World Bank Document€¦ · Procurement: : Implementation of house connections and extensions will...

Targeted Service Expansion Through Water Loss Reduction – Ho Chi Minh City & Tra Vinh Province, Vietnam (Draft 01/08/07)

1

VIETNAM PROJECT APPRAISAL-COMMITMENT DOCUMENT

Project Name: Targeted Service Expansion through Water Loss Reduction – Ho Chi Minh City, and Tra Vinh Province, Vietnam (P106450) Scope: Water supply connections to low income households coupled to leakage reduction in Ho Chi Minh City and Tra Vinh Province Project Preparation: The GPOBA project is prepared in two parts. Part 1, for HCMC, is fully prepared and comprises approximately 89% of the project value. GPOBA allocated US$443,000 of TA funding to prepare this project, including US$80,000 in WB supervision. To date some $220,000 has been spent or committed and it is anticipated that a total preparation cost to project effectiveness will be $280,000. The costs for Part 2, Tra Vinh Province, have been included in this commitment document but the detailed working arrangements will be prepared during project implementation. The preparation costs for the Tra Vinh project are estimated at US$125,000 (including US$25,000 in WB supervision), and will be funded from GPOBA’s Window 1 (TA), out of its funding available for WB staff to identify, prepare and supervise projects, or out of savings from Part 1 preparation. Total project costs: $14,685,500 Total GPOBA funding requested: $5,510,000

• Subsidy funding = $4,875,000 • Project implementation/consulting = $295,000 (audit and verification) • Bank/GPOBA supervision = $340,000 (including US$125,000 for detailed

preparation in Tra Vinh, and US$40,000 for unspecified consulting activities to be spent only with authorization from GPOBA)

Additional funding sources:

• User contributions of VND 470,000 (US$ 30) per household connection totaling a potential US$ 873,000.

• SAWACO contribution for system extensions, NRW reductions and financing charges: $7,615,000

• Tra Vinh contribution for NRW reduction: $687,500 (estimated direct capital costs of NRW generation for new connections)

Outputs: working connections to water network and reductions in physical losses Potential beneficiaries: 29,100 households (150,000 people)

49300

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized


2

GPOBA subsidy “efficiency”:Cost ($) per new connection:

Part 1:

HCMC Part 2:

Tra Vinh1Total

Project Number of connections 26,600 2,500 29,100

GPOBA Subsidy only per connection 169 150 168

Total OBA cost per connection 194 300 189

Total Project cost per connection 495 589 505

Targeting: Households who have been assessed and registered as living below the official poverty line by Departments of Labor, Invalids and Social Affairs (DOLISA) Grant recipient: The Government of Vietnam for on-granting to the Provinces of Ho Chi Minh City and Tra Vinh, which will implement the project through their respective DOLISA. Financial Management: GPOBA subsidies will be disbursed to SAWACO (the Saigon Water Corporation) and Tra Vinh Water Company by their respective DOLISAs. Independent OBA auditors (output verification) will sign-off prior to all GPOBA payments. The financial management (FM) approach presented in this document have been prepared by the FM team in Hanoi and will be cleared by the regional hub leader as part of the process of finalizing the grant agreement. Disbursement: 100% after sample review of quality of connections and verified evidence of 3 months satisfactory service delivery (billing records). Procurement: : Implementation of house connections and extensions will be carried out by SAWACO branch offices and Tra Vinh Water Company. The unit capital costs for infill house connections have been assessed based on current market costs; cost efficiency will be secured since GPOBA is only partially covering the cost of these connections. Cost efficiency in extension areas in HCMC will be verified by the OBA auditor prior to a No Objection being issued for each scheme and is also subject to downward pressure since GPOBA is only financing a part of the cost. The necessity for financing extensions in Tra Vinh will be determined during detailed preparation of the Tra Vinh Province part of the GPOBA project. Procurement of consultants will be undertaken following the World Bank Guidelines by the respective DOLISAs, after training by Bank staff. In HCMC the procurement may be delegated to the PMU of the IDA funded Urban Upgrading Project to maximize efficiency. The final details and any associated actions will be confirmed in the preparation of the grant agreement. Procurement of consultants by the Bank team will be carried out in accordance with AMS15.0. The proposed approach has been prepared in consultation with the procurement team in Hanoi and will be formally cleared by the regional hub leader as part of the process of finalizing the grant agreement.

1 Total OBA costs for Part 2: Tra Vinh include costs for preparation . All costs for Tra Vinh are estimates pending finalization during preparation of Part 2.


3

Safeguards Clearances: The project will adopt the resettlement and environmental frameworks prepared as part of the Vietnam Urban Water Supply Development Project to which this GPOBA project is associated. Adoption of these frameworks by the participating Provinces will be a requirement in the grant agreement. Government endorsement:

• People’s Committee of Ho Chi Minh City • People’s Committee of Tra Vinh Province

Exchange rate: VND 16,000/USD ERR: 15%


4

A. STRATEGIC CONTEXT AND RATIONALEA.1. Country and sector issues.Vietnam The Socialist Republic of Vietnam ranks 109th on the Human Development Index. Vietnam is an IDA/DAC II country. While generalized economic indicators show that Vietnam is not amongst the very poorest of the world’s nations there is a significant disparity between rich and poor (Table 1). Table 1: Selected Development Indicators2

2004 (unless otherwise

stated) Total Population 8.32Population growth (annual %) 1975-2004 1.9Urban Population (% of total)

• 2004• 2015 (projected)

26.031.6

Life expectancy at birth, total (years) 70.8Mortality rate, infant (per 1,000 live births)

• Poorest 20% • Richest 20%

3914

GDP Per capita (PPP US$) 2,745Population living below national poverty line (%)

28.9 (2003)

GNI index 37.0Sustainable access to improved sanitation 61Sustainable access to improved water source 89

Ho Chi Minh City Ho Chi Minh City (HCMC) is the largest city in Vietnam and lies in the south of the country in the delta of the Mekong River. In 2004, the city had an estimated population of 7.2 million, including at least 1.2 million people who lack a permanent resident registered certificate. Approximately 5 million registered citizens reside in the 17 “urban” districts of the city3. Population densities are high, rising to over 30,000 people per km2 in 8 of the central districts. The overall level of urbanization in Vietnam is low, but urban growth is happening at a rapid pace. In HCMC the population is projected to rise to 10 million by the year 2020. Around 89,000 households, just under half a million people, or some 7% of the population, were listed by the People’s Committee of HCMC as living below the official

2 UNDP Human development Report 2006 3 Mr. Nguyen Van Dua, Vice Chairman, Ho Chi Minh City People’s Committee, Presentation to the Plenary Session of the conference on City Development Strategies, 24-26 November, 2004. Population estimates vary somewhat depending on the source used. To simplify the calculations at later stages we assume a registered population of 5.6 million for the entire city area (which is consistent with data available from SAWACO), and an unregistered population of 1.6 million, giving a total of 7.2 million.


