Document of The World Bank FOR OFFICIAL USE ONLY Report No: 53217-ET PROJECT PAPER ON A PROPOSED ADDITIONAL FINANCING IN THE AMOUNT OF SDR 51.1MILLION (US$80 MILLION EQUIVALENT) TO THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA FOR A WATER SUPPLY AND SANITATION PROJECT March 2,2010 Africa Urban and Water Unit (AFTUW) Ethiopia Country Department Africa Region This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. Its contents mas not be otherwise disclosed without World Bank authorization. CURRENCY EQUIVALENTS Currency Unit: = EthiopianBirr (ETB) US$ 1.0 = ETB __-_----- US$1.56556 = SDR 1 FISCAL YEAR July7 - July6 ABBREVIATIONS AND ACRONYMS AF Additional Financing CAS Country Assistance Strategy DFID Department for InternationalDevelopment-UK ESMF Environmentaland Social Management Framework GOE Government of Ethiopia ICB International CompetitiveBidding IDA International Development Association IRR Internal Rate of Return M&E Monitoring and Evaluation MDG Millennium Development Goals MIS Management InformationSystem MOFED Ministry o f Finance and Economic Development MWR Ministry o f Water Resources NCB National CompetitiveBidding NGO Non Government Organizations NPV N e t Present Value O&M Operation and Maintenance PASDEP Plan for Accelerated and Sustained Development to End Poverty PRT Prior Review Threshold PMU Project Management Unit RPF Resettlement Policy Framework RWBs Regional Water Bureaus RWSS Rural Water Supply and Sanitation SOE Statement of Expenditure TOT Training of Trainers TSG Town Support Group UAP Universal Access Program WASHCO Water, Sanitation and Hygiene Committee WRDF Water Resources Development Fund WSG Woreda Support Group WSSP Water Supply and Sanitation Project FOR OFFICIAL USE ONLY Ethiopia Project Paper for Additional Financing Water Supply and Sanitation Project Contents Project Paper Data Sheet............................................................................................................................... 1 . I Introduction........................................................................................................................................... 2 I1. Background and Rationale for Additional Financing ........................................................................... 3 Project Data ............................................................................................................................................... 3 Project’s original objectives, design, or scope .......................................................................................... 3 Rationale for Additional Financing............................................................................................................ 4 Strategic Context and Rationale................................................................................................................ 4 Project Performance ................................................................................................................................. 5 Fiduciary Performance.............................................................................................................................. 7 I11. Changes in the original objectives, design, or scope o f the project ...................................................... 8 Project Costs and Financing Plan .............................................................................................................. 8 Fiduciary Arrangements ............................................................................................................................ 8 Areas Requiring Improvement .................................................................................................................. 8 IV. Appraisal summary: ............................................................................................................................ 10 Economic Analysis ................................................................................................................................... 10 Summary of results ................................................................................................................................. 12 ANNEXES .................................................................................................................................................. 16 Annex 1: Result Framework and Monitoring .......................................................................................... 16 . Annex2 Risk Monitoring and Mitigation Matrix ................................................................................... 21 Annex- 3: Project Cost by Category......................................................................................................... 23 Annex 4-Stepped Approach to Town Water Supply & Sanitation .......................................................... 24 This document has a restricted distribution and may be used by recipients only in the performance o f their official duties . I t s contents may not be otherwise disclosed without W o r l d Bank authorization . Project Paper Data Sheet Date: March 25,2010 Team Leader: Yitbarek Tessema Country: Ethiopia Sector Manager: Junaid Kamal Ahmad Project Name: Water Supply and Country Director: Kenichi Ohashi Sanitation Project Environmental Category: B Project ID: PO76735 Borrower: Government o f Ethiopia Responsible agency: Ministry o f Water Resources Revised estimated disbursements (Bank FY/US$m) (Original project + AF) FY 2004 - 2009 2010 201 1 2012 2013 Annual 20 25 35 18 BorrowerRecipient IDA 0 New 80 0 recommitted Others Total Financing Plan (US$m.) (Original Proiect + AF) I Source Total BorrowerRecipient IDA 0 New 80 0 recommitted 87 Others Total 167 1 Project Paper for Additional Financing Ethiopia Water Supply and Sanitation Project (P076735) I. Introduction 1. This Project Paper seeks the approval o f the Executive Directors to provide an additional financing the form o f an IDA Credit to the Federal Democratic Republic o f Ethiopia in an amount o f SDR 5 1.1 Million (US$80 million equivalent) for the ongoing Water Supply and Sanitation Project PO76735 (IDA-3901 , IDA-H0850) o f the Federal Democratic Republic o f Ethiopia. 