Document of The World Bank Report No: ICR1565 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-39110 and IDA-H3690) ON A CREDIT IN THE AMOUNT OF SDR 17.0 MILLION (US$ 25.30 MILLION EQUIVALENT) AND GRANT IN THE AMOUNT OF SDR 16.4 MILLION (US$ 27 MILLION EQUIVALENT) TO NEPAL FOR A SECOND RURAL WATER SUPPLY AND SANITATION PROJECT February 25, 2013 Urban & Water Unit Sustainable Development Department South Asia Region CURRENCY EQUIVALENTS (Exchange Rate Effective November 2012) Currency Unit = Nepal Rupee (NRs) US$ 1.00 = NRs 89.00 Fiscal Year July 16 to July 15 ABBREVIATIONS AND ACRONYMS ADB Asian Development Bank MIS Management Information System Ministry of Physical Planning and CAS Country Assistance Strategy MPPW Works CD Community Development NFE Non Formal Education DDC District Development Committee NGO Non-government Organization Department for International DFID NPC National Planning Commission Development Department of Local Infrastructure DOLIDAR NPV Net Present Value Development and Agricultural Roads DSS Decision Support Systems NRs Nepal Rupees EA Environmental Assessment OAG Office of the Auditor General Environmental Management Action EMAP PAD Project Appraisal Document Plan ERR Economic Rate of Return PAF Poverty Alleviation Fund Finnish International Development FINNIDA PDO Project Development Objectives Agency Financial Management Information Rural Water Supply and Sanitation FMIS RWSSP System Project FMR Financial Management Reports SA Service Agency Fund Rural Water Supply and Sanitation SO Support Organization Board Fund Development Board GBP Great British Pound SRLF Sanitation Revolving Loan Fund ICR Implementation Completion Report TA Technical Assistance TEC or Technical Evaluation Committee or IDA International Development Association TAC Technical Appraisal Committee IPR Implementation Progress Report TTL Task Team Leader ISR Implementation Status Report VDC Village Development Committees KPIs Key Performance Indicators VHP Village Health Promoter Lpcd Liters Per Capita per Day VMW Village Maintenance Worker ii LSGA Local Self Governance Act Water Supply and Sanitation Users WSUC Committee M&E Monitoring and Evaluation system WSUG Water Supply and Sanitation Users Group MDG Millennium Development Goals WTSS Women’s Technical Support Services MOF Ministry of Finance Vice President Isabel M. Guerrero Acting Country Director Salman Zaheer Sector Manager Ming Zhang Project Team Leader William D. Kingdom ICR Team Leader Elisa Muzzini iii NEPAL Second Rural Water Supply and Sanitation Project CONTENTS Page Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph Main Document 1. Project Context, Development Objectives and Design............................................................ 1 2. Key Factors Affecting Implementation and Outcomes ........................................................... 4 3. Assessment of Outcomes ....................................................................................................... 10 4. Assessment of Risk to Development Outcome ..................................................................... 13 5. Assessment of Bank and Borrower Performance .................................................................. 14 6. Lessons Learned .................................................................................................................... 16 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners ....................... 17 Annex 1. Project Costs and Financing....................................................................................... 18 Annex 2. Outputs by Component .............................................................................................. 22 Annex 3. Economic and Financial Analysis .............................................................................. 26 Annex 4. Bank Lending and Implementation Support/Supervision Processes ......................... 33 Annex 5 Beneficiary Survey Results…………………………………………………………35 Annex 6 Stakeholder Workshop Report and Results…………………………………………36 Annex 7. Summary of Borrower's ICR ..................................................................................... 37 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders .................................... 47 Annex 9. List of Supporting Documents .................................................................................. 48 Annex 10. Additional Indicators Illustrating the Project’s Achievements ................................ 49 Map IBRD 33455 iv A. Basic Information Second Rural Water Country: Nepal Project Name: Supply & Sanitation Project Project ID: P071285 L/C/TF Number(s): IDA-39110,IDA-H3690 ICR Date: 02/25/2013 ICR Type: Core ICR Lending Instrument: SIL Borrower: NEPAL Original Total XDR 17.00M Disbursed Amount: XDR 31.08M Commitment: Revised Amount: XDR 31.08M Environmental Category: B Implementing Agencies: Rural Water Supply and Sanitation Fund Development Board Cofinanciers and Other External Partners: Department for International Development (DFID) B. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 09/17/2001 Effectiveness: 01/17/2005 01/17/2005 05/06/2008 Appraisal: 11/18/2003 Restructuring(s): 12/16/2010 Approval: 06/01/2004 Mid-term Review: 05/01/2007 05/10/2007 Closing: 08/31/2009 08/31/2012 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Development Outcome: Low or Negligible Bank Performance: Satisfactory Borrower Performance: Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Satisfactory Implementing Quality of Supervision: Satisfactory Satisfactory Agency/Agencies: Overall Bank Overall Borrower Satisfactory Satisfactory Performance: Performance: v C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Rating Performance (if any) Potential Problem Project Quality at Entry Yes Satisfactory at any time (Yes/No): (QEA): Problem Project at any Quality of Yes None time (Yes/No): Supervision (QSA): DO rating before Satisfactory Closing/Inactive status: D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Health 5 Sanitation 5 25 Water supply 90 75 Theme Code (as % of total Bank financing) Gender 17 Other human development 17 Participation and civic engagement 17 Pollution management and environmental health 16 Rural services and infrastructure 33 E. Bank Staff Positions At ICR At Approval Vice President: Isabel M. Guerrero Praful C. Patel Country Director: Salman Zaheer Kenichi Ohashi Sector Manager: Ming Zhang Sonia Hammam Project Team Leader: William D. Kingdom Tashi Tenzing ICR Team Leader: Elisa Muzzini ICR Primary Author: Elisa Muzzini A. D. C. Godavitarne F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The primary objectives of the project are to: (i) improve rural water supply and sanitation sector institutional performance and mainstream the "Fund Board" (Rural Water Supply and Sanitation Fund Development vi Board) approach in the Government's system, and (ii) support communities to form inclusive local water supply and sanitation user groups that can plan, implement, and operate drinking water and sanitation infrastructure that delivers sustainable health, hygiene and productivity benefits to rural households. Revised Project Development Objectives (as approved by original approving authority) N/A (a) PDO Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Number of people in rural areas provided with improved access to water supply Indicator 1 : (within a 15-minute round-trip walk from their residence) Value quantitative or - 813,000 1,045,464 1,140,892 Qualitative) Date achieved 04/20/2004 08/31/2009 08/31/2012 08/31/2012 Comments The number of beneficiaries exceeded the original target at appraisal by 40%, and (incl. % the formally revised target by 9%. achievement) Number of schemes in operation and functioning satisfactorily with community Indicator 2 : Operations and Maintenance (O&M) Value quantitative or - 1,355 1,463 1,465 Qualitative) Date achieved 04/20/2004 08/31/2009 08/31/2012 08/31/2012 Comments (incl. % By project closure, the formally revised target was exceeded. achievement) Percentage of population in project area with access to hygienic sanitation Indicator 3 : facilities (within 30 meters of their residence) Value quantitative or 10.89% 50% 83% Qualitative) Date achieved 04/20/2004 08/31/2009 08/31/2012 Comments The Sanitation Revolving Loan Fund (SRLF) remains within the community, (incl. % which is expected to increase its sanitation coverage even after the end of the achievement) project, and eventually reach full coverage. Percentage decrease in the prevalence of diarrheal disease morbidity among Indicator 4 : young children in the project area Value quantitative or - 80% 82.5% Qualitative) Date achieved 04/20/2004 08/31/2009 08/31/2012 vii A very significant decrease in the prevalence of diarrheal disease among young Comments children was achieved in the project areas from 78% at the beginning of the (incl. % project to 14% at the end of the project (equivalent to a percentage decrease of achievement) 82.5). National Planning Commission (NPC) and Ministry of Physical Planning and Indicator 5 : Works (MPPW) effectively monitor and evaluate the sector Value No sector Monitoring & Sector M&E Effective M&E quantitative or Evaluation (M&E) established and system in place Qualitative) system operational Date achieved 04/20/2004 07/16/2009 08/31/2012 An M&E unit for the sector was established in 2006 within the MPPW as part of a Comments sector monitoring initiative led by the GoN. The M&E, the Management (incl. % Information System (MIS), and Decision Support Systems (DSS), was made achievement) operational in December 2011. Indicator 6 : Establish a common set of guidelines for all projects in the sector Rural Water Supply and Sanitation (RWSS) Sector Value Establishment of Policy and Strategy quantitative or Guidelines not established common set of of 2004 prepared Qualitative) guidelines and common set of guidelines established Date achieved 04/20/2004 12/31/2010 08/31/2012 The RWSS Sector Policy and Strategy of 2004 is effective and a common set of Comments guidelines has been established for the sector, drawing largely on the experience (incl. % gained from the implementation of First Rural Water Supply and Sanitation achievement) Project (RWSSP I). Sector wide minimum cost recovery norm of 20% and 10% for poor and Indicator 7 : disadvantaged groups Sector wide minimum cost recovery norms Implementation of Value Sector wide cost recovery established in the sector wide set of quantitative or norms not yet Rural Water Supply minimum cost Qualitative) implemented and Sanitation recovery Sector Policy and Strategy of 2004 and implemented. Date achieved 04/20/2004 12/31/2010 08/31/2012 Comments Cost recovery norms have been defined and mainstreamed in the sector. The (incl. % lower minimum contribution of 10% for poor and disadvantaged groups achievement) facilitated participation of marginalized communities. Government links budget allocation among competing approaches to evaluate Indicator 8 : outcomes. Establishment of Value Budget allocation not performance based Budget releases quantitative or based on outcomes budget allocation based on outputs Qualitative) system viii Date achieved 04/20/2004 12/31/2010 08/31/2012 Comments (incl. % Government releases budget in the sector based on output indicators. achievement) (b) Intermediate Outcome Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Number of Water Supply and Sanitation User Committees (WSUCs) with number Indicator 1 : of women members equal or greater than the stipulated minimum of three All WSUCs have at Value All WSUCs have least 3 women (quantitative - at least 3 women members or Qualitative) members (585 have more than 3) Date achieved 04/20/2004 08/31/2009 08/31/2012 Comments All Water Supply and Sanitation User Groups (WSUGs) have the minimum (incl. % stipulated (three) women members in the WSUCs. 585 WSUCs have more than achievement) three women members, and 11% of WSUCs have female chairpersons. Indicator 2 : Percentage of individuals practicing hand washing with soap at critical junctures Value (quantitative 32.58% 100% 92.96% or Qualitative) Date achieved 04/20/2004 08/31/2009 08/31/2012 The percentage of individuals practicing hand washing increased significantly Comments from 32 to 93% in the project area. The achievement is an indicator of the (incl. % effectiveness of social mobilization, awareness building and hygiene interventions achievement) under the project. Fit between caste and ethnic profile of households in project area actually served Indicator 3 : by the system, as measured by percentage of beneficiaries who are from marginalized groups No quantitative Value target set (given (quantitative Not specified demand-driven 53.86% or Qualitative) nature of the project) Date achieved 04/20/2004 08/31/2009 08/31/2012 About 54% of beneficiaries are from marginalized groups (dalits, indigenous Comments people and minorities). The Fund Board provided incentives to Support (incl. % Organizations (SO) to seek out and include remote communities away from the achievement) road heads. ix G. Ratings of Project Performance in ISRs Actual Date ISR No. DO IP Disbursements Archived (USD millions) 1 09/07/2004 Satisfactory Satisfactory 0.00 2 05/11/2005 Satisfactory Satisfactory 1.30 3 01/04/2006 Satisfactory Satisfactory 1.30 Moderately 4 09/12/2006 Satisfactory 5.48 Unsatisfactory Moderately 5 05/10/2007 Moderately Satisfactory 11.39 Unsatisfactory 6 11/23/2007 Moderately Satisfactory Moderately Satisfactory 17.14 7 02/28/2008 Moderately Satisfactory Moderately Satisfactory 17.14 8 10/23/2008 Satisfactory Moderately Satisfactory 17.14 9 05/27/2009 Moderately Satisfactory Moderately Satisfactory 23.53 10 11/29/2009 Moderately Satisfactory Moderately Satisfactory 23.53 11 05/28/2010 Moderately Satisfactory Moderately Satisfactory 35.01 12 04/23/2011 Moderately Satisfactory Moderately Satisfactory 42.62 13 11/19/2011 Moderately Satisfactory Moderately Satisfactory 42.62 14 05/19/2012 Moderately Satisfactory Moderately Satisfactory 42.81 15 07/29/2012 Satisfactory Satisfactory 42.81 H. Restructuring (if any) ISR Ratings at Amount Board Restructuring Disbursed at Restructuring Reason for Restructuring & Approved Restructuring Date(s) Key Changes Made PDO Change DO IP in USD millions Increase IDA fund support to finance increased project costs. Additional Funding of SDR 16.4 05/06/2008 N MS MS 17.14 million (US$ 27 million). Closing date extended to December 31, 2010. Closing date extended to August 30, 2011; reallocated financing to reflect increase in unit costs; 12/16/2010 N MS MS 35.01 extended the date of covenant for operationalizing the sector M&E system to August 30, 2011. x I. Disbursement Profile xi 1. Project Context, Development Objectives and Design 1.1 Context at Appraisal The First Rural Water Supply and Sanitation Project (RWSSP I) was approved in September 1996 with an IDA credit of US$ 18.2 million and closed in December 2003. The rating at project closure was Satisfactory. The Second Rural Water Supply and Sanitation Project (RWSSP II) was the follow on project. It adopted the same tested “demand-driven� modality, and built on it to incorporate further improvements. The country political conditions at project appraisal presented many challenges to the project’s success. The country was in the midst of the Maoist insurgency that gripped the country for ten years (1996-2006), plunged Nepal into a prolonged period of political instability and retarded its economic development. In addition to the human toll from the conflict, the country experienced internal and external displacement of people, and the destruction of economic infrastructure. In February 2005, the Parliament was suspended and martial law was enforced. The Government was weak, and its control was limited to urban areas at best; materials were in short supply and costly; and repeated strikes paralyzed the country, affecting the movement of people and goods. Although a peace agreement was reached in 2006, the country remained, and still is, in a state of prolonged political instability, with frequent nationwide strikes, and no elected local governments. At the time of project appraisal, a number of donors, Non-governmental Organizations (NGOs) and government agencies were providing RWSS in Nepal. RWSS was being delivered either by donors directly or through the District Development Committees (DDC), the Department of Water Supply and Sewerage (DWSS), the Department of Local Infrastructure Development and Agricultural Roads (DOLIDAR) and the Rural Water Supply and Sanitation Fund Development Board (hereafter referred to as the Fund Board). The MPPW, now the Ministry of Urban Development (MoUD), the line ministry responsible for sector oversight and coordination, did not have in place a mechanism to coordinate RWSS delivered through the various agencies, nor a comprehensive framework for monitoring the status of RWSS, leading to inaccurate data on sector coverage and duplication of investments. As a result, donors and sector agencies often did not apply the same approach, criteria and service levels, and overlapped in service provision in the same area. The Government of Nepal (GoN)’s objectives for the sector as stipulated in the 10th Five Year Plan (2002-2007) were to: (i) increase sustainable access to basic water supply and sanitation facilities; (ii) increase rural water supply coverage from 72 to 85%; (iii) provide suitable sanitation in rural areas; and (iv) decrease infant mortality by reducing waterborne and water-related epidemics. GoN pledged to allocate 5 to 7% of the annual development budget to achieve the sector targets. In 2004, GoN developed a national RWSS Sector Policy and Strategy, which endorsed the provision of RWSS based on “effective demand� and service standards corresponding to affordability and willingness to pay. It established common minimum guidelines aiming to harmonize approaches of donors, developed an implementation model for the sector, and set a sector wide minimum cost sharing norm of 20% capital contribution from the community (which could be reduced to 10% for the poor and disadvantaged groups). The policy also limited GoN’s role to: prioritizing and financing sector investments; formulating policies and legislation; and regulating sector developments, including sector M&E. It endorsed the Fund Board’s “demand-driven� approach as the model for service delivery; and recommended the establishment of the Fund Board as a regular sector institution through an act of Parliament. 