5

poverty line for the city in 2004. However, it has been suggested by some officials in HCMC that there exists a considerable band of households who, while living above the official DOLISA poverty line, nonetheless experience poverty and deprivation. Furthermore the 1.6 million people who live in unregistered households are not included in this total. Water Supply Situation in HCMC Since January 26, 2005, delivery of water supply to HCMC has been the responsibility of a state-owned company, the Saigon Water Corporation (SAWACO). The former Ho Chi Minh City Water and Sewerage Company is being restructured into a ‘Parent’ company with responsibility for producing and supplying treated water and other water products and services including the coordination of water development plans for the city and surrounding areas. To facilitate service delivery the existing Branch Departments (Branches) are to be converted into joint-stock Subsidiary Companies with a 50% capital share holding by SAWACO. The restructuring is intended to introduce better business practices to SAWACO and the branches, encourage cost efficiency and service-orientation and increase accountability. The restructuring is also intended to facilitate an increase in private-sector participation in water services delivery. In HCMC the water company has approximately 450,000 metered connections (2004), which suggests coverage of around 45% although the exact access rate is hard to calculate because the shared use of house connections appears to be commonplace and because of a lack of clarity over the status and numbers of non-registered citizens. Taken together with the rapid urbanization rates, these figures indicate that a very significant proportion of the urban population are without direct connections to the network, and illustrate the challenge faced by SAWACO both to catch up with the current service deficit, and then to keep up with high growth rates. In common with cities across the developing world poor households are likely to bear a disproportionate burden from both current and future service deficiencies. Non Revenue Water in HCMC In common with many cities, HCMC experiences serious water shortages due in part to low water-supply capacity. However, HCMC also has high water losses. Despite on-going repairs of pipes and replacement of water meters, NRW has increased from 31.6% in Year 1998 to 35.0% in Year 2003. On March 26, 2003, the HCMC People's Committee (PC) instructed HCMC Water Supply Company (HCMC WSC) to implement an urgent water loss reduction program in order to reduce NRW to less than 30%. An NRW assessment estimates that the amount of physical leakages in the HCMC water supply system are about 80 times greater than a well-managed system (Year 2004), according to the infrastructure leakage index (ILI) criteria of the International Water Association (IWA). As part of its program to address NRW, SAWACO, with support from the International Development Agency (IDA) is preparing to implement an NRW reduction project for the city. The NRW project is a $40million sub-component of the IDA-supported Vietnam Urban Water Supply Development Project (VUWSDP). The NRW project will finance hydraulic separation of the HCMC network into six zones, and physical loss reduction in two zones through the establishment of District Metering Areas, network rehabilitation, pressure management and active leakage control. The main activities of the NRW management project are:


6

(1) Network Zoning and Restructuring to establish six water supply zones covering the whole network and 200 district metered areas (DMAs) in two of these zones (so-called Zones 1 and 2), in order to monitor and control network flow, pressure and NRW; (2) NRW Reduction in Zones 1 and 2 for both real water losses (physical leakages) and apparent water losses (commercial losses). A greater priority is placed on reduction of real water losses by improving network assets management, active leakage control, speed and quality of leak repairs, and pressure management, in order to increase water supply capacity; and (3) Improvement of SAWACO NRW Capability to build capacity by training and technology transfer in order to improve NRW efficiency/effectiveness of SAWACO.

The NRW project will use outsourcing of leakage reduction and management activities in Zone 1 for the duration of the Project, including establishment of around 100 DMAs. Leak reduction and management in Zone 2 will be carried out by SAWACO directly with funding from the IDA project. The contract for leak reduction in Zone 1 will be performance-based and let through a competitive bidding process.

Reductions in physical leakage leads to more water being made available to supply to customers, reduces the operational costs of the utility, increases revenues, and delays the need for investment to expand supplies. This allows expansion of service to new areas without the need for major new capital investments in bulk water development. It thus results in lower costs, and hence lower tariffs and a better-performing utility which is able to respond to growth. All of this has a broad impact on all urban dwellers, but particularly on the poor because:

(a) the poor are disproportionately represented amongst households with no connection to networked water supply;

(b) the poor have lower incomes and irregular cash flow, making the impact of reduced tariffs more significant; and

(c) the poor are least able to invest in coping strategies (household wells, pumps and storage) where piped supplies are not available.

The feasibility study for the NRW project suggests that physical leakage stands at more than 365,000 m3/day. The Bank-supported NRW project, which covers around 50% of the system, aims to save 120,000m3/day through prevention of physical losses over the coming years, equivalent to 120,000m3/day of new production coming on stream. Given the prevailing level of demand and system losses, 1m3/day additional supply is sufficient to serve one new household connection (on the conservative assumption of 5.5 persons/HH consuming 120l/h/d and 35% losses).

Tra Vinh

The water company in Tra Vinh, some 200km from HCMC, operates in one of the poorer Provinces in the Mekong delta. The company operates in a commercial manner with around 16,000 water connections serving about 80,000 people, from within a service area of 100,000 (i.e. 80% coverage). In spite of its relative poverty, the company is seeking loans from the World Bank financed "commercial lending" window under the Vietnam Urban Water Supply Project (VUWSDP). This window provides longer term loans than


7

currently available, and at interest rates close to commercial. This borrowing is to replace old galvanized iron pipes which are severely corroded and leaking badly. The goal of the water company, through this investment, is to reduce leakage and improve service.

Summary of Key Challenges

The challenge for HCMC and Tra Vinh is to find a way to steer investments so that poor people benefit from increases in supply due to reductions in physical losses achieved under ongoing projects. This is the aim of the OBA project. If the project is successful, it could provide a model for other cities and towns in Vietnam and for global scaling up, demonstrating a powerful approach which links reductions in NRW with increased access for low-income households – the two largest technical challenges facing water utilities in developing countries today.

A.2. Rationale for involvementThis project meets GPOBA operational criteria, as well as most of the core OBA principals of:

• explicit use (i.e. targeting) of subsidies; • increasing accountability of service providers; • providing incentives for innovation and efficiency; • enhancing sustainability; and, • monitoring of results.

Innovation In addition to its poverty impact the GPOBA project in HCMC/ Tra Vinh is important for Vietnam in demonstrating the potential to restructure the delivery of national and provincial subsidies so that they are used to promote increased access through direct payments for connections made, through creating incentives for improved performance in terms of NRW management and through poverty targeting. The institutional design of the project is intended to provide HCMC in particular with a platform for a long- term program of subsidized connections embedded within the existing DOLISA. Furthermore, SAWACOs commitment to NRW management and its relatively good performance in both technical and financial management place it ideally to act as a demonstrator of good practice both in NRW management and pro-poor service delivery. In Tra Vinh , a smaller and poorer Province, the GPOBA project will provide an ideal site for testing the approach in more challenging circumstances, but with a relatively high chance of success due to the company’s proven commitment to improving its financial position and management. Tra Vinh is more representative than HCMC of the typical situation to be found in Vietnam. Thus the HCMC and the Tra Vinh experiences, together, will provide a powerful blend of experiences from which a scaling up program could be developed for the country. A.3. Higher level objectives to which the project contributesPoverty impact


8

A recent report from the World Bank suggests that lack of access to water is a strong predictor of poverty in Vietnam4. In HCMC, data provided by the Urban Upgrading project confirms the existence of significant pockets of deep poverty associated with lack of access to basic services and the severe financial, health and educational impacts which result from this lack of access. As the approach towards non-registered migrant households changes, the depth and extent of this deprivation is likely to become more evident, notwithstanding HCMC’s impressive economic performance in recent years. Access to basic services including water, will have significant benefits as follows:

• Health: direct benefits in HCMC/ Tra Vinh are likely to include reductions in morbidity and mortality associated with diarrheal disease, reductions in incidence of hookworm and roundworm, improved hygiene resulting in reduced incidence of upper respiratory tract infections, reductions in morbidity association with tuberculosis and reduced risk of exposure to extreme health incidents such as SARS and avian influenza.

• Education: Increased educational attendance particularly for girls and improved educational attainment due to reduction in incidence of childhood roundworm and hookworm infestations.

• Finances: reduced family expenditure on curative health care, reduced losses in productive time due to illness.

• Economic prospects: increased stability (time for productive work, and reduced expenditures on unreliable water sources).

Replication If the experience of the pilot project is positive, it is hoped that DOLISA will be able to share the experience and replicate the approach in other urban centers including small and medium sized towns. In this way DOLISA subsidies for house connections can be used around Vietnam with both direct impact on access through new connections and indirect impact on access through pressure for improved NRW performance from utility companies. B. PROJECT DESCRIPTION

B.1. Project development objective and key indicators.The primary objective of the project is to increase and sustain piped-water access for poor households in HCMC and Tra Vinh utilizing water savings made through reduction of physical losses. Achieving this objective should result in:

• access to affordable and reliable clean water services; • health benefits from reduced exposure to environmental risks posed by unsafe

water (reduced morbidity and mortality rates – especially in infants); • economic benefits from reduction in medical expenses to treat water borne

diseases, increased productivity and capacity to work due to reduced morbidity and associated reduction in sickness related absence from work, reduced household expenditure of clean water (water tariff lower than cost of many alternative sources); and

• social benefits from equitable access to clean water for low income households.

