The World Bank Sector Policy and Reseaich Infrastructure and Urban Development Department Report INU - OR9 FY91 Sector Review Water Supply and Sanitation' December 1991 General Operational Review This is a document published informally by the World Bank. The views and interpretations herein are those of the author and should not be attributed to the World Bank, to is affiliated organizations, or to any individual acting on their behalf. 4 Copyright 1992 The World Bank 1818 H Street, N.W. Washington, D.C. 20433 U.S.A. All Rights Reserved First Printing January 1992 The principal authors are Harvey A. Garn ano AHfonso C. Zavala of the Infrastructure and Urban Development Department of the World Bank. This is a document published informally by the World Bank. Copies are available free from the World Bank, 1818 H Street, N.W., Washington, D 0. 20433. Please contact Mari Dhokai, room Si 0-01 7, telephone 202/473-3970. The World Bank does not accept responsibility for the views expressed herein, which are those of the authors and should not be attributed to the World Bank or to its affiliated organizations. The findings, interpretations, and conclusions are the results of research supported by the Bank; they do not necessarily represent official policy of the Bank. The designations employed and the presentation of the material are solely for the convenience of the reader and do not imply the expression of any legal opinion whatsoever on the part of the World Bank or its affiliates concerning the legal status of any country, territory, city, area, or of its authorities, or concerning the delimitations of its boundaries or national affiliation. Infrastructure and Urban Development Department Water and Sanitation Division FY91 Sector Review Water Supply and Sanitation December 1991 Preface This Annual Review of Bank activities in the water legal and regulatory practices, and the incentives (or and sanitatiin sector discusses the Bank's lending for disincentives for efficient response by local supply FY91, future lending prospects, management of the sector organizations. portfolio, and allocation of staffweeks in sector activities. In addition, it highlights sectoral issues that need to be Sectoral institutions have performed poorly. Eco- addressed in borrowing countries and within the Bank nomicresourcesareottenusedinefficiently,andutilitiesin either more extensively or in different ways. developing countries seldom collect sufficient revenues to cover their recurrent operation and maintenance costs, Three majorissues stand out as critical and enduring service debts, and provide for future investments. Poor concerns in the sector people and small industries are either denied service or are forced to bear the brunt of unreliable services, while the (1) Water resources management: Where delivery consumption of others is subsidized. systems are inadequate, water is often too expensive or of inadequate quality despite sufficient resources. Competi- Service delivery organizations face two areas of tion among different user groups must also be resolved. institutional weakness: (2)Economicjustificationandfinancialsustainability (1) Defects in the operating environment that result of sectoral investments: Project analysis of capacity re- in inadequate incentives to mobilize investment resources, quirements, compnents of project design, financial risk, streamline operations and maintenance, and respond to and economic jusification must be improved to ensure users. sustainabitity. Ataminimum, Bank experience needs tobe considered systematically in identifying and understand- (2) Internal problems (poor management skills and ing risks and fonmulating new approaches to reduce them. inadequate systems in information management, technical and financial monitoring, and integration of functions) that (3) Adequacy of sectoral institutions, operational reduce efficiency. management, and maintenance of existing facilities: Poor institutionalperformance and the need forbuilding institu- Action plans, technical assistance components, and tional capacity must be addressed by the fine-tuning of project conditionality are, by themselves, inadequate for administrative structures and controls at national levels, institutionalreform.Inthecontextofanindividualproject, these efforts fail toaddressthemajorinstitutionalproblems ries-lending, supervision, and sector work--and this level in the sector: the need for both an "enabling environment" of activity will have to be maintained or increased over the and a "demand orientation." Moreover, technical assis- next five years. tance and project-specific conditionality have often in- creased the dependency of institutions on their technical The review of FY91 projects indicates a mixed advisors or on other government departments. performance in addressing the three enduring concerns- water resources, economic justification and financial As countries reconsider institutional issues inlightof sustainability, and institutional improvement. Also, there the balance between public and private sectors, they are was a mixed performance on environmental issues, tech- recognizing the importance of a "market friendly" ap- nology choices, and poverty impact. proach to public sector interventions. This approach fo- cuses onthe legal and regulatorypractices and administra- Although the incremental cost per cubic meter for tive procedures and controls that are critical to improving system expansions is generally increasing in urban areas, organizationalperformance; and it also encourages greater projects continue to deal superficially with the water responsiveness to user choices. This poses the difficult resource issue. Relatively little has been done to explore dilemma of how to engage governments in fundamental economic (pricing) and technical aspects of water conser- institutional reform while pressing forward with project vation and waste reduction. Unaccounted-for water is lending. recognized as a serious problem, and in the seven urban projects, reducing it is an urgent activity. Complex,politicallydemanding, and vitallyneeded, institutional reform requires a strategic approach that Demand estimatec *nue to appear overly opti- provides capacity-building support to supply organiza- mistic compared to acW ormance, and financial tions. One promisingeffort to develop sucha strategy is the sustainabilityis likelyto be n.ened inmany cases. Also "Brazil Medium-Term Strategy Paper for the Infrastruc- disturbing isthe continuingdecline in internal cashgenera- ture Sectors" (March 28, 1991). More policy analysis is tion financing, which has dropped from 34% of project also needed, and it must focus on how to change behavior costs in FY88 to only 10% in this past fiscal year. Capital through "market friendly" interventions so as to enhance cost recovery risk is apparent in most FY91 projects. individual ana organizatioal productivity and efficiency. Most projects emphasize system rehabilitation, and Lending in FY91 and the FY92-96 pipeline both operation and maintenance issues are being better ad- reflect strong sector interest among borrowing countries; dressed in general. Training is given better attention and is thisinterestprovidesabaseforseekinginstitutionalchanges. efficiently dealt with in FY91 projects. FY91 lending in the sector exceeded $1 billion in support of projects costing $1.9 billion. Lending in the sector, Poverty and environmental impacts are addressed in inciudingwaterandsanitationcomponentsinurbanpiojects, most FY91 projects. Community involvement and the represented 5.5% of total Bank lending. The current pipe- effective contribution of women receive particular atten- line for FY92-96 is estimated to amount to slightly over tion, especially in rural projects. For seven of the nine $1.8 billionayear i Bank lending, which would represent projects that comprise investmentof$775million,benefits asubs increaseoverpreviouslevels. Thiswillrequire are estimatedtoreachmore than 19 millionurbanandmrmal more effort for project preparation and will necessitate, for poor. Two projects do not contain a poverty impact analy- institutional reform, an increased pace in sector work and sis. Environmental impact received serious attention in aU thedevelopmentofcountrystrategies. FY91 sawasubstan- projects and, despite constituting a positive feature, proper tial increase in staffallocations to the sector in all catego- disposal of sewerage will need continuing attention. ii Table of Contents Prefaee Executive Summary 3 Water and Sanitation Sector Review, FY91 7 Institutional Improvement in the Sector 7 Why is a renewed effort warranted to address institutional problems? 