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Report No: ACS18765.

WorldGPOBA W1 Sector Analysis WaterSCIENCE OF DELIVERY FOR QUALITY INFRASTRUCTURE AND SDGS

WATER SECTOR EXPERIENCE OF OUTPUT-BASED AID

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1-June-2016

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.This volume is a product of the staff of the International Bank for Reconstruction and Development/ The World Bank. The findings, interpretations, and conclusions expressed in this paper do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries.

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GPOBA:

The Global Partnership on Output-Based Aid (GPOBA) is a global partnership program administered by the World Bank. It was established in 2003 to develop output-based aid (OBA) approaches across a variety of sectors — among them water, energy, health, and education. As of September 2015, through a portfolio of 44 projects with US$228 million in commitments for subsidy funding and ongoing technical assistance activities, GPOBA is demonstrating that OBA can deliver a diverse range of services and lasting results for the poor. The program’s current donors are the United Kingdom’s Department for International Development (DFID), International Finance Corporation (IFC), Directorate-General for International Cooperation of the Dutch Ministry of Foreign Affairs (DGIS), Australian Department of Foreign Affairs and Trade (DFAT), and Swedish International Development Cooperation Agency (Sida). For more information about GPOBA, please visit www.gpoba.org.

Acknowledgement:

This report was prepared by GPOBA. Oleh Khalayim was the Task Team Leader and Hywon Kim was co-Task Team Leader, with key analytical roles of Enrique Crousillat, Robert Warner and Richard Vaughan and data support from FERDI interns Coumba Ngom and Mamady Nana Kaba. The analytical deliverables were reviewed by head of GPOBA Catherine C. O'Farrell as well as its water coordinator Rajesh K. Advani, energy coordinator Juliet Pumpuni, lead evaluation specialist Pia Schneider and data reporting analyst Daniel Coila.

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http://www.gpoba.org/

SCIENCE OF DELIVERY FOR

QUALITY INFRASTRUCTURE AND SDGS

WATER SECTOR EXPERIENCE OF OUTPUT-BASED AID

June 2016

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Summary

Convenient access to safe water is central to human health and development. Water-borne disease remains a major cause of mortality and morbidity in the world, much of which could be eliminated by a combination of better water, sanitation and hygiene (WaSH). The WHO estimates that around 502 000 deaths a year in low and middle income countries from diarrheal disease are attributable to unsafe water, and that over 1 000 children under 5 die each day from diarrheal disease caused by inadequate WASH. UNWomen estimates that in Sub-Saharan Africa alone, women and girls spend 40 billion hours a year collecting water, the time valued at around $20 billion a year. Sustainable Development Goal #6 “Ensure Availability and Sustainable Management of Water and Sanitation for All” creates a framework for tackling the challenge of mobilizing the large investments required and making WaSH available at affordable prices.

SUMMARY OF MAIN FINDINGS

This review shows that OBA is a feasible approach to the challenge of improving the access of poor people to safer water, provided some important preconditions are met. There are reasonable prospects that OBA projects are sustainable.

OBA can work in very wide range of country and sectoral contexts, with service providers in the public, private and NGO/CBO sectors, in urban, peri-urban and rural locations, and where services are delivered through many modalities. Projects have worked successfully with public utilities, private concessionaires and firms operating under lease and affermage arrangements, with small enterprises and non-government, not-for-profit service providers, and with service delivery through infill and expansion connections to existing large-scale networks to construction of whole green-field

and brown-field small-scale systems, and using household connections, public water points and water kiosks. In many cases, projects have only become feasible because of prior structural and regulatory reforms in the water sector that enable commercially oriented (or at least cost-minimizing) operators to play a role in water supply.

OBA projects are intrinsically effective in converting aid inputs into outputs, since there is no disbursement without evidence that outputs have been delivered. The portfolio has not included work with other forms of water supply (such as household tubewells) – which in any case may be amenable to effective subsidization using traditional project modalities.

GPOBA’s portfolio of pilots in water supply have demonstrated that OBA is a feasible modality for development assistance aimed at helping meet the Sustainable Development Agenda’s water access objectives. The portfolio has shown that:

OBA can deliver water to poor people in a wide range of country contexts with varied institutional structures, policy environments and capabilities.

OBA can work with the more complex modalities of water supply, and in all kinds of localities. The pilots have only worked with piped water systems – delivering water through household, yard tap and pubic water point connections, in urban, peri-urban, small town and rural areas: but this is probably the way of the future if potable water is to be conveniently supplied to large numbers of people currently without access.

OBA can leverage additional resources – not only from households

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but from communities, state enterprises, governments and the private sector.

Clearly, a regulatory framework that allows commercially oriented service providers to respond to price/subsidy related incentives is important. This includes regulation of tariff structures that support financial sustainability, licensing and certification that allow competition and entry while ensuring adequate safeguards are enforced. The capacity of regulatory institutions can be as important as the quality of the regulatory policies for which they are responsible.

Where utilities are chosen as implementing agencies, the nature of their agreements with government, and the adequacy of funding of expenditures on infrastructure on which OBA projects may depend can be critical. This is true of public and privately owned utilities. It may also be the case that additional incentives - such as service obligations built into agreements with governments – may be necessary to persuade utilities to engage with providing access to the poor, since these are likely to be less profitable customers and provide lower rates of return on outlays than serving higher income customers.

Where small scale local service providers are to be utilised, projects also have to be assured that certain features of the business environment are in place. This may include:

financial products that allow SME water investors to manage pre-financing;

a business support sector that can help SMEs achieve the formalities required to borrow and to meet water sector licensing requirements;

an efficient water services sector that enables investors access to competitive services, such as site-surveying, well-drilling, component purchasing.

Targeted communities have to have the willingness and ability to pay for water provided by OBA funded schemes. Project designs must address the type of services that poor households most value, and ensure that target communities buy-in to the benefits of paying cost-recovering tariffs for safe water. This in turn means that designs have to draw on a thorough understanding of the context in

which projects have to operate, and be sufficiently flexible to adapt as issue arise and more knowledge is gained.

SUMMARY OF LESSONS FROM PROJECT DESIGN AND IMPLEMENTATION

Various targeting mechanisms exist to include the poor. Project designs may have to make a trade-off between accuracy in selecting poor households and costs imposed in implementing the targeting scheme. Many projects used geographic targeting because more specific targeting is too difficult, but this can mean that an unknown number of less-poor households benefit from the subsidy. At the same time, differentiating between households in small tightly knit communities may be a source of friction that can impede project implementation.

The characteristics of demand have to be thoroughly assessed. In urban and peri-urban locations, poor people often pay much more for water than they would if they had access to piped water, but connection fees, concerns about water and service quality, and lack of title may deter people from seeking connections. In rural areas, poor households often have access to very low cost sources of water (for example seasonal access to rain water for in-house uses, surface water for out-of-house uses or access to neighbour’s groundwater pumps). Where demand has been inadequately assessed, suppliers have encountered problems in covering costs. Further, different communities have different preferences for supply modalities: in Honduras, the project assumed there would be demand for yard taps, but people wanted, and would pay for, house connections. In Uganda the Kampala found that people preferred public water points to yard taps, which the project was originally expected to supply.

It is important to ensure that there is clear ownership and commitment to prior/contemporaneous sectoral reforms on which the OBA approach is predicated, and that government agencies have the capacity to perform functions that are necessary for the project. In Cameroon, the Government failed to comply with financial agreements under its contract with the concessionaire that was implementing the project, constraining ability to pre-finance connections and in

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Mozambique, concession contracts could not be signed for four target cities, so that the project had to be restructured to focus on Maputo only. In Honduras, the government agency earmarked to verify outputs proved too weak to take on the task.

Project designers must ensure that sectoral regulation facilitates subsidised provision by implementers best equipped to reach targeted households. This includes regulation surrounding licensing of water supply schemes, registration of providers, and providing operators with exclusive rights of supply in the project area (which is a typical pre-requisite for commercial financing). It also means that agreements under PPPs do not discourage operators from expanding connections to poor households.

Project designs need clear sequencing of components and need to be based on adequate preparatory work to assure, for example, the adequacy of water sources for sub-projects, and that there is reliable funding for any pre-requisite investment in network extension that is not covered by the project. Designs must be flexible, supervision adequately resourced, and information systems need to provide data for monitoring and to enable mid-course corrections. Design processes also need to clearly identify risks and their allocation, and identify mitigation measures up front.

Sub-project selection procedures should avoid creating biases against serving the very poor that live in remote or scattered locations. In addition, care should be taken to ensure that competitive bidding on the basis of expected subsidy does not discriminate against serving localities where water extraction costs are high.

Access to finance is a critical ingredient of successful OBA, but in many developing countries, local enterprises can struggle to mobilise finance for water supply projects. As the Kenya project demonstrated, in countries with a financial system that is active in financing small scale projects, support from development partners can lead to the development of appropriate lending financing instruments. However, more innovation and engagement is required if OBA is to be successful in facilitating water supply to rural and small-town households through smaller scale projects.

Land tenure issues can negatively affect outcomes. Many poor people do not have formal title to the land on which they reside, and this may make it difficult to reach key beneficiaries. This can occur because sectoral regulations prohibit utilities from connecting households that do not have property titles, or because suppliers are unable to secure rights of way for distribution networks or land for infrastructure. It can also occur because without security of tenure, households (or landlords) are unwilling to make investments.

Social marketing and education can increase demand and service provider revenues - in fact they may be a precondition for successful projects given the risks that providers face in an OBA project.

Funding for technical support to small municipalities and implementers will increase project quality and speed of implementation. In many cases, these groups have only experience in O&M, not in project design and construction, and often not in financial management. Technical support to make a business case to sources of finance can also be valuable.

Tariff structures need to match the poor’s ability to pay while also achieving cost-recovery. OBA projects have subsidised connection costs, but not ongoing payments for consumption. Tariff structures are usually determined externally to the project, so designers need to make sure that these structures are designed to reflect the poor’s ability to pay, while not jeopardising financial viability. Because poor households often have relatively low levels of consumption of network-supplied water, fully commercial network operators (such as concessionaires) may still need an additional incentive to invest in serving such households, as they may be less profitable than other consumers. This can, for example, take the form of performance obligations in concession or license agreements

In some cases subsidies can leverage commercial financing from banks to make pro-poor investments viable and attract equity from communities to invest in their own future. However, in many developing countries, much work needs to be done to help banks consider financing small scale water projects.

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It is important to ensure that there is sufficient water to serve additional connections. This may be an issue if there is significant seasonal variability (typically an issue for rural systems), or if there has been insufficient upstream investment in reticulation/pumping systems (as has happened with some urban projects).

Independent verification of delivery is a critical feature of successful OBA. But none of the projects were able to use national systems to undertake this function, even though in at least one case this was considered in the early stages of design.

GPOBA’s portfolio has helped governments and a range of interested parties in the private and NGO sectors to assess the benefit and feasibility of OBA approaches, and played a role in the broader adoption of OBA and related forms of result-based financing. However, more work may be required to translate a portfolio of pilots into mainstream use of OBA – this is discussed in the following recommendations.

RECOMMENDATIONS FOR THE WAY FORWARD

GPOBA should intensify its dissemination and outreach activities with regard to the experience and lessons of its water portfolio to promote better understanding of the potential for OBA.

GPOBA should undertake a program of post-project surveys to test sustainability of its portfolio outcomes. In principle, since all projects required evidence of a period of service delivery in which households received water meeting acceptable service standards and for which they were billed and made payments, and service providers were receiving revenues that covered O&M costs, it would appear that some of the key software and cultural elements for sustainable supply were put in place. It would be important to test if these circumstances continue to apply: if so, the pilot will have demonstrated that OBA can do better than many traditional water supply projects.

Having demonstrated that OBA can deliver water to poor households if certain

conditions are met, it would be appropriate to focus further work on addressing situations where the conditions are not met. This would involve working with other partners to address issues of access to finance for water projects, and ensuring that sectoral and business regulations facilitate rather than hinder provision of water to poor households. It would also involve experimenting with designs aimed at serving harder to reach poor households – either in urban and peri-urban informal settlements, or in more remote and scattered rural communities.

GPOBA and the WBG should continue to pursue opportunities for integrating OBA approaches into larger, long term water sector investment and reform projects to consider embedding OBA approaches into traditional investment and sectoral reform projects. This not only helps to ensure that necessary sectoral and business environment pre-conditions are met for successful OBA, but also helps ensure that larger projects continue to have a credible pro-poor contribution. This may also require coordination with other development partners who may be able to work with parallel challenges, such as implementing solutions to the pre-financing problem.

GPOBA and partners should also extend piloting to other forms of results-based financing that may be applicable within sector-wide engagements and that make greater use of national systems. In particular, GPOBA should consider working with other donors to develop output-based disbursement projects, given that it has been successfully adopted following at least one OBA pilot (in Indonesia). This could also involve experimenting with modifications to ‘pure’ OBA models to ease the pre-financing problem for small enterprises, by disbursing part of the subsidy on completion of steps prior to final output delivery and to incorporate water quality standards into monitored results.

GPOBA should work with partners to test the circumstances when OBA or related forms of result-based financing can be scaled up, and if there are economies of scale in OBA-based support for water supply.