4 World Bank Economic Growth, Poverty and Household Welfare in Vietnam Jan 2004


9

This primary development objective will be measured by the increase in the number of working connections of a specified quality and the decrease in the volume of physical losses from the pipe networks. The secondary objective of the project is to demonstrate an efficient approach to piped water supply connection subsidies that can create incentives for better water management (through a link to NRW management interventions) The secondary objective will be achieved by the delivery of an end-of-project report that assesses the performance of the project, identifies lessons learnt, identifies areas for improvement, and proposes a national roll out program including timeframe and costs. The findings of the report will be presented at a national workshop. B.2. Project PhasingThe project will be undertaken in two parts: Part 1: The HCMC scheme for which all the project preparation has been undertaken Part 2: The Tra Vinh scheme for which detailed arrangements will be prepared during the implementation of the GPOBA project. The Tra Vinh scheme will follow the broad approach prepared for HCMC but will be adapted to the specific capacity and complexity to be found in Tra Vinh. B.3. Project ComponentsComponent 1 – New Connections a) Ho Chi Minh City: To create the right incentives to connect low income communities and to maximize the efficiency of the subsidy in HMC the project will:

1. Make a flat payment of US$150 for each in-fill DOLISA (i.e. low income) connection lying within 60m of an existing distribution main

2. Make a variable payment of US$150 plus the pro-rated cost of extensions made in areas more than 60m from an existing distribution main. The payment for extensions works is capped at $250 to provide SAWACO with incentives to plan new connections in an efficient manner. This results in a total subsidy cap of US$400 per DOLISA connection in extension areas.

Provided: i. each eligible DOLISA household expresses demand for the connection

through the payment of a connection fee equal to 20% of the equivalent fee charged by SAWACO for regular customers up to a maximum of $30;

ii. the cumulative total of connections which have attracted an OBA payment over US$150 does not exceed 10% of the cumulative total of all connections made;

iii. the connection is new, and made after the signing of the grant agreement with GPOBA;

iv. the connection is operational and in use at the time of application for payment;

v. the service has been used at the connection for a period of at least three months prior to the application for payment, as evidenced by billing records;

vi. the connection is of the approved specification; vii. connections in extension areas have been subjected to the appropriate ex-

ante and ex-post review by the OBA audit firms; and


10

viii. there is a certified saving of 1m3/day of physical losses in Zone 1 or 2 achieved in the three months prior to the application for the payment.

Costs of the Connections: The total cost of a new connection is made up of a number of elements:

• the cost of the physical connection to the mains, including a household meter and a short length of pipe connecting to the SAWACO network;

• the cost of network expansion to reach new households (if required); • capital costs to deliver the physical loss reduction; • operating costs associated with maintaining physical loss reduction; and • financing charges .

Details of calculations of these costs can be found in the Proposal and Eligibility Note submitted to GPOBA in December 2005 and are summarized in Table 2 below. Table 2: Unit Costs of new Connections

Estimated unit cost per connection Element

In-fill Extension Comments

(a) Connection and infill/ extension US$ 170 US$250-500

Estimates based on improved specifications for connections and an average 10m distance to connect for shared and individual connections.

(b) Capital costs of NRW reduction

US$ 275 US$275 Based on 1m3/HH

(c) Operational costs of NRW reduction

n/a n/a Covered by tariff

(d) Financing costs 5% on capital

5% on capital Assuming commercial borrowing to finance connections

Total Unit Costs (a+b+c+d)

US$470 US$550-815 (ave US$685)

Net Unit Costs excluding costs of leakage reduction (a+d)

US$180 US$265-525

(ave US$395)

Costs of leakage reduction (capex plus opex) covered from SAWACO revenues

SAWACO Contributions: Table 2 shows that SAWACO will make a significant contribution to the costs of new connections (estimated to be US$275 per connection in addition to covering the additional operational costs of new connections through the tariff).

Household Contributions: No willingness-to-pay studies were included in the project preparation so the optimum household payment for new connections has been assessed on the basis of affordability coupled with extensive consultation with local authorities, water company staff and staff of externally supported projects in nearby towns. The evidence suggests that high, and uncertain, connection costs create a significant barrier to poor households gaining access to services. There is less evidence that consumption subsidies are prohibitive. SAWACO themselves have periodically waived the connection


11

fee to ensure strong take-up of new connections when additional water supplies have come on stream.

A nominal connection fee on the other hand serves to signal real demand from unconnected households. To allow for future variations in the official connection fee the households will pay a fee for new connections under the project equal to 20% of the payment normally charged by SAWACO for similar connections in the same area, including the reinstatement of the road surface. On average, based on current charges, households will be charged VND 470,000 (US$30) per connection. The maximum contribution of the household will be limited to VND 500,000 (US$31) under the project. b) Tra Vinh In Tra Vinh the subsidy rate will be determined based on an analysis of prevailing market conditions. This will be undertaken as part of the detailed preparation of the Tra Vinh part of the project. Component 2 – Technical Assistance a) Ho Chi Minh City: To support DOLISA in carrying out the project, the project will also cover the costs of: (1) An OBA Audit Firm who will be hired by DOLISA will (a) provide a six-monthly assessment of progress and quality of works under the OBA scheme; (b) undertake spot checks or audit on connections made (see below for details) and (c) certify the unit subsidies to be paid for connections made as part of extension schemes. The OBA audit firm will also carry out an annual ‘year end’ assessment of the impact of the project, on a sample basis, which would consider inter alia:

• levels of Household contributions relative to income (both for connection fee and consumption charges);

• the application of the eligibility criteria for households; and • the efficiency of subsidies vis a vis in-fill and extension connections.

(2) A project Financial Auditor who will be hired by DOLISA and will carry out an annual financial audit of the OBA Designated Accounts. A Supervision Consultant and an NRW auditor will be hired by SAWACO using IDA funds under the NRW Project. The TORs of these consultants will include to confirm the quality of the connections made under the GPOBA scheme and to verify the reductions in NRW achieved by the water company. b) Tra Vinh To support DOLISA in Tra Vinh in implementing the project, the project will cover the costs of: (1) A Supervision Consultant/ NRW auditor who will be hired by the Tra Vinh Water Company and who will be responsible for certifying eligible reductions in leakage within Tra Vinh and will also supervise planning and construction of new connections so as to ensure that their quality and technical specifications meet the requirements of the project. (2) An OBA Audit Firm who will be hired by the Tra Vinh DOLISA and who will (a) provide an annual assessment of progress and quality of works under the OBA scheme; (b) undertake spot checks or audit on connections made and (c) certify the unit subsidies to be paid for connections made as part of extension schemes (if applicable). The OBA


12

audit firm will also carry out an annual ‘year end’ assessment of the impact of the project which would consider inter alia:

• levels of Household contributions relative to income; and • the application of the eligibility criteria for households

(3) A project Financial Auditor who will be hired by the Tra Vinh DOLISA and will carry out an annual financial audit of the OBA Designated Accounts.