7 Are we doing enough of the right things? 8 Policy Analysis and Research on Institutional Issues 11 Operational Activities in the Sector, FY91 13 Lending and the Portfolio 13 Lending Volume 13 Project Pipeline 13 Sector Work - Studies and Country Strategies 15 Staff Allocations 17 Regional Approach to Sector Issues 17 Water Resources and Environmental Impacts 22 Economic Analysis and Financial Sustainability 22 Institutional Strengthening 22 Technology Choice 23 Poverty Impact 24 Figures and Tables Figure 1 Sector Projects by Region 14 F,gure 2 Project Costs and Bank Sector Lending 14 Figure 3 Proposed Sector Lending, FY92-96 17 Figure 4 Supervision as a Share of Total Regional Staffweeks 21 Table 1 Technical Assistance for the Water and Sanitation Sector 10 Table 2 Lending Projects, FY91 15 Table 3 Bank Lending, FY91 16 Table 4 Proposed Bank Sector Lending Program, FY92-96 18 Table 5 Proposed Bank-Financed Rural Water Supply and Sanitation Projects, FY91-95 19 Table 6 Total Staffweeks on Lending, Supervision and Sector Work, FY85-91 20 Table 7 Average Number of StafiWeeks on Supervision 21 Executive Summary This is the fourth Annual Review of Bank activities continues to be required to improve the analysis which inthewaterandsanitationsector,sinceFY87.Eachofthese provides the basis for the capacity requirements and reports has discussed the previous years' lending, future components of project design, the fnancial statements lending prospects, management ofthe sectorportfolio, and on which both the borrower and the Bank assess finan- allocation of staffweeks in sector activities. In addition, cialrisk,andtheeconomicjustificationforundertaking they have highlighted sectoral issues that need to Le specific projects. At a minimum, the Bank's own expe- addressed in borrowing countries and within the Bank rience needs to be taken into account more systpmati- either more extensively or in different ways. callyinidentifyingrisks. Approaches forreducingrisks and clarifying their implications through up-graded Ofthese major issues, three stand out as critical and sensitivityanalysisneedtobedeveloped. (FY90 Sectoral enduring concerns in the sector Review) Waterresources management The availability ofsuffi- * The adequacy of sectoral institutions and operational cient wvater resources to meet the growing demands in management and maintenance of existing facilities: particularlocalitiesisanincreasinglybindingconstraint Recognitionofthe problemofpoor institutionalperfor- in many countries, given the dramatic increases in mance and theneed forbuilding institutional capacityis population and growing urban concentration. The prob- not new in the sector. What is new is increased under- lem is not an overall shortage-water consumption for standing of the roles of administve stmctures 'nd all uses is less than a quarter of the actual freshwater controls at national levels, legal and regulatory p.ac- available. Rather the problem is water availability and tices; and ttn incentives (or disincentives) for efficient the qualityofwateratanacceptable cost inplaces where response bylocal supply organizations (publicly owned itisneeded, andincreased competition among different and operated or privatized). (FY88 Sector Review, user groups for the available water. This issue was FY89 StrategyNote and Proposal onCapacityBuilding highlightedinthe FY88 Sectoral Reviewandis amajor in Utilities, 1991) component in the Water Resources Policy Paper, cur- rently under preparation within the Bank. This report focuses primarily on the third of these issues-institutional improvement: why it continues to be Ensuring that sectoral investments are economically important, what its main elements are, and strategies to justified and financially sustainable: A major effort achieve it. 3 Itcontinuesto be importantbecause theperformance recognition of the value of a "market friendly" approach ofsectoral organizations remainspoor. From an economic to public sector interventions. This approach cl t ifies the perspective, available resources are often used ineffi- critical role of the "enabling environment"--i.e. greater ciently. From a financial perspective, water and sanitation concern with the "rules of the game" as defined in legal utilities in developing countries seldom collect sufficient andregulatorypracticesandadministrativeproceduresand revenues to cover their recurrent operation and mainte- controls in improving organizational performance. It also nance costs, let alone service theirdebts -- -e provision encourages a "dernand-orientation"--i.e. greater respon- for future investments. From an equity pt dive, perfor- siveness to users in choices related to service provision-- in manceispoor,aspoorpeopleandsmallidid. ausareeither providing incentives for increasing the efficiency and denied service or are forced to bear the brum of unreliable effectiveness of suppiy organizations in service delivefy. services, while the consumption of others is subsidized. This report concludes that the major institutional problems in the sector are to edvelop strategies for reform of the Advancesarebeingmadeinunderstandingthesources enabling environment and the encouragement of demand of institutional weakness. Essentially, they are of two responsiveness. The additional problem whichthis conclu- types: sion poses for the Bar k and project staff, however, is not an easy one to resolve- namely, how to engage governments (I)Defects in the institutional environment in which ser- in the business of fundamental institutional reform while vice delivery organizations operate resulting in too few pressing forward with project lending in this and other incentives for supply organizations to mobilize invest- sectors. ment resources and become more efficicat in their operations and maintenance and responsiv_ to their This report recognizes the complexity and the inher- existing and potential users. ently political nature of institutional reform. Nevertheless, a serious strategy for improving the efficiency of supply (2,Problems internal to service delivery organizations, organizations in this and other sectors requires that suchan such as poor management skills and inadequate man- effort be made. Even successful efforts, in the context of agement systems for information, technical and finan- individual projects, will be undermined if not enough cial monitoring of operations, and integration of func- attention is fgiven to the "enabling environment" and tions-eg. engineering and finance. "demand responsiveness." Substantially greater attention should be given to the design of strategies for reform of Bankstaffresponsible forsectoralprojectshave long institutions as well as the design of capacity-building been aware of the second source of weakness and have supportto supplyorganizations. Itwill also be necessaryto proposed action plas, technical assistance components, spend more time on policy analysis and research on the and project conditionality to address them. This report linksbetweeninstitutionalarrangementsandthe behaviors concludes that these efforts alone are an inadequate re- they induce. The objective of the needed reforms is to sponse to the needs for institutional improvement and change behavior in ways that enhance individual and refomn. Specifically, they do not (and probably cannot, in organizational productivity and efficiency. Although the the context of an individual project) address either the direction of reforms required is known (toward market- "enabling environment," which islargelyinthe control of friendly interventions), the parameters of behavioral re- "rule-makers" o ewr than those who manage supply facili- sponse in different settings are known with less certainty. ties; nor do they address institutional reforms necessary to make the supply orgaizations more responsive to their One very promising effort to develop the kind of existing and potential users. Moreover, an unintended strategies needed is the Brazil Medium-Term Strategy effect of much of the technical assistance and project- Paper for the Infrastructure Sectors (March 28, 1991). In specific conditionaity has been to create greater depen- addition, a joint INUWS/Regional policy and research dencyon othes (either technical advisors or other govem- proposal, heavily oriented toward the analysis of institu- ment departnents) to resolve the internal problems. This