2. The proposed additional financing would cover the costs associated with the financing gap in the Urban Water Supply and Sanitation Component o f the project. This i s due to (i) higher than expected per capita costs for piped systems (from $ 4 7 per capita at appraisal to U S $80 per capita currently), (ii)larger than expected populations in participating towns’, (iii) the shifting o f US$ 13 million o f project funds to the Global food crisis project, and (iv) the termination o f the government counterpart contribution (US$ 15.98 million) under the project. With increased costs, reduced project funds and without the additional financing, the remaining resources available in the project account for urban water supply and sanitation component can only partially fund construction o f water supply facilities in 28 towns (17 small, 5 medium and 6 large) o f the 50 towns originally targeted by the project, with the financial shortfall o f US$ 80 million. Out o f the US$ 80 million additional financing requested US$22 million will be used to cover the financial gap in the 28 ongoing towns and US$ 58 million will be used to fully finance the remaining 22 towns to meet the original project objective. 3. With the proposed additional financing, water supply facilities can be constructed in all the fifty towns as set out in the initial project design and the original development objectives o f the project can be met. In addition, the Bank can remain engaged in the sector and thereby fulfill i t s commitment to government and donors to support scaling up the National WASH Program and the multi donor trust fund. Continued engagement will also enable the integration o f Woreda Water Supply, Sanitation and Hygiene (WASH) Programs with general Woreda (district) development and other rural infrastructure, which i s important for sustainability o f the program. 4. The rating for the project development objectives has been “satisfactory” throughout the project life. However, the implementation progress rating has slipped to “moderately satisfactory” due to the relative slow implementation o f the urban water supply component. The original development objectives will be met fully for the rural water supply component by During project design, 15,000 was considered threshold population size to distinguish between large and small towns (>15,000 was considered large and < 15,000 as small) with 20,000 average population size. Currently most of the towns have larger population than original estimates and the average population size of towns covered under the project i s 40,600 for large towns and 11,900 for small towns. 2 serving 1.8 million rural residents but will not be met for the urban component without additional financing and an extension o f the credit closing date. The Additional Financing w i l l support activities defined in the original Project Appraisal Document. The Additional Financing remains ‘ economically justified and the activities aligned with the current Ethiopia Country Assistance Strategy CAS)^. 11. Background and Rationale for Additional Financing Project Data 5. The original IDA crediugrant blend o f US$lOO million for the Water Supply and Sanitation Project (US$75 million credit and US$25 million grant) was approved by the Board o f Executive Directors on May 11,2004, and the financing agreement became effective on November 22,2004. The original and current closing date o f the project i s March 3 1,2010. If the AF i s approved, the IDA financing for the project would be increased by US$80 million and the revised closing date would be March 3 1,20 13. Project’s original objectives, design, o r scope 6. The Project’s original development objective was to “increase access to sustainable water supply and sanitation services for rural and urban users through improved capacity o f stakeholders in the sector”. Accordingly, the project i s designed to build the joint capacity o f all stakeholders, both public and private, to plan, construct and maintain water supply and sanitation facilities in towns and villages. In the process approximately 2 million people in 3700 rural communities and 1 million people in 50 towns would obtain improved water supply. 7. Component A: Rural Water Supply and Sanitation. (US$63.8 million) Funding i s provided (i) to increase the capacity o f participating Woredas to effectively manage their rural water supply and sanitation programs; (ii) to increase the capacity o f participating communities to effectively manage their water supply and sanitation facilities; and (iii) to ensure that well functioning water supply schemes are in place in participating communities. Key outputs include Woreda-wide WASH Programs, Woreda staff trained and equipped to implement their WASH programs, community water committees established and able to manage their systems, and local service providers capable o f supporting the communities to construct and maintain their facilities. 