1 1.2 Original Project Development Objectives (PDO) and Key Indicators The project development objectives were to: (i) improve RWSS sector institutional performance and mainstream the Fund Board approach in the Government's system (first development objective), and (ii) support communities to form inclusive local water supply and sanitation user groups that can plan, implement, and operate drinking water and sanitation infrastructure that delivers sustainable health, hygiene and productivity benefits to rural households (second development objective). The key performance indicators (KPIs) included: (i) number of people in rural areas provided with improved access to water supply (within a 15-minute round-trip walk from their residence); (ii) the number of schemes in operation and functioning satisfactorily with community O&M; (iii) percentage of population in project area with access to hygienic sanitation facilities (within 30 meters of their residence); (iv) percentage decrease in the prevalence of disease morbidity among young children in the project area; (v) number of WSUCs with number of women members equal or greater than the stipulated minimum of three; (vi) percentage of individuals practicing hand washing with soap at critical junctures; (vii) fit between caste and ethnic profile of households in project area, as measured by percentage of beneficiaries who are from marginalized groups.. The following four KPIs related to the first development objective were added in 2008 in conjunction with the approval of Additional Funding: (i) NPC and MPPW effectively monitor and evaluate the sector; (ii) establish a common set of guidelines for all projects in the sector; (iii) sector wide minimum cost recovery norm of 20% and 10% for poor and disadvantaged groups; and (iv) Government links budget allocation among competing approaches to evaluate outcomes. 1.3 Main Beneficiaries The primary target beneficiaries of improved RWSS were rural households, including the poor, lower castes, minorities, and women. The original number of target beneficiaries was 813,000 people, this target number was increased to 1.045,464 following the approval of the Additional Financing Grant in May 2008. At project closure, the number of beneficiaries had increased to 1,140,892. Other target beneficiaries include the Fund Board, the MPPW, the WSUCs, the Women’s Technical Support Services (WTSS) as well as the SOs and the Service Agencies (SAs) trained as part of the project. 1.4 Original Components Component 1: Strengthening and Operation of the Rural Water Supply and Sanitation Fund Development Board (Fund Board) (US$ 8.1 million). This component provided financing for the Fund Board’s incremental operating costs, on a declining percentage of operating expenditure (starting at 60% and declining 15% every year to 0% in five years); training and capacity building of SOs, SAs and communities; audits; M&E and studies; development phase costs, communication (including media (radio), publicity, awareness and information); and technical assistance (TA) costs. Component 2: Selection and Construction of Water Supply and Environmental Sanitation Schemes (US$ 32.5 million). This component financed water supply and environmental sanitation schemes in about 1,355 communities with a population of 813,000, based on agreed criteria to select communities for project interventions, and community development activities that promoted: (i) active participation of communities at all stages of 2 decision-making including planning, construction and management of schemes; and (ii) local ownership, effective use and sustainability of the facilities. The RWSS schemes were to include: (i) construction, rehabilitation, reconstruction of gravity flow systems, shallow and deep tubewells, dug wells and rainwater harvesting; (ii) catchment protection in intake areas through reforestation, alternative energy sources for fuel wood, erosion control and other site specific programs; (iii) construction of hygienic sanitation facilities, including construction of appropriate household and institutional latrine facilities and drains for disposal of wastewater. Schemes were prepared and implemented in batches (or groups) of villages. RWSSP I implemented four batches (Batch I to IV); RWSSP II was to complete Batch IV, and implement Batch V to VIII. The IDA credit was to finance 1,209 schemes. DFID agreed to finance 146 water supply schemes, using funds available from a bridging grant (2001-2005) of GBP 2.72 million, equivalent to US$ 5 million. Component 3: Institutional Development Studies. (US$ 0.9 million): This component was to provide support for sector assessment and M&E, and undertake a range of studies on appropriate and cost effective technology options; water quality control; health impacts; inclusion of poor families and minorities; gender aspects of RWSS services; impacts of community development; health hygiene and sanitation practices; and school management and student participation in health, hygiene and sanitation matters. 1.7 Other significant changes Significant changes in the project included:  DFID’s withdrawal of support for the project following a review of the Nepal portfolio, resulting in diversion of the US$ 5.0 million equivalent originally agreed;  Approval of an IDA Grant of SDR 16.4 million (US$ 27 million equivalent) in 2008 (and extension of closing date from August 31, 2009 to December 30, 2010), to meet the shortage of funds arising from increased costs of materials, implementation delays due to the conflict and larger scheme sizes; increase in the project scope with the additional financing, with associated increase in the number of target schemes (from 1,355 to 1,463) and beneficiaries (from 813,000 to 1,045,464);  Extension in the Credit and Grant closing date from December 2010 to August 2011, and subsequent extension of the Credit and Grant closing date from August 31, 2011 to August 31, 2012;  Cancellation in January 2011 of US$ 4.0 million of the IDA Grant that was unlikely to be utilized by the revised closing date of August 31, 2012 due to savings. The following additional changes were introduced during implementation:  Communities’ decisions to opt for higher service levels, with the willingness to bear the extra cost beyond the basic service provided by the GoN, in line with the provision of the RWSS National Sector Policy;  Inclusion of lift (deep tubewell) schemes in high arsenic areas, resulting in increased costs for overhead tanks and pumping, with incremental costs borne by the communities;  Introduction of a pilot social accountability program (the Jagran Program);  Introduction of a pilot insurance program to cover hazard risks in completed schemes;  Pilot testing of a gender-focus livelihood program to secure loan financing for WTSS to pursue economic activities (the Jeevika Program) 3 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry The project formulation was consistent with the Poverty Reduction Strategy in the 10th Five Year Plan and the 2004 RWSS Strategy and Plan for provision of RWSS based on “effective demand� and service standards corresponding to affordability and willingness to pay. The project was also consistent with the 2003 Country Assistance Strategy (CAS) through support for social sector development, social inclusion and good governance. The project incorporated the successful features and experience of RWSSP I. It maintained without dilution the steady course of demand-based RWSS delivery, community-managed implementation, community ownership and responsibility for O&M. The project design continued to promote the use of objective eligibility criteria to select schemes, recruit SOs, SAs and staff in a transparent manner. The project also maintained the composition of the Board members of the Fund Board, with a majority of non-Government members, and the high qualification requirements for Fund Board’s staff. The project drew on the lessons learned from RWSSP I and from experiences from similar projects globally, and in the region, specifically, India and Sri Lanka to further enhance the model developed under RWSSP I. The project further improved on inclusiveness. The need to include and provide RWSS services to lower caste and indigenous people (especially dalits and janajatis) was recognized, and an Indigenous People Development Plan was developed during project preparation. The Fund Board included measures to incentivize SOs to seek out and include remote communities away from the road heads, responding to findings (in the ICR for RWSSP I) that only communities near roads were included in RWSSP I.1 The gender focus was strengthened, by offering targeted Non-Formal Education (NFE) to women2 as well as to enhance women’s engagement in economic activities with the time saved. The project improved on health and hygiene interventions by integrating hand washing, and other health and hygiene initiatives with water supply and sanitation investments. A post- implementation phase was introduced to monitor and enhance the long-term sustainability of the schemes, relying on the SOs to provide further support to the WSUCs for monitoring and reporting every six months to the Fund Board, Village Development Committees (VDCs) and DDCs for the first two post-implementation years, and later, on WSUCs to self-monitor and report directly to the Fund Board. The Fund Board was established in 1996 under a GoN Formation Order of the Development Board Act, which provided the necessary permanent legal status to the organization by ensuring regular budget allocations and operational autonomy. Project activities to improve institutional performance and mainstreaming the Fund Board approach focused on (a) enhancing the sector ministry’s capacity to carry out sector-wide M&E, (b) strengthening the Fund Board as a sector institution and increasing the capacity of the SOs, SAs and WSUGs/WSUCs and (c) enhancing the Fund Board’ approach and mainstreaming its main provisions in the sector. 1 The Fund Board revised the Board Rules No. 40 to define more clearly local materials as “materials available within one day’s walk�, with the project covering the cost of transporting non-local materials from the nearest road head to the community if distance was more than one day. Furthermore, the Fund Board increased the SOs’ overhead costs if they chose schemes beyond 10 km from the road head. In order to enhance inclusiveness, SOs that included staff from local communities were given some additional marks in the selection process. 2 NFE for women was optional, and financed by the project upon community request, and meeting specified criteria. It included reading, writing, basic arithmetic and health and hygiene education. 4 Key design features of the Fund Board model were to support communities in planning, implementing, and operating drinking RWSS infrastructure, based on demand and service standards corresponding to affordability and willingness to pay. Key features include:  The full operational autonomy of the Fund Board for scheme selection (based on objective criteria), scheme processing and funds disbursements without prior approvals from GoN and complete transparency of all decisions and financial information.  A demand driven community-based approach assuring (a) community decisions on service levels; (b) mobilization of cash and in-kind contributions for capital costs; (c) increased community contributions for desired (beyond basic) levels of services; (d) community’s procurement of materials and implementation, including the community’s obligation to meet any cost overruns, and (e) community financing of all O&M costs. The basic water supply service, supported by the Fund Board comprised: water availability within a 15-minute roundtrip walk from the users’ residence to fetch water, at design consumption of 45 liters per capita per day (lpcd)3, with users paying the incremental cost of any higher level of service decided by the community  A SRLF grant allocation to each WSUC to be used by the community to provide loans and grants to poor households to construct latrines, based on selection criteria and conditions decided by the community. Communities could use the SRLF funds to cover the cost of non-local materials (water seal, pan, pipes, cement, etc.) and the skilled labor required to construct improved domestic latrines. The SRLF allocation to a community was determined based on local needs, and aimed to cover the costs of 25% of the households without sanitary latrines. Each community receiving the SRLF allocation was expected to achieve full coverage of sanitary latrines, by leveraging the SRLF allocation and mobilizing its own funds.  Health and hygiene initiatives and community capacity building integrated with RWSS in the project design, such as the promotion of hand washing through NFE, and training to WSUCs in accounting, record keeping, monitoring, work plan development, etc.  Compliance, quality and process control conducted during implementation and post- implementation, including: compliance and impact assessment of Community Development (CD) activities; scheme appraisal by SAs; technical review by the Technical Appraisal Committee of the Fund Board; periodic milestone monitoring by SAs; technical audit upon completion; six monthly evaluations of functional status of 30% of completed schemes over a two-year period; short-term sustainability assessment (3 to 5 years after completion) and long-term sustainability assessment (5 to 7 years after completion).  Women empowerment initiatives mainstreamed in the project design through the promotion of participation and representation of women in decision-making positions in the WSUCs; the establishment of WTSSs and the formation of savings and credit societies; and the promotion of NFE for women. Key Implementation features included:  The use of the SOs to mobilize communities and support them in the identification of the schemes, and to provide important information to the communities for decision-making on the available technical options, service levels, capital and recurrent cost estimates, and the technical design of the schemes.  The use of the technical services of the SAs to validate field data and review scheme designs, to carry out appraisals of the schemes, scrutinize and improve the technical design and implementation plan of the schemes, facilitate scheme approval by the Fund 3 This is the desired per capita demand; however, where this is not possible, 25 lpcd is also allowed. 5 Board’s Technical Appraisal Committee, prior to approval by the Board, and conduct periodic field monitoring of the schemes for quality checks and output verifications.  A pre-development phase requirements including: formal request from the community to participate in the project, needs assessment and feasibility appraisal carried out by the SO, commitment for community contributions.  A mandatory development phase (about 8 to 10 months long) requirements including: (i) formation and registration of the WSUG under the Water Resources Act in the District with the WSUC (Committee) representing the community; (ii) community’s identification of priorities and service levels; (iii) preparation of designs and cost estimates, conforming to unit cost guidelines established by the Fund Board; (iv) technical, financial and economic appraisal of schemes by the SAs; (v) collection of upfront community contribution and O&M funds, with funds deposited in the community’s bank account; (vi) establishment of the SRLF account; (vii) opening of the joint bank account (of the WSUC and the SO) to receive funds for implementation; and (viii) compliance audit of CD activities.  Implementation phase actions of: (i) procurement and transportation of non-local material; (ii) construction of civil works by the community under the management of the WSUC, supported by a SO4. For works requiring high skilled workers, the WSUC hires such skills if they are not available in the community. Mother and Child Tap Stand Groups established during implementation with responsibility for overseeing tap stands and helping collect charges.  Post-implementation phase (introduced under RWSSP II) including periodic follow-up by the SO for a period of two years on the sustainability aspects of the scheme, TA to the community to resolve problems and submit the post-implementation status report on a six-monthly basis to the VDC, DDC and the Fund Board. Additional post-implementation activities included immediate impact study done upon completion of the scheme, technical audit of the scheme, short- and long-term sustainability assessments. Risk Assessment. The project’s risks were appropriately assessed as “moderate� at appraisal. The critical risk identified at appraisal was the ability of the Fund Board, SOs and SAs to efficiently operate in the country because of interference from the insurgents. Overall, this risk did not fully materialize, except for some delays in the transportation of non-local material during strikes and due to security concerns; and there were no interruptions of construction works. A second perceived risk related to the future of the Fund Board as a permanent organization, which was mitigated through the commitment by GoN at appraisal to establish the Fund Board through a separate Act of Parliament. The measure was unrealistic because Government had no way to predict decisions by an elected Parliament. The ICR review concludes that the risk to the sustainability of the Fund Board was not the lack of a legal statute, since the Fund Board was already established as a permanent entity under the Development Board Act. The risk to the sustainability of the Fund Board was the uncertainty of budget allocations if there was no continuation of external donor support. 2.2 Implementation Main events and changes during implementation include: Delays in Implementation Progress. Until early 2009, implementation was impacted by the long approval time of the schemes (up to 14 months) by the Fund Board, due largely to GoN’s delays in appointing executive members to the Fund Board. This issue was resolved when the Fund Board’s Executive Director was granted authority to approve schemes even in 4 SOs assisted communities to carry out construction, with the community contributing local materials and labor. No contractors were hired (except for skilled labor if not available in the community). 