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CONTENTS

1 IntroductionThe water access challenge 10World Bank Strategy on Access to Water 12Output-Based Aid and GPOBA 13This report 14

2 GPOBA’s water portfolio and its linkages to World Bank Group sectoral engagement

The portfolio 15World Bank operations and OBA pilots 19

3 Assessing the performance of the water portfolioEffectiveness 21

Risk 23Targeting 27Experience with different types of service provider 28ICR ratings 30

Efficiency 31Economic returns 34IVA mechanisms 35ICR ratings 36

Impact and sustainability 37Impact 37Sustainability 39

The portfolio as a set of pilots: mainstreaming and scaleablity 42Conclusion 46

4 Overall conclusions and recommendationsConclusions 48

The enabling environment 48Lessons 50Recommendations 52

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ABBREVIATIONS AND ACRONYMS

CBO Community-Based Organisation

GoI Government of Indonesia

GPOBA Global Partnership for Output-Based Aid

GRM Grant Reporting and Monitoring

ICR Implementation Completion and Results Report

IDA International Development Association

IEC Information, education and communications

IFC International Finance Corporation

IVA Independent Verification Agent

MDG Millennium Development Goal

MTSP Manila Third Sewerage Project

NGO Non-Government Organisation

OBA Output-Based Aid

O&M Operations and Maintenance

PPP Public Private Partnership

PWP Public Water Point

RBF Results-Based Financing

SDG Sustainable Development Goal

SME Small or Medium Enterprise

UNDP United Nations Development Program

WASH Water, Sanitation and Hygiene

WASIS Water Services and Institutional Support Project

WB World Bank

WBG World Bank Group

WHO World Health Organization

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1 Introduction

Since its establishment in 2003, the Global Partnership for Output-Based Aid (GPOBA), managed by the World Bank (WB), has completed 12 water supply projects in 10 countries – in Cameroon, Honduras, India, Indonesia, Kenya, Morocco, Mozambique, the Philippines, Uganda and Vietnam. This report presents the result of an examination of these projects, to explore the potential of Output-Based Aid (OBA) in water supply, identify lessons and opportunities for mainstreaming OBA in the sector, and to reflect on the impacts that the projects have had.

The water access challenge

Convenient access to safe water is central to human health and development. Water-borne disease remains a major cause of mortality and morbidity in the world, much of which could be eliminated by a combination of better water, sanitation and hygiene (WASH). The World Health Organization estimates that around 502 000 deaths a year in low and middle income countries from diarrheal disease are attributable to unsafe water, and that over 1 000 children under 5 die each day from diarrheal disease caused by inadequate WASH (WHO 2014). The WHO also estimates that between one-third and two-thirds of global under-nutrition and its consequences are attributable to poor WASH. Beyond the health impacts, lack of convenient access to water is a major cause of drudgery and diversion of productive time. UNWomen estimates that in Sub-Saharan Africa alone, women and girls spend 40 billion hours a year collecting water (UNWomen 2014). The time spent collecting water has been valued at around $20 billion a year (WHO 2012).

Over three-quarters of a billion people do not have access to safe water. While the Millennium Development Goal target of halving the proportion of people in the world without access to safe water was declared to have been met in 2012 (UN 2012a), there is still a long way to go to achieve the goal of universal access. This is reflected in the continued emphasis on this goal in the 2030 Agenda for Sustainable Development that was adopted by UN member states in 2015 (Appendix A). More than a third of the people who are currently without access live in just three very populous countries - China, India, and Nigeria (Figure 1.1, top panel) – but there are many smaller countries where there is a long way to go to achieve universal access (Figure 1.1 bottom panel). Nearly all of these people are poor – in fact some development organisations consider that absence of access is itself an indicator of poverty. Over 80 per cent of these people live in rural areas – although in the period to 2030,

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http://www.who.int/water_sanitation_health/publications/2012/globalcosts.pdf

http://www.unwomen.org/en/news/stories/2014/3/collecting-and-carrying-water-burdensome-reality-for-women

70 per cent of the projected additional people needing access will be in urban areas (Appendix table A.1).

1.1 The water access challenge

Note: The indicators in the figures relate to access to water from an improved source and draws on information collected by the Joint Monitoring Program of WHO and UNICEF. An improved water source is one which is by nature of its construction or through active intervention, is likely to be protected from outside contamination, in particular from contamination with fecal matter. Water from an improved source is not necessarily safe to drink – it may still be affected by microbial or chemical contaminations (Bain et al 2014).

Data source: World Development Indicators

World Bank Strategy on Access to Water

In its 2004 Water Resources Strategy, the World Bank laid out some key strategic considerations for improving the access of poor people to safe and affordable water, focusing on the related issues of reducing costs and increasing accountability.

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Urban and rural areas require rather different approaches (box 1.2). This reflects a mix of the impact of population density and agglomeration on the economics of alternative technological and institutional solutions, historical legacies with respect to management of network infrastructure, and the nature of available water sources and their requirements for treatment.

1.2 Reducing costs and increasing accountability

The Bank’s Water Resources Strategy envisages different areas of emphasis in increasing the access of poor people to safe and affordable water in urban and rural areas (World Bank 2004).

In urban areas, the pursuit of cost reductions and accountability means:

targeting subsidies to the poorest, largely unserved consumers to partially finance up-front costs of connection;

incorporating the preferences of poor communities for service quality standards, delivery modality and management arrangements;

permitting entry and fair competition between conventional utilities and small-scale service providers; and

structuring contracts, regulatory incentives and legislation to facilitate extension and upgrading of services to poor communities.

In small towns and rural areas, the pursuit of cost reductions and accountability means:

empowering communities to make informed choices about their participation, service levels and service delivery mechanisms;

realigning the rights and obligations of key stakeholders;

vesting communities with ownership rights and authority to select service providers;

building local capacity to support community decision making in planning, management and delivery of services; and

establishing financial policies and instruments that provide incentives for communities to contribute to capital costs and pay for all operation and maintenance costs.

As the strategy points out, these approaches have to be embedded in broader efforts to stimulate the development of financially sound, operationally efficient and consumer-oriented utilities, and must also create space for the entry of the private sector. This may require, among other things: realigning policy, regulatory and service provision functions and governance structures to enhance accountability and incentives; strengthening regulatory oversight capacities, institutions and processes; building commercially oriented and customer-focused utilities to ensure sustainability of service; strengthening government capacity to contract services in transparent and accountable ways; balancing remuneration with allocation of risks; increasing the creditworthiness of water providers to enhance their capacity to mobilize financing for long delayed

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investments in rehabilitation, upgrading and expansion; gradually raising average tariffs to reflect actual costs and instituting predictable, transparent adjustment mechanisms; eliminating generalized supply-side subsidies in favour of narrowly targeted subsidies to achieve specified outcomes; and promoting the development of financial policies and instruments that facilitate more efficient allocation of public funds and increased access to local capital markets.

Output-Based Aid and GPOBA

There have been elements of OBA in development assistance for service delivery for some considerable time (one of the earliest OBA schemes provided reproductive health services in South Korea in the 1960s (IDA, 2009)) but the World Bank Group (WBG) adopted a more formal approach in 2002 with the launch of its Private Sector Development Strategy (IDA op cit). In 2003, the GPOBA was established to systematically pilot OBA and to analyse experience to support greater use of the approach.

What is OBA in water? OBA is one of a number of Results-Based Financing (RBF) mechanisms designed to enhance access to and delivery of infrastructure and social services through the use of performance-based incentives, rewards, or subsidies. RBF mechanisms have in common that a funding entity (typically a government or sub-governmental agency) provides a financial incentive, conditional on the recipient undertaking a set of pre-determined actions or achieving a pre-determined performance or outputs. Resources are disbursed not against individual expenditures or contracts on the input side, but against demonstrated and independently verified results that are largely within the control of the recipient. OBA is used to support the delivery of basic services where policy concerns justify the use of explicit, performance based subsidies, and is typically used to facilitate access to basic services for the low- income segment of the population. A key feature of OBA, as with other forms of RBF, is the transfer of the risk of poor performance to the service provider. OBA in water often addresses “last mile” challenges where the main infrastructure is already in place and the task is to physically reach poor end-users, but it has also been used to support installation of complete small scale systems where this is the best way to provide services. Appendix B presents more information on GPOBA and its approach to OBA.

This report

The purpose of the study on which this report is based is to analyse, capture and synthesise lessons learned from closed GPOBA water projects in order to evaluate the impact of the subsidy schemes and inform the scale-up and replication of OBA approaches. These lessons offer insight to successes and failures of project design and implementation as well as solutions to more complex projects and/or less tested environments.

A case study approach has been employed, drawing on desk research, to examine the effectiveness, efficiency, impact and sustainability of the projects. As pilots, the projects have all been small, and not consistently subject to World Bank project completion and evaluation requirements; and monitoring and evaluation has not typically focused on

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indicators required to address standard evaluation questions. Only 8 of the 12 projects have been the subject of an Implementation Completion and Results Report (ICR), (the ICR for one project, Uganda small towns project (P102462), was not published) and for only 4 of these reports was a post-project survey undertaken. Further, the portfolio itself is small, so even were there more data, quantitative analyses would not be appropriate.

This report looks into questions of project performance to glean lessons for delivery of access to energy. The term “science of delivery” originates in healthcare and has been promoted by the World Bank and its president Jim Yong Kim, MD/PhD. Calling for creating a science of delivery, he notes:

“Many countries have strong, coherent development policies and programs on paper but... are not getting the results they want… [However,] delivery is crucial for the public sector… as part of government’s social contract with citizens... [While] we can point to individual examples of delivery success in countries at all levels of income,… we need to move from isolated examples to broad global progress… There is an urgent need for a science of delivery… but that science does not yet exist. We must create it together... We must advance from the experiential know-how of individual practitioners to the level of analytical knowledge—the level of science.”1

Combining lessons on project performance with insights about impact of completed projects allows to see the impact of access to water on poor people’s lives. An even more comprehensive approach which is termed as “quality infrastructure” includes both how infrastructure was built and is managed as well as what impact it achieves. This report will look both into awareness campaigns which are part of project implementation and longer-term issues such as sustainability of water services.2

This report is structured as follows. Chapter 2 describes the portfolio in more depth and its linkages with broader efforts in the water sector of partner countries. Chapter 3 examines the performance of the projects in the portfolio. Chapter 4 draws on these assessment to see what lessons can be learnt about sectoral and country preconditions for the successful use of OBA and presents overall conclusions and recommendations arising from the study.

1 From the Speech of The World Bank Group President at the World Knowledge Forum, Seoul, Republic of Korea, October 8, 2012 (http://www.worldbank.org/en/news/speech/2012/10/08/delivering-development-harnessing-knowledge-build-prosperity-end-poverty last retrieved on May 1, 2016).

2 More background information and definitions of quality infrastructure can be found at the Partnership for Quality Infrastructure led by the Government of Japan of which the World Bank is a part. (www.mofa.go.jp/files/000117998.pdf last retrieved on May 1, 2016).

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http://www.mofa.go.jp/files/000117998.pdf

http://www.worldbank.org/en/news/speech/2012/10/08/delivering-development-harnessing-knowledge-build-prosperity-end-poverty

http://www.worldbank.org/en/news/speech/2012/10/08/delivering-development-harnessing-knowledge-build-prosperity-end-poverty

2 GPOBA’s water portfolio and its linkages to World Bank Group sectoral engagement

The portfolio

To date, GPOBA has completed 12 water supply projects, serving an estimated 1.5 million (mainly poor) people. Consistent with the aim of piloting OBA in the sector, the projects have been (table 2.1):

Located in rural, peri-urban and urban areas in a range of low and lower middle income countries spanning East Asia and the Pacific, South Asia, Sub-Saharan Africa, Middle East and North Africa and Latin America and the Caribbean;

Working with small, medium and large, state-owned and private, community and non-governmental organization service providers;

Operating in sectors with different regulatory regimes;

Delivering services through a range of modalities, from infill and expansion connections to existing large scale networks to construction of whole green-field and brown-field small-scale systems, and using household and yard-tap connections, public water points and kiosks.

Typically, projects have provided one-off subsidies, covering part of the cost of connecting targeted households to a piped water supply system. The cost of connection to which the subsidy applied may include varying elements of primary and secondary infrastructure cost, depending on the nature of the system being supported. (In urban areas, GPOBA projects have mostly been aimed at helping connect poor households to existing networks, but in rural and some peri-urban areas, the projects have engaged with building a new small-scale network.) In all cases, disbursements have been based on evidence of connections being made and of a period of satisfactory service delivery (3 to 6 months).

The majority of projects have used geographic targeting as a means of directing the subsidy to poorer households, operating in areas where poverty levels are known to be high. In some cases, easily measured characteristics of housing or access to infrastructure services were used to target poor households, in addition to or instead of geographic targeting (table 2.1). The project in Cameroon used no explicit targeting, but it was expected that the nature of the connections made available (low volume) would lead to a degree of self-selection, and that absence of a connection was itself an indicator of deprivation.