8. Component B: Urban Water Supply and Sanitation. (US$47.4 million) Funding i s provided (i) to increase the capacity o f participating water boards and operators to effectively manage and maintain their water supply facilities; and (ii) to ensure that well functioning water supply systems and improved sanitation are in place in participating towns and cities. Key outputs include the establishment o f Town Water Boards with business plans and sound management systems; local operators with improved management systems; local consulting f i r m s able to support Town Water Boards and operators; and sustainable, efficient and improved water supply and sanitation facilities. 2 InternationalDevelopment Association, Country Assistance Strategy for the Federal Democratic Republic o f Ethiopia April 2, 2008 covering the period from FY 2008 to FY 201 1. IDA report No.4305 1-ET 3 9. Component C: Program Support. (US$ 8.8 million) Funding i s provided to build the capacity o f Ministry o f Water Resources and Regional Water Bureaus (RWB) personnel plus regionally-based consultants, to equip water quality testing and training centers, to develop the M WR web site and networking capabilities, to monitor and evaluate the program, and to refine policies and program implementation arrangements. Rationale for Additional Financing 10. In 2000 approximately 7 o f 50 million people in rural areas and 8 o f 11 million people in urban areas had access to at least some safe drinking water. To achieve the MDG about 45 million more people need improved water supply services, representing some 3 million additional people each year. With one o f the lowest coverage rates in the world and such a large population the Government has established a Universal Access Program (UAP) for Water Supply and Sanitation that calls for total coverage by 2012, a daunting task. With i t s high priority on improved water supply and sanitation, the Government has substantially increased its own investment in water supply and enlisted the World Bank to assist with the development o f i t s W A S H Program. The aim o f this collaboration is to build the capacity needed to supply and sustain water supply services and to attract increasing funding from external investors. The Government has found the Bank to be an important partner and wishes to continue to receive its assistance in developing its WASH Program. Also, the Government wishes to meet i t s commitment to the fifty towns that were promised improved water supply services under the project . Strategic Context and Rationale Plan for Accelerated and Sustained Development to End Poverty (PASDEP)3 11. The overarching objective o f Ethiopia’s Poverty Reduction Strategy Paper, termed the Plan for Accelerated and Sustained Development to End Poverty, is to foster economic growth, improve access to and the quality o f basic service delivery, reduce Ethiopia’s vulnerability, and foster improved governance. To achieve these objectives Government and donor investments are targeted at program to eliminate the poverty traps that have hindered the development o f the country in such areas as infrastructure, rural development, human development, and capacity building. PASDEP through the Universal Access Program for water supply and sanitation services aims to provide clean potable water to the entire population by 20 12. The Ethiopia CAS 12. The WSSP remains aligned with the current PASDEP and CAS by: 0 Fostering economic growth through small town development 0 Improving access to and the quality o f basic service delivery through sustainable access to potable water and sanitation services Fostering improved governance by building the capacity o f local government to engage with citizens for more responsive services. 3 Plan for Accelerated and Sustained Development to End Poverty is the Ethiopian Government Poverty Reduction Strategy Paper covering the period from FY 2006 to FY 2010 4 0 Supporting donor harmonization through a multi-donor trust fund for water supply and sanitation. 13. The Bank’s County Assistance Program through the Water Supply and Sanitation Project has been instrumental in supporting the development and implementation o f the Government’s Universal Access Program for Water Supply and Sanitation Services. 14. The CAS notes that the Bank has been well engaged in the water sector and will continue to scale up support in the sector in part by bringing other donors into the sector. The intended outcome o f government, donor, NGO and individual interventions i s to increase access to safe drinking water from 52% to 85% and to increase the proportion o f households using latrines from 39% to 78%, while reducing the proportion o f malfunctioning water facilities from 25% to 10%. Project Performance 15. Capacity building under the project i s o f paramount importance due to the limited implementation capacity and magnitude o f the challenge in meeting the national and millennium development goals in Ethiopia. The key elements o f this capacity building are in place. They are: 0 Steppedphased approach for both rural and urban water supply components to ensure sustainability through demand driven, performance oriented, and cost effective service by involving districts and communities from planning to operation and maintenance (Annex 4 shows schematic presentation o f the stepped approach). 0 Combined effort o f communities, government and private sector to take full advantage o f all local capacity. 0 Combined effort o f the ministries and bureaus o f water, health and education to implement integrated WASH Programs in each region and Woreda. 0 A National Program to provide implementation capacity that attracts increasing government and donor investments and achieves MDG and GOE targets. 0 Multi-donor trust fund to support the National WASH Program. 