Lao People’s Democratic Republic (PDR) - World Bank



Lao People’s Democratic Republic

Water Supply and Sanitation Sector Review

Final dated December 15, 2010

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Sustainable Development Department

East Asia and Pacific Region

This volume is a product of the staff of the World Bank. The findings, interpretations, and conclusions expressed herein do not necessarily reflect the views of the Board of Executive Directors of the World Bank or the governments they represent.

CURRENCY EQUIVALENTS

(Exchange Rate Effective September 13, 2010)

|Currency Unit |= |Lao Kip (LAK) |

|LAK 1,000 |= |US$0.122 |

|LAK 8,196.7 |= |US$1 |

| | | |

FISCAL YEAR

|October 1 |– |September 30 |

ACRONYMS AND ABBREVIATIONS

|ADB |Asian Development Bank |NPNL |Nampapa Nakhon Luang |

|AFD |Agence Française de |NPSEs |Nam Papa State Enterprises |

| |Developpement |NRW |Non revenue water |

|BOT |Build-Operate-Transfer |NSEDP |National Socio-Economic |

|DHO |District Health Office | |Development Plan |

|DHUP |Department of Housing and |NT |Nam Theun |

| |Urban Planning |NUSDSIP |National Urban Sector |

|DPWT |Department of Public Works | |Development Strategy and |

| |and Transportation | |Investment Plan |

|GDP |Gross Domestic Product |O&M |Operation and Maintenance |

|GFS |Gravity Fed System |OBA |Output-Based Aid |

|GRET |Group of Research and |ODA |Official Development |

| |Technological Exchange | |Assistance |

|HH |Households |PM Decree |Prime Minister Decree |

|IMT |Implementation and |PPP |Public-Private Partnership |

| |Maintenance Team |PRF |Poverty Reduction Fund |

|IWG |Infrastructure Working Group |SNV |Netherlands Development |

|JICA |Japan International | |Organization |

| |Cooperation Agency |UDAAs |Urban Development |

|JMP |Joint Monitoring Programme | |Administration Authorities |

|JV |Joint Venture |UDD |Urban Development |

|Lao PDR |Lao People’s Democratic | |Division |

| |Republic |UNICEF |United Nations Children's |

|LDC |Least Developed Country | |Fund |

|lcd |Liters per Capita per Day |WASA |Water Supply Authority |

|MDGs |Millennium Development |WASH |Water, Sanitation, and |

| |Goals | |Hygiene |

|MIREP |Mini-Réseaux d’Eau Potable |WASRO |Water Supply Regulatory |

|Programme |(Small Scale Water | |Office |

| |Supply) |WHO |World Health Organization |

|MoH |Ministry of Health |WREA |Water Resource and |

|MPWT |Ministry of Public Works and | |Environment Administration |

| |Transportation |WSD |Water Supply Division |

|Nam Saat |National Center for |WSP |Water and Sanitation |

| |Environmental Health and | |Program |

|NGO |Non Government |WSRC |Water Supply Regulatory |

| |Organization | |Committee |

|NORAD |Norwegian Agency for |WSS |Water Supply and Sanitation |

| |Development Cooperation | | |

ACKNOWLEDGEMENT

This report was prepared by Ms. Mariles R. Navarro and Mr. Alexandre Bui (Consultants) with assistance from Mr. Klas Ringskog (Consultant). Ms. Julia Fraser was the Task Team Leader for the study to which Messrs./Mmes. Sudipto Sarkar, Sombath Southivong (WB), Joseph Gadek, Viengsamay Vongkhamsao (WSP), Lulu Baclagan, and Xuan-Dung (IFC) also contributed. Ms. Chutima Lowattanakarn helped format the report. The study team gratefully acknowledges financial support from AusAID and the support of the Government of Lao PDR, including the Ministry of Public Works and Transport, Department of Housing and Urban Planning, Water Supply Division and Ministry of Health and Nam Saat.

LAO PEOPLE’S DEMOCRATIC REPUBLIC

Water Supply and Sanitation Sector Review

TABLE OF CONTENTS

EXECUTIVE SUMMARY 5

COUNTRY CONTEXT 8

LAWS AND REGULATION, AND STRATEGIES 8

1.1 Main Laws and Regulations 8

1.2 Water Supply Sector Policy and Strategy 10

1.3 Current WSS Models in Practice in the Lao PDR 16

SECTOR PERFORMANCE 18

2.1 Access 18

2.2 Quality of services 20

2.3 Tariffs 21

2.4 Affordability 23

INVESTMENT PRIORITIES AND FINANCING 23

KEY ISSUES AND RECOMMENDATIONS 27

Annex 1: Map on Status of Water Supply Systems in Urban Centers 32

Annex 2: Water Sector Organizational Chart 33

Annex 3: Linkage between central and local government institutions in the provision of water supply services 34

Annex 4: Percentage of households with access to safe water source, dry season, 2003 – 2008 35

Annex 5: Percentage households with access to improved sanitation, 2003 - 2008 36

Annex 6: Service Coverage by NPSE, 2008 37

Annex 7: NRW estimates by NPSE, 2008 38

Annex 8: Financial performance data by NPSE, 2006 - 2008 39

Annex 9: Water tariffs by province (2008), kip/m3 (LAK 1000=US$0.122) 40

Annex 10: Expectations and Achievements of the 2008 – 2010 Tariff Review 41

Annex 11: Urban Wastewater Investment Plan, 2009-2020 (Draft) 42

Annex 12: Urban Wastewater Investment Plan, Proposed Funding Sources 43

Annex 13a: Aggregate sector specific cost estimates of meeting MDGs 43

Annex 13b: Aggregate ministry/authority specific cost estimates of meeting MDGs 44

Annex 14: Review of Current WSS Services Delivery Models in the Lao PDR 45

Annex 15: Goals for Urban Water Supply Sector Road Map……………………………… 59

REFERENCES 61

LIST OF TABLES, FIGURES AND BOXES

Table 1: Urban Centers by Population Size 10

Table 2: UN Coverage Estimates of MDGs for Water and Sanitation 18

Table 3: Access to Household Connections and Improved Drinking Water Sources 19

Table 4: Sanitation Coverage (%) 19

Table 5: Urban Water Supply Targets – Coverage & Population Served (2004 – 2020) 23

Table 6: Sector Investment Plan for Urban Water Supply Projects (2005 – 2020) 24

Table 7: Summary of Key Issues, Recommended Policy Actions and Intended Outcomes 25

Figure 1: Investments in Urban Water Supply 1999 – 2014 13

Figure 2: Investments in Urban Water Supply by Source of Financing (1999 – 2014) 13

Figure 3: Capital Expenditure for Rural Water Supply & Sanitation, 2000 – 2009 (in US$ million) 14

Figure 4: Capital Expenditure for Rural Water Supply & Sanitation, 2000 – 2009 (in %) 15

Box 1: The MIREP Programme 14

EXECUTIVE SUMMARY

(i) The Lao PDR targets under the Millennium Development Goals (MDGs) are to provide 69% of the total population with access to an improved drinking water source and 63% with access to improved sanitation by 2015, using the 1995 service level estimates as the basis. According to the 2010 WHO-UNICEF Joint Monitoring Programme (JMP), the urban sector is on track to meet the MDG targets since access to improved water supply had reached 72% and access to improved sanitation had risen to 86% in the year 2008. However, the sector risks not meeting the rural MDG targets since access to improved water supply was 51%, and access to improved sanitation trailed at 38% in the year 2008. Although the MDG targets refer to the total population, the discrepancy between the urban and rural sectors is cause for concern in a country where 70% of the population resides in rural areas.

(ii) According to the World Bank’s Poverty and Environment Report (2009), the cost to the country of inadequate water and sanitation services is estimated to have been at least 5.6% of GDP in 2006 and possibly as high as 10% of GDP if all costs related to the detrimental effects of child malnutrition are included. About 30 percent of child mortality under the age of five has been attributed to inadequate water supply, sanitation and hygiene which combine to reduce school attendance. Coverage of services is low, and service quality often does not meet government standards. It is not uncommon for households to receive non-potable water for only a few hours a day at low water pressure. Lack of funds explains inadequate disinfection and irregular water quality monitoring. Many households living in Vientiane capital and the secondary cities have invested in wells and individual water tanks to supplement public water supplies.