Component 3 – World Bank Supervision A Project Design Consultant will be hired and supervised by World Bank to work with DOLISA and the Tra Vin Water Company to adapt the HCMC model to the specific requirements and complexities of the Tra Vinh system. The consultant will prepare a set of implementation manuals for the Tra Vinh DOLISA and Water Company which will guide project implementation. A Post-project Review consultant will be hired and supervised by the World Bank at the end of the project implementation period to assess the performance of the project, identify lessons learnt, identify areas for improvement, and propose a national roll out program including timeframe and costs. The findings of the report will be presented at a national workshop. World Bank staff will provide routine support to the DOLISAs and Water Companies in the implementation of the GPOBA scheme and will periodically (twice a year) visit the sites to review progress with the local authorities. As part of Component 3 a small unallocated amount is included for miscellaneous consulting services that may arise during the implementation of this GPOBA scheme. This will only be utilized by the World Bank team with the written permission of the GPOBA manager. Project Scope and Cost Component 1: The project will finance two types of connections, in-fill and new extensions. The subsidy available for eligible new connections within extension areas includes an element which covers the incremental costs of trunk infrastructure. The amount of the additional subsidy is pro-rated against the proportion of households who are poor within the group of potential new connections in the extension area and is capped at US$ 250. The subsidy for new connections in extension areas is thus greater than the subsidy for in-fill connections. The available data suggest that the total project funds available could be absorbed through in-fills in HCMC. However the provision for extension subsidies is included in the project design in HCMC to provide a means to understanding how such subsidies might be delivered in future; it is inevitable that over time extension subsidies will become necessary as all in-filling has been achieved. The lessons learnt from this approach will allow for a better understanding of the “scale up” issues for this approach. For simplicity it is not planned to provide extension subsidies in Tra Vinh. The estimated share of the total number of connections in extensions in HCMC is 8% (the percentage of new connections in the city attracting the higher rate of subsidy is


13

capped at 10% to maximize the efficiency of the subsidy). For Tra Vinh it is assumed that there are a high number of new connections in in-fill areas and that therefore 100% of the subsidized new connections will attract the lower unit subsidy rate. The total number of new connections to be financed under the project is therefore estimated to be 29,100 although this number could be as high as 32,500 if SAWACO elects to target the subsidy only to in-fill areas in HCMC (Table 2). The total cost of new connections (Component 1) is US$4,875,000 with a subsidy efficiency of US$168 per connection.


14

Table 3: Total Connections to be financed by GPOBA HCMC: 8% extensions Tra Vin: 0% extensions

In-fill Extensions Total In-fill Extensions Total Total subsidy (US$M) 3,700000 800,000 4,500,000 375,000 0 375,000 Unit subsidy (US$) 150 365 150 365 New connections (nr) 24,500 2,100 26,600 2,500 0 2,500

Component 2: The cost of technical assistance is estimated as follows Table 4: Cost of Technical Assistance

Item

Estimated Cost (US$)

HCMC OBA Auditor 100,000 HCMC Financial Auditor 30,000 Tra Vinh Superivision/ NRW auditor 80,000 Tra Vinh OBA Auditor 60,000 Tra Vinh Financial auditor 25,000 Subtotal Component 2 295,000

Component 3: The cost of World Bank supervision is estimated as follows: Table 5: World Bank Supervision Costs

Item

Estimated Cost (US$)

Consultant TA for preparation in Tra Vinh 100,000 Supervision of preparation in Tra Vinh 25,000 Supervision of implementation HCMC 80,000 Supervision of implementation in Tra Vinh 45,000 Post project review and preparation of roll out plan for Vietnam 50,000 Unallocated consultant TA 40,000 Subtotal Component 3 340,000


15

B.4. Economic and financial analysisa) Ho Chi Minh CityNo quantitative economic analysis was included in the preparation of the project but a qualitative assessment of the potential economic and financial impacts is laid out below. Further, quantitative, analysis could be undertaken as part of the project preparation in Tra Vinh if required by GPOBA. Benefits accruing to Poor Households Although detailed economic information is not available for HCMC , international experience strongly suggests that poor households who currently access water informally or formally through shared connections, will experience significant economic benefits generated through reduced expenditure on health care and increased time available for productive work when they can access reliable piped water supplies through a private connection. The project aims to increase poor households’ access to such supplies through two interventions; reducing the connection fee faced by the household and improving the incentives faced by the utility to connect them to the network. (i) Connection Fees In HCMC there is some evidence that both the absolute connection fee and the structure of the fee where multiple households are to be connected, have a negative impact on demand. The cost of connecting to SAWACO’s network varies with the layout and length of the connection and there is no fixed connection fee. Overall costs are high, in the simplest case for a household connecting within 10m of the distribution main, the costs is VND 1,500,000, (US$ 94) nearly two and a half times the monthly income of a family living at 50% of the official DOLISA poverty line income. Where households are connected through a shared spur or distribution pipe, the costs are shared and vary with the length of the connection. In a typical case, where eight houses connect to a 35m spur, the cost to each household is VND 4 million (US$ 250), or more than six times the monthly income for the same household. The major problem associated with shared distribution mains is that it leaves low income households living remotely from distribution lines in a weak position if they are not able to persuade other households to connect to the network. Clearly there is an incentive for households living close to distribution mains to delay connecting until others have paid the development costs of the main itself, particularly as they are more likely to be able to make use of their neighbors’ taps. (ii) Costs and volume of consumption There is little evidence that the costs of service once connected create a barrier for poor households. The current tariff structure is illustrated in Figure 1. A preliminary analysis for example suggests that a poor family with 5 members, consuming 80 lcd would pay a monthly water bill of VND 69,600 (USD 4.35) for consumption of 12m3/month which represents 5.6% of income for a family living on the official poverty line. Anecdotal evidence from HCMC suggests that household consumption rarely reaches this level. Note however, that this estimate of consumption is lower than that used to estimate the additional water required to supply each new connection which has been based on conservative estimates of household size, consumption and physical losses. Evidence from other cities, including Boa Nu Thoc and cities in the northern provinces suggests that willingness to pay is often higher than


16

officials believe and so far, there is little evidence from HCMC that ongoing consumption costs are prohibitive.

Figure 1: HCMC Tariff structure

HCMC Domestic Tariff (VnD/m3)

0.00

2,000.00

4,000.00

6,000.00

8,000.00

10,000.00

0 2 4 6 8 10

Consumption (m3/month)

(iii) Attractiveness to the utility The average operating cost to SAWACO is 2,400 VND/m3 water sold so, once connected, even poor households which consume less than 4m3/month should be attractive to the utility given that the minimum tariff band is 2,700 VND/m3. Benefits to the utility Financial benefits to the utility will accrue due to additional sale of water (through new connections and increased consumption where households move from shared to individual connections), improved efficiency of operations due to in-fill connections, and reduced commercial losses through informal connections. System losses will also be reduced due to the high standards applied in the construction of new connections under the OBA project. Economic and Financial Rate of Return Economic Analysis The economic analysis is based on estimated willingness and ability to pay information from the Saigon Water Corporation (SAWACO), the current SAWACO tariff structure and anecdotal evidence from other cities. Consumption estimates are taken as 9m3/month per household and an average tariff is used based on the company’s increasing block tariff. The project has an economic Net Present Value of $1,875,275 and economic Internal Rate of Return of 15 % assuming a 12% discount rate. The E-IRR is 11% with only expenditure savings taken into account. This increases to 13% with time savings being added and to 15% with value of health benefits being added. As a percentage of total benefits, expenditure savings account for 58%, time savings for 29% and health benefits for 13%. The useful life of the project is assumed 20 years.


17

Financial Analysis The financial analysis is based on investment costs proposed, with the OBA subsidy accounting for 35% of total investment costs, user contributions at 5% and SAWACO contribution at 60% of investment costs. The project has a financial IRR of 12% with the OBA subsidy. Summary For very poor households the cost of connecting to the utility water supply appears to be prohibitively high but once connected there is little information currently available to suggest that the costs of consumption are a particular barrier. It is therefore inferred that, by reducing the financial barrier of the connection fee, both poor households and the utility will experience a net positive economic and financial benefit from the project.

b) Tra Vinh Economic and financial analysis will be prepared as part of the scheme design.

B.5. Lessons learned and reflected in the project design.International and national experience suggests that poor households are systematically excluded from access to formal piped water supplies in situations where the supply is scarce relative to the total population of the city. A general sense of wariness on the part of utility staff as to the ‘reliability’ of poor households to act as responsible utility customers is reinforced by financial structures which tend to:

• create barriers to poor households connecting (high one-off connection fees); and • reinforce perceived negative incentives to connect poor households (increasing

block tariffs). The purpose of this project is to ensure that these real and perceived barriers are removed so that poor households become as attractive to the utility as new customers and richer households. Other options which the team considered as part of the preparation of this project included:

• financing connections without linking this to the non-revenue water activities of the two utilities: This option was rejected since this project provides a unique opportunity to demonstrate that investments in NRW management not only improve utility operations but can also be structured to have a strong pro-poor element.