16. For the rural water and sanitation component the targeted 204 Woredas have established their Woreda WASH Programs, and 1.5 million o f the planned 2 million people in rural communities have established their WASH committees and obtained an improved water supply. As stated in the following table it i s expected that 1.8 million rural residents will be served by the project. 5 Number o f Facilities and Estimated Population Served No. Persons No. Population Built Population Served Rural Water Supply per water Built Served End End Project point Jun09 Jun09 Project HDW 270 1502 1662 405,540 448,740 Spring (on spot) 338 961 1280 324,818 432,640 BH+HP 425 677 788 287,725 334,900 Rural Pipe system Spring 3,313 56 56 185,528 185,528 Deep well 3,313 80 120 265,040 397,560 Roof water harvesting 117 53 88 6,201 10,296 protected pond 350 13 13 4,550 4,550 Total I 3,364 I 4,007 I 1,479,402 I 1,814,2 14 17. For the urban water supply and sanitation component progress has been slower. This is because the implementation arrangements are new in Ethiopia, so it took time for: (i) the RWBs to resolve all the issues related to contracting and supervising regionally-based town water supply consultants, and (ii) local consultants to learn how to establish water boards, carry out an initial technicalhapacity assessment, and prepare an immediate action plan (step l), contract an operator, carry out a baseline survey, introduce immediate service improvements, identify priority sanitation improvements, and complete a business plan, detailed design and tender documents (step 2) so that water supply facilities could be constructed (step 3). At present 86 small towns and 29 large towns have completed step 1, 86 small towns have completed step 2a. The large towns are about half way through step 2 business planning and detailed design. With increased costs and lost project funds, only 12 o f the 50 targeted towns (28 small and 22 large) can be funded for step 3. 18. A considerable effort has been made since the mid-term review to streamline the implementation strategy for the urban component. N o w that local small town consultants are experienced, the best way to expedite implementation and reduce consultant and construction costs is to strengthen the RWBs' screening process before towns are selected and consultants start the planning and capacity building process. This includes confirmation o f the population size, assessment o f economic activities and the demand for water by businesses and institutions, confirmation o f the water source, and estimation o f the cost o f producing, conveying, treating, and distributing water. The most important step is to identify, confirm and if possible develop the water source before consultants start their work. In this way planners know where the water source i s and how much is likely to be available. They can then proceed to design the rest o f the system with confidence. 6 Fiduciary Performance 19. Procurement: The ISR rating for procurement has been ‘moderately satisfactory’ for the duration o f the project. It was not until the midterm review (2.5 years after project effectiveness) that the MWR was able to secure the services o f a qualified procurement specialist. Prior to the midterm review, the Bank’s internal capacity to respond in a timely fashion was limited. The Ministry now has two qualified procurement specialists and is hiring two more, to compensate for the continuing turnover o f procurement staff in the RWBs. Also, regional program managers are now a bit familiar with Bank procurement procedures and standard procurement documents for goods, works and consultancy services. As the result o f the experiences gained, draft bidding documents, evaluation reports, and draft contract documents submitted to the MWR by the RWBs require less revision, and Bank procurement specialists are less burdened with making extensive, often repeated reviews and comments. 20. With the Prior Review Threshold (PRT) and International Competitive Bidding (ICB) thresholds currently applicable to the Ethiopian context, more and more contracts will be procured under N C B procedures and more will be subject to post review. This situation will demand further capacity building works o f the client institution. The current capacity o f the MWR is fairly adequate to handle the project procurement provided it can retain the current experienced staff both in procurement and the management e. The ministry’s procurement team has developed its own procurement tracking system and i s able to execute acceptable procurement cycle management. The team has put in place retrofitted procurement registers in the Regional PMUs that combine procurement plans and contract outcomes including the final contract price and summary o f deliverables. The MWR also has gained the capacity to provide on-the-job training to regional procurement staff and to advise them on critical procurement issues that arise during bidding/RFP documents preparation, bid announcement, bids/proposals evaluations and contract discussions. For contracts that are procured through International Competitive Bidding (ICB) and consulting services that involve international competition, the project will follow the “Guidelines: Procurement under IBRD Loans and IDA Credits” published by the Bank in M a y 2004 and revised in October 2006 (“Procurement Guidelines) and the “Guidelines: Selection and Employment o f Consultant by World Bank Borrowers” published by the Bank in M a y 2004 and revised in October 2006 (“Consultant Guidelines”). 