tional refonn and associated behaviors, has been prepared discourages a sense of ownership on the part of supply to supplement INUWS's current policy wor- on these organiftions and their staffs. issues. There are more opportunities now to address institu- This report reviews current and prospective Opera- tional issues more comprehensively as many countries are tionsactivitiesagainstthebackgroundofmajorissuescited seriously reconsidering the relative roles of the public and earlier. Both the FY91 lending and the FY92-96 pipeline prvate sectors. An important advance has been broader demonstrate strong interest the sector in borrowing coun- 4 tries; whichprovidesabase forseekinginstitutional changes and reducing it is held to be an urgent activity in the seven to enhance project effectiveness and efficiency. FY91 projects in urban areas. lending in the sector exceeded $1.0 billion in support of projects with atotal project cost of$1.9 billion. Lending in Regarding economic justification and financial the sector, including water and sanitation components in sustainability, demandestimates continue to appear overly urban projects, represented 5.5% of total Bank lending. optimisticcomparedtoactualperformanceinpastprojects; The current pipeline for FY92-96 is estimated to amount to and; since revenue estimates depend significantly on these slightly over $1.8 billion a year in Bank lending, which estimates, financial sustainability is likely to be threatened would represent asubstantial increase overprevious levels. in many cases. A further disturbing trend isthe continuation Toreachthisleveloflendingwillrequireasteppedupeffort of a decline in internal cash generation financing ia FY91 for project preparation; and, if this 'tnding is to contribute projects. Internal cash ge-eration was expected to finance to improved policies and inst4utional improvemeDts, an 34% ofproject costs in FE 38, 22% in FY89, 18% in FY90, increased pace in sector wo and the development of and only 10% in this past fiscal year. Capital cost recovery country strategies. FY91 saw a substantial increase in staff risk is apparent in most FY91 projects. allocations to the sector, compared to averages for the past five years, in all categories-lending, supervision, and Within the limits of project-oriented capacity-build- sector work. This report concludes that the current level of ing efforts (discussed above), there are some positive signs activity in the sector will have to be maintained or increase as most projects emphasize system rehabilitation and over the next five years. operation and maintenance issues are being better ad- dressed in general. In addition, training is given particular The review of FY91 projects indicates a mixed attention and is efficiently dealt with in FY91 projects, performance in addressing the three enduring concems although the training component seems to be inavery early described at the beginning of this summary--water re- preparation phase in one of the nine projects. sources, economicjustification and financial sustainability, and institutional improvement. There,also, has been mixed Poverty and environmental impacts are addressed in performance with respect to the environmental issues, most FY91 projects. In the rural projects, particularly, technology choices, and poverty impact. special attention is given to community involvement and the effective contribution of women. In seven of the nine Although the incremental cost per cubic meter for projects, it is estimated that $775 million of the total system expansions is generally increasing in urban areas, investment will benefit about 19 million urban and rural projectscontinuetodealwiththewaterresourceissueina poor. Two of the projects, however, do not contain a rather superficial fashion. Relatively little has been done to poverty impact analysis. Environmental impact received explore economic (pricing) and technical aspects of water serious attention in all projects and, although proper dis- conservation and waste reduction. On the positive side, posal of sewerage will need continuing attention, consti- unaccounted-for water is recognized as a serious problem tutes a major positive feature of FY91 activities. S Water and Sanitation Sector Review, FY91 Institutional Improvement in the Sector A key aim of this approach is to improve the produc- tivity of individuals and organizations through creating an Interestininstitutionalreforminboththe developing enabling environment within which they work. In this worldandtheBank reachedahighwatermarkinFY91,and context, the central institutional problem is to develop its level promises to be raised further in FY92. This report strategies for creating this kind of environment for the focuses on institutional improvements in the water and sector and its implementing organizations. It is clear that anitationsector,andalsothebroadercontextwithinwhich such strategies will require advances of, at least, three sectalimrnovements canbe consideredand implemented. kinds: (1) developing strategic approaches to the sector's The period covered by this report includes efforts for large- legal, regulatory, policy, and financial allocationrules, (2) scale institutional transformalion in East Europe and the improving the management and operation of supply orga- Soviet Union, as well as substantial rethinking about the nizations within the framework of such rules, and (3) role of the state in many developing countries. devising mechanisms to increase the accountability of supply organizations to their current and potential custom- As indicated in WDRI991, "A consensus is gradu- ers. This report focuses on analysis and tools the Bank ally fonning in favor of a 'market friendly' approach to should use to make these advances. development ... (Fhe report) stresses the complementary waysnassketsandgovernmentscanpulltogether .... When Why is a renewed effort warranted to address markets and governments have worked in harness, the institutional problems? The most obvious reason for a results have been spectacular, but when they have worked renewed effort is that the performance of water and sanita- in opposition, the results have been disastrous." Market tion organizations continues to be poor. Existing organiza- friendly approaches emphasize openness, incentives, com- tions often provide less service coverage than expected, petition or competition surrogates, and accountability. service is often intermittent and unreliable, facilities dete- Thy focus on government roles in "defining and protect- riorate faster than expected, large quantities of produced ing property rights, providing effective legal, judicial, and water are lost due to distribution system losses or are not regulatory systems, improving the efficiency of the civil sold, and revenues are often insufficient to cover operation service, and protecting the environment" rather than on and maintenance cost and inadequate to coverpast debts or "managing development in detail." provideareserve for future investments. PCR'srepeatedly point out that there are substantial shoitfalls in most ment across sectors and in background papers for V '-R9 1. projectsbetweenexpectedandactualoutcomesresultingin Specifically, these reports show that projects which sub- adifferencp,betweenappraisalestimatesandactualratesof stantially achieve their institutior d objectives come very return of about 35% on average; as well as significant close to achieving expected rates of return and are almost shortfallsinwatersoldandrevenue gained fromsoldwater. always judged to be sustaina' :e; while those with negli- gible achievement of institutional objectives achieve less OED'srecent review cites institutional and manage- than half the expected rates ofreturn and only about a third ment shortcomings as the most frequent difficulty, after of them were judged to be sustainable. poor financial perfonnance (itself often attributed to lack of a conmmercial approach to financial management) and Are we doing enough of the right things? Why, problems during project implementation. Moreover, these then, the paradoxical outcome of declining project perfor- problems persist in spite of institutional development mance while there is an increasing share of projects that components in almost all projects in the sectr (all of the have institutional improvement objectives and contan FY91 projects contained institutional developiment com- project components to achieve them? First, even though ponents, for example). OED reports and PCPs