(iii) The Government targets are to provide 24-hour access to safe drinking water for 80 percent of the urban population by the year 2020 and ensure equitable service coverage for all regions of the country. As for sanitation, on-site[1] treatment will be pursued and the implementation and management of the facilities shall be the responsibility of the individual owner. To meet these targets, an estimated US$510 million would be required by 2020 to meet the targets through: (a) providing an additional 1.95 million urban population with water at an estimated cost of about US$270 million, of which 48% is programmed for Vientiane capital, 38% for small towns and the 14% for secondary towns and provincial capitals; (b) urban wastewater investments at a cost of US$140 million of which 54% for Vientiane city, 17% for secondary towns, 8% for provincial capitals, 20% for district centers, and the rest for capacity building and emerging small towns; and (c) rural water supply and sanitation investments at a cost of US$100 million. The implied annual investment levels 2011-2020 would be about US$18 million for urban water supply, US$12 million for urban sanitation, and US$10 million for rural water and sanitation. These annual investment needs could be compared to historical investment levels of US$8 million for urban water supplies, nil for urban sanitation, and US$3 million for rural water and sanitation. It is unlikely that past investment levels could be quadrupled, given that about 90% of past investments were funded by international donors, and donor financing levels may not be easily expanded.

(iv) It is recommended that the Government focus on actions and reforms in three areas to improve service quality in existing systems and to expand coverage in urban and rural areas: (a) to streamline and make operational the present institutional arrangements and policies; (b) to increase coverage of water supply services; and (c) to increase revenue collections through a combination of higher operational efficiency and tariff increases that match improved service which may also require targeted subsidies for the lowest income households.

(v) The streamlining of institutional arrangements is necessary to use efficiently the country’s scarce skilled sector staff. First, it is recommended that the Ministry of Public Works and Transportation (MPWT) become solely responsible for infrastructure development and that the Ministry of Health (MoH) concentrate on hygiene promotion to improve health and sanitation practices. The streamlining would give MPWT economies of scale and the ability to retain and develop skilled staff. By the same token, MoH could capitalize on its comparative advantages of educating the urban and rural population in safe habits of water consumption and sanitation habits, including the promotion of rural on-site sanitation. Second, conditions must be created in the sector to attract private operators whose main remuneration would best come from improved cash flows. Until policies, practices and political support allow for financial autonomy of service providers, including the right to retain funds collected in order to generate financial surpluses from operations, public utilities will remain inefficient and unattractive for private sector participation. Third, regulation must be strengthened to monitor the performance of both public and private operators. Reliable regulation requires validation of the data that service providers furnish to the regulator, the Water Supply Regulatory Committee (WSRC) and Water Supply Regulatory Office (WASRO) as its secretariat. Service providers must be trained ingenerating accurate primary data for calculating performance indicators, and the Regulator must be trained in validating information received.

(vi) Increasing coverage of water services is the highest priority in order to meet the population’s basic needs and approach economies of scale that could help financial sustainability. First, investments must be selected to ensure that scarce funding will result in the highest possible number of households connected in the short term. The Mini-Rèseaux d’Eau Potable (MIREP) program for small-scale private operators could guide the drive to design and invest efficiently but technical specifications might have to be upgraded to ensure long-term sustainability. MIREP systems are designed to provide 70 lcd of continuous water services to households with chlorinated water. Second, house connections should be facilitated by reducing and financing connection charges to allow their full recovery by spreading them over a longer time period. Third, output-based aid (OBA)-schemes might be attempted to give incentives to small-scale service providers to connect more households.

(vii) Increasing revenue collections through a combination of higher tariffs and improved operating efficiency is the third cornerstone towards financial sustainability in the sector. The majority of NPSEs are not performing well financially despite the fact that government policy requires them to operate like corporations. NPSEs need internal systems and reforms that support financial autonomy tied to accountability. Affordability calculations indicate that tariff levels could rise in real terms. In order to gain acceptance for higher tariffs, they must be matched by service improvements. In addition, targeted subsidies for both connection costs and service provision may be required to ensure the poorest could afford services. It also becomes necessary to educate consumers of the benefits from safe public water supplies as contrasted to their use of non-potable water sources in order to make them accept higher tariffs.

(viii) Sector reforms are unlikely unless they are supported with rising investment levels. Three external donor agencies (Asian Development Bank, JICA, and Agence Française de Development (AFD) have accounted for almost the entire financial assistance over the 1999-2010 period. Notably, the project levels of financial assistance are projected to drop substantially from 2010 and beyond worsening the gap between historical averages and planned investment needs. This highlights the unlikely increase of future investments necessary to reach the 2020 goals.

(ix) Investment projects should concentrate on (a) raising effective coverage, starting with providing house connections to already existing distribution networks and educating consumers in safe practices of drawing water and of sanitation; (b) giving incentives to public and prospective private service providers to become financially autonomous by allowing them to retain revenue collected and adopting the principle that the full costs of service should be recovered from tariffs, starting with recovering the costs of operations and adequate maintenance; and (c) concentrating on the effective implementation and streamlining of the existing legislation in order to make for a predictable enabling environment for public and private service providers. The paper suggests that investment in Vientiane, perhaps through a public-private partnership model, offers the greatest chance of helping the Government meets its sector objectives such as higher coverage, efficiency, and sustainability.

LAO PEOPLE’S DEMOCRATIC REPUBLIC

Water Supply and Sanitation Sector Review

COUNTRY CONTEXT

1. Geography and demographics. The Lao People’s Democratic Republic (Lao PDR) occupies a land area of 236,800 km2 and borders on China, Vietnam, Cambodia, Thailand and Myanmar. Almost half of its population of about 6 million (2008) are ethnic groups concentrated in the upland areas. Some 70% of the population is rural, while 17% reside in larger urban centers and the remaining 13% in small towns. Annual population growth rates in small towns are reported to be 4 to 5 percent compared to the national average of 2.5 percent. The country is divided into northern, central and southern regions, and has 16 provinces and Vientiane Capital, including 143 districts and more than 9,000 villages. The five largest urban centers (Vientiane, Luang Prabang, Kaysone Phomvihane, Pakse and Thakhek) account for some 45% of the total urban population and are all situated along the Mekong river.

2. Economy. Average annual GDP growth was about 7% from 2006 to 2009. Its low per capita income of US$740 (2008) defines the country as one of the poorest in East Asia. Agriculture accounts for 32% of GDP (2009), industry for 28%, and services for the remaining 40%. The country exports mainly minerals and electric energy following the successful launch of the Nam Theun (NT) 2 hydropower project. Poverty declined from 33% in 2003 to 28% in 2008.[2]

LAWS AND REGULATION, AND STRATEGIES

1 Main Laws and Regulations

3. Prime Minister (PM) Decree no. 37 on the Management and Development of Water Supply and Wastewater Sector, issued in 1999, establishes the key institutions in the sector. At the central level, the Ministry of Public Works and Transportation (MPWT) is responsible for urban water supplies. The MPWT mandate includes planning and programming, mobilizing financing, developing guidelines for design, construction, and operation and maintenance of urban water supply facilities, and technical assistance to NPSEs. Within MPWT, this responsibility is lodged with the Department of Housing and Urban Planning (DHUP), and further delegated to the Water Supply Division (WSD). WSD has currently nine (9) technical staff and has relied on development partners to help prepare the country’s urban water supply sector strategy and investment program, and to develop technical guidelines for the urban sector.

4. PM Decree 37/1999 assigns responsibility for development of urban sanitation to MPWT. This involves developing the sector strategy, investment plans and technical regulations relating to urban wastewater and wastewater management in collaboration with the Water Resources and Environment Administration (WREA). Within MPWT, the Urban Development Division (UDD) under DHUP is responsible for this task as well as for other urban services such as drainage systems and solid waste management. UDD has six (6) technical staff.

5. The Ministry of Health (MoH), through its National Center for Environmental Health and Hygiene (Nam Saat), is responsible for rural water services, and for promoting environmental health and hygiene in urban and rural areas. Its mandate includes planning and programming, mobilizing financing, capacity building and technical assistance for community mobilization. Nam Saat has 45 staff with nine (9) technical staff, six (6) medical doctors, and nurses, laboratory technicians and administrative staff. Its capacity for design preparation and construction supervision of rural water supply facilities is considered low, and its effectiveness suffers from limited budgets.[3]

6. Implementation, operation and maintenance of public water supply systems are decentralized and reassigned from the former national water utility, Nam Papa Lao, to 17 provincial water utilities (also known as Nam Papa State Enterprises or NPSEs). NPSEs are supposed to operate along commercial principles, but this rarely happens. The Local Administration Law created the provincial Urban Development Administration Authorities (UDAAs) to provide urban infrastructure services, including drainage, solid waste and wastewater management.