2 1. Financial Management: Based on the latest FM implementation review mission, conducted in M a y 2009 the overall financial management rating for the project is classified as moderately satisfactory. In most previous supervisions the project was rated ‘moderately satisfactory’ except for one reporting period when it slipped to ‘moderately unsatisfactory” due to a qualified audit and substantial outstanding advances in the regions. The project financial performance has improved. The audit report including management letter for the year ended 7 July 2009 were submitted to the Bank within the period stipulated in the financing agreements and the audit opinion on the financial statements, statement o f expenditures and special accounts were unqualified (clean). Similarly, the project is now submitting IFRs regularly on a quarterly basis. 7 22. Major changes have been made in the fund flow arrangement o f the project. Funds flow is now through Chanel lB4;i.e., through the Ministry o f Finance and Economic Development (MOFED) - Bureaus o f Finance - Woreda finance desk. The project has n o w shifted from SOE based disbursement to report based disbursement to facilitate implementation o f the project through disbursement to Woredas and bureaus on the basis o f their cash f l o w requirements o f the units they manage. The financial management manual was modified to accommodate the change in fund flow and facilitate the government’s shift to a programmatic approach in the sector. The manual was developed with the leadership and full participation o f MoFED. 23. Disbursement: The project has disbursed US$69m o f the US$93m total project credit (74%) at the time o f negotiation. 24. Compliance with legal covenants: There i s full compliance with the covenants in the financing agreement. 111. Changes in the original objectives, design, or scope o f the project 25. There has been no change in the objectives or scope o f the project. The only change in the project design was made at the mid-term review when the ministries and bureaus o f health and education joined the ministry and bureaus o f water as implementing entities in the WSS Project to combine and coordinate their efforts in establishing Woreda W A S H Programs serving all communities, schools and health facilities to maximize health and related economic benefits. Project Costs and Financing Plan 26. The project cost and financing plan have been revised in the course o f implementation. In response to the global food crisis US$ 13 million was reallocated to a new operation. The financing plan was also amended to remove the 15% cost sharing required from the government for most o f the categories and agreement was reached to cover all the project costs from the IDA proceeds. The combination o f these two changes brought the project cost down to US$93 from its original total o f US$ 116 million (See table in annex 3). Fiduciary Arrangements 27. The current financial management, procurement, or disbursement arrangements will be used for the additional financing. However, the closing date o f the project will need to be extended to complete detailed designs, carry out the bidding process, and complete all remaining construction activities. Allowing for inevitable problems that will arise during the procurement and construction stages, a three year extension would be prudent. Areas Requiring Improvement Monitoring and Evaluation: 4 Channel 1B : i s the mainstreamed government fund transferring channel fiom Federal MoFED to regional finance bureaus and further to woreda finance offices. 8 28. The advantage to switching to Channel 1 i s the project will be aligned with the financial management and reporting system that i s operated by the Federal Ministry o f Financing Economic Development, regional bureaus o f finance and economic development, and woreda finance desks. The system accounts for funds used in all regions and at all levels and provides consolidated reporting at the federal level. The shift to a National WASH Program involving the ministries and bureaus o f water, health and education also offers the opportunity to aggregate key monitoring indicators related to water and sanitation facilities plus hygiene behavior in communities, schools and health facilities. The Multi-stakeholder Forum made up o f these ministries plus donors and CSOs active in the sector has established monitoring and evaluation as a key step in the sector harmonization process. The Forum can also lobby the Central Statistical Agency to introduce questions into national surveys that would allow national and regional access to water and sanitation to be estimated more precisely. Other important initiatives include the commencement o f implementation o f M&E-MISfor the WaSH sector, Ministry o f Water Resource’s national inventory o f water supply facilities, and the joint effort being made by the three ministries with support from the Bank’s Water and Sanitation Program to pilot the integrated Woreda Wide WASH Program in Amhara Region and roll it out to other regions. Social and Environmental Safeguards: 29. The original project was assigned the environmental category B, and an Environmental and Social Management Framework (ESMF) was disclosed in Ethiopia and in the Bank’s Infoshop in March 2004. The proposed additional financing operation has not triggered any new safeguard policies as the project activities have not changed. Under the original project, at the request o f the Government, the Bank has notified Ethiopia’s riparians. This notification i s s t i l l valid because no new water supply investments are planned under the additional financing operation and the estimates o f water extraction originally provided to riparians remain unchanged. Efforts to further strengthen environmental and social management capacity at the regional and Woreda levels continue as discussed below 30. At mid-term, terms o f reference for an international capacity building consultant were prepared