show, projects have institutional strengthenu. -mponents, the however, that project performance has been generally institutional objectives are being sut.. Jlly or partially declining, while the share of projects with institutional achieved in fewer projects than befow. jecond, it may be components has been increasing. that the institutional objectives are too limited to project management and the components are not directed at enough The potential payoff from achieving institutional of the major causes of institutional weakness (e.g. the development objectives has been demonstrated in CED's enabling environment and rules of the game are largely draft report on the Bank's work on institutional develop- neglected as are mechanisms to increase demand respon- Relevant Background Wit' W the Bank, the background woec for and publication of WDR1991 "The Challenge of )e-velopm'nt'" markedthe most intensive analysis ofpolicy and institutional roles in development ofany -recetBankrepot. Theseyears also sawthepublicationandwidespread discussion ofmanysignificant -:'repots dealing mror less directly with institutional issues. These include: "-Tbhe kefoni f?ublic Sector Management: Lessons of Experience," CED, June 1991. "'Qveae A Review,'" PRD, June 1991. -Thi Bank's Work4on Institutional Development in Sectors", CED, May 1991. iMang D lopmeit The Governance Dimension," Task Force on Governance, June 1991, iM'nagin Tecbnkal Assistane in the 1990's," Working Draft of the Task Force on Technical ::- s-isance,AugWst, 1991. T generalt# izkd interest in institutional improvement was also reflected in the waterand sanitation sectorln i rtorrporsome projectsO (ED reports, INU work, and within INUWS. Of specific-relevanco ar th oloig "lTh ian. eefiee in the Financing ofUrban Water and Sanitation Projects," OED ID:f 199and -~~~~0 0 :J990and - ---- - - -WatrSupply and San: itation Sector Study, Maintenance: the Costs of Neglect and Options to Improve "B*_zil Madi 4'emim tratgy Paper for tbe Infastrucure Sec'tors,-"March 1991. :egypt Water Spplymnd Sanitation Sector Review and Strategy," Interim Report, June 1991. - Sn oan n b titutions Affect the Water and Sanitation Sector: A Program ofAnalytic Wo*, " - .NUW, --: mgt Bnet Jule 1991.- 8 siveness). The second explanation suggests underlying same subjects. A notable exception during FY91 is the reasons for failure in the first. Brazil Medium-Term Strategy Paper for the Infrastructure Sectors. This study develops a clear analytical framework The Bank-wide review of institutional development for the infrastructure sectors (transportation, teleconununi- across sectors shows that in the 1978-79 period 68% of cations, water and sanitation, and urban) and develops public utility projects substantially achieved their institu- sector strategies for each consistent with the, essentially tional objectives; while the other 32% partially achieved market-friendly, approach of the framework. The paper their objectives. During the 1986-88 period, however, less addresses intra- and inter-sectoral linkages and discusses than half of the projects substantially achieved their insti- risks in implementing the strategies. tutional objectives, while in over 20% of the projects there was only negligible achievement. Inmost cases,however, there remains astrategic gap between institutional improvement activities at the macro The same review pointed out that the institutional level and at the level ofservice delivery organizations.The issues addressed in Bank investmert projects are "usually result is thatthe powerful incentive (ordisincentive)effects implementation-related." They focus on providing a vari- of the policy environment, legal and regulatory frame- ety of support-final engineering design and implementa- works, and modes for resource allocation receive too little tion, management support of the implementing organiza- attention. tion, and manpower development in the implementing and operating organizations. The tools primarily employed for There is, moreover, another significant strategic gap this purpose are primarily technical assistance for advisory between institutional improvements (at both the macro and services or studies and project conditionality-most often the micro level) and the interaction between supply orga- this conditionality relates to a tariff increase and financial nizations andthe users of their services. The CED study of performance covenants, such as financial rates of return on institutional development work across sectors states: fixedassets orcash flow covenants. Manpowerand training assessments are also included. It is rarely the case that The scope of institutional development does not sector strategy development and sector management get seem to cover, except in a minority of cases, issues muchattention. Ourdetailedreviewoftechnical assistance of demand which are relevant to the design of the components in FY91 projects reveals, for example, that project service and hence essential to sustainability, only$16.1 millionofthe $238 milliondollarsintechnical its fit with beneficiary needs and the choice of assistance was devoted to strategy development and sector institutional alternatives for delivery consistent with management. Although the support of organizational im- thenatureoftheservices .. Thegoalsofsustainability provements and manpower development amounted to and sector-wide institutional strengthening with a more than 12% of total project costs, the share for sector focus on client groups are thus addressed only in a development and management was less than 1%. (See limited way. Table I for more detailed breakdowns of this data). This is a significant gap for two primary reasons. Aside from the fact that the kind of technical assis- First, project reviews in the sectorby OED and others have tauceprovidedhasnotgenerallysucceededinsubstantially repeatedly shown that significant shortfalls between de- improving the independence and local organization man- mand expected at appraisal and the actual demand have agement and operations, conditionality (even when the been partly responsible forpoor financial perfornance and conditionsaremet)tendstoresult inone-time changes (e.g. a challenge to sustainability. Second, one of the most an initial tariffincrease) rather than a change in procedures powerful incentive effects for efficiency oforganizations is or "rules ofthe game" that would help ensure continuation the need to mobilize financialresources from its customers. of efficacious practices over time. This is, indeed, a significant source of the strength of "market friendly" approaches to institutional reform. It might be thought that this latter problem would be Inadequate attention to resource mobilization from cus- dealt with in adjustment loans or in coun.iyeconomic and tomers divorces resource allocation decisions and resource sector work. Unfortunately, this tends not to be the case. mobilization strategies. As supply organizations increas- Mostinsittitional development components inadjustmnent ingly become dependent on non-user sources of funds for loans focus on improving the capacity of national organi- their survival, they will tend to respond more to the zationsformacro-economicplanningorforsectormanage- requirements of these sources than to the demands oftheir ment. In relatively few cases do these loans substantially customers. addressincentiveaspectsofnationalplanningandresource allocation on micro-sectoral organizations. Up to now, Ithasnowbecome clear thatheavilyproject-oriented country economic and sector work tends to overlook the institutional development efforts are only part of what is 9 0 Table I Technical Assistance for the Water and Sanitation Sector Countries MaaLgement Support and Strategy Development and Manpower and Training Total Operational Managefnent Sector Management $ Million % share' $ Million % share $ Million % share $ Million % share Argentina 90.0 36.0% 2.5 1.0% 7.5 3.0% 100.0 40.0% Bolivia 2.0 3.5% 0.7 1.2% 1.0 1.7% 3.7 6.5% Chile 11.8 8.4% 0.1 < 0.1% 0.8 0.6% 12.7 9.1% China 2.15 1.7% 1.9 1.5% 0.8 0.6% 4.8 3.8% India 10.2 7.3% 0.0 0.0% 8.9 6.3% 19.1 13.6% Mexico 21.0 3.7% 4.5 0.8% 9.6 1.7% 35.1 6.2% Nepal 6.1 8.5% 0.4 0.5% 1.8 ; ..