWSA) Urban Water & Sanitation Sector Reform Government of the Islamic Republic of Afghanistan (GIRoA) PART ONE FOR SITUATION ASSESSMENT DISCUSSION Introduction to the case Water supply services in Afghanistan s urban areas and towns are very limited in coverage and quality. Access to piped water infrastructure is among the lowest in the world at around 18%. Only 14 municipalities (out of almost 200) have piped water supply systems serving a total of about 60,000 connections. Because of poor operation and maintenance (O&M) the water services in these areas actually reach an even lower share of the population. Operation and maintenance of new facilities built by different donors is a serious problem. Due to low cost recovery, there is very limited financial capacity in the national system to maintain or expand water and sanitation services. This paper presents a case study which relates to performance maximization in water service delivery. Dr. Gul Afghan Saleh (Afghan Resource Person to the UNITAR Fellowship Program) under the guidance of Mr. Philip Cox (Mentor in the Program), has prepared it as part of his training assignment. The case study centres on a project implementing organization - the International City/County Management Association (ICMA) - and their use of Results Based Management (RBM) tools in the design and delivery of the Commercialization of Afghanistan Water and Sanitation Activity (CAWSA). The study provides insight on the results logic of CAWSA. It also introduces how the program assessed and managed risk and put in place a monitoring and evaluation plan to track progress. You will see that we have broken the case into separate reading sessions. That is because we will be dealing with the case in segments during the RBM workshop on July 28 th. Please read it through prior to the workshop. This will help you get familiar with the case prior to us discussing it. The use of tools and concept of results based management was selected for this case study because many development co-operation agencies and governments, including those in Afghanistan, are introducing or reforming their performance management systems and measurement approaches, and face a number of common issues and challenges, including how to: ensure a distinct yet complementary role for evaluation, create organizational incentives and processes that will stimulate the use of performance information in management decision-making, establish a performance measurement system that provides evidence to manage by, and aggregate and attribute results It should be noted that the facts of the case (particularly those related to the tools themselves), have been altered to facilitate the use of the case as an RBM training tool. Unitar

2 Water Sector Situation in Afghanistan Before 2006, the Central Authority for Water Supply and Sewerage (CAWSS), in the Ministry of Urban Development (MUD), was responsible for piped water supply and sewerage services in all urban areas. CAWSS was a central government authority, but due to war and lack of resources, most municipal water systems were operationally and commercially independent. The operational, commercial, and financial performance of CAWSS was poor, and most branches, including Kabul, were recovering no more than 25% of Operation &Maintenance costs. In 2006, the Government issued the Urban Water Supply and Sanitation Sector Policy and Institutional Development Plan, and a Presidential Decree to transform CAWSS into the Afghan Urban Water Supply and Sewerage Corporation (AUWSSC), as a holding company for Strategic Business Units (SBUs) located around the country. The Afghan Urban Water Supply and Sewerage Corporation (AUWSSC) was established as a government owned corporation committed to efficiently providing water and sanitation services to the people of Afghanistan. The intent behind AUWSSC was to commercialize and professionalize the oversight, coordination, and operation of Afghanistan s municipal water utilities in 34 provincial capitals. Today, AUWSSC has approximately 1061 staff, which includes 375 in Kabul Headquarters including Kabul SBU and 686 in Strategic Business Units (SBUs) and satellite water utilities around Afghanistan. Structurally, AUWSSC Headquarters oversees six SBUs, which are public utilities in Afghanistan s larger provincial capitals. The SBUs also oversee smaller water utilities in the country s remaining provincial capitals. AUWSSC is owned by the Ministry of Urban Development, Ministry of Finance, Ministry of Economy, National Environmental Protection Agency (NEPA), and Kabul Municipality. With World Bank financing, the Government of the Islamic Republic of Afghanistan (GIRoA) launched the Afghanistan Urban Water Sector Project to support the transformation process. A main objective of the project was to transform AUWSSC into a technically viable and financially sustainable holding company that could increase access to and reliability of water supply services in Kabul and all provincial towns. Through a Presidential Decree signed on January 25, 2006, creation of AUWSSC was authorized. In 2009 with the support of the World Bank, AUWSSC was established and the first employee, General Manager, took up the position in A WB grant of USD 40 million was approved in 2006 to support the transformation process but the utilization of the operational support funds being part of this allocation took a long time, as the establishment of AUWSSC centrally, and regionally, turned out to be more complicated and time-consuming that initially expected. The WB support program is now extended until June Momentum in the transition process was largely lost when the WB Task Manager late 2009 moved out of Kabul and was controlling WB s activities remotely from New Delhi. This was unfortunate, as the Strategic Business Units (SBUs) were waiting for the AUWSSC centrally to become properly operational, giving guidance and support to the local level. It was therefore clear that AUWSSC would require support and nurturing in the foreseeable future until it had reached a point of financial sustainability. A Technical Assistance (TA) consultancy company was to be recruited by the WB to Unitar