to develop and implement a Training o f Trainers (TOT) Program at the regional level and prepare a training manual as a way o f strengthening the implementation o f environmental safeguards., Subsequently, environmental training will be provided at the Woreda level, including the implementation o f the environmental and social screening process. The Consultant i s expected to commence his assignment in January 2010. It i s anticipated that the implementation o f the environmental and social screening process will improve as a result o f the Consultant’s work. 3 1. At the moment, the project’s updated environmental and social screening process included in the Project Implementation Manual at mid-term i s not being applied at the planning stage o f water supply and sanitation investments. Instead, alternative measures are taken such as incorporating environmental measures in the utility’s Business Plans, and including environmental sections in the Woreda WASH Plans. These alternative measures are adequate and satisfactory. The Project Coordination Unit has been requested to regularly report on i t s environmental management activities in a separate chapter o f the Progress Report. An EA report for the Wolkite Town Water Supply and Sanitation Project i s in the process o f being finalized and will subsequently be disclosed in Ethiopia in publicly accessible places and at the Bank’s Infoshop. 9 32. The Water Resources Development Fund (WRDF) arranges for the preparation o f separate EA reports for i t s investments once the feasibility studies have been prepared, and the screening i s carried out as part o f the EA process. In the WRDF’s experience, the environmental assessment sections in the feasibility studies are not sufficient. The WRDF has agreed to use the environmental and social screening process as part o f its appraisal process o f water supply and sanitation projects. 33. Environmental management capacity at the Ministry o f Water Resources has been strengthened through the appointment o f two Environmental Specialists who will ensure efficient environmental and social management o f ongoing and future water supply and sanitation projects. IV. Appraisal summary: Economic Analysis 34. There are significant changes in the price o f factor inputs and outputs since the first WSSP project was appraised in 2003. To provide clean water for urban residents a per capita cost o f U S $ 4 7 was used in the 2003 economic. However, due to significant increase in factor inputs the per capita cost o f providing clean water for urban residents has escalated to US$80 for large towns and U S $ 5 5 for small towns. In addition the minimum wage increased from Birr 200 to Birr 320, the discount rate has increased from 10% to 10.23%, the exchange rate o f Ethiopian Birr against US$ has depreciated from Birr 8.55 to 11.55 Birr, the inflation from 2% to about 5%, and the per capita health cost from 5 Birr to 7.14 Birr. After making adjustment for these changes financial and economic analysis was conducted for the urban components o f the project. 35. The economic analysis o f the project consists o f a cost-benefit assessment o f the investments at town level (capacity building and infrastructure) on a with and without- project basis, modeled over 15 years using a 10.23% discount rate. The cost o f the project including technical assistance and infrastructure at the town level for planning, capacity building and improving infrastructure i s compared with the benefits o f implementing the project. Benefits with project scenario include value o f time saved from reduction in time spent for fetching water (without the project 2.5 hours per day & with the project 1.5 hourdday) as well as from reduced medical expenditures due to increased availability o f safe water and sanitation facilities and increased knowledge o f good sanitation and hygiene practices (Households 7.1 Birr per capita medical expense without the project will be saved in the with project scenario). 36. According to the economic analysis, the revised rate o f return is 27.4% and the net present value is Birr 58.5 million. The economic rate o f return i s slightly higher than the 2003 return which was (20.6%). This is due to the increase in minimum wage and per capita cost o f health expenditure which are used for calculating benefit streams. The sensitivity analyses show that the project has positive N P V (Birr 0.67 million) at 25% cost increase while a 25% decline in benefit will result in 2.67 million NPV. Hence the project remains economically justifiable. 10 No. Description Number Average Per capita N P V In IRR population cost in U S $ Million O f town US$ 1 Combined Large & small 44 24,2 15 64.1 town Base Case 58.5 27.4% Sensitivity Analysis At 25% 0.67 10.5% cost increase Sensitivity Analysis At 25% 2.67 8.8% benefit decrease Financial Analysis: 37. The Government Policy o f full cost recovery for urban water supply systems as well as the sub project appraisal approach will ensure that the investments in water supply can be sustainable. 