6 the absence of the quorum in the Board. Some delays caused by the duplication of activities by the SOs and SAs were resolved by clarifying the responsibilities of the parties: the responsibility for scheme selection and preparation was assigned to the SOs, with the SAs providing technical support to improve the analysis and design of the schemes. Some delays in transportation of non-local materials also occurred because of the insurgency. Approval of Additional Financing. The additional funding became necessary to complete the original schemes agreed at appraisal, because of the following reasons: (a) cost overruns due to increase in the cost of construction materials (pipes, cement and fittings) and implementation delays due to the conflict and (b) an increase in the average scheme size, from 600 people per scheme to an average of about 778 people per scheme at project closure. Extension of Implementation Period. The Credit and Grant closing dates were extended to December 31, 2010 when the Additional Financing was approved. However, this estimate proved optimistic; and the Credit and Grant closing date was further extended from December 31, 2010 to August 31, 2011 (as part of the restructuring carried out in December 2010). The Credit and Grant closing date were again extended by one year to August 31, 2012 to give the Fund Board additional time to complete the works. Introduction of Lift (Deep Tubewell) Schemes. Overhead tanks to lift water for distribution were requested by a number of communities in the arsenic-prone areas where water was abstracted from deeper aquifers, of approximately 85 meters. This enhanced level of service enabled a continuous 24-hour supply, compensation for head losses in the distribution network, and facilitated individual connections through yard taps. The incremental costs of overhead tanks and pumping costs were borne by the communities. Introduction of Innovative Initiatives. The following innovative initiatives, which were piloted during project implementation, helped to support achievement of the PDO:  Risk Insurance Program. An innovative initiative was the promotion of insurance to cover schemes against risks associated with flooding, landslides and earthquakes. This program is at the stage of piloting. The Fund Board’s initiative has resulted in one insurance company agreeing to cover these risks. About 36 WSUCs have obtained insurance cover to date.  Gender-focused Livelihood Program (Jeevika Karyakram). The Jeevika Program provided support to WTSSs to approach private banks and apply for soft loans. The objective is to promote economic activities by women beneficiaries and thus enhance the gender-specific economic benefits from time savings.  Social Accountability Program (Jagran Karyakram). The Jagran Program is another pilot innovation of the project to promote social accountability over and above the checks and controls required during scheme implementation. A local group is formed to carry out third party monitoring of the scheme implementation in order to assure the governance and accountability aspects of the scheme, and provide feedback. The Jagran group comprises socially responsible individuals not associated with the WSUC, who provide feedback to the WSUC, SOs and SAs on issues of finances and procurement at the community level.  Support and contributions by DDCs and VDCs. Representatives from the DDCs and VDCs played an active role in the formation and registration of WSUGs under the Water Resource Act, the opening of WSUG’s bank account and the mitigation of community disputes. In five schemes, the role of DDCs and VDCs was significantly enhanced through capital costs contributions, averaging about NRs 875,000, with positive results. 7 Furthermore, a provision was made to ensure that the Fund Board would approve only those schemes included in the periodic, annual or long-term plan of the DDCs.5 Grant Cancellation. In January 2011, the World Bank cancelled an amount of US$ 4 million of the grant because of the projected savings due to efficient procurement and currency exchange savings. Status of Compliance with Key Covenants. All covenants of the project were fully complied with. Compliance with one of the covenant – the establishment of the M&E system for MPPW – was achieved, but with delays. 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization The section describes the Fund Board’s M&E system for the project designed at appraisal (not the sector M&E and Decision Support System that was established at the sector Ministry under the project). Design. The project design had a robust M&E framework. The KPIs, as stated in the PAD against each PDO, were comprehensive. Additional four indicators were introduced to monitor ‘sector institutional performance and mainstreaming the Fund Board approach’ (objective 2) when the Additional Financing was processed in 2008. The design of the M&E system went beyond the requirement of the results framework. M&E was embedded in all phases of the scheme cycle. The Fund Board monitored the KPIs as well as a comprehensive set of performance and output indicators at the scheme level (e.g., time saved, health and hygiene improvements, increase of incomes of beneficiaries and water consumption). In addition to the project M&E requirements, the Fund Board developed and maintained a comprehensive MIS that included project M&E requirements, and a wide range of other relevant information. Implementation. The performance monitoring system was highly effective. The Fund Board designed a number of data reporting formats to collect all the information relating to the above indicators. Monitoring was carried out through data collection by SOs. For example, Healthy Home Surveys were carried out three times from project development to implementation to obtain baseline and subsequent data on occurrence of diarrheal morbidity among children. Socio-economic data were collected at the scheme level, and the Economic Rate of Return (ERR) was computed for each scheme as part of appraisal. The Fund Board also undertook several M&E studies including: (i) technical, operational and environmental audits, (ii) short-term sustainability studies, (iii) long-term sustainability studies, (iv) impact assessment studies; and (v) CD impact assessment studies. All data collected as part of the project were entered in the Fund Board’s MIS. Utilization. The MIS and M&E studies provided a strong basis for monitoring and evaluating the progress made under the project and also taking corrective actions if and when required. The Implementation Progress Reports (IPRs) of the Fund Board reported on each of the indicators, although not all the indicators were reproduced in the Bank’s Implementation Status and Results (ISR) reports. 2.4 Safeguard and Fiduciary Compliance Social Safeguards. Compliance with social safeguards was satisfactory. Water schemes were built either on public lands or voluntarily donated private land. Thus, issue of involuntary resettlement was duly avoided in the project period. To avoid issues relating to land 5 See First Amendment of the Formation Order 2004 of the Fund Board. Article 4A. 8 acquisition from private donors, a standard format for land donation agreement in prescribed formats was introduced from Batch VII. Environmental Safeguards. The Fund Board had in place a satisfactory environmental safeguards management system. It exercised due diligence by reviewing environment and water quality reports from SOs and SAs, and implemented site specific mitigation measures when required. It conducted regular reviews of environmental safeguards with a focus on water quality management to identify good practice and emerging issues. Compliance with environmental safeguards was satisfactory. Procurement. All project procurement by the Fund Board was carried out according to the Bank’s procurement guidelines. The procurement plans were developed in a timely manner. Community-level management of procurement of materials (as opposed to the government managing the procurement process) was a unique feature of the project, and effective. The main challenge was how to ensure value for money while designing, developing, implementing and maintaining a large number of RWSS schemes. The key arrangements for this effective procurement management included: development of a simple and clear implementation manual including procurement procedures; mobilization of SOs and SAs in preparing cost estimates and providing technical support; verification of the cost estimates, and checking of the quality of material by consultants. This approach based on community- level procurement management is an example worthy of replication in similar future projects. Financial Management. The Fund Board maintained a satisfactory financial management performance throughout the project period. The Fund Board entered all financial data in a timely manner in the Financial Management Information System (FMIS), and used the system effectively. Financial management reports of high professional quality were submitted to the Bank according to requirements. The internal financial audit was carried out by an independent private auditor hired by the Fund Board, and the final statutory audit was done by the Office of the Auditor Generals (OAG) within GoN. Delay in finalizing the statutory audit by the OAG did occur on some occasions, due to late preparation of financial statements. The following factors contributed to satisfactory financial management: (i) continuity of staff, (ii) use of SOs to provide training on financial management to communities, (iii) timely actions taken on issues raised by both internal and external auditors and auditors appointed for audits of community accounts, and (iv) development of a robust and efficient FMIS, which enabled the generation of timely and reliable financial information. 2.5 Post-completion Operation/Next Phase Future role of the Fund Board. The Government has formally requested the Bank to continue supporting the Fund Board to help the Government achieve its sector targets. Meanwhile, the Fund Board is continuing implementation of the schemes under Batch IX that were in the development phase at project closure with interim budget provided by the Government. The ICR review’s recommendation is that the Bank continues to support this highly successful model of truly community-driven, demand-based RWSS provision, and showcase the project as one of the most successful examples of RWSS provision globally. Sustainability of completed schemes. The Fund Board plans to continue the post- implementation phase of completed schemes (with SO support for the first two years after completion), and the short- and long-term sustainability audits of completed schemes to enhance the sustainability of the assets created, RWSS Sector Review. A comprehensive and independent review of the sector was initiated by the GoN in 2012 with support from the Bank, to: (i) analyze performance of alternative 9 service delivery options; (ii) utilize the sector M&E, MIS and DSS for improved sector coordination; and (iii) make recommendations for the development of the RWSS sector. 3. Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation Rating: Highly Satisfactory The first project development objective of improving RWSS sector institutional performance and mainstreaming the Fund Board approach is highly relevant, and fully consistent with the objectives of the RWSS Sector Policy and Strategy of 2004 to develop a uniform demand- driven model for the sector, based on the Fund Board’s approach, to achieve the GoN’s objectives for the RWSS sector. The second project development objective of supporting communities to form inclusive local water supply and sanitation user groups that can plan, implement, and operate drinking water and sanitation infrastructure that delivers sustainable health, hygiene and productivity benefits to rural households was highly relevant at appraisal, and remained relevant and consistent with the RWSS sector policy, and the CAS through completion. Project design focused on expanding the coverage of RWSS, which was, and continues to be, necessary to reduce infant mortality and morbidity, improve health and hygiene outcomes, develop social capital, empower women, reduce poverty and sustain economic development. The implementation methodology was highly appropriate, as it was based on inclusive, community-driven development, with community ownership and O&M responsibility. The Fund board was already established under a legal statute at the time of project appraisal; and a separate Act of Parliament to assure its permanency was not necessary, and beyond the control of the Government to achieve. 3.2 Achievement of Project Development Objectives Rating: Satisfactory The first development objective of improving sector performance and mainstreaming the Fund Board approach was fully achieved. The main achievements are as follows:  The sector wide M&E system, including the MIS and DSS, were made operational in December 2011, and agencies active in the sector have stated sharing and validate the data in the system. A data sharing agreement (Memorandum of Understanding) was made between the DWSS, the DOLIDAR and the Fund Board. A performance based budget allocation system was established for the sector with budget releases linked to outputs.  Particular attention was paid to strengthen the Fund Board as sector institution. The Fund Board was autonomous in its operations (except in matters relating to staff remuneration) over the course of project implementation. The operational autonomy of the Board was strengthened through a revision of the Formation Order approved by the Cabinet. The Fund Board was not additionally ratified through the Act of Parliament despite efforts by the Government. The ICR review concludes that a project requirement linked to parliamentary action was beyond the control of the Government, and additional legal underpinnings were not necessary since the Fund Board was already established under a legal statute. Rather, the requirement to assure the permanent status of the Fund Board was financial, i.e. uninterrupted budget allocations, which was met over the course of implementation.  The project contributed to enhancing the capacity of SOs. The project successfully reinforced the use of objective eligibility criteria for selection of SOs that was introduced under RWSSP I, and contributed to strengthen the capacity of the SOs. By engaging a large number of SOs to implement the RWSS schemes, a new industry of ‘paid’ SOs was created. The capacity of SOs developed under the project will continue to be a valuable resource for community -driven development in Nepal. 10  The project enhanced the Fund Board’s approach by addressing implementation issues that affected the first project, with a focus on establishing objective criteria for the selection of schemes and SOs, and improving on inclusiveness. The project also successfully piloted cutting-edge innovations that allowed the RWSS program to grow and expand, including the Risk Insurance Program, the Gender-focused Livelihood Program and the Social Accountability Program, and leveraging capital contributions from DDCs and VDCs for water schemes on a pilot basis.  The objective of mainstreaming the Fund Board6 model was achieved. The project design influenced the GoN in the development of the RWSS Sector Policy and Strategy of 2004, which establishes a common set of guidelines for all projects in the sector, and incorporates the main provisions of the Fund Board’s approach. The Fund Board’s model has been scaled up as part of the project and has been substantially adopted by the DWSS, DDCs and donors. Most RWSS providers now provide the basic service approach defined in the sector policy, including the formation of WSUCs, and have adopted Fund Board’s guidelines. A few RWSS providers, especially from the public sector, have adopted full community empowerment and implementation. The second development objective was fully achieved, and exceeded the targets for water supply coverage, number of beneficiaries and reduction in the prevalence of diarrhea. Using the Fund Board model, a population of 1.14 million was given access to improved rural water supply, against the original project target of 813,000, and the formally revised target of 1 million. Female beneficiaries account for 50% of total project beneficiaries. A total of 137,536 latrines were constructed benefiting 136,487 households in the project area, including 64,407 sanitary latrines funded using the SRLF. The multiplier effect of awareness- raising resulted in the construction of an additional 72,080 latrines by the communities using their own resources. The project target of 50% coverage (equivalent to the construction of 74,374 latrines) was exceeded. About 83% of households in the project area have sanitary latrines against a national average of 36%. The percentage decrease in the prevalence of diarrheal disease among young children in the project area (from 78 to 14%) exceeded the target, and the percentage of individuals practicing hand washing increased from 32% to 93% in the project area, albeit the 100% target was not fully achieved. Additional indicators illustrating the achievements of the project are presented in Annex 10. 3.3 Efficiency Rating: Highly Satisfactory The expected economic benefits of the project fully materialized, exceeding the estimates at appraisal, and the project was efficient in achieving its outcomes and outputs. The main economic benefit of improved rural water supply is the time saved from fetching water. On average, households gained 2.1 hours per day as a result of not having to fetch water, and can now use the saved time for income-generating activities, self-improvement activities and social activities. In gravity schemes – the most common technology – households gained 3.8 hours per day. Another important benefit of the project is the increase in per capita water consumption in the project area, from a baseline of 13 lpcd to 43 lpcd. The health impact of increase in water consumption and health and hygiene initiatives could not be quantified, but the substantial decrease in the prevalence of diarrheal disease (from 78 to 14%) over the project period points to significant benefits. The ERR for the completed water supply schemes is estimated at 31.1%, above the ERR estimated at appraisal (24.6%). Technology wise ERR ranged from 16.0 % (lift schemes) to 6 The Fund Board was formed in 1996 to implement RWSSP I with IDA Credit support. 