• Utilizing a stand-alone targeting approach to improve the pro-poor nature of the investments. This option was rejected due both to the high cost of establishing a stand-alone targeting system and to the fact that DOLISA, who are responsible for the poverty programs in both cities, are the obvious implementing agency – linking the project to the existing ongoing process of poverty mapping provides both a strong institutional link to DOLISA but will also promote the sustainable scaling up of the approach in the future.

C. IMPLEMENTATIONC.1. Milestones for project implementation.Measurable Savings in Non-Revenue Water - Ho Chi Minh City


18

The OBA scheme is dependent on the commencement of savings in NRW. The phasing of SAWACO’s work in NRW reduction suggest that the first tranche of measurable savings will come on stream during the second quarter of 2008. Measurable Savings in Non-Revenue Water - Tra Vinh In Tra Vinh also OBA payments will be dependent on the commencement of NRW savings. The detailed schedule for this work is yet to be developed, but it is currently assumed that the first tranche of measurable savings may come on stream during the first quarter of 2008. Figure 2 shows the scheduling of start up and review activities in HCMC and Tra Vinh.


19

Figure 2: OBA Scheme Phasing 2007 2008 2009 2010

Activity Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1-Q4 Q1 Q2 Q3 Q4 GPOBA Grant Agreement *

HCMC

Implementation (Eligible New Connections)

NRW Contract Duration

Generation of NRW savings

Subsidy Payments

Other project payments

Tra Vinh

Implementation (Eligible New Connections)

Generation of NRW savings

Subsidy Payments

Other project payments

C.2. Institutional and implementation arrangements.

a) Ho Chi Minh City

General Implementation

One of the purposes of the GPOBA project is to demonstrate an arrangement which could be used by the People’s Committees of HCMC and Tra Vinh as a permanent arrangement to maximize the efficiency of public subsidies by linking these to outputs. For this reason it is considered preferable to embed this project within existing structures used to deliver programs such as that funded by DOLISA including the Government of Vietnam’s Hunger Eradication and Poverty Reduction Program (HEPR). For this reason the project implementing agency will be DOLISA. In addition to acting as the Project Implementing Agency DOLISA will be responsible for providing a “long-list” of all eligible households. This list will correlate with the existing list of “low-income” households prepared by the Department of Public works which is used to administer the social development programs of the People’s Committee, including the DOLISA program. SAWACO branch offices will assess applications for house connections, made by households, against the list provided by the People’s Committee, and against their own network information so that they identify those connections which will attract reimbursement from the project. They will prepare periodic investment plans for in-fill and extensions to be collated by SAWACO head office. SAWACO head office will assess the scale of potential new connections on the basis of projected reductions in leakage and will coordinate with branch offices to prioritize which service connections are to be made under the project. SAWACO will also prepare rolling six-monthly investment plans and six-monthly applications for reimbursement from the project along with the requisite documentation and will instruct its branch


20

offices as to the quotas of new connections that can be made in their areas in each quarter under the project. SAWACO will also be responsible for organizing pre-financing to support new service connections and extensions. The IDA NRW auditor will be responsible for certifying eligible reductions in leakage from Zone 1 and 2 of the city The IDA NRW Project Design and Supervision Consultant will be responsible for confirming the quality of the house connections and extensions made using GPOBA financing. An OBA Audit Firm will be hired by DOLISA and will (a) provide an annual assessment of progress and quality of works under the OBA scheme; (b) undertake spot checks or audit on connections made and (c) certify the unit subsidies to be paid for connections made as part of extension schemes. A project Financial Auditor will be hired by DOLISA and will carry out an annual financial audit of the OBA Designated Accounts. Certification and Payment A key task within the OBA scheme will be the certification/ assessment of eligible connections and the audited reductions in NRW. Applications for Payment of OBA subsidyAt the end of each 6 month period SAWACO will submit an invoice or application for payment to DOLISA listing all eligible connections which have been made, and including, where these new connections have been made through extension schemes, the detailed calculation of the subsidy payment to be made by the OBA scheme. Certification by the OBA Audit FirmFor each six-monthly invoice the OBA Audit Firm will verify that the requirements for subsidized connections have been met and will advise DOLISA on the exact payments to be made. The OBA auditor will verify:

a) that each connection is to an eligible household and has resulted in a service to the household for at least 3 months; b) that the required volume of NRW savings have been made; and c) that the new connections have been made to the requisite standards and are of acceptable quality and, where this is not the case, what adjustments to the payment amount are to be made.

a) Eligibility and working connections For each new subsidized connection SAWACO will maintain a record on file showing:

i) that a new connection has been made, including site photographs to confirm the quality of the connection (from the connecting file); ii) that the new connection has been supplied with at least 25lpcd of water (the assumed minimum acceptable level of service) for a period of at least three months starting immediately after the connection is made and continuous up to point of invoicing (from the billing record); and iii) that the Ward level PC has certified that the household is an official DOLISA household and is eligible for a connection.

The OBA auditor will satisfy himself that the new connections for which payment has been requested are eligible and have resulted in service at the household level by carrying out a random sample check on these records and, if necessary, field-level verification. No


21

payments will be made until the auditor is satisfied that these requirements have been met. b) Certified NRW savingsFor each six-monthly application, the IDA NRW Auditor will provide certification that the requisite additional savings have been made through leakage reduction in Zones 1 and 2 over the same six monthly period (i.e. if SAWACO apply for OBA payments for 5,230 new connections, the IDA NRW Auditor must certify that there have been corresponding savings achieved (in either the contractor or SAWACO areas) from NRW management of at least 5,230 m3/day up to the end of the six month period which have not already been counted towards new OBA connections). c) Certifying the Quality of ConnectionsTo ensure that new connections are made to the correct specifications, each six-monthly request for payments will be accompanied by certification from the IDA NRW Project Design and Supervision Consultant that new connections have been made in line with the project’s technical specifications and, where relevant, indicating any reductions in the unit subsidies to be paid. The quality assurance of the GPOBA-financed connections will be based on the following measures:

• application of technical specifications for new connections as defined under the NRW Management Project; and

• spot checks of approximately 10% of OBA connections by the NRW Management Project Design and Supervision Consultant through a combination of site visits while connections are made (to facilitate which SAWACO are to provide a fortnightly workplan to the consultant) and ex-post assessments of a random selection of connections, including detailed review of as-built documentation and interviews of installation teams, supervisors and customers.

If the NRW Management Project Design and Supervision Consultant does not accept the quality of a service connection, he will request SAWACO to reinstall the connection and verify the quality of this connection after reinstallation. He will also request SAWACO to open five other connections, made under the same quarterly quota in the presence of the NRW Management Project Design and Supervision Consultant. If all these five connections are acceptable, there will be no further implications on the payment of subsidies. If any of these five service connections is unacceptable, the NRW Management Project Design and Supervision Consultant will request another five service connections be opened. If any of these five connections is unacceptable, the subsidy from the OBA fund for the connections of the respective quarterly quota of the relevant branch office of SAWACO will be paid according to the percentage of acceptable service con-nections out of the ten opened connections.