3 support AUWSSC in the establishment phase, but as this recruitment process took an inordinate amount of time leaving the institution in a vacuum and in need of support. Such support was eventually given by GTZ through their Urban Water Supply Improvement Program (WISP, which started in 2008). Resources under the World Bank and GTZ projects were, however, limited relative to the huge capacity building challenge especially at the SBUs level. USAID proposed the Commercialization of Afghanistan Water and Sanitation Activity (CAWSA) to help AUWSSC develop and implement MOUs with the SBUs where resources for capacity building, operational support, and capital funds were considered to be too limited to effectively implement the planned MOUs. The USAID project was complementary to the assistance being provided by the World Bank, GTZ, and German Bank for Reconstruction (KfW). The International City/County Management Association (ICMA) manages implementation of the CAWSA through a Cooperative Agreement with USAID. CAWSA seeks to transform water utility Strategic Business Units from bureaucratic government agencies to viable, efficient, self-sustaining commercial enterprises that are able to achieve Cost Recovery Ratios (CRRs) of 55% to 85% by CAWSA is supporting three Strategic Business Units (SBUs) of Mazar-e-Sharif, Jalalabad, and Kandahar, two Provincial Water Supply Departments of Ghazni and Gardez along with four satellite municipalities. Through the SBUs and satellite municipalities, the CAWSA is providing water to about 500,000 people. The Project commenced in Nov, 2008, and is scheduled to end in 2011 unless extended. SBUs Stakeholders: The SBUs report to the AUWSSC CEO who is responsible to the AUWSSC BoD. The Ministry of Urban Development is responsible for policy and strategy development of urban water supply and sanitation. The USAID/CAWSA who provides TA to the SBUs is another key stakeholder of the water utilities. Other key stakeholders include but are not limited to the beneficiary communities, the SBUs Advisory Boards, Provincial Authorities such as the Governors of these cities, Provincial Development Councils, Municipalities, power utilities, the Provincial Reconstruction Teams (PRTs), the Security Contractor, Water Supply Departments of Satellite Towns, and donors such as the World Bank, GTZ (Germany), and KfW(German Bank for Reconstruction). PART TWO - THE LOGIC MODEL (SBU LEVEL) After a comprehensive assessment of the Mazar-e-Sharif Water Supply System conducted from December 21 th 27 th, 2008 by a team composed of different stakeholders, a capacity building program, responsive to the identified needs, and based on a Strategic Business Unit approach was developed. The Strategic Business Unit approach is structured around an operating agreement negotiated between the corporate headquarters and each municipality or operating division. These MOU s specify SBU performance targets, resources to be provided to the SBU by headquarters including capital and operational support, and incentives for SBU management and staff to achieve specified levels of performance. For the AUWSSC, the MOU defines the business model by which it recovers its costs, allocates scarce investment and operating support resources. The MOU also defines the obligations of the company to provide technical and operational support to the SBUs. For the SBUs, the MOUs establish realistic and Unitar