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2.3 Completed water projects

Project LocationInvestments undertaken Service modality Grant recipient Service provider Targeting

Cameroon (P106794)

Urban In-fill Household connections

State-owned concessionaire

Private operator None, but ‘ring-fencing’ eligibility criteria used a

Honduras (P102474)

Rural, peri-urban

Greenfield and brownfield systems

Household connections, yard taps, PWPs (and sewerage connections)

Social Investment Fund

Public, private proponents

Geographic and income based

India (P102472)

Rural Greenfield Community distribution point

NGO Private technology provider

Geographic, asset based indicators, government program indicators

Indonesia – Jakarta (P102529)

Urban Tertiary network Household connections

Private concessionaire


Geographic

Indonesia – Surabaya (P105590)

Urban Tertiary networks, connections

Household connections, master meter schemes

Government Ministry

Public utility Asset and service access proxies for poverty

Kenya (P104075)

Rural, peri-urban

In-fill and greenfield

Household connections, kiosks

Commercial Bank Communities and municipalities

Geographic

Morocco (P102527)

Urban Tertiary networks, connections

Household connections (and sewerage connections)

Government Ministry

Private and public concessionaires

Geographic

Mozambique (P104945)

Urban In-fill, network expansion

Yard taps State owned asset holding company

Private lessee - which reverted to public ownership

Geographic and housing quality proxies for income

Philippines (P106775)

Urban In-fill Household connections, kiosks



Geographic, and means-testing

Uganda - small towns (P102462)

Urban Greenfield and brownfield systems

Yard taps Private fiduciary agent

Private operators Geographic

Uganda – Kampala (P104943)

Urban In-fill Yard taps, PWPs and pre-paid water points

Public utility Public utility Geographic

Vietnam (P104528)

Rural Greenfield systems

Household connections

NGO Community and private operators

Geographic

a Only small diameter connections outside of new residential areas were eligible.Note: PWP – public water point, NGO – Non-government Organization, LGA – Local Government AreaNote GPOBA also has one ongoing water project, in Kenya, Kenya Urban Water and Sanitation OBA Fund for Low Income Areas (P132979)Source: Project documents

In total, nearly $35 million has been disbursed on these projects. Disbursements range between $800 000 and $7 million, and the number of beneficiaries ranges between 27 000 and 291 000. The average grant disbursement per person served is around $24, the smallest is $5 (the Uganda – Kampala project), and the largest is $117 (Morocco – where sanitation as well as water connections were covered) (Figure 2.2).

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2.4 Beneficiaries and grants disbursed

0.01.02.03.04.05.06.07.08.0

0

50

100

150

200

250

300

350 Beneficiaries and disbursements

Beneficiaries (thousands) Grant disbursed ($ million)

$0 $20 $40 $60 $80 $100 $120 $140

CameroonHonduras

IndiaIndonesia - Jakarta

Indonesia - SurabayaKenya

MoroccoMozambique

PhilippinesUganda - small towns

Uganda - KampalaVietnamAverage

Grant/beneficiary

Data source: Project documents

A number of GPOBA projects have been implemented in the context of prior sector reforms (often supported by WB and IFC). These reforms have included:

commercialization/corporatization of state utilities (Cameroon, Mozambique);

reform of arrangements for financing state provision of water services (for example as associated with decentralization of service delivery responsibilities to local and provincial governments – Indonesia, Uganda, Kenya);

out-sourcing of network operations to private concessionaires (Philippines, Indonesia, Morocco), or through use of lease, management and affermage3contracts (Cameroon, Uganda); and

reform of regulations and the institutional mechanisms for regulatory oversight (Honduras, Kenya, Morocco).

These reforms have established important pre-conditions for OBA approaches to be applied, creating circumstances where parts or all of the sector service are responsive to price-related incentives, where prices are allowed to cover costs (or at least operating costs), and impediments to new non-state entities becoming service providers are removed. In some cases reforms have also clarified issues such as the terms of access to water sources, service quality requirements and their monitoring, or have addressed impediments to network expansion or creation of new systems.

3 An affermage arrangement is one where operation of a utility is transferred to a private operator, while investment remains the responsibility of the government.

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These reforms have enabled GPOBA to find suitable service providers.

In Cameroon, Mozambique, Philippines, Indonesia (Jakarta), Morocco and Uganda (Kampala), the chosen service providers were commercialised public utilities or private concessionaires/lease operators whose structure and/or role in water supply was strongly affected by reforms.(In Cameroon, the OBA arrangement was a formal part of the Public-Private Partnership (PPP) agreement established under the reforms.)

In Uganda (small towns), Vietnam, India and Kenya, the projects could use private, municipal, and community operators because of regulatory and structural reforms that created the framework for decentralised and private operation of water supply schemes, and the ability of these operators to accept the associated risks of an OBA approach.

In addition to building on sectoral reforms, some projects were closely linked to World Bank operations, or built on significant technical assistance delivered by Bank managed programs. For example:

The GPOBA operation in Cameroon was initially conceived as an integral part of an Urban and Water Development IDA loan which provided support to implementation of a PPP that established an affermage arrangement involving a newly created state-owned asset holding company and a lease contract with an internationally led consortium. This support also included financing priority rehabilitation to production and distribution systems, and expansions to the tertiary network to be used by the GPOBA operation.

In Kenya the World Bank managed Water and Sanitation Program and the Public-Private Infrastructure Advisory Facility provided active support in the development and implementation of the GPOBA project, working with the commercial bank that was the grant recipient and manager of the project.

In Mozambique at the time of appraisal of the project, the Bank was preparing the Water Services and Institutional Support Project (WASIS), which would support system expansions in the major cities outside of the capital Maputo, where the project was also expected to operate.

At the time that the GPOBA project was being developed in the Philippines, the Bank’s Manila Third Sewerage Project (MTSP) was under implementation. Project preparation benefited from sector analysis and dialogue with the Government of the Philippines and the concessionaire MWCI in water supply associated with MTSP and its predecessor.

In Honduras, the project was developed in the context of implementation of the Government’s Strategy for Modernisation of the Potable Water and Sanitation Sector, which had been developed with help from the Bank and PPIAF.

In Uganda, the IFC developed a Small-Scale Infrastructure Provider Program that assisted suppliers to access bank finance.

A variety of methods for selecting activities/subprojects and service providers were utilized. Some projects selected sub-projects and providers on the basis of competitive bids or evaluation of proposals from project proponents (Honduras, Uganda small towns, Kenya).

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In other cases, bids were sought to implement pre-identified sub-projects (Vietnam), and in others both the sub-projects/targeted communities and providers were identified as part of project design (Cameroon, Indonesia - Jakarta and Surabaya, India, Morocco, Mozambique, the Philippines, Uganda –Kampala).

All projects contracted external Independent Verification Agents (IVAs). In some cases, procurement of IVAs was handled by the grant recipient, and in others directly by GPOBA. In at least one project (Honduras) the expectation at appraisal was that a Government regulatory agency would take on the IVA function, but it was judged not to have sufficient capacity.

World Bank operations and OBA pilots

The relationship between GPOBA pilots and other World Bank Group operations in the water sector is particularly important. By themselves, the pilots are too small and focussed to deal with all of the sectoral pre-conditions needed for successful OBA. It would appear that many GPOBA pilots were developed precisely because WBG operations were addressing these preconditions, or providing service providers with resources needed to build network infrastructure that the pilots could use to offer access to the poor. Further, the WBG operations provided a platform and an opportunity for the dialogue needed to elicit partner country interest in implementing OBA pilots.

GPOBA projects were typically developed in the context of World Bank Country Assistance Strategies that included a pillar relating to access to services. Analysis of World Bank Country Assistance Strategies - and their evaluations over the period of design and implementation - indicates that many GPOBA pilots were implemented where WBG engagement was at the stage of trying to translate policy and regulatory reforms into improved service delivery (Appendix C). Among other things, this meant that the pilots could often draw on Bank work that facilitated preparatory analysis to inform project design. This is particularly important since the design of access subsidy schemes requires a thorough knowledge of demand and supply issues in the sector, and the likely costs of investments required to provide access.

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3 Assessing the performance of the water portfolio

This chapter assesses the performance of the water portfolio against four criteria – effectiveness, efficiency, impact and sustainability. The questions informing this assessment are described in Box 3.1.

3.5 Criteria for assessment of projects

The analysis considers the performance of the portfolio against the criteria of effectiveness, efficiency, impact and sustainability. Questions it addresses include:

Effectiveness - how well have OBA projects performed in terms of delivering the intended results, what practical lessons can be drawn from objective setting, are OBA projects more effectively delivered by private or public sector, and what aspects of OBA can be delivered at scale?

Efficiency – what value for money does an OBA project deliver, how are providers incentivized, what pre-conditions or other requirements are needed for OBA to work, what are the various ways of incentivizing providers, and how well have different types performed, and how efficient are the independent verification mechanisms?

Impact - what has been the overall impact of OBA projects in water, what are the positive additional impacts or knock-on effects, if any, from these projects, have there been any unintentional negative consequences arising from the OBA projects, and are there limitations to the type of service providers who might be able to engage in such projects?

Sustainability – what is known about service delivery after projects have closed, what are the prospects for long-term sustainability of results under OBA, and how could OBA design be improved to increase sustainability of the outputs and hence outcomes?

Since GPOBA’s portfolio of water projects has been developed to test the viability of OBA in the water sector, and whether OBA can deliver services and lasting results for the poor, this evaluation has to consider not only the performance of each project, but also the broader question of whether the portfolio has delivered proof of the concept in the sector. For a pilot program, depending on the reasons, failure of a project may not necessarily mean failure of the portfolio, if the project generates important lessons for implementation of the overall approach.

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Effectiveness

Eight of the 12 projects achieved 95 per cent or more of their final output targets, with 5 exceeding targets by 15 per cent or more. In all projects, the specified outputs were household connections or households served. (Given the verification processes employed, installed connections would also have met the specified service targets). According to the documentation accessed by this study, four of the 12 projects had their targets revised downwards (from numbers presented in project appraisal or commitment document), and one had the targets revised upwards (table 3.2).

3.6 Target and actual outputs

Unit of output Initial Target

Revised Target

Achieve-ment

Percentage of initial target

Percentage of revised target

Cameroon (P106794) Household connections 40 000 nr 25 254 a 63.1 nr

Honduras (P102474) Household connections 25 627 15 000 14 642 57.1 97.6

India (P102472) Community Schemes 25 nr 25 100.0 100.0

Indonesia – Jakarta (P102529) Household connections 14 693 11 630 5 042 34.3 43.4


Household connections and master meters 15 500 nr 13 473 86.9 nr

Kenya (P104075) Household connections No target 8 000 17 500 b - 218.8

Morocco (P102527) Household connections 12 025 10 421 12 426 103.3 119.2

Mozambique (P104945) Yard taps 28 950 28 950 c 33 407 115.4 115.4

Philippines (P106775) Household connections 20 000 nr 28 560 142.8 nr

Uganda - small towns (P102462) Yard taps and PWPs 1 993 nr 2 416 120.8 nr

Uganda – Kampala (P104943) Yard taps and PWPs 19 800 8 533 7 524 37.8 88.2

Vietnam (P104528) Household connections 23 000 32 700 35 344 153.7 108.1a ICR claims that 18 854 connections were made at project completion b ICR states that11 505 connections were made at project completion

c Targets transferred from 4 other cities to MaputoNote: nr – no revision made.Source: Project documents. GPOBA Annual Report 2014

The reasons for revisions cannot always be determined from the documentation, but it seems that in:

Honduras and Morocco cost increases lead to a downward adjustment in connection targets;

Indonesia in the Jakarta project the downward revision was made in the light of a decision not to proceed with a second phase targeting slum settlements, given regulatory restrictions facing the concessionaire;

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Uganda in the Kampala project, the downward adjustment was made in the light of revealed household preferences for public water points rather than yard taps; and

Vietnam, cost increases led to a reduction in connection targets in the originally targeted areas, but a decision to include slightly larger privately developed and operated schemes in the Mekong Delta enabled adoption of a higher target.

Unwarranted optimism about sectoral reforms, and failure to foresee problems with the regulatory environment played a key role in projects that fell well short of targets. For the two projects which achieved less than two-thirds of their connection targets, the main reasons for underachievement were as follows:

in Cameroon (63.1 per cent of target) - external factors including a major deterioration in the financial position of the entity responsible for pre-financing connections, due in part to Government failure to comply with financial agreements, and internal factors such as delays arising from late contracting of the Independent Verification Agency, and the complexity of disbursement and eligibility specifications (World Bank 2014a); and

in Indonesia – Jakarta (43.4 per cent of target) – exclusion of a number of target communities due to application of the Government of Jakarta’s spatial planning policy criteria which disqualified all slum communities, and cancellation of a phase aiming to provide connections to households in informal settlements, given problems encountered piloting the approach.

Nearly all of the projects reported initial delays in implementation, and at least 10 were extended once or twice – but the reasons for delays do not seem too much different from those encountered in normal investment projects. Lack of familiarity with project procedures was a common cause of delay – but delays were also attributed to:

complexity of eligibility criteria for subsidy payment (Cameroon);

grant recipient and implementer lack of capacity (Cameroon, Kenya);

delayed procurement (Cameroon, Indonesia –Jakarta, Uganda – small towns, Kampala);

problems in mobilising pre-financing (Honduras);

problems in finding replacement communities where initial selections proved unsuitable (India);

slow delivery of parallel infrastructure (Indonesia – Jakarta, Morocco, Mozambique);

coordination of multiple agencies at start-up (Indonesia – Surabaya);

regulatory delays (Kenya);

non-renewal of leases for expected implementers (Mozambique);

World Bank processing of payments (Vietnam);

addressing challenges caused by land tenure, gaining access to install distribution networks (Philippines), and problems with acquiring land for network facilities (Uganda); and

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negotiating with vested interests controlling alternative water supplies in informal settlements (Philippines), and dealing with political interference in the location of connections (Uganda).

Risk

A defining feature of OBA is the transfer of elements of performance risk to the service provider – a challenge for project design is to ensure that the distribution of risks is consistent with the ability of various parties to manage them. The literature on OBA and other forms of RBF identifies payment, demand and cost risks that typically occur in water projects, as well as political and regulatory risk. An important element of the approach that GPOBA’s portfolio has taken to water is the determination of the connection subsidy offered to households – here many of the demand and cost risks are brought together. Service providers should in principle be able to assess the risk of the subsidy being incorrect, and most projects have carried out extensive analytical work and consultation to determine subsidies. But experience has shown that there are other risks affecting performance that have not always been as well assessed.