Improving Monitoring through Forward Planning Every six months SAWACO will submit a two-year rolling investment plan to DOLISA broadly indicating the investment plan in each branch and, in the case of extensions, the financial structuring of the proposed schemes including numbers of DOLISA households, detailed cost estimates and a request for the unit subsidy to be paid. To avoid later disputes over subsidy payments the designs for extension schemes will be subject to a “no objection” on the grounds of unit costs by the OBA Audit Company prior to implementation commencing. To facilitate the technical quality assurance carried out by the IDA NRW Project Design and Supervision Consultant, each branch will also


22

submit a to DOLISA notification of new connections to be made under the OBA scheme on a fortnightly basis. Household Payments To ensure that households pay the required contribution (and not more than this), the OBA Audit consultant will carry out an annual participatory assessment of the levels of satisfaction, payments and quality of service amongst a sample of 10% of connecting households. If the OBA Audit consultant establishes that households are paying over the agreed rate, the amount of the unit subsidy to be paid by GPOBA for all subsequent connections will be adjusted downwards by an equal amount. b) Tra Vinh The precise institutional arrangements for Tra Vinh will be determined as part of the preparation component of the project. In principle the approach will be to duplicate the arrangements in HCMC with DOLISA as the implementing agency. This will give the opportunity for the project to demonstrate how DOLISA can deliver OBA subsidies in two contrasting settings. However, since the NRW activities in Tra Vinh are not a sub project of the IDA VUWSDP the water company will require some additional technical assistance to ensure the quality of new connections and their eligibility for payment under the OBA project. Therefore technical supervision of the quality of OBA connections and the ongoing audit of NRW savings will be carried out by a single consultant under a contract let by the Water Company. The Tra Vinh DOLISA will procure the services of an OBA audit firm to certify eligible payments to the water company under the project and a financial audit firm to carry out the annual project financial audit. Financial Flows a) Ho Chi Minh City Funds from the OBA project will be managed through a Designated Account which will be held in a commercial bank, in line with usual IDA financial arrangements. Households will make their contributions directly to SAWACO in the usual way. However disbursements will be made to SAWACO from the Designated account on the basis of satisfactory delivery of the agreed outputs and after the specified period (a minimum of three months) of satisfactory operation of the new connections. Disbursements from the Designated Account will be made periodically, on a six-monthly basis. Disbursements will also be made to other Contractors (e.g. OBA audit consultant) from the Designated account on delivery of outputs in their individual contracts. Pre-financing of service connections and extensions may be arranged by SAWACO through the same commercial Bank or through other arrangements. Figure 3 summarizes the financial flows of the project and further details are provided in Annex 2.


23

Figure 3: Financial Flows For OBA Payments

b) Tra Vinh The arrangements in Tra Vinh are expected to be similar to above and will be

confirmed during detailed preparation of the Tra Vinh part of the project. C.3. Monitoring and evaluation of outcomes/results

a) Ho Chi Minh City Under the OBA project, DOLISA will retain the services of an OBA Audit Firm with technical, social and financial skills. The OBA Audit Firm will perform three separate functions:

(a) Monitoring and Evaluation: including a six-monthly assessment of progress and quality of works under the OBA scheme and an annual assessment of the impact of the project; (b) Audit and approval of applications for payment from SAWACO (c) certification of the unit subsidies to be paid for connections made as part of extension schemes including issuing a ‘No Objection’ the six-monthly

GPOBA

DOLISA

PC HCMC

SAWACO Branch offices

SAWACO

Low Income Households

Designated Account

Commercial Bank

Commercial borrowing to pre-finance investment

OBA Paymenton delivery of outputs

Investment financing

Household contribution

GPOBA Grant funding

Other pre-financing

Commercial lending

operationsMonitoring & certification


24

rolling investment plans of Branch offices in HCMC , ensuring that the correct balance of subsidies is being applied for;

The regular six-monthly M&E program will assess the progress and performance of the project by carrying out a review. The key performance indicators will comprise:

• the number of connections made; • the number of low income people gaining access to a piped water supply; • the reduction in the volume of real losses; • the disbursement of the OBA funds; and • the value of contributions made by connecting households.

On an annual basis the OBA audit company will also evaluate the impact of the program by reviewing the impact on connecting households including assessing:

• average water consumption in project HH; • expenditures on piped water in project HH; and • level of satisfaction of connecting households.

b) Tra Vinh The arrangements in Tra Vinh are expected to be similar to above and will be

confirmed during detailed preparation of the Tra Vinh part of the project. C.4. SustainabilityThe project has been designed to demonstrate an approach which links two

fundamental development objectives for sustained utility service delivery; improved management and reduction of non-revenue water and the formalization of customer relationships with all consumers irrespective of income. The project addresses sustainability of utility management through a number of design features including;

• The delivery of subsidies only in response to the audited reduction of physical losses from the network thus promoting more efficient management and use of resources (bulk water);

• The delivery of subsidies only in response to consumer demand as demonstrated by payment of a connection charge;

• The promotion of in-fill connections to improve operational efficiencies in the network;

Furthermore the project targets two utilities which have, in different ways, indicated a commitment to sustained operation and management in the long run – in HCMC through major and innovative investments to reduce NRW and in Tra Vinh through a willingness to borrow at commercial rates for investments to reduce the level of physical losses in their system.


25

C.5. Critical risks and possible controversial aspects (and measures to mitigate them).

Risk Risk Mitigation Measures Rating with

Mitigation There are insufficient applications from poor households

Public promotion of reduced connection fees by SAWACO/ Tra Vinh Water Company. Available subsidy will cover costs of connecting only a proportion of the total potential eligible households. Connection fee has been set at an affordable level as per available information.

Low

Reduction in NRW is slower than anticipated or bidders do not come forward for HCMC performance contract.

In HCMC the NRW project has been subject to detailed feasibility planning and a market assessment. In Tra Vinh, savings will be achieved using funds from the Bank’s market lending window; a detailed assessment of feasibility will be carried out as part of preparation.

Modest


26

TECHNICAL ANNEXES Annex 1. Project costs schedule of OBA payments to be required from

GPOBA (Window 3). The projected schedule of OBA payments is shown below in Table A1. Table A1 – Schedule of Payments

2007 2008 2009 2010

Jan-Jun

Jul-Dec Jan-Jun Jul-Dec Jan-Jun Jul-Dec Jan-Jun Jul-Dec

TOTAL

Physical Progress New Eligible Connections HCMC (infill) 0 3,000 5,400 5,500 5,400 5,200 0 0 24,500 New Eligible Connections HCMC (ext.) 0 0 1,000 1,100 0 0 0 0 2,100 New Eligible Connections Tra Vinh 0 300 500 700 750 250 0 0 2,500

OBA Project Costs (US$)

Component 1: Subsidies for New Connections

Subsidy Payments HCMC 0 0 0 1,625,000 2,036,500 838,500 0 0 4,500,000

Subsidy Payments Tra Vinh 0 45,000 75,000 105,000 112,500 37,500 0 0 375,000

Subtotal Component 1 0 45,000 75,000 1,730,000 2,149,000 876,000 0 0 4,875,000

Component 2: Technical Assistance

HCMC OBA Auditor 0 15,500 16,500 17,500 17,500 16,500 16,500 0 100,000

HCMC Financial Auditor 0 0 0 8,000 8,000 8,000 6,000 0 30,000 Tra Vinh Superivision/ NRW auditor 0 0 16,000 16,000 16,000 16,000 16,000 0 80,000

Tra Vinh OBA Auditor 0 0 10,000 14,000 12,000 12,000 12,000 0 60,000

Tra Vinh Financial auditor 0 0 5,000 5,000 5,000 5,000 5,000 0 25,000

Subtotal Component 2 0 15,500 47,500 60,500 58,500 57,500 55,500 0 295,000

Component 3: Supervision Consultant TA for Preparation in Tra Vinh 50,000 50,000 0 0 0 0 0 0 100,000

Supervision of prep. In Tra Vinh 12,500 12,500 0 0 0 0 0 0 25,000 Supervision of implementation HCMC 10,000 12,000 12,000 12,000 12,000 12,000 10,000 0 80,000 Supervision of implementation in Tra Vinh 0 0 10,000 10,000 10,000 10,000 5,000 0 45,000 Post Project review and Roll-out plan 0 0 0 0 0 10,000 40,000 0 50,000

Unallocated TA 0 0 0 10,000 10,000 10,000 10,000 0 40,000

Subtotal Component 3 72,500 74,500 22,000 32,000 32,000 42,000 65,000 0 340,000

TOTAL GPOBA GRANT 72,500 135,000 144,500 1,822,500 2,239,500 975,500 120,500 0 5,510,000

Household contributions 0 99,000 207,000 219,000 184,500 163,500 0 0 873,000

Capital costs of extensions and NRW(HCMC) 0 825,000 1,910,000 1,965,000 1,485,000 1,430,000 0 0 7,615,000

Capital costs of NRW (Tra Vinh) 0 82,500 137,500 192,500 206,250 68,750 0 0 687,500

TOTAL PROJECT 72,500 1,141,500 2,399,000 4,199,000 4,115,250 2,637,750 120,500 0 14,685,500

Note that World Bank supervision costs post signing of the grant agreement are based on an estimate of 15 days supervision per year per project and the sharing of travel costs with related IDA projects. The cost of the post project review is estimated based on the experience of the project team.

