95380 NOTE NUMBER 7 March 2015 LESSONS LEARNED e Global Partnership on Output-Based Aid Vietnam Rural Water DEVELOPMENT CHALLENGE themselves or handed over operations to cooperatives, Vietnam has performed well in moving towards water managers or water users associations. EMWF universal water supply, increasing access to improved guaranteed the water system for one year and trained drinking water sources from 62% in 1990 to 95% the operators. in 2012.1 In rural areas there are still challenges to 1 increasing access to piped water supply; the access WHO/UNICEF Joint Monitoring Programme for Water Supply and Sanitation. Estimates of the use of water sources and sanitation rate is 9% compared with 61% in urban areas. facilities: Vietnam. Updated April 2014. Expanding piped water access is essential if the 2 As stipulated in the National Rural Water Supply and Sanitation government is to meet its targets and provide all rural Strategy to 2020 (RWSS 2020). households with access to 60 liters of clean water per person per day, universal access to hygienic latrines and suitably improved personal hygiene.2 Private RESULTS ACHIEVED operators and communes play a significant role in yy The project provided access to affordable, clean building and operating most piped water systems water supply to 35,065 households; 32,875 were in rural areas; however, there are often constraints operating in a satisfactory manner after six months to financing the expansion of services to poor of operation. The project reached approximately consumers who cannot afford the cost of access. 180,000 beneficiaries. yy In the Central Provinces, EMWF constructed THE PROJECT AND ITS PARTNERS 41 water systems in poor rural villages, serving In 2008, the Global Partnership on Output Based approximately 115,000 people. The beneficiaries OBA Lessons Learned paid about $300,000 in connection charges and Series is a forum Aid (GPOBA) approved a $3 million grant to support investments in piped rural water supply contributed free labor by digging trenches. Local for discussing and communes provided land valued at $50,000. disseminating project systems, in conjunction with the government’s efforts to operationalize its national Rural Water yy In the Mekong Delta, private contractors constructed insights at the conclusion Supply and Sanitation Strategy. The project was 41 systems, serving approximately 65,000 people. of projects in supporting implemented by the East Meets West Foundation The operators raised almost $1.4 million of capital the delivery of basic (EMWF), an international NGO that works with local to pre-finance the schemes and invested $550,000 services to the poor. government authorities in Vietnam to develop a to be recuperated from tariffs; users paid around GPOBA is a partnership community-based approach for safe water supply $250,000 in connection fees. established in 2003 by the UK (DFID) and to rural households. The project originally targeted yy The subsidies lowered connection fees from the World Bank. Its schemes in five provinces in central Vietnam, which between $47–$117 per household to $14–$38 other donors are the were among the poorest in the country, with extreme per household, and contributed towards the cost of International Finance poverty rates of between 21 and 29%. upstream system improvement and extension. After Corporation (IFC), the In the Central Provinces, EMWF selected sub-projects six months of operation, 72 of the 82 schemes were Netherlands (DGIS), proposed by Commune People Committees (CPCs), found to be satisfactorily operating and supplying Australia (DFAT), the local authorities that own the rural water systems. water to 93% of the targeted households. and Sweden (Sida). Eligible communes had to be poor, have viable raw yy Based on the successes and lessons learned from this For more information water sources, and communities willing to pay partial OBA pilot, efforts to scale up the work are underway visit www.gpoba.org connection fees and on-going tariffs for water supply. with support from the Australian government and or email us at EMWF pre-financed the schemes and handed them the Bill and Melinda Gates Foundation. gpoba@worldbank.org. over to the CPCs, which either managed the systems Supporting the delivery of basic services in developing countries Lessons Learned benefit from the subsidy, there was considerable technical support for scheme design, implementation and operation, provided by both local governments and EMWF. The 1 Schemes managed by private operators are operating more efficiently than those run by communes. An independent long-term sustainability assessment was Department of Agriculture and Rural Development played a key role in identifying potential public schemes and in vetting private operators. There were nevertheless gaps in vetting carried out on the sub-projects, which assessed them on the criteria that led to some unviable schemes being included in the basis of: project design, implementation and operational project. For example, in the Central Provinces, many households performance; record keeping and adequacy of budgeting; continued to use hand-dug wells to meet some of their water revenue collection and financial performance; and customer needs, which affected the financial viability of those schemes. In utilization and satisfaction. In the Mekong Delta, where schemes the Mekong Delta, some private operators that were selected were implemented by private operators, 85% were operating to implement projects did not have sufficient financial capacity in a satisfactory manner and at low risk of decline. In the Central to carry out the works. Limited access to commercial financing Provinces, where schemes were implemented by communes, to roll out the investments also slowed progress with private 58% were operating satisfactorily. A survey carried out by sector operators. However, the pilot has established a valuable EMWF also noted that sub-projects run by private operators sample of projects from which success factors can be gleaned have better cost coverage, higher collection rates and better and applied to future business models to support the long- debt management, and lower rates of water loss. Customer term financial sustainability of small piped water systems, and surveys also suggest the regularity of water supply and the to improve on mechanisms for identifying new projects to be length of time taken to repair breakdowns were considerably financed through an OBA subsidy approach. better in privately run schemes. Tariffs ranged from $0.14 to $0.24 per cubic meter, and were generally higher in the Mekong Delta where the schemes were run by private operators. Further analysis is required to understand the extent 4 A vibrant private sector and supportive enabling environment contributed to success in the Mekong Delta. To further scale up access to water through private to which improved performance can be attributed to private operators, an output-based subsidy mechanism should be scheme management and / or tariff adequacy. housed within the government. The OBA approach created incentives for private operators 2 Supporting a variety of management models and adapting the subsidy to suit market pricing and consumer affordability was crucial in increasing uptake by the to invest in the expansion of small-scale infrastructure, and transferred implementation and demand risk to the private sector by paying subsidies against verified outputs. This was targeted households. possible because of a vibrant private sector and an enabling In 2009, a review was undertaken to assess project costs policy environment established by some of the provinces and bring private companies into the project. In the Central in the Mekong Delta. In most other parts of the country, Provinces, subsidy levels were revised upwards from $100 private sector participation in rural water supply will require per connection to $140 for schemes managed by communes significant policy and regulatory reforms. In order to scale and cooperatives to address cost escalations that became up access through privately run piped water systems, a apparent during implementation. In the Mekong Delta, the formal mechanism for providing targeted subsidies should project introduced support for schemes implemented by be structured within government systems. These subsidies private operators, in which a subsidy of $80 to $120 supported could support private operators to access credit to build out investment costs of $175 to $225 per household. The flexibility schemes while keeping tariffs affordable for poor consumers. of the subsidy levels to suit the realities of market pricing and Consideration would need to be given to regulating supply consumer affordability was critical in increasing uptake by the standards and tariffs and to setting up an effective monitoring targeted households. and evaluation system. Such systems could ensure that capital 3 Mechanisms for identifying viable schemes and capable subsidies support financially viable projects that target the operators should be developed from the sample of pilot poor, and are paid in an output-based manner to improve the projects to identify success factors for the long-term efficiency of public funding. financial sustainability of small piped water systems. In order to assess the financial viability of schemes that could *All monetary amounts are in US$ unless stated otherwise. The case studies are chosen and presented by the authors in agreement with the GPOBA program management team and are not to be attributed to GPOBA’s donors, the World Bank Group, or any other affiliated organization, nor do any of the conclusions represent official policy of the aforementioned organizations.