% 8.3 11.5% Nigeria 38.0 13.0% 6.0 2.0% 2.3 0.9% 46.3 15.9% Pakistan 6.5 17.0% 0.0 0.0% 1.7 3.5% 8.2 20.5% Total by 187.8 9.7%2 | 16.1 | 0.8% 34.4 1.7% 1 238.2 1 12.2% Components I I I I I I I Peretage share of country project costs 2 Percentage share of total project costs ($1933 millinn) needed. The gap between strategic macro concerns and the micro concerns of local supply organizations must be Rules for Reform closed as must the gap between these organizations and their customers. Moreover, these gaps cannot be closed solelythroughTAandconditionalityforindividualprojects. A recent paper by Anthony Churchill, Generally, theleverage of anindividual project istoo weak "Implementing Reform: Strategy and Tactics," to achieve the broader reforms necessary. Increased em- provides an interesting and useful set of "rules" phasis, therefore, will have to be given to the development for institutional development and change. of strategies for such reforms and the utilization of more powerful tools. Our findings support the recommendations Rule 1 Never assume that the need for reform is ofthe draft CED study ofinstitutional development and the obvious. draft report of the Technical Assistance Review Task Force. Specifically, from the CED study, it is essential to: Rule 2 Objectives must include a clear state- * Strengthenthe diffusionprocess and staff capabilities in ment of the institutional changes required. institutional development work; Rule 3 Reformns in a sector must be undertaken * Support expandedupstream work in institutional devel- within the context of overall refonns in the opment in selected operations; match sector strategy economy. with institutional development strategy to facilitate consistency and sequencing of actions; Rule 4 Immediate results are required if the Undertake periodic institutional assessments in the sec- impetus ofthe reform process is to be maintained. tor in particular countries; and Rule 5 The adverse impacts of reforns must be * Promote multiple lending approaches/instruments to carefully targeted to avoid the formation of po- support complex ID reforms. liticalcoalitions that will undermine theprocess. Fromthe Technical Assistance Review,the pertinent Rule 6 Always spreadpoliticalcoststothe maxi- recommendations are: mum number of groups possible. * Greater emphasis on institutional development in the Rule 7 Financialexpectationsmustbeclearand policy and research agenda; short term problems resolved right from the start * Explicit consideration of TA risks caused by gover- i nance constraints and lack of government ownership of Rule 8 Start the process as dramatically as pos- TA activity; sible and be firm about goals but do not try to control the implementation details. * Increased selectivity of TA interventions to focus on areas where strategic objectives are agreed; and * Improved treatment of institutional development issues This effort must contain two major elements: (1) the in country assistance strategy and planning documents. design of country-specific strategies for institutional re- form (dealing with the enabling environment as well as Eachoftheserecommendationshasdirectrelevance capacity building within supply organizations) and (2) to the water and sanitation sector and should be considered additional policy analysis and research efforts to increase in the efforts to enhance not only sector management and our understanding of the behavioral responses associated operationofsupplyorganizations, butalso, to close the gap with specific institutional reforms. The INUWS research between maco treatment of institutional reform and such program is designed to make a significant contribution to organizationsandtoencourageallsectoralorganizationsto this effort. be more demand-responsive. (For an excettent set of rules for implementing institutional reforms, see Box below). Policy Analysis and Research on Institutional Project conditionality and technical assistance are inad- Issues The INUWS research program emphasizes three equate tools to close the gap. A concerted effort is needed sets of research activities: (1) resolving technical, eco- to develop the necessary strategies and mechanisms to nomic, and institutional issues in the provision of urban close these gaps. sanitation; (2) analysis of policies and practices in the management of waterresources--with special emphasis on Division's past and current work on willingness to pay for the policy and regulatory frameworks affecting urban water and sanitation services has substantially improved water supply and the economics of demand management the methodology for doing such work and is beginning to and the opportunity cost of water in alternative uses; have an impact on the design ofurban and, especially, rural and (3) analysis of institutions (legal and regulatory sys- projects. The work has demonstrated the need for substan- tems, policies, and sectoral service organizations), with tial rethinking of how both the Bank and other external particular emphasis on strategies for institutional develop- donors approach the provision of services--specifically ment to enhance the efficiency and effectiveness ofservice with regard to choice of level of service and the feasibility delivery. of user charge systems. The designofthisresearchprogram has been strongly The research initiatives for the future will continue to influencedbyandhashadaninfluence onthe development be fob,cused on the three major areas cited in the opening of policy and project work within the Operations Depart- paragraph. We wiLl make a contribution to the inter- ments. Forexample, INUWS staff conducts case studieson departmental policy paper on Water Resources based on the above issues in countries where Operations staff are our own work described above as well a broaden the scope attemptingtodeveloppolicyandprogramstrategies-inthe of the work to analyze other aspects of efficient manage- sanitationarea, we are workingwith the Brazil Department ment of water resources. We intend to launch a new to introduce and learn from schemes for sanitation that are initiative aimed at the restructuring and strengthening of altematives to conventional sewerage; in the water re- formal urban water supply and sanitation institutions in source area we are working in Indonesia and India to collaboration with Regional TDs and Country depart- produce case studies of water resource management to ments. The emphasis will be on the generation of innova- infonnBankpolicyreviewsand investigate possible changes tive institutional development models, and cross-regional in institutional roles; in the institutions area, we are also exchange of experience and ideas. Of particular impor- working with the Bangladesh Country Department to tance in this regard, is the introduction of greater private assess the need for institutional reform in urban water sector involvement in water and sanitation or, more gener- supply and to suggest possible strategies for reform. ally, more "market friendly" approaches to policy and regulatory frameworks as well as supply organizations, In addition, INUWS is contributing to the Bank's even in those cases where the supply institutions remain Learning Group on participation and conducting case publicly owned and operated. It is expected that this work studies on alternative approaches (which emphasize com- will lead to a Water and Sanitation Policy Paper in FY94. munity management and participation) to the provision of The potential sector significance of the work and its rural water supply. One ofthe critical institutional issues is operational relevance to Bank activity will remain central to improve supplyorganization interaction with users. The criteria. 