11 32.2% (gravity schemes). ERRs for all technologies are higher than the economic cost of capital (12%) and the NPVs of all technologies are positive. The estimated ERR for the overall project (22.1%, including Fund Board’s operating costs) is higher than the ERR estimated at appraisal (16.7%). Water supply schemes are found to be self-sustainable under normal situations. Most of the WSUCs introduced a monthly tariff of NRs 30 per household, on average, to fund regular operations. The collected amount slightly exceeds the O&M needs of water supply schemes. Households' access to improved sanitation facilities increased from 11 to 74% in the participating communities well above the target of 50%. The leverage (measured by the number of sanitary latrines constructed with communities’ own funds per number of sanitary latrines constructed with SRLF) is above 1 (with an average of 1.1). See Annex 3. 3.4 Justification of Overall Outcome Rating Rating: Satisfactory The overall outcome of the project is rated satisfactory. The PDOs were fully achieved, and several outcome and output indicators exceeded the formally revised targets, although an extension in the implementation period was required. The economic benefits were realized in a cost-effective manner, and women were significantly empowered. Physical and financial sustainability was achieved because communities assumed ownership and O&M responsibility, and the demand-driven approach was fully internalized by the communities. Furthermore, the project succeeded in testing a number of innovative features, beyond the target performance indicators set at appraisal, with the potential of being replicated and scaled up in RWSS projects not only in Nepal but also in other countries. The project’s achievements are the more creditable given the violent country-wide insurgency, the prolonged political instability and the frequent nation-wide strikes that affected Nepal during implementation, and led to material shortages and restricted movement of people and goods. 3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development Social impact. The project paid particular attention to ensure remote communities were included in the project: 29% of the schemes have a distance of more than 10 km from road heads. The project significantly contributed to building social capital in the participating communities – communities were empowered to take collective decisions, and were able to plan, construct, manage and operate water supply systems. The social benefits of improved water supply and sanitation were far reaching – anecdotal evidence from field visits show that girls were able to attend school on time and more regularly because of time saved in fetching water, leading to better results and reduced drop-outs at school; women’s health (e.g. backache) improved as the need to carry water long distance was reduced drastically; and children had better nutrition as women started growing their own vegetables. The representation and participation of previously excluded groups in project activities remained consistently high during the project period. For example, in the WSUGs, the representation of marginalized groups like the dalits, janajatis and other deprived ethnic groups stood at 60%. At project completion, 53.9% of beneficiaries were from marginalized groups. Gender impact. The project has had a remarkable gender impact. Women and girls have primary responsibility for fetching water; and 90% of the time saved as a result of improved water supply was women’s time. This saved time was effectively used instead in child care, income generation activities, and other household responsibilities. More than 45,000 women graduated from NFE classes; around 1,700 women were working as Village Health Promoters (VHPs). The project had a number of important features that helped facilitate and incentivize women’s engagement in income-generating activities with the time saved – e.g., the credit and savings facilities developed as part of the WTSS (women’s groups), and the 12 pilot Jeevika Program for providing commercial credit facilities to women. Approximately 65% of total female members in WTSS groups mobilized more than NRs 24 million through income generating activities.7 The project introduced a mandatory requirement to enhance women’s participation in decision making positions. As a result, 11% of WSUCs had women as chairpersons and 98.2% had women as treasurers. 585 WSUCs had more than the minimum (three) stipulated number of women. Poverty impact. The project contributed to the reduction of rural poverty in the project area by delivering improved RWSS that saved women’s time and allowed them to pursue economic activities. The percentage increase in the income of women who engaged in economic activities with the time saved stood at 24% in the project area. To ensure the long- term sustainability of these gains, several initiatives were adopted by the Fund Board such as registering the established WSUCs as cooperatives, and the piloting of the Jeevika Program. (b) Institutional Change/Strengthening The project made important direct and indirect contributions to strengthening the capacity of sector institutions and service providers at both the central and local level. The Fund Board has maintained operational autonomy. MPPW, now MoUD, has an established M&E that can serve as the basis to strengthen coordination and harmonize interventions by sector agencies. The project also succeeded in strengthening capacity of the SOs and empowering communities. Participating communities were made responsible for determining levels of services, contributed to capital cost, and took ownership of the assets and their O&M. The capacity built through the project at the local level is expected to have an important longer- term impact on the ability of the communities to come together for collective action and take charge of improving their livelihoods. (c) Other Unintended Outcomes and Impacts (positive or negative) The project supported community aspirations for higher levels of service to improve living conditions. The community’s decision-making process enabled beneficiaries to opt for higher levels of service than the basic levels defined by GoN. A number of communities adopted individual yard taps, contributing the incremental cost over the basic service. Some households went a step further and installed internal plumbing (i.e., wash basins, showers and toilets) with broader implications for enhanced water use and wastewater and sullage generation. 3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops Not applicable 4. Assessment of Risk to Development Outcome Rating: Low The risk that the assets created under the project will not be sustainable is low, due to the empowerment of communities to own and manage the schemes and the demonstrated willingness of communities to assume full O&M responsibility. Involvement of communities in planning, implementation, monitoring, evaluation, and O&M of water supply facilities together with technical training provided to Village Maintenance Workers (VMWs) created a solid foundation for sustainable O&M of the water supply schemes. In addition, the establishment of an O&M fund in the WUSC’s account with an allocation of 3% of hardware costs for gravity schemes and 4% for groundwater schemes has contributed to the sustainable operation of the schemes. 7 Implementation Progress Report (1st Trimester, FY 2011/12), Second Rural Water Supply and Sanitation Project, November 2011; “Supplementary Implementation Progress Report, Second Rural Water Supply and Sanitation Project, Updated up to January 25 2012. 13 The risk that the Fund Board model of service delivery based on demand and community decision-making may not continue is low given GoN’s well-established RWSS policy; and the adoption of the main provision of the Fund Board’s approach by most agencies and donors. The risk that the Fund Board cannot continue its operation because of lack of external financial support is low, since the Government has committed to fund operation of the Fund Board with interim budget after project closure and has formally requested the Bank to continue its support to the Fund Board. The lack of a separate Act of Parliament is not a serious impediment to the continuation of the Fund Board’s activities, given that the Fund Board is already established as a permanent entity. 5. Assessment of Bank and Borrower Performance 5.1 Bank Performance Rating: Satisfactory (a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory Project design reflected lessons learned from similar projects in Nepal, and globally, and showed exceptional attention to detail. The principle of service delivery based on demand was a significant element of project design. The mandatory development phase and the community planning and implementation were key elements of project design that contributed to the success of the project. Coupled with community decision-making in planning, implementation, and O&M, the ‘demand-driven’ approach made the project design highly appropriate, unique and best practice, worthy of replication. The projects’ benefits were enhanced by the inclusion of health and hygiene initiatives, NFE and training for women. Key performance indicators for the first development objective of improving sector institutional performance and mainstreaming the Fund Board approach could have been more clearly formulated to measure the significant project achievements. The rating is in line with the QAG’s quality at entry assessment. (b) Quality of Supervision Rating: Satisfactory Bank supervision was enhanced by the presence of a highly committed and experienced Task Team Leader (TTL) based in the Nepal Country Office. Safeguards and fiduciary staff were also based in the Nepal Country Office. The Bank’s supervision focused on steadfastly maintaining all aspects of the Fund Board’s implementation model without any dilution. Bank supervision was highly proactive and was able to address the issues that delayed scheme approvals in the first years of implementation. The Task Team actively promoted and supported institutional improvements in the Fund Board operations, and the piloting of innovations in consultation with the Fund Board (see section 2.2). The Task Team regularly monitored achievements of project targets as well as additional performance indicators reported by the Fund Board in its IPRs. The Task Team set high standards for supervision, which was intense and thorough. The Task Team rated the achievement of the PDO and IP Moderately Satisfactory throughout the project life, due to initial delays in achieving milestone targets, and delays by GoN in appointing Fund Board members, thus keeping pressure on the Fund Board to strictly adhere to the service delivery model and perform at its best. The ICR review conclusion is that the Task Team should have upgraded the PDO and IP rating after the initial delays were addressed, in recognition of the overall achievements of the project. (c) Justification of Rating for Overall Bank Performance Rating: Satisfactory Bank performance, especially the high standard of supervision, ensured that outcomes and outputs were fully achieved and indeed exceeded the targets, although these achievements were not reflected in the ratings for the PDO and IP. Overall Bank performance is rated 14 Satisfactory based on satisfactory quality at entry, satisfactory supervision and satisfactory achievement of outcomes. 5.2 Borrower Performance (a) Government Performance Rating: Satisfactory GoN has been fully supportive of the RWSS service delivery model executed by the Fund Board. It was committed to establish the Fund Board by an Act of Parliament and tabled the Act twice to the Parliament. It continued to support the autonomous operation of the Fund Board over the course of project implementation and provided annual budget appropriations in a timely manner. Despite the delay, the MPPW developed and established the sector M&E, which will facilitate improved donor coordination. GoN enhanced coordination of the multiple donors and agencies involved in the sector, increase the frequency of sector Stakeholder Group Meetings, and coordinated the Joint Sector Review. Donor interventions now follow the broad principles of GoN’s RWSS Sector Policy and Strategy of 2004. The challenge for MPPW (now MoUD) is to make further progress in coordinating sector investments by all donors active in the sector, and continuing to mainstream the Fund Board delivery model, which has been proved to be successful and sustainable. Overall, GoN’s performance is rated Satisfactory. (b) Implementing Agency or Agencies Performance Rating: Satisfactory The Fund Board developed a successful implementation modality for RWSS delivery with a detailed and well-thought-out scheme cycle. It exercised its functions professionally, effectively and efficiently. As the project executing agency, it ensured that WSUCs strictly followed the implementation modality for improved RWSS in a satisfactory manner. The Fund Board has a relatively lean organization, with a cadre of 48 experienced technical, financial and management staff. All staff, recruited through open competition, was required to meet the minimum technical qualifications, and was employed on three-year term contracts (with re-appointment based on performance evaluation as per guidelines provided in the Fund Board’s manual), and the tenure of the Executive Director was limited to one-and-a-half terms (4+2 years). Most staff positions were filled promptly, although some replacements took longer than expected with delays on the part of the government in appointing Board members to the Fund Board in the first years of project implementation. Overall, staff turnover due to changes in government has not affected the Fund Board. Initial implementation was impacted by delays in the mobilization of SAs for milestone monitoring visits, delays in the procurement of SOs and the long approval time of the schemes. These delays were however fully addressed by the Fund Board over the course of implementation and project outcomes were achieved and exceeded. The Fund Board introduced several noteworthy cutting-edge innovative pilot initiatives (see section 2.2). It developed an impressive M&E systems and a very comprehensive MIS on every conceivable aspect of the project, which helped to effectively monitor and evaluate project performance (see section 2.3). The Fund Board’s operation has been proved to be cost effective in comparison to costs of other RWSS providers. The Fund Board covered 18% of the total population provided with access to improved rural water supply since 1996, with 5% of total sector expenditures. The performance of the Fund Board is rated Satisfactory. 15 (c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory The overall Borrower performance is rated Satisfactory based on: achievement of the PDOs and the satisfactory results on the ground; the satisfactory performance of the Fund Board, and the commitment and support of GoN to the project. 6. Lessons Learned The evolution of RWSSP II provides a fine example of a model that may be suitable for other communities in Nepal and rural areas in developing countries. Main lessons learned include: 1. The strength of the community as organizing principle for sustainable development in Nepal. The project shows the strength of community participation and community-based implementation for sustainable development in Nepal. The demand-driven community- based model implemented by the Fund Board was able to withstand the implementation challenges of operating in a conflict environment. Even at the height of the insurgency, when most of the donor programs stopped or had to be significantly reduced, implementation under the project continued without interruption, with only minor delays related to the transportation of non-local materials (due to the strikes). 2. Benefits of long-term engagement in the RWSS sector. The importance of a long-term engagement in the RWSS sector to achieve results is an important lesson emerging from the project. The RWSSP II, as a follow-on project, was able not only to address the implementation issues which affected the first project, but also to experiment and pilot innovations. These innovations allowed the RWSS program to grow and evolve, and could not have been introduced under the first project, which focused on developing the foundations of the Fund Board’s delivery model. 3. The benefits of implementing a community-centered RWSS approach through an apex institution such as the Fund Board. The successful project results shows that implementing a community-centered approach to RWSS delivery through an apex institution, such as the Fund Board, that has somewhat more operational autonomy than line departments, allowed the project to test new approaches which can subsequently be mainstreamed if proven successful. An example is the testing and roll-out across the project of community-based procurement. Other examples include training local governments to adopt a demand-driven approach for RWSS service delivery by building capacity of SOs and SAs. 4. Importance of behavioral change for health impact in RWSS projects. The project shows the importance of behavioral change for achieving sustainable health impacts in RWSS projects. Although a clear attribution to the project cannot be established in the absence of an impact evaluation, the substantial reduction in the prevalence of diarrheal disease in the project area provides strong indication of the benefits of combining RWSS with health and hygiene promotion. 5. The importance of livelihood support to enhance gender impact. The project had a remarkable gender impact by freeing women and girls of the time previously spent fetching water to distant locations. This impact was enhanced by mainstreaming livelihood initiatives, such as the formation of credit and saving groups, into the project design and piloting innovative gender-focused initiatives, such as the Jeevika Program. The important gender results of the project indicate that combining livelihood support activities with RWSS delivery greatly enhances gender impact. 