Annex 2. Financial Management


27

Capacity- HCMC DOLISA Implementation arrangements On behalf of the Hochiminh city PC, DOLISA will be the implementing agency for the project. Within DOLISA, the project will be administered by the HEPA. HEPA will employ an OBA auditor for monitoring and evaluation and verification of claims for payments made by SAWACO. HEPA is not clear of its role in administering the project at this stage. Consequently project management has not been arranged. The project management unit/ division should be established by the negotiation of the grant agreement or included as a condition of grant effectiveness. Financial Management Personnel Currently, there is only one accountant in HEPA who is responsible for accounting for the operating cost of HEPA. The accountant is neither experienced with donor financed projects nor IDA requirements on Financial Management, especially OBA approach. In addition, she is also responsible for monitoring and evaluation of the activities for the facility of hunger eradication and poverty alleviation (a micro finance facility which amounted to VND 186 billion, implemented at Communal level). Given the current workload, she may not be able to manage the financial management and disbursement for this OBA project. An accountant with experiences and qualification acceptable to IDA should be appointed by the effectiveness of the grant agreement. Training of IDA disbursement and financial management to the financial management personnel should be given by effectiveness of the grant agreement. Accounting The current accounting system used in HEPA is the Accounting System for the Administration Agencies (regulated by the Decision 19 of the MOF) which is not suitable for investment project accounting. Accounting software (called IMAS) is currently in use but cannot be customized for reporting purposes. Given that the reporting requirement for this grant agreement is simple, no new accounting/ financial management software is required to be procured and installed. In stead, the appointed accountant should have sound knowledge and experiences with investment project accountings and ability to use a spreadsheet application for management reporting purposes should HEPA determines that the software is not necessary. Internal Control & Internal Auditing There is no internal audit function. Basic internal control procedures of segregation of duties (cashier/accountant), cash and bank (cash count, bank reconciliation), assets (assets register, assets count) are in place. The financial management guidelines/ requirements from IDA detailed in Project Operations Manual are adequate thus no separate financial management guidance/ manual is required Capacity of DOLISA – Tra Vinh To be determined during preparation of the Tra Vinh part of the project. Necessary training and action plans will be agreed between DOLISA and IDA during preparation and included as condition of effectiveness for the grant to Tra Vinh

Disbursement Arrangements


28

A designated account will be maintained in USD at a commercial bank acceptable to IDA at both HEPA in HCMC and Tra Vinh. Disbursement methods can be any of the followings:

• Reimbursement - The Bank may reimburse the borrower for expenditures eligible for financing pursuant to the Loan Agreement (“eligible expenditures”) that the borrower has pre-financed from its own resources.

• Advance - The Bank may advance loan proceeds into a designated account of the borrower to finance eligible expenditures as they are incurred and for which supporting documents will be provided at a later date

The Disbursement Deadline Date will be four months after the Closing Date of the project. The above designated account ceilings will be limited to US$ 500 thousand for HEPA (HCMC) and USD 50 thousand for Tra Vinh. Replenishment of the Designated Account will be on a quarterly basis. The DOLISA will submit quarterly replenishment requests for each calendar year to the Bank, reflecting expenditures paid during the previous three months and an estimate of expenditures and cash flow for the ensuing six months. These quarterly requests will be in the agreed Interim Financial Report (IFR) format, which will include the following for disbursement purposes: (i) aggregate disbursements by each Recipient; (ii) breakdown of aggregate disbursements by disbursement category; (iii) percentage Designated Account reconciliation statement; and (iii) forecast of expenditures for the next two FMR reporting periods. Counterpart Funds The overall budget for the Project will be prepared by HEPA and approved by the HCMC PC. The counterpart funds will be made available for the HEPA (if any) the HCMC State Treasury. Counterpart fund for Tra Vinh will be approved by Tra Vinh PC and made available at Tra Vinh State Treasury


29

Fund flow to and from HEPA (similar flow expected for Tra Vinh)

1. HEPA prepares the withdrawing application and send to MOF (External Finance Department) for verification. MOF verifies and returns the application to HEPA

2. HEPA sends the application to GPOBA 3. GPOBA disbursed monies to the Designated Account of the HEPA 4. SAWACO submit claims for payment to OBA Auditor/ Supervision

Consultants 5. OBA Auditor/ Consultants review, certify and then submit to HEPA 6. HEPA reviews, certifies and then submit to MOF- External Finance

Department. MOF- External Finance Department verifies and return the document to HEPA

7. HEPA sends the request for payments to the commercial bank 8. Commercial Bank makes payment to SAWACO.

Financial Reporting and Monitoring

IDA as administrator of GPOBA

OBA Auditor

SAWACO

Commercial Bank- Designated Account

2

3

6

7

1

8

5

4

MOF/ External Finance Dept

HEPA


30

Quarterly Interim Financial Reports (IFRs) will be prepared by HEPA (and Tra Vinh) for monitoring of financial performance of the project in a format to be agreed between the representatives of the GoV and the GBOPA as part of the grant negotiation. Annual Project Financial Statements: The Project Financial Statements will consist of: • A Statement of Sources and Uses of Funds / Cash Receipts and Payments which

recognizes all cash receipts, cash payments and cash balances controlled by the entity; and separately identify payments by third parties on behalf of the entity.

• The Accounting Policies Adopted and Explanatory Notes. The explanatory notes should be presented in a systematic manner with items on the Statement of Cash Receipts and Payments being cross referenced to any related information in the notes. Examples of this information include a summary of fixed assets by category of assets, and a schedule of credit / grant withdrawals, listing individual withdrawal applications; and

• A Management Assertion that Bank funds have been expended in accordance with the intended purposes as specified in the relevant World Bank legal agreement.

The annual financial statements are required to be audited and submitted to the Bank within 6 months of the end of each financial year. Conditionality and FM Action Plan for HEPA- HCMC

Action ResponsibilityTo Be

Completed By

1- Establishment of Project Management function at HEPA

HEPA Negotiation

2- Agreed template of Interim Financial Reports

GBOPA, HEPA

Negotiation

3-Financial Management Staff with qualification and experiences acceptable to IDA appointed. Training on IDA Financial management regulations and reporting requirement to the Financial Management personnel delivered.