7. The following legislations define sector governance:

• Prime Minister (PM) Decree no. 57 on Water Supply Tariff Policy, issued in 2004, prescribes water tariffs sufficient to ensure financial sustainability of water supply systems;

• The Law on Enterprise issued in 2005 requires NPSEs to be transformed into state companies with a corporate structure and financial autonomy; and

• Prime Minister (PM) Decree no. 191 on the Regulation of Water Supply Operations from 2005 widens the regulator WASA’s mandate to include private water providers, in addition to public water utilities.[4]

8. More recently, the Water Supply Law, enacted in 2009, provides the policy framework for the water supply sector. The Water Supply Law addresses: (a) the planning, construction, and maintenance of facilities which are to be according to government technical standards and regulations and in compliance with water resource and environment related laws; (b) private sector participation; (c) the establishment of a water supply infrastructure development fund, and of tariff policies; (d) rights and obligations of service providers and users; (e) dispute resolution mechanisms; and (f) overall arrangements for sector oversight. The law is adequate but implementation is still pending since the implementation decree has not yet been issued.

9. The Water and Water Resources Law of 1996 and the Environmental Protection Law of 1999 are also relevant. The effectiveness of the Water Resources Law has also suffered from a lack of implementing guidelines.[5] The Environmental Protection Law guides the preparation of environmental impact assessments of water-related projects.

Urban and Rural Demographics

10. Previously, urban and rural areas were defined administratively rather than by size or density of population. The Government has now redefined ‘urban’ areas as those with (a) at least 2,000 inhabitants, and (b) a population density of more than 30 persons per hectare. All areas with less than 2,000 people are considered rural. Table 1 shows the distribution of urban areas and small towns based on size of population.

Table 1: Urban Centers by Population Size

|Urban Categories |Number of Towns |No. of Piped WS systems as of 2009 managed |% of urban population|

| | |by NPSEs and private operators | |

|Vientiane (>500,000) |1 |1 | |

| | | |45% |

|4 secondary towns (20,000-60,000) Luangprabang, |4 |4 | |

|Kaysone Phomvihane, Pakse, Thakhek | | | |

|12 other provincial centers (4,000-20,000) |12 |12 |13% |

|Small towns/districts centers (30 m3 |

|Attapeu |0.3599 |0.3599 |0.3599 |0.3599 |

|Bokeo |0.3514 |0.3514 |0.3514 |0.3514 |

|Borikhamsay |0.3111 |0.3111 |0.3111 |0.3111 |

|Champasack |0.3660 |0.3660 |0.3660 |0.3660 |

|Huaphanh |0.2582 |0.2582 |0.2582 |0.2582 |

|Khammuane |0.2806 |0.2806 |0.2806 |0.2806 |

|Luangnamtha |0.1098 |0.1098 |0.1098 |0.1098 |

|Luangprabang |0.1220 |0.1220 |0.1220 |0.1220 |

|Oudamxay |0.1823 |0.1823 |0.1823 |0.2588 |

|Phongsaly |0.4270 |0.4270 |0.4270 |0.4270 |

|Saravane |0.1830 |0.3050 |0.3660 |0.3660 |

|Savanakhet |0.1708 |0.2074 |0.2684 |0.3660 |

|Sekong |0.2318 |0.3233 |0.4270 |0.4270 |

|Vientiane capital city |0.0512 |0.0836 |0.0836 |0.1293 |

|Vientiane province |0.2501 |0.3294 |0.3294 |0.3660 |

|Xayabury |0.3050 |0.3050 |0.3050 |0.3050 |

|Xieng Khouang |0.1708 |0.2867 |0.4697 |0.4697 |

|Average |0.1967 |0.2219 |0.2413 |0.2525 |

Annex 10: Expectations and Achievements of the 2008 – 2010 Tariff Review

|2007 (Actual) |

|50% depreciation recovery |Full cost recovery + return |Full cost recovery + return |

| | |on capital < 3% |on capital > 3% |

|Attapeu |Champasack |Luangprabang | |

|Bokeo |Khammuane | | |

|Borikhamxay |Oudomxay | | |

|Huaphanh |Vientiane CC | | |

|Luangnamtha | | | |

|Phongsaly | | | |

|Saravane | | | |

|Savannakhet | | | |

|Sekong | | | |

|Vientiane Province | | | |

|Xayabury | | | |

|Xiengkhuang | | | |

|( |

|2008 (Projected) |

|50% depreciation recovery |Full cost recovery + return |Full cost recovery + return |

| | |on capital < 3% |on capital > 3% |

|Attapeu |Bokeo | |Champasack Khammuane |

|Huaphanh |Borikhamxay | |Luangprabang |

|Luangnamtha |Oudomxay | |Vientiane CC |

|Phongsaly |Saravane | | |

|Vientiane Province |Savannakhet | | |

| |Sekong | | |

| |Xayabury | | |

| |Xiengkhuang | | |

|2008 (Actual) |

|50% depreciation recovery |Full cost recovery + return |Full cost recovery + return |

| | |on capital < 3% |on capital > 3% |

|Attapeu |Bokeo |Champasack Khammuane | |

|Huaphanh |Borikhamxay |Luangprabang | |

|Luangnamtha |Saravane |Oudomxay | |

|Phongsaly |Savannakhet |Xiengkhuang | |

|Vientiane Province |Sekong | | |

|Xayabury |Vientiane CC | | |

|( |

|2010 (Projected) |

|50% depreciation recovery |Full cost recovery + return |Full cost recovery + return |

| | |on capital < 3% |on capital > 3% |

| |Attapeu |Bokeo |Borikhamxay |

| |Huaphanh |Oudomxay |Champasack |

| |Luangnamtha |Saravane |Khammuane |

| |Phongsaly |Sekong |Luangprabang |

| |Savannakhet |Xiengkhuang |Vientiane CC |

| |Vientiane Province | | |

| |Xayabury | | |

Source: 2008 Annual Performance Report, WSRC

Annex 11: Urban Wastewater Investment Plan, 2009-2020 (Draft)

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Source: Draft Urban Wastewater Strategy and Investment Plan for 2009-2020, prepared in June 2009, MPWT/ADB/NORAD

Annex 12: Urban Wastewater Investment Plan, Proposed Funding Sources

|Source |Type of Investment |Investments size (ref. to Investment Plan) |

|Government budgetary allocations at |Institutional and legal reforms |745,000 USD (central authorities) |

|all levels |Services to the poor, start capital revolving |8.4 mill USD (services to the poor) |

| |fund | |

| |Public sanitation (schools, markets etc) | |

| |Sector monitoring | |

| |Awareness raising | |

| |Technical guidelines | |

| |Capacity building | |

|Domestic and foreign private sector |Household toilet facilities and septic tanks |44 mill USD (household toilets) |

|investment |(private households) |14.7 mill USD (treatment facilities) |

| |Treatment facilities (private sector operation | |

| |including sludge removal services) | |

|Foreign Government investment |Sector monitoring |Parts of the above |

| |Awareness raising |6.8 mill USD (communal systems) |

| |Technical guidelines |64.2 mill USD (centralized systems) |

| |Capacity building | |

| |Communal systems | |

| |Treatment facilities | |

| |Centralized systems | |

| |Start capital for a revolving fund | |

|National and multi-national |Start capital for a revolving fund |Parts of the above |

|development partners/funding agencies |Wastewater improvements | |

|(incl. NGOs) |Services to the poor | |

Remarks: It is expected that several of the activities will be implemented with combined funding, e.g. government subsidies together with foreign government investments.

Source: Draft Urban Wastewater Strategy and Investment Plan for 2009-2020, prepared in June 2009, MPWT/ADB/NORAD

Annex 13a: Aggregate sector specific cost estimates of meeting MDGs

|Sector |Total 2010-2015 (US$M) |% of Total |Annual Average (US$M) |

|Agriculture and rural development |1,635 |26% |327 |

|Education |726 |11% |145 |

|Energy |559 |9% |112 |

|Environment |114 |2% |23 |

|Gender |61 |1% |12 |

|Health |788 |12% |158 |

|Roads, waterways, kumban planning, and urban development |2,050 |32% |410 |

|Water and sanitation (rural + urban) |391 |6% |78 |

|Total |6,324 |100% |192.3 |

Note: Kumban is a sub district grouping of villages composed of 6 to 10 villages.