11 Summary o f results ETHIOPIA: Water Supply and Sanitation Project Key outcome and result indicators Results achieved Access to improved water supply for at least 0 Thus far 1Smillion people in rural areas under (component 1) 2 million people in rural and 1 million people and 0.15 million people in urban areas (component 2) have in urban project areas improved water supply facilities. Effective woreda water and sanitation 204 woredas have established rural water and sanitation programs established through project in at programs. Of these greater than 90% have well functioning least 150 woredas. programs. Through the Multi-donor Trust Fund DFID i s continuing to invest in these woredas to increase coverage and strengthen their WASH Programs. Effective, autonomous water boards All 87 participatingtowns have established autonomous water established through project in at least 30 boards, 75 of which have introducedimmediate service towdurban areas improvements, typically increasing the production and distribution of water and improvingthe performance of the local operator. IDA financing for the immediate service improvements was $5 per capita. The Oromia RWB added i t s own funds to top up IDA financing in 29 towns. Water service will improve significantly when rehabilitationand expansion works are completed in the targeted 50 towns and operators have completed their technical and financial management training. Component One : Rural Water Supply and Sanitation Result 1: Capacity ofparticipating Woredas By the mid-term review 204 (102% o f the planned 200) developed to effectively manage their rural woredas had prepared and received approval for their rural water supply and sanitation programs. WASH Programs. 0 More than 180 (>90%) of the 204 participatingworedas have WaSH teams effectively implementingtheir RWSS programs. Woreda WASH Team comprising relevant sector desks have been established and remain staffed and equipped even though turnover i s high. They understand policies and implementation arrangements of the project, know what’s going on in the participatingvillages, are proficient in procurement, accounting, reporting, and supervision of spring catchments and hand dug wells. Areas that generally require improvement are in critically appraising WASHCOM facilities and management plans, M&E, and in submitting fully documented withdrawal applications. 12 Result 2: Capacity ofparticipating 3348 (90%) o f participating community WASHCOMs communities developed to effectively manage working according to bylaws, with at least 40% female their water supply and sanitationfacilities, membership. In most communities WASHCOM members and with water supply schemesfunctioning well. chairpersons and virtually all treasurers are women. Community participation was already well established in Ethiopia through the previous IDA-financed social fund project, so uptake has been excellent in the WSSP. A l l WASHCOMs paid their cash contribution, are collecting O&M tariffs, and are maintaining the pumps and surrounds. Virtually a l l communities in Amhara Region deposit their O&M tariffs in the local microfinance institution, and the practice i s spreading to other regions. 0 3 140 (84% o f the planned 3730) rural water points have been constructed, and 106 (60% o f the planned 175) rural piped systems have been constructed. Greater than 90% o f the facilities constructed are functioning. The planned inventory of water supply facilities planned by the M W R will provide a more accurate figure. Component Two: Urban Water Supply and Sanitation Capacity o f participating towns developed to Towns are divided into three categories (small towns less than effectively manage their water supply and 15,000 population, big towns greater than 15,000 population, sanitationfacilities, withfacilities improved and loan towns through the Water Resource Development Fund). Newly formed regionally based consultants (TSGs) support the andJirnctioning properly. small towns, experienced national consulting f i r m s support the big towns. With existing financing about 12 o f 28 small towns and 5 o f 2 1 big towns can be constructed. Details follow: Towns 45,000 population 0 86 towns through step 2a (85% complete) 0 23 towns going to step 3 (not started) (Additional Financing needed for all the 23) (DFID to finance 22 of the 87) Towns >15,000 population 0 29 towns in step 2a (50% complete) 0 21 towns going to step 3 (not started) (Additional Financing needed for all the 21) Towns >15,000 through the WRDF 0 6 towns through steps 2 and 3 (IDA financing US$1lm, RWBs financing much more) Step I = establish water boards and system manager, identify immediate service improvements (small works and capacity), andprepare an application for step 2. Step 2 = establish water boards, make immediate service improvements, andprepare businessplans and detailed designs. Step 3 = rehabilitate and expandfacilities, supervise construction, and continue to build capacity of water board 13 I and operator. All 87 (1 00%) of the participatingsmall towns have established autonomous water boards, 75 (86%) of which have introduced immediate service improvements, and 63 (72%) o f which have completed their business plans and feasibility study. All 35 (100%) of the big towns (>15,000 population) have established their water boards and are in the process of preparing their business plans (50% complete). The first performance agreement has been signed in one of the six big loan towns where expansion work has started. Others are expected to be signed in the next year. I Component Three: Program Support Capacity of MWR, WRDF, andparticipating The MWR has been a strong advocate for the policies and R WBs and regionally based consultants implementation arrangements agreed during project developed to efSectivelyfiljX their sector preparation. Their Program Coordination Office was roles. particularly strong in supporting the roll out of the rural water supply and sanitation component of the project, orienting and training RWB staff and WSGs. Support for the urban component was weaker, primarily because no one had previous experience with the different elements o f the stepped implementation process. Financialmanagers have worked hard to keep finds flowing in the project in their role as intermediaries between regions/woredas and the Bank’s Loan