6. Implications of growing demand for higher water service levels in rural areas. Adoption of higher service levels will eventually lead to increased generation of wastewater. As the desirable and feasible standards for improvements in service levels in rural areas increase over time, the Fund Board would need to reorient itself to address the emerging trends of growing demand for improved service levels in rural areas (including 16 the need for treatment and disposal of wastewater), while maintaining the criteria and principles of the current implementation model. 7. The importance of the development phase for the sustainability of RWSS schemes. The mandatory development phase of the Fund Board’s delivery model, during which communities are mobilized, and community decisions are made, is a unique feature and an important investment that assures ownership, successful implementation, and sustainability of the schemes. 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies The Borrower’s own evaluation report is attached in Annex 6. A draft ICR was sent to the Borrower for comments on February 8, 2013. The Borrower reviewed the draft ICR and provided written comments, which were taken into account in the finalization of the ICR. (b) Cofinanciers Not applicable (c) Other partners and stakeholders Not applicable 17 Annex 1: Project Costs and Financing (a) Project Cost by Component (in US$ million equivalent) Actual/Latest Appraisal Estimate Percentage of Components Estimate (US$ millions) Appraisal (US$ millions) Strengthening and Operation of the 6.67 6.73 101 Fund Board Selection and Construction of Water Supply and Environmental 26.52 31.68 119 Schemes Institutional Development Studies 75 0.73 1.06 145 Total Baseline Cost 33.92 39.47 116 Physical Contingencies 3.39 Price Contingencies 4.20 Total Project Costs 41.51 39.47 95 (a) Project Cost by Category (in US$ Million equivalent) Actual/Latest Appraisal Estimate Percentage of (b) Components (US$ millions) Estimate Appraisal (US$ millions) Works: RWSS Schemes (a) Development Phase 32.52 4.49 97 (b) Implementation Phase 27.19 Goods 0.31 0.33 106 Consulting Services and Studies 0.92 1.06 115 Training 2.32 1.03 44 Monitoring and Evaluation and 3.11 1.84 59 Publicity Operating Costs 95 2.33 3.53 152 Total Project Costs 41.51 39.47 95 (c) Financing Appraisal Actual/Latest Type of Percentage of Source of Funds Estimate Estimate Cofinancing Appraisal (US$ millions) (US$ millions) Borrower 6.6 5.86 89 IDA 25.3 25.55 101 Local Communities 4.6 8.06 175 DFID Grant 5.0 0 0 Total 41.5 39.47 95 Note: 1. US$ 0.25 million is an exchange gain on actual base US$:SDR under IDA credit. 18 B. Project Costs Based on Additional Financing (IDA Grant) (a) Project Cost by Component (in US$ Million equivalent) Actual/Latest Appraisal Estimate Percentage of Components Estimate (US$ millions) Appraisal (US$ millions) Strengthening and Operation of the Fund Board 3.90 5.42 139 Selection and Construction of Water Supply and Environmental 20.50 21.53 105 Schemes Institutional Development Studies 1.70 1.50 88 Total Baseline Cost 26.10 28.45 109 Physical Contingencies 2.50 Price Contingencies 3.50 Total Project Costs 32.10 28.45 89 (c) Project Cost by Category (in US$ Million equivalent) Actual/Latest Appraisal Estimate Percentage of (d) Components (US$ millions) Estimate Appraisal (US$ millions) Works: RWSS Schemes (a) Development Phase 5.2 3.40 65 (b) Implementation Phase 19.90 18.13 91 Monitoring, Evaluation and Publicity, Training, Studies and 5.60 4.22 75 Sector Development, Goods etc. Operating Costs 1.40 2.70 193 Total Project Costs 32.10 28.45 89 (c) Financing Appraisal Actual/Latest Type of Percentage of Source of Funds Estimate Estimate Cofinancing Appraisal (US$ millions) (US$ millions) Borrower 1.2 1.05 88 IDA 27 22.38 83 Local Communities 3.9 5.02 129 Total 32.10 28.45 89 C. Consolidated Project Costs (IDA Credit and Grant) (a) Project Cost by Component (in US$ Million equivalent) Actual/Latest Appraisal Estimate Percentage of Components Estimate (US$ millions) Appraisal (US$ millions) Strengthening and Operation of the Fund Board 10.57 12.15 115 Selection and Construction of Water Supply and Environmental 47.02 53.21 113 Schemes 19 Institutional Development Studies 2.43 2.56 105 Total Baseline Cost 60.02 67.92 113 Physical Contingencies 5.89 Price Contingencies 7.70 Total Project Costs 73.61 67.92 92 Total Financing Required (b) Project Cost by Category (in US$ Million equivalent) Actual/Latest Appraisal Estimate Percentage of Components Estimate (US$ millions) Appraisal (US$ millions) Works: RWSS Schemes (a) Development Phase 7.80 7.86 (b) Implementation Phase 52.42 45.32 92 Monitoring, Evaluation and Publicity, Training, Studies and 12.26 8.51 69 Sector Development, Goods etc. Operating Costs 3.73 6.23 167 Total Project Costs 73.61 67.92 92 (c) Financing Appraisal Actual/Latest Type of Percentage of Source of Funds Estimate Estimate Cofinancing Appraisal (US$ millions) (US$ millions) Borrower 7.8 6.91 89 IDA 52.3 47.35 92 Local Communities 8.5 13.08 154 DFID Grant 5 0 0 Total 73.6 67.92 92 20 D. Status of Sources and Uses of RWSSP Funding Financing Plan Actual Expenditures Balance Original Project Additional % of % of Total Total % of Actual Source Original Revised Financing Total Original GoN 6.6 11.6 1.2 12.8 17.4 6.91 10% 54% 5.89 Commu 4.6 4.6 3.9 8.5 11.5 13.08 19% 154% - -nities 1 DFID 5 0 0 0 0 - 0% 0% - IDA 25.3 25.55 21.80 47.35 71.1 47.93 70% 102% (0.74) Total 41.5 41.75 26.74 68.49 100 67.92 99% 99% 5.15 Notes: 1. Community contributions include cash & kind contribution 2. Community contributions for the schemes are higher than the projections 3. US$ 5 million of DFID did not materialize, and was borne by GON 4. US$ 0.25 million under original project is an exchange gain on actual base US$:SDR under IDA credit 5. IDA canceled US$ 4 million 21 Annex 2: Outputs by Component Output Description Unit Target Actual A. Rural Water Supply and Sanitation Outputs Total number of water supply schemes constructed No. 1,463 1,465 (a) Rain harvesting schemes No. No target 13 (b) Gravity water schemes No. No target 1191 (c) Dug well schemes No. No target 34 (d) Shallow tubewell schemes No. No target 170 (e) Lift deep tubewell schemes No. No target 57 Total water points No. 24,000 29,482 of which, yard taps/house connections No. No target 1,389 Total number of sanitation units constructed No. 50,000 137,536 (a) Sanitation units using SRLF No. No target 64,407 (b) Sanitation units using own funds No. No target 72,080 (c) Sanitation units in institutions (e.g. schools) No. No target 1,049 B. Coverage by RWSS Number of beneficiaries No. 1,045,464 1,140,892 C. Health and Hygiene Outputs Number of hand washing programs introduced No. No target 2,173 D. Process, Technical and Financial Compliance RWSSP Sector M&E System and MIS No. Not available Available CD impact assessments No. 4 4 Technical audits No. 4 4 Sustainability audits No. 6 7 Financial audits of SOs No. No target 259 Financial audits of schemes No. No target 346 Scheme sustainability score (Batch V) % No target 94 Scheme functionality score (Batch V) % No target 96 Schemes covered by risk insurance (pilot) No. New initiative 36 E. Documents and Manuals Prepared Operational manuals produced No. No target 17 F. Social Capital Development SOs engaged No. No target 175 WSUCs formed and registered No. No target 1,955 WSUCs with more than 3 women members No. No target 585 WTSS formed No. No target 2,691 Village maintenance workers No. No target 1,513 Communities reporting post-implementation status % 100 94.33 G. Economic Activities Generated Credit and savings groups formed No. No target 2,885 Percentage increase in Household income of WTSS % No target 24 members Jeevika committees formed (pilot) No. New initiative 53 Jagran committees formed (pilot) No. New initiative 300 H. Funding Support for the Project IDA credit and Grant (additional funding) US$ 25 M 52 M DfID grant US$ 5.0 M 0.0 M 22 Batch-wise Main Project Outputs A. Number of rural water supply schemes completed / in operation Achieved, Achieved, Original Revised Batch Achieved % of original % of revised Target Target target target IV 48 47 46 96 98 V 244 315 315 129 100 VI 330 350 331 100 95 VII 359 400 427 119 107 VIII 374 351 346 93 99 Total 1,355 1,463 1,465 108 100 Note: The Fund Board has completed 46 schemes of Batch IV carried over from RWSSP I. It has also started preparation of 450 schemes in Batch IX. All schemes in Batch IX are in the development phase. B. Number of households benefiting from the rural water supply schemes Achieved, Achieved, Original Revised Batch Achieved % of original % of revised Target Target target target IV 4,800 4,700 5,823 121 124 V 24,400 31,500 38,703 159 123 VI 33,000 35,000 42,399 128 121 VII 35,900 40,000 56,175 156 140 VIII 37,400 35,100 47,072 126 134 Total 135,500 146,300 190,172 140 130 C. Population benefiting from the rural water supply schemes Achieved, Achieved, Original Revised Batch Achieved % of original % of revised Target Target target target IV 28,800 35,562 35,242 122 99 V 146,400 233,986 233,986 160 100 VI 198,000 246,160 249,464 126 101 VII 215,400 284,056 335,051 156 118 VIII 224,400 245,700 287,149 128 117 Total 813,000 1,045,464 1,140,892 140 109 D. Number of water points and toilets constructed Toilets Batch Water points SRLF SELF Help Institutions Total IV 827 2,555 2,825 23 5,403 V 6,021 14,565 16,424 255 31,244 VI 7,123 14,616 17,863 238 32,717 VII 9,437 21,593 22,475 312 44,380 VIII 6,460 11,078 12,493 221 23,792 Total 29,868 64,407 72,080 1,049 137,536 23 Process Activities Used to Achieve Outputs  Communities decided priorities and service levels corresponding to affordability and willingness to pay.  The Fund Board defined basic service level as access to water within a 15-minute round-trip walk, with water available at public tap stands serving 7 to 10 households, at design consumption of 45 lpcd (and in extreme cases of 25 lpcd).  Consumers paid incremental cost of any higher level of service decided by the community.  During the development phase (of about 10 months), (i) the community formed the WSUG and registers it under the Water Resources Act in the District with the WSUC (Committee) representing the community; (ii) the community identified priorities, and service levels; (iii) the community prepared designs and cost estimates, conforming to unit cost guidelines established by the Fund Board (with the help of the SO); (iv) the SA (primarily consulting firms) appraised technical, financial and economic aspects of schemes; (v) the community collected upfront contributions (of at least 20% in cash and kind overall and 10% from the ultra-poor identified by the community) and O&M funds, with funds deposited in the community bank account; (vi) the WSUC and SO opened the joint bank account to receive Fund Board’s funds for implementation; and (vii) the Fund Board carried out compliance audit of CD activities.  During the implementation phase (of about one year), the community (i) procured and transported non-local material; (ii) constructed civil works under a tripartite contract between the WSUC, the SO8 and the Fund Board.  During the post-implementation phase (of two years), the SO (i) provided TA to the community for scheme level problems which the community is unable resolve on its own and (ii) trained the community to fill up the post-implementation scheme status report for submission every six-monthly to the VDC, DDC and the Fund Board. Sanitation  The Fund Board provided grants from the SRLF to communities to cover the cost of the foreign materials (water seal, pan, pipes, cement etc.) and skilled labor required to construct a domestic sanitary latrine. The grant amount covers the costs of sanitary latrines for 25% of the households in the community without sanitary latrines. The community was expected to manage the funds by setting objective criteria for prioritizing the selection of applicants and setting the terms and conditions for repayment of the loan. The revolving funds remained in the community to fund rehabilitation and new construction of latrines.9  Communities were expected to eventually achieve 100% coverage in sanitation by leveraging the grant and contributing their own funds to construct latrines.  The Fund Board provided grants for construction of toilets in institutions, e.g., schools.  Each household constructed a twin-pit pour flush toilet 8 SOs assisted communities to carry out construction, with the community contributing local materials and labor. Except for skilled labor hired by the community, no contractors were hired. 9 SRLF was a Grant to the community as a contribution for their efforts, and 100% sanitation coverage is expected in communities received SRLF grant. The receiving community decided the criteria and the repayment terms for the use of the SRLF, and could also give grants to poor households. The revolving funds remained in the community to fund rehabilitation and new construction of latrines. Many households in the communities used their own funds to construct latrines and did not wait for the fund to revolve to them. 24  The community engaged and paid for a trained VHP, who provided advice on health, hygiene and hand washing at critical junctures. Operation and Maintenance of Assets  The community assumed ownership and full responsibility for O&M with funds collected form households  The community engaged and paid a VMW to undertake O&M work. 25 Annex 3: Economic and Financial Analysis A. Water Supply Component The project aimed to provide improved water supply services to a rural population of 1,045,464 from 1,463 schemes. At project completion, a population of 1,140,892 benefitted from improved water supply through 1,465 water supply schemes implemented in four batches (Batch V to VIII), including completion of 46 schemes from Batch IV initiated under RWSSP I. In addition, the project supported the development phase of 577 schemes under Batch IX. The average scheme size is 778 people per scheme, above the estimate at appraisal of 600 people per scheme. Gravity water supply schemes account for 68% of the beneficiaries; followed by shallow tubewell schemes (21%), lift water supply system schemes (6%), dug well schemes (4%) and rainwater harvesting schemes (1%). Out of the 1,465 completed water supply schemes under the project, 64% of the schemes are implemented in the Hill ecological zone, 28% in the Tarai zone and 8% in the Mountain zone. The Central development region accounts for 41% of the schemes, followed by the Western Region (23%). About 18% of the total schemes in operation are in the Midwestern and Far Western Regions. See Table 1.10 Table 1: Distribution of Completed Water Supply Schemes and Beneficiaries by Region and Ecological Zone Mountain Hills Tarai Total Percentage Region schemes Population schemes Population schemes Population schemes Population schemes Population Eastern 23 12,209 195 122,951 80 96,118 298 231,278 20% 20% Central 47 33,079 270 180,767 201 258,984 518 472,830 35% 41% Western 3 835 330 213,444 59 51,766 392 266,045 27% 23% Mid 31 17,916 64 37,741 36 30,961 131 86,618 9% 8% Western Far 16 8,451 83 49,557 27 26,113 126 84,121 9% 7% Western Total 120 72,490 942 604,460 403 463,942 1,465 1,140,892 100% 100% Percentage 8% 6% 64% 53% 28% 41% 100% 100% Source: RWSSFDB MIS System, accessed on August 31, 2012 At appraisal, a cost-benefit analysis was conducted to estimate the ERR for investments in improved water supply and for the project as a whole. The main benefits quantified for the cost-benefit analysis include time savings and increased availability of safe water. Additional benefits –such as improved health and better hygiene practices and institutional strengthening and sustainability–could not be quantified and were therefore excluded from the cost-benefit analysis. The cost-benefit analysis has been replicated at completion to ascertain whether the expected ERR has materialized at project closure. Only completed water supply schemes (Batch V to VIII) are considered for the cost-benefit analysis of the water supply investments.11 10 As per 2001 national census, population distribution in Mountain, Hills and Tarai ecological zones are 7%, 44% and 49%. Population distribution is 23%, 35%, 20%, 12% and 10% in eastern, central, western, mid- western and far-western development region respectively. 11 Costs and benefits of Batch IV and IX schemes are excluded from the economic analysis because some of the schemes costs of Batch IV were covered by RWSSP 1st phase; schemes of Batch IX are still in development or 26 The cost-benefit analysis relied on the Fund Board’s monitoring database for cost and benefit data. Annual O&M costs were estimated based on the information collected by the Fund Board based on information from 74 selected completed schemes. Benefits The main benefits accrued to households are the time savings from fetching water and the increased availability of safe water. Time saving. The main benefit for the households in the participating communities is the time saving from fetching water. The average time saving is 2.1 hours per household. Time savings range from 3.8 hours per household per day for gravity schemes – the most popular technology – to 1.2 hours per household per day for shallow tubewell schemes. Women and girls living in the rural areas are mainly responsible for fetching water, and the time saving accrued to women is 90% of the total time saved. The time saved is likely to translate into increase in time for engaging in productive activities, providing opportunities for increasing household income. The average time saving exceeds the estimate at appraisal for all technology options (with the exception of shallow tubewells). Time savings are presented in table 2 below. Table 2: Average Time Saving (Hours per household per day) Average time saving (Hours/HH/day) Estimated at Technology appraisal Maximum Minimum Average (Hours/HH/day) Gravity 4.1 3.7 3.8 1.8 Shallow tubewell 1.7 1.0 1.2 1.35 Dug well 4.2 1.9 2.6 1.35 Lift 2.7 1.7 2.3 NA Rain water harvesting 5.3 3.8 4.8 1.8 Source: RWSSFDB MIS System, accessed on August 20, 2012 Increased availability of safe water. The incremental water consumption resulting from access to improved water supply is another quantifiable benefit from the project. Increased availability of safe water is likely to result in significant health benefits and reduced medical expenditures for the households. Availability of adequate quantities of water may also allow the use of more water for gardening, small animal husbandry, livestock production and other water intensive activities that increase food consumption or income opportunities. Data on per capita water consumption before and after the project are collected by the Fund Board. The benefits from the increased water consumption resulting from the project are evaluated based on the prevailing water tariff, and is therefore a conservative estimate.12 On average, water consumption increased from 13.8 lpcd to 43.2 lpcd in the project area. implementation phase, and benefits have not yet materialized. Therefore, the number of schemes and beneficiaries data presented in this analysis may be different from the data presented in other sections of the ICR. 12 Benefit from incremental water is evaluated based on quantity increased water used and prevailing tariff rate. Prevailing average tariff rate of gravity and lift schemes are derived from the information collected by WRSSFDB from 74 samples. Since information of shallow tubewell, dug well and rainwater harvesting is not available tariff rate of those technology is assumed 50% of tariff of gravity schemes. 