4 progressive performance and service targets that fit the current situation of each SBU, as well as the central resources available from the company, including any performance incentives. Some of the activity components that quantify SBUs performance targets and establish the incentives that the SBU employees will receive for meeting those targets are: general management including planning, organizational structure, administrative procedures, budgeting, and personnel procedures; human resources; information systems (MIS); customer service including customer access to water, provision of services, service contract (outsourcing) and customer care and system for receiving complaints; and provision of technical services basic to water utility operations such as finance/accounting, financial operations, financial analysis tools, reporting capability and security. Key indicators are: Cost Recovery Ratio, On time collections, % of Service Area Coverage, Population Coverage (%), Continuity of Water Supply, Water Loss (%) (Unaccounted for Water). CAWSA introduced Results Based Management System to maximize performance of the water service delivery in these water utilities. The focus of CAWSA s technical assistance has been centered on all sides of the following management areas: Planning and strategic thinking (through developing quantitative, performance-based goals for each functional area within SBUs) Administrative and Human Resource Management Systems (prepare job descriptions, and ToRs for the departments, improved record management, assisted with the development of personnel manual, provided databases for different functional area including HRM, Customer care, water production, etc.) Communication and coordination (created standard reporting systems, created website, supporting regular field visit by AUWSSC senior management team) Collection and billing management system Project management (assisted with project development and proposal writing and quality control) PART THREE RISK ASSESSMENT AND MITIGATION TOOL A few of the potential risks and planned mitigation measures are outlined below for the program as a whole. 1. Risk: Senior management recruitment for AUWSSC is delayed. Mitigation Measures: For urgent decisions and short-term solutions, such as training coordination, capital grants, and interim strategies, CAWSA will continue to work with the CEO and AUWSSC Board of Directors, and the MUD until the successful recruitment of the senior AUWSSC positions and their WB salary funding is in place. 2. Risk: Trained existing water utility staff are not hired by or incorporated into SBU units Unitar

5 Mitigation Measures: CAWSA has focused the training on WSD personnel capable of continuing to work with the SBUs after the existing WSD structure is subsumed within AUWSSC. General discussions with the CEO suggest that there is no significant risk of the WSD trained staff not being transferred to the new corporate entity. 3. Risk: Corruption: CAWSA assessments have shown that in some provinces, abuse of power and corruption has been one of the causes of low performance of the SBUs. Mitigation Measures: This concern has not been a significant problem in the WSD receiving CAWSA support. For long term sustainability and organizational integrity, however, the CAWSA management team has established internal financial controls and will implement internal audit procedures at the SBU. CAWSA staff embedded in the WSD have been made aware of the importance of preventing opportunities for corrupt practices and are responsible for informing management in Kabul if there even appear to be opportunities for corrupt practices to occur. Typical risk areas in the operation of SBU s themselves are: Cancelation or stoppage of the SBU management salary payment by donor before the anticipated time ends. None availability/unwillingness of qualified staff to work with SBUs especially in insecure cities like Kandahar Employee retention Unexpected end of donor support to the SBUs before they become financially sustainable Delay in support or lack of technical and managerial support from AUWSSC to the SBUs Operational risks such as failure of a device Energy related risks faced by an SBU such as: vulnerability to energy supplies disruption such as none availability or unreliability of energy, increase in the rates of energy tariffs, dependency on grid power Water quality related risks such as contamination of water and public health and compliance Regulatory risks such as unreasonable change in water tariffs Political risk such as the interference that does not allow the SBU to complete a change either because of significant internal resistance to the change or due to more gradual loss of will Technological risks such as things or trends that impede effective implementation of technological changes/improvements, for example introduction of computer and computerized accounting and management systems, MIS, software such as billing and collection software, etc. PART FOUR MONITORING AND EVALUATION PLAN Monitoring and evaluation are important for any project or organization. Monitoring progress against plan lets managers know whether they are meeting activity targets. Evaluating tasks as they are completed allows management to review activities and make changes in implementation methods to pursue continuous improvement. Evaluating results shows management its return on investment (ROI). Unitar

6 As a tool of RBM, a Monitoring and Evaluation Plan for the CAWSA Program has been developed not only to monitor program activities and evaluate program outcomes, but also to monitor activities to be implemented through the SBU MOUs and assist the SBUs in monitoring and evaluating their own performance so that they can pursue better management planning and decision making in the future. The CAWSA Monitoring and Evaluation Plan includes a description of activities and output indicators used to monitor their implementation. In addition, there are five outcome indicators that the program is using to demonstrate its progress toward improving management of the SBUs and increasing access to water. The five output indicators include cost recovery ratio, on-time collection, percentage of service area coverage, population coverage, and continuity of water supply. However, many more appropriate indicators may also be determined to track progress. PART FIVE THE BALANCED SCORE-CARD A POPULAR TOOL TO ASSESS THE VITAL SIGNS OF PRIVATE SECTOR ENTITIES OR NGOS For the implementation of MOUs, however, ICMA has developed a scorecard the MOU Performance Index (MOUPI) which contains management, human resources, customer service, and technical water measurement indicators that are measured to demonstrate each SBUs progress with respect to the CAWSA Program MOUs, and serve as a tool for SBUs to evaluate their own performance as they progress toward sustainability. The CAWSA Program uses milestones for completion of activities, counts of activities and participants trained, as well as counts of new systems and improvements made as output indicators to monitor Program activities. In addition, training activities are evaluated at the time of training, as well as after the training to see whether skills are being applied in the work place. PART SIX THE DELICATE NATURE OF INDICATORS: A CASE WITHIN THE CASE An important indicator that CAWSA has been monitoring on a regular basis is the Cost Recovery Ratio. By showing the percentage of operating costs covered by revenues, this indicator effectively demonstrates the SBU s ability or inability to become self sustaining. This indicator will not only be a measure of success for the program, but also for that of the SBU s efficiency of operation in the future. However, there were some significant challenges to get accurate information about this indicator. For example, before implementation of the CAWSA there had never been any measurement of cost recovery ratios and neither CAWSS nor were the Water Supply Departments (WSDs) were aware of how this indicator could be used to measure their financial performance. When we track this indicator, it is also very important to account for depreciation and inventory transactions to calculate it correctly. A major weakness of the prior accounting system was ignorance of accounting for depreciation and inventory transactions that led to the incorrect assumption that the SBUs were financially viable and collected enough revenue to cover their operating costs. This resulted in gross under-reporting of operating costs. The result was a false sense of complacency regarding SBU financial operations, which was in fact quite problematic, as it provided the nascent AUWSSC Board of Unitar