12 Operational Activities in the Sector, FY91 Lending and the Portfolio 90. This shift may not indicate a trend since the annual variation is normally quite large. Lending Volume. Although the total number of UrbanDevelopmentandTransportprojectsinEcua- projects approved was less in FY91 than in FY90 (Figure dor, Somalia and Indonesia contain substantial water sup- 1), alargernumber ofsector projects inthe past fiscal year ply and sanitation components (for example, the sector pusbed the lending figures for the nine projects past one components in Ecuador are close to 80% oftotal cost) with biliondoLars, well above last year's US$883 milion and an estimated total sector cost of US$313 million and 44% higher than the average for FYs 86-90 of US$786 US$117 milionBank financing. Consequently, withthese milion. Bank lending and total project cost averages in additions,totallendinginthesectorisestimatedatUS$1.25 FY91 went up to record levels of US$125 million and billion (5.5% of total Bank lending), financing projects US$215 million per project respectively, compared to costingUS$2.25 billion. There are afew agriculture sector averages of only US$68 million and US$181 million per projects with an integrated rural development orientation, project in FY90. containing water supplyand sanitation components. These lending and cost figures are not included in the above The four loans and five credits approved bythe Board nunbers. during FY91 Oisted in Table 2) for a total of US$1125 milion (5% of total Bank lending-see Table 3) were the ProjectPlpeline.Lendingprospectsinthesectorare highestBanklendinglevelever.Totalprojectcostsreached showingasubstantial increase forthenext five-yearperiod USS1.93 billion, 18% less than FY90, but well within the (FY 92-96) to $1,820 million/yearinBanklending froman thee-yearaverage (Figure2). The fiveprojectsaddressing estimated $1,400 million/year (FY91-94) cited in our last sector-tye operations inurban and rual areas account for review (Figure 3 and Table 4). Ban investments in the 80% ofthe lendingandasixthprojectinBoliviacontains sector will be dominated by projects addressing urban a strong sector policy fiumework approach. needs in EMENA and LAC. In LAC, recent cholera epidemic outbreaks indicate serious weaknesses in water Low levels of cofinancing (only 6% in FY91 com- and sanitation services provision for the poor inperi-urban pared to 25% in FY90 and 28% in FY89) pushed up Bank areas and precarious disposal practices of huge untreated financing participation to 58% of project costs; substan- sewage volunes, which pollute coastal waters, commer- tially bigher than the 38% average Bank share in FYs 88- cial fishing areas, beaches and fiesh water bodies. 13 Flgure 1 Sector Projects by Region Number of Projects 22 - 20 - 18- ! 14- ..W, 14 . . _ . I . . v . 4 .. .... ~ ~~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~~~~~~~~~~~~~~~~~...... 2 ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~ ~.... .. . . . . . .. . ........ O r-- T T 74 76 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 = AFRICA g ASIA 1 EMENA _ LAO Figure 2 ProJect Costs and Bank Sector Lending millions currnt US$ 2600 2000 . T..... PROJECT COSTS -600 lt t0 1500- 1985 1985 1987 1988 1989 1990 1l91 -J 3AFRICA 1 ASIA 9 EMENA - LAC 14 Table 2 Lending Projects, FY91 Country Project Amount Total Project (in S mil) Cost (in S min IBRD Projects Argentina Water Supply II 100.0 250.0 Chile Valparaiso Water I 50.0 141.5 Mexico Water Supply and Sanitation 300.0 950.0 Nigeria Water Supply Rehabitation 256.0 306.7 Sub Total 706.0 1648.2 IDA Projects Bolivia Water Supply and Sewerage 35.0 57.0 China Liaoning Urban Infrastructure 77.8 129.7 India Maharastra Rural 109.9 140.7 Nepal Urban Water and Sanitation 60.0 69.5 Pakistan Rural Water Supply 136.7 194.2 Sub Total 419.4 591.1 TOTAL H125.4 2239.3 About half of the pipeline are sector-type projects Sector Work: Studies and Country thatwouldamounttotwothirdsoftheexpectedlending. As Strategies a result of the close cooperation between country govem- ments and the UNDP/World Bank Program an increase of Bank-supported rual water supply and sanitation projects Only three sector studies were completed in FY91; in Africa and Asia is apparent. During the next four years two water supply and sanitation sector studies undertaken aboutS0%ofprojectsinthesetworegionswilladdressthe in Africa by the Sahelian Department (AF5IN) and an needsofthepoorandactivelyinvolvewomeninruralareas excellent and sorely needed Infrastructure Strategy Paper with lending amounting to near US$1.1 billion Crable 5). for Brazil. With these exceptions, only sporadic sector studies efforts associated with project preparation have Thirty projects are in active preparation. With 15 been made, although there will be additional studies in projects expected to go to the Board in FY92 and, possibly FY92. As indicated above, this state of affairs hinders our 20 in FY93, it will be necess-y to increase the preparation capability to establish Bank-Country dialogues that would pace to reach the regions' ambitious goals. The sector lead to a better identification of sector issues and agreed- portfblio had a head start in FY92 with three operations upon proposals for action plans and investment strategy as alreadyapprovedinthe first quarter. The Lesotho Highland well as institutional reform. Water Project, prepared under close Bank supervision, is the most costly project financed with Bank participation The studies that were done, however, address impor- (US$2.7 billion) and represents a productive exploitation tant issues with implications for future Bank/Country of a country's water resource as a supplier to satisfy needs investment strategy: of another c"--ntymunder what is expected tobe a mutually nefial demand/supply equation. * Waterresourcestudies(evaluationandrmanagement)in 15 Table 3 Bank Lending, FY91 (in US$ millions) SECTOR IBRD IDA TOTAL % BANK Agriculture & Rural 1913.1 1794.2 3707.3 16.3% Development Development Finance Co 1695.0 156.8 1851.8 8.2% Education 1515.5 736.2 2251.7 9.9% Energy - Oil, Gas & Coal 1570.0 160.2 1730.2 7.6% Energy - Power 1189.0 155.0 1344.0 5.9% Industry 1767.1 215.9 1983.0 8.7% Nonproject 1940.0 881.9 2821.9 12.4% Population, Health & Nutrition 657.0 920.6 1567.6 6.9% Public Sector Management 636.0 5.7 6.1.7 2.8% Small Scale Industry 166.0 45.0 211.0 0.9% Technical Assistance 284.5 82.2 366.7 1.6% Telecommunications 270 69.8 339.8 1.5% Transportation 915.9 472.1 1388.0 6.1% Urbanization 1177.1 178.3 1355.4 6.0% Water Supply & Sewerage 706.0 419.4 1125.4 5.0% BANK WIDE TOTALS 16392.2 6293.3 22685.5 100% thetwoSaheliancountries(ChadandBuwlinoFaso)and cial intemiediation of commercial Banks and targeting a proposed strategy paper for Algeria seek to improve scarce grant resources to serve the poor. and optimizw the allocation of scarce resources; * Institutional weaknesses were identified, such as poor * TheBrazilslategypaperrecommendsafrmewodc for staff technical capabilities, dispersed sector responsi- sectoral reform and policy change emphasizing "mar- bilities, and lack of definition of national policies and ket friendly" interventions and more effective use of objectives. The reputs recommend improving imple- investments by rhabiitating systems, using the finan- mentationstrategiestomobilizeresourcesandrehabili- 16 Figure 3 Proposed Sector Lending, FY92-96 millions 1990 US$ 1000- 2100 . ...... 800 000 1992 1993 1994 1996 199 a AFRICA ASIA M EMENA -LAO tate services, sector planning, operations management This is not uniformly practiced. The additional time spent and financial capabilities. The Brazilian report is note- in project preparation could save essential Bank resources worthy for developing a framework for sectoral institu- (supervision time) and borrower outlays(costly revisions tional interventions in the sector. and financial difficulties) during implementation. Excel- lent examples of satisfactory implementation are ongoing projects in Korea (Juam Regional Water Supply) and Mali StaffAllocations (Rural Water Supply). Staffweeks allocated to the sector increased by 30% Supervision intensity per project (Table 7) was aug- to 3175 staffweeks, the highest amount ever, representing mented in all regions compared to FY89-90 figures, which represents an accelerating pace in project preparation and brings this activity back to normal inputs and reverses the a conservative increase in project supervision and sector decreasing trends pointed out in our FY90 report. The work. The annual average for FY86-90 is 2440 staffweeks OED's 1990 Annual Review concludes for the Bank WSS (rable 6). sector that "the Bank tailors its limited supervision efforts according to pressing needs, providing less supervision Lending activities increased in ASIA and EMENA time for well-prepared, high-quality projects and as much fhrabovetheiraverageswhileLACandAFRICAremained as needed for troubled projects. At issue is whether these within usual figures. Overall staff time devoted to project troubled projects would substantially improve implemen- identification, preparation and appraisal substantially in- tation and more fully reach objectives withmore intensive creased to more than 1750 staffweeks in FY91; a 58% Bank's supervision. (See Figure 4 for regional allocations increase over lhe average forthe previous five years and the ofstaffto supervision). Borrowersrespondpositivelysince largest figure in Bank history. New areas opening to they relate project implementation improvemnent to higher extemal financial assistance in eastem Europe and ex- Bank supervision inputs. pected requests from heavily populated nations in