27 Population served by the project: The total number of beneficiaries is 1.1 million. Households receiving improved water supply services under completed schemes are considered beneficiaries of the project for the economic analysis Costs The actual per capita capital cost at constant prices (community contributions included) is used for the economic analysis. Annual O&M costs are estimated based on annual O&M expenditure data collected by the Fund Board for 74 schemes.13 Per capita average annual O&M cost for gravity is NRs 72 and NRs 100 for lift schemes. O&M cost for other technologies is assumed to be 50% of O&M cost of gravity schemes. The per capita investment costs for all technology options (except for dug well schemes) are less than the per capita cost estimated at appraisal.14 Table 3 below shows the per capita cost at constant price by technology and batch. It is worth noting that the lower per capita costs of lift schemes, relative to gravity schemes, is mostly due to the larger size of lift schemes. The few lift schemes funded under the project are concentrated in the Tarai ecological zone, where population concentration is highest, and economies of scale could be achieved in the provision of rural water supply. The average serving population of lift schemes is 781, compared to 659 for gravity schemes. Table 3: Per Capita Investment by Technology (NRs) at Constant Prices 2004 Shallow Tube Rainwater Deep Batch/Phase Gravity Dug Well Well Harvesting tubewell (lift) Batch V Development Phase 331 331 331 0 331 Implementation Phase 2,696 739 1,962 0 2,175 Total 3,027 1,070 2,293 0 2,505 Batch VI Development Phase 360 360 360 360 360 Implementation Phase 2,881 929 1,773 4,509 3,958 Total 3,241 1,289 2,133 4,869 4,317 Batch VII Development Phase 345 345 345 345 345 Implementation Phase 3,152 971 1,821 4,332 2,872 Total 3,498 1,316 2,167 4,678 3,218 Batch VIII Development Phase 619 249 211 287 247 Implementation Phase 3,764 1,119 2,377 5,403 3,525 Total 4,383 1,368 2,589 5,691 3,772 Average Development Phase 414 321 312 248 321 Implementation Phase 3123 939 1984 3561 3132 Total 3,537 1,261 2,295 3,809 3,453 Note: Per capita cost data in current price is taken from the Fund Board as of August 20, 2012. 13 Per capita average annual O&M cost for gravity is NRs 72 and NRs 100 for lift schemes. O&M cost for other technologies is assumed 50% O&M cost of gravity schemes. 14 Per capita capital cost estimated in 2004 at appraisal were: NRs 2,619 for gravity schemes, NRs 860 for shallow tube well schemes, NRs 1,137 for dug well schemes and NRs 3,321 for rainwater harvesting schemes. 28 Costs and Benefit Analysis Main Assumptions for Economic Analysis: Assumptions for economic analysis are in line with the assumptions set at project appraisal.  Benefits and costs have been forecasted over a 20 year horizon from 2004, the first year of project implementation.  Border prices have been estimated by applying the standard conversion factor of 0.9 to all domestic expenditure and benefits  The opportunity cost of capital is estimated at 12%.  Population growth is assumed to be 1.72%in line with the annual rural population growth rate.15  Average rural agricultural daily wage rate is assumed to be NRs 85 for male, NRs 65 for female and NRs 75 on average.16  As per the findings of the Detailed Demand Assessment Study carried out by the Fund Board for Batch IV in 2002, it is assumed that the 25% of time saved by women in fetching water is used in economic activities, 41% for household activities and self- improvement (adult education) and the remaining 34% for leisure time. For men it is assumed that 33% of time saving is used in economic activities, 20% for household work and self-improvement and 47% for leisure. Economic activities are valued at 100% of the rural wage rate, household activities and self-improvement are valued at 50% of the wage rate and leisure activities are valued at 25% of the wage rate. Economic Rate of Return. The ERR has been calculated for each technology separately for all completed water supply schemes and for the project as a whole. The ERR estimates are conservative since health benefits are not incorporated into the calculation of benefits. ERR of all schemes is 31.05% which is higher than the ERR estimated at appraisal (24.57%) and only slightly below the revised estimates carried out at the time of the additional financing (37.42%). The ERR range from 16.03% (lift schemes) to 32.15% (gravity schemes). All technology options provide satisfactory ERRs, above the economic cost of capital (12%) and positive Net Present Value (NPV). In addition, the estimated ERR of the project (22.08%) is significantly higher than the ERR estimated at appraisal (16.70%). The project costs include Fund Board's operating costs in addition to the costs of the schemes. The results of the economic analysis are summarized below in Table 4. 15 Central Bureau of Statistics. 2003. Monograph of Nepal 2003. Volume 1, page 382. Kathmandu: Nepal. 16 Central Bureau of Statistics. Nepal Living Standard Survey 2004. Volume 2, page 63. Kathmandu: Nepal. 29 Table 4: Summary of ERR and NPV Estimates by Technology Shallow Dug Rain water All Parameters Gravity Lift Project Tubewell well harvesting schemes At project closure (2012) ERR (%) 32.15 25.82 29.70 16.03 28.65 31.05 22.80 NPV (NRs M) 1,737 109 61 15 20 1,943 1,407 B/C Ratio 2.16 1.73 2.16 1.20 1.99 2.08 1.60 At project appraisal (2004) ERR (%) 23.45 55.51 41.81 - 4.79 24.57 16.70 NPV (NR M) 866 141 61 - -16 1,052 542 At additional financing (2008) ERR (%) 40.15 56.64 45.38 18.13 13.00 37.42 25.69 NPV (NR M) 1,685 49 94 9 7 1,845 1,362 Note: lift schemes were not included in the original project design, so ERR was not estimated at appraisal Sensitivity Analysis. Two scenarios have been considered for the sensitivity analysis at project closure. The scenarios include (a) a 25% increase in total costs, and (b) a 25% reduction in the total time spent in economically productive activities and household activities. While the economic analysis at project closure is based on actual capital costs, the higher cost scenario allows to ascertain the robustness of the ERR against an increase in O&M costs over the lifetime of the schemes. The sensitivity analysis indicates that the ERRs are robust to wide ranging deviations from the base case assumptions. The results are presented in Table 5 below. Table 5: Sensitivity Analysis All Schemes-Water Project Parameters Supply ERR NPV ERR NPV (%) (NRs Million) (%) (NRs Millions) At project closure Baseline 31 1,943 23 1,407 25% higher costs 24 1,494 17 825 25% less time spent in economic activities 23 1,058 16 522 At appraisal Baseline 25 1,052 17 542 25% higher costs 19 704 12 67 25% less time spent 21 723 14 213 30 Sanitation A full cost-benefit analysis of the sanitation component was not conducted at appraisal. The analysis at completion is limited to an assessment of the efficiency of the SRLF in scaling up coverage of sanitary latrines in the project area. Of 190,172 households in the project area, only 11% (20,712) had improved sanitation facilities before the project intervention. An additional 136,487 households received access to sanitary latrines in the participating communities over the course of project implementation, and 1,049 sanitary toilets were constructed in public buildings. Overall, the communities in the project areas needed 169,460 latrines, and 81% of the needs have been met (excluding public latrines). As a result, households’ access to sanitary latrines has increased from 11% to 83% in the participating communities. The funds have been effectively used. The leverage (measured by the number of sanitary latrines constructed with communities’ own funds per number of sanitary latrines constructed with SRLF) is above one (with an average of 1.1). The technical and financial performance of the sanitation component is given below. Sanitation Coverage before the Project Number of Coverage Coverage No of schemes Total HHs Batch Sanitary Toilets Before the after the completed in project area before the project project project IV 46 5,823 NA 0.0% 92.8% V 315 38,703 NA 0.0% 80.7% VI 331 42,399 8,058 19.0% 96.2% VII 427 56,175 8,254 14.7% 93.7% VIII 346 47,072 4,400 9.4% 59.9% Total 1465 190,172 20,712 10.9% 83.2% Sanitation Revolving Loan Fund (SRLF) Disbursement Latrine SRLF Grant Batch Constructed Using (NRs) SRLF IV 2,555 711,516 V 14,565 19,902,253 VI 14,616 19,502,700 VII 21,593 25,238,780 VIII 11,078 27,035,200 Total 64,407 92,390,449 31 Number of Sanitary Latrine Constructed under the Project Sanitary Latrines Region/Zone Public SRLF Self Help Total buildings Eastern 13,928 15,494 235 29,657 Mountains 790 909 15 1,714 Hills 7,490 8,368 152 16,010 Tarai 5,648 6,217 68 11,933 Central 25,281 28,220 395 53,896 Mountains 2,051 2,269 34 4,354 Hills 10,960 12,282 185 23,427 Tarai 12,270 13,669 176 26,115 Western 15,492 17,499 268 33,259 Mountains 55 57 2 114 Hills 12,243 13,851 232 26,326 Tarai 3,194 3,591 34 6,819 Mid Western 5,270 5,875 94 11,239 Mountains 1,026 1,133 27 2,186 Hills 2,189 2,517 45 4,751 Tarai 2,055 2,225 22 4,302 Far Western 4,436 4,992 57 9,485 Mountains 520 607 13 1,140 Hills 2,496 2,784 28 5,308 Tarai 1,420 1,601 16 3,037 Total 64,407 72,080 1,049 137,536 32 Annex 4: Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Responsibility/ Names Title Unit Specialty Lending Tashi Tenzing Sr. Sanitary Engineer SASDU TTL William D. Kingdom Lead Water and Sanitation Specialist SASDU TTL Thirtha Rana Sr. Health Specialist SASHN Health Jeeva Perumalpillai-Essex Lead Operations Officer CSASB Project operations Lynn Bennet Lead Social Scientist SARDS Social Development Rachel Bet Kauffmann Sr. Public Health Specialist SASHN Health Specialist Bigyan Pradhan Sr. Financial Management Specialist SARFM Financial Management Kiran Ranjan Baral Sr. Procurement Officer SARPS Procurement Christoffe Bosch Sr. Water and Sanitation Economist SASDU Water and Sanitation Mona Sur Economist EASNS Economics Nawaf A.Al-Mahamel Counsel LEGES Legal Rajesh Sing Program Assistant SASDO Program Assistance Johana Thap Program Assistant EXC Program Assistance Jayashree Shreenivasan Program Assistant SASDO Program Assistance Supervision/ICR William D. Kingdom Lead Water and Sanitation Specialist SASDU TTL A. D. C. Godavitarne Consultant SASDU ICR team Elisa Muzzini Sr. Economist SASDU ICR team Silva Shrestha Water and Sanitation Specialist SASDU Water and Sanitation Tashi Tenzing Sr. Sanitary Engineer SASD1 TTL Kiran R. Baral Senior Procurement Officer SARPS Procurement Lynn Bennett Consultant SASDS Social Development Samantha L. Forusz Program Manager HRSAS Program Management Drona Raj Ghimire Environmental Specialist SASDI Environment Sunita Gurung Program Assistant SASDO Program Assistance Sumbo Adeyemo Program Assistant SASDO Program Assistance Sangeeta Kumari Social Development Specialist SASDS Social Development Yuka Makino Natural Resources Mgmt. Spec. SASDI Resource Management Midori Makino Lead Evaluation Officer IEG Financial analysis Nagendra Nakarmi Senior Program Assistant SARFM Program Assistance Senior Social Development Asta Olesen SASDS Social Development Specialist Bigyan B. Pradhan Senior Fin. Management Specialist SARFM Financial Management Johana Shah Program Assistant GCMCG Program Assistance Neena Shrestha Procurement Assistant SARPS Procurement Mona Sur Senior Agriculture Economist EASNS Economics Bigyan B. Pradhan Sr. Financial Management Specialist SARFM Financial Management Nagendra Nakarmi Sr. Program Assistant SASDO Program Assistance Naresha Duraiswamy Sr. Operations Officer SASDU Project Operations Bandita Sijapati Consultant SASDS Social Development Pawan Lohani Consultant SASDU Economic analysis 33 (e) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle US$ Thousands (including No. of staff weeks travel and consultant costs) Lending FY01 8.31 14.17 FY02 14.40 99.29 FY03 26.94 93.33 FY04 28 55.91 0 FY05 0 10.34 Total: 77.65 273.04 Supervision/ICR FY04 0 0.00 FY05 32.28 54.52 FY06 31.35 56.86 FY07 41.61 109.31 FY08 39.85 117.86 FY 09 39.76 89.90 FY 10 32.51 78.12 FY 11 35.69 34.29 FY 12 27.40 70.92 FY 13 14.47 35.81 Total: 380.72 611.78 34 Annex 5: Beneficiary Survey Results Not Applicable 35 Annex 6: Stakeholder Workshop Report and Results Not Applicable 36 Annex 7: Summary of Borrower's ICR Project Background Following the satisfactory completion of RWSSP-I and on the request of GoN, the Bank agreed to provide credit assistance of worth US$ 25.3 million and the RWSSP-II project was signed between GoN and IDA/WB in September 2004 for a period of 5 years (2004-2009) to implement the project for extension and expansion of the rural water supply and sanitation facilities. The approach of the RWSSP-II was to adopt the general approaches of RWSSP-I with some improvements aimed at influencing the broader sector institutional performance for expanding the proven impact of the approach on health, hygiene and sanitation, poverty reduction and social capital mobilization at the grassroots level. The physical target set for the RWSSP-II was to benefit 813,000 people through completion and management of 1,355 rural water supply and sanitation schemes by the end of the project in 200917. However, some delay in project implementation occurred because of the unstable political and security situation of the country, delay in the nomination of board members by the Fund Board resulting into late selection of the SOs, and delay in scheme selection finalization, while cost overruns in the project occurred because of increased market price of the non-local materials. It was concluded that additional financing would be required to complete the project target, along with an extension of the project period. Following this, the project received additional funding (shifting from credit to grant) of US$ 27 million with a time extension of one year until December 31, 2010, one year beyond the original project completion. Along with this additional financing, the scope of the project was also restructured with a new target of 1,463 rural water supply and sanitation schemes benefiting more than (additional) one million populations by December 2010. The project duration was extended two times and the final closing date of the RWSSP-II was August 2012. The grant agreement for the additional financing was signed between GoN and IDA/WB in August 2008. The 13th implementation support review (January 2011) canceled a sum of US$ 4 million (saved money due primarily to increase in exchange rate of US$ and cost effectiveness of Board’s schemes) from the additional grant of US$ 27 million making it to US$ 23 million, based on the Fund Board’s financial projections and fund requirements for the completion of 1,463 schemes. The RWSSP-II encompasses three major programme components: (i) strengthening and operation of the Fund Board; (ii) identification, selection and construction of water supply and sanitation schemes; and (iii) undertaking institutional development studies (RWSS sector knowledge development). Major Achievements and Contributions of RWSSP-II The overall achievements of the project were highly satisfactory and the PDOs and impact indicators were achieved. Implementation of RWSSP-I and RWSSP-II had an impressive impact on health and hygiene of the project beneficiary households, and contributed significantly to save women from the drudgery of fetching water with time saving of approximately 3.2 hours per day throughout the year. The project was able to make significant progress on empowering communities to manage and maintain their own water supply and sanitation facilities through the participatory decision-making approach. Formation and functioning of an autonomous Fund Board with a permanent legal status, the gradual development of the sense of project ownership among the beneficiaries, and most important of all, involving the community in demand driven development, implementation and operation & management of rural water supply schemes were some major achievements of the project. Hence, RWSSPs implemented by Rural Water Supply and Sanitation Fund Development 17 Aid Memoire, Nepal: Second Rural Water Supply & Sanitation Project, The World Bank, December 2009 37 Board have paved the way for furthering and expanding the community driven development approach in the water and sanitation sector. PDO 1: To improve rural water supply and sanitation sector institutional performance and mainstream “Fund Board� approach in the Government’s system: i) Contribution to National Sector Policy At the time of project appraisal, the sector policy of 1998 was not very clear regarding the institutional setup and demarcation of roles of sector agencies. The RWSS National Policy as well as the National Strategic Action Plan Document (2004) recognized the contributions made by the Fund Board in the RWSS sector and incorporated some of the following lessons and experiences from the Fund Board in the policy and strategy documents: (i) adoption of demand-driven and participatory approach, (ii) inclusion of the development phase for social mobilization to increase awareness and understand procedures, for smooth running of project; (iii) community contributions for participation, ownership and sustainability of the project; (iv) collection of upfront O&M fund for the sustainability of the project; (v) equity considerations and social inclusion; (vi) public-private partnership with cost sharing; (vii) pro-poor strategy in remote areas; and (viii) community/women empowerment. These elements were the key features of the Fund Board’s modality tested and proven at the field level through 900 schemes during the RWSSP-I. Moreover, the RWSS National Policy as well as the National Strategic Action Plan Documents (2004) clearly recognize and define the roles and responsibilities of the Fund Board as an established sector institution. The project design did not make any provision to support the liaison ministry (earlier MPPW but now MoUD) for broader policy and institutional reforms. Project interventions were designed within the operational domain of the Fund Board (except for the M&E unit support provided to MPPW), while improvement in sector performance at a higher level was out of reach of the Fund Board. ii. Mainstreaming Fund Board’s Lessons in the Sector The mainstreaming of the 'Fund Board model' has already taken place during the 10th Plan, the sector policy chapter of the 10th plan captured the major elements of the Fund Board model as guiding principles for programs in the sector. The sector policy of 2004 embraced the concept of development phase, community contribution, demand driven approach, women empowerment and economic development of the communities served by the RWSSP schemes, which were the key elements of the Fund Board model. Other donors, such as the ADB and FINNIDA have adopted the features of the Fund Board modality such as community contribution, social mobilization, facilitation services from NGOs and to some extent, the community procurement system. Upfront collection of O&M funds by the community before the construction of the schemes is another good practice adopted by the Fund Board, which is being adopted gradually by other service providers in the sector. iii. Fund Board exercising its Autonomy The Fund Board exercised full autonomy for all operational activities, except for the requirement of concurrence of the liaison ministry on the matters of staff remuneration. The Fund Board faced some difficulties due to the delay in the nomination of Board members by GoN; and some court cases on the nomination and terms of office of some Board members. 