7 Directors with incorrect assumptions regarding financial viability of the SBUs and the sufficiency of its initial tariff structure. Depreciation and replacement costs are two high value items that negatively affect financial viability and the SBUs have consistently failed to account for either of them, thereby grossly underestimating the life-cycle operating costs at each SBU. The analysis of cost recovery and other commercial performance indicators, when carried out as a routine activity, will help the Board of Directors make critical financial decisions, including establishment and adjustment of rational water tariffs and service fees over time. However, adjustment of a rational water tariff is another big challenge because this is not purely a technical or financial matter but also require a political will and support. There are people that reject any tarif adjustments at this time arguing that people are poor and cannot afford higher tarifs. Even some people believe that water is a gift of Allah that is provided to them naturally. Therefore, any charge on water supply and delivery requires significant outreach and awareness activity with communities that need to compliment implementation of any decisions based on technical and finaicial analysis. Accounting for realistic asset replacement costs is critical because the SBU field crews use significant quantities of warehouse materials, parts, and equipment for their daily operations and maintenance activities, but their accounting systems have treated them as if they are free of cost and do not need to be replaced. Partly because much of the recent inventory and equipment was provided by donor agencies, the SBUs have never considered their actual value in preparing their operating expense statements. Unitar

8 ENDNOTE: PROGRESS TO DATE IN CAWSA IMPLEMENTATION The collection and billing management system has been effective at identifying problems but the financial impact has been slower than expected due to lack of community cooperation. All other management systems listed above have been effective as these systems had not existed before CAWSA and they were needed to improve overall performance. The water utilities own these systems as they developed them with CAWSA s assistance and that s why these systems have been effective. However, the question is how sustainable will the project capacity building activities be after the completion of CAWSA? Do you think these SBUs will become self-sustaining commercial enterprises? Why? References: - Afghan Urban Water Supply and Sewerage Corporation (AUWSSC) Business Model (Draft Version December 2010) - Commercialization of Afghanistan Water and Sanitation Activity (CAWSA) Program Description (USAID Funded Project) - Assessment Report of Mazar-e-Sharif Water Supply System- January 29, Conference Call (through Skype) with Eng. Abdul Jamil, Head of Mazar SBU and his team on July 7, CAWSA Presentation slides by Amy Osborn: 13_9.05_Nolan_Osborn.pdf - USAID/CAWSA Monitoring and Evaluation Plan March 18, Grant Agreement Between Commercialization of Afghan Water and Sanitation Activity (CAWSA) and USAID Supported Water Supply Departments (WSDs) August 4, Risk Analysis Strategies in the Water Utility Sector: an inventory of applications for better and more credible decision-making; by McGillivray, B.H., Hamilton, P.D, Strutt, J.E. and Pollard, S.J. T., school of water sciences, Cranfield University, U.K. - Afghan Urban Water Supply and Sewerage Corporation Chief Executive Officer s Presentation to Donors Meeting May 17, Success Story:/Case Study, ICMA/CAWSA Mazar Asset Management Data Base- June Mazar SBU Website: - Presentation slides: 09_reforming_urban_water_services_in_afghanistan_aminzai.pdf Unitar