WATER KNOWLEDGE NOTE Honduras Modernizing the Water and Sanitation Sector Builds Resilience By decentralizing nine water and sanitation utilities, Honduras significantly modernized its water sector, improving water services for approximately 108,000 families and sanitation services for 3,786 families. Municipal providers now supply these services, with visible improvements in the quality of delivery. Most water service providers recover their operating costs, and a few are generating enough income to invest in additional system improvements or to finance significant repairs. Challenge A central issue and concern for the Honduran government was governance of the water supply and sanitation sector (WSS). WSS providers were locked in a vicious cycle marked by weak performance incentives, low willingness among customers to pay cost-recovery © World Bank. Modernization of the Water and Sanitation Sector by designing a policy and action plan to support decentralization of local WSS services. The Bank’s global experience in water- and sanitation-sector reform and poverty targeting, as well as its comprehensive analytical work and presence in Honduras, positioned it to assist the government in its efforts to improve and strengthen the WSS institutional framework and related utilities. The Honduras Water and Sanitation Sector Modernization Project included several complex activities to support new service providers, and its straightforward, phased approach decentralized utilities through tailored, on-the-ground technical assistance. Municipalities’ population size (from 40,000 to 300,000 residents), was the only eligibility © World Bank. requirement for entering the project, minimizing the risk that participants would be selected on a political basis. tariffs, and insufficient funding for maintenance; these A  stepped approach required municipalities to achieve conditions led to asset deterioration and squandered certain benchmarks before receiving financing and provided financial resources, which attracted further political specific incentives for utilities to demonstrate better results, interference and exacerbated the downward trend. This thus promoting competition (limited funds were available) spiral began with ineffective central and local policies and and transparency. lack of transparency. Since water was seen as a politically sensitive issue, local governments found it difficult to effectively balance the conflicting needs for affordability, Results expanded coverage to poorer communities, and the sector’s Through a combination of technical assistance and need for financial viability. Finally, users had little leverage infrastructure investments, the project helped implement for holding utilities accountable to meet their needs and the sector framework law (Ley Marco) in nine small- preferences. to medium-sized cities, leading to the creation and/or consolidation of nine autonomous municipal service The National Water and Sewer Service (Servicio Autonomo providers. The project met the targets of all six Project Nacional de Acueductos y Alcantarillados; SANAA) had Development Objective (PDO) indicators, as indicated historically managed and provided water supply services in approximately 30 urban centers. Under SANAA, water was rationed in most cities—available only twice a week or even less in the summer. The situation was no better in municipalities directly managing their own WSS. In 2003, Honduras passed the Drinking Water and Sanitation Sector Framework Law mandating decentralization of SANAA and transfer of its assets to the municipalities by October 2008. This law, referred to as the Ley Marco, required municipalities to set up autonomous service providers. Approach In 2004, the Honduran government, through a Public- Private Infrastructure Advisory Facility, requested World Bank technical assistance to prepare a Strategic Plan for © World Bank. WATER GLOBAL PRACTICE | HONDURAS 2 Before it was unpleasant not having enough water in this neighborhood. Now … we have more than 20 hours a day of water continuity, and we feel happy because water is vital to live. —Juan Ángel Sandoval, Siguatepeque resident © World Bank. Partners Under the government of Honduras, the Secretariat of by National Regulator data. The following results were Finance (Secretaría de Finanzas; SEFIN) was responsible achieved at the utility level: for project coordination. The designation of this institution as the implementing agency signaled the government’s • Eight WSS utilities reached full cost recovery, up from commitment to the project aims and objectives. In order four in 2008. This improved financial sustainability for PROMOSAS to move forward, it was also important to resulted from utilities’ and local authorities’ combined have the following sector agencies sign an inter-institutional efforts, with the support of project, to gradually agreement with SEFIN: SANAA; the Water and Sanitation increase tariffs, reduce operations costs, and improve Regulator (Ente Regulador de los Servicios de Agua Potable commercial management. Improved financial y Saneamiento; ERSAPS); and the National Council for management allowed providers to cover operational Water and Sanitation (Consejo Nacional de Agua Potable y and management costs of new investments financed Saneamiento; CONASA). under the same project, which were not originally considered in previous tariff schemes. By the end Beneficiaries of the project, two of the providers had become corporations operating under private law, thus Because of improvements made in his city’s aqueduct, enhancing their opportunities for commercial finance. Juan Ángel Sandoval, a resident of the Buenos Aires • Five of the WSS utilities increased their service continuity. neighborhood in Siguatepeque (one of the 11 municipalities The project implementing unit and utilities concluded benefiting from the project), now enjoys more than key contracts contributing to the PDO indicator service 20  hours daily of drinking water service in  his  home. continuity. The infrastructure works helping to improve this performance on this indicator included: – Well perforations. – Rehabilitation of existing wells. – Rehabilitation of water plants. – Provision of water tanks to the utilities. • All investments were combined with strategies to optimize water distribution in urban areas. Bank Group Contribution The World Bank provided an International Development Association (IDA) credit in the amount of US$40 million to the Republic of Honduras. © World Bank. WATER GLOBAL PRACTICE | HONDURAS 3 Four years ago, Sandoval said, he received water only three follow-up project. The  Honduras Water and Sanitation times a week, which was insufficient. Sector Modernization Project established an effective mechanism for transferring service responsibility from In Siguatepeque, some neighborhoods now receive water SANAA to mid-size municipalities, and the federal continuously 24 hours a day. The continuity of the water government has committed to decentralizing the 13 WSS supply has improved, although it is still not adequate to systems still managed by SANAA. The follow-up project satisfy the demands for good service arising from the utility’s would build upon the progress made in this project to 11,500 (and growing) clients. assist the government in achieving its decentralization goals. Moreover, the follow-up project would support Moving Forward sector institutions—key to the long-term health of the sector and the success of the decentralization effort—in The project closed in 2016, and the Honduran carrying out their roles and responsibilities in line with government and the Bank are exploring a potential the WSS Framework Law. Connect with the Water Global Practice www.worldbank.org/water worldbankwater@worldbank.org   @worldbankwater blogs.worldbank.org/water © 2019 International Bank for Reconstruction and Development / The World Bank. Some rights reserved. 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