Source: MDG Costing for Lao PDR, March 2010, Ministry of Planning and Investment of Lao PDR, supported by the United Nations, Lao PDR

Annex 13b: Aggregate ministry/authority specific cost estimates of meeting MDGs

|Ministry/authority |Total 2010-2015 (US$ M) |Annual Average (US$M) |

|Ministry of Agriculture and Forestry |1,635 (agriculture & RD) - 20 (forestry) + 210.23 (RD) = |288.9 |

| |1,444.48 | |

|National Committee on Rural Development and Poverty |210.23 (off farm and non farm occupations |42.05 |

|Eradication | | |

|Ministry of Education |726.13 |145.21 |

|Ministry of Energy and Mining |558.95 |111.79 |

|Water Resource and Environment Administration |114.44 (environment) – 20 (forestry) = 94.44 |18.89 |

|Lao Women’s Union/National Commission for the |60.91 |12.18 |

|Advancement of Women | | |

|Ministry of Health |788.37 (health) + 185.14 (rural water & sanitation) = 973.51 |194.7 |

|Ministry of Public Works and Transport |1,724.93 (roads) + 125.47 (urban planning) + 200 (water |451.21 |

| |transport) + 205.63 (NPSEs) = 2,256.03 | |

|Total |6,324 |192.3 |

Source: MDG Costing for Lao PDR, March 2010, Ministry of Planning and Investment of Lao PDR, supported by the United Nations, Lao PDR

Annex 14: Review of Current WSS Services Delivery Models in the Lao PDR

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1. In an attempt to improve WSS services over the past 15 years, the Government of the Lao PDR and its development partners have considered and implemented many different modalities for the financing and delivery of WSS infrastructure and services. This part of the report will attempt to highlight the primary types of financing and services delivery models used, providing some analysis of the recognized advantages and disadvantages of each outlined.

2. During the French colonial rule in Laos the WSS sector was completely government financed, constructed, and operated & maintained. As the service population bases expanded and there was a need for increased financing and improved and more efficient services delivery, the government has over the past 20 – 25 years been working with its development partners in the WSS sector to identify different ways and means of: (i) decentralizing the delivery of WSS infrastructure and services and (ii) involving the private sector more in the financing, construction, and operations and maintenance of WSS infrastructure and services. Based on these deliberate decisions and efforts by government to move away from the monopolistic public sector involvement in the WSS services, several models have developed in the sector which is to be cataloged in order to better assess the best modalities for the delivery of WSS services in the future.

Current WSS Models in Practice in the Lao PDR

Vientiane Capital City

3. Vietnamese Maidong Company (Maidong) established a joint venture company (Ha Dao) with the Vientiane Capital NPSE in order to reinforce water supply production up to an additional 20,000 m3/day. Maidong invested 100% of the necessary funds to build a compact water treatment plant. The build-operate-transfer (BOT) consists of a 20 year contract during which the company sells to NPSE water at the current “production” cost calculated by Ha Dao. It is noted that this production cost (1,340 kip/m3) is over the current average sales cost (1,270 kip/m3 for the 2009 year). With this scheme, the goal for NPNL is to cover the needs of the eastern industrial zone with this facility, making the sales costs over the current average. Tariffs are no longer by customer category, but by consumption block as follows:

|Consumption in m3 |Fees (Kip/m3) |

|0 – 10 |500 |

|11 – 30 |1,000 |

|31 – 100 |1,350 |

|Over 100 |2,700 |

4. Over the past five years, the Japanese (JICA) investment support has enabled the water production to increase from 100,000 m3/day to 140,000 m3/day. NPSE also managed to secure a loan from a Lao private enterprise (LWG) to build an additional pumping and treatment station in Dongmakhai (20,000 m3/day).

5. Currently it is estimated that 55% of the Vientiane population has access to safe water. The total extension, reinforcements and production investment needs are estimated to be US$50,000,000. French AFD support to the Vientiane water supply is about US$3 million. NPSE is currently seeking foreign investors support as loan, grants, and/or private investment (BOT, joint venture, management contract).

6. Observations Regarding the Vientiane WS Model – The most interesting aspect of the Vientiane WS is the BOT model with an output covering roughly 15% of the total production. It is interesting to note that the average sales cost per m3 is roughly the cost of what is estimated to be the actual production costs of 1,340 Kip/m3 although these appear to be very low, i.e. approximately US$0.16/m3. With BOTs, it is important to see the contract details spelling out issues such as whether it is a “take or pay” contract and if so, what are the threshold output levels, i.e. if the utility is only using 50% of the threshold production output, the full threshold volume must be paid, consumed or not consumed.

Kaysone Phomvihane Town

7. The Kaysone Phomvihane water supply system is currently investigating the possibilities of a joint venture (JV) with a Malaysian investor. The initiative comes from the province. Current assets are evaluated to be US$5,000,000. Reinforcement and extensions needs are evaluated to be approximately US$15,000,000 (the production should be raised up an additional 50% of the current capacity, pipe extensions should be done in southern area, resettlement villages, Xeno special economic zone, northern axis) in order to insure full coverage of Kaysone Phomvihane town and the special economic zone.

8. The joint venture company would fully operate the provincial capital water supply system. Tariff structures and increases would be ratified by the provincial board (Provincial Governor’s Office, DHUP and NPSE) under WASRO guidance. NPSE is considering its human resources reorganization as the investor will not necessarily take over the current NPSE staff. The current employees, who would not be hired by the JV, would be shifted to other Governments institutions.

9. Profits would be 70% for the Malaysian investor, and 30% for the NPSE. Operating and maintenance costs would be 100% covered by the investor.

| |1st semester 2009 |2nd semester 2009 |2010 |

| | | | |

|HOUSEHOLD | | | |

|0 to 10 m3 |1,600 |1,700 |1,700 |

|11 to 20 m3 |1,800 |2,000 |2,000 |

|21 to 30 m3 |2,500 |2,700 |2,700 |

|over 30 m3 |3,300 |3,600 |3,600 |

| | | | |

|GVNMT | | | |

|per m3 |2,200 |2,500 |2,500 |

| | | | |

|HOTELS | | | |

|per m3 |3,800 |4,300 |4,300 |

| | | | |

|COMMERCIAL | | | |

|per m3 |5,000 |5,500 |5,500 |

10. Observations Regarding the Savannakhet WS Model – The fact that the Savannakhet Province has taken the initiative in identifying and attracting a firm to invest in the urban WS system is a very positive indicator of the recognition by the provincial authorities that other options to the publicly owned and operated model exist and may prove to be more cost effective. It is still unclear what level of the capital investments the JV will participate in and the length of contract which is being considered. This model is particularly vulnerable to the issue of whether the proposed tariff above will generate enough revenues to allow for the projected revenues which will keep the operator on a firm financial footing.

Pakse Town

11. In comparison to the two previous described WS services delivery models, the Pakse provincial capital water supply system is struggling to meet the demand, mainly because of its reliance on traditional public sector financing (donor granted schemes) and provincial management. The Pakse NPSE does not allow any further connections as the current production design capacity is 15,000 m3/day and the actual average daily production is 12,107 m3/day. The average pumping time is 13 hours per day, peak can reach 15 hours. The state company started to make profits in 2003 as a result of applying the tariff recommendations from WASA (current WASRO). These profits cover the operation and maintenance (O&M) costs - US$480,000 per year for electricity which is reimbursed by a US$25,000 fee per month while the average bill is around US$16,000 per month and the ADB loan reimbursement US$208,000 /year. Sixty percent of the net profit is transferred to the government through provincial authorities.

12. The following are the options that Pakse NPSE have been considering to improve the poor WS situation:

a. JICA is planning to reinforce the treatment facility (a JICA team gathered data, no feedback provided yet).

b. Considering JV or Build-Own-Operate (BOO) with private companies for the Pakse water supply systems (no contact made yet).

c. The province already declared no support was available at provincial level.

d. ADB support for Paksong extensions in progress.

| |1st semester 2009 |2nd semester 2009 |2010 |

| | | | |

|HOUSEHOLD AND GVNMT | | |

| |2008 |2009 |2010 |

|0 m3 |5400 |5500 |5600 |

|1 to 5 m3 |1100 |1200 |1300 |

|6 to 15 m3 |2500 |2600 |2700 |

|16 to 30 m3 |3200 |3400 |3500 |

|Over 31 m3 |3700 |4000 |4100 |

| | | | |

|HOTELS | | | |

| |2008 |2009 |2010 |

|0 m3 |7500 |7600 |8000 |

|1 to 5 m3 |3200 |3300 |3700 |

|6 to 15 m3 |3700 |3700 |4200 |

|16 to 30 m3 |4500 |4500 |4700 |

|Over 31 m3 |5500 |5600 |5700 |

| | | | |

|COMMERCIAL | | | |

| |2008 |2009 |2010 |

|0 m3 |7800 |8000 |9100 |

|1 to 5 m3 |3500 |4700 |4800 |

|6 to 30 m3 |4500 |4700 |5800 |

|Over 31 m3 |5500 |6700 |6800 |

| | | | |

Smaller Urban and Rural Water Supply Systems

13. The cases analyzed comprise those with:

✓ Fully provided assets (NGO’s)

✓ Community investment and owned assets

✓ Privately provided and operated assets - 100%

✓ NGO and private provided assets, private operated

As best as possible, the report attempts to group the schemes under the same water demand, socio- economic and available resources contexts.