Asia have caused these regions to devote more staff to WSS operations. Regional Approach to Sector Issues Thirty years of Bank lending experience in the WSS As indicated above, lending amounts and staff allo- sector demonstrates that, for both sector-wide and indi- cations to lending in FY91 have surpassed any previous vidual projects, appraisal should take place only when year's figures inthe water supplyandsanitationsector. Not substantial components have sound final engineering and surprisingly, the concentration on lending has elicited a have agreed-upon and enforceable cost recovery policies. strong project pipeline and lending prospects have reached 17 Table 4 Proposed Bank Sector Lending Program, FY92-96 Year Region No. of Projects IBRD IDA Total Proj Costs FY92 Africa 4 110.0 180.2 290.2 2942.3 Asia 4 40.0 366.0 406.0 940.0 EMENA 5 600.0 0.0 600.0 1354.3 LAC 2 250.0 0.0 250.0 725.0 TOTAL 15 1000 546.2 1546.2 5961.6 FY93 Africa 10 30.0 292.5 322.5 404.3 Asia 7 170.0 320.0 490.09 1352.5 EMENA 7 595.0 24.3 619.3 1212.5 LAC 4 520.0 0.0 520.0 1465.0 TOTAL 28 1315.0 636.8 1951.8 4434.3 FY94 Africa 5 125.0 142.5 267.5 299.0 Asia 6 200.0 265.0 465.0 708.0 EMENA 5 550.0 0.0 550.0 550.0 LAC 4 668.0 0.0 668.0 925.0 TOTAL 20 1543.0 407.5 1950.5 2482.0 FY95 Africa 7 140.0 264.1 404.1 624.9 --- Asia 5 135.0 220.0 355.0 465.0 EMENA 4 350.0 9.1 359.1 921.3 LAC 7 517.7 18.5 536.2 1078.5 TOTAL 23 1142.7 511.7 1654.4 3089.7 FY96 Africa 4 280.0 60.0 340.0 370.0 Asia 1 0.0 100.0 100.0 200.0 EMENA 6 595.0 0.0 595.0 936.0 LAC 7 960.0 0.0 960.0 1460.0 TOTAL 18 1835.0 160.0 1995.0 2966.0 FY Grand Total 104 6835.7 2262.2 9097.9 18933.6 92-96 18 Table 5 Proposed Bank-Financed Rural Water Supply and Sanitation Projects, FY91-95 FIscal Country Name Status Loan Total Proj Cost Project Year $ Mil $ MNi Officer 1 1991 India Maharastra Rural Under Implementation 109.9 140.7 Schaengold WSs 2 Pakistan Rural Water' Under Implementation 137 194.2 Read 3 1992 Burundi Water Supply Sectoe Under Preparation 30.2 55.3 Dreau/Grimes 4 China Rural WSS Under Preparation 110 190 Cheng 5 1993 Bangladesh Chittagong Water' Under Preparation 40 52.5 Kamkwalala 6 Ghana Rural Water Under Preparation 35 35 Roach 7 India Karnataka WS Under Preparation 80 100 Schaengold 8 Rwanda Water supply III' Reserve 37.5 37.5 Wildt 9 Srilanka Rural Water Supply' Under Preparation 20 20 Plant 10 . runisia Water Resource In lending Program 130 300 Veldermnan Managemert 11 1994 Guinea Water III' Reserve 30 50 VerspycklBAS 12 Lesotho Infra Maint2 In lending Program 25 25 Zeijlon 13 Madagascar Water Secto.2 In lending Program 53 55 Dreau 14 Nigeria Rural Water' In lending Program 125 125 Rasmusson 15 Romania Rural Infrastructure In lending Program 100 16 1995 Algeria Water Sup III' In lending Program 150 700 Ben Slimane 17 Cameroon Rural WSS In lending Program 40 52 Ah-Sue 18 Kenya Rural Water, In lending Program 50 50 Almassy 19 India Rural Water III In lending Program 100 210 Kleiner 20 Paraguay Water Supply' In lending Program 12.7 24.5 Chang 21 Yemen Rural Infrastructure In lending Program 9.1 21.3 Banerjee _ Includes sanutation component I 2 ' rand sanitation Table 6 Total Staffweeks on Lending, Supervision and Sector Work, FY85-91 Lending 85 86 87 88 89 90 91 AFRICA 357 506 434 392 351 200 364 ASIA 386 211 120 176 341 393 714 EMENA 241 293 334 254 207 150 376 LAC 327 261 243 237 303 239 297 TOTAL 1312 1270 1131 1058 1202 982 1751 Supervision 85 86 87 88 89 90 91 AFRICA 308 314 331 314 268 301 286 ASIA 262 316 368 296 266 293 351 EMENA 250 234 213 239 234 215 259 LAC 245 283 355 281 206 274 298 TOTAL 1065 1151 1267 1129 904 1083 1194 Sector 85 86 87 88 89 90 91 AFRICA 49 40 47 49 28 79 136 ASIA 12 3 15 189 27 58 21 EMENA 15 18 24 104 5 46 76 LAC 32 31 49 64 11 10 TOTAL 106 92 135 405 72 193 233 Total 85 86 87 88 89 90 91 AFRICA 714 860 812 755 647 580 786 ASIA 660 530 503 661 634 744 1086 EMENA 506 550 571 597 496 411 711 LAC 604 575 648 582 520 587 595 TOTAL 2484 2515 2534 2595 2247 2322 3178 20 Table 7 Average Number of Staffweeks on Supervision (per project) 85 86 87 88 89 90 91 AFRICA 9.0 10.9 11.4 12.9 8.6 8.6 8.9 ASIA 11.4 11.7 12.1 12.6 8.3 9.1 11.7 EMENA 8.2 7.1 8.1 8.8 8.7 9.0 11.7 LAC 9.7 11.2 13.4 13.8 7.9 8.0 11.9 AVERAGE 9.4 10.2 11.3 11.9 8.4 8.7 11.1 Figure 4 Supervision as a Share of Total Regional Staffweeks Perce niage 20% ............ ............................................ 20% 1985 1986 1987 1988 1989-' 189890 1 . EJAFRICA MEMENA MASIA : LAC, record levels in both urban and rural areas. However, of the main issues in the sector and joint efforts are being achievingincreasedproductivity,efficiency,andeffective undertaken to improve the response to these challenges. provision of services to the public requires more than a strong project pipeline. Getting all of this right is a very * Achieve institutional changes to reinforce "market complicated activity, partly because of sector characteris- friendly" approaches that may help turn relatively tics(suchasthepublicgoodsaspectofwaterandsanitation ineffective supply organizations into dynamic enter- in preserving life and healt, the more nearly private good prises, providing the community with reliable services aspect of the sector in promoting development, the com- of water supply, sewerage/sanitation, and water pollu- plex technology necessary to achieve a reliable product, tion abatement/control. More has to be done to deter- substantialeconomiesofscaleininvestment,andrelatively mine needed reforms in "the rules ofthe game" and to high capital and opeating costs); and partly because of the encourage "demand responsiveness." inertia of past policies and legal, regulatory, and adminis- trative control structures and practices. * Addresswateravailabilityandincreasingcostsofwater to satisfy basic needs in urban communities. The cUal- Nevertheless, the regions, PRE and OED are aware lenge isto overcome haphazardwaterresource manage- 21 ment and lack of water conservation technology and through FY89 (22%) nd FY90 (18%) to reach an practices in the agriculture, industry, and water supply alanmingly low 10% this year. Operations in Asia and sectors. Africa are void ofsupply institution contributions, while in LAC, ICG is expected at about 17% of projects cost. Respond effectively to rapid urban population growth, Local and central government nonreimbursable financ- which creates serious management problems as well as ing has consequently climbed toa five-year high of26% large increases in service demand. of investments. An exception is the Valparaiso, Chile water supply and sewerage project with no government Improve economic and financial performance of sector financing and a 67% ICG contribution. institutions. Capital cost recovery is not expected inthe Pakistan and Regionalactionstodealwiththeseissuesaresumma- India rural water and sanitation projects, and only rized below: partially expected in China and Nepal. Operations in Argentina, Nigeria and Mexico have a high cost recov- Water Resources and Environmental Impacts. eryrisk. DespiteBank urgingof full costrecovery in the sector "compliance with financial covenants, espe- While the marginal costs ofalternate water sources keep cially those concerning tariff increases are not taken to increasing in urban areas, Bank projects are dealing beinportantbymanyborrowers,"asstatedintheOED superficially with water resource issues even though 1990 WSS Draft Annual Review. The Bank should not references to the subject are made in most projects. In relax cost recovery policies in the sector to go case-by- Nepal the measures proposed to deal with resource case, as seems to be the trend. Rather a "comprehensive scarcityarenotreassuring,althoughaprogramtoreduce framework for analyzing financial issues beyond the water losses in the system is included. However, the currentproject-orientedapproach" (FY9OAnnualWSS Paidtan rural WSS project includes a proposal for a Review recommendation) shoul:d be pursued, in con- comprehensive waterresource study in the project area. junction with other needed institutional changes. Environmentalimpactisanalyzedinalmostallprojects, Institutional Strengthening. and constitutes one of the high points in FY91 (for example,thePakistaruralprojectproposesqualitative On the organizational management side, most projects and quantitative analysis and ongoing monitoring of emphasize the need for systems rehabilitation, a trend environmental impact). However, continuing attention expected to continue in future projects. Poor operations to the impact of