38 iv. Institutionalization of the Fund Board The GoN has agreed to the establishment of the Fund Board as a regular sector institution to deliver RWSS services to the rural population of Nepal. To this end, a bill to formally institutionalize the Board was submitted to the Parliament for approval. The Fund Board has actively supported the liaison ministry in the process of drafting the bill. Because the parliament was dissolved before the bill was discussed, the bill could not be passed in spite of two attempts from the liaison ministry. v. Contribution to the Strengthening Sector M & E The institutional capacity to coordinate and facilitate monitoring of sector activities was inadequate. Hence, GoN has utilized the resources available with the Fund Board from RWSSP-II for the design, establishment and operationalization of a web-based sector M&E and DSS system at the ministerial level and to train the staff of the ministry, line agencies and district level staff involved in the sector data management. The system is now in operation with data sharing from major sector stakeholders; additional service providing agencies of the sector are being linked with this system. This system is functioning as the centre point for collecting all sector data and contributing to the sector M & E work. The intent of PDO 1 was the policy reform, system development, institutional strengthening and capacity building of the sector agencies at policy and operational level. The sector reform has taken place during the project period and the RWSSP-II contributed to achieve this objective. GoN has made significant achievements in the policy and institutional landscape of the rural water supply and sanitation sector during the project period. PDO 2: To support communities to form inclusive local water supply and sanitation user groups that can plan, implement, and operate drinking water and sanitation infrastructure that delivers sustainable health, hygiene, and productivity benefits to rural households. i. Contribution in MDG Target and National Coverage The population served by water supply and sanitation sector services in the country by 2010 was 78% and 37%, respectively, in rural Nepal, of which the Fund Board alone contributed 18.04% and 16.53% respectively since its establishment in 1996. The projected contribution of the Board to the MDG target (of 73% in water supply and 53% in sanitation by 2015), will be 30% and 21%, respectively. The area coverage of the Fund Board interventions to date reached 74 districts out of total 75 districts of Nepal. The ecological coverage of schemes in the project was 8.19% in the mountain area, 63.55 % in Hills and 28.26 % in Tarai area. About 29% of the total schemes in RWSSP-II were located in 10 to more than 20 km distance from the road head, which is almost one to two full days of walk. Another 13% of the schemes were located in 5-10 km distance i.e., a half to a full day walk from the road head, and about 58% of schemes were located less than 5 km distance from the road head. ii. Number of Completed and Ongoing Schemes As per the PAD, the target of the project was 1,355 schemes, which was revised during the additional financing to 1,463 schemes. This target was adjusted to include additional schemes (in Batches-V and VI) that the Fund Board was implementing. It has to be noted that the project had two different scheme targets scenarios: the first scenario was 1,355 schemes as originally set out in the PAD; the second scenario was the revised target of 1,463 schemes at the time of additional financing (which also included additional 90 schemes). Without these additional schemes the 39 revised effective target of the project would have been 1,373 schemes. However, as agreed with World Bank monitoring missions, the final scheme target for the project was 1,463 schemes. By the end of the project (August 31st, 2012), the Fund Board has completed a total of 1,465 schemes (from Batch-IV to Batch-VIII) against the revised target of 1463 schemes, representing an achievement of 100.14%. 1,445 schemes were closed completely, while 20 schemes are awaiting the administrative closure process, i.e, submission by the SO of the letter confirming closure of the joint bank account. About 300 schemes from Batch-VIII and Batch-IX were in the implementation phase at project closure, of which 38 schemes are expected to be completed and become operational by November 2012. iii. Population Coverage The project exceeded the population coverage target. The original population coverage of the project as per PAD was 813,000, which was revised during the additional financing to 882,000. The projected target of the project population coverage as per the contracted total schemes was 1,045,464. The actual population covered by the project through 1,465 completed schemes was 1,140,892, which is 140.33% of the PAD original target, 129.35% of the revised target, and 109.13% of the projected target by the end of this project. However, the project expects to complete another 38 ongoing schemes by the end of November 2012, which will significantly increase the population coverage with full or partial funding of the project. iv. Health, Hygiene and Sanitation The project supported construction of total 137,536 sanitary toilets in the scheme communities. Out of the total toilet constructed 64,407 units were constructed through self-help financing by the households, 72,080 units through the use of SRLF and 1,049 units were constructed at institutions (schools) using the project resources. The total sanitation coverage in the scheme areas has reached to 81.17% against a baseline of 10.89% of households with existing toilets. The sanitation data entry of Batch-VIII is still ongoing, after the completion of the data entry the actual coverage of sanitation is estimated to grow at least by another 8-10%. The percentage increase of individuals practicing hand washing increased significantly by 64.37%. The baseline data for hand washing practices was 32.58% and at the project end it reached to 92.96%, illustrating the effectiveness of social mobilization, use of Self-esteem Associative strength, Resourcefulness, Action planning, and Responsibility tools, and other health, hygiene and sanitation awareness-building activities of the Fund Board. v. Environmental Management The Fund Board also provided high consideration for environmental management in the schemes. Source protection, intake protection, reservoir protection, water point protection, surface drainage improvement, protection of pipelines, fencing of structures and waste water management in the tap area were the key environmental management aspects of the Fund Board schemes. The WSUCs were required to prepare an 'Environmental Management Action Plan (EMAP)' as part of the community action plan to take necessary measures for environmental protection. vi. Water Quality and Material Quality Assurance The Fund Board gave high emphasis to water quality assurance through a three stage water quality testing during the scheme cycle, namely, during pre-development phase, during development phase and after the completion of the scheme. In the case of quality issues identified during the water 40 quality test, appropriate mitigation measures were taken, to the extent possible, including change in the technical design, specifications of the scheme or completely changing the technical options. Construction material quality assurance was another key feature of the Fund Board modality. SAs were mobilized to do material quality spot checks after the non-local materials reached the scheme site to assure that the materials procured were up to the specified standards. Batch wise Technical, Operational and Environmental Audits were also conducted on a 30% sample basis, to ensure that construction quality of the scheme was as per the design standards and to assure long-term functionality of the schemes. A recent in-house study has revealed that the functionality status of the schemes is about 96% against a national status of only 48%. To date, Technical, Operational and Environmental Audits of Batches IV-VII (4 studies) were completed within the project period. vii. Technical Options for every needs The project provided different technical options for the different needs and choices of the communities, depending upon their geo-physical conditions. While RWSSP-I focused on the hill areas and gravity system schemes, RWSSP-II expanded the technical options and coverage as follows: % of Schemes Area Covered Technical Options (No=1465) Gravity schemes 81.30 Hill, mountain and Chure in Tarai Deep tube well (ground lift) schemes 0.68 Chure and Tarai area Dug well (ground water) schemes 2.32 Tarai area Ground Water Shallow Tubewell schemes 11.60 Tarai area Surface Lift schemes 3.21 Hill/Tarai area (overhead tank) Served areas (unavailability of Rain Water Harvesting Schemes 0.89 gravity or ground water sources) The multiple technological options provided by the Fund Board helped the communities address their water and sanitation needs regardless of their water source difficulties. viii. Community Contribution A higher level of community contribution, both in cash and kind, was a key feature of the Fund Board’s model. The PAD envisaged a community contribution of 11.5%, while the actual contribution reached 19%, i.e., 154% of the original projection. In addition, many communities opted for a higher level of services, i.e., individual yard connections, by making additional contributions for the higher level of services. ix. Contribution to Poverty Reduction, Human Capital Development and Economic Development Impact assessments of the CD activities conducted by the Fund Board indicated that the time saved and used for productive works has increased the income and employment of the beneficiaries, represented by an increase of 24% income and 30% employment, that supported poverty reduction. 41 Women groups established through the WTSS accumulated about US$ 0.8 million through their local savings and credit activities, which were used for micro income generation activities by the group members. In total, there were 967,280 women members in 2,885 WTSS groups that directly benefited from this initiative during the project period. The programs will continue even after the project in the respective communities. The Fund Board supported capacity building for more than 60,000 individuals at the SO, SA and community level. The schemes also created about 64,000 person months of employment opportunities. x. Social Accountability The Fund Board introduces social accountability and transparency as a major thrust of the project to improve the governance of the schemes. This included Social Audits, information boards at the scheme sites and regular meetings of WSUC, third party monitoring, technical and financial audits of the schemes. The Fund Board made good efforts to assure transparency at all levels. xi. Functionality and Sustainability To assess sustainability, the Fund Board conducted Short-Term and Long-Term Sustainability Study after 3 and 5 years of the completion of the schemes. By project closure, the Fund Board conducted seven sustainability (3 short- term and 4 long- term) studies up to Batch-VI, starting from Batch-I. The sustainability of the schemes was rated high (93%) in the most recent sustainability studies. Functionality of the schemes was 96% against a national functionality rate of 48% (as per National Management Information Program sector status report 2011). Upfront collection of O&M funds by the WSUCs was another good practice of the Fund Board modality, which was instrumental in assuring the higher level of sustainability and functionality of the schemes. Minor repairs were undertaken by the WSUCs utilizing this fund. The Mother and Child Tap Stand groups formed to take care of the functionality of the tap stands was another element that contributed to improve overall sustainability of the schemes. One local person was trained as the VMW in each of the scheme. The presence of paid VMW was one of the key factors contributing to a high percentage of functionality and sustainability of the schemes. Recently, the Board has also initiated the Scheme Insurance Programme to protect natural calamities like earthquake, landslides and flood which is considered to be a good initiative contributing to the functionality and sustainability of the schemes. xii. Cost and Resource Utilization Efficiency The Fund Board modality has demonstrated cost and resource utilization effectiveness. MoF data showed that, during 1996-2010, the total public spending in the RWSSP sector was NRs. 45.6 billion out of which the Fund Board’s spending was only NRs. 2.3 billion. According to the MDG status report 2010 (NPC), the total population coverage of RWSSP during this period was 7,446,795, out of which the Fund Board provided services to 1,343,090. During the same period, the Fund Board covered 18% of the population (of the total beneficiaries in the sector) utilizing only 5% of the total resources invested in the sector within that period. 42 With respect to cost effectiveness, a per capita cost analysis, and comparison with the poverty alleviation fund (PAF) of rural water supply services indicated that the per capita cost of the Fund Board’s schemes was 24.47% lower. Although the Fund Board model was based on community procurement of the non-local materials required for the scheme construction, the average unit rate of non-local materials purchased for the schemes was significantly lower than other similar projects of GoN. For example, in RWSSP II HDP pipes purchased by communities were 27% lower than rates of a similar project in Jajarkot District during the year 2008/2009. xiii. Innovations The Fund Board introduced innovations on economic empowerment, sustainability and accountability of the schemes, including Jagaran Committees (to assure local level accountability), scheme insurance program, Jeevika program and life insurance and remittance, as pilot activities, which require further strengthening in future operations. The Jagaran program comprised a committee of local people who were not part of the WSUC, with a mandate for local level monitoring of project implementation activities looking into the work of all three parties, i.e. SO, SA and WSUC, involved in the scheme execution. This pilot initiative was introduced in 300 schemes during the project period. The Jeevika Program was another pilot initiative that provided linkages to WTSS/Jeevika Groups with local Micro Finance Institutions, and commercial banks for easy access to credit for micro income generating activities. By project closure, the Fund Board had started this initiative for 53 groups. Scheme Insurance was another pilot initiative that Fund Board piloted under RWSSP-II to cover the risk of damage to the scheme due to natural disasters, such as floods, landslides, earthquakes, and fire. This initiative was piloted in 36 schemes. xiv. Gender Equity and Social Inclusion The WSUC formation rules were very specific on the participation of women, dalit and other marginalized communities, and all schemes complied with these inclusion requirements. All WSUCs had the minimum three women members; and 585 WSUCs had more than three women members. Total beneficiaries comprised 49% women. The WTSS component directed towards women’s economic empowerment supports the theme of the poverty reduction strategy adopted by the government. The project beneficiary women from the scheme areas have formed 2,885 WTSS groups covering 967,280 women members. The social mix of the household coverage in completed schemes under this project was: 15.64% dalit; 31.78% indigenous disadvantaged people; 36.51% upper caste; 5% indigenous advantaged groups; 9.63% other caste groups; and 1.44% religious minorities. Similarly, the representation of different caste groups in the WSUCs was about: 38% upper caste groups; 17% dalit; 33% indigenous disadvantaged people; 5% indigenous advantaged group; 6% other caste groups; and 1% religious minorities. 