Department. Not an easy task. For the first two years of the project the Ministry was unable to secure the services of a qualified procurement specialist. Since that problem was solved the Ministry has played a constructive role in assisting the RWBs to prepare bid documents, evaluationreports and contracts. The Ministry s t i l l needs to make a concerted effort to put a M&E system in place and to ensure that the RWBs and woreda are dealing effectively with social and environmental safeguards. The Ministry has recently hired internationalconsultants to help with both. Six of the eight RWBs are managing their regional programs satisfactorily. The Bureaus should be commended for getting the WASH Program off the ground, including addressing the many issues that arose in contracting WSGs and TSGs, and in rolling to program out to 204 woredas and some 140 towns. Their focus has been on getting water to people, so have paid less attention to M&E and safeguards. Going forward the RWBs will need to pay particular attention to the quality of 14 environmental management plans and resettlement (compensation) plans for town water supply construction. The WSGs and TSGs have been the cornerstone o f the project. The work o f the WSGs in supporting Woreda WASH Programs was simple compared to that o f the TSGs in supporting town water boards and their operators. Further the learningcurve was much steeper for urban than rural water supply component because the basic approach for RWS was already well known in Ethiopia while that for the urban component was new to everyone. The result has been that the rural WSS component moved along at a good pace, while the urban WSS component has fallen about two years behind. 0 WRDF had a slow start, but management has improved and staff have learned how to screen potential investment projects and appraise them against technical, financial and management criteria. The Fund has been a strong advocate for effective utility management and their credit worthiness. 15 m 5 Y .- 5 Y 9 m 8 3 3 " m 8 9 3 8 a a s & .- C x 2 0 0 3 .3 8 CA F a 9 B a Y Eli 3 8 e .3 L cd 8 EL .f B % 2 a 0 B 5 3 > W a 3 Y E 0 % e & m m W 0 .3 m M a E 9 Y Ld 3 L. a .3 W r= !i 1 3 0 Y 3 E 1 3 a rt; E s k 0 30 d 3 E: x .3 CA U Y J a 3 I a W 5 > n U 8 C m C F aJ a 0 Y vt M 0 E E .I Y L 0 0 c, m .I W E 0 5 E d 0 .- C M 3 N Y U - m 3 W Zi L ffl co L B hl Y- O v) 8 : c v1 3 5 M B N W E 5 E .- S 4 v) S d- Y 6 0 0 N m C m 5 2 0 0 0 .- C 0 -0 W .- 5 - a m Y v) J a 5 v) E m 0 n v) 3) 0 E C 0 Y 3 In I D I II E E E E E 0 10 m 0 b 2 co co co !l m d m d m 0 m i 0 2 2 b m d 0 m b d 0 m 0 Vl W m 3 0 b m 2 d m c v) d m 3 0 d 2 3 0 b m \o m m 0 0 0 0 0 0 0 0 0 E CE: 4 g 9 a f d m 2 3 a E 8 4 c W 00 00 m d m v) 0 N 0 0 m m 3 v) 2 T v, 0 3 m v, d m TO? g4s 0 0 s 0 0 vl 3 m 0 0 0 0 0 0 0 z E E a ge v) .3 ' 5 z ru E E E: m m a N N ..- cd B Y .C F, 0 8 u E E z" Y e a, 9 0 $ % m Y c .- Y 0 m Y C aJ - E, e .- b b 0 aJ 5 .- C .- C e L S 0 5 s U aJ U aJ 5 t 5Y C a 0 -E m .- C .- M z J a 5 C m 5 t c M 5 .- v) 2 a 2In E l- (D Annex 4-Stepped Approach to Town Water Supply & S a n w STEP 4 STEP 3 Investment financing & Rehabilitation or initial Technical Assistance to - investment towns not financially viable utilities for longer term previously improved expansion, incl. STEP 2 with grant financinq construction supervision Planning, capacity - financed through Investment financing & internally generated building and immediate Technical Assistance to cash and lending on service imiprowements: Town Water Boards to commercial terms. STEP 1 implement business plans, Phase 1: rehabilitate and expand TechnicalAssistance to water & sanitation Technical Assistance to Town facilities and carry out establish Town Water further capacity building Water Board & utility t o Boards and prepare build capacity of board o f Board and utility during apiplication: construction and for at members and operator*, implement financial 81 mgmt Technical Assistance to Main Criteria to Oualifi for systems, implement SteD 4 (loan): Towns to form Water immediate service Proposal for further Board, carry out initial improvements*, prepare development & expansion assessment, identify o f the system i s acceptable preliminary design for immediate service Business plan acceptable rehabilitation and expansion, improvements*, consult Operations, financial with stakeholders and management, billing and Main Criteria to Oualifi for Stev 2, revenue collection & M&E phase 2 and Stev 3(grantl: systems in place and Main Criteria to Oualifi for Step 2. Phase 2: efficient (as confirmed by SteD 2 (grant): Project proposal acceptable independent audit) 0 Application filed with 0 Business plan acceptable Full cost recovery tariffs in basic information on Board meeting as scheduled & place for existing system existing water supply involved in planning Contribution deposited to and sanitation & needs Stakeholder consultations held account 0 Autonomous Town 0 Immediate service Utility operating efficiently Water Board created improvements completed* with adequately trained and Board members 0 Revenue covers current O&M technical and adrninistrativc appointed costs + allowance for renewal staff, performance Stakeholder and replacement o f short life agreement and provision f o consultations held assets* external technical assistancc regarding program 0 Technical and administrative Board meeting as schedulec requirements, est. staff trained at basic level* & involved in planning costs, tariffs & Utility operating autonomously contribution required with accountability in place* 0 Key utility staff in Step 3: place for capacity 0 Reconfirm the above based on building* final design 0 Proposed immediate 0 Local contribution deDosited to