sewerage discharges on receiving management in the past will require'"frequent rehabili- waters is required. In most cases this will require more tationto be undertakentoahigher standard" to improve continuous monitoring of water quality and uses made distributionnetwurksustainability,asindicatedinOED's of water near outfalls than has been normally the case. draft 1990 Annual Review. Operation and maintenance issues are generally being better addressed and proper Economic Analysis and Financial Sustainability. operationsmanagementproceduresarebeingsetassub- project selection criteria in all the urban sector-wide Demand estimates continue to be overly optimistic and projects. To ensure sustainabilityinthe tworual projects are likely to jeopardize the financial feasibDlity of the (Pakistan and India) community involvement in sys- water utilities in many cases. tems maintenance and operators training courses will be included. However, the action plans proposed to over- Co-fiancing for this year's projects has been very low, come serious operation and maintenance shortcomings only 6% of projects cost. Other external financing in identified in Nepal, Bolivia and Nigeria will need an FY's 89 and 90 reached about 25% ofproject costs. In intense Bank supervisionto reachsuccess. Unaccounted- FY91, the Argentina sector operation and the Bolivia for water is recognized as a serious problem and its majorcities projecthave the only significant co-financ- reductionheldtobeanurgentactivityinthesevenurban ing of US$100 million (40% of total cost) and US$8.0 projects. Unfortunately the proposed plans are sketchy million (15% of total cost) respectively. Futura pros- and specific measures to reduce it will be designed and pects seem to indicate this decline may be episodic; implementedonlyduringprojectexecution,ratherthan rather fian a rend before. This strategy has proved to be unsuccessfUl. Expected intemal cashgeneration financing (CG) con- * Training, an important component in improving organi- tinme to slump. ICO has declined since FY88 (34%) zationalcapability,isgivenparticularimportanceandis 22 efficiently dealt with in the operations approved in In a willingness-to-pay analysis in a given area (such as FY91. From training needs assessment within sector- several studies made in Africa by INU), different commu- wide approaches to human resources improvement in nity groups may indicate preference for vaiied service rural areas, the projects approved seem to address levelswich require also different technological approaches. properly the institutional quest for improved staff capa- In the case of water services some groups would prefer bilities. In the sector project proposed for Mexico the lower consumption levels or standposts, while others show preparation of staff to deliver in accordance to sector a willingness to pay for yard tap connections. Some would organization expectations has been institutionalized prefer to pay for individual latrines against public options and the trainingprogramnsorganized in accordance with or intermediate sewers. The technological problem is to requirements. Similar comnments could be made of the consolidate user demands into well conceived designs, other urban and rural projects with the exception of taking into account their variable preferences. Nigeria, where this component seems to be in an early preparation stage. Basic technology has not changed much in recent years. However, progress in electronics, biological and Technology Choice. Unfortunately selection of the physico-chemicalphenomenaappliedtowaterandsewage most applicable technologies and imaginative low-cost treatrnent is coupled to a continuous research to improve designs is not a strong point in the projects approved in water quality and protect water .-esources demanded by FY91. The discussion oftechnological issues is superficial more stringent world wide potable water standards. For in general and hasty inalmost all projects. The technologi- exanple, scientists have recently developed fasterand less cal aspects of water conservation, leading to better use of costly alternativestoreverse osmosis inreducing dissolved scarce and costly water, are practically ignored in all solids content in water by using tangential microfiltration, projects. The recommendation in last year's review to precise low cost liquids macro-metering devices employ "reduce waste ofwaterand promote conservation" has not convenient new electronic devices, and upward anaerobic yet been effectively translated into project designs. sludge blanket processes are available to reduce treated sewage eutrophication potential. It is imperative that Bank Large sectoroperations, suchas those financed inthe staff acquire knowledge about these advances to achieve past in Morocco, Tunisia or Brazil and presently in Argen- purer and healthier water services and cleaner surrounding dna, Nigeria and Mexico, failed to provide spe cific guide- environment by promoting the use of "the best applicable lines to analyze technological options and select least cost technology." (capital and operation) alternatives. Although inthe major- ity of the cases an upper cost per-capita limit is used as cutoffcriteria, the technologies selected might not be fit to the borrowers'operation capabilitiesorhaveacost afford- In September 1988, the late Dr. Abel Wolman ad- able to users. In the absence of local technical capability, dressed the participants of the XXI Congress of the consultants hired might choose technologies from alterna- IntemmericanAssociationofSanitaryEngineersandEnvi- tives that are not necessarily unsatisfactorybut expensive, ronmental SciencesinRiode Janeiro,Brazil. Hispaper, "A inappropriate andhighly sophisticated. It is the role of Bank Revolution by Year 2000," gathered lessons from the past engineers to challenge these practices to the benefit of the to send a message for the future that is iliuminating: bomroer and the ultimate beneficiaries. If you need a symbol of what I am saying, it is Selectionoffeasibletechnologicaloptionsgetsmore available in the decisions immediately after World complex in inverse proportion to the income level of War II. The amount of money loaned by the World beneficiaries, if service subsidization is to be minimized. Bank was less than 500,000 U.S. dollars. Under Although willingness to pay for water and sanitation pressure on the Bank by many of us, this figure has services of low income population may not be low (water risentobillionsofdollars,matchedbylocalagencies from vendors and individual sanitation are expensive), by similar millions. The experience has much of capital and operaing costs may not be affordable with which to be proud. Why then does one raise today conventional designs. Bank staffshould be betterprepared concerns about our status and objectives in the next to discuss the use of satisfactory intermediate technologies decade? For some years it has been clear that engi- as alternatives to conventional procedures. This will re- neers have been losing caste as prime leaders to quire additional training for Bank staff. personswithdisciplinesinmanagementandbusiness administration. The arena for environmental activity Even the selection of low-cost alternatives to serve has grown in astonishing depth, variety and impor- the uban and rwal poor might present serious difficulties. tance. Water, wastes, toxics, land, forests, air, haz- 23 ardous dumps, greenhouse effects appear on the personalchangesandsupportahealthierexistence.Projects stage. They demand action at the same time we approved in FY91 have sought to benefit the poor under struggle with the unfinished demands ofthe Decade different and, ip aome cases, innovative approaches. Spe- 1980 to 1990. " cial attention is being given in several projects, particularly the rural projects, to enhancement of women's roles in the This is a challenge that should be taken up by Bank sector; since women tend to be disproportionalety affected engineers and others working in the sector. by poor services and have been shown to make significant contributions to improvement when actively involved. Troverty Impact. Virtually all water supply and Overall, in the seven of the nine FY91 projects which sanitation projects contribute to some degree to improve contain poverty impact analysis, it is estimated that the the lifeofthepoor. Cleanwaterandsanitaryhumanwaste $775 million investment will benefit about 19 million disposal facilities, if properly used, can create positive urban and rural poo,. 24