43 xv. Procurement System The project's procurement was done according to the Bank’s procurement guidelines. The procurement plans were timely developed and implemented in conformity with the Bank’s guidelines, as agreed between GoN and the Bank in the project agreement. xvi. Institutional Strengthening of the Fund Board During the project period, the Fund Board made significant achievements in institutional strengthening. Development and operationalization of its web based MIS and a very high quality FMIS were some concrete achievements toward institutional strengthening of the Fund Board under RWSSP-II. The Fund Board produced more than 17 manuals and guidelines related to overall management, and specific program components including the Financial Audits of Schemes and SOs, technical audit of the schemes, guidelines for Jagran, Jeevika and other innovations, water quality testing and many more. xvii. Financial Management and Disbursement The Fund Board maintained a good financial management performance throughout the project period. The Fund Board developed and established a high quality robust and efficient FMIS and made effective use of it in producing quality and timely Financial Management Reports (FMRs) satisfactory to the Auditors General's office. The overall performance and quality of financial management of the Fund Board was highly appreciated by the implementation monitoring review of the World Bank on several occasions. FMRs of high professional quality were submitted to the World Bank and concerned ministries on schedule. The Fund Board has been proactive and timely in terms of getting reimbursement of the used funds from the Bank, there are no pending reimbursement of this project to be received by GoN except for the last trimester. At the scheme level, the SO accounts and Joint Bank accounts of WSUCs are audited by the Fund Board through external independent auditors. GoN has committed about US$ 7 million for the implementation of ongoing schemes of Batch 9 during the FY 2012/13. Community contribution requirement of the minimum 11.5% of the total project cost (cash and kind) increased by 54% resulting in a 19% contribution of the total project cost. The estimated GoN contribution (including funds substituted for the DFID commitment of US$ 5 million) was 18%. If, this figure is compounded with GoN’s additional allocation for Batch 9 schemes (US$ 7 million), the overall contribution of GoN was about 19%. This status of co- financing indicated the higher level of commitment of GoN as well as the communities for RWSS services. Challenges and Implementation Problems During the project period, the Fund Board has faced several challenges and problems in the implementation of the schemes, such as:  Because of the community ownership and community led implementation modality, the project did not face any major disturbance during the insurgency; however challenges and problems caused mainly by the macro political environment were inevitable in the context of this project. The frequent Bandh (General Strike) and other political instability have affected the transportation of non-local materials resulting into delayed completion of several schemes. 44  Because of the lack of clarity regarding the permanent status of the Fund Board and absence of continued financing after the project closure, the Fund Board was not able to undertake Batch-X as stipulated.  Frequent changes and the long time taken to fill vacant board member positions created some delay in the scheme selection process.  Finding and mobilizing SAs for quality and timely technical monitoring of the schemes was a challenge for the project. The SAs faced difficulty to mobilize and maintain a large number of technical staff available on demand under longer-term commitments without full time engagement in project work. Due to this problem, the Fund Board has occasionally faced difficulty in conducting the monitoring of the schemes in time and obtaining quality reports resulting in operational delays in the scheme cycle. Key Lessons Learned Project implementation was a continuous learning process, which resulted in improvements and innovations. The Fund Board has derived significant lessons from the implementation of RWSSP-II. Some of them are mentioned bellow:  The higher level of community ownership makes the schemes sustainable and functional for a longer period. Studies revealed that over 96% of the schemes were functioning very well without requiring any substantial repair and maintenance.  The social mobilization for awareness and capacity building (on water and sanitation, scheme management, accounting, economic empowerment of women, health and hygiene at household level, social accountability, repair and maintenance of schemes etc..) were highly valued by the communities as key factors for higher level of achievements and better sustainability and functionality of the schemes.  Social mobilization and capacity building components has added value to the scheme cycle and contributed to effective operation and sustainability of the schemes, especially in sanitation, economic empowerment, and social accountability.  The ground reality and the experiences with facts and figures show that the Board’s schemes are much more efficient (cost wise, time wise, and quality wise) when established professional SOs having good track records are mobilized. The Fund Board realized the need to conduct a detailed effectiveness study' of the SOs, develop SO selection parameters and provide feedback.  The involvement of local bodies (VDC/DDC/Municipalities) play a very effective role in resolving community level conflicts related to water source and other disputes in many cases. There were instances in a number of schemes where the local bodies provided substantial resources on top of the community contributions. Together with Fund Board’s contribution, schemes of larger coverage and high costs were thus possible. The lesson from this situation is that 'higher coordination with local bodies (without compromising on governance aspects and quality and sustainability of schemes) can lead to higher cooperation and contributions to the scheme and higher level of ‘accountability’.  With the increasing purchasing capacity and income of people in local communities resulting from various income generation activities and foreign employment, increased level of awareness and exposure; the trend of demanding higher level of RWSS services has increased. People are willing to contribute additional funds for higher level of services (yard connection).  The current phase wise contracting model for SOs creates too much administrative work for the Fund Board's professional team. The rigid length of the scheme cycle may not fit well with to the varying degrees of awareness, empowerment and organization among different communities of the country. There are cases of early completion of different phases in number of schemes and there are cases of extreme delay in the completion. 45 Key issues and the Way Forward  Availability of the rest of the funds to the Fund Board to complete the ongoing IX batch schemes depends largely on the budget release situation of the country, despite the commitment of GoN to provide the required funds.  There is growing demand for innovative programs (Jeevika Karyakram including remittance and life insurance, Jagran Karyakram/Social Accountability and Scheme Insurance) that are currently being piloted. These programs have positive impacts on the functionality and sustainability of the schemes and on poverty reduction in the community. Therefore, the Fund Board needs to consolidate the learning on these programs and mainstream them in the program modality as regular components. However, because of the uncertainty on availability of funds from other donors or from GoN sources, it is a real issue for the Fund Board to prepare and implement its rolling work plan.  Because of the political situation and absence of the Parliament, the draft bill to make the Fund Board as a permanent regular sector institution did not materialize and this remains as a critical issue for the Fund Board.  Considering the financing gap in the RWSS sector to meet the MDG 2015 and National Target of full coverage by 2017 mobilizing additional donor funding in the sector remains a key issue.  The RWSSP-II implementation experience has helped the Fund Board to identify areas of improvements for increased efficiency and effectiveness, such as: i) improvements in SO selection and mobilization process; ii) reviewing, revising and redesigning the M&E system for timely and quality monitoring of the scheme implementation work; iii) developing mechanisms to promote the involvement of local bodies like DDCs and VDCs in the process more intensively and effectively; and iv) reviewing and revising its management process to make it more time efficient and effective.  The Fund Board needs to design and conduct thematic studies on several aspects of its operation (SO effectiveness, community procurement effectiveness, lessons from RWSSP-II etc.). 46 Annex 8: Comments of Co-financiers and Other Partners/Stakeholders Not Applicable 47 Annex 9: List of Supporting Documents 1. Project Appraisal Document (April 28, 2004) 2. Development Credit Agreement between Kingdom of Nepal and International Development Association (September 14, 2004) 3. Environmental Assessment (January 01, 2003) 4. Indigenous People Plan (December 12, 2002) 5. Financing Agreement for Additional Financing Grant (August 26, 2008) 6. Project Agreement for Additional Financing Grant (August 26, 2008) 7. Supervision and Mission Reports (Aide Memoires, Implementation Status Reports) 48 Annex 10: Additional Indicators Illustrating the Project’s Achievements Original Target Formally Actual Value Outcome Values (from Revised Achieved at Baseline Value Indicators approval Target Completion or documents) Values Target Years Percentage population with access to improved water supply in project Indicator 1: areas Value (quantitative or - 100% 100% Qualitative) Date achieved 04/20/2004 08/31/2009 08/31/2012 Comments Target achieved. By design, participating communities extended improved (incl. % water supply to all households in the project area, achieving full coverage. Achievement) Percentage WSUCs reporting post-implementation status (repairs; O&M Indicator 2 : fund collections; frequency of WSUC meetings) Value (quantitative or Not specified Not specified Not specified 94% Qualitative) Date achieved 04/20/2004 08/31/2009 08/31/2012 08/31/2012 Comments Target substantially achieved. The reporting was introduced from Batch V. (incl. % Available data is for Batch V only. Data for other batches is under collection. Achievement) Indicator 3 : Percentage schemes functioning without major repairs for 3 to 5 years Value All 96% (Batch V long (quantitative or Not specified Not specified Completed term sustainability Qualitative) schemes study) Date achieved 04/20/2004 08/31/2009 08/31/2012 Target substantially achieved. The Fund Board conducts a short-term sustainability study of completed schemes 3-5 years after completion , and a Comments long-term sustainability study of completed schemes 5-7 years after completion. (incl. % To date, a short term sustainability study has been carried out for Batch V Achievement) schemes. The study has indicated an overall sustainability of 96% of the Batch V schemes. The short term sustainability study for Batch VI schemes is currently ongoing. Number of toilets constructed with own funds, outside the sanitation Indicator 4 : revolving loan program Value (quantitative or - Not specified 72,080 Qualitative) Date achieved 04/20/2004 08/31/2009 08/31/2012 Significant achievement. Communities were expected to achieve 50% coverage Comments at the end of the project and 100% percent coverage in the long-term using the (incl. % SRLF grant allocation and self-help construction. The total number of latrines Achievement) constructed was 137,536, of which 72,080 with own funds. Number of women’s groups (WTSS) forming savings and credit societies to Indicator 5: pursue economic activities 49 Value New indicator. (quantitative or - One in each 2,885 Qualitative) scheme expected Date achieved 04/20/2004 08/31/2009 08/31/2012 Significant Achievement. The WTSSS groups have 967, 280 women members. The monthly savings of these groups are in the range of NRs 5-60 per month. It is roughly estimated that the group members collect more than NRs. 10 million Comments per year; and the total outstanding savings mobilized during the project period (incl. % are estimated at NRs. 80 million. This local capital mobilized by the WTSS Achievement) members (with the additional one time grant of NRs 10,000 per scheme provided by the Fund Board as seed money) has been used as a loan fund to support local economic activities. Percentage increase in the income of women engaging in economic activities Indicator 6: with time saved Value New indicator. (quantitative or - 24% No target set Qualitative) Date achieved 04/20/2004 08/31/2009 08/31/2012 Empowerment of women and economic development achieved. Using credit Comments facilities from the credit and savings groups under the WTSS, women engaged in (incl. % small-scale economic, primarily to raise goats. The objective of the pilot Jeevika Achievement) program was to introduce the WTSS groups to commercial credit facilities, to further expand economic activities. Indicator 7: Fund Board exercises its autonomy Formation Order Legal permanent revised to incorporate Value Fund Board operates status conferred the key elements (quantitative or under a Formation to Fund Board included in the Bill (in Qualitative) Order through an act of the absence of Parliament Parliament) Date achieved 04/20/2004 08/31/2009 08/31/2012 Target substantially achieved. Government developed the draft Act for approval by the Parliament, and tabled it twice as it committed to do at the appraisal, but the Parliament was dissolved before it could be approved. As an Comments interim measure, the Cabinet has approved a revised Formation Order to (incl. % incorporate the key elements included in the Bill. The interim measure has Achievement) produced the intended results of allowing the Fund Board more operational autonomy. The ICR review noted that the formulation of the target was incorrect given that approval by the Parliament was beyond the control of the Government. Improved community water points constructed or rehabilitated under the Indicator 8: project Value (quantitative or Not specified 24,000 29,482 Qualitative) Date achieved 04/20/2004 08/31/2009 08/31/2012 Comments Achieved, and exceeded target. The number of improved community water (incl. % points was 122.84% of the original target In five schemes all households opted for individual yard connections. Indicator 9: New piped household water connections that are resulting from project 50 interventions Value Not planned at (quantitative or - 1,389 appraisal Qualitative) Date achieved 04/20/2004 08/31/2009 08/31/2012 Large number of households opted for higher level of service. 1,389 Comments household connections were made under the project through individual yard tap (incl. % stands. The Fund Board financing was limited to the cost of the basic service. Achievement) Households choosing individual yard tap connection financed all incremental costs. Indicator 10: Number of other water service providers that the project is supporting Value (quantitative or - 2,009 1,955 Qualitative) Date achieved 04/20/2004 08/31/2009 08/31/2012 Comments Target substantially achieved. The Fund Board supported the WSUCs as the (incl. % water service providers to the communities. Achievement) Indicator 11: Number of schemes participating in the insurance pilot Value (quantitative or - 36 Qualitative) Date achieved 04/20/2004 08/31/2009 08/31/2012 Innovative pilot successfully launched. This initiative was launched in 2010 Comments as a pilot, to encourage communities to cover risks to the assets created, and is (incl. % likely to grow with time. One insurance company has agreed to cover risks of Achievement) landslides, earthquakes and floods in 36 schemes. Indicator 12: Number of Jagran Committees formed Value New indicator. No (quantitative or - target set Qualitative) Date achieved 04/20/2004 08/31/2009 08/31/2012 Innovative pilot successfully launched. This initiative was launched in 2010 as Comments a pilot, with the objective to establish local third party monitoring mechanisms (incl. % to assure social accountability at the scheme level in order to enhance Achievement) ownership, transparency, governance and beneficiary satisfaction. Altogether 300 committees were formed (250 in Batch VII and 50 in Batch VIII) Indicator 13: Number of financial audits of the schemes completed 259 SO audits; and Value 346 scheme audits (quantitative or - No target set (ongoing) Qualitative) Date achieved 04/20/2004 08/31/2009 08/31/2012 Financial accountability at community level achieved. Financial audits of Comments scheme accounts were conducted after scheme completion, by independent (incl. % external registered auditors, on a rolling basis as schemes were completed. Achievement) Financial audits of some older schemes were delayed. Audits were ongoing at project closure. 51 80°E 82°E 86°E 88°E 84°E To Barga Simikot 30°N 30°N NEPAL To Ranikhet L¯I ¯i ¯ al ak KA ah M H CHINA HA Chainpur Baitadi ¯ L¯ KARNA I MA S E T¯ I Silgadhi i Dandeldhura ¯ Jumla Ka rn ali m Mustan IR¯ I Dunai a G B H E R¯ I Jomsom LA Dhangarhi Birendranagar l A ¯ G A N D A K¯ To AW I Xegar a i Sallyan K al H Baglung D Pokhara Tulsipur y Mt. Everest 28°N Nepalganj ¯ P T¯ RA I a (8848 m) 28°N Kodan To ¯ G M A T¯ BA I To Lucknow s ¯T H ¯ A Shahajahanpur Nuwakot L U M B I N¯ I KATHMANDU KATHMANDU Butawal ani Lalitpur N ary RMA This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information To Faizabad Bhairawa Bhimphedi Ar un M E C H¯ I Taplejun K O S¯ shown on this map do not imply, on the part of The World Bank Okhaldhunga Group, any judgment on the legal status of any territory, or any Hetauda I To SAGA endorsement or acceptance of such boundaries. ¯ ¯YANI NARAYANI NARA NARAY ¯ Sindhulimadi Ramechhap Saidpur To Faizabad Birganj JANAKPUR Dhankuta shi Sun Ko Ilam NEPAL Lucknow To Gaur Dharan Faizabad INDIA Janakpur Rajbiraj Kanpur SELECTED CITIES AND TOWNS Biratnagar To ZONE CAPITALS Baruni To NATIONAL CAPITAL Faizabad To Baruni RIVERS 26°N 26°N MAIN ROADS 0 25 50 75 100 Kilometers RAILROADS SEPTEMBER 2004 0 25 50 75 Miles IBRD 33455 To ZONE BOUNDARIES Baruni To Jangipur INTERNATIONAL BOUNDARIES 82°E 84°E 86°E 88°E