HEPA Effectiveness


31

Annex 3. Procurement Arrangements A. General Procurement Arrangements Only consultants will be procured under this project. Procurement would be carried out in accordance with the World Bank’s "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated May 2004, and the provisions stipulated in the Grant Agreement. For the contracts to be financed by the Grant, the different consultant selection methods, estimated costs, prior review requirements, and time frame will be agreed between the Recipient and the Bank and presented in the agreed Procurement Plan which will be updated annually. B. Assessment of the agency’s capacity to implement procurement a) Ho Chi Minh City The procurement activity in this part of the Project is the selection of the OBA Auditor and the Financial Auditor. Because DOLISA has no previous experience in applying the World Bank’s Guidelines in procurement and because procurement in this Project is a one-time task, the PMU of the HCMC Urban Upgrading Project (UUP) will undertake the procurement on behalf of DOLISA. The PC of the City will be responsible for assigning the UUP PMU to undertake the procurement on behalf of DOLISA. An alternative is for DOLISA to be trained in World Bank procurement procedures. This will be agreed prior to the finalization of the Grant Agreement and any associated conditions will be included in the agreement. b) Tra Vinh Province. The procurement arrangements and associated capacity assessments will be undertaken during detailed preparation of that part of the project but will be in accordance with World Bank requirements. C. Procurement Plan a) Ho Chi Minh City Description of Assignment

Estimated Cost.($ 000)

Selection Method

Review by Bank (Prior / Post)

Expected Proposals Submission Date

OBA Auditor 100 QCBS Prior June 2007 Financial Auditor

30 CQS/LCS Prior June 2008

b) Tra Vinh Province. To be finalized as part of detailed preparation of that part of the Project but the outline plan is as follows:

Description of Assignment


Selection Method


Expected Proposals Submission


32

Date Supervision/ NRW auditor

80 QCBS Prior December 2007

OBA Auditor 60 CQS/QCBS Prior December 2007 Financial Auditor

25 CQS/LCS Prior June 2008

c) Bank-executed activities (Component 3)

Description of Assignment


Selection Method


Expected Proposals Submission Date

Consultant TA for Preparation in Tra Vinh

100 QCBS/IC Feb 2007

Post project review and preparation of roll out plan for Vietnam

50 CQS January 2009

E. Frequency of Procurement Supervision The capacity assessment of the Recipients recommends one supervision mission, at the end of the project, to carry out post review of procurement actions.


33

Annex 4 Safeguard Policy Issues

The Project ISDS was sent to the Infoshop for disclosure on January 8, 2007. The project is linked to the IDA Credit CR 29128-VN – Urban Water Supply Development Project for which framework safeguards documents (Resettlement Policy Framework (RPF) and Environmental Guidelines (EG)) have been prepared and which are acceptable to IDA. The Peoples Committees in this GPOBA Project will be required to formally adopt, and require their water companies to follow, the framework safeguard documents. In addition, the Project Operations Manuals will include simple “exclusion” check lists so that any proposed work (extension or in fill connection) under the GPOBA project which triggers any of the safeguards requirements will be rejected. Annex 5 Economic AnalysisThe incremental net cash flow methodology is used for rate of return calculations. The methodology confines quantified economic benefits to expenditure savings, time savings and value of health savings. Since a detailed household survey is not available for HCMC, the economic benefits of time savings and health savings are quantified based on adjusted World Health Organization (WHO)5 estimates. Specifically, valuation of health benefits has been restricted to those due only to direct patient treatment costs saved and adult working days gained as a result of reduced instances of diarrhea. Work days lost per year per case of adult illness are taken as the average of the WHO range (1-4). Illness treatment costs are discounted to account for only 50 percent of cases being formally treated. Time savings i.e., water collection time saved per household is taken at the lower end of the WHO range of 0.25-1.00 hour. The methodology also assumes one productive adult wage earner per household and minimum wage earnings as the opportunity cost of time. The minimum wage is adjusted downward for high self employment and unemployment. Expenditure savings are calculated as the difference in expenditure incurred by households on water with the project in place and without it. SAWACO’s increasing block tariff is 0-4m3/month = 2700 vnd/m3; 4-6 m3/m = 5400/m3; >6m3/month = 8000 vnd/m3. The analysis applies to 26, 600 households in HCM city. The financial rate of return (FIRR) is calculated based on the income/revenue and expenditure streams of the project.

5 Guy Hutton and Laurence Haller, Water, Sanitation and Health Protection of the Human Environment, Evaluation of the Costs and Benefits of Water and Sanitation Improvements at the Global Level, World Health Organization, Geneva 2004.


34

Annex 6. Results framework and monitoring mechanisms.In addition to the monitoring and verification of actual outputs for certification and subsidy disbursement undertaken by the OBA auditor, the following information will be collected by the auditor and supplied to DOLISA and copied to GPOBA for monitoring and tracking purposes.

Targeted Service expansion through Water Loss Reduction – HCMC Part

Verifiable Project Indicators and Targets Project Outcome

2007 2008 2009 2010

Projected No 3,300 14,900 26,300 29,100

Actual (Infill) No

Actual (Extension)

No Number of connections made

Actual (Total)

No

Projected USD GPOBA disbursement requested

Actual USD

Projected M3/day 3,300 14,900 26,300 29,100Reduction in volume of NRW

Actual M3/day

Projected VND 99,000 447,000 789,000 873,000Value of Household contributions

Actual VND Access, Affordability and Sustainability (Based on annual sample by the OBA Audit Firm)

Baseline 2007 2008 2009 2010

Average daily consumption of water per household

m3

Estimated average household expenditure on water

% of income

Average residential tariff for target group VND/m3

Minimum tariff required to cover O&M VND/m3

Collection rate %

Aid Efficiency Projected Final

Total project costs

USD 14,685,500

Private sector capital mobilized USD

GPOBA USD 5,510,000

SAWACO USD 7,615,000

Tra Vinh USD 687,500Project sources of funding

User Contribution

USD 873,000

Other

Report on scaling up and dissemination workshop for lessons learned

No 1

Number of people per household in project area No 5.5


35

Targeted Service expansion through Water Loss Reduction – HCMC Part

Verifiable Project Indicators and Targets

Brief description of private sector involvement:


36

Annex 7. Project preparation and supervision

A. Institutions responsible for project preparation:

1) GPOBA c/o World Bank

2) Primary Contacts for Participants a) HoChiMinh City1. Mr. Ly Chung Dan, Deputy Director SAWACO 2. Mr. Vuong Quang Sang, Director of Non Revenue Water Reduction Project

No 1 Cong Truong Quoc Te, District 3, Ho Chi Minh city, Vietnam Telephone: 84 8 8227425, Fax. 84 8 8227423 Email: [email protected]

3. Mr. Nguyen Van Tin, Vice Chairman HCMC People’s Committee 86 Le Thanh Ton Str. , district 1, Ho Chi Minh City Telephone 84 8 8291054, Fax. 84 8 8296988

b) Tra Vinh Province

1. Mr. Nguyen Van Quy, Deputy Director, Tra Vinh Water Supply Company 521B Dien Bin Phu, Ward 6 Tra Vinh town Telephone 84 74 840804 2. Mr. Tran Khieu, Chairman, Tra Vinh Provincial People’ Committee 52A Le Loi Str. Ward 1, Tra Vinh provincial town, Vietnam Telephone 84 74 853670 Fax. 84 74 855895

B. GPOBA/World Bank Team:

Core Team:

Name Title UnitWilliam

Kingdom Lead Water and

Sanitation Specialist

EASUR

Cong Thanh Nguyen

Senior Operations Officer

EACVF

Kien Trung Tran Procurement Specialist

EAPCO

Pham van Cung Financial Management Specialist

EAPCO

Nguyen Thi Phuong Trang

Environmental Specialist

EASRE

Pham Thi Mong Hoa

Senior Social Safeguard

EASSO


37

Specialist Barbara Evans Consultant Roland

Liemberger Consultant

Hannu Vikman Consultant

Advisory team:

Name Title RolePatricia Veevers-

Carter Program

Manager Peer Review/

Advisory GPOBA/IEF

Irving Kucynski Panel of Experts

Advisory GPOBA

Alejandro Jadresic

Panel of Experts

Advisory GPOBA

Iain Menzies Senior Infrastructure Specialist

GPOBA Manager

GPOBA

C. Project Preparation Costs Funds awarded for scheme design technical assistance were USD 443,000

(including $80,000 for WB supervision). Expenditure/committed (1/8/07) to date is approximately $220,000 and total preparation costs to grant effectiveness are estimated at $280,000.


38

wb188803 L:\Vietnam\HCMC NRW\GPOBA\Example PAD GA\HCMC draft PAD V010907cleanfinal.doc 2007-01-09 17:57:00

World Bank Document€¦ · Procurement: : Implementation of house connections and extensions will...

Documents

Transcript of World Bank Document€¦ · Procurement: : Implementation of house connections and extensions will...