Demand

GPOBA’s water pilots have primarily involved supporting profit oriented or cost recovering water supply operations – where success depends on target households’ willingness to pay a tariff that at least covers costs. Demand characteristics, and especially the impact of competing sources of water, have to be carefully assessed.

Evidence tends to indicate that many poor people (especially in urban and peri-urban areas) pay considerably more for water than they would pay if connected to a network (see, for example, Sy et al 2014). However, connection fees often represent a significant share of annual cash incomes for poor households, and there are few mechanisms available to the poor to spread the costs of connections. Some projects also found that vested interests in informal settlements associated with alternative water supplies were able to resist or sabotage project attempts to deliver piped water (Uganda - Kampala, Philippines, Indonesia – Jakarta).

However, in many rural areas, poor households have periodic access to very low cost sources of water (for example, rain water for in-house use) or more consistently available lower quality water (such as surface water for outside-the-house uses). This challenge, which was encountered in the Uganda small towns project, can mean that implementers need to carefully calculate the appropriate size of systems and their fixed costs to deal with significant seasonal fluctuations in demand.

Evidence also suggests that poor households are willing to pay for particular levels of service – such as consistent cleanliness and 24 hour availability, and in many circumstances place a considerable value on having household connections, as opposed to community water points (Sy et al 2014).

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An attempt in the Jakarta project to provide water in informal settlements through community meters was abandoned, in part because it did not provide the kind of service households wanted.

The Honduras project assumed that there would be a demand for yard taps, but found that what users wanted and were willing to pay for was house connections

In contrast, the Uganda Kampala project expected that there would be significant demand for yard taps. This was not realized and the project instead focused on public water points. An assessment of the project (Mimmi, 2012) suggested that peri-urban areas are often characterized by landlords reluctant to invest in their properties, high levels of mobility of residents reducing households’ interest in significant investments, and lack of clarity concerning responsibilities for O&M, all of which diminish interest in household connections.

A number of projects devoted effort to building awareness in target households of the benefits of participating in subsidized access projects, and willingness to pay surveys were an important part of project preparation and sometimes used to inform selection of target communities.

Morocco – the ICR concluded that organization of awareness and information campaigns was critical to guaranteeing the population’s buy-in to the social program.

India – the ICR observed that community awareness and social marketing campaigns played a key role in getting beneficiaries to accept the benefits of using treated water and paying cost-recovery tariff.

In Indonesia, the Jakarta concessionaire employed an NGO to help with promotion and socialization of the project, including creation of community based organizations to help with billing and collection.

In Vietnam the project proponent (an NGO long established in the country) used a consultative approach to inform, build ownership, and ensure the commitment of prospective beneficiaries and local authorities to the development process and to responsibility-sharing among all stakeholders. An integral part of the consultation process was an information, education and communications (IEC) campaign. The IEC campaign not only sought to raise awareness about the merits of piped clean water but also to teach the community about improved sanitation and hygiene practices.

Costs

The other side of the coin in determining the appropriate amount of subsidy lies with the costs of making household connections.

In some projects, typically those where a public utility, concessionaire or leaseholder is the chosen implementer, regulations often set both the tariffs and connection fees that could be charged (for example, Cameroon, Morocco, Mozambique, Indonesia –Jakarta and Surabaya and the Philippines). Tariff structures may be designed to offer some kind of cross-subsidization to poorer customers, but this may in fact act as a deterrent to providers to

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connect poor households. Similarly regulated connection fees may be based on network-wide historical costs of connections – but they may not cover all of the costs associated with reaching poor communities because additional network investment may be needed to reach them.

This leads to some complex interactions between the allowable connection fee, the OBA subsidy, the household and service providers’ contributions and the incentives for both suppliers and households to do business.

In Cameroon, where the project subsidised in-fill connections, the subsidy varied according to the length of the connection, based on cost estimates drawn from the service provider’s data base. Initially, connection fees reflect the actual cost of connection, but mid-project a Government decision fixed the fee regardless of cost.

In Indonesia, for the Jakarta project, subsidy payments were based on actual costs of connections, and used a complex formula designed to share some of the market risk. In the Surabaya project, cost and subsidy data were based on a random sample of actual costs incurred by the local utility, with the subsidy being fixed for in-fill connections, and varying according to length for expansion connections.

In the Philippines, subsidies were based on the regulated connection charges.

In Morocco, subsidies were developed based on benchmarking of concessionaires’ connection costs.

In the face of cost and exchange rate variations, with a fixed subsidy, and if the Government intervenes to set connection fees, there can be quite significant shifts in the distribution of costs across stakeholders. Figure 3.3 shows how the distribution of the unit cost of a connection across the project implementer, the Government of Cameroon, beneficiaries, and the GPOBA subsidy varied over the course of the project. At the beginning of the project, fees were based on actual costs, but after 2010 the Government fixed the connection fee and household contribution. Household contributions were always higher than the 5 per cent envisaged at appraisal, and varied between 10 and 22 per cent of cost. (Note that after the Government decision, the project ceased recording actual connection costs. It appears that after the decision, the implementer limited the length of connections it would cover, and charged beneficiaries for the extra costs of longer connections. (World Bank 2014a).

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3.7 Distribution of connection costs and charges over project life: Cameroon project

7

10

10

22

16

14

17

5

38

59

73

70

42

40

37

45

20

31

17

8

43

46

46

50

35

0

0

0

0

0

0

0

AVERAGE EXECUTED

AVERAGE ELIGIBLE

2010 Q3 TO END OF PROJECT

2010 Q2

2009 Q4

2009 Q3

2009 Q2

APPRAISAL

Beneficiary households GPOBA Camwater Camwater/GOC

Note: The implementer made some connections to poor households that, for a variety of reasons were not eligible for the GPOBA payment: hence across all executed connections, the implementer and Government bore 35 per cent of total connection costs.

Data source: World Bank, 2014a

Determining costs can be rather more complicated when an OBA project deals with a collection of greenfield and brownfield water supply systems. In these cases, service providers will be determining the appropriate scale of system to build, given expectations of up-take from customers, and both construction and operational costs may vary considerably across different schemes. Factors such as transport costs for materials, energy for pumping, and dispersion of households to be served will all affect system costs. Some projects (Honduras, Uganda- Kampala, Vietnam) set subsidies on a case by case basis, requiring proponents to submit costings as part of a competitive evaluation process. While this may solve some of the cost-subsidy issues, using a required subsidy as a rationing device between alternative subprojects can bias choices in favour of intrinsically cheaper schemes and discriminate against harder-to service poor communities. (GPOBA, 2014).

Other risks

Other risks have surfaced in GPOBA projects – not all of them have been properly anticipated and some were clearly beyond the service provider’s competence to manage. These included:

inadequate water resources – in the Uganda small towns project, at least one site for which firms bid to build a water network proved to have inadequate groundwater resources. In other projects (such as Indonesia - Jakarta), the project had to be modified because of lack of water;

problems with land tenure and access to land – as mentioned above, this was an issue in the Uganda small towns project and in the Philippines; and

regulatory risk – in the Jakarta project the design envisaged that it would be possible to provide connections to informal settlements, but the municipal government would not

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amend regulations requiring proof of title for utilities to make connections, and in Kenya, expected changes in regulations affecting licensing of water systems were delayed.

Public utilities and large scale private operators of utilities are typically able to cope with the impact of these risks being realised: but where providers are small scale local enterprises, capacity to manage such risk is limited.

Targeting

GPOBA water projects have all been concerned with issues of access, rather than broader public health dimension of water supply and use. As such, a key intention is to increase the access of poor households to water that in some case is clean, and in other case is potable.

This aspect of the projects is typically pursued by targeting, to ensure that the subsidy is both effective and efficient. Some sources have argued that absence of access to safe or improved water is an indicator of poverty in its own right, but more projects have tried directly or indirectly to target households that meet income or other criteria for poverty.

Many projects have used geographic targeting because more specific targeting is too difficult, but this has meant that a (typically unmeasured) number of non-poor households may have also benefited.

As indicated earlier, households that do not own their residences are often excluded from projects, even when they are clearly poor – a particular problem in peri-urban and informal settlements.

The project in the Philippines was the only one for which an explicit effort was made to examine if beneficiary households met an income/consumption poverty test.

Some projects (for example India) explicitly excluded very poor households on the grounds that did not have the capacity to pay existing water tariffs, even if their connections were subsidised

Some projects made changes in eligibility criteria during implementation.

In Mozambique, with 18 months of the implementation period remaining, the implementing concessionaire requested an adjustment to the eligibility criteria for beneficiary households. The original criteria had been a positive list of housing characteristics – i.e., if a residence displayed a minimum number of criteria (for example, dirt floors, no exterior wall on the property, no paint finishes on the walls of the house) – which was seen to be eliminating households that should otherwise have benefitted from the program. Eligibility was revised to be a negative list of housing characteristics, the presence of at least three of which would disqualify a household. This appeared to ensure inclusion of more obviously poor households.

Others had problems with implementation of criteria.

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In Cameroon, there were considerable problems with respect to eligibility of connections being made by the implementer, and the ICR report argued that targeting was pragmatic but the eligibility criteria were not clear. This led to challenges in identifying connections that were eligible for the project subsidy, but the ICR concluded that the project did reach the targeted low-income households.

On balance, the targeting seems to have been reasonably efficient.

Experience with different types of service provider

GPOBA projects have worked with a range of service providers: public, private and community based/NGO. The experience has been varied and no clear picture of a preferred type of provider emerges.

One clear test was in Vietnam, where the project worked with three different management models: privately designed and owned schemes, cooperatively owned schemes, and schemes owned and operated by Commune Peoples’ Committees. The grant recipient and project manager (an international NGO) surveyed schemes and found that the private schemes scored better on technical and financial performance and customer satisfaction. (It should be noted, however, that in this project, the grant recipient bore the pre- financing risk, which may have helped private operators.)

In the Philippines, the private concessionaire performed very well. (It is worth noting that the concession agreement included strong incentives to achieve 100 per cent coverage of households in the concession area.)

In Morocco, where there were private and publicly owned water system operators, there was no clear evidence of better performance by either type. (However, the strong commitment of the government to improving service access, and the way this was factored into government/operator interactions was an important factor.)

In Honduras, both private and public service providers were involved, but the project tended to favour public providers, for whom financing was made available to them, whereas private operators had to source financing on their own.

In Mozambique, the private sector utility operator’s performance was considered to be fairly weak (including a marked reluctance to connect poor households), and performance improved markedly after the utility was taken over by the state-owned asset holding company.

In Indonesia, the public utility in Surabaya took on more performance risk than the private concessionaire in Jakarta, agreeing to receive the whole subsidy payment on evidence of both connections and 3 months of service delivery, compared to a 75-25 per cent split in the Jakarta project.

A recent review of results based financing in WASH argued that the case for using RBF with public providers is weak because they lack a profit motive, and may lack the financial flexibility to fund capital expenditures ahead of receiving RBF payments (Castalia 2015). The experience with GPOBA’s portfolio does not really support this view, since a number of

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public utilities and not-for-profit entities have been quite successful partners (for example, Morocco, Honduras and India).

The key factors appear to be that operators have an incentive to recover costs, which some non-private water service providers have, combined with a contractual or implicit community service obligation. The pursuit of cost recovery encourages providers to maximise capacity utilisation, which in turn can create an incentive to expand connections. But poorer households typically consume less water, so they may be inherently less attractive customers than wealthier households for network providers. Pro-poor connection subsidies may not, therefore, of themselves provide sufficient incentive for operators to seek out poor customers.

An important issue with regard to all types of partners is their ability to handle the challenge of pre-financing. OBA was originally designed around formal private enterprises with their own sources of finance. As the range of implementers has broadened to include NGOs, CBOs and SMEs, the issue of access to finance and the capacity of the local financial sector to adopt more innovative lending practices has risen to the surface, and/or the desirability of OBA projects to include support to access finance. A number of projects included - either by design or as a response to experience during implementation - measures to assist implementers to access finance or to provide such finance.

The project in Kenya delivered the project through a commercial financial institution specializing in micro-finance. That institution bore a share of the pre-financing risk, and also used its own resources to assist prospective implementers to access its financial products and provide pre-financing.

The project in Honduras, delivered through a Social Investment Fund, provided financing to public sector implementers (through funds provided to the SIF by the government). It also provided 10 per cent of the projected subsidy payment at the time of contract signing.

In Mozambique, the ICR observed that the private sector concessionaire operating in Maputo was facing severe cash constraints due in part to the nature of its concession contract with the Government.

In Vietnam, the NGO that received the grant and managed the payment process for private operators, disbursed payments before receiving GPOBA clearance, since operators were unable to use the use the water systems as security for bank loan.

In the Uganda rural growth centres project, subsidy payments were phased in, with 55 percent of investment costs reimbursed against intermediate milestones and 45 percent of the subsidy paid on working connections and water delivered

At least one project implementer/recipient observed that the costs of pre-financing were increased by the time taken by GPOBA to process payments:

On average, the World Bank/GPOBA disbursements were received 79 days after the end of each quarter. Since connections were made on a continuous basis, the “average” connection was completed 45 days before the end of the quarter or four months before the corresponding disbursement was made. Furthermore, entity bearing the financing risk

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incurred the expenditures on planning, design, construction, and commissioning subprojects long before the completion of the household connections. This gives an average time-lag between expenditures and receipt of the GPOBA funds of around eight months—with GPOBA’s procedures accounting for roughly half of this time lag (Kumar et al, 2014).