NGO Provided Assets

14. For this scenario, all 3 surveyed villages (Nathalang, Nakahan and Nongnang) are situated in Savannakhet province, Phine district along the road number 9. The three villages have similar population, close to 1000 inhabitants. In Phine district, outside of the currently implemented water scheme in the district capital (UN Habitat funding, NPSE operated) they are the only existing water schemes.

15. In 2004 three piped water supply schemes were provided to the 3 villages which size and socio economic profile are close. A French NGO provided full design, surveys, as well as assets and technical assistance for management on a 1 year scale time frame. After the water supply systems were provided, the NGO did monitor on a monthly base the management and accounting system in all of these villages. The assets were handed over to the village with no involvement of the Namsaat. District authorities are involved as tax receivers only.

16. Management Organization: The committee runs and operates the water supply system. It is presided by the head of village as he was the one to name committee members. There is no knowledge on what the committee may become when a new head of village is elected. The committee was initially composed by 4 persons:

▪ Head of committee (head of village)

▪ Accountant

▪ 2 operators (operating the pump and collecting monthly the water fees)

The committee was supposed to share 30% of the benefits after running fees paid and 70% were supposed to be placed in a bank account in the district capital. In the three villages it was decided unilaterally by the committee itself, the committee is composed and shares benefits as follows:

|Village |NONGNANG |NAKAHAN |NATHALANG |

|Composition |1 Chief (accountant) |1 Chief |1 Chief |

| |1 Accountant |1 Deputy Chief |1 Deputy Chief (accountant) |

| |2 Operators |1 Accountant |1 Accountant |

| |3 Technicians |2 Operators + Technicians |2 Operators + Technicians |

|Benefit share |40% for the 2 Accountants |15% are shared equally within the |30% are shared between Accountants and |

| |30% for the 2 Operators |committee members |Operators |

| |30% for the village fund* |85% for the village fund* |5% for the Chief |

| | | |65% for the village fund* |

*For the village funds, they are now exclusively managed by the committee, it is not placed in the bank account anymore. In Nongnang, for example, this fund is used to provide loans (20% annual interest) to individuals.

17. Meters are read monthly, fees are collected when meter are read and handed over to the committee accountant.

18. Technical Analysis: The 3 water supply systems are run by electricity through a submerged electric pump exploiting water from a borehole, pumping the water in an elevated tank. Distribution is then by gravity from elevated tanks to the households. No treatment systems is installed, not even chlorination. The consumers are advised by the utility to boil their water before consuming. Water is delivered through water metered household water connections.

19. The boreholes were tested (although the long-term sustainability of the aquifer as not tested), therefore the pump running hours and flow may not fit the resource capacity on long term basis. The fact is that the three systems face resources problems during dry season. Severe problems have been experienced in Nathalang as the pump has been changed twice already and that the system was not functioning for 2 months (which may explain the very little consumptions as an average).

20. For Nathalang, poor pump dimensioning as well as malfunctioning is illustrated by the fact that 55% of operating costs are due to electrical consumption versus 21% and 36% in the two other cases (total dynamic head values are similar in the 3 villages). The pumps run an average 5 to 6 hours a day.

21. The villagers, managed to involve the District Health Office (DHO) in order to get a new borehole for facing the water shortages. Poverty Reduction Fund (PRF) provided a new borehole that the villagers decided to drill at the same location as the former one. The system is operated manually by a technician who usually fills the tanks during morning hours, and again in the evening as well if the tanks happened to be empty during day time.

22. Management and Financial Analysis: The established tariffs fit the affordability to pay for water for this area. The consumption figures are nevertheless under average and standards when compared to the regional figures. A socio and economic survey, including water use analysis was carried nearby – 7 Km, showing that average water needs stage between 50 to 60 liters per day per capita and the affordability to pay for water, reaches 15,000 kip/months, fitting the 50 liters per capita per day (lcd) value with a tariff settled to 1,500 kip/m3. This may be due to villages situated next to rivers, so that part of consumption is shifted to that resource, although the former service situation of the village (with no access to water, very little individual facilities) still affects the habits of consuming water.

23. The three systems are not sustainable on a financial point of view, O&M and depreciation costs are not covered due to low tariffs and very low demand.

24. The managing committee is not answerable to the community as only the head of village appoints and manages committee members. This is illustrated by the fact that the initial bank-saving system is not used anymore (or in a very small proportion) and therefore cash is kept at water committee level.

Community Self Provided Assets

25. Nathad village is in Outhoumphone district, Savannakhet province. In Outoumphone district (total of 69 villages, 12,685 households) the current coverage of metered water supply system is described as follows:

Seno zone

|No. |Village |System Situation |

|1 |Nathad |Running (community), 124 meters |

|2 |Nongkhon |Running (private), 100 meters |

|3 |Keu Khao Kad |Running but severe resources problems (private), 60 meters |

|4 |Seno |Running (NPSE) 1,752 meters |

Phondue Zone

|No. |Village |System Situation |

|1 |Phongnanang |No water (community) , closed, 4 year operating |

|2 |Phontoum |Running (community) ,there are 173 meters |

Sompat vilay Zone

|No. |Village |System Situation |

|1 |Nakou |Running (community) ,there are 76 meters |

All community operated systems benefit from the same loan arrangements as our example, Nathad.

26. Nathad village managed to get a loan from the monks. The loan was advertised during the Thadihang religious festival. The loans were committed to 4 villages, on a demand driven basis. The loan was obtained by the monks through BCEL bank, as a non interest Loan.

27. The loan was taken out in 2003 and paid back in 2005. In 2003, only 35 households (HH) out of 120 got connected, whereas today 100% of the population is connected. The extensions were financed with the connection fees (US$180/ connection) which are higher than average approached but do include participation to the whole infrastructure. The loan was also used by 3 other communities.

28. The water supply system was designed and implemented by a contractor (Vietnamese) after selection by the committee.

29. Management Organization: The water committee is elected by villagers; the head of village is not part of the committee. Backstopping is done by the head of zone. Elections take place at the same time head of village is elected (every 5 years). The committee was renewed (by election under head of zone mediation) 2 years ago, the former one been accused of corruption, data (accounting) is therefore only available since 2 years. The committee is composed by 3 volunteers (1 responsible, 1 accountant, 1 deputy) and 2 fixed salary technicians in charge in meter reading, operating the system and installing new connections. The salaries represent 34% of total incomes. First step, meters are read on a monthly base; second step, bills are prepared at the accountant level; and third step, money is collected by technicians and transferred to the committee.

30. Technical Analysis: The system is run by electrical energy. The pump specifications were provided by a pump provider in the local market (Xeno). One pump is exploiting 4 wells situated in a low point and transmitting water to a buffer underground tank from which water is sent to an elevated tank by a second pump set. The pumps run an average 6 hours a day. The water is distributed to households by gravity. No water treatment and or disinfection, water is boiled before using.

31. There are no production meters, therefore NRW cannot be calculated with any accuracy. Electric fees are very high, probably witnessing low pump efficiency (wiring rods, quality of the pump purchased on the local market) and weak design inputs (the diameter of the transmission line is too small, generating too much head loss and causes excessive power consumption).

32. The system is operated manually and the average pumping hours are typically from 6 to 10 AM and from 4 to 6 PM, which are the regular peak consumption hours. The system suffers of water shortages during the dry season (shallow wells get dry). The aquifer was not tested during the design phase.

33. Management and Financial Analysis: Tariffs were settled “by the villagers for the villagers”. The tariff is the same as the systems described above (1,000 kip/month), but there is a lump sum to be paid every month, outside of consumption fees: 7000 kip/month / HH. Consumption is 58 lcd as an average, which fits what has been surveyed in similar contexts.

34. Electricity fees are here also very high (45% of total revenues) and therefore emphasis can be made on the quality of the pumps and the design of the system. Despite there was no real financial survey of operating, return on investment and depreciation costs, the system (because of tariff and consumption) seems close enough to a sustainable state but does not allow any net profits.

35. The committee election system makes the committee liable to the community, which may explain why, despite that socio economic status of this village is comparable to socio economic status of villages described above, the gross benefits are much higher because management is done under a double regulatory board. The first regulation comes from grass roots through consumer as a community; the second under the head of zone which’s authority is over the head of village.

36. Interesting point in this model is that the community separated the water committee from the head’s of village authority.

37. Final remark concerns the presence of a loan from the monks. Rural communities may find it neither difficult nor impossible to invest when credit is unavailable.

Private Investor Provided Assets

38. This water scheme was provided by a private investor (partnering with another provincial capital based investor) who in 2003 invested in 4 other villages. The current investor and operator were in charge in 2 of the villages of Outomphone zone. The second village scheme has already been sold to another private operator because of scarce resource and red colored water.

39. The investor carried survey and designs and construction (by hiring manpower) by himself. A contract was signed with the village only for implementation authorization purposes as the investment are 100% private, the assets are considered belonging to the private investor.

40. First year the water supply system connected 50 HH, whereas today after 7 years, a 100 HH were connected. The 86 remaining HH had individual small boreholes before the water supply system was implemented and do still not see any reason in shifting to the piped facility.

41. One of the reasons may be that the water supply system has resource problems during the dry season, as do the individual boreholes. The electric fees necessary to run individual assets are higher than the average monthly water supply fees. Therefore, there may be a lack of marketing / information issue here. A free credit between 10 to 20 months can be used by households willing to connect.

42. Management Organization: The investor relies on members of his family in order to help him run the water supply system. He or his relatives operate the system on daily basis. The meters are read monthly and bills addressed to the households. The provider holds accountability by himself.

43. Technical Analysis: The system is close to the system described above. Electricity provides energy to the pumps. One of them extracts water from a deep well (26m) and sends it to a first elevated tank which distributes to southern part of the village, whereas a booster pump sends water to a second elevated tank deserving by gravity the northern part of the village. No water treatment or disinfection, water is boiled before use for consumption. There are no production meters, therefore NRW cannot be assessed. The pumps run an average 12 hours a day but each one of them have an average lifetime of 1 year. The pumps are purchased on the Xeno local market (Chinese brands).

44. The electricity consumption fees reach an average of 33% of the total incomes. Water shortage is recurrent and particularly severe this year as the system was unable to cover the needs for a month. The aquifer was not tested during the design phase.

45. Management and Financial Analysis: The private owner declared settling the tariffs according to business plan calculations and means of the targeted population. The tariff are here settled as consumptions blocks:

▪ 1,500 kip/m3 up to 10 m3 (as described above, this amount and consumption block is very close to affordability calculated in similar contexts in Lao PDR)

▪ 2,000 kip/ m3 over 10 m3

▪ 3,000 kip/m3 for commercial uses and business

Consumption is here also 58 lcd which fits what has been surveyed in similar contexts. The owner declared that his return on investment was already fulfilled but that he couldn’t consider he made any benefit of it especially regarding to the scarcity of the water resources therefore limiting consumptions and number of connections. Here, the system reaches sustainable state, which has to be compared to the above community managed systems when full assets are provided.

Private Investor and External Grant Provided Assets

46. Two French assisted MIREP schemes are reviewed in this section. They were chosen because they have been operating a longer time than the others and therefore present analyzable data. On the whole eight schemes are currently been implemented through the MIREP project.

47. Both of the surveyed schemes are in Vientiane province, and are implemented in the district capitals of Hinheup and Feuang, respectively of 2,805 and 4,780 inhabitants, which make size and therefore approach quite different from the “community” scale models assessed before.

48. The MIREP project enables private investors to support water schemes under a concession contract signed with the district governor’s office. The BOT contract has a length of 25 years after what the assets should be handed over to the district authorities. Regulation, especially on tariffs is assured by WASRO. The sites were chosen (within provinces and districts proposed by MPWT) through preliminary socio economic assessments leading to identify sites where population had enough revenues to cover water tariff and connection fees.

49. Poor households shall benefit of free connection fees supported by the project. The private investor after an information campaign is chosen through a bidding process.

50. GRET, a French NGO, piloting these implementation phases provides subsidy through the number of household connected (vs the initial business plan). GRET also provides all preliminary surveys and designs as well as a 3 year length technical assistance on technical, management and accounting aspects through regular missions and monitoring.

51. Hinheup scheme was implemented in 2008 and today covers 66% of the entire population. GRET participated to 25% of the whole investment.

52. Feuang (5 villages in the whole) scheme was implemented in 2007 and covers 40% of the population in 2010. In 2007 and 2008, the coverage concerned only 2 villages (100% of connections) whereas in 2009 the network spread to the 3 remaining villages where today 20% of the population is connected. GRET participated to 32% of the total investments.

53. Management Organization:

• Hinheup

The investor has appointed members of his family in order to run the system:

✓ 1 administrator + accountant

✓ 1 technician in charge of meter reading.

✓ Wage labors for punctual assignment

The meters are read monthly, billing is done by the accountant and money is collected by the technician. All profits are sent to the investor after cutting electricity fees and salaries.

• Feuang

Here also, the investor has appointed members of his family in order to run the system:

✓ 1 administrator + accountant + technician

✓ 3 technicians in charge of meter reading, money collecting and new connections

Here also, meters are read monthly, billing is done by the accountant and money is collected by the technicians. After cutting electric fees and salaries from the gross incomes, the remaining money is transferred to a bank account managed by the investor.

54. Technical Analysis:

• Hinheup

Two deep boreholes (90 m) force water to a tank installed on a high point. The water is chlorinated by a constant quantity of chlorine HTH injected in a mixing compartment. The pumps work by automatic shift box, making the pumps work alternately. The stop command is by an ultrasonic sensor installed in the tank, high level of water. The start command is the same ultrasonic sensor, low level of water. The water is then distributed by gravity through a piped network. Up to this day there are no known problems of resources.

• Feuang

Four boreholes, average deepness 26 m force the water in 2 compartmented buried tank installed on a high point. The pumping system is organized in 2 sets of 2 boreholes pumping independently in the 2 compartments of the tank. One of the set face electric problems and disconnects often, probably due to bad wiring system (the electric rods diameter are too small). The pump start and stop system is commanded by water level sensors high and low level. Chlorination is insured by constant dosage from a chlorine pump after mixing chlorine (HTH) in a separated tank. Water is distributed to connections by gravity through a piped system. There are water shortages problems getting more and more severe as the number of connections increase. This may be due to electric problems as described above.

55. Management and Financial Analysis: The private owner declared that the tariffs followed the business plan calculations and means of the targeted population. The tariff is a uniform volumetric charge plus a maintenance fee.

• Hinheup

The tariffs are settled according to affordability and willingness to pay for water survey, done prior to technical design. These tariffs are submitted to and validated by WASRO as well as the business plan.

Domestic users: 2,200 kip/m3

Commercial users: 2,500 kip/m3

Consumption is 48 lcd (design considered a 61 lcd)

The cash flow generated over 25 years, following the business plan should be around US$ 1,500 on a monthly base, return on investment 14 years, based on assets costs.

• Feuang

The tariffs are set following the same scheme as in Hinheup.

Domestic users: 2,000 kip /m3

Commercial users: 2,400 kip / m3

Consumption is 51 lcd which may be compared to the 57 lcd calculated after the affordability and willingness to pay survey

The cash flow generated over 25 years following the business plan are around US$ 2,000 on a monthly base. Return on investment would take approximately 14 years based on total assets costs. Whereas in Hinheup the owner did not subscribe any credits, the investor in Feuang subscribed to a Bank Loan with 13% of annual interest (by comparison, current saving accounts generate 12% of annual interest benefit). This means that the Feuang cash flow is negative for the year 2009 and close to null in 2010, explaining why the current technical problems (limiting the number of new connections and therefore benefits) cannot be faced.

The Poverty Fund Reduction Program

56. The Poverty Reduction Fund (PRF) currently implements projects in 21 out of the 47 poorest districts of Lao PDR in eight provinces. Close to 1,100 water schemes have been implemented by the PRF to date. The project (mainly funded by the World Bank) is an independent organization, directly dependant and therefore back-stopped by the Prime Minister’s office. The implementation scheme skips (for funds transfers only) the Provincial and District authorities and concentrates on Zonal level (administrative grouping of 10 villages to mitigate potential funds misappropriation.

57. The project is community demand driven. PRF provides funds to the Zonal level after assisting communities in formulation of priorities and reinforcing the Zonal and district level by training members of the implementation and maintenance team (IMT). Design is driven by the IMT members. The IMT are present at village level (water committee technician), Zonal level (head of zone may be assimilated to project manager) and district level (where concerning water and sanitation, Namsaat staff will be trained to monitor implementation process).

58. Once the communities demand is formulated, a competitive formulation within communities of the same zone is piloted by the PRF technical assistants. Multi criteria selection leads to identify communities which will be supported. Communities participate to the project either in-kind or cash participation. In-kind participation will be valorized as labor and material costs. Average participation is 30% of the total costs.

59. Management Organization: Water committees are settled at village level:

✓ Direction is insured by head of village

✓ Accountability and administration is insured by the Lao women union representative

✓ Technician position is fulfilled by the IMT member trained by PRF

60. Water fees are settled on a community participative method during training but in most of cases, fees are event driven, meaning that they are collected in order to face break downs. This concerns mainly wells and boreholes. For gravity fed system (GFS), water taps are implemented to meet the water demand of 10 HH as an average. Here, fees (500 to 1,000/ months/ HH) are collected monthly by District Namsaat who insures operation and maintenance and has ownership of the assets.

61. Technical Analysis: The water schemes under PRF consist mainly in small GFS, dug wells and drilled borehole. 2 pump + piped systems have been implemented at communities demand in the south of Lao. PRF supports transmission pipes, pumps, boreholes and elevated tanks to the community which after this invests in the distribution and water meters.

62. The executives in charge with infrastructure declared that the biggest sustainability problem concerned the drilled boreholes, mainly because spare parts were unavailable and pumps difficult to import (Tara and Afridev pumps exclusively produced in India are VLOM pumps without copyrights). According to the PRF infrastructure managers, Wells and GFS are for a large majority of them still functioning. (still waiting for evaluation and monitoring reports on the current state of former implemented schemes by PRF)

Model Comparison Outputs

Large Urban Systems

63. Investment needs are not fully covered by government and donors. The trends lead to BOT and JV through local initiatives to fill the gaps, representing 70 to 80% of the investments needs. Regulation (on tariff) is still maintained as in the cases surveyed as tariffs still follow WASRO (central government) guidelines and are implemented by the provincial authorities through local decrees.

Large Rural Systems (metered water supply):

64.

• Demand and participation driven implementation schemes should be a baseline, insuring better management and sustainability. Schemes should be implemented after communities formulate demand for it and show financial as well as management capacity to sustain the model. Financial capacity of the community could be assessed through affordability and willingness to pay for water fees, connections and/or main assets investments. Election of the water committee could be the first necessary step to assess management capacities of the community. In case management capacity is weak but nevertheless demand is formulated and financial capacity is proven, private investors could be identified through bidding process.

• Community managed systems: Water committee should be established out of the head of village authority, by election under higher authority (head of zone, for example). This insures committee liability to the community.

• Based on information from the schemes surveyed, capital subsidies of less than about 50% could be insufficient to allow a profitable return to investors. However, there was evidence of some private sector schemes still moving forward, but the motivation for investment was more social in nature as opposed to profit as they were investing in their home towns and villages.

• Credit systems have to be developed as part of project implementation in order to attract either private investors, or community participation.

• The local banking system charges interest rates which are too high to allow an acceptable return on investment, and therefore jeopardizes the sustainability of the scheme.

• Because of the either technical or financial weaknesses of responsible authorities (Namsaat MoH), the implemented model should rely on local resources (community and/or private) piloted by external operators (NGO).

• Resources assessments have to be supported prior to scheme design.

• Technical assistance has to be provided during the design phase in order to avoid technical malfunctioning.

Small urban systems:

65. The MIREP schemes highlighted earlier again highlight the weaknesses of the credit system in Lao PDR. To make these projects attractive to private investment, credit systems need to be developed (borrowing at 13 to 14% interest does not match generated incomes) and subsidy increased in proportion after simulation and comparison once the minimum net benefit value is settled in order to make it attractive. Nevertheless and until now, MIREP project is the only known successful PPP project implemented in Lao PDR, outside of local initiatives. A close collaboration should be settled with ADB, supporting many schemes for small to medium towns.

Small and remote rural systems

66.

• 20% of communities do not have road access in Lao PDR.

• For poor and remote communities, the implementation scheme should not necessarily rely on the concerned departments (Namsaat). Namsaat does not always have the qualified human resources to carry technical work in this field (most of Namsaat members are trained as nurses) and the MoH does not provide budgets for hardware, meaning that support from Namsaat outside of quickly accessible areas may be difficult. Moreover, there is still not a clear view of the MoH’s budget to cover the needs in water supply.

• There is still no clear knowledge of available data on rural water supply and sanitation coverage status as this information is not consolidated at the provincial and central level, although it may be partially consolidated at district level from zonal and village level data.

• The PRF cannot implement dedicated water and sanitation driven projects as its participatory and demand drive approach concerns all aspects of community development.

• The spare part issues could be solved by supporting local and/or state operated factories. The supply chain can be settled by using the existing district markets (through local provider) where all communities, even remote ones do link regularly. Namsaat in this case could provide technical assistance at district level. Local provider exists for items necessary to build and sustain GFS and wells but not for hand pumps.

• Implementation should rely on demand driven bases and unfortunately once again rely on nongovernmental operators (associations, private companies). The PRF fund, is supported at 100% by external funds, showing the lack of Government of Lao PDR financial capacity to support such projects although PRF schemes do include community level participation. Therefore, community participation (outside the fact that it will reinforce ownership) is also a a requirement as no other local sources of funding are known to be available.

Annex 15: Goals for Urban Water Supply Sector Road Map

GOAL 1: Appropriate policy and legal framework

• Strategic Objective 1.1: National Water Supply Laws developed and enacted

• Strategic Objective 1.2: Necessary decrees, regulations and guidelines issued

• Strategic Objective 1.3: Other existing laws amended to harmonize with new Water Supply Law

• Strategic Objective 1.4: Raised public awareness on compliance with water supply laws and their regulations

GOAL 2: Effective Regulatory System

• Strategic Objective 2.1: WSRC/WASA established as an effective, sustainable sector Regulator

• Strategic Objective 2.2: Tariff determination guidelines established and operating

• Strategic Objective 2.3: Licensing and monitoring systems in place and operating

GOAL 3: Water Supply Integrated with Urban Development

• Strategic Objective 3.1: Coordinated planning of urban development and water supply

• Strategic Objective 3.2: Data bases for urban and water supply development established

• Strategic Objective 3.3: Systems in place for integrating urban and water supply construction

• Strategic Objective 3.4: Improved coordination between MPWT central and local offices and with other concerned agencies

GOAL 4: Efficient, Sustainable, Customer-oriented Public Water Supplies

• Strategic Objective 4.1: NPNL operating as a leading example of a strong, sustainable water supply business

• Strategic Objective 4.2: SOE water supply systems (PNPs) operating as independent, financially viable, sustainable water supply businesses

• Strategic Objective 4.3: Enterprise and Agency Corporate Planning in place and aligned with the Sector Strategic Plan

GOAL 5: Sector Environment Conducive to a Wide Range of Investors

• Strategic Objective 5.1: Environment created to encourage private sector investment, including incentive mechanisms

• Strategic Objective 5.2: Networking to help private/public partnerships in water supply enterprises

• Strategic Objective 5.3: Policies and mechanisms in place to promote and mobilize local private investment in water supply development

GOAL 6: Raise Status & Boost Capacity of Sector Organizations and Personnel

• Strategic Objective 6.1: Organization structures aligned with strategic plan

• Strategic Objective 6.2: Staffing aligned with organizational structure and strategic needs

• Strategic Objective 6.3: Capacity building programs in place as required under strategy

GOAL 7: Meet Government MDG Targets for Urban Water Supplies[32]

• Strategic Objective 7.1: Align WSIP with MDG targets and establish plan and approach to fill gaps in funding and other resources

• Strategic Objective 7.2: System set up for encouraging private investment in sector to help fill gaps

• Strategic Objective 7.3: M&E system established to track progress against MDG targets and WISP

REFERENCES

Poverty in Lao PDR, 1992/93 to 2007/08, Department of Statistics, Ministry of Planning and Investment, Government of Lao PDR

Lao PDR WSS Sector Review (Draft), World Bank, 2007

Final Report: Review of the National Strategy for the Rural Water Supply and Environmental Heath Sector, Lao PDR, Andy Robinson, UNICEF, September 2009

Sanitation Financing Study, Draft, May 2010, WSP Lao office

MDG Road Map for Lao PDR, WHO and UNICEF, February 2010

Poverty and Environment Report, World Bank, 2009

Urban Water Sector Reform Regulation in Lao PDR: Reform, Key Measures, Successes and Challenges, WASRO, MPWT, March 2010

Investment Analysis of Water Supply Projects in Lao PDR, Draft June 2008, MPWT/ADB/NORAD, Northern and Central Regions Water Supply and Sanitation Sector Project

2008 Annual Performance Report, WSRC

Lao PDR Economic Monitor, November 2008, World Bank Vientiane

Draft Urban Wastewater Strategy and Investment Plan for 2009-2020, prepared in June 2009, MPWT/ADB/NORAD

MDG Costing for Lao PDR, March 2010, Ministry of Planning and Investment of Lao PDR, supported by the United Nations, Lao PDR

WHO-UNICEF Joint Monitoring Programme for Water Supply and Sanitation, Coverage Estimates, updated in July 2008

MIREP Financing Policy Review, MIREP Laos PDR Program, October 2009

MIREP Progress Report, Water Supply Projects, November 2009

Economic Impacts of Sanitation in Lao PDR, Water and Sanitation Program, Lao PDR, April 2009

Corporatization and Lao PDR Urban Water Supply Sector, Ian R. Binch, July 2007, prepared for ADB

ADB Report and Recommendation of the President to the Board of Directors, Proposed Asian Development Fund Grant and Administration of Grants, Lao PDR: Small Towns Water Supply and Sanitation Sector Project, December 2008

Study on Private Sector Participation in Water Supply and Sanitation in Vietnam, Final Report, Water and Sanitation Program, East Asia Pacific, World Bank in Vietnam, September 2009

Water Supply Law, Lao PDR, unofficial translation, September 2009

Roadmap and Action List for Sector Strategic Planning, August 2008, prepared by Ian R. Binch for the ADB

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[1] In urban areas, a large majority of on-site sanitation is composed of pour flush toilets with infiltration pits (simple or double) although septic tanks are also used. In rural areas, latrines are implemented most of the time.

[2] Poverty in Lao PDR, 1992/93 to 2007/08, Department of Statistics, Ministry of Planning and Investment, Government of Lao PDR

[3] In 2009, the allocation for water and sanitation under the health sector was 1% of the budget (source: Sanitation Financing Study, Draft, May 2010, WSP Lao office).

[4]After WASA was reorganized in 2008, the regulator was renamed the Water Supply Regulatory Committee (WSRC), with the Water Supply Regulatory Office (WASRO), formerly WASA, serving as its secretariat.

[5] The implementation decree is expected to include guidelines on allocation of water resources among competing users including domestic water supply, agriculture (irrigation), and mining and hydropower, as well as on the determination of raw water extraction charges.

[6] Prepared as part of the National Urban Sector Development Strategy and Investment Plan (NUSDSIP), a requirement under the National 6th Five-Year Socio-Economic Plan (2006-2010). Preparation was funded by Norwegian Agency for Development Cooperation (NORAD), in support of the ADB funded the Northern and Central Water Supply and Sanitation Project.

[7] That is, water quality in rural water supply systems is below national drinking water standards.

[8] Lao PDR Sector Review, World Bank, 2007, Final Report: Review of the National Strategy for the Rural Water Supply and Environmental Heath Sector, Lao PDR, Andy Robinson, UNICEF, September 2009, as well as based on feedback from sector professionals.

[9] In the Lao PDR WSS Sector Review, World Bank, 2007, the estimate was about 30% of rural water supply facilities being non-operational.

[10] By virtue of Prime Minister Decree no. 191 issued in 2005, and MPWT Decisions 13265 and 13266 issued in 2008.

[11] The government representatives are DHUP Director, Director of the Business Promotion Office, Director-General of the Department of Financial Management of State-owned Enterprises, Director-General of Hygiene and Disease Prevention Department, and WASRO Director. Private sector industry is represented by the Chamber of Commerce and Industry. Customers are represented by Women’s Union (although current representative is also DHUP Deputy Director). Water operators are currently represented by Vientiane CC Nam Papa.

[12] The objective of the policy on decentralization is to transform the provinces into strategic units, the districts into planning and budgetary units, and the villages into implementing units. Provincial administration officials are appointed by the central government.

[13] Main donors are ADB, Japan, France, Germany, UNDP, UNICEF, EU, Norway, World Bank, Sweden, UK, Belgium and recently, South Korea.

[14] Based on data provided by MPWT.

[15] Specific representation is as defined in the Enterprise Law.

[16] Annex 14 provides details on the different delivery models applied in Lao PDR

[17] The MDG for water aims to halve by 2015 the proportion of people without sustainable access to safe drinking water in 1990. The MDG for sanitation aims to halve by 2015 the proportion of people without sustainable access to basic sanitation in 1990. The Joint Monitoring Programme measures coverage as (a) the proportion of population with sustainable access to an improved drinking water source, urban or rural; and (b) the proportion of population with access to improved sanitation, urban and rural. Improved drinking water sources, in turn, are defined as the population with (i) piped water into dwelling, plot or yard; (ii) public tap or standpipe; (iii) tubewell or borehole; (iv) protected dug well; (v) protected spring; and (vi) rainwater collection. Improved sanitation facilities are defined as (i) flush or pour-flush to (i) piped sewer system; (ii) septic tank; (iii) pit latrine; (ii) ventilated improved pit latrine; (iii) pit latrine with slab; and (iv) composting toilet. As a consequence, MDG coverage comprises a wide range of service levels of varying convenience and benefits to individual consumers and to a community.

[18] MDG Road Map for Lao PDR, WHO and UNICEF, February 2010

[19] Improved drinking water sources refer to household connection, public standpipe, borehole, protected dug well, protected spring, bottled water and rainwater collection. Unimproved drinking water sources are unprotected well, unprotected spring, vendor provided water and tanker truck water.

[20] Poverty in Lao PDR, 1992/93 to 2007/08, Department of Statistics, Ministry of Planning and Investment, Government of Lao PDR

[21] Poverty and Environment Report, World Bank, 2009

[22] Final Report: Review of the National Strategy for the Rural Water Supply and Environmental Heath Sector, Lao PDR, Andy Robinson, UNICEF, September 2009

[23] This is based on information from the case studies in Annex 14

[24] A rapid assessment of household sanitation facilities in Vientiane was carried out with assistance from WSP in 2010.

[25] See MIREP Financing Policy Review – Final Report, MIREP Laos, October 2009

[26] Base on the Prime Minister’s Decision number 052/PMO, dated 25/5/2009.

[27] Data for Xay district in Oudomxay province.

[28] See case studies in Part 2 of this study.

[29] MDG Costing for Lao PDR, March 2010, Ministry of Planning and Investment of Lao PDR, supported by the United Nations, Lao PDR

[30] Investment Analysis of Water Supply Projects in Lao PDR, Draft June 2008, MPWT/ADB/NORAD, Northern and Central Regions Water Supply and Sanitation Sector Project

[31] Ibid.

[32] As per Lao government policy statement in Decision 37/PM -- to provide 80% of the urban population with 24-hour water supply by 2020.

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Box 1: The MIREP Programme

The MIREP Programme pilots Public-Private Partnership (PPP) schemes in water and sanitation services. Financial support is provided by donor organizations with technical assistance by the Group of Research and Technological Exchange (GRET), a French based professional cooperation organization. So far MIREP has funded eight small towns in Vientiane and Bolikhamsay provinces. Total investments mobilized under the Programme are about US$1.2 million, of which MIREP subsidizes 20%, private sector investment is 60% and consumer connection costs the remaining 20%. Of the private sector investment, 85% is equity invested upfront and the remaining 15% is financed by credit guaranteed by the provincial government with Vientiane NPSE. Phase 3 is being designed based on lessons learned from the earlier phases.

68608

Private SSIPs*

Division of DPWT

Urban Development Administrative Authority

Department of DPWT

District Governor

District Nam Saat

Provincial

Nam Saat

District Division of Health

Department of Health

National Centre for Environmental Health and Water Supply (Nam Saat)

Department of Hygiene and Disease Prevention

Ministry of Health

Minister

Department of Housing and Urban Planning

Ministry of Public Works and Transportation (MPWT)

Minister

Water Supply Division

Provincial Nam Papas

(17)

Water Administrative Board

District Nam Papas

(34)

Water Resource and Environment Administration

Water Resources Coordination Committee

Rural

Prime Minister Office

Urban

technical line

administrative line

Water Supply Regulator Office

Water Supply Regulatory Committee (WSRC)

Provincial Governor

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