ICR ratings

Table 3.4 presents the assessments of effectiveness made in the ICR reports for the seven projects for which an ICR was prepared. One (Cameroon) was found to be moderately unsatisfactory, and one (Mozambique) was found to be of low effectiveness assessed against the original development objectives, but substantial against revised objectives set after a considerable restructuring. The other five were rated satisfactory or higher.

3.8 ICR ratings of project effectiveness

Project Rating/assessment

Cameroon (P106794) Moderately unsatisfactory

India (P102472) Highly satisfactory

Kenya (P104075) Satisfactory

Morocco (P102527) Satisfactory

Mozambique (P104945) Low (against initial objectives) – Substantial (against revised objectives)

Philippines (P106775) Satisfactory

Uganda - small towns (P102462) Satisfactory

Vietnam (P104528) Substantial

Source: Project ICRs

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Effectiveness – summary of findings

Overall, the portfolio of projects has been effective – across all projects, slightly more than 100 per cent of target connections have been made, and only two projects fell significantly short of their targets. (OBA projects are intrinsically effective in converting aid inputs into outputs, because if outputs are not delivered, aid is not disbursed.)

Unwarranted (in hindsight) optimism about sectoral reforms, and delivery of solutions to problems with the regulatory environment played a key role in those projects that fell well short of targets.

All projects suffered delays, suggesting that GPOBA consistently under-estimated the challenges of implementation and over-estimated the capacities of grant recipients and service providers. Design flexibility was an important reason why delays did not translate into failure to deliver outputs.

While the projects delivered connections, they do not seem to have uniformly tested if they only connected poor households, or that the poorest households were included in the program. Pragmatic selection of targeting methodologies has made necessary trade-offs between accuracy and cost of implementation necessary. Because all projects subsidised connection costs only, they would not have covered households that were unable to pay water tariffs.

Efficiency

Output-based aid aims to increase the efficiency of resource use in producing results (compared to traditional input based aid) by exploiting the profit seeking/cost minimising behaviour of commercially oriented service providers and transferring the risk of non-performance. However, as recent studies have pointed out, the available data cannot prove that GPOBA’s water projects are more efficient than alternatives (Castalia, 2015). Chart 3.5 reproduces data presented in the Castalia report - the best information that is available on costs of service delivery across 8 GPOBA projects. Because there is so much variation - within and between projects – in terms of investments required to deliver connections and the type of connection supplied, it is not really meaningful to compare the observed average unit costs per person.

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3.9 Average cost per person served, selected GPOBA projects

5

11

16

14

8

54

11

14

7

3

5

14

41

12

75

95

UGANDA - KAMPALA - CONNECTIONS, PWP, PRE-PAID PWP, DISTRIBUTION

INDIA - UV TREATMENT PLANTS, PWPS

INDONESIA - SURABAYA DISTRIBUTION AND CONNECTIONS

KENYA -ABSTRACTION, TREATMENT, DISTRIBUTION, CONNECTIONS

CAMEROON - CONNECTIONS

UGANDA SMALL TOWNS - ABSTRACTION, TREATMENT, DISTRIBUTION, PWP, …

MOZAMBIQUE - CONNECTIONS

PHILIPPINES - CONNECTIONS

GPOBA Other

Data source: Castalia, 2015

However, two projects did generate data suggesting that connection and subsidy costs were considerably lower than in similar schemes using traditional input-based approaches. For Vietnam, a comparison of costs of connection under the GPOBA project and similar government schemes suggested that project was much more cost-effective (Kumar et al). And the ICR report for the Uganda small towns project presented data indicating that subsidy costs per connection were much lower than for similar extension and greenfield projects in the country (World Bank, unpublished ICR Report). (This result in Uganda may have been due in part to a unique feature in the design, by which sub-project implementers bid, on the basis of desired overall subsidy, for the right to build and operate previously selected water supply projects).

A further complication, which also applies to many traditional water supply projects, is that individual projects will not necessarily include all of the expenditure required to enable connections to be made or to make it feasible for commercial operators to engage with connecting poor households. As section 2 has shown, many GPOBA projects built on sectoral reforms, and others were predicated on investments in primary and secondary infrastructure that was supported by other donor-funded projects. And in other cases, the GPOBA projects were paralleled by extensive technical assistance and capacity-building provided by other partners. This does not necessarily mean that the GPOBA projects were relatively inefficient, just that direct comparison of unit cost data from water supply projects does not shed much light on the question of efficiency.

The commercial imperative facing most OBA implementers creates a strong expectation of efficiency. However the incentives faced by service providers depend very much on the

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particular market and regulatory environment in which they operate. For example:

For providers involved in some kind of PPP, the specific elements of the PPP agreement play an important role in shaping how private concessionaires and leaseholders respond to an opportunity to extend provision to poor households.

– In the Cameroon project, where a public sector asset holding company (CAMWATER) was responsible for network investments, and a private implementer operating under an affermage agreement (CDE) was responsible for making and serving connections, problems arose because CAMWATER was not replenishing the fund set up to finance connections, and was slow in implementing network extensions required for some targeted connections.

– In the Philippines project, the concessionaire was required by its contract to achieve 100 per cent connectivity in its concession area - a strong incentive to utilise the GPOBA project since tariff rebasing under the contract was determined in part by progress in meeting connection targets.

– In the Indonesia-Jakarta project, the concession agreement between the municipal government and the concessionaire provided for remuneration on the basis of the volume of water supplied, and not revenue collections: this diminished the concessionaires’ incentive to expand connections to low-income households which typically have low levels of consumption.

The specifics of regulation of water supply –whether built into PPPS or more general sector-wide regulation, strongly affect responses. As an GPOBA working paper (Tremolet and Halpern, 2006) has pointed out, OBA aiming to provide water services to poor customers requires regulatory arrangements that provide:

– incentives (or obligations) for utilities to extend services (a number of GPOBA projects encountered situations where utilities were prohibited from supplying to households in informal settlements – for example, Philippines, Morocco, Indonesia);

– a tariff level and structure that fosters access without jeopardizing financial stability – this was not the case in the Indonesia project in Jakarta, as the above discussion shows;

– a flexible approach to service quality in order to give incentives to service providers to experiment and to cut costs while respecting basic quality requirements (an important issue here is the need to match quality standards to people’s requirements, and to the ability of regulatory agencies to enforce such standards);

– a competition framework which allows a wide range of service providers, including the main utility and alternative service providers to compete on a level playing field (there is often tension because network suppliers operate in a world of economies of scale, and struggle to be financially viable where people have access to alternative sources of supply: but at the same time there are significant risks in restricting the operation of alternative suppliers when network performance is not assured); and

– mechanisms to address complaints from all customers, including the most marginalized.

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Economic returns

Economic analyses undertaken in project ICRs suggest that some GPOBA some projects have been economically efficient. As figure 3.6 shows, for those projects where an EIRR has been reported, the rates of return vary from 31 per cent (Cameroon) to 126 per cent (Philippines): significantly higher than the standard discount rates employed by the Bank (10 or 12 per cent). Even a project whose outcomes were rated by its ICR as moderately unsatisfactory (Cameroon) had an EIRR of 46 per cent.

3.10 Economic internal rates of return for GPOBA projects (per cent)

Cameroon India Mozambique Kenya minimum Philippines

46

71

31

64

126

Note: For Kenya, the ICR analysed 6 sub-projects – the EIRR ranged from 64 to 392 per cent. Only the minimum is shown.

Data source: Project ICRs

These estimates reflect the significant benefits from providing access to safe and convenient water – they do not necessarily imply that the OBA modality is intrinsically efficient. The available ICRs do not provide enough information to draw conclusions about the administrative efficiency of OBA in water: but the prevalence of start-up delays and slow rates of disbursement suggest that the projects have challenged administrative capacities in some countries. The unpublished ICR for the Uganda small towns project observed that the share of the total project subsidy taken by advisory and financial intermediary costs was higher (12 per cent) than for traditional input based projects (4-8 per cent.)

IVA mechanisms

Independent verification is a critical element of all OBA, helping as it does to enhance the performance of service providers and to mitigate the risks of misuse of funds. In GPOBA’s water portfolio, independent verification agencies (IVAs) have been engaged to certify that contractual outputs have been delivered, and to verify service providers’ reimbursement requests. IVA activities have involved validating documentation, carrying out sample or full physical checks, and in some cases advising grant recipients and service

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providers on technical, managerial and financial issues. In most projects, the IVA was contracted to the grant recipient: but in Vietnam and Morocco, the IVA was contracted directly to the World Bank. In at least one project (Honduras), the initial expectation at the design stage was that a government regulatory agency could take on the role, but in all projects local or internationally linked consulting and engineering firms performed the IVA function.

In projects where an ICR has been produced, IVA activities, where assessed, have generally been considered to be satisfactory. ICRs have also stressed the importance of contracting the IVA at the outset of the project. (In Cameroon, for example, there was a 24 month delay after credit effectiveness in recruiting an IVA.) In some cases, IVA processes have caused some delays in disbursement in initial phases of projects, but this has usually been rectified as service providers’ record keeping systems have become better aligned with OBA requirements. Where interactions over reimbursements caused considerable delays, the issue seemed to be more one of lack of clarity in eligibility criteria for reimbursement, and lack of capacity in service providers and their systems (problems with project preparation and design), rather than one of IVA performance. ICRs also report that a number of IVAs offered useful assistance and advice to project implementers, as well as fulfilling their main verification task.

On average, for those projects where information is available, the cost of IVA activities have amounted to just under 3 per cent of total project costs, and just over 6 per cent of GPOBA grant amounts (table 3.7). As the table shows, the share of grant amounts varied between 1.8 and 12.9 per cent, but the share of total project cost ranged between 0.3 and 6.3 per cent.

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3.11 Independent Verification Agent cost

Project Cost – US$m

Share of total project cost

per cent

Share of GPOBA grant

per cent

Cameroon (P106794) 0.180 4.0 9.9Honduras (P102474) a .050 0.3 2.3India (P102472) .034 3.1 4.1Indonesia – Jakarta (P102529) a .100 2.9 2.9Indonesia – Surabaya (P105590) .095 2.0 3.8Kenya (P104075) .227 4.4 12.9Morocco (P102527) na na naMozambique (P104945) .212 4.4 4.4Philippines (P106775) .075 5.1 5.9Uganda - small towns (P102462) .054 1.8 1.8Uganda – Kampala (P104943) a .250 6.3 8.9Vietnam (P104528) na na naAverage 2.7 6.1

a Estimated data from project appraisal/commitment documentsNote: na – not availableSource: Project documents

ICR ratings

Table 3.8 presents the assessments of efficiency made in the ICR reports for the 7 projects for which an ICR was prepared. None were found to be unsatisfactory, although it is not obvious that a consistent framework for assessing efficiency has been used across all of the reports.

3.12 ICR ratings of project efficiency

Project Rating/assessment

Cameroon (P106794) Moderately satisfactory

India (P102472) Efficient

Kenya (P104075) Highly satisfactory

Morocco (P102527) Efficient

Mozambique (P104945) Substantial

Philippines (P106775) Significant

Uganda - small towns (P102462) Efficient

Vietnam (P104528) Moderately satisfactory

Source: Project ICRs

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Efficiency – summary of findings

The available evidence suggests that GPOBA projects are economically efficient. but it is not possible to draw a definitive conclusion as to whether OBA produces lower costs than traditional approaches - there is not enough directly comparable data. That said, at least two projects provided evidence that costs – overall project costs and subsidy costs – were considerably lower than for traditional projects.

OBA is clearly an efficient use of aid, since it is only disbursed if outputs are delivered, and IVAs are clearly able to verify output delivery in water supply. What is not so clear is if it is an efficient use of resources, given that it does impose additional administrative costs – some, such as the verification agency, borne by the OBA grant, others, such as compliance with eligibility criteria, borne by implementers. And determining suitable locations and/or the appropriate connection subsidy may require considerable analysis of local conditions. (The difficulty in reaching a judgment on the basis of GPOBA’s portfolio is compounded by the fact that the projects have all been relatively small – so there has been no test of whether there are economies of scale in the OBA approach in water.)

The ICR reports that have been prepared (8 in all) have rated the efficiency of projects as moderately satisfactory or higher.

So far, IVA functions have not been delivered by national monitoring and regulatory agencies, limiting the extent to which GPOBA projects comply with aid effectiveness goals. This suggests a need for complementary efforts to build national government capabilities if OBA approaches are to be effectively scaled up.

Impact and sustainability

Impact

Ideally OBA projects should be designed to ensure a close linkage between targeted outputs and the desired impacts. In the case of any project delivering access to safer and more convenient water, the impacts are typically improved well-being of poor people from the reduced burden of water-borne disease and time savings associated with collecting household water. Most analyses of the impacts of access to improved water indicate that time savings are a very significant driver of the economic benefits, along with increased consumption of clean water (WHO 2012b). Unless the water is consistently potable, it may still require some kind of treatment to deliver all of the potential health benefits – although the increased availability of clean water may have indirect health benefits if it discourages consumption of untreated water from other sources (especially ground water). Provision of water through piped water systems, as all GPOBA project have done, has a high probability of generating savings benefits, and of providing water that is clean, if not necessarily potable. As table 3.9 shows, where water provided is potable both time and health related benefits can be

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significant. These benefits are only achieved, however, if the water system continues to operate after project completion – and there is evidence that traditional projects do not always achieve this (Sy et al, 2014).

3.13 Benefits of GPOBA piped water project in India - Andhra Pradesh

Before the project After the project

Average time spent collecting water was estimated at 61 minutes

Average time spent collecting water estimated at 20-22 minutes which shows that there was a time saving of around 40 minutes per trip of fetching water

Incidence of water borne disease in children and adults was 68 per cent and 84 per cent respectively

Overall, the incidence of water borne diseases has dropped by 85 per cent (figure collaborated by health workers in the village health centres)

On average a family was spending around Rs300-400 for treatment on these diseases for a single visit

Household savings on medical expenses alone was Rs 660-750 a year

Source: World Bank 2011

All of the GPOBA projects have required evidence that connections subsidised by the project are still delivering services after installation – some projects requiring evidence of 3 months consumption, others 6 months. This goes some way to ensuring that impacts are likely to be delivered. (This compares with some piped water projects built using traditional methods, where actual consumption from the scheme is much lower than expected at design stage – a detailed study of rural water systems in Andhra Pradesh, Burkina Faso, Ghana and Mozambique found that piped systems are frequently under-used, partly because of chronic unreliability of the infrastructure (Burr and Fonseca, 2013).

Some projects have also required evidence of service quality. For example, the Philippines project’s criteria for disbursement included evidence of 24 hour availability of water, and the Morocco project required evidence of connections meeting service quality standard incorporated in concessionaires’ agreements.

The extent of impact on poor people is not only a function of the availability of piped water, but also of the extent to which people consume it in place of water from less safe sources. Some GPOBA projects have monitored levels of consumption by beneficiary households. Consumption is likely to be most strongly affected by price, but reliability of supply may also be a factor. Because of their small size, few GPOBA projects have had a post-project beneficiary survey to examine actual consumption. Available data from ICRs and other reports indicates that in:

India, 98 per cent of beneficiary households were still using the project’s water after closure;

Morocco, a survey conducted 27 months after closure showed that all beneficiaries surveyed were consuming well over the 40 litres per capita per day target;

Mozambique, a survey shortly after closure indicated that 84 per cent of surveyed beneficiary households had water every day, and average daily consumption of all beneficiary households surveyed was over 40 litres per capita per day, compared to 31 litres for non-beneficiary households; and

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Uganda, a study reported by UNDP found that reliability of water supply was affecting beneficiary consumption of water from GPOBA supported schemes: this was primarily due to problems with the water source (Bayliss and Watasa, 2011).

Sustainability

Most GPOBA water projects have closed quite recently, and it is rather soon to be able to assess actual long term continuation of benefits. However, some documentation, including ICRs offer judgements about potential sustainability. As table 3.10 shows, final Grant Review and Monitoring reports and ICRs generally concluded that projects’ outcomes were likely to be sustainable. However, it is far from clear that a comparable and objective set of criteria have been used to support these judgments.

In principle, the fact that all projects required evidence of 3 to 6 months of service delivery, and that customers received and paid bills for the service, suggests that some of the pre-conditions for sustainability may have been met, at least initially. If tariffs have been set to at least cover operation and maintenance costs, which appears to be the case, then the prospects of financial sustainability are also positive.

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3.14 Assessments of project sustainability

Project Sustainability prospects

Evidence

Cameroon (P106794) Poor ICR found that 10 per cent of connections were in-operative, and problems with overall PPP and lack of financial stability put all urban water investments at risk

Honduras (P102474) Good GRMa concluded sustainability was likely, citing financial performance of projects, and experience of most implementers

India (P102472) Good ICR indicated that long term engagement of technology supplier and successful community education added to probability of sustainability, although there are issues concerning lack of regulation of off-grid supplies


Good Sustainability assessed as ‘likely’ by project GRM


Good Sustainability assessed as ‘likely’ by project GRM

Kenya (P104075) Good Sustainability assessed as ‘likely’ by project GRM, ICR concluded that risks to project outcomes were moderate because the economic internal rates of return were high

Morocco (P102527) Fair-good ICR indicated that the results framework and IVA reporting did not focus on sustainability issues, but it did judge risks to outcomes as ‘moderate’

Mozambique (P104945) Good ICR concludes that project outcomes are sustainable because at time of the review, there had been no disconnections

Philippines (P106775) Excellent ICR rates risks to project outcomes as low, given capabilities and commitment of grant recipient.


Good The unpublished ICR says that 82 per cent of subprojects were covering costs at project closure


Good GRM rates risks as low, citing excellent performance in 12 month in service field verification, high levels of customer satisfaction

Vietnam (P104528) Varied – depends on operator

ICR reports that 72 per cent of subprojects assessed by IVA as being at low risk of decline, but that there were concerns over financial viability of non-privately owned schemes

a GRM – Grant Review and Monitoring reportSource: Project GRMs and ICRs

Some projects undertook more formal assessments of potential sustainability. As box 3.11 shows, the IVA for the Vietnam project undertook a detailed assessment, which supported a view that projects implemented by the private sector were more likely to be sustainable. The appropriateness of some ICR/GRM ratings has been indirectly queried – for example the UNDP study on aspects of the Uganda small towns project found that a number of sub-projects were quite severely affected by lack of water, due to unsustainability of the water source.

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3.15 Sustainability of sub-projects in Vietnam

In Vietnam, the IVA conducted a long term sustainability assessment, which was based on the following criteria: (i) quality/adequacy of the feasibility study, project design; (ii) design/performance and condition of water treatment/water supply infrastructure; (iii) quality of documentation (record keeping) by scheme operator; (iv) adequacy of O&M by scheme operator; (v) financial stability/vulnerability as an enterprise; and (vi) level of customer use as measured by consumption and customer satisfaction. The results indicated that 85 per cent of schemes in the Mekong Delta (where private operators were involved) were considered to be operating in a satisfactory manner and were at low risk of decline. In the Central region, where community and commune Peoples’ Committees built and operated the schemes, 58 per cent of schemes were found to be operating in a satisfactory manner. Overall, 28 per cent of schemes were found to be at high risk of decline and increased probability of failure.

Source World Bank 2014b

Across the portfolio, experience has demonstrated that a wide range of factors bear on sustainability, and that their relative force is very context-specific. For example:

In Vietnam, a significant threat to sustainability came from project design, as the ICR pointed out that improper scoping and feasibility for some systems led to development of schemes with: (i) inappropriate choice of treatment technology (technical specification and tailoring to local context); (ii) limited consideration for seasonal fluctuations or climate variability, which rendered established schemes obsolete and as result additional investment to identify new water sources was needed; (iii) miscalculation of water quality during dry or rainy seasons, which affected technology options; (iv) lack of consideration of power supply in the development of water schemes, which created problems during operation; and (v) demand calculations that were significantly higher than actual use, which led to overdesign of system and affected recovery of O&M costs.

– In turn this seemed to be closely related to the nature of project proponents – design related problems seemed to be greater with community and local government owned systems.

In Cameroon and Mozambique, threats came from incomplete implementation of structural reforms, which inhibited private operators’ ability to deliver sustainable water systems.

In Uganda, a threat came from inadequate assessment of water sources, and inadequate system design to deal with water and energy challenges.

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Impact and sustainability – summary of findings

The theory underpinning the case for providing households with access to piped water underpins a judgment that GPOBA projects are likely to be having a significant impact on beneficiary households. This judgment is supported by economic analysis carried out for project ICRs.

Long term sustainability of project benefits has not been demonstrated – mainly because projects have only recently closed, and there have not yet been specific studies of medium term benefit delivery. However, there is reason to believe that a number of sub-projects are likely to be sustainable because of evidence of financial viability of operators.

The portfolio as a set of pilots: mainstreaming and scaleablity

A pilot program is more than the sum of its projects. A question which this review of GPOBA’s water portfolio must address is whether it has met the objectives for testing the applicability of the OBA approach to water, and whether OBA can make service delivery to the poor more effective, accountable, and transparent, and can increase involvement of the private sector. A related question concerns the evidence generated about the feasibility of mainstreaming and scaling up OBA approaches in the sector.

As a piloting program, the portfolio has been more opportunistic than carefully planned to test OBA in all conceivable water supply challenges.

It has focused on piped water systems, even though the private sector is heavily involved in other service modalities (point sources, such as household tubewells).

It has taken advantage of extensive World Bank group engagement, not only where that has created pre-conditions for an incentive-based approach to work (as in structural and regulatory reform), but also in technical assistance to build capacity in potential service providers and receptiveness in financial systems.

However, as Chapter 2 has shown, the portfolio has worked across a wide range of country, sectoral and policy contexts, with a mixture of private, public, non-government and community service providers, and with a mix of network service delivery modalities. The portfolio demonstrates that OBA can work in a variety of contexts, but that considerable effort has to be devoted to tailoring design to those contexts.

The available data indicates that OBA projects are both effective and efficient: but does not tell us definitively if they are more effective and efficient than alternative approaches.

By tying disbursements to evidence of service delivery as well as completion of infrastructure and connections, the OBA projects have gone further than many traditional projects in ensuring that the project does deliver the intended services.

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Again, there is not enough data at this stage to say if projects deliver impacts that are sustainable in the medium to long term.

Some projects have leverage additional resources from the private sector: but the larger amounts of additional resources appear to have come from the public sector, communities and beneficiaries. As table 3.12 indicates, around $46.2 million was leveraged by GPOBA subsidies amounting to $32.8 million.

3.16 Additional resources leveraged in GPOBA projects

Project

GPOBA Subsidy $m

Additional resources $m Source

Cameroon (P106794) 1.8 1.6 Households (connection fees) state-owned asset holding company, government

Honduras (P102474) 4.0 3.0 Communities, municipalities, donors, implementers and service providers

India (P102472) 0.8 0.4 Community contributions ($0.2m) commercial loans ($0.2m)


1.7 na na a


1.1 na na b

Kenya (P104075) 1.8 3.4 Equity and debt (commercial loans) from local communities

Morocco (P102527) 7.0 23 Public and private sector concessionaires

Mozambique (P104945) 4.6 5.7 State owned utility and beneficiary households

Philippines (P106775) 1.2 3.6 Private concessionaire


1.9 0.9 Private sector equity and debt


2.4 1.6 State water agency ($1.2m) household connection fees ($0.4m)

Vietnam (P104528) 4.5 1.5 Private operators ($0.6m) households and communities ($0.9m)

Total 32.8 46.2 Private sector, communities, state owned utilities, local and national governments, donors

a Any additional resources are likely to have come from households, since the subsidy covered network expansion as well as connection costs. b Any additional resources would have come from households and municipal water utilities.Note: na – not availableSource: Project documentation, Kumar et al 2014

The projects where there was clearly leveraging of private sector resources (beyond household contributions) were in Honduras, India, Morocco, the Philippines, Uganda and Vietnam.

In Honduras, the total OBA subsidy leverage of $4 million leverage an additional $3 million from communities, municipalities, other donors, implementers and service providers – some of the latter were private sector entities.

In India, the project – with a grant of $0.834 million mobilised $0.17 million of community contributions and $0.19 million of commercial loans (World Bank 2011).

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The project in Morocco is reported to have leverage $30 million of investment from a $7 million grant (GPOBA 2014d). The additional funds are likely to have come from a mix of private and public sources, given that there were both private and public concessionaires participating in the scheme.

In the project in the Philippines, the participating private concessionaire financed capital expenditure worth roughly 4 times the value of the subsidy ($1.19 million) provided by the project (World Bank 2013).

In Uganda, in the small towns project, a total subsidy of $1.9 million leveraged additional private investment of $0.89 million (unpublished ICR.

In Vietnam, in the Mekong Delta private investors contributed around $0.6 million to match the $1.5 million of OBA grant and $0.25 in household connection fees, whereas in the Central region, where projects were implemented by communities and local governments, project beneficiaries contributed $0.3 million in connection charges and $0.38 million in labour to match $3 million in OBA grant (Kumar et al).

In Kenya, while additional contributions came ultimately from local communities, a commercial bank provided $3.4 million in loans (GPOBA 2014c).

A key test of the piloting is whether the projects have stimulated follow-on projects that embrace and OBA approach. In this regard, there have been some notable developments.

In Kenya the World Bank and GPOBA are scaling up the pilot with funding from the Swedish development agency, Sida, to test the model in urban areas. A grant of $11.70 million will help county water services providers to access loans from local lenders to finance utility and water and sanitation subprojects, with OBA subsidies supporting access for low-income households. The grant, which became effective in December 2014, is managed by the Water Services Trust Fund of Kenya, a government fund for pro-poor investments in water and sanitation.

In the Philippines the concessionaire implementing the project is reported to be building OBA approaches into its program for extending access to poor households.

In Vietnam the Australian aid program is planning to use OBA to offer partial subsidies for rural water supply for poor households, using local agencies as IVAs, technical quality evaluators, and private firms to build systems.

In Indonesia the Government of Indonesia (GoI) and AusAID supported an innovative (Hibah) program, piloting an output-based funding mechanism for water and sanitation activities in Indonesia. The program built on the GPOBA projects. The Water and Sanitation Hibah Program operates by paying an agreed amount for verified connections of households to water or sanitation services, installed by local water and sanitation utilities. It was being implemented by GoI with support from the Indonesian Infrastructure Facility, on behalf of GoI and AusAID. An $80 million scale up was planned for 2012 onwards.

In Morocco the Bank’s recently approved Rural Water Supply project appears to build on experiences with the GPOBA project and will include use of OBA approaches in the

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component aiming at increasing household connections.

In Uganda, local operators are reported to be successfully implementing an OBA approach.

These developments show that the OBA approach in water can be extended: but there are limits to what they indicate about the scope for larger scale OBA projects in the sector. OBA has only been trialled in circumstances where relatively small scale investment to extend or build piped water networks is a viable solution to water supply. As indicated in the foregoing discussion, calibration of a connection subsidy is a critical feature of GPOBA’s water designs. However, the level of subsidy that is appropriate will vary considerably across locations, and across the circumstances of target communities, so pursuing scale through expanding geographical coverage may not offer too many economies in project preparation. OBA cannot substitute for sectoral reform, nor, without arrangements for further subsidisation of water tariffs, can it address the issue of the very poor who cannot pay consumption charges. Further, the need for providers to pre-finance investments and services remains a challenge in countries where financial systems are reluctant to finance water projects, especially smaller scale regional projects. As the Kenya project has shown, extensive technical assistance is needed to facilitate commercial provision of finance to small-scale water projects, even working with a bank with extensive micro-finance experience.

Scaling up may require modification to the OBA approach. The pre-financing problem may be addressed by in part by providing some share of subsidies during construction - this was the experience in the Uganda small-towns project, or as in Kenya by constructing guarantee schemes with donor support. The scope for scaling up may be greater if local systems can be used, as in the output-based disbursement approach used in the Surabaya Hibah project ( in this regard, GPOBA is currently implementing a technical assistance project aimed at training public auditors in verification in the water sector (GPOBA 2015).

Conclusion

The information presented in this chapter suggests that the water portfolio has been successful in demonstrating that OBA can work in helping improve the access of poor people to water through piped water networks. But it also demonstrates that success is dependent on some key pre-conditions in those parts of the water sector where the project is operating, and that developing effective designs requires considerable effort.

OBA projects are more likely to succeed where country capability and the overall environment for providing access to basic services are strong. Similarly a sectoral and business environment in which service providers can respond to financial incentives is of paramount importance.

Careful preparation and flexible designs (and hence thoughtful supervision) are pre-requisites for successful projects. Designers must have a good understanding of the technical, economic and political/cultural drivers of the market for water, and how those drivers vary across different locations, communities and delivery modalities.

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These and other issues are canvassed in more detail in the next chapter.

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4 Overall conclusions and recommendations

This review of GPOBA’s 12 completed water projects shows that OBA is a feasible approach to the challenge of improving the access of poor people to safer water, provided some important preconditions are met.

OBA can work in very wide range of country and sectoral contexts, with service providers in the public, private and NGO/CBO sectors, in urban, peri-urban and rural locations, and where services are delivered through many modalities. Projects have worked successfully with public utilities, private concessionaires and firms operating under lease and affermage arrangements, with small enterprises and non-government, not-for-profit service providers, and with service delivery through infill and expansion connections to existing large-scale networks to construction of whole green-field and brown-field small-scale systems, and using household connections, public water points and water kiosks. However, in many cases, projects have only become feasible because of prior structural and regulatory reforms in the water sector that enable commercially oriented (or at least cost-minimising) operators to play a role in water supply.

OBA is effective in delivering water to poor households through connections to piped water systems. OBA projects are intrinsically effective in converting aid inputs into outputs, since there is no disbursement without evidence that outputs have been delivered. The portfolio has not included work with other forms of water supply (such as household tubewells) – which in any case may be amenable to effective subsidisation using traditional project modalities.

OBA can be deliver impressive economic rates of return. But there is no information to support a conclusion that it is more cost-effective than other kinds of aid, when total costs are considered – water projects that work typically do deliver good returns.

There are reasonable prospects that OBA projects are sustainable, but further work is required to test this proposition.

However, because OBA is predicated on service providers and consumers being able to respond to price related incentives, projects require a policy and regulatory environment that facilitates such a response – both at the sectoral level, and at the level of the broader business enabling environment. And they require careful design work and a thorough understanding of the drivers of the market for water created by poor households.

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Conclusions

With respect to the research questions addressed by this study, we can say that:

GPOBA’s portfolio of pilots in water supply have demonstrated that OBA is a feasible modality for development assistance aimed at helping meet the Sustainable Development Agenda’s water access objectives. The portfolio has shown that:

OBA can deliver water to poor people in a wide range of country contexts with varied institutional structures, policy environments and capabilities.

OBA can work with the more complex modalities of water supply, and in all kinds of localities. The pilots have only worked with piped water systems – delivering water through household, yard tap and pubic water point connections, in urban, peri-urban, small town and rural areas: but this is probably the way of the future if potable water is to be conveniently supplied to large numbers of people currently without access.

OBA can leverage additional resources – not only from households but from communities, state enterprises, governments and the private sector.

There is no single formula for successful OBA projects - designs have to take account of the presence or absence of certain pre-conditions in the water sector, and in those parts of the sector where the project may engage, as well as the broader business environment.

The enabling environment

The experience of the GPOBA water portfolio has illustrated the importance of certain elements of the enabling environment for OBA in the sector.

Clearly, a regulatory framework that allows commercially oriented service providers to respond to price/subsidy related incentives is important. This includes regulation of tariff structures that support financial sustainability, licensing and certification that allow competition and entry while ensuring adequate safeguards are enforced. The capacity of regulatory institutions can be as important as the quality of the regulatory policies for which they are responsible.

Where utilities are chosen as implementing agencies, the nature of their agreements with government, and the adequacy of funding of expenditures on infrastructure on which OBA projects may depend can be critical. This is true of public and privately owned utilities. It may also be the case that additional incentives - such as service obligations built into agreements with governments – may be necessary to persuade utilities to engage with providing access to the poor, since these are likely to be less profitable customers and provide lower rates of return on outlays than serving higher income customers.

Regulations affecting network construction and providing connections can also be very important. Planning regulations may need to be modified to allow poor people in

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informal settlements to be connected to networks, and access to rights of way and land for network structures may need to be clarified and supported by the relevant level of government.

Where small scale local service providers are to be utilised, projects also have to be assured that certain features of the business environment are in place. This may include:

– financial products that allow SME water investors to manage pre-financing;

– a business support sector that can help SMEs achieve the formalities required to borrow and to meet water sector licensing requirements;

– an efficient water services sector that enables investors access to competitive services, such as site-surveying, well-drilling, component purchasing;

Targeted communities have to have the willingness and ability to pay for water provided by OBA funded schemes. Project designs must address the type of services that poor households most value, and ensure that target communities buy-in to the benefits of paying cost-recovering tariffs for safe water.

This in turn means that designs have to draw on a thorough understanding of the context in which projects have to operate, and be sufficiently flexible to adapt as issue arise and more knowledge is gained.

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LessonsKey lessons emerging from this review with respect to the use of OBA in water supply for the poor are:

Various targeting mechanisms exist to include the poor. Project designs may have to make a trade-off between accuracy in selecting poor households and costs imposed in implementing the targeting scheme. Many projects used geographic targeting because more specific targeting is too difficult, but this can mean that an unknown number of less-poor households benefit from the subsidy. (At the same time, differentiating between households in small tightly knit communities may be a source of friction that can impede project implementation.)

The characteristics of demand have to be thoroughly assessed. In urban and peri-urban locations, poor people often pay much more for water than they would if they had access to piped water, but connection fees, concerns about water and service quality, and lack of title may deter people from seeking connections. In rural areas, poor households often have access to very low cost sources of water (for example seasonal access to rain water for in-house uses, surface water for out-of-house uses or access to neighbour’s groundwater pumps). Where demand has been inadequately assessed, suppliers have encountered problems in covering costs. Further, different communities have different preferences for supply modalities: in Honduras, the project assumed there would be demand for yard taps, but people wanted, and would pay for, house connections. In Uganda the Kampala found that people preferred public water points to yard taps, which the project was originally expected to supply.

For rural and small town water supply projects, considerable preparatory analysis may be required to identify suitable sites for projects, and to determine likely investment costs so that feasible subsidy arrangements can be devised.

It is important to ensure that there is clear ownership and commitment to prior/contemporaneous sectoral reforms on which the OBA approach is predicated, and that government agencies have the capacity to perform functions that are necessary for the project. In Cameroon, the Government failed to comply with financial agreements under its contract with the concessionaire that was implementing the project, constraining ability to pre-finance connections and in Mozambique, concession contracts could not be signed for four target cities, so that the project had to be restructured to focus on Maputo only. In Honduras, the government agency earmarked to verify outputs proved too weak to take on the task.

Project designers must ensure that sectoral regulation facilitates subsidised provision by implementers best equipped to reach targeted households. This includes regulation surrounding licensing of water supply schemes, registration of providers, and providing operators with exclusive rights of supply in the project area (which is a typical pre-requisite for commercial financing). It also means that agreements under PPPs do not discourage operators from expanding connections to poor households.

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Project designs need clear sequencing of components and need to be based on adequate preparatory work to assure, for example, the adequacy of water sources for sub-projects, and that there is reliable funding for any pre-requisite investment in network extension that is not covered by the project. Designs must be flexible, supervision adequately resourced, and information systems need to provide data for monitoring and to enable mid-course corrections. Design processes also need to clearly identify risks and their allocation, and identify mitigation measures up front.

Sub-project selection procedures should avoid creating biases against serving the very poor that live in remote or scattered locations. In addition, care should be taken to ensure that competitive bidding on the basis of expected subsidy does not discriminate against serving localities where water extraction costs are high.

Access to finance is a critical ingredient of successful OBA, but in many developing countries, local enterprises can struggle to mobilise finance for water supply projects. As the Kenya project demonstrated, in countries with a financial system that is active in financing small scale projects, support from development partners can lead to the development of appropriate lending financing instruments. However, more innovation and engagement is required if OBA is to be successful in facilitating water supply to rural and small-town households through smaller scale projects.

Land tenure issues can negatively affect outcomes. Many poor people do not have formal title to the land on which they reside, and this may make it difficult to reach key beneficiaries. This can occur because sectoral regulations prohibit utilities from connecting households that do not have property titles, or because suppliers are unable to secure rights of way for distribution networks or land for infrastructure. It can also occur because without security of tenure, households (or landlords) are unwilling to make investments.

Social marketing and education can increase demand and service provider revenues - in fact they may be a precondition for successful projects given the risks that providers face in an OBA project.

Funding for technical support to small municipalities and implementers will increase project quality and speed of implementation. In many cases, these groups have only experience in O&M, not in project design and construction, and often not in financial management. Technical support to make a business case to sources of finance can also be valuable.

Tariff structures need to match the poor’s ability to pay while also achieving cost-recovery. OBA projects have subsidised connection costs, but not ongoing payments for consumption. Tariff structures are usually determined externally to the project, so designers need to make sure that these structures are designed to reflect the poor’s ability to pay, while not jeopardising financial viability. Because poor households often have relatively low levels of consumption of network-supplied water, fully commercial network operators (such as concessionaires) may still need an additional incentive to invest in serving such households, as they may be less profitable than other consumers. This can, for example, take the form of performance obligations in concession or license agreements

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In some cases subsidies can leverage commercial financing from banks to make pro-poor investments viable and attract equity from communities to invest in their own future. However, in many developing countries, much work needs to be done to help banks consider financing small scale water projects.

It is important to ensure that there is sufficient water to serve additional connections. This may be an issue if there is significant seasonal variability (typically an issue for rural systems), or if there has been insufficient upstream investment in reticulation/pumping systems (as has happened with some urban projects).

Independent verification of delivery is a critical feature of successful OBA. But none of the projects were able to use national systems to undertake this function, even though in at least one case this was considered in the early stages of design. It is not possible to determine if the use of an IVA adds disproportionately to the transaction costs associated with OBA versus traditional approaches.

GPOBA’s portfolio has helped governments and a range of interested parties in the private and NGO sectors to assess the benefit and feasibility of OBA approaches, and played a role in the broader adoption of OBA and related forms of result-based financing. However, more work may be required to translate a portfolio of pilots into mainstream use of OBA – this is discussed in the following recommendations.

Recommendations

Recommendations arising from this review are:

GPOBA should intensify its dissemination and outreach activities with regard to the experience and lessons of its water portfolio to promote better understanding of the potential for OBA.

GPOBA should undertake a program of post-project surveys to test sustainability of its portfolio outcomes. In principle, since all projects required evidence of a period of service delivery in which households received water meeting acceptable service standards and for which they were billed and made payments, and service providers were receiving revenues that covered O&M costs, it would appear that some of the key software and cultural elements for sustainable supply were put in place. It would be important to test if these circumstances continue to apply: if so, the pilot will have demonstrated that OBA can do better than many traditional water supply projects.

Having demonstrated that OBA can deliver water to poor households if certain conditions are met, it would be appropriate to focus further work on addressing situations where the conditions are not met. This would involve working with other partners to address issues of access to finance for water projects, and ensuring that sectoral and business regulations facilitate rather than hinder provision of water to poor households. It would also involve experimenting with designs aimed at serving harder to reach poor households – either in urban and peri-urban informal settlements, or in more remote and scattered rural communities.

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GPOBA and the WBG should continue to pursue opportunities for integrating OBA approaches into larger, long term water sector investment and reform projects to consider embedding OBA approaches into traditional investment and sectoral reform projects. This not only helps to ensure that necessary sectoral and business environment pre-conditions are met for successful OBA, but also helps ensure that larger projects continue to have a credible pro-poor contribution. This may also require coordination with other development partners who may be able to work with parallel challenges, such as implementing solutions to the pre-financing problem.

GPOBA and partners should also extend piloting to other forms of results-based financing that may be applicable within sector-wide engagements and that make greater use of national systems. In particular, GPOBA should consider working with other donors to develop output-based disbursement projects, given that it has been successfully adopted following at least one OBA pilot (in Indonesia). This could also involve experimenting with modifications to ‘pure’ OBA models to ease the pre-financing problem for small enterprises, by disbursing part of the subsidy on completion of steps prior to final output delivery and to incorporate water quality standards into monitored results.

GPOBA should work with partners to test the circumstances when OBA or related forms of result-based financing can be scaled up, and if there are economies of scale in OBA-based support for water supply.

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A SDGs and water

In September 2015, heads of member states of the United Nations formally adopted the 2030 Agenda for Sustainable Development. Building on the Millennium Development Goals (MDGs), the agenda expands the MDG focus on poverty reduction to now cover all aspects of sustainable development in all countries of the world.

Among the 17 goals enunciated in the Agenda is a goal specifically dedicated to water and sanitation – Sustainable Development Goal 6, which aims to ‘ensure availability and sustainability of water and sanitation for all’ (UNWater 2105). SDG6 expands the prior focus on drinking water and basic sanitation to now cover the entire water cycle, including the management of water, wastewater and ecosystem resources. Within the goal, three targets focus directly on safe water issues:

By 2030, achieve universal and equitable access to safe and affordable drinking water for all.

By 2030, improve water quality by reducing pollution, eliminating dumping and minimizing release of hazardous chemicals and materials, halving the proportion of untreated wastewater and substantially increasing recycling and safe reuse globally.

By 2030, substantially increase water-use efficiency across all sectors and ensure sustainable withdrawals and supply of freshwater to address water scarcity and substantially reduce the number of people suffering from water scarcity.

A set of indicators is being developed to enable countries to track performance. For water access, the indicators is the Percentage of Population Using Safely Managed Water Services, by Urban/Rural. It can be accompanied by complementary national indicators for drinking water access for schools and hospitals.

In 2012, when the UN declared that the Millennium Development Goal of halving the number of people without access to safe water had been met, an estimated 762 million people were still without this access. Between 2012 and 2030, some 2.1 billion people will need to be provided access to meet the SDG6 goal. While the 80 per cent of people without access in 2012 lived in rural areas, the majority (70 per cent) of the 2.1 billion needing access by 230 are likely to live in urban areas.

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A.17 Number of additional people who will need safe water by 2030

Note: Calculated as the estimated population in 2030, less the estimated population with access to improved water in 2012Data source: UN population projections, World Development Indicator urban and rural water access data

As figure A.1 shows, just under 40 per cent of these people will be in Sub-Saharan Africa, and three quarters will be in countries currently classified as low and lower middle income.

It is important to note that these estimates may understate the task involved in meeting SDG 6. The MDGs used a concept of ‘safe’ water which related to access to an ‘improved’ water source, where an improved water source is one which is by nature of its construction or through active intervention, is likely to be protected from outside contamination, in particular from contamination with fecal matter. Water from an improved source is not necessarily safe to drink – it may still be affected by microbial or chemical contaminations (Bain et al 2014). The Joint Monitoring Program of UNICEF and WHO has proposed that performance against the access component of SDG be measured according to the percentage of the population using an improved water source with is located on premises, available when needed and free of faecal (and priority chemical) contamination. Meeting SDG 6 using this indicator will require an escalation in the provision of water by piped networks, the kind of delivery mechanism on which the GPOBA portfolio has focused, and strengthening mechanisms to ensure water quality. The emphasis placed on equitable access also creates continued space for smart subsidy arrangements, which OBA can deliver.

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B GPOBA and Output-Based Aid

GPOBA is a global partnership administered by the World Bank. Created in 2003 by the United Kingdom’s Department for International Development (DFID) and the World Bank, GPOBA designs, funds, tests, and documents pilot projects using OBA and other RBF approaches. In addition to DFID, GPOBA’s current donors include the Australian Department of Foreign Affairs and Trade (DFAT), the Dutch Directorate-General for International Cooperation (DGIS), the International Finance Corporation (IFC), and the Swedish International Development Cooperation Agency (Sida). Originally designed to help prepare OBA projects and document and disseminate lessons learned, GPOBA began funding subsidy schemes in 2006.

GPOBA’s mandate is to fund, design, demonstrate and document output-based approaches to improve the delivery of basic services to the poor. Its vision is to increasingly incorporate OBA into infrastructure and social sectors and to become a centre of expertise.

OBA approaches have been tested in every region and applied in six sectors, including energy, water and sanitation, health, solid waste management, education, and information and communication technology (ICT). OBA projects have taken a diversity of approaches, each one with a unique design and financial model, incorporating lessons learned from previous experiences.

Pilots have been implemented in urban, peri-urban, and rural areas, employing public and private operators, public-private partnerships (PPPs), nongovernmental organizations (NGOs), and community organizations as implementing agencies and service providers.

As of September 2015, through a portfolio of 44 projects with $228 million in commitments for subsidy funding and ongoing technical assistance activities, GPOBA is demonstrating that OBA can deliver a diverse range of services and lasting results for the poor, reaching over 8 million beneficiaries. GPOBA’s goal is to mainstream OBA approaches within projects carried out by other development practitioners, including developing country governments, international financial institutions, bilateral donors, and private foundations.

Box B.1 describes GPOBA’s approach to OBA.

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B.18 GPOBA’s approach to output-based aid

GPOBA defines Output-Based Aid (OBA) as “a strategy for applying public money, through performance-based contracts, to subsidize the cost of delivering basic services and target these on the poor. OBA involves the delegation of service delivery to an operating entity, under arrangements that tie the disbursement of funding to pre-specified services or outputs that are delivered.” A distinctive feature of output-based aid is that “outputs are defined as closely to the desired outcome or impact as contractually possible.” Unlike some other RBF schemes, GPOBA’s model not only pays after the specified service is provided by the private vendor or public utility but also includes targeting in the design of the project to include market segments that would otherwise not be profitable to serve; GPOBA also hires Independent Verification Agents to monitor and verify the outputs.

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C GPOBA water projects and Bank CAS performance

OBA projects are undertaken in response to client commitment. Project selection is guided by the rationale for piloting OBA. Hence, GPOBA formed its portfolio assessing client demand against the goal of piloting water supply modalities in diverse risk contexts – country risks, sector risks and risks related to the capacity of the implementing partner.

A key feature of OBA is the transfer of project risk to the implementing partner, while not redistributing country and sector risks. (As in a conventional input-based project, country and sector risks are addressed in a variety of ways, including, when they emerge after project approval, by project restructuring). This risk transfer empowers the implementer but also puts more pressure to deliver and to target the poor. It is not unnatural for the implementing partners to prefer a traditional input-based financing as opposed to Output-Based Aid. Therefore, understanding the circumstances when the clients have demand for OBA and welcome more project risk can lead to important insights.

This appendix reviews documentation on 14 GPOBA water projects in 11 countries. 12 projects are currently closed, one is still active (Kenya Water Scale-up) and one did not progress to the grant agreement because of political instability (Water Access in Bangui, Central African Republic).

The context in these 11 countries is thoroughly documented by the World Bank through Country Partnership Strategies (CPS), their progress and completion reports. Prepared jointly with the client government, these documents are clearly structured into “pillars” and are independently rated for both the overall outcome and outcomes of every pillar. The rating is a six-point scale: three shades of “unsatisfactory” (highly unsatisfactory or “HU”, unsatisfactory or “U” and mostly unsatisfactory or “MU”) and three shades of “satisfactory” (mostly satisfactory or “MS”, satisfactory or “S” and highly satisfactory or “HS”) (IEG, 2015).

Tables C.1 and C.2 present the results of an analysis of 22 CPSs with timelines overlapping with GPOBA project design and implementation. Each of them has a reference to basic services in one of the pillars, although the emphasis varies from very specifically access to water to a broad goal of improved governance and service delivery.

Out of 13 rated CPSs that overlap with OBA design, only one CPS – for Vietnam – was rated “S” for “access” pillar with a distinct record of the progress towards water access. Four CPS “access” pillars were rated “MU” or lower. Eight “access” pillars were rated MS, mostly with the caveats about difficulty to measure progress on service delivery to the poor. The rating of

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“access” pillars of the subsequent CPSs (i.e., during OBA pilots) illustrates the challenge further: six “MU” out of 10 CPSs for which the rating is available (Note that some Strategies are still under implementation.)

From further analysis of CPSs it becomes apparent that firstly, OBA pilot countries had good sectoral strategies and regulatory environment and secondly, there were challenges with delivery of water access and targeting the poor. Even the best-performing Vietnam CPS for 2003-2006 was cautious about delivery of basic services to minorities in the rural areas, and in the subsequent CPS for 2007-2011 the rating of the social inclusion pillar was lowered to “MS” (see table C.1 for a summary).

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C.19 Demand for OBA occurs in countries where implementation of the access agenda has been less than satisfactory

Country & Location OBA proj. design OBA implem. CPS rating during design CPS rating during implem.its eligibility

for IDAof OBA project stage 1 stage 2 Approval Closure CPS time

frameOverall outcome

“Access” pillar

CPS time frame

Overall outcome

“Access” pillar

AFR (all IDA):Cameroon Urban Mar-07 Sep-07 May-08 Oct-13 FY04-08 U U FY10-13 [S] n/a

KenyaRural, peri-

urban Jul-05 Oct-06 Dec-06 Feb-13 FY04-09 U MS FY10-13 a MS MSKenya Urban Jul-12 Apr-14 Nov-14 Jun-18 FY10-13 MS MS FY14-18 n/a n/a

Mozambique Urban Mar-07 Jun-07 Jun-07 Jun-14 FY04-07 MS MS FY08-11 MU MUUganda Urban Dec-05 Aug-06 Feb-07 Jun-12 FY01-03 MU MS FY06-09 a MU MUUganda Urban Jan-07 Sep-07 May-08 Dec-13 FY06-09 MU MU FY11-15 [S] b n/a

C.Afr.Rep. Urban Nov-11 Dec-12 n/a n/a FY09-12 [S] c n/a n/a n/a n/a MNA (IBRD):

Morocco Urban Jul-05 Aug-06 Jan-07 Dec-11 FY01-04 MU MS FY06-09 MS MS LAC (IDA):

HondurasRural, peri-

urban May-06 Nov-06 May-07 Dec-15 FY03-06 MS MU FY07-10 MU MU SAR (IDA Blend):

India Rural Nov-06 Jan-07 May-07 Dec-09 FY05-08 MS MS FY05-08 MS MS EAP (varies):

Indonesia (IDA Blend) Urban Jul-05 Nov-06 Nov-07 Jun-13 FY04-08 MS MS FY09-12 MS MU

Indonesia (IBRD) Urban Mar-07 Sep-07 Feb-09 Dec-12 FY04-08 MS MS FY09-12 a MS MU

Philippines (IBRD)

UrbanNov-06 Jun-07 Oct-07 May-13 FY06-08 MS MU FY10-13 MS MU

Vietnam (IDA) Rural Nov-06 Sep-07 Nov-07 Jun-12 FY03-06 S S FY07-11 MS MS

a the same as below b on track (Progress Report 2013) c on track (Progress Report 2011)Note: OBA project design takes two stages: the review of the concept for aid eligibility (designated as “stage 1” in the table) and the review of a detailed OBA scheme that culminates in a Commitment Paper which contains the description of the scheme, the background and projected impact (designated as “stage 2”). The Commitment Paper informs the legal agreement and implementation documents.Data source: World Bank documentation

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C.20 Ratings of OBA projects, related IDA/Bank/IFC project and CPSs during OBA implementation

Country & Location OBA project Related IDA/Bank/IFC project CPS during OBA implem.its eligibility

for IDAof OBA project

Start date

Closure date

Outcome rating Inst. Amt

appr.Percent

disbursedStart date

Closure date

Outcome rating

CPS time frame

Outcome rating

“Access” rating

AFR (all IDA):Cameroon Urban May-08 Oct-13 MU IDA $100m 80% Apr-08 Aug-15 MS FY10-13 [S]a n/aKenya – Microfin.

Rural, peri-urban Dec-06 Feb-13 S PPIAF ($0.3 TA) FY10-13 MS MS

Kenya – Fund Urban Nov-14 Jun-18 n/a yet n/a FY14-18 n/a n/a

Mozambique Urban Jun-07 Jun-14 S IDA $15m 100% Jun-04 na na FY08-11 MU MUUganda –

Small Towns Urban Feb-07 Jun-12 S n/a FY06-09 MU MU

Uganda – Kampala Urban May-08 Dec-13 MS n/a FY11-15 [S]b n/a

C.Afr.Rep. Urban n/a n/a n/a n/aMNA (IBRD):

Morocco Urban Jan-07 Dec-11 S WB $100m 100% Feb-07 Jul-11 MS FY06-09 MS MSLAC (IDA):

Honduras Rural, peri-urban May-07 Dec-15 S IDA $35.5m 80% Feb-08 Dec-16 MSc FY07-10 MU MU

SAR (IDA Blend):India Rural May-07 Dec-09 HS IFC FY09 equity FY05-08 MS MS

EAP (varies):Indonesia

(IDA Blend)Urban

Surabaya Nov-07 Jun-13 S IBRD 720m 36% Jan-11 Dec-18 Sd FY09-12 MS MU

Indonesia (IBRD)

Urban Jakarta Feb-09 Dec-12 MU IBRD

as above720m

as above 36% Jan-11 Dec-18 as above FY09-12 MS MU

Philippines (IBRD) Urban Oct-07 May-13 S

WB (GEF, IFC)

64m 63% Mar-06 Jun-12 MS FY10-13 MS MU

Vietnam (IDA) Rural Nov-07 Jun-12 MS IDA 113m 85% Nov-05 Jun-13 MU FY07-11 MS MSa IEG review of the CAS Completion Report is not available. Progress report 2012 was optimistic, b On track (progress report 2013). c Based on the latest ISR. d Latest ISR rating

Data Source: World Bank documentation

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FROM RIO+20 TO THE COMPREHENSIVE ACCESS